<PAGE> 1
As filed with the Securities and Exchange Commission on November 9, 1998
Registration No. 333-__________
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM SB-2
REGISTRATION STATEMENT
Under
The Securities Act of 1933
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HEALTHTRONICS, INC.
(Exact name of registrant as specified in its charter)
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Georgia 3845 58-2210668
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(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code number) Identification No.)
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425 Franklin Road, Suite 545, Marietta, Georgia 30067 (770) 419-0691
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(Address and telephone number of principal executive offices)
425 Franklin Road, Suite 545, Marietta, Georgia 30067 (770) 419-0691
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(Address of principal place of business or intended principal place of
business)
Christopher J. Moran, Jr., 4625 Clary Lakes Drive, Roswell, Georgia
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30075 Telephone Number: (770) 518-9542 FAX: (770) 518-9640
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(Name, address and telephone number of agent for service)
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Copies of all communications to:
Christopher J. Moran, Esq.
4625 Clary Lakes Drive
Roswell, Georgia 30075
(770) 518-9542
Fax: (770) 518-9640
Approximate date of commencement of proposed sale to the public: As
soon as practicable after this Registration Statement becomes effective.
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CALCULATION OF REGISTRATION FEE
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Proposed Proposed
Title of Each Dollar Amount Maximum Offering Maximum
Class of Securities to be Price Per Aggregate Amount of
to be Registered Registered Security Offering Price Registration Fee
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No Par Value $6,000,000 $6.00 per $6,000,000 $1,668
Common Stock Share
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The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE> 2
PROSPECTUS (SUBJECT TO COMPLETION)
HEALTHTRONICS, INC.
NO PAR VALUE COMMON STOCK
PURCHASE PRICE: $6.00 PER SHARE
83,334 SHARE MINIMUM
1,000,000 SHARE MAXIMUM
MINIMUM INVESTMENT = 100 SHARES ($600)
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK, INCLUDING:
SUBSTANTIAL AND IMMEDIATE DILUTION; LACK OF A PUBLIC MARKET FOR THE COMPANY'S
SHARES; AND THE RISK THAT THE COMPANY MAY NEVER RECEIVE FDA APPROVAL FOR ITS
PROPOSED PRODUCTS. (SEE "RISK FACTORS" ON PAGE 1, "DILUTION", "MANAGEMENT",
"HISTORY AND PROPOSED BUSINESS OF COMPANY" AND "CERTAIN TRANSACTIONS WITH
MANAGEMENT AND OTHERS").
There previously has been no public market for the Common Stock of
HealthTronics, Inc. (the "Company") and there is no assurance that any will
develop or continue. No person has agreed to make a market in the Company's
securities. The initial public offering price for the Company's no par value
common stock was arbitrarily determined by the Company and bears no
relationship to assets, shareholders' equity or any other recognized criteria
of value. The offering is being conducted on a "best efforts" basis with no
firm commitment to sell any specified portion. (See note 3 on the following
page).
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED THESE UNITS
OR DETERMINED THAT THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
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Price to Underwriting Discounts and Proceeds to
Public Commissions (1) (2) (3) Company (2)
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Per Share $ 6.00 $ .60 $ 5.40
Total Minimum $ 500,004.00 $ 50,000.40 $ 450,003.60
Total Maximum $6,000,000.00 $600,000.00 $5,400,000.00
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(See notes on following page)
CAPITAL GROWTH MANAGEMENT, INC.
1827 POWERS FERRY ROAD, BUILDING #2
ATLANTA, GEORGIA 30339
The date of this Prospectus is ________ , 199_
<PAGE> 3
(1) These figures include compensation to be paid to Capital Growth
Management, Inc. (the "Placement Agent") in the form of a commission of
eight percent (8%), reimbursement for accountable expenses of one
percent (1%) and a non-accountable expense allowance of one percent
(1%) per Share [for an aggregate total of ten percent]. In addition,
the Company has agreed to indemnify the Placement Agent against
certain liabilities under the Securities Act of 1933 (See
"UNDERWRITING").
(2) The proceeds to the Company do not reflect the deduction of expenses of
this offering, estimated at $175,793, including printing, accounting,
legal, stock transfer, filing, and miscellaneous costs and fees (See
"USE OF PROCEEDS").
(3) This offering is being conducted on a "best-efforts, 83,334 Share
minimum -- 1,000,000 Share maximum" basis. In the event that the
minimum number of Shares (83,334) having a gross subscription price of
$500,004 is not sold by 60 days from the date of this Prospectus
(unless extended at the option of the Company until 90 days from the
date of this Prospectus), all proceeds raised will be promptly returned
to investors without paying interest and without deducting any sales
commissions or expenses of the offering. If the minimum number of
Shares are sold, this offering will continue until nine months from the
date of this Prospectus or until all offered Shares are sold, whichever
event first occurs, unless the offering is sooner terminated by the
Company. Subscribers' checks will be made payable to "____________ as
Escrow Agent for HealthTronics, Inc." and proceeds from the sale of the
Shares will be escrowed with _____________ in Atlanta, Georgia, no
later than noon of the next business day following receipt thereof. No
interest will be paid to the Company on funds held in the Escrow
Account. Subscribers will not have the use of their funds, will not
earn interest on funds in the Escrow Account, and will not be able to
obtain return of funds placed in the Escrow Account unless and until
the minimum offering period expires, which may be as late as 90 days
from the date of this Prospectus. (See "UNDERWRITING")
THIS OFFERING OF SHARES MAY BE WITHDRAWN, CANCELED OR MODIFIED AT ANY TIME.
THE COMPANY AND THE PLACEMENT AGENT ARE NOT OBLIGATED TO SELL THESE SECURITIES
TO YOU, EVEN IF YOU SUBMIT AN ORDER FOR THESE SHARES. WE CANNOT, HOWEVER, MODIFY
THIS OFFERING WITHOUT COMPLYING WITH THE RULES OF THE SEC.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR THAT
WE HAVE REFERRED YOU TO. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT.
<PAGE> 4
UNTIL ______ ______, 1999 (90 DAYS AFTER THE EFFECTIVE DATE OF THIS
PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS PLACEMENT AGENTS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
FORWARD-LOOKING STATEMENTS
Certain Statements under the captions "RISK FACTORS", "MANAGEMENT'S
DISCUSSION AND ANALYSIS", "HISTORY AND BUSINESS" and elsewhere in this
Prospectus constitute "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. These statements include, but
are not limited to, statements relating to increases in revenues and net income
by expanding capacity and by obtaining additional FDA and patent approval. Such
forward-looking statements involve both known and unknown risks, uncertainties
and other factors which may cause the actual results, performance or
achievements of the Company to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements.
<PAGE> 5
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement (hereinafter, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Act"), with
respect to the securities offered hereby. This prospectus (hereinafter, the
"Prospectus"), which is part of the Registration Statement, does not contain
all the information set forth in the Registration Statement and the exhibits
thereto, certain items of which are omitted in accordance with the rules and
regulations of the Commission. For further information with respect to the
Company and the securities, reference is hereby made to the Registration
Statement and such exhibits filed as a part thereof, which may be inspected,
without charge, at the Public Reference Section of the Commission located at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549.
Copies of all or any portion of the Registration Statement may be obtained from
the Public Reference Section of the Commission, Washington, D.C. 20549
(1-800-SEC-0330) upon payment of the prescribed fees. These materials are also
available for inspection and copying at the regional offices located at Seven
World Trade Center, Suite 1300, New York, New York 10048 and at 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511. The Commission
maintains a Web site (http://www.sec.gov) that contains the Company's complete
Registration Statement.
Statements made in this Prospectus as to the contents of any contract,
agreement or other document referred to are not necessarily complete. With
respect to each such contract, agreement or other document filed as an exhibit
to the Registration Statement, reference is made to the exhibit for a more
complete description of the matter involved, and each such statement shall be
deemed qualified in its entirety by such reference. The Company will provide
without charge to each person who receives this Prospectus, upon written or
oral request, a copy of any information incorporated by reference in this
Prospectus. Such request should be mailed or phoned to the Company at the
address on the following page.
HEALTHTRONICS, INC.
425 Franklin Road, Suite 545
Marietta, Georgia 30067
(770) (419-0691)
FAX: (770) (419-9490)
Attention: Roy S. Brown, President
Upon effectiveness of the Registration Statement the Company will become a
reporting company pursuant to Section 15 of the Securities Exchange Act of
1934. As a reporting company, the Company shall file quarterly, annual and
special reports with the Commission. The Company shall provide its security
holders with copies of its annual reports containing financial statements
audited by independent public accountants for each year that the Company's
securities are outstanding, at no charge. Copies of future reports and of
reports filed by the Company during the course of the offering period may be
obtained from the Company, at no charge, or from the Public Reference Section
of the Commission at the address, Web site or telephone number shown above.
<PAGE> 6
TABLE OF CONTENTS
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Page
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Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
History and Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Market Overview. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
Products and Proposed Products . . . . . . . . . . . . . . . . . . . . . .8
Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
Potential Manufacturing . . . . . . . . . . . . . . . . . . . . . . . . .10
Maintenance Services . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
Governmental Regulation . . . . . . . . . . . . . . . . . . . . . . . . .11
Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
Property and Equipment . . . . . . . . . . . . . . . . . . . . . . . . . 13
Joint Ventures, Subsidiaries and Distributors. . . . . . . . . . . . . . 14
Patents, Trademarks and Licenses. . . . . . . . . . . . . . . . . . . . .16
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
Officers and Directors . . . . . . . . . . . . . . . . . . . . . . . . . 18
Biographical Information . . . . . . . . . . . . . . . . . . . . . . . . 20
Remuneration (Summary Compensation Table). . . . . . . . . . . . . . . . 22
Principal Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . .23
Securities Ownership of Majority Shareholders . . . . . . . . . . . . . .23
Certain Transactions with Management and Others . . . . . . . . . . . . . . . 24
Dilution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28
Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29
Description of Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . 29
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30
Options . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Use of Proceeds . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . .32
Underwriting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Plan of Distribution. . . . . . . . . . . . . . . . . . . . . . . . . . .32
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Management's Discussion and Analysis. . . . . . . . . . . . . . . . . . . . . 35
Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . .F1
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RISK FACTORS
Prospective investors should give careful consideration to the following
facts concerning the Company and the risks involved in the purchase of the
Company's Shares. It should be noted that the specific risks enumerated below
are presented for illustration only, and no assumption should be made that the
following list is exhaustive. Investors are cautioned to read all of the
documents furnished hereto or made available by management, including the
financial statements and the footnotes thereto.
LOSSES FROM OPERATIONS. The Company has incurred net losses from operations
since its inception. These losses aggregated $432,572 and $418,028 for the
years ended December 31, 1996 and December 31, 1997, respectively. (See
"MANAGEMENT'S DISCUSSION AND ANALYSIS").
BEST EFFORTS OFFERING. The Company is offering, on a "best efforts 83,334 Share
Minimum, 1,000,000 Share Maximum" basis, up to 1,000,000 Shares. (This means
that the Placement Agent is not required to sell any portion of this offering
and must only use its best efforts to sell this offering). Accordingly, there
can be no assurance that any or all of the Shares will be sold. There is no
provision for the return of funds to subscribers if more than 83,334 but less
than 1,000,000 of the Shares offered are sold, and in that event, the Company
may have insufficient funds to carry out to the fullest its proposed business
activities. (See "USE OF PROCEEDS" AND "UNDERWRITING").
SUBSTANTIAL AND IMMEDIATE DILUTION. The Company has previously issued Shares at
prices ranging from $.01 to $3.00 per Share. Investors who purchase Shares in
this offering will incur an immediate dilution in the net tangible book value
of their Shares of from $5.12 per Share if the maximum offering is sold to
$5.56 per Share if only the minimum offering is sold. (See "DILUTION").
LACK OF MARKET FOR THE COMPANY'S SECURITIES. There is currently no market for
the Company's Shares and there may never be a market for the Shares, even if
this entire offering is sold. Certain officers, directors, employees,
consultants and suppliers of the Company hold options to purchase, in the
aggregate, up to 454,000 Shares at prices ranging from $1.00 to $3.00 per Share
as of the date of this Prospectus. If all of these options were to be
exercised, outstanding Shares would be increased by 4.3% if the maximum
offering is sold and by approximately 4.7% if only the minimum offering is
sold. The exercise of any or all of these outstanding options would have a
depressive effect on the market price, if any, of the Shares.
Even if a market for the Shares did develop, the Company has 9,665,342 Shares
currently outstanding as of the date of this Prospectus. All of these Shares
are "restricted" Shares, of which
1
<PAGE> 8
5,934,900 of these Shares are both "restricted" and "control" Shares within the
meaning of the Securities Act of 1933 and Rule 144 promulgated thereunder. Any
or all of these restricted and control Shares could be resold to the public if
registered pursuant to the Securities Act of 1933, as amended or pursuant to an
exemption from registration thereunder such as Rule 144. Rule 144 provides for
the resale, subject to certain limitations with respect to quantity, holding
period, matter of resale and certain filing requirements, of restricted
securities to the public. Any resale of the securities currently held by the
Company's Promoters and present shareholders could have a depressing effect on
any market for the Shares that might develop.
COMPETITION. The Company faces strong competition from other companies, some of
which have substantially more experience and financial resources than the
Company. (See "COMPETITION").
INDEMNIFICATION. The Company's Articles of Incorporation provide that no
director shall have any personal liability to the Company or its shareholders
for monetary damages for breach of duty of care or the other duties of a
director except for any appropriation of any business opportunity, for acts or
omissions that involve intentional misconduct or a knowing violation of law, or
for any transaction from which the director derived an improper personal
benefit. Copies of the Company's Articles of Incorporation and ByLaws are
available for inspection by any potential investor or his representative. (See
"ADDITIONAL INFORMATION"). Because of these provisions, the Company and its
shareholders may have a more limited right of action against a director than
they would have absent these provisions. INSOFAR AS INDEMNIFICATION FOR
LIABILITIES ARISING UNDER THE SECURITIES ACT OF 1933 (THE "ACT") MAY BE
PERMITTED TO 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 SECURITIES AND EXCHANGE COMMISSION SUCH
INDEMNIFICATION IS AGAINST PUBLIC POLICY AS EXPRESSED IN THE ACT AND IS,
THEREFORE, UNENFORCEABLE. In the event that a claim for indemnification against
such liabilities (other than the payment by the Company of expenses incurred or
paid by a director, officer or controlling person of the Company in the
successful defense of any action, suit or proceeding) is asserted by such
officer, director or controlling person in connection with these 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
appropriate 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.
GOVERNMENTAL REGULATION. The Company will be subject to various local
ordinances, county, state and federal laws and regulations, including laws and
regulations that may directly affect the profitability of the Company. (See
"GOVERNMENTAL REGULATIONS").
2
<PAGE> 9
NEED TO RETAIN KEY PERSONNEL AND LACK OF "KEY MAN" INSURANCE. The success of
the Company in the next few years is materially dependent upon the abilities of
its executive officers. The Company has "Key Man" insurance in the total amount
of $1,000,000 on both Argil Wheelock, M.D., its Chairman and CEO and on Marie
Marlow, Vice President of Clinical and Regulatory Affairs, but not currently on
any of its other officers or employees. While Management believes this amount
of insurance to be adequate, the loss of the services of any one or more of the
Company's present employees could adversely affect the Company.
PAST AND FUTURE COMPLIANCE WITH FEDERAL SECURITIES LAWS. Previous securities
offerings by the Company were not registered under the Securities Act of 1933 in
reliance on exemptions from registration provided therein. Although the Company
intends to assure compliance with all provisions of federal and state securities
laws relating to the offer and sale of the Shares, there is no assurance that
the offering presently qualifies or will continue to qualify due to, among other
things, the adequacy of disclosure and the manner of distribution of this
offering, the existence of other offerings by the Company in the past or of
future offerings, the activities of the Company's officers and directors or the
change in any securities laws or regulations. If and to the extent suits for
rescission are brought and successfully concluded for failure to register other
offerings made or to be made by the Company, under state or federal securities
laws, or for acts or omissions constituting certain prohibited practices under
state or federal securities laws, both the capital and assets of the Company
could be adversely affected, thus jeopardizing the ability of the Company to
operate successfully. Further, the time and resources of Company personnel could
be expended in defending an action by investors or by state or federal
authorities even where the Company is ultimately exonerated. Neither the
Securities and Exchange Commission nor any state securities agency approved or
disapproved the Shares offered in this Prospectus nor has any securities
commission or agency passed upon the adequacy or accuracy of information
contained herein.
Approximately 90 days after the effective date of this offering, the owners of
the Company's restricted securities may begin reselling these securities
pursuant to the provisions of Rule 144 (See RISK FACTOR entitled "LACK OF
MARKET FOR THE COMPANY'S SECURITIES", above). The viability of a secondary
market for the Company's securities is based upon, among other requirements,
the Company being current in filing reports with the Securities and Exchange
Commission pursuant to the reporting requirements mandated by the Securities
Exchange Act of 1934 (The "Exchange Act"). If the Company becomes delinquent in
filing reports pursuant to the Exchange Act it may become impossible for any
investor to resell his Shares.
3
<PAGE> 10
ARBITRARY OFFERING PRICE. The offering price of $6.00 per Share was determined
arbitrarily by management. This offering price has no relationship to book
value, market value or any other indicia of valuation, and there can be no
assurance of any resale value for the Company's Shares.
NON-EXCLUSIVE LICENSE. VISSH Voennomedicinsky Institut of Bulgaria ("VISSH"),
the developer of the patent, retained the rights to the Bulgarian patent of its
invention. In addition, the license granted from HMT to the Predecessor (now
the Company) is only for the US, Mexican and Canadian patents. This means that
products produced in Bulgaria by VISSH or its licensee or by other licensees of
HMT in other countries in which the invention is licensed (such as China, South
Korea and Japan), could effectively compete with the Company's products in the
world market outside of the US, Mexico and Canada. (See "PATENTS, TRADEMARKS
AND LICENSES").
PATENT AND TRADEMARK APPLICATIONS NOT A GUARANTEE OF PROTECTION. While the
Company has obtained or has filed for certain patents or trademarks for its
various products, processes, technology, trademarks and logos, this protection
does not guarantee that other persons will not use or employ patents, processes,
technology, trademarks or logos substantially identical to the Company's. If
another person were to successfully patent a product manufactured by the Company
or to obtain a trademark or copyright on a logo, process or trade name used by
the Company, it is possible that the Company would be required to pay royalties
to such person or to cease such use. In addition, the cost of patent or
trademark litigation may prove prohibitively expensive to the Company, even if
the Company were to prevail in such litigation. The Company does not have patent
protection for the LithoTron(R) lithotripter. (See "COMPETITION").
The Company is aware that both Siemens GmbH ("Siemens") and Dornier Medical
Systems ("Dornier") have had patents approved for the use of shock wave therapy
in orthopedics as well as to treat pain. The Company believes that the Siemens
and Dornier patents do not apply to the OssaTron(R) orthopedic lithotripter
because its technique is different from the technique employed in the Siemens
and Dornier applications and because of the Company's indications of use and
earlier filed patent application. (See "COMPETITION").
CHANGING REGULATORY CLIMATE. Federal and state laws regulate physician ownership
of, and referrals to, health care service providers. On January 9, 1998,
proposed regulations were published applicable to the services provided by the
limited partnerships in which the Company is an investor. If these regulations
are adopted, the profitability and viability of some of the Company's operations
may be endangered. (See "GOVERNMENTAL REGULATION").
4
<PAGE> 11
Hospitals and centers to which the Company sells its products are reimbursed
for lithotripsy under various federal and state programs, including Medicare
and Medicaid, primarily at fixed rates. These programs are always subject to
statutory and regulatory changes, administrative rulings, interpretations of
policy and governmental funding restrictions, all of which could affect the
ability of the Company to market its products.
LOWER RATES OF REIMBURSEMENT AND OTHER UNCERTAINTIES. Over the last several
years, there has been a trend towards lower reimbursement rates for health care
services and prescription drugs by cost-conscious third-party payors such as
health maintenance organizations. There has also been increased resistance by
insurance companies and others to reimburse for certain treatments that may be
considered experimental or optional or to reimburse when a less-expensive
alternative is deemed to be available. Such reimbursement reductions or
resistance to treatments could affect the potential market for the Company's
products.
In addition, these lower rates of reimbursement are occurring at a time when
labor and supply costs are gradually increasing due to inflation.
RISK RELATING TO CHANGES IN TECHNOLOGY. The OssaTron(R) orthopedic lithotripter
and LithoTron(R) lithotripter are both subject to rapid technological changes
and face the risk of product obsolescence and the development of less expensive
alternatives. The development of new technologies or drugs or refinements of
existing ones might render the Company's products technologically or
economically obsolete.
MALPRACTICE AND OTHER LIABILITY RISKS. Physicians and technicians who use the
Company's products are exposed to the risk of liability and malpractice claims.
Any such claims could also name the Company. While the Company has not
experienced any such claims, an award for damages could exceed the limits of
the Company's applicable insurance coverage. Successful liability claims
asserted against the Company, to the extent not covered by insurance, could
affect the Company's ability to operate profitably. While management believes
the Company's current level of insurance is adequate, there can be no assurance
of this.
DEPENDENCE UPON HMT. The Company's products are manufactured by HMT High
Medical Technologies GmbH ("HMT"), a Swiss corporation. HMT is a privately-held
concern and does not publish any resulting financial information. If HMT were
to encounter financial problems and cease the manufacture of the Company's
products, it is possible that the Company may not find an alternative
manufacturer or that the terms of any manufacturing agreement with an
alternative manufacturer would not be on terms as favorable to the Company as
its' current agreement with HMT.
5
<PAGE> 12
YEAR 2000 COMPLIANCE. The Company is aware of the issues associated with the
programming of existing computer systems as the year 2000 approaches, and
recognizes the need to ensure that its operations will not be disrupted by Year
2000 hardware and software issues. This problem will affect the Company since
virtually every computer operation will be affected in some way by the rollover
of two-digit year values. The central issue is whether computer systems will
properly recognize date sensitive information when the year changes to 2000.
Systems that do not properly recognize such information could generate
erroneous data or could fail. The Company is in the process of confirming
compliance regarding Year 2000 issues for both internal and external
(suppliers, vendors) information systems. This process, which shall continue on
an ongoing basis, involves communicating with significant suppliers, HMT,
financial institutions, and other parties that provide significant services to
the Company. There can be no assurance that the Company's primary service
providers will properly address such Year 2000 issues. Expenditures to make the
Company Year 2000 compliant are not expected to be material to the Company's
financial position or results of operations, however, there can be no assurance
in that regard. (See "MANAGEMENT'S DISCUSSION AND ANALYSIS").
RISK OF LOSS. In view of the risk involved in the Company's business
operations, the Shares offered hereby should not be purchased by any person who
cannot afford to risk the loss of his investment.
HISTORY AND BUSINESS
HISTORY.
HealthTronics, Inc. (the "Company") was incorporated in the State of Georgia
on December 1, 1995. On December 31, 1995 OssaTronics, Inc. (the
"Predecessor"), an affiliated Georgia corporation formed on December 23, 1994,
was merged into the Company. The Agreement and Plan of Merger was finalized
with the Office of the Secretary of State of Georgia on April 29, 1996. All
references to the Company shall include, unless otherwise noted, the
Predecessor.
The Company was founded for the purpose of obtaining Food and Drug
Administration ("FDA") approval for certain products manufactured by HMT High
Medical Technologies GmbH ("HMT"), a Swiss corporation; in particular, certain
medical devices utilizing shock wave therapies, known as the LithoTron(R)
lithotripter and the OssaTron(R) orthopedic lithotripter. Upon FDA approval the
Company will have exclusive rights to market the OssaTron(R). Both products are
currently being used outside of the United States and Canada.
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<PAGE> 13
It is the intent of the Company to attempt to generate revenues from four
sources:
1) Sales of the LithoTron(R) lithotripter and the OssaTron(R)
orthopedic lithotripter as well as related medical devices;
2) Recurring revenues from licensing fees, sales of consumable products
and the maintenance of equipment;
3) Investment income generated from partnerships and joint ventures
with physicians, dealerships and hospitals that purchase equipment from the
Company, as well as management fees from such entities; and
4) Income generated from equipment owned by the Company or by
affiliates of the Company through rental or leasing.
MARKET OVERVIEW.
Management believes that approximately 600,000 persons a year suffer from
kidney stones in the United States. Of these, approximately 180,000 will be
treated with lithotripsy, a nonsurgical therapy developed in Germany around
1980. Based upon average charges of $6,000 per patient (These average charges
include the use of equipment, physician charges, anaesthesia and other normal
charges incidental to this therapy), management believes that over
$1,000,000,000 is spent on this technology per year.
There are approximately 380 active lithotripter systems in operation in the
United States, with approximately 210 of these installed in hospitals or
outpatient centers. The remaining 170 are mobile, with most of these owned by
groups of urologists except for 61 machines owned by Prime Medical and 30
machines controlled by Integrated Healthcare Services, formerly owned by Coram
Healthcare. Almost half of the lithotripters now in use are older than 10
years.
The majority of machines now in use in the United States were manufactured
by Dornier Medical Systems, Siemens GmbH or Medstone International, Inc. The
retail price of a new lithotripter made by these companies ranges from $300,000
to $800,000.
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<PAGE> 14
PRODUCTS AND PROPOSED PRODUCTS.
I) The LithoTron(R) Lithotripter
The LithoTron(R) lithotripter was developed by HMT. Management believes the
LithoTron(R) lithotripter to be superior to the other lithotripters currently
available for the following reasons:
1) Higher power and lower retreatment rates than competing lithotripters.
2) The LithoTron(R) lithotripter is patient friendly and causes minimal
discomfort and very few complications.
3) The machine is very easy for doctors and technicians to use. The
LithoTron(R) lithotripter is readily transferable from one treatment room to
another, as opposed to older machines that may require a dedicated, specially
prepared operating suite costing in excess of $100,000.
4) Increased reliability and lower maintenance costs compared with older,
currently installed machines.
5) Versatility, since the X Ray system used for imaging the kidney stones
can be removed and used for other medical procedures.
6) Excellent X Ray pictures as opposed to older devices currently in use.
7) More cost-efficient mobile service, since the machine can be
transported in a smaller vehicle than most of the machines currently in use.
After completing a four (4) site Investigatory Device Exemption ("IDE")
study for kidney and upper ureter stones, the LithoTron(R) lithotripter
Pre-Market Approval ("PMA") application was submitted to the FDA on May 15,
1997. The United States Food and Drug Administration ["FDA"] requires that a
company or person seeking to introduce a medical treatment device must first go
through an IDE study and must afterwards go through a PMA application. The FDA
will not approve any medical treatment device for sale that has not received
PMA approval. On July 21, 1997, the Company received FDA notice that the PMA is
approved and the Company may begin commercial distribution of the LithoTron(R)
lithotripter, subject to certain restrictions on the uses, methods, controls,
labeling and the training of operators in compliance with the Code of Federal
Regulations. The Company is conducting additional investigations to allow the
promotion of additional LithoTron(R) lithotripter features.
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<PAGE> 15
II) The OssaTron(R) Orthopedic Lithotripter
Orthotripsy(R) is the application of shock wave technology to certain
orthopedic problems. It is an extension of the principle used to treat kidney
stones. Physiologically, Orthotripsy(R) is believed to stimulate bone, tendon
and ligament healing by inducing microscopic injuries at the site of the
chronic injury. Subsequently, a generation of new red blood vessels enters into
the area and causes bone-healing cells (osteoblasts) or tissue healing cells
(fibroblasts) to invade the area and stimulate the healing process. Another
name for Orthotripsy(R) is orthopedic lithotripsy.
Management believes that in Europe, orthopedic lithotripsy has been shown to
be an effective treatment in 60 - 90% of cases involving chronic heel pain
syndrome ("heel spurs"), non-union fractures (fractures that have failed to
heal for nine months or more since the initial injury) and lateral
epicondylitis ("tennis elbow").
Management believes the OssaTron(R) orthopedic lithotripter to be one of a
few commercially available orthopedic shock wave devices in the world. The
Company believes its product is superior to potential competitors who utilize a
different energy source. The OssaTron(R) orthopedic lithotripter is typically
referred to as a "high energy" orthopedic device and the higher power enables
the OssaTron(R) orthopedic lithotripter to promote healing with fewer treatment
sessions.
On May 29, 1996, the Company received approval from the FDA to begin
preliminary patient investigations with the OssaTron(R) orthopedic lithotripter.
Treatment of the first nonunion patient (a "nonunion patient" is a patient whose
bone injury is not healing normally within nine months of the injury) was
performed on July 18, 1996; treatment of the first tennis elbow patient on
September 19, 1996 and the first heel spur patient on February 27, 1997. On
February 13, 1998, the Company received FDA permission to expand the tennis
elbow study to a multi-site study and to expand the heel spur study to multiple
sites. The Company is currently the sponsor of three clinical studies involving
the Ossatron(R) orthopedic lithotripter. These include studies involving this
product for treating chronic heel pain syndrome (also called plantar fasciitis),
for treating tennis elbow, and for treating nonunion fractures. All three
studies are being regulated by the FDA, and are being conducted in two stages:
an initial feasibility study, which is a small, 20 patient series intended to
provide preliminary safety and effectiveness information, followed by a second
stage multi-center pivotal study that includes 100 or more patients and is
intended to provide the clinical data needed to obtain FDA approval for
marketing. Stage one feasibility studies of the OssaTron(R)
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orthopedic lithotripter for heel pain syndrome and for tennis elbow have, in
the opinion of management, been successfully completed; the FDA has reviewed
the results of these two feasibility studies and approved the expansion of both
studies to stage two pivotal investigations on February 13, 1998. Patient
enrollment for the stage one feasibility study of the treatment of nonunion
fractures is nearly complete, and the Company plans to submit findings to the
FDA and request expansion to the stage two pivotal study once all 20 patients
have been treated.
The findings from the phase one feasibility studies of OssaTron(R)
orthopedic lithotripter treatment of heel pain syndrome and of tennis elbow
closely resembled findings from clinical use of the OssaTron(R) orthopedic
lithotripter in Europe. Management believes that approximately 85% (seventeen
out of twenty) of the feasibility study patients treated for heel pain syndrome
had a successful response to initial treatment, and that approximately 85% of
the tennis elbow patients had a successful response to treatment. About 50% of
the feasibility study patients treated for tennis elbow required two
treatments, as had been reported from European clinical studies of OssaTron(R)
orthopedic lithotripsy treatments for this indication of use. The Company
believes the feasibility study results from its current studies to be superior
to published results for European clinical experience with orthopedic shock
wave devices based on a different energy source (electromagnetic technology),
which appear to be associated with higher retreatment rates than have been
demonstrated in the OssaTron(R) orthopedic lithotripter studies. Findings from
the stage two pivotal studies are not yet available, since these are
double-blinded, placebo-controlled studies (this means that neither the patient
nor the doctor know whether the patient is receiving an effective treatment or
a placebo), but the Company has no reason to believe that pivotal study results
will differ significantly from feasibility study findings. The Company believes
that retreatment rates may be a significant factor not only in the FDA approval
process, but also concerning reimbursement for orthopedic shock wave
treatments.
EMPLOYEES.
The Company employs twenty-two persons on a full-time basis in
administration and operation. None of the Company's employees are members of
labor unions and management believes labor relations to be good.
POTENTIAL MANUFACTURING.
The Company does not currently own or operate any manufacturing facilities
and has no plans to manufacture any of its products in the immediate future.
The Company currently imports its products from the manufacturer, HMT. The
Company has
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<PAGE> 17
the right to purchase manufacturing rights from HMT for the OssaTron(R)
orthopedic lithotripter and has the right to manufacture the LithoTron(R)
lithotripter. The Company intends, however, for at least the next 12 months, to
continue to purchase both LithoTron(R) lithotripters and OssaTron(R) orthopedic
lithotripters from HMT. (See "RISK FACTOR - DEPENDANCE ON HMT", above).
MAINTENANCE SERVICES.
Maintenance services for the Company's products are performed by
Servicetrends, Inc., a subsidiary of Integrated Healthcare Services ("IHS"),
and formerly a subsidiary of Coram Healthcare Corporation. While IHS is
believed by management to be the second largest provider of lithotripsy
services in the United States and therefore may be deemed a competitor of the
Company, management is satisfied with the level of service performed by
Servicetrends, Inc., and has no plans to change its arrangements with
Servicetrends, Inc.
Several shareholders of the Company are also employees of Servicetrends, Inc.
MARKETING.
The Company markets the LithoTron(R) lithotripter primarily to hospitals
and to certain physician groups that provide mobile lithotripsy services. (With
respect to ownership by physician groups, proposed regulations could have a
severe impact upon the ability of such groups to own lithotripsy devices - See
"GOVERNMENTAL REGULATION", below.) Three medical centers have already purchased
an OssaTron(R) orthopedic lithotripter under the conditions of the IDE
regulations, and have begun investigational studies. A further investigational
site is leasing a unit and has also begun a pre-IDE study.
The Company currently has several major customers, including HealthSouth.
In addition, the Company uses U.S. Lithotripsy, L.P., a Texas limited
partnership of which the Company is the sole general partner, Signal Medical,
IHS, HealthSouth and Mobile One Medical for assistance in marketing its
products. No single customer accounts for more than 10% of the Company's
business.
GOVERNMENTAL REGULATION.
The Company will be subject to regulation by federal, state and local
statutes, ordinances, regulations and codes in many facets of its business.
Such governmental regulation includes licenses, permits, safety codes, zoning,
truth-in-lending, workmen's compensation and related laws, as well as various
consumer sales statutes and regulations. The Company's proposed
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<PAGE> 18
products must be approved by the FDA prior to marketing these products. In
addition, the Company is subject to acts and regulations promulgated by the
Drug Enforcement Administration and the Healthcare Financing Administration.
The Company will also be subject to regulation by various regulatory agencies
of the states in which the Company intends to sell its Shares. The states
impose various regulations upon the activities of health care providers such as
the Company and its customers. The Company's compliance with any changes in
such laws and regulations may have an adverse effect upon the Company's
business. Although management of the Company presently believes that its
operations will be in compliance with applicable laws and regulations, there
can be no assurance that the Company will continue to be able to comply with
all applicable laws and regulations, or to do so without adverse consequences
to the Company's business. (See also "RISK FACTORS").
The Company has received clearance from the FDA to begin a test program of
the OssaTron(R) orthopedic lithotripter and has been granted FDA approval for
commercial distribution of the LithoTron(R) lithotripter subject to certain
conditions.
Federal law regulates physician ownership of, and referral to, health care
service providers for services reimbursable under the Medicare or Medicaid
programs through two federal acts: the Medicare and Medicaid Fraud Prevention
Act; and the Omnibus Budget Reconciliation Acts and certain regulations
proposed thereunder. The Medicare and Medicaid Fraud Prevention Act (referred
to hereinafter as the "Anti-kickback Statute") generally prohibits the payment
of any remuneration to induce or encourage the referral of patients for
services reimbursable under the Medicare or Medicaid programs. The Omnibus
Budget Reconciliation Acts (referred to hereinafter as the "Stark Act")
expanded restrictions imposed upon physician ownership and referral activities
to include "hospital outpatient services". On January 9, 1998 the Health Care
Financing Administration published proposed regulations applicable to all
designated health services. While lithotripsy is not mentioned in the proposed
regulations, accompanying comments indicate that lithotripsy is included within
the definition of inpatient and hospital outpatient services. While there are
several exceptions and safe harbors within the above federal acts and
regulations, strict compliance with these acts and regulations would limit the
ability of the Company to contract with limited partnerships controlled by
physicians since physicians would generally not be allowed to own
lithotripters.
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COMPETITION.
The Company's competitors, including Dornier Medical Systems, ("Dornier")
Siemens GmbH ("Siemens"), Medstone International, Inc. ("Medstone"), IHS, Prime
Medical Services, Inc. ("Prime") and Storz Medical Systems ("Storz"), are
larger and better-financed than the Company, and also enjoy a high degree of
international name recognition for other products they manufacture. It is
possible that one or more of these companies could corner the market for
lithotripters through the use of extensive advertising and product discounts,
even if the Company's products prove to be superior.
The Company is aware that Dornier, Siemens, Medstone and Storz are all
currently working on an orthotripsy device. Approximately 50% of the
lithotripters in service in this country were manufactured by Dornier. The
Company believes the OssaTron(R) orthopedic lithotripter to be superior.
Siemens and Dornier have received patents for the use of shock wave therapy in
orthopedics and for pain management. The Company, however, believes that its
technique is different from the Siemens and Dornier patents and believes that
its earlier filed patent application and 72 pending claims covering multiple
pathologies or indications of use do not encroach upon either the Siemens or
Dornier patents.
The Company believes that Prime owns approximately 16% of the estimated
380 lithotripters currently in operation in the United States, making this
entity the leading provider of lithotripsy services. IHS is believed to hold
the second position with approximately 8% of the estimated lithotripters in the
United States. The Company estimates that the next four largest lithotripsy
providers operate only 11% of the lithotripsy units currently in operation in
the United States.
The Company also competes with local private facilities and medical
centers that offer lithotripsy services, including hospitals that own their own
machines and local mobile service providers.
PROPERTY, EQUIPMENT AND INVENTORY.
As of June 30, 1998, the Company owns property, equipment and inventory,
on a consolidated basis, with a net book value of $4,353,039. The Company
currently leases 6,275 square feet of office space in Marietta, Georgia at a
monthly rental of $3,921.88. The Company's lease expires on May 15, 2000. The
Company intends to perform all of its administrative, marketing, assembly,
inspection, warehousing and shipping functions from its current facility. The
Company deems this space adequate to meet its foreseeable future needs.
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JOINT VENTURES, SUBSIDIARIES AND DISTRIBUTORS.
The Company entered into a distributor agreement with U.S. Lithotripsy,
L.P. ("USL"), a Texas limited partnership of which the Company was one of the
corporate general partners, and with Litho Management, Inc., USL's other
corporate general partner, on March 7, 1997 (As shown below - the Company is
currently the sole general partner in USL). The distributorship agreement (as
amended) grants USL an exclusive license to sell, use, lease and distribute the
Company's products in a 19 state area and a nonexclusive right (subject to
approval by the Company) to sell, use, lease and distribute the Company's
LithoTron(R) lithotripter and related urology products in other states. The
Company, pursuant to a private placement memorandum dated June 1, 1997 acquired
a 40% ownership interest in USL, consisting of a .4% general partnership
interest and a 39.6% limited partnership interest, pursuant to an Entity
Interest Agreement. On May 1, 1998 the Company acquired 100% of the outstanding
common shares of Litho Management, Inc. in exchange for 700,000 Shares of the
Company's Common Stock; the Company therefore became the sole general partner of
USL. As of June 30, 1998, USL was the general partner in seven limited
partnerships and a limited partner in one limited partnership that provide
lithotripsey services.
On September 9, 1998 the Company exchanged 300,000 of its Shares with
three shareholders of the Company who were also the sole shareholders of HLE
Corp., a Texas corporation, in exchange for all of the issued and outstanding
shares of HLE Corp. The assets of HLE Corp. consist of a 30% limited
partnership interest in Metro I Stone Management, Ltd., a Texas limited
partnership. Because the Company, as sole general partner of USL, has already
consolidated Metro I Stone Management, Ltd., this transaction effectively
represents an acquisition of additional interest in the operations of Metro I
Stone Management, Ltd.
The ownership share of USL and of HLE Corp. in these various limited
partnerships, as of the date of this Prospectus, (hereinafter referred to as
the "Second Tier Limited Partnerships") is discussed below:
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<TABLE>
<CAPTION>
USL Interest
Name of Entity in Partnership Type of Ownership
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Metro I Stone Management, Ltd. (1) 10% Sole General Partnership Interest
Mississippi Valley I Stone 01% Sole General Partnership Interest
Management Limited. (l) 30% Limited Partnership Interest
AESL Limited Partnership 20% Limited Partnership Interest
East Texas I Stone Management, Ltd. (1) 10% Sole General Partnership Interest
Dallas Stone Management, LP (1) 10% Sole General Partnership Interest
Tulsa Stone Management, Limited 10% Sole General Partnership Interest
Partnership 89% Limited Partnership Interest
Tyler Stone Services, L.P. (1) 10% Sole General Partnership Interest
89% Limited Partnership Interest
S.C. Missouri Stone Management, L.P. 10% Sole General Partnership Interest
<CAPTION>
HLE Interest
Name of Entity in Partnership Type of Ownership
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Metro I Stone Management, Ltd. (1) 30% Limited Partnership Interest
</TABLE>
The Company is also a limited partner in the following entities (Hereinafter
referred to as the "First Tier Limited Partnerships"):
<TABLE>
<CAPTION>
Company Interest
Name of Entity in Partnership Type of Ownership
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Bone and Joint Treatment 49% Limited Partnership Interest
Centers of South Florida,
Limited Partnership
Lithotripsy Leasing 13% Limited Partnership Interest
Limited Partnership
Chesapeake Lithotripsy-West,
Limited Partnership 5% Limited Partnership Interest
Lithotripsy Association of Texas 5% Limited Partnership Interest
- ------------------------------------------------------------------------------------------------------
</TABLE>
(1) The above entities pay USL a management fee of 7.5% of gross receipts,
subject to certain minimums or other limitations.
(2) The Company, through its general partnership interests, guaranteed the debts
of USL and all of the Second Tier Limited Partnerships (See "CERTAIN
TRANSACTIONS WITH MANAGEMENT AND OTHERS").
The Company is currently a 67% owner of Tenn-Ga Prostate Therapies, L.L.C.
("Tenn-Ga Prostate"), a Tennessee limited liability company that owns and
operates a mobile Prostatron device (a Prostatron is a medical device that uses
microwave energy to treat prostate enlargement). The remaining 33% of Tenn-Ga
Prostate is owned by physicians who practice in the market served by Tenn-Ga
Prostate. Tenn-Ga Prostate provides prostate therapy services to various
hospitals in the Southeast. Argil Wheelock, M.D., the Company's Chairman and
CEO, is the Chief Manager of Tenn-Ga Prostate.
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PATENTS, TRADEMARKS AND LICENSES.
The OssaTron(R) orthopedic lithotripter, the invention subject to the
patents and patent applications of the Company, is an apparatus used, among
other considerations, for the medical treatment of the pathological state of
bones. VISSH was the holder of a patent entitled: "Method and Apparatus for
Medical Treatment of the Pathological State of Bones" (U.S. Patent Number
4,979,501). The patents and patent applications for Australia, Canada, Hungary,
South Korea, Russia, Japan, China and the United States were sold by VISSH to
HMT High Medical Technologies GmbH ("HMT"). VISSH retained the
Bulgarian patent. On January 21, 1997, a U.S. Patent for a "System, Method and
Apparatus for Treatment of Degenerative Bone" was awarded to the principals of
HMT, and assigned to HMT (U.S. Patent Number 5,595,178). There is no patent for
the LithoTron(R) lithotripter.
HMT granted a license regarding U.S. Patent Number 4,979,501 and Canadian
Patent Number 1,330,580 (the "Original License") to the Predecessor on June 3,
1995. The Original License provides the Predecessor (the Company since the
merger) with a non-exclusive license to make, use, lease, or sell shock wave
equipment for medical treatment. The Original License was acquired for $100,000.
HMT reserved the patents and patent applications for Australia, Hungary, South
Korea, Russia, Japan and China. The Original License could be terminated by
either party upon default after 30 days written notice. On August 7, 1996 the
Original License was amended (the "Amended License") to specifically grant to
the Company an exclusive license to make, use, lease or sell shock wave
equipment for medical purposes. This Amended License is effective for a term of
5 years beginning on the date PMA is granted by the FDA and is automatically
renewable for subsequent 5 year terms provided that the Company meets a sales
commitment of not less than an average of 20 Ossatron(R) orthopedic
lithotripters a year, as averaged over the preceding 5 year term. If the Company
fails to meet this sales commitment, the Amended License provides that it may be
terminated by HMT upon 12 months notice at least 12 months prior to the
expiration of the 5 year term then in effect. The Amended License further grants
to the Company the exclusive rights to manufacture the OssaTron(R) orthopedic
lithotripter, as well as accessories, spare parts, consumables and disposables
related thereto, upon payment of a fee of $1,000,000 and a licensing fee not to
exceed 10% of the Company's net selling price for each Company manufactured unit
sold. Subsequently, the Company and HMT entered into an agreement entitled:
"Second Amendment to Patent License Agreement". This Agreement added Patent
Number 5,595,178 to the Original License and the Amended License.
Messrs. John F. Warlick (the Company's Executive Vice President), Roy S.
Brown (the Company's President), Argil
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Wheelock, MD and John Ogden, MD (a consultant to, and shareholder of, the
Company) have filed a patent application with the United States Patent and
Trademark Office for an invention entitled "Method for Using Acoustic Shock
Waves in the Treatment of Medical, Dental and Veterinary Conditions". This
filing is for additional uses for the OssaTron(R) orthopedic lithotripter and
has been assigned to the Company for no consideration. In addition, in 1998 the
Company filed seventy-two patent claims for additional uses for the OssaTron(R)
orthopedic lithotripter.
On November 22, 1994 HMT entered into a distributorship agreement with the
Predecessor granting the Predecessor exclusive distribution rights for the
OssaTron(R) orthopedic lithotripter and related parts and consumables for the
United States, Canada and Mexico. As part of this agreement: the Predecessor
committed to purchase 10 OssaTron(R) orthopedic lithotripter units per year
over the life of the agreement after FDA PMA approval; and HMT shall warrant
the OssaTrons(R) orthopedic lithotripter for 12 months at no cost to the
Predecessor. This distributorship agreement is for an indefinite period of time
and may be terminated at any time for cause, as defined in the contract to
include bankruptcy, default in payment, failure to perform or failure of the
Predecessor to meet its purchase commitment, or upon 12 months notice by either
party, after November 11, 2000. On March 1, 1996 this distributorship agreement
was assigned to the Company.
On January 24, 1996 HMT entered into a distributorship agreement with the
Company granting the Company exclusive distribution rights for the LithoTron(R)
lithotripter and related parts and consumables for the United States (including
Puerto Rico, the U.S. Virgin Islands and Guam), Canada and Mexico. As part of
this agreement: the Predecessor committed to purchase 12 LithoTron(R)
lithotripter units per year over the life of the agreement, after FDA PMA
approval; and HMT shall warrant the LithoTron(R) lithotripters for 12 months at
no cost to the Predecessor. This distributorship agreement is for an indefinite
period of time and may be terminated at any time for cause, as defined in the
contract to include bankruptcy, default in payment, failure to perform or
failure of the Predecessor to meet its purchase commitment or, upon 12 months
notice by either party, after January 22, 2001.
On June 20, 1996 the Company received from HMT a right to manufacture both
the LithoTron(R) lithotripter and the OssaTron(R) orthopedic lithotripter,
including all drawings, technical descriptions, supplies and all other
information requested by the Company in order to enable the Company to
manufacture both the LithoTron(R) lithotripter and the OssaTron(R) orthopedic
lithotripter. While this right does not subject the Company to additional
payments with respect to the LithoTron(R) lithotripter, manufacturing of the
OssaTron(R) orthopedic lithotripter is subject to the one time payment of
$1,000,000 and a licensing fee not to exceed 10% of the Company's net selling
price for each Company manufactured unit sold, as described in the second
paragraph of this sub-section. The Company has no present plans to engage in
manufacturing activities.
The Company has conducted a preliminary trademark registrability search for
the proposed marks "NewTrode(TM)" and "Osteotripsy". The preliminary search
indicated that the Company could register any one or all of these names as they
did not appear to conflict with any other registered or pending trademarks. The
Company currently has pending trademark registrations for "Ossatripsy",
"NewTrode(TM)" and "Osteotripsy". In addition, the Company has been awarded the
trademark registration for "Orthotripter(R)" OssaTron(R) orthopedic
lithotripter, "Orthotripsy(R)" and LithoTron(R) lithotripter.
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<PAGE> 24
MANAGEMENT
OFFICERS AND DIRECTORS.
The name and positions of the Company's executive officers and
directors as of the date of this Prospectus are set forth below. The term of
office of each director is for a period of one year, or until the next annual
shareholders' meeting, whichever occurs first.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
BENEFICIAL
NAME POSITION HELD (2) COMMON STOCK
OWNERSHIP
(1)
- --------------------------------------------------------------------------------
<S> <C> <C>
Argil J. Wheelock, M.D Chairman and CEO 1,508,800 Shares (3)
(Since June 1, 1996)
Roy S. Brown President and COO 1,002,200 Shares (4)
(Since May 1, 1996)
Director
(Since Inception)
Scott Cochran Secretary/Treasurer 166,000 Shares
(Since Inception)
Director
(Since Inception)
John F. Warlick Executive Vice President 1,348,800 Shares (5)
(Since Inception)
Marie Marlow Vice President of Clinical 38,000 Shares (6)
and Regulatory Affairs
(Since September 1, 1996)
Joachim Voss Director 500,000 Shares
(Since December, 1997)
Victoria Beck Chief Financial Officer 15,000 Shares (7)
(Since August 1, 1997)
John Burke Director 75,000 Shares (8)
(Since December, 1997)
- --------------------------------------------------------------------------------
</TABLE>
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<PAGE> 25
(1) Pursuant to the beneficial ownership rules of the Securities and Exchange
Commission: Common Stock owned of record by close relatives of officers and
directors has been aggregated with stock held of record by officers and
directors and vested options held by each of these persons have been treated as
though such options were exercised.
(2) Messrs. John F. Warlick, Argil Wheelock and Joachim Voss may be deemed to
be "Parents" and "Promoters" of the Company and the Predecessor, as those terms
are defined in the Securities Act of 1933.
(3) Dr. Wheelock has been issued options to purchase up to 90,000 Shares of the
Company's Common Stock at a purchase price of $1.00 per Share. These Shares
have been included in this table pursuant to the beneficial ownership rules of
the SEC.
(4) Mr. Brown has been issued options to purchase up to 29,000 Shares of the
Company's Common Stock at a purchase price of $1.00 per Share. These Shares
have been included in this table pursuant to the beneficial ownership rules of
the SEC.
(5) John F. Warlick has been issued options to purchase up to 19,000 Shares
of the Company's Common Stock at a purchase price of $1.00 per Share. These
Shares have been included in this table pursuant to the beneficial ownership
rules of the SEC. 1,328,800 of the Shares shown in this table are owned of
record by Ty Warlick, Mr. Warlick's wife. Mr. Warlick disclaims record or
beneficial ownership of any of the shares owned by Ty Warlick.
(6) Ms. Marlow has been issued options to purchase up to 10,000 Shares of the
Company's Common Stock at a purchase price of $1.00 per Share and 5,000 Shares
at a purchase price of $3.00 per Share. These Shares have been included in this
table pursuant to the beneficial ownership rules of the SEC. Certain incentive
options, totaling up to 75,000 Shares that may be issued to Ms. Marlow pursuant
to an incentive option agreement dated March 24, 1998 have not been included in
this table. (See "CERTAIN TRANSACTIONS WITH MANAGEMENT AND OTHERS" and
"OPTIONS").
(7) Ms. Beck has been issued options to purchase up to 15,000 Shares of the
Company's Common Stock at a purchase price of $1.00 per Share and 5,000 Shares
at a purchase price of $3.00 per Share. These Shares have been included in this
table pursuant to the beneficial ownership rules of the SEC. Certain incentive
options, totaling up to 10,000 Shares that may be issued to Ms. Beck pursuant
to an employment agreement dated July 11, 1997 have
19
<PAGE> 26
not been included in this table. (See "CERTAIN TRANSACTIONS WITH MANAGEMENT AND
OTHERS" and "OPTIONS").
(8) Mr. Burke has been issued options to purchase up to 50,000 Shares of the
Company's Common Stock at a purchase price of $1.00 per Share. These Shares
have been included in this table pursuant to the beneficial ownership rules of
the SEC.
BIOGRAPHICAL INFORMATION.
ARGIL J. WHEELOCK, M.D. (50) - Dr. Wheelock was a practicing, board-certified
urologist in Chattanooga, Tennessee from 1979 until 1996. Since July 1, 1996 he
has worked exclusively as Chief Executive Officer of the Company. From
November, 1994 until June, 1996, he was CEO of Phymatrix's (A NASDAQ listed
company that specializes in physician practice management) Lithotripsy
Division. From July, 1991, until November, 1994, he was Vice President in
charge of Lithotripsy Services at Coram Healthcare (A NYSE listed company
engaged in home health care). Dr. Wheelock is the president, a director and a
shareholder of NGST, a Tennessee corporation engaged in mobile lithotripsey
through partnerships; a shareholder of Cobb Regional Lithotripter Services,
Inc.; the managing general partner of TennGA Stone Group Two; the Chief Manager
of Tenn-Ga Prostate; and a minority partner in TennGA Stone Group Two.
ROY S. BROWN (50) - Mr. Brown was the president of Servicetrends, Inc., a
former affiliate of the Company that continues to service equipment for the
Company, until May 30, 1996. Prior to this he served as: Vice President of
Sales and Marketing for Intra-Sonix of Burlington, Massachusetts, a medical
equipment manufacturing company (1994 to 1995); as the owner of Andex products,
an international business consulting firm in Lawrenceville, Georgia (1992
through 1994); and as Executive Vice President of Sales and Marketing for
Dornier Medical Systems, a manufacturer of medical equipment located in Munich,
Germany (from 1984 to 1992). Mr. Brown holds the equivalent of a B.A. in
International Business from Hannover University in Hannover, Germany.
JOHN F. WARLICK (37) - Mr. Warlick, who holds a B.S. in Financial Management
from Clemson University, was the Vice President of Sales for, the past
president of, and a director of Servicetrends, Inc., a former affiliate of the
Company from April, 1996 until September, 1996. Prior to this he was the Sales
Operations Manager of Dornier Medical Systems (from 1985 until 1988), the Vice
President of Sales for Energy Four (from 1989 until 1991) and the president of
OssaTronics, the Company's Predecessor (from its inception).
JOACHIM VOSS (60) - Mr. Voss, a resident of Germany, has an engineering degree
from the Engineering School of Bielefeld,
20
<PAGE> 27
Germany. With a background of twenty-five years in marketing and engineering of
high technology products for aerospace and medical application, he worked from
1989 through 1996 as Managing Director and as Marketing Director of HMT, the
corporation that developed and manufactures both the LithoTron(R) lithotripter
and the OssaTron(R) orthopedic lithotripter. Mr. Voss has now retired from his
active role in HMT, but still works as a consultant to HMT and it's German
affiliate company.
SCOTT COCHRAN (37) - Mr. Cochran is a partner with the law firm of Cochran, Camp
and Snipes in Smyrna, Georgia, and has held this position since 1988. He
received an A.A. degree from Young Harris College, a B.A. from Emory University
and a J.D. from Mercer Law School. Mr. Cochran's law firm also serves as
outside counsel to the Company.
MARIE MARLOW (45) - Ms. Marlow is Vice President of Clinical and Regulatory
Affairs for the Company, a position she has held since September of 1996. From
May of 1995 until August, 1996, she served as a Technical Advisor for
Quintiles/BRI of Rockville, Maryland, a leading consultant and evaluation
entity to the medical industry with respect to FDA regulatory and product study
issues. Prior to this she served as: Director of Regulatory and Clinical
Affairs for Cambridge Heart, Inc. of Bedford, Massachusetts (February of 1994
to May, 1995); Director of Regulatory Affairs for Bard Electrophysiology, a
division of C.R. Bard, Inc. of Billerica, Massachusetts, a NYSE traded company
primarily engaged in the field of medical equipment and related technology
(September, 1993 until February, 1994); and Director of Clinical and Regulatory
Affairs for Intra-Sonix, Inc. of Burlington, Massachusetts, a Massachusetts
based start-up company which developed an integrated ultrasound and laser
device for medical purposes (June, 1989 to August, 1993). Ms. Marlow holds a
diploma in Nursing from the California Hospital School of Nursing (Now the USC
School of Nursing).
VICTORIA BECK (43) - Ms. Beck graduated from Georgia State University in 1981
with a degree in accounting. From 1992 until mid 1997 she worked for the
international accounting firm of Price Waterhouse. From mid 1987 until mid 1994
she was the Controller of Miller/Zell, a Georgia company engaged in the
manufacturing and design of visual merchandising systems. From mid 1994 until
July of 1997, Ms. Beck was an independent certified public accountant
practicing in, and certified in, the state of Georgia.
JOHN BURKE (52) - Mr. Burke has served as a director of the Company since
February, 1998. He is presently the managing member of Capital Appreciation
Management Company, L.L.C., which is the managing general partner of an
Atlanta-based merchant banking fund specializing in acquiring controlling
interests in
21
<PAGE> 28
companies located in the southeastern United States. Mr. Burke is also a
principal with Brown Burke Capital Partners, Inc., which provides financial
advisory services to middle market companies in connection with mergers and
acquisitions and financing. Mr. Burke also serves as a director of United
Companies Financial Corporation, a financial services holding company engaged
in consumer lending. From 1973 to 1996, Mr. Burke was employed by the
Robinson-Humphrey Company, Inc., most recently serving as a Senior Vice
President and the head of its financial institutions/banking research.
REMUNERATION.
SUMMARY COMPENSATION TABLE
The following table sets forth the aggregate direct annual remuneration to
be paid to the Company's executive officers and directors. The Company does not
have any long-term incentive plans or stock appreciation rights.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Long Term Compensation
----------------------
Annual Compensation Awards
- ---------------------------------------------------------------------------------------------------------------------------
Name Other Restricted All
and Annual Stock Option Other
Principal Compensation Awards Compensation
Position Year Salary Bonus (1) (2)
($) ($) ($) ($) (#) ($)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Argil J. Wheelock, M.D. Fiscal Year $ 89,000 $3,334 0 $90,000 90,000
Chairman and CEO Ended 12/31/97
Roy S. Brown Fiscal Year $ 89,000 $4,021 0 $29,000 29,000 $7,000 (4)
President and CEO Ended 12/31/97
John F. Warlick Fiscal Year $ 89,000 0 0 $19,000 19,000 (7)
Executive Vice President Ended 12/31/97
Marie Marlow Fiscal Year $108,000 $ 405 0 $25,000 15,000 (5)
Vice President Ended 12/31/97
Scott Cochran Fiscal Year 0 (3) 0 0 0 0
Secretary/Treasurer Ended 12/31/97
Victoria Beck Fiscal Year $ 65,968 0 0 $15,000 15,000 (6)
Chief Financial Officer Ended 12/31/97
John Burke Fiscal Year 0 0 0 $50,000 50,000
Director Ended 12/31/97
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) In addition to their annual remuneration, executive officers of the Company
who are also employees may be entitled to participate in the Company's 401(K)
plan. These amounts are shown above in the "Bonus" Column above. Also shown in
the "Bonus" column are certain valuations for insurance paid by the Company
for Messrs. Wheelock ($1,493) and Brown ($1,334) (See "CERTAIN TRANSACTIONS
WITH MANAGEMENT AND OTHERS").
(2) With the exception of certain incentive options to which management has not
assigned a value, management has valued the Shares underlying the stock options
at a price of from $1.00 to $3.00 per Share, the fair market value of
22
<PAGE> 29
the Shares at issuance as determined by management in the absence of a readily
trading market, solely for the purposes of Rule 402 of Regulation S-B
promulgated under the Securities Act of 1933. If these Shares were valued at the
public offering price of $6.00 per Share, this would constitute additional
consideration to the executive officers of the Company in the amount of
$1,085,000. These Shares are, however, restricted and any resale would be
subject to the registration provisions of the Securities Act of 1933 or the
provisions of Rule 144 or a similar exemption from registration under the
Securities Act of 1933.
(3) Mr. Cochran, as counsel to the Company, shall also bill the Company for
legal services rendered to the Company. (See "CERTAIN TRANSACTIONS WITH
MANAGEMENT AND OTHERS").
(4) Mr. Brown receives the use of a Company automobile. The Company has valued
this use at approximately $7,000 per annum.
(5) Certain incentive options that may be available to Ms. Marlow upon FDA
approval of the OssaTron(R) orthopedic lithotripter have not been valued in this
table. (See "OPTIONS" and "CERTAIN TRANSACTIONS WITH MANAGEMENT AND OTHERS").
(6) Certain options that may be available to Ms. Beck premised upon her
continued service to the Company have not been valued in this table. (See
"OPTIONS" and "CERTAIN TRANSACTIONS WITH MANAGEMENT AND OTHERS").
(7) Mr. Warlick began receiving a car allowance of $500 per month in 1998.
PRINCIPAL SHAREHOLDERS
SECURITIES OWNERSHIP OF MAJORITY SHAREHOLDERS.
The following table sets forth certain information as of the date of this
Prospectus regarding each person known by the Company to own more than five (5%)
percent of the issued and outstanding Shares of Common Stock of the Company,
each current director and all directors and executive officers of the Company as
a group. "Beneficial Ownership" is defined pursuant to the regulations
promulgated by the SEC as having or sharing, directly or indirectly, voting
power, which includes the power to vote or to direct the voting, and/or
investment power, which includes the power to dispose of or to direct the
disposition of the Shares of the Common Stock indicated. Each person is the
record owner of the Shares indicated and possesses the sole voting and
investment power with respect to such Shares unless otherwise indicated.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
NAME OF OWNER AMOUNT OF BENEFICIAL OWNERSHIP PERCENTAGE OF CLASS
(1) (CURRENT) AS ADJUSTED
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ARGIL WHEELOCK, MD 1,508,800 SHARES 15.61% 14.15%
JOHN F. WARLICK 1,348,800 SHARES (2) 13.96% 12.64%
ROY S. BROWN 1,002,200 SHARES 10.37% 9.40%
WERNER SCHWARZE 500,000 SHARES 5.17% 4.69%
WALTER UELBELACKER 500,000 SHARES 5.17% 4.69%
JOACHIM VOSS 500,000 SHARES 5.17% 4.69%
KARL HEINZ RESTLE 500,100 SHARES 5.17% 4.69%
JOHN BURKE 75,000 SHARES 0.78% 0.70%
ALL OFFICERS & DIRECTORS
AS A GROUP. (8 PERSONS) 5,934,900 SHARES 61.40% 55.65%
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Pursuant to the beneficial ownership rules of the Securities and Exchange
Commission: Common Stock owned of record by certain close relatives of these
persons has been aggregated with stock held of record by these persons; and
options held by each of these persons have been treated as though such options
were exercised.
(2) These Shares are owned of record by Ty Warlick, the wife of John F. Warlick,
and Mr. Warlick disclaims record or beneficial ownership of all but 20,000 of
these Shares.
23
<PAGE> 30
CERTAIN TRANSACTIONS WITH MANAGEMENT AND OTHERS
Karl Heinz Restle, a majority shareholder of the Company, is the president
of HMT. HMT owns the United States and Canadian patents that have been licensed
to the Company. HMT is also the supplier of LithoTron(R) lithotripters and
Ossatron(R) orthopedic lithotripters to the Company.
John Warlick, Executive Vice President and a majority shareholder of the
Company, is a former director and the former president of Servicetrends, Inc.
("Servicetrends"), a Georgia corporation that has contracted with the Company to
provide installation and maintenance service for the LithoTron(R) lithotripter
and OssaTron(R) orthopedic lithotripter. All of the Company's installation and
maintenance is currently performed by Servicetrends. In addition, Roy S. Brown,
President of the Company is also a past-president of Servicetrends and several
officers of Servicetrends are shareholders in the Company.
On April 19, 1996 John F. Warlick agreed to transfer 499,800 (post-split)
Shares to Dr. Wheelock in exchange for the following:
1) The purchase by an investor group of an OssaTron(R) orthopedic
lithotripter at a price of not less than $250,000 and the entering into of an
IDE Agreement within 90 days;
2) The raising of a minimum of $300,000 by purchasing or causing outside
investors to purchase 3% of the then outstanding Shares at a price of $300,000;
and
3) A commitment by Dr. Wheelock to an ongoing participation in the
business of the Company.
As of the date of this Prospectus, all of these conditions have been
performed by Dr. Wheelock.
Also on April 19, 1996 the shareholders of the Company voted to split the
Company's stock at a rate of 60 new Shares for each old Share held.
24
<PAGE> 31
In addition to the foregoing, on April 19, 1996 Mr. Warlick received
100,000 Shares in exchange for the cancellation of an initial loan of $100,000
to the Company.
The Company conducted a private placement of its Common Stock from June 24,
1996 through December 4, 1996. Pursuant to this private placement the Company
sold an aggregate of 1,406,600 Shares at $1.00 per Share to 74 investors. During
the course of this private placement, the Company sold Shares to three residents
of the State of Alabama prior to the filing of a notice with such state.
Pursuant to an agreement with the state: the Company offered rescission to the
three Alabama investors; and reimbursed the state $2,000 as an administrative
assessment and for the costs of the state investigation.
On December 23, 1996 the Board of Directors instituted an options program
to issue up to 350,000 Shares at prices to be determined by the Board.
Subsequently, the Board increased the authorized options to 550,000 Shares at an
exercise price from $1.00 to $3.00 per Share. (See "OPTIONS") As of the date of
this Prospectus, the Board has issued options for an aggregate of 454,000 Shares
to 31 persons, including certain promoters, officers, directors, employees and
consultants to the Company. Except as noted in the "OPTIONS" section of this
Prospectus, all such options expire on December 31, 2000 or December 31, 2001.
(See "OPTIONS").
On April 1, 1997 Dr. Wheelock loaned $650,000 to Tenn-Ga Prostate in order
to allow Tenn-Ga Prostate to purchase a Prostatron (a medical device that uses
microwave energy to treat prostate enlargement) and a vehicle to transport the
Prostatron. This loan was subsequently repaid to Dr. Wheelock.
On April 14, 1997 the Board of Directors granted stock options, exercisable
at $1.00 per Share (management has valued these Shares underlying the stock
options at a price of $1.00 per Share, the fair market value of the Shares at
issuance as determined by management in the absence of a readily trading market)
to Messrs. Wheelock (65,000 Shares), Brown (9,000 Shares) and Warlick (9,000
Shares) in exchange for personal payment guarantees provided by these officers
on behalf of the Company.
Dr. Wheelock is a general partner of Tenn-Ga Stone Group Two and a
shareholder of Cobb Regional Lithotripter Services, Inc., a corporation
providing mobile lithotriptic services in Cobb County, Georgia.
On January 1, 1996 the Company adopted a 401(K) retirement plan (the
"Plan"). The Plan provides that eligible employees may authorize the Company to
withhold from 1% up to 12% of
25
<PAGE> 32
compensation, as defined in the Plan, plus up to 100% of cash bonuses paid by
the Company. However, the total amount withheld by the Company on behalf of each
employee may not exceed $7,000 for any taxable year. The Plan provides that the
Company may make a matching contribution not to exceed 6% of the employee's
compensation for employees that have been employed for at least one year with
the Company. The Company contributed $10,300 to the Plan in 1997 and $3,800 in
1996.
USL is a Texas limited partnership that has entered into a distributor
agreement with the Company (See "HISTORY AND BUSINESS"). As of June 30, 1998,
the Company is the sole general partner of USL pursuant to an Entity Interest
Agreement dated March 7, 1997 (effective April 1, 1997). The Company exchanged
200,000 Shares of its Common Stock, issued to 4 owners of USL, in exchange for a
40% interest in USL (This 40% interest consisted of a .4% general partnership
interest and a 39.6% limited partnership interest). This exchange was effected
by a private placement memorandum dated June 1, 1997. On May 1, 1998, the
Company acquired 100% of the outstanding shares of Litho Management, Inc., the
other corporate general partner of USL for 700,000 Shares of the Company and
thus became the sole general partner of USL. In addition to distributing the
Company's products, USL has, along with Litho Management, Inc., its former other
corporate general partner, organized, and USL shall continue to organize,
limited partnerships with practicing urologists as limited partners for the
ownership and operation of LithoTron(R) lithotripters in a 19 state area. USL
has currently formed seven limited partnerships with certain urologists (See
"JOINT VENTURES, SUBSIDIARIES AND DISTRIBUTORSHIPS") in exchange for limited
partnership and general partnership interests and a 7.5% management fee. It
should be noted that certain proposed FDA regulations could inhibit physician
ownership of these limited partnerships (See "GOVERNMENTAL REGULATION").
On July 11, 1997 the Company entered into an employment agreement with
Victoria Beck to become the Company's Chief Financial Officer. Pursuant to this
employment agreement, Ms. Beck was provided with options to purchase up to
25,000 Shares at $1.00 per Share, contingent upon Ms. Beck's continued
employment with the Company at the time the options become vested. This vesting
schedule is as follows: 10,000 Shares on July 11, 1997; 5,000 Shares on July 31,
1998; 5,000 Shares on July 31, 1999 and 5,000 Shares on July 31, 2000.
The Company conducted a private placement of its Common Stock from July 31,
1997 through February 12, 1998. Pursuant to this private placement the Company
sold an aggregate of 758,742 Shares at $3.00 per Share to approximately 67
investors.
26
<PAGE> 33
On March 24, 1998 the Company entered into an incentive option agreement
with Marie Marlow, the Company's Vice President of Regulatory and Clinical
Affairs. As an incentive to Ms. Marlow's placing the highest priority on the
OssaTron(R) orthopedic lithotripter project, she received additional options to
purchase 75,000 Shares at $3.00 per Share. The full 75,000 Shares will vest on
December 31, 2003 or if the Company receives FDA approval of the OssaTron(R)
orthopedic lithotripter before September 30, 1999 (See "OPTIONS").
The Company has entered into a distributorship agreement with Mobile One
Medical Equipment ("MOME"). As part of that agreement, the Company has the right
through September 30, 1998 to purchase a 30% interest in MOME in exchange for
30,000 Shares. If the Company does not purchase this 30% interest, John Warlick
has the right to purchase this 30% interest in MOME. Ty Warlick, the wife of
John Warlick, has loaned $20,000 to the principal of MOME, all of which has been
repaid as of the date of this Prospectus.
Messrs. Wheelock and Warlick own minority interests (3% and 2%,
respectively) in Lincolnland, an S corporation in the mobile lithotripsy
business. Lincolnland has purchased two LithoTron(R) lithotripters from an
authorized distributor of the Company's products.
On September 9, 1998 the Company exchanged 300,000 of its Shares with three
shareholders of the Company who were also the sole shareholders of HLE Corp., a
Texas corporation, in exchange for all of the issued and outstanding shares of
HLE Corp. The assets of HLE Corp. consist of a 30% limited partnership interest
in Metro I Stone Management, Ltd., a Texas limited partnership.
The Company and/or Litho Management, Inc., as well as certain executive
officers of the Company (Messrs. Wheelock, Brown and Warlick), have guaranteed
approximately $2,207,958 in debt owed by the Second Tier Limited Partnerships
and a $650,000 line of credit to the Company extended by First Tennessee Bank
National Association. Of this amount Messrs. Wheelock, Brown and Warlick may be
personally liable on the Company's line of credit from First Tennessee Bank
National Association for up to $108,333 each, plus interest and certain
expenses.
FUTURE TRANSACTIONS WITH AFFILIATES:
Other than as described in this Prospectus, the Company does not presently
contemplate any other material transactions with Messrs. Warlick, Wheelock and
Voss (Collectively referred to as the "Promoters") or with any of the Company's
officers or directors.
27
<PAGE> 34
Any future material transactions and loans to promoters, officers and
directors will be made or entered into on terms that are no less favorable to
the Company than those that can be obtained from unaffiliated third parties; and
all future material affiliated transactions and loans, and any forgiveness of
loans, must be approved by a majority of the independent outside members of the
Company's Board of Directors who do not have an interest in the transaction.
Until such time, if ever, as the Company has independent outside members of the
Company's Board of Directors, such material future transactions and loans to the
promoters, officers and directors must be approved by a vote of the majority of
the holders of the Company's Common Stock. Common Stock owned by the promoters
or by their "Affiliates" or "Associates" (as those terms are defined in
Paragraph II of the Statement Of Policy Regarding Loans And Other Material
Affiliated Transactions as adopted and effective October 24, 1991 by the North
American Securities Administrators Association, Inc.) shall not be counted in
determining said majority.
DILUTION
"Dilution" means the difference between the public offering price ($6.00
per Share) and the pro forma net tangible book value per Share after giving
effect to this offering. Net tangible book value per Share is determined by
dividing the tangible net worth of the Company, consisting of tangible assets
less total liabilities, by the number of Shares outstanding. The following table
illustrates under the above assumptions the dilution of a new investor's equity
as of June 30, 1998.
As of June 30, 1998, the Company had issued 9,365,342 Shares to its current
officers, directors and shareholders in exchange for $6,503,000 in cash (an
average of approximately $0.69 per Share) as well as the officers and directors
activities in organizing the Company and the exchange of a 40% ownership
interest in USL, and a 100% ownership interest in Litho Management, Inc. (See
"CERTAIN TRANSACTIONS WITH MANAGEMENT AND OTHERS"). The net tangible book value
of the Company as of June 30, 1998 was $3,898,092 or approximately $.42 per
Share. Giving effect to the sale by the Company of all Shares offered for cash,
the pro forma net tangible book value of the Company after deducting expenses of
this offering estimated at $225,793 if the minimum offering is sold and
estimated at $775,793 if the maximum offering is sold, would be approximately
$4,172,303 if only the minimum offering is sold or approximately $.44 per Share,
which represents an increase of approximately $.02 in the net tangible book
value per Share to present shareholders and an immediate dilution of $5.56 to
public investors. If the maximum offering is sold, pro forma net tangible book
value would be approximately $9,122,299 or approximately $.88 per Share (See
"DESCRIPTION OF SECURITIES" and "CERTAIN TRANSACTIONS WITH MANAGEMENT AND
OTHERS").
28
<PAGE> 35
<TABLE>
<CAPTION>
Minimum Maximum
------- -------
<S> <C> <C>
Public offering price per share $6.00 $6.00
Net tangible book value per share before offering $0.42 $0.42
Increase per share attributable to public investors $0.42 $0.46
Pro forma net tangible book value per share after offering $0.44 $0.88
Dilution per share to public investors $5.56 $5.12
</TABLE>
The numbers in the table above do not assume the exercise of all of the
Company's outstanding stock options. If the 454,000 outstanding options were
exercised, dilution would be substantially increased. These numbers also do not
include the 300,000 Shares issued to the shareholders of HLE Corp. on September
9, 1998 (See "CERTAIN TRANSACTIONS WITH MANAGEMENT AND OTHERS").
