<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 21, 1996.
REGISTRATION NO. 333-
- -----------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------
HUMASCAN INC.
(Name of Small Business Issuer in its Charter)
DELAWARE 3841 22-3345046
(State or Other (Primary Standard Industrial (I.R.S. Employer
Jurisdiction of Classification Code Number) Identification Number)
Incorporation or
Organization)
514 Centennial Avenue
Cranford, New Jersey 07016
(908) 709-3434 (Phone)
(908) 709-4646 (Telecopy)
(Address and Telephone Number of Principal Executive Offices)
------
514 Centennial Avenue
Cranford, New Jersey 07016
(Address of Principal Place of Business or Intended Principal Place of Business)
------
Donald B. Brounstein, President
HumaScan Inc.
514 Centennial Avenue
Cranford, New Jersey 07016
(908) 709-3434 (Phone)
(908) 709-4646 (Telecopy)
(Name, Address and Telephone Number of Agent for Service)
------
Copies to:
David Alan Miller, Esq. Lawrence B. Fisher, Esq.
Graubard Mollen & Miller Orrick, Herrington & Sutcliffe
600 Third Avenue 666 Fifth Avenue
New York, New York 10016 New York, New York 10103
(212) 818-8800 (Phone) (212) 506-5000 (Phone)
(212) 687-6989 (Telecopy) (212) 506-5151 (Telecopy)
------
Approximate Date of Proposed Sale to the Public: As soon as practicable
after the effective date of this Registration Statement.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]____________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]___________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act, check the following box: [X]
------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933, as amended, or until the
Registration Statement shall become effective on such date as the Securities
and Exchange Commission, acting pursuant to said Section 8(a), may determine.
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=======================================================================================================
Proposed Proposed Maximum
Maximum Aggregate Amount of
Title of Each Class of Securities Amount to be Offering Price Offering Registration
to be Registered Registered Per Share (1) Price Fee
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
Common Stock(2) ...................... 2,875,000 $8.00 $23,000,000.00 $7,931.03
- -------------------------------------------------------------------------------------------------------
Representative's Warrants(3) ......... 250,000 $0.0001 $25.00 --(4)
- -------------------------------------------------------------------------------------------------------
Common Stock issuable upon exercise of
Representative's Warrants ........... 250,000(5) $9.60(6) $ 2,400,000.00 $827.59
- -------------------------------------------------------------------------------------------------------
TOTALS .............................................................. $25,400,025.00 $8,758.62
=======================================================================================================
</TABLE>
- ------
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
(2) Includes 375,000 shares of Common Stock which the Underwriters have the
option to purchase to cover over-allotments, if any.
(3) In connection with the Registrant's sale of the Common Stock offered
hereby, the Registrant is granting to the Representative of the several
Underwriters warrants (the "Representative's Warrants") to purchase
250,000 shares of Common Stock. The purchase price per Representative's
Warrant is $.0001.
(4) Pursuant to Rule 457(g), no fee is payable.
(5) Pursuant to Rule 416, there are also being registered such indeterminable
number of additional shares of Common Stock as may become issuable
pursuant to the anti-dilution provisions of the Representative's
Warrants.
(6) Represents the exercise price of the Representative's Warrants.
<PAGE>
HUMASCAN INC.
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
Item in Form SB-2 Location or Caption in Prospectus
<S> <C> <C>
--------------------------------------------------------- ---------------------------------------------------
1. Front of Registration Statement and Outside Front Cover
Page of Prospectus........................................ Facing Page of Registration Statement; Outside Front
Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of Prospectus... Inside Front and Outside Back Cover Pages of Prospectus
3. Summary Information and Risk Factors ..................... Prospectus Summary; Risk Factors
4. Use of Proceeds........................................... Use of Proceeds
5. Determination of Offering Price .......................... Outside Front Cover Page of Prospectus; Risk Factors;
Underwriting
6. Dilution.................................................. Risk Factors; Dilution
7. Selling Security Holders................................. *
8. Plan of Distribution...................................... Outside Front and Outside Back Cover Pages of Prospectus;
Underwriting
9. Legal Proceedings ........................................ Business
10. Directors, Executive Officers, Promoters and Control
Persons .................................................. Management; Principal Stockholders
11. Security Ownership of Certain Beneficial Owners and
Management................................................ Principal Stockholders
12. Description of Securities................................. Outside Front Cover Page of Prospectus; Description of
Securities
13. Interests of Named Experts and Counsel.................... Legal Matters; Experts
14. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities............................ Management
15. Organization Within Last Five Years....................... Prospectus Summary; Management's Discussion and Analysis
of Financial Condition and Plan of Operation; Certain
Transactions
16. Description of Business................................... Prospectus Summary; Risk Factors; Management's
Discussion and Analysis of Financial Condition and Plan
of Operation; Business
17. Management's Discussion and Analysis or Plan of Operation Management's Discussion and Analysis of Financial
Condition and Plan of Operation
18. Description of Property................................... Business
19. Certain Relationships and Related Transactions ........... Certain Transactions
20. Market for Common Equity and Related Stockholder Matters Outside Front Cover Page of Prospectus; Risk Factors;
Description of Securities; Shares Eligible for Future
Sale; Underwriting
21. Executive Compensation ................................... Management
22. Financial Statements...................................... Financial Statements
23. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure....................... *
</TABLE>
- ------
* Not applicable or answer is negative.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any state in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such state.
SUBJECT TO COMPLETION, DATED JUNE 21, 1996
PROSPECTUS
2,500,000 SHARES
HUMASCAN INC.
LOGO
Common Stock
$.01 par value
------
HumaScan Inc. ("HumaScan" or the "Company") hereby offers 2,500,000 shares
of common stock, $.01 par value per share (the "Common Stock"). Prior to this
Offering, there has been no public market for the Common Stock and there can
be no assurance that a trading market will develop after the completion of
this Offering or, if developed, that it will be sustained. It is currently
anticipated that the initial public offering price will be $8.00 per share.
For information regarding the factors considered in determining the initial
public offering price, see "Risk Factors" and "Underwriting." It is
anticipated that upon consummation of the Offering, the Common Stock will be
approved for quotation on the Nasdaq SmallCap Market ("Nasdaq") under the
symbol "HMSC."
Certain existing stockholders, directors and officers of the Company and
their affiliates or designees intend to purchase 10% of the shares of Common
Stock being offered hereby. See "Underwriting."
------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE
SUBSTANTIAL DILUTION. SEE "RISK FACTORS" COMMENCING ON PAGE 9 AND
"DILUTION."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
===============================================================================
Price to Underwriting Proceeds to
Public Discount(1) Company(2)
- -------------------------------------------------------------------------------
Per Share............ $ $ $
- -------------------------------------------------------------------------------
Total(3) ........... $ $ $
===============================================================================
(1) Does not include additional compensation payable to Keane Securities Co.,
Inc., the representative of the several Underwriters (the
"Representative"), in the form of a non-accountable expense allowance. In
addition, see "Underwriting" for information concerning indemnification
and contribution arrangements with the Underwriters and other
compensation payable to the Representative.
(2) Before deducting estimated expenses of $900,000 payable by the Company,
including the non-accountable expense allowance payable to the
Representative.
(3) The Company has granted to the Underwriters an option exercisable within
45 days after the date of this Prospectus to purchase up to an aggregate
of 375,000 additional shares of Common Stock upon the same terms and
conditions as set forth above, solely to cover over-allotments, if any.
If such over-allotment option is exercised in full, the total Price to
Public, Underwriting Discount and Proceeds to Company will be $______,
$______ and $______, respectively. See "Underwriting."
------
The shares of Common Stock are being offered by the Underwriters, subject
to prior sale, when, as and if delivered to and accepted by the Underwriters,
and subject to approval of certain legal matters by their counsel and subject
to certain other conditions. The Underwriters reserve the right to withdraw,
cancel or modify this Offering and to reject any order in whole or in part.
It is expected that delivery of the shares of Common Stock offered hereby
will be made on or about _______________, 1996, at the offices of Keane
Securities Co., Inc. in New York, New York against payment therefor.
------
Keane Securities Co., Inc.
The date of this Prospectus is _______________, 1996.
<PAGE>
BreastAssure(TM) Thermal Activity Sensor
[PICTURE OF BREAST ASSURE(TM) THERMAL ACTIVITY SENSOR]
The BreastAssure(TM) Thermal Activity Senor, which has received marketing
clearance under Section 510(k) of the Food, Drug and Cosmetic Act from FDA,
is a device to be used adjunctively by physicians as part of a breast disease
monitoring program. When placed over a woman's breasts inside her brassiere
for a period of 15 minutes, the device registers skin temperature variations
due to heat conducted from within the breast tissue, thus indicating the
possibility of either proliferating thermally active breast cancer cells or
certain types of thermally active breast disease.
The Company intends to furnish its stockholders with annual reports
containing financial statements audited by its independent certified public
accountants and such other reports as the Company may determine to be
appropriate or as may be required by law.
------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and notes thereto appearing elsewhere in
this Prospectus. Unless otherwise indicated, the information in this
Prospectus assumes no exercise of the Underwriters' over-allotment option to
purchase up to an additional 375,000 shares of Common Stock and no exercise
of the warrants to purchase 250,000 shares of Common Stock issued to the
Representative in connection with this Offering (the "Representative's
Warrants"). Unless otherwise indicated, all financial information, references
to number of shares and per share data set forth in this Prospectus give
retroactive effect to the 4 to 3 reverse stock split to be effected prior to
the effective date of the registation statement of which this Prospectus is a
part.
THE COMPANY
HumaScan, a development stage company, owns under license the exclusive
rights in the United States and Canada to manufacture and market a breast
thermal activity indicator ("BTAI") device called the "BreastAssure(TM)
Thermal Activity Sensor" ("the BreastAssure device"). The BreastAssure device
is a non-invasive, easy to use, low cost, adjunctive test to be used by
primary care physicians, gynecologists and other medical specialists as part
of a breast disease monitoring program along with breast self- examination
("BSE"), palpation and (depending on a patient's age, family history and
other factors) mammography and other established clinical procedures
including ultrasound and/or biopsy. An important feature of the BreastAssure
device is that the results will be immediately available to the physician
while the patient is "on site" at the point of care in the physician's
office, clinic, hospital and/or mammography center. If the BreastAssure
device indicates that there is unilateral breast thermal activity (i.e., in
one breast only), the physician is alerted to the possibility of a
physiological condition, including thermally active cancer. The BreastAssure
device has received marketing clearance under Section 510(k) of the Food,
Drug and Cosmetic Act (the "FDC" Act ) from the United States Food and Drug
Administration ("FDA").
As breast cancer cells multiply, excessive heat is often generated. This
heat is most often conveyed to the surface of the breast resulting in the
temperature of the skin of a particular area of one breast being elevated
from between 2 degrees and 6 degrees Fahrenheit versus the temperature of the
same area of the other breast. The BreastAssure device permits the measurement
and comparison of temperature variances between three mirror-image sections of
each breast, thus indicating the possibility of either proliferating
thermally active breast cancer cells or certain types of thermally active
breast disease which may require medical treatment.
The Company intends initially to market the BreastAssure device to primary
care physicians, gynecologists and other medical specialists throughout the
United States. Pursuant to this strategy, in February 1996, the Company
entered into an exclusive supply and distribution agreement (as amended, the
"Distribution Agreement") with Physician Sales & Service, Inc. ("PSS"), a
publicly traded company and one of the leading distributors of medical
supplies, diagnostic equipment and pharmaceuticals to office-based medical
professionals in the United States. PSS, with a reported distribution network
of approximately 780 full-time sales representatives and 64 company-owned and
operated service/distribution centers serving more than 88,000
physician-based offices throughout the United States, has agreed to
distribute the BreastAssure device. Pursuant to the Distribution Agreement,
PSS's President, John F. Sasen, Sr., has joined HumaScan's Board of Directors
and the Company has been designated a "Platinum Level Manufacturer." PSS has
informed the Company that this status currently has been accorded to only ten
manufacturers out of approximately 3,000 manufacturers represented by PSS.
Also, pursuant to the Distribution Agreement, PSS purchased an aggregate of
56,250 shares of Common Stock and Private Warrants (as hereinafter defined)
to purchase an additional 11,250 shares of Common Stock at $2.93 per share
and was issued warrants (the "PSS Warrants") to purchase 125,000 shares of
Common Stock at $4.00 per share. See "Business--Marketing and Distribution,"
"Management," "Principal Stockholders" and "Certain Transactions."
3
<PAGE>
Under the Distribution Agreement, over a two-year period beginning in
1997, PSS is to receive volume discount price incentives from HumaScan to the
extent PSS exceeds sales targets of 1.0 million BreastAssure device pairs
("units") in 1997 and 3.5 million units in 1998. If sales by PSS are less
than 50% of such targets, the Company and PSS will each have the right to
terminate the Distribution Agreement upon three months' notice. PSS and the
Company have agreed to work together to prepare for the BreastAssure device
sales and marketing launch, which the Company anticipates will occur in the
second quarter of 1997.
The BreastAssure device consists of a pair of mirror-image, non-invasive,
lightweight, disposable soft pads, each of which has three wafer-thin
segments containing columns of heat sensitive chemical sensor dots that
change color from blue to pink reflecting an 8.5 degree temperature range
between 90o to 98.5o Fahrenheit. When placed over a woman's breasts inside
her brassiere for a period of 15 minutes, the BreastAssure device registers
skin temperature variations due to heat conducted from within the breast
tissue to the surface of the skin. By comparing the mirror-image temperature
differences between the two breasts registered by the BreastAssure device,
the physician can objectively quantify if there is abnormal unilateral breast
thermal activity, which is considered significant if there is a 2o Fahrenheit
or more temperature difference between each breast in the same mirror-image
location. Based on clinical studies at major medical centers, the threshold
tumor size that resulted in significant skin temperature differences
detectable with the BreastAssure device was as small as five millimeters in
size. In contrast, according to industry sources, the majority of breast
tumors are, on average, at least 15 millimeters or larger before they are
palpable by most experienced clinicians.
The equipment that the Company will use to manufacture the BreastAssure
device is currently being constructed by a medical engineering contractor and
is expected to be operational by the end of 1996. The Company anticipates
that the BreastAssure device will be sold to physicians and other medical
specialists for approximately $25 per unit and believes that the BreastAssure
unit will be made available to patients by physicians for a cost ranging from
$40 to $50.
Breast cancer is one of the most common cancers among women and,
notwithstanding existing methods of detection, is currently the leading cause
of death among women between the ages of 35 and 54 in the United States. The
American Cancer Society estimates that in 1996 approximately 184,300 new
cases of breast cancer are expected to be diagnosed and approximately 44,300
women are expected to die from the disease. Although the causes of breast
cancer are unknown and there is no known method of prevention, survival rates
are highest, and the likelihood of recurrence is lowest, if the cancer is
diagnosed and treated at its earliest stages. According to the National
Cancer Institute, 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 soft-tissue organs. Government spending for, and public
awareness of, early screening and diagnosis of breast cancer has increased
substantially in recent years. In fact, breast cancer screening is generally
recommended as a routine part of preventive health care for over 90 million
women in the United States. Industry sources estimate that approximately 11.3
million mammograms and 800,000 surgical biopsies were performed in the United
States in 1994 (the last year for which such data is available from the
Centers For Disease Control). Moreover, the Physicians' Insurers Association
report for 1995 indicated that, during such year, failure to diagnose breast
cancer was the most common source of malpractice complaint among patients
with breast cancer and the second most expensive type of claim, with an
average indemnity payment of $301,460 during the six months preceding such
report.
From 1980 to 1984, clinical data from the use of the BreastAssure device
was collected on 3,262 women of all ages in five separate clinical trials at
six institutions and hospitals, including M.D. Anderson Hospital and Tumor
Institute ("M.D. Anderson"), Brottman Memorial Hospital (UCLA) ("Brottman"),
Georgetown University School of Medicine, Memorial Sloan-Kettering Hospital
("Sloan-Kettering") and Guttman Cancer Diagnostic Institute ("Guttman
Diagnostic"). The key results of the two principal trials, one involving
multiple sites, were as follows:
4
<PAGE>
TRIAL 1 (M.D. Anderson, Brottman, Sloan Kettering)
o BreastAssure Positives and Biopsy Correlation - The trial involved 145
women who underwent unilateral biopsy, 84 of whom were confirmed to
have cancer. The BreastAssure device tested positive for 74 of these 84
women for an 88.1% sensitivity index (agreement on positives with
biopsy).
TRIAL 2 (Guttman Diagnostic)
o The BreastAssure device versus Clinical Screening for "Suspicion of
Cancer" (using mammography and clinical breast examination) - The trial
involved 2,805 women:
o 99 women were judged positive for "suspicion of cancer" based solely
on the standard screening methods, i.e., mammography and clinical
breast examination. Of the 99 women, 86 had positive breast thermal
activity based on the BreastAssure device results, for a sensitivity
index (agreement on positives with the standard clinical screening
methods) of 86.9%.
o Biopsy results confirmed cancer in 15 women, 13 of whom had positive
breast thermal activity based on the BreastAssure device results, for
a sensitivity index (agreement on positives with biopsy) of 86.7%.
o 2,706 women were judged negative using the standard clinical
screening methods. 2,340 women were found to have no breast thermal
activity based on the BreastAssure device results, for a specificity
index (agreement on negatives with the standard screening methods) of
86.5% for no "suspicion of cancer." Comparatively, in clinical
screening for "suspicion of breast cancer," mammography has a
reported specificity of 90.0% and sensitivity of 78.0% to 96.0%,
while clinical breast examination has a reported specificity of 57.0%
to 70.0% and BSE has a reported specificity of 20.0% to 30.0%.
The BTAI was patented in 1980 by Zsigmond L. Sagi, Ph.D. ("Dr. Sagi"), who
assigned the patents relating to the device, then called the "Breast Cancer
Screening Indicator," to a private company called BCSI Laboratories, Inc.
("BCSI"). In 1980, BCSI was acquired by Faberge, Incorporated ("Faberge") and
work on the BTAI continued. FDA authorization to market the BTAI was granted
in 1984. By that time, Faberge had constructed a plant and the necessary
machinery to commence commercial production of the BTAI. In 1985, Faberge was
acquired in a hostile takeover by McGregor Industries ("McGregor"). Following
the acquisition, McGregor reportedly discontinued work on many of the new
business projects Faberge had been pursuing, including the BTAI, but retained
ownership of the patent to, and regulatory approvals for, the BTAI. In 1986
Scantek Medical Corp. ("SMC") was formed by Dr. Sagi and purchased all of the
equity of BCSI (which still owned the patent rights and regulatory approvals
for the BTAI) from McGregor for approximately $500,000. In 1991, the assets
of SMC (including the patent rights and regulatory approvals for the
BreastAssure device) were acquired by Scantek Medical, Inc. ("Scantek"). In
October 1995, Scantek granted a license to the Company to manufacture and
market the BreastAssure device in the United States and Canada. See
"Business--License Agreement."
Certain stockholders, directors and officers of the Company and their
affiliates or designees intend to purchase 10% of the shares of Common Stock
offered hereby.
The Company was incorporated in the State of Delaware on December 27,
1994. Its principal executive offices are located at 514 Centennial Avenue,
Cranford, New Jersey 07016 and its telephone number is (908) 709-3434.
5
<PAGE>
THE OFFERING
Common Stock offered by the
Company ..................... 2,500,000 shares
Common Stock outstanding prior
to the Offering ............. 5,020,313 shares(1)(2)
Common Stock to be outstanding
after the Offering .......... 7,520,313 shares(1)(2)
Use of Estimated Proceeds ..... Approximately $4,700,000 for sales and
marketing expenses; approximately $3,000,000
for clinical studies and research and
development; approximately $1,725,000 for
capital equipment and facility costs;
approximately $1,050,000 for licensing fees;
approximately $1,000,000 for inventory; and
the balance, approximately $6,025,000, for
working capital and other general corporate
purposes. See "Use of Proceeds" and "Certain
Transactions."
Risk Factors and Dilution ..... An investment in the shares of Common Stock
offered hereby involves a high degree of
risk and immediate and substantial dilution.
Prospective investors should carefully
consider the matters set forth under the
captions "Risk Factors" and "Dilution."
Proposed Nasdaq Symbol ........ "HMSC"
- ------
(1) Excludes (i) 700,000 shares of Common Stock reserved for issuance under
the Company's 1996 Stock Incentive Plan (the "1996 Plan"), including (x)
128,000 shares issuable upon exercise of currently outstanding options
with an exercise price equal to the initial public offering price per
share in this Offering and (y) 572,000 shares available for issuance
subject to future grants; (ii) 142,500 shares issuable upon exercise of
options granted to certain officers and directors of the Company outside
of the 1996 Plan at an exercise price of $5.33 per share; (iii) 6,000
shares issuable upon exercise of options granted to four former directors
of the Company, all of which options are exercisable at $2.93 per share;
(iv) 125,000 shares issuable upon exercise of the PSS Warrants at an
exercise price of $4.00 per share; (v) 536,250 shares issuable upon
exercise of the Private Warrants sold to investors in a private placement
in May 1996 (the "May Private Placement"), which Private Warrants are
exercisable at $2.93 per share; (vi) 400,000 shares issuable to Burnham
Securities Inc. ("Burnham") upon exercise of Private Warrants issued to
Burnham in partial consideration of Burnham's services as placement agent
of the May Private Placement; (vii) 37,500 shares, issuable to Smith
Barney Inc. upon exercise of Private Warrants issued in connection with
the May Private Placement; (viii) an aggregate of 161,250 shares issuable
to Udi Toledano and members of his family and Herbert V. Turk and members
of his family upon exercise of warrants issued in connection with the May
Private Placement, all of which are exercisable at $2.93 per share (the
"Toledano Group Warrants"); (ix) 52,500 shares issuable upon exercise of
Private Warrants issued in connection with the May Private Placement upon
conversion of certain November Bridge Notes (as hereinafter defined); (x)
224,250 shares issuable upon exercise of warrants sold in a private
placement in March 1996, which warrants are exercisable at a price of
$0.67 per share; and (xi) options to purchase up to 18,750 shares which
may be issued to Zigmed, Inc. ("Zigmed") pursuant to the Turnkey
Construction Contract (as hereinafter defined), which options will be
exercisable at $5.33 per share. See "Business--Marketing and
Distribution," "Management," "Certain Transactions," "Principal
Stockholders" and "Description of Securities."
(2) Includes 2,943,750 shares of Common Stock issuable upon automatic
conversion upon consummation of this Offering of the same number of
shares of Series A Convertible Preferred Stock ("Series A Preferred
Stock") currently outstanding, which were issued in connection with the
May Private Placement. See "Description of Securities."
6
<PAGE>
Summary Financial Information
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months
ended March 31,
---------------------
December 27, 1994 December 27, 1994
(inception) to (inception) to
December 31, 1995 1996 1995 March 31, 1996
----------------- ---------- ------- -----------------
<S> <C> <C> <C> <C>
Statement of Operations Data:
Interest income ............... $ 1 $ 1 $ -- $ 2
Operating expenses ............ 212 239 49 452
----------- ---------- ---- -----
Net loss ........................ $ (211) $ (238) $(49) $(450)
=========== ========== ==== =====
Pro forma net loss per share (1) . $ (.05) $ (.05)
=========== ==========
Pro forma weighted average common
shares outstanding(1) ......... 4,618,033 4,831,917
=========== ==========
</TABLE>
<TABLE>
<CAPTION>
As of
March 31, 1996
--------------------------------------------
As of Pro Forma,
December As
31, 1995 Actual Pro Forma(2) Adjusted(2)(3)
---------- ---------- ------------ ---------------
<S> <C> <C> <C> <C>
Balance Sheet Data:
Working capital (deficit) ........... $(1,745) $(1,996) $ (618) $16,857
Current assets ...................... 224 229 611 18,008
Total assets ........................ 373 777 1,384 18,780
Notes payable ....................... 350 540 -- --
Due to officer ...................... 125 125 -- --
Long-term debt ...................... -- 42 42 42
Deficit accumulated during the
development stage .................. (211) (450) (720) (720)
Stock subscriptions receivable (4) .. -- -- (4,479) --
Total stockholders' equity (deficit) . (1,596) (1,491) 113 17,588
</TABLE>
- ------
(1) See Notes to Financial Statements for information concerning computation
of pro forma net loss per share and "Capitalization."
(2) Gives effect to the May Private Placement and the following transactions
(collectively, with the May Private Placement, the "Prior Transactions"):
(i) the conversion, in connection with the May Private Placement, of
$350,000 aggregate principal amount of certain bridge notes issued in
November 1995 (the "November Bridge Notes") into shares of Series A
Preferred Stock and Private Warrants and the payment of $16,488 of
accrued interest thereon; (ii) the exchange, in connection with the May
Private Placement, of $460,000 aggregate principal amount of certain
bridge notes issued in March 1996 (the "March Bridge Notes") into shares
of Series A Preferred Stock and Private Warrants, the payment of $8,171
of accrued interest thereon and a charge directly to deficit accumulated
during the development stage of $269,881 representing the unaccreted
discount on the March Bridge Notes as of March 31, 1996; (iii) the
exchange, in connection with the May Private Placement, of $74,000 due to
an officer (including $40,000 in aggregate principal amount of March
Bridge Notes) for shares of Series A Preferred Stock and Private Warrants
and the payment of $91,000 (plus accrued interest on such March Bridge
Notes of $711 due to such officer) from the proceeds of the May Private
Placement; and (iv) the payment to Scantek and Zigmed of an aggregate of
$640,000 required by the terms of the License Agreement (as hereinafter
defined) and the Turnkey Construction Contract.
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(3) Adjusted to reflect the sale of 2,500,000 shares of Common Stock offered
hereby at an assumed initial public offering price of $8.00 per share and
the initial application of the estimated net proceeds therefrom. See "Use
of Proceeds" and "Capitalization."
(4) Stock subscriptions receivable represent the portion of the purchase
price of the securities sold in the May Private Placement still to be
paid by the purchasers, which are to be paid in installments in
accordance with the terms of the May Private Placement. The obligation of
such purchasers to make such installment payments will cease upon
consummation of this Offering; no further installments will be due in the
event this Offering is consummated by August 15, 1996. See "Description
of Securities-- Private Placements."
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RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk and immediate and substantial dilution and should be made only
by persons who can afford a loss of their entire investment. In addition to
the other information in this Prospectus, the following risk factors should
be considered carefully in evaluating an investment in the shares of Common
Stock offered hereby.
Absence of Operating History; Development Stage; Stockholders' Deficit; No
Revenues; Continuing Losses. The Company was incorporated in December 1994,
has no operating history and is in the development stage. As such, the
Company is subject to all of the business risks associated with a new
enterprise, including constraints on the Company's resources, lack of
established creditor relationships and uncertainties regarding product
development and future revenues. Since its inception, the Company has been
engaged only in development activities and raising capital. As of December
31, 1995 and March 31, 1996, the Company had a stockholders' deficit of
$1,595,651 and $1,490,528, respectively. The Company has not derived any
revenue from operations and has incurred losses since inception. The Company
does not anticipate deriving any revenue from operations until such time as
the BreastAssure device is available for commercial delivery. The Company
anticipates incurring significant costs in connection with bringing the
BreastAssure device to market, including costs relating to the establishment
of its manufacturing facility and the establishment of its marketing program.
The Company's ability to operate its business successfully will depend, in
part, on a variety of factors, many of which are outside the Company's
control, including changes in governmental programs and requirements or in
physician or consumer preferences, changes in FDA and similar regulatory
requirements, plant and equipment repair and maintenance requirements,
competition and changes in raw material supplies and suppliers. The
likelihood of success of the Company must be considered in light of the
expenses, difficulties and delays frequently encountered in connection with
the formation and early phase of operation of a new business and the
competitive environment in which it will operate. There can be no assurance
regarding whether or when the Company will successfully implement its
business plan or that the Company will achieve profitability by generating
sufficient revenues to offset anticipated costs. See "Management's Discussion
and Analysis of Financial Condition and Plan of Operation" and Note 1 of
Notes to Financial Statements.
Significant Capital Requirements; Dependence on Offering Proceeds; Need
for Additional Financing. The Company's capital requirements in connection
with its product development and marketing activities will be significant.
The Company has been dependent upon the proceeds of sales of its securities
to private investors to fund its initial development activities. Since the
Company is not currently generating any revenue from operations, it is
dependent on the proceeds of this Offering to continue development
activities. The Company anticipates, based on its currently proposed plans
and assumptions relating to its operations, that the proceeds of this
Offering will be sufficient to satisfy its contemplated cash requirements for
at least 18 months following the consummation of this Offering. The Company's
future liquidity and capital funding requirements will depend on numerous
factors, including the results of clinical studies, the extent to which the
BreastAssure device gains market acceptance, the costs and timing of
expansion of sales, marketing and manufacturing activities and competition.
There can be no assurance that additional capital, if needed, will be
available on terms acceptable to the Company, or at all. Furthermore, any
additional equity financing may be dilutive to stockholders, and debt
financing, if available, will likely include restrictive covenants. The
failure of the Company to raise capital on acceptable terms when needed could
have a material adverse effect on the Company. See "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Condition and Plan of
Operation--Liquidity and Capital Resources."
Dependence Upon a Single Product. The BreastAssure device is currently the
Company's only product and will account for substantially all of the
Company's revenue, if any, for the foreseeable future. The BreastAssure
device was approved by FDA in January 1984 under Section 510(k) of the FDC
Act ("510(k) Market Rights") to be marketed for use by physicians as an
adjunct to routine physical examination, including palpation, mammography and
other established procedures for the detection of breast disease, but has not
yet been commercially introduced. There can be no assurance that, when
manufactured, the BreastAssure device will be effective or that it will be
more effective than competing products or technologies, capable of being
manufactured in commercial quantities at acceptable costs or successfully
marketed. If the BreastAssure device is not successfully commercialized, it
is likely that the Company's business operations would cease. See
"Business--The BreastAssure Device."
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Uncertainty of Market Acceptance; Certain Thermographic Applications Not
Accepted. The Company's success will be substantially dependent upon, among
other factors, the market acceptance of the BreastAssure device. The Company
has not yet commenced marketing activities or conducted market or feasibility
studies with respect to the BreastAssure device. The Company believes that
market acceptance of the BreastAssure device will depend, in part, upon the
Company's ability to demonstrate to physicians the clinical benefits, safety,
efficacy and cost-effectiveness of the BreastAssure device. Prior
thermographic devices which, unlike the BreastAssure device, involved imaging
rather than measurement of temperature differences, did not perform as
intended. In 1983, the Office of Health Technology Assessment ("OHTA") of the
Department of Health and Human Services issued a report stating that
thermography needed further development and should not be used alone for
diagnostic screening as an alternative to mammography. In 1984, the Health
Care Financing Administration ("HCFA") withdrew coverage for thermography
under Medicare and Medicaid as a diagnostic screening method. In 1991, based
upon reports which addressed the use of thermography in neurological and
musculoskeletal conditions, the American Medical Association ("AMA") passed a
resolution stating that thermography had not been proven to have value as a
medical diagnostic test. In 1992, HCFA withdrew Medicare and Medicaid
reimbursement for all other uses of thermography. In 1993, the AMA adopted a
resolution stating that the use of thermography for diagnostic purposes could
not be recommended at that time. Although the BreastAssure device is
adjunctive and is not to be used for diagnosis of breast disease, the OHTA,
HCFA and AMA positions against the use of thermography as a diagnostic tool
may cause confusion among physicians. The Company will need to demonstrate
that the BreastAssure device is an effective adjunct to diagnostic
procedures. In the event that the BreastAssure device fails to achieve
significant market acceptance, it is likely that the Company's business
operations would cease. See "Management's Discussion and Analysis of
Financial Condition and Plan of Operation," "Business--The BreastAssure
Device," "--Marketing and Distribution" and "--Reimbursement."
No Manufacturing Experience; Dependence on Zigmed, Inc. The Company has no
experience in manufacturing the BreastAssure device and has not yet
manufactured it. If the Company is unable to manufacture the BreastAssure
device, the Company would not be able to commercialize it, in which event, it
is likely that the Company's business operations would cease. If the Company
encounters manufacturing difficulties, including problems involving
production yields, quality control and assurance, shortages of components or
shortages of qualified personnel, it could have a material adverse effect on
the Company's business, financial condition and results of operations. In
addition, there is no assurance that the Company will be able to manufacture
the BreastAssure device in accordance with FDA's current Good Manufacturing
Practice ("cGMP") regulations. The Company has entered into a contract (the
"Turnkey Construction Contract") with Zigmed for the turnkey construction of
its BreastAssure production machinery (the "Production Line") and is
dependent on Zigmed for the construction of the Production Line. In the event
Zigmed fails to complete the Production Line, the Company would be forced to
complete the Production Line itself or pay another contractor to complete it.
Unless the Production Line is substantially completed by Zigmed, it is
unlikely that the Company could complete the Production Line itself, and
there can be no assurance that the Company could find another contractor
willing to complete the Production Line or complete it at a cost acceptable
to the Company. Failure by Zigmed to complete the Production Line would, and
failure by Zigmed to complete it as scheduled could, have a material adverse
effect on the Company. Zigmed is controlled by Zsigmond G. Sagi, the son of
Dr. Sagi, the Chairman of the Board of Scantek. See
"Business--Manufacturing."
Termination of License Agreement if Certain Threshold Royalties are not
Earned. The Company has licensed the rights to the BreastAssure device from
Scantek pursuant to a license agreement dated as of October 20, 1995, as
amended (the "License Agreement"). The License Agreement provides that the
Company is to pay minimum royalties of $150,000, $300,000, $400,000 and
$500,000, respectively, in the first four years in which the BreastAssure
device is sold and $600,000 in the fifth and subsequent years. It also
provides for the automatic termination of the License Agreement if earned
royalties for the first three years in which product is sold do not exceed an
aggregate of $950,000. There is no assurance that the BreastAssure device
will be commercialized successfully, or that threshold royalties will be
earned. Any such termination of the License Agreement for failure to earn
threshold royalties would be likely to cause the Company's business
operations to cease. See "Business--License Agreement."
Lack of Marketing Experience; Dependence on Physician Sales & Services,
Inc. The Company currently has no marketing experience and limited financial,
personnel and other resources to undertake the extensive
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marketing activities necessary to market the BreastAssure device. The
Company's ability to generate revenue from the sale of the BreastAssure
device will be dependent upon, among other things, its ability to manage an
effective sales organization. The Company will need to develop a sales force
and a marketing group with technical expertise to coordinate marketing
efforts with PSS. The Company has entered into an exclusive distribution
agreement with PSS and will be significantly dependent on PSS for
distribution and sales. Failure by PSS to perform as anticipated would have a
material adverse effect on the Company's operations. In addition, there can
be no assurance that the Company will be able to market or sell its products
effectively through independent sales representatives, through arrangements
with some other outside sales force, or through strategic partners. See
"Business--Marketing and Distribution."
Government Regulation. The Company's products and manufacturing activities
are subject to extensive government regulation, both in the United States and
abroad. In the United States, the development, manufacture, marketing and
promotion of medical devices are regulated by FDA under the FDC Act. Unless
exempted by regulation, the FDC Act and the regulations implemented
thereunder require that all products meeting the statutory definition of
"device" receive FDA clearance or approval prior to marketing in the United
States. The BreastAssure device obtained 510(k) Market Rights from FDA in
1984.
Based upon reservations about the use of thermography for diagnostic
purposes expressed by OHTA, HCFA and AMA (see "Risk Factors--Uncertainty of
Market Acceptance; Certain Thermographic Applications Not Accepted"), there
is a risk that FDA could reevaluate the bases upon which it granted the
Company's 510(k) Market Rights in 1984 and classified devices such as the
BreastAssure device as Class I devices in 1988. If FDA were to reevaluate
these decisions and conclude that additional data were necessary to support
authorization to market the BreastAssure device, it could rescind previous
510(k) Market Rights for breast thermographic devices and/or reclassify these
devices from Class I medical devices to Class III medical devices (which
would effectively vitiate the Company's 510(k) Market Rights and require
filing of a new application for premarket approval prior to marketing). In
either event, the Company would be required to cease marketing the
BreastAssure device until it filed a premarket approval application ("PMA")
with FDA and received a new approval to market the BreastAssure device.
The FDC Act requires manufacturers to obtain new FDA clearance or approval
when, among other things, there is a major change in the intended use of a
legally marketed device or a modification, including product enhancements, to
a legally marketed device that could significantly affect its safety or
effectiveness. Manufacturers are responsible for making the initial
determination regarding the significance of these changes. There can be no
assurance that FDA will agree with a decision that changes to a device are
not significant and, thus, do not require FDA review and approval. In the
event FDA were to require the filing of a new 510(k) notification or a PMA
for a change it regarded as significantly affecting the safety or
effectiveness of the device, the Company may be prohibited from marketing the
modified device until FDA reviews and approves the new 510(k) notification or
PMA. FDA also requires that manufacturing conform to strict quality assurance
standards required by cGMP regulations. There can be no assurance that the
Company will attain and maintain compliance with cGMP standards.
Noncompliance with applicable FDA requirements can result in, among other
things, rejection or withdrawal of premarket clearance or approval for
devices, recall or seizure of products, total or partial suspension of
production, fines, injunctions and civil and criminal penalties. FDA also has
the authority to request repair, replacement or refund of the cost of any
devices manufactured or sold by the Company. Any of these sanctions may have
a material adverse effect on the Company's business, financial condition or
results of operations. See "Business--Government Regulation."
Patents and Proprietary Information; Effect of Expiration of Patents on
Competitive Pricing. Scantek, the licensor of the BreastAssure device, holds
two United States patents and one Canadian patent (the "Patents") covering
the use of the BreastAssure device as a device for adjunctive use in the
early detection of breast cancer. Although the Patents are licensed to the
Company for the United States and Canada pursuant to the License Agreement,
both United States patents expire on February 26, 1997 and the Canadian
patent expires on August 24, 1999. There can be no assurance that the Patents
will provide meaningful protection from competition. The Company's policy is
to attempt to protect its technology by, among other things, obtaining patent
rights for technology that it considers important to the development of its
business and requiring each employee and key con-
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sultant to execute a confidentiality agreement. There can be no assurance
that the Company's confidentiality agreements and other safeguards will
protect its proprietary information and trade secrets or provide adequate
remedies for the Company in the event of unauthorized use or disclosure of
such information, or that others will not be able independently to develop
such information. In addition, in the event that the Company becomes involved
in litigation to enforce its proprietary rights, such litigation can be a
lengthy and costly process causing diversion of effort and resources by the
Company and its management with no guarantee of success. Other parties may be
issued patents that may prevent the sale of the Company's products or require
licenses and the payment of royalties by the Company. It is possible that
after the Patents expire, other companies, inside and outside the United
States, may adopt the concept and/or design embodied in the BreastAssure
device and seek to compete with the Company. In the event such competition is
encountered, the Company would have to rely on name recognition, product
acceptance, quality and the distribution network of PSS in order to compete
successfully, and there can be no assurance that the Company will be able to
so compete. Moreover, the Company could be put at a competitive disadvantage
by the payment of any royalties, which may have a material adverse effect on
its ability to market its product successfully.
Although to date no claims have been brought against the Company alleging
that the BreastAssure device infringes intellectual property rights of
others, there can be no assurance that such claims will not be brought
against the Company in the future, or that, if made, such claims will not be
successful. In addition to any potential monetary liability for damages, the
Company could be required to obtain a license in order to continue to
manufacture or market the BreastAssure device or could be enjoined from
making or selling the BreastAssure device if such a license were not made
available on acceptable terms. If the Company becomes involved in such
litigation, it may require the expenditure of significant Company resources
and, if such a claim were successful, the Company's business could be
materially adversely affected. See "Business--Patents; Proprietary
Information."
Competition; Technological Obsolescence. The Company is not aware of any
low-cost devices currently on the market which compete with the BreastAssure
device. Nevertheless, the Company's potential competitors may succeed in
developing products that are more effective or less costly than the Company's
products, and such competitors may also prove to be more successful than the
Company in manufacturing, marketing and sales. Some of the Company's
potential competitors may be large, well-financed and established companies
that have greater resources for research and development, manufacturing and
marketing than the Company and, therefore, may be better able than the
Company to compete for a share of the market even in areas in which the
Company may have superior technology. It is also possible that there will be
technological changes or developments by competitors which will render the
BreastAssure device noncompetitive or obsolete. See "Business-- Competition."
Dependence on Qualified Personnel. The success of the Company is dependent
on the continued efforts of Donald B. Brounstein, James J. Whidden and
Kenneth S. Hollander, the Company's President and Chief Executive Officer,
Senior Vice President of Clinical Development and Chief Financial Officer,
respectively. The loss of Mr. Brounstein's, Mr. Whidden's and/or Mr.
Hollander's services could have a material adverse effect on the Company's
operations. The success of the Company is also dependent upon its ability to
hire and retain additional qualified scientific, managerial and manufacturing
personnel. Competition for personnel is intense in the medical device
manufacturing industry. There can be no assurance that the Company will be
able to attract and retain qualified personnel. See "Business--Employees" and
"Management."
Uncertainties Regarding Third-Party Reimbursement and Health Care Reform.
Hospitals, medical clinics and physicians' offices that purchase medical
devices like the BreastAssure device generally rely on third-party payors,
such as Medicare, Medicaid and private health insurance plans, to pay for
some or all of the costs of the screening and diagnostic procedures performed
with these devices. Whether a particular procedure qualifies for third-party
reimbursement depends upon such factors as the safety and effectiveness of
the procedure, and reimbursement may be denied if the medical device is
experimental or was used for a non-approved indication. In 1984, HCFA
withdrew coverage for thermography under Medicare and Medicaid as a
diagnostic screening method. In 1992, HCFA withdrew Medicare and Medicaid
reimbursement for all other uses of thermography. There can be no assurance
that third-party reimbursement will be available for the BreastAssure device
or that the full or any part of the cost of the BreastAssure device would be
covered by such reimbursement. During the
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past several years, the major third-party payors for hospital services have
substantially revised their payment methodologies to contain healthcare
costs. The Company believes that the current pressures for medical cost
containment have resulted in uncertainty in the healthcare industry.
Reimbursement standards and rates may change in the future. The failure of
users of the BreastAssure device to obtain adequate reimbursement from
third-party payors could have a material adverse effect on the Company.
Several states and the United States 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 and results of
operations. See "Business--Reimbursement."
Product Liability. The nature of the Company's products may expose the
Company to product liability risks. The Company currently does not maintain
product liability insurance coverage. Although the Company plans to obtain
product liability insurance before sales of the BreastAssure device begin,
such insurance is becoming increasingly expensive and there can be no
assurance that the Company will be able to obtain or maintain such insurance
on acceptable terms or that such insurance, if obtained, will provide
adequate coverage against product liability claims. While no product
liability claims have been brought against the Company to date, a successful
product liability claim against the Company in excess of its insurance
coverage could have a material adverse effect on the Company. See
"Business--Product Liability and Insurance."
Potential Conflicts of Interest. In connection with its acquisition of the
technology relating to the BreastAssure device, the Company entered into the
License Agreement with Scantek, the Distribution Agreement with PSS and the
Turnkey Construction Contract with Zigmed. Upon completion of this Offering,
Scantek will own beneficially approximately 13.5%, and PSS will own
beneficially approximately 2.7%, of the Company's outstanding Common Stock.
John F. Sasen, Sr., the President of PSS, is a director of the Company.
Zigmed is controlled by Zsigmond G. Sagi, the son of Dr. Sagi, the Chairman
of the Board of Scantek. These relationships could result in conflicts of
interest and none of PSS, Mr. Sasen, Scantek, Dr. Sagi or Zigmed is under any
obligation to resolve such conflicts in favor of the Company. In connection
with this Offering, the Company has adopted a policy whereby all future
transactions between the Company and its officers, directors, principal
stockholders or affiliates, will be approved by a majority of the Board of
Directors, including a majority of the independent and disinterested members
of the Board of Directors or, if required by law, a majority of disinterested
stockholders, and will be on terms no less favorable to the Company than
could be obtained in arm's length transactions from unaffiliated third
parties. See "Business--Marketing and Distribution--Distribution Agreement
with PSS," "--License Agreement" and "--Manufacturing" and "Certain
Transactions."
Arbitrary Offering Price. The initial public offering price of the Common
Stock has been determined arbitrarily by negotiations between the Company and
the Representative. Factors considered in such negotiations, in addition to
prevailing market conditions, included the history and prospects for the
industry in which the Company competes, an assessment of the Company's
management, the prospects of the Company, its capital structure, the market
for initial public offerings and certain other factors as were deemed
relevant. Consequently, the initial public offering price of the Common Stock
does not necessarily bear any relationship to the Company's asset value, net
worth or other established valuation criteria and may not be indicative of
prices that may prevail at any time or from time to time in the public market
for the Common Stock. See "Underwriting."
No Prior Public Trading Market; Potential Volatility of Stock Price. Prior
to this Offering, there has been no public market for the Company's Common
Stock and there can be no assurance that an active trading market will
develop or be sustained after this Offering. The initial public offering
price negotiated between the Company and the Representative may not be
indicative of prices that will prevail in the trading market. The market
prices for securities of companies engaged primarily in medical technology
have at times in the past been volatile. The announcement of technological
innovations or new commercial products by the Company or its competitors,
governmental regulations, regulatory approvals or developments relating to
patents or proprietary rights, publicity regarding actual or potential
clinical results with respect to products under development by the Company or
others, as well as period-to-period fluctuations in financial results and
general economic, political and market conditions, may have a significant
impact on the market price of the Common Stock. See "Underwriting."
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Shares Eligible for Future Sale. Future sales of shares of Common Stock by
existing stockholders, or optionholders or warrantholders upon exercise of
their options or warrants, pursuant to Rule 144 ("Rule 144") promulgated
under the Securities Act of 1933, as amended (the "Securities Act"), or
otherwise, could have an adverse effect on the price of shares of Common
Stock. Sales of substantial amounts of Common Stock or the perception that
such sales could occur could adversely affect prevailing market prices for
the Common Stock. Each of the Company, the existing stockholders and all
holders of options, warrants or other securities exchangeable for or
convertible into Common Stock have entered into certain lock-up agreements
with the Representative. See "Description of Securities," "Shares Eligible
for Future Sale" and "Underwriting."
Anti-Takeover Provisions. The Company's Board of Directors has the
authority to issue up to 1,825,000 shares of undesignated preferred stock and
to determine the price, rights, preferences and privileges of those shares
without any further vote or action by the stockholders. The rights of holders
of Common Stock will be subject to, and may be adversely affected by, the
rights of holders of any preferred stock that may be issued in the future.
There are presently no shares of undesignated preferred stock outstanding.
Although the Company has no present intention to issue shares of undesignated
preferred stock after consummation of this Offering, any issuance of
undesignated preferred stock, while potentially providing desirable
flexibility in connection with possible acquisitions and other corporate
purposes, could have the effect of making it more difficult for a third party
to acquire a majority of the outstanding voting stock of the Company.
Additionally, following this Offering, the Company will become subject to the
anti-takeover provisions of Section 203 of the Delaware General Corporation
Law, which will prohibit the Company 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 became an interested
stockholder, unless the business combination is approved in a prescribed
manner. Section 203 could have the effect of delaying or preventing a change
of control of the Company. See "Description of Securities-- Limitations Upon
Transactions with 'Interested Stockholders.' "
Immediate and Substantial Dilution; Disparity of Consideration. Purchasers
of the shares of Common Stock offered hereby (at an assumed initial public
offering price of $8.00 per share) will incur an immediate dilution in net
tangible book value per share of Common Stock of $5.66 (70.7%) per share
($5.43 per share (67.9%) if the Underwriters' over-allotment option is
exercised in full). Additional dilution to future net tangible book value per
share may occur upon the exercise of the Representative's Warrants and
options and warrants that are outstanding or to be issued under the Company's
option plans or otherwise. The current stockholders of the Company, including
the Company's officers and directors, acquired their shares of Common Stock
for nominal consideration or for consideration substantially less than the
initial public offering price of the shares of Common Stock offered hereby.
See "Capitalization," "Dilution" and "Certain Transactions."
Absence of Dividends. The Company has never paid a dividend on the Common
Stock and does not expect to pay any dividends on the Common Stock in the
foreseeable future. See "Dividend Policy."
Broad Discretion of Management and the Board of Directors in Use of
Proceeds. Although the Company intends to apply the net proceeds of this
Offering in the manner described under "Use of Proceeds," the Company's
management and the Board of Directors have broad discretion within such
proposed uses as to the precise allocation of the net proceeds, the timing of
expenditures and all other aspects of the use thereof. In addition,
approximately 34.4% (43.2% if the Underwriters' over-allotment option is
exercised in full) of the net proceeds of this Offering will be allocated and
used for working capital and other general corporate purposes. The Company
reserves the right to reallocate the net proceeds of this Offering among the
various categories set forth under "Use of Proceeds" as it, in its sole
discretion, deems necessary or advisable based upon prevailing business
conditions and circumstances. See "Use of Proceeds."
Limitation of Liability and Indemnification. The Company's Certificate of
Incorporation limits, to the maximum extent permitted by the Delaware General
Corporation Law ("Delaware Law"), the personal liability of directors for
monetary damages for breach of their fiduciary duties as a director, and
provides that the Company shall indemnify its officers and directors and may
indemnify its employees and other agents to the fullest extent permitted by
law. The Company has entered into indemnification agreements with its
officers and directors which may require the Company, among other things, to
indemnify such officers and directors against certain liabilities that may
arise by reason of their status or service as directors or officers (other
than liabilities arising from willful misconduct of a culpable nature), to
advance their expenses incurred as a result of any proceeding against
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them as to which they could be indemnified, and to obtain directors' and
officers' insurance, if available on reasonable terms. The Company intends to
purchase directors' and officers' liability insurance after the completion of
this Offering. Section 145 of the Delaware Law provides that a corporation
may indemnify a director, officer, employee or agent made or threatened to be
made a party to an action by reason of the fact that he was a director,
officer, employee or agent of the corporation or was serving at the request
of the corporation against expenses actually and reasonably incurred in
connection with such action if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, if he
had no reasonable cause to believe his conduct was unlawful. Delaware Law
does not permit a corporation to eliminate a director's duty of care, and the
provisions of the Company's Certificate of Incorporation have no effect on
the availability of equitable remedies, such as injunction or rescission, for
a director's breach of the duty of care. See "Description of
Securities--Limitation of Liability and Indemnification."
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USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,500,000 shares of
Common Stock offered hereby at an assumed initial public offering price of
$8.00 per share are estimated to be $17,500,000 ($20,200,000 if the
Underwriters' over-allotment option is exercised in full), after deducting
the underwriting discount and estimated Offering expenses payable by the
Company (including the non-accountable expense allowance payable to the
Representative). The Company currently intends to utilize the net proceeds of
this Offering approximately as follows:
Sales and Marketing Expenses ................. $ 4,700,000 26.9%
Clinical Studies and Research and Development . 3,000,000 17.1%
Capital Equipment and Facility Costs ......... 1,725,000 9.9%
Licensing Fees ............................... 1,050,000 6.0%
Inventory .................................... 1,000,000 5.7%
Working Capital and General Corporate Purposes . 6,025,000 34.4%
----------- -------
Total ...................................... $17,500,000 100.0%
Sales and Marketing Expenses. The Company plans to allocate approximately
$4,700,000 of the net proceeds of this Offering to sales and marketing
expenses and the establishment of its sales and marketing capabilities, which
will include participation in trade shows, business travel, advertising in
professional magazines, the preparation of sales materials, market research,
and development of a sales force. See "Business--Marketing and Distribution."
Clinical Studies and Reseach and Development. The Company plans to
allocate approximately $3,000,000 of the net proceeds of this Offering to
product enhancement, which includes amounts required to conduct additional
clinical trials of the BreastAssure device. See "Business--Clinical Trials."
Capital Equipment and Facility Costs. The Company plans to allocate
approximately $1,725,000 of the net proceeds of this Offering to capital
equipment and facility costs, which will include the balance due under the
Turnkey Construction Contract for the construction of the Production Line
($1,030,680), costs for warehouse equipment, rental of the Company's
headquarters and manufacturing facility and costs for related leasehold
improvements ($250,000). See "Business--Manufacturing."
Licensing Fees. The Company plans to allocate approximately $1,050,000 of
the net proceeds of this Offering to additional product license payments
required under the License Agreement with Scantek. See "Business--License
Agreement."
Inventory. The Company plans to allocate approximately $1,000,000 of the
net proceeds of this Offering to the production of inventory.
Working Capital and General Corporate Purposes. The Company plans to
allocate the balance of the net proceeds of this Offering, approximately
$6,025,000 (plus any proceeds received from the exercise of the Underwriters'
over-allotment option), to working capital and general corporate purposes,
including $72,000 in consulting fees payable to Burnham pursuant to the
Placement Agreement (as hereinafter defined).
The foregoing represents the Company's current best estimate of its
allocation of the net proceeds of this Offering based on the current state of
its business operations, its current plans and current economic and industry
conditions. Although the Company does not contemplate material changes in the
proposed allocation of the use of proceeds, to the extent the Company finds
that adjustment is required by reason of business conditions or otherwise,
the amounts shown may be adjusted among the uses indicated above.
Additionally, it is the Company's policy regularly to review potential
opportunities to acquire technologies and products compatible with its
existing business and it may use a portion of the net proceeds of this
Offering to make such acquisitions, although the Company does not currently
have any arrangements, understandings or agreements with respect thereto. See
"Risk Factors--Broad Discretion of Management and the Board of Directors in
Use of Proceeds."
The Company anticipates, based on its currently proposed plans and
assumptions relating to its operations, that the net proceeds of this
Offering will be sufficient to satisfy its contemplated cash requirements for
at least 18 months following the consummation of this Offering. The Company's
future liquidity and capital funding
16
<PAGE>
requirements will depend on numerous factors, including the results of
clinical trials, the extent to which the BreastAssure device gains market
acceptance, the costs and timing of expansion of sales, marketing and
manufacturing activities and competition. There can be no assurance that
additional capital, if needed, will be available on terms acceptable to the
Company, or at all. Furthermore, any additional equity financing may be
dilutive to stockholders, and debt financing, if available, will likely
include restrictive covenants and provide for security interests in the
Company's assets. The failure of the Company to raise capital on acceptable
terms when needed could have a material adverse effect on the Company. See
"Risk Factors--Significant Capital Requirements; Dependence on Offering
Proceeds; Need for Additional Financing." Pending the aforementioned uses,
the net proceeds of this Offering will be invested in interest-bearing
government securities or short-term, investment grade securities.
DIVIDEND POLICY
The Company has not paid any dividends on its Common Stock since its
inception and does not intend to pay any dividends on its Common Stock in the
foreseeable future. The payment of any dividends in the future will depend on
the evaluation by the Company's Board of Directors of such factors as it
deems relevant at the time and restrictions imposed by the terms of the
Company's debt obligations, if any. As of the date of this Prospectus, the
Company has no debt obligations that impose restrictions on the payment of
dividends. Currently, the Board of Directors believes that all of the
Company's earnings, if any, should be retained for the development of the
Company's business.
17
<PAGE>
CAPITALIZATION
The following table sets forth the short-term debt and the capitalization
of the Company as of March 31, 1996: (i) on an actual basis; (ii) on a pro
forma basis to give effect to the issuance to Scantek of an aggregate of
329,063 shares of Common Stock pursuant to the License Agreement and the
Prior Transactions subsequent to March 31, 1996; and (iii) on a pro forma, as
adjusted basis to give effect to the sale of 2,500,000 shares of Common Stock
(assuming an initial public offering price of $8.00 per share) offered hereby
less the underwriting discount, the non-accountable expense allowance and the
other estimated Offering expenses payable by the Company and the initial
application of the estimated net proceeds from this Offering in the manner
set forth under the caption "Use of Proceeds" and the conversion of the
2,943,750 shares of Series A Preferred Stock into shares of Common Stock on a
share-for-share basis upon consummation of this Offering. See "Use of
Proceeds" and "Description of Securities--Preferred Stock--Series A
Convertible Preferred Stock."
<TABLE>
<CAPTION>
March 31, 1996
--------------------------------------------------
Pro Forma,
Actual Pro Forma As Adjusted
---------- -------------------- -------------
(dollars in
thousands)
<S> <C> <C> <C>
Short-term debt(1) .............................. $ 665 $ -- $ --
======== ======== ========
Long-term debt(2) ............................... $ 42 $ 42 $ 42
-------- -------- --------
Stockholders' equity (deficit):
Preferred Stock, $.01 par value, 6,000,000 shares
authorized; no shares issued and
outstanding, actual; 2,943,750 shares
issued and outstanding, pro forma; no shares
issued and outstanding, pro forma, as
adjusted. ............................. -- 29 --
Common Stock, $.01 par value, 14,000,000 shares
authorized; 1,747,500 shares issued and
outstanding, actual; 2,076,563 shares
issued and outstanding, pro forma; 7,520,313
shares issued and outstanding, pro forma,
as adjusted(3) ........................ 17 21 75
Additional paid-in capital ............... (1,058) 5,262 18,232
Deficit accumulated during the development
stage ................................. (450) (720) (720)
Stock subscriptions receivable(4) ........ -- (4,479) --
-------- -------- --------
Total stockholders' equity (deficit) .. (1,491) 113 17,588
-------- -------- --------
Total capitalization ................... $(1,449) $ 155 $17,630
======== ======== ========
</TABLE>
- ------
(1) Represents November Bridge Notes and March Bridge Notes payable, net of
discount, and amounts due to officer.
(2) Represents capital lease obligations.
(3) The Company intends to amend its Certificate of Incorporation before the
Registration Statement is declared effective to increase the number of
authorized shares of Common Stock to 25,000,000. See "Description of
Securities."
(4) Stock subscriptions receivable represent the portion of the purchase
price of the securities sold in the May Private Placement still to be
paid by the purchasers, which are to be paid in installments in
accordance with the terms of the May Private Placement. The obligation of
such purchasers to make such installment payments will cease upon
consummation of this Offering; no further installments will be due in the
event this Offering is consummated by August 15, 1996. See "Description
of Securities--Private Placements."
18
<PAGE>
DILUTION
The pro forma net tangible book value of the Company as of March 31, 1996
(after giving effect to the issuance to Scantek of an aggregate of 329,063
shares of Common Stock pursuant to the License Agreement and the Prior
Transactions) was $112,885 or $0.05 per share of Common Stock. Pro forma net
tangible book value per share represents the amount of total tangible assets
less total liabilities divided by the number of shares of Common Stock
outstanding. After giving effect to the receipt of the net proceeds from the
sale of the 2,500,000 shares of Common Stock offered hereby (assuming an
initial public offering price of $8.00 per share) and the conversion of the
2,943,750 shares of Series A Preferred Stock outstanding into shares of
Common Stock on a share-for-share basis upon consummation of this Offering,
the pro forma net tangible book value of the Company as of March 31, 1996
would have been $17,587,685, or $2.34 per share. This represents an immediate
increase in such pro forma net tangible book value of $2.29 per share to
existing stockholders and an immediate dilution of $5.66 per share (70.7%) to
the persons purchasing shares of Common Stock at the initial public offering
price. The following table illustrates this per share dilution:
<TABLE>
<CAPTION>
<S> <C> <C>
Assumed initial public offering price per share ........................... $8.00
Pro forma net tangible book value per share as of March 31, 1996 after
giving effect to the Prior Transactions ............................ $0.05
Increase per share attributable to new investors ..................... $2.29
-------
As adjusted pro forma net tangible book value per share as of March 31,
1996 after this Offering ........................................... $2.34
-------
Dilution per share to new investors ....................................... $5.66
=======
</TABLE>
If the Underwriters' over-allotment option is exercised in full, the pro
forma net tangible book value per share of Common Stock after this Offering
would be $2.57 per share, which would result in dilution to new investors in
this Offering of $5.43 per share of Common Stock (67.9%).
The following table summarizes on a pro forma basis as of March 31, 1996
(after giving effect to the issuance to Scantek of an aggregate of 329,063
shares of Common Stock pursuant to the License Agreement and the Prior
Transactions), the total consideration paid and the average price paid per
share by the existing stockholders and by the new investors who purchase
pursuant to this Offering (before deducting the underwriting discount, the
non-accountable expense allowance and estimated Offering expenses):
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
--------------------------- --------------------------- Price
Average Number Percent Amount Percent Per Share
-------------- --------- -------------- --------- -----------
<S> <C> <C> <C> <C> <C>
Existing Stockholders(1) . 5,020,313 66.8% $ 3,199,100 13.8% $0.64
New Investors. .......... 2,500,000 33.2% $20,000,000 86.2% $8.00
-------------- --------- -------------- --------- ---------
Total ................. 7,520,313 100.0% $23,199,100 100.0%
============== ========= ============== =========
</TABLE>
- ------
(1) See footnotes (1) and (2) to "Prospectus Summary--The Offering."
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND PLAN OF OPERATION
This Management's Discussion and Analysis of Financial Condition and Plan
of Operation and other parts of this Prospectus contain forward-looking
statements that involve risks and uncertainties. The Company's actual results
could differ materially from those anticipated in these forward-looking
statements. Factors that may cause such differences include, but are not
limited to, those discussed under "Risk Factors" and elsewhere in this
Prospectus.
INTRODUCTION
HumaScan, a development stage medical device technology company, owns the
exclusive rights in the United States and Canada to manufacture and market a
BTAI device called the "BreastAssure(TM) Thermal Activity Sensor." The
Company intends initially to market the BreastAssure device to primary care
physicians, gynecologists and medical specialists throughout the United
States.
Since its inception, the Company has devoted substantially all of its
efforts to various organizational activities. These activities included the
execution of the License Agreement, the development of a business strategy,
the execution of the Distribution Agreement and the execution of the Turnkey
Construction Contract. The Production Line is under construction and the
Company believes it can begin marketing the BreastAssure device in the second
quarter of 1997.
When the Company becomes operational, its revenues, and hence
profitability, if any, may vary significantly from fiscal quarter to fiscal
quarter as well as in comparison to the corresponding quarter of the previous
year as a result, among other factors, of the timing of any significant
initial shipments and the inventory requirements of PSS.
The Company does not anticipate concentrations in the availability of raw
materials and labor or in the geographical area in which the Company will
sell the BreastAssure device. Concentrations could arise in one or more of
those areas as the Company gains actual experience, however, and
concentrations regarding raw materials and sales locales are more likely in
the early stages of the Company's operations before it can build a base of
business. The principal risks facing the Company in the next year are
dependence on a single product, uncertainty of market acceptance, lack of
manufacturing experience, reliance on a single distributor, technological
factors, uncertainty of ongoing regulatory approval and competition.
The Company expects to incur substantial additional costs, including
additional marketing expenses, research and development expenses,
manufacturing cost expenditures and administrative expenditures as it
prepares to commence operations. The Company does not expect, however, to
incur substantial additional costs for raw materials.
PLAN OF OPERATION
The Company has generated no revenues to date and, from inception
(December 27, 1994) until March 31, 1996, the Company accumulated a deficit
of $449,613.
The following discussion should be read in conjunction with the Company's
financial statements and related notes appearing elsewhere in this
Prospectus. In the opinion of the Company, the results of operations for the
three months ended March 31, 1996 and 1995, respectively, include all
adjustments, consisting of only normal recurring adjustments, necessary for a
fair presentation of the results for the interim periods. The results of
operations for the three months ended March 31, 1996 are not necessarily
indicative of the results to be expected for the year ended December 31,
1996.
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
The Company's net loss for the three months ended March 31, 1996 was
$238,362 as compared to $49,374 in the same period in 1995. Such losses are
attributable to the fact that the Company is still in the development stage
and accordingly has not derived any revenues from operations to offset the
development stage expenses. The Company generated $1,246 in interest income
during the period.
20
<PAGE>
Operating expenses were $239,608 in the three months ended March 31, 1996
as compared to $49,374 during the same period in 1995 primarily due to the
increased salary expenses related to the hiring of personnel, increased legal
and professional fees, and interest expenses related to bridge financings.
PERIOD FROM INCEPTION (DECEMBER 27, 1994) THROUGH DECEMBER 31, 1995
The Company's net loss was $211,251 for the period from December 27, 1994
(date of inception) to December 31, 1995. The Company generated $899 in
interest income during the period.
Operating expenses were $212,150 for the period from December 27, 1994
(date of inception) to December 31, 1995 and consisted primarily of
consulting, legal and professional fees.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations since inception primarily through
the issuance of promissory notes and proceeds from the private placement of
its equity securities.
During 1995, Donald Brounstein, the Company's President and Chief
Executive Officer, loaned the Company an aggregate of $125,000 (the "1995
Loans"). Mr. Brounstein also purchased $40,000 in March Bridge Notes from the
Company in 1996. In connection with the May Private Placement, Mr. Brounstein
surrendered his March Bridge Note and $34,000 in principal amount of the 1995
Loans in payment of the purchase price for two Units. The remaining $91,000
of the 1995 Loans were repaid to Mr. Brounstein from the proceeds of the May
Private Placement. See "Description of Securities--Private Placements" and
"Certain Transactions."
In November 1995, the Company sold an aggregate of $350,000 principal
amount of November Bridge Notes to 14 accredited investors (the "November
Bridge Investors") for an aggregate consideration of $350,000. The November
Bridge Notes bore interest at the rate of 10% per annum, were to mature on
August 30, 1996, and were secured by all of the assets of the Company.
Certain of the November Bridge Notes were also secured by the shares of the
Company's Common Stock owned by Mr. Brounstein. In connection with the May
Private Placement, the November Bridge Notes were converted into shares of
Series A Preferred Stock and Private Warrants at the rate of one share of
Series A Preferred Stock and one fifth of a Private Warrant for each $1.33
principal amount of November Bridge Notes, resulting in the issuance of
262,500 shares of Series A Preferred Stock and 52,500 Private Warrants. The
November Bridge Investors also received payment from the Company of an
aggregate of $16,488 in accrued interest on such notes.
In March 1996, the Company sold an aggregate of $460,000 principal amount
of March Bridge Notes and warrants to purchase 224,250 shares of the
Company's Common Stock at $0.67 per share to 15 accredited investors (the
"March Bridge Investors") for an aggregate consideration of $460,000. The
proceeds received from the March Bridge Investors were allocated between the
March Bridge Notes and March Bridge Warrants. The $343,485 difference between
the principal amount of the March Bridge Notes and the amount allocated was
accreted and charged to operations over the term of the March Bridge Notes.
The March Bridge Notes bore interest at the rate of 10% per annum, were to
mature on the earlier of the Initial Closing (as hereinafter defined) or May
31, 1996 and were secured by all of the assets of the Company. In connection
with the May Private Placement, $434,800 in principal amount of March Bridge
Notes (plus an additional $25,200 in principal amount, representing
subscription funds in excess of the initial subscription amounts due from
four March Bridge Investors, which will be refunded to such four March Bridge
Investors if this Offering closes before August 15, 1996) was canceled and
applied to the initial purchase price of an aggregate of 11.75 Units. The
March Bridge Investors also received payment from the Company of an aggregate
of $8,171 in accrued interest on such notes.
The Company sold 71.5 Units in the May Private Placement, each Unit
consisting of 37,500 shares of Series A Preferred Stock and 7,500 Private
Warrants, for an aggregate initial payment of $2,645,500, representing 37% of
the total purchase price for the Units which includes $434,800 aggregate
principal amount of March Bridge Notes surrendered in payment of the initial
purchase price for 11.75 Units (including $40,000 in aggregate principal
amount of March Bridge Notes exchanged by Mr. Brounstein in partial
consideration for two Units purchased by him) and the cancellation of $34,000
in principal amount of certain loans made by Mr. Brounstein to the Company in
1995 in payment of the balance of the purchase price for the Units purchased
by him, but not including $350,000 aggregate principal amount of November
Bridge Notes converted into one share of Series A Preferred Stock and one
fifth of a Private Warrant for each $1.33 principal amount of November Bridge
Warrants so converted. The Company issued one quarter of one Unit to Haythe &
Curley, the law firm
21
<PAGE>
that represented Burnham in the May Private Placement, and one tenth of one
Unit to James J. Whidden, the Company's Senior Vice President of Clinical
Development (who was a consultant to the Company at the time of such
issuance), in exchange for services rendered. The balance of the purchase
price of such Units is to be paid in unequal installments of 13%, 21%, 20%
and 9% on August 15, 1996, October 15, 1996, January 15, 1997 and March 15,
1997. If, prior to March 1, 1997, there occurs a Qualified Initial Public
Offering, as defined in the Company's Certificate of Incorporation (a
"Qualified IPO"), then at the time of closing of the Qualified IPO (i) the
purchase price of the Units will be automatically reduced by an amount equal
to any installments not yet due and payable at the time the registration
statement relating to such Qualified IPO is declared effective under the
Securities Act, (ii) the Series A Preferred Stock will convert automatically
into Common Stock on a share- for- share basis, and (iii) the shares of
Common Stock issued upon conversion of the Series A Preferred Stock will be
deemed fully paid and nonassessable. See "Description of Securities--Private
Placements."
The net proceeds from the loans and the private placements were used for
product license fees, capital expenditures, marketing expenses and general
working capital purposes, including the repayment to Mr. Brounstein of
$91,000 in principal amount of the 1995 Loans (plus accrued interest relating
to his March Bridge Notes of $711).
In July 1995, the Company and Scantek entered into the License Agreement,
pursuant to which Scantek granted the Company the exclusive license to
manufacture and market the BreastAssure device in the United States and
Canada for a cash payment of $1,600,000, $550,000 of which has already been
funded. Of the balance, $175,000 is payable on December 31, 1997, $175,000 on
March 31, 1998, $350,000 on October 31, 1998 and $350,000 on January 31,
1999. Surplus Cash Flow, as defined in the License Agreement, is to be
applied to unpaid installments of the Cash Portion of the Licensing Fee (as
defined in the License Agreement) in inverse order of maturity. Approximately
$1,050,000 of the net proceeds of this Offering will be used to pay a portion
of the Cash Portion of the Licensing Fee. See "Use of Proceeds" and
"Business--License Agreement."
In November 1995, the Company arranged for the construction of the
automated Production Line for the assembly of the BreastAssure device at a
fixed price of $1,750,680 pursuant to the Turnkey Construction Contract with
Zigmed. The contract provides for payments to Zigmed in stages over a
15-month period, of which $720,000 has been paid to Zigmed as of the date of
this Prospectus. $1,030,680 of the net proceeds of this Offering will be used
to pay the balance due under the Turnkey Construction Contract. See "Use of
Proceeds." The Company has leased a facility of approximately 30,000 square
feet to house the Production Line and anticipates that approximately $250,000
of additional leasehold improvements will be required. See "Business--
Manufacturing."
The Company has entered into a placement agreement (as subsequently
amended, the "Placement Agreement") with Burnham pursuant to which Burnham
acted as placement agent for the Company in connection with the May Private
Placement. Pursuant to the Placement Agreement, the Company paid Burnham
$570,000 in commissions and $12,000 in expense reimbursement and issued to
Burnham warrants to purchase 400,000 shares of Common Stock at $2.93 per
share. Also, pursuant to the Placement Agreement, the Company agreed to pay
Burnham a $2,000 monthly fee for consulting services for 36 months commencing
in May 1996. See "Description of Securities--Private Placements."
The Company anticipates, based on its currently proposed plans and
assumptions relating to its operations, that the net proceeds of this
Offering will be sufficient to satisfy its contemplated cash requirements for
at least 18 months following the consummation of this Offering. The Company's
future liquidity and capital funding requirements will depend on numerous
factors, including results of clinical trials, the extent to which the
BreastAssure device gains market acceptance, the costs and timing of
expansion of sales, marketing and manufacturing activities and competition.
There can be no assurance that additional capital, if needed, will be
available on terms acceptable to the Company, or at all. Furthermore, any
additional equity financing may be dilutive to stockholders, and debt
financing, if available, will likely include restrictive covenants and
provide for security interests in the Company's assets. The failure of the
Company to raise capital on acceptable terms when needed could have a
material adverse effect on the Company's business, financial condition and
results of operations.
In October 1995, the Financial Accounting Standards Board issued Statement
of Accounting Standards No. 123, "Accounting for Stock-Based Compensation,"
which established financial accounting and reporting stan-
22
<PAGE>
dards for stock-based employee compensation plans. Companies are encouraged,
but not required, to adopt a new method that accounts for stock compensation
awards based on their fair value using an option pricing model. Companies
that adopt this new standard are required to make pro forma disclosures of
net income as if the fair value-based method of accounting required by this
standard had been applied. The requirements of this standard are effective
for fiscal year 1996. The Company expects to adopt the pro forma disclosure
requirements. The Company cannot at this time predict the impact of the
adoption of such requirements.
23
<PAGE>
BUSINESS
GENERAL
HumaScan, a development stage company, owns under license the exclusive
rights in the United States and Canada to manufacture and market a BTAI
device called the "BreastAssure(TM) Thermal Activity Sensor." The
BreastAssure device is a non-invasive, easy to use, low cost, adjunctive test
to be used by primary care physicians, gynecologists and other medical
specialists as part of a breast disease monitoring program along with BSE,
palpation and (depending on a patient's age, family history and other
factors) mammography and other established clinical procedures including
ultrasound and/or biopsy. An important feature of the BreastAssure device is
that the results will be immediately available to the physician while the
patient is "on site" at the point of care in the physician's office, clinic,
hospital and/or mammography center. If the BreastAssure device indicates that
there is unilateral breast thermal activity, the physician is alerted to the
possibility of a physiological condition, including thermally active cancer.
The BreastAssure device has received marketing clearance under Section 510(k)
of the FDC Act from FDA.
As breast cancer cells multiply, excessive heat is often generated. This
heat is most often conveyed to the surface of the breast, resulting in the
temperature of the skin of a particular area of one breast being elevated
from between 2o and 6o Fahrenheit versus the temperature of the same area of
the other breast. The BreastAssure device permits the measurement and
comparison of temperature variances between three mirror-image sections of
each breast, thus indicating the possibility of either proliferating
thermally active breast cancer cells, or certain types of thermally active
breast disease which may require medical treatment.
BREAST CANCER
Breast cancer is one of the most common cancers among women and,
notwithstanding existing methods of detection, is currently the leading cause
of death among women between the ages of 35 and 54 in the United States. The
American Cancer Society estimates that in 1996 approximately 184,300 new
cases of breast cancer are expected to be diagnosed and approximately 44,300
women are expected to die from the disease. Although the causes of breast
cancer are unknown and there is no known method of prevention, survival rates
are highest, and the likelihood of recurrence is lowest, if the cancer is
diagnosed and treated at its earliest stages. According to the National
Cancer Institute, 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 soft-tissue organs. Government spending for, and public
awareness of, early screening and diagnosis of breast cancer has increased
substantially in recent years. In fact, breast cancer screening is generally
recommended as a routine part of preventive health care for over 90 million
women in the United States. Industry sources estimate that approximately 11.3
million mammograms and 800,000 surgical biopsies were performed in the United
States in 1994 (the last year for which such data is available from the
Centers For Disease Control). Moreover, the Physicians' Insurers Association
report for 1995 indicated that, during such year, failure to diagnose breast
cancer was the most common source of malpractice complaint among patients
with breast cancer and the second most expensive type of claim, with an
average indemnity payment of $301,460 during the six months preceding such
report.
The most favorable prognosis usually results from treating an early
"preclinical" or "occult" breast lesion, that is, a malignancy not yet
detectable by touch or sight in a physical examination but detectable by
mammographic or other imaging techniques. In contrast, treatment of a
malignancy after its clinical appearance is usually much less effective.
Cancerous or malignant tumors diagnosed by physical examination, especially
the most thermally active ones, are frequently associated with metastatic
cancer invasion. Once a cancer has grown to one and a half centimeters, it
usually has metastasized (spread) to other portions of the woman's body.
Cancers one centimeter or less may already display significant lymph nodal
involvement.
Currently there are two cost-effective ways to screen for breast cancer:
physical examination, including breast palpation (examination by touch), and
mammography, an x-ray type of imaging technique. Biopsy is performed for
definite diagnosis of cancer if a suspicious area is discovered. For the 27
million women above the
24
<PAGE>
age of 50 in the United States, regularly performed mammography reduces
disease-specific mortality by 25%. For 16 million women in the United States
between 40 and 50 years of age, mammography regularly performed every one to
two years was accepted until recently as a reasonable way to reduce deaths
due to cancer. However, because recent studies suggest that mammography is
ineffective in reducing deaths in the absence of suspicious symptoms or a
high risk factor, the American Cancer Society now recommends that women wait
until age 40 to have their first mammogram, and the National Cancer Institute
now recommends that women wait until age 50.
Most cancers occur in older women, but the most aggressive cancers are
more thermally active (and have shorter doubling times and the highest
mortality rate) and occur mostly in younger women. In women over 50, the
doubling of the tumor volume generally occurs more slowly. By contrast,
breast cancers in younger pre- menopausal women tend to grow rapidly. The
fast-growing tumors that occur in these women may have measured doubling
times of 30 to 100 days. Typically, there is only a short period of time
between the point when the disease can be detected and clinical manifestation
of disease, and failure to intervene during this period may significantly
reduce the likelihood that the woman will survive the disease because the
cancer metastasizes.
Existing methods of detecting breast abnormalities include non-invasive
methods such as BSE, clinical examination, mammography, ultrasound,
transillumination, diaphanography, magnetic resonance imaging ("MRI") and
thermography and invasive methods such as surgical breast biopsy and
stereotactic fine needle aspiration biopsy ("SFNA").
Breast Self-Examination and Clinical Examination. BSE is a method by which
a woman examines her own breasts. BSE is both inexpensive and accessible at
any time to women who understand the method. Nevertheless, while many primary
breast cancers currently are found through BSE, the stage at which they are
found is often too advanced for treatment to be as effective as it
potentially could have been at earlier stages of detection. In clinical
examination, the physician uses a process similar to BSE, methodically
feeling for any abnormalities or unusual changes in the breasts.
Mammography. In mammography, breast X-rays are taken by special equipment
called mammography systems. Microcalcifications, which can indicate a future
cancer, are visualized on mammography film. Non- palpable lesions are
visualized well by mammography except in dense breasts, which due to their
opacity may require other methods of imaging because the cancer may be
obscured. Mammographic equipment is expensive to purchase and use, and
because of these cost factors, is generally not available for use as a
primary office care procedure except in larger group practices.
Ultrasound. Ultrasound complements mammography and in some female age
groups it images better than mammography because it defines dense, cystic
breasts very effectively. An ultrasonic transducer (probe) utilizes sonic
beams reflected by varying breast tissue types and sends reflected echoes to
a capture device in the transducer for conversion into a digitized image of
the breast. Complete assessment and diagnosis requires a diagnostic mammogram
in conjunction with the ultrasound study.
Transillumination and Diaphanography. Transillumination is an examination
in a dark room using ordinary light and diaphanography is a more
sophisticated method of transillumination which utilizes a transducer-like
wand similar to the probe used for ultrasound. When the wand is held against
the breast in a darkened room, fat, blood vessels and fluid filled cysts can
often be seen.
Magnetic Resonance Imaging. MRI attempts to get axial views of the body as
it passes through a tunnel- like device or ring housing a powerful magnetic
field and surface radio frequency ("RF") coils. Within the walls of the
tunnel, RF frequencies measure how hydrogen ions react in protons of
microcellular body tissue and reflect information in RF signals emitted from
the ions in response to the magnets' influence. The RF measurements are then
converted by a powerful computer to cross section axis-oriented and three
dimensional images. MRI is expensive compared to standard film-screen
mammography and generally is used for breast cancer diagnostics and further
assessment only when other modalities are not as effective.
Thermography. Thermography operates on the premise that an area affected
by an abnormality generally differs in temperature from the area around it.
It is also based on the premise that the temperature patterns of the two
breasts of one woman are generally symmetrical. Prior thermographic devices,
such as contact thermogra-
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phy, telethermography and computer-assisted thermography, were based on these
premises. These prior thermographic systems, which, unlike the BreastAssure
device, involved imaging rather than measurement of temperature, required
expensive facilities and equipment and/or subjective interpretation of test
results, and did not perform as intended. In 1983, OHTA issued a report
stating that thermography needed further development and should not be used
alone for diagnostic screening as an alternative to mammography. In 1984,
HCFA withdrew coverage for thermography under Medicare and Medicaid as a sole
diagnostic screening method. In 1991, based upon reports which addressed the
use of thermography in neurological and musculoskeletal conditions, the AMA
passed a resolution stating that thermography had not been proven to have
value as a medical diagnostic test. In 1992, HCFA withdrew Medicare and
Medicaid reimbursement for all other uses of thermography. In 1993, the AMA
adopted a resolution stating that the use of thermography for diagnostic
purposes could not be recommended at that time. Although the BreastAssure
test is adjunctive and is not to be used alone for diagnosis of breast
cancer, the OHTA, HCFA and AMA positions against the use of thermography as a
diagnostic tool may cause confusion among physicians. The Company believes
the OHTA, HCFA and AMA positions do not apply to the BreastAssure device
because it is an adjunctive, rather than diagnostic, device and because some
of these positions related solely to neurological and musculoskeletal
conditions.
Early thermographic devices were designed initially for diagnosis of
cancer and only secondarily for adjunctive usage. Although good sensitivity
and specificity often were obtained in controlled clinical trials, poor
results were often obtained in non-controlled practice settings due to the
design of the equipment, methodology used and subjective interpretation of
the results. Unlike these early devices, the BreastAssure device does not
rely on any mechanical equipment and the BreastAssure test involves no
special methodology or subjective interpretation. Like a thermometer, the
BreastAssure device merely measures temperature--specifically, the skin
temperature of a woman's breasts. If the BreastAssure device signals the
presence of abnormal thermal activity in a woman's breast, the physician is
alerted to the probability of some type of physiological condition which may
be due to various pathologies, including thermally active cancers.
Surgical Breast Biopsy. Although open surgical biopsy is a relatively safe
procedure and the most accurate means of diagnosis, it is invasive, may
produce cosmetic deformity and is often psychologically traumatic, as well as
costly.
Stereotactic Fine Needle Aspiration Biopsy. SFNA, or core biopsy, which
involves the evaluation of small tissue samples drawn from the breast through
a needle, can be used to confirm that a lesion is benign. SFNA can also be
used to evaluate mammographic lesions that are highly suspicious for
malignancy. Although charges may vary, stereotactic biopsy is roughly 30% of
the cost of excisional surgical biopsy.
THE BREASTASSURE DEVICE
One of the important biological activities of malignant tumors is the
increased rate of growth as compared to the surrounding or "host" tissue. The
malignant propensities of cancer are directly related to the speed of cell
division, and this is in turn reflected by accelerated local metabolism which
is supported by increased blood and lymph flow. Heat is a byproduct of the
increased metabolism and most often is conducted to the skin where it is
emitted from the body. These biological alterations usually can be detected
by measuring temperature differences between the area containing the tumor
and other segments of the same breast or the same area of the other breast.
The BreastAssure device measures the highest skin surface temperature by
recording the conducted heat under each of three segmental areas when the
BreastAssure device is placed against the breast. By detecting and recording
the thermal differences in a breast or between the breasts, it can provide a
signal to alert the physician before diagnosis to the probable existence of
an unusual physiological state which may be due to various pathological
conditions, one of which may be thermally active cancers. The BreastAssure
device does not diagnose the presence of breast disease, but is an adjunct
to existing diagnostic methods.
The BreastAssure device consists of a pair of mirror-image, non-invasive,
lightweight, disposable soft pads, each of which has three wafer-thin
segments containing columns of heat sensitive chemical sensor dots that
change color from blue to pink reflecting an 8.5 degree temperature range
between 90o to 98.5o Fahrenheit. When placed over a woman's breasts inside
her brassiere for a period of 15 minutes, the BreastAssure device registers
skin temperature variations due to heat conducted from within the breast
tissue to the surface of the skin. By comparing the mirror-image temperature
differences between the two breasts registered by the BreastAssure
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device, the physician can objectively quantify if there is abnormal
unilateral breast thermal activity, which is considered significant if there
is a 2o Fahrenheit or more temperature difference between each breast in the
same mirror-image location. This, in turn, alerts the physician to the
possibility of a physiological condition, including the pathology of
thermally active cancer. Based on clinical studies at major medical centers,
the threshold tumor size that resulted in significant skin temperature
differences detectable with the BreastAssure device was as small as five
millimeters in size. In contrast, according to industry sources, the majority
of breast tumors are, on average, at least 15 millimeters or larger before
they are palpable by most experienced clinicians.
CLINICAL TRIALS
The BreastAssure device is non-invasive and clinically proven to be safe,
and, the Company believes, an effective adjunctive test for the detection of
abnormal thermal activity in the breast and an effective tool for determining
the presence of some type of abnormal physiological condition which may be
due to various pathological conditions, including thermally active cancers.
The BreastAssure device can be utilized and the results evaluated by health
care professionals after minimal instruction.
Two key clinical trials of the BreastAssure device versus biopsy and
breast cancer screening were conducted between 1980 and 1984 to assess and
validate the BreastAssure device's correlation against such diagnostic
procedures. The clinical trials were undertaken at Georgetown University
School of Medicine, Memorial Sloan- Kettering Hospital in New York City, M.D.
Anderson Hospital and Tumor Institute in Houston, Brotman Memorial Hospital
at University of California at Los Angeles and Guttman Cancer Diagnostic
Institute in New York City. The BreastAssure device was found to correlate
well in terms of the device's documented sensitivity and specificity
correlation indices. Sensitivity measures the percentage of positive
BreastAssure device results against positive results of specified methods, in
this case clinical examination for suspicion of malignancy or biopsy.
Specificity measures the percentage of negative BreastAssure device results
against negative results of a specified method. A positive BreastAssure
device result is a "false positive" if the BreastAssure device renders a
positive result and the result of the method against which the BreastAssure
device is being measured is negative. A negative BreastAssure device result
is a "false negative" if the BreastAssure device result is negative but the
result of the other method is positive.
The BreastAssure device versus Biopsy. After initial clinical trials at
Georgetown University School of Medicine involving 200 women, the
BreastAssure device was the focus of a clinical trial involving 179 women who
underwent unilateral (single breast) biopsy. This multicenter study was
conducted at Memorial Sloan- Kettering Hospital, M.D. Anderson Hospital and
Tumor Institute and Brotman Memorial Hospital at UCLA. The BreastAssure
device tested positive in 74 of the 84 women who were diagnosed with cancer
by unilateral biopsy, for an overall sensitivity index of 88.1% (that is, the
BreastAssure device results were positive for 74 of the 84 unilateral cancers
diagnosed). More than 97.0% of breast cancers are believed to be unilateral
if discovered at an early stage.
The biopsy results were subjected to a breakdown by the size of cancer
detected. The threshold tumor size that resulted in skin temperature variance
detectable with the BreastAssure device was five millimeters. Seven out of
eight cancers under one centimeter diagnosed during the screening study
tested positive using the device.
The BreastAssure device versus Breast Cancer Screening for Suspicion of
Malignancy (using mammography and clinical breast examination). In the second
major clinical trial, at Guttman Cancer Diagnostic Institute, the
BreastAssure device was used on 2,805 asymptomatic women. The BreastAssure
device data were compared to the staff's clinical judgment for suspicion of
malignancy or cancer. Of the 2,805 women screened, 99 were recommended for
biopsy based on either suspicious mammogram and/or clinical breast
examinations. The BreastAssure device results were positive in 86 of the 99
women recommended for biopsy (a sensitivity correlation index of 86.9%).
Fifty-nine biopsies were subsequently performed, and 13 of the 15 cancers
diagnosed were positive for the BreastAssure device (a sensitivity
correlation index of 86.7% against biopsy). Of the 2,706 women who had no
suspicion of cancer based on mammogram and/or clinical breast examinations,
2,340 had negative BreastAssure device results (a specificity correlation
index of 86.5%).
The false positive rate of 13.5% obtained for the initial screening trial
assumes that (1) no mammographically undetectable cancers occurred; and (2)
the rate of subsequent cancer occurrence within the false positive group was
not statistically higher than that of the population of women as a whole. If,
as several publications
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have suggested, abnormal thermal distribution is a risk marker for future
disease incidence, the BreastAssure device's false positive rate may be
lower.
The Company intends to commence additional clinical studies utilizing the
BreastAssure device within the next 12 to 18 months. The new studies will
have two principal goals: to obtain age-related data in tests of the
BreastAssure device against biopsy in order to gauge the ability of the
BreastAssure device to detect the fast- growing cancers that typically attack
younger women and to follow up "false positive" test results over a period of
time to determine whether such results presage future breast disease. See
"Use of Proceeds."
MARKETING AND DISTRIBUTION
General. The Company believes that the target market for the BreastAssure
device will be primary care physicians such as gynecologists, internists and
general practitioners, both in their own practices and as participants in
groups such as health maintenance organizations ("HMOs") and preferred
provider organizations ("PPOs"). Because interpretation of existing
diagnostic imaging modalities for breast cancer is difficult and subjective,
additional target market segments include other health care providers who can
legally order and perform clinical tests, such as mammographers, physician
groups that have mammography systems and breast cancer surgeons.
The Company believes that market acceptance of the BreastAssure device
will depend, in part, upon the Company's ability to demonstrate to physicians
the clinical benefits (including ease of use and utility), safety and
cost-effectiveness of the BreastAssure device. To achieve this, the Company
will seek to (i) arrange for the publication of articles summarizing actual
test results to appear in selected medical journals, (ii) present papers and
make presentations at large medical symposiums and (iii) produce and
distribute videos describing the BreastAssure device and videos containing
instructions on how to use the BreastAssure device for testing. The Company
will also seek to publish the 1984 clinical results. In addition, the Company
will utilize public relations and advertise in selected magazines commonly
read by women to develop recognition of and curiosity about the BreastAssure
device to encourage women to request the test from their doctors.
The Company will first introduce the BreastAssure device to radiologists
at mammography screening centers and to breast cancer surgeons and doctors'
group practices with American College of Radiologists ("ACR") or FDA
accredited mammographic equipment. These physicians often use fine needle
aspiration, an office-based biopsy which is less accurate than excisional
biopsy, which is performed only in hospitals.
The Company will market the BreastAssure device to physicians as an
adjunctive test indicator which can alert the physicians before diagnosis to
the probable existence of some type of physiological state which may be due
to various pathological conditions, including thermally active cancers.
Distribution Agreement with PSS. In February 1996, the Company entered
into the Distribution Agreement with PSS, a publicly traded company and one
of the leading distributors of medical supplies, diagnostic equipment and
pharmaceuticals to office-based medical professionals in the United States.
PSS, with a reported distribution network of approximately 780 full-time
sales representatives and 64 company-owned and operated service/distribution
centers serving more than 88,000 physician-based offices throughout the
United States, has agreed to distribute the BreastAssure device. Pursuant to
the Distribution Agreement, PSS has agreed to designate the Company as a
"Platinum Level Manufacturer." PSS has informed the Company that this status
currently has been accorded to only ten manufacturers out of approximately
3,000 manufacturers represented by PSS.
PSS has agreed to assist the Company in developing marketing collaterals
such as training videos and sales materials (with all costs of materials to
be paid by the Company) and to coordinate attendance at medical device
conventions with the goal of (i) locating the Company's booth near the PSS
booth or sponsoring the BreastAssure device at the PSS booth and (ii) as
agreed to on a case by case basis, helping the Company at conventions not
normally attended by PSS by having local sales representatives attend and
staff the Company's booth during convention hours. PSS has also agreed to
devote a full-time management level marketing executive designated as a
"Product Champion" to work exclusively with the Company and assist with the
launch of the BreastAssure device. PSS and the Company have agreed to work
together to prepare for the BreastAssure device sales and marketing launch,
which the Company anticipates will occur in the second quarter of 1997.
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The Distribution Agreement grants to PSS exclusive distribution rights
only in the United States and provides that it is expected that the territory
of Canada will be discussed and awarded to PSS at some future date. PSS will
be responsible for selling the BreastAssure device directly to physicians at
their offices. The Company will focus its own efforts on marketing the
BreastAssure device to physicians at hospitals, to breast cancer
organizations, to government organizations, to insurance company convention
activities and in similar promotional venues.
Under the Distribution Agreement, over a two-year period beginning in
1997, PSS is to receive volume discount price incentives from HumaScan to the
extent PSS exceeds sales targets of 1.0 million units in 1997 and 3.5 million
units in 1998. If sales by PSS are less than 50% of such targets, the Company
and PSS will each have the right to terminate the Distribution Agreement upon
three months' notice. The term of the Distribution Agreement continues until
terminated by either party for failure to meet such sales targets or for
certain material breaches which are not cured within prescribed time limits.
The equipment that the Company will use to manufacture the BreastAssure
device is currently being constructed by Zigmed and is expected to be
operational by the end of 1996, although there is no assurance that such
equipment will be operational by such time or at all.
The Company anticipates that the BreastAssure device will be sold to
physicians and other medical specialists for approximately $25 per unit and
believes that the BreastAssure unit will be made available to patients by
physicians for a cost ranging from $40 to $50.
Pursuant to the Distribution Agreement, John F. Sasen, Sr., the President
of PSS, was elected to the Company's Board of Directors in May 1996. Pursuant
to the Distribution Agreement, and as part of the May Private Placement, PSS
purchased an aggregate of 56,250 shares of the Company's Series A Preferred
Stock and the Private Warrants to purchase 11,250 shares of the Company's
Common Stock. The Series A Preferred Stock converts automatically into Common
Stock on a share-for-share basis upon the closing of a Qualified IPO. The
Private Warrants are exercisable at a price of $2.93 per share and expire on
May 15, 2001. Also, pursuant to the Distribution Agreement, the Company
issued the PSS Warrants to PSS, which warrants give PSS the right to purchase
125,000 shares of Common Stock at an exercise price of $4.00 per share
(aggregating $500,000). The Distribution Agreement restricts such $500,000
solely for use by the Company for advertising and promotion of the
BreastAssure device.
LICENSE AGREEMENT
In July 1995, the Company and Scantek entered into the License Agreement
pursuant to which Scantek granted the Company an exclusive license (the
"License") to manufacture and sell the BreastAssure device in the United
States and Canada. The License Agreement covers the 510(k) Market Rights and
Scantek's know- how, trade secrets, patent rights and trademarks relating to
the BreastAssure device. The BreastAssure device is the subject of two United
States patents expiring February 26, 1997 and a Canadian patent expiring
August 24, 1999. The License Agreement provides for a cash payment (the "Cash
Portion of the Licensing Fee") to Scantek of $1,600,000, $550,000 of which
has already been funded. Subject to the Company's acceptance of the
Production Line, $175,000 of the balance is payable on December 31, 1997,
$175,000 on March 31, 1998, $350,000 on October 31, 1998 and $350,000 on
January 31, 1999, provided, however, that any Surplus Cash Flow (one half of
net income, as defined in the License Agreement, subject to certain
adjustments) after the Company begins operations is to be applied as
prepayments to unpaid installments of the Cash Portion of the Licensing Fee
in inverse order of maturity. See "Use of Proceeds." Contemporaneously with
the execution of the License Agreement, the Company issued to Scantek 675,000
shares of Common Stock. Scantek received an additional 329,063 shares of
Common Stock upon the closing of the May Private Placement in exchange for
the termination of its right, pursuant to the License Agreement, to maintain
a specified ownership interest in the Company.
Pursuant to the License Agreement, Scantek is entitled to additional
payments as follows: (i) $100,000 (to be applied to unpaid installments of
the Cash Portion of the Licensing Fee in order of maturity) upon the later of
(x) the investment at any time by PSS of $500,000 in the Company by
exercising the PSS Warrant and (y) the shipment by the Company of the first
order of the BreastAssure device to PSS; (ii) $300,000 (of which
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$100,000 is to be applied to unpaid installments of the Cash Portion of the
Licensing Fee in order of maturity and $200,000 is to be applied to unpaid
installments of the Cash Portion of the Licensing Fee in inverse order of
maturity) upon the earlier to occur of (a) the extension of the relevant
patents at least through January 1, 2003 or (b) Scantek's obtaining a new
United States patent on the product; and (iii) if the circumstances described
in the preceding clause (ii) have not occurred, Scantek is entitled to
payment of $100,000 from the proceeds of this Offering (which shall be deemed
a partial advance of the $300,000 payable pursuant to such clause (ii) and
which is to be applied to the unpaid installments of the Cash Portion of the
Licensing Fee in direct order of maturity). The License Agreement also
provides for minimum annual royalty payments of $150,000, $300,000, $400,000
and $500,000, respectively, in the first four years in which the product is
sold and $600,000 in the fifth and subsequent years (the "Minimum Royalties")
and maximum royalty payments ranging from 3% of annual net product sales of
up to $2,000,000 to 10% of the annual net product sales if annual net product
sales exceed $10,000,000 (the "Percentage Royalties"). In addition, the
License Agreement will terminate automatically if the aggregate earned
royalties for the first three years the product is sold do not exceed
$950,000 (the "Threshold Earned Royalties"). The Minimum Royalties and
Threshold Earned Royalties terminate automatically at any time after February
26, 1997 (the date the relevant patents expire) if a competitor introduces a
product which would have infringed upon such patents. In addition, the
Percentage Royalties are reduced or eliminated if the Company reduces the
price of its product below certain preset amounts. The License Agreement also
provides that, if Scantek places an order with the Company prior to the date
which is 60 days prior to the Company's acceptance of the Production Line
from Zigmed, Scantek may purchase from the Company $1,000,000 worth of
BreastAssure devices at a per unit price equal to the greater of 150% of the
Company's Costs of Production (as defined in the License Agreement) or $2.50.
Pursuant to the License Agreement, Scantek is obligated to render
consulting services (the "Consulting Services") to the Company through July
1997 in connection with bringing the BreastAssure device to market and Dr.
Sagi must devote up to one day per week or 90 hours per calendar quarter of
his time to the development and marketing of the BreastAssure device (the
"Minimum Services"). In the event Consulting Services are requested in excess
of the Minimum Services, Scantek will be compensated at the rate of $100 per
hour. Dr. Sagi is also required to render advisory and supervisory services
on behalf of the Company in connection with the Production Line being
constructed by Zigmed. Scantek is responsible for all expenses of training
the Company's manufacturing personnel. The Company is obligated to reimburse
Scantek for all reasonable out-of- pocket expenses.
