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SECURITIES AND EXCHANGE COMMISSION
AMENDMENT NO. 1
FORM SB-2 REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
SEC REGISTRATION NO. 333-434
INNOVATIVE MEDICAL SERVICES
(Exact Name of Registrant as Specified in its Charter)
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CALIFORNIA 33-0530289
(State of Incorporation) (Primary Standard (IRS Employer ID No.)
Classification Code)
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1308 NORTH MAGNOLIA AVENUE, SUITE H, EL CAJON, CALIFORNIA 92020
(619) 441-8233
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(Address and Telephone Number of Registrant's Principal
Executive Offices and Principal Place of Business)
MICHAEL L. KRALL
1308 NORTH MAGNOLIA AVENUE, SUITE H, EL CAJON, CALIFORNIA 92020
(619) 441-8233
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(Name, Address and Telephone Number of Agent for Service)
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COPIES TO:
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DENNIS BROVARONE, ESQ. MICHAEL R. COBLENZ, ESQ.
ATTORNEY AT LAW MOUND, COTTON & WOLLAN
2530 SOUTH LINLEY COURT ONE BATTERY PARK PLAZA
DENVER, COLORADO 80219 NEW YORK, NY 10004
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of this Registration Statement.
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CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF SECURITIES TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED PER SHARE OFFERING PRICE(1) FEE
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Common Shares......................... 1,437,500 $ 4.00 $5,750,000 $1,955.00
Class A Warrant....................... 1,437,500 0.10 125,000 42.50
Each to acquire one (1) common share
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Underwriters Warrants................. 143,750 4.40 632,500 215.05
Each to acquire one (1) common share
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Bridge Loan Units..................... 15 25,000.00 375,000 127.50
Secured Promissory Notes.............. 15 Included
Common Shares......................... 750,000 Included
Class A Bridge Warrants............... 750,000 Included
Class Z Bridge Warrants............... 750,000 Included
Each Bridge Warrant is to acquire one (1)
common share Total $6,882,500 $2,340.05
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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 EXHIBIT INDEX APPEARS ON PAGE OF THE SEQUENTIALLY NUMBERED PAGES OF
THIS REGISTRATION STATEMENT. THIS REGISTRATION STATEMENT, INCLUDING EXHIBITS,
CONTAINS PAGES.
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INNOVATIVE MEDICAL SERVICES
CROSS REFERENCE SHEET FOR REGISTRATION STATEMENT ON FORM SB-2
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ITEM REGISTRATION STATEMENT HEADING LOCATION IN PROSPECTUS
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1. Forepart of Registration Statement and
Outside Front Cover Page of Prospectus... Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages
of Prospectus............................ Inside Front and Outside Back Cover Pages
of Prospectus
3. Summary Information and Risk Factors....... Prospectus Summary; Risk Factors
4. Use of Proceeds............................ Use of Proceeds
5. Determination of Offering Price............ Risk Factors; Description of Securities
6. Dilution................................... Dilution
7. Selling Security Holders................... Additional Securities Being Registered
8. Plan of Distribution....................... Underwriting
9. Legal Proceedings.......................... Not Applicable
10. Directors and Executive Officers........... Management
11. Security Ownership of Certain Beneficial
Owners and Management.................... Principal Shareholders
12. Description of the Securities to be
Registered Prospectus Summary;
Description of Securities................ Outside Front Cover Page of Prospectus;
13. Interest of Named Experts and Counsel...... Not Applicable
14. Statement as to Indemnification............ Indemnification
15. Organization with 5 Years.................. Business of the Company
16. Description of Business.................... Business of the Company
17. Management's Plan of Operation............. Business of the Company
18. Description of Property.................... Business of the Company
19. Certain Relationships and Related
Transactions............................. Certain Transactions
20. Market for Common Equity and Related
Stockholder Matters...................... Market for Shares
21. Executive Compensation..................... Executive Compensation
22. Financial Statements....................... Financial Statements
23. Changes in Disagreements With
Accountants.............................. Not Applicable
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED MAY 24, 1996
PROSPECTUS
[IMS LOGO]
1,250,000 SHARES OF COMMON STOCK
1,250,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
Innovative Medical Services (the "Company") is offering 1,250,000 shares of
common stock at $4.00 per Share and 1,250,000 Class A Warrants at $0.10 per
Warrant. Each Warrant entitles the holder to acquire an additional common share
for $5.25 per common share beginning May X, 1997 and expiring May X, 2001. (the
"Shares" and "Warrants"). The Shares and the Warrants shall be separately SOLD
AND tradable AS OF THE DATE OF THIS PROSPECTUS AND THE WARRANTS MAY BE EXERCISED
AFTER ONE YEAR FROM THE DATE HEREOF. INVESTORS MAY PURCHASE SHARES, WARRANTS OR
BOTH SECURITIES. The Warrants are redeemable by the Company for $0.05 per
Warrant commencing one year from the date of this Prospectus provided the
closing bid price for the Company's common shares shall have averaged in excess
of $9.00 per share for thirty (30) consecutive business days ending within five
(5) days of the date of a Notice of Redemption. See "DESCRIPTION OF SECURITIES."
The Shares and Warrants have been approved for quotation on the NASDAQ
System under the symbol XXXX and YYYY, subject to official notice of issuance.
THESE ARE SPECULATIVE SECURITIES, INVOLVE A HIGH DEGREE OF RISK AND SHOULD
BE PURCHASED ONLY BY PERSONS WHO CAN AFFORD TO LOSE THEIR ENTIRE INVESTMENT.
(SEE "RISK FACTORS.")
Prior to this Offering there has been no public market for the Securities
being offered, and there can be no assurance that a public market will develop
in the future. For information regarding the factors considered in determining
the initial public offering price of the Shares and the Warrants and the
exercise price and terms of the Warrants, see "Underwriting."
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
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PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
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Per Share.................................... $4.00 $0.40 $3.60
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Per Warrant.................................. $0.10 $0.01 $0.09
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1,250,000 Common Shares...................... $5,000,000 $500,000 $4,500,000
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1,250,000 Class A Warrants................... $125,000 $12,500 $112,500
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Total Offering............................... $5,125,000 $512,500 $4,612,500
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(1) Does not include additional compensation to the Monitor Investment Group,
Inc., the Representative of the Underwriters equal to 3% of the aggregate
initial public offering price of the Shares and Underwriters Warrants to
purchase up to 147,750 shares of the Company's common stock at $4.40 per
share. The Underwriters Warrants carry certain registration rights with
respect to the common shares underlying the Underwriters Warrants.
(2) Before deduction of expenses of the Offering payable by the Company
estimated at $180,000.
(3) The Company has granted the Representative a 45 day option (the
Overallotment Option) to purchase up to 187,500 additional Shares and
187,500 Warrants, on the same terms as set forth above, solely for the
purpose of covering overallotments, if any. If the Overallotment Option is
exercised in full, the total Price to Public; Underwriting Commissions; and
Proceeds to the Company will be $5,893,750; $589,375; and $5,304,375.
MONITOR INVESTMENT GROUP, INC. MEYERS POLLOCK ROBBINS, INC.
The date of this Prospectus is May , 1996
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[PHOTO OP]
The Company is subject to and will comply with the periodic reporting
requirements of Section 15(d) of the Securities Exchange Act of 1934. The
Company will furnish to its Shareholders an Annual Report containing financial
information examined and reported upon by independent certified public
accountants, and it may also provide unaudited quarterly or other interim
reports as it deems appropriate. The Company's Registration Statement on Form
SB-2 with respect to the Securities offered by this Prospectus, (a part of the
Registration Statement) as well as its periodic reports may be inspected at the
public reference facilities of the U.S. Securities and Exchange Commission,
Judiciary Plaza, 450 Fifth Street, N. W., Room 1024, Washington, D. C. 20549, or
at the Commission's regional offices at Northwestern Atrium Center, Suite 1400,
500 West Madison Street, Chicago, Illinois 60661 and at 7 World Trade Center,
New York, New York 10007. Copies of such materials can be obtained from the
Commission's Washington, D. C. office at prescribed rates.
The Registration Statement of which this Prospectus is a part has also
registered the issuance of 15 Bridge Loan Units Each consisting of one (1)
$25,000 secured Promissory Note, 50,000 common shares, 50,000 Class A Bridge
Warrants to acquire one (1) common share at $5.25 per share and 50,000 Class Z
Bridge Warrants to acquire one (1) common share at $10 per share. The Bridge
Loan Units and these Securities therein may be sold from time to time in open
market transactions at prevailing price by the Bridgeholders. The Bridge Loan
Units were issued in a private placement conducted by the Company in May, 1996
in which the Company accepted 1/2 units. The Underwriters are not offering any
of these securities in the Offering. The common shares, Class "A" warrants and
Class "Z" warrants contained in the Bridge Loan Units may be sold by the holders
thereof from time to time at prevailing market prices. The Class A Warrants and
the Class Z Warrants cannot be exercised for one year and two years respectively
and both expire in May, 2001. The Company will receive the exercise price of the
Bridge Loan Unit warrants, but will not receive any of the proceeds from any
sale of the Bridge Loan Unit shares or the shares underlying the warrants. See
"Description of Securities" and "Additional Securities Being Registered".
The Shares and Warrants are being offered by the Underwriters subject to
prior sale, when, as and if delivered to and accepted by the Underwriters, and
subject to approval of certain legal matters by its counsel, and subject to
certain other conditions. The Representative of the Underwriters reserves the
right to withdraw, cancel or modify the Offering and to reject any order in
whole or in part. It is expected that delivery of certificates representing the
Shares and Warrants will be made against payment at the offices of the
Representative, New York, New York on or about May , 1996.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
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PROSPECTUS SUMMARY
This summary is qualified in its entirety by the detailed information and
financial statements appearing elsewhere in this Prospectus.
THE COMPANY
Innovative Medical Services (the "Company") is a California corporation
formed on August 24, 1992 to engage principally in the business of manufacturing
and marketing the Fillmaster(R), a unique product developed by the Company. The
Fillmaster(R) is a water purification system with a calibrated volumetric
measuring and dispensing apparatus that provides measured amounts of "Purified
Water" (as defined by the United States Pharmacopeia) for use in the
reconstitution of prescription medications, generally oral antibiotics. At the
present time, the Company is only marketing this single product.
The current method used by Pharmacists to measure and mix water in
prescription medications is typically to pour or siphon water from bottles and
then manually measure and mix the water with powdered compounds. This method is
time consuming and blindly relies upon the purity of the bottled water which
introduces the possibility of contamination from the bottled water, any
equipment used, as well as into the prescription itself. In addition, the
pharmacist currently has the cost of bottled water together with overhead costs
of ordering, storing and changing water bottles, all of which increase the
dispensing costs to the pharmacist.
The Company believes that the Fillmaster(R) is unique because it not only
reduces the potential of contamination of the water source and
cross-contamination of the final product but also provides the Pharmacist with
cost savings over bottled water and a significantly faster and simpler means of
drawing and measuring water and hence dispensing prescriptions. The Company does
not believe that there is any similar product presently being marketed to the
pharmacy industry. (Please see "Business of the Company".)
Customers to date for the Fillmaster(R) exceed 3,500 and include Walgreens,
Wal-Mart, Eckerd Drugs, Target, SavOn, Osco, CVS, Thrifty PayLess, Thrift Drug,
three divisions of Kroger, Smith's Food and Drug, and Longs Drugs as well as
United States Military Clinics, the Kaiser Foundation for Medical Care, the Mayo
Clinic, and Independent and Hospital Pharmacies.
The Company's executive offices are located at 1308 North Magnolia Avenue,
Suite H, El Cajon, California and its telephone number is (619) 441-8233.
THE OFFERING
SECURITIES OFFERED......... 1,250,000 Shares at $4.00 per Share and 1,250,000
Class A Warrants at $0.10 per Warrant. Each Class
A Warrant entitles the holder to acquire an
additional common share for $5.25 per common
share beginning May , 1997 and expiring May ,
2001. (the "Shares" and "Warrants"). The Shares
and the Warrants shall be separately sold and
tradeable immediately upon the opening of trading
of the Company's securities on the NASDAQ System.
The Warrants are redeemable by the Company for
$0.05 per Warrant commencing one year from the
date of this Prospectus provided the closing bid
price for the Company's common shares shall have
averaged in excess of $9.00 per share for thirty
(30) consecutive business days ending within five
(5) days of the date of a Notice of Redemption.
See "Description of Securities" and
"Underwriting".
USE OF PROCEEDS............ The Company intends to use the net proceeds from
this Offering and any additional funds generated
from operations to further develop its medical
and pharmaceutical service products,
manufacturing and
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marketing. Please see "Use of Proceeds" and
"Business of the Company".
NASDAQ SYMBOLS............. Common Shares
Warrants
COMMON SHARES OUTSTANDING
PRIOR TO OFFERING........ 2,578,851 Does not include 147,500 shares
issueable upon exercise of the
Underwriters Warrants, 1,500,000 shares
issueable upon exercise of the Bridge
Loan Unit Warrants and options to
purchase 31,250 shares held by the
Company's President.
COMMON SHARES TO BE
OUTSTANDING AFTER
OFFERING................. 3,828,851 Does not include the above Warrants, the
exercise of the Representative
Overallotment Option or the exercise of
the Warrants offered hereby.
ADDITIONAL SECURITIES
BEING REGISTERED......... The Registration Statement of which this Prospectus
is a part has registered the issuance of 15
Bridge Loan Units Each consisting of one (1)
$25,000 secured Promissory Note, 50,000 common
shares, 50,000 Class A Bridge Warrants to acquire
one (1) common share at $5.25 per share and
50,000 Class Z Bridge Warrants to acquire one (1)
common share at $10 per share. The Bridge Loan
Units were issued in a private placement
conducted by the Company in May, 1996 in which
the Company accepted 1/2 units. The Underwriters
are not offering any of these securities in the
Offering. The common shares, Class "A" warrants
and Class "Z" warrants contained in the Bridge
Loan Units may be sold by the holders thereof
from time to time at prevailing market prices.
The Class A Warrants and the Class Z Warrants
cannot be exercised for one year and two years
respectively and both expire in May, 2001. The
Company will receive the exercise price of the
Bridge Loan Unit warrants, but will not receive
any of the proceeds from any sale of the Bridge
Loan Unit shares or the shares underlying the
warrants. See "Description of Securities" and
"Additional Securities Being Registered".
RISK FACTORS............... The Offering involves a high degree of risk and
immediate and substantial dilution. See "Risk
Factors" and "Dilution".
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RISK FACTORS
These Securities involve a high degree of risk. Prospective purchasers
should consider carefully, among other factors set forth in the Prospectus, the
following:
RISK FACTORS RELATING TO THE COMPANY
1. Limited Operating History. The Company was formed in 1992 and commenced
the manufacture and marketing of its Fillmaster(R) product in the final quarter
of fiscal year 1993. As a result, it is subject to the risks inherent in a new
enterprise, including the absence of a lengthy operating history, shortage of
cash, undercapitalization and new products.
2. Single Product. At this time, the Company manufactures, markets and
distributes a single product only. While the Company intends to develop
additional products, it is not yet prepared to announce these product nor
estimate when they will be ready for market. As a result, the Company's revenues
will be derived from a single product for the foreseeable future. Furthermore no
assurances can be given that any additional products will be developed and if
developed, be profitably manufactured and marketed. (Please see "The Company and
its Business").
3. Lack of Patent Protection. None of the Company's technology is
presently patented, however the Company intends to file for patent protection,
and in the interim will rely upon maintaining confidentiality on its proprietary
information regarding its products through confidentiality agreements with its
employees and non-disclosure agreements with others. No assurance can be given
that the Company will be able to maintain the confidentiality of its proprietary
information or that competitors will not begin selling similar products.
Furthermore, the Company believes its has independently developed its product
and that its product does not infringe upon any patents or rights of others.
Should a product of the Company be found to infringe, the Company could be
required to modify its design, obtain a license or pay damages. No assurance can
be given that the Company will be able meet such requirements in a timely manner
or upon terms acceptable to the Company. A material infringement which the
Company is unable to cure would have a material adverse effect upon the
Company's business.
4. Competition. The Company believes that the business of providing
advanced technology apparatus to the pharmaceutical industry is relatively new
and that it is likely that the Company will face extensive competition as the
market develops. These competitors are likely to be larger and have greater
financial resources than the Company. As a result no assurances can be given
that the Company will be able to obtain and maintain sufficient market share to
be successful.
5. Dependence on and Control by Management. The success of the Company
will be dependent largely upon the efforts of its present management who
collectively own over 30% of the Company's common stock eligible to vote upon
any matter submitted to a vote of shareholders. As a result, present management
can control the outcome of any vote including the determination of their
salaries and have considerable discretion in running the Company's business. To
the extent the services of management would be unavailable to the Company for
whatever reason, the Company would be required to obtain other executive
personnel to manage and operate the Company. In such event, there can be no
assurance that the Company would be able to employ qualified persons on terms
favorable to the Company. Although the Company has Key Man Life Insurance on its
President, Michael L. Krall and intends to hire additional support personnel
upon completion of the Offering to assist Management, it is anticipated that the
Company will remain primarily dependent upon the efforts of Management.
6. Additional Financing May be Required. If the Offering of all the
Securities offered hereby are sold, the Company anticipates that the funds
available to the Company will be adequate for it to fully exploit its business.
However, the Company anticipates that additional funds will be required to the
extent the Company desires to expand its operations from those contemplated
herein. In addition the Company has agreed with the representative that it shall
not sell any of its securities for two years from the date of the prospectus
without the representative's consent. There can be no assurance that additional
funds will be available from any other
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source and it may be necessary for the Company to limit its operations to those
described herein. See "The Company and Its Business" and "Description of
Securities."
7. Reliance upon Sole Source Supplier. The Company purchases the
filtration system component of its product from a single supplier. While the
Company believes that adequate substitute components are available, an
unexpected loss or disruption in this component supply could have an adverse
effect upon the Company's ability to meet market demand.
8. Regulation of Pharmaceutical Products. The United States Food and Drug
Administration has established a Good Manufacturing Practices protocol which
requires that products be built to certain standards and specifically that an
apparatus used in handling anything added to a prescription not cause any
contamination of the prescription. The Company believes that all components and
materials in its Product meet or exceed the current FDA standards. However no
assurances can be given that FDA standards will not change in the future. In
addition, the United States Pharmacopeia and the National Formulary (USP/NF)
provide the standards for materials and substances and their preparations that
are used in the practice of healing arts and establish standards of quality,
strength and purity. The USP/NF require that only "Purified Water" be used in
the reconstitution of oral prescriptions. Also, State Boards of Pharmacy
uniformly defer to the standards of the USP/NF. In addition, drug manufacturers
themselves require the use of "Purified Water" to ensure product stability and
potency. While the Company's Fillmaster(R) meets or exceeds the USP requirements
for "Purified Water", no assurance can be given that the current regulations
will not be modified or that new regulations be implemented which could
adversely effect the Company's business.
RISK FACTORS RELATING TO THIS OFFERING
1. No Assurance of Public Market for the Company's Securities. There is no
public market for Securities of the Company and no assurance such a market will
develop at the conclusion of this Offering or, if developed, that it will
continue. Purchasers of the Company's Securities may, therefore, have difficulty
in selling such Securities should they desire to do so.
2. Public Will Bear Risk of Loss. The capital required by the Company to
increase the scope of its business is being sought principally from the proceeds
of this Offering. Therefore, public investors will bear most of the risk of the
Company's operations.
3. Dilution. The Shares contained therein involve a substantial amount of
dilution from the public offering price in that the net tangible book value of
the Shares is substantially less than the offering price. As a result investors
in the Shares will experience an immediate dilution of their investment of $2.83
per share or 71%. In addition, the Company may issue additional shares without
obtaining shareholder approval which if sold for less than the offering price
would cause further dilution.
4. Lack of Dividends. The Company has never paid a dividend on its common
stock and intends to retain all earnings for the foreseeable future in order to
complete its business plan.
5. Potential Adverse Effect of Shares Issuable Upon Exercise Of Stock
Options And Outstanding Shares Available for Resale. The Company has adopted
and Incentive Stock Option Plan and a Director's and Officers Stock Option Plan
and has reserved 1,000,000 Common shares for issuance under each plan. As of the
date of this prospectus options to acquire 31,250 shares have been awarded to
the Company's President pursuant to the Director's and Officer's Stock Option
Plan. In addition, all of the Company's presently outstanding shares of common
stock are "Restricted securities" as defined by Rule 144 adopted under the
Securities Act of 1933, as amended. Rule 144 is a regulated method for holders
of restricted securities to sell their securities into the market. Certain
holders of such restricted securities have held the securities for the time
period required by Rule 144 and may sell their securities. Such sales and the
exercise of options and sale of underlying shares could have an adverse effect
on the market for the Shares. Notwithstanding the above, all of the Company's
officers, directors and holders of greater than five percent (5%) of the
outstanding shares have entered into lock up agreements with the Representative
not to publicly offer their Common Stock for sale for a period of 24 months from
the date hereof, except with the written consent of the Representative. All
other stockholders have also entered into lock up agreements with the
Representative not to publicly offer
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more than ten percent (10%) of their Common Stock for sale for a period of 24
months from the date hereof, except with the written consent of the
Representative.
6. Determination of Offering Price. The offering price of the Shares and
the Warrants as well as the Warrant exercise price has been arbitrarily
determined by the Company and the Underwriters and does not bear any
relationship to the assets or book value of the Company or any other objective
measure of value. Accordingly no assurances can be given that the market price
for the Shares or the Warrants (if a market develops) will be at or above the
Offering Price.
7. Representative's Lack of Underwriting Experience. The Representative
was recently organized and has not acted as a representative of the Underwriters
in any prior public offering although it has participated as a dealer in
offerings underwritten by others. This lack of underwriting experience may (i)
adversely affect the development or continuation of a trading market for the
Shares and Warrants. (ii) limit the effectiveness of the Representative's due
diligence responsibilities to review and verify the information in the
Prospectus and to negotiate the offering price of the Shares and the exercise
price of the Warrants, and (iii) negatively influence the market price of the
Shares and Warrants following the Offering. The Representative had no material
relationship with the Company or the promoters prior to this Offering. See
"Underwriting."
8. Potential Adverse Effect of the Underwriter's Influence on the Market
Price of the Securities. A significant amount of the Shares and Warrants
offered hereby may be sold to customers of the Representative and the
Underwriters. Such customers subsequently may engage in transactions for the
sale or purchase of Shares or Warrants through or with the Underwriters. Should
the Representative make a market in the Shares and Warrants, this market-making
activity may terminate at any time. Accordingly, the Representative may exert a
dominating influence on the market, if one develops, for the Shares and
Warrants, and the price and liquidity of the Shares and Warrants may be
significantly affected by the degree, if any, of the Underwriters' participation
in such market.
9. Maintenance Criteria for NASDAQ Securities. The National Association of
Securities Dealers, Inc. ("the NASD"), which administers NASDAQ. recently made
changes in the criteria for continued NASDAQ eligibility. In order to continue
to be included in NASDAQ, a company must maintain $2 million in total assets, a
$200,000 market value of its public float and $1 million in total capital and
surplus. In addition, continued inclusion requires two market-makers, at least
300 holders of the Shares and a minimum bid price of $1 per share; provided,
however, that if a company falls below such minimum bid price, it will remain
eligible for continued inclusion in NASDAQ if the market value of the public
float is at least $1 million and the Company has $2 million in capital and
surplus. The Company's failure to meet these maintenance criteria in the future
may result in the discontinuance of the inclusion of its securities in NASDAQ.
In such event, trading, if any, in the securities may then continue to be
conducted in the non-NASDAQ over-the-counter market in what are commonly
referred to as the electronic bulletin board and the "pink sheets". As a result,
an investor may find it more difficult to dispose of or to obtain accurate
quotations as to the market value of the securities. In addition. the Company
would be subject to a Rule promulgated by the Securities and Exchange Commission
(the "Commission") that, if the Company fails to meet criteria set forth in such
rule, imposes various sales practice requirements on broker-dealers who sell
securities governed by the Rule to persons other than established customers and
accredited investors. For these types of transactions, the broker-dealer must
make a special suitability determination for the purchaser and have received the
purchaser's written consent to the transactions prior to sale. Consequently, the
rule may have an adverse effect on the ability of broker-dealers to sell the
securities, which may affect the ability of purchasers in the offering to sell
the securities in the secondary market.
10. Disclosure Related to Penny Stocks. The Commission has recently
adopted rules that define a "penny stock". In the event that any of the
Company's securities are characterized in the future as penny stock,
broker-dealers dealing in the securities will he subject to the disclosure rules
for transactions involving penny stocks which require the broker-dealer among
other things to (i) determine the suitability of purchasers of the securities,
and obtain the written consent of purchasers to purchase such securities and
(ii) disclose the best (inside) bid and offer prices for such securities and the
price at which the broker-dealer last purchased or
7
<PAGE> 10
sold the securities. The additional burdens imposed upon broker-dealers may
discourage them from effecting
transactions in penny stocks, which could reduce the liquidity of the securities
offered hereby.
11. Redemption of Warrants. The Warrants may be redeemed by the Company at
any time after one year from the date of this Prospectus upon 30 days' written
notice to the Warrant holders at for $0.05 per Warrant commencing one year from
the date of this Prospectus provided the closing bid price for the Company's
common shares shall have averaged in excess of $9.00 per share for thirty (30)
consecutive business days ending within five (5) days of the date of a Notice of
Redemption. In such event, the Warrants will only be exercisable until the close
of business on the date fixed for redemption in such notice. Any Warrants not
exercised by such time will cease to be exercisable, and the holders will be
entitled only to the redemption price. See "Description of Securities Redeemable
Common Stock Purchase Warrants"
12. Non-Registration in Certain Jurisdictions of Shares Underlying the
Warrants. The Warrants are not convertible or exercisable unless. at the time
of exercise, the Company has a current prospectus covering the shares of Common
Stock issuable upon exercise of the Warrants and such shares have been
registered, qualified or deemed to be exempt under the securities laws of the
state of residence of the holders of such Warrants. There can be no assurance
that the Company will have or maintain a current prospectus or that the
securities will be qualified or registered under any state laws.
The Shares and Warrants, are separately tradable as of the date of this
Prospectus. Subsequently, purchasers may buy Warrants in the after-market or may
move to jurisdictions in which the shares underlying the Warrants are not
registered or qualified during the period that the Warrants are exercisable. In
this event, the Company would be unable to issue Common Stock to those persons
desiring to exercise their Warrants unless and until the shares could be
qualified for sale in jurisdictions in which the purchasers reside, or an
exemption from this qualification exists in such jurisdiction. Accordingly,
Warrant holders would have no choice but to attempt to sell the Warrants in a
jurisdiction where such sale is permissible or allow them to expire unexercised.
See "Description of Securities"
13. Limitation on Directors' Liability. The Company's Articles of
Incorporation provide for certain limitations on the liability of the Company's
directors to its stockholders for monetary damages. Such limitations could
adversely affect an investor's ability to recover damages from such directors.
8
<PAGE> 11
USE OF PROCEEDS
The net proceeds of the Offering (without exercise of the Underwriters 15%
Overallotment Option) will be $4,278,750 after the payment of Underwriting
commissions (10%/$500,000), non-accountable expense allowance (3%/$150,000) and
offering expenses (estimated $180,000). The Company anticipates that the net
proceeds will be applied substantially as follows:
<TABLE>
<CAPTION>
USE OF PROCEEDS
-------------------------------------------------------------------------
<S> <C>
Bridge Loan Repayment.................................................... $ 375,000
Sales & Marketing........................................................ 400,000
Inventory................................................................ 100,000
Receivables Financing(1)................................................. 200,000
New Product Development(2)............................................... 300,000
Lease Financing.......................................................... 1,800,000
Facilities Expansion..................................................... 500,000
Patent/Trademark Legal Exp.(2)........................................... 250,000
Manufacturing/Computer Equip............................................. 250,000
Working Capital.......................................................... 103,750
----------
Total Use of Net Proceeds...................................... $4,278,750
=========
</TABLE>
- ---------------
(1) Due to the Company's substantial growth in sales both historical and
projected, the Company will use these funds as an internal factoring of
receivables in order to meet product demand.
(2) These costs will be for the development and testing of new products and the
patent expense thereof if appropriate. The Company will also expend funds
for trademarks for its existing product as well as new products.
9
<PAGE> 12
DILUTION
At January 31, 1996, the net tangible book value of the Company was
$193,092 or $0.075 per share. After giving effect solely to the Shares offered
hereby at the $4.00 per Unit offering price and after deducting the underwriting
commissions and estimated expenses of the offering, the pro forma net tangible
book value as of January 31, 1996 would have been $4,471,842 or $1.17 per share.
This represents an immediate dilution of $2.83 per share to new investors and an
increase in net tangible book value of $1.095 per share to existing
shareholders. The following table illustrates dilution to new investors
following completion of this offering:
<TABLE>
<S> <C>
Public Offering Price................................................. $4.00
Net Tangible Book Value Per Share Before Offering:.................... $0.075
Net Tangible Book Value Per Share after Offering...................... $1.17
Increase Per Share Attributed to the Offering......................... $1.095
Dilution of Offering Price Per Share to Investors..................... $2.83 or 71%
</TABLE>
Does not assume the exercise of the Underwriter's Over Allotment Option or
the exercise of any outstanding warrants or options.
10
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the audited and unaudited financial statements of the Company and related notes
included therein.
OVERVIEW
Innovative Medical Services is engaged principally in the business of
manufacturing and marketing of the Fillmaster(R), a unique water purification,
measuring and dispensing apparatus used in pharmacies to reconstitute oral
antibiotic suspensions. In addition, the company intends to develop and market
other pharmacy-related efficiency products worldwide.
RESULTS OF OPERATIONS FISCAL 1995 VS. FISCAL 1994
Revenues of $459,000 in fiscal year ending 1995 were 257% of the $179,000
in revenues reported for fiscal year 1994. This revenue increase was
attributable to increased sales of Fillmaster(R) Purification Systems and the
initiation of replacement filter sales. Fillmaster(R) Purification System sales
in fiscal 1995 were $427,000, and replacement filter sales were $33,000. In
1994, Fillmaster(R) Purification System sales were $178,000, and replacement
filter sales were $1,000. While occurring in all markets, more than 90% of the
volume increase in Fillmaster(R) Purification System sales took place in the
chain pharmacy marketplace. The large increase in replacement filter sales was
expected due to the increased number of Fillmaster(R) Purification Systems in
use.
Gross profits in 1995 were $169,000 vs. $8,000 in 1994. Gross profits in
1994 were reduced because the Company offered penetration (lower) pricing to
convince the first national chain purchaser of the Product to become a
large-volume customer. Gross profit percentages in 1995 (37%) were higher vs.
1994 (5%) due to increased sales volume, production costs being lowered through
volume purchasing, sales to new customers at higher prices and the $32,000
increase in replacement filter sales at a gross profit of 75%.
Net profit for fiscal 1995 was $2,400, vs. a net loss of $171,000 for
fiscal 1994. This increase in income was due to growth in sales and the increase
in gross profit as outlined above. In addition, Selling Expenses and General &
Administrative Expenses decreased approximately $8,000 from 1994 to 1995 on
increased volume.
RESULTS OF OPERATIONS FIRST SIX MONTHS OF FISCAL 1996
Revenue for the six months ending January 31, 1996 was $613,000. Of this
amount, $573,000 was attributable to sales of Fillmaster(R) Purification
Systems, and $40,000 to replacement filter sales. Gross profit for the period
was $169,000, $139,000 (24% of sales) from Fillmaster(R) Purification Systems
and $30,000 (75% of sales) from filters. Overall gross profit decreased from 37%
of gross revenues in fiscal 1995 to 28%. This decrease was attributable to an
isolated and concentrated purchase by the Company's first chain customer that
more than doubled its previous total purchases at the same penetration pricing.
Since this customer has now purchased the Product for 75% of its locations, this
is not likely to reoccur. However, similar penetration pricing for substantial
chain customers may be employed in the future resulting in temporary
fluctuations in overall gross profit margins until such time as replacement
filter margins are fully developed.
For the period, the company incurred a net loss of $19,000 primarily due to
recognition of compensation expense for the Company's CEO in the amount of
$45,000 which was contributed back to the Company as additional Paid in Capital
for common stock owned by the CEO. An increase in rent expense and additional
clerical staff also contributed to the net loss for the period.
LIQUIDITY AND CAPITAL RESOURCES
With current asset to liabilities ratios of 1.2 for fiscal year end 1994,
1.73 for fiscal year end 1995 and 1.79 for the first six months of fiscal 1996,
the Company's working capital position continues to be stable. Historically,
expansion has been financed by the sale of common stock. Equity financing
activities have provided cash in the amounts of $172,000, $45,000 and $22,000
for fiscal years 1994, 1995 and the first two quarters of fiscal 1996,
respectively. Debt financing has been in the amounts of $9,000, $21,000 and $0
for the
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<PAGE> 14
same periods. Cash flows provided (used) from operations were $(175,000) in
1994, $26,000 in 1995 and $(17,000) for the first six months of 1996. Cash flows
used in investing activities were, respectively, $15,000, $8,000 and $29,000 for
the purchase of machinery and equipment.
The Company has operated on a just-in-time assembly and manufacturing
basis, keeping inventory to low levels. Parts and components have been, for the
most part, brought into the factory for assembly and shipment only after a firm
customer order has been received. As a result, the time period during which cash
resources must be utilized for inventory has been compressed as much as
possible. Also, aggressive receivables management combined with the quality of
the customer base has resulted in a very favorable position with regards to
receivables aging.
Nonetheless, the extremely vigorous growth of the Company has created an
ongoing dilemma related to cash. The very expansion that has made revenue
projections appear so positive has at the same time hindered the Company's
ability to expand sales at an even faster rate. The need to finance
ever-increasing part and component inventories, even for a short period of time,
has served to divert cash resources from critical sales, marketing and new
product development areas that could enhance future revenues to an even greater
extent. Sales and marketing decisions have often been driven by the lack of
available cash resources, frequently to the exclusion of valuable opportunities.
To generate capital for further expansion and to alleviate the cash issues
described above, the company has elected to issue $5,000,000 in marketable
equity securities.
Management intend that the proceeds of the offering will provide liquidity
for:
Sales and Marketing expansion: (a) expand the sales force, (b)
increased trade show participation, (c) advertising in trade journals and
via targeted direct response advertising, (d) increased face-to-face sales
calls with corporate customers and, (e) development of new marketing
materials.
Inventory increase: (a) support the increased sales activity expected,
(b) to reduce the cost of goods through volume purchasing.
Receivables Financing: (a) support the increased sales activity
expected, (b) eliminate early-payment discounts given to customers.
New Product Development: (a) further development of advanced concepts
for the existing product line, (b) further develop and bring to market new
products currently in various stages of development, (c) Identify new
products for future development.
Lease Financing: (a) provide alternative financing to its customers
where few options exist (b) provide the ability to finance the purchase of
the Company's products internally, (c) establish an additional source of
profit and cash flow.
Facilities Expansion: (a) provide adequate production facilities for
the anticipated increased Fillmaster product sales, (b) production
facilities for new products (c) office and administrative space for
increased staff requirements.
Patent, Trademark and Legal Expense: (a) provide patent and trademark
protection for existing and anticipated products.
Manufacturing/Computer Equipment: (a) provide production and assembly
equipment to improve production efficiency (b) provide additional computer
equipment for increased productivity by administrative and executive staff.
Working Capital: (a) provide liquidity for general business
contingencies.
Management believes that the offering of its securities will provide
sufficient liquidity to meet the requirements described above for the balance of
fiscal 1996 and 1997.
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<PAGE> 15
FUTURE OUTLOOK
The key to long term profitability of the Fillmaster(R) product line and,
ultimately the company, is to establish a substantial number of Fillmaster(R)
units installed and in use. Since each unit requires a replacement of its
filters at least once a year, each new system installed becomes a source of
steady future income far exceeding that derived from the initial sale of the
Product. In addition, each pharmacy using the Fillmaster(R) will be an
easily-approachable candidate for any new pharmacy tools developed by the
Company in the future.
These multiple reasons for establishing a solid base of users have caused
the Company's sales efforts to focus primarily on the chain pharmacy market.
When combined with the short-term efficiencies inherent in multiple-unit sales
and the expanding nature of the market, chain pharmacies were the most
attractive of the options. This strategy has been successful, as the Company
continues to build an ever-increasing sales revenue base with sales and
marketing expenditures a fraction of those necessary to reach independent and
hospital pharmacies.
At the beginning of fiscal year 1994, the Company's chain pharmacy customer
base consisted of scattered individual locations in three chains. By the end of
the second quarter of fiscal year 1996, the Fillmaster(R) product was installed
at more than 3500 total locations representing 4% of the total domestic market,
with approximately 2,800 of these locations being in more than 20 regional and
national chains ranging in size from 30 to 2400 stores. These customers include
the nation's largest drug store chain, Walgreens, and Wal-Mart, the world's
largest retailer. The 2,800 locations represent approximately 9% of a total
chain pharmacy market that is expanding at the rate of approximately 10% per
year.
The Company's chain customer base continues to expand at the rate of
approximately one chain per month and is expected to continue at that pace for
the foreseeable future. Acquisition of a new chain customer generally results in
staged product acquisition after initial testing, typically beginning with
higher-volume pharmacies. Complete saturation of each customer's locations
generally takes place over an extended period. Thus, gaining a new chain
customer bodes well for sales of new Fillmaster(R) Purification Systems over the
intermediate term and for continuing replacement filter sales over the long
term. Currently, the 2800 chain drug store locations in which the Product is
installed are less than 20% of the available locations in the chains represented
The logical, ultimate and final development in the chain sales cycle is
when the Product becomes specified as standard equipment for all new and
remodeled pharmacies, making new orders automatic as construction occurs. As of
1/31/96 Walgreens, Eckerd, Target, Sav-On, Osco, Dillon Stores, the Mid-Atlantic
Region of Kroger and City Markets have designated the Fillmaster(R) as standard
equipment for their new and remodeled pharmacies. Sales revenues for new
Fillmaster(R) units from these customers' new openings and remodeling programs
are projected at approximately $600,000 per year (1300 units) for each of the
next five years with virtually no additional sales effort or expense. Each
succeeding year, these installations will generate an equal incremental increase
in the number of replacement filter sets sold.
The Company expects that additional chains will make the same specification
during the balance of fiscal 1996, 97 and 98, expanding the ongoing base of
recurring orders.
During fiscal 1996, the introduction of leasing is anticipated to have a
positive effect on sales revenues, with more dramatic results expected in
ensuing years. Through leasing, which is currently being offered through a
third-party lender, new chain customers whose capital resources are limited will
be able to acquire the Product with no effect on the balance sheet, and a net
monthly decrease in expenses associated with water in the pharmacy.
As resources allow, marketing expenditures will increase dramatically to be
somewhat more focused on the costlier-and more difficult-to-reach independent
pharmacy market. This market, while shrinking somewhat due to inroads made by
the chains, is still relatively stable in size. Representing more than 30,000
locations it has remained, in relative terms, virtually untapped. Currently, the
Company's penetration is less than 3%.
13
<PAGE> 16
Near-term sales efforts in the independent pharmacy market will focus
primarily on offering price concessions based upon quantity sales to the members
of independent buying cooperatives and quasi-chains created by wholesale drug
distributors. By accessing large numbers of pharmacies through their
cooperatives and wholesalers, the Company retains the economies of scale
associated with chain sales but generates higher margins through higher
negotiated pricing and direct sales to the customer.
Wholesale distributors have exited the durable goods markets and are not in
a position to be able to stock and distribute the Product on any reasonable
basis; however, at the same time, they do offer centralized access to large
numbers of independent pharmacy customers. By utilizing their customer
structures but not their distribution systems, the Company will retain margins
that would otherwise be paid to the distributor. Recently, the Company formed an
alliance with McKesson Drug Company to promote the Fillmaster(R) Purification
System to its Valu-Rite quasi-chain group of independent pharmacies at a price
that is discounted, but not to wholesale or chain pricing levels. McKesson is
distributing product information in its regular mailings to this group, with the
Product being sold and distributed directly to the customer by the Company.
Longer-term marketing efforts in the independent pharmacy market will
concentrate on non-affiliated independent community pharmacies. Leasing is
expected to be an especially powerful tool in the independent pharmacy market
once the Company has generated the capital necessary to be able to finance a
leasing program internally. With limited cash resources making capital
expenditures difficult for the independent community pharmacy, access to this
market has been problematical. With the associated higher sales and marketing
expenses, this market requires that the Company retain the full $659 list price
in order to maintain profit margins. Leasing allows the customer to acquire a
Fillmaster(R) unit for a monthly payment equal to or less than its existing
monthly bottled water expenditures. Third-party lease financing is not currently
available for fewer than four Fillmaster(R) units due to minimums imposed by the
lenders.
Reduction of the cash outlay necessary to acquire a Fillmaster(R) unit from
$659 to an affordable monthly payment will allow the Company to penetrate this
market to a much greater degree. The Company has calculated that the profits
generated from internal leasing of Fillmaster(R) Filtration Systems and
replacement filters will be more than double that generated by straight sales or
third-party leasing for an equal number of units.
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<PAGE> 17
THE COMPANY AND ITS BUSINESS
BUSINESS DEVELOPMENT
Innovative Medical Services (the Company) was incorporated in the State of
California on August 24, 1992 to pursue the immediate business of manufacturing
and marketing of the Fillmaster(R) (or the Product) and subsequently a broadly
based business of delivering advanced technology, equipment and supplies to the
Pharmacy Industry. Over the past three years, the Company has established the
production and design, entered into contracts with its parts suppliers and or
manufacturers, developed its initial assembly process and initiated its
marketing program for the Product.
The Product is an apparatus that provides measured amounts of "Purified
Water" (as defined by the United States Pharmacopoeia, ("USP") for
reconstitution of liquid oral antibiotics and certain other pharmacy
applications. It consists of a six-stage water purification unit, an electronic
water purity testing module, an auxiliary faucet for dispensing purified water,
and a calibrated volumetric measuring and dispensing apparatus for the actual
reconstitution. The entire system is closed and pressurized and, according to
the Company's testing, has a fill rate at least three times that of current
methods.
The Company also markets unique and proprietary filter replacements for the
purification unit which require changing at intervals of approximately 9-12
months or whenever indicated by the purity testing module. The filter
replacements represent a guaranteed source of future sales and cash flow to the
Company.
There are approximately 72,000 Pharmacies in the United States and Canada,
with many thousands more world-wide. Water-mixed antibiotic prescriptions, for
which the Fillmaster(R) is primarily used, make up approximately 12.6% of a
Pharmacy's total prescriptions and approximately 25% of a pharmacy's gross
profit.
Approximately 3,500 units of the Product have been sold to date.
Fillmasters(R) have been purchased and are now being widely used by such
pharmacy chains as Walgreens, Wal-Mart, Eckerd Drugs, Target, SavOn, Osco, CVS,
Thrifty PayLess, Thrift Drug, three divisions of Kroger, Smith's Food and Drug,
and Longs Drugs. Also included in the customer base are United States Military
Clinics, the Kaiser Foundation for Medical Care, the Mayo Clinic, and several
hundred Independent and Hospital Pharmacies.
The Fillmaster(R) is specified as standard equipment for all newly
constructed and remodeled pharmacies at Walgreens, Target, Eckerd, SavOn/Osco
and CVS. The Company believes that the Product will be installed in 100% of
Walgreens pharmacies prior to the end of the current Fiscal Year.
Gross Sales of the Company have been $179,000 and $459,000 for the fiscal
years ended 1994 and 1995 respectively. In its current fiscal year, the
Company's sales have been $495,000 through the first four months. In 1994 it
began selling the proprietary replacement filters which represent an ongoing,
guaranteed and permanent market with profits far exceeding those from the
original sale of the Product.
PRINCIPAL PRODUCT AND ITS MARKET
The Fillmaster(R) consists of a six-stage water purification unit, a
pharmaceutical water dispenser with precise measuring capabilities, a purity
testing module and anti-contamination qualities for use by Pharmacists in mixing
liquid prescriptions. The entire system integrates with the building's tap water
system, is closed and pressurized, and therefore has a fill rate 300% faster
than the bottle-and-hose systems which are the only known competition. The
Product utilizes proprietary filter cartridges which are changed every 9-12
months or when prompted by the Product's purity test indicator. The Product is
packed and shipped by the Company and installed by the end-user following the
illustrated instructions included with the Product using common household tools.
The United States Pharmacopeia (USP) is a comprehensive reference work
which has established the standards for pharmacy practices and supplies in the
United States for over one hundred years. The USP is recognized as the official
standard for pharmacy practice and supply by various federal statutes including
the Food Drug and Cosmetic Act and by virtually all states. The USP requires
Pharmacists to use "Purified Water" in reconstituting powdered medications such
as antibiotics. "Purified Water" is defined as ". . . water
15
<PAGE> 18
obtained by distillation, ion-exchange treatment, Reverse Osmosis or other
suitable process" Also, ". . . Purified Water contains no added substances"
Previously, the only realistic source of "Purified Water" conforming to the USP
standard was bottled distilled water. Other forms of bottled water prepared
through purification have minerals and other substances added to them for taste
purposes.
Historically, Pharmacists have either hand poured water for reconstitution
directly from a bottle into a measuring container and then into the medicine
bottle or they used a wall-mounted measuring and gravity-flow dispensing
cylinder connected by a system of rubber siphon tubing and pinch clamps to a
water bottle. Both of these methods have significant drawbacks and possibilities
for contamination which the Fillmaster(R) minimizes. Both old methods have the
potential for inaccurate measurements, the first method because two hands are
required and the latter because the gravity-fed system can produce a variable
fill rate due to variation in siphon pressure (the siphoning rate decreases as
the bottles empties thus producing a reduced flow of water). The Fillmaster(R)
uses precision valves which exactly control the water flow.
Prior methods also present a danger of non-conforming water such as
"spring" or bottled "drinking water" being used accidentally due to label
similarities, simple mistakes in supply purchasing as well as the pharmacy
staff's being unaware of the differences in water types. Water that does not
qualify as "Purified Water" contains minerals and other impurities which will
reduce the stability and potency of the prescription medicine. The use of such
water is, in essence, an adulteration of the medication by the introduction of
foreign materials and a violation of the Federal Food Drug and Cosmetic Act.
Even when using the intended conforming water, these unsealed methods are
open to the air allowing bacteria, mold and other airborne contaminants to enter
and grow within the water supply. In addition, the dispensing tip of the
competitor can accumulate residue from the various prescriptions being mixed,
causing the potential of cross-contamination of the medications and the danger
of serious reactions by the patient.
These hazards of contamination in the Pharmacy's water source are greatly
reduced by the Fillmaster(R). The Product's filtering system consists of a
sediment filter, two multistage carbon block filters and a reverse osmosis
membrane. The system produces "Purified Water", eliminating the problem of
incorrect source. Since the Fillmaster(R) is a closed, pressurized system, the
airborne contamination problem is eliminated and the rate of filling is
increased dramatically. Finally, cross-contamination of medications is easily
prevented by the Fillmaster's cleanable and disposable dispensing tips.
Competition and the proliferation of "third party" reimbursement plans have
combined to reduce pharmacy margins nationwide to dangerously low levels,
mandating efficiency and higher volumes as the only practical means to continued
profitability. In this context, time becomes valuable in the extreme. Blocking
the road to maximum time utilization are recent federal legislation (OBRA-90)
and conforming state mandates requiring pharmacists to counsel each patient
receiving a new prescription. Filling of liquid antibiotics for which the
Fillmaster(R) is used is disproportionately time-consuming and difficult to
begin with. Since virtually all are new prescriptions, each requires an
additional expenditure of time for patient counseling.
By use of the Fillmaster(R), and based on extensive testing performed by
the Company, a pharmacy will save more than 20 seconds of actual filling time
for each liquid antibiotic prescription. When multiplied by over 6,000
antibiotics per year (on average), the resulting time savings are dramatic.
Coupled with the time savings generated by eliminating water bottle changes
(once for each 28 to 30 prescriptions approximately 5 minutes for each change),
the profitability of liquid antibiotics is substantially enhanced and pharmacist
time for patient counseling and other activities is multiplied.
The burdensome nature of these medications is compounded by their natural
instability once reconstituted. Post-reconstitution shelf life is extremely
limited and they require refrigeration. A pharmacy will generally add water to
the medication only when the patient is physically present to avoid having to
discard it if the patient is delayed or decides to go elsewhere. As a result,
the workflow related to these medications is determined not by efficiency, but
by the arrival of the patient. The efficiencies and time savings generated by
using the Fillmaster(R) have a dramatic effect on customer satisfaction by
reducing waiting times at the pickup window.
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<PAGE> 19
Direct and indirect costs associated specifically with bottled water are
also reduced or eliminated by use of the Fillmaster(R). Storage space can be
reallocated to more profitable items, and the expense of bottled water purchases
of up to $1.25 for each gallon is replaced by one annual filter replacement
currently costing $65. Under optimum usage, the cost of "Purified Water" is
reduced to approximately $.04 per gallon.
Based on the Company's surveys of Fillmaster(R) users, customer
satisfaction levels are extremely high. There is virtually unanimous agreement
that the Product is faster, easier to use, cleaner, and that the elimination of
the aggravation and difficulties associated with all other methods of
reconstitution make the Fillmaster(R) well worth the investment in its
acquisition.
The Product carries a suggested list price of $659, with quantity discounts
available for volume purchase agreements. This price level was established to
provide reasonable gross profit margins even after the negotiation of volume
discounts. These margins have been calculated at actual production levels and
are likely to increase through a reduction of costs associated with higher
volumes.
After installation, the filters require replacement approximately every 9
to 12 months in order to maintain water purity. Since filters compatible with
the Fillmaster(R) system are proprietary and only available from the Company,
Management feels assured that future replacement filter sales and their
resultant income stream are a certainty.
Revenues from the replacement filter sales will, over a five year period,
equal or exceed the revenue generated by the original sale of the Product with
much higher profit levels. Thus, Management views the sale of the Product as
occurring in two distinct stages, immediate and deferred. The acquisition of a
new customer, while generating profit during the current year, produces a
deferred income stream with at least twice as much gross margin and minimal or
no sales expense.
The Company's business operates in a 2,200 square foot facility located in
a light industrial/office park. This location houses all administrative,
executive, sales, assembly, shipping and manufacturing functions for the
Company. The Company employs five full time and five part time.
The Product is primarily assembled from purchased components and repacked
for shipment to the customer with only minor manufacturing taking place in the
Company's facility. This allows the minimization of wages, equipment expense and
insurance. There are no components of the Product that have permanent or
unequivocally restricted availability. Most are items that are common in either
design or manufacture, and a change in suppliers would result in virtually no
lost production. There are no plans to alter production methods.
The purification module is the major component of the Product and is
purchased under an agreement with its manufacturer that is exclusive with the
Company as to Pharmaceutical uses. While Management regards this particular
product as the finest of its kind, suitable alternatives are available on the
open market. This module and its accompanying hardware and accessories are
repackaged and labeled with Fillmaster(R) graphics, the dispensing apparatus
inserted, and shipped to the customer.
The dispenser apparatus is assembled mostly from parts that are standard
items stocked by wholesale supply houses or fabricated to Company specifications
from injection-molded plastic and acrylic. The sole deviation is the
Reconstitube(R), which is an integral part of the dispensing apparatus and
available only from its manufacturer. This product's patent expired in 1992, and
in the unlikely event of supply difficulties, the Company has a contingency plan
that will allow for the fabrication of a replacement with loss of production
limited to 2-4 weeks.
Recently, the Company began offering lease financing through a third party
lender that will open the market to customers whose capital resources are
limited. This program will allow the customer to lease the Product and a
five-year supply of replacement filters for less than current expenditures for
bottled water. At the same time, the Company will realize the replacement filter
profit in the first year rather than it being deferred.
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<PAGE> 20
MANAGEMENT
The officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
------------------------------------------------ --- ----------------------------------
<S> <C> <C>
Michael L. Krall................................ 44 President, CEO, Director
Norman Andersen................................. 77 Chairman of the Board, Director
Gary Brownell, CPA.............................. 47 Chief Financial Officer, Director
Dennis Atchley, Esq............................. 44 Secretary
Eugene Peiser, PD............................... 65 Director
Patrick Galuska................................. 37 Director
Dennis Brovarone, Esq........................... 40 Director
</TABLE>
The above officers and directors may be deemed the founders and organizers
of the Company. The directors of the Company are elected to hold office until
the next annual meeting of Shareholders and until their successors have been
elected and qualified. Pursuant to the Underwriting Agreement, the
Representative of the Underwriters is entitled to nominate a Director for
election for a five years following the Offering and Mr. Krall and Mr. Thomas
Smith, Jr., have agreed to vote their shares for the election of the
Representative's nominee.
No family relationship exists among the Company's officers and directors.
The following summarizes the experience and qualifications of the Company's
Management:
DENNIS B. ATCHLEY. Mr. Atchley, 44, is a civil litigation attorney with
the law firm of Epsten & Grinnell since January 1995. He was a sole practitioner
from 1985 to 1995, was formerly a partner in the firm of Winters and Atchley and
served as an associate attorney with several larger law firms. He became an
officer of Innovative Medical Services in 1992. Mr. Atchley graduated from
Loyola University of Los Angeles in 1973 with a Bachelor of Arts degree in
political science. He received his Juris Doctorate in 1976 from California
Western University School of Law. Mr. Atchley is a member of the American Bar
Association and the American Arbitration Association. Mr. Atchley resides in San
Diego with his wife and two children.
GARY W. BROWNELL. Mr. Brownell, 47, is a Certified Public Accountant in a
private partnership practice. He is the partner in charge of taxes and municipal
audits for his firm. Mr. Brownell graduated from San Diego State University in
1973 with a Bachelor of Science degree in accounting. He received his Certified
Public Accountant designation in 1983. Mr. Brownell has been a partner in
Brownell and Duffy since 1985.
MICHAEL L. KRALL. Mr. Krall, 44, is the President and CEO of Innovative
Medical Services, a position he has held since 1993. He is responsible for the
strategic planning, product development, shareholder relations and day-to-day
operations of IMS. Previously, Mr. Krall was the President and CEO of
Bettis-Krall Construction, Inc. a successful building-development company of
custom homes and commercial property in San Diego County, California. He has
also held numerous positions in general management in the hospitality industry.
Mr. Krall attended Pepperdine University (economics, statistics mechanical
engineering). He previously served 4 years in the United States Marine Corps and
was elected, by general election, to a 4 year term on the Valle de Oro Planning
Board. Mr. Krall lives in El Cajon, California with his wife, Connie and two
children.
NORMAN L. ANDERSEN. Mr. Andersen, 77, currently retired, was from 1974
until September of 1994, Chairman of the Board of Cord North American Moving and
Storage, Inc., in Earth City, MO, a suburb of St. Louis. Prior to serving solely
as Chairman of the Board from 1987 until this year, he also served as its Chief
Executive Officer. Cord North American is a holding company for several moving
and storage concerns in the St. Louis area. Mr. Andersen served for many years
and in several capacities in the Al Bahr Shrine. He is widowed and lives in
Fairview Heights, IL.
EUGENE S. PEISER, DOCTOR OF PHARMACY. Dr. Peiser, 65, has been an
independent consultant to FDA regulated industries since 1974 and a Member of
the Board of Innovative Medical Services since 1994. He
18
<PAGE> 21
graduated from the University of Tennessee College of Pharmacy with a Bachelor
of Science in Pharmacy in 1951 and has received his Doctorate of Pharmacy. Dr.
Peiser's consultancy advises on a wide variety of subjects, including compliance
with the Prescription Drug Marketing Act and other government compliance
matters, employee training and drug repackaging. Dr. Peiser furnishes expert
witness services and has provides approved Pharmaceutical Continuing Education
to several thousand attendees at his seminars. Dr. Peiser is a Founding Director
of the Association of Drug Repackagers; is appointed as a Registered Arbitrator
by the American Registry of Arbitrators; serves as a member of the Surgeon
General's Speakers Bureau; and is President of the Southwest Chapter of the
Association of Military Surgeons. Dr. Peiser lives and works in Palm Harbor, FL.
PATRICK GALUSKA. Mr. Galuska, 37, is a Petroleum Engineer and has been
with Meridian Oil Inc. since 1982. He is responsible for the financial viability
of numerous properties located in the Rocky Mountains and has also been involved
in many property acquisitions and contract negotiations. He is a Registered
Professional Engineer and is a member of the Society of Petroleum Engineers. He
was elected to the Company's Board of Directors in April, 1996. Mr. Galuska
graduated from the University of Wyoming in 1982 with a Bachelor of Science
degree in Petroleum engineering. He received his Masters in Business
Administration, specializing in Finance, from the University of Denver in 1992.
Mr. Galuska resides in Denver, Colorado with his wife.
DENNIS BROVARONE, ESQ. Mr. Brovarone, 40 has been practicing corporate and
securities law since 1986 and as a solo practitioner since 1990. He was elect to
the Company's Board of Directors in April, 1996. Prior to 1990, Mr. Brovarone
served as in-house counsel to R.B. Marich, Inc., a Denver, Colorado based
brokerage firm. Mr. Brovarone also serves as President (chairman) of the Board
of Directors of The Community Involved Charter School, a two year old K-12
public school located in Lakewood, Colorado, operating under an independent
charter and serving approximately 350 students in an individualized,
experiential learning environment. Mr. Brovarone lives and works in Denver,
Colorado.
SUMMARY EXECUTIVE COMPENSATION TABLE
The following table sets forth the total compensation paid to the Company's
Chief Executive Officer and the highest compensated executive officers for the
last three completed fiscal years and as estimated for the current fiscal year.
<TABLE>
<CAPTION>
TOTAL ANNUAL CASH
COMPENSATION
-------------------
YEAR ENDED $ RESTRICTED STOCK OR
NAME & POSITION JULY 31, AMOUNT OPTIONS GRANTED(1)
- ----------------------------------------------------------- ---------- ------ -------------------
<S> <C> <C> <C>
Michael L. Krall........................................... 1992 0 637,001 shares
1993 0 0
1994 30,000 0
1995 45,000 31,250(2)
1996 96,000
Dennis Atchley............................................. 1994 0 21,978 shares
1995 0 0
Gary Brownell.............................................. 1994 0 18,315 shares
1995 0 14,000 shares
Dennis Brovarone........................................... 1996 48,000 13,320 shares
</TABLE>
- ---------------
(1) After effect of a two for three reverse split effective in April, 1996.
(2) Five year Options exercisable after April, 1997 at $3.20 per share. See
Employment Contracts below.
On April 17, 1996, the Company's shareholders approved an Incentive Stock
Option Plan. The purpose of the Plan is to advance the business and development
of the Company and its shareholders by affording to the key employees of the
Company the opportunity to acquire a propriety interest in the Company by the
grant of Options to acquire shares of the Company's common stock. The Options to
be granted are "Incentive Stock Options" within the meaning of Section 422 of
the Internal Revenue Code of 1986, as amended, for certain key employees. The
Plan is administered by the Board of Directors. The Plan became effective on
April 17,
19
<PAGE> 22
1996 after Shareholder approval and shall terminate on April 17, 2006. Subject
to anti-dilution provisions, the Plan may issue Options to acquire up to
1,000,000 shares to Key Employees. The maximum number of shares subject to
Options granted to any one Key Employee shall not exceed 100,000 shares. The
exercise price for Options shall be set by the Board of Directors but shall not
be for less than the fair market value of the shares on the date the Option is
granted. The period in which Options can be exercised shall be set by the Board
of Directors not to exceed five years from the date of Grant. The Plan may be
terminated, modified or amended by the Board of Directors. The issuance of
options pursuant to this Plan is not expected to be a taxable event for
recipient until such time that the recipient elects to exercise the option
whereon the recipient is expected to be recognize income to the extent the
market price of the shares exceeds the exercise price of the option on the date
of exercise. All Key Employees of the Company and its subsidiaries are eligible
to participate in the Incentive Stock Options. A Key Employee is defined in the
Plan as a Company employee who in the judgment of the Board of Directors has the
ability to positively affect the profitability and economic well-being of the
Company. Part time employees, independent contractors, consultants and advisors
performing bona fide services to the Company shall be considered employees for
purposes of participation in the Plan. As of the date of this Prospectus no
benefits have been allocated.
On April 17, 1996, the Company's Board of Directors approved a Directors
and Officers Stock Option Plan. The purpose of the Plan is to advance the
business and development of the Company and its shareholders by affording to the
Directors and Officers of the Company who are ineligible to participate in the
above Incentive Stock Option Plan, the opportunity to acquire a propriety
interest in the Company by the grant of Options to acquire shares of the
Company's common stock. The Plan is administered by the entire Board of
Directors. The Plan became effective on April 17, 1996 by the Board of
Directors, was not subject to Shareholder approval and shall terminate on April
17, 2006. Subject to anti-dilution provisions, the Plan may issue Options to
acquire up to 1,000,000 shares to Directors and Officers. The maximum number of
shares subject to Options granted to any one Director or Officer shall not
exceed 100,000 shares. The exercise price for Options shall be set by the Board
of Directors but shall not be for less than $1.00 per share. The period in which
Options can be exercised shall be set by the Board of Directors not to exceed
five years from the date of Grant. The Plan may be terminated, modified or
amended by the Board of Directors. As of the date of this Prospectus, Michael L.
Krall the Company's president has been awarded options to purchase up to 31,250
shares at $3.20 per share.
The Company does not have a retirement, pension, profit-sharing or
insurance program.
The Company has not reimbursed Directors for any travel expenses incurred
in attending meetings, though it may adopt such a policy as revenues permit.
EMPLOYMENT CONTRACTS
In April, 1996, the Board of Directors approved a five year employment
agreement for Michael Krall, its President. Mr. Krall is to receive a salary of
$108,000 per year, an amount equal to 3% of the Company's net income before
taxes if any plus other benefits. In addition, the Board of Directors awarded
Mr. Krall compensation in the amount of $30,000, $45,000 and $60,000 for the
fiscal years ended July 31, 1994, 1995 and the eight month period ended March
31, 1996. Mr. Krall has contributed these amounts back to the Company as
additional paid in capital for shares previously issued to Mr. Krall. Mr. Krall
was also awarded five year options to acquire 31,250 common shares at $3.20 per
share which are first exercisable in April, 1997. Please see "Certain
Transactions".
Mr. Brovarone also serves as securities counsel for the Company and
receives $3,000 per month plus expenses. Please see "Certain Transactions".
20
<PAGE> 23
SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL SHAREHOLDERS
The following table sets forth, as of the date of this Prospectus, the
stock ownership of each person known by the Company to be the beneficial owner
of five percent or more of the Company's Common Stock, all Directors
individually and all Directors and Officers of the Company as a group based upon
2,578,851 shares outstanding prior to the offering.
<TABLE>
<CAPTION>
NAME AND ADDRESS COMMON STOCK PERCENTAGE
OF BENEFICIAL OWNER OWNERSHIP(1) OF CLASS
- -------------------------------------------------------------------- ------------ ----------
<S> <C> <C>
Norman Anderson..................................................... 51,334 2.0%
1308 N. Magnolia Av, Suite H
El Cajon, CA 92020
Dennis Atchley...................................................... 22,000 0.9
1308 N. Magnolia Av, Suite H
El Cajon, CA 92020
Gary Brownell....................................................... 32,334 1.3
1308 N. Magnolia Av, Suite H
El Cajon, CA 92020
Michael L. Krall(2)................................................. 618,307 24.0
1308 N. Magnolia Av, Suite H
El Cajon, CA 92020
Thomas E. Smith(3).................................................. 618,307 24.0
9408 Lightwood Cove
Austin, TX 78748
Eugene Peiser....................................................... 6,334 0.25
1308 N. Magnolia Av, Suite H
El Cajon, CA 92020
Patrick Galuska..................................................... 33,334 1.3
8137 South Downing Street
Littleton, CO 80122
Dennis Brovarone.................................................... 13,334 0.5
2530 S. Linley Ct.
Denver, CO 80219
Officers and Directors as a group (7 Persons)....................... 776,977 30.1
</TABLE>
- ---------------
(1) After giving effect to the two for three reverse split effective April, 1996
(2) Does not include 2,198 held by Mr. Krall's father-in-law which Mr. Krall
disclaims any beneficial ownership.
(3) Thomas E. Smith, Sr., and Thomas E. Smith, are father and son who mutually
disclaim beneficial ownership in the other's shares.
21
<PAGE> 24
MARKET FOR THE COMPANY'S COMMON STOCK
AND RELATED STOCKHOLDER MATTERS
(a) Principal Market or Markets. The Company's Common Stock is not
presently traded on any established market. As of April 30, 1996 there are
1,828,851 shares of restricted common stock outstanding of which 1,668,343 have
been held in excess of two years and therefore are eligible for sale pursuant to
Rule 144, assuming all other conditions of the Rule have been met. Shares held
by persons other than officers, directors and holders of greater than five
percent (5%) of the outstanding shares are subject to an agreement with the
Underwriters to refrain from selling more than ten percent (10%) of their
individual holding without the Representative consent for a two year period. The
officers, directors and holders of greater than five percent (5%) of the
outstanding shares are subject to an agreement with the Underwriters to refrain
from selling any their individual holding without the Representative consent for
a two year period. There are no outstanding options or warrants to purchase or
securities convertible into the common stock of the Company, except options
awarded to the Company's president, see Executive Compensation, and the Bridge
Loan Unit Warrants. Please see Description of Securities and Additional
Securities Being Registered.
(b) Approximate Number of Holders of Common Stock. The number of holders
of record of the Company's no par value stock at April 30, 1996 are 40.
(c) Dividends. Holders of Common Stock are entitled to receive such
dividends as may be declared by the Company's Board of Directors. No dividends
have been paid with respect to the Company's Common Stock and no dividends are
anticipated to be paid in the foreseeable future.
(d) Reverse Split. On April 17, 1996, the Company's shareholders approved
a two for three reverse split effective on that date. Fractional shares were
rounded up to the next whole share.
CERTAIN TRANSACTIONS
On September 1, 1992, the Company issued 956,460 (pre split)shares of
common stock each to Michael L. Krall and Thomas E. Smith,(Jr.) the founders of
the Company for capital equipment, working capital and services rendered in the
organization and initial operation of the Company. Mr. Krall is the Company's
President/CEO and a director. Thomas E. Smith, (Jr.) resigned his positions with
the Company in July, 1993 and remains a principal shareholder. In January, 1994,
Dennis Atchley and Gary Brownell, officers and directors of the Company were
issued 33,000 and 27,500 (pre-split) shares of common stock respectively for
services rendered to the Company with respect to its legal and accounting
affairs. Both Mr. Atchley and Mr. Brownell have also been reimbursed their
expenses incurred while rendering services to the Company. In December, 1995,
Dennis Brovarone was issued 20,000 (pre-split) shares of common stock in
consideration of services rendered to the Company with respect to corporate
financing plans and federal securities law compliance.
Since inception, the Company has periodically made loans to Mr. Krall and
Thomas E. Smith, (Jr.) which accrued interest at the rate of 7% per annum. These
debt balances were also periodically reduced by Mr. Krall and Thomas E.
Smith,(Jr.) by cash payments to the Company. These loans were made by the
Company to insure Mr. Krall and Mr. Smith's availability to the Company and the
proceeds were used by Mr. Krall and Mr. Smith for personal expenses unrelated to
the Company. While the Company does not make loans to unrelated parties, it
believes that the terms of these loans were favorable to the Company.
As of July 31, 1994, Thomas E. Smith, (Jr.)'s balance was $21,449.23 and
the Company received a Promissory Note in the principal amount of $21,449.23
from Thomas E. Smith, (Jr.). The Note accrued interest at the rate of 7% per
annum was payable in one installment on or before September 30, 1995. In
November, 1994, Thomas E. Smith, (Jr.) partially repaid his balance by
contribution of $29,000 of proceeds from the sale of 29,000 of Thomas E. Smith,
(Jr.)'s shares of the Company's common stock. As of July 31, 1995, Thomas E.
Smith, (Jr.)'s balance owed was $9,128.199 and Thomas E. Smith, (Jr.) issued a
new Promissory Note dated July 31, 1995 in the principal amount of $9,128.19
which accrues interest at the rate of 7% per annum and is payable on or before
September 30, 1996. As of April 30, 1996, the balance owed on this note is
$9,628.
22
<PAGE> 25
As of July 31, 1994, Mr. Krall had a debt balance of $0.00 and had
contributed an additional $16,620.40 to the Company. On July 31, 1994, the
Company issued Mr. Krall a Promissory Note in the principal amount of
$16,620.40. The Note accrued interest at the rate of 7% per annum was payable on
or before September 30, 1995. In November, 1994, Mr. Krall contributed $29,000
of proceeds from the sale of 29,000 of Mr. Krall's shares of the Company's
common stock. As of July 31, 1995 and as a result of additional borrowing by Mr.
Krall, Mr. Krall's balance owed was $15,857.71 and Mr. Krall issued a new
Promissory Note dated July 31, 1995 in the principal amount of $15,857.71 which
accrues interest at the rate of 7% per annum and is payable on or before
September 30, 1996. As of April 30, 1996, the balance owed on this note is
$45,845.
On January 1, 1994, the Company issued a Promissory Note with a principal
amount of $30,000 to Thomas E. Smith, Sr., a Director of the Company. The Note
accrued interest at the rate of 9.873% per annum. The Note was repaid by the
conversion of $5,000 into 5,000 shares of common stock in November, 1994 and the
issuance on January 1, 1995, of another Promissory Note for the remaining
principal amount of $25,000. This Note accrues interest at the rate of 11.848%
per annum and is payable in monthly interest with the principal due on or before
January 1, 1997. The Company is current in its payments on this Note.
DESCRIPTION OF SECURITIES
Common Stock: The Company is authorized to issue up to 20,000,000 shares
of its no par value common stock. Each share is entitled to one vote on matters
submitted to a vote of the shareholders of the Company. There is no cumulative
voting of the common stock. The common stock shares have no redemption
provisions nor any preemptive rights. The Company is also authorized to issue up
to 5,000,000 shares of preferred stock, the rights and preferences of which may
be set from time to time prior to issuance by the Board of Directors.
Class A Warrants: The Class A Warrants offered hereby entitle the holder
to acquire an additional common share for $5.25 per common share beginning May
, 1997 and expiring May , 2001. The Shares and the Warrants shall be
separately tradable immediately upon the opening of trading of the Company's
securities on the NASDAQ System. The Warrants are redeemable by the Company for
$0.05 per Warrant commencing one year from the date of this Prospectus provided
the closing bid price for the Company's common shares shall have averaged in
excess of $9.00 per share for thirty (30) consecutive business days ending
within five (5) days of the date of a Notice of Redemption. The Company has
undertaken to maintain the effectiveness of the registration statement filed
with the U. S. Securities and Exchange Commission covering the Class A warrants,
Class Z warrants and the underlying shares thereof to allow the exercise and
public resale of the warrants and the shares issueable upon exercise thereof.
Additional Securities Being Registered / Bridge Loan Units: The
Registration Statement of which this Prospectus is a part has registered the
issuance of 15 Bridge Loan Units Each consisting of one (1) $25,000 secured
Promissory Note, 50,000 common shares, 50,000 Class A Bridge Warrants to acquire
one (1) common share at $5.25 per share and 50,000 Class Z Bridge Warrants to
acquire one (1) common share at $10 per share. The Bridge Loan Units were issued
in a private placement conducted by the Company in May, 1996 in which the
Company accepted 1/2 units. The Underwriters are not offering any of these
securities in the Offering. The common shares, Class "A" warrants and Class "Z"
warrants contained in the Bridge Loan Units may be sold by the holders thereof
from time to time at prevailing market prices.
The Bridge Loan Promissory Notes bear interest at the rate of five percent
(5%) per annum and are due and payable on the earlier of the closing of the
Public Offering or October 26, 1996. The Bridge Loan Promissory Notes are
secured by substantially all of the assets of the Company and a personal
guaranty granted by Michael Krall, the Company's president.
The Class A Warrants and the Class Z Warrants cannot be exercised for one
year and two years respectively and both expire in May, 2001. The Company will
receive the exercise price of the Bridge Loan Unit warrants, but will not
receive any of the proceeds from any sale of the Bridge Loan Unit shares or the
shares underlying the warrants. The Class A Bridge Loan Warrants are
exerciseable in May, 1996 and expire in May, 2001. The Class Z Bridge Loan
Warrants are exerciseable in May, 1998 and expire in May, 2001. The
23
<PAGE> 26
Bridge Loan Warrants have anti-dilution provisions and may be redeemed by the
Company at $0.05 and $0.10 per Class A and Class Z Warrant respectively
commencing one and two years respectively from the date of this Prospectus
provided that the prior to any call for redemption, the closing bid price for
the Company's common shares shall have for thirty (30) consecutive business days
ending within five days of the date of notice of redemption, averaged in excess
of $9.00 per share for the Class A Warrants and $15.00 per share for the Class Z
Warrants.
The holders of the Bridge Loan Units also have the one time right to
require the Company to register the securities under the Securities Act of 1933
as amended and rights to have the securities included in any appropriate
registration statement the Company may file in the future.
DIVIDEND POLICY
The Company has never paid dividends to its shareholders and intends to
retain all earnings of the Company for business development purposes for the
foreseeable future. Each outstanding share of common stock is entitled to
receive its pro rata portion of any dividends declared by the Board of Directors
from funds legally available for that purpose.
UNDERWRITING
The Underwriters named below, for whom Monitor Investment Group, Inc., is
the Representative, have agreed, severally and not jointly to the terms and
conditions of an Underwriting Agreement dated the date hereof to purchase from
the Company the Shares and the Warrants offered hereby in the amounts set forth
below:
<TABLE>
<CAPTION>
COMMON SHARES CLASS A WARRANTS
------------- ----------------
<S> <C> <C>
Monitor Investment Group, Inc...........................
Meyers Pollock Robbins Inc..............................
Total.........................................
------------- ----------------
</TABLE>
The Underwriting Agreement provides that the Underwriters will purchase the
Shares offered hereby for $3.60 per Share and the Class A Warrants for $0.09 per
Warrant, representing a discount of 10% from the public offering price.
The Company has granted the Representative an Overallotment Option,
exerciseable during the 30 day period after the date of this Prospectus, to
purchase up to a maximum of an additional 187,500 Shares and 187,500 Warrants on
the same terms as the Shares and Warrants being purchased by the Underwriters
from the Company. The Representative may exercise the Overallotment Option only
to cover overallotments made in connection with this offering.
The Representative of the Underwriters will receive at closing a
non-accountable expense allowance of three percent (3%) of the public offering
price for all Shares and Warrants sold during the offering reduced by $50,000
previously paid by the Company as an advance against this allowance.
The Representative shall also receive warrants to purchase additional
shares of common stock in an amount equal to ten percent (10%) of the securities
sold during the offering. The Representative's Warrants are exerciseable at
$4.40 per share (one hundred ten percent (110%) of the offering price) for a
period of five years from the date of the offering and carry certain rights to
be included within any appropriate registration statement which the Company may
file in order to permit the public resale of the underlying common stock.
The Company, its directors, officers and holders of greater than five
percent (5%) of the outstanding shares are subject to an agreement with the
Underwriters to refrain from selling any their individual holding without the
Representative consent for a two year period. Shareholders other than officers,
directors and holders of greater than five percent (5%) of the outstanding
shares are subject to an agreement with the Underwriters to refrain from selling
more than ten percent (10%) of their individual holding without the
Representative consent for a two year period.
24
<PAGE> 27
There is currently no market for the common shares of the Company and there
can be no assurance that a market will develop following the offering. The
initial public offering price of the Shares was determined by negotiations
between the Representative and the Company. Among the factors considered in
determining the initial public offering price were the history and the prospects
for the Company, the market for the Company's products, assessment of the
Company's management, the number of shares offered, the price that purchasers of
such securities are likely to pay, given the nature of the Company, and the
general condition of the securities markets at the time of the offering.
Accordingly the price set forth on the cover of the Prospectus should not be
taken as an actual value of the Company or the common shares.
The Company and the Underwriters have agreed to indemnify each other
against certain liabilities under the Securities Act of 1933 as amended, and if
such indemnification's are not available then a reciprocal indemnification and
contribution arrangement will take effect. It is the position of the Securities
and Exchange Commission that exculpation and indemnification for liabilities
arising under the Securities and Exchange Act of 1934 as amended, and the rules
and regulations thereunder is against public policy and therefore unenforceable.
The Company has further agreed with the Representative that the Company will
file a registration statement pursuant to Section 12(g) of the Securities
Exchange Act of 1934 as amended no later than the date of this Prospectus and
use its best efforts to cause the same to become effective. The Company and the
Representative have also agreed that the Company will take all steps necessary,
and will obtain a Notice of Listing Upon Notice of Effectiveness by NASDAQ prior
to completion of the offering.
Pursuant to the Underwriting Agreement, the Representative of the
Underwriters is entitled to nominate a Director for election for a five years
following the Offering and Mr. Krall and Mr. Thomas Smith, Jr., have agreed to
vote their shares for the election of the Representative's nominee.
The foregoing does not purport to be a complete statement of the terms and
conditions of the Underwriting Agreement, copies of which are at the offices of
the Representative, the Company and the Securities and Exchange Commission,
Washington, D. C. and New York, New York.
TRANSFER AGENT
The Transfer Agent with respect to the Shares is American Securities
Transfer, Inc., Denver, Colorado.
LEGAL MATTERS
The legality of the Securities of the Company offered will be passed on for
the Company by Dennis Brovarone, Attorney at Law, 2530 South Linley Court,
Denver, Colorado 80219. Mr. Brovarone is also a Director of the Company.
EXPERTS
The financial statements and schedules included in this Prospectus, to the
extent and for the periods indicated in the reports, have been audited by Steven
Holland, Certified Public Accountant for the periods ended July 31, 1995 and
1994 and are included herein in reliance on the authority of Mr. Holland as an
expert in accounting and auditing in giving such reports.
25
<PAGE> 28
INNOVATIVE MEDICAL SERVICES
FINANCIAL STATEMENTS AND
SUPPLEMENTARY INFORMATION
FOR THE YEARS ENDED JULY 31, 1995 AND JULY 31, 1994
<PAGE> 29
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
To the Board of Directors and Stockholders
Innovative Medical Services
El Cajon, California
I have audited the balance sheets of Innovative Medical Services as of July
31, 1995 and July 31, 1994 and the related statements of income, accumulated
deficit, and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. My responsibility is to express
an opinion on these financial statements based on my audit.
I conducted the audit in accordance with generally accepted auditing
standards. Those standards require that I plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audits provide a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Innovative Medical Services
as at July 31, 1995 and July 31, 1994, and the results of its operations and its
cash flows for the years then ended in conformity with generally accepted
accounting principles.
Steven Holland
Certified Public Accountant
San Diego, California
October 15, 1995
F-1
<PAGE> 30
INNOVATIVE MEDICAL SERVICES
BALANCE SHEETS
<TABLE>
<CAPTION>
JULY 31,
-----------------------
1995 1994
--------- ---------
<S> <C> <C>
ASSETS
Current Assets
Cash............................................................... $ 47,180 $ 6,549
Accounts receivable, net of allowance for doubtful accounts of
$500............................................................ 174,785 43,906
Notes receivable (Note 2).......................................... 24,986 21,449
Due from employees................................................. 4,024 1,390
Due from shareholders (Note 3)..................................... 20,000 0
Inventories........................................................ 23,110 5,882
--------- ---------
Total current assets....................................... 294,085 79,176
--------- ---------
Property, Plant & Equipment
Property, plant & equipment (Note 4)............................... 91,498 99,670
--------- ---------
Total property, plant & equipment.......................... 91,498 99,670
--------- ---------
Noncurrent Assets
Organizational costs, net (Note 1)................................. 2,064 3,096
Deferred public offering costs (Note 1)............................ 37,630 32,380
--------- ---------
Total noncurrent assets.................................... 39,694 35,476
--------- ---------
Total assets............................................... $ 425,277 $ 214,322
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable................................................... $ 164,938 $ 44,417
Note payable (Note 5).............................................. 0 16,620
Accrued liabilities................................................ 4,604 4,782
--------- ---------
Total current liabilities.................................. 169,542 65,819
--------- ---------
Long-Term Debt (Note 5).............................................. 25,000 30,000
--------- ---------
Stockholders' Equity
Class A common stock, no par value; authorized 5,000,000 shares,
issued and outstanding 2,687,750 shares at July 31, 1995 and
2,568,750 shares at July 31, 1994 (Note 7 & Note 9)............. 591,961 482,171
Accumulated deficit................................................ (361,226) (363,668)
--------- ---------
Total stockholders' equity................................. 230,735 118,503
--------- ---------
Total liabilities and stockholders' equity................. $ 425,277 $ 214,322
========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-2
<PAGE> 31
INNOVATIVE MEDICAL SERVICES
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
JULY 31,
----------------------
1995 1994
-------- ---------
<S> <C> <C>
Net sales............................................................. $459,330 $ 178,932
Cost of sales......................................................... 290,609 170,763
-------- ---------
Gross profit.......................................................... 168,721 8,169
-------- ---------
Selling Expenses...................................................... 33,375 40,444
General and administrative expenses................................... 137,651 138,625
-------- ---------
Total operating costs....................................... 171,026 179,069
-------- ---------
Operating income (loss)............................................... (2,305) (170,900)
-------- ---------
Other income and (expense):
Interest income..................................................... 3,266 170
Miscellaneous income and (expense).................................. 2,281 418
-------- ---------
Total other income and (expense)............................ 5,547 588
-------- ---------
Income (loss) before income taxes..................................... 3,242 (170,312)
Federal and state income taxes (Note 1)............................... 800 800
-------- ---------
Net income (loss)..................................................... $ 2,442 $(171,112)
======== =========
Earnings per common share
Net income (loss)................................................... $ 0.00 $ (0.07)
======== =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE> 32
INNOVATIVE MEDICAL SERVICES
STATEMENTS OF ACCUMULATED DEFICIT
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
JULY 31,
-----------------------
1995 1994
--------- ---------
<S> <C> <C>
Balance, beginning of year........................................... $(363,668) $(192,556)
Net income (loss).................................................... 2,442 (171,112)
--------- ---------
Balance, end of year................................................. $(361,226) $(363,668)
========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE> 33
INNOVATIVE MEDICAL SERVICES
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
JULY 31,
-----------------------
1995 1994
--------- ---------
<S> <C> <C>
Cash flows from operating activities
Net income (loss).................................................. $ 2,442 $(171,112)
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation.................................................... 16,395 13,842
Amortization.................................................... 1,032 1,032
Officers wages contributed to capital........................... 45,000 30,000
Changes in assets and liabilities:
(Increase) in accounts receivable............................... (130,879) (34,250)
(Increase) in note receivable................................... (3,537) (22,735)
(Increase) decrease in due from employees....................... (2,634) 310
(Increase) in inventory......................................... (17,228) 9,432
(Increase) in deferred public offering costs.................... (5,250) (32,380)
Increase in accounts payable.................................... 120,522 29,116
Increase (decrease) in accrued liabilities...................... (178) 1,712
--------- ---------
Net cash provided by operating activities.................. 25,685 (175,033)
--------- ---------
Cash flows from investing activities
Purchase of machinery and equipment................................ (8,224) (15,398)
--------- ---------
Net cash (used) in investing activities.................... (8,224) (15,398)
--------- ---------
Cash flows from financing activities
Increase (decrease) in notes payable............................... (21,620) 9,039
Proceeds from sale of common stock................................. 44,790 172,265
--------- ---------
Net cash provided by financing activities.................. 23,170 181,304
--------- ---------
Net increase (decrease) in cash............................ 40,631 (9,127)
Cash, at beginning of year........................................... 6,549 15,676
--------- ---------
Cash, at end of year................................................. $ 47,180 $ 6,549
========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE> 34
INNOVATIVE MEDICAL SERVICES
NOTES TO FINANCIAL STATEMENTS
SEE ACCOUNTANTS' REPORT
NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Business Activity
Innovative Medical Services was incorporated in San Diego, California on
August 24, 1992. The Company was organized with the purpose of manufacturing,
marketing, and sales of the Fillmaster, a unique and proprietary pharmaceutical
water purification and dispensing product. The Company is fully operational,
with more than 2,500 customers in all fifty states, Puerto Rico, The United
Kingdom, Australia, Canada, and Europe. The Company intends to expand research
and development efforts in order to further develop its product line to include
an additional 11 proprietary pharmacy-related efficiency tools.
Revenue Recognition
The company recognizes revenues when products are delivered.
Research and Development
Research and development costs are charged to operations when incurred and
are included in operating expenses. The total amount charged to Research and
Development in years prior to July 31, 1994 was $34,697.
Depreciation Method
The cost of property, plant and equipment is depreciated on a straight line
basis over the estimated useful lives of the related assets. The useful lives of
property, plant, and equipment for purposes of computing depreciation are:
<TABLE>
<S> <C>
Computers and equipment............................. 7.0 years
Furniture and fixtures.............................. 10.0 years
Leasehold improvements.............................. 31.5 years
</TABLE>
Depreciation is computed on the Modified Accelerated Cost Recovery System
for tax purposes.
Amortization
The cost of organizational expenses are being amortized on a straight line
basis over their remaining lives of five (5) years. Amortization expense charged
to general and administrative expense for the years ended July 31, 1995 and 1994
was $1,032 and $1,032, respectively.
Inventory Cost Method
Inventories are stated at the lower of cost determined by the Average Cost
method and net realizable value.
Deferred Public Offering Cost
The company has incurred $37,630 of costs as of July 31, 1995 related to an
initial public offering. These costs have been deferred, pending completion of
the offering, at which time such costs will be reclassified to shareholders'
equity. Should the offering be unsuccessful, these costs will be expensed.
Income Taxes
At July 31, 1995, the Company has financial, federal, and California tax
net operating loss carryforwards of approximately $361,000, $219,000, and
$102,000, respectively. At July 31, 1994, the Company had financial, federal,
and California tax net operating loss carryforwards of approximately $364,000,
$231,000,
F-6
<PAGE> 35
INNOVATIVE MEDICAL SERVICES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
and $116,000, respectively. The difference between the financial reporting and
the federal tax loss carryforward is primarily due to the capitalization of
research and development expenses and start-up expenses for tax purposes with an
amortization over five (5) years, but for financial reporting purposes these
expenses are charged to operations as incurred. The difference between federal
and California tax loss carryforwards is primarily due to the fifty percent
limitation on California loss carryforwards. The tax loss carryforwards will
begin expiring in fiscal year ended July 31, 2009 unless previously utilized.
Under the Tax Reform Act of 1986, the use of the Company's net operating loss
carryforwards may be limited if the public offering contemplated results in a
cumulative change in ownership of more than 50%.
The Company adopted Financial Accounting Standards Board Statement No. 109,
Accounting for Income Taxes, beginning in fiscal year ended July 31, 1993. The
adoption had no impact on 1993 results. In accordance with this new standard,
the Company has recorded total deferred tax assets of $69,000 and $80,000 and a
related valuation reserve of $69,000 and $80,000 as of July 31, 1995 and 1994,
respectively. Realization of these deferred tax assets, which relate to
operating loss carryforwards and timing differences from the amortization of
research and development expenses and start-up expenses, is dependent on future
earnings. The timing and amount of future earnings are uncertain and therefore,
the valuation reserve has been established.
NOTE 2. NOTES RECEIVABLE
At July 31, 1995, notes receivable in the amount of $15,858 represents
amounts due from officers and $9,128 represents amounts due from a shareholder ,
all are due and payable within one year. At July 31, 1994, notes receivable in
the amount of $21,449 represent amounts due from a shareholder and previous
officer. The note receivable due from the shareholder at July 31, 1994 was paid
off during the fiscal year ended July 31, 1995.
NOTE 3. DUE FROM SHAREHOLDERS
At July 31, 1995, due from shareholders represents stock sold and issued
for which some payments were received after the year end.
NOTE 4. PROPERTY, PLANT AND EQUIPMENT
The following is a summary of property, plant, and equipment -- at cost,
less accumulated depreciation:
<TABLE>
<CAPTION>
JULY 31, 1995 JULY 31, 1994
------------- -------------
<S> <C> <C>
Computers and equipment...................................... $ 91,582 $ 86,598
Furniture and fixtures....................................... 20,336 17,155
Leasehold improvements....................................... 17,090 17,031
--------- ---------
129,008 120,784
Less: accumulated depreciation............................. 37,510 21,114
--------- ---------
Total.............................................. $ 91,498 $ 99,670
========= =========
</TABLE>
Depreciation expense charged to general and administrative expense for the
years ended July 31, 1995 and 1994 was $16,395 and $13,842, respectively.
F-7
<PAGE> 36
INNOVATIVE MEDICAL SERVICES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5. DEBT
The details relating to debt are as follows:
<TABLE>
<CAPTION>
JULY 31, 1995 JULY 31, 1994
------------- -------------
<S> <C> <C>
Unsecured note payable to officer and stockholder due on July
31, 1995 at 7% interest.................................... $ 0 $16,620
Notes payable to a stockholder with interest at 12% interest
payable in monthly installments of $247 and principal all
due and payable on January 1, 1997......................... 25,000 30,000
------------- -------------
Total debt......................................... 25,000 46,620
Less: Current maturities of notes payable included in current
liabilities................................................ 0 16,620
------------- -------------
Total long term debt............................... $25,000 $30,000
========= =========
</TABLE>
Following are maturities of long-term debt for each of the next 5 years:
<TABLE>
<S> <C>
Year ended July 31, 1996................................................... $ 0
Year ended July 31, 1997................................................... 25,000
-------
$25,000
=======
</TABLE>
During the fiscal year ended July 31, 1995, a stockholder converted $5,000
of notes payable to stock.
NOTE 6. COMMITMENTS
The company leases office and warehouse facilities under an operating lease
expiring on December 31, 1996. The rental expense recorded in general and
administrative expenses for the years ended July 31, 1995 and July 31, 1994 was
$13,631 and $14,432, respectively.
NOTE 7. CAPITAL STOCK
The following schedule summarizes the change in capital stock:
<TABLE>
<CAPTION>
COMMON COMMON
STOCK SHARES STOCK $
------------ --------
<S> <C> <C>
Balance, July 31, 1993......................................... 98,700 $272,906
Stock split.................................................... 2,017,520 0
Sale of stock.................................................. 436,030 169,265
Contribution of officers wages................................. 0 30,000
Stock issued for debt.......................................... 16,500 10,000
Balance, July 31, 1994......................................... 2,568,750 482,171
Sale of stock.................................................. 114,000 59,790
Contribution of officers wages................................. 0 45,000
Stock issued for debt.......................................... 5,000 5,000
Balance, July 31, 1995......................................... 2,687,750 $591,961
</TABLE>
On May 4, 1994, the shareholders voted to increase authorized common stock
from 100,000 to 5,000,000 shares. On November 22, 1993, the Board of Directors
authorized a stock split for shareholders of record of September 30, 1993,
thereby increasing the number of issued and outstanding shares to 2,117,520. All
references in the accompanying financial statements to the number of common
shares and per-share amounts have been restated to reflect the stock split. See
Note 9, Subsequent Events, which addresses a reverse stock split and additional
authorized shares as of April 17, 1996 which are not reflected in the financial
statements.
F-8
<PAGE> 37
INNOVATIVE MEDICAL SERVICES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8. RELATED PARTY TRANSACTIONS
On April 1, 1996, the Company entered into an employment agreement with the
President and Chief Executive Officer. The term of the agreement is for five
years with an automatic renewal of another five years. The following are the
major provisions of the agreement:
1. Compensation --
a. Salary of $108,000 per year, and
b. Additional compensation equal to 3% of the net income before
taxes earned by the corporation during each full fiscal year, and
c. A monthly amount of not more than $500 per month for a auto
lease, and
d. A five year option to purchase as many shares of the
corporation's common stock as equals one hundred thousand dollars at 80%
of the initial public offering price of the Company's common stock.
2. Compensation for past services -- In consideration of services
which have been rendered during the fiscal years ended July 31, 1994 and
July 31, 1995 and the eight months period ended March 31, 1996, the
corporation granted the following compensation for past services rendered:
a. $30,000 for fiscal year ended July 31, 1994, and
b. $45,000 for fiscal year ended July 31, 1995, and
c. $60,000 for the eight months ended March 31, 1996.
The President waived the payment of compensation for past services
and contributed this amount as an additional payment for the common
stock he presently owns.
NOTE 9. SUBSEQUENT EVENTS
Stock split and change in authorized shares
On April 17, 1996, the Board of Directors approved a 2 for 3 reverse stock
split of the common stock of the founding shareholders of the corporation, thus
reducing the outstanding shares. Also, the board authorized the issuance of 2
classes of shares, to be designated respectively as 'Common shares' and
'Preferred shares'. The total number of authorized common shares of the
corporation will be increased from 5,000,000 shares to 20,000,000 shares, with
no par value. The total number of authorized preferred shares of the corporation
will be increased from 1,000,000 shares to 5,000,000 shares, with no par value.
Stock option plans
On April 17, 1996, the Board of Directors and the shareholders approved a
stock option plan for the key employees of the Company and non-employee
Directors of the Company. Under the plan the number of shares of stock which may
be issued and sold shall not exceed 1,000,000 shares, with 900,000 shares
reserved for issuance to key employees pursuant to their Incentive Stock Options
and 100,000 shares reserved for issuance to non-employee Directors pursuant to
their non-statutory options. The per share option shall be determined by
committee, but the per share exercise price shall not be less than the fair
market value of the stock on the date the option is granted. No person shall
receive options, first exercisable during any single calendar year for stock,
the fair market value of which exceeds $100,000.
On April 17, 1996, the Board of Directors approved a stock option plan for
the executive officers and Directors of the Company. Under the plan the maximum
number of shares of stock which may be issued and sold shall not exceed
1,000,000 shares ,with the maximum number of shares for which an option may be
F-9
<PAGE> 38
INNOVATIVE MEDICAL SERVICES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
granted to any one Director or officer shall be 100,000. The per share option
price for the stock subject to each option shall be $1.00 per share or such
other price as the Board of Directors may determine.
NOTE 10. DEVELOPMENT STAGE
The company was formed on August 24, 1992 and was in the development stage
through July 31, 1993. The fiscal year ended July 31, 1994 is the first year
during which it is considered an operating company.
F-10
<PAGE> 39
AUDITOR'S REPORT ON SUPPLEMENTARY INFORMATION
Our audits of the basic financial statements were made primarily to form an
opinion on such financial statements taken as a whole. The supplementary
information contained in the following pages is presented for the purpose of
additional analysis and, although not required for a fair presentation of
financial position, results of operations, and cash flows, was subjected to the
audit procedures applied in the examinations of the basic financial statements.
In our opinion, the supplementary information is fairly presented in all
material respects in relation to the basic financial statements taken as a
whole.
Steven Holland
Certified Public Accountant
San Diego, Ca.
October 15, 1995
F-11
<PAGE> 40
INNOVATIVE MEDICAL SERVICES
SUPPLEMENTARY INFORMATION
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
JULY 31,
-------------------
1995 1994
-------- --------
<S> <C> <C>
Schedule of Cost of Sales
Material purchases..................................................... $250,148 $124,842
Production labor....................................................... 18,783 37,310
Freight................................................................ 21,214 8,210
Supplies and miscellaneous............................................. 464 401
-------- --------
Total cost of sales............................................ $290,609 $170,763
======== ========
Schedule of Selling Expenses
Advertising and promotion.............................................. $ 15,886 $ 8,378
Brochures and catalogs................................................. 80 5,126
Demo and evaluation systems............................................ 467 3,024
Marketing expenses..................................................... 3,448 1,635
Sales wages............................................................ 10,577 16,544
Travel and entertainment............................................... 2,877 3,987
Trade shows............................................................ 40 1,750
-------- --------
Total selling expenses......................................... $ 33,375 $ 40,444
======== ========
</TABLE>
F-12
<PAGE> 41
INNOVATIVE MEDICAL SERVICES
SUPPLEMENTARY INFORMATION
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
JULY 31
-------------------
1995 1994
-------- --------
<S> <C> <C>
Schedule of General and Administrative Expenses
Auto expenses.......................................................... $ 11,046 $ 11,384
Amortization........................................................... 1,032 1,032
Bank charges........................................................... 225 257
Computer expenses...................................................... 4,445 6,286
Contributions.......................................................... 0 120
Credit card fees....................................................... 78 342
Depreciation........................................................... 16,395 13,842
Dues and subscriptions................................................. 32 326
Equipment rental....................................................... 0 896
Insurance.............................................................. 5,334 10,060
Interest expense....................................................... 3,061 3,454
Legal and professional................................................. 2,503 6,906
License and permits.................................................... 52 337
Miscellaneous.......................................................... 556 697
Office supplies and expense............................................ 9,098 8,130
Office wages........................................................... 11,928 16,452
Officers wages......................................................... 45,000 30,000
Postage................................................................ 1,030 842
Rent expense........................................................... 13,631 14,432
Repairs and maintenance................................................ 262 1,074
Sales tax expense...................................................... 0 1,115
Security............................................................... 211 612
Telephone expense...................................................... 9,687 7,904
Utilities.............................................................. 2,045 2,125
-------- --------
Total general and administrative expenses...................... $137,651 $138,625
======== ========
</TABLE>
F-13
<PAGE> 42
INNOVATIVE MEDICAL SERVICES
FINANCIAL STATEMENTS AND
SUPPLEMENTARY INFORMATION
FOR THE SIX MONTHS ENDED JANUARY 31, 1996
(UNAUDITED)
F-14
<PAGE> 43
To the Board of Directors
Innovative Medical Services
El Cajon, California
I have compiled the accompanying balance sheet of Innovative Medical
Services (a corporation) as of January 31, 1996, and the related statements of
income, accumulated deficit, and cash flows for the six months then ended, and
the accompanying supplementary information contained in Schedules 1 & 2, which
are presented only for supplementary analysis purposes, in accordance with
Statements on Standards for Accounting and Review Services issued by the
American Institute of Certified Public Accountants.
A compilation is limited to presenting in the form of financial statements
and supplementary schedules information that is the representation of
management. The financial statements include all adjustments which in the
opinion of management are necessary to make the financial statements not
misleading. I have not audited or reviewed the accompanying financial statements
and supplementary schedules and, accordingly, do not express an opinion or any
other form of assurance on them.
Steven Holland
Certified Public Accountant
San Diego, California
April 15, 1996
F-15
<PAGE> 44
INNOVATIVE MEDICAL SERVICES
BALANCE SHEET
<TABLE>
<CAPTION>
JANUARY 31,
1996
-----------
(UNAUDITED)
<S> <C>
ASSETS
Current Assets
Cash............................................................................ $ 23,237
Accounts receivable, net of allowance for doubtful accounts of $506............. 55,940
Notes receivable (Note 2)....................................................... 55,473
Due from employees.............................................................. 2,629
Due from shareholders (Note 3).................................................. 210
Inventories..................................................................... 33,240
Prepaid expenses................................................................ 11,452
-----------
Total current assets.................................................... 182,181
-----------
Property, Plant and Equipment
Property, plant and equipment (Note 4).......................................... 112,505
-----------
Total property, plant and equipment..................................... 112,505
-----------
Noncurrent Assets
Organizational costs, net (Note 1).............................................. 1,548
Deferred public offering costs (Note 1)......................................... 72,465
-----------
Total noncurrent assets................................................. 74,013
-----------
Total assets............................................................ $ 368,699
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable................................................................ $ 74,670
Accrued liabilities............................................................. 1,924
Note payable (Note 5)........................................................... 25,000
-----------
Total current liabilities............................................... 101,594
-----------
Stockholders' Equity
Class A common stock, no par value authorized 5,000,000 shares, issued and
outstanding 2,743,250 shares at January 31, 1996 (Note 7 and Note 9)......... 647,171
Accumulated deficit............................................................. (380,066)
-----------
Total stockholders' equity.............................................. 267,105
-----------
Total liabilities and stockholders' equity.............................. $ 368,699
========
</TABLE>
See accompanying notes and accountant's report.
F-16
<PAGE> 45
INNOVATIVE MEDICAL SERVICES
STATEMENT OF INCOME
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED
JANUARY 31, 1996
----------------
(UNAUDITED)
<S> <C>
Net sales..................................................................... $612,657
Cost of sales................................................................. 443,223
----------------
Gross profit.................................................................. 169,434
----------------
Selling expenses.............................................................. 47,159
General and administrative expenses........................................... 141,116
----------------
Total operating costs............................................... 188,275
----------------
Operating income (loss)....................................................... (18,841)
----------------
Other income and (expense):
Miscellaneous income and (expense).......................................... 1
----------------
Total other income and (expense).................................... 1
----------------
Net income (loss)................................................... $(18,840)
============
</TABLE>
See accompanying notes and accountant's report.
F-17
<PAGE> 46
INNOVATIVE MEDICAL SERVICES
STATEMENT OF ACCUMULATED DEFICIT
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED
JANUARY 31, 1996
----------------
(UNAUDITED)
<S> <C>
Balance, beginning of year.................................................... $ (361,226)
Net income (loss)............................................................. (18,840)
----------------
Balance, end of quarter....................................................... $ (380,066)
============
</TABLE>
See accompanying notes and accountant's report.
F-18
<PAGE> 47
INNOVATIVE MEDICAL SERVICES
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED
JANUARY 31, 1996
----------------
(UNAUDITED)
<S> <C>
Cash flows from operating activities
Net income (loss)............................................................. $(18,840)
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation............................................................. 8,251
Amortization............................................................. 516
Officers wages contributed............................................... 33,000
Changes in assets and liabilities:
Decrease in accounts receivable.......................................... 118,845
(Increase) in note receivable............................................ (30,487)
Decrease in due from employees........................................... 1,395
Decrease in due from shareholders........................................ 19,800
(Increase) in inventory.................................................. (10,130)
(Increase) in prepaids................................................... (11,462)
(Increase) in deferred public offering costs............................. (34,835)
(Decrease) in accounts payable........................................... (90,268)
(Decrease) in accrued liabilities........................................ (2,680)
----------------
Net cash provided by operating activities........................... (16,895)
----------------
Cash flows from investing activities
Purchase of machinery and equipment......................................... (29,258)
----------------
Net cash (used) in investing activities............................. (29,258)
----------------
Cash flows from financing activities
Proceeds from sale of common stock.......................................... 22,210
----------------
Net cash provided by financing activities........................... 22,210
----------------
Net increase (decrease) in cash..................................... (23,943)
Cash, at beginning of year.................................................... 47,180
----------------
Cash, at January 31, 1996..................................................... $ 23,237
============
</TABLE>
See accompanying notes and accountant's report.
F-19
<PAGE> 48
INNOVATIVE MEDICAL SERVICES
NOTES TO FINANCIAL STATEMENTS
SEE ACCOUNTANTS' REPORT
NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Business Activity
Innovative Medical Services was incorporated in San Diego, California on
August 24, 1992. The Company was organized with the purpose of manufacturing,
marketing, and sales of the Fillmaster, a unique and proprietary pharmaceutical
water purification and dispensing product. The Company is fully operational,
with more than 2500 customers in all fifty states, Puerto Rico, The United
Kingdom, Australia, Canada, and Europe. The Company intends to expand research
and development efforts in order to further develop its product line to include
an additional 11 proprietary pharmacy-related efficiency tools.
Revenue Recognition
The company recognizes revenues when products are delivered.
Research and Development
Research and development costs are charged to operations when incurred and
are included in operating expenses. The total amount charged to Research and
Development in prior years was $34,697.
Depreciation Method
The cost of property, plant and equipment is depreciated on a straight line
basis over the estimated useful lives of the related assets. The useful lives of
property, plant, and equipment for purposes of computing depreciation are:
<TABLE>
<S> <C>
Computers and equipment.................................. 7.0 years
Furniture and fixtures................................... 10.0 years
Leasehold improvements................................... 31.5 years
</TABLE>
Depreciation is computed on the Modified Accelerated Cost Recovery System
for tax purposes.
Amortization
The cost of organizational expenses are being amortized on a straight line
basis over their remaining lives of five (5) years. Amortization expense charged
to general and administrative expense for the six months ended January 31, 1996
was $516.
Inventory Cost Method
Inventories are stated at the lower of cost determined by the Average Cost
method and net realizable value.
Deferred Public Offering Cost
The company has incurred $72,465 of costs as of January 31, 1996 related to
an initial public offering. These costs have been deferred, pending completion
of the offering, at which time such costs will be reclassified to shareholders'
equity. Should the offering be unsuccessful, these costs will be expensed.
Income Taxes
At January 31, 1996, the Company has financial, federal, and California tax
net operating loss carryforwards of approximately $377,000, $216,000, and
$87,000, respectively. The difference between the financial reporting and the
federal tax loss carryforward is primarily due to the capitalization of research
and
F-20
<PAGE> 49
INNOVATIVE MEDICAL SERVICES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
development expenses and start-up expenses for tax purposes with an amortization
over five (5) years, but for financial reporting purposes these expenses are
charged to operations as incurred. The difference between federal and California
tax loss carryforwards is primarily due to the fifty percent limitation on
California loss carryforwards. The tax loss carryforwards will begin expiring in
fiscal year ended July 31, 2009, unless previously utilized. Under the Tax
Reform Act of 1986, the use of the Company's net operating loss carryforwards
may be limited if the public offering contemplated results in a cumulative
change in ownership of more than 50%.
The Company adopted Financial Accounting Standards Board Statement No. 109,
Accounting for Income Taxes, beginning in fiscal year ended July 31, 1993. The
adoption had no impact on 1993 results. In accordance with this new standard,
the Company has recorded total deferred tax assets of $65,000 and a related
valuation reserve of $65,000, as of January 31, 1996. Realization of these
deferred tax assets, which relate to operating loss carryforwards and timing
differences from the amortization of research and development expenses and
start-up expenses, is dependent on future earnings. The timing and amount of
future earnings are uncertain and therefore, the valuation reserve has been
established.
NOTE 2. NOTES RECEIVABLE
At January 31, 1995, notes receivable in the amount of $45,845 represents
amounts due from officers and $9,628 represents amounts due from a shareholder.
All notes receivable are due and payable within one year.
NOTE 3. DUE FROM SHAREHOLDERS
At January 31, 1996, due from shareholders represents stock sold and issued
for which some payments were received after January 31, 1996.
NOTE 4. PROPERTY, PLANT AND EQUIPMENT
The following is a summary of property, plant, and equipment -- at cost,
less accumulated depreciation:
<TABLE>
<CAPTION>
JANUARY 31, 1996
----------------
<S> <C>
Computers and equipment............................................... $102,005
Furniture and fixtures................................................ 38,227
Leasehold improvements................................................ 18,034
--------
158,266
Less: accumulated depreciation...................................... 45,761
--------
Total....................................................... $112,505
========
</TABLE>
Depreciation expense charged to general and administrative expense for the
six months ended January 31, 1996 was $8,251.
NOTE 5. DEBT
The details relating to debt at January 31, 1996 are as follows:
<TABLE>
<S> <C>
Note payable to a stockholder with interest at 12% interest payable in
monthly installments of $247 and principal all due and payable on January
1, 1997.................................................................. $25,000
Less: Current maturities of note payable included in current liabilities... 25,000
-------
Total long term debt............................................. $ 0
=======
</TABLE>
F-21
<PAGE> 50
INNOVATIVE MEDICAL SERVICES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6. COMMITMENTS
The Company leases office and warehouse facilities under an operating lease
expiring on December 31, 1996. The total rental expense in general and
administrative expenses for the six months ended January 31, 1996 was $14,974.
NOTE 7. CAPITAL STOCK
The following schedule summarizes the change in capital stock:
<TABLE>
<CAPTION>
COMMON COMMON
STOCK SHARES STOCK $
------------ --------
<S> <C> <C>
Balance, July 31, 1993......................................... 98,700 $272,906
Stock split.................................................... 2,017,520 00
Sale of stock.................................................. 436,030 169,265
Stock issued for debt.......................................... 16,500 10,000
Contribution of officers wages................................. 0 30,000
Balance, July 31, 1994......................................... 2,568,750 482,171
Sale of stock.................................................. 114,000 59,790
Stock issued for debt.......................................... 5,000 5,000
Contribution of officers wages................................. 0 45,000
Balance, July 31, 1995......................................... 2,687,750 591,961
Sale of stock.................................................. 55,500 22,210
Contribution of officers wages................................. 0 33,000
Balance, January 31, 1996...................................... 2,743,250 $647,171
</TABLE>
On May 4, 1994, the shareholders voted to increase authorized common stock
from 100,000 to 5,000,000 shares. On November 22, 1993, the Board of Directors
authorized a stock split for shareholders of record of September 30, 1993,
thereby increasing the number of issued and outstanding shares to 2,117,520. All
references in the accompanying financial statements to the number of common
shares and per-share amounts have been restated to reflect the stock split. See
Note 9, Subsequent Events, for stock activity subsequent to January 31, 1996 not
reflected in the financial statements.
NOTE 8. RELATED PARTY TRANSACTIONS
On April 1, 1996, the Company entered into an employment agreement with the
President and Chief Executive Officer. The term of the agreement is for five
years with an automatic renewal of another five years. The following are the
major provisions of the agreement:
1. Compensation --
a. Salary of $108,000 per year, and
b. Additional compensation equal to 3% of the net income before
taxes earned by the corporation during each full fiscal year, and
c. A monthly amount of not more than $500 per month for a auto
lease, and
d. A five year option to purchase as many shares of the
corporation's common stock as equals one hundred thousand dollars at 80%
of the initial public offering price of the Company's common stock.
F-22
<PAGE> 51
INNOVATIVE MEDICAL SERVICES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. Compensation for past services --
In consideration of services which have been rendered during the
fiscal years ended July 31, 1994 and July 31, 1995 and the eight months
period ended March 31, 1996, the corporation granted the following
compensation for past services rendered:
a. $30,000 for fiscal year ended July 31, 1994, and
b. $45,000 for fiscal year ended July 31, 1995, and
c. $60,000 for the eight months ended March 31, 1996.
The President waived the payment of compensation for past
services and contributed this amount as an additional payment for the
common stock he presently owns.
NOTE 9. SUBSEQUENT EVENTS
Stock split and change in authorized shares
On April 17, 1996, the Board of Directors approved a 2 for 3 reverse stock
split of the common stock of the founding shareholders of the corporation , thus
reducing the outstanding shares. Also, the board authorized the issuance of 2
classes of shares, to be designated respectively as "Common shares" and
"Preferred shares". The total number of authorized common shares of the
corporation will be increased from 5,000,000 shares to 20,000,000 shares, with
no par value. The total number of authorized preferred shares of the corporation
will be increased from 1,000,000 shares to 5,000,000 shares, with no par value.
Stock option plans
On April 17, 1996, the Board of Directors and the shareholders approved a
stock option plan for the key employees of the Company and non-employee
Directors of the Company. Under the plan the number of shares of stock which may
be issued and sold shall not exceed 1,000,000 shares, with 900,000 shares
reserved for issuance to key employees pursuant to their Incentive Stock Options
and 100,000 shares reserved for issuance to non-employee Directors pursuant to
their non-statutory options. The per share option shall be determined by
committee, but the per share exercise price shall not be less than the fair
market value of the stock on the date the option is granted. No person shall
receive options, first exercisable during any single calendar year for stock,
the fair market value of which exceeds $100,000.
On April 17, 1996, the Board of Directors approved a stock option plan for
the executive officers and Directors of the Company. Under the plan the maximum
number of shares of stock which may be issued and sold shall not exceed
1,000,000 shares ,with the maximum number of shares for which an option may be
granted to any one Director or officer shall be 100,000. The per share option
price for the stock subject to each option shall be $1.00 per share or such
other price as the Board of Directors may determine.
F-23
<PAGE> 52
SUPPLEMENTARY INFORMATION
F-24
<PAGE> 53
INNOVATIVE MEDICAL SERVICES
SUPPLEMENTARY INFORMATION -- SCHEDULE 1
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
JANUARY 31, 1996
------------------------
(UNAUDITED)
<S> <C>
Schedule of Cost of Sales
Material purchases................................................... $377,347
Production labor..................................................... 39,764
Freight.............................................................. 25,793
Supplies and miscellaneous........................................... 319
--------
Total cost of sales.......................................... $443,223
========
Schedule of Selling Expenses
Advertising and promotion............................................ $ 336
Brochures and catalogs............................................... 1,634
Marketing expenses................................................... 4,106
Sales wages.......................................................... 24,122
Travel and entertainment............................................. 5,860
Trade shows.......................................................... 11,101
--------
Total selling expenses....................................... $ 47,159
========
</TABLE>
F-25
<PAGE> 54
INNOVATIVE MEDICAL SERVICES
SUPPLEMENTARY INFORMATION -- SCHEDULE 2
Schedule of General and Administrative Expenses
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS ENDED
JANUARY 31, 1996
----------------
(UNAUDITED)
<S> <C>
Auto expenses............................................................... $ 5,389
Amortization................................................................ 516
Bank charges................................................................ 628
Computer expenses........................................................... 3,873
Contributions............................................................... 130
Credit card fees............................................................ 50
Depreciation................................................................ 8,251
Dues and subscriptions...................................................... 2,662
Equipment rental............................................................ 3,419
Insurance................................................................... 2,846
Interest expense............................................................ 1,728
Legal and professional...................................................... 1,940
Office supplies and expense................................................. 9,324
Office wages................................................................ 23,576
Officers wages.............................................................. 45,000
Postage..................................................................... 660
Rent expense................................................................ 14,974
Repairs and maintenance..................................................... 2,650
Security.................................................................... 105
Taxes -- business........................................................... 2,490
Taxes -- payroll............................................................ 6,068
Telephone expense........................................................... 3,341
Utilities................................................................... 1,496
--------
Total general and administrative expenses........................... $141,116
========
</TABLE>
F-26
<PAGE> 55
================================================================================
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND IF GIVEN OR MADE SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY SECURITIES OTHER THAN THE SHARES OFFERED BY THIS PROSPECTUS OR
AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE SHARES AND THE
WARRANTS IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION IN SUCH JURISDICTION.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 5
Use of Proceeds....................... 9
Dilution.............................. 10
Management's Discussion and Analysis
of Financial Condition.............. 11
The Company and its Business.......... 15
Management............................ 18
Security Ownership of Management and
Principal Shareholders.............. 21
Market for the Company's Common Stock
and Related Stockholder Matters..... 22
Certain Transactions.................. 22
Description of Securities............. 23
Underwriting.......................... 24
Transfer Agent........................ 25
Legal Matters......................... 25
Experts............................... 25
Financial Statements.................. F-1
</TABLE>
UNTIL JUNE , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDER-WRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
================================================================================
================================================================================
INNOVATIVE MEDICAL SERVICES
LOGO
-------------------------
PROSPECTUS
-------------------------
MONITOR INVESTMENT
GROUP, INC.
MEYERS POLLOCK
ROBBINS, INC.
MAY , 1996
================================================================================
<PAGE> 56
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The only statute, charter provision, bylaw, contract, or other arrangement
under which any controlling persons, director or officer of the Registrant is
insured or indemnified in any manner against any liability which he may incur in
his capacity as such, is as follows:
(a) The Company's Certificate of Incorporation provides the Company's
Officers and Directors the full extent of the protection offered by the
General Corporation Law of the State of California.
(b) The General Corporation Law of the State of California provides
that a corporation may include a provision eliminating or limiting the
personal liability of a director to the corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director, provided that
such provision shall not eliminate or limit the liability of a director (i)
for any breach of the directors' duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under the
Corporation Law dealing with the liability of directors for unlawful
payment of dividend or unlawful stock purchase or redemption, or (iv) for
any transaction from which the director derived an improper personal
benefit. No such provision shall eliminate or limit the liability of a
director for any act or omission occurring prior to the date when such
provision becomes effective.
(c) The Company's Bylaws provide that the Company may indemnify its
Officers and Directors to the full extent permitted by the General
Corporation Law of the State of California.
(d) The General Corporation Law of the State of California provides
that a corporation may indemnify its directors and officers against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and incurred by them in connection with any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the rights
of the corporation), by reason of being or having been directors or
officers, if such directors or officers acted in good faith and in a manner
reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceeding, they
had no reasonable cause to believe their conduct was unlawful. The
indemnification provided the General Corporation Law of the State of
California is not exclusive of any other rights arising under any by-law,
agreement, vote of stockholders or disinterested directors or otherwise.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses of the offering, all of which are to be borne by the
Registrant, are as follows:
<TABLE>
<S> <C>
SEC Filing Fee.......................................................... $ 2,300.00
NASD Filing Fee......................................................... 1,150.00
Printing and Advertising Expenses....................................... 50,000.00*
Accounting Fees and Expenses............................................ 30,000.00*
Legal Fees and Expenses................................................. 90,000.00*
Blue Sky Fees and Expenses.............................................. 10,000.00*
Miscellaneous........................................................... 1,650.00*
-----------
Total......................................................... $180,000.00*
==========
</TABLE>
- ---------------
* Estimated.
II-1
<PAGE> 57
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
During the past three years, the Registrant sold securities which were not
registered under the Securities Act of 1933, as amended, as follows:
<TABLE>
<CAPTION>
TOTAL
NAME OF PURCHASER DATE SECURITY(1) CONSIDERATION
- ------------------------------------------------------ --------- ----------- ----------------
<S> <C> <C> <C>
Thomas E. Smith, R. Ph.(2)(3)......................... 9/1/92 946,460 capital & equip.
Michael L. Krall(2)(3)................................ 9/1/92 946,460 capital & equip.
Norman Anderson....................................... 10/14/92 55,000 25,000
Leonard M. Krall...................................... 10/14/92 12,100 6,000
Charles Lewis, MD..................................... 10/14/92 11,000 10,000
Thomas E. Smith, Sr................................... 10/16/92 16,500 10,000
Joel B. Richey, PT.................................... 11/25/92 16,500 15,000
Stephan Gillespie, R.Ph............................... 1/22/93 55,000 50,000
Spencer Dowell, R.Ph.................................. 1/28/93 7,700 7,000
Christine Givant, R.Ph................................ 1/28/93 5,500 5,000
Patrick S. Galuska.................................... 4/26/93 11,000 10,000
Thomas Balaskas, R.Ph................................. 9/22/93 11,000 10,000
Daniel F. Smith....................................... 9/22/93 3,300 3,000
David Reitz(4)........................................ 11/1/93 135,000 services
Robert L. Shear(4).................................... 11/1/93 75,000 services
Thomas Balaskas, R.Ph................................. 12/17/93 5,500 5,000
David Duea............................................ 1/1/94 3,630 services
Patrick S. Galuska.................................... 1/1/94 33,000 20,000
Dennis Atchley, Esq................................... 1/3/94 33,000 services
Gary Brownell, CPA.................................... 1/3/94 27,500 services
Eugene Peiser, PD..................................... 1/24/94 5,500 5,000
Norman Anderson....................................... 2/1/94 22,000 10,000
William Ross.......................................... 2/5/94 11,000 10,000
Steven Nelson, R.Ph................................... 2/14/94 22,000 20,000
Robert Abrigo......................................... 3/4/94 30,800 40,000
Janet V. Gammell...................................... 3/14/94 2,750 5,000
Frank Short........................................... 3/14/94 5,500 5,000
John R. Stevenson, MD................................. 3/16/94 27,500 25,000
Gary Pernicano........................................ 3/25/94 1,650 3,000
Steven Dryden, R.Ph................................... 4/12/94 1,650 3,000
Linus Lee............................................. 7/12/94 2,750 5,000
Howard Hervey......................................... 7/22/94 2,750 5,000
William G. Metze...................................... 7/22/94 2,750 5,000
Thomas Vollmer........................................ 8/8/94 5,500 5,000
William H. Newkirk, Esq............................... 8/13/94 5,500 5,000
Carolyn Konecki....................................... 8/18/94 1,000 services
Steven Nelson, R.Ph................................... 9/16/94 102,000 50,000
William G. Metze(2)................................... 11/21/94 2,000 2,000
Robert Abrigo(2)...................................... 11/22/94 9,000 9,000
Steven Dryden, R.Ph.(2)............................... 11/22/94 5,000 5,000
Patrick S. Galuska(2)................................. 11/22/94 6,000 6,000
Eugene Peiser, PD.(2)................................. 11/22/94 3,000 3,000
Frank Short(2)........................................ 11/22/94 2,500 2,500
Thomas Balaskas, R.Ph.(2)............................. 11/22/94 5,000 5,000
Thomas E. Smith, Sr.(2)............................... 11/22/94 5,000 5,000
</TABLE>
II-2
<PAGE> 58
<TABLE>
<CAPTION>
TOTAL
NAME OF PURCHASER DATE SECURITY(1) CONSIDERATION
- ----------------- -------- -------- ----------------
<S> <C> <C> <C>
John R. Stevenson, MD.(2)............................. 11/23/94 25,000 25,000
William Strang........................................ 8/22/95 14,000 21,000
Eugene Peiser, PD..................................... 10/18/95 1,000 1,000
Dennis Brovarone...................................... 12/10/95 20,000 services
</TABLE>
- ---------------
(1) All securities are common stock and do not reflect the 2 for 3 reverse split
effective in April, 1996.
(2) 29,000 shares were each sold by Mr. Krall and Thomas E. Smith, (Jr.) to the
indicated shareholders with proceeds of the sale being contributed to the
Company in partial repayment of debt. Please see Certain Transactions.
(3) Shares were previously issued for cash and services which were never
received by the Company. On April 17, 1996, the Board of Directors resolved
to cancel these certificates and notice thereof has been provided to the
holders.
With respect to the sales made, the Company or its affiliates relied on
Section 4(2) of the Securities Act of 1933, as amended. No advertising or
general solicitation was employed in offering the securities. The securities
were offered to officers and directors who had access to information by virtue
of their relationship as officers and directors of the Company or to persons
with a prior business or family relationship with officers and directors of the
Company. The securities were offered for investment only and not for the purpose
of resale or distribution, and the transfer thereof was appropriately restricted
by the Company.
ITEM 27. EXHIBITS.
The following Exhibits are filed as part of this Registration Statement
pursuant to Item 601 of Regulation S-B:
<TABLE>
<CAPTION>
EXHIBIT NO. TITLE
- ----------- -----
<C> <S>
1.1 -- Underwriting Agreement
1.2 -- Agreement Among Underwriters
1.3 -- Underwriters Warrants
3.1 -- Articles of Incorporation, Articles of Amendment and Bylaws
4.1 -- Form of Class A Warrant
5.1 -- Opinion of Dennis Brovarone, Attorney at Law,
10.1 -- Confidentiality and Non-Competition Agreement
10.2 -- Employment Contract/Michael L. Krall
23.1 -- Consent of Dennis Brovarone, Attorney at Law
23.2 -- Consent of Steven Holland, Certified Public Accountant
</TABLE>
ITEM 28. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-3
<PAGE> 59
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)(3) of the
Securities Act of 1933;
(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 change in the information set forth
in the registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, 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.
II-4
<PAGE> 60
SIGNATURES
In accordance with the requirements of the Securities Act of 1933 as
amended, the Registrant certifies that it has reasonable grounds to believe that
it meets all the requirements for filing on Form SB-2 and authorized this
Amendment No. 1 to the Registration Statement to be signed on its behalf by the
undersigned thereunto duly authorized, in the City of El Cajon, State of
California on May 14, 1996.
INNOVATIVE MEDICAL SERVICES
By: /s/ MICHAEL L. KRALL
------------------------------------
Michael L. Krall
Executive Officer
In accordance with the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed by the following persons in
the capacities and on the dates stated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ MICHAEL L. KRALL President, Chief Executive May 14, 1996
- --------------------------------------------- Officer and Director
Michael L. Krall
/s/ NORMAN L. ANDERSON Chairman of the Board of May 14, 1996
- --------------------------------------------- Directors
Norman L. Anderson
/s/ GARY BROWNELL Chief Financial Officer, May 14, 1996
- --------------------------------------------- Director
Gary Brownell
/s/ DENNIS B. ATCHLEY Secretary and General Counsel May 14, 1996
- ---------------------------------------------
Dennis B. Atchley
/s/ EUGENE PEISER, PD Director May 14, 1996
- ---------------------------------------------
Eugene Peiser, PD
/s/ PATRICK GALUSKA Director May 14, 1996
- ---------------------------------------------
Patrick Galuska
/s/ DENNIS BROVARONE Director May 14, 1996
- ---------------------------------------------
Dennis Brovarone
</TABLE>
II-5
<PAGE> 1
EXHIBIT 1.1
INNOVATIVE MEDICAL SERVICES
1,250,000 SHARES OF COMMON STOCK, $_____PAR VALUE,
AND 1,250,000 REDEEMABLE CLASS A COMMON STOCK PURCHASE WARRANTS
UNDERWRITING AGREEMENT
Monitor Investment Group, Inc.
As Representative of the
Underwriters
351 East Conestoga Road
Wayne, PA 19087
RE: INNOVATIVE MEDICAL SERVICES
Gentlemen:
The undersigned, Innovative Medical Services, a California corporation
(the "Company"), proposes to issue and sell an aggregate of 1,250,000 shares of
Common Stock, $________ par value (the "Common Stock"), of the Company and
1,250,000 Redeemable Class A Common Stock Purchase Warrants (the "Warrants" and,
together with the Common Stock, the "Securities"), to you and the other
underwriters named in Schedule I to this Agreement (the "Underwriters") for whom
you are acting as representative (the "Representative"). The Company also
proposes to issue and sell to the Underwriters an aggregate of not more than
187,500 additional shares of Common Stock and/or 187,500 additional Warrants
(the "Additional Securities") if requested by the Underwriters as provided in
Section 2 hereof.
As the Representative, you have advised the Company (a) that you are
authorized to enter into this Agreement on behalf of the Underwriters, and (b)
that the Underwriters are willing to purchase the numbers of Securities
aggregating in total 1,250,000 shares of Common Stock and 1,250,000 Warrants set
forth opposite their respective names in Schedule I, plus their pro rata portion
of the Additional Securities, if the Representative elects to exercise its right
to purchase Additional Securities, in whole or in part, for the purpose of
covering over-allotments as provided in Section 2.
<PAGE> 2
The shares of Common Stock initially issuable upon the exercise of the
Warrants are herein called the "Warrant Shares."
1. REPRESENTATIONS AND WARRANTS OF THE COMPANY. The Company
represents, warrants and agrees that:
(a) A registration statement on Form SB-2 (File No. 33-
434), including a preliminary form of prospectus, with respect to the Common
Stock, the Warrants and the Warrant Shares has been filed with the Securities
and Exchange Commission (the "Commission"); one or more amendments to such
registration statement have been or will be so filed; and the Company may file
prior to the effective date of such registration statement an additional
amendment to such registration statement, including a final form of prospectus.
Each such preliminary prospectus is herein referred to as a "Preliminary
Prospectus", and the registration statement (including all exhibits), as amended
at the time it becomes effective (the "Effective Date"), and the final
prospectus in the form filed with the Commission pursuant to its Rule 424(b)
after the Registration Statement becomes effective are herein respectively
referred to as the "Registration Statement" and the "Prospectus".
(b) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus and has not, to the knowledge
of the Company, instituted any proceedings with respect to such order.
(c) At the Effective Date and at all times subsequent
thereto up to the Closing Date (as hereinafter defined), the Registration
Statement and the Prospectus, as amended or supplemented, will conform in all
material respects to the requirements of the Securities Act of 1933 and the
rules and regulations thereunder (the "Act"), and neither of such documents will
include any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading, except that the foregoing does not apply to statements or
omissions in either of such documents based upon written information furnished
to the
-2-
<PAGE> 3
Company by any Underwriter through the Representative expressly for use therein;
provided that such information is limited to that contained in the
"Underwriting" section of such documents and the information contained in the
cover page of the Prospectus summarized therefrom.
(d) The financial statements, together with the related
notes, contained in the Registration Statement and the Prospectus fairly present
the financial position of the Company and the results of its operations as of
the dates, or for the periods, therein specified; such financial statements have
been prepared in accordance with generally accepted accounting principles.
(e) Except as reflected in or contemplated by the
Registration Statement or the Prospectus, since the respective dates as of which
information is given in the Registration Statement and the Prospectus, (i) there
has not been any material adverse change in the condition, financial or
otherwise, of the Company or in its business taken as a whole, (ii) there has
not been any material transaction entered into by the Company other than
transactions in the ordinary course of business, (iii) the Company has not
declared or paid any dividend or other distribution on the Common Stock, and
(iv) there has not been any change in the Certificate of Incorporation or the
By-Laws of the Company.
(f) There does not exist any material breach or default
under any indenture, mortgage, deed of trust or other agreement or instrument to
which the Company is a party or any of its property is subject. Neither the
execution nor the delivery of this Agreement, nor the consummation of the
transactions herein contemplated nor compliance with the terms, conditions or
provisions hereof will result in a material breach or violation of any of the
terms or provisions of, or constitute a default under, any indenture, mortgage,
deed of trust or other agreement or instrument to which the Company is a party
or any of its property is subject, or the Certificate of Incorporation or
By-laws of the Company or any law, decree, judgment, order, rule or regulation
of any court or governmental agency or body having jurisdiction over
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<PAGE> 4
the Company for any of its property, except insofar as the enforceability of
this Agreement may be limited by the application of the Federal securities laws,
the rules and regulations promulgated thereunder and judicial and administrative
decisions thereunder.
(g) The Company has an authorized capital stock as set
forth in the Prospectus and all the outstanding shares of such capital stock
have been duly and validly authorized and issued and are fully paid and
non-assessable and conform to the description thereof contained in the
Prospectus.
(h) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
California, with full corporate power and authority under such laws to own its
properties and conduct its business as described in the Prospectus; the Company
is duly qualified to do business as a foreign corporation in good standing in
all other jurisdictions, if any, in which it owns or leases substantial property
or in which it maintains an office, except where the failure so to qualify would
not have a material adverse effect on the business of the Company. The Company
has no subsidiaries except as set forth in the Prospectus.
(i) The Securities have been duly authorized and, upon
issuance, delivery and payment therefor in the manner described in the
Prospectus, will be duly and validly issued, fully paid and non-assessable and
will conform to the description thereof contained in the Prospectus.
(j) At the time of the delivery of the Securities to the
Underwriters hereunder, the Company will have entered into a warrant agency
agreement (the "Warrant Agreement") with Corporate Stock Transfer, Inc.,
substantially in the form filed as Exhibit 4.01 to the Registration Statement,
and the Warrant Agreement will be a valid and binding agreement enforceable in
accordance with its terms, except as may be limited by bankruptcy, insolvency,
reorganization or other laws of general applicability relating to or affecting
the enforcement of creditors' rights.
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<PAGE> 5
(k) The Warrant Shares have been duly authorized and
reserved for issuance upon the exercise of the Warrants and the Warrant Shares,
when issued upon such exercise, will be duly and validly issued, fully paid and
non-assessable and will conform to the description thereof contained in the
Prospectus.
(l) There are no issued, outstanding or reserved options,
warrants or rights to purchase shares of Common Stock other than as set forth in
the Prospectus, and neither the shareholders of the Company nor any other
persons have preemptive rights with respect to the Common Stock.
(m) No consent, approval, authorization or other order of
any governmental authority is required in connection with the execution and
delivery by the Company of this Agreement or the issuance and sale by the
Company of the Common Stock, the Warrants and the Warrant Shares, except such as
may be required under the Act or state securities and Blue Sky laws. This
Agreement has been duly authorized, executed and delivered by the Company.
(n) There are no legal or governmental proceedings pending
to which the Company is a party or of which any property of the Company is the
subject, other than litigation described in the Prospectus or which individually
and in the aggregate is not material to the business of the Company taken as a
whole; and to the best of the knowledge of the Company, no such proceedings are
threatened by governmental authorities or threatened by others.
(o) Upon delivery of and payment for the Securities as
provided herein, the purchasers will receive good and marketable title to the
Common Stock and the Warrants, respectively, free and clear of all liens,
encumbrances, equities and claims whatsoever.
(p) Until the Closing Date, the Company will not issue any
additional shares of Common stock or grant any rights to acquire Common Stock.
(q) The Company has the authority to enter into this
Agreement and sell the capital stock to the Underwriters; and, no
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<PAGE> 6
additional consent or approval is required for the execution of this Agreement
and/or the sale of the capital stock.
(r) The Company has timely filed al tax returns and paid
all taxes that have become due.
2. AGREEMENT TO SELL AND PURCHASE. On the basis of the
representations and warranties contained in this Agreement, and subject to its
terms and conditions, the Company agrees to issue and sell 1,250,000 shares of
Common Stock and 1,250,000 Warrants to the Underwriters and each Underwriter
agrees, severally and not jointly, to purchase from the Company at a purchase
price per Common Stock and/or Warrant as hereinafter provided (the "Purchase
Price") the number of shares of Common stock and Warrants set forth opposite the
name of such Underwriter in Schedule I hereto.
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the Company hereby agrees to
issue and sell to the Underwriters, and the Underwriters shall have a one-time
right to purchase, severally and not jointly, up to 187,500 additional shares of
Common Stock and/or 187,500 additional Warrants from the Company at the Purchase
Price. Additional Securities may be purchased as provided in Section 4 solely
for the purpose of covering over-allotments made in connection with the offering
of the Securities. If any Additional Securities are to be purchased, each
Underwriter, severally and not jointly, agrees to purchase from the Company the
number of Additional Securities (subject to such adjustments to eliminate
fractional Securities as you may determine) which bears the same proportion to
the total number of Additional Securities to be purchased which the number of
Securities set forth opposite the name of the Underwriter in Schedule I hereto
bears to the total number of Securities.
The Purchase Price for each share of Common Stock and one Warrant
(including the Additional Securities, if the over-allotment option is used) to
be paid by the Underwriters will be an amount equal to the initial public
offering price of $4.00 per one share of Common Stock less the amount $.40 per
share and $0.10 per Warrant less the amount of $0.01 per warrant.
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<PAGE> 7
The Underwriters will offer all or any part of the Securities directly
to the public at such initial public offering price per Common Stock and
Warrants and will offer any balance thereof to certain dealers (the "Selected
Dealers") who are members of the National Association of Securities Dealers,
Inc. ("NASD") or foreign brokers or dealers in accordance with Section 25(c) of
the Rules of the NASD. Such Selected Dealers in offering the Securities shall do
so as subagents and the Underwriters may allow to them a concession on such
initial public offering price not to exceed $_______________ per Common Stock
and Warrants and such Selected Dealers may reallot a discount on such initial
public offering price not to exceed $______________ per Common Stock and
Warrants.
The Company hereby agrees not to sell or otherwise dispose of any
shares of Common Stock or Preferred Stock (except pursuant to Warrants, options
and convertible securities outstanding as of the Closing or issued under the
Company's stock option plans described in the Prospectus) for a period of 24
months after the date of the Prospectus without the Representative's prior
written consent.
3. TERMS OF PUBLIC OFFERING. The Company is advised by the
Representative that the Underwriters propose initially to offer the
Securities upon the terms set forth in the Prospectus.
4. DELIVERY AND PAYMENT. Delivery to the Underwriters of and
payment for the Securities shall be made at a closing (the "Closing") to be held
at the New York offices of the Representative, 20 Exchange Place, 18th Floor,
New York,New York at 10:00 A.M., New York time, on the third business day (the
"Closing Date") following the Effective Date. The Closing Date and the location
of the delivery of and payment for the Securities may be varied by agreement
between the Representative and the Company.
Delivery to the Underwriters of and payment for any Additional
Securities to be purchased by the Underwriters shall be made at the New York
offices of the Representative, 20 Exchange Place, 18th Floor, New York, New
York, at 10:00 A.M., New York
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<PAGE> 8
time, on such date (the "Option Closing Date"), which may be the same as the
Closing Date but shall in no event be earlier than the Closing Date nor later
than ten business days after the giving of written notice from the
Representative to the Company of the Underwriters' determination to purchase a
number of Additional Securities as specified in said notice. Said notice may be
given at any time within 45 days following the date of this Agreement. The
Option Closing Date and the location of the delivery of and payment for the
Additional Securities may be varied by agreement between the Representative and
the Company.
Certificates for the Securities shall be registered in such names and
issued in such denominations as the Representative shall request in writing no
later than two full business days prior to the Closing Date or the Option
Closing Date, as the case may be. Such certificates shall be made available to
the Representative for inspection not later than 9:30 A.M., New York Time, on
the business day next preceding the Closing Date or the Option Closing Date, as
the case may be. The certificates for the Securities shall be delivered to the
Representative on the Closing Date or the Option Closing Date, as the case may
be, with any transfer taxes thereon duly paid by the Company, for the respective
accounts of the Underwriters, against payment of the Purchase Price therefor by
certified or official bank check or checks payable in New York Clearing House
(next day) funds to the order of the Company.
5. REPRESENTATIVE'S WARRANTS. At the Closing, the Company
will sell to the Representative, at a price of $_______ Warrants (the
"Representative's Warrants") to purchase up to 125,000 shares of Common Stock at
a price of $4.40 per share. The Representative's Warrants are exercisable for a
period of five years beginning one year from the date of the Prospectus. The
Representative's Warrants are non-transferable for a period of one year
following the date of the Prospectus, except to any of the Underwriters or to
any individual who is either a partner or an officer of an Underwriter or by
operation of law or by will or the laws of descent and distribution.
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<PAGE> 9
6. EXPENSES. The Company will pay the fees and disbursements of its
attorneys, all of its expenses incident to the preparation and filing of the
Registration Statement under the Act and the qualification of the Securities for
sale under Blue Sky and securities laws of the various states, the fees and
disbursements of counsel related to Blue Sky and securities laws qualification,
the charges of the NASD in connection with its review of the underwriting
arrangements, the fees and expenses of any transfer or warrant agent, any
Federal and/or state taxes upon the issuance of the Securities, the reasonable
costs of a "tombstone" advertisement with respect to the offering of the
Securities and all expenses of printing the Registration Statement, the
Prospectus and all other related documents or instruments prepared in connection
with the transactions contemplated hereby, including, without limitation, this
Agreement, the Securities and any Blue Sky memoranda.
In addition, the Company will pay to the Representative a
non-accountable expense allowance in an amount equal to 3% of the gross proceeds
derived from the sale of the Securities, of which $50,000 has been paid and the
balance of which shall be payable at the Closing provided, however, that in the
event that no Closing shall be held, the Company in lieu of such payment shall
reimburse the Representative in full (up to a maximum of $100,000) for its
reasonable out-of-pocket expense, including, without limitation, its legal fees
and disbursements, and the Representative shall reimburse the Company if and to
the extent that such expenses are less than the $__________ previously advanced
amount with respect to such expenses.
7. COVENANTS OF THE COMPANY. The Company covenants and agrees with
you that:
(a) The Company will use its best efforts to cause the
Registration Statement to become effective and will advise the Representative
promptly of any proposal to amend or supplement the registration statement as
presently amended, or the related form of prospectus, prior to the Effective
Date, and will not effect such amendment or supplement without the consent of
the Representative, which shall not be unreasonably withheld; the
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<PAGE> 10
Company will also advise the Representative promptly of the effectiveness of the
Registration Statement, of any amendment or supplement institution by the
Commission of any suspension of qualification or stop order proceedings in
respect of the Registration Statement, and will use its best efforts to prevent
the issuance of any such stop order and to obtain as soon as possible its
lifting, if issued.
(b) If at any time when a prospectus relating to the
Securities is required to be delivered under the Act any event occurs as a
result of which the Prospectus is then amended or supplemented would include an
untrue statement of a material fact, or omit to state any material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, or if it is necessary at any time to
amend or supplement the Prospectus to comply with the Act, the Company, at its
cost, promptly will prepare and file with the Commission an amendment or
supplement which will correct such statement or omission and/or which will
effect such compliance and will furnish the Underwriters with copies of any such
amended Prospectus or supplement to the Prospectus.
(c) Not later than the first day of the eighteenth full
calendar month after the date hereof, the Company will make generally available
to its security holders an earnings statement (which need not be audited)
covering a period of at least 12 months beginning after the Effective Date which
will satisfy the provisions of Section 11(a) of the Act.
(d) The Company has furnished or will furnish to you copies
of the Registration Statement (two of which will be signed and will include all
exhibits), each Preliminary Prospectus, the Prospectus, and all amendments and
supplements to such documents, in each case as soon as available and in such
quantities as you shall reasonably request. The Company will forward to the
Representative three complete bound volume containing the appropriate documents
relating to the offering.
(e) The Company will use its best efforts to qualify the
Common Stock, the Warrants and the Warrant Shares for offering
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<PAGE> 11
and sale, and in determining the eligibility of such securities for investment,
under the Blue Sky or securities laws of such jurisdictions as the
Representative shall designate and are reasonably available and will continue
such qualifications in effect so long as required for the distribution of the
Securities, provided, however, that in connection with such designation, the
Company shall not be required to file a general consent to service of process in
any jurisdiction.
(f) For a period of five years after the Effective Date, the
Company will furnish to the Representative, within the time permitted for filing
with the Commission, a balance sheet and statements of operations, stockholders'
equity (or deficit) and cash flows of the Company as at the end of and for each
fiscal year in such period, all in reasonable detail and certified by
independent public accountants; and the Company will furnish to the
Representative (i) as soon as available a copy of each report of the Company
mailed to the stockholders or filed with the Commission, and (ii) from time to
time, such other information then existing concerning the Company as the
Representative may reasonably request.
(g) The Company will apply the net proceeds of the sale of
the Securities as set forth under the caption "Use of Proceeds" in the
Prospectus and will file reports with the Commission with respect to the sale of
the Securities and the application of the proceeds therefrom as may be required
in accordance with Rule 463 under the Act.
(h) The Company will cause each of its executive officers,
directors and 5% or greater stockholders to furnish to the Representative, on or
prior to the date hereof, a letter or letters, in form and substance
satisfactory to the Representative, pursuant to which each such person shall
agree not to sell publicly any shares of Common Stock during the 24-month period
following the Effective Date, except with the Representative's prior written
consent.
(i) The Company will cause each of its shareholders other
than officers, directors and holders of greater than 5% of
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<PAGE> 12
the outstanding shares to furnish the Representative with a letter or letters,
in form and substantive satisfactory to the Representative, pursuant to which
each such person shall agree not sell publicly any shares of Common Stock during
the 24-month period following the Effective date of the offering, except with
the Representative's prior written consent.
(j) At the Closing, the Company will execute and deliver
to the Representative the Representative's Warrants.
(k) For a period of three years from the date hereof, the
Company, at its expense, shall provide the Representative, or its designee, if
so requested in writing, with copies of the Company's daily transfer sheets.
(l) For a period of 90 days from the date hereof, the
Company (i) will consult with the Representative prior to the distribution to
third parties of any financial information, news releases, and/or other
publicity regarding the Company, its business, or any terms of the offering of
the Securities and (ii) will provide to the Representative for its review prior
to distribution copies of all documents which the Company or its public
relations advisors intend to distribute.
(m) Promptly following the Closing, the Company will use its
best efforts to obtain, and maintain for a period of at least five years, a
listing in either Moody's Industrial Manual or Standard and Poor's Corporation
Records.
(n) For a period of not less than three years from the
Effective Date, the Company will permit the Representative's designee to attend
meetings of the Company's Board of Directors as a non-voting observer. Such
designee shall receive notices of all meetings of the Board.
(o) The Company will use its best efforts to obtain
inclusion of the Securities, the Warrants and the Common Stock in the NASDAQ
system as of the Closing Date.
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<PAGE> 13
(p) The Company shall for a period of five (5) years from
the Closing, engage a designee of the Underwriter as a Member (the "Member") to
its Board of Directors who shall attend meetings of the board and who shall
receive reimbursement for all reasonable costs incurred in attending meetings of
the Board, including food, lodging, and transportation. The Company further
agrees that, during said five (5) year period, it shall schedule no less than
four (4) formal (in person) meetings of its Board of Directors in each such year
at which meetings the Member shall be permitted to attend as set forth herein;
said meetings shall be held quarterly each year and said Member shall be
entitled to receive the same notice of meeting accorded to other directors of
the Company.
8. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS. The
obligations of the Underwriters at the Closing hereunder will be subject to the
accuracy of the representations and warranties on the part of the Company herein
as of the date hereof and as of the Closing Date, to the accuracy of the
statements of the Company's officers made in any certificate furnished pursuant
to the provisions hereof, to the performance by the Company of its obligations
hereunder and to the following additional conditions precedent:
(a) The Registration Statement shall have become effective
not later than 5:00 P.M., New York time, on the date of this Agreement, or such
later date as shall have been consented to by the Representative; and prior to
the Closing Date no stop order suspending the effectiveness of the Registration
Statement will have been issued and no proceedings for that purpose shall have
been instituted, or to the knowledge of the Company or the Representative, shall
be contemplated by the Commission;
(b) The Representative shall not have advised the Company
that the Registration Statement or Prospectus, or any amendment or supplement
thereto, contains an untrue statement of fact which, in the opinion of such
counsel, is material and is required to be stated therein or is necessary to
make the statements therein not misleading;
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<PAGE> 14
(c) The Representative shall have received a written opinion
of Dennis Brovarone, Esq., counsel for the Company (or from other counsel
satisfactory to the Representative), dated the Closing Date, to the effect that:
(i) The Company has been duly incorporated
and is validly existing as a corporation in good
standing under the laws of the State of California,
with full corporate power and authority under such
laws to own its properties and conduct its business
as described in the Prospectus; the Company is duly
qualified to do business as a foreign corporation in
good standing in all other jurisdictions, if any, in
which it owns or leases substantial property or in
which it maintains an office, except where the
failure so to qualify would not have a material
adverse effect on the business of the Company;
(ii) The Company has an authorized capital
stock as set forth in the Prospectus and all the
outstanding shares of capital stock have been duly
and validly authorized and issued and are fully paid
and non-assessable, and conform to the description
thereof contained in the Prospectus;
(iii) To the best of such counsel's knowledge
there are no legal or governmental proceedings
pending or threatened to which the Company is a party
or of which any property of the Company is the
subject, other than litigation described in the
Prospectus or which individually and in the aggregate
is not material to the business of the Company taken
as a whole;
(iv) This Agreement has been duly authorized,
executed and delivered by the Company;
(v) The Securities have been duly authorized
and, upon issuance, delivery and payment therefor
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<PAGE> 15
in the manner described in the Prospectus, will be
duly and validly issued, fully paid and
non-assessable; the Warrant Agreement has been duly
authorized, executed and delivered and is a valid and
binding agreement enforceable in accordance with its
terms except as the same may be limited by
bankruptcy, insolvency, reorganization or other laws
of general applicability relating to or affecting the
enforcement of creditors' rights, and except that no
opinion need be expressed with respect to the remedy
of specific performance; the Warrant Shares have been
duly authorized and reserved for issuance upon such
exercise will be validly issued and fully paid and
non-assessable; and the Warrant Securities have been
duly and validly authorized and reserved for
issuance, and such Warrant Securities, when issued in
accordance with the terms of the Representative's
Warrants, will be duly an validly issued, fully paid
and non-assessable and the Common Stock, the
Warrants, the Warrant Shares, the Representative's
Warrants, the Warrant Securities and the Warrant
Agreement conform to the description thereof in the
Prospectus;
(vi) Neither the execution nor the delivery
of this Agreement, nor the consummation of the
transactions herein contemplated nor compliance with
the terms, conditions or provisions hereof, will
result in a breach or violation of any of the terms
or provisions of, or constitute a default under, any
indenture, mortgage, deed of trust or other agreement
or instrument, known to such counsel, to which the
Company is a party or any of its properties is
subject, or the Certificate of Incorporation or
By-laws of the Company or any law, decree, judgment,
order, rule or regulation, known to such counsel, of
any court or governmental agency or body having
jurisdiction over the Company or any of its property,
except
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<PAGE> 16
insofar as the enforceability of this Agreement may
be limited by the application of the Federal
securities laws and decisions thereunder and except
that such counsel need express no opinion as to the
applicability of the Blue Sky or securities laws of
the various states; and
(vii) on the basis of the participation by
such counsel in conferences with representatives of
the Company and its accountants at which the contents
of the Registration Statement and the Prospectus and
related matters were discussed, and based upon the
advice of the Company, but without independent
verification by such counsel of the accuracy,
completeness or fairness of the statements contained
in the Registration Statement or the Prospectus or
any amendments or supplements thereto, and without
expressing any opinion as to the financial statements
and other financial data contained therein: (A)
nothing has come to such counsel's attention which
leads it to believe that the Registration Statement
and the Prospectus, as amended or supplemented by any
amendments or supplements thereto made by the Company
prior to the Closing Date, do not comply as to form
in all material respects with the requirements of the
Act; (B) nothing has come to such counsel's attention
which leads to believe that the Registration
Statement or the Prospectus, as amended or
supplemented by any such amendments or supplements
thereto, contains any untrue statement of a material
fact or omits to state any material fact required to
be stated therein or necessary to make the statements
therein not misleading; (C) such counsel does not
know of any contract or other document required to be
described in or filed as an exhibit to the
Registration Statement which is not so described or
filed; (D) the Registration Statement has become
effective under the Act, and, to the best of the
knowledge of such
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<PAGE> 17
counsel, no stop order suspending the effectiveness
of the Registration Statement has been issued and no
proceedings for that purpose have been instituted or
are pending or contemplated by the Commission. and
there are no contracts, agreements or understandings
between the Company and any person granting such
person the right to require the Company to file a
registration statement under the Securities Act with
respect to any securities of the Company owned or to
be owned by such person or to require the Company to
include such securities in the securities registered
pursuant to the Registration Statements or in any
securities being registered pursuant to any other
registration statement filed by the Company under the
Securities Act.
As to matters of fact in the conclusions expressed in the foregoing
opinion, such counsel may rely upon certificates, copies of which shall have
been furnished to the Representative, of public officials and of appropriate
officers of the Company.
(d) The Representative shall have received a
certificate of the President and of the Treasurer of the Company,
dated the Closing Date, to the effect that:
(i) Since the Effective Date, there shall
not have occurred any event required to be set forth
in an amended or supplemented Prospectus which shall
not have been so set forth, any such amendment or
supplement shall not have included any untrue
statement of a material fact or have omitted to state
any material fact required to be stated therein or
necessary to make the statements therein not
misleading;
(ii) Subsequent to the respective dates of
which information is given in the Registration
Statement and Prospectus and prior to the Closing
Date, and except as set forth in or contemplated
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<PAGE> 18
by the Prospectus, (A) other than in the ordinary
course of business, the Company has not incurred and
will not have incurred any liabilities or
obligations, direct or contingent, nor has it nor
will it have entered into any transaction, in either
case which are material to the business of the
Company will not have been any change in the capital
stock or long-term debt of the Company from that set
forth under the heading captioned "Capitalization" in
the Prospectus, or any material adverse change,
financial or otherwise, in the financial position,
results of operations or general affairs of the
Company, considered as a whole; and
(iii) To the knowledge of such persons (A)
the representations and warranties contained in
Section 1 hereof are, at the Closing Date, true and
correct, (B) the Registration Statement has become
effective, no stop order suspending the effectiveness
thereof has been issued prior to the Closing Date and
no proceedings for that purpose, prior to that date,
have been initiated or threatened by the Commission,
and (C) every reasonable request for additional
information on the part of the Commission, to be
included in the Registration Statement or the
Prospectus or otherwise, has been complied with.
(e) At the time of execution of this Agreement and also
at the Closing Date, Steven Holland, Certified Public Accountant shall have
furnished to the Representative a letter or letters, dated the date of delivery
thereof, in form and substance satisfactory to the Representative:
(i) Stating that they are independent
certified public accountants within the meaning of
the Act and the published rules and regulations
thereunder, and the answer to
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<PAGE> 19
Item 10 of the Registration Statement is correct
insofar as it relates to them; and
(ii) Setting forth, as of the date of such
letter (or, with respect to matters involving changes
or developments since the respective dates as of
which specified financial information is given in the
Prospectus, as of a date not more than five days
prior to the date of such letter), the conclusions
and findings of said firm with respect to the
financial information and other matters designated by
you.
(f) The Company shall have furnished to you such
1certificates in addition to those specifically mentioned herein, as you may
have reasonably requested, as to the accuracy, on the Closing Date, of the
representations and warranties of the Company; as to the performance by the
Company of its obligations hereunder; and as to the other concurrent or
precedent conditions to the obligations of the Underwriters hereunder.
(g) All corporate and legal proceedings taken and all
legal opinions rendered in connection with the Registration Statement and the
issue and sale of the Securities shall be satisfactory in form and substance to
Mound, Cotton & Wollan counsel to the Representative, and such counsel shall
have been furnished with such papers and information as they may reasonably have
requested in this connection.
The several obligations of the Underwriters to purchase Additional
Securities hereunder are subject to satisfaction on and as of the Option Closing
Date of the conditions set forth above, except that the opinion called for in
paragraph (c) shall be revised to reflect the sale of the Additional Securities.
9. CONDITIONS OF COMPANY'S OBLIGATIONS. The obligations of
the Company to sell and deliver the Securities are subject to the following
conditions:
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<PAGE> 20
(a) The Registration Statement shall have become effective
and prior to the Closing Date no stop order suspending the effectiveness of the
Registration Statement shall have been instituted or, to the knowledge of the
Company or the Representative, shall be contemplated by the Commission.
(b) At the Closing Date there shall be in full force and
effect appropriate orders, where necessary, of such regulatory authorities as
have jurisdiction over the issue and sale of the Securities, permitting the
issue and sale of the Securities upon the terms and conditions herein set forth
or contemplated and containing no provision unacceptable to the Company.
10. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company will indemnify and hold harmless each
Underwriter, and each person, if any, who controls any Underwriter within the
meaning of the Act, against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter or such controlling person may become
subject, under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
the Registration Statement, the Prospectus or any amendment or supplement
thereto, or any related Preliminary Prospectus, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading;
and will reimburse each Underwriter and each such controlling person for any
legal or other expenses reasonably incurred by such Underwriter or such
controlling person in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that the Company will not
be liable in any such case to the extent that any such loss, claim, damage,
liability or action arises out of or is based upon an untrue omission made in
any of such documents in reliance upon and in conformity with written
information furnished to the Company through the Representative by the
Underwriters expressly for use therein; and provided, further, that the
indemnity agreement contained in this Section 10(a) with respect to any
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<PAGE> 21
Preliminary Prospectus shall not inure to the benefit of any Underwriter (or to
the benefit of any person, if any, who controls such Underwriter) through whom
the person asserting any such loss, claim, damage, liability or action purchased
the Securities which are the subject thereof if such Underwriter or a Selected
Dealer who purchased the Securities from such Underwriter failed to deliver a
copy of the Prospectus to such person at or prior to the confirmation of the
sale of such person or at or prior to the confirmation of the sale of such
Securities to such person in any case where such delivery is required by the Act
and the untrue statement or omission of a material fact contained in such
Preliminary Prospectus was corrected in the Prospectus. This indemnify agreement
will be in addition to any liability which the Company may otherwise have.
(b) Each Underwriter, severally and not jointly, will
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the Registration Statement, and each person, if any, who
controls the Company within the meaning of the Act against any losses, claims,
damages or liabilities to which the Company or any such director, officer or
controlling person may become subject, under the Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in the Registration Statement, the Prospectus, or
any amendment or supplement thereto, or any related Preliminary Prospectus, or
arise out of or are based upon the omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in reliance upon and in conformity with written information furnished to the
Company through the Representative by such Underwriter expressly for use
therein; and will reimburse any legal or other expenses reasonably incurred by
the Company or any such other director, officer or controlling person in
connection with investigating or defending any such loss, claim, damage,
liability or action. This indemnity agreement will be in addition to any
liability which the Underwriters may otherwise have.
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<PAGE> 22
(c) Promptly after receipt by an indemnified party under
this Section 10 of notice of the commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against any indemnifying
party under this Section 10, notify such indemnifying party of the commencement
thereof; but the failure so to notify such indemnifying party will not relieve
it from any liability which it may have to any indemnified party otherwise than
under this Section 10. In case any such action is brought against any
indemnified party, and it notifies an indemnifying party similarly notified,
assume (at its own expense) and defense thereof, with counsel reasonably
satisfactory to such indemnified party, and after notice from the indemnifying
party to such indemnified party under this Section 10 for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation; provided, however,
that if, in the judgment of the indemnified party and its controlling persons to
be represented by separate counsel, the indemnified party shall have the right
to employ a single counsel to represent the indemnified party and all such
controlling persons, in which event the fees and expenses of such separate
counsel shall be borne by the indemnifying party. No indemnifying party shall be
liable for any compromise or settlement of any such action effected without its
consent.
(d) In order to provide for just and equitable contribution
in circumstances in which the indemnification provided for in Sections 10(a) and
10(b) hereof is for any reason held to be unavailable from the Company or any
Underwriter, the Company and the Underwriters shall contribute to the aggregate
losses, claims, damages and liabilities (including any investigation, legal and
other expenses incurred in connection with, and any amount paid in settlement
of, any action, suit or proceeding or any claims asserted, but after deducting
any contributions received by the Company from persons other than the
Underwriters who may also be liable for contribution, the Company hereby
agreeing to seek contribution from such persons) to which the Company and the
Underwriters may be subject in such proportion so that the Underwriters are
responsible for that portion represented by the percentage that the sum of the
underwriting
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<PAGE> 23
discount and the non-accountable expense allowance appearing on the cover page
of the Prospectus bears to the public offering price appearing thereon and the
Company is responsible for the balance; provided, however that:
(i) in no case, other than fraudulent misrepresentation as set
forth in clause (ii) below, shall an Underwriter be responsible under
this Section 10(d) for any amount in excess of the sum of the
underwriting discount and the non-accountable expense allowance
applicable to the Securities purchased by it hereunder; and
(ii) no person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
For purposes of this Section 10(d), each person, if any, who controls an
Underwriter within the meaning of the Act, shall have the same rights to
contribution as such Underwriter, and each person, if any, who controls the
Company within the meaning of the Act, each officer of the Company who shall
have signed the Registration Statement and each director of the Company shall
have the same rights to contribution as the Company, subject in each case to
clauses (i) and (ii) of this Section 10(d). Any party entitled to contribution
will, promptly after receipt of notice of commencement of any action, suit or
proceeding against such party in respect of which a claim for contribution may
be made against another party or parties under this Section 10(d), notify such
party or parties from whom contribution may be sought, but the omission to so
notify such party or parties shall not relieve the party or parties from who
contribution may be sought from any other obligation it or they may have
hereunder or otherwise than under this Section 10(d).
11. REGISTRATION RIGHTS.
11.1 The Company is obligated to register the Warrant Securities,
on the terms, and subject to the conditions, set forth below:
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<PAGE> 24
(a) If at any time during the four-year period beginning on
the first anniversary of the Effective Date the Company shall file a
registration statement (other than a registration statement on Form S-8 or Form
S-4 or any successor form thereto) with respect to any of its securities under
the Act or shall file a post-effective amendment to any registration statement
(other than a registration statement on Form S-8 or Form S-4 or any successor
form thereto), which post-effective amendment contains a prospectus complying
with Section 10(a) if the Act, the Company will give to the holders of the
Representative's Warrants and the Warrant Securities, no less than 30 days'
prior written notice of its intention to file such registration statement of
post-effective amendment, as the case may be, and promptly after receipt of a
written request made by the holders of any portion of the Representative's
Warrant or Warrant Securities, within 20 days after the giving of such notice,
the Company will use its best efforts to register under the Act all Warrant
Securities ("Securities to be Registered") covered by any such request and will
maintain the prospectus included in any registration statement which may be so
filed current for a period of 120 days subsequent to the effective date of such
registration statement.
(b) At any time during the four-year period beginning on the
first anniversary of the Effective Date, the holders of at least 75% of the
Representative's Warrants and/or Warrant Securities shall have the one time
right upon the written request of such holders to cause the Company to use its
best efforts to register all of such holders' Securities to be Registered
covered by such request for a public offering on an appropriate form under the
Act. The Company shall cause such registration statement on such form to remain
effective for a period of 120 days from the initial effective date thereof.
(c) All of the expenses incurred in registering the
Securities to be Registered under (a) or (b) above, including reasonable fees
and expenses of separate counsel for the holders of the Securities to be
Registered in the case of a registration under (b) but not a registration under
(a), shall be borne by the Company, except that underwriting discounts or
commissions
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<PAGE> 25
attributable to the Securities to be Registered shall be borne by the holders of
such Securities to be Registered.
(d) The holders of Securities to be Registered shall use
their best efforts not to request a registration under (b) above at a time when
a special audit of the financial statements of the Company would be required
under the rules of the Commission.
11.2 If at time within 120 days after a post-effective amendment or
a new registration statement covering the Securities to be Registered as
provided in Section 11.1 hereof, shall have become effective, to the knowledge
of the Company any event occurs as a result of which a prospectus included
therein relating to the Securities to be Registered as then amended or
supplemented would include any untrue statement of a material fact, or would not
state a material fact necessary to make the statements therein, in the light of
the circumstances then existing, not misleading, the Company will promptly
notify the holder or holders of Securities to be Registered covered 120 days
(excluding any period during which a stop order is in effect) after the
effective date of the registration statement or post-effective amendment to a
registration statement of its own cost and expense amend or supplement such
prospectus in order to correct such statement or omission in order that the
prospectus as so amended or supplemented will comply with the requirements of
Section 10(a) of the Act. In case any such holder or holders is required to
deliver a prospectus after such 120-day period, the Company will, at the expense
of such holder or holders, prepare promptly such prospectus or prospectuses and
thereafter amend or supplement the same as may be necessary to permit compliance
with Section 10(a) of the Act.
11.3 In connection with any registration statement or post-
effective amendment pursuant to Section 11.1:
(e) the Company will comply with all applicable rules and
regulations of the Commission or any similar Federal commission and will make
available to its security holders, as soon as practicable, an earning statement
(which need not be
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<PAGE> 26
audited) covering a period of at least 12 months, but not more than 18 months,
beginning with the first month after the effective date of the registration
statement or post-effective amendment, as the case may be, which earning
statement will satisfy the provisions of Section 11(a) of the Act;
(f) each holder of the Securities to be Registered covered
by such post-effective amendment or registration statement, as the case may be,
will furnish in writing to the Company such information regarding such holder
and its proposed plan of distribution of such Securities to be Registered as the
Company shall request in order to have such post-effective amendment or
registration statement declared effective;
(g) the Company agrees to furnish at its own cost and
expense to the holders of the Securities to be Registered a prospectus (in such
reasonable quantities as such holders shall request) containing certified
financial statements and other information meeting the requirements of the Act
and the rules and regulations thereunder and relating to the Securities to be
Registered; and
(h) the Company will use its best efforts to qualify the
Securities to be Registered covered by any registration statement or
post-effective amendment for public offering or sale on the effectiveness
thereof in such jurisdictions as the holders offering the same shall reasonably
request; provided, however, that the Company shall not be required to qualify as
a foreign corporation in any jurisdiction or to give a general consent to
service of process in any jurisdiction except in connection with matters arising
from the sale of securities in such jurisdiction. The filing frees and
reasonable fees and expenses of counsel in connection with such qualification
shall be paid for the Company.
11.4 In the event of any such registration of any Securities to be
Registered, the Company will indemnify and hold harmless each holder of
securities being offered and each person, if any, who may be deemed to control
such holder within the meaning of Section 15 of the Act against any losses,
claims, damages or liabilities, joint or several, to which any of them may
become
-26-
<PAGE> 27
subject under the Act, or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained on
the effective date thereof, in any registration statement or post-effective
amendment under which such securities were registered under the Act, any
preliminary prospectus or final prospectus contained therein, or any amendment
or supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading; and will reimburse each
of them for any legal or any other expenses reasonably incurred by them in
connection with investigating, defending or settling any such loss, claim,
damage, liability or action; provided, however, that the Company will not be
liable in any such case to any of them to the extent that any such loss, claim,
damage, liability or expense arises out of or is based upon any untrue statement
of any material fact contained, on the effective date thereof, in such
registration statement or post-effective amendment, such preliminary prospectus
or such final prospectus or any such amendment or supplement in reliance upon
and in conformity with information furnished in writing by such persons to the
Company expressly for use in the preparation thereof, or arises out of or is
based upon any omission or alleged omission to state a material fact in
connection with such written information required to be stated in such
registration statement, such post-effective amendment, such preliminary
prospectus or such final prospectus or any such amendment or supplement in light
of the circumstances under which it is used, not misleading. For purposes of
this Section 11.4, "information furnished in writing by such persons" shall
include information contained in any portion of such registration statement,
such post-effective amendment, such preliminary prospectus or such final
prospectus or any such amendment or supplement which has been expressly
identified and approved in writing in a letter signed by the person or persons
involved. Each such person shall promptly give notice to the Company after such
person has actual knowledge of any such claim as to which indemnity may be
sought hereunder, or of the commencement of any legal proceedings against such
person as to such claim, whichever shall first occur, and shall permit
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<PAGE> 28
the Company to assume the defense of any such claim or any litigation resulting
from such claim; provided, however, that:
(i) counsel reasonably satisfactory to the Company and each
such person involved shall act as counsel for the Company and shall conduct the
defense of such claim or litigation; and
(j) each such person may participate in such defense at the
expense of such person, and provided, further, that the omission by any such
person to given notice to the Company as provided in this sentence or the
failure to permit the Company to conduct such defense shall relieve the Company
of its obligations under this Section 11.4, but shall not relieve the Company of
its obligations otherwise than under this Section 11.4. The Company shall notify
each such person involved within 15 days after the Company shall have received
such notice if the Company shall elect to defend such claim or litigation
therefrom. If the Company assumes the defense of any such claim or litigation
resulting therefrom, the obligation of the Company under this Section 11.4 shall
be limited to taking all steps necessary in the defense or settlement of such
claim or litigation resulting therefrom and to holding the person involved
harmless from and against any losses, damages or liabilities caused by or
arising out of any settlement approved by the Company or any judgment in
connection with such claim or litigation resulting therefrom. The Company shall
not, in the defense of such claim or any litigation resulting therefrom, consent
to entry of any judgment except with the consent of each such person involved or
enter into any settlement (except with the consent of each such person involved)
which does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such person of a release from all liability in respect
of such claim or litigation.
11.5 In the event of any such registration of any Securities to be
Registered, each holder of such securities being offered shall indemnify and
hold harmless the Company, each of its directors and officers who signed the
registration statement, and any person who controls the Company within the
meaning of the Act from and against any loss, claim, damage or liability, joint
or
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<PAGE> 29
several, or any action in respect thereof, to which the Company or any such
director, officer or controlling person may become subject, under the Act or
otherwise, insofar as such loss, claim, damage, liability or action, arises out
of, or is based upon, any untrue statement or alleged untrue statement of a
material fact contained in any registration statement or post-effective
amendment under which such securities were registered under the Act, any
preliminary prospectus or final prospectus contained therein, or any amendment
or supplement thereto, or arises out of, or is based upon, the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, but in each case
only to the extent that the untrue statement or omission or alleged omission was
made in reliance upon and in conformity with written information furnished to
the Company by or on behalf of any such holder specifically for inclusion
therein, and reimburse the Company for any legal and other expenses reasonably
incurred by the Company or any such director, officer or controlling person in
investigating or defending or preparing to defend against any such loss, claim,
damage, liability or action. The foregoing indemnity agreement is in addition to
any liability which any such holder may otherwise have to the Company or any of
its directors, officers or controlling persons.
12. TERMINATION. This Agreement shall become effective when
notification of the effectiveness of the Registration Statement has been
released by the Commission.
This Agreement may be terminated at any time prior to the Closing Date
by the Representative by written notice to the Company if any of the following
has occurred: (i) since the respective dates as of which information is given in
the Registration Statement and the Prospectus, any material adverse change in or
affecting particularly the general condition, financial or otherwise, of the
Company or the earnings, affairs, or business prospects of the Company, whether
or not arising in the ordinary course of business, which would, in reasonable
judgment of the Representative, materially impair the investment quality of the
Securities, (ii) any outbreak of hostilities or other national or international
calamity or crisis or change in
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<PAGE> 30
economic conditions if the effect of such outbreak, calamity, crisis or change
on the financial markets of the United States would, in the reasonable judgment
of the Representative, make the offering or delivery of the Securities
impracticable, (iii) suspension of reporting of closing or bid and asked prices
by the NASD Automated Quotation System or suspension of trading in securities on
the New York Stock Exchange or the American Stock Exchange or limitation on
prices (other than limitations on hours or numbers of days of trading) for
securities on either such Exchange, (iv) the enactment, publication, decree or
other promulgation of any Federal or state statute, regulation, rule or order of
any court or other governmental authority which in the reasonable judgment of
the Representative materially and adversely affects or will materially and
adversely affect the business or operations of the Company, (v) declaration of a
banking moratorium by either Federal or New York State authorities or (vi) the
taking of any action by any Federal, state or local government or agency in
respect of its monetary or fiscal affairs which in the reasonable judgment of
the Representative has a material adverse effect on the securities market in the
United States.
13. SUBSTITUTION OF UNDERWRITERS. If any Underwriter shall for any
reason not permitted hereunder cancel their obligations to purchase the
Securities hereunder, or shall fail to take up and pay for the number of
securities set forth opposite their respective names in Schedule I hereto upon
tender of such securities in accordance with the terms hereof, then:
(k) If the aggregate number of Securities which such
Underwriter agreed but failed to purchase does not exceed 10% of the total
number of Securities, the other Underwriter shall be obligated severally, in
proportion to their respective commitments hereunder, to purchase the Securities
which such defaulting Underwriter agreed but failed to purchase.
(l) If any Underwriter so defaults and the agreed number of
Securities with respect to which such default or defaults occurs is more than
10% of the total number of Securities, the remaining Underwriter shall have the
right to take up and pay for the Securities, which the defaulting Underwriter
agreed but failed to purchase. If such remaining Underwriter does not take up
and pay for the Securities which the defaulting Underwriter
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<PAGE> 31
agreed but failed to purchase, the time for delivery of the Securities shall be
extended to the next business day to allow the Underwriters the privilege of
substituting within twenty-four hours (including nonbusiness hours) another
Underwriter or Underwriters satisfactory to the Company. If no such Underwriter
or Underwriters shall have been substituted as aforesaid, within such
twenty-four hour period, the time of delivery of the Securities may, at the
option of the Company, be again extended to the next following business day, if
necessary, to allow the Company the privilege of finding within twenty-four
hours (including nonbusiness hours) another Underwriter or Underwriters to
purchase the Securities which the defaulting Underwriter agreed but failed to
purchase. If it shall be arranged for the remaining Underwriter to take up the
Securities of the defaulting Underwriter as provided in this Section, (i) the
Company or the Representative shall have the right to postpone the time of
delivery for a period of none more than seven business days, in order to effect
whatever changes may thereby be made necessary in the Registration Statement or
the Prospectus, or in any other documents or arrangements, and the Company
agrees promptly to file any amendments to the Registration Statement or
supplements to the Prospectus which may thereby be made necessary, and (ii) the
respective numbers of Securities to be purchased by the remaining Underwriters
or substituted Underwriters shall be taken at the basis of the underwriting
obligation for all purposes of this Agreement.
If in the event of a default by one Underwriter and the remaining
Underwriter shall not take up and pay for all the Securities agreed to be
purchased by the defaulting Underwriter or substitute another Underwriter or
Underwriters as aforesaid, the Company shall not find or shall not elect to seek
another Underwriter or Underwriters for such Securities as aforesaid, then this
Agreement shall terminate.
As used in this Agreement, the term "Underwriter" includes any person
substituted for an Underwriter under this Section. In the event of termination,
there shall be no liability on the part
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<PAGE> 32
of any nondefaulting Underwriter to the Company, provided that the provisions of
this Section 9 shall not in any event affect the liability of any defaulting
Underwriter to the Company arising out of such default.
14. MISCELLANEOUS. Any notice required or permitted to be given
hereunder shall be given in writing by depositing the same in the United States
Mail, postage prepaid, or by courier service or facsimile transmission,
addressed as follows:
to the Underwriters:
Monitor Investment Group, Inc.
51 East Conestoga Road
Wayne, PA 19087
Attention: William F. Palla, President
with a copy to:
Michael R. Koblenz, Esq.
Mound, Cotton & Wollan
One Battery Park Plaza
New York, New York 10004
to the Company:
Innovative Medical Services
1308 North Magnolia Avenue, Suite H
El Cajon, California 92020
Attention: Michael L. Krall, President
with a copy to:
Dennis Brovarone
Attorney-At-Law
2530 Linley Court
Denver, Colorado 80219
Except as otherwise expressly provided, this Agreement has been and is
made solely for the benefit of and shall be binding
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<PAGE> 33
upon the Company, the Underwriters, any controlling persons referred to herein
and their respective successors and assigns, all as and to the extent provided
in this Agreement, and no other person shall acquire or have any right under or
by virtue of this Agreement. The term "successors and assigns" shall not include
a purchaser of any of the Securities from any of the Underwriters merely because
of such purchase.
The Representative represents and warrants that it has been authorized
by the Underwriters to enter into this Agreement on their behalf and to act for
them in the manner provided in this Agreement.
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York applicable in the case of agreements made and
to be performed entirely within such State.
This Agreement may be signed in counterparts which together shall
constitute one and the same instrument.
If the foregoing correctly sets forth the agreement among the Company
and the Underwriters, kindly sign and return to us the enclosed duplicate of
this letter, whereupon it will become a binding agreement between the Company
and the Underwriters in accordance with its terms.
Very truly yours,
INNOVATIVE MEDICAL SERVICES
By
----------------------------------
Agreed and accepted in
New York, New York, as
of the date hereof.
MONITOR INVESTMENT GROUP, INC.
Acting as Representative of
the Underwriters
By
------------------------------
William F. Palla, President
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<PAGE> 34
Sterling Foster & Co., Inc.
By
-------------------------
-34-
<PAGE> 35
SCHEDULE I
<TABLE>
<CAPTION>
SHARES OF NUMBER OF
UNDERWRITERS COMMON STOCK WARRANTS
- ------------ ------------ ---------
<S> <C> <C>
MONITOR INVESTMENT GROUP, INC.....................
MEYERS POLLOCK ROBBINS, INC.......................
Total............................................. 1,250,000 1,250,000
</TABLE>
<PAGE> 1
EXHIBIT 1.2
INNOVATIVE MEDICAL SERVICES
1,250,000 SHARES OF COMMON STOCK
1,250,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
AGREEMENT AMONG UNDERWRITERS
As of , 1996
Monitor Investment Group, Inc.
351 East Conestoga Road
Wayne, PA 19087
Dear Sirs:
We hereby agree with you as follows with respect to (i) the purchase
and offering by Monitor Investment Group, Inc. (the "Representative") and Meyers
Pollock Robbins, Inc. ("MPR" and collectively with the Representative, the
"Underwriters") of an aggregate of 1,250,000 shares of common stock, $.01 par
value (the "Common Stock") and 1,250,000 redeemable Common Stock Purchase
Warrants (the "Warrants" and, together with the Common Stock, the "Securities"),
of Innovative Medical Services (the "Company") and (ii) if you shall have
determined that the Underwriters shall purchase any of the 187,500 additional
shares of Common Stock and/or 200,000 additional Warrants (the "Additional
Securities") which the Company has agreed to sell to the Underwriters pursuant
to Section 2 of the Underwriting Agreement, the purchase from the Company of the
Additional Securities.
1. REGISTRATION STATEMENT. We confirm that we have examined the
registration statement (including the prospectus) relating to the Securities as
amended to the date of this agreement and we are familiar with the terms of the
Securities to be offered and the other terms of the offering which are to be
reflected in the proposed pricing amendment to the registration statement. The
registration statement as amended at the time it become effective, including
financial statements and exhibits, is referred to in this agreement as the
Registration Statement, and the prospectus in the form first filed with the
Securities and Exchange Commission (the "Commission") pursuant to its Rule
424(b) is referred to as the Prospectus.
<PAGE> 2
We further confirm that:
(a) Insofar as it relates to us, the information in the
Registration Statement as amended to this date and in the proposed amendment is
correct and complete and is not misleading.
(b) We are aware of and are willing to accept our
responsibilities under the Securities Act of 1933 as an Underwriter to be named
in the Registration Statement.
(c) We are willing to proceed with the underwriting of the
Securities in the manner contemplated in the Underwriting Agreement.
(d) You are authorized, in your discretion and on our
behalf, with approval of counsel for the Representative of the Underwriters,
Mound, Cotton & Wollan, to approve the proposed amendment and the Prospectus and
to approve of or to object to any further amendments to the Registration
Statement, or amendments or supplements to the Prospectus.
2. UNDERWRITING AGREEMENT. We authorize you to execute and
deliver on our behalf the Underwriting Agreement in substantially the form
annexed hereto as Exhibit A. The number of Securities set forth opposite each
Underwriter's name in Schedule I to the Underwriting Agreement, or such number
increased as set forth in Section 12 of the Underwriting Agreement, is referred
to in this agreement as the original underwriting commitment of such
Underwriter, and the ratio which such original underwriting commitment bears to
the total number of Securities is referred to in this agreement as the
underwriting proportion of such Underwriter.
3. AUTHORIZATION UNDER UNDERWRITING AGREEMENT. The Underwriting
Agreement provides that the obligations of the Underwriters thereunder are
subject, among other things, to the condition that the Registration Statement
shall have become effective no later than 5:00 P.M., New York time, on the date
of the Underwriting Agreement. You are hereby authorized, in your discretion, to
extend such time to not later than 1:00 P.M., New York time, on the date
following such date and, with the consent of Underwriters, including yourselves,
who have agreed to purchase
-2-
<PAGE> 3
in the aggregate at least a majority of the Securities, to agree to one or more
subsequent extensions of such date and to take on our behalf any action that may
be necessary for such purposes.
You are also authorized in your sole discretion to take the following
action with respect to the Underwriting Agreement:
(a) To postpone the Effective Date or the Option Closing
Date (as such terms are defined in the Underwriting Agreement) or, except as
provided above, to extend any other date specified in the Underwriting
Agreement.
(b) To exercise any right of cancellation or termination.
(c) To arrange for the purchase by other persons (including
yourselves or any other Underwriters) of any of the Securities not taken up by
any defaulting Underwriter or by the other Underwriters as provided in Section
13 of the Underwriting Agreement.
(d) To give notice on our behalf of your determination that
the Underwriters shall purchase Additional Securities from the Company.
(e) To consent to such other changes in or waivers of
provisions of the Underwriting Agreement as in your judgment do not materially
and adversely affect our rights and obligations.
4. METHOD OF OFFERING. We agree, jointly with you, to manage the
underwriting and the public offering of the Securities and to take such action
in connection therewith and in connection with the purchase, carrying and resale
of the Securities, including without limitation the following, as you in your
sole discretion deem appropriate or desirable:
(a) To determine the time of the initial public offering of
the Securities, the Underwriters' gross spread and whether the Underwriters
shall purchase any Additional Securities and the amount, if any, of Additional
Securities to be so purchased.
(b) To make any changes in the terms of the offering.
-3-
<PAGE> 4
(c) To make changes in those who are to be Underwriters and
in the respective numbers of the Securities to be purchased by them, provided
that our original underwriting commitment shall not be changed without our
consent.
(d) To determine all matters relating to advertising and
communications with dealers or others.
(e) To reserve for sale and to sell to institutions or
other retail purchasers, for the Underwriters account, such of Securities as the
Underwriters may determine; provided, however, that such reservations and sales
shall be made for the respective accounts of the several Underwriters as nearly
as practicable in their respective underwriting proportions, except for such
sales for the account of a particular Underwriter designated by such a
purchaser.
(f) To reserve for sale and to sell to dealers, for the
Underwriters account, such of the Underwriters Securities as the Underwriters
may determine; provided, however, that such dealers shall be members in good
standing of the National Association of Securities Dealers, Inc. (the "NASD") or
foreign banks or dealers not eligible for membership in the NASD who (A) agree
that they will make no sales of Securities within the United States, its
territories or its possessions or to persons who are citizens thereof or
resident therein and (B) agree that in making sales of such Securities outside
the United States, its territories or possessions they will comply with the
requirements of the NASD's Interpretation with Respect to Free-Riding and
Withholding and with Sections 8, 24 and 36 of Article III of the NASD's Rules of
Fair Practice as though they were such a member and will comply with Section 25
of such Article as it applies to a non-member broker or dealer in a foreign
country, and (C) may include any of the Underwriters. Such sales shall be made
pursuant to Dealer Agreements substantially in the form set forth as Exhibit B
hereto.
(g) To apportion such sales to dealers among the
Underwriters as nearly as practicable in the ratio that the Securities of each
Underwriter so reserved bears to the total number of Securities of all
Underwriters so reserved; provided, however, that if such ratio is to be revised
by reasons of the release of any of the Securities for direct sale as
hereinafter
-4-
<PAGE> 5
provided, sales may be apportioned by you from day to day on the basis of the
ratio existing at the end of the preceding day.
(h) To fix the concession to dealers and the reallowance to
dealers and, after the initial public offering of the Securities to make changes
in the concession and reallowance.
(i) At any time with respect to unsold Securities retained
by an Underwriter: (A) to reserve any such Securities for sale by the other
Underwriter for the account of the Underwriters or (B) to purchase any such
Securities which in the Representatives opinion are needed to enable you to make
deliveries for the accounts of the several Underwriters pursuant to this
agreement. Such purchases may be made at the public offering price, or at the
Underwriters option, at such price less all or any part of the concession to
dealers.
We understand that you will advise us when the Securities are released
for public offering and of the number of Securities sold or reserved for sale
for our account. We shall retain for direct sale any Securities purchased by us
and not so sold or reserved. Direct sales shall be made in accordance with the
terms of offering set forth in the Prospectus. With your consent, we may obtain
release from you for the direct sale of the Securities held by you for sale
pursuant to subparagraphs (e) and (f) above but not sold and paid for. To the
extent Securities so released had been reserved for sale to dealers, the number
of Securities reserved for our account for sale to dealers shall be
correspondingly reduced. We will advise you from time to time, at your request,
of the number of Securities retained by us which remain unsold and of the number
of Securities remaining unsold which were delivered to us pursuant to the last
paragraph of this Section 4.
If, prior to the termination of this agreement, you shall purchase or
contract to purchase any of the Securities sold directly by us, in your
discretion you may (i) sell for our account the Securities so purchased and
debit or credit our account for the loss or profit resulting from such sale,
(ii) charge our account with an amount equal to the concession to dealers with
respect thereto and credit such amount against the cost thereof or (iii) require
us to purchase such Securities at a price equal to the total cost of such
purchase including commissions and transfer taxes on redelivery. Certificates
for
-5-
<PAGE> 6
the Securities delivered on such repurchase need not be identical to the
certificates for the Securities so purchased by you.
5. TRADING AUTHORIZATIONS. We authorize you, during the term of
this agreement in your discretion:
(a) To make purchases and sales of the Securities, in the
open market or otherwise (in addition to purchases and sales made under the
authority of Section 4), either for long or short account, on such terms and at
such prices as you may determine.
(b) In arranging for sales of the Securities, pursuant to
Section 4, to over-allot, and to make purchases for the purpose of covering any
over-allotment so made.
All such purchases and sales and over-allotments shall be made for the
respective accounts of the several Underwriters as nearly as practicable in
their respective underwriting proportions; provided, however, that at no time
shall our net commitment resulting from such purchases and sales, either for
long or short account, or pursuant to such over-allotments, exceed 15% of our
original underwriting commitment and provided that in determining our net
commitment for short account there shall be subtracted the maximum number of
Additional Securities which we are entitled to purchase. We agree to take up at
cost on demand any Securities so purchased for our account and to deliver on
demand any Securities so sold or so over-allotted for our account. Without
limiting the generality of the foregoing, you may buy or take over for the
respective accounts of the several Underwriters, all in the proportion and
within the limits set forth, at the price at which reserved, any of the
Securities reserved for sale by you but not sold and paid for, for such purposes
as you may determine, including, but not limited to, the covering of
over-allotments and short sales.
We agree to maintain any records required of us pursuant to Rule 17a-2
under the Securities Exchange Act of 1934.
6. LIMITATION ON TRANSACTIONS BY UNDERWRITERS. Except as
permitted by you, we will not during the term of this agreement bid for,
purchase, sell or attempt to induce others to purchase or sell, directly or
indirectly, any shares of Common Stock or Warrants other than (i) as provided in
the Underwriting Agreement and this agreement, (ii) purchases from or sales to
dealers of the Securities at the public offering price less all or any part of
-6-
<PAGE> 7
the reallowance to dealers or (iii) purchases or sales by us of any securities
as broker on unsolicited orders for the account of others.
We represent that we have not participated in any transaction
prohibited by the preceding paragraph and that we have at all times complied
with the provisions of Rule 10b-6 of the Commission applicable to this offering.
We may, with your prior consent, make purchases of the Securities from
and sales to other Underwriters at the public offering price, less at all or any
part of the concession to dealers.
We agree not to sell to any account over which we exercise
discretionary authority, without the prior written consent of the customer, any
of the Securities which we purchase and which are subject to the terms of this
agreement.
7. DELIVERY AND PAYMENT. At 9:00 A.M., New York time on the
Effective Date, we will deliver to you at your office a certified or official
bank check, payable in New York Clearing House funds, to the order of Monitor
Investment Group, Inc. or otherwise as you may direct, for either (a) an amount
equal to the public offering price less the selling concession in respect of the
Securities to be purchased by us or (b) an amount equal to the public offering
price less the selling concession in respect of such of the Securities to be
purchased by us as shall have been retained by or released to us for direct
sale, as you shall direct. At 9:00 A.M., New York time, on the Option Closing
Date, if any, we will make similar payment as you may direct for any Additional
Securities to be purchased by us. You shall use such funds to make payment on
our behalf to the Company of the purchase price for our Securities or Additional
Securities, as the case may be. Any balance shall be held by you for our
account. If you have not received our funds as requested, you may in your
discretion make any such payment on our behalf and we will promptly deliver
funds to you in the amount so requested. Any such payment by you will not
relieve us from any of our obligations under this agreement or under the
Underwriting Agreement.
We authorize you, in carrying out the provisions of this agreement, in
your discretion, to arrange loans for our account, to advance your funds for our
account, charging current interest
-7-
<PAGE> 8
rates, and to hold or pledge as security therefor all or any part of the
Securities which you may be holding for our account. Any lender is hereby
authorized to accept your instructions with respect to such loans, and we
authorize you to execute and deliver notes or other instruments in connection
therewith.
You shall promptly remit to us or credit to your account (i) the
proceeds of any loan taken down on our behalf and (ii) upon payment to you for
any Securities sold for our account, an amount equal either to the purchase
price paid by us or the price received by you therefor, as you may determine.
We authorize you to take delivery of certificates for the Securities,
registered as you may direct in order to facilitate deliveries, and to deliver
any Securities reserved for us against sales. You will deliver to us
certificates for the unreserved Securities and certificates for the reserved but
unsold Securities as soon as practicable after the termination of the provisions
referred to in Section 10.
Certificates for all other Securities which you then hold for our
account shall be delivered to us upon termination of this agreement, or prior
thereto in your discretion, and certificates for any Securities may at any time
be delivered to us for carrying purposes only, subject to redelivery upon
demand. If, upon termination of this agreement, an aggregate of not more than
10% of the Securities remains unsold, you may, in your discretion, sell such
Securities at such prices as you may determine.
8. BLUE SKY QUALIFICATION. Upon request, you will inform us as
to the jurisdictions in which you have been advised by counsel that the
Securities have been registered or qualified for sale under the respective
securities or Blue Sky laws, but you do not assume any responsibility or
obligation as to our right to sell the Securities in any jurisdiction.
9. INDEMNIFICATION AND CERTAIN CLAIMS. Each Underwriter,
including yourselves, agrees to indemnify and hold harmless each of the other
Underwriters, and each person, if any, who controls any other Underwriter within
the meaning of Section 15 of the Securities Act of 1933 and to reimburse their
expenses, all to the extent, if any, and upon the terms that we agree to
indemnify and hold harmless the Company, its directors, its officers who sign
the Registration Statement and any person controlling the Company
-8-
<PAGE> 9
to reimburse their expenses, as set forth in the Underwriting Agreement.
We agree that in respect of any matters connected with or action taken
by you pursuant to this agreement you shall act only as agent of the
Underwriters and you shall be under no liability to us in any such respect or in
respect of the form of, or the statements contained in, or the validity of, any
preliminary prospectus or the Registration Statement or Prospectus, or any
amendment or supplement with respect thereto, or for any report or other filing
made by you for us on our behalf under this agreement, except for want of good
faith and for obligations expressly assumed by you herein and no obligation on
you part will be implied or inferred from confirmation or acceptance of this
agreement.
We will pay our proportionate share (based on our underwriting
proportion) of (a) all expenses incurred by you in investigating or defending
against any claim or proceeding which is asserted or instituted by any party
(including any governmental or regulatory body) other than an Underwriter based
upon the claim that the Underwriters constitute an association, unincorporated
business or other separate entity, or relating to the Registration Statement or
Prospectus (or any amendment or supplement thereto) or any preliminary
prospectus and (b) any liability incurred by you in respect of any such claim or
proceeding, whether such liability shall be the result of a judgment or the
result of any settlement agreed to by you, other than any such liability as to
which you actually receive indemnity pursuant to the first paragraph of this
Section 9 or indemnity or contribution pursuant to Section 7 of the Underwriting
Agreement.
Upon termination of this agreement, all authorizations, rights and
obligations hereunder shall cease except (i) the mutual obligations to settle
accounts hereunder, (ii) our obligations to pay any transfer taxes which may be
assessed and paid on account of any sales hereunder for our account, (iii) our
obligation with respect to purchases which may be made by you from time to time
thereafter to cover any short position incurred under this agreement, (iv) our
agreements contained in the first and third paragraphs of Section 9 hereof and
(v) the obligations of any defaulting Underwriter, all of which shall continue
until fully discharged. If any other Underwriter defaults in its obligations
under this agreement we will assume our proportionate share (determined on the
basis of the respective underwriting
-9-
<PAGE> 10
proportions of the non-defaulting Underwriters) of such obligations without
relieving the defaulting Underwriter from liability.
The accounts arising pursuant to this agreement shall be settled and
paid as soon as practicable after termination, except that you may reserve such
amount as you deem advisable to cover any additional contingent expenses.
You are authorized at any time:
(a) To make partial distributions of credit balances or
call for the payment of debit balances.
(b) To determine the amounts to be paid to or by us, which
determination shall be final and conclusive.
(c) As compensation for your services in connection with
this agreement, to charge our account and pay to yourselves, when final
accounting is made, an amount per common stock or Warrant to be determined by
you (not to exceed 3% of the Underwriters' gross spread per Warrant) for each
common stock or Warrant which we have agreed or shall become committed to
purchase from the Company.
(d) To charge our account with (i) all transfer taxes on
sales made for our account and (ii) our underwriting proportion of all expenses
(other than transfer taxes) incurred by you, as Representative of the several
Underwriters, in connection with the transactions contemplated by this
agreement.
(e) To maintain any of our funds at any time with your
general funds without accountability for interest.
10. MISCELLANEOUS. Nothing in this agreement shall constitute us
partners with you and the obligations of ourselves and you are several and not
joint. Each Underwriter elects to be excluded from the application of Subchapter
K, Chapter 1, Subtitle A, of the Internal Revenue Code of 1986, as amended.
Default by any Underwriter with respect to the Underwriting Agreement shall not
release us from any of our obligations thereunder or hereunder.
Your authority under this agreement and under the Underwriting
Agreement may be exercised solely by you.
-10-
<PAGE> 11
Any notice from you to us shall be deemed to have been given if mailed,
telegraphed or hand delivered, or telephoned and subsequently confirmed in
writing, to our address stated in the Underwriting Agreement which we have
furnished to you for transmittal to the Company.
We confirm that we are a member in good standing of the NASD and that,
in making sales of the Securities, we agree to comply with all applicable rules
of the NASD, including, without limitation, the NASD's Interpretation with
Respect to Free-Riding and Withholding and Section 24 of Article III of the
NASD' Rules of Fair Practice. We also confirm that our commitment to purchase
Securities pursuant to the Underwriting Agreement will not result in a violation
of Rule 15c3-1 under the Securities Exchange Act of 1934 or of any similar
provisions of any applicable rules of any securities exchange to which we are
subject or of any restriction imposed upon us by any such exchange or any
governmental authority.
This agreement shall be governed by and construed in accordance with
the laws of the State of New York.
This agreement is being executed by us and delivered to you in
duplicate.
Very truly yours,
MEYERS POLLOCK ROBBINS, INC.
By
----------------------------------
Authorized Signatory or
Attorney-In-Fact
Confirmed as of the date
first above mentioned.
MONITOR INVESTMENT GROUP, INC.
As Representative of the
Co-Managing Underwriters
-11-
<PAGE> 12
named in Schedule I
By
---------------------------
William F. Palla, President
-12-
<PAGE> 1
EXHIBIT 1.3
REPRESENTATIVE'S WARRANT
147,750 SHARES OF COMMON STOCK
INNOVATIVE MEDICAL SERVICES
NO. W-1
THIS CERTIFIES that, for value received, _________________, or its
registered successors and assigns, is the owner of warrants (the "Warrants") to
purchase from Innovative Medical Services, a corporation organized under the
laws of the State of California (the "Company"), subject to the terms and
conditions hereof, at the price (the "Exercise Price") of $4.40 per each share
of Common Stock (the "Common Stock") or the "Securities" (as hereinafter
defined) and subject to adjustments, as hereinafter provided, after the
expiration of one year from _________________________, 1996 and before 5:00
P.M., New York, New York time, on ________________________, 2001 when the
Warrants expire, up to 147,750 Shares of Common Stock, subject to adjustments,
as hereinafter provided. The Representative's Warrants may not at any time
during the life thereof be sold, assigned, pledged, hypothecated or transferred
except to officers or partners of Monitor Investment Group, Inc. (or any
corporate successors thereto), or to other Underwriters (as defined in the
Underwriting Agreement dated ___________________, 1996 (the "Underwriting
Agreement"). For purposes of this Representative's Warrant, the term "Common
Stock" shall mean that class of capital stock of the Company designated common
stock, $.01 par value, as constituted on the date hereof, and any other class of
capital stock of the Company resulting from successive changes or
reclassifications of the Common Stock.
1. EXERCISE OF THE REPRESENTATIVE'S WARRANTS. The Warrants evidenced
hereby may be exercised by the registered holder hereof (in whole or in part, as
to the number of Common Stock covered hereby), by the surrender of this
Representative's Warrant, duly endorsed (unless endorsement is waived by the
Company), at the principal office of the Company (or at such other office or
agency of the Company as it may designate by notice in writing to the registered
holder hereof at such holder's last address appearing on the books of the
Company) and upon payment to
<PAGE> 2
the Company by certified or official bank check or checks payable to the order
of the Company of the Exercise Price of the Securities purchased. The Company
agrees that the Securities so purchased shall be deemed to be issued to the
registered holder hereof on the date on which this Representative's Warrant
shall have been surrendered and payment made for such Securities as aforesaid;
provided, however, that no such surrender and payment on any date when the stock
transfer books of the Company shall be closed shall be effective to constitute
the person entitled to receive the Securities as the record holder thereof on
such date, but such surrender and payment shall be effective to constitute the
person entitled to receive such Securities as the record holder thereof for all
purposes immediately after the opening of business on the next succeeding day on
which such stock transfer books are open. The certificate(s) for such Securities
shall be delivered to the registered holder hereof within a reasonable time, not
exceeding five days, after the Representative's Warrants evidenced hereby shall
have been so exercised and a new Representative's Warrant evidencing the number
of Warrants, if any, remaining unexercised shall also be issued to the
registered holder within such time unless such Warrants shall have expired.
2. ADJUSTMENTS IN EXERCISE PRICE AND NUMBER OF SHARES OF COMMON STOCK
AND PUBLIC WARRANTS. The Exercise Price for the Warrants, the number of shares
of Common Stock shall be subject to adjustment from time to time on the same
basis as provided in Article __ of the warrant agreement between the Company and
American Securities Transfer, Inc., as warrant agent (the "Warrant Agreement").
The Warrant Agreement shall control all adjustments to the Exercise Price, the
number of Shares or Warrants issuable upon exercise of the Representative's
Warrants, the number of shares of Common Stock issuable upon exercise of the
Warrants and the exercise price of the Warrants as if the Warrants were issued
and outstanding from the date of the Representative's Warrant Agreement. The
provisions of Article __ of the Representative's Warrant Agreement shall be
construed so as to give the holders of the Representative's Warrants the same
protection against dilution as is enjoyed by the public holders of the Company's
Public Warrants to purchase shares of Common Stock. The Warrants, when and if
issued, shall in all respects be subject to, and governed by, the provisions of
the Warrant Agreement, except that the Warrants are not subject to redemption by
the Company.
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<PAGE> 3
3. FRACTIONAL COMMON STOCK OR WARRANTS. No certificates for
fractional Common Stock or Public Warrants shall be issued upon the exercise of
the Warrants, but in lieu thereof the Company shall, upon exercise in full of
the Warrants, purchase out of funds legally available therefor any such
fractional interest for an amount in cash equal to the current market value of
such fractional interest calculated to the nearest cent, which value shall be,
if the Common Stock or Warrant is traded on the National Association of
Securities Dealers, National Market System, the last reported sale price, or, if
the Common Stock or Common Stock is not listed on such system, the closing bid
price of the Common Stock or Warrant in the over-the-counter market, in each
such case on the most recent day within ten days prior to the date of such
exercise for which such bid or sale prices shall have been so reported, or, if
the Common Stock or Warrant is listed on a stock exchange registered with the
Securities and Exchange Commission, the last reported sale price on such
exchange of such day; and if there shall have been no sale on said day, then the
computation shall be made on the basis of the last reported sale price on such
exchange within ten days prior to such date. If there have been no reported bid
prices, or reported sale prices, as the case may be, within such ten days, the
current market value shall be fixed in a manner determined in good faith by the
Company.
4. REGISTRATION RIGHTS. The Company is obligated to register the
Securities, on the terms, and subject to the conditions, set forth in Section 11
of the Underwriting Agreement.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to and covenants with the registered holder hereof as
follows:
(a) The Company is a corporation duly organized, validly
existing and in good standing under the laws of California, is duly
qualified and in good standing under the laws of any foreign
jurisdiction where the failure to be so qualified would have a material
adverse effect on its ability to perform its obligations under the
Representative's Warrants evidenced by this Representative's Warrant
and it has full corporate power and authority to issue the
Representative's Warrants and to carry out the provisions of the
Representative's Warrants evidenced by this Representative's Warrant.
-3-
<PAGE> 4
(b) The issuance, execution and delivery of this
Representative's Warrant has been duly authorized by all necessary
corporate action on the part of the Company and each of the
Representative's Warrants evidenced by this Representative's Warrant
constitutes the valid and legally binding obligation of the Company,
enforceable against it in accordance with the terms hereof, except as
such enforceability may be limited by bankruptcy, insolvency, or other
laws affecting generally the enforceability of creditors' rights, by
general principles of equity and by limitations on the availability of
equitable remedies.
(c) Neither the execution and delivery of the Warrants
evidenced by this Representative's Warrant by the Company, nor
compliance by the Company with the provisions hereof, violates any
provision of its Certificate of Incorporation or By-Laws, as amended,
or any law, statute, ordinance, regulation, order, judgment or decree
of any court or governmental agency, or conflicts with or will result
in any breach of the terms of or constitute a default under or result
in the termination of or the creation of any lien pursuant to the terms
of any agreement or instrument to which the Company is a party or by
which it or any of its properties is bound.
6. COMPANY TO PROVIDE STOCK. The Company covenants and agrees
that all shares of Common Stock which may be issued upon the exercise of the
Warrants will be duly authorized, validly issued and fully paid and
nonassessable and free from all taxes, liens and charges with respect to the
issue thereof (other than taxes in respect of any transfer occurring
contemporaneously with such issue) to the registered holder thereof. The Company
further covenants and agrees that during the period within which the Warrants
and the Warrants may be exercised, the Company will at all times have authorized
and reserved such number of shares of Common Stock as may be sufficient to
permit the exercise of the Warrants.
7. REGISTERED HOLDERS. The registered holder of this
Representative's Warrant shall be deemed the owner hereof and of the Warrants
evidenced hereby for all purposes. The registered holder of this
Representative's Warrant shall not be entitled by
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<PAGE> 5
virtue of ownership of this Representative's Warrant to any rights whatsoever as
a shareholder of the Company.
8. TRANSFER. This Representative's Warrant and the Warrants
evidence hereby may be transferred only as set forth herein. Any transfer of
this Representative's Warrant and the Warrants evidenced hereby, in whole or in
part, shall be effected upon surrender of this Representative's Warrant, duly
endorsed (unless endorsement is waived by the Company), at the principal office
or agency of the Company referred to in Section 1. If all of the Warrants
evidenced hereby are being sold, transferred, pledged, hypothecated or otherwise
disposed of, the Company shall issues a new Representative's Warrant registered
in the name of the appropriate transferee(s). If less than all of the Warrants
evidenced hereby are being sold, transferred, pledged, hypothecated or otherwise
disposed of, the Company shall issue new Representative's Warrants, in each case
in the appropriate number of Warrants, registered in the name of the registered
holder hereof and the transferee(s), as applicable. Any Warrants issued upon any
exercise of the Warrants and any shares of Common Stock issued upon any exercise
of the Common Stock Warrants, respectively, may not be sold, transferred,
pledged, hypothecated or otherwise disposed of unless, in the opinion of counsel
reasonably satisfactory to the Company, such transfer would not result in a
violation of the Securities Act. Each taker and holder of this Representative's
Warrant, the Warrants evidenced hereby, and the Common Stock issued upon
exercise of the Warrants and any Warrants issued upon any exercise of the
Warrants, respectively, by taking or holding the same, consents to and agrees to
be bound by the provisions of this Section 8.
9. COMPANY TO PROVIDE REPORTS, ETC. While this Representative's
Warrant remains outstanding, the Company will mail to the person in whose name
this Representative's Warrant is registered copies of all reports and
correspondence which the Company mails to its stockholders.
10. LOST REPRESENTATIVE'S WARRANT. If this Representative's
Warrant shall be lost, stolen, mutilated or destroyed, the Company may on such
terms as to indemnity or otherwise as the Company may in its discretion
reasonably impose, issue to the registered holder a new Representative's Warrant
of like denomination, tenor and date as the Representative's Warrant
-5-
<PAGE> 6
so lost, stolen, mutilated or destroyed. Any such new Representative's Warrant
shall constitute an original contractual obligation of the Company, whether or
not the allegedly lost, stolen, mutilated or destroyed Representative's Warrant
shall be at any time enforceable by anyone.
11. GOVERNING LAW. These Warrants shall be governed by and
construed in accordance with the laws of the State of New York applicable to
agreements to be performed entirely within such State.
Dated: , 1996
-----------------------
INNOVATIVE MEDICAL SERVICES
By
----------------------------------
President
-6-
<PAGE> 7
TRANSFER OF WARRANTS
For value received, hereby sells,
assigns and transfers unto the right to purchase
Shares, of Common Stock of INNOVATIVE MEDICAL SERVICES, a California
corporation, which rights are represented by the within Warrants, and does
hereby irrevocably constitute and appoint attorney to
transfer said rights on the books of the within named Company, with full power
of substitution in the premises.
------------------------------------
Dated: , 19
------------------- --
In the Presence of
- --------------------------------
<PAGE> 8
ELECTION TO SUBSCRIBE
Date: , 19
--------------- --
To: INNOVATIVE MEDICAL SERVICES
The undersigned hereby subscribes for Shares of Common Stock
covered by the within Warrants and tenders payment herewith in the amount of
$ in accordance with the terms thereof:
Deliver Certificate(s)
against
Issue Certificates(s) counter
for said Unit(s) by mail receipt
-- --
TO: TO:
- ----------------------------- -----------------------------
(Name) (Name)
- ----------------------------- -----------------------------
(Taxpayer Identification No.) (Street and Number)
- ----------------------------- -----------------------------
(Street and Number) (City) (State)
- -----------------------------
(City) (State)
and if said number of Securities shall not be all of such securities covered by
the within Warrants, then new Warrants for the balance of the Warrants remaining
shall be registered in the name of, and delivered as follows:
Deliver Warrants
against
Issue remaining counter
Warrants by mail receipt
-- --
TO: TO:
- ----------------------------- -----------------------------
<PAGE> 9
(Name) (Name)
- ----------------------------- -----------------------------
(Taxpayer Identification No.) (Street and Number)
- ----------------------------- -----------------------------
(Street and Number) (City) (State)
- -----------------------------
(City) (State)
EXHIBIT 1.03
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<PAGE> 10
EXHIBIT 1.04
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF AMENDMENT OF
THE ARTICLES OF INCORPORATION OF
INNOVATIVE MEDICAL SERVICES
Michael L. Krall and Dennis B. Atchley hereby certify that:
1. They are the President and Secretary, respectively, of Innovative Medical
Services, a California corporation.
2. Article FOUR of the Articles of Incorporation of this corporation is
amended to read as follows:
FOUR: The corporation is authorized to issue two (2) classes of
shares, to be designated respectively as "Common Shares" and
"Preferred Shares". The total number of Common Shares the
corporation is authorized to issue is Twenty Million (20,000,000)
with no par value. The total number of preferred Shares the
corporation is authorized to issue is Five Million (5,000,000)
with no par value. Said preferred stock may subsequently receive
such designation as may be deemed appropriate by the Board of
Directors of the corporation, and the Board of Directors shall
have the right to determine or alter the rights, preferences,
privileges, and restrictions granted to, or imposed upon said
preferred. shares;. Additionally, the Board of Directors shall be
empowered to increase or decrease (but not below the number of
shares of Common or preferred Shares then outstanding) the number
of shares of any class of shares subsequent to the issue of shares
of that class.
The foregoing amendment to the Articles of Incorporation was duly approved
by the Board of Directors of the corporation on April 17, 1996.
The foregoing amendment to the Articles of Incorporation was duly approved
by the required vote of shareholders in accordance with Section 902 of the
Corporations Code on April 17, 1996. The total number of Common Shares
outstanding in the corporation is 1,000,000.
The number of Common Shares voting in favor of these amendments equaled or
exceeded the vote required. The percentage vote required was more than fifty
percent (50%).
We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and correct
of our own knowledge.
Dated: May 22, 1996 /s/ MICHAEL L. KRALL
------------------------------------
Michael L. Krall
President, C.E.O. and Director
Dated May 22, 1996 /s/ DENNIS B. ATCHLEY
------------------------------------
Dennis Atchley, Esquire
Secretary
<PAGE> 2
[LETTERHEAD OF STATE OF CALIFORNIA SECRETARY OF STATE'S OFFICE]
CORPORATION DIVISION
I, TONY MILLER, Acting Secretary of State of the State of California, hereby
certify:
That the annexed transcript has been compared with the corporate record on
file in this office, of which it purports to be a copy, and that same is full,
true and correct.
IN WITNESS WHEREOF, I execute this
certificate and affix the Great
Seal of the State of California
this
JUN 24 1994
------------------
[SEAL OF THE STATE OF CALIFORNIA] /s/ Tony Miller
Acting Secretary of State
<PAGE> 3
CERTIFICATE OF AMENDMENT OF
THE ARTICLES OF INCORPORATION OF
INNOVATIVE MEDICAL SERVICES
Michael L. Krall and Dennis B. Atchley hereby certify that:
1. They are the President and Secretary,. respectively, of Innovative Medical
Services, a California corporation.
2. Article FOUR of the Articles of Incorporation of this corporation is amended
to read as follows:
"The corporation is authorized to issue two (2) classes of shares, to
be designated respectively as 'Common Shares' and 'Preferred Shares.'
The total number of Common Shares the corporation is authorized to
issue is Five Million (5,000,000) with no par value. The total number
of Preferred Shares the corporation is authorized to issue is One
Million (1,000,000) with no par value. Said Preferred stock may
subsequently receive such designation as may be deemed appropriate by
the Board of Directors of the corporation, and the Board of Directors
shall have the right to determine or alter the rights, preferences,
privileges, and restrictions granted to, or imposed upon said
Preferred Shares. Additionally, the Board of Directors shall be
empowered to increase or decrease (but not below the. number of shares
of. Common or Preferred Shares then outstanding) the number of shares
of any class of shares subsequent to the issue of shares of that
class."
3. The foregoing amendment of the Articles of. Incorporation has been duly
approved by the Board of Directors of the corporation.
4. The foregoing amendment of the Articles of Incorporation has been duly
approved by the required vote of shareholders in accordance with Section 902 of
the Corporations Code. The total number of Common Shares outstanding in the
corporation is 100,000. The number of Common Shares voting in favor of these
amendments equaled or exceeded the vote required. The percentage vote required
was more than fifty percent (50%).
We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and correct
of our own knowledge
Dated: June 9, 1994 /s/ Michael L Krall
------------------------------------
President C E 0 and Director
Dated: June 9, 1994 /s/ Dennis Atchley, Esquire
------------------------------------
Secretary
<PAGE> 4
[LETTERHEAD OF STATE OF CALIFORNIA SECRETARY OF STATE'S OFFICE]
CORPORATION DIVISION
I, MARCH FONG EU, Secretary of State of the State of California,
hereby certify:
That the annexed transcript has been compared with the corporate record on
file in this office, of which it purports to be a copy, and that same is full,
true and correct.
IN WITNESS WHEREOF, I execute this
certificate and affix the Great
Seal of the State of California
this
AUG 24 1992
------------------
[SEAL OF THE STATE OF CALIFORNIA] /s/ March Fong Eu
Secretary of State
<PAGE> 5
ARTICLES OF INCORPORATION
OF
INNOVATIVE MEDICAL SERVICES
The undersigned Incorporator hereby executes, acknowledges, and causes
to be filed the following Articles of Incorporation for the purpose of farming
a corporation under the General Corporation Law of the State of California.
ONE: The name of this corporation is Innovative Medical Services
TWO: The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of California other than the banking business, the trust company business,
or the practice of a profession permitted to be incorporated by the California
Corporations Code.
THREE: The name and address in the State of California of this
corporation's initial agent for service of process is:
Dennis B. Atchley, Esq.
3033 Fifth Avenue
Suite 400
San Diego, CA 92103
FOUR: This corporation is authorized to issue only one class of shares
of stock; and the total number of shares which this corporation is authorized to
issue is 100,000 shares.
FIVE: The liability of the directors of the corporation for monetary
damages shall be eliminated to the fullest extent permissible under California
law.
SIX: The corporation is authorized to provide indemnification of agents
(as defined in Section 317 of the Corporations Code) for breach of duty to the
corporation and its stockholders through bylaw provisions or through agreements
with the agents, or both, in excess of the indemnification otherwise permitted
by Section 317 of the Corporations Code, subject to the limits on such excess
indemnification set forth in Section 204 of the Corporations Code.
IN WITNESS Whereof, the Incorporator has executed the foregoing
Articles of Incorporation, on August 21, 1992.
/s/ THOMAS E. SMITH (Jr.)
- -------------------------
Incorporator
<PAGE> 6
BYLAWS
OF
INNOVATIVE MEDICAL SERVICES
ARTICLE I - OFFICES. PURPOSES AND POWERS
Section 1 - Principal Office
The Board of Directors of Innovative Medical Services (hereinafter
"IMS" or the "Corporation") shall fix the location of the principal executive
office of the Corporation at any place within or outside the State of
California. If the principal executive office of IMS is located outside the
State of California, and the Corporation maintains one or more offices within
the State of California, the Board of Directors shall fix and designate one of
said offices within the State of California as its principal business office in
the State of California.
Section 2 - Other Offices
The Board of Directors may, at any time, establish branch or
subordinate offices at any place or places where the Corporation is qualified to
do business.
Section 3 - purposes and Powers
IMS shall have such purposes, and shall exercise such powers in
furtherance of its purposes, as are now or may hereafter be set forth in the
Articles of Incorporation of the Corporation.
ARTICLE II - MEETINGS OF SHAREHOLDERS
Section 1 - Place of Meetings
Meetings of the shareholders of IMS shall be held at such place within
or outside the State of California as is designated from time to time by the
Board of Directors. In the absence of any such designation by the Board of
Directors prior to notice being given pursuant to any such meetings, meetings of
the shareholders shall be held at the principal executive office of the
Corporation.
Section 2 - Annual Meeting
The annual meeting of the shareholders of IMS shall be held each year
on a date and at a time designated by the Board of Directors. At each annual
meeting of the shareholders of the Corporation, Directors shall be elected, and
any other proper business of the Corporation may be transacted.
Section 3 - Special Meetings
A special meeting of the shareholders of IMS may be called at any time
by the Board of Directors or by the Chairman of the Board, or by the President
of the Corporation, or by one or more shareholders holding shares in the
aggregate entitled to cast not less than five percent (5%) of the votes at that
meeting.
Section 4 - Notice of Special Meetings
If a special meeting of the shareholders of IMS is called by any person
or persons other than the Board of
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Directors, the request for calling such meeting shall be made in writing,
specifying the date and time of such meeting and the general nature of the
business proposed to be transacted, and shall be delivered personally or
unregistered or certified mail to the Chairman of the Board, the President; any
Vice President or Vice Presidents; and the Secretary of the Corporation.
Any Officers of the Corporation receiving such a request shall cause
notice to be normally given to the shareholders of record entitled to vote at
such meeting1 in accordance with the provisions of Section 5 and Section 6 of
this Article II, that a meeting will be held on the date and at the time
requested by the person or persons calling the meeting, such notice to be given
to said shareholders not less than ten (10) days nor more than thirty (30) days
after the receipt of such request by said Officers.
If notice of such meeting is not given within thirty (30) days after
the receipt of the request by the Chairman of the Board, the President, any Vice
President or Vice Presidents, and the Secretary of the Corporation, then the
person or persons entitled to call the meeting may give the notice directly to
the shareholders entitled to vote at such meeting or may petition the. superior
court of the county in which the principal executive office of IMS is maintained
to order the giving of such notice by the Corporation. Nothing contained in this
Section 4 shall be construed as limiting, fixing or affecting the date and time
when an annual or special meeting of the shareholders called by an action of the
Board of Directors may be held.
Section 5 - Notice of Meetings of the Shareholders
All notices of meetings of the shareholders of IMS shall be sent or
otherwise given in accordance with this Section 5 of Article II to each
shareholder entitled to vote at any such meeting not less than ten (10) nor more
than sixty (60) days before the date of any such meeting. Such notices shall
contain the place, date and hour of such meetings and, in the case of the annual
meeting, those matters which the Board of Directors, at the time of the giving
of such notice, intends to present for action by the shareholders, and, in the
case of a special meeting, the general nature of the business to be transacted.
The notice of any meeting at which Directors of the Corporation are to be
elected shall include the names of the nominees for election intended at the
time of the notice to be presented by the Board of Directors.
If action is proposed to be taken at any meeting providing for the
approval of a contract or transaction in which a Director of the Corporation has
a direct or indirect financial interest, an amendment of the Articles of
Incorporation, a reorganization of the Corporation, a voluntary dissolution of
the Corporation, or a distribution pursuant to dissolution other than in
accordance with the rights of outstanding preferred shares, if any, such notice
shall also state the general nature of that proposal.
Section 6 - Manner of Giving Notice and Affidavit of Notice
Notice of any meeting of the shareholders of the IMS shall be given
either personally or by first class mail, postage prepaid, addressed to the
shareholders of record entitled to vote at any such meeting at the respective
addresses of the shareholders appearing in the books of the Corporation or given
by the shareholders to IMS for the purpose of giving such notice. If no such
address appears in the books of the Corporation for a shareholder or is given by
a shareholder, notice shall be deemed to have been given if sent to that
shareholder by first class mail, postage prepaid, at the Corporation's principal
executive office, or if published at least once in a newspaper of general
circulation in the county where that office is located. Notice shall be deemed
to have been given when such notice, postage prepaid, is deposited with or
otherwise transferred to the United States Postal Service.
If any notice addressed to a shareholder of IMS at the address of that
shareholder appearing in the books of the Corporation is returned as
undeliverable by the United States Postal Service, all future notices or reports
shall be deemed to have been duly given without further mailing if these shall
be available to the shareholder at the principal executive office of the
Corporation for a period of one year from the date of giving of such notices or
reports upon the written demand of said shareholder for the availability of any
such notices or reports.
An affidavit of the mailing or other means of giving any such notice of
any meeting of the shareholders
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<PAGE> 8
shall be executed by the Secretary or Assistant Secretary of IMS or any transfer
agent of the Corporation giving the notice, and shall be filed and maintained in
the book of minutes of the Corporation.
Section 7 - Quorum
The presence in person or by proxy of the holders of any percentage
exceeding fifty percent (50%) of the outstanding shares entitled to vote at any
meeting of the shareholders of the Corporation shall constitute a quorum for the
transaction of business at any such meeting.
The shareholders present at a duly called or held meeting at which a
quorum is present may continue to do business until adjournment, notwithstanding
the withdrawal of enough shareholders to leave less than a quorum, if any action
taken, other than adjournment, is approved by at least a majority of the shares
required to constitute a quorum.
Section 8 - Adjourned Meeting
Any meeting of the shareholders. of IMS whether annual. or *special/
and whether? or not a quorum is present, may be adjourned from time to time by
the vote of the majority of the shares represented at any such meeting, either
in person or by proxy, but in the absence of a quorum, no other business may be
transacted at such a meeting.
When any meeting of the shareholders, either annual or special, is
adjourned to another time or place, notice of the adjourned meeting need not be
given if the time and place for the continuance of such meeting are announced at
any such meeting at which such adjournment is taken, unless a new record date
for the adjourned meeting is fixed, or unless the adjournment is for more than
forty five (45) days from the date set for the original meeting, in which case
the Board of Directors of the Corporation shall set a new record date.
Notice of any such adjourned meeting which shall have a new record date
fixed shall be given to each shareholder of record entitled to vote at the
adjourned meeting in accordance with the provisions of SectionE5 and Section 6
of this Article II.
At any adjourned meeting, the shareholders of the Corporation may
transact any business which might have been transacted at the original meeting
provided that a quorum is present at such adjourned meeting.
Section 9 - Voting
The shareholders of IMS entitled to vote at any meeting of the
shareholders shall be determined in accordance with the provisions of Section 12
of this Article II. Any vote of the shareholders may be by voice vote or by
ballot; provided, however, that any election of Directors must be by ballot if
demanded. by any shareholder before the voting has begun.
On any matter other than the election of Directors, any shareholder may
vote part of the shareholder's shares in favor of the proposal, part of said
share against the proposal, and may refrain from voting any remaining shares,
but if such shareholder fails to specify the number of shares which the
shareholder is voting affirmatively, it will be conclusively presumed that the
shareholder's approving vote is with respect to all shares that the shareholder
is entitled to vote.
If a quorum is present, the affirmative vote of at least a simple
majority of the shares attending or represented at any such meeting and entitled
to vote on any matter shall be the act of the shareholders, unless. the vote of
a greater percentage of voting shares is required by the Articles of
Incorporation of the Corporation or by these Bylaws.
Shareholders of non-voting shares, as may be issued at the direction of
the Board of Directors of the
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<PAGE> 9
Corporation in accordance with federal and state securities laws, shall have no
right to notice of, to attend, or to vote at said meetings, and language
implementing this restriction shall be placed upon the certificates for any such
non-voting shares of the Corporation.
At a meeting of the shareholders at which Directors are to be elected
shareholders shall be entitled to cumulate votes to the extent permitted under
California law. Cumulative voting shall be permitted provided that any
shareholder who desires to cumulate votes shall give notice of such
shareholder's intention to cumulate votes prior to the commencement of the
voting.
If any one shareholder has given such notice, all shareholders entitled
to vote may cumulate votes for candidates in nomination and give one candidate a
number of votes equal to the number of Directors to be elected multiplied by the
number of votes to which those shareholders' shares are entitled, or may
distribute the shareholders' votes on the same principle among any or all of the
candidates, as the shareholders deems fit.
Each candidate for the Board of Directors shall be voted upon
separately, and the candidates receiving the highest number of affirmative votes
of the voting shares held by the shareholders, up to the number of Directors to
be elected, shall be elected as Directors of the Corporation.
Section 10 - Waiver of Notice or Consent By Absent Shareholders
The transactions of any meeting of the shareholders, either annual or
special, however called and noticed, and wherever held, shall be as valid as
though made at a meeting duly held after regular call and notice with a quorum
present either in person or by proxy, if, either before or after the meeting,
each person entitled to vote who was not present in person or by proxy signs a
written waiver of notice or a consent to the holding of the meeting or an
approval of the minutes of any such meeting.
Any shareholder may waive notice of a meeting either before, during or
after any such meeting. Such waivers, consents or approvals shall be filed with
the Corporate records or made a part of the minutes of the meeting.
The waiver of notice or consent need not specify either the business to
be transacted, actually transacted, or the purpose of any annual or special
meeting of the shareholders, except that if action is taken or proposed to be
taken for approval of any of those matters specified in the second paragraph of
Section 5 of this Article IT, the waiver of notice or consent shall state the
general nature of the action, proposal or proposals.
Attendance of a shareholder at a meeting, either in person or by proxy,
shall also constitute a waiver of notice of that. meeting and presence at such
meeting; except when the shareholder objects at the beginning of the meeting to
the transaction of any business because the meeting is not lawfully called or
convened, and except that attendance at a meeting is not a waiver of any tight
to object to the consideration of matters not included in the notice of the
meeting if that objection is expressly made at such meeting.
Section. 11 - Action By Written Consent Without a Meeting
Any action which may be taken at any annual or special meeting of the
shareholders of IMS may be taken without a meeting and without prior notice if a
consent in writing setting forth the action so taken is signed by the holders of
outstanding shares having not less than the minimum number of votes that would
be necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted.
In the case of the election of Directors, such a consent shall be
effective only if signed by the holders of all outstanding shares entitled to
vote for the election of Directors; provided, however, that a Director may be
elected at any time to fill a vacancy on the Board of Directors that has not
been filled by the Directors by written consent of the holders of any percentage
exceeding fifty percent (50%) of the outstanding shares entitled to vote. All
such consents shall be filed with the Secretary of IMS and shall be maintained
in the Corporate records.
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Any shareholder, shareholder's proxy holder, or transferee of shares,
who gives a written consent may revoke the consent by notifying the Secretary of
IMS in writing before written consents of the number of shares required to
authorize the proposed action have been filed with the Secretary, but may not do
so thereafter.
If the consents of all shareholders entitled to vote have been
solicited in writing, and if the unanimous written consent of all such
shareholders shall not have been received, the Secretary shall give prompt
notice of any Corporate action approved by the shareholders without a meeting to
all shareholders of record as of the date of such action.
This notice shall be given in the manner specified in Section 6 of this
Article II. In the case of the approval of any proposal mentioned in the second
paragraph of Section 5 of this Article II, such notice shall be given at least
ten (10) days before the consummation of any such action authorized by that
approval.
Section 12 - Record Date for Notice, Voting and Giving Consents
For purposes of determining the shareholders entitled to notice of any
meeting, to vote, or to give consent to Corporate action without a meeting, the
Board of Directors may fix, in advance, a record date which shall not be more
than sixty (60) nor less than ten (10) days before the date of any such meeting
nor more than sixty (60) days before any such action without a meeting, and in
this event only shareholders of record on the date so fixed are entitled to
notice, to vote or to give consents, as the case may be, notwithstanding any
transfer of any shares on the books of the Corporation after the record date,
except as may be provided for by the laws of the State of California.
If the Board of Directors does not so fix a record date, the record
date for determining shareholders entitled to notice of or to vote at a meeting
of shareholders shall be at the close of business on the business day
immediately preceding the day on which such notice is given or, if notice is
waived, at the close of business on the business day immediately preceding the
day on which the meeting is held.
The record date for determining shareholders entitled to give consent
to corporate action in writing without a meeting when no prior action by the
Board of Directors has been taken shall be the day on which the first written
consent is given, or when prior action of the Board of Directors has been taken,
shall be at the close of business on the day on which the Board of Directors
adopts the resolution relating to such action, or the sixtieth (60th) day before
the date of such other action, whichever is later.
Section 13 - Proxies
Every person entitled to vote for Directors or on any other matter
shall have the right to do so either in person or through one agent authorized
by a written proxy signed by the person and filed with the Secretary of the
Corporation. A proxy shall be deemed signed when a shareholder's signature is
manually placed on the proxy by the shareholder or the shareholder's
attorney-in-fact.
A validly executed proxy which does not state that it is irrevocable
shall continue in force and effect unless revoked by the shareholder executing
it before its next exercise by a written notice delivered to IMS stating that
the proxy has been revoked or by a subsequent proxy executed by, or attendance
at the meeting and voting in person by, the shareholder who executed such proxy.
Any such proxy shall be deemed terminated and void if written notice of the
death or incapacity of the maker of the proxy is received by the Corporation
before the vote pursuant to that proxy is counted; provided, however, that no
proxy shall be valid after the expiration of eleven (11) months from the date of
the proxy, unless otherwise provided for in any such proxy.
Section 14 - Inspectors of Election
Before any meeting of the-1/2shareholders of IMS, the Board of
Directors may appoint any persons other than nominees for office to act as
inspectors of election at any such meeting or its adjournment. If no inspectors
of election are so appointed, the chairman of the meeting may, and on the
request of any shareholder or a shareholder's proxy shall, appoint inspectors of
election at the meeting.
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The number of inspectors shall be either one (1) or three (3).If
inspectors are appointed at a meeting at the request of one or more shareholders
or proxies, the holders or holders of any percentage exceeding fifty percent
(50%) of the outstanding shares entitled to vote or their proxies present at the
meeting shall determine whether one (1) or three (3) inspectors are to be
appointed.
If any person appointed as an inspector fails to appear or fails or
refuses to act, the chairman of the meeting may, and upon the request of any
shareholder or shareholder's proxy shall, appoint a person to fill that vacancy.
The inspectors of election shall:
(a) determine the number of shares outstanding and the voting power of
each, the shares represented at the meeting, the existence of the
quorum and the authenticity, validity and effect of proxies;
(b) receive votes, ballots or consents;
(c) hear and determine all challenges and questions in any way arising
in connection with the right to vote;
(d) count and tabulate all votes and consents;
(e) determine when the polls shall close;
(f) determine the results of any votes; and
(g) do any other acts that may be proper to conduct the election or
vote with fairness to all shareholders.
ARTICLE III - CAPITAL STOCK. DIVIDENDS AND RIGHTS OF SHAREHOLDERS
Section 1 - Common Shares and Other Classes of capital Stock
The holders of shares of voting common stock of IMS are entitled to one
vote per share on each matter to be decided by the shareholders. However, the
Board of Directors is authorized to take, or order taken, any action required to
increase the authorized issue of shares and the classes and. types of capital
stock and other securities of the Corporation, including common stock and
preferred stock, without first seeking the approval of the holders of shares of
voting common stock or the holders of any other securities of IMS.
Section 2 - Issuance of Securities Without Shareholder Approval
The Board of Directors is empowered to authorize and issue corporate
stock of various amounts, classes and types, and also to authorize the sale or
issuance of warrants, options or other rights pursuant to such corporate stock,
for valid purposes of IMS or its business or expansion without first obtaining
the approval of the shareholders to the extent permitted under California law.
Section 3 - Dividends and Distributions
The declaration and payment of dividends or distributions, if any, by
IMS on its common stock or any other securities, if any, shall be at the sole
discretion of the Board of Directors.
Any such declaration or payment of any cash or capital stock dividends
or distributions by the Board of Directors will depend upon, among other things,
the Corporation's earnings, capital requirements, the financial
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<PAGE> 12
position of the Corporation, general economic conditions, and other relevant
factors.
Holders of IMS' shares are entitled to receive any dividends or distributions
which the Board of Directors may declare from time to time out of funds legally
available for that purpose, if any, on a pro-rata basis. For the purposes of
this provision, the term "pro-rata basis" means that the holders of shares of
common stock shall be entitled to equal dividends and distributions with respect
to the other holders of shares of common stock; and the holders of any other
class or type of stock eligible for the payment of dividends or distributions
shall be entitled to equal dividends and distributions with respect to the other
holders of such any other class or type of stock eligible for the payment of
dividends or distributions in accordance with the respective terms and
conditions established by the Board of Directors for the payment of such
dividends or distributions, as, and if declared by the Board of Directors from
funds legally available for such dividends.
The Board of Directors may, in its sole discretion, decide not to
declare any dividends or distributions on said shares of common stock or any
other class or type of stock eligible for the payment of dividends or
distributions until such time as IMS is fully established and profitable and has
an excess of retained earnings sufficient for anticipated corporate expansion
and development activities.
Section 4 - Certain Rights of Shareholders
The holders of shares and other securities of IMS shall have no formal
preemptive right to invest in new issues of shares or other securities, but the
Corporation may offer any such new issues to shareholders of record prior to
offering them to outside investors to the extent permitted by the laws of the
State of California or any other applicable laws or statutes. Shares of common
stock in IMS are not callable nor are they subject to redemption, and said
shares will convey no special rights or privileges upon the holders thereof.
ARTICLE IV - DIRECTORS
Section 1 - Powers
Subject to the provisions of the laws of the State of California and
any limitation in the Articles of Incorporation of IMS and these Bylaws relating
to action required to be approved by the shareholders or by the outstanding
shares, the business and affairs of the Corporation shall be managed by, and all
Corporate powers shall be exercised by or under the direction of, the Board of
Directors of IMS.
The Board of Directors may delegate the day-to-day operation of the
Corporation to the Officers of IMS, to a management company, or to other
persons, provided that the business of IMS shall be managed and all Corporate
powers shall be exercised under the ultimate direction and discretion of the
Board of Directors.
The Board of Directors shall elect a Chairman of the Board of
Directors, whose term as Chairman shall continue until the next election of
Directors, until resignation or removal, or until a replacement Chairman is
elected by the assenting vote of the majority of the Directors. Each Director
shall comply with any written conflict of interest policy which is adopted by
IMS pursuant to a resolution of the Board of Directors, if any.
Section 2 - Number and Qualification of Directors
The authorized number of Directors of IMS shall not be less than one
(1) unless changed by amendment of the Articles of Incorporation or by a duly
adopted Bylaw amending this Section 2 of Article IV. The exact number of
Directors shall be fixed, and may from time to time be changed, by the Board of
Directors without further amendment of these Bylaws. Directors need not be
shareholders of IMS or residents of the State of California.
Section 3 - Election and Term of Office of Directors
Directors of IMS shall be elected at each annual meeting of the
shareholders and shall hold office until the
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next annual meeting of the shareholders. Each Director, including a Director
elected to till a vacancy, shall hold office until the expiration of. the term
for which elected and until a successor has been elected and qualified.
Section 4 - Vacancies
Vacancies in the Board of Directors may be filled by the assenting vote
of a majority of the remaining Directors, though less than a quorum, or by a
sole remaining Director, except that a vacancy created by the removal of a
Director by the vote or written consent of the shareholders or by court order
may be filled only by the vote or consent of the holders of any percentage
exceeding fifty percent (50%) of the outstanding shares of IMS entitled to vote
at a duly held meeting at which a quorum is present. Each Director so elected
shall hold office until the next annual meeting of the shareholders of IMS and
until a successor has been elected.
A vacancy or vacancies in the Board of Directors shall be deemed to
exist in the event of the death, resignation or removal of any Director, or if
the Board of Directors, by resolution, declares vacant the office of a Director
who has been declared unsound of mind by order of court, or if the authorized
number of Directors is increased, or if the shareholders fail, at any meeting of
the shareholders at which any Director or Directors are elected, to elect the
number of Directors to be voted for at any such meeting.
The shareholders may elect a Director or Directors at any time to fill
any vacancy or vacancies not filled by the Directors, but any such election by
written consent other than to fill a vacancy created by removal shall require
the consent of the holders of any percentage exceeding fifty percent (50%) of
the outstanding shares of IMS entitled to vote.
Any Director may resign effective upon the giving of written notice to
the Chairman of the Board of Directors, or to the President or Secretary of the
Corporation, unless such notice specifies a later date and time for such
resignation to become effective. If the resignation of a Director is effective
at a future time, the Board of Directors may elect a successor to take office
when the resignation becomes effective. No reduction of the authorized number of
Directors shall have the effect of removing any Director before that Director's
term of office expires
Section 5 - Removal of Directors
Any Director may be removed from office, with or without cause, at a
meeting called expressly for that purpose, by the vote or written consent of the
holders of any percentage exceeding fifty percent (50%) of the outstanding
shares of IMS entitled to vote.
Section 6 - Annual Meeting
Immediately following each annual meeting of the shareholders, the
Board of Directors shall hold a regular meeting to provide for any election of
Officers, and the transaction of any other corporate business. No notice of this
meeting shall be required.
Section 7 - Place of Meetings and Meetings By telephone
Regular and special meetings of the Board of Directors may be held at
any place within or outside the State of California that has been designated in
the notice of the meeting, or, if not stated in the notice or there is no
notice, designated in these Bylaws or from time to time by resolution of the
Board of Directors.
In the absence of such designation, regular meetings shall be held at
the principal executive office of IMS. Any meeting of the Board of Directors,
either regular or special, may be held by conference telephone or similar
communication equipment, so long as all Directors participating can hear one
another, and all such Directors shall be deemed to be present in person at such
meeting.
Section 8 - Other Regular Meetings
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Other regular meetings of the Board of Directors shall be held without
call at such time as shall from time to time be fixed by the Board of Directors.
Such regular meetings may be held without notice so long as the Board of
Directors has fixed a time for such regular meetings. Meetings of the Board of
Directors shall be held as often as necessary but not less than annually.
Section 9 - Special Meetings and Notices Thereof
Special meetings of the Board of Directors for any purpose of purposes
may be called at any time by the Chairman of the Board of Directors, by the
President, or by any Director of IMS. Notice of the date, time and place of any
such meeting shall be delivered personally or sent by first class mail, postage
prepaid, addressed to each Director at that Director's address as it is shown on
the records of IMS.
In case such notice is mailed, it shall be deposited in the United
States mail at least ten (10) days prior to the date of the holding of any such
meeting. In case such notice shall be delivered personally, it shall be
delivered at least seventy two (72) hours prior to the date and time of the
holding of any such meeting.
Any such notice need not specify the purpose of the meeting nor the
place of the meeting if such meeting is to be held at the principal executive
office of IMS.
Section 10 - Quorum and Assent of Directors
A majority of the authorized number of Directors shall constitute a
quorum for the transaction of business, except to adjourn as provided in Section
12 of this Article IV.
Every act or decision done or made by a majority of the Directors
present at a meeting duly held at which a quorum is present shall be regarded as
the act of the Board of Directors. All such acts or decisions shall be deemed to
have been assented to by all of the Directors of IMS unless any Director shall
state his or her dissension or disapproval of any such act or decision at and
during any such meeting.
A meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of Directors, if any action
taken is approved by at least a majority of the required quorum for that
meeting.
Section 11 Waiver of Notice
The transactions of any meeting of the Board of Directors, however
called and noticed or wherever held, shall be as valid as though made at a
meeting duly held after regular call and notice if a quorum is present and if,
either before or after the meeting, each of the Directors not present signs a
written waiver of notice, a consent to holding the meeting or an approval of the
minutes.
The waiver of notice or consent need not specify the purpose of the
meeting. All such waivers, consents and approvals shall be filed with the
Corporate records or made a part of the minutes of the meeting. Notice of a
meeting need not be, or have been, given to any Director who attends the meeting
without protesting before or at its commencement the lack of notice to that
Director.
Section 12 - Adjournment
A majority of the Directors present, whether or not constituting
quorum, may adjourn any meeting to another time and place.
Section 13 - Notice of Adjournment
Notice of the date, time and place of holding an adjourned meeting of
the Board of Directors need not be
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given to any Director, unless the meeting is adjourned for more than twenty four
(24) hours, in which case notice of the date, time and place of such adjourned
meeting shall be given prior to such meeting in accordance with the provisions
of Section 9 and Section 11 of this Article IV to any Directors who were not
present at the time of adjournment of the adjourned meeting.
Section 14 - Action Without Meeting
Any action required or permitted to be taken by the Board of Directors
may be taken without a meeting, if a simple majority of the Board of Directors
shall individually or collectively consent in writing to that action.
Such action by written consent shall have the same force and effect as
a majority vote of the Board of Directors. Such written consent or consents
shall be filed with the Secretary of IMS and shall be maintained in the
Corporate records.
Section 15 - Fees and Compensation of Directors
The Directors of IMS will not receive regular salaries or wages for
acting in their capacities as such, but may be compensated for time spent and
expenses actually incurred in the performance of their duties as Directors.
However, Directors and members of committees may receive such
compensation, if any, for their services, and such reimbursements of expenses,
as may be fixed or determined by an affirmative vote of a simple majority of the
Board of Directors.
This Section 15 shall not be construed to preclude any Director from
serving the Corporation &5 an Officer, employee, agent or otherwise, and from
receiving compensation of any kind, including salary or wages, for those
services.
ARTICLE V COMMITTEES
Section 1 - Committees of Directors
Committees of Directors are of two kinds, those having legal authority
to act for IMS, and advisory committees. Except as otherwise specifically
provided: in these Bylaws; all committees of Directors shall meet as often as
necessary, but at least annually.
The Board of Directors may, by resolution adopted by a majority of the
authorized number of Directors, designate one or more committees as having legal
authority to act for the Corporation or as advisory committees, and all such
committees shall serve at the pleasure of, and for a duration subject to, the
sole discretion of the Board of Directors, and may be dissolved and terminated
at any time without notice or cause by a resolution of the Board of Directors.
The Board of Directors may designate one or more Directors as alternate
members of any such committee, who may replace any absent member at any meeting
of the committee.
Any committee having legal authority to act for IMS, to the extent
provided for in the resolution of the Board of Directors, shall have the full
authority of the Board of Directors except with respect to:
(a) the approval of any action which, by law or statute, also requires
the approval of the shareholders or the approval of the outstanding
shares;
(b) the filling of vacancies of the Board of Directors or of any
committee thereof;
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(c) the fixing of compensation of the Directors for serving on the
Board of Directors or of any committee thereof;
(d) the amendment or repeal of Bylaws or the adoption of new bylaws;
(e) the amendment or repeal of any resolution of the board of
Directors;
(f) declaring a distribution, except as may be directed by the Board
of Directors; or
(g) the appointment of any other committee of the Board of Directors
or the appointment of members of those committees.
Section 2 - Meetings and Actions of Committees with Authority
Meetings and actions of committees having legal authority to act shall
be governed by, and held and taken in compliance with the provisions of Section
7, Section 8, Section 10, Section 11, Section 12, Section 13 and Section 14 of
Article IV of these Bylaws.
These Sections of Article IV shall be interpreted with such changes in
the context of these Sections as are necessary to substitute the committee and
its members for the Board of Directors and its members, except that the time of
the regular meetings of the committees may be determined either by a resolution
of the Board of Directors or by a resolution of the committee, and that all
special meetings of the committees shall be called by a resolution of the Board
of Directors and notice for any such special meetings shall be given to all
alternate members of such committees, who shall have the right to attend all
meetings of the committees which they are respectively alternate members of. The
Board of Directors may adopt rules for the governing of any committee not
inconsistent with the provisions of these Bylaws.
Section 3 - Advisory Committees
The Board of Directors may appoint one or more advisory committees.
Advisory committee membership may consist of Directors only or of both Directors
and non-directors, or of non-directors only, and may include non-voting members
and alternate members.
The chairmen and members of advisory committees shall be appointed by
and serve at the pleasure and sole discretion of the Board of Directors of IMS,
and all such advisory committees may be dissolved and terminated without prior
notice and without cause by a resolution of the Board of Directors.
The chairmen and members of advisory committees shall receive such
compensation, if any, as may be established by a resolution of the Board of
Directors.
ARTICLE VI - OFFICERS
Section 1 - Officers
The Officers of IMS shall include a President, a Treasurer, and a
Secretary. The Board of Directors may also appoint a Vice President or Vice
Presidents of the Corporation.
The Board of Directors may also appoint Assistant Secretaries and other
Officers in accordance with the provisions of Section 2 of this Article VI. To
the extent provided for by the laws of the State of California, any number of
offices may be held by the same person.
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The salaries and other compensation of the Officers of IMS shall be
fixed by the Board of Directors, and the Board of Directors may require any
Officer to give security for the faithful performance of his or her duties,
either by contract, agreement, bond, or other such instrument of security.
Section 2 - Appointment of Officers
The Officers of IMS, except such Officers as may be appointed in
accordance with Section 3 or Section 5 of this Article VI, shall be appointed by
the Board of Directors, and each shall serve at the pleasure of, and for a
duration determined at the sole discretion of, the Board of Directors, subject
to the rights, if any, of an Officer employed under an employment agreement.
When authorized by the Board of Directors, any Officer may be appointed for a
specified term under an employment agreement.
Section 3 - Removal and Resignation of Officers
Subject to the rights of an Officer pursuant to an employment
agreement, if any, any Officer appointed by the Board of Directors may be
removed from office at any time by the Board of Directors, with or without cause
or prior notice.
Any Officer not appointed by the Board of Directors may be removed at
any time by the Officer who appointed that Officer or by the Board of Directors,
with or without cause or prior notice. When authorized by the Board of
Directors, any Officer may be appointed for a specified term under an employment
agreement. Notwithstanding that an Officer is so appointed, any such Officer may
be removed from office at any time pursuant to the provisions of this Section 4,
and any such Officer shall have no claim against IMS on account of such removal
other than for such monetary compensation as the Officer may be entitled to
under the terms of an employment agreement, if any.
Any Officer may resign at any time by giving written notice to either
the President or Secretary of IMS. Any resignation shall take effect upon
receipt or at any later date and time specified in that notice, and unless
otherwise specified in that notice, the acceptance of the resignation shall not
be necessary to make it effective.
Any resignation is without prejudice to the rights, if any, of IMS
pursuant to any contract or agreement, including an employment agreement, to
which the Officer is a party.
Section 4 - Subordinate Officers
The Board of Directors may appoint, and may empower the President of
IMS to appoint, such other Officers as the business and management of the
Corporation may require, each of whom shall hold office for such period, have
such authority and perform such duties as are provided for in these Bylaws or as
the Board of Directors may from time to time determine.
Section 5 - Vacancies in Offices
A vacancy in any office because of death, disability, resignation,
removal, disqualification or any other cause shall be filled in the manner
prescribed in these Bylaws for regular appointments to that office.
Section 6 - Chairman of the Board of Directors
The Chairman of the Board of Directors shall, if present, preside at
meetings of the Board of Directors and exercise and perform such other powers
and duties as may be assigned to him or her from time to time by the Board of
Directors or as are set forth in these Bylaws.
In the absence of the Chairman of the Board of Directors, the Directors
shall appoint one of themselves to preside as Acting Chairman over any such
meeting from which the Chairman of the Board of Directors is absent.
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Section 7 - Chief Executive Officer and President
Subject to such supervisory powers as may be given by the Board of
Directors of IMS to the Chairman of the Board of Directors, if any, the
President shall, subject to the control of the Board of Directors, share the
general supervision, direction and control of the business and of the Officers
of IMS.
The President, who may also be called the Chief Executive Officer,
shall preside at all meetings of the shareholders of IMS and shall have the
general powers and perform the duties of management usually vested in the
offices of chief executive officer and president of a corporation, and shall
have such other powers and perform such other duties as may be conferred by the
Board of Directors or by these Bylaws. Two persons may serve as the Chief
Executive Officer and President, or one person may serve in both capacities.
Section 8 - Vice Presidents
In the absence or disability of the President, the Vice President or
Vice Presidents, if any, in order of their rank as fixed by the Board of
Directors or, if not ranked, a Vice President designated by the Board of
Directors, shall perform all of the duties of the. President, and when so
*acting, shall have all of the powers of, perform alt of the duties of, and be
subject to all of the restrictions upon, the President.
The Vice President, or Vice Presidents, shall have such other powers
and perform such other duties as from time to time may be conferred by the Board
of Directors, by the Chairman of the Board of Directors, by the President, and
by these Bylaws.
Section 9 - Treasurer
The Treasurer of IMS, who may also be known as the Chief Financial
Officer, shall keep and maintain, or cause to be kept and maintained, adequate
and correct books and records of accounts of the cash and other negotiable
instruments, and of the properties and business transactions of the Corporation,
including accounts of its assets, liabilities, receipts, disbursements, gains,
losses, capital, retained earnings and shares.
These books and records of accounts shall be available at all
reasonable times for inspection by any Director or the President of IMS and as
is further provided in Article VII of these Bylaws.
The Treasurer shall deposit, or cause to be deposited, all moneys and
other valuables in the name of IMS with such depositories as may be designated
by the Board of Directors.
The Treasurer shall disburse the funds of IMS as may be ordered by the
Board of Directors, shall render to the Board of the Directors and the President
of IMS, whenever requested, an account of all of his or her transactions as
Treasurer, and shall have such other powers and perform such other duties as may
be conferred by the Board of Directors or these Bylaws.
Section 10 - Secretary
The Secretary of IMS shall keep, or cause to be kept, at the principal
executive office of IMS or at such. other place as the Board of Directors may
direct, a book of minutes of all meetings and actions of the Board of Directors,
of committees of Directors, and of meetings and actions of the shareholders,
with the time and place of holding, whether such meetings were regular or
special.
In the case of special meetings, the book of minutes shall also denote
how such meeting was authorized, the notice given, the names of those present at
meetings of the Board of Directors or committees of Directors, the number of
shares present or represented at meetings of the shareholders, and a summary of
all proceedings, including actions taken by resolution, waiver, consent or
approval.
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The Secretary shall also keep, or cause to be kept, at the principal
executive office of IMS or at the office of the Corporation's transfer agent or
registrar, as determined by a resolution of the Board of Directors, a share
register.
If the original share register is not kept at the principal executive
office of the Corporation, a duplicate share register shall be maintained by the
Secretary at that location.
This share register, whether original or duplicate, shall show the
names and addresses of all shareholders, the number and classes of shares held
by each shareholder, the number and date of certificates issues for the same,
and the number and cancellation date of every certificate surrendered or
otherwise canceled.
The Secretary shall give, or cause to be given, notices of all meetings
of the shareholders and meetings of the Board of Directors for which notice is
required to be given by law or by these Bylaws, shall keep the seal of the
Corporation in safe custody should one be adopted, and shall have such other
powers and perform such other duties as may be conferred by the Board of
Directors or these Bylaws.
Section 11 - Reimbursement of IMS
Any payments made to an Officer or Director of IMS which shall be made
without the expressed approval of the Board of Directors and which shall be
disallowed in whole or in part by the Internal Revenue Service, shall be
reimbursed by such Officer to IMS to the full extent of such disallowance, to
the extent required by the Board of Directors in its sole discretion. It is the
duty of the Board of Directors to enforce the reimbursement of any such amount
disallowed. At the sole discretion of the Board of Directors, proportionate
amounts may be withheld from the Officer's or Director's future compensation
payments until the amount owed has been recovered.
ARTICLE VII - INDEMNIFICATION
Section 1 - Agents, Proceeding and Expenses
For the purposes of these Bylaws, ""agent" means any person who is or
was a Director, Officer, employee or appointee of IMS, or is or was serving at
the request of the Corporation as a director, officer, employee or appointee of
another foreign or domestic corporation, partnership, joint venture, trust or
other enterprise.
"Proceeding" means any threatened, pending or completed action or
proceeding, whether civil, criminal, administrative or investigative; and
'1expenses' includes, without limitation, attorneys' fees and any expenses of
establishing a right to indemnification under Section 4 or Section 5(c) of
Article VII.
Section 2 - Actions Other Than By IMS
Any indemnification as provided for in this Article VII is intended to
be afforded to those persons qualified for such indemnification to the maximum
extent permitted by federal law or the laws of the State of California.
IMS shall indemnify any person who was or is a party, or is threatened
to be made a party, to any proceeding, other than an action by or on behalf of
the Corporation to procure a judgment in its favor, by reason of the fact that
such person is or was an agent of IMS, against expenses, judgments, fines,
settlements and other amounts actually and reasonably incurred in connection
with such proceeding if such person acted in good faith and in a manner such
person reasonably believed to be in the best interests of the Corporation and,
in the case of a criminal proceeding, if such person had no reasonable cause to
believe that his or her conduct was unlawful.
The termination of any proceeding by judgment, order, settlement,
conviction or upon a plea of nolo contendere or its equivalent shall not, in
itself, create a presumption that the person did not act in good faith and in a
manner which the person reasonably believed to be in the best interests of IMS
or that the
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person had reasonable cause to believe that his or her conduct was unlawful.
Section 3 - Actions. By IMS
IMS shall indemnify any person who was or is a party, or is threatened
to be made a party, to any threatened, pending or completed action by or on
behalf of the Corporation to procure a judgment in its favor by reason of the
fact that such person is or was an agent of IMS.
Such indemnification shall be against expenses actually and reasonably
incurred by such person in connection with the defense or settlement of such
action if such person acted in good faith, in a manner which such person
believed to be in the best interests of IMS and with such care, including
reasonable inquiry, as an ordinarily prudent person in a like position would use
under similar circumstances.
No; indemnification shall be made under this Section 3 in respect to
any claim issue or matter as to which such person shall have been adjudged to
be liable to IMS in the performance of such person's duty to the Corporation,
unless and only to the extent that the court in which such proceeding is or was
pending shall determine that, in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for the expenses which
such court shall determine.
Section 4 - Successful Defense By Agent
To the extent that an agent of IMS has been successful on the merits in
defense of any proceeding referred to in Section 2 or Section 3 of this Article
VII, or in defense of any claim, issue or matter therein, the agent shall be
indemnified against expenses actually and reasonably incurred by the agent in
connection therewith.
Section 5 - Required Approval
Except as provided in Section 4 of this Article VII, any
indemnification under this Article VII shall be made by IMS only if authorized
in the specific case upon a determination that indemnification of the agent is
proper in the circumstances because the agent has met the applicable standard of
conduct set forth in Section 2 and Section 3 of this Article VII by:
(a) approval by the affirmative vote of the holders of any percentage
exceeding fifty percent (50%) of the outstanding shares of IMS entitled
to vote at a duly held meeting at which a quorum is present or by the
written consent of any percentage exceeding fifty percent (50%) of the
outstanding shares of IMS entitled to vote ; or
(b) a simple majority vote of a quorum of the Board of Directors; or
(c) the court in which such proceeding is or was pending, upon
application made by IMS or the agent or the attorney or other person
rendering services in connection with the defense, whether or not such
application by the agent, attorney or other person is opposed by the
Corporation.
Section 6 - Advance of Expenses
Expenses incurred in defending any proceeding may be advanced by IMS
prior to the final disposition of such proceeding upon receipt of an agreement
by or on behalf of the agent to repay such amount unless it shall be determined
ultimately that the agent is entitled to be indemnified as authorized in this
Article VII.
Section 7 - Other Contractual Rights
Nothing contained in this Article VII shall affect any right to
indemnification to which any person may be entitled pursuant to contractual
agreement with the Corporation.
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Section 8 - Limitations
No indemnification or advance shall be made under this Article VII,
except as provided in Section 4 or Section 5(c), in any circumstances where it
appears that it would be inconsistent with a provision of the Articles of
Incorporation, a resolution of the shareholders, or an agreement which prohibits
or otherwise limits indemnification and which was in effect at the time of the
occurrence of the alleged cause of action asserted in the proceeding with
respect to which the expenses were incurred or other amounts were paid; or with
any condition expressly imposed by a court in approving a settlement.
Section 9 - Insurance
The Board of Directors of IMS may require the Corporation to purchase
and maintain liability insurance on behalf of any agent of IMS who the Board of
Directors may designate.
If so required by the Board of Directors, said insurance shall insure
any such agent of IMS against any liability asserted against or incurred by the
agent in his or her capacity as an agent or arising out of the agent's status as
such, whether or not the Corporation would have the power to indemnify the agent
against such liability under the provisions of this Article VII.
Section 10 - Fiduciaries of Corporate Employee Benefit Plan
This Article VII does not apply to any proceeding against any trustee,
investment manager or other fiduciary of an employee benefit plan in such
person's capacity as such, even though such person also may be an agent of IMS
as defined in Section 1 of this Article VII. Nothing contained in this Article
VII shall limit any right to indemnification to which such a trustee, investment
manager or other fiduciary may be entitled by contract or otherwise to the
extent permitted by applicable law.
ARTICLE VIII - RECORDS AND REPORTS
Section 1 - Maintenance and Inspection of Share Register
IMS shall keep at its principal executive office, *or at the office of
its transfer agent or registrar, a record of its shareholders, giving the names
and addresses of all shareholders and the number and class of shares held by
each shareholder.
A shareholder or shareholders of the Corporation holding at least five
percent (5%) in the aggregate of the outstanding voting shares of the
Corporation or, should IMS become a public corporation as that term is defined
in the Securities Act of 1933, as amended, by a shareholder or shareholders who
hold at least one percent (1%) of such voting shares and have filed a Schedule
14B with the United States Securities and Exchange Commission, shall have the
absolute right to do either or both of the following:
(a) inspect and copy the records of shareholders' names and addresses
and shareholdings during usual business hours upon five (5) days prior
written demand delivered to, and received by, the Corporation; and
(b) obtain from the transfer agent of IMS, upon written demand, receipt
thereof, and upon tendering such transfer agent's usual charges for
such list, a list of the names and addresses of the shareholders who
are entitled to vote for the election of Directors, and their
shareholdings, as of the most recent record date for which that list
has been compiled or as of an available record date specified by the
shareholder subsequent to the date of such demand.
This list shall be made available to any such shareholder by the
Secretary of IMS, its registrar, or its
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transfer agent on or before the later of five (5) business days after the demand
is received or the date specified in the demand as the date as of which the list
is to be compiled. Any inspection and copying under this Section 1 must be made
in person by the shareholder or proxy holder.
Pursuant to this Section 1, and for any other valid purpose either set
forth in these Bylaws or not so set forth, no such list of shareholders shall be
provided to any such shareholder, nor shall any such shareholder or proxy
inspect any record of shareholders, unless any such shareholder shall duly
execute an acceptable confidentiality and non-disclosure agreement pursuant to
the possession and use of any such list of shareholders and shall further attest
to the validity of purpose and intent for which any such shareholder shall
demand any such list of shareholders, and further shall indemnify IMS against
any claims arising from any such shareholder's possession or use of any such
list of shareholders.
Section 2 - Maintenance and Inspection of the Bylaws
IMS shall keep at its principal executive office, or if its principal.
executive officeEis not in the State of California,. at its principal business
office within the State of California, if any, the original or a copy of these
Bylaws as amended to date, which shall be available for inspection by the
shareholders at all reasonable times during office hours upon prior written
notice by any such shareholders to IMS of at least one (1) day.
If the principal executive office of IMS is outside the State of
California, and the Corporation has no principal business office in the State of
California, the Secretary shall, upon written request of any shareholder,
furnish to that shareholder a copy of these Bylaws as amended to date.
Shareholders shall be entitled to receive one such copy of these Bylaws
free of charge, and shall pay reasonable copying, shipping and handling costs
associated with any additional copies of these Bylaws which they may request.
Section 3 - Maintenance and Inspection of Other Records
The accounting books and records and minutes of proceedings of the
shareholders and the Board of Directors and any committee or committees of the
Board of Directors shall be kept at such place or places as may be designated by
the Board of Directors, or, in the absence of such designation, at the principal
executive office of IMS.
The minutes shall be kept in written form and the accounting books and
records shall be kept either in written form or in any other form capable of
being converted into written form. The minutes and accounting books and records
shall be available for inspection upon the written demand of any shareholder or
proxy holder, at any reasonable time during usual business hours, for a purpose
reasonably related to the shareholder's interests as a shareholder or as the
holder of a proxy.
The inspection must be made in person by the shareholder or proxy
holder, and shall include the right to copy and make extracts. However, no
shareholder's or proxy holder's right to inspect, make extracts, and copy shall
extend to any material, whether written or in any other form, which has been
designated by any Officer or Director of IMS as proprietary or confidential with
respect to the business of the Corporation. IMS may charge any such shareholder
or proxy holder reasonable fees associated with such copying.
Section 4 - Inspection By Directors
Every Director shall have the absolute right at any reasonable time to
inspect all books, records and documents of every kind and the physical
properties of IMS. This inspection by a Director may be made in person or by an
agent or attorney and the right of inspection includes the right to copy and
make extracts of documents with the exception of documents which have been
designated by the Board of Directors as confidential or proprietary with respect
to the business of IMS.
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Section 5 - Annual Report to Shareholders
The Board of Directors may resolve to provide shareholders with annual
reports concerning the operations and performance of IMS in the previous fiscal
year, or such annual reports shall be automatically provided to shareholders if
required by law or pursuant to the effective registration of any securities
offering of IMS as provided for by the Securities Act of 1933, or any
regulations promulgated thereunder, or the securities laws of any state in which
IMS offers and sells securities.
Such annual reports shall include financial statements including a
balance sheet, an income statement, a cash flow statement and a statement of
shareholders' equity, and said financial statements shall be audited by an
independent certified public accountant if so required by applicable law or
regulation or if IMS shall have more than two hundred (200) shareholders, and
said annual report shall also include a summary description of any major
business or other events, activities, occurrences or results affecting the
condition of IMS during such previous fiscal year.
Section 6 - Other Reports to Shareholders
The Board of Directors may resolve to provide shareholders with
quarterly reports concerning the operations and performance of IMS, or such
quarterly reports shall be automatically provided to shareholders if required by
law or pursuant to the effective registration of any securities offering of IMS
as provided for by the Securities Act of 1933, as amended, or any regulations
promulgated thereunder, or the securities laws of any state in which the
Corporation shall offer and sell its securities.
Such quarterly reports shall include unaudited financial statements
including a balance sheet, an income statement, a cash flaw statement and a
statement of shareholders' equity, and said quarterly reports may also include a
summary description of any major business or other events, activities,
occurrences or results affecting the condition of IMS during the fiscal quarter
to which such report pertains.
Section 7 - Financial Statements
Any financial statements of IMS may include a balance sheet, an income
statement, a cash flow statement and a statement of shareholders' equity,
including any accompanying notes thereto, and such. financial statements may
reflect the Corporation's. financial performance on a quarterly basis for the
fiscal year or may reflect the Corporations performance on an annual basis for
the fiscal year.
At the discretion of the Board of Directors, and pursuant to any
applicable laws of the State of California or pursuant to the effective
registration of any securities offering of IMS as provided for by the Securities
Act of 1933, as amended, or any regulations promulgated thereunder, or the
securities laws of any state in which the Corporation shall offer and sell its
securities, such financial statements may be prepared by personnel of the
Corporation or may be prepared by an independent certified public accountant.
A copy of any such financial statement of IMS shall be kept on file in
the principal executive office of the Corporation for twelve (12) months after
the publication of such statement.
Each such statement shall be available for inspection by any
shareholder of record during normal business hours for the duration of such
twelve (12) month period or, alternately, at the discretion of the Treasurer of
IMS, a copy of any such statement may be mailed, postage prepaid, to any such
shareholder.
Any shareholder holding at least five percent (S%) of the Outstanding
shares of any class of stock in IMS may request and receive a copy of the most
recent financial statement of the Corporation. Any such request must be made in
writing, signed by the shareholder, and delivered to the Treasurer of the
Corporation.
Such request may be for the most recent annual financial statement of
the Corporation or may be for the
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financial statement reflecting most recently concluded fiscal quarter of any
current fiscal year, if such quarterly financial statement was prepared. Upon
the receipt of any such request, and if the requested financial statement has
been prepared, the Treasurer shall mail a copy of the applicable statement,
postage prepaid, to the person making the request within thirty (30) days after
the receipt of any such request.
Should the requested financial statement not have been prepared, the
Treasurer shall mail a notice to that effect to the shareholder making such
request.
Any such shareholder shall be entitled to one copy of any such
financial statement free of charge. IMS may charge any such shareholder
reasonable fees associated with the copying, postage and handling of any
additional copies requested.
If IMS has not yet sent the shareholders its annual report for the last
fiscal year, this report shall likewise be delivered or mailed to the
shareholder or shareholders making such written request within thirty (30) days
after the request or within ten (10) days after its publication, whichever is
later.
Any financial statements referred to in this Section 6 which are mailed
or otherwise given to any shareholder pursuant to a written request for such
information, and any such statements which are maintained at the principal
executive office of the Corporation or at any other office of the Corporation
for the purpose of inspection and copying by the shareholders of IMS, shall be
accompanied by the report, if any, of any independent accountants engaged by IMS
or a letter from an authorized Officer of IMS that the financial statements were
prepared without an audit from the books and records of the Corporation.
Section 8 - Reports. Forms and Documents
IMS shall file any required annual or other reports with the Secretary
of State, Division of Corporations of the State of California, on any forms, and
to include any required fees, prescribed therefor, and shall include in any such
reports any information required pursuant to the correct and complete filing of
any such reports.
IMS shall also file any reports, forms or other documents which may be
required for the continuation of the Corporation and its business, including any
such reports, forms or documents which may be required to be filed with the
Securities and Exchange Commission or any state securities commission or other
state or federal agency.
ARTICLE IX - GENERAL CORPORATE MATTERS
Section 1 - Amendment of the Articles of Incorporation
The Articles of Incorporation of IMS may be amended by any of the means
set forth in this Section 1 so long as .such. amendment is not contrary to
California law. Any amendment of the Articles of Incorporation, including
increasing the number or classes of shares of stock or other securities of the
corporation authorized therein, may be proposed to the Board of Directors by the
holders of any percentage exceeding five percent (5%) of the outstanding shares
of IMS entitled to vote, and must then be approved by the Directors of the
corporation, and must then be approved by the holders of any percentage
exceeding fifty percent (50%) of the outstanding shares of IMS entitled to vote.
Alternately, any such amendment, including increasing the number or
classes of shares of stock or other securities of the corporation authorized
therein, may be made through the written consent of a simple majority of the
Directors and the written consent of the holders of any percentage exceeding
fifty percent (50%) of the outstanding shares of IMS entitled to vote, without
any meetings of the Directors and shareholders or notices thereof. Upon such
written consent by the Directors and shareholders, any such amendment to the
Articles of Incorporation shall become effective upon the filing thereof.
19
<PAGE> 25
Section 2 - Record Date for Purposes Other Than Notices and Voting
For purposes of determining the shareholders entitled to receive
payment of any dividend or other distribution or allotment of rights, or
entitled to exercise any rights in respect of any other lawful action, other
than action by the shareholders of IMS by written consent without a meeting, the
Board of Directors may fix, in advance, a record date, which shall not be more
than sixty (60) days before any such action, and in that case, only shareholders
of record on the date so fixed are entitled to receive the dividends,
distribution or allotment of rights, as the case may be, notwithstanding any
transfer of any shares on the books of the Corporation after the record date so
fixed, except as otherwise provided for by the laws of the State of California.
If the Board of Directors does not so fix a record date, the record
date for determining shareholders for any such purpose shall be at the close of
business on the day on which the Board of Directors adopts an applicable
resolution pursuant to such purpose or the sixtieth (60th) day before the date
of that action, whichever is later.
Section 3 - Check. Drafts and Evidences of Indebtedness
All checks, drafts or other orders for the payment of money, notes or
other evidences of indebtedness, issued in the name of or payable by IMS, shall
be signed or endorsed by such person or persons and in such manner as, from time
to time, shall be determined by resolution of the Board of Directors.
Section 4 - Execution of Corporate Contracts and Instruments
The Board of Directors, except as otherwise provided in these Bylaws,
may authorize any Director or Directors, any Officer or Officers, or any agent
or agents, to enter into any contract or to execute any instrument in the name
of, and on behalf of, IMS, and this authority may be general or may be confined
to specific instances.
Unless so authorized or ratified by the Board of Directors, no agent or
employee of the Corporation shall have any power or authority to bind IMS by any
contract or agreement, to pledge the Corporation's credit, or to render it
liable for any purpose or for any amount.
Section 5 - Certificates for Shares
A certificate representing the ownership of the appropriate number of
shares of the capital stock in IMS shall be issued to each shareholder whose
shares are fully paid, and the Board of Directors may authorize the issuance of
certificates for shares as partly paid, provided that these certificates shall
state the amount of the consideration to be paid for them and the amount paid.
Certificates issued for non-voting shares shall include language setting forth
this restriction pursuant to the issuance and holding of such shares.
Additionally, certificates for shares shall also include language setting forth
any restrictions which apply to the reoffering, resale, transfer, pledging,
hypothecation, assignment or other disposition of such shares.
All certificates shall be signed on behalf of IMS by the Chairman of
the Board of Directors or by the President or a Vice President of IMS, and shall
also be signed by the Treasurer or the Secretary of the Corporation. Any or all
of the signatures on the certificate may be facsimile.
In case any Director or Officer of the Corporation who has signed, or
whose facsimile signature has been placed on, a certificate for shares shall
have ceased to be a Director or Officer of IMS before such certificate is
issued, such certificate may be issued by IMS with the same effect as if that
person were a Director or Officer on the date of issue.
Section 6 - Transfer of Shares
The reoffering, resale, transfer, assignment, hypothecation, pledging,
or other disposition of the shares of capital stock in IMS may be restricted
pursuant to the terms and conditions of a duly executed shareholders' agreement
or pursuant to federal or state securities laws.
20
<PAGE> 26
In the event that any and all applicable regulations and terms and
conditions restricting the reoffering, resale, transfer, assignment,
hypothecation, pledging, or other disposition of certain shares of capital stock
in IMS are met, then IMS or its duly authorized transfer agent or registrar
shall register a certificate for shares presented to it for transfer if the
certificate is properly endorsed by the shareholder of record of such shares or
by his or her duly authorized attorney-in-fact.
Subject to. such restrictions, upon the surrender of a certificate for
shares duly endorsed or accompanied by proper evidence of succession or
authority to transfer to IMS, its transfer agent or its registrar, it shall be
the duty of IMS, its transfer agent or its registrar to issue a new certificate
for shares to the person entitled thereto, and to cancel the old certificate,
which shall be maintained with the corporate records.
Subject to the aforementioned restrictions, every such transfer shall
be entered into the stock transfer book of IMS, which shall be kept and
maintained at the principal executive office of the Corporation or at the office
of the transfer agent or registrar of IMS.
No transfer shall be made within ten (10) days immediately preceding an
annual meeting of shareholders. Transfers made during the closing of books
pursuant to the determination of shareholders of record in accordance with a
resolution of the Board of Directors or these Bylaws may be made at the
discretion of the Board of Directors, but the transferee of such shares shall
have no right to vote such shares should such transfer be completed during any
period in which the transfer book of IMS is closed pursuant to the determination
of shareholders of record of the Corporation.
Section 7 - Lost Certificates
Except as provided for in this Section 7, no new certificate for shares
shall be issued to replace an old certificate unless the latter is surrendered
to IMS and canceled. In case any certificate for shares or certificate for any
other securities of IMS is lost, stolen or destroyed, the Board of Directors may
authorize the issuance of a replacement certificate under such terms and
conditions as the Directors may require, including any provisions for the
indemnification of IMS, secured by bond or other adequate security, sufficient
to protect IMS against any claim that may be made, including any expense or
liability, resulting from the alleged loss, theft or destruction of the
certificate or the issuance of the replacement certificate.
Section 8 - Representation of Shares of Other Corporations
The Chairman of the Board of Directors, the President, any Vice
President, or any other person authorized by a resolution of the Board of
Directors, is authorized to vote on behalf of IMS any and all shares of any
other corporation or corporations, foreign or domestic, owned in the name of
IMS.
Section 9 - Issuance of Additional Capital Stock
Except to the extent permitted by the laws of the State of California,
the provisions of this Section 9 cannot be amended, altered, repealed, or
replaced without a majority vote of the Board of Directors of IMS. The Board of
Directors of IMS is authorized to take any actions necessary to issue additional
classes and amounts of shares and other securities of IMS for proper purposes,
including, but not limited to, engaging in mergers or acquisitions, deterring
takeover bids, and providing for the further capitalization of the corporation,
without obtaining shareholder approval either by vote or consent.
Section 10 - Reorganization and Exchange of Capital Stock
In the event that it shall, at any time, be deemed advisable to
reorganize by transferring the assets and business of IMS as a going concern to
a corporation organized under the laws any state, and the successor corporation
shall take over all the property, assets, goodwill, and business of IMS, without
any decrease in assets and without any increase or change in the character of
liabilities, except in the ordinary course of business, except
21
<PAGE> 27
that the common stock may be increased, the holders of any securities of IMS
shall become obligated to take the equivalent capital stock of such successor
corporation in exchange for their securities to the extent permitted by the laws
of the State of California.
Section 11 - Business Combinations
The Directors and Officers of IMS shall observe certain restrictions
regarding certain mergers, consolidations, asset sales, tender offers and other
"business combinations" involving IMS. Business combinations are defined as:
(a) any merger or consolidation of IMS with an interested shareholder,
for the purposes of this Section 11, the term '1interested shareholder"
being defined as a holder of at least five percent (5%) of IMS' voting
stock;
(b) any sale, lease or similar disposition to an interested shareholder
of any asset of the Corporation constituting at least five percent (5%)
of the total assets of IMS;
(c) the issuance or transfer by IMS of any securities of IMS to an
interested shareholder in return for cash or other property, being at
least five percent (5%) of the total assets of the Corporation;
(d) adoption of any plan to dissolve or liquidate the Corporation
proposed by an interested shareholder; or
(e) any reclassification of securities or recapitalization of IMS or
merger whereby the percentage of shares of any interested shareholder
is. increased.
Business combinations with an interested shareholder must be approved
by the holders of at least sixty percent (60%) of the shares entitled to vote,
unless the business combination is approved in advance by those persons then on
the Board of Directors who were Directors immediately prior to the time the
interested shareholder first became an interested shareholder and who would have
constituted a majority of the Board of Directors at that time, known as "a
majority of the Continuing Directors", or certain minimum "fair price"
requirements are met.
Section 12 - Construction and Definitions
These Bylaws shall be governed by the general provisions, rules of
construction, and definitions of the laws of the State of California.
Section 1 - Amendment by the Shareholders
Except as provided for in Section 2 of Article X, new bylaws may be
adopted or these Bylaws may be amended or repealed by the vote or written
consent of the holders of any percentage exceeding fifty percent (50%) of the
shares of IMS entitled to vote.
Neither these Bylaws, nor any Article hereof, shall be repealed unless
new bylaws, or a new article, also generally providing for the governing and
management of IMS as these Bylaws do in the various Articles and Sections
hereof, are made effective pursuant to the provisions of this Article x.
Should shareholders repeal these Bylaws or any Article hereof without
replacing these Bylaws or said Article by new bylaws or a new article in
accordance with this Section 1, then these Bylaws and all of the Articles hereof
shall remain in effect until such time as the shareholders do replace these
Bylaws or such Article in accordance with the provisions of this Article X. At
no time shall IMS operate without effective Bylaws.
Section 2 - Amendment By Directors
These Bylaws and any Article, Section, or part hereof, may be amended
or repealed by the assenting vote
22
<PAGE> 28
or written consent of a simple majority of the Board of Directors.
ARTICLE XI - SEVERABILITY
Section 1 - Severability
The Articles and Sections of these Bylaws are severable, and any
Article, Section, or part thereof, which shall be deemed by a court or authority
of competent jurisdiction to be contrary to, or in conflict with, applicable
federal law or California law or statute, shall not alter or affect the validity
of any other Article, Section, or part thereof except to the extent of any such
conflict.
I, the undersigned, do hereby certify that I am the duly elected
Secretary of Innovative Medical Services, a corporation duly organized and
existing under the laws of the State of California, and that these Bylaws,
consisting of thirty five (35) pages, constitute the Bylaws of said Corporation
as duly adopted through the unanimous written consent of both the shareholders
and the Directors of IMS, copies of said written consents being duly executed by
said shareholders and said Directors and attached hereto
IN WITNESS WHEREOE, I have placed my signature and seal upon
this Certificate on this 4th day of May, 1994.
INNOVATIVE MEDICAL SERVICES
/s/ Dennis B. Atchley
------------------------------------
Dennis B. Atchley Secretary
23
<PAGE> 1
EXHIBIT 4.1
CLASS A WARRANT TO PURCHASE __________ SHARES OF COMMON STOCK
INNOVATIVE MEDICAL SERVICES
(A CALIFORNIA CORPORATION)
NOT EXERCISEABLE UNTIL MAY , 1997
VOID AFTER 5:00 O' CLOCK P.M.,
PACIFIC STANDARD TIME, ON MAY __, 2001
INNOVATIVE MEDICAL SERVICES, a California corporation (the "Company")
hereby certifies that the holder of this Class A Warrant (the "Holder"), for
value received, is entitled to purchase from the Company the number of fully
paid and non-assessable shares of Common Stock of the Company (the "Shares"),
stated above at the purchase price of $5.25 per Share (the "Exercise Price")
(the number of Shares and Exercise Price being subject to adjustment as
hereinafter provided) upon the terms and conditions herein provided.
1. Exercise of Warrants.
(a) Subject to subsection (b) of this Section 1, upon
presentation and surrender of this Warrant Certificate, with the attached
Purchase Form duly executed, at the principal office of the Company or at such
other place as the Company may designate by notice to the Holder hereof,
together with a certified or bank cashier's check payable to the order of the
Company in the amount of the Exercise Price times the number of Shares being
purchased, the Company shall deliver to the Holder hereof, as promptly as
practicable, certificates representing the Shares being purchased. This Warrant
may be exercised in whole or in part; and, in case of exercise hereof in part
only, the Company, upon surrender hereof, will deliver to the Holder a new
Warrant Certificate or Warrant Certificates of like tenor entitling the Holder
to purchase the number of Shares as to which this Warrant has not been
exercised.
(b) This Warrant may be exercised in whole or in part at any time
after May , 1997 and prior to 5:00 o'clock P.M., Pacific Standard Time, on
May __, 2001.
2. Exchange and Transfer of Warrant. This Warrant (a) at any time prior
to the exercise hereof, upon presentation and surrender to the Company, may be
exchanged, alone or with other Warrants of like tenor registered in the name of
the Holder, for another Warrant or other Warrants of like tenor in the name of
such Holder exercisable for the same aggregate number of Shares as the Warrant
or Warrants surrendered, (b) may not be sold, transferred, hypothecated, or
assigned, in whole or in part, before May _, 2001.
3. Rights and Obligations of Warrant Holder.
(a) The Holder of this Warrant Certificate shall not, by virtue
hereof, be entitled to any rights of a stockholder in the Company, either at law
or in equity; provided, however, in the event that any certificate representing
the Shares is issued to the Holder hereof upon exercise of this Warrant, such
Holder shall, for all purposes, be deemed to have become the holder of record of
such Shares on the date on which this Warrant Certificate,
<PAGE> 2
together with a duly executed Purchase Form, was surrendered and payment of the
Exercise Price was made, irrespective of the date of delivery of such Share
certificate. The rights of the Holder of this Warrant are limited to those
expressed herein and the Holder of this Warrant, by its acceptance hereof,
consents to and agrees to be bound by and to comply with all the provisions of
this Warrant Certificate, including, without limitation, all the obligations
imposed upon the Holder hereof by Sections 2 and 5 hereof. In addition, the
Holder of this Warrant Certificate, by accepting the same, agrees that the
Company may deem and treat the person in whose name this Warrant Certificate is
registered on the books of the Company maintained for such purpose as the
absolute, true and lawful owner for all purposes whatsoever, notwithstanding any
notation of ownership or other writing thereon, and the Company shall not be
affected by any notice to the contrary.
(b) No Holder of this Warrant Certificate, as such, shall be
entitled to vote or receive distributions or to be deemed the holder of Shares
for any purpose, nor shall anything contained in this Warrant Certificate be
construed to confer upon any Holder of this Warrant Certificate, as such, any of
the rights of a stockholder of the Company or any right to vote, give or
withhold consent to any action by the Company, whether upon any
recapitalization, issue of stock, reclassification of stock, merger, conveyance
or otherwise, receive notice of meetings or other action affecting stockholders
(except for notices provided for herein), receive distributions, subscription
rights, or otherwise, until this Warrant shall have been exercised and the
Shares purchasable upon the exercise thereof shall have become deliverable as
provided herein; provided, however, that any such exercise on any date when the
stock transfer books of the Company shall be closed shall constitute the person
or persons in whose name or names the certificate or certificates for those
Shares are to be issued as the record holder or holders thereof for all purposes
at the opening of business on the next succeeding day on which such stock
transfer books are open, and the Warrant surrendered shall not be deemed to have
been exercised, in whole or in part as the case may be, until the next
succeeding day on which stock transfer books are open for the purpose of
determining entitlement to distributions on the Company's common stock.
4. Shares Underlying Warrants. The Company covenants and agrees that
all Shares delivered upon exercise of this Warrant shall, upon delivery and
payment therefor, be duly and validly authorized and issued, fully-paid and
non-assessable, and free from all stamp taxes, liens, and charges with respect
to the purchase thereof In addition, the Company agrees at all times to reserve
and keep available an authorized number of Shares sufficient to permit the
exercise in full of this Warrant.
5. Registration of Warrants and Underlying Shares. The Company
represents and warrants to the Holder of this Warrant Certificate and any
transferee hereof or of the Shares issuable upon the exercise of the Warrant
Certificate, that the Warrants and Shares Underlying the Warrants have been
registered under the Securities Act of 1933 (the "Act") thereby permitting the
unrestricted transferability thereof by non-affiliates of the Company. The
foregoing notwithstanding, the Company makes no representations to the Holder as
to registration of the Warrant and the Underlying Shares under applicable the
state securities law of the state of residence of the Holder. Such state
securities laws may prohibit the transfer or exercise of the Warrant. The
<PAGE> 3
Company intends to file periodic reports with the Securities and Exchange
Commission ("SEC") pursuant to the provisions of the Securities Exchange Act of
1934, as amended and to maintain the effectiveness of the registration statement
which included the original offering of the Warrant.
6. Adjustments. The number of Shares purchasable upon the exercise of
each Warrant is subject to adjustment from time to time upon the occurrence of
any of the events enumerated below.
(a) In case the Company shall: (i) pay a dividend in Shares, (ii)
subdivide its outstanding Shares into a greater number of Shares, (iii) combine
its outstanding Shares into a smaller number of Shares, or (iv) issue, by
reclassification of its Shares, any shares of its capital stock, the amount of
Shares purchasable upon the exercise of each Warrant immediately prior thereto
shall I)e adjusted so that the Holder shall be entitled to receive upon exercise
of the Warrant that number of Shares which such Holder would have owned or would
have been entitled to receive after the happening of such event had such Holder
exercised the Warrant immediately prior to the record date, in the case of such
dividend, or the effective date, in the case of any such subdivision,
combination or reclassification. An adjustment made pursuant to this subsection
(a) shall be made whenever any of such events shall occur, but shall become
effective retroactively after such record date or such effective date, as the
case may be, as to Warrants exercised between such record date or effective date
and the date of happening of any such event.
(b) In case the Company shall issue rights or warrants to all
holders of its Shares entitling them to subscribe for or to purchase Shares at a
price per Share which, when added to the amount of consideration received or
receivable by the Company for such rights or warrants, is less than the Current
Market Price (as hereinafter defined) per Share at the record date, the number
of Shares purchasable upon the exercise of this Warrant shall be adjusted so
that thereafter, until further adjusted, each Warrant shall entitle the Holder
to purchase that number of Shares determined by multiplying the number of Shares
purchasable hereunder by a fraction, the numerator of which shall be the number
of additional Shares issuable upon the exercise of such rights or warrants, and
the denominator of which shall be the number of Shares which an amount equal to
the sum of (i) the aggregate exercise price of the total number of Shares
issuable upon the exercise of such rights or warrants, and (ii) the aggregate
amount of consideration, if any, received, or receivable by the Company for such
rights or warrants, would purchase at such Current Market Price. Such adjustment
shall be made whenever such rights or warrants are issued, but shall also be
effective retroactively as to Warrants exercised between the record date for the
determination of stockholders entitled to receive such rights or warrants and
the date such rights or warrants are issued.
(c) For the purpose of any computation under subsection (b)
above, the Current Market Price per Share at any date shall be: (i) if the
Shares are listed on any national securities exchange, the average of the daily
closing prices for the 15 consecutive business days commencing 20 business days
before the day in question (the "Trading Period"); (ii) if the Shares are not
listed on any national securities exchange but are quoted on the National
Association of Securities Dealers, Inc. Automated Quotation System ("NASDAQ"),
the average of the high and low bids as reported by NASDAQ for the Trading
Period; and
<PAGE> 4
(iii) if the Shares are neither listed on any national securities exchange nor
quoted on NASDAQ, the higher of (x) the exercise price then in effect, or (y)
the tangible book value per Share as of the end of the Company's immediately
preceding fiscal year.
(d) No adjustment shall be required unless such adjustment would
require an increase or decrease of at least 1% in the number of Shares
purchasable hereunder; provided, however, that any adjustments which by reason
of this subsection (d) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment. All calculations under this
Section 6 shall be made to the nearest one-hundredth of a Share.
(e) No adjustment shall be made in any of the following cases:
(i) Upon the grant or exercise of stock options now or
hereafter granted, or under any employee stock option or stock purchase plan now
or hereafter authorized, to the extent that the aggregate of the number of
Shares which may be purchased under such options and the number of Shares issued
under such employee stock purchase plan is less than or equal to 10% of the
number of Shares outstanding on January 1 of the year of the grant or exercise;
(ii) Shares issued upon the conversion of any of the
Company's convertible or exchangeable securities;
(iii) Shares issued in connection with the acquisition by
the Company or by any subsidiary of the Company of 80% or more of the assets of
another corporation or entity, and Shares issued in connection with the
acquisition by the Company or by any subsidiary of the Company of 80% or more of
the voting shares of another corporation (including Shares issued in connection
with such acquisition of voting shares of such other corporation subsequent to
the acquisition of an aggregate of 80% of such voting shares), Shares issued in
a merger of the Company or a subsidiary of the Company with another corporation
in which the Company or the Company's subsidiary is the surviving corporation,
and Shares issued upon the conversion of other securities issued in connection
with any such acquisition or in any such merger; and
(iv) Shares issued pursuant to this Warrant and pursuant to
all stock options and warrants outstanding on the date hereof.
(f) Notice to Warrant Holders of Adjustment. Whenever the number
of Shares purchasable hereunder is adjusted as herein provided, the Company
shall cause to be mailed to the Holder in accordance with the provisions of this
Section 6 a notice (i) stating that the number of Shares purchasable upon
exercise of this Warrant have been adjusted, (ii) setting forth the adjusted
number of Shares purchasable upon the exercise of a Warrant, and (iii) showing
in reasonable detail the computations and the facts, including the amount of
consideration received or deemed to have been received by the Company, upon
which such adjustments are based.
7. Fractional Shares. The Company shall not be required to issue any
fraction of a Share upon the exercise of Warrants. If more than one Warrant
shall be surrendered for exercise at one time by the same Holder, the number
<PAGE> 5
of full Shares which shall be issuable upon exercise thereof shall be computed
on the basis of the aggregate number of Shares with respect to which this
Warrant is exercised. If any fractional interest in a Share shall be deliverable
upon the exercise of this Warrant, the Company shall make an adjustment therefor
in cash equal to such fraction multiplied by the Current Market Price of the
Shares on the business day next preceding the day of exercise.
8. Redemption by the Company. At any time after May , 1997, and
provided that the closing bid price for the Company's common shares shall have
averaged in excess of $9.00 per share for thirty (30) consecutive business days
ending within five (5) days of the date of a Notice of Redemption, the Warrants
are redeemable by the Company for $0.05 per Warrant. the Company shall have the
right (but not the obligation) to purchase this Warrant from the Holder (the
"Redemption Right"), and, upon due exercise of the Redemption Right, the Holder
shall be required to sell this Warrant to the Company.
8. Loss or Destruction. Upon receipt of evidence satisfactory to the
Company of the loss, theft, destruction, or mutilation of this Warrant
Certificate and, in the case of any such loss, theft or destruction, upon
delivery of an indemnity agreement or bond satisfactory in form, substance and
amount to the Company or, in the case of any such mutilation, upon surrender and
cancellation of this Warrant Certificate, the Company at its expense will
execute and deliver, in lieu thereof, a new Warrant Certificate of like tenor.
9. Survival. The various rights and obligations of the Holder hereof as
set forth herein shall survive the exercise of the Warrants represented hereby
and the surrender of this Warrant Certificate.
10. Notices. Whenever any notice, payment of any purchase price, or
other communication is required to be given or delivered under the terms of this
Warrant, it shall be in writing and delivered by hand delivery or United States
registered or certified mail, return receipt requested, postage prepaid, and
will be deemed to have been given or delivered on the date such notice, purchase
price or other communication is so delivered or posted, as the case may be; and,
if to the Company, it will be addressed to the address specified in Section 1
hereof, and if to the Holder, it will be addressed to the registered Holder at
its, his or her address as it appears on the books of the Company.
INNOVATIVE MEDICAL SERVICES
By: ___________________________
Michael L. Krall, President
ATTEST:
By: _________________________
Dennis Atchley, Secretary
<PAGE> 6
PURCHASE FORM
Date:
TO: INNOVATIVE MEDICAL SERVICES
The undersigned hereby irrevocably elects to exercise the attached
Warrant Certificate to the extent of __________ shares of the Common Stock, of
INNOVATIVE MEDICAL SERVICES and hereby makes payment of $_________ ($5.25 per
Share) in accordance with the provisions of Section 1 of the Warrant Certificate
in payment of the purchase price thereof.
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name: ___________________________________________________________
(Please typewrite or print in block letters)
Address: ________________________________________________________
________________________________________________________
__________________________
By: ______________________
<PAGE> 1
EXHIBIT 5.1
[LETTERHEAD OF DENNIS BROVARONE]
2530 SOUTH LINLEY COURT
DENVER, COLORADO 80219
PH: 303 742 0966 / FX-MDM: 303 742 0117
May 14, 1996
Board of Directors
Innovative Medical Services
1308 N. Magnolia Avenue, Suite H
El Cajon, CA 92020
Re: Registration Statement on Form SB-2
Gentlemen:
As counsel for Innovative Medical Services, a California corporation
(the "Company") you have requested my opinion as to the legality of the
securities covered by the proposed Registration Statement of the Company filed
with the U.S. Securities and Exchange Commission pursuant to the Securities Act
of 1933, as amended (the "Commission@ and the "Act"). The proposed offering is
up to 1,250,000 Units, each consisting of one share of the Company's common
stock and one Class A Warrant to acquire an additional share of common stock at
$4.00 per Unit. This opinion is to be filed as an Exhibit to the Form SB-2
Registration Statement filed with the Commission.
In connection with rendering my opinion as set forth below, I have
reviewed and examined originals or copies identified to my satisfaction of the
following:
(1) Articles of Incorporation of the Company as amended and as
filed with the Secretary of State of the State of Cailfornia.
(2) Minute book containing the written deliberations and
resolutions of the Board of Directors and Shareholders of the Company.
(3) Stock book of the Company evidencing issuances of shares of
the common stock of the Company prior to the date hereof.
(4) The Registration Statement and the Prospectus contained within
the Registration Statement.
(5) The other exhibits to the Registration Statement as filed with
the Commission.
<PAGE> 2
Board of Directors
Innovative Medical Services
May 14, 1996
Page 2
I have examined such other documents and records, instruments and
certificates of public officials, officers and representatives of the Company,
and have made such other investigations as we have deemed necessary or
appropriate under the circumstances.
Based upon the foregoing and in reliance thereon, it is my opinion that
the securities proposed to be sold pursuant to the public offering, will, upon
the purchase, receipt of full payment, issuance and delivery in accordance with
the terms of the offering described in such Registration Statement and
Prospectus, be duly and validly authorized, legally issued, fully paid and
non-assessable.
Very truly yours,
/s/DENNIS BROVARONE
-------------------
Dennis Brovarone
<PAGE> 1
EXHIBIT 10.1
AGREEMENT
This AGREEMENT (the "Agreement") is made and entered into as of this g
day of Nay, 1996 by and between Innovative Medical services ("13(5"), and
Hydrotechnology, Inc. ("Hydrotech") (collectively, the "Parties").
WHEREAS, the parties have a mutually valuable, ongoing business
relationship whereby IMS purchases Water Filtration Systems and Replacement
Filters from Hydrotech as a component of the IMS "Fillmaster" product marketed
and sold to, and used by, pharmacies; and
WHEREAS the Parties desire to enter into this Agreement for the purpose
of stating their respective rights and responsibilities with respect to the
future growth of their business relationship;
NOW, THEREFOR, in consideration of the mutual promises contained
herein, the Parties agree as follows;
1. GRANT OF EXCLUSIVITY. IMS grants to Hydrotech during the term of
this Agreement, the right to be the exclusive supplier of Water Filtration
Systems and Replacement Filters to IMS as components of the IMS "Fillmaster"
product marketed and sold to, and used by, pharmacies. Hydrotech grants to IMS
during the term of this Agreement, and subject to the terms contained herein,
the exclusive right to purchase Hydrotech Water Filtration Systems and
Replacement Filters as components at any water filtration and dispensing
equipment that have the same capabilities as the IMS "Fillmaster" product and
that are marketed or sold directly to, and used by, pharmacies, to the extent
that Hydrotech is legally able to do so and to the extent Hydrotech is aware of
and/or can otherwise control the ultimate distribution of such products.
2. NON-COMPETITION. While this Agreement is in effect, Hydrotech shall
not, within the United States, directly or indirectly, own, manage, operate or
participate in the ownership, management, operation or control or, or be a
consultant to, any business, firm, corporation or entity which is conducting any
business which competes with the IMS "Fillmaster" product. Hydrotech further
agrees that it shall not, while this Agreement is in effect, solicit, directly
or indirectly, for its account or for the account of others, orders for
merchandise, products or services of any kind and nature like or similar to the
IMS "Fillmaster" product from any pharmacy which was a customer of IMS or which
pharmacy IMS was actively soliciting to be a customer of the IMS "Fillmaster"
product during the twelve (12) month
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period immediately preceding the date upon which this Agreement is terminated;
nor shall Hydrotech at any time, directly or indirectly, urge any customer or
potential customer of IMS to discontinue, in whole or in part, business, or not
to do business with IMS. Hydrotech further agrees that while this Agreement is
in effect Hydrotech shall not knowingly sell Replacement Filters to any
business, firm, corporation or entity which has been previously identified in
writing based upon the good faith belief of IMS to be selling or attempting to
sell Replacement Filters directly to and for use by pharmacies. IMS shall be
solely responsible for such identification and shall indemnity and hold
Hydroteob harmless from any and all liabilities for damages due to the willful
or negligent misidentification of such person. nothing contained in this
Agreement shall preclude the sale by Hydrotech to customers other than
pharmacies of Water nitration Systems, Replacement Filters, Reverse osmosis
Systems, and all other products presently sold by Hydrotech.
3. RIGHT TO INJUNCTIVE RELIEF. It is understood and recognized by
Hydrotech that in the event of any violation by Hydrotech of the provisions of
this Agreement, IMS' remedy at law may be inadequate and IMS may suffer
irreparable injury. Accordingly, IMS shall have the right to seek injunctive and
other appropriate equitable relief upon the institution of legal proceedings
therefor in order to protect IMS' interest. such relief shall be in addition to
any other relief to which IMS may be entitled at law or in equity.
4. MODIFICATION. The parties hereto covenant and agree that to the
extant any provisions. or portion at this agreement shall be held, found or
deemed to be unreasonable, unlawful or unenforceable. then the parties hereto
expressly covenant and agree that any such provision or portion thereof shall be
modified to the extent necessary in order that any such provision or portion
thereof shall be legally enforceable to the fullest extent permitted by
applicable law and that any court of competent jurisdiction shall, and the
Parties, hereto do hereby expressly authorize any court of competent
jurisdiction to, enforce any such provision or portion thereof or to modify any
such provision or portion thereof in order that any such provision or portion
thereof shall be enforced by such court to the fullest extent permitted by
applicable law.
5. BINDING EFFECT. The terms of this Agreement shall inure to the
benefit of and be binding upon the Parties hereto, their successors and assigns.
6. TERM OF AGREEMENT. This Agreement shall begin on the date hereof
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<PAGE> 3
and shall continue in effect for each successive fiscal quarter in which IMS
maintains its account with Hydrotech in a current status and has purchased and
paid Hydrotech in full within thirty (30) days for not less than four hundred
(400) Water Filtration Systems.
7. COUNTERPARTS/FACSIMILE SIGNATURES. This Agreement may be executed
in counterpart signatures and the Parties agree that a facsimile signature
transmitted from a known telephone number of either Party shall be deemed to he
an original signature.
8. GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with the laws of the United States and the State of California
without regard to conflicts of law.
9. ALTERNATIVE DISPUTE RESOLUTION. The Parties agree that any dispute
arising from this Agreement shall be submitted to arbitration or other means of
alternative dispute resolution mutually satisfactory to all parties before
seeking redress through civil litigation. In the event a party must file a legal
action to compel arbitration or alternative dispute resolution, said Party shall
be entitled to an award of costs and attorneys' fees for compelling arbitration.
10. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the Parties hereto and supersedes all prior agreements, understandings
and arrangements, oral or written, between the parties hereto with respect to
the subject matter hereof. This Agreement may not be amended or modified, except
by a written agreement signed by the Parties hereto.
HYDROTECHNOLOGY, INC. INNOVATIVE MEDICAL SERVICES
By /s/ BRUCE BURROWS By /s/ MICHAEL L. KRALL
------------------------ ---------------------------
BRUCE BURROWS, President MICHAEL L. KRALL, President
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<PAGE> 1
EXHIBIT 10.2
[LOGO]
EMPLOYMENT
AGREEMENT
THIS EMPLOYMENT AGREEMENT (hereinafter referred to as the "Agreement")
is made this 17th day of April, 1996, in El Cajon, California, by and between
INNOVATIVE MEDICAL SERVICES. (hereinafter referred to as the "Corporation"), a
California Corporation, and Michael L. Krall (hereinafter referred to as the
"Employee").
1. EMPLOYMENT. The Corporation hereby employs the Employee and the
Employee hereby accepts employment with the Corporation upon the terms
and conditions hereinafter set forth.
2. TERM. Subject to the provisions set forth in Sections 8 and 9 of this
Agreement, the term of this Agreement shall be for a period of five (5)
years commencing on the 1st day of April, 1996, and thereafter and
except as otherwise modified by mutual agreement, the term of this
Agreement shall be automatically renewed for successive five (5) year
periods unless prior written notice to the contrary is given by the
Corporation or the Employee to the other on or before ninety (90) days
prior to the expiration of the original five (5) year term hereof or
each such successive five year period.
3. DUTIES. The Employee is engaged as President and Chief Executive
Officer of the Corporation, and the Employee agrees to perform such
other executive services as shall from time to time be reasonably
assigned to him by the Board of Directors of the Corporation.
4. COMPENSATION. The Corporation shall pay to the Employee as his
exclusive compensation for services rendered under this Agreement as
follows:
a) An amount at the rate of one hundred and eight thousand dollars
($108,000) per year in accordance with the Corporation's normal
payroll policies;
b) An amount, determined in accordance with generally accepted
accounting principles, equal to three percent (3%) of the net
income before income taxes earned by the Corporation during any
full fiscal year which amount shall be payable within thirty (30)
days after the date on which the Corporation receives financial
statements from its Certified Public Accountants showing such net
income before income taxes, if any; and
c) A monthly amount of not more than five hundred ($500.00) per
month for the purpose of an automobile lease. Employee is
responsible for keeping adequate
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d) records to document both business and personal use of the leased
automobile in order to properly qualify for the business use
exception of the Internal Revenue Service.
e) Such other fringe benefits as may be separately awarded by the
Corporation's Board of Directors for executive employees of the
Corporation either individually or as a group, including but not
limited to stock options or the participation in a Stock Option
or Incentive Plan as adopted by the Corporation. The Board
further agrees to re-evaluate each year both employee's
performance and any additional compensation to which he may be
entitled based upon the gross sales performance of the
Corporation for the first 5 year term of this contract.
5. EXTENT OF SERVICE. The Employee shall diligently and competently devote
his full business time, attention and energies to the performance of
his duties under this Agreement and shall exert his best efforts in
furtherance of the business of the Corporation.
6. EXPENSES.
a) Ordinary Expenses: The Employee is authorized to incur reasonable
expenses in the conduct of the business of the Corporation,
including expenses for meals, travel, and other similar items.
The Corporation shall prepay or reimburse the Employee for all
such expenses upon the presentation by the Employee, from time to
time, of an itemized accounting for such expenditures.
b) Entertainment and Goodwill Expenses: In addition, the
Corporation, for and on behalf of the Employee, shall prepay or
reimburse Employee for entertainment, goodwill or other
promotional expense deemed necessary or beneficial to the
Corporation by the Employee. In the Entertainment and Goodwill
Expenses, the Employee is authorized to incur not more than
Twelve Thousand ($12,000.00) Dollars per year without Board
approval. The Corporation shall prepay or reimburse the Employee
for all such expenses upon the presentation by the Employee, from
time to time, of an itemized accounting for such expenditures.
c)
7. EMPLOYEE TO RETAIN GOODWILL. The Employee agrees to exert his best
efforts to preserve for the benefit of the Corporation the good will of
the Corporation's clients and those who may have business relations
with it.
8. TERMINATION.
a) Anything contained herein to the contrary notwithstanding, upon
one hundred-twenty (120) days prior written notice to the
Employee, the Corporation, at any time subsequent to the adoption
of a resolution by the Board of Directors of the Corporation to
the substantial effect that the Board of Directors deems it
advisable that the business of the Corporation be terminated and
its assets liquidated, may terminate this Agreement and all of
the rights, obligations and duties of the parties hereunder.
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<PAGE> 3
b) In the event that during the term of this Agreement, the Employee
shall become disabled by accident or by illness so as to be
unable to perform the duties required of him under this Agreement
for a period of sixty (60) consecutive days, then the Corporation
may, at the expiration of such sixty (60) day period, suspend the
Employee's services and the Corporation's obligation and duties
under this Agreement for the continuing period of his disability
by notice to him in writing and, if the Employee does not resume
the duties required of him within sixty (60) days of the date he
first became so disabled, this Agreement and all of the rights,
duties, and obligations hereunder shall terminate except that the
restrictions imposed on the Employee as set forth in paragraphs
10 and 11 of this Agreement and the remedies available to the
Corporation as set forth in such Sections shall remain in effect.
9. DISCHARGE FOR CAUSE. Anything contained in this Agreement to the
contrary notwithstanding, the Corporation may discharge the Employee
for cause at any time upon thirty (30) days prior written notice, and
upon the occurrence of such discharge for cause, this Agreement and all
of the rights, duties and obligations hereunder shall terminate except
that the restrictions and provisions imposed on the Employee as set
forth in paragraphs 10 and 11 hereof shall remain in effect.
10. COVENANT NOT TO COMPETE. For a period of one (1) year commencing on
that date upon which the Employee shall leave the employ of the
Corporation for any reason whatsoever, the Employee shall not, within
the United States of America, directly or indirectly, enter into or
carry on as owner, employee or otherwise a business or businesses that
compete with the Corporation. The Employee further agrees that he shall
not for a period of one (1) years following that date upon which he/she
shall leave the employ of the Corporation for any reason whatsoever,
solicit, directly or indirectly, for his own account or for the account
of others, orders for services of a kind and nature like or similar to
services performed by the Corporation during the Employee's employment
with the Corporation from any party which was a client or customer of
the Corporation or which the Corporation was actively soliciting to be
a customer or client during the six (6) month period preceding that
date upon which the Employee shall leave the employ of the Corporation,
nor shall the Employee at any time, directly or indirectly, urge any
customer or client or potential customer or client of the Corporation
to discontinue, in whole or in part, business, or not to do business
with the Corporation. As a violation by the Employee of the provisions
of this Section could cause irreparable injury to the Corporation and
there is no adequate remedy at law for such violation, the Corporation
shall have the right, in addition to any other remedies available to
it, at law or in equity, to enjoin the Employee in a court of equity
for violating such provisions.
11. REIMBURSEMENT OF DISALLOWED EXPENSES. In the event that any expenses
paid by the Corporation for the Employee or any reimbursement of
expenses by the Corporation to the Employee shall, upon audit or other
examination of the income tax returns of the Corporation, be determined
not to be allowable deductions from the gross income of the Corporation
and such determination shall be acceded to by the Corporation, or such
determination shall be made final by the appropriate state or federal
taxing
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authority or a final judgment of a court of competent jurisdiction, and
no appeal shall be taken therefrom, or the applicable period for filing
a notice of appeal shall have expired, then in such event, the Employee
shall rebate to the Corporation the dollar amount of such disallowed
expenses. Such repayment may not be waived by the Corporation.
12. VACATION. The Employee shall be entitled annually to Two (2) weeks of
paid vacation; provided, however, that the Employee shall not take more
than Two (2) consecutive weeks of vacation in any single instance.
13. LINE OF CREDIT. Provided that the Employee shall not be in breach of or
default under this Agreement and if, in the judgment of the Directors
such loan may reasonably be expected to benefit the Corporation, the
Corporation shall, at any time or times during the term hereof and at
the request of the Employee, loan to the Employee a dollar amount or
amounts designated by the Employee, the sum of which dollar amount or
amounts shall not exceed in the aggregate the sum of Sixty-Eight
Thousand Dollars ($68,000). Each such loan shall be evidenced by the
promissory note of the Employee in the form.
14. COMPENSATION FOR PAST SERVICES. In consideration of the services of the
Employee which have been rendered by the Employee as President and
Chief Executive Officer during the fiscal years ended July 31, 1994,
1995 and the eight month period ended March 31, 1996, the Corporation
hereby grants and the Employee agrees to the following compensation for
services rendered prior to the date of this Agreement: $30,000 for
fiscal year ended July 31, 1994; $45,000 for fiscal year ended July 31,
1995; and $60,000 for the eight months ended March 31, 1996.
15. STOCK OPTION. A Five (5) year Option to purchase as many shares of the
Corporation's common stock as equals One Hundred Thousand ($100,000)
dollars at 80% of initial public offering price of the Company's common
stock. Said Option shall be exerciseable in whole or in part one year
from the date of closing of the initial public Offering. The underlying
common stock of the Option shall be registered by the Corporation under
the Securities Act of 1933, as amended on or before becoming
exerciseable.
16. The Employee hereby waives the payment of the above cash compensation
for the fiscal years ending July 31, 1994 and 1995 and the eight month
period ended March 31, 1996 and contributes the same back to the
Corporation as $135,000 of additional paid-in capital for the 618,307
(post 4/17/96 split) shares of common stock presently owned by the
Employee.
17. AGREEMENT INCLUSIVE. This Agreement supersedes any and all employment
or other agreements, whether written or oral by and between the
Employee and the Corporation and any and al such prior Agreements are
hereby canceled effective as at the date of this Agreement.
18. BENEFIT. This Agreement shall inure to the benefit of and be binding
upon the Corporation, its successors and assigns, including, but not
limited to, (i) any corporation
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which may acquire all or substantially all of the Corporation's assets
and business, (ii) any corporation with or into which the Corporation
may be consolidated or merged; (iii) any corporation that is the
successor corporation in a share exchange, and the Employee, his/her
heirs, guardians and personal and legal representatives.
19. GOVERNING LAW. This Agreement shall be governed by and construed in all
respects in accordance with the laws of the State of California.
20. ENTIRE AGREEMENT. This Agreement contains the entire agreement of the
parties, and may be amended, waived, changed, modified, extended or
rescinded only by a writing signed by the party against whom any such
amendment,/ waiver, change, modification, extension or rescission is
sought.
21. NOTICES. All notices and communications hereunder shall be in writing
and shall be deemed given when sent postage prepaid by registered or
certified mail, return receipt requested, and, if intended for the
Corporation, shall be addressed to it, to the attention of its Chief
Financial Officer at 1308 North Magnolia Av., Suite H, El Cajon,
California 92020, with a copy to Michael L. Krall at 1308 North
Magnolia Av., Suite H, El Cajon, California 92020, or at such other
address of which the Corporation shall have given notice to the
Employee in the manner herein provided, and if intended for the
Employee, shall be addressed to him at or at such other address of
which the Employee shall have given notice to the Corporation in the
manner herein provided.
IN WITNESS WHEREOF, the parties hereto have set their hands as of the
date first above written.
ATTEST:
Date: 4/23/96 By: /s/ MICHAEL L. KRALL
------- --------------------------------------
Michael L. Krall
INNOVATIVE MEDICAL SERVICES
Date: 4/25/96 By: /s/ GARY BROWNELL
------- --------------------------------------
Gary Brownell, Chief Financial Officer
WITNESS: INNOVATIVE MEDICAL SERVICES
Date: 4/26/96 By: /s/ DENNIS B. ATCHLEY
------- --------------------------------------
Dennis Atchley, Secretary
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EXHIBIT 23.1
DENNIS BROVARONE
2530 SOUTH LINLEY COURT
DENVER, COLORADO 80219
PH: 303 742 0966 / FX-MDM: 303 742 0117
May 21, 1996
CONSENT OF ATTORNEY
Reference is made to Amendment No. 1 to the Registration Statement on
Form SB-2 pursuant to which Innovative Medical Services, proposes to register
for sale to the public 1,250,000 Units, each consisting of one share of common
stock and a Class A Warrant to acquire an additional share of common stock at
$4.00 per Unit.
I hereby consent to being named in the Registration Statement as having
advised Innovative Medical Services, as to the legality of its securities
proposed to be sold.
DENNIS BROVARONE
ATTORNEY AT LAW
/s/DENNIS BROVARONE
-------------------
Dennis Brovarone
<PAGE> 1
EXHIBIT 23.2
STEVEN HOLLAND, CPA
3914 MURPHY CANYON RD., STE. A126
SAN DIEGO, CA 92123
(619) 279-1640
I have prepared the attached audited financial statements for Innovative
Medical Services for the fiscal years ended July 31, 1995 and 1994 and the
compiled financial statements for the six months ended January 31, 1996. I
hereby consent to their inclusion with the company's intended registration
statement on form SB-2.
Steven Holland, CPA
May 22, 1996