CAPITALIZATION
The following table illustrates the capitalization of the Company as of the
date of this Prospectus and as adjusted to reflect the sale of all the
securities offered hereby:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
AMOUNT TO BE
AMOUNT OUTSTANDING OUTSTANDING
TITLE OF AMOUNT AS OF THE DATE OF IF THIS ENTIRE
CLASS AUTHORIZED THIS PROSPECTUS OFFERING IS SOLD
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock 30,000,000 9,665,342(1) 10,665,342(1)
No Par Value
Stock Options 550,000 454,000 454,000(2)
to purchase Stock
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) This amount does not include Shares that are subject to the exercise of
options or warrants that have been granted to the Placement Agent to purchase up
to 100,000 Shares.
(2) The Board of Directors may issue options or warrants to purchase up to an
additional 96,000 Shares of Common Stock at a price to be determined by the
Board to certain persons to be designated by the Board.
DESCRIPTION OF COMMON STOCK
GENERAL
The Company is currently authorized to issue 30,000,000 shares of no par
value Common Stock. The Company currently has 9,665,342 Shares of its Common
Stock issued and outstanding, held of record by approximately 135 persons (See
"PRINCIPAL SHAREHOLDERS") as well as options exercisable on or before December
31, 2000, December 31, 2001 or December 31, 2003 for an aggregate of 454,000
Shares at prices ranging from $1.00 to $3.00 per Share. No other class of
securities has been issued by the Company. All shares of Common Stock to be
issued in this offering shall be fully paid and non-assessable.
The Common Stock has cumulative voting power with respect to the election
of directors, with each share being entitled to one
29
<PAGE> 36
vote, either in person or by proxy. Each shareholder is entitled to cast all
such votes for a single director or may apportion his vote as he sees fit. The
candidates for director receiving the highest number of votes (up to the number
of directors to be elected), shall be elected.
Holders of Common Stock are entitled on liquidation to share pro rata in
assets available for distribution to shareholders after payment of corporate
debt.
The Company acts as its own transfer agent; in the future, however, the
Company may engage an independent registrar and transfer agent.
DIVIDENDS
The Company has not paid any dividends on its Common Stock. The Company
does not plan to declare any dividends in the near future, but plans instead to
allocate future earnings, if any, to the continued operations and expansion of
the Company's business. However, in the event that the Company should, in the
future, adopt a policy of paying dividends, declaration and payment will be
dependent on future earnings, if any, as well as the financial condition of the
Company and other relevant factors.
OPTIONS
The Company has granted options to certain promoters, officers, directors,
employees and consultants to purchase up to 454,000 Shares. In addition to the
outstanding options, the Board of Directors may issue additional options to
purchase up to 96,000 Shares and the Placement Agent shall receive warrants to
purchase up to 100,000 Shares at $9.90 per Share at the rate of one warrant for
every ten Shares sold in this offering (See "UNDERWRITING"). The Company has not
issued any stock appreciation rights and does not have a long-term incentive
plan. The options held by management as of the date of this Prospectus are
exercisable pursuant to the following table:
30
<PAGE> 37
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Percent of
Total Options
Options Granted to Exercise
Granted Employees and Price Expiration
Name (#) Others ($) Date
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Argil Wheelock, MD 90,000 19.82% $1.00 12/31/2000
Roy S. Brown 29,000 6.39% $1.00 12/31/2000
John Warlick 19,000 4.18% $1.00 12/31/2000
Marie Marlow 10,000 2.20% $1.00 12/31/2000
5,000 1.10% $3.00 12/31/2001
50,000 (1) 11.01% $3.00 12/31/2003
25,000 (1) 5.51% (2) 12/31/2003
Victoria Beck 15,000 3.30% $1.00 12/31/2000
10,000 (3) 2.20% $1.00 12/31/2001
5,000 1.10% $3.00 12/31/2001
John Burke 50,000 11.01% $1.00 12/31/2000
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The acceleration of these options is contingent upon Ms. Marlow obtaining
FDA approval for the OssaTron(R) orthopedic lithotripter on or before certain
dates, otherwise they vest on December 31, 2003 (See "CERTAIN TRANSACTIONS WITH
MANAGEMENT AND OTHERS"). The acceleration vests according to the following
table:
<TABLE>
<CAPTION>
DATE OF FDA APPROVAL OPTIONS ACCELERATED
- ---------------------------------------------------------------------------------------
<S> <C>
Before 9/30/1999 75,000
By 12/31/1999 60,000
By 3/31/2000 45,000
By 6/30/2000 30,000
By 12/31/2000 15,000
No FDA approval
or approval after 12/31/2003 75,000
- ---------------------------------------------------------------------------------------
</TABLE>
(2) The exercise price for these options has not been determined by management.
(3) These options will vest at various future dates. (See "CERTAIN TRANSACTIONS
WITH MANAGEMENT AND OTHERS").
31
<PAGE> 38
USE OF PROCEEDS
The following table illustrates the use of the proceeds of this offering in
the event the minimum (83,334 Shares) or maximum (1,000,000 Shares) offerings
are sold. If more than the minimum but less than the maximum offering are sold,
the proceeds will be used in approximately the following order of priority.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Description of Proposed Use Minimum Maximum
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Offering Expenses $ 175,793 $ 175,793
Commissions $ 50,000 $ 600,000
Placement Agent Expense Allowance $ 10,000 $ 120,000
FDA Study Expenses $ 264,211 $ 604,207
Purchase Of Capital Equipment For Lease $ 0 $2,000,000
Purchase Of Inventory $ 0 $2,000,000
Working Capital $ 0 $ 500,000
========= ==========
TOTAL APPLICATION OF PROCEEDS: $ 500,004 $6,000,000
</TABLE>
UNDERWRITING
PLAN OF DISTRIBUTION
Pursuant to a placement agent agreement (the "Placement Agent Agreement"),
the Company has engaged Capital Growth Management, Inc. (the "Placement Agent")
as its agent to sell up to 1,000,000 Shares to the public on a "best efforts"
basis (This means that the Placement Agent [who may also be referred to as the
"underwriter"] is only obligated to use good faith efforts to form a selling
group and to sell this offering and is not obligated to sell all or any portion
of it). There can be no assurance that any of these Shares will be sold. If the
Placement Agent fails to sell at least 83,334 of the offered Shares within the
minimum offering period (60 days from the date of this Prospectus), unless
extended by the Company until 90 days from the date of this Prospectus, the
offering will be terminated and the subscription payments will be promptly
refunded in full to subscribers, without paying interest or deducting expenses.
If the minimum number of Shares are sold, the offering will continue until nine
months from the date of this Prospectus or until all offered Shares are sold,
whichever event first occurs, unless the offering is sooner terminated by the
Company. In no event will this offering continue beyond nine months from the
date of this Prospectus.
All subscription payments should be made payable to " as Escrow
Agent for HealthTronics, Inc.". The subscription payments will be transmitted by
the Placement Agent no later than noon of the next business day following
receipt, to an escrow account maintained by in Atlanta, Georgia. The
escrow agent will hold all subscription payments pending the sale of the minimum
number of Shares within the specified period. Subscription payments will only be
withdrawn from the escrow account for the purpose of paying the Company for the
Shares hereunder, if at least 83,334 of the Shares offered hereunder are sold,
or for the purpose of refunding subscription payments to
32
<PAGE> 39
subscribers. Neither the Company nor subscribers will earn interest on funds
held in the escrow account, and subscribers will not have use or right to return
of such funds during this period, which may last as long as 90 days for the
minimum offering. In any event, the offering will terminate nine months from the
date of this Prospectus unless the minimum offering is not sold or the Company
or Placement Agent elects to terminate this offering earlier. If the minimum
Shares are sold within 90 days, all funds collected will be disbursed to the
Company.
The public offering price of the Shares offered hereby was determined by
the Company based arbitrarily upon considerations including market conditions
and other factors. The public offering price does not bear any relationship to
assets, book value, or other traditionally recognized criteria or indicia of
value.
The Company has paid the Placement Agent the sum of $25,000 as an advance
against the Placement Agent's accountable expense allowance of 1% of the
aggregate amount of securities sold by the Placement Agent and other brokers who
contract with the Placement Agent to sell this offering ("Selected Dealers").
This amount was paid upon the signing of the Placement Agent Agreement. In
addition, the Company shall pay the Placement Agent a selling commission of
eight percent (8%) of the gross funds raised by the Placement Agent and Selected
Dealers. The Placement Agent may reallot any or all of the Commission to
Selected Dealers. The Placement Agent is also entitled to receive a
non-accountable expense allowance of up to one percent (1%) of the gross funds
raised by the Placement Agent and by Selected Dealers. Accountable expenses
include any and all reasonable offering expenses for this offering including,
but not limited to: telephone expenses, postage, travel expenses, copying and
printing charges, legal and accounting costs. In no event will the accountable
expense allowance exceed 1% of the gross funds raised by the Placement Agent. In
the event this offering is terminated prior to the sale of the minimum offering,
the Placement Agent shall be reimbursed only for its actual accountable
out-of-pocket expenses and any portion of any advance on the accountable expense
allowance not accounted for will be promptly refunded to the Company.
The Company has also granted the Placement Agent warrants (the "Warrants")
to purchase the Company's Shares at a rate of one Warrant (equaling one share of
Stock) for each ten Shares sold in this offering. The exercise price of the
Warrants is equal to 165% of the public offering price of this offering ($9.90
per Share). The Warrants are not exercisable for a period of one year from the
effective date of this offering and thereafter become exercisable for a period
of four years from the effective date. During the first year after the effective
date
33
<PAGE> 40
of this offering, the Warrants may only be transferred by the Placement Agent to
its officers or to officers or partners of the Selected Dealers.
The Company and the Placement Agent have also agreed to indemnify each
other against certain liabilities, including liabilities arising under the
Securities Act. In the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act of
1933 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 the Placement Agent in the successful defense of
any action, suit or proceeding) is asserted by such Placement Agent in
connection with these 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 appropriate 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. Copies of the
Company's Articles of Incorporation and By-Laws are available for inspection by
any potential investor or his representative.
The foregoing is a summary of the principle terms of the Placement Agent
Agreement, which summary does not purport to be complete. For all of the terms
of the Placement Agent Agreement, reference is made to a copy thereof which is
on file as an exhibit to the Registration Statement. (See "AVAILABLE
INFORMATION").
EXPERTS
The audited financial statements of HealthTronics, Inc. and Subsidiaries at
December 31, 1997 and 1996 and for each of the two years in the period ended
December 31, 1997 and of Litho Management, Inc. and Subsidiaries for the year
ended December 31, 1997, appearing in this Prospectus and Registration Statement
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their reports thereon appearing elsewhere herein, and are included in reliance
upon such reports given on the authority of such firm as experts in accounting
and auditing.
LEGAL MATTERS
Christopher J. Moran, Jr. of Atlanta, Georgia has rendered an opinion on
the legality of the Company's no par value Shares. Mr. Moran is also securities
counsel to the Company in connection with this offering.
34
<PAGE> 41
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF CONSOLIDATED OPERATIONS
GENERAL
The Company is a provider and distributor of extracorporeal shockwave
devices and participates in limited partnerships that market the services of
these products on a per procedure basis. To date, the Company's consolidated
revenues have come primarily from sales of the LithoTron(R) lithotripter.
YEAR 2000 COMPLIANCE
The Company is aware of the issues associated with the programming of
existing computer systems as the year 2000 approaches, and recognizes the need
to ensure that its operations will not be disrupted by Year 2000 hardware and
software issues. This problem will affect the Company since virtually every
computer operation will be affected in some way by the rollover of two-digit
year values. The central issue is whether computer systems will properly
recognize date sensitive information when the year changes to 2000. Systems that
do not properly recognize such information could generate erroneous data or
could fail. The Company is in the process of confirming compliance regarding
Year 2000 issues for both internal and external (suppliers, vendors) information
systems. This process, which shall continue on an ongoing basis, involves
communicating with significant suppliers, HMT, financial institutions, and other
parties that provide significant services to the Company. There can be no
assurance that the Company's primary service providers will properly address
such Year 2000 issues. Expenditures to make the Company Year 2000 compliant are
not expected to be material to the Company's financial position or results of
operations, however, there can be no assurance in that regard.
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Since its inception in December 1995, the Company has devoted its
principle efforts toward obtaining FDA approval for certain medical devices,
specifically the LithoTron(R) lithotripter, a kidney lithotripter and the
OssaTron(R) orthopedic lithotripter, an orthopedic lithotripter. On receipt of
the July 21, 1997 FDA PMA, the Company began marketing the LithoTron(R)
lithotripter and refocusing its regulatory efforts on the pursuit of the FDA PMA
for the OssaTron(R) orthopedic lithotripter.
Effective April 1, 1997 the Company became a co-general partner with Litho
Management, Inc. ("LMI"), as well as a 39.6% limited partner, in US Lithotripsy
("USL"), a Texas limited partnership
35
<PAGE> 42
formed for the purpose of developing and managing mobile lithotripsy
partnerships in the Southwest. Since inception through June 30, 1998, USL has
formed seven lithotripter partnerships in which USL is the sole general partner.
The Company was unprofitable from inception through December 31, 1997 as a
result of its investment in the FDA process. Subsequent to obtaining the
LithoTron(R) lithotripter PMA in July, 1997, the Company experienced a
significant increase in the number of devices sold. However, in accordance with
generally accepted accounting principles, the Company defers sales made to
certain partnerships where the Company has a general partnership interest and
has co-signed on the related debt. On this basis, the Company deferred profits
of $508,576 and $409,000 for the year ended December 31, 1997 and for the six
months ended June 30, 1998, respectively, to future periods. As a result the
Company reported a net loss of $418,028 and a net profit of $768,823 for the
year ended December 31, 1997 and the six months ended June 30, 1998,
respectively. The deferred profits will be recognized based on the debt
repayment schedules and the estimated useful lives (currently five years) of the
related equipment.
On April 30, 1998 the Company acquired 100% of the outstanding common stock
of LMI, its co-general partner in USL. The Company, as sole general partner,
consolidates the LMI partnership interests in its financial statements as of the
acquisition date. On a consolidated basis, the aforementioned deferred profit on
medical device sales to certain of these partnerships for 1997 ($508,576), for
the six months ended June 30, 1998 ($409,000) and for future periods has been
eliminated against the related partnership assets.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Sales of Medical Devices and Services Provided: Sales of medical devices
and services provided increased from $2,870,000 for the year ended December 31,
1996 to $5,062,104 for the year ended December 31, 1997, an increase of 76%.
This increase is attributable to additional sales as a result of the FDA PMA for
the LithoTron(R) lithotripter, received on July 21, 1997.
Cost of Goods Sold, Rentals and Services Provided: Cost of goods sold,
rentals and services provided increased from $2,073,697 for the year ended
December 31, 1996 to $3,263,233 for the year ended December 31, 1997, an
increase of 57%. This increase is attributable to additional sales as a result
of the FDA PMA for the LithoTron(R) lithotripter, received on July 21, 1997.
36
<PAGE> 43
Salaries, Wages and Benefits: Salaries, wages and benefits increased from
$309,663 for the year ended December 31, 1996 to $723,748 for the year ended
December 31, 1997, an increase of 134%. This increase is due to the addition of
corporate officers, additional regulatory medical monitors and technicians as
the Company entered its second year of operations.
General and Administrative Expenses: General and administrative expenses
increased from $935,588 for the year ended December 31, 1996 to $1,463,683 for
the year ended December 31, 1997, an increase of 56%. This increase is primarily
attributable to the Company's move to larger office space in May, 1997, to the
increase in marketing efforts in the last half of 1997, and to the increase in
regulatory costs relative to the completion and submission of the LithoTron(R)
lithotripter FDA PMA studies in 1997.
Interest Expense: Interest expense increased from $0 for the year ended
December 31, 1996 to $59,517 for the year ended December 31, 1997. This is
solely attributable to the debt associated with the Prostatron purchased in 1997
by Tenn-Ga Prostate Therapies, LLC.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
Sales of Medical Devices and Services Provided: Sales of medical devices
and services provided increased from $1,121,636 for the six months ended June
30, 1997 to $5,766,774 for the six months ended June 30, 1998, an increase of
414%. This is directly attributable to additional sales as a result of the FDA
PMA for the LithoTron(R) lithotripter, received on July 21, 1997.
Rental Revenue: Rental revenue increased from $0 for the six months ended
June 30, 1997 to $1,002,258 for the six months ended June 30, 1998. This is
primarily attributable to the acquisition of the remaining general partnership
interest in USL and the required consolidation of the related partnerships'
operations as well as the Company's expansion into medical device leasing.
Cost of Goods Sold, Rentals and Services Provided: Cost of goods sold,
rentals and services provided increased from $782,283 for the six months ended
June 30, 1997 to $3,282,862 for the six months ended June 30, 1998, an increase
of 320%. This increase is directly attributable to additional sales as a result
of the FDA PMA of the LithoTron(R) lithotripter, received on July 21, 1997.
Salaries, Wages and Benefits: Salaries, wages and benefits increased from
$287,127 for the six months ended June 30, 1997 to
37
<PAGE> 44
$625,498 for the six months ended June 30, 1998, an increase of 118%. This
increase is primarily attributable to the acquisition of the remaining general
partnership interest in USL and the required consolidation of the related
partnerships' operations as well as the Company's expansion into medical
leasing.
General and Administrative Expenses: General and administrative expenses
increased from $530,217 for the six months ended June 30, 1997 to $1,602,868 for
the six months ended June 30, 1998, an increase of 202%. This increase is
primarily due to the increase in LithoTron(R) lithotripter marketing and
expenses related to the OssaTron(R) orthopedic lithotripter IDE studies in
progress in 1998.
Equity in Earnings of Unconsolidated Partnerships: Equity in earnings of
unconsolidated partnerships increased from $0 for the six months ended June 30,
1997 to $62,105 for the six months ended June 30, 1998. The Company acquired
minority interest positions in certain partnerships in the fourth quarter of
1997 and the first quarter, 1998.
Minority Interest: Minority interest increased from $0 for the six months
ended June 30, 1997 to $472,592 for the six months ended June 30, 1998. This
increase is directly attributable to the consolidation of First and Second Tier
Partnerships by the Company, with significant minority interests held by various
partnerships or individuals.
Interest Expense: Interest expense increased from $16,250 for the six
months ended June 30, 1997 to $49,348 for the six months ended June 30, 1998, an
increase of 204%. This increase is primarily attributable to the increase in
debt resulting from the consolidation of the first and second tier partnerships.
Interest Income: Interest income increased from $5,198 for the six months
ended June 30, 1997 to $19,713 for the six months ended June 30, 1998, an
increase of 279%. This increase is due primarily to the earnings on funds
obtained during the July 31, 1997 private placement which closed during the
first quarter of 1998.
Provision for Income Taxes: Provision for income taxes increased from $0
for the six months ended June 30, 1997 to $65,609 for the six months ended June
30, 1997. As of June 30, 1998, the Company has applied all remaining net
operating tax loss ("NOL") carryforwards. In conjunction with the application of
these NOL's, the Company adjusted the net deferred tax asset valuation allowance
to zero, resulting in a reduced effective tax rate for the six months ended June
30, 1998. In assessing the likelihood of utilization of existing net deferred
tax assets, management considered (a) its current operating environment and
38
<PAGE> 45
(b) results of future operations to generate sufficient taxable income and,
accordingly, has determined that it is more likely than not that the deferred
tax assets will be realized.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has satisfied its working capital and capital
spending needs through private placements and the sales of medical devices. The
First and Second Tier Partnership equipment financing has been provided by term
bank debt secured by the related device and guarantees from the various
partners, including certain officers of the Company. In July, 1998, the Company
obtained a $650,000 line of credit and a $1,000,000 equipment financing line
with a Tennessee bank. The Company had no outstanding balances under these lines
as of September 30, 1998.
The Company intends to use net proceeds to the Company from this offering,
its existing cash and cash equivalents, cash generated from operations and
available credit facilities to fund future purchases of inventory, capital
equipment for lease, FDA study expenses and working capital requirements.
GLOSSARY
The Glossary below defines certain technical terms, trade names and "jargon"
that relates to the science of urology, the Company's products and proposed
products and the methods of treatment utilized by the urologists who use the
Company's products and proposed products.
1) FDA - The Federal Food and Drug Administration. This federal agency must
approve the Company's proprietary products before they may be offered for sale
in the United States.
2) IDE Study - An "Investigational Device Exemption" study-the process of
evaluating a new medical device for safety and efficacy prior to applying for
FDA approval.
3) Lithotripter - A medical device used to fragment kidney stones into small
pieces so that the stones may pass from the body, as well as the treatment of
certain orthopedic pathologies.
4) LithoTron(R) lithotripter - The Company's proprietary Lithotripter.
5) NewTrode(TM) - A specially designed component of the LithoTron(R)
lithotripter that initiates the energy used to fragment kidney stones. This is a
HealthTronics, Inc. registered trademark.
6) Ossatripter - A medical device that uses high energy sound waves to treat
chronic orthopedic conditions.
39
<PAGE> 46
7) OssaTron(R) orthopedic lithotripter - The Company's proprietary Ossatripter.
8) Orthotripsy -The technique of using an Ossatripter to treat chronic
orthopedic conditions.
9) Ossatripsy(R) - a HealthTronics registered trademark name , which will be
used for refer to the treatment of a pathology with the OssaTron(R) orthopedic
lithotripter.
10) Pre-Market Approval Application - A request to the FDA for approval of a
medical device. After an IDE study (see above) has been completed, a Pre-Market
Approval ("PMA") application is submitted to the FDA. Based upon such
application, the FDA decides if the medical device is to be approved for
marketing or if the application should be declined.
11) Prostatron - A medical device that uses microwave energy to treat prostate
enlargement.
40
<PAGE> 47
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS OF HEALTHTRONICS, INC. AND SUBSIDIARIES
Report of Independent Auditors F1
Consolidated Balance Sheets as of December 31, 1996 and 1997, and June F2
30, 1998 (Unaudited)
Consolidated Statements of Operations for the years ended December 31, F4
1996 and 1997, and the six months ended June 30, 1997
(Unaudited) and June 30, 1998 (Unaudited)
Consolidated Statements of Shareholders' Equity for the years ended F5
December 31, 1996 and 1997, and the six months ended June 30, 1998
(Unaudited)
Consolidated Statements of Cash Flows for the years ended December 31, F6
1996 and 1997, and the six months ended June 30, 1997 (Unaudited) and
June 30, 1998 (Unaudited)
CONSOLIDATED FINANCIAL STATEMENTS OF LITHO MANAGEMENT, INC. AND SUBSIDIARIES
Report of the Independent Auditors F26
Consolidated Balance Sheet as of December 31, 1997 F27
Consolidated Statement of Income for the year ended December 31, 1997 F28
Consolidated Statement of Shareholders' Equity for the year ended F29
December 31, 1997
Consolidated Statement of Cash Flows for the year ended December 31, F30
1997
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS OF HEALTHTRONICS,
INC. AND SUBSIDIARIES.
Combined Condensed Statements of Operations for the six months ended F40
June 30, 1998 (Unaudited)
Combined Condensed Statements of Operations for the year ended F41
December 31, 1997 (Unaudited)
</TABLE>
<PAGE> 48
Report of Independent Auditors
The Board of Directors and Shareholders
HealthTronics, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of HealthTronics,
Inc. and Subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of HealthTronics,
Inc. and Subsidiaries at December 31, 1997 and 1996, and the consolidated
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Atlanta, Georgia
March 6, 1998
F1
<PAGE> 49
HealthTronics, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31
1998 1997 1996
-------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,129,449 $ 1,796,694 $ 933,386
Trade accounts receivable 2,148,394 1,058,396 467,000
Inventory 1,463,053 1,465,887 130,000
Due from affiliated partnerships 133,325 1,142,143 --
Vendor deposits 243,500 42,458 374,250
Prepaid expenses 103,894 22,969 12,145
-------------------------------------------------------------
Total current assets 5,221,615 5,528,547 1,916,781
Property and equipment, at cost:
Medical devices placed in service 3,023,810 902,945 --
Medical devices not yet placed in service -- 207,829 252,083
Office equipment, furniture and fixtures 44,983 7,198 --
Vehicles and accessories 147,780 -- --
-------------------------------------------------------------
3,216,573 1,117,972 252,083
Less accumulated depreciation (326,587) (143,090) --
-------------------------------------------------------------
Net property and equipment 2,889,986 974,882 252,083
Deferred income taxes 491,136 -- --
Partnership investments 260,100 368,502 --
Goodwill (net of accumulated amortization
of $26,070 at June 30, 1998) 2,320,170 -- --
Patent license (net of accumulated
amortization of $30,000, $25,000 and
$15,000 for June 30, 1998, December 31,
1997 and 1996, respectively) 70,000 75,000 85,000
Other assets 26,844 -- --
-----------------------------------------------------------------
Total assets $ 11,279,851 $ 6,946,931 $2,253,864
=================================================================
</TABLE>
F2
<PAGE> 50
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31
1998 1997 1996
-----------------------------------------------------------
(Unaudited)
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 861,767 $ 1,477,065 $ 341,198
Customer deposits 131,400 460,000 500,000
Short-term borrowings -- 200,000 --
Warranty accrual 388,740 175,600 20,000
Accrued income taxes payable 223,821 -- --
Other accrued expenses 238,231 156,689 31,199
Current portion of long-term debt 1,149,969 145,885 --
-----------------------------------------------------------
Total current liabilities 2,993,928 2,615,239 892,397
Deferral of profit on medical device sales to
related parties -- 508,576 --
Long-term debt, less current portion 1,057,989 467,974 --
Minority interest 939,672 (4,297) --
-----------------------------------------------------------
Total liabilities 4,991,589 3,587,492 892,397
Shareholders' equity:
Common stock - no par value, voting:
Authorized - 30,000,000, 30,000,000
and 10,000,000 shares for June 30,
1998, December 31, 1997 and 1996,
respectively
Issued and outstanding - 9,366,000,
8,646,000 and 7,707,000 shares for
June 30, 1998, December 31, 1997 and
1996, respectively 6,503,000 4,343,000 1,927,000
Accumulated deficit (214,738) (983,561) (565,533)
-----------------------------------------------------------
6,288,262 3,359,439 1,361,467
Total liabilities and shareholders' equity -----------------------------------------------------------
$ 11,279,851 $ 6,946,931 $2,253,864
===========================================================
See accompanying notes.
</TABLE>
F3
<PAGE> 51
HealthTronics, Inc. and Subsidiaries
Consolidated Statements of Operations
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30 YEAR ENDED DECEMBER 31
1998 1997 1997 1996
-----------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C>
Sales of medical devices and
services provided $ 5,766,774 $ 1,121,636 $ 5,062,104 $ 2,870,000
Rental revenue 1,002,258 -- -- --
-----------------------------------------------------------------
Total revenue 6,769,032 1,121,636 5,062,104 2,870,000
Cost of goods sold, rentals and
services provided 3,282,862 782,283 3,263,233 2,073,697
-----------------------------------------------------------------
3,486,170 339,353 1,798,871 796,303
Salaries, wages and benefits 625,498 287,127 723,748 309,663
General and administrative expenses 1,602,868 530,217 1,463,683 935,588
-----------------------------------------------------------------
1,257,804 (477,991) (388,560) (448,948)
Equity in earnings of unconsolidated
partnerships 62,105 -- 4,669 --
Minority interest (472,592) -- 4,297 --
Interest expense (49,348) (16,250) (59,517) --
Interest income 19,713 5,198 21,083 16,376
Other 16,750 -- -- --
-----------------------------------------------------------------
Net income (loss) before income taxes 834,432 (489,043) (418,028) (432,572)
Provision for income taxes (65,609) -- -- --
------------------------------------------------------------------
Net income (loss) $ 768,823 $ (489,043) $ (418,028) $ (432,572)
=================================================================
Basic and diluted income (loss) per
common share:
Basic $ 0.09 $ (0.06) $ (0.05) $ (0.09)
=================================================================
Diluted $ 0.08 $ (0.06) $ (0.05) $ (0.09)
=================================================================
Weighted average common
shares outstanding:
Basic 8,892,359 7,706,600 8,010,068 4,952,743
=================================================================
Diluted 9,070,026 7,706,600 8,010,068 4,952,743
=================================================================
</TABLE>
See accompanying notes.
F4
<PAGE> 52
HealthTronics, Inc. and Subsidiaries
Consolidated Statements of Shareholders' Equity
<TABLE>
<CAPTION>
COMMON STOCK
---------------------------------- TOTAL
NUMBER OF ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT DEFICIT EQUITY
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at January 1, 1996 100,000 $ 200,000 $ (132,961) $ 67,039
Common stock split 60:1 5,900,000 -- -- --
Common stock issued 300,000 320,000 -- 320,000
Common stock issued via private
placement memorandum 1,407,000 1,407,000 -- 1,407,000
Net loss -- -- (432,572) (432,572)
--------------------------------------------------------------------
Balance at December 31, 1996 7,707,000 1,927,000 (565,533) 1,361,467
Common stock issued in exchange for
partnership investment 200,000 200,000 -- 200,000
Common stock issued via private
placement memorandum 739,000 2,216,000 -- 2,216,000
Net loss -- -- (418,028) (418,028)
--------------------------------------------------------------------
Balance at December 31, 1997 8,646,000 4,343,000 (983,561) 3,359,439
Common stock issued via private
placement memorandum 20,000 60,000 -- 60,000
Common stock issued in connection with
the acquisition of a business 700,000 2,100,000 -- 2,100,000
Net income -- -- 768,823 768,823
--------------------------------------------------------------------
Balance at June 30, 1998 9,366,000 $ 6,503,000 $ (214,738) $ 6,288,262
(unaudited) ====================================================================
</TABLE>
See accompanying notes.
F5
<PAGE> 53
HealthTronics, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30 YEAR ENDED DECEMBER 31
1998 1997 1997 1996
-----------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 768,823 $ (489,043) $ (418,028) $ (432,572)
Adjustments to reconcile net
income (loss) to cash used
in operating activities:
Depreciation and
amortization 216,277 54,200 153,090 10,000
Deferral of profit on
medical device sales to
related parties -- -- 508,576 --
Equity in earnings of
unconsolidated
partnerships (62,105) -- (4,669) --
Minority interest in
subsidiaries, net of
distributions 374,092 -- (4,297) --
Changes in operating
assets and liabilities,
net of businesses
acquired:
Trade accounts
receivable (426,132) (201,757) (591,396) (467,000)
Due from affiliated
partnerships 976,966 -- (1,142,143) --
Inventory 2,834 (336,267) (1,335,887) 110,000
Vendor deposits (201,042) 346,500 331,792 (374,250)
Prepaid expenses (70,660) (9,907) (10,824) (12,145)
Deferred income
taxes (491,136) -- -- --
Trade accounts
payable (1,605,035) 323,981 1,135,867 136,471
Customer deposits (330,600) (500,000) (40,000) 500,000
Income taxes
payable 223,821 -- -- --
Warranty accrual 213,140 (15,000) 155,600 20,000
Accrued expenses 22,898 14,055 125,490 31,199
----------------------------------------------------------------
Net cash used in operating
activities (387,859) (813,238) (1,136,829) (478,297)
</TABLE>
F6
<PAGE> 54
HealthTronics, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (continued)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30 YEAR ENDED DECEMBER 31
1998 1997 1997 1996
----------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C>
INVESTING ACTIVITIES
Purchases of property and
equipment (583,418) (628,617) (865,889) (252,083)
Other assets (23,999) -- -- --
Purchases of partnership
investments, net of cash
acquired 661,958 -- (163,833) --
Net cash provided by (used ----------------------------------------------------------------
in) investing activities 54,541 (628,617) (1,029,722) (252,083)
FINANCING ACTIVITIES
Proceeds from issuance of
common stock 60,000 -- 2,216,000 1,627,000
Proceeds from issuance of
debt 51,000 650,000 1,275,000 --
Principal payments on
short-term borrowings (200,000) --
Principal payments on debt (244,927) -- (461,141) --
Net cash (used in) provided ----------------------------------------------------------------
by financing activities (333,927) 650,000 3,029,859 1,627,000
----------------------------------------------------------------
Net (decrease) increase in
cash and cash equivalents (667,245) (791,855) 863,308 896,620
Cash and cash equivalents
at beginning of period 1,796,694 933,386 933,386 36,766
----------------------------------------------------------------
Cash and cash equivalents
at end of period $ 1,129,449 $ 141,531 $ 1,796,694 $ 933,386
================================================================
SUPPLEMENTAL DISCLOSURES
OF CASH FLOW INFORMATION
Cash paid for interest $ 51,800 $ 10,800 $ 59,000 $ --
================================================================
</TABLE>
See accompanying notes.
F7
<PAGE> 55
HealthTronics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1997 and 1996 and June 30, 1998 (unaudited)
1. DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION
HealthTronics, Inc. (the "Company") was incorporated in the State of Georgia in
1995. The Company was founded for the purpose of obtaining approval (Pre-Market
Approval - "PMA") from the Food & Drug Administration ("FDA") for certain
products manufactured by HMT High Medical Technologies GmbH ("HMT"), a Swiss
corporation, in particular, certain medical devices utilizing shock wave
therapies, known as the LithoTron and the OssaTron. Both products are already
being used outside the United States and Canada. During 1997, the Company
received approval for the LithoTron. The Company is currently establishing test
sites for the OssaTron FDA clinical trials.
In 1996, HMT granted to the Company the right to purchase the manufacturing
rights to the LithoTron and OssaTron medical devices. The Company also operates
under the terms of a distribution agreement with HMT that grants the Company the
exclusive right to make, use, sell and lease the LithoTron and OssaTron and
related parts in the United States, Canada and Mexico.
With each FDA approval, it is the Company's intent to generate revenues from
three sources: 1) sales of medical devices including related accessories; 2)
recurring revenues from licensing fees, sales of consumable products and
maintenance of equipment; and 3) investment income generated from partnerships
and joint ventures with physicians, dealerships and hospitals that purchase
equipment from the Company, as well as management fees from such entities.
In January 1997, the Company formed a wholly-owned subsidiary, Tenn-Ga Prostate
Therapies, LLC ("TGP"), a Georgia limited liability company. TGP owns and
leases a prostate therapy medical device to various hospitals in the Southeast.
During September 1997, the Company transferred 33% of TGP to certain
individuals in exchange for the personal guarantees of such individuals of
TGP's long-term debt.
Effective April 1, 1997, the Company entered into a Distributor Agreement and an
Entity Interest Agreement with U.S. Lithotripsy, LP ("USL"), a Texas limited
partnership, and with Litho Management, Inc. ("LMI"). This Distributorship
Agreement grants USL an exclusive right to sell, use, lease and distribute the
Company's products in a 19 state area and a non-exclusive right (subject to
approvals by the Company) to sell, use, lease and distribute the Company's
products in other states. The Entity Interest Agreement granted the Company a
40% ownership interest (0.4% general partnership ownership interest and 39.6%
limited partnership ownership interest) in USL in return for the issuance of
F8
<PAGE> 56
HealthTronics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION (CONTINUED)
200,000 shares of the Company's common stock valued at $1.00 per share as
determined by management in absence of a readily trading market. The Entity
Interest Agreement also granted LMI a 0.6% general partnership ownership
interest in USL (the remaining 59.4% limited partnership interest in USL is
owned by independent shareholders).
The April 1, 1997 Entity Interest Agreement constituted the formation of USL as
a limited partnership entity. Subsequent to April 1, 1997, USL made a number of
investments as the sole general partner in several separate partnerships with
equity interests ranging from 10% to 99% (the "second tier partnerships"),
formed for the purpose of purchasing, owning and operating certain medical
devices utilizing shock wave therapies. As the sole general partner, USL
consolidates the second tier partnerships. The Company used the equity method
of accounting for their investment in USL as the Company was not the majority
general partner.
On May 1, 1998, the Company purchased 100% of the outstanding stock of LMI in
exchange for 700,000 no par value shares of common stock valued at $3.00 per
share as determined by management in absence of a readily trading market. The
acquisition has been recorded using the purchase method of accounting, and
accordingly, the purchase price has been allocated to the assets acquired and
liabilities assumed of LMI (consolidated with USL as LMI is the majority
general partner of USL) based on their estimated fair values as of the date of
acquisition. The total purchase price (including the value of the 200,000
shares previously issued to USL) in excess of the market value of net tangible
assets and identifiable intangible assets acquired of approximately $2,320,000
was recorded as goodwill and is being amortized over 15 years.
In order to appropriately reflect the nature of the Company's operations and
its relationship to its subsidiaries, Tenn-Ga Prostate Therapies, LLC, LMI, USL
and the second tier partnerships, the accompanying consolidated statements of
operations include the Company's majority equity ownership interest in the net
revenues and expenses of TGP, the Company's equity interest in its
unconsolidated subsidiary USL and the second tier partnerships for the four
months ended April 30, 1998, and the Company's majority interest in the net
revenues and expenses of LMI and USL and the second tier partnerships for the
two months ended June 30, 1998. All significant intercompany accounts and
transactions have been eliminated in consolidation. See Note 4 for discussion
of minority interests.
F9
<PAGE> 57
HealthTronics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
REVENUE RECOGNITION
For sales of medical devices to unaffiliated entities, revenue is recognized
upon arrival at the destination; for miscellaneous sales of consumables,
revenue is recognized at the time of shipment by the Company. As discussed in
Note 4 and Note 5, sales of medical devices to certain equity partnerships in
which the Company is a general partner and has guaranteed certain long-term
obligations of the partnerships are deferred at the time of the sale. The
Company deferred approximately $409,000 and $509,000 of gross profit related to
the sale of medical devices to equity partnerships during the six month period
ended June 30, 1998 and during the year ended December 31, 1997, respectively.
No sales or cost of goods sold on these devices will be recognized until such
time as cash payments applied to the principal balance of the second tier's
third party debt obligations, which the Company has guaranteed, exceed the
Company's cost on the equipment sold. Once the second tier partnership has
satisfied the cost of the device under the debt obligation, 100% of the sales
and related cost of goods sold will be recognized ratably over the remaining
life of the asset. As a result of the additional acquisition of LMI and
resulting consolidation of LMI, USL and the second tier partnerships, the
deferred profit and the difference between retail and cost of the medical
devices at the partnership level have been eliminated in consolidation for the
six months ended June 30, 1998.
F10
<PAGE> 58
HealthTronics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION (CONTINUED)
Net revenue also includes leasing fees for the rental of the LithoTron and
other medical devices in the clinical setting. Revenue is generated primarily
from rental contracts with various medical facilities; the Company does not
contract directly with any third party payors including governmental programs
or health maintenance organizations. Net revenue under these facility
agreements is recorded at established billing rates reduced by an allowance for
contractual adjustments. Contractual adjustments arise due to the terms of
certain facility agreements which reduce revenue from established billing rates
to amounts estimated to be reimbursable under the individual facility
agreement. Such adjustments are recognized in the period the services are
rendered. Differences in estimates recorded and final settlements are reported
during the period final settlements are made.
INVENTORY
Inventory is carried at the lower of cost (first-in, first-out) or market and
consists of medical devices, related spare parts and consumables.
PARTNERSHIP INVESTMENTS
During 1997, the Company made a number of investments in various general and
limited partnerships. Such investments were recorded using the cost or equity
method of accounting, depending upon the Company's ability to exercise
significant influence over the operating and financial policies of the
investment partnership. See also Note 4.
PATENT LICENSE
The original cost of the patent license is being amortized on a straight-line
basis over a period of ten years, which approximates the life of the patent.
F11
<PAGE> 59
HealthTronics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is computed based on the
straight-line method over the five-year estimated useful lives of the related
equipment. Accelerated depreciation methods are generally used for tax
purposes.
WARRANTY ACCRUAL
The Company accrues a full year of service and parts warranty expense on the
sale of each medical device.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." Under this method,
deferred tax assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that are expected to be in effect when the
differences are expected to reverse.
The Company has not recorded a provision for income taxes in the accompanying
consolidated statements of operations for the years ended December 31, 1997 and
1996 as accumulated losses have been experienced since the inception of the
Company. The Company made no payments for income taxes during 1997 or 1996.
COMMON STOCK
In the absence of a readily traded market, management estimates the fair value
of the common stock of the Company. Such estimates were used to record the
value of common stock transactions in the accompanying consolidated financial
statements.
F12
<PAGE> 60
HealthTronics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
CONCENTRATIONS OF CREDIT RISK
The Company sells its products primarily in the United States, Canada and
Mexico. Credit is extended based on an evaluation of the customer's financial
condition and collateral is generally not required. The Company's two largest
customers accounted for approximately 10% and 68% of sales during 1997 and
1996, respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments are comprised principally of cash and cash
equivalents, trade accounts receivable, vendor deposits, amounts due from
affiliated partnerships, trade accounts payable, customer deposits, short-term
borrowings and long-term debt. The carrying amounts of these financial
instruments approximate their fair values.
LONG-LIVED ASSETS
During 1996, the Company adopted Statement of Financial Accounting Standards
No. 121 ("FAS 121"), "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of." FAS 121 requires impairment losses to
be recorded on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be
generated by those assets are less than the assets' carrying amounts. FAS 121
also addresses the accounting for long-lived assets that are expected to be
disposed of. The adoption of FAS 121 had no impact on the accompanying
consolidated financial statements.
F13
<PAGE> 61
HealthTronics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
BASIC AND DILUTED LOSS PER COMMON SHARE
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement No. 128, Earnings Per Share ("FAS 128"). FAS 128 replaced the
calculation of primary and fully diluted income (loss) per share with basic and
diluted income (loss) per share. Unlike primary income (loss) per share, the
calculation of basic income (loss) per share excludes the dilutive effects of
options, warrants, and convertible securities. Diluted income (loss) per share
is very similar to the previously reported fully diluted income (loss) per
share.
The Company's per share amounts for all periods have been presented in
accordance with the provisions of FAS 128. Basic and diluted income (loss) per
share are computed based on the weighted average number of common shares
outstanding. Common share equivalents (which may consist of options, warrants
and convertible debentures) are excluded from the computation of diluted income
(loss) per share if the effect would be antidilutive.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 ("FAS 130"), "Reporting Comprehensive
Income," which is effective for 1998. FAS 130 establishes guidelines for the
reporting and display of comprehensive income and its components in financial
statements. Management does not believe the adoption of FAS 130 to have a
significant impact on the Company's consolidated financial statements.
UNAUDITED FINANCIAL STATEMENTS
The Company has made all adjustments it considers necessary for a fair
presentation of the financial position of the Company as of June 30, 1998 and
the results of operations, shareholders' equity, and cash flows for the six
month periods ended June 30, 1998 and 1997 as presented in the accompanying
unaudited condensed consolidated financial statements. Operating results for
the six month period ended June 30, 1998 are not necessarily indicative of the
results that may be expected for the year 1998.
F14
<PAGE> 62
HealthTronics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. INVENTORY
Inventory consists of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
-----------------------------------
<S> <C> <C>
Medical devices $1,400,000 $ 80,000
Consumables 65,887 50,000
-----------------------------------
$1,465,887 $ 130,000
===================================
</TABLE>
4. PARTNERSHIP INVESTMENTS
As discussed in Note 1, as a result of the Company's May 1, 1998 acquisition
of LMI, the Company maintains a 40.6% interest in USL (1.0% general partnership
ownership interest and a 39.6% limited partnership ownership interest) and is
the sole general partner of USL. USL also maintains the sole general
partnership interest in several second tier partnerships. Based upon
the Company's ability to exercise control over the operating and financial
policies of USL and the second tier partnerships through its acquisition of
LMI, the Company has consolidated the majority financial position and results
of operations of the individual partnerships for the two months ended June 30,
1998.
The partnerships and the Company's effective ownership at June 30, 1998 are
summarized as follows:
<TABLE>
<CAPTION>
EFFECTIVE EFFECTIVE
DATE OF FORMATION OWNERSHIP VOTING
PARTNERSHIP INTEREST INTEREST
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Lithotripsy, L.P. April 1, 1997 40.6% 100%
Metro I Stone Management, Ltd. May 28, 1996 4.1% 100%
Mississippi Valley I Stone
Management, L.P. November 1, 1996 12.6% 100%
East Texas I Stone Management, Ltd. July 29, 1997 4.1% 100%
Dallas Stone Management, L.P. December 1, 1997 5.5% 100%
S.C. Missouri Stone Management, L.P. April 1, 1998 4.1% 100%
Tulsa Stone Management, L.P. February 1, 1998 40.2% 100%
Tyler Stone Services, L.P. March 1, 1998 40.2% 100%
</TABLE>
F15
<PAGE> 63
HealthTronics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. PARTNERSHIP INVESTMENTS (CONTINUED)
Condensed individual financial information of the Company and the consolidated
partnerships before eliminations as of December 31, 1997 is summarized below:
<TABLE>
<CAPTION>
TOTAL TOTAL NET NET INCOME
PARTNERSHIP ASSETS LIABILITIES REVENUE (LOSS)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Lithotripsy, L.P. $ 177,872 $ 441,200 $ 138,133 $ (129,911)
Metro I Stone Management, Ltd. 1,179,520 646,225 976,866 665,590
Mississippi Valley I Stone Management, L.P. 502,303 384,810 418,924 225,230
East Texas I Stone Management, Ltd. 48,750 23,156 29,250 25,594
Dallas Stone Management, L.P. 608,338 599,003 10,238 9,336
</TABLE>
The following unaudited pro forma information for the six months ended June 30,
1998 and for the year ended December 31, 1997 is presented as if LMI
(consolidated with USL) had been acquired on January 1, 1997. For the year
ended December 31, 1996, the acquisition did not have a significant impact on a
pro forma basis. This information does not purport to be indicative of the
results that would have actually been obtained if the acquisitions had occurred
on such dates.
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1998 DECEMBER 31, 1997
----------------------------------------------------
<S> <C> <C>
Net revenue $8,098,695 $6,498,859
Net income (loss) 768,666 (552,984)
Net income (loss) per common share
Basic 0.08 (0.06)
Diluted 0.08 (0.06)
</TABLE>
F16
<PAGE> 64
HealthTronics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. PARTNERSHIP INVESTMENTS (CONTINUED)
During 1997, the Company purchased partnership interests in Bone & Joint
Treatment Centers of South Florida, Ltd. (48.5%), Lithotripsy Leasing (6 of 45
partnership "units") and Chesapeake Lithotripsy - West (5 of 65 partnership
"units"). As of December 31, 1997, operations of these partnerships had not
fully commenced, and no distributions were made to the partners. The Company is
using the equity method of accounting for the investment in Bone & Joint
Treatment Centers of South Florida, Ltd. and the cost method of accounting for
the investments in Lithotripsy Leasing and Chesapeake Lithotripsy.
5. RELATED PARTY TRANSACTIONS
During the six month period ended June 30, 1998 and the year ended December 31,
1997, the Company recorded sales of medical devices to the second tier
partnerships. The second tier partnerships obtained third party financing,
payable generally over five years or less, to satisfy their obligations to the
Company under these sales. However, as the Company is a general partner of USL,
and USL is the sole general partner of the second tier partnerships, the
Company could be required to support the obligations of USL and the second tier
partnerships to an extent greater than the Company's proportionate interest in
the second tier partnerships. Thus, the Company has not transferred
substantially all of the risks and rewards of ownership related to the medical
devices sold to the second tier partnerships. As a result, the Company has not
recorded the sales or the related cost of goods sold and has deferred
approximately $409,000 and $509,000 of gross profit related to these sales for
the six month period ended June 30, 1998 and the year ended December 31, 1997,
respectively. As a result of the additional acquisition of LMI and resulting
consolidation of LMI, USL and the second tier partnerships, the deferred profit
and the difference between retail and cost of the medical devices at the
partnership level have been eliminated in consolidation for the six months
ended June 30, 1998. Depreciation expense is recognized in consolidation based
upon the cost of the asset over the estimated useful life of five years.
Several of the Company's major shareholders are also the officers of the
Company's supplier, HMT. Other shareholders of the Company are also limited
partners in USL and the second tier partnerships.
F17
<PAGE> 65
HealthTronics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. RELATED PARTY TRANSACTIONS (CONTINUED)
Several of the Company's shareholders are employees of a company that contracted
with the Company to provide installation and warranty service. Payments to
this company were $137,000 and $159,000 for 1997 and 1996, respectively.
Trade accounts payable due to the Company's supplier, HMT, totaled $965,000 and
$272,000 as of December 31, 1997 and 1996, respectively. During 1997 and 1996,
the Company made payments totaling $2,993,000 and $1,655,000, respectively, to
HMT for medical devices, related parts and consumables purchases.
Consulting fees totaling $21,800 and $218,000 were paid during 1997 and 1996,
respectively, to individuals in the medical field that were shareholders of the
Company.
6. SHORT-TERM BORROWINGS
Short-term borrowings at December 31, 1997 consist of a line of credit
agreement that provides for borrowings up to $500,000. Such line of credit
agreement expires July 10, 1998 and is secured by the Company's accounts
receivable, inventory, property and equipment, and personal guarantees from
certain officers of the Company. Amounts outstanding under the line of credit
agreement bear interest at 9.75% for the first year of the agreement; the
interest rate changes to prime plus 1.25% if the Company renews the agreement
to extend after July 10, 1998. The line of credit was paid off in May, 1998.
F18
<PAGE> 66
HealthTronics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
---------------------------------
(Unaudited)
<S> <C> <C>
Term loan, interest at 8%, principal and interest payments of
$13,542 due monthly through October 2002, secured by
personal guarantees of certain TGP shareholders $ 542,256 $ 613,859
Equipment note payable, variable interest rate (8.5% at
June 30, 1998), principal and interest due in monthly
installments of $16,000 through December 2000, secured by
the equipment under loan, and through guarantees from the
general partner and personal guarantees from certain
limited partners 512,442 --
Equipment note payable, variable interest rate (8.25% at June 30, 1998),
principal and interest due in monthly installments of $9,287 through
November 1998, balloon payment of remaining principle and interest balance
due December 1998, secured by the equipment under loan, and through
guarantees from the general partner and personal
guarantees from certain limited partners 329,612 --
Equipment note payable, variable interest rate (8.5% at
June 30, 1998), principal and interest due in monthly installments of
$16,250 through May 2001 , secured by the equipment under loan, and through
guarantees from the general partner and personal guarantees from certain
limited partners and the Company 563,755 --
Note payable to bank, interest at 8.75%, principal and
interest due in monthly installments of $4,761 through July 1998, balloon
payment of remaining principle and interest balance due August 1998, secured
by all accounts receivable, equipment and inventory of USL 128,876 --
Line of credit, variable interest rate (8.50% at
December 31, 1997), interest payable monthly, principal
due in full on October 28, 1998, unsecured 80,000 --
Other 51,017 --
---------------------------------
2,207,958 613,859
Less current portion (1,149,969) (145,885)
---------------------------------
$ 1,057,989 $ 467,974
=================================
</TABLE>
F19
<PAGE> 67
HealthTronics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. LONG-TERM DEBT (CONTINUED)
Future maturities of long-term debt at June 30, 1998 are as follows:
<TABLE>
<S> <C>
Fiscal Year
1999 $1,149,969
2000 538,536
2001 464,697
2002 54,756
2002 and thereafter --
-----------------
$2,207,958
=================
8. INCOME TAXES
A reconciliation of the provision (credit) for income taxes to the federal
statutory rate of 34% for 1997 and 1996 is:
<CAPTION>
1997 1996
---------------------------------
Statutory federal income tax expense (benefit) $(145,051) $(147,074)
State income taxes, net of federal benefit (16,894) (17,130)
Other 6,818 4,933
Valuation allowance 155,127 159,271
---------------------------------
$ - $ -
=================================
</TABLE>
F20
<PAGE> 68
HealthTronics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
8. INCOME TAXES (CONTINUED)
Significant components of the Company's deferred tax assets and liabilities as
of December 31 are as follows:
<TABLE>
<CAPTION>
1997 1996
--------------------------------
<S> <C> <C>
Deferred tax assets:
Operating loss carryforwards $ 103,000 $ 206,000
Accrued liabilities and other 82,000 11,000
Deferred revenue 193,000 --
--------------------------------
378,000 217,000
Valuation allowance (372,000) (217,000)
Deferred tax liability:
Property and equipment (6,000) --
--------------------------------
Net deferred tax asset $ -- $ --
================================
</TABLE>
For financial reporting purposes, a valuation allowance has been recognized to
reduce the net deferred tax asset to zero to reflect limitations on the
Company's ability to currently utilize net operating loss carryforwards.
At December 31, 1997 and 1996, the Company has net operating loss carryforwards
available to offset future taxable income of approximately $272,000 and
$542,000, respectively, which expire in years 2011 and 2012.
As of June 30, 1998, the Company has applied all remaining net operating tax
loss carryforwards. In conjunction with the application of the net operating
tax losses, the Company adjusted the tax asset valuation allowance to zero,
resulting in a reduced effective tax rate for the six months ended June 30,
1998. In assessing the likelihood of utilization of existing net deferred tax
assets, management considered (a) its current operating environment and (b)
results of future operations to generate sufficient taxable income and,
accordingly, has determined that it is more likely than not that the deferred
tax assets will be realized.
F21
<PAGE> 69
HealthTronics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
9. EMPLOYEE BENEFIT PLAN
In 1996, the Company established a defined contribution 401(k) plan for all
eligible employees. The plan provides for a deferral of up to 12% of the
employee's qualifying compensation under Section 401(k) of the Internal Revenue
Code. The Company provides a discretionary match up to a maximum of 3% of
employee compensation. The Company recognized $10,300 and $3,800 in expense
related to the 401(k) plan in 1997 and 1996, respectively.
10. SHAREHOLDERS' EQUITY
In April 1996, the Company authorized a 60:1 stock split, resulting in an
increase in outstanding shares from 100,000 shares to 6,000,000 shares.
The Company conducted a Private Placement of its common stock from June 24,
1996 through December 4, 1996. Pursuant to this Private Placement, the Company
sold an aggregate of 1,407,000 shares at $1 per share to approximately 75
investors.
In 1996, a major shareholder forgave a $100,000 note payable in exchange for
the issuance of 100,000 shares.
During June 1997, the Company issued 200,000 shares of common stock in exchange
for a 40% ownership interest US Lithotripsy (USL), a Texas limited partnership.
During July 1997, subsequent to the notice of FDA approval of the LithoTron,
the Company conducted a Private Placement of its common stock. Pursuant to this
Private Placement, the Company sold an aggregate of 739,000 shares at $3 per
share.
11. STOCK OPTIONS
During 1996, the Company initiated the Warrants and Options Program. As of
December 31, 1997, the Board of Directors has approved options to purchase up
to 550,000 shares of common stock.
F22
<PAGE> 70
HealthTronics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
11. STOCK OPTIONS (CONTINUED)
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and related Interpretations in
accounting for employee stock options and adopted the disclosure-only
provisions of Statement of Financial Accounting Standards No. 123, "Accounting
for Stock Based Compensation" ("FAS 123") for option grants to employees. The
Company generally grants stock options for a fixed number of shares to
employees with an exercise price equal to the fair value of the shares at the
date of grant, and, accordingly, recognizes no compensation expense for the
employee stock option grants.
Certain stock options have been granted to non-employees. In accordance with
the requirements of FAS 123, which requires the accounting recognition of the
fair value of options granted to non-employees, the Company recorded $21,000
and $9,000 in expense during 1997 and 1996, respectively.
A total of 50,000 options, expiring on December 31, 2000 and exercisable at $1
per share, were granted during 1996 to a non-employee and were exercisable as of
December 31, 1996. During 1997, 200,000 options were granted to employees and
79,000 were granted to non-employees. Such 1997 grants expire on December 31,
2000 and 2001 and have exercise prices of $1 or $3. 329,000 options were
exercisable as of December 31, 1997. Options vest at various future dates
through December 31, 2003. No options were exercised during 1997 or 1996. The
weighted-average exercise price and remaining contractual life for the 329,000
options outstanding at December 31, 1997 are approximately $1.50 per share and
three years, respectively.
For the Company, pro forma information regarding net income is required by FAS
123 and has been determined as if the Company had accounted for its employee
stock options granted under the fair value method of that Statement. The fair
value for these options was estimated at the date of grant using a minimum
value option pricing model with the following assumptions for 1997: risk-free
interest rate of 7%, expected life of the option of three or four years, and
0.50% dividend yield. The weighted-average fair value of options granted under
the Warrants and Options Program was $0.23 for 1997. Had the employee option
grants been accounted for under the fair value method of FAS 123, net loss
would be $465,028, or approximately $47,000 more than recorded in the
accompanying 1997 consolidated statement of operations.
F23
<PAGE> 71
HealthTronics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
11. STOCK OPTIONS (CONTINUED)
The pro forma disclosures above are not likely to be representative of the
effects on net income in future years.
The effect of dilutive stock options represented an increase of 177,667 in the
denominator for the calculation of earnings per share for the six month period
ended June 30, 1998
12. OPERATING LEASES
The Company leases office space at a monthly rental of $3,900 under a lease
agreement that expires May 2000. The lease is personally guaranteed by certain
shareholders of the Company. Rental expense for 1997 and 1996 was $41,800 and
$6,900, respectively.
Aggregate future minimum lease payments under operating lease agreements for
terms greater than one year are as follows:
<TABLE>
<S> <C>
Fiscal Year
1998 $ 62,000
1999 59,000
2000 and thereafter 20,000
----------
$141,000
==========
</TABLE>
13. COMMITMENTS
In connection with the original distributorship agreements between the Company
and HMT, the Company committed to purchase ten OssaTron orthopedic lithotriptor
and twelve LithoTron lithotripter units per year over the life of the agreement
after FDA PMA approval is received by the Company.
F24
<PAGE> 72
HealthTronics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
14. SUBSEQUENT EVENTS
On July 1, 1998, the Company obtained a $650,000 line of credit and a
$1,000,000 equipment financing line with a Tennessee bank. The lines are
personally guaranteed by certain officers of the Company for amounts
representing up to 50% of the outstanding indebtedness plus interest. The
Company had no outstanding balances under these lines as of September 30, 1998.
On September 9, 1998, the Company exchanged 300,000 no par value shares of
common stock, valued at $3.00 per share (as determined by management in absence
of a readily trading market) in exchange for 100% of the issued and outstanding
shares of HLE Corporation ("HLE"). The assets of HLE consist of a 30% limited
partnership interest in Metro I Stone Management, Ltd.
F25
<PAGE> 73
Report of Independent Auditors
The Board of Directors and Shareholders
Litho Management, Inc.
We have audited the accompanying consolidated balance sheet of Litho Management,
Inc. and Subsidiaries as of December 31, 1997, and the related consolidated
statements of income, shareholders' equity, and cash flows for the year then
ended. 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 consolidated financial position of Litho Management,
Inc. and Subsidiaries at December 31, 1997 and the consolidated results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
Atlanta, Georgia
August 7, 1998
F26
<PAGE> 74
Litho Management, Inc. and Subsidiaries
Consolidated Balance Sheet
December 31, 1997
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current assets:
Cash and cash equivalents $ 97,296
Accounts receivable, less allowance for doubtful accounts
of $7,500 315,521
Inventory 100,000
Prepaid expenses 11,463
----------
Total current assets 524,280
Property and equipment, at cost:
Medical devices placed in service 2,200,480
Vehicles and accessories 48,894
----------
2,249,374
Less accumulated depreciation (294,380)
----------
Net property and equipment 1,954,994
Other assets 4,726
----------
Total assets $2,484,000
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 28,395
Accrued expenses 18,689
Accrued interest 4,897
Amounts due to related parties 833,862
Current portion of long-term debt 952,383
----------
Total current liabilities 1,838,226
Long-term debt, less current portion 217,000
Minority interest 423,151
Commitments and contingencies
Shareholders' equity:
Common stock - $1 par value, voting:
Authorized shares - 1,000; Issued and outstanding shares 1,000
1,000
Retained earnings 4,623
----------
Total shareholders' equity 5,623
----------
Total liabilities and shareholders' equity $2,484,000
==========
</TABLE>
See accompanying notes.
F27
<PAGE> 75
Litho Management, Inc. and Subsidiaries
Consolidated Statement of Income
Year ended December 31, 1997
<TABLE>
<S> <C>
Net revenue $1,436,755
Cost of revenue 245,326
----------
1,191,429
Operating expenses:
Salaries 81,102
Professional fees 59,616
Insurance expense 22,275
Provision for bad debts 7,500
General and administrative expenses 140,461
----------
Total operating expenses 310,954
Income from operations 880,475
Other income (expense):
Interest expense (82,041)
Interest income 272
----------
Income before minority interest 798,706
Minority interest (796,975)
==========
Net income $ 1,731
==========
</TABLE>
See accompanying notes.
F28
<PAGE> 76
Litho Management, Inc. and Subsidiaries
Consolidated Statement of Shareholders' Equity
Year ended December 31, 1997
<TABLE>
<CAPTION>
COMMON STOCK
------------------------------- TOTAL
NUMBER OF RETAINED SHAREHOLDERS'
SHARES AMOUNT EARNINGS EQUITY
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at January 1, 1997 1,000 $1,000 $2,892 $3,892
Net income - - 1,731 1,731
-------------------------------------------------- -------------
Balance at December 31, 1997 1,000 $1,000 $4,623 $5,623
================================================================
</TABLE>
See accompanying notes.
F29
<PAGE> 77
Litho Management, Inc. and Subsidiaries
Consolidated Statement of Cash Flows
Year ended December 31, 1997
<TABLE>
<CAPTION>
<S> <C>
OPERATING ACTIVITIES
Net income $ 1,731
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation and amortization 245,326
Minority interest in subsidiaries' net income, net of
distributions 297,528
Provision for bad debts 7,500
Changes in operating assets and liabilities:
Accounts receivable (171,544)
Prepaid expenses (6,408)
Inventory (100,000)
Other assets (1,113)
Accounts payable 18,569
Accrued interest and other accrued expenses 16,229
Amounts due to related parties 672,462
--------------
Net cash provided by operating activities 980,280
INVESTING ACTIVITIES
Purchases of property and equipment (1,249,373)
Purchases of partnership investments, net of cash
acquired 18,639
--------------
Net cash used in investing activities (1,230,734)
FINANCING ACTIVITIES
Proceeds from issuance of debt 696,394
Principal payments on debt (348,644)
--------------
Net cash provided by financing activities 347,750
--------------
Net increase in cash and cash equivalents 97,296
Cash and cash equivalents at beginning of year -
--------------
Cash and cash equivalents at end of year $ 97,296
==============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest $ 82,067
==============
</TABLE>
See accompanying notes.
F30
<PAGE> 78
Litho Management, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1997
1. DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION
Litho Management, Inc. (the "Company") was incorporated in the State of Texas on
October 25, 1996. Prior to April 1, 1997, The Company's primary activity
included ownership of a 1% general partnership interest in Mississippi Valley I
Stone Management, L.P. ("Mississippi Valley"), a limited partnership formed for
the purpose of purchasing, owning and operating certain medical devices
utilizing shock wave therapies, specifically the LithoTron. On April 1, 1997,
the Company entered into a Distributor Agreement and an Entity Interest
Agreement with U.S. Lithotripsy, L.P. ("USL"), a Texas limited partnership, and
with HealthTronics, Inc. ("HealthTronics"). The Distributorship Agreement
(entered into between USL and Healthtronics) grants USL an exclusive right to
sell, use, lease and distribute HealthTronics' products in a 19 state area and a
non-exclusive right (subject to approvals by HealthTronics) to sell, use, lease
and distribute HealthTronics' products in other states. The Entity Interest
Agreement granted the Company a 0.6% general partnership ownership interest in
USL (0.4% general partnership interest and 39.6% limited partnership interest is
owned by HealthTronics and the remaining 59.4% limited partnership interest is
owned by independent partners). Through its general partnership interest,
the Company effectively controls USL.
The April 1, 1997 Entity Interest Agreement constituted the formation of USL as
a limited partnership entity. Concurrent with the formation of USL, USL acquired
the 1% general partnership interest in Mississippi Valley from the Company.
Subsequent to April 1, 1997, USL made a number of investments as the sole
general partner in several separate partnerships with equity interests ranging
from 10% to 99% (the "second tier partnerships"), also formed for the purpose of
purchasing, owning and operating certain medical devices utilizing shock wave
therapies. Each of the partnership agreements are for terms of 40 years. As USL
is the sole general partner of these second tier partnerships, it will
consolidate these entities.
As the majority-owned general partner of USL, the Company provides exclusive
management and administration of USL and the second tier partnerships'
day-to-day business operations. Authority retained by the Company as
majority-owned general partner includes exclusive authority over all
decision-making for ongoing major or central operations, including (i) the scope
of services, (ii) pricing of services, (iii) negotiation and execution of
contracts, (iv) issuance of debt and (v) establishment and approval of operating
and capital budgets. Each of the partnership agreements grant the majority
F31
<PAGE> 79
Litho Management, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION (CONTINUED)
general partner sole and absolute discretion over the actions of the partnership
and do not provide for the existence of any super majority voting rights,
unanimous approval, or limited partner veto power.
In order to appropriately reflect the nature of the Company's operations and its
relationship to USL and the second tier partnerships, the accompanying
consolidated financial statements include the accounts of USL and the second
tier partnerships from the date of the formation of USL, April 1, 1997. The
operations of Mississippi Valley have been included for the full year ended
December 31, 1997 as the Company was the general partner prior to the purchase
of the general partnership interest by USL. All significant intercompany
accounts and transactions have been eliminated in consolidation. See Note 3 for
discussion of minority interests.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
NET REVENUE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
Net revenue includes leasing fees for the rental of the LithoTron and other
medical devices in the clinical setting. Revenue is generated primarily from
rental contracts with various medical facilities; the Company does not contract
directly with any third party payors including governmental programs or health
maintenance organizations. Net revenue under these facility agreements is
recorded at established billing rates reduced by an allowance for contractual
adjustments. Contractual adjustments arise due to the terms of certain facility
agreements which reduce revenue from established billing rates to amounts
estimated to be reimbursable under the individual facility agreement. Such
adjustments are recognized in the period the services are rendered. Differences
in estimates recorded and final settlements are reported during the period final
settlements are made.
F32
<PAGE> 80
Litho Management, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET REVENUE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS (CONTINUED)
An allowance for doubtful accounts is established for revenue estimated to be
uncollectible and is adjusted periodically based upon management's evaluation of
current economic conditions, historical collection experience, and other
relevant factors which, in the opinion of management, deserve recognition in
estimating such allowance.
CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
INVENTORY
Inventory is carried at the lower of cost (first-in, first-out) or market and
consists of a medical device.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is computed based on the
straight-line method over the five-year estimated useful lives of the related
equipment and is included in cost of revenue in the accompanying consolidated
statement of income. Accelerated depreciation methods are generally used for tax
purposes.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes." Under this
method, deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that are expected to be in effect
when the differences are expected to reverse. The Company has not recorded a
provision for income taxes in the accompanying consolidated income statement as
earnings and losses from the partnerships are passed through to the individual
partners for income tax purposes. In addition, there were no significant
differences between financial reporting and tax bases of assets and liabilities
for the year ended December 31, 1997.
F33
<PAGE> 81
Litho Management, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES (CONTINUED)
The Company made no payments for income taxes during 1997.
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to significant
concentrations of credit risk consist principally of cash equivalents and
accounts receivable.
The Company maintains cash and cash equivalents with various financial
institutions. These financial institutions are located throughout the
Southeastern United States, Texas and Mississippi and the Company's policy is
designed to limit its exposure at any one institution. The Company performs
periodic evaluations of the relative credit standings of those financial
institutions that are considered in the Company's investment strategy. At
December 31, 1997, substantially all of the Company's cash and cash equivalents
are invested in non-interest bearing depository cash accounts.
Substantially all revenue is earned in the Southeastern United States, Texas and
Missouri. The Company generally does not require collateral or other security
in extending credit to facilities under contract. The Company's two largest
facility contracts accounted for approximately 67% and 29%, respectively of net
revenue during 1997.
CARRYING VALUE OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
In accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of," the Company records
impairment losses on long-lived assets used in operations when events and
circumstances indicate that such assets might be impaired and the undiscounted
cash flows estimated to be generated by those assets are less that the assets'
net book values. SFAS No. 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. SFAS No. 121 had no impact on the
accompanying consolidated financial statements.
F34
<PAGE> 82
Litho Management, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income," which is effective for fiscal years beginning
after December 15, 1997. SFAS 130 establishes guidelines for the reporting and
display of comprehensive income and its components in financial statements.
Management does not believe the adoption of SFAS 130 will have a significant
impact on the Company's consolidated financial statements.
3. PARTNERSHIP INVESTMENTS
As discussed in Note 1, at December 31, 1997, the Company maintained a 0.6%
general partnership interest in USL; while USL maintained general partnership
interests in several second tier partnerships. Based upon the Company's ability
to exercise control over the operating and financial policies of USL and the
second tier partnerships, the Company has consolidated the financial position
and results of operations of the individual partnerships for the year ended
December 31, 1997. The partnerships and the Company's effective ownership at
December 31, 1997 are summarized as follows:
<TABLE>
<CAPTION>
EFFECTIVE EFFECTIVE
DATE OF OWNERSHIP VOTING
PARTNERSHIP FORMATION INTEREST INTEREST
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Lithotripsy, L.P. April 1, 1997 0.6% 60%
Metro I Stone Management, Ltd. May 28, 1996 0.06% 60%
Mississippi Valley I Stone Management, L.P. November 1, 1996 0.186% 60%
East Texas I Stone Management, Ltd. July 29, 1997 0.06% 60%
Dallas Stone Management, L.P. December 1, 1997 0.06% 60%
</TABLE>
The consolidated statements of operations include the operating results of the
above partnerships from the date of formation of each partnership, except for
Metro I Stone Management, Ltd. which is included from April 1, 1997 (the date
USL acquired the 1.0% general partnership interest and a 9.0% limited
partnership interest) through December 31, 1997, and Mississippi Valley which is
included at a 1.0% effective
F35
<PAGE> 83
Litho Management, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. PARTNERSHIP INVESTMENTS (CONTINUED)
ownership interest from January 1, 1997 through March 31, 1997 (as the Company
was the 1.0% general partner during this time period) and at 0.186% from April
1, 1997 through December 31, 1997 (as USL purchased the 1.0% general partnership
interest from the Company and an additional 30% limited partnership interest on
April 1, 1997).
USL's purchase of the additional equity interests in Metro I Stone Management,
Ltd. and Mississippi Valley was accounted for under the purchase method of
accounting. There was no goodwill recognized in these transactions as the
purchase price approximated the fair value of the partnerships' net assets at
the date of purchase.
Condensed individual financial information of the Company and the consolidated
partnerships as of December 31, 1997 is summarized below:
<TABLE>
<CAPTION>
TOTAL TOTAL NET NET INCOME
PARTNERSHIP ASSETS LIABILITIES REVENUE (LOSS)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Lithotripsy, L.P. $ 177,872 $ 441,200 $ 138,133 $(129,911)
Metro I Stone Management, Ltd. 1,179,520 646,225 976,866 665,590
Mississippi Valley I Stone
Management, L.P. 502,303 384,810 418,924 225,230
East Texas I Stone Management, Ltd. 48,750 23,156 29,250 25,594
Dallas Stone Management, L.P. 608,338 599,003 10,238 9,336
</TABLE>
As general partner, USL provides exclusive management and administration of the
second tier partnerships' day-to-day business operations. For the year ended
December 31, 1997 fees charged to the second tier partnerships by USL were
$131,641 and were based upon approximately 7.5% of the partnerships' net
revenues. Management fee receivables of $41,983 have been recorded by USL at
December 31, 1997. In addition, USL recognized revenue of $14,476 on sales of
certain consumables to the second tier partnerships. Each of these transactions
have been fully eliminated in consolidation.
F36
<PAGE> 84
Litho Management, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. RELATED PARTY TRANSACTIONS
Several of the Company's major shareholders are also limited partners in USL and
the second tier partnerships. USL leases space from one of the Company's
shareholders. Total rental expense charged by the shareholder amounted to $6,174
for the year ended December 31, 1997.
Concurrent with the formation of USL, a limited partner of USL contributed a
medical device held as inventory, valued at $100,000 based upon current market
conditions, and a $296,595 note payable. The difference between the value of the
inventory and the total notes payable is included in minority interest in the
accompanying statement of income.
Accounts payable through the consolidated partnerships to HealthTronics relating
to purchases of medical devices and related parts totaled $796,100 as of
December 31, 1997. Amounts owed to HealthTronics at December 31, 1997 were paid
in full through March 1998 as the consolidated partnerships obtained long-term
financing with third party banks. During 1997, the Company, through its
consolidated partnerships made payments totaling $382,000 to HealthTronics, Inc.
for medical devices, related parts and consumables purchases.
Amounts due to related parties include a $26,000 unsecured note payable to one
of the Company's major shareholders. The note bears interest monthly at 8.50%
and was paid in full in April 1998. In addition, amounts due to related parties
of $11,762 represent net non-interest bearing borrowings from certain
shareholders for expenses paid on behalf of the individual partnerships.
Subsequent to December 31, 1997, USL entered into a $250,000 unsecured note
payable to HealthTronics. The note includes interest at 8.5% and is due in
monthly installments through September, 2003.
F37
<PAGE> 85
Litho Management, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. LONG-TERM DEBT
<TABLE>
<S> <C>
Long-term debt at December 31, 1997 consists of the following:
Equipment note payable, variable interest rate (8.50% at December 31, 1997),
principal and interest due in monthly installments through December 2000,
secured by the equipment under loan, and through guarantees from the general
partner and personal guarantees from certain limited partners $ 409,000
Equipment note payable, variable interest rate (8.50% at December 31, 1997),
principal and interest due in monthly installments of $9,287 through November
1998, balloon payment of remaining principal and interest balance due
December 1998, secured by the equipment under loan, and through guarantees
from the general partner and personal guarantees from certain limited
partners 381,788
Equipment note payable, interest at 8.75%, principal and interest due in monthly
installments of $4,743 through July 1998, balloon payment of remaining principal
and interest balance due August 1998, secured by all accounts receivable,
equipment and inventory of the partnership 148,121
Note payable to bank, interest at 8.75%, principal and interest due in monthly
installments of $4,761 through July 1998, balloon payment of remaining principal
and interest balance due August 1998, secured by all accounts receivable,
equipment and inventory of the partnership 148,474
Line of credit, variable interest rate (8.50% at December 31, 1997), interest
payable monthly, principal due in full on October 28, 1998, unsecured 80,000
Other 2,000
--------------
1,169,383
Less current portion (952,383)
--------------
$ 217,000
==============
</TABLE>
F38
<PAGE> 86
Litho Management, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. LONG-TERM DEBT (CONTINUED)
Aggregate future principal payments for all short term borrowings and long-term
debt as of December 31, 1997 are as follows:
<TABLE>
<S> <C>
Year ending December 31,
1998 $ 952,383
1999 192,000
2000 25,000
-------------
$1,169,383
=============
</TABLE>
7. SUBSEQUENT EVENTS
On May 4, 1998, HealthTronics entered into an Agreement and Plan of Share
Exchange with the Company and the sole shareholders of the Company, whereby
HealthTronics acquired all of the issued and outstanding capital stock of the
Company in exchange for 700,000 shares of voting capital stock of HealthTronics.
The effective date of the transaction is May 1, 1998. The HealthTronics shares
issued in the Share Exchange have been valued at approximately $2,100,000, as
determined by management and the Board of Directors of HealthTronics in absence
of a readily trading market.
F39
<PAGE> 87
HealthTronics, Inc. and Subsidiaries
Pro Forma Combined Condensed Statements of Operations
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL
---------------------------------------------------
LITHO
HEALTHTRONICS, INC. MANAGEMENT, INC. PRO FORMA PRO FORMA
(1) ADJUSTMENTS COMBINED
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales of medical devices and
services provided $ 5,790,303 $ 100,000 $ 5,890,303
Net lease revenue 322,659 1,885,733 2,208,392
----------------------------------------------- -------------
Net revenue 6,112,962 1,985,733 8,098,695
Cost of goods sold and services
provided 3,317,723 500,485 (84,080) (3) 3,734,128
----------------------------------------------- -------------
2,795,239 1,485,248 84,080 4,364,567
Operating costs and expenses:
Salaries, wages and benefits 560,867 159,412 720,279
Corporate, general and
administrative 1,473,653 243,485 78,208 (2) 1,795,346
----------------------------------------------- -------------
Income/(loss) from operations 760,719 1,082,351 5,872 1,848,942
Other income (expense): 56,935 (19,462) 37,473
----------------------------------------------- -------------
Net income/(loss) before minority
interest and income taxes 817,654 1,062,889 5,872 1,886,415
Minority interest (4,033) (1,048,107) (1,052,140)
----------------------------------------------- -------------
Net income/(loss) before income
taxes 813,621 14,782 5,872 834,275
----------------------------------------------- -------------
Provision for income taxes (65,609) - (65,609)
----------------------------------------------- -------------
Net income/(loss) $ 748,012 $ 14,782 $ 5,872 $ 768,666
=============================================== =============
Net income per share/(loss) per
share:
Basic $ 0.08 $ 0.08
============== =============
Diluted $ 0.08 $ 0.08
============== =============
Weighted average number of common
and common equivalent shares
Basic 8,892,359 9,360,314
============== =============
Diluted 9,070,026 9,537,981
============== =============
</TABLE>
- --------------------
1. The historical results for Litho Management, Inc. are for the period
January 1, 1998 to June 30, 1998 adjusted to conform with HealthTronics'
presentation of revenue and expenses.
2. Adjustment represents additional amortization arising from goodwill
recorded as part of the purchase of Litho Management, Inc.
3. Adjustment represents the reduction in depreciation expense from retail to
cost for equipment sold to related party partnerships.
F40
<PAGE> 88
HealthTronics, Inc. and Subsidiaries
Pro Forma Combined Condensed Statements of Operations
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL
------------------------------------------------------
LITHO
HEALTHTRONICS, INC. MANAGEMENT, INC. PRO FORMA PRO FORMA
(1) (1) ADJUSTMENTS COMBINED
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales of medical devices and services
provided $ 5,062,104 $ - $ 5,062,104
Net lease revenue - 1,436,755 1,436,755
--------------------------------------------------- ---------------
Net revenue 5,062,104 1,436,755 6,498,859
Cost of goods sold and services provided 3,263,233 245,326 (19,729) (3) 3,488,830
--------------------------------------------------- ---------------
1,798,871 1,191,429 19,729 3,010,029
Operating costs and expenses:
Salaries, wages and benefits 723,748 81,102 804,850
Corporate, general and administrative 1,463,683 229,852 156,416 (2) 1,849,951
--------------------------------------------------- ---------------
Income/(loss) from operations (388,560) 880,475 (136,687) 355,228
Other income (expense): (33,765) (81,769) (115,534)
--------------------------------------------------- ---------------
Net income/(loss) before minority
interest and income taxes (422,325) 798,706 (136,687) 239,694
Minority interest 4,297 (796,975) (792,678)
--------------------------------------------------- ---------------
Net income/(loss) before income taxes (418,028) 1,731 (136,687) (552,984)
--------------------------------------------------- ---------------
Provision for income taxes - - -
--------------------------------------------------- ---------------
Net income/(loss) $ (418,028) $ 1,731 $ (136,687) $ (552,984)
=================================================== ===============
Basic net income per share/(loss) per $ (0.05) $ (0.06)
share
Weighted average number of common and
common equivalent shares 8,010,068 8,710,068
================ ===============
</TABLE>
- --------------------
1. The historical results for Litho Management, Inc. are for the period
January 1, 1998 to June 30, 1998 adjusted to conform with HealthTronics'
presentation of revenue and expenses.
2. Adjustment represents additional amortization arising from goodwill
recorded as part of the purchase of Litho Management, Inc.
3. Adjustment represents the reduction in depreciation expense from retail to
cost for equipment sold to related party partnerships.
F-41
<PAGE> 89
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24 INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Articles of Incorporation provide that no director shall have any
personal liability to the Company or its shareholders for monetary damages for
breach of duty of care or the other duties of a director except for any
appropriation of any business opportunity, for acts or omissions that involve
intentional misconduct or a knowing violation of law, or for any transaction
from which the director derived an improper personal benefit. Copies of the
Company's Articles of Incorporation and By-Laws are available for inspection by
any potential investor or his representative. (See "ADDITIONAL INFORMATION" in
the Company's PROSPECTUS). Because of these provisions, the Company and its
shareholders may have a more limited right of action against a director than
they would have absent these provisions. INSOFAR AS INDEMNIFICATION FOR
LIABILITIES ARISING UNDER THE SECURITIES ACT OF 1933 (THE "ACT") MAY BE
PERMITTED TO 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 SECURITIES AND EXCHANGE COMMISSION SUCH
INDEMNIFICATION IS AGAINST PUBLIC POLICY AS EXPRESSED IN THE ACT AND IS,
THEREFORE, UNENFORCEABLE. In the event that a claim for indemnification against
such liabilities (other than the payment by the Company of expenses incurred or
paid by a director, officer or controlling person of the Company in the
successful defense of any action, suit or proceeding) is asserted by such
officer, director or controlling person in connection with these 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
appropriate 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.
The cross-indemnification provisions contained in Article 9 of the
Placement Agent Agreement filed as Exhibit 1.1 to the Registration Statement may
limit the liability of controlling persons, officers or directors of the Company
to the Placement Agent.
II-1
<PAGE> 90
ITEM 25 OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following sets forth the anticipated costs and expenses to be
incurred in connection with the issuance and distribution of the securities to
be registered.
Each amount, except for SEC and NASD fees, is estimated.
<TABLE>
<S> <C>
SEC registration fee......................... $ 1,668.00
Blue Sky fees (excluding legal fees)......... 6,000.00
NASD fee..................................... 1,625.00
Accounting fees and expenses................. 90,000.00
Legal fees and expenses...................... 60,000.00
Printing and engraving....................... 10,000.00
Escrow Agent fee............................. 500.00
Miscellaneous expenses....................... 6,000.00
-----------
Total .................................. $175,793.00
===========
</TABLE>
II-2
<PAGE> 91
ITEM 26 RECENT SALES OF UNREGISTERED SECURITIES
During the past three years, Registrant sold the following
unregistered securities (all of these securities were no par value Shares):
(a)(1) On December 31, 1995 OssaTronics, Inc. (The "Predecessor"), an
affiliated Georgia corporation formed on December 23, 1994 was merged into the
Company. The plan of merger was approved by the shareholders of both the
Predecessor and the Company on March 4, 1995 and was finalized with the Office
of the Secretary of State of Georgia on April 29, 1996. Pursuant to the plan of
merger, 100,000 Shares were issued to 5 investors, all of whom were existing
shareholders of the Company.
(a)(2) Between June 24 and December 4, 1996, 1,406,600 Shares were
sold at $1.00 per Share to 74 investors pursuant to a private placement
memorandum.
(a)(3) On June 1, 1997, the Company offered an aggregate of 200,000
Shares in an exchange offer to the owners of USL, a Texas limited partnership
that is a distributor of the Company's products, in exchange for a 40% interest
in USL. The exchange offer was accepted by the 6 owners of USL.
(a)(4) Between July 31, 1997 and February 12, 1998, the Company sold
an aggregate of 758,742 Shares at $3.00 per Share to 67 investors pursuant to a
private placement memorandum.
(a)(5) On May 1, 1998 the Company acquired LMI in exchange for 700,000
Shares.
(a)(6) On September 9, 1998, the Company executed an Agreement and Plan
of Share Exchange (the "Exchange Offer") with the three shareholders of HLE
Corp., a Texas corporation. Pursuant to the Exchange Offer, the shareholders of
HLE Corp. Exchanged all of the issued and outstanding shares of HLE for 300,000
Shares of the Company.
(b) No underwriter was involved in any of these offerings. The Company
sold these Shares to its officers, directors, promoters, employees,
distributors (including the officers, directors and certain employees of its
distributors), doctors, family and friends of the Company's officers and
directors.
II-3
<PAGE> 92
(C) The Shares described in (a) (1), (a) (3), (a) (5) and (a) (6)
above were sold to the promoters and existing shareholders of the Company for
their interest in OssaTronics, Inc. and the interest of the owners of USL in
USL, and the interest of the owners of LMI in LMI and the interest of the
owners of HLE Corp. in HLE Corp., as well as as for the services of the
promoters of, and consultants to, the Company in organizing the Company. The
Shares described in (a) (2) and (a) (4) above were sold for an aggregate of
$3,682,826 in cash.
(d) Exemption for the transactions described in paragraphs (a) (1)
through (a) (6) above is claimed pursuant to Section (4) (2) of the Securities
Act of 1933 and Rule 506 of Regulation D promulgated pursuant to Section (4)
(2). Each of the Company's investors received a private placement memorandum
containing the information that would be contained in a Regulation A filing or
in a registration statement. Each of the investors executed an appropriate
subscription agreement/letter of investment intent. Each Share issued bears the
appropriate restrictive legend. In addition, Form D was filed with the
Securities and Exchange Commission for the transactions described in paragraphs
(a) (2) through (a) (4) above. Furthermore, the Company's Shares have been sold
to no more than 32 non-accredited investors and no advertising or public
solicitation was employed by the Company in the sale of its Shares.
ITEM 27 EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
- ------- ----------------------
<S> <C>
1.1 Placement Agent Agreement
3.1 Articles of Incorporation of HealthTronics, Inc.
3.2 Restated By Laws of HealthTronics, Inc.
3.3 By Laws of OssaTronics, Inc.
3.4 Specimen Stock Certificate
3.5 Agreement and Plan of Merger of OssaTronics, Inc. into HealthTronics, Inc.
5 Opinion of Christopher J, Moran, Jr., as to the legality of the
securities being registered.
10.1 Form of Escrow Agreement between Registrant and __________ as Escrow
Agent. (To be filed with Pre-Effective Amendment # 1).
</TABLE>
II-4
<PAGE> 93
<TABLE>
<S> <C>
10.2 Entity Interest Agreement between the Company and USL.
10.3 Distributorship Agreement between the Company and USL and
amendments thereto.
10.4 Patent License Agreement dated June 3, 1995 between
OssaTronics, Inc. and HMT High Medical Technologies GmbH
along with amendments thereto.
10.4 (a) Patent Purchase Agreement between VISSH Voennomedicinsky
Institut and HMT.
10.4 (b) U.S. Patent Number 4.979.501 for a method and an apparatus
for medical treatment of the pathological state of bones.
10.4 (c) Provisional Patent Application for the use of acoustic
shockwaves, in the treatment of medical, dental and
veterinary conditions.
10.4 (d) U.S. Patent Number 5,595,178 for a system and an apparatus
for treatment of degenerative bone.
10.4 (e) Second Amendment to Patent License Agreement.
10.5 Distributorship and Manufacturing Agreements between the
Company and HMT for both the OssaTron(R) (11/22/94) and the
LithoTron(R) (1/24/96) and amendments to both agreements dated
March 1, 1996 and August 7, 1996.
10.6 The Company's 401 (k) plan.
10.7 Agreement dated February 15, 1995 between OssaTronics, Inc.,
John Warlick, Argil Wheelock, M.D., Karl-Heinz Restle and
Scott A. Cochran.
10.8 Manufacturing Agreement dated June 20, 1996 between the
Company and HMT.
10.9 Agreement and Plan of Share Exchange with HLE Corp.
10.10 Limited Partnership Agreement of US Lithotripsey, L.P.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Christopher J. Moran, Jr. (contained
in his opinion filed as Exhibit 5).
24.1 Power of Attorney (located on page II-8).
27.1 Financial Data Schedule.
99.1 Letter from FDA dated 6/13/97 approving the PMA for the
LithoTron(TM) Lithotripsy System, subject to certain
conditions.
</TABLE>
II-5
<PAGE> 94
ITEM 28 UNDERTAKINGS
The undersigned Company hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement: (I)
to include any prospectus required by Section 10(a)(3) of the Act;
(ii) to reflect in the Prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement; and (iii) to include any material
information with respect to the plan of distribution not previously
disclosed in the Registration Statement or any material change to such
information in the Registration Statement;
(2) That, for the purpose of determining any liability under the Act,
each such post-effective amendment shall be deemed to be a new
Registration Statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof; and
(3) To remove from registration by means of post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
Insofar as indemnification for liabilities arising under the Act may
be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions (See Item 24), 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 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 controlling person of the Company in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication
of such issue.
II-6
<PAGE> 95
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form SB-2 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Marietta, and the state of Georgia, on
November 9, 1998.
(Registrant).......................................HealthTronics, Inc.
By (Signature and Title)...........................Roy S. Brown
------------------
Roy S. Brown
President and Director
POWER OF ATTORNEY
Each person whose signature appears below hereby appoints Roy S. Brown as
his true and lawful attorney-in-fact and agent with full power of substitution,
for him and in his name, in any and all capacities, to sign any or all
amendments (including post-effective amendments) to the SB-2 Registration
Statement filed by HealthTronics, Inc., to file the same with the Securities
and Exchange Commission, hereby ratifying and confirming all that said
attorney-in-fact and agent may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on November 9, 1998.
<TABLE>
<CAPTION>
Signature Date Title
--------- ---- -----
<S> <C> <C>
Argil J. Wheelock, M.D. November 9, 1998 Chairman and CEO
- -----------------------
Argil J. Wheelock, M.D.
Roy S. Brown November 9, 1998 President, COO
- ----------------------- and Director
Roy S. Brown
John F. Warlick November 9, 1998 Executive Vice
- ----------------------- President
John F. Warlick
Scott Cochran November 9, 1998 Secretary/Treasurer
- ----------------------- and Director
Scott Cochran
Marie Marlow November 9, 1998 Vice President
- -----------------------
Marie Marlow
Joachim Voss November 9, 1998 Director
- -----------------------
Joachim Voss
Victoria Beck November 9, 1998 Chief Accounting
- ----------------------- Officer
Victoria Beck
</TABLE>
II-7
<PAGE> 96
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit Rule 403(d) Page Number
- ------ ---------------------- -----------------------
<S> <C>
1.1 Placement Agent Agreement
3.1 Articles of Incorporation of HealthTronics, Inc.
3.2 Restated By Laws of HealthTronics, Inc.
3.3 By Laws of OssaTronics, Inc.
3.4 Specimen Stock Certificate
3.5 Agreement and Plan of Merger of OssaTronics, Inc. into
HealthTronics, Inc.
5 Opinion of Christopher J, Moran, Jr., as to the legality of
the securities being registered.
10.1 Form of Escrow Agreement between Registrant and __________ as
Escrow Agent. (To be filed with Pre-Effective Amendment # 1).
10.2 Entity Interest Agreement between the Company and USL.
10.3 Distributorship Agreement between the Company and USL and
amendments thereto.
10.4 Patent License Agreement dated June 3, 1995 between
OssaTronics, Inc. and HMT High Medical Technologies GmbH
along with amendments thereto.
10.4 (a) Patent Purchase Agreement between VISSH Voennomedicinsky
Institut and HMT.
10.4 (b) U.S. Patent Number 4.979.501 for a method and an apparatus
for medical treatment of the pathological state of bones.
10.4 (c) Provisional Patent Application for the use of acoustic
shockwaves, in the treatment of medical, dental and
veterinary conditions.
10.4 (d) U.S. Patent Number 5,595,178 for a system and an apparatus
for treatment of degenerative bone.
10.4 (e) Second Amendment to Patent License Agreement.
10.5 Distributorship and Manufacturing Agreements between the
Company and HMT for both the OssaTron(R) (11/22/94) and the
LithoTron(R) (1/24/96) and amendments to both agreements dated
March 1, 1996 and August 7, 1996.
10.6 The Company's 401 (k) plan.
10.7 Agreement dated February 15, 1995 between OssaTronics, Inc.,
John Warlick, Argil Wheelock, M.D., Karl-Heinz Restle and
Scott A. Cochran.
</TABLE>
<PAGE> 97
<TABLE>
<S> <C>
10.8 Manufacturing Agreement dated June 20, 1996 between the
Company and HMT.
10.9 Agreement and Plan of Share Exchange with HLE Corp.
10.10 Limited Partnership Agreement of US Lithotripsey, L.P.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Christopher J. Moran, Jr. (contained
in his opinion filed as Exhibit 5).
24.1 Power of Attorney (located on page II-8).
27.1 Financial Data Schedule.
99.1 Letter from FDA dated 6/13/97 approving the PMA for the
LithoTron(TM) Lithotripsy System, subject to certain
conditions.
</TABLE>
<PAGE> 1
EXHIBIT 1.1
PLACEMENT AGENT AGREEMENT
To: Charles G. Maton, President
Capital Growth Management, Inc.
1827 Powers Ferry Road, Building #2
Atlanta, Georgia 30339
Dear Mr. Maton:
The undersigned, HealthTronics, Inc. a corporation formed pursuant to
the laws of the State of Georgia (the "Company") hereby confirms its agreement
("Agreement") with you as follows:
1. INTRODUCTION.
A. The Company is offering for sale an aggregate of 1,000,000
shares of its common stock at $6.00 per share through your firm as Placement
Agent and through a selected group of broker-dealers to be chosen by you who are
registered under the Securities Exchange Act of 1934 (the "Exchange Act") and
who are members in good standing of the National Association of Securities
Dealers, Inc. ("NASD") (Hereinafter this selected group of broker-dealers shall
be referred to as "Selected Dealers"). Each investor shall be required to
purchase a minimum of 100 shares. The offering is being made in accordance with
the Prospectus of the Company on file with the Securities and Exchange
Commission as may be amended from time to time (the "Prospectus"), a copy of
which is enclosed herewith.
B. The Company shall have the right to approve all Selected
Dealers selected by you (such selection to not be unreasonably withheld). If you
desire to participate as Placement Agent in the offer and sale of Company's
Common Stock, you should execute and return this Agreement to the Company at 425
Franklin Road, Suite 425, Marietta, Georgia 30067, attn. Mr. Roy S. Brown,
President. Upon approval and acceptance of this Agreement by the Company, this
Agreement will take effect.
2. MUTUAL REPRESENTATIONS AND WARRANTIES.
A. The Company represents and warrants to you that:
(i) The Company has delivered to you the Prospectus which
contains all the information authorized by the Company to be used in connection
with the offer and sale of its Common Stock.
(ii) The Company is duly organized and validly existing as
a corporation under the laws of the State of Georgia. The Company has all
requisite authority to own its properties and conduct its business as described
in the Prospectus, and the Company has all the power, authority, authorization,
approvals and orders to enter into this Agreement and to carry out the
provisions and conditions hereof.
(iii) The Company is not in violation of its Articles of
Incorporation or by-laws. Neither the execution and delivery of this Agreement,
the consummation of the transactions herein contemplated, nor compliance with
the terms, provisions or conditions of the Articles of Incorporation or by-laws
of the Company or delivery of this Agreement, nor compliance with the terms and
provisions hereof will conflict with, or result in a breach of, any of the
terms, provisions or conditions of the Articles of Incorporation of the Company
or any agreement or instrument to which the Company is a party or by which it is
or may be bound.
(iv) The stock, upon the payment therefor and issuance
thereof, will conform to all statements in relation thereto contained in the
Prospectus; will have the rights set forth in the Articles of Incorporation,
will be duly and validly authorized and issued, fully paid and nonassessable,
and the Company, upon such issuance, will have an authorized and issued
capitalization as set forth in the Prospectus.
(v) Within the past ten years, neither the Company nor any
of its affiliates, or any person directly or indirectly controlling, controlled
by or under common control with the Company, including any employee:
(a) Has been found by the SEC or any jurisdiction or
any court willfully to have made or caused to be made any statement which was,
at the time and in the light of the circumstances under which it was made, false
and misleading with respect to any material fact, or to have omitted to state
any material fact, which was required to be stated, in any application for
registration or report required to be filed under the federal securities laws or
under the securities laws of any jurisdiction relating to securities, the
conduct of business or registration as a broker, dealer, municipal securities
dealer, or investment adviser or associated person thereof;
(b) Has been convicted of any felony or misdemeanor (1)
involving the purchase or sale of any security, the taking of a false oath, the
making of a false report, bribery, perjury, burglary or conspiracy to commit any
such offense; (2) arising out of the conduct of the business of a broker,
dealer, municipal securities dealer, investment advisor, bank, insurance company
or fiduciary; (3) involving the larceny, theft, robbery, extortion, forgery
counterfeiting, fraudulent concealment, embezzlement, fraudulent conversion or
misappropriation of funds or securities; or (4) involving the violation of
Section 152, 1341, 1342 or 1343 or Chapter 25 or 47 of Title 18, United States
Code (concealment of assets, false oaths and claims, or bribery, in any
bankruptcy proceeding; mail fraud, fraud by wire, including telephone,
telegraph, radio or television; counterfeiting, forgery; fraud, false
statements, money laundering); or has pleaded nolo contendere to any such felony
or misdemeanor;
(c) is enjoined permanently, or has been enjoined
temporarily, by order, judgment or decree of any court of competent jurisdiction
from acting as an investment advisor, underwriter, broker, dealer or municipal
securities dealer, or as an associated person or employee of any of the
foregoing, or as an affiliated person or employee of a any investment company,
bank, or insurance company, or from engaging in or continuing any conduct or
practice in connection with the purchase or sale of any security, or arising out
of any securities or investment advisory activities;
(d) Has been found by the SEC or any jurisdiction or
any court to have violated or to have aided, abetted, counseled, commanded,
induced or procured the violation by any other person of the federal laws, or
the laws of any jurisdiction, relating to securities or relating to the conduct
of business as a broker, dealer, municipal securities dealer, investment advisor
or investment company, any rule or regulation under any of such laws, or any
rule of the Municipal Securities Rulemaking Board, or to have failed reasonably
to supervise another person who committed such a violation or to have been
unable to comply with any of the foregoing;
(e) Has been the subject of an order of the SEC entered
pursuant to Section 15(b), 15B(a), or 15B(c) or the Securities Exchange Act
of 1934, or Section 203(e) or (f) of the Investment Advisors Act of 1940 or is
subject to a United States Postal Service false representation order entered
under 39 U.S.C. Section 3005 within 5 years to November 15, 1994 or is subject
to a restraining order or preliminary injunction entered under 39 U.S.C.
Section 3007 with respect to conduct alleged to have violated 39 U.S.C. Section
3005;
(f) Has been denied membership or registration with, or
participation in, or has been suspended, revoked or expelled from membership,
participation in or registration with any self-regulatory organization; or has
been suspended or barred from being associated with any member of such
self-regulatory organization;
(g) Has been suspended, revoked or expelled from
registration (license) with the SEC or any jurisdiction (or any agency thereof)
as a broker, dealer, investment advisor, securities salesman, or municipal
securities dealer, or has been barred from being associated with a person
engaged in such business;
(h) Has been found to have been a cause of (1) the
denial, suspension, or revocation of any person's membership or participation
in, or registration with the SEC, any jurisdiction (or any agency thereof), or
any self-regulatory organization, (2) any bar or suspension of any person from
being associated with a broker, dealer, municipal securities dealer, or member
of a self-regulatory organization;
(i) Has been the subject of any cease and desist,
desist and refrain, prohibition, or similar order which was issued by the
United States or any jurisdiction arising out of the conduct of the business of
a broker, dealer, municipal securities dealer, or investment advisor; or
<PAGE> 2
(j) Has been the subject of any order, judgment, decree
or other sanction of a foreign court, foreign exchange, or foreign governmental
or regulatory agency arising out of any securities or investment advisory
activities.
(vi) The Company has no knowledge of any pending or threatened
claims which would result in any of the events specified in Paragraph 2 A (v).
B. You represent and warrant to the Company that:
(i) You have been duly organized and are validly
existing as a corporation under the laws of the State of Georgia. You have all
such power, authority, authorizations, approvals and orders to enter into this
Agreement and to carry out the provisions and conditions hereof.
(ii) You are, and will remain through the Date of
Closing, as hereinafter defined, and until all obligations hereunder to you or
on your behalf have been satisfied: (i) a broker-dealer registered with the
Securities and Exchange Commission (the "SEC") pursuant to the Exchange Act;
(ii) duly licensed as a broker-dealer in the State of Georgia and in those
states set forth on Exhibit A attached hereto; (iii) and are a member in good
standing of the NASD.
(iii) Within the past ten years, neither you nor your
affiliates, or any person directly or indirectly controlling, controlled by or
under common control with you, including any employee:
(a) Has been found by the SEC or any jurisdiction
or any court willfully to have made or caused to be made any statement which
was, at the time and in the light of the circumstances under which it was made,
false and misleading with respect to any material fact, or to have omitted to
state any material fact, which was required to be stated, in any application for
registration or report required to be filed under the federal securities laws or
under the securities laws of any jurisdiction relating to securities, the
conduct of business or registration as a broker, dealer, municipal securities
dealer, or investment advisor or associated person thereof;
(b) Has been convicted of any felony or misdemeanor
(1) involving the purchase or sale of any securities, the taking of a false
oath, the making of a false report, bribery, perjury, burglary or conspiracy to
commit any such offense; (2) arising out of the conduct of the business of a
broker, dealer, municipal securities dealer, investment advisor, bank, insurance
company or fiduciary; (3) involving the larceny, theft, robbery, extortion,
forgery, counterfeiting, fraudulent concealment, embezzlement, fraudulent
conversion or misappropriation of funds or securities; or (4) involving the
violation of Section 152, 1341, 1342 or 1343 or Chapter 25 or 47 of Title 18,
United States Code (concealment of assets, false oaths and claims, or bribery,
in any bankruptcy proceeding; mail fraud, fraud by wire, including telephone,
telegraph, radio or television; counterfeiting, forgery; fraud, false
statements, money laundering); or has pleaded nolo contendere to any such felony
or misdemeanor;
<PAGE> 3
(c) Is enjoined permanently, or has been enjoined
temporarily, by order, judgment or decree of any court of competent jurisdiction
from acting as an investment advisor, underwriter, broker, dealer or municipal
securities dealer, or as an associated person or employee of any of the
foregoing, or as an affiliated person or employee of any investment company,
bank, or insurance company, or from engaging in or continuing any conduct or
practice in connection with the purchase or sale of any security, or arising out
of any securities or investment advisory activities;
(d) Has been found by the SEC or any jurisdiction
or any court to have violated or to have violated or to have aided, abetted,
counseled, commanded, induced or procured the violation by any other person of
the federal laws, or the laws of any jurisdiction, relating to securities or
relating to the conduct of business as a broker, dealer, municipal securities
dealer, investment advisor or investment company, any rule or regulation under
any of such laws, or any rule of the Municipal Securities Rulemaking Board, or
to have failed reasonably to supervise another person who committed such a
violation or to have been unable to comply with any of the foregoing;
(e) Has been the subject of an order of the SEC
entered pursuant to Section 15(b), l5B(a), 15B(c) of the Securities Exchange Act
of 1934, or Section 203 (e) or (f) of the Investment Advisors Act of 1940 or is
subject to a United States Postal Service false representation order entered
under 39 U.S.C. Section 3005 within the past 5 years or is subject to a
restraining order or preliminary injunction entered under 39 U.S.C. Section 3007
With respect to conduct alleged to have violated 39 U.S.C. Section 3005;
(f) Has been denied membership or registration
with, or participation in, or has been suspended, revoked or expelled from
membership, participation in or registration with any self-regulatory
organization; or has been suspended or barred from being associated with any
member of such self-regulatory organization:
(g) Has been suspended, revoked or expelled from
registration (license) with the SEC or any jurisdiction (or any agency thereof)
as a broker, dealer, investment advisor, securities salesman, or municipal
securities dealer, or has been barred from being associated with a person
engaged in such business;
(h) Has been found to have been a cause of (1) the
denial, suspension, or revocation of any person's membership or participation
in, or registration with the SEC, any jurisdiction (or any agency thereof), or
any self-regulatory organization, (2) any bar or suspension of any person from
being associated with a broker, dealer, municipal securities dealer, or member
of a self-regulatory organization;
(i) Has been the subject of any cease and desist,
desist and refrain, prohibition, or similar order which was issued by the United
States or any jurisdiction arising out of the conduct of the business of a
broker, dealer, municipal securities dealer, or investment advisor; or
<PAGE> 4
(j) Has been the subject of any order, judgment,
decree or other sanction of a foreign court, foreign exchange, or foreign
governmental or regulatory agency arising out of any securities or investment
advisory activities.
(iv) You have no knowledge of any pending or threatened
claims which would result in any of the events specified in Paragraph 2 B (iii).
(v) You have not made, and will not make, any
representations in connection with the offering and sale of the Units other than
those set forth in the Prospectus or any amendment thereof or supplement
thereto, as approved by the Company, to any person.
(vi) All information furnished to the Company with
respect to you is true and correct and does not omit any material fact required
to make such information not misleading.
(vii) All actions, direct or indirect, by you and your
agents, employees and affiliates in connection with the offer and sale of the
Units pursuant to this Agreement will conform to The Securities Act of 1933 (the
"Act"), to Form SB-2 promulgated thereunder by the Securities and Exchange
Commission, the antifraud provisions of the Act, the antifraud provisions of the
Exchange Act, and to all applicable state securities laws and regulations.
3. COMPENSATION.
On the basis of the representations, warranties and agreements
herein contained, but subject to the terms and conditions herein set forth, the
Company hereby retains you as exclusive sales agent ("Placement Agent") to sell
the Company's Common Stock, and you agree to use your best efforts to effect
such sale. In addition, you further agree to use your best efforts to form and
manage, as Placement Agent and as dealer manager, a group of Selected Dealers
for the purpose of soliciting offers for the purchase of Stock. As compensation
for such services as Placement Agent, the Company agrees that it will pay to you
as a sales commission an amount equal to eight percent (8%) of the aggregate
sales price of the stock sold by you, the Company (the Issuer) or by Selected
Dealers and accepted and confirmed by the Company in all states in which you are
licensed to conduct business as a broker dealer. In addition, you shall also
receive reimbursement of your accountable expenses in an amount of up to one
percent (1%) of the aggregate sales price of the Stock. Next, you will receive
up to one percent (1%) of the aggregate sales price of the Stock for
non-accountable expenses. Such compensation is to be paid to you as set forth in
the "Use of Proceeds" and "Plan of Distribution" sections of the Prospectus and
upon the closing of the offering. You may reallot any or all of the
aforementioned concessions of the offering price of the Stock sold by each
dealer who has signed a Soliciting Dealers Agreement with you at your sole
discretion.
Further, the company hereby grants you Warrants to purchase its
Common Stock in an amount of one Warrant equaling one share of Common Stock for
each ten shares of Common Stock subscribed to in this underwriting. The exercise
price of the Warrants to be equal to 165% of the public offering price of the
company's Common Stock. The Warrants shall
<PAGE> 5
be exercisable at Capital Growth Management, Inc.'s (CGM's) sole discretion for
a period commencing no sooner than one year from the effective date of this
registration, nor later than four years from the effective date of this
registration. The Company hereby agrees that said Warrants may be assigned at
CGM's sole discretion, subject to applicable securities laws and regulations,
and the Company's execution of this underwriting agreement specifically ratifies
its acceptance to said assignment. The Warrants to be acquired by the Placement
Agent shall be restricted from sale, transfer, assignment or hypothecation for a
period of one year from the effective date of the offering, except to officers
or partners of the Placement Agent and members of the selling group or their
officers or partners.
The Company shall advance to you at the time of the signing of this
Agreement, the sum of $25,000 as an advance payment of accountable "due
diligence" expenses. In the event this offering is terminated prior to the sale
of the minimum offering, you shall be reimbursed only for your actual
accountable out-of-pocket expenses and any portion of the advance on the
accountable expense allowance not accounted for will be promptly refunded to the
Company.
4. TERMINATION OF OFFERING AND ESCROW ARRANGEMENTS.
Appropriate arrangements for placing the funds received from the sale
of the Stock in an escrow account with a bank duly authorized to transact
business in Atlanta, Georgia shall be made by the Company prior to the
commencement of the Offering hereunder. We will promptly provide you copies of
all said documents evidencing said account and provide you monthly statements
through the termination of this offering.
All investors will be instructed to make their checks payable to the
bank escrow agent by the Placement Agent no later than noon of the next business
day following receipt of such check.
This offering shall terminate on if the minimum offering is
not sold by that date. If the minimum offering has been sold by , the
offering may continue until, unless sooner terminated or extended by the
Company, but in no event will the offering continue beyond (the
"Termination Date")
5. SUBSCRIPTION DOCUMENTS.
You agree that you will submit to the Company all subscription
documents provided by the Company, executed in accordance with the Company's
instructions, by all persons desiring to subscribe for Units if provided
hereunder. The Company reserves the right to reject a subscription for good
faith reasons prior to the Termination Date.
6. OBLIGATIONS OF PLACEMENT AGENT LIMITED.
The undertaking by you to sell the Stock does not obligate you to
sell any of the Stock offered. Your services hereunder relate solely to the
offer and sale of the Stock, and you shall have no obligations to prepare, or to
participate in the preparation of, any reports or any returns of the Company.
<PAGE> 6
7. COVENANTS OF THE COMPANY AND THE PLACEMENT AGENT.
A. The Company covenants and agrees that:
(i) The Company will deliver to you such number of copies of
the Prospectus or any amendment or supplement thereto approved by the Company,
with all exhibits, as you may reasonable request for the purposes contemplated
by the Act.
(ii) If at any time any event occurs as a result of which, in
the opinion of the Company, the Prospectus would include an untrue statement of
material fact or, in view of the circumstances under which they were made, omit
to state any material fact necessary to make the statements therein not
misleading, the Company will notify you thereof (unless the information shall
have been received from you) and will effect the preparation of an amended or
supplemented Prospectus which will correct such statement or omission. The
Company will deliver to you as many copies of such amended or supplemented
Prospectus as you may reasonably request to be delivered to all subscribers.
(iii) After the Date of Closing (which may be prior to but may
not be subsequent to), unless extended by the Company (the "Closing Date) the
Company will admit as shareholders all subscribers of the Stock, accepted by the
Company at its sole discretion, in accordance with the description of the
procedures set forth in the Prospectus and the Articles of Incorporation.
(iv) The Company will endeavor in good faith, in cooperation
with you, prior to the Date of Closing, to "Blue Sky" the offer and sale of the
Stock under the securities laws in such states and jurisdictions as you deem
necessary.
B. You covenant and agree that you and all of your agents,
representatives and employees will:
(i) Comply with all requirements imposed upon you by the
Act, by the Regulations thereunder, and by all applicable state securities laws
and regulations, to permit the continuance of offers and sales of the Stock, in
accordance with the provisions hereof and the Prospectus;
(ii) Offer and/or sell the Stock only to persons who
represent and who you have reason to believe meet the suitability standards of
the National Association of Securities Dealers, Inc. and of the North American
Securities Administrators Association. You will deliver a Prospectus, and any
amendments or supplements thereto, to each offeree at the time such offer is
made;
(iii) Cooperate with the Company to ensure that the offering
and sale of Stock complies with the requirements of the federal securities laws
and the state securities or "Blue Sky" laws of the states or jurisdictions in
which this offering is sold, and you will not
<PAGE> 7
make an offer or sale of Shares in any jurisdiction without prior written
authorization from Mr. Roy S. Brown, President of the Company. You will report
periodically to Mr. Roy S. Brown, President of the Company with respect to the
status of the offering being conducted pursuant to this Agreement.
(iv) Not make an offer of Stock on the basis of any
communications or documents relating to the Company, except by the Prospectus
and the exhibits thereto and documents described or referred to therein and
other information provided by the Company at the request of an offeree;
(v) Obtain a completed Subscription Agreement from each
purchaser to who Stock is sold;
(vi) Return to the Company all surplus copies of the
Prospectus and other offering documents upon termination of the offering,
whether or not the offering closes on the terms and at the time set forth in the
Prospectus;
(vii) Offer the Stock for sale, or solicit offers to
subscribe for or buy the Stock, only in such manner and in such circumstances as
are consistent with "Blue Sky" laws of the jurisdictions you are duly licensed
in;
(viii) Deliver to the Company upon closing of the offering
your certificate to the effect that all your representations and warranties as
set forth herein are true and correct as if made on the Date of Closing, a
schedule setting forth herein are true and correct as if made on the Date of
Closing, a schedule setting forth the identity and state of residence of each
offeree of Units, which shall also indicate thereon each of the purchasers of
the Stock and such other matters as the Company may reasonably request; and
(ix) Promptly transmit to the bank any and all checks
received from investors or from Selected Dealers no later than noon of the next
business day following receipt of such check.
9. INDEMNIFICATION.
A. The Company will indemnify and hold you harmless against any
losses, claims, damages or liabilities which you may suffer insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon any untrue statement or alleged untrue statement of any
material fact contained in the Prospectus or any amendment or supplement
thereto, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statement therein in light of the circumstances under which they were made
not misleading; and will reimburse you for any legal or other expenses
reasonably incurred by you in connection with investigating or defending any
such action or claim; provided, however, that the Company shall not be liable in
any such case to the extent that any such loss, claim, damage or liability
arises out of or is based
<PAGE> 8
upon any misrepresentation or breach of warranty by you hereunder or an alleged
omission made in the Prospectus or any amendment or supplement thereto in
reliance upon and in conformity with information furnished to the Company by
you.
B. You agree to indemnify the Company and hold it harmless
against any losses, claims, damages or liabilities (including, without
limitation, any liabilities to Selected Dealers participating in the offer and
sale of the Stock) to which the Company may become subject, (i) under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Prospectus or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein in light of the
circumstances under which they were made not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in the Prospectus or any
amendment or supplement thereto in reliance upon and in conformity with the
information furnished to us by you; or (ii) under the Act or otherwise, for any
breach of any of the provisions of Paragraph 2(B); or (iii) under the Act or
otherwise, for any unauthorized verbal or written representations made by you,
your agents, employees or affiliates in connection with the offer and sale of
the Units; or (iv) any sale of the Stock by you, your agents, employees or
affiliates in violation of section 4(2) of the Act, Regulation D promulgated
thereunder, the antifraud provisions of the federal securities laws, or any
applicable state securities laws and the antifraud provisions thereof; and to
reimburse us for any legal or other expenses reasonably incurred by us in
connection with the investigation or defense of any such action or claim.
10. REPRESENTATIONS AND AGREEMENTS TO SURVIVE SALE AND PAYMENT.
Except as the context otherwise requires, all representations,
warranties and agreements contained in this Agreement shall be deemed to be
representations, warranties and agreements at the Date of Closing; and such
representations, warranties and agreement of you and the Company shall remain
operative and in full force and effect regardless of any investigation made by
your or on your behalf, or any controlling person, or by or on behalf of the
Company or any controlling person, or by or on behalf of the Company or any
controlling person, and shall survive the sale of, and payment for, the Stock.
11. NOTICES.
All notices provided for by this Agreement shall be made in
writing either (i) by actual delivery OF THE NOTICE INTO the hands of the
parties thereunto entitled, or (ii) by the mailing of the notice in the United
States mail to the address, as stated below (or at such other address as may
have been designated by written notice), or the party entitled thereto, by
certified or registered mail, return receipt requested. The notice shall be
deemed to be received in case (i) on the date of its actual receipt by the party
entitled thereto; and, in case (ii) on the date of deposit in the United States
mails.
<PAGE> 9
All communications hereunder, except as herein otherwise
specifically provided, shall be in writing and, if sent to you, shall be mailed
or delivered to you at 1827 Powers Ferry Road, Building #2, Atlanta, GA 30339,
attn. Charles G. Maton, and if sent to the Company, shall be mailed or
delivered, to the address in Paragraph 1(B) of this Agreement marked: Attn. Roy
S. Brown, President.
12. CONSTRUCTION.
This Agreement shall be governed by, subject to, and construed in
accordance with the laws of the State of Georgia.
13. SEVERABILITY.
If any portion of this Agreement shall be held invalid or
inoperative, then, so far as is reasonable and possible, (i) the remainder of
this Agreement shall be considered valid and operative, and (ii) effect shall be
given to the intent manifested by the portion held invalid or inoperative.
14. MULTIPLE COUNTERPARTS.
This Agreement may be executed in a number of identical
counterparts, each of which shall be deemed to be an original, but all of which
constitute, collectively, one and the same agreement; but in making proof of
this Agreement, it shall not be necessary to produce or account for more than
one such counterpart.
15. MODIFICATION OR AMENDMENT.
This Agreement may not be modified or amended except by written
agreement executed by the parties hereto.
16. NUMBER AND GENDER OF WORDS.
Whenever the context so requires, the masculine shall include the
feminine and neuter, and the singular shall include the plural, and conversely.
17. OTHER INSTRUMENTS.
The parties hereto covenant and agree that they will execute such
other and further instruments and documents as are or may become necessary or
convenient to effectuate and carry out this Agreement.
<PAGE> 10
18. CAPTIONS.
The captions used in this Agreement are for convenience only and
shall not be construed in interpreting this Agreement.
19. PARTIES.
This Agreement shall be binding upon and inure solely to the
benefit of the parties hereto, the controlling persons referred to in Section 10
hereof, and their respective successors, legal representatives and assigns, and
no other person shall have or be construed to have any legal or equitable right,
remedy or claim under or in respect of or by virtue of this agreement or any
provision herein contained.
20. CLOSING DATE.
This offering shall close on ________________ unless extended by
the Company or such earlier date as 83,334 shares have been sold (the "Closing
Date"). The initial closing shall be upon the receipt into the escrow account of
$500,004.00 from the sale of Shares (the "Initial Closing Date"). The Initial
Closing Date shall be no later than _____________________. If an aggregate of
$500,004.00 from the sale of shares has not been deposited into the escrow
account by the Initial Closing Date, this Offering will be terminated and all
funds returned to investors. Thereafter, closings shall be held in each month
that sales of Stock have been made.
(THE REMAINDER OF THIS PAGE IS LEFT INTERNATIONALLY BLANK)
<PAGE> 11
21. ENTIRE AGREEMENT.
This Agreement contains the entire understanding between the
parties and supersedes any prior understanding between the parties and
supersedes any prior written or oral agreements between them respecting the
subject matter hereof.
If the foregoing correctly sets forth the understanding between you
and the Company, please so indicate in the space below for that purpose and
return this Agreement to the Company and, upon approval and acceptance by the
Company, this letter shall constitute a binding agreement between us.
Very truly yours,
HealthTronics, Inc.
(the "Company")
By: /s/ Roy S. Brown
--------------------------------------
Roy S. Brown, President
Accepted:
7-13-98
--------------------------------------
Date
Capital Growth Management, Inc.
(the "Placement Agent")
By:
--------------------------------------
Charles G. Maton, President
--------------------------------------
Date of Acceptance
<PAGE> 12
EXHIBIT "A"
I) States in which Capital Growth Management, Inc. is currently pending
or approved as a Broker/Dealer as of April 01, 1998
Alabama
Arkansas
Arizona
California
Colorado
Florida
Georgia
Illinois
Kansas
Maryland
Michigan
Minnesota
Missouri
Mississippi
North Carolina
New Jersey
New York
Ohio
Oklahoma
Oregon
Pennsylvania
South Carolina
Tennessee
Texas
Virginia
Wisconsin
<PAGE> 1
EXHIBIT 3.1
ARTICLES OF INCORPORATION
OF
HEALTHTRONICS, INC.
I.
The name of the Corporation is HEALTHTRONICS, INC.
II.
The Corporation is authorized to issue 1,000,000 shares of common
stock.
III.
The initial registered office of the Corporation is Suite 250, 53
Perimeter Center East, Atlanta, Georgia 30346. The initial registered agent of
the Corporation at said address is George W. Warlick.
IV.
The name and address of the incorporator of the Corporation is:
NAME ADDRESS
---- -------
George W. Warlick Suite 250, 53 Perimeter Center East
Atlanta, Georgia 30346
V.
The mailing address of the initial principal office of the
Corporation is 13 West Park Square, Marietta, GA 30060.
VI.
No director of the Corporation shall have any personal liability to
the Corporation or its shareholder(s) for monetary damages for breach of duty
of care or the other duties of a director; provided, however, that this
provision shall not eliminate the liability of a director (1) for any
appropriation, in
<PAGE> 2
violation of his or her duties, of any business opportunity of the Corporation,
(2) for acts or omissions which involve intentional misconduct or a knowing
violation of law, or (3) for any transaction from which the director derived an
improper personal benefit.
IN WITNESS WHEREOF, the undersigned executes these Articles of
Incorporation on December 1, 1995.
/s/ GEORGE W. WARLICK
-----------------------
GEORGE W. WARLICK
Incorporator
<PAGE> 1
EXHIBIT 3.2
RESTATED BYLAWS
OF
HEALTHTRONICS, INC.
(AMENDED AS A RESULT OF THE DECEMBER 5, 1997 SHAREHOLDERS MEETING.)
ARTICLE ONE
CAPITAL STOCK
1.1 Certificates. The Board of Directors ("Board of Directors" or "Board")
of OssaTronics, Inc. ( the "Corporation") may authorize the issuance of some or
all of the shares of any or all of the Corporation's classes or series without
issuing certificates to represent such shares. When shares are represented by
certificates, at a minimum, each share certificate shall state on its face:
(1) the name of the Corporation and that the Corporation is
organized under the laws of Georgia;
(2) the name of the person to whom the shares are issued; and
(3) the number and class of shares and the designation of the series,
if any, that the certificate represents. Share certificates shall be numbered
in the order in which they are issued, kept in a stock transfer book, and
issued in consecutive order therefrom. Share certificates shall be signed, by
the President.
When shares are not represented by certificates, within a reasonable time
after the issue or transfer of such shares, the Corporation shall send the
shareholder to whom such shares have been issued a written statement of the
information required to be on certificates, as specified above.
1.2 Transfers. Transfers of shares shall be made on the stock book of the
Corporation by the holder, in person or by power of attorney, on surrender of
the duly assigned certificate representing such shares (if the shares are
represented by a certificate). If the shares are not represented by a
certificate, then the transferee shall provide the Corporation a written
statement of the information required to be on certificates, as specified in
section 1.1 of these bylaws.
1.3 Voting Rights. Each outstanding share, regardless of class, shall be
entitled to one vote, except as provided in subsections (b) and (c) of O.C.G.A.
ss. 14-2-721 (GCA ss. 22-721) of the Georgia Business Corporation Code (the
"Code") or unless otherwise provided in the articles of incorporation.
<PAGE> 2
ARTICLE TWO
SHAREHOLDERS' MEETINGS
2.1 Date of Annual Meeting. The annual meeting for the shareholders
of the corporation shall occur during the first fiscal quarter during each year
at a time designated by the Board.
2.2 Place, Time, and Notice of Annual and Special Meetings. Annual or
special meetings of shareholders may be held within or without the State of
Georgia at such place and time as the Board of Directors may from time to time
fix or as may be specified in the notice of said meeting, upon no fewer than
ten nor more than sixty days notice either mailed to the last known address of
each shareholder or personally given to each shareholder.
2.3 Special Meetings. Special meetings of the shareholders may be
called at any time by the Board of Directors, the President, or by any holder
or holders of at least 25% of all the votes entitled to be cast on any issue
proposed to be considered at the proposed special meeting. Notice of any
special meeting of shareholders shall state the purpose or purposes for which
the meeting is called.
2.4 Waiver of Notice. A shareholder may waive any notice required by
the Code, the articles of incorporation, or these bylaws before or after the
date and time of the required notice. The waiver must be in writing, signed by
the shareholder entitled to notice, and delivered to the Corporation for
inclusion in the minutes or filing with the corporate records. No such waiver
of notice of a shareholders' meeting with respect to an amendment of the
articles of incorporation pursuant to O.C.G.A. ss. 14-2-1003, a plan of merger
or share exchange pursuant to O.C.G.A. ss. 14-2-1103 a sale of assets pursuant
to O.C.G.A. ss. 14-2-1202, or any other action which would entitle the
shareholder to dissent pursuant to O.C.G.A. ss. 14-2-1302 shall be effective
unless the provisions of paragraphs (1) or (2) of subsection (c) of O.C.G.A.
ss. 14-2-706 are followed. Attendance at a meeting waives objection (1) to
notice or defective notice of a meeting unless the shareholder at the beginning
of the meeting objects to holding the meeting or transacting business at the
meeting; and (2) to consideration of a particular matter at the meeting that is
not within the purpose or purposes described in the meeting notice, unless the
shareholder objects to considering the matter when it is presented.
2.5 Quorum and Action of Shareholders. At all meetings of the
shareholders, a majority of the votes entitled to be cast on a matter by a
voting group shall constitute a quorum of that voting group for action on that
matter, unless the articles of incorporation, or a provision of these bylaws
approved by shareholders, or the Code provides otherwise. Once a share is
represented for any purpose at a meeting, other than solely to object to
holding the meeting or transacting business at the meeting, it is deemed
present for quorum purposes for the remainder of the meeting and for any
adjournment of that meeting unless a new record date is or must be set for
<PAGE> 3
that adjourned meeting. If a quorum exists, action on a matter (other than the
election of directors) by a voting group is approved if the votes cast within
the voting group favoring the action exceed the votes cast opposing the action,
unless the Code, the articles of incorporation, or a provision of these bylaws
adopted by the shareholders under O.C.G.A. ss. 14-2-1021 requires a greater
number of affirmative votes.
2.6 Adjournment of Meeting. The holders of a majority of the voting
shares represented at a meeting, whether or not a quorum is present, may adjourn
such meeting from time to time.
2.7 Action Without a Meeting. Any action required or permitted by the
Code to be taken at a shareholders' meeting may be taken without a meeting if
all the shareholders entitled to vote on such action, or the appropriate
percentage of shareholders designated in the articles of incorporation, sign one
or more written consents describing the action taken and the consents are
delivered to the Corporation for inclusion in the minutes or filing with the
corporate records. No such written consent shall be valid unless the provisions
of O.C.G.A. ss. 14-2-704(b) (GCA ss. 22-704) are followed.
ARTICLE THREE
DIRECTORS
3.1 Corporate Power and Authority. All corporate powers shall be
exercised by or under the authority of, and the business and affairs of the
Corporation managed under the direction of, the Board of Directors, subject to
any limitation set forth in the articles of incorporation, bylaws approved by
the shareholders, or lawful agreements among the shareholders.
3.2 Number and Term. The Board of Directors shall consist of not less
than five (5) nor more than nine (9) members. The Board of Directors shall have
the authority to appoint board members to vacant board positions to fill
unexpired terms. The terms of all directors shall expire at the annual
shareholders' meeting two years following a director's election and until a
qualified successor shall be elected or until such director's death,
resignation, incapacity to serve, or removal. Directors need not be
shareholders.
3.3 Quorum and Action. A majority of the directors shall constitute a
quorum for the transaction of business unless the Code, the articles of
incorporation, or a provision of these bylaws authorizes a greater number. If a
quorum is present when a vote is taken, the affirmative vote of a majority of
the directors present at a meeting is the act of the Board, unless the articles
of incorporation or a provision of these bylaws requires the vote of a greater
number of directors.
3.4 Vacancies. Unless the articles of incorporation or a provision of
these bylaws approved by the shareholders provides otherwise, if a vacancy
occurs on the Board
<PAGE> 4
of Directors, including a vacancy resulting from an increase in the number of
directors, the shareholders or the Board of Directors may fill the vacancy,
whichever group shall act first. If the directors remaining in office do not
constitute a quorum of the Board, the directors may fill the vacancy by the
affirmative vote of a majority of all the directors remaining in office.
3.5 Notice, Waiver of Notice. The directors shall meet annually,
without notice required of the date, time, place, or purpose of the meeting, at
the same place as and following the annual meeting of the shareholders. Special
meetings of the directors may be called at any time by the President or by any
two directors, on at least two days' notice, which notice shall specify the
date, time, and place of the meeting. The notice need not state the purpose of
the special meeting. A director may waive any notice required by the Code, the
articles of incorporation, or these bylaws before or after the date and time of
the required notice. The waiver must be in writing, signed by the director
entitled to the notice, and delivered to the Corporation for inclusion in the
minutes or filing with the corporate records. A director's attendance at or
participation in a meeting waives any required notice unless the director at the
beginning of the meeting (or promptly upon arrival) objects to holding the
meeting or transacting business at the meeting and does not thereafter vote for
or assent to action taken at the meeting.
3.6 Action Without Meeting. Unless the articles of incorporation or a
provision of these bylaws provides otherwise, any action required or permitted
by the Code to be taken at a Board of Directors' meeting may be taken without a
meeting, if the action is taken by all members of the Board. The action must be
evidenced by one or more written consents describing the action taken, signed by
each director, and delivered to the Corporation for inclusion in the minutes or
filing with the corporate records.
3.7 Removal by Shareholders. The shareholders may remove one or more
directors from office, with or without cause, by a majority of the votes
entitled to be cast unless the articles of incorporation or a provision of these
bylaws adopted by the shareholders provides otherwise.
ARTICLE FOUR
OFFICERS
4.1 Officers. The officers of the Corporation may consist of a
President, a Secretary, and a Treasurer. The officers shall be appointed by the
directors or by any duly appointed officer who is designated by the Board to
appoint one or more officers or assistant officers.
4.2 President. The President shall be the chief executive officer of
the Corporation and shall have general and active management of the operation of
the
<PAGE> 5
Corporation. The President shall be responsible for the administration of the
Corporation, including general supervision of the policies of the Corporation,
general and active management of the financial affairs of the Corporation, and
shall execute bonds, mortgages, or other contracts under the seal of the
Corporation. The President shall perform such other duties and have such other
powers as the Board of Directors may from time to time delegate.
4.3 Secretary. The Secretary shall keep minutes of all meetings of the
shareholders and directors and have charge of the minutes books, stock books,
and seal of the Corporation, shall authenticate all documents, as needed, and
shall perform such other duties and have such other powers as the President or
the Board of Directors may from time to time delegate.
4.4 Treasurer. The Treasurer shall be charged with the management of
the financial affairs of the Corporation and shall have the power to recommend
to the President action concerning the Corporation's affairs.
4.5 Assistant Officers. Assistants to the Secretary and Treasurer or
other officers may be appointed by the President or other duly designated
officer, and shall have such duties as the President or other duly designated
officer or the Board of Directors shall delegate.
4.6 Vice Presidents. The Corporation may have one or more Vice
Presidents, appointed by the Board of Directors, or other duly designated
officer, who shall perform such duties as the President or the Board of
Directors may delegate.
4.7 Disallowed Payments. Any payments made to an officer of the
Corporation such as commission, bonus, interest, rent, or entertainment expense
incurred by such officer, which shall be disallowed in whole or in part as a
deductible expense by the Internal Revenue Service, shall be reimbursed by such
officer to the Corporation to the full extent of such disallowance. It shall be
the duty of the directors, as a Board, to enforce payment by the officer of each
such amount disallowed. In lieu of payment by the officer, subject to the
determination of the directors, proportionate amounts may be withheld from
future compensation payments until the amount owed to the Corporation has been
recovered.
4.8 Removal. The Board of Directors may remove any officer at any
time, with or without cause.
ARTICLE FIVE
SEAL
The seal of the Corporation shall be in such form as the Board of Directors
may from time to time determine. In the event it is inconvenient to use such a
seal at any time, the signature of the Corporation followed by the word "Seal"
enclosed in
<PAGE> 6
ARTICLES OF AMENDMENT
OF
HEALTHTRONICS, INC.
Pursuant to O.C.G.A. ss. 14-2-1006 (GCA ss. 22-1006) of the Georgia
Business Corporation Code, HealthTronics, Inc., a Georgia corporation, hereby
submits the following Articles of Amendment:
1.
The name of the corporation is HealthTronics, Inc. (the "Corporation") and
the charter number of the Corporation is 9535640.
2.
The Articles of Incorporation are hereby amended (the "Amendment") as
follows:
II. The corporation is authorized to issue 30 million shares of common
stock, with no par value.
VII. No shareholder shall have preemptive rights. To the extent that
preemptive rights existed prior to this amendment. the same are
abolished.
3.
The Amendment was duly adopted on December 5, 1997.
4.
The foregoing Amendment was duly approved by the shareholders of the
Corporation in accordance with the provisions of O.C.G.A. ss. 14-2-1003 (GCA
ss. 22-1003) of the Georgia Corporation Code.
IN WITNESS WHEREOF, HealthTronics, Inc. has caused these Articles of
Amendment to be executed by its duly authorized officers on this 5 day of
December, 1997.
HEALTHTRONICS, INC.
By: /s/ Scott A. Cochran
--------------------------
SCOTT A. COCHRAN
Secretary
<PAGE> 7
MEMO
To: R. Brown, J. Warlick, A. Wheelock
From: Vikki Beck
Date: January 5, 1998
Re: Amendment to Bylaws and Restated Bylaws
For your information attached is a copy of the Articles of Amendment and the
Restated Bylaws for HealthTronics as prepared by Scott Cochran. The originals
are on file in his office.
<PAGE> 1
EXHIBIT 3.3
BYLAWS
OF
OSSATRONICS, INC.
ARTICLE ONE
CAPITAL STOCK
1.1 Certificates. The Board of Directors ("Board of Directors" or
"Board") of OssaTronics, Inc. (the "Corporation") may authorize the issuance of
some or all of the shares of any or all of the Corporation's classes or series
without issuing certificates to represent such shares. When shares are
represented by certificates, at a minimum, each share certificate shall state on
its face:
(1) the name of the Corporation and that the Corporation is
organized under the laws of Georgia;
(2) the name of the person to whom the shares are issued; and
(3) the number and class of shares and the designation of the
series, if any, that the certificate represents. Share certificates shall be
numbered in the order in which they are issued, kept in a stock transfer book,
and issued in consecutive order therefrom. Share certificates shall be signed,
by the President.
When shares are not represented by certificates, within a reasonable
time after the issue or transfer of such shares, the Corporation shall send the
shareholder to whom such shares have been issued a written statement of the
information required to be on certificates, as specified above.
1.2 Transfers. Transfers of shares shall be made on the stock book of
the Corporation by the holder, in person or by power of attorney, on surrender
of the duly assigned certificate representing such shares (if the shares are
represented by a certificate). If the shares are not represented by a
certificate, then the transferee shall provide the Corporation a written
statement of the information required to be on certificates, as specified in
section 1.1 of these bylaws.
1.3 Voting Rights. Each outstanding share, regardless of class, shall
be entitled to one vote, except as provided in subsections (b) and (c) of
O.C.G.A. ss. 14-2-721 (GCA ss. 22-721) of the Georgia Business Corporation Code
(the "Code") or unless otherwise provided in the articles of incorporation.
<PAGE> 2
ARTICLE TWO
SHAREHOLDERS' MEETINGS
2.1 Date of Annual Meeting. The annual meeting the shareholders of the
Corporation shall be on the first Friday in December of each year, or, if such
day is a legal holiday, then on the next succeeding day that is not a holiday.
2.2 Place, Time, and Notice of Annual and Special Meetings. Annual or
special meetings of shareholders may be held within or without the State of
Georgia at such place and time as the Board of Directors may from time to time
fix or as may be specified in the notice of said meeting, upon no fewer than ten
nor more than sixty days notice either mailed to the last known address of each
shareholder or personally given to each shareholder.
2.3 Special Meetings. Special meetings of the shareholders may be
called at any time by the Board of Directors, the President, or by any holder or
holders of at least 25% of all the votes entitled to be cast on any issue
proposed to be considered at the proposed special meeting. Notice of any special
meeting of shareholders shall state the purpose or purposes for which the
meeting is called.
2.4 Waiver of Notice. A shareholder may waive any notice required by
the Code, the articles of incorporation, or these bylaws before or after the
date and time of the required notice. The waiver must be in writing, signed by
the shareholder entitled to notice, and delivered to the Corporation for
inclusion in the minutes or filing with the corporate records. No such waiver of
notice of a shareholders' meeting with respect to an amendment of the articles
of incorporation pursuant to O.C.G.A. ss. 14-2-1003, a plan of merger or share
exchange pursuant to O.C.G.A. ss. 14-2-1103 a sale of assets pursuant to
O.C.G.A. ss. 14-2-1202, or any other action which would entitle the shareholder
to dissent pursuant to O.C.G.A. ss. 14-2-1302 shall be effective unless the
provisions of paragraphs (1) or (2) of subsection (c) of O.C.G.A. ss. 14-2-706
are followed. Attendance at a meeting waives objection (1) to notice or
defective notice of a meeting unless the shareholder at the beginning of the
meeting objects to holding the meeting or transacting business at the meeting;
and (2) to consideration of a particular matter at the meeting that is not
within the purpose or purposes described in the meeting notice, unless the
shareholder objects to considering the matter when it is presented.
2.5 Quorum and Action of Shareholders. At all meetings of the
shareholders, a majority of the votes entitled to be cast on a matter by a
voting group shall constitute a quorum of that voting group for action on that
matter, unless the articles of incorporation, or a provision of these bylaws
approved by shareholders, or the Code provides otherwise. Once a share is
represented for any purpose at a meeting, other than solely to object to holding
the meeting or transacting business at the meeting, it is deemed present for
quorum purposes for the remainder of the meeting and for any adjournment of that
meeting unless a new record date is or must be set for that adjourned meeting.
If a quorum exists, action on a matter (other than the election
<PAGE> 3
of directors) by a voting group is approved if the votes cast within the voting
group favoring the action exceed the votes cast opposing the action, unless the
Code, the articles of incorporation, or a provision of these bylaws adopted by
the shareholders under O.C.G.A. ss. 14-2-1021 requires a greater number of
affirmative votes.
2.6 Adjournment of Meeting. The holders of a majority of the voting
shares represented at a meeting, whether or not a quorum is present, may adjourn
such meeting from time to time.
2.7 Action Without a Meeting. Any action required or permitted by the
Code to be taken at a shareholders' meeting may be taken without a meeting if
all the shareholders entitled to vote on such action, or the appropriate
percentage of shareholders designated in the articles of incorporation, sign one
or more written consents describing the action taken and the consents are
delivered to the Corporation for inclusion in the minutes or filing with the
corporate records. No such written consent shall be valid unless the provisions
of O.C.G.A. ss. 14-2-704(b) (GCA ss. 22-704) are followed.
ARTICLE THREE
DIRECTORS
3.1 Corporate Power and Authority. All corporate powers shall be
exercised by or under the authority of, and the business and affairs of the
Corporation managed under the direction of, the Board of Directors, subject to
any limitation set forth in the articles of incorporation, bylaws approved by
the shareholders, or lawful agreements among the shareholders.
3.2 Number and Term. The Board of Directors shall consist of Five (5)
members. The terms of the initial directors shall expire at the first
shareholders' meeting at which directors are elected. The terms of all other
directors shall expire at the next annual shareholders' meeting following a
director's election and until a qualified successor shall be elected or until
such director's death, resignation, incapacity to serve, or removal. Directors
need not be shareholders.
3.3 Quorum and Action. A majority of the directors shall constitute a
quorum for the transaction of business unless the Code, the articles of
incorporation, or a provision of these bylaws authorizes a greater number. If a
quorum is present when a vote is taken, the affirmative vote of a majority of
the directors present at a meeting is the act of the Board, unless the articles
of incorporation or a provision of these bylaws requires the vote of a greater
number of directors.
3.4 Vacancies. Unless the articles of incorporation or a provision of
these bylaws approved by the shareholders provides otherwise, if a vacancy
occurs on the Board of Directors, including a vacancy resulting from an increase
in the number of
<PAGE> 4
directors, the shareholders or the Board of Directors may fill the vacancy,
whichever group shall act first. If the directors remaining in office do not
constitute a quorum of the Board, the directors may fill the vacancy by the
affirmative vote of a majority of all the directors remaining in office.
3.5 Notice, Waiver of Notice. The directors shall meet annually,
without notice required of the date, time, place, or purpose of the meeting, at
the same place as and following the annual meeting of the shareholders. Special
meetings of the directors may be called at any time by the President or by any
two directors, on at least two days' notice, which notice shall specify the
date, time, and place of the meeting. The notice need not state the purpose of
the special meeting. A director may waive any notice required by the Code, the
articles of incorporation, or these bylaws before or after the date and time of
the required notice. The waiver must be in writing, signed by the director
entitled to the notice, and delivered to the Corporation for inclusion in the
minutes or filing with the corporate records. A director's attendance at or
participation in a meeting waives any required notice unless the director at the
beginning of the meeting (or promptly upon arrival) objects to holding the
meeting or transacting business at the meeting and does not thereafter vote for
or assent to action taken at the meeting.
3.6 Action Without Meeting. Unless the articles of incorporation or a
provision of these bylaws provides otherwise, any action required or permitted
by the Code to be taken at a Board of Directors' meeting may be taken without a
meeting, if the action is taken by all members of the Board. The action must be
evidenced by one or more written consents describing the action taken, signed by
each director, and delivered to the Corporation for inclusion in the minutes or
filing with the corporate records.
3.7 Removal by Shareholders. The shareholders may remove one or more
directors from office, with or without cause, by a majority of the votes
entitled to be cast unless the articles of incorporation or a provision of these
bylaws adopted by the shareholders provides otherwise.
ARTICLE FOUR
OFFICERS
4.1 Officers. The officers of the Corporation may consist of a
President, a Secretary, and a Treasurer. The officers shall be appointed by the
directors or by any duly appointed officer who is designated by the Board to
appoint one or more officers or assistant officers.
4.2 President. The President shall be the chief executive officer of
the Corporation and shall have general and active management of the operation of
the Corporation. The President shall be responsible for the administration of
the Corporation, including general supervision of the policies of the
Corporation, general
<PAGE> 5
and active management of the financial affairs of the Corporation, and shall
execute bonds, mortgages, or other contracts under the seal of the Corporation.
The President shall perform such other duties and have such other powers as the
Board of Directors may from time to time delegate.
4.3 Secretary. The Secretary shall keep minutes of all meetings of the
shareholders and directors and have charge of the minutes books, stock books,
and seal of the Corporation, shall authenticate all documents, as needed, and
shall perform such other duties and have such other powers as the President or
the Board of Directors may from time to time delegate.
4.4 Treasurer. The Treasurer shall be charged with the management of
the financial affairs of the Corporation and shall have the power to recommend
to the President action concerning the Corporation's affairs.
4.5 Assistant Officers. Assistants to the Secretary and Treasurer or
other officers may be appointed by the President or other duly designated
officer, and shall have such duties as the President or other duly designated
officer or the Board of Directors shall delegate.
4.6 Vice Presidents. The Corporation may have one or more Vice
Presidents, appointed by the Board of Directors, or other duly designated
officer, who shall perform such duties as the President or the Board of
Directors may delegate.
4.7 Disallowed Payments. Any payments made to an officer of the
Corporation such as commission, bonus, interest, rent, or entertainment expense
incurred by such officer, which shall be disallowed in whole or in part as a
deductible expense by the Internal Revenue Service, shall be reimbursed by such
officer to the Corporation to the full extent of such disallowance. It shall be
the duty of the directors, as a Board, to enforce payment by the officer of each
such amount disallowed. In lieu of payment by the officer, subject to the
determination of the directors, proportionate amounts may be withheld from
future compensation payments until the amount owed to the Corporation has been
recovered.
4.8 Removal. The Board of Directors may remove any officer at any
time, with or without cause.
ARTICLE FIVE
SEAL
The seal of the Corporation shall be in such form as the Board of
Directors may from time to time determine. In the event it is inconvenient to
use such a seal at any time, the signature of the Corporation followed by the
word "Seal" enclosed in parentheses or scroll, shall be deemed the seal of the
Corporation. The seal shall be in the custody of the Secretary and affixed by
the Secretary or by the Secretary's assistants on the certificates of stock and
other appropriate papers.
<PAGE> 6
ARTICLE SIX
AMENDMENTS
(a) Unless the articles of incorporation or the Code provides
otherwise, or the shareholders in amending or repealing a particular bylaw
provide expressly that the Board of Directors may not amend or repeal that
bylaw, the Board of Directors may amend the bylaws if the voting requirements
provided in Section 3.3 of these bylaws are satisfied, except as provided below.
The shareholders also may amend or repeal the Corporation's bylaws or adopt new
bylaws if the voting requirements in Section 2.5 of these bylaws are satisfied.
Unless the articles of incorporation or a provision of these bylaws provides
otherwise, a bylaw that fixes a greater quorum or voting requirement for the
Board of Directors may be adopted, amended, or repealed by the shareholders only
by the affirmative vote of a majority of the votes entitled to be cast or only
by a majority of the entire Board of Directors. A bylaw adopted or amended by
the shareholders that fixes a greater quorum or voting requirement for the Board
of Directors may provide that it may be amended or repealed only by a specified
vote of either the shareholders or the Board of Directors.
(b) Any provision of these bylaws limiting the authority of the Board
of Directors, establishing staggered terms for directors, or fixing a greater
quorum or voting requirement for shareholders (except as provided in O.C.G.A.
ss. 14-2-1113 (GCA ss. 22-1113) or 14-2-1133 (GCA ss. 22-1133)) shall be
adopted, amended, or repealed only by the shareholders. The shareholders may
provide by resolution that any bylaw provision repealed or amended by them may
not be repealed or amended by the Board of Directors.
I hereby certify that the foregoing is a true and correct copy of the
bylaws of OssaTronics, Inc. duly adopted by the Board of Directors of the
Corporation on the ________ day of _________________, 19_.
------------------------
Secretary
<PAGE> 1
EXHIBIT 3.4
[NUMBER] [SHARES]
HEALTHTRONICS, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF GEORGIA
AUTHORIZED COMMON STOCK 10,000,000 SHARES
THIS CERTIFIES THAT is the
registered holder of Shares
OF THE AUTHORIZED COMMON STOCK OF HealthTronics, Inc. WHICH ARE FULLY PAID AND
NON-ASSESSABLE
transferrable only on the books of the Corporation by the holder hereof in
persons or by Attorney upon surrender of this Certificate properly endorsed.
In Witness Whereof, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and its Corporate Seal to be
hereunto affixed
this 18th day of February A.D. 1997
- -------------------------- ------------------------
PRESIDENT SECRETARY
<PAGE> 2
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED ("1933 ACT"), AND MAY NOT BE OFFERED, SOLD OR TRANSFERRED, NOR WILL ANY
ASSIGNEE OR ENDORSEE HEREOF BE RECOGNIZED AS AN OWNER HEREOF BY THE COMPANY FOR
ANY PURPOSE, UNLESS A REGISTERED STATEMENT UNDER THE 1933 ACT WITH RESPECT TO
SUCH SECURITIES SHALL THEN BE IN EFFECT OR UNLESS THE AVAILABILITY OF AN
EXEMPTION FROM REGISTRATION WITH RESPECT TO ANY PROPOSED TRANSFER OR DISPOSITION
OF SUCH SECURITIES SHALL BE ESTABLISHED TO THE SATISFACTION OF COUNSEL FOR THE
COMPANY. IN ADDITION, THESE SECURITIES HAVE BEEN ISSUED IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION PURSUANT TO APPLICABLE STATE SECURITIES LAW AND
THESE SECURITIES MAY NOT BE SOLD OR TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER APPLICABLE STATE LAW OR UNLESS IT IS ESTABLISHED TO
THE SATISFACTION OF COUNSEL FOR THE COMPANY THAT SUCH SALE OR TRANSFER IS EXEMPT
UNDER APPLICABLE STATE LAW OR IN A TRANSACTION WHICH IS OTHERWISE IN COMPLIANCE
WITH APPLICABLE STATE LAW".
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations.
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- ......Custodian.....
(Cust) (Minor)
TEN ENT -- as tenants by the entireties under Uniform Gifts to Minors
JT TEN -- as joint tenants with right of Act......................
survivorship and not as tenants (State)
in common
Additional abbreviations may also be used though not in the above list.
For value received,............hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Shares
- ------------------------------------------------------------------------
represented by the within Certificate, and do hereby irrevocably constitute
and appoint
-------------------------------------------------------------------
- ------------------------------------------------------------------------------
Attorney to transfer the said shares on the books of the within-named Corpora-
tion with full power of substitution in the premises.
Dated,
-------------------------
----------------------------------
In presence of
- -------------------------------
<PAGE> 1
EXHIBIT 3.5
EXHIBIT A
AGREEMENT AND PLAN OF MERGER
HEALTHTRONICS, INC. AND
OSSATRONICS, INC.
This Agreement and Plan of Merger made and entered into this 31st day
of December, 1995, (hereinafter referred to as the "Agreement") by and between
HEALTHTRONICS, INC., a Georgia corporation (hereinafter sometimes referred to as
"HealthTronics") and OSSATRONICS, INC., a Georgia corporation (hereinafter
sometimes referred to as "OssaTronics") (said corporations being hereinafter
sometimes referred to as the "Constituent Corporations"):
W I T N E S S E T H:
WHEREAS, HealthTronics, Inc. is a corporation duly organized and
validly existing under the laws of the State of Georgia; and
WHEREAS, OssaTronics, Inc. is a corporation duly organized and validly
existing under the laws of the State of Georgia; and
WHEREAS, the Boards of Directors of each of said corporations deem it
advisable and for the benefit of each of said corporations and their respective
shareholders that OssaTronics, Inc. merge itself into HealthTronics, Inc.
NOW, THEREFORE, for and in consideration of the premises and of the
mutual agreements, promises and covenants hereinafter contained, it is hereby
agreed by and between the parties hereto subject to the approval and adoption of
this Agreement by the respective shareholders of each of the Constituent
Corporations, and subject to the conditions hereinafter set forth, that
OssaTronics, Inc. be merged into HealthTronics, Inc. (hereinafter sometimes
referred to as the "Surviving Corporation"), the corporate existence of which
shall be continued under the same name, and thereafter the individual existence
of OssaTronics, Inc. shall cease. The terms and conditions of the merger hereby
agreed upon and the mode of carrying the same into effect and the manner of
converting the shares of OssaTronics, Inc. into securities of the Surviving
Corporation are and shall be as follows:
1.
The acts and things required to be done by the Georgia Business
Corporation Code (the "Code") in order to make this Agreement effective,
including the submission of this Agreement to the shareholders of both of the
Constituent Corporations and the filing of the Articles of Merger or Certificate
of Merger in the manner provided for in the Code, shall be attended to and done
by the proper officers of the Constituent Corporations as soon as practicable.
<PAGE> 2
2.
The Articles of Incorporation of HealthTronics, Inc. shall on the
effective date of the merger (the "Effective Date") be the Articles of
Incorporation of the Surviving Corporation, and in addition to the powers
conferred on it by statute, the Surviving Corporation shall have the powers set
forth therein and shall be governed by the provisions thereof.
3.
The Bylaws of HealthTronics, Inc. shall include the following
provisions:
1. Any increase of capital must be approved by at least 80% of
the voting shares.
2. Dilution of voting shares must be avoided by granting a right
of first refusal to the current holder of voting shares.
3. The decision of going public must be approved by at least 80%
of the shares entitled to vote.
4. Mergers with or acquisitions of other companies must be
approved by at least 80% of the voting shares.
5. Changes in the target and charter of the company must be
approved by at least 80% of the shares entitled to vote.
6. The Board of Director is limited to five (5) positions. 20% of
the voting shares shall be sufficient to elect one member of
the board.
4.
Upon the merger contemplated herein becoming effective, the directors
of the Surviving Corporation shall be nominated by the shareholders entitled to
vote and the election shall be subject to the Bylaws of the surviving
corporation. These persons shall hold office until the next annual meeting of
the shareholders of the Surviving Corporation and until their respective
successors are elected in accordance with the Bylaws of the Surviving
Corporation.
5.
Prior to the Effective Date of the merger ownership is as follows:
<TABLE>
<CAPTION>
1. OSSATRONICS 2. HEALTHTRONICS
----------- -------------
<S> <C> <C> <C>
Karl Heinz Restle 33% (33,000 shares) Karl-Heinz Restle 33.34%
John F. Warlick 26% (26,000 shares) John F. Warlick 33.33%
Argil Wheelock MD 26% (26,000 shares) Roy S. Brown 33.33%
Roy S. Brown 5% (5,000 shares)
</TABLE>
<PAGE> 3
OSSATRONICS (cont.)
-------------------
<TABLE>
<S> <C>
Tom Brooks 5% (5,000 shares)
Scott A. Cochran 5% (5,000 shares)
</TABLE>
b.) Upon the effective date of the merger, ownership of the HealthTronics,
Inc. stock shall be as follows:
<TABLE>
<S> <C> <C>
Karl-Heinz Restle 33.17% (33,170 shares)
John F. Warlick 29.66% (29,660 shares)
Roy S. Brown 19.17% (19,170 shares)
Argil Wheelock 13% (13,000 shares)
Tom Brooks 2.5% (2,500 shares)
Scott A. Cochran 2.5% (2,500 shares)
</TABLE>
6.
Upon the Effective Date, every other corporation party to the merger
shall merge into the Surviving Corporation and the separate existence of every
corporation except the Surviving Corporation shall cease, and in accordance with
the terms of this Agreement, the title to all real estate and other property
owned by each corporation party to the merger shall be vested in the Surviving
Corporation without reversion or impairment; the Surviving Corporation shall
have all of the liabilities of each corporation party to the merger; any
proceeding pending against any corporation party to the merger may be continued
as if the merger did not occur or the Surviving Corporation may be substituted
in the proceeding for the corporation whose existence ceased; and the shares of
each corporation party to the merger that are to be converted into shares,
obligations, or other securities or the Surviving Corporation or any other
corporation or into cash or other property shall be converted and the former
holders of the shares shall be entitled only to the rights provided in this
Agreement or to their rights under Article 13 of the Code.
7.
If at any time the Surviving Corporation determines that further
assignments or other things are necessary or desirable to transfer property or
rights from OssaTronics to HealthTronics the proper officers and directors of
OssaTronics, Inc. shall execute and make all such proper assignments and
assurances and do all things necessary or proper to vest title in such property
or rights in the Surviving Corporation and otherwise to carry out the purposes
of this Agreement.
8.
From the date of this Agreement until the Effective Date or until the
abandonment of the merger pursuant to the provisions hereof:
<PAGE> 4
(a) OssaTronics, Inc. and HealthTronics, Inc. shall continue to
conduct their respective businesses in the ordinary course, and neither
OssaTronics, Inc. nor HealthTronics, Inc. shall, without the prior written
consent of the other, engage in any transaction or incur any obligation except
in the ordinary course of business or as otherwise authorized by this Agreement.
Without limiting the foregoing, neither OssaTronics, Inc. nor HealthTronics,
Inc. shall during the foregoing period, without the prior consent of the other:
(i) amend its Articles of Incorporation, except as may be
necessary to carry out this Agreement or as required by law.
(ii) borrow any money, other than short term borrowings in
the ordinary course of business.
(iii) issue, sell, encumber, or otherwise dispose of any
shares of its capital stock.
(iv) declare, authorize, or pay any dividend on, make any
distribution in respect of, redeem or acquire for value any shares of its
capital stock, directly or indirectly.
(v) sell, lease, or otherwise dispose of any part of its
property or assets, except in the ordinary course of business; enter into any
new plans or agreements for the benefit of officers or employees or increase the
benefits under any existing such plan.
(vi) make any purchase of real estate, personal property,
merchandise, or securities, except in the ordinary course of business.
(b) OssaTronics, Inc. and HealthTronics, Inc. shall each make
available for examination by the other as requested, in addition to its audited
financial statements, any inventory and other detailed records in support of
such statements; records of important contracts, commitments, leases, licensing
agreements, deeds, title insurance policies, patents, trademarks, and other
evidence of interest or ownership in property; details and status of the various
funds, plans, profit sharing and deferred compensation agreements, if any, stock
option plans and other provisions of either party for the benefit of its
officers and employees, income tax returns, audit material and related data;
information concerning claims, litigation threatened or pending, and all other
information relevant to their respective businesses and to the merger herein
contemplated.
9.
OssaTronics, Inc. represents and warrants to HealthTronics, Inc. as
follows:
(a) OssaTronics, Inc. is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Georgia, has full
corporate power to carry on its business as it is now being conducted and to own
and operate the properties and assets now owned or operated by it and is
duly qualified to do business and is in good standing in Georgia.
<PAGE> 5
(b) All of the outstanding shares of OssaTronics, Inc. are validly
issued, fully paid and non-assessable.
10.
HealthTronics, Inc. represents and warrants to OssaTronics, Inc. as
follows:
(a) HealthTronics, Inc. is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Georgia, has full
corporate power to carry on its business as it is now being conducted and to own
and operate the properties and assets now owned or operated by it and is duly
qualified to do business and is in good standing in each jurisdiction where the
conduct of its business or the ownership of its property requires such
qualification.
(b) All of the outstanding shares of HealthTronics, Inc. are
validly issued but not shown by certificates, fully paid, and non-assessable.
(c) The execution of this Agreement has been duly authorized by
the Board of Directors of HealthTronics, Inc., and no further corporate action
is necessary for the execution hereof. Neither the execution and delivery of
this Agreement, nor the consummation of the transactions provided for herein
will violate any material agreement to which HealthTronics, Inc. is a party or
by which it is bound or any provision of the Articles of Incorporation or Bylaws
of HealthTronics, Inc. or any law, order, or decree (except that such
consummation is subject to shareholder approval as set forth herein).
(d) Except to the extent heretofore disclosed to OssaTronics, Inc.
in writing, HealthTronics, Inc. is not a party to any agreement or instrument or
subject to any charter or other corporate restriction or any judgment, order,
writ, injunction, decree, rule, or regulation which materially and adversely
affects, or so far as HealthTronics, Inc. can now foresee, may in the future
materially and adversely affect the business operations, prospects, properties,
assets, or condition, financial or otherwise, of HealthTronics, Inc.
11.
Anything herein to the contrary notwithstanding, this Agreement may be
terminated and abandoned at any time prior to the filing of the Articles of
Merger:
(a) By mutual consent of the Board of Directors of both
Constituent Corporations, expressed in an instrument in writing signed on behalf
of each by its Board of Directors.
(b) By the Board of Directors of either corporation if the other
shall pay or declare any dividend on its outstanding shares or shall in any way
alter its capital structure, between the date hereof and the effective date.
<PAGE> 6
In the event of termination or abandonment as herein provided, the
party so electing shall give written notice thereof to the other party to this
Agreement.
12.
If the merger contemplated hereby becomes effective, all expenses
incurred hereunder shall be borne by the Surviving Corporation. If, for any
reason other than breach of the covenants of the parties set forth herein, the
merger shall not become effective or shall be abandoned, then each of the
Constituent Corporations shall bear its own expenses, separately incurred in
connection herewith, with no liability to the other party hereto, and each shall
pay one-half of the expenses incurred by them jointly.
13.
All notices, waivers, consents, or requests required or permitted
hereunder shall be in writing and shall be deemed to have been duly given on the
date of delivery or when deposited in the United States mail, postage prepaid,
in an envelope properly addressed as follows:
(a) In the case of HealthTronics, Inc., to: Roy S. Brown_______________
(b) In the case of OssaTronics, Inc., to: John Warlick_______________
IN WITNESS WHEREOF, HealthTronics, Inc. and OssaTronics, Inc. have each
caused this Agreement and Plan of Merger to be executed on their respective
behalf and their respective corporate seals affixed and the foregoing attested,
all by their respective duly authorized officers on the 4th day of March, 1995.
ATTEST: HEALTHTRONICS, INC.
/s/ BY: /s/ Roy S. Brown
- ------------------------------- -------------------------------
Roy S. Brown (President)
ATTEST: OSSATRONICS, INC.
/s/ BY: /s/ John F. Warlick
- ------------------------------- -------------------------------
John F. Warlick (President)
<PAGE> 7
SHAREHOLDERS OF HEALTHTRONICS, INC.
ATTEST:
/s/ /s/ John F. Warlick
- ----------------------------- -----------------------------
JOHN F. WARLICK
ATTEST:
/s/ /s/ Karl-Heinz Restle
- ----------------------------- -----------------------------
KARL-HEINZ RESTLE
ATTEST:
/s/ /s/ Roy S. Brown
- ----------------------------- -----------------------------
ROY S. BROWN
<PAGE> 8
SHAREHOLDERS OF HEALTHTRONICS, INC.
ATTEST:
/s/ /s/ JOHN F. WARLICK
- --------------------- ----------------------------
JOHN F. WARLICK
ATTEST:
/s/ /s/ ARGIL WHEELOCK
- --------------------- ----------------------------
ARGIL WHEELOCK
ATTEST:
/s/ /s/ KARL-HEINZ RESTLE
- --------------------- ----------------------------
KARL-HEINZ RESTLE
ATTEST:
/s/ /s/ ROY S. BROWN
- --------------------- ----------------------------
ROY S. BROWN
ATTEST:
/s/ /s/ TOM BROOKS
- --------------------- -----------------------------
TOM BROOKS
<PAGE> 9
SHAREHOLDERS OF OSSATRONICS, INC.
ATTEST:
/s/ /s/ JOHN F. WARLICK
- ------------------------- -------------------------
JOHN F. WARLICK
ATTEST:
/s/ /s/ ARGIL WHEELOCK
- ------------------------- -------------------------
ARGIL WHEELOCK
ATTEST:
/s/ /s/ KARL-HEINZ RESTLE
- ------------------------- -------------------------
KARL-HEINZ RESTLE
ATTEST:
/s/ /s/ ROY S. BROWN
- ------------------------- -------------------------
ROY S. BROWN
ATTEST:
/s/ /s/ TOM BROOKS
- ------------------------- -------------------------
TOM BROOKS
<PAGE> 10
ARTICLES OF MERGER BETWEEN
OSSATRONICS, INC. AND HEALTHTRONICS, INC.
INTO HEALTHTRONICS, INC.
I.
Attached hereto as Exhibit "A" and by reference made a part hereof is the
Agreement and Plan of Merger duly approved and adopted by OSSATRONICS, INC.
and HEALTHTRONICS, INC.
II.
The Plan of Merger was duly approved by the unanimous vote of all
shareholders of OSSATRONICS, INC. and HEALTHTRONICS INC.
III.
The plan of Merger was adopted and approved by the Board of Directors for
OSSATRONICS, INC. and HEALTHTRONICS, INC.
IV.
The merger shall be effective at the time these Article of Merger are
delivered to the Secretary of State.
ATTEST:
(CORPORATE SEAL) OSSATRONICS, INC.
/s/ By: /s/ John F. Warlick
- ----------------------------- -----------------------------
Secretary John F. Warlick (President)
ATTEST:
(CORPORATE SEAL) HEALTHTRONICS, INC.
/s/ By: /s/ Roy S. Brown
- ----------------------------- -----------------------------
Secretary Roy S. Brown (President)
<PAGE> 11
SECRETARY OF STATE
BUSINESS INFORMATION AND SERVICES
SUITE 315, WEST TOWER
2 MARTIN LUTHER KING JR. DR. DOCKET NUMBER : 961350243
ATLANTA, GEORGIA 30334-1530 CONTROL NUMBER: 9535640
EFFECTIVE DATE: 04/29/1996
REFERENCE : 0045
PRINT DATE : 05/14/1996
FORM NUMBER : 411
SCOTT A. COCHRAN
COCHRAN, CAMP & SNIPES
2950 ATLANTA ST., S.E.
SMYRNA, GA 30080-3692
CERTIFICATE OF MERGER
I, the Secretary of State of the State of Georgia, do hereby issue this
certificate pursuant to Title 14 of the Official Code of Georgia Annotated
certifying that articles or a certificate of merger and fees have been filed
regarding the merger of the below entities, effective as of the date shown
above. Attached is a true and correct copy of said filing.
Surviving Entity:
HEALTHTRONICS, INC., A GEORGIA CORPORATION
Nonsurviving Entity/Entities:
OSSATRONICS, INC., A GEORGIA CORPORATION
[SEAL] /s/ Lewis A. Massey
-------------------------
LEWIS A. MASSEY
SECRETARY OF STATE
<PAGE> 1
EXHIBIT 5
CHRISTOPHER J. MORAN, JR.
ATTORNEY AT LAW
SECURITIES LAW
4625 Clary Lakes Drive
Roswell, Georgia 30075-5446
TELECOPIER TELEPHONE
(770) 518-9640 (770) 518-9542
October 30, 1998
U.S. Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: HealthTronics, Inc.
Form SB-2 Registration Statement
Exhibit Numbers 5 and 24.2
Any no par value common shares of HealthTronics, Inc. sold pursuant to
the captioned Form SB-2 Registration Statement shall be legally issued, fully
paid and non-assessable.
The law firm of Christopher J. Moran, Jr. consents to be named in the
captioned Form SB-2 Registration Statement and further consents to the use of
this opinion and consent in the captioned Form SB-2 Registration Statement.
Christopher J. Moran, Jr.
Attorney at Law
By: Christopher J. Moran, Jr.
--------------------------------
Christopher J. Moran, Jr.
<PAGE> 1
EXHIBIT 10.2
ENTITY INTEREST AGREEMENT
THIS ENTITY INTEREST AGREEMENT ("Agreement") is made effective as of
the 7th day of March, 1997, by and between HEALTHTRONICS, INC., a Georgia
corporation ("HealthTronics"), U.S. LITHOTRIPSY, L.P. ("USL"), a Texas Limited
Partnership, and LITHO MANAGEMENT, INC., a Texas corporation.
W I T N E S S E T H:
WHEREAS, HealthTronics holds the exclusive distributorship rights for
the distribution in the United States of America of the LithoTron Lithotripter,
manufactured by H.M.T. of Switzerland; and
WHEREAS, it is the intention of USL to market the LithoTron
Lithotripters through the creation of limited partnership entities, of which USL
will retain approximately twenty percent (20%) of the ownership interest, with
the remainder owned by urologists, as limited partners, practicing within the
Licensed Area; and
WHEREAS, HealthTronics and USL have entered into a Distributor
Agreement (attached hereto as Exhibit "A") granting USL exclusive rights as a
sub-distributor for HealthTronics of the LithoTron Lithotripter and related
equipment in the Licensed Area as defined in the Distributor Agreement; and
WHEREAS, it is now the desire of HealthTronics, USL and Litho
Management, Inc. to enter into the following Entity Interest Agreement pursuant
to the relationship previously established in the Distributor Agreement;
NOW, THEREFORE, in consideration for the sum of Ten and No/100 dollars
($10.00), paid by HealthTronics to USL, and in consideration of the mutual
promises contained herein and for such other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged and confirmed, the
parties hereto now agree as follows:
1. Definitions.
1.01 "Limited Partnership(s)" shall mean the limited partnerships
previously set up by Litho Management, Inc. or to be set up by USL with
practicing urologists as limited partners, for the ownership and operation of
LithoTron Lithotripters in the Licensed Area.
1.02 "Licensed Area" shall mean that portion of the United States
within which HealthTronics has granted USL the exclusive sub-distributorship
rights for the LithoTron Lithotripter, as defined in the Distributor Agreement,
attached hereto as Exhibit "A".
Page 1 of 5
<PAGE> 2
2. Term.
2.01 This Agreement shall become effective as of the first day
above-written, and will remain in full force and effect for as long as the
Distributor Agreement is in effect, unless earlier terminated as provided
herein.
2.02 As provided in the Distributor Agreement, USL may assign
and/or sublicense its interest in the Distributor Agreement. Regardless of any
such assignment, this Agreement will continue in force and effect between the
parties hereto, unless otherwise modified as provided in Section 7.01, herein.
3. Entity Interest Terms.
3.01 Under this Agreement, HealthTronics will receive a forty
percent (40%) ownership interest in USL, to be divided between general and
limited partnership interest as follows: .4% general partnership interest, and
39.6% limited partnership interest. It is further agreed that any previously
existing Limited Partnerships, as defined in Section 1.01, above, will be merged
into USL by no later than April 1, 1997. Attached as Exhibit "B" is a chart
showing the proposed entity structure pursuant to this Agreement.
3.02 In return for the percentage interest granted in 3.01, above,
HealthTronics will transfer 200,000 shares of its common stock to Scott R.
Spoerl, John M. House, David S. Ellis, and H. Patterson Hezmall, the ownership
of said shares to be divided among the above individuals according to the
percentages of their ownership interests in USL.
4. Termination. This Agreement shall be terminated automatically
by the expiration or termination of the Distributor Agreement, or may be
terminated by USL:
(a) on thirty (30) days notice if HealthTronics should
attempt to assign, convey, or otherwise transfer in
whole or in part any of USL's rights or obligations
hereunder to any third party without USL's express
prior written consent, which consent shall be based
upon HealthTronics' fully true and correct disclosure
of the proposed transaction to USL; or
(b) if HealthTronics ceases to function as a going
concern or ceases to conduct its operations in the
normal course of business as a distributor; or
(c) if HealthTronics becomes involved in financial
difficulties requiring the employment of a receiver
or the like, or a moratorium on indebtedness or
petition in bankruptcy or the like, filed by or
against HealthTronics, or an assignment of
HealthTronics' assets occurs on behalf of
HealthTronics' creditors.
Page 2 of 5
<PAGE> 3
5. Buy-Back.
5.01 The parties hereto agree that if the LithoTron lithotripter
has not obtained FDA approval by no later than December 31, 1997, after that
date, USL may elect to buy back the 40% interest in USL granted to HealthTronics
in Section 3, above. It is further agreed that if USL should make such election,
the purchase price for said buy-back will be ten dollars ($10.00). In the event
of said buy-back, the 200,000 shares of HealthTronics stock described in 3.02
above, will be returned to HealthTronic by the parties receiving same.
5.02 If the Distributor Agreement is terminated by HealthTronics
for any reason, in that instance, USL may again opt to buy back the 40% interest
in USL granted to HealthTronics in Section 3, above, again for a purchase price
of ten dollars ($10.00). In that event however, the 200,000 HealthTronics shares
described in 3.02, above, may be retained by the parties receiving same.
Conversely, should USL terminate the Distributor Agreement for any reason, the
200,000 shares of HealthTronics described in 3.02 above will be returned to
HealthTronics, and HealthTronics may retain its 40% ownership interest as
described in 3.01 above.
6. Arbitration.
6.01 Should the parties hereto be unable to amicably resolve
between themselves any disagreements relating to or arising from any one or more
of the provisions of this Agreement, neither party shall seek redress against
the other in any court or tribunal in any part of the world, but instead both
parties shall submit such a disagreement to arbitration by the American
Arbitration Association.
6.02 The arbitration proceeding shall be conducted in the English
language in Atlanta, Georgia, United States of America, in accordance with the
rules and regulations of the American Arbitration Association including any Mast
track. or expedited proceedings rules. Any determination, award, or other action
shall be considered the valid action of the arbitrators whose decision shall be
fully and finally binding on both parties.
6.03 Neither party shall have the right to further appeal or
redress in any other court or tribunal except solely for the purpose of
obtaining execution of the judgment or award rendered by the arbitrator(s). The
parties hereto agree to share equally all costs and expenses of such arbitration
proceeding, irrespective of its outcome unless the decision awards fees to one
party as compensation for the other party bringing a dispute to arbitration that
is vexatious or was done to hinder, delay, and/or was brought in bad faith.
7. Law Governing Agreement.
7.01 This Agreement shall be solely governed by and construed in
accordance with the laws of the State of Georgia, USA, excluding, however, (a)
any provision of such laws that would render invalid any provision of this
agreement, and (b) any rule of private international law or the State of Georgia
that would refer the resolution of any issue to the law of any
Page 3 of 5
<PAGE> 4
jurisdiction other than the State of Georgia, USA. If any provisions hereof are
deemed to be invalid or void, the remaining portions thereof shall remain in
effect.
7.02 Waiver by either party of any violation or non-performance by
the other party of any of its obligations hereunder shall not be considered a
waiver of any other of the parties obligations, covenants, or agreements, nor
shall any forbearance by other parties be deemed a waiver by such party of its
right to remedies with respect to such violation or non-performance.
8. Miscellaneous.
8.01 Prior Agreements. Excepting the provisions of the Distributor
Agreement, attached hereto as Exhibit "A", which remains in full force and
effect, this Agreement supersedes all prior discussions, negotiations, and
agreements between HealthTronics and USL, and cannot be altered or amended
except by agreement in writing signed by both parties.
8.02 Execution. This Agreement may be executed by duly authorized
officers of the respective-parties hereunder and any number of counterparts, any
of which shall be deemed the original. This Agreement may be translated into any
other language and such translation may be initialed, but only this Agreement in
the English language shall be deemed the original. If any conflict exists
between the English language and the translation, this English language version
shall control.
8.04 Notices. Any notice, demand, or delivery authorized by this
Agreement shall be sufficiently given or made upon receipt by the party to whom
such notice is addressed in the following particulars: if in the case of USL,
addressed to:
800 W. Arbrook Blvd.
Suite 320
Arlington, Texas 76015
If in the case of HealthTronics addressed to:
13 West Park Square
Suite B
Marietta, Georgia 30060
Either party may change its address for this purpose by giving written
notice to the other in the manner above provided.
Page 4 of 5
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first above written.
HEALTHTRONICS, INC. LITHO MANAGEMENT, INC.
By: /s/ Argil Wheelock, M.D. By: /s/ Steven K. House
-------------------------------- --------------------------------
Argil Wheelock, M.C., CEO Steven K. House, President
By: /s/ Roy S. Brown
--------------------------------
Roy S. Brown, President
U.S. LITHOTRIPSY, L.P. /s/ John House, M.D.
--------------------------------
John House, M.D.
By: /s/ Steven K. House
--------------------------------
Steven K. House /s/ David Ellis, M.D.
--------------------------------
David Ellis, M.D.
/s/ Scott Spoerl
--------------------------------
Scott Spoerl, CPA
/s/ H. Patterson Hezmall, M.D.
--------------------------------
H. Patterson Hezmall, M.D.
Page 5 of 5
<PAGE> 6
Exhibit "B"
LITHO MANAGEMENT, INCORPORATED .6% General Partner
HEALTHTRONICS, INCORPORATED .4% General Partner
General partner 1%
U.S. LITHOTRIPSY, LP
Limited Partners 99%
John House, MD 40.05%
HealthTronics, Inc. 39.60%
Steve House 8.91%
Scott Spoerl, CPA 4.44%
David Ellis, MD 3.00%
Pat Hezmall, MD 3.00%
10% to 7.5% 31% to 7.5%
Limited Management Limited Management
Partners fee Partners fee
F F F
U U U
METRO I STONE MANAGEMENT, LIMITED MISSISSIPPI VALLEY I T T T
Limited Partners 90% STONE MANAGEMENT, L.P. U U U
Limited Partners 69% R R R
John House, MD 22.5% John House, MD 23.0% E E E
David Ellis, MD 22.5% John Hall, MD 23.0%
Pat Hezmall, MD 22.5% Russ Felker, MD 23.0% D D D
Wade Lowrey, MD 22.5% E E E
A A A
L L L
<PAGE> 1
EXHIBIT 10.3
(EXHIBIT "A")
DISTRIBUTOR AGREEMENT
THIS AGREEMENT, is made this 7th day of March, 1997, between
HealthTronics, Incorporated, a corporation created and existing under the laws
of the State of Georgia, with its corporate address at 13 West Park Square,
Suite B, Marietta, Georgia 30060 (hereinafter "HI"), and U.S. Lithotripsy, LP
or it's assigns, a Limited Partnership created and existing under the laws of
the State of Texas, with its corporate address at 800 West Arbrook, Suite 320,
Arlington, Texas 76015 (hereinafter "USL").
RECITALS:
A. HI distributes urological equipment including extracorporeal shock
wave lithotripters and other high technology medical devices as well as
accessories, supplies, consumable, and renewal parts.
B. USL is in the business of providing equipment for use in the
treatment of renal lithiasis patients within the guidelines of the approved FDA
protocol for the Equipment as defined in paragraph 2(d) below.
C. HI desires to increase its potential for sales of Equipment in
various territories.
D. HI desires to assure proper service of Equipment sold by USL.
E. HI and USL desire that USL promote and increase the sales and use
of HI Equipment in the Licensed Area.
F. HI owns all of the Proprietary Rights to distribute and sell the
Equipment within the United States of America.
G. USL has agreed to obtain from HI and HI has agreed to grant to USL
an exclusive license to sell, distribute, use, lease, rent, and franchise the
Equipment in the Licensed Area.
NOW, THEREFORE, in consideration of the terms, conditions, agreements
and covenants set forth herein and for good and valuable consideration, the
receipt, adequacy and sufficiency of which is hereby acknowledged, and
intending to be legally bound hereby, HI and USL agree as follows:
1. RECITALS. The above Recitals are true and correct and are
incorporated herein by reference.
2. DEFINITIONS. For the purpose of this Agreement, the following terms
shall have the definitions set forth below:
1
<PAGE> 2
a. "HI" shall mean HealthTronics, Incorporated, a corporation created
and existing under the laws of the State of Georgia, with its corporate address
at 13 West Park Square, Suite B, Marietta, Georgia 30060.
b. "USL" shall mean U.S. Lithotripsy, LP, a limited partnership
created and existing under the laws of the State of Texas, with its corporate
address at 800 West Arbrook, Suite 320, Arlington, Texas 76015.
c. "HMT" shall mean High Medical Technologies, the manufacturer of the
Equipment and a foreign corporation created and existing under the laws of
Switzerland, with its corporate address at Bachstrasse 8, CH-8280 Kreuzlingen,
Switzerland.
d. "Equipment" shall mean shock wave lithotripters that perform
extracorporeal urological lithotripsy treatment for renal lithiasis patients,
currently called the LithoTron(TM), which includes a shock wave system, a
multi-functional 3-axis treatment table, compatible C-arm, five (5) electrodes,
currently called NewTrode(TM), parts and components, accessories for stone
focusing and patient positioning and all future models, upgrades, improvements,
versions, designs, alterations.
e. "Improvements" shall mean all improvements or alterations related
to the Equipment, as defined in paragraph 2(d) above, or the design,
manufacture, use or sale thereof, which may be conceived, acquired or developed
and which will be brought to the market of the United States of America.
f. "Defective Parts" shall mean any part or component of the Equipment
that breaks or fails to function properly within a period of three hundred and
sixty five (365) days after the date of installation. Equipment purchased by
USL may be tested, at USL's option, at the HI facility.
g. "Proprietary Rights" shall mean all patents, patent applications,
patentable ideas, trade secrets, Confidential Information, know-how, and other
proprietary or valuable information relating to the design, manufacture and use
of the Equipment including all rights that HI has with respect to the Equipment
under license from a third party, and including similar additional rights
hereafter generated or acquired by HI, including all rights and patents, patent
applications, and patentable information for improvements in the Equipment.
h. "License" shall mean the licenses granted by HI to USL, including
the license granted by this Agreement for the Licensed Area, as well as the
licenses granted subsequently by written agreement between the parties for other
Licensed Areas.
i. "Licensed Area" shall mean the states of Texas, Arkansas, Oklahoma,
New Mexico, Colorado, Kansas, Nebraska, Missouri, Alaska, Arizona, California,
Hawaii, Idaho, Montana, Nevada, Oregon, Utah, Washington, and Wyoming in the
United States of America and all other territories subsequently licensed by HI
to USL pursuant to a written agreement.
2
<PAGE> 3
j. "Confidential Information" shall mean any and all information
shared between the parties regarding the patents, improvements, know-how,
Proprietary Rights, technical or commercial matters derived from negotiation
and performance of this Agreement, including but not limited to software
programs, manuals, documentation, reports, business plans, finances, investors,
licensees, officers, directors, and other proprietary and business information,
except that no information shall be deemed confidential if (i) it is or,
through no fault of the receiving party, becomes available to the public and,
therefore, part of the public domain; (ii) is already known to, or has been
independently developed by, the receiving party as evidenced by its written
documents on hand; or (iii) becomes lawfully available to the receiving party
from an outside source.
k. "National Account" shall mean any company and/or lithotripsy
provider other than USL that own and/or operate four (4) or more lithotripters
in more than one (1) State.
l. "Effective Date" shall mean the day, month and year that the United
States Food and Drug Administration (FDA) grants to HI a full and unrestricted
approval for the sale and use of the Equipment within the boundaries of the
United States of America.
3. GRANT OF LICENSE.
a. Exclusive License. HI herein grants to USL or its assigns the
exclusive right to sell, lease, distribute and use the Equipment specified in
paragraph 2(d) of this Agreement, within the Licensed Area as described in
paragraph 2(i) of this Agreement and all Licensed Areas agreed upon in writing
in the future. Should HI become aware of a prospective customer in the Licensed
Area specified in paragraph 2(i), HI will advise customer to contact USL
directly. HI will also immediately notify USL of said prospective customer.
Should USL become aware of a prospective customer in a State that is not within
the Licensed Area specified in paragraph 2(i), USL will immediately advise said
prospective customer to contact HI directly. USL will also immediately notify
HI of any such prospective customer.
b. Non-exclusive License. HI hereby authorizes USL or its assigns the
right to sell, lease, distribute and use the Equipment, specified in paragraph
2(d) of this Agreement, in those States that are not within the Licensed Area,
as described in paragraph 2(i) of this Agreement, provided however that any
such sale, lease, distribution or use has the express written approval of HI's
President. HI and USL will keep each other appraised of any prospective
customer, contact and/or effort being made in those States that are not within
the Licensed Area in an effort to avoid conflicts and duplication. In any such
case of conflict, the ruling of HI will be binding and final.
c. Trademarks. HI hereby grants to USL the exclusive right to use HI's
name, trademarks, labels, and other advertising media in connection with the
marketing, sale, lease, sublicense, franchise and use of the Equipment in the
Licensed Area.
d. Franchise Rights. HI hereby grants to USL the exclusive right to
franchise and distribute the Equipment in the Licensed Area subject to the
terms and conditions of this Agreement.
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<PAGE> 4
e. Sublicenses. Upon the prior written approval of HI's President,
which approval may not be unreasonably withheld, USL may grant to third parties
sublicenses of the license and other rights obtained by USL hereunder, so long
as any such sublicensee agrees in writing to be bound by the terms of this
Agreement. Having given its prior written approval of any such sublicense, HI
agrees to honor any and all written agreements between USL and its sublicensees
in accordance with this Agreement.
f. Equipment Software and Information. HI hereby grants to USL a
nonexclusive license in such software, manuals and other documentation that HI
has in conjunction with the Equipment actually sold to USL and which are
incident to the use of the Equipment. This license is solely for the purpose of
providing and sublicensing said software materials to the ultimate user of the
Equipment for use with the Equipment; provided, however, that HI shall provide
to USL through this non-exclusive license all software, manuals and other
documentation with respect to the Equipment which HI generally provided to its
direct customers or similar distributors. Notwithstanding the foregoing, such
programs and materials shall remain the property of HI and USL shall not (i)
supply any such software or other materials without first obtaining a
sublicense agreement signed by the user of the software or materials, (ii) make
any changes in such software or materials, or (iii) authorize or otherwise
permit its customers or other third parties to infringe on HI's intellectual
property rights in software and materials.
g. Improvements. HI hereby grants USL an exclusive license to the
Improvements and for the Licensed Area. HI and USL each agree to disclose to
the other the Improvements of which they become aware. Each party grants to the
other the right to reasonable access to and inspection of its facilities and
that of its vendors and subcontractors, and will make all personnel involved
with the subject of the other's inquiries available to such other party for
cooperation, questioning, demonstration and explanation. Each party shall
cooperate fully and timely in providing and executing all documents and things
necessary to perfect the rights and licenses granted under this Agreement, and
to enforce those rights and licenses.
h. Service. HI hereby grants USL the exclusive right to provide
service for all Equipment actually sold, leased, franchised, sublicensed,
distributed, or used by within USL's Licensed Area.
4. HI'S REPRESENTATIONS, WARRANTIES AND COVENANTS.
a. Authority. HI hereby represents, warrants and covenants to USL that
it is a corporation duly organized and existing in good standing under the
State of Georgia, that it has the authority to enter into and perform this
Agreement, and that no other individual or entity has the authority to enter
into and perform this Agreement. Further, HI has the right, through
its agreement with HMT, to enter into this Agreement for this Licensed Area and
that by entering into this Agreement with USL, will not constitute a default
under HI's agreement with HMT for distribution rights in this Licensed Area.
b. No Conflict or Breach. The execution, delivery and performance of
this Agreement by HI does not conflict with or constitute a breach or default
by HI under any other agreements to which it is a party or by which it is
bound.
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<PAGE> 5
c. Proprietary Rights. HI hereby represents, warrants and covenants
that it is licensing to USL the Proprietary Rights and Licenses to the
Equipment free and clear of all liens, charges or encumbrances, and that HI has
the full right, power and authority to grant and enforce the licenses granted
hereunder. The Proprietary Rights included that know-how, trade secrets and
confidential material presently existing and hereafter coming into existence
for the Equipment.
d. Approval. The execution, delivery and performance of this Agreement
has been approved by HI.
e. Disclosure. HI has disclosed, or will disclose, to USL all
information relating to the Equipment, and the Proprietary Rights necessary for
USL to conduct its anticipated business of marketing, selling, leasing,
distributing, licensing, franchising, installing, training and using such
Equipment. HI shall continue to provide USL with such additional information
relating to such Equipment, any Improvements and any and all other Licensees
and/or Franchisees as they become available to HI or which USL, in good faith,
reasonably requests.
f. Warranties. All Equipment purchased from HI under the terms and
conditions of this Agreement shall have a twelve (12) month warranty from the
date of installation for all parts and labor. A copy of the warranty shall be
attached to each unit of Equipment.
g. Equipment. HI hereby warrants that each unit of Equipment shall be
free of material defects upon delivery to USL, and shall be capable of being
installed and adjusted to perform in accordance with HI specifications. HI
shall either repair or exchange any defective part or component of the
Equipment as soon as practicable, but not later than two (2) weeks from written
notification of defect or needed repair. All parts so replaced shall be the
property of and shall be returned to HI.
h. Warranties Assigned. HI hereby assigns to USL the Warranties
provided by HMT for the manufacturing of the Equipment. HI further assigns to
USL the Warranties provided by the manufacturers of components of the Equipment
manufactured by parties other than HMT, if any, which components may include
(but shall not necessarily be limited to) shockproof cables, motors,
generators, spark plugs, and membranes.
i. Governmental, Regulatory and Other Approval. It is the
responsibility of HI to see that the engineering, design, and manufacture of
the Equipment are completed in compliance with required governmental,
regulatory, and any and all other approvals required in the Licensed Area. It
is the responsibility of HI to work with USL to obtain the necessary
governmental, regulatory, and any and all other approvals on marketing,
selling, leasing, distributing, licensing, franchising, installing, training
and using the Equipment in the Licensed Area.
5. HI RESPONSIBILITIES.
a. Training. HI shall train technical, service and training personnel
to be designated by USL. Such training shall be conducted at a location chosen
by HI and at
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[TO COME]
6
<PAGE> 7
6. USL's RESPONSIBILITIES.
a. Promotion. USL shall devote its best efforts to promote the sale,
lease, franchise and use of the Equipment in the Licensed Area and shall
exercise the highest standards of expertise and professionalism to ascertain
the needs of customers to fulfill customer requirements.
b. Sales and Service Organizations.
(1) USL shall maintain an adequate and properly trained sales
organization qualified to sell the Equipment and a service organization trained
and qualified to install, train and service the Equipment.
(2) Within fourteen (14) days of USL's written request that HI train
USL's service and training personnel, HI shall notify USL of the date, time,
and location of the training course or courses available to such personnel.
Until the time that such course(s) are available and completed, HI will provide
the required service and training at no cost to USL. An authorized
representative of USL shall be allowed to accompany such service and training
personnel. All revenues generated from such service work will remain the sole
property of USL.
c. Installation. USL shall install all Equipment placed in a location
within the Licensed Area by USL in accordance with HI's recommended
installation procedures. Installation shall include unpacking, assembly,
testing, calibration, and other procedures required to prepare the Equipment
for use in accordance with HI's specifications, manuals, guidelines and normal
practices and industry standard. Proper documentation, manuals, and other
relevant documents shall be provided by HI for all new models or significant
upgrades.
d. Service. USL shall assume responsibility for and render service,
including warranty service, on all Equipment placed in a location within the
Licensed Area by USL. Any services supplied by USL shall be performed in a
manner which ensures that the Equipment is free of material defects in
materials or workmanship and IS operating to the manufacturer's specifications.
e. Training. USL shall assume responsibility for and provide all
training, other than that as outlined in Paragraph 6 b.(2), on all Equipment
placed in a location within the Licensed Area by USL. Any training supplied by
USL shall be performed in a manner which encourages that the Equipment will be
used in a safe and practical manner in accordance with the manufacturer's
specifications.
f. Parts. USL agrees to purchase, at a reasonable price, exclusively
from HI those parts which are integral components of the Equipment. USL shall
in no event resell parts except as required in the provision of service within
the Licensed Area pursuant to this Agreement.
9. Safety. USL shall follow HI's procedure for instructing customers
with regard to the safe and competent operation of the Equipment, to ensure, to
the extent possible, their operation in strict compliance with established
safety procedures and applicable laws and governmental regulations. USL shall
report promptly to HI any incidents it may
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<PAGE> 8
detect or learn about concerning customers who are operating Equipment without
safety devices. USL shall notify the FDA of any adverse patient incidence(s) as
required by the FDA. HI WILL provide USL with available relevant instructional
material which it distributes to its customers.
h. No Modifications. USL shall not, without HI's prior written
consent, modify or change in any way any feature of the Equipment, and shall
not in any event modify or remove any safety device or part. If any such
modifications are made by USL (whether with or without the consent of the owner
or operator of the Equipment), USL shall indemnify and hold HI harmless.
i. Regulatory Compliance. USL shall strictly comply with all
governmental rules, orders, regulations, and laws pertaining to the
installation, maintenance, modification, service, or sales of the Equipment and
only accept orders for the Equipment which have received the necessary
approvals from the governmental body with jurisdiction to regulate to use of
such Equipment. In accepting such orders or undertaking such compliance, USL
shall be entitled to rely on the representation of HI with respect thereto as
set forth in Paragraph 40(j). In addition, USL shall promptly and timely comply
with each and every reasonable request that may be made by HI pursuant to any
federal, state, or local law or regulation thereof.
J. Reports. Subject to the confidentiality provisions of this
Agreement, USL shall
(1) immediately advise HI whenever the prices, deliveries, terms, or
other conditions offered by HI are, in USL's opinion not competitive in the
marketplace;
(2) immediately notify HI if it becomes aware that any Equipment or
unit thereof is exhibiting or has exhibited any unusual operating peculiarity;
and
(3) immediately notify HI if it becomes aware of any infringement of
HI's trademarks, copyrights, patents, or other intellectual property rights, or
if it becomes aware that any HI label, plaque or other identifying mark on any
Equipment or material has been removed, destroyed or defaced.
k. Inspections. Upon request by HI, USL shall use its best
efforts to aid HI in inspecting the Equipment installed by USL on
customer's premises.
l. Sales Leads. USL shall immediately notify HI of all sales leads and
inquiries concerning the Equipment developed or received from
customers/prospects, whether within or without the Licensed Area, which USL is
unable to serve for any reason whatsoever, and authorizes HI or its designee to
market Equipment to such customers or prospects.
m. Conflict of Interest. Should USL enter into an agreement with
anyone other than HI relating to the sales, distribution, lease, manufacture or
use of a shock wave lithotripter competitive to the Equipment, such action will
constitute a breach of this Agreement.
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7. PRICES AND TERMS.
a. Orders and Acceptance. All orders for Equipment shall be submitted
in writing to HI at its office Marietta, Georgia, and shall be subject to and
governed by the provisions of this Agreement. Orders shall specify the
purchase order number, requested model number, requested delivery date, and
shipping instructions, and shall contain no contingencies.
b. Takedown. Within three hundred sixty-five (365) days after the
Effective Date of this Agreement USL shall submit purchase orders, the required
down payments and USL's requested delivery schedules on a minimum of twelve
(12) units of the Equipment. It is also agreed by both USL and HI that any
delivery of Equipment within the Licensed Area through sources other than the
Exclusive Licenses granted to USL by this Agreement (i.e. National Accounts)
shall be considered a credit toward the number of units required by this
section. If the stated number of units required by this section is not achieved
within three hundred and sixty five (365) days from the Effective Date of this
Agreement, both USL and HI agree to review the states in which USL has the
Exclusive License as defined in this Agreement.
c. Delivery. HI shall make its best effort to deliver all orders for
Equipment made by USL on the requested delivery date, but no later than a
reasonable time frame after the requested delivery date. It is also agreed that
if HI's delivery time extends beyond the requested delivery date, USL will
nonetheless be deemed to have complied with its requirements, provided the
purchase order and required down payment in question was submitted within the
time period as described in paragraph 8(b) above.
d. Product Prices. HI agrees that the price to USL for Equipment shall
be equal to that which HI pays for the same, which includes payments by HI to
HMT, related entities, and shipping costs (F.O.B. hospital). These prices are
currently shown on the USL Price List attached hereto as Exhibit 1 as revised
from time to time. A violation of this provision by HI will require
reimbursement to USL equal to the difference in the price HI paid for the
Equipment and the price at which HI offered the Equipment to USL, or may be
treated as a breach of this Agreement, at USL's option. Any such reimbursement
must be paid within thirty days of HI's receipt of notification of the
violation. The Retail Price to USL's customers within the Licensed Area shall
be established and controlled by USL, as shown on the USL Price List as revised
from time to time. For the term of this Agreement, prices to USL shall be based
on the USL Price List attached hereto as Exhibit 1, and may be increased only
upon ninety (90) days prior written notice to USL. Price increases will not
apply to those purchase orders and related down payments that have been
received by HI prior to the written notice or to those purchase orders and
related down payments that are received prior to the price increase. Any
decrease in the price to USL shall become effective immediately and will apply
to any purchase orders from that day forward.
e. Additional Charges.
(1) Technical Support. If USL is in need of technical support, it
may request such support from HI. Charges for technical support shall be as
follows: USL shall pay 75% of HI's then current time and materials charges for
support provided. If
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HI purchases labor from USL, the same charges will apply. If HI cannot supply
technical support on a timely basis (3 days from request unless the Equipment
is rendered nonfunctional and the user requires more prompt assistance), then
USL shall have the right to obtain such technical support from any other
available source.
(2) Other Services. Except as expressly provided by this Agreement,
all other services provided by HI (including but not limited to, additional
Equipment testing conducted at USL's request) shall be billed to USL at HI's
then current time and materials rates.
f. Payment Terms. The terms of payment applicable to sales to USL
shall be
EQUIPMENT
---------
USL shall pay HI 25% of the Price to USL, as outlined in the attached
USL Price List incorporated into this Agreement as Exhibit 1, with
USL's purchase order and requested delivery schedule.
USL shall pay HI 50% of the Price to USL, as outlined in the attached
USL Price List, upon delivery of the Equipment outlined in USL's
purchase order.
USL shall pay HI 25% of the Price to USL, as outlined in the attached
USL Price List, following installation of the Equipment delivered.
PARTS AND OTHER FEES AND CHARGES
--------------------------------
Net 90 days from invoice date, with a 2% discount for payment in
full within 30 days.
g. Past-Due Amounts. Should it become necessary to place USL's account
with a collection agency, or with attorneys for collection or legal action to
enforce payment of any amount owed HI, USL agrees to pay all costs of
collection, including, but not limited to reasonable attorneys' fees and court
costs.
h. Special Prices or Terms. Any special prices, deliveries, terms, or
other conditions sought by USL to meet competition in any single case must be
conveyed to HI in writing for approval by an officer of HI, or his designee,
and shall be limited to that case and not constitute a precedent.
8. TERM AND TERMINATION.
a. Term. Unless sooner terminated as provided in this paragraph, this
Agreement shall be effective as of the date this Agreement is made by the
authorized signatures of both USL and HI and shall continue in effect until
July 1, 2006, and (unless terminated by either party on written notice provided
thirty (30) days prior to the expiration of the then current term or renewal
term) shall be automatically renewed for an unlimited number of additional
one-year renewal terms.
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b. Termination. If either party shall default materially in the
performance or observation of any of its obligations under this Agreement, and
such default shall continue for one hundred eighty (180) days after written
notice specifying such default has been delivered to the other party, the
non-defaulting party may terminate this Agreement upon five (5) days written
notice delivered to an officer of the defaulting party. Notwithstanding the
foregoing, the failure by USL to perform any obligation hereunder relating to
payment of money by USL for a period of sixty (60) days after written notice
thereof from HI shall constitute a material breach of this Agreement. The
effect of the termination of the Agreement by HI shall be that all of the
rights granted to USL under Paragraph 3 shall revert to and automatically be
fully vested in HI.
c. EVENTS OF DEFAULT.
(1) If either party fails to observe or perform any warranty,
provision, covenant or condition of this Agreement, and such failure shall
continue for more than thirty (30) days after receipt of written notice thereof
by the other party; or
(2) If any assignment is made of this Agreement or the party's
business for the benefit of the party's creditors; or
(3) If any receiver or trustee in bankruptcy or similar officer is
appointed to take charge of the party's property, or if the party is
adjudicated bankrupt.
d. If this Agreement is Terminated:
(1) USL shall permit HI to repurchase any Equipment then in the
possession of USL at prices equal to those paid by USL.
(2) USL shall cease using the name, trademarks and other
intellectual property of HI. USL shall return to HI all confidential material
in its possession (except that USL may retain only that confidential
information as necessary to continue servicing the Equipment owned by USL's
customers).
(3) Termination of this Agreement shall not release either party
from its obligation to make payment of any sums due the other hereunder for
damages incurred by reason of the other's breach unless agreed to in writing by
both parties.
(4) With respect to orders for Equipment accepted prior to the
termination of this Agreement, HI agrees that, if there is a valid and binding
obligation of USL to deliver such Equipment, HI will deliver such Equipment
notwithstanding the termination. HI shall have the option to perform
installation, warranty and maintenance service pursuant to agreements which USL
has negotiated with customers concerning such Equipment. If HI does not agree
to install or provide warranty and maintenance service with respect to such
Equipment, USL may provide such installation, warranty and maintenance service
notwithstanding the termination of this Agreement.
(5) If this Agreement is terminated, USL shall have the right to
maintain existing service contracts.
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e. All of the obligations of HI under this Agreement with respect to
warranty shall continue in full force and effect notwithstanding expiration or
termination of this Agreement.
f. If HI is required to take over service of USL's accounts because
USL is unable to handle the service, no compensation shall be paid to USL.
9. FORCE MAJEURE. Neither USL nor HI shall be liable for loss, damage,
or delay resulting from any cause whatsoever beyond its reasonable control
including, without limitation, acts of God, fire, flood, strike, lockout,
factory shutdown or alteration, civil or military authority, or instruction by
any federal, state, or local government or any department, agency, or
representative thereof, insurrection, riot, war, or embargo.
10. RISK OF LOSS. Risk of loss or damage to the Equipment, or any part
thereof, shall pass to USL upon receipt.
11. INSURANCE. HI shall carry coverage of no less than $1,000,000 of
product liability coverage and shall name USL as an additional insured under
such policy. USL shall carry no less than $500,000 of liability insurance
covering its activities with respect to the Equipment initially, and will
increase such amount to $1,000,000 six (6) months from the Effective Date, and
shall name HI as an additional insured under such policy. Both HI and USL shall
provide the other with a certificate of insurance to confirm the
aforementioned.
12. NON-SOLICITATION. HI and USL agree that, during this Agreement,
including all renewal terms, each party will refrain from directly or
indirectly approaching, soliciting, hiring or otherwise retaining or utilizing
the services of any person who is an employee of the other party, as
hereinafter defined, both directly or indirectly as an agent, partner or joint
venture with any third party. As used herein, the term Employee shall mean
anyone who works or has worked for the other, during the term of this Agreement
and/or any extensions thereof.
13. ATTORNEY'S FEES. In the event any party hereto brings a lawsuit or
arbitration to enforce its rights hereunder, the prevailing party in such
lawsuit or arbitration shall be entitled to its costs, including reasonable
attorney's fees, in connection therewith.
14. INDEPENDENT CONTRACTOR RELATIONSHIP. The parties do not intend
that this Agreement shall create an employment relationship between them, or
provide any party with any agency rights with respect to the other party. Each
party agrees that no other party shall have the rights to bind the other party
to any obligation or contractual arrangement except as expressly set forth
above.
15. MISCELLANEOUS.
a. Communications Channel. Upon execution of this Agreement, each
party shall designate a representative with sole responsibility and authority
for communicating on behalf of such party with the other party regarding all
matters relating to the implementation and performance of this Agreement. Such
representative may be
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changed permanently or temporarily by written notice provided in accordance
with this Agreement. If a party's representative is or is expected to be
unavailable to perform this function any period in excess of one week, the
party shall temporarily or permanently appoint a different employee as
representative. All communication, to the extent practical, shall be in
writing.
b. Waivers and Modifications. Any modification, addition to or waiver
of any of the terms and conditions of this Agreement shall not be effective
unless in writing and signed by an authorized representative officer of each
party. The terms contained herein shall control, notwithstanding any different
or additional terms contained in any document or purchase order submitted by
USL. No relaxation, forbearance or indulgence by either party in enforcing any
of the terms and conditions of this Agreement or the granting of any time to
any other party shall prejudice of restrict the rights and powers of either
party hereunder, nor shall any waiver of any breach hereof operate as a waiver
of a subsequent or continuing breach hereof.
c. Notices. Any notice, request, or other communication given
hereunder or in connection herewith shall be in writing, delivered in person or
sent by facsimile transmission ("fax") or registered postage prepaid to the
address of the other party set forth herein or to such address as such party
shall have heretofore designated in writing. Such notice, request, or other
communication shall be deemed delivered when delivered in person or received,
postage prepaid, certified mail, return receipt requested or at the expiration
of one day in the case of a fax.
d. Choice of Law. This Agreement shall be interpreted in accordance
with and governed in all respects by the law of the State of Georgia and
jurisdiction and venue for all matters regarding this Agreement shall be in
Atlanta, Georgia.
e. Severability. Should any provisions of this Agreement be found
invalid or unenforceable by a court or arbitration panel of competent
jurisdiction, or by operation of any applicable law, it shall not affect the
validity or any other provision contained herein.
f. Arbitration. If there is any dispute, disagreement or controversy
between the parties under this Agreement, the same will be submitted for
arbitration in Atlanta, Georgia, or such other location as to which the parties
may mutually agree, by the American Arbitration Association, in accordance with
its rules and procedures as then in effect, and the resulting decision of the
panel of arbitrators will be binding upon the parties hereto and judgment
thereon may be entered in the highest court of any forum, state or federal,
having jurisdiction thereof. The costs of such arbitration will be allocated by
the arbitrators, including attorney's fees.
g. Integration. This Agreement supersedes all prior agreements and
understandings between the parties relating to the subject matter and in
conjunction with the Entity Interest Agreement executed this same day is
intended by the parties as the complete and exclusive statement of their
Agreement. The parties shall not be bound by any representation, affirmation of
fact, course of prior dealings promise or condition in connection therewith, or
usage of the trade not incorporated herein.
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h. Headings. The headings in this Agreement are for purposes of
reference only and shall not in any way limit or otherwise affect the meaning
of any term or provision hereof.
WITNESSES: HEALTHTRONICS, INCORPORATED
/s/ By: /s/ Argil Wheelock, M.D.
- --------------------------------------- ----------------------------------
Argil Wheelock, MD
/s/ As Chief Executive Officer
- ---------------------------------------
/s/ By: /s/ Roy Brown
- --------------------------------------- ----------------------------------
Roy Brown
/s/ As President
- ---------------------------------------
U.S. LITHOTRIPSY, LP
/s/ By: /s/ Steven K. House
- --------------------------------------- ----------------------------------
Steven K. House
/s/ As President
- ---------------------------------------
14
<PAGE> 1
EXHIBIT 10.4
PATENT LICENSE AGREEMENT
Agreement by and between
OssaTronics Inc. a corporation organized and existing under the laws of
Georgia, having its principle place of business at 1608 Greenview Court,
Woodstock, GA 30188, USA (hereafter designated "LICENSEE") duly represented by
it's president Mr. John Warlick
and
HMT High Medical Technologies GmbH, a company organized and existing under the
laws of the Federal Republic of Germany, having its principle place of business
in Prussingstrasse 41, D-07745 Jena, Germany (hereafter designated "HMT") duly
represented by it's General Manager Mr. Joachim Voss
Whereas,
HMT has purchased from the initial inventors VVMI of Sofia, Bulgaria the United
States patent No. 4,979,501 and the Canadian patent No. 1.330.580 relating to
the method and mechanism for the treatment of bone pathologies.
Whereas,
LICENSEE desires to obtain a license from HMT under the aforesaid US and
Canadian patents
Whereas,
it is the intention of the parties that this Agreement prescribes the rights
and obligations among the parties regarding the aforesaid patents which are
licensable by HMT; and
Whereas,
HMT desires to licence LICENSEE under the aforesaid patents;
Now,
therefore, HMT and LICENSEE agree as follows:
ARTICLE 1
Patent Rights Granted
HMT hereby grants to LICENSEE a non-exclusive, license to make, use, lease, or
sell shock wave equipment for medical treatment which would infringe any valid
claim of the licensed patents upon which royalties are to be payed under this
Agreement.
Licensee is hereby granted immunity from suit under the licensed patents with
regard to its customers which are relieved of any obligation to pay a royalty
for aforesaid patents.
<PAGE> 2
ARTICLE 2
Royalty Payment
Within thirty (30) days from the effective date of this agreement, LICENSEE
shall pay to HMT the sum of US $100.000,-- (one hundred thousand).
In addition to the above payment LICENSEE shall pay to HMT a royalty of US
$25.000,-- (Twenty five thousands) for each OssaTron unit sold or leased by the
LICENSEE from the effective date of this agreement to the expiration of the US
patent No. 4.979.501 and the Canadian patent No. 1.330.508 respectively.
Within thirty (30) days after the close of each calendar quarter, LICENSEE
shall deliver to HMT a statement of all royalty based activities performed.
Simultaneously with the delivery of each statement, LICENSEE will pay HMT the
royalty due for such quarter.
The royalty of US $25.000,-- for each for each unit purchased from HMT is
included in the unit sales price agreed between HMT and LICENSEE.
ARTICLE 3
Duration of Agreement
This agreement shall continue in full force and effect until the expiration of
the licensed patents unless this agreement is sooner terminated as herein
provided.
If any party to this agreement should default in the performance of any of the
terms of this agreement the non-defaulting party may terminate this agreement
with thirty (30) days notice period.
ARTICLE 4
Transferability
Notwithstanding anything herein to the contrary, this agreement, and all the
rights, license and obligations contained herein, may not be transferred
without permission in writing by HMT, which permission shall not be
unreasonably withheld.
ARTICLE 5
Representation
HMT represents that HMT has the full rights and power to grant the licenses set
forth in this agreement, and that there are no outstanding agreements
inconsistent with the provisions of this agreement.
HMT makes no other representation, expressed or implied, nor does HMT assume
any liability in respect of any infringement of patents or other rights of
third parties due to LICENSEE's operation under the license herein granted.
<PAGE> 3
ARTICLE 6
Applicable Law
This agreement shall be construed, and the legal relations between the parties
hereto shall be determent, in accordance with the laws of the State of Georgia.
ARTICLE 7
Communications
Any payment, notice or other communication required by, or permitted to be made
or given to, either party pursuant to this agreement shall be sent to such
party to the following addresses:
HMT: HMT
High Medical Technologies GmbH
Prussingstrasse 41
D-07745 Jena, Germany
LICENSEE: OssaTronics Inc.
1608 Greenview Court
Woodstock, GA 30188, USA
In witness whereof the parties hereto affix their hands respectively as of the
date indicated:
Date: June 3, 1995 By: /s/ Joachim Voss For: HMT
------------ ---------------------------
(Joachim Voss)
Date: June 3, 1995 By: /s/ John Warlick For: OssaTronics, Inc.
------------ ---------------------------
(John Warlick)
<PAGE> 4
AMENDMENTS TO PATENT LICENSE AGREEMENT, LITHOTRON
DISTRIBUTORSHIP AGREEMENT AND OSSATRON DISTRIBUTORSHIP AGREEMENT
This agreement is made and entered into this 7th day of August 1996, by and
between HIGH MEDICAL TECHNOLOGIES ENTWICKLUNGS + VERTRIEBS AG, (hereinafter
referred to as "HMT") and, HEALTHTRONICS, INC.:
WITNESSETH:
WHEREAS, HMT and Ossatronics, Inc. have entered into a distributorship
dated November 22, 1994 (hereinafter referred to as the "OssaTron
Distributorship Agreement"); and
WHEREAS, HMT and Ossatronics, Inc. have entered into a Patent License
Agreement dated June 3, 1995 (hereinafter referred to as the "Patent License
Agreement"); and
WHEREAS, OssaTronics, Inc. has merged into HealthTronics, Inc., a Georgia
corporation and the Distributorship Agreement and Patent License Agreement have
been assigned to HealthTronics, Inc.; and
WHEREAS, HMT, Jena, has assigned its interest in the Distributorship
Agreement to HMT, Switzerland; and
WHEREAS, HMT and HealthTronics, Inc. have entered into a Distributorship
Agreement executed January 24, 1996 by HMT; and January 22, 1996 by
HealthTronics, Inc. (hereinafter referred to as the "LithoTron Distributorship
Agreement").
NOW, THEREFORE, in consideration of ten dollars ($10.00) and other good
and valuable consideration, the parties agree as follows:
I
The "Patent License Agreement" shall be amended and changed as follows:
(A) Article 1 of such Agreement is amended, changed and reworded as follows:
ARTICLE 1
Patent Rights Granted
HMT hereby grants to LICENSEE as exclusive license to make, use, lease or
sell shock wave equipment for medical treatment which would infringe any valid
claim of the licensed patents upon which royalties are to be paid under this
Agreement.
Licensee is hereby granted immunity from suit under the licensed patents
with regard to
Page 1
<PAGE> 5
its customers which are relieved of any obligation to pay a royalty for
aforesaid patents.
(B) All remaining provisions in the Patent License Agreement shall remain
as originally set forth.
II
The "LithoTron Distributorship Agreement" shall be amended and changed
as follows:
(A) Article 11, paragraph 1 of such agreement is amended, changed and
reworded as follows:
ARTICLE 11
DURATION AND TERMINATION OF AGREEMENT
(1) Unless otherwise provided herein, this agreement is effective for a
term of five years beginning on the date P.M.A. is granted by the F.D.A. Upon
the expiration of the initial five year term, this agreement shall
automatically renew for subsequent five year terms provided that Healthtronics
meets its sales commitment of not less than an average of 20 LithoTrons per
year as averaged over the preceding five year term. If after any five year
term, Healthtronics does not meet such sales commitment, HMT may terminate this
agreement by providing notice of its intent to do so. Such notice shall be
provided by registered or certified mail to the principal place of business of
Healthtronics and shall be provided at least twelve months prior to the
expiration of a five year term then in effect.
III
The "OssaTron Distributorship Agreement" shall be amended and changed
as follows:
(A) ss. 10 paragraph 1 of such agreement shall be amended, changed and
reworded as follows:
ss. 10
DURATION AND TERMINATION OF AGREEMENT
(1) Unless otherwise provided herein, this agreement is effective for a term
of five years beginning on the date P.M.A. is granted by the F.D.A. Upon the
expiration of the initial five year term, this agreement shall automatically
renew for subsequent five year terms provided that Healthtronics meets its sales
commitment of not less than an average of 20 OssaTrons per year as averaged over
the preceding five year term. If after any five year term, Healthtronics does
not meet such sales commitment, HMT may terminate this agreement by providing
notice of
Page 2
<PAGE> 6
its intent to do so. Such notice shall be provided by registered or certified
mail to the principal place of business of HealthTronics and shall be provided
at least twelve months prior to the expiration of a five year term then in
effect.
(B) ss. 13 of such agreement shall be amended, changed and reworded as
follows:
ss.13
MANUFACTURING RIGHT
(1) HealthTronics shall have the exclusive right to manufacture the
OssaTron OSA 120 and other subsequent models related thereto, as well as
accessories, spare parts, consumables and disposables related thereto.
(2) HMT shall, within thirty days after receiving a written request,
provide HealthTronics, Inc. with all drawings, technical descriptions,
suppliers and all other matters requested by HealthTronics, Inc. related to
manufacturing the OssaTron OSA 120 so as to enable HealthTronics, Inc. to
manufacture the OssaTron OSA 120.
(3) HealthTronics, Inc. shall pay to HMT a one time fee of $1,000,000 for
the manufacturing know-how, technical drawings, descriptions and other
paperwork and associated documents described in section number III ss.13
(2)herein.
(4) For each OssaTron device manufactured by HealthTronics, Inc. under this
agreement, HealthTronics, Inc. shall pay to HMT a licensing fee of ten percent
(10%) of the HealthTronics, Inc. net selling price.
HMT
BY: /s/ Karl-Heinz Restle
----------------------------------------
Karl-Heinz Restle (Managing Director)
HEALTHTRONICS, INC.
BY: /s/ Roy S. Brown
----------------------------------------
Roy S. Brown (President)
Page 3
<PAGE> 1
EXHIBIT 10.4(a)
PATENT PURCHASE AGREEMENT
between
VISSH Voennomedicinsky Institut
Boul. G. Sofiisky 3
Sofia, Bulgaria
- in the following referred to as VISSH -
and
HMT High Medical Technologies GmbH
Prussingstrasse 41
Jena, Germany
- in the following referred to as HMT -
Preamble
--------
Subject of the agreement is a method and an apparatus for medical treatment of
the pathological state of bones invented by V.D. Valchanov, P.M. Mihaylov, T.K.
Patrashkov, S.S. Manolov and T.P. Kerin and the patents and patent applications
related to this invention. VISSH wishes to sell and HMT wishes to purchase
these patents and patent applications.
ss 1 Subject matter
- -------------------
Subject matter of the agreement are the following patents /
<PAGE> 2
- 2 -
patent applications:
- in the following referred to as "the patents" -
Australian patent 612.671
Canadian patent 1.330.580
Hungarian patent 203.483
South Korean patent 063.684
Russian patent 1.836.056
Japanese patent application no. 63-504.849
Chinese patent application 88 103 703.6
USA patent 4.979.501
ss. 2 Guarantees ----------------
1. VISSH guarantees that it is the owner of the patents and has the
unrestricted right to dispose of the patents. VISSH guarantees that it
has not yet granted any license under the patents.
2. VISSH guarantees that the patents are in force.
3. VISSH declares that legal defects in the patents are not known to it.
4. VISSH assumes no liability for the validity of the patents.
5. VISSH declares that no further patents or patent applications related to
the invention according to the preamble exist with the exception of the
Bulgarian patent according to application No. 79 804 of May 19, 1987.
This Bulgarian patent is not subject of this agreement and is not to be
sold.
<PAGE> 3
-3-
ss. 3 Sale
1. VISSH sells to HMT the patents with all rights and obligations connected
thereto.
2. The patents remain the property of VISSH until the sales price has been
paid in full.
3. After the execution of the agreement HMT will take over the sole
responsibility for the maintenance of the patents and will pay all the fees
and costs for the maintenance and prosecution of the patents.
4. After the execution of the agreement HMT has the sole right to proceed
against infringers of the patents. HMT carries the risk and the costs of
an infringement lawsuit. VISSH will be obligated to provide HMT with all
powers and support.
ss. 4 Sales Price
1. The sales price is DM 300.000,-- (three hundred thousand Deutsche Mark).
2. The first installment DM 200,000,-- will be paid within one month after
the execution of the agreement. The remainder will be paid within one month
after complete recordation of the assignment of the patents in all the
respective countries.
<PAGE> 4
-4-
3. The sales price paid shall be nonrefundable for any reason.
4. Payments are to be made in Deutsche Mark into an account specified by
VISSH.
5. All turnover taxes and indirect taxes, which have to be paid for the
sales price payment, shall be borne by HMT. All direct taxes shall be
borne by VISSH.
ss. 5 Assignments
1. After payment of the first installment according to ss. 4(2) VISSH will
agree to the recordation of the assignment of the patents in the Patent
Offices of the respective countries. VISSH promises to provide all the
required documents and to make all necessary signatures.
2. HMT will take care for the recording of the assignments and the preparing
of the required documents as promptly as possible.
3. The costs and fees of this agreement as well as all the costs for the
assignments and recording will be borne by HMT.
ss. 6 No-challenge clause
VISSH promises not to attack the patents and not to assist third parties in
attacks on the patents.
<PAGE> 5
- 5 -
ss. 7 Jurisdiction and Applicable Law
For all controversies out of this agreement the patent court of the Landgericht
Dusseldorf will be competent. The agreement will be interpreted under German
law.
Date Date
Signature Signature
VISSH HMT
<PAGE> 1
EXHIBIT 10.4(b)
UNITED STATES PATENT [19] [11] PATENT NUMBER: 4.979.501
[45] DATE OF PATENT: DEC. 25, 1990
<PAGE> 1
EXHIBIT 10.4(c)
THOMAS, KAYDEN, HORSTEMEYER & RISLEY, L.L.P.
February 12, 1997
John Warlick Via Facsimile and U.S. Mail
HealthTronics
13 West Park Square, Suite B
Marietta, Georgia 30060
RE: Proposed Patent Application Entitled:
"METHOD FOR USING ACOUSTIC SHOCK WAVES IN THE TREATMENT OF
MEDICAL, DENTAL AND VETERINARY CONDITIONS"
Our File No.: 80809-1010
Dear John:
Please find enclosed for your records a copy of the above-referenced
application which was filed with the Patent and Trademark Office on February 12,
1997. After we receive an official filing date and Serial Number for the subject
application, we will forward Assignment and Inventorship Declarations to you for
execution by the inventors.
In the meantime, if you have any questions, please do not hesitate to
contact me at your earliest convenience.
Very truly yours,
THOMAS, KAYDEN, HORSTEMEYER & RISLEY
/s/John A. Savio III
------------------------------------
John A. Savio III
JAS:ttj
Enclosure
<PAGE> 2
IN THE UNITED STATES PATENT AND TRADEMARK OFFICE
THE COMMISSIONER OF PATENTS
Washington, D.C. 20231
Docket No. 80809-1010
Sir:
Transmitted herewith for filing is the patent application of: Inventor(s): Roy
S. Brown, Argil Wheelock, John Ogden, and John F. Warlick
For: METHOD OF USING ACOUSTIC SHOCK WAVES IN THE TREATMENT OF MEDICAL, DENTAL
AND VETERINARY CONDITIONS
Enclosed are:
X 24 PAGES OF SPECIFICATION
- -- --
X 13 PAGES OF CLAIMS
- -- --
X 1 PAGE(S) OF ABSTRACT
- -- --
X 3 SHEET OF DRAWINGS (INFORMAL)
- -- --
- -- ASSIGNMENT OF THE INVENTION TO:
X COMBINED DECLARATION AND POWER OF ATTORNEY (unexecuted)
- --
X DECLARATION OF INDEPENDENT INVENTOR/SMALL BUSINESS CONCERN (unexecuted)
- --
<TABLE>
<CAPTION>
CLAIMS AS FILED
---------------
Basic
Highest Number Present Fees
Number of Claims Filed Previously Paid For Extra Rate $770/$385
- ---------------------- ------------------- ------- ---- ---------
<S> <C> <C> <C> <C> <C> <C>
Total Claims 73 Minus 20 53 x$22/$11 $583.00
Independent Claims 2 Minus 3 0 x$80/$40 $-0-
-------
Total Filing Fee $968.00
=======
</TABLE>
X A CHECK IN THE AMOUNT OF $968.00 IS ENCLOSED.
- -- -------
X The Commissioner is hereby authorized to charge any additional fees which
- -- may be required, or credit any overpayment to Deposit Account No. 20-0778.
A duplicate copy of this sheet is enclosed.
/s/John A. Savio III
-------------------------------
John A. Savio III
REGISTRATION NO. 36,665
THOMAS, KAYDEN, HORSTEMEYER
& RISLEY, L.L.P.
Suite 1500
100 Galleria Parkway N.W.
Atlanta, Georgia 30339-5948
(770) 933-9500
G:\080809\1010\Ap.trn.doc
EXPRESS MAIL
------------
I hereby certify that this
correspondence is being deposited with
the United States Postal Service as
"Express Mail Post Office to Address," in
an envelope addressed to: BOX PATENT
APPLICATION, Assistant Commissioner for
Patents, Washington, D.C. 20231 on
February 12, 1997.
------------------
Express Mail No.: 506245464US
------------
Signature:
-------------------
<PAGE> 3
JOINT DECLARATION, POWER OF ATTORNEY, AND PETITION
As below named inventors, we hereby declare that:
Our residence, post office addresses and citizenship are as stated below next
to our names.
We believe we are the original inventors of the subject matter which is claimed
and for which a patent is sought on the invention entitled METHOD FOR USING
ACOUSTIC SHOCK WAVES IN THE TREATMENT OF MEDICAL, DENTAL AND VETERINARY
CONDITIONS specification of which is attached hereto.
We hereby state that we have reviewed and understand the contents of the above
identified specification, including the claims, as amended by any amendment
referred to above.
We acknowledge the duty to disclose information which is material to the
examination of this application in accordance with Title 37, Code of Federal
Regulations, Section 1.56(a).
We hereby claim foreign priority benefits under Title 35, United States Code,
Section 119 of any foreign application(s) for patent or inventor's certificate
listed below and have also identified below any foreign application for patent
or inventor's certificate having a filing date before that of the application
on which priority is claimed:
Country Application No. Filing Date
------- --------------- -----------
We hereby claim the benefit under Title 35, United States Code, Section 120 of
any United States application(s) listed below and, insofar as the subject
matter of each of the claims of this application is not disclosed in the prior
United States application in the manner provided by the first paragraph of
Title 35, United States Code, Section 112, we acknowledge the duty to disclose
material information as defined in Title 37, Code of Federal Regulations,
Section 1.56(a) which occurred between the filing date of the prior application
and the national or PCT international filing date of this application:
We hereby appoint James W. Kayden, Reg. No. 31,532; George M. Thomas, Reg. No.
22,260; David P. Kelley, Reg. No. 17,420; Scott A. Horstemeyer, Registration
No. 34,183; Stephen R. Risley, Registration No. 35,659; Sanford J. Asman, Reg.
No. 26,251; Collen A. Beard, Reg. No. 38,824; John A. Savio III, Reg. No.
36,665; Daniel R. Mcclure, Reg. No. 38,962, and Daniel J. Santos, Reg. No.
40,158 as our Attorneys and as our Agents, to transact all business in the
Patent and Trademark Office connected therewith:
Please direct all telephone calls to James W. Kayden at (770) 933-9500.
<PAGE> 4
Address all correspondence to: James W. Kayden
Thomas, Kayden, Horstemeyer & Risley, L.L.P.
100 Galleria Parkway, N.W.
Suite 1500
Atlanta, Georgia 30339
We hereby declare that all statements made herein of our own knowledge are true
and that all statements made on information and belief are believed to be true;
and further that these statements were made with the knowledge that willful
false statements and the like so made are punishable by fine or imprisonment,
or both, under Section 1001 of Title 18 of the United States Code and that such
willful false statements may jeopardize the validity of the application or any
patent issued thereon.
Name of First inventor: Roy S. Brown
Inventor's Signature________________________ Date:___________________
Citizenship: U.K.
Residence and Post Office Address: 781 James Circle, Lawrenceville, Georgia
30245
Name of Second inventor: Argil Wheelock
Inventor's Signature________________________ Date:___________________
Citizenship: U.S.A.
Residence and Post Office Address: 1000 Scenic Way Lookout Mountain, Tennessee
37350
Name of Third inventor: John Ogden
Inventor's Signature________________________ Date:___________________
Citizenship: U.S.A.
Residence and Post Office Address: 3435 Habersham Road, N.W. Atlanta, Georgia
30305
Name of Fourth inventor: John F. Warlick
Inventor's Signature________________________ Date:___________________
Citizenship: U.S.A.
Residence and Post Office Address: 1608 Greenview Court, Woodstock, Georgia
30188
<PAGE> 5
PATENT
Attorney's Docket No. 80-809-1010
-----------
Applicants or Patentees: Roy S. Brown, Argil Wheelock, John Ogden, and John F.
Warlick
Serial or Patent No.: TO BE ASSIGNED
Filed or Issued: HEREWITH
For: METHOD FOR USING ACOUSTIC SHOCK WAVES IN THE TREATMENT
OF MEDICAL, DENTAL AND VETERINARY CONDITIONS
VERIFIED STATEMENT (DECLARATION) CLAIMING SMALL ENTITY STATUS (37 C.F.R.
SS1.9(f) AND 1.27(c)) - SMALL BUSINESS CONCERN
I hereby declare that I am
--- the owner of the small business concern identified below:
x an official of the small business concern empowered to act on behalf of
---
the concerned identified below:
NAME OF CONCERN: HealthTronics, Inc.
ADDRESS OF CONCERN: 13 West Park Square, Suite B, Marietta, Georgia 30060
I hereby declare that the above-identified small business concern qualifies as
a small business concern as defined in 13 CFR 121.3-18, and reproduced in 37
CFR 1.9(d), for purposes of paying reduced fees under Section 41(a) and (b) of
Title 35, United States Code, in that the number of employees of the concern,
including those of its affiliates, does not exceed 500 persons. for purposes of
this statement, (1) the number of employees of the business concern is the
average over the previous fiscal year of the concern of the persons employed on
a full-time, part-time or temporary basis during each of the pay periods of the
fiscal year, and (2) concerns are affiliates of each other when either,
directly or indirectly, one concern controls or has the power to control the
other, or a third-party or parties controls or has the power to control both.
I hereby declare that rights under contract or law have been conveyed, to and
remain with the small business concern identified above with regard to the
invention, entitled METHOD FOR USING ACOUSTIC SHOCK WAVES IN THE TREATMENT OF
MEDICAL, DENTAL AND VETERINARY CONDITIONS
by inventor(s) Roy S. Brown, Argil Wheelock, John Ogden, and John F. Warlick
described in
x the specification filed herewith.
---
--- application serial no. 0_/_____________, filed_______________.
--- patent no.____________, issued_______________________________.
If the rights held by the above-identified small business concern are not
exclusive, each individual, concern or organization having rights in the
invention is listed below* and no rights to the invention are held by any
person, other than the inventor, who would not qualify as an independent
inventor under 37 CFR 1.9(c) if that person made the invention, or by any
concern which would not qualify as a small business concern under 37 CFR 1.9(d)
or a non profit organization under 37 CFR 1.9(e).
NOTE: Separate verified statements are required from each named person, concern
or organization having rights to the inventions averring to their status as
small entities (37 CFR 1.27).
<PAGE> 6
NAME: N/A
ADDRESS:
___ INDIVIDUAL ___ SMALL BUSINESS CONCERN ___ NONPROFIT ORGANIZATION
NAME: N/A
ADDRESS:
___ INDIVIDUAL ___ SMALL BUSINESS CONCERN ___ NONPROFIT ORGANIZATION
I acknowledge the duty to file, in this application or patent, notification of
any changes in status resulting in loss of entitlement to small entity status
prior to paying, or at the time of paying, the earliest of the issue fee or any
maintenance fee due after the date on which status as a small business entity
is no longer appropriate. (37 CFR 1.28(b)).
I hereby declare that all statements made herein of my own knowledge are true
and that all statements made on information and belief are believed to be true;
and further that these statements were made with the knowledge that willful
false statements may jeopardize the validity of the application, any patent
issuing thereon, or any patent to which this verified statement is directed.
NAME OF PERSON SIGNING John F. Warlick
TITLE OF PERSON OTHER THAN OWNER Vice President
ADDRESS OF PERSON SIGNING 13 West Park Square, Suite B, Marietta,
Georgia 30060
SIGNATURE________________________ Date___________________________
<PAGE> 7
PATENT
Docket No. 80809-1010
TO ALL WHOM IT MAY CONCERN:
Be it known that I, Roy S. Brown, a citizen of the United Kingdom, residing
at 781 James Circle, Lawrenceville, Georgia, 30245; and Argil Wheelock, MD,
residing at 1000 Scenic Way Lookout Mountain, Tennessee 37350, John Ogden, MD,
residing at 3435 Habersham Road, N.W. Atlanta, Georgia 30305, and John F.
Warlick, residing at 1608 Greenview Court, Woodstock, Georgia, 30188, Cherokee
County, citizens of the United States of America, have invented new and useful
improvements in a
METHOD FOR USING ACOUSTIC SHOCK WAVES IN THE TREATMENT OF MEDICAL, DENTAL AND
VETERINARY CONDITIONS
of which the following is a specification.
EXPRESS MAIL
------------
I hereby certify that this correspondence is being deposited with
the United States Postal Service as "Express Mail Post Office to
Address," in an envelope addressed to: BOX PATENT APPLICATION,
Assistant Commissioner for Patents, Washington, D.C. 20231, on
February 12, 1997.
------------------
Express Mail No.: 506245464US
-----------
Signature: /s/
------------------
<PAGE> 8
-1-
METHOD FOR USING ACOUSTIC SHOCK WAVES IN THE
TREATMENT OF MEDICAL, DENTAL AND VETERINARY CONDITIONS
FIELD OF THE INVENTION
This invention relates to a method for medical treatment of
pathological conditions. More particularly, the invention relates to a method
for using acoustic shock waves to treat a variety of pathological conditions
associated with bones and bone environments (including cartilage, ligaments,
tendons, joint capsules, bone marrow and muscle) such as motion injuries, soft
tissue injuries, spinal cord injuries, decalcification, osteoporosis,
osteopenia, osteomalacia, abnormal neuromuscular pain and abnormalities of
development.
BACKGROUND OF THE INVENTION
The use of energy wave forms for medical treatment of various bone
pathologies is known in the art. For example, U.S. Patent No. 4,530,360, issued
on July 23, 1985 to Duarte, teaches the use of an ultrasound transducers, in
direct contact with the skin of the patient, for transmitting ultrasound pulses
to the site of the bone defect. Duarte teaches a nominal ultrasound frequency of
1.3 to 2.0 MHz, a pulse width range of 10 to 2000 microseconds, and a pulse rate
varying between 100 and 1000 Hz. Duarte maintains the ultrasound power level
below 100 milliwatts per square centimeter, with treatments lasting no more than
20 minutes per day. Other devices utilize piezoelectric materials fastened
adjacent to the pathological site on the patient's limb to produce ultrasonic
energy in the vicinity of the bone pathology for administering therapy. Examples
of such prior art references include U.S. Patent Nos. 5,211,160, 5,259,384, and
5,309,898.
<PAGE> 9
-2-
Clinicians have also utilized shock waves to treat various pathologies.
Early approaches of using shock waves for medical treatment required immersing
the patient in water and directing a shock wave, generated by an underwater
spark discharge, at a solid site to be treated, such as a bone or kidney stone.
When the shock wave hits the solid site, a liberation of energy from the change
of acoustic impedance from water to the solid site produces pressure in the
immediate vicinity of the site. For example, U.S. Patent No. 4,905,671 to Senge
et al., issued on March 6, 1990, teaches a method applying acoustic shock waves
to induce bone formation. Senge et al. teaches that the acoustical sound waves
utilized by Duarte (and similar references) for treatment bone have a generally
damped sinusoidal wave form centered on ambient pressure. More specifically,
Senge et al. teaches that the pressure of an acoustical sound wave utilized by
Duarte rises regularly to a maximum value above ambient, falls regularly through
ambient and on to a minimum value below ambient in a continued oscillation above
and below ambient until complete damping occurs. Portions of the wave above
ambient represent acoustic compression, while portions below ambient represent
acoustic tension.
Senge et al. differentiates an idealized shock wave from the acoustic
sound wave of Duarte as having a single pressure spike having a very steep
onset, a more gradual relaxation, and virtually no oscillation to produce
acoustic tension. Furthermore, Senge et al. teaches that the absence of
extensive tension wave components allows the shock wave form to pass through
soft tissue to cause controlled trauma within a designated bone sight. Senge et
al. also teaches the minimization of the amplitude and extent of tension
components in the wave forms for the treatment of bone.
Senge et al. utilizes the extremely short rise time of the shock wave
to create
<PAGE> 10
-3-
high compression zones within bone tissue to cause restrictions of the
microcompartments of the bone. Senge et al. purports that such restrictions
cause the formation of hematomas within bone, which in turn, induce the
formation of new bone. Senge et al. utilizes a shock wave source consisting of a
spark gap between electrodes within a container of water. An electrical
condenser connected to the electrodes releases its energy over a very short
period of time, and an arc arises between the electrodes of the spark gap device
which vaporizes water surrounding the spark's path, establishing a plasma-like
state. The result is an explosion-like vaporization of the water which produces
an electro-hydraulic shock wave that spreads out in a circular fashion. A
metallic, ellipsoid-shaped structure surrounds a rear portion of the spark gap,
opposite the patient, to produce a known focal point for positioning within the
patient's pathological bone site. This device also requires that the patient be
submerged in the water.
Additionally, U.S. Patent No. 4,979,501 to Valchanov et al., issued on
December 25, 1990, teaches a method and apparatus for treating both pathologies
with shock or "impact" waves for correction of delayed bone consolidation and
bone deformations. The method disclosed in Valchanov et al. comprises the steps
of anesthetizing the patient, fixing the limb affected with the pathological
bone condition, centering the pathological site of the bone on the shock wave
focal point, treating the affected bone site once or consecutively, with 300 to
6000 impacts having a frequency of 0.4 - 4.0 per second with a pulse duration of
0.5 to 4.0 microseconds for a period of 10-120 minutes, and subsequently
immobilizing the limb for a period from 15 to 90 days. The impact wave
generating device disclosed by Valchanov et al. generally consists of a vessel
which contains a transmitting medium or acoustic liquid such as water contained
therein. At a bottom portion of the vessel are opposed electrodes
<PAGE> 11
-4-
which are adapted to produce a shock across the gap. Therefore, the patient is
not submerged for treatment.
Other references teach the treatment of bone pathologies utilizing
shock wave therapy in combination with imaging means for localizing the
pathology during treatment. Those references include U.S. Patent Nos. 5,284,144,
5,327,890, 5,393,296, 5,409,446, and 5,419,327. Finally, if the number and
magnitude of the shock wave pulses are sufficient, the shock wave treatment may
disintegrate a kidney stone. For example, U.S. Patent No. 4,896,673 to Rose et
al., issued on January 30, 1990 teaches a method and apparatus utilizing focused
shock wave treatment of kidney stones in combination with localization using
ultrasound or x-ray imaging.
Still other devices utilize transducers for producing ultrasonic
waves for therapy of soft tissue. For example, U.S. Patent No. 5,316,000, issued
on May 31, 1994 to Chapelon et al. teaches an array of composite piezoelectric
transducers for making an acoustic or ultrasonic therapy device for use in the
treatment of varicose veins. Similarly, U.S. Patent No. 5,458,130, issued on
October 17, l995 to Kaufman et al. also purports to therapeutically treat soft
tissue such as cartilage, ligament, and tendons using a piezoelectric transducer
excited by a composite sine-wave signal with a magnitude as may be prescribed by
a physician. Thus, past methods for treating soft tissue surrounding bone
utilized a transducer for the generation of ultrasonic waves for wave
propagation into the pathological site within the soft tissue area. Furthermore,
as described by Senge et al., clinicians traditionally implemented shock wave
therapy for the treatment of bone.
Therefore, it is an object of the present invention to provide a rapid,
time restricted and effective shock wave therapy treatment for pathological
conditions not only associated with bones, but also bone environments. Other
objects and features of
<PAGE> 12
-5-
the present invention will be more readily understood from the following
detailed description.
SUMMARY OF THE INVENTION
Generally speaking, the present invention relates to a method for
treating pathological conditions associated with bones and bone environments.
More specifically, the present invention comprises a method of applying
acoustical shock waves to the site of a pathological condition associated with
bone or a bone environment to induce, reactivate or accelerate the body's
natural healing processes, especially through natural cellular and molecular
(macromolecular) biologic responses, and to improve local microcirculation
through activated neoangiogenesis. The method according to the present invention
may also include the steps of locating the site of a pathological condition,
generating acoustic shock waves, focusing the acoustic shock waves on the
pathological site, and applying the focused acoustical shock waves on the site
to induce micro- or macro-fractures therein, as well as to induce osteoblastic
responses such as cellular recruitment, stimulate formation of molecular bone,
cartilage and soft tissue morphogens and growth factors, and to induce vascular
neoangiogenisis. The method similarly induces in bone environment tissues
neoangiogenesis and the formation, recruitment or stimulation of tissue specific
morphogenetic macromolecules and growth factors.
Micro- or macro-fractures resulting from the shock wave therapy induce
bleeding, cellular changes, extracellular, matrix and macromolecular changes in
a controlled fashion for the purpose of stimulating increased neoangiogenesis
leading to adequate vascularization in ischemic tissues. The increased
circulation and vascularization then induce the body's natural healing
processes. The accompanying cellular changes lead to or are associated with
elaboration and production of bone
<PAGE> 13
-6-
morphogenetic proteins, known as growth factors. Additionally, focused shock
wave therapy administered in accordance with the present invention overloads
local pain receptors for immediate mitigation or elimination of local pain
associated with the pathological site.
For the purposes of this specification, the bone environment may
include the cartilage, tendons, ligaments, joint capsules and muscles which
support skeletal structures.
Examples of pathological conditions which respond positively to the
inventive method include, but are not limited to, avascular necrosis
(osteonecrosis), temporal mandibular joint disease (TMJ), and dental disorders
such as loosened implants and recession. Repetitive motion injuries such as
stress fracture, carpal tunnel syndrome and tarsal tunnel syndrome also respond
positively to the inventive treatment method. Degenerative joint diseases such
as osteoporosis, osteomalacia, and arthritides also respond positively to the
inventive method. The inventive method also promotes fusion in partially
ankylosed joints, and may promote the growth of nerve cells in spinal cord
injuries. Other pathologies which respond positively to the inventive method
include soft tissue injuries such as torn rotator cuffs, impingement syndrome,
and tendinopathies such as tennis elbow and golfer's elbow. The inventive method
also promotes reabsorption of heterotopic calcifications and ossifications. The
inventive method may allow meniscal reattachment through revascularization.
Other pathologies which respond positively to the inventive method
include fibrous dysplasia, osteogenesis imperfecta, osteochondromatosis,
enchondromatosis, Peyronie's disease, diabetic foot ulcers, pressure sores,
partial osteonecrosis, facet osteoarthritis, sacroiliac pain, focal reflex
dystrophy pain, phantom pain, and nonadaptive bone disease and fatigue failure
in equines and canines.
<PAGE> 14
-7-
The inventive method affects bone growth. Specifically, application of
the inventive method will induce early closure of the growth plate
(epiphyseodesis). The method will also induce osteogenesis at margins of
vascularized bone transplants or transport bone in bone lengthening.
The inventive method may also promote fixation of loosened,
non-cemented joint implants, fixation of dental implants, pain relief in joint
implants, stimulation of bone formation and vascular ingrowth in bone
lengthening and vascularized bone grafting, decalcification of bone fibrotic
disorders and tumor destruction. The inventive method may promote incorporation
of bone graft material used to fill gaps following fracture or resection of
tumors.
The method according to the present invention may utilize physical
palpation, X-ray image intensification, or ultrasonography to precisely locate
the pathological site. Once the site is located, the inventive method may
utilize an ellipsoid reflector or focusing lens to specifically direct the
acoustic shock waves to the impact (treatment) site.
BRIEF DESCRIPTION OF THE DRAWINGS
Fig. 1 is a schematic representation of a shock wave generation device
with a focusing mechanism used in accordance with the inventive method.
Fig. 2 is a schematic representation of a therapy head and locating
mechanism used in accordance with the inventive method.
Fig. 3 is a schematic representation of the therapy head and locating
mechanism illustrated in Fig. 2 with the locating mechanism orientated at a 45
degree angle with respect to a horizontal plane.
Figs. 4 and 5 illustrate schematic representations of monitors that
display images of alignment targets for the therapy head in unaligned and
aligned positions,
<PAGE> 15
-8-
respectively.
DETAILED DESCRIPTION OF THE PREFERRED EMBODIMENTS
Implementation of the method of the present invention requires the use
of a locating device or palpation to locate the pathological site. Locating
devices may include, but are not limited to X-ray or ultrasound machines. For
example, the method and apparatus described in U.S. Patent No. 4,896,673 to Rose
et al., issued on January 30, 1990, the disclosure of which is incorporated
herein in its entirety, may locate the pathological site.
The device must also include a shock wave source such as a spark gap
generator, such as the ones described in U.S. Patent Nos. 4,905,671 to Senge et
al., issued on March 6, 1990; 4,979,501 to Valchanov et al., issued on December
25, 1990; 5,284,143 to Rattner, issued February 8, 1994; 5,327,890 to Matura et
al., issued July 12, 1994; 5,393,296 to Rattner, issued February 28, 1995;
5,409,446 to Rattner, issued April 25, 1995; and 5,419,327 to Rohwedder et al.,
issued on May 30, 1995, the disclosures of which are hereby incorporated by
reference.
The method according to the present invention may also utilize the
electromagnetic shock wave source and parabolic wave focusing means of the type
described in U.S. Patent No. 5,327,890 to Matura et al., issued July 12, 1994,
the disclosure of which is hereby incorporated by reference. The focusing means
may also comprise parabolic reflectors utilized in kidney lithotripters.
The inventive method also requires focusing means for focusing the
acoustic shock waves with an appropriate device, such as an ellipsoid or
parabolic focusing lens. The reflector is generally located in a therapy head,
which directs the waves to a focal
<PAGE> 16
-9-
point. Fig. 1 is a schematic representation of such a shock wave generator and
focusing means. Shock waves 4 radiate from electrode 9 and through water (not
shown). Waves 4 reflect from ellipsoid surface 8 and toward focal point 10.
In a preferred embodiment, the therapy head also includes a targeting
device which functions in conjunction with an X-ray machine locating device, as
is illustrated in Figs. 2 and 3. Figs. 2 and 3 schematically illustrate a
patient 56 positioned on a surface 55 during a treatment session. Two movable
targets 25 and 26 are connected mechanically to the therapy head 20 so that the
pair of targets 25 and 26 may rotate around at least two different axes with an
imaginary connecting line 19. An X-ray source 21 and plate 22 define a
connecting line 19 which passes through the targets 25 and 26. Connecting line
19 always extends between the two targets and throughout the focal point 10 of
the shock waves. Before beginning treatment in accordance with the present
invention, the clinician aligns the tissue area to be treated with the
approximate center of an X-ray image being projected by the source 21. An
appropriate monitor 29 illustrates the projection of the X-ray image as
illustrated in Figs. 4 and 5 As illustrated in Figs. 4 and 5, when targets 25
and 26 do not coincide with one another, then focal point is not aligned with
the treatment site 2. After proper alignment, as shown in Fig. 4, the targets 25
and 26 coincide with the treatment site, and the clinician may begin treatment.
As illustrated in Fig. 3, the imaging mechanism may also be positioned at
various angles with respect to the patient depending on the location of the
treatment site within the patient. Alternatively, an ultrasound locating unit
positions the shock wave focal point between the patient's pathological site and
the acoustically reflective object.
Applicants have found unexpected success in the treatment of soft
tissue and cancellous bone pathologies using shock wave therapy. Particular
applications of the method are illustrated in the following examples, which
include patients that did not
<PAGE> 17
-10-
significantly respond to conventional treatments for the particular pathology
treated.
EXAMPLE 1
The method according to the present invention was used to treat
calcified tendinitis, wherein the affected tendon is inflamed and has developed
deposits of calcium salts. A tendon, which is the fibrous corridor band that
connects a muscle to a bone or other structure, consists of very densely
arranged, almost parallel collagenous fibers, rows of elongated tendorr cells,
and a ground substance. The tendon may become calcified, stiff, and inflamed.
Table 1 below sets out results of acoustic shock therapy for the treatment of
calcific tendinitis:
<PAGE> 18
-11-
TABLE 1
PRELIMINARY CLINICAL RESULTS FOR TREATMENT OF
CALCIFIC TENDINITIS USING THE INVENTIVE METHOD
<TABLE>
<CAPTION>
Number of patients: 684
<S> <C> <C>
Success Rate: total 81%
single treatment: 62%
double treatment: 19%
Shocks Per Treatment: average: 750
min.: 300
max: 2500
Energy Applied average: 16 kV
Per Pulse: min: 14 kV
max: 18 kV
Pulse Frequency: average: 0.5-2.0 Hz
Treatment Duration average: 20-30 minutes
Anesthesia: local
Side Effects: petechial bleedings
History: Time of prior conventional therapies:
average: 15 months
min: 6 months
max: 12 years
Prior treatment: resistant to conventional methods.
Hospitalization: Outpatient
Follow-up: 3-6 months
</TABLE>
The treatment included 684 patients with calcific tendinitis with an
average success rate of 81%. Of the total number of treated patients, 62% of the
patients had a successful recovery after one session, and 19% had a successful
recovery after two
<PAGE> 19
-12-
sessions of shock wave therapy. An average of 750 shocks per treatment were
applied with the minimum being 300 and the maximum being 2500.
The average amount of energy applied for each shock wave pulse was 16
kilovolts with a session minimum of 14 kilovolts and a session maximum of 18
kilovolts. The treatment included local anesthesia, and the side effects of the
treatment included petechial bleedings, which are minute hemorrhagic spots
approximately the size of pin points on the patient's skin surface, in the
vicinity of the treatment site. These resolve within 48 hours with no permanent
consequences.
As explained above, each of the patients chosen for this study had not
responded to previous conventional therapy. Of the total number of patients
treated using the inventive shock wave therapy for calcific tendinitis, the
average time for conventional treatment period was 15 months with no response.
The maximum prior conventional prior treatment period was 12 years. The minimum
prior treatment period for the group of patients was 6 months. Each patient
received the shock wave therapy on an outpatient basis, and follow up
examinations after 36 months for each patient yielded no recurrence of the
condition.
EXAMPLE 2
The inventive method also proves successful in the treatment of
epicondylitis. Epicondylitis refers to a condition which may necessitate the
removal of an inflamed or diseased external condyle from an elongated bone or
the release or repair of attached tendons. The epi condyle is generally a
projection from an elongated bone near its articular extremity. Table 2
summarizes the results of acoustic shock wave treatment on patients suffering
from epicondylitis at the elbow.
<PAGE> 20
-13-
TABLE 2
PRELIMINARY CLINICAL RESULTS FOR TREATMENT OF
EPICONDYLITIS USING THE INVENTIVE METHOD
<TABLE>
<CAPTION>
Number of patients: 285
<S> <C> <C>
Success Rate total 69%
single treatment: 47%
double treatment: 22%
No. of Shocks: average: 780
min: 400
max: 1500
Energy Applied Per Pulse: average: 15 kV
min: 14 kV
max: 16 kV
Pulse Frequency: average: 0.5-2.0 Hz
Treatment Duration avenge: 20-30 minutes
Anesthesia: local
plexus
Side Effects: petechial bleedings, posttreatment pain
History: Time of prior conventional therapies:
average: 13 months
min.: 4 months
max: 48 months
Prior treatment: Resistant to conventional
methods.
Hospitalization: Outpatient
Follow-up: 3-6 months
</TABLE>
This study included 285 patients treated with an average success rate
of 69%. The average success rate consisted of a sum of 47% of the treated
patients receiving a
<PAGE> 21
-14-
single treatment and 22% of the treated patients receiving a double treatment.
Each treatment employed an average number of shocks applied per session of 780,
with the minimum being 400 and the maximum being 1500. The treatment applied an
average of 15 kilovolts energy per pulse with the minimum being 14 kilovolts and
the maximum 16 kilovolts. Treatment included a local or plexus anesthesia. The
side effects included petechial bleedings and posttreatment pain, both of which
subsided rapidly.
As explained above, each of the patients chosen for this study did not
respond to conventional therapy. Of the total number of patients treated using
the inventive shock wave therapy for epicondylitis, the average time for
conventional treatment period was 13 months with no response. The maximum prior
conventional prior treatment period was 48 months. The minimum prior treatment
period for the group of patients was 4 months. Each patient received the shock
wave therapy on an outpatient basis, and follow up examinations after 36 months
for each patient yielded no reoccurrence of the condition.
<PAGE> 22
-15-
EXAMPLE 3
This study included treatment for 131 patients suffering from
pseudarthrosis, which is a condition wherein a new, false joint arises at the
site of an non-united fracture, as illustrated in Table 3.
<PAGE> 23
-16-
TABLE 3
PRELIMINARY CLINICAL RESULTS FOR TREATMENT OF
PSEUDARTHROSIS USING THE INVENTIVE METHOD
<TABLE>
<CAPTION>
Number of patients: 131
<S> <C> <C>
Success Rate total 77%
single treatment: 57%
double treatment: 20%
No. of Shocks: average: 2454
min: 800
max: 4000
Energy Applied Per Pulse: average: 24 kV
min: 18 kV
max: 28 kV
Pulse Frequency: average: 0.5-2.0 Hz
Treatment Duration avenge: 30-40 minutes
Anesthesia: general, spinal, peridural, local
Side Effects: petechial bleedings, local swelling
History: Time after fracture:
average: 23 months
min.: 4 months
max: 20 months
Prior treatment: One or multiple surgeries
including osteosynthesis.
Hospitalization: usually outpatient
Follow-up: 3-6 months
</TABLE>
<PAGE> 24
-17-
This study included 131 patients treated with an average success rate
of 77%. The average success rate consisted of a sum of 57% of the treated
patients receiving a single treatment and 20% of the treated patients receiving
a double treatment. The treatment employed an average number of shocks applied
per session of 2450, with the minimum being 800 and the maximum being 4000. The
treatment applied an average of 24 kilovolts energy per pulse with the minimum
being 18 kilovolts and the maximum 28 kilovolts. Treatment included one or more
of the following types of anesthesia: general, spinal, peridural, and local. The
side effects included petechial bleedings and local swelling, both of which
dissipated rapidly.
As explained above, each of the patients chosen for this study did not
respond to conventional treatment for fracture and faced further surgery, bone
grafting, etc. Of the total number of patients treated using the inventive shock
wave therapy for pseudarthrosis, the average time after fracture was 13 months.
The maximum time period from fracture was 20 years. The minimum time period from
fracture was 4 months. Prior treatment for this group of patients included one
or multiple surgeries including osteosynthetic procedures.
Each patient received the shock wave therapy on an outpatient basis or
over a 2-3 day hospital visit, and follow up examinations after 36 months for
each patient yielded no recurrence of the condition.
Table 4 below summarizes the technical parameters of methods for using
acoustic shock waves in the treatment of some medical conditions.
<PAGE> 25
-18-
TABLE 4
SUMMARIZATION OF TECHNICAL PARAMETERS OF VARIOUS
ACOUSTIC SHOCK WAVE TREATMENT PARAMETERS
<TABLE>
<CAPTION>
CALCIFIC EPICONDYLITIS PSEUDARTHROSIS PLANTAR FASCIITIS
TENDENITIS
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Frequency of 0.5 - 2Hz @ fixed 0.5 - 2 Hz @ fixed 0.5 - 2Hz @ fixed 0.5 - 2Hz @ fixed
shock wave impact frequency frequency frequency frequency
- -------------------------------------------------------------------------------------------------------
Pulse duration average rise time average rise time average rise time average rise time
33 ns; average 33 ns; average 33 ns; average 33 ns; average
pulse width 280 ns pulse width 280 ns pulse width 280 ns pulse width 280 ns
- -------------------------------------------------------------------------------------------------------
Treatment period as needed to as needed to as needed to as needed to
(minutes) identify treatment identify treatment identify treatment identify treatment
site and deliver site and deliver up site(s) and deliver site and deliver up
up to 2500 pulses to 1500 pulses from 1000 to 8000 to 1000 pulses
approx. approx. pulses approx. approx.
20 - 30 min 20 - 30 min 45 - 60 min 20 - 30 min
- -------------------------------------------------------------------------------------------------------
Posttreatment care return to normal return to normal recast and treat as return to normal
activities activities fresh fracture activities
- -------------------------------------------------------------------------------------------------------
Tissue type at tendons of tendons of the fractured bone that fascia of the heel
focal point shoulder joint at elbow joint at the has delayed or at the insertion
the insertion into insertion into bone failed to heal into bone
bone
- -------------------------------------------------------------------------------------------------------
Types of - application of - application of - dynamic internal - application of
ineffective heat, ice heat, ice or external heat ice
conventional - physical therapy - physical therapy fixation physical therapy
therapy - Non-steroidal - Non-steroidal - immobilization - Non-steroidal
anti-inflammatory and-inflammatory - surgical anti-inflammatory
drugs (NSAID'S) drugs (NSAID'S) debridement drugs (NSAID'S)
- Steroid injection - Steroid injection - - Steroid injection
- Surgical - Surgical electrical/electro- - Surgical
Intervention Intervention magnetic bone Intervention
growth stimulator
- -------------------------------------------------------------------------------------------------------
</TABLE>
While the examples focus on the treatment of four pathological
conditions, the method is applicable to a wide range of pathological conditions.
The inventive method may include a wide range in the various parameters used to
treat all of the pathologies mentioned in this specification. Specifically. for
each of the pathologies mentioned in this specification, the inventive method
may include applying a range of approximately 14-28 kilovolts of energy per
pulse; the pulse frequency may be approximately 0.5-150 Hz (pulses/sec) Hz and
the pulse duration may be approximately 280 ns. The number of pulses per
treatment should be approximately 400-10,000, and the total time
<PAGE> 26
-19-
per treatment should be approximately 20 minutes to 3 hours. Additionally, the
number of treatments necessary for a positive response may vary from 1 to 3.
Below are some additional preferred embodiments for carrying out the present
invention.
The inventive method may be used to treat bone and joint conditions
such as osteonecrosis. Such a treatment should apply a range of approximately
20-28 kilovolts of energy per pulse. The pulse frequency should be approximately
0.5-2 Hz (pulses/sec) Hz and the pulse duration should be approximately 280 ns.
The number of pulses per treatment should be approximately 2000-8000, and the
total time per treatment should be approximately 40 minutes to 2.5 hours.
The inventive method may also be used to treat temporomandibular
disfunction. Such a treatment should apply an average of approximately 14-28
kilovolts of energy per pulse. The pulse frequency should be in the range of
approximately 0.5 to 2.5 Hz and the pulse duration should be approximately 280
ns. The number of pulses per treatment should be approximately 800-4000, and the
total time per treatment should be approximately 30 minutes to 1 hour and 15
minutes.
The inventive method may also be used to treat other repetitive motion
injuries including carpal tunnel, or tarsal tunnel syndrome. Such a treatment
should apply an average of approximately 14-24 kilovolts of energy per pulse.
The pulse frequency should be approximately 0.5 to 2.5 Hz and the pulse duration
should be approximately 280 ns. The number of pulses per treatment should be
approximately 400-2500, and the total time per treatment should be in the range
of approximately 20 minutes to 45 minutes.
The bone density and extent of calcification in osteoporotic sites can
be increased by the application of the present invention. The effects of the
focused acoustic waves on osteoporotic sites can be prolonged and maintained
indefinitely when used in conjunction with drugs such as Fosamax(TM). For
example, an osteoporotic wrist
<PAGE> 27
-20-
requires a treatment having an average of approximately 14-28 Kilovolts of
energy per pulse. The pulse frequency should be approximately 0.5 to 2.5 Hz and
the pulse duration should be approximately 280 ns. The number of pulses per
treatment should be approximately 800-4000 and the total time per treatment
should be in the range of approximately 30 minutes to 1 hour and 30 minutes. The
inventive treatment is also effective on other osteoporotic sites. However, the
number of pulses per treatment must increase with increasing bone mass. For
example, an osteoporotic hip may require up to 12,000 shocks in a single
treatment.
Arthritis and other degenerative joint diseases including rheumatoid
arthritis could be treated. The treatment for those conditions should include an
average number of shocks applied per session of approximately 400-2500. The
treatment should apply an average of approximately 14-24 kilovolts of energy per
pulse. The pulse frequency should be approximately 0.5-2.0 Hz and the pulse
duration should be approximately 280 ns. The total time per treatment should be
in the range of approximately 20 to 45 minutes.
Acoustic shock waves may also be used to accelerate the rate of healing
of soft tissue injuries, such as torn rotator cuffs. Such a treatment should
apply an average of approximately 14-20 kilovolts of energy per pulse. The pulse
frequency should be approximately 0.5-2.0 Hz and the pulse duration should be
approximately 280 ns. The number of pulses per treatment should be approximately
400-2500, and the total time per treatment should be in the range of
approximately 20 to 45 minutes.
Acoustic shock waves may be used to accelerate the healing of fresh
fractures. Such a treatment should apply an average of approximately 14-28
kilovolts of energy per pulse. The pulse frequency should be approximately
0.5-2.0 Hz and the pulse duration should be approximately 280 ns. The number of
pulses per treatment should be approximately 1000-8000, and the total time per
treatment should be in the range of
<PAGE> 28
-21-
approximately 45 minutes to 2 hours.
Acoustic shock waves may be used to enhance bone formation and
remodeling in stress fractures. Such a treatment should apply an average of
approximately 14-28 kilovolts of energy per pulse. The pulse frequency should be
approximately 0.5-2.0 Hz and the pulse duration should be approximately 280 ns.
The number of pulses per treatment should be approximately 1000-8000, and the
total time per treatment should be in the range of approximately 45 minutes to 2
hours.
The inventive method may also be used to induce the generation of nerve
cells in spinal cord injuries. Such a treatment should apply an average of
approximately 14-28 kilovolts of energy per pulse. The pulse frequency should be
approximately 0.5-2.0 Hz and the pulse duration should be approximately 280 ns.
The number of pulses per treatment should be approximately 800-4000, and the
total time per treatment should be 30 minutes to approximately 1 hour and 30
minutes.
Pain relief of joint implants and fixation of loosened, non cemented
joint implants may also be treated by using the inventive method. Such a
treatment should apply an average of approximately 14-28 kilovolts of energy per
pulse. The pulse frequency should be approximately 0.5-2.0 Hz and the pulse
duration should be approximately 280 ns. The number of pulses per treatment
should be approximately 2000-8000, and the total time per treatment should be in
the range of approximately 50 minutes to 2 hours and 30 minutes. This treatment
may also relieve pain in cemented joint implants in the knee, hip and shoulder,
such pain being caused by loosening.
Pain relief of joint implants and fixation of dental implants may also
be treated by using the inventive method. Such a treatment should apply an
average of approximately 14-22 kilovolts of energy per pulse. The pulse
frequency should be approximately 0.5-2.0 Hz and the pulse duration should be
approximately 280 ns. The number of pulses per treatment should be approximately
1000-4000, and the total time
<PAGE> 29
-22-
per treatment should be in the range of approximately 30 minutes to 2 hours.
The reabsorption of heterotopic calcification and ossification may also
be accelerated by application of the present method. In particular, the
surrounding shell and fibrotic capsule protecting the calcification from the
reabsorption process would be destroyed or damaged. Such a treatment should
apply an average of approximately 14-20 kilovolts of energy per pulse. The pulse
frequency should be approximately 0.5-2.0 Hz and the pulse duration should be
approximately 280 Ns. The number of pulses per treatment should be approximately
300-3000, and the total time per treatment should be in the range of 20 minutes
to 1 hour.
Fibrotic disorders and Peyronie's disease may also be treated by the
inventive method. Such a treatment should apply an average of approximately
14-28 kilovolts of energy per pulse. The pulse frequency should be approximately
0.5-2.0 Hz and the pulse duration should be approximately 280 ns. The number of
pulses per treatment should be approximately 400-2500, and the total time per
treatment should be in the range of approximately 20 to 45 minutes.
The inventive method may also accelerate the healing diabetic foot
ulcers or other open wounds, such as pressure sores. Such a treatment should
apply an average of approximately 14-20 kilovolts of energy per pulse. The pulse
frequency should be approximately 0.5-2.0 Hz and the pulse duration should be
approximately 280 ns. The number of pulses per treatment should be approximately
400-2500, and the total time per treatment should be in the range of
approximately 20 to 60 minutes.
Sacroiliac pain may also be treated by the inventive method, wherein
the acoustic shock waves are focused between the sacrum and pelvic bone surface
(ilium). Such a treatment should apply an average of approximately 14-20
kilovolts of energy per pulse. The pulse frequency should be approximately
0.5-2.0 Hz and the pulse duration should be approximately 280 ns. The number of
pulses per treatment should
<PAGE> 30
-23-
be approximately 1500-4000, and the total time per treatment should be in the
range of approximately 40 to 1.33 hours.
Osteochrondritis dessicans resulting in bone necrosis affecting
contiguous joint cartilage may also be treated by the inventive method. Such a
treatment should apply an average of approximately 18-26 kilovolts of energy per
pulse. The pulse frequency should be approximately 0.5-2.0 Hz and the pulse
duration should be approximately 280 Ns. The number of pulses per treatment may
be up to 5000, and the total time per treatment may be up to 2 hours:
The method may be used to treat tumors by increasing the number of
pulses per second to a sufficient level to allow the cavitational effects of the
shock waves to cause severe tissue damage. The therapy would be accompanied with
aggressive local or systemic chemotherapy or similar type therapy when used on
malignant tumors. Such a treatment should apply an average of approximately
14-28 kilovolts of energy per pulse. The pulse frequency should be approximately
50-150 Hz and the pulse duration should be approximately 280 us. The number of
pulses per treatment should be approximately 5000-10,000, and the total time per
treatment should be 1.5 hours to 3.0 hours.
Examples of additional pathological conditions which respond positively
in the inventive method include, but are not limited to, avascular necrosis,
osteomalacia, and other degenerative joint diseases. Other pathologies which
respond positively to the inventive method include soft tissue injuries such as
torn menisci, torn rotator cuffs, impingement syndrome, and all types of
tendinopathies such as tennis elbow and golfer's elbow, as explained above.
Moreover, the inventive method may also be use to treat fibrous dysphasia,
osteogenesis imperfects, osteochondromatosis, facet osteoarthritis, focal reflex
dystrophy pain, and phantom pain.
<PAGE> 31
-24-
The inventive method may also promote stimulation of bone formation,
vascular ingrowth in bone lengthening, vasculanzation in bone grafting,
decalcification of bone fibrotic disorders, and fusion in partially ankylosed
joints.
The inventive method may promote premature closure of a bone growth
region (growth plate) by enhancing growth of bone to replace this cartilage. The
inventive method may be used to promote ingrowth of blood vessels, osteoblasts
and growth factors into bone graft materials used after severe fractures or to
fill gaps caused by benign tumors.
Non-adaptive bone diseases in equines and canines could also be
treated. For example, to the extent that all of the above-referenced
pathological conditions occur in equines and canines, all of the
above-referenced treatments are applicable to the treatment of equines, canines,
or other animals.
For all indications, there is an increasing benefit for up to 3
treatments. However, most indications require an average of 1.5 treatments for
all of the above-referenced indications.
While the invention has been described in terms of various preferred
embodiments, those of skill in the art will appreciate that various
modifications, substitutions, omissions and changes may be made without
departing from the spirit thereof. Accordingly, it is intended that the scope of
the present invention not be limited solely by the scope of the following
claims.
<PAGE> 32
-25-
What is Claimed is:
1. A method of treating a pathological condition associated with a bone
environment comprising the step of:
applying acoustic shock waves to a tissue site of the pathological condition for
inducing or accelerating the body's natural healing processes.
2. The method of claim 1 wherein the site of the pathological condition
is located in soft tissue.
3. A method of treating pathological conditions associated with a bone
environment comprising the steps of:
locating the site of the pathological condition;
generating acoustic shock waves;
focusing said acoustic shock waves on the located site; and
applying the focused acoustic shock waves to the located site to induce
micro- or macro-fractures, bleeding and increased vascularization and
circulation so that the body's natural healing processes are induced or
accelerated.
4. The method of claim 3, comprising the further step of: treating a
pathological condition in soft tissue.
5. The method of claim 3, comprising the further step of: locating the
pathological site by an X-ray imaging device.
6. The method of 3, comprising the further step of:
locating the pathological site by an ultrasound device.
<PAGE> 33
-26-
7. The method of claim 3, comprising the further step of:
locating the pathological site by palpation.
8. The method of claim 3, comprising the further step of:
generating said acoustic shock waves with a spark gap generator.
9. The method of claim 3, comprising the further step of:
focusing said acoustic reflector shock waves on said pathological sight with
an ellipsoid lens.
10. The method of claim 8, comprising the further step of:
treating osteonecrosis with acoustic shock waves.
11. The method of claim 9 comprising the further step of:
applying a voltage potential across said spark gap ranging from about 14 kV to
about 22 kV to generate each said shock wave;
and generating about 800 to about 4000 shock waves in a single treatment.
12. The method of claim 8, comprising the further step of:
treating temporal mandibular joint dysfunction with acoustic shock waves.
13. The method of claim 12 comprising the further step of:
applying a voltage potential across said spark gap ranging from about 14 kV
to about 28 kV to generate each said shock wave;
and generating about 800 to about 4000 shock waves in a single treatment.
<PAGE> 34
-27-
14. The method of claim 8, comprising the further step of:
treating carpal tunnel syndrome with acoustic shock waves.
15. The method of claim 14 comprising the further step of:
applying a voltage potential across said spark gap ranging from about 14 kV to
about 24 kV to generate each said shock wave;
and generating about 400 to about 2500 shock waves in a single treatment.
16. The method of claim 8, comprising the further step of:
treating osteoporotic sites with acoustic shock waves.
17. The method of claim 16 comprising the further step of:
applying a voltage potential across said spark gap ranging from about 14 kV to
about 24 kV to generate each said shock wave; and
generating about 800 to about 12000 shock waves in a single treatment.
18. The method of claim 8, comprising the further step of:
treating degenerative joint diseases with acoustic shock waves.
19. The method of claim 18 comprising the further step of:
applying a voltage potential across said spark gap ranging from about 14 kV to
about 24 kV to generate each said shock wave;
and generating about 400 to about 2500 shock waves in a single treatment.
<PAGE> 35
-28-
20. The method of claim 8, comprising the further step of:
treating torn rotator cuffs with acoustic shock waves.
21. The method of claim 20 comprising the further step of:
applying a voltage potential across said spark gap ranging from about 14 kV to
about 20 kV to generate each said shock wave; and generating about 400 to
about 2500 shock waves in a single treatment.
22. The method of claim 8, comprising the further step of:
treating spinal cord injuries with acoustic shock waves to induce the generation
of nerve cells.
23. The method of claim 20 comprising the further step of:
applying a voltage potential across said spark gap ranging from about 14 kV to
about 28 kV to generate each said shock wave; and generating about 800 to
about 4000 shock waves in a single treatment.
24. The method of claim 8, comprising the further step of:
treating non cemented joint implants with acoustic shock waves to relieve pain.
25. The method of claim 24 comprising the further step of:
applying a voltage potential across said spark gap ranging from about 14 kV
to about 28 kV to generate each said shock wave; and
generating about 2000 to about 8000 shock waves in a single treatment.
<PAGE> 36
-29-
26. The method of claim 8, comprising the further step of:
treating loosened, non-cemented joint implants with acoustic shock waves to
induce bony growth and fixation.
27. The method of claim 26 comprising the further step of:
applying a voltage potential across said spark gap ranging from about 14 kV to
about 28 kV to generate each said shock wave; and generating about 2000 to about
8000 shock waves in a single treatment.
28. The method of claim 8, comprising the further step of:
accelerating the reabsorption of heterotropic calcifications by focusing the
acoustic shock waves to destroy a tissue capsule surrounding the calcification.
29. The method of claim 28 comprising the further step of:
applying a voltage potential across said spark gap ranging from about 14 kV to
about 20 kV to generate each said shock wave; and generating about 300 to about
3000 shock waves in a single treatment.
30. The method of claim 8, comprising the further step of:
treating fibrotic dysplasia with acoustic shock waves.
31. The method of claim 30 comprising the further step of:
applying a voltage potential across said spark gap ranging from about 14 kV to
about 28 kV to generate each said shock wave; and
generating about 400 to about 2500 shock waves in a single treatment.
<PAGE> 37
-30-
32. The method of claim 8, comprising the further step of:
treating Peyronie's disease with acoustic shock waves.
33. The method of claim 32 comprising the further step of:
applying a voltage potential across said spark gap ranging from about 14 kV
to about 28 kV to generate each said shock wave; and generating about 400 to
about 2500 shock waves in a single treatment.
34. The method of claim 8, comprising the further step of:
treating diabetic foot ulcers with acoustic shock waves to accelerate healing.
35. The method of claim 34 comprising the further step of:
applying a voltage potential across said spark gap ranging from about 14 kV to
about 20 kV to generate each said shock wave; and generating about 400 to about
2500 shock waves in a single treatment.
36. The method of claim 8, comprising the further step of:
treating open wounds with acoustic shock waves to accelerate healing.
37. The method of claim 36 comprising the further step of:
applying a voltage potential across said spark gap ranging from about 14 kV to
about 20 kV to generate each said shock wave; and
generating about 400 to about 2500 shock waves in a single treatment.
<PAGE> 38
-31-
38. The method of claim 8, comprising the further step of:
treating sacroiliac pain by focusing the acoustic shock waves between the
sacrum and pelvic bone surface (ilium).
39. The method of claim 38 comprising the further step of:
applying a voltage potential across said spark gap ranging from about 14 kV
to about 20 kV to generate each said shock wave; and generating about 1500 to
about 4000 shock waves in a single treatment.
40. The method of claim 8, comprising the further step of:
treating tumors with acoustic shock waves to destroy tumor tissue.
41. The method of claim 40 comprising the further step of:
applying a voltage potential across said spark gap ranging from about 14 kV
to about 28 kV to generate each said shock wave; and
generating from about 5000 to 10,000 shock waves in a single treatment at a
pulse frequency of 50-150Hz.
42. The method of claim 8, comprising the further step of:
treating avascular necrosis with acoustic shock waves to accelerate healing.
<PAGE> 39
-32-
43. The method of claim 42 comprising the further step of:
applying a voltage potential across said spark gap ranging from about 14 kV to
about 28 kV to generate each said shock wave; and generating up to 8000 shock
waves in a single treatment.
44. The method of claim 8, comprising the further step of:
treating osteomalacia with acoustic shock waves to accelerate healing.
45. The method of claim 44 comprising the further step of:
applying a voltage potential across said spark gap ranging from about 14 kV to
about 28 kV to generate each said shock wave; and generating up to 8000 shock
waves in a single treatment.
46. The method of claim 8, comprising the further step of:
treating impingement syndrome with acoustic shock waves.
47. The method of claim 46 comprising the further step of:
applying a voltage potential across said spark gap ranging from about 14 kV to
about 28 kV to generate each said shock wave; and generating up to 8000 shock
waves in a single treatment.
48. The method of claim 8, comprising the further step of:
treating fibrous dysplasia with acoustic shock waves to accelerate healing.
<PAGE> 40
-33-
49. The method of claim 48 comprising the further step of:
applying a voltage potential across said spark gap ranging from about 14 kV to
about 28 kV to generate each said shock wave; and generating up to 8000 shock
waves in a single treatment.
50. The method of claim 8, comprising the further step of:
treating osteogenesis imperfecta with acoustic shock waves to accelerate
healing.
51. The method of claim 50 comprising the further step of:
applying a voltage potential across said spark gap ranging from about 14 kV to
about 28 kV to generate each said shock wave; and generating up to 8000 shock
waves in a single treatment.
52. The method of claim 8, comprising the further step of:
treating osteochondromatosis with acoustic shock waves to accelerate healing.
53. The method of claim 52 comprising the further step of:
applying a voltage potential across said spark gap ranging from about 14 kV to
about 28 kV to generate each said shock wave; and generating up to 8000 shock
waves in a single treatment.
54. The method of claim 8, comprising the further step of:
treating facet osteoarthritis with acoustic shock waves to accelerate healing.
<PAGE> 41
-34-
55. The method of claim 54 comprising the further step of:
applying a voltage potential across said spark gap ranging from about
14 kV to about 28 kV to generate each said shock wave; and
generating up to 8000 shock waves in a single treatment.
56. The method of claim 8, comprising the further step of:
treating focal reflex dystrophy pain with acoustic shock waves to
accelerate healing.
57. The method of claim 56 comprising the further step of:
applying a voltage potential across said spark gap ranging from about
14 kV to about 28 kV to generate each said shock wave; and
generating up to 8000 shock waves in a single treatment.
58. The method of claim 8, comprising the further step of:
treating phantom pain with acoustic shock waves to accelerate healing.
59. The method of claim 58 comprising the further step of:
applying a voltage potential across said spark gap ranging from about
14 kV to about 28 kV to generate each said shock wave; and
generating up to 8000 shock waves in a single treatment.
60. The method of claim 8, comprising the further step of:
applying acoustic shock waves to accelerate vascular ingrowth in bone
lengthening procedures.
<PAGE> 42
-35-
61. The method of claim 60 comprising the further step of:
applying a voltage potential across said spark gap ranging from about
14 kV to about 28 kV to generate each said shock wave; and
generating up to 8000 shock waves in a single treatment.
62. The method of claim 8, comprising the further step of:
utilizing acoustic shock waves to accelerate vascularization bone
ingrowth, and incorporation in bone grafting.
63. The method of claim 62 comprising the further step of:
applying a voltage potential across said spark gap ranging from about
14 kV to about 28 kV to generate each said shock wave; and
generating up to 8000 shock waves in a single treatment.
64. The method of claim 8, comprising the further step of:
treating bone fibrotic disorders with acoustic shock waves to promote
decalcification.
65. The method of claim 64 comprising the further step of:
applying a voltage potential across said spark gap ranging from about
14 kV to about 28 kV to generate each said shock wave; and
generating up to 8000 shock waves in a single treatment.
66. The method of claim 8, comprising the further step of:
treating partially ankylosed joints with acoustic shock waves to
accomplish fusion.
<PAGE> 43
-36-
67. The method of claim 66 composing the further step of:
applying a voltage potential across said spark gap ranging from about 14 kV to
about 28 kV to generate each said shock wave; and
generating up to 8000 shock waves in a single treatment.
68. The method of claim 8, comprising the further step of:
treating fixation of loosened dental implants with acoustic shock waves to
promote fixation and relieve pain.
69. The method of claim 68 composing the further step of:
applying a voltage potential across said spark gap ranging from about 14 kV to
about 28 kV to generate each said shock wave; and
generating up to 8000 shock waves in a single treatment.
70. The method of claim 8, comprising the further step of:
treating dental disorders with acoustic shock waves to accelerate healing.
71. The method of claim 70 comprising the further step of:
applying a voltage potential across said spark gap ranging from about 14 kV to
about 28 kV to generate each said shock wave; and
generating up to 8000 shock waves in a single treatment.
72. The method of claim 8, comprising the further step of:
treating bone length inequality or angular deformity with shock waves to stop
growth by initiating closure of the growth plate.
<PAGE> 44
-37-
73. The method of claim 72 comprising the further step of:
applying a voltage potential across said spark gap ranging from about 14 kV
to about 28 kV to generate each said shock wave; and
generating up to 8000 shock waves in a single treatment.
<PAGE> 45
-38-
Abstract of the Disclosure
A method of treating pathological conditions associated with bones,
other skeletal tissues, and soft tissues involves applying acoustic shock waves
to the bone, other skeletal tissue, or soft tissue to cause micro- or macro-
fractures, non-osseous tissue stimulation, bleeding, increased vascularization
and circulation and induction of growth factors to induce or accelerate the
body's natural healing processes and responses. Shock wave therapy administered
in accordance with the inventive method also overloads local pain receptors for
immediate mitigation or elimination of local pain associated with the
pathological site.
<PAGE> 1
EXHIBIT 10.4(D)
UNITED STATES PATENT [19] [11] PATENT NUMBER: 5,595,178
[45] DATE OF PATENT: JAN. 21, 1997
<PAGE> 1
EXHIBIT 10.4(e)
SECOND AMENDMENT TO PATENT LICENSE AGREEMENT
(Also referred to as "Patent License Agreement")
This agreement is made and entered into this ____ day of _____________,
1998, by and between HIGH MEDICAL TECHNOLOGIES ENTWICKLUNGS + VERTRIEBS AG.
(hereinafter referred to as "HMT") and, HEALTHTRONICS, INC.:
WITNESSETH:
WHEREAS, HMT and OssaTronics, Inc. have entered into a distributorship
agreement dated November 22, 1994 (hereinafter referred to as the "OssaTron
Distributorship Agreement"); and
WHEREAS, HMT and OssaTronics, Inc. have entered into a Patent License
Agreement (also referred to as Patent Licence Agreement) dated June 3, 1995
regarding U.S. Patent No. 4,979,501 and Canadian Patent No. 1,330,580
(hereinafter referred to as the "Patent License Agreement"); and
WHEREAS, OssaTronics, Inc. has merged into HealthTronics, Inc., a Georgia
corporation and the Distributorship Agreement and Patent License Agreement have
been assigned to HealthTronics, Inc.; and
WHEREAS, HMT, Jena, has assigned its interest in the Patent License
Agreement and Distributorship Agreement to HMT, Switzerland; and
WHEREAS, the parties hereto amended the Patent License Agreement by an
agreement dated August 7, 1996 entitled Amendment to Patent License Agreement,
LithoTron Distributorship Agreement and OssaTron Distributorship Agreement; and
Page 1
<PAGE> 2
WHEREAS, subsequent to said Patent License Agreement, HMT became the
assignee of a United States Patent dated January 21, 1997 entitled System,
Method and Apparatus For Treatment Of Degenerative Bone, U.S. Patent No.
5,595,178; and
WHEREAS, the parties desire that U.S. Patent No. 5,595,178 be licensed
under the existing Patent License Agreement.
NOW THEREFORE, in consideration of ten dollars ($10.00) and other good and
valuable consideration, the parties agree as follows:
I.
The Article 1 of "Patent License Agreement" as amended, shall be amended
and restated as follows:
ARTICLE 1
Patent Rights Granted
HMT hereby grants to LICENSEE an exclusive license to make, use, lease or
sell shock wave equipment for medical treatment which would infringe any valid
claim of the licensed patents upon which royalties are to be paid under this
Agreement. The following patents are licensed under this Agreement:
a) U.S. Patent No. 4,979,501 entitled Method and Apparatus For Medical
Treatment of The Pathological State of Bones;
b) Canadian Patent No. 1,330,580;
c) U.S. Patent No. 5,595,178, entitled, System, Method and Apparatus
For Treatment of Degenerative Bone.
Page 2
<PAGE> 3
(A) All remaining provisions in the Patent License Agreement as amended
shall remain as originally set forth.
HMT
BY: /s/
---------------------
HEALTHTRONICS, INC.
BY: /s/
---------------------
Page 3
<PAGE> 4
Licensee is hereby granted immunity from suit under the licensed patents
with regard to its customers which are relieved of any obligation to pay a
royalty for aforesaid patents.
(A) All remaining provisions in the Patent License Agreement as amended shall
remain as originally set forth.
HMT
BY: /S/
------------------------------------
HEALTHTRONICS, INC.
BY: /S/
------------------------------------
Page 3
<PAGE> 1
EXHIBIT 10.5
DISTRIBUTORSHIP AGREEMENT
between
HMT
High Medical Technologies GmbH
a company organised and existing under the laws of Germany and having its
principal place of business at
Prussingstrasse 41, 07745 Jena; Germany
validly represented by its Managing Director, Mr. Joachim Voss
-hereinafter referred to as "HMT" -
and
OssaTronics, Inc.
a company organised and existing under the laws of Georgia and having its
principal place of business at
1608 Greenview Court, Woodstock, Georgia 30188, USA
validly represented by its President John Warlick
-hereinafter referred to as "distributor" -.
PREFACE
In recent years HMT has advanced the technology of Osteogenesis by application
of acoustical shock wave energy. The technology was proven by some operating
prototype instruments and is now in serial production. HMT will furnish the
distributor with clinical data, in order to prove efficacy and safety of the
contract products.
The distributor has decided that this product is suitable for the market, in
which the distributor is already actively doing business.
Both parties agree that there is still a strong effort required to make this
product a commercial success.
After HMT has invested significant funds into the technical development, the
distributor accepts that the development of the market will be in principle on
his expense.
OssaTronics agrees to immediately use its best efforts to obtain FDA approval to
market this device. At a minimum OssaTronics agrees to engage Device Assists,
Glenn Conklin on a full time basis (agreement attached) to pursue such approval.
HMT agrees to use their best efforts to support distributor and/or Device
Assist.
The parties agree as follows:
<PAGE> 2
ss.1
SUBJECT MATTER OF CONTRACT
(1) HMT confers to distributor for the territory as listed in EXHIBIT 1
(hereinafter referred to as "contract territory") a right of exclusive
distribution of the medical instruments listed in EXHIBIT 2 and an
exclusive franchise, including service parts and consumables, for such
instruments ("contract products").
(2) Improvements and advancements of these medical instruments developed and
launched by HMT and designed for the same kind of medical treatment as the
contract products shall be offered to the distributor and be distributed by
distributor pursuant to the terms of this contract.
(3) HMT reserves the right to discontinue certain item of the contract
products with 3 months notice prior to the discontinuation by registered
letter. Should there be dispute whether medical instruments of HMT are part
of the contract products, then HMT's position will be controlling.
If HMT discontinues the production of any contract products, it agrees to
supply and make deliveries of accessories, consumables, disposables and
service spare parts to distributor for a period of two years after the date
of its notice of discontinuation.
ss. 2
INDEPENDENT MERCHANT
(1) The distributor will purchase and sell the products in his own name and
for his own account. He will be acting as an independent merchant with
respect to HMT as well as with respect to his customers and third parties
and shall look after the interest of HMT with the care of a prudent
merchant.
ss.3
CUSTOMERS
(1) HMT will exclusively supply the distributor with the contract products
for the purpose of reselling same in and for the territory. HMT will not
commission any third party with the distribution or the representation of
the contract products in and for the territory and will pass on all orders
or inquiries of third parties out of the territory to distributor.
(2) Distributor will not solicit customers for the contract products outside
of the contract territory. Orders or inquiries which distributor will
receive from third parties outside of the territory, he will immediately
pass on the HMT. Distributor shall refrain from establishing any branch or
from maintaining any distribution depot outside of the territory.
(3) Distributor will advise HMT in writing as soon as he finds out or has
reasons to believe that a customer makes deliveries of the contract
products to areas outside of the territory.
<PAGE> 3
ss. 4
Prices, Terms of Payment and Delivery
(1) HMT will supply the contract products at prices as agreed with the
distributor on an annual basis as set forth in EXHIBIT 3.
(2) Prices are quoted ex works HMT.
All contract products are delivered against irrevocable letter of credit,
payable on delivery of the merchandise unless alternative financing
arrangements are agreed upon, in writing, in advance.
ss. 5
Purchase Commitment
After FDA approval the distributor agrees to purchase an amount equal to ten
(10) units per year in approximately equal monthly increments for the remainder
of the term of this agreement. As long as distributor has purchased an average
of 10 systems per year, this agreement shall remain in force. Should the
distributor fail to satisfy these purchase commitment, HMT may terminate this
agreement with 6 month notice. Such termination shall be the exclusive remedy
available to HMT. Any increase in quantity will be advised not later than four
month in advance.
ss. 6
Obligations of Distributor and HMT
(1) Distributor shall use the best efforts to promote the distribution of the
contract products in the territory. For this purpose, he shall keep
reasonable sales organisation within the territory at his expense and will
also keep a minimum stock of instruments of each type and the respective
spare parts in order to insure prompt supply of his customers.
(2) From time to time the parties will discuss together the sales situation, at
least in semiannual intervals, and will prepare sales projections as well as
discuss suitable steps to promote sales.
(3) Distributor shall make adequate expenditures in order to advertise the
contract products. HMT shall support the advertising by providing
appropriate advertising- and information-material. HMT is entitled to
advertise within the contract territory.
(4) Distributor shall be responsible to obtain the necessary approval for the
contract territories at his own expense.
Distributor will use the best efforts to get such approvals as soon as
possible.
(5) HMT will promote such efforts only to the extent that technical
specification of the contract products is concerned.
Any clinical trials have to be supported and paid for by the distributor.
<PAGE> 4
ss. 7
Reporting
(1) Distributor will report to HMT quarterly on
- the sales following the previous report
- the estimated supply quantities for the forthcoming quarter
- technical objection of customers, if any;
- advertising.
(2) Moreover, distributor will give HMT all current information which is in any
way significant for the sale of the products in the territory, e.g. the
competitive situation including names, prices and products of competitors
and a description for their competitive attitudes as well as - insofar as
possible violations of HMT's industrial property right by third parties.
HMT's right to make its own investigations and market researches in the
territory is not prejudiced by this.
(3) HMT on its part will assist distributor by appropriate information and other
assistance.
ss. 8
Industrial Property Rights
(1) HMT will supply the contract products to distributor ready for use by the
end-consumer. Distributor, after taking delivery, will not make any
alteration or any additions to the packaging as well as its design and
labelling; likewise he will not make any alterations or additions to the
contract products without written approval from HMT to do so.
(2) The distribution of the product shall be made under HMT's and the
distributor's trademarks. Distributor shall be authorised for the term of
this contract at the latest, the authority being revocable at any time, to
use HMT's trademarks in doing business when distributing the contract
products. The distributor may not use such marks as well as confusing marks
and designations as part of his firm name, nor may he register same for
himself. The distributor recognises the right of HMT and the companies
affiliated with HMT as to the name and trademarks.
(3) Should a third party assert a claim against distributor for violation of its
industrial property rights on account of the contract products, the
distributor must immediately advise HMT thereof in writing. Upon request,
distributor will provide every reasonable assistance to HMT in the defence
of the property rights. HMT can demand that the distributor ceases the
action (situation) which was subject to the objection, without distributor
being able to make any claims against HMT for that reason.
<PAGE> 5
(4) Existing patents in the United States
There is at least one (1) patent in the U.S. pertaining to the subject
products, that needs careful consideration between distributor and HMT
before acting in the U.S. market. This is the "Bulgarians Patent". HMT
agrees to use its best efforts to acquire the patent rights through a
license agreement or otherwise such that the distributor can sell the
subject products without violating the above patent.
Distributor and HMT agree to equally share the cost of the acquisition of
such license and/or patent rights.
ss. 9
Warranty
(1) All contract products are warranted against original defect in material
or workmanship. This warranty applies for 12 (twelve) months effective
from the date of sales by the distributor but no longer than 18 (eighteen)
months from the date of invoice from HMT to the distributor.
HMT will repair or replace on ex works basis all products which prove to
be defective during the warranty period provided they are returned to HMT.
Any other warranty - either expressed or implied - is excluded.
(2) HMT will supply at no charge a basic stock of spare parts that will
include at least one of each component used in the OssaTron instrument.
ss. 10
Duration and Termination of Agreement
(1) Unless otherwise provided herein this agreement is effective for an
indefinite period of time. After the first six (6) years it is subject to
twelve (12) months notice period to be given by either party by registered
letter.
(2) This agreement may be terminated at any time with immediate effect for
cause. Cause is deemed to exist in particular, if
- an application for the opening of bankruptcy or composition
proceedings over the assets of any one party is made;
- enforcement measures are brought against any one party unless such
matters have been settled within six weeks after they were brought;
- any one party defaults within its payment for more than eight weeks.
- the distributor fails to meet his purchase commitments (ss.5).
(3) After notice of termination has been given by the distributor, HMT shall
be entitled to distribute the contract products in the territory itself.
However, HMT will make deliveries of disposables and service spare parts
to distributor for a period of 2 (two) years after the effective day of
termination.
During the notice period the distributor shall have the right to continue
the sales of his inventory of contract products.
<PAGE> 6
(4) Upon termination of this agreement:
- - Distributor will immediately remove all references to HMT and its
trademarks, firm names and design rights from all business stationery,
printed matters, advertising announcements, business premises etc. and
will refrain from any such further reference. Distributor will make his
efforts to return to HMT any advertising material, sales literature and
similar material which was made available by HMT.
- - All the rights granted under this agreement to distributor will terminate.
Such rights return to HMT or have to be returned to HMT. Distributor
agrees to make in proper form all declarations which may be necessary in
order to transfer such rights to HMT.
- - The FDA approval will be transferred from the distributor to HMT or HMT's
assignee. The distributor agrees to make in proper form all declarations
which may be necessary in order to transfer such rights to HMT. After
completion of such transfer the distributor will be entitled to a
compensation of all cost incurred for such FDA approval, limited however
to a maximum amount of US $500.000,--.
ss. 11
Confidentiality
Distributor will treat business and operational secrets with absolute
confidentiality and will not exploit same for himself - even after termination
of this agreement.
ss. 12
Competition
The distributor agrees that he will not produce and distribute - be it directly
or indirectly - any products identical with or similar to the contract products
or otherwise competing with the contract products or the distribution of such
contract products or otherwise - be it directly or indirectly - participate
therein. The distributor shall also otherwise sustain from any direct or
indirect competition vis a vis HMT with regard to the contract products.
In particular, he must not, inside and outside the territory, directly or
indirectly, act as dealer, commission agent or sales agent for any third party
producing or distributing identical or similar products. This shall also apply
if the sale of used goods is involved. Any exceptions require the prior written
consent of HMT.
The foregoing obligations of distributor apply during the duration of the
contract including a notice time.
The parties agree that the distributor may service, broker, sell or otherwise
distribute and market any extra corporal shock wave lithotripter unit. Such
units include but are not limited to Siemens Lithostar and Dornier HM3 and HM4
Lithotripters.
<PAGE> 7
ss. 13
OPTION
The Parties agree that there may be a mutual interest to have the contract
products manufactured under license by the distributor or its affiliates.
If and when the market for the contract products requires the manufacture of the
contract products inside the contract territory HMT will enter into a
Manufacturing Agreement with the distributor to ensure an optimum supply for the
market.
The terms and conditions of such Manufacturing Agreement will be agreed
separately.
ss. 14
MISCELLANEOUS
(1) The rights and obligations under this contract can be assigned only with
the written consent of the other party.
Both parties agree to the assignment of the rights and the obligations of
this contract by either party to the parent company, a wholly owned
subsidiary or newly formed company comprised of the sale majority
ownership as the distributor and which is established for the sole purpose
of distributing the HMT "OssaTron" as herein contemplated.
The parties acknowledge that it may be in the mutual interest to otherwise
transfer the distribution rights and obligations herein.
HMT reserves the right to subcontract the manufacture of the contract
products to any third party in any territory, however HMT shall inform the
distributor if this is planned.
(2) This agreement shall be executed in two counterparts, each of which shall
for all purposes be deemed an original. Amendments must be in writing and
signed by both parties. Notices of termination pursuant to the provisions
of this contract must be given by registered letter.
(3) Should any provision of this agreement be unenforceable or invalid, this
shall not affect the validity of the remaining provisions of this
agreement. The parties are obligated to substitute for the unenforceable
or invalid provision and enforceable or valid provision, which, from an
economical point of view, comes closest to the purpose pursued by the
unenforceable or invalid provision.
(4) The parties agree that the conditions of a compensation claim - also in
analogous application of the German Commercial Code - shall not be
fulfilled at the time of the termination of this agreement.
Distributor shall therefore not have any compensation claim or similar
claim on account of termination of this agreement.
(5) This agreement shall be governed by the laws of the State of Georgia.
<PAGE> 8
(6) This agreement replaces all previous oral and written agreements between
HMT and distributor.
(7) HMT agrees to adequately train a minimum of three (3) representatives of
the distributor. Such training shall include installation, operation and
maintenance of the contract products listed in exhibit 2 hereto as well as
any other areas necessary for the distributor to service and distribute
the products listed herein. Such training shall be at a location
designated by HMT. The distributor agrees to incur all cost associated
with such training.
(8) All controversies arising between the parties regarding performance under
this agreement shall resolve in arbitration. Such arbitration shall be
governed by the arbitration act.
(9) All notices pursuant to this agreement shall be in writing and shall be
sufficiently given if mailed, postage prepaid, by certified or registered
mail, to the following addresses:
For HMT: For the distributor:
High Medical Technologies GmbH OssaTronics, Inc.
Prussingstrasse 41 1608 Greenview Ct.
07745 Jena Woodstock, Georgia 30188
Germany USA
HMT by Distributor by
/s/ Joachim Voss /s/ John Warlick
- ---------------- -----------------
(Joachim Voss) (John Warlick)
Date: 22. Nov. 1994 Date: Nov. 22nd 1994
<PAGE> 9
EXHIBIT 1
Contract Territory
USA
Canada
Mexico
EXHIBIT 2
Contract Products
(1) OssaTron OSA 120
(2) Accessories and Spare parts thereof
(3) Consumable and Disposables hereto
EXHIBIT 3
Prices
- ------
(1) The price for the OssaTron instrument shall be as follows:
(a) US$ 250.000 for each instrument purchased prior to FDA approval
provided that such instruments are used at an
Investigational Device Exemption site.
(b) US$ 300.000 per instrument purchased subsequent to FDA approval
(2) The prices above are subject to adjustment if the exchange rate of the US$
to the German Mark varies more than 10% from the basis of 0,60 US$ per 1,00 DM.
Beyond this limit both parties will share the cost or benefit of exchange rate
variations.
e.g. a gain of 12% of the dollar value will result in a 6% lower price.
a loss of 12% of the dollar value will result in a 6% higher price.
<PAGE> 10
DISTRIBUTORSHIP AGREEMENT
Between
High Medical Technologies Entwicklungs + Vertriebs AG, a company organized
and existing under the laws of Switzerland, and having its principal place
of business at:
Bachstrasse 8
8280 Kreuzlingen
Switzerland,
validly represented by its Directors, Dr. Werner Schwarze and Joachim
Voss, and hereinafter referred to as "HMT,"
and
HealthTronics, Inc., a company organized and existing under the laws of
Georgia, and having its principal place of business at:
13 West Park Square
Suite B
Marietta, Georgia 30060
U.S.A.,
validly represented by its President, Roy S. Brown, and hereinafter
referred to as "DISTRIBUTOR."
PREAMBLE
In recent years HMT has advanced the technology of extracorporeal shock wave
lithotripsy. The technology was proven by some operating prototype instruments,
and is now in serial production.
The DISTRIBUTOR has decided that the Contract Products, as described in
Exhibits 2 and 4, are suitable for the market, in which the DISTRIBUTOR is
already actively doing business.
HMT and the DISTRIBUTOR agree that there is still considerable effort required
to make the Contract Products a commercial success.
HMT has invested significant funds into the technical development of the
Contract Products; therefore, the DISTRIBUTOR accepts that the development of
the market will be at its expense.
HMT agrees to use their best efforts to support the DISTRIBUTOR for the PMA.
HMT will furnish the DISTRIBUTOR with certain clinical data from Europe in
order to assist in proving efficacy and safety of the Contract Products.
HMT and the DISTRIBUTOR agree as follows:
<PAGE> 11
PAGE 2 OF 19
ARTICLE 1
SUBJECT MATTER OF AGREEMENT
(1) HMT confers to DISTRIBUTOR for the territory as listed in Exhibit 1
(hereinafter referred to as "Contract Territory") the right of
exclusive distributorship of the medical instruments listed in Exhibit
2, including service parts and consumables for such instruments. HMT
and the DISTRIBUTOR hereby agree to amend Exhibit 2 by written
instrument from time-to-time as necessary to amend the list of medical
instruments to which this Agreement applies. The medical instruments
listed on such Exhibit 2 shall be referred to in this Agreement as the
"Contract Products."
(2) Improvements and advancements of the Contract Products developed and
launched by HMT, and designed for the same or similar kind of medical
treatment as the Contract Products, shall be offered to the
DISTRIBUTOR for distribution pursuant to the terms of this Agreement.
(3) HMT reserves the right to discontinue certain items of the Contract
Products by providing notice of it's intent via registered letter with
six (6) months notice.
If HMT discontinues the production of any Contract Products it agrees
to supply and make deliveries of accessories, consumables,
disposables, and service spare parts to the DISTRIBUTOR for a period
of two (2) years after the date of its notice of discontinuation.
Should HMT exercise its discontinuation rights under this article, HMT
will, upon written request, provide to DISTRIBUTOR all drawings,
technical descriptions, and other such know-how and rights that may be
necessary in order for the Distributor to continue production of the
discontinued items.
<PAGE> 12
PAGE 3 OF 19
ARTICLE 2
INDEPENDENT CONTRACTOR
HMT and the DISTRIBUTOR intend to act as independent contractors, and nothing
in this Agreement shall create, or be construed to create, any partnership or
joint venture among HMT and the DISTRIBUTOR. Further, the DISTRIBUTOR will
purchase and sell the Contract Products in its own name for its own account. As
such, it will be acting as an independent contractor with respect to HMT, as
well as with respect to its customers and third parties.
ARTICLE 3
CUSTOMERS
(1) The Contract Territory for the Contract Products is exclusive to the
DISTRIBUTOR. The Contract Territory defined in this Agreement is the
United States, Canada, and Mexico, as more exactly detailed under
Exhibit 1.
Any and all leads and inquiries for the Contract Products relative to
the Contract Territory received by HMT will be immediately forwarded
to the DISTRIBUTOR.
(2) Any and all leads and inquiries for the Contract Products received by
the DISTRIBUTOR for territories other than those defined under Exhibit
1 will be immediately forwarded to HMT. Any exceptions must be agreed
upon between HMT and the DISTRIBUTOR in writing.
ARTICLE 4
PRICES, TERMS OF PAYMENT, AND DELIVERY
(1) HMT and the DISTRIBUTOR agree to amend the pricing as detailed in
Exhibit 3 from time-to-time, as necessary, under consideration of
prevailing market conditions. The prices applied to each order of
Contract Products shall be those in effect at the time such order is
transmitted to HMT by the DISTRIBUTOR.
<PAGE> 13
PAGE 4 OF 19
(2) Payment by the DISTRIBUTOR to HMT for the Contract Products will be
made by an irrevocable letter of credit, payable upon delivery of the
Contract Products unless alternative financing arrangements have been
agreed upon, in writing, in advance.
(3) Delivery of the Contract Products by HMT will be made ex works HMT.
ARTICLE 5
INITIAL ORDER
(1) For the IDE sites within the U.S Food and Drug Administration (FDA)
pre-market approval, the DISTRIBUTOR will purchase four (4)
lithotripsy systems (items 1, 2, and 3 of Exhibit 2) within thirty
(30) days from the date that both the DISTRIBUTOR and HMT execute this
Agreement.
(2) The ex works price for each of the four (4) systems contemplated by
Article 5.1 shall be U.S. $360,000.
(3) HMT shall cause the initial Contract Products referenced in Article 5.1
above to be delivered within 120 days after HMT's receipt of the
Distributor's order.
(4) The payment terms for this initial order shall be as follows:
- 50% of the purchase price shall be paid within thirty (30) days
after date of order;
- 25% of the purchase price shall be paid upon delivery of each
system;
- 15% of the purchase price within twelve (12) months after date of
delivery;
- 10% of the purchase price shall be paid within thirty (30) days
after FDA approval.
<PAGE> 14
PAGE 5 OF 19
(5) Complete documentation, including operating manuals, troubleshooting
guide, service manuals, and other relevant instruction papers will be
provided in the English language by HMT to the DISTRIBUTOR within
forty-five (45) days after the execution of this Agreement.
ARTICLE 6
PURCHASE COMMITMENT
After receipt of pre-market approval from the FDA allowing the sale of the
Contract Products by the DISTRIBUTOR in the United States, the DISTRIBUTOR
agrees to purchase at least twelve (12) complete lithotripers (Exhibit 2, items
1, 2, and 3) per year for the remainder of the term of this agreement. The
DISTRIBUTOR shall use its best efforts to spread its purchase activities evenly
over the twelve (12) month period.
ARTICLE 7
OBLIGATIONS OF DISTRIBUTOR AND HMT
(1) The DISTRIBUTOR shall use its best efforts to promote the distribution
of the Contract Products in the Contract Territory. For this purpose
the DISTRIBUTOR shall undertake reasonable sales efforts within the
Contract Territory at its expense, and will also keep a minimum stock
of instruments of each type and the respective spare parts in order to
insure prompt supply to its customers.
(2) The DISTRIBUTOR shall make adequate expenditures in order to advertise
the Contract Products. HMT shall support the advertising by providing
appropriate advertising and information material as requested and
deemed appropriate by the DISTRIBUTOR. HMT may undertake its own
advertising in the Contract Territory only after receiving prior
written approval from the DISTRIBUTOR.
<PAGE> 15
PAGE 6 OF 19
(3) The DISTRIBUTOR, at its expense, shall prepare all applications for,
and conduct all clinical trials necessary to obtain, pre-market
approval or any other approval of the FDA that will permit the
DISTRIBUTOR to sell the Contract Products in the United States. The
DISTRIBUTOR shall use its best efforts to secure such FDA approval as
soon as possible.
HMT hereby agrees that it shall, at its expense, provide, in the
English language, all technical data, information, and support in
connection with the DISTRIBUTOR'S efforts to obtain FDA approval as is
reasonably requested by the DISTRIBUTOR.
Further, HMT shall modify the Contract Products as necessary to secure
and maintain the FDA approval. HMT shall, at its expense, take all
measures necessary to ensure compliance with GMP as called for by the
FDA, and ensure such compliance from its key subsuppliers. HMT further
agrees to appoint a Quality Assurance Director responsible for its GMP
issues and those of its key subsuppliers. The DISTRIBUTOR will provide
advice to support HMT on the GMP issue as defined from time to time by
the FDA.
(4) At all times during the term of this Agreement the DISTRIBUTOR shall
have the right to purchase, and HMT shall sell to the DISTRIBUTOR, all
spare parts and consumables for the Contract Products at prices to be
agreed upon.
ARTICLE 8
REPORTING
(1) The DISTRIBUTOR shall make appropriate personnel available to HMT to
discuss the DISTRIBUTOR'S sales situation from time-to-time, to
prepare sales projections, to discuss sales promotion techniques, and
to describe market information, such as the names, manufacturers, and
prices of competitive products, to the extent available and known by
the DISTRIBUTOR. The DISTRIBUTOR will also provide technical updates,
modification suggestions, and information as may be necessary and
applicable.
(2) HMT will provide from time-to-time such technical and marketing support
as may be necessary and available to assist the DISTRIBUTOR in the
performance of this Agreement.
<PAGE> 16
PAGE 7 OF 19
ARTICLE 9
INTELLECTUAL PROPERTY RIGHTS
(1) HMT will supply the Contract Products to the DISTRIBUTOR ready for use
by the end-consumer. The DISTRIBUTOR, after taking delivery, will not
make any alterations or additions to the packaging, as well as its
design and labelling; likewise, the DISTRIBUTOR will not make any
alterations or additions to the Contract Products without written
approval from HMT to do so; provided, however, that HMT shall take all
steps, make all modifications, and affix or provide all labels and
warnings requested by the FDA or required by the FDA to secure and
maintain the FDA approval secured by the DISTRIBUTOR persuant to
Article 7.3 of this agreement.
(2) The DISTRIBUTOR acknowledges that the Contract Products will be
labelled with the trademarks of HMT. HMT hereby represents and
warrants that all Contract Products bearing such trademarks shall
appropriately bear such trademarks and that nothing in any agreement
shall prohibit the sale or distribution of such Contract Products
pursuant to this Agreement. During the term of this Agreement, except
as otherwise designated by the holder of the trademark, HMT shall
secure the DISTRIBUTOR'S right to market and distribute the Contract
Products under the trademarks of HMT associated with such Contract
Products. The DISTRIBUTOR may not use such marks, as well as confusing
marks and designations, as part of its firm name, nor may it register
same for itself. The DISTRIBUTOR recognizes the right of HMT and the
companies affiliated with HMT as to the name and trademarks.
(3) In the event of third party claims against the DISTRIBUTOR for
violation of its intellectual property rights relating to the Contract
Products, the DISTRIBUTOR will notify HMT in writing describing such
claim. The DISTRIBUTOR shall provide reasonable assistance to HMT in
the event of such claims, including the cessation by the DISTRIBUTOR
of any practice that resulted in said claim; this provided said claim
is proven to be valid.
<PAGE> 17
PAGE 8 OF 19
ARTICLE 10
WARRANTY
(1) All Contract Products are warranted against original defect in material
and workmanship. This warranty applies for twelve (12) months,
effective from the date of installation by the DISTRIBUTOR, but no
longer then eighteen (18) months from the date of invoice from HMT to
the DISTRIBUTOR.
HMT will repair or replace on CIF Atlanta basis all Contract Products
which prove to be defective during the warranty period. Selection of
transport mode of the replacement parts is to be determined by HMT.
Should the DISTRIBUTOR require changes to the selected method of
transport chosen by HMT with respect to the replacement parts, the
transport costs will be borne by the DISTRIBUTOR. The DISTRIBUTOR will
return defective parts to HMT, at HMT's expense, if requested to do
so. Any other warranty, either expressed or implied, is excluded.
(2) HMT will supply at no charge a basic stock of spare parts that will
include at least one (1) of each component used in the shockhead of
the lithotripter. An exact list of such spare parts is to be agreed
upon by HMT and the DISTRIBUTOR.
ARTICLE 11
DURATION AND TERMINATION OF AGREEMENT
(1) Unless this Agreement is terminated for cause in accordance with
Article 11.3 based upon the provisions provided, or as otherwise
provided herein, this Agreement is effective for an indefinite period
of time. After the first five (5) years it is subject to twelve (12)
months notice, which can be given by HMT or the DISTRIBUTOR by
registered letter.
(2) This Agreement may be terminated by HMT without notice and with
immediate effect if the DISTRIBUTOR advises HMT in writing that it is
abandoning its efforts to secure FDA approval for the Contract
Products.
<PAGE> 18
PAGE 9 OF 19
(3) This Agreement may be terminated by HMT or the DISTRIBUTOR at any time,
with immediate effect for cause. Cause is deemed to exist in
particular if:
- HMT or the DISTRIBUTOR enters into receivership or bankruptcy
proceedings;
- HMT or the DISTRIBUTOR is delinquent in payments beyond a
reasonable time period;
- the DISTRIBUTOR fails to meet it's purchase commitments as provided
for in this Agreement;
- HMT does not support necessary efforts to obtain GAP.
(4) After notice of termination has been given by the DISTRIBUTOR to HMT,
HMT shall be entitled to distribute the Contract Products in the
Contract Territory. HMT will, however, continue to make deliveries of
disposables and service spare parts to the DISTRIBUTOR for a period of
two (2) years after the effective date of termination in accordance
with the conditions provided for in this Agreement.
During the notice period the DISTRIBUTOR shall have the right to
continue the sales of its inventory of Contract Products.
(5) Upon termination of this Agreement:
- The DISTRIBUTOR will immediately remove all references to HMT
trademarks, firm names, and design rights from all business
stationary, printed matters, advertising announcements, and
business premises. The DISTRIBUTOR will make its best efforts to
return to HMT any advertising material, sales literature, and
similar material which was made available by HMT.
- All the rights granted under this Agreement to the DISTRIBUTOR will
terminate, except as otherwise provided in Articles 1.2, 7.4, 9.1,
9.2, 9.3, and 10.1. Such rights return to HMT, or have to be
returned to HMT. The DISTRIBUTOR agrees to make in proper form all
declarations which may be necessary in order to transfer such
rights to HMT.
<PAGE> 19
PAGE 10 OF 19
- The FDA approval will be transferred from the DISTRIBUTOR to HMT,
or HTM'S assignee. The DISTRIBUTOR agrees to make in proper form
all declarations which may be necessary in order to transfer FDA
approval to HMT. After completion of such transfer the DISTRIBUTOR
will be entitled to compensation of all costs incurred for such FDA
approval, limited to a maximum amount of U.S. $500,000.
ARTICLE 12
CONFIDENTIALITY
The DISTRIBUTOR will use its best efforts to treat as confidential all trade
secrets of HMT that are presented to the DISTRIBUTOR as "trade secrets" of HMT,
and will not exploit such trade secrets for itself. The provision of this
Article 12 shall not apply to information learned by the DISTRIBUTOR prior to
the execution of this Agreement, or learned by the DISTRIBUTOR from third
parties not under any duty of confidentiality.
ARTICLE 13
COMPETITION
During the Agreement period the DISTRIBUTOR will not produce or distribute,
either directly or indirectly, any products, new or used, which are identical
or similar to the Contract Products either in the Contract Territory or in any
other territory, beyond its current line of products which is as follows:
- Brokering, selling, distributing, and marketing of previously owned
extracorporeal shock wave lithotripters, including, but not
limited to Siemens Lithostar, Dornier Models HM3, HM4, and MFL
5000, and the Medstone Model STS. Moreover, the DISTRIBUTOR
provides complete lithotripsy service, as well as refurbishing of
lithotripters and associated parts and consumables.
<PAGE> 20
PAGE 11 OF 19
ARTICLE 14
MISCELLANEOUS
(1) The rights and obligations under this Agreement can be assigned only
with the prior written consent of either HMT or the DISTRIBUTOR.
Both HMT and the DISTRIBUTOR agree to the assignment of the rights and
the obligations of this Agreement by either HMT or the DISTRIBUTOR to
its respective parent company, a wholly owned subsidiary, or a newly
formed company comprised of the same majority ownership, provided such
entity is committed to the purpose of distributing the Contract
Products according to this Agreement.
HMT reserves the right to subcontract the manufacture of the Contract
Products to any third party in any territory; however, HMT shall
inform the DISTRIBUTOR if this is planned. Prior to any transfer HMT
will provide satisfactory proof of GMP qualifications for the third
party. Any costs related to obtaining GMP for the third party will be
borne exclusively by HMT or the third party. HMT will ensure that
there will be no delivery interruptions of the Contract Products to
the DISTRIBUTOR in the event of such transfer.
(2) This Agreement shall be executed in duplicate, each of which shall for
all purposes be deemed an original. Amendments must be in writing and
signed by both HMT and the DISTRIBUTOR. Notices of termination
pursuant to the provisions of this Agreement must be provided by
registered letter.
(3) Should any provision of this Agreement be unenforceable or invalid,
this shall not affect the validity of the remaining provisions of this
Agreement. HMT and the DISTRIBUTOR are obligated to substitute for the
unenforceable or invalid provision an enforceable or valid provision,
which, from an economical point-of-view, comes closest to the purpose
pursued by the unenforceable or invalid provision.
(4) This Agreement shall be governed by the laws of Switzerland.
<PAGE> 21
PAGE 12 OF 19
(5) This Agreement represents the entire understanding of HMT and the
DISTRIBUTOR with respect to the subject matter of this Agreement.
Accordingly, all prior oral and written understandings, representations, and
agreements regarding the subject matter of this Agreement are hereby
superseded and replaced by the terms of this Agreement.
(6) HMT agrees to adequately train a minimum of three (3) representatives of the
DISTRIBUTOR. Such training shall include installation, operation, and
maintenance of the Contract Products listed in Exhibit 2 hereto, as well as
any other areas necessary for the DISTRIBUTOR, to obtain or support the
procurement or maintenance of the FDA approval, and to service and
distribute the Contract Products listed herein. Such training shall be at a
location designated by HMT. The Distributor agrees to bear all of its own
costs associated with such training.
(7) Disputes arising between EMT and the Distributor regarding performance under
this Agreement shall be resolved by arbitration utilizing the Swiss-American
Chamber of Commerce rules.
(8) All notices pursuant to this Agreement shall be in writing and shall be
sufficiently given if mailed, postage prepaid, by certified or registered
mail, to the following addresses:
<TABLE>
<CAPTION>
For HMT: For the Distributor:
<S> <C>
High Medical Technologies HealthTronics, Inc.
Entwicklungs + Vertriebs AG Attention: The President
Attention: The President 13 West Park Square
Bachstrasse 8 Suite B
8280 Kreuzlingen Marietta, Georgia 30060
Switzerland U.S.A.
</TABLE>
(9) HMT and the DISTRIBUTOR agree that the electrode associated with the
lithotripsy unit included in the Contract Products shall be included on
Exhibit 2. In the event that HMT and the DISTRIBUTOR agree that such
electrode is refurbishable at any time during the term of this Agreement,
the DISTRIBUTOR shall be allowed to refurbish all electrodes used in the
operation of the
<PAGE> 22
PAGE 13 OF 19
lithotripsy units sold by the DISTRIBUTOR or operated in the Contract
Territory. In addition, HMT agrees to negotiate in good faith with the
DISTRIBUTOR any additional agreement whereby the DISTRIBUTOR WOULD be the
exclusive United States refurbisher and manufacturer of electrodes or
lithotripters in the event HMT desires to assemble or manufacture its
lithotripsy units or electrodes in the United States. HMT's obligation to
negotiate exclusively with the DISTRIBUTOR regarding such assembly or
manufacture of such products shall extend for a period of ninety (90) days
after HMT determines to pursue the assembly or manufacture of such products
in the United States.
IN WITNESS WHEREOF, HMT and the DISTRIBUTOR have caused this Agreement to be
executed by their duly authorized officers or representatives as of the dates
written below their signatures.
EMT by: DISTRIBUTOR by:
/s/ /s/
- --------------------------------- -----------------------------
(J. Voss) (Dr. W. Schwarze) (Roy S. Brown) (John Warlick)
Date: 24 JAN. 1996 Date: 22 JAN. 1996
---------------------------- ------------------------
<PAGE> 23
Page 14 of 19
EXHIBIT 1
CONTRACT TERRITORY
United States, including Puerto Rico, The U.S. Virgin Islands, and
Guam
Canada
Mexico
<PAGE> 24
PAGE 15 OF 19
EXHIBIT 2
CONTRACT PRODUCTS
Complete lithotripter, currently designated as the "LithoTron Lithotripter,"
which includes, but is not limited to, the following key components (items 1, 2,
and 3,) accessories, and consumables:
(1) Lithotripter Shockhead
(2) Control Unit, Attachment, Patient Stretcher, ECG-Trigger
(3) X-Ray C-Arm,
(4) Accessories and Spare Parts thereof
(5) Consumables and Disposables hereto
<PAGE> 25
PAGE 16 OF 19
EXHIBIT 3
PRICES
(1) The ex works prices for the Contract Products (items 1, 2, and 3 of
Exhibit 2) shall be as follows:
a. U.S. $360,000 for each system purchased prior to FDA approval.
b. U.S. $330,000 for each system purchased subsequent to FDA approval,
provided that a minimum of twelve (12) systems per year
are purchased.
c. U.S. $300,000 for each system purchased subsequent to FDA approval,
provided that a minimum of twenty (20) systems per year
are purchased.
d. U.S. $280,000 for each system purchased subsequent to FDA approval,
provided that a minimum of thirty (30) systems per year
are purchased.
(2) When, and if, the lithotripter system is not delivered complete, the
components are priced with the following percentages of the relevant total
system price:
a. Lithotripter shockhead system...64%
b. Fluoroscopic system.............27%
c. Patient support system.......... 6%
d. ECG trigger unit................ 3%
(3) The above prices are subject to adjustment if the exchange rate of the U.S.
$ to the German Mark varies more than 10% from the basis of 0.70 U.S.$ per
1.00 DM.
Beyond this limit both parties will share the cost or benefit of exchange
rate variations, e.g.:
- a gain of 12% of the dollar value will result in a 6% lower price.
- a loss of 12% of the dollar value will result in a 6% higher price.
<PAGE> 26
PAGE 17 OF 19
EXHIBIT 4
TECHNICAL SPECIFICATIONS
SAFETY STANDARDS
- ----------------
The following standards are fulfilled: IEC 601-1
CE
SHOCK WAVE SYSTEM
- -----------------
Triggering modes: Fixed frequency, optional ECG
controlled single and double shocks,
up to two (2) shocks per second
Voltage: 14 to 28 kv for a wide range of
applications
Size of focal point: 8 X 38mm at 20 kv (at minus 6dB)
Rise time: < 10 ns
Penetration depth: 150mm
Pressure pulse duration: 300 ns at 20 kv
Patient Coupling: Dry type, up to a diameter of 200mm
Water change: Fully automatic, after an interval set
by the local service
<PAGE> 27
PAGE 18 OF 19
FLUOROSCOPY SYSTEM
- ------------------
kv-Range: 40 - 105 kv
ma-Range for continuous operation: 0.1 - 3mA
BV 25: 7.4mA snapshot
Focal Spot: 0.6 - 1.5
Grid Ratio: 10
Size of Image Intensifier: 15cm (6")
PATIENT SUPPORT, WITH RADIO TRANSPARENT TABLE TOP
- -------------------------------------------------
TYPE: Mobile, fitted with wheels
and brakes
Motorized longitudinal movement: +/- lOOmm
Motorized transversal movement: +/- lOOmm
Motorized height adjustment: from 750 to 1,OOOmm
DIMENSIONS:
Length: 2,400mm
Width: 780mm
Height: from 750 to 1,OOOmm
Weight: approximately 150kg
<PAGE> 28
PAGE 19 OF 19
OTHER STANDARD FEATURES
- - ECG trigger and monitoring unit:
TYPE: ECG Hellige SM 181 monitor,
with display during
treatment, and trigger unit
for the release of shock
waves
- - Leg supports
- - Arm rests
- - Drain pan
- - IV pole
INSTALLATION
Minimum room size for
basic version: 4 X 4 meter
Minimum room size for
multifunctional version: 5 X 5 meter
Power requirements one (1) fixed power
connection 220V, 16 A, and
minimum three (3)wall
sockets 220V, 16 A. 50 or
60 Hz
Water supply: Ordinary tap water,
purification is done by the
system
Installation time: Two engineers, two days
<PAGE> 29
September 18, 1996
Mr. John Voss
HMT High Medical Technologies
Bachstrasse 8
CH-8280 Krenzlingen
Switzerland
RE: Amendment to the Distributorship Agreement
Between HMT and HealthTronics
Dear John:
Many thanks for your letter dated August 29, 1996 concerning the reporting
amendment to the Distributorship Agreement. I have signed and dated both
documents. I have retained one copy for my records; your copy is enclosed.
Regards,
/s/
ROY S. BROWN
RSB/km
Enclosure
<PAGE> 30
HMT High Medical Technologies
Entwicklungs-und Vertriebs AG
Bachstrasse 8 Healthtronics, Inc.
CH-8280 KreuzlingenTG 13 West Park Square
Suite B
Zentrale Tel.: (0041) 071 - 677 91 77 Marietta, GA 30060
Fax: 677 91 89 USA
Direkt Tel.: (O041) 071 - 677 91
Fax: 677 91
Kreuzlingen, 29. Aug. 1996
Dear Roy,
Due to the legal requirements in many countries regarding the safety of medical
equipment HMT as manufacturer has to assure that any incident or customer
complaint is reported to the relevant authorities in the USA and in Europe even
if the incident occurs in a foreign country.
You are therefore asked to cooperate in this reporting system and we have
written an amendment to the existing Distributorship Agreements to formally
cover your reporting obligations.
May I kindly ask you to stamp and sign one copy of the amendment and return it
to HMT at your earliest convenience.
Kind personal regards
John Voss
HMT High Medical Technologies
Entwicklungs - und Vertriebs AG
<PAGE> 31
AMENDMENT
to
DISTRIBUTORSHIP AGREEMENT
between
HMT High Medical Technologies
Entwicklungs- und Vertriebs AG
a company organized and existing under the laws of Switzerland and having
its principal place of business at Bachstrasse 8, CH - 8280 Kreurlingen
validly represented by its Marketing Director, Mr. Joachim Voss
- hereinafter referred to as HMT
and
HealthTronics Inc.
company organized and existing under the laws of Georgia, USA and having
its principal place of business at
13 West Park Square, Suite B
Marietta, Georgia 30060, USA
validly represented by its President Roy Brown
- hereinafter referred to as "Distributor"
Due to the legal requirement in many countries regarding the safety of medical
equipment HMT and distributor agree that the following wording will be added to
the existing paragraph headed "Reporting" in the distributorship agreement.
(a) In accordance with the requirements of the Medical Devise Directive 93/42
EWG and the code of USA federal regulations 21, and ISO 9000 standards
distributor will permanently maintain a complete record of all contract
products sold and installed in the contract territory. These records will
list by serial numbers all hospitals with name and address, where contract
products are installed.
(b) Distributor will report by telefax to HMT within 3 days any customer
complaint involving death, injury and/or any other potential hazardous
event.
Any other provision of the Distributorship Agreement will remain unchanged.
Cont. page 2
<PAGE> 32
Page 2
For HMT: FOR THE DISTRIBUTOR:
HMT High Medical Technologies HealthTronics, Inc.
Entwicklungs und Vertriebs AG 13 West Park Square, Suite B
Bachstrasse 8 Marietta, GA 30060, USA
CH - 8280 Kreuzlingen
Switzerland
Date: AUG. 29, 1996 9/9/96
HMT by: Distributor by:
Joachim Voss Roy S. Brown
<PAGE> 33
EXHIBIT 1
Contract Territory
USA
Canada
Mexico
EXHIBIT 2
Contract Products
(1) OssaTron OSA 120
(2) Accessories and Spare parts thereof
(3) Consumable and Disposables hereto
EXHIBIT 3
Prices
(1) The price for the OssaTron instrument shall be as follows:
(a) US$ 250.000 for each instrument purchased prior to FDA approval
provided that such instruments are used at an
Investigational Device Exemption site.
(b) US$ 300.000 per instrument purchased subsequent to FDA approval
(2) The prices above are subject to adjustment if the exchange rate of the US$
to the German Mark varies more than 10% from the basis of 0,60 US$ per
1,00 DM. Beyond this limit both parties will share the cost or benefit of
exchange rate variations.
e.g. a gain of 12% of the dollar value will result in a 6% lower price.
a loss of 12% of the dollar value will result in a 6% higher price.
<PAGE> 34
[HEALTHTRONICS LETTERHEAD]
August 7, 1996
Mr. John Voss
High Medical Technologies
Bachstrasse 8
CH-8280 Krenzlingen
Switzerland
RE: Amendments to Patent License Agreement -
LithoTron(TM) Distributorship Agreement and
OssaTron(TM) Distributorship Agreement
Dear John:
Enclosed please find two finalized copies of the above described Agreement.
Please sign both documents in the appropriate space, keep one document for your
records, and return one to me.
Thanks and regards,
/s/ ROY S. BROWN
- ----------------
Roy S. Brown
RSB/km
Enclosure
13 West Park Sauare-Suite B-Marietta, GA 30060-(770) 419-0691-FAX (770) 419-9490
<PAGE> 35
AMENDMENTS TO PATENT LICENSE AGREEMENT, LITHOTRON
DISTRIBUTORSHIP AGREEMENT AND OSSATRON DISTRIBUTORSHIP AGREEMENT
This agreement is made and entered into this 7th day of August 1996, by and
between HIGH MEDICAL TECHNOLOGICES ENTWICKLUNGS + VERTRIEBS AG, (hereinafter
referred to as "HMT") and, HEALTHTRONICS, INC.:
WITNESSETH:
WHEREAS, HMT and Ossatronics, Inc. have entered into a distributorship
dated November 22, 1994 (hereinafter referred to as the "OssaTron
Distributorship Agreement"); and
WHEREAS, HMT and Ossatronics, Inc. have entered into a Patent License
Agreement dated June 3, 1995 (hereinafter referred to as the "Patent License
Agreement"); and
WHEREAS, OssaTronics, Inc. has merged into HealthTronics, Inc., a Georgia
corporation and the Distributorship Agreement and Patent License Agreement have
been assigned to HealthTronics, Inc.; and
WHEREAS, HMT, Jena, has assigned its interest in the Distributorship
Agreement to HMT, Switzerland; and
WHEREAS, HMT and HealthTronics, Inc. have entered into a Distributorship
Agreement executed January 24, 1996 by HMT; and January 22, 1996 by
HealthTronics, Inc. (hereinafter referred to as the "LithoTron Distributorship
Agreement").
NOW, THEREFORE, in consideration of ten dollars ($10.00) and other good and
valuable consideration, the parties agree as follows:
I
The "Patent License Agreement" shall be amended and changed as follows:
(A) Article 1 of such Agreement is amended, changed and reworded as follows:
ARTICLE 1
Patent Rights Granted
HMT hereby grants to LICENSEE an exclusive license to make, use, lease or
sell shock wave equipment for medical treatment which would infringe any valid
claim of the licensed patents upon which royalties are to be paid under this
Agreement.
Licensee is hereby granted immunity from suit under the licensed patents
with regard to
Page 1
<PAGE> 36
its customers which are relieved of any obligation to pay a royalty for
aforesaid patents.
(B) All remaining provisions in the Patent License Agreement shall remain as
originally set forth.
II
The "LithoTron Distributorship Agreement" shall be amended and changed as
follows:
(A) Article 11, paragraph 1 of such agreement is amended, changed an reworded
as follows:
ARTICLE 11
DURATION AND TERMINATION OF AGREEMENT
(1) Unless otherwise provided herein, this agreement is effective for a term
of five years beginning on the date P.M.A. is granted by the F.D.A. Upon the
expiration of the initial five year term, this agreement shall automatically
renew for subsequent five year terms provided that Healthtronics meets its sales
commitment of not less than an average of 20 LithoTrons per year as averaged
over the preceding five year term. If after any five year term, Healthtronics
does not meet such sales commitment, HMT may terminate this agreement by
providing notice of its intent to do so. Such notice shall be provided by
registered or certified mail to the principal place of business of
Healthtronics and shall be provided at least twelve months prior to the
expiration of a five year term then in effect.
III
The "OssaTron Distributorship Agreement" shall be amended and changed as
follows:
(A) ss10 paragraph 1 of such agreement shall be amended, changed and reworded
as follows:
ss10
DURATION AND TERMINATION OF AGREEMENT
(1) Unless otherwise provided herein, this agreement is effective for a term
of five years beginning on the date P.M.A. is granted by the F.D.A. Upon the
expiration of the initial five year term, this agreement shall automatically
renew for subsequent five year terms provided that Healthtronics meets its sales
commitment of not less than an average of 20 OssaTrons per year as averaged
over the preceding five year term. If after any five year term, Healthtronics
does not meet such sales commitment, HMT may terminate this agreement by
providing notice of
Page 2
<PAGE> 37
its intent to do so. Such notice shall be provided by registered or certified
mail to the principal place of business of Healthtronics and shall be provided
at least twelve months prior to the expiration of a five year term then in
effect.
(B) ss 13 of such agreement shall be amended, changed and reworded as follows:
ss13
MANUFACTURING RIGHT
(1) HealthTronics shall have the exclusive right to manufacture the OssaTron
OSA 120 and other subsequent models related thereto, as well as accessories,
spare parts, consumables and disposables related thereto.
(2) HMT shall, within thirty days after receiving a written request, provide
HealthTronics, Inc. with all drawings, technical descriptions, suppliers and
all other matters requested by HealthTronics, Inc. related to manufacturing the
OssaTron OSA 120 so as to enable HealthTronics, Inc. to manufacture the
OssaTron OSA 120.
(3) HealthTronics, Inc. shall pay to HMT a one time fee of $1,000,000 for the
manufacturing know-how, technical drawings, descriptions and other paperwork
and associated documents described in section number III ss13 (2)herein.
(4) For each OssaTron device manufactured by HealthTronics, Inc. under this
agreement, HealthTronics, Inc. shall pay to HMT a licensing fee not to exceed
ten percent (10%) of the HealthTronics, Inc. net selling price.
HMT
BY:
-------------------------------------
Karl-Heinz Restle (Managing Director)
HEALTHTRONICS, INC.
BY: /s/ Roy S. Brown
-------------------------------------
Roy S. Brown (President)
Page 3
<PAGE> 1
EXHIBIT 10.6
SUMMARY PLAN DESCRIPTION
FOR
HEALTHTRONICS, INC. 401(K) PLAN
<PAGE> 2
SUMMARY PLAN DESCRIPTION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
I INTRODUCTION 1
------------
II PLAN DATA 1
---------
Agent For Service Of Legal Process 1
Effective Date 1
Employer 1
Plan Administrator 1
Plan Year 1
Trustee 1
Type Of Administration 1
III DEFINITIONS 1
-----------
Break In Service 1
Compensation 2
Disability 2
Early Retirement 2
Effective Date 2
Elective Deferral 2
Entry Date 2
Family Member 2
Highly Compensated Employee 2
Hour Of Service 3
Maternity/Paternity Leave 3
Normal Retirement Age 3
Spouse 3
Taxable Wage Base 4
Year Of Service 4
IV ELIGIBILITY REQUIREMENTS AND PARTICIPATION 4
-----------------------------------------
V EMPLOYEE CONTRIBUTIONS 5
----------------------
Elective Deferrals 5
Rollover And Transfer Contributions 5
VI EMPLOYER CONTRIBUTIONS 6
----------------------
Contribution Formula 6
Eligibility For Allocation 6
VII GOVERNMENT REGULATIONS 7
----------------------
VIII PARTICIPANT ACCOUNTS 7
--------------------
IX VESTING 8
-------
Determining Vested Benefit 8
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
Payment Of Vested Benefit 9
Loss Of Benefits
Reallocation Of Forfeiture 9
Reemployment 9
X TOP-HEAVY RULES 11
---------------
XI RETIREMENT BENEFITS AND DISTRIBUTIONS 11
-------------------------------------
Retirement Benefits 11
Distributions During Employment 11
Hardship Withdrawals 12
Beneficiary 13
Death Benefits 13
Form Of Payment 13
Rollover Of Payment 14
Time Of Payment 15
Joint And Survivor Annuity Rules 15
XII INVESTMENTS 16
-----------
Trust Fund 16
Investment Responsibility 16
Employee Investment Direction 16
Participant Loans 16
XIII ADMINISTRATION 17
--------------
Plan Administrator 17
Trustee 17
XIV AMENDMENT AND TERMINATION 18
-------------------------
XV LEGAL PROVISIONS 18
----------------
Rights Of Participants 18
Fiduciary Responsibility 19
Employment Rights 19
Benefit Insurance 19
Claims Procedure 19
Assignment 20
Questions 20
Conflicts With Plan 20
</TABLE>
<PAGE> 4
I INTRODUCTION
Your Employer has established a retirement plan to help supplement your
retirement income. Under the program, the Employer makes contributions
to a Trust Fund which will pay you a benefit retirement. Details about
how the Plan works are contained in this summary. While the summary
describes the principal provisions of the Plan, it does not include
every limitation or detail. If there is a discrepancy between this
booklet and the official Plan document, the Plan document shall govern.
You may obtain a copy of the Plan document from the Plan Administrator.
The Plan Administrator may charge a reasonable fee for providing you
with the copy.
II PLAN DATA
A. AGENT FOR SERVICE OF LEGAL PROCESS:
B. EFFECTIVE DATE: JANUARY 1, 1996
The Effective Date for the Plan's Elective Deferral provision
shall be JULY 1, 1996.
C. EMPLOYER: HEALTHTRONICS, INC.
Address: 13 CHURCH STREET
MARIETTA, GA 30060
Telephone No.: (770)419-0691
Tax I.D. No.: 58-2210668
Plan No.: 001
D. PLAN ADMINISTRATOR: The Employer has been designated to serve
as Plan Administrator.
E. PLAN YEAR: The 12-month period beginning on JANUARY 1 and
ending on DECEMBER 31.
F. TRUSTEE(S):
Address:
Telephone No.:
G. TYPE OF ADMINISTRATION: Trust Fund
III DEFINITIONS
A. BREAK IN SERVICE. A 12 consecutive month period during which
you are not credited with or are not paid for more than 500
hours. If you go into the military service of the United
States, you are not considered terminated as long as you
return to work within the time required by law. If you
separate from employment and incur a Break in Service, all
contributions to your various accounts are suspended. [See
special rules relating to maternity and paternity
1
<PAGE> 5
leave below. Also, see Section VI(B) to determine your
eligibility to share in the Employer's Contribution if you
separate from employment, but do not incur a Break in
Service.] If a Break in Service occurs and you return to full
time employment with the Employer, your rights are explained
in the section entitled "Vesting".
B. COMPENSATION. Your total salary, pay, or earned income from
the Employer (including Compensation for services on the basis
of profits). If applicable, Compensation will also exclude
certain amounts realized from the exercise of a non-qualified
stock option or the disposition of stock under a qualified
stock option, and other amounts which receive special tax
benefits or contributions made by the Employer under a 403(b)
plan. Compensation will include amounts received by you during
the calendar year. Compensation shall include amounts deferred
under 401(k) plans and Section 125 cafeteria plans.
Compensation shall be limited to $150,000 as adjusted for
inflation.
C. DISABILITY. A potentially permanent illness or injury, as
certified to by a physician who is approved by the Employer,
which prevents you from engaging in work for which you are
qualified for a period of at least 12 months.
D. EARLY RETIREMENT. You may retire early upon reaching age 55
and completion of 5 Years of Service. If you terminate
employment after completing the required number of Years of
Service, but before attaining the required age, you may elect
Early Retirement after attaining the required age.
E. EFFECTIVE DATE. The date on which the Plan starts or an
amendment is effective.
F. ELECTIVE DEFERRAL. Employer contributions made to the Plan at
your election, instead of being given to you in cash as part
of your salary. You can elect to defer a portion of your
salary, instead of receiving it in cash, and your Employer
will contribute it to the Plan on your behalf.
G. ENTRY DATE. Your Entry Date for discretionary profit-sharing
contributions shall be Your Entry Date for all other
contributions shall be
H. FAMILY MEMBER. The Spouse or lineal ascendant or descendant
(or Spouse thereof) of either a more than 5% owner of the
Employer or one of the ten highest compensated Highly
Compensated Employees of the Employer.
I. HIGHLY COMPENSATED EMPLOYEE. Any Employee who during the
current or prior Plan Year (1) was a 5% owner, (2) received
more
2
<PAGE> 6
than $75,000 in compensation as adjusted for inflation (3)
received more than $50,000 in compensation as adjusted for
inflation and was in the top 20% of Employees when ranked by
compensation, or (4) was an officer receiving more than
$45,000 in compensation as adjusted for inflation. Family
members of any 5% owner, or Highly Compensated Employee in the
group of the ten Employees with the greatest Compensation,
will be combined as if they were one person for purposes of
Compensation and contributions. If you are not currently or
never were Highly Compensated, or a family member of a Highly
Compensated Employee, you are a Non-highly Compensated
Employee.
J. HOUR OF SERVICE. You will receive credit for each hour you are
(1) paid for being on your job, (2) paid even if you are not
at work (vacation, sickness, leave of absence, or disability),
or (3) paid for back pay if hours were not already counted. A
maximum of 501 hours will be credited for any year you are not
at work but are paid. Hours of Service will be calculated
based on actual hours you are entitled to payment.
K. MATERNITY/PATERNITY LEAVE. You may be eligible for additional
Hours of Service if you leave employment, even if temporarily,
due to childbirth or adoption. If this is the case, you will
be credited with enough hours (up to 501) of service to
prevent a Break in Service, either in the year you leave
employment or the following year. For example, if you have 750
Hours of Service when your child is born, you would not get
any more hours credited for that Plan Year since you do not
have a Break in Service. Therefore, if you do not return to
employment the following year, you will get 501 Hours of
Service so you will not have a Break in Service in that year.
Alternatively, if you do return the following year, but work
only 300 hours, you will receive an additional 201 hours in
order to prevent a break. These Hours of Service for maternity
or paternity leave must all be used in one Plan Year. They are
used only to prevent a Break in Service and not for
calculating your Years of Service for eligibility, vesting or
benefits.
L. NORMAL RETIREMENT AGE. The attainment of age 65, or, if later,
the 5 anniversary of the first day of the Plan Year during
which you entered the Plan.
M. SPOUSE. The person to whom you are or were legally married, or
your common law Spouse if common law marriage is recognized by
the state in which you live. A former Spouse may be treated as
a "Spouse" under this definition if recognized as such under a
Qualified Domestic Relations Order as explained at Section
XV(F) of this Summary Plan Description.
3
<PAGE> 7
N. TAXABLE WAGE BASE.
The amount of your Compensation subject to FICA tax on the
first day of each Plan Year.
O. YEAR OF SERVICE.
Eligibility:
For purposes of determining your eligibility to participate in
the Plan, a Year of Service is a 12-consecutive month period
beginning on your date of hire during which you are credited
with at least 1 Hours of Service.
Contribution:
For purposes of determining whether or not you are entitled to
have a contribution allocated to your account, a Year of
Service is a 12-consecutive month period, which is the same as
the Plan Year, during which you are credited with at least 501
Hours of Service.
Vesting:
For purposes of determining whether or not you are vested in
your account balance, a Year of Service is a 12-consecutive
month period, which is the same as the Plan Year, during which
you are credited with 1000 Hours of Service.
IV ELIGIBILITY REQUIREMENTS AND PARTICIPATION
The Service requirement for Elective Deferrals and Employer
Contributions is 1/2 Year(s) of Service. You must also attain
age 21 to be eligible to participate in the Plan.
You are considered to have completed 1 Year of Service for
purposes of eligibility on the anniversary of your first day
of employment, provided that you worked at least 1 hours
during that 12-month period. The subsequent measuring periods
will be based on your employment year and anniversaries
thereof. The Plan will not cover Employees covered by a
collective bargaining agreement as well as Employees who are
non-resident aliens who receive no U.S. earned income from the
Employer.
Your participation in the Plan will begin on the Entry Date
defined at Section III. If you are employed on the Plan's
effective date you do not have to satisfy the Service
requirement for Elective Deferral Contributions and Employer
Contributions.
4
<PAGE> 8
V EMPLOYEE CONTRIBUTIONS
A. ELECTIVE DEFERRALS
You, as an eligible Employee, may authorize the
Employer to withhold from 1% up to 12% of your
Compensation plus up to 100% of any Employer paid
cash bonus and to deposit such amount in the Plan
fund. However, the total amount withheld by the
Employer for your taxable year shall not exceed
$7,000 as adjusted for inflation. If you participate
in a similar plan of an unrelated employer and your
Elective Deferrals under this Plan and the other plan
exceed the $7,000 limit for a given year, you must
designate one of the Plans as receiving an excess
amount. If you choose this Plan as the one receiving
the excess, you must notify the Plan Administrator by
March 1 of the following year so that the excess and
any income thereon may be returned to you by April
15. You may increase, decrease, or terminate your
Elective Deferral percentage on the anniversary date
of the Plan and on the first day of the seventh month
of the Plan Year.
If you terminate contributions, you may not reinstate
payroll withholding until the first day of the next
Plan Year. The Employer may also reduce or terminate
your withholding if required to maintain the Plan's
qualified status.
B. ROLLOVER AND TRANSFER CONTRIBUTIONS
Rollover and Transfer Contributions are permitted. In
order to make a Rollover Contribution, In order to
make a Transfer Contribution, you do not have to be a
Participant.
A rollover or transfer of your retirement benefits
may originate from another qualified retirement plan
or special individual retirement arrangement (known
as a "conduit" IRA) to this Plan. If you have already
received a lump-sum payment from another qualified
retirement plan, or if you received payment from
another qualified plan and placed it in a separate
"conduit" IRA, you may be eligible to redeposit that
payment to this Plan. The last day you may make a
Rollover Contribution to this Plan is the 60th day
after you receive the distribution from the other
plan or IRA. A transfer occurs when the trustee of
the old plan transfers your assets to this Plan. If
you believe you qualify for a transfer or rollover,
see the Plan Administrator for more details.
5
<PAGE> 9
VI EMPLOYER CONTRIBUTIONS
A. CONTRIBUTION FORMULA
Elective Deferrals:
The Employer will contribute all Compensation which
you elect to defer to the Plan within the limits
outlined in Section V(A).
Matching Contributions:
The Employer may make a Matching Contribution to each
Participant based on his or her Elective Deferrals in
a percentage set by the Employer prior to the end of
each Plan Year. The Employer shall not match your
Elective Deferrals that are in excess of 6% of your
Compensation.
The Employer has the right to designate all or a
portion of the Matching Contributions as "Qualified".
To the extent Matching Contributions are so
designated, they are nonforfeitable and may not be
withdrawn from the Plan prior to separation from
Service.
Employer Matching Contributions will only be made on
Elective Deferrals made to the Plan. The time period
which will be used for determining the amount of
Matching Contributions owed shall be annually.
Qualified Non-Elective Contributions:
The Employer may also contribute an additional amount
determined in its sole judgement. This additional
contribution, if any, will be allocated to only
Non-highly Compensated Participants, in proportion to
each eligible Employee's Compensation as a ratio of
all eligible Employees' Compensation. These
Contributions will be nonforfeitable and subject to
withdrawal restrictions.
Discretionary:
The Employer may also contribute an additional amount
determined in its sole judgement. Such additional
contribution, if any, shall be allocated to each
Participant in proportion to his or her Compensation
for the calendar year. A Participant will also
receive an allocation with respect to his or her
Compensation in excess of the Taxable Wage Base.
B. ELIGIBILITY FOR ALLOCATION
For plan years beginning in 1990 and thereafter, the
Employer's Contribution will be allocated among all
Participants who are employed at the end of the Plan
Year, without regard to the
6
<PAGE> 10
number of Hours of Service completed. The Employer
shall also make a contribution for each Participant
who separated from employment during the Plan Year as
long as the Participant completed more than 500 Hours
of Service during that Plan Year. The Employer shall
allocate a contribution for each Participant who
separated from employment during the Plan Year
without accruing the necessary 501 Hours of Service,
if the Participant terminated as a result of:
- retirement.
- disability.
- death.
VII GOVERNMENT REGULATIONS
The federal government sets certain limitations on the level
of contributions which may be made to a Plan such as this.
There is also a "percentage" limitation which means that the
percentage of Compensation which you may contribute (Elective
Deferrals) depends on the average percentage of Compensation
that the other Participants are contributing. Simply stated,
all Participants are divided into 2 categories: Highly
Compensated and Non-highly Compensated and the average for
each group is calculated. The average contribution that the
Highly Compensated may make is based on the average
contribution that the Non-highly Compensated make. If a Highly
Compensated Participant is contributing more than he or she is
allowed, the excess, plus or minus any gain or loss, will be
returned or recharacterized as Voluntary Contributions. Keep
in mind that if you are a 5% owner of the business or one of
the ten highest paid Highly Compensated employees, certain
family members' contribution percentages and Compensations
will be combined with yours for purposes of determining your
contributions under the Plan.
VIII PARTICIPANT ACCOUNTS
The Employer will set up a record keeping account in your name
to show the value of your retirement benefit. The Employer
will make the following additions to your account:
A. your allocated share of the Employer's Contribution
(including your Elective Deferrals),
B. the amount of your personal Transfer Contributions
and Rollover Contributions, if any,
C. your share of forfeited accounts of former employees.
(These are amounts left behind by employees who
terminated before becoming 100% vested in their
benefit), and
7
<PAGE> 11
D. your share of investment earnings and appreciation in
the value of investments.
The Employer will make the following subtractions from your
account:
E. any withdrawals or distributions made to you,
F. your share of investment losses and depreciation in
the value of investments, and
G. your share of administrative fees and expenses paid
out of the Plan, if applicable.
The Employer will value the following types of contributions
in your account as indicated below:
<TABLE>
<CAPTION>
Type of Contribution Valuation Date(s)
-------------------- -----------------
<S> <C>
(1) Elective Deferrals iii
(2) Matching vii
(3) Qual. Non-Elective vii
(4) Non-Elective vii
(5) Minimum Top-Heavy vii
</TABLE>
Valuation Periods: (i) Daily (ii) Weekly (iii) Monthly (iv) Bi-Monthly
(v) Quarterly (vi) Semi-Annually (vii) Annually
The Employer will provide you with a statement of account activity at least once
annually.
IX VESTING
A. DETERMINING VESTED BENEFIT
Vesting refers to your earning or acquiring a nonforfeitable
right to the full amount of your account. Any Elective
Deferrals, Qualified Non-Elective Contributions, Qualified
Matching Contributions, Rollover Contributions, Transfer
Contributions, plus or minus any earnings or losses, are
always 100% vested and cannot be forfeited for any reason. Any
Employer contribution (including forfeitures) not listed in
the previous sentence, and the earnings or losses thereon,
will vest in accordance with the following table:
<TABLE>
<CAPTION>
Years of Service
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 2 3 4 5 6 7
-- -- --- --- --- --- ----
0% 0% 20% 40% 60% 80% 100%
</TABLE>
8
<PAGE> 12
You are considered to have completed 1 Year of Service for
purposes of vesting upon the completion of 1000 Hours of
Service at any time during a Plan Year. Service prior to the
Effective Date of the Plan is not counted for purposes of
vesting.
You automatically become fully vested, regardless of the
vesting table, upon attainment of Normal Retirement Age, Early
Retirement Age, upon retirement due to disability, upon death,
or upon termination of the Plan.
B. PAYMENT OF VESTED BENEFIT
If you separate from Service before your retirement, death or
Disability, you may request early payment of your vested
benefit by submitting a written request to the Plan
Administrator. If your vested account balance at the time of
termination exceeds $3,500, you may defer the payment of your
benefit until April 1 of the calendar year following the
calendar year during which you attain age 70-1/2. The portion
of your account balance to which you are not vested is called
a "forfeiture" and remains in the Plan for the benefit of
other Participants. Forfeitures of Employer Discretionary and
Top-Heavy contributions shall be given to all Participants.
Forfeitures of Employer Matching contributions shall be given
to all Participants.
C. LOSS OF BENEFITS
There are only two events which can cause the loss of all or a
portion of your account. One is termination of employment
before you are 100% vested according to the vesting provisions
described at IX(A) and the other is a decrease in the value of
your account from investment losses or administrative expenses
and other costs of maintaining the Plan.
D. REALLOCATION OF FORFEITURE
If you receive the vested portion of your account upon
separation from service, the Employer will forfeit and
reallocate the nonvested portion of your account at the end of
the Plan Year during which you incur one consecutive l-year
Breaks in Service.
E. REEMPLOYMENT
If you terminate service with your Employer, then are later
reemployed, you will become a Participant as of the earlier of
the next Valuation Date or the next Entry Date [see Section
III] following your return to employment. If you are not a
member of a class of employees eligible to participate in the
Plan and later become a member of the eligible class, you will
participate immediately if you have satisfied the minimum age
and service
9
<PAGE> 13
requirements. Should you become ineligible to share in future
Contributions and forfeitures because you are no longer a
member of an eligible class, you shall again share upon your
return to an eligible class. All years of prior Service will
be counted when calculating your vested percentage in your new
account balance. The following rules apply in connection with
reemployed Participants.
(a) TERMINATED PARTIALLY VESTED PARTICIPANTS. If you
terminate employment and receive payment of your
partially vested interest and are reemployed prior to
incurring five consecutive one-year Breaks in
Service, you have the right to buy back the nonvested
portion of your account if it was forfeited. If your
nonvested balance was not forfeited it will still be
part of your account and the buy back is not
necessary. If a buy back is necessary to regain the
forfeiture, you must redeposit the amount paid to you
without interest within five years of your date of
reemployment. If you do not repay the amount you
received, the nonvested portion of your Employer
account will be permanently forfeited. Whether you
repay or not, your prior Service will count toward
vesting service for future Employer contributions.
FOR EXAMPLE, assume that you terminate your job with
your current Employer. At the time of termination you
had accrued a total benefit of $10,000 under the
retirement Plan. Although this amount had been
allocated to your account, you were only 40% vested
in that amount when you left. You decided to take a
distribution of your vested account balance (40% of
$10,000,or $4,000) when you quit. The nonvested
balance of your account ($6,000) was forfeited. Three
years later, you became reemployed by the same
Employer. Since you were reemployed within 5 years,
you have the right to repay the $4,000 distribution
you received when you quit. You would have to repay
the $4,000 within 5 years of being rehired. If you do
so, the nonvested portion of your account ($6,000)
will be restored to your account. After restoration,
you will be vested in 40% of this account, but your
vested percentage will increase based on your Years
of Service after your reemployment. Your prior
Service will always count towards vesting of Employer
Contributions which you receive after reemployment,
whether or not you decide to repay and restore your
prior account.
(b) TERMINATED NONVESTED PARTICIPANTS. If you were not
vested in any portion of your Employer Contribution
account prior to your separation from service and are
reemployed before incurring five consecutive one-year
Breaks in Service, you
10
<PAGE> 14
will be credited for vesting with all pre-break and
post-break service. Your prior unpaid account balance
will automatically be restored and you will continue
to vest in that account. If you are reemployed after
incurring five consecutive one-year Breaks in
Service, you will lose your prior account balance,
but your pre-break Years of Service will count
towards vesting in your new account balance.
X TOP-HEAVY RULES
A "top-heavy" plan is one in which more than 60% of the
contributions or benefits are attributable to "key employees",
such as owners, officers and stockholders. The Plan
Administrator is responsible for determining each year if the
Plan is "top-heavy". If the Plan becomes top-heavy, special
rules apply to the allocation of the Employer's contribution.
These special rules require that all Participants will
generally receive an allocation of the Employer's contribution
equal to 3% of compensation, or if less, the greatest
percentage allocated to the account of any key employee. All
Participants are entitled to receive this minimum allocation
upon completing at least one Hour of Service in the top-heavy
Plan Year provided they are employed on the last day of the
Plan Year. The Employer's minimum contribution can be
satisfied by another Employer sponsored retirement plan, if so
elected by the Employer. The following vesting schedule shall
apply for the Plan Year the Plan becomes top-heavy, for any
type of Employer Contribution, unless the Employer has already
elected a faster schedule:
<TABLE>
<CAPTION>
Years of Service
-----------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 2 3 4 5 6
-- --- --- --- --- ----
0% 20% 40% 60% 80% 100%
</TABLE>
XI RETIREMENT BENEFITS AND DISTRIBUTIONS
A. RETIREMENT BENEFITS
The full value of your account balance is payable at
your Normal Retirement Age, even if you continue to
work, or you may defer payment until April 1
following the year you reach age 70-1/2. If you work
beyond your Normal Retirement Age, you will continue
to fully participate in the Plan.
B. DISTRIBUTIONS DURING EMPLOYMENT
Benefits attributable to Employer Contributions are
not payable prior to your separation from Service,
except as indicated above.
If applicable, benefits attributable to your
rollovers are available for withdrawal upon request
to the Plan Administrator. Transfers
11
<PAGE> 15
Contributions may be withdrawn only if they originate
from plans meeting certain safe harbor provisions.
C. HARDSHIP WITHDRAWALS
You may file a written request for a hardship
withdrawal of the portion of your account balance
attributable to Elective Deferrals and certain
Employer Contributions to the extent vested. Earnings
on Elective Deferrals up to the last day of the Plan
Year prior to July 1, 1989 may be included in any
hardship withdrawal, but earnings on Elective
Deferrals after that date may not be included. You
must generally have your Spouse's written consent for
a hardship withdrawal unless you are advised
otherwise by the Plan Administrator. Prior to
receiving a hardship distribution, you must take any
other distribution and borrow the maximum non-taxable
loan amount allowed under this and any other plans of
the Employer. Note, however, that if the effect of
the loan would be to increase the amount of your
financial need, you are not required to take the
loan. For example, if you need funds to purchase a
principal residence, and a plan loan would disqualify
you from obtaining other necessary financing, you do
not have to take the loan. Hardship withdrawals may
be authorized by the Employer for the following
reasons:
(a) to assist you in purchasing a personal
residence which is your primary place of
residence (not including mortgage payments),
(b) to assist you in paying tuition and related
educational expenses for you, your Spouse,
or your dependents, for the next twelve
months of post-secondary education,
(c) to assist you in paying expenses incurred or
necessary on behalf of you, your Spouse, or
your dependents for hospitalization, doctor
or surgery expenses which are not covered by
insurance, or
(d) to prevent your eviction from or foreclosure
on your principal residence.
Any hardship distribution is limited to the amount
needed to meet the financial need. Hardship
withdrawals must be approved by the Employer and will
be administered in a non-discriminatory manner. Such
withdrawals will not affect your eligibility to
continue to participate in Employer Contributions to
the Plan, although, your right to make Elective
Deferrals shall be suspended for twelve months. Any
withdrawals you receive under these rules may not be
recontributed to the Plan and may be subject to
taxation, as well as an additional 10% penalty tax if
the withdrawal is received
12
<PAGE> 16
before you reach age 59-1/2. These payments shall
also be subject to a mandatory 20% withholding for
income tax purposes.
D. BENEFICIARY
Every Participant or former Participant with plan
benefits may designate a person or persons who are to
receive benefits under the Plan in the event of his
or her death. The designation must be made on a form
provided by and returned to the Plan Administrator.
You may change your designation at any time. If you
are married, your beneficiary will automatically be
your Spouse. If you and your Spouse wish to waive
this automatic designation, you must complete a
beneficiary designation form. The form must be signed
by you and your Spouse in front of a Plan
representative or a Notary Public.
E. DEATH BENEFITS
In the event of your death, the full value of your
account is payable to your beneficiary in a lump sum,
or if permitted, in installments payable over any
period which does not exceed the life expectancy of
your beneficiary. The benefit may also be paid in the
form of an annuity. If you die after benefit payments
have started under an installment option and after
the attainment of age 70-1/2, your beneficiary will
continue to receive payments in accordance with the
payment option you selected.
F. FORM OF PAYMENT
When benefits become due, you or your representative
should apply to the Employer requesting payment of
your account and specifying the manner of payment. If
you are married and your account balance exceeds
$3,500,the normal or automatic form of payment is a
joint and survivor annuity with a percentage of your
benefit continuing to your Spouse upon your death. If
you are not married, the normal form of benefit is a
life annuity based on your life expectancy. If you do
not wish to receive the normal form of payment when
your payments are due to start, you may request to
receive your benefit in any of the optional forms
indicated:
- lump sum.
- installment payments.
- a life annuity.
- a life annuity with up to 20 years
guaranteed.
- a joint and 50 66 2/3 75 100% survivor
annuity
In some cases, election of one of the optional forms
of payment will require the written consent of your
Spouse. Also, payments may not be made over a period
which exceeds the life expectancy of you and your
beneficiary. The Plan Administrator will advise
13
<PAGE> 17
you if any special rules apply in connection with the
payments of your benefits.
G. ROLLOVER OF PAYMENT
If your benefits qualify as eligible rollovers, you
have the option of having them paid directly to you,
when they become due, or having them directly rolled
over to another qualified plan or an IRA. If you do
not choose to have the benefits directly rolled over,
the Plan is required to automatically withhold 20% of
your payment for tax purposes. If you do choose to
have the payment made to you, you still have the
option of rolling over the payment yourself to a
qualified plan or an IRA within sixty days (first
check with a tax advisor to make sure it is an
eligible rollover). However, 20% of your payment will
still be withheld. The following example illustrates
how this works:
If you have $100,000 in your vested account balance
and choose to have the payment of your benefits made
directly to an IRA or another qualified plan, the
entire $100,000 will be transferred to the trustee of
the other plan or the IRA, and you will treat the
entire amount as a rollover on your tax return so
that you will NOT pay taxes on the entire amount. If
you choose not to have the account transferred
directly to an IRA or qualified plan, 20% or $20,000
will automatically be withheld from your payment.
Thus, you will receive only $80,000 as a distribution
of your benefits. In order to roll the entire amount
over into your IRA, you would have to come up with
$20,000 out of your own pocket to make up the
difference. If this is done, the $20,000 which was
withheld may be returned when you file your taxes at
the end of the year. However, if you are unable to
produce the extra cash, the rollover amount will only
be $80,000, and the other $20,000 which was withheld
will be treated as taxable income to you. If you are
under age 59 1/2 when you receive your benefit
payment, the withheld amount will also be subject to
the 10% early distribution penalty. However, if you
receive your benefit payment due to a separation of
service, after attainment of age 55,there will be no
10% early distribution penalty.
Certain benefit payments are not eligible for
rollover and therefore will also not be subject to
the 20% mandatory withholding. They are as follows:
1. annuities paid over life;
2. installments for a period of at least 10
years; and
3. minimum required distributions at age 70 1/2.
There are also several operational exceptions and a "de
minimis" exception for payments of less than $200. Also
Employee Voluntary contributions are not eligible for
rollover.
14
<PAGE> 18
H. TIME OF PAYMENT
If you retire, become disabled, or die, payments will
start following the close of the valuation period
during which a distribution is requested or is
otherwise payable.
If you terminate for a reason other than death,
Disability, or retirement, payments will start as
soon as administratively feasible following the end
of the Plan Year in which a distribution is requested
by you or is otherwise payable.
I. JOINT AND SURVIVOR ANNUITY RULES
RETIREMENT BENEFITS
If the benefit under the Plan is payable in the form
of an annuity, the Plan is subject to the joint and
survivor annuity rules. Under these rules, there are
two automatic methods of payment for vested
Participants depending on your marital status. If you
do not choose another form of payment (such as a lump
sum or installments), the normal form of payment is a
straight life annuity if you are not married at your
retirement date, or a qualified joint and survivor
annuity if you are married. Under a straight life
annuity, you will receive equal monthly payments for
as long as you live. No further payments will be made
after your death. Under a qualified joint and
survivor annuity, you will receive a reduced benefit
each month for your lifetime. After you die, 50% of
that amount will be paid each month to your Spouse
for his or her lifetime. The amount of your monthly
benefit is reduced under a joint and survivor annuity
because it is expected that payments will be made
over two lifetimes instead of one. You may choose
another form of payment by filling out the proper
form and returning it to the Plan Administrator. In
order to choose another form of payment or a
beneficiary other than your Spouse, you must make a
proper election, with your Spouse's written consent.
Such election must be witnessed by a Notary Public.
Written notice of these rules will be provided to you
on a timely basis.
DEATH BENEFITS
If you die while still employed by the Employer, or
die after you retire or terminate employment but
before benefit payments start, your surviving Spouse
will be entitled to a life annuity based on one half
of the value of your account. These payments will
continue for your spouse's lifetime unless he or she
chooses to accelerate such payments. Again, you and
your Spouse can waive this coverage by obtaining the
proper form from the Plan Administrator and
completing it. For the other half of your account,
that is not entitled to be paid in the form of a life
annuity, you may designate
15
<PAGE> 19
another beneficiary and/or allowable form of payment
under the Plan without obtaining a waiver from your
spouse.
If you are not married, you may designate any
beneficiary or allowable form of payment under the
Plan.
XII INVESTMENTS
A. TRUST FUND
The monies contributed to the Plan may be invested in
any security or form of property considered prudent
for a retirement plan. Such investments include, but
are not limited to, common and preferred stocks,
exchange traded put and call options, bonds, money
market instruments, mutual funds, savings accounts,
certificates of deposit, Treasury bills, or insurance
contracts. An institutional Trustee may invest in its
own deposits or those of affiliates which bear a
reasonable interest rate, or in a group or collective
trust maintained by such Trustee.
B. INVESTMENT RESPONSIBILITY
The Plan's assets are held by the Trustee who is
identified in Section II of this Summary. The Trustee
is responsible for the safekeeping of plan assets and
for the investment management of such assets unless
the Employer elects to direct investments, appoints
an outside investment manager or permits Participants
to direct the investment of their individual
accounts.
C. EMPLOYEE INVESTMENT DIRECTION
Participants may direct the investments of their
accounts among any allowable investments. All
contributions are available for making an investment
election. The procedures for making an election are
shown in a separate Investment Election Form which
can be obtained from the Plan Administrator. You may
change your investment selection and move monies from
one fund to another in accordance with the rules
established by the Plan Administrator.
D. PARTICIPANT LOANS
Participant loans are permitted under the Plan. In
order to get a loan from the Plan, you must make
application to the Plan Administrator. Loans must be
approved by the Plan Administrator and are subject to
a strict set of rules established by law. The rules
are covered in a separate Loan Application Form and
Promissory Note Form. These Forms are available from
the Plan Administrator.
16
<PAGE> 20
XIII ADMINISTRATION
The Plan will be administered by the following parties:
A. PLAN ADMINISTRATOR
The Employer is the party who has established the
Plan and who has overall control and authority over
administration of the Plan. The Employer's duties as
Plan Administrator include:
(a) appointing the Plan's professional advisors
needed to administer the Plan including, but
not limited to, an accountant, attorney,
actuary, or administrator,
(b) directing the Trustee with respect to
payments from the Fund,
(c) communicating with Employees regarding their
participation and benefits under the Plan,
including the administration of all claims
procedures and domestic relations orders,
(d) filing any returns and reports with the
Internal Revenue Service, Department of
Labor, or any other governmental agency,
(e) reviewing and approving any financial
reports, investment reviews, or other
reports prepared by any party appointed by
the Employer,
(f) establishing a funding policy and investment
objectives consistent with the purposes of
the Plan and the Employee Retirement Income
Security Act of 1974, and
(g) construing and resolving any question of
Plan interpretation. The Plan
Administrator's interpretation and
application thereof is final.
B. TRUSTEE
The Trustee shall be responsible for the
administration of investments held in the Fund. These
duties shall include:
(a) receiving contributions under the terms of
the Plan,
(b) investing Plan assets unless investment
responsibility is delegated to another party
by the Employer,
(c) making distributions from the Fund in
accordance with written instructions
received from the Plan Administrator,
17
<PAGE> 21
(d) keeping accounts and records of the
financial transactions of the Fund, and
(e) rendering an annual report of the Fund
showing the financial transactions for the
Plan Year.
XIV AMENDMENT AND TERMINATION
The Employer may amend the Plan at any time, provided that no
amendment will divert any part of the Plan's assets to any
purpose other than for the exclusive benefit of you and the
other Participants in the Plan or eliminate an optional form
of distribution. The Employer may also terminate the Plan. In
the event of a full termination, all amounts credited to your
account will be fully vested and will be paid to you.
Depending on the facts and circumstances, a partial
termination may be found to occur where a significant number
of Employees are terminated by the Employer or excluded from
Plan participation. In case of a partial termination, only
those affected will become 100% vested.
XV LEGAL PROVISIONS
A. RIGHTS OF PARTICIPANTS
As a Plan Participant, you have certain rights and
protection under the Employee Retirement Income
Security Act of 1974 (ERISA). The law says that you
are entitled to:
(a) Examine, without charge, all documents
relating to the operation of the Plan and
any documents filed with the U.S. Department
of Labor. These documents are available for
review in the Employer's offices during
regular business hours.
(b) Obtain copies of all Plan documents and
other Plan information upon written request
to the Employer. The Employer may make a
reasonable charge for producing the copies.
(c) Receive from the Employer at least once each
year a summary of the Plan's annual
financial report.
(d) Obtain, at least once a year, a statement of
the total benefits accrued for you, and your
nonforfeitable (vested) benefits, if any.
The Plan provides that you will receive this
statement automatically. If you are not
vested, you may request a statement showing
the date when your account will begin to
become nonforfeitable.
(e) File suit in a federal court, if any
materials requested are not received within
30 days of your request, unless the
18
<PAGE> 22
materials were not sent because of matters
beyond the control of the Employer. If you
are improperly denied access to information
you are entitled to receive, the Employer
may be required to pay up to $100 for each
day's delay until the information is
provided to you.
B. FIDUCIARY RESPONSIBILITY
ERISA imposes obligations upon the persons who are
responsible for the administration of the Plan. These
persons are referred to as "fiduciaries." Fiduciaries
must act solely in your interest as a Plan
Participant and they must exercise prudence in the
performance of their duties. Fiduciaries who violate
ERISA may be removed and required to reimburse any
losses they have caused you or your Plan.
C. EMPLOYMENT RIGHTS
Participation in the Plan is not a guarantee of
employment. However, the Employer may not fire you or
discriminate against you to prevent you from becoming
eligible for the Plan or from obtaining a benefit or
exercising your rights under ERISA.
D. BENEFIT INSURANCE
Your benefits under this Plan are not insured by the
Pension Benefit Guaranty Corporation since the law
does not provide plan termination insurance for this
type of Plan.
E. CLAIMS PROCEDURE
If you feel you are entitled to a benefit under the
Plan, mail or deliver your written claim to the Plan
Administrator. The Plan administrator will notify
you, your beneficiary, or authorized representative
of the action taken within 60 days of receipt of the
claim. If you believe that you are being improperly
denied a benefit in full or in part, the
Administrator must give you a written explanation of
the reason for the denial. If the Administrator
denies your claim, you may, within 60 days after
receiving the denial, submit a written request asking
the Administrator to review your claim for benefits.
Any such request should be accompanied by documents
or records in support of your appeal. You, your
beneficiary, or your authorized representative may
review pertinent documents and submit issues and
comments in writing. If you get no satisfaction from
the Administrator, you have the right to request
assistance from the U.S. Department of Labor or you
can file suit in a state or federal court. Service of
legal process may be made on the Plan Administrator
at the address of the Employer. If you are successful
in your lawsuit, the court may require the Employer
to pay your legal costs, including your attorney's
fees. If
19
<PAGE> 23
you lose, and the court finds that your claim is
frivolous, you may be required to pay the Employer's
legal fees.
F. ASSIGNMENT
Your rights and benefits under this Plan cannot be
assigned, sold, transferred or pledged by you or
reached by your creditors or anyone else except under
a qualified domestic relations order or as provided
by state law. A qualified domestic relations order
(QDRO) is a court order issued under state domestic
relations law relating to divorce, legal separation,
custody, or support proceedings. The QDRO recognizes
the right of someone other than you to receive your
Plan benefits. You will be notified if a QDRO on your
Plan benefits is received. Receipt of a qualified
domestic relations order shall allow for an earlier
than normal distribution to the person(s) other than
the Participant listed in the order.
G. QUESTIONS
If you have any questions about this statement of
your rights under ERISA, please contact the Employer
or the Pension and Welfare Benefits Administration,
Room N-5644, U.S. Department of Labor, 200
Constitution Ave., N.W., Washington, D.C. 20210.
H. CONFLICTS WITH PLAN
This booklet is not the Plan document, but only a
Summary Plan Description of its principal provisions
and not every limitation or detail of the Plan is
included. Every attempt has been made to provide
concise and accurate information. However, if there
is a discrepancy between this booklet and the
official Plan document, the Plan document shall
prevail.
20
<PAGE> 1
AGREEMENT
WHEREAS, John F. Warlick has formed a corporation named OssaTronics,
Inc. with a purpose to pursue Food and Drug Administration (F.D.A.) approval of
the Ossatron and related equipment in the United States and with a further
purpose of marketing and servicing the Ossatron and related equipment in the
United States, South America and Canada and;
WHEREAS, the parties hereto desire to become shareholders of
OssaTronics, Inc. subject to the Articles of Incorporation, Bylaws, and
Corporate Resolutions; an
NOW THEREFORE, in consideration of ten dollars ($10.00) and other good
and valuable considerations, the parties agree as follows:
-1-
The undersigned understand the inherent risks associated with the
foregoing venture and acknowledge that they have had ample opportunity to
evaluate the merits and risks associated with the investment. The undersigned
further represent that they are able to bear the economic risk of such an
investment for a prolonged period of time.
-2-
The corporation shall have the authority to issue not more than 100,000
shares of one class of common stock, with one vote per share. The parties agree
to subscribe to the following amounts of shares of capital stock of the
corporation (the "Stock") in accordance with the affidavits attached hereto as
Exhibit "A".
A. 31,000 shares (31%) of the stock is to be issued to John F.
Warlick upon the acceptance of his affidavit and upon full payment of the
purchase price of $62,000.
B. 31,000 shares (31%) of the stock is to be issued to Argil
Wheelock, M.D., upon the acceptance of his affidavit and upon full payment of
the purchase price of $62,000.
<PAGE> 2
C. 33,000 shares (33%) of the stock is to be issued to Karl-Heinz
Restle upon the acceptance of his affidavit and upon full payment of the
purchase price of $66,000.
D. 5,000 shares (5%) of the stock is to be issued to Scott A.
Cochran upon the acceptance of his affidavit and upon the full payment of the
purchase price of $10,000.
-3-
The parties agree that all shareholders shall have preemptive rights to
acquire proportional amounts of the corporations unissued or later issued stock
or treasury shares.
-4-
The parties hereto agree to invest time and expertise in furtherance of
the corporate purposes at no expense in proportion to the ownership interest
herein specified.
IN WITNESS WHEREOF, the parties have affixed their hands and seals this
15th day of February, 1995.
/s/ John F. Warlick
- ---------------------------- ----------------------------------
Attest John F. Warlick
/s/ Argil Wheelock, M.D.
- ---------------------------- ----------------------------------
Attest Argil Wheelock, M.D.
- ---------------------------- ----------------------------------
Attest Karl-Heinz Restle
- ----------------------------
Attest
/s/ Scott A. Cochran
- ---------------------------- ----------------------------------
Attest Scott A. Cochran
<PAGE> 1
EXHIBIT 10.8
[LETTERHEAD]
June 19, 1996
Roy Brown
13 West Park Square
Suite B
Marietta, Georgia 30060
RE: Manufacturing agreements with HMT
Dear Roy:
As discussed, enclosed please find the manufacturing agreements to be
executed by HealthTronics and HMT.
Please feel free to contact me on this matter if necessary.
Very truly yours,
/s/ SCOTT A. COCHRAN
-------------------------
Scott A. Cochran
SAC:ad
Enclosure
<PAGE> 2
[HealthTronics Letterhead]
June 21, 1996
Mr. Karl-Heinz Restle
High Medical Technologies
Bachstrasse 8
CH-8280 Kreuzlingen
Switzerland
RE: Manufacturing Agreements for the OssaTron(TM) and LithoTron(TM)
Dear Karl-Heinz:
As recently discussed, we need to put in place an additional document with
respect to manufacturing rights for both, the OssaTron and LithoTron. To this
end, we have drawn up the enclosed documents (one for the OssaTron and one for
the LithoTron). Would you please sign the documents in the places provided and
return one set to me; retaining one set for your records.
Thanks and regards,
/s/ ROY S. BROWN
- -------------------
Roy S. Brown
RSB/km
Enclosure
cc: Scott Cochran
<PAGE> 3
MANUFACTURING AGREEMENT
This agreement is made and entered into this 20 day of June 1996, by and
between HIGH MEDICAL TECHNOLOGIES ENTWICKLUNGS + VERTRIEBS AG, (hereinafter
referred to as "HMT") and, HEALTHTRONICS, INC.:
WITNESSETH:
WHEREAS, HMT and HealthTronics, Inc. have entered into a distributorship
executed January 24, 1996 by HMT; and January 22, 1996 by HealthTronics, Inc.
NOW, THEREFORE, in consideration of ten dollars ($10.00) and other good
and valuable consideration, the parties agree as follows:
-1-
Notwithstanding any provision contained in the Distributor Agreement,
HealthTronics, Inc. shall have the right to manufacture the "LithoTron
LithoTripter" as well as accessories, spare parts, consumables, disposables and
key components related thereto. Such key components are specified in Exhibit 2,
"contract products" of the Distributorship Agreement.
-2-
HMT shall, within thirty days after receiving a written request, provide
HealthTronics, Inc. with all drawings, technical descriptions, suppliers and
all other matters requested by HealthTronics, Inc. related to manufacturing the
LithoTron LithoTripter so as to enable HealthTronics, Inc. to manufacture the
LithoTron LithoTripter.
-3-
To the extent that any provision of this agreement conflicts with any
provision of the Distributorship Agreement, this agreement shall govern.
-4-
This Agreement shall be governed by the laws of the State of Georgia.
HMT
BY:
------------------------------------
Karl-Heinz Restle (Managing Director)
SIGNATURES CONTINUED ON NEXT PAGE
<PAGE> 4
HEALTHTRONICS, INC.
BY:/s/ ROY S. BROWN
---------------------------------
Roy S. Brown (President)
<PAGE> 1
EXHIBIT 10.9
AGREEMENT AND PLAN OF SHARE EXCHANGE
BETWEEN
HEALTHTRONICS, INC.
AND
HLE CORP., METRO I STONE MANAGEMENT, L.P.,
DAVID S. ELLIS, M.D., H. PATTERSON HEZMALL, M.D.,
and WADE L. LOWRY, M.D.
This Agreement and Plan of Share Exchange made and entered into this
9th day of September 1998, (hereinafter referred to as the "Agreement") by and
between HEALTHTRONICS, INC., a Georgia corporation, HLE CORP., a Texas
corporation (said corporations being hereinafter sometimes referred to as the
"Constituent Corporations") and DAVID S. ELLIS, M.D. and H. PATTERSON HEZMALL,
M.D., and WADE L. LOWRY, M.D. the sole shareholders of HLE CORP. (Collectively,
"the Shareholders," and individually, "a Shareholder"), and METRO I STONE
MANAGEMENT, L.P., a Texas limited partnership:
WITNESSETH
WHEREAS, HEALTHTRONICS, INC. is a corporation duly organized and
validly existing under the laws of the State of Georgia; and
WHEREAS, HLE CORP. is a corporation duly organized and validly existing
under the laws of the State of Texas; and
WHEREAS, DAVID S. ELLIS, M.D. and H. PATTERSON HEZMALL, M.D. and WADE
L. LOWRY, M.D. are the sole stockholders of HLE. CORP.; and
WHEREAS, the Boards of Directors of each of said corporations deem it
advisable and for the benefit of each of said corporations and their respective
shareholders that HEALTHTRONICS, INC. acquire all of the issued and outstanding
capital stock of HLE CORP.; and
WHEREAS, the Shareholders of HLE CORP. desire to exchange their shares
of HLE
<PAGE> 2
CORP. common stock for shares of HEALTHTRONICS, INC. common stock; and
WHEREAS, the parties hereto intend that the transactions contemplated
by this Agreement qualify as a reorganization within the meaning of Section
368(a)(1)(B) of the Internal Revenue Code of 1968, as amended (the "Code"); and
WHEREAS, HLE CORP. owns a thirty percent (30%) limited partnership
interest in METRO I STONE MANAGEMENT, L.P., a Texas limited partnership
NOW, THEREFORE, for and in consideration of the premises and of the
mutual agreements, promises, and covenants hereinafter contained, it is hereby
agreed by and between the parties hereto, subject to the conditions hereinafter
set forth, that HEALTHTRONICS, INC. (hereinafter sometimes referred to as the
"Acquiring Corporation") shall acquire all of the issued and outstanding capital
stock of HLE CORP. The terms and conditions of the share exchange hereby agreed
upon and the mode of carrying the same into effect and the manner of exchanging
the shares of HLE CORP. for securities of the Acquiring Corporation are and
shall be as follows:
1.
The acts and things required to be done by the Georgia Business
Corporation Code in order to make this Agreement effective, in the manner
provided for in the Georgia Business Corporation Code, shall be attended to and
done by the proper officers of the Constituent Corporations as soon as
practicable.
2.
(a) Upon the effective date of the share exchange (the "Effective
Date"):
(i) Each share of the capital stock of HEALTHTRONICS INC. issued
and outstanding immediately prior to the Effective Date shall continue unchanged
and shall continue to
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<PAGE> 3
evidence the same number of shares of capital stock of the Acquiring
Corporation.
(ii) Each share of the capital stock of HLE CORP. shall be exchanged
for 30 (thirty) shares of the capital stock of HEALTHTRONICS, INC. The shares
shall be exchanged for HEALTHTRONICS, INC. stock as follows. All shares of
HEALTHTRONICS, INC. shall be voting shares.
<TABLE>
<S> <C> <C>
DAVID ELLIS, M.D. 3,333.33 HLE CORP. Shares exchanged for 100,000 HEALTHTRONICS INC. Shares
H. PATTERSON HEZMALL, M.D. 3,333.33 HLE CORP. Shares exchanged for 100,000 HEALTHTRONICS INC. Shares
WADE LOWRY, M.D. 3,333.34 HLE CORP. Shares exchanged for 100,000 HEALTHTRONICS INC. Shares
</TABLE>
Each stock certificate shall bear the following restriction:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED ("1933 ACT"), AND MAY NOT BE OFFERED, SOLD OR TRANSFERRED, NOR WILL ANY
ASSIGNEE OR ENDORSEE HEREOF BE RECOGNIZED AS AN OWNER HEREOF BY THE COMPANY FOR
ANY PURPOSE, UNLESS A REGISTRATION STATEMENT UNDER THE 1933 ACT WITH RESPECT TO
SUCH SECURITIES SHALL THEN BE IN EFFECT OR UNLESS THE AVAILABILITY OF AN
EXEMPTION FROM REGISTRATION WITH RESPECT TO ANY PROPOSED TRANSFER OR DISPOSITION
OF SUCH SECURITIES SHALL BE ESTABLISHED TO THE SATISFACTION OF COUNSEL FOR THE
COMPANY. IN ADDITION, THESE SECURITIES HAVE BEEN ISSUED IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION PURSUANT TO APPLICABLE STATE SECURITIES LAW AND
THESE SECURITIES MAY NOT BE SOLD OR TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER APPLICABLE STATE LAW OR UNLESS IT IS ESTABLISHED TO
THE SATISFACTION OF COUNSEL FOR THE COMPANY THAT SUCH SALE OR TRANSFER IS EXEMPT
UNDER APPLICABLE STATE LAW OR IN A TRANSACTION WHICH IS OTHERWISE IN COMPLIANCE
WITH APPLICABLE STATE LAW".
(b) From and after the Effective Date, each holder of any of the shares
to be exchanged as above provided shall be entitled, upon presentation and
surrender to the Acquiring Corporation of the certificates representing such
shares, to receive in exchange therefor certificates representing the number of
whole shares of the stock of the Acquiring Corporation into which such shares
shall
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<PAGE> 4
have been converted. The surrendered shares shall be canceled.
3.
From the date of this Agreement until the Effective Date or until the
abandonment of the share exchange pursuant to the provisions hereof.
(a) Unless otherwise provided herein, HLE CORP., METRO I STONE
MANAGEMENT, L.P. and HEALTHTRONICS, INC. shall continue to conduct their
respective businesses in the ordinary course, and neither HLE CORP., METRO I
STONE MANAGEMENT, L.P. nor HEALTHTRONICS, INC. shall, without the prior written
consent of the other, engage in any transaction or incur any obligation except
in the ordinary course of business or as otherwise authorized by this Agreement.
Without limiting the foregoing, neither HLE CORP., METRO I STONE MANAGEMENT,
L.P. nor HEALTHTRONICS, INC. shall during the foregoing period, without the
prior consent of the other:
(i) amend its Articles of Incorporation, except as may be
necessary to carry out this Agreement or as required by law;
(ii) borrow any money, other than short term borrowing in the
ordinary course of business;
(iii) issue, sell, encumber, or otherwise dispose of any shares of
its capital stock, however, HEALTHTRONICS, INC. shall not be
prohibited from filing a registration for a public offering of
its securities;
(iv) declare, authorize, or pay any dividend on, make any
distribution in respect of, redeem or acquire for value any
shares of its capital stock, directly or indirectly;
Page 4
<PAGE> 5
(v) Sell, lease, or otherwise dispose of any part of its property
or assets, except in the ordinary course of business; enter
into any new plan or agreements for the benefit of officers or
employees or the benefits under any existing such plan;
(vi) Sell, lease or otherwise dispose of any of its ownership or
interest in METRO I STONE MANAGEMENT, L.P.
(vii) Make any purchase of real estate, personal property,
merchandise, or securities except in the ordinary course of
business.
(b) HLE CORP., METRO I STONE MANAGEMENT, L.P. and HEALTHTRONICS, INC.
shall each make available for examination by the other as requested, in addition
to its financial statements, any inventory and other detailed records in support
of such statements; records of contracts, commitments, leases, licensing
agreements, deeds, title insurance policies, patents, trademarks, and other
evidence of interest or ownership in property; details and status of the various
funds, plans, profit sharing and deferred compensation agreements, if any; stock
option plans and other provisions for the benefit of its officers and employees;
income tax return, audit material and related data; information concerning
claims of litigation threatened or pending, and all other information relevant
to their respective businesses and to the merger herein contemplated.
4.
HLE CORP. represents and warrants to HEALTHTRONICS, INC. as follows:
(a) HLE CORP. is a corporation duly organized, validly existing, and in
good standing under the laws of the State of Texas, has full corporate power to
carry on its business as it is now being conducted and to own and operate the
properties and assets now owned or operated by it and
Page 5
<PAGE> 6
is duly qualified to do business and is in good standing in each jurisdiction
where the conduct of its business or the ownership of its property requires such
classification.
(b) All of the outstanding shares of HLE CORP. are validly issued,
fully paid and nonassessable.
(c) HLE CORP. has no outstanding options or warrants.
(d) The balance sheet of HLE CORP. as of September 30, 1998, and copies
of HLE CORP.'s financial statements for 1998 have been delivered to
HEALTHTRONICS, INC., and present fairly the financial position and the results
of the operations of HLE CORP. HLE CORP. has no liabilities or obligations,
either accrued, absolute, contingent, or otherwise, which are not set forth on
the balance sheets.
(e) HLE CORP. has authorized 10,000 shares of capital stock and has
10,000 shares outstanding. Such shares are held as follows:
<TABLE>
<S> <C>
DAVID ELLIS, M.D. 3,333.33 Shares
H. PATTERSON HEZMALL, M.D. 3,333.33 Shares
WADE LOWRY, M.D. 3,333.34 Shares
</TABLE>
(f) All federal, state, and other tax returns and reports that are
required to be filed prior to the Effective Date have been or will be filed
prior to the Effective Date, and all taxes, assessments, fees, and other
governmental charges shown to be due on such tax returns or reports have been or
will be paid prior to the Effective Date.
(g) Since September 30, 1998, there has not been:
(i) any material adverse change in the financial
condition or in the operation,
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<PAGE> 7
business, or property of HLE CORP. from that shown on
its September 30, 1998, balance sheet;
(ii) any damage, destruction, or loss, whether covered by
insurance or not, materially affecting the
operations, business or property of HLE CORP.;
(iii) any declaration, setting aside, or payment of any
dividend, or any distribution in respect of the
capital stock of HLE CORP., or any redemption of such
stock; or
(iv) any labor trouble other than routine grievance
matters, none of which is material.
(h) HLE CORP. has good title to all of its property and assets,
real and personal, reflected in its September 30, 1998, balance sheet (except
properties and assets sold or otherwise disposed of since such date in the
ordinary course of business) free and clear of all mortgages, liens, pledges,
charges, or encumbrances of any nature whatsoever, except as reflected in said
balance sheet and except liens for current taxes not yet due and payable. All
leases pursuant to which HLE CORP. leases any substantial amount of real or
personal property, are in good standing, valid, and effective in accordance with
their respective terms, and there is not under any such leases any existing
default or event of default or event which, with notice or lapse of time or
both, would constitute a default and in respect of which HLE CORP. has not taken
adequate steps to prevent a default from occurring The equipment of HLE CORP.
that is necessary to the operation of its business is in good condition and
repair, subject to reasonable wear and tear.
(i) There is no suit, action, litigation, administrative
arbitration, or other proceeding, or any change in the zoning or building
ordinances affecting the real property or leasehold interest of
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<PAGE> 8
HLE CORP. pending or (to the knowledge of the management of HLE CORP.)
threatened which might materially affect the overall financial condition,
business, or property of HLE CORP. HLE CORP. has complied with all laws,
ordinances, requirements, regulations, or orders applicable to its business.
(j) The execution of this Agreement has been duly authorized by
the Board of Directors of HLE CORP. and no other corporate action is necessary
for the execution hereof. Neither the execution and delivery of this Agreement,
nor the consummation of the transaction provided for herein, will violate any
material agreement to which HLE CORP. is a party or by which it is bound or any
provisions of the Articles of Incorporation or Bylaws of HLE CORP. or any law,
order or decree.
(k) Except to the extent heretofore disclosed to HEALTHTRONICS,
INC. in writing, HLE CORP. is not a party to any agreement or instrument or
subject to any charter or other corporate restriction or any judgment, order,
writ, injunction, decree, rule, or regulation which materially and adversely
affects, or so far as HLE CORP. can now reasonably foresee, may in the future
materially and adversely affect the business operations, prospects, properties,
assets or condition, financial or otherwise, of HLE CORP.
(1) HLE CORP. owns a thirty percent (30%) limited partnership
interest in METRO I STONE MANAGEMENT L.P.
5.
METRO I STONE MANAGEMENT L.P. represents and warrants as follows:
(a) METRO I STONE MANAGEMENT L.P. is a Limited Partnership duly
organized, validly existing, and in good standing under the laws of the State of
Texas, has full power to carry
Page 8
<PAGE> 9
on its business as it is now being conducted and to own and operate the
properties and assets owned or operated by it and is duly qualified to do
business and is in good standing in each jurisdiction where the conduct of its
business or the ownership of its property requires such classification.
(b) The balance sheet of METRO I STONE MANAGEMENT L.P. as of
December 31, 1997, and statement of income (loss) and retained earnings for the
year then ended, and copies of financial statements for 1997 have been delivered
to HEALTHTRONICS, INC., and present fairly the financial position and the
results of the operations of METRO I STONE MANAGEMENT L.P. for the year ended
December 31, 1997. METRO I STONE MANAGEMENT, L.P. has no liabilities or
obligations, either accrued, absolute, contingent, or otherwise, which are not
set forth in the referenced financial statements.
(c) The partners of METRO I STONE MANAGEMENT, L.P. are as follows:
See Exhibit "A" attached hereto and incorporated herein
by reference.
(d) All federal, state, and other tax returns and reports that are
required to be filed prior to the Effective Date have been or will be filed
prior to the Effective Date, and all taxes, assessments, fees, and other
governmental charges shown to be due on such tax returns or reports have been or
will be paid prior to the Effective Date.
(e) Since December 31, 1997, there has not been
(i) any material adverse change in the financial
condition or in the operation, business, or property
of METRO I STONE MANAGEMENT, L.P. from that shown on
its December 31, 1997, balance sheet;
(ii) any damage, destruction, or loss, whether covered by
insurance or not, materially affecting the
operations, business or property of METRO I
Page 9
<PAGE> 10
STONE MANAGEMENT, L.P.; or
(iii) any declaration, setting aside, or payment of any
distribution by METRO I STONE MANAGEMENT, L.P. to its
partners or any repurchase of any partner's
partnership interest; or
(iv) any labor trouble other than routine grievance
matters, none of which is material.
(f) METRO I STONE MANAGEMENT, L.P. has good title to all of its
property and assets, real and personal, reflected in its December 31, 1997,
balance sheet (except properties and assets sold or otherwise disposed of since
such date in the ordinary course of business) free and clear of all mortgages,
liens, pledges, charges, or encumbrances of any nature whatsoever, except as
reflected in said balance sheet and except liens for current taxes not yet due
and payable. All leases pursuant to which METRO I STONE MANAGEMENT, L.P. leases
any substantial amount of real or personal property, are in good standing,
valid, and effective in accordance with their respective terms, and there is not
under any such leases any existing default or event of default or event which,
with notice or lapse of time or both, would constitute a default and in respect
of which METRO I STONE MANAGEMENT, L.P. has not taken adequate steps to prevent
a default from occurring. The equipment of METRO I STONE MANAGEMENT, L.P. that
is necessary to the operation of its business is in good condition and repair,
subject only to reasonable wear and tear.
(g) There is no suit, action, litigation, administrative
arbitration, or other proceeding, or any change in the zoning or building
ordinances affecting the real property or leasehold interest of METRO I STONE
MANAGEMENT, L.P. pending or (to the knowledge of the management of METRO I STONE
MANAGEMENT, L.P.) threatened which might materially affect the overall
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<PAGE> 11
financial condition, business, or property of METRO I STONE MANAGEMENT, L.P.
METRO I STONE MANAGEMENT, L.P. has complied with all laws, ordinances,
requirements, regulations, or orders applicable to its business.
(h) Except to the extent heretofore disclosed to HEALTHTRONICS,
INC. in writing, METRO I STONE MANAGEMENT, L.P. is not a party to any agreement
or instrument or subject to any charter or other corporate restriction or any
judgment, order, writ, injunction, decree, rule, or regulation which materially
and adversely affects, or so far as METRO I STONE MANAGEMENT, L.P. can now
reasonably foresee, may in the future materially and adversely affect the
business operations, prospects, properties, assets or condition, financial or
otherwise, of METRO I STONE MANAGEMENT, L.P.
(i) HLE CORP. owns a thirty percent (30%) limited partnership
interest in METRO I STONE MANAGEMENT, L.P.
6.
Anything herein to the contrary notwithstanding, this Agreement may be
terminated and abandoned at any time prior to October 31, 1998:
(a) By mutual consent of the Board of Directors of both
Constituent Corporations, expressed in a corporate resolution from each
corporation;
(b) By the Board of Directors of HEALTHTRONICS, INC. if HLE CORP.
shall fail to deliver, on or before October 31, 1998, an opinion of its counsel
with respect to HLE CORP. stating in substance:
(i) That the corporation to which such opinion related is
duly organized and in good standing under the
applicable laws of the State of Texas and is duly
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<PAGE> 12
authorized to engage in the business in which it is
now engaged.
(ii) That the issued and outstanding shares of such
corporation are duly authorized, validly issued,
fully paid and nonassessable.
(iii) That this Agreement has been duly authorized,
executed, and delivered by such corporation, and that
such corporation has full power and authority so to
do and to comply with all of the terms, covenants and
provisions hereof.
(iv) That the consummation of the share exchange by the
Constituent Corporations on the terms and conditions
herein stated will not violate any applicable
provisions of state or federal law or regulation or
any applicable provision of any indenture, or will
result in a breach of or constitute a default under
any mortgage, deed of trust, or other agreement or
instrument.
7.
All notices, waivers, consents, or requests required or permitted
hereunder shall be in writing and shall be deemed to have been duly given on the
date of delivery or when deposited in the United States mail, postage prepaid,
in an envelope properly addressed as follows:
(a) In the case of HEALTHTRONICS, INC. to:
425 Franklin Rd., Suite 545
Marietta, Georgia 30067
(b) In the case of HLE CORP. to:
800 West Arbrook Blvd., Suite 330
Arlington, Texas, 76015
Page 12
<PAGE> 13
8.
Each of the Constituent Corporations represents to the other that it
has not incurred and will not incur any liability for brokerage fees or agents'
commissions in connection with the Agreement and the share exchange contemplated
hereby.
9.
HLE CORP. and its shareholders listed above, acknowledge that Scott A.
Cochran and the law firm of Cochran, Camp & Snipes do not represent them and
have not rendered legal or tax advice regarding this transaction and further
state that they rely solely upon advice rendered by independent attorneys and/or
accounts that they have consulted.
HLE CORP. and its shareholders further acknowledge that no officer or
employee of HEALTHTRONICS, INC. has rendered tax advice regarding this
transaction and further state that they rely solely upon advice rendered by
independent attorneys and/or accountants that they have consulted.
10.
(a) From and after the date of this Agreement and continuing after
the Effective Date, none of HEALTHTRONICS, INC., HLE CORP., METRO I STONE
MANAGEMENT, L.P., or the Shareholders shall take, or cause or permit any of
their affiliates to take, any action that would preclude qualification of the
transactions contemplated by this Agreement as a reorganization within the
meaning of Section 368(a)(1)(B) of the Code.
(b) Each of HEALTHTRONICS, INC. and HLE CORP. shall comply with
the reporting requirements of Treasury Regulations Section 1.368-3, and shall
not take any position on any tax return inconsistent with qualification of the
transactions contemplated by this Agreement as a
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<PAGE> 14
reorganization within the meaning of Section 368(a)(1)(B) of the Code.
IN WITNESS WHEREOF, HEALTHTRONICS, INC. and HLE CORP. and its
undersigned shareholders and METRO I STONE MANAGEMENT, L.P. have each caused
this Agreement and Plan of Share Exchange to be executed on their respective
behalves and their respective corporate seals affixed and the foregoing
attested, all by their respective duly authorized officers on the 9th day of
September, 1998.
ATTEST:
HEALTHTRONICS, INC.
BY: /s/ ROY BROWN
-------------------------------------
ROY BROWN (President)
ATTEST:
HLE CORP.
BY: /s/ H. PATTERSON HEZMALL, M.D.
-------------------------------------
(President)
ATTEST:
SHAREHOLDERS OF HLE CORP.
ATTEST:
/s/ David Ellis, M.D.
----------------------------------------
DAVID ELLIS, M.D.
Page 14
<PAGE> 15
ATTEST: /s/ H. PATTERSON HEZMALL, M.D.
-------------------------------------------
H. PATTERSON HEZMALL, M.D.
ATTEST: /s/ WADE LOWRY, M.D.
-------------------------------------------
WADE LOWRY, M.D.
ATTEST:
METRO I STONE MANAGEMENT, L.P.
BY: U.S. Lithotripsy (Sole General Partner)
BY: /s/ STEVE HOUSE
----------------------------------------
STEVE HOUSE (President)
Page 15
<PAGE> 16
EXHIBIT "A"
TO THE
AGREEMENT AND PLAN OF SHARE EXCHANGE
BETWEEN HEALTHTRONICS, INC. AND
HLE CORP., METRO I STONE MANAGEMENT, L.P.,
DAVID S. ELLIS, M.D., H. PATTERSON HEZMALL, M.D.,
AND WADE L. LOWRY, M.D.
GENERAL AND LIMITED PARTNERS OF METRO I STONE MANAGEMENT, L.P. (PRIOR TO
CONSUMMATION OF THE AGREEMENT & PLAN OF SHARE EXCHANGE)
GENERAL PARTNER
<TABLE>
<S> <C>
U.S. Lithotripsy, L.P. 1%
LIMITED PARTNERS
U.S. Lithotripsy, L.P. 9%
H. Patterson Hezmall, M.D. 20%
David S. Ellis, M.D. 20%
Wade L. Lowry, M.D. 20%
John M. House, M.D. 20%
V. Gary Price, M.D. 4%
Carl I. Frisina, M.D. 3%
Gordon S. Brody, M.D. 2%
Thomas Truelson, M.D. 1%
</TABLE>
Page 16
<PAGE> 17
ARTICLES OF INCORPORATION OF
HLE CORP.
The undersigned, a natural person of the age of eighteen (18) years or
more, acting as incorporator of a corporation under the Texas Business
Corporation Act, hereby adopts the following Articles of Incorporation:
ARTICLE ONE
NAME
The name of the Corporation is HLE CORP. (the "Corporation").
ARTICLE TWO
DURATION
The period of the Corporation's duration is perpetual.
ARTICLE THREE
PURPOSE
The purpose for which the Corporation is organized is to engage in any
activity in which corporations may lawfully engage under the Texas Business
Corporation Act.
ARTICLE FOUR
AUTHORIZED SHARES
The aggregate number of shares which the Corporation shall have
authority to issue is ten thousand (10,000) common shares with $.01 par value.
ARTICLE FIVE
COMMENCEMENT OF BUSINESS
The Corporation will not commence business until it has received for
the issuance of its shares consideration of the value of One Thousand Dollars
($1,000), consisting of money, labor done, or property actually received.
<PAGE> 18
ARTICLE SIX
PREEMPTIVE RIGHTS AND CUMULATIVE VOTING
The shareholders shall have preemptive rights to acquire new or
additional shares issued by the Corporation. Cumulative voting shall not be
permitted.
ARTICLE SEVEN
AGENT FOR PROCESS
The street address of the Corporation's initial registered office is
800 West Arbrook Blvd, Suite 330, Arlington, Texas, 76015 and the name of its
initial registered agent at such address is H. Patterson Hezmall, M.D.
ARTICLE EIGHT
DIRECTORS
The number of directors constituting the Corporation's initial Board
of Directors is one (1), and the name and address of the person to serve as the
sole Director until the first meeting of the shareholders or until his successor
is elected and qualified, is as follows:
NAME ADDRESS
- ---- -------
H. Patterson Hezmall, M.D. 800 West Arbrook Blvd., Suite 330
Arlington, Texas 76015
ARTICLE NINE
ACTION OF SHAREHOLDERS WITHOUT A MEETING
Any action required by the Texas Business Corporation Act to be taken
at any annual or special meeting of shareholders, or any action which may be
taken at any annual or special meeting of shareholders, may be taken without a
meeting, without prior notice and without a vote, if a consent or consents in
writing, setting forth the action so taken, shall have been signed by the holder
or holders of shares having not less than the minimum number of votes that would
be necessary to take such action at a meeting at which the holders of all shares
entitled to vote on the action were present and voted.
2
<PAGE> 19
ARTICLE TEN
RIGHT TO AMEND
The Corporation reserves the right to amend and repeal any provision
contained in the Articles of Incorporation in the manner prescribed by the laws
of the State of Texas. All rights herein conferred are granted subject to this
reservation.
ARTICLE ELEVEN
EXEMPTION OF DIRECTORS FROM LIABILITY
A director of the Corporation shall not be personally liable to the
Corporation or its shareholders for monetary damages for an act or omission in
the director's capacity as a director, except to the extent that any applicable
law may prevent such director from being relieved of such personal liability.
Any repeal or modification of this Article shall be prospective only and shall
not adversely affect any limitation of the personal liability of a director of
the Corporation existing at the time of such repeal or modification.
ARTICLE TWELVE
INCORPORATOR
The name and address of the incorporator of the Corporation is:
NAME ADDRESS
Daniel L. Tatum, Esq. Jackson Walker L.L.P.
301 Commerce Street, Suite 2400
Fort Worth, Texas 76102
IN WITNESS WHEREOF, the undersigned being the incorporator for the
purpose of forming a Corporation under the laws of the State of Texas has
executed these Articles of Incorporation on this 2nd day of September, 1998.
/s/ Daniel L. Tatum
---------------------------------------
Daniel L. Tatum
3
<PAGE> 20
HLE CORP.
RESOLUTION AUTHORIZING SHARE EXCHANGE,
AND SHAREHOLDERS' ADOPTION OF RESOLUTION
WHEREAS, H. Patterson Hezmall, M.D., Wade L. Lowry, M.D., and David S.
Ellis, M.D. are the sole stockholders of HLE Corp. ("the Stockholders"); and
WHEREAS, the Stockholders of HLE Corp., a Texas corporation, ("HLE")
have entered into negotiations for the exchange of all of their shares of HLE
stock, which shares constitute all of the issued and outstanding capital stock
of HLE, for an agreed number of voting shares of Healthtronics, Inc., a Georgia
corporation; and
WHEREAS, said negotiations have resulted in terms mutually agreeable to
all parties, including all stockholders of HLE; and
WHEREAS, said terms have been memorialized in a document entitled
"Agreement and Plan of Share Exchange", a copy of which is attached hereto; and
WHEREAS, the directors of HLE have had sufficient opportunity to review
said Agreement and Plan of Share Exchange, and have had the benefit of the
advice of counsel as to the rights, duties, and obligations arising under the
provisions of the Agreement and Plan of Share Exchange;
NOW, THEREFORE, be it resolved that the undersigned, being the
Directors of HLE Corp., convened at a meeting duly called and noticed pursuant
to the provisions of the corporate bylaws, hereby officially approve the terms
of the exchange as set forth in the Agreement and Plan of Share Exchange, and
resolve to take whatever steps necessary, under the law, to complete the
exchange contemplated by the provisions of the Agreement and Plan of Share
Exchange, and hereby authorize the exchange of all issued and outstanding shares
of HLE capital stock for the agreed quantities of voting shares of
HealthTronics, Inc. stock, in the percentages contemplated, and under the terms
and provisions set forth in the Agreement and Plan of Share Exchange.
WITNESS WHEREOF, the undersigned have set their hands this the 4th day
of September, 1998.
/s/ H. PATTERSON HEZMALL
----------------------------------
H. Patterson Hezmall, Director
/s/ WADE L. LOWRY
----------------------------------
Wade L. Lowry, Director
/s/ DAVID S. ELLIS
----------------------------------
David S. Ellis, Director
<PAGE> 21
APPROVED and ADOPTED
/s/ H. Patterson Hezmall
----------------------------------
H. Patterson Hezmall, Shareholder
/s/ Wade L. Lowry
----------------------------------
Wade L. Lowry, Shareholder
/s/ David S. Ellis
----------------------------------
David S. Ellis, Shareholder
<PAGE> 22
(THE STATE OF TEXAS LOGO)
THE STATE OF TEXAS
SECRETARY OF STATE
CERTIFICATE OF INCORPORATION
OF
HLE CORP.
CHARTER NUMBER 01503871
THE UNDERSIGNED, AS SECRETARY OF STATE OF TEXAS, HEREBY CERTIFIES THAT
THE ATTACHED ARTICLES OF INCORPORATION FOR THE ABOVE NAMED CORPORATION HAVE BEEN
RECEIVED IN THIS OFFICE AND ARE FOUND TO CONFORM TO LAW.
ACCORDINGLY, THE UNDERSIGNED, AS SECRETARY OF STATE, AND BY VIRTUE OF
THE AUTHORITY VESTED IN THE SECRETARY BY LAW, HEREBY ISSUES THIS CERTIFICATE OF
INCORPORATION.
ISSUANCE OF THIS CERTIFICATE OF INCORPORATION DOES NOT AUTHORIZE THE
USE OF A CORPORATE NAME IN THIS STATE IN VIOLATION OF THE RIGHTS OF ANOTHER
UNDER THE FEDERAL TRADEMARK ACT OF 1946, THE TEXAS TRADEMARK LAW, THE ASSUMED
BUSINESS OR PROFESSIONAL NAME ACT OR THE COMMON LAW.
DATED SEP. 4, 1998
EFFECTIVE SEP. 4, 1998
[SEAL]
/s/ Alberto R. Gonzales
---------------------------------------
Alberto R. Gonzales, Secretary of State
<PAGE> 1
EXHIBIT 10.10
Limited Partnership Agreement
of
U.S. Lithotripsy, L.P.
THIS LIMITED PARTNERSHIP AGREEMENT is entered into and shall be
effective as of the 1st day of April, 1997, by and among Litho Management, Inc.,
a Texas Corporation, Healthtronics, Inc., a Georgia Corporation ("General
Partners"); and the Persons listed as Limited Partners in Exhibit A ("Limited
Partners").
WITNESSETH:
WHEREAS, the parties hereto agree to form a limited partnership for the
purpose hereinafter stated; and
WHEREAS, the parties hereto desire to set forth in writing the terms
and conditions of their agreement and intend to be legally bound by this
Agreement.
NOW, THEREFORE, for and in consideration of the above premises, and of
the following terms, conditions and mutual covenants of the Partners as
hereinafter stated, IT IS HEREBY AGREED:
SECTION 1
THE PARTNERSHIP
1.01 FORMATION. The Partners agree to form the Partnership as a
limited partnership pursuant to the Texas Revised Limited Partnership Act,
except as otherwise provided herein.
1.02 Name. The name of the Partnership shall be U.S. Lithotripsy,
L.P. All business of the Partnership shall be conducted in the name of the
Partnership. The General Partners may change the name of the Partnership upon
ten (10) days Notice to the Limited Partners.
<PAGE> 2
1.03 TERM. The term of the Partnership shall commence upon the date
of the filing of the original Certificate and shall continue for a period of
forty (40) years from December 31st of the year of the date of such filing, and
thereafter as may be extended by written unanimous agreement of the Partners,
unless sooner terminated in accordance with the provisions of this Agreement.
1.04 PRINCIPAL PLACE OF BUSINESS. The principal place of business
of the Partnership shall be 800 West Arbrook, Suite 320, Arlington, Texas 76015.
The business office and the accounting records shall be maintained at the
principal place of business or such other place or places as the General
Partners may, from time to time, designate by Notice to all Limited Partners.
The business of the Partnership, or any part thereof, may be conducted at any
other place or places as the General Partners may hereafter determine. The
General Partners may change the principal place of business of the Partnership
to any other place, within or without the State, upon Notice to the Limited
Partners.
1.05 REGISTERED AGENT AND REGISTERED OFFICE. The registered agent
for purpose of service of process on the Partnership shall be Steven K. House
and the registered office of the Partnership in the State of Texas is located at
800 West Arbrook, Suite 320, Arlington, Texas, 76015. The registered agent shall
timely send Notice and copies of any and all service of process on the
Partnership to each General Partner. The General Partners may change the
Registered Agent and Registered Office to any other place within the State upon
(1) giving Notice to the Limited Partners, (2) filing with the State a
Certificate setting forth such change and (3) paying the filing fee thereon.
1.06 PURPOSE. The purpose of the Partnership is, without
limitation:
a. To set up limited partnerships or such other business entities
as may be appropriate under the circumstances with physicians, physician groups,
or other healthcare providers using the LithoTron(TM) Lithotripters, or any
parts thereof, or other similar equipment, consistent with the provisions of
those certain documents entitled Distributor Agreement, dated March 7, 1997, and
Entity Interest Agreement, dated March 7, 1997, and to perform all functions
necessary to carry out and comply with the applicable provisions and
requirements of those documents.
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b. The Partnership shall transact any and all other business
permitted by the laws of the State incidental or related to the purpose of the
Partnership, to be determined in the sole and absolute discretion of the General
Partners.
1.07 CERTIFICATES. The General Partners shall, from time to time,
execute, or cause to be executed, Certificates or other documents or cause to be
done all such filings, recordings, publishings, or other acts as may be
necessary or appropriate (1) to comply with the requirements for the formation
and operation of a limited partnership under the laws of the State, and under
the laws of any other jurisdictions in which the Partnership may conduct
business and (2) to establish and protect the limited liability of the Limited
Partners under the laws of the State, and under the laws of any other
jurisdictions in which the Partnership may conduct business. Prior to the time
that the Certificate is filed, no Person shall represent to third parties the
existence of the Partnership or hold himself out as a Partner.
a. EXECUTION OF CERTIFICATES. Each Certificate is required to be
filed with the State and shall be executed in the following manner:
1. The original Certificate shall be signed by all
General Partners;
2. A Certificate of amendment shall be signed by at
least one General Partner and by each other General Partner designated in the
Certificate as a new General Partner; and
3. A Certificate of cancellation shall be signed by all
General Partners.
b. AMENDMENT TO CERTIFICATE. A Certificate may be amended at any
time for any other purpose that the General Partners determine to be proper.
Within thirty (30) days after the happening of any of the following events, an
amendment to the Certificate reflecting the occurrence of such event or events
shall be filed:
1. The admission of a new General Partner;
2. The withdrawal of a General Partner;
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3. The continuation of the business pursuant to a
nonjudicial dissolution after the withdrawal of a General Partner; and
4. When the General Partners become aware that any statement
in a Certificate was false when made or that any other facts have changed which
make the Certificate inaccurate in any respect.
c. CANCELLATION OF CERTIFICATE. A Certificate shall be canceled
upon the dissolution and the commencement of winding up the Partnership or at
any time there are no Limited Partners. The cancellation of the Certificate
shall not affect the limited liability of the Limited Partners nor the rights
and responsibilities of the Partners as set forth in the Certificate or in this
Agreement during the period of winding up and prior to termination of the
Partnership. A Certificate of cancellation shall be filed with the State.
1.08 BUSINESS IN OTHER JURISDICTIONS. Prior to conducting any
business in any jurisdiction, the General Partners shall cause the Partnership
either to comply with all the requirements for the qualification of the
Partnership (1) to conduct business as a foreign limited partnership in such
jurisdiction, (2) to conduct business in such jurisdiction through other
partnerships or entities, (3) to constitute the Partnership as a limited
partnership under the laws of such jurisdiction, or (4) by such other means as
the General Partners, upon the advice of counsel to the Partnership, deem
appropriate to preserve the limited liability of the Limited Partners; provided,
however, that the Partnership shall not conduct business in a manner that, in
the opinion of counsel to the Partnership, would cause the Partnership to be
classified for federal income tax purposes as an association taxable as a
corporation and not as a partnership.
1.09 TITLE TO PROPERTY. All Property owned by the Partnership shall
be owned by the Partnership as an entity and the Partnership shall hold legal
title to all of its Property in the name of the Partnership and not in the name
of any Partner. No Partner shall have any ownership interest in any Property in
such Partner's individual name or right, and each Partner's Interest shall be
personal property for all purposes.
1.10 INDIVIDUAL OBLIGATIONS. The credit and assets of the
Partnership shall be used solely for the benefit of the Partnership. No asset
of the Partnership shall be transferred or encumbered for or in payment of any
individual obligation of any Partner.
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SECTION 2
PARTNERS AND PARTNERSHIP CAPITAL
2.01 PARTNERS. The name, address and Capital Contribution of each
Partner is set forth on the books and records of the Partnership. Each General
Partner and each Limited Partner shall be separately identified.
2.02 INITIAL PARTNERSHIP CAPITAL. The Initial Capital Contribution
of each Partner is separately set forth on Exhibit A and on the books and
records of the Partnership. The Partners shall pay their respective Initial
Capital Contributions simultaneously with the execution of this Agreement and
such payment shall be credited to their respective Capital Accounts on the books
of the Partnership. No Partner shall be required to make any Capital
Contribution in excess of such Partner's Initial Capital Contribution as set
forth in Exhibit A.
2.03 USE OF PARTNERSHIP CAPITAL. The Partnership Capital shall be
available solely for the use of the business of the Partnership; provided,
however, the General Partners may temporarily invest any or a part of the
Partnership Capital and interest thereon shall inure to the benefit of the
Partnership.
2.04 CAPITAL REQUIREMENTS. The General Partners shall determine
from time to time what additional capital, if any, is required in order to
accomplish the purposes of the Partnership. The General Partners shall have the
authority to borrow funds in the name of the Partnership to complete Partnership
objectives and in connection thereto retain, pledge or use so much of the
revenues or assets of the Partnership as the General Partners deem necessary to
satisfy the present and future capital needs of the Partnership.
2.05 INTEREST. No Partner shall receive interest on such Partner's
Capital Contributions or Capital Account.
2.06 WITHDRAWAL OF CAPITAL CONTRIBUTIONS. Except as otherwise
provide in this Agreement, no Partner shall be entitled to withdraw any part of
such Partner's Capital Contribution nor to demand or receive Property other than
cash in return for such Partner's Capital Contribution. No Partner shall
withdraw as a Partner from the Partnership without the written consent of all
Partners.
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2.07 RETURN OF CAPITAL CONTRIBUTIONS. Except as otherwise provided
in this Agreement, no Partner shall have any priority over any other Partner as
to the return of any part of such Partner's Capital Contribution. There is no
agreement for, nor time set for, the return of any Capital Contribution of any
Partner, other than upon dissolution and liquidation of the Partnership as
provided herein. To the extent funds are available, the General Partners shall
return the Capital Contributions of the Partners out of Operating Cash Flow or
out of proceeds of sale or refinancing of Property, after reserving sufficient
funds for payment of debts, working capital contingencies and replacements. To
the extent of available funds, the General Partners shall return the Capital
Contributions of the Partners at dissolution and termination as provided herein.
Each Partner shall look solely to the Property (assets of the Partnership) for
the return of such Partner's Capital Contribution. No Partner shall have any
personal liability for the repayment of any Capital Contributions of any
Partner.
2.08 NONRECOGNITION ON CAPITAL CONTRIBUTION. It is the intent of
all Partners that this Partnership shall comply in all respects with Code
Sections 721 and 722. No Partner, by virtue of this Agreement, shall acquire any
interest in the Capital Contribution of any other Partner. The amount of the
Capital Contributions shall only be material in computing the amount due the
respective Partners in the event that the Partnership is terminated and
liquidated as provided herein.
2.09 LOANS. Loans by any Partner to the Partnership shall not be
considered as Capital Contributions.
2.10 DEFAULT ON CAPITAL CONTRIBUTIONS. If a Partner fails to make
any Capital Contribution when due, such Partner shall be in default and the
Partnership may exercise all legal rights including, without limitation, the
commencement of an action to collect from such defaulting Partner by legal
process the entire amount of such Partner's unpaid Capital Contributions,
including those not currently in default, together with all court costs and
reasonable attorney fees.
2.11 COMPROMISE. Under certain circumstances, a Partner may be
required by State law to return to the Partnership, for the benefit of
Partnership creditors, any portion of such Partner's Capital Contribution
previously returned or distributed to such Partner, but only to the extent
necessary to discharge the Partnership's liabilities to creditors who extended
credit to the Partnership prior to such distribution. It is the intent of the
Partnership that no distribution to any Partner shall be deemed a return or
withdrawal of such Partner's
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Capital Contribution to the Partnership, even if such distribution is
accompanied in full or in part by a distributive share of Partnership income,
and that no Partner shall be obligated to pay any such amount to or for the
account of the Partnership or any creditor of the Partnership; provided,
however, if any court of competent jurisdiction holds that, notwithstanding the
provisions of this Agreement, any Partner is obligated to make any such payment,
such obligation shall be the obligation of such Partner and not of the General
Partners.
SECTION 3
ALLOCATIONS
3.01 NET PROFITS SHARING PERCENTAGES. After giving effect to the
special allocations set forth in Section 3.04, the Partners shall share in Net
Profits in accordance with the Net Profits Sharing Percentages set forth in
Exhibit A.
3.02 NET LOSSES SHARING PERCENTAGES. After giving effect to the
special allocations set forth in Section 3.04, the Partners shall share in Net
Losses in accordance with the Net Losses Sharing Percentages set forth in
Exhibit A. The Net Losses allocated pursuant to the Net Losses Sharing
Percentages shall not exceed the maximum amount of Net Losses that can be
allocated without causing any Limited Partner to have an improper deficit
Capital Account at the end of any tax year as set forth in Regulation Section
1.704-1(b)(2)(ii)(d)-the alternate test for economic effect. In the event any,
but not all, of the Limited Partners have deficit Capital Accounts as a result
of an allocation of Net Losses pursuant to the Net Losses Sharing Percentages,
then and in that event a limitation shall be applied on a Limited Partner by
Limited Partner basis in order to allocate the maximum Net Loss permissible to
each Limited Partner in accordance with Regulation Section 1.704-1(b)(2)(ii)(d);
provided however, all Net Losses in excess of such limitations shall be
allocated to the General Partners.
3.03 ANNUAL DETERMINATION. Except as otherwise provided herein, Net
Profits and Net Losses shall be determined at the close of each tax year of the
Partnership and thereafter shall be credited or charged to the respective
Capital Accounts of the respective Partners in the respective Net Profits
Sharing Percentages and Net Losses Sharing Percentages then in effect. After
giving effect to the special allocations set forth in Section 3.04, the
allocation of all income, gain, loss, deductions, credit and tax preference
items shall
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be determined by the Net Profits Sharing Percentages or Net Losses Sharing
Percentages, as the case may be.
3.04 SPECIAL ALLOCATIONS. Special allocations shall be made in the
following order:
a. MINIMUM GAIN CHARGEBACK. Except as otherwise provided
in Regulation Section 1.704-2(f), if there is a net decrease in Partnership
minimum gain during any tax year, each Partner shall be specially allocated
items of Partnership income and gain for such tax year, and, if necessary,
subsequent tax years, in an amount equal to such Partner's share of the net
decrease in Partnership minimum gain, determined in accordance with Regulations
Section 1.704-2(g). This provision is intended to comply with the minimum gain
chargeback requirement in Regulation Section 1.704-2(f) and shall be
interpreted consistently therewith.
b. CHARGEBACK OF PARTNER NONRECOURSE DEBT MINIMUM GAIN.
Except as otherwise provided in Regulation Section 1.704-2(i)(4), if there is a
net decrease in Partner nonrecourse debt minimum gain attributable to
nonrecourse debt during any tax year, each Partner who has a share of the
nonrecourse debt minimum gain attributable to such nonrecourse debt, as
determined in accordance with Regulation Section 1.704-2(i)(5), shall be
specially allocated items of Partnership income and gain for such tax year, and,
if necessary, subsequent tax years, in an amount equal to such Partner's share
of the net decrease in nonrecourse debt minimum gain attributable to such
nonrecourse debt, as determined in accordance with Regulation Section
1.704-2(i)(4). The items to be allocated shall be determined in accordance with
Regulation Sections 1.704-2(i)(4) and 1.704-2(j)(2). This provision is intended
to comply with the minimum gain chargeback requirement in Regulation Section
1.704-2(i)(4) and shall be interpreted consistently therewith.
c. QUALIFIED INCOME OFFSET. In the event any Limited
Partner receives any adjustments, allocations, or distributions described in
Regulation Section 1.704-l(b)(2)(ii)(d)(4), Regulation Section
1.704-l(b)(2)(ii)(d)(5), or Regulation Section 1.704-l(b)(2)(ii)(d)(6), then
and in that event items of Partnership income and gain shall be specially
allocated to each such Limited Partner in an amount sufficient to eliminate, to
the extent required by the Regulations, the Capital Account deficit of such
Limited Partner as quickly as possible. Such allocation shall be made only if
and to the extent that such Limited
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Partner would have a Capital Account deficit after all other allocations
provided for this Section have been made.
d. GROSS INCOME ALLOCATION. In the event any Partner has
a deficit Capital Account at the end of any tax year which is in excess of (i)
the amount such Partner is obligated to restore pursuant to any provision of
this Agreement and (ii) the amount such Partner is deemed to be obligated to
restore pursuant to Regulations Sections 1.074-2(g)(1) and 1.704-2(i)(5), then
and in that event each such Partner shall be specially allocated items of
Partnership income and gain in the amount of such excess as quickly as possible.
Such an allocation shall be made only if and to the extent that such Partner
would have a deficit Capital Account after all other allocations provided for in
the Section have been made.
e. NONRECOURSE DEDUCTIONS. Nonrecourse deductions shall
be allocated in accordance with the Net Profits Sharing Percentages set forth in
Exhibit A; provided, however, any nonrecourse deductions shall be specially
allocated to the General Partner or Partner who bears the economic risk of loss
with respect to the nonrecourse debt to which such nonrecourse deductions are
attributable in accordance with Regulation Section 1.704-2(i)(1).
f. SECTION 704(C) ADJUSTMENTS. With respect to any
Property that may be contributed to the Partnership by a Partner, the gain or
loss with respect to such Property shall be shared among the Partners to take
account of any variation between the income tax basis of such Property to the
Partnership and the Agreed Value of such Property at the time of contribution.
If the income tax basis of such contributed Property differs from the Agreed
Value of such Property, there may be, from time to time, differences between the
financial profits of the Partnership and the reportable Net Profits for federal
income tax purposes. In any tax year when: (1) the reportable Net Profits are
greater than the financial profits, and (2) such difference is due to the sale
of Property contributed by a Partner, or a part thereof, and is due to the
difference between the Agreed Value of such Property and the Partnership's
federal income tax basis in the Property, then and in that event such
contributing Partner shall be allocated with such difference in profits in
addition to any other distributable portion of the Partnership income which such
Partner may be required to then take into account. The Partnership shall
attribute to such contributing Partner such Partner's adjusted tax basis which
such Partner had, and which the Partnership now has, in such contributed
Property in accordance with Code Section 704(c). Notwithstanding the preceding
provisions in this Section, such contributing Partner shall be allocated and
shall report for federal income tax
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purposes all profit realized on the sale of such Property contributed by such
Partner due to the difference between such Partner's adjusted federal income tax
basis in such contributed Property and the Agreed Value of such contributed
Property. Any profit realized from the sale of such contributed Property in
excess of the Agreed Value shall be allocated to each Partner in accordance with
their respective Net Profits Sharing Percentages.
g. CURATIVE ALLOCATIONS. The allocations set forth
hereinabove are intended to comply with certain requirements of the Regulations.
It is the intent of the Partners that the General Partners shall make offsetting
special allocations of Partnership income, gain, loss, or deduction in whatever
manner the General Partners determine appropriate so that, after such offsetting
allocations are made, each Partner's Capital Account balance is, to the extent
possible, equal to the Capital Account balance such Partner would have had if
the regulatory allocations were not part of the Agreement and all Partnership
items were allocated pursuant to the Net Profits Sharing Percentages and the Net
Losses Sharing Percentages set forth in Exhibit A.
3.05 GAIN OR LOSS UPON SALE OF ASSETS. Except as otherwise provided
herein, in the event of the sale or taxable disposition of any Property which
results in a gain or loss, such gain or loss shall be credited to the Capital
Account of each Partner in accordance with the Partner's respective Net Profits
Sharing Percentage or Net Losses Sharing Percentage, as the case may be.
SECTION 4
DISTRIBUTIONS
4.01 DISTRIBUTIONS TO PARTNERS. Operating Cash Flow may be
distributed to the Partners, at any time and from time to time, as determined by
vote of the majority in interest of the General Partners. The Operating Cash
Flow and all other funds received from refinancing, sales, exchanges, etc.,
that the General Partners determine shall be distributed to the Partners, shall
be distributed pro rata in accordance with the Partners' Net Profits Sharing
Percentages in effect at such time.
4.02 DISTRIBUTIONS FROM CAPITAL ACCOUNTS. Except as otherwise
provided in this Agreement, there shall be no distribution from the Partners'
Capital Accounts unless the General Partners determine that excess funds are
available. Such distributions shall be
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pro rata in accordance with the Partners' Net Profits Sharing Percentages in
effect at such time.
4.03 LIMITATIONS ON DISTRIBUTIONS. A Partner shall not receive a
distribution from the Partnership to the extent that, after giving effect to the
distribution, all liabilities of the Partnership, other than liabilities to
Partners on account of their Interests, exceed the fair value of the Property.
4.04 DISTRIBUTION IN KIND. A Partner, regardless of the nature of
such Partner's Capital Contribution, shall have no right to demand and receive
any distribution from the Partnership in any form other than cash. No Partner
shall be compelled to accept a distribution of any asset in kind from the
Partnership to the extent that the percentage of the asset distributed to such
Partner exceeds a percentage of that asset which is equal to such Partner's Net
Profits Sharing Percentage.
4.05 AMOUNTS WITHHELD. Any and all amounts withheld pursuant to the
Code or any provision of any state or local tax law with respect to any payment,
distribution, or allocation to the Partners shall be treated as amounts
distributed to the Partners for all purposes under this Agreement. The General
Partners are authorized to withhold from distributions to the Partners and to
pay over to any federal, state, or local government any amounts required to be
so withheld pursuant to the Code or any provision of any other federal, state,
or local law and shall allocate any such amounts to the Partners with respect to
which such amount was withheld.
SECTION 5
GENERAL PARTNERS
5.01 DUTIES AND OBLIGATIONS.
a. The General Partners shall have a fiduciary duty and
responsibility for the safekeeping and use of all Property, whether or not in
the General Partners' immediate possession or control, and the General Partners
shall not employ, or permit another to employ, such Property in any manner
except for the exclusive benefit of the Partnership.
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b. The General Partners shall cause the Partnership to
conduct its business and operations separate and apart from that of any General
Partner, or any of its Affiliates, including, without limitation: (1) to
segregate Property and not allow Property to be commingled with the funds or
other assets of any General Partner, or any of its Affiliates; (2) to maintain
books and financial records of the Partnership separate from the books and
financial records of any General Partner, or any of its Affiliates, and observe
all Partnership procedures and formalities; (3) to cause the Partnership to pay
its liabilities from Property; and (4) to cause the Partnership to conduct its
dealings in the name of the Partnership, as a separate and independent entity.
c. The General Partners shall take all actions which may
be necessary or appropriate: (1) to continue the Partnership's valid existence
as a limited partnership under the laws of the State and of each other
jurisdiction in which such existence is necessary to protect the limited
liability of the Limited Partners or to enable the Partnership to conduct the
business in which it is engaged; and (2) to accomplish the Partnership's
purposes in accordance with the provisions of this Agreement and applicable
laws.
d. The General Partners shall have a fiduciary duty to
conduct the affairs of the Partnership in the best interests of the Partnership
and of the Limited Partners.
e. The General Partners shall cause the Partnership to
carry such insurance as is customary in the business and places in which the
Partnership is engaged.
5.02 AUTHORITY OF GENERAL PARTNERS. Unless specifically provided
otherwise in this Agreement, the General Partners shall be solely responsible
for the management of, and shall have the exclusive control over, the business
operations of the Partnership. There being more than one General Partner, unless
specifically stated otherwise, all decisions of the General Partners made under
the powers and authorities granted herein and otherwise effecting the
Partnership shall be made upon a vote of a majority in interest of the General
Partners. In addition to, and not in limitation of, the powers conferred by law,
the General Partners shall have the following rights, powers and authority,
acting for and on behalf of the Partnership, on such terms as the General
Partners may determine, in their discretion, to be necessary, convenient or
incidental to accomplish the purposes of the Partnership:
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a. To obtain LithoTron(TM) Lithotripters, or similar
equipment, or any part thereof, including, but not limited to, the shock head,
for limited partnerships comprised of medical doctors, doctor groups or other
health care providers and of which the General Partner, or a related party, may
serve as the General Partner.
b. To execute, change, amend, modify, or otherwise deal
with any and all agreements, contracts, documents, deeds, leases, mortgages,
deeds of trust, promissory notes, bills of sale, and instruments in connection
with managing the affairs of the Partnership.
c. To loan money, and to borrow money and execute any
evidences of indebtedness therefore on behalf of the Partnership.
d. To prepay, in whole or in part, refinance, recast,
increase, modify, extend or exchange any mortgages or liabilities which may now
or hereafter affect the Property, and in connection therewith to execute for and
on behalf of the Partnership any extensions, renewals, or modifications of such
encumbrances on any or all of the Property.
e. To own, hold, manage, maintain, finance, improve,
construct and operate any Property, and retain Persons and enter into agreements
on behalf of the Partnership with respect to the operation and management of the
Partnership business including, without limitation, the ownership, management
and operation of all or any portion of the Property, containing such terms,
provisions and conditions, including fees and expenses to be paid therefor by
the Partnership.
f. To make any and all elections for federal, state,
and local tax purposes including, without limitation, any election, if permitted
by applicable law: (1) to adjust the basis of Property pursuant to Code Sections
754, 734(b) and 743(b) in connection with transfer of any Interests and
Partnership distributions; (2) to extend the statute of limitations for
assessment of tax deficiencies against the Partners with respect to adjustments
to the Partnership's federal, state, or local tax returns; and (3) to represent
the Partnership and the Partners before taxing authorities or courts in tax
matters affecting the Partnership and the Partners in their capacities as
Partners, and to file any tax returns and to execute any agreements or other
documents relating to or affecting such tax matters, including agreements or
other documents that bind the Partners with respect to such tax matters or
otherwise affect the rights of the Partnership and Partners.
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g. To take, or refrain from taking, all actions, not
expressly set forth or limited by this Agreement, as may be necessary or
appropriate to accomplish the purposes of the Partnership.
h. To institute, prosecute, defend, settle, compromise
and dismiss lawsuits or other judicial or administrative proceedings brought on
or in behalf of, or against, the Partnership, or the Partners, in connection
with activities arising out of, connected with, or incidental to this Agreement,
and to engage counsel or others in connection therewith.
i. To distribute funds to the Partners by way of cash,
income, return of capital, or otherwise, in accordance with the provisions of
this Agreement.
j. To do or engage in any of the above with any General
Partner in that General Partner's individual capacity or with an entity in which
the General Partner, individually or otherwise, directly or indirectly, has an
interest.
n. To engage in any kind of activity and perform and
carry out contracts of any kind as may be lawfully carried on or performed by a
partnership under the laws of each state in which the Partnership is then formed
or qualified.
5.03 RELIANCE ON GENERAL PARTNERS. It is expressly understood and
agreed that every contract, agreement, deed, mortgage, lease, promissory note or
other instrument or document executed by the General Partners, with respect to
any Property, shall be conclusive evidence in favor of any and every Person
dealing with the Partnership and relying thereon or claiming thereunder, without
the duty of further inquiry, that (1) at the time or times of the execution or
delivery thereof, the Partnership was in full force and effect, (2) such
instrument or document was duly executed and authorized and is binding upon the
Partnership and all of the Partners thereof, and (3) the General Partners were
duly authorized and empowered to execute and deliver any and every such
instrument or document for and on behalf of the Partnership.
5.04 MANAGING PARTNER. The Managing Partner, if applicable, shall
solely have all the powers of the Majority in Interest of General Partners,
except that the following actions shall require the unanimous consent of the
General Partners, unless stated otherwise.
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If no Managing Partner is appointed, the following powers shall remain with the
General Partners:
a. To confess a judgment against the Partnership in an
amount in excess of Five Thousand Dollars ($5,000).
b. To admit a new General Partner.
c. To terminate the Partnership.
d. To purchase any asset for the Partnership in excess
of Fifty Thousand Dollars ($50,000).
e. To sell any Property with a fair market value in
excess of Fifty Thousand Dollars ($50,000).
f. To incur any Partnership obligation in excess of
Fifty Thousand Dollars ($50,000).
g. To release, assign or transfer a Partnership claim,
security or asset with a value in excess of Fifty Thousand Dollars ($50,000).
h. To make an assignment for the benefit of creditors or
filing a petition in bankruptcy or similar proceeding.
i. To enter into any contract or agreement with a
liability in excess of Fifty Thousand Dollars ($50,000) or a term over two (2)
years. This shall be done upon the vote of a majority in interest of the General
Partners.
j. To issue a check or draft over twenty-five Thousand
Dollars ($25,000). This shall be done upon the vote of a majority in interest of
the General Partners.
k. To enter into a related party transaction.
l. To appoint a new Managing Partner.
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5.05 MEETINGS OF GENERAL PARTNERS. In the event the Partnership has
more than one General Partner, any General Partner may at any time call a
meeting by sending Notice of a General Partners Meeting. The Notice shall
include the business purpose of the meeting. Any such meeting shall be held not
less than ten (10) days or more than thirty (30) days following mailing of the
Notice. The meeting shall be conducted by the Managing Partner pursuant to such
rules for the conduct of the meeting as the Majority in Interest of General
Partners deem appropriate. General Partners may vote in person or by proxy at
such meeting. Any action which may be taken by the General Partners at a meeting
may be taken without a meeting if a unanimous written consent of the General
Partners, setting forth the action taken, is signed by all of the General
Partners. Any such consent may be signed in counterpart, may be retroactive and
may be by facsimile communication, if such facsimile is followed by a hard copy
of the facsimile communication. The Managing Partner shall keep minutes and
records of all meetings and unanimous written consent.
5.06 TAX MATTERS PARTNER. In the event there is a sole General
Partner, then the General Partner shall be the Tax Matters Partner in accordance
with Code Section 6223 and, if applicable, any similar capacity under State or
local law. In the event there shall be more than one General Partner, then and
in that event, the Majority in Interest of General Partners shall appoint in
writing one General Partner as the Tax Matters Partner. A Notice of appointment
of Tax Matters Partner signed by the General Partners shall be sent to all
Partners to effect such appointment. The Tax Matters Partner may be similarly
removed by the Majority in Interest of General Partners. A new Tax Matters
Partner may be similarly appointed by the Majority in Interest of General
Partners.
5.07 LITIGATION. The General Partners shall prosecute and defend
such actions at law or in equity as the General Partners may deem necessary to
enforce or protect the interests of the Partnership. The Partnership and the
General Partners shall respond to any unappealed final decree, judgment or
decision of any court, board or authority having jurisdiction over the
Partnership or Property. The General Partners shall satisfy any such judgment
decree or decision first out of any insurance proceeds available therefor, next
out of assets of the Partnership, and finally out of the assets of the General
Partners.
5.08 SOLE AND ABSOLUTE DISCRETION. Unless specifically provided
otherwise in this Agreement, all actions which the General Partners may take and
all determinations that the General Partners may make pursuant to this Agreement
may be taken and made at the absolute discretion of the General Partners.
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5.09 LIABILITY. The General Partners shall have unlimited liability
for the recourse debts of the Partnership, and in the event that there should be
more than one General Partner, then and in that event the General Partners shall
each have joint liability for the debts of the Partnership. In the event that
there should be more than one General Partner, then and in that event each
General Partner hereby indemnifies the other General Partners for any loss,
cost, expense, or liability in excess of such other General Partners' pro rata
share, which shall be the fraction each General Partner's Net Losses Sharing
Percentage divided by the aggregate Net Losses Sharing Percentages then
allocable to all of the General Partners. Each General Partner hereby agrees to
reimburse the other General Partners for any such excess loss immediately upon
written demand and proof of same.
5.10 LIMITATION OF LIABILITY. The General Partners shall not be
personally liable to any Limited Partner:
a. For the return of Capital Contributions, the
repayment of any loans or advances to the Partnership by any Limited Partner, or
the payment of interest thereon.
b. For any act, omission, or decision that did not
constitute a breach of any provision of this Agreement that was done, omitted,
or made in good faith and without intent to defraud the Partnership,
notwithstanding that the act, omission, or decision may have, directly or
indirectly, caused loss or damage to the Limited Partners. The General Partners
shall be held harmless against loss, damages or liability as General Partners
only to the extent that the assets are not applied to the creditors of the
Partnership, other than creditors who are also a Partner.
5.11 INDEMNIFICATION OF GENERAL PARTNER(S).
a. The Partnership, the Partnership's receiver or the
Partnership's trustee (in the case of the Partnership's receiver or trustee, to
the extent of Property) shall indemnify, save harmless and pay all judgments and
claims against the General Partners or any officers or directors of the General
Partners relating to any liability or damage incurred by reason of any act
performed or omitted to be performed by the General Partners, officer or
director in connection with the business of the Partnership, including
attorneys' fees incurred by the General Partners, officer or director in
connection with the defense of any action based on any such act or omission,
which attorneys' fees may be paid as incurred.
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b. In the event of any action by any Partner against any
General Partner, including a Partnership derivative suit, the Partnership shall
indemnify, save harmless and pay all expenses of such General Partner, including
attorneys' fees, incurred in the defense of such action, if such General Partner
is successful in such action.
c. No General Partner shall be indemnified from any
liability for fraud, bad faith, willful misconduct or gross negligence.
5.12 STATUS OF GENERAL PARTNERS. The General Partners shall not be
required to devote full time or attention to the business of the Partnership.
The General Partners, and any of their Affiliates, shall be required to devote
so much time and attention to the business of the Partnership as the General
Partners deem, in their discretion to be reasonably necessary for the
Partnership purposes.
5.13 TAX CONTROVERSIES. Should there be any controversy with the
Internal Revenue Service or any other taxing authority involving the
Partnership, or an individual Partner, or Partners, the outcome of which may
adversely affect the Partnership, either directly or indirectly, the Partnership
may incur expenses it deems necessary and advisable in the interest of the
Partnership and its Partners to oppose such proposed deficiency, including,
without being limited thereto, attorney's fees and accounting fees. The
Partnership and the General Partners shall not be responsible for representing
the Limited Partners in tax controversies, or for the payment of tax
deficiencies or penalties resulting from tax controversies.
5.14 INDEPENDENT ACTIVITIES. The General Partners, and any
Affiliates, may engage in whatever activities the General Partners choose, of
any nature and description, whether or not competitive with the business of the
Partnership or otherwise, without having or incurring any obligation to offer
any interest in such activities to the Partnership or any Partner, provided that
any such activities are consistent with the provisions of those certain
documents entitled Distributor Agreement, dated March 7, 1997 and Entity
Interest Agreement, dated March 7, 1997. This Agreement, or any activity
undertaken pursuant hereto, shall not prevent the General Partners, or any
Affiliates, from engaging in such activities, or require the General Partners to
permit the Partnership or any Partner to
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participate in any such activities, and as a material part of the consideration
for the execution of this Agreement by the General Partners and the admission of
each Limited Partner, each Partner hereby waives, relinquishes and renounces any
such right or claim of participation.
SECTION 6
LIMITED PARTNERS
6.01 NO CONTROL OF BUSINESS. Unless specifically provided otherwise
in this Agreement, no Limited Partner shall have any right or authority to take
part in, or interfere in any manner with, the management or control of the
business and affairs of the Partnership, including the use of any Property, nor
shall any Limited Partner have any right or authority to act for or bind the
Partnership in any manner whatsoever.
6.02 NO PRIORITY. No Limited Partner shall have the right to demand
or receive Property other than cash in connection with any distribution, whether
upon liquidation of the Partnership or otherwise, and whether or not such
distribution shall constitute a return of such Partner's Capital Contribution or
Capital Account. No Limited Partner shall have priority over any other Partner
as to the return of Capital Contributions or to allocations of Net Profits or
Net Losses.
6.03 INDEPENDENT ACTIVITIES. Any Limited Partner, and any
Affiliate, may engage in whatever other profession or business activities, of
any nature and description, that they choose; provided, however, that any such
activities are consistent with the provisions of those certain documents
entitled Distributor Agreement, dated March 7, 1997 and Entity Interest
Agreement, dated March 7, 1997, and provided, further, however, in the event a
Limited Partner is determined to be in breach, in the discretion of the General
Partners, then and in that event the sole remedy of the Partnership, and all
other Partners, is the purchase of Defaulting Limited Partner's Interest as
provided in Section 10.14.
6.04 ACTIONS BY LIMITED PARTNERS. Unless specifically provided
otherwise in this Agreement, no Limited Partner shall have the right to: (1)
amend this Agreement; (2) dissolve the Partnership; (3) remove a General
Partner; (4) approve or disapprove the sale of all or a part of the Property; or
(5) elect any Person or Persons as additional General Partners of the
Partnership.
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6.05 LOANS. Any Limited Partner may lend money to the Partnership,
and receive or hold as collateral or security therefor any Property. As to such
loans or advances, such Limited Partner shall have the same rights as any other
general secured or unsecured creditor, as the case may be.
6.06 LIABILITY OF LIMITED PARTNERS. The Capital Contributions made
under the terms of this Agreement by the Limited Partners, as increased or
decreased by conventional accounting methods, shall be liable for the debts of
the Partnership, but the Limited Partners shall not otherwise be liable for any
of said debts. No Limited Partner shall be liable for the debts, liabilities,
contracts or any other obligations of the Partnership. Unless specifically
provided otherwise in this Agreement, a Limited Partner shall be liable only to
make such Limited Partner's Initial Capital Contributions and shall not be
required to lend or contribute any additional funds to the Partnership, or after
such Limited Partner's Capital Contribution has been made, to make any
additional Capital Contributions to the Partnership.
6.07 WITHDRAWAL. No Limited Partner shall have any right or
authority to withdraw from the Partnership at any time, or for any reason,
unless specifically provided otherwise in this Agreement.
6.08 TRUSTS; TRUSTEES. If any trust should become a Limited Partner
and should expire by the terms of the trust agreement, the Interest of the trust
estate shall automatically vest in the distributes beneficiary as a Limited
Partner and not as an assignee. The Partnership shall continue without
interruption and a revised Exhibit A shall be prepared, executed and attached
hereto. In the event of the death, incapacity, refusal to act or resignation of
any trustee, the successor trustee designated in the trust agreement or
appointed by a court of competent jurisdiction shall immediately succeed to the
trust estate, which shall continue, uninterrupted, as a Limited Partner.
6.09 POWER OF ATTORNEY. Each Limited Partner, by executing this
Agreement, does hereby irrevocably constitute and appoint each General Partner,
and each successor General Partner, with full power of substitution, his true
and lawful attorney-in-fact and agent with full power and authority in such
Limited Partner's name, place and stead and for such Limited Partner's use and
benefit, to execute for such Limited Partner one or more counterparts of this
Agreement and any amendments hereto and to execute, certify, acknowledge, swear
to, deliver, file and record in the appropriate public offices: (1) all
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Certificates and other instruments which the General Partners deem appropriate
to qualify or continue the Partnership as a limited partnership in the
jurisdiction in which the Partnership may conduct business; (2) all instruments
which the General Partners deem appropriate to reflect a change or modification
of the Partnership in accordance with the terms of this Agreement; (3) any other
instrument which is now or may hereafter be required by law to be filed on
behalf of the Partnership or is deemed appropriate by the General Partners to
carry out the provisions of this Agreement in accordance with its terms; and (4)
all conveyances and other instruments which the General Partners deem
appropriate to reflect the dissolution and termination of the Partnership. The
power of attorney granted herein is a special power of attorney coupled with an
interest, is irrevocable and shall survive the death, Incapacity, Bankruptcy,
Insolvency, dissolution or cessation of existence of a Limited Partner and shall
survive the delivery of an assignment by a Limited Partner of the whole or a
portion of such Limited Partner's Interests.
SECTION 7
REPRESENTATIONS AND WARRANTIES
7.01 PARTNERS' REPRESENTATIONS AND WARRANTIES. Each Partner hereby
represents and warrants the following as of the date of this Agreement, and
agrees that the following representations and warranties shall survive the
execution of this Agreement:
a. SUBCHAPTER K ELECTION. That no election shall be made
by such Partner for the Partnership to be excluded from the application of the
provisions of Subchapter K of the Code.
b. AUTHORIZATION. That each Partner has the requisite
power and authority for such Partner's execution of this Agreement and that such
execution constitutes a valid and binding obligation of such Partner. If any
Partner is a corporation or a partnership, that such Partner is duly organized
or duly formed, validly existing, in good standing under the laws of the
jurisdiction of its incorporation or formation and has the corporate or
partnership power and authority to own its property and carry on its business as
owned and carried on at the date hereof and as contemplated hereby. Such Partner
is duly licensed or qualified to do business and in good standing in each of the
jurisdictions in which the failure to be so licensed or qualified would have a
material adverse effect on such Partner's financial condition or such Partner's
ability to perform such Partner's obligations hereunder. Such
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Partner has the individual, corporate or partnership power and authority to
execute and deliver this Agreement and to perform such Partner's obligations
hereunder and, if such Partner is a corporation or partnership, the execution,
delivery and performance of this Agreement has been duly authorized by all
necessary corporate or partnership action.
c. CONFLICTS. That the execution, delivery and
performance of this Agreement will not violate, conflict with or result in a
breach of or constitute a default under any agreement, instrument or court order
which such Partner, or any Affiliate, may be bound and that no consent of any
third party not a Partner to the Agreement is required to fully effect this
Agreement.
d. LITIGATION. That, except as fully disclosed in
writing to all Partners, such Partner is not a party to or threatened with any
action, suit, investigation, litigation, proceeding or controversy before any
court or administrative agency, nor in default with respect to any judgment,
order, writ, injunction, decree, rule or regulation before any court or
administrative agency which might result in any adverse effect on
representations, statements and conditions set forth in this Agreement or the
ability of such Partner to perform such Partner's obligations herein.
e. ACCURACY OF INFORMATION. That, to the best of such
Partner's knowledge, this Agreement does not contain any false statements and
that this Agreement does not omit any material facts.
f. LEGAL RESPONSIBILITIES. That such Partner shall
comply, abide by and fully adhere with all applicable federal, state, local and
municipal laws, regulations and ordinances applicable to any responsibilities of
such Partner hereunder.
g. INVESTIGATION. That such Partner is acquiring its
Interest based upon such Partner's own investigation, and the exercise by such
Partner of its rights and the performance of its obligations under this
Agreement will be based upon such Partner's own investigation, analysis and
expertise. Such Partner's acquisition of its Interest is being made for such
Partners own account for investment, and not with a view to the sale or
distribution thereof.
h. GOVERNMENTAL AUTHORIZATIONS. That any registration,
filing with, or consent, approval, license, permit or other authorization or
order by any governmental or
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regulatory authority that is required in connection with the valid execution,
delivery, acceptance and performance by such Partner under this Agreement or the
consummation by such Partner of any transaction contemplated hereby has been
completed, made or obtained on or before the effective date of this Agreement.
i. BUSINESS RISK. That each Partner is informed and
knowledgeable of the risk involved in this venture, which may be considered
higher than the normal business or investment risk.
j. INCOME TAX. That each Partner is informed and
knowledgeable of the possible adverse income tax consequences in that the
Partnership's operating income will be used to pay operating expenses,
therefore, the Limited Partners may recognize taxable income in excess of any
distributions. The Limited Partners initial tax basis will be limited to their
capital contributions, whereas any tax losses that exceed any Limited Partner's
adjusted tax basis can not be deducted by such Limited Partner and will be
allocated to the General Partners.
7.02 LIMITED PARTNERS' REPRESENTATIONS AND WARRANTIES. Each Limited
Partner hereby represents and warrants the following as of the date of this
Agreement, and agrees that the following representations and warranties shall
survive the execution of this Agreement:
a. EXECUTION. That, on behalf of such Limited Partner,
such Limited Partner's successors, assigns, heirs and personal representatives
shall execute and deliver with acknowledgment or affidavit, if required, all
documents determined by the General Partners to be necessary or appropriate to
effect the statutory organization of the Partnership.
b. EXPERTISE. That each Limited Partner is a
sophisticated investor possessing an expertise in analyzing Be benefits and
risks associated with acquiring investments that are similar to the acquisition
of such Limited Partner's Interest.
c. INDEMNIFICATION BY LIMITED PARTNERS. That each
Limited Partner understands the meaning and legal consequences of the warranties
and representations contained in this Section, and hereby agrees to indemnify
and hold harmless the Partnership, each Limited Partner, the General Partners
and their agents and employees, from and against
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any and all loss, damage, liability or expense due to or arising out of a breach
of any such warranty or representation by such Limited Partner.
7.03 INDEMNIFICATION BY GENERAL PARTNERS. The General Partners
hereby agree to indemnify, hold harmless and defend the Partnership against any
and all loss, damage, liability or expense arising directly from or as a result
of the General Partners' gross negligence; gross misconduct; breach of fiduciary
duty; breach of a term, representation, condition or covenant of this Agreement;
or a breach of any warranty or representation contained in this Section.
SECTION 8
BOOKS, RECORDS AND REPORTS
8.01 BOOKS AND RECORDS. The Partnership shall maintain at the
Partnership's principal place of business separate books of accounts for the
Partnership which shall show a true and accurate record of all costs and
expenses incurred, all changes made, all credits made and received, and all
income derived in connection with the conduct of the Partnership and the
operation of the Partnership's business in accordance with generally accepted
accounting principles consistently applied, and, to the extent inconsistent
therewith, in accordance with this Agreement. Any Partner, or such Partner's
Representative, shall have the right, at any reasonable time during ordinary
business hours, to have access to inspect and copy, at the expense of such
Partner, such books or records. In addition to the above, the following books
and records shall also be maintained:
a. A current list in alphabetical order of the full name
and last known business address of each Partner. Each General Partner and each
Limited Partner shall be separately identified.
b. The then effective Limited Partnership Agreement and
all amendments thereto, together with any executed powers of attorney pursuant
to which any such document has been executed.
c. The Certificate and all amendments, together with any
executed powers of attorney pursuant to which any Certificate has been executed.
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d. Copies of all the Partnership's federal and state
income tax returns.
e. Copies of all financial statements of the Partnership
for the six (6) most recent years.
f. The amount of cash and a description and statement of
the Agreed Value of all and any property or services contributed by each Partner
and which each Partner has agreed to contribute.
g. The times at which, or events on the happening of
which, any additional Capital Contributions agreed to be made are to be made by
each Partner.
8.02 REPORTS AND INFORMATION. All Partners shall have the right to
obtain from the General Partners from time to time, upon reasonable demand, true
and full information regarding the state of the business and financial condition
of the Partnership and any other information as is just and reasonable.
8.03 TAX RETURNS. The General Partners shall, at the expense of the
Partnership, annually cause the Accountant to prepare and timely file within
ninety (90) days after each tax year of the Partnership (1) with the Internal
Revenue Service, the Partnership's U.S. Partnership Return of Income (Form
1065); and (2) with the State, the State partnership return. The General
Partners shall distribute to all the Partners, within ninety (90) days after
each tax year of the Partnership, duplicate copies of the Partnership's complete
tax returns (federal, state and local, if any) as dated, executed and filed with
the taxing authorities, and all information relating to the Partnership that is
necessary for the preparation of the Partners' income tax returns.
8.04 FILINGS WITH REGULATORY AGENCIES. The General Partners, at the
expense of the Partnership, shall cause to be prepared and timely filed with
appropriate federal and state regulatory and administrative bodies all reports
required to be filed with such entities under then current applicable laws,
rules and regulations. Any Partner shall be provided with a copy of any such
report upon request.
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SECTION 9
ADMINISTRATIVE PROVISIONS
9.01 EXPENSES INCURRED BY GENERAL PARTNERS. The General Partners
shall be entitled to receive reimbursement for any and all expenses and costs
incurred by the General Partners on behalf of the Partnership.
9.02 COMPENSATION OF PARTNERS. Unless determined otherwise by the
vote of a majority in interest of the Partners, no Partner shall receive any
compensation, salary, fee, draw or guaranteed payment under Code Section 7.07(c)
for services rendered to or on behalf of the Partnership or otherwise in his
capacity as a Partner, unless specifically provided otherwise in this Agreement
or subsequently agreed to in writing by all the Partners.
9.03 BANKING. The General Partners, and such other persons as the
General Partners shall determine, shall deposit all funds of the Partnership in
such banks, trust companies or other depositories as the General Partners may
select. For the purpose of deposit and collection for the account of the
Partnership, the General Partners, and any other person whom the General
Partners have authorized, may endorse, assign and deliver checks, drafts and
other orders for the payment of money payable to the order of the Partnership.
The General Partners, and other persons as the General Partners shall determine,
shall issue all checks, drafts and other orders for the payment of money, notes
and other evidences of indebtedness issued in the name of or payable by the
Partnership. The General Partners may authorize the opening and keeping of
general and special bank accounts with such banks, trust companies or other
depositories as the General Partners may select. The General Partners may make
such special rules and regulations with respect to such bank accounts, not
inconsistent with the provisions of this Agreement, as the General Partners may
deem expedient.
9.04 INQUIRIES. Any Partner shall have the right to submit to the
General Partners a question in writing concerning any item or matter, shown on
any report or statement or otherwise, and the General Partners shall prepare and
deliver to such Partner a written response, directly answering such question or
questions within fourteen (14) days after the receipt of such letter by the
General Partners.
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9.05 DEALING WITH THE PARTNERSHIP. The Partners, and any
Affiliates, shall have the right to contract or otherwise deal with the
Partnership for the sale or lease of property, the rendition of services and
other purposes, and to receive payments and fees from the Partnership in
connection therewith as the General Partners shall determine, provided, however,
that such payments or fees are disclosed and are on an arms-length basis and on
terms comparable to the payments or fees that would be paid to unrelated Persons
providing the same property, goods or services to the Partnership.
9.06 DISPUTE RESOLUTION. Subsequent to the execution of this
Agreement by the Partners, all claims, disputes, differences, controversies and
questions which may arise concerning the matters and obligations set forth in
this Agreement, or for the construction or application of this Agreement, or
concerning any liabilities created hereunder, or any act or omission of any
Partner, shall be resolved in the following manner and order; provided, however,
this Section shall not limit the right of any Partner to seek temporary
injunctive relief where an unacceptable interim period may exist between the
time of the dispute and the earliest time at which arbitration can be commenced.
a. The Partners shall consult and negotiate with each
other, in good faith, and, recognizing their mutual interest, attempt to reach a
just and equitable solution satisfactory to all the Partners. In the event the
Partners do not reach such solution within a period of thirty (30) days, then
upon Notice by a Partner to the other Partners, such dispute shall be submitted
to mediation.
b. The Partners shall then try in good faith to settle
the dispute by mediation in the State under the Commercial Mediation Rules of
the American Arbitration Association before resorting to arbitration. In the
event the Partners do not reach such solution within a period of thirty (30)
days, then upon Notice by a Partner to the other Partners, such dispute shall be
submitted to binding arbitration.
c. The dispute shall then be settled by binding
arbitration in the State in accordance with the applicable rules of the American
Arbitration Association and judgment upon the award rendered may be entered into
any court having jurisdiction thereof.
d. The prevailing Partners shall be entitled to their
costs including reasonable attorney fees.
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9.07 AMENDMENTS TO AGREEMENT. In addition to any amendments
otherwise authorized herein, amendments may be made to this Agreement from time
to time by the General Partners as follows:
a. WITHOUT CONSENT OF LIMITED PARTNERS. Without the
consent of the Limited Partners: (1) to add to the representations, duties or
obligations of the General Partners or to surrender any right or power granted
to the General Partners herein, for the benefit of the Limited Partners; (2) to
correct any error or resolve any ambiguity in or inconsistency among any of the
provisions hereof, or to make any other provision with respect to matters or
questions arising under this Agreement that is not inconsistent with the
provisions of this Agreement; (3) to delete or add any provision of this
Agreement required to be so deleted or added by any governmental authority for
the benefit or protection of the Limited Partners; (4) to change the name of the
Partnership, if such change is necessary to protect the limited liability of the
Limited Partners or to comply with applicable federal or state law or the rules
or regulations of any governmental agency; and (5) to the extent allowed by law,
to amend this Agreement and any Certificate so long as no Limited Partner is
materially and adversely affected or consent is given by the Limited Partners.
b. WITH CONSENT OF AFFECTED PARTNERS. Notwithstanding
any other provision of this Agreement, this Agreement may not be amended without
the consent of the Partner or Partners to be adversely affected by any amendment
to this Agreement: (1) to convert a Limited Partner's Interest into a General
Partner's Interest; (2) to modify the limited liability of a Limited Partner;
(3) to alter the Interest of a Partner in income, gain, losses, deductions,
credits or distributions, unless specifically provided for herein; (4) to
increase, add or alter any obligation of any Partner; or (5) to materially and
adversely affect any Partner's Interest.
c. AFTER CHANGE OF LAW. Without the consent of the
Limited Partners if there occurs any change of law that permits or requires an
amendment of this Agreement or of any other Partnership document under
applicable law, so long as no Partner is adversely affected or consent is given
by such Partner that is adversely affected.
d. RECORDING OF AMENDMENTS. In the event any amendments
are made to this Agreement or any other Partnership documents, there shall be
prepared and filed for recordation by the General Partners such documents and
Certificates as shall be required to
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be prepared and filed under the laws of the State. Within ten (10) days after
the request by the General Partners, the Limited Partners shall execute an
amended Certificate and such other documents and instruments as may be required
for the valid formation, continuance and existence of the Partnership as a
limited partnership.
SECTION 10
TRANSFERS
10.01 RESTRICTIONS ON TRANSFERS. The Interests represented by this
Agreement have not been registered under any securities laws and the
transferability of such Interests is restricted. Such Interests may not be
Transferred, nor will any assignee be recognized as having acquired any such
Interests by the Partnership for any purposes, unless (1) a registration
statement under the Securities Act of 1933, as amended, with respect to such
Interests shall then be in effect and such Transfer has been qualified under all
applicable securities laws of State, or (2) the availability of an exemption
from such registration and qualification shall be established to the
satisfaction of counsel to the Partnership. The Interests represented by this
Agreement are subject to further restrictions as to their Transfer as set forth
in this Agreement and agreed to by each Partner. Said restrictions provide,
among other things, that no assignee of an Interest shall have the right to
become a Limited Partner without the written consent of the General Partners,
which consent may be given or withheld in the sole and absolute discretion of
the General Partners.
10.02 PERMITTED TRANSFERS. A Partner may only Transfer all or any
portion of such Partner's Interest with the written consent of the General
Partners, which consent may be given or withheld in the sole and absolute
discretion of the General Partners; provided, however, the assignor Limited
Partner shall not be released from any of such assignor Limited Partner's
liability to the Partnership pursuant to this Agreement and shall continue to be
bound by the provisions of this Agreement; provided, further, however, a
Transfer shall not be treated as a Permitted Transfer unless and until the
following conditions are satisfied:
a. The transferor and transferee shall execute and
deliver to the Partnership such documents including, without limitation,
amendments to the Certificate, and instruments of conveyance as may be necessary
or appropriate in the opinion of counsel to the Partnership to effect such
Transfer and to confirm the agreement of the transferee to become a party to
this Agreement and to be bound by the provisions of this Agreement. In
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the case of a Transfer by death or involuntarily by operation of law, the
Transfer shall be confirmed by evidence to the Partnership of such Transfer, in
form and substance satisfactory to counsel to the Partnership. In all cases, the
Partnership shall be reimbursed by the transferor or transferee for all
reasonable expenses including, but not limited to, legal, filing, accounting and
publication expenses that the Partnership reasonably incurs in connection with
the admission of the transferee as a Partner.
b. The transferor shall furnish to the Partnership a
written opinion of qualified counsel, which counsel and opinion shall be
satisfactory to the Partnership, that the Transfer:
1. Will not cause the Partnership to terminate
for federal income tax purposes;
2. Is exempt from all applicable registration
requirements and that such Transfer will not violate any applicable laws
regulating the Transfer of securities; or such Interest shall be registered
under the Securities Act of 1933, as amended, and any applicable securities laws
of the State, at the expense of transferee or transferor;
3. Will not cause the Partnership to be deemed
to be an "investment company" under the Investment Company Act of 1940; and
4. For federal income tax purposes, will cause
the Partnership to be taxed as a partnership and the Partnership will not be
taxed as an association taxable as a corporation.
10.03 PROHIBITED TRANSFERS. Except as otherwise permitted by this
Agreement, no Partner shall have the right to voluntarily Transfer to any Person
such Partner's Interest, or any part thereof, without the prior written approval
of a majority in interest of the General Partners and any voluntary purported
Transfer of an Interest that is not a Permitted Transfer shall be null and void
ab initio and no force or effect whatever; provided, however, if the Partnership
is required to recognize a Transfer that is not a Permitted Transfer, or if the
General Partner elects to recognize a Transfer that is not a Permitted Transfer,
the Interest transferred shall be limited to the transferor's rights to
allocations and distributions as provided by this Agreement with respect to the
transferred Interests, which allocations and distributions may be applied,
without limiting any other legal
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or equitable rights of the Partnership, to satisfy any debts, obligations or
liabilities for damages that the transferor or transferee of such Interests may
have to the Partnership. The parties engaging or attempting to engage in a
Transfer or attempted Transfer of Interest that is not a Permitted Transfer
shall be liable to indemnify and hold harmless the Partnership from all costs,
liability and damages, including, without limitations, incremental tax
liability, attorney's fees and expenses as a result of such Transfer or
attempted Transfer.
10.04 PLEDGE OF INTEREST. No Partner shall have any right to pledge,
encumber or otherwise create a security interest in such Partner's Interest to
secure the payment of any indebtedness without the prior written approval of a
majority in interest of the General Partners, and any such pledge or
hypothecation shall be made pursuant to a pledge or hypothecation agreement that
requires the pledgee or secured party to be bound by all the terms and
conditions of this Section.
10.05 RIGHTS OF CREDITOR. On application to a court of competent
jurisdiction by any judgment creditor of a Partner, the court may charge the
Interest of such Partner with payment of the unsatisfied amount of the judgment
with interest thereon. To the extent so charged, the judgment creditor shall
have only the rights of an assignee of the Interest to receive, to the extent
assigned, only the distributions to which the assignor Partner would be
entitled. This provision shall not deprive any Partner of the benefit of any
exemption laws applicable to such Partner's Interest.
10.06 RIGHTS OF ASSIGNEE.
a. An assignee of an Interest, including an assignee of
a General Partner, shall have no right to become a Limited Partner unless a
majority in interest of the General Partners, consents in writing; provided,
however, in the event there is no General Partner, then and in that event all of
the Limited Partners must consent in writing.
b. An assignee who has become a Limited Partner has, to
the extent assigned, the rights and powers and is subject to the restrictions
and liabilities of a Limited Partner under this Agreement and the laws of the
State. An assignee who becomes a Limited Partner also is liable for the
obligations of the assignor to make and return Contributions as provided in this
Agreement; provided, however, such assignee shall not be obligated for
liabilities unknown to the assignee at the time such assignee became a Limited
Partner.
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c. If an assignee of an Interest becomes a Limited
Partner, the assignor is not released from the assignor's liability to the
Partnership pursuant to this Agreement.
d. An assignee who is not admitted as a Limited Partner
shall be entitled only to allocations and distributions with respect to such
Interests in accordance with the Agreement, and shall have no right to any
information or accounting of the affairs of the Partnership, shall not be
entitled to inspect the books or records of the Partnership and shall not have
any of the rights of a General Partner or a Limited Partner under this Agreement
or the laws of the State.
10.07 POWER OF ESTATE. In the event that a Partner who is an
individual dies or a court of competent jurisdiction adjudges such Partner to be
incompetent to manage such Partner's person or such Partner's property, then and
in that event such Partner' Representative may exercise all such Partner's
rights for the purpose of settling such Partner's estate or administering such
Partner's property, including any power such Partner had to give an assignee the
right to become a Limited Partner. In the event that a Partner is a corporation,
trust or other entity that is dissolved or terminated, then and in that event
the powers of such Partner may be exercised by such Partner's legal
representative or successor.
10.08 ADMISSION OF ASSIGNEE AS A LIMITED PARTNER. Subject to the
other provisions of this Section, a transferee of Interests may be admitted to
the Partnership as Limited Partner only upon: (1) the consent of a majority in
interest of the General Partners to such admission, which consent may be given
or withheld in the sole and absolute discretion of the General Partners; and (2)
the Interest, with respect to which the transferee is being admitted, satisfying
the requirements set forth hereinabove for a Permitted Transfer.
10.09 REQUIREMENTS. The transferor and transferee shall furnish the
Partnership with the transferee's taxpayer identification number, sufficient
information to determine the transferee's initial federal income tax basis in
the Interest transferred and any other information reasonably necessary to
permit the Partnership to file all required federal and state tax returns and
other required information statements or returns. The Partnership shall not make
any distribution otherwise provided for in this Agreement with respect to any
Transferred Interest until the Partnership has received such information.
10.10 ALLOCATIONS AND DISTRIBUTIONS. In the event that any Partner
Transfers such Partner's Interest in compliance with this Section, such
Interest's distributive share of
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Net Profits and Net Losses for the tax year including such Transfer shall be
divided and allocated between the transferor and the transferee by taking into
account their varying interests during such tax year in accordance with Code
Section 706(d), using any method permitted by law and selected by the General
Partners. All distributions on or before the date of such Transfer shall be made
to the transferor, and all distributions thereafter shall be made to the
transferee. The transferor Partner shall be required to reimburse the
Partnership for any expenses incurred in determining the distributive share of
the transferor Partner. Neither the Partnership nor the General Partners shall
incur any liability for making allocations and distributions in accordance with
the provisions of this Section, whether or not the General Partners or the
Partnership has knowledge of any Transfer of any Interest.
10.11 TRANSFER EXPENSES. Prior to the effective date of any
Permitted Transfer, any Partner who transfers all or any portion of such
Partner's Interest shall pay to the Partnership an amount equal to the expenses
incurred by the Partnership, the other Partners, and their Affiliates,
employees, agents, successors and assigns in connection with such Transfer,
including, without limitation, the expense of reviewing or obtaining any
necessary legal opinions, any attorneys' fees and expenses, the expense of
preparing any amended Certificates and amendments to this Agreement and any
other documentation, and recording fees, postage, telephone and other
miscellaneous expenses.
10.12 BASIS ADJUSTMENT. In the event of a Transfer of an Interest,
or on the death of any Partner, or in the event of the distribution of Property
to any Partner, the Partnership shall file an election, if requested by any
Partner, in accordance with applicable Regulations, to cause the basis of the
Property to be adjusted for federal income tax purposes as provided in Code
Sections 734, 743 and 754 and such Partner requesting the election shall bear
all costs associated therewith.
10.13 BUY AND SELL AGREEMENT. In the event that a written Buy and
Sell Agreement has been executed by all of the Partners, the terms of such
Agreement shall control over the provisions of this Section and this Agreement.
10.14 DEFAULTING LIMITED PARTNER. The General Partners may elect, at
any time the General Partners determine such competitive activity is not in the
best interests of the Partnership, or in violation of the provisions of those
certain written agreements entitled Distributor Agreement, dated March 7, 1997
and Entity Interest Agreement, dated March 7, 1997, such determination being in
the sole discretion of a majority in interest of the General
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Partners, to treat a breach of Section 6.03 as a default. Such election by the
General Partners shall be made by giving Notice to Defaulting Limited Partner of
such default. The Defaulting Limited Partner's Interest shall be purchased in
accordance with Section 10.15.
10.15 WITHDRAWING PARTNER. All withdrawing Limited Partners'
Interest, other than Permitted Transfers, shall be purchased in accordance with
this Section 10.15. The General Partners shall purchase the Interest of such
withdrawing Limited Partner for an amount equal to such withdrawing Limited
Partner's share of the book value of the Partnership (Partnership's book value
multiplied by such withdrawing Limited Partner's Net Profits Sharing
Percentage), if any, which shall be the amount of such withdrawing Limited
Partner's Capital Account as of the last day of the month immediately preceding
the month in which the Notice of default is given. There shall be no adjustments
to such purchase price, including, but not limited to, (1) goodwill, (2)
unbooked appreciation of Property, and (3) depreciation deductions. The General
Partners shall use their best efforts to admit a new Limited Partner in place of
such withdrawing Limited Partner, provided, however, any such new Limited
Partner shall be approved in writing by a Majority in Interest of Partners.
SECTION 11
WITHDRAWAL OF GENERAL PARTNER
11.01 EVENTS OF WITHDRAWAL. A General Partner shall cease to be a
General Partner of the Partnership upon the happening of any of the following
events:
a. The Bankruptcy of such General Partner.
b. In the case of a natural person who is a General
Partner, the death, Incapacity or Incompetence of such General Partner.
c. In the case of a General Partner that is a revocable
grantor-type trust (revocable living trust), the death of the trustor, grantor
or settlor, as described in Code Section 677, or in the event of joint grantors,
trustors or settlors, upon the last to die of such grantors, trustors or
settlors.
d. In the case of a General Partner that is a separate
partnership, the liquidation, dissolution and commencement of winding up of such
partnership.
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e. In the case of a General Partner that is a
corporation, the filing of a certificate of dissolution or its equivalent for
the corporation or the revocation of the corporation's charter.
f. In the case of a General Partner who is acting as a
General Partner by virtue of being a trustee of a trust, the termination of the
trust, but not merely the substitution of a new trustee.
g. In the case of a General Partner that is an estate,
the distribution by the fiduciary of the estate's entire Interest.
h. The involuntary Transfer by operation of law of such
General Partner's Interest.
i. In the event there is a Continuing General Partner,
then and in that event upon the approval of a written request of such General
Partner to retire; provided, however, in the event there is no Continuing
General Partner, then and in that event upon the agreement of all of the Limited
Partners to approve a request by such General Partner to retire.
j. The written agreement of all other Partners to remove
such General Partner after such General Partner has committed a material breach
of this Agreement or such General Partner's representations and warranties
hereunder, or committed any other act that would justify a decree of dissolution
of the Partnership under the laws of the State.
11.02 CONTINUANCE OF PARTNERSHIP. It is the intention of the
Partners that the Partnership not dissolve as a result of the cessation of any
General Partner's status as a General Partner; provided, however, that if it is
determined by a court of competent jurisdiction that the Partnership has
dissolved, the provisions of Section 12 shall govern. In the event there is a
Continuing General Partner after the withdrawal of Withdrawing General Partner,
then and in that event the Continuing General Partner shall continue the
Partnership and shall give Notice to the Representative of the Withdrawing
General Partner whether, in the sole and absolute discretion of Continuing
General Partner, such Withdrawing General Partner's Interest shall be (1) that
of an assignee or a Limited Partner and (2) purchased in accordance with Section
10.15; provided, however, in the event there is not a Continuing
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General Partner after the withdrawal of Withdrawing General Partner, then and in
that event the remaining Limited Partners may unanimously elect to continue the
Partnership, pursuant to this Agreement, by selecting a new General Partner,
provided that the Partnership obtains a written opinion of qualified tax counsel
that the new Partnership will be taxed as a Partnership and will not be taxed as
an association taxable as a corporation for federal income tax purposes and such
new General Partner shall be deemed to be the Continuing General Partner.
11.03 CONTINUED LIABILITY. If a General Partner ceases to be a
General Partner for any reason, such Withdrawing General Partner shall continue
to be liable as a General Partner for all liabilities and obligations of the
Partnership existing at the time such General Partner ceases to be a General
Partner, regardless of whether such liabilities and obligations were known or
unknown, actual or contingent. Withdrawing General Partner shall not be liable
as a General Partner for Partnership liabilities and obligations incurred by the
Partnership after such General Partner ceases to be a General Partner, other
than as any other Limited Partner or assignee and such loss shall be limited to
the Capital Account of such Withdrawing General Partner. Any and all
liabilities, obligations or damages to the Partnership of any General Partner
who ceases to be a General Partner shall be collectible by any legal means and
the Partnership is authorized, in addition to any other remedies, to apply any
amounts otherwise distributable or payable by the Partnership to such
Withdrawing General Partner to satisfy such Withdrawing General Partner's
obligations or liabilities to the Partnership.
11.04 DAMAGES. The Partnership may recover from the Withdrawing
General Partner damages for breach of this Agreement and offset the damages
against the amount otherwise distributable to such Withdrawing General Partner.
11.05 OTHER INTERESTS. In the event that at the time a General
Partner ceases to be a General Partner and such General Partner is also a
Limited Partner, then and in that event such cessation shall not affect such
General Partner's rights and obligations with respect to such Interests as a
Limited Partner other than the Partnership's right of offset for damages as
provided herein this Section.
11.06 ASSIGNEE. In the event a General Partner ceases to be a
General Partner
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without having transferred such General Partner's entire Interest as a General
Partner, such General Partner shall be treated as an unadmitted transferee of an
Interest and shall be an assignee, and not a Partner.
SECTION 12
DISSOLUTION AND WINDING UP
12.01 LIQUIDATING EVENTS. The Partnership shall not dissolve prior
to the occurrence of a Liquidating Event. The Partnership shall terminate and
shall dissolve and commence winding up its affairs upon the happening of the
first to occur of the following Liquidating Events:
a. At the time specified in the Certificate, unless
extended by written mutual agreement of all the Partners and an amended
Certificate is filed.
b. The sale of all or substantially all of the Property;
provided, however, in the event the Property shall consist primarily of cash or
other liquid assets, then and in that event such future termination shall be at
a date one month from and after the date of mailing of Notice by any Partner to
the General Partners.
c. The written agreement of all Partners to dissolve,
wind up and liquidate the Partnership.
d. The happening of any event that makes it unlawful or
impossible to carry on the business of the Partnership.
e. The withdrawal or removal of a General Partner, the
assignment by a General Partner of its entire Interest, or any other event that
causes a General Partner to cease to be a General Partner under the laws of the
State; provided, however, that any such event shall not constitute a Liquidating
Event if the Partnership is continued pursuant to this Agreement and (1) at the
time of such event there is at least one other General Partner and that General
Partner carries on the business of the Partnership, such remaining General
Partner is hereby authorized to carry on the business of the Partnership, or (2)
at the time of
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such event there is no other General Partner and within ninety (90) days after
such event all remaining Limited Partners agree in writing to continue the
business of the Partnership and to the appointment of one or more additional
General Partners.
f. The entry of a decree of judicial dissolution by a
court of competent jurisdiction whenever it is not reasonably practicable to
carry on the business in conformity with the Agreement.
12.02 WINDING UP. Upon the occurrence of a Liquidating Event, the
Partnership shall continue solely for the purpose of winding up its affairs in
an orderly manner and shall proceed as follows:
a. Obtain an accurate inventory of all Property and
determine all liabilities.
b. Orderly sell the Property at the best prices
obtainable as promptly as is consistent with obtaining the fair market value.
c. Liquidate all Partnership receivables as far as
possible.
d. To the extent permitted by law, liquidate, pay and
discharge all Partnership debts and liabilities owing to creditors, including
Partners who are creditors, in the order of priority as provided by law.
e. Liquidate all Partnership liabilities owing to
Partners in respect to distributions required to be made by the Partnership to
the Partners.
f. Make the annual determination of the Net Profits and
Net Losses and credit or charge the Capital Account of each Partner as provided
for in this Agreement.
g. Establish adequate cash reserves, if necessary, for
the payment of any unliquidated liability, as determined by the General
Partners, provided that such withheld amounts shall be distributed to the
Partners as soon as feasible.
h. Distribute the remaining cash and unsold Property pro
rata in kind to the Partners in accordance with their respective positive
balance in their respective Capital Account. Upon liquidation of the
Partnership, or any Partner's Interest, liquidating
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distributions shall be made in accordance with the positive Capital Account
balances of the Partners, as determined after taking into account all Capital
Account adjustments for the Partnership tax year during which such liquidation
occurs by the end of such tax year or, if later, within ninety (90) days after
the date of such termination.
i. Provide Notice to each Partner and to all other
appropriate Persons with whom the Partnership regularly conducts business, as
determined in the discretion of the General Partner, within thirty (30) days of
the Liquidating Event.
j. Execute and file any and all necessary instruments
required to complete said termination, liquidation and dissolution in accordance
with the laws of the State.
12.03 COVENANTS AND OBLIGATIONS. No Partner shall take any action
that is inconsistent with, or not necessary to or appropriate for, winding up
the Partnership's business and affairs. All covenants and obligations in this
Agreement shall continue in full force and effect until such time as all of the
Property has been distributed pursuant to this Section and the Certificate has
been cancelled.
12.04 LIQUIDATING AGENT. Upon dissolution of the Partnership, the
General Partners, who have not wrongly triggered the Liquidating Event, shall
wind up the affairs of the Partnership and liquidate the Partnership; provided,
however, in the event there is no remaining General Partner that has not
wrongfully triggered the Liquidating Event, then and in that event the Majority
in Interest of Limited Partners may act in liquidation of the Partnership and
elect or appoint any Person to be the liquidating agent.
12.05 DEEMED LIQUIDATION. In the event the Partnership is deemed
liquidated for federal income tax purposes within the meaning of Regulations
Section 1.704-1(b)(2)(ii)(g):
a. In the event no Liquidating Event has occurred, then
and in that event the Property shall not be liquidated, the Partnership's
liabilities shall not be paid or discharged, and the Partnership's affairs shall
not be wound up. For federal income tax purposes only, the Partnership shall be
deemed to have distributed the Property in kind to the Partners who shall be
deemed to have assumed and taken the Property subject to all Partnership
liabilities, all in accordance with their respective Capital Accounts and if any
General Partner's Capital Account has a deficit balance, after giving effect to
all
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contributions, distributions and allocations for all tax years, including the
tax year during which such deemed liquidation occurs, such General Partner shall
contribute to the capital of the Partnership the amount necessary to restore
such deficit balance to zero in compliance with Regulations Section
1.704-l(b)(2)(ii)(b)(3). The Partners shall be deemed to have immediately
thereafter recontributed the Property in kind to the Partnership, and the
Partnership shall be deemed to have assumed and taken the Property subject to
all such liabilities.
b. In the event a Liquidating Event has occurred, then
and in that event all distributions shall be made pursuant to this Section to
the Partners who have positive Capital Accounts in compliance with Regulations
Section 1.704-l(b)(2)(ii)(b)(2), and if any General Partner's Capital Account
has a deficit balance, after giving effect to all contributions, distributions
and allocations for all tax years, including the tax year during which such
liquidation occurs, such General Partner shall contribute to the capital of the
Partnership the amount necessary to restore such deficit balance to zero in
compliance with Regulations Section 1.704-l(b)(2)(ii)(b)(3). If any Limited
Partner has a deficit balance in such Limited Partner's Capital Account, after
giving effect to all contributions, distributions and allocations for all tax
years, including the tax year during which such liquidation occurs, such Limited
Partner shall have no obligation to make any contribution to the capital of the
Partnership with respect to such deficit, and such deficit shall not be
considered a debt owed to the Partnership or to any other Person for any purpose
whatsoever.
SECTION 13
OTHER PROVISIONS
13.01 ACKNOWLEDGEMENTS. Each Partner to this Agreement hereby
acknowledges receipt of a fully executed copy of this Agreement and further
acknowledges careful review of the representations, terms and conditions
contained herein.
13.02 ADDITIONAL DOCUMENTS. Each Partner, upon the request of the
General Partners, agrees to perform all further acts and execute, acknowledge
and deliver any documents that may be reasonably necessary, appropriate or
desirable to carry out the provisions of this Agreement.
13.03 AMENDMENTS. Unless specifically provided otherwise in this
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Agreement, this Agreement can be amended, terminated, rescinded, modified or
supplemented only by a written document executed by all of the Partners. Any
purported oral amendment, termination, rescission, modification or supplement
shall be void.
13.04 APPLICABLE LAW. The terms and provisions of this Agreement and
any dispute arising hereunder shall be construed by and governed by the laws of
the State of Texas, without giving effect to the conflicts of laws provisions
therein, regardless of where the Agreement is executed. Subject to the dispute
resolution provisions herein, the courts of the State of Texas shall have the
sole and exclusive jurisdiction in any case or controversy arising under this
Agreement or by reason of this Agreement.
13.05 ASSIGNMENT. No Partner shall have the power or right to assign
their respective duties and obligations hereunder unless such assignment is
specifically provided otherwise in this Agreement.
13.06 CONFIDENTIALITY. This is a confidential agreement among the
Partners. This Agreement shall not be filed of record with any city, county,
state or federal authority and the terms and conditions of this Agreement,
including, but not limited to, the identity of the Partners, shall be
confidential and shall not be disclosed to any other Person without the prior
written consent of the General Partners, except to the extent specifically
provided otherwise in this Agreement or required by applicable laws. The
Partners agree that no press release regarding this transaction will be issued
and no information regarding this transaction will be given to the news media.
13.07 COUNTERPARTS. This Agreement may be executed in any number of
counterparts with the same effect as if all of the Partners had executed the
same document. All counterparts shall be construed together and shall constitute
one agreement.
13.08 ENTIRE AGREEMENT. This Agreement is the entire agreement of
the Partners. There are no promises, representations, considerations,
conditions, understandings or agreements other than as expressly stated herein.
13.09 EXHIBITS. All Exhibits attached hereto, and any authorized and
duly executed amended Exhibits, are made a part hereof by reference and are
hereby incorporated into this Agreement as though fully rewritten herein at
length.
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13.10 EXPENSES, COSTS AND ATTORNEY'S FEES. In any legal action or
arbitration between the Partners to enforce any of the terms of this Agreement,
or to settle any dispute, controversy or claim arising out of or relating to
this Agreement, or the breach thereof, the prevailing Partner or Partners shall
be entitled to recover expenses and costs, including reasonable attorney's fees
from the Partner who unreasonably fails to perform any covenant of this
Agreement.
13.11 HEADINGS. The descriptive section headings contained herein
are for convenience only and are not intended to describe, interpret, include or
conclusively define all the subject matter in the sections accompanying such
headings and such headings should not be resorted to for interpretation of this
Agreement.
13.12 INTERPRETATION. All words used herein shall be interpreted as
singular or plural as the context may require. All pronouns, and any variations
thereof, used herein shall be interpreted as masculine, feminine or neuter as
the context may require.
13.13 NAME. The name "U.S. Lithotripsy, L.P." and any derivative
thereof, shall be owned by U.S. Lithotripsy, L.P., and the Partnership shall
have the exclusive right to use such name of the Partnership at no cost until
the Partnership receives Notice that it can no longer use such name.
13.14 PARTITION. No Partner shall have any right to partition any
Property, or Property hereinafter acquired by the Partnership, nor shall any
Partner have any right to any specific Property upon liquidation, dissolution or
winding up. The execution of this Agreement shall constitute a waiver of any and
all rights to partition that the Partners would otherwise have.
13.15 PREAMBLE CLAUSES. All representations, statements and
conditions set forth in the preamble clauses of this Agreement are hereby
incorporated into this Agreement as though fully rewritten herein at length.
13.16 SEVERABILITY. If any term, condition or portion of this
Agreement shall be held to be void, invalid or unenforceable, for any reason
whatsoever, the balance thereof shall nevertheless be carried into effect.
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13.17 SPECIFIC PERFORMANCE. Each Partner agrees with the other
Partners that the other Partners would be irreparably damaged if any of the
provisions of this Agreement are not performed in accordance with their specific
terms and that monetary damages would not provide an adequate remedy in such
event. Unless specifically provided otherwise in this Agreement, it is agreed
that, in addition to any other remedy to which the nonbreaching Partners may be
entitled, the nonbreaching Partners shall be entitled to injunctive relief to
prevent breaches of the provisions of this Agreement and specifically to enforce
the terms and provisions hereof in any action instituted in any court of the
State having jurisdiction thereof.
13.18 SUCCESSORS IN INTEREST. This Agreement shall be binding upon,
and inure to the benefit of, the Partners and their respective heirs, legatees,
legal representative, personal representatives, administrators, successors,
trustees and permitted assigns.
13.19 SURVIVAL. The covenants, representations end warranties of the
Partners set forth herein will be effective on the date hereof and shall survive
the execution of this Agreement.
13.20 TERMINATION. This Agreement shall cease and terminate upon the
earlier of (1) in accordance with the terms and conditions specifically provided
in this Agreement, or (2) the mutual agreement by all of the Partners evidenced
by an executed written agreement.
13.21 TIME. Time is of the essence with respect to this Agreement.
SECTION 14
DEFINED TERMS
Wherever used in this Agreement, the following capitalized terms, or
derivatives thereof, shall have the respective meanings set forth below, unless
specifically provided otherwise in this Agreement:
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"Accountant". The certified public accountant, accountant or
accounting firm which the General Partners employ on the behalf of the
Partnership for accounting and the preparation of financial statements
and income tax returns.
"Affiliate". With respect to any Person: (1) any Person directly or
indirectly controlling, controlled by or under common control with another
Person; (2) any Person owning or controlling ten percent (10%) or more of the
outstanding voting interest of such Person; (3) any officer, director or general
partner of such Person; or (4) any Person who is an officer, director,
general partner, trustee or holder of ten percent (10%) or more of the voting
interests of any Person described in clauses (1) through (3) of this sentence.
The term "controls," and any derivative thereof, for the purpose of this defined
term, shall mean the possession, direct or indirect, of the power to direct or
cause the direction of the management and policies of a Person, whether through
the ownership of voting interests, by contract or otherwise.
"Agreed Value". The fair market value of property contributed to the
Partnership by a Partner as such contributing Partner's Initial Capital
Contribution. The Agreed Value shall be the financial basis of such property and
shall be contributed in accordance with Code Section 704(c). In the event
subsequent additional Capital Contributions are made, then the fair market value
shall be agreed upon by all the Partners in writing. The Agreed Value of any
Property distributed to any Partner shall be adjusted to equal the fair market
value of such Property on the date of distribution as determined by the
distributee and the General Partners, provided, however, the determination of
the fair market value of such Property shall require the written consent of a
Majority in Interests of the Partners.
"Agreement". This Limited Partnership Agreement, and any subsequent
amendments thereto.
"Bankruptcy". As to any Person, a voluntary bankruptcy or an
involuntary bankruptcy. Voluntary bankruptcy means the inability to such Person
to pay such Person's debts as such debts become due, or an admission in writing
by such Person of such Person's inability to pay its debts or a general
assignment by such Person for the benefit of creditors; the filing of any
voluntary petition or answer by such Person seeking to adjudicate such Person a
bankrupt or insolvent, or seeking for such any liquidation, winding up,
reorganization, arrangement, adjustment, protection, relief or composition of
such Person or
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such Person debts under any law relating to bankruptcy, insolvency or
reorganization or relief of debtors, or seeking, consenting to or acquiescing in
the entry of an order for relief or the appointment of a receiver, trustee,
custodian or other similar official for such Person or for any substantial part
of such Person's property; or corporate action taken by such Person to authorize
any of the actions set forth above. Involuntary bankruptcy means without the
consent or acquiescence of such Person, the entering of an order for relief or
approving a petition for relief or reorganization of any other petition seeking
any reorganization, arrangement, composition, readjustment, liquidation,
dissolution or other similar relief under any present or future bankruptcy,
insolvency or similar statute, law or regulation, or the filing of any such
petition against such Person which petition shall not be dismissed within ninety
(90) days, or, without the consent or acquiescence of such Person, the entering
of an order appointing a trustee, custodian, receiver or liquidator of such
Person or of all or any substantial part of the property of such Person, which
order shall not be dismissed within sixty (60) days.
"Capital Account". With respect to any Partner, as of any particular
date, the account established and maintained for such Partner, which shall
consist of such Partner's Initial Capital Contribution, increased by (1) such
Partner's distributive share of Net Profits and (2) any additional Capital
Contributions, and reduced by (1) such Partner's distributive share of Net
Losses and (2) the amount of cash and any other Property actually distributed to
such Partner, as reflected on the books and records of the Partnership. The
provisions of this Agreement relating to the maintenance of Capital Accounts are
intended to comply with Regulations Section 1.704-l(b), and shall be interpreted
and applied in a manner consistent with such Regulations. In the event the
General Partners shall determine that it is prudent to modify the manner in
which the Capital Accounts, or any debits or credits thereto, are computed in
order to comply with such Regulations, the General Partners may make such
modification, provided that such modification will not, more likely than not,
have a material effect on the amounts distributed to any Partner upon the
dissolution of the Partnership. The General Partners shall (1) make any
adjustments that are necessary or appropriate to maintain equality between the
Capital Accounts of the Partners and the amount of Partnership Capital reflected
on the Partnership's balance sheet, as computed for book purposes, in accordance
with Regulations Section 1.704-l(b)(2)(iv)(g), and (2) make any appropriate
modifications in the event unanticipated events might otherwise cause this
Agreement not to comply with Regulations Section 1.704-l(b).
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"Capital Contribution". With respect to any Partner, as of any
particular date, the Initial Capital Contribution and any subsequent additional
Capital Contributions of cash, property, services rendered or promissory note,
or other binding obligation to contribute cash or property, or to perform
services, which a Partner contributes to the Partnership by such Partner in his
capacity as a Partner.
"Cash Flow From Capital Transactions". The Partnership cash funds
realized from capital transactions, but after deducting cash funds used to pay
other expenses, debt payments, capital improvements and replacements, and less
all amounts set aside to create or restore reserves, as determined in the sole
discretion of the General Partners.
"Certificate". The Certificate of Limited Partnership required to be
filed with the State in order to form a limited partnership, and shall include
the Certificate as amended or restated.
"Code". The Internal Revenue Code of 1986, as amended, or corresponding
provisions of subsequent laws.
"Continuing General Partner". The General Partner or General Partners
remaining or selected in accordance with Section 11, as the case may be, after
the Withdrawal of Withdrawing General Partner.
"Death of A Limited Partner". This term shall include: (1) the death of
any individual Limited Partner; (2) the loss of the State corporate charter in
the event of a corporate Limited Partner, or the order of dissolution by a Court
of competent jurisdiction or by any recognized process of dissolution as
provided by the laws of the State; (3) the termination of any trust which is, or
should become, a Limited Partner where the beneficiary does not elect to become
a Limited Partner; (4) the death of the trustor, grantor or settlor, as
described in Code Section 677, of any revocable or grantor-type trust which is,
or should become, a Limited Partner, or in the event of joint grantors, trustors
or settlers, upon the last to die of such joint grantors, trustors or settlors;
and (5) the liquidation and dissolution of a partnership which is, or should
become, a Limited Partner where the Partners do not elect to become Limited
Partners.
"Defaulting Limited Partner". Any Limited Partner determined, in the
sole discretion of the General Partners, to be in breach of Section 6.03 which
breach shall trigger the provisions of Section 10.14 when Notice is given to
such Limited Partner.
-46-
<PAGE> 47
"Equipment. The recently designed LithoTron(TM) lithotripter
machine manufactured in Switzerland, or other similar equipment.
"Exhibit A". The exhibit attached to this Agreement and designated
"Exhibit A", or any authorized and duly executed amended Exhibit A, as the case
may be, then in force.
"General Partner". The General Partner or the General Partners, as the
case may be, named in the Certificate as a General Partner, and such Persons who
have subsequently become a General Partner pursuant to the terms of this
Agreement. In the event the Partnership should have more than one General
Partner at any given time, then the term General Partner shall mean the Majority
in Interest of such General Partners unless otherwise indicated.
"Incapacity". When referring to a General Partner, any General Partner
that is a natural person who is totally physically or mentally unable to perform
any services, a permanent disability, to the Partnership.
"Incompetence". When referring to a General Partner, any General
Partner that is a natural person who has been judicially declared to be mentally
incompetent, or who has had a guardian or conservator appointed for him or his
property.
"Initial Capital Contributions. The initial property contributed to the
Partnership by each Partner upon the execution of this Agreement. The nature and
method of such contribution shall be separately set forth in the books and
records of the Partnership.
"Initial Partnership Capital". The sum of the Initial Capital
Contributions to the Partnership by tall of he Partners as set forth in the
books and records of the Partnership.
"Initial Partnership Capital Interest". As to each Partner, the
percentage of Initial Partnership Capital in the Partnership to which each
respective Partner is entitled, as set forth in the books and records of the
Partnership, which is determined by dividing such Partner's Initial Capital
Contribution by the Initial Partnership Capital.
-47-
<PAGE> 48
"Interest". All interests owned by a Partner in the Partnership,
including but not limited to, such Partner's Capital Account, Net Profits
Sharing Percentage, Net Losses Sharing Percentage, the right to receive
distributions of Property, etc.
"Limited Partner". The Limited Partner or Limited Partners, as the case
may be, as set forth in Exhibit A.
"LithoTron(TM) Lithotripter". The recently designed LithoTron(TM)
lithotripter machine manufactured in Switzerland.
"Liquidating Event". Such an event as defined in Section 12.01.
"Majority in Interest of General Partners". One or more General
Partners who, at the time, are entitled to an aggregate of more than fifty
percent (50%) of the Net Profits Sharing Percentages of the Partnership then
allocable to the General Partners.
"Majority in Interest of Limited Partners". One or more Limited
Partners who, at the time, are entitled to an aggregate of more than fifty
percent (50%) of the Net Profits Sharing Percentages of the Partnership then
allocable to the Limited Partners.
"Majority in Interest of Partners". Partners who, at the time, are
entitled to an aggregate of more than fifty percent (50%) of the Net Profits
Sharing Percentages of the Partnership then allocable to the Partners.
"Managing Partner". In the event the Partnership has more than one
General Partner, then and in that event the Majority in Interest of General
Partners may appoint a General Partner as the Managing Partner. A Notice of
appointment of Managing Partner signed by the General Partners shall be sent to
all Partners to effect such appointment. The Managing Partner may be similarly
removed by the Majority in Interest of General Partners. A new Managing Partner
may be similarly appointed by the Majority in Interest of General Partners.
"Net Losses". The Partnership loss as reflected on the annual U.S.
Partnership Return of Income (Form 1065).
"Net Losses Sharing Percentages". The percentages set forth in Exhibit
A that the Partners shall share in the Net Losses of the Partnership.
-48-
<PAGE> 49
"Net Profits". The Partnership income as reflected on the annual
U.S. Partnership Return of Income (Form 1065).
"Net Profits Sharing Percentages". The percentages set forth in
Exhibit A that the Partners shall share in the Net Profits of the Partnership.
"Notice". Any notice or other communication required to be given under
this Agreement to any Partner shall be in writing and sent by certified mail,
return receipt requested, or by overnight courier addressed to such Partner at
such Partner's last known address, as reflected by the records of the
Partnership. Such notice or other communication shall be deemed to have been
given, delivered and received upon the earlier of (1) the expiration of
seventy-two (72) hours after such mailing or (2) actual receipt.
"Operating Cash Flow". The ordinary income (loss) of the Partnership as
determined annually for the U.S. Partnership Return of Income (Form 1065) and
as reflected on the books and records of the Partnership at the close of each
Partnership accounting year, subject to the following additions and
subtractions:
a. Add thereto: (1) the amount of depreciation
deductions taken in computing such ordinary income (loss); and (2) all
non-taxable receipts of the Partnership (excluding Capital Contributions and the
proceeds of any mortgages, or of any other Partnership obligations or loans,
security deposits, or net casualty proceeds, to the extent used to finance
capital improvements or replacements);
b. Subtract therefrom: (1) payments upon the principal
of any mortgages on Property; (2) expenditures for the acquisition of Property
and for capital improvements or replacements (except to the extent financed
through Capital Contributions, mortgages on Property or any other Partnership
obligations or reserves previously set aside by the General Partners for such
purposes); and (3) such reserves for capital improvements, replacements and for
repairs, and to meet anticipated expenses as the General Partners shall deem to
be reasonably necessary in the efficient conduct of the Partnership business;
and
c. Add thereto: any other funds (including amounts
previously set aside as reserves by the General Partners, where and to the
extent the General Partners no longer regard such reserves to be reasonably
necessary in the efficient conduct of the
-49-
<PAGE> 50
Partnership business, but not including amounts arising from the sale of
Property) deemed available for distribution and designated as Operating Cash
Flow by the General Partners.
"Partners". All General Partners and Limited Partners collectively.
"Partner" means any one of the Partners and shall include the Representatives of
an Incapacitated, Incompetent, deceased or Bankrupt Partner; and in case a trust
should be, or later become, a Partner, the term "Partner" shall mean the trust
as such and not any of the trustees thereof.
"Partnership". The limited partnership created and governed by this
Agreement and the partnership continuing the business of this Partnership in the
event of dissolution as herein provided.
"Partnership Capital". On any given date, the sum total of all
Partners' Initial Capital Contributions, increased by (1) the Partnership's Net
Profits and (2) any additional Capital Contributions and decreased bail (a) the
Partnership's Net Losses and (b) distributions to all Partners, as reflected on
the books and records of the Partnership.
"Permitted Transfer". A Transfer of an Interest as permitted by Section
10.02.
"Person". Any natural person, general partnership, limited partnership,
joint venture, trust, estate, association, corporation, limited liability
company, or other legal entity.
"Property". All, or a part of, the assets, funds, real property and
personal property, owned by the Partnership.
"Regulations". The Treasury Regulations, including Temporary
Regulations, promulgated under the Code, as such regulations may be amended from
time to time, and including corresponding provisions of succeeding regulations.
"Representative". The legal representative, personal representative,
executor, administrator, successor, trustee guardian, conservator or assign of a
Partner, or the authorized officers of a corporate Partner, if applicable, as
the facts dictate and the context of a paragraph may require.
"State". The State of Texas.
-50-
<PAGE> 51
"Transfer". The sale, purchase, assignment, transfer, hypothecation
gift, pledge, exchange, or any disposition of all or any part of an Interest by
a Partner to any Person.
"Withdrawing General Partner". That General Partner, or the heirs,
successors, assigns, beneficiaries, shareholders or partners of a General
Partner, as the facts dictate and the context may require, who ceases to be a
General Partner due to the occurrence of any event set forth in Section 11.01 or
any Liquidating Event as set forth in this Agreement.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the day and year first above written.
"General Partners"
By: Litho Management, Inc.
a Texas corporation,
as general partner,
By: /s/ Steven K. House
-------------------------------
Steven K. House, President
By: HealthTronics, Inc.,
a Georgia corporation,
as general partner,
By: /s/ Roy S. Brown
-------------------------------
Roy S. Brown, President
-51-
<PAGE> 52
"Limited Partners"
/s/ Roy S. Brown
--------------------------------
HealthTronics, Inc.
a Georgia corporation
By: Roy S. Brown, President
/s/ John M. House, M.D.
--------------------------------
John M. House, M.D.
an individual
/s/ Scott Spoerl
--------------------------------
Scott Spoerl
an individual
/s/ H. Patterson Hezmall
--------------------------------
H. Patterson Hezmall, M.D.
an individual
/s/ David Ellis
--------------------------------
David Ellis, M.D.
an individual
-52-
<PAGE> 53
On this 1st, day of April, 1997, the undersigned acknowledged the
foregoing to be the schedule referred to in the Limited Partnership Agreement of
U.S. Lithotripsy, L.P.
"General Partners"
By: Litho Management, Inc.,
a Texas corporation,
as general partner,
By: Steven K. House
--------------------------------------
Steven K. House, President
By: HealthTronics, Inc.,
a Georgia corporation,
a general partner,
By: /s/ Roy S. Brown
----------------------------------
Roy S. Brown, President
"Limited Partners"
/s/ Roy S. Brown
--------------------------------------
HealthTronics, Inc.
a Georgia corporation
By: Roy S. Brown, President
/s/ John M. House
--------------------------------------
John M. House, MD.
an individual
/s/ Scott Spoerl
--------------------------------------
Scott Spoerl
an individual
/s/ H. Patterson Hezmall
--------------------------------------
H. Patterson Hezmall
an individual
/s/ David Ellis, M.D.
--------------------------------------
David Ellis, M.D.
an individual
-53-
<PAGE> 1
EXHIBIT 21.1
HEALTHTRONICS, INC.
SCHEDULE OF SUBSIDIARIES
Tenn-Ga Prostate Therapies, LLC Limited Liability Corporations
Litho Management, Inc. Corporation
U.S. Lithotripsy, L.P. Limited Partnership
Metro I Stone Management, Ltd. Limited Partnership
Mississippi Valley I Stone Management, L.P. Limited Partnership
East Texas I Stone Management, Ltd. Limited Partnership
Dallas Stone Management, L.P. Limited Partnership
S.C. Missouri Stone Management, L.P. Limited Partnership
Tulsa Stone Management, L.P. Limited Partnership
Tyler Stone Services, L.P. Limited Partnership
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports dated March 6, 1998 and August 7, 1998, with respect to the
consolidated financial statements of HealthTronics, Inc. and Subsidiaries and of
Litho Management, Inc. and Subsidiaries, respectively, included in the
Registration Statement (Form SB-2) and the related Prospectus of HealthTronics,
Inc. for the registration of 1,000,000 shares of its common stock.
/s/ Ernst & Young LLP
Atlanta, Georgia
November 3, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF HEALTHTRONICS, INC. FOR THE PERIOD ENDED JUNE 30,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-END> DEC-31-1997 JUN-30-1998
<CASH> 1,796,694 1,129,449
<SECURITIES> 0 0
<RECEIVABLES> 1,058,396 2,148,394
<ALLOWANCES> 0 0
<INVENTORY> 1,465,887 1,463,053
<CURRENT-ASSETS> 5,528,547 5,221,615
<PP&E> 1,117,972 3,216,573
<DEPRECIATION> 143,090 326,587
<TOTAL-ASSETS> 6,946,931 11,279,851
<CURRENT-LIABILITIES> 2,615,239 2,993,928
<BONDS> 0 0
0 0
0 0
<COMMON> 4,343,000 6,503,000
<OTHER-SE> (983,561) (214,738)
<TOTAL-LIABILITY-AND-EQUITY> 6,946,931 11,279,851
<SALES> 5,062,104 5,766,774
<TOTAL-REVENUES> 5,062,104 6,769,032
<CGS> 3,263,233 3,282,862
<TOTAL-COSTS> 5,450,664 5,511,228
<OTHER-EXPENSES> (8,966) 393,737
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 38,434 29,635
<INCOME-PRETAX> (418,028) 834,432
<INCOME-TAX> 0 65,609
<INCOME-CONTINUING> (418,028) 768,823
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (418,028) 768,823
<EPS-PRIMARY> (0.05) 0.09
<EPS-DILUTED> (0.05) 0.08
</TABLE>
<PAGE> 1
EXHIBIT 99.1
(LETTERHEAD)
Ms. Marie E. Marlow
Vice President, Clinical and Regulatory Affairs
HealthTronics, Inc.
425 Franklin Road, Suite 545
Marietta, Georgia 30067
Re: P970019
LithoTron(TM) Lithotripsy System
Dated: May 16, 1997
Amended: June 10, 1997
Dear Ms. Marlow:
The Center for Devices and Radiological Health (CDRH) of the Food and Drug
Administration (FDA) has reviewed your premarket approval application (PMA)
which requests approval for the LithoTron(TM) Lithotripsy System. We are
pleased to inform you that CDRH has determined that the PMA is approvable
subject to an FDA inspection that finds the manufacturing facilities, methods
and controls in compliance with the applicable device Good Manufacturing
Practice Regulations (21 CFR Part 820). Where appropriate, please amend the PMA
to include any relevant information regarding the manufacturing facilities,
methods or controls not previously submitted. If you have a manufacturing
facility which is not prepared for production of the device, amend the PMA as
soon as possible and notify your District Office to indicate when the facility
will be prepared to produce the device so that the FDA inspection can be
rescheduled. If you have any questions regarding the status of your GMP
inspection please contact your District Office or the Office of Compliance at
(301) 594-4695.
CDRH will issue an approval order after the inspectional findings have been
reviewed and determined to be acceptable. You may not begin commercial
distribution of the device manufactured at your facility until you have
received an approval order.
There are other options in lieu of amending the PMA as indicated above and/or
awaiting a CDRH approval decision based upon the findings of an FDA inspection
of the manufacturing facility. You may choose to withdraw the PMA or you may
treat this letter as a formal denial of approval. If you choose the latter, you
may request administrative review, either through a hearing or review by an
independent advisory committee, under section 515(d)(3) and 515(g) of the
Federal Food, Drug, and Cosmetic Act by filing a petition with the Food and
Drug Administration, Dockets Management Branch (HFA-305), Room 1-23, 12420
Parklawn Drive, Rockville, Maryland 20857, within 30 days of the date you
receive this letter. A petition for administrative review must be submitted in
accordance with general administrative procedures for submission of documents
to the Dockets Management Branch (21 CFR 10.20) and in the form of a petition
for reconsideration (21 CFR 10.33). After reviewing the petition, FDA will
decide whether to grant or deny the petition and will publish a
<PAGE> 2
Page 2 - Ms. Marie E. Marlow
notice of its decision in the FEDERAL REGISTER. If FDA grants the petition, the
notice will state the issues to be reviewed, the form of the review to be used,
the persons who may participate in the review, the time and place where the
review will occur, and other details.
All amendments to the PMA should be submitted in triplicate to the address
below and reference the above PMA number to facilitate processing.
PMA Document Mail Center (HFZ-401)
Center for Devices and Radiological Health
Food and Drug Administration
9200 Corporate Boulevard
Rockville, Maryland 20850
If you have any questions concerning this approvable letter, please contact
Russell P. Pagano, Ph.D., at (301) 594-2194.
Sincerely yours,
/s/ Kimber Richter, M.D.
--------------------------------
Kimber Richter, M.D.
Deputy Director, Clinical
and Review Policy
Office of Device Evaluation
Center for Devices and
Radiological Health
<PAGE> 3
[Letterhead]
Ms. Marie E. Marlow
Vice President, Clinical and Regulatory Affairs
HealthTronics, Inc.
425 Franklin Road Suite 545
Marietta, Georgia 30067
Re: G960122/S9
LithoTron(TM) Lithotripsy System
Indications for Use: For use in patients with renal and upper ureteral
calculi between 4 and 20 mm in size
Dated: December 19, 1997
Received: December 24, 1997
HCFA Reimbursement Category: B2
Dear Ms. Marlow:
The Food and Drug Administration (FDA) acknowledges the termination of your
investigation and the submission of the final report.
FDA now considers this IDE application closed.
Sincerely yours,
/s/ Carolyn Y. Newland
-------------------------------
for Lillian Yin, Ph.D.
Director, Division of Reproductive,
Abdominal, Ear, Nose and Throat,
and Radiological Devices
Office of Device Evaluation
Center for Devices and
Radiological Health
<PAGE> 4
[Letterhead]
November 06, 1997
MARIE E. MARLOW
HEALTHTRONICS, INC.
425 FRANKLIN ROAD,
SUITE 545
MARIETTA, GA 30067
Dear MRS. MARLOW:
On 04-NOV-97 you contacted the Center for Devices and Radiological Health (CDRH)
of the Food and Drug Administration (FDA) to determine if a proposed PMA
supplement qualifies for review under the "Real-Time" Review Program. CDRH has
determined that your submission has been accepted for "Real-Time" review. To
facilitate tracking of either of these decisions, CDRH has assigned the future
PMA supplement a unique document control number, P970019/001. Please include
that PMA supplement number in the cover letter of your future PMA supplement.
If your request for "Real-Time" review has been accepted, include in the cover
letter for the actual submission in the header - "REAL-TIME" REVIEW. You may be
requested to submit additional copies of the supplement to permit review in the
"Real-Time" format. Any identical extra copies should be clearly bolded -
"REAL-TIME" REVIEW EXTRA COPIES and should include the name of the Division or
Branch contact person and be addressed directly to the Division or Branch.
Any questions concerning this acknowledgment letter should be directed to the
undersigned at (301)594-5072. all future correspondence regarding this PMA
supplement should be identified with the PMA supplement number assigned above
and should be submitted with the required number of copies to:
PMA Document Mail Center (HFZ-401)
Center for Devices and Radiological Health
Food and Drug Administration
9200 Corporate Blvd.
Rockville, Maryland 20850
Sincerely,
/s/ Contractor Jeffrey B. Barge
Peter Zaudtke
Acting Program Manager
Division of Reproductive, Abdominal,
Ear, Nose and Throat, and
Radiological Devices
Office of Device Evaluation
Center for Devices and
Radiological Health
<PAGE> 5
[LETTERHEAD]
Ms. Marie Marlow
Vice President, Clinical and Regulatory Affairs
HealthTronics
425 Franklin Road Suite 545
Marietta, Georgia 30067
Re: P970019/S1
LithoTron(TM) Lithotripsy System
Filed: November 5, 1997
Dear Ms. Marlow:
The Center for Devices and Radiological Health (CDRH) of the Food and Drug
Administration (FDA) has completed its evaluation of your premarket approval
application (PMA) supplement which qualified for review under the Real-Time
Review Program. We have reviewed your application during a teleconference on
November 10.
Your supplement requested approval to offer the HealthTronics
LithoTron(TM)Lithotripsy System in both a mobile and transportable version.
Based upon the information submitted, the PMA supplement is approved subject to
the conditions described below and in the "Conditions of Approval" (enclosed).
You may begin commercial distribution of the device as modified by your PMA
supplement upon receipt of this letter.
The sale, distribution, and use of this device are restricted to prescription
use in accordance with 21 CFR 801.109 within the meaning of section 520(c) of
the Federal Food, Drug, and Cosmetic act (the act) under the authority of
section 515(d)(1)(B)(ii) of the act. FDA has also determined that to ensure the
safe and effective use of the device that the device is further restricted
within the meaning of section 520(e) under the authority of section
515(d)(1)(B)(ii), (1) insofar as the labeling specify the requirements that
apply to the training of practitioners who may use the device as approved in
this order and (2) insofar as the sale, distribution, and use must not violate
sections 502(q) and (r) of the act.
failure to comply with the conditions of approval as attached invalidates this
approval order. Commercial distribution of a device that is not in compliance
with these conditions is a violation of the act.
You are reminded that as soon as possible, and before commercial distribution
of your device, that you must submit an amendment to this PMA submission with
copies of all approved labeling in final printed form.
<PAGE> 6
Page 2 - Ms. Marie Marlow
All required documents should be submitted in triplicate, unless otherwise
specified, to the address below and reference the above PMA number to facilitate
processing.
PMA Document Mail Center (HFZ-401)
Center for Devices and Radiological Health
Food and Drug Administration
9200 Corporate Blvd.
Rockville, Maryland 20850
We are interested in continuing to improve the Real-Time PMA Program. If you
have any suggestions for how we can modify it, please send a facsimile to Bonnie
Markovitz at (301) 827-2930 or an electronic message to her at [email protected]
at CDRH.
If you have questions concerning this approval order, please contact Russell
Pagano, Ph.D., at (301) 589-2194.
Sincerely yours,
/s/ Robert R. Nothing
-----------------------
for Lillian Yin. Ph.D.
Director. Division of Reproductive,
Abdominal, Ear, Nose and Throat,
and Radiological Devices
Office of Device Evaluation
Center for Devices and
Radiological Health
Enclosure
<PAGE> 7
[Letterhead]
Ms. Marie E. Marlow
Vice President, Clinical and Regulatory Affairs
HealthTronics, Inc.
425 Franklin Road, Suite 545
Marietta, Georgia 30067
Re: P970019
LithoTron(TM) Lithotripsy System
Filed: May 16, 1997
Amended: June 10, 1997
Dear Ms. Marlow:
The Center for Devices and Radiological Health (CDRH) of the Food and Drug
Administration (FDA) has completed its review of your premarket approval
application (PMA) for the LithoTron(TM) Lithotripsy System. This device is
indicated for use in patients with renal and upper ureteral calculi between 4
and 20 mm in size. We are pleased to inform you that the PMA is approved
subject to the conditions described below and in the "Conditions of Approval"
(enclosed). You may begin commercial distribution of the device upon receipt of
this letter.
The sale, distribution, and use of this device are restricted to prescription
use in accordance with 21 CFR 801.109 within the meaning of section 520(e) of
the Federal Food, Drug, and Cosmetic Act (the act) under the authority of
section 515(d)(1)(B)(ii) of the act. FDA has also determined that to ensure the
safe and effective use of the device that the device is further restricted
within the meaning of section 520(e) under the authority of section
515(d)(1)(B)(ii), (1) insofar as the labeling specify the requirements that
apply to the training of practitioners who may use the device as approved in
this order and (2) insofar as the sale, distribution, and use must not violate
sections 502(q) and (r) of the act.
In addition to the postapproval requirements in the enclosure, you have agreed
to develop a protocol to collect long-term data to study the effect of your
device on hypertension to fulfill the postapproval study requirements. The
postapproval reports shall include a summary of your progress regarding the
completion of the postapproval study requirements, including any available
results.
CDRH will publish a notice of its decision to approve your PMA in the FEDERAL
REGISTER. The notice will state that a summary of the safety and effectiveness
data upon which the approval is based is available to the public upon request.
Within 30 days of publication of the notice of approval in the FEDERAL
REGISTER, any interested person may seek review of this decision by requesting
an opportunity for administrative review, either through a hearing or review by
an independent advisory committee, under section 515(g) of the act.
<PAGE> 8
Page 2 - Ms. Marie E. Marlow
Failure to comply with the conditions of approval invalidates this approval
order. Commercial distribution of a device that is not in compliance with these
conditions is a violation of the act.
You are reminded that as soon as possible, and before commercial distribution
of your device, that you must submit an amendment to this PMA submission with
copies of all approved labeling in final printed form.
All required documents should be submitted in triplicate, unless otherwise
specified, to the address below and should reference the above PMA number to
facilitate processing.
PMA Document Mail Center (HFZ-401)
Center for Devices and Radiological Health
Food and Drug Administration
9200 Corporate Boulevard
Rockville, Maryland 20850
If you have any questions concerning this approval order, please contact
Russell P. Pagano, Ph.D., at (301) 594-2194.
Sincerely yours,
/s/ Kimber C. Richter
-------------------------
Kimber Richter, M.D.
Deputy Director, Clinical
and Review Policy
Office of Device Evaluation
Center for Devices and
Radiological Health
Enclosure
<PAGE> 9
[Letterhead]
Ms. Marie E. Marlow
Vice President, Clinical and Regulatory Affairs
HealthTronics, Inc.
425 Franklin Road, Suite 545
Marietta, Georgia 30067
Re: G960122/S8
LithoTron(TM) Lithotripsy System
Dated: July 11, 1997
Received: July 15, 1997
The Food and Drug Administration (FDA) has reviewed the supplement to your
investigational device exemptions (IDE) application proposing an expansion of
your investigation to include an additional 100 subjects. Your supplement is
approved and you may implement that change at an institution in accordance with
the investigational site waiver granted in our July 5, 1996, letter, amended to
reflect a limit of 400 subjects. Your investigation is now limited to 4
institutions and 400 subjects.
We would like to point out that FDA approval of your IDE supplement does not
imply that this investigation will develop sufficient safety and effectiveness
data to assure FDA approval of a premarket approval (PMA) application for this
device. You may obtain the guideline for the preparation of a PMA application,
entitled "Premarket Approval (PMA) Manual," from the Division of Small
Manufacturers Assistance at its toll-free number (800) 638-2041 or
(301) 443-6597.
If you have any questions, please contact Russell Pagano, Ph.D., at (301)
594-2194.
Sincerely yours,
/s/ Robert R. Malting
---------------------------
Lillian Yin, Ph.D.
Director, Division of Reproductive,
Abdominal, Ear, Nose and Throat,
and Radiological Devices
Office of Device Evaluation
Center for Devices and
Radiological Health
<PAGE> 10
[Letterhead]
Ms. Marie E. Marlow
Vice President, Clinical and Regulatory Affairs
HealthTronics, Inc.
425 Franklin Road, Suite 545
Marietta, Georgia 30067
RE: P970019
LithoTron(TM) Lithotripsy System
Dated: May 16, 1997
Amended: June 10, 1997
Dear Ms. Marlow:
The Center for Devices and Radiological Health (CDRH) of the Food and Drug
Administration (FDA) has reviewed your premarket approval application (PMA)
which requests approval for the LithoTron(TM) Lithotripsy System. We are pleased
to inform you that CDRH has determined that the PMA is approvable subject to an
FDA inspection that finds the manufacturing facilities, methods and controls
in compliance with the applicable device Good Manufacturing Practice Regulations
(21 CFR Part 820). Where appropriate, please amend the PMA to include any
relevant information regarding the manufacturing facilities, methods or controls
not previously submitted. If you have a manufacturing facility which is not
prepared for production of the device, amend the PMA as soon as possible and
notify your District Office to indicate when the facility will be prepared to
produce the device so that the FDA inspection can be rescheduled. If you have
any questions regarding the status of your GMP inspection please contact your
District Office or the Office of Compliance at (301) 594-4695.
CDRH will issue an approval order after the inspectional findings have been
reviewed and determined to be acceptable. You may not begin commercial
distribution of the device manufactured at your facility until you have received
an approval order.
There are other options in lieu of amending the PMA as indicated above and/or
awaiting a CDRH approval decision based upon the findings of an FDA inspection
of the manufacturing facility. You amy choose to withdraw the PMA or you may
treat this letter as a formal denial of approval. If you choose the latter, you
may request administrative review, either through a hearing or review by an
independent advisory committee, under section 515(d)(3) and 515(g) of the
Federal Food, Drug, and Cosmetic Act by filing a petition with the Food and Drug
Administration, Dockets Management Branch (HFA-305), Room 1-23, 12420 Parklawn
Drive, Rockville, Maryland 20857, within 30 days of the date you receive this
letter. A petition for administrative review must be submitted in accordance
with general administrative procedures for submission of documents to the
Dockets Management Branch (21 CFR 10.20) and in the form of a petition for
reconsideration (21 CFR 10.33). After reviewing the petition, FDA will decide
whether to grant or deny the petition and will publish a notice
<PAGE> 11
Page 2 - Ms. Marie E. Marlow
of its decision in the FEDERAL REGISTER. If FDA grants the petition, the notice
will state the issues to be reviewed, the form of the review to be used, the
persons who may participate in the review, the time and place where the review
will occur, and other details.
All amendments to the PMA should be submitted in triplicate to the address below
and reference the above PMA number to facilitate processing.
PMA Document Mail Center (HFZ-401)
Center for Devices and Radiological Health
Food and Drug Administration
9200 Corporate Boulevard
Rockville, Maryland 20850
If you have any questions concerning this approvable letter, please contact
Russell P. Pagano, Ph.D., at (301) 594-2194.
Sincerely yours,
/s/ Kimber Richter, M.D.
---------------------------
Kimber Richter, M.D.
Deputy Director, Clinical
and Review Policy
Office of Device Evaluation
Center for Devices and
Radiological Health
<PAGE> 12
[Letterhead]
Ms. Marie E. Marlow
Vice President, Clinical and Regulatory Affairs
HealthTronics
13 West Park Square Suite B
Marietta, Georgia 30060
RE: G960122/S7
LithoTron(TM) Lithotripsy System
Dated: March 12, 1997
Amended Received: March 17, 1997
Dear Ms. Marlow:
The Food and Drug Administration (FDA) has reviewed the supplement to your
investigational device exemptions (IDE) application proposing to treat a single
additional patient who does not meet the inclusion criteria. Your supplement is
approved and you may enroll this patient at the Cape Girardeau site in
accordance with the investigational site waiver granted in our July 5, 1996,
letter. Your investigation is still limited to 4 institutions and 300 subjects.
Since FDA believes this change affects the rights, safety or welfare of the
subject, you must also obtain institutional review board (IRB) approval before
implementing this change in your investigation (21 CFR 812.35(a)).
We would like to point out that FDA approval of your IDE supplement does not
imply that this investigation will develop sufficient safety and effectiveness
data to assure FDA approval of a premarket approval (PMA) application for this
device. You may obtain the guideline for the preparation of a PMA application,
entitled "Premarket Approval (PMA) Manual," from the Division of Small
Manufacturers Assistance at its toll-free number (800) 638-2041 or (301)
443-6597.
If you have any questions, please contact Russell P. Pagano, Ph.D., at (301)
594-2194.
Sincerely yours,
/s/ Robert R. Ratling
-------------------------------------
Lillian Yin, Ph.D.
Director, Division of Reproductive,
Abdominal, Ear, Nose and Throat,
and Radiological Devices
Office of Device Evaluation
Center for Devices and
Radiological Health
<PAGE> 13
[LETTERHEAD]
Ms. Marie E. Marlow
Vice President, Clinical and Regulatory Affairs
HealthTronics
13 West Park Square Suite B
Marietta, Georgia 30060
Re: G960122/S6
LithoTron(TM) Lithotripsy System
Dated: January 2, 1997
Received: January 3, 1997
Dear Ms. Marlow:
The Food and Drug Administration (FDA) has reviewed the supplement to your
investigational device exemptions (IDE) application proposing an expansion of
your investigation to 300 subjects. Your supplement is approved and you may
implement that change at an institution in accordance with the investigational
site waiver granted in our July 5, 1996, letter. Your investigation is now
limited to 4 institutions and 300 subjects.
We would like to point out that FDA approval of your IDE supplement does not
imply that this investigation will develop sufficient safety and effectiveness
data to assure FDA approval of a premarket approval (PMA) application for this
device. You may obtain the guideline for the preparation of a PMA application,
entitled "Premarket Approval (PMA) Manual," from the Division of Small
Manufacturers Assistance at its toll-free number (800) 638-2041 or (301)
443-6597.
If you have any questions, please contact Russell P. Pagano, Ph.D., at (301)
594-2194.
Sincerely yours,
/s/ Robert R. Ratling
---------------------------------
Lillian Yin, Ph.D.
Director, Division of Reproductive,
Abdominal, Ear, Nose and Throat,
and Radiological Devices
Office of Device Evaluation
Center for Devices and
Radiological Health
<PAGE> 14
DEPARTMENT OF HEALTH & HUMAN SERVICES Public Health Service
Food and Drug Administration
9200 Corporate Boulevard
Rockville MD 20850
Ms. Marie E. Marlow
Vice President, Clinical and Regulatory Affairs
HealthTronics, Inc.
13 West Park Square Suite B
Marietta, Georgia 30060
Re: G960122/S4
LithoTron (TM) Lithotripsy System
Dated: November 1, 1996
Received: November 1, 1996
Dear Ms. Marlow:
The Food and Drug Administration (FDA) has reviewed the supplement to your
investigational device exemptions (IDE) application. You have corrected the
deficiencies cited in our August 13, 1996, conditional approval letter.
Therefore, your application is approved and you may continue your investigation
at the institutions enrolled in accordance with the investigational site waiver
granted in our July 5, 1996, letter. Your investigation is still limited to 4
institutions and 200 subjects.
You should also give serious consideration to the following item which is
considered important for the analysis of your data for the purposes of
determining safety and effectiveness for a future PMA application:
FDA recommends that you verify the pressure values of your shockwave
testing by performing 2 additional pressure tests with a reference
hydrophone. These tests should be done at 2 new kV values; we recommend
that the minimum (14 kV) and maximum (26 kV) voltages be measured. In
addition, please be aware that, at the time of your PMA submission, FDA
will recommend modifying your device labeling to include a description of
the axial shift in the p+ position as the kV level is changed.
If you have any questions, please contact Russell P. Pagano, Ph.D., at
(301) 594-2194.
Sincerely yours,
/s/ ROBERT R. RATLING for
Lillian Yin, Ph.D.
Director, Division of Reproductive,
Abdominal, Ear, Nose and Throat,
and Radiological Devices
Office of Device Evaluation
Center for Devices and
Radiological Health
<PAGE> 15
[LETTERHEAD]
Ms. Marie E. Marlow
Technical Advisor
BRI International, Inc.
15825 Shady Grove Road, Suite 130
Rockville, Maryland 20850
Re: G960122/S1
LithoTron(TM) Lithotripsy System
Dated: July 17, 1996
Received: July 17, 1996
Dear Ms. Marlow:
The Food and Drug Administration (FDA) has reviewed the supplement to your
investigational device exemptions (IDE) application. Your application remains
conditionally approved because your supplement adequately addressed only
deficiencies 3, 4, 5, 6, 7, and 8 cited in our July 5, 1996, letter. You may
continue your investigation, using a revised informed consent document which
corrects deficiency number 1, at the institutions enrolled in accordance with
the investigational site waiver granted in our July 5th letter. Your
investigation is still limited to 4 institutions and 200 subjects.
This approval is being granted on the condition that, within 45 days from the
date of this letter, you submit information correcting the following
deficiencies:
1. Your response to Question 1a of the July 5 letter does not sufficiently
reflect that the device is under investigational study; please provide a
modified statement that better illustrates this point.
2. Your response to Question 2c of the July 5 letter is incomplete. Please add
a Warning stating that bilateral treatment of a patient's kidneys should not
be performed at any one procedure.
3. It was unclear in your original application whether or not the device
utilized software; however, your response to Questions 2h and 2i, have
raised new issues concerning the development, verification, and validation
of any software used in the device should be presented. We have enclosed the
REVIEWER GUIDANCE FOR COMPUTER CONTROLLED MEDICAL DEVICES to assist you in
your presentation of this information. This information is being requested
since failure of the software could lead to an electrode being overused.
This situation could then result in erratic shock wave generation and/or
damage to the shock wave system.
<PAGE> 16
Page 2 - Ms. Marie E. Marlow
4. Your responses to Questions 9b and 9c are unclear. Please submit the
information requested in Section 2.2.3. of the DRAFT OF SUGGESTED
INFORMATION FOR REPORTING EXTRACORPOREAL SHOCK WAVE LITHOTRIPSY DEVICE SHOCK
WAVE MEASUREMENTS (enclosed in the July 5 letter). Specifically, this
information reporting the peak pressure location as a function of the
generator output setting will help to address FDA's concern that the
variation in the location of peak pressure with kV setting is not outside
the range of acceptable parameters for this type of device. Dr. Gerald
Harris of the Office of Science and Technology has agreed to discuss in
depth with you FDA's concerns over the responses to 9b and 9c. He can be
reached directly at (301) 443-6113.
5. Please clarify whether you plan to follow patients who develop hematomas
and/or hypertension until these conditions have resolved.
This information should be identified as an IDE supplement referencing the IDE
number above, and must be submitted in triplicate to:
IDE Document Mail Center (HFZ-401)
Center for Devices and Radiological Health
Food and Drug Administration
9200 Corporate Boulevard
Rