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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED, EFFECTIVE OCTOBER 7, 1996]
For the fiscal year ended December 31, 1996
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-27848
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BIOFIELD CORP.
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(Exact Name of Registrant as Specified in Its Charter)
Delaware 13-3703450
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1225 Northmeadow Pkwy. 30076
Suite 120, Roswell, GA
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (770) 740-8180
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Securities registered pursuant to Section 12(b) of the Act:
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Title of Each Class Name of Each Exchange on Which Registered
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None None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
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(Title of Class)
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(Title of Class)
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Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filings requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
While it is difficult to determine the number of shares owned by
non-affiliates, the registrant estimates that the aggregate market value of
outstanding Common Stock on March 12, 1997 (based upon the closing selling
price of such Common Stock on the Nasdaq National Market on March 12, 1997)
held by non-affiliates was approximately $22.7 million. For this computation,
the registrant has excluded the market value of all shares of its Common Stock
reported as beneficially owned by officers, directors, and certain significant
stockholders of the registrant. Such exclusion shall not be deemed to
constitute an admission that any such stockholder is an affiliate of the
registrant.
The number of shares of the Registrant's Common Stock, $.001 par
value, outstanding as of March 12, 1997 was 6,493,300 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Items 10, 11, 12 and 13 of Part III are incorporated by reference from
a portion of the registrant's definitive proxy statement to be furnished to
stockholders in connection with the 1997 Annual Meeting of Stockholders.
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BIOFIELD CORP.
(A Development Stage Company)
1996 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
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Page
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PART I
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Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . 12
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters . . . . . . . . 12
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . 22
Item 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
PART III
Item 10. Directors and Executive Officers of the Registrant . . . . . . . . . . . . . . . . . 22
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Item 12. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . 22
Item 13. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . 22
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K . . . . . . . . . . 23
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PART I
THIS ANNUAL REPORT ON FORM 10-K CONTAINS FORWARD LOOKING STATEMENTS THAT
INVOLVE CERTAIN RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD
DIFFER MATERIALLY FROM THE RESULTS DISCUSSED IN THE FORWARD LOOKING STATEMENTS.
SEE "CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS" CONTAINED IN
PART II, ITEM 7 OF THIS REPORT.
ITEM 1. BUSINESS
Biofield Corp. ("Biofield" or the "Company") is a medical technology
company that has developed an innovative system for detecting breast cancer
through the skin in a non-invasive and objective procedure. The Company's
breast cancer diagnostic device, the ALEXA (TM) 1000 System, employs unique,
single-use sensors and a measurement device to detect and analyze changes in
cellular electrical charge distributions associated with the development of
epithelial cancers, such as breast cancer. The ALEXA 1000 System is not
available for commercial distribution in the United States at this time and
will not be available until U.S. Food and Drug Administration ("FDA")
pre-market approval. On December 30, 1996, the Company submitted its
pre-market approval application ("PMA") to the FDA for the ALEXA 1000 System.
On February 27, 1997, the FDA informed the Company that its PMA had not been
accepted for filing at this time and requested that the Company address
deficiencies in the PMA before further consideration of such PMA. The Company
remains confident in the findings of its U.S. Multi-center Study conducted at
six major medical institutions in the United States and intends to work closely
with the FDA to advance the PMA process. The FDA also advised the Company that
its application, upon resubmission, will continue to be considered under its
Expedited Review policy. The Company believes that the ALEXA 1000 System could
improve early diagnosis, reduce diagnostic uncertainty and decrease the number
of diagnostic procedures, including surgical biopsies, performed on suspicious
lesions.
The Company is also developing a breast cancer screening system, which is
an enhancement of the ALEXA 1000 System, for use on asymptomatic women. In
addition, the Company has conducted preclinical research which provides support
for the further development of the Company's patented core technology for the
detection of other epithelial cancers, including cancer of the ovaries, skin,
prostate and colon.
The ALEXA 1000 System and any other cancer detection products developed by
the Company will require FDA pre-market approval prior to commercial
distribution in the United States. There can be no assurance that any such
approvals will be received on a timely basis, or at all, or that any products
developed by the Company will be accepted commercially. Furthermore, there can
be no assurance that Biofield's technology can be adapted for breast cancer
screening or for the detection of other cancers.
The laws of certain European countries may permit the Company to begin
marketing the ALEXA 1000 System in Europe before marketing would be permitted
in the United States. The Company currently anticipates a European market
launch during 1997. There can be no assurance that the Company's proposed
marketing schedules or plans can or will be met.
BREAST CANCER
Background
Breast cancer is one of the most common cancers among women and,
notwithstanding the currently available detection modalities, is the leading
cause of death among women aged 35 to 54. According to the American Cancer
Society ("ACS"), approximately one in nine women in the United States will
develop breast cancer during her lifetime. In the United States in 1996, the
ACS estimated that approximately 184,000 women would be diagnosed with, and
approximately 44,000 women would die as a result of, breast cancer. In Europe
in 1990, approximately 170,000 cases of breast cancer were discovered, with an
estimated 73,000 deaths.
Early detection of breast cancer is critical. There is widespread
agreement that screening for breast cancer, when combined with appropriate
follow-up, will reduce mortality from the disease. According to the National
Cancer Institute ("NCI"), the five-year survival rate decreases from more than
90% to 72% after the cancer has spread to the lymph nodes, and to 18% after it
has spread to other organs such as the lung, liver or brain.
There are over 90 million women in the United States over the age of 20
for whom breast cancer screening (in the form of physical examination or
mammography screening) is generally recommended as a routine part of
preventative healthcare. For these women, the ACS has published guidelines for
breast cancer screening including: (i) monthly breast self-examinations for all
women over the age of 20;
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and (ii) an annual mammogram for women age 40 and older. As a result of family
medical histories and other factors, certain women are at "high-risk" of
developing breast cancer during their lifetimes. For these women, physicians
often recommend close monitoring, particularly if a potentially pre-cancerous
condition has been detected.
Each year approximately eight million women in the United States require
diagnostic testing for breast cancer because of a physical symptom, such as a
palpable lesion, pain or nipple discharge, discovered through self or physician
examination (approximately seven million) or a nonpalpable lesion detected by
screening x-ray mammography (approximately one million). Once a physician has
identified a suspicious lesion in a woman's breast, the physician may recommend
further diagnostic procedures, including diagnostic mammography, ultrasound or
fine needle aspiration. In each case, the potential benefits of additional
diagnostic testing must be balanced against the costs, risks, anxiety and
discomfort to the patient associated with undergoing the additional procedures.
Each of the currently available non-surgical modalities for breast cancer
detection has various clinical limitations.
Screening and Diagnostic Modalities
Physical examinations may be conducted by a physician as part of a medical
examination, or by a woman performing a breast self-examination; however, a
physical examination of the breast can only detect relatively large lesions,
which may be advanced cancers. Furthermore, physical examination of the breast
does not reliably distinguish between malignant and benign tissue. More than
half the women who menstruate will have a lump in a breast at some point, but
fewer than 10% of such lumps will be malignant.
Mammography is an x-ray modality commonly used for both routine breast
cancer screening and as a diagnostic tool. A mammogram produces an image of the
internal structure of the breast which is intended to display lesions as blurry
white spots against normal tissue. In a screening mammogram, radiologists seek
to detect the presence of suspicious lesions, while in a diagnostic mammogram
radiologists seek to characterize suspicious lesions. Mammograms require
subjective interpretation by a radiologist and are often uncomfortable for the
patient. Because x-ray mammography exposes the patient to radiation, the ACS
recommends that mammograms be limited to one per year. In addition, x-ray
mammography is considered to be less effective for women under the age of 50
who generally have radiographically dense breast tissue. The average cost of a
diagnostic mammogram is approximately $120 to $180 per procedure, and requires
the use of capital equipment ranging in cost from approximately $75,000 to
$225,000. Due to the high capital costs associated with mammography equipment
and the specialized training necessary to operate the equipment and to read the
x-ray images, mammography is usually available only at specialty clinics or
hospitals.
Ultrasound uses high frequency sound waves to create an image of soft
tissues in the body. Like a mammogram, this image requires interpretation by a
physician. Ultrasound's principal role in breast cancer diagnosis has been to
assist the physician in determining whether a palpable lesion is likely to be a
cyst (usually benign) or a solid mass (potentially cancerous). The average cost
of an ultrasound of the breast is approximately $75 to $300 per procedure and
requires the use of capital equipment ranging in cost from approximately
$60,000 to $200,000. Like mammography, ultrasound is generally performed at
specialty clinics or hospitals.
Other currently available non-surgical diagnostic techniques include fine
needle aspiration, core needle biopsy and stereotactic needle biopsy. In each
of these procedures a physician seeks to obtain cell samples from a suspicious
lesion through a needle for analysis by a cytopathologist. Inadequate sampling
often renders these tests invalid. These procedures are invasive, require
follow-up and range in cost from approximately $370 to $1,000 per procedure.
Due in part to the limitations of the currently available modalities to
identify malignant lesions, a large number of patients with suspicious lesions
proceed to additional diagnostic procedures, including surgical biopsy, an
invasive and expensive procedure. Approximately 750,000 surgical biopsies are
performed each year in the United States, of which approximately 500,000 result
in the surgical removal of benign breast tissue. The average cost of a surgical
biopsy ranges from approximately $1,000 to $5,000 per procedure. In addition,
surgical biopsy can result in pain, scarring and anxiety to patients. Patients
who are referred to biopsy usually are required to schedule the procedure in
advance and generally must wait several days to receive their biopsy results.
The Company believes that the shortcomings of current breast cancer
management represent a significant market opportunity for a non-invasive and
objective technology available for use by physicians in evaluating the
approximately eight million women who present with suspicious lesions each
year. The use of Biofield's technology in the diagnosis of cancer is believed
to be especially promising for women between the ages of 20 and 40 (over 50
million women in the United States) for whom x-ray
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mammography has lower efficacy. These women often present with diffuse palpable
benign conditions which can mask malignancies or pre-malignant conditions. In
addition, the Company believes that its technology will add clinical value to
diagnostic testing on smaller breasted women and women presenting with small
palpable lesions (less than 2 cm) which also represent more difficult subgroups
for certain currently used diagnostic modalities.
THE ALEXA 1000 SYSTEM
The ALEXA 1000 System is intended to provide physicians and patients with
immediate and objective information concerning the probability that an
identified lesion is malignant or benign. A breast exam utilizing the ALEXA
1000 System, called an ALEXAGRAM(TM), is non-invasive and can be performed in a
physician's office by a physician or a medical technician in less than 20
minutes. Single-use ALEXA 1000 sensors are arranged on the skin surface in and
around the quadrant of the breast where a suspicious lesion has been identified
and in corresponding locations on the asymptomatic breast. Sensor readings are
measured and analyzed using a pre-programmed algorithm. The Company
anticipates that the output from an ALEXAGRAM will be a written report that
includes an objective reading on a scale of one to 30. The higher the number,
the greater the probability the patient has proliferative disease or cancer in
the area examined. Such information can be used by the physician to make
further treatment decisions, including whether to proceed to surgical biopsy.
The Company believes the ALEXA 1000 System will offer patients and
physicians several advantages compared with currently available modalities used
in breast cancer diagnosis, including the following:
* The ALEXA 1000 System provides the patient and physician with
immediate, objective test results that indicate the probability that a
suspicious lesion is malignant or benign.
* The ALEXA 1000 System is non-invasive - all measurements are taken from
sensors placed on the skin surface.
* Unlike x-ray mammography, the ALEXA 1000 System does not expose the
patient to radiation or breast compression. This will allow physicians
to repeat the test as often as needed, which is especially important
for women at high risk for developing breast cancer and other patients
requiring follow-up examinations.
* In the U.S. Multi-center Study, the results of which have not been
accepted by the FDA, the ALEXA 1000 System performed effectively in
clinically difficult subgroups, including women under 45 years of age,
smaller breasted women, women presenting with small palpable lesions,
and cases where mammography was not indicated. Diagnostic x-ray
mammography is considered to be less effective for women under the age
of 50, who generally have radiographically dense breast tissue.
* A diagnostic exam utilizing the ALEXA 1000 System can be performed by a
physician or medical technician in less than 20 minutes in a physician's
office.
* The capital cost of the ALEXA 1000 System, approximately $25,000 in the
United States, is expected to be significantly less than the cost of
purchasing and installing diagnostic x-ray mammography or other
diagnostic imaging equipment. The estimated cost of one set of
single-use ALEXA 1000 sensors is expected to be $100 or more in the
United States. The Company believes that the per procedure costs of an
ALEXAGRAM will be competitive with current costs of diagnostic
mammography and ultrasound.
The Company believes that the ALEXA 1000 System will be appreciated by
physicians and patients for its accuracy and convenience, and by third party
payors of health care costs for the cost containment potential of reducing the
number of diagnostic tests on suspicious lesions and reducing the number of
missed malignancies.
The ALEXA 1000 System is not available for commercial distribution in the
United States at this time and will not be available until FDA pre-market
approval, the receipt and timing of which are uncertain.
CLINICAL STUDIES
The Company has conducted clinical trials in the United States, Europe and
Japan with the ALEXA 1000 System involving over 2,000 women with suspicious
breast lesions. The protocol for the Company's U.S. Multi-center Study, the
European Multi-center Study and Japanese study, provided for women with
suspicious lesions detected either by x-ray mammography screening or a physical
examination (self or by physician) to be tested with the ALEXA 1000 System
prior to open surgical biopsy.
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Women who participated in these studies had undergone diagnostic work-ups,
which often included a series of tests, prior to proceeding to biopsy. In each
of these studies the results obtained using the ALEXA 1000 System were compared
to the biopsy results.
Measures of Diagnostic Accuracy. The accuracy of a diagnostic test is
often evaluated in terms of sensitivity, specificity, negative predictive
value, positive predictive value and prevalence. Sensitivity is a measurement
of how accurately a diagnostic test correctly diagnoses a patient as having the
disease when the disease is present (true positives). Specificity is a
measurement of how accurately a diagnostic test correctly diagnoses a patient
as disease free when the disease is absent (true negatives). Negative
predictive value is a measure of the probability that there is no disease in a
patient with a negative test result (true negative test results, divided by all
patients with negative results) and positive predictive value is a measure of
the probability that there is disease in a patient with a positive test result
(true positive test results, divided by all patients with positive results).
Prevalence is the prior probability that a patient in a given population has
the targeted disease.
U.S. Multi-center Study. The U.S. Multi-center Study included over 1,000
patients tested at six major medical institutions under the direction of
physicians involved in breast cancer diagnosis and therapy. The study results,
which have not been accepted by the FDA, demonstrated an overall sensitivity of
95%, --i.e., it identified malignant lesions as malignant with 95% accuracy.
This compared favorably with other currently used diagnostic tests performed on
many of the patients who participated in the study. In the U.S. Multi-center
Study, a suspicious lesion was classified, for purposes of the study, as
malignant or benign based upon the objective output of an ALEXAGRAM. The study
results demonstrated that the ALEXA 1000 System had an overall sensitivity of
approximately 95% along with an overall specificity of approximately 20% (24%
to 42% in clinically difficult subgroups) which provides confidence in a
negative test, or negative predictive value, of approximately 94% assuming a
prevalence of breast cancer of 20%.
The Company's analysis of the U.S. Multi-center Study data indicated the
following:
* High overall sensitivity -- 95%.
* High overall negative predictive value -- 94%.
* High sensitivity for small palpable cancers -- 97%; and early stage
(i.e., non-invasive) cancers -- 95%.
* In clinically difficult sub-groups, sensitivity was over 95% and
specificity ranged from 24% to 42%.
* No adverse effects.
Based on these results, the Company believes that the U.S. Multi-center
Study successfully demonstrated that the ALEXA 1000 System can discriminate
between lesion states and identify a high percentage of malignant lesions. The
Company also believes that, based on the high overall sensitivity and negative
predictive value reported, this study indicates that the ALEXA 1000 System
could potentially be used to reduce the number of diagnostic tests performed on
suspicious lesions. See "Cautionary Statements Regarding Forward-Looking
Statements - Uncertainty of Pre-market Approval for the ALEXA 1000 System."
The Company's PMA for the ALEXA 1000 System is based principally upon the
results of its U.S. Multi-center Study, which results have not been accepted by
the FDA based upon its initial review of the Company's PMA. On December 30,
1996, the Company submitted its PMA to the FDA for the ALEXA 1000 System. On
February 27, 1997, the FDA informed the Company that its PMA had not been
accepted for filing at this time and requested that the Company address
deficiencies in the PMA before further consideration of such PMA.
Specifically, the FDA has not accepted the findings from the Company's U.S.
Multi-center Study as submitted due to the FDA's issues concerning the study
design and, in particular, the development and selection of the algorithms used
on the supporting data set. The FDA advised the Company that it must select a
final algorithm and then test it with an independent data set. Further, the
FDA stated that a clinical trial design that supports the indications for use
of the ALEXA 1000 System should include the impact on patient management.
Accordingly, it may be necessary for the Company to submit additional data to
the FDA, which data may be based upon completed clinical studies and/or
additional clinical trials.
If the Company is required to submit additional data to the FDA or conduct
additional clinical trials, there may be significant delays in the approval
process for the ALEXA 1000 System. Conducting additional clinical trials could
also require the expenditure of substantial additional funds, for which
additional financing may be required. Furthermore, there can be no assurance
that results obtained in any other studies that may be conducted by the Company
will be consistent with the results obtained in the U.S. Multi-center Study or
that any such results will be accepted by the FDA. The Company remains
confident in the findings of its U.S. Multi-
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center Study conducted at six major medical institutions in the United States
and intends to work closely with the FDA to advance the PMA process. The FDA
also advised the Company that its application, upon resubmission, will continue
to be considered under its Expedited Review policy.
European Multi-center Study. In 1996, the Company completed its European
Multi-center Study at eight leading medical institutions located in Italy,
France, Germany, The Netherlands and the United Kingdom. Histopathology review
of the 661 lesions analyzed indicated 386 malignant lesions, 41 premalignant
lesions and 234 benign lesions. The Company's analysis of the study data
indicated the following results: overall sensitivity was approximately 90%;
premalignant lesions were identified as cancers approximately 90% of the time;
overall specificity was approximately 42%; and approximately 45% of the
non-proliferative benign lesions were correctly characterized as benign. The
patient population in the European Multi-center Study included 360 women age 50
and over. The incidence of cancer in this subgroup of the study population was
73%. The incidence of cancer in the patient population overall was 58%, and
was 41% for women under age 50. The overall results presented above include
the entire study population. Detailed analysis of the study data indicated
that: (i) the ALEXA 1000 System detected electrical differences which
corresponded to lesion proliferation in women of all ages; (ii) the test
performed best in younger, premenopausal women with smaller palpable lesions;
and (iii) conclusions regarding the test's performance in older women were
confounded by the low prevalence of non-proliferative benign lesions and the
high prevalence of cancer and higher risk benign lesions in this subgroup of
the study population. The Company believes that younger premenopausal women
with smaller palpable lesions constitutes the largest segment of the population
that is referred on to diagnostic testing on suspicious breast lesions.
Japanese Study. In 1995, the Company completed an initial feasibility
study of the ALEXA 1000 System at a clinical site in Kawasaki, Japan. The
population studied included 101 patients, 52 with benign lesions and 49 with
malignant lesions. Prospective analysis of these lesions resulted in a
sensitivity of 90% and a specificity of 60%. Based upon these preliminary
results, the Company intends to conduct additional clinical research in Japan
to support future marketing efforts in Asia.
Post-screening Filter Study. The Company is conducting a large
post-screening filter study (the "PSF Study") of the ALEXA 1000 System at three
clinical sites in Europe. The PSF Study is designed to evaluate the ALEXA 1000
System in a study population consisting of women with suspicious lesions that
have been identified in a breast cancer screening examination prior to
undergoing other diagnostic procedures. In the PSF Study, the test results
obtained using the ALEXA 1000 System are compared to the results of the
patients diagnostic evaluations, which in certain cases include surgical
biopsy.
In the fourth quarter of 1996, the Company completed enrollment of the
PSF Study. The Company anticipates that analysis of the study results will be
completed during the second quarter of 1997. A major goal of the PSF Study is
to demonstrate that the ALEXA 1000 System is effective in populations where
high negative predictive value of a diagnostic test (i.e., the probability that
a negative test result correctly indicates the absence of disease) is important
in reducing the number of patients who may unnecessarily proceed to expensive
diagnostic work-ups, often leading to surgical biopsy. Analysis of the study's
pilot phase, which included 480 cases, indicates the potential of the test to
achieve a sensitivity of approximately 90%, with a specificity of up to 40% in
the study population. Based on the anticipated level of accuracy, the Company
believes that the test may allow clinicians in Europe to avoid certain post-
screening diagnostic workups on up to 40% of the approximately seven million
patients in Europe with benign lesions who initially present with suspicious
physical symptoms or mammographic findings. There can be no assurance that the
results of this study or any future study will be consistent with the results
reported to date.
THE BIOFIELD SCREENING SYSTEM
Based on its clinical experience with the ALEXA 1000 System for
testing symptomatic women and its belief that the electrophysiological
characteristics of cancer are similar for both palpable or nonpalpable lesions,
the Company believes that its technology can be adapted for breast cancer
screening in asymptomatic women. The Biofield proposed screening system, an
enhanced version of the ALEXA 1000 System with additional data channels and a
dedicated algorithm, is currently under development by the Company. The
proposed Biofield screening system has been designed to screen all quadrants of
each breast by using additional ALEXA 1000 sensors arranged in a pre-determined
pattern. Screening examinations utilizing the Company's prototype Biofield
screening system take less than 30 minutes to complete. The Company has
completed the prototype design and development work necessary for clinical
testing of the Biofield screening system, although the Company's design and
development of the final sensor configuration has not yet been completed.
While the Company believes that the results of a 1993 pilot breast
cancer screening study support further clinical trials of the proposed Biofield
screening system, the Company has focused its efforts on first completing the
development and clinical testing of the ALEXA 1000 System for use as a
diagnostic tool. The Company believes that the protocol for a full-scale
clinical trial of the proposed screening device would require enrollment of a
large number of women at multiple clinical sites and would require significant
follow-up procedures. There can be no assurance that Biofield's technology can
be adapted for breast cancer screening, or, if adapted, that the proposed
Biofield screening system will be approved by the FDA or be commercially
accepted.
OTHER MARKETS
The Company believes that the need exists for products that will
provide early and accurate detection of types of epithelial cancers other than
breast cancer. Preclinical research currently underway has been designed to
obtain additional scientific knowledge of the fundamentals underlying Biofield's
core technology and identify new applications for Biofield's technology. The
Company's preclinical research is intended to support the development of devices
and procedures based on Biofield's
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technology for the detection of other cancers, including cancer of the ovaries,
skin, prostate and colon. There can be no assurance that Biofield's technology
can be adapted for breast cancer screening or for the detection of other
cancers, and, if adapted, that any such products developed by the Company will
be approved by the FDA or will be accepted commercially.
BIOFIELD TECHNOLOGY
Biofield's technology is based on the principle that epithelial cancers,
such as cancer of the breast, ovaries, skin, prostate and colon, are
characterized by uncontrolled recurrent cell proliferation or rapid cell
division. As these cells divide, an electrical charge is released. This release
results in a disruption, or depolarization, of the charge distribution found in
normal epithelial tissue which lines many solid organs, including the stomach,
colon, prostate, endometrium, lung and breast. Moreover, this depolarization
appears to be progressive as cell transformation and carcinogenesis occur.
This depolarization is measurable at the skin surface in the form of
electrophysiological differentials. The ALEXA 1000 System takes multiple
readings from an array of test points on the skin surface of the symptomatic
breast and asymptomatic breast to measure differentials which may exist between
test points. The Company believes that the analysis of these differentials,
using a pre-programmed algorithm, provides useful diagnostic information.
MARKETING AND SALES
Because of the large number of diagnostic procedures that are performed on
suspicious breast tissue in the United States, the Company intends to focus its
U.S. marketing efforts on the clinical ability of the ALEXA 1000 System to
potentially increase the number of cancers detected each year in the early
stages and reduce the number of diagnostic tests performed on these suspicious
lesions. The Company believes that the market for the ALEXA 1000 System will
include physicians involved in the detection and management of breast cancer,
including radiologists, gynecologists, general surgeons, breast surgeons and
general practitioners, as well as hospitals and clinics. The Company currently
anticipates that, if the ALEXA 1000 System is approved by the FDA, the Company
will market this product in the United States together with one or more
distribution partners, or through a dedicated internal sales force in order to
maximize product sales and market penetration.
In the United States, the Company currently anticipates that the capital
cost of purchasing the ALEXA 1000 System will be approximately $25,000. Such
estimated capital cost is substantially less than the cost of diagnostic
mammography equipment or ultrasound systems, which range in price from
approximately $60,000 to $225,000. The Company currently estimates that the
cost of single-use ALEXA 1000 sensor sets is expected to be $100 or more in the
United States. The Company believes that the per procedure costs of an
ALEXAGRAM will be competitive with the current costs of diagnostic mammography
and ultrasound.
The laws of certain European countries may permit the Company to begin
marketing the ALEXA 1000 System in Europe before marketing would be permitted
in the United States. In addition, the European Union requires that by
mid-1998 all companies conducting sales in member countries must obtain
certifications necessary to enable the "CE" mark to be affixed to their
products. The Company is in the final stages of obtaining such certifications.
There can be no assurance that the Company will be able to obtain such final
approvals, or if obtained, in a timely manner, or at all.
The Company is considering potential distribution arrangements with
strategic marketing partners in the United States, Europe and Asia, and
currently anticipates commencing its foreign marketing efforts during 1997 with
a European market launch. The Company believes that a distribution arrangement
with one or more strategic partners could assist in the marketing and servicing
of the ALEXA 1000 System. There can be no assurance that the Company will be
able to enter into any such strategic alliance or that any of the Company's
proposed marketing schedules or plans can or will be met.
The timing of initial commercialization of any other potential products
utilizing the Company's technology, including the proposed Biofield screening
system, will depend on the progress of the Company's product development and
manufacturing programs, the results of future clinical trials and available
financing. Any such products will require pre-market approval from the FDA
prior to commercialization in the United States.
MANUFACTURING
The Company has used certain contract manufacturers to produce the initial
quantities of the ALEXA 1000 device and disposable ALEXA 1000 sensors and
intends to continue to do so to satisfy its needs for future clinical studies
and for commercial quantities. Electronic components and raw materials used in
the ALEXA 1000 device and ALEXA 1000 sensors are available from numerous
suppliers. Some components are stock items, while others are designed and
manufactured to Biofield's specifications. The Company owns certain of the
specifications, molds and other equipment used to manufacture components of its
proposed
6
<PAGE> 10
products.
The Company has engaged SeaMED Corporation of Seattle, Washington to
design and manufacture quantities of the commercial production model of the
ALEXA 1000 device for use in connection with clinical studies. The Company has
entered into an agreement with SeaMed Corporation which grants SeaMed
Corporation the right to manufacture at least 50% of the Company's worldwide
requirements for the ALEXA 1000 device, other than devices to be manufactured
and sold in Asia, for a period of five years commencing May 1996. The Company
has arranged for other third parties to supply its ALEXA 1000 sensors and
sensor components for its clinical studies and does not anticipate any
difficulties in arranging for the commercial production of these items. There
can be no assurance that any of the suppliers can meet current or future Good
Manufacturing Practices ("GMP") requirements.
PATENTS AND PROPRIETARY INFORMATION
The Company has eight issued U.S. patents relating to products and
technology. Biofield devices, single-use sensors, methods, device design and
certain device and sensor components are the subject of either issued U.S.
patents or pending U.S. and foreign patent applications. In addition, the
Company has a non-exclusive license under a U.S. patent entitled "Device and
Method of Detecting the Potential Level of the Electromagnetic Field of a
Living Organism."
There can be no assurance that the United States Patent and Trademark
Office ("PTO") or foreign jurisdictions will grant the Company's pending patent
applications or that the Company will obtain any patents or other protection
for which it has applied. No assurance can be given that patents issued to or
licensed by or to the Company will not be challenged, invalidated or
circumvented, or that the rights granted thereunder will provide any
competitive advantage. The Company could incur substantial costs in defending
any patent infringement suits or in asserting any patent rights, including
those granted by third parties. Any adverse outcome could subject the Company
to significant liabilities to third parties, require disputed rights to be
licensed from third parties or require the Company to cease selling its
products.
The Company also relies upon trade secrets and other unpatented
proprietary information in its product development activities which it seeks to
protect, in part, through assignment agreements and confidentiality agreements
with employees, consultants and other parties. There can be no assurance that
these agreements will not be breached, that the Company will have adequate
remedies for any such breach or that the Company's trade secrets will not
otherwise become known to, or independently developed by, competitors.
GOVERNMENT REGULATION
The manufacture and sale of medical devices intended for commercial
distribution are subject to extensive governmental regulation in the United
States. Medical devices are regulated in the United States by the FDA under the
Federal, Food, Drug and Cosmetic Act ("FDC Act") and generally require
pre-market clearance or pre-market approval prior to commercial distribution.
In addition, certain material changes or modifications to medical devices also
are subject to FDA review and clearance or approval. Pursuant to the FDC Act,
the FDA regulates the research, testing, manufacture, safety, labeling,
storage, record keeping, advertising, distribution and production of medical
devices in the United States. Noncompliance with applicable requirements can
result in failure of the government to grant pre-market clearance or approval
for devices, withdrawal of approval, total or partial suspension of production,
fines, injunctions, civil penalties, recall or seizure of products, and
criminal prosecution.
Medical devices are classified into one of three classes, Class I, II or
III, on the basis of the controls deemed by the FDA to be necessary to
reasonably ensure their safety and effectiveness. Class I devices are subject
to general controls (e.g., labeling, pre-market notification and adherence to
GMPs). Class II devices are subject to general controls and to special controls
(e.g., performance standards, postmarket surveillance, patient registries, and
FDA guidelines). Generally, Class III devices are those that must receive
pre-market approval by the FDA to ensure their safety and effectiveness (e.g.,
life-sustaining, life-supporting and implantable devices, or new devices such
as the ALEXA 1000 System and the proposed Biofield screening system, which have
not been found to be substantially equivalent to legally marketed devices), and
require clinical testing to ensure safety and effectiveness and FDA approval
prior to marketing and distribution. The FDA also has the authority to require
clinical testing of Class I and Class II devices. A PMA must be filed if a
proposed device is not substantially equivalent to a legally marketed predicate
device or if it is a Class III device for which the FDA has called for such
applications.
If human clinical trials of a device are required and if the device
presents a "significant risk," the manufacturer or distributor of the device is
required to file an investigational device exemption ("IDE") application with
FDA prior to commencing human clinical trials. The IDE application must be
supported by data, typically the results of animal and, possibly, mechanical
testing. If the IDE application is approved by the FDA, human clinical trials
may begin at a specific number of investigational sites with a
7
<PAGE> 11
maximum number of patients, as approved by the agency. Sponsors of clinical
trials are permitted to sell those devices distributed in the course of the
study provided such costs do not exceed recovery of the costs of manufacture,
research, development and handling. The clinical trials must be conducted under
the auspices of an independent institutional review board ("IRB") established
pursuant to FDA regulations. If one or more IRBs determine that a clinical
trial involves a "nonsignificant risk" device, the sponsor of the study is not
required to obtain FDA approval of an IDE application before beginning the
study. However, prior IRB approval of the study is required and the study must
be conducted in compliance with the applicable FDA regulations, including, but
not limited to, FDA's regulations regarding the protection of human subjects.
Generally, before a new device can be introduced into the market in the
United States, the manufacturer or distributor must obtain FDA clearance of a
pre-market notification ("510(k) notification") or approval of a PMA. If a
medical device manufacturer or distributor can establish that a device is
"substantially equivalent" to a legally marketed Class I or Class II device, or
to a Class III device for which the FDA has not called for PMAs, the
manufacturer or distributor may seek clearance from the FDA to market the
device by filing a 510(k) notification. The 510(k) notification may need to be
supported by appropriate data establishing the claim of substantial equivalence
to the satisfaction of the FDA. The FDA recently has been requiring a more
rigorous demonstration of substantial equivalence.
Following submission of the 510(k) notification, the manufacturer or
distributor may not place the device into commercial distribution until an
order is issued by the FDA. At this time, the FDA typically responds to the
submission of a 510(k) notification within 90 to 200 days. An FDA order may
declare that the device is substantially equivalent to a legally marketed
device and allow the proposed device to be marketed in the United States. The
FDA, however, may determine that the proposed device is not substantially
equivalent or require further information, including clinical data, to make a
determination regarding substantial equivalence. Such determination or request
for additional information could delay market introduction of the product that
is the subject of the 510(k) notification. After extensive discussions with the
FDA, it was determined that the pre-market notification clearance path would
not be available for the ALEXA 1000 System and therefore the Company proceeded
with clinical trials necessary to support a PMA application.
If a manufacturer or distributor of medical devices cannot establish that
a proposed device is substantially equivalent to a legally marketed device, as
is the case with the ALEXA 1000 System, the manufacturer or distributor must
seek pre-market approval of the proposed device through submission of a PMA. A
PMA must be supported by extensive data, including preclinical and clinical
trial data, as well as extensive literature to prove the safety and
effectiveness of the device. Following receipt of a PMA, if the FDA determines
that the application is sufficiently complete to permit a substantive review,
the agency will "file" the application. Under the FDC Act, the FDA has 180 days
to review a PMA, although the review of an application more often occurs over a
protracted time period, and generally takes approximately two years or more
from the filing date to complete.
On November 8, 1994, the ALEXA 1000 System was granted Expedited Review
Status by the FDA. Expedited Review is a new policy of the FDA available to
medical devices which satisfy one or more of the following criteria:
* The device addresses a condition which is serious or life-threatening
or presents a risk of serious injury for which no alternative legally
marketed diagnostic/therapeutic modality exists.
* The device addresses a condition which is life-threatening or
irreversibly debilitating, and provides for clinically important
earlier diagnosis or significant advances in safety and/or
effectiveness over existing alternatives.
* The device represents a clear clinically meaningful advantage over
existing technology, defined as having major (not incremental)
increased effectiveness or reduced risk compared to existing
technology.
* The availability of the device is otherwise in the best interest of the
public health.
Those devices proceeding through the Expedited Review process may result
in a more timely approval, possibly as early as one year after filing, but
there can be no assurance that Expedited Review status will result in a more
expeditious approval, or approval at all.
The PMA approval process can be expensive, uncertain and lengthy. A number
of devices for which pre-market approval has been sought have never been
approved for marketing. The review time is often significantly extended by the
FDA, which may require more information or clarification of information already
provided in the submission. During the review period, an advisory committee
likely will be convened by FDA to review and evaluate the application and
provide recommendations to the agency as
8
<PAGE> 12
to whether the device should be approved. In addition, the FDA will inspect the
manufacturing facility to ensure compliance with the GMP regulations for
medical devices prior to approval of the PMA. If granted, the approval may
include significant limitations on the indicated uses for which a product may
be marketed.
On December 30, 1996, the Company submitted a PMA to the FDA for the ALEXA
1000 System. On February 27, 1997, the FDA informed the Company that its PMA
had not been accepted for filing at this time and requested that the Company
address deficiencies in the PMA before further consideration of such PMA. The
Company's PMA for the ALEXA 1000 System is based principally upon the results
of its U.S. Multi-center Study, which results have not been accepted by the FDA
based upon its initial review of the Company's PMA. Accordingly, it may be
necessary for the Company to submit additional data to the FDA, which data may
be based upon completed clinical studies and/or additional clinical trials. If
the Company is required to submit additional data to the FDA or conduct
additional clinical trials, there may be significant delays in the approval
process for the ALEXA 1000 System. Conducting additional clinical trials could
also require the expenditure of substantial additional funds, for which
additional financing may be required. Furthermore, there can be no assurance
that results obtained in any other studies that may be conducted by the Company
will be consistent with the results obtained in the U.S. Multi-center Study or
that any such results will be accepted by the FDA.
There can be no assurance that the Company will be able to obtain the
necessary FDA approval of its PMA to market the ALEXA 1000 System, or any other
product that the Company may develop, on a timely basis, if at all. Delays in
receipt or failure to receive such approvals, the loss of previously received
approvals, or failure to comply with existing or future regulatory requirements
could have a material adverse effect on the Company's business, financial
condition, cash flows and results of operations.
Currently, the Company is dependent on third-party companies to
manufacture its products for use in clinical trials and commercial
distribution. These third-party companies are required to register with the FDA
as medical device manufacturers. The third-party manufacturers are inspected by
the FDA for compliance with the current GMP and other applicable regulations.
In addition, the third-party manufacturers will be specifically inspected by
the FDA before the agency will approve a PMA for the ALEXA 1000 System. There
can be no assurance that the third-party manufacturers on which the Company
depends for the manufacture of the ALEXA 1000 System will be in compliance with
the GMP regulations at the time of the pre-approval inspection or will maintain
such compliance. Such failure could significantly delay FDA approval of the PMA
for the ALEXA 1000 System or prevent the Company from marketing its devices
once approved. Any such action would have a material adverse effect on the
Company's business, financial condition, cash flows and results of operations.
While the Company does not currently manufacture any of its products, it
may choose to do so in the future. Should the Company determine to manufacture
its products, the Company's manufacturing facilities would be required to be
registered with the FDA and would be subject to the current GMP regulations.
FDA approval would be required before the Company could begin commercial
distribution of medical devices from its own manufacturing facilities.
Any products manufactured or distributed by the Company pursuant to an
approved PMA are subject to pervasive and continuing regulation by the FDA
including record keeping requirements, reporting of adverse experience with the
use of the device, postmarket surveillance, postmarket registry and other
actions deemed necessary by the FDA. The FDA's regulations require agency
approval of a PMA supplement for certain changes if they affect the safety and
effectiveness of the device, including, but not limited to, new indications for
use; labeling changes; the use of a different facility to manufacture, process,
or package the device; changes in manufacturing methods or quality control
systems; and changes in performance or design specifications. Failure by the
Company to receive approval of a PMA supplement regarding the use of a
different manufacturing facility or any other change affecting the safety or
effectiveness of an approved device on a timely basis, or at all, would have a
material adverse effect on the Company's business, financial condition, cash
flows and results of operations.
The Company is required to provide information to the FDA on deaths or
serious injuries alleged to have been associated with the use of its medical
devices, as well as product malfunctions that would likely cause or contribute
to death or serious injury if the malfunction were to recur in a similar device
marketed by the manufacturer. In addition, the FDA prohibits an approved device
from being marketed or promoted for unapproved uses. If the FDA believes that a
company is not in compliance with the law, it can initiate proceedings to
detain or seize products, issue a recall, enjoin future violations and assess
civil and criminal penalties against such company, its officers and its
employees. Failure to comply with the regulatory requirements could have a
material adverse effect on the Company's business, financial condition, cash
flows and results of operations.
The advertising of most FDA-regulated products is subject to both FDA and
Federal Trade Commission jurisdiction. The Company also is subject to
regulation by the Occupational Safety and Health Administration and by other
governmental entities.
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<PAGE> 13
Unapproved products subject to the PMA requirements must receive prior FDA
export approval in order to be marketed outside of the United States unless
they are approved for use by any member country of the European Union or
certain other countries, including Australia, Canada, Israel, Japan, New
Zealand, Switzerland and South Africa, in which case they can be exported to
any country provided that certain limited notification requirements are met.
The Company has received FDA approval to export the ALEXA 1000 System to The
Netherlands. There can be no assurance that the Company will meet the FDA's
export requirements or receive FDA export approval to export the ALEXA 1000
System to other countries, in addition to The Netherlands, when such approval
is necessary, or that countries to which the devices are to be exported will
approve the devices for import. Failure of the Company to meet the FDA's
export requirements or obtain FDA export approval when required to do so, or to
obtain approval for import, could have a material adverse effect on the
Company's business, financial condition, cash flows and results of operations.
Sales of medical device products outside the United States are subject to
foreign regulatory requirements that vary widely from country to country. The
time required to obtain approvals required by foreign countries may be longer
or shorter than that required for FDA approval, and requirements for licensing
may differ from FDA requirements. Failure to comply with regulatory
requirements could have a material adverse effect on the Company's business,
financial condition, cash flows and results of operations.
The current regulatory environment in Europe for medical devices differs
significantly from that in the United States. There is currently no universally
accepted definition of a medical device in Europe and there is no common
approach to medical device regulation among the various countries. There are
several different regulatory regimes operating within the different European
countries. Regulatory requirements for medical devices range from no
regulations in some countries to rigorous regulations approaching the
requirements of the FDA's regulations for Class III medical devices. Several
countries require that device safety be demonstrated prior to approval for
commercialization. The regulatory environment in certain European countries is
expected to undergo major changes as a result of the creation of medical device
directives by the European Union.
In order to sell its products within the European Economic Area following
June 14, 1998, companies are required to achieve compliance with the
requirements of the Medical Devices Directive (the "MDD") and affix a "CE"
marking on their products to attest such compliance. To achieve this, the
Company's products must meet the Essential Requirements as defined under the
MDD relating to safety and performance of its products and the Company must
successfully undergo verification of its regulatory compliance ("conformity
assessment") by a Notified Body selected by the Company. The nature of such
assessment will depend on the regulatory class of the Company's products. The
Company also will have to comply with additional national requirements that are
beyond the scope of the MDD. Failure to comply with MDD requirements could
have a material adverse effect upon the Company's business, financial
condition, cash flows and results of operations.
Regulations regarding the manufacture and sale of the Company's products
are subject to change. The Company cannot predict what impact, if any, such
changes might have on its business, financial condition, cash flows or results
of operations.
REIMBURSEMENT
Suppliers of health care products and services are greatly affected by
Medicare, Medicaid and other government insurance programs, as well as by
private insurance reimbursement programs. Third party payors (Medicare,
Medicaid, private health insurance, health administration authorities in
foreign countries and other organizations) may affect the pricing or relative
attractiveness of the Company's products by regulating the maximum amount of
reimbursement provided for by such payors to the physicians and clinics
utilizing the ALEXA 1000 System or the proposed Biofield screening device or
any other proposed products developed by the Company, or by taking the position
that such reimbursement is not available at all.
The Company believes that the availability and level of third party
reimbursement may impact the decisions of physicians, clinics and hospitals to
purchase and use the Company's products and thereby affect the pricing of the
Company's products. In the United States, many patients are reimbursed for
mammograms in amounts which vary considerably from state to state. The
Company's strategy to obtain approval of payments to physicians using its
products includes (i) enlisting the assistance of its opinion leaders in making
presentations to health care administrators to inform them of the benefits of
the additional data provided by the Biofield diagnostic and screening
procedures, and of the potential pharmacoeconomic benefits resulting from the
use of the products, and (ii) working with professional organizations to foster
awareness and support for its products.
Several states and the federal government are investigating a variety of
alternatives to reform the health care delivery system and reduce and control
health care spending. These reform efforts include proposals to limit spending
on health care items and services, limit coverage for new technology and limit
or control directly the price health care providers and drug and device
manufacturers may charge for their services and products. The scope and timing
of such reforms cannot be predicted, but if adopted
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<PAGE> 14
and implemented, such reforms could have a material adverse effect on the
Company's business, financial condition, cash flows and results of operations.
COMPETITION
The health care industry in general, and the market for cancer detection
devices and tests in particular, is highly competitive. The Company's products
will compete with a variety of professionally accepted and recognized
diagnostic modalities. Competition is based on product characteristics, price,
warranty terms and service. The medical field is highly competitive and most
established companies in the cancer screening and diagnostic field are
substantially larger and have greater financial resources than the Company.
In some cases imaging equipment such as PET scanners, conventional x-rays,
CAT scanners, nuclear medicine systems, ultrasound and high frequency
ultrasound systems, Magnetic Resonance Imaging ("MRI") systems, stereotactic
needle biopsy devices and thermography, diaphonography and transilluminational
devices may be used instead of the Biofield products. Furthermore, the use of
mammography is widely established and clinically accepted and the Company's
ability to sell the ALEXA 1000 System to medical facilities will, in part, be
dependent on the ability to demonstrate the clinical utility of the ALEXA 1000
System as an adjunct to mammography and physical examination and its advantages
over other available diagnostic tests. Other equipment systems may be less
expensive to purchase, install and maintain and involve lower patient charges
for their use than the ALEXA 1000 System.
LICENSES AND OTHER AGREEMENTS
The Company has a non-exclusive license from Biochron Corporation, a
non-affiliated corporation, under a U.S. patent entitled "Device and Method of
Detecting the Potential Level of the Electromagnetic Field of a Living
Organism." The license agreement provides for a 1% royalty on gross sales of
any covered devices until the patent expires in May 1999. In January 1995,
Biochron Corporation alleged that the Company was in breach of the agreement,
citing alleged failures to report and mark products as required by the
agreement. The Company has denied the existence of any breach and believes that
the allegations of Biochron Corporation were, in any event, not material and
cured by subsequent actions taken by the Company. The Company is party to a
royalty agreement with Teiresias, Inc. and its founder, who was formerly a
consultant to the Company. Pursuant to the agreement, Teiresias, Inc. provided
services to the Company for approximately five years in connection with the
original design and fabrication of prototype devices. This agreement obligates
the Company to pay royalties to Teiresias, Inc. on net sales, if any, of
depolarized, pre-gelled electrodes, subject to an aggregate limit of
$2,500,000. In addition, the Company has agreed to certain royalty arrangements
with Mark L. Faupel, Ph.D., its Vice President, Research and Development, David
M. Long, Jr., M.D., Ph.D. and Abel Laboratories, Inc. See Notes 4, 7 and 9 of
Notes to Financial Statements.
EMPLOYEES
As of December 31, 1996, the Company had 41 employees, 27 of whom devote
the majority of their time to scientific and product research and development.
The Company intends to recruit additional employees, the majority of whom will
be involved in research and product development. The Company believes that its
employee relations are good. None of the Company's employees are covered by a
collective bargaining agreement.
RECENT DEVELOPMENTS
Harvey Horowitz, Vice President, General Counsel and a Director of
Donnkenny, Inc., was elected a Director of the Company on March 12, 1997,
following the resignation earlier in March 1997 of W. Clarke Wescoe, M.D., a
Director of the Company since August 1992.
On March 17, 1997, Kenneth W. Anstey resigned as President and Chief
Executive Officer and Director of the Company. D. Carl Long, the Company's
Vice Chairman and former President and Chief Executive Officer, was appointed
acting President and Chief Executive Officer of the Company. The terms of Mr.
Long's employment agreement have not been finalized to date.
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<PAGE> 15
ITEM 2. PROPERTIES
The Company's principal offices are located at 1225 Northmeadow Parkway,
Suite 120, Roswell, Georgia. Such offices are leased by the Company under a
five year lease commencing March 15, 1994 for approximately 12,000 square feet
of office space. Annual rent payments under the lease currently are
approximately $120,000, subject to certain annual escalations in each year
thereafter.
ITEM 3. LEGAL PROCEEDINGS
The Company has no material pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock, par value $.001 per share (the "Common
Stock"), commenced trading on the Nasdaq National Market tier of The Nasdaq
Stock Market on March 19, 1996 under the symbol BZET.
The following table sets forth, for the periods indicated, the high and
low daily selling prices for the Company's Common Stock based on transaction
data as reported by the Nasdaq National Market:
<TABLE>
<CAPTION>
Year ended December 31, 1996 High Low
---------------------------- ---- ---
<S> <C> <C>
First Quarter
(commencing March 19, 1996) . . . . . . . $ 11.125 $ 9.9375
Second Quarter . . . . . . . . . . . . . . $ 18.500 $ 10.0000
Third Quarter . . . . . . . . . . . . . . $ 15.625 $ 7.2500
Fourth Quarter . . . . . . . . . . . . . . $ 16.250 $ 7.3750
</TABLE>
On March 12, 1997, the last reported closing sale price for the Company's
Common Stock, as reported by the Nasdaq National Market, was $6.375 per share.
As of March 12, 1997, there were approximately 187 holders of record of
the Common Stock. This number excludes individual stockholders holding stock
under nominee security position listings.
The Company has not declared or paid any dividends since its inception,
and does not intend to pay any cash dividends in the foreseeable future. The
Company currently anticipates that it will retain all its earnings for use in
the operation and expansion of its business and, therefore, does not anticipate
that it will pay any cash dividends in the foreseeable future.
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ITEM 6. SELECTED FINANCIAL DATA
The following information has been summarized from the financial
statements included elsewhere herein and should be read in conjunction with
such financial statements, related notes thereto, and "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
Nine-Month
Period Ended
Years Ended December 31, December 31, Years Ended March 31,
------------------------ ------------ ---------------------
1996 1995 1994 (1) 1994 1993
-------- -------- ------------ -------- --------
(In thousands, except per share data)
-------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating expenses:
Research and development . . . . . . $ 7,732 $ 6,188 $ 3,833 $ 5,088 $ 2,081
Selling, general and administrative 3,135 2,920 1,230 1,885 1,082
--------- --------- --------- ---------- ---------
Total operating expenses . . . . 10,867 9,108 5,063 6,973 3,163
--------- --------- --------- ---------- ---------
Interest income . . . . . . . . . . 840 379 105 90 65
Interest expense . . . . . . . . . . (9) (11) (1) (17) (2)
--------- --------- --------- ---------- ---------
Net loss . . . . . . . . . . . . . . $ (10,036) $ (8,740) $ (4,959) $ (6,900) $ (3,100)
========= ========= ========= ========== =========
Net loss per common and common
equivalent share:
Primary . . . . . . . . . . . . . . $ (1.87)
=========
Fully-diluted . . . . . . . . . . . $ (1.66)
=========
Weighted average number of common
and common equivalent shares
outstanding:
Primary . . . . . . . . . . . . . . 5,370
========
Fully-diluted . . . . . . . . . . . 6,044
========
</TABLE>
<TABLE>
<CAPTION>
December 31, March 31,
----------------------------------- ---------------------
1996 1995 1994 1994 1993
-------- -------- -------- -------- --------
(In thousands)
--------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and
short-term investments . . . . . . . $ 13,939 $ 6,271 $ 1,966 $ 5,700 $ 1,364
Working capital . . . . . . . . . . . 12,869 4,667 1,250 5,109 1,154
Total assets . . . . . . . . . . . . . 15,486 7,776 3,394 6,455 1,881
Long-term liabilities . . . . . . . . -- -- -- -- --
Capital lease obligations less current
portion . . . . . . . . . . . . . . 4 34 16 -- --
Accumulated deficit . . . . . . . . . (35,369) (25,333) (16,593) (11,634) (4,734)
Total stockholders' equity . . . . . 14,092 6,053 2,617 5,613 1,517
</TABLE>
(1) Effective December 31, 1994, the Company changed its fiscal year
end from March 31 to December 31. Accordingly, the statement of operations
data is presented for the transition period from April 1, 1994 to December
31, 1994.
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<PAGE> 17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Financial Data" and the Company's Financial Statements, and Notes
thereto appearing elsewhere in this document.
OVERVIEW
Since its inception (October 16, 1987), Biofield has engaged in research
and development associated with its cancer detection technology. As a
development stage company, the Company has incurred net losses since inception
through December 31, 1996 of approximately $35.4 million. The Company expects
operating losses to increase for at least the next several years as total costs
and expenses increase due principally to increased marketing and manufacturing
expenses associated with the anticipated commercialization of the ALEXA 1000
System, development of, and clinical trials for, the proposed Biofield
screening system and other research and development activities.
To date, the Company has not marketed, or generated revenues from the
commercialization of, any products. The Company's results may vary
significantly from period to period depending on several factors, such as the
timing of certain expenses and the progress of the Company's research and
development and commercialization programs, all of which may be affected by the
availability of funds.
RESULTS OF OPERATIONS
COMPARISON OF TWELVE MONTHS ENDED DECEMBER 31, 1996 AND 1995.
Research and development. Research and development expenses were
$7,732,249 during 1996, representing an increase of $1,543,994 from $6,188,255
during 1995. This increase was primarily attributable to a $644,508 increase
in compensation and recruiting and relocation expenses due to an increase in
research and development personnel from an average of 18 full-time equivalent
employees in 1995 to an average of 26 full-time equivalent employees in 1996, a
$733,528 increase in consulting expenses related to third-party reimbursement
issues and preclinical research and a $219,517 increase due to clinical
development activities.
Selling, general and administrative. Selling, general and administrative
expenses were $3,135,219 during 1996, representing an increase of $215,444 from
$2,919,775 during 1995. This increase was primarily attributable to a $884,392
increase in compensation and recruiting and relocation expenses due to the
hiring of a new President and Chief Executive Officer in December 1995, a new
Vice President of Marketing and Sales in June 1996 and a new Director of
Marketing and Sales in August 1996, and increases in expenses incurred in
connection with marketing activities, investor relations and additional
premiums for directors and officers liability insurance. The increase in
selling, general and administrative expenses during 1996, as discussed above,
was partially offset by a charge in 1995 of approximately $230,000 for
severance benefits pursuant to an agreement between the Company and its former
President and a charge in 1995 of approximately $777,000 for a contractual
settlement between the Company and its Vice Chairman and former Chief Executive
Officer.
Interest income. The Company's interest income was $840,104 during 1996,
representing an increase of $461,108 from $378,996 during 1995. This increase
was primarily due to higher average invested cash, cash equivalent and
short-term investment balances compared to those of the previous period.
COMPARISON OF TWELVE MONTHS ENDED DECEMBER 31, 1995 AND NINE MONTHS ENDED
DECEMBER 31, 1994.
The Company changed its fiscal year end from March 31 to December 31
effective December 31, 1994.
Research and development. Research and development expenses during the
twelve months ended December 31, 1995 were $6,188,255, representing an increase
of $2,355,514 from $3,832,741 during the nine months ended December 31, 1994.
On an annualized basis, the Company's research and development expenses
increased approximately $1,077,934 during the year ended December 31, 1995 from
$5,110,321 during the annualized nine months ended December 31, 1994. This
annualized increase was primarily due to increases in clinical development
activities related to the U.S. Multi-center Study and European Multi-center
Study. Clinical development costs include payments to clinical investigators,
contract research organization costs, patient recruitment fees and travel
expenses.
Selling, general and administrative. Selling, general and administrative
expenses during the twelve months ended December 31, 1995 were $2,919,775,
representing an increase of $1,688,965 from $1,230,810 during the nine months
ended December 31,
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1994. On an annualized basis, the Company's selling, general and
administrative expenses increased approximately $1,278,695 during the year
ended December 31, 1995 from $1,641,080 during the annualized nine months ended
December 31, 1994. This annualized increase was primarily due to the charge of
approximately $230,000 for severance benefits pursuant to an agreement between
the Company and its former President and a charge of approximately $777,000 for
a contractual settlement between the Company and its Vice Chairman and former
Chief Executive Officer.
Interest income. Interest income during the twelve months ended December
31, 1995 was $378,996, representing an increase of $273,670 from $105,326
during the nine months ended December 31, 1994. On an annualized basis, the
Company's interest income increased approximately $238,561 during the year
ended December 31, 1995 from $140,435 during the annualized nine months ended
December 31, 1994. This annualized increase was primarily due to higher
average invested cash balances compared to those of the previous period and, to
a lesser extent, to higher interest rates on invested funds.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations since inception primarily by the
issuance of equity securities with aggregate net proceeds of approximately
$46,877,000 and interest income of approximately $1,480,000 from investments.
The Company received net proceeds of approximately $4.3 million from the
private placement offering of Common Stock and approximately $9.4 million in
net proceeds from a private placement offering of Series A Convertible
Preferred Stock, $.001 par value per share, during fiscal years ended March 31,
1993 and 1994, respectively. In September 1994, the Company received net
proceeds of approximately $1.9 million from a private placement offering of
Series B Convertible Preferred Stock, $.001 par value per share. During the
year ended December 31, 1995, the Company received net proceeds of
approximately $12.0 million from a private placement offering of securities
units including Series C Convertible Preferred Stock, $.001 par value per
share. In March 1996, the Company received net proceeds of approximately $18.0
million from the sale of 1,819,000 shares of the Company's Common Stock in its
initial public offering.
As of December 31, 1996, the Company had total cash, cash equivalents and
short-term investments of $13,939,379, of which $13,434,850 was invested in
investment grade corporate obligations, money market funds, shares of liquid
(auction- market) preferred stock and bonds, and certificates of deposit. As
of December 31, 1996, the Company had working capital of $12,868,842 compared
to $4,666,686 at December 31, 1995. The increase in working capital was the
result of approximately $18.0 million in net proceeds from the Company's
initial public offering offset by approximately $10.3 million of cash used
primarily to finance the Company's operations and capital requirements. The
Company does not expect to generate a positive internal cash flow for at least
several years due to the expected increase in spending for research and
development and the expected costs of commercializing the ALEXA 1000 System.
From the Company's inception through December 31, 1996, the Company
purchased approximately $2.1 million of property and equipment.
The Company had no outstanding bank loans as of December 31, 1996. In
July 1996, the Company obtained a commitment from an unrelated third party to
finance up to $2.0 million of capital equipment pursuant to sale-leaseback
agreement. The Company has not utilized such lease financing commitment to
date. See Note 7 of Notes to Financial Statements.
The Company has employment contracts with certain of its executives
through 1998. The annual base compensation for these executives ranges from
approximately $150,000 to $275,000 per year and provides for five percent
annual cost of living adjustments. Aggregate minimum payments of annual base
compensation under these contracts are $651,000 and $419,000 during 1997 and
1998, respectively. The Company's other fixed commitments, including fees for
current consultants, rent, payments under license agreements and other
contractual commitments are substantial and are likely to increase as
additional agreements are entered into and additional personnel are retained.
See Note 7 of Notes to Financial Statements. The Company will require
substantial additional funds for its research and development programs,
preclinical and clinical testing, operating expenses, regulatory processes, and
manufacturing and marketing programs. The Company's future capital
requirements will depend on many factors, including the following: the progress
of its research and development projects; the progress of preclinical and
clinical testing; the time and cost involved in obtaining regulatory approvals;
the cost of filing, prosecuting, defending and enforcing any patent claims and
other intellectual property rights; competing technological and market
developments; changes and developments in the Company's existing collaborative,
licensing and other relationships and the terms of any new collaborative,
licensing and other arrangements that the Company may establish; and the
development of commercialization activities and arrangements. The Company
believes that its available cash, cash equivalents and investment securities
and investment income should be sufficient to fund the Company's operations
until the end of calendar year 1997. The Company does not expect to generate a
positive internal cash flow for at least several years due to expected
increases in capital expenditures, working capital and ongoing losses,
including the expected cost of commercializing the ALEXA 1000 System. The
Company may need to arrange additional equity or debt financing for the future
operation of its business. There can be no
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assurance that such financing can be obtained or, if it is obtained, that the
terms thereof will be acceptable. The Company plans to continue its policy of
investing excess funds in short-term, investment grade corporate obligations,
money market funds, shares of liquid (auction-market) preferred stock and
bonds, and certificates of deposit. See "Cautionary Statements Regarding
Forward-Looking Statements--Uncertainties as to Future Profitability."
At December 31, 1996, the Company has tax net operating loss carryforwards
of approximately $32.0 million which expire in years 2002 through 2010. The
utilization of the federal net operating loss carryforwards of approximately
$15.0 million, included in the above amount, will be subject to an annual
limitation of approximately $1.1 million per year due to ownership changes in
1992 and 1995 pursuant to the stock ownership change provision of the Tax
Reform Act of 1986. Future changes in ownership may result in additional
limitations.
Recently Issued Accounting Standards may affect the Company's Financial
Statements in the future. See Note 2 of Notes to Financial Statements.
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS
Statements in this Annual Report on Form 10-K under the captions
"Business" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations," as well as in the Company's press releases or oral
statements that may be made by the Company or by officers, directors or
employees of the Company acting on the Company's behalf, that are not
historical fact constitute "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors
that could cause the actual results of the Company to be materially different
from the historical results or from any results expressed or implied by such
forward-looking statements. Factors that might cause such a difference include,
without limitation, the information set forth below. In addition to statements
which explicitly describe such risks and uncertainties, statements labeled with
the terms "believes", "belief", "expects", "plans" or "anticipates" should be
considered uncertain and forward-looking. All cautionary statements made in
this Report should be read as being applicable to all related forward-looking
statements wherever they appear in this Report.
Uncertainty of Pre-market Approval for the ALEXA 1000 System. On December
30, 1996, the Company submitted its PMA to the FDA for the ALEXA 1000 System.
On February 27, 1997, the FDA informed the Company that its PMA had not been
accepted for filing at this time and requested that the Company address
deficiencies in the PMA for further consideration of such PMA. Specifically,
the FDA has not accepted the findings from the Company's U.S. Multi-center
Study as submitted due to the FDA's issues concerning the study design and, in
particular, the development and selection of the algorithms used on the
supporting data set. The FDA advised the Company that it must select a final
algorithm and then test it with an independent data set. Further, the FDA
stated that a clinical trial design that supports the indications for use of
the ALEXA 1000 System should include the impact on patient management.
The Company's PMA for the ALEXA 1000 System is based principally upon the
results of its U.S. Multi-center Study, which results have not been accepted by
the FDA based upon its initial review of the Company's PMA. Accordingly, it may
be necessary for the Company to submit additional data to the FDA, which data
may be based upon completed clinical studies and/or additional clinical trials.
If the Company is required to submit additional data to the FDA or conduct
additional clinical trials, there may be significant delays in the approval
process for the ALEXA 1000 System. Conducting additional clinical trials could
also require the expenditure of substantial additional funds, for which
additional financing may be required. Furthermore, there can be no assurance
that results obtained in any other studies that may be conducted by the Company
will be consistent with the results obtained in the U.S. Multi-center Study or
that any such results will be accepted by the FDA. There can be no assurance
that the FDA or other regulatory approvals for the ALEXA 1000 System will be
granted on a timely basis, or at all. Failure to obtain FDA approval to market
the ALEXA 1000 System would have a material adverse effect on the Company's
business, financial condition, cash flows and results of operations.
Limited Operating History; Continuing Operating Losses. The Company has a
limited history of operations. Since its inception in October 1987, the Company
has engaged principally in the development of the ALEXA 1000 System, which has
not been approved for sale in the United States. Consequently, the Company has
little experience in manufacturing, marketing and selling its products. The
Company currently has no source of operating revenue and has incurred net
operating losses since its inception. At December 31, 1996, the Company had an
accumulated deficit of $35,368,880. Such losses have resulted principally from
costs incurred in research and development and clinical trials and from general
and administrative costs associated with the Company's operations. The Company
expects operating losses to increase for at least the next several years due
principally to the anticipated expenses associated with the proposed
commercialization of the ALEXA 1000 System, development of, and clinical trials
for, the proposed Biofield screening system and other research and development
activities.
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Uncertainties as to Future Profitability. The Company's ability to achieve
profitability will depend in part on its ability to obtain regulatory approvals
for the ALEXA 1000 System and any other proposed products, and to develop the
capacity to manufacture and market any approved products either by itself or in
collaboration with others. There can be no assurance if or when the Company
will receive required regulatory approvals for the development and commercial
manufacturing and marketing of the ALEXA 1000 System or any other proposed
products, or achieve profitability. Accordingly, the extent of future losses
and the time required to achieve profitability are highly uncertain.
Early Stage of Product Development. The Company's proposed products, other
than the ALEXA 1000 System, are at an early stage of development and the ALEXA
1000 System must be approved by the FDA before it can be commercially marketed
in the United States. There can be no assurance that any of the Company's
proposed products will be found to be safe and effective, meet applicable
regulatory standards or receive necessary regulatory clearance, or if safe and
effective, can be developed into commercial products, manufactured on a large
scale or be economical to market. Nor can there be any assurance that the
Company's proposed products will achieve or sustain market acceptance. In the
event necessary regulatory approvals are obtained for the ALEXA 1000 System,
there can be no assurance that the Company will be successful in establishing
commercial operations, including gaining market acceptance of the ALEXA 1000
System and implementing commercial-scale manufacturing and sales and marketing
programs. There is, therefore, substantial risk that the Company's product
development and commercialization efforts will not prove to be successful.
Dependence on a Single Product. Although the Company is in the process of
developing additional products based on its core technology, including an
enhancement of the ALEXA 1000 System for use on asymptomatic women, none of
such applications is expected to result in a commercial product for at least
several years, if at all. Consequently, pending its approval for commercial
distribution in the United States, the ALEXA 1000 System would account for
substantially all of the Company's revenues for the foreseeable future. Failure
to gain regulatory approvals or market acceptance for the ALEXA 1000 System
would have a material adverse effect on the Company's business, financial
condition, cash flows and results of operations.
Dependence on Market Acceptance. There can be no assurance that
physicians or the medical community in general will accept and utilize the
ALEXA 1000 System or any other products developed by the Company. The extent
that, and rate at which, the ALEXA 1000 System achieves market acceptance and
penetration will depend on many variables including, but not limited to, the
establishment and demonstration in the medical community of the clinical
safety, efficacy and cost-effectiveness of the ALEXA 1000 System, the
advantages of the ALEXA 1000 System over existing technology and cancer
detection methods (including x-ray mammography, ultrasound or high frequency
ultrasound, MRI, stereotactic needle biopsy and thermography, diaphonography
and transillumational devices), third-party reimbursement practices and the
Company's manufacturing, quality control, marketing and sales efforts. There
can be no assurance that the medical community and third-party payors will
accept the Company's unique technology. Similar risks will confront the
proposed Biofield screening system and any other products developed by the
Company in the future. Failure of the Company's products to gain market
acceptance would have a material adverse effect on the Company's business,
financial condition, cash flows and results of operations.
Limited Marketing and Sales Experience. The Company has limited internal
marketing and sales resources and personnel. In order to market the ALEXA 1000
System or any other products it may develop, the Company will have to develop a
marketing and sales force with technical expertise and distribution
capabilities. There can be no assurance that the Company will be able to
establish sales and distribution capabilities or that the Company will be
successful in gaining market acceptance for any products it may develop. There
can be no assurance that the Company will be able to recruit and retain skilled
sales, marketing, service or support personnel, that agreements with
distributors will be available on terms commercially reasonable to the Company,
or at all, or that the Company's marketing and sales efforts will be
successful. Failure to successfully establish a marketing and sales
organization, whether directly or through third parties, would have a material
adverse effect on the Company's business, financial condition, cash flows and
results of operations. The Company intends to pursue one or more distribution
arrangements in the United States, Europe and Asia with strategic marketing
partners who have established marketing capabilities. There can be no assurance
that the Company, either on its own or through arrangements with others, will
be able to enter into such arrangements on acceptable terms, if at all. To the
extent that the Company arranges with third parties to market its products, the
success of such products may depend on the efforts of such third parties. There
can be no assurance that any of the Company's proposed marketing schedules or
plans can or will be met.
Limited Manufacturing History. The Company does not have any
manufacturing or production facilities or experience in manufacturing or
contracting for the manufacturing of its proposed products in the volumes that
will be necessary for the Company to achieve significant commercial sales in
the event it obtains regulatory approval to market its products. While the
Company does not currently manufacture any of its products, it may do so in the
future. The Company has no experience in the manufacture of medical products
for clinical trials or commercial purposes. Should the Company manufacture its
products, the Company's
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manufacturing facilities would be subject to the full range of current GMP
regulations and similar risks of delay or difficulty in manufacturing and the
Company would require substantial additional capital to establish such
manufacturing facilities. In addition, there can be no assurance that the
Company would be able to manufacture any such products successfully or
cost-effectively.
Dependence on Third Parties. The Company has used certain third parties
to manufacture and deliver the components of the ALEXA 1000 System and the
proposed Biofield screening system used in clinical studies, and intends to
continue to use third parties to manufacture and deliver such products and any
other products which the Company may seek to develop. Such third parties must
adhere to the GMP regulations enforced by the FDA through its facilities
inspection program and such third-parties' facilities must pass a plant
inspection before the FDA will grant pre-market approval of the Company's
products. There can be no assurance that the third-party manufacturers on which
the Company depends for the manufacture of the ALEXA 1000 System will be in
compliance with the GMP regulations at the time of the pre-approval inspection
or will maintain such compliance. Such failure could significantly delay FDA
approval of the PMA application for the ALEXA 1000 System, and such delay would
have a material adverse effect on the Company's business, financial condition,
cash flows and results of operations.
The qualification of additional or replacement suppliers for certain
components of the ALEXA 1000 System or services is a lengthy process. For
certain services and components the Company currently relies on single
suppliers. If the Company encounters delays or difficulties with its
third-party suppliers in producing, packaging or distributing components of the
ALEXA 1000 System, market introduction and subsequent sales would be adversely
affected. The Company also may have to rely on alternative sources of supply.
In such case, there can be no assurance that the Company will be able to enter
into alternative supply arrangements at commercially acceptable rates, if at
all. If the Company is unable to obtain or retain qualified third-party
manufacturers on commercially acceptable terms, it may not be able to
commercialize its products as planned. The Company's dependence upon third
parties for the manufacture of its products may adversely affect the Company's
profit margins and its ability to develop and deliver its products on a timely
and competitive basis.
Competition. The medical device industry generally, and the cancer
diagnostic and screening segments in particular, are characterized by rapidly
evolving technology and intense competition. Other companies in the medical
device industry are marketing products that compete with the ALEXA 1000 System
and may be developing, or could in the future attempt to develop, additional
products that are competitive with the ALEXA 1000 System. Many of the Company's
competitors have substantially greater capital resources and name recognition
than the Company. Many of these companies also have substantially greater
expertise than the Company in research and development, manufacturing and
marketing and obtaining regulatory approvals. There can be no assurance that
the Company's competitors will not succeed in developing or marketing
technologies and products that are more effective than those developed or
marketed by the Company or that would render the Company's technology and
products obsolete or noncompetitive. Additionally, there can be no assurance
that the Company will be able to compete against such competitors and potential
competitors in terms of manufacturing, marketing and sales. Although the
Company believes that its products may offer certain technological advantages
over its competitors currently-marketed products, earlier entrants in the
market for a diagnostic application often obtain and maintain significant
market share relative to later entrants. Physicians using imaging equipment
such as x-ray mammography equipment, ultrasound or high frequency ultrasound
systems, MRI systems, stereotactic needle biopsy and thermography,
diaphonography and transilluminational devices may not use the ALEXA 1000
System or any other products that the Company may develop. Currently,
mammography is employed widely and the Company's ability to sell the ALEXA 1000
System to medical facilities will, in part, be dependent on the Company's
ability to demonstrate the clinical utility of the ALEXA 1000 System as an
adjunct to mammography and physical examination and its advantages over other
available diagnostic tests.
Risk of Technological Obsolescence. Methods for the detection of cancer
are subject to rapid technological innovation and there can be no assurance
that technological changes will not render the Company's proposed products
obsolete. There can be no assurance that the development of new types of
diagnostic medical equipment or technology will not have a material adverse
effect on the marketability of the ALEXA 1000 System or any other products
developed by the Company. Commercial availability of such products could render
the Company's products obsolete, which would have a material adverse effect on
the Company's business, financial condition, cash flows and results of
operations.
Potential Reliance on International Sales. The Company intends to
commence commercial sales of the ALEXA 1000 System in Europe prior to
commencing commercial sales in the United States, where sales cannot occur
unless and until the Company receives pre-market approval from the FDA. Thus,
until the Company receives approval from the FDA to market the ALEXA 1000
System, as to which there can be no assurance, the Company's revenues, if any,
will be derived from sales to international distributors. A significant portion
of the Company's revenues, therefore, may be subject to the risks associated
with international sales, including economic or political instability, shipping
delays, fluctuations in foreign currency exchange rates, foreign regulatory
requirements and various trade restrictions, all of which could have a
significant impact on the Company's ability to deliver products on a
competitive and timely basis. Future imposition of, or significant increases in
the level of, customs duties,
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export quotas or other trade restrictions could have a material adverse effect
on the Company's business, financial condition, cash flows and results of
operations. The regulation of medical devices, particularly in Europe,
continues to develop and there can be no assurance that new laws or regulations
will not have an adverse effect on the Company.
Government Regulation; No Assurance of Regulatory Approvals. The
manufacture and sale of medical devices, including the ALEXA 1000 System, the
proposed Biofield screening system, and any other products that may be
developed by the Company are subject to extensive regulation by numerous
governmental authorities in the United States, principally the FDA and
corresponding state agencies, and in other countries. In the United States, the
Company's products are regulated as medical devices and are subject to the
FDA's pre-market clearance or approval requirements. Securing FDA clearances and
approvals may require the submission of extensive clinical data and supporting
information to the FDA. The results of the Company's U.S. Multi-center
Study have not been accepted by the FDA based upon its initial review of the
Company's PMA. Accordingly, it may be necessary for the Company to submit
additional data to the FDA, which data may be based upon completed clinical
studies and/or additional clinical trials. The process of obtaining FDA and
other required regulatory approvals is lengthy, expensive and uncertain and
frequently requires from one to several years from the date of the FDA
submission, if pre-market approval is obtained at all. Although the FDA has
granted Expedited Review status to the ALEXA 1000, there can be no assurance
that such status will result in timely approval of the ALEXA 1000 System, if at
all. Failure to obtain FDA approval to market the ALEXA 1000 System would have
a material adverse effect on the Company's business, financial condition, cash
flows and results of operations.
Sales of medical devices outside of the United States are subject to
international regulatory requirements that vary from country to country. The
time required to obtain approval for sale internationally may be longer or
shorter than that required for FDA approval and the requirements may differ. In
addition, in order to sell its products within the European Economic Area
following June 14, 1988, companies are required to achieve compliance with the
requirements of the MDD and affix a "CE" marking on their products to attest
such compliance. The Company has not obtained such certifications, and there
can be no assurance that it will be able to do so in a timely manner, or at
all.
In addition, unapproved products subject to the PMA requirements must
receive prior FDA export approval in order to be marketed outside of the United
States unless they are approved for use by any member country of the European
Union or certain other countries, including Australia, Canada, Israel, Japan,
New Zealand, Switzerland and South Africa, in which case they can be exported
to any country provided that certain limited notification requirements are met.
There can be no assurance that the Company will meet the FDA's export
requirements or receive FDA export approval when such approval is necessary, or
that countries to which the devices are to be exported will approve the devices
for import. Failure of the Company to meet the FDA's export requirements or
obtain FDA export approval when required to do so, or to obtain approval for
import, could have a material adverse effect on the Company's business,
financial condition, cash flows and results of operations.
Regulatory approvals, if granted, may include significant limitations on
the indicated uses for which the product may be marketed. In addition, to
obtain such approvals, the FDA and certain foreign regulatory authorities may
impose numerous other requirements with which medical device manufacturers must
comply. FDA enforcement policy strictly prohibits the marketing of approved
medical devices for unapproved uses. Product approvals could be withdrawn for
failure to comply with regulatory standards or the occurrence of unforeseen
problems following initial marketing. The third-party manufacturers upon which
the Company depends to manufacture its products are required to adhere to
applicable FDA regulations regarding GMPs and similar regulations in other
countries, which include testing, control and documentation requirements.
Ongoing compliance with GMP regulations and other applicable regulatory
requirements will be monitored by periodic inspection by the FDA and by
comparable agencies in other countries. Failure to comply with applicable
regulatory requirements, including marketing or promoting products for
unapproved use, could result in, among other things, warning letters, fines,
injunctions, civil penalties, recall or seizure of products, total or partial
suspension of production, refusal of the government to grant pre-market
clearance or approval for devices, withdrawal of approvals and criminal
prosecution. Changes in existing regulations or adoption of new governmental
regulations or policies could prevent or delay regulatory approval of the
Company's products. Certain material changes to medical devices also are
subject to FDA review and clearance or approval.
There can be no assurance that the Company will be able to obtain, on a
timely basis, or at all, FDA approval of its PMA for the ALEXA 1000 System or
regulatory approvals or clearances for other products that the Company may
develop and delays in receipt of or failure to obtain such approvals or
clearances, the loss of previously obtained approvals, or failure to comply
with existing or future regulatory requirements would have a material adverse
effect on the Company's business, financial condition, cash flows and results
of operations.
Limitation on Third-Party Reimbursement. In the United States, suppliers
of health care products and services are greatly affected by Medicare, Medicaid
and other government insurance programs, as well as by private insurance
reimbursement programs. Third-party payors (Medicare, Medicaid, private health
insurance companies and other organizations) may affect the
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pricing or relative attractiveness of the Company's products by regulating the
level of reimbursement provided by such payors to the physicians and clinics
utilizing the ALEXA 1000 System or any other products that the Company may
develop or by refusing reimbursement. If examinations utilizing the Company's
products were not reimbursed under these programs, the Company's ability to
sell its products may be materially adversely affected. There can be no
assurance that third-party payors will provide reimbursement for use of the
ALEXA 1000 System or any other products that the Company may develop.
In international markets, reimbursement by private third-party medical
insurance providers, including governmental insurers and independent providers,
varies from country to country. In addition, such third-party medical insurance
providers may require additional information or clinical data prior to
providing reimbursement for a product. In certain countries, the Company's
ability to achieve significant market penetration may depend upon the
availability of third-party and governmental reimbursement. Revenues and
profitability of medical device companies may be affected by the continuing
efforts of governmental and third-party payors to contain or reduce the costs
of health care through various means.
Uncertainties Regarding Health Care Reform. Several states and the U.S.
government are investigating a variety of alternatives to reform the health
care delivery system and further reduce and control health care spending. These
reform efforts include proposals to limit spending on health care items and
services, limit coverage for new technology and limit or control the price
health care providers and drug and device manufacturers may charge for their
services and products, respectively. If adopted and implemented, such reforms
could have a material adverse effect on the Company's business, financial
condition, cash flows and results of operations.
Uncertain Ability to Protect Patents and Proprietary Technology and
Information. The Company's ability to compete effectively in the medical
products industry will depend on its success in protecting its proprietary
technology, both in the United States and abroad. The patent positions of
medical products companies generally involve complex legal and factual
questions. The Company's proprietary products and technology are covered by
eight U.S. patents owned by the Company, and additional applications pending
with the PTO. The Company has filed, and intends to continue to file, patent
applications in certain foreign jurisdictions covering the patent claims that
are the subject of U.S. patents and patent applications. There can be no
assurance that the PTO or foreign jurisdictions will grant the Company's
pending patent applications or that the Company will obtain any patents or
other protection for which it has applied. There can be no assurance that
patents issued to or licensed by or to the Company will not be challenged,
invalidated or circumvented, or that the rights granted thereunder will provide
any competitive advantage. The Company could incur substantial costs in
defending any patent infringement suits or in asserting any patent rights,
including those granted by third parties.
Although the Company has entered into confidentiality and invention
agreements with its employees and consultants, there can be no assurance that
such agreements will be honored or that the Company will be able to protect its
rights to its unpatented trade secrets and know-how effectively. Moreover,
there can be no assurance that others will not independently develop
substantially equivalent proprietary information and techniques or otherwise
gain access to the Company's trade secrets and know-how. In addition, the
Company may be required to obtain licenses to patents or other proprietary
rights from third parties. There can be no assurance that any licenses required
under any patents or proprietary rights would be made available on acceptable
terms, if at all. If the Company does not obtain required licenses, it could
encounter delays in product development or find that the development,
manufacture or sale of products requiring such licenses could be foreclosed.
Additionally, the Company may, from time to time, support and collaborate in
research conducted by universities and governmental research organizations.
There can be no assurance that the Company will have or be able to acquire
exclusive rights to the inventions or technical information derived from such
collaborations or that disputes will not arise with respect to rights in
derivative or related research programs conducted by the Company or such
collaborators.
Uncertain Ability to Meet Capital Needs. The Company may require
substantial additional funds for its research and development programs,
preclinical and clinical testing, operating expenses, regulatory processes and
manufacturing and marketing programs. The Company's future capital requirements
will depend on many factors, including the following: the progress of its
research and development projects; the progress of preclinical and clinical
testing; the time and cost involved in obtaining regulatory approvals; the cost
of filing, prosecuting, defending and enforcing any patent claims and other
intellectual property rights; competing technological and market developments;
changes and developments in the Company's existing collaborative, licensing and
other relationships and the terms of any new collaborative, licensing and other
arrangements that the Company may establish; and the development of
commercialization activities and arrangements. Moreover, the Company's fixed
commitments, including salaries and fees for current employees and consultants,
rent, payments under license agreements and other contractual commitments are
substantial and are likely to increase as additional agreements are entered
into and additional personnel are retained. See Note 7 of Notes to
Financial Statements. The Company does not expect to generate a positive
internal cash flow for at least several years due to expected increases in
capital expenditures, working capital needs and ongoing losses, including the
expected cost of commercializing the ALEXA 1000 System. However, the Company's
cash requirements may vary materially
20
<PAGE> 24
from those now planned due to the progress of research and development
programs, results of clinical testing, relationships with strategic partners,
if any, changes in the focus and direction of the Company's research and
development programs, competitive and technological advances, the FDA and
foreign regulatory processes and other factors.
The Company may need additional capital to fund its future operations
through public or private financings or collaborative licensing or other
arrangements with corporate partners. If additional funds are raised by issuing
equity securities, further dilution to existing stockholders will result and
future investors may be granted rights superior to those of existing
stockholders. There can be no assurance, however, that additional financing
will be available when needed, or if available, will be available on acceptable
terms. Insufficient funds may prevent the Company from implementing its
business strategy or may require the Company to delay, scale back or eliminate
certain of its research and product development programs or to license to third
parties rights to commercialize products or technologies that the Company would
otherwise seek to develop itself.
Dependence on Qualified Personnel. Due to the specialized scientific
nature of the Company's business, the Company is highly dependent upon its
ability to attract and retain qualified scientific, technical and managerial
personnel. The loss of the services of existing personnel as well as the
failure to recruit key scientific, technical and managerial personnel in a
timely manner would be detrimental to the Company's research and development
programs and to its business. The Company's anticipated growth and expansion
into areas and activities requiring additional expertise, such as marketing,
will require the addition of new management personnel. Competition for
qualified personnel is intense and there can be no assurance that the Company
will be able to continue to attract and retain qualified personnel necessary
for the development of its business.
Potential Product Liability. The Company's business exposes it to
potential product liability risks which are inherent in the testing,
manufacturing and marketing of cancer detection products. Significant
litigation, not involving the Company, has occurred in the past based on
allegations of false negative diagnoses of cancer. While the ALEXA 1000 System
does not purport to diagnose any patient, there can be no assurance that the
Company will not be subjected to future claims and potential liability. While
the Company maintains insurance against product liability and defense costs,
there can be no assurance that claims against the Company arising with respect
to its products will be successfully defended or that the insurance carried by
the Company will be sufficient to cover liabilities arising from such claims. A
successful claim against the Company in excess of the Company's insurance
coverage could have a material adverse effect on the Company. Furthermore,
there can be no assurance that the Company will be able to continue to obtain
or maintain product liability insurance on acceptable terms.
Potential Environmental Liability. A portion of the Company's
manufacturing processes involves the controlled use of potentially hazardous
materials. The Company may in the future become subject to stringent federal,
state and local laws, rules, regulations and policies governing the use,
generation, manufacture, storage, air emission, effluent discharge, handling
and disposal of such materials. There can be no assurance that the Company will
not incur significant future costs to comply with environmental laws, rules,
regulations and policies, or that the business, financial position, cash flows
or results of operations of the Company will not be materially and adversely
affected by current or future environmental laws, rules, regulations and
policies or by any releases or discharges of hazardous materials.
Availability of Preferred Stock for Issuance. In addition to its
authorized shares of Common Stock, the Company's Fourth Amended and Restated
Certificate of Incorporation, as amended, authorizes the issuance of up to
2,000,000 shares of preferred stock. The Board of Directors of the Company may
at any time determine to issue shares of preferred stock with the rights and
preferences to be set by the Board of Directors in its sole discretion. The
rights and preferences of any such preferred stock may be superior to those of
the Common Stock and thus may adversely affect the rights of the holders of
Common Stock.
Possible Volatility of Stock Price. The trading price of the Company's
Common Stock could be subject to significant fluctuations in response to
variations in quarterly operating results, announcements of regulatory
developments and collaborative arrangements or new products by the Company or
its competitors, changes in earning estimates by analysts, general conditions
in the medical device industry, and other events or factors. In addition, the
stock market in general has experienced extreme price and volume fluctuations
that have affected the market price for many companies in industries similiar
or related to that of the Company and that have been unrelated to the operating
performance of these companies. These market flunctuations may adversely
affect the market price of the Company's Common Stock.
Possible Anti-Takeover Effects of Delaware Law. The Company is subject to
the provisions of Section 203 of the General Corporation Law of the State of
Delaware. In general, Section 203 prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person becomes an interested stockholder, unless the business
combination is approved in a prescribed manner or unless the interested
stockholder acquires at least 85% of the corporation s voting stock (excluding
shares held by certain designated stockholders) in the transaction in which it
becomes an interested stockholder. A "business combination" includes mergers,
asset
21
<PAGE> 25
sales and other transactions resulting in a financial benefit to the interested
stockholder. Subject to certain exceptions, an "interested stockholder" is a
person who, together with affiliates and associates, owns, or within the
previous three years did own, 15% or more of the corporation's voting stock.
This provision of the Delaware law could delay and make more difficult a
business combination even if the business combination would be beneficial, in
the short term, to the interests of the Company's stockholders and also could
limit the price certain investors might be willing to pay in the future for
shares of Common Stock.
No Dividends. The Company has never declared or paid any cash dividends
on its capital stock and does not intend to pay any cash dividends in the
foreseeable future. The Company currently anticipates that it will retain all
its earnings for use in the operation and expansion of its business and,
therefore, does not anticipate that it will pay any cash dividends in the
foreseeable future.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information in response to this item is set forth in the Financial
Statements beginning on page F-1 of this report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10, 11, 12 AND 13
The information called for by items 10, 11, 12 and 13 is hereby
incorporated by reference from the Company's definitive proxy statement to be
filed pursuant to Regulation 14A for the 1997 Annual Meeting of Shareholders.
22
<PAGE> 26
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as a part of this Form 10-K:
(1) Financial Statements.
The following Financial Statements of Biofield Corp. and report
of independent public accountants relating thereto are filed
with this report on Form 10-K:
Balance Sheets as of December 31, 1996 and 1995
Statements of Operations for the years ended December
31, 1996 and 1995, the nine-month period ended December
31, 1994 and for the period October 16, 1987 (Date of
Inception) through December 31, 1996
Statement of Changes in Stockholders' Equity for the
period October 16, 1987 (Date of Inception) through
December 31, 1996
Statements of Cash Flows for the years ended December
31, 1996 and 1995, the nine-month period ended December
31, 1994 and for the period October 16, 1987 (Date of
Inception) through December 31, 1996
Notes to Financial Statements
(2) Financial Statement Schedules.
Schedules not listed above have been omitted because the
information required to be set forth therein is not applicable or
is shown in the Financial Statements or notes thereto.
(3) Exhibits.
<TABLE>
<S> <C>
3.1 -- Fourth Amended and Restated Certificate of Incorporation, as amended. (1)
3.2 -- Bylaws. (1)
10.1 -- Form of Warrant Purchase Agreement between the Company and Certain Selected Broker/Dealers in
connection with the 1992 Financing. (2)
10.2 -- Series A Preferred Stock Purchase Agreement by and among Biofield and the purchasers of Series A
Preferred Stock, dated as of November 5, 1993. (2)
10.3 -- First Amendment and Waiver to Series A Preferred Stock Purchase Agreement, dated as of February
21, 1994. (2)
10.4 -- Second Amendment and Waiver to Series A Preferred Stock Purchase Agreement, dated as of February
28, 1995. (2)
10.5 -- Third Amendment and Waiver to Series A Preferred Stock Purchase Agreement, dated as of April 20,
1995. (2)
10.6 -- Fourth Amendment and Waiver to Series A Preferred Stock Purchase Agreement, dated as of December
1, 1995. (2)
10.7 -- Form of Warrant Purchase Agreement between the Company and Oppenheimer & Co., Inc., dated as of
November 5, 1993. (2)
10.8 -- Registration Rights Agreement by and among Biofield and the purchasers of Series B Preferred
Stock, dated as of September 16, 1994. (2)
10.9 -- Warrant Purchase Agreement between the Company and Craig & Associates, Inc., dated as of
September 16, 1994. (2)
</TABLE>
23
<PAGE> 27
<TABLE>
<S> <C>
10.10 -- Preferred Stock and Warrant Purchase Agreement by and among Biofield and the purchasers of
Securities Units, dated as of March 3, 1995. (2)
10.11 -- Amendment to the Preferred Stock and Warrant Purchase Agreement by and among Biofield and the
purchasers of Securities Units, dated as of April 20, 1995. (2)
10.12 -- Registration Rights Agreement by and among Biofield and the purchasers of Securities Units,
dated as of March 3, 1995. (2)
10.13 -- Amendment to Registration Rights Agreement by and among Biofield and the purchasers of
Securities Units, dated as of April 20, 1995. (2)
10.14 -- Form of Warrant Purchase Agreement between the Company and Musket Research Associates, Inc.,
dated as of March 3, 1995. (2)
10.15 -- Registration Rights Agreement between the Company and Bruce Allen Bach, M.D., Ph.D., dated as of
February 21, 1993. (2)
10.16 -- Registration Rights Agreement between the Company and Mark L. Faupel, Ph.D., dated as of April
22, 1993. (2)
10.17 -- Registration Rights Agreement between the Company and Michael R. Gavenchak, dated as of April
22, 1993. (2)
10.18 -- Registration Rights Agreement between the Company and C. Leonard Gordon, dated as of April 22,
1993. (2)
10.19 -- Registration Rights Agreement between the Company and Martin H. Lindenberg, dated as of April
22, 1993. (2)
10.20 -- Registration Rights Agreement between the Company and John D. Stephens, dated as of April 22,
1993. (2)
10.21 -- Registration Rights Agreement between the Company and Robert E. Yocher, dated as of June 4,
1993. (2)
10.22 -- Registration Rights Agreement between the Company and Kenneth W. Anstey, dated as of December 1,
1995. (2)
10.23 -- Form of Stock Purchase Option Agreement between the Company and Abel Laboratories, Inc., dated
as of June 1, 1992. (2)
10.24 -- Patent Royalty Agreement between Company and Abel Laboratories, Inc., dated as of June 1, 1992.
(2)
10.25 -- Registration Rights Agreement by and among the Company and Abel Laboratories, Inc., dated as of
April 22, 1993. (2)
10.26 -- Master Laboratory Services Agreement between the Company and Abel Laboratories, Inc., dated as
of January 1, 1994. (2)
10.27 -- Settlement Agreement and Mutual Release between the Company and Biochron Corporation, dated as
of June 30, 1990. (2)
10.28 -- Agreement between the Company, Teiresias Inc. and Steven Hahn, dated as of December 22, 1992.
(2)
10.29 -- Preproduction Manufacturing Agreement between the Company and SeaMED Corporation, dated as of
October 4, 1993. (2)
10.30 -- Consulting Agreement between the Company and Richard J. Davies, M.D., dated as of January 1,
1994. (2)
10.31 -- Employment Agreement between the Company and Mark L. Faupel, Ph.D., dated as of October 1, 1992.
(2)
10.32 -- Addendum to Employment Agreement between the Company and Mark L. Faupel, Ph.D., dated as of
March 12, 1993. (2)
</TABLE>
24
<PAGE> 28
<TABLE>
<S> <C>
10.33 -- Addendum to Employment Agreement between the Company and Mark L. Faupel, Ph.D., dated as of
April 22, 1993. (2)
10.34 -- Addendum to Employment Agreement between the Company and Mark L. Faupel, Ph.D., dated as of
December 9, 1993. (2)
10.35 -- Amended and Restated Employment Agreement between the Company and Michael R. Gavenchak, dated as
of October 1, 1992. (2)
10.36 -- Employment Agreement between the Company and Robert Yocher, dated as of June 4, 1993. (2)
10.37 -- Addendum to Employment Agreement between the Company and Robert Yocher, dated as of December 9,
1993. (2)
10.38 -- Employment Agreement between the Company and Kenneth W. Anstey, dated as of November 10, 1995.
(2)
10.39 -- Agreement between the Company and D. Carl Long, dated as of December 1, 1995. (2)
10.40 -- Severance Agreement and General Release between the Company and Bruce Allen Bach, M.D., Ph.D.,
dated as of December 20, 1995. (2)
10.41 -- Lease for principal office space in Roswell, Georgia, between North Meadow Associates Joint
Venture and the Company, dated as of March 15, 1994. (2)
10.42 -- Biofield Corp. 1992 Stock Incentive Plan. (2)
10.43 -- Biofield Corp. 1996 Stock Option Plan. (2)
10.44 -- Biofield Corp. 1996 Stock Option Plan for Non-Employee Directors. (2)
10.45 -- Manufacturing Supply Agreement between Biofield and SeaMED Corporation, dated as of October 29,
1996. (1) (3)
10.46 -- Master Equipment Lease Agreement between Biofield and Financing for Science International, Inc.,
dated as of July 11, 1996. (1)
11 -- Statement regarding Calculation of Shares Used in Computing Net Loss Per Common and Common
Equivalent Share. (1)
21.1 -- List of Subsidiaries of the Company. (1)
23.1 -- Consent of Deloitte & Touche LLP. (1)
27 -- Financial Data Schedule (for SEC use only). (1)
</TABLE>
- -------------------------
(1) Filed herewith.
(2) Incorporated by reference to the Company's Registration
Statement on Form S-1 (Registration No. 333-00796)
declared effective on March 19, 1996.
(3) Confidential treatment requested.
(b) Reports on Form 8-K
The Company filed a Form 8-K, dated December 30, 1996, under Item 5,
Other Events. There were no financial statements filed in conjunction
with such 8-K.
25
<PAGE> 29
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act
of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
BIOFIELD CORP.
<TABLE>
<S> <C>
By: /s/ D. Carl Long
-------------------------------
D. Carl Long, Chief Executive Officer, President and Director March 19, 1997
(Principal Executive Officer)
</TABLE>
Pursuant to the requirements of the Securities Act of 1934, this report
has been signed by the following persons on behalf of the registrant and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ D. Carl Long
- -----------------------------------
D. Carl Long Chief Executive Officer, President March 19, 1997
and Director (Principal Executive Officer)
/s/ Timothy G. Roche
- -----------------------------------
Timothy G. Roche Director of Finance and Corporate March 19, 1997
Controller (Principal Financial and
Accounting Officer)
/s/ C. Leonard Gordon
- ----------------------------------- Director March 19, 1997
C. Leonard Gordon
/s/ James B. Anderson, Ph.D. Director March 19, 1997
- -----------------------------------
James B. Anderson, Ph.D.
/s/ Joseph H. Gleberman
- ----------------------------------- Director March 19, 1997
Joseph H. Gleberman
/s/ Harvey Horowitz
- ----------------------------------- Director March 19, 1997
Harvey Horowitz
</TABLE>
26
<PAGE> 30
BIOFIELD CORP.
(A Development Stage Company)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
AUDITED FINANCIAL STATEMENTS
<S> <C>
Independent Auditors' Report . . . . . . . . . . . . . . . . . . .. F-2
Balance Sheets as of December 31, 1996 and 1995 . . . . . . . . . . . F-3
Statements of Operations for the years ended December 31, 1996 and
1995, the nine-month period ended December 31, 1994 and for the period
October 16, 1987 (Date of Inception) through December 31, 1996 . . . F-4
Statements of Stockholders' Equity for the period October 16, 1987
(Date of Inception) through December 31, 1996 . . . . . . . . . . . . F-5
Statements of Cash Flows for the years ended December 31, 1996 and
1995, the nine-month period ended December 31, 1994 and for the period
October 16, 1987 (Date of Inception) through December 31, 1996 . . . F-7
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . F-9
</TABLE>
F-1
<PAGE> 31
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Biofield Corp.:
We have audited the accompanying balance sheets of Biofield Corp. (a
development stage company) (the "Company") as of December 31, 1996 and 1995 and
the related statements of operations, stockholders' equity, and cash flows for
the years ended December 31, 1996 and 1995, the nine-month period ended
December 31, 1994, and for the period October 16, 1987 (date of inception)
through December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company at December 31, 1996 and 1995
and the results of its operations and its cash flows for the years ended
December 31, 1996 and 1995, the nine-month period ended December 31, 1994, and
for the period October 16, 1987 (date of inception) through December 31, 1996,
in conformity with generally accepted accounting principles.
As discussed in Note 11 of Notes to Financial Statements, the Company is in the
development stage as of December 31, 1996.
DELOITTE & TOUCHE LLP
Atlanta, Georgia
February 18, 1997
F-2
<PAGE> 32
BIOFIELD CORP.
(A Development Stage Company)
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
----------------- -----------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,369,973 $ 3,271,341
Short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,569,406 3,000,000
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 319,370 83,823
---------------- -----------------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,258,749 6,355,164
PROPERTY AND EQUIPMENT - Net . . . . . . . . . . . . . . . . . . . . . . . . . . . 604,246 939,370
OTHER ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124,361 101,292
PATENT AND PATENT APPLICATION COSTS - Net . . . . . . . . . . . . . . . . . . . . . 498,837 379,798
---------------- -----------------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 15,486,193 $ 7,775,624
================ =================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 450,917 $ 390,804
Contractual settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 776,623
Due to affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 87,270
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 909,741 406,966
Capitalized lease obligations . . . . . . . . . . . . . . . . . . . . . . . . . 29,249 26,815
---------------- -----------------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 1,389,907 1,688,478
CAPITALIZED LEASE OBLIGATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,399 33,647
---------------- -----------------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,394,306 1,722,125
---------------- -----------------
COMMITMENTS AND CONTINGENCIES (Note 7)
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value; authorized 2,000,000 shares;
no shares issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
Series A Convertible preferred stock, $.001 par value; authorized
2,350,000 shares; outstanding 0 and 2,342,118 shares, respectively . . . . . -- 2,342
Series B Convertible preferred stock, $.001 par value; authorized
500,000 shares; outstanding 0 and 481,644 shares, respectively . . . . . . . -- 482
Series Convertible preferred stock, $.001 par value; authorized
4,450,000 securities units; outstanding 0 and 2,914,771 units, respectively -- 2,915
Series D Convertible preferred stock, $.001 par value; authorized
3,000,000 shares; no shares issued . . . . . . . . . . . . . . . . . . . . . -- --
Common Stock, $.001 par value; authorized 25,000,000 shares;
outstanding 6,433,095 and 1,565,563 shares, respectively . . . . . . . . . . 6,433 1,565
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . 49,454,334 31,378,985
Accumulated deficit during development stage . . . . . . . . . . . . . . . . . (35,368,880) (25,332,790)
---------------- -----------------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . 14,091,887 6,053,499
---------------- -----------------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 15,486,193 $ 7,775,624
================ =================
</TABLE>
See notes to financial statements
F-3
<PAGE> 33
BIOFIELD CORP.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period October 16,
For the years ended December 31, Nine-Month 1987 (Date of
-------------------------------- Period Ended Inception) through
December 31, December 31
1996 1995 1994 1996
-------------- ------------- ------------ -------------------
<S> <C> <C> <C> <C>
OPERATING EXPENSES:
Research and development . . . . . . . . . . $ 7,732,249 $ 6,188,255 $ 3,832,741 $ 25,706,686
Selling, general and administrative . . . . 3,135,219 2,919,775 1,230,810 10,698,181
-------------- ------------- ------------ -------------------
Total operating expenses . . . . . . . . 10,867,468 9,108,030 5,063,551 36,404,867
-------------- ------------- ------------ -------------------
OTHER INCOME (EXPENSE):
Interest income . . . . . . . . . . . . . . 840,104 378,996 105,326 1,480,028
Interest expense . . . . . . . . . . . . . . (8,726) (10,826) (1,087) (444,041)
-------------- ------------- ------------ -------------------
Net other income . . . . . . . . . . . . 831,378 368,170 104,239 1,035,987
-------------- ------------- ------------ -------------------
NET LOSS . . . . . . . . . . . . . . . . . . . $ (10,036,090) $ (8,739,860) $ (4,959,312) $ (35,368,880)
============== ============= ============ ===================
NET LOSS PER COMMON AND COMMON
EQUIVALENT SHARE:
Primary . . . . . . . . . . . . . . . . . . $ (1.87)
==============
Fully-diluted . . . . . . . . . . . . . . . $ (1.66)
==============
WEIGHTED AVERAGE NUMBER OF COMMON
AND COMMON EQUIVALENT SHARES
OUTSTANDING:
Primary . . . . . . . . . . . . . . . . . . 5,369,996
==============
Fully-diluted . . . . . . . . . . . . . . . 6,044,233
==============
PRO FORMA PRIMARY AND FULLY-DILUTED
NET LOSS PER COMMON AND COMMON
EQUIVALENT SHARE . . . . . . . . . . . . . . $ (2.34)
=============
PRO FORMA PRIMARY AND FULLY-DILUTED
WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING . . . . . . . . . . . . . 3,733,297
=============
</TABLE>
See notes to financial statements
F-4
<PAGE> 34
<TABLE>
<CAPTION>
BIOFIELD CORP.
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY
OCTOBER 16, 1987 (DATE OF INCEPTION) THROUGH DECEMBER 31, 1996
===============================================================================================================================
Series A Series B Series C
Preferred Stock Preferred Stock Preferred Units Common Stock
----------------- ----------------- --------------- ---------------
Shares Amount Shares Amount Units Amount Shares Amount
------ ------ ------ ------ ----- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of stock, October 16, 1987
(date of inception) ($.16 per share, net) -- $ -- -- $ -- -- $ -- 549,020 $ 55
Issuance of stock in connection with
patent acquisition ($.001 per share) . . . -- -- -- -- -- -- 235,294 24
Net loss, October 16, 1987 to
March 31, 1988 . . . . . . . . . . . . . . -- -- -- -- -- -- -- --
====== ====== ====== ====== ===== ====== ========= =======
BALANCE AT MARCH 31, 1988 . . . . . . . . . -- -- -- -- -- -- 784,314 79
Net loss . . . . . . . . . . . . . . . . . -- -- -- -- -- -- -- --
====== ====== ====== ====== ===== ====== ========= =======
BALANCE AT MARCH 31, 1989 . . . . . . . . . -- -- -- -- -- -- 784,314 79
Net loss . . . . . . . . . . . . . . . . . -- -- -- -- -- -- -- --
====== ====== ====== ====== ===== ====== ========= =======
BALANCE AT MARCH 31, 1990 . . . . . . . . . -- -- -- -- -- -- 784,314 79
Acquisition of 235,294 shares of
treasury stock ($.001 per share) -- -- -- -- -- -- -- --
Net loss . . . . . . . . . . . . . . . . . -- -- -- -- -- -- -- --
====== ====== ====== ====== ===== ====== ========= =======
BALANCE AT MARCH 31, 1991 . . . . . . . . . -- -- -- -- -- -- 784,314 79
Retirement of treasury stock . . . . . . . -- -- -- -- -- -- (235,294) (24)
Issuance of stock in exchange for
stockholder debt ($2.90 per share) -- -- -- -- -- -- 431,372 43
Sale of stock ($.82 per share, net) . . . . -- -- -- -- -- -- 24,510 2
Amortization of deferred compensation . . . -- -- -- -- -- -- -- --
Net loss . . . . . . . . . . . . . . . . . -- -- -- -- -- -- -- --
====== ====== ====== ====== ===== ====== ========= =======
BALANCE AT MARCH 31, 1992 . . . . . . . . . -- -- -- -- -- -- 1,004,902 100
Sale of stock in connection with private
placement ($7.67 per share, net) . . . . . -- -- -- -- -- -- 557,475 55
Exercise of stock options . . . . . . . . . -- -- -- -- -- -- 2,451 1
Amortization of deferred compensation . . . -- -- -- -- -- -- -- --
Change in par value of common stock
from $.0001 to $.001 . . . . . . . . . . -- -- -- -- -- -- -- 1,408
Net loss . . . . . . . . . . . . . . . . . -- -- -- -- -- -- -- --
====== ====== ====== ====== ===== ====== ========= ========
BALANCE AT MARCH 31, 1993
(carried forward) . . . . . . . . . . . . -- $ -- -- $ -- -- $ -- 1,564,828 $ 1,564
====== ====== ====== ====== ===== ====== ========= ========
</TABLE>
<TABLE>
<CAPTION>
BIOFIELD CORP.
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY
OCTOBER 16, 1987 (DATE OF INCEPTION) THROUGH DECEMBER 31, 1996
======================================================================================================
Additional
Paid-In Accumulated Treasury
Capital Deficit Stock Total
--------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Issuance of stock, October 16, 1987
(date of inception) ($.16 per share, net) $ 91,898 $ -- $ -- $ 91,953
Issuance of stock in connection with
patent acquisition ($.001 per share) . . . 276 -- -- 300
Net loss, October 16, 1987 to
March 31, 1988 . . . . . . . . . . . . . . -- (159,359) -- (159,359)
=========== ============ ======== ===========
BALANCE AT MARCH 31, 1988 . . . . . . . . . 92,174 (159,359) -- (67,106)
Net loss . . . . . . . . . . . . . . . . . -- (495,520) -- (495,520)
=========== ============ ======== ===========
BALANCE AT MARCH 31, 1989 . . . . . . . . . 92,174 (654,879) -- (562,626)
Net loss . . . . . . . . . . . . . . . . . -- (233,347) -- (233,347)
=========== ============ ======== ===========
BALANCE AT MARCH 31, 1990 . . . . . . . . . 92,174 (888,226) -- (795,973)
Acquisition of 235,294 shares of
treasury stock ($.001 per share) -- -- (300) (300)
Net loss . . . . . . . . . . . . . . . . . -- (285,179) -- (285,179)
=========== ============ ======== ===========
BALANCE AT MARCH 31, 1991 . . . . . . . . . 92,174 (1,173,405) (300) (1,081,452)
Retirement of treasury stock . . . . . . . (276) -- 300 --
Issuance of stock in exchange for
stockholder debt ($2.90 per share) 1,248,638 -- -- 1,248,681
Sale of stock ($.82 per share, net) . . . . 19,998 -- -- 20,000
Amortization of deferred compensation . . . 136,880 -- -- 136,880
Net loss . . . . . . . . . . . . . . . . . -- (461,061) -- (461,061)
=========== ============ ======== ===========
BALANCE AT MARCH 31, 1992 . . . . . . . . . 1,497,414 (1,634,466) -- (136,952)
Sale of stock in connection with private
placement ($7.67 per share, net) . . . . . 4,275,223 -- -- 4,275,278
Exercise of stock options . . . . . . . . . 624 -- -- 625
Amortization of deferred compensation . . . 477,453 -- -- 477,453
Change in par value of common stock
from $.0001 to $.001 . . . . . . . . . . (1,408) -- -- --
Net loss . . . . . . . . . . . . . . . . . -- (3,099,637) -- (3,099,637)
=========== ============ ======== ===========
BALANCE AT MARCH 31, 1993
(carried forward) . . . . . . . . . . . . $ 6,249,306 $ (4,734,103) $ -- $ 1,516,767
=========== ============ ======== ===========
</TABLE>
(Continued)
F-5
<PAGE> 35
<TABLE>
<CAPTION>
BIOFIELD CORP.
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY
OCTOBER 16, 1987 (DATE OF INCEPTION) THROUGH DECEMBER 31, 1996
==================================================================================================================================
Series A Series B Series C
Preferred Stock Preferred Stock Preferred Units Common Stock
------------------- ---------------- ----------------- -----------------
Shares Amount Shares Amount Amount Units Amount Shares
------ ------ ------ ------ ------ ----- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT MARCH 31, 1993
(brought forward) . . . . . . . . . . . . -- $ -- -- $ -- -- $ -- 1,564,828 $ 1,564
Exercise of stock options . . . . . . . . . . -- -- -- -- -- -- 735 1
Sale of Series A Preferred Stock
($3.97 per share, net) . . . . . . . . . . 2,119,896 2,120 -- -- -- -- -- --
Issuance of Series A Preferred Stock in
exchange for notes payable to related
parties ($4.50 per share) . . . . . . . . 222,222 222 -- -- -- -- -- --
Issuance of warrants . . . . . . . . . . . . -- -- -- -- -- -- -- --
Amortization of deferred compensation . . . . -- -- -- -- -- -- -- --
Net loss . . . . . . . . . . . . . . . . . . -- -- -- -- -- -- -- --
---------- ------- --------- ------- ----------- ------- --------- -------
BALANCE AT MARCH 31, 1994 . . . . . . . . . 2,432,118 2,342 -- -- -- -- 1,565,563 1,565
Sale of Series B Preferred Stock ($4.04
per share, net) . . . . . . . . . . . . . -- -- 481,644 482 -- -- -- --
Issuance of warrants . . . . . . . . . . . . -- -- -- -- -- -- -- --
Amortization of deferred compensation . . . . -- -- -- -- -- -- -- --
Net loss . . . . . . . . . . . . . . . . . . -- -- -- -- -- -- -- --
---------- ------- --------- ------- ----------- ------- --------- -------
BALANCE AT DECEMBER 31, 1994 . . . . . . . 2,342,118 2,342 481,644 482 -- -- 1,565,563 1,565
Sale of Series C Preferred Stock ($4.11
per unit, net) . . . . . . . . . . . . . . -- -- -- -- 2,914,771 2,915 -- --
Issuance of warrants . . . . . . . . . . . . -- -- -- -- -- -- -- --
Amortization of deferred compensation . . . . -- -- -- -- -- -- -- --
Net loss . . . . . . . . . . . . . . . . . . -- -- -- -- -- -- -- --
---------- ------- --------- ------- ----------- ------- --------- -------
BALANCE AT DECEMBER 31, 1995 . . . . . . . 2,342,118 2,342 481,644 482 2,914,771 2,915 1,565,563 1,565
Sale of stock in connection with public
offering ($9.91 per share, net) . . . . . . -- -- -- -- -- -- 1,819,000 1,819
Conversion of Series A, Series B
and Series C Preferred Stock to
Common Stock . . . . . . . . . . . . . . . (2,342,118) (2,342) (481,644) (482) (2,914,771) (2,915) 3,046,474 3,047
Exercise of warrants . . . . . . . . . . . . -- -- -- -- -- -- 2,058 2
Amortization of deferred compensation . . . . -- -- -- -- -- -- -- --
Net loss . . . . . . . . . . . . . . . . . . -- -- -- -- -- -- -- --
---------- ------- --------- ------- ----------- ------- --------- -------
BALANCE AT DECEMBER 31, 1996 . . . . . . . . -- $ -- -- $ -- -- $ -- 6,433,095 $ 6,433
========== ======= ======== ======= ========== ====== ========= =======
</TABLE>
<TABLE>
<CAPTION>
BIOFIELD CORP.
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY
OCTOBER 16, 1987 (DATE OF INCEPTION) THROUGH DECEMBER 31, 1996
======================================================================================================
Additional
Paid-In Accumulated Treasury
Capital Deficit Stock Total
---------- ----------- -------- -----------
<S> <C> <C> <C> <C>
BALANCE AT MARCH 31, 1993
(brought forward) . . . . . . . . . . . . $ 6,249,306 $ (4,734,103) $ -- $ 1,516,767
Exercise of stock options . . . . . . . . . . 187 -- -- 188
Sale of Series A Preferred Stock
($3.97 per share, net) . . . . . . . . . . 8,411,370 -- -- 8,413,490
Issuance of Series A Preferred Stock in
exchange for notes payable to related
parties ($4.50 per share) . . . . . . . . 999,778 -- -- 1,000,000
Issuance of warrants . . . . . . . . . . . . 2,119 -- -- 2,119
Amortization of deferred compensation . . . . 1,580,320 -- 1,580,320
Net loss . . . . . . . . . . . . . . . . . . -- (6,899,515) -- (6,899,515)
------------ ------------ -------- -------------
BALANCE AT MARCH 31, 1994 . . . . . . . . . 17,243,080 (11,633,618) -- 5,613,369
Sale of Series B Preferred Stock ($4.04
per share, net) . . . . . . . . . . . . . 1,947,149 -- -- 1,947,631
Issuance of warrants . . . . . . . . . . . . 6 -- -- 6
Amortization of deferred compensation . . . . 14,859 -- -- 14,859
Net loss . . . . . . . . . . . . . . . . . . -- (4,959,312) -- (4,959,312)
------------ ------------ -------- -------------
BALANCE AT DECEMBER 31, 1994 . . . . . . . . 19,205,094 (16,592,930) -- 2,616,553
Sale of Series C Preferred Stock ($4.11
per unit, net) . . . . . . . . . . . . . . 11,977,856 -- -- 11,980,771
Issuance of warrants . . . . . . . . . . . . 161 -- -- 161
Amortization of deferred compensation . . . . 195,874 -- -- 195,874
Net loss . . . . . . . . . . . . . . . . . . -- (8,739,860) -- (8,739,860)
------------ ------------ -------- -------------
BALANCE AT DECEMBER 31, 1995 . . . . . . . . 31,378,985 (25,332,790) -- 6,053,499
Sale of stock in connection with public
offering ($9.91 per share, net) . . . . . . 18,026,419 -- -- 18,028,238
Conversion of Series A, Series B
and Series C Preferred Stock to
Common Stock . . . . . . . . . . . . . . . 2,692 -- -- --
Exercise of warrants . . . . . . . . . . . . 20,145 -- -- 20,147
Amortization of deferred compensation . . . . 26,093 -- -- 26,093
Net loss . . . . . . . . . . . . . . . . . . -- (10,036,090) (10,036,090)
------------ ------------ -------- -------------
BALANCE AT DECEMBER 31, 1996 . . . . . . . . $ 49,454,334 $(35,368,880) $ -- $ 14,091,887
============ ============ ======== ============
</TABLE>
(Concluded)
See notes to financial statements
F-6
<PAGE> 36
BIOFIELD CORP.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period October 16,
1987 (Date of
Nine-Month Inception)
For the years ended December 31, Period Ended through
-------------------------------- December 31, December 31,
1996 1995 1994 1996
------------ ------------ --------------- ---------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss ........................................... $(10,036,090) $ (8,739,860) $ (4,959,312) $(35,368,880)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization .................... 625,052 528,935 242,507 1,677,390
Amortization of premiums / (discounts) on short-
term investments .......................... 64,784 -- -- 64,784
Loss on disposal of property and equipment ....... 2,177 -- 237 42,713
Loss on license and settlement agreement ......... -- -- -- 49,026
Noncash compensation ............................. 26,093 195,874 14,859 2,431,479
Interest paid in Common Stock .................... -- -- -- 297,148
Changes in assets and liabilities:
Other current assets ........................... (235,547) (38,425) 205,896 (319,370)
Other assets ................................... (26,299) (21,798) (79,494) (127,591)
Due to affiliate ............................... (87,270) 67,046 (48,027) --
Contractual settlement ......................... (776,623) 776,623 -- --
Accounts payable and accrued expenses .......... 562,888 64,390 (40,133) 1,248,226
------------ ------------ ------------ ------------
Net cash used in operating activities........ (9,880,835) (7,167,215) (4,663,467) (30,005,075)
------------ ------------ ------------ ------------
INVESTING ACTIVITIES:
Acquisition of property and equipment .............. (275,932) (361,191) (932,823) (2,129,792)
Costs incurred for patents and patent applications . (131,982) (127,579) (86,510) (547,942)
Proceeds from sale of property and equipment ....... -- -- 3,418 3,418
Purchases of short-term investments ................ (11,134,190) (3,000,000) (400,000) (14,854,190)
Proceeds from sales and maturities of short-term
investments ...................................... 7,500,000 -- 720,000 8,220,000
------------ ------------ ------------ ------------
Net cash used in investing activities ....... (4,042,104) (3,488,770) (695,915) (9,308,506)
------------ ------------ ------------ ------------
FINANCING ACTIVITIES:
Repayments of capitalized lease obligations ........ (26,814) (19,619) (2,153) (48,586)
Proceeds from issuance of Series A Preferred
Stock - net ...................................... -- -- -- 8,413,490
Proceeds from issuance of Series B Preferred
Stock - net ...................................... -- -- 1,947,631 1,947,631
Proceeds from issuance of Series C Preferred
Stock - net ...................................... -- 11,980,771 -- 11,980,771
Proceeds from issuance of Common Stock and
warrants - net ................................... 18,028,238 161 6 22,417,755
Proceeds from exercise of stock options and
warrants ......................................... 20,147 -- -- 20,960
Proceeds from bank borrowings ...................... -- -- -- 520,000
Payment on bank borrowings ......................... -- -- -- (520,000)
Repayment of advances from stockholder ............. -- -- -- (145,000)
Proceeds from notes payable issued to
stockholder and related party .................... -- -- -- 2,096,533
------------ ------------ ------------ ------------
Net cash provided by financing activities ... 18,021,571 11,961,313 1,945,484 46,683,554
------------ ------------ ------------ ------------
NET INCREASE / (DECREASE) IN CASH
AND CASH EQUIVALENTS ............................... 4,098,632 1,305,328 (3,413,898) 7,369,973
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD ................................ 3,271,341 1,966,013 5,379,911 --
------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF
PERIOD ........................................... $ 7,369,973 $ 3,271,341 $ 1,966,013 $ 7,369,973
============ ============ ============ ============
(Continued)
</TABLE>
F-7
<PAGE> 37
BIOFIELD CORP.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period October 16,
Nine-Month 1987 (Date of
For the years ended December 31, Period Ended Inception) through
--------------------------------- December 31, December 31,
1996 1995 1994 1996
------------- -------------- --------------- -----------------
<S> <C> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid during the period for interest . . . $ 8,726 $ 10,826 $ 1,087 $ 55,585
============== ============== ============== ==============
SUPPLEMENTAL SCHEDULE FOR NONCASH
INVESTING AND FINANCING ACTIVITIES:
Acquisition of property and equipment under
capitalized lease transactions . . . . . . . $ -- $ 55,874 $ 26,360 $ 82,234
============== ============== ============== ==============
During the year ended March 31, 1994 the Company
issued 222,222 shares of Series A Preferred Stock
in exchange for an aggregate of $1 million in notes
payable to a principal stockholder
and a former Director
Notes payable . . . . . . . . . . . . . . . . $ 1,000,000
==============
Issuance of Series A Preferred Stock $ 1,000,000
==============
At inception, the Company acquired the rights to a
patent and assumption of liabilities in exchange
for 235,294 shares of Common Stock, as follows:
Fair value of patent acquired . . . . . . . . $ 112,732
Liabilities assumed . . . . . . . . . . . . . . 112,432
--------------
Issuance of Common Stock . . . . . . . . . . . $ 300
==============
Pursuant to a license and settlement agreement with
respect to the patent acquired (above), the
Company received its 235,294 shares of Common
Stock during fiscal year 1991, which was retired
Remaining carrying value of patent on date of license
and settlement agreement . . . . . . . . . . $ 49,326
Common Stock returned to the Company . . . . . 300
--------------
Loss on Settlement . . . . . . . . . . . . . . $ 49,026
==============
During fiscal 1992, the Company exchanged 431,372
shares of Common Stock for $96,660 in notes and
$1,152,021 in debt and accrued interest, payable to
a principal stockholder
Notes payable . . . . . . . . . . . . . . . . $ 96,660
Debt . . . . . . . . . . . . . . . . . . . . . 854,873
Accrued interest . . . . . . . . . . . . . . . 297,148
--------------
Issuance of Common Stock . . . . . . . . . . . $ 1,248,681
==============
(Concluded)
</TABLE>
See notes to financial statements
F-8
<PAGE> 38
BIOFIELD CORP.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
1. COMPANY
Biofield Corp. (the "Company") is a development stage company which has
developed an innovative system for detecting breast cancer through the skin in
a non-invasive and objective procedure. The Company's breast cancer diagnostic
device, the ALEXA 1000 System, employs unique, single-use sensors and a
measurement device to detect and analyze changes in cellular electrical charge
distributions associated with the development of epithelial cancers, such as
breast cancer. Principal activities to date include the following: product
development; conducting clinical trials; recruitment of scientific, regulatory,
manufacturing, marketing and administrative personnel; and raising capital.
On March 22, 1996, the Company completed its Initial Public Offering
("IPO") of 1,819,000 shares of Common Stock at a purchase price of $11.00 per
share, for aggregate proceeds of $18,028,238 (net of related expenses of
$1,980,762).
2. SIGNIFICANT ACCOUNTING POLICIES
Fiscal Year --Effective December 31, 1994, the Company changed its fiscal
year end from March 31 to December 31. Accordingly, the financial statements,
and related notes thereto, are presented for the transition period from April
1, 1994 through December 31, 1994.
Cash and Cash Equivalents and Short-Term Investments--The Company invests
its excess cash in short-term, investment grade corporate obligations, money
market funds, shares of liquid (auction-market) preferred stock and bonds and
certificates of deposit. For purposes of financial reporting, the Company
considers highly liquid investments with an original maturity of three months
or less to be cash equivalents.
Effective April 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." The Company's short-term investments are sold if cash is
needed and, therefore, are considered "available-for-sale." At December 31,
1996, the cost of short-term investments approximated market value. Realized
gains and losses on short-term investments were immaterial for the years ended
December 31, 1996 and 1995 and the nine-month period ended December 31, 1994.
Property and Equipment--Property and equipment is stated at cost less
accumulated depreciation and amortization. Depreciation and amortization are
computed using straight-line methods over the estimated useful lives of the
assets, principally three to five years, or the term of the lease, if shorter,
for leasehold improvements.
Patents--The costs of the patents are being amortized on a straight-line
basis over their estimated economic life, not to exceed 17 years.
Research and Development--Research and development costs are charged to
operations as incurred.
Reverse Stock-Split--On February 26, 1996, the Company effected a
2.04-for-one reverse stock split of the Company's issued and outstanding Common
Stock. The accompanying financial statements and related notes to the
financial statements have been restated to reflect these changes for all
periods presented.
Net Loss Per Share and Pro Forma Net Loss Per Share--Primary and
fully-diluted net loss per common and common equivalent share has been computed
based on the weighted average number of common and common equivalent shares
outstanding during the periods presented. Retroactive restatement has been
made to all share and per share amounts for the reverse stock split discussed
above.
Upon the closing date of the Company's IPO, March 22, 1996, all shares of
Series A, Series B and Series C Convertible Preferred Stock automatically
converted into shares of Common Stock (see Note 8). The 1996 primary net loss
per common and common equivalent share is computed based upon the actual
conversion date of the Company's convertible preferred stock, March 22, 1996.
The 1996 fully-diluted net loss per common and common equivalent share assumes
conversion of the convertible preferred stock as of January 1, 1996.
F-9
<PAGE> 39
BIOFIELD CORP.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Pro forma net loss per common and common equivalent share for the year
ended December 31, 1995 is computed pursuant to Securities and Exchange
Commission Staff Accounting Bulletin No. 83. Accordingly, all common stock
equivalents issued within one year of the IPO, calculated using the treasury
stock method and the public offering price of $11.00 per share, have been
included in the computation of pro forma primary and fully-diluted net loss per
common and common equivalent share as if they were outstanding for all of 1995.
In addition, the calculation of the pro forma weighted average number of common
and common equivalent shares outstanding also includes 2,823,762 shares of
Series A and Series B Convertible Preferred Stock, excluding shares issued
subsequent to January 31, 1995, which converted into approximately 1,617,732
shares of Common Stock immediately upon the closing of the IPO, as if they were
converted to Common Stock as of the original dates of issuance.
Common stock equivalents, except as discussed above, are not included in
the computation of net loss per common and common equivalent share since their
effect is antidilutive.
Historical loss per share data for the nine-month period ended December
31, 1994 has not been presented as such information is not meaningful.
Use of Estimates--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of income and expenses during
the reporting period. Actual results could differ from those estimates.
Nonmonetary Transaction--Common or Preferred Stock issued for goods or
services is recorded at estimated market value of the Common and Preferred
Stock issued.
Income Taxes--Effective April 1, 1993, the Company adopted Statement of
Financial Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income
Taxes." Under "SFAS 109", the liability method is used in accounting for
income taxes. Under this method, deferred tax assets and liabilities are
determined based on differences between financial reporting and tax bases of
assets and liabilities and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse.
Stock Options--Accounting for stock options issued to employees and
nonemployee directors is based upon the "intrinsic value" method set forth in
Accounting Principles Board Opinion No. 25 ("APB 25"), "Accounting for Stock
Issued to Employees." Accounting for stock options issued to nonemployees
prior to December 16, 1995 is also based upon APB 25. Accounting for stock
options issued to nonemployees (excluding nonemployee directors) after December
15, 1995 is based upon the "fair value" method set forth in Statement of
Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for
Stock-Based Compensation." See "Recent Pronouncements" below for a further
discussion of SFAS 123.
Recent Pronouncements--In March 1995, the Financial Accounting Standards
Board ("FASB") issued Statement of Financial Accounting Standards No. 121
("SFAS 121"), "Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed of," which is effective for the Company's 1996
financial statements. SFAS 121 requires that long-lived assets and certain
identifiable intangible assets held and used by a company be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amounts of the assets might not be recoverable. The Company has
determined that, as of December 31, 1996, no assets covered by SFAS 121 have
been impaired.
In October 1995, the FASB issued SFAS 123, which is effective for the
Company's 1996 financial statements. SFAS 123 allows companies to account for
stock-based compensation to employees under either (i) the new provisions of
SFAS 123 or (ii) the provisions of APB 25 with pro forma disclosure in the
footnotes to the financial statements as if the measurement provisions of SFAS
123 had been adopted. The reporting requirements of SFAS 123 are required for
options issued to nonemployees (excluding nonemployee directors). At this
time, the Company intends to continue accounting for its stock-based
compensation to employees in accordance with the provisions of APB 25 (see Note
10).
In accounting for options issued to nonemployees, the implementation of
SFAS 123 did not materially impact the financial position or results of
operations of the Company, and had no effect on its cash flows.
F-10
<PAGE> 40
BIOFIELD CORP.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Reclassifications --Certain prior period amounts have been reclassified to
conform with the current period presentation.
3. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1996 and 1995 consisted of the
following:
<TABLE>
<CAPTION>
1996 1995
------------ ----------
<S> <C> <C>
Furniture and office equipment . . . . . . . . . . . . . . . . . . $ 783,876 $ 649,648
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . 106,153 95,891
Production equipment, tooling and clinical testing equipment . . . 699,414 1,116,346
------------ ----------
1,589,443 1,861,885
Less accumulated depreciation and amortization . . . . . . . . . . 985,197 922,515
------------ ----------
$ 604,246 $ 939,370
============ ==========
</TABLE>
Depreciation expense for the years ended December 31, 1996 and 1995, the
nine month period ended December 31, 1994 and for the period from inception
through December 31, 1996 was $608,879, $516,421, $234,746 and $1,561,649,
respectively.
4. PATENT AND PATENT APPLICATION COSTS
The Company entered into an agreement dated December 22, 1992 with a
consultant and inventor for the assignment of certain patent rights. The
Company paid the consultant $100,000 for such assignment, and agreed to pay
royalties of five percent of the net sales price of covered inventions, if any,
(as defined), subject to an aggregate limit of $2,500,000. The term of the
agreement is for 15 years. No royalties have been paid as of December 31,
1996.
The Company has a patent royalty agreement with a former director and his
corporation which would assign all rights to the Company for patented
inventions, if any, resulting from performance under a laboratory service
agreement. In December 1994, the Company filed a U.S. patent application, of
which the former director is a named co-inventor. No royalties have been paid
as of December 31, 1996 (See Note 9).
Accumulated amortization for patents was $49,095 and $36,152 at December
31, 1996 and 1995, respectively. Patent amortization expense for the years
ended December 31, 1996 and 1995, the nine-month period ended December 31, 1994
and for the period from inception through December 31, 1996 was $12,943,
$12,514, $7,761 and $112,511, respectively.
5. ACCRUED EXPENSES
Accrued expenses at December 31, 1996 and 1995 consisted of the following:
<TABLE>
<CAPTION>
1996 1995
-------- ---------
<S> <C> <C>
Professional fees . . . . . . . . . . . . . . . . . . . . . . . . . $ 98,488 $ 96,395
Accrued payroll and bonuses . . . . . . . . . . . . . . . . . . . . 600,510 42,786
Severance benefits . . . . . . . . . . . . . . . . . . . . . . . . -- 121,735
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 210,743 146,050
-------- ---------
$909,741 $ 406,966
======== ==========
</TABLE>
F-11
<PAGE> 41
BIOFIELD CORP.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
6. INCOME TAXES
Due to the Company's operating losses, there was no provision for income
taxes for the years ended December 31, 1996 and 1995, the nine-month period
ended December 31, 1994 and for the period from inception through December 31,
1996.
At December 31, 1996, the Company has available, for federal and state
income tax purposes, net operating loss ("NOL") carryforwards of approximately
$32,000,000, which expire in years 2002 through 2010. These losses may be
offset against future taxable income, if any, during the carryforward period.
The utilization of the federal net operating loss carryforwards of
approximately $15,000,000, included in the above amount will be subject to an
annual limitation of approximately $1,100,000 per year due to ownership changes
in 1992 and 1995 pursuant to the stock ownership change provision of the Tax
Reform Act of 1986. Future changes in ownership may result in additional
limitations.
The tax effects of temporary differences that give rise to deferred tax
assets at December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
--------------- -------------
<S> <C> <C>
Deferred tax assets:
Deferred compensation . . . . . . . . . . . . . . . . $ 714,000 $ 704,000
Net operating loss carryforwards . . . . . . . . . . . 12,781,000 8,676,000
Research and development credits . . . . . . . . . . . 48,000 --
Other . . . . . . . . . . . . . . . . . . . . . . . . 207,000 398,000
--------------- ------------
Total gross deferred tax assets . . . . . . . . . . 13,750,000 9,778,000
Less valuation allowance . . . . . . . . . . . . . . . . 13,750,000 9,778,000
--------------- ------------
Net deferred tax assets . . . . . . . . . . . . . . $ -- $ --
=============== ============
</TABLE>
The valuation allowances are equal to the deferred tax assets because of
the uncertainty of the future realization of the assets.
7. COMMITMENTS AND CONTINGENCIES
Lease Commitment--In July 1996, the Company obtained a commitment from an
unrelated third party to enter into a $2 million sale-leaseback agreement. The
agreement will allow the Company to finance certain equipment purchases in
amounts up to an aggregate of $2 million for a period of two years ending
September 30, 1998. The lease term will be 36 months from the date specific
equipment is leased with monthly rent expense, payable in advance, equal to
3.07% of the equipment leased. The Company will have the option to purchase
the leased equipment at the end of the lease term for an amount equal to 15% of
the equipment cost. The Company may not enter into any such sale-leaseback
transactions unless and until definitive documentation is entered into and
certain other specified conditions are satisfied.
Lease Obligations--The present value of future minimum capital lease
payments at December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 32,879
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,515
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . --
------------
Total minimum lease payments . . . . . . . . . . 37,394
Less amount representing interest . . . . . . . 3,746
------------
Present value of total minimum lease payments . 33,648
Less current portion . . . . . . . . . . . . . . 29,249
------------
$ 4,399
============
</TABLE>
F-12
<PAGE> 42
BIOFIELD CORP.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Total rental expense relating to operating leases for the years ended
December 31, 1996 and 1995, the nine-month period ended December 31, 1994 and
for the period from inception through December 31, 1996 was $118,832, $117,062,
$150,891 and $656,980, respectively.
Included in property and equipment at December 31, 1996 and 1995 is
furniture and office equipment held under capitalized leases as follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Furniture and office equipment (gross) . . . . . . . . . . . . . . . $ 82,234 $ 82,234
Less accumulated depreciation . . . . . . . . . . . . . . . . . . . . 53,810 26,629
----------- -----------
$ 28,424 $ 55,605
=========== ===========
</TABLE>
During the nine-month period ended December 31, 1994, the Company
relocated its principal executive offices from New York to Roswell, Georgia and
entered into a five-year lease that commenced in March 1994. Future committed
minimum payments under this lease are $120,000, $125,000 and $32,000 for 1997,
1998 and 1999, respectively. The annual rent on this lease will be increased
by a pro rata portion of the increase in real estate taxes and common area
maintenance.
Employment Agreements--The Company has entered into an oral agreement with
a principal stockholder to provide executive services in exchange for
compensation not to exceed $80,000 per annum until the Company has commercially
marketed the ALEXA 1000 System or the proposed Biofield screening system.
The Company has employment contracts with certain of its executive
officers through 1998. The annual base compensation for these executive
officers ranges from approximately $150,000 to $275,000 per year, and provides
for five percent annual cost of living adjustments. Future minimum payments of
annual base compensation and bonuses under these contracts are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, AMOUNT
------------ ----------
<S> <C>
1997 . . . . . . . . . . . . . . . . . . . . . . . . . $ 651,000
1998 . . . . . . . . . . . . . . . . . . . . . . . . . 419,000
----------
Total . . . . . . . . . . . . . . . . . . . . . . . $1,070,000
==========
</TABLE>
Effective December 1, 1995, the Company entered into an employment
agreement (the "Employment Agreement") dated November 10, 1995 with its current
president and chief executive officer (the "CEO"). The Employment Agreement is
for a term of three years and can be extended until December 31, 1999.
Pursuant to the Employment Agreement, the CEO receives a current annual base
salary of $275,000, and is eligible to receive an annual bonus of up to
$350,000 upon the achievement by the Company of certain specified goals. That
portion of the annual bonus, if any, up to $100,000 is payable in cash and the
remaining obligations may be satisfied with the issuance of the Company's
Common Stock or stock options.
In connection with the Employment Agreement, the Company granted the CEO
options to purchase 245,100 shares of Common Stock. Such options to purchase
122,550 shares of Common Stock vest in equal installments over three years and
are exercisable at $9.18 per share and the remaining options to purchase
122,550 shares of Common Stock vest in equal installments over three years and
are exercisable at $12.24 per share. The options are exercisable for 10 years
after the date of the grant and become immediately exercisable in the event of
a change of control of the Company. If the Company terminates the CEO's
employment without cause, the Company will be obligated pursuant to the
Employment Agreement to continue to pay his annual salary, plus $100,000
annually in lieu of the annual bonus for the remainder of the term of the
Employment Agreement.
The Company entered into an agreement effective as of December 1, 1995,
with the Company's former Chief Executive Officer pursuant to which the former
Chief Executive Officer continues to serve as the Vice Chairman. The Company
also agreed to make a payment of $752,144, together with interest thereon,
payable in 12 monthly installments commencing January 1, 1996 and certain other
miscellaneous amounts, in full satisfaction of the Company's obligations to the
Vice Chairman/former Chief Executive Officer arising out of cessation of his
employment as Chief Executive Officer under a prior employment agreement. As a
result of the Company's obligations to the Vice Chairman/former Chief Executive
Officer pursuant to the above agreement the Company charged
F-13
<PAGE> 43
BIOFIELD CORP.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
approximately $777,000 to selling, general and administrative costs in the
accompanying statement of operations for the year ended December 31, 1995.
The employment contract with the Vice President, Research and Development
obligates the Company to pay royalties to the Vice President for two
inventions, for which he is the inventor and co-inventor, of two percent and
one percent, respectively, as defined. The royalties will continue through
December 31, 2005 or until such royalties reach $8 million, whichever occurs
first. The Company is also obligated to pay the Vice President a bonus in an
amount equal to 10 percent of any monies received in the form of research
grants where he is the principal investigator for the research. No such
amounts have been paid as of December 31, 1996.
License Agreements--The Company has a "nonexclusive" license from an
unaffiliated company which allows the Company to "make, use and sell" products
covered by the unaffiliated company's patent, within the field of "detection
of cancer." The license agreement provides for a one percent royalty on gross
sales of any covered devices until the patent expires in May 1999. No
royalties have been paid as of December 31, 1996.
Profit Sharing Plan--In November 1993, the Company adopted a 401(k) Profit
Sharing Plan & Trust (the "401(k) Plan"), a tax-qualified plan covering all of
its employees. The 401(k) Plan provides that the Company may, as determined
from time to time by the Board of Directors, provide a matching contribution or
an additional amount at its discretion. As of December 31, 1996 the Company
had made no contributions to the 401(k) Plan.
8. STOCKHOLDERS' EQUITY
On March 22, 1996, the Company completed its IPO of 1,819,000 shares of
Common Stock at a purchase price of $11.00 per share, for aggregate proceeds of
$18,028,238 (net of related expenses of $1,980,762).
In March 1995, the Company amended its certificate of incorporation to
authorize the issuance of the following shares: 25,000,000 shares of Common
Stock ("Common Stock"), 2,350,000 shares of Series A Convertible Preferred
Stock (the "Series A Preferred Stock"), 500,000 shares of Series B Convertible
Preferred Stock (the "Series B Preferred Stock"), 4,450,000 shares of Series C
Convertible Preferred Stock (the "Series C Preferred Stock"), 3,000,000 shares
of Series D Convertible Preferred Stock (the "Series D Preferred Stock") and
2,000,000 shares of Preferred Stock to be designated by the Board of Directors.
All of the above mentioned authorized shares have a stated par value of $.001
per share.
During 1995, the Company, pursuant to an offering through a private
placement of securities units (the "Securities Units offering"), offered and
issued 2,914,771 securities units at $4.50 each, for aggregate proceeds of
$11,980,771 (net of related expenses of $1,135,699). Each Securities Unit
included (i) one share of Series C Preferred Stock (initially convertible into
one share of Common Stock), (ii) one-half of a warrant to purchase a share of
Series D Preferred Stock at $6.00 per share, or upon the occurrence of certain
events, a share of Series C Preferred Stock at $4.50 per share (which events
have subsequently occured), (iii) one-half of a warrant to purchase a share of
Series D Preferred Stock at $6.00 per share, and (iv) the right, upon the
occurrence of certain events, to receive an aggregate of 357,192 warrants to
purchase an aggregate of 357,192 shares of Common Stock at an exercise price of
$9.18 per share. On June 30, 1996, the Company issued warrants to purchase an
aggregate of 357,192 shares of Common Stock at an exercise price of $9.18 per
share to purchasers of the Securities Units. These warrants expire on March 3,
2000. Certain Securities Units were sold to purchasers who were introduced to
the Company by a selected broker-dealer, who received (i) selling commissions
(in cash and Securities Units), equal to seven percent of the aggregate
proceeds from the sale of the Securities Units, and (ii) 78,976 warrants were
sold to the broker-dealer for $161. These warrants are exercisable for five
years from the date of issuance, at $9.18 per share to purchase an equal amount
of Common Stock.
Upon the completion of the IPO: (i) each share of Series C Preferred Stock
outstanding automatically converted into .4902 shares of Common Stock; (ii)
each warrant to purchase a share of Series D Preferred Stock automatically
became exercisable for .4902 shares of Common Stock, and (iii) each warrant to
purchase a share of Series C Preferred Stock automatically became exercisable
for .4902 shares of Common Stock.
F-14
<PAGE> 44
BIOFIELD CORP.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
8. STOCKHOLDERS' EQUITY (CONTINUED)
Pursuant to an offering of its Series B Preferred Stock through a private
placement which was completed in September 1994 (the "Series B Preferred Stock
offering"), the Company raised $1,947,631 (net of related expenses of $219,761)
through the sale of 481,644 shares of Series B Preferred Stock. Each share of
Series B Preferred Stock was initially convertible on a share-for-share basis
into Common Stock, subject to a proportional adjustment based on achievement by
the Company of a Target Value per share upon the occurrence of a Liquidity
Event (i.e. initial public offering, sale, liquidation). Target Value per
share is defined as the amount which would be realized if the holder of a share
of Series B Preferred Stock had invested $4.50 at a 40 percent compounded
annual rate of return, subject to a maximum adjustment of a reduction in the
Conversion Price which results in the number of shares of Common Stock issuable
upon conversion of one share of Series B Preferred Stock increasing by .16875
shares.
Upon the completion of the IPO, each outstanding share of Series B
Preferred Stock automatically converted into approximately .5729 shares of
Common Stock.
In connection with the Series B Preferred Stock offering, the Company sold
2,843 warrants for $6.00 to a selected dealer of the Series B Preferred Stock
offering to purchase 2,843 shares of Common Stock. The warrants are
exercisable at a price of $9.18 per share for five years ending September 15,
1999.
Pursuant to an offering of its Series A Preferred Stock through a private
placement which was completed in December 1993 (the "Series A Preferred
offering"), the Company raised $9,413,490 of which $1 million was exchanged for
related party loans (see Note 9) (net of related expenses of $1,126,041)
through the sale of 2,342,118 shares of Series A Preferred Stock. The
conversion features and anti-dilution provisions of the Series A Preferred were
substantially equivalent to those of the Series B Preferred Stock described
above.
Upon the completion of the IPO, each outstanding share of Series A
Preferred Stock automatically converted into approximately .5729 shares of
Common Stock.
In connection with the Series A Preferred Stock offering, the Company sold
103,879 warrants for $2,119 to the Placement Agent for the Series A Preferred
offering to purchase 103,879 shares of Common Stock. The warrants are
exercisable at a price of $9.18 per share for five years ending November 5,
1998.
In connection with a private placement of Common Stock offering in 1992
(the "1992 Financing"), the Company issued 22,849 redeemable stock purchase
warrants, of which 2,058 have been exercised. The warrants are exercisable at
a price of $9.79 per share commencing January 31, 1993 and ending January 31,
1997.
The Company has reserved approximately 4.2 million shares of Common Stock
for future issuance upon the exercise and purchase of options and warrants
outstanding as of December 31, 1996.
9. RELATED PARTY TRANSACTIONS
Chairman/Major Stockholder --During the fiscal year ended March 31, 1994,
the Chairman/Major Stockholder loaned the Company $500,000, bearing interest at
10 percent per annum, pursuant to a series of demand promissory notes. The
principal of such notes was exchanged for 111,111 shares of Series A Preferred
Stock in connection with the Series A Preferred Stock offering (see Note 8),
and the accrued interest thereon was paid during the year ended March 31, 1994.
F-15
<PAGE> 45
BIOFIELD CORP.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
9. RELATED PARTY TRANSACTIONS (CONTINUED)
Former Director/Parent of former Chief Executive Officer --In June 1992,
the Company entered into a series of agreements with a then director of the
Company, also father of the Vice Chairman/former Chief Executive Officer, and
the director's wholly owned corporation, Abel Laboratories, Inc. ("Abel"). The
first agreement, called the Laboratory Services Agreement (the "Laboratory
Agreement"), engaged Abel to provide specified pre-clinical research in
connection with the Company's products. The Company spent $750,000 in total
for such specified research. The Company also retained Abel to conduct other
research which aggregated approximately $215,000. The Laboratory Agreement
expired on December 31, 1993; however, the Company and Abel have agreed that
any research conducted by Abel after expiration of the Laboratory Agreement
will be pursuant to substantially the same terms as the original agreement and
will be approved and invoiced on a case-by-case basis. The Company has
retained Abel to conduct additional preclinical research which aggregated
approximately $576,000, $157,000, and $146,000 during the years ended December
31, 1996 and 1995 and the nine-month period ended December 31, 1994,
respectively. Amounts owed to Abel at December 31, 1996 and 1995 are recorded
as due to affiliate in the accompanying balance sheets. The director resigned
from his position on the Board of Directors on April 7, 1993.
In connection with the Laboratory Agreement, the Company granted Abel the
option to purchase 61,275 shares of Common Stock at $8.16 per share. Following
the completion of the Company's Series A Preferred Stock offering, the exercise
price of $8.16 was reduced to $2.04 per share based on the market
capitalization of the Company after completion of such offering. In addition,
during 1995 the Company granted to the former director 24,510 stock options at
$10.20 per share for the purchase of the Company's Common Stock, which vested
immediately upon grant. The options are included in the outstanding options as
of December 31, 1996 (see Note 10).
The Company has also entered into a patent royalty agreement with the
former director and Abel which would assign all rights to the Company for any
patented inventions resulting from performance under the services agreement and
used by the Company. The Company will pay royalties calculated by multiplying
specified percentages (ranging from five to 20 percent) times either future net
sales or net license fees collected from such patented inventions, if any, up
to a maximum of $2,000,000 per invention. As of December 31, 1996, the Company
had applied for a patent, of which the former director is a named co-inventor
(see Note 4).
During the fiscal year ended March 31, 1994, the former director loaned the
Company $500,000, bearing interest at 10 percent per annum, pursuant to a
series of demand promissory notes. The principal of such notes was exchanged
for 111,111 shares of Series A Preferred Stock in connection with the Series A
Preferred Stock offering (see Note 8), and the accrued interest thereon was
paid during the year ended March 31, 1994.
Chairman of the Scientific and Clinical Advisory Boards --The Company
commenced formation of its Scientific and Clinical Advisory Boards
(collectively, the "Advisory Boards") during 1994. As a result, the Company
entered into a one-year consulting agreement dated January 1, 1994, subject to
an annual renewal option, with the Chairman of the Advisory Boards which
provides for compensation of $100,000 per year and options to purchase 58,823
shares of Common Stock at $10.20 per share. As of December 31, 1996 such
options are fully vested and are included in the outstanding options as of
December 31, 1996 (see Note 10).
The Company has also entered into a separate one-year agreement dated
January 1, 1995 with the Chairman of the Advisory Boards' corporation to
provide services in conducting certain research projects. In consideration for
the performance of such research projects, the Company paid approximately
$300,000 and $200,000 during the years ended December 31, 1996 and 1995,
respectively.
F-16
<PAGE> 46
BIOFIELD CORP.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
10. STOCK OPTIONS
At December 31, 1996, the Company has three fixed option plans, which are
described below. The Company applies APB 25 and related Interpretations in
accounting for its plans. SFAS 123 was issued by the FASB in 1995 and, if
fully adopted, changes the methods for recognition of cost on plans similar to
those of the Company. The reporting requirements of SFAS 123 are required for
options issued to nonemployees (excluding nonemployee directors) after December
15, 1995. Adoption of SFAS 123 for options issued to employees is optional;
however, proforma disclosures as if the Company adopted the cost recognition
requirements under SFAS 123 in 1996 and 1995 are presented below.
(a) The Company's 1992 Employee Stock Incentive Plan (the "1992 Plan")
provides for the grant of stock options, stock appreciation rights
("Rights"), and stock bonus awards ("Awards") to acquire a maximum
of 147,060 shares of the Company's Common Stock. The 1992 Plan
permits the granting of incentive stock options ("ISOs") or
non-qualified stock options ("NSOs") at the discretion of the Stock
Option Committee (the "Committee"). The 1992 Plan provides that the
Committee must establish an exercise price for ISOs and Rights which
is not less than the fair market value per share at the date of
grant and an exercise price of NSOs as shall be determined. Each ISO
or Right must expire within 10 years of the date of grant. However,
if ISOs are granted to persons owning more than 10% of the voting
stock of the Company, the 1992 Plan states that the exercise price
shall not be less than 110% of the fair market value per share at
the date of grant and that the term of such ISOs shall not exceed
five years. Vesting of options granted under the 1992 Plan is
determined by the Committee, and has generally been set at the end
of two or three years.
(b) The Biofield Corp. 1996 Option Plan (the "1996 Plan") provides for
the grant of options to acquire a maximum of 500,000 shares of
Common Stock. The 1996 Plan permits the granting of ISOs or NSOs.
ISOs may be granted to individuals who, at the time of grant, are
employees of the Company or its affiliates. NSOs may be granted to
directors, employees, consultants and other agents of the Company or
its affiliates. The 1996 Plan provides that the exercise price for
ISOs is not less than the fair market value per share of the Common
Stock at the date of grant and an exercise price for NSOs of not
less than 85% of such fair market value. Each ISO must expire
within ten years of the date of grant. However, if ISOs are granted
to persons owning more than 10% of the voting stock of the Company,
the 1996 Plan provides that the exercise price may not be less than
110% of the fair market value per share at the date of grant and
that the term of such ISOs may not exceed five years. Unless
otherwise provided by the 1996 Plan Administrator, options granted
under the 1996 Plan vest at a rate of 25% per year over a four-year
period.
(c) The Biofield Corp. 1996 Stock Option Plan for Non-Employee Directors
(the "1996 Directors' Stock Plan") provides for the automatic grant
of nonstatutory stock options to nonemployee directors of the
Company's Common Stock. Options under the 1996 Directors' Stock
Plan may be granted only to directors of the Company who are not
employees of the Company. Under the 1996 Directors' Stock Plan,
150,000 shares of Common Stock have been reserved for issuance upon
exercise of the options. The 1996 Directors' Stock Plan provides for
the automatic grant of options to eligible directors. Pursuant to
the 1996 Directors' Stock Plan, each eligible director serving on the
Board on the effective date of the 1996 Directors' Stock Plan
automatically received an option to purchase 10,000 shares of Common
Stock, subject to vesting in three equal annual installments.
Subsequently, whenever a new director joins the Board, such director
shall automatically receive options to purchase 10,000 shares of
Common Stock on the date of his or her election to the Board,
subject to vesting in three equal annual installments. In each year
other than the year in which an initial grant of options is received
by a director, such director shall automatically receive options to
purchase 2,500 shares of Common Stock. The term of each option
granted under the 1996 Directors' Stock Plan is 10 years. The
exercise price of each option under the 1996 Directors' Stock Plan
must be equal to the fair market value of the Common Stock subject to
the option on the date of the grant.
F-17
<PAGE> 47
BIOFIELD CORP.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
10. STOCK OPTIONS (CONTINUED)
A summary of the status of the Company's three fixed option plans as of
December 31, 1996, 1995 and 1994 and the changes during the years ended
December 31, 1996 and 1995 and the nine-month period ended December 31, 1994
is presented below:
<TABLE>
<CAPTION>
1996 1995 1994
------------------- ----------------- -------------------
Wgtd. Wgtd. Wgtd.
Avg. Avg. Avg.
Exer. Exer. Exer.
Shares Price Shares Price Shares Price
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of period 103,914 $ 9.18 27,693 $ 9.18 -- $ --
Granted . . . . . . . . . . . . . . 205,000 11.18 78,426 9.18 27,693 9.18
Exercised . . . . . . . . . . . . . -- -- -- -- -- --
Canceled . . . . . . . . . . . . . (57,843) 15.72 (2,205) 9.18 -- --
-------- -------- --------
Outstanding at end of year . . . . 251,071 9.30 103,914 9.18 27,693 9.18
======== ======== ========
Options exercisable at year end . . 64,036 9.18 34,632 9.18 -- --
======== ======== ========
Options available for future grant 545,989 43,146 119,367
======== ======== ========
Weighted average fair value of
options granted during the
period . . . . . . . . . . . . $ 6.42 $ 2.50
======== ========
</TABLE>
All options granted under the Company's three fixed option plans have an
exercise price equal to the market price of the stock on the grant date. The
Company has also granted NSOs outside of the Company's three fixed option plans
to certain officers, directors and consultants of the Company which are
exercisable over various periods through December 1, 2005. Certain of these
NSOs are performance based options and become exercisable solely upon the
achievement of certain milestones as described in the option agreements, and
certain NSOs granted become exercisable immediately in the event of a merger or
sale of all or substantially all of the assets of the Company. A summary of
the status of the Company's NSOs granted outside of the three plans as of
December 31, 1996, 1995, and 1994 and the changes during the years ended
December 31, 1996 and 1995 and the nine-month period ended December 31, 1994,
is presented below:
<TABLE>
<CAPTION>
1996 1995 1994
------------------- ----------------- -------------------
Wgtd. Wgtd. Wgtd.
Avg. Avg. Avg.
Exer. Exer. Exer.
Shares Price Shares Price Shares Price
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of period 1,362,015 $ 7.03 1,023,778 $ 6.17 999,268 $ 6.08
Granted . . . . . . . . . . . . . . -- -- 389,708 9.69 24,510 10.20
Exercised . . . . . . . . . . . . . -- -- -- -- -- --
Canceled . . . . . . . . . . . . . -- -- (51,471) 10.20 -- --
--------- --------- ---------
Outstanding at end of year . . . . 1,362,015 7.03 1,362,015 7.03 1,023,778 6.17
========= ========= =========
Options exercisable at year end . . 1,105,966 6.35 951,716 5.87 903,113 5.49
========= ========= =========
Weighted average fair value of
options granted during the
period . . . . . . . . . . . . $ -- $ 3.76
========= =========
</TABLE>
F-18
<PAGE> 48
BIOFIELD CORP.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
10. STOCK OPTIONS (CONTINUED)
The exercise prices of some NSOs granted during 1995 outside of the
Company's three fixed option plans differ from the market price of the stock on
the grant date, and a summary of the weighted-average prices and
weighted-average fair values of the NSOs granted during 1995 outside of the
Company's three fixed option plans is presented below:
<TABLE>
<CAPTION>
Wgtd. Avg. Wgtd. Avg.
Exercise Fair
Price Value
---------- ---------
<S> <C> <C>
Exercise price is less than the market price . . . $ 5.10 $ 6.56
Exercise price is equal to the market price . . . 9.18 3.86
Exercise price exceeds the market price . . . . . 11.90 2.69
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------------- ----------------------------
Wgtd. Avg.
Range of Number Remaining Wgtd. Avg. Number Wgtd. Avg.
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices at 12/31/96 Life Price at 12/31/96 Price
------ ----------- ---- ----- ----------- -----
<S> <C> <C> <C> <C> <C>
$ 0.25 . . . . . . . 94,852 4.2 $ 0.25 94,852 $ 0.25
1.02 . . . . . . . 61,275 6.0 1.02 61,275 1.02
2.04 . . . . . . . 245,099 5.7 2.04 245,099 2.04
5.10 . . . . . . . 49,020 8.1 5.10 49,020 5.10
8.16 to 12.24 . . . 1,162,840 6.2 9.52 719,756 9.41
</TABLE>
As provided by SFAS 123, the fair value of each option grant before the
Company's IPO is estimated on the date of grant using the minimum value method,
and the fair value of each option grant after the Company's IPO is estimated on
the date of grant using the Black-Scholes option pricing model. The following
weighted average assumptions were used for option grants in 1995: (i) dividend
yield of 0%; (ii) risk-free interest rate of 6.56%; and (iii) option term of
8.3 years. The following weighted average assumptions were used for option
grants during 1996 before the IPO: (i) dividend yield of 0%; (ii) risk-free
interest rate of 6.65%; and (iii) option term of 10 years. The following
weighted average assumptions were used for option grants during 1996 after the
IPO: (i) dividend yield of 0%; (ii) expected volatility of 72.5%; (iii)
risk-free interest rate of 6.26%; and (iv) expected life of 4 years.
Had compensation cost for the Company's stock option plans been determined
based on the fair value at the grant dates for awards under those plans
consistent with the method of SFAS 123, the Company's net loss and net loss per
common and common equivalent share for the years ended December 31, 1996 and
1995 would have been increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1996 1995
---------------- ---------------
<S> <C> <C>
Net loss
As reported $ (10,036,090) $ (8,739,860)
Pro forma $ (10,635,339) $ (9,111,884)
Primary net loss per common and common equivalent share
As reported $ (1.87) $ (2.34)
Pro forma $ (1.98) $ (2.44)
Fully-diluted net loss per common and common equivalent share
As reported $ (1.66) $ (2.34)
Pro forma $ (1.76) $ (2.44)
</TABLE>
F-19
<PAGE> 49
BIOFIELD CORP.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
10. STOCK OPTIONS (CONTINUED)
The effects of applying SFAS 123 in this proforma disclosure are not
indicative of future amounts. SFAS 123 does not apply to awards prior to 1995,
and additional awards in future years are anticipated.
11. DEVELOPMENT STAGE COMPANY
The Company is in the development stage and, to date, has generated no
revenues, has incurred expenses and has sustained losses. Consequently, its
operations are subject to all of the risks inherent in the establishment of a
new business enterprise. For the period from inception through December 31,
1996, the Company has accumulated a deficit of $35,368,880. There can be no
assurance that the Company will have sufficient funds available to complete its
research and development programs or be able to commercially manufacture or
market any products in the future; that future revenues will be significant; or
that any sales will be profitable. The Company expects operating losses to
increase for at least the next several years due principally to the anticipated
expenses associated with the proposed commercialization of the ALEXA 1000
System, development of, and clinical trials for, the proposed Biofield
screening system and other research and development activities.
The Company had approximately $13,939,000 of cash, cash equivalents and
short-term investments at December 31, 1996. Management believes that such
funds will be sufficient for the Company to meet its obligations as they become
due for at least the next 12 months.
F-20
<PAGE> 1
EXHIBIT 3.1
FOURTH AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
BIOFIELD CORP.
under
The Delaware General Corporation Law
<PAGE> 2
FOURTH AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
BIOFIELD CORP.
Biofield Corp., a corporation organized and existing under the laws of
the State of Delaware (the "Corporation"), hereby certifies as follows:
1. The name of the Corporation is Biofield Corp. The date of
filing of its original Certificate of Incorporation with the Secretary of State
was December 15, 1992.
2. On May 7, 1993, the Corporation filed an Amended and Restated
Certificate of Incorporation.
3. On November 3, 1993, the Corporation filed a Second Amended
and Restated Certificate of Incorporation.
4. On March 1, 1994, the Corporation filed a Third Amended and
Restated Certificate of Incorporation.
5. This Fourth Amended and Restated Certificate of Incorporation
restates, integrates and further amends the provisions of the Certificate of
Incorporation of this Corporation. This Fourth Amended and Restated
Certificate of Incorporation was duly adopted by unanimous written consent of
the directors of the Corporation in accordance with Section 141(f) of the
General Corporation Law of the State of Delaware (the "DGCL") and majority
written consent of the
- 2 -
<PAGE> 3
stockholders of this Corporation in accordance with Section 228 of the DGCL.
In accordance with Section 228 of the DGCL, notice of such majority written
consent has been given to all stockholders who did not consent to the actions
taken thereby.
6. The text of the Certificate of Incorporation as heretofore
amended is hereby restated and further amended to read in its entirety as
follows:
FIRST. The name of the Corporation is BIOFIELD CORP.
SECOND. The address, including street, number, city and county of the
Corporation's registered office in the State of Delaware is 32 Loockerman
Square, Suite L-100, City of Dover, County of Kent. The name of its registered
agent at such address is The Prentice-Hall Corporation System, Inc.
THIRD. The purpose of the Corporation is to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware.
FOURTH. The aggregate number of shares which the Corporation shall
have the authority to issue is thirty-seven million (37,000,000) shares, par
value of $.001 per share, consisting of twenty-five million (25,000,000) shares
of Common Stock, par value $.001 per share; and twelve million (12,000,000)
shares of Preferred Stock, par value $.001 per share. Such Preferred Stock
shall consist of two million three hundred fifty thousand (2,350,000) shares of
Series A Convertible Preferred Stock, par value $.001 per share (the "Series A
Preferred Stock"); five hundred thousand (500,000) shares of Series B
- 3 -
<PAGE> 4
Convertible Preferred Stock, par value $.001 per share (the "Series B Preferred
Stock"); four million one hundred thousand (4,100,000) shares of Series C
Convertible Preferred Stock, par value $.001 per share (the "Series C Preferred
Stock"); two million seven hundred fifty thousand (2,750,000) shares of Series
D Convertible Preferred Stock, par value $.001 per share (the "Series D
Preferred Stock"); and two million three hundred thousand (2,300,000) shares of
such Preferred Stock, par value $.001 per share, as may be established by the
Board of Directors pursuant to Article FIFTH hereof, subject to the protective
provisions of Paragraph 5 of Article FOURTH hereof. (The Series A Preferred
Stock, the Series B Preferred Stock, the Series C Preferred Stock and the
Series D Preferred Stock are hereinafter collectively referred to as the
"Series Preferred Stock.")
1. Dividend Provisions.
The holders of shares of the Common Stock and the holders of
shares of Series Preferred Stock shall be entitled to dividends when and as
declared by the Board of Directors; provided, however, that holders of Series
Preferred Stock shall be entitled to receive dividends equivalent on a per
share basis to any dividends received by the holders of Common Stock or any
series of Preferred Stock ranking pari passu or junior to the Series Preferred
Stock, based upon the number of full shares of Common Stock into which such
shares of Series Preferred Stock could be converted pursuant to the provisions
of Paragraph 3 hereof, at the record date for the determination of shareholders
entitled to such
- 4 -
<PAGE> 5
dividends. The Series A Preferred Stock, the Series B Preferred Stock, the
Series C Preferred Stock and the Series D Preferred Stock shall rank pari passu
with each other in respect of dividends.
2. Liquidation Preference.
(a) Series Preferred Stock.
(i) In the event of any liquidation, dissolution
or winding up of the Corporation, either voluntary or involuntary
(collectively, a "Liquidation"), each of the holders of the Series Preferred
Stock shall be entitled to receive prior and in preference to any distribution
of any of the assets of the Corporation to holders of Common Stock or Preferred
Stock ranking junior to the Series Preferred Stock, an amount per share as
follows: holders of Series Preferred Stock shall be entitled to receive an
amount of cash and/or property (which may include securities) equal to the sum
of the Series Liquidation Value (as defined below) for each outstanding share
of Series Preferred Stock, and all declared but unpaid dividends per share, and
no more. If upon any such Liquidation, the remaining assets of the Corporation
available for distribution to its shareholders shall be insufficient to pay the
holders of shares of Series Preferred Stock the full amount to which they shall
be entitled, the holders of shares of Series Preferred Stock and any class or
series of stock ranking on liquidation on a parity with the Series Preferred
Stock shall share ratably in any distribution of the remaining assets and funds
of the Corporation in proportion to the respective amounts which would
otherwise
- 5 -
<PAGE> 6
be payable in respect of the shares held by them upon such distribution if all
amounts payable on or with respect to such shares were paid in full. The
holders of the Series Preferred Stock shall each be given at least ten (10)
business days prior written notice of any such Liquidation during which period
such holders may exercise the conversion rights under Paragraph 3 hereof. If
such notice is not given or is not feasible, the holders of the Series
Preferred Stock shall be entitled to receive the amount that such holders would
have received had their shares been converted immediately prior to Liquidation
if such amount is greater than the amount payable under the first sentence of
this subsection. The holders of Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock and Series D Preferred Stock shall rank on
liquidation on a parity with each other.
(ii) For purposes of this Fourth Amended and
Restated Certificate of Incorporation, the term "Series Liquidation Value"
means (a) Four Dollars and Fifty Cents ($4.50), in the case of Series A
Preferred Stock, Series B Preferred Stock and Series C Preferred Stock and (b)
Six Dollars ($6.00), in the case of Series D Preferred Stock.
(b) Common Stock. In the event of any Liquidation of the
Corporation, if there are any assets remaining available for distribution after
the distribution provided for above to the holders of Series Preferred Stock,
the holders of Common Stock shall be entitled to receive pro rata the entire
remaining assets of the Corporation legally available for distribution.
- 6 -
<PAGE> 7
(c) Consolidation, Merger or Sale of the Corporation. A
consolidation or merger of the Corporation with or into any other corporation
or corporations (other than a consolidation or merger in which the Corporation
is the continuing corporation), or a sale, conveyance or disposition of all or
substantially all of the assets of the Corporation or the effectuation by the
Corporation of a transaction or series of related transactions in which more
than fifty (50%) percent of the voting power of the Corporation is disposed of
(collectively, a "Sale of the Corporation"), shall be deemed to be a
Liquidation within the meaning of this Paragraph 2.
3. Conversion.
(a) No holder of Common Stock shall have the right to
convert such shares into any other class of stock of the Corporation.
(b) Each of the holders of the Series Preferred Stock
shall have conversion rights as follows (the "Conversion Rights"):
(i) Right to Convert. Each share of the Series
Preferred Stock shall be convertible, at the option of the holder thereof, at
any time after the date of issuance of such share, at the office of the
Corporation or any transfer agent for the Series Preferred Stock, into such
number of fully paid and non-assessable shares of Common Stock as is determined
by dividing the Series Liquidation Value plus all declared but unpaid dividends
per share on the date of conversion, by the conversion price at the time in
effect for such shares. The initial conversion price for the Series A
Preferred Stock (the
- 7 -
<PAGE> 8
"Series A Conversion Price") shall be Four Dollars and Fifty Cents ($4.50) per
share, the initial conversion price for the Series B Preferred Stock (the
"Series B Conversion Price") shall be Four Dollars and Fifty Cents ($4.50) per
share, the initial conversion price for the Series C Preferred Stock (the
"Series C Conversion Price") shall be Four Dollars and Fifty Cents ($4.50) per
share and the initial conversion price for the Series D Preferred Stock (the
"Series D Conversion Price") shall be Six Dollars ($6.00) per share, provided,
however, that the Series A Conversion Price, the Series B Conversion Price, the
Series C Conversion Price and the Series D Conversion Price shall be subject to
adjustment as set forth in this Paragraph 3(b).
(ii) Mechanics of Conversion. Before any holder
of Series Preferred Stock shall be entitled to convert the same into shares of
Common Stock, he shall surrender the certificate or certificates therefor, duly
endorsed, at the office of the Corporation or of any transfer agent for such
Series Preferred Stock, and shall give written notice by mail, postage prepaid,
to the Corporation at its principal corporate office, of the election to
convert the same and shall state therein the name or names in which the
certificate or certificates for shares of Common Stock are to be issued. The
Corporation shall, as soon as practicable thereafter, issue and deliver at such
office to such holder of the Series Preferred Stock, or to the nominee or
nominees of such holder, a certificate or certificates for the number of shares
of Common Stock to which such holder shall be entitled as aforesaid. Such
conversion shall be
- 8 -
<PAGE> 9
deemed to have been made immediately prior to the close of business on the date
of such surrender of the shares of the Series Preferred Stock to be converted,
and the person or persons entitled to receive the shares of Common Stock
issuable upon such conversion shall be treated for all purposes as the record
holder or holders of such shares of Common Stock as of such date.
(iii) Conversion Price Adjustments of Series
Preferred Stock. As used in this Subsection, "Employee Shares" shall mean up to
3,000,000 shares of Common Stock issued or issuable to employees, officers,
directors and consultants of the Corporation pursuant to stock purchase or
stock option plans or arrangements, or both, approved by the Board of
Directors; "Warrant Shares" shall mean (i) shares of Common Stock issuable upon
exercise of (A) those warrants (including up to 155,556 shares of Common Stock
issuable upon exercise of such warrants) issued or issuable to Musket Research
Associates, Inc., or other selected dealers, in connection with the sale of the
Series C Securities (as defined below), (B) those warrants (including up to
211,989 shares of Common Stock issuable upon exercise of such warrants) issued
to Oppenheimer & Co., Inc. in connection with a private placement of the Series
A Preferred Stock, (C) those warrants (including up to 5,800 shares of Common
Stock issuable upon exercise of such warrants) issued to Craig & Associates,
Inc. in connection with a private placement of the Series B Preferred Stock,
(D) those warrants (including up to 46,625 shares of Common Stock issuable upon
exercise of such warrants) issued to various selected dealers in connection
with a private
- 9 -
<PAGE> 10
placement of Common Stock, and (ii) shares of Preferred Stock and Common Stock
issuable upon exercise of those warrants (the "Warrants") issued or issuable to
GS Capital Partners, L.P. ("GSCP") and certain other investors in connection
with a private placement of the Series C Securities (as defined below) (the
Warrants to purchase Preferred Stock are referred to as the "Preferred Stock
Warrants"); "Series C Securities" shall mean the securities issued or issuable
to GSCP and certain other investors at a price of $4.50 per unit, with each
such unit consisting of (i) one share of Series C Preferred Stock, (ii)
one-half of a warrant (a "$6.00 Warrant") to purchase a share of Series D
Preferred Stock at an initial exercise price of $6.00 per warrant, (iii)
one-half of a warrant (an "Adjustable Warrant") to purchase one share of Series
D Preferred Stock at an initial exercise price of $6.00 per warrant or, upon
the occurrence of certain events, one share of Series C Preferred Stock at an
initial exercise price of $4.50 per warrant, and (iv) the right, upon the
occurrence of certain events to receive, for no additional consideration,
one-quarter of a warrant (an "Additional Warrant") to purchase one share of
Common Stock at an initial exercise price of $4.50 per warrant. The number of
Employee Shares and Warrant Shares shall, generally, be subject to appropriate
adjustment for stock splits, stock dividends, combinations and other similar
recapitalizations affecting such shares. Except in the case of the issuance of
the Series C Securities, Employee Shares, Warrant Shares and shares issued upon
conversion of Series Preferred Stock (in which event the provisions of this
Paragraph 3(b) shall not apply),
- 10 -
<PAGE> 11
the Series A Conversion Price, the Series B Conversion Price, the Series C
Conversion Price and the Series D Conversion Price shall be subject to
adjustment from time to time as follows:
(1) In the event the Corporation should
at any time or from time to time after the date of filing of this Amended and
Restated Certificate of Incorporation (the "Filing Date") fix a record date for
(x) the effectuation of a subdivision (by any stock split or otherwise) of the
outstanding shares of Common Stock or (y) the determination of holders of
Common Stock entitled to receive a dividend or other distribution payable in
additional shares of Common Stock or other securities or rights convertible
into or exercisable for, or entitling the holder thereof to receive directly or
indirectly, additional shares of Common Stock (hereinafter referred to as
"Common Stock Equivalents") without payment of any consideration by such holder
for the additional shares of Common Stock or the Common Stock Equivalents,
including the additional shares of Common Stock issuable upon conversion or
exercise thereof, then, as of such record date (or the date of such dividend,
distribution, split, subdivision or determination if no record date is fixed),
(i) the Series A Conversion Price shall be appropriately decreased to an amount
equal to the Series A Conversion Price in effect on the record date (or the
date of such dividend, distribution, split, subdivision or determination if no
record date is fixed) times a fraction, the numerator of which shall be the
number of shares of Common Stock outstanding before the dividend, subdivision,
- 11 -
<PAGE> 12
distribution or split and the denominator of which shall be the number of
shares of Common Stock outstanding after the dividend, subdivision,
distribution or split (assuming the exercise or conversion of all Common Stock
Equivalents issued or issuable pursuant to such dividend, subdivision,
distribution or split), (ii) the Series B Conversion Price shall be
appropriately decreased to an amount equal to the Series B Conversion Price in
effect on the record date (or the date of such dividend, distribution, split,
subdivision or determination if no record date is fixed) times a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
before the dividend, subdivision, distribution or split and the denominator of
which shall be the number of shares of Common Stock outstanding after the
dividend, subdivision, distribution or split (assuming the exercise or
conversion of all Common Stock Equivalents issued or issuable pursuant to such
dividend, subdivision, distribution or split), (iii) the Series C Conversion
Price shall be appropriately decreased to an amount equal to the Series C
Conversion Price in effect on the record date (or the date of such dividend,
distribution, split, subdivision or determination if no record date is fixed)
times a fraction, the numerator of which shall be the number of shares of
Common Stock outstanding before the dividend, subdivision, distribution or
split and the denominator of which shall be the number of shares of Common
Stock outstanding after the dividend, subdivision, distribution or split
(assuming the exercise or conversion of all Common Stock Equivalents issued or
issuable pursuant to such
- 12 -
<PAGE> 13
dividend, subdivision, distribution or split) and (iv) the Series D Conversion
Price shall be appropriately decreased to an amount equal to the Series D
Conversion Price in effect on the record date (or the date of such dividend,
distribution, split, subdivision or determination if no record date is fixed)
times a fraction, the numerator of which shall be the number of shares of
Common Stock outstanding before the dividend, subdivision, distribution or
split and the denominator of which shall be the number of shares of Common
Stock outstanding after the dividend, subdivision, distribution or split
(assuming the exercise or conversion of all Common Stock Equivalents issued or
issuable pursuant to such dividend, subdivision, distribution or split).
(2) In the event the Corporation should
at any time, or from time to time, after the Filing Date issue or sell any
Common Stock or Common Stock Equivalents for a consideration per share of
Common Stock (i) less than the Series A Conversion Price, then the Series A
Conversion Price shall be appropriately reduced to a price (calculated to the
nearest cent) determined by dividing an amount equal to (x) the sum of (A) the
number of shares of Common Stock outstanding immediately prior to such issue or
sale multiplied by the then existing Series A Conversion Price, plus (B) the
consideration received by the Corporation upon such issue or sale, by (y) the
total number of shares of Common Stock outstanding after such issue or sale,
(ii) less than the Series B Conversion Price, then the Series B Conversion
Price shall be appropriately reduced to a price (calculated to the nearest
cent) determined by dividing an
- 13 -
<PAGE> 14
amount equal to (x) the sum of (A) the number of shares of Common Stock
outstanding immediately prior to such issue or sale multiplied by the then
existing Series B Conversion Price, plus (B) the consideration received by the
Corporation upon such issue or sale, by (y) the total number of shares of
Common Stock outstanding after such issue or sale, (iii) less than the Series C
Conversion Price, then the Series C Conversion Price shall be appropriately
reduced to a price (calculated to the nearest cent) determined by dividing an
amount equal to (x) the sum of (A) the number of shares of Common Stock
outstanding immediately prior to such issue or sale multiplied by the then
existing Series C Conversion Price, plus (B) the consideration received by the
corporation upon such issue or sale, by (y) the total number of shares of
Common Stock outstanding after such issue or sale and (iv) less than the Series
D Conversion Price, then the Series D Conversion Price shall be appropriately
reduced to a price (calculated to the nearest cent) determined by dividing an
amount equal to (x) the sum of (A) the number of shares of Common Stock
outstanding immediately prior to such issue or sale multiplied by the then
existing Series D Conversion Price, plus (B) the consideration received by the
corporation upon such issue or sale, by (y) the total number of shares of
Common Stock outstanding after such issue or sale. No adjustment of the Series
A Conversion Price, the Series B Conversion Price, the Series C Conversion
Price or the Series D Conversion Price, as applicable, shall be made in an
amount less than $.01 per share, but such lesser adjustment shall be carried
forward and
- 14 -
<PAGE> 15
shall be made at the time that such adjustment together with any future
adjustments to the Series A Conversion Price, the Series B Conversion Price,
the Series C Conversion Price or the Series D Conversion Price, as applicable,
shall amount to $.01 per share or more.
(3) If the number of shares of Common
Stock outstanding at any time after the Filing Date is decreased by a
combination (by reverse stock split or otherwise) of the outstanding shares of
Common Stock, then, following the record date of such combination, (A) the
Series A Conversion Price shall be appropriately increased to an amount equal
to the Series A Conversion Price in effect on the record date (or the date of
such combination if no record date is fixed) times a fraction, the numerator of
which shall be the number of shares outstanding before the combination and, the
denominator of which shall be the number of shares outstanding after the
combination, (B) the Series B Conversion Price shall be appropriately increased
to an amount equal to the Series B Conversion Price in effect on the record
date (or the date of such combination if no record date is fixed) times a
fraction, the numerator of which shall be the number of shares outstanding
before the combination and, the denominator of which shall be the number of
shares outstanding after the combination, (C) the Series C Conversion Price
shall be appropriately increased to an amount equal to the Series C Conversion
Price in effect on the record date (or the date of such combination if no
record date is fixed) times a fraction, the numerator of which shall be the
number of shares outstanding before the
- 15 -
<PAGE> 16
combination and, the denominator of which shall be the number of shares
outstanding after the combination and (D) the Series D Conversion Price shall
be appropriately increased to an amount equal to the Series D Conversion Price
in effect on the record date (or the date of such combination if no record date
is fixed) times a fraction, the numerator of which shall be the number of
shares outstanding before the combination and, the denominator of which shall
be the number of shares outstanding after the combination.
(iv) The issuance of certificates for shares of
Common Stock upon conversion of Series Preferred Stock, shall be made without
charge to the holders thereof for any issuance tax in respect thereof, provided
that the Corporation shall not be required to pay any tax which may be payable
in respect of any transfer involved in the issuance and delivery of any
certificate in a name other than that of the holder of the Series Preferred
Stock which is being converted.
(v) The Corporation will at no time close its
transfer books against the transfer of any Series Preferred Stock or of any
shares of Common Stock issued or issuable upon the conversion of any shares of
Series Preferred Stock, in any manner which interferes with the timely
conversion of such Series Preferred Stock, except as may otherwise be required
to comply with applicable securities laws.
(vi) As used in this Paragraph 3, the term "Common
Stock" shall mean and include the Corporation's authorized Common Stock, par
value
- 16 -
<PAGE> 17
$.001 per share, as constituted on the Filing Date, and shall also include any
capital stock of any class of the Corporation thereafter authorized which shall
neither be limited to a fixed sum or percentage in respect of the rights of the
holders thereof to participate in dividends nor be entitled to a preference in
the distribution of assets upon the voluntary or involuntary liquidation,
dissolution or winding up of the Corporation; provided that the shares of
Common Stock receivable upon conversion of shares of Series Preferred Stock
shall include only shares designated as Common Stock of the Corporation on the
Filing Date, or in case of any reorganization or reclassification of the
outstanding shares thereof, the stock, securities or assets to be issued in
exchange for such Common Stock pursuant thereto.
(vii) Liquidity Event Adjustments.
(A) Series A Preferred Stock. The
Conversion Price of the Series A Preferred Stock shall be subject to adjustment
upon the occurrence of a Liquidity Event (as defined below), if the Series A
Conversion Value Per Share (as defined below) on the Event Date (as defined
below), is less than the Series A Target Value Per Share (as defined below) on
the Event Date. In such case, the Conversion Price of the Series A Preferred
Stock shall be reduced such that, immediately after giving effect to such
reduction, the Series A Conversion Value Per Share equals the Series A Target
Value Per Share; provided, however, that the Conversion Price of the Series A
Preferred Stock shall not be reduced by more than Maximum Adjustment Amount (as
defined below);
- 17 -
<PAGE> 18
and, provided further, however, that the provisions of this subparagraph
3(vii)(A) shall be applied only to the first Liquidity Event following the
Series A Initial Issuance Date (as defined below). No adjustment of the
Conversion Price of the Series A Preferred Stock shall be made in an amount
less than $.01 per share, but such lesser adjustment shall be carried forward
and shall be made at the time that such adjustment together with any
adjustments carried forward, shall amount to $.01 per share or more.
(B) Series B Preferred Stock. The
Conversion Price of the Series B Preferred Stock shall be subject to adjustment
upon the occurrence of a Liquidity Event (as defined below), if the Series B
Conversion Value Per Share (as defined below) on the Event Date (as defined
below), is less than the Series B Target Value Per Share (as defined below) on
the Event Date. In such case, the Conversion Price of the Series B Preferred
Stock shall be reduced such that, immediately after giving effect to such
reduction, the Series B Conversion Value Per Share equals the Series B Target
Value Per Share; provided, however, that the Conversion Price of the Series B
Preferred Stock shall not be reduced by more than Maximum Adjustment Amount (as
defined below); and, provided further, however, that the provisions of this
subparagraph 3(vii)(B) shall be applied only to the first Liquidity Event
following the Series B Initial Issuance Date (as defined below). No adjustment
of the Conversion Price of the Series B Preferred Stock shall be made in an
amount less than $.01 per share, but such lesser adjustment shall be carried
forward and
- 18 -
<PAGE> 19
shall be made at the time that such adjustment together with any adjustments
carried forward, shall amount to $.01 per share or more.
For purposes of this Paragraph 3, the following terms shall have the
following meanings:
(1) Series A Conversion Value Per Share:
the Fair Market Value Per Share (as defined below) of Common Stock multiplied
by the number of shares of Common Stock issuable upon the conversion of one
share of Series A Preferred Stock or Series B Preferred Stock, determined
pursuant to subparagraph 3(b)(i).
(2) Series B Conversion Value Per Share:
the Fair Market Value Per Share (as defined below) of Common Stock multiplied
by the number of shares of Common Stock issuable upon the conversion of one
share of Series B Preferred Stock, determined pursuant to subparagraph 3(b)(i).
(3) Event Date: in the case of (a) an
Initial Public Offering (as defined in subparagraph 3(b)(vii)(5) hereof), the
later of (x) the date that such Initial Public Offering is declared effective
by the Securities and Exchange Commission, and (y) the date on which the
Corporation and the lead underwriter establish the public offering price, and
(b) a Sale of the Corporation or Liquidation, the earlier of (x) the date upon
which all director, stockholder, court or governmental approvals which are
necessary conditions precedent to such transaction have been obtained and (y)
the date upon which such transaction is consummated.
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<PAGE> 20
(4) Fair Market Value Per Share: in the
case of (a) an Initial Public Offering, the public offering price per share of
the Corporation's Common Stock (before deducting underwriting compensation and
discounts and offering expenses); (b) a Sale of the Corporation, the value of
the consideration received by the Corporation and its stockholders in
connection with such sale of the Corporation, divided by the number of shares
of Common Stock outstanding on the Liquidity Date (assuming the conversion of
all of the outstanding Series A Preferred Stock and Series B Preferred Stock);
provided, however, that in the event of a Sale of the Corporation accomplished
through the transfer of capital stock which results in the transfer of less
than all of the Corporation's capital stock, the Fair Market Value Per Share
shall equal the value of the consideration received by the Corporation and its
stockholders in connection with such sale of the Corporation, divided by the
number of shares of the Corporation's capital stock acquired by the transferee;
and (c) a Liquidation, the value of all cash, stock and other property
available for distribution to the stockholders of the Corporation, divided by
the number of shares of Common Stock outstanding (assuming the conversion of
all of the convertible securities).
(5) Liquidity Event: any of (a) a sale
by the Corporation of securities in an underwritten public offering pursuant to
a registration statement filed pursuant to the Securities Act of 1933, as
amended,
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<PAGE> 21
and declared effective by the Securities and Exchange Commission (an "Initial
Public Offering"); (b) a Sale of the Corporation; or (c) a Liquidation.
(6) Series A Initial Issuance Date:
November 5, 1993, the date that shares of Series A Preferred Stock were first
issued by the Corporation.
(7) Series B Initial Issuance Date:
September 16, 1994, the date that shares of Series B Preferred Stock were first
issued by the Corporation.
(8) Maximum Adjustment: a reduction in
the Conversion Price which results in the number of shares of Common Stock
issuable upon conversion of one share of Series A Preferred Stock or Series B
Preferred Stock increasing by .16875 shares (subject to adjustment for stock
splits, stock dividends, combinations and similar recapitalizations).
(9) Series A Target Value Per Share: the
amount which would be realized if the holder of a share of Series A Preferred
Stock had invested Four Dollars and Fifty Cents ($4.50) on the Series A Initial
Issuance Date at a 40% compounded annual rate of return.
(10) Series B Target Value Per Share: the
amount which would be realized if the holder of a share of Series B Preferred
Stock had invested Four Dollars and Fifty Cents ($4.50) on the Series B Initial
Issuance Date at a 40% compounded annual rate of return.
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<PAGE> 22
(viii) Other Distributions. In the event the
Corporation shall declare a distribution payable in securities of other
persons, evidences of indebtedness issued by the Corporation or other persons,
assets (excluding cash dividends) or options or rights not otherwise referred
to in subparagraph 3(b)(iii), then, in each such case, the holders of the
Series Preferred Stock shall be entitled to a proportionate share of any such
distribution as though they were the holders of the number of shares of Common
Stock of the Corporation into which their shares of Series Preferred Stock are
convertible as of the record date fixed for the determination of the holders of
Common Stock of the Corporation entitled to receive such distribution.
(ix) Recapitalizations. In the case of a
recapitalization of the Corporation affecting its outstanding shares of Common
Stock, the Series Preferred Stock shall thereafter be convertible into the kind
and amount of shares of stock, other securities, or property receivable upon
such recapitalization by a holder of the number of shares of Common Stock into
which such Series Preferred Stock might have been converted immediately prior
to such recapitalization.
(x) Adjustment for Sale of Corporation. In the
case of a Sale of the Corporation or a proposed reorganization of the
Corporation or a proposed reclassification of the capital stock of the
Corporation (except a
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<PAGE> 23
transaction for which provision for adjustment is otherwise made in this
Paragraph 3(b)), each share of Series Preferred Stock shall thereafter be
convertible into the number of shares of stock or other securities or property
to which a holder of the number of shares of Common Stock of the Corporation
deliverable upon conversion of such Series Preferred Stock would have been
entitled upon such Sale of the Corporation, reorganization or reclassification;
and, in any such case, appropriate adjustment (as determined by the Board of
Directors) shall be made in the application of the provisions herein set forth
with respect to the rights and interest thereafter of the holders of the Series
Preferred Stock, to the end that the provisions set forth herein (including
provisions with respect to changes in and other adjustments of the applicable
conversion price) shall thereafter be applicable, as nearly as reasonably may
be, in relation to any shares of stock or other property thereafter deliverable
upon the conversion of the Series Preferred Stock. The Corporation shall not
effect any such Sale of the Corporation unless prior to or simultaneously with
the consummation thereof the successor corporation or purchaser, as the case
may be, shall assume by written instrument the obligation to deliver to the
holders of the Series Preferred Stock such shares of stock, securities or
assets as, in accordance with the foregoing provisions, each such holder is
entitled to receive.
(xi) No Impairment. The Corporation will not, by
amendment of its Certificate of Incorporation or through any reorganization,
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<PAGE> 24
recapitalization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Corporation, but will at all times in good faith assist in the
carrying out of all the provisions of this Paragraph 3 and in the taking of all
such action as may be necessary or appropriate in order to protect the
Conversion Rights of the holders of the Series Preferred Stock against
impairment.
(xii) No Fractional Shares and Certificates as to
Adjustment.
(1) No fractional shares shall be issued
upon conversion of the Series Preferred Stock and the number of shares of
Common Stock to be issued shall be rounded up to the nearest whole share.
Whether or not fractional shares are issuable upon such conversion shall be
determined on the basis of the total number of shares of Series Preferred Stock
the holder is at the time converting into Common Stock and the number of shares
of Common Stock issuable upon such aggregate conversion.
(2) Upon the occurrence of each
adjustment or readjustment of the Series A Conversion Price, the Series B
Conversion Price, the Series C Conversion Price and/or the Series D Conversion
Price, as applicable, pursuant to this Paragraph 3, the Corporation, at its
expense, shall promptly compute such adjustment or readjustments in accordance
with the terms hereof and prepare and furnish to each holder of Series
Preferred Stock, as
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<PAGE> 25
applicable, a certificate setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is
based. The Corporation shall, upon the written request at any time of any
holder of Series Preferred Stock furnish or cause to be furnished to such
holder a like certificate setting forth (a) such adjustment and readjustment,
(b) the applicable conversion price at the time in effect, and (c) the number
of shares of Common Stock and the amount, if any, of other property which at
the time would be received upon the conversion of a share of Series Preferred
Stock, as applicable.
(xiii) Notices of Record Date. In the event of any
taking by the Corporation of a record of the holders of any class of securities
for the purpose of determining the holders thereof who are entitled to receive
any dividend or other distribution, any right to subscribe for, purchase or
otherwise acquire any shares of stock of any class or any other securities or
property, or to receive any other right, the Corporation shall mail to each
holder of Series Preferred Stock, at least twenty (20) days prior to the date
specified therein, a notice specifying the date on which any such record is to
be taken for the purpose of such dividend, distribution or right and the amount
and character of such dividend, distribution or right.
(xiv) Reservation of Stock Issuable Upon
Conversion. The Corporation shall at all times reserve and keep available out
of its authorized but unissued shares of Common Stock, solely for the purpose
of effecting the
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<PAGE> 26
conversion of the shares of Series Preferred Stock such number of its shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all outstanding shares of Series Preferred Stock, and if at any time the
number of authorized but unissued shares of Common Stock shall not be
sufficient to effect the conversion of all then outstanding shares of the
Series Preferred Stock, in addition to such other remedies as shall be
available to the holders of such Series Preferred Stock, the Corporation will
take such corporate action as may, in the opinion of its counsel, be necessary
to increase its authorized but unissued shares of Common Stock to such number
of shares as shall be sufficient for such purposes.
4. Automatic Conversion.
(a) Immediately upon the closing of the sale of shares of
Common Stock in a bona fide, firm commitment, underwritten public offering
pursuant to an effective registration statement under the Securities Act of
1933, as amended, resulting in at least $20,000,000 of gross proceeds to the
Corporation (before deducting underwriting discount and commissions and
offering expenses) and reflecting a Corporation Valuation (as defined below) of
at least $75,000,000 (a "Qualified Public Offering"), (i) each share of Series
A Preferred Stock then outstanding shall automatically be converted into Common
Stock at the then effective Series A Conversion Price pursuant to Paragraph 3
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<PAGE> 27
hereof, (ii) each share of Series B Preferred Stock then outstanding shall
automatically be converted into Common Stock at the then effective Series B
Conversion Price pursuant to Paragraph 3 hereof, (iii) each share of Series C
Preferred Stock then outstanding shall automatically be converted into Common
Stock at the then effective Series C Conversion Price pursuant to Paragraph 3
hereof, and (iv) each share of Series D Preferred Stock then outstanding shall
automatically be converted into Common Stock at the then effective Series D
Conversion Price, pursuant to Paragraph 3 hereof.
The term "Corporation Valuation" means, with respect to any
public offering of Common Stock, the amount obtained by multiplying the total
number of shares of Common Stock outstanding immediately prior to such public
offering (assuming the conversion, exchange or exercise of all securities
convertible into, or exchangeable or exercisable for, any shares of Common
Stock) multiplied by the per share offering price for such public offering.
(b) All holders of record of shares of Series Preferred
Stock will be given at least 10 days' prior written notice of the date fixed
and the place designated for mandatory conversion of all such shares of Series
Preferred Stock pursuant to this Paragraph 4. Such notice will be sent by first
class or registered mail, postage prepaid, to each record holder of Series
Preferred Stock at such holder's address last shown on the records of the
transfer agent for the Series Preferred Stock (or the records of the
Corporation, if it serves as its own transfer agent). On or before the date
fixed for conversion, each
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<PAGE> 28
holder of shares of Series Preferred Stock shall surrender his or its
certificate or certificates for all such shares to the Corporation at the place
designated in such notice, and shall thereafter receive certificates for the
number of shares of Common Stock to which such holder is entitled pursuant to
this Paragraph 4. On the date fixed for conversion, all rights with respect to
the share of Series Preferred Stock so converted, including the rights, if any,
to receive notices and vote, will terminate, except only the rights of the
holders thereof upon surrender of their certificate or certificates therefor,
to receive certificates for the number of shares of Common Stock into which
such shares of Series Preferred Stock has been converted, and payment of any
accrued but unpaid dividends thereon. If so required by the Corporation,
certificates surrendered for conversion shall be endorsed or accompanied by
written instrument or instruments of transfer, in form satisfactory to the
Corporation, duly executed by the registered holder or by his or its attorney
duly authorized in writing. As soon as practicable after the date of such
mandatory conversion and the surrender of the certificate or certificates for
the shares of Series Preferred Stock so converted, the Corporation shall cause
to be issued and delivered to such holder, or on his or its written order, a
certificate or certificates for the number of full shares of Common Stock
issuable on such conversion in accordance with the provisions hereof and as
provided in subparagraph 3(b)(xii) in respect of any fraction of a share of
Common Stock otherwise issuable upon such conversion.
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<PAGE> 29
(c) All certificates evidencing shares of Series
Preferred Stock which are required to be surrendered for conversion in
accordance with the provisions hereof shall, from and after the date such
certificates are so required to be surrendered, be deemed to have been retired
and canceled and the shares of Series Preferred Stock represented thereby
converted into Common Stock for all purposes, notwithstanding the failure of
the holder or holders thereof to surrender such certificates on or prior to
such date. The Corporation may thereafter take such appropriate action as may
be necessary to reduce the authorized Series Preferred Stock accordingly.
5. Protective Provisions.
(a) So long as shares of Series A Preferred Stock are
outstanding, the Corporation shall not without first obtaining the approval (by
vote or written consent, as provided by law) of the holders of at least a
majority of the then outstanding shares of Series A Preferred Stock:
(i) alter or change the rights, preferences or
privileges of the shares of Series A Preferred Stock or otherwise amend this
Certificate of Incorporation so as to affect adversely the shares of Series A
Preferred Stock; or
(ii) increase the authorized number of shares of
Series A Preferred Stock; or
(iii) create or designate any new class or series
of stock (A) having a preference over, or being on a parity with, the Series A
Preferred
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<PAGE> 30
Stock with respect to dividends or upon liquidation, (B) having rights similar
to any of the rights of the Series A Preferred Stock under Paragraph 3 hereof
or (C) convertible into any such class or series of stock; or
(iv) cause the Corporation to be liquidated or
dissolved, either voluntarily or involuntarily; or
(v) do any act or thing which would result in
taxation of the holders of shares of the Series A Preferred Stock under Section
305 of the Internal Revenue Code of 1986, as amended (or any comparable
provision of the Internal Revenue Code as hereafter from time to time amended);
or
(vi) Consolidate or merge into or with any other
entity or entities or sell, lease, abandon, transfer or otherwise dispose of
all or substantially all its assets; or
(vii) purchase or set aside any sums for the
purchase of, or pay any dividend or make any distribution on, any shares of
stock other than the Series A Preferred Stock, except for dividends or other
distributions payable on the Common Stock solely in the form of additional
shares of Common Stock and except for the purchase of shares of Common Stock
from former employees of the Corporation who acquired such shares directly from
the Corporation, if each such purchase is made pursuant to contractual rights
held by the Corporation relating to the termination of employment of such
former employee and the purchase price
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<PAGE> 31
does not exceed the original issue price paid by such former employee to the
Corporation for such shares; or
(viii) redeem or otherwise acquire any shares of
Series A Preferred Stock pursuant to a purchase offer made pro rata to all
holders of the shares of Series A Preferred Stock on the basis of the aggregate
number of outstanding shares of Series A Preferred Stock then held by each such
holder.
(b) So long as shares of Series B Preferred Stock are
outstanding, the Corporation shall not without first obtaining the approval (by
vote or written consent, as provided by law) of the holders of at least a
majority of the then outstanding shares of Series B Preferred Stock:
(i) alter or change the rights, preferences or
privileges of the shares of Series B Preferred Stock or otherwise amend this
Certificate of Incorporation so as to affect adversely the shares of Series B
Preferred Stock; or
(ii) increase the authorized number of shares of
Series B Preferred Stock; or
(iii) create or designate any new class or series
of stock, other than the Series A Preferred Stock, (A) having a preference
over, or being on a parity with, the Series B Preferred Stock with respect to
dividends or upon liquidation, (B) having rights similar to any of the rights
of the Series B Preferred Stock under Paragraph 3 hereof or (C) convertible
into any such class or series of stock; or
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<PAGE> 32
(iv) redeem or otherwise acquire any shares of
Series B Preferred Stock pursuant to a purchase offer made pro rata to all
holders of the shares of Series B Preferred Stock on the basis of the aggregate
number of outstanding shares of Series B Preferred Stock then held by each such
holder.
(c) So long as shares of Series C Preferred Stock (or
securities convertible into, or exchangeable or exercisable for, shares of
Series C Preferred Stock ("Series C Equivalents")) are outstanding, the
Corporation shall not without first obtaining the approval (by vote or written
consent, as provided by law) of the holders of at least a majority of the then
outstanding shares of Series C Preferred Stock (assuming conversion exchange or
exercise of all Series C Equivalents):
(i) alter or change the rights, preference or
privileges of the shares of Series C Preferred Stock or otherwise amend this
Certificate of Incorporation so as to affect adversely the shares of Series C
Preferred Stock; or
(ii) increase the authorized number of shares of
Series C Preferred Stock; or
(iii) create or designate, or authorize the
issuance of, any new class or series of stock (A) ranking senior or having a
preference over, or being on a parity with, the Series C Preferred Stock with
respect to dividends or upon liquidation, (B) having rights similar to any
rights of the Series C
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<PAGE> 33
Preferred Stock under Paragraph 3 hereof or Paragraph 6 hereof, or (C)
convertible into any such class or series of stock.
(d) So long as shares of Series D Preferred Stock(or
securities convertible into, or exchangeable or exercisable for, Series D
Preferred Stock ("Series D Equivalents")) are outstanding, the Corporation
shall not without first obtaining the approval (by vote or written consent, as
provided by law) of the holders of at least a majority of the then outstanding
shares of Series D Preferred Stock (assuming conversion, exchange or exercise
of all Series D Equivalents):
(i) alter or change the rights, preference or
privileges of the shares of Series D Preferred Stock or otherwise amend this
Certificate of Incorporation so as to affect adversely the shares of Series D
Preferred Stock; or
(ii) increase the authorized number of shares of
Series D Preferred Stock; or
(iii) create or designate, or authorize the
issuance of, any new class or series of stock (A) ranking senior or having a
preference over, or being on a parity with, the Series D Preferred Stock with
respect to dividends or upon liquidation, (b) having rights similar to any
rights of the Series D Preferred Stock under Paragraph 3 hereof or Paragraph 6
hereof or (C) convertible into any such class or series of stock.
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<PAGE> 34
(e) In the event the Corporation should at any time, or
from time to time, after the Filing Date issue or sell any shares of Series A
Preferred Stock or Series B Preferred Stock for a consideration per share less
than Four Dollars and Fifty Cents ($4.50) (a "Subsequent Offering"), (i) each
holder of Series A Preferred Stock shall, upon the consummation of such
Subsequent Offering, be entitled to receive, without charge, and the
Corporation shall issue to each holder of Series A Preferred Stock, a number of
additional shares of Series A Preferred Stock (rounded to the nearest whole
number of shares of Series A Preferred Stock) such that, after receipt of such
additional shares of Series A Preferred Stock, such holder will hold an
aggregate number of shares of Series A Preferred Stock equal to the number of
shares of Series A Preferred Stock that such holder would have received if such
holder had invested in the Subsequent Offering an amount equal to Four Dollars
and Fifty Cents ($4.50) multiplied by the number of shares of Series A
Preferred Stock held by such holder immediately prior to consummation of the
Subsequent Offering, and (ii) each holder of Series B Preferred Stock shall,
upon the consummation of such Subsequent Offering, be entitled to receive,
without charge, and the Corporation shall issue to each holder of Series B
Preferred Stock, a number of additional shares of Series B Preferred Stock
(rounded to the nearest whole number of shares of Series B Preferred Stock)
such that, after receipt of such additional shares of Series B Preferred Stock,
such holder will hold an aggregate number of shares of Series B Preferred Stock
equal to the number of shares of Series
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<PAGE> 35
B Preferred Stock that such holder would have received if such holder had
invested in the Subsequent Offering an amount equal to Four Dollars and Fifty
Cents ($4.50) multiplied by the number of shares of Series B Preferred Stock
held by such holder immediately prior to consummation of the Subsequent
Offering; provided, that upon the issuance of any such additional shares of
Series Preferred Stock pursuant to this Paragraph 5(e) of this FOURTH Amended
and Restated Certificate of Incorporation shall, without any further action
required by the Board of Directors or stockholders of the Corporation, be
amended as follows: the "Four Dollars and Fifty Cents ($4.50)" amount set forth
with respect to shares of Series A Preferred Stock and Series B Preferred Stock
in Article Fourth, Paragraphs 2(a), 3(b)(i) and 3(b)(vii) and this Paragraph
5(b) shall be reduced to the amount of consideration per share of Series
Preferred Stock for which shares of Series Preferred Stock are sold in the
Subsequent Offering.
6. General Voting Rights.
(a) Common Stock. Each holder of Common Stock shall be
entitled to one vote for each share of Common Stock held. Except as required
by law or as otherwise set forth in Paragraph 5 or 6 hereof, the holders of
shares of Series Preferred Stock and Common Stock shall vote together and not
as separate classes. Until a Qualified Public Offering, the holders of the
Common Stock along with the holders of Series B Preferred Stock shall together
vote as a class to elect the members of the Board of Directors (the "Common
Directors"),
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<PAGE> 36
other than the Series A Directors and Designated Series C Directors (each as
defined below).
(b) Series A Preferred Stock. The holder of each share
of Series A Preferred Stock shall be entitled to vote on all matters and shall
be entitled to the number of votes equal to the largest number of full shares
of Common Stock into which such shares of Series A Preferred Stock could be
converted, pursuant to the provisions of Paragraph 3 hereof at the record date
for the determination of the shareholders entitled to vote on such matters or,
if no such record date is established, at the date such vote is taken or any
written consent of shareholders is solicited; provided, however, that the
holders of Series A Preferred Stock shall not be entitled to vote on any matter
relating to the election of the Common Directors and the Designated Series C
Directors. Until a Qualified Public Offering, the holders of the Series A
Preferred Stock shall be entitled to vote as a class to elect two persons to
the Corporation's Board of Directors (the "Series A Directors").
At any meeting (or in a written consent in lieu thereof) held
for the purpose of electing directors, the presence in person or by proxy (or
the written consent) of the holders of a majority of the shares of Series A
Preferred Stock then outstanding shall constitute a quorum of the Series A
Preferred Stock for the election of the Series A Directors. A vacancy in any
directorship held by a Series A Director shall be filled only by vote or
written consent of the holders of the Series A Preferred Stock. Series A
Directors may
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<PAGE> 37
be removed only by vote or written consent of the holders of the Series A
Preferred Stock.
(c) Series B Preferred Stock. The holder of each share
of Series B Preferred Stock shall be entitled to vote on all matters and shall
be entitled to the number of votes equal to the largest number of full shares
of Common Stock into which such shares of Series B Preferred Stock could be
converted, pursuant to the provisions of Paragraph 3 hereof, at the record date
for the determination of the shareholders entitled to vote on such matters or,
if no such record date is established, at the date such vote is taken or any
written consent of shareholders is solicited; provided, however, that the
holders of Series B Preferred Stock shall not be entitled to vote on any matter
relating to the election of the Series A Directors and the Designated Series C
Directors.
(d) Series C Preferred Stock. The holder of each share
of Series C Preferred Stock shall be entitled to vote on all matters and shall
be entitled to the number of votes equal to the largest number of full shares
of Common Stock into which such shares of Series C Preferred Stock could be
converted, pursuant to the provisions of Paragraph 3 hereof, at the record date
for the determination of the shareholders entitled to vote on such matters or,
if no such record date is established, at the date such vote is taken or any
written consent of shareholders is solicited; provided, however, that the
holders of Series C Preferred Stock shall not be entitled to vote on any
matters relating to (i) the election of the Series A Directors and (ii) prior
to a Termination
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<PAGE> 38
Event, the election of the Common Directors. Until a Qualified Public
Offering, the holders of Series C Preferred Stock together with the holders of
Series D Preferred Stock shall be entitled to vote as a class to elect the
Designated Series C Directors in accordance with Paragraph 6(f) hereof.
(e) Series D Preferred Stock. The holder of each share
of Series D Preferred Stock shall be entitled to vote on all matters and shall
be entitled to the number of votes equal to the largest number of full shares
of Common Stock into which such shares of Series D Preferred Stock could be
converted, pursuant to the provisions of Paragraph 3 hereof, at the record date
for the determination of the shareholders entitled to vote on such matters or,
if no such record date is established, at the date such vote is taken or any
written consent of shareholders is solicited. Until a Qualified Public
Offering, the holders of Series D Preferred Stock together with the holders of
Series C Preferred Stock shall be entitled to vote as a class to elect the
Designated Series C Directors in accordance with Paragraph 6(f) hereof;
provided, however, that the holders of the Series D Preferred Stock shall not
be entitled to vote on any matters relating to (i) the election of the Series A
Directors and (ii) prior to a Termination Event, the election of the Common
Directors.
(f) Designated Series C Directors.
(i) Prior to a Qualified Public Offering, the
holders of Series C Preferred Stock and Series D Preferred Stock shall be
entitled to vote as a class to elect (A) two persons to the Corporation's Board
of Directors so
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<PAGE> 39
long as GSCP together with all partnerships, corporations, trusts or other
organizations which are controlled by, control or are under common control with
GSCP or one or more of the then current, former or future partners of GSCP
(collectively, the "GS Parties"), together with any Exempt Transferees (as
defined below), have not sold or otherwise transferred to one or more third
parties (other than pursuant to any Exempt Transfers (as defined below)) an
amount of shares of Series C Preferred Stock and/or Series D Preferred Stock
(and/or Common Stock issued upon conversion thereof) equal to or greater than
50% of the Original Shares (as defined below), (B) one person to the
Corporation's Board of Directors from and after such time as the GS Parties,
together with any Exempt Transferees, have sold or otherwise transferred to one
or more third parties (other than pursuant to any Exempt Transfers) an amount
of shares of Series C Preferred Stock and/or Series D Preferred Stock (and/or
Common Stock issued upon conversion thereof) equal to or greater than 50% of
the Original Shares. Each person elected to be a director by the holders of
Series C Preferred Stock and Series D Preferred Stock, pursuant to this
paragraph, shall be referred to as a "Designated Series C Director".
(ii) The holders of Series C Preferred Stock and
Series D Preferred Stock shall vote together as a class together with Series A
Preferred Stock, Series B Preferred Stock and Common Stock to elect all members
of the Board of Directors (except, prior to a Qualified Public Offering, the
Series A Directors) from and after such time as the GS Parties, together with
any Exempt
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<PAGE> 40
Transferees, beneficially own less than 10% of the outstanding Common Stock of
the Corporation (assuming conversion, exercise and exchange of all Common Stock
Equivalents) (other than pursuant to the issuance of additional shares of
Common Stock or Common Stock Equivalents by the Corporation other than in
connection with the private placement of the Series C Preferred Stock and the
exercise of the Warrants) (a "Termination Event").
(iii) The term "Original Shares" means the aggregate
number of shares of Preferred Stock purchased by the GS Parties in connection
with the private placement of the Series C Securities together with any shares
of Preferred Stock issued upon exercise of Preferred Stock Warrants (as
adjusted for stock splits, stock dividends, recapitalizations and similar
events). The term "Exempt Transfer" means a sale or transfer to a
Non-Competitor in a single transaction, or a series of related transactions, of
(A) an amount of shares of Series C Preferred Stock and/or Series D Preferred
Stock (and/or Common Stock issued upon conversion thereof) equal to 50% or more
of the Original Shares or (B) all of the capital stock (and securities
convertible into, or exercisable or exchangeable, for capital stock) of the
Corporation held by the GS Parties. The term "Non-Competitor" means any person
that is not a direct competitor of the Corporation in the United States in the
business of commercializing breast cancer detection technology (other than
current technologies (or any variation thereof) utilized for such detection).
The term "Exempt Transferee" means any transferee pursuant to an Exempt
Transfer. For purposes of the calculations
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<PAGE> 41
under this Paragraph 6(f), shares of Common Stock obtained upon conversion of
shares of Preferred Stock which are sold or transferred shall be treated as the
sale or transfer of the amount of shares of Preferred Stock converted in
respect thereof.
(iv) At any meeting (or in a written consent in lieu
thereof) held for the purpose of electing directors, the presence in person or
by proxy (or the written consent) of the holders of a majority of the shares of
Series C Preferred Stock and Series D Preferred Stock then outstanding shall
constitute a quorum for the election of the Designated Series C Directors. For
so long as the GS Parties own a majority of the then outstanding shares of
Series C Preferred Stock and/or Series D Preferred Stock, a vacancy in any
directorship held or permitted to be held by a Designated Series C Director may
be filled by (i) the vote of the remaining Designated Series C Director, if
any, or (ii) by a majority of the then outstanding shares of Series C Preferred
Stock and/or Series D Preferred Stock. Subject to Paragraph 6(f)(i) hereof, at
all other times, a vacancy in any directorship held or permitted to be held by
a Designated Series C Director shall be filled only by vote or written consent
of the holders of the Series C Preferred Stock and Series D Preferred Stock.
Designated Series C Directors may be removed only by vote or written consent of
the holders of the Series C Preferred Stock and Series D Preferred Stock.
7. Notices.
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<PAGE> 42
Any notice required by these provisions to be given to the
holders of shares of Series Preferred Stock shall be deemed given if sent by
U.S. certified mail, return receipt requested and postage prepaid, and
addressed to each holder of record at his address appearing on the books of the
Corporation. The date of any such notice shall be deemed to be the date on
which it is sent.
FIFTH. The Board of Directors is authorized, subject to limitations
prescribed by law and provisions of Article FOURTH, to provide for the issuance
of additional shares of Preferred Stock in series, and by filing a certificate
pursuant to the applicable law of the State of Delaware, to establish from time
to time the number of shares to be included in each such series and to fix the
designation, powers, preferences and rights of the shares of each such series
and the qualifications, limitations or restrictions thereof.
The authority of the Board with respect to each series shall
include but not be limited to, determination of the following:
(a) The number of shares constituting that series and the
distinctive designation of that series;
(b) The dividend rate on the shares of that series,
whether dividends shall be cumulative, and, if so, from which date or dates,
and the relative rights of priority, if any, of payment of dividend on shares
of that series;
(c) Whether that series shall have voting rights, in
addition to the voting rights provided by law, and, if so, the terms of such
voting rights;
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<PAGE> 43
(d) Whether that series shall have conversion privileges,
and, if so, the terms and conditions of such conversion, including provision
for adjustment of the conversion rate in such events as the Board of Directors
shall determine;
(e) Whether or not the shares of that series shall be
redeemable, and, if so, the terms and conditions of such redemption, including
the date or date upon or after which they shall be redeemable, which amount may
vary under different conditions and at different redemption dates;
(f) Whether that series shall have a sinking fund for the
redemption or purchase shares of that series, and, if so the terms and amount
of such sinking fund;
(g) The rights of the shares of that series in the event
of voluntary or involuntary liquidation, dissolution or winding up of the
corporation, and the relative rights of priority, if any, of payment of shares
of that series; and
(h) Any other relative rights, preferences and
limitations of that series.
SIXTH. Election of directors need not be by written ballot.
SEVENTH. The Board of Directors is authorized to adopt, amend,
or repeal By-Laws of the Corporation.
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<PAGE> 44
EIGHTH. Any person who was or is a party or is threatened to
be made a party to any threatened, pending, or completed action, suit, or
proceeding, whether civil, criminal, administrative, or investigative (whether
or not by or in the right of the Corporation) by reason of the fact that he is
or was a director, officer, incorporator, employee or agent of the Corporation,
or is or was serving at the request of the Corporation as a director, officer,
incorporator, employee, partner, trustee, or agent of another corporation,
partnership, joint venture, trust, or other enterprise (including an employee
benefit plan), shall be entitled to be indemnified by the Corporation to the
full extent then permitted by law against expenses (including counsel fees and
disbursements), judgments, fines (including excise taxes assessed on a person
with respect to an employee benefit plan), and amounts paid in settlement
incurred by him in connection with such action, suit, or proceeding. Such
right of indemnification shall inure whether or not the claim asserted is based
on matters which antedate the adoption of this Article EIGHTH. Such right of
indemnification shall continue as to a person who has ceased to be a director,
officer, incorporator, employee, partner, trustee, or agent and shall inure to
the benefit of the heirs and personal representatives of such a person. The
indemnification provided by this Article EIGHTH shall not be deemed exclusive
of any other rights which may be provided now or in the future under any
provision currently in effect or hereafter adopted of the By-Laws by any
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<PAGE> 45
agreement, by vote of stockholders, by resolution of disinterested directors,
by provision of law, or otherwise.
NINTH. No director of the Corporation shall be liable to the
Corporation or any of its stockholders for monetary damages for breach of
fiduciary duty as a director, provided that this provision does not eliminate
the liability of the director (i) for any breach of the director's 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 Section 174 of the DGCL, or (iv) for any transaction from
which the director derived an improper personal benefit. For purposes the
prior sentence, the term "damages shall, to the extent permitted by law,
include without limitation, any judgment, fine, amount paid in settlement,
penalty, punitive damages, excise or other tax assessed with respect to an
employee benefit plan, or expense of any nature (including, without limitation,
counsel fees and disbursements). Each person who serves as a director of the
Corporation while this Article NINTH is in effect shall be deemed to be doing
so in reliance on the provisions of this Article NINTH, and neither the
amendment or repeal of this Article NINTH, nor the adoption of any provision of
this Certificate of Incorporation inconsistent with this Article NINTH, shall
apply to or have any effect on the liability or alleged liability of any
director or the Corporation for, arising out of, based upon, or in connection
with any acts or omissions of such director occurring prior to such amendment,
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<PAGE> 46
repeal, or adoption of an inconsistent provision. The provisions of this
Article NINTH are cumulative and shall be in addition to and independent of any
and all other limitations on or eliminations of the liabilities of directors of
the Corporation, as such, whether such limitations or eliminations arise under
or are created by any law, rule, regulation, by-law, agreement, vote of
shareholders or disinterested directors, or otherwise.
TENTH. Whenever a compromise or arrangement is proposed
between this Corporation and its creditors or any class of them and/or between
this Corporation and its stockholders or any class of them, any court of
equitable jurisdiction within the State of Delaware may, on the application in
a summary way of this Corporation or of any creditor or stockholder thereof or
on the application of any receiver or receivers appointed for this Corporation
under the provisions of Section 291 of the DGCL or on the application of
trustees in dissolution or of any receiver or receivers appointed for this
Corporation under the provisions of Section 279 of the DGCL, order a meeting
of the creditors or class of creditors, and/or of the stockholders or class of
stockholders of this Corporation, as the case may be, to be summoned in such
manner as the said court directs. If a majority in number representing
three-fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this Corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of this
Corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the
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<PAGE> 47
said reorganization shall, if sanctioned by the court to which the said
application has been made, be binding on all the creditors or class of
creditors, and/or on all the stockholders or class of stockholders, of this
Corporation, as the case may be, and also on this Corporation.
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<PAGE> 48
IN WITNESS WHEREOF, I have made, signed, and sealed this Fourth
Amended and Restated Certificate of Incorporation this 3rd day of March, 1995.
ATTEST: BIOFIELD CORP.
By: /s/ Michael R. Gavenchak By: /s/ D. Carl Long
------------------------ -----------------------
Michael Gavenchak D. Carl Long
Secretary Chief Executive Officer
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<PAGE> 49
CERTIFICATE OF AMENDMENT
OF
FOURTH AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
BIOFIELD CORP.
Biofield Corp., a Delaware corporation (the "Corporation") does hereby
certify that, in accordance with the provisions of Section 242 of the General
Corporation Law of the State of Delaware, the following amendments to the Fourth
Amended and Restated Certificate of Incorporation of the Corporation were duly
adopted and approved by all of the directors of the Corporation by duly executed
unanimous written consent dated as of April 24, 1995, and by the holders of a
majority of each class of stock of the Corporation entitled to vote thereon by a
majority written consent dated as of April 24, 1995:
(a) The FOURTH article of the Fourth Amended and Restated Certificate
of Incorporation shall be amended to read as follows:
FOURTH. The aggregate number of shares which the Corporation shall have the
authority to issue is thirty-seven million three hundred thousand (37,300,000)
shares, par value of $.001 per share, consisting of twenty-five million
($25,000,000) shares of Common Stock, par value $.001 per share; and twelve
million three hundred thousand (12,300,000) shares of Preferred Stock, par
value, $.001 per share. Such Preferred Stock shall consist of two million three
hundred fifty thousand (2,350,000) shares of Series A Convertible Preferred
Stock, par value $.001 per share (the "Series A Preferred Stock"); five hundred
thousand (500,000) shares of Series B Convertible
<PAGE> 50
Preferred Stock, par value $.001 per share (the "Series B Preferred Stock");
four million four hundred fifty thousand (4,450,000) shares of Series C
Convertible Preferred Stock, par value $.001 per share (the "Series C Preferred
Stock"); three million (3,000,000) shares of Series D Convertible Preferred
Stock, par value $.001 per share (the "Series D Preferred Stock"); and two
million (2,000,000) shares of such Preferred Stock, par value $.001 per share,
as may be established by the Board of Directors pursuant to Article FIFTH
hereof, subject to the protective provisions of Paragraph 5 of Article FOURTH
hereof. (The Series A Preferred Stock, the Series B Preferred Stock, the Series
C Preferred Stock and the Series D Preferred Stock are hereinafter collectively
referred to as the "Series Preferred Stock"); and
(b) paragraph 3(b)(iii)(i)A of the Fourth Amended and Restated
Certificate of Incorporation shall be amended to read as follows:
(A) those warrants (including up to 172,226 shares of Common Stock issuable
upon exercise of such warrants) issued or issuable to Musket Research
Associates, Inc., or other selected dealers, in connection with the sale of the
Series C Securities (as defined below).
BIOFIELD CORP.
By: /s/ D. Carl Long
----------------------------
D. Carl Long
Chief Executive Officer
<PAGE> 51
CERTIFICATE OF AMENDMENT
OF
FOURTH AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
BIOFIELD CORP.
Biofield Corp., a Delaware corporation (the "Corporation") does hereby
certify that, in accordance with the provisions of Section 242 of the General
Corporation Law of the State of Delaware, the following amendments to the Fourth
Amended and Restated Certificate of Incorporation of the Corporation were duly
adopted and approved by all of the directors of the Corporation by duly executed
unanimous written consent dated as of December 1, 1995, and by the holders of a
majority of each class of stock of the Corporation entitled to vote thereon by
a majority written consent dated as of December 1, 1995:
<PAGE> 52
(a) the definition of "Employee Shares" set forth in paragraph 3(b)(iii) of
the Fourth Amended and Restated Certificate of Incorporation shall be amended to
read as follows:
As used in this Subsection, "Employee Shares" shall mean up to 3,500,000
shares of Common Stock issued or issuable to employees, officers, directors and
consultants of the Corporation pursuant to stock purchase or stock option plans
or arrangements, or both, approved by the Board of Directors;
BIOFIELD CORP.
By: /s/ Kenneth W. Anstey
----------------------------
Kenneth W. Anstey
Chief Executive Officer and
President
<PAGE> 53
CERTIFICATE OF AMENDMENT
OF
FOURTH AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
BIOFIELD CORP.
Biofield Corp., a Delaware corporation (the "Corporation") does hereby
certify that, in accordance with the provisions of Section 242 of the General
Corporation Law of the State of Delaware, the following amendments to the
Fourth Amended and Restated Certificate of Incorporation of the Corporation
were duly adopted and approved by all of the directors of the Corporation
at a duly convened meeting held on January 29, 1996 and by the holders of a
majority of each class of stock of the Corporation entitled to vote thereon by
a majority written consent dated as of February 16, 1996:
Article FOURTH of the Fourth Amended and Restated Certificate of
Incorporation is amended by adding the following new sentence to the end of
Article FOURTH:
Upon the filing in the office of the Secretary of State of
<PAGE> 54
Delaware of this Certificate of Amendment to the Fourth Amended and Restated
Certificate of Incorporation of the Corporation, each 2.04 shares of Common
Stock of the Corporation issued and outstanding as of the date of this
amendment shall thereby and thereupon be combined into one share of validly
issued, fully paid, and nonassessable share of Common Stock of the Corporation.
No scrip or fractional shares will be issued by reason of this amendment.
BIOFIELD CORP.
By: /s/ Kenneth W. Anstey
-------------------------------------
Kenneth W. Anstey
President & CEO
<PAGE> 1
EXHIBIT 3.2
BY - LAWS
OF
BIOFIELD CORP.
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office shall be
established and maintained at the office of The Prentice-Hall Corporation
System, 32 Loockerman Square, Suite L-100, in the City of Dover, in the County
of Kent, in the State of Delaware, and said corporation shall be the registered
agent of this corporation in charge thereof.
SECTION 2. OTHER OFFICES. The Corporation may have offices, either
within or without the State of Delaware, at such place or places as the Board
of Directors may, from time to time, appoint or the business of the Corporation
may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. ANNUAL MEETINGS. Annual meetings of stockholders for the
election of directors and for such other business as may be stated in the
notice of the meeting, may be called by the directors or any officer instructed
by the directors to call the meeting and shall be held at such place, either
within or without the State of Delaware and at such time and date as the Board
of Directors, by resolution, shall determine and as set forth in the notice of
the meeting.
If the date of the annual meeting shall fall upon a legal holiday, the
meeting shall be held on the next succeeding business day. At each annual
meeting, the stockholders entitled to vote shall elect a Board of Directors and
they may transact such other corporate business as shall be stated in the
notice of meeting.
<PAGE> 2
SECTION 2. OTHER MEETINGS. Special meetings of the stockholders, for
any purpose or purposes other than the election of directors, unless otherwise
prescribed by statute or by the Certificate of Incorporation, may be called by
the President and shall be called by the Chairman of the Board, the Chief
Executive Officer or Secretary at the request in writing of any two directors,
or at the request in writing of stockholders owning a majority in amount of the
entire capital stock of the corporation issued and outstanding and entitled to
vote. Such request shall state the purpose or purposes of the proposed
meeting. So long as GS Capital Partners, L.P. ("GSCP") is entitled to nominate
one or more GSCP Designees (as defined in Section 4.1(a)(iii) of the Preferred
Stock and Warrant Purchase Agreement among the Corporation and the other
investors party thereto (the "Preferred Stock Purchase Agreement")), special
meetings of the holders of Series C Convertible Preferred Stock and Series D
Convertible Preferred Stock may be called by GSCP.
SECTION 3. VOTING. Each stockholder entitled to vote in accordance
with the terms of the Certificate of Incorporation and in accordance with the
provisions of these By-Laws shall be entitled to one vote, in person or by
proxy, for each share of stock entitled to vote held by such stockholder, but
no proxy shall be voted after three years from its date unless such proxy
provides for a longer period. Upon demand of any stockholder, the vote for
directors and the vote upon any question before the meeting shall be by ballot.
All elections for directors shall be decided by plurality vote and all other
questions shall be decided by majority vote, except as otherwise provided by
the Certificate of Incorporation or the laws of the State of Delaware.
A complete list of the stockholders entitled to vote at the ensuing
election, arranged in alphabetical order, with the address of each and the
number of shares held by each, shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least ten days prior to the meeting, either at a
place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not so specified, at the place
where the meeting is to be held. The list shall also be produced and kept at
the time and place of the meeting during the whole time thereof and may be
inspected by any stockholder who is present.
SECTION 4. CONDUCT OF MEETING. Meetings of the stockholders shall be
presided over by one of the following officers in the order of seniority and if
present and acting: the Chairman of the Board, if any, the Vice-Chairman of
the Board, if any, the Chief Operating Officer, the President, a
Vice-President, or, if none of the foregoing is in office and present and
acting, by a chairman to be chosen by the stockholders. The Secretary of the
Corporation or, in his absence, an Assistant Secretary, shall act as secretary
of every meeting, but if neither the Secretary nor an Assistant Secretary is
present, the Chairman of the meeting shall appoint a secretary of the meeting.
SECTION 5. INSPECTORS. The directors, in advance of any meeting,
may, but need not, appoint one or more Inspectors of Election to act at the
meeting or any adjournment thereof. If an Inspector or Inspectors are not
appointed, the person presiding at the meeting may, but need not, appoint one
or more Inspectors. In case any person who may be appointed as an Inspector
fails to appear or act, the vacancy may be filled by appointment made by the
directors in advance of the meeting or at the meeting by the person presiding
thereat. Each Inspector, if any, before entering
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<PAGE> 3
upon the discharge of his duties, shall take and sign an oath faithfully to
execute the duties of Inspector at such meeting with strict impartiality and
according to the best of his ability. The Inspectors, if any, shall determine
the number of shares of stock outstanding and the voting power of each, the
shares of stock represented at the meeting, the existence of a quorum, the
validity and effect of proxies, and shall receive votes, ballots or consents,
hear and determine all challenges and questions arising in connection with the
right to vote, count and tabulate all votes, ballots or consents, determine the
result, and do such acts as are proper to conduct the election or vote with
fairness to all stockholders. On request of the person presiding at the
meeting, the Inspector or Inspectors, if any, shall make a report in writing of
any challenge, question or matter determined by him or them and execute a
certificate of any fact found by him or them.
SECTION 6. QUORUM. Except as otherwise required by Law, by the
Certificate of Incorporation or by these By- Laws, the presence, in person or
by proxy, of stockholders holding a majority of the stock of the Corporation
entitled to vote shall constitute a quorum at all meetings of the stockholders.
In case a quorum shall not be present at any meeting, a majority in interest of
the stockholders entitled to vote thereat, present in person or by proxy, shall
have power to adjourn the meeting, from time to time, without notice other than
announcement at the meeting, until the requisite amount of stock entitled to
vote shall be present. At such adjourned meeting, at which a quorum shall be
present or represented any business may be transacted which might have been
transacted at the meeting as originally noticed and the requisite amount of
stock entitled to vote at the meeting, as originally noticed, shall be entitled
to vote at any adjournment or adjournments thereof.
SECTION 7. NOTICE OR WAIVER OF NOTICE OF MEETINGS. Written notice,
stating the place, date and time of the meeting and the general nature of the
business to be considered, shall be given to each stockholder entitled to vote
thereat at his address as it appears on the records of the Corporation, not
less than ten nor more than sixty days before the date of the meeting. No
business other than that stated in the notice shall be transacted at any
meeting without the unanimous consent of all the stockholders entitled to vote
threat. Attendance of a stockholder at a meeting of stockholders shall
constitute a waiver of notice of such meeting, except when the stockholder
attends the meeting for the express purpose of objecting, at the beginning of
the meeting, to the transaction of any business because the meeting is not
lawfully called or convened.
SECTION 8. ACTION WITHOUT MEETING. Unless otherwise provided by the
Certificate of Incorporation, any action required to be taken at any annual or
special meeting of stockholders, or any action which may be taken at any annual
or special meeting, may be taken without a meeting, without prior notice and
without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock 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. Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
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<PAGE> 4
ARTICLE III
DIRECTORS
Section 1. NUMBER AND TERM. The number of directors shall be no less
than three (3) and no more than eight (8) and, until a Qualified Public
Offering, as such term is defined in the Fourth Amended and Restated
Certificate of Incorporation, shall include the Series A Directors and the
Designated Series C Directors as provided for in the Fourth Amended and
Restated Certificate of Incorporation. The directors shall be elected at the
annual meeting of the stockholders and each director shall be elected to serve
until his successor shall be elected and shall be elected and shall qualify.
Directors need not be stockholders.
Section 2. RESIGNATIONS. Any director, member of a committee or
other officer may resign at any time. Such resignation shall be made in
writing, and shall take effect at the time specified therein and, if no time be
specified, at the time of its receipt by the Chairman of the Board, Chief
Executive Officer or Secretary. The acceptance of a resignation shall not be
necessary to make it effective.
SECTION 3. VACANCIES. Except as set forth in the Certificate of
Incorporation, if the office of any director, member of a committee or other
office becomes vacant, the remaining directors in office, though less than a
quorum, by a majority vote, may appoint any qualified person to fill such
vacancy, such appointee to hold office for the unexpired term and until his
successor shall be duly chosen.
SECTION 4. REMOVAL. Except as set forth in the Certificate of
Incorporation, any director or directors may be removed either for or without
cause at any time by the affirmative vote of the holders of a majority of all
the shares of stock outstanding and entitled to vote, at a special meeting of
the stockholders called for the purpose and the vacancies thus created may be
filled, at the meeting held for the purpose of removal, by the affirmative vote
of a majority in interest of the stockholders entitled to vote.
SECTION 5. INCREASE OR DECREASE OF NUMBER. The number of directors
may be increased or decreased from time to time by resolution of the Board of
Directors or by majority vote of the stockholders at the annual meeting or at a
special meeting called for that purpose and, by like vote, the additional
directors may be chosen at such meeting to hold office until the next annual
election and until their successors are elected and qualify; provided, however,
that prior to a Qualified Public Offering (as defined in the Fourth Amended and
Restated Certificate of Incorporation), and so long as GSCP is entitled,
pursuant to the Preferred Stock Purchase Agreement, to nominate one or more
GSCP Designees, the number of directors may not be increased without the
approval of GSCP.
SECTION 6. POWERS. The Board of Directors shall exercise all of the
powers of the Corporation except such as are by Law, or by the Certificate of
Incorporation of the Corporation or by these By-Laws conferred upon or reserved
to the stockholders.
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<PAGE> 5
SECTION 7. COMMITTEES. The Board of Directors may, by resolution or
resolutions passed by a majority of the whole Board, designate one or more
committees, including, without limitation, an operational committee and a
financial committee, each committee to consist of two or more of the directors
of the Corporation. The Board may designate one or more directors as alternate
members of any committee who may replace any absent or disqualified member at
any meeting of the committee. In the absence or disqualification of any member
of such committee or committees, the member or members thereof present at any
meeting and not disqualified from voting, whether or not he or they constitute
a quorum, may unanimously appoint another member of the Board of Directors to
act at the meeting in the place of any such absent or disqualified director.
Any such committee, to the extent provided in the resolution of the
Board of Directors, or in these By-Laws, shall have and may exercise all the
powers and authority of the Board of Directors in the management of the
business and affairs of the Corporation and may authorize the seal of the
Corporation to be affixed to all papers which may require it; however, no such
committee shall have the power or authority in reference to amending the
Certificate of Incorporation, adopting an agreement of merger or consolidation,
recommending to the stockholders the sale, lease or exchange of all or
substantially all of the Corporation's property assets, recommending to the
stockholders a dissolution of the Corporation or a revocation of a dissolution,
or amending the By-Laws of the Corporation; and, unless by resolution, these
By-Laws, or the Certificate of Incorporation expressly so provide, no such
committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock.
Prior to a Qualified Public Offering, if, and for so long as, GSCP is
entitled to nominate one or more GSCP Designees, the Board shall maintain an
audit, compensation and executive committee and the existence and action of
such committees shall not be altered or diminished.
SECTION 8. MEETINGS. The newly elected directors may hold their
first meeting for the purpose of organization and the transaction of business
within or without State of Delaware if a quorum be present immediately after
the annual meeting of the stockholders or the time and place of such meeting
may be fixed by consent in writing of all the directors.
Regular meetings of the directors may be held without notice at such
places and times as shall be determined from time to time by resolution of the
directors.
Special meetings of the Board may be called by the Chairman of the
Board, Chief Executive Officer or by the Secretary on the written request of
any two directors on at least seven days' notice to each director and shall be
held at such place or places as may be determined by the directors, or as shall
be stated in the call of the meeting; provided, however, that in the event the
Designated Series C Directors waive this notice requirement, then a special
meeting of the Board may be called on at least two days' notice to each
director. For purposes of this Article III Section 8 only, notice shall be
given telephonic communication or by telecopier.
- 5 -
<PAGE> 6
SECTION 9. QUORUM AND MANNER OF ACTING. A majority of the Board of
Directors shall constitute a quorum for the transaction of business. If, at
any meeting of the Board, there shall be less than a quorum present, a majority
of those present may adjourn the meeting from time to time until a quorum is
obtained, and no further notice thereof need be given other than by
announcement at the meeting which shall be adjourned.
Any member or members of the Board of Directors or of any committee
designated by the Board may participate in a meeting of the Board or any such
committee, as the case may be, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other.
Except as otherwise expressly required by statute or the Certificate
of Incorporation or these By-Laws, the act of a majority of the directors
present at any meeting at which a quorum is present shall be the act of the
Board of Directors; provided, however, that, prior to a Qualified Public
Offering, and so long as GSCP is entitled to nominate two GSCP Designees but
only has nominated one GSCP Designee, any action relating to a matter with
respect to which the sole GSCP Designee has taken the minority position shall
require the affirmative vote of five directors to constitute the act of the
Board of Directors.
SECTION 10. COMPENSATION. Directors shall not receive any stated
salary for their services as directors or as members of committees but, by
resolution of the Board of Directors, fixed fees and expenses of attendance may
be allowed for attendance at each meeting. Nothing herein contained shall be
construed to preclude any director from serving the Corporation in any other
capacity as an officer, agent or otherwise, and receiving compensation
therefor.
SECTION 11. ACTION WITHOUT MEETING. Any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee
thereof may be taken without a meeting if, prior to such action, a written
consent thereto is signed by all members of the Board or of such committee, as
the case may be, and such written consent is filed with the minutes of the
proceedings of the Board or such committee.
ARTICLE IV
OFFICERS
SECTION 1. EXECUTIVE OFFICERS. The executive officers of the
Corporation shall be a Chairman of the Board, Vice Chairman of the Board and
Chief Executive Officer, Chief Operating Officer, President, one or more
Vice-Presidents, a Treasurer and a Secretary, all of whom shall be elected
annually by the Directors, who shall hold office until their respective
successors are elected and qualified. All vacancies occurring among any of the
officers shall be filled by the Directors. Any officer may be removed at any
time by the affirmative vote of a majority (unless the Certificate of
Incorporation requires a larger vote) of the Directors present at a Special
Meeting of Directors called for the purpose.
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<PAGE> 7
SECTION 2. OTHER OFFICERS. The Board of Directors may appoint such
other officers and agents with such powers and duties as it shall deem
necessary.
SECTION 3. THE CHAIRMAN OF THE BOARD. The Chairman of the Board of
Directors shall preside at all meetings of the Shareholders and the Board of
Directors. The Chief Executive Officer shall report to the Chairman.
SECTION 4. THE CHIEF EXECUTIVE OFFICER/VICE CHAIRMAN OF THE BOARD.
The Chief Executive Officer shall be responsible for the executive affairs of
the Corporation. While the Directors or the Executive Committee are not in
session, he shall have general management and control of the business and
affairs of the Corporation. He shall report only to the Chairman of the Board
of Directors and to the Board of Directors, and shall, in the absence and
non-election of a Chairman of the Board, preside at all meetings of the
Shareholders and Directors. The Chief Executive Officer shall be the Vice
Chairman of the Board of Directors of the Corporation.
SECTION 5. THE CHIEF OPERATING OFFICER. The Chief Operating Officer
shall be designated by the Chief Executive Officer with the consent of the
Board of Directors, and shall function as the Chief Operating Officer.
SECTION 6. THE PRESIDENT. The President shall have such duties as
shall be assigned by the Chief Executive Officer of the Corporation.
SECTION 7. THE VICE-PRESIDENT. The Vice-President, or if there be
more than one, the senior Vice-President, as determined by the Board of
Directors, in the absence or disability of the President, shall exercise the
powers and perform the duties of the President and each Vice-President shall
exercise such other powers and perform such other duties as shall be prescribed
by the Directors.
SECTION 8. THE TREASURER. The Treasurer shall have custody of all
funds, securities and evidences of indebtedness of the Corporation; shall
receive and give receipts and acquittances for monies paid in on account of the
Corporation, and shall pay out of the funds on hand all bills, payrolls, and
other just debts of the Corporation, of whatever nature, upon maturity; shall
enter regularly in books to be kept by him for that purpose, full and accurate
accounts of all monies received and paid out by him on account of the
Corporation, and shall perform all other duties incident to the office of
Treasurer and as may be prescribed by the Directors.
SECTION 9. THE SECRETARY. The Secretary shall keep the minutes of
all proceedings of the Directors and of the Shareholders; shall attend to the
giving and serving of all notices to the Shareholders and Directors or other
notice required by law or by these By-Laws; shall affix the seal of the
Corporation to deeds, contracts and other instruments in writing requiring a
seal, when duly signed or when so ordered by the Directors; shall have charge
of the certificate books and stock books and such other books and papers as the
Board may direct, and shall perform all other duties incident to the office of
Secretary.
- 7 -
<PAGE> 8
SECTION 10. SALARIES. The salaries of all officers shall be fixed by
the Board of Directors, and the fact that any officer is a Director shall not
preclude him from receiving a salary as an officer, or from voting upon the
resolution providing the same.
ARTICLE V
MISCELLANEOUS
SECTION 1. CERTIFICATES OF STOCK. Certificates of stock, signed by
the Chairman of the Board of Directors or the President and by the Treasurer or
the Secretary, shall be issued to each stockholder certifying the number of
shares owned by him in the Corporation. Any or all signatures may be by
facsimile.
SECTION 2. LOST CERTIFICATES. A new certificate of stock may be
issued in the place of any certificate theretofore issued by the Corporation,
alleged to have been lost or destroyed, and the directors may, in their
discretion, require the owner of the lost or destroyed certificate, or his
legal representatives, to give the Corporation a bond, in such sum as they may
direct, to indemnify the Corporation against any claim that may be made against
it on account of the alleged loss of any such certificate or the issuance of
any such new certificate.
SECTION 3. TRANSFER OF SHARES. The shares of stock of the
Corporation shall be transferable only upon its books by the holders thereof in
person or by their duly authorized attorneys or legal representatives and, upon
such transfer, the old certificates shall be surrendered to the Corporation by
the delivery thereof to the person in charge of the stock and transfer books
and ledgers or to such other person as the directors may designate, by whom
they shall be canceled and new certificates shall thereupon be issued. A
record shall be made of each transfer and whenever a transfer shall be made for
collateral security, and not absolutely, it shall be so expressed in the entry
of the transfer.
SECTION 4. STOCKHOLDERS RECORD DATE. In order that the Corporation
may determine the stockholders entitled to notice of or to vote at any meeting
of stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock
or for the purposes of any other lawful action, the Board of Directors may fix,
in advance, a record date which shall not be more than sixty nor less than ten
days before the date of such meeting. A determination of stockholders of
record entitled to notice of or to vote at a meeting of stockholders shall
apply to any adjournment of the meeting; provided, however, that the Board of
Directors may fix a new record date for the adjourned meeting.
SECTION 5. DIVIDENDS. Subject to the provisions of the Certificate
of Incorporation, the Board of Directors may, out of funds legally available
therefor, at any regular or special meeting, declare dividends upon the capital
stock of the Corporation as and when they deem such dividends expedient.
Before declaring any dividend, there may be set apart, out of any funds of the
- 8 -
<PAGE> 9
Corporation available for dividends, such sum or sums as the directors, from
time to time, in their discretion, deem proper for working capital or as a
reserve fund to meet contingencies or for equalizing dividends or for such
other purposes as the directors shall deem conducive to the best interests of
the Corporation.
SECTION 6. SEAL. The corporate seal shall be circular in form and
shall contain the name of the Corporation, the year of its creation and the
words "CORPORATE SEAL DELAWARE". Said seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise.
SECTION 7. FISCAL YEAR. The fiscal year of the Corporation shall be
determined by resolution of the Board of Directors.
SECTION 8. CHECKS. All checks, drafts or other orders for the
payment of money, notes or other evidences of indebtedness issued in the name
of the Corporation shall be signed by such officer or officers or agent or
agents of the Corporation, and in such manner as shall be determined, from time
to time, by resolution of the Board of Directors.
SECTION 9. NOTICE AND WAIVER OF NOTICE. Whenever any notice is
required to be given by these By-Laws, personal notice is not meant unless
expressly so stated and any notice so required shall be deemed to be sufficient
if given by depositing the same in the United States mail, postage prepaid,
addressed to the person entitled thereto at his address as it appears on the
records of the Corporation, and such notice shall be deemed to have been given
on the fifth day following such mailing. Stockholders not entitled to vote
shall not be entitled to receive notice of any meetings except as otherwise
provided by Statute.
Whenever any notice whatever is required to be given under the
provisions of any law or under the provisions of the Certificate of
Incorporation of the Corporation or of these By-Laws, a waiver thereof in
writing, signed by the person or persons entitled to said notice, whether
before or after the time stated therein, shall be deemed equivalent thereto.
ARTICLE VI
INDEMNIFICATION
SECTION 1. INDEMNIFICATION. Any person who was or is a party or
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Corporation) by reason of the
fact that he or she is or was a Director, officer, employee or agent of the
Corporation or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise (including employee benefit plans)
(hereinafter an "indemnitee"), shall be indemnified and held harmless by the
Corporation to the fullest extent authorized by the General Corporation Law, as
the same exists or may hereafter be amended (but, in the case of any such
amendment, only to the extent that such
- 9 -
<PAGE> 10
amendment permits the Corporation to provide broader indemnification than
permitted prior thereto), against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred by such indemnitee in connection with such action, suit or proceeding,
if the indemnitee acted in good faith and in a manner he or she reasonably
believed to be in or not opposed to the best interests of the Corporation, and
with respect to any criminal action or proceeding, had no reasonable cause to
believe such conduct was unlawful. The termination of the proceeding, whether
by judgment, order, settlement, conviction or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which he or she reasonably believed to be
in or not opposed to the best interests of the Corporation and, with respect to
any criminal action or proceeding, had reasonable cause to believe such conduct
was unlawful.
Any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of
the Corporation to procure a judgment in its favor by reason of the fact that
he or she is or was a Director, officer, employee or agent of the Corporation,
or is or was serving at the request of the Corporation as a director, officer,
employee or agent of another Corporation, partnership, joint venture, trust or
other enterprise (including employee benefit plans) shall be indemnified and
held harmless by the Corporation to the fullest extent authorized by the
General Corporation Law, as the same exists or may hereafter be amended (but,
in the case of any such amendment, only to the extent that such amendment
permits the Corporation to provide broader indemnification than permitted prior
thereto), against expenses (including attorneys' fees) actually and reasonably
incurred by him or her in connection with the defense or settlement of such
action or suit if he or she acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
Corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the Court in which
such suit or action was brought, shall determine, upon application, that,
despite the adjudication of liability but in view of all the circumstances of
the case, such person is fairly and reasonably entitled to indemnity for such
expenses which such court shall deem proper.
SECTION 2. EXPENSES. All reasonable expenses incurred by or on
behalf of the indemnitee in connection with any suit, action or proceeding, may
be advanced to the indemnitee by the Corporation.
SECTION 3. NON-EXCLUSIVITY. The rights to indemnification and to
advancement of expenses conferred in this article shall not be exclusive of any
other right which any person may have or hereafter acquire under any statute,
the Certificate of Incorporation, a By-Law of the Corporation, agreement, vote
of stockholders or disinterested Directors or otherwise.
SECTION 4. BINDING EFFECT. The indemnification and advancement of
expenses provided by this article shall continue as to a person who has ceased
to be a Director, officer, employee or agent and shall inure to the benefit of
the heirs, executors and administrators of such person.
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<PAGE> 11
ARTICLE VII
AMENDMENTS
Prior to a Qualified Public Offering and for so long as GSCP is
entitled to nominate one or more GSCP Designees, Sections 1, 5, 7, 8 and 9 of
Article III of these By-Laws may not be altered or repealed without the prior
approval of GSCP. Otherwise, these By-Laws may be altered or repealed and new
By-Laws made at any annual meeting of the stockholders or at any special
meeting thereof if notice of the proposed alteration or repeal of any By-Law or
By-Laws to be made be contained in the notice of such special meeting by the
affirmative vote of a majority of the stock issued and outstanding and entitled
to vote thereat or by the affirmative vote of a majority of the Board of
Directors, at any regular or special meeting of the Board of Directors, if
notice of the proposed alteration or repeal of any By-Laws to be made, be
contained in the notice of such regular or special meeting.
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<PAGE> 12
EXHIBIT 3.2
Thereupon, after discussion, upon motion duly made and seconded, the
following Resolutions were unanimously adopted.
RESOLVED, that the first sentence of Article IV, Section I of the
Company's By-Laws is hereby amended to read in its entirety as follows: "The
executive officers of the Corporation shall be a Chairman of the Board, Chief
Executive Officer, President, one or more Vice Presidents, a Treasurer and a
Secretary, all of whom shall be elected annually by the Directors, who shall
hold office until their respective successors are elected and qualified."
RESOLVED, that Article IV, Section 4 of the Company's By-Laws is
hereby amended to delete the last sentence in its entirety and to amend the
title to delete the following:"/Vice Chairman of the Board."
<PAGE> 1
EXHIBIT 10.45
CONFIDENTIAL TREATMENT REQUESTED
Manufacturing Supply Agreement
-----------------
BIOFIELD CORP.
---------------------
October 29, 1996
<PAGE> 2
SUPPLY AGREEMENT
This Agreement and all attachments (called the "Agreement") is made by Biofield
Corp. ("Buyer"), a Delaware corporation with its principal place of business at
1225 Northmeadow Parkway, Suite 120, Roswell, Georgia 30076 and SeaMED
Corporation, ("Contractor"), a Washington corporation with its principal place
of business at 14500 NE 87th Street, Redmond, Washington 98052.
Whereas, Buyer has developed proprietary and patented medical devices for the
diagnosis, screening and monitoring of disease and other medical and biological
conditions through the measurement of voltaic direct current electropotentials.
Whereas, the Contractor has the facilities and expertise to design,
manufacture, test and distribute electronic devices in accordance with current
Good Manufacturing Practices ("cGMP") as promulgated by the United States Food
and Drug Administration ("FDA").
Whereas, Buyer desires to engage the services of Contractor for the production
and ongoing maintenance of the Product as hereinafter defined (and other
related electronic assemblies as may be specified in the future);
In consideration of their mutual promises and covenants, Buyer and Contractor
agree as follows:
I. DEFINITIONS
A. "Product" shall be defined as the Biofield Diagnostic Device
or Biofield Screening Device the functional specifications of
which are attached to this agreement as Attachments A-1 and
A-2. "Product" shall also include modifications that take
advantage of expansion capability within the devices described
in A-1 and A-2 and used in the detection of Breast Cancer.
B. "Qualification Testing" shall be defined as the systematic
process of comparing the actual operation of production units
of the Product to the Buyer's functional and engineering
specifications (Attachment A-3) utilizing the qualification
test plan and procedures mutually agreed to in writing by
Contractor and Buyer.
C. "Verification Testing" shall be defined as the systematic
process of comparing the actual operation of engineering
prototype units of the Product to the functional and
engineering specifications.
D. "Medical Device Reporting ("MDR") shall be defined as any
event associated with the use of the Product which is required
to be reported to the FDA in accordance with 21 CFR Part 803.
E. "Device Master Record" ("DMR") shall be defined as the file
containing all pertinent records relative to design,
specifications, formulations, complete manufacturing
procedures and quality assurance requirements relative to
production of the Product and its subassemblies.
F. "Device History Record" ("DHR") shall be defined as the
compilation of records containing the complete production /
maintenance history of each finished unit of the Product and
showing latest revision history, maintenance history and any
other records required by the FDA.
G. "Certificate of Compliance" shall be defined as Contractor's
notification that appropriate inspection, testing and approval
of the Product (including subassemblies for service) has
materially complied with current cGMP, and other functional
and engineering specifications established by the Buyer. In
addition, the Certificate of Compliance shall state:
"The articles comprising this shipment or other
delivery by SeaMED to, or in the order of, Biofield
Corp., 1225 Northmeadow Parkway, Suite 120, Roswell,
Georgia 30076, comply with current cGMPs and
Buyer's functional specifications. Further, SeaMED
warrants that it has taken no action contrary to the
Buyer's formal written direction which of itself
would result
2
<PAGE> 3
in adulteration or misbranding of the product within
the meaning of the Federal Food, Drug and Cosmetic
Act."
H. "Buyer's Equipment" shall be defined as capital equipment such
as production molds, fixtures or testing equipment purchased
for and charged to the Buyer specifically to manufacture or
test the Product.
I. "Product Complaint" shall be defined as any written,
electronic, or oral communication that alleges deficiencies
related to the identity, quality, durability, reliability,
safety, effectiveness, or performance of a device.
J. "Pre-production Product" shall be defined as the fabrication
of Products in the manufacturing area under full cGMP control
using pre-production released documentation.
K. "Class III" shall mean the FDA's definition and category for
Class III medical devices.
L. "Non-recurring Engineering" ("NRE") shall be defined as any
engineering work that is requested by the Buyer to perform
specific Buyer specified tasks. A form of agreement for the
costs of such work is annexed hereto as Attachment A-4.
M. Document changes relating to the Product will be made in
accordance with Attachment A-5 (Document Control Agreement).
II. GENERAL TERMS AND CONDITIONS
A. This Agreement is a supply agreement whereby the Buyer agrees
to purchase at least 50% of its worldwide requirements of all
units of the Product, excluding Products manufactured by Asian
headquartered firms and sold to end-users in Asia for the
Purchase Term; it does not obligate Buyer to purchase any
specific quantity but only established the terms and
conditions for such purchases if they occur. All such
quantities will be specified on Buyer's Purchase Orders issued
under the provision of this Agreement and incorporated herein
by reference.
B. If any term of this Agreement conflicts with any term of an
issued Purchase Order, this Agreement shall take precedence.
Any terms or conditions not covered under this Agreement must
be specified on the front of Purchase Orders and must be
mutually agreed to by both the Buyer and Contractor.
C. Buyer may add products to the list of "Products"available for
purchase hereunder by adding such products to a Purchase Order
this is accepted by Contractor. Such added products shall be
deemed "Products" as defined herein as though listed in
Attachment A, at the time of executing this Agreement. The
price for which such added products shall be available for
purchase under this Agreement shall be as stated on such
accepted Purchase Orders(s), subject to the provisions of this
Agreement. The buyer and Contractor shall amend Attachments
to reflect the added Products and relevant pricing.
D. Buyer and Contractor may utilize resources from a third party
engineering services firm when manpower constraints exist or
technical issues require expertise outside the scope of either
party's project team. Contractor will not be required to work
with any third party engineering, manufacturing or consulting
services firm that would be considered to be a direct
competitor in the development or manufacturing of the Product
for buyer. Contractor however agrees to transfer information
which is the property of the Buyer if Buyer so requests it.
E. Payment - Payment for any shipment of Product, if accepted by
Buyer, is due thirty (30) calendar days subsequent to the date
of invoice for such shipment. Unless otherwise specified or
required by law, all prices will be quoted and billed
exclusive of federal, state, or local excise, sales, or other
similar taxes. Such taxes, where applicable, will appear as
additional terms on invoices.
3
<PAGE> 4
CONFIDENTIAL TREATMENT REQUESTED
F. Buyer shall supply Contractor with a copy of the sections of the final
PMA submission which directly relate to the manufacturing and labeling
of the Product.
III. PURCHASE ORDERS
A. The term "Purchase Order" shall mean Buyer's written Purchase
Order form and any documents incorporated therein by
reference.
B. Acceptance by Contractor is limited to the provisions of this
Agreement and any Purchase Order. No additional or different
provisions proposed by Buyer shall apply and are hereby
rejected. In addition, the parties agree that this Agreement
and issued Purchase Orders constitute a Contract for the Sale
of Goods and satisfy all statutory and legal formalities of a
contract.
IV. PURCHASE TERM
A. The term during which Buyer may issue Purchase Orders for
Products under this Agreement ("Purchase Term") shall commence
on May 15, 1996 and end on May 15, 2001. During the Purchase
Term, contractor shall have worldwide manufacturing rights,
excluding products manufactured by Asian headquartered firms
and sold to end users in Asia, to manufacture a minimum of 50%
of all units of the Product produced for Buyer during the
Purchase Term, said time period to survive notwithstanding the
sale or licensing of Biofield's technology to a third party.
This Agreement governs Purchase Orders issued by Buyer during
the Purchase Term and any mutually agreed upon extension.
V. MANUFACTURE
A. Contractor shall manufacture and supply to buyer the number of
units of Products ordered pursuant to the Purchase Order in
accordance with Buyer's functional and engineering
specifications as validated by the mutually accepted
qualification test, cGMPs and ISO. Contractor shall provide
to Buyer labels, cartons, and package inserts for each
Product, which items shall comply in all material respects
with all governmental regulations. Contractor shall include a
Certificate of Compliance with each shipment or other delivery
of units of Products.
B. Contractor will not design, develop, manufacture or test
products utilizing either Buyer's patented or proprietary
technology or any closely allied or related technology for the
measurement of voltaic or other electropotentials
differentials or electromagnetic fields in vivo as applied to
cancer diagnosis and screening or the in vivo measurement of
cellular proliferation during the Purchase Term (as defined
above) or for a period of five years after the termination of
the Agreement.
VI. PRODUCT PRICING
A. PREPRODUCTION PRICING will be on a fixed price basis of XXXXX
per Pre-production Product, (excluding the patient cable) with
any savings from economies of scale or cost reductions to
benefit the Contractor. Maximum number of Pre-production
Product at this price will be thirteen (13). If additional
Pre-production Product are ordered pricing will be negotiated.
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<PAGE> 5
CONFIDENTIAL TREATMENT REQUESTED
B. PRODUCTION PRICING
(i) Initial production pricing will be fixed at XXXXX per
unit of Product (excluding patient cable) turnkey,
including all labeling, packaging and manuals, and is
based on a minimum order quantity of fifty (50) units
of Product per Purchase Order. Pricing is based upon
unit of Product configurations A1433 & A1434 as
defined in Buyer's statement of work dated 4/18/96
and including any reasonable changes required due to
qualification testing results or FDA requirements.
This price will be fixed for units of Product ordered
and scheduled for delivery by December 31, 1996. A
sample pricing model to serve as basis for
negotiation is annexed as Attachment 6. After
January 1, 1997 pricing will be reviewed and
negotiated on an annual basis. Reductions in cost
achieved between pricing dates are to be to the
Contractor's benefit. The Buyer is not responsible
for NRE charges unless previously approved by the
Buyer. Sustaining engineering efforts during
production are covered through normal overhead and
burden rates.
(ii) Prices include all charges such as packaging,
packing, and all taxes except sales, use, and other
such taxes imposed upon the sale or transfer of
Product. Buyer shall have no liability for such
taxes if it has complied with statutory resale tax
certificate requirements. If Buyer is liable to pay
these taxes, they shall be specifically listed in
Contractor's invoice.
VII. DELIVERY, LEAD-TIME AND FLEXIBILITY
A. Buyer's Purchase Orders shall state contractor's committed
delivery date for Product. TIME AND RATE OF DELIVERY ARE OF
THE ESSENCE OF ALL PURCHASES MADE UNDER THIS AGREEMENT> The
maximum agreed period between Buyer's issuance of a Purchase
Order and the scheduled delivery date ("Lead-time") shall be
XXXXX, which may be adjusted based upon written notification
of current manufacturing lead times.
B. All shipments shall be F.O.B. Origin, with title passing to
buyer at time of invoicing. Buyer shall select the carrier
and shall pay transportation charges. Invoicing will not
occur until units have passed final acceptance testing, final
quality inspection, and units are packaged and ready for
shipment.
C. Buyer may require that shipments of Product under this
Agreement be shipped by contractor to various destinations.
The Purchase Order issued by the Buyer will clearly specify
the "SHIP TO" location for each Product.
D. Buyer may, increase or decrease the quantity of units of
Product covered by a Purchase Order ("PO") by mutual
agreement, within the following parameters:
<TABLE>
<S> <C>
0 to 2 Months Firm POs, Schedule unchangeable
3 to 4 Months Firm POs. May move up to 25% of scheduled deliveries on POs
out 30 days without penalty, or in 30 days depending on
material availability and current capacity.
5 to 6 Months Firm POs. May move up to 40% of scheduled deliveries on POs
out 60 days without penalty, or in 45 days depending on
material availability and current capacity.
7 to 12 Months May move up to 50% of scheduled deliveries on POs out 60 days
without penalty, or in 60 days depending on material
availability and current capacity.
</TABLE>
5
<PAGE> 6
E. Delivery slides initiated by Buyer greater than 60 days will
require an inventory deposit for one hundred percent (100%) of
materials purchased, received and paid for by contractor.
Upon buyer's request, Contractor is to provide a listing of
inventory paid for by contractor. Payment for actual material
purchases paid for by Buyer will be discounted from cost of
units of Product at time of invoicing.
F. EXCESS AND OBSOLETE MATERIALS
(i) Contractor and Buyer will work together to minimize
the impact of excess material of obsolete materials
related to the manufacture of Product. Changes to
the design of the Product by the Buyer may create
obsolete or excess inventory. Prior to implementing
Buyer directed changes, Contractor will identify the
potential impact to production and inventory, and
will communicate the potential cost to the Buyer.
Contractor will advise buyer of the best method to
return materials on order or how to best implement
changes based on dates which such changes become
effective to reduce the impact on Buyer's cost.
Buyer will be responsible for the cost of inventory
that becomes excess or obsolete due to Buyer
initiated changes. Any excess or obsolete
inventories will be charged to the Buyer at
Contractor's cost, but without profit. Disposition
of excess or obsolete materials will be coordinated
with the Buyer to minimize the impact of cost to the
Buyer where possible.
(ii) Any excess or obsolete inventory generated by
Contractor initiated changes will be the sole
responsibility of the Contractor.
G. Upon request from Buyer, Contractor will provide a quarterly
listing by serial number of finished goods inventory on hand
which has been invoiced to the Buyer.
VIII. ACCEPTANCE
A. Acceptance by Buyer of units of Product manufactured and
supplied by Contractor shall be subject to inspection and test
by Buyer. Buyer shall have the right to reject any units of
product within 30 days after delivery upon written notice to
Contractor stating in details the reasons for rejection if the
units of Product fail to conform to the Certificate of
Compliance accompanying the shipment. Upon receipt of the
rejected unit by the Contractor and the previous stated
notice, Contractor shall use its best efforts to replace all
rejected units of Product and to redeliver such units within
30 days. Of the rejected units of product described above,
all shipping costs regarding the replacement of defective
units of Product and their redelivery shall be borne by
Contractor.
B. Buyer shall have the authority to perform reasonable random
quality assurance, fixed assets and cGMP inspections of the
relevant portions of SeaMED'S facility for manufacturing
Products upon twenty-four (24) hours notice. SeaMED shall
fully cooperate with Buyer's inspections. Buyer recognizes
that, due to the nature of SeaMED's business, certain areas of
SeaMED's premises may not be available to Buyer personnel.
These certain areas will not include those important to the
manufacture of the Products for Buyer.
Contractor agrees to advise Buyer promptly of any inspection
specific to Buyer's product received from the FDA or other
regulatory authority. Contractor will permit Buyer's
representatives to attend such inspection if Buyer so
requests, and to provide to buyer, as confidential
information, a copy of any notice of observation that is
provided to Contractor by the investing authority. The
Buyer's access during the inspection as well as information
provided in the notice of observation will be limited to those
areas specific to Buyer's product.
6
<PAGE> 7
CONFIDENTIAL TREATMENT REQUESTED
IX. WARRANTY
A. LIMITED WARRANTY
(i) Contractor is a Washington corporation duly
organized, validly existing and in good standing; it
has full power, right and authority to enter into and
perform its obligations under the Agreement,
including the right to manufacture and sell Products
to Buyer; this Agreement has been duly authorized by
all necessary corporate actions and when duly
executed by the appropriate corporate officers of
Contractor will be a valid and binding agreement of
Contractor enforceable in accordance with its terms
except to the extent that such enforceability may be
limited by applicable bankruptcy, insolvency and
other similar laws affecting creditor's right
generally. Products which are rejected for reasons
which are directly related to design performed by a
party other than the Contractor will be the
responsibility of the Buyer. Should there be a
dispute as to design responsibility, a mutually
agreed third party will be used to arbitrate the
dispute on this issue alone.
(ii) Contractor expressly represents and warrants for a
period of XXXXX from the time of invoice or XXXXX
from the time of delivery to the Buyer's customer,
whichever comes first, that all Products upon
delivery to Buyer are in good working order, are free
from defects in materials and workmanship, and
conform to the Buyer's functional and engineering
specifications as validated by the qualification plan
as jointly agreed to by Buyer and Contractor. The
Products are sold and delivered free from any claim,
security interest or other lien or encumbrance. All
warranties contained in this Order shall survive
inspection test, acceptance and payment and will
inure to the benefit of Buyer's customers.
(iii) Contractor warrants it has the right to convey the
Products and that the Products are free of all liens
and encumbrances. These warranties shall survive any
inspection, delivery, payment, and termination of
this Agreement, and shall run to Buyer, its
customers, successors, and assigns.
(iv) Contractors warrants that all Products shall be
produced according to Buyer's functional and
engineering specifications as validated by the
qualification plan jointly agreed to by Buyer and
Contractor, manufactured and assembled in compliance
with all applicable federal and state laws and rules
and regulations, which are material to maintain the
Contractor's ability to deliver product in a cGMP and
ISO environment.
(v) If any units of Product sold and delivered to Buyer
breaches any of the foregoing warranties, Contractor
shall either repair or replace or provide to Buyer
full credit for the purchase price of any unit of
Product which is defective. Contractor shall correct
defects in Product at its facility. At Buyer's
option, Contractor shall complete an assessment of
the returned product, (typically within three (3)
days of receipt), and repair or replace all defective
Product, (typically within fourteen (14) days of
receipt) unless otherwise specified. Turn around
times will vary depending on the complexity of the
defect. Inbound freight will be the responsibility
of Buyer, except as noted in section 8 (A).
Contractor agrees to pay return freight to the
customer and method of shipment will be consistent
with the method of inbound freight to the Contractor
for units covered under warranty.
(vi) The aforementioned warranties do not extend to the
system algorithm, the system patient cable, or the
sensors. The design and responsibility for these
three items rest solely with the Buyer.
B. NON-WARRANTY
Repair services outside the scope of the warranties described
in this Section IX shall be provided by the
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<PAGE> 8
CONFIDENTIAL TREATMENT REQUESTED
Contractor and/or the Buyer pursuant to a Repair and Service
Agreement to be negotiated in good faith by the parties and
signed within a reasonable time following execution of this
Agreement.
C. SUPPLY OF REPLACEMENT PARTS
(i) Contractor agrees to provide Buyer, upon request,
buyer's requirements of replacement parts,
schematics, plans and sources of supply or a designee
of the buyer to: (a) provide non-warranty repair
services to buyer's customers, should Contractor not
provide such repairs, and (b) provide warranty repair
services at authorized third party service centers
world-wide selected by the Buyer with Contractor's
consent, which shall not be unreasonably withheld.
Buyer shall pay for such replacement parts consistent
with Contractor's current spares pricing methodology,
plus freight and shipping charges actually incurred
by the Contractor. The cost of replacement parts
required pursuant to (A) above, including freight and
shipping charges, shall be at the Contractor's
expense as part of it's warranty services. No third
party repairs will occur without mutual consent of
Contractor and Buyer.
(ii) Contractor warrants that for a period of time
beginning on the date of delivery to Buyer or the
Buyer's designee of any replacement parts provided
pursuant to this Section A, Limited Warranty, and
continuing thereafter for XXXXX following delivery of
such replacement parts to the buyer's customer (but
in no event to exceed XXXXX from the date of delivery
of such replacement parts to the Buyer), each such
part shall be in good working order, and conform to
all applicable component of product specifications,
and be delivered free from any claim, security
interest or other lien or encumbrance and all
applicable laws, ordinances, rules, regulations,
orders and standards have been complied with. In the
event any replacement part provided pursuant to this
Section does not conform with the above, the Buyer
or, at the Buyer's option, the Buyer's designee shall
return such replacement part to the Contractor. The
Contractor shall use its best effort to promptly
repair or replace such replacement parts.
Replacement parts verified as defective will be
repaired or replaced without charge. If such parts
are returned within thirty days from time of shipment
the freight cost of the original shipment will be
refunded.
(iii) Contractor shall, on a best efforts basis, attempt to
assure that any and all component materials and parts
for the Products obtained from subcontractors and/or
vendors shall be readily available and shall not
become obsolete and shall remain in production by the
vendor and/or subcontractor for a period of at least
three years from FDA pre-market approval of the
Product. Should Contractor become aware of any
potential obsolescence of a component material or
part which might impact Buyer's FDA pre-market or
market approval of the Product, Contractor will
immediately notify Buyer in writing of the situation
to enable buyer to determine a proper course of
action. Contractor shall monitor the production and
availability of major component materials and parts
of Products to assure that they continue in
production or can be purchased for a period of at
least three years following approval by the FDA for
marketing of commercial units.
X. CONFIDENTIAL INFORMATION
A. During the term of this Agreement and for a period of five
years thereafter, each party shall keep strictly confidential,
and shall not use for any purpose other than the matter
hereof, any and all information and materials received from
the other party which the disclosing party designates in
writing upon or within 30 days after disclosure as
confidential ("Confidential Information and Materials").
Confidential Information and Materials qualifying as trade
secrets and shall be maintained confidential for so long as
information of materials remain trade secrets. There shall
not be considered as Confidential Information and Materials
any information or materials which:
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<PAGE> 9
(i) is or are already part of the public domain at the
time of disclosure under this Agreement or thereafter
becomes or become part of the public domain otherwise
than by breach of this confidential obligation;
(ii) the receiving party can show by competent proof had
already come into its possession without violation of
this Agreement at the time of disclosure under this
Agreement; or
(iii) is communicated by a third party which did not
receive the same directly or indirectly from either
party, or from any other party under a binder of
confidentiality.
B. Each party may disclose Confidential Information or Materials
with the prior written approval of the disclosing party, to
third parties having a valid need to know and who enter into
written confidentiality agreements with the disclosing party
containing restrictions on further disclosure and use no less
stringent that the provisions of this Article X, or as it
deems necessary, This restriction of information does not
apply to the normal disclosure of information that occurs:
(I) during a FDA or ISO inspection / audit;
(ii) in prosecuting or defending litigation;
(iii) as required for obtaining regulatory approvals for
manufacture or sale of Products; or
(iv) in complying with applicable laws or regulations or
fulfilling the disclosure requirements of any
securities regulatory agency or securities exchange
in the event of a securities offering by it; provided
that it gives the disclosing party prior notice of
such disclosure and takes reasonable actions to limit
the disclosure.
C. Upon expiration or termination of this Agreement, each party
shall promptly deliver to the other party all records in its
possession or control containing Confidential Information and
Materials furnished to it by, or belonging to, the other
party, other than an archival set which must be retained by
the Contractor for compliance purposes and which will be
maintained in accordance with the provisions of this Article.
XI. OWNERSHIP
A. Specifications - Contractor acknowledges that the
specifications and all related writings, drawings, artwork,
computer assisted designs, blueprints, manuals, notes,
notebooks, reports, memorandums and similar works and
materials are and shall be the exclusive property of Buyer,
and Buyer retains all right, title and interest, including
copyright, relating to such material. Contractor agrees to
maintain a full controlled set of Device Master Records for
any Products built for the Buyer. Upon termination of this
Agreement, Contractor agrees to return to Buyer all copies of
the specifications and related materials within twenty (20)
business days of such termination; this material shall be
complete in every respect, as to permit an experienced
manufacturer to manufacture, assemble, maintain and service
the Product described in this Agreement. If termination
occurs prior to building the Product, Contractor will provide
a data package containing all information updated as of the
date of termination. The material shall include a full
drawing package in reproducible form and any revisions or
updates, including but not limited to; electronic files,
AutoCAD files, fabrication drawings, approved supplier list,
test specifications, tooling specifications and drawings,
manufacturing assembly instructions, routings, quality
assurance protocols, test equipment, specs and drawings and
engineering change notice history, device master files, and
device history records. Transfer of information will be
Product specific not including Contractor's proprietary
policies and procedures.
B. Buyer's Equipment - Contractor shall install, maintain and
account for Buyer's Equipment at Contractor's facility or
Contractor's subcontractor's facility in accordance with cGMP.
Contractor hereby acknowledges that the Buyer's Equipment is
the sole and exclusive property of Buyer. Buyer shall provide
identification and
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ownership tags (also called asset tags) for the Buyer's
Equipment, and Contractor shall ensure that such tags are
properly placed and maintained on all Buyer's Equipment.
Contractor here by covenants that, during the term of this
Agreement.
(i) Contractor and any subcontractor of Contractor using
Buyer's Equipment shall utilize Buyer's Equipment solely for
manufacturing Buyer's requirements of the Product as provided
hereunder,
(ii) Contractor shall not encumber any of the Buyer's
Equipment, nor shall Contractor permit the Buyer's Equipment
to become encumbered as a result of any act or omission of
Contractor or a subcontractor of Contractor.
C. Within Twenty (20) business days following termination or
expiration of this Agreement, Contractor agrees to properly
pack and return to Buyer, or cause to be properly packed and
returned to buyer, F.O.B. point of shipment, all Buyer's
Equipment, the same to be shipped to such facility as Buyer
directs at Buyer's expense.
D. Improvements - Contractor hereby acknowledges that all
improvements shall be the sole property of Buyer, and
Contractor shall provide Buyer, at Buyer's request and at a
reasonable charge, reasonable assistance in securing patents
for such improvements. Contractor agrees to promptly disclose
all improvements to Buyer and to execute, or have its
employee's, agents, subcontractors or representatives execute
documents reasonable requested by Buyer to evidence Buyer's
ownership of such improvements and any intellectual property
rights related thereto or to perfect Buyer's ownership rights
of same.
XII. INDEMNITY
A. Buyer agrees to indemnify against and hold harmless
Contractor, its affiliated entities, and their respective
officers, directors, shareholders, employees and agents and
their respective successors and assigns from and against any
and all claims, losses, damages, liability, costs and expenses
of any nature whatsoever, whether accrued, absolute,
contingent or otherwise (including, without limitation,
reasonable attorney's fees and legal costs and disbursements
whether or not suit is brought) arising out of Buyer's
negligence, reckless conduct, or willful misconduct: provided,
that Buyer's liability hereunder shall be reduced
proportionately by the percentage of fault, if any that may
ultimately be assigned or imposed on Contractor by a court or
arbitrator as a result of the Contractor's own negligence,
reckless conduct or willful misconduct including but not
limited to (i) any failure of a manufactured instrument to
conform to Design Specifications or (ii) any failure of a
manufactured instrument to conform to cGMP regulations. In
the event any claim is asserted or any suit is filed against
Contractor for which Buyer is or may be required to indemnify
Contractor under this provision, Contractor shall give Buyer
prompt written notice of same. Any failure to so notify the
Buyer shall not relieve Buyer from any liability that it may
have to Contractor except to the extent that such failure to
notify shall be prejudicial to a proper defense against the
claim or action or other satisfactory resolution. In the
event of any such claim or suit against the Contractor,
Contractor may at its option tender defense of the claim or
suit to Buyer, in which case the Contractor shall cooperate
with Buyer, at Buyer's request and expense, in the defense of
such claim or suit and Buyer shall have the sole right to
defend and/or settle such a claim or suit, including selecting
counsel of its choice. Regardless of whether or not
Contractor tenders defense of the claims or requirement of
this paragraph that Buyer fully indemnify Contractor remains
in full force and effect. To the extent that the settlement
of a claim, the defense of which has been assumed by the
Buyer, involves the payment of money only, the buyer shall
have the right, in consultation with the Contractor, to settle
those aspects dealing only with the payment of money, provided
that the Buyer pays such money and such settlement includes a
general release from the other parties to such proceeding in
favor of the Contractor. Notwithstanding the foregoing, in
connection with any such defense or settlement, the Buyer
shall not enter into a consent decree involving injunctive or
other nonmonetary relief without the Contractor's prior
written consent, which consent shall not be unreasonably
withheld. In the event the Contractor desires to settle any
third party claim, the Contractor shall advise the Buyer in
writing of the amount it proposes to pay in settlement
thereof. If such proposed settlement is unsatisfactory to the
Buyer, it shall have the right to continue to defend
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<PAGE> 11
the claim or to assume control of the defense of such claim
from the Contractor.
B. Contractor agrees to indemnify against and hold harmless
Buyer, its affiliated entities, and their respective officers,
directors, shareholders, employees and agents and their
respective successors and assigns from and against all claims,
losses, damages, liability, costs and expenses of any nature
whatsoever, whether accrued, absolute, contingent or otherwise
(including, without limitation, reasonable attorney's fees and
legal costs and disbursements whether or not suit is brought)
arising out of Contractors' manufacture of the instrument /
product, including but not limited to (i) any failure of the
Contractor to manufacture the instrument / product in
conformance with the Design Specifications, (ii) any failure
by the Contractor to comply with FDA cGMP regulations, (iii)
the negligent manufacture of the instrument / product by the
Contractor, or (iv) breach by Contractor of any of its
warranties or covenants contained in this Agreement, provided,
that Contractor's liability hereunder shall be reduced
proportionately by the percentage of fault, if any that may
ultimately be assigned or imposed on Buyer by a court of law
or arbitrator as a result of the Buyer's own negligence,
reckless conduct or willful misconduct. In the event any
claim is asserted or any suit is filed against Buyer for which
Contractor is or may be required to indemnify Buyer under this
provision, Buyer shall give Contractor prompt written notice
of same. Any failure to so notify the Contractor shall not
relieve Contractor from any liability that it may have to
buyer except to the extent that such failure to notify shall
be prejudicial to a proper defense against the claim or action
or other satisfactory resolution. In the event of any such
claim or suit against the Buyer, Buyer may at its option
tender defense of the claim or suit to Contractor, in which
case the Buyer shall cooperate with Contractor, at
Contractor's request and expense, in the defense of such claim
or suit and Contractor shall have the sole right to defend
and/or settle such a claim or suit, including selecting
counsel of its choice. Regardless of whether or not buyer
tenders defense of the claim or suit to Contractor, and
regardless of whether or not any such tender is accepted or
rejected by contractor, the requirement of this paragraph that
contractor fully indemnify Buyer remains in full force and
effect. To the extent that the settlement of a claim, the
defense of which has been assumed by the contractor, involves
the payment of money only, the Contractor shall have the
right, in consultation with the Buyer, to settle those aspects
dealing only with the payment of money, provided that the
Contractor pays such money and such settlement includes a
general release from the other parties to such proceeding in
favor of the Buyer. Notwithstanding the foregoing, in
connection with any such defense or settlement, the Contractor
shall not enter into a consent decree involving injunctive or
other nonmonetary relief without the Buyer's prior written
consent, which consent shall not be unreasonably withheld. In
the event the Buyer desires to settle any third party claim,
the Buyer shall advise the Contractor in writing of the amount
it proposes to pay in settlement thereof. If such proposed
settlement is unsatisfactory to the Contractor, it shall have
the right to continue to defend the claim or to assume control
of the defense of such claim from the Buyer.
XIII. FORCE MAJEURE
Neither party shall be considered to be in default in respect of any
obligation hereunder, if failure of performance shall be due to Force
Majeure. If either party is effected by a Force Majeure event, such
party shall, within ten (10) days of its occurrence, give notice to
the other party stating the nature of the event, its anticipated
duration and any action being taken to avoid or minimize its effect.
The suspension of performance shall be of no greater scope and no
longer duration than is required and the non-performing party shall
use reasonable efforts to remedy its inability to perform. Force
Majeure shall mean, without limitation, explosion, flood, fire, war
(whether declared or otherwise), accident, labor strike, or other
labor disturbance, sabotage, acts of God, or acts of regulatory
agencies, including withdrawal or suspension of licenses and consents,
which are beyond the control of a party.
XIV. REGULATORY MATTERS
A. Complaints - Buyer and Contractor agree to exchange within
five working days of receipt all written and oral complaints
as defined by cGMP in 21 CFR 820.198 related to Products, with
the exception that complaints related to death, injury or
imminent health hazard will be exchanged with two calendar
days of receipt. The Buyer is the listed manufacturer of the
Product and will be responsible for the following MDR
reporting
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requirements:
(i) Manufacturer will be required to submit MDR reports
to FDA (1) within 30 days of becoming aware of
information that reasonably suggests that a device
may have caused or contributed to a death or serious
injury; (2) within 30 days of becoming aware of
information that reasonably suggests a device has
malfunctioned and that that device or a similar
device marketed by the manufacturer would be likely
to cause a death or serious injury if the malfunction
were to recur; or (3) within 5 days of (a) becoming
aware that a reportable MDR event or events, from any
information, including any trend analysis,
necessitates remedial action to prevent an
unreasonable risk of substantial harm to the public
health, or (b) becoming aware of an MDR reportable
event for which FDA has made a written request for
the submission of a 5 day report.
(ii) Manufacturers also have responsibilities for
submitting baseline reports to FDA regarding
marketing information about devices that have been
the subject of MDR's) in accordance with section
803.55 of the regulations.
Contractor will use its best effort to close complaints in a
timely manner upon receipt and evaluation of the device at the
Contractor's facility, and any other information pertinent to
the investigation.
B. Registration - Contractor hereby represents to Buyer that it
is and will remain a FDA registered Manufacturer.
Additionally, the Contractor represents that it is and will
retain its ISO9001 certification and maintain a quality system
in compliance with EN46001 for the duration this Agreement.
C. Product Reports - Buyer shall provide Contractor with a copy
of all medical device reports ("MDR") and user reports
pertaining to the Product of which the Buyer is aware.
D. FDA Inspection Reports - Contractor shall, within five working
days of receipt, provide the Buyer with copies of any FDA Form
483 observations, follow-up warning letters or close-out
reports for those portions of FDA cGMP compliance inspection
reports relating specifically to the manufacture of the
Product(s) for any facility where the Product(s) is
manufactured.
E. Contacts - Each party shall designate an individual within
their organization to be the primary contact regarding
regulatory issues. Such individual can be changed by giving
written notice thereof to the other party.
F. Contractor agrees to provide Buyer upon demand access to all
of the following specific documentation and all copies thereof
required for pre-market approval or other required submittal
to the FDA or any other regulatory body: engineering drawings,
engineering specifications, work orders, change orders,
manufacturing procedures, inspection procedures, quality
assurance procedures, labeling procedures, maintenance log and
procedure for equipment used to manufacture Products,
inspection reports, calibration procedures and specifications,
Product release procedures, tooling drawings and
specification, product specifications, significant
documentation. The above documentation shall be prepared in a
manner which is acceptable to Buyer, and will be in accordance
with applicable FDA or other regulatory requirements of buyer
and shall be labeled as such. Contractor acknowledges its
understanding that these documents will be critical to Buyer's
pre-market approval submissions and continuing FDA or other
regulatory body requirements. Accordingly, Contractor agrees
that it shall perform all of its obligations hereunder in a
manner which shall in all cases meet all applicable FDA or
other regulatory body requirements to support Buyer's
pre-market approval process and continuing FDA or other
regulatory body compliance.
G. If there is a FDA or regulatory agency action against the
Contractor that would preclude the Contractor from meeting its
obligations under this agreement, Buyer may, at its sole
discretion, require renegotiation of certain terms of this
Agreement based on the adverse effects of changed market
circumstances as a result of such
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FDA or other regulatory agency action or voluntary recall.
H. In the event that Contractor moves or changes the site for the
manufacturing of Product, any costs involved with a site
change shall be borne by the Contractor. Any costs associated
with PMA supplemental filings as the result of a site change
shall be borne by the Buyer.
XV. NOTICES
A. Any notice given under this Agreement shall be written.
Written notice shall be sent by registered mail or by
certified mail, postage prepaid, return receipt requested, by
facsimile or be personally served. Any facsimile notice must
be followed within three (3) days by actual written notice as
set forth above. Any notice personally served or marked as
set forth above shall be deemed to have been given on the date
of personal delivery or the date such notice was deposited in
the US Mail as set forth above. All notices shall be
addressed as followed:
<TABLE>
<S> <C> <C>
If to Contractor: If to Buyer:
Manager, Customer Support & Contracts Vice President of Manufacturing
SeaMED Corporation Biofield Corp.
14500 NE 87th Street 1225 Northmeadow Parkway, Suite 120
Redmond, WA 98052 Roswell, Georgia 30076
with copies to: with copies to: CEO
Vice President, Operations
Vice President, Regulatory Affairs and Executive Vice
President Quality Assurance Biofield Corp.
SeaMED Corporation 1225 Northmeadow Parkway, Suite 120
14500 NE 87th Street Roswell, Georgia 30076
Redmond, WA 98052
</TABLE>
Either party may change its address for the purpose of this
section by giving the other party notice thereof in accordance
with this section.
XVI. TERMINATION
A. Upon any material breach of the terms and provisions herein,
this Agreement may be terminated by either party hereto if
such breach is not corrected within sixty (60) calendar days
after written notice to the defaulting party calling for
remedy of such breach. If any provision of this Agreement
gives any party the right to terminate this agreement, upon
the occurrence or non-occurrence of certain stipulated events,
such termination shall be effective upon written notice to the
other party.
B. Either party may immediately terminate this Agreement, if the
other party shall have become insolvent or bankrupt, or any
case or proceeding shall have been commenced by or against the
other party in bankruptcy or seeking liquidation, dissolution
or winding-up, and any such event shall have continued for 30
days without being dismissed, bonded or discharged.
C. In the event that this agreement is terminated, the parties
agree as follows:
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(i) If Buyer or Contractor terminates this Agreement,
either by notice or as a result of breach by the
Buyer or Contractor, Buyer shall buy from Contractor,
at cost, any and all transferable parts which are in
inventory or are on order and non-cancelable by
Contractor. Buyer shall reimburse contractor for all
finished goods, work in process and raw materials
inventory either on hand or on order and
non-cancelable, purchased and/or manufactured as a
result of Buyer's purchase orders or approved
production forecasts. Contractor shall complete any
work in process if so requested by Buyer as if no
termination notice was given. If the materials are
not useable by the Buyer as a result of the Breach by
the Contractor, the Buyer is not obligated to
purchase the materials. In any event the Buyer will
not be obligated to purchase materials for which the
Buyer has not issued a firm Purchase Order.
(ii) If Buyer or Contractor terminates this agreement, and
if Buyer requests Contractor's assistance in
establishing an alternate source for the production
of the product, Contractor shall provide to Buyer any
design details, tooling and WIP relating to the
product. Buyer shall be responsible for all costs
associated with establishing an alternate source,
including but not limited to copying records and
transferring transferable parts to an alternate
source. Buyer shall also reimburse Contractor for
all outstanding costs incurred an all non-cancelable
committed costs associated with the Limited
Production Phase of this agreement. Contractor shall
provide a complete listing of parts including
traceability records.
XVII. SURVIVAL
The articles and provisions of this Agreement dealing with Delivery,
Payment, Warranty, Confidential Information, Ownership, Indemnity, US
Customs, Marking, Duty Drawback Requirements, and Compliance with
Laws, shall survive termination or expiration of this Agreement for a
period of 5 years.
XVIII. GENERAL
A. The terms of this Agreement may only be supplemented or
modified by written amendment executed by all parties hereto.
If either party fails to enforce any term of this Agreement,
failure to enforce on that occasion shall not prevent
enforcement on any other occasion.
B. As used in this Agreement, except where otherwise noted, the
term "days" shall mean business days.
C. The parties hereto (including their respective agents and
employees) are independent contractors and nothing contained
in this Agreement shall be deemed or construed to create the
relationship of partnership or joint venture or any
association or relationship between the parties other than
buyer and seller. Without limiting the generality of the
foregoing, Contractor is not authorized to represent or make
any commitments on behalf of Buyer, and Buyer expressly
disclaims any liability therefore.
D. All rights and remedies conferred by this Agreement, by any
other instrument, or by law are cumulative and may be
exercised singularly or concurrently. If any provision of
this Agreement is held invalid by any law or regulation of any
government or by any court, such invalidity shall not affect
the enforceability of any other provisions hereof. The Terms
and Conditions of this Agreement shall be governed by the laws
of the State of Georgia, including the Uniform Commercial Code
as in effect, in Georgia on the date of this Agreement (the
"Code"). Whenever a term defined by the Code is used in this
Agreement, the definition contained in the Code shall apply
here. Contractor agrees that any proceeding brought in
connection with this Agreement shall be brought in any court
of competent jurisdiction in Georgia.
E. Neither party shall assign this Agreement or any of their
respective duties and obligations hereunder without the prior
written consent of the other party; provided, however, that
this Agreement may be assigned by Buyer to any company that is
the successor to all or substantially all of the business and
property of Buyer.
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CONFIDENTIAL TREATMENT REQUESTED
F. Each party agrees to execute, acknowledge and deliver such
further instruments and to do all such other acts as may be
necessary or appropriate to carry out the purpose and intent
of this Agreement.
G. This Agreement together with the Attachments and any Purchase
Orders contains the entire agreement of the parties with
respect to its subject matter, and supersedes all prior
negotiations, correspondence, understandings and agreements
between the parties respecting the subject matter hereof.
XIX. BUSINESS REVIEWS
A. Buyer and Contractor shall, each at their own expense, meet
periodically to review performance and business transacted,
and to identify and resolve those issues which have arisen
since the last business review meeting. These reviews should
take place at least semi-annually.
B. Buyer and Contractor shall furnish agenda items not later than
one (1) week prior to scheduled business review meetings.
Minutes shall document action items, open items, and committed
dates which may be the result from such business review
meetings, and shall be sent by the drafting party to the other
party within ten (10) days after each meeting.
XX. INSURANCE
A. Contractor agrees to carry at all times, and with companies
acceptable to Buyer, insurance of the kinds and in the amounts
listed below and such insurance to cover Buyer as an
additional insured and such policies to provide for 30 days'
prior written notice to Buyer before any material change
therein or cancellation. Contractor further agrees to furnish
Buyer with a certificate of such insurance contemporaneously
with the signing of this Agreement.
(i) Worker's Compensation statutory limits in each state
in which Contractor is required to provide Worker's
Compensation coverage.
(ii) Employee's Liability not less than XXXXX per employee.
(iii) Comprehensive General Liability - including
Contractual Liability, Independent Contractor's
Liability, Products and/or Completed Operations
Liability, and Personal Injury / Property Damage
Coverage's in a combined single limit of not less
than XXXXX.
(iv) Automobile Liability for owned, non-owned and hired
vehicles in a combined single limit of not less than
XXXXX.
(v) Umbrella Liability a combined single limit of not
less than XXXXX.
B. Buyer agrees to carry at all times, and with companies
acceptable to contractor, insurance of the kinds and in the
amounts listed below and such insurance to cover Contractor as
an additional insured and such policies to provide for 30
days' prior written notice to Contractor before any material
change therein or cancellation.
(i) Comprehensive General Liability - including
Contractual Liability, Independent Contractor's
Liability, Products and/or Completed Operations
Liability, and Personal Injury / Property Damage
Coverage's in a combined single limit of not less
than XXXXX.
(ii) Umbrella Liability a combined single limit of not
less than XXXXX.
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XXI. LIMITATION OF LIABILITY
Except as otherwise provided in this Agreement, neither party shall be
liable for special, indirect, incidental, or consequential damages.
The foregoing limitation shall not limit Contractor's liability for
any costs, expenses, and damages arising out of or in connection with:
claims brought by third parties; Contractor's unauthorized disclosure
of Buyer's Confidential Information and Materials; or any
indemnification (including Section X, Intellectual Property Indemnity)
granted by Contractor in connection with this Agreement.
XXII. NO IMPLIED LICENSE
The parties understand that, except as may be otherwise expressly
stated herein, neither the Terms or Conditions of this Agreement, nor
the acts of either party arising out of this Agreement or related to
Buyer's purchase, use, sale, or other distribution of Product may be
considered in any way as a grant of any license whatsoever under any
of Buyer's present or future patents, copyrights, trademarks, trade
secrets, or other proprietary rights. Nor is any such license granted
by implication, estoppel, or otherwise.
XXI. APPROVALS
IN WITNESS WHEREOF, the authorized representatives of the parties have
executed this Agreement under seal as of the date(s) set forth below.
<TABLE>
<S> <C>
SEAMED CORPORATION BIOFIELD CORP.
CONTRACTOR BUYER
By: By:
/s/ Don Rich /s/ Mario J. Martinez
------------------------------------- ---------------------------------------
(Signature) (Signature)
Don Rich Mario J. Martinez
------------------------------------- ---------------------------------------
(Printed) (Printed)
Vice President of Operations Vice President Manufacturing
------------------------------------- ---------------------------------------
(Title) (Title)
November 4, 1996 October 30, 1996
------------------------------------- ---------------------------------------
(Date) (Date)
</TABLE>
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EXHIBIT 10.46
MASTER EQUIPMENT LEASE AGREEMENT
DATED AS OF
JULY 11, 1996
BETWEEN
FINANCING FOR SCIENCE INTERNATIONAL, INC.
(LESSOR)
AND
BIOFIELD CORP.
(LESSEE)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C> <C>
1. Agreement for Lease of Equipment..............................1
2. Delivery and Acceptance of Equipment..........................1
3. Disclaimer of Warranties......................................2
4. Primary Term..................................................2
5. Rent..........................................................2
6. Lessee's Representations and Warranties.......................3
7. Identification Marks..........................................4
8. Fees and Taxes................................................5
9. General Indemnity.............................................5
10. Use of Equipment; Location; Liens.............................6
11. Maintenance and Repairs; Additions to
Equipment.....................................................6
12. Loss, Damage or Destruction of Equipment......................7
13. Reports; Inspections..........................................8
14. Insurance.....................................................8
15. Return of Equipment...........................................9
16. Lessor's Ownership; Equipment To Be and
Remain Personal Property.....................................10
17. Other Covenants..............................................11
18. Events of Default............................................12
19. Assignment and Transfer by Lessor............................14
20. Recording and Filing; Expenses...............................15
21. Automatic Lease Term Renewal.................................15
22. Quiet Enjoyment..............................................15
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C> <C>
23. Failure or Indulgence Not Waiver;
Additional Rights of Lessor..................................16
24. Sublease.....................................................16
25. Purchase Option..............................................16
26. Notices......................................................16
27. Entire Agreement; Severability; Amendment or
Cancellation of Lease........................................17
28. Waiver of Jury...............................................17
29. Restriction of Limitation Periods
and Damages..................................................17
30. Governing Law; Consent to Jurisdiction
and Service .................................................17
31. Lessor's Right to Perform for Lessee.........................17
32. Agreement for Lease Only.....................................18
33. Binding Effect...............................................18
34. General......................................................18
35. Definitions..................................................18
</TABLE>
iii
<PAGE> 4
MASTER EQUIPMENT LEASE AGREEMENT
MASTER EQUIPMENT LEASE AGREEMENT dated as of July 11, 1996, between
BIOFIELD CORP. (hereinafter called "Lessee"), a Delaware corporation that has
its executive office and principal place of business at 1225 Northmeadow
Parkway, Suite 120, Roswell, Georgia 30076 and FINANCING FOR SCIENCE
INTERNATIONAL, INC. (hereinafter called "Lessor"), a Delaware corporation with
its principal place of business at 10 Waterside Drive, Farmington, Connecticut
06032-3065.
In consideration of the mutual covenants hereinafter contained, Lessee
and Lessor agree as follows:
1. Agreement for Lease of Equipment. Lessor shall lease to Lessee and
Lessee shall lease from Lessor, upon the terms and conditions specified in this
Master Lease and the applicable Rental Schedule, the Equipment as described in
the applicable Rental Schedule including Schedule A of such Rental Schedule and
this Master Lease. Each Rental Schedule shall incorporate the terms of this
Master Lease and shall constitute a separate lease (the term "this Lease" shall
refer collectively to the applicable Rental Schedule and this Master Lease).
Only the signed copy of each Rental Schedule and not this Master Lease shall
constitute chattel paper the possession of which can perfect a security
interest. In the event of a conflict between the provisions of this Master
Lease and the provisions of any Rental Schedule, the provisions of the Rental
Schedule shall prevail.
2. Delivery and Acceptance of Equipment. (a) Lessor and Lessee agree
that the vendor of the Equipment to Lessor or, as to any Equipment to be sold
by Lessee to Lessor and leased back, the vendor of the Equipment to Lessee (in
either case, the "Vendor") will be responsible to deliver the Equipment to
Lessee at the location specified in the applicable Rental Schedule. Such
delivery shall be delivery of the Equipment by Lessor to Lessee under this
Lease unless such Equipment is to be sold by Lessee to Lessor and leased back.
Provided that no Event of Default has occurred, no event which with the passage
of time or giving of notice would be an Event of Default has occurred, and is
continuing, and the conditions set forth in the next following paragraph have
been met and the Equipment is not to be sold by Lessee to Lessor and leased
back, Lessor hereby authorizes Lessee, acting as Lessor's agent, to accept for
Lessor, and in Lessor's name, the Equipment from the Vendor upon delivery
pursuant to the purchase contract for the Equipment. Such acceptance shall be
acceptance of the Equipment by Lessee under this Lease. Nevertheless, if within
ten business days after Lessee has received delivery of an item of the
Equipment, Lessee notifies Lessor in accordance with the notice provisions
hereof of a defect therein Lessee shall not be deemed to have accepted such
item of the Equipment under this Lease. Except as provided in the preceding
sentence, Lessee agrees to confirm any acceptance of the Equipment by Lessee by
executing a Certificate of Inspection and Acceptance and providing the same to
Lessor in accordance with the notice provision hereof on or about the Lease
Commencement Date, but no later than the date for payment to the Vendor. Lessee
shall hold Lessor harmless from any claims in respect of such rejected
Equipment as provided in Section 9 of this Master Lease.
(b) Conditions precedent to every progress payment and Lease Term
Commencement shall include that (i) no payment shall be past due to Lessor or
any assign of Lessor from Lessee or any Guarantor (as hereinafter defined),
whether as a lessee, a guarantor or in some other capacity; (ii) Lessee shall
be in material compliance with the provisions of this Lease; (iii) all
documentation then reasonably required by Lessor in connection therewith shall
have been received by Lessor; (iv) Lessee shall not be in default under any
material contract to which Lessee is a party or by which Lessee or the property
of Lessee is bound; and (v) there shall not have been any material adverse
change or threatened material adverse change in the financial or other
condition, business, operations, properties, assets or prospects of Lessee, any
Guarantor or any Manufacturer (as hereinafter defined) since May 2, 1996, or
from the written information that has been supplied to Lessor prior to June 18,
1996 by Lessee, any Guarantor or any Manufacturer.
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<PAGE> 5
3. Disclaimer of Warranties. LESSEE ACKNOWLEDGES THAT IT HAS SELECTED
BOTH THE EQUIPMENT AND EVERY MANUFACTURER AND OTHER VENDOR OF THE EQUIPMENT,
THAT LESSEE HAS NOT RELIED UPON LESSOR FOR SUCH SELECTION AND THAT LESSEE HAS A
COPY OF THE PURCHASE CONTRACT(S) FOR LESSOR'S PURCHASE OF THE EQUIPMENT. LESSOR
HAS NOT MADE AND SHALL NOT BE DEEMED TO HAVE MADE ANY REPRESENTATION OR
WARRANTY, EXPRESS OR IMPLIED, AS TO THE MERCHANTABILITY, FITNESS FOR USE,
FITNESS FOR A PARTICULAR PURPOSE OR TITLE OF THE EQUIPMENT (OR ANY PART THEREOF)
OR AS TO COMPLIANCE WITH SPECIFICATIONS, COMPLIANCE WITH GOVERNMENTAL
REGULATIONS, QUALITY, SELECTION, INSTALLATION, SUITABILITY, PERFORMANCE,
CONDITION, DESIGN, ABSENCE OF DEFECTS, OPERATION, OR NON-INFRINGEMENT OF
PATENT, COPYRIGHT, TRADEMARK OR OTHER INTELLECTUAL PROPERTY RIGHTS OF THE
EQUIPMENT (OR ANY PART THEREOF). LESSEE SHALL LEASE THE EQUIPMENT "AS IS, WHERE
IS". LESSOR HEREBY DISCLAIMS ANY AND ALL SUCH WARRANTIES OR REPRESENTATIONS,
EXPRESS OR IMPLIED. LESSEE AND LESSOR AGREE THAT ALL RISKS INCIDENT TO THE
MATTERS REFERRED TO IN THIS SECTION ARE TO BE BORNE BY LESSEE. Lessor has and
shall have no responsibility for the installation, adjustment or servicing of
the Equipment. The provisions of this Section have been negotiated and are
intended to be a complete exclusion and negation of any representations or
warranties by Lessor, express or implied, with respect to the Equipment that
may arise pursuant to any law now or hereafter in effect, or otherwise. In no
event shall defect in, or unfitness of, any or all of the Equipment, or any
breach of warranty or representation by any or every Manufacturer or other
Vendor relieve Lessee of the obligation to pay rent or to make any other
payments required hereunder or to perform any other obligation hereunder.
Without limiting the generality of the foregoing, Lessor shall not be
responsible or liable for any (i) defect, either latent or patent, in any of
the Equipment or for any direct or consequential damages therefrom, (ii) loss
of use of any of the Equipment or for any loss of profits or any interruption
in Lessee's business occasioned by Lessee's inability to use any or all of the
Equipment for any reason whatsoever, or (iii) in the event that any Vendor
delays or fails to make delivery of any or all of the Equipment or fails to
fulfill or comply with any purchase contract or order. For as long as no Event
of Default shall have occurred hereunder, Lessor hereby transfers and assigns
to Lessee during the Lease Term (as hereinafter defined) all right and interest
of Lessor in any Manufacturer's and other Vendor's warranties with respect to
any and all of the Equipment, and agrees to execute all documents reasonably
necessary to effect such transfer and assignment, except that to the extent any
rights of Lessor with respect to the Equipment may not be assigned or otherwise
be available to Lessee, Lessor shall instead use reasonable efforts to enforce
such rights against such Manufacturers or other Vendors but only upon the
request and at the expense of Lessee.
4. Primary Term. The Primary Term for each item of the Equipment shall
commence on the Lease Commencement Date provided for by the Rental Schedule for
such Equipment, and unless sooner terminated pursuant to the provisions of this
Lease, shall be for the number of calendar months set forth in such Rental
Schedule, plus the number of days remaining in any partial calendar month if
the Lease Commencement Date occurs on other than the first day of a month.
Notwithstanding the foregoing, the provisions of this Master Lease on
indemnification of Lessor by Lessee shall apply between Lessor and Lessee with
respect to any Equipment from the time that any order for the Equipment is
placed by Lessor.
5. Rent. (a) Lessee shall pay to Lessor in cash or by check as rent
for the Equipment during the Lease Term, the amounts provided for in the Rental
Schedule ("Basic Rent") for such Equipment on the dates designated therein
("Payment Dates"), at the location of Lessor set forth therein, or at such
other address or to such other person or entity as Lessor, from time to time,
may designate in writing.
(b) Lessee shall also pay to Lessor, upon notice by Lessor to Lessee
that payment is due, any sums other than for Basic Rent that Lessee at any time
shall be required to pay Lessor pursuant to the provisions of this Lease,
including but not limited to sums payable by reason of payments by Lessor to
any Vendors in advance of the delivery of such Equipment or the commencement of
the Lease Term for such Equipment, together with every additional charge,
interest and cost which may be added for non-payment or late payment of any
such sums or of Basic Rent. All such sums shall be additional rent ("Additional
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<PAGE> 6
Rent") and Lessor shall provide Lessee with written notification as to the
amount of any Additional Rent. If Lessee shall fail to pay any Additional Rent,
Lessor shall have all rights, powers and remedies with respect thereto as are
provided herein or by law in the case of non-payment of Basic Rent.
(c) With respect to any amount of Basic Rent or Additional Rent not
received by Lessor within five business days from when due hereunder, Lessee
shall pay to Lessor interest on such amount from the due date thereof until
payment is received by Lessor at two percent per month or the highest rate of
interest on amounts past due that is not unlawful, whichever is lower (the
"Default Interest Rate"). Additionally, with respect to each such instance of
late payment, Lessee shall pay to Lessor, within three days of notification
that such payment is due, a collection fee of $300, which fee approximates
Lessor's administrative costs, at minimum, to collect such unpaid Basic Rent or
Additional Rent.
(d) LESSEE AGREES THAT TIME IS OF THE ESSENCE TO LESSOR IN LESSEE'S
MAKING PAYMENTS OF BASIC RENT AND ADDITIONAL RENT WHEN SUCH PAYMENTS BECOME
DUE.
(e) This Lease is a net-net-net lease and, notwithstanding any other
provisions of this Lease, it is intended that Basic Rent and Additional Rent
shall be paid without notice, demand, counterclaim, setoff, deduction or
defense and without abatement, suspension, deferment, diminution or reduction.
Lessee shall perform all its obligations under this Lease at its sole cost and
expense. Except to the extent otherwise expressly specified herein, the
obligations and liabilities of Lessee hereunder shall in no way be released,
discharged or otherwise affected for any reason, including, without limitation:
(i) any defect in the condition, quality or fitness for use of the Equipment or
any part thereof; (ii) any damage to, removal, abandonment, salvage, loss,
scrapping or destruction of or any requisition or taking of the Equipment or
any part thereof; (iii) any restriction, prevention or curtailment of or
interference with any use of the Equipment or any part thereof; (iv) any defect
in title or rights to the Equipment or any lien on such title or rights or on
the Equipment; (v) any change, waiver, extension, indulgence or other action or
omission in respect of any obligation or liability of Lessor; (vi) any
bankruptcy, insolvency, reorganization, composition, adjustment, dissolution,
liquidation or other like proceedings relating to Lessee or any action taken
with respect to this Lease by any trustee or receiver of Lessee or by any
court, in any such proceeding; (vii) any claim that Lessee has or might have
against any Person (as hereinafter defined), including without limitation
Lessor; (viii) any failure on the part of Lessor to perform or comply with any
of the terms hereof or of any other agreement; (ix) any invalidity,
unenforceability or disaffirmance of this Lease or any provision hereof against
or by Lessee; or (x) any other occurrence whatsoever, whether similar or
dissimilar to the foregoing, whether or not Lessee or Lessor shall have notice
or knowledge of any of the foregoing. To the extent permitted by law, Lessee
waives all rights now or hereafter conferred by statute or otherwise to quit,
terminate, cancel, rescind or surrender this Lease, or to any diminution or
reduction of Basic Rent or Additional Rent payable by Lessee hereunder, in
respect of any item of the Equipment for which Lessee shall have executed a
Certificate of Acceptance and Delivery or if the Equipment shall be deemed to
have been accepted under this Lease by Lessee as provided by Section 1 of this
Master Lease.
6. Lessee's Representations and Warranties. Lessee represents and
warrants (and if requested by Lessor, promptly will provide supporting
documents) that as of the date that Lessee signs this Master Lease, as of any
date that Lessor makes a payment to a Vendor prior to the date all Equipment
has been accepted for lease hereunder, as of each date that any Equipment is
accepted for lease hereunder and as of each Lease Commencement Date pursuant to
a Rental Schedule hereunder: (i) all items of the Equipment are new and unused
as of the Lease Commencement Date, unless otherwise specified in the applicable
Rental Schedule in which event the specified items of the Equipment shall have
been delivered new to Lessee by their suppliers not more than 90 days prior to
their Lease Term Commencement; (ii) Lessee is duly organized, validly existing
and in good standing under the laws of the jurisdiction of its organization,
and is qualified and in good standing to do business wherever necessary to
carry on its present business and operations, including the jurisdictions where
the Equipment is or will be located; (iii) Lessee has the power to enter into
this Lease and the other instruments and documents executed by Lessee in
connection
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<PAGE> 7
herewith (together with this Lease, the "Transactional Documents") and to pay
and perform its obligations under this Lease and the other Transactional
Documents; (iv) this Lease and the other Transactional Documents have been duly
authorized, executed and delivered by Lessee, and constitute the valid, legal
and binding obligations of Lessee enforceable in accordance with their terms;
(v) no vote or consent of, or notice to, the holders of any class of stock of
Lessee is required, or if required, such vote or consent has been obtained or
given, to authorize the execution, delivery and performance of this Lease and
the other Transactional Documents by Lessee; (vi) neither the execution and
delivery by Lessee of this Lease or the other Transactional Documents, nor the
consummation by Lessee of the transactions contemplated hereby or thereby, nor
compliance by Lessee with the provisions hereof or thereof, conflicts with or
results in a breach of any of the provisions of any Certificate of
Incorporation or By-laws or partnership or trust agreement or certificate of
Lessee, or of any applicable law, judgment, order, writ, injunction, decree,
award, rule or regulation of any court, administrative agency or other
governmental authority, or of any indenture, mortgage, deed of trust, other
agreement or instrument of any nature to which Lessee is a party or by which it
or its property is bound or affected or pursuant to which it is constituted, or
constitutes a de fault under any thereof or will result in the creation of any
lien, charge, security interest or other encumbrance upon any of the
Equipment, other than the interests therein of Lessor or any Assignee (as
hereinafter defined), or upon any other right or property of Lessee or will in
any manner adversely affect Lessor's or any Assignee's right, title and
interest in any of the Equipment; (vii) no consent, approval, withholding of
objection or other authorization of or by any court, administrative agency,
other governmental authority or any other Person is required, except such
consents, approvals or other authorizations which have been duly obtained and
are in full force and effect and copies of which have been furnished Lessor, in
connection with the execution, delivery, performance, or the consummation by
Lessee, of the transactions contemplated by this Lease and the other
Transactional Documents; (viii) there are no actions, suits or proceedings
pending, or, to the knowledge of Lessee, threatened, in any court or before any
administrative agency or other governmental authority against or affecting
Lessee, which, if adversely decided would or could, individually or in the
aggregate, materially and adversely affect the financial or other condition,
business, operations, properties, assets or prospects of Lessee or the ability
of Lessee to perform any of its obligations under this Lease or under the other
Transactional Documents, except for any such actions, suits or proceedings that
Lessee has described in writing to Lessor; (ix) no Event of Default or event or
condition which upon the passage of time, the giving of notice, or both, would
constitute an Event of Default, exists or is continuing; (x) there has been no
material adverse change in Lessee's, any Guarantor's or, to the knowledge of
Lessee, any Manufacturer's financial or other condition, business, operations,
properties, assets or prospects since the date of Lessee's, such Guarantor's or
Manufacturer's most recent financial statements that have been supplied to
Lessor by Lessee, any Guarantor or such Manufacturer; (xi) Lessee possesses any
and all authorizations, certifications and licenses which are or may be
required to use and operate the Equipment; (xii) to the knowledge of Lessee,
the actual Acquisition Cost pursuant to the applicable Rental Schedule of each
item of the Equipment does not exceed the reasonably fair and usual price for
like quantity purchases of such item and reflects all discounts, rebates and
allowances for the Equipment given to Lessee, any Guarantor or any affiliate of
Lessee or any Guarantor by any Vendor or other Person including, without
limitation, discounts for advertising, prompt payment, testing or other
services; (xiii) all information supplied to Lessor by Lessee or any Guarantor
is correct in all material respects and does not omit any statement necessary
to make the information supplied not materially misleading; and (xiv) the
financial statements of Lessee and any Guarantor that have been supplied to
Lessor by Lessee have been prepared in accordance with generally accepted
accounting principles consistently applied and accurately present in all
material respects the financial condition and the results of operations of
Lessee and any such Guarantor at the dates of and for the periods covered by
such statements.
7. Identification Marks. To the extent requested by Lessor, Lessee
shall affix to the Equipment at Lessee's expense signs, labels, or other forms
of notice to disclose Lessor's ownership of, and the interest of any Assignee
in, the Equipment. Lessee shall keep and maintain such signs, labels or other
forms of notice affixed to the Equipment throughout the Lease Term. Lessor may
furnish such signs, labels or other forms of notice to Lessee. Except as
otherwise directed by Lessor, Lessee shall not allow
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<PAGE> 8
the name of any person other than Lessor to be placed on any part of the
Equipment as a designation that might reasonably be interpreted as a claim of
ownership.
8. Fees and Taxes. Lessee agrees to pay promptly when due, and to
indemnify and hold Lessor harmless from, all license, title, registration and
recording fees whatsoever, all taxes including, without limitation, sales, use,
franchise, personal property, excise, import, export and stamp taxes and
customs duties, and all charges together with any penalties, fines or interest
thereon which are assessed, levied or imposed by any governmental or taxing
authority against Lessor with respect to any or all of the Equipment or the
purchase, acquisition, ownership, construction, installation, shipment,
delivery, lease, pos session, use, maintenance, condition, operation, control,
return or other disposition thereof or the rents, receipts or earnings arising
therefrom which accrue or are payable with respect to the Equipment or this
Lease or which are assessed, are based on a valuation date, or are due during
or with respect to the Lease Term or any subsequent period, until the Equipment
has been returned to Lessor pursuant to the provisions of this Lease or until
the Equipment has been purchased by Lessee pursuant to any purchase option
provisions of this Lease, excluding, however, any taxes solely measured by
Lessor's net income from the general operation of Lessor's business. In the
event any fees, taxes or charges payable by Lessee pursuant to the next
preceding sentence are paid by Lessor, or if Lessor is required to collect or
pay any thereof, Lessee shall reimburse Lessor therefor (plus any penalties,
fines or interest thereon) promptly upon demand. Unless and until Lessor
notifies Lessee in writing to the contrary, Lessee shall file and pay any
personal property taxes levied or assessed on the Equipment directly to the
levying authority. Upon Lessor's written reasonable request, Lessee shall
submit to Lessor satisfactory evidence of payment by Lessee of any or all
amounts for which Lessee is required to make payment under this Section or to
indemnify Lessor hereunder that such payments have been paid by Lessee, and of
the filing of any and all reports, returns and other documentation required in
connection with any such payment. In the event Lessor elects to pay the
personal property taxes directly to a levying authority, Lessor shall submit to
Lessee a copy of its personal property tax return and its receipt for the full
amount of such personal property taxes so paid by Lessor. All of the
obligations of Lessee under this Section shall continue in full force and
effect notwithstanding any expiration, termination, rescission or cancellation
of this Lease. Lessee acknowledges that Lessor may not be exempt from the
payment of any of the amounts referred to herein, even though Lessee might have
been exempt therefrom if it were the owner or purchaser of the Equipment, and
Lessee agrees that this Section shall apply, and the amounts due from it
hereunder shall be due, whether or not Lessee might itself have otherwise been
exempt from any such payments. Subject to the foregoing, Lessee shall have the
right to contest in good faith any such taxes levied or imposed by any
governmental or taxing authority, provided that Lessee shall have given Lessor
not less than ten days prior notice of its intention to contest and full
particulars of the proposed contest, in the opinion of Lessor the proposed
contest will not materially and adversely affect the interests of Lessor or any
Assignee, and Lessee either shall have paid the taxes or provided for a bond or
other security so that none of the Equipment will be subject to seizure,
confiscation or forfeiture. For purposes of this Section, the term "Lessor"
shall include each member of Lessor's affiliated group, if any.
9. General Indemnity. (a) Lessee shall indemnify Lessor and any
Assignee (as hereinafter de fined), and their respective agents and servants,
against, and agrees to defend, protect, save and keep them harmless from, any
and all liabilities, obligations, losses, damages, penalties, claims, actions,
suits, costs, expenses and disbursements, including reasonable attorneys' fees
and expenses and costs for customs, completion, performance and appeal bonds,
of whatsoever kind and nature (including, without limitation, for negligence,
tort liability, damages by reason of strict or absolute liability, punitive
damages, and in direct and consequential damages, but excluding any such
amounts imposed or incurred as a result of Lessor's gross negligence, bad faith
or willful misconduct), imposed on or incurred by or assessed against Lessor
and/or any Assignee, in any way relating to or arising out of (i) the failure
of Lessee to provide or obtain any certificates, documents, consents,
authorizations, clearances, licenses, permits or instruments required hereunder
or under any of the other Transactional Documents, or (ii) the ordering,
construction, installation, delivery, testing, ownership, lease, possession,
use, maintenance, operation, control, movement, import, export, shipment,
condition, or return of the Equipment (including but not limited to latent and
other defects, whether or not discoverable by Lessor or Lessee, and any claim
for patent, trade-
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<PAGE> 9
mark, copyright, software or other intellectual property infringement) until
such time as the Equipment shall have been returned to Lessor pursuant to the
provisions of this Lease or until the Equipment shall have been purchased by
Lessee pursuant to any purchase option provisions of this Lease.
(b) The obligations of Lessee under this Section shall survive the
payment of all known obligations under and any expiration, termination,
rescission or cancellation of this Lease, and are expressly made for the
benefit of and shall be enforceable by Lessor, its successors and any Assignee.
10. Use of Equipment; Location; Liens. (a) During the Lease Term,
Lessee warrants and agrees that the Equipment shall be used and operated and
otherwise be in compliance with any established operating procedures therefor
of any Manufacturer and all statutes, regulations and orders of any govern
mental body having power to regulate the Equipment or its use. Lessee shall
bear and pay all costs of such compliance. Lessee shall not permit the
Equipment to be used or maintained in any manner or condition that would
violate, or could result in the termination of, the insurance policies carried
by Lessee pursuant to the provisions of this Lease on insurance, or in any
manner or condition or for any purpose for which, in the opinion of any
Manufacturer, the Equipment is not designed or suited.
(b) Lessee agrees that without Lessor's prior written consent which
shall not be unreasonably refused or delayed, it will not remove any of the
Equipment from the location specified in the Rental Schedule for such Equipment
other than to have repairs made or maintenance conducted or permit any of the
Equipment to be used by anyone other than Lessee, Lessee's employees or a
responsible independent contractor engaged by Lessee.
(c) During the Lease Term and until the Equipment has been returned to
Lessor pursuant to the provisions of this Lease or until the Equipment is
purchased by Lessee pursuant to any purchase option provisions of this Lease,
Lessee will not directly or indirectly create, incur, assume or suffer to exist
any mortgage, security interest, lien or encumbrance on the Equipment or
Lessor's or any Assignee's title thereto or interest therein, except in the
name of Lessor and its successor(s) and any Assignee. Lessee, at its own
expense, will promptly take such action as may be necessary to keep the
Equipment free and clear of, and to duly discharge, any such mortgage, security
interest, lien or encumbrance not excepted above.
(d) Lessee agrees to procure and maintain in effect all licenses,
certificates, permits and other approvals and consents required by federal,
state and local laws and regulations in connection with Lessee's possession,
use, operation and maintenance of the Equipment.
(e) Lessee shall cooperate fully with Lessor or any Assignee to
perfect and record their respective interests in connection with the
Transactional Documents including, without limitation, the filing of financing
statements and will pay the reasonable costs related to the filing of financing
statements to perfect the interest of Lessor. Lessee authorizes Lessor to file
financing statements that are signed only by Lessor or that are signed for
Lessee by Lessor in any jurisdiction when permitted by law or local authority.
Lessee hereby grants to Lessor a limited power-of-attorney to act as Lessee's
attorney-in-fact to sign Lessee's name on financing statements as "Debtor".
11. Maintenance and Repairs; Additions to Equipment. (a) Lessee shall,
for the entire Lease Term, at its sole expense, maintain all of the Equipment
in good, safe and efficient operating repair, appearance and condition, normal
wear and tear excepted will keep all components of the Equipment properly
calibrated and aligned, will make all required adjustments, replacements and
repairs (collectively, "maintenance and repairs"). Such maintenance and repairs
shall include, but not be limited to, all recommended or advised by a
Manufacturer, all required or advised by cognizant governmental agencies or
regulatory bodies and all commonly performed by prudent business and/or
professional practice. All maintenance and repairs to any item of the
Equipment shall be made by the Manufacturer or those of substantially equal
skill or knowledge in maintaining and repairing the Equipment.
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<PAGE> 10
(b) Lessee shall not materially modify the Equipment without the prior
written consent of Lessor. Any replacements, substitutions, additions,
attachments, accessions, parts, fittings, accessories, modifications,
enhancements, maintenance and repairs and other upgrades to the Equipment
whenever made shall be considered accessions to the Equipment and shall
automatically become the property of Lessor.
(c) All instruction manuals, published statements of capabilities and
technical specifications, service, maintenance and repair records,
installation, qualification, certification and calibration reports, usage logs,
and printed material relating to the Equipment shall be deemed part of the
Equipment. Computer programs, programming codes, operating systems, data
processing instructions, series of instructions or statements which are
machine readable, and any like symbols or signals usable by an electronic data
processing system that has been or shall be installed or entered in the
Equipment shall become a part of the Equipment except for any Software that is
proprietary Software of Lessee and is not a modification, change, enhancement
or improvement to any Software which is identified or listed in the description
of specific items of the Equipment in or attached to a Rental Schedule
(collectively "Software"). Whenever Lessee acquires Software licenses from
other parties, with respect to the Software such licenses shall automatically
and without further action by Lessee be assigned to Lessor and become through
assignment a part of the Equipment transferable to any future user of the
Equipment for use with the Equipment.
12. Loss, Damage or Destruction of Equipment. (a) Lessee shall bear
all risks of damage to, taking of, or theft, loss or destruction of, any or all
of the Equipment commencing as of the date of this Master Lease and continuing
throughout the Lease Term and until such Equipment has been returned to Lessor
or purchased by Lessee pursuant to any purchase option provisions of this
Lease. Except as otherwise herein expressly provided, no damage to, taking of
or theft, loss or destruction of any Equipment shall impair any obligation of
Lessee to Lessor under this Lease, including, without limitation, the
obligation to pay Basic Rent.
(b) In the event that any item of Equipment shall become damaged from
any cause whatsoever, Lessee agrees to promptly notify Lessor in writing of
such fact, fully informing Lessor of the details thereof. If any item of
Equipment is damaged (unless the same, in the opinion of Lessor is irreparably
damaged, in which case the provisions of this Lease with respect to a Casualty
Occurrence shall apply), Lessee shall, at its sole cost and expense, place the
same in good repair, condition and working order or replace the same with "like
property" having the same value and operating capabilities and useful life at
least equal to the damaged Equipment prior to the date of such damage, which
property shall thereupon become subject to this Lease with title thereto in
Lessor. In the event that an item of Equipment has been damaged, but not
irreparably, if no Event of Default has occurred and is continuing hereunder,
upon receipt by Lessor of evidence, satisfactory to Lessor, that such repair,
restoration or replacement has been completed, and an invoice therefor, Lessor
shall release to Lessee or its supplier the proceeds of any insurance received
by Lessor as a result of such damage for the purpose of reimbursing Lessee for
the costs of repairing, restoring or replacing such item.
(c) In the event that any item of Equipment shall become lost, stolen,
destroyed or irreparably damaged from any cause whatsoever, or if any item of
Equipment or Lessor's title thereto shall be requisitioned or seized by any
governmental authority (each such occurrence being herein called a "Casualty
Occurrence") during the Lease Term and until it has been returned to Lessor
pursuant to the provisions of this Lease or until the Equipment is purchased by
Lessee pursuant to any purchase option provisions of this Lease, Lessee shall
promptly notify Lessor in writing of such fact, fully informing Lessor of all
details of the Casualty Occurrence in question, and shall pay Lessor in cash
the "Stipulated Loss Value" as set forth in the Table of Stipulated Loss Values
attached to the Rental Schedule pursuant to which such item of Equipment is
leased hereunder, calculated as of the date of the Casualty Occurrence. This
payment shall be made within 30 days following the Casualty Occurrence,
together with the Basic Rent accrued and unpaid with respect to such Equipment
as of the date of the Casualty Occurrence, plus all Additional Rent or amounts
owing with respect to such Equipment on such date of payment.
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<PAGE> 11
(d) Upon the payment of the Stipulated Loss Value of the Equipment in
question in accordance with the terms of this Section, and the payment of all
Basic Rent, Additional Rent and any other sums then due hereunder, this Lease
shall terminate with respect to the Equipment or part thereof suffering the
Casualty Occurrence and all Lessor's rights and title to such Equipment shall
pass to Lessee, "as is" and "where is", without any representation or warranty
by, or recourse to, Lessor, as provided by the provisions of this Master Lease
on disclaimer of warranties and as evidenced by a duly executed bill of sale
naming Lessor as the seller and Lessee as the buyer.
(e) Provided that no Event of Default has occurred and no event that
with the passage of time or giving of notice, or both, would be an Event of
Default has occurred and is continuing, any insurance proceeds received as the
result of a Casualty Occurrence with respect to any or all items of the
Equipment shall be applied first in reduction of any other then unpaid
obligation of Lessee to Lessor hereunder and second in reduction of Lessee's
obligation to pay the Stipulated Loss Value for such item if not already paid
by Lessee to Lessor, or, if already paid by Lessee, to the reimbursement of
Lessee therefor, and the balance of the insurance proceeds, if any, shall be
paid to Lessee.
13. Reports; Inspections. Lessee will cause to be furnished to Lessor,
if requested, from time-to-time on a reasonable basis a statement showing the
condition and such other information regarding the Equipment as Lessor may
reasonably request. Lessor and any Assignee shall have the right, upon
reasonable notice to Lessee, to inspect the Equipment including Lessee's
records with respect to the Equipment, to copy such records, and to inspect and
copy Lessee's records with respect to the financial statements Lessee is
required to furnish Lessor or has warranted to Lessor pursuant to this Lease.
Any inspection by Lessor or any Assignee shall not be deemed to be approval or
acknowledgment by Lessor or such Assignee of the safety, freedom from defects,
performance or compliance with specifications or governmental requirements of
the Equipment or of the conformity of the Equipment or such financial
statements to the requirements or warranties of this Lease, and the disclaimers
set forth in the provisions of this Master Lease on disclaimer of warranties
shall apply to any such inspection. Lessee shall pay or reimburse Lessor for
Lessor's costs, travel expenses and salaries and the charges and such expenses
of Lessor's advisers for the inspection following an inspection which
encountered a breach of the requirements of this Lease or the warranties of
Lessee pursuant to this Lease.
14. Insurance. During the Lease Term and until all Equipment has been
returned to Lessor pursuant to the provisions of this Lease or until the
Equipment is purchased by Lessee pursuant to any purchase option provisions of
this Lease, Lessee shall procure and maintain at its expense with reputable
insurers acceptable to Lessor (i) insurance on all of the Equipment in an
amount not less than the greater of the Equipment's Stipulated Loss Value or
Fair Market Value replacement cost insuring against all risks of loss or damage
to the Equipment and against such other risks as Lessee would, in the prudent
management of its properties, maintain with respect to similar equipment owned
by it, and (ii) comprehensive public liability and property damage insurance,
in such amounts as shall be reasonably satisfactory to Lessor but for not less
than $1,000,000 insuring Lessor and any Assignees, as their interests may
appear, against liability for death, bodily injury, professional malpractice,
and property damage arising out of or resulting from the design, construction,
manufacture, ownership, use, operation, lease or maintenance of, or otherwise
in connection with, the Equipment. On the policies referred to in clause (i),
such insurance shall name Lessor (and any Assignees) as the sole loss payee so
that (and Lessor and Lessee hereby agree that) the insurance proceeds payable
under such policies will be payable and paid solely to Lessor (and to any
Assignees). On the policies referred to in clause (ii), such insurance will
name Lessor (and any Assignees) as an additional insured as its interests may
appear. All such policies shall provide that they may not be invalidated
against Lessor (or any Assignees) because of any violation of a condition or a
breach of warranty of the policies or application therefor by Lessee, that they
may not be altered or canceled except after 30 days' prior written notice to
Lessor, and that Lessor and any Assignee have the right but not the obligation
to pay the premiums with respect to coverage required by this Lease in order to
continue such insurance in effect or to obtain like coverage. Under the
policies of insurance required to be maintained by Lessee pursuant to this
Master Lease, Lessee agrees to waive any right of subrogation and to cause the
insurance carrier to waive any right of subrogation in each instance
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<PAGE> 12
as such right may exist against Lessor or any Assignee and for any and all loss
or damage to the Equipment. Lessor is hereby appointed Lessee's
attorney-in-fact to endorse any check or draft which may be payable to Lessee
in order to collect the proceeds of such insurance. Lessee shall deliver to
Lessor, prior to the beginning of the Lease Term with respect to any of the
Equipment and at such other time or times as Lessor may request, a certificate
or other evidence satisfactory to Lessor of the maintenance of such insurance.
Lessor shall be under no duty to examine such policies, certificates or other
evidence of insurance or to advise Lessee in the event that its insurance is
not in compliance with this Lease. In the event of failure on the part of
Lessee to provide such insurance, Lessor may, at its option, but without
obligation, provide such insurance and add the amount of the premiums to the
rents due hereunder, and Lessee shall, upon Lessor's demand, pay the same as
Additional Rent.
15. Return of Equipment. (a) At the end of the Lease Term for any
Equipment, Lessee at its sole expense shall forthwith return possession of such
Equipment without omissions to Lessor by:
(i) properly preparing, crating and/or assembling such Equipment (in
accordance with the Manufacturer's instructions if such instructions exist)
for shipment by common carrier with all containers and pieces labeled with
model, part and unit numbers, if applicable; and
(ii) shipping such Equipment by common carrier, with insurance and
freight prepaid, to a place designated by Lessor within a 1,000 mile radius of
the specified location under this Lease for such Equipment. Lessor shall pay
additional shipping charges incurred because of distances in excess of such
1,000 miles.
The insurance required by clause (ii) above shall provide that in the
event of loss such insurance shall pay Lessor in cash directly the greater of
(A) the full replacement value of such Equipment and (B) the "Stipulated Loss
Value" as set forth in the Exhibit to the Rental Schedule calculated as of the
Payment Date next preceding the date of loss. Lessee acknowledges that "full
replacement value" may exceed Fair Market Value.
(b) If the Equipment shall be returned to Lessor it shall be complete.
The condition of the Equipment including Software upon receipt by Lessor shall
be not less than (i) meeting all specifications for such equipment as published
by the respective Equipment vendor(s), Manufacturer(s) or supplier(s)
(collectively referred to, together with their successors and assigns, if any,
as "Vendors"), (ii) in fully operational condition, normal wear and tear
excepted (iii) capable of being installed and operated in the normal course by
another user, (iv) free of defects, visible or concealed, including, but not
limited to, damage or malfunction of any kind, fractures, rust, corrosion,
electrical shorts, fluid restrictions or block ages, disconnections, breakage
or the like, normal wear and tear excepted (v) safe for routine and usual
operation, (vi) in compliance with any and all pertinent governmental or
regulatory rules, laws or guide lines for its operation or use, (vii) free of
Lessee's markings or labelings, and (viii) free of any advertising or insignia
not requested by Lessor that was placed on the Equipment by Lessee.
(c) Lessor reserves the right to inspect the Equipment within 30 days
of its return to verify compliance with the provisions of this Master Lease on
Equipment maintenance and repairs and additions and on return of Equipment.
Should there be full compliance as confirmed by Lessor or after the elapse of
such 30 days without notification from Lessor, whichever occurs first, all
obligations of Lessee under this paragraph (c) shall be deemed to be satisfied.
Should there be less than full compliance and upon written notification no
later than such 30 days of the return of the Equipment, Lessor at its option
may (i) perform or cause to be performed through service organizations of its
own choosing such maintenance and repairs, as it deems necessary to effect such
compliance, (ii) require Lessee to perform or cause to be performed such
maintenance and repairs, as Lessor deems necessary to effect such compliance
and/or (iii) reasonably estimate the costs to effect such compliance. Lessee
shall pay to Lessor the costs for performance of (i) or (ii) above, or the
estimated costs under (iii) above. If maintenance and repairs are necessary to
place any of the Equipment under any Rental Schedule in the condition required
by this Lease, Lessee shall continue to pay to Lessor monthly Additional Rent
at the last prevailing rate during the Lease Term for Basic Rent
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<PAGE> 13
on the Equipment under such Rental Schedule for the period of time reasonably
necessary to accomplish such maintenance and repairs. For any such period that
applies, Lessee shall continue to provide the insurance required during the
Lease Term. However, Lessor's acceptance of such rent and provision of in
surance during such period shall not constitute a renewal of the Lease Term, a
waiver of Lessor's right to prompt return of such Equipment in the condition
required by this Section, or a waiver of Lessor's right to possession of such
Equipment.
(d) Should the inspection reveal any item(s) of the Equipment to be
missing, Lessee shall be responsible for paying to Lessor promptly the greater
of the Stipulated Loss Value or the Fair Market Value of such item(s) of the
Equipment computed as of the last Payment Date prior to the end of the Lease
Term, plus the amount of any impairment of the Fair Market Value of the
remaining item(s) of the Equipment due to the absence of such missing item(s)
of the Equipment.
(e) In the event that Lessee fails to return any of the Equipment when
required, at the election of Lessor effected by notice to Lessee, the Lease
Term for such Equipment shall be extended on a month-to-month basis on the same
terms as previously in effect, and Lessee shall pay to Lessor monthly in
advance Basic Rent for such Equipment at the last prevailing rate during the
unextended Lease Term, until such Equipment has been returned to Lessor
pursuant to the provisions of this Lease. Notwithstanding any month-to-month
continuance of this Lease, Lessor may resort to any remedies available to it
under this Lease, at law or in equity, to recover such Equipment at any time
following the end of such extended Lease Term.
(g) Not less than 180 days prior to expiration of the Lease Term, if
Lessee has not given notice of the exercise of any purchase option and Lessor
has not given notice of the exercise of any option to require Lessee to
purchase such Equipment, Lessee shall give Lessor notice that Lessee shall be
returning the Equipment forthwith upon the expiration of the Lease Term and
either (i) that the Equipment is in the condition required by this Lease upon
the return of the Equipment or (ii) specifying the respects in which the
condition of the Equipment is not in compliance with such requirements and the
measures that Lessee shall take to bring the Equipment into compliance.
16. Lessor's Ownership; Equipment To Be and Remain Personal Property.
(a) Lessee acknowledges and agrees that it does not have, and by execution of
this Lease and/or payments and performance hereunder it shall not have or
obtain, any title to the Equipment, nor any property right or interest, legal
or equitable, therein, except its rights as Lessee hereunder and subject to the
terms hereof. Lessee shall not have or claim a security interest and shall not
seek or obtain replevin, detinue, specific performance, sequestration, claim
and delivery, or like remedies in or for this Lease, any rents under this
Lease, any or all of the Equipment, any items of personal property identified
to become items of the Equipment, or any proceeds of any or all of the
foregoing.
(b) All of the Equipment shall be and remain personal property
notwithstanding the manner in which the Equipment may be attached or affixed to
realty. Upon the expiration, cancellation or termination of the Lease Term of
any or all of the Equipment, Lessee shall have the obligation, and Lessor shall
have the right, to remove, or cause the removal of, such Equipment from the
premises where the same is then located, for return to Lessor pursuant to the
provisions of this Master Lease on return of Equipment and, if applicable, on
Events of Default, whether or not any of the Equipment is affixed or attached
to realty or to any building. In the exercise of its rights, Lessor shall not
be liable for any damage to the realty or any such building or other real or
personal property occasioned by any removal of the Equipment by Lessee or
Lessor or the agents of Lessee or Lessor except to the extent such charge
results from gross negligence or willful misconduct of Lessor or its agents.
Lessee further covenants and agrees that Lessee will, at the request of Lessor,
obtain and deliver to Lessor concurrently with the execution and delivery of
each Rental Schedule, a waiver, in recordable form, from the owner and any
landlord, tenant or holder of any lien or encumbrance on the realty or
building(s) on or in which any of the Equipment de scribed in such Rental
Schedule shall be located, under which such owner, landlord, tenant and holder
(i) agree and consent that such Equipment is and shall be personal property,
owned by and removable by
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<PAGE> 14
Lessor upon the expiration, cancellation or termination of the Lease Term
thereof, and (ii) waive any rights of distraint or similar rights with respect
to such Equipment.
(c) If Lessee is unable to return, or is prevented from returning, any
of the Equipment to Lessor upon the expiration, cancellation or termination of
the Lease Term as required under the provisions of this Master Lease on return
of Equipment, for any reason whatsoever, including, but not limited to, the
assertion by any third party of any claim against such Equipment, or of any
right with respect thereto, whether or not resulting from the manner in which
such Equipment is affixed or attached to, or installed in, the realty or any
building(s) thereon or any other personal or real property, or from the failure
of any owner, landlord or tenant of said realty (or the building(s) thereon) or
the holder of any lien or encumbrance to execute the waiver in writing of such
fact, for all purposes of this Lease such Equipment shall be deemed to have
been the subject of a Casualty Occurrence. Thereupon, Lessee shall pay to
Lessor the amounts provided for by the provisions of this Master Lease on loss,
damage or destruction of Equipment, with respect to such Equipment, at the
time, in the manner, and with the consequences provided by such provisions.
(d) Notwithstanding the foregoing provisions of this Section, without
Lessor's prior written con sent, Lessee shall not permit any of the Equipment
to be attached or affixed to, imbedded in or incorporated into any building,
structure, real estate or other personal or real property.
17. Other Covenants. (a) Lessee agrees to furnish, upon Lessor's
request, such financial, business and operational information concerning Lessee
and any or all Guarantors, including copies of its and their tax returns, as
Lessor or its assigns may reasonably request during the Lease Term.
Additionally, Lessee shall furnish to Lessor and its assigns without notice or
demand therefor two complete copies of its and of every Guarantor's (i)
quarterly interim financial statements within 60 days of the close of each of
the first three fiscal quarters of every year, certified by the chief financial
officer of, respectively, Lessee or such Guarantor and (ii) annual financial
statements within 120 days of the close of each fiscal year reported on by
independent accountants without material adverse qualification or comment. All
such financial statements shall be prepared in accordance with generally
accepted accounting principles consistently applied, and shall accurately and
completely present Lessee's and every Guarantor's financial condition and
results of operations at the dates of and for the periods covered by such
statements.
(b) Lessee shall promptly furnish to Lessor copies of (i) filings
that Lessee or any Guarantor makes with the SEC or other government agencies
under the securities laws including but not limited to definitive proxy
statements, registration statements, prospectuses and filings on Form 10-K,
10-Q, 8-K or similar forms, and any amendments to such filings, and (ii) press
releases of Lessee or any Guarantor.
(c) Lessee shall give Lessor notice of all meetings of the
stockholders of such corporation and copies of all materials that are furnished
to the stockholders for the meetings at the same time that the notice or
materials are sent to the stockholders. Lessor shall have the right to have its
representative attend any and all such meetings.
(d) There shall be no actual or threatened conflict with, or violation
of, any statute, or governmental regulation, relating to Lessee, its present or
future operations, that would reasonably be deemed to effect the Equipment, or
the Equipment.
(e) All information supplied to Lessor or its assigns by Lessee or any
Guarantor shall be correct and shall not omit any material statement necessary
to make the information supplied not be materially misleading. There shall be
no material breach of the representations and warranties made by Lessee in
connection with this Lease or by any Guarantor in connection with a Guaranty
(as hereinafter defined).
(f) Lessee shall give Lessor notice of any change in the address of
the executive office or principal place of business of Lessee not less than 15
days prior to the change.
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(g) No change shall occur in the control, of Lessee or any Guarantor,
and no Guarantor shall assert in writing that the obligations of the Guarantor
as a Guarantor or in its Guaranty are not in full force and effect.
(h) Lessee shall not make any payment or distribution of money,
checks, securities or property to any Person in contravention of the provisions
of any Guaranty or subordination that such Person has made in favor of Lessor
or its assigns of which Lessee shall have notice or knowledge.
18. Events of Default. If one or more of the following events
(hereinafter called "Events of De fault" or an "Event of Default") shall occur:
(i) default shall be made in the payment of any Basic Rent or
Additional Rent due under this Master Lease or under any Rental Schedule
hereto, and any such default shall continue for more than 10 days after the due
date thereof;
(ii) any representation or warranty by Lessee or any Guarantor made in
this Master Lease or in any Guaranty or other Transactional Document or
certificate furnished to Lessor in connection with this Lease or pursuant
hereto shall at any time prove to be incorrect in any material respect;
(iii) Lessee shall make or permit any unauthorized assignment or
transfer of this Master Lease or any Rental Schedule to this Master Lease or of
any of Lessee's rights and obligations hereunder or thereunder, or Lessee shall
make or permit any unauthorized sublease or transfer of any Equipment or the
possession of any Equipment;
(iv) Lessee shall default in the observance and/or performance of any
other material covenant, condition or agreement on the part of Lessee to be
observed and/or performed under this Master Lease, under any Rental Schedule
hereto, or under any other Transactional Document, which default is not
governed by paragraphs (i), (ii) or (iii) above, and such default shall
continue for 30 days after written notice from Lessor to Lessee specifying the
default and demanding the same to be remedied;
(v) Lessee or any Guarantor shall make an assignment for the benefit
of creditors, or cease being in substantially the same line or lines of
business in which it is presently engaged, or generally fail to pay its debts
as they become due, or become insolvent or commence a voluntary case under the
federal Bankruptcy Code as now or hereafter constituted or any other applicable
federal or state bankruptcy, in solvency or similar law, or admit in writing
its inability to pay its debts as they mature, or consent to the appointment of
a trustee or receiver, or a trustee or a receiver shall be appointed for Lessee
or any Guarantor or for a substantial part of Lessee's or any Guarantor's
property without such party's consent and such appointment shall be not
dismissed for a period of 60 days; there shall have been entered a decree or
order for relief by a court having jurisdiction in respect of Lessee or any
Guarantor, or approving as properly filed a petition seeking a reorganization,
arrangement, adjustment or composition of or in respect of Lessee or any
Guarantor in an involuntary proceeding or case under any applicable federal or
state bankruptcy, insolvency or other similar law, or appointing a receiver,
liquidator, assignee, custodian, trustee or similar official of Lessee or any
Guarantor or of any substantial part of its property, or ordering the
winding-up or liquidation of its affairs, and the continuance of any such
decree or order unstayed and in effect for a period of 60 days, or there shall
have been filed a petition by or against Lessee or any Guarantor under any
bankruptcy law or other insolvency law and, if petition is filed against Lessee
or such Guarantor, the petition is not withdrawn or dismissed within 60 days
after the date of filing; or Lessee or any Guarantor shall cease doing business
as a going concern or shall liquidate or be dissolved;
(vi) Lessee or any Guarantor shall, without the prior written consent
of Lessor, enter into a merger, consolidation or division, effect a share
exchange of its outstanding stock for the stock of another corporation, make a
tender offer for equity securities of a publicly held entity, or sell or
otherwise dispose of all or a major part of its assets or of assets that
produce all or a major part of its revenues or profits; provided, however, that
Lessee or any Guarantor, without violating the provisions of this clause, may
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consolidate with or merge with a corporation or other entity organized under
the laws of one of the states of the United States (the surviving entity, a
"successor"), or sell (except by means of a sale and leaseback arrangement) all
or substantially all of its business and assets to such a successor, on the
condition that any successor expressly assume in writing all of the obligations
of Lessee pursuant to this Lease or of such Guarantor pursuant to its Guaranty,
and that the net tangible assets and the net worth (determined in accordance
with generally accepted accounting principles) of the successor after the
consolidation, merger or sale shall be at least equal to the net tangible
assets and the net worth of Lessee or such Guarantor, as the case may be,
immediately prior to the consolidation, merger or sale;
(vii) there shall occur under any other lease, contract or agreement
between Lessee and Lessor, an Event of Default, as defined in such lease,
contract or agreement;
(viii) any of the Equipment shall be attached, levied upon,
encumbered, pledged, seized or taken under any judicial process (except for any
attachment, levy, encumbrance or pledge caused to be placed on the Equipment by
Lessor) and such proceedings shall not be vacated, or fully stayed, within 30
days thereof;
(ix) at any time there shall occur under (A) any lease between Lessee
and a party other than Lessor as lessor or (B) under any lease wholly or
partially guaranteed by Lessee, the exercise by the lessor of its possessory
remedies or commencement of legal proceedings by the lessor for default under
the lease; provided that the aggregate future payments remaining to be made or
guaranteed by Lessee exceed $10,000, and that under a lease described in (B)
above within ten days of notice to Lessee of such exercise of remedies and
demand for payment by Lessee any such amount guaranteed by Lessee remains
unpaid; or
(x) any obligation of Lessee or any Guarantor for the payment of
borrowed money or the acquisition of assets by purchase, conditional sale or
other arrangement is not paid or refinanced at maturity, whether by
acceleration or otherwise, or is declared due and payable prior to the stated
maturity thereof by reason of default or other violation of the terms of any
promissory note or agreement evidencing or governing such obligation, and
Lessor has given Lessee an opportunity to either cure the purported Event of
Default or supply information satisfactory to Lessor that it does not, in fact,
exist;
this Lease shall be declared in default, immediately and without notice upon
the occurrence of an Event of Default specified in clause (v) above, and in the
case of any other Event of Default, upon Lessor at any time at its option
subsequent to such Event of Default giving notice to Lessee that this Lease is
declared in default. At any time after this Lease has been declared in default,
Lessor may exercise one or more of the following remedies, to the extent not
then prohibited by law, as Lessor in its sole discretion may elect:
(I) to proceed by appropriate court action or actions at law or in
equity or in bankruptcy to en force performance by Lessee of the covenants and
terms of this Lease and/or to recover damages for the breach thereof;
(II) to terminate or cancel this Lease upon written notice to Lessee
whereupon all rights of Lessee to use the Equipment shall immediately
terminate, but Lessee shall not be relieved of any obligations under this
Lease;
(III) whether or not this Lease be so terminated or canceled, and
without notice to Lessee, to repossess and/or to render inoperable the
Equipment wherever found, with or without legal process, and for this purpose
Lessor and/or its agents may enter upon any premises of or under the control or
jurisdiction of Lessee or any agent of Lessee without liability for suit,
action or other proceeding by Lessee and remove the Equipment therefrom; Lessee
hereby expressly waives any claims for damages occasioned by such repossession;
LESSEE HEREBY EXPRESSLY WAIVES ANY AND ALL RIGHTS, INCLUDING RIGHTS TO NOTICE
OR A JUDICIAL HEARING, WITH RESPECT TO REPOSSESSION OF THE EQUIPMENT AFTER AN
EVENT OF DEFAULT;
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(IV) to hold or to use any Equipment returned to Lessor or repossessed
by Lessor for any purpose whatsoever, to sell any Equipment at a private or
public, cash or credit sale, to re-lease any Equipment, in all the foregoing
events free and clear of any rights of Lessee and without any duty to account
to Lessee with respect to such action or inaction;
(V) whether or not Lessor shall have exercised, or shall hereafter at
any time exercise, any of its other rights with respect to an item of the
Equipment, upon written notice to Lessee, to demand that Lessee pay to Lessor,
and Lessee shall pay to Lessor on the date specified in such notice, as
liquidated damages for loss of a bargain and not as a penalty (in lieu of the
Basic Rent for such Equipment that prior to the Event of Default was to have
been paid on Payment Dates subsequent to the date specified in such notice),
the sum equal to the excess, if any, of 125% of the Stipulated Loss Value for
such item of Equipment computed as of the latest Payment Date when all Basic
Rent and Additional Rent then due and payable has been fully paid over
whichever of the following three amounts Lessor, in its sole discretion, shall
designate in such notice:
(A) the present value of the fair market rental value (determined
as hereafter provided in this Section) of such item of the
Equipment for the remainder of the Lease Term as of the date
specified in such notice, the present value to be computed on
the basis of a seven percent per annum rate of discount from
the respective dates upon which such rent would be paid,
(B) the fair market sales value (determined as hereafter provided
in this Section) of such item of Equipment as of the date
specified in such notice, or
(C) if Lessor shall have sold or re-leased any item of Equipment
pursuant to clause (IV) above, the net proceeds of such sale
or re-lease,
plus interest at the Default Interest Rate (a) on such sum
from the such Payment Date until paid and (b) on whichever of
such three amounts is so designated by Lessor from such
Payment Date until whichever one of the following shall be
applicable to the designated amount: the time when the fair
market rental or sales value shall have been so determined or
the time when the Equipment shall have been sold or released;
and
(VI) to forthwith recover from Lessee, and Lessee shall be
fully liable for, all Basic Rent that shall accrue until the
date that the Equipment is returned to or repossessed by
Lessor and any Additional Rent including collection fees,
whenever accrued, and interest at the Default Interest Rate.
In addition to the foregoing, Lessor may also recover from Lessee all
costs and expenses arising out of Lessee's default, including, without
limitation, expenses of repossession of the Equipment and the storage,
inspection, repair, reconditioning, sale and re-leasing thereof, and reasonable
attorneys' fees incurred by Lessor in exercising any of its rights or remedies
hereunder. For the purposes of this Section only, "fair market rental value"
and "fair market sales value" shall be determined by an appraisal of an
independent appraiser chosen by Lessor, and the cost of any such appraisal
shall be borne by Lessee. No remedy referred to in this Section is intended to
be exclusive, but each shall be cumulative and in addition to any other remedy
referred to above or otherwise available to Lessor at law or in equity or in
bankruptcy. Lessor shall have no duty to pay Lessee any surplus from sale or
lease of the Equipment, or in the fair market rental or sales value of the
Equipment, above all amounts payable by Lessee to Lessor. The exercise by
Lessor of any one or more remedies shall not be deemed to preclude the
simultaneous or later exercise by Lessor of any or all such previously
exercised remedies and any and all other remedies.
19. Assignment and Transfer by Lessor. (a) Lessor may at any time and
from time to time as sign to one or more security assignees (all herein called
the "Secured Party" and also called an "Assignee") for the purpose of securing
a loan to Lessor or for any other purpose, and at its sole discretion, may
also sell or transfer to one or more Persons (herein called the "Transferee"
and also called an "Assignee"), in any case subject to the rights of Lessee
under this Lease but without notice to or consent of
14
<PAGE> 18
Lessee, this Lease, any other Transactional Documents, any or all of the
Equipment, and all sums at any time due and to become due or at any time owing
or payable by Lessee to Lessor under this Lease or pursuant to any or all of
the Transaction Documents. The Secured Party shall not be obligated to perform
any duty, covenant or condition required to be performed by Lessor under this
Lease or any other Transactional Documents.
(b) Lessee agrees that notwithstanding any assignment to a Secured
Party, each and every covenant, agreement, representation and warranty of
Lessor under this Lease shall be and remain the sole liability of Lessor and of
every successor in interest of Lessor (excluding any Secured Party) or, in the
case of assignment to a Transferee, shall become and remain the sole liability
of the Transferee if so agreed to by the Transferee and if not so agreed to
shall be and remain the sole liability of Lessor. Lessee further agrees and
acknowledges that any assignment, sale or transfer by Lessor could not and
shall not materially change any duty or obligation of Lessee or materially
increase any burden or risk of Lessee.
(c) Lessee further acknowledges and agrees that from and after the
receipt by Lessee of written notice of an assignment from Lessor, Lessee shall
comply with the directions or demands given in writing by the Secured Party or
(to the extent not inconsistent with the directions or demands of the Secured
Party) by the Transferee pursuant to the terms and conditions hereunder, and
the Secured Party or Transferee shall have the right to exercise (either in its
own name or in the name of Lessor) all rights, privileges, and remedies of
Lessor provided for herein. Lessee agrees that any obligation to a Secured
Party as a result of the assignment of this Lease to a Secured Party as
aforesaid shall not be reduced or minimized by reason of any claim, defense,
counterclaim, set-off, abatement, reduction or recoupment or other right that
Lessee might otherwise have been able to assert against Lessor, any prior
Assignee or any Transferee. After any assignment to a Secured Party and unless
and until Lessee is otherwise notified by the Secured Party, this Lease may not
be amended or modified, and no consent or waiver hereunder shall be effective,
without the prior written consent of the Secured Party. Lessee agrees to
execute and Lessor or any Transferee or Secured Party may record any
instruments and documents relating to such assignment, mortgage or security
interest desired by Lessor or any Transferee or Secured Party. Lessee shall
promptly provide any such instruments and documents that are requested by
Lessor or any Assignee including certificates indicating any claim, defense,
counterclaim, set-off, abatement, reduction, recoupment or other right that
Lessee may have against Lessor or any Assignee, the date to which Basic Rent
has been paid under each Rental Schedule hereunder and that this Lease is in
effect without default or amendment, or the extent of such default or
amendment, as the case may be.
20. Recording and Filing; Expenses. Lessee will, upon demand of
Lessor, at Lessee's cost and expense, do and perform any other act and will
execute, acknowledge, deliver, file, register, record and deposit (and will
re-file, re-register, re-record or re-deposit whenever required) any and all
instruments required by law or requested by Lessor (or any Assignee) including,
without limitation, financing statements under the Uniform Commercial Code
(which, notwithstanding the intent of Lessor and Lessee that this is a true
lease, Lessor shall have the right to file wherever and whenever Lessor
requires), for the purpose of providing proper protection to the satisfaction
of Lessor (and/or any Assignee) of Lessor's title to any Equipment (and/or of
any Assignee's security interest in the Equipment) or for the purpose of
carrying out the intention of this Lease. Lessee will also pay, or will upon
demand reimburse Lessor for, all reasonable costs and expenses incurred by
Lessor in connection with this Lease, any other Transactional Documents, and
any related transactions, closings, assignments, sales and transfers to any
Secured Party or Transferee, enforcement of Lessor's rights under this Lease
and the other Transactional Documents, proceedings involving Lessee or any
Guarantor as a debtor under any chapter of the Bankruptcy Code, filings, the
documentation of this and any related transactions, and reasonable fees and
costs of attorneys for Lessor in connection therewith.
21. Automatic Lease Term Renewal. In the event that at the expiration
of the Primary Term Lessee does not exercise the purchase option set forth in
this Master Lease with respect to the Equipment subject to a Rental Schedule,
the Lease Term shall automatically be renewed for all of the Equipment subject
to such Rental Schedule for an additional term of twelve (12) months (the
"Renewal Term") at a
15
<PAGE> 19
monthly Basic Rent equal to one and one-half percent (1.5%) of the Acquisition
Cost of such Equipment, plus any applicable sales and other taxes, that shall
be paid monthly in advance.
22. Quiet Enjoyment. So long as no Event of Default has occurred and
is continuing hereunder, Lessee shall have peaceful and quiet use and enjoyment
of the Equipment during the Lease Term as against acts of Lessor or anyone
claiming solely by, through or under Lessor including any Secured Party or
Transferee.
23. Failure or Indulgence not Waiver; Additional Rights of Lessor. (a)
No failure to exercise, and no delay in exercising, any right, power or remedy
hereunder on the part of Lessor shall operate as a waiver thereof, nor shall
any single or partial exercise of any right, power or remedy preclude any other
or further exercise thereof or the exercise of any other right, power or
remedy. Any waiver, to be effective, must be in writing. A waiver of any
covenant, term or condition contained herein shall not be construed as a waiver
of any subsequent breach of the same covenant, term or condition. Receipt by
Lessor of any Basic Rent or Additional Rent with knowledge of the breach of any
provision hereof shall not constitute a waiver of such breach.
(b) Lessor shall be entitled to injunctive relief in case of the
violation or attempted or threatened violation of any of the provisions hereof,
to a decree compelling performance of any of the provisions hereof, and to any
other remedy allowed in law or in equity.
24. Sublease. Lessee shall not sublease the Equipment, relinquish
possession of the Equipment, or assign, pledge or hypothecate this Lease or any
of Lessee's rights or obligations hereunder, in whole or in part, without the
prior written consent of Lessor. Nevertheless, any such sublease and the rents,
profits and proceeds therefrom shall be the property of Lessor and, unless
Lessor has consented to such sublease, Lessor within 30 days after receiving
notice thereof in accordance with the provisions of this Master Lease on
notices shall have the right to declare the sublease void from its purported
commencement, to terminate the sublease or to accept the sublease. Any such
attempted relinquishment of possession, assignment, pledge or hypothecation by
Lessee without such consent shall be null and void.
25. Purchase Option. (a) If (i) no Event of Default, and no event
which with the giving of notice or lapse of time, or both, would constitute an
Event of Default, has occurred and then remains un remedied and (ii) this Lease
shall not have been earlier terminated, Lessee shall be entitled, at its
option, upon written notice to Lessor, as hereinafter provided, to purchase
all, but not less than all, items of the Equipment then subject to a Rental
Schedule, at the expiration of the Primary Term for such items of the Equipment
or, as the case may be, at the expiration of any Renewal Term for such items of
the Equipment, for an amount, with respect to each such item of the Equipment,
payable in immediately available funds, equal to 15% of the Acquisition Cost,
plus any applicable sales, excise or other taxes imposed as a result of such
sale (other than net income taxes attributable to such sale). Lessor's sale of
any item of the Equipment shall be on an "as-is", "where-is" basis, without any
representation or warranty by or recourse to Lessor, as provided by the
provisions of this Master Lease on disclaimer of warranties, and shall be
subject to such additional terms and conditions as may be specified in the
Rental Schedule. If Lessee intends to exercise said purchase option, Lessee
shall give written notice to Lessor to such effect at least 30 days prior to
the earliest expiration of the Primary Term of the item(s) of the Equipment
subject to the particular Rental Schedule with respect to which Lessee intends
to exercise its purchase option, or, if a Renewal Term is then in effect, at
least 30 days prior to the earliest expiration of the then current Renewal Term
of the item(s) of the Equipment subject to the particular Rental Schedule with
respect to which Lessee intends to exercise its purchase option. If Lessee
fails to give such written notice to Lessor as aforesaid, it shall be
conclusively presumed that Lessee has elected not to exercise such purchase
option. If Lessee gives such written notice, Lessee shall be obligated to buy,
and Lessor shall be obligated to sell, such Equipment on the terms herein
provided.
16
<PAGE> 20
(b) Notwithstanding any election by Lessee to purchase, the provisions
of this Lease shall continue in full force and effect until the transfer of
ownership of such Equipment upon the date of purchase by the delivery of a Bill
of Sale by Lessor.
26. Notices. Any notice or other communication required or permitted
to be given by either party hereto to the other party shall be deemed to have
been given upon its receipt, in writing, by the receiving party at its address
set forth below, or at such other address as the receiving party shall have
furnished to the other party by notice pursuant to this Section.
<TABLE>
<S> <C>
If to Lessee: Biofield Corp.
1225 Northmeadow Parkway
Suite 120
Roswell, GA 30076
If to Lessor: Financing for Science International, Inc.
10 Waterside Drive
Farmington, CT 06032-3065
</TABLE>
27. Entire Agreement; Severability; Amendment or Cancellation of
Lease. This Lease and the commitment letter from Lessor to Lessee dated June
25, 1996, as extended on August 29,1996, constitute the complete and exclusive
statement of the terms of the agreement between the parties with respect to
the leasing of the Equipment and any sale of the Equipment by Lessor to Lessee.
Any provision of this Lease which is prohibited or unenforceable in any
jurisdiction shall be, as to such jurisdiction, ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction. LESSEE ACKNOWLEDGES RECEIPT OF A COPY OF THIS MASTER LEASE.
Lessor and Lessee agree that neither this Lease nor Lessee's acceptance or
deemed acceptance of any or all of the Equipment may be canceled, waived,
altered, amended, repudiated, terminated, rescinded, revoked or modified,
except by a writing signed by Lessee and a duly authorized representative of
Lessor.
BIOFIELD CORP.
/s/ Michael R. Gavenchak
------------------------------
Signature of Lessee
28. Waiver of Jury. Lessor and Lessee waive any right and all right to
trial by jury in any action or proceeding relating in any way to this Lease.
29. Restriction of Limitation Periods and Damages. Any action for
breach of warranty or in respect of or relating to the Equipment or this Lease
that may be brought by Lessee against Lessor or any Assignee must be commenced
within one year after the cause of action accrues. Lessee shall not make any
claim in respect of or relating to the Equipment or this Lease against Lessor
or any Assignee for special consequential or punitive damages.
30. Governing Law; Consent to Jurisdiction and Service. This Lease
shall be governed by and construed in accordance with the laws of the State
of New York (other than the conflicts of laws provisions). Lessee agrees that
any legal action or proceeding against Lessee in respect of or relating to this
Lease or the Equipment may be brought in any state or federal court sitting in
the city of New York in the State of New York. Lessee hereby irrevocably
consents and submits to the nonexclusive personal jurisdiction of said courts
and irrevocably agrees that all claims in any such action or proceeding may be
heard and determined in and enforced by any such court. Lessee and Lessor
irrevocably consent to the
17
<PAGE> 21
service of summons, notice, or other process relating to any such action or
proceeding by delivery thereof to it by hand or by mail in the manner set forth
in the provisions of this Master Lease on notices.
31. Lessor's Right to Perform for Lessee. If Lessee fails to duly and
promptly perform any of its obligations under this Lease or fails to comply
with any of the covenants or agreements contained herein, Lessor may itself
perform such obligations or comply with such covenants or agreements, for the
account of Lessee, without thereby waiving any default, and any amount paid or
expense (including, without limitation, attorney's fees) reasonably incurred by
Lessor in connection with such performance or compliance shall, together with
interest thereon at the Default Interest Rate, be payable by Lessee to Lessor
on demand.
32. Agreement for Lease Only. Lessor and Lessee agree that this Lease
is and is intended to be a true lease (and not a lease in the nature of a
security interest) and further agree to treat this Lease as a true lease for
all purposes, including, without limitation, tax purposes.
33. Binding Effect. This Lease shall inure to the benefit of and be
binding upon the parties hereto and their respective permitted successors and
assigns.
34. General. The captions in this Master Lease and each Rental
Schedule are for convenience of reference only. There shall be only one
original executed copy of this Master Lease and of each Rental Schedule.
35. Definitions. The following terms, not elsewhere defined, shall
have the following meanings for all purposes hereof:
"Acquisition Cost" of any item of the Equipment shall mean an amount
equal to the sum of (i) the purchase price of such item of the Equipment paid
by Lessor pursuant to the purchase order for such item of the Equipment
assigned to or given by Lessor, plus (ii) any excise, sales or use tax,
freight, installation, set-up and other costs that are paid by Lessor on or
with respect to such item of the Equipment on or about the time of Lessor's
purchase of the Equipment or the Lease Commencement Date and that Lessor does
not request Lessee to directly reimburse to Lessor.
"Certificate of Inspection and Acceptance" shall mean a certificate in
the form designated by Lessor whereby Lessee evidences its acceptance of one or
more items of the Equipment for lease hereunder.
"Fair Market Value" shall mean, with respect to the Equipment in
question, the amount which would be paid for that Equipment in an arm's-length
sale transaction between an informed and willing buyer (not a used equipment or
scrap dealer) who wants the Equipment to be as described in the next following
sentence and is under no compulsion to buy, and an informed and willing seller
under no com pulsion to sell. In determining the Fair Market Value, it shall be
assumed (whether or not the same be true) that the Equipment is fully
operational, installed and in economically productive service and that all
maintenance and repairs including upgrades, replacements and other services
required by this Lease have been performed and that the Equipment is in such
condition to comply fully with the requirements of this Lease, including
provisions of this Master Lease governing the return of Equipment. The costs of
removal from the location of current use and installation at another location
for use shall not be a deduction in determining the Fair Market Value. Upon
any exercise by Lessee of the purchase option provided for by this Master Lease
at the expiration of the Primary Term for the Equipment subject to a Rental
Schedule, Lessor and Lessee agree that the Fair Market Value shall be fifteen
percent (15%) of the Acquisition Cost of such Equipment.
"Guarantor" shall mean a guarantor of any or all of the obligations
of Lessee pursuant to this Lease.
18
<PAGE> 22
"Guaranty" shall mean a writing containing a guaranty of any or all of the
obligations of Lessee pursuant to this Lease.
"Lease Commencement Date" with respect to an item of Equipment shall
mean the date of commencement of the Lease Term of the item as provided by the
applicable Rental Schedule.
"Lease Term" with respect to an item of the Equipment shall mean the
Primary Term plus any and all Renewal Terms plus any period during which Lessee
retains the Equipment on a month-to-month basis pursuant to provisions of this
Master Lease governing the return of the Equipment. The Lease Term shall
include the Lease Commencement Date and the date on which the Lease Term ends.
"Manufacturer" shall mean the Person that manufactures the item of the
Equipment in question.
"Master Lease" shall mean this Master Equipment Lease Agreement.
"Person" shall mean an individual, a corporation, a partnership, an
association, a joint-stock company, a trust, an estate, any incorporated
organization or similar association, a government or political subdivision, or
any other entity.
"Rental Schedule" shall mean each schedule, executed by Lessor and
Lessee pursuant to this Master Lease, providing for a description of some or
all of the Equipment to be leased hereunder, the place or places where such
Equipment shall be located, its Acquisition Cost, the Basic Rent payable by
Lessee with respect thereto, the Primary Term thereof, the Lease Commencement
Date with respect thereto, and such other matters as Lessor and Lessee may
agree upon.
"Stipulated Loss Value" shall mean the amounts specified in the Table
of Stipulated Loss Values applicable to the items of the Equipment subject to a
Rental Schedule, as provided by the Schedule B attached to the Rental
Schedule. Except as otherwise provided in a writing signed by Lessor and
Lessee, the Stipulated Loss Value immediately prior to the end of the Primary
Term for any items of the Equipment shall be the Stipulated Loss Value
throughout any Renewal Term(s) for such items, and thereafter until such items
are returned to Lessor pursuant to the provisions of this Lease or purchased by
Lessee pursuant to any then applicable purchase option provisions of this
Lease.
IN WITNESS WHEREOF, the duly authorized representatives of Lessor and
Lessee have executed this Master Lease as of the date first above written.
<TABLE>
<S> <C>
LESSOR: LESSEE:
FINANCING FOR SCIENCE BIOFIELD CORP.
INTERNATIONAL, INC.
By: /s/ Richard Schwartz By: /s/ Michael R. Gavenchak
------------------------------------------- ----------------------------------------------
Title: Senior Vice President - General Counsel Title: Executive Vice President - General Counsel
--------------------------------------- ------------------------------------------
ATTEST: ATTEST:
By: By:
------------------------------------------- ----------------------------------------------
Title: Title:
----------------------------------------- -------------------------------------------
</TABLE>
19
<PAGE> 1
EXHIBIT 11
BIOFIELD CORP.
(A DEVELOPMENT STAGE COMPANY)
EARNINGS PER SHARE
CALCULATION OF SHARES USED IN COMPUTING
NET LOSS PER COMMON AND COMMON EQUIVALENT SHARE
-----------------------------------------------
<TABLE>
<CAPTION>
For the years ended December 31,
--------------------------------
1995 1996
------------- -------------
<S> <C> <C>
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (8,739,860) $ (10,036,090)
============= =============
PRIMARY NET LOSS PER COMMON AND COMMON EQUIVALENT SHARE:
Weighted average number of common and common equivalent shares outstanding (1). 5,369,996
==============
Primary net loss per common and common equivalent share . . . . . . . . . $ (1.87)
==============
FULLY-DILUTED NET LOSS PER COMMON AND COMMON EQUIVALENT SHARE:
Weighted average number of common and common equivalent shares outstanding (1) 6,044,233
==============
Fully-diluted net loss per common and common equivalent share . . . . . . $ (1.66)
==============
PRO FORMA PRIMARY AND FULLY-DILUTED NET LOSS PER COMMON AND COMMON
EQUIVALENT SHARE:
Pro forma weighted average number of common and common equivalent shares
outstanding (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,183,295
Plus: Incremental shares (3) . . . . . . . . . . . . . . . . . . . . . . 550,002
-------------
Pro forma weighted average number of common and common equivalent shares
outstanding (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,733,297
=============
Pro forma primary and fully-diluted net loss per common and common equivalent
share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (2.34)
=============
</TABLE>
(1) Upon the closing date of the Company's Initial Public Offering ("IPO"),
March 22, 1996, all shares of Series A, Series B and Series C
Convertible Preferred Stock automatically converted into shares of
Common Stock. The 1996 primary net loss per common and common
equivalent share is computed based upon the actual conversion date of
the Company's convertible preferred stock, March 22, 1996. The 1996
fully-diluted net loss per common and common equivalent share assumes
conversion of the convertible preferred stock as of January 1, 1996.
(2) The calculation of the pro forma weighted average number of common and
common equivalent shares outstanding includes approximately 2,823,762
shares of convertible preferred stock, excluding shares issued subsequent
to January 31, 1995, which converted into approximately 1,617,732 shares
of Common Stock immediately upon the closing of the IPO, as if they were
converted to Common Stock as of the original dates of issuance.
(3) All common stock equivalents issued within 12 months of the IPO at a
price per share less than the offering price ($11.00) are considered to
be outstanding, using the treasury stock method. Accordingly, all common
stock equivalents issued subsequent to January 31, 1995 at a price per
share below $11.00 are considered to be outstanding for all of 1995.
(4) The effect of the assumed exercise of stock options, warrants and other
potentially dilutive securities which were issued more than 12 months
prior to the initial filing of the registration statement in connection
with the Company's IPO is not included in the pro forma weighted average
number of common and common equivalent shares outstanding because the
effect is anti-dilutive.
<PAGE> 1
Exhibit 21.1
<TABLE>
<CAPTION>
NAME OF SUBSIDIARY STATE OF INCORPORATION/FORMATION DATE
- ------------------ -------------------------------- ----
<S> <C> <C>
Biofield International, Inc. Delaware 1/31/97
</TABLE>
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
333-18265 of Biofield Corp. on Form S-8 of our report dated February 18, 1997
appearing in this Annual Report on Form 10-K of Biofield Corp. for the year
ended December 31, 1996.
DELOITTE & TOUCHE LLP
Atlanta, Georgia
March 21, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AT DECEMBER 31, 1996 AND THE STATEMENT OF OPERATIONS FOR THE YEAR ENDED
DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 7,369,973
<SECURITIES> 6,569,406
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 14,258,749
<PP&E> 604,246<F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 15,486,193
<CURRENT-LIABILITIES> 1,389,907
<BONDS> 0
0
0
<COMMON> 6,433
<OTHER-SE> 14,085,454
<TOTAL-LIABILITY-AND-EQUITY> 15,486,193
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 10,867,468
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,726
<INCOME-PRETAX> (10,036,090)
<INCOME-TAX> 0
<INCOME-CONTINUING> (10,036,090)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,036,090)
<EPS-PRIMARY> (1.87)
<EPS-DILUTED> (1.66)
<FN>
<F1>PROPERTY, PLANT, AND EQUIPMENT IS REPORTED NET OF ACCUMULATED DEPRECIATION
OF $985,197.
</FN>
</TABLE>