MANUFACTURING
The Company intends to establish a facility to produce the BreastAssure
device, with a maximum capacity of ten million units annually, based upon two
shifts per day. The Company's production facility will be based on a
prototype plant built by BCSI and Faberge.
The Company has leased a fully air-conditioned facility of approximately
30,000 square feet to house the Production Line and provide warehouse space
and anticipates that approximately $250,000 of leasehold improvements will be
required. The Company plans also to relocate its executive offices into such
facility. Specifications for the production equipment to be installed in the
facility were prepared by Scantek. The Company has arranged for the
construction of the automated Production Line for the assembly of the
BreastAssure device pursuant to the $1,750,680 fixed-price Turnkey
Construction Contract with Zigmed. The Turnkey Construction Contract provides
payments to Zigmed in stages over a 15-month period that began November 30,
1995. $720,000 has been paid to Zigmed as of the date of this Prospectus. The
Turnkey Construction Contract provides that a working Production Line will be
installed by Zigmed, subject to acceptance by the Company, by March 31, 1997
(the "Delivery Date"). Zsigmond G. Sagi, the chief executive officer and a
principal of Zigmed, is the son of Dr. Sagi, Chairman of the Board of
Scantek.
The Company has agreed to pay Zsigmond G. Sagi a two-part completion
bonus, payable on May 31, 1997, if certain conditions are met in connection
with the manufacturing of production equipment for the BreastAssure device.
Specifically, such bonus consists of: (1) $10,000 plus warrants to purchase
7,500 shares of Common Stock at an exercise price of $5.33 per share, if
workable and acceptable samples are produced within five
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months after the closing of the May Private Placement; and (2) an additional
$15,000 plus warrants to purchase an additional 11,250 shares of Common Stock
at an exercise price of $5.33 per share if the manufacturing machine and the
assembly and packaging machine are complete and fully operational within ten
months after the closing of the May Private Placement.
Zsigmond G. Sagi has agreed to pay the Company damages of $100,000 per
month for three months commencing at the end of the fourth month following
the Delivery Date if Zigmed is unable to deliver the Production Line by the
Delivery Date. In addition, as part of the License Agreement, Scantek has
agreed to pay the Company $75,000 per month if the Production Line is not
accepted by the Company pursuant to the terms of the Turnkey Construction
Contract by the Delivery Date. Furthermore, Scantek has guaranteed that
BreastAssure device manufactured costs will not exceed $2.25 for each unit,
excluding depreciation, assuming production at the rate of 1,000,000 units or
more per year for two consecutive quarters. If the Company's manufactured
cost is greater than $2.25 per unit, royalties due to Scantek will be offset
by the product of (x) the number of units manufactured during the relevant
year multiplied by (y) the manufactured cost of the unit less $2.25.
Zigmed began construction of the Production Line in February 1996. As of
the date of this Prospectus, the Company believes that Zigmed has received
all of the principal components of the Production Line and is on schedule to
complete the Production Line by the Delivery Date.
RAW MATERIALS
The Company believes that there are several sources from which it may
purchase the components of the BreastAssure device. The Company anticipates
that it will obtain certain of the components of the BreastAssure device from
a single or limited number of sources of supply. Although the Company
believes it will be able to negotiate satisfactory supply agreements, failure
to do so may have a material adverse effect on the Company. Furthermore,
there can be no assurance that suppliers will dedicate sufficient production
capacity to satisfy the Company's requirements within scheduled delivery
times or at all. Failure or delay by the Company's suppliers in fulfilling
its anticipated needs may adversely affect the Company's ability to market
the BreastAssure device.
PATENTS; PROPRIETARY INFORMATION
Scantek, the licensor of the BreastAssure device, holds two United States
patents and one Canadian patent covering the use of the BreastAssure device
as a device for adjunctive use in the early detection of breast cancer.
Although the Patents are licensed to the Company for the United States and
Canada pursuant to the License Agreement, both United States patents expire
on February 26, 1997 and the Canadian patent expires on August 24, 1999.
There can be no assurance that the Patents will provide meaningful protection
from competition. The Company's policy is to attempt to protect its
technology by, among other things, obtaining patent rights for technology
that it considers important to the development of its business and requiring
each employee and key consultant to execute a confidentiality agreement.
There can be no assurance that the Company's confidentiality agreements and
other safeguards will protect its proprietary information and trade secrets
or provide adequate remedies for the Company in the event of unauthorized use
or disclosure of such information, or that others will not be able to
independently develop such information. In addition, in the event that the
Company becomes involved in litigation to enforce its proprietary rights,
such litigation can be a lengthy and costly process causing diversion of
effort and resources by the Company and its management with no guarantee of
success. Other parties may be issued patents that may prevent the sale of the
Company's products or require licenses and the payment of royalties by the
Company. It is possible that after the Patents expire, other companies,
inside and outside the United States, may adopt the concept and/or design
embodied in the BreastAssure device and seek to compete with the Company. In
the event such competition is encountered, the Company would have to rely on
name recognition, product acceptance, quality and the distribution network of
PSS in order to compete successfully, and there can be no assurance that the
Company will be able to so compete. Moreover, the Company could be put at a
competitive disadvantage by the payment of any royalties, which may have a
material adverse effect on its ability to market its product successfully.
Although to date no claims have been brought against the Company alleging
that the BreastAssure device infringes intellectual property rights of
others, there can be no assurance that such claims will not be brought
against the Company in the future, or that, if made, such claims will not be
successful. In addition to any poten-
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tial monetary liability for damages, the Company could be required to obtain
a license in order to continue to manufacture or market the BreastAssure
device or could be enjoined from making or selling the BreastAssure device if
such a license were not made available on acceptable terms. If the Company
becomes involved in such litigation, it may require the expenditure of
significant Company resources and, if such a claim were successful, the
Company's business could be materially adversely affected.
Scantek has filed an application with the United States Patent and
Trademark Office for a trademark for the term "BreastAssure." The Company has
filed an application with the United States Patent and Trademark Office for a
service mark for the HumaScan Inc. logo.
GOVERNMENT REGULATION
The Company's products and manufacturing activities are subject to
extensive regulation by the FDA and, in some instances, by state, local, and
foreign authorities. Pursuant to the FDC Act and the regulations promulgated
thereunder, FDA regulates the development, clinical testing, manufacture,
packaging, labeling, storage, distribution and promotion of medical devices.
In the United States, medical devices intended for human use are
classified into three categories (Class I, II or III), on the basis of the
controls deemed necessary by FDA reasonably to assure their safety and
effectiveness. Class I devices are subject to general controls (for example,
labeling, premarket notification and adherence to cGMP regulations) and Class
II devices are subject to general and specific controls (for example,
performance standards, postmarket surveillance, patient registries and FDA
guidelines). Generally, Class III devices are those which must receive
premarket approval from FDA to ensure their safety and effectiveness (for
example, life- sustaining, life-supporting and implantable devices, or new
devices which have not been found substantially equivalent to legally
marketed devices).
Before a new device can be introduced into the market, the manufacturer
must generally obtain marketing clearance through either a 510(k)
notification or a PMA. FDA will grant 510(k) Market Rights if the submitted
information establishes that the proposed device is "substantially
equivalent" to a legally marketed Class I or II medical device, or to a Class
III medical device for which FDA has not called for a PMA. Commercial
distribution of a device for which a 510(k) notification is required can
begin only after FDA issues an order of "substantial equivalence." FDA has
recently been requiring a more rigorous demonstration of substantial
equivalence than in the past. It generally takes from four to 12 months from
when FDA accepts for filing what it deems to be a complete submission of a
510(k) notification to obtain 510(k) Market Rights, but it may take longer.
FDA may determine that a proposed device is not substantially equivalent to a
legally marketed device, in which case a PMA may be required to market the
device, or that additional information or data are needed before a
substantial equivalence determination can be made. A request for additional
data may require that clinical studies of the device's safety and efficacy be
performed.
A PMA application must be filed if a proposed device is not substantially
equivalent to a legally marketed Class I or Class II device or if it is a
Class III device for which FDA has called for PMAs. A PMA application must be
supported by valid scientific evidence which typically includes extensive
data, including preclinical and clinical trial data, to demonstrate the
safety and effectiveness of the device. If human clinical trials of a device
are required, and the device presents a "significant risk," the sponsor
(usually the manufacturer or the distributor of the device) must obtain FDA
approval of an investigational device exemption application prior to
commencing human clinical trials. If the device presents a "nonsignificant
risk" to the patient, a sponsor may begin the clinical trial after obtaining
approval for the study by one or more appropriate Institutional Review
Boards, but not FDA. Sponsors of clinical trials are permitted to sell those
devices distributed in the course of the study provided such compensation
does not exceed recovery of the costs of manufacture, research, development
and handling.
Upon receipt of a PMA application, FDA makes a threshold determination as
to whether the application is sufficiently complete to permit a substantive
review. If FDA determines that the PMA application is sufficiently complete
to permit a substantive review, FDA will accept the application for filing.
An FDA review of a PMA application generally takes one to two years from the
date the PMA application is accepted for filing, but may take significantly
longer. During the review period, an advisory committee, typically a panel of
clinicians, ordi-
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narily will evaluate the application and provide recommendations to FDA as to
whether the device should be approved. FDA is not bound by the
recommendations of the advisory panel. FDA also will conduct an inspection of
the manufacturer's facilities to ensure that the facilities are in compliance
with applicable cGMP requirements. If FDA's evaluations are favorable, FDA
will issue an approval letter authorizing commercial marketing of the device
for certain indications. If FDA's evaluations are not favorable, FDA will
deny approval and may require additional clinical trials. The PMA process can
be expensive, uncertain, and lengthy, and a number of devices for which FDA
approval has been sought by other companies have never been approved for
marketing.
The FDC Act requires device manufacturers to obtain new FDA clearance or
approval when, among other things, there is a major change or modification in
the intended use of a legally marketed device or a change or modification,
including product enhancements, to a legally marketed device that could
significantly affect its safety or effectiveness. For devices marketed
pursuant to 510(k) Market Rights, the manufacturer must obtain FDA clearance
of a new 510(k) notification prior to marketing the modified device; for
devices marketed pursuant to an approved PMA, the manufacturer must obtain
FDA approval of a supplement to the PMA (a "PMA supplement") prior to
marketing the modified device.
A device manufacturer is responsible for making the initial determination
as to whether a proposed change to a cleared or approved device or to its
intended use necessitates the filing of a new 510(k) notification or a PMA
supplement. If the Company determines that any modification to a device would
not require the submission of a new 510(k) notification (or a PMA supplement,
for devices marketed pursuant to an approved PMA), there can be no assurance
that FDA would agree with the Company's determinations and would not require
the Company to submit a new 510(k) notification (or PMA supplement) for any
modifications made to the device. If FDA requires the Company to submit a new
510(k) notification (or PMA supplement) for any modification to the device,
the Company may be prohibited from marketing the device as modified until FDA
clears the 510(k) notification (or approves the PMA supplement). There can be
no assurance that the Company will obtain 510(k) Market Rights (or approval
of a PMA supplement) on a timely basis, or at all, for modifications to a
device for which it files a future 510(k) notification (or a future PMA
supplement). Moreover, the clearances or approvals, if granted, could limit
the uses for which the product could be marketed. Failure to obtain, or
delays caused by, regulatory clearances or approvals could have a material
adverse affect on the Company's business, financial condition and results of
operations.
Breast thermographic devices (such as the BreastAssure device) intended to
be used by physicians as an adjunct to other established clinical detection
methods for breast disease are currently classified as Class I devices. On
January 17, 1984, FDA granted 510(k) Market Rights to the then owner of the
BTAI technology. The BreastAssure device may be marketed by the owner of the
510(k) Market Rights without further FDA authorization as a BTAI when used
adjunctively by the physician. Scantek assigned the 510(k) Market Rights for
the BreastAssure device to the Company in October 1995.
Based upon reservations about the use of thermography for diagnostic
purposes expressed by OHTA, HCFA and AMA (see "Risk Factors--Uncertainty of
Market Acceptance; Certain Thermographic Applications Not Accepted"), there
is a risk that FDA could reevaluate the bases upon which it granted the
Company's 510(k) Market Rights in 1984 and classified devices such as the
BreastAssure device as Class I devices in 1988. If FDA were to reevaluate
these decisions and conclude that additional data were necessary to support
authorization to market the BreastAssure device, it could rescind previous
510(k) Market Rights for breast thermographic devices and/or reclassify these
devices from Class I medical devices to Class III medical devices (which
would effectively vitiate the Company's 510(k) Market Rights and require
filing of a new application for premarket approval prior to marketing). In
either event, the Company would be required to cease marketing the
BreastAssure device until it filed a PMA with FDA and received a new approval
to market the BreastAssure device.
The process of obtaining premarket approval can be lengthy, expensive and
uncertain, and no assurance can be given that premarket approval of the
BreastAssure device can or will be obtained. Among the factors which may
negatively impact upon the Company's ability to obtain FDA approval is the
possibility that FDA may reject or invalidate, in whole or in part, clinical
data previously submitted by the Company. In such event, the Company may be
required to conduct additional clinical trials prior to submission of a PMA.
Any products manufactured or distributed by the Company pursuant to FDA
clearances or approvals are subject to pervasive and continuing regulation by
FDA. Device manufacturers are required to register their
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establishments and list their devices with FDA, and are subject to periodic
inspections by FDA and certain state agencies. The FDC Act requires device
manufacturers to comply with cGMP regulations which impose certain procedural
and documentation requirements upon the Company with respect to manufacturing
and quality assurance activities. FDA has proposed changes to the cGMP
regulations which, if finalized, would likely increase the cost of complying
with cGMP requirements.
In addition, the Medical Device Reporting ("MDR") regulation obligates the
Company to inform FDA whenever there is reasonable evidence to suggest that
one of its devices may have caused or contributed to death or serious injury,
or when one of its devices malfunctions and, if the malfunction were to
recur, the device would be likely to cause or contribute to a death or
serious injury.
Labeling and promotion activities are also subject to scrutiny by FDA and,
in certain instances, by the Federal Trade Commission. FDA actively enforces
regulations prohibiting marketing of products for unapproved uses.
If, as a result of FDA inspections, MDR reports or information derived
from any other source, FDA believes the Company is not in compliance with the
law, FDA can refuse to clear or approve pending 510(k) notifications or PMA
applications; withdraw 510(k) Market Rights or PMA approvals; require
notification to users regarding newly found unreasonable risks; request
repair, refund or replacement of faulty devices; request corrective
advertisements, formal recalls or temporary marketing suspension; impose
civil penalties; or institute legal proceedings to detain or seize products,
enjoin future violations, or seek criminal penalties against the Company, its
officers and/or employees.
The Company and its products are also subject to a variety of state and
local laws and regulations in those states or localities where its products
are or will be marketed. Any applicable state or local laws or regulations
may hinder the Company's ability to market its products in those states or
localities.
Manufacturers are also subject to numerous federal, state and local laws
relating to such matters as safe working conditions, manufacturing practices,
environmental protection, fire hazard control and disposal of hazardous or
potentially hazardous substances. There can be no assurance that the Company
will not be required to incur significant costs to comply with such laws and
regulations.
Products for export are subject to foreign countries import requirements
and FDA's exporting requirements. The introduction of the Company's products
in foreign markets may subject the Company to foreign regulatory clearances,
which may impose additional substantial costs and burdens. The regulatory
review process varies from country to country. Many countries impose product
standards, packaging and labeling requirements, and import restrictions on
devices. In addition, each country has its own tariff regulations, duties and
tax requirements. The Company has not obtained clearance or approval to
market its products in any foreign country. Approval by foreign government
authorities is unpredictable and uncertain, and no assurance can be given
that the necessary approvals or clearances will be granted on a timely basis
or at all. Delays in receipt of, or a failure to receive, such approvals or
clearances could have a material adverse effect on the Company.
In addition to the import requirements of foreign countries, the Company
must also comply with United States laws governing the export of products
regulated by FDA. Devices that have obtained 510(k) Market Rights or PMA
approval may be exported, under certain circumstances, without further FDA
authorization. However, foreign countries often require, among other things,
an FDA certificate for products for export (a "CPE"). To obtain a CPE, the
device manufacturer must certify to FDA that the product has been granted
clearance or approval in the United States and that the manufacturing
facilities appeared to be in compliance with cGMPs at the time of the last
FDA inspection. FDA will refuse to issue a CPE if significant outstanding
cGMP violations exist.
The FDA Export Reform and Enhancement Act of 1996 has relaxed the
exportation requirements governing unapproved devices under certain
circumstances. Pursuant to this new law, a Class III device that has not
obtained FDA approval may be exported to any country in the world without FDA
authorization if the product complies with the laws of that country and has
valid marketing authorization in one of the following countries: Australia,
Canada, Israel, Japan, New Zealand, Switzerland, South Africa, the European
Union, or a country in the European economic area (FDA is authorized to add
countries to this list in the future). In general, a device
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<PAGE>
may be exported under this provision only if it is not adulterated, accords
to the specifications of the foreign purchaser, complies with the laws of the
importing country, is labeled for export, is manufactured in substantial
compliance with cGMP regulations or recognized international standards, is
not sold in the United States and meets other conditions.
In order to export an unapproved Class III device for which a PMA would be
required to market the product in the United States and which has not
obtained valid marketing authorization in one of the countries listed above,
the Company must obtain prior FDA authorization and the following
requirements must be satisfied: (i) the device accords to the specifications
of the foreign purchaser, (ii) the device is not in conflict with the laws of
the country to which it is intended for export, (iii) the device is labeled
that it is intended for export; (iv) the device is not sold or offered for
sale in domestic commerce, and (v) FDA determines that the exportation of the
device is not contrary to the public health and has the approval of the
country to which it is intended for export.
Changes in existing requirements or adoption of new requirements or
policies could adversely affect the ability of the Company to comply with
regulatory requirements. Failure to comply with regulatory requirements could
have a material adverse effect on the Company. There can be no assurance that
the Company will not be required to incur significant costs to comply with
laws and regulations in the future or that laws or regulations will not have
a material adverse effect upon the Company.
Subject to the potential changes in regulatory status discussed above, the
Company believes that it is in substantial compliance with Section 510(k) of
the FDC Act and that its ownership of the 510(k) Market Rights permits
immediate marketing of the BreastAssure device once the Production Line is
operational. See "Risk Factors--Government Regulation."
COMPETITION
The Company is not aware of any low-cost devices currently on the market
which compete with the BreastAssure device. Nevertheless, the Company's
potential competitors may succeed in developing products that are more
effective or less costly than the Company's products and such competitors may
also prove to be more successful than the Company in manufacturing, marketing
and sales. Some of the Company's potential competitors may be large,
well-financed and established companies that have greater resources for
research and development, manufacturing and marketing than the Company and,
therefore, may be better able than the Company to compete for a share of the
market even in areas in which the Company may have superior technology. It is
also possible that there will be technological changes or developments by
competitors which will render the BreastAssure device non-competitive or
obsolete.
The Company is also aware of a diagnostic device being developed by
Biofield Corp. which is intended to measure the differential in the electric
potential between normal and cancerous tissue. The Company believes the
marketing of this device will be subject to authorization by FDA. The Company
believes that the BreastAssure device incorporates a unique combination of
features and benefits that are not found in any other single product
available in the marketplace today. The Company believes that, when
introduced, the BreastAssure device will augment BSE, clinical examination
and screening and diagnostic techniques such as mammography, ultrasound,
transillumination, diaphanography, MRI, surgical biopsy and SFNA. The market
for products such as the BreastAssure device is characterized by rapid
changes and evolving industry standards often resulting in product
obsolescence or short product lifecycles. Accordingly, the ability of the
Company to compete will depend on its ability to introduce the BreastAssure
device to the marketplace in a timely manner, and to enhance and improve it.
There can be no assurance that the Company will be able to compete
successfully, that its competitors or future competitors will not develop
technologies or products that render the BreastAssure device obsolete or less
marketable or that the Company will be able to successfully enhance its
proposed products or technology or adapt them satisfactorily.
PRODUCT LIABILITY AND INSURANCE
The nature of the Company's products may expose the Company to product
liability risks. The Company currently does not maintain product liability
insurance coverage. Although the Company plans to obtain product liability
insurance before sales of the BreastAssure device begin, such insurance is
becoming increasingly
35
<PAGE>
expensive and there can be no assurance that the Company will be able to
obtain or maintain such insurance on acceptable terms or that such insurance,
if obtained, will provide adequate coverage against product liability claims.
While no product liability claims have been brought against the Company to
date, a successful product liability claim against the Company in excess of
its insurance coverage could have a material adverse effect on the Company.
REIMBURSEMENT
Hospitals, medical clinics and physicians' offices that purchase medical
devices like the BreastAssure device generally rely on third-party payors,
such as Medicare, Medicaid and private health insurance plans, to pay for
some or all of the costs of the screening and diagnostic procedures performed
with these devices. Whether a particular procedure qualifies for third-party
reimbursement depends upon such factors as the safety and effectiveness of
the procedure, and reimbursement may be denied if the medical device is
experimental or was used for a non-approved indication. In some cases,
reimbursement amounts are based on the provider's costs associated with the
procedure, including materials costs. In such a situation, the cost of an
instrument used in the procedure likely would be covered by the reimbursement
payment. In other cases, payment is a fixed amount per procedure, per
hospital day or per hospital stay. Such a payment might not specifically
cover the cost of materials such as a device used in the procedure. In 1984,
HCFA withdrew coverage for thermography under Medicare and Medicaid as a
diagnostic screening method. In 1992, HCFA withdrew Medicare and Medicaid
reimbursement for all other uses of thermography.
There can be no assurance that third-party reimbursement will be available
for BreastAssure tests or that the full or any part of the cost of the
BreastAssure device would be covered by such reimbursement. During the past
several years, the major third-party payors for hospital services have
revised substantially their payment methodologies to contain healthcare
costs. The Company believes that the current pressures for medical cost
containment have resulted in uncertainty in the healthcare industry.
Reimbursement standards and rates may change in the future. The failure of
users of the BreastAssure device to obtain adequate reimbursement from
third-party payors could have a material adverse effect on the Company.
Several states and the United States 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 and results of
operations.
EMPLOYEES
As of the date of this Prospectus, the Company employed five full-time
persons in connection with its development stage activities, all of whom are
administrative and professional personnel. The Company will require a
significant number of additional persons at virtually every level below
senior management before it can commence full operations. When fully staffed,
the Company expects to have approximately 40 full-time employees. The Company
may also employ part-time personnel from time to time to meet specific
demands of its business should they arise. None of the Company's employees
are expected to be subject to collective bargaining agreements with labor
unions. Management believes that its relations with the Company's current
employees are satisfactory.
FACILITIES
The Company's principal executive offices are located at 514 Centennial
Avenue, Cranford, New Jersey. Such offices are leased by the Company under a
one-year lease, commencing January 1, 1996, for approximately 1,500 square
feet of office space. Annual rent payments under the lease are approximately
$15,000 for the first year, subject to certain annual escalations in each
year thereafter. The Company has also leased a facility of approximately
30,000 square feet at 125 Moen Avenue, Cranford, New Jersey 07016 under a
six-year lease
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commencing October 1, 1996 to house the Production Line and provide warehouse
space. The Company plans also to relocate its executive offices into such
facility. The annual rental under such lease is $124,015 for the first two
years, $145,900 for the third year of the lease and $160,490 for each of the
fourth through sixth years of the lease. See "Business--Manufacturing."
LEGAL PROCEEDINGS
There are no legal proceedings pending or, to the Company's knowledge,
threatened against the Company.
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<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
--------------------------- ----- ----------------------------------------------
<S> <C> <C>
Donald B. Brounstein(1)(3) . 44 President, Chief Executive Officer and Director
James J. Whidden .......... 60 Senior Vice President of Clinical Development
Kenneth S. Hollander ...... 31 Chief Financial Officer
Steven S. Elbaum(2) ....... 47 Director
Jack L. Rivkin(1)(2)(3) ... 55 Director
John F. Sasen, Sr.(2) ..... 54 Director
Udi Toledano(1)(2)(3) ..... 45 Director
</TABLE>
(1) Member of the Executive Committee.
(2) Member of the Audit Committee.
(3) Member of the Compensation Committee.
- ------
Donald B. Brounstein has served as President and Chief Executive Officer
of the Company since its inception and was Chairman of the Board of Directors
from the Company's inception on December 27, 1994 until May 1996. In 1978,
Mr. Brounstein founded Lee Surgical Co., Inc. ("Lee Surgical"), a company
which specialized in sales and service of medical supplies and equipment to
physicians throughout New Jersey and New York. He was Chief Executive Officer
of Lee Surgical until February 1994 when Lee Surgical was acquired by PSS.
Mr. Brounstein served as General Manager of Lee Surgical for PSS until
January 1995. In 1989, Mr. Brounstein founded BBU Leasing Inc., a medical
equipment finance company, of which he remains a director. Mr. Brounstein
devotes all of his business time to the Company's affairs.
James J. Whidden has served as Senior Vice President of Clinical
Development of the Company since May 1996. From the Company's inception until
May 1996, he was a consultant to the Company. From 1985 to 1994, Mr. Whidden
was a consultant for various private and public companies in the health care
field, as well as president of two development stage medical companies. From
1989 to 1990, he was President of Biomonitor, Inc., a development stage
biotechnology company and from 1988 to 1989, he was President of Humagen,
Inc., a development stage biotechnology company. In 1983 and 1984, he was
Senior Vice President, Business Development at Technicon Corporation, a
manufacturer of clinical instruments and diagnostic chemicals and had
responsibility for new clinical systems. From 1981 to 1982, he was an
independent consultant in the healthcare industry and from 1975 to 1981, he
was President of two divisions of Becton, Dickinson & Co., a manufacturer
of health care products.
Kenneth S. Hollander has been Chief Financial Officer of the Company since
June 1996. From 1989 to May 31, 1996, Mr. Hollander was Controller of Sidmak
Laboratories, Inc., a company engaged in the generic pharmaceutical industry.
From 1987 to 1989, Mr. Hollander was employed by the accounting firm of
Arthur Andersen and Co. Mr Hollander serves as Treasurer of the Board of
Trustees of The Richmond Fellowship, a private, non-profit, psychiatric
transitional residence.
Steven S. Elbaum has been a director of the Company since June 1996. Mr.
Elbaum has been the Chairman and Chief Executive Officer of The Alpine Group,
Inc., a public, diversified holding company which owns several companies
engaged in various manufacturing businesses, since 1984. He was a partner in
the law firm of Gifford, Woody, Palmer & Serles from 1979 to 1984 and was an
associate with such firm from 1974 to 1979. Mr. Elbaum is also a director of
Interim Services, Inc., one of the nation's largest providers of value added
staffing and health care services, and Polyvision Corporation, a manufacturer
of information display systems, each of which is a public company.
Jack L. Rivkin has been a director of the Company since May 1996. Mr.
Rivkin has been a Senior Vice President of The Travelers Group, the parent
company of The Travelers Insurance Companies, Commercial
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Credit Co. and Smith Barney Inc., since October 1995. He is currently
responsible for the management of venture capital and public equity
partnerships for several of The Travelers Insurance Companies. He is also a
director and member of the Investment Committee of Greenwich Street Capital,
a merchant banking fund affiliated with The Travelers Group. From May 1993 to
October 1995, he was Vice Chairman and Director of Global Research at Smith
Barney Inc. From August 1992 to May 1993, he was an independent consultant.
From 1990 to August 1992, Mr. Rivkin was Director of the Equities Division
and Director of Research of Lehman Brothers. From 1987 to 1990, he was
Director of Research at Shearson Lehman Brothers. From 1984 to 1987, Mr.
Rivkin was President of PaineWebber Capital, Inc., the merchant banking arm
of PaineWebber Group, and Chairman of Mitchell Hutchins Asset Management. He
is a director of a number of private venture companies in which The Travelers
Group has an investment. He is the co-author of a book on the venture capital
industry, "Risk and Reward, Venture Capital and the Making of America's Great
Industries," published by Random House. He is also a guest lecturer on
venture capital at Columbia University. Mr. Rivkin is a designee of The
Travelers Insurance Company pursuant to the Voting Rights Agreement (as
hereinafter defined).
John F. Sasen, Sr. has been a director of the Company since May 1996. Mr.
Sasen has been President of PSS since August 1995, Chief Operating Officer of
PSS since December 1993 and a director of PSS since July 1993. Mr. Sasen also
was Executive Vice President of PSS from August 1993 to August 1995. From
August 1990 to December 1992, he was Vice President--Sales and Marketing of
PSS, and from January 1993 to July 1993, he was Regional Vice President of
PSS. Prior to joining PSS, Mr. Sasen was Vice President--Sales, Marketing and
Distributor Relations of Becton, Dickinson & Co., a manufacturer of health
care products. Mr. Sasen was employed by Becton, Dickinson & Co. for over
20 years.
Udi Toledano has been a director of the Company since May 1996. Mr.
Toledano has been the President of Andromeda Enterprises, Inc., a private
investment company, since December 1993. He has been the President of CR
Capital Inc., a private investment company, since 1983. He has also been an
advisor to various public and private corporations, none of which is
affiliated with or competes with the Company. Since April 1995, Mr. Toledano
has been a director of Global Pharmaceutical Corporation, a publicly traded
generic pharmaceuticals manufacturer; since July 1994, he has been a director
of Universal Stainless & Alloy Products, Inc., a publicly traded specialty
steel producer, and since February 1993, he has been a director of Pudgie's
Chicken, Inc., a publicly traded national fast food chain.
All directors hold office until the next annual meeting of stockholders
and the election and qualification of their successors. Executive officers
are elected by the Board of Directors to hold office for such term as may be
prescribed by the Board of Directors.
COMMITTEES
The Executive Committee, established in June 1996, currently consists of
Mr. Brounstein, as Chairman, and Messrs. Rivkin and Toledano. The Executive
Committee has all the powers of the Company's Board of Directors except that
it is not authorized to amend the Company's Certificate of Incorporation,
declare any dividends or issue shares of the capital stock of the Company.
The Audit Committee, established in June 1996, currently consists of Mr.
Elbaum as Chairman, and Messrs. Rivkin, Sasen and Toledano. The Audit
Committee reviews with the Company's independent accountants the scope and
timing of their audit services, any other services they are asked to perform,
the report of independent accountants on the Company's financial statements
following completion of their audit and the Company's policies and procedures
with respect to internal accounting and financial controls. In addition, the
Audit Committee makes an annual recommendation to the Board of Directors
concerning the appointment of independent accountants for the ensuing year.
The Compensation Committee, established in June 1996, currently consists
of Mr. Toledano, as Chairman, and Messrs. Brounstein and Rivkin. The
Compensation Committee reviews the compensation and benefits of all officers
of the Company and makes recommendations to the Board of Directors, reviews
general policy matters relating to compensation and benefits of employees of
the Company and administers the 1996 Plan. See "Management--Executive
Compensation--Stock Incentive Plan."
EXECUTIVE COMPENSATION
Employment Agreements. Donald B. Brounstein, James J. Whidden and Kenneth
S. Hollander have entered into employment agreements with the Company for the
position of President and Chief Executive Officer, in the
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<PAGE>
case of Mr. Brounstein, Senior Vice President of Clinical Development, in the
case of Mr. Whidden, and Chief Financial Officer, in the case of Mr.
Hollander. Mr. Brounstein's employment agreement provides for a base annual
salary of $145,000 with annual cost of living increases and a customary
benefits package. The agreement has a term of three years, ending December
31, 1999, with automatic one-year extensions thereafter unless either party
gives notice of termination. Mr. Whidden's and Mr. Hollander's employment
agreements provide for a base annual salary of $120,000 and $90,000,
respectively, which may be increased annually at the discretion of the Board
of Directors, and a customary benefits package. Mr. Whidden's and Mr.
Hollander's employment agreements continue until canceled by the Company or
the employee. The Company may terminate Mr. Brounstein's employment agreement
for cause (as defined in the agreement), in which case Mr. Brounstein will be
entitled to receive all accrued and unpaid salary and benefits through the
termination date and an additional amount equal to one semi-monthly
installment of salary. The Company may terminate the respective employments
agreements of Messrs. Whidden and Hollander for cause (as defined in such
agreements) at any time, and with no further obligation to pay salary or
benefits. If either Mr. Whidden or Mr. Hollander were terminated without
cause, he would be entitled to receive six months severance pay. Each of the
employment agreements of Messrs. Brounstein, Whidden and Hollander prohibits
any such employee from (i) competing with the Company for one year following
his termination of employment with the Company and (ii) disclosing
confidential information or trade secrets in any unauthorized manner. The
Company has agreed to purchase a key person insurance policy on the life of
Mr. Brounstein in the amount of $8,000,000, with $600,000 of the death
benefit payable to a beneficiary selected by Mr. Brounstein and the remaining
$7,400,000 payable to the Company.
Under his employment agreement, Mr. Brounstein is eligible to receive a
bonus during calendar year 1996 as determined by the Compensation Committee.
Mr. Brounstein is eligible to receive in 1997 an annual bonus of up to 100%
of his base compensation, subject to the Company achieving certain after-tax
net income levels during the 1997 calendar year.
The following table sets forth for 1997 only the additional percentage of
base salary that will be paid to Mr. Brounstein as a bonus, and the target
after-tax net income that must be achieved by the Company in order for Mr.
Brounstein to be entitled to the corresponding bonus award:
<TABLE>
<CAPTION>
Additional Percentage
Targeted 1997 After Tax Net Income of Salary Paid as Bonus
------------------------------------------------------- ---------------------------
<S> <C>
$3.0 million or greater but less than $3.7 million .... 10%
$3.7 million or greater but less than $4.4 million .... 20%
$4.4 million or greater but less than $4.7 million .... 30%
$4.7 million or greater but less than $5.0 million .... 40%
$5.0 million or greater ............................... 100%
</TABLE>
Mr. Brounstein will be eligible to receive performance-based annual
bonuses for each year after calendar year 1997 modeled on a similar formula
as determined and agreed to by the Compensation Committee.
Mr. Whidden may, at the Company's option, receive an annual discretionary
bonus in an amount to be determined by the Compensation Committee. Mr.
Hollander will receive an annual bonus equal to a minimum of one month's
salary or such larger amount determined by the Company in its discretion.
Other than as described above and except for $30,000 paid to Mr. Whidden
as consulting fees during fiscal year 1995 before he was appointed an officer
of the Company, none of the Company's executive officers was paid any
compensation.
Stock Incentive Plan. The Company's 1996 Stock Incentive Plan (the "1996
Plan") was adopted by the Company's Board of Directors in June 1996, for the
purpose of securing for the Company and its stockholders the benefits arising
from the ownership of restricted shares of Common Stock ("Restricted Stock"),
stock appreciation rights ("SARs") and options to purchase Common Stock
("Options") by directors who are not employees ("Eligible Directors")
(Messrs. Elbaum, Rivkin, Sasen and Toledano are currently Eligible
Directors), officers, other key employees and consultants (the "Key
Employees") of the Company (and any subsidiary
40
<PAGE>
companies) who are expected to contribute to the Company's future growth and
success. No shares of Restricted Stock or SARs have been granted under the
1996 Plan. Options for 128,000 shares have been issued under the 1996 Plan as
of the date of this Prospectus. No award may be granted under the 1996 Plan
after June 2006.
Under the 1996 Plan, the maximum number of shares with respect to which
Options or SARs may be granted or which may be awarded as restricted stock is
700,000 shares of Common Stock. The Company may in its sole discretion grant
shares of Restricted Stock, SARs and Options to Key Employees and shall grant
Options to the Company's Eligible Directors subject to specified terms and
conditions and in accordance with a specified formula ("Formula") as
discussed below. Options granted to Key Employees may be either incentive
stock options ("ISOs") meeting the requirements of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), or non-qualified
stock options ("NQSOs") not meeting the requirements of Section 422 of the
Code. SARs are rights to receive the appreciation in value, or a portion of
the appreciation in value, of a specified number of shares of Common Stock,
and may be granted in conjunction with, or independently of, Options.
Restricted Stock is Common Stock that is subject to restrictions against
transfer and forfeiture upon termination of employment. Options granted to
Eligible Directors shall be NQSOs.
The 1996 Plan provides that the Plan will be administered by a committee
appointed by the Board. The Board has designated the Compensation Committee
(the "Committee") to administer the 1996 Plan. Subject to the terms of the
1996 Plan, the Committee will determine the Key Employees who will receive
grants of Options, SARs or Restricted Stock, the number of shares of Common
Stock subject to each Option or SAR or awarded as Restricted Stock, the grant
date, the expiration date, and other terms and conditions. Options granted to
Eligible Directors are governed by the Formula discussed below. The Committee
has the authority to construe and interpret the provisions of the 1996 Plan
or the grants made thereunder. Each grant will be evidenced by a written
agreement executed by the Company and the Eligible Director or Key Employee,
as the case may be, at the time of grant, in accordance with the terms and
conditions of the 1996 Plan.
An Option or SAR granted to a Key Employee shall expire on the date
determined by the Committee, which date may not exceed ten years from the
date the Option or SAR is granted, or five years, in the case of NQSOs
granted to Key Employees who at the time of grant own more than ten percent
of the combined voting power of all classes of stock of the Company or any
subsidiary (a "Ten Percent Stockholder"). Options and SARs granted to Key
Employees are exercisable, and restrictions on Restricted Stock lapse, at
such time or times and in such installments as determined by the Committee at
the time of grant, but not earlier than six months, or later than ten years
(in the case of Restricted Stock and ISOs to Ten Percent Stockholders, five
years) from the date of grant.
If a Key Employee's employment with the Company terminates, the Committee
may, in its discretion, permit the exercise of Options and SARs granted to
such Key Employee (i) for a period not longer than three months following a
termination other than for death or permanent disability, (ii) for a period
not longer than one year following a termination due to death or permanent
disability, and (iii) for a period not to extend beyond the expiration date
of any NQSOs or related or independently granted SARs, provided, however,
that the Committee may not extend any Option or SAR beyond its expiration
date. If the employment of a Key Employee who holds Restricted Stock
terminates for any reason other than death or permanent disability, any
shares of Restricted Stock still subject to restrictions are forfeited and
must be transferred back to the Company for no consideration. If such
employment is terminated by the Company or any subsidiary without cause or by
agreement between the Company or a subsidiary and the Key Employee, the
Committee may, in its discretion, release some or all of the Restricted Stock
from the restrictions. If the employment of a Key Employee who holds
Restricted Stock terminates by reason of death or permanent disability, the
restrictions on such Restricted Stock lapse unless the Committee determines
otherwise.
In connection with his employment agreement, the Company granted Mr.
Hollander Options under the 1996 Plan to purchase 35,000 shares of Common
Stock at the initial public offering price per share (contingent upon the
closing of this Offering). The Options will vest in increments of 1,750 per
month for 20 months beginning April 30, 1997, subject to Mr. Hollander's
continued employment. The Company granted Mr. Whidden Options under the 1996
Plan to purchase 24,000 shares of Common stock at the initial public offering
price per share (contingent upon the closing of this Offering). The options
vest 33 1/3 % upon the grant of such Options, 66 2/3 % one year after the
date of grant and 100% two years after the date of grant, subject to Mr.
Whidden's continued employment.
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<PAGE>
Under the Formula, each Eligible Director will be granted immediately
prior to the Offering Options to purchase 15,000 shares of Common Stock at an
exercise price equal to the initial public offering price per share, all of
which vest immediately (the "Initial Director Options"). On the first
business day following the annual meeting of stockholders of the Company to
elect directors in 1997, and thereafter on the first business day following
each successive annual meeting of stockholders, so long as Options remain
available to grant to Eligible Directors, each person who is elected as a
director after that meeting and is an Eligible Director, and each person who
continues to serve as a director after that meeting and is an Eligible
Director, shall be granted 10,000 Options ("Director Options") in recognition
of service as a director, subject to vesting, for the year ending on the day
prior to the next annual meeting of stockholders of the Company to elect
directors. Director Options expire ten years from the date of grant and vest
as follows (except for the Initial Director Options, which vest immediately
upon grant): 33 1/3 % upon the grant of such Options, 66 2/3 % one year after
the date of grant and 100% two years after the date of grant, in each case
assuming the recipient continuously serves as a director during that time.
Options that have vested as of the date on which an Eligible Director ceases
to serve as a director remain exercisable for 60 days or, if termination was
due to death or disability, 12 months.
The exercise price for each Option granted under the 1996 Plan shall be
not less than the fair market value (the "Fair Value") per share of Common
Stock on the date such Option is granted. For ISOs granted to a Ten Percent
Stockholder, the exercise price shall not be less than 110% of the Fair Value
per share of Common Stock. The exercise price may be paid in cash or by
transferring shares of Common Stock owned by the Option holder and having a
Fair Value on the date of surrender equal to the aggregate exercise price of
the Option, by the Company retaining from the shares to be delivered upon
exercise of the Option that number of shares having a Fair Value on the date
of exercise equal to the aggregate exercise price of the Option, pursuant to
a promissory note, and in any case, upon the terms and conditions as the
Committee shall determine. Upon the exercise of any Option, the Company is
required to comply with all applicable withholding tax requirements.
The Board of Directors may amend or terminate the 1996 Plan at any time
and in any respect except that the Board cannot, without the approval of a
majority of the Company's stockholders, amend the 1996 Plan to (i) increase
the maximum number of shares which are subject to the 1996 Plan, (ii)
increase the maximum number of shares for which any Key Employee may be
granted Options or SARs or which may be awarded to such Key Employee as
Restricted Stock, or (iii) change the class of persons eligible to
participate in the 1996 Plan. No amendment to the 1996 Plan may, without the
Option holder's consent, adversely affect any Options, SARs or Restricted
Stock previously granted to him or her.
Other Options. The Company has issued options outside of the 1996 Plan to
certain officers, employees and consultants to purchase a total of 142,500
shares of Common Stock. Options for 131,250 shares are dated February 9, 1996
and have a five-year term and an exercise price of $5.33 per share. The
holders of and the number of shares of Common Stock represented by the
options dated February 9, 1996 are as follows: Donald B. Brounstein, the
Company's President, Chief Executive Officer and a director, 37,500 shares;
James J. Whidden, the Company's Senior Vice President of Clinical Development
(who was a consultant to the Company at the time of grant), 37,500 shares;
Whidden & Associates, Inc., a corporation wholly owned by Mr. Whidden, 18,750
shares; Amy Lewis, director of sales of the Company, 18,750 shares; and
Everett M. Lautin, M.D., a consultant to the Company, 18,750 shares. All of
such options were fully vested on the date of grant. Options for 11,250
shares issued to Kenneth S. Hollander, the Company's Chief Financial Officer,
are dated June 3, 1996, have an exercise price of $5.33 per share and vest
April 30, 1997.
DIRECTOR COMPENSATION
Members of the Board of Directors of the Company presently receive no
additional remuneration for acting in that capacity. The Company anticipates
its nonemployee directors will be paid $500 (plus reasonable expenses) for
each attended meeting of the Board of Directors or committee thereof. Members
of the Board of Directors of the Company will also be eligible for the grant
of Options under the 1996 Plan which currently provides for each Eligible
Director (currently Messrs. Elbaum, Rivkin, Sasen and Toledano) to receive the
Initial Director Options and the Director Options. Mr. Rivkin is a nominee of
The Travelers Insurance Company. Mr. Rivkin has waived the $500 fee for
attendance at meetings of the Board of Directors or committees thereof and the
Initial Director Options. In lieu thereof, the Board of Directors has
determined to grant The Travelers Insurance Company options outside the 1996
Plan to purchase 15,000 shares of Common Stock at an exercise price equal to
the initial public offering price. See "Management--Executive
Compensation--Stock Incentive Plan." Four former directors of the Company each
received Options for 1,500 shares under the Company's Nonemployee Director
Stock Incentive Plan, which was adopted by the Company in January 1996 and
terminated upon the adoption of the 1996 Plan.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of the date of this Prospectus,
and as adjusted to reflect the sale of the Common Stock offered hereby, by
(i) each stockholder known by the Company to be the beneficial owner of 5% or
more of the outstanding Common Stock, (ii) each of the Company's directors,
(iii) each of the named executive officers (as such term is defined in Rule
402(a)(2) of Regulation S-B) and (iv) all directors and executive officers of
the Company as a group. Except as otherwise indicated, the Company believes
that the beneficial owners of the Common Stock listed below, based on
information furnished by such owners, have sole investment and voting power
with respect to such shares, subject to community property laws where
applicable.
<TABLE>
<CAPTION>
Percentage
Beneficially Owned
---------------------------
Number of Shares of Common Before After
Name and Address Stock Beneficially Owned Offering(1) Offering(2)(3)
- ---------------- -------------------------- ----------- --------------
<S> <C> <C> <C>
Donald Brounstein(4)(5) ............. 897,000 40.3% 11.8%
Steven S. Elbaum(6)
1790 Broadway
New York, NY 10019 ................. 37,500 1.8% *
Jack L. Rivkin
388 Greenwich Street
New York, NY 10013 ................. 0 * *
John F. Sasen, Sr.(7)
7800 Belfort Parkway, Suite 250
Jacksonville, FL 32256 ............. 207,500 9.1% 2.7%
Udi Toledano(8)
545 Madison Avenue, Suite 800
New York, NY 10022 ................. 271,271 11.6% 3.5%
Travelers Group Inc.(9)
388 Greenwich Street
New York, NY 10013 ................. 1,732,020 45.5% 21.8%
Scantek Medical, Inc.(10)
26 Merry Lane
East Hanover, NJ 07936 ............. 1,013,438 48.6% 13.5%
Burnham Securities Inc.(11)
1325 Avenue of the Americas
New York, NY 10018 ................. 400,000 16.2% 5.1%
Herbert V. Turk(12)
2132 Cedarwood Lane
San Jose, CA 95125 ................. 256,271 11.0% 3.4%
All Officers and Directors as a group
(7 persons)(5)(6)(7)(8)(13) ......... 1,482,021 52.8% 18.6%
</TABLE>
- ------
* Less than 1%.
(1) Based upon 2,076,563 shares of Common Stock outstanding before Offering,
not including 2,943,750 shares issuable upon conversion of the Series A
Preferred Stock.
(2) Based upon 7,520,313 shares of Common Stock outstanding, including
2,943,750 shares issuable upon conversion of the Series A Preferred
Stock.
(3) Certain directors, officers and affiliates of the Company intend to
purchase 250,000 of the shares of Common Stock offered hereby. The
intended allocation of such shares has not yet been determined and, as a
result, has not been reflected in this table.
(4) c/o HumaScan Inc., 514 Centennial Avenue, Cranford, New Jersey 07016.
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<PAGE>
(5) Includes 75,000 shares of Common Stock issuable upon conversion of
Series A Preferred Stock, 15,000 shares issuable upon exercise of
Private Warrants, 19,500 shares issuable upon exercise of March Bridge
Warrants and 37,500 shares issuable upon exercise of options issued to
Mr. Brounstein on February 9, 1996. See "Management--Executive
Compensation."
(6) Includes 18,750 shares of Common Stock issuable upon conversion of
Series A Preferred Stock, 3,750 shares issuable upon exercise of Private
Warrants and 15,000 shares issuable upon exercise of Options issued to
Mr. Elbaum in June 1996 under the 1996 Plan.
(7) Includes 15,000 shares of Common Stock issuable upon exercise of Options
issued to Mr. Sasen in June 1996 under the 1996 Plan. Also includes
56,250 shares of Common Stock issuable upon conversion of Series A
Preferred Stock, 125,000 shares issuable upon exercise of the PSS
Warrants, and 11,250 shares issuable upon exercise of Private Warrants,
all of which securities are held by PSS. Mr. Sasen disclaims beneficial
ownership of all of the securities held by PSS.
(8) Includes 46,875 shares issuable upon conversion of Series A Preferred
Stock, 9,375 shares issuable upon exercise of Private Warrants, 11,250
shares issuable upon exercise of Toledano Group Warrants and 10,646
shares issuable upon conversion of March Bridge Warrants owned by Mr.
Toledano, as well as 15,000 shares issuable upon exercise of Options
issued to Mr. Toledano in June 1996 under the 1996 Plan. Also includes
75,000 shares of Common Stock issuable upon conversion of Series A
Preferred Stock, 15,000 shares issuable upon the exercise of Private
Warrants, 51,375 shares issuable upon exercise of Toledano Group
Warrants owned by Mr. Toledano's wife and a certain trust for the
benefit of their minor children (the "Toledano Trust"), an aggregate of
18,000 shares underlying Toledano Group Warrants owned by certain other
members of Mr. Toledano's family and 18,750 shares underlying March
Bridge Warrants held by the Toledano Trust. Mr. Toledano disclaims
beneficial ownership of all of the Private Warrants and Toledano Group
Warrants held by members of his family other than his wife and the
Toledano Trust, as well as the Common Stock issuable upon exercise of
such Private Warrants and Toledano Group Warrants.
(9) Includes 1,125,000 shares of Common Stock issuable upon conversion of
Series A Preferred Stock held by The Travelers Insurance Company,
225,000 shares issuable upon exercise of Private Warrants held by The
Travelers Insurance Company, 159,375 shares issuable upon conversion of
Series A Preferred Stock held by Smith Barney Worldwide Special Fund,
N.V. ("Smith Barney Fund"), 31,875 shares issuable upon exercise of
Private Warrants held by Smith Barney Fund, 28,125 shares issuable upon
conversion of Series A Preferred Stock held by Smith Barney Worldwide
Securities, Ltd. ("Smith Barney Securities"), 5,625 shares issuable upon
exercise of Private Warrants held by Smith Barney Securities, 37,500
shares issuable upon exercise of Private Warrants held by Smith Barney
Inc., 2,438 shares issuable upon exercise of March Bridge Warrants held
by Smith Barney Securities, 12,260 shares issuable upon exercise of
March Bridge Warrants held by Smith Barney Fund and 89,822 shares
issuable upon exercise of March Bridge Warrants held by The Travelers
Insurance Company. Smith Barney Inc. and The Travelers Insurance Company
are both subsidiaries of Travelers Group Inc., and Smith Barney Worldwide
Securities, Ltd. and Smith Barney Worldwide Fund, N.V. are investment
funds domiciled outside the United States for which Smith Barney Inc.
acts as sponsor and adviser. Also includes 15,000 shares issuable upon
exercise of options issued to The Travelers Insurance Company in June
1996. See "Management--Director Compensation."
(10) Includes 3,750 shares of Common Stock issuable upon conversion of Series
A Preferred Stock owned by Dr. Sagi, 750 shares issuable upon exercise
of Private Warrants owned by Dr. Sagi and 4,875 shares issuable upon
exercise of March Bridge Warrants owned by Dr. Sagi.
(11) Includes 400,000 shares of Common Stock issuable upon exercise of
Private Warrants owned by Burnham.
(12) Includes 65,625 shares issuable upon conversion of Series A Preferred
Stock, 13,125 shares issuable upon exercise of Private Warrants owned
jointly by Mr. Turk and his wife, 50,625 shares issuable upon exercise
of Toledano Group Warrants owned jointly by Mr. Turk and his wife and
29,396 shares issuable upon conversion of March Bridge Warrants owned by
Mr. Turk. Also includes an aggregate of 56,250 shares of Common Stock
issuable upon conversion of Series A Preferred Stock, 11,250 shares
issuable upon the
44
<PAGE>
exercise of Private Warrants and 30,000 shares issuable upon exercise of
Toledano Group Warrants owned by Mr. Turk's two adult daughters. Mr.
Turk disclaims beneficial ownership of all of the Series A Preferred
Stock, Private Warrants and Toledano Group Warrants owned by his
daughters as well as the Common Stock issuable upon conversion of such
Series A Preferred Stock and exercise of such Private Warrants and
Toledano Group Warrants.
(13) Includes 3,750 shares of Common Stock issuable upon conversion of Series
A Preferred Stock, 750 shares issuable upon exercise of Private Warrants
and 64,250 shares issuable upon exercise of options held by an officer
of the Company. Does not include 46,250 shares issuable upon exercise of
options held by another officer of the Company, which options are not
currently exercisable.
45
<PAGE>
CERTAIN TRANSACTIONS
Scantek Medical, Inc. The Company entered into the License Agreement with
Scantek in October 1995. Scantek owns beneficially 1,013,438 shares of the
Company's Common Stock, or 13.5% of the Common Stock to be outstanding after
this Offering. See "Business--License Agreement" and "Principal
Stockholders."
Zigmed, Inc. The Company entered into the Turnkey Construction Contract
with Zigmed as of October 31, 1995, and is obligated to purchase the
Production Line from Zigmed for a price of $1,750,680. Zsigmond G. Sagi, the
Chief Executive Officer and a principal stockholder of Zigmed, is the son of
Dr. Zsigmond L. Sagi, the Chairman of the Board of Scantek. See
"Business--Manufacturing."
Physician Sales & Service, Inc. The Company entered into the Distribution
Agreement with PSS as of February 27, 1996, pursuant to which PSS was
appointed the exclusive United States distributor of the BreastAssure device.
PSS owns 56,250 shares of Series A Preferred Stock, 11,250 Private Warrants
and 125,000 PSS Warrants. John F. Sasen, Sr., the President of PSS, is a
director of the Company. See "Business--Marketing and Distribution" and
"Principal Stockholders."
Donald B. Brounstein. During 1995, Donald B. Brounstein, the Company's
President, Chief Executive Officer and a director, loaned the Company an
aggregate of $125,000 (the "1995 Loans"), none of which was repaid prior to
the May Private Placement. Mr. Brounstein also purchased $40,000 principal
amount of the March Bridge Notes. In connection with the May Private
Placement, Mr. Brounstein exchanged such $40,000 principal amount of March
Bridge Notes and $34,000 of the 1995 Loans in payment of the initial purchase
price for two Units. The remaining $91,000 of the 1995 Loans, plus accrued
interest on Mr. Brounstein's March Bridge Notes of $711, was repaid to Mr.
Brounstein from the proceeds of the May Private Placement.
In connection with the May Private Placement, Mr. Brounstein granted the
holders of Series A Preferred Stock (or the underlying Common Stock if the
Series A Preferred Stock is converted) the right to participate on a pro rata
basis in the sale of any Common Stock or common stock equivalents owned by
him or his successors or assigns, based on the number of shares of Common
Stock into which the Series A Preferred Stock owned by such holder is
convertible or has been converted, the number of such shares held by such
other holders electing to participate, and the number of such shares of
Common Stock and common stock equivalents owned by him. Such right terminates
upon consummation of a Qualified IPO.
Private Warrants. In connection with the May Private Placement, the
Company issued Private Warrants to purchase 400,000 shares of Common Stock at
$2.93 per share to Burnham pursuant to the Placement Agreement and Private
Warrants to purchase 37,500 shares of Common Stock to Smith Barney Inc. See
"Principal Stockholders" and "Description of Securities--Private Placements."
Toledano Group Warrants. In connection with the May Private Placement, the
Company issued an aggregate of 161,250 Toledano Group Warrants to Udi
Toledano, a director of the Company, and members of his family, and Herbert
V. Turk and members of his family. The Toledano Group Warrants (i) may be
exercised in full if the Common Stock has been trading in the public market
at a price per share of at least $7.33 before a date which is six months
after the Initial Closing (as hereinafter defined), (ii) may be exercised for
an aggregate of only 52,500 shares of Common Stock if the Common Stock has
been trading publicly at a price per share of at least $7.33 more than six
months but less than nine months from the Initial Closing and (iii) may not
be exercised at all if the Common Stock does not trade in the public market
at a price per share of at least $7.33 within nine months after the Initial
Closing. See "Description of Securities--Private Placements."
James J. Whidden. In connection with the May Private Placement, for
clinical and business services rendered, the Company issued one tenth of a
Unit to James J. Whidden, the Company's Senior Vice President of Clinical
Development (who was a consultant to the Company at the time of such
issuance).
Conversion of Series A Preferred Stock. Upon consummation of this
Offering, all 2,943,750 outstanding shares of Series A Preferred Stock will
convert automatically into shares of Common Stock on a share-for-share basis.
Of the 2,943,750 shares of Series A Preferred Stock to be so converted,
Donald B. Brounstein, the Company's President, Chief Executive Officer and a
director, holds 75,000 shares, PSS holds 56,250 shares, Udi Toledano, a
director of the Company, holds 121,875 shares (including 75,000 shares held
by his wife), The Travelers Insurance Company holds 1,125,000 shares, Smith
Barney Fund holds 159,375 shares, Smith Barney Securities holds 28,125
shares, Dr. Sagi holds 37,500 shares and Herbert V. Turk holds 121,875 shares
(including an aggregate of 56,250 shares held by his two adult daughters, as
to which he disclaims beneficial ownership).
46
<PAGE>
Voting and Stockholder Rights Agreement. The Company, Burnham, The
Travelers Insurance Company, Smith Barney Securities, Smith Barney Fund and a
consortium of investors led by Udi Toledano entered into a Voting and
Stockholder Rights Agreement dated as of May 15, 1996 (the "Voting Rights
Agreement") pursuant to which the parties agreed that in connection with the
exercise of the voting rights of the holders of Series A Preferred Stock to
elect three of the Company's directors, one of such three directors will be
nominated by each of Burnham, The Travelers Insurance Company (or an
affiliate) and Mr. Toledano, and each of the parties other than the Company
will vote their shares of Series A Preferred Stock to elect such nominees.
The Voting Rights Agreement also provides that the Company will give each of
the other parties to the agreement certain monthly financial statements and
annual budgets and projections. In addition, parties to the Voting Rights
Agreement that have not designated a nominee for election to the Company's
Board of Directors have certain rights to inspect the Company's properties
and examine its books, and are entitled to have a representative attend and
participate (but not vote) at meetings of the Company's Board of Directors.
The Voting Rights Agreement terminates upon the automatic conversion of the
Series A Preferred Stock into Common Stock upon consummation of this
Offering.
In connection with this Offering, the Company has adopted a policy whereby
all future transactions between the Company and its officers, directors,
principal stockholders or affiliates will be approved by a majority of the
Board of Directors, including a majority of the independent and disinterested
members of the Board of Directors or, if required by law, a majority of
disinterested stockholders, and will be on terms no less favorable to the
Company than could be obtained in arm's length transactions from unaffiliated
third parties.
47
<PAGE>
DESCRIPTION OF SECURITIES
The authorized capital stock of the Company consists of 14,000,000 shares
of Common Stock, $.01 par value per share, 4,175,000 shares of Series A
Convertible Preferred Stock, $.01 par value per share (the "Series A
Preferred Stock"), and 1,825,000 shares of undesignated preferred stock (the
"Undesignated Preferred Stock"). The Company intends to amend its Certificate
of Incorporation before the Registration Statement is declared effective to
increase the number of authorized shares of Common Stock to 25,000,000. As of
the date of this Prospectus, there are 2,076,563 shares of Common Stock
issued and outstanding and held of record by 16 persons and 2,943,750 shares
of Series A Preferred Stock issued and outstanding and held of record by 81
persons. Upon the closing of this Offering, the 2,943,750 outstanding shares
of Series A Preferred Stock will convert automatically into shares of Common
Stock on a share-for-share basis, and there will be no shares of Series A
Preferred Stock outstanding. There are presently no shares of Undesignated
Preferred Stock outstanding.
COMMON STOCK
The shares of Common Stock currently outstanding are, and the shares of
Common Stock that will be outstanding upon the consummation of this Offering
will be, validly issued, fully paid and non-assessable. Each holder of Common
Stock is entitled to one vote for each share owned of record on all matters
voted upon by the stockholders. In the event of a liquidation, dissolution or
winding-up of the Company, the holders of Common Stock are entitled to share
equally and ratably in the assets of the Company, if any, remaining after the
payment of all debts and liabilities of the Company and the liquidation
preference of any outstanding Preferred Stock. The holders of the Common
Stock have no preemptive rights or cumulative voting rights and there are no
redemption, sinking fund or conversion provisions applicable to the Common
Stock.
Holders of Common Stock are entitled to receive dividends if, as and when
declared by the Board of Directors, out of funds legally available for such
purpose, subject to the dividend and liquidation rights of any Preferred
Stock that may be issued. See "Dividend Policy."
PREFERRED STOCK
Series A Convertible Preferred Stock. Each share of Series A Preferred
Stock is convertible into a share of Common Stock on a share-for-share basis
and is automatically converted into Common Stock upon an underwritten public
offering of the Company's securities registered pursuant to the Securities
Act in which the Company receives gross proceeds of at least $10,000,000 or
such lesser amount as may be determined by a majority of the three directors
elected by the holders of the Series A Preferred Stock pursuant to the voting
rights described below (a "Qualified IPO").
The holders of shares of Series A Preferred Stock are entitled to vote on
all matters for which holders of Common Stock are entitled to vote on an
as-if-converted basis. In addition, they have special voting rights with
respect to the election of directors as provided in the terms of such Series
A Preferred Stock. So long as at least one third of the shares of the Series
A Preferred Stock remain outstanding: (i) the holders of Series A Preferred
Stock, voting as a class, will be entitled to elect at least three directors
to the Company's Board of Directors, and (ii) notwithstanding clause (i)
above, until the completion of a Qualified IPO, the holders of a majority of
the Series A Preferred Stock will be entitled by written notice to the
Company at any time to determine the size of and to elect the entire Board of
Directors of the Company (other than one director to be specified by PSS
pursuant to the Distribution Agreement and one director to be designated by
Burnham pursuant to the Placement Agreement; Burnham has waived its right to
designate a director in contemplation of this Offering). Such Board of
Directors must approve, by affirmative vote, the payment of dividends, the
issuance of any capital stock, the issuance of debt and certain other
activities of the Company.
The holders of Series A Preferred Stock will be entitled to receive, on a
share-for-share basis with the holders of Common Stock, dividends when and as
declared by the Board of Directors of the Company.
In the event of any liquidation, dissolution or winding-up of the Company,
holders of the Series A Preferred Stock will be entitled to an amount equal
to $2.67 per share, subject to adjustment in connection with the antidilution
provisions described below, plus the amount of any dividend previously
declared with respect to the Series A Preferred Stock and remaining unpaid,
before any payments are made to the holders of Common Stock.
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<PAGE>
After such amount has been paid to the holders of Series A Preferred Stock,
any additional funds available for distribution to the Company's stockholders
will be allocated equally among the holders of Series A Preferred Stock and
the holders of Common Stock, on a share-for-share basis (deeming each share
of Series A Preferred Stock to equal the number of shares of Common Stock
into which it is convertible). In the event that the Company has insufficient
funds to pay the full liquidation preference payable to the holders of Series
A Preferred Stock, the existing funds will be allocated among the holders of
all such shares pro rata in proportion to the full amounts to which they
would respectively be entitled.
The holders of Series A Preferred Stock are entitled to weighted average
anti-dilution protection for issuances or sales of Common Stock, or any
security convertible or exercisable into or exchangeable for shares of Common
Stock, to the extent that the Company sells such securities for less than the
Conversion Value (as defined in the Company's Certificate of Incorporation)
of the Series A Preferred Stock in effect on the date of such issuance
(initially, $2.67), subject to exclusions for the Common Stock issuable: (i)
upon exercise of Private Warrants issued as part of the Units sold in the May
Private Placement; (ii) to the November Bridge Investors upon conversion of
their November Bridge Notes; (iii) to Burnham upon exercise of the 400,000
Private Warrants held by Burnham; (iv) to certain officers, employees and
consultants upon exercise of options issued on February 9, 1996 and June 3,
1996 for up to 142,500 shares; (v) to PSS upon exercise of the PSS Warrants;
(vi) to Udi Toledano and family and Herbert V. Turk and family upon exercise
of an aggregate of 161,250 Private Warrants; (vii) to Smith Barney Inc. upon
exercise of an aggregate of 37,500 Private Warrants; and to the holders of
the March Bridge Warrants upon exercise of such March Bridge Warrants.
Any outstanding shares of Series A Preferred Stock will be redeemed by the
Company, at the option of the holder, during the 12-month period following
(i) the date of death of Donald B. Brounstein, the President and Chief
Executive Officer of the Company, or (ii) the third anniversary of the
initial closing of the May Private Placement if a Qualified IPO has not been
completed prior to such date for an amount equal to the Conversion Value of
such stock plus any accrued but unpaid dividends.
The holders of shares of Series A Preferred Stock have certain rights to
require the Company to register such shares and the underlying shares of
Common Stock for resale under the Securities Act. Such holders have waived
any and all rights they may have to register such shares in connection with
this Offering. See "Shares Eligible for Future Sale."
Undesignated Preferred Stock. The Company's Certificate of Incorporation
provides that the Company may, by vote of its Board of Directors, issue the
Undesignated Preferred Stock in one or more series having the rights,
preferences, privileges and restrictions thereon, including dividend rights,
dividend rates, conversion rights, voting rights, terms of redemption,
redemption prices, liquidation preferences and the number of shares
constituting any series or designation of such series, without further vote
or action by the stockholders. The issuance of Undesignated Preferred Stock
may have the effect of delaying, deferring or preventing a change in control
of the Company without further action by the stockholders and may adversely
affect the voting and other rights of the holders of Common Stock.
PRIVATE PLACEMENTS
On November 30, 1995, the Company sold an aggregate of $350,000 principal
amount of November Bridge Notes to 14 accredited investors (the "November
Bridge Investors") for an aggregate consideration of $350,000. The November
Bridge Notes bore interest at the rate of 10% per annum, were to mature on
August 30, 1996, and were secured by all of the assets of the Company.
Certain of the November Bridge Notes were also secured by the shares of the
Company's Common Stock owned by Donald B. Brounstein. $230,000 of the
proceeds of the November Bridge Notes was paid to Zigmed pursuant to the
Turnkey Construction Contract and the balance was used for working capital
and general corporate purposes. At the closing of the May Private Placement
(the "Initial Closing"), November Bridge Investors holding all $350,000 in
principal amount of the November Bridge Notes converted their November Bridge
Notes into one share of Series A Preferred Stock and one fifth of a Private
Warrant for each $1.33 principal amount of November Bridge Notes (resulting
in the issuance of 262,500 shares of Series A Preferred Stock and 52,500
Private Warrants) and received payment from the Company of an aggregate of
$16,488 in accrued interest due on such November Bridge Notes.
49
<PAGE>
In connection with the May Private Placement, the Company offered each
November Bridge Investor the option, exercisable through May 22, 1996, to (i)
reaffirm their purchase of the November Bridge Notes, in which event the
November Bridge Notes would be converted in accordance with their terms into
fully paid shares of Series A Preferred Stock and Private Warrants, or (ii)
redeem the November Bridge Notes from the proceeds of the May Private
Placement for the amount of such investment plus applicable interest on the
November Bridge Notes, in which event all of the November Bridge Notes
purchased by such November Bridge Investor would be canceled. None of the
November Bridge Investors elected to redeem their purchases of November
Bridge Notes although one November Bridge Investor transferred a portion of
its November Bridge Note to another investor.
On March 19, 1996, the Company sold an aggregate of $460,000 principal
amount of March Bridge Notes and warrants to purchase 224,250 shares of
Common Stock at $0.67 per share to 15 accredited investors (the "March Bridge
Investors") for an aggregate consideration of $460,000. The March Bridge
Notes bore interest at the rate of 10% per annum, were to mature on the
earlier of the Initial Closing or May 31, 1996, were secured by all of the
assets of the Company and were senior in right of payment and security to the
November Bridge Notes. $50,000 of the proceeds of the March Bridge Notes was
paid to Zigmed pursuant to the Turnkey Construction Contract. $25,000 was
paid to Scantek pursuant to the License Agreement and $385,000 was used for
working capital and general corporate purposes.
At the Initial Closing, $434,800 in principal amount of the March Bridge
Notes (plus an additional $25,200 of the March Bridge Notes, representing
subscription funds in excess of the initial subscription amounts due from
four March Bridge Investors, which will be refunded to such four March Bridge
Investors if this Offering is consummated before August 15, 1996) were
canceled and applied to the initial purchase price of an aggregate of 11.75
Units.
In connection with the May Private Placement, the Company offered March
Bridge Investors whose March Bridge Notes had face amounts less than $50,000
the right, exercisable through May 23, 1996, to rescind the purchase of their
March Bridge Notes and March Bridge Warrants and be paid in full the
principal amounts of such March Bridge Notes from the proceeds of the May
Private Placement plus any accrued and unpaid interest on such March Bridge
Notes in lieu of applying such principal amount toward the purchase of Units,
in which event the March Bridge Notes and March Bridge Warrants purchased by
such March Bridge Investors would be canceled. None of the March Bridge
Investors elected to rescind their purchases of March Bridge Notes and March
Bridge Warrants.
In the May Private Placement, the Company sold 71.5 units ("Units") for
gross proceeds of $2,645,500 (representing 37% of the aggregate purchase
price of the Units) before commissions and related expenses. $434,800 of such
amount represented the aggregate principal amount of March Bridge Notes that
were exchanged for Units (including $40,000 in principal amount of March
Bridge Notes exchanged by Donald B. Brounstein, the Company's President and
Chief Executive Officer, in partial consideration for two Units purchased by
him), $2,163,750 was received in cash from other purchasers and $34,000
represented the principal amount of 1995 Loans surrendered by Mr. Brounstein
in payment of the balance of the purchase price for the Units purchased by
him. The Company issued one quarter of one Unit to Haythe & Curley, the law
firm that represented Burnham in the May Private Placement, and one tenth of
one Unit to James J. Whidden, the Company's Senior Vice President of Clinical
Development (who was a consultant to the Company at the time of such
issuance), in exchange for services rendered. Each Unit consisted of 37,500
shares of the Company's Series A Preferred Stock, which are convertible into
shares of Common Stock on a one-for-one basis, and Private Warrants to
purchase 7,500 shares of the Company's Common Stock for $2.93 per share. The
Private Warrants expire on the fifth anniversary of the Initial Closing. The
balance of the purchase price for each Unit is to be paid in unequal
installments of 13%, 21%, 20% and 9%, on August 15, 1996, October 15, 1996,
January 15, 1997 and March 15, 1997, respectively. If, prior to March 1,
1997, there occurs a Qualified IPO, then at the time of the closing of the
Qualified IPO: (i) the purchase price of the Units will be automatically
reduced by an amount equal to any installments not yet due and payable at the
time the registration statement relating to such Qualified IPO is declared
effective under the Securities Act, (ii) the Series A Preferred Stock will
convert automatically into Common Stock on a share for share basis, and (iii)
the shares of Common Stock issued upon conversion of the Preferred Stock will
be deemed fully paid and nonassessable. As currently contemplated, this
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<PAGE>
Offering will be a Qualified IPO. $215,000 of the net proceeds of the May
Private Placement was paid to Zigmed pursuant to the Turnkey Construction
Contract, $375,000 was paid to Scantek pursuant to the License Agreement,
$91,000 (plus $711 in accrued interest on March Bridge Notes) was paid to
Donald B. Brounstein in payment of the balance of the 1995 Loans and
approximately $430,000 is being used for working capital and general
corporate purposes.
In connection with the May Private Placement, the Company issued
additional Private Warrants to Smith Barney Inc. to purchase 37,500 shares of
Common Stock at $2.93 per share. Also in connection with the May Private
Placement, the Company issued the Toledano Group Warrants to Udi Toledano, a
director of the Company, and members of his family and Herbert V. Turk and
members of his family. The Toledano Group Warrants (i) may be exercised in
full if the Common Stock has been trading in the public market at a price per
share of at least $7.33 before a date which is six months after the Initial
Closing, (ii) may be exercised for an aggregate of only 52,500 shares of
Common Stock if the Common Stock has been trading publicly at a price per
share of at least $7.33 more than six months but less than nine months from
the Initial Closing, and (iii) may not be exercised at all if the Common
Stock does not trade in the public market at a price per share of at least
$7.33 within nine months after the Initial Closing. See "Certain
Transactions."
The Company entered into the Placement Agreement with Burnham as of
November 16, 1995 pursuant to which Burnham acted as placement agent in
connection with the May Private Placement. Pursuant to the Placement
Agreement, the Company paid Burnham an aggregate of $570,000 in commissions
and $12,000 in expense reimbursement and issued to Burnham Private Warrants
to purchase 400,000 shares of Common Stock at $2.93 per share. Also pursuant
to the Placement Agreement, the Company gave Burnham (a) the right to
nominate a representative for election to the Company's Board of Directors
for so long as at least one third of the Series A Preferred Stock is
outstanding and (b) a monthly fee of $2,000 for management advisory services
for 36 months after the closing of the May Private Placement. In
contemplation of this Offering, Burnham has waived its right to nominate a
representative to the Company's Board of Directors.
The Company granted certain demand and piggyback registration rights to
the holders of securities issued in connection with the May Private
Placement. Such holders have waived any and all rights they may have to
register such securities (and securities issuable upon conversion or exchange
of such securities) in connection with this Offering. See "Shares Eligible
for Future Sale."
LIMITATIONS UPON TRANSACTIONS WITH "INTERESTED STOCKHOLDERS"
Section 203 of the Delaware General Corporation Law 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 became an interested stockholder unless (i)
prior to the date of the business combination, the transaction is approved by
the board of directors of the corporation, (ii) upon consummation of the
transaction which resulted in the stockholder becoming an interested
stockholder, the interested stockholder owns at least 85% of the outstanding
voting stock, or (iii) on or after such date the business combination is
approved by the board of directors and by the affirmative vote of at least 66
2/3 % of the outstanding voting stock which is not owned by the interested
stockholder. A "business combination" includes mergers, asset sales and other
transactions resulting in a financial benefit to the stockholder. An
"interested stockholder" is a person who, together with affiliates and
associates, owns (or within three years, did own) 15% or more of the
corporation's voting stock. The restrictions of Section 203 do not apply,
among other things, if a corporation, by action of its stockholders, adopts
an amendment to its certificate of incorporation or by-laws expressly
electing not to be governed by Section 203, provided that, in addition to any
other vote required by law, such amendment to the certificate of
incorporation or by-laws must be approved by the affirmative vote of a
majority of the shares entitled to vote. Moreover, an amendment so adopted is
not effective until 12 months after its adoption and does not apply to any
business combination between the corporation and any person who became an
interested stockholder of such corporation on or prior to such adoption. The
Company's Certificate of Incorporation and By-Laws do not currently contain
any provisions electing not to be governed by Section 203 of the Delaware
General Corporation Law. The provisions of Section 203 of the Delaware
General Corporation Law may have a depressive effect on the market price of
the Common Stock because they could impede any merger, consolidating takeover
or other business combination involving the Company, or discourage a
potential acquiror from making a tender offer or otherwise attempting to
obtain control of the Company.
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<PAGE>
LIMITATION OF LIABILITY AND INDEMNIFICATION
The Company's Certificate of Incorporation limits, to the maximum extent
permitted by Delaware Law, the personal liability of directors for monetary
damages for breach of their fiduciary duties as a director, and provides that
the Company shall indemnify its officers and directors and may indemnify its
employees and other agents to the fullest extent permitted by law. The
Company has entered into indemnification agreements with its officers and
directors which may require the Company, among other things, to indemnify
such officers and directors against certain liabilities that may arise by
reason of their status or service as directors or officers (other than
liabilities arising from willful misconduct of a culpable nature), to advance
their expenses incurred as a result of any proceeding against them as to
which they could be indemnified, and to obtain directors' and officers'
insurance, if available on reasonable terms. The Company intends to purchase
directors' and officers' liability insurance after the completion of this
Offering. Section 145 of the Delaware Law provides that a corporation may
indemnify a director, officer, employee or agent made or threatened to be
made a party to an action by reason of the fact that he was a director,
officer, employee or agent of the corporation or was serving at the request
of the corporation against expenses actually and reasonably incurred in
connection with such action if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, if he
had no reasonable cause to believe his conduct was unlawful. Delaware Law
does not permit a corporation to eliminate a director's duty of care, and the
provisions of the Company's Certificate of Incorporation have no effect on
the availability of equitable remedies, such as injunction or rescission, for
a director's breach of the duty of care.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted for directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has
been advised that in the opinion of the Commission, such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
TRANSFER AGENT AND REGISTRAR
Continental Stock Transfer & Trust Company has been appointed as the
transfer agent and registrar for the Common Stock.
52
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have a total of
7,520,313 shares of Common Stock outstanding. Of these shares of Common
Stock, the 2,500,000 shares of Common Stock sold in this Offering (2,875,000
if the Underwriters' over-allotment option is exercised in full) will be
freely tradable by persons other than "affiliates" of the Company without
restriction under the Securities Act and the remaining 5,020,313 shares of
Common Stock outstanding will be "restricted" securities within the meaning
of Rule 144 ("Restricted Shares of Common Stock") and may not be sold in the
absence of registration under the Securities Act unless an exemption from
registration is available, including the exemption provided by Rule 144.
In general, under Rule 144 as currently in effect, the existing
stockholders and their transferees will, at various dates between March 1997
and May 1999, be entitled to sell in brokers' transactions or to market
makers some portion of the Restricted Shares of Common Stock which they
currently own. The number of Restricted Shares of Common Stock which may be
sold within any three-month period may not exceed the greater of (i) 1% of
the then outstanding shares of the Company's Common Stock (75,203 shares,
based on the number of shares of Common Stock outstanding immediately after
this Offering) or (ii) the average weekly trading volume of the Common Stock
on Nasdaq during the four calendar weeks preceding the date on which notice
of such sale is filed with the Securities and Exchange Commission. Sales
under Rule 144 are also subject to certain manner of sale provisions, notice
requirements and the availability of current public information about the
Company.
A person who is not an affiliate of the Company at any time during the 90
days preceding a sale and who has beneficially owned Restricted Shares of
Common Stock for at least three years is entitled to sell such Restricted
Shares of Common Stock under Rule 144(k) without regard to the availability
of current public information, volume limitations, manner of sale provisions
or notice requirements.
In connection with the May Private Placement, the Company granted certain
registration rights to the holders of the Series A Preferred Stock and the
Common Stock issuable upon conversion of the Series A Preferred Stock and
upon exercise of the Private Warrants, including the Series A Preferred Stock
and Private Warrants issued upon conversion of the November Bridge Notes and
in exchange for the March Bridge Notes, and issuable upon exercise of the PSS
Warrants, the Private Warrants issued to Smith Barney Inc. and Burnham and
the Toledano Group Warrants (the "Registrable Securities"). The Company has
granted the holders of the Registrable Securities unlimited demand and
piggyback registration rights exercisable at any time after the earlier to
occur of the consummation of this Offering or the date that is three years
after the closing of the May Private Placement upon written request by a
majority of such holders. If the registration rights are exercised and the
Company files a registration statement which is declared effective covering
the Registrable Securities, those shares of Common Stock will be registered
and as such, to the extent they are offered and sold pursuant to the
registration statement, will be available for immediate sale in the public
market. The Company has also granted piggyback registration rights to
stockholders holding an aggregate of 75,000 shares of Common Stock (the
"Registrable Stock"). The sale of the Registrable Securities or the
Registrable Stock may have a negative effect on the market price of the
Common Stock and may adversely affect the Company's ability to raise
additional capital. See "Risk Factors--Shares Eligible for Future Sale." The
Company has agreed to pay all registration expenses incurred by the Company
in complying with the registration rights pertaining to the Registrable
Securities. Notwithstanding the foregoing, the Company has agreed not to,
without the prior written consent of the Representative and for a period of
24 months following the effective date of the Registration Statement, issue,
sell, agree or offer to sell, grant an option for the purchase or sale of, or
otherwise transfer or dispose of (i) more than an aggregate of 700,000 shares
of Common Stock (including securities with equivalent rights as the Common
Stock and shares of Common Stock, or such equivalent securities, issuable
upon exercise of any and all options, warrants and other contract rights and
securities convertible directly or indirectly into shares of Common Stock or
such equivalent securities) or (ii) any such shares of Common Stock
(including securities with equivalent rights as the Common Stock and shares
of Common Stock, or such equivalent securities, issuable upon exercise of any
and all options, warrants and other contract rights and securities
convertible directly or indirectly into shares of Common Stock or such
equivalent securities) at a price less than the higher of the market value of
such shares of Common Stock or equivalent securities at the date of grant (or
issuance, as the case may be) or the initial public offering price of the
shares of Common Stock offered hereby; provided, however, that the Company
may
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<PAGE>
(a) issue securities in connection with an underwritten public offering on
behalf of the Company, (b) authorize and issue a class or classes of
preferred stock, including convertible preferred stock, (c) issue employee
and director options to purchase up to 200,000 shares of Common Stock (out of
the aforesaid 700,000 shares) at fair market value on the date of grant (even
if such fair market value is less than the initial public offering price of
the shares of Common Stock offered hereby), (d) issue securities upon the
exercise of options, warrants and convertible securities currently
outstanding and (e) effect private placements of shares of Common Stock at a
per share price equal to or exceeding the initial public offering price of
the shares of Common Stock offered hereby (even if less than the fair market
value of the shares). All current stockholders of the Company, as well as all
holders of options, warrants or other securities exercisable or exchangeable
for or convertible into Common Stock, have agreed (i) not to, directly or
indirectly, issue, offer, agree or offer to sell, sell, transfer, assign,
grant an option for purchase or sale of, pledge, hypothecate or otherwise
encumber or dispose of any beneficial interest in such securities for a
period of 12 months following the date of this Prospectus without the prior
written consent of the Company and the Representative and (ii) not to
exercise their registration rights for a period of 12 months from the date of
this Prospectus without the prior written consent of the Company and the
Representative.
Prior to this Offering, there has been no public market for the Common
Stock and no predictions can be made as to the effect, if any, that future
sales of shares of Common Stock or the availability of shares of Common Stock
for future sale will have on the market price prevailing from time to time.
Sales of substantial amounts of Common Stock or the perception that such
sales could occur could adversely affect the prevailing market price for the
Common Stock.
54
<PAGE>
UNDERWRITING
The Underwriters named below (the "Underwriters"), for whom Keane
Securities Co., Inc. is acting as representative (in such capacity, the
"Representative"), have severally and not jointly agreed, subject to the
terms and conditions of the Underwriting Agreement among the Company and the
Underwriters (the "Underwriting Agreement") to purchase from the Company and
the Company has agreed to sell to the Underwriters on a firm commitment
basis, the respective number of shares of Common Stock set forth opposite
their names below:
<TABLE>
<CAPTION>
Number
Shares of
Underwriter Common Stock
------------------------- --------------
<S> <C>
Keane Securities Co., Inc .
--------------
Total ................... 2,500,000
==============
</TABLE>
The Underwriters are committed to purchase all the shares of Common Stock
offered hereby, if any of such shares of Common Stock are purchased. The
Underwriting Agreement provides that the obligations of the several
Underwriters are subject to the approval of certain legal matters by their
counsel and various other conditions precedent specified therein.
The Representative has advised the Company that the Underwriters propose
initially to offer the Common Stock directly to the public at the initial
public offering price set forth on the cover page of this Prospectus and that
the Underwriters may allow to certain dealers who are members of the National
Association of Securities Dealers, Inc. (the "NASD") a selling concession not
in excess of $____ per share of Common Stock. Such dealers may reallow a
concession not in excess of $____ per share of Common Stock to certain other
dealers who are NASD members. After the commencement of the Offering, the
public offering price, concession and reallowance may be changed by the
Representative.
The Representative has advised the Company that it does not expect sales
to discretionary accounts by the Underwriters to exceed 5% of the total
number of shares of Common Stock offered hereby.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute
to payments that the Underwriters may be required to make. The Company has
also agreed to pay to the Representative a non-accountable expense allowance
equal to 2% of the gross proceeds derived from the sale of the Common Stock
underwritten, of which $50,000 has been paid to date.
The Company has granted to the Underwriters an over-allotment option,
exercisable during the 45-day period from the date of this Prospectus, to
purchase from the Company up to an additional 375,000 shares of Common Stock
at the initial public offering price per share of Common Stock offered
hereby, less the underwriting discount and the non-accountable expense
allowance. The Underwriters may exercise such option only for the purpose of
covering over-allotments, if any, incurred in the sale of the Common Stock
offered hereby. To the extent the Underwriters exercise such option in whole
or in part, each Underwriter will have a firm commitment, subject to certain
conditions, to purchase the number of the additional shares of Common Stock
proportionate to its initial commitment and the Company will be obligated to
sell such shares of Common Stock to the Underwriters.
In connection with this Offering, the Company has agreed to sell to the
Representative, for nominal consideration, warrants to purchase from the
Company up to 250,000 shares of Common Stock (the "Representative's
Warrants"). The Representative's Warrants are initially exercisable at a
price of $____ per share of Common Stock [120% of the initial public offering
price per share of Common Stock] for a period of four years, commencing at
the beginning of the second year after their issuance and sale, and are
restricted from sale, trans-
55
<PAGE>
fer, assignment or hypothecation for a period of 12 months from the date
hereof, except to officers of the Representative. The Representative's
Warrants provide for adjustment in the number of shares of Common Stock
issuable upon the exercise thereof and in the exercise price of the
Representative's Warrants as a result of certain events, including
subdivisions and combinations of the Common Stock. The Representative's
Warrants grant to the holders thereof certain rights of registration with
regard to the Common Stock issuable upon exercise thereof.
All officers, directors and stockholders of the Company and all holders of
options, warrants or other securities convertible, exercisable or
exchangeable for Common Stock have agreed not to, directly or indirectly,
issue, offer, agree or offer to sell, sell, transfer, assign, encumber, grant
an option for the purchase or sale of, pledge, hypothecate or otherwise
dispose of any beneficial interest in such securities for a period of 12
months following the effective date of the Registration Statement without the
prior written consent of the Company and the Representative. An appropriate
legend shall be marked on the face of certificates representing all such
securities.
The Company has agreed not to, without the prior written consent of the
Representative and for a period of 24 months following the effective date of
the Registration Statement, issue, sell, agree or offer to sell, grant an
option for the purchase or sale of, or otherwise transfer or dispose of (i)
more than an aggregate of 700,000 shares of Common Stock (including
securities with equivalent rights as the Common Stock and shares of Common
Stock, or such equivalent securities, issuable upon exercise of any and all
options, warrants and other contract rights and securities convertible
directly or indirectly into shares of Common Stock or such equivalent
securities) or (ii) any such shares of Common Stock (including securities
with equivalent rights as the Common Stock and shares of Common Stock, or
such equivalent securities, issuable upon exercise of any and all options,
warrants and other contract rights and securities convertible directly or
indirectly into shares of Common Stock or such equivalent securities) at a
price less than the higher of the market value of such shares of Common Stock
or equivalent securities at the date of grant (or issuance, as the case may
be) or the initial public offering price of the shares of Common Stock
offered hereby; provided, however, that the Company may (a) issue securities
in connection with an underwritten public offering on behalf of the Company,
(b) authorize and issue a class or classes of preferred stock, including
convertible preferred stock, (c) issue employee and director options to
purchase up to 200,000 shares of Common Stock (out of the aforesaid 700,000
shares) at fair market value on the date of grant (even if such fair market
value is less than the initial public offering price of the shares of Common
Stock offered hereby), (d) issue securities upon the exercise of options,
warrants and convertible securities currently outstanding and (e) effect
private placements of shares of Common Stock at a price per share equal to or
exceeding the initial public offering price of the shares of Common Stock
offered hereby (even if less than the fair market value of the shares).
Certain existing stockholders, directors and officers of the Company and
their affiliates or designees intend to purchase an aggregate of 10% of the
shares of Common Stock offered hereby.
Prior to this Offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price of the Common Stock
has been determined arbitrarily by negotiation between the Company and the
Representative and does not necessarily bear any relationship to the
Company's asset value, net worth, or other established criteria of value. The
factors considered in such negotiations, in addition to prevailing market
conditions, included the history of and prospects for the industry in which
the Company competes, an assessment of the Company's management, the
prospects of the Company, its capital structure, the market for initial
public offerings and certain other factors as were deemed relevant.
The foregoing is a summary of the principal terms of the agreements
described above and does not purport to be complete. Reference is made to a
copy of each such agreement which are filed as exhibits to the Registration
Statement. See "Additional Information."
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Graubard Mollen & Miller, New York, New York. Orrick,
Herrington & Sutcliffe, New York, New York has acted as counsel to the
Underwriters in connection with this Offering.
56
<PAGE>
EXPERTS
The financial statements of HumaScan Inc. (a development stage enterprise)
as of December 31, 1995 and for the period from December 27, 1994 (inception)
to December 31, 1995 have been included herein and in the Registration
Statement in reliance upon the report of KPMG Peat Marwick LLP, independent
certified public accountants appearing elsewhere herein, and upon the
authority of said firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission,
Washington, D.C. 20549, a Registration Statement on Form SB-2 under the
Securities Act of 1933, as amended, with respect to the Common Stock offered
hereby. This Prospectus does not contain all of the information set forth in
the Registration Statement and exhibits and schedules thereto, certain parts
of which having been omitted in accordance with the rules and regulations of
the Commission. For further information with respect to the Company and the
Common Stock, reference is made to the Registration Statement and the
exhibits and schedules thereto which may be inspected and copied at the
public reference facilities of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, 7 World Trade Center, New York, New York 10048 and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Copies of such material can be obtained from the Commission's Public
Reference Section at prescribed rates. Descriptions contained in this
Prospectus as to the contents of any contract or other documents filed as an
exhibit to the Registration Statement are not necessarily complete and each
such description is qualified by reference to such contract or document.
The Company intends to furnish its stockholders with annual reports
containing financial statements examined by an independent public accounting
firm and such other reports as the Company may determine to be appropriate or
as may be required by law. The Company's fiscal year ends on December 31. The
Company will become a reporting company under the Securities Exchange Act of
1934 after this Offering.
57
<PAGE>
HUMASCAN INC.
(A DEVELOPMENT STAGE ENTERPRISE)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
--------
<S> <C>
Independent Auditors' Report ..................................................................... F-2
Financial Statements:
Balance Sheet as of December 31, 1995 .......................................................... F-3
Statement of Operations for the period from December 27, 1994 (date of inception) to
December 31, 1995 ........................................................................... F-4
Statement of Stockholders' Deficit for the period from December 27, 1994 (date of inception) to
December 31, 1995 ........................................................................... F-5
Statement of Cash Flows for the period from December 27, 1994 (date of inception) to
December 31, 1995 ........................................................................... F-6
Notes to Financial Statements .................................................................. F-7
Financial Statements (unaudited):
Condensed Balance Sheets as of March 31, 1996 (unaudited) ...................................... F-15
Condensed Statements of Operations for the three months ended March 31, 1996 and 1995 and for
the period from December 27, 1994 (date of inception) to March 31, 1996 (unaudited) ......... F-16
Condensed Statements of Stockholders' Deficit for the period from December 27, 1994 (date of
inception) to December 31, 1995 and for the three months ended March 31, 1996 (unaudited)..... F-17
Condensed Statements of Cash Flows for the three months ended March 31, 1996 and 1995 and for
the period from December 27, 1994 (date of inception) to March 31, 1996 (unaudited)........... F-18
Notes to Condensed Financial Statements (unaudited) ............................................ F-19
</TABLE>
All schedules are omitted for the reason that they are not required or are
not applicable, or the required information is shown in the financial
statements or notes thereto.
F-1
<PAGE>
The four-to-three reverse stock split subsequent to June 20, 1996 described
in Note 9 of the Notes to Financial Statements has not been effectuated. When
it is, we will be in a position to render the following report.
KPMG Peat Marwick LLP
We have audited the accompanying balance sheet of HumaScan Inc. (a
development stage enterprise) as of December 31, 1995, and the related
statements of operations, stockholders' deficit, and cash flows for the
period from December 27, 1994 (date of inception) to December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with 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 audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of HumaScan Inc. (a development
stage enterprise) as of December 31, 1995, and the results of its operations
and its cash flows for the period from December 27, 1994 (date of inception)
to December 31, 1995 in conformity with generally accepted accounting
principles.
Short Hills, New Jersey
February 9, 1996, except as to
note 9, which is as of June 20, 1996
F-2
<PAGE>
HUMASCAN INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEET
DECEMBER 31, 1995
<TABLE>
<CAPTION>
<S> <C>
Assets
-------
Current assets:
Cash ................................................ $ 218,520
Prepaid expenses .................................... 5,000
------------
Total current assets ........................... 223,520
Property, plant and equipment ............................ 4,400
Other assets (note 6) .................................... 145,000
------------
Total assets ................................... $ 372,920
============
Liabilities and Stockholders' Deficit
---------------------------- ............................
Notes payable (note 8) ................................... 350,000
Accrued expenses (note 2) ................................ 1,493,571
Due to officer (note 3) .................................. 125,000
------------
Total current liabilities ...................... 1,968,571
------------
Stockholders' deficit (notes 2 and 4):
Common stock, $0.01 par value, 5,000,000 shares authorized;
1,747,500 shares issued and outstanding ........... 17,475
Additional paid-in capital .......................... (1,401,875)
Deficit accumulated during the development stage .... (211,251)
------------
Total stockholders' deficit .................... (1,595,651)
------------
Commitments (note 6)
Total liabilities and stockholders' deficit .... $ 372,920
============
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
HUMASCAN INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM DECEMBER 27, 1994
(DATE OF INCEPTION) TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
<S> <C>
Interest income .................................. $ 899
-------------
Operating expenses:
Consulting fees ................................ 92,842
Legal and professional fees .................... 99,972
Interest ....................................... 7,041
Other .......................................... 12,295
-------------
212,150
-------------
Net loss ......................................... $ (211,251)
=============
Pro forma net loss per share (note 1) (unaudited) . $ (.05)
=============
Shares used in computing pro forma net loss
per share (note 1) (unaudited) ................. 4,618,033
=============
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
HUMASCAN INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF STOCKHOLDERS' DEFICIT
FOR THE PERIOD FROM DECEMBER 27, 1994
(DATE OF INCEPTION) TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
Deficit
Common stock accumulated
------------------------- Additional during
Shares paid-in development
issued Amount capital stage Total
----------- ---------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Issuance of shares of common stock
upon incorporation ............ 825,000 $ 8,250 $ 53,750 $ -- $ 62,000
Issuance of shares of common stock
pursuant to subscription
agreements .................... 247,500 2,475 151,125 -- 153,600
Issuance of shares of common stock
in connection with license
agreement (note 2) ............ 675,000 6,750 (1,606,750) -- (1,600,000)
Net loss ....................... -- -- -- (211,251) (211,251)
----------- ---------- -------------- ------------- --------------
Balance, December 31, 1995 ..... 1,747,500 $17,475 $(1,401,875) $(211,251) $(1,595,651)
=========== ========== ============== ============= ==============
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
HUMASCAN INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM DECEMBER 27, 1994
(DATE OF INCEPTION) TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
<S> <C>
Cash flows from operating activities:
Net loss ............................................................... $ (211,251)
Adjustments to reconcile net loss to net cash used in operating activities:
Noncash miscellaneous expenses ...................................... 40,350
Noncash interest expense ............................................ 7,041
Changes in operating assets and liabilities:
Increase in prepaid expenses ...................................... (5,000)
Increase in accrued expenses ...................................... 3,180
------------
Net cash used in operating activities .......................... (165,680)
------------
Cash flows from investing activities:
Purchase of property, plant and equipment .............................. (4,400)
Payments for production line ........................................... (105,000)
Payments in connection with license agreement .......................... (150,000)
------------
Net cash used in investing activities .......................... (259,400)
------------
Cash flows from financing activities:
Increase in other assets ............................................... (40,000)
Proceeds from issuance of common stock ................................. 208,600
Proceeds from officer loan ............................................. 125,000
Proceeds from borrowings of notes payable .............................. 350,000
------------
Net cash provided by financing activities ...................... 643,600
------------
Net increase in cash ..................................................... 218,520
Cash, beginning of period ................................................ --
------------
Cash, end of period ...................................................... $ 218,520
============
Supplemental disclosure of noncash transactions:
Amounts due in connection with license agreement ....................... $1,450,000
============
Common stock issued in connection with license agreement ............... $ 9,000
============
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
HUMASCAN INC.
(A Development Stage Enterprise)
Notes to Financial Statements
December 31, 1995
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION:
HumaScan Inc. (the Company) is a development stage company which owns
under license the exclusive rights in the United States and Canada to
manufacture and market a breast thermal activity indicator (BTAI) device
called the "BreastAssure(TM) Thermal Activity Sensor" (the BreastAssure
device). The BreastAssure device is a non-invasive, easy to use, low cost,
adjunctive test to be used by primary care physicians, gynecologists and
other medical specialists as part of a breast disease monitoring program
along with breast self-examination, palpation and (depending on a patient's
age, family history and other factors) mammography and other established
clinical procedures including ultrasound and/or biopsy. The BreastAssure
device has received marketing clearance under Section 510(k) of the Food,
Drug and Cosmetic Act from the United States Food and Drug Administration.
The Company is currently devoting substantially all of its efforts to
raising capital and other organizational activities. There are no operating
revenues to date and there have been no product sales from inception of the
Company through December 31, 1995. The Company plans to finance its
operations through a private placement of its equity securities (see note 9)
and the initial public offering contemplated herein (the Offering). To date,
the Company has not manufactured or sold any product and there can be no
assurance that the Company will be able to manufacture or market its product
in the future, that future revenues will be significant, that any sales will
be profitable, or that the Company will have sufficient funds available to
manufacture or market its product. The Company's product and manufacturing
facility are also subject to extensive government regulations. Further, the
Company's future operations are dependent on the success of the Company's
commercialization efforts and market acceptance of its product.
BASIS OF PRESENTATION:
As no operations occurred in fiscal 1994, a separate statement of
operations for that period has not been presented.
INCOME TAXES:
Certain expense items are included in one reporting period for financial
reporting purposes and another for income tax purposes. Deferred income taxes
are provided in recognition of these temporary differences which relate
primarily to organization costs.
ORGANIZATION COSTS:
All organization costs are expensed as incurred.
OTHER ASSETS:
Costs paid to a placement agent and its attorneys associated with the
Company's private placement transaction (see note 9) are deferred and will be
recorded as a reduction of the proceeds received upon consummation of the
private placement.
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment is stated at cost and consists of computer
equipment. The computer equipment will be depreciated using the straight-line
method over five years upon being placed in service.
F-7
<PAGE>
HUMASCAN INC.
(A Development Stage Enterprise)
Notes to Financial Statements - (Continued)
(1) Organization and Significant Accounting Policies - (Continued)
REVERSE STOCK SPLIT:
The Company effected a four-to-three reverse stock split of its common
stock subsequent to June 20, 1996 (see note 9). All common share, per share
and pro forma per share amounts in the accompanying financial statements have
been retroactively adjusted to reflect this reverse stock split.
CONCENTRATION OF CREDIT RISKS:
The Company invests its excess cash in deposits with major U.S. financial
institutions and money market funds. To date, the Company has not experienced
any losses on its cash equivalents and money market funds.
PRO FORMA NET LOSS PER SHARE (UNAUDITED):
Pro forma net loss per share was calculated by dividing the net loss by
the weighted average number of common shares outstanding for the period
adjusted for the dilutive effect of common stock equivalents which consist of
stock options and warrants using the treasury stock method. Pro forma net
loss per share gives effect to certain adjustments described below including
the aforementioned reverse stock split.
Pursuant to Securities and Exchange Commission (SEC) Staff Accounting
Bulletins and SEC Staff policy, common equivalent shares issued during the
twelve-month period prior to the proposed initial public offering at prices
below the anticipated initial public offering price are presumed to have been
issued in contemplation of the initial public offering and have been included
in the calculation as if they were outstanding for all periods presented
(using the treasury stock method and an assumed initial public offering price
of $8.00 per share).
Pursuant to the policy of the SEC Staff, the calculation of shares used in
computing pro forma net loss per share also includes all of the preferred
stock that will convert into shares of common stock upon completion of the
Offering (using the treasury stock method and an assumed initial public
offering price of $8.00 per share) as if they were outstanding for all
periods presented (see note 9).
(2) LICENSE AGREEMENT
In July 1995, the Company entered into an exclusive license agreement, as
amended, with Scantek which grants the Company the right to manufacture and
sell in the United States and Canada the BTAI test. The test is protected by
United States patents expiring February 26, 1997. The license agreement, as
amended, in addition to providing for the issuance of 675,000 shares of
common stock (see note 4), provides for a cash payment to Scantek of
$1,600,000, $150,000 of which has already been paid at December 31, 1995 and
$400,000 of which is to be funded from the proceeds of additional bridge
financings or the private placement, but no later than May 31, 1996 (see note
9). Thereafter (subject to the Company accepting the production line
described in note 6), $175,000 is payable on December 31, 1997, $175,000 on
March 31, 1998, $350,000 on October 31, 1998 and $350,000 on January 31,
1999. Surplus cash flow (one half of net income, as defined in the license
agreement, subject to certain adjustments) after the Company begins
operations is to be applied to unpaid installments of the cash portion of the
licensing fee in inverse order of maturity. Scantek is entitled to advance
payments as follows: (i) $100,000 (applied to unpaid installments of the cash
portion of the licensing fee in direct order of maturity) upon the later of
(x) the investment at any time by a distributor of $500,000 in the Company by
exercising its warrant for 125,000 shares of the Company's common stock (see
note 6) and (y) the shipment by the Company of the first order of the BTAI
test to the distributor; (ii) $300,000 (of which $100,000 is to be applied to
unpaid installments of the cash portion of the licensing fee in direct order
of maturity and the other $200,000 to be applied in inverse order of
maturity) upon the earlier to occur of (a) the extension of the relevant
patents at least through January 1, 2003 or (b) Scantek's obtaining a new
United States patent on the product; and (iii) if the circumstances described
in the preceding clause (ii) have not occurred and if Scantek has filed an
application for a new United States patent on the product at least one week
prior to the first road show for an initial public offering of the Company's
securities, Scantek is entitled to an advance payment of $100,000
F-8
<PAGE>
HUMASCAN INC.
(A Development Stage Enterprise)
Notes to Financial Statements - (Continued)
(2) License Agreement - (Continued)
from the proceeds of the closing of the public offering (which shall be
deemed a partial advance of the $300,000 payable pursuant to such clause (ii)
and which is to be applied to the unpaid installments of the cash portion of
the licensing fee in direct order of maturity). The license agreement also
provides for minimum annual royalty payments ranging from $150,000 in the
first year in which the product is sold to $600,000 in the fifth and
subsequent years (the Minimum Royalties) and maximum royalty payments ranging
from 3% of annual net product sales of up to $2,000,000 to 10% of the annual
net product sales if annual net product sales exceed $10,000,000 (the
Percentage Royalties). In addition, the license agreement will automatically
terminate if the aggregate earned royalties for the first three years the
product is sold do not exceed $950,000 (the Threshold Earned Royalties). The
Minimum Royalties and Threshold Earned Royalties automatically terminate
after February 26, 1997 (the date the relevant patents expire) if a
competitor introduces a product which would have infringed upon such patents.
In addition, the Percentage Royalties are reduced or eliminated if the
Company reduces the price of its product below certain preset amounts.
At December 31, 1995, the Company has accrued the remaining $1,450,000 of
license fees due to Scantek and has charged the entire consideration for the
license, in accordance with published SEC Commission rules and regulations
regarding transfers of nonmonetary assets by promoters and shareholders,
against additional paid-in capital in the accompanying financial statements.
The reduction in paid-in capital reflects the equivalent of a return of
capital to be paid in accordance with the terms of the license out of the
proceeds of future equity offerings (see note 9). The Chairman of the Board
of Directors and majority owner of Scantek, who is the principal inventor of
the BTAI test, is also a member of the Board of Directors of the Company.
(3) DUE TO OFFICER
The majority stockholder and chief executive officer of the Company has
agreed to loan the Company up to $200,000 prior to the initial closing of the
private placement (see note 9), at which time he has agreed to purchase two
of the units offered, and any outstanding amount due from the Company
pursuant to the loans will be applied to such purchase and any amounts in
excess of the first installment (which aggregates $74,000) of the purchase
price for the units (which aggregates $200,000) will be repaid to him.
Amounts advanced as of December 31, 1995 totalled $125,000.
(4) STOCKHOLDERS' DEFICIT
At December 31, 1995, the Company was authorized to issue 5,000,000 shares
of common stock, par value $.01 per share (see note 9). The holders of common
stock are entitled to one vote for each share held of record on all matters
to be voted on by the common stockholders. The holders of common stock are
entitled to receive dividends when, as, and if declared by the Board of
Directors out of funds legally available for them. In the event of
liquidation, dissolution or winding-up of the Company, the holders of common
stock are entitled to share ratably together with the holders of the Series A
Convertible Preferred Stock to be issued in connection with the private
placement (see note 9) in all assets remaining which are available for
distribution to them after payment of liabilities and after provision has
been made for each class of stock having preference over the common stock.
Holders of shares of common stock, as such, have no conversion, preemptive or
other subscription rights, and there are no redemption provisions applicable
to the common stock.
Upon completion of the private placement (see note 9), the Company will be
authorized to issue 4,175,000 shares of preferred stock, which may have such
preferences and rights as the Board of Directors may designate, and the
Company will have one class of preferred stock designated as Series A
Convertible Preferred Stock, up to 4,175,000 shares of which will be
outstanding (assuming the maximum number of units provided for in the private
placement are sold and all of the November bridge promissory notes are
converted into 262,500 shares of Series A Convertible Preferred Stock (see
note 8).
F-9
<PAGE>
HUMASCAN INC.
(A Development Stage Enterprise)
Notes to Financial Statements - (Continued)
(4) Stockholders' Deficit - (Continued)
Each share of Series A Convertible Preferred Stock is convertible into
shares of common stock on a one- for-one basis and is automatically converted
into common stock upon an underwritten public offering of the Company's
securities registered pursuant to the Securities Act of 1933 in which the
Company receives gross proceeds of at least $10,000,000 or such lesser amount
as may be determined by a majority of certain preferred stock directors (a
Qualified IPO (see note 9).
The holders of shares of Series A Convertible Preferred Stock will be
entitled to vote on all matters for which holders of common stock are
entitled to vote on an as-if-converted basis. In addition, they will have
special voting rights with respect to the election of directors and as
otherwise provided by law or in the terms of such preferred stock. As long as
at least one-third of the shares of the Series A Convertible Preferred Stock
issued in connection with the private placement (see note 9) remain
outstanding: (i) the holders of Series A Convertible Preferred Stock, voting
as a class, will be entitled to elect at least three directors to the
Company's Board of Directors and (ii) notwithstanding clause (i) above, until
the completion of a Qualified IPO, the holders of a majority of the Series A
Convertible Preferred Stock will be entitled by written notice to the Company
at any time to determine the size of and to elect the entire Board of
Directors of the Company (other than two individuals entitled to be
designated pursuant to separate agreements). Such Board of Directors must
approve, by affirmative vote, the payment of dividends, the issuance of any
capital stock, the issuance of debt and certain other activities of the
Company.
The holders of Series A Convertible Preferred Stock and the holders of
common stock will be entitled to receive, on a share-for-share basis,
dividends when and as declared by the Board of Directors of the Company.
In the event of any liquidation, dissolution or winding-up of the Company,
holders of the Series A Convertible Preferred Stock will be entitled to an
amount equal to $2.67 per share, subject to adjustment in connection with
certain anti-dilution provisions, plus the amount of any dividend previously
declared with respect to such Preferred Stock and remaining unpaid, before
any payments are made to the holders of common stock. After such amount has
been paid to the holders of Series A Convertible Preferred Stock, any
additional funds available for distribution to the Company's shareholders
will be allocated equally among the holders of Series A Convertible Preferred
Stock and the holders of common stock, on a share-for-share basis (deeming
each share of Series A Convertible Preferred Stock to equal the number of
shares of common stock into which it is convertible). In the event that the
Company has insufficient funds to pay the full liquidation preference payable
to the holders of Series A Convertible Preferred Stock, the existing funds
will be allocated among the holders of all such shares pro rata in proportion
to the full amounts to which they would respectively be entitled.
Any outstanding shares of Series A Convertible Preferred Stock will be
redeemed by the Company, at the option of the holder, during the 12-month
period following (i) the date of death of the Company's president; or (ii)
the third anniversary of the initial closing date of the private placement if
a Qualified IPO has not been completed prior to such date for an amount equal
to the conversion value of such stock plus any accrued but unpaid dividends
(currently $2.67 per share).
Although no assurance can be given that the Company will ever become
publicly traded, the Company has agreed (at any time during the five-year
period following the earlier to occur of (i) the date on which the Company
receives the net proceeds from a Qualified IPO; or (ii) the third anniversary
of the initial closing date of the private placement) to give holders of the
common stock issuable upon conversion of the Series A Convertible Preferred
Stock and upon exercise of warrants included in the units and conversion of
certain bridge loans (see notes 8 and 9) and issuable pursuant to certain
warrant arrangements (collectively such common stock is called the
Registrable Securities) unlimited "piggy-back" and demand registration
rights, with respect to the inclusion of any Registrable Securities owned by
such holders or issuable to them in any registration statement filed with the
SEC pursuant to the Securities Act of 1933, as amended, relating to an
offering of its securities to the public, provided that a majority vote of
the holders of Registrable Securities (or securities exercisable for or
convertible into Registrable Securities, treating for purposes of this
calculation all such securities as having been exercised for or converted
into Registrable Securities) is required to exercise any such demand right,
and subject to the provisions relating to a lock-up period, as defined.
F-10
<PAGE>
HUMASCAN INC.
(A Development Stage Enterprise)
Notes to Financial Statements - (Continued)
(4) Stockholders' Deficit - (Continued)
In connection with the private placement and prior to a Qualified IPO, the
chief executive officer of the Company has granted the holders of Series A
Convertible Preferred Stock (or the underlying common stock if in the event
of a conversion) the right to participate on a pro rata basis in the sale of
any common stock or common stock equivalents owned by him or his successors
or assigns, based on the number of common shares into which the preferred
stock owned by such holder is convertible or has been converted, the number
of such shares held by such other holders electing to participate, and the
number of such shares of common stock and common stock equivalents owned by
him.
As of inception, the Company issued 750,000 shares of its common stock at
$.067 per share to its chief executive officer and 75,000 shares at $.16 per
share to certain other investors. The Company also issued 22,500 and 225,000
shares of its common stock at $.16 and $.67 per share, respectively, in March
1995 pursuant to various subscription agreements.
In March 1995, the Company issued 675,000 shares of its common stock,
valued at $.067 per share, in conjunction with a license agreement with
Scantek (see note 2). The agreement requires the Company to increase or
decrease the number of shares upon the occurrence of a private placement
offering so that Scantek owns 20% of the issued and outstanding shares of the
Company's common stock at the completion of the private placement (see note
9). If the Company completes a second offering which would result in proceeds
to the Company that aggregate at least $10,000,000 ($15,000,000 if Scantek
gives the Company a Qualified Purchase Order (QPO) as defined in the License
Agreement of at least $1,000,000) when combined with the first private
placement offering which results in Scantek's ownership of less than 15% of
the issued and outstanding shares of the Company's common stock, Scantek will
receive warrants to purchase shares of the Company's common stock at an
exercise price of $5.33 ($3.33 if the Company receives the QPO) per share on
a one-for-one basis so that the sum of the common stock and warrants issued
to Scantek aggregate 15% of the issued and outstanding shares of the
Company's common stock. The aforementioned warrants expire five years from
the date of issuance.
(5) STOCK OPTION PLANS
As of January 12, 1996, the Company adopted its 1995 Stock Incentive Plan
(the Plan) permitting the Board of Directors to grant options to purchase
shares of common stock to certain persons. The Plan provides the Company's
Compensation Committee of the Board of Directors with the discretion to grant
or award to participants incentive stock options and nonqualified stock
options together with stock appreciation rights and/or restricted stock.
Pursuant to the grant of incentive stock options, nonqualified stock options,
and stock appreciation rights, the maximum number of shares of common stock
which may be awarded under the Plan is 750,000 shares. The maximum number of
shares issuable pursuant to the Plan will be increased by the number of
shares with respect to which rights previously granted have expired.
As of January 12, 1996, the Company also adopted a Nonemployee Director
Stock Option Plan (the Director's Plan) in which certain directors of the
Company, as defined, are eligible to participate. Two thousand shares are
automatically granted at an exercise price equal to the fair market value of
the Company's common stock to each eligible director upon the adoption of the
Director's Plan and on the date of the annual meeting of the Company (6,000
such options were granted on January 12, 1996 at an exercise price of $2.93).
Such options vest at a rate of 25% per year from the date of grant. The
maximum number of shares with respect to which options may be granted under
the Director's Plan is 75,000 shares.
In addition to the options provided for in the aforementioned Plans, in
February 1996, 93,750 options were issued to certain officers, employees and
consultants at an exercise price of $5.33 per share, each with a five- year
term.
F-11
<PAGE>
HUMASCAN INC.
(A Development Stage Enterprise)
Notes to Financial Statements - (Continued)
(6) COMMITMENTS
The Company has arranged for the construction of an automated production
line for the assembly of the BTAI test pursuant to a $1,750,680 fixed-price
turnkey construction contract (the Turnkey Construction Contract). The
Turnkey Construction Contract provides payments in stages over a 15-month
period. Payments in accordance with the terms of this agreement aggregated
$105,000 as of December 31, 1995. Such amount is included in other assets in
the accompanying balance sheet. An additional $615,000 will be paid from the
proceeds of the private placement or additional bridge financings in 1996
(see note 9). The vendor's president is the son of the Chairman of the Board
of Scantek. The Company has agreed to pay the vendor a bonus of up to $25,000
and 18,750 warrants to purchase the Company's common stock at an exercise
price of $5.33 per share upon the timely completion of the production line.
Pursuant to an agreement dated November 15, 1995, the Company entered into
an agreement with a placement agent to sell its securities on a best efforts
basis through a private placement (the Placement Agreement) (see note 9).
Fees for the agent will be 7% of the gross proceeds received by the Company
in the private placement and certain other financings. The Company will also
reimburse the placement agent for its expenses, including legal fees,
incurred in connection with the private placement. Additionally, the Company
has agreed to issue to the placement agent one warrant to purchase one share
of common stock for each $15 of units sold pursuant to the private placement
and certain other financings, but for not less than 300,000 shares of common
stock, all exercisable at $2.93 per share. Amounts advanced to the placement
agent and its attorneys aggregated $40,000 as of December 31, 1995 which is
included in other assets in the accompanying balance sheet.
The Company has signed, effective January 1, 1996, a three-year employment
agreement with its chief executive officer, with a rolling one-year renewal.
Annual compensation under the agreement includes a base salary of $145,000
and a bonus, pursuant to a formula based on net earnings of the Company, of
up to 100% of such salary. In addition, options to purchase 37,500 shares of
common stock at an exercise price of $5.33 per share were issued in
connection with the signing of the agreement. Such options expire in five
years.
The Company entered into an exclusive distribution agreement (Distribution
Agreement) in February 1996. The Distribution Agreement covers exclusive
United States rights and provides for the parties to cooperate on plans and
preparations for the regional and national introduction of the BTAI test
prior to the first production, sales and deliveries to physicians. The term
of the Distribution Agreement continues until terminated by either party for
certain material breaches which are not cured within prescribed time limits.
A representative of the distributor shall be nominated to the Board of
Directors of the Company. In connection with the Distribution Agreement, the
Company also has issued to the distributor warrants to purchase 125,000
shares of common stock at an exercise price of $4.00 per share (aggregating
$500,000), and the distributor is obligated to exercise such warrants within
90 days after both (i) the first 50,000 saleable BTAI test units have been
provided to the distributor and (ii) an officer of the Company certifies in
good faith to the distributor that the Company has no reason to believe it
will be unable to supply sufficient product to the distributor to achieve the
Distribution Agreement's first operating year objective. The Distribution
Agreement restricts such $500,000 solely for use by the Company for
advertising and promotion of the BTAI test. In accordance with Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," $10,000 of expense will be recorded upon the signing of the
agreement as an estimate of the value of such warrants.
(7) INCOME TAXES
No income tax expense has been recorded by the Company as the majority of
costs incurred as a development stage enterprise are capitalized for income
tax purposes. Such costs will be amortized over 60 months upon the
commencement of operations.
F-12
<PAGE>
HUMASCAN INC.
(A Development Stage Enterprise)
Notes to Financial Statements - (Continued)
(7) Income Taxes - (Continued)
At December 31, 1995, under Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes" (Statement 109), the Company has a
deferred tax asset relating to the future tax deductibility of such start-up,
organizational and deferred offering costs. There are no assurances that the
Company will be profitable in the future and, accordingly, a 100% provision
against the deferred tax asset has been recorded.
(8) BRIDGE FINANCING
On November 30, 1995, the Company sold an aggregate of $350,000 principal
amount of secured convertible promissory notes (November Bridge Notes) to
certain accredited investors (November Bridge Investors). The notes bear
interest at the rate of 10% per annum, mature on August 30, 1996, and are
secured by all of the assets of the Company. Certain of the notes are also
secured by the shares of the Company's common stock owned by the Company's
chief executive officer and one of its founders. The notes will be
automatically converted into .75 share of Series A Convertible Preferred
Stock and one fifth of a warrant to purchase a share of common stock at $2.93
for each $1.00 principal amount of such note if the Company issues and sells
the minimum number of units provided for in the private placement (see note
9).
(9) SUBSEQUENT EVENTS
On May 15, 1996, the Company completed a private placement for 71.5 units
(Units) for committed gross proceeds of $7,150,000 before commissions and
related expenses of approximately $1,000,000. Each Unit consists of 37,500
shares of the Company's Series A Convertible Preferred Stock, which are
convertible into shares of common stock on a one-for-one basis, and warrants
to purchase 7,500 shares of the Company's common stock for $2.93 per share.
The warrants expire on the fifth anniversary of the closing of the sale of
the Units. Such amount includes 37% of the purchase price for each Unit which
was paid at the time the Unit was purchased (the Initial Closing), and the
balance of the purchase price is to be paid thereafter in unequal
installments of 13%, 21%, 20% and 9%, on August 15, 1996, October 15, 1996,
January 15, 1997 and March 15, 1997, respectively, subject to certain
consequences of failure to pay any installment of the purchase price. If
prior to March 1, 1997 there occurs a Qualified IPO, then at the time of the
closing of the Qualified IPO: (i) the purchase price of the Units will be
automatically reduced by an amount equal to any installments not yet due and
payable at the time the registration statement relating to such offering is
declared effective under the Securities Act of 1933; and (ii) the shares
included therein will be deemed fully paid and nonassessable.
In connection with the closing of the private placement, the Company
issued 329,063 additional shares of common stock to Scantek in exchange for
the termination of its right, pursuant to the license agreement, to maintain
a 15% beneficial ownership interest in the Company if the Company completes
an initial public offering, as defined in the license agreement, by December
31, 1996 (see note 4).
On March 19, 1996, the Company issued an aggregate of $460,000 principal
amount of secured promissory notes (the March Bridge Notes) and warrants for
224,250 shares of the Company's common stock (at $0.67 per share exercise
price) (the March Bridge Warrants) to 15 accredited investors (the March
Bridge Investors). The March Bridge Notes bore interest at the rate of 10%
per annum, were to mature on the earlier of the Initial Closing or May 31,
1996, were secured by all of the assets of the Company and were senior in
right of payment and security to the November Bridge Notes. The proceeds
received from the March Bridge Investor were allocated between the March
Bridge Notes and the March Bridge Warrants. The $343,485 difference between
the principal amount of the March Bridge Notes and the amount allocated is to
be accreted and charged to operations over the term of the March Bridge
Notes. The March Bridge Notes were converted into the initial 37% purchase
price of 11.75 Units at the initial closing. Accrued interest through May 15,
1996 was paid to the March Bridge Investors.
Also at the Initial Closing, all of the November Bridge Notes to the
Company were converted in exchange for a total of 262,500 shares of Series A
Convertible Preferred Stock.
F-13
<PAGE>
HUMASCAN INC.
(A Development Stage Enterprise)
Notes to Financial Statements - (Continued)
(9) Subsequent Events - (Continued)
In connection with the private placement, the Company also issued
additional private warrants to certain investors totalling 198,750 shares of
common stock at a price of $2.93 per share. These include 161,250 warrants
which (i) may be exercised in full if the common stock has been trading in
the public market at a price per share of at least $7.33 before a date which
is six months after the Initial Closing, (ii) may be exercised for an
aggregate of only 52,500 shares of common stock if the common stock has been
trading publicly at a price per share of at least $7.33 more than six months
but less than nine months from the Initial Closing, and (iii) may not be
exercised at all if the common stock does not trade in the public market at a
price per share of at least $7.33 within nine months after the Initial
Closing. Pursuant to the Placement Agreement, the Company also issued to the
placement agent warrants to purchase 400,000 shares of common stock at $2.93
per share. Also in connection with the private placement, the Company's chief
executive officer exchanged $34,000 of amounts due to him in payment of the
purchase price for two Units, together with $40,000 of March Bridge Notes.
The remaining $91,000 of such loan was repaid from the proceeds of the
private placement together with accrued interest on such March Bridge Notes.
The Company signed an agreement with the placement agent for consulting
services for 36 months at a rate of $2,000 per month (beginning May 1996).
Subsequent to June 20, 1996, the Company effected a four-to-three reverse
stock split of all outstanding shares of common stock including shares
issuable under any share option plan. All common share, per share and pro
forma per share amounts in the accompanying financial statements have been
retroactively restated to reflect this reverse stock split.
In May 1996, the authorized capital stock of the Company was amended to
consist of 14,000,000 shares of common stock, 4,175,000 shares of Series A
Convertible Preferred Stock and 1,825,000 shares of undesignated preferred
stock (the Undesignated Preferred Stock).
The Company's certificate of incorporation now provides that the Company
may, by vote of its Board of Directors, issue the Undesignated Preferred
Stock in one or more series having the rights, preferences, privileges and
restrictions thereon, including dividend rights, dividend rates, conversion
rights, voting rights, terms of redemption, redemption prices, liquidation
preferences and the number of shares constituting any series or designation
of such series, without further vote or action by the stockholders. The
issuance of Undesignated Preferred Stock may have the effect of delaying,
deferring or preventing a change in control of the Company without further
action by the stockholders and may adversely affect the voting and other
rights of the holders of common stock. The issuance of Undesignated Preferred
Stock with voting and conversion rights may adversely affect the voting power
of the holders of common stock, including the loss of voting control to
others.
F-14
<PAGE>
HUMASCAN INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED BALANCE SHEETS
MARCH 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Pro Forma
March 31, March 31,
Assets 1996 1996
------ ------------- -------------
<S> <C> <C>
Cash .......................................................... $ 229,294 $ 611,148
Property, plant and equipment, net ............................ 52,503 52,503
Other assets .................................................. 495,000 720,000
------------- -------------
Total assets ........................................ $ 776,797 $ 1,383,651
============= =============
Liabilities and Stockholders' Equity (Deficit)
----------------------------------------------
Notes payable ................................................. $ 540,119 $ --
Accrued expenses .............................................. 1,552,790 1,221,350
Due to officer ................................................ 125,000 --
Obligations under capital lease ............................... 7,436 7,436
------------- -------------
Total current liabilities ........................... 2,225,345 1,228,786
Obligations under capital lease, noncurrent portion ........... 41,980 41,980
------------- -------------
Total liabilities ................................... 2,267,325 1,270,766
------------- -------------
Stockholders' equity (deficit):
Preferred stock, $0.01 par value, 6,000,000 shares authorized,
no shares issued and outstanding (2,943,750 pro forma shares
issued and outstanding) ................................ -- 29,438
Common stock, $0.01 par value, 14,000,000 shares authorized;
1,747,500 shares issued and outstanding (2,076,563 pro forma
shares issued and outstanding) ......................... 17,475 20,766
Additional paid-in capital ............................... (1,058,390) 5,261,475
Deficit accumulated during the development stage ......... (449,613) (719,494)
Stock subscriptions receivable ........................... -- (4,479,300)
------------- -------------
Total stockholders' equity (deficit) ................ (1,490,528) 112,885
------------- -------------
Commitments
Total liabilities and stockholders' equity (deficit) . $ 776,797 $ 1,383,651
============= =============
</TABLE>
See accompanying notes to unaudited condensed financial statements.
F-15
<PAGE>
HUMASCAN INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
AND FOR THE PERIOD FROM DECEMBER 27, 1994
(DATE OF INCEPTION) TO MARCH 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Period from
Three months December 27,
ended March 31, 1994 (date of
---------------------------- inception) to
1996 1995 March 31, 1996
------------- ----------- --------------
<S> <C> <C> <C>
Interest income ..................................... $ 1,246 $ -- $ 2,145
------------- ----------- ------------
Operating expenses:
Salaries .......................................... 55,589 -- 55,589
Consulting fees ................................... 21,892 26,500 114,734
Legal and professional fees ....................... 39,323 20,683 139,295
Interest .......................................... 87,605 -- 94,646
Other ............................................. 35,199 2,191 47,494
------------- ----------- ------------
239,608 49,374 451,758
------------- ----------- ------------
Net loss ............................................ $ (238,362) $(49,374) $(449,613)
============= =========== ============
Pro forma net loss per share ........................ $ (.05)
=============
Shares used in computing pro forma net loss per share . 4,831,917
=============
</TABLE>
See accompanying notes to unaudited condensed financial statements.
F-16
<PAGE>
HUMASCAN INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE PERIOD FROM DECEMBER 27, 1994
(DATE OF INCEPTION) TO DECEMBER 31, 1995 AND
FOR THE THREE MONTHS ENDED MARCH 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Deficit
Common stock accumulated
------------------------- Additional during
Shares paid-in development
issued Amount capital stage Total
----------- ---------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Issuance of shares of common stock
upon incorporation ............. 825,000 $ 8,250 $ 53,750 $ -- $ 62,000
Issuance of shares of common stock
pursuant to subscription agreements 247,500 2,475 151,125 -- 153,600
Issuance of shares of common stock
in connection with license
agreement ...................... 675,000 6,750 (1,606,750) -- (1,600,000)
Net loss ........................ -- -- -- (211,251) (211,251)
----------- ---------- -------------- ------------- --------------
Balance, December 31, 1995 ...... 1,747,500 $17,475 (1,401,875) (211,251) (1,595,651)
Issuance of common stock warrants in
connection with bridge financing
(unaudited) .................... -- -- 343,485 -- 343,485
Net loss (unaudited) ............ -- -- -- (238,362) (238,362)
----------- ---------- -------------- ------------- --------------
Balance, March 31, 1996 (unaudited) 1,747,500 $17,475 $(1,058,390) $(449,613) $(1,490,528)
=========== ========== ============== ============= ==============
</TABLE>
See accompanying notes to unaudited condensed financial statements.
F-17
<PAGE>
HUMASCAN INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
AND FOR THE PERIOD FROM DECEMBER 27, 1994
(DATE OF INCEPTION) TO MARCH 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Period from
Three months December 27,
ended March 31, 1994 (date of
----------------------------- inception) to
1996 1995 March 31, 1996
------------- ------------ --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss .......................................... $ (238,362) $ (49,374) $ (449,613)
Adjustments to reconcile net loss to net cash used in
operating activities:
Noncash miscellaneous expenses ................. 10,000 -- 50,350
Noncash interest expense ....................... 87,605 -- 94,646
Depreciation expense ........................... 1,886 -- 1,886
Changes in operating assets and liabilities:
Decrease in prepaid expenses ................. 5,000 -- --
Increase in accrued expenses ................. 35,218 -- 38,398
------------- ------------ ------------
Net cash used in operating activities ..... (98,653) (49,374) (264,333)
------------- ------------ ------------
Cash flows from investing activities:
Increase in other assets .......................... (350,000) -- (350,000)
Purchases of property, plant and equipment ........ -- -- (4,400)
Payments for production line ...................... -- -- (105,000)
Payments in connection with license agreement ..... -- (100,000) (150,000)
------------- ------------ ------------
Net cash used in investing activities ..... (350,000) (100,000) (609,400)
------------- ------------ ------------
Cash flows from financing activities:
Increase in other assets .......................... -- -- (40,000)
Proceeds from issuance of common stock ............ -- 203,600 208,600
Proceeds from officer loan ........................ -- -- 125,000
Proceeds from borrowings of notes payable ......... 460,000 -- 810,000
Principal payments on obligation under capital lease (573) -- (573)
------------- ------------ ------------
Net cash provided by financing activities . 459,427 203,600 1,103,027
------------- ------------ ------------
Net increase in cash ................................ 10,774 54,226 229,294
Cash, beginning of period ........................... 218,520 -- --
------------- ------------ ------------
Cash, end of period ................................. $ 229,294 $ 54,226 $ 229,294
============= ============ ============
Supplemental disclosure of noncash transactions:
Amounts due in connection with license agreement . $ -- $1,500,000 $1,450,000
============= ============ ============
Common stock issued in connection with license
agreement .................................... $ -- $ 9,000 $ 9,000
============= ============ ============
Equipment acquired under capital lease ......... $ 49,989 $ -- $ 49,989
============= ============ ============
</TABLE>
See accompanying notes to unaudited condensed financial statements.
F-18
<PAGE>
HUMASCAN INC.
(A DEVELOPMENT STAGE ENTERPRISE)
Notes to Condensed Financial Statements
March 31, 1996 and 1995
(UNAUDITED)
(1) BASIS OF PRESENTATION
The unaudited condensed financial statements included herein have been
prepared by HumaScan Inc. (the Company), without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission and in accordance
with generally accepted accounting principles. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed
or omitted pursuant to such rules and regulations. These unaudited financial
statements should be read in conjunction with the 1995 financial statements
and notes thereto.
In the opinion of the Company's management, the accompanying unaudited
condensed financial statements have been prepared on a basis substantially
consistent with the audited financial statements and contain adjustments, all
of which are of a normal recurring nature, necessary to present fairly its
financial position as of March 31, 1996 and its results of operations and
cash flows for the three months ended March 31, 1996 and 1995 and for the
period December 27, 1994 (date of inception) to March 31, 1996. Interim
results are not necessarily indicative of results for the full fiscal year.
The Company effected a four-to-three reverse stock split of its common
stock subsequent to June 20, 1996. All common share, per share and pro forma
per share amounts in the accompanying financial statements have been
retroactively adjusted to reflect this reverse stock split.
(2) BRIDGE FINANCING
On March 19, 1996, the Company sold an aggregate of $460,000 principal
amount of secured promissory notes (the March Bridge Notes) and warrants for
224,250 shares of the Company's common stock (at $.67 per share exercise
price) (the March Bridge Warrants) to 15 accredited investors (the March
Bridge Investors) for an aggregate consideration of $460,000. The March
Bridge Notes bear interest at the rate of 10% per annum, mature on the
earlier of the initial closing of the May 1996 private placement or May 31,
1996, are secured by all of the assets of the Company and are senior in right
of payment and security to a prior issuance of secured convertible promissory
notes. The March Bridge Notes were converted into the initial 37% purchase
price of 11.75 units at the initial closing of the May 1996 private
placement.
The proceeds received from the March Bridge Investors were allocated
between the March Bridge Notes and the March Bridge Warrants. The $343,485
difference between the principal amount of the March Bridge Notes and the
amount allocated is to be accreted and charged to operations over the term of
the March Bridge Notes. As such, $73,604 was recorded as additional interest
expense during the three months ended March 31, 1996.
(3) AMENDMENT TO STOCK OPTION PLANS
In June 1996, the Company terminated its 1995 Stock Incentive Plan and the
Nonemployee Director Stock Option Plan and reserved an aggregate of 700,000
shares for the 1996 Stock Incentive Plan.
(4) COMMON STOCK OPTIONS
In June 1996, the Company agreed to grant to a recently hired officer the
following stock options to purchase shares of common stock:
o 11,250 options at an exercise price of $5.33 per share which vest in
April 1997; and,
o 35,000 options at an exercise price equal to the initial public
offering price per share (contingent upon the closing of the proposed
offering) which vest on a monthly basis over 20 months, beginning in
April 1997.
F-19
<PAGE>
HUMASCAN INC.
(A Development Stage Enterprise)
Notes to Condensed Financial Statements - (Continued)
In addition, the Company agreed to grant an officer 24,000 and a
consultant 9,000 stock options, vesting ratably over two years, at the
initial public offering price per share (contingent upon the closing of the
proposed offering).
(5) APPROVAL OF INITIAL PUBLIC OFFERING
In June 1996, the Board of Directors authorized the Company to file a
registration statement with the Securities and Exchange Commission permitting
the Company to sell approximately 2,500,000 shares (2,875,000 shares if the
underwriters' over-allotment option is exercised in full) of its common stock
at a price per share to be negotiated.
(6) LEASE COMMITMENT
In June 1996, the Company leased a facility under a six year lease with
aggregate rental payments of $875,400.
(7) PRO FORMA BALANCE SHEET
The unaudited pro forma March 31, 1996 balance sheet has been prepared
using the unaudited March 31, 1996 historical balance sheet of the Company
and reflects the effects of the following transactions (all of which are
assumed to have occurred at March 31, 1996):
o The conversion/partial repayment of amounts due to the chief executive
officer.
o The conversion of the $350,000 November Bridge Notes into 262,500
shares of Series A Convertible Preferred Stock.
o The issuance of an additional 329,063 shares of common stock to Scantek
in connection with the terms of the 1995 license agreement.
o The conversion of the $460,000 March Bridge Notes in connection with
the sale of 71.5 units in a private placement, resulting in the
issuance of 2,681,250 shares of Series A Convertible Preferred Stock.
The unamortized debt discount described in note 2 above, which totalled
$269,881 at March 31, 1996, was recorded as a charge directly to the
deficit accumulated during the development stage. Immediate proceeds of
such sale represent 37% of the total $7,150,000 consideration for all
the units, less the $460,000 March Bridge Financing amount, in
accordance with the terms of the private placement. Remaining amounts
are due in the next 12 months unless a Qualified IPO is completed, as
defined.
o Cash payments made at closing for interest on various previous
financings, private placement expenses, including the placement agent
fee, required license payments to Scantek ($375,000) and payments to
the vendor in accordance with the terms of the Turnkey Construction
Contract ($265,000) have also been reflected.
The unaudited pro forma balance sheet should be read in conjunction with
the Company's historical financial statements and accompanying notes thereto.
F-20
<PAGE>
BreastAssure Method of Use
FIGURE A
The thermal dots on the BreastAssure[TM] device are blue when removed from the
package.
[Artwork depicting BreastAssure device prior to use]
Each column of thermal dots will change color at a pre-set temperature. Column 1
starts at 90 degrees F and each adjacent column is 0.5 degrees higher, so that
column 18 reads 98.5 degrees F.
FIGURE B
After the device is worn by the patient for 15 minutes, some of the columns of
thermal dots will turn pink due to heat emitted from the breast. A 4 column
difference between opposite segments is a positive test result.
[Artwork depicting BreastAssure device after use
with results as indicated below]
On the orange segement of the left breast, 7 columns of dots have turned pink.
On the orange segement of the right breast, 12 columns of dots have turned pink.
Since a 4 column difference (2 degrees F) between opposite segments is a
positive test result, the above example, which shows a difference of 5 columns
(a 2.5 degrees F higher temperature on the right side) is a positive result.
<PAGE>
=============================================================================
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations in connection with this Offering
other than those contained in this Prospectus, and, if given or made, such
information or representation must not be relied upon as having been
authorized by the Company or any Underwriter. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any
securities offered hereby by anyone in any jurisdiction in which such offer
or solicitation is not authorized, or in which the person making such offer
or solicitation is not qualified to do so or to anyone to whom it is unlawful
to make such offer or solicitation. Neither the delivery of this Prospectus
nor any sale made hereunder shall, under any circumstances, create any
implication that there has been no change in the affairs of the Company since
the date hereof or that the information contained herein is correct as of any
time subsequent to the date hereof as of which such information is furnished.
------
TABLE OF CONTENTS
Page
--------
Prospectus Summary .......................... 3
Risk Factors ................................ 9
Use of Proceeds ............................. 16
Dividend Policy ............................. 17
Capitalization .............................. 18
Dilution .................................... 19
Management's Discussion and Analysis of Financial
Condition and Plan of Operation ............ 20
Business .................................... 24
Management .................................. 38
Principal Stockholders ...................... 43
Certain Transactions ........................ 46
Description of Securities ................... 48
Shares Eligible for Future Sale ............. 53
Underwriting ................................ 55
Legal Matters ............................... 56
Experts ..................................... 57
Additional Information ...................... 57
Index to Financial Statements ............... F-1
Until ________, 1996 (25 days after the date of this Prospectus), all
dealers effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This delivery requirement is in addition to the obligations of dealers to
deliver a Prospectus when acting as Underwriters and with respect to their
unsold allotments or subscriptions.
=============================================================================
<PAGE>
=============================================================================
2,500,000 SHARES
HumaScan Inc.
[LOGO]
COMMON STOCK
----------
PROSPECTUS
----------
KEANE SECURITIES CO., INC.
________, 1996
=============================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of Delaware, as amended
("GCL"), authorizes a Delaware corporation to indemnify its officers,
directors, employees and agents under certain circumstances against expenses
and liabilities incurred in legal proceedings involving such persons because
of their holding or having held such positions with the corporation and to
purchase and maintain insurance for such indemnification. The Company's
By-Laws and Article Tenth of its Certificate of Incorporation, as amended,
substantively provide that the Company indemnify its officers, directors,
employees and agents to the fullest extent permitted by Section 145 of the
GCL, and the Company intends to purchase insurance for such indemnification
upon consummation of this Offering.
Paragraph 7 of Section 102(b) of the GCL permits a Delaware corporation,
by so providing in its Certificate of Incorporation, to eliminate or limit
the personal liability of a director to the corporation for damages arising
out of certain alleged breaches of the director's duties to the corporation.
The GCL, however, provides that no such limitation of liability may affect a
director's liability with respect to any of the following: (i) for 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) for unlawful payment of
dividends or unlawful purchase or redemption of its capital stock, or (iv)
for any transaction from which the director derived an improper personal
benefit. Article Ninth of the Company's Certificate of Incorporation, as
amended, eliminates the personal liability of the directors of the Company to
the fullest extent permitted by Paragraph 7 of Section 102(b) of the GCL.
The form of Underwriting Agreement to be entered into by the Company and
Keane Securities Co., Inc. ("Keane"), as representative of the several
Underwriters of the Company's initial public offering (the "Representative"),
provides for indemnification of the Company's officers, directors and
controlling persons by the Underwriters against certain liabilities in
connection with the Company's initial public offering, including liabilities
under the Securities Act of 1933, as amended (the "Securities Act").
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The Company estimates that expenses payable by it in connection with the
Offering described in this Registration Statement (other than the
underwriting discount and and the non-accountable expense allowance) will be
as follows:
SEC registration fee ....................................... $ 8,758.62
NASD filing fee ............................................ 3,040.00
Printing and engraving expenses ............................ 100,000.00
Accounting fees and expenses ............................... 125,000.00
Legal fees and expenses (other than Blue Sky) .............. 150,000.00
Nasdaq filing fees ......................................... 10,000.00
Blue sky fees and expenses (including legal and filing fees) . 50,000.00
Miscellaneous .............................................. 53,201.38
-----------
Total ................................................... $500,000.00
===========
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
The following securities were issued by the Company within the past three
years and were not registered under the Securities Act. Each of the
transactions are claimed to be exempt from registration pursuant to Section
4(2) of the Securities Act as transactions by an issuer not involving a
public offering or Sections 4(6) or 3(b) of the Securities Act. All of such
securities are deemed to be restricted securities for the purposes of the
II-1
<PAGE>
Securities Act. All certificates representing such issued and outstanding
restricted securities of the Company have been properly legended and the
Company has issued "stop transfer" instructions to its transfer agent with
respect to such securities, which legends and stop transfer instructions are
presently in effect unless such securities have been registered under the
Securities Act or have been transferred pursuant to an appropriate exemption
from the registration provisions of the Securities Act.
1. At inception, in December 1994, the Company sold 750,000 shares of
Common Stock to Donald B. Brounstein, the Company's President and Chief
Executive Officer, for $50,000, 7,500 shares to each of Burton L. Eichler,
Leonard B. Brown and Robert Lane, its then directors, for an aggregate of
$36,000 and another 75,000 shares to Robert Lane for $12,000, 225,000 shares
to certain accredited investors for an aggregate of $150,000 and 75,000
shares to nine other accredited investors for certain pre-incorporation
services provided by such persons.
2. In July 1995, the Company issued to Scantek Medical, Inc. ("Scantek")
675,000 shares of Common Stock in connection with a License Agreement between
Scantek and the Company dated as of October 20, 1995, as amended (the
"License Agreement"). Scantek received an additional 329,063 shares of Common
Stock upon the closing of the May Private Placement (as hereinafter defined)
in exchange for the termination of Scantek's right, pursuant to the License
Agreement, to maintain a 15% beneficial ownership interest in the Company.
3. On November 30, 1995, the Company sold an aggregate of $350,000
principal amount of secured convertible promissory notes (the "November
Bridge Notes") to 14 accredited investors in a private placement. In
connection with the May Private Placement, all the November Bridge Notes were
converted into shares of Series A Convertible Preferred Stock ("Series A
Preferred Stock") and warrants to purchase shares of Common Stock at $2.93
per share ("Private Warrants") at the rate of one share of Series A Preferred
Stock and one-fifth of a Private Warrant for each $1.33 principal amount of
November Bridge Notes, resulting in the issuance of 262,500 Shares of Series
A Preferred Stock and Private Warrants to purchase 52,500 shares of Common
Stock, plus payment of accrued interest on such November Bridge Notes.
4. On February 27, 1996, in connection with a Distribution Agreement
entered into between the Company and Physician Sales & Service, Inc. ("PSS")
as of February 27, 1996, the Company issued to PSS five-year warrants to
purchase 125,000 shares of Common Stock at an exercise price of $4.00 per
share.
5. On March 19, 1996, the Company sold an aggregate of $460,000 principal
amount of secured promissory notes (the "March Bridge Notes") and warrants to
purchase 224,250 shares of Common Stock at $0.67 per share to 15 accredited
investors in a private placement ("March Bridge Investors"). In connection
with the May Private Placement, $434,800 in principal amount of the March
Bridge Notes (and $25,200 in principal amount, representing subscription
funds in excess of the initial subscription amounts due from four purchasers
of March Bridge Notes, which will be refunded to such purchasers if this
Offering closes before August 15, 1996) were canceled and applied to the
purchase price of an aggregate of 11.75 Units. Each Unit consisted of 37,500
shares of Series A Preferred Stock and Private Warrants to purchase 7,500
shares of Common Stock at $2.93 per share. The March Bridge Investors also
received payment of accrued interest on such notes.
6. In May 1996, the Company completed a private placement (the "May
Private Placement") in which it issued to 71 accredited investors an
aggregate of 71.5 Units, each Unit consisting of 37,500 shares of Series A
Preferred Stock and Private Warrants to purchase 7,500 shares of Common Stock
at $2.93 per share. The Company received gross initial proceeds of $2,645,000
from the May Private Placement (including $434,800 aggregate principal amount
of March Bridge Notes surrendered in payment of the initial purchase price
for 11.75 Units (including $40,000 in aggregate principal amount of March
Bridge Notes exchanged by Mr. Brounstein in partial consideration for two
Units purchased by him) and the cancellation $34,000 in principal amount of
certain loans made to the Company in 1995 by Mr. Brounstein in payment of the
balance of the purchase price for the Units purchased by him, but not
including $360,000 aggregate principal amount of November Bridge Notes
converted into one share of Series A Preferred Stock and one fifth of a
Private Warrant for each $1.33 principal amount of November Bridge Warrants
so converted. The Company issued one quarter of one Unit to Haythe & Curley,
the law firm that represented Burnham Securities Inc. ("Burnham"), the
placement agent in the May Private Placement, and one tenth of a Unit to
James J. Whidden, the Company's Senior Vice President of Clinical Development
(who was a consultant to the Company at the time of such issuance), in
exchange for services
II-2
<PAGE>
rendered). Such initial proceeds represented 37% of the purchase price of
such Units. The balance of the purchase price is to be paid in unequal
installments of 13%, 21%, 20% and 9%, on August 15, 1996, October 15, 1996,
January 15, 1997 and March 15, 1997, respectively. If a Qualified Initial
Public Offering (as defined in the Company's Certificate of Incorporation)
occurs prior to March 1, 1997, then upon consummation of such Qualified
Initial Public Offering (i) the purchase price of the Units will be
automatically reduced by an amount equal to any installments not yet due and
payable at the time the registration statement relating to the Qualified
Initial Public Offering is declared effective under the Securities Act, (ii)
the Series A Preferred Stock will convert automatically into Common Stock on
a share for share basis, and (iii) the shares of Common Stock issued upon
conversion of the Series A Preferred Stock will be deemed fully paid and
nonassessable. As currently contemplated, this Offering will be a Qualified
Initial Public Offering.
7. In connection with the May Private Placement, the Company issued
Private Warrants to Burnham, pursuant to a placement agreement between the
Company and Burnham dated as of November 16, 1995, to purchase 400,000 shares
of Common Stock at $2.93 per share, and Smith Barney Inc. to purchase 37,500
shares of Common Stock at $2.93 per share. All of such Private Warrants are
exercisable for a period of five years from the effective date of this
Registration Statement. Also in connection with the May Private Placement,
the Company issued warrants to purchase an aggregate of 161,250 shares of
Common Stock at $2.93 per share to Udi Toledano and members of his family and
Herbert V. Turk and members of his family. Such warrants (i) may be exercised
in full if the Common Stock has been trading in the public market at a price
per share of at least $7.33 before a date which is six months after the
closing of the May Private Placement (the "Initial Closing"), (ii) may be
exercised for an aggregate of only 52,500 shares of Common Stock if the
Common Stock has been trading publicly at a price per share of at least $7.33
more than six months but less than nine months from the Initial Closing, and
(iii) may not be exercised at all if the Common Stock does not trade in the
public market at a price per share of at least $7.33 within nine months after
the Initial Closing.
8. The Company has issued options to purchase Common Stock to certain
officers, employees and consultants to purchase a total of 177,500 shares of
Common Stock. Options for 131,250 of such shares are dated February 9, 1996,
have a five-year term and a purchase price of $5.33 per share, options for
11,250 shares are dated June 3, 1996, have a five-year term and an exercise
price of $5.33 per share, and options for 35,000 shares are dated June 3,
1996, have a five-year term and an exercise price equal to the initial public
offering price per share in this Offering.
ITEM 27. EXHIBITS
The following exhibits are filed as part of this Registration Statement:
<TABLE>
<CAPTION>
Exhibit No. Description
------------ ------------
<S> <C>
1.1* Form of Underwriting Agreement.
3.1 Certificate of Incorporation of the Company, as amended.
3.2 By-Laws of the Company.
4.1* Form of Common Stock Certificate.
4.2* Form of Series A Preferred Stock Certificate.
4.3* Form of Representative's Warrant Agreement between the Company and the Representative, including
Form of Representative's Warrant Certificate.
4.4 Form of Warrant Certificate for March Bridge Warrants.
4.5 Options issued to Certain Officers on February 9, 1996 and June 3, 1996.
4.6 Form of Private Warrants issued in connection with May Private Placement.
5.1* Opinion of Graubard Mollen & Miller.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
------------ ------------
<S> <C>
10.1 Distribution Agreement, dated as of February 27, 1996, between the Company and Physician Sales
& Service, Inc., as amended.((1))
10.2 License Agreement, dated as of October 20, 1995, between the Company and Scantek Medical, Inc.,
as amended.
10.3 Turnkey Construction Contract, dated as of October 31, 1995, between the Company and Zigmed,
Inc.
10.4 Voting and Stockholder Rights Agreement, dated as of May 15, 1996, among the Company, Burnham
Securities Inc., a consortium of individual investors led by Udi Toledano, The Travelers Insurance
Company, Smith Barney Worldwide Securities, Ltd. and Smith Barney Worldwide Fund, N.V.
10.5 Agreement, dated March 19, 1996, between the Company and Udi Toledano.
10.6 Agreement, dated March 19, 1996, between the Company and Herbert V. Turk.
10.7 Warrant Agreement between the Company and Physician Sales & Service, Inc.
10.8 Employment Agreement between the Company and Donald B. Brounstein, dated as of
January 1, 1996.
10.9 Employment Agreement between the Company and James J. Whidden, dated as of May 1, 1996.
10.10 Employment Agreement between the Company and Kenneth S. Hollander, dated as of June 3, 1996.
10.11* 1996 Stock Incentive Plan.
10.12 Nonemployee Director Stock Incentive Plan.
10.13 Financial Services Agreement, dated as of November 16, 1995, between the Company and Burnham
Securities Inc., as amended.
10.14 Lease, dated June 11, 1996, between the Moen Organization, Inc. and the Company.
23.1 Consent of KPMG Peat Marwick LLP.
23.2 * Consent of Graubard Mollen & Miller (included in Exhibit 5.1).
24.1 Power of Attorney (included on signature page to this Registration Statement).
27 Financial Data Schdule.
</TABLE>
- ------
* To be filed by amendment.
(1) Confidential treatment has been requested for portions of this exhibit.
ITEM 28. UNDERTAKINGS.
The undersigned Company hereby undertakes:
1. (a) To file, during any period in which it offers or sells
securities, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act.
(ii) To reflect in the prospectus any facts or events, which
individually or together, represent a fundamental change in the
information set forth in the Registration Statement. Notwithstanding
the foregoing, any increase or decrease in volume of securities offered
(if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end
II-4
<PAGE>
of the estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than a 20%
change in the maximum aggregate offering price set forth in the
Calculation of Registration Fee table in the effective Registration
Statement.
(iii) To include any additional information with respect to the
plan of distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement.
(b) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(c) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
2. To provide to the Underwriters at the closing specified in the
Underwriting Agreement certificates in such denominations and registered in
such names as required by the Underwriters to permit prompt delivery to each
purchaser.
3. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the provisions referred to under Item 24 of this
Registration Statement, or otherwise, the Company has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Company of expenses incurred or paid by a
director, officer or a controlling person of the Company in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or a controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of competent
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
4. (a) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Company pursuant to Rule 424(b)(1), or (4), or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time the Commission declared it effective.
(b) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as
amended, the Registrant certifies that it has reasonable grounds to believe
that it meets all the requirements for filing on Form SB-2 and authorized
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Cranford, State of New Jersey, on
June 20, 1996.
HUMASCAN INC.
By: /s/ Donald B. Brounstein
-------------------------------
Donald B. Brounstein,
President,
Chief Executive Officer and
Director
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Donald B. Brounstein his true and lawful
attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any or all amendments to this Registration Statement,
including post-effective amendments, and to file the same, with all exhibits
thereto, and all documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agent, full
power and authority to do and perform each and every act and thing requisite
and necessary to be done in and about the premises, as fully to all intents
and purposes as he might or could do in person, and hereby ratifies and
confirms all that said attorney-in-fact and agent, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed by the following persons
in the capacities and on the dates stated.
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ DONALD B. BROUNSTEIN
---------------------------- President, Chief Executive Officer and June 20, 1996
Donald B. Brounstein Director
/s/ KENNETH S. HOLLANDER
- ---------------------------- Chief Financial Officer (and principal June 20, 1996
Kenneth S. Hollander accounting officer)
/s/ STEVEN S. ELBAUM
- ---------------------------- Director June 20, 1996
Steven S. Elbaum
/s/ JACK L. RIVKIN
- ---------------------------- Director June 20, 1996
Jack L. Rivkin
/s/ JOHN F. SASEN, SR.
- ---------------------------- Director June 20, 1996
John F. Sasen, Sr.
/s/ UDI TOLEDANO
- ---------------------------- Director June 20, 1996
Udi Toledano
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
-------------- -------------------------------------------------------------------------------------
<S> <C>
1.1* Form of Underwriting Agreement.
3.1 Certificate of Incorporation of the Company, as amended.
3.2 By-Laws of the Company.
4.1* Form of Common Stock Certificate.
4.2* Form of Series A Preferred Stock Certificate.
4.3* Form of Representative's Warrant Agreement between the Company and the Representative,
including Form of Representative's Warrant Certificate.
4.4 Form of Warrant Certificate for March Bridge Warrants.
4.5 Options issued to Certain Officers on February 9, 1996 and June 3, 1996.
4.6 Form of Private Warrants issued in connection with May Private Placement.
5.1* Opinion of Graubard Mollen & Miller.
10.1 Distribution Agreement, dated as of February 27, 1996, between the Company and Physician
Sales & Service, Inc., as amended.((1))
10.2 License Agreement, dated as of October 20, 1995, between the Company and Scantek Medical,
Inc., as amended.
10.3 Turnkey Construction Contract, dated as of October 31, 1995, between the Company and Zigmed,
Inc.
10.4 Voting and Stockholder Rights Agreement, dated as of May 15, 1996, among the Company, Burnham
Securities, Inc., a consortium of individual investors led by Udi Toledano, The Travelers
Insurance Company, Smith Barney Worldwide Securities, Ltd. and Smith Barney Worldwide Fund, N.V.
10.5 Agreement, dated March 19, 1996, between the Company and Udi Toledano.
10.6 Agreement, dated March 19, 1996, between the Company and Herbert V. Turk.
10.7 Warrant Agreement between the Company and Physician Sales & Service, Inc.
10.8 Employment Agreement between the Company and Donald B. Brounstein, dated as of January
1, 1996.
10.9 Employment Agreement between the Company and James J. Whidden, dated as of May 1, 1996.
10.10 Employment Agreement between the Company and Kenneth S. Hollander, dated as of June 3,
1996.
10.11* 1996 Stock Incentive Plan.
10.12 Nonemployee Director Stock Incentive Plan.
10.13 Financial Services Agreement, dated as of November 16, 1995, between the Company and Burnham
Securities Inc., as amended.
10.14 Lease, dated June 11, 1996, between the Moen Organization, Inc. and the Company.
23.1 Consent of KPMG Peat Marwick LLP.
23.2* Consent of Graubard Mollen & Miller (included in Exhibit 5.1).
24.1 Power of Attorney (included on signature page to this Registration Statement).
27 Financial Data Schedule.
</TABLE>
- ------
* To be filed by amendment.
(1) Confidential treatment has been requested for portions of this exhibit.
<PAGE>
State of Delaware
Office of the Secretary of State
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
INCORPORATION OF "HUMASCAN, INC.", FILED IN THIS OFFICE ON THE TWENTY-SEVENTH
DAY OF DECEMBER, A.D. 1994, AT 9 O'CLOCK A.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE KENT
COUNTY RECORDER OF DEEDS FOR RECORDING.
/s/ Edward J. Freel
------------------------------------
Edward J. Freel, Secretary of State
[SEAL]
AUTHENTICATION: 7354019
DATE: 12-27-94
<PAGE>
CERTIFICATE OF INCORPORATION
OF
HUMASCAN, INC.
The undersigned, a natural person, for the purpose of organizing a
corporation for conducting the business and promoting the purposes hereinafter
stated, under the provisions and subject to the requirements of the laws of
the State of Delaware (particularly chapter 1, Title 8 of the Delaware Code
and the acts amendatory thereof and supplemental thereto, and known,
identified and referred to as the "General Corporation Law of the State of
Delaware"), hereby certifies that:
FIRST: The name of the corporation (hereinafter called the
"corporation") is
HUMASCAN, INC.
SECOND: The address, including street, number, city, and county, of
the registered office of the corporation in the State of Delaware is 32
Loockerman Square, Suite L-100, City of Dover, County of Kent; and the name of
the registered agent of the corporation in the State of Delaware 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 total number of shares of stock which the corporation
shall have authority to issue is One Thousand (1,000). The par value of each of
such shares is Ten Cents ($.10). All such shares are of one class and are
shares of Common Stock.
FIFTH: The name and the mailing address of the incorporator are as
follows:
NAME MAILING ADDRESS
---- ---------------
N. S. Truax 32 Loockerman Square, Suite L-100
Dover, Delaware 19904
<PAGE>
SIXTH: The corporation is to have perpetual existence.
SEVENTH: 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 Title 8 of the Delaware Code 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 Title 8
of the Delaware Code order a meeting of the creditors or class of creditors,
and/or of the stock holders 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 consequence of such compromise or
arrangement, the said compromise or arrangement and the 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.
EIGHTH: For the management of the business and for the conduct of the
affairs of the corporation, and in further definition, limitation and
regulation of the powers of the corporation and of its directors and of its
stockholders or any class thereof, as the case may be, it is further provided:
1. The management of the business and the conduct of the
affairs of the corporation shall be vested in its Board of
Directors. The number of directors which shall constitute the whole
Board of Directors shall be fixed by, or in the manner provided in,
the By-Laws. The phrase "whole Board" and the phrase "total number of
directors" shall be deemed to have the same meaning, to wit, the total
number of directors which the corporation would have if there were
no vacancies. No election of directors need be by written ballot.
-2-
<PAGE>
2. After the original or other By-Laws of the corporation have
been adopted, amended, or repealed, as the case may be, in
accordance with the provisions of Section 109 of the General
Corporation Law of the State of Delaware, and, after the corporation
has received any payment for any of its stock, the power to adopt,
amend, or repeal the By-Laws of the corporation may be exercised by
the Board of Directors of the corporation; provided, however, that
any provision for the classification of directors of the corporation
for staggered terms pursuant to the provisions of subsection (d) of
Section 141 of the General Corporation Law of the State of Delaware
shall be set forth in an initial By-Law or in a By-Law adopted by
the stockholders entitled to vote of the corporation unless
provisions for such classification shall be set forth in this
certificate of incorporation.
3. Whenever the corporation shall be authorized to issue only
one class of stock, each outstanding share shall entitle the holder
thereof to notice of, and the right to vote at, any meeting of
stockholders. Whenever the corporation shall be authorized to issue
more than one class of stock, no outstanding share of any class of
stock which is denied voting power under the provisions of the
certificate of incorporation shall entitle the holder thereof to the
right to vote at any meeting of stockholders except as the
provisions of paragraph (2) of subsection (b) of section 242 of the
General Corporation Law of the State of Delaware shall otherwise
require; provided, that no share of any such class which is
otherwise denied voting power shall entitle the holder thereof to
vote upon the increase or decrease in the number of authorized
shares of said class.
NINTH: The personal liability of the directors of the corporation is
hereby eliminated to the fullest extent permitted by the provisions of
paragraph (7) of subsection (b) of Section 102 of the General Corporation Law
of the State of Delaware, as the same may be amended and supplemented.
TENTH: The corporation shall, to the fullest extent permitted by the
provisions of Section 145 of the General Corporation Law of the State of
Delaware, as the same may be amended and supplemented, indemnify any and all
persons whom it shall have power to indemnify under said section from and
against any and all of the expenses, liabilities or other matters referred to
in or covered by said section, and the indemnification provided for herein
-3-
<PAGE>
shall not be deemed exclusive of any other rights to which those indemnified
may be entitled under any By-Law, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office, and
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 a person.
ELEVENTH: From time to time any of the provisions of this certificate
of incorporation may be amended, altered or repealed, and other provisions
authorized by the laws of the State of Delaware at the time in force may be
added or inserted in the manner and at the time prescribed by said laws, and
all rights at any time conferred upon the stockholders of the corporation by
this certificate of incorporation are granted subject to the provisions of
this Article ELEVENTH.
Signed on December 27, 1994.
/s/ N. S. Truax
--------------------------
N. S. Truax
Incorporator
-4-
<PAGE>
State of Delaware
Office of the Secretary of State
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
CORRECTION OF "HUMASCAN, INC.", CHANGING ITS NAME FROM "HUMASCAN, INC. "TO
"HUMASCAN INC.", FILED IN THIS OFFICE ON THE TWENTIETH DAY OF JANUARY, A.D.
1995, AT 9 O'CLOCK A.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE KENT
COUNTY RECORDER OF DEEDS FOR RECORDING.
/s/ Edward J. Freel
-----------------------------------
Edward J. Freel, Secretary of State
[SEAL]
AUTHENTICATION: 7380596
DATE: 01-20-95
<PAGE>
CERTIFICATE OF CORRECTION
OF
CERTIFICATE OF INCORPORATION
OF
HUMASCAN, INC.
It is hereby certified that:
1. The name of the corporation (hereinafter called the "corporation")
is
HUMANSCAN, INC.
2. The Certificate of Incorporation of the corporation, which was
filed by the Secretary of State of Delaware on December 27, 1994, is hereby
corrected.
3. The inaccuracy to be corrected in said instrument is as follows:
Article First contains the name of the corporation spelled with a
comma which is incorrect.
4. The portion of the instrument in corrected form is as follows:
FIRST: The name of the corporation (hereinafter called the
"corporation") is
HUMASCAN INC.
Signed on January 18, 1995.
/s/ Morris C. Brown
----------------------------
Morris C. Brown, Secretary
<PAGE>
State of Delaware
Office of the Secretary of State
----------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
AMENDMENT OF "HUMANSCAN INC.", FILED IN THIS OFFICE ON THE TWENTY-FORTH DAY OF
MARCH, A.D. 1995, AT 3:30 O'CLOCK P.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE KENT
COUNTY RECORDER OF DEEDS FOR RECORDING.
/s/ Edward J. Freel
-----------------------------------
Edward J. Freel, Secretary of State
[SEAL]
AUTHENTICATION: 7451013
DATE: 03-27-95
<PAGE>
CERTIFICATE OF AMENDMENT OF CERTIFICATE
OF INCORPORATION BEFORE PAYMENT OF
ANY PART OF THE CAPITAL OF
HUMASCAN INC.
It is hereby certified that:
1. The name of the corporation (hereinafter called the "Corporation") is
HUMASCAN INC.
2. The corporation has not received any payment for any of its stock.
3. The certificate of incorporation of the Corporation is hereby amended
by striking out the Fourth Article thereof and by substituting in lieu of said
Article the following new Article:
"FOURTH: The total number of shares of stock which the
corporation shall have authority to issue is Five Million
(5,000,000). The par value of each of such shares is one cent ($.01).
All such shares are of one class and are shares of Common Stock."
4. The amendment of the Certificate of Incorporation of the Corporation
herein certified was duly adopted, pursuant to the provisions of Section 241
of the General Corporation Law of the State of Delaware, by all of the
Directors of the Corporation, who have been elected and qualified.
Signed on March 23, 1995 By /s/ Morris C. Brown
----------------------------
Morris C. Brown, Secretary
<PAGE>
State of Delaware
Office of the Secretary of State
----------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
AMENDMENT OF "HUMASCAN INC.", FILED IN THIS OFFICE ON THE SEVENTH DAY OF MAY,
A.D. 1996, AT 9 O'CLOCK A.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW
CASTLE COUNTY RECORDER OF DEEDS FOR RECORDING.
/s/ Edward J. Freel
-----------------------------------
Edward J. Freel, Secretary of State
[SEAL]
AUTHENTICATION: 7940800
DATE: 05-10-96
<PAGE>
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF INCORPORATION
OF
HUMASCAN INC.
Pursuant to Section 242 of
the General Corporation Law of
the State of Delaware
------------------------------
Humascan Inc., a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), DOES HEREBY CERTIFY:
The Certificate of Incorporation of the corporation is
hereby amended by deleting ARTICLE FOURTH of the Certificate of Incorporation
in its present form and substituting therefor a new ARTICLE FOURTH to read as
follows:
FOURTH: The total number of shares of stock which the
corporation shall have authority to issue shall be as follows:
(A) 14,000,000 shares of Common Stock, $.01 par value per
share (the "Common Stock"), the voting powers, full or limited, or no voting
powers, and the designations, preferences and relative, participating,
optional or other special rights, and qualifications, or restrictions of
which Common Stock shall be as set forth in subparagraphs (B) and (C) of this
ARTICLE FOURTH.
(B) 4,175,000 shares of preferred stock to be designated
Series A Convertible Preferred Stock, $.01 par value per share (the "Series A
Preferred Stock"), and the voting powers, full or limited, or no voting
powers, and the designations,
<PAGE>
preferences and relative, participating, optional or other special rights,
and qualifications, or restrictions of the Series A Preferred Stock shall be
as follows:
1. Dividends. The holders of the Series A preferred Stock
and Common Stock, as one class, shall be entitled to receive, for each share
of Common Stock or for each share of Common Stock into which the series A
Preferred Stock in convertible in accordance with the terms hereof, as the
case may be, dividends, in cash or in kind, when and as declared by the Board
of Directors of the Corporation, out of any assets of the Corporation
available for dividends pursuant to the laws of the State of Delaware. "Common
Stock" shall mean the Corporation's Common Stock, par value $0.01 per share,
and, in connection with determining whether the issuance of Common Stock shall
have occurred for purposes of adjusting the Series A Preferred Stock
Conversion Value (as provided in Paragraph 7 hereof), "Common Stock" shall
also include any capital stock of any class of the Corporation hereafter
authorized, which is entitled to unlimited dividend rights.
2. Restrictions on Transfer. Each certificate for shares of
Series A Preferred Stock (and any Common Stock issuable upon the conversion of
the Series A Preferred Stock) shall bear the following legend (and any
additional legend required by applicable law or rule) on the face thereof:
THE SHARES OF SERIES A PREFERRED STOCK HAVE NOT BEEN, AND
THE SHARES OF COMMON STOCK TO BE ISSUED UPON CONVERSION HEREOF, WHEN
ISSUED, WILL NOT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR QUALIFIED UNDER STATE
SECURITIES LAWS AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED
UNLESS (A) COVERED BY AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT AND QUALIFIED UNDER APPLICABLE STATE SECURITIES LAWS,
OR (B) THE CORPORATION HAS BEEN FURNISHED WITH AN OPINION OF COUNSEL
ACCEPTABLE TO THE CORPORATION TO THE EFFECT THAT NO REGISTRATION AND
QUALIFICATION IS LEGALLY REQUIRED FOR SUCH TRANSFER.
<PAGE>
3. Limitations on Corporate Action: Financial Statements.
(a) So long as shares of Series A Preferred Stock are outstanding, the
Corporation (except upon the affirmative vote of the holders of a majority of
the then outstanding shares of the Series A Preferred Stock) will not:
(i) issue an equity security (or a debt
instrument convertible into equity or with a participation in the profits of
the Corporation) senior to the Series A Preferred Stock with respect to
dividends or liquidation rights: and
(ii) amend or repeal any provision of, or add
any provision to, the certificate of incorporation (including, without
limitation, increasing or decreasing the authorized number of shares of Series
A Preferred Stock) or by-laws, in each case if such action would adversely
alter the relative voting powers, preferences, rights and privileges of, or
the qualifications, limitations and restrictions provided for the benefit of,
the Series A Preferred Stock, or otherwise adversely alter the powers,
preferences, rights and privileges of or the qualifications, limitations and
restrictions provided for the benefit of, the Series A Preferred Stock.
(b) So long as at least one-third of the shares of Series A
Preferred stock at any time issued by the Corporation on or before June 30,
1996 remain issued and outstanding, the Corporation (except upon the
affirmative vote of a majority of the Required Preferred Stock Directors (as
defined below)) will not:
(i) within any twelve (12) month period pay
any cash dividend with respect to the Common Stock that would exceed twenty
percent (20%) of the Corporation's net income, as determined in accordance with
generally accepted accounting principles, consistently applied, for the
immediately preceding full fiscal year of the Corporation;
(ii) dispose of all or substantially all the
Corporation's assets, or of assets representing more than thirty percent (30%)
of the Corporation's Capital (as defined in subparagraph (iii) below), or
merge or consolidate with another company (other than the merger of a
wholly-owned subsidiary into the Corporation or a consolidation of the
Corporation and a wholly-owned subsidiary);
<PAGE>
(iii) incur indebtedness or permit the existence
of any liens, mortgages or encumbrances on the Corporation's assets in an
amount in excess of thirty percent (30%) of the Corporation's Capital, or make
a capital expenditure involving in excess of thirty (30%) of the
Corporation's Capital or acquire any material amount of securities of another
business entity, or purchase a material amount of the assets of another
entity except in the ordinary course of business. For the purposes of this
paragraph 3, "Capital" means the lesser of (i) the amount raised from the sale
of the Series A Preferred Stock and (ii) the amount equal to the sum of (x)
stockholders' equity and (y) any debt subordinated to the claims of all other
creditors of the Corporation;
(iv) other than with respect to (x) the issuance
of the Series A Preferred Stock and the Common Stock issuable upon conversion
of the Series A Preferred Stock, (y) the Common Stock issuable, and the Common
Stock issuable upon exercise of Warrants (as defined in paragraph 7 (a) below)
issuable, to Scantek Medical, Inc. ("Scantek") pursuant to that certain Second
Amended License Agreement dated as of October 20,1995 (the "License"),
between the Corporation and Scantek, and (z) the Warrants and
the shares of Common Stock issuable upon the exercise of the Warrants
(subclauses (x), (y) and (z) being herein referred to collectively as
"Permitted Issuances"), issue any shares of Common Stock or any other capital
stock of the Corporation, or any Options (as defined below) or any Convertible
Securities (as defined below);
(v) purchase, retire or otherwise acquire,
directly or indirectly, through its subsidiaries or otherwise, any securities
of the Corporation or any Options to purchase securities of the Corporation
other than on terms or in accordance with any agreements hereafter approved
by the Required Preferred Stock Directors; and except with respect to the (A)
purchase and redemption of Series A Preferred Stock in accordance with
paragraph 9 hereof, and (B) the conversion, exercise or exchanges of any
Warrants;
(vi) engage in any transaction with an affiliate
(as such term is defined in Rule 144 promulgated under the Securities Act of
1933, as amended (the "Securities Act"); provided, that for purposes hereof,
such definition shall be deemed to include, without limitation, any holder of
(or any person with the right to vote) more than 10% of the outstanding
capital stock of the Corporation) of the Corporation (excluding entering into
employment agreements, expense reimbursement arrangements for
<PAGE>
employees and/or directors of the Corporation or other similar, nonmaterial,
transactions with the employees of the Corporation);
(vii) except as otherwise provided in paragraph 5,
permit an amendment to its certificate of incorporation or by-laws that would
alter the number of directors constituting its board or directors to other
than nine (9) members;
(viii) appoint, reappoint or change the auditors
of the Corporation;
(ix) adopt, alter or implement any and all
employee compensation, bonus, benefit, stock or similar plans or programs of
the Corporation, other than the 1995 Performance Incentive Plan and the
Nonemployee Director Stock Option Plan adopted by the Corporation as of
October 31, 1995 (subject, however, to the clause (iv) above); and
(x) engage in any business in any industry other
than the development, manufacture, sale and marketing of equipment or products
which indicate thermal activity to be used adjunctively with other clinical
detection methods such as clinical examination and mammography, for the
detection of breast abnormalities.
(c) For purposes hereof, the "Required Preferred Stock
Directors" shall be the three (3) directors elected by the holders of the
outstanding shares of Preferred Stock pursuant to paragraph 5(b) unless or
until such time as the holders of Series A Preferred Stock shall exercise the
Board Election Option (as defined below) in accordance with the procedures set
forth in paragraph 5(c) below, in which event the Required Preferred Stock
Directors shall be the individuals set forth in the Board Election Notice (as
defined below).
4. Preference. (a) In the event of any liquidation,
dissolution, or winding up of the affairs of the Corporation, whether
voluntary or involuntary except as set forth in subparagraph (b) below, the
holders of the Series A Preferred Stock shall be entitled, before any assets
of the Corporation shall be distributed among or paid over to the holders of
the Common Stock, to be paid $2.00 per share plus the amount of any dividend
previously declared with respect to the Series A Preferred Stock and remaining
unpaid. After payment to the holders of the Series A Preferred Stock as set
forth in the
<PAGE>
previous sentence and as provided in subparagraph (b) below, any additional
amount available for distribution to the shareholders of the Corporation
shall, subject to subparagraph (b) below, be shared by the holders of the
Series A Preferred Stock and the Common Stock on a share-for-share basis (with
each share of Series A Preferred Stock being deemed to be equal to the number
of shares of Common Stock (including fractions of a share) into which such
Series A Preferred Stock is convertible immediately prior to the close of
business on the business day fixed for such distribution.
(b) If, upon such liquidation, dissolution or winding up,
the assets of the Corporation distributable as aforesaid among the holders of
the Series A Preferred Stock shall be insufficient to permit the payment to
such holders of at least the amounts provided in subparagraph (a) above, plus
the amount of any unpaid dividend, as aforesaid, the entire assets shall be
distributed pro rata among the holders of the series A Preferred Stock based
upon their respective liquidation preferences as set forth in subparagraph (a)
above. The amounts distributable to the holders of Series A Preferred Stock
under subparagraph (a) above shall be adjusted for subdivisions (by stock
splits, stock dividends or otherwise), combinations (by reverse stock splits
or otherwise) or other recapitalizations of the Series A Preferred Stock and
otherwise in accordance with paragraph 7 below.
(c) Written notices of such liquidation, dissolution or
winding up, stating a payment date and the place where said payments shall be
made, shall be given not less than twenty (20) days prior to the payment date
stated therein, to the holders of record of the Series A Preferred Stock as
provided in paragraph 9 hereof.
(d) The consolidation or merger of the Corporation into or
with any other entity or entities (other than the merger of a wholly-owned
subsidiary into the Corporation or a consolidation of the Corporation and a
wholly-owned subsidiary) and the sale or transfer by the Corporation of all or
substantially all of its assets, shall be deemed to be a liquidation,
dissolution or winding up of the Corporation within the meaning of the
provisions of this paragraph 4, unless a majority of the Required Preferred
Stock Directors shall, prior to the effective date of such consolidation,
merger, sale or transfer, consent in writing or by vote at a meeting to such
transaction as provided in paragraph 3(b) above and to the treatment of such
transaction as other than a liquidation, dissolution or winding up.
<PAGE>
5. Voting Rights. (a) The holders of the Series A Preferred
Stock shall be entitled to notice of any shareholders' meeting and, except as
provided in subparagraph (b) below and as otherwise provided herein, or as
otherwise required by law, to vote upon any matter submitted to shareholders
for a vote as one class together with the holders of Common Stock and shall
have one vote per share, provided, however, that if the number of shares of
Common Stock into which the Series A Preferred Stock is convertible is
increased or decreased as a result of an adjustment of the Preferrred Stock
Conversion Value, all as set forth below, the holders of the Series A
Preferred Stock shall have that number of votes equal to the number of shares
of Common Stock into which the Series A Preferred Stock is convertible.
(b)(i) In additon to the voting rights of the holders of
Seireis A Preferred Stock pursuant to subparagraph 5(a) above, so long as at
least one-third of the shares of Series A Preferred Stock at any time issued
by the Corporation on or before June 30, 1996 remain issued and outstanding,
the holders thereof shall be entitled to vote as a class (exclusive of the
holders of Common Stock or any other security of the Corporation) for the
election of three (3) directors to the Board of Directors of the Corporation;
provided that the Board of Directors shall be comprised of not more than nine
(9) directors.
(ii) The foregoing notwithstanding, so long as at least
one-third of the shares of Series A Preferred Stock at any time issued by the
Corporation on or before June 30, 1996 remain issued and outstanding, from the
date of the initial issuance of Series A Preferred Stock hereunder and until
such time as the Corporation consummates a Qualified Initial Public Offering
(as defined below), the holders of the Series A Preferred Stock shall have the
option, exercisable as set forth in subparagraph (c) below (the "Board
Election Option") to vote as a class (exclusive of the holders of Common Stock
or any other secruity of the Corporation) to determine the size of the Board
of Directors and to elect the entire Board of Directors; provided, that, for
so long as the Exclusive Supply Agreement (as defined in paragraph 7(a)
below) shall not have been terminated or expired in accordance with its terms
and no default with respect thereto has occured and has continued beyond any
applicable cure and/or notice periods, the holders of the Series A Preferred
Stock shall honor the commitment of the Corporation thereunder with respect to
the election of directors.
<PAGE>
(c) The Board Election Option referred to in subparagraph
(b)(ii) may be exercised by the majority vote of the holders of shares of
Series A Preferred Stock then outstanding at any time until such time as the
Corporation consummates a Qualified Initial Public Offering. The exercise of
such option shall be deemed effective automatically upon receipt by the
Corporation of written notice (the "Board Election Notice") signed by the
holders of a majority of the issued and outstanding shares of Series A
Preferred Stock on the date thereof, as of the effective date set forth
therein, (i) stating that a majority of the holders of the outstanding shares
of Series A Preferred Stock have so elected to exercise such option, (ii)
setting forth the number of directors which shall constitute the replacement
Board of Directors, and (iii) setting forth the names of the individuals who
shall be the directors on such board.
6. Conversion. (a) Subject to paragraph 7 hereof, the
Series A Preferred Stock shall be convertible into shares of Common Stock upon
the following terms and conditons:
(i) Each share of Series A Preferred Stock, at
the option of the holder thereof and without any additonal consideration by
the holder therefor, shall be convertible into one share of Common Stock,
subject to the provisions of paragraph 7, at any time after the earlier of the
date which is twelve (12) months from the date any shares of Series A
Preferred Stock are first issued by the Corporation and the date upon which a
registration statement is declared effective under the Securities Act with
respect to a Qualified Initial Public Offering;
(ii) Each share of Series A Preferred Stock,
without the necessity of any action on the part of the holder therof, shall be
automatically converted, subject to the provisions of paragrah 7, into one
share of Common Stock upon a Qualified Initial Public Offering (for purposes
of this paragraph 6(a)(ii), the holders of the Seiries A Preferred Stock
shall be deemed to have surrendered their shares of Series A Preferred Stock
on the date of the closing of such Qualified Initial Public Offering);
(iii) All shares of Common Stock acquired by
conversion of Series A Preferred Stock ("Conversion Shares"), upon issuance,
will be duly authorized, validly issued, fully paid and nonassessable and
free from all taxes, liens and charges with resepct to the issue 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
<PAGE>
of any certificate in a name other than that of the holder of the Series A
Preferred Stock which is being converted;
(iv) So long as any shares of Series A Preferred
Stock are outstanding, the Corporation will have at all times authorized, and
reserved (free from pre-emptive rights)for the purpose of issue or transfer
upon exercise of the rights evidenced by the Series A Preferred Stock, a
sufficient number of shares of its Common Stock to provide therfor;
(v) A "Qualified Initial Public Offering" is
the closing of the first sale to the public of Common Stock of the Corporation
in a public offering pursuant to an effective registration statement under
the Securities Act or any similar statute then in effect, in which sale the
aggregate price to the public of the securities sold is at least $10,000,000;
provided that, the foregoing notwithstanding, the aggregate price to the public
required for an initial public offering to constitute a Qualified Initial
Public Offering may be decreased by a majority vote of the Required Preferrred
Stock Directors.
(b) Fractional Shares. No fractional shares of Common Stock
shall be issued upon conversion of the Series A Preferred Stock. In lieu of
any fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to the then effective current market price of
such fractional shares as determined in good faith by the Board of Directors of
the Corporation.
(c) Mechanics of Optional Conversion. Before any holder of
Series A Preferred Stock shall be entitled to convert the same into full
shares of Common Stock pursuant to paragraph 6(a)(i) above, such holder shall
surrender the certificate or certificates therefor, duly endorsed, at the
office of the Corporation or of any transfer agent for the Series A Preferred
Stock (or the holder shall notify the Corporation or its transfer agent that
such certificate has been lost, stolen or destroyed and execute an agreement
in form and substance reasonably satisfactory to the Corporation to indemnify
the Corporation from any loss incurred by it in connection therewith), and
shall give written notice to the Corporation at such office that he elects to
convert the same and shall state therein his name or the name or names of his
nominees in which such holder wishes the certificate or certificates for
shares of Common Stock to be issued. The Corporation shall, as soon as
practicable thereafter, issue and deliver at such office to such holder of
Series A Preferred Stock, or to such holder's nominee or nominees, a
<PAGE>
certificate or certificates for the number of shares of Common Stock to which
such holder shall be entitled as aforesaid, together with cash in lieu of any
fraction of a share. In case the numher of shares of Series A Preferred Stock
represented by the certificate or certificates surrendered exceeds the number
of shares converted, the Corporation shall, upon such conversion, execute and
deliver to the holder, at the expense of the Corporation, a new certificate or
certificates for the number of shares of Series A Preferred Stock represented
by the certificate or certificates surrendered which are not to be converted.
Such conversion shall be deemed to have been made immediately prior to the
close of business on the date of such surrender of the shares of Series A
Preferred Stock to be converted (or the agreement referred to above), and the
person or persons entitled to receive the shares of Common Stock issuable
upon conversion shall at that time cease to be a holder of the shares of Series
A Preferred Stock for any purpose whatsoever and shall be treated for all
purposes as the record holder or holders of such shares of Common Stock on
such date.
7. Anti-Dilution Provisions. Upon each adjustment of the
Preferred Stock Conversion Value, the holders of Series A Preferred Stock shall
thereafter be entitled to receive upon conversion of each share of Series A
Preferred Stock (utilizing the Preferred Stock Conversion Value resulting from
such adjustment) the number of shares of Common Stock obtained by dividing the
Preferred Stock Conversion Value in effect immediately prior to such
adjustment by the Preferred Stock Conversion Value resulting from such
adjustment. "Preferred Stock Conversion Value" shall mean the initial
Preferred Stock Conversion Value of $2.00 per share of Common Stock, as
adjusted from time to time as provided herein.
(a) Preferred Stock Conversion Value Adjustments. If and
whenever after the date hereof the Corporation shall issue or sell any shares
of its Common Stock (except for Permitted Issuances) for a consideration per
share less than the Preferred Stock Conversion Value in effect immediately
prior to the time of such issue or sale, or shall be deemed under the
provisions of this paragraph 7 to have effected any such issuance or sale,
then, forthwith upon such issue or sale or deemed issue or sale, the Preferred
Stock Conversion Value shall be reduced to a price equal to (calulated to the
nearest $0.00001):
the price determined by dividing (i) an amount equal to the sum of
(A) the number of shares of Common Stock
<PAGE>
outstanding immediately prior to such issue or sale multiplied by
the then existing Preferred Stock Conversion Value and (B) the
aggregate consideration, if any, received by the Corporation upon
such issue or sale by (ii) the total number of shares of Common
Stock outstanding immediately after such issue or sale;
Notwithstanding the foregoing, no adjustment of the
Preferred Stock Conversion Value shall be made in an amount less than $0.00001
per share, but any such lesser adjustment shall be carried forward and shall
be made at the time of and together with the next subsequent adjustment which
together with any adjustments so carried forward shall amount to $0.00001 per
share or more.
"Warrants" as used herein shall mean any options or
warrants issued by the Corporation for the purchase of Common stock (i) to
holders of Series A Preferred Stock on the date of issuance of the Series A
Preferred Stock, (ii) to the Bridge Note Holders upon conversion of the Bridge
Notes to shares of Series A Preferred Stock for up to 70,000 shares of Common
Stock at an exercise price of $2.20 per share, (iii) to Burnham Securities
Inc. for up to 533,333 shares of Common Stock at an exercise price of $2.20
per share, (iv) to certain officers, employees and consultants for up
to 225,000 shares of Common Stock at an exercise price of no less than $4.00
per share, (v) to Physician Sales & Service, Inc. ("PSS") for up to 166,667
shares of Common Stock at an exercise price of $3.00 per share issued pursuant
to that certain Exclusive Supply and Distribution Agreement dated February,
1996 (the "Exclusive Supply and Distribution Agreement"), between PSS and the
Corporation, (vi) to Scantek pursuant to the License, (vii) to Udi Toledano
pursuant to that certain letter agreement dated March 19, 1996 between Mr.
Toledano and the Corporation for up to 107,500 shares of Common Stock at an
exercise price of $2.20 per share, (viii) to Herbert V. Turk pursuant to that
certain letter agreement dated March 19, 1996 between Mr. Turk and the
Corporation for up to 107,500 shares of Common Stock at an exercise price of
$2.20 per share, (ix) to Smith Barney Worldwide Securities, Ltd. and Smith
Barney Worldwide Fund, N.V. or their designee for 50,000 shares of Common Stock
at an exercise price of $2.20 per share, and (x) to the holders of the Secured
Senior Promissory Notes of the Corporation due April 30, 1996 for an aggregate
of 299,000 shares of Common Stock at an exercise price of $.50 per share.
<PAGE>
For the purposes of this paragraph 7(a), the
following subparagraphs (a)(i) to (a)(vii) inclusive, shall also be
applicable:
(i) In the event that at any time the Corporation
shall in any manner grant (directly, by assumption in a merger or otherwise)
any rights to subscribe for or to purchase, or any options or warrants (except
for Permitted Issuances) for the purchase of, (x) Common Stock or (y) any
stock or securities convertible into or exchangeable for Common Stock (such
rights or options being herein called "Options" and such convertible or
exchangeable stock or securities being herein called "Convertible Securities"),
or shall fix a record date for the determination of holders of any class of
securities entitled to receive any such Options, whether or not such Options or
the right to convert or exchange any such Convertible Securities are
immediately exercisable, and whether or not the price per share for which
Common Stock is issuable upon the exercise of such Options or upon conversion
or exchange of such Convertible Securities (determined by dividing (A) the
total amount, if any, received or receivable by the Corporation as
consideration for the granting of such Options, plus the minimum aggregate
amount of additional consideration payable to the Corporation upon the exercise
of all such Options, plus, in the case of any such Options that relate to
Convertible Securities, the minimum aggregate amount of additional
consideration, if any, payable upon the issue or sale of such Convertible
Securities and upon the conversion or exchange thereof, by (B) the total
number of shares of Common Stock issuable upon the exercise of such Options or
upon the conversion or exchange of all such Convertible Securities issuable
upon the exercise of such Options) shall be less than the Preferred Stock
Conversion Value in effect immediately prior to the time of the granting of
such Options, then the total number of shares of Common Stock issuable upon
the exercise of such Options or upon conversion or exchange of the total
amount of such Convertible Securities issuable upon the exercise of such
Options (as of the date of granting such Options) shall be deemed to be
outstanding and to have been issued for such price per share. Except as
otherwise provided in subparagraph (a)(iii), no further adjustment of the
Preferred Stock Conversion Value shall be made upon the actual issue of such
Common Stock or of such Convertible Securities upon exercise of such Options
or upon the actual issue of such Common Stock upon conversion or exchange of
such Convertible Securities.
(ii) In the event that the Corporation shall in
any manner issue (directly, by assumption in a merger or otherwise) or sell
any Convertible Securities
<PAGE>
(other than pursuant to the exercise of Options to purchase such Convertible
Securities covered by subparagraph (a)(i)), or shall fix a record date for the
determination of holders of any class of securities entitled to receive any
such Convertible Securities, whether or not the rights to exchange or convert
thereunder are immediately exercisable, and whether or not the price per share
for which Common Stock is issuable upon such conversion or exchange or
exchange (determined by dividing (A) the total amount received or receivable
by the Corporation as consideration for the issue or sale of such Convertible
Securities, plus the minimum aggregate amount of additional consideration, if
any, payable to the Corporation upon the conversion or exchange thereof, by
(B) the total maximum number of shares of Common Stock issuable upon the
conversion or exchange of all such Convertible Securities) shall be less than
the Preferred Stock Conversion Value in effect immediately prior to the time
of such issue, then the total maximum number of shares of Common Stock
issuable upon conversion or exchange of all such Convertible Securities
shall (as of the date of the issue or sale of such Convertible Securities) be
deemed to be outstanding and to have been issued for such price per share,
provided that, except as otherwise provided in subparagraph (a)(iii), no
further adjustment of the Preferred Stock Conversion Value shall be made upon
the actual issue of such Common Stock upon conversion or exchange of such
Convertible Securities.
(iii) In connection with any change in, or the
expiration or termination of, the purchase rights under any Option or the
conversion or exchange rights under any Convertible Securities, the following
provisions shall apply:
(A) If the purchase price provided for in any
Option referred to in subparagraph (a)(i), the additional consideration, if
any, payable upon the conversion or exchange of any Convertible Securities
referred to in subparagraph (a)(i) or (a)(ii), or the rate at which any
Convertible Securities referred to in subparagraph (a)(i) or (a)(ii) are
convertible into or exchangeable for Common Stock shall change at any time
(other than under or by reason of provisions designed to protect against
dilution), then the Preferred Stock Conversion Value in effect at the time of
such change shall forthwith be increased or decreased to the Preferred Stock
Conversion Value that would be in effect immediately after such change if (a)
the adjustments that were made upon the issuance of such Options or
Convertible Securities had been made upon the basis of (and taking into account
the total consideration received for) (i) the issuance at that time of the
Common Stock, if any, actually issued upon the exercise of any such Options or
upon the conversion or exchange of any such Convertible Securities before such
change, and (ii)
<PAGE>
the issuance at that time of all such Options or Convertible Securities, with
terms and provisions reflecting such change that are still outstanding after
such change, and (b) the Preferred Stock Conversion Value as adjusted pursuant
to clause (a) preceding had been used as the basis for the adjustments
required hereunder in connection with all other issues or sales of Common
Stock, Options or Convertible Securities by the Corporation subsequent to the
issuance of such Options or Convertible Securities.
(B) On the partial or complete expiration of any
Options or termination of any right to convert or exchange Convertible
Securities which have not been fully exercised, the Preferred Stock
Conversion Value then in effect hereunder shall be forthwith increased or
decreased to the Preferred Stock Conversion Value that would be in effect
at the time of such expiration or termination if (a) the adjustments that
were made upon the issuance of such Options or Convertible Securities had
been made upon the basis of (and taking into account the total
consideration received for) (i) the issuance at that time of the Common
Stock, if any, actually issued upon the exercise of such Options or upon
the conversion or exchange of such Convertible Securities before such
expiration or termination, and (ii) the issuance at that time of only those
such Options or Convertible Securities that remain outstanding after such
expiration or termination, and (b) the Preferred Stock Conversion Value
as adjusted pursuant to clause (a) preceding had been used as the basis
for adjustments required hereunder in connection with all other issues or
sales of Common Stock, Options or Convertible Securities by the
Corporation subsequent to the issuance of such Options or Convertible
Securities.
(C) If the purchase price provided for in any Option
referred to in subparagraph (a)(i) or the rate at which any Convertible
Securities referred to in subparagraph (a)(i) or (a)(ii) are convertible
into or exchangeable for Common Stock shall be reduced at any time under
or by reason of provisions with respect thereto designed to protect
against dilution, and the event causing the reduction is one that did not
also require an adjustment in the Preferred Stock Conversion Value under
other provisions of this paragraph 7 (a), then in case of the delivery of
shares of Common Stock upon the exercise of any such Option or upon
conversion or exchange of any such Convertible Securities, the Preferred
Stock Conversion Value then in effect hereunder shall forthwith be
adjusted to such amount as would have obtained if such Option or
Convertible Securities had never been issued and if the adjustments made
upon the issuance of such Option or Convertible Securities had been made
upon the basis of the issuance of (and taking into account the total
consideration received for) the shares of Common Stock
<PAGE>
delivered as aforesaid; provided that no such adjustment shall be made unless
the Preferred Stock Conversion Value then in effect would be reduced thereby.
(D) if a record date for the issuance of any
Options or Convertible Securities shall have been fixed and such Options or
Convertible Securities are not issued on the date fixed therefor, the
adjustment previously made as provided in subparagraphs (a)(i) and (ii) above
to the relevant Preferred Stock Conversion Value which becomes effective on
such record date shall be cancelled as of the close of business on such record
date, and thereafter such Preferred Stock Conversion Value shall be adjusted
pursuant to subparagraph (a)(i) or (ii), as the case may be, as of the actual
date of their issuance.
(iv) In the event that the Corporation declares
a dividend or makes any other distribution upon any stock of the Corporation
payable in Common Stock, Options or Convertible Securities, any Common Stock.
Options or Convertible Securities, as the case may be, issuable in payment of
such dividend or distribution shall be deemed to have been issued or sold
without consideration. In the event the Corporation shall grant the holders of
Common Stock the right to subscribe for or purchase shares of Common Stock or
any other security, whether pursuant to pre-emptive rights set forth in the
Certificate of Incorporation of the Corporation or in an agreement or
otherwise, the Corporation, from time to time, shall be deemed to have
received the amount actually received upon exercise of the rights.
(v) For purposes of this paragraph 7(a), the
amount of consideration received by the Corporation in connection with the
issuance or sale of Common Stock, Options or Convertible Securities shall be
determined in accordance with the following:
(A) In the event that shares of Common Stock,
Options or Convertible Securities are issued or sold for cash, the
consideration received therefor shall be deemed to be the amount payable to the
Corporation therefor, after deduction therefrom of any dividends or interest
accrued in respect thereof and any underwriting commissions or concessions or
discounts paid or allowed by the Corporation in connection therewith.
<PAGE>
(B) In the event that shares of Common Stock,
Options or Convertible Securities are issued or sold for a consideration other
than cash, the amount of the consideration other than cash payable to the
Corporation shall be deemed to be the fair value of the consideration (after
deduction of any dividends or interest accrued in respect thereof and any
underwriting commissions or concessions or discounts paid or allowed by the
Corporation in connection therewith) as determined in good faith by the Board
of Directors, including, without limitation, cancellation or satisfaction of
amounts payable to the purchaser for accrued interest or accrued dividends on
obligations or securities other than the Common Stock Options or Convertible
Securities then being issued.
(C) The amount of consideration deemed to be
received by the Corporation pursuant to the foregoing provisions of this
subparagraph (a)(v) upon any issuance or sale, pursuant to an established
compensation plan of the Corporation, to directors, officers or employees of
the Corporation in connection with their employment, of shares of Common Stock,
Options or Convertible Securities, shall be increased by the amount of any tax
benefit realized by the Corporation as a result of the issuance or sale, the
amount of the tax benefit being the amount by which the federal or state
income or other tax liability of the Corporation shall be reduced by reason of
any deduction or credit in respect of the issuance and/or sale.
(D) In the event that shares of Common Stock,
Options or Convertible Securities are issued in connection with any merger in
which the Corporation is the surviving corporation, the amount of
consideration therefor shall be deemed to be the fair value of such portion of
the assets and business of the nonsurviving corporation as shall be
attributable to the Common Stock, Options or Convertible Securities, as the
case may be, as determined in good faith by the Board of Directors.
(E) In the event that Options shall be issued
in connection with the issue and sale of other securities of the Corporation,
together comprising one integral transaction in which no specific
consideration is allocated to such Options by the parties thereto, the
Options shall be deemed to have been issued without consideration.
(F) In the event of consolidation or merger
of the Corporation in which stock or securities of another corporation are
issued in exchange for Common Stock of the Corporation or in the event of any
sale of all or substantially all of the assets
<PAGE>
of the Corporation for stock or other securities of any corporation, the
Corporation shall be deemed to have issued a number of shares of its Common
Stock for stock or securities of the other corporation computed on the basis
of the actual exchange ratio on which the transaction was predicated and for a
consideration equal to the fair market value on the date of the transaction of
such stock or securities of the other corporation, and if the
calculation results in adjustment of the Preferred Stock Conversion Value, the
determination of the number of shares of common Stock receivable upon
conversion of the Series A Preferred stock immediately prior to such merger,
consolidation or sale, for purposes of paragraph 7(c), shall be made after
giving effect to the adjustment of the Preferred Stock Conversion Value;
provided that no such adjustment shall be made unless the Preferred Stock
Conversion Value then in effect shall be reduced thereby.
(vi) (A) In the event the Corporation fixes a
record date with respect to the holders of its Common Stock for the purpose of
entitling them (i) to receive a dividend or other distribution payable in
Common Stock, Options or Convertible Securities or (ii) to subscribe for or
purchase Common Stock, Options or Convertible Securities (whether pursuant to
pre-emptive rights granted by the Certificate of Incorporation of the
Corporation, by agreement, or otherwise), then the record date shall be deemed
to be the date of the issue or sale of the shares of common Stock deemed to
have been issued or sold upon the declaration of the dividend or the making of
the distribution or the date of the granting of the right of subscription or
purchase, as the case may be.
(B) If such record date shall have been fixed
and such dividend or distribution shall not have been paid or right of
subscription or purchase fulfilled on the date fixed therefor, the adjustment
previously made to the relevant Preferred Stock Conversion Value which became
effective on such record date shall be cancelled as of the close of business
on such record date, and thereafter such Preferred Stock Conversion Value
shall be adjusted as provided herein as of the time of actual payment of such
dividend, distribution or subscription of Common Stock, Options or Convertible
Securities.
(vii) The number of shares of Common Stock
outstanding at any given time shall not include shares owned or held by or for
the account of the Corporation or any subsidiary thereof, and the disposition
of any such shares shall be considered an issue or sale of Common Stock for
the purpose of this paragraph 7(a).
<PAGE>
(b) Stock Splits and Reverse Splits. In the
event the Corporation subdivides its outstanding shares of Common Stock into a
greater number of shares, the Preferred Stock Conversion Value in effect
immediately prior to the subdivision shall be proportionally reduced and the
number of Conversion Shares purchaseable pursuant to each share of Series A
Preferred Stock immediately prior to the subdivision shall be proportionately
increased, and conversely, in the event that the outstanding shares of Common
Stock of the Corporation shall at any time be combined into a smaller number
of shares, the Preferred Stock Conversion Value in effect immediately prior to
the combination shall be proportionately increased and the number of Conversion
Shares purchaseable upon the conversion of each share of Series A Preferred
Stock immediately prior to the combination shall be proportionately reduced.
Except as provided in this paragraph 7(b), no adjustment in the Preferred
Stock Conversion Value and no change in the number of Conversion Shares
purchasable shall be made under this paragraph 7 as a result, or by reason, of
any subdivision or combination.
(c) Reorganizations and Asset Sales. If any
capital reorganization or reclassification of the capital stock of the
Corporation, or any consolidation or merger of the Corporation with another
corporation, or the sale of all or substantially all its assets to another
corporation, shall be effected in such a way that holders of Common Stock
shall be entitled to receive stock, securities or assets with respect to, or
in exchange for, Common Stock (and which shall not constitute a dividend
subject to paragraph 7(c)), then the following provisions shall apply:
(i) Subject to paragraph 4(d) above, as a
condition of the reorganization, reclassification, consolidation, merger or
sale (except as otherwise provided below in this paragraph 7(c), lawful and
adequate provisions shall be made whereby each holder of Series A Preferred
Stock shall thereafter have the right to receive upon the terms and conditions
specified herein and in lieu of the Conversion Shares immediately theretofore
receivable upon the exercise of the rights represented by the Series A
Preferred Stock, the shares of stock, securities or assets as may be issued or
payable with respect to, or in exchange for, a number of outstanding shares of
the Common Stock equal to the number of Conversion Shares immediately
theretofore so receivable had the reorganization, reclassification,
consolidation, merger or sale not taken place, and in any such case
appropriate provision shall be made with respect to the rights and interests
of such holder to the end that the provisions hereof (including, without
limitation, provisions for adjustments of the Preferred Stock Conversion Value
<PAGE>
and of the number of shares receivable upon the exercise) shall thereafter be
applicable, as nearly as may be practicable, in relation to any shares of
stock, securities or assets thereafter deliverable upon the conversion of
Series A Preferred stock (including an immediate adjustment, by reason of the
consolidation or merger, of the Preferred Stock Conversion Value to the value
for the Common Stock reflected by the terms of the consolidation or merger if
the value so reflected is less than the Preferred Stock Conversion Value in
effect immediately prior to the consolidation or merger.
(ii) In the event of a merger or consolidation
of the corporation with or into another corporation as a result of which a
number of shares of Common Stock of the surviving corporation are greater or
lesser than the number of shares of Common Stock of the Corporation
outstanding immediately prior to the merger or consolidation are issuable
to holders of Common Stock of the Corporation, then the Preferred Stock
Conversion Value in effect immediately prior to the merger or consolidation
shall be adjusted in the same manner as though there were a subdivision or
combination of the outstanding shares of Common Stock of the Corporation.
8. Put Option. (a) At the option of the holders
of Series A Preferred Stock, upon the occurrence of either of the events set
forth in the next succeeding sentence, each such holder shall have the right
and option (the "Put Option") for a period of twelve (12) months thereafter to
sell to the Corporation and require the Corporation to redeem, and, if any such
holder shall exercise such Put Option, the Corporation shall have the
obligation to redeem and repurchase the Series as Preferred Stock held by any
such holder at the Preferred Stock Conversion Value in effect on the date
hereof plus any accrued and unpaid dividends thereon to the date of such
redemption (the "Put Price"). The Put Option may be exercised by any holder of
Series A Preferred Stock (i) upon the death of Donald Brounstein, or (ii) in
the event a Qualified Initial Public Offering is not completed on or prior to
the third anniversary of the date on which shares of Series A Preferred Stock
are first issued by the Corporation.
(b) The Corporation will maintain in effect
until the earlier to occur of (x) the date on which no Series A Preferred
stock shall remain outstanding, or (y) the date which is twelve (12) months
following the death of Donald Brounstein, for the exclusive benefit of the
holders of the Series A Preferred Stock, and pay all premiums with respect to,
insurance on the life of Donald Brounstein in an amount sufficient to redeem
all outstanding Series A Preferred Stock at a redemption price equal to the
<PAGE>
Preferred Stock Conversion Value in effect on the date hereof. In the event of
the death of Donald Brounstein, the Corporation shall hold all proceeds of
such policy in trust for the benefit of the holders of Series A Preferred
Stock for a period of twelve (12) months or until such earlier date as no
Series A Preferred Stock shall be outstanding; provided that, notwithstanding
the foregoing, upon the written direction of either the Required Preferred
Stock Directors or the holders of more than fifty percent (50%) of the shares
of Series A Preferred Stock then outstanding, the Corporation shall direct the
insurance company with which such policy is held to place the proceeds
thereof, when and as disbursed in accordance with the terms thereof, with such
banking, securities or other financial institution as the Required Preferred
Stock Directors or such holders of Series A Preferred Stock, as the case may
be, in such notice to the Corporation shall direct.
(c) The Put Option shall be exerciseable by
notice in writing signed by the holder of Series A Preferred Stock exercising
such right and delivered to the Corporation in accordance with paragraph 9
hereof advising the Corporation of such holder's election to exercise the Put
Option. The exercise of the Put Option by any such holder shall constitute an
unconditional and irrevocable commitment by such holder, on the one hand, and
the Corporation, on the other hand, to sell and purchase, the Series A
Preferred Stock held by such holder. Any closing in connection with the
exercise of the Put Option hereunder shall take place at the offices of the
Corporation, or at such other place as such holder and the Corporation shall
agree, and shall occur no less than two (2) weeks and no more than thirty (30)
days after the date of any written notice of such holder's intention to
exercise the Put Optional. The Put Price shall be payable at the closing by
certified or official bank check made out to the order of such holder. Upon
any such closing of the Put Option, the obligations of the Corporation and the
rights of the holder exercising such Put Option with respect to such shares of
Series A Preferred Stock purchased by the Corporation pursuant thereto shall
terminate.
9. Notices. Any notice required or given hereunder shall be
mailed by first-class mail, postage prepaid or by facsimile, by hand or by
recognized courier (a) if to the Corporation, at its main offices in Cranford,
New Jersey and (b) if to a shareholder, at the shareholder's address appearing
in the records of the Corporation, and shall be deemed given five days after
such mailing if sent by mail, or upon receipt if sent by facsimile or courier.
<PAGE>
10. No Impairment. The Corporation will not, by amendment of
its Certificate of Incorporation or through an by reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms to be observed or performed hereunder by the Corporation
but will at all times in good faith assist in the carrying out of all the
provisions hereof and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the holders of the Series A
Preferred Stock against impairment.
11. Headings. The headings herein are for purposes of
reference only and shall not affect the meaning or construction of any of the
provisions hereof.
12. General. Notwithstanding anything to the contrary
contained herein, no provision contained herein shall be deemed to limit,
restrict, cancel or otherwise impair any rights of the holders of the Series A
Preferred Stock as provided for by the General Corporation Law of the State of
Delaware.
(C) 1,825,000 shares in additional series of preferred stock as the
Board of Directors of the Corporation by vote of a majority of its members,
subject to limitations prescribed by law and the provisions of Section (B)3(a)
of this Article FOURTH, may designate for issuance by resolution or
resolutions thereof establishing and setting forth the number of shares to be
included in each such series, the voting powers, full or limited, or no voting
powers, and the designations, preferences and relative, participating, option
or other special rights, and qualifications, or restrictions of such
additional series of preferred stock.
The amendment to the Certificate of Incorporation of the
Corporation set forth in this Certificate of Amendment of Certificate of
Incorporation has been duly adopted in accordance with the applicable
provisions of Section 242 of the General Corporation Law of the State of
Delaware, (a) the Board of Directors of the Corporation having duly adopted a
resolution setting forth such amendment and declaring its advisability by
<PAGE>
unanimous Written Consent of the Board of Directors in accordance with Section
141(f) of the General Corporation Law of the State of Delaware, and (b) the
stockholders of the Corporation having duly adopted a resolution setting forth
and approving such amendment by Written Consent of a majority of the
stockholders of the Corporation in accordance with Section 228 of the General
Corporation Law of the State of Delaware, and written notice of such action
has been given as provided in Section 228(d) of the General Corporation Law of
the State of Delaware.
* * *
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this
Certificate of Amendment of Certificate of Incorporation as of the 6th day of
May, 1996.
HUMASCAN INC.
By____________________________
Name:
Title:
ATTEST:
______________________________
Name:
Title:
<PAGE>
AMENDED AND RESTATED
BYLAWS
OF
HUMASCAN INC.
(a Delaware corporation)
ARTICLE I
STOCKHOLDERS
1. CERTIFICATES REPRESENTING STOCK. Certificates representing stock
in the corporation shall be signed by, or in the name of, the corporation by
the Chairman or Vice-Chairman of the Board of Directors, if any, or by the
President or a Vice-President and by the Treasurer or an Assistant Treasurer
or the Secretary or an Assistant Secretary of the corporation. Any or all the
signatures on any such certificate may be a facsimile. In case any officer,
transfer agent, or registrar who has signed or whose facsimile signature has
been placed upon a certificate shall have ceased to be such officer, transfer
agent, or registrar before such certificate is issued, it may be issued by the
corporation with the same effect as if he were such officer, transfer agent,
or registrar at the date of issue.
Whenever the corporation shall be authorized to issue more
than one class of stock or more than one series of any class of stock, and
whenever the corporation shall issue any shares of its stock as partly paid
stock, the certificates representing shares of any such class or series or of
any such partly paid stock shall set forth thereon the statements prescribed
by the General Corporation Law of the State of Delaware (the "General
Corporation Law"). Any restrictions on the transfer or registration of
transfer of any shares of stock of any class or series shall be noted
conspicuously on the certificate representing such shares.
The corporation may issue a new certificate of stock or
uncertificated shares in place of any certificate theretofore issued by it,
alleged to have been lost, stolen, or destroyed, and the Board of Directors
may require the owner of the lost, stolen, or destroyed certificate, or his
legal representative, to give the corporation a bond sufficient to indemnify
the corporation against any claim that may be made against it on account of
the alleged loss, theft, or destruction of any such certificate or the
issuance of any such new certificate or uncertificated shares.
2. UNCERTIFICATED SHARES. Subject to any conditions imposed by the
General Corporation Law, the Board of Directors of the corporation may provide
<PAGE>
by resolution or resolutions that some or all of any or all classes or series of
the stock of the corporation shall be uncertificated shares. Within a
reasonable time after the issuance or transfer of any uncertificated shares,
the corporation shall send to the registered owner thereof any written notice
prescribed by the General Corporation Law.
3. FRACTIONAL SHARE INTERESTS. The corporation may, but shall not be
required to, issue fractions of a share. If the corporation does not issue
fractions of a share, it shall (1) arrange for the disposition of fractional
interests by those entitled thereto, (2) pay in cash the fair value of
fractions of a share as of the time when those entitled to receive such
fractions are determined, or (3) issue scrip or warrants in registered form
(either represented by a certificate or uncertificated) or bearer form
(represented by a certificate) which shall entitle the holder to receive a
full share upon the surrender of such scrip or warrants aggregating a full
share. A certificate for a fractional share or an uncertificated fractional
share shall, but scrip or warrants shall not unless otherwise provided
therein, entitle the holder to exercise voting rights, to receive dividends
thereon, and to participate in any of the assets of the corporation in the
event of liquidation. The Board of Directors may cause scrip or warrants to be
issued subject to the conditions that they shall become void if not exchanged
for certificates representing the full shares or uncertificated full shares
before a specified date, or subject to the conditions that the shares for
which scrip or warrants are exchangeable may be sold by the corporation and
the proceeds thereof distributed to the holders of scrip or warrants, or
subject to any other conditions which the Board of Directors may impose.
4. STOCK TRANSFERS. Upon compliance with provisions restricting the
transfer or registration of transfer of shares of stock, if any, transfers or
registration of transfers of shares of stock of the corporation shall be made
only on the stock ledger of the corporation by the registered holder thereof,
or by his attorney thereunto authorized by power of attorney duly executed and
filed with the Secretary of the corporation or with a transfer agent or a
registrar, if any, and, in the case of shares represented by certificates, on
surrender of the certificate or certificates for such shares of stock properly
endorsed and the payment of all taxes due thereon.
5. RECORD DATE FOR STOCKHOLDERS. 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, the Board of Directors may fix a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board of Directors, and
which record date shall not be more than sixty nor less than ten days before
the date of such meeting. If no record date is fixed by the Board of
Directors, the record date for determining stockholders entitled to notice of
or to vote at a meeting of stockholders shall be at the close of business on
the day next preceding the day on which notice is given, or, if notice is
waived, at the close of business on the day next preceding the day on which
the meeting is held. 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
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<PAGE>
Board of Directors may fix a new record date for the adjourned meeting. In
order that the corporation may determine the stockholders entitled to consent
to corporate action in writing without a meeting, the Board of Directors may
fix a record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board of Directors, and
which date shall not be more than ten days after the date upon which the
resolution fixing the record date is adopted by the Board of Directors. If no
record date has been fixed by the Board of Directors, the record date for
determining the stockholders entitled to consent to corporate action in
writing without a meeting, when no prior action by the Board of Directors is
required by the General Corporation Law, shall be the first date on which a
signed written consent setting forth the action taken or proposed to be taken
is delivered to the corporation by delivery to its registered office in the
State of Delaware, its principal place of business, or an officer or agent of
the corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to the corporation's registered
office shall be by hand or by certified or registered mail, return receipt
requested. If no record date has been fixed by the Board of Directors and
prior action by the Board of Directors is required by the General Corporation
Law, the record date for determining stockholders entitled to consent to
corporate action in writing without a meeting shall be at the close of
business on the day on which the Board of Directors adopts the resolution
taking such prior action. In order that the corporation may determine the
stockholders entitled to receive payment of any dividend or other distribution
or allotment of any rights or the stockholders entitled to exercise any rights
in respect of any change, conversion, or exchange of stock, or for the purpose
of any other lawful action, the Board of Directors may fix a record date,
which record date shall not precede the date upon which the resolution fixing
the record date is adopted, and which record date shall be not more than sixty
days prior to such action. If no record date is fixed, the record date for
determining stockholders for any such purpose shall be at the close of
business on the day on which the Board of Directors adopts the resolution
relating thereto.
6. MEANING OF CERTAIN TERMS. As used herein in respect of the right
to notice of a meeting of stockholders or a waiver thereof or to participate
or vote thereat or to consent or dissent in writing in lieu of a meeting, as
the case may be, the term "share" or "shares" or "share of stock" or "shares
of stock" or "stockholder" or "stockholders" refers to an outstanding share or
shares of stock and to a holder or holders of record of outstanding shares of
stock when the corporation is authorized to issue only one class of shares of
stock, and said reference is also intended to include any outstanding share or
shares of stock and any holder or holders of record of outstanding shares of
stock of any class upon which or upon whom the certificate of incorporation
confers such rights where there are two or more classes or series of shares of
stock or upon which or upon whom the General Corporation Law confers such
rights notwithstanding that the certificate of incorporation may provide for
more than one class or series of shares of stock, one or more of which are
limited or denied such rights thereunder; provided, however, that no such
right shall vest in the event of an increase or a decrease in the authorized
number of shares of stock of any class or series which
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<PAGE>
is otherwise denied voting rights under the provisions of the certificate of
incorporation, except as any provision of law may otherwise require.
7. STOCKHOLDER MEETINGS.
- TIME. The annual meeting shall be held on the date and at
the time fixed, from time to time, by the directors, provided, that the first
annual meeting shall be held on a date within thirteen months after the
organization of the corporation, and each successive annual meeting shall be
held on a date within thirteen months after the date of the preceding annual
meeting.
Special meetings of the stockholders of the corporation shall be held
whenever called in the manner required by the laws of the State of Delaware
for purposes as to which there are special statutory provisions, and for other
purposes whenever called by the request of any two (2) directors, or, so long
as at least one third of the shares of Series A Convertible Preferred Stock
(the "Preferred Stock") issued by the corporation remain outstanding, by the
written request of the holders of at least 25% of the then outstanding shares
of Preferred Stock. Business transacted at any special meeting of stockholders
of the corporation shall be limited to the purposes stated in the notice
thereof.
- PLACE. Annual meetings and special meetings shall be held
at such place, within or without the State of Delaware, as the directors may,
from time to time, fix. Whenever the directors shall fail to fix such place,
the meeting shall be held at the registered office of the corporation in the
State of Delaware.
- NOTICE OR WAIVER OF NOTICE. Written notice of all meetings
shall be given, stating the place, date, and hour of the meeting and stating
the place within the city or other municipality or community at which the list
of stockholders of the corporation may be examined. The notice of an annual
meeting shall state that the meeting is called for the election of directors
and for the transaction of other business which may properly come before the
meeting, and shall (if any other action which could be taken at a special
meeting is to be taken at such annual meeting) state the purpose or purposes.
The notice of a special meeting shall in all instances state the purpose or
purposes for which the meeting is called. The notice of any meeting shall also
include, or be accompanied by, any additional statements, information, or
documents prescribed by the General Corporation Law. Except as otherwise
provided by the General Corporation Law, a copy of the notice of any meeting
shall be given, personally or by mail, not less than ten days nor more than
sixty days before the date of the meeting, unless the lapse of the prescribed
period of time shall have been waived, and directed to each stockholder at his
record address or at such other address which he may have furnished by request
in writing to the Secretary of the corporation. Notice by mail shall be deemed
to be given when deposited, with postage thereon prepaid, in the United States
Mail. If a meeting is adjourned to another time, not more than thirty days
hence, and/or to another place, and if an announcement of the adjourned time
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<PAGE>
and/or place is made at the meeting, it shall not be necessary to give notice
of the adjourned meeting unless the directors, after adjournment, fix a new
record date for the adjourned meeting. Notice need not be given to any
stockholder who submits a written waiver of notice signed by him before or
after the time stated therein. 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. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the
stockholders need be specified in any written waiver of notice.
- STOCKHOLDER LIST. The officer who has charge of the stock
ledger of the corporation shall prepare and make, at least ten days before
every meeting of stockholders, a complete list of the stockholders, arranged
in alphabetical order, and showing the address of each stockholder and the
number of shares registered in the name of each stockholder. Such list 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 or other municipality
or community 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. The stock ledger shall be the only evidence
as to who are the stockholders entitled to examine the stock ledger, the list
required by this section or the books of the corporation, or to vote at any
meeting of stockholders.
- 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 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.
- PROXY REPRESENTATION. Every stockholder may authorize
another person or persons to act for him by proxy in all matters in which a
stockholder is entitled to participate, whether by waiving notice of any
meeting, voting or participating at a meeting, or expressing consent or
dissent without a meeting. Every proxy must be signed by the stockholder or by
his attorney-in-fact. No proxy shall be voted or acted upon after three years
from its date unless such proxy provides for a longer period. A duly executed
proxy shall be irrevocable if it states that it is irrevocable and, if, and
only as long as, it is coupled with an interest sufficient in law to support
an irrevocable power. A proxy may be made irrevocable regardless of whether
the interest with which it is coupled is an interest in the stock itself or an
interest in the corporation generally.
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- 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 upon the discharge of his duties,
shall take and sign an oath faithfully to execute the duties of inspectors 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. Except as otherwise required by subsection (e) of
Section 231 of the General Corporation Law, the provisions of that Section
shall not apply to the corporation.
- QUORUM. The holders of a majority of the outstanding
shares of stock shall constitute a quorum at a meeting of stockholders for the
transaction of any business. The stockholders present may adjourn the meeting
despite the absence of a quorum.
- VOTING. Except as otherwise provided in the certificate of
incorporation of the corporation with respect to shares of Preferred Stock,
each share of stock shall entitle the holders thereof to one vote. Except as
provided in the certificate of incorporation with respect to the election of
directors by the holders of Preferred Stock, directors shall be elected by a
majority of the votes of the shares present in person or represented by proxy
at the meeting and entitled to vote on the election of directors. Any other
action shall be authorized by a majority of the votes cast except where the
General Corporation Law prescribes a different percentage of votes and/or a
different exercise of voting power, and except as may be otherwise prescribed
by the provisions of the certificate of incorporation and these Bylaws. In the
election of directors, and for any other action, voting need not be by ballot.
8. STOCKHOLDER ACTION WITHOUT MEETINGS. Any action required by the
General Corporation Law to be taken at any annual or special meeting of
stockholders, or any action which may be taken at any annual or special
meeting of stockholders, 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
6
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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. Action taken pursuant to this
paragraph shall be subject to the provisions of Section 228 of the General
Corporation Law.
ARTICLE II
DIRECTORS
1. FUNCTIONS AND DEFINITION; COMPENSATION. The business and
affairs of the corporation shall be managed by or under the direction of the
Board of Directors of the corporation. The use of the phrase "whole board"
herein refers to the total number of directors which the corporation would
have if there were no vacancies.
The Board of Directors shall have the authority to fix the
compensation of the members thereof; provided that, notwithstanding the
foregoing, the Company shall promptly reimburse, in full, each director of the
corporation who is not an employee of the corporation for all reasonable
out-of-pocket expenses incurred by such director in attending any meeting of
the Board of Directors or any committee thereof.
2. QUALIFICATIONS AND NUMBER. A director need not be a stockholder, a
citizen of the United States, or a resident of the State of Delaware. The
initial Board of Directors shall consist of three persons. Thereafter the
number of directors constituting the whole board shall be at least one.
Subject to the foregoing limitation and except for the first Board of
Directors, such number may be fixed from time to time by action of the
stockholders or of the directors, or, if the number is not fixed, the number
shall be three. The number of directors may be increased or decreased by
action of the stockholders or of the directors.
The foregoing notwithstanding, in no event shall the number of
directors, whether fixed by action of the stockholders or of the Board of
Directors, conflict with any term or provision of the Preferred Stock as set
forth in the certificate of incorporation of the corporation.
3. ELECTION AND TERM. The first Board of Directors, unless the
members thereof shall have been named in the certificate of incorporation,
shall be elected by the incorporator or incorporators and shall hold office
until the first annual meeting of stockholders and until their successors are
elected and qualified or until their earlier resignation or removal. Any
director may resign at any time upon written notice to the corporation.
Thereafter, directors who are elected at an annual meeting of stockholders,
and directors who are elected in the interim to fill vacancies and newly
created directorships, shall hold office until the next annual meeting of
stockholders and until their successors are elected and qualified or until
their earlier resignation or removal. Except as the General Corporation Law
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may otherwise require and subject to the provisions of the certificate of
incorporation of the corporation with respect to the rights of the holders of
Preferred Stock to elect a certain number of directors, in the interim between
annual meetings of stockholders or of special meetings of stockholders called
for the election of directors and/or for the removal of one or more directors
and for the filling of any vacancy in that connection, newly created
directorships and any vacancies in the Board of Directors, including unfilled
vacancies resulting from the removal of directors for cause or without cause,
may be filled by the vote of a majority of the remaining directors then in
office, although less than a quorum, or by the sole remaining director.
4. MEETINGS.
- TIME. The first meeting of a newly elected Board shall be
held as soon after its election as the directors may conveniently assemble.
Thereafter, meetings shall be held at such time as the Board of Directors
shall fix; provided that the Board of Directors shall meet at least four (4)
times per year and at least once during each fiscal quarter of the
corporation.
- PLACE. Meetings shall be held at such place within
or without the State of Delaware as shall be fixed by the Board.
- CALL. No call shall be required for regular meetings for
which the time and place have been fixed. Special meetings may be called by or
at the direction of the Chairman of the Board, if any, the Vice-Chairman of
the Board, if any, of the President, of the request of any two (2) directors,
or, so long as at least one-third of the shares of Preferred Stock issued by
the corporation remain outstanding, of the written request of the holders of
at least 25% of the then outstanding shares of Preferred Stock.
- NOTICE OR ACTUAL OR CONSTRUCTIVE WAIVER. No notice shall
be required for regular meetings for which the time and place have been fixed.
Written, oral, or any other mode of notice of the time and place shall be
given for special meetings in sufficient time for the convenient assembly of
the directors thereat. Notice need not be given to any director or to any
member of a committee of directors who submits a written waiver of notice
signed by him before or after the time stated therein. Attendance of any such
person at a meeting shall constitute a waiver of notice of such meeting,
except when he attends a 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. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the
directors need be specified in any written waiver of notice.
- QUORUM AND ACTION. A majority of the whole Board shall
constitute a quorum except when a vacancy or vacancies prevents such majority,
whereupon a majority of the directors in office shall constitute a quorum,
provided, that such majority shall constitute at least one-third of the whole
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Board. A majority of the directors present, whether or not a quorum is
present, may adjourn a meeting to another time and place. Except as herein
otherwise provided or as otherwise provided in the certificate of
incorporation of the corporation, and except as otherwise provided by the
General Corporation Law, the vote of the majority of the directors present at
a meeting at which a quorum is present shall be the act of the Board. The
quorum and voting provisions herein stated shall not be construed as
conflicting with any provisions of the General Corporation Law and these
Bylaws which govern a meeting of directors held to fill vacancies and newly
created directorships in the Board or action of disinterested directors.
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.
- CHAIRMAN OF THE MEETING. The Chairman of the Board, if any
and if present and acting, shall preside at all meetings. Otherwise, the
Vice-Chairman of the Board, if any and if present and acting, or the
President, if present and acting, or any other director chosen by a majority
of the directors present thereat, shall preside.
5. REMOVAL OF DIRECTORS. Except as may otherwise be provided by
the General Corporation Law, any director or the entire Board of Directors may
be removed, with or without cause, by the holders of a majority of the shares
then entitled to vote at an election of directors.
6. COMMITTEES. Promptly after the issuance of any shares of Preferred
Stock, a compensation committee of the Board of Directors shall be established
and such committee shall consist of three (3) directors, at least two (2) of
which directors shall not be employees of the corporation or otherwise
involved in the management of the corporation other than as a director or a
stockholder of the corporation (each an "Independent Director") and, for so
long as at least one-third of the shares of Preferred Stock issued by the
corporation remains outstanding, at least one (1) of whom shall be one of the
directors elected solely by the holders of Preferred Stock (a "Preferred Stock
Director") as provided in the certificate of incorporation of the corporation.
Subject to such requirement as to Independent Directors and a Preferred Stock
Director, the Board of Directors may designate one or more directors as
alternate members of the compensation committee who may replace any absent or
disqualified member or members at any meeting thereof. In the absence or
disqualification of any member or any such alternate member of the
compensation committee, the member or members thereof present at any meeting
and not disqualified from voting, whether or not he or they constitute a
quorum, may, subject to the Independent Directors and Preferred Stock Director
requirements, unanimously appoint another member of the Board of Directors to
act at the meeting in the place of any such absent or disqualified member. No
compensation or other remuneration at an annual rate in excess of $100,000
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shall be paid to, and no capital stock of the corporation shall be issued or
granted to, any director, officer or employee of, or any consultant or adviser
to, the corporation or any of its subsidiaries, without the approval of the
compensation committee. In addition, the compensation committee shall have
such other powers and authority related to the compensation of employees,
including, without limitation, in respect of any employee stock option plans,
stock purchase plans, restricted stock plans or other stock plans as the Board
of Directors, by resolution, shall so delegate and approve.
The Board of Directors may, by resolution passed by a majority of the
whole Board, designate one or more additional committees, each committee to
consist of one or more of the directors of the corporation. The Board may
designate one or more directors as alternate members of any such additional
committee, who may replace any absent or disqualified member at any meeting of
the committee. In the absence or disqualification of any member of any 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 member. Any
such committee, to the extent provided in the resolution of the Board, shall
have and may exercise the powers and authority of the Board of Directors in
the management of the business and affairs of the corporation with the
exception of any authority the delegation of which is prohibited by Section
141 of the General Corporation Law, and may authorize the seal of the
corporation to be affixed to all papers which may require it.
Any committee appointed pursuant to this Section 6 shall serve at the
pleasure of the Board, which, subject to the requirements as to membership of
the compensation committee set forth above, shall have power at any time to
change the membership of such committee, to fill vacancies in it or to
dissolve it; but, subject to such change or dissolution, members of a
committee shall hold office until the first meeting of the Board of Directors
following the annual shareholders' meeting next succeeding their appointment
and until their successors are appointed.
Meetings of a committee shall be held at such place, within or
without the State of Delaware, as shall be fixed by the Board of Directors or
such committee, and no notices of such regular meetings shall be required.
Special meetings of any committee may be called by the chairman of such
committee or by the Chairman, the President or the Secretary of the
corporation and shall be called by the Secretary on the written request of any
two members of any such committees or of the Board of Directors.
Notice of a special meeting of any committee shall be given to each
member thereof in accordance with Section 4 above. The majority of the members
of a committee shall constitute a quorum for the transaction of committee
business, and the act of a majority of the members present at any meeting at
which there is a quorum shall be the act of the committee.
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7. WRITTEN ACTION. Any action required or permitted to be taken at
any meeting of the Board of Directors or any committee thereof may be taken
without a meeting if all members of the Board or committee, as the case may
be, consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the Board or committee.
ARTICLE III
OFFICERS
The officers of the corporation shall consist of a President, a
Secretary, a Treasurer, and, if deemed necessary, expedient, or desirable by
the Board of Directors, a Chairman of the Board, a Vice-Chairman of the Board,
an Executive Vice-President, one or more other Vice-Presidents, one or more
Assistant Secretaries, one or more Assistant Treasurers, and such other
officers with such titles as the resolution of the Board of Directors choosing
them shall designate. Except as may otherwise be provided in the resolution of
the Board of Directors choosing him, no officer other than the Chairman or
Vice-Chairman of the Board, if any, need be a director. Any number of offices
may be held by the same person, as the directors may determine.
Unless otherwise provided in the resolution choosing him, each
officer shall be chosen for a term which shall continue until the meeting of
the Board of Directors following the next annual meeting of stockholders and
until his successor shall have been chosen and qualified.
All officers of the corporation shall have such authority and perform
such duties in the management and operation of the corporation as shall be
prescribed in the resolutions of the Board of Directors designating and
choosing such officers and prescribing their authority and duties, and shall
have such additional authority and duties as are incident to their office
except to the extent that such resolutions may be inconsistent therewith. The
Secretary or an Assistant Secretary of the corporation shall record all of the
proceedings of all meetings and actions in writing of stockholders, directors,
and committees of directors, and shall exercise such additional authority and
perform such additional duties as the Board shall assign to him. Any officer
may be removed, with or without cause, by the Board of Directors. Any vacancy
in any office may be filled by the Board of Directors.
ARTICLE IV
CORPORATE SEAL
The corporate seal shall be in such form as the Board of Directors
shall prescribe.
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ARTICLE V
FISCAL YEAR
The fiscal year of the corporation shall be fixed, and shall be
subject to change, by the Board of Directors.
ARTICLE VI
CONTROL OVER BYLAWS
Subject to the provisions of the certificate of incorporation and the
provisions of the General Corporation Law, the power to amend, alter, or
repeal these Bylaws and to adopt new Bylaws may be exercised by the Board of
Directors or by the stockholders.
I HEREBY CERTIFY that the foregoing is a full, true, and correct copy
of the Amended and Restated Bylaws of HUMASCAN INC., a Delaware corporation,
as in effect on the date hereof.
Dated: February _____, 1996.
_________________________________________
Secretary of HUMASCAN INC.
(SEAL)
02/79096.1
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EXHIBIT 4.4
THIS WARRANT CERTIFICATE AND THE WARRANTS EVIDENCED HEREBY HAVE NOT BEEN AND
THE COMMON STOCK TO BE ISSUED UPON EXERCISE OF SUCH WARRANTS HAS NOT BEEN OR
WILL NOT, UPON THE ISSUANCE THEREOF, HAVE BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR QUALIFIED UNDER STATE
SECURITIES LAWS BUT HAVE BEEN, OR WILL BE, AS THE CASE MAY BE, ISSUED PURSUANT
TO AN EXEMPTION FROM SUCH REGISTRATION AND MAY NOT BE SOLD, TRANSFERRED,
PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS (i) THE ISSUER THEREOF
SHALL HAVE RECEIVED AN OPINION OF COUNSEL TO THE EFFECT THAT NO REGISTRATION
OR QUALIFICATION THEREOF IS LEGALLY REQUIRED FOR SUCH TRANSFER OR (ii) COVERED
BY AN EFFECTIVE A REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND
QUALIFIED UNDER APPLICABLE STATE SECURITIES LAWS.
No. W-__ [_______] Warrants to Purchase
One Share Each
WARRANT CERTIFICATE
To subscribe for and purchase shares of Common Stock, par
value $0.01 (the "Common Stock"), of
HUMASCAN INC.
THIS CERTIFIES that, for value received, _______
________________ or its registered successors and assigns, is the owner of
[_______] warrants (the "Warrants"), each which entitles the owner thereof to
purchase from HumaScan Inc., a Delaware corporation (herein called the
"Company") one share of Common Stock of the Company (individually a "Common
Share" and collectively the "Common Shares") commencing on the date hereof, at
the initial exercise price of $.50 per share of Common Stock (the "Exercise
Price"). To the extent any Warrants remain unexercised, such Warrants shall
automatically and without further action by the Company or the holder hereof,
terminate on ________ __, 2001 (the "Termination Date"). The number of shares
of Common Stock to be received upon the exercise of each Warrant and the
Exercise Price to be paid for a share of Common Stock are subject to
adjustment from time to time as hereinafter set forth.
1. Exercise of Warrants. The Warrants evidenced hereby may
be exercised by the registered holder hereof, in whole or in part, by the
surrender of this Warrant Certificate, duly endorsed (unless endorsement is
waived by
<PAGE>
2
the Company), at the principal office of the Company (or at such other office
or agency of the Company as it may designate by notice in writing to the
registered holder hereof at such holder's last address appearing on the books
of the Company) and upon payment to the Company of the purchase price of the
Common Shares purchased. Payment of the purchase price shall be made by (x)
certified or official bank check or checks payable to the order of the Company
or (y) surrender to the Company of Warrants. In the event of payment of the
purchase price by surrender of Warrants, the registered holder shall be
entitled to receive that number of Common Shares determined by dividing (x)
the difference between the aggregate Market Price (as hereinafter defined) of
the Common Shares issuable in respect of the Warrants so surrendered and the
aggregate Exercise Price in respect of the Warrants so surrendered by (y) the
Market Price per Common Share. The Company agrees that the Common Shares so
purchased shall be deemed to be issued to the registered holder hereof on the
date on which this Warrant Certificate shall have been surrendered and payment
made for such Common Shares as aforesaid; provided, however, that no such
surrender and payment on any date when the stock transfer books of the Company
shall be closed shall be effective to constitute the person entitled to
receive such Common Shares as the record holder thereof on such date, but such
surrender and payment shall be effective to constitute the person entitled to
receive such Common Shares as the record holder thereof for all purposes
immediately after the opening of business on the next succeeding day on which
such stock transfer books are open. The certificate(s) for such Common Shares
shall be delivered to the registered holder hereof within a reasonable time,
not exceeding five days, after the Warrants evidenced hereby shall have been
so exercised and a new Warrant Certificate evidencing the number of Common
Shares remaining to be issued upon exercise of the Warrants shall also be
issued to the registered holder within such time unless such Warrants shall
have expired. No fractional Common Shares of the Company, or scrips for any
such fractional shares, shall be issued upon the exercise of any Warrant. The
term "Market Price" shall mean, for any day, the last sale price for the
Common Shares on the principal securities exchange on which the Common Shares
are listed or admitted to trading, or, if not so listed or admitted to trading
on any securities exchange, the last sale price for the Common Shares on the
National Association of Securities Dealers National Market System, or, if the
Common Shares shall not be listed on such system, the closing bid price in the
over-the-counter market, in each such case, unless otherwise provided herein,
averaged over a period of 5 consecutive business days prior to the day as of
which Market Price is being
<PAGE>
3
determined. If at any time the Common Shares are not listed on any such
exchange or such system or quoted in the over-the-counter market, the Market
Price of the Common Shares shall be deemed to be the higher of (i) the book
value thereof, as determined in accordance with generally accepted accounting
principles consistent with those then being applied by the Company, by any
firm of independent certified public accountants (which may be the regular
auditors of the Company) of recognized national standing selected by the Board
of Directors of the Company, as of the last day of the month ending within 31
days preceding the date as of which the determination is to be made, and (ii)
the fair value thereof, as determined in good faith by an independent
brokerage firm, Standard & Poor's Corporation or Moody's Investors Service, as
of a date which is within 5 business days preceding the date as of which the
determination is to be made.
2. Anti-Dilution Provisions. The Exercise Price per share
shall be subject to adjustment from time to time as hereafter provided. Upon
each adjustment of the Exercise Price, the holder of the Warrants evidenced
hereby shall thereafter be entitled to purchase, at the Exercise Price
resulting from such adjustment, the number of shares obtained per warrant by
dividing the Exercise Price in effect immediately prior to such adjustment by
the Exercise Price resulting from such adjustment.
(a) Warrant Purchase Price Adjustments. If and
whenever after the date hereof the Company shall issue or sell any shares of
its Common Stock (except for the issuance of shares of Common Stock (x)
issuable upon conversion of the Preferred Stock (as hereinafter defined), (y)
pursuant to the exercise of Section 2 Warrants (as hereinafter defined) and
(z) to Scantek Medical, Inc. ("Scantek") pursuant to that certain Second
Amended License Agreement dated as of October 20, 1995 (the "License"),
between the Company and Scantek, including shares of Common Stock issuable
upon exercise of warrants issued to Scantek pursuant to such agreement
(collectively, "Permitted Issuances")) for a consideration per share less than
the Exercise Price in effect immediately prior to the time of such issue or
sale, or shall be deemed under the provisions of this Paragraph 2 to have
effected any such issuance or sale, then, forthwith upon such issue or sale,
the Exercise Price shall be reduced to a price equal to (calculated to the
nearest $0.00001):
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4
the price determined by dividing (i) an amount
equal to the sum of (A) the number of shares of Common Stock
outstanding immediately prior to such issue or sale
multiplied by the then existing Exercise Price and (B) the
consideration, if any, received by the Company upon such
issue or sale by (ii) the total number of shares of Common
Stock outstanding immediately after such issue or sale; and
Notwithstanding the foregoing, no adjustment of the Exercise Price shall be
made in an amount less than $0.00001 per share, but any such lesser adjustment
shall be carried forward and shall be made at the time of and together with
the next subsequent adjustment which together with any adjustments so carried
forward shall amount to $0.00001 per share or more.
"Section 2 Warrants" as used herein shall mean any warrants
issued by the Corporation for the purchase of Common Stock (i) to holders of
the Company's Series A Convertible Preferred Stock, par value $0.01 (the
"Preferred Stock"), on the date of issuance of the Preferred Stock, (ii) to
any holder of Preferred Stock issued in exchange for the Series A or Series B
Convertible Notes of the Company due August 30, 1996, (iii) to certain
officers, employees and consultants for up to 275,000 shares of Common Stock
at an exercise price of no less than $4.00 per share, (iv) to Physician Sales
& Service, Inc. ("PSS") for up to 166,667 shares of Common Stock at an
exercise price of $3.00 per share issued pursuant to that certain Exclusive
Supply and Distribution Agreement dated February 24, 1996, between PSS and the
Company, (v) to Burnham Securities Inc. and (vi) to Scantek pursuant to the
License.
For the purposes of this Paragraph 2(a), the following
provisions 2(a)(i) to 2(a)(vii) inclusive, shall also be applicable:
(i) In the event that at any time the Company shall
in any manner grant (directly, by assumption in a merger or otherwise) any
rights to subscribe for or to purchase, or any options (except for Permitted
Issuances) for the purchase of (x) Common Stock or (y) any stock or securities
convertible into or exchangeable for Common Stock (such rights or options
being herein called "Options" and such convertible or exchangeable stock or
securities being herein called "Convertible Securities"), or shall fix a
record date for determination of holders of any class or securities entitled to
receive any such Options, whether or
<PAGE>
5
not such Options or the right to convert or exchange any such Convertible
Securities are immediately exercisable, and whether or not the price per share
for which Common Stock is issuable upon the exercise of such Options or upon
conversion or exchange of such Convertible Securities (determined by dividing
(A) the total amount, if any, received or receivable by the Company as
consideration for the granting of such Options, plus the minimum aggregate
amount of additional consideration payable to the Company upon the exercise of
all such Options, plus, in the case of any such Options that relate to
Convertible Securities, the minimum aggregate amount of additional
consideration, if any, payable upon the issue or sale of such Convertible
Securities and upon the conversion or exchange thereof, by (B) the total
number of shares of Common Stock issuable upon the exercise of such Options or
upon the conversion or exchange of all such Convertible Securities issuable
upon the exercise of such Options), shall be less than the Exercise Price in
effect immediately prior to the time of the granting of such Options, then the
total number of shares of Common Stock issuable upon the exercise of such
Options or upon conversion or exchange of the total amount of such Convertible
Securities issuable upon the exercise of such Options (as of the date of
granting such Options) shall be deemed to be outstanding and to have been
issued for such price per share. Except as otherwise provided in subparagraph
2(a)(iii), no further adjustment of the Exercise Price shall be made upon the
actual issue of such Common Stock or of such Convertible Securities upon
exercise of such Options or upon the actual issue of such Common Stock upon
conversion or exchange of such Convertible Securities.
(ii) In the event that the Company shall in any
manner issue (directly, by assumption in a merger or otherwise) or sell any
Convertible Securities (other than pursuant to the exercise of Options to
purchase such Convertible Securities covered by subparagraph 2(a)(i)), or
shall fix a record date for the determination of holders of any class of
securities entitled to receive any such Convertible Securities, whether or not
the rights to exchange or convert thereunder are immediately exercisable, and
whether or not the price per share for which Common Stock is issuable upon
such conversion or exchange (determined by dividing (A) the total amount
received or receivable by the Company as consideration for the issue or sale
of such Convertible Securities, plus the minimum aggregate amount of
additional consideration, if any, payable to the Company upon the conversion
or exchange thereof, by (B) the total maximum number of shares of Common
Stock issuable upon the conversion or exchange of all such
<PAGE>
6
Convertible Securities) shall be less than the Exercise Price in effect
immediately prior to the time of such issue, then the total maximum number of
shares of Common Stock issuable upon conversion or exchange of all such
Convertible Securities shall (as of the date of the issue or sale of such
Convertible Securities) be deemed to be outstanding and to have been issued
for such price per share, provided that, except as otherwise provided in
subparagraph 2(a)(iii), no further adjustment of the Exercise Price shall be
made upon the actual issue of such Common Stock upon conversion or exchange of
such Convertible Securities.
(iii) In connection with any change in, or the
expiration or termination of, the purchase rights under any Option or the
conversion or exchange rights under any Convertible Securities, the following
provisions shall apply:
(A) If the purchase price provided for in any
Option referred to in subparagraph 2(a)(i), the additional consideration, if
any, payable upon the conversion or exchange of any Convertible Securities
referred to in subparagraph 2(a)(i) or 2(a)(ii), or the rate at which any
Convertible Securities referred to in subparagraph 2(a)(i) or 2(a)(ii) are
convertible into or exchangeable for Common Stock shall change at any time
(other than under or by reason of provisions designed to protect against
dilution), then the Exercise Price in effect at the time of such change shall
forthwith be increased or decreased to the Exercise Price that would be in
effect immediately after such change if (a) the adjustments that were made
upon the issuance of such Options or Convertible Securities had been made upon
the basis of (and taking into account the total consideration received for)
(i) the issuance at that time of the Common Stock, if any, actually issued
upon the exercise of any such Options or upon the conversion or exchange of
any such Convertible Securities before such change, and (ii) the issuance at
that time of all such Options or Convertible Securities, with terms and
provisions reflecting such change that are still outstanding after such
change, and (b) the Exercise Price as adjusted pursuant to clause (a)
preceding had been used as the basis for the adjustments required hereunder in
connection with all other issues or sales of Common Stock, Options or
Convertible Securities by the Company subsequent to the issuance of such
Options or Convertible Securities.
(B) On the partial or complete expiration of
any Options or termination of any right to convert or exchange Convertible
Securities which have not been fully exercised, the Exercise Price then in
effect
<PAGE>
7
hereunder shall be forthwith increased or decreased to the Exercise Price that
would be in effect at the time of such expiration or termination if (a) the
adjustments that were made upon the issuance of such Options or Convertible
Securities had been made upon the basis of (and taking into account the total
consideration received for) (i) the issuance at that time of the Common Stock,
if any, actually issued upon the exercise of such Options or upon the
conversion or exchange of such Convertible Securities before such expiration
or termination, and (ii) the issuance at that time of only those such Options
or Convertible Securities that remain outstanding after such expiration or
termination, and (b) the Exercise Price as adjusted pursuant to clause (a)
preceding had been used as the basis for adjustments required hereunder in
connection with all other issues or sales of Common Stock, Options or
Convertible Securities by the Company subsequent to the issuance of such
Options or Convertible Securities.
(C) If the purchase price provided for
in any Option referred to in subparagraph 2(a)(i) or the rate at which any
Convertible Securities referred to in subparagraph 2(a)(i) or 2(a)(ii) are
convertible into or exchangeable for Common Stock shall be reduced at any time
under or by reason of provisions with respect thereto designed to protect
against dilution, and the event causing the reduction is one that did not also
require an adjustment in the Exercise Price under other provisions of this
Paragraph 2(a), then in case of the delivery of shares of Common Stock upon
the exercise of any such Option or upon conversion or exchange of any such
Convertible Securities, the Exercise Price then in effect hereunder shall
forthwith be adjusted to such amount as would have obtained if such Option or
Convertible Securities had never been issued and if the adjustments made upon
the issuance of such Option or Convertible Securities had been made upon the
basis of the issuance of (and taking into account the total consideration
received for) the shares of Common Stock delivered as aforesaid; provided that
no such adjustment shall be made unless the Exercise Price then in effect
would be reduced thereby.
(D) If a record date for the issuance
of any Options or Convertible Securities shall have been fixed and such
Options or Convertible Securities are not issued on the date fixed therefor,
the adjustment previously made as provided in subparagraphs 2(a)(i) and
2(a)(ii) above to the relevant Exercise Price which becomes effective on such
record date shall be cancelled as of the close of business on such record
date, and thereafter such Exercise Price shall be adjusted pursuant to
subparagraph 2(a)(i) or
<PAGE>
8
2(a)(ii), as the case may be, as of the actual date of their issuance.
(iv) In the event the Company declares a
dividend or makes any other distribution upon any stock of the Company payable
in Common Stock, Options or Convertible Securities, any Common Stock, Options
or Convertible Securities, as the case may be, issuable in payment of such
dividend or distribution shall be deemed to have been issued or sold without
consideration. In the event the Company shall grant the holders of Common
Stock the right to subscribe for or purchase shares of Common Stock or any
other security, whether pursuant to pre-emptive rights set forth in the
Certificate of Incorporation of the Company or in an agreement or otherwise,
the Company, from time to time, shall be deemed to have received the amount
actually received upon exercise of the rights.
(v) For purposes of this Paragraph 2(a), the
amount of consideration received by the Company in connection with the
issuance or sale of Common Stock, Options or Convertible Securities shall be
determined in accordance with the following:
(A) In the event shares of Common Stock,
Options or Convertible Securities are issued or sold for cash, the
consideration received therefor shall be deemed to be the amount payable to
the Company therefor, after deduction therefrom of any expenses incurred and
any underwriting commissions or concessions or discounts paid or allowed by
the Company in connection therewith.
(B) In the event shares of Common Stock,
Options or Convertible Securities are issued or sold for a consideration other
than cash, the amount of the consideration other than cash payable to the
Company shall be deemed to be the fair value of the consideration (after
deduction of any dividends or interest accrued in respect thereof and any
underwriting commissions or concessions or discounts paid or allowed by the
Company in connection therewith) as determined in good faith by the Board of
Directors of the Company, including, without limitation, cancellation or
satisfaction of amounts payable to the purchaser for accrued interest or
accrued dividends on obligations or securities other than the Common Stock,
Options or Convertible Securities then being issued.
(C) The amount of consideration deemed to
be received by the Company pursuant to the foregoing provisions of this
subparagraph 2(a)(v) upon any issuance or sale, pursuant to an established
compensation plan of the
<PAGE>
9
Company, to directors, officers or employees of the Company in connection with
their employment, of shares of Common Stock, Options or Convertible
Securities, shall be increased by the amount of any tax benefit realized by
the Company as a result of the issuance or sale, the amount of the tax benefit
being the amount by which the federal or state income or other tax liability
of the Company shall be reduced by reason of any deduction or credit in
respect of the issuance and/or sale.
(D) In the event shares of Common Stock,
Options or Convertible Securities are issued in connection with any merger in
which the Company is the surviving corporation, the amount of consideration
therefor shall be deemed to be the fair value of such portion of the assets
and business of the nonsurviving corporation as shall be attributable to the
Common Stock, Options or Convertible Securities, as the case may be, as
determined in good faith by the Board of Directors of the Company.
(E) In the event Options shall be issued
in connection with the issue and sale of other securities of the Company,
together comprising one integral transaction in which no specific
consideration is allocated to such Options by the parties thereto, the Options
shall be deemed to have been issued without consideration
(F) In the event of a consolidation or
merger of the Company in which stock or securities of another corporation are
issued in exchange for Common Stock of the Company or in the event of any sale
of all or substantially all the assets of the Company for stock or other
securities of any corporation, the Company shall be deemed to have issued a
number of shares of its Common Stock for stock or securities of the other
corporation computed on the basis of the actual exchange ratio on which the
transaction was predicated and for a consideration equal to the fair market
value on the date of the transaction of the stock or securities of the other
corporation, and if the calculation results in adjustment of the Exercise
Price, the determination of the number of shares of Common Stock receivable
upon exercise of the Warrants immediately prior to such merger, consolidation
or sale, for purposes of Paragraph 2(c), shall be made after giving effect to
the adjustment of the Exercise Price; provided that no such adjustment shall
be made unless the Exercise Price then in effect shall be reduced thereby.
(vi) (A) In the event the Company fixes a record
date with respect to the holders of its Common Stock for the purpose of
entitling them (i) to receive a dividend
<PAGE>
10
or other distribution payable in Common Stock, Options or Convertible
Securities or (ii) to subscribe for or purchase Common Stock, Options or
Convertible Securities (whether pursuant to pre-emptive rights granted by the
Certificate of Incorporation of the Company or by agreement, or otherwise),
then the record date shall be deemed to be the date of the issue or sale of
the shares of Common Stock deemed to have been issued or sold upon the
declaration of the dividend or the making of the distribution or the date of
the granting of the right of subscription or purchase, as the case may be.
(B) If such record date shall have been
fixed and such dividend or distribution shall not have been paid or right of
subscription or purchase fulfilled on the date fixed therefor, the adjustment
previously made to the relevant Exercise Price which became effective on such
record date shall be cancelled as of the close of business on such record
date, and thereafter such Exercise Price shall be adjusted as provided herein
as of the time of actual payment of such dividend, distribution or
subscription of Common Stock, Options or Convertible Securities.
(vii) The number of shares of Common Stock
outstanding at any given time shall not include shares owned or held by or for
the account of the Company or any subsidiary thereof, and the disposition of
any such shares shall be considered an issue or sale of Common Stock for the
purposes of this Paragraph 2(a).
(b) Stock Splits and Reverse Splits. In the event
the Company subdivides its outstanding shares of Common Stock into a greater
number of shares, the Exercise Price in effect immediately prior to the
subdivision shall be proportionately reduced and the number of Common Shares
purchasable pursuant to the Warrants evidenced hereby immediately prior to the
subdivision shall be proportionately increased, and conversely, in the event
the outstanding shares of Common Stock of the Company are combined into a
smaller number of shares, the Exercise Price in effect immediately prior to
the combination shall be proportionately increased and the number of Common
Shares purchasable upon the exercise of the Warrants evidenced hereby
immediately prior to the combination shall be proportionately reduced. Except
as provided in this Paragraph 2(c), no adjustment in the Exercise Price and no
change in the number of Common Shares purchasable shall be made under this
Paragraph 2 as a result, or by reason, of any subdivision or combination.
<PAGE>
11
(c) Reorganizations and Asset Sales. If any
capital reorganization or reclassification of the capital stock of the
Company, or any consolidation or merger of the Company with another
corporation, or the sale of all or substantially all its assets to another
corporation, shall be effected in such a way that holders of Common Stock
shall be entitled to receive stock, securities or assets with respect to, or
in exchange for, Common Stock (and which shall not constitute a dividend
subject to Paragraph 2(c)), then the following provisions shall apply:
(i) As a condition of the reorganization,
reclassification, consolidation, merger or sale (except as otherwise provided
below in this Paragraph 2(c)), lawful and adequate provisions shall be made
whereby each holder of Warrants shall thereafter have the right to purchase
and receive upon the terms and conditions specified in this Warrant
Certificate and in lieu of the Common Shares immediately theretofore
receivable upon the exercise of the rights represented hereby, the shares of
stock, securities or assets as may be issued or payable with respect to, or in
exchange for, a number of outstanding shares of Common Stock equal to the
number of Common Shares immediately theretofore receivable had the
reorganization, reclassification, consolidation, merger or sale not taken
place, and in any such case appropriate provision shall be made with respect
to the rights and interests of such holder to the end that the provisions
hereof (including, without limitation, provisions for adjustments of the
Exercise Price and of the number of shares receivable upon the exercise) shall
thereafter be applicable, as nearly as may be practicable, in relation to any
shares of stock, securities or assets thereafter deliverable upon the exercise
of Warrants (including an immediate adjustment, by reason of the consolidation
or merger, of the Exercise Price to the value for the Common Stock reflected
by the terms of the consolidation or merger if the value so reflected is less
than the Exercise Price in effect immediately prior to the consolidation or
merger).
(ii) In the event of a merger or consolidation of
the Company with or into another corporation as a result of which a number of
shares of Common Stock of the surviving corporation are greater or lesser than
the number of shares of Common Stock of the Company outstanding immediately
prior to the merger or consolidation are issuable to holders of Common Stock
of the Company, then the Exercise Price in effect immediately prior to the
merger or consolidation shall be adjusted in the same manner as though there
were a subdivision or combination of the outstanding shares of Common Stock of
the Company.
<PAGE>
12
3. Other Notices. If at any time prior to the expiration of
the Warrant evidenced hereby:
(a) The Company shall declare any dividend
on the Common Stock payable in shares of capital
stock of the Company, cash or other property; or
(b) The Company shall authorize the issue of any
options, warrants or rights pro rata to all holders of
Common Stock entitling them to subscribe for or purchase any
shares of stock of the Company or to receive any other
rights; or
(c) The Company shall authorize the distribution
pro rata to all holders of Common Stock of evidences of its
indebtedness or assets (excluding cash dividends or cash
distributions paid out of retained earnings or retained
surplus); or
(d) There shall occur any reclassification of the
Common Stock, or any consolidation or merger of the Company
with or into another corporation or other entity (other than
a consolidation or merger in which the Company is the
continuing corporation and which does not result in any
reclassification of the Common Stock) or a sale or transfer
to another corporation or other entity of all or
substantially all of the properties of the Company; or
(e) There shall occur the voluntary or
involuntary liquidation, dissolution or winding up
of the affairs of the Company;
then, and in each of such cases, the Company shall deliver to the registered
holder hereof at its last address appearing on the books of the Company, as
promptly as practicable but in any event at least 15 days prior to the
applicable record date (or determination date) mentioned below, a notice
stating, to the extent such information is available, (i) the date on which a
record is to be taken for the purpose of such dividend, distribution or
rights, or, if a record is not to be taken, the date as of which the holders
of Common Stock of record to be entitled to such dividend, distribution or
rights are to be determined, or (ii) the date on which such reclassification,
consolidation, merger, sale, transfer, liquidation, dissolution or winding up
is expected to become effective and the date as of which it is expected that
holders of Common Stock of record shall
<PAGE>
13
be entitled to exchange their Common Stock for securities or other property
deliverable upon such reclassification, consolidation, merger, sale, transfer,
liquidation, dissolution or winding up.
4. Termination of Warrant. Notwithstanding any provision
herein to the contrary, this Warrant Certificate and the Warrants evidenced
hereby, and all rights and obligations hereunder and thereunder shall be of no
further force and effect on the Termination Date.
5. Representations, Warranties and Covenants of the Company.
The Company represents and warrants to and covenants with the registered
holder hereof as follows:
(a) The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware,
is duly qualified and in good standing under the laws of any foreign
jurisdiction where the failure to be so qualified would have a material
adverse effect on its ability to perform its obligations under the Warrants
evidenced by this Warrant Certificate and it has full corporate power and
authority to issue the Warrants and to carry out the provisions of the
Warrants evidenced by this Warrant Certificate.
(b) The issuance, execution and delivery of this
Warrant Certificate has been duly authorized by all necessary corporate action
on the part of the Company and the Warrants evidenced by this Warrant
Certificate constitutes the valid and legally binding obligation of the
Company, enforceable against it in accordance with the terms hereof, except as
such enforceability may be limited by bankruptcy, insolvency or other laws
affecting generally the enforceability of creditors' rights, by general
principles of equity and by limitations on the availability of equitable
remedies.
(c) Neither the execution and delivery of the
Warrants evidenced by this Warrant Certificate by the Company, nor compliance
by the Company with the provisions hereof, violates any provision of its
Certificate of Incorporation or By-Laws, as amended, or any law, statute,
ordinance, regulation, order, judgment or decree of any court or governmental
agency, or conflicts with or will result in any breach of the terms of or
constitute a default under or result in the termination of or the creation of
any lien pursuant to the terms of any agreement or instrument to which the
Company is a party or by which it or any of its properties is bound.
<PAGE>
14
6. Company to Provide Stock. The Company covenants and
agrees that all shares of capital stock of the Company which may be issued
upon the exercise of the Warrants evidenced hereby will be duly authorized,
validly issued and fully paid and nonassessable and free from all taxes, liens
and charges with respect to the issue thereof to the registered holder hereof.
The Company further covenants and agrees that during the period within which
the Warrants evidenced hereby may be exercised, the Company will at all times
reserve such number of shares of its capital stock as may be sufficient to
permit the exercise in full of the Warrants evidenced hereby.
7. Registered Holder. The registered holder of this Warrant
Certificate shall be deemed the owner hereof and of the Warrants evidenced
hereby for all purposes. The registered holder of this Warrant Certificate
shall not be entitled by virtue of ownership of this Warrant Certificate to
any rights whatsoever as a shareholder of the Company.
8. Transfer. This Warrant Certificate and the Warrants
evidenced hereby may not be sold, pledged, hypothecated or transferred at any
time unless the Company shall have received an opinion of counsel to the
effect that such transfer such transfer would not result in a violation of the
provisions of the Securities Act. Any transfer of this Warrant Certificate and
the Warrants evidenced hereby to a transferee, in whole or in part, shall be
effected upon surrender of this Warrant Certificate, duly endorsed (unless
endorsement is waived by the Company), at the principal office or agency of
the Company. If the Warrants evidenced hereby are being sold, pledged,
hypothecated or otherwise transferred, the Company shall issue a new Warrant
Certificate registered in the name of the appropriate transferee(s). If less
than all of the Common Stock issuable upon exercise hereof are being sold,
pledged, hypothecated or otherwise transferred, the Company shall issue new
Warrant Certificates, in each case for the number of Warrants exercisable for
the appropriate number of shares of Common Stock, registered in the name of
the registered holder hereof and the transferee(s), as applicable. Common
Stock of the Company issued upon any exercise hereof may not be sold, pledged,
hypothecated or otherwise transferred at any time unless the Company shall
have received an opinion of counsel to the effect that such transfer would not
result in a violation of the Securities Act.
9. Each taker and holder of this Warrant Certificate, the
Warrants evidenced hereby and any shares of capital stock of the Company
issued upon exercise of such Warrants, by taking or holding the same, consents
to and
<PAGE>
15
agrees to be bound by the provisions of Section 4 and Section 8 hereof.
* * *
<PAGE>
16
IN WITNESS WHEREOF, HumaScan Inc. has caused this Warrant
Certificate to be signed by a duly authorized officer and this Warrant
Certificate is dated as of March __, 1996.
HUMASCAN INC.
By _____________________________________
Name:
Title:
<PAGE>
FORM OF EXERCISE
(to be executed by the registered holder hereof)
The undersigned hereby exercises ______ Warrants for the
purchase of one share each of common stock, par value $.01 ("Common Stock"),
of HumaScan Inc. evidenced by the within Warrant Certificate and herewith
makes payment of the purchase price in full. Kindly issue certificates for the
Common Stock in accordance with the instructions given below. The certificate
for the unexercised balance of the Warrants evidenced by the within Warrant
Certificate, if any, will be registered in the name of the undersigned.
Dated:
________________________________________________
Instructions for registration of shares
_______________________________________
Name (please print)
Social Security or Other Identifying
Number: _______________________________
Address:
_______________________________________
Street
_______________________________________
City, State and Zip Code
<PAGE>
Exhibit 4.5
THIS WARRANT CERTIFICATE AND THE WARRANTS EVIDENCED HEREBY HAVE NOT BEEN AND
THE COMMON STOCK TO BE ISSUED UPON EXERCISE OF SUCH WARRANTS HAS NOT BEEN OR
WILL NOT, UPON THE ISSUANCE THEREOF, HAVE BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR QUALIFIED UNDER STATE
SECURITIES LAWS BUT HAVE BEEN, OR WILL BE, AS THE CASE MAY BE, ISSUED PURSUANT
TO AN EXEMPTION FROM SUCH REGISTRATION AND MAY NOT BE SOLD, TRANSFERRED,
PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS (i) THE ISSUER THEREOF
SHALL HAVE RECEIVED AN OPINION OF COUNSEL TO THE EFFECT THAT NO REGISTRATION
OR QUALIFICATION THEREOF IS LEGALLY REQUIRED FOR SUCH TRANSFER OR (ii) COVERED
BY AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND QUALIFIED
UNDER APPLICABLE STATE SECURITIES LAWS.
No. BW-__ [_______] Warrants to Purchase
One Share Each
WARRANT CERTIFICATE
To subscribe for and purchase shares of Common
Stock, par value $0.01 (the "Common Stock"), of
HUMASCAN INC.
THIS CERTIFIES that, for value received, _______
________________ or its registered successors and assigns, is the owner of
[_______] warrants (the "Warrants"), each which entitles the owner thereof to
purchase from HumaScan Inc., a Delaware corporation (herein called the
"Company") one share of Common Stock of the Company (individually a "Common
Share" and collectively the "Common Shares") commencing on the date hereof, at
the initial exercise price of $.50 per share of Common Stock (the "Exercise
Price"). To the extent any Warrants remain unexercised, such Warrants shall
automatically and without further action by the Company or the holder hereof,
terminate on March 19, 2001 (the "Termination Date"). The number of shares of
Common Stock to be received upon the exercise of each Warrant and the Exercise
Price to be paid for a share of Common Stock are subject to adjustment from
time to time as hereinafter set forth.
1. Exercise of Warrants. The Warrants evidenced
hereby may be exercised by the registered holder hereof, in
whole or in part, by the surrender of this Warrant
Certificate, duly endorsed (unless endorsement is waived by
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<PAGE>
2
the Company), at the principal office of the Company (or at such other office
or agency of the Company as it may designate by notice in writing to the
registered holder hereof at such holder's last address appearing on the books
of the Company) and upon payment to the Company of the purchase price of the
Common Shares purchased. Payment of the purchase price shall be made by (x)
certified or official bank check or checks payable to the order of the Company
or (y) surrender to the Company of Warrants. In the event of payment of the
purchase price by surrender of Warrants, the registered holder shall be
entitled to receive that number of Common Shares determined by dividing (x)
the difference between the aggregate Market Price (as hereinafter defined) of
the Common Shares issuable in respect of the Warrants so surrendered and the
aggregate Exercise Price in respect of the Warrants so surrendered by (y) the
Market Price per Common Share. The Company agrees that the Common Shares so
purchased shall be deemed to be issued to the registered holder hereof on the
date on which this Warrant Certificate shall have been surrendered and payment
made for such Common Shares as aforesaid; provided, however, that no such
surrender and payment on any date when the stock transfer books of the Company
shall be closed shall be effective to constitute the person entitled to
receive such Common Shares as the record holder thereof on such date, but such
surrender and payment shall be effective to constitute the person entitled to
receive such Common Shares as the record holder thereof for all purposes
immediately after the opening of business on the next succeeding day on which
such stock transfer books are open. The certificate(s) for such Common Shares
shall be delivered to the registered holder hereof within a reasonable time,
not exceeding five days, after the Warrants evidenced hereby shall have been
so exercised and a new Warrant Certificate evidencing the number of Common
Shares remaining to be issued upon exercise of the Warrants shall also be
issued to the registered holder within such time unless such Warrants shall
have expired. No fractional Common Shares of the Company, or scrips for any
such fractional shares, shall be issued upon the exercise of any Warrant. The
term "Market Price" shall mean, for any day, the last sale price for the
Common Shares on the principal securities exchange on which the Common Shares
are listed or admitted to trading, or, if not so listed or admitted to trading
on any securities exchange, the last sale price for the Common Shares on the
National Association of Securities Dealers National Market System, or, if the
Common Shares shall not be listed on such system, the closing bid price in the
over-the-counter market, in each such case, unless otherwise provided herein,
averaged over a period of 5 consecutive business days prior to the day as of
which Market Price is being
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3
determined. If at any time the Common Shares are not listed on any such
exchange or such system or quoted in the over-the-counter market, the Market
Price of the Common Shares shall be deemed to be the higher of (i) the book
value thereof, as determined in accordance with generally accepted accounting
principles consistent with those then being applied by the Company, by any
firm of independent certified public accountants (which may be the regular
auditors of the Company) of recognized national standing selected by the Board
of Directors of the Company, as of the last day of the month ending within 31
days preceding the date as of which the determination is to be made, and (ii)
the fair value thereof, as determined in good faith by an independent
brokerage firm, Standard & Poor's Corporation or Moody's Investors Service, as
of a date which is within 5 business days preceding the date as of which the
determination is to be made.
2. Anti-Dilution Provisions. The Exercise Price per share
shall be subject to adjustment from time to time as hereafter provided. Upon
each adjustment of the Exercise Price, the holder of the Warrants evidenced
hereby shall thereafter be entitled to purchase, at the Exercise Price
resulting from such adjustment, the number of shares obtained per warrant by
dividing the Exercise Price in effect immediately prior to such adjustment by
the Exercise Price resulting from such adjustment.
(a) Warrant Purchase Price Adjustments. If
and whenever after the date hereof the Company shall issue or sell any shares
of its Common Stock (except for the issuance of shares of Common Stock (x)
issuable upon conversion of the Preferred Stock (as hereinafter defined), (y)
pursuant to the exercise of Section 2 Warrants (as hereinafter defined) and
(z) to Scantek Medical, Inc. ("Scantek") pursuant to that certain Second
Amended License Agreement dated as of October 20, 1995 (the "License"),
between the Company and Scantek, including shares of Common Stock issuable
upon exercise of warrants issued to Scantek pursuant to such agreement
(collectively, "Permitted Issuances")) for a consideration per share less than
the Exercise Price in effect immediately prior to the time of such issue or
sale, or shall be deemed under the provisions of this Paragraph 2 to have
effected any such issuance or sale, then, forthwith upon such issue or sale,
the Exercise Price shall be reduced to a price equal to (calculated to the
nearest $0.00001):
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4
the price determined by dividing (i) an amount
equal to the sum of (A) the number of shares of Common Stock
outstanding immediately prior to such issue or sale
multiplied by the then existing Exercise Price and (B) the
consideration, if any, received by the Company upon such
issue or sale by (ii) the total number of shares of Common
Stock outstanding immediately after such issue or sale; and
Notwithstanding the foregoing, no adjustment of the Exercise Price shall be
made in an amount less than $0.00001 per share, but any such lesser adjustment
shall be carried forward and shall be made at the time of and together with
the next subsequent adjustment which together with any adjustments so carried
forward shall amount to $0.00001 per share or more.
"Section 2 Warrants" as used herein shall mean any warrants
issued by the Corporation for the purchase of Common Stock (i) to holders of
the Company's Series A Convertible Preferred Stock, par value $0.01 (the
"Preferred Stock"), on the date of issuance of the Preferred Stock (the "Unit
Warrants"), (ii) to any holder of Preferred Stock issued in exchange for the
Series A or Series B Convertible Notes of the Company due August 30, 1996 (the
"November Warrants"), (iii) to certain officers, employees and consultants for
up to 275,000 shares of Common Stock at an exercise price of no less than
$4.00 per share, (iv) to Physician Sales & Service, Inc. ("PSS") for up to
166,667 shares of Common Stock at an exercise price of $3.00 per share issued
pursuant to that certain Exclusive Supply and Distribution Agreement dated
February 24, 1996, between PSS and the Company (the "PSS Warrants"), (v) to
Scantek pursuant to the License, (vi) to Udi Toledano pursuant to that certain
letter agreement dated March 19, 1996 between Mr. Toledano and the Company for
up to 107,500 shares of Common Stock at an exercise price of $2.20 per share
(the "Toledano Warrants"), (vii) to Herbert V. Turk pursuant to that certain
letter agreement dated March 19, 1996 between Mr. Turk and the Company for up
to 107,500 shares of Common Stock at an exercise price of $2.20 per share (the
"Turk Warrants"), (viii) to Smith Barney or an affiliate thereof for 50,00
shares of Common Stock (the "SB Warrants"), and (ix) to Burnham Securities
Inc. ("Burnham") pursuant to that certain Engagement Letter dated November 16,
1995 by and between the Company and Burnham for up to 533,333 shares of Common
Stock at an exercise price of $2.20 per share (the "Burnham Warrants").
160662.5
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5
For the purposes of this Paragraph 2(a), the following
provisions 2(a)(i) to 2(a)(vii) inclusive, shall also be applicable:
(i) In the event that at any time the
Company shall in any manner grant (directly, by assumption in a merger or
otherwise) any rights to subscribe for or to purchase, or any options (except
for Permitted Issuances) for the purchase of (x) Common Stock or (y) any stock
or securities convertible into or exchangeable for Common Stock (such rights
or options being herein called "Options" and such convertible or exchangeable
stock or securities being herein called "Convertible Securities"), or shall
fix a record date for determination of holders of any class or securities
entitled to receive any such Options, whether or not such Options or the right
to convert or exchange any such Convertible Securities are immediately
exercisable, and whether or not the price per share for which Common Stock is
issuable upon the exercise of such Options or upon conversion or exchange of
such Convertible Securities (determined by dividing (A) the total amount, if
any, received or receivable by the Company as consideration for the granting
of such Options, plus the minimum aggregate amount of additional consideration
payable to the Company upon the exercise of all such Options, plus, in the
case of any such Options that relate to Convertible Securities, the minimum
aggregate amount of additional consideration, if any, payable upon the issue
or sale of such Convertible Securities and upon the conversion or exchange
thereof, by (B) the total number of shares of Common Stock issuable upon the
exercise of such Options or upon the conversion or exchange of all such
Convertible Securities issuable upon the exercise of such Options), shall be
less than the Exercise Price in effect immediately prior to the time of the
granting of such Options, then the total number of shares of Common Stock
issuable upon the exercise of such Options or upon conversion or exchange of
the total amount of such Convertible Securities issuable upon the exercise of
such Options (as of the date of granting such Options) shall be deemed to be
outstanding and to have been issued for such price per share. Except as
otherwise provided in subparagraph 2(a)(iii), no further adjustment of the
Exercise Price shall be made upon the actual issue of such Common Stock or of
such Convertible Securities upon exercise of such Options or upon the actual
issue of such Common Stock upon conversion or exchange of such Convertible
Securities.
(ii) In the event that the Company shall in
any manner issue (directly, by assumption in a merger or
otherwise) or sell any Convertible Securities (other than
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6
pursuant to the exercise of Options to purchase such Convertible Securities
covered by subparagraph 2(a)(i)), or shall fix a record date for the
determination of holders of any class of securities entitled to receive any
such Convertible Securities, whether or not the rights to exchange or convert
thereunder are immediately exercisable, and whether or not the price per share
for which Common Stock is issuable upon such conversion or exchange
(determined by dividing (A) the total amount received or receivable by the
Company as consideration for the issue or sale of such Convertible Securities,
plus the minimum aggregate amount of additional consideration, if any, payable
to the Company upon the conversion or exchange thereof, by (B) the total
maximum number of shares of Common Stock issuable upon the conversion or
exchange of all such Convertible Securities) shall be less than the Exercise
Price in effect immediately prior to the time of such issue, then the total
maximum number of shares of Common Stock issuable upon conversion or exchange
of all such Convertible Securities shall (as of the date of the issue or sale
of such Convertible Securities) be deemed to be outstanding and to have been
issued for such price per share, provided that, except as otherwise provided
in subparagraph 2(a)(iii), no further adjustment of the Exercise Price shall
be made upon the actual issue of such Common Stock upon conversion or exchange
of such Convertible Securities.
(iii) In connection with any change in, or the
expiration or termination of, the purchase rights under any Option or the
conversion or exchange rights under any Convertible Securities, the following
provisions shall apply:
(A) If the purchase price provided for
in any Option referred to in subparagraph 2(a)(i), the additional
consideration, if any, payable upon the conversion or exchange of any
Convertible Securities referred to in subparagraph 2(a)(i) or 2(a)(ii), or the
rate at which any Convertible Securities referred to in subparagraph 2(a)(i)
or 2(a)(ii) are convertible into or exchangeable for Common Stock shall change
at any time (other than under or by reason of provisions designed to protect
against dilution), then the Exercise Price in effect at the time of such
change shall forthwith be increased or decreased to the Exercise Price that
would be in effect immediately after such change if (a) the adjustments that
were made upon the issuance of such Options or Convertible Securities had been
made upon the basis of (and taking into account the total consideration
received for) (i) the issuance at that time of the Common Stock, if any,
actually issued upon the exercise of any such Options or upon the
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conversion or exchange of any such Convertible Securities before such change,
and (ii) the issuance at that time of all such Options or Convertible
Securities, with terms and provisions reflecting such change that are still
outstanding after such change, and (b) the Exercise Price as adjusted pursuant
to clause (a) preceding had been used as the basis for the adjustments
required hereunder in connection with all other issues or sales of Common
Stock, Options or Convertible Securities by the Company subsequent to the
issuance of such Options or Convertible Securities.
(B) On the partial or complete
expiration of any Options or termination of any right to convert or exchange
Convertible Securities which have not been fully exercised, the Exercise Price
then in effect hereunder shall be forthwith increased or decreased to the
Exercise Price that would be in effect at the time of such expiration or
termination if (a) the adjustments that were made upon the issuance of such
Options or Convertible Securities had been made upon the basis of (and taking
into account the total consideration received for) (i) the issuance at that
time of the Common Stock, if any, actually issued upon the exercise of such
Options or upon the conversion or exchange of such Convertible Securities
before such expiration or termination, and (ii) the issuance at that time of
only those such Options or Convertible Securities that remain outstanding
after such expiration or termination, and (b) the Exercise Price as adjusted
pursuant to clause (a) preceding had been used as the basis for adjustments
required hereunder in connection with all other issues or sales of Common
Stock, Options or Convertible Securities by the Company subsequent to the
issuance of such Options or Convertible Securities.
(C) If the purchase price provided for
in any Option referred to in subparagraph 2(a)(i) or the rate at which any
Convertible Securities referred to in subparagraph 2(a)(i) or 2(a)(ii) are
convertible into or exchangeable for Common Stock shall be reduced at any time
under or by reason of provisions with respect thereto designed to protect
against dilution, and the event causing the reduction is one that did not also
require an adjustment in the Exercise Price under other provisions of this
Paragraph 2(a), then in case of the delivery of shares of Common Stock upon
the exercise of any such Option or upon conversion or exchange of any such
Convertible Securities, the Exercise Price then in effect hereunder shall
forthwith be adjusted to such amount as would have obtained if such Option or
Convertible Securities had never been issued and if the adjustments made upon
the issuance of such Option or Convertible Securities had been made upon the
basis of the
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issuance of (and taking into account the total consideration received for) the
shares of Common Stock delivered as aforesaid; provided that no such
adjustment shall be made unless the Exercise Price then in effect would be
reduced thereby.
(D) If a record date for the issuance
of any Options or Convertible Securities shall have been fixed and such
Options or Convertible Securities are not issued on the date fixed therefor,
the adjustment previously made as provided in subparagraphs 2(a)(i) and
2(a)(ii) above to the relevant Exercise Price which becomes effective on such
record date shall be cancelled as of the close of business on such record
date, and thereafter such Exercise Price shall be adjusted pursuant to
subparagraph 2(a)(i) or 2(a)(ii), as the case may be, as of the actual date of
their issuance.
(iv) In the event the Company declares a
dividend or makes any other distribution upon any stock of the Company payable
in Common Stock, Options or Convertible Securities, any Common Stock, Options
or Convertible Securities, as the case may be, issuable in payment of such
dividend or distribution shall be deemed to have been issued or sold without
consideration. In the event the Company shall grant the holders of Common
Stock the right to subscribe for or purchase shares of Common Stock or any
other security, whether pursuant to pre-emptive rights set forth in the
Certificate of Incorporation of the Company or in an agreement or otherwise,
the Company, from time to time, shall be deemed to have received the amount
actually received upon exercise of the rights.
(v) For purposes of this Paragraph 2(a), the
amount of consideration received by the Company in connection with the
issuance or sale of Common Stock, Options or Convertible Securities shall be
determined in accordance with the following:
(A) In the event shares of Common
Stock, Options or Convertible Securities are issued or sold for cash, the
consideration received therefor shall be deemed to be the amount payable to
the Company therefor, after deduction therefrom of any expenses incurred and
any underwriting commissions or concessions or discounts paid or allowed by
the Company in connection therewith.
(B) In the event shares of Common
Stock, Options or Convertible Securities are issued or sold for a
consideration other than cash, the amount of the consideration other than cash
payable to the Company shall
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be deemed to be the fair value of the consideration (after deduction of any
dividends or interest accrued in respect thereof and any underwriting
commissions or concessions or discounts paid or allowed by the Company in
connection therewith) as determined in good faith by the Board of Directors of
the Company, including, without limitation, cancellation or satisfaction of
amounts payable to the purchaser for accrued interest or accrued dividends on
obligations or securities other than the Common Stock, Options or Convertible
Securities then being issued.
(C) The amount of consideration deemed
to be received by the Company pursuant to the foregoing provisions of this
subparagraph 2(a)(v) upon any issuance or sale, pursuant to an established
compensation plan of the Company, to directors, officers or employees of the
Company in connection with their employment, of shares of Common Stock,
Options or Convertible Securities, shall be increased by the amount of any tax
benefit realized by the Company as a result of the issuance or sale, the
amount of the tax benefit being the amount by which the federal or state
income or other tax liability of the Company shall be reduced by reason of any
deduction or credit in respect of the issuance and/or sale.
(D) In the event shares of Common
Stock, Options or Convertible Securities are issued in connection with any
merger in which the Company is the surviving corporation, the amount of
consideration therefor shall be deemed to be the fair value of such portion of
the assets and business of the nonsurviving corporation as shall be
attributable to the Common Stock, Options or Convertible Securities, as the
case may be, as determined in good faith by the Board of Directors of the
Company.
(E) In the event Options shall be
issued in connection with the issue and sale of other securities of the
Company, together comprising one integral transaction in which no specific
consideration is allocated to such Options by the parties thereto, the Options
shall be deemed to have been issued without consideration
(F) In the event of a consolidation or
merger of the Company in which stock or securities of another corporation are
issued in exchange for Common Stock of the Company or in the event of any sale
of all or substantially all the assets of the Company for stock or other
securities of any corporation, the Company shall be deemed to have issued a
number of shares of its Common Stock for stock or securities of the other
corporation computed on the basis of the actual exchange ratio on which the
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transaction was predicated and for a consideration equal to the fair market
value on the date of the transaction of the stock or securities of the other
corporation, and if the calculation results in adjustment of the Exercise
Price, the determination of the number of shares of Common Stock receivable
upon exercise of the Warrants immediately prior to such merger, consolidation
or sale, for purposes of Paragraph 2(c), shall be made after giving effect to
the adjustment of the Exercise Price; provided that no such adjustment shall
be made unless the Exercise Price then in effect shall be reduced thereby.
(vi) (A) In the event the Company fixes a
record date with respect to the holders of its Common Stock for the purpose of
entitling them (i) to receive a dividend or other distribution payable in
Common Stock, Options or Convertible Securities or (ii) to subscribe for or
purchase Common Stock, Options or Convertible Securities (whether pursuant to
pre-emptive rights granted by the Certificate of Incorporation of the Company
or by agreement, or otherwise), then the record date shall be deemed to be the
date of the issue or sale of the shares of Common Stock deemed to have been
issued or sold upon the declaration of the dividend or the making of the
distribution or the date of the granting of the right of subscription or
purchase, as the case may be.
(B) If such record date shall have been
fixed and such dividend or distribution shall not have been paid or right of
subscription or purchase fulfilled on the date fixed therefor, the adjustment
previously made to the relevant Exercise Price which became effective on such
record date shall be cancelled as of the close of business on such record
date, and thereafter such Exercise Price shall be adjusted as provided herein
as of the time of actual payment of such dividend, distribution or
subscription of Common Stock, Options or Convertible Securities.
(vii) The number of shares of Common Stock
outstanding at any given time shall not include shares owned or held by or for
the account of the Company or any subsidiary thereof, and the disposition of
any such shares shall be considered an issue or sale of Common Stock for the
purposes of this Paragraph 2(a).
(b) Stock Splits and Reverse Splits. In the
event the Company subdivides its outstanding shares of Common Stock into a
greater number of shares, the Exercise Price in effect immediately prior to
the subdivision shall be proportionately reduced and the number of Common
Shares
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purchasable pursuant to the Warrants evidenced hereby immediately prior to the
subdivision shall be proportionately increased, and conversely, in the event
the outstanding shares of Common Stock of the Company are combined into a
smaller number of shares, the Exercise Price in effect immediately prior to
the combination shall be proportionately increased and the number of Common
Shares purchasable upon the exercise of the Warrants evidenced hereby
immediately prior to the combination shall be proportionately reduced. Except
as provided in this Paragraph 2(c), no adjustment in the Exercise Price and no
change in the number of Common Shares purchasable shall be made under this
Paragraph 2 as a result, or by reason, of any subdivision or combination.
(c) Reorganizations and Asset Sales. If any
capital reorganization or reclassification of the capital stock of the
Company, or any consolidation or merger of the Company with another
corporation, or the sale of all or substantially all its assets to another
corporation, shall be effected in such a way that holders of Common Stock
shall be entitled to receive stock, securities or assets with respect to, or
in exchange for, Common Stock (and which shall not constitute a dividend
subject to Paragraph 2(c)), then the following provisions shall apply:
(i) As a condition of the reorganization,
reclassification, consolidation, merger or sale (except as otherwise provided
below in this Paragraph 2(c)), lawful and adequate provisions shall be made
whereby each holder of Warrants shall thereafter have the right to purchase
and receive upon the terms and conditions specified in this Warrant
Certificate and in lieu of the Common Shares immediately theretofore
receivable upon the exercise of the rights represented hereby, the shares of
stock, securities or assets as may be issued or payable with respect to, or in
exchange for, a number of outstanding shares of Common Stock equal to the
number of Common Shares immediately theretofore receivable had the
reorganization, reclassification, consolidation, merger or sale not taken
place, and in any such case appropriate provision shall be made with respect
to the rights and interests of such holder to the end that the provisions
hereof (including, without limitation, provisions for adjustments of the
Exercise Price and of the number of shares receivable upon the exercise) shall
thereafter be applicable, as nearly as may be practicable, in relation to any
shares of stock, securities or assets thereafter deliverable upon the exercise
of Warrants (including an immediate adjustment, by reason of the consolidation
or merger, of the Exercise Price to the value for the Common Stock reflected
by the terms of the
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consolidation or merger if the value so reflected is less than the Exercise
Price in effect immediately prior to the consolidation or merger).
(ii) In the event of a merger or
consolidation of the Company with or into another corporation as a result of
which a number of shares of Common Stock of the surviving corporation are
greater or lesser than the number of shares of Common Stock of the Company
outstanding immediately prior to the merger or consolidation are issuable to
holders of Common Stock of the Company, then the Exercise Price in effect
immediately prior to the merger or consolidation shall be adjusted in the same
manner as though there were a subdivision or combination of the outstanding
shares of Common Stock of the Company.
3. Other Notices. If at any time prior to the
expiration of the Warrant evidenced hereby:
(a) The Company shall declare any dividend
on the Common Stock payable in shares of capital
stock of the Company, cash or other property; or
(b) The Company shall authorize the issue of any
options, warrants or rights pro rata to all holders of
Common Stock entitling them to subscribe for or purchase any
shares of stock of the Company or to receive any other
rights; or
(c) The Company shall authorize the distribution
pro rata to all holders of Common Stock of evidences of its
indebtedness or assets (excluding cash dividends or cash
distributions paid out of retained earnings or retained
surplus); or
(d) There shall occur any reclassification of the
Common Stock, or any consolidation or merger of the Company
with or into another corporation or other entity (other than
a consolidation or merger in which the Company is the
continuing corporation and which does not result in any
reclassification of the Common Stock) or a sale or transfer
to another corporation or other entity of all or
substantially all of the properties of the Company; or
(e) There shall occur the voluntary or
involuntary liquidation, dissolution or winding up
of the affairs of the Company;
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then, and in each of such cases, the Company shall deliver to the registered
holder hereof at its last address appearing on the books of the Company, as
promptly as practicable but in any event at least 15 days prior to the
applicable record date (or determination date) mentioned below, a notice
stating, to the extent such information is available, (i) the date on which a
record is to be taken for the purpose of such dividend, distribution or
rights, or, if a record is not to be taken, the date as of which the holders
of Common Stock of record to be entitled to such dividend, distribution or
rights are to be determined, or (ii) the date on which such reclassification,
consolidation, merger, sale, transfer, liquidation, dissolution or winding up
is expected to become effective and the date as of which it is expected that
holders of Common Stock of record shall be entitled to exchange their Common
Stock for securities or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer, liquidation, dissolution or winding up.
4. Termination of Warrants. Except with respect to the
Agreements contained in this Section 4 and Sections 6, 7, 8, 9, 10, 11, and 12
hereto, this Warrant Certificate and the Warrants evidenced hereby, and all
rights and obligations hereunder and thereunder, shall be of no further force
and effect on the Termination Date.
5. Legends. Each certificate representing
Common Stock issuable upon exercise of this Warrant shall
bear a legend containing the following words:
THE SHARES OF COMMON STOCK HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
QUALIFIED UNDER STATE SECURITIES LAWS AND MAY NOT BE SOLD,
PLEDGED OR OTHERWISE TRANSFERRED UNLESS (A) COVERED BY AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND QUALIFIED
UNDER APPLICABLE STATE SECURITIES LAWS, OR (B) THE
CORPORATION HAS BEEN FURNISHED WITH AN OPINION OF COUNSEL
ACCEPTABLE TO THE CORPORATION TO THE EFFECT THAT NO
REGISTRATION AND QUALIFICATION IS LEGALLY REQUIRED FOR SUCH
TRANSFER.
The requirement that such legend be placed upon certificates
evidencing any such securities shall cease and terminate upon the earliest of
the following events: (a) when such shares are transferred in an underwritten
public offering, (b) when such shares are transferred pursuant to
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Rule 144 under the Securities Act of 1933, as amended the ("Act" or the
"Securities Act") or (c) when such shares are transferred in any other
transaction if the seller delivers to the Company an opinion of its counsel,
which counsel and opinion shall be reasonably satisfactory to the Company, or
a "no-action" letter from the Staff of the Securities and Exchange Commission
(the "Commission"), in either case to the effect that such legend is no longer
necessary in order to protect the Company against a violation by it of the Act
upon any sale or other disposition of such shares without registration
thereunder. Upon the occurrence of an event requiring the removal of a legend
hereunder, the Company, upon the surrender of certificates containing such
legend, shall, at its own expense, deliver to the holder of any such shares as
to which the requirement for such legend shall have terminated, one or more
new certificates evidencing such shares not bearing such legend.
6. Tag Along and First Refusal Rights.
(a) In connection with the proposed offering
(the "Proposed Offering") by the Company to sell to certain accredited
investors a maximum of 76.5 Units, each Unit consisting of (i) 50,000 shares
of Preferred Stock, which are convertible into shares of Common Stock on a
one-for-one basis, and are automatically convertible into Common Stock upon a
public offering (a "Qualified IPO" or "Qualified Public Offering") of the
Company's securities registered pursuant to the Act, in which the Company
receives gross proceeds of at least $10,000,000 or such lesser amount as may
be determined by a majority of the Required Preferred Stock Directors (to be
elected by the holders of the Preferred Stock), and (ii) Warrants to purchase
10,000 shares of Common Stock for $2.20 per share expiring on the fifth
anniversary of the initial closing of the sale of the Units (individually a
"Warrant" and collectively the "Warrants"), for an aggregate purchase price of
$100,000 per Unit (the "Offering"), and the proposed conversion of the
Company's 10% Series A and Series B Convertible Notes (the "Bridge Notes")
into 350,000 shares of Preferred Stock and warrants to purchase 70,000 shares
of Common Stock, and in order to induce the registered owner of this and other
similar Warrant Certificates being issued by the Company concurrently herewith
(the "Owners" and the "March Warrants," respectively) to acquire the warrants
represented thereby for an aggregate of 299,000 shares of Common Stock at $.50
per share (the holders of such shares of Preferred Stock (the "Shares") and
Warrants, together with the Owners with respect to the March Warrants and
Physician Sales and Service, Inc. with respect to the PSS Warrants being
called
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the "Other Stockholders"), Donald Brounstein is entering into the agreements
with the Other Stockholders provided for in this Section 6. Donald Brounstein,
by his signature in his individual capacity on the signature page of this
Warrant Certificate, agrees on behalf of himself and his heirs, legal
representatives and assigns (collectively, "Brounstein") as follows. Until the
occurrence of a Qualified IPO, Brounstein shall not sell any Common Stock, or
any security convertible or exercisable into or exchangeable for shares of
Common Stock ("Common Stock Equivalents"), owned by Brounstein, to another
person or entity, except in accordance with the following procedures:
(i) Brounstein shall first deliver to each Other
Stockholder a written notice (the "Section 6 Notice"), which shall
specifically state the identity, address and contact party of the
proposed purchaser (the "Section 6 Offeree"), the amount and type of
Common Stock or Common Stock Equivalents proposed to be sold by
Brounstein (the "Brounstein Shares"), the purchase price therefor
(the "Section 6 Purchase Price" as more fully defined below), the
purchase date and time, the location at which the purchase is to take
place and a summary of the other material terms and conditions of the
proposed sale, and shall contain an offer (the "Section 6 Offer") by
the Section 6 Offeree to each Other Stockholder, which shall be
irrevocable for a period of fifteen (15) business days after the
delivery thereof (the "Section 6 Period"), to purchase the Section 6
Stock at the Section 6 Purchase Price (as such terms are defined
below) and upon the other terms offered by the Section 6 Offeree to
Brounstein as set forth in the Section 6 Notice, but subject to the
following provisions of this paragraph. Brounstein shall,
simultaneously therewith, deliver a copy of the Section 6 Notice
promptly to the Company. Notice of an Other Stockholder's intention
to accept a Section 6 Offer, in whole or in part, shall be evidenced
by a writing signed by such Other Stockholder and delivered to the
Section 6 Offeree and the Company prior to the end of the Section 6
Period, setting forth the number and class of Shares or Common Stock
Equivalents that such Other Stockholder elects to sell (not to exceed
the amount of such Other Stockholder's Section 6 Stock) to the
Section 6 Offeree (the "Eligible Elected Stock"). In the event that
the Other Stockholders desire to sell to the Section 6 Offeree an
aggregate number of shares of Elected Eligible Stock which, when
added to the Brounstein Shares, is in excess of the maximum amount
which the Section 6 Offeree wishes to purchase (the "Maximum Purchase
Amount"), each such
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Other Stockholder and Brounstein, as the case may be, shall be
permitted to sell at least the number of shares of Eligible Elected
Stock or, in the case of Brounstein, the number of Brounstein Shares,
which is determined by multiplying the Maximum Purchase Amount by a
fraction, the numerator of which is (a) the number of shares of
Section 6 Stock owned by such Other Stockholder or (b) the number of
Brounstein Shares, as the case may be, and the denominator of which
is the sum of (c) the total numbers of shares of Section 6 Stock
owned by all Other Stockholders and (d) the number of Brounstein
Shares. If after each Other Stockholder and Brounstein have sold
their respective allocable portions, thus determined, of the Maximum
Purchase Amount to the Section 6 Offeree (or any lesser amount any
such Other Stockholder chooses to sell), some portion of the Maximum
Purchase Amount has not yet been sold to the Section 6 Offeree (the
"Maximum Purchase Amount Balance"), then any unsold Eligible Elected
Stock and Brounstein Shares may be sold, by the Other Stockholders
choosing to so participate and by Brounstein, to the Section 6
Offeree, each in such amount which is in the proportion that the
Section 6 Stock or Brounstein Shares, as the case may be, held by
such Other Stockholder wishing to sell additional shares, or by
Brounstein bears to the sum of the aggregate number of all shares of
Section 6 Stock of the participating Other Stockholders and the
Brounstein Shares.
(ii) For purposes of this Section 6, the
methodology for calculations shall be as set forth in clause (iii)
below and the following terms shall have the meanings set forth
below:
"Section 6 Percentage" shall mean the quotient obtained
(expressed as a decimal) by dividing (A) the number of shares of
Common Stock proposed to be sold by Brounstein as set forth in the
Section 6 Notice by (B) the number of shares of Common Stock
beneficially owned by Brounstein as of the date of the Section 6
Offer.
"Section 6 Purchase Price" shall mean (x) with respect to a
share of Common Stock, the Per Share Price, and (y) with respect to a
Common Stock Equivalent, an amount equal to (A) the Per Share Price
multiplied by (B) the number of shares of Common Stock issuable upon
the conversion, exchange or exercise of such Common Stock Equivalent.
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"Section 6 Stock" shall mean, with respect to each Other
Stockholder, an amount of Common Stock which, in accordance with
clause (iii) below, represents the number of shares of Common Stock
equal to the product of (A) the Section 6 Percentage multiplied by
(B) the number of shares of Common Stock into which the Shares
beneficially owned by the Other Stockholder are convertible or have
been converted or issued or issuable upon the exercise of the
Warrants, the March Warrants or the PSS Warrants, as the case may be.
"Per Share Price" shall mean an amount equal to the quotient
obtained by dividing (A) the number of shares of Common Stock
proposed to be sold by Brounstein as set forth in the Section 6
Notice by (B) the aggregate purchase price to be paid by the Section
6 Offeree in respect of such Common Stock.
(iii) For purposes of this Section 6, the sale of a
Common Stock Equivalent shall be treated as the sale of the shares of
Common Stock into which such Common Stock Equivalent can be
converted, exchanged or exercised. For purposes of all calculations
under this Section 6 (including, without limitation, determining the
amount of Common Stock or Common Stock Equivalents proposed to be
sold by Brounstein, the beneficial ownership of Common Stock or
Common Stock Equivalents of Brounstein, and the beneficial ownership
of Shares of any Other Stockholder), all Common Stock Equivalents
shall be treated as having been converted, exchanged or exercised.
(b) Alternatively, each Other Stockholder
shall have the option, upon giving notice in the manner set forth in
subsection (i) above, to purchase, at the price and on the terms set forth in
the Section 6 Notice, for a period of fifteen (15) business days following
receipt thereof, all or any portion of the shares of Common Stock or Common
Stock Equivalents proposed to be sold by Brounstein as set forth in such
Section 6 Notice (the "Offered Shares"). In the event that the Other
Stockholders desire in the aggregate to purchase a number of shares of Common
Stock or Common Stock Equivalents in excess of the total number of Offered
Shares, each such Other Stockholder shall be permitted to purchase at least
the number of Offered Shares multiplied by a fraction, the numerator of which
is the number of Shares and Conversion and Warrant Shares (on a fully-diluted
basis) owned by such Other Stockholder and the denominator of which is the
number of Shares and Conversion and Warrant Shares (on a fully-diluted basis)
owned by all Other Stockholders wishing to purchase any Offered Shares (its
"Pro Rata
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Fraction"). After each Other Stockholder desiring to purchase Offered Shares
has been allocated its Pro Rata Fraction thereof (or any lesser amount such
Other Stockholder desires to purchase), any remaining Offered Shares shall be
allocated to the remaining Other Stockholders who wish to purchase additional
Offered Shares according to each such Other Stockholder's Pro Rata Fraction of
such remaining Offered Shares.
7. Registration Rights.
(a) Demand Registration Rights. (i) After the earlier to
occur of (A) the date which is the third anniversary of the date of issuance
of the first Shares of Preferred Stock or (B) the closing date of a Qualified
IPO, and for a period of five (5) years thereafter (the "Registration
Period"), upon any written request of the Majority Holders (as defined below)
from time to time delivered to the Company, the Company shall in each case
promptly prepare and file, and use its best efforts to cause to become
effective, a registration statement under the Act (in each case, a "Demand
Registration") covering such shares of Common Stock issuable upon (A) the
conversion of the Shares or (B) upon the exercise of (i) Warrants (ii) March
Warrants (iii) PSS Warrants (iv) November Warrants, (v) Toledano Warrants,
(vi) Turk Warrants, (vii) SB Warrants and (viii) Burnham Warrants
(collectively, the "Conversion and Warrant Shares") as are requested by the
Majority Holders to be covered thereby, all in accordance with the following
provisions of this Section 7. "Majority Holders" as used herein shall mean the
holder or holders of a majority of the aggregate of the Conversion and Warrant
Shares then outstanding which (x) are not registered under the Act or (y) are
not sold under circumstances in which all of the applicable conditions of Rule
144 (or any similar provisions then in effect) under the Act are met or may
not be sold pursuant to Rule 144(k), and the Company has not delivered a new
certificate or other evidence of ownership for such shares not bearing the
legend required by Section 5 hereof ("Registrable Stock"). The Majority
Holders requesting a registration under this Section 7 may, at any time prior
to the filing date of the registration statement relating to such
registration, revoke such request, without liability to any of the other
holders of Registrable Stock, by providing a written notice to the Company
revoking such request, in which case such request, so revoked, shall not be
considered a Demand Registration. Notwithstanding anything contained herein to
the contrary, nothing herein shall be construed as requiring the Company to
register any of its securities other than Common Stock.
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(ii) If a Demand Registration involves an
underwritten public offering and the managing underwriter shall advise the
Company and the Majority Holders that, in its view, market factors (including,
without limitation, the aggregate number of shares requested to be registered,
the general condition of the market, and the status of the persons proposing
to sell securities pursuant to the registration) require the number of shares
to be included in such registration be limited to the largest number of shares
which can be sold without having an adverse effect on such offering (the
"Maximum Offering Size"), the shares to be registered in such offering shall
be reduced, to the extent required, in the following order: (A) first the
shares requested to be registered by the Company, (B) next any securities
(other than Registrable Stock) or shares whether or not subject to other
contractual registration rights, and (C) last, the securities requested to be
registered by the Majority Holders shall be excluded from such Registration to
the extent required by such limitation.
If, after the exclusion of all of the securities referred to in clause (A) and
(B) of subsection (ii) above, a limitation of the number of shares of
Registrable Stock is required, the Majority Holders initially requesting such
registration shall so advise all holders of Registrable Stock and the number
of shares of Registrable Stock that may be included in the registration and
underwriting shall be allocated among all the Majority Holders, as nearly as
practicable, to the respective amounts of Registrable Stock requested to be
included in such Demand Registration held by such holders at the time of
filing such registration statement.
(b) Piggy-back Registration Rights. In addition to the
demand registration rights set forth in Section 7(a) above, in the case of any
proposed registration during the Registration Period of Common Stock or other
securities of the Company under the Act (other than a registration (A) on Form
S-8 or S-4 or any successor or similar forms, (B) relating to Common Stock
issuable upon exercise of employee stock options or in connection with any
employee benefit or similar plan of the Company or (C) in connection with a
direct or indirect acquisition by the Company of another company), whether or
not for the sale of its own account and including in connection with a Demand
Registration, the Company will give at least thirty (30) days' prior written
notice of the filing thereof to all holders of Shares, Warrants, the March
Warrants, the November Warrants, the PSS Warrants, the Toledano Warrants, the
Turk Warrants, the SB Warrants, and the Burnham Warrants (all such warrants
are collectively, the "Registrable Warrants") and Registrable Stock.
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(i) The Company's notice shall afford the
holders of Shares, all Registrable Warrants and of Registrable Stock an
opportunity to elect within thirty (30) days after receipt thereof to include
in such filing their Registrable Stock.
(ii) The inclusion of Registrable Stock in
any such registration involving an underwritten public offering shall be upon
the condition that the holders thereof (A) must sell their Registrable Stock
through the underwriters selected as provided in Section 7(d)(vi) below on the
same terms and conditions as are applicable to the Company or other selling
stockholders of the Company, and (B) complete and execute all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
reasonably required under the terms of such underwriting arrangements and the
provisions hereof in respect of registration rights.
(iii) For so long as any Registrable Stock
remains outstanding, the Company shall be obligated under this Section 7(b) to
afford the holders thereof the right to participate in each and every such
registration of Common Stock of the Company. If, at any time after giving
written notice of its intention to register any Stock pursuant to this Section
7(b) and prior to the effective date of the registration statement filed in
connection with such registration, the Company shall determine for any reason
not to register such stock, the Company shall give written notice to all such
holders of Registrable Stock and, thereupon, shall be relieved of its
obligation to register any Registrable Stock in connection with such
registration (without prejudice, however, to rights of any such holder under
Section 7(a) above). No registration effected under this Section 7(b) shall
relieve the Company of its obligations to effect a Demand Registration to the
extent required by Section 7(a) above.
(iv) If a registration pursuant to this
Section 7(b) involves an underwritten public offering and the managing
underwriter shall advise the Company that, in its view, the number of shares
of Common Stock which the Company and such holders of Registrable Stock intend
to include in such registration exceeds the Maximum Offering Size, the number
of shares to be included in such registration shall be limited by excluding
the shares to be registered in such offering, to the extent required by such
limitation, in the following order: (A) first any securities or shares (other
than Registrable Stock) subject to other contractual registration rights, (B)
next the number of shares that may be included in the registration and
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underwriting by holders of Registrable Stock shall be allocated among all
holders thereof, in proportion, as nearly as practicable, to the respective
amounts of securities which such holders of Registrable Stock would otherwise
be entitled to include in such registration, and (C) last the shares being
registered by the Company.
(c) Form S-3 Registration. If at any time after a date
twelve (12) months after the effective date of the Qualified Public Offering
but prior to the final day of the Registration Period (as defined in Section
7(a) above), the Company shall receive from any holder or holders of
Registrable Stock a written request or requests that the Company effect a
registration of Form S-3 and any related qualification or compliance with
respect to all or a part of the Registrable Stock owned by such holder or
holders, the Company will:
(i) Promptly mail written notice of the
proposed registration, and any related qualification or
compliance, to all other holders of Registrable Stock and
(ii) as soon as practicable, use its best
efforts to effect such registration and all such qualifications and
compliances as may be so requested and as would permit or facilitate the sale
and distribution of all or such portion of such holder's or holders'
Registrable Stock as are specified in such request, together with all or such
portion of the Registrable Stock of any other holder or holders joining in
such request as are specified in a written request received by the Company
within twenty (20) days after the mailing of such written notice from the
Company; provided, however, that the Company shall not be obligated to effect
any such registration, qualification or compliance pursuant to this subsection
(A) if Form S-3 (or a similar successor form) is not available for such
offering by the Company or by the requesting holders; (B) if the requesting
holders, together with the holders of any other securities of the Company
entitled to inclusion in such registration, propose to sell Registrable Stock
and such other securities (if any) at an aggregate price to the public (net of
any underwriters discounts or commissions) of less than $1,000,000; (C) with
respect to any Registrable Stock regarding which the requesting holder or
holders has received an opinion of counsel to the Company that registration is
not required under the Act in order to effect the sale or other distribution
contemplated by such holder or holders.
(iii) Subject to the foregoing, the Company
shall file a registration statement covering the Registrable
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Stock so requested to be registered as soon as practicable after receipt of
the request or requests of the holders. Registrations effected pursuant to
this subsection shall not be counted as demands for registration or
registrations, respectively, effected pursuant to Section 7(a) above.
(iv) Each such registration shall be kept
effective until the earlier of (A) the sale of all securities registered
thereunder and (B) the date 120 days after the effective date thereof.
(v) If the Company is required to file or
files a registration statement pursuant to this subsection (c), if the Board
of Directors of the Company, in its good faith judgment, determines at the
time that the filing of such registration statement or the sale of securities
pursuant to such registration statement should not be made or continued
because it would materially interfere with any material financing,
acquisition, corporate reorganization or merger or other transaction involving
the Company or any of its subsidiaries (a "Valid Business Reason"), the
Company may postpone the filing of such registration statement or the sale of
securities pursuant to it, and no holder or holders of Registrable Stock shall
sell any such securities pursuant to such registration statement until such
Valid Business Reason for such postponement no longer exists, but in no event
for more than six months; and the Company shall give written notice of its
determination to so postpone and of the fact that the Valid Business Reason
for such postponement no longer exists, in each case, promptly after the
occurrence thereof.
(d) Expenses of Registration. The costs and expenses (other
than underwriting discount or commission) of the registrations effected
pursuant to Section 7(a) above, of all registrations effected pursuant to
Section 7(b) and Section 7(c) above, and of all other actions which the
Company is required to take or effect pursuant to this Section shall be paid
by the Company (including, without limitation, all federal, state and NASD
registration and filing fees, printing expenses, costs of special audits
incidental to or required by any such registration, and fees and disbursements
of counsel for the Company and for the holders of Registrable Stock (including
allocated costs of internal counsel)), except that all such expenses in
connection with any amendment or supplement to the registration statement or
the prospectus used in connection therewith required to be filed more than
nine (9) months after the date on which such registration statement becomes
effective under the Act because any holder has not effected the disposition of
Registrable Stock covered by such
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registration statement shall be borne by such holder or holders, in such
proportions as they may agree. All such costs and expenses of any such
subsequent registration effected pursuant to this Section 7(d) in connection
with a Demand Registration shall be borne by the Majority Holders in such
proportions as they may agree; provided, that an additional request for a
Demand Registration made pursuant to Section 7(a) above by the Majority
Holders and otherwise in accordance with the terms thereof with respect to the
registration of Registrable Stock which is made more than nine (9) months
after a prior such demand shall be deemed a separate demand and not a
supplement or amendment requested by any holder pursuant to this Section 7(d).
(e) Registration Procedures. Whenever holders of Registrable
Stock request that any Registrable Stock be registered pursuant to Section
7(a), 7(b) or 7(c) above, the Company will, subject to the provisions of such
Sections, use its best efforts to effect the registration of such Registrable
Stock in accordance with the intended method of disposition thereof as quickly
as practicable, and in connection with any such request:
(i) The Company will as expeditiously as
possible prepare and file with the Commission a registration statement on any
form for which the Company then qualifies and which counsel for the Company
shall deem appropriate and which form shall be available for the sale of the
Registrable Stock to be registered thereunder in accordance with the intended
method of distribution thereof, and use its best efforts to cause such filed
registration statement to become and remain effective for a period of not less
than nine (9) months (or such shorter period in which all of the Registrable
Stock of the holders thereof included in such registration statement shall
have actually been sold thereunder).
(ii) The Company will, if requested, prior
to filing a registration statement or prospectus or any amendment or
supplement thereto, furnish to each holder of Registrable Stock and each
underwriter, if any, of the Registrable Stock covered by such registration
statement copies of such registration statement as proposed to be filed, and
thereafter the Company will furnish to such holder and underwriter, if any,
such number of copies of such registration statement, each amendment and
supplement thereto (in each case including all exhibits thereto and documents
incorporated by reference therein), the prospectus included in such
registration statement (including each preliminary prospectus) and such other
documents as such holder or underwriter may reasonably request in order to
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facilitate the disposition of the Registrable Stock owned by
such holder.
(iii) After the filing of the registration
statement, the Company will promptly notify each holder holding Registrable
Stock covered by such registration statement of any stop order issued or
threatened by the Commission and take all reasonable actions required to
prevent the entry of such stop order or to remove it if entered.
(iv) The Company will use its best efforts
to (A) register or qualify the Registrable Stock covered by such registration
statement under such other securities or blue sky laws of such jurisdictions
in the United States as any holder holding such Registrable Stock reasonably
(in light of such holder's intended plan of distribution) requests and (B)
cause such Registrable Stock to be registered with or approved by such other
governmental agencies or authorities as may be necessary by virtue of the
business and operations of the Company and do any and all other acts and
things that may be reasonably necessary or advisable to enable such holder to
consummate the disposition of the Registrable Stock owned by such holder;
provided, that the Company will not be required to (A) qualify generally to do
business in any jurisdiction where it would not otherwise be required to
qualify but for this subsection (iv), or (B) subject itself to taxation in any
such jurisdiction, or (C) consent to general service of process in any such
jurisdiction.
(v) The Company will immediately notify
each holder holding such Registrable Stock, at any time when a prospectus
relating thereto is required to be delivered under the Act, of the occurrence
of an event requiring the preparation of a supplement or amendment to such
prospectus so that, as thereafter delivered to the purchasers of such
Registrable Stock, such prospectus will not contain an untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading and promptly prepare and make
available to each such holder any such supplement or amendment.
(vi) If the Majority Holders request a
Demand Registration pursuant to Section 7(a) above, such Majority Holders will
have the right to select an underwriter or underwriters reasonably
satisfactory to the Company in connection with any public offering resulting
from such request. In any other case, the Company may
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25
select, in its sole discretion, such underwriter or underwriters as it may
deem appropriate. The Company will enter into customary agreements (including
an underwriting agreement in customary form) and take such other actions as
are reasonably required in order to expedite or facilitate the disposition of
such Registrable Stock, including the engagement of a "qualified independent
underwriter" in connection with the qualification of the underwriting
arrangements with the NASD.
(vii) Upon the execution of confidentiality
agreements in form and substance satisfactory to the Company, the Company will
make available for inspection by any holder of Registrable Stock and any
underwriter participating in any disposition of Registerable Stock pursuant to
a registration statement being filed by the Company pursuant to this Section
7(e) and any attorney, accountant or other professional retained by any such
holder or underwriter (collectively, the "Inspectors"), all financial and
other records, pertinent corporate documents and properties of the Company
(collectively, the "Records") as shall be reasonably necessary to enable them
to exercise their due diligence responsibility, and cause the Company's
officers, directors and employees to supply all information reasonably
requested by any Inspectors in connection with such registration statement.
Records which the Company determines, in good faith, to be confidential and
which it notifies the Inspectors are confidential shall not be disclosed to
any third party by the Inspectors unless (A) the disclosure of such Records in
the registration statement is necessary to avoid or correct a misstatement or
omission in the registration statement or (B) the release of such Records is
ordered pursuant to a subpoena or other order from a court of competent
jurisdiction. Each such holder agrees that information obtained by it as a
result of such inspections shall be deemed confidential and shall not be used
by it as the basis for any market transactions in the securities of the
Company or its Affiliates unless and until such information is made generally
available to the public. Each such holder further agrees that it will, upon
learning that disclosure of such Records is sought in a court of competent
jurisdiction, give notice to the Company and allow the Company, at the
Company's own expense, to undertake appropriate action to prevent disclosure
of any such Records deemed confidential.
(viii) The Company will furnish to each such
holder of Registrable Stock and to each such underwriter, if any, a signed
counterpart, addressed to such underwriter, of (A) an opinion or opinions of
counsel to the Company and (B) a comfort letter or comfort letters from the
Company's
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26
independent public accountants, each in customary form and covering such
matters of the type customarily covered by opinions or comfort letters in
offerings of securities, as the case may be, as a majority of such holders or
the managing underwriter therefor reasonably requests.
(ix) The Company will otherwise use its
best efforts to comply with all applicable rules and regulations of the
Commission, and make available to its security holders, as soon as reasonably
practicable, an earnings statement covering a period of 12 months, beginning
within three months after the effective date of the registration statement,
which earnings statement shall satisfy the provisions of Section 10(a) of the
Act.
(x) The Company may require each such
holder to promptly furnish in writing to the Company such information
regarding the distribution of the Registrable Stock as the Company may from
time to time reasonably request and such other information as may be legally
required in connection with such registration.
(xi) Each such holder of Registrable Stock
agrees that, upon receipt of any notice from the Company of the happening of
any event of the kind described in Section 7(e)(iii) or 7(e)(v) above (a
"Stop-sale Notice"), such holder will forthwith discontinue disposition of
Registrable Stock pursuant to the registration statement covering such
Registrable Stock until such holder's receipt of a second notice from the
Company that such stop-order has been removed and/or the copies of the
supplemented or amended prospectus contemplated by Section 7(e)(v) above, and,
if so directed by the Company, such holder will deliver to the Company all
copies, other than any permanent file copies then in such holder's possession,
of the most recent prospectus covering such Registrable Stock at the time of
receipt of such Stop-sale Notice. In the event that the Company shall give
such Stop-sale Notice, the Company shall extend the period during which such
registration statement shall be maintained effective (including the period
referred to in Section 7(e)(i) above) by the number of days during the period
from and including the date of the giving of notice pursuant to Section
7(e)(iii) or 7(e)(v) above, as applicable, to the date when the Company shall
give the holders of Registrable Stock notice that the Stop-sale Notice has
been removed and/or make available to such holders a prospectus supplemented
or amended to conform with the requirements of Section 7(e)(v) above.
(f) Lock-Up. In the event of a Qualified IPO at
any time prior to December 31, 1999, each holder, including
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27
the undersigned, of Shares and of Conversion and Warrant Shares issued upon
the conversion of Shares or the exercise of any Registrable Warrants prior to
such Qualified IPO, for himself or itself and on behalf of his or its assigns,
agrees that such holder shall not be entitled to effect any public sale or
distribution, including any sale pursuant to Rule 144, or any successor
provision, under the Act, of any Registrable Stock, and not to effect any such
public sale or distribution of any other Common Stock of the Company or of any
stock convertible into or exchangeable or exercisable for any Common Stock of
the Company during the 30 days prior to the effective date of the applicable
registration statement or during the period of 180 days after such effective
date, or such longer period, up to one year, as may be required by the
managing underwriter of such Qualified IPO.
(g) Survival of Provisions. The provisions of this Section
with respect to Conversion and Warrant Shares, shall survive the conversion of
the Shares or the exercise of any Registrable Warrants.
8. Indemnification and Contribution. (a) In
the event of a registration of any of the Registrable Stock under the Act
pursuant to Section 6, the Company will indemnify and hold harmless each
seller of such Registrable Stock thereunder and each other person, if any, who
controls such seller or underwriter within the meaning of the Act, against any
losses, claims, damages or liabilities, joint or several, to which such
seller, underwriter or controlling person may become subject under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon any untrue statement of any
material fact contained in any registration statement under which such
Registrable Stock was registered under the Securities Act pursuant to Section
6, any preliminary prospectus or final prospectus contained therein, or any
amendment or supplement thereof, or arise out of or are based upon the
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse
each such seller, each such underwriter and each such controlling person for
any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action,
provided, however, that the Company will not be liable in any such case if and
to the extent that any such loss, claim, damage or liability arises out of or
is based upon an untrue statement or omission so made in conformity with
information furnished by any such seller, any such underwriter or any such
controlling person in writing
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specifically for use in such registration statement or
prospectus.
(b) In the event of a registration of any of
the Registrable Stock under the Act pursuant to Section 7, each seller of such
Registrable Stock thereunder, severally and not jointly, will indemnify and
hold harmless the Company, each person, if any, who controls the Company
within the meaning of the Act, each officer of the Company who signs the
registration statement, each director of the Company, each underwriter and
each person who controls any underwriter within the meaning of the Act,
against all losses, claims, damages or liabilities, joint or several, to which
the Company or such officer, director, underwriter or controlling person may
become subject under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
based upon any untrue statement of any material fact contained in the
registration statement under which such Registrable Stock was registered under
the Act pursuant to Sections 7, any preliminary prospectus or final prospectus
contained therein, or any amendment or supplement thereof, or arise out of or
are based upon the omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
will reimburse the Company and each such officer, director, underwriter and
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that such seller will be liable
hereunder in any such case if and only to the extent that any such loss,
claim, damage or liability arises out of or is based upon an untrue statement
or omission made in reliance upon and in conformity with information
pertaining to such seller, as such, furnished in writing to the Company by
such seller specifically for use in such registration statement or prospectus;
and provided, further, however, that the liability of each seller hereunder
shall be limited to the proportion of any such loss, claim, damage, liability
or expense which is equal to the proportion that the public offering price of
the shares sold by such seller under such registration statement bears to the
total public offering price of all securities sold thereunder, but not in any
event to exceed the net proceeds received by such seller from the sale of
Registrable Stock covered by such registration statement.
(c) The undersigned hereby agrees to
indemnify and hold harmless the Company, its officers, directors, controlling
persons, agents, advisors, representatives and employees, from and against any
and all
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loss, damage, expense, claim, action, suit or proceeding (including reasonable
attorneys' fees and expenses) or liabilities due to or arising out of a breach
of any representation, warranty, covenant or acknowledgements made by the
undersigned herein. All representations, warranties, covenants and
acknowledgements contained in this Warrant and the indemnification contained
in this Section 8(c) shall survive the acceptance of this subscription.
(d) Promptly after receipt by an indemnified
party hereunder of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party hereunder, notify the indemnifying party in writing
thereof, but the omission so to notify the indemnifying party shall not
relieve it from any liability which it may have to such indemnified party
other than under this indemnification subsection and shall only relieve it
from any liability which it may have to such indemnified party under this
indemnification subsection if and to the extent the indemnifying party is
prejudiced by such omission. In case any such action shall be brought against
any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
in and, to the extent is shall wish, to assume and undertake the defense
thereof with counsel satisfactory to such indemnified party, and, after notice
from the indemnifying party to such indemnified party in connection with the
defense thereof other than reasonable costs of investigation and of liaison
with counsel so selected; provided, however, that, if the defendants in any
such action include both the indemnified party and the indemnifying party and
the indemnified party shall have reasonably concluded that there may be
reasonable defenses available to it which are different from or additional to
those available to the indemnifying party or if the interests of the
indemnified party reasonably may be deemed to conflict with the interests of
the indemnifying party, the indemnified party shall have the right to select a
separate counsel and to assume such legal defenses and otherwise to
participate in the defense of such action, with the expenses and fees of such
separate counsel and other expenses related to such action, with the expenses
and fees of such separate counsel and other expenses related to such
participation to be reimbursed by the indemnifying party as incurred.
(e) In order to provide for just and
equitable contribution to joint liability under the Act in any case in which
either (i) any holder of Registrable Stock exercising rights under this
Agreement, or any controlling
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person of any such holder, makes a claim for indemnification pursuant to this
Section 8 but it is judicially determined (by the entry of a final judgment or
decree by a court of competent jurisdiction and the expiration of time to
appeal or the denial of the last right of appeal) that such indemnification
may not be enforced in such case notwithstanding the fact that this Section 8
provides for indemnification in such case, or (ii) contribution under the Act
may be required on the part of any such selling holder or any such controlling
person in circumstances for which indemnification is provided under this
Section 8; then, and in each such case, the Company and such holder will
contribute to the aggregate losses, claims, damages or liabilities to which
they may be subject (after contribution from others) in such proportion so
that such holder is responsible for the portion represented by the percentage
that the public offering price of its Registrable Stock offered by the
registration statement bears to the public offering price of all securities
offered by such registration statement, and the Company is responsible for the
remaining portion; provided, however, that, in any such case, (A) no such
holder will be required to contribute any amount in excess of the public
offering price of all such Registrable Stock offered by it pursuant to such
registration statement; and (B) no person or entity guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) will be
entitled to contribution from any person or entity who was not guilty of such
fraudulent misrepresentation.
9. Representations, Warranties and Covenants of
the Company. The Company represents and warrants to and
covenants with the registered holder hereof as follows:
(a) The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Delaware, is duly qualified and in good standing under the laws of any
foreign jurisdiction where the failure to be so qualified would have a
material adverse effect on its ability to perform its obligations under the
Warrants evidenced by this Warrant Certificate and it has full corporate power
and authority to issue the Warrants and to carry out the provisions of the
Warrants evidenced by this Warrant Certificate.
(b) The issuance, execution and delivery of
this Warrant Certificate has been duly authorized by all necessary corporate
action on the part of the Company and the Warrants evidenced by this Warrant
Certificate constitutes the valid and legally binding obligation of the
Company, enforceable against it in accordance with the terms
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31
hereof, except as such enforceability may be limited by bankruptcy, insolvency
or other laws affecting generally the enforceability of creditors' rights, by
general principles of equity and by limitations on the availability of
equitable remedies.
(c) Neither the execution and delivery of
the Warrants evidenced by this Warrant Certificate by the Company, nor
compliance by the Company with the provisions hereof, violates any provision
of its Certificate of Incorporation or By-Laws, as amended, or any law,
statute, ordinance, regulation, order, judgment or decree of any court or
governmental agency, or conflicts with or will result in any breach of the
terms of or constitute a default under or result in the termination of or the
creation of any lien pursuant to the terms of any agreement or instrument to
which the Company is a party or by which it or any of its properties is bound.
10. Company to Provide Stock. The Company covenants and
agrees that all shares of capital stock of the Company which may be issued
upon the exercise of the Warrants evidenced hereby will be duly authorized,
validly issued and fully paid and nonassessable and free from all taxes, liens
and charges with respect to the issue thereof to the registered holder hereof.
The Company further covenants and agrees that during the period within which
the Warrants evidenced hereby may be exercised, the Company will at all times
reserve such number of shares of its capital stock as may be sufficient to
permit the exercise in full of the Warrants evidenced hereby.
11. Registered Holder. The registered holder of
this Warrant Certificate shall be deemed the owner hereof
and of the Warrants evidenced hereby for all purposes. The
registered holder of this Warrant Certificate shall not be
entitled by virtue of ownership of this Warrant Certificate
to any rights whatsoever as a shareholder of the Company.
12. Transfer. This Warrant Certificate and the Warrants
evidenced hereby may not be sold, pledged, hypothecated or transferred at any
time unless the Company shall have received an opinion of counsel to the
effect that such transfer would not result in a violation of the provisions of
the Securities Act. Any transfer of this Warrant Certificate and the Warrants
evidenced hereby to a transferee, in whole or in part, shall be effected upon
surrender of this Warrant Certificate, duly endorsed (unless endorsement is
waived by the Company), at the principal office or agency of the Company. If
the Warrants evidenced hereby are being sold, pledged, hypothecated or
otherwise
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transferred, the Company shall issue a new Warrant Certificate registered in
the name of the appropriate transferee(s). If less than all of the Common
Stock issuable upon exercise hereof are being sold, pledged, hypothecated or
otherwise transferred, the Company shall issue new Warrant Certificates, in
each case for the number of Warrants exercisable for the appropriate number of
shares of Common Stock, registered in the name of the registered holder hereof
and the transferee(s), as applicable. Common Stock of the Company issued upon
any exercise hereof may not be sold, pledged, hypothecated or otherwise
transferred at any time unless the Company shall have received an opinion of
counsel to the effect that such transfer would not result in a violation of
the Securities Act.
13. Applicability. Each taker and holder of this Warrant
Certificate, the Warrants evidenced hereby and any shares of capital stock of
the Company issued upon exercise of such Warrants, by taking or holding the
same, consents to and agrees to be bound by the provisions of Section 4 and
Section 8 hereof.
* * *
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IN WITNESS WHEREOF, HumaScan Inc. has caused
this Warrant Certificate to be signed by a duly authorized
officer and this Warrant Certificate is dated as of
March 19, 1996.
HUMASCAN INC.
By______________________________
Name:
Title:
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FORM OF EXERCISE
(to be executed by the registered holder hereof)
The undersigned hereby exercises ______ Warrants for the
purchase of one share each of common stock, par value $.01 ("Common Stock"),
of HumaScan Inc. evidenced by the within Warrant Certificate and herewith
makes payment of the purchase price in full. Kindly issue certificates for the
Common Stock in accordance with the instructions given below. The certificate
for the unexercised balance of the Warrants evidenced by the within Warrant
Certificate, if any, will be registered in the name of the undersigned.
Dated:
__________________________________
Instructions for registration of shares
_______________________________________
Name (please print)
Social Security or Other Identifying
Number:_____________________________
Address:
_____________________________________
Street
_____________________________________
City, State and Zip Code
160662.5
2298-0001
<PAGE>
NONQUALIFIED STOCK OPTION AGREEMENT
TO: Donald S. Brounstein Dated as of: February 9, 1996
HumaScan Inc. (the "Corporation"), hereby grants to you an option (the
"Option") to purchase up to fifty thousand (50,000) shares of the
Corporation's Common Stock, par value $.Ol per share (the "Shares"), at a
price of Four and No/l00 Dollars ($4.00) per Share (the "Option Price"), upon
the terms and conditions contained herein.
1. The Option may not be transferred or assigned by you during your
lifetime.
2. (a) The Option to purchase the Shares vests immediately.
(b) The Option shall expire (to the extent not previously exercised)
on the fifth anniversary of the date of this Agreement.
3. The Option may be exercised by giving a written notice of exercise
to the Chief Financial Officer of the Corporation. Such notice shall specify
the number of Shares to be purchased and shall be accompanied by payment in
full of the aggregate Option Price for the number of Shares. purchased and,
unless a current Registration Statement is in affect covering the resale of
Shares acquired upon exercise of the Option, by a representation that the
Shares are being acquired for your own account, for investment purposes and
not with a view to the resale or distribution of the Shares and that any
subsequent offer for sale or sale of such Shares shall be made either pursuant
to (a) a Registration Statement on an appropriate form under the Securities
Act of 1933, as amended (the 'Securities Act"), which Registration Statement
has become effective and is current with respect to the Shares being offered
and sold, or (b) a specific exemption from the registration requirements of
the Securities Act, but in claiming such exemption you shall, prior to any
offer for sale of such Shares, obtain a favorable written opinion from counsel
for or approved by the Corporation as to the availability of such exemption.
The Corporation shall endorse an appropriate legend referring to the foregoing
restriction upon the certificate or certificates representing any Shares
issued or transferred upon exercise of the Option. Such exercise shall be
effective only upon the actual receipt of such written notice, of the
aggregate Option Price and of the representation described above, and no
rights or privileges of a shareholder of the Corporation in respect of any of
the Shares issuable upon the exercise of any part of the Option shall inure to
you, or to any other person entitled to exercise the Option, unless and until
certificates representing such Shares shall have been issued.
<PAGE>
4. It is understood and agreed that nothing contained in this
Agreement shall confer upon you any right with respect to the continuation of
your employment by the Corporation, nor interfere in any way with the right of
the Board of Directors to terminate such employment at any time.
5. Cashless Exercise. The Option is initially exercisable at a price
of $4.00 per share, payable in cash or by check to the order of the
Corporation, or any combination of cash or check. At any time subsequent to
the time the Corporation first offers its securities to the public pursuant to
the Securities Act prior to the expiration date, the Option Holder may, at his
option, exchange the Option, in whole or in part (an 'Option Exchange") into
the number of shares determined in accordance with this paragraph, by
surrendering the Option Agreement at the principal office of the Corporation,
accompanied by a notice stating the Option Holder's intent to effect such
exchange, the total number of shares to be involved in the exchange and the
date on which the Option Holder requests that such Option Exchange occur (the
"Notice of Exchange"). The Option Exchange shall take place on the date
specified in the Notice of Exchange, or, if later, the date the Notice of
Exchange is received by the Corporation (the "Exchange Date'). Certificates
for the shares issuable upon such Option Exchange and, if applicable, a now
Option Agreement of like tenor evidencing the balance of the shares remaining
subject to the Option Agreement, shall be issued as of the Exchange Date and
delivered to the Option Holder within seven (7) days following the Exchange
Date. In connection with any Option Exchange, the Option Agreement shall
represent the right to subscribe for and acquire the number of shares (rounded
to the next highest integer) equal to (A) the number of shares Specified by
the Option Holder in his Notice of Exchange (the 'Total Share Number") less
(B) the number of shares equal to the quotient obtained by dividing (i) the
product of the Total Share Number and the Option Price per share by (ii) the
current fair market value of the Common Stock as reported at the close of
business on the business day immediately prior to the date of the Notice of
Exchange minus the Option Price per share. As used herein "current fair market
value" of Common Stock shall mean with respect to each share of Common Stock:
(i) If the exercise is in connection with on initial public offering,
and if the Corporation's Registration Statement relating to such public
offering has been declared effective by the Securities and Exchange
Commission, then the initial "Price to Public" specified in the final
prospectus with respect to the offering.
(ii) If this Option is exercised after, and not in connection with,
the Corporation's initial public offering, and:
a) if traded on a securities exchange, the fair market value shall
be deemed to be the average of the daily closing prices over the
shorter of (x) the period between the closing of the sale of shares of
Common Stock in such public offering and the date the current fair
market value of the securities is being determined or (y) a fourteen
day period ending three days before the date the current fair market
<PAGE>
value of the securities is being determined;
b) If actively traded over-the-counter, the current fair market
value shall be deemed to be the average of the closing bid and asked
prices quoted on the NASDAQ System (or similar system) over the
shorter of (x) the period between the closing of the sale of shares of
Common Stock in such public offering and the date the current fair
market value of the securities is being determined or (y) a fourteen
day period ending three days before the date the current fair market
value of the securities is being determined.
(iii) If at any time the Common Stock Is not listed on any securities
exchange or quoted in the NASDAQ System or the over-the-counter market, the
current fair market value of Common Stock shall be the highest pride per share
which the Corporation could obtain from a willing buyer (not a current
employee or directory. for shares of Common Stock sold by the Corporation,
from authorized but unissued: shares, as determined in good faith by its Board
of Directors (and promptly upon any request therefor by the Option Holder),
unless the Corporation shall become subject to a merger, acquisition or other
consolidation pursuant to which the Corporation is not the surviving party, in
which case the fair market value of Common Stock shall be deemed to be the
value received by the holders of the Corporation's Common Stock on a common
equivalent basis pursuant to such merger or acquisition.
6. If upon the exercise of the Option there shall be payable by the
Corporation any amount for income tax withholding, either you shall pay such
amount to the Corporation, or the amount of Common Stock delivered by the
Corporation upon exercise of the Option shall be appropriately reduced, to
reimburse the Corporation for such payment.
Very truly yours,
HUMASCAN,INC.
BY: /s/ Leonard B. Brown
-----------------------------------------
Authorized Signatory
Leonard B. Brown
AGREED TO AND ACCEPTED:
/s/ Donald B. Brounstein
- ---------------------------
Donald B. Brounstein
Dated:
---------------------
<PAGE>
NONQUALIFIED STOCK OPTION AGREEMENT
TO: James J. Whidden Dated as of: February 9, 1996
HumaScan Inc. (the "Corporation"), hereby grants to you an option (the
"Option") to purchase up to fifty thousand (50,000) shares of the
Corporation's Common Stock, par value $.0l per share (the "Shares"), at a
price of Four and No/l00 Dollars ($4.00) per Share (the "Option Price"), upon
the terms and conditions contained herein.
1. The Option may not be transferred or assigned by you during your
lifetime.
2. (a) The Option to purchase the Shares vests immediately.
(b) The Option shall expire (to the extent not previously exercised)
on the fifth anniversary of the date of this Agreement.
3. The Option may be exercised by giving a written notice of exercise
to the Chief Financial Officer of the Corporation. Such notice shall specify
the number of Shares to be purchased and shall be accompanied by payment in
full of the aggregate Option Price for the number of Shares purchased and,
unless a current Registration Statement is in effect covering the resale of
Shares acquired upon exercise of the Option, by a representation that the
Shares are being acquired for your own account, for investment purposes and
not with a view to the resale or distribution of the Shares and that any
subsequent offer for sale or sale of such Shares shall be made either pursuant
to (a) a Registration Statement on an appropriate form under the Securities
Act of 1933, as amended (the 'Securities Act"), which Registration Statement
has become effective and is current with respect to the Shares being offered
and sold, or (b) a specific exemption from the registration requirements of
the Securities Act, but in claiming such exemption you shall, prior to any
offer for sale of such Shares, obtain a favorable written opinion from counsel
for or approved by the Corporation as to the availability of such exemption.
The Corporation shall endorse an appropriate legend referring to the foregoing
restriction upon the certificate or certificates representing any Shares
issued or transferred upon exercise of the Option. Such exercise shall be
effective only upon the actual receipt of such written notice, of the
aggregate Option Price and of the representation described above, and no
rights or privileges of a shareholder of the Corporation in respect of any of
the Shares issuable upon the exercise of any part of the Option shall inure to
you, or to any other person entitled to exercise the Option, unless and until
<PAGE>
certificates representing such Shares shall have been issued.
4. The Option is initially exercisable at a price of $4.00 per share,
payable in cash or by check to the order of the Corporation, or any
combination of cash or check. At any time subsequent to the time the
Corporation first offers its securities to the public pursuant to the
Securities Act prior to the expiration date, the Option Holder may, at his
option, exchange the Option, In whole or in part (an "Option Exchange") into
the number of shares determined in accordance with this paragraph, by
surrendering the Option Agreement at the principal office of the Corporation,
accompanied by a notice stating the Option Holder's intent to effect such
exchange, the total number of shares to be involved in the exchange and the
date on which the Option Holder requests that such Option Exchange occur (the
"Notice of Exchange"). The Option Exchange shall take place on the date
specified in the Notice of Exchange or, if later, the date the Notice of
Exchange is received by the Corporation (the "Exchange Date"). Certificates
for the shares issuable upon such Option Exchange and, if applicable, a new
Option Agreement of like tenor evidencing the balance of the shares remaining
subject to the Option Agreement, shall be issued as of the Exchange Date and
delivered to the Option Holder within seven (7) days following the Exchange
Date. In connection with any Option Exchange, the Option Agreement shall
represent the right to subscribe for and acquire the number of shares (rounded
to the next highest integer) equal to (A) the number of shares specified by
the Option Holder in his Notice of Exchange (the 'Total Share Number') less
(B) the number of shares equal to the quotient obtained by dividing (I) the
product of the Total Share Number and the Option Price per share by (ii) the
current fair market value of the Common Stock as reported at the close of
business on the business day immediately prior to the date of the Notice of
Exchange minus the Option Price per share. As used herein is current fair
market value' of Common Stock shall mean with respect to each share of Common
Stock:
(i) If the exercise is in connection with an initial public offering,
and if the Corporation's Registration Statement relating to such public
offering has been declared effective by the Securities and Exchange
Commission, then the initial "Price to Public' specified in the final
prospectus with respect to the offering.
(ii) If this Option is exercised after, and not in connection with,
the Corporation's initial public offering, and:
a) if traded on a securities exchange, the fair market value shall
be deemed to be the average of the daily closing prices over the
shorter of (x) the period between the closing of the sale of shares of
Common Stock in such public offering and the date the current fair
market value of the securities is being determined or (y) a fourteen
day period ending three days before the date the current fair market
value of the securities is being determined;
<PAGE>
b) If actively traded over-the-counter, the current fair market
value shall be deemed to be the average of the closing bid and asked
prices quoted on the NASDAQ System (or similar system) over the
shorter of (x) the period between the closing of the sale of shares of
Common Stock in such public offering and the date the current fair
market value of the securities is being determined or (y) a fourteen
day period ending three days before the date the current fair market
value of the securities is being determined.
(iii) If at any time the Common Stock is not listed on any securities
exchange or quoted in the NASDAQ System or the over-the-counter market, the
current fair market value of Common Stock shall be the highest price per share
which the Corporation could obtain from a willing buyer (not a current
employee or director) for shares of Common Stock sold by the Corporation, from
authorized but unissued shares, as determined in good faith by its Board of
Directors land promptly upon any request therefor by the Option Holder),
unless the Corporation shall become subject to a merger, acquisition or other
consolidation pursuant to which the Corporation is not the surviving party, in
which case the fair market value of Common Stock shall be deemed to be the
value received by the holders of the Corporation's Common Stock on a common
equivalent basis pursuant to such merger or acquisition.
5. If upon the exercise of the Option there shall be payable by the
Corporation any amount for income tax withholding, either you shall pay such
amount to the Corporation, or the amount of Common Stock delivered by the
Corporation upon exercise of the Option shall be appropriately reduced, to
reimburse the Corporation for such payment.
Very truly yours,
HUMASCAN INC.
By: /s/ Donald B. Brounstein
---------------------------------------
DONALD B. BROUNSTEIN, President
AGREED TO AND ACCEPTED:
/s/ James J. Whidden
- -----------------------
James J. Whidden
Dated: 4/8/96
-----------------
<PAGE>
NONQUALIFIED STOCK OPTION AGREEMENT
TO: Whidden & Associates, Inc. Dated as of: February 9, 1996
HumaScan Inc. (the "Corporation"), hereby grants to you an option (the
"Option") to purchase up to twenty-five thousand (25,000) shares of the
Corporation's Common Stock, par value $.Ol per share (the "Shares"), at a
price of Four and No/100 Dollars ($4.00) per $here (the "Option Price"), upon
the terms and conditions contained herein.
1. The Option may not be transferred or assigned by you without the
prior written consent of the Corporation.
2. (a) The Option to purchase the Shares vests immediately.
(b) The Option shall expire (to the extent not previously exercised)
on the fifth anniversary of the date of this Agreement.
3. The Option may be exercised by giving a written notice of exercise
to the Chief Financial Officer of the Corporation. Such notice shall specify
the number of Shares to be purchased and shall be accompanied by payment in
full of the aggregate Option Price for the number of Shares purchased and,
unless a current Registration Statement is in effect covering the resale of
Shares acquired upon exercise of the Option, by a representation that the
Shares are being acquired for your own account, for investment purposes and
not with a view to the resale or distribution of the Shares and that any
subsequent offer for sale or sale of such Shares shall be made either pursuant
to (a) a Registration Statement on an appropriate form under the Securities
Act of 1933, as amended (the "Securities Act"), which Registration Statement
has become effective and is current with respect to the Shares being offered
and sold, or (b) a specific exemption from the registration requirements of
the Securities Act, but in claiming such exemption you shall, prior to any
offer for sale of such Shares, obtain a favorable written opinion from counsel
for or approved by the Corporation as to the availability of such exemption.
The Corporation shall endorse an appropriate legend referring to the foregoing
restriction upon the certificate or certificates representing any Shares
issued or transferred upon exercise of the Option. Such exercise shall be
effective only upon the actual receipt of such written notice, of the
aggregate Option Price and of the representation described above, and no
rights or privileges of a shareholder of the Corporation in respect of any of
the Shares issuable upon the exercise of any part of the Option shall inure to
you, or to any other person entitled to exercise the Option, unless and until
certificates representing such Shares shall have been issued.
<PAGE>
4. The Option is initially exercisable at a price of $4.00 per share,
payable in cash or by check to the order of the Corporation, or any
combination of cash or check. At any time subsequent to the time the
Corporation first offers its securities to the public pursuant to the
Securities Act prior to the expiration date, the Option Holder may, at its
option, exchange the Option, in whole or in part (an "Option Exchange") into
the number of shares determined in accordance with this paragraph, by
surrendering the Option Agreement at the principal office of the Corporation,
accompanied by a notice stating the Option Holder's intent to effect such
exchange, the total number of shares to be involved in the exchange and the
date on which the Option Holder requests that such Option Exchange occur (the
"Notice of Exchange"). The Option Exchange shall take place on the date
specified in the Notice of Exchange or, if later, the date the Notice of
Exchange is received by the Corporation (the "Exchange Date"). Certificates
for the shares issuable upon such Option Exchange and, If applicable, a new
Option Agreement of like tenor evidencing the balance of the shares remaining
subject to the Option Agreement, shall be issued as of the Exchange Date and
delivered to the Option Holder within seven (7) days following the Exchange
Date. In connection with any Option Exchange, the Option Agreement shall
represent the right to subscribe for and acquire the number of shares (rounded
to the next highest integer) equal to (A) the number of shares specified by
the Option Holder in its Notice of Exchange (the "Total Share Number") less
(B) the number of shares equal to the quotient obtained by dividing (i) the
product of the Total Share Number and the Option Price per share by (ii) the
current fair market value of the Common Stock as reported at the close of
business on the business day immediately prior to the date of the Notice of
Exchange minus the Option Price per share. As used herein "current fair market
value" of Common Stock shall mean with respect to each share of Common Stock:
(i) If the exercise is in connection with an initial public offering,
and if the Corporation's Registration Statement relating to such public
offering has been declared effective by the Securities and Exchange
Commission, then the initial "Price to Public" specified in the final
prospectus with respect to the offering.
(ii) If this Option is exercised after, and not in connection with,
the Corporation's initial public offering, and:
a) if traded on a securities exchange, the fair market value shall
be deemed to be the average of the daily closing prices over the
shorter of (x) the period between the closing of the sale of shares of
Common Stock in such public offering and the date the current fair
market value of the securities is being determined or (y) a fourteen
day period ending three days before the date the current fair market
value of the securities is being determined;
b) If actively traded over-the-counter, the current fair market
value shall be deemed to be the average of the closing bid and asked
prices quoted on the NASDAQ System (or similar system) over the shorter
<PAGE>
of (x) the period between the closing of the sale of shares of Common
Stock in such public offering and the date the current fair market
value of the securities is being determined or (y) a fourteen day
period ending three days before the date the current fair market value
of the securities is being determined.
(iii) If at any time the Common Stock is not listed on any securities
exchange or quoted in the NASDAQ System or the over-the-counter market, the
current fair market value of Common Stock shall be the highest price per share
which the Corporation could obtain from a willing buyer (not a current
employee or director) for shares of Common Stock sold by the Corporation, from
authorized but unissued shares, as determined in good faith by its Board of
Directors (and promptly upon any request therefor by the Option Holder),
unless the Corporation shall become subject to a merger, acquisition or other
consolidation pursuant to which the Corporation is not the surviving party, in
which case the fair market value of Common Stock shall be deemed to be the
value received by the holders of the Corporation's Common Stock on a common
equivalent basis pursuant to such merger or acquisition.
5. If upon the exercise of the Option there shall be payable by the
Corporation any amount for income tax withholding, either you shall pay such
amount to the Corporation, or the amount of Common Stock delivered by the
Corporation upon exercise of the Option shall be appropriately reduced, to
reimburse the Corporation for such payment.
Very truly yours,
HUMASCAN INC.
By: /s/ Donald S. Brounstein
--------------------------------------
DONALD S. BROUNSTEIN, President
AGREED TO AND ACCEPTED:
WHIDDEN & ASSOCIATES, INC.
/s/ James J. Whidden
- --------------------------
Whidden, President
Dated: 4/8/96
--------------------
<PAGE>
NONQUALIFIED STOCK OPTION AGREEMENT
TO: Amy P. Lewis Dated as of: February 9, 1996
HumaScan Inc. (the "Corporation"), hereby grants to you an option (the
"Option") to purchase up to twenty-five thousand (25,000) shares of the
Corporation's Common Stock, par value $.Ol per share (the "Shares"), at a
price of Four and No/l00 Dollars ($4.00) per Share (the "Option Price"), upon
the terms and conditions contained herein.
1. The Option may not be transferred or assigned by you during your
lifetime.
2. (a) The Option to purchase the Shares vests immediately.
(b) The Option shall expire (to the extent not previously exercised)
on the fifth anniversary of the date of this Agreement.
3. The Option may be exercised by giving a written notice of exercise
to the Chief Financial Officer of the Corporation. Such notice shall specify
the number of Shares to be purchased and shall be accompanied by payment in
full of the aggregate Option Price for the number of Shares purchased and,
unless a current Registration Statement is in effect covering the resale of
Shares acquired upon exercise of the Option, by a representation that the
Shares are being acquired for your own account, for investment purposes and
not with a view to the resale of distribution of the Shares and that any
subsequent offer for sale or sale of such Shares shall be made either pursuant
to (a) a Registration Statement on an appropriate form under the Securities
Act of 1933, as amended (the "Securities Act"), which Registration Statement
has become effective and is current with respect to the Shares being offered
and sold, or (b) a specific exemption from the registration requirements of
the Securities Act, but in claiming such exemption you shall, prior to any
offer for sale of such Shares, obtain a favorable written opinion from counsel
for or approved by the Corporation as to the availability of such exemption.
The Corporation shall endorse an appropriate legend referring to the foregoing
restriction upon the certificate or certificates representing any Shares
issued or transferred upon exercise of the Option. Such exercise shall be
effective only upon the actual receipt of such written notice, of the
aggregate Option Price and of the representation described above, and no
rights or privileges of a shareholder of the Corporation in respect of any of
the Shares issuable upon the exercise of any part of the Option shall inure to
you, or to any other person entitled to exercise the Option, unless and until
<PAGE>
certificates representing such Shares shall have been issued.
4. It is understood and agreed that nothing contained in this
Agreement shall confer upon you any right with respect to the continuation of
your employment by the Corporation, not interfere in any way with the right of
the Board of Directors to terminate such employment at any time.
5. If upon the exercise of the Option there shall be payable by the
Corporation any amount for income tax withholding, either you shall pay such
amount to the Corporation, or the amount of Common Stock delivered by the
Corporation upon exercise of the Option shall be appropriately reduced, to
reimburse the Corporation for such payment.
Very truly yours,
HUMASCAN INC.
By: /s/ Donald S. Brounstein
------------------------------------
DONALD S. BROUNSTEIN, President
AGREED TO AND ACCEPTED,
/s/ Amy P. Lewis
- -----------------------
Amy P. Lewis
Dated: 2/19/96
-----------------
<PAGE>
NONQUALIFIED STOCK OPTION AGREEMENT
TO: Everett M. Lautin, M.D. Dated as of: February 9, 1996
HumaScan Inc. (the "Corporation"), hereby grants to you an option (the
"Option") to purchase up to twenty-five thousand (25,000) shares of the
Corporation's Common Stock, par value $.Ol per share (the "Shares"), at a
price of Four and No/l00 Dollars ($4.00) per Share (the "Option Price"), upon
the terms and conditions contained herein.
1. The Option may not be transferred or assigned by you during your
lifetime.
2. (a) The Option to purchase the Shares vests immediately.
(b) The Option shall expire (to the extent not previously exercised)
on the fifth anniversary of the date of this Agreement.
3. The Option may be exercised by giving a written notice of exercise
to the Chief Financial Officer of the Corporation. Such notice shall specify
the number of Shares to be purchased and shall be accompanied by payment in
full of the aggregate Option Price for the number of Shares purchased and,
unless a current Registration Statement is in effect covering the resale of
Shares acquired upon exercise of the Option, by a representation that the
Shares are being acquired for your own account, for investment purposes and
not with a view to the resale or distribution of the Shares and that any
subsequent offer for sale or sale of such Shares shall be made either pursuant
to (a) a Registration Statement on an appropriate form under the Securities
Act of 1933. as amended (the "Securities Act"), which Registration Statement
has become effective and is current with respect to the Shares being offered
and sold, or (b) a specific exemption from the registration requirements of
the Securities Act, but in claiming such exemption you shall, prior to any
offer for sale of such Shares, obtain a favorable written opinion from counsel
for or approved by the Corporation as to the availability of such exemption.
The Corporation, shall endorse an appropriate legend referring to the
foregoing restriction upon the certificate or certificates representing any
Shares issued or transferred upon exercise of the Option. Such exercise shall
be effective only upon the actual receipt of such written notice, of the
aggregate Option Price and of the representation described above, and no
rights or privileges of a shareholder of the Corporation in respect of any of
the Shares issuable upon the exercise of any part of the Option shall inure to
you, or to any other person entitled to exercise the Option, unless and until
<PAGE>
certificates representing such Shares shall have been issued.
4. If upon the exercise of the Option there shall be payable by the
Corporation any amount for income tax withholding, either you shall pay such
amount to the Corporation, or the amount of Common Stock delivered by the
Corporation upon exercise of the Option shall be appropriately reduced, to
reimburse the Corporation for such payment.
Very truly yours,
HUMASCAN INC.
By: /s/ Donald B. Brounstein
---------------------------------------
DONALD B. BROUNSTEIN, President
AGREED TO AND ACCEPTED:
/s/ Everett M. Loutin
- ---------------------------
Everett M. Loutin, M.D.
Dated. 2/24/96
---------------------
<PAGE>
Execution A
EXCLUSIVE SUPPLY AND DISTRIBUTION AGREEMENT
THIS AGREEMENT dated , 1996 is between HumaScan Inc., a Delaware
corporation ("HSI"), and Physician Sales & Service, Inc., a Florida
corporation ("PSS").
RECITALS
PSS is in the business of selling, warehousing and shipping medical
products and equipment directly to physicians at their offices in the United
States.
HSI has the exclusive United States and Canadian license to
manufacture, market, sell, appoint distributors to sell, warehouse and ship
BreastAssure(TM); and HSI's rights to BreastAssure(TM) and its status are
described in the Confidential Private Offering Memorandum, a draft of which
marked "HUMASCAN\PPM\DRAFT.022" has been previously supplied to HSI (the
"CPOM"), the Second Amended License Agreement between Scantek Medical, Inc.
and HSI (the "Licensing Agreement") and a contract between Zigmed, Inc. and
HSI (the "Zigmed Contract") (both of which all are attachments to this
Agreement).
HSI wishes to appoint PSS as the exclusive United States distributor
of BreastAssure(TM) under the terms and conditions set forth below.
AGREEMENTS
I. HSI and PSS mutually agree as follows:
A. With regard to the term of this Agreement:
1. It begins as of the date in the first paragraph above
and will continue until terminated in accordance
with Section I.A.4. below. Until HSI shall
manufacture, sell and ship commercial product,
BreastAssure(TM), to PSS for sale to physicians,
PSS and HSI will work together to prepare for
regional
<PAGE>
Execution A
and national introduction of BreastAssure(TM) (this
"Preparatory Period" is expected to end in December
1996 or January 1997).
2. During the first year following the first sale of
BreastAssure(TM) by PSS, both parties will
frequently review their progress and mutually agree
to cooperate with each other, as necessary. (This
"First Year Period" is expected to be calendar year
1997.)
3. At any time after the end of the first year following
the first sale of BreastAssure(TM)by PSS (with
respect to subparagraph a. or b. below), and at any
time after the first sale of BreastAssure(TM)by PSS
(with respect to subparagraph c. below), either
party may give the other written notice of a
material breach of this Agreement, and such other
party will have six (6) months after receipt of
such notice in which to cure the problem ("Six-
Month (6) Probation Period"). Probation incidents
are:
a. HSI to PSS: Untimely PSS deliveries to
physicians (a minimum of 94% on-time
deliveries is required, with a goal
of 98%).
b. PSS to HSI: (i) Failure by HSI to fill
product orders within ten (10) business days
(although the parties agree that their goal
is to fill such orders within five (5)
business days); (ii) Food and Drug
Administration ("FDA") problem or recall;
or (iii) acquisition of HSI by a competitor
of PSS unless PSS receives a two-year (2)
2
<PAGE>
Execution A
supply agreement with the acquiring entity
on the then prevailing terms of this
Agreement.
c. Any material default or violation of this
Agreement.
4. Both parties will cooperate in good faith as
appropriate to cure the applicable problem during
any Six-Month (6) Probation Period. If the problem
cannot be resolved during the Six-Month (6)
Probation Period, then either party may terminate
this Agreement, by written notice of intended
termination to the other party, which termination
will be effective three (3) months after such
notice is given; and PSS agrees to continue
distribution of BreastAssure(TM) during the
three-month (3) period following such notice of
termination. In addition, if any material violation
of this Agreement by either party shall occur prior
to the first sale of BreastAssure(TM) by PSS and
continue uncured for three (3) months after notice
thereof from the other party, the nondefaulting
party at its option may immediately terminate this
Agreement by written notice to the other.
5. This Agreement will remain in full force and effect
until the effective date of termination as provided
in this Agreement.
B. With regard to distributor renumeration:
1. The basis of the First Year Period is one million
(1,000,000) units to be sold by PSS with appropriate
marketing support by HSI.
3
<PAGE>
Execution A
a. The suggested "List Price" is Twenty-five
Dollars ($25.00) to the physician's
office, unless otherwise modified as
provided below.
b. The distributor discount is [REDACTED].
The net price to PSS is [REDACTED] per unit.
A portion of such distributor discount equal
to [REDACTED] will be allocated as a bonus
for PSS incentives and a portion of such
distributor discount equal to [REDACTED]
will be allocated for a Corporate Rebate
as specified below.
C. With regard to List Price: HSI and PSS will conduct focus
group sessions relative to the List Price to physicians and
the physician's charge to patients. Based upon the outcome
of these focus group sessions, HSI and PSS may agree to
change the List Price to the physicians [REDACTED].
D. With regard to territory:
1. The exclusive territory for PSS sales is the United
States and its possessions.
2. It is expected that the territory of Canada will be
discussed and awarded to PSS later, based upon
a mutually acceptable agreement.
4
<PAGE>
Execution A
E. With regard to customers:
1. PSS will sell and ship to all physicians at their
offices and physicians at hospitals or ancillary
hospital sites provided that PSS delivers the
BreastAssure(TM) directly to the physician's office
(the "Physician's Office Market"). The initial
targeted market segment will be OB/GYNs.
2. HSI will sell and ship:
a. to physicians at hospitals wherein the
BreastAssure(TM) is shipped to
the hospital for use in the hospital; and
b. BreastAssure(TM) at substantially
discounted prices for community or breast
cancer organizational screenings,
government sales, insurance company health
fair activities or any similar sale which
HSI and PSS mutually deem to be beneficial
to the promotion of BreastAssure(TM); and
HSI will advise PSS in writing of such
activities in advance.
F. With regard to shipments:
1. HSI will ship FOB Destination to each PSS Service
Distribution Center via standard United Parcel
Service (UPS) or an equivalent delivery service.
2. Product has a two-year shelf life and the
manufacturing date will be marked on each individual
box.
a. HSI will not ship product to PSS with
dating more than six (6) months after
the manufactured date.
5
<PAGE>
Execution A
b. PSS will insure rotation of inventory on a
First In, First Out basis.
3. HSI and PSS will abide by the Returned Goods Policy
in attached Appendix A.
4. PSS will pre-stock each Service Distribution Center
with a thirty-day initial supply of product, the
amount to be mutually agreed upon based upon the
number of sales representatives at each branch. The
initial stocking order will be determined after HSI
and PSS mutually agree upon a non-binding Roll-Out
Schedule, but at least ninety (90) days before the
beginning of the First Year Period.
5. If PSS determines in good faith that any Service
Distribution Center has an excessive supply of
product, it will promptly use its best efforts to
transfer such excess to one or more other Service
Distribution Centers that can use it promptly and
PSS may return to HSI any excessive supply of
product remaining thereafter.
5. Payment terms are Net Forty-five (45) Days, or one
percent (1%) Net Fifteen (15) Days from date of
shipment from the HSI plant.
G. With regard to forecasts:
1. HSI and PSS will prepare and mutually agree on
non-binding rolling forecasts by quarter for four
(4) quarters, with the first two (2) quarters
detailed by Service Distribution Center and the
last two (2) quarters
6
<PAGE>
Execution A
detailed by region. The first quarter will be used
by HSI to plan its shipments to PSS.
2. The forecasts will be based upon the PSS fiscal year
ending March 31.
H. With regard to any FDA problem or recall:
1. PSS will use its reasonable best efforts to
cooperate with HSI in the resolution of the matter
and supply all information requested by FDA or
necessary and which HSI needs to resolve the
matter.
II. PSS agrees that:
A. A BreastAssure(TM) Product Champion Specialist (the "PCS")
position in the PSS marketing department will be created,
and in connection therewith:
1. The individual will be an existing PSS employee who
will be selected by PSS and approved by HSI before
June 1996.
2. The expenses for salary, fringe benefits, bonuses,
travel and all other expenses (except training
expenses referred to in subparagraph 3 below) will
be paid by PSS.
3. The PCS will be trained at HSI for a minimum of four
weeks at HSI's expense.
4. The PCS will report directly to the PSS Vice
President of Marketing and report indirectly to the
HSI Director of Sales.
B. A bonus plan will be developed for PSS incentives, as follows:
7
<PAGE>
Execution A
1. The First Year Period will be [REDACTED].
2. The bonus will begin at [REDACTED].
3. The Corporate Rebate will be allocated at [REDACTED].
4. An additional rebate will be allocated to PSS, as
follows:
a. With respect to units sold in the First
Year Period:
[REDACTED]
b. With respect to units sold in the year
immediately following the First Year Period:
[REDACTED]
8
<PAGE>
Execution A
c. With respect to units sold in periods
subsequent to those set forth above,
[REDACTED].
C. PSS will report monthly sales of BreastAssure(TM) by Service
Distribution Center by region to HSI.
D. PSS will designate HSI as a Platinum Level Manufacturer,
with all privileges and courtesies normally accorded to such
manufacturers and with HSI proportionately responsible for
all normally assumed costs that all other Platinum Level
Manufacturers must similarly bear.
E. PSS will assist HSI in developing marketing collaterals such
as training videos and sales materials, with all costs of
materials to be paid by HSI.
F. PSS will coordinate conventions with HSI, with the goal of:
1. locating the HSI booth area near the PSS booth, or
sponsoring BreastAssure(TM) at the PSS booth if HSI
does not attend the national and regional conventions
at which PSS exhibits; and
2. as agreed to by PSS on a case-by-case basis, helping
HSI at regional or national conventions not normally
attended by PSS by having local sales
9
<PAGE>
Execution A
representatives attend and cover the booth activities
during convention hours.
G. PSS will invest in HSI as follows:
1. It will purchase one and one-half (1 1/2) Units (as
such terms are defined in the CPOM, such units
being called the "PSS Units") upon the same terms
and conditions as other investors in the offering
described in the attached CPOM (and concurrently
herewith, PSS is delivering its check in the amount
of Fifty-five Thousand Five Hundred Dollars
($55,500) representing the first installment of
such purchase in escrow to Honigman Miller Schwartz
and Cohn, as escrow agent, payable to the order of
Honigman Miller Schwartz and Cohn for deposit in
its escrow trust account, which amount such escrow
agent shall either pay to HSI after the Minimum
Offering provided for in the CPOM is completed or,
if such closing does not occur and such offering is
abandoned, return such amount to PSS), and in
connection with such purchase, HSI represents and
warrants to PSS that the PSS Units will be
identical to the Units issued in connection with
the Minimum Offering, except to the extent the
Institutional Investors described in the CPOM may
have rights provided for in a Voting and
Stockholders's Rights Agreement providing for the
election of directors, specific reporting
requirements and certain other matters in
substantially the form previously provided to PSI
and the final
10
<PAGE>
Execution A
form of which shall be provided PSI within a
reasonable time following its execution and delivery,
and
2. Subject to the terms and condition of the Warrant
Certificate, Five Hundred Thousand Dollars
($500,000) by exercising a special warrant issued
by HSI to PSS concurrently herewith (the "PSS
Warrant") at Three Dollars ($3.00) per share for
one hundred sixty-six thousand six hundred
sixty-seven (166,667) HSI common shares, provided,
that:
i. the Five Hundred Thousand Dollars
($500,000) will be solely used by
HSI for advertising and promotion
of BreastAssure(TM); and
ii. the holder of the warrant will have
the same rights with respect to Tag
Along privileges and Registration
Rights as the holders of the Units
described in the CPOM.
H. In addition and notwithstanding anything to the contrary in
Section II.G.2. hereof, HSI shall have the right, in its
sole discretion, at any time that it in good faith
anticipates an offering of its equity securities to be
registered pursuant to the provisions of the Securities Act
of 1933 within the next ninety (90) days or the acquisition
of HSI by a third party within the next sixty (60) days (or
such shorter period as may be applicable in the event HSI
first becomes aware of such anticipated acquisition less
than sixty (60) days prior thereto), to give to PSS thirty
(30) days' prior written notice of termination of the PSS
Warrant, whereupon PSS
11
<PAGE>
Execution A
at its option may either exercise the PSS Warrant before the
expiration of such thirty-day (30) period or allow the PSS
Warrant to automatically terminate in accordance with its
terms at the end of such thirty-day period.
I. The PSS President and Chief Operating Officer, John Sasen,
Jr., will join the HSI Board of Directors (in accordance
with and subject to Section III.A. below).
J. PSS will be bound by all the terms and conditions of the
attached Licensing Agreement.
III. HSI agrees that:
A. During the term of this Agreement, HSI will nominate and use
its best efforts to secure the election to the HSI Board of
Directors of one director specified by PSS who shall be an
officer and employee of PSS;
B. HSI will budget a quantity of BreastAssure(TM) samples deemed
by HSI and PSS to be fair and reasonable for the initial
product launch, and will develop a Sample Policy and
Strategy to be administered by its BreastAssure(TM) PSC.
This will have quantities of BreastAssure(TM) with:
1. no charge samples initially; and
2. then, samples at HSI's factory cost of goods.
C. PSS and HSI will develop a non-binding regional/national
Roll-out Schedule for the First Year Period. This Schedule,
based upon the HSI Business Plan, is shown in Appendix B.
12
<PAGE>
Execution A
D. HSI will hire and employ the personnel and allocate the
monies specified in the HSI budget (including but not
limited to the Director of Sales, Marketing Director, Vice
President of Sales & Marketing and six Regional Sales
Managers), the Advertising & Promotional budget and the
Clinical budget.
E. HSI will hire a packaging engineer as budgeted and, during
the second calendar quarter of 1996, will complete the
packaging design for individual boxes as well as the
shipping carton. The target for the minimum shipment to PSS
is one hundred (100) units [REDACTED]
IV. Miscellaneous
A. All notices, demands and communications shall be in writing
and shall be deemed to have been duly given if delivered by
personal delivery, overnight courier, or certified mail with
return receipt requested, prepaid, as follows:
To HSI:
HumaScan Inc.
514 Centennial Avenue
Cranford, New Jersey 07016
Attn.: Donald Brounstein
With a copy to:
Honigman Miller Schwartz and Cohn
222 Lakeview Avenue, Suite 800
West Palm Beach, Florida 33401
Attn.: Morris C. Brown, Esq.
13
<PAGE>
Execution A
To PSS:
Physician Sales & Service, Inc.
7800 Belfort Parkway, S-250
Jacksonville, Florida 32256
Attn.: Patrick Kelly
With a copy to:
Alston & Bird
1201 W. Peachtree Street
Atlanta, Georgia 30309
Attn.: J. Vaughan Curtis, Esq.
B. This Agreement (with the documents referred to herein or
delivered pursuant hereto) embodies the entire agreement and
understanding between the parties hereto and supersedes all
prior agreements and understandings relating to the subject
matter hereof.
C. This Agreement shall be construed and enforced in accordance
with and governed by the laws of the State of New Jersey
without giving effect to the conflicts of law principles
thereof.
The parties have executed this Agreement as of the date first written
above.
PHYSICIAN SALES & SERVICE, INC.,
a Florida corporation
By:______________________________
Name:______________________
Its:_______________________
HUMASCAN INC.,
a Delaware corporation
By:______________________________
Name:______________________
Its:_______________________
14
<PAGE>
Execution A
APPENDIX A
Returns and Recall Policy
Products may be returned only under one of the following conditions:
o Company recall. HSI will, for all products recalled at its request, at
its option: (a) reimburse PSS at the net invoice price paid or
(b) replace the affected products within thirty (30) days after such
recall.
o Merchandise damaged in transit or defective upon receipt. Claims must
be filed with HSI within ten (10) days of delivery. In the event of
delivery of products in damaged or defective condition, HSI's only
liability shall be replacement of such items on a priority basis but
in any event within thirty (30) days after such claim.
o No product shall be returned unless accompanied by a Returned Goods
Authorization Request available from HSI Customer Service.
PSS's exclusive remedy and HSI's sole liability for returned or recalled
product shall be limited, at HSI's option, to reimbursement for, or
replacement within thirty (30) days of, the affected product.
Product Liability Indemnification. HSI hereby agrees to indemnify PSS for
third party claims and the reasonable expenses of PSS incurred in connection
therewith arising from the use of the product supplied by HSI to PSS except
for:
A. Any act or failure to act on the part of PSS or its employees,
representatives, agents or assigns in handling, storing or
otherwise distributing the product;
B. the sale of outdated product by PSS; or
C. relabeling or repackaging of the product by PSS;
and except that HSI shall have the right to assume the defense of PSS against
any such claims and HSI shall not be liable for any settlement made without
its consent (which will not be unreasonably withheld).
PSS must notify HSI within fifteen (15) business days of any alleged
indemnifying claims by third parties.
Returnable product claims by PSS customers will be resolved by HSI on a
case-by-case basis with each customer (so long as outdated product is returned
within ninety (90) days after the expiration date).
15
<PAGE>
Execution A
Appendix B
Tentative Roll-out Schedule
<TABLE>
<CAPTION>
==========================================================================================================
PSS QUARTER BREASTASSURE(TM) ROLL-OUT
& FISCAL YEAR UNITS (in thousands) TERRITORY
- ----------------------------------------------------------------------------------------------------------
Quarter Year Quarterly Cumulative
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
4 (1/1 - 3/31) 1997 190 190 New Jersey/Northeast
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
1 (4/1 - 6/30) 1998 230 420 Northeast/National
- ----------------------------------------------------------------------------------------------------------
2 (7/1 - 9/30) 1998 280 700 National
- ----------------------------------------------------------------------------------------------------------
3 (10/1 - 12/31) 1998 300 1,000 National
- ----------------------------------------------------------------------------------------------------------
4 (1/1 - 3/31) 1998 500 1,500 National
- ----------------------------------------------------------------------------------------------------------
Total, FY 1998 1,310
- ----------------------------------------------------------------------------------------------------------
1 (4/1 - 6/30) 1999 700 National
- ----------------------------------------------------------------------------------------------------------
2 (7/1 - 9/30) 1999 1,000 National
- ----------------------------------------------------------------------------------------------------------
3 (10/1 - 12/31) 1999 1,300 National
- ----------------------------------------------------------------------------------------------------------
4 (1/1 - 3/31) 1999 1,500 National
- ----------------------------------------------------------------------------------------------------------
Total, FY 1999 4,500
==========================================================================================================
</TABLE>
16
<PAGE>
Execution A
INDEX OF ATTACHMENTS
Confidential Private Offering Memorandum with attachments.
Licensing Agreement with attachments
Zigmed Agreement with attachments
Warrant Agreement
WPB/77442.9
17
<PAGE>
HumaScan Inc.
514 Centennial Avenue
Cranford, NJ 07016
June 11, 1996
Mr. David A. Smith
Executive Vice President & CEO
Physician Sales & Service, Inc.
7800 Belfort Parkway, Suite 250
Jacksonville, FL 32266
Dear Dave:
This letter will constitute and amendment to the Exclusive Supply and
Distribution Agreement between Physician Sales & Service, Inc. ("PSS") and
HumaScan Inc. ("HSI") dated February 27, 1996.
PSS and HIS mutually agree as follows:
1. PSS will not distribute a competitive product substantially identical to
BreastAssure(TM) during the term of the Agreement unless: due to
competitive product end user sales pricing, quality, verifiable results or
customer acceptance, the BreastAssure(TM) is not, after 90 days of
receiving a notice from PSS deemed competitive by PSS.
2. PSS and HSI have selected the volume number of one million (1,000,000)
BreastAssure(TM) units in 1997 and three and a half million (3,500,000)
units in 1998 as the targets for sales in 1997 and 1998.
If sales during such periods are less than fifty percent (50%) of such
targets, PSS and HSI will each have the right to terminate the Agreement
upon three (3) months notice. During such three (3) month period, PSS and
HSI will negotiate in good faith to continue the agreement by establishing
revised sales targets.
Please sign below to signify your agreement to the above changes.
Sincerely,
/s Don Brounstein
- ------------------------------
Don Brounstein
President
Agreed and Accepted
Physician Sales and Services, Inc.
By: /s/ David A. Smith
--------------------------
David A. Smith
EVP, CFO
<PAGE>
SECOND AMENDED LICENSE AGT./EXECUTION A
SECOND AMENDED LICENSE AGREEMENT
This Second Amended Agreement is made and entered into as of the 20th
day of October, 1995 by and between SCANTEK MEDICAL, INC., a Delaware
corporation having its principal place of business at 26 Merry Lane, East
Hanover, New Jersey 07936 (the "Licensor") and HUMASCAN INC., a Delaware
corporation having its principal place of business at 89 Summit Avenue, Suite
129, Summit, New Jersey 07901 (the "Licensee").
PRELIMINARY STATEMENT
The Licensor is the registered owner of certain patents and other
intellectual property rights relating to a thermo-sensitive product used for
early detection of breast and tissue abnormalities, all as more fully
described on Exhibit A attached to this Second Amended Agreement (the
"Invention") and has secured the right to manufacture and distribute the
Invention from the Food and Drug Administration (the "FDA") pursuant to
regulations promulgated by the FDA pursuant to section 510(k) of the Food,
Drug and Cosmetic Act which permits new products to be marketed in the United
States through the submission of premarket notification to the FDA (FDA File
Number K832989) and a subsequent "substantial equivalence" letter from the FDA
dated January 25, 1984 (the "Authorization").
The Licensee desires to manufacture and sell the Invention in the
United States of America and Canada, and their respective territories and
possessions (the "Exclusive Territory") and intends to secure total funding of
no less than $10,000,000 to commence such marketing through a private
placement (the "First Stage Financing") of no less than $5,000,000 ("the
"Threshold First Stage Financing") and, as currently anticipated, no more than
$6,000,000 (the "Maximum Anticipated First Stage Financing") of its securities
and a subsequent initial public offering of its securities registered pursuant
to the Securities Act of 1933 (the "IPO") or private placement of its
securities (in either event, the "Second Stage Financing").
The Licensor is willing to sell its Authorization and to license its
present and future proprietary information relating to the Invention,
improvements or modifications of the Invention and any patents which it may
own or control in the future which may be necessary or useful in connection
with the exploitation of the Authorization to manufacture and sell the
Invention pursuant to the Authorization in the Exclusive Territory. Such
License shall be exclusive within the Exclusive Territory.
The parties have determined that the United States Patents described
on Exhibit A (the "U.S. Patents") expire prior to January 1, 2003 (the
"Anticipated Patent Expiration Date"). The parties have agreed that if prior
to December 15, 1995 (the "Patent Extension Deadline"), the U.S. Patents are
not extended at least through the Anticipated Patent Expiration Date by all
necessary government and regulatory action, certain alterative provisions will
be made relating to the payment of the Cash Portion of the Licensing Fee,
Minimum Royalties (as defined in Section V of this Agreement) and otherwise as
provided for this in this agreement.
<PAGE>
SECOND AMENDED LICENSE AGT./EXECUTION A
The President of the Licensor has unique knowledge arising in
connection with the construction of a prototype manufacturing line for the
Invention, and is familiar with the process by which the invention may be
manufactured and has assisted and will assist the Licensee in obtaining an
agreement with Zigmed, Inc. ("Zigmed") to construct Licensee's manufacturing
line (the "Manufacturing Line"). In that connection the Licensor has agreed to
certain accommodations in the event the Manufacturing Line is not timely
completed or the production cost per unit exceeds a minimum amount and to
provide certain services during the construction and startup of the
Manufacturing Line.
The Licensor and Licensee have previously entered into an License
Agreement dated March 17, 1995 and an Amended License Agreement dated July 31,
1995 and wish to amend and restate such agreements in their entirety by this
Second Amended License Agreement.
NOW, THEREFORE, in consideration of the mutual and reciprocal
agreements and promises hereinafter set forth, and for other good and valuable
consideration, the parties hereto agree as follows:
I DEFINITIONS
A. "Confidential Information" shall mean information relating to
either party's processes and products including information relating to
research, development, manufacture, purchasing, accounting, engineering,
selling, leasing, servicing, finance and business systems and techniques or
similar information of a third party which either party advises in writing or
by marking the documents is confidential information. Confidential information
does not include (i) information which was known by one party prior to receipt
from the other party (ii) information lawfully disclosed to a party by a third
party which did not derive the information from the other party, and (iii)
information which is or becomes a matter of public knowledge or part of the
public domain other than through a breach of this Second Amended Agreement.
B. "Contract Year" means a year starting on the Effective Date
of this Second Amended Agreement and ending the day preceding the anniversary
date of this Second Amended Agreement.
C. "Effective Date" means the date first appearing above.
D. "Licensed Process" shall include, but shall not be limited
to, any process or method pertaining to the use, manufacture or testing of the
Licensed Product and all know-how related thereto.
E. "Licensed Product" shall mean, with respect to any test for
the detection of tissue abnormalities, including without limitation breast
abnormalities, the Licensor's Invention and any
-2-
<PAGE>
SECOND AMENDED LICENSE AGT./EXECUTION A
improvements or modifications to it and all know-how and proprietary
information related to it either developed or acquired by Licensor or
developed by Licensor jointly with Licensee.
F. "Licensed Product Sold" or "Sale of Licensed Product" shall
include a Licensed Product which is leased, used or transferred other than by
sale, in which case the Net Sales Price attributable to such lease, use or
transfer other than by sale shall be an amount corresponding to the most
recent bona fide invoiced sale for the same or a comparable product, less the
deductions in paragraph G, subparagraphs (a) through (d) thereof, to a third
party or should there be no such bona fide invoiced sale within six (6) months
of the transaction in question, then ten dollars ($10.00).
G. "Net Sales Price" shall mean the gross sales price for
Licensed Products Sold by Licensee or Licensee's Affiliates or sublicensees
for sale to third parties less the following:
a. Reasonable shipping and packing Charges or
allowances, if any, included in such amount;
b. Reasonable trade, quantity or cash discounts, and
brokers' or agents' commissions, if any, allowed or paid;
c. Credits or allowances, if any, given or made on
account of rejection or return of defective Licensed Products Sold; and
d. Any tax or other governmental charge included in such
amount, which is imposed directly on or measured by, the sale, lease or
transfer, transportation, delivery or use of such items as applicable.
Licensed Product used in testing or as marketing samples to
develop or promote Licensed Product shall not be included as Licensed Product
Sold, provided the Licensed Product(s) are supplied to the user at no cost and
are not resold.
H. "Party" or "Parties" shall mean Licensee or Licensor, or
Licensee and Licensor, respectively.
I. "Patent Rights" shall mean any United States or Canadian
applications or patents, now or hereafter owned, controlled or acquired by
Licensor or any application or patent which is the subject of joint
inventorship between Licensor and Licensee or any third party including
Licensee and Licensee Affiliate personnel, employees and consultants having a
duty to assign patents to Licensor, which disclose and claim Licensed Process
or Licensed Product, including, but not limited to, the construction thereof,
methods for the manufacture and use thereof and improvements thereto
(including, without limitation, improvements by employees of Licensee and
Licensee Affiliates jointly with Licensor), and to any reissues or extensions
of said patents. Patent
-3-
<PAGE>
SECOND AMENDED LICENSE AGT./EXECUTION A
Rights shall include those patent applications and Letters Patent paid for by
Licensor and owned by Licensor in accordance with Section VIII hereof.
J. "Proprietary Information" shall mean all information or trade
secrets of any description relating to Licensed Product and Licensed Process
developed by, or for, or in the possession of Licensor (other than
Confidential information) at any time prior to the termination or cancellation
of this Second Amended Agreement, including, but not limited to, the
development, selling, marketing, use, properties, structures, compositions,
manufacture or quality control of Licensed Product or Licensed Process, and
including, but not limited in form, to samples, prototypes, data books,
manufacturing instructions, drawings, formulae, sales and property brochures,
raw materials and sources and customer lists. Proprietary Information does not
include (i) information which was known by Licensee prior to receipt from
Licensor, (ii) information lawfully disclosed to Licensee by a third party
which did not derive the information from Licensor, and (iii) information
which is or becomes a matter of public knowledge or part of the public domain
other than through a breach of this Second Amended Agreement.
II GRANT OF EXCLUSIVE LICENSE AND TRANSFER OF MARKETING RIGHTS.
A. Licensor agrees to grant and does hereby grant to Licensee an
exclusive license to manufacture and sell the Licensed Products and use the
Licensed Processes and related Proprietary Information in the Exclusive
Territory, with the right to grant sublicenses only for marketing and sales to
others on either an exclusive or nonexclusive basis, provided such
sublicensees agree to execute a counterpart copy of this Second Amended
Agreement and agree to be bound by the terms hereof including, without
limitation, the confidentiality provisions of section VI, to use, sell, or
otherwise dispose of, Licensed Product in the Exclusive Territory.
B. Licensor assigns to Licensee all of its rights and title with
regard to the Authorization and agrees to execute such further documents and
take such further related action as may be necessary or appropriate to fully
enable Licensee to manufacture and market the Licensed Products pursuant to
the 510(k) exemption, provided, however, that it shall be the obligation of
the Licensee to register' with the FDA as a medical device manufacturer and to
list the Licensed Product with FDA. In the event that Licensee's rights under
this Second Amended Agreement are terminated for any reason whatsoever, then
title and all rights to the Authorization shall revert to Licensor, and
Licensee shall take all steps necessary or appropriate to cause such
reversion, including without limitation the execution and delivery of
appropriate assignments.
III CONSULTING SERVICES; CONSTRUCTION MANAGEMENT AND
MANUFACTURING TRAINING.
A. For a period of two (2) years from the Effective Date (the
"Consulting Period"), Licensor shall render consulting services to Licensee in
connection with bringing the Licensed Product to market. Specifically,
Licensor shall continue to develop the Licensed Product and shall
-4-
<PAGE>
SECOND AMENDED LICENSE AGT./EXECUTION A
assist Licensee in developing pricing and product positioning and in
identifying the market and specific customers for the Licensed Product and
shall visit potential and actual customers at Licensees request (the
"Consulting Services"). As part of the Consulting Services, the Licensor shall
cause Zsigmond L. Sagi ("Sagi") to devote, at Licensee's request, up to one
day per week or 90 hours per calendar quarter (the "Minimum Services"). In the
event the Licensee requests that Consulting Services in excess of the Minimum
Services be rendered by the Licensor, the Licensor shall be compensated for
such services at the rate of $100 per hour.
B. Licensor shall cause Sagi to render advisory and supervisory
services to and on behalf of Licensee in connection with the construction of
the Manufacturing Line consisting of the automatic sensor manufacturing
equipment ("ASME") and automatic assembly equipment ("AAE") necessary to
produce the Licensed Product as provided for in the contract (the "Machinery
Contract") dated March 25, 1995 among the Licensee and Zigmed as amended by an
amended payment schedule dated as of the date of this Second Amended
Agreement, and the establishment and commencement of operations of a
Manufacturing Line in the State of New Jersey (the "Production Center") or
such other location as the parties agree to, so as to reasonably insure that
the Licensed Product can be produced in commercial quantities at no more than
the per unit Licensed Product Cost Element as defined in Section IX(B).
Without limiting the foregoing, the Licensor shall deliver reasonably detailed
progress reports to Licensee on a regular basis with respect to performance by
Zigmed pursuant to the Machinery Contract, and, when applicable, the
installation of the ASME and AAE at the Production Center. In that connection
Licensor will bear all expenses of training Licensee's manufacturing personnel
through the acceptance of the Manufacturing Line provided for in the Machinery
Contract, and one-half of such costs for the 30 day period following such
acceptance.
C. Licensor agrees that it, and Dr. Sagi, when acting on its behalf,
shall function as a non-exclusive consultant to Licensee, acting as an
independent contractor. Licensee acknowledges that during the term of this
Second Amended Agreement and thereafter, Licensor and Dr. Sagi, may offer,
undertake, and continue consulting services for principals other than
Licensee, provided that such other engagements do not cause Licensor to breach
its duties under Section IV of this Second Amended Agreement.
D. Licensee agrees to reimburse Licensor for all actual, reasonable,
out-of-pocket expenses incurred by Licensor (i) for travel undertaken at
Licensee's request, and (ii) for other expenses related to the Consulting
Services, provided, however, that any such expense in excess of $1,000 must be
approved by Licensee in advance. Reimbursement to Licensor shall be made
promptly after the submission by Licensor to Licensee of invoices or receipts,
in a form reasonably satisfactory to Licensee's Accounting Department, setting
out the nature and amount of such expenses.
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SECOND AMENDED LICENSE AGT./EXECUTION A
IV CONFIDENTIALITY AGREEMENT.
A. Except as may otherwise be provided by this Second Amended
Agreement and as may be required by law or by a governmental agency, each of
the parties agree that it will not, directly or indirectly, disseminate,
disclose or otherwise make available to any third party Confidential
Information during the term of this Second Amended Agreement and for period of
five (5) years after expiration or termination of this Second Amended
Agreement, and, during the term of this Second Amended Agreement, except in
connection with the licensing of the Licensed Product by the Licensor outside
of the Exclusive Territory, the parties agree that they will not, directly or
indirectly, disseminate disclose or otherwise make available to any third
party Proprietary Information and will take all steps reasonably necessary to
carry out this obligation. The parties agree to obligate any other licensees
or sublicensees to abide by the foregoing confidentiality obligations.
Employees of the parties shall be provided access to Proprietary Information
only on a "need to know" basis and shall be advised of the confidential nature
thereof.
B. The parties, licensees and sub-licensees are authorized to
disclose to their respective distributors and customers only such Proprietary
Information concerning Licensed Process and Licensed Product as is reasonably
necessary to enable Licensed Products to be sold, leased, placed or used, and
the parties, their licensees and sublicensees are authorized to disclose to
their respective contractors and suppliers only such Proprietary Information
as is reasonably necessary to enable the parties, their licensees or
sublicensees to make or have made for it Licensed Products.
C. Upon termination of this Second Amended Agreement, the parties
shall return to each other all records and any compositions, articles, devices
and other items, including all copies or specimens thereof in their respective
possession, which disclose or embody Confidential Information other than such
articles, devices and other items which also disclose or embody Proprietary
Information to which the party shall have title upon termination of this
Second Amended Agreement.
V LICENSING FEE, ROYALTIES, MINIMUM SALES AND FINANCING
REQUIREMENT.
A. The Licensee shall pay the Licensor an initial cash licensing
fee (the "Cash Portion of the Licensing Fee") of $1,600,000 as follows:
Prior to the execution of this Second Amended Agreement, Licensee paid
Licensor an aggregate of $150,000 on account of the Cash Portion of the
Licensing Fee.
(i) If, prior to the Patent Extension Deadline the U.S. Patents
are not extended at least through the Anticipated Patent Expiration Date by
all necessary
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SECOND AMENDED LICENSE AGT./EXECUTION A
government and regulatory action, then upon completion of the
Threshold First Stage Financing, but no later than February 28th,
1996, Licensee shall pay Licensor an additional $300,000 on account
of the Cash Portion of the Licensing Fee. Upon the later to occur of
(x) Licensee's acceptance of the ASME and AAE pursuant to the terms
of the Machinery Contract from Zigmed or from another vendor if
Zigmed fails to perform pursuant to the Machinery Contract, and
assuming prior acceptance by Licensee of performance of the
Manufacturing Line at Licensee's Production Center as provided for in
the Machinery Contract (regardless of the vendor) or (y) the dates
specified in the following clauses (a) through (b) , Licensee shall
pay Licensor:
(a) $175,000 on December 31, 1997,
(b) $175,000 on March 31, 1998,
(c) $350,000 on December 31, 1998, and
(d) $350,000 on March 31, 1999, less up to an aggregate of
$15,000 in legal and accounting fees incurred by the
Licensee in connection with this Second Amended Agreement
and otherwise as a result of the determination that as of
the date of this Agreement the U.S. Patents expire prior to
the Anticipated Termination Date
Surplus Cash Flow shall be applied to the payments specified in
clauses (a) though (d) of this subclause (i) in inverse order of
maturity. "Surplus Cash Flow" shall mean 1/2 of the aggregate of Net
Income for any calendar quarter (x) plus non-cash items such as
amortization and depreciation to the extent deducted from revenues in
computing Net Income, and increases in current liabilities from the
previous quarter, including without limitation, accounts payable, (y)
minus increases in current liabilities from the previous quarter,
including accounts receivable and inventory, all as reported on
Licensee's quarterly financial statements computed in accordance with
generally accepted accounting principals applied on a consistent
basis and reviewed by the Licensee's outside auditors.
(ii) If, prior to the Patent Extension Deadline the U.S. Patents are
extended at least through the Anticipated Patent Expiration Date by
all necessary government and regulatory action, then upon completion
of the Minimum Threshold Financing, but no later than February 28,
1996, Licensee shall pay Licensor an additional $700,000 on account
of the Cash Portion of the Licensing Fee. Upon the later to occur of
(x) Licensee's acceptance of the ASME and AAE pursuant to the terms
of the Machinery Contract from Zigmed or from another vendor if
Zigmed fails
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SECOND AMENDED LICENSE AGT./EXECUTION A
to perform pursuant to the Machinery Contract, and assuming prior
acceptance by Licensee of performance of the Manufacturing Line at
Licensee's Production Center provided for in the Machinery Contract
(regardless of the vendor) or (y) the dates specified in the
following clauses (a) through (b), Licensee shall pay Licensor:
(a) an additional $500,000, on March 31, 1997, and
(b) an additional $100,000 on June 30, 1997, and
(c) an additional $150,000 on June 30, 1998 less up to an
aggregate of $15,000 in legal and accounting fees incurred
by the Licensee in connection with this Second Amended
Agreement and otherwise as a result of the determination
that as of the date of this Agreement the U.S. Patents
expire prior to the Anticipated Termination Date.
In the event the $500,000 provided for in clause (a) of this
Subsection (ii) is not paid on or before March 31, 1997, the Licensee
may extend such payment date on a month to month basis for a period
not to exceed three full calendar months by paying Licensor $25,000
on the first calendar day of each such month. In the event that the
$700,000 payment referred to above has not been paid by February 28,
1996, this Second Amended License Agreement shall be terminated and
the original License Agreement dated March 17, 1995 reinstated in its
entirety.
(iii) If the licensee completes the Second Stage Funding with gross
proceeds in excess of $7,000,000, then all amounts provided for in
clauses (i) or (ii) of this subsection and unpaid upon the completion
of such funding shall be payable from its proceeds at the time of the
relevant closing.
(iv) The Licensor shall be entitled to an advance payment, to be
applied in inverse order to the payments provided for in clauses (i)
or (ii), of this subsection, in an amount equal to 50% of the lesser
of (x) the amount by which the Minimum Threshold Financing plus
$250,000 is exceeded in the First Funding Stage, or (y) the principal
amount of securities purchased by any investor (a "Licensor's
Investor") in the First Stage Financing if such Licensor's Investor
is introduced by the Licensor to the Licensee, provided, however,
that no payment shall be made with respect to this subsection until
all amounts payable on account of securities sold in the First Stage
Financing have been received by the Licensor. All Licensor's
Investors shall be identified to the Licensee by Licensor in writing
prior to their introduction, or, with respect to any Licensor's
Investors identified to the Licensee prior to the date of this Second
Amended Agreement, in a letter dated
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SECOND AMENDED LICENSE AGT./EXECUTION A
the date of this Second Amended Agreement, making reference to this
subsection of it, and countersigned by the Licensee and the Licensor.
If the Licensee or any of its agents, including without limitation,
Burnham Securities, Inc., has a prior relationship with any
Licensor's Investor so that, in the reasonable judgment of a majority
of Licensee's Board of Directors the identification of such
Licensor's Investors is of no reasonable benefit to the Licensee, the
Company agrees to notify the Licensee of that relationship in writing
within 10 business days after Licensee has identified the Licensor's
Investor to it; thereafter that person or entity will not be
considered a Licensor's Investor for purposes of this Agreement.
B. In addition to the Cash Portion of the Licensing Fee,
simultaneously with the delivery of this Second Amended Agreement, Licensee is
issuing to Licensor 900,000 shares of its common stock (the "Licensor's
Stock"). This number of shares of Licensee's common stock included in the
Licensor's Stock shall be increased or decreased so that, upon completion of
the First Stage Financing the Licensor shall own 20% of the issued and
outstanding shares of the Licensee's common stock, assuming all convertible
preferred stock issued in the First Stage Financing is converted into shares
of Licensee's common stock, and excluding shares issuable with respect to all
other issued and outstanding warrants and options or other convertible
securities. Upon completion of the Second Stage Financing, if Licensor does
not own 15% of the issued and outstanding shares of common stock calculated in
the same manner provided for in the prior sentence, Licensor shall receive
warrants to purchase shares of Licensee's common stock convertible into one
share of common stock at an exercise price of $4.00 per share (or, if the
Licensee has received the Qualified Licensor's Purchase Order as defined in
the last sentence of this Subsection B, $2.50 per share) exercisable for five
(5) years from the date of issue (the "Licensor's Warrants"). The number of
Licensor's Warrants to be issued will be calculated so that all shares of
common stock previously issued to Licensor pursuant to this Second Amended
Agreement, plus the shares issuable upon the exercise of Licensor's Warrants
divided by (x) the total of Licensee's issued and outstanding shares of common
stock immediately prior to the Second Stage Financing plus (y) the number of
shares of common stock issued in connection with the Second Stage Financing
which is equal to the quotient of (i) $10,000,000 (or, if the Licensee has
received the Qualified Licensor's Purchase Order defined the last sentence of
this Subsection B, $15,000,000) less the gross proceeds received by the
Licensor with respect to the First Stage Financing divided by (ii) the sale
price of shares of common stock sold by the Licensor in such Second Stage
Financing, plus (z) shares issuable upon the exercise of Licensor's Warrants
equal 15%. If no common stock is sold in connection with the Second Stage
Financing described in clause (y) of the preceding sentence, or if the
majority of the proceeds of such funding is not attributable to the common
stock sold in such financing (calculated in accordance with generally accepted
accounting principles), then for purposes of the calculations provided for in
such clause (y) all common stock issuable in connection with any other
securities issued in such financing shall be considered sold in such financing
at the respective conversion price provided for in the underlying security,
but only if, and to the extent, such conversion price is actually received as
part of such Second Stage Financing. For purposes of this Subsection B, a
Qualified Licensor's
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SECOND AMENDED LICENSE AGT./EXECUTION A
Purchase Order shall mean a purchase order from Licensor to Licensee for
$1,000,000 of Net Licensed Product Sales priced at the greater of 115% of the
Costs of Production (as defined in Section IX(B) of this Second Amended
Agreement) or $2.50 per each pair of Net Licensed Product Sold, which purchase
order:
(i) is received prior to the earlier of (x) January 1, 1997 or (y) 60
days prior to the acceptance of the Manufacturing Line at Licensee's
Production Center pursuant to the Machinery Contract,
(ii) provides for the delivery of no less than $166,667 of Licensed
Product each quarter commencing 30 days after acceptance of the
Manufacturing Line at Licensee's Production Center pursuant to the
Machinery Contract, and
(iii) is accompanied by an unconditional letter of credit for the
benefit of Licensee (or other alternative equivalent collateral)
collateralizing Licensor's purchase obligations for the first
quarter's purchase, which letter of credit (or other alternative
equivalent collateral) shall either be renewed or replaced (such
renewal or replacement being called the "Replacement Collateral") so
that 90 days prior to the commencement of each quarter with respect
to which the order relates (the "Replacement Collateral Date"), the
Licensor obligations are fully collateralized, provided however, that
the only penalty for Licensor's failure to supply Replacement
Collateral as provided for in this subclause (iii) shall be the
opportunity for Licensee to elect in writing, within 10 calendar days
of Replacement Collateral Date, to terminate its obligation to
deliver the remaining portion of the Qualified Licensor's Purchase
Order, and
(iv) shall not be subject to any royalty provided for in this
Section V.
C. Commencing with the first day of the first month in which Licensed
Product is sold (the "Royalty Date") and for each year ending on the
anniversary of the Royalty Date (hereinafter referred to as a "Royalty Year")
through and including the Termination Date, and subject to the provisions of
subsection I of this Section V, Licensee agrees to pay to Licensor earned
royalties (the "Earned Royalties") based on the Net Sales Price of all Sales
of the Licensed Products (the "Net Licensed Product Sales") during the Royalty
Years as follows:
(i) with respect to the first $2,000,0000 of Net Licensed
Product Sales, 3% of the aggregate of all such Net Licensed Product Sales;
(ii) if the Net Licensed Product Sales exceed $2,000,000,
but are less than $4,000,000, 4% of the aggregate of such Net Licensed Product
Sales;
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SECOND AMENDED LICENSE AGT./EXECUTION A
(iii) if the Net Licensed Product Sales exceed $4,000,000
but are less than $6,000,000, 5% of the aggregate of such Net Licensed Product
Sales;
(iv) if the Net Licensed Product Sales exceed $6,000,000 but
are less than $8,000,000, 6% of the aggregate of such Net Licensed Product
Sales;
(v) if the Net Licensed Product Sales exceed $8,000,000 but
are less than $10,000,000, 8% of the aggregate of such Net Licensed Product
Sales;
(vi) if the Net Licensed Product Sales exceed $10,000,000,
10% of the aggregate of such Net Licensed Product Sales.
D. For purposes of the calculations made pursuant to this Section, if
the price for Licensed Products Sold is less than $10.00 for each pair of
sensors, it will be deemed to be ten dollars ($10.00) for each such pair
regardless of the actual price.
E. Earned Royalties shall be paid quarterly, not later thirty (30)
days following the end of each quarter of each Royalty Year (a "Quarter"). The
Earned Royalties shall be paid based upon the above Schedule by multiplying
the Quarter's sales by four (4) to determine the applicable rate. At the end
of each Royalty Year, the Earned Royalties for the entire year will be
recalculated based upon the full year's sales and adjusted to reflect the
appropriate royalty rate. Any such annual adjustment shall be either
additional Earned Royalties due Licensor or deducted from the Earned Royalties
due in the first Quarter(s) following such recalculation.
F. Notwithstanding the provisions of subsection C of this Section,
there shall be paid the following minimum royalty payments (the "Minimum
Royalties") with respect to each Royalty Year.
MINIMUM
YEAR ROYALTY
---- -------
Year 1 $150,000
Year 2 300,000
Year 3 400,000
Year 4 500,000
Year 5 and thereafter 600,000
Earned Royalties paid pursuant to Subsection C for the period in
question shall be credited against the Minimum Royalties. In the event of a
failure by Licensee to pay the Minimum
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SECOND AMENDED LICENSE AGT./EXECUTION A
Royalties, Licensor shall have the right (i) to convert the License to
Licensee, and sublicensees under Section II to a nonexclusive license subject
to the terms and conditions of this Second Amended Agreement (including the
payment of Earned Royalties under Subsection C, but expressly excluding the
payment of Minimum Royalties under Subsection D) (the "Conversion Option"), or
(ii) to terminate this Second Amended Agreement and any and all licenses and
other rights granted hereby to Licensee, and sublicensees by purchasing the
Manufacturing Line or any subsequent equipment purchased by Licensee, the
primary use of which is the production of the Licensed Products for the
greater of 50% of the unamortized cost thereof or $100,000 (the "Termination
Option"). Licensor shall exercise the foregoing Conversion Option or
Termination Option by written notice to Licensee on or before ninety (90) days
after the end of any calendar quarter in which the Minimum Royalties due
hereunder are not paid, provided that within thirty (30) days from receipt by
Licensee of said written notice from Licensor, Licensee may pay the difference
between the actual Earned Royalties and the applicable Minimum Royalties for
such period to maintain the exclusive license and other rights granted under
this Second Amended Agreement. If such payment is made by Licensee to Licensor
within said 30-day period, said Conversion Option or Termination Option, as
the case may be, shall have no force or effect and this Second Amended
Agreement shall continue in full force and effect.
G. In the event of the election by Licensor with respect to the
Conversion Option, if Licensor enters into an agreement with respect to
Licensed Product in the Exclusive Territory with any third party which
contains Earned Royalties which are lower than the royalties provided for in
Subsection C of this Section, Licensor agrees to execute an amendment to this
Second Amended Agreement whereby the Earned Royalties payable hereunder are
reduced to the royalty rate payable by such third party.
H. Upon any termination of this Second Amended Agreement, Licensee
shall be obligated to pay Licensor the Minimum Royalty due for the Royalty
Year, as the case may be, as prorated based on the number of days during such
Royalty Year during which this Second Amended Agreement was in effect, or the
Earned Royalties, whichever is greater.
I. Further, if after the first three Royalty Years, the total Earned
Royalties during said first three Royalty Years do not exceed by $100,000 the
total Minimum Royalties for said three Royalty Years, then this Second Amended
Agreement shall automatically terminate.
J. If the U.S. Patents have not been extended to or beyond the
Anticipated Patent Expiration Date and the Licensee has not received other
United State Patents with respect to the Licensed Product which provide at
least equivalent protection for the Licensed Product to or beyond the
Anticipated Patent Expiration Date, then upon (i) the expiration of the U.S.
Patents, and (ii) the introduction (whether for purposes of clinical trials or
otherwise) by a third party of a test for cancer which, if the U.S. Patents
were in effect, would infringe such patents (a "Competitive Introduction"),
the following modifications to this Section V will be effective as
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SECOND AMENDED LICENSE AGT./EXECUTION A
of the close of business on the date the Licensee deliverers notice to the
Licensee of the Competitive Introduction.
(i) Subsection D of this Section V will no longer be in effect.
(ii) With respect to any calendar month in which the average price
per pair of sensors included in Net Licensed Product Sales (the "Average
Licensed Product Price") is less than $6.00, and thereafter until the
conclusion of three consecutive calendar months in which the Average Licensed
Product Price exceeds $6.00, the Earned Royalties provided for in clauses (iv)
though (vi) of Subsection C of this Section V shall be reduced to 5%. With
respect to any calendar month in which the Average Licensed Product Price is
less than $3.50, and thereafter until the conclusion of two consecutive
calendar months in which the Average Licensed Product Price exceeds $3.50, the
Earned Royalties shall be eliminated.
(iii) the provisions of Subsection F through I of this Section V will
no longer be in effect.
VI RECORDS AND REPORTS
A. Within thirty (30) days after the end of each calendar quarter in
which royalties are earned or otherwise become due under this Second Amended
Agreement, Licensee shall furnish Licensor with a written report setting forth
the computation of the royalties payable during the preceding calendar
quarter. Each report shall be accompanied by the amount due less any taxes
required by a governmental agency to be withheld solely in respect to
royalties payable to Licensor for that calendar quarter of that year.
B. Licensee shall keep and maintain complete and accurate records in
sufficient detail to enable royalties payable to Licensor hereunder to be
determined, and it shall permit such records to be inspected twice per year
upon written notice by Licensor during reasonable business hours by a
certified public accountant or firm of certified public accountants reasonably
acceptable to Licensee and appointed by Licensor for this purpose; provided,
however that Licensee shall have the right to destroy or discard such records
in accordance with Licensee's record retention policy, provided that such
records shall be kept for a minimum of four (4) years after the end of the
calendar quarter to which they apply. Licensor shall bear the cost and expense
of such investigation by the accountants, unless the accountants determine
that Licensee's determination of the royalties due and owing to Licensor was
incorrect (in Licensee's favor) in an amount exceeding four percent (4%) of
the amount calculated by Licensee, in which case Licensee shall bear such cost
and expense.
C. At Licensee's option, the Earned Royalties specified in
Section III.C, or the Minimum Royalties specified in Section III.D, the
reports required in Section VI.A, and the records required in Section VI.B for
sales by a sublicenses may be paid or provided either by
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SECOND AMENDED LICENSE AGT./EXECUTION A
Licensee or directly by the sublicensees to Licensor, provided that Licensee
shall remain ultimately responsible for the payment or provision of any of the
foregoing.
VII ROYALTY LIMITATION IF SUCCESSFULLY SUED FOR INFRINGEMENT OF
THIRD PARTY PATENT
If any third party shall bring an action against Licensee or
sublicensee(s) for infringement of any patent or rights thereunder of such
third party, by reason of the manufacture, use or sale of Licensed Product or
the use of Licensed Process by Licensee, or sublicensee(s) for Licensed
Products, Licensee shall promptly give written notice to Licensor of the
institution of such action. Licensor shall be solely responsible for the costs
and expenses of defending such infringement actions. If Licensee or
sublicensee(s) is or becomes obligated to pay royalties or to make payments to
any third party in order for Licensee or sublicensee(s) to manufacture, use or
sell Licensed Products or use Licensed Process, such payments shall be offset
against royalties thereafter payable to Licensor.
VIII PATENT PROSECUTION
For so long as the license of this Second Amended Agreement remains
exclusive, Licensor agrees to pay for the actual patent filing, prosecution
and maintenance costs (including, without limitation, fees and disbursements
of counsel), of all patents, patent applications and Letters Patent with
respect to Licensed Product for those inventions developed solely by Licensor
or jointly with Licensee, including, without limitation, applications for
extensions with respect to the U.S. Patents (and the related Canadian Patents)
to the Anticipated Patent Expiration Dates. Patent applications shall be
filed, through mutually agreeable attorneys in the United States selected by
Licensor in good faith in accordance with its normal internal review
procedures consistent with practices involved in making such determinations
for Licensor's inventions. Licensor agrees that the attorneys and/or
associates employed shall furnish Licensee with copies of all documents
received from or filed with any patent office or other official tribunal
regarding any patent application. Licensee agrees to consult and advise
Licensor through Licensor's patent attorneys on all such patent filings,
prosecutions and maintenance. Licensor shall have full title to all patent
applications and Letters Patent for those inventions developed solely by
Licensor and prosecuted and maintained as described herein with respect to
Licensed Product, and Licensee acknowledges and agrees that Licensor is and
shall be the sole and exclusive owner thereof and that nothing contained in
this Second Amended Agreement shall be construed to convey any proprietary or
other interest or right therein to Licensee other than specific license
granted hereunder, and Licensee shall not at any time challenge or contest the
ownership, title or registration of Licensor with respect thereto. With
respect to patent applications and Letters Patent for those inventions
invented jointly by Licensor and Licensee, Licensee and Licensor shall jointly
own such patent applications and Letters Patent and both shall have the right
to practice the subject matter of any such joint patent application or Letters
Patent or use such trademark in the event of expiration or termination of this
Second Amended Agreement.
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SECOND AMENDED LICENSE AGT./EXECUTION A
IX GUARANTIES BY LICENSOR
A. AGREEMENT WITH RESPECT TO DELIVERY OF MANUFACTURING LINE. If the
Manufacturing Line provided for in the Machinery Contract is not accepted by
Licensee at it's Production Center in accordance with the terms of such
Machinery Contract on or before twelve months after the date upon which the
First Stage Funding is initially closed provided that $720,000 has been paid
to Zigmed pursuant to the Machinery Contract on or before such date, provided
that all progress payments required by said Machinery Contract are made by the
Licensee in accordance with the terms of the Machinery Contract, then Licensor
will pay to Licensee the sum of $75,000 with respect to each calendar month
thereafter (the "Delay Payments") until Licensee has so accepted the
Manufacturing Line at it's Production Center. Delay Payments shall be made no
later than 10 business days following each such month.
B. AGREEMENT WITH RESPECT TO PRODUCTION COSTS. Licensor has delivered
to Licensee a detailed description of the production procedures necessary for
the production of the Licensed Product (the "Licensor's Production System").
Licensor and Licensee have also agreed to the elements of cost involved in the
production of the Licensed Product (the "Costs of Production") utilizing the
Licensor's Production System pursuant to a separate schedule making reference
to this Second Amended Agreement (the "Licensed Product Cost Elements"). If
the Costs of Production for each pair of the Licensed Product Sold during any
two consecutive Quarters in which at least 500,000 Units ("Minimum
Production") are produced for sale exceed $2.25, (in the aggregate "Cost
0verruns") then the Earned Royalties, if any, owing with respect to such Units
shall be reduced by such Cost Overruns ("Cost Overrun Royalty Reductions"). No
Cost Overrun Royalty Reductions shall be made with respect to any Quarter
following the first four consecutive Quarters of production at Licensee's
Production Center in which Minimum Production is calculated. Costs of
Production shall be computed on an accrual basis in accordance with generally
accepted accounting principals and, for purposes of computing Cost Overruns,
inventory shall be reduced on the First In/First Out method. Costs of
Production shall not include increases attributable to market increases in the
cost of material or labor, payment of rent in excess of that provided for in
the Licensed Product Cost Elements, and, commencing with calendar 1997 with
respect to each Unit shall be automatically increased each calendar year by an
amount equal to $2.25 times any increase in the producer's price index during
the prior year. Cost Overruns shall not include costs incurred in addition to
the Licensed Product Cost Elements unless such costs are recurring production
costs necessary to the production of the Licensed Product not attributable to
changes in the laws or regulations applicable to the manufacture of the
Licensed Products occurring after the date of this Second Amended Agreement.
Any adjustments made pursuant to this subparagraph shall be made first by
reduction of the last Earned Royalties due with respect to each Royalty Year,
then, at the election of the Licensee, by reduction of the next immediately
payable Earned Royalties or upon demand for payment of the amounts of Cost
Overrun Royalty Reductions by the Licensor. If demand for payment is made,
then Licensor shall make such payment to Licensee within 30 days after the
receipt of the relevant notice.
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SECOND AMENDED LICENSE AGT./EXECUTION A
X AGREEMENTS WITH RESPECT TO LICENSOR'S STOCK AND LICENSEE'S
IPO.
A. Simultaneously with the execution and delivery of this Second
Amended Agreement, the Licensor has delivered an irrevocable proxy, coupled
with an interest (the "Licensee's Proxy") in the form attached to this Second
Amended Agreement as Exhibit B, to the President of the Licensee, allowing him
to, vote all of the Licensor's Stock in the manner directed by a majority of
the Licensees Board of Directors, provided that the Licensee's Proxy shall
terminate upon the acceptance by the Licensee of the Manufacturing Line at
Licensee's Production Center in accordance with the terms of the Machinery
Contract. Prior to an IPO, Licensee agrees to nominate any single designee of
the Licensor to be a member of its Board of Directors, and at all times use
its best efforts to cause the election of such nominee at any meeting of
shareholders called for such purpose of otherwise.
B. Licensor agrees that in the event the Licensee enters into any
agreement or letter of intent with any underwriter with respect to an IPO,
then without the prior written consent of the underwriter Licensor will not
sell, or otherwise transfer any of the Licensor Stock, until the expiration of
twelve (12) months after the date a Registration Statement relating to a
public offering of the Company's Common Stock is declared effective by the
Securities and Exchange Commission ("SEC").
C. Licensor agrees that it is acquiring the Licensor's Stock for its
own account as principal and not with a view to resale or distribution.
Licensor acknowledges that the sale of the Licensor's Stock has not been
registered under the Securities Act of 1933 (the "Act") and such Licensor's
Stock are being sold pursuant to an exemption from registration pursuant to
the Act as provided for Section 4(2) of the Act. The Licensor agrees that as a
result of the restrictions on transfer imposed by this exemption Licensor may
not sell or transfer the Licensor Stock in the absence of such registration
without an opinion of counsel, satisfactory to the Licensee to the effect that
such registration is not required or that an exemption from such registration
is available.
D. Each of the certificates representing Licensee's Stock shall
bear a legend in substantially the following form.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933. THESE SECURITIES HAVE NOT BEEN SOLD
OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN
EXEMPTION THEREFROM UNDER SAID ACT. THE SECURITIES ARE
SUBJECT TO THE TERMS AND CONDITIONS OF AN AGREEMENT DATED
AS OF MARCH 17, 1995 BETWEEN HUMASCAN, INC. (THE
"CORPORATION") AND ITS HOLDER. COPIES OF SUCH AGREEMENT MAY
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SECOND AMENDED LICENSE AGT./EXECUTION A
BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE
HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF THE
CORPORATION.
In connection with a proposed IPO Licensee may request Licensor to deliver an
opinion of counsel, selected by Licensor but reasonably acceptable to
Licensee, as to the correctness of the representation contained in Section
XII.A and XII.C of this Second Amended Agreement (the "Patent and FDA
Opinion"). Licensor shall supply such counsel all material if reasonably
requested and cooperate fully in connection with the rendering of such opinion
and shall bear 1/2 of the fees and expenses of such counsel.
E. In the event that the Underwriter of the IPO does not object to
such a sale, Licensor shall have the right to include in the Registration
Statement filled with the SEC in connection with such IPO $1,000,000 of the
Licensee's common stock owned by Licensor, valued at the price the stock
included in such IPO is sold to the public. In any event Licensee shall assist
Licensor at any time following the eighteenth month after the closing of the
IPO in the registration pursuant to the Act of the Licensor's Stock in
Licensee, or, in the event the underwriter consents, up to $1,000,000 of the
Licensor's Stock in Licensee, twelve months after such closing. The
registrations of the Licensor's Stock in Licensee provided for in this
Subsection E of Section X shall be at Licensor's expense.
XI ADDITIONAL AGREEMENTS OF THE LICENSEE
A. Licensee will manufacture the Licensed Product in accordance with
all material requirements of applicable law, rules and regulations, including
without limitation, standards relating to the packaging and labeling of the
Licensed Products.
B. Licensee will cooperate with Licensor in the development of a
joint trademark pursuant to which the Licensed Product will be sold in the
Exclusive Territory, provided that the Licensee shall not be obligated to use
such trademark.
XII LICENSOR'S WARRANTIES
A. Licensor warrants that it is the owner of the entire right, title
and interest in Licensor's Proprietary Information and that said Proprietary
Information has not been disclosed, assigned, licensed, pledged, mortgaged or
conveyed in whole or in part to any third party. Licensor warrants that he has
no agreement with any third party which conflicts in any way within its
obligations to Licensee under this Second Amended Agreement.
B. Licensor warrants that none of the Proprietary Information or the
original materials or proprietary information used in rendering the Consulting
Services will infringe any patents, copyrights trademarks, trade secrets,
rights of privacy or any other rights of others.
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SECOND AMENDED LICENSE AGT./EXECUTION A
C. Licensor warrants that Authorization is in full force and
effect and transferable to Licensee as set forth in Schedule XII(1) attached
to this Second Amended Agreement.
XIII INFRINGEMENT BY THIRD PARTY
A. During the term of this Second Amended Agreement, Licensee shall
have the obligation to take appropriate measures, including the bringing or
defending of suits on any of Licensor's Patent Rights and Proprietary
information in the Exclusive Territory in its name or that of Licensor or
both, to prevent or stop infringement or misappropriation by others in making,
using or selling Licensed Product and practicing Licensed Process. Licensee
shall promptly notify Licensor in writing of any evidence of infringement or
misappropriation by others in making, using or selling Licensed Product and
practicing Licensed Process. All costs of any infringement declaratory
judgment or other suit brought or defended by Licensee shall be the sole
obligation of Licensee. In the event of recovery of damages in, or sums in
settlement of, a suit or suits for infringement or misappropriation brought or
defended by Licensee, Licensee shall be entitled to retain whatever recovery
of sums for damages or otherwise that may be obtained in such suit or
settlement provided that the royalty obligations hereunder to Licensor have
been met. Licensor agrees to reasonably cooperate with Licensee to prevent or
stop such infringement or misappropriation and to provide Licensee with
documents, data, and other information as may be reasonably necessary. Should
Licensee fail or refuse to take or cause to be taken or initiate appropriate
measures against any third party after six (6) months from, the date of
receipt of written notice (i) by Licensor from Licensee of infringement or
misappropriation, or (ii) by Licensee from Licensor accompanied by reasonable
evidence of such infringement or misappropriation, or such shorter period of
time as may be necessary to ensure there is no waiver of rights, or thereafter
Licensee fails diligently to prosecute such action, Licensor may take such
legal action in his own name and Licensee shall indemnify and hold harmless
Licensor for all expenses reasonably incurred by Licensor in connection with
such action, including without limitation, reasonable attorney's fees. In such
latter case, all damages recovered as a result of such action by Licensor
shall be and become the property of Licensor. When either Party litigates
under this paragraph, the other Party shall be kept informed of such
activities in writing at least every calendar quarter.
B. The Licensee shall reimburse the Licensor for such other of its
necessary and reasonable out-of-pocket costs (with the exception of attorney's
fees) incurred in cooperating with the Licensee, at the Licensee's request, in
respect to litigation under paragraph A.
C. The litigating Party shall have the sole right to defend, settle,
or compromise all litigation (including actions, suits and proceedings before
judicial or administrative tribunals, and arbitration proceedings) in which
Licensee, its sublicensees, or its vendees, are charged by virtue of the
manufacture, use or sale of Licensed Product or the use of Licensed Process
under this Second Amended Agreement with infringement, of any patent held
adversely to any party hereto or with any other adverse claim, provided that
no settlement or compromise shall be made
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SECOND AMENDED LICENSE AGT./EXECUTION A
without the written consent of the other Party (which consents shall not be
unreasonably withheld).
XIV TERM OF AGREEMENT
This Second Amended Agreement shall become effective as of the date
first appearing above and, unless otherwise terminated as provided herein,
shall continue in full force and effect until the later to occur of either (i)
the expiration of the last to expire of the Patent Rights, or (ii) the
seventeenth anniversary of the Effective Date (the "Expiration").
XV WAIVER OF DEFAULT
A waiver, express or implied, by either of the Parties hereto of any
right hereunder or of any default, breach or any other failure to perform by
the other Party hereto, shall not constitute or be deemed a future waiver of
that or any other right hereunder or of any default, breach or any other
failure to perform thereafter by such other Party hereto, whether of a similar
or dissimilar nature thereto. All waivers to be effective must be in writing
and signed by the waiving Party.
XVI RIGHT OF LICENSOR TO TERMINATE ON DEFAULT OF LICENSEE
Licensor shall have the right to terminate this Second Amended
Agreement and any licenses hereunder (and thereby terminate any sublicenses
and other rights of sublicensees and others) in the event Licensee (a)
defaults in any of its material obligations and duties hereunder and shall
fail to remedy any such default within one month after written notice thereof
by Licensor, provided that any monetary default shall be cured within fifteen
(15) business days (which monetary defaults shall bear interest at one percent
(l%) per annum over the prime rate of Citicorp, N.A. as stated in the Wall
Street Journal on the date such monetary default occurs from the date such
payment was due until the date payment is made); but such termination shall
not prejudice the right of Licensor to recover any royalty, or other sums of
money due or accrued at the time of termination, and shall not prejudice any
cause of action or claim of Licensor, accrued or to accrue, on account of any
default by Licensee nor prejudice the right of Licensor to maintain an action
for infringement of any patent against Licensee, (b) discontinues its business
or becomes insolvent or bankrupt, or (c) ceases to actively market and
distribute the Licensed Product.
XVII RIGHT OF LICENSEE TO TERMINATE
A. Licensee shall have the right to terminate this Second
Amended Agreement at any time with or without cause upon one month prior
written notice to Licensor. Termination of this Second Amended Agreement shall
not alter or affect the rights or obligations of either Party
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SECOND AMENDED LICENSE AGT./EXECUTION A
arising prior to such termination nor shall termination pursuant to this
Section XVII.A relieve Licensee of its obligation under Section IV hereof.
B. Any cancellation by Licensee as provided by paragraph A above
shall not prejudice the right of Licensor to recover any Earned Royalties,
Minimum Royalties or other sums owed and accrued at the time of such
cancellation nor prejudice the right of Licensor thereafter to maintain an
action against Licensee for infringement of its patent or Patent Rights.
C. Any termination of this Second Amended Agreement for any
reason shall be deemed to terminate automatically all sublicense agreements
granted by Licensee hereunder to any sublicensees.
XVIII RIGHT TO SELL INVENTORY AFTER TERMINATION
After termination of this Second Amended Agreement for any reason by
either Party, Licensee may sell all of said Licensed Products which it has on
hand upon the date of such termination; provided however that such sales shall
be completed not later than one year from the date of such termination, and
that such termination shall not relieve Licensee from making the full Earned
Royalties or Minimum Royalties herein provided on all Licensed Products Sold
by it either before or after the date of such termination.
XIX DISPUTE RESOLUTION
A. Any claims, disputes, questions or controversies between the
Parties to this Second Amended Agreement that may arise in connection with
this Second Amended Agreement, including but not limited to any existing or
future dispute concerning the validity or enforceability of any of Licensor's
proprietary rights including patents or the coverage or non-coverage by any of
Licensor's proprietary rights of any Licensed Product or Licensed Process made
by or for, or used or sold by Licensee or its sublicensees, and which cannot
after a reasonable effort be resolved between Licensee and Licensor are to be
submitted to and determined by arbitration as set forth hereinafter. The place
of arbitration shall be Newark, New Jersey.
B. The award of the arbitration shall be accompanied by a detailed
statement in writing setting forth the grounds upon which the award is based,
if possible. The award shall be final and binding between Licensee and
Licensor. If the arbitration concerns the coverage or non-coverage by any of
Licensor's proprietary rights of any Licensed Product or Licensed Process made
by or for, or used or sold by Licensee or its sublicensees and the arbitration
shall find that such Licensed Product or Licensed Process is so covered, then
the award shall provide as the sole remedy, the payment of royalties, both
earned and minimum, calculated according to the provisions of this Second
Amended Agreement and running from a date no earlier than the Effective Date
of this Second Amended Agreement. Notwithstanding the foregoing, in all cases,
the nonprevailing Party shall pay to the prevailing Party the costs, expenses
and fees (including,
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SECOND AMENDED LICENSE AGT./EXECUTION A
without limitation, attorneys' fees and disbursements and expert witness fees
and expenses) of the prevailing Party in connection with the arbitration.
C. The arbitration shall be decided by a panel of three arbitrators
of the National Panel of Patent Arbitrators of the American Arbitration
Association ("AAA"), for final decision pursuant to Title 9 and Title 35,
Section 294, United States Code and the Patent Arbitration Rules of the AAA.
Licensee and Licensor shall each designate acceptable arbitrators from a list
provided by the AAA in accordance with Patent Arbitration Rule 13 (Appointment
from Panel), but with the Parties hereto each having sixty (60) days from the
mailing date of the list to return the list to the AAA. From among the persons
who have been approved on each list, and in accordance with the designated
order of preference, the AAA shall invite the acceptance of two arbitrators to
serve, who in turn will appoint a neutral arbitrator in accordance with Patent
Arbitration Rule 15 (Appointment of Neutral Arbitrator by Party-Appointed
Arbitrators). In the arbitration, matters concerning Licensor's proprietary
rights shall be decided under the laws of the jurisdiction which grants such
rights, and matters concerning issues of contact shall be decided under the
laws and decisions of the State of New Jersey without regard to conflict of
laws principles thereunder. Any arbitration award may be enforced in a court
of competent jurisdiction. For purposes of all suits, actions or proceedings
with respect to this Second Amended Agreement, venue shall lie in the state
and federal courts located in Newark, New Jersey. Each Party waives any and
all objections to such jurisdiction or venue that they may have under the laws
of any state or country, including, without limitation, any argument that
jurisdiction, situs and/or venue are inconvenient or otherwise improper. Each
Party further agrees that process may be served upon such Party in any manner
authorized under the laws of the United States or New Jersey, and waives any
objections that such Party may otherwise have to such process.
D. The Section XIX on arbitration shall survive any cancellation,
termination or expiration of this Second Amended Agreement.
XX NOTICE AND ADDRESSES OF PARTIES
Any and all communications and notices required by this Second
Amended Agreement shall be in writing and be given by either Party to the
other in person or by telex or telegram or by letter sent first-class mail or
via overnight courier and sent to the address or place of business of the
other Party as shown below and the notice shall be effective at the time of
delivery. Any change of address shall be promptly communicated in writing from
either Party to the other Party.
If to Licensee: HUMASCAN INC.
89 Summit Avenue
Suite 129
Summit, New Jersey 07901
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<PAGE>
SECOND AMENDED LICENSE AGT./EXECUTION A
If to Licensor: SCANTEK MEDICAL, INC.
26 Merry Lane
East Hanover, New Jersey 07936
XXI ENTIRE AGREEMENT: MODIFICATION ONLY IN WRITING
This Second Amended Agreement constitutes the entire
agreement of the Parties and supersedes all prior understandings, commitments
and agreements. No change, addition, waiver, amendment, or modification of any
of the terms or conditions hereof shall be valid or binding on either Party
unless in writing and signed by Licensor and an officer or an authorized
representative of Licensee.
XXII PROVISIONS SEPARABLE
The provisions of this Second Amended Agreement shall be
deemed separable. Therefore, if any part of this Second Amended Agreement is
rendered void, invalid or unenforceable, such rendering shall not affect the
validity or enforceability of the remainder of this Second Amended Agreement;
provided that if the part or parts which are void, invalid or unenforceable as
aforesaid shall substantially impair the value of the whole Agreement to
either Party, that Party may cancel, and terminate the Second Amended
Agreement in toto by giving written notice to the other Party.
XXIII PREVAILING PARTY
If either Party commences an action or claim against the
other to interpret or enforce any of the terms of this Second Amended
Agreement or as a result of a breach by the other Party of any terms hereof,
the nonprevailing Party shall pay to the prevailing Party reasonable
attorneys' fees, costs and expenses incurred in connection with the
prosection, defense or settlement of such action (including at any appellate
level).
XXIV COUNTERPART EXECUTION
This Second Amended Agreement may be executed in several
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same instrument. In addition, this Second Amended
Agreement may contain more than one counterpart of the signature page, and
this Second Amended Agreement may be executed by the affixing of the
signatures of each of the Parties to one of such counterpart signature pages,
all of which shall have the same force and effect as though all of the
signatories had signed a single signature page.
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SECOND AMENDED LICENSE AGT./EXECUTION A
XXV NO THIRD PARTY RIGHTS
The provisions of this Second Amended Agreement are for the
exclusive benefit of the Parties and no other party (including without
limitation any creditor of any Party) shall have any right or claim against
any Party by reason of those provisions or be entitled to enforce any of those
provisions against any Party.
XXVI INDEMNITIES
Each Party hereby agrees to indemnify and hold the other
Party harmless from and against any and all claims, demands, actions,
proceedings, investigations, rights of action, assessments, penalties,
interest, costs and expenses (including reasonable attorneys' fees and costs),
whether suit is instituted or not, and if instituted, whether at any trial or
appellate level, which shall or may arise by virtue of or in connection with,
(a) anything done or omitted to be done by the Party (through or by its
agents, employees or other representatives, including, as to Licensee,
Licensee, Affiliates and sublicensees) in breach of, or which causes a default
under, the terms of this Second Amended Agreement; and (b) any breach or
default of a warranty, representation or covenant contained herein.
XXVII BINDING EFFECT
This Second Amended Agreement shall be binding upon, and
inure to the benefit of, the Parties hereto and their successors, assigns,
estate, beneficiaries, representatives and heirs.
XXVIII DISCLAIMER
THE PARTIES ACKNOWLEDGE AND AGREE THAT THERE ARE NOT
WARRANTIES, COVENANTS, REPRESENTATIONS OR AGREEMENTS BY LICENSOR OR LICENSEE
AS TO MARKETABILITY, FITNESS FOR A PARTICULAR PURPOSE OR OTHER ATTRIBUTES,
WHETHER EXPRESS OR IMPLIED (IN LAW OR IN FACT), ORAL OR WRITTEN, EXCEPT AS
EXPRESSLY STATED HEREIN.
XXIX ASSIGNMENT
A. The Parties have entered into this Second Amended
Agreement in contemplation of personal performances, each by the other, and
intend that the licenses, rights and duties hereunder to a Party not be
extended to any other entity or person, other than sublicensees as expressly
provided herein and provided that all of the rights and duties of Licensor
(other than under Section III) may be assigned to any entity controlled by
Licensor (upon written notice to Licensee) in which event such entity shall
thereafter be deemed substituted for Licensor hereunder effective
automatically upon such assignment. For purposes hereof, "control" means any
person, entity or group controlling, controlled by or under common control
with Licensor, and "control" of a person or entity (including, with
correlative meaning, the terms "control by" and "under common control with")
means the power to direct or cause the
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SECOND AMENDED LICENSE AGT./EXECUTION A
direction of the management policies or affairs of the controlled person,
whether through ownership of securities or partnership or other ownership
interests, by contract or otherwise.
B. This Second Amended Agreement may be assigned and shall
be automatically binding upon, and inure to the benefit of, any successor of
either party or any person, firm or corporation acquiring all or substantially
all of the business and assets of such party. Nothing contained herein,
however, shall be deemed to prevent Licensor from assigning this Second
Amended Agreement to any corporation which shall acquire all or substantially
all of Licensor's foreign licensing business and its unexpired foreign Letters
Patent and technical information and facilities relating thereto.
C. In the event of a sale by the Licensee pursuant to this
section, the Licensee's successor shall agree that it shall be an Event of
Termination if, during any full Royalty Year following such sale, Net Sales of
Licensed Products do not equal or exceed $8,000,000 provided, however, such
minimum shall not be applicable until the fourth full Royalty Year.
XXX INSURANCE
Licensee agrees, to the extent it, in its sole discretion,
determines it to be economically reasonable, to carry adequate products
liability insurance on its operations for the benefit of itself and Licensor.
Licensee agrees to furnish Licensor within thirty (30) days prior to
commencement of production of the Licensed Product with certificates of
insurance or other proof of insurance satisfactory to Licensor with respect to
products liability insurance coverage, establishing that such insurance is in
effect and that Licensor is named as an additional insured. Licensee hereby
assumes full responsibility and liability, and agrees to indemnify and hold
harmless Licensor and its successors and assigns from any failure to maintain
adequate insurance with respect to products liability actions related to the
Licensed Product, including, without limitation, all losses, claims, damages
investigations, penalties, fines, suits, actions or proceedings, including
attorneys' fees and disbursements, whether suit is instituted or not and, if
instituted, at any, investigation, trial and appellate level.
XXXI REGISTRATION
Licensee agrees to register or cause the registration to the
extent required by applicable law of any agreements wherein sublicensees are
granted sublicenses. Licensee hereby waives any and all claims and defenses
arising by virtue of the absence of any such registration that might otherwise
limit or affect its obligations to Licensor.
XXXII COMPLIANCE WITH LAWS
Licensee agrees, and agrees to cause the sublicensees to
agree, to comply with all applicable laws, rules, regulations and statutes
applicable to the transactions contemplated hereunder, including, without
limitation, all export controls and technology transfer restrictions.
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SECOND AMENDED LICENSE AGT./EXECUTION A
IN WITNESS WHEREOF, the Parties have caused this Second
Amended Agreement to be signed in duplicate by their respective duly
authorized representatives as of the date first set forth above.
HUMASCAN INC.
BY:__________________________________
Donald Brounstein, President
Attested to by:______________________
Morris C. Brown,
Assistant Secretary
SCANTEK MEDICAL INC.
BY:__________________________________
Zsigmond L. Sagi, President
Attested to by:______________________
Patricia Furness
Corporate Secretary
WPB/72013.4
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<PAGE>
SECOND AMENDED LICENSE AGT./EXECUTION A
EXHIBIT A
PATENTS
The proprietary nature of the product is protected under patent
rights issued in the United States and foreign countries.
In the U.S., Patent No. RE32,000 was granted on October 8, 1985.
The patent is for a "Device For Use in Early Detection of Breast Cancer" and
was a reissue of Patent No. 4,190,058, issued on February 26, 1980, with the
same title. Patent No. 4,651,749, granted on March 24, 1987, entitled "Cancer
Detection Patch for Early Detection of Breast Cancer; Temperature, Indicators,
Flexibility, Thermoconductivity, Webs," is a partial continuation of Patent
No. 4,190,058.
Foreign patents for the BreastTest include:
o Belgium Patent No. 884,382; dated July 18, 1980
o Canada Patent No. 1,130,157; issued August 24, 1982
o France Patent No. 7913059; issued July 15, 1986
o The Netherlands Patent No. 7,094,034; issued December 18, 1989
o United Kingdom Patent No. 2023288; issued April 27, 1983
o Venezuela Patent No. 44,664; registered April 20, 1987
o Israel Patent No. 58442; issued March 1, 1983
o Germany Patent No. 2920785; issued May 22, 1985
United States patent protection is available at least until February
26, 1997.
<PAGE>
SECOND AMENDED LICENSE AGT./EXECUTION A
EXHIBIT B
IRREVOCABLE PROXY
KNOW ALL MEN BY THESE PRESENTS, That the undersigned, Scantek Medical, Inc.
hereby irrevocably makes, constitutes and appoints Donald Brounstein, as
President of Humascan Inc. (the "Company"), or his successor in that office,
as its proxy, with full power of substitution, and hereby authorizes said
proxy to represent and to vote all of the shares of stock of Humascan, Inc.
(the "Company"), held of record by the undersigned from time to time, in the
discretion of said proxy at the direction of a majority of the directors of
the Company with respect to any matters which may properly come before any
meeting of the shareholders of the Company and on which the undersigned is
entitled to vote or in connection with the execution of any written consent
evidencing action of the shareholders without a meeting.
This Proxy is coupled with an interest and is given pursuant to Section 10A of
a License Agreement (the "License Agreement") dated as of ___________ , 1995,
among the undersigned and the Company. This Proxy shall terminate at such time
and upon such terms as are expressly provided in such License Agreement.
The undersigned hereby authorizes the proxy to appoint, in writing, a
substitute to act in its place pursuant hereto and any person so appointed
shall be empowered so to act.
IN WITNESS WHEREOF, this Proxy has been duly executed and delivered as of the
_________ day of _______________, 19 __.
SCANTEK MEDICAL, INC.
BY:________________________________
Authorized Representative
<PAGE>
SECOND AMENDED LICENSE AGT./EXECUTION A
SCHEDULE XII (1)
AUTHORIZATION
SCANTEK MEDICAL INC., the Licensor, warrants that the Authorization
as defined in the PRELIMINARY STATEMENT of the License Agreement, Page 1, is
in full force and transferable to HUMASCAN INC., as the Licensee, as stated in
the attached letter from Licensee's FDA Regulatory Affairs and Quality
Assurance Consultants, MDI Consultants, Inc. MDI Consultants, Inc. are experts
in these matters and have been serving the medical device industry since 1978.
WPB/72013.1
<PAGE>
EXTENSION TO THE SECOND AMENDED LICENSE AGREEMENT
This Extension Agreement is entered into as of this 22nd day of
February, 1996 between SCANTEK MEDICAL, INC., a Delaware corporation having
its principal place of business at 26 Merry Lane, East Hanover, New Jersey
07936 (the "Licensor") and HUMASCAN INC., a Delaware corporation having its
principal place of business at 89 Summit Avenue, Suite 129, Summit, New Jersey
07901 (the "Licensee") .
The Licensor and Licensee are parties to a Second Amended Agreement
(the "License Agreement") made and entered into as of the 20th day of October,
1995 and desire to provide for an extension of the Licensee's obligation to
make a certain $300,000 payment to Licensor no later than February 28, 1996.
In order to provide for such extension, the parties, intending to be legally
bound, agree as follows:
The first sentence of subsection V A. (i) of the License Agreement is
hereby amended in its entirety to read as follows:
(i) If, prior to the Patent Extension Deadline the U.S.
Patents are not extended at least through the Anticipated
Patent Expiration Date by all necessary government and
regulatory action, then upon completion of the Threshold
First Stage, but no later than March 20, 1996, Licensee
shall pay Licensor an additional $300,000 on account of the
Cash Portion of the Licensing Fee.
IN WITNESS WHEREOF, the parties have caused this Extension Agreement
to be signed in counterpart by their respective duly authorized
representatives as of the date first set forth above.
HUMASCAN INC.
BY:____________________________________
Donald Brounstein, President
SCANTEK MEDICAL INC.
BY:_____________________________________
Zsigmond L. Sagi, President
WPB/79431.1
<PAGE>
SECOND EXTENSION TO THE SECOND AMENDED LICENSE AGREEMENT
This Extension Agreement is entered into as of this ___ day of March,
1996 between SCANTEK MEDICAL INC., a Delaware corporation having its principal
place of business at 26 Merry Lane, East Hanover, New Jersey 07936 (the
"Licensor") and HUMASCAN INC., a Delaware corporation having its principal
place of business at 514 Centennial Avenue, Cranford, New Jersey 07016 (the
"Licensee").
The Licensor and Licensee are parties to a Second Amended Agreement
(the "License Agreement") made and entered into as of the 20th day of October,
1995 and desire to provide for a further extension of the Licensee's
obligation to make a certain $300,000 payment to Licensor no later than April
15, 1996. In order to provide for such extension, the parties, intending to be
legally bound, agree as follows:
The first sentence of subsection V A. (i) of the License Agreement is
hereby amended in its entirety to read as follows:
(i) If, prior to the Patent Extension Deadline the U.S.
Patents are not extended at least through the Anticipated
Patent Expiration Date by all necessary government and
regulatory action, then upon completion of the Threshold
First Stage, but no later than April 15, 1996, Licensee
shall pay Licensor $400,000 on account of the Cash Portion
of the Licensing Fee.
The second paragraph of subsection V A. (i) of the License Agreement
is hereby amended in its entirety to read as follows:
Surplus Cash Flow shall be applied to the payments specified
in clauses (a) though (d) of this subclause (i) in inverse
order of maturity. "Surplus Cash Flow" shall mean 1/2 of the
aggregate of Net Income for any calendar quarter (x) plus
non-cash items such as amortization and depreciation to the
extent deducted from revenues in computing Net Income, and
increases in current liabilities from the previous quarter,
including without limitation, accounts payable, (y) minus
increases in current liabilities from the previous quarter,
including accounts receivable and inventory, all as reported
on Licensee's quarterly financial statements computed in
accordance with generally accepted accounting principals
applied on a consistent basis and reviewed by the Licensee's
outside auditors.
IN WITNESS WHEREOF, the parties have caused this Extension Agreement
to be signed in counterpart by their respective duly authorized
representatives as of the date first set forth above.
HUMASCAN INC.
BY:____________________________________
Donald Brounstein, President
SCANTEK MEDICAL INC.
BY:_____________________________________
Zsigmond L. Sagi, President
WPB/80634.1
<PAGE>
THIRD EXTENSION TO SECOND AMENDED LICENSE AGT./.001
THIRD EXTENSION TO THE SECOND AMENDED LICENSE AGREEMENT
This Extension Agreement is entered into as of this ___ day of April,
1996 between SCANTEK MEDICAL, INC., a Delaware corporation ("Licensor"), and
HUMASCAN INC., a Delaware corporation ("Licensee").
Licensor and Licensee are parties to a Second Amended License
Agreement dated as of October 20, 1995, as extended and amended most recently
by a Second Extension dated as of March 17, 1996 (the "License Agreement"). In
order to provide for a further extension of the Licensee's obligation to make
a certain payment and to make other mutually desired amendments to the License
Agreement, the parties, intending to be legally bound, agree as follows:
Section 1. The first portion of subsection V.A. of the License
Agreement, through and including clause (d) thereof, is hereby amended in its
entirety to read as follows:
The Licensee shall pay the Licensor an initial cash licensing fee
(the "Cash Portion of the Licensing Fee") of $1,600,000 as follows:
Prior to the execution of this Second Amended Agreement, Licensee
paid Licensor an aggregate of $150,000 on account of the Cash Portion
of the Licensing Fee; and prior to the execution of the Third
Extension to this Second Amended Agreement, the Licensee paid
Licensor an additional $25,000 on account of the Cash Portion of the
Licensing Fee.
(i) If, prior to the Patent Extension Deadline the U.S.
Patents are not extended at least through the Anticipated
Patent Expiration Date by all necessary government and
regulatory action, then upon completion of the Threshold
First Stage Financing, but no later than May 31, 1996,
Licensee shall pay Licensor an additional $375,000 on
account of the Cash Portion of the Licensing Fee. Upon the
later to occur of (x) Licensee's acceptance of the ASME and
AAE pursuant to the terms of the Machinery Contract from
Zigmed or from another vendor if Zigmed fails to perform
pursuant to the Machinery Contract, and assuming prior
acceptance by Licensee of performance of the Manufacturing
Line at Licensee's Production Center as provided for in the
Machinery Contract (regardless of the vendor) or (y) the
dates specified in the following clauses (a) through (b),
Licensee shall pay Licensor:
(a) $175,000 on December 31, 1997,
(b) $175,000 on March 31, 1998,
(c) $350,000 on October 31, 1998, and
<PAGE>
THIRD EXTENSION TO SECOND AMENDED LICENSE AGT./.001
(d) $350,000 on January 31, 1999, less up to an aggregate of
$15,000 in legal and accounting fees incurred by the
Licensee in connection with this Second Amended Agreement
and otherwise as a result of the determination that as of
the date of this Agreement the U.S. Patents expire prior to
the Anticipated Termination Date.
Section 2. Subsection V.A.(i) of the License Agreement is hereby
further amended by adding the following at its end, preceding the start of
subsection V.A.(ii):
In addition:
(1) Upon the later of (x) the investment at any time by
Physician Sales & Service, Inc. ("PSS") of $500,000 in
Licensee by exercising the special warrant previously issued
to PSS by Licensee for 166,667 shares of Licensee's common
stock and (y) the shipment by Licensee of the first order of
the Licensed Product to PSS, Licensee shall prepay to
Licensor $100,000 of the unpaid Cash Portion of the
Licensing Fee (applied to the above-scheduled payments in
direct order of maturity).
(2) Licensee also shall prepay to Licensor $300,000 of the
unpaid Cash Portion of the Licensing Fee (of which $100,000
shall be applied to the above-scheduled payments in direct
order of maturity and the other $200,000 shall be applied to
such scheduled payments in inverse order of maturity) upon
the first to occur of the following: (i) the U.S. Patents
are extended at least through the Anticipated Patent
Expiration Date by all necessary government and regulatory
action; or (ii) Licensor obtains a new United States patent
on the Invention.
(3) If the circumstances described in paragraph (2) above
have not yet occurred and if Licensor has duly filed an
application reasonably acceptable to Licensee and its patent
counsel for a new United States patent on the Invention at
least one week prior to the first road show for an IPO, then
Licensee shall pay to Licensor $100,000 out of the proceeds
of the closing of the IPO (which shall be deemed a partial
advance of the $300,000 payable pursuant to paragraph (2)
above if such sum becomes payable in accordance with such
paragraph (2)). In all events the payment of such $100,000
shall be a prepayment of the unpaid Cash Portion of the
Licensing Fee (applied to the above-scheduled payments in
direct order of maturity).
- 2 -
<PAGE>
THIRD EXTENSION TO SECOND AMENDED LICENSE AGT./.001
Section 3. Subsection V.A.(iii) of the License Agreement is hereby
amended in its entirety to read as follows:
(iii) If the Licensee completes the IPO with gross proceeds in excess
of $10,000,000 later than the second anniversary of the initial
closing of the Threshold First Stage Financing, then all amounts
provided for in clauses (i) or (ii) of this subsection and unpaid
upon the completion of such IPO shall be payable from its proceeds at
the time of the IPO closing if Licensee has by then accepted
performance of the Manufacturing Line at Zigmed's plant or otherwise
upon such subsequent acceptance.
Section 4. Subsection X.A. of the License Agreement and Exhibit B
thereto, being the form of the Licensee's Proxy, are hereby amended by
expressly excluding these instances from the Licensee's Proxy (i.e., Licensor
shall be entitled to vote its Licensor's Stock in these instances):
(1) approval of any financings submitted to a vote of the holders
of Licensee's common stock;
(2) approval of any stock option plans or amendments thereto; or
(3) any change of control which would require Licensee to file a
Form 8-K with the Securities and Exchange Commission
pursuant to the Securities Exchange Act of 1934, as amended.
Section 5. In all other respects, the License Agreement is hereby
ratified and confirmed and continues in full force and effect as amended
above.
IN WITNESS WHEREOF, the parties have caused this Third Extension
Agreement to be signed in counterpart by their respective duly authorized
representatives as of the date first set forth above.
HUMASCAN INC.
BY:____________________________________
Donald Brounstein, President
SCANTEK MEDICAL INC.
BY:_____________________________________
Zsigmond L. Sagi, President
DET07/40093.1
- 3 -
<PAGE>
Further Amendment to the Second Amended License Agt/Execution D
FURTHER AMENDMENT TO THE SECOND AMENDED LICENSE AGREEMENT
This Amendment is entered into as of this 31st day of May, 1996
between SCANTEK MEDICAL, INC., a Delaware corporation ("Licensor"), and
HUMASCAN INC., a Delaware corporation ("Licensee").
Licensor and Licensee are parties to a Second Amended License
Agreement dated as of October 20, 1995, as extended and amended through the
date hereof (the "License Agreement"). The parties wish to amend the License
Agreement to delete certain anti-dilution provisions in connection with a
possible initial public offering of the Licensee's common stock registered
pursuant to the Securities Act of 1933, as amended (an "Initial Public
Offering"). In order to accomplish such deletion, the Licensee and the
Licensor, intending to be legally bound, agree as follows:
Section 1. Subclause (i)(d) of Section A of the License Agreement is
hereby amended in its entirety to read as follows:
(i) . . .
(d) $350,000 on January 31, 1999.
Section 2. Article V, Section B of the License Agreement is hereby
amended in its entirety to read as follows:
B. In addition to the Cash Portion of the Licensing Fee,
Licensee has issued to Licensor 900,000 shares of its common stock,
and, in connection with the First Stage Financing to be concluded in
May 1996, Licensee is issuing to Licensor an additional 438,750
shares of Licensee's common stock (collectively, the "Licensor's
Stock"). If a Licensee has received the proceeds of an IPO on or
before December 31, 1996, the number of shares of Licensee's common
stock included in the Licensor's Stock shall be increased or
decreased so that immediately prior to the effective date of the
latest registration statement covering the IPO, the Licensor shall
own 20% of the issued and outstanding shares of the Licensee's common
stock, assuming all convertivel preferred stock issued in the First
State Financing is converted into shares of Licensee's common stock,
but excluding (i) shares issued after May 31, 1996 upon the exercise
of and payment of the exercise or purchase price set forth in any
warrants and options issued and outstanding as of May 31, 1996 and
(ii) shares issuable with respect to all other issued and outstanding
warrants and options or other convertible securities.
At any time prior to January 1, 1997, the Licensor may
submit to the Licensee, and the Licensee shall accept, a Qualified
Purchase Order. For purposes of this Subsection B, a Qualified
Licensor's Purchase Order shall mean a purchase order from Licensor
to Licensee for $1,000,000 of Net Licensed Product Sales priced at
the greater of 150% of the Costs of Production (as defined in Section
IX(B) of this Second Amended Agreement) or $2.50 per each pair of Net
Licensed Product Sold, which purchase order:
(i) is received 60 days prior to the acceptance of the
Manufacturing Line at Licensee's Production Center pursuant
to the Machinery Contract,
(ii) provides for the delivery of no less than $166,667 of
Licensed Product each quarter commencing 30 days after
acceptance of the Manufacturing Line at Licensee's
Production Center pursuant to the Machinery Contract, and
(iii) is accompanied by an unconditional letter of credit
for the benefit of Licensee (or other alternative equivalent
collateral) collateralizing Licensor's purchase obligations
for the first quarter's purchase, which letter of credit (or
other alternative equivalent collateral) shall either be
renewed or replaced (such renewal or replacement being
called the "Replacement Collateral") so that 90 days prior
to the commencement of each quarter with respect to which
the order relates (the "Replacement Collateral Date"), the
Licensor obligations are fully collateralized, provided
however, that the only penalty for Licensor's failure to
supply Replacement Collateral as provided for in this
subclause (iii) shall be the opportunity for Licensee to
elect in writing, within 10 calendar days of Replacement
Collateral Date, to terminate its obligation to deliver the
remaining portion of the Qualified Licensor's Purchase
Order, and
(iv) shall not be subject to any royalty provided for in
this Section V.
Section 3. If the Licensee has not received the proceeds of an
Initial Public Offering prior to December 31, 1996, Article V, Section B of
the Licensing Agreement shall be restated in its entirety to read as follows
and shall be deemed to have been in full force and effect at all times as if
the Amendment provided for in the previous Section 1 had not been made:
<PAGE>
Further Amendment to the Second Amended License Agt/Execution D
B. In addition to the Cash Portion of the Licensing Fee,
Licensee has issued to Licensor 900,000 shares of its common stock,
and, in connection with the First Stage Financing to be concluded in
May 1996, Licensee is issuing to Licensor an additional 438,750
shares of Licensee's common stock (collectively, the "Licensor's
Stock"). The number of shares of Licensee's common stock included in
the Licensor's Stock shall be increased or decreased so that, upon
completion of the First Stage Financing, the Licensor shall own 20%
of the issued and outstanding shares of the Licensee's common stock,
assuming all convertible preferred stock issued in the First Stage
Financing is converted into shares of Licensee's common stock, and
excluding shares issuable with respect to all other issued and
outstanding warrants and options or other convertible securities.
Upon completion of the Second Stage Financing, if Licensor does not
own 15% of the issued and outstanding shares of common stock
calculated in the same manner provided for in the prior sentence,
Licensor shall receive warrants to purchase shares of Licensee's
common stock convertible into one share of common stock at an
exercise price of $4.00 per share (or, if the Licensee has received
the Qualified Licensor's Purchase Order as defined in the last
sentence of this Subsection B, $2.50 per share) exercisable for five
(5) years from the date of issue (the "Licensor's Warrants"). The
number of Licensor's Warrants to be issued will be calculated so that
all shares of common stock previously issued to Licensor pursuant to
this Second Amended Agreement, plus the shares issuable upon the
exercise of Licensor's Warrants divided by (x) the total of
Licensee's issued and outstanding shares of common stock immediately
prior to the Second Stage Financing plus (y) the number of shares of
common stock issued in connection with the Second Stage Financing
which is equal to the quotient of (i) $10,000,000 (or, if the
Licensee has received the Qualified Licensor's Purchase Order defined
the last sentence of this Subsection B, $15,000,000) less the gross
proceeds received by the Licensee with respect to the First Stage
Financing divided by (ii) the sale price of shares of common stock
sold by the Licensor in such Second Stage Financing, plus (z) shares
issuable upon the exercise of Licensor's Warrants equal 15%. If no
common stock is sold in connection with the Second Stage Financing
described in clause (y) of the preceding sentence, or if the majority
of the proceeds of such funding is not attributable to the common
stock sold in such financing (calculated in accordance with generally
accepted accounting principles), then for purposes of the
calculations provided for in such clause (y) all common stock
issuable in connection with any other securities issued in such
financing shall be considered sold in such financing at the
respective conversion price provided for in the underlying security,
but only if, and to the extent, such conversion price is actually
received as part of such Second Stage Financing. For purposes of this
Subsection B, a Qualified Licensor's Purchase Order shall mean a
purchase order from Licensor to Licensee for $1,000,000 of Net
Licensed Product Sales priced at the greater of 150% of the Costs of
Production (as defined in Section IX(B) of this Second Amended
Agreement) or $2.50 per each pair of Net Licensed Product Sold, which
purchase order:
(i) is received 60 days prior to the acceptance of the
Manufacturing Line at Licensee's Production Center pursuant
to the Machinery Contract,
(ii) provides for the delivery of no less than $166,667 of
Licensed Product each quarter commencing 30 days after
acceptance of the Manufacturing Line at Licensee's
Production Center pursuant to the Machinery Contract, and
(iii) is accompanied by an unconditional letter of credit
for the benefit of Licensee (or other alternative equivalent
collateral) collateralizing Licensor's purchase obligations
for the first quarter's
-2-
<PAGE>
Further Amendment to the Second Amended License Agt/Execution D
purchase, which letter of credit (or other alternative
equivalent collateral) shall either be renewed or replaced
(such renewal or replacement being called the "Replacement
Collateral") so that 90 days prior to the commencement of
each quarter with respect to which the order relates (the
"Replacement Collateral Date"), the Licensor obligations are
fully collateralized, provided however, that the only
penalty for Licensor's failure to supply Replacement
Collateral as provided for in this subclause (iii) shall be
the opportunity for Licensee to elect in writing, within 10
calendar days of Replacement Collateral Date, to terminate
its obligation to deliver the remaining portion of the
Qualified Licensor's Purchase Order, and
(iv) shall not be subject to any royalty provided for in this
Section V.
Section 4. In all other respects the License Agreement is hereby
ratified and confirmed and continues in full force and effect as amended
above.
IN WITNESS WHEREOF, the parties have caused this Amendment to be
signed in counterpart by their respective duly authorized representatives as
of the date first set forth above.
HUMASCAN INC. SCANTEK MEDICAL INC.
BY:_________________________________ BY:_____________________________________
Donald Brounstein, President Zsigmond L. Sagi, President
WPB/84184.1
-3-
<PAGE>
[HUMASCAN INC.]
Revised Purchase Order
Zsigmond G. Sagi May 10, 1996
President
Zigmed Corporation
26 Merry Lane
East Hanover, New Jersey 07936
Dear Mr. Sagi:
Please consider this letter as our purchase order. You are to provide all
tools, supervision, materials, machinery, etc., to produce the following
automatic machinery:
One (1) -- Sensor Manufacturing Machine
One (1) -- Assembly and Packaging Machine
This machinery is to be purchased as per Scantek/Zigmed joint specifications
and drawings dated 1/8/1991. The machinery is to be produced as per Zigmed
proposal #H195-2 at a price of $1,750,680 ($U.S). Delivery and acceptance of
the equipment at the Humascan plant no later than March 31, 1997.
Terms of payment are as follows:
1) $505,000 This amount has been paid to date.
2) 215,000 At the closing of the first stage financing by May
31, 1996.
3) 525,000 At 60% completion of the construction of the
equipment, with mutual agreement between the
parties.
4) 255,680 At completion of the construction of the
equipment, with sample products from the total
equipment.
5) 250,000 At 90 days from delivery and acceptance of the
equipment at the Humascan plant.
We look forward to the successful completion of this equipment.
Very truly yours, Accepted by:
.................. .........................
Donald Brounstein Zsigmond G. Sagi
President, CEO
<PAGE>
[ZIGMED]
April 8, 1996
Mr. Donald Brounstein
HumaScan Inc.
514 Centennial Avenue
Cranford, New Jersey 07016
Re: Modification of due date of manufacturing equipment
Dear Mr. Brounstein:
I need to inform you that we have incurred delays because of the
agreed extensions to meet the payment schedule under our contractual agreement
and with the uncertainty of other possible delays, we have been unable to
follow our projected time table. At this time, our estimate is that we have
lost 60 days; therefore, our official delivery date has been modified from
January 31, 1997 to March 31, 1997.
Yours truly,
...............................
Zsigmond G. Sagi
President
<PAGE>
March 16, 1996
Zsigmond G. Sagi, President
Zigmed Corporation
26 Merry Lane
East Hanover, New Jersey 07936
Dear Mr. Sagi:
This letter amends Section 3) of our previous letter of November 30,
1995, a copy of which is attached to this letter, and our previous letter of
February 22, 1996, a copy of which is also attached hereto. Section 3) is
amended in its entirety as follows:
3) No less than $220,000 from the proceeds of any interim
financing; the remainder at the first closing of the
First Stage Financing by April 15, 1996
Very truly yours, Accepted by:
HUMASCAN INC. ZIGMED CORPORATION
By:...................... By:.........................
Donald Brounstein Zsigmond G. Sagi
President, CEO Authorized Representative
<PAGE>
[HUMASCAN INC.]
February 22, 1996
Zsigmond G. Sagi
President
Zigmed Corporation
26 Merry Lane
East Hanover, New Jersey 07936
Dear Mr. Sagi:
This letter amends 3) of our previous letter of November 30,
1995, a copy of which is attached to this letter. Section 3) is
amended in its entirety as follows:
3) 465,000 At the first closing of the First Stage
Financing by March 20, 1996.
Very truly yours, Accepted by:
HUMASCAN, INC. ZIGMED CORPORATION
By:........................ By:........................
Donald Brounstein Zsigmond G. Sagi
President, CEO Authorized Representative
<PAGE>
[HUMASCAN INC.]
December 20, 1995
Zsigmond G. Sagi, President
Zigmed Corp.
26 Merry Lane
East Hanover, NJ 07936
Letter of Agreement
-------------------
As per mutual agreement as set forth herein, the official starting date for
the production of the HumaScan equipment as outlined in the HumaScan purchase
order of November 30, 1995 by Zigmed will be January 8, 1996. The equipment
must be completed by Zigmed and accepted by HumaScan by January 7, 1997, in
order for the incentive bonuses to be paid to Zigmed as outlined in the letter
of August 28, 1995.
If the equipment is not completed and accepted by HumaScan by January 7, 1997,
the equipment will be considered late, and the personal guarantee by Zsigmond
G. Sagi will be triggered.
Accepted by:
....................... ........................
Donald Brounstein Zsigmond G. Sagi
President, CEO
<PAGE>
[HUMASCAN INC.]
Zsigmond G. Sagi November 30, 1995
President
Zigmed Corporation
26 Merry Lane
East Hanover, New Jersey 07936
Dear Mr. Sagi:
Please consider this letter as our purchase order. You are to provide all
tools, supervision, materials, machinery, etc., to produce the following
automatic machinery:
One (1) -- Sensor Manufacturing Machine
One (1) -- Assembly and Packaging Machine
This machinery is to be produced as per Scantek/Zigmed joint specifications
and drawings dated 1/8/1991. The machinery is to be produced as per Zigmed
proposal #H195-2 at a price of $1,750,680 ($ U.S). Delivery of the equipment
is 10 to 12 months from the date of the first of initial step payments as
outlined in payment #2 below.
1) $ 5,000 as non-refundable deposit, upon signing of this
document.
2) up to 250,000 Upon submission of an initial budget, in step
payments as of November 30, 1995. To the extent the
full 250,000 is not disbursed, it will be disbursed
with the next payment described in payment 3 below.
3) 465,000 At the first closing of the First Stage Financing by
February 28, 1996.
4) 525,000 At 60% completion of the construction of the
equipment, with mutual agreement between the parties.
5) 255,680 At completion of the construction of the equipment,
with sample products from the total equipment.
6) 250,000 At 90 days from delivery and acceptance of the
equipment at the Humascan plant.
We look forward to the successful completion of this equipment.
Very truly yours, Accepted by:
...................... ........................
Donald Brounstein Zsigmond G. Sagi
President, CEO
<PAGE>
[HUMASCAN INC.]
Zsigmond G. Sagi October 31, 1995
President
Zigmed Corporation
26 Merry Lane
East Hanover, New Jersey 07936
Dear Mr. Sagi:
Please consider this letter as our purchase order. You are to provide all
tools, supervision, materials, machinery, etc., to produce the following
automatic machinery:
One (1) -- Sensor Manufacturing Machine
One (1) -- Assembly and Packaging Machine
This machinery is to be produced as per Scantek/Zigmed joint specifications
and drawings dated 1/8/1991. The machinery is to be produced as per Zigmed
proposal #H195-2 at a price of $1,750,680 ($ U.S). Delivery of the equipment
is 10 to 12 months from the date of the first of initial step payments as
outlined in payment #2 below.
1) $ 5,000 as non-refundable deposit, upon signing of this
document.
2) up to 250,000 Upon submission of an initial budget, in step pay-
ments as of November 30, 1995. To the extent the
full 250,000 is not disbursed, it will be disbursed
with the next payment described in payment 3 below.
3) 465,000 At the first closing of the First Stage Financing
provided or in the Agency Agreement between Humascan
and Burnham Securities Inc., dated 10/18/95, by
January 31, 1996.
4) 525,000 At 60% completion of the construction of the
equipment, with mutual agreement between the parties.
5) 255,680 At completion of the construction of the equipment,
with sample products from the total equipment.
6) 250,000 At 90 days from delivery and acceptance of the
equipment at the Humascan plant.
We look forward to the successful completion of this equipment.
Very truly yours, Accepted by:
......................... .........................
Donald Brounstein Zsigmond G. Sagi
President, CEO
<PAGE>
[ZIGMED]
October 31, 1995
Donald Brounstein
Chief Executive Officer
HUMASCAN Inc.
89 Summit Ave. Suite 129.
Summit, New Jersey 07901
Ref: Contractual Arrangements
Dear Mr. Brounstein:
We estimate that the engineering effort, which includes time and all
equipment purchases and modifications outlined in this proposal, will cost
$1,750,680 (FOB.Zigmed's plant) for project H195-2, (plus applicable sales and
use taxes, if any). Work performed will be governed by the Terms and
Conditions attached hereto and forming a part of this agreement. No additional
work will be performed or costs incurred without the prior approval of the
parties hereto in writing.
This offer to perform work and the terms and conditions for
performance of the work expressed herein will be in effect for a period of
ninety (90) days. After that date the cost will increase 9.5% per month.
We thank you for your interest in ZIGMED and look forward to
assisting you with this interesting and challenging assignment.
If the foregoing meets with your approval and properly expresses the
work you wish us to perform, please indicate your acceptance by signing in the
space provided and returning one copy of this proposal, or we will be pleased
to receive your purchase order referring to this proposal.
Very truly yours,
......................
Zsigmond G. Sagi
President Accepted by: HUMASCAN INC.
(Name)..................
(Title).................
(Date)..................
<PAGE>
[HUMASCAN INC.]
Zsigmond G. Sagi August 28, 1995
President
Zigmed Corporation
26 Merry Lane
East Hanover, New Jersey 07936
Dear Mr. Sagi:
In connection with our purchase order for the manufacturing of the BreastTest
equipment by Zigmed, we would like to offer the following completion bonus.
Humascan will pay Zsigmond G. Sagi an aggregate amount of $25,000.00, and will
issue a aggregate of 25,000 warrants for Humascan stock at an exercise price
of $4.00 per share, if the following conditions are met.
1) Within five (5) months of the closing of the first stage financing
of Humascan by Burnham Securities Inc., The Sensor equipment produces
workable and acceptable samples in the Zigmed plant. ($10,000.00 and
10,000 warrants)
2) Within ten (10) months of the closing of the first stage financing of
Humascan by Burnham Securities Inc., the complete Sensor manufacturing machine
and the Assembly and packaging machine is complete and fully operational and
accepted by both Humascan and Scantek as per all specifications of the
contract ($15,000 and 15,000 warrants)
We see these goals as very realistic, considering the scope of the project,
and are confident that Zigmed can meet the deadlines.
Payment will be made on April 30, 1997.
Very truly yours,
Donald Brounstein
President, CEO
<PAGE>
[ZIGMED]
January 25, 1995
Mr. Donald Brounstein
89 Summit Avenue, Suite 129
Summit, New Jersey 07901
Dear Mr. Brounstein:
The attached proposal #H195-2 explains Zigmed's price and delivery
quotation, for automatic production machinery as follows:
a) Sensor Manufacturing machine
b) Assembly and Packaging machine
This machinery is to produce Breast Thermal Activity Indicator (BTAI).
The cost for this machinery is $1,750,680 ($US) F.O.B East Hanover,
New Jersey with a 10-12 month delivery. This price has been quoted after
negotiation and review with Scantek engineering and management executives and
should be acceptable for HumaScan Inc.
The proposal is based on our experience in constructing machinery of
special designs. Furthermore, Zigmed has 4 people on its payroll that built
the initial BTAI machinery for BCSI/Faberge. Hence, we possess an excellent
experience base which will greatly assist us in meeting HumaScan's
requirements for this machinery. We believe the price and delivery times
quoted are reasonable and the entire project is achievable.
Should you place an order for a second machine within the next 10
months, the price will be $1,600,000.
I trust we have provided the information you requested and look
forward to reviewing your valued order. If you have any questions, please do
not hesitate to call.
Very truly yours,
Zsigmond G. Sagi
President
<PAGE>
[ZIGMED]
January 23, 1995
Donald Brounstein
Chief Executive Officer
HUMASCAN INC.
89 Summit Ave., Suite 129
Summit, New Jersey 07901
Ref: Contractual Arrangements
Dear Mr. Brounstein:
We estimate that the engineering effort, which includes time and all
equipment purchases and modifications outlined in this proposal, will cost
$1,750,680 (FOB.Zigmed's plant) for project H195-2, (plus applicable sales and
use taxes, if any). Work performed will be governed by the Terms and
Conditions attached hereto and forming a part of this agreement. No additional
work will be performed or costs incurred without the prior approval of the
parties hereto in writing.
This offer to perform work and the terms and conditions for
performance of the work expressed herein will be in effect for a period of
ninety (90) days. After that date the cost will increase 9.5% per month.
We thank you for your interest in ZIGMED and look forward to
assisting you with this interesting and challenging assignment.
If the foregoing meets with your approval and properly expresses the
work you wish us to perform, please indicate your acceptance by signing in the
space provided and returning one copy of this proposal, or we will be pleased
to receive your purchase order referring to this proposal.
Very truly yours,
........................
Zsigmond G. Sagi
President Accepted by: HUMASCAN INC.
(Name)........................
(Title).......................
(Date)........................
<PAGE>
[ZIGMED]
PROPOSAL FOR CONSTRUCTING
BTAI PRODUCTION MACHINERY
PREPARED FOR
HUMASCAN INC.
89 Summit Avenue, Suite 129
Summit, New Jersey 07901
Proposal H195-2
23 January 1995
<PAGE>
Introduction
Zigmed received a request from HUMASCAN Inc. for a price and
delivery quotation to construct automated machinery as follows:
a) Sensor Manufacture Machine
b) Assembly Machine
This machinery is to be constructed as per Scantek/Zigmed
specifications and flow sheets.
This Price and Delivery Quotation is based on the materials embodied
in these documents.
Assumptions/Specifications
--------------------------
Zigmed accepts Scantek Medical, Inc. specifications and have
based our bid on producing the machinery as described in these
documents. To insure good mutual understanding of this project Zigmed
requests the following amendments:
a) Zigmed retains the right to propose changes and
modifications as required to fulfill the basic requirement --
i.e. to build automated machinery. As to suggested changes
and modifications, we agree that any such changes will be
clearly identified by us to you, and that resolution will be
reached with HUMASCAN representatives prior to their
execution.
b) Zigmed will be fabricating the machinery according to
Scantek/Zigmed specifications and will be responsible for
the performance of the machinery. Zigmed will assure that
the machinery will produce the specified product. Such
effort will be demonstrated by conducting acceptable tests
as outlined in Scantek's specification. However, product
design and specifications are Scantek/HUMASCAN's
responsibility.
Price
-----
We can furnish machinery as described to produce the BTAI product
for $1,750,680 ($US) F.O.B. East Hanover, New Jersey.
This price is subject to an increase equal in amount to any tax we
may be required to collect or pay upon the sale of equipment quoted herein.
Please advise us at the time a purchase order is issued if your company has a
tax exempt number and provide us with any necessary tax related certificates.
<PAGE>
Delivery
-----------
The equipment described above will be shipped within 10-12 months after
receipt of:
(1) Your complete purchase order and deposit amounts;
(2) Samples, as well as production quality and quantities, of
materials to be processed by the units,
Terms and Conditions
----------------------------
5,000 nonrefundable deposit upon signing this document.
$15,000 on Humascan securing $400,000 in Bridge financing.
$700,000 at completion of Humascan's IPO.
$525,000 at 60% completion of equipment, upon mutual agreement by
both parties.
$330,000 at completion of construction of equipment.
$175,680 30 days after delivery.
Our standard "Terms and Conditions" for the contract are attached.
<PAGE>
[HUMASCAN INC.]
Revised Purchase Order
Zsigmond G. Sagi March 10, 1995
President
Zigmed Corporation
26 Merry Lane
East Hanover, New Jersey 07936
Dear Mr. Sagi:
Please consider this letter as our purchase order. You are to provide all
tools, supervision, materials, machinery, etc., to produce the following
automatic machinery:
One (1) -- Sensor Manufacturing Machine
One (1) -- Assembly and Packaging Machine
This machinery is to be purchased as per Scantek/Zigmed joint specifications
and drawings dated 1/8/1991.
The machinery is to be produced as per Zigmed proposal #H195-2 at a price of
$1,750,680 ($ U.S). Delivery of the equipment is 10 to 12 months.
Terms of payment are as follows:
1) $ 5,000 as non-refundable deposit, upon signing of this
document.
2) 250,000 August 31, 1995
3) 465,000 At the first closing of the First Stage Financing
provided for in the Agency Agreement between Humascan
and Burnham Securities Inc.
4) 525,000 At 60% completion of the construction of the
equipment, with mutual agreement between the parties.
5) 205,680 At completion of the construction of the equipment,
with sample products from the total equipment.
6) 300,000 At 30 days from delivery and acceptance of the
equipment, but no earlier than January 31, 1997.
We look forward to the successful completion of this equipment.
Very truly yours,
...............................
Donald Brounstein
President, CEO
<PAGE>
[HUMASCAN INC.]
Revised Purchase Order
Zsigmond G. Sagi March 10, 1995
President
Zigmed Corporation
26 Merry Lane
East Hanover, New Jersey 07936
Dear Mr. Sagi:
Please consider this letter as our Purchase Order. You are to
provide all tools, supervision, materials, machinery, etc. to produce
the following automatic machinery:
One (1) -- Sensor Manufacturing Machine
One (1) -- Assembly and Packaging Machine
This machinery is to be produced as per Scantek/Zigmed joint
specifications and drawings dated 1-8-1991.
The machinery is to be produced as per Zigmed Proposal #H195-2 at a
price of $1,750,680 ($US.) Delivery of the equipment is 10 to 12 months.
Terms of payment are as follows:
1) $5,000 as nonrefundable deposit, upon signing of this document.
2) $15,000 on Humascan securing $400,000 in Bridge Financing.
3) $700,000 at completion of Humascan's IPO.
4) $525,000 at 60% completion of equipment, upon mutual agreement by
both parties.
5) $330,000 at completion of construction of equipment, with sample
products from the equipment.
6) $175,680 30 days after delivery of equipment.
We are looking forward to the successful completion of this project.
Very truly yours,
.................................
Donald Brounstein
President, CEO
<PAGE>
GUARANTY AND AMENDMENT AGREEMENT
This Agreement is entered into this 20th day of December,
1995, by and between Zsigmond G. Sagi (the "Guarantor" or
"Sagi"), Zigmed, Inc. ("Zigmed") and Humascan, Inc., a Delaware
corporation ("Humascan").
WHEREAS, Humascan has entered into a manufacturing agreement
("Contract") with Zigmed, Inc., a corporation controlled by the Guarantor, to
build a production line to produce the BTAI, breast thermal activity
indicators ("Production Line") WHICH CONTRACT IS PRESENTLY IN DEFAULT; and
WHEREAS, the Guarantor will derive substantial benefit from
the manufacturing agreement;
IT IS NOW THEREFORE AGREED, in consideration of the premises
contained herein and for other good and valuable consideration, receipt and
sufficiency of which is hereby acknowledged, as follows:
1. Guaranty. Guarantor guarantees that the first four payments
received by Zigmed from Humascan (totalling $1,245,000) will be applied toward
the construction of the Production Line ("Line"), subject to the following
exceptions and explanations, to wit: Proper application of those funds shall
allow use of 40% of the funds advanced from each and every payment to be used
for overhead, and the balance of said first four payments not allocated to
overhead will be applied to the direct labor cost, the cost of materials,
whether said materials are fabricated by Zigmed or purchased from vendors, and
any other necessary or advisable expense which is needed for the prompt
completion of the Production Line.
2. Enforcement. Humascan shall have the right to review,
not more than once per month, the books and records of Zigmed so
as to be able to determine whether the conditions set forth
herein regarding application of the Humascan payments are being
met.
3. Penalty. In the event that the Line is not delivered
and accepted in accordance with the Contract, as amended herein,
then Sagi shall be liable for and shall pay to Humascan the
following penalties:
a) If the Line is not delivered and accepted pursuant to
the Contract within four months following the date set forth in
the Contract then Sagi shall pay $100,000; and,
b) If the Line is not delivered and accepted pursuant to
the Contract within five months following the date set forth in
the Contract then Sagi shall pay an additional $100,000; and,
c) If the Line is not delivered and accepted pursuant to
the Contract within six months following the date set forth in
the Contract then Sagi shall pay an additional $100,000; and no
<PAGE>
other payments shall be required thereafter from Sagi or ZigMed.
4. Amendments. ZigMed hereby agrees to accept the belated initial
payment and reinstate the Contract subject to the addition to all dates upon
which the various stages of construction are to be completed of the time
elapsed between when the initial payment was to be made and the date, which
shall be no later than one (1) business day following the execution of this
Agreement, when the initial payment is made.
Further, the Contract is hereby amended so that final acceptance of
the Line, which shall not be unreasonably withheld, will be made at ZigMed's
plant prior to shipment to the Humascan facility. Upon such acceptance the
penalties set forth herein shall be of no further effect and no additional
claims for such penalties shall be made. If the Line is not accepted by the
completion date, the Line shall remain at the ZigMed facility for 90 days to
allow ZigMed to attempt to bring the Line to an acceptable state. At the end
of said ninety days, Humascan can elect to have a third party, acceptable to
ZigMed, to assist ZigMed to bring the Line into compliance with the Contract,
or Humascan may take possession of the Line.
5. Miscellaneous. This Guaranty shall be construed according to the
laws of the State of New Jersey and may be enforced in any court of competent
jurisdiction located therein. No provision of this Agreement may be waived,
altered or amended except by express written agreement of the parties hereto.
All rights under this Agreement shall inure to the benefit of the parties
hereto, their successors and assigns.
IN WITNESS WHEREOF, the undersigned has duly executed and delivered this
Guaranty Agreement on the date first above written.
ZIGMED, INC.
............................
Zsigmond G. Sagi
BY: .......................
Zsigmond G. Sagi
President
HUMASCAN, INC.
BY: .......................
Donald Brownstein
President
<PAGE>
ZIGMED
16 MERRY LANE
EAST HANOVER, NEW JERSEY 07936
(201) 887-3542
NON-DISCLOSURE AGREEMENT
This agreement is made this 23 day of January, 1995, by and between
HumaScan Inc, 89 Summit Avenue, Suite 129, Summit, New Jersey 07901, a
Delaware Corporation, (herein collectively with any subsidiaries and other
affiliates, called "undersigned"), and Zigmed, Corporation, 26 Merry Lane,
East Hanover, New Jersey
07936 (the "Zigmed").
WITNESSETH:
WHEREAS, it is necessary and desirable for the Undersigned to have
access to certain Proprietary Information as herein after defined, in the
course of such discussions and negotiations;
WHEREAS, it is necessary and desirable for Zigmed to protect
and maintain the confidentiality of such Proprietary Information;
and
WHEREAS, Zigmed and the Undersigned will mutually benefit from the
execution of this Agreement and from the discussions and negotiations
described above;
NOW, Therefore, for and in consideration of the premises and mutual
covenants and agreements set forth herein, and the mutual benefits to be
derived, Zigmed and the Undersigned hereby agree as follows:
1. Confidential Information: Zigmed and the Undersigned acknowledge
and agree that anything which is not common knowledge within the industry and
developed or will be developed for Scantek's BTAI device, product information,
compilations of information, plans, methods, drawings, blueprints,
reproductions, data, confidential information, trade secrets, or other
documents and know-how of Zigmed (collectively, the "Proprietary Information")
were created, designed and/or developed by Zigmed at substantial cost and
expense and over substantial periods of time; are secret and confidential; are
unique and essential to the business of Zigmed and constitute proprietary and
confidential information and are the exclusive property and trade secrets of
Zigmed, would be wrongful and would cause irreparable injury to Zigmed for
which remedies at law would not, by themselves, be adequate.
2. Confidential Relationship: Zigmed and the Undersigned
acknowledge and agree that the undersigned occupies a fiduciary
relation and position of trust and confidence with respect to
Zigmed and its affairs; that the Undersigned has and will have
access to and knowledge of the Proprietary Information solely and
<PAGE>
exclusively as a result and by virtue of such confidential relationship; and
that the Undersigned hereby accepts the trusts created and the confidences
reposed in the Undersigned herein, together with all rights, obligations, and
duties imposed thereby and arising therefrom.
3. Unauthorized Use Prohibited: The Undersigned hereby represents,
warrants, and covenants that they shall not, at any time, without the express
written consent of Zigmed, either directly or indirectly, publish, reproduce,
copy, disclose or divulge, in any manner, or permit agents or employees of the
Undersigned to publish, reproduce, copy, disclose, or divulge in any manner to
any person, firm, corporation, or use or appropriate, caused to be used or
appropriated, or permit to be used or appropriated, for benefit of the
Undersigned or the benefit of any person, firm, corporation, or other entity,
other than Zigmed, Proprietary Information leased, obtained or otherwise
acquired in any manner by the Undersigned from Zigmed.
3.1 Standard of Care: The undersigned hereby agrees and acknowledges
that the Undersigned will use the utmost good faith, diligence, and effort in
maintaining the secrecy and confidentiality of any Proprietary Information
which they have or acquires access to or knowledge of.
4. Remedies: The undersigned and Zigmed hereby acknowledge and agree
that in the event of any violation or threatened violation of this agreement,
in whole or in part, Zigmed shall be authorized and entitled to obtain from
any court of competent jurisdiction preliminary or permanent injunctive relief
as well as an equitable accounting of all profits or benefits arising out of
such violation, which rights and remedies shall be cumulative and in addition
to any other rights or remedies to which Zigmed may be entitled.
5. Expenses of Enforcement: The Undersigned shall
compensate and reimburse Zigmed for all fees, costs, or expenses
reasonably paid or incurred by it in connection with the
enforcement of this Agreement or any rights thereunder.
6. All obligations under this Agreement shall terminate five years
from the date of this Agreement or upon execution of a superseding
nondisclosure agreement, whichever occurs first.
7. Binding Effect: This Agreement shall be binding upon the
Undersigned, his, her or its agents and representatives, heirs,
successors, and assigns, and shall run to the benefit of Zigmed
and its successors and assigns.
8. Arbitration: Any controversy of claim arising out of or
relating to this contract, or the breach thereof, shall be
settled by arbitration in accordance with the Rules of the
American Arbitration Association, and judgement upon the award
rendered by the Arbitrator(s) may be entered in any Court having
<PAGE>
New Jersey jurisdiction thereof.
9. Modification: No modification, amendment, or waiver of
any of the provisions of this agreement shall be effective unless
made in a writing specifically to this Agreement, and signed by
each of the parties hereto.
10. Entire Agreement: This Agreement constitutes the entire
agreement of the parties with respect to the subject matter
thereof.
11. Section Headings: The headings preceding the texts of
the several sections of this Agreement shall be solely for
convenience of reference and shall not constitute a part of this
Agreement, nor shall they affect its meaning, construction, or
effect.
IN WITNESS THEREOF, the parties hereto have caused this Agreement to
be executed as of the date first above written.
Witnessed: Humascan Inc.
..................... ....................
Date: .............. ....................
Title
Witnessed: Zigmed
..................... ....................
Zsigmond G. Sagi
Date: .............. ....................
President
<PAGE>
ZIGMED
16 MERRY LANE
EAST HANOVER, NEW JERSEY 07936
(201) 887-3542
STANDARD TERMS AND CONDITIONS
PURCHASE ORDERS: Listing additional requirements and specifications by the
purchase, not listed or quoted by Zigmed, will not be accepted unless agreed
to by both parties under separate letter. Canceled orders, for any reason, are
liable to a charge for the material and labor plus, over head expended on the
order.
OSHA COMPLIANCE: Zigmed Corp. and its suppliers will make every
efforts to comply with OSHA standards. Since these "standards"
are subject to interpretation by local OSHA inspectors, we cannot
warrant compliance with all requirements of the ACT. If
modifications are required and clearly defined, we will modify
the equipment at the purchaser's specific request at prices in
effect at the time of modifications.
ANY TAXES, or additional costs due to Federal, State, or Municipal
Legislation, to which the prices in this proposal are subject, will be paid by
the buyer.
SELLER shall not be liable for any losses or damage for delay or non-delivery
due to acts of civil or military authority, act of the buyer, or by reason of
"force major", which shall be deemed to mean all causes not reasonable within
the control of the seller, including but not limited to acts of god, war,
riot, strikes, labor or manufacturing facilities. Any delay resulting from
such cause shall extend shipping date correspondingly. Seller shall in no
event be liable for any direct, indirect or consequential damages arising form
delay, irrespective of the reason, and receipt by the buyer shall constitute
acceptance of delivery and waiver of any claims due to delay. Customer agrees
to hold Zigmed and its suppliers harmless from and indemnify it against any
and all injuries, losses, damages and expenses of any and all injuries,
losses, damages and expenses of any nature arising under this agreement except
when such are occasioned through the grossly negligent or willful omission of
Zigmed Corp.
WARRANTY AND CONDITIONS OF SALE: For a period of one (1) year from the date of
shipment, the equipment is guaranteed to perform the operation for which it is
intended at the speed stated in the quotation, if so stated. Also purchased
components, such as robots, conveyors, motors, reducers, bearings, etc ., are
covered by and limited to the particular manufacturers warranty. These
warranties, when available to us in printed form, will be provided to you for
your records. The seller shall not be liable for any equipment, or for any
other cause, and in no case will the seller be liable for any consequential
damage.
<PAGE>
TERMS AND CONDITIONS (continued)
Our liability is limited to the repair or replacement (our option) of any part
found to be defective within the warranty period.
To assure satisfactory performance, the equipment will be set up and
demonstrated at our plant and your personnel will be instructed in the
change-over and maintenance procedures. There is no additional charge for this
service. If it is preferred to have this service performed at your plant after
installation, a factory mechanic can be made available for $600 per day plus
travel and living expenses. If a service man is required during the 90 day
performance guarantee period, a charge will be made for the travel and living
adjustment and maintenance. Otherwise, the full cost of the service call will
apply.
Sincerely
ZIGMED.
Accepted by:
.............................
Name and Title of Authorized
Officer.
<PAGE>
VOTING AND
STOCKHOLDERS' RIGHTS AGREEMENT
AGREEMENT dated as of May 15 1996, among HumaScan Inc., a Delaware
corporation (the "Company"), the persons listed as Purchasers in the signature
pages hereto (collectively, the "Purchasers" and individually, a "Purchaser")
and Burnham Securities, Inc. ("Burnham").
WHEREAS, on the date hereof the Purchasers are purchasing from the
Company shares of its Series A Convertible Preferred Stock (the "Series A
Preferred") and Warrants to purchase shares of Common Stock of the Company
pursuant to the terms of certain Subscription Agreements dated the date hereof
between the Company and each Purchaser (the "Subscription Agreements"); and
WHEREAS, the Purchasers and the Company wish to make certain
provisions for the voting of the Purchasers' Shares (as defined below) and for
the granting of certain rights to the Purchasers in addition to those granted
to them under the Subscription Agreements; and
WHEREAS, the purchase of shares of Series A Preferred by the
Purchasers will benefit the Company; and
WHEREAS, it is a condition to the obligations of each Purchaser under
its Subscription Agreement that this Agreement be executed by the parties
hereto, and the parties are willing to execute this Agreement and to be bound
by the provisions hereof;
NOW, THEREFORE, in consideration of the premises, the agreements set
forth below, and the parties' desire to further the interests of the Company
and its present and future stockholders, the parties agree as follows:
1. Definition. As used in this Agreement, the term "Shares" means all
shares of Series A Preferred (i) now or hereafter owned (either beneficially
or of record) by a Purchaser, and (ii) which a Purchaser does not own (either
beneficially or of record) but as to which it now or hereafter has the right
to exercise voting control.
2. Designation of Nominees. Each of (a) The Travelers Insurance
Company or one of its assignees ("Travelers"), (b) Udi Toledano ("Toledano")
and (c) Burnham (together, the "Nominating Entities" and individually, a
"Nominating Entity") shall have the right to designate a nominee for election
as one of the directors of the Company who shall be elected solely by the
holders of the Series A Preferred, voting separately as a series (together,
the "Nominees" and individually, a "Nominee"). At least (three) 3 days prior
to any meeting (or written action in lieu of a meeting) of stockholders of the
Company at or by which directors are to be elected by the holders of Series A
Preferred, voting separately as a series, each Nominating Entity shall notify
the Purchasers in writing of the Nominee designated by such Nominating Entity
for election as a director. In the absence of the receipt of any such
<PAGE>
notification by the Purchasers, it shall be presumed that the Nominating
Entity's then incumbent Nominee has been redesignated as its Nominee. The
initial Nominees of Travelers, Toledano and Burnham are Jack Rivkin, Udi
Toledano and Randall P. Stern, respectively.
3. Election of Directors. At each meeting (or written action in lieu
of a meeting) of stockholders of the Company at or by which directors are to
be elected by the holders of the Series A Preferred, voting separately as a
series, each Purchaser shall vote all of its Shares to elect, as directors of
the Company, the Nominees designated in the manner provided in Section 2.
Each of the parties hereto acknowledges and agrees that nothing in
this Agreement shall be deemed to effect or modify in any way the rights of
the holders of Series A Preferred to elect to set the number of members of,
and appoint all of the directors to, the Board of Directors of the Company
(other than the director selected by Physician Sales & Service, Inc. and the
director designated by Burnham pursuant to this Agreement) as provided in the
certificate of incorporation of the Company.
4. Successor Directors. If a Nominee shall cease to serve as a
director for any reason, the Nominating Entity which designated such Nominee
shall have the right to designate a successor Nominee and each of the other
Purchasers shall use its best efforts, including, without limitation, voting
all of its Shares in favor thereof, to ensure that such successor Nominee is
duly elected as a director. If a Nominating Entity notifies the other
Purchasers that it desires to remove its Nominee as a director, each of the
Purchasers shall use its best efforts, including, without limitation, voting
all of its Shares in favor thereof, to ensure that such Nominee is duly
removed as a director. If a Nominating Entity notifies the Company that it
desires to remove its Nominee as a director and/or designate a successor
Nominee, the Company shall, at the request of such Nominating Entity, use its
best efforts, including, without limitation, voting all of its Shares in favor
thereof, to ensure that a meeting of stockholders of the Company is promptly
called for such purpose.
5. Financial Statements, Reports, Etc. In addition to the financial
information required to be provided to the Purchasers pursuant to the
Subscription Agreements, the Company shall furnish to each Purchaser:
(a) within ten (10) business days after the end of each month in each
fiscal year (other than the last month in each fiscal quarter), a consolidated
balance sheet of the Company and its subsidiaries and the related consolidated
statements of income, stockholders' equity and cash flows, unaudited but
prepared in accordance with generally accepted accounting principles and
certified by the Chief Financial Officer of the Company, such consolidated
balance sheet to be as of the end of such month, and such consolidated
statements of income, stockholders' equity and cash flows to be for such month
and for the period from the beginning of the fiscal year to the end of such
month, in each case with comparative statements for the prior fiscal year,
-2-
<PAGE>
provided that the Company's obligations under this Section 5(a) shall
terminate upon the completion of a firm commitment underwritten public
offering of the Company's securities in which the aggregate price to the
public of the securities sold is at least $10,000,000; and
(b) no later than sixty (60) days prior to the start of each fiscal
year, consolidated capital and operating expense budgets, cash flow
projections and income and loss projections for the Company and its
subsidiaries in respect of such fiscal year, all itemized in reasonable detail
and prepared on a monthly basis, and, promptly after preparation, any
revisions to any of the foregoing.
6. Inspection, Consultation and Advice. The Company shall permit and
cause each of its subsidiaries to permit each Purchaser which has not
designated a representative to be elected to the Board of Directors pursuant
to Section 2 hereof who is currently serving as a member of the Board of
Directors, or which has elected not to designate such a representative
(treating each Purchaser together with its affiliates as a single Purchaser
for this purpose; provided that neither Smith Barney Worldwide Securities,
Ltd. nor Smith Barney Worldwide Fund, N.V. shall be deemed affiliates of
Travelers for purposes of this Section 6 (an "Unrepresented Purchaser"), and
such persons as it may designate, at such Unrepresented Purchaser's expense,
to visit and inspect any of the properties of the Company and its
subsidiaries, examine their books and take copies and extracts therefrom,
discuss the affairs, finances and accounts of the Company and its subsidiaries
with their officers, employees and public accountants (and the Company hereby
authorizes said accountants to discuss with such Unrepresented Purchaser and
such designees such affairs, finances and accounts), and consult with and
advise the management of the Company and its subsidiaries as to their affairs,
finances and accounts, all at reasonable times and upon reasonable notice.
7. Board Visitation Rights. The Company shall permit each
Unrepresented Purchaser or its designee to have one representative attend each
meeting of the Board of Directors of the Company and each meeting of any
Committee thereof and to participate in all discussions during each such
meeting. The Company shall send to each such Unrepresented Purchaser and
designee the notice of the time and place of such meeting in the same manner
and at the same time as it shall send such notice to its directors or
committee members, as the case may be. The Company shall also provide to each
such Unrepresented Purchaser and designee copies of all notices, reports,
minutes and consents at the time and in the manner as they are provided to the
Board of Directors or committee, except for information reasonably designated
as proprietary information by the Board of Directors.
8. Term. Sections 2 through 4 of this Agreement shall continue
until such time as the holders of Preferred Stock no longer have the right,
voting as a class separately from the holders of Common, to elect directors as
provided in the Company's Certificate of Incorporation, as amended from time
to time. Sections 5 through 7 of this Agreement shall continue as to each
Purchaser until such time as such Purchaser owns less than one-third of the
shares of Series A Preferred committed to be purchased by such Purchaser on the
date hereof.
-3-
<PAGE>
9. Specific Enforcement. Each Purchaser and the Company expressly
agrees that the Purchasers will be irreparably damaged if this Agreement is
not specifically enforced. Upon a breach or threatened breach of the terms,
covenants and/or conditions of this Agreement by a Purchaser or the Company,
the other Purchasers shall, in addition to all other remedies, be entitled to
a temporary or permanent injunction, without showing any actual damage, and/or
a decree for specific performance, in accordance with the provisions hereof.
10. Legend. Each certificate evidencing Shares shall bear a
legend substantially as follows:
"The shares represented by this certificate are subject to the terms and
conditions of a certain Voting and Stockholders' Rights Agreement dated as of
May 15, 1996, a copy of which the Company will furnish to the holder of this
certificate upon request and without charge."
11. Notices. All notices or other communications given hereunder shall be
in writing and shall be deemed effective upon delivery at the address of the
party to be notified and shall be mailed by certified or registered mail,
return receipt requested, delivered by courier, telecopied, or sent by other
facsimile method (notices by telecopy or facsimile must be confirmed by next
day courier delivery to be effective), addressed to the address specified
below such party's signature hereto or such other address as such party may
subsequently notify the other parties of in writing.
12. Entire Agreement and Amendments. This Agreement constitutes the
entire agreement of the parties with respect to the subject matter hereof and
neither this Agreement nor any provision hereof may be waived, modified,
amended or terminated except by a written agreement signed by the Company and
each of the Nominating Entities.
13. Governing Law; Successors and Assigns. This Agreement shall be
governed by the laws of the State of Delaware and shall bind and inure to the
benefit of the heirs, personal representatives, executors, administrators,
successors and assigns of the parties. Without limiting the generality of the
foregoing, all covenants and agreements of the Purchasers shall bind any and
all subsequent holders of their Shares, and the Company agrees that it shall
not transfer on its records any such Shares unless (i) the transferor
Purchaser shall have first delivered to the Company and the other Purchasers
the written agreement of the transferee to be bound by this Agreement to the
same extent as if such transferee had originally been a Purchaser hereunder
and (ii) the certificate or certificates evidencing the Shares so transferred
bear the legend specified in Section 10.
-4-
<PAGE>
14. Captions. Captions are for convenience only and are not deemed
to be part of this Agreement.
15. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
COMPANY
HumaScan Inc.
By:______________________________
Title:___________________________
Address: 514 Centennial Avenue
Cranford, NJ 07016
PURCHASERS:
THE TRAVELERS INSURANCE COMPANY
on behalf of itself and/or one or more of its affiliates
By:______________________________
Title:___________________________
Address: One Tower Square
Hartford, CT 06183-2030
------------------------------
Udi Toledano
Address: c/o Andromeda Enterprises, Inc.
545 Madison Avenue
New York, NY 10022
-5-
<PAGE>
Smith Barney Worldwide Securities, Ltd.
By: _____________________________
Title: ____________________________
Address: 388 Greenwich Street
25th Floor
New York, NY 10013
Smith Barney Worldwide Fund, N.V.
By: _____________________________
Title: ____________________________
Address: 388 Greenwich Street
25th Floor
New York, NY 10013
BURNHAM:
Burnham Securities Inc.
By:______________________________
Title:___________________________
Address: 1325 Avenue of the Americas
New York, NY 10019
357JDD8103/9.179736-1
WPB/84612.1
-6-
<PAGE>
HumaScan Inc.
514 Centennial Avenue
Cranford, NJ 07016
March 19, 1996
Mr. Udi Toledano
545 Madison Avenue, Suite 800
New York, NY 10022
Dear Mr. Toledano:
This will confirm that upon the sale of Preferred Stock and Warrants for an
aggregate sale price of at least $5.5 million (the "Private Placement
Closing"), HumaScan Inc. (the "Company") will issue to you certain additional
Warrants.
Such warrants will allow you to purchase up to 107,500 Common Shares of the
Company for a period of five (5) years from the date of an initial public
offering of its Common Stock under the Securities Act of 1933, as amended, by
the Company in which the Company receives gross proceeds of at least
$13,600,000, provided, that the Toledano Group (as defined in the current
draft of the Confidential Private Offering Memorandum) has purchased at least
$2 million of Preferred Stock at the Private Placement Closing, subject to the
following conditions:
The purchase price per share of Common Stock under the Warrants shall be $2.20
per share.
The Warrants for 107,500 Shares can be exercised provided that the Company's
Common Stock has been trading publicly at a price per share of at least $5.50
before a date which is six (6) months from the date of the sale of the
Preferred Stock.
If that condition is not met, thereafter the Warrants for only 35,000 Shares
can be exercised provided that the Company's Common Stock has been trading
publicly at a price per share of at least $5.50 before a date which is nine
(9) months from the date of the sale of the Preferred Stock.
<PAGE>
Mr. Udi Toledano
March 19, 1996
Page 2
If the foregoing correctly sets forth our understandings, please sign and
return to the Company via facsimile transmission a copy of this letter, at
which time it shall be and become our mutually binding agreement, enforceable
in accordance with its terms and subject to interpretation and governed under
and in accordance with the laws of New York.
Very truly yours,
HumaScan Inc.
By:_________________________________
Don Brounstein
President
Accepted and Agreed, as of the
date first above written
____________________________________
Udi Toledano
WPB/79350.1
<PAGE>
HumaScan Inc.
514 Centennial Avenue
Cranford, NJ 07016
March 19, 1996
Mr. Herbert V. Turk
2132 Cedarwood Lane
San Jose, CA 95125
Mr. Udi Toledano
Dear Mr. Turk:
This will confirm that upon the sale of Preferred Stock and Warrants for an
aggregate sale price of at least $5.5 million (the "Private Placement
Closing"), HumaScan Inc. (the "Company") will issue to you certain additional
Warrants.
Such warrants will allow you to purchase up to 107,500 Common Shares of the
Company for a period of five (5) years from the date of an initial public
offering of its Common Stock under the Securities Act of 1933, as amended, by
the Company in which the Company receives gross proceeds of at least
$13,600,000, provided, that the Toledano Group (as defined in the current
draft of the Confidential Private Offering Memorandum) has purchased at least
$2 million of Preferred Stock at the Private Placement Closing, subject to the
following conditions:
The purchase price per share of Common Stock under the Warrants shall be $2.20
per share.
The Warrants for 107,500 Shares can be exercised provided that the Company's
Common Stock has been trading publicly at a price per share of at least $5.50
before a date which is six (6) months from the date of the sale of the
Preferred Stock.
If that condition is not met, thereafter the Warrants for only 35,000 Shares
can be exercised provided that the Company's Common Stock has been trading
publicly at a price per share of at least $5.50 before a date which is nine
(9) months from the date of the sale of the Preferred Stock.
<PAGE>
Mr. Herbert V. Turk
March 19, 1996
Page 2
If the foregoing correctly sets forth our understandings, please sign and
return to the Company via facsimile transmission a copy of this letter, at
which time it shall be and become our mutually binding agreement, enforceable
in accordance with its terms and subject to interpretation and governed under
and in accordance with the laws of New York.
Very truly yours,
HumaScan Inc.
By:________________________________
Don Brounstein
President
Accepted and Agreed, as of the
date first above written
____________________________________
Herbert V. Turk
WPB/84655.1
<PAGE>
HumaScan/PSS Warrant/Execution A.2
THIS WARRANT CERTIFICATE AND THE WARRANTS EVIDENCED HEREBY HAVE NOT BEEN AND
THE COMMON STOCK TO BE ISSUED UPON EXERCISE OF SUCH WARRANTS HAS NOT BEEN OR
WILL NOT, UPON THE ISSUANCE THEREOF, HAVE BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR QUALIFIED UNDER STATE
SECURITIES LAWS BUT HAVE BEEN, OR WILL BE, AS THE CASE MAY BE, ISSUED PURSUANT
TO AN EXEMPTION FROM SUCH REGISTRATION AND MAY NOT BE SOLD, TRANSFERRED,
PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS (i) THE ISSUER THEREOF
SHALL HAVE RECEIVED AN OPINION OF COUNSEL TO THE EFFECT THAT NO REGISTRATION
OR QUALIFICATION THEREOF IS LEGALLY REQUIRED FOR SUCH TRANSFER OR (ii) COVERED
BY AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND QUALIFIED
UNDER APPLICABLE STATE SECURITIES LAWS.
No. W-_____ 166,667 Warrants to Purchase
One Share Each
NON-NEGOTIABLE WARRANT CERTIFICATE
To subscribe for and purchase shares of Common Stock, $0.01 par value per
share (the "Common Stock"), of
HUMASCAN INC.
THIS CERTIFIES that, for value received, Physician Sales & Service,
Inc., a Florida corporation ("PSS"), or its registered successors, is the
owner of 166,667 warrants (the "PSS Warrants"), each of which entitles the
owner thereof to purchase from HUMASCAN Inc., a Delaware corporation (herein
called the "Company"), one share of Common Stock of the Company (individually
a "Common Share" and collectively the "Common Shares") commencing on the date
hereof, at an initial purchase price of $3.00 per Common Share (the "Exercise
Price"). By its acceptance of this Warrant Certificate, the registered holder
hereof agrees to exercise all of the outstanding PSS Warrants within ninety
(90) days following the date (the "Notice Date") on which it receives written
notice from the Company of the occurrence of the Exercise Event (as defined
below), in accordance with and subject to the terms of Section 2 below. To the
extent any PSS Warrants remain unexercised, such PSS Warrants shall
automatically and without further action by the Company or the holder hereof
terminate upon the earliest to occur of (A) 5:00 p.m., New Jersey time, on the
90th day following the Notice Date, or (B) their termination in accordance
with Section 2(b) below, or (C) March 1, 2001 (as the case may be, the
"Termination Date"). The number of shares of Common Stock to be received upon
the exercise of each Warrant and the Exercise Price to be paid for a share of
Common Stock are subject to adjustment from time to time as hereinafter set
forth.
<PAGE>
HumaScan/PSS Warrant/Execution A.2
1. Exercise of PSS Warrants. The PSS Warrants evidenced hereby may be
exercised by the registered holder hereof, in whole or in part, by the
surrender of this Warrant Certificate, duly endorsed (unless endorsement is
waived by the Company), at the principal office of the Company (or at such
other office or agency of the Company as it may designate by notice in writing
to the registered holder hereof at such holder's last address appearing on the
books of the Company) and upon payment to the Company by certified or official
bank check or checks payable to the order of the Company of the purchase price
of the Common Shares purchased. The Company agrees that the Common Shares so
purchased shall be deemed to be issued to the registered holder hereof on the
date on which this Warrant Certificate shall have been surrendered and payment
made for such Common Shares as aforesaid; provided, however, that no such
surrender and payment on any date when the stock transfer books of the Company
shall be closed shall be effective to constitute the person entitled to
receive such Common Shares as the record holder thereof on such date, but such
surrender and payment shall be effective to constitute the person entitled to
receive such Common Shares as the record holder thereof for all purposes
immediately after the opening of business on the next succeeding day on which
such stock transfer books are open. The certificate(s) for such Common Shares
shall be delivered to the registered holder hereof within a reasonable time,
not exceeding five days, after the PSS Warrants evidenced hereby shall have
been so exercised, and a new Warrant Certificate evidencing the number of
Common Shares remaining to be issued upon exercise of the PSS Warrants shall
also be issued to the registered holder within such time unless such PSS
Warrants shall have expired. No fractional Common Shares of the Company, or
scrip for any such fractional shares, shall be issued upon the exercise of any
Warrant.
2. (a) Obligation to Exercise PSS Warrants. The Company shall have
the option, at any time on or after the date on which the first 50,000
saleable BreastAssure(TM) units have been provided by the Company to PSS
pursuant to the Exclusive Supply & Distribution Agreement (the "Distribution
Agreement") between the Company and PSS (the "Exercise Event"), to give (i)
the signed certificate of the President, or in his absence any other officer,
of the Company stating in good faith that the Company has no reason to believe
it will be unable to supply sufficient to PSS to achieve the basis for the
First Year Period (as set forth in such Agreement), and (ii) written notice of
the Exercise Event, to the registered holder hereof requiring such registered
holder to exercise all of the then outstanding PSS Warrants, in which event
such registered holder shall be obligated to exercise such PSS Warrants in the
manner provided in Section 1 above not later than 5:00 p.m., New Jersey time,
on the 90th day following the Notice Date unless during such 90 day period PSS
determines in good faith that BreastAssure is not sufficiently saleable and/or
acceptable to the market in order for PSS to achieve and sell the first
1,000,000 units of the BreastAssure during the First Year Period (as defined
in the Distribution Agreement) in accordance with the terms of the
Distribution Agreement. For purposes of this Section 2, such written notice
and certificate shall be conclusively deemed received immediately if delivered
personally or sent by confirmed facsimile, or on the next business day after
being sent by overnight courier service, or on the third business day after
being mailed by certified or registered mail, return receipt requested, to the
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<PAGE>
HumaScan/PSS Warrant/Execution A.2
following address or facsimile number, as the case may be (or such other
address or facsimile number as the registered holder hereof may provide in
writing to the Company for this purpose): Physician Sales & Service, Inc.,
7800 Belfort Parkway, Suite 250, Jacksonville, FL 32256, Attention: Chief
Financial Officer, facsimile no. (904) 281-9555.
(b) Option to Exercise PSS Warrants or Allow Their
Termination. In addition to and notwithstanding anything to the contrary in
Section 2(a) above, the Company shall have the right, in its sole discretion,
at any time that it in good faith anticipates an offering of its equity
securities to be registered pursuant to the provisions of the Securities Act
of 1933 within the next 90 days or the acquisition of HSI by a third party
within the next 60 days (or such shorter period as may be applicable in the
event HSI first becomes aware of such anticipated acquisition less than 60
days prior thereto), to give to PSS thirty (30) days' prior written notice of
termination of the PSS Warrant, whereupon PSS at its option may either
exercise the PSS Warrants before the expiration of such 30 day period or allow
the PSS Warrant to automatically terminate in accordance with its terms at the
end of such 30 day period.
3. Anti-Dilution Provisions. The Exercise Price per share shall be
subject to adjustment from time to time as hereafter provided. Upon each
adjustment of the Exercise Price, the holder of the PSS Warrants evidenced
hereby shall thereafter be entitled to purchase, at the Exercise Price
resulting from such adjustment, the number of shares obtained by multiplying
the Exercise Price in effect immediately prior to such adjustment by the
number of shares purchasable pursuant hereto immediately prior to such
adjustment and dividing the product thereof by the Exercise Price resulting
from such adjustment.
(a) Warrant Purchase Price Adjustments. If and whenever
after the date hereof the Company shall issue or sell any shares of its Common
Stock (except for the issuance of shares of Common Stock (i) issuable upon
conversion of the Company's Convertible Series A Preferred Stock, $0.01 par
value per share (the "Preferred Stock") to be issued in connection with the
Proposed Offering (as defined in Section 7 of this Agreement), (ii) pursuant
to the exercise of Section 3 Warrants (as hereinafter defined), and (iii) to
Scantek Medical, Inc. ("Scantek") pursuant to that certain Second Amended
License Agreement dated as of October 20, 1995 between the Company and
Scantek, including shares of Common Stock issuable upon exercise of warrants
issued to Scantek pursuant to such agreement (collectively, "Permitted
Issuances") for a consideration per share less than the Exercise Price in
effect immediately prior to the time of such issuance or sale, or shall be
deemed under the provisions of this Section 3 to have effected any such
issuance or sale, then, forthwith upon such issuance or sale, the Exercise
Price shall be reduced to a price equal to (calculated to the nearest
$0.00001):
the price determined by dividing (i) an amount equal to the
sum of (A) the number of shares of Common Stock outstanding
immediately prior to such issuance or sale multiplied by the
then existing Exercise Price and (B) the consideration, if
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<PAGE>
HumaScan/PSS Warrant/Execution A.2
any, received by the Company upon such issuance or sale by
(ii) the total number of shares of Common Stock outstanding
immediately after such issuance or sale.
Notwithstanding the foregoing, no adjustment of the Exercise Price shall be
made in an amount less than $0.00001 per share, but any such lesser adjustment
shall be carried forward and shall be made at the time of and together with
the next subsequent adjustment which together with any adjustments so carried
forward shall amount to $0.00001 per share or more.
"Section 3 Warrants" as used herein shall mean any warrants issued by
the Corporation for the purchase of Common Stock (i) to purchasers of the
Preferred Stock, on the date of issuance of the Preferred Stock, (ii) to any
holder of Preferred Stock issued in exchange for the 10%, Series A or Series
B, Convertible Notes of the Company due August 30, 1996, (iii) in an amount
not to exceed 533,333 shares exercisable at $2.20 per share to Burnham
Securities Inc., (iv) in an amount not to exceed 300,000 shares exercisable at
$2.20 per share to certain consultants and/or others performing services for
the Company, or (v) the PSS Warrants evidenced hereby.
For the purposes of this Section 3(a), the following subsections
3(a)(i) to 3(a)(vii), inclusive, shall also be applicable:
(i) In the event that at any time the Company
shall in any manner grant (directly, by assumption in a merger or otherwise)
any rights to subscribe for or to purchase, or any options (except for
Permitted Issuances) for the purchase of (x) Common Stock or (y) any stock or
securities convertible into or exchangeable for Common Stock (such rights or
options being herein called "Options" and such convertible or exchangeable
stock or securities being herein called "Convertible Securities"), or shall
fix a record date for determination of holders of any class of securities
entitled to receive any such Options, whether or not such Options or the right
to convert or exchange any such Convertible Securities are immediately
exercisable, and whether or not the price per share for which Common Stock is
issuable upon the exercise of such Options or upon conversion or exchange of
such Convertible Securities (determined by dividing (A) the total amount, if
any, received or receivable by the Company as consideration for the granting
of such Options, plus the minimum aggregate amount of additional consideration
payable to the Company upon the exercise of all such Options, plus, in the
case of any such Options that relate to Convertible Securities, the minimum
aggregate amount of additional consideration, if any, payable upon the
issuance or sale of such Convertible Securities and upon the conversion or
exchange thereof, by (B) the total number of shares of Common Stock issuable
upon the exercise of such Options or upon the conversion or exchange of all
such Convertible Securities issuable upon the exercise of such Options), shall
be less than the Exercise Price in effect immediately prior to the time of the
granting of such Options, then the total number of shares of Common Stock
issuable upon the exercise of such Options or upon conversion or exchange of
the total amount of such Convertible Securities issuable upon the exercise of
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<PAGE>
HumaScan/PSS Warrant/Execution A.2
such Options (as of the date of granting such Options) shall be deemed to be
outstanding and to have been issued for such price per share. Except as
otherwise provided in subsection 3(a)(iii), no further adjustment of the
Exercise Price shall be made upon the actual issuance of such Common Stock or
of such Convertible Securities upon exercise of such Options or upon the
actual issuance of such Common Stock upon conversion or exchange of such
Convertible Securities.
(ii) In the event that the Company shall in any
manner issue (directly, by assumption in a merger or otherwise) or sell any
Convertible Securities (other than pursuant to the exercise of Options to
purchase such Convertible Securities covered by subsection 3(a)(i)), or shall
fix a record date for the determination of holders of any class of securities
entitled to receive any such Convertible Securities, whether or not the rights
to exchange or convert thereunder are immediately exercisable, and whether or
not the price per share for which Common Stock is issuable upon such
conversion or exchange (determined by dividing (A) the total amount received
or receivable by the Company as consideration for the issuance or sale of such
Convertible Securities, plus the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the conversion or exchange
thereof, by (B) the total maximum number of shares of Common Stock issuable
upon the conversion or exchange of all such Convertible Securities) shall be
less than the Exercise Price in effect immediately prior to the time of such
issuance, then the total maximum number of shares of Common Stock issuable
upon conversion or exchange of all such Convertible Securities shall (as of
the date of the issuance or sale of such Convertible Securities) be deemed to
be outstanding and to have been issued for such price per share; provided,
that except as otherwise provided in subsection 3(a)(iii), no further
adjustment of the Exercise Price shall be made upon the actual issuance of
such Common Stock upon conversion or exchange of such Convertible Securities.
(iii) In connection with any change in, or the
expiration or termination of, the purchase rights under any Option or the
conversion or exchange rights under any Convertible Securities, the following
provisions shall apply:
(A) If the purchase price provided for
in any Option referred to in subsection 3(a)(i), the additional consideration,
if any, payable upon the conversion or exchange of any Convertible Securities
referred to in subsection 3(a)(i) or 3(a)(ii), or the rate at which any
Convertible Securities referred to in subsection 3(a)(i) or 3(a)(ii) are
convertible into or exchangeable for Common Stock shall change at any time
(other than under or by reason of provisions designed to protect against
dilution), then the Exercise Price in effect at the time of such change shall
forthwith be increased or decreased to the Exercise Price that would be in
effect immediately after such change if (a) the adjustments that were made
upon the issuance of such Options or Convertible Securities had been made upon
the basis of (and taking into account the total consideration received for)
(i) the issuance at that time of the Common Stock, if any, actually issued
upon the exercise of any such Options or upon the conversion or exchange of
any such Convertible Securities before such change, and (ii) the issuance at
that time of all such Options or Convertible Securities, with terms and
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<PAGE>
HumaScan/PSS Warrant/Execution A.2
provisions reflecting such change that are still outstanding after such
change, and (b) the Exercise Price as adjusted pursuant to clause (a)
preceding had been used as the basis for the adjustments required hereunder in
connection with all other issuances or sales of Common Stock, Options or
Convertible Securities by the Company subsequent to the issuance of such
Options or Convertible Securities.
(B) On the partial or complete expiration of any Options or
termination of any right to convert or exchange Convertible Securities which
have not been fully exercised, the Exercise Price then in effect hereunder
shall be forthwith increased or decreased to the Exercise Price that would be
in effect at the time of such expiration or termination if (a) the adjustments
that were made upon the issuance of such Options or Convertible Securities had
been made upon the basis of (and taking into account the total consideration
received for) (i) the issuance at that time of the Common Stock, if any,
actually issued upon the exercise of such Options or upon the conversion or
exchange of such Convertible Securities before such expiration or termination,
and (ii) the issuance at that time of only those such Options or Convertible
Securities that remain outstanding after such expiration or termination, and
(b) the Exercise Price as adjusted pursuant to the preceding clause (a) had
been used as the basis for adjustments required hereunder in connection with
all other issues or sales of Common Stock, Options or Convertible Securities
by the Company subsequent to the issuance of such Options or Convertible
Securities.
(C) Of the purchase price provided for in any Option referred
to in subsection 3(a)(i) or the rate at which any Convertible Securities
referred to in subsection 3(a)(i) or 3(a)(ii) are convertible into or
exchangeable for Common Stock shall be reduced at any time under or by reason
of provisions with respect thereto designed to protect against dilution, and
the event causing the reduction is one that did not also require an adjustment
in the Exercise Price under other provisions of this Section 3(a), then in
case of the delivery of shares of Common Stock upon the exercise of any such
Option or upon conversion or exchange of any such Convertible Securities, the
Exercise Price then in effect hereunder shall forthwith be adjusted to such
amount as would have obtained if such Option or Convertible Securities had
never been issued and if the adjustments made upon the issuance of such Option
or Convertible Securities had been made upon the basis of the issuance of (and
taking into account the total consideration received for) the shares of Common
Stock delivered as aforesaid; provided, that no such adjustment shall be made
unless the Exercise Price then in effect would be reduced thereby.
(D) If a record date for the issuance of any Options or
Convertible Securities shall have been fixed and such Options or Convertible
Securities are not issued on the date fixed therefor, the adjustment
previously made as provided in subsections 3(a)(i) and 3(a)(ii) above to the
relevant Exercise Price which becomes effective on such record date shall be
cancelled as of the close of business on such record date, and thereafter such
Exercise Price shall be adjusted pursuant to subsection 3(a)(i) or 3(a)(ii),
as the case may be, as of the actual date of their issuance.
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<PAGE>
HumaScan/PSS Warrant/Execution A.2
(iv) In the event the Company declares a
dividend or makes any other distribution upon any stock of the Company payable
in Common Stock, Options or Convertible Securities, any Common Stock, Options
or Convertible Securities, as the case may be, issuable in payment of such
dividend or distribution shall be deemed to have been issued or sold without
consideration. In the event the Company shall grant the holders of Common
Stock the right to subscribe for or purchase shares of Common Stock or any
other security, whether pursuant to preemptive rights set forth in the
Certificate of Incorporation of the Company or in an agreement or otherwise,
the Company, from time to time, shall be deemed to have received the amount
actually received upon exercise of the rights.
(v) For purposes of this Section 3(a), the
amount of consideration received by the Company in connection with the
issuance or sale of Common Stock, Options or Convertible Securities shall be
determined in accordance with the following:
(A) In the event shares of Common Stock,
Options or Convertible Securities are issued or sold for cash, the
consideration received therefor shall be deemed to be the amount payable to
the Company therefor, after deduction therefrom of any expenses incurred and
any underwriting commissions or concessions or discounts paid or allowed by
the Company in connection therewith.
(B) In the event shares of
Common Stock, Options or Convertible Securities are issued or sold for a
consideration other than cash, the amount of the consideration other than cash
payable to the Company shall be deemed to be the fair value of the
consideration (after deduction of any dividends or interest accrued in respect
thereof and any underwriting commissions or concessions or discounts paid or
allowed by the Company in connection therewith) as determined in good faith by
the Board of Directors of the Company, including, without limitation,
cancellation or satisfaction of amounts payable to the purchaser for accrued
interest or accrued dividends on obligations or securities other than the
Common Stock, Options or Convertible Securities then being issued.
(C) The amount of consideration deemed
to be received by the Company pursuant to the foregoing provisions of this
subsection 3(a)(v) upon any issuance or sale, pursuant to an established
compensation plan of the Company, to directors, officers or employees of the
Company in connection with their employment, of shares of Common Stock,
Options or Convertible Securities, shall be increased by the amount of any tax
benefit realized by the Company as a result of the issuance or sale, the
amount of the tax benefit being the amount by which the federal or state
income or other tax liability of the Company shall be reduced by reason of any
deduction or credit in respect of the issuance and/or sale.
(D) In the event shares of Common Stock,
Options or Convertible Securities are issued in connection with any merger in
which the Company is the surviving corporation, the amount of consideration
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<PAGE>
HumaScan/PSS Warrant/Execution A.2
therefor shall be deemed to be the fair market value of such portion of the
assets and business of the nonsurviving corporation as shall be attributable
to the Common Stock, Options or Convertible Securities, as the case may be, as
determined in good faith by the Board of Directors of the Company.
(E) In the event Options shall be issued
in connection with the issuance and sale of other securities of the Company,
together comprising one integral transaction in which no specific
consideration is allocated to such Options by the parties thereto, the Options
shall be deemed to have been issued without consideration.
(F) In the event of a consolidation or
merger of the Company in which stock or securities of another corporation are
issued in exchange for Common Stock of the Company or in the event of any sale
of all or substantially all the assets of the Company for stock or other
securities of any corporation, the Company shall be deemed to have issued a
number of shares of its Common Stock for stock or securities of the other
corporation computed on the basis of the actual exchange ratio on which the
transaction was predicated and for a consideration equal to the fair market
value on the date of the transaction of the stock or securities of the other
corporation, and if the calculation results in adjustment of the Exercise
Price, the determination of the number of shares of Common Stock receivable
upon exercise of the PSS Warrants immediately prior to such merger,
consolidation or sale, for purposes of Section 3(c), shall be made after
giving effect to the adjustment of the Exercise Price; provided, that no such
adjustment shall be made unless the Exercise Price then in effect shall be
reduced thereby.
(vi) (A) In the event the Company fixes a
record date with respect to the holders of its Common Stock for the purpose of
entitling them (i) to receive a dividend or other distribution payable in
Common Stock, Options or Convertible Securities or (ii) to subscribe for or
purchase Common Stock, Options or Convertible Securities (whether pursuant to
preemptive rights granted by the Certificate of Incorporation of the Company
or in an agreement or otherwise), then the record date shall be deemed to be
the date of the issuance or sale of the shares of Common Stock deemed to have
been issued or sold upon the declaration of the dividend or the making of the
distribution or the date of the granting of the right of subscription or
purchase, as the case may be.
(B) If such record date shall have been
fixed and such dividend or distribution shall not have been paid or right of
subscription or purchase fulfilled on the date fixed therefor, the adjustment
previously made to the relevant Exercise Price which became effective on such
record date shall be cancelled as of the close of business on such record
date, and thereafter such Exercise Price shall be adjusted as provided herein
as of the time of actual payment of such dividend, distribution or
subscription for Common Stock, Options or Convertible Securities.
(vii) The number of shares of Common Stock
outstanding at any given time shall not include shares owned or held by or for
the account of the Company or any subsidiary thereof, and the disposition of
any such shares shall be considered an issuance or sale of Common Stock for
the purposes of this Section 3(a).
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<PAGE>
HumaScan/PSS Warrant/Execution A.2
(b) Stock Splits and Reverse Splits. In the event the
Company subdivides its outstanding shares of Common Stock into a greater
number of shares, the Exercise Price in effect immediately prior to the
subdivision shall be proportionately reduced and the number of Common Shares
purchasable pursuant to the PSS Warrants evidenced hereby immediately prior to
the subdivision shall be proportionately increased, and conversely, in the
event the outstanding shares of Common Stock of the Company are combined into
a smaller number of shares, the Exercise Price in effect immediately prior to
the combination shall be proportionately increased and the number of Common
Shares purchasable upon the exercise of the PSS Warrants evidenced hereby
immediately prior to the combination shall be proportionately reduced. Except
as provided in this Section 3(b), no adjustment in the Exercise Price and no
change in the number of Common Shares purchasable shall be made under this
Section 3 as a result, or by reason, of any subdivision or combination.
(c) Reorganizations and Asset Sales. If any capital
reorganization or reclassification of the capital stock of the Company, or any
consolidation or merger of the Company with another corporation, or the sale
of all or substantially all its assets to another corporation, shall be
effected in such a way that holders of Common Stock shall be entitled to
receive stock, securities or assets with respect to, or in exchange for,
Common Stock (and which shall not constitute a dividend subject to Section
3(b)), then the following provisions shall apply:
(i) As a condition of the reorganization,
reclassification, consolidation, merger or sale (except as otherwise provided
below in this Section 3(c)), lawful and adequate provisions shall be made
whereby each holder of PSS Warrants shall thereafter have the right to
purchase and receive upon the terms and conditions specified in this Warrant
Certificate and in lieu of the Common Shares immediately theretofore
receivable upon the exercise of the rights represented hereby, the shares of
stock, securities or assets as may be issued or payable with respect to, or in
exchange for, a number of outstanding shares of Common Stock equal to the
number of Common Shares immediately theretofore receivable had the
reorganization, reclassification, consolidation, merger or sale not taken
place, and in any such case appropriate provision shall be made with respect
to the rights and interests of such holder to the end that the provisions
hereof (including, without limitation, provisions for adjustments of the
Exercise Price and of the number of shares receivable upon the exercise) shall
thereafter be applicable, as nearly as may be practicable, in relation to any
shares of stock, securities or assets thereafter deliverable upon the exercise
of PSS Warrants (including an immediate adjustment, by reason of the
consolidation or merger, of the Exercise Price to the value for the Common
Stock reflected by the terms of the consolidation or merger if the value so
reflected is less than the Exercise Price in effect immediately prior to the
consolidation or merger).
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<PAGE>
HumaScan/PSS Warrant/Execution A.2
(ii) In the event of a merger or consolidation of
the Company with or into another corporation as a result of which a number of
shares of Common Stock of the surviving corporation, which are greater or
lesser than the number of shares of Common Stock of the Company outstanding
immediately prior to the merger or consolidation, are issuable to holders of
Common Stock of the Company, then the Exercise Price in effect immediately
prior to the merger or consolidation shall be adjusted in the same manner as
though there were a subdivision or combination of the outstanding shares of
Common Stock of the Company.
4. Other Notices. If at any time prior to the expiration of the
PSS Warrants evidenced hereby:
(a) The Company shall declare any dividend payable in
shares of capital of the Company, cash or other property; or
(b) the Company shall authorize the issuance of any options,
warrants or rights pro rata to all holders of Common Stock entitling them to
subscribe for or purchase any shares of stock of the Company or to receive any
other rights; or
(c) the Company shall authorize the distribution pro rata to
all holders of Common Stock of evidences of its indebtedness or assets
(excluding cash dividends or cash distributions paid out of retained earnings
or retained surplus); or
(d) there shall occur any reclassification of the Common
Stock, or any consolidation or merger of the Company with or into another
corporation or other entity (other than a consolidation or merger in which the
Company is the continuing corporation and which does not result in any
reclassification of the Common Stock) or a sale or transfer to another
corporation or other entity of all or substantially all of the properties of
the Company; or
(e) there shall occur the voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the Company;
then, and in each of such cases, the Company shall deliver to the registered
holder hereof at its last address appearing on the books of the Company, as
promptly as practicable but in any event at least 15 days prior to the
applicable record date (or determination date) mentioned below, a notice
stating, to the extent such information is available, (i) the date on which a
record is to be taken for the purpose of such dividend, distribution or
rights, or, if a record is not to be taken, the date as of which the holders
of Common Stock of record to be entitled to such dividend, distribution or
rights are to be determined, or (ii) the date on which such reclassification,
consolidation, merger, sale, transfer, liquidation, dissolution or winding up
is expected to become effective and the date as of which it is expected that
holders of Common Stock of record shall be entitled to exchange their Common
Stock for securities or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer, liquidation, dissolution or winding up.
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5. Termination of PSS Warrants. Except with respect to the Agreements
contained in Sections 6, 7, 8, 9, 10, 11 and 12 hereto, this Warrant
Certificate and the PSS Warrants evidenced hereby, and all rights and
obligations hereunder and thereunder, shall be of no further force and effect
on the Termination Date.
6. Legends. Each certificate representing Common Stock issuable
upon exercise of this Warrant shall bear a legend containing the following
words:
THE SHARES OF COMMON STOCK HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR QUALIFIED UNDER
STATE SECURITIES LAWS AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE
TRANSFERRED UNLESS (A) COVERED BY AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE ACT AND QUALIFIED UNDER APPLICABLE STATE SECURITIES LAWS,
OR (B) THE CORPORATION HAS BEEN FURNISHED WITH AN OPINION OF COUNSEL
ACCEPTABLE TO THE CORPORATION TO THE EFFECT THAT NO REGISTRATION AND
QUALIFICATION IS LEGALLY REQUIRED FOR SUCH TRANSFER.
The requirement that such legend be placed upon certificates
evidencing any such securities shall cease and terminate upon the earliest of
the following events: (a) when such shares are transferred in an underwritten
public offering, (b) when such shares are transferred pursuant to Rule 144
under the Act or (c) when such shares are transferred in any other transaction
if the seller delivers to the Company an opinion of its counsel, which counsel
and opinion shall be reasonably satisfactory to the Company, or a "no-action"
letter from the Staff of the Commission, in either case to the effect that
such legend is no longer necessary in order to protect the Company against a
violation by it of the Act upon any sale or other disposition of such shares
without registration thereunder. Upon the occurrence of an event requiring the
removal of a legend hereunder, the Company, upon the surrender of certificates
containing such legend, shall, at its own expense, deliver to the holder of
any such shares as to which the requirement for such legend shall have
terminated, one or more new certificates evidencing such shares not bearing
such legend.
7. Tag Along and First Refusal Rights.
(a) In connection with the proposed offering (the "Proposed
Offering") by the Company to sell to certain accredited investors a maximum of
76.5 Units, each Unit consisting of (i) 50,000 shares of Series A Convertible
Preferred Stock (the "Preferred Stock"), which are convertible into shares of
Common Stock on a one-for-one basis, and are automatically convertible into
Common Stock upon a public offering (a "Qualified Public Offering") of the
Company's securities registered pursuant to the Securities Act of 1933, as
amended (the "Act"), in which the Company receives gross proceeds of at least
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$10,000,000 or such lesser amount as may be determined by a majority of the
Required Preferred Stock Directors (to be elected by the holders of the
Preferred Stock), and (ii) Warrants to purchase 10,000 shares of Common Stock
for $2.20 per share expiring on the fifth anniversary of the initial closing
of the sale of the Units (individually a "Warrant" and collectively the
"Warrants") for an aggregate purchase price of $100,000 per Unit (the
"Offering"), and the proposed conversion of the Company's 10% Series A and
Series B Convertible Notes (the "Bridge Notes") into 350,000 shares of
Preferred Stock and Warrants to Purchase 70,000 shares of Common Stock, and in
order to induce PSS to enter into this warrant agreement (the holders of such
Preferred Stock and PSS with respect to this warrant certificate (the "PSS
Warrant") being called the "Other Stockholders"), Donald Brounstein is
entering into the agreements with the Other Stockholders provided for in this
Section 7. Donald Brounstein, by his signature in his individual capacity on
the signature page of this PSS Warrant, agrees on behalf of himself and his
heirs, legal representatives and assigns (collectively, "Brounstein") as
follows. Until the occurrence of a Qualified IPO, Brounstein shall not sell
any Common Stock, or any security convertible or exercisable into or
exchangeable for shares of Common Stock ("Common Stock Equivalents"), owned by
Brounstein, to another person or entity, except in accordance with the
following procedures:
(i) Brounstein shall first deliver to each Other
Stockholder a written notice (the "Section 7 Notice"), which shall
specifically state the identity, address and contact party of the
proposed purchaser (the "Section 7 Offeree"), the amount and type of
Common Stock or Common Stock Equivalents being sold, the purchase
price therefor (the "Section 7 Purchase Price" as more fully defined
below), the purchase date and time, the location at which the
purchase is to take place and a summary of the other material terms
and conditions of the proposed sale, and shall contain an offer (the
"Section 7 Offer") by the Section 7 Offeree to each Other
Stockholder, which shall be irrevocable for a period of fifteen (15)
business days after the delivery thereof (the "Section 7 Period"), to
purchase the Section 7 Stock at the Section 7 Purchase Price (as such
terms are defined below) and upon the other terms offered by the
Section 7 Offeree to Brounstein as set forth in the Section 7 Notice.
Brounstein shall, simultaneously therewith, deliver a copy of the
Section 7 Notice promptly to the Company. Notice of an Other
Stockholder's intention to accept a Section 7 Offer, in whole or in
part, shall be evidenced by a writing signed by such Other
Stockholder and delivered to the Section 7 Offeree and the Company
prior to the end of the Section 7 Period, setting forth the number
and class of Subject Shares (as defined below) that such Other
Stockholder elects to sell.
(ii) For purposes of this Section 7, the
methodology for calculations shall be as set forth in clause (iii)
below and the following terms shall have the meanings set forth
below:
"Section 7 Percentage" shall mean the quotient obtained
(expressed as a decimal) by dividing (A) the number of shares of
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HumaScan/PSS Warrant/Execution A.2
Common Stock proposed to be sold by Brounstein as set forth in the
Section 7 Notice by (B) the number of shares of Common Stock
beneficially owned by Brounstein as of the date of the Section 7
Offer.
"Section 7 Purchase Price" shall mean (x) with respect to a
share of Common Stock, the Per Share Price, and (y) with respect to a
Common Stock Equivalent, an amount equal to (A) the Per Share Price
multiplied by (B) the number of shares of Common Stock issuable upon
the conversion, exchange or exercise of such Common Stock Equivalent.
"Section 7 Stock" shall mean, with respect to each Other
Stockholder, an amount of Common Stock which, in accordance with
clause (iii) below, represents the number of shares of Common Stock
equal to the product of (A) the Section 7 Percentage multiplied by
(B) the number of shares of Common Stock into which the Subject
Shares beneficially owned by the Other Stockholder are convertible or
have been converted or issued or issuable upon the exercise of the
PSS Warrants, as the case may be.
"Per Share Price" shall mean an amount equal to the quotient
obtained by dividing (A) the number of shares of Common Stock
proposed to be sold by Brounstein as set forth in the Section 7
Notice by (B) the aggregate purchase price to be paid by the Section
7 Offeree in respect of such Common Stock.
"Subject Shares" shall mean the Shares or the Common Stock
issuable upon the conversion thereof or the Common Stock issuable
upon exercise of the PSS Warrants.
(iii) For purposes of this Section 7, the sale of a
Common Stock Equivalent shall be treated as the sale of the shares of
Common Stock into which such Common Stock Equivalent can be
converted, exchanged or exercised. For purposes of all calculations
under this Section 7 (including, without limitation, determining the
amount of Common Stock or Common Stock Equivalents proposed to be
sold by Brounstein, the beneficial ownership of Common Stock or
Common Stock Equivalents of Brounstein, and the beneficial ownership
of Subject Shares of any Other Stockholder), all Common Stock
Equivalents shall be treated as having been converted, exchanged or
exercised.
(b) Alternatively, each Other Stockholder shall have the
option, upon giving notice in the manner set forth in subsection (i) above, to
purchase, at the price and on the terms set forth in the Section 7 Notice, for
a period of fifteen (15) business days following receipt thereof, all or any
portion of the shares of Common Stock proposed to be sold by Brounstein as set
forth in such Section 7 Notice (the "Offered Shares"). In the event that the
Other Stockholders desire in the aggregate to purchase a number of Shares in
excess of the total number of Offered Shares, each such Other Stockholder
shall be permitted to purchase at least the number of Offered Shares
multiplied by a fraction, the numerator of which is the number of shares of
Common Stock (on a fully-diluted basis) owned by such Other Stockholder and
the denominator of which is the number of shares of Common Stock (on a
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HumaScan/PSS Warrant/Execution A.2
fully-diluted basis) owned by all Other Stockholders wishing to purchase any
Offered Shares (its "Pro Rata Fraction"). After each Other Stockholder
desiring to purchase Offered Shares has been allocated its Pro Rata Fraction
thereof (or any lesser amount such Other Stockholder desires to purchase), any
remaining Offered Shares shall be allocated to the remaining Other
Stockholders who wish to purchase additional Offered Shares according to each
such Other Stockholder's Pro Rata Fraction of such remaining Offered Shares.
8. Registration Rights.
(a) Demand Registration Rights. (i) After the earlier to occur
of (A) the date which is the third anniversary of the date of
issuance of the first Shares of Preferred Stock or (B) the closing
date of a Qualified IPO, and for a period of five (5) years
thereafter (the "Registration Period"), upon any written request of
the Majority Holders (as defined below) from time to time delivered
to the Company, the Company shall in each case promptly prepare and
file, and use its best efforts to cause to become effective, a
registration statement under the Act (in each case, a "Demand
Registration") covering such shares of Common Stock issuable upon the
conversion of Shares or upon the exercise of Warrants or issued upon
conversion of the Bridge Notes or issuable upon the exercise of the
PSS Warrants (collectively, the "Conversion and Warrant Shares") as
are requested by the Majority Holders to be covered thereby, all in
accordance with the following provisions of this Section 8. "Majority
Holders" as used herein shall mean the holder or holders of a
majority of the aggregate of the Conversion and Warrant Shares then
outstanding which (x) are not registered under the Act or (y) are not
sold under circumstances in which all of the applicable conditions of
Rule 144 (or any similar provisions then in effect) under the Act are
met or may not be sold pursuant to Rule 144(k), and the Company has
not delivered a new certificate or other evidence of ownership for
such shares not bearing the legend required by Section 6 hereof
("Registrable Stock"). The Majority Holders requesting a registration
under this Section 8(a) may, at any time prior to the filing date of
the registration statement relating to such registration, revoke such
request, without liability to any of the other holders of Registrable
Stock, by providing a written notice to the Company revoking such
request, in which case such request, so revoked, shall not be
considered a Demand Registration. Notwithstanding anything contained
herein to the contrary, nothing herein shall be construed as
requiring the Company to register any of its securities other than
Common Stock.
(ii) If a Demand Registration involves an underwritten public
offering and the managing underwriter shall advise the Company and
the Majority Holders that, in its view, market factors (including,
without limitation, the aggregate number of shares requested to be
registered, the general condition of the market, and the status of
the persons proposing to sell securities pursuant to the
registration) require the number of shares to be included in such
registration be limited to the largest number of shares which
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HumaScan/PSS Warrant/Execution A.2
can be sold without having an adverse effect on such offering (the
"Maximum Offering Size"), the shares to be registered in such
offering shall be reduced, to the extent required, in the following
order: (A) first the shares requested to be registered by the
Company, (B) next any securities (other than Registrable Stock) or
shares whether or not subject to other contractual registration
rights, and (C) last, the securities requested to be registered by
the Majority Holders shall be excluded from such Registration to the
extent required by such limitation.
If, after the exclusion of all of the securities referred to in clause (A) and
(B) of subsection (ii) above, a limitation of the number of shares of
Registrable Stock is required, the Majority Holders initially requesting such
registration shall so advise all holders of Registrable Stock and the number
of shares of Registrable Stock that may be included in the registration and
underwriting shall be allocated among all the Majority Holders, as nearly as
practicable, to the respective amounts of Registrable Stock requested to be
included in such Demand Registration held by such holders at the time of
filing such registration statement.
(b) Piggy-back Registration Rights. In addition to the demand
registration rights set forth in Section 8(a) above, in the case of any
proposed registration during the Registration Period of Common Stock or other
securities of the Company under the Act (other than a registration (A) on Form
S-8 or S-4 or any successor or similar forms, (B) relating to Common Stock
issuable upon exercise of employee stock options or in connection with any
employee benefit or similar plan of the Company or (C) in connection with a
direct or indirect acquisition by the Company of another company), whether or
not for the sale of its own account and including in connection with a Demand
Registration, the Company will give at least thirty (30) days' prior written
notice of the filing thereof to all holders of Shares, Warrants, the PSS
Warrants and Registrable Stock.
(i) The Company's notice shall afford the holders
of Shares, Warrants, the PSS Warrants and Registrable Stock an
opportunity to elect within thirty (30) days after receipt thereof to
include in such filing their Registrable Stock.
(ii) The inclusion of Registrable Stock in any such
registration involving an underwritten public offering shall be upon
the condition that the holders thereof (A) must sell their
Registrable Stock through the underwriters selected as provided in
Section 8(d)(vi) below on the same terms and conditions as are
applicable to the Company or other selling stockholders of the
Company, and (B) complete and execute all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents
reasonably required under the terms of such underwriting arrangements
and the provisions hereof in respect of registration rights.
(iii) For so long as any Registrable Stock remains
outstanding, the Company shall be obligated under this Section 8(b)
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HumaScan/PSS Warrant/Execution A.2
to afford the holders thereof the right to participate in each and
every such registration of Common Stock of the Company. If, at any
time after giving written notice of its intention to register any
Stock pursuant to this Section 8(b) and prior to the effective date
of the registration statement filed in connection with such
registration, the Company shall determine for any reason not to
register such stock, the Company shall give written notice to all
such holders of Registrable Stock and, thereupon, shall be relieved
of its obligation to register any Registrable Stock in connection
with such registration (without prejudice, however, to rights of any
such holder under Section 8(a) above). No registration effected
under this Section 8(b) shall relieve the Company of its obligations
to effect a Demand Registration to the extent required by Section
8(a) above.
(iv) If a registration pursuant to this Section
8(b) involves an underwritten public offering and the managing
underwriter shall advise the Company that, in its view, the number of
shares of Common Stock which the Company and such holders of
Registrable Stock intend to include in such registration exceeds the
Maximum Offering Size, the number of shares to be included in such
registration shall be limited by excluding the shares to be
registered in such offering, to the extent required by such
limitation, in the following order: (A) first any securities or
shares (other than Registrable Stock) subject to other contractual
registration rights, (B) next the number of shares that may be
included in the registration and underwriting by holders of
Registrable Stock shall be allocated among all holders thereof, in
proportion, as nearly as practicable, to the respective amounts of
securities which such holders of Registrable Stock would otherwise be
entitled to include in such registration, and (C) last the shares
being registered by the Company.
(c) Form S-3 Registration. If at any time after a date twelve
(12) months after the effective date of the initial Public Offering but prior
to the final day of the Registration Period (as defined in Section 8(a)
above), the Company shall receive from any holder or holders of Registrable
Securities a written request or requests that the Company effect a
registration of Form S-3 and any related qualification or compliance with
respect to all or a part of the Registrable Securities owned by such holder or
holders, the Company will:
(i) Promptly mail written notice of the proposed
registration, and any related qualification or compliance, to all other
holders of Registrable Securities and
(ii) as soon as practicable, use its best efforts
to effect such registration and all such qualifications and
compliances as may be so requested and as would permit or facilitate
the sale and distribution of all or such portion of such holder's or
holders' Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of
any other holder or holders joining in such request as are specified
in a written request received by the Company within twenty (20) days
after the mailing of such written notice from the Company; provided,
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HumaScan/PSS Warrant/Execution A.2
however, that the Company shall not be obligated to effect any such
registration, qualification or compliance pursuant to this
subsection (A) if Form S-3 (or a similar successor form) is not
available for such offering by the Company or by the requesting
holders; (B) if the requesting holders, together with the holders of
any other securities of the Company entitled to inclusion in such
registration, propose to sell Registrable Securities and such other
securities (if any) at an aggregate price to the public (net of any
underwriters discounts or commissions) of less than $1,000,000; (C)
with respect to any Registrable Shares regarding which the
requesting holder or holders has received an opinion of counsel to
the Company that registration is not required under the Act in order
to effect the sale or other distribution contemplated by such holder
or holders.
(iii) Subject to the foregoing, the Company shall
file a registration statement covering the Registrable Securities so
requested to be registered as soon as practicable after receipt of
the request or requests of the holders. Registration effected
pursuant to this subsection shall not be counted as demands for
registration or registrations, respectively, effected pursuant to
Section 8(a) above.
(iv) Each such registration shall be kept effective
until the earlier of (A) the sale of all securities registered
thereunder and (B) the date 120 days after the effective date
thereof.
(v) If the Company is required to file or files a
registration statement pursuant to this subsection (c), if the Board
of Directors of the Company, in its good faith judgment, determines
at the time that the filing of such registration statement or the
sale of securities pursuant to such registration statement should not
be made or continued because it would materially interfere with any
material financing, acquisition, corporate reorganization or merger
or other transaction involving the Company or any of its subsidiaries
(a "Valid Business Reason"), the Company may postpone the filing of
such registration statement or the sale of securities pursuant to it,
and no holder or holders of Registrable Securities shall sell any
such securities pursuant to such registration statement until such
Valid Business Reason for such postponement no longer exists, but in
no event for more than six months; and the Company shall give written
notice of its determination to so postpone and of the fact that the
Valid Business Reason for such postponement no longer exists, in each
case, promptly after the occurrence thereof.
(d) Expenses of Registration. The costs and expenses (other
than underwriting discount or commission) of the registrations effected
pursuant to Section 8(a) above, of all registrations effected pursuant to
Section 8(b) above, and of all other actions which the Company is required to
take or effect pursuant to this Section 8 shall be paid by the Company
(including, without limitation, all federal, state and NASD registration and
filing fees, printing expenses, costs of special audits incidental to or
required by any such registration, and fees and disbursements of counsel for
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HumaScan/PSS Warrant/Execution A.2
the Company and for the holders of Registrable Stock (including allocated
costs of internal counsel)), except that all such expenses in connection with
any amendment or supplement to the registration statement or the prospectus
used in connection therewith required to be filed more than nine (9) months
after the date on which such registration statement becomes effective under
the Act because any holder has not effected the disposition of Registrable
Stock covered by such registration statement shall be borne by such holder or
holders, in such proportions as they may agree. All such costs and expenses of
any such subsequent registration effected pursuant to this Section 8(d) in
connection with a Demand Registration shall be borne by the Majority Holders
in such proportions as they may agree; provided, that an additional request
for a Demand Registration made pursuant to Section 8(a) above by the Majority
Holders and otherwise in accordance with the terms thereof with respect to the
registration of Registrable Stock which is made more than nine (9) months
after a prior such demand shall be deemed a separate demand and not a
supplement or amendment requested by any holder pursuant to this Section 8(d).
(e) Registration Procedures. Whenever holders of Registrable
Stock request that any Registrable Stock be registered pursuant to Section
8(a) or 8(b) above, the Company will, subject to the provisions of such
Sections, use its best efforts to effect the registration of such Registrable
Stock in accordance with the intended method of disposition thereof as quickly
as practicable, and in connection with any such request:
(i) The Company will as expeditiously as possible
prepare and file with the Commission a registration statement on any
form for which the Company then qualifies and which counsel for the
Company shall deem appropriate and which form shall be available for
the sale of the Registrable Stock to be registered thereunder in
accordance with the intended method of distribution thereof, and use
its best efforts to cause such filed registration statement to become
and remain effective for a period of not less than nine (9) months
(or such shorter period in which all of the Registrable Stock of the
holders thereof included in such registration statement shall have
actually been sold thereunder).
(ii) The Company will, if requested, prior to
filing a registration statement or prospectus or any amendment or
supplement thereto, furnish to each holder of Registrable Stock and
each underwriter, if any, of the Registrable Stock covered by such
registration statement copies of such registration statement as
proposed to be filed, and thereafter the Company will furnish to such
holder and underwriter, if any, such number of copies of such
registration statement, each amendment and supplement thereto (in
each case including all exhibits thereto and documents incorporated
by reference therein), the prospectus included in such registration
statement (including each preliminary prospectus) and such other
documents as such holder or underwriter may reasonably request in
order to facilitate the disposition of the Registrable Stock owned by
such holder.
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HumaScan/PSS Warrant/Execution A.2
(iii) After the filing of the registration
statement, the Company will promptly notify each holder holding
Registrable Stock covered by such registration statement of any stop
order issued or threatened by the Commission and take all reasonable
actions required to prevent the entry of such stop order or to remove
it if entered.
(iv) The Company will use its best efforts to (A)
register or qualify the Registrable Stock covered by such
registration statement under such other securities or blue sky laws
of such jurisdictions in the United States as any holder holding such
Registrable Stock reasonably (in light of such holder's intended plan
of distribution) requests and (B) cause such Registrable Stock to be
registered with or approved by such other governmental agencies or
authorities as may be necessary by virtue of the business and
operations of the Company and do any and all other acts and things
that may be reasonably necessary or advisable to enable such holder
to consummate the disposition of the Registrable Stock owned by such
holder; provided, that the Company will not be required to (A)
qualify generally to do business in any jurisdiction where it would
not otherwise be required to qualify but for this subsection (iv), or
(B) subject itself to taxation in any such jurisdiction, or (C)
consent to general service of process in any such jurisdiction.
(v) The Company will immediately notify each holder
holding such Registrable Stock, at any time when a prospectus
relating thereto is required to be delivered under the Act, of the
occurrence of an event requiring the preparation of a supplement or
amendment to such prospectus so that, as thereafter delivered to the
purchasers of such Registrable Stock, such prospectus will not
contain an untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which
they were made, not misleading and promptly prepare and make
available to each such holder any such supplement or amendment.
(vi) If the Majority Holders request a Demand
Registration pursuant to Section 8(a) above, such Majority Holders
will have the right to select an underwriter or underwriters
reasonably satisfactory to the Company in connection with any public
offering resulting from such request. In any other case, the Company
may select, in its sole discretion, such underwriter or underwriters
as it may deem appropriate. The Company will enter into customary
agreements (including an underwriting agreement in customary form)
and take such other actions as are reasonably required in order to
expedite or facilitate the disposition of such Registrable Stock,
including the engagement of a "qualified independent underwriter" in
connection with the qualification of the underwriting arrangements
with the NASD.
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HumaScan/PSS Warrant/Execution A.2
(vii) Upon the execution of confidentiality
agreements in form and substance satisfactory to the Company, the
Company will make available for inspection by any holder of
Registrable Stock and any underwriter participating in any
disposition of Registerable Stock pursuant to a registration
statement being filed by the Company pursuant to this Section 8(e)
and any attorney, accountant or other professional retained by any
such holder or underwriter (collectively, the "Inspectors"), all
financial and other records, pertinent corporate documents and
properties of the Company (collectively, the "Records") as shall be
reasonably necessary to enable them to exercise their due diligence
responsibility, and cause the Company's officers, directors and
employees to supply all information reasonably requested by any
Inspectors in connection with such registration statement. Records
which the Company determines, in good faith, to be confidential and
which it notifies the Inspectors are confidential shall not be
disclosed to any third party by the Inspectors unless (A) the
disclosure of such Records in the registration statement is necessary
to avoid or correct a misstatement or omission in the registration
statement or (B) the release of such Records is ordered pursuant to a
subpoena or other order from a court of competent jurisdiction. Each
such holder agrees that information obtained by it as a result of
such inspections shall be deemed confidential and shall not be used
by it as the basis for any market transactions in the securities of
the Company or its Affiliates unless and until such information is
made generally available to the public. Each such holder further
agrees that it will, upon learning that disclosure of such Records is
sought in a court of competent jurisdiction, give notice to the
Company and allow the Company, at the Company's own expense, to
undertake appropriate action to prevent disclosure of any such
Records deemed confidential.
(viii) The Company will furnish to each such holder
of Registrable Stock and to each such underwriter, if any, a signed
counterpart, addressed to such underwriter, of (A) an opinion or
opinions of counsel to the Company and (B) a comfort letter or
comfort letters from the Company's independent public accountants,
each in customary form and covering such matters of the type
customarily covered by opinions or comfort letters in offerings of
securities, as the case may be, as a majority of such holders or the
managing underwriter therefor reasonably requests.
(ix) The Company will otherwise use its best
efforts to comply with all applicable rules and regulations of the
Commission, and make available to its security holders, as soon as
reasonably practicable, an earnings statement covering a period of 12
months, beginning within three months after the effective date of the
registration statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Act.
(x) The Company may require each such holder to
promptly furnish in writing to the Company such information regarding
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<PAGE>
HumaScan/PSS Warrant/Execution A.2
the distribution of the Registrable Stock as the Company may from
time to time reasonably request and such other information as may be
legally required in connection with such registration.
(xi) Each such holder of Registrable Stock agrees
that, upon receipt of any notice from the Company of the happening of
any event of the kind described in Section 8(e)(iii) or 8(e)(v) above
(a "Stop-sale Notice"), such holder will forthwith discontinue
disposition of Registrable Stock pursuant to the registration
statement covering such Registrable Stock until such holder's receipt
of a second notice from the Company that such stop-order has been
removed and/or the copies of the supplemented or amended prospectus
contemplated by Section 8(e)(v) above, and, if so directed by the
Company, such holder will deliver to the Company all copies, other
than any permanent file copies then in such holder's possession, of
the most recent prospectus covering such Registrable Stock at the
time of receipt of such Stop-sale Notice. In the event that the
Company shall give such Stop-sale Notice, the Company shall extend
the period during which such registration statement shall be
maintained effective (including the period referred to in Section
8(e)(i) above) by the number of days during the period from and
including the date of the giving of notice pursuant to Section
8(e)(iii) or 8(e)(v) above, as applicable, to the date when the
Company shall give the holders of Registrable Stock notice that the
Stop-sale Notice has been removed and/or make available to such
holders a prospectus supplemented or amended to conform with the
requirements of Section 8(e)(v) above.
(f) Lock-Up. In the event of an initial offering of the
Company's securities to the public (an "Initial Public Offering") at any time
prior to December 31, 1999, each holder, including the undersigned, of Subject
Shares and of Conversion and Warrant Shares issued upon the conversion of
Subject Shares or the exercise of Warrants or PSS Warrants prior to such
Initial Public Offering or issuable upon the exercise of the PSS Warrants, for
himself or itself and on behalf of his or its assigns, agrees that such holder
shall not be entitled to effect any public sale or distribution, including any
sale pursuant to Rule 144, or any successor provision, under the Act, of any
Registrable Stock, and not to effect any such public sale or distribution of
any other Common Stock of the Company or of any stock convertible into or
exchangeable or exercisable for any Common Stock of the Company during the 30
days prior to the effective date of the applicable registration statement or
during the period of 180 days after such effective date, or such longer
period, up to one year, as may be required by the managing underwriter of such
Initial Public Offering.
(g) Survival of Provisions. The provisions of this Section 8
with respect to Conversion and Warrant Shares, shall survive the conversion of
the Shares or the exercise of the Warrants or the PSS Warrants, as the case
may be.
9. Indemnification and Contribution. (a) In the event of a
registration of any of the Registrable Stock under the Act pursuant to Section
8, the Company will indemnify and hold harmless each seller of such
Registrable Stock thereunder and each other person, if any, who controls such
seller or underwriter within the meaning of the Act, against any losses,
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HumaScan/PSS Warrant/Execution A.2
claims, damages or liabilities, joint or several, to which such seller,
underwriter or controlling person may become subject under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon any untrue statement of any
material fact contained in any registration statement under which such
Registrable Stock was registered under the Securities Act pursuant to Section
8, any preliminary prospectus or final prospectus contained therein, or any
amendment or supplement thereof, or arise out of or are based upon the
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse
each such seller, each such underwriter and each such controlling person for
any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action,
provided, however, that the Company will not be liable in any such case if and
to the extent that any such loss, claim, damage or liability arises out of or
is based upon an untrue statement or omission so made in conformity with
information furnished by any such seller, any such underwriter or any such
controlling person in writing specifically for use in such registration
statement or prospectus.
(b) In the event of a registration of any of the Registrable
Stock under the Act pursuant to Section 8, each seller of such Registrable
Stock thereunder, severally and not jointly, will indemnify and hold harmless
the Company, each person, if any, who controls the Company within the meaning
of the Act, each officer of the Company who signs the registration statement,
each director of the Company, each underwriter and each person who controls
any underwriter within the meaning of the Act, against all losses, claims,
damages or liabilities, joint or several, to which the Company or such
officer, director, underwriter or controlling person may become subject under
the Act or otherwise, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon any untrue
statement of any material fact contained in the registration statement under
which such Registrable Stock was registered under the Act pursuant to Sections
8, any preliminary prospectus or final prospectus contained therein, or any
amendment or supplement thereof, or arise out of or are based upon the
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse
the Company and each such officer, director, underwriter and controlling
person for any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that such seller will be liable
hereunder in any such case if and only to the extent that any such loss,
claim, damage or liability arises out of or is based upon an untrue statement
or omission made in reliance upon and in conformity with information
pertaining to such seller, as such, furnished in writing to the Company by
such seller specifically for use in such registration statement or prospectus;
and provided, further, however, that the liability of each seller hereunder
shall be limited to the proportion of any such loss, claim, damage, liability
or expense which is equal to the proportion that the public offering price of
the shares sold by such seller under such registration statement bears to the
total public offering price of all securities sold thereunder, but not in any
event to exceed the proceeds received by such seller from the sale of
Registrable Stock covered by such registration statement.
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HumaScan/PSS Warrant/Execution A.2
(c) The undersigned hereby agrees to indemnify and hold
harmless the Company, its officers, directors, controlling persons, agents,
advisors, representatives and employees, from and against any and all loss,
damage, expense, claim, action, suit or proceeding (including reasonable
attorneys' fees and expenses) or liabilities due to or arising out of a breach
of any representation, warranty, covenant or acknowledgements made by the
undersigned herein. All representations, warranties, covenants and
acknowledgements contained in this Warrant and the indemnification contained
in this Section 9(c) shall survive the acceptance of this subscription.
(d) Promptly after receipt by an indemnified party hereunder of
notice of the commencement of any action, such indemnified party shall, if a
claim in respect thereof is to be made against the indemnifying party
hereunder, notify the indemnifying party in writing thereof, but the omission
so to notify the indemnifying party shall not relieve it from any liability
which it may have to such indemnified party other than under this
indemnification subsection and shall only relieve it from any liability which
it may have to such indemnified party under this indemnification subsection if
and to the extent the indemnifying party is prejudiced by such omission. In
case any such action shall be brought against any indemnified party and it
shall notify the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate in and, to the extent is
shall wish, to assume and undertake the defense thereof with counsel
satisfactory to such indemnified party, and, after notice from the
indemnifying party to such indemnified party in connection with the defense
thereof other than reasonable costs of investigation and of liaison with
counsel so selected; provided, however, that, if the defendants in any such
action include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be reasonable
defenses available to it which are different from or additional to those
available to the indemnifying party or if the interests of the indemnified
party reasonably may be deemed to conflict with the interests of the
indemnifying party, the indemnified party shall have the right to select a
separate counsel and to assume such legal defenses and otherwise to
participate in the defense of such action, with the expenses and fees of such
separate counsel and other expenses related to such action, with the expenses
and fees of such separate counsel and other expenses related to such
participation to be reimbursed by the indemnifying party as incurred.
(e) In order to provide for just and equitable contribution to
joint liability under the Act in any case in which either (i) any holder of
Registrable Stock exercising rights under this Agreement, or any controlling
person of any such holder, makes a claim for indemnification pursuant to this
Section 9 but it is judicially determined (by the entry of a final judgment or
decree by a court of competent jurisdiction and the expiration of time to
appeal or the denial of the last right of appeal) that such indemnification
may not be enforced in such case notwithstanding the fact that this Section 9
provides for indemnification in such case, or (ii) contribution under the Act
may be required on the part of any such selling holder or any such controlling
person in circumstances for which indemnification is provided under this
Section 9; then, and in each such case, the Company and such holder will
contribute to the aggregate losses, claims, damages or liabilities to which
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HumaScan/PSS Warrant/Execution A.2
they may be subject (after contribution from others) in such proportion so
that such holder is responsible for the portion represented by the percentage
that the public offering price of its Registrable Stock offered by the
registration statement bears to the public offering price of all securities
offered by such registration statement, and the company is responsible for the
remaining portion; provided, however, that, in any such case, (A) no such
holder will be required to contribute any amount in excess of the public
offering price of all such Registrable Stock offered by it pursuant to such
registration statement; and (B) no person or entity guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) will be
entitled to contribution from any person or entity who was not guilty of such
fraudulent misrepresentation.
10. Rule 144 Reporting. With a view to making available the benefits
of certain rules and regulations of the Commission which may at any time
permit the sale of the Registrable Stock to the public without registration,
at all times after 90 days after any registration statement covering a public
offering of securities of the Company under the Act shall have become
effective, the Company agrees to:
(a) make and keep public information available, as those
terms are understood and defined in Rule 144 under the Act;
(b) use its best efforts to file with the Commission in
a timely manner all reports and other documents required of the Company under
the Act and the Exchange Act; and
(c) furnish to each holder of Registrable Stock forthwith upon
request a written statement by the Company as to its compliance with the
reporting requirements of such Rule 144 and of the Act and the Exchange Act, a
copy of the most recent annual or quarterly report of the company, and such
other reports and documents so filed by the Company as such holder may
reasonably request in availing itself of any rule or regulation of the
Commission allowing such holder to sell any Registrable Stock without
registration.
11. Representations, Warranties and Covenants of the Company.
The Company represents and warrants to and covenants with the registered
holder hereof as follows:
(a) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware, is duly
qualified and in good standing under the laws of any foreign jurisdiction
where the failure to be so qualified would have a material adverse effect on
its ability to perform its obligations under the PSS Warrants evidenced by
this Warrant Certificate and has full corporate power and authority to issue
the PSS Warrants and to carry out the provisions of the PSS Warrants evidenced
by this Warrant Certificate.
(b) The issuance, execution and delivery of this Warrant
Certificate have been duly authorized by all necessary corporate action on the
part of the Company and the PSS Warrants evidenced by this Warrant Certificate
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<PAGE>
HumaScan/PSS Warrant/Execution A.2
constitute the valid and legally binding obligation of the Company,
enforceable against it in accordance with the terms hereof, except as such
enforceability may be limited by bankruptcy, insolvency or other laws
affecting generally the enforceability of creditors' rights, by general
principles of equity and by limitations on the availability of equitable
remedies.
(c) Neither the execution and delivery of the PSS Warrants
evidenced by this Warrant Certificate by the Company, nor compliance by the
Company with the provisions hereof, violates any provision of its Certificate
of Incorporation or By-Laws, as amended, or any law, statute, ordinance,
regulation, order, judgment or decree of any court or governmental agency, or
conflicts with or will result in any breach of the terms of or constitute a
default under or result in the termination of or the creation of any lien
pursuant to the terms of any agreement or instrument to which the Company is a
party or by which it or any of its properties is bound.
12. Company to Provide Stock. The Company covenants and agrees that
all shares of capital stock of the Company which may be issued upon the
exercise of the PSS Warrants evidenced hereby will be duly authorized, validly
issued and fully paid and nonassessable and free from all taxes, liens and
charges with respect to the issuance thereof to the registered holder hereof.
The Company further covenants and agrees that during the period within which
the PSS Warrants evidenced hereby may be exercised, the Company will at all
times reserve such number of shares of its capital stock as may be sufficient
to permit the exercise in full of the PSS Warrants evidenced hereby.
13. Registered Holder. The registered holder of this Warrant
Certificate shall be deemed the owner hereof and of the PSS Warrants evidenced
hereby for all purposes. The registered holder of this Warrant Certificate
shall not be entitled by virtue of ownership of this Warrant Certificate to
any rights whatsoever as a shareholder of the Company.
14. Transfer. This Warrant Certificate and the PSS Warrants evidenced
hereby may not be sold, pledged, hypothecated or transferred at any time.
Common Stock of the Company issued upon any exercise hereof may not be sold,
pledged, hypothecated or otherwise transferred at any time unless the Company
shall have received an opinion of counsel to the effect that such transfer
would not result in a violation of the Securities Act or applicable state
securities laws. Each taker and holder of this Warrant Certificate, the PSS
Warrants evidenced hereby and any shares of capital stock of the Company
issued upon exercise of such PSS Warrants, by taking or holding the same,
consents to and agrees to be bound by the provisions of this agreement,
including without limitation the provisions of this Section 15.
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<PAGE>
HumaScan/PSS Warrant/Execution A.2
IN WITNESS WHEREOF, HUMASCAN Inc. has caused this Warrant Certificate
to be signed by a duly authorized officer and this Warrant Certificate to be
dated as of __________ ___, 1996.
HUMASCAN INC.
We hereby accept this Warrant Certificate. By: __________________________
Name:
PHYSICIAN SALES & SERVICE, INC. Title:
By: __________________________
Name:
Title:
Dated: ________________________
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<PAGE>
HumaScan/PSS Warrant/Execution A.2
FORM OF EXERCISE
(to be executed by the registered holder hereof)
The undersigned hereby exercises the Warrant for the purchase of
_____ shares of common stock, $.01 par value per share ("Common Stock"), of
HUMASCAN Inc. evidenced by the within Warrant Certificate and herewith makes
payment of the purchase price in full. Kindly issue certificates for the
Common Stock in accordance with the instructions given below. The certificate
for the unexercised balance of the PSS Warrants evidenced by the within
Warrant Certificate, if any, will be registered in the name of the
undersigned.
Dated:
Instructions for registration of shares
Name (please print)
Social Security or Other Identifying
Number:_____________________________
Address:
_____________________________________
Street
_____________________________________
City, State and Zip Code
WPB/78049.4
<PAGE>
BROUNSTEIN EMPLOYMENT AGREEMENT/jmk/.001
EMPLOYMENT AGREEMENT
This Employment Agreement is entered into as of January 1, 1996
between HUMASCAN Inc., a Delaware corporation (the "Corporation"), and Donald
Brounstein ("Executive").
In consideration of the mutual covenants contained in this Agreement,
the Corporation and Executive agree as follows:
1. Employment of Executive. The Corporation will employ Executive on
the terms and subject to the conditions set forth in this Agreement from
January 1, 1996 (the "Effective Date") until the date the employment of
Executive shall terminate pursuant to Section 5. The period during which
Executive is employed hereunder is referred to herein as the "term of
employment."
2. Duties. During the term of employment, Executive will:
(A) use his best efforts to promote the interests of the
Corporation and devote his full time and efforts to its business affairs;
(B) perform such duties consistent with the office described
in clause (C) below as the Corporation may from time to time assign to him;
and
(C) serve as the Chief Executive Officer of the Corporation,
reporting solely to the Corporation's Board of Directors.
3. Restriction on Relocation. During the term of employment,
the Corporation will not cause Executive to be physically relocated outside of
the tri-state area of New York, New Jersey and Pennsylvania.
4. Compensation. For Executive's services and duties to be performed
by him under this Agreement, the Corporation shall pay Executive an annual
salary, which shall be $145,000 in calendar year 1996. Executive's salary
shall be increased effective the first day of calendar year 1997 and each
succeeding calendar year by the percentage increase in the Consumer Price
Index, Urban Wage Earners and Clerical Workers, U. S. City Average, All Items,
1982-84=100 (or closest substitute for such index then available) from the
most recent index available on the first day of the prior calendar year to the
most recent index available as of the first day of the then current calendar
year. Such salary shall be payable semi-monthly in arrears or, at the
Corporation's election, more frequently.
<PAGE>
BROUNSTEIN EMPLOYMENT AGREEMENT/jmk/.001
5. Term; Termination.
(A) Unless terminated sooner as hereinafter provided, the
initial term of employment of Executive under this Agreement shall be for a
period of three (3) years from the Effective Date. The term of employment of
Executive shall continue thereafter for an additional one (1) year period
commencing on the third anniversary of the Effective Date, unless either party
has notified the other no later than six (6) months prior to that third
anniversary that he or it does not wish to continue the term of employment of
Executive under this Agreement or unless Executive's employment is terminated
sooner as hereinafter provided. Thereafter, Executive's term of employment
under this Agreement shall continue for additional one (1) year periods,
unless either party has notified the other at least six (6) months prior to
the end of any of those additional one (1) year periods that he or it does not
wish to continue Executive's term of employment under this Agreement or unless
Executive's term of employment is terminated sooner as hereinafter provided.
(B) The Corporation may terminate the employment of
Executive hereunder for Cause (as defined below) at any time and without prior
notice. If the Corporation terminates Executive's employment for Cause, then
the Corporation shall, within fifteen (15) days after the termination date,
pay Executive all accrued and unpaid salary and benefits (including accrued
but unused vacation time) through the termination date and an additional
amount equal to one (1) semi-monthly installment of salary.
(C) The term "Cause" means any of the following:
(i) breach by Executive of Section 6(B) of
this Agreement;
(ii) material breach of any other provision of this
Agreement by Executive (other than any such breach resulting from
Executive's incapacity due to physical or mental illness), if that
breach is not remedied within thirty (30) days after written notice
to Executive describing the acts alleged to constitute Cause;
(iii) any act of fraud, misappropriation,
embezzlement or similar willful and malicious conduct by Executive
against the Corporation; or
(iv) indictment of Executive for a felony or any
conviction of, or guilty plea by Executive to, a crime involving
moral turpitude if that crime of moral turpitude tends or would
reasonably tend to bring the Corporation into disrepute.
(D) If Executive dies or becomes incapacitated, his
employment hereunder shall terminate on the date of his death or
incapacitation, as the case may be. For purposes hereof, the term
"incapacitated" means such mental or physical illness as shall render
Executive incapable of substantially performing his duties hereunder on a
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<PAGE>
BROUNSTEIN EMPLOYMENT AGREEMENT/jmk/.001
regular basis at the Corporation's offices for a period of six (6) consecutive
months or for a period of eight (8) months in any twelve-month period, all as
determined by a physician or psychiatrist, as the case may be, selected by the
Corporation and reasonably acceptable to Executive.
6. Covenants.
(A) While Executive is employed hereunder by the
Corporation, he shall not, without the prior written consent of the
Corporation, engage, directly or indirectly, in any other trade, business or
employment, or have any interest, direct or indirect, in any other business,
firm or corporation; provided, however, that he may continue to own or may
hereafter acquire any securities of any class of any publicly-owned company as
well as passive investments in privately held entities which are not engaged
in a business similar or related to that of the Corporation.
(B) Executive shall treat as confidential and keep secret
the affairs of the Corporation (including specifically the terms and
conditions of this Agreement) and shall not at any time during the term of
employment or thereafter, without the prior written consent of the
Corporation, or unless required by law, divulge, furnish or make known or
accessible to, or use for the benefit of, anyone other than the Corporation
and its subsidiaries and affiliates any information of a confidential nature
relating in any way to the business of the Corporation or its subsidiaries or
affiliates or their customers and obtained by him in the course of his
employment hereunder. Executive shall be entitled to disclose the terms of
this Agreement confidentially to potential employers of Executive after the
expiration of the term of employment and to lending institutions from whom
Executive seeks to borrow.
(C) All records, papers and documents kept or made by
Executive relating to the business of the Corporation or its subsidiaries or
affiliates or their customers shall be and remain the property of the
Corporation.
(D) All articles invented by Executive, processes discovered
by him, trademarks, designs, advertising copy and art work, display and
promotion materials and, in general, everything of value conceived or created
by him pertaining to the business of the Corporation or any of its
subsidiaries or affiliates during the term of employment, and any and all
rights of every nature whatever thereto, shall immediately become the property
of the Corporation, and Executive shall assign, transfer and deliver all
patents, copyrights, royalties, designs and copy, and any and all interests
and rights whatever thereto and thereunder, to the Corporation, without
further compensation, upon notice to him from the Corporation.
(E) Following the termination of Executive's employment
hereunder for any reason, Executive shall not, for a period of two (2) years
from such termination solicit any employee of the Corporation to leave such
employ to enter the employ of Executive or of any corporation or enterprise
with which Executive is then associated.
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<PAGE>
BROUNSTEIN EMPLOYMENT AGREEMENT/jmk/.001
(F) During the one-year period following Executive's
termination of employment by the Corporation for Cause (the "Restricted
Period"), Executive shall not render any services, directly or indirectly, as
an employee, officer, consultant or in any other capacity, to any individual,
firm, corporation or partnership engaged in the manufacturing or sale of any
breast thermal activity indicator test, or any other activities competitive
with any activities in which the Corporation or any of its affiliates is
engaged at any time during the Restricted Period (such activities being herein
called the "Corporation's Business"). During the Restricted Period, Executive
shall not, without the prior written consent of the Corporation, hold an
equity interest in any firm, partnership or corporation which competes with
the Corporation's Business, except that beneficial ownership by Executive
(including ownership by any one or more members of his immediate family and
any entity under his direct or indirect control) of less than five percent
(5%) of the outstanding shares of capital stock of any corporation which may
be engaged in any of the same lines of business as the Corporation's Business,
if such stock is listed on a national securities exchange or publicly traded
in the over-the-counter market, shall not constitute a breach of the covenants
contained in this Section 6(F). The provisions contained in this Section 6(F)
as to the time periods, scope of activities, persons or entities affected, and
territories restricted shall be deemed divisible so that, if any provision
contained in this Section 6(F) is determined to be invalid or unenforceable,
such provision shall be deemed modified so as to be valid and enforceable to
the full extent lawfully permitted.
7. Bonuses.
(A) Executive shall be eligible to receive a bonus, if any,
for the first year of the term of employment (i.e., calendar year 1996) as
determined by the Compensation Committee of the Board of Directors of the
Corporation.
(B) Executive shall be eligible to receive a bonus for the
second year of the term of employment (i.e., calendar year 1997) of up to one
hundred percent (100%) of his base salary for that year, subject to the
Corporation achieving during calendar year 1997 after-tax net income levels in
accordance with the following table, which sets forth for calendar year 1997
only the additional percentage of base salary that will be paid as a bonus,
and the target after-tax net income that must be achieved by the Corporation
in order for Executive to be entitled to the corresponding bonus award:
Targeted 1997 After-Tax Net Income Additional Percentage
- ---------------------------------- of Salary Paid as Bonus
-----------------------
$3.0 million or greater but less than $3.7 million....... 10%
greater than $3.7 million but less than $4.4 million..... 20%
-4-
<PAGE>
BROUNSTEIN EMPLOYMENT AGREEMENT/jmk/.001
Targeted 1997 After-Tax Net Income Additional Percentage
- ---------------------------------- of Salary Paid as Bonus
-----------------------
greater than $4.4 million but less than $4.7 million..... 30%
greater than $4.7 million but less than $5.0 million..... 40%
in excess of $5.0 million................................ 100%
(C) Executive shall be eligible to receive a
performance-based annual bonus for each year of his term of employment after
calendar year 1997, modeled on subparagraph (B) above based on sales and
income projections, as determined and agreed to by the Compensation Committee
and Executive.
(D) The Board of Directors of the Corporation will consider,
and nothing herein shall preclude the Corporation's Board of Directors from,
awarding Executive such other bonuses as they may, at any time or from time to
time determine.
8. Stock Warrants. On the initial closing date of a private offering
by the Corporation resulting in subscriptions for an aggregate purchase price
of at least $4,650,000 for Units of Series A Convertible Preferred Stock of
the Corporation and warrants to purchase Common Stock of the Corporation, the
Corporation will grant to Executive warrants to purchase 50,000 shares of the
Corporation's Common Stock at an exercise price of $4.00 per share.
9. Key Man Insurance. The Corporation shall apply for and procure as
owner for its own benefit life insurance on Executive, in the amount of
$8,000,000 and in such form or forms as the Corporation may determine;
provided, that $600,000 of the death benefit shall be payable to a beneficiary
selected by Executive. Executive shall, at the Corporation's request, subject
himself to such medical examinations, supply such information and execute such
documents as may be required by the insurance company or companies to whom the
Corporation has applied for such insurance.
10. Assignment. This Agreement shall be binding upon and shall
inure to the benefit of the successors and assigns of the Corporation. Neither
this Agreement nor any rights hereunder shall be assignable by Executive and
any such purported assignment by him shall be void.
11. Entire Agreement. This Agreement constitutes the entire
understanding between the Corporation and Executive concerning his employment
-5-
<PAGE>
BROUNSTEIN EMPLOYMENT AGREEMENT/jmk/.001
by the Corporation or any of its subsidiaries and supersedes any and all
previous agreements between Executive and the Corporation or any of its
subsidiaries concerning such employment. This Agreement may not be changed
orally.
12. Applicable Law. The Agreement shall be governed by and
construed in accordance with the laws of the State of New Jersey.
IN WITNESS WHEREOF, the Corporation and Executive have duly executed
this Agreement as of the date and year first written above.
HUMASCAN INC.
By:_____________________________________
Its: _________________________
________________________________________
DONALD BROUNSTEIN
DET07/36234.1
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<PAGE>
Exhibit 10.9
HumaScan Inc.
CONTRACT OF EMPLOYMENT
This agreement, made as of the 1st day of May 1996, between HUMASCAN
INC., and James J. Whidden, (the "Employee").
R E C I T A L S:
The Company wishes to employ the Employee on the terms and conditions
hereinafter set forth.
NOW, THEREFORE, for and in consideration of the mutual promises and
agreements of the parties and other good and valuable consideration, the
Company and the employee agree as follows:
1. Employment. The Company hereby employs the Employee as Senior Vice
President of Clinical Development. The Employee shall perform such duties as
shall be reasonably directed by the Company's Chief Executive Officer from
time to time.
2. Performance. The Employee agrees to serve the Company faithfully
and to the best of his ability under the direction of the Company's Chief
Executive Officer. The Employee shall devote such working time, energy and
skills required for the adequate performance of his duties hereunder.
3. Term. The Employee's employment hereunder shall commence on the
date hereof. The Employee's employment shall continue until canceled by either
party, as discussed in Section 8 of this Agreement.
4. Compensation. The Company shall pay the employee, commencing as of
the date of this Agreement, the following compensation for services rendered
hereunder :
(a) Salary. The Company shall pay the employee a base salary
of ONE HUNDRED TWENTY THOUSAND and 00/100 DOLLARS ($120,000) per year during
the term of employment hereunder, with merit raises at the discretion of the
company based on a yearly performance review or sooner if deemed appropriate
by the company. Salary shall be paid at the rate of $8000 per month with the
balance of $2000 per month deferred, accruing and payable to employee if and
when commencing upon the earlier of : 1) The third scheduled November 1996
payment of the private placement funds, or 2) When the first IPO funds are
received by the company. Thereafter employee will be paid $10,000 per month.
(b) Bonus. The company may elect to pay employee a yearly
discretionary bonus which will be determined by the Executive Compensation
Committee. If such bonus is granted, it will be paid thirty days (30) after
the anniversary of this contract.
(c) Other Benefits. Employee shall receive a $400.00 per
month automobile allowance commencing upon the earlier of : 1) the third
scheduled November, 1996 payment of the private placement funds, or 2) when
the first IPO funds are received by the company.
5. Fringe Benefits. In addition to the compensation provided for in
paragraph 4 above, the Company shall, commencing as of the date hereof,
provide the following benefits during the term of the Employee's employment
hereunder :
(a) The company shall provide employee with medical and
hospitalization insurance coverage and retirement plans, and other fringe
benefits which in each case are no less favorable to employee than those plans
provided to the company's other executives.
(b) The Company shall furnish such other fringe benefits as
the Company will customarily furnish to its other executives.
<PAGE>
(1)
6. Disability. If the employee becomes incapacitated by reason of
mental or physical disability, after the date and during the term hereof, so
that he is unable to perform his principal duties and services on a full time
basis for a period of three (3) consecutive months, the Company may terminate
the Employee's employment hereunder by notice in writing to the Employee and,
Thereupon, his employment shall terminate. Upon such termination, the Employee
shall be entitled to any benefits due under any disability maintained by the
Company for the Employee's benefit.
7. Death. If the employee dies after the date hereof and during the
term hereof, the Employee's employment hereunder shall terminate. The
Employee's personal representative shall be entitled to receive insurance
proceeds similar to those furnished to all employees of the Company.
8. Company's and Employee's Right to Terminate. The Company may
terminate the Employee's employment hereunder for cause at any time after the
effective date hereof by written notice to the Employee. "Cause" is defined as
the Employee's neglect of his duties under this Agreement or his willful
misconduct. From and after the date of such termination, the Company shall
have no further obligation hereunder to provide compensation or benefits to
the employee. If the Employee is terminated for a reason other than cause,
then the employee will be paid at his current level for the following 60 days
and will then subsequently be paid FIVE THOUSAND 00/100 ($5000) per month for
the following and final two month employment period. Employee may terminate
his employment upon 30 days written notice to the company, after which no
further compensation by the company is due.
9. Employee's Undertakings.
(a) Employee agrees to devote such working time, attention,
knowledge and skills to Humascan's business and operation to the degree
required adequately to perform Employee's assigned duties, and to use
Employee's best efforts to promote the interests of Humascan.
(b) Upon termination of employment hereunder, Employee will
immediately surrender to Humascan originals and all copies of correspondence,
books, lists, records, reports, samples, equipment, contracts and other
written memoranda or documents relating to the business of Humascan and all
other property obtained from, relating to, or belonging to Humascan.
(c) Employee has individually signed a Confidentiality and
Intellectual Property Agreement and a Non-Competition Agreement with the
company on April 7, 1996. These agreements will be binding upon the employee
during his employment and for any an future time period as stipulated therein.
(d) The parties hereto agree and stipulate that the
foregoing restraints shall be enforceable through injunction as well as an
action for damages, that such restraints upon the Employee are reasonable with
regard to their limitations and necessary for the protection of Humascan and
its business, and that such restraints will not be unduly burdensome for the
Employee.
10. Conflict of Interest. After the date of this agreement and during
the term of the Employee's employment hereunder, the employee will not, at any
time, enter into, on behalf of the Company or cause the Company to enter into,
directly or indirectly any transactions with any business organization in
which he or any member of his immediate family may be interested as a partner,
trustee, director, officer, employee, shareholder, lender of money or
guarantor. However, the Employee may cause the Company to enter into any such
transaction if the terms of any such transaction are approved by the Company's
Board of Directors in accordance with applicable law.
11. Representation by the Employee. The Employee is not a party to
any agreement, contract or understanding which in any way restricts or
prohibits him from his obligations hereunder in accordance with the terms of
this Agreement. This Agreement cancels and supersedes all prior agreements and
understandings, either written or oral, between the Company (including its
predecessors) and the Employee concerning the Company's employment of the
Employee, except those referred to in section "c" above.
<PAGE>
12. Representation by the Company. The Company is duly authorized to
execute and deliver this Agreement. This Agreement constitutes the binding
obligation of the Company enforceable against it in accordance with its terms.
(2)
13. Miscellaneous. This Agreement sets forth the entire understanding
of the parties. No statement, representation, warranty or covenant has been
made by either party, except as expressly set forth herein. This Agreement
shall not be changed or terminated orally, and it shall not be assignable by
the Employee, but the benefits and obligations hereunder shall be binding upon
and inure to the benefit of and be enforceable by the respective heirs and
personal representatives of the employee and upon the successors and assigns
of the Company. This Agreement shall be construed and enforced in accordance
with the laws of New Jersey. If any provision of this Agreement is held to be
void or unenforceable, the remaining provisions shall be unaffected thereby
and shall continue in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Agreement the day
and year first above written.
HUMASCAN INC.
By______________________________________
Donald B. Brounstein
President
----------------------------------------
James J. Whidden
(3)
<PAGE>
Exbibit 10.10
HumaScan Inc.
CONTRACT OF EMPLOYMENT
This agreement, made as of the 3rd day of June 1996, between HUMASCAN
INC., and Kenneth S. Hollander, (the "Employee").
R E C I T A L S:
The Company wishes to employ the Employee on the terms and conditions
hereinafter set forth.
NOW, THEREFORE, for and in consideration of the mutual promises and
agreements of the parties and other good and valuable consideration, the
Company and the employee agree as follows:
1. Employment. The Company hereby employs the Employee as Chief
Financial Officer. The Employee shall perform such duties as shall be
reasonably directed by the Company's Chief Executive Officer from time to
time.
2. Performance. The Employee agrees to serve the Company faithfully
and to the best of his ability under the direction of the Company's Board of
Directors. The Employee shall devote his full working time, energy and skills
to the performance of his duties hereunder.
3. Term. The Employee's employment hereunder shall commence on the
date hereof. The Employee's employment shall continue until canceled by either
party, as discussed in Section 8 of this Agreement.
4. Compensation. The Company shall pay the employee, commencing as of
the date of this Agreement, the following compensation for services rendered
hereunder :
(a) Salary. The Company shall pay the employee a base salary
of NINETY THOUSAND and 00/100 DOLLARS ($90,000) per year during the term of
employment hereunder, with merit raises at the discretion of the company based
on a yearly performance review or sooner if deemed appropriate by the company.
(b) Bonus. The company shall pay employee an annual bonus no
later than 30 days after the anniversary year of this contract for a minimum
of one month's salary. Bonus may be increased at the discretion of the
company.
(c) Stock Award. The company will grant to employee an
option to purchase 61,667 shares of the company's common stock of which 15,000
shares are at a price of $4.00 per share, ("the $4.00 warrants") and 46,667
shares at a share price equal to the price of a share of the company's common
stock in the initial public offering ("the IPO warrants") of the company's
common stock ("the Award"), which so long as employee remains in the employ of
the Corporation on a given vesting date, shall vest in employee in accordance
with the following schedule : (i) 15,000 (fifteen thousand) of "the $4.00
warrants" shall vest on on April 30th, 1997, and (ii) the remaining 46,667
(forty-six thousand six hundred sixty-seven") of "the IPO warrants" shall vest
in increments of one-twentieth, 2,333 (two thousand three hundred
thirty-three) per month at 5:00 PM on the last calendar day for each the
following nineteen months and 2,340 (two thousand three hundred forty) in the
twentieth month. Vested options shall not be exercisable prior to the initial
public offering of the company's common stock. The option shall be granted
pursuant to, and shall be subject to the terms of, a stock option plan adopted
by the company. The options shall expire five years from the date on which
they vest.
(1)
<PAGE>
(d.) Other Benefits. Employee shall receive a $650.00 per
month automobile allowance.
5. Fringe Benefits. In addition to the compensation provided for in
paragraph 4 above, the Company shall, commencing as of the date hereof,
provide the following benefits during the term of the Employee's employment
hereunder :
(a) The company shall provide employee with medical and
hospitalization insurance coverage and retirement plans, and other fringe
benefits which in each case are no less favorable to employee than those plans
provided to the company's other executives.
(b) The Company shall furnish such other fringe benefits as
the Company will customarily furnish to its managers.
6. Disability. If the employee becomes incapacitated by reason of
mental or physical disability, after the date and during the term hereof, so
that he is unable to perform his principal duties and services on a full time
basis for a period of three (3) consecutive months, the Company may terminate
the Employee's employment hereunder by notice in writing to the Employee and,
Thereupon, his employment shall terminate. Upon such termination, the Employee
shall be entitled to any benefits due under any disability maintained by the
Company for the Employee's benefit.
7. Death. If the employee dies after the date hereof and during the
term hereof, the Employee's employment hereunder shall terminate. The
Employee's personal representative shall be entitled to receive insurance
proceeds similar to those furnished to all employees of the Company.
8. Company's Right to Terminate. The Company may terminate the
Employee's employment hereunder for cause at any time after the effective date
hereof by written notice to the Employee. "Cause" is defined as the Employee's
neglect of his duties under this Agreement or his willful misconduct. From and
after the date of such termination, the Company shall have no further
obligation hereunder to provide compensation or benefits to the employee. If
the Employee is terminated by reason of death or disability or for a reason
other than cause, then the Employee will be paid a minimum of 6 (six) months
severance pay, and the employee shall have no further right to compensation
upon payment of such minimum amount.
Employee may terminate his employment hereunder at any time, and in the event
of a termination by employee for "good reason", he shall be entitled to the
severance pay provided in section eight, where "good reason" is defined as a
reduction in pay, title or responsibility or a transfer to a location more
than 75 (seventy-five) miles from the Company's office in Cranford, New
Jersey.
9. Employee's Undertakings.
(a) Employee agrees to devote Employee's full working time,
attention, knowledge and skills to Humascan's business and operation to the
degree required adequately to perform Employee's assigned duties, and to use
Employee's best efforts to promote the interests of Humascan.
(b) Upon termination of employment hereunder, Employee will
immediately surrender to Humascan originals and all copies of correspondence,
books, lists, records, reports, samples, equipment, contracts and other
written memoranda or documents relating to the business of Humascan and all
other property obtained from, relating to, or belonging to Humascan.
(2)
<PAGE>
(c) Employee agrees that for a period of twelve (12) months
after termination of employment with Humascan, Employee will not directly or
indirectly own, manage, join, control, be employed by or participate in the
ownership, management, operation or control of, or be connected in any manner
with any business engaged in the manufacture or sale of products manufactured
or sold by Humascan at the time of such termination, or with any corporation,
organization, institution, or entity with which Humascan is soliciting for
such business. Employee further agrees that during such twelve (12) month
period, Employee, or any person or entity connected with Employee will not
solicit business from any customer or prospect known to Employee to be a
customer or prospect of Humascan in competition with the business of Humascan.
(d) Employee shall hold in a fiduciary capacity for the
benefit of Humascan all secret or confidential information, knowledge or data
of Humascan not generally known to the public obtained by Employee during
employment by Humascan. Employee shall not during employment hereunder or at
any time after the termination of such employment, communicate or divulge any
such information, knowledge or data to any person, firm or corporation other
than Humascan, or persons, firms or corporations designated by Humascan.
During the term of Employee's employment and for a period of twelve (12)
months after the end or termination of such employment, Employee will not,
directly or indirectly, solicit or induce any employee of Humascan to leave
his or her employment, nor will Employee in any capacity hire or cause to be
hired any person who within twelve (12) months prior thereto shall have been
employed as an employee of Humascan, for any employment, nor shall Employee,
directly or indirectly, aid or assist any other person, firm or corporation to
do any of the aforesaid acts.
(e) The parties hereto agree and stipulate that the
foregoing restraints shall be enforceable through injunction as well as an
action for damages, that such restraints upon the Employee are reasonable with
regard to their limitations and necessary for the protection of Humascan and
its business, and that such restraints will not be unduly burdensome for the
Employee.
10. Conflict of Interest. After the date of this agreement and during
the term of the Employee's employment hereunder, the employee will not, at any
time, enter into, on behalf of the Company or cause the Company to enter into,
directly or indirectly any transactions with any business organization in
which he or any member of his immediate family may be interested as a partner,
trustee, director, officer, employee, shareholder, lender of money or
guarantor. However, the Employee may cause the Company to enter into any such
transaction if the terms of any such transaction are approved by the Company's
Board of Directors in accordance with applicable law.
11. Representation by the Employee. The Employee is not a party to
any agreement, contract or understanding which in any way restricts or
prohibits him from his obligations hereunder in accordance with the terms of
this Agreement. This Agreement cancels and supersedes all prior agreements and
understandings, either written or oral, between the Company (including its
predecessors) and the Employee concerning the Company's employment of the
Employee.
12. Representation by the Company. The Company is duly authorized to
execute and deliver this Agreement. This Agreement constitutes the binding
obligation of the Company enforceable against it in accordance with its terms.
(3)
<PAGE>
13. Miscellaneous. This Agreement sets forth the entire understanding
of the parties. No statement, representation, warranty or covenant has been
made by either party, except as expressly set forth herein. This Agreement
shall not be changed or terminated orally, and it shall not be assignable by
the Employee, but the benefits and obligations hereunder shall be binding upon
and inure to the benefit of and be enforceable by the respective heirs and
personal representatives of the employee and upon the successors and assigns
of the Company. This Agreement shall be construed and enforced in accordance
with the laws of New Jersey. If any provision of this Agreement is held to be
void or unenforceable, the remaining provisions shall be unaffected thereby
and shall continue in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Agreement the day
and year first above written.
HUMASCAN INC.
By______________________________________
Donald B. Brounstein
President
----------------------------------------
Kenneth S. Hollander
(4)
<PAGE>
HUMASCAN INC.
NONEMPLOYEE DIRECTOR STOCK OPTION PLAN
1. Purpose of Plan: The purpose of Humascan Inc. Nonemployee Director
Stock Option Plan (the "Plan") is to attract and retain the services of
experienced and knowledgeable independent directors of Humascan Inc., a
Delaware corporation (the "Corporation"), and to provide additional incentive
for such directors to continue to work for the best interests of the
Corporation and its stockholders through an investment interest in the future
success of the Corporation.
2. Administration: The Plan shall be administered by the Stock Option
Committee of the Board of Directors of the Corporation (the "Committee").
Subject to the provisions of the Plan, the Committee shall grant stock options
under the Plan and is authorized to interpret the Plan, to promulgate, amend
and rescind rules and regulations relating to the Plan and to make all other
determinations necessary or advisable for its administration. Interpretation
and construction of any provision of the Plan by the Committee shall be final
and conclusive.
3. Indemnification of Committee Members: In addition to such other rights
of indemnification as they may have, the members of the Committee shall be
indemnified by the Corporation against the reasonable expenses, including
attorneys' fees, actually and necessarily incurred in connection with the
defense of any action, suit or proceeding, or in connection with any appeal
therein, to which they or any of them may be a party by reason of any action
taken or failure to act under or in connection with the Plan or any option
granted hereunder, and against all amounts paid by them in settlement thereof
(provided such settlement is approved by independent legal counsel selected by
the Corporation) or paid by them in satisfaction of a judgment in any such
action, suit or proceeding, except in relation to matters as to which it shall
be adjudged in such action, suit or proceeding that such Committee member has
acted in bad faith; provided, however, that within sixty (60) days after
receipt of notice of institution of any such action, suit or proceeding a
Committee member shall offer the Corporation in writing the opportunity, at
its own cost, to handle and defend the same.
4. Maximum Number of Shares Subject to Plan: The maximum number of shares
with respect to which options may be granted under the Plan shall be 100,000
shares in the aggregate of Common Stock of the Corporation, which may consist
in whole or in part of the authorized and unissued or reacquired Common Stock
of the Corporation. If an option expires or terminates for any reason without
having been fully exercised, the number of shares with respect to which the
option was not exercised at the time of its expiration or termination shall
again become available for the grant of options under the Plan.
The number of shares subject to each outstanding option, the number
of shares subject to each option to be granted under the Plan, the option
price with respect to outstanding options, and the aggregate number of shares
remaining available under the Plan shall be subject to such adjustment as the
Committee, in its discretion, deems appropriate to reflect such events as
stock dividends, stock splits, recapitalizations, mergers, consolidations or
<PAGE>
reorganizations of or by the Corporation. Provided, however, that no
fractional shares shall be issued pursuant to the Plan, no options may be
granted under the Plan with respect to fractional shares, and any fractional
shares resulting from such adjustments shall be eliminated from any
outstanding option.
5. Eligibility for and Grant of Options: Each member of the Board of
Directors of the Corporation (the "Board") who otherwise (i) is not presently
an employee of the Corporation, (ii) is not a former employee still receiving
compensation for prior services (other than benefits under a tax-qualified
pension plan), (iii) was not an officer of the Corporation at any time, and
(iv) is not currently receiving remuneration from the Corporation in any
capacity other than as a director (a "Participant") shall be eligible for the
grant of stock options under the Plan. Each Participant who is serving as a
member of the Board on the date the Plan was adopted by the Board shall
automatically be granted on such date an option to purchase 2,000 shares of
Common Stock of the Corporation (subject to adjustment as provided in
Paragraph 4). Moreover, beginning with the first annual meeting of the
stockholders of the Corporation which is subsequent to the date the Plan is
adopted by the Board and provided that a sufficient number of shares remain
available under the Plan, each year on the date of the annual meeting of the
stockholders of the Corporation there shall automatically be granted to each
Participant who is serving on or elected to the Board on such date an option
to purchase 2,000 shares of the Common Stock of the Corporation (subject to
adjustment as provided in Paragraph 4). The options to be granted under the
Plan shall be nonqualified stock options (stock options which do not
constitute "incentive stock options" within the meaning of Section 422A of the
Internal Revenue Code of 1986, as amended).
6. Written Agreement: Each option shall be evidenced by a written
agreement which shall contain such provisions as may be approved by the
Committee. Such agreements shall constitute binding contracts between the
Corporation and the Participant and every Participant, upon acceptance of such
agreement, shall be bound by the terms and restrictions of the Plan and of the
agreement. The terms of each such agreement shall be in accordance with the
Plan, but the agreements may include such additional provisions and
restrictions determined by the Committee, provided that such additional
provisions and restrictions are not inconsistent with the terms of the Plan.
7. Option Price: The price per share fron which the shares covered by an
option may be purchased shall be 100% of the fair market value of the shares
on the date on which the option is granted.
8. Payment of Option Price: At the time of the exercise in whole or in
part of any option granted hereunder, payment of the option price in full in
cash or in Common Stock of the Corporation shall be made by the Participant
for all shares so purchased. No participant shall have any of the rights of a
shareholder of the Corporation; under any option until the actual issuance of
shares to said Participant, and prior to such issuance no adjustment shall be
made for dividends, distributions or other rights in respect of such shares,
except as provided in Paragraph 4.
9. Exercise and Term of Options: Each option granted hereunder shall
become exercisable with respect to 25% of the shares covered by the option on
-2-
<PAGE>
each of the first four anniversaries of the date of grant of the option;
provided, however, that if a Participant's service as a member of the Board
terminates by reason of death or disability, then an option granted to such
Participant shall become exercisable in full as of the date of such
termination. If not sooner terminated as provided herein, each option granted
hereunder shall expire 5 years from the date the granting thereof.
A Participant may exercise an option, if then exercisable, in whole or
in part by delivery to the Corporation of written notice of the exercise, in
such form as the Committee may prescribe, accompanied by full payment for the
shares with respect to which the option is exercised. Except as provided in
Paragraph 12, options granted to a Participant may be exercised only while the
Participant is serving as a member of the Board.
Successive options may be granted to the same Participant, whether or
not the option(s) previously granted to such Participant remain unexercised. A
Participant may exercise an option, if then exercisable, notwithstanding that
options previously granted to such Participant remain unexercised.
10. Non-transferability of Options: No option granted under the Plan to a
Participant shall be transferable by such Participant otherwise than by will,
or by the laws of descent and distribution, and such option shall be
exercisable, during the lifetime of the Participant, only by the Participant.
11. Continuation of Service: The Committee may require, in its
discretion, that any Participant under the Plan to whom an option shall be
granted shall agree in writing as a condition of the granting of such option
to continue serving on the Board for a designated minimum period from the date
of the granting of such option as shall be fixed by the Committee. Nothing
contained in the Plan or in any option granted pursuant to the Plan, nor any
action taken by the Committee hereunder, however, shall confer upon any
Participant any right with respect to continuation of membership on the Board
nor interfere in any way with the right of the Corporation to terminate such
person's membership on the Board at any time.
12. Termination of Service: If the membership of a Participant on the
Board terminates by reason of death or disability, an option granted to such
Participant may be exercised for a period of twelve months after such
termination. If the membership of a Participant on the Board terminates for
any reason other than death or disability, an option granted to such
Participant may be exercised for a period of sixty days after such
termination. In no event, however, shall an option be exercisable subsequent
to its expiration date and, furthermore, an option may only be exercised after
termination of a Participant's membership on the Board to the extent
exercisable on the date of such termination.
13. Investment Purpose: If the Committee in its discretion determines
that as a matter of law such procedure is or may be desirable, it may require
a Participant, upon any acquisition of stock hereunder, to execute and deliver
to the Corporation a written statement, in form satisfactory to the Committee,
representing and warranting that the Participant's acquisition of shares of
stock shall be for such person's own account, for investment and not with a view
-3-
<PAGE>
to the resale or distribution thereof and any subsequent offer for sale or
sale of any such shares shall be made either pursuant to (a) a Registration
Statement on an appropriate form under the Securities Act of 1933, as amended
(the "Securities Act"), which Registration Statement has become effective and
is current with respect to the shares being offered and sold, or (b) a
specific exemption from the registration requirements of the Securities Act,
but in claiming such exemption the Participant shall, prior to any offer for
sale or sale of such shares, obtain a favorable written opinion from counsel
for or approved by the Corporation as to the availability of such exemption.
The Corporation may endorse an appropriate legend referring to the foregoing
restriction upon the certificate or certificates representing any shares
issued or transferred to the Participant.
14. Withholding Payments: If upon the exercise of an option there shall
be payable by the Corporation any amount for income tax withholding, either
the Corporation shall appropriately reduce the amount of stock to be issued to
the participant or the Participant shall pay such amount to the Corporation to
reimburse it for such income tax withholding.
15. Effectiveness of Plan: The Plan shall be effective on the date the
Board adopts the Plan, provided that the shareholders of the Corporation
approve the Plan within 12 months of its adoption by the Board. Options
granted prior to shareholder approval of the Plan shall be subject to
shareholder approval of the Plan and no option may be exercised prior to such
shareholder approval.
16. Termination, Duration and Amendments of Plan: The Plan may be
abandoned or terminated at any time by the Board. Unless sooner terminated,
the Plan shall terminate on the date ten years after its adoption by the
Board, and no options may be granted thereafter. The termination of the Plan
shall not affect the validity of any option outstanding on the date of
termination.
For the purpose of conforming to any changes in applicable law or
governmental regulations, or for any other lawful purpose, the Board shall
have the right, with or without approval of the shareholders of the
Corporation, to amend or revise the terms of the Plan at any time; provided,
however, that no such amendment or revision shall (i) increase the maximum
number of shares in the aggregate which are subject to the Plan or which may
be granted to the Participants (subject, however, to the provisions of
Paragraph 4), change the class of persons eligible to be Participants; under
the Plan or materially increase the benefits accruing to Participants under
the Plan, without approval or ratification of the shareholders of the
Corporation; or (ii) alter or impair any option which shall have been
previously granted under the Plan without the consent of the holder thereof.
As adopted by the Board on January 12, 1996.
-4-
<PAGE>
As of November 16, 1995
Mr. Donald Brounstein
Chief Executive Officer
HumaScan Inc.
89 Summit Avenue
Suite 129
Summit, NJ 07901
Re: Terms of Financial Services Agreement between Burnham Securities and
HumaScan Inc.
--------------------------------------------------------------------
Dear Don:
You have informed us that HumaScan Inc. ("HumaScan" or the "Company") would
like to raise (the "Financing") up to $8,000,000 (the "Maximum") of capital
from accredited investors with a minimum of $5,000,000 (the "Minimum"), or
such other amount as may be agreed upon by the parties, in order to fund the
construction of a production facility, plant leasehold improvements and other
start-up and working capital costs, through a private placement of the
Company's securities, as further described below.
This letter, when countersigned by you, will confirm that the Company has
engaged Burnham Securities Inc. (the "Advisor") as the Company's exclusive
financial agent to assist the Company in arranging the Financing and to advise
the Company on the terms of the Financing, subject to the following terms and
conditions:
1. Engagement.
(a) The Company hereby engages the Advisor to act as the exclusive
financial agent of the Company, for an initial period commencing on the
date hereof and terminating 180 days thereafter, to assist in arranging the
Financing, and the Advisor hereby accepts such engagement. The Company will
extend full cooperation to the Advisor and any prospective investor in
connection with its due diligence investigation.
(b) In the event that the Minimum amount of Financing is closed within 180
days hereof, the Company agrees that the compensation to which the Advisor
shall be entitled for any additional amounts raised by the Company between
the Minimum and Maximum amount shall be based upon the same schedule of
compensation to the Advisor as outlined in sections 3(a), (b), (c), (d),
and (f) of this Agreement. The parties shall negotiate in good faith the
Advisor's compensation for any amount of financing in excess of the Maximum
based on market compensation levels.
<PAGE>
(c) The Advisor shall also have the exclusive right (the "Exclusive Right")
to provide to the Company investment banking and corporate finance services
in connection with any public or private financings, mergers or
acquisitions or other similar transactions, such exclusive rights to remain
in effect from the date on which the closing of the first sale of Preferred
Stock pursuant to section 2(a)(ii) occurs (the "Exclusivity Commencement
Date"), until 36 months thereafter (the "Exclusivity Period").
Notwithstanding the foregoing, subject to the Company paying the Advisor
the fee referred to in Section 3(f) below, in the event that the Company
consummates an offering of its securities registered pursuant to the
Securities Act of 1933 (an "IPO") during the twelve (12) months following
the Exclusivity Commencement Date, the Advisor shall not have the exclusive
right to arrange for such IPO and thereafter the Exclusivity Period shall
terminate. In the event that the Company shall not have consummated an IPO
during such 12 months, and thereafter during the Exclusivity Period the
Company consummates an IPO, the Company shall, at the Advisor's option,
either (x) pay to the Advisor a fee of 1% of the gross proceeds of such
public offering, in which event the Exclusive Right shall not apply, and
the Exclusivity Period shall terminate, or (y) the Advisor shall have the
right to manage of co-manage such IPO, provided that at the election of the
Company's lead underwriter, the Company shall have the right to terminate
the Exclusivity Period conditional upon payment to the Advisor of a fee of
1% of the gross proceeds of such offering. Upon the termination of the
Exclusivity Period, as aforesaid, the Company agrees, nevertheless, to
consider the Advisor in good faith for any corporate finance or investment
banking services during the remaining portion of the Exclusivity Period,
and agrees that it shall not grant exclusive investment banking or
corporate finance rights to any other party.
2. Securities.
(a) The Advisor will use its "best efforts" to:
(i) within 30 days hereof, arrange a $350,000, 10% interest bearing
bridge loan (the "Notes"), convertible into 350,000 shares of Preferred
Stock, described below, with a nine month maturity. Upon the closing of
the Minimum amount of the Financing, the Notes will automatically
convert into shares of Preferred Stock and all accrued interest will be
paid by the Company. The Notes will be collateralized by all of Don
Brounstein's stock in HumaScan and a first lien on all of the Company's
assets, or other collateral acceptable to the Note holders. Upon the
conversion of the Notes into Preferred Stock or the repayment of the
Notes, such stock pledge shall be released. The holders of the Notes
shall also receive warrants for an aggregate of 70,000 shares of Common
Stock exercisable at any time until the fifth anniversary date of the
closing at an exercise price of $2.20 per share.
(ii) place between 2,325,000 (Minimum) and 3,825,000 shares of
Convertible Preferred Stock (the "Preferred Stock") at a price of
$2.00/share for total cash proceeds of between $4,650,000 and $7,650,000
(excluding the conversion of the Notes). Of this amount, investors will
pay a mutually agreed upon portion of the subscription price at the
closing and will pay the balance in increments over an agreed upon
subsequent period. Defaulting subscribers will forfeit any shares for
which full payment has not been received and, under certain
circumstances to be agreed upon, a portion of such subscribers' shares
for which full payment has been received. The purchasers of the
Preferred Stock will receive one warrant for every five shares (the
"Warrants") to
<PAGE>
purchase between 465,000 (Minimum) and 765,000 (Maximum) additional
shares of the common stock, exercisable at any time until the fifth
anniversary date of the closing at an exercise price of $2.20/share.
(b) Holders of the Preferred Stock will be entitled to a liquidation
preference and will have the right to convert each share into shares of
Common Stock as agreed upon. In addition, holders of the Preferred Stock
will have voting rights, based upon the number of shares held, provided
that before conversion they can vote as a class to elect Directors as
provided in paragraph 2(d) and as otherwise mutually agreed upon.
Conversion will be required upon an IPO and the holders of Preferred Stock,
or shares of common stock if converted before an IPO, would be subject to a
maximum of a 12 month lockup restriction if requested by the underwriter.
(c) The terms of the securities shall contain other customary terms and
provisions including approval rights, piggy-back and mandatory registration
rights, anti-dilution rights (excluding options and warrants in an amount
not to exceed 400,000 of underlying common stock at a minimum exercise
price of $4.00 per share to be used for employees and consultants subject
to approval by the HumaScan Board of Directors), redemption rights upon the
occurrence of certain events and other terms and conditions.
(d) Holders of the Preferred Stock will be entitled to elect the Board of
Directors until the occurrence of an IPO and as otherwise agreed upon.
(e) It is understood that while the Advisor will attempt to place the
Securities as described above, it may be necessary, upon mutual consent of
the Advisor and the Company, to modify such terms to meet investors' demand
and market conditions. The term Financing, for the purposes of this
Agreement, shall refer to such modified terms.
(f) An acceptable budget must be presented to the Advisor demonstrating a
maximum use of funds during the first year after closing of $4.8 million.
(g) The Financing is subject, inter alia to due diligence satisfactory to
the Advisor.
(h) The Financing is subject, inter alia, to placement of the securities.
3. Compensation To The Advisor.
(a) Reimbursement of Expenses. The Company agrees to pay all reasonable
out-of-pocket expenses, including disbursements and legal fees incurred by
the Advisor in acting on the Company's behalf hereunder, and in addition to
the fees payable under Sections 3(b), 3(c), 3(d) and 3(e).
(b) Retainer. A retainer fee of $20,000, payable to the Advisor in advance,
$10,000 of which will be applied against the Transaction Fee if the
Financing is completed. In addition, $20,000 initial retainer fee will be
required for counsel.
(c) Transaction Fee. As compensation for assisting in the arrangement of
the Financing, the Company agrees to pay the Advisor at the closing of the
transaction (or at each closing, if the
<PAGE>
financing is closed in two or more tranches) a cash fee (the "Transaction
Fee") equal to 7% of the gross subscriptions committed to at such closing
or closings, as the case may be, including the bridge loan and any financing
related to the Financing, such as any financing (whether actually paid in
or whether a commitment to pay) to be provided by PSS (collectively the
"Commitments"). The Transaction Fees shall be payable at each closing. You
agree that you will refer or identify investors accounting for a minimum of
$1,750,000 and that Don Brounstein will purchase at least $200,000
aggregate principal amount of Notes and securities pursuant to Section
2(a)(ii) of this Agreement. Any loans or advances made by Donald Brounstein
to HumaScan after August 1, 1995 and prior to the Exclusivity Commencement
Date will be applied to the purchase of the securities.
(d) Stock Purchase Warrants. As further compensation for arranging the
Financing, at each closing of the Financing, the Company agrees to issue
the Advisor warrants (the "Warrants") to purchase a number of shares of
common stock of the Company equal to one share for every fifteen dollars of
Commitments closed on but no less than 400,000 (for example, 533,333
Warrants for a $8,000,000 Financing). The Warrants will be issued at each
closing of the Financing based on the Commitments received, will be
exercisable for a period of five (5) years from the date of issue at a
price of $2.20/share and will be subject to other customary terms and
conditions, which the parties hereto agree to negotiate in good faith,
including anti-dilution provisions.
(e) Other. The Company agrees to nominate and use its best efforts to elect
one designee of Burnham Securities Inc. to the Board of Directors of the
Company, for so long as at least one-third of the Preferred Stock issued in
connection with the Financing is outstanding. A monthly advisory fee (the
"Advisory Fee") equal to $4,000/month will be paid to the Advisor, in
consideration of their providing advisory services, for a minimum of 36
months after the Exclusivity Commencement Date.
(f) The Company shall pay the Advisor a further fee of 1% of the gross
proceeds of any IPO of the Company undertaken during the twelve (12) month
period following the Exclusivity Commencement Date in accordance with
section 1(c).
4. Termination.
(a) This Agreement may be terminated by the Advisor at any time or by the
Company at any time prior to completion of the Financing. Termination shall
be effective upon giving of a written notice to that effect. After the
completion of the Minimum Financing, this Agreement may not be terminated
by the Company without the Advisor's written consent, except that the
Company shall have the right to terminate this agreement at such time, if
ever, that more than 10% of the Preferred Stock issued by the Company is
repurchased by the Company in accordance with the provisions of the
subscription agreements (to be executed in connection with the sale of the
Securities) due to the subscribers' failure to make installments on the
subscription price of the Securities notwithstanding the delivery by the
Company to such subscribers of a certificate signed by the chief executive
officer of the Company stating that there has been no adverse change in the
business of the Company since the last installment date (the "Minimum
Repurchase"), which right may be exercised by the Company during the 30 day
period following the date the Minimum Repurchase is met, provided that any
repurchased shares resold shall not be included in the calculation of the
Minimum Repurchase.
<PAGE>
(b) If, during the next 180 days from the date hereof and prior to the
completion of the Minimum Financing, the Company (i) terminates this
Agreement or (ii) decides not to follow through with the Financing (each a
"Non-Financing Determination") then, in either of such events, the Advisor
will be entitled to full fees (including Warrants) pursuant to Section 3
hereof calculated as if the Maximum proceeds were raised. In addition, the
event the Company makes a Non-Financing Determination and during such 180
days the Company enters into a letter of intent or a commitment for
financing with a party other than the Advisor, and closes a financing
within 24 months after the expiration of such 180 days, then the Advisor
shall also be entitled to full fees under Section 3 calculated as if the
Maximum Financing was raised. Furthermore, if the Company makes a
Non-Financing Determination and during the 24 month period following the
termination or the expiration of this Agreement, the Company shall complete
a financing with any party which was contacted by the Advisor during the
term hereof, the Advisor shall receive compensation from the Company based
on the compensation schedule set forth in Sections 3(c) and 3(d) applied to
the gross amount raised from such investors. The provisions of this section
4(b) should be subject to the terms and provisions of section 1(c) above.
(c) The provisions of Sections 3, 4, 6, 7, 8, and 9 hereof shall survive
the termination of this Agreement and closing of the Financing.
5. Progress Reports. Advisor shall give monthly oral progress updates.
6. Arbitration. Any controversy among the parties arising out of or relating to
this Agreement or the alleged breach thereof shall be determined by arbitration
in accordance with the rules existing at the time of election of arbitration
under this paragraph provided by the Board of Arbitration of the NASD or the
American Arbitration Association. The Company may elect the set of the
foregoing rules to apply by notice to the Advisor given within five (5) days
after notice to the Company requesting such election. If the Company does not
so elect the applicable rules within such five day period, the Advisor is
hereby authorized to make such election. In all events, any arbitration
hereunder shall be before at least three arbitrators, and the award of the
arbitrators, or majority of them, shall be final. Judgment upon such award may
be entered in any state or federal court having jurisdiction.
7. Indemnification. In connection with engagements such as these, it is a policy
of the Firm to receive indemnification. The Company agrees to the provisions
with respect to the indemnity and other matters set forth in Schedule B which
is incorporated by reference into this Agreement.
8. Governing Law. This Agreement shall be interpreted in accordance with its
terms and otherwise in accordance with the laws of the State of New York,
applicable to contracts entered into and to be performed entirely within such
State.
9. Entire Agreement. This Agreement constitutes the entire agreement between
the parties with respect to the subject matter hereof, and supersedes all
prior agreements, understandings, representations and statements, if any,
whether oral or written, with respect to the subject matter hereof. No
modification of this Agreement shall be valid or binding upon the parties
hereto unless made in writing and signed on behalf of each party hereto by its
respective authorized officer.
<PAGE>
If the foregoing is in accordance with the Company's understanding, please sign
and return the enclosed copy of this letter, whereupon this Agreement shall
constitute a binding agreement between the Company and the Advisor.
Very truly yours,
Burnham Securities, Inc.
/s/ RANDALL P. STERN
--------------------------------
Randall P. Stern
Managing Director
ACCEPTED AND AGREED TO AS
OF THIS 16TH DAY OF November, 1995
HumaScan Inc.
By: DONALD BROUNSTEIN
-----------------------------
Name: Donald Brownstein
Title: President
<PAGE>
Schedule B
The Company agrees to indemnify Burnham Securities Inc. ("Burnham") and/or any
controlling person, director, officer, employee or agent of Burnham and hold
them harmless against any losses, claims, damages, expenses or liabilities to
which Burnham and/or such other indemnified parties may become subject arising
in any manner out of or in connection with the rendering of services by
Burnham hereunder, except to the extent that it is finally judicially determined
that such losses, claims, damages, expenses (including reasonable fees and
expenses of counsel), liabilities, actions, proceedings, investigations (formal
and informal) or inquiries are caused by gross negligence or willful misconduct
of Burnham and/or any controlling person, director, officer, employee or agent
of Burnham; and in case any action shall be brought against Burnham and/or any
other party indemnified hereunder with respect to which indemnity may be
sought against the Company, Burnham shall promptly notify the Company in
writing and the Company shall assume the defense thereof, including the
employment of counsel selected by the Company reasonably satisfactory to
Burnham and payment of all fees and expenses. Burnham and/or any party
indemnified hereunder shall have the right to retain separate counsel, but the
fees and expenses of such counsel shall be at the expense of Burnham or such
other indemnified party, as the case may be, unless (i) the expenses of such
counsel have been expressly assumed in writing by the Company, (ii) the Company
has failed to assume the defense or employ counsel satisfactory to Burnham, or
(iii) the named parties to any such action (including any impeaded parties)
include both (a) Burnham or any other indemnified party and (b) the Company
or any controlling person, director, officer, employee, or agent of the Company,
and Burnham or such other indemnified party shall have been advised by legal
counsel that there may be one or more legal defenses available to is which are
different from or additional to those available to the Company or the
Company's agents (in which case the Company shall not have the right to assume
the defense of such action on behalf of Burnham and/or such other indemnified
party), it being understood that if Burnham elects not to have the Company
defend any claim pursuant to this clause (iii), Burnham shall give the Company
the opportunity to be defended by the legal counsel selected by Burnham, and;
it being understood, further, that the Company shall not, in connection with
any one such action or separate, substantially similar or related actions in the
same jurisdiction arising out of the same general allegations or circumstances,
be liable for the reasonable fees and expenses of more than one separate firm
of attorneys for Burnham all all such other indemnified parties, which firm
shall be designated in writing by Burnham. For actions brought against Burnham
or such other indemnified party for which the Company has assumed the defense,
the Company agrees that it will not, without the prior consent of Burnham,
settle or compromise or consent to the entry of any judgment in any pending or
threatened claim, action or preceding relating to the matters contemplated by
Burnham's engagement unless such settlement, compromise or consent (i) includes
an unconditional release of Burnham and such indemnified parties from all
liability arising of that may arise out of such claim, and (ii) provides for the
payment of an amount that the Company is willing and able to pay.
The Company and Burnham agree that if any indemnification or reimbursement
sought pursuant to the preceding paragraph is finally judicially determined to
be unavailable (except by reason of the gross negligence or willful misconduct
of Burnham or its controlling persons, directors, officers, employees or
agents, as the case may be), then the Company and Burnham shall contribute to
the Liabilities for which such indemnification or reimbursement is held
unavailable in such proportion as is appropriate to reflect (a) the relative
benefits to the Company on the one hand, and Burnham on the other hand, in
connection with the transactions to which such indemnification or
reimbursement relates, (b) the relative fault of the parties, and (c) other
equitable considerations; provided, however, that in no event shall the amount
to be contributed by Burnham exceed the amount of the fees actually received by
Burnham hereunder.
The reimbursement, indemnity and contribution obligations of the Company under
the preceding paragraphs shall be in addition to any right that Burnham and/or
any shall be binding upon and inure controlling person, director, officer,
employee, or have agent of Burnham may otherwise, and to the benefit of any
successors, assigns, heirs, and personal representatives of the Company,
Burnham or such other persons.
<PAGE>
HUMASCAN INC.
514 CENTENNIAL AVENUE
CRANFORD, NEW JERSEY 07016
June 20, 1996
Burnham Securities Inc.
1323 Avenue of the Americas
New York, New York 10019
Re: Financial Services Agreement,
dated November 16, 1995 ("Services Agreement")
----------------------------------------------
Gentlemen:
You are aware that we intend to file a registration statement with the
Securities and Exchange Commission in connection with the Company's initial
public offering of its common shares, with Keane Securities Co., Inc., acting
as representative of the several underwriters ("Offering").
This will confirm our understanding that the Services Agreement is
hereby amended as follows:
1. Paragraph 1(c) of the Services Agreement is deleted in its entirety;
2. Paragraph 3(f) of the Services Agreement is deleted in its entirety;
and
3. Paragraph 3(e) of the Services Agreement is amended in its entirety
to read as follows:
"(e) A monthly advisory fee (the "Advisory Fee") equal to
$2,000/month will be paid to the Advisor, in consideration of
their providing advisory services, for 36 months after the date on
which the closing of the first sale of Preferred Stock pursuant to
Section 2(a)(ii) occurs."
The foregoing amendments to the Services Agreement shall be null and
void if the Offering is not consummated by September 30, 1996.
<PAGE>
Concurrently herewith, we are delivering to you the balance of $100,000
owed to you as commissions in connection with our private placements for which
you acted as exclusive placement agent.
You also agree to waive your rights under paragraphs 2, 5, 6 and 7 of
the Voting and Stockholders' Rights Agreement. This waiver shall be null and
void if the Offering is not consummated by September 30, 1996.
Please indicate your agreement with the foregoing by signing in the
space provided below and returning a copy of this letter to us.
Very truly yours,
HUMASCAN INC.
By:
-------------------------
ACCEPTED AND AGREED TO:
BURNHAM SECURITIES INC.
By:
-----------------------------
MANAGING DIRECTOR
<PAGE>
Exhibit 10.14
LEASE
This lease Agreement dated June 11, 1996, between the Moen
Organization, Inc., a New Jersey Corporation, having an office at
125 Moen Avenue, Cranford, New Jersey 07016, as the "Landlord", and
HumaScan, Inc., a Delaware Corporation, having an office at 514
Centennial Avenue, Cranford, New Jersey 07016, referred to in this
lease, as the "Tenant".
1. PREMISES.
(A) Portion of Building Leased. The Landlord leases to the
Tenant and the Tenant hires from the Landlord, the premises (the "Premises"),
consisting of approximately 29,180 square feet, as shown and described on
Exhibit "A" attached hereto. The Premises is a portion of the one-story
commercial building, consisting of approximately 116,800 square feet, known as
125 Moen Avenue, in the Township of Cranford, Union County, New Jersey (which
land, building and improvements, now existing or hereafter constructed,
including without limitation the curbs, sidewalks and other appurtenances
adjoining the land, are referred to in this lease as the "Building"). This
lease is subject to such facts as an accurate survey may disclose, easements,
rights of way and restrictions of record.
(B) Tenant's Percentage. For purposes of this lease, the
Premises shall constitute Twenty-Five (25%) percent of the total rentable area
of the Building (the "Tenant's Percentage"), which Tenant's Percentage shall
be applicable to all of the Tenant's pro rata cost to be paid as additional
rent, as set forth below in this lease. It being expressly understood that
should the rentable square footage of the Building change, at any time during
the term of this lease, including renewals, (ie the construction of additional
mezzanine), then the Tenant's Percentage shall be adjusted accordingly.
2. TERM.
(A) Term of Lease. The term of this lease shall be for Six (6)
years, commencing October 1, 1996 (The "Anticipated Commencement Date"), and
ending September 30, 2002 (the "Anticipated Expiration Date").
(B) Delay in Commencement.
(i) If the Anticipated Commencement Date shall be
postponed for any reason outside of Landlord's control, then the Landlord
shall not be liable for the failure to give possession of the Premises to the
Tenant on the Anticipated Commencement Date, and the lease term shall not
commence on the Anticipated Commencement Date, but rather shall be postponed
to the earlier of the date possession of the Premises is given to or is
available for the Tenant, but if possession is not given to Tenant by January
1, 1997, then Tenant shall have the right to terminate this lease and receive
a return of all monies paid to Landlord hereunder.
(ii) If the Anticipated Commencement Date shall be
postponed to any day other than the first day of the calendar month, then the
lease term shall be extended by the number of days from such date to the first
day of the following calendar month (which later date is referred to in this
lease as the "Commencement Date"), and the lease term shall end six (6) years
after the Commencement Date, and the Tenant shall pay the Landlord, in
advance, a pro rata share of the monthly rent, additional rent and any other
sums required of the Tenant under the lease, for the portion of the month. The
above being subject to renewal provisions set forth herein.
1
<PAGE>
3. FIXED ANNUAL RENT.
(A) The Tenant shall pay the Landlord for the term of the lease
commencing October 1, 1996, and ending September 30, 1998, the annual fixed
rent of One Hundred Twenty Four Thousand, Fifteen and 08/100 ($124,015.08)
Dollars, which annual fixed rent shall be payable in twelve (12) equal
consecutive monthly installments of Ten Thousand, Three Hundred Thirty Four
and 59/100 ($10,334.59) Dollars, on the first day of each month, in advance,
with the exception that the first monthly installment of fixed rent shall be
paid upon execution and delivery of this lease.
(B) The Tenant shall pay the Landlord for the remainder of the
term of the lease, commencing October 1, 1998 and ending September 30, 2002,
the annual fixed rent as follows:
(i) For the term of the lease commencing October 1, 1998
and ending September 30, 1999, the Tenant shall pay the Landlord the annual
fixed rent of One Hundred Forty Five Thousand, Nine Hundred and 08/100
($145,900.08) Dollars, which annual fixed rent shall be payable in twelve (12)
equal consecutive monthly installments of Twelve Thousand, One Hundred Fifty
Eight and 34/100 ($12,158.34) Dollars, on the first day of each month, in
advance.
(ii) For the term of the lease commencing October 1, 1999
and ending September 30, 2002, the Tenant shall pay the Landlord the annual
fixed rent of One Hundred Sixty Thousand, Four Hundred Ninety and 04/100
($160,490.04) Dollars, which annual fixed rent shall be payable in twelve (12)
equal consecutive monthly installments of Thirteen Thousand, Three Hundred
Seventy Four and 17/100 ($13,374.17) Dollars, on the first day of each month,
in advance.
(C) Anything in this Paragraph 3 to the contrary
notwithstanding, it is expressly understood and agreed that the Tenant shall
not be responsible to pay any full or partial installment of annual fixed rent
applicable to the first full month of the lease term. It is understood and
agreed, however, that all of the other terms and conditions of this lease
shall apply during said period, including Tenant's obligation for all
additional rent and other charges set forth herein.
4. SECURITY.
(A) Security Deposit. Tenant shall deposit with the Landlord
the sum of Ninety Thousand and 00/100 ($90,000.00) Dollars, as security for
the full and faithful performance by the Tenant of all of the terms,
conditions and covenants of this lease on the Tenant's part to be performed,
which sum shall be returned to the Tenant, without interest, after the
expiration of the lease term, provided the Tenant, has fully and faithfully
carried out all of the terms, covenants, and conditions of the lease on the
Tenant's part to be performed. The security deposit shall be paid in
installments as follows: Thirty Thousand and 00/100 ($30,000.00) Dollars upon
execution and delivery of this lease, Thirty Thousand and 00/100 ($30,000.00)
Dollars on or before August 26, 1996, and Thirty Thousand and 00/100
($30,000.00) Dollars on or before November 25, 1996. It is expressly
understood and agreed that the Landlord shall have the right to commingle the
security funds with its general funds and the security shall not be required
to be segregated. Anything herein contained to the contrary notwithstanding,
2
<PAGE>
in the event Tenant obtains anticipated funding as a result of a pending
public offering prior to August 26, 1996, the Sixty Thousand and 00/100
($60,000.00) Dollar balance of the security deposit shall be immediately due
and payable to Landlord upon receipt of such funding. Anything herein
contained to the contrary notwithstanding, provided the Tenant is not in
default under the terms and conditions of this lease, the Landlord agrees to
return Forty-Five Thousand and 00/100 ($45,000.00) Dollars of the security
deposit to Tenant on the second anniversary of the Commencement Date.
(B) Termination of Liability of the Landlord For
Return of Security Deposit Upon Sale of Building.
If the Landlord sells the Building, the Landlord shall have the
right to transfer the security deposit to the buyer, and upon doing so, the
Landlord shall be considered released by the Tenant from all liability for the
return of the security deposit, and the Tenant shall look to the buyer only
for the return of the security deposit, and this shall apply to every transfer
made of the security deposit to a buyer of the Building.
(C) No Encumbrance of Security Deposit. The security deposited
by the Tenant under this lease shall not be mortgaged, assigned or encumbered
by the Tenant without the prior written consent of the Landlord.
5. TENANT'S USE OF THE PREMISES.
(A) Use by the Tenant and Certificate of Occupancy.
The Tenant shall use and occupy the Premises only as and for office,
warehousing and manufacturing of health related products, which use by Tenant,
however, is and shall be expressly subject to all applicable zoning
ordinances, rules and regulations of any governmental boards or bureaus having
jurisdiction thereof. The Tenant shall, at the Tenant's own expense, apply for
and obtain from the appropriate authorities, prior to the Anticipated
Commencement Date, a certificate of occupancy with respect to the Premises,
based upon the uses set forth above, if a certificate of occupancy is
required.
(B) Prohibited Use. The Tenant shall not use or allow the
Premises or any part of the Premises to be used for any purpose other than as
provided in this lease, nor for any unlawful or disreputable purpose or in
violation of the certificate of occupancy, nor for any extra hazardous purpose
on account of fire or other casualty, nor for any purpose, which may create a
nuisance, public or private.
6. APPLICATION AND NOTICES.
(A) No Setoff. The Tenant shall pay the Landlord all fixed
annual rent, additional rent and other sums required of the Tenant under the
lease, without abatement, deductions or setoff, and irrespective of any claim
the Tenant may have against the Landlord; and this covenant shall be deemed
independent of any other terms, conditions or covenants of this lease.
(B) Application. No payment by the Tenant or receipt by the
Landlord of an amount less than the full fixed annual rent, additional rent,
or other sums required of the Tenant under the lease, shall be deemed anything
other than a payment on account of the earliest fixed annual rent, additional
rent, or other sum due from the Tenant under the lease. No endorsements or
statements on any check or any letter accompanying any check or payment of
fixed annual rent, additional rent, or other sums due from the Tenant under
3
<PAGE>
the lease, shall be deemed an accord and satisfaction of the Landlord. The
Landlord may accept any check for payment from the Tenant without prejudice to
the Landlord's right to recover the balance of fixed annual rent, additional
rent, or other sums due from the Tenant under the lease, or to pursue any
other right or remedy provided under this lease or by law.
(C) Place of Payment of Rent. The fixed annual rent, additional
rent and other sums required of the Tenant under this lease, shall be paid by
the Tenant to the Landlord at 125 Moen Avenue, Cranford, New Jersey 07016,
Attention: Steven Bartner, President, or to such other place as the Landlord
may notify the Tenant.
(D) Notices. All notices, statements, demands, requests,
consents, approvals, authorizations, offers, agreements, appointments or
designations thereunder by either party to the other shall be in writing and
shall be sufficiently given and served upon the other party, if delivered
personally to an officer of either the Landlord or the Tenant, as the case may
be, or if sent by facsimile (with a copy by U.S. mail), or if sent by United
States Certified Mail, Return Receipt Requested, postage prepaid and addressed
as follows:
If to Landlord: The Moen Organization, Inc.
125 Moen Avenue
Cranford, New Jersey 07016
Attn: Steven W. Bartner, President
Fax # : 908-272-5536
or such other place as the landlord may, form time to time, designate in
writing by notice to the Tenant.
If to Tenant: HumaScan, Inc.
125 Moen Avenue
Cranford, New Jersey 07016
Attn: Donald B. Brounstein, CEO
Fax # : 908-709-4646
or such other place as the Tenant may, from time to time, designate in
writing by notice to the Landlord.
All such notice shall be deemed duly served on the fourth business day
following the date of such mailing, or upon the date of receipt if
hand-delivered or sent by facsimile.
7. LANDLORD'S WORK, TENANT'S FINISHING WORK AND
UNAVOIDABLE DELAY.
(A) The Landlord shall, at the Landlord's own cost and expense,
by December 1, 1996, and subject to "Unavoidable Delay", perform the work as
defined below (hereinafter "Landlord's Work"):
(i) Paint existing office as shown on
Exhibit "C".
(ii) Recarpet existing office with similar grade
carpet as exists now as shown on Exhibit "C".
(iii) Replace damaged ceiling tiles in existing office area.
(iv) Re-seal existing warehouse floor as shown on
Exhibit "A".
(v) Landlord shall ask current Tenant (HTC
Commodity Corp.) to leave one row of rack as
shown on Exhibit "A". Landlord shall not be
required to furnish the rack if HTC Commodity
Corp. denies Landlord's request.
4
<PAGE>
In the event Tenant shall require any work in excess of
Landlord's Work, Landlord and Tenant shall agree in writing as to the scope
and cost of such work to be performed at Tenant's cost and expense. Anything
herein to the contrary notwithstanding, Landlord agrees to incur the cost of
such work not to exceed $15,000.00, and to promptly reimburse Tenant upon
receipt of invoices evidencing such costs.
(B) Unavoidable Delay. The obligations of the Landlord under
this paragraph are subject to "Unavoidable Delay". For purposes of this
paragraph, Unavoidable Delay shall mean any prevention, delay or stoppage due
to strikes, lockouts, labor disputes, acts of God, inability to obtain labor
or materials or reasonable substitutes therefor, governmental action, civil
commotion, fire or other casualty, and any other condition or cause whatsoever
beyond the reasonable control of the Landlord.
(C) Tenant's Finishing Work. Tenant may, at its sole cost and
expense, select and employ its own contractors for finishing work, such as
installation of equipment or decorations ("Tenant's Finishing Work"),
provided:
(i) Tenant advises Landlord of its intention
to do so prior to Tenant's commencement of Tenant's Finishing
Work; and
(ii) The contractors and subcontractors employed by Tenant
shall have been approved by Landlord, which approval shall not be unreasonably
withheld.
Prior to commencement of Tenant's Finishing Work, Tenant or its
contractors or subcontractors, as the case may be, shall obtain and maintain,
at their sole cost and expense, such insurance as Landlord may reasonably
require, including without limitation, workers compensation, bodily injury and
property damage, public liability insurance, and "builders risk" insurance, if
applicable. The Tenant shall submit certificates of insurance evidencing the
foregoing coverage, to Landlord. Such certificates shall name Landlord as an
additional insured. Tenant shall indemnify, defend and save Landlord harmless
from and against any and all claims, liabilities, losses, damages and costs,
foreseen or unforeseen, including without limitation, counsel, engineering and
other professional and expert fees, which Landlord may incur by reason of any
damage to property or injury to person, occasioned directly or indirectly by
Tenant's Finishing Work. This paragraph shall survive the expiration or sooner
termination or voiding of this lease. Tenant and its contractors or
subcontractors, as the case may be, shall be responsible for transportation,
safekeeping and storage of materials and equipment used in the performance of
Tenant's Finishing Work and for the removal of waste and debris resulting from
the performance of Tenant's Finishing Work. The Landlord shall not be
responsible for the coordination of the work of Landlord's contractors and
subcontractors with the work of Tenant's contractors and subcontractors. All
Tenant's Finishing Work shall comply with all applicable governmental rules
and regulations, shall be done in a good and workman like manner to Landlord's
reasonable satisfaction, shall be done in a manner which will assure labor
harmony at the Building and in all respects shall comply with the terms and
provisions of this lease.
8. OPTION TO EXTEND LEASE.
(A) If this lease is not previously canceled or terminated by
either party, as provided in this lease or by operation of law, and if the
Tenant is not in default of any of the terms, conditions and covenants of the
lease at the time of Tenant s exercise of this option, then the Tenant is
given the option to renew this lease for a further term of five (5) years,
commencing October 1, 2002 and ending September 30, 2007 and consisting of two
phases to wit, the period of October 1, 2002 through March 31, 2005 (the "First
Renewal Term-Phase One"), and the period of April 1, 2005 through September
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30, 2007 (the "First Renewal Term-Phase Two") and collectively referred to as
(the "First Renewal Term"), upon the same terms, conditions and covenants
contained in this lease, with the exception that the annual fixed rental for
the First Renewal Term shall be as follows:
(i) For the First Renewal Term-Phase One of the
lease, the Tenant shall pay the Landlord
annually the greater of:
(a) the annual fixed rent paid by the Tenant
to the Landlord pursuant to subparagraph
(ii) of paragraph (3B) above; or
(b) the annual fixed rent of One Hundred Forty Five
Thousand, Nine Hundred and 08/100 ($145,900.08)
Dollars, plus that sum equal to the product of
One Hundred Forty Five Thousand, Nine Hundred
and 08/100 ($145,900.08) Dollars, times the
percentage by which the "All Items" Index figures
for the New York-Northeastern New Jersey
average of the U.S. Consumer Price Index for all
Urban Consumers, (CPI-U), issued by the Board of
Labor Statistics of the United States Department
of Labor or its successors, has increased
closest to the date of October 1, 2002, over the
Index issued closest to the date of October 1,
1996;
the greater of which annual fixed rent shall be payable in twelve (12)
equal consecutive monthly installments on the first day of each month in
advance.
(ii) For the First Renewal Term-Phase Two of the
lease, the Tenant shall pay the Landlord
annually the greater of:
(a) the annual fixed rent paid by the Tenant
to the Landlord pursuant to subparagraph
(i) of paragraph (8A) above; or
(b) the annual fixed rent paid by the Tenant to the
Landlord pursuant to subparagraph (i) of
paragraph (8A) above, plus that sum equal to the
product of the annual fixed rent paid by the
Tenant to the Landlord pursuant to subparagraph
(i) of paragraph (8A) above, times the
percentage by which the "All Items" Index figures
for the New York-Northeastern New Jersey
average of the U.S. Consumer Price Index for all
Urban Consumers, (CPI-U), issued by the Board of
Labor Statistics of the United States Department
of Labor or its successors, has increased
closest to the date of April 1, 2005, over the
Index issued closest to the date of October 1,
2002;
(B) In order to exercise this option, the Tenant must give the
Landlord twelve (12) months prior written notice of the exercise of the
option, and the option shall be void unless the Tenant does so notify the
Landlord in writing. The Tenant acknowledges that the Premises are owned by
the Landlord as a real estate investment and that the failure by the Tenant to
exercise the option as a result of accident, surprise, neglect or mistake,
shall not in any way entitle the Tenant to exercise the option after the
specified date. This option is part of the lease and shall not be severed from
the lease or be deemed a right separate and apart from the lease.
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9. PARKING.
(A) Parking Spaces. During the lease term, the Tenant has the
right to use those fifty (50) parking spaces in accordance with Exhibit B, as
the Landlord may, form time to time, designate as the "Tenant's Parking
Spaces", for the vehicles of Tenant's employees, agents and invitees. The
Tenant shall not use, nor shall the Tenant's employees, agents or invitees
use, any other parking spaces available at the Building, other then the
Tenant's Parking spaces.
(B) Parking Facilities. The Landlord shall have complete
control of all parking facilities at the Building, including without
limitation, the Tenant's Parking Spaces, and shall have the right, from time
to time, to establish reasonable rules and regulations with respect to all
parking facilities at the Building, and to change the location of the
Tenants's Parking Spaces to other parking facilities at the Building. In
addition, the landlord shall have the right, without the obligation, to
construct, maintain and operate lighting facilities with respect to the
parking facilities at the Building, to construct parking decks, to restrict
employee parking to employee parking areas, to construct and reconstruct
surface, subterranean or elevated parking facilities, and to do and perform
such other acts with respect to the parking facilities as the Landlord shall,
in its sole business judgement determine to be advisable.
10. MECHANICAL SYSTEMS AND WORK BEING PERFORMED FOR
LANDLORD.
(A) Representations of the Landlord. At the commencement of the
lease term, the plumbing, electric, heating, air-conditioning, and sprinkler
systems, if any, shall be in good working order. If any of the mechanical
systems are not in good working order, the Tenant shall notify the Landlord
within sixty (60) days after the commencement of the lease term or the date of
Tenant's occupancy of the Premises, whichever is later, and the Landlord shall
correct any defect in the mechanical systems. However, the Landlord shall not
be under any obligation to do so without prior notice from the Tenant. The
Landlord shall, if reasonably practicable, commence correction of any defect
of which the Landlord has been notified, within ten (10) business days of
receipt of the Tenant's notice. After the expiration of sixty (60) days from
the date of the commencement of the lease term or the date of Tenant's
occupancy of the Premises, whichever is later, it shall be conclusively
presumed that all systems are in good working order unless the Tenant has
notified the Landlord to the contrary in accordance with the terms of this
paragraph, but in such event, it shall be conclusively presumed that all
systems other than that system as to which notice was given, are in good
working order, and as to that system as to which notice was given, such system
shall be conclusively presumed to be in good working order within fifteen (15)
days after repair of the system by the Landlord. Notwithstanding anything to
the contrary herein above, the Landlord shall warrant the adequacy and working
of the air-conditioning systems through July 15, 1997, and the Tenant shall
have until such date to notify the Landlord of deficiencies in the
air-conditioning systems under the provisions of this paragraph 10(A).
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(B) NON-LIABILITY OF THE LANDLORD. NOTWITHSTANDING THE PROVISIONS OF
SUBPARAGRAPH (A), THE LANDLORD SHALL NOT BE LIABLE FOR ANY DAMAGE OR INJURY TO
PERSON OR PROPERTY, OR FOR ANY LOSS OF BUSINESS, CAUSED BY OR RESULTING FROM
STEAM, ELECTRICITY, GAS, WATER, COLD, HEAT OR ANY LEAK OR FLOW FROM OR INTO
ANY PART OF THE BUILDING OF WHICH THE PREMISES IS A PART, INCLUDING THE
PREMISES, OR ANY OTHER CAUSE OR HAPPENING, UNLESS CAUSED BY THE GROSS
NEGLIGENCE OF THE LANDLORD, AND THE LANDLORD'S SOLE LIABILITY FOR THE
LANDLORD'S OBLIGATION UNDER SUBPARAGRAPH (A) SHALL BE LIMITED SOLELY TO THE
REASONABLE COST OF PERFORMANCE AND THE SATISFACTION OF SUCH LIABILITY IS
LIMITED SOLELY TO THE EQUITY OF THE LANDLORD IN THE BUILDING.
11. INSURANCE, COMPLIANCE WITH THE RULES OF BOARD OF FIRE
UNDERWRITERS, FIRE AND OTHER CASUALTY.
(A) COMPLIANCE WITH THE RULES OF BOARD OF FIRE UNDERWRITERS.
The Tenant shall, at Tenant's own expense, promptly comply with all
rules, orders and regulations of the Board of Fire Underwriters, or any other
similar body, or of any insurance company issuing a policy of insurance
covering the Premises, for the prevention of fires or other casualty.
(B) RULES and REGULATIONS. The Landlord shall have the right to
make reasonable rules and regulations for the Building and to change these
rules and regulations as may, in the reasonable judgment of the Landlord, be
necessary from time to time, and to specify standards during the lease term
for the conduct of the Tenant and the other tenants of the Building, and to
create and maintain uniform standards of maintenance and operation at the
Building, and to regulate garbage and refuse storage, collection and removal
at the Building. The Tenant, at its sole cost, shall install, maintain and
replace, fire extinguishers as directed by the Fire Department at the
location(s) directed by them.
(C) FIRE INSURANCE. As additional rent, upon demand, as and
when insurance premiums shall be payable, the Tenant shall pay the Landlord,
the Tenant's Percentage of the Landlord's fire and extended coverage insurance
premiums on the Building, which coverage may be on an "all risk" basis and may
include, but not be limited to, rent insurance, water damage insurance,
vandalism, and malicious mischief insurance, boiler and pressure vessel
insurance and flood insurance. This insurance shall (i) name only the Landlord
and the Landlord's mortgagee, if any, as the insured, and provide that any
loss shall be payable to the Landlord and the Landlord's mortgagee, if any, as
their respective interests may appear; (ii) be in an amount equal to the full
replacement cost of the Building; (iii) provide that no act of the Tenant
shall impede the right of the Landlord or the Landlord's mortgagee, if any, to
receive and collect the insurance proceeds; and (iv) provide that the right of
the Landlord and the Landlord's mortgagee, if any, shall not be diminished
because of any additional insurance on the Premises or the Building, as the
case may be, carried by the Tenant for the Tenant's own account. Every three
(3) years of the lease term, including renewals, the Landlord may at its
expense obtain an appraisal of the Building, disclosing the then replacement
cost. The appraiser shall be experienced in making appraisals with respect to
properties similar in nature to the Building and shall be duly qualified as an
appraiser in the State of New Jersey. If the appraisal is in an amount greater
than the insurance coverage for the Building, the Landlord may, at Tenant's
expense, to the extent of Tenant's Percentage, obtain the additional insurance
required to bring the total insurance to the amount of the appraisal.
(D) Notice of Casualty by the Tenant. In case of fire or other
casualty, the Tenant shall give immediate notice to the Landlord.
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(E) Partial Damage to the Premises. If the Premises shall be
partially damaged by fire or other casualty, the Landlord shall, at Landlord's
own expense, to the extent of the net insurance proceeds received by the
Landlord, repair the damage as speedily as practicable, and the fixed annual
rent, additional rent, and other sums required of the Tenant under the lease
shall abate and be equitably apportioned during the period of repair as to any
portion of the Premises which shall be unfit for occupancy by the Tenant. All
rent however, shall recommence immediately upon restoration of the Premises.
In the event the damage is so substantial that the Premises cannot be repaired
and restored within one hundred eighty (180) days from the date of such fire
or casualty, then, in that event, either party shall have the right, upon
written notice, to terminate this lease. If, in the opinion of the Landlord,
the Premises shall be so extensively damaged as to render it untenantable,
then the rent shall cease until such time as the Premises shall be made
tenantable by the Landlord.
(F) Total Damage to the Premises. If, in the opinion of the
Landlord or Tenant, the Premises shall be totally damaged by fire or other
casualty or so extensively damaged as to require rebuilding, then the Landlord
or Tenant, shall have the option of terminating this lease, in which event the
Tenant shall pay all fixed annual rent, additional rent or other sums required
of the Tenant under the lease up to the time of destruction and this lease
shall end as of the date of the destruction.
(G) The Tenant's Liability Insurance. The Tenant shall, during
the lease term, provide the Landlord with a certificate of general liability
insurance, insuring the Tenant and Landlord against liability or claims of
liability, for bodily injury, death or property damage, arising out of,
occasioned by or resulting from any accident or other occurrence in or about
the Premises or the Building. The insurance shall provide coverage of not less
than $3,000,000 for any single occurrence. The Landlord may require the Tenant
to increase the limits of the insurance coverage if circumstances at the time
reasonably warrant an increase. The Tenant shall deliver the certificate of
insurance to the Landlord, together with evidence of payment of the premium,
within ten (10) days of commencement of the lease term. At least thirty (30)
days prior to the expiration or termination date of any policy, the Tenant
shall deliver to the Landlord a renewal or replacement certificate of
liability insurance, together with proof of payment of the premium. The
certificate of insurance shall contain a provision for twenty (20) days notice
to the Landlord prior to any cancellation, modification or amendment to the
policy.
(H) Waiver of Subrogation. The Landlord and Tenant mutually
waive all right of recovery against each other, their agents, servants or
employees, for any loss, damage or injury of any nature whatsoever to property
or person for which either party is insured. Each party shall obtain from its
insurance carrier waivers of subrogation rights under their respective
policies which shall be included within the terms of the policies and will
furnish evidence of such waiver upon request.
(I) Impossibility in Obtaining Insurance. If, for any reason it
shall be impossible for the Landlord to obtain fire and extended insurance
coverage for the Building, then the Landlord shall have the option (but
without the obligation to do so) to terminate this lease upon giving the
Tenant at least thirty (30) days prior notice of the effective date of
termination. If, due to the Tenant's use and occupancy of the Premises, the
fire insurance premium or liability insurance premium, or both, are increased
or a surcharge is imposed, then the Tenant shall promptly pay, upon demand, as
additional rent, the amount of the increase or surcharge, as the case may be.
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(J) Liability Insurance. As additional rent, upon demand, as
and when premiums shall be payable, the Tenant shall pay the Tenant's
Percentage of the Landlord's general liability insurance covering claims for
bodily injury, death or property damage, occurring in or about the Building.
This insurance may provide for not less than $2,000,000 for any single
occurrence and shall name the Landlord only as an insured. The Landlord may
increase the limits of the coverage.
12. EMINENT DOMAIN.
(A) Total Taking. If all of the Premises is acquired or
condemned by eminent domain for public or quasi-public use or purpose, then
the term of this lease shall terminate from the date of vesting of title or
taking of possession; The Tenant shall have no claim against the Landlord for
the value of any unexpired term of the lease; the Tenant shall be liable for
the payment of fixed annual rent and additional rent to the date on which the
Tenant surrenders possession of the Premises; and any advanced rent paid by
the Tenant shall be returned by the Landlord.
(B) A Greater than Fifteen Percent Taking. If 15% or more than
15% of the Premises is acquired or condemned by eminent domain for public or
quasi-public use or purpose, then at the option of either the Landlord or the
Tenant, upon notice to the other, given thirty (30) days prior to the date of
vesting of title or taking of possession, the lease may be terminated on the
date of vesting of title or taking of possession; and if terminated, the
Tenant shall have no claim against the Landlord for the value of the unexpired
term of the lease; the Tenant shall be liable for the payment of fixed annual
rent and additional rent to the date on which the Tenant surrenders possession
of the Premises; and any advanced rent paid by the Tenant shall be returned by
the Landlord. If neither Landlord nor Tenant exercises the option to terminate
the lease, then the lease shall remain in full force; but the fixed annual
rent only shall abate in the proportion that the number of square feet of
floor space in the Premises taken or condemned bears to the total number of
square feet of floor space in the Premises prior to the taking or
condemnation, and the Landlord shall, with reasonable diligence, restore the
remaining portion of the Premises, at the Landlord's own expense.
(C) Less than Fifteen Percent Taking. If less than 15% of the
Premises is acquired or condemned by eminent domain for public or quasi-public
use or purpose, then the lease shall remain in full force, but from the date
of vesting of title or taking of possession the fixed annual rent only shall
abate in the proportion that the number of square feet of floor space in the
Premises taken or condemned bears to the total number of square feet of floor
space in the Premises prior to the taking or condemnation, and the Landlord
shall, with reasonable diligence, restore the remaining portion of the
Premises, at the Landlord s own expense.
(D) A Greater than Fifteen Percent Taking of
Land.
If 15% or more than 15% of the land of the Building (not including
the land under the Building) is acquired or condemned by eminent domain for
public or quasi-public use or purpose, then at the option of either the
Landlord or the Tenant, upon notice to the other , given thirty (30) days
prior to the date of vesting of title or taking of possession, the lease may
be terminated on the date of vesting of title or taking of possession; and if
terminated, the Tenant shall have no claim against the Landlord for the value
of the unexpired term of the lease; the Tenant shall be liable for the payment
of fixed annual rent and additional rent to the date on which the Tenant
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surrenders possession of the Premises; and any advanced rent paid by the
Tenant shall be returned by the Landlord. If neither Landlord nor Tenant
exercises the option to terminate the lease, then the lease shall remain in
full force and the fixed annual rent and additional rent shall not abate, but
the Landlord shall, if necessary, restore the remaining portion of the land
affected by the taking, at Landlord's own expense.
(E) Less than Fifteen Percent Taking of Land. If less than 15%
of the land of the Building (not including the land under the Building) is
acquired or condemned by eminent domain for public or quasi-public use or
purpose, then the lease shall remain in full force and the fixed annual rent
and additional rent shall not abate, but the Landlord shall, if necessary,
restore the remaining portion of the land affected by the taking, at
Landlord's own expense.
(F) Award. The entire amount awarded or received in any
condemnation proceeding or acquisition relating to the Premises shall belong
exclusively to the Landlord. The Tenant shall have no claim against the
Landlord for a claim to any part of an award in such proceeding. Tenant shall
be entitled to recover amounts separately awardable to Tenant under New Jersey
law, provided such recovery does not diminish Landlord s recovery.
13. REAL ESTATE COMMISSIONS. The parties represent and warrant to
each other that Bussel Realty is the sole broker who negotiated and
consummated this lease, and that neither party dealt with any other broker in
connection with this lease, it being understood and agreed that Landlord shall
be responsible to pay the real estate broker in connection with this lease,
pursuant to a separate written agreement entered into with said broker. The
Tenant agrees to indemnify, defend and hold Landlord harmless from and against
any and all claims, liabilities, losses, damages and costs, foreseen and
unforeseen, including without limitation counsel fees, which Landlord may
sustain with respect to any other Broker claiming commissions by virtue of
having dealt with the Tenant regarding the lease. The Landlord agrees to
indemnify, defend and hold Tenant harmless from and against any and all
claims, liabilities, losses, damages and costs, foreseen and unforeseen,
including without limitation counsel fees, which Tenant may sustain with
respect to any other Broker claiming commissions by virtue of having dealt
with the Landlord regarding the lease.
14. CONSTRUCTION LIEN. If because of any act of the Tenant, any
construction lien, security interest or other lien is filed against the
Building, the Tenant shall, at Tenant's own expense, cause it to be canceled
and discharged of record or bonded off within twenty (20) days after its
filing and, shall indemnify, defend and save the Landlord harmless from and
against any and all liabilities, costs, expenses, claims, loses or damages,
foreseen or unforeseen, including without limitation, counsel fees, resulting
from any action or non-action by the Tenant with respect to its obligations
under this paragraph. If the Tenant shall fail to so discharge or bond off
such lien within such twenty (20) days, the Landlord shall have the right, but
not the obligation, to discharge such lien and the actual cost thereof shall
be charged to the Tenant, and such sum shall be deemed additional rent, and
shall be paid by Tenant promptly upon being billed therefor.
15. ESTOPPEL CERTIFICATE. Upon a reasonable request of either party
at any time, or from time to time, the Landlord and the Tenant agree to
execute, acknowledge and deliver to the other, within ten (10) days after
written request, a written instrument certifying (i) that this lease has not
been modified and is in full force and effect, or if there has been a
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modification, that the lease is in full force and effect as modified, stating
the modification; (ii) specifying the dates to which the annual fixed rent and
additional rent have been paid; (iii) stating whether or not, to the knowledge
of the party executing such instrument, the other party is in default, and
(iv) stating the commencement date of the lease. Notwithstanding the
foregoing, the ten (10) day period shall be extended with respect to a request
from the Tenant to the Landlord in the event the Landlord's response to it
shall be delayed by a mortgagee holding a mortgage on the Building.
16. COMPLIANCE WITH LAWS AND ISRA.
(A) Public Authorities. The Tenant shall, at Tenant's own
expense, promptly comply with all applicable laws, ordinances, rules and
regulations, and all lawful requirements and directives of all governmental or
public authorities having jurisdiction over the Premises, applicable to or
affecting the Premises, or the Tenant's use and occupancy, for the correction,
prevention, or abatement of nuisances, violations or other grievances in, upon
or connected with the Premises during the lease term.
(B) Environmental Law.
(i) Tenant's Compliance with ISRA. The Tenant shall, at
Tenant's own expense, promptly comply with the Industrial Site Recovery Act,
N.J.S.A. 13:K-6 et seq., as amended ("the Act"), and the regulations
promulgated pursuant to the Act arising from the Tenant's use and occupancy of
the Premises. The Tenant shall, at Tenant's own expense, make all submissions
and provide all information to comply with all of the requirements of the
Industrial Site Evaluation Element (the "Element") of the New Jersey
Department of Environmental Protection (the "NJDEP"). Should the Element or
any other division of the NJDEP determine that a cleanup plan be prepared and
that a cleanup be undertaken because of any spills or discharges of hazardous
substances or wastes at or about the Premises occurring during the lease term
and arising from Tenant s use and occupancy of the Premises, then the Tenant
shall, at the Tenant's own expense, promptly prepare and submit the required
plans and financial assurances, and promptly carry out the approved plans. The
Tenant shall not be responsible for the cleanup of any discharges of hazardous
substances or wastes occurring prior to the commencement of the lease term or
which does not arise from Tenant s use and occupancy of the Premises. The
Tenant's obligations under this paragraph shall arise if there is any closing,
terminating or transferring of operations by the Tenant, of an industrial
establishment at the Premises, pursuant to the Act, and the Tenant shall
commence its submission to the Element at least six (6) months prior to the
expiration of the lease term. At no expense to the Landlord, the Tenant shall
promptly provide to the Landlord, upon demand, all information requested by
the Landlord for the preparation of a non-applicability affidavit, and the
Tenant shall promptly sign such affidavit when requested by the Landlord. The
Tenant shall indemnify, defend and save Landlord harmless from all fines.
expenses, claims, liabilities, losses, damages, costs, suits, procedures, and
actions, foreseen or unforeseen, of any kind, including without limitation,
counsel, engineering and other professional and expert fees, arising out of or
any way connected, in whole or in part, with any spills or discharges of
hazardous substances or wastes at or about the premises occurring during the
lease term and arising from Tenant's use and occupancy of the Premises; and
from all expenses, fines, claims, liabilities, losses, damages, costs, suits,
procedures, and actions, foreseen or unforeseen, of any kind, including
without limitation, counsel, engineering and other professional and expert
fees, arising wholly or partly out of the Tenant's failure to provide
information, or make submissions, or take such action as shall be required by
the Element or any other division of the NJDEP, or the United States
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Environmental Protection Agency (the"EPA"). The Tenant's obligations and
liabilities under this paragraph shall continue irrespective of the lease term
and the termination or expiration of this lease, for so long as the Landlord
remains responsible for any spills or discharges of hazardous substances or
wastes at the Premises occurring during the lease term and arising from Tenant's
use and occupancy of the Premises. The Tenant shall promptly furnish to the
Landlord, true and complete copies of all documents, submissions and
correspondence, provided by the Tenant to the Element, and all documents,
reports, directives, and correspondence provided by the Element to the Tenant.
The Tenant shall also promptly furnish to the Landlord, true and complete
copies of all sampling and testing results obtained from samples and tests
taken in or around the Premises.
(ii) Spill or Discharge Caused by Tenant.
Notwithstanding any contrary provisions set forth in this lease,
should the Element, or any other division of the NJDEP or the EPA determine
that a cleanup plan be prepared and that a cleanup be undertaken because of
any spills or discharges of hazardous substances or wastes at or about the
Building occurring during the lease term and arising out of the action or
inaction of the Tenant, its agents, servants, employees, licensees or
invitees, then the terms and provisions of subparagraph (i) above shall apply
as if the spill or discharge was a spill or discharge occurring at or about
the Premises during the lease term.
(iii) Affidavit of Tenant's Officer. During the lease
term, the Tenant shall, at no expense to the Landlord, promptly furnish to the
Landlord, upon demand, an officer's affidavit of any changes in the Tenant's
operation, S.I.C. number, or use or generation of hazardous substances and
wastes at the Premises. The Tenant shall, at no expense to the Landlord,
promptly furnish to the Landlord, an officer's affidavit, upon each
anniversary of the commencement date of the lease term, updating the previous
affidavit furnished to Landlord, and setting forth any changes, additions or
modifications.
(iv) Tenant's Compliance with Right to Know
Act.
During the lease term, at no expense to the Landlord, the Tenant
shall promptly furnish to the Landlord, any documents and correspondence
furnished by the Tenant to the NJDEP pursuant to the Worker and Community
Right to Know Act, N.J.S.A. 34:5A-1 et-seq., and amendments, (the "Right to
Know Act"), and the regulations promulgated under the Right to Know Act.
(V) Tenant's Compliance with Reports and
Notices Act.
During the lease term, at no expense to the Landlord, the Tenant
shall promptly furnish to the Landlord, all reports and notices made by the
Tenant pursuant to the Hazardous Substance Discharge-Reports and Notices Act,
N.J.S.A. 13:K-15 et-seq., as amended, (the "Reports and Notices Act"), and the
regulations promulgated under the Reports and Notices Act.
(vi) Tenant's Compliance with Other Agencies.
During the lease term, at no expense to the Landlord, the Tenant
shall promptly furnish to the Landlord, any notices, correspondence or
submissions made by the Tenant to the NJDEP, the EPA, the United States
Occupational Safety and Health Administration, or any other local, county,
state or federal authorities which require the submission of any information
concerning environmental matters or hazardous wastes or substances at or about
the Premises.
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(vii) No Hazardous Substances or Wastes.
Notwithstanding anything to the contrary set forth in this lease,
the Tenant shall not permit any hazardous chemicals, materials or wastes to be
brought, processed or stored upon the Building or the Premises, except for
those chemicals used in normal course of Tenant's maintenance of its equipment
and machinery. Tenant shall comply with all applicable federal, state or local
laws and regulations in connection with its handling, storage and use of such
chemicals used for such maintenance purposes. The handling or storage of
chemicals or materials, or operations or processes involving chemicals or
materials, which presently or hereafter require licensing, permits or approval
by the NJDEP or the EPA or similar government agencies, shall not be permitted
upon the Building or the Premises. The Tenant shall indemnify and hold the
Landlord harmless from and against all fines, expenses, claims, liabilities,
losses, damages, costs, suits, procedures, and actions, foreseen or
unforeseen, including without limitation, counsel, engineering and other
professional and expert fees, suffered or incurred by the Landlord, resulting
in whole or in part from any breach of the conditions of this paragraph. The
indemnity obligations of Tenant under this clause shall survive any
termination of the Lease.
17. SIGNS, HALLS, SIDEWALKS, PAINTING, NON-LIABILITY
OF THE LANDLORD.
(A) No Obstruction of the Building. That the Tenant shall
neither encumber, nor obstruct the sidewalk in front, entrance to or halls and
stairs of the Building, nor allow them to be obstructed or encumbered in any
manner.
(B) Tenant to Keep the Premises Clean. The Tenant shall, at all
times during the lease term: (i) keep the Premises in a neat and clean
condition; (ii) promptly remove all waste, garbage and refuse from the
Premises; (iii) promptly comply with all laws and ordinances and all rules and
regulations of any authority affecting the Premises or the cleanliness,
safety, use and occupancy thereof; and (iv) prevent the escape from the
Premises of fumes, odors or other substances which are offensive or may
constitute a nuisance or interfere with other Tenants.
(C) Tenant's Negative Covenants. The Tenant shall not, at any
time during the lease term, without first obtaining the Landlord's written
consent, which consent shall not be unreasonably withheld: (i) conduct or
permit any fire, bankruptcy or auction sale at the Premises; (ii) place on the
exterior walls (including both interior and exterior surfaces of windows and
doors), the roof of the Building or any other part of the Premises, any
symbol, advertisements, neon light, other light or object or thing visible to
public view outside of the Premises; (iii) change the exterior color of the
Premises or the Building, or any part thereof, or the color, size, location or
composition of any sign, symbol or advertisement that may have been approved
by the Landlord; (iv) park, operate, load or unload, any truck or other
delivery vehicle at any place other than the loading area designated for the
Tenant's use; (v) use the plumbing facilities for any purpose other than that
for which they were constructed or dispose of any foreign substances therein
which impairs the operation of the system; (vi) install any exterior lighting
or plumbing facilities, shades or awnings, amplifiers or similar devices, or
use any advertising medium which may be heard or experienced outside the
Premises, such as loudspeakers, phonographs, or radio broadcasts; (vii) deface
any portion of the Premises or Building; (viii) permit any rubbish or garbage
to accumulate in the Premises, or any part thereof unless confined in metal
containers so located as not to be visible to the public; (ix) place a load on
the floor of the Premises exceeding the floor load per square foot the floor
was designed to carry; or (x) install, operate or maintain any electrical
equipment in the Premises which shall not bear an underwriters approval.
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(D) Signs. The Tenant shall neither place, nor cause, nor allow
to be placed, any sign or signs of any kind whatsoever at, in or about the
Building or the Premises nor any other part of the Building or the Premises,
except of a design and structure and in or at such place or places as may be
consented to by the Landlord in writing, which consent shall not be
unreasonably withheld. In case the Landlord or Landlord's representatives
shall wish to remove any such signs in order to make any repairs, alterations,
additions or improvements to the Premises or the Building, the Landlord shall
have the right to do so, provided the sign or signs be removed and replaced at
the Landlord's expense whenever the repairs, alterations, or improvements
shall have been completed; however, such provision shall not create an
obligation on the part of the Landlord to make any repairs, alterations and
improvements. Any sign or signs consented to by the Landlord to be placed in
or about the Building or the Premises shall be installed at the Tenant's own
cost, expense and risk, and such sign or signs shall be in compliance with all
rules, laws, regulations and ordinances. Any sign so installed by the Tenant
shall be maintained at the Tenant's own cost and expense, and the Tenant shall
and does hereby indemnify and save harmless the Landlord against any damage,
loss, or injury of any kind whatsoever caused by such sign or signs.
18. DEFAULT, NON-LIABILITY OF LANDLORD AND TERMINATION.
(A) The Landlord Not Liable. NEITHER THE LANDLORD NOR THE
LANDLORD'S AGENTS, WILL BE LIABLE FOR ANY LOSS OR DAMAGE TO ANY PROPERTY OF
THE TENANT, BY THEFT OF OTHERWISE. THE LANDLORD AND THE LANDLORD'S AGENTS WILL
NOT BE LIABLE FOR ANY INJURY OR DAMAGE TO PERSONS OR PROPERTY RESULTING FROM
FIRE, EXPLOSION, FALLING PLASTER, GAS, ELECTRICITY, AIR CONDITIONING,
VENTILATION, SPRINKLER, STEAM, HEATING, WASTE OR SOIL PIPES, DRAINS, LEADERS,
VALLEYS, DOWN SPOUTS, WATER, COLD, RAIN OR SNOW, OR LEAKS, DAMPNESS, PIPES,
APPLIANCES, PLUMBING WORKS, WORK ON THE ROOF, STREET, OR SUBSURFACE OR FROM
ANY OTHER PLACE RELATING TO THE BUILDING, OR BY ANY OTHER CAUSE OF NATURE,
INCLUDING THOSE CAUSED BY ANY OTHER TENANT IN THE BUILDING OR THE AGENTS,
EMPLOYEES, INVITEES OR ANY OTHER TENANTS, UNLESS CAUSED BY LANDLORD'S GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT NOR WILL THE LANDLORD BE LIABLE FOR DAMAGES
FOR INJURY TO THE PERSONS OF THE TENANT, UNLESS CAUSED BY LANDLORD'S GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT .
(B) Landlord's Inability to Perform. THE LEASE AND THE
OBLIGATION OF THE TENANT TO PAY THE FIXED ANNUAL RENT AND ADDITIONAL RENT
UNDER THE LEASE OR TO PERFORM AND COMPLY WITH ALL OF THE OTHER PROVISIONS OF
THE LEASE APPLICABLE TO THE TENANT, WILL NOT BE AFFECTED, IMPAIRED OR EXCUSED,
BECAUSE OF THE LANDLORD'S FAILURE TO PERFORM OR COMPLY WITH ANY OF THE
PROVISIONS OF THE LEASE, OR BECAUSE THE LANDLORD IS UNABLE TO FULFILL ANY OF
THE LANDLORD'S OBLIGATIONS UNDER THE LEASE, OR IS UNABLE TO MAKE ANY REPAIR,
REPLACEMENT, ALTERATION OR IMPROVEMENT, IF THE LANDLORD IS PREVENTED FROM SO
DOING BY REASON OF ACCIDENT, EMERGENCY, MECHANICAL BREAKDOWN, ADJUSTMENT OF
ANY INSURANCE CLAIM, STRIKE, LABOR TROUBLES, OR ANY OTHER SIMILAR CAUSE BEYOND
LANDLORD'S CONTROL, INCLUDING WITHOUT LIMITATION, GOVERNMENTAL PREEMPTION IN
CONNECTION WITH A NATIONAL EMERGENCY, ANY RULE, ORDER OR REGULATION OF ANY
DEPARTMENT OR SUBDIVISION OF ANY GOVERNMENTAL AGENCY, CONDITIONS OF SUPPLY AND
DEMAND WHICH ARE AFFECTED BY WAR OR ANY OTHER EMERGENCY, OR FOR ANY OTHER
REASON BEYOND THE CONTROL OF THE LANDLORD. THE TIME GIVEN TO THE LANDLORD TO
COMPLY WITH ANY OBLIGATION UNDER THE LEASE WILL BE EXTENDED FOR THE PERIOD OF
TIME EQUAL TO THE PERIOD OF DELAY RESULTING FROM ANY OF THE FOREGOING CAUSES.
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(C) Limit of Landlord's Liability. THE LIABILITY OF THE
LANDLORD FOR THE FAILURE OF THE LANDLORD TO PERFORM ANY OBLIGATION OF THE
LANDLORD UNDER THE LEASE, IS LIMITED SOLELY TO THE REASONABLE COST OF
PERFORMANCE, AND THE SATISFACTION OF SUCH LIABILITY IS LIMITED SOLELY TO THE
EQUITY OF THE LANDLORD IN THE BUILDING.
(D) Landlord's Inability to Supply Service or
Material.
THIS LEASE AND THE OBLIGATION OF THE TENANT TO PAY THE FIXED ANNUAL
RENT, ADDITIONAL RENT OR OTHER SUMS REQUIRED OF THE TENANT UNDER THE LEASE,
AND TO COMPLY WITH THE TERMS, CONDITIONS AND COVENANTS OF THIS LEASE, SHALL
NOT BE AFFECTED, CURTAILED IMPAIRED OR EXCUSED, EXCEPT AS PROVIDED IN THIS
LEASE, BECAUSE OF THE LANDLORD'S INABILITY TO SUPPLY ANY SERVICE OR MATERIAL
TO THE BUILDING, BY REASON OF ANY RULE, ORDER, REGULATION OR PREEMPTION BY ANY
PUBLIC AUTHORITY HAVING JURISDICTION OVER THE BUILDING OR FOR ANY REASONABLE
DELAY WHICH MAY ARISE BY REASON OF NEGOTIATIONS FOR THE ADJUSTMENT OF ANY FIRE
OR OTHER CASUALTY LOSS, OR BECAUSE OF STRIKES OR OTHER LABOR TROUBLE, OR FOR
ANY OTHER CAUSE BEYOND THE CONTROL OF THE LANDLORD, INCLUDING BUT NOT LIMITED
TO WEATHER CONDITIONS.
(E) The Landlord's Right to Re-enter. If the Tenant shall
default in any of the terms, conditions or covenants of this lease, then it
shall be lawful for the Landlord to re-enter the Premises and to again possess
and enjoy the Premises.
(F) The Landlord's Right to Terminate. If the Tenant shall
default in the performance of any of the terms conditions or covenants of this
lease on the Tenant's part to be performed, the Landlord shall have the option
to terminate this lease upon Five (5) days prior notice of such termination to
the Tenant and this lease and the lease term shall terminate on the date fixed
in the notice.
(G) Grace Period. Notwithstanding the foregoing provisions of
subparagraph (F), the Tenant shall not be deemed in default of the terms,
conditions and covenants of this lease on the Tenant's part to be performed,
unless the Landlord shall first have notified the Tenant of the default and
the Tenant shall have failed to cure the default: (i) within five (5) days of
the notice with respect to the payment of any installment of fixed annual
rent, additional rent or any other sums due from the Tenant under this lease;
or (ii) within twenty (20) days of the notice with respect to any other type
of default. With respect to a default other than a default in the payment of
any installment of fixed annual rent, additional rent or other sums of money
due from the Tenant under this lease, if the Tenant commences to cure the
default within the twenty (20) day grace period and diligently continues to do
so beyond such period, then the Tenant shall have such additional time to cure
the default as may be necessary, but in no invent shall the time to cure be
extended beyond the time set by any governmental agency or regulatory body or
beyond the time the Landlord's title to the building may be forfeited.
(H) Remedies Upon the Tenant's Default. If there shall occur
any default on the part of the Tenant in the performance of any of the terms,
conditions and covenants of this lease on the Tenant's part to be performed,
or should the Premises be abandoned, deserted or vacated, or should the Tenant
be evicted from the Premises by summary proceedings or otherwise, the
Landlord, in addition to any other remedies provided in this lease or
permitted by law, may enter the Premises and take possession of it as the
Landlord's own property and let the premises and receive the rents from the
Premises. The Tenant shall be liable for all expenses, reasonable attorney's
fees and costs, as the Landlord may have been put to in entering and
possessing the Premises and making repairs as may be necessary. The Tenant
shall also remain liable not only for all fixed annual rent, additional rent
and any other sums required of the Tenant under the lease, as may be in
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arrears, but also for the annual fixed rent, additional rent, and other sums
required of the Tenant under the lease, as may accrue following the entry by
the Landlord, to the extent of the difference between the annual fixed rent,
additional rent and other sums required of the Tenant under the lease, all as
reserved under the lease, and the rents, if any, received by the Landlord
during the remainder of the unexpired term of this lease, after deducting the
expenses, fees and cost, with the difference to be paid as such deficiencies
arise and are ascertained each month. In no event shall the Tenant be entitled
to any surplus.
(I) Reimbursement to the Landlord. If the Tenant has to make
any payment or perform any act or otherwise defaults under the lease, then the
Landlord shall have the right, but not the obligation, to make the payment or
perform the act or cure the default at the expense of the Tenant. All payments
and expenses, including reasonable attorneys' fees and costs, which the
Landlord incurs shall be deemed additional rent and paid by the Tenant within
ten (10) days after demand from the Landlord, together with interest at twelve
(12%) percent per annum or four (4%) percent in excess of the prime rate
published in the Wall Street Journal, whichever is higher, from the date of
demand to the date of payment. Any exercise of the right by the Landlord shall
not constitute a release of any obligation or waiver of any default of the
Tenant.
19. UTILITIES. As additional rent, the Tenant shall pay the
Landlord, upon demand, the Tenant's Percentage of all charges for sewer,
standby water for sprinkler system or other utilities or services, not
separately metered, which shall be assessed or imposed upon the Building or
which may be charged to the Landlord by the suppliers of such utilities or
services. The Tenant shall also pay and be responsible for all separately
metered charges for electric, water, gas and all other utilities or services,
for the Premises. If the Board of Fire Underwriters or any governmental
authority requires or recommends any changes to the sprinkler system by reason
of the Tenant's business, or such changes become necessary to prevent
imposition of an charge against the full allowance for a sprinkler system in
the fire insurance rate as fixed by the Board of Fire Underwriters, the Tenant
shall, at the Landlord's option, either at the Tenant's own cost, promptly
make and supply such changes to the satisfaction of the Landlord, or promptly
pay the Landlord, as additional rent, upon demand, all costs and expenses
incurred by the Landlord in making and supplying such changes.
20. COST OF COMMON MAINTENANCE.
(A) Common Maintenance Expenses. As additional rent, the Tenant
shall pay the Landlord promptly, upon demand, the Tenant's Percentage of
"operating expenses" of the Landlord, incurred with respect to the Building.
The term "operating expenses" means all of the costs and expenses paid or
incurred by the Landlord or on the Landlord's behalf by the Landlord's agent
or a management company employed by the Landlord in respect of the repair,
replacement, maintenance, supervision, and management of the Building,
including without limitation, the following:
(i) costs and expenses in connection with all
exterior lighting and exterior maintenance,
consisting of landscaping and debris and snow
removal;
(ii) costs and expenses in connection with the
repair of curbs and sidewalks and paving
of parking areas, but not replacement;
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(iii) costs and expenses in connection with repairs,
replacements, alterations and improvements to the
Building by reason of the laws and requirements of
any public authority having jurisdiction over the
Building or the requirements of the Landlord's
insurer, or by reason of latent defects, provided,
however, that expenditures which, under generally
accepted accounting principles, are regarded as
deferred expenses or capital improvements, shall
include only the current deductible portion, assuming
that such expenditures shall be amortized over the
useful life of such improvements or ten (10) years,
whichever period is the lesser.
Notwithstanding any of the foregoing, operating expenses shall
not include (i) repairs or replacements made necessary by fire, casualty, or
eminent domain, (ii) depreciation, (iii) any costs or expenses attributable to
the preparation, maintenance, replacement, operation or repair of any
individual tenant space in the building, and (iv) any expenditures which,
under generally accepted accounting principles, are deemed to be capital
improvements, with the exception of the current deductible portion thereof, in
each year, based on the amortized useful life of such improvements or ten (10)
years, whichever period is the lesser, but in no event shall operating
expenses include the cost of the capital improvements identified in Paragraph
25 hereof.
(B) Negligence of Tenant. Notwithstanding any contrary
provisions set forth above or in paragraph 23 below, if the need for a repair
or replacement shall be the result of any act or failure to act of the Tenant
or of the Tenant's agents, employees or invitees, then the Tenant shall be
obligated to pay, as additional rent, all sums incurred by the Landlord in
connection with the repair or replacement, which sums shall be paid promptly
upon demand.
21. TAXES.
(A) Real Estate Taxes. As additional rent, the Tenant shall pay
the Landlord, on the first day of each month, in advance, a sum equal to
1/12th of the Tenant's Percentage of the annual real estate taxes and
assessments assessed and levied against the Building for the then current
calendar year. If at the time a payment is required the amount of the real
estate taxes and assessments for the calendar year shall not be known, the
Tenant shall pay the Landlord, as additional rent, 1/12th of the Tenant's
Percentage of the annual real estate taxes and assessments for the preceding
calendar year; and upon ascertaining the real estate taxes and assessments for
the current calendar year, the Tenant shall pay the Landlord any difference
upon demand, or if the Tenant shall be entitled to a credit, the Landlord
shall credit the excess against the next monthly installment(s) of additional
rent falling due. Additional rent based upon real estate taxes and assessments
payable for the first and last years of the lease term shall be adjusted and
pro rated, so that the Landlord shall be responsible for the Landlord's pro
rated share for the period prior to and subsequent to the lease term and the
Tenant shall pay the Landlord its pro rated share for the lease term.
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(B) Additional Rent Based Upon Assessments for
Public Improvements.
As additional rent, upon demand, the Tenant shall pay the Landlord,
the Tenant's Percentage of all assessments for public improvements assessed
and levied against the Building. If any assessment for public improvements
shall be payable in installments, the Landlord shall pay such assessment in
the maximum number of installments permitted by law, and the Tenant's
obligation to pay additional rent shall be limited to each installment or pro
rata share thereof due and payable during the lease term.
(C) Additional Rent Based Upon Taxes. If at any time during the
term of this lease a tax or charge shall be imposed by the State of New Jersey
or the county or municipality in which the Building is located, pursuant to
any future law, which tax or charge shall be based upon the rent due or paid
by the Tenant to the Landlord, then the Tenant shall pay the Landlord, upon
demand, as additional rent, such tax or charge. The foregoing shall not
require payment by the Tenant of any income taxes assessed against the
Landlord or of any capital levy, franchise, estate, succession, inheritance or
transfer tax due from the Landlord.
(D) Additional Rent Based Upon Tax Escrow. For the purpose of
creating a fund with which to meet the annual real estate taxes, the Tenant
shall, upon demand of the Landlord, pay the Landlord an amount equal to
3/12ths of the Tenant's Percentage of the real estate taxes and assessments
assessed and levied against the Building. The Landlord shall have the same
remedies against the Tenant by reason of the Tenant's default in paying this
fund as the Landlord has against the Tenant for failure of the Tenant to pay
rent. At the election of the Landlord, this fund may also be deemed as
additional security to be held by the Landlord pursuant to the provisions of
paragraph 4, and the Tenant shall not mortgage, assign or otherwise encumber
this fund without the written consent of the Landlord.
22. CONDITION OF THE PREMISES. The Tenant acknowledges examining the
Building and the Premises prior to the signing and delivery of this lease, and
except as otherwise expressly set forth in this lease, enters into this lease
without any representations on the part of the Landlord as to the condition of
the Building or the Premises, including without limitation, the condition of
the fixtures, improvements and systems other than as contained elsewhere in
this lease.
23. LIMIT OF LANDLORD'S LIABILITY.
(A) Common Maintenance for the Building. The Landlord, or a
management company employed by the Landlord, shall be responsible for:
(i) exterior lighting and exterior maintenance,
consisting of landscaping and debris and snow
removal;
(ii) costs and expenses in connection with the repair of
curbs and sidewalks and paving of the parking area,
but not replacement;
(iii) repairs, replacements, alterations and improvements
to the Building by reason of the laws and
requirements of any public authority having
jurisdiction over the Building or the requirements of
the Landlord's insurer, or by reason of a latent
defect;
and the Tenant acknowledges that the Tenant, as well as other tenants of
the Building shall share in all such expenses, as set forth in paragraph 20
above.
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(B) Limit of Landlord's Liability. NOTWITHSTANDING THE
LANDLORD'S OBLIGATIONS AS PROVIDED IN SUBPARAGRAPH (A) ABOVE, THE LANDLORD
SHALL NOT BE LIABLE FOR ANY DAMAGE OR INJURY TO PERSON OR PROPERTY, OR FOR ANY
LOSS OF BUSINESS, CAUSED BY THE LANDLORD'S FAILURE TO CORRECT THE DEFECTS OR
MAKE THE REPAIRS OR THE REPLACEMENTS, UNLESS DUE TO THE GROSS NEGLIGENCE OR
WILLFUL MISCONDUCT OF THE LANDLORD, AND THE LANDLORD'S SOLE LIABILITY FOR THE
LANDLORD'S OBLIGATIONS SHALL BE LIMITED SOLELY TO THE REASONABLE COST OF
PERFORMANCE AND THE SATISFACTION OF SUCH LIABILITY IS LIMITED SOLELY TO THE
EQUITY OF THE LANDLORD IN THE BUILDING.
24. TENANT'S MAINTENANCE. The Tenant shall, at the Tenant's own
expense, maintain, keep in good condition, repair and make replacements to the
interior of the Premises, the plumbing system within the Premises, the
sprinkler system, the ventilation system, the heating system, the air
conditioning system, if any, the electric system, and all other systems,
fixtures and equipment belonging to the Landlord and contained in the
Premises, including without limitation, the Landlord's ceiling fluorescent
light fixtures, the windows and doors (including without limitation, overhead
doors) of the Premises, loading docks and loading dock bumpers and at the
expiration or other sooner termination of the lease term, deliver them up in
working order and condition subject to ordinary wear and tear and the Premises
broom clean.
25. LANDLORD'S MAINTENANCE. The Landlord shall, at its expense,
maintain, keep in good condition and repair, the interior and exterior
structural parts of the Premises, including without limitation the walls, roof
and floor. The Landlord shall not be responsible for the cost of repairs and
maintenance occasioned by the gross negligence or deliberate act of the
Tenant, or its agents, or employees which shall then be repaired at the cost
and expense of the Tenant.
26. BANKRUPTCY OF THE TENANT.
(A) Bankruptcy or Default. If the Tenant shall file or there
shall be filed against the Tenant a petition in bankruptcy or arrangement, or
if the Tenant be adjudicated a bankrupt, or makes an assignment for the
benefit of creditors, or take advantage of any insolvency act, such event
shall be deemed a default by the Tenant under this lease.
(B) No receipt of money by the Landlord from any receiver,
trustee, custodian or debtor in possession shall reinstate, continue to extend
the term of this lease of affect any notice given to the Tenant or to any
receiver, trustee, custodian or debtor in possession, or operate as a waiver
or estoppel of the right of the Landlord to recover possession of the Premises
for any of the causes set forth in this lease.
27. MISCELLANEOUS.
(A) Merger. There are no oral understandings, terms, covenants
or conditions, and neither party has relied on any other representation,
expressed or implied, not contained in this lease. All prior understanding,
terms conditions or covenants are merged in this lease. No representative,
agent or employee of the Landlord has been authorized to make any
representations or promises with reference to the within letting or to vary,
alter or modify the terms of the lease.
(B) Entire Agreement and Modifications. This lease contains the
entire agreement between the parties and may not be modified, changed or
terminated, in whole or in part, orally or in any other manner than by
agreement in writing, signed by all the parties.
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(C) Non-Waiver by the Landlord. The various rights, remedies,
options and elections of the Landlord expressed in this lease are cumulative,
and the failure of the Landlord to enforce strict performance by the Tenant of
any of the terms, conditions and covenants of this lease, or to exercise any
election, rights, remedy, option or the acceptance by the Landlord of any
installment of rent after any breach by the Tenant, in any one or more
instances, shall not be construed or deemed to be a waiver or a relinquishment
for the past or for the future by the landlord of any terms, conditions,
covenants, rights, remedies, options or elections, but they shall continue in
full force and effect.
(D) Applicable Law. This lease shall be governed by, construed
and enforced in accordance with laws of the State of New Jersey.
(E) The Tenant's Trade Fixtures and Removal. Any trade
equipment, trade fixtures, goods or other property of the Tenant shall be
removed by the Tenant on or before the expiration of the lease term or sooner
termination of the lease term. Any trade equipment, trade fixtures, goods or
other property of the Tenant not removed by the Tenant on the expiration of
the lease term or sooner termination of the lease term, or upon any deserting,
vacating or abandonment of the Premises by the Tenant, or upon the Tenant's
eviction, shall be considered as abandoned and the Landlord shall have the
right (without any obligation to do so), without notice to the Tenant, to sell
or otherwise dispose of the Tenant's property, at the expense of the Tenant,
and the Landlord shall not be accountable to the Tenant for any proceeds of
the sale, or for any damage or loss to the Tenant's property.
(F) Qualification in New Jersey and Jurisdiction.
The Tenant represents and warrants to the Landlord that it has
qualified with the Secretary of State of New Jersey to do business in the
State of New Jersey. The Tenant shall submit to the jurisdictions of the
courts of the State of New Jersey with respect to any legal action instituted
by the Landlord against the Tenant, and the Tenant shall accept service of
process of such action at the Premises.
(G) The Tenant's Right to Quiet Enjoyment. Upon paying the
rents and other sums required of the Tenant under the lease and performing the
terms, conditions and covenants of the lease on the Tenant's part to be
performed, the Tenant shall peaceably and quietly have, hold and enjoy the
Premises for the lease term.
(H) Surrender. Neither the acceptance of keys to the Premises
nor any other act or thing done by the Landlord or any agent, employee or
representative of the Landlord shall be deemed to be an acceptance of a
surrender of the Premises, excepting only an agreement in writing, signed by
the Landlord, accepting or agreeing to accept a surrender of the Premises.
(I) Definition of the Landlord. The term the "Landlord" as used
in this lease shall mean the owner for the time being of the Building, and if
the Building shall be sold or transferred, the seller or assignor shall be
relieved of all obligations under this lease, but the purchaser or assignee
shall assume and carry out all the obligations of the Landlord under this
lease.
(J) Rights and Remedies. The rights and remedies of the
Landlord in this lease are distinct, separate and cumulative remedies, and no
one of them, whether or not exercised by the Landlord shall be deemed to be an
exclusion of any of the others.
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(K) Captions. The captions contained in this lease are for
reference purposes only and shall not in any way affect the meaning or
interpretation of this lease.
(L) References. In all references to any persons, entities or
corporations, the use of any particular gender or the plural or singular
number is intended to include the appropriate gender or number as the text of
this lease may require.
(M) Binding Effect. This lease is binding upon and shall inure
to the benefit of the parties, their legal representatives, successors and
permitted assigns.
(N) Subordination. This lease shall not be a lien against the
Building, in respect of any mortgages that may subsequently be place upon the
Building. The recording of such mortgages shall have preference and be prior
in lien to this lease, irrespective of the date of recording. The Tenant shall
promptly upon demand execute any instrument, without charge to the Landlord,
which may be deemed necessary or desirable by the Landlord to further effect
the subordination of this lease to any such mortgages, and the Tenant
constitutes and appoints the Landlord, as the Tenant's attorney in fact, to
execute any such instrument for and on behalf of the Tenant.
(O) The Landlord's Right to Inspect and Repair.
The Landlord or the Landlord's agents, employees or representatives,
shall have the right to enter into and upon all or any part of the Premises
during the lease term at all reasonable hours, for the purpose of examination
or making repairs, alterations, additions or improvements to the Premises, as
may be necessary for the safety and preservation of the Premises. This
paragraph shall not be deemed nor construed to create an obligation on the
part of the Landlord to make any inspection of the Premises or to make any
repairs, alterations, additions or improvements to the Premises for its safety
or preservation.
(P) Alterations and Improvements. No alterations, additions or
improvements shall be made by the Tenant to the Premises, nor to any air
conditioning systems, heating system, plumbing system, electrical system or
any other system in the Building, nor shall antennas or fixtures be installed
in or on the Building, without the prior written consent of the Landlord which
consent shall not be unreasonably withheld. All alterations, additions or
improvements to the Premises by the Tenant shall, at no cost to the Landlord,
become the property of the Landlord and shall be surrendered by the Tenant in
good order and condition as part of the Premises upon the expiration or sooner
termination of the lease term. At the Landlord s request, the Tenant shall
restore the Premises to the condition it was in prior to the Tenant's
occupancy, such restoration to be completed on or before the expiration of the
lease and done at the Tenant's own expense. All alterations or improvements
permitted, shall be done pursuant to plans and specifications approved by
Landlord, shall be completed at Tenant's sole cost and expense, shall comply
with all applicable governmental rules and regulations, shall be done in a
good and workman like manner to Landlord's reasonable satisfaction, shall be
done in a manner which will assure labor harmony at the Building and in all
respects shall comply with the terms and provisions of this lease.
(Q) Landlord's Right to Exhibit Premises. The Landlord or the
Landlord's agents, employees or representative shall have the right to show
the Premises to persons wishing to lease or purchase the Building or the
Premises; and within the last six (6) months prior to the expiration of the
term, or extension thereof, the Landlord or the Landlord's agents shall have
the right to place notices on the front of the Premises, or any part thereof,
offering the Premises "To Let", and the Tenant shall permit the signs to
remain without hindrance or molestation.
22
<PAGE>
(R) Late Payment Fee. If the Tenant fails to pay for more than
five (5) days the payment of any monthly installments of fixed annual rent or
additional rent or any of the other sums required of the Tenant under the
lease, then the Tenant shall pay the Landlord, as additional rent, a late
charge of four (4%) percent of the rent or expense due.
(S) Additional Rent Based Upon Other Sums. The Tenant shall pay
the Landlord, as additional rent, all other sums of money on the Tenant's part
to be paid pursuant to the terms, covenants and conditions of this lease.
(T) Legal Expenses. As additional rent, the Tenant shall pay
the Landlord, upon demand, all reasonable attorney's fees which may be
incurred by the Landlord in enforcing the Tenant's obligations under this
lease.
(U) Statement of Lease. At the request of the Landlord the
Tenant shall execute a short statement of this lease for the purposes of
recording the existence of the within lease.
(V) Financial Statement. The Tenant shall furnish the Landlord
with financial statements and such other data as may be required by the
Landlord s lending institution, if any.
(W) Injunction. In addition to any other legal remedies for
violation or breach by or on the part of the Tenant or by any under-tenant or
by any one holding or claiming under the Tenant or any one of them, of the
terms, conditions or covenants of this lease on the part of the Tenant to be
performed or fulfilled, such violation or breach shall be restrainable in
injunction at the suit of the Landlord.
(X) Waiver. The Tenant expressly waives any and all rights of
redemption granted by or under any present or future laws in the event of the
Tenant being dispossessed or removed from the Premises because of the Tenant's
default under this lease.
(Y) Validity of Lease Provisions. The terms, conditions and
covenants of this lease shall be deemed to be severable. If any clause or
provision of this lease shall be adjudged to be invalid or unenforceable by a
court of competent jurisdiction or by operation of any applicable law, it
shall not affect the validity of any other clause or provision of this lease,
but such other clauses or provisions shall remain in full force and effect.
The Landlord my pursue the relief or remedy sought in any invalid clause by
conforming the clause with the provisions of the statutes or regulations of
any governmental agency as if the particular provisions of the applicable
statutes or regulations were set forth here at length.
(Z) Indemnification of the Landlord. The Tenant shall
indemnify, defend and save harmless the Landlord from all losses, damages,
costs, fines, suits, procedures, claims and actions, of any kind, foreseen or
unforeseen, arising directly of indirectly, wholly or partly out of or in any
way connected with the use or occupancy of the Premises or arising out of any
breach of or non-conformance by the Tenant with any of the terms, conditions
or covenants of the lease.
(AA) Corporate Resolution. Contemporaneously with the execution
and delivery of this lease, the Tenant shall deliver to the Landlord a
Certificate of Corporate Resolution of its Board of Directors authorizing the
Tenant to enter into this lease.
23
<PAGE>
(AB) Commercial Lease. This lease shall be construed as a
"commercial lease".
(AC) Joint and Several Liability. The obligations of the Tenant,
if there be more than one, to the performance of the terms, conditions and
covenants of this lease, shall be joint and several.
(AD) ASSIGNMENT AND SUBLETTING.
(i) Tenant shall neither assign this lease nor sublet all
or any portion of the Premises without Landlord's prior consent, which shall
not be unreasonably withheld, subject to Landlord's rights hereinafter
provided. Landlord may withhold such consent if, in the reasonable exercise of
its judgement, it determines that any of the following enumerated conditions
are applicable, to be applied in good faith:
(a) the proposed assignee's or subtenant's financial
conditions is not sufficient to meet its obligations undertaken in such
assignment or sublease;
(b) the proposed use of the Premises is not
appropriate for the Building or in keeping with the character of its existing
tenancies;
(c) such assignee's or subtenant's occupancy will
cause an excessive density or traffic or make excessive demands on the
Building's services, maintenance or facilities;
(d) such assignee or subtenant is a tenant of and is
vacating premises in the Building or any other building owned by or through
the persons constituting Landlord hereunder, including any corporation in
which Landlord's principals are majority stockholders, and any affiliates,
subsidiaries, or parent of such corporation; or
(e) Landlord wishes to accept the offer provided in
subparagraph (iv).
(ii) Any request by Tenant for Landlord's consent to an
assignment of the lease shall state the proposed assignee s address and be
accompanied by profit and loss and balance statements of the proposed assignee
for the prior two (2) years, if in existence, as well as a duplicate unsigned
original of the proposed instrument of assignment (wherein the assignee will
assume, jointly and severally with Tenant, the performance of Tenant's
obligation hereunder).
(iii) Any request by Tenant for Landlord's consent to
sublease shall state the proposed subtenant s address and be accompanied by
profit and loss and balance statements of the proposed subtenant for the prior
two (2) years, if in existence, as well as a duplicate unsigned original of
the proposed instrument of sublease (wherein Tenant and the proposed subtenant
agree that such sublease is subject to the lease and such subtenant agrees
that, if the lease is terminated because of Tenant's default, such subtenant
shall, at Landlord's option, attorn to Landlord).
(iv) Any request by Tenant for Landlord's consent to an
assignment of the lease or a sublease of more than fifty (50%) percent of the
Premises shall clearly set forth the proposed terms of such proposed
assignment or sublease and shall constitute Tenant's offer to cancel the
lease. Landlord may accept such offer by notice to Tenant within thirty (30)
days after Landlord's receipt thereof, in which event, the lease shall
terminate as of the end of the month following the month in which such notice
is sent (with the same effect as if such date were the date fixed herein for
the natural expiration of the term), base rent and additional rent shall be
24
<PAGE>
apportioned to such date, Tenant shall surrender the Premises on such date as
herein provided, and subject to payment of required lease adjustments, the
parties shall thereafter have no further liability one to the other. If
Landlord fails to send such notice, Tenant, within five (5) days after the
expiration of such thirty (30) day period, may assign the lease or sublet all
or substantially all of the Premises to the proposed assignee or subtenant and
upon the terms specified in such request, subject, however, to Landlord's
rights under subparagraph (i) (a) through (e). In any event, Tenant shall pay
to Landlord, as additional rent, half of any amounts received by Tenant from
assignee or subtenant in excess of the Fixed Rent and additional rent payable
by Tenant hereunder.
(v) In the event of a permitted assignment, Landlord may
collect fixed rent and additional rent directly from the assignee. In the
event of a permitted sublease, Landlord may, if Tenant defaults hereunder,
collect fixed rent additional rent directly from subtenant. In either such
event, Landlord may apply any amounts so collected to the fixed rent and
additional rent hereunder without thereby waiving any provision hereof or
releasing Tenant from liability for the performance of its obligations
hereunder.
(vi) Landlord's consent to any assignment or sublease
hereunder shall not be deemed a consent to any further proposed assignment or
sublease by Tenant or any one claiming under or through the Tenant, except in
accordance with this Article (AD).
(vii)It is expressly understood and agreed that Tenant's
Option to Extend the Lease, as herein above set forth, shall be personal to
Tenant only, and may not be exercised by any permitted assignee or subtenant
hereunder.
(viii) Notwithstanding the foregoing, the Landlord's
consent shall not be required hereunder if the Tenant assigns or subleases to
a parent company, subsidiary, or affiliate of Tenant or a company into which
Tenant is merged or with which Tenant is consolidated, or to the purchaser of
all of or substantially all of the Tenant's assets or a majority of shares of
stock in Tenant.
(AE) Landlord's Access for Future Construction.
The Landlord reserves the right to enter the Premises and the
Building, in connection with the construction and erection of any additions or
improvements to the Building, of which the Premises is a part, or the
construction of additional Buildings. The Landlord may at any time,
temporarily close the common areas of the Building in connection with the
construction and erection of any additions or improvements to the Building or
the erection of additional Buildings, and to do such other acts in or to the
common areas as in the Landlord's reasonable discretion may be desirable or
necessary in connection with such construction, including without limitation,
the right to redirect traffic flow at the Building. THE LANDLORD SHALL NOT BE
LIABLE FOR ANY DAMAGE OR INJURY TO PERSON OR PROPERTY, OR FOR ANY LOSS OF
BUSINESS CAUSED BY OR RESULTING DIRECTLY OR INDIRECTLY FROM THE CONSTRUCTION
OR TEMPORARY CLOSURE OF THE COMMON AREAS.
(AF) This lease is subject to and conditioned upon (i) the
Landlord entering into a valid and binding Lease Termination Agreement with
HTC Commodity Incorporated, a Virginia corporation, applicable to the
Premises, and (ii) the consent and approval of Principal Mutual Financial
Group ("Principal Mutual"), as mortgagee of the Building of which the Premises
are a part. In the event such Lease Termination Agreement is not fully
executed, or the consent and approval of Principal Mutual is not received by
August 15, 1996, the within lease shall be null and void and shall be of no
further force or effect, with the exception that the Landlord shall return to
the Tenant, all monies previously paid to the Landlord by the Tenant pursuant
to paragraphs 3 and 4 of this lease.
25
<PAGE>
(AG) If any action or proceeding is commenced with respect to
any claim or controversy arising from a breach of this lease or seeking the
interpretation or enforcement of this lease, in addition to any and all other
relief, the prevailing party in such action or proceeding shall be entitled to
receive all costs and expenses, including reasonable attorneys fees and costs,
incurred by it on account of or related to such action or proceeding.
signed and sealed by the parties.
Attest: The Moen Organization, Inc., a New
Jersey Corporation, Landlord
By:
/s/ STEVEN BARTNER
- ------------------------- ------------------------------------
Steven Bartner, President
Attest: HumaScan, Inc., a Delware Corporation,
Tenant
By:
/s/ DONALD B. BROUNSTEIN
- ------------------------- ------------------------------------
Donald B. Brounstein., CEO
26
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Humascan Inc.
We consent to the use of our report included herein and to the reference
to our firm under the heading "Experts" in the prospectus.
KPMG Peat Marwick LLP
Short Hills, New Jersey
June 20, 1996
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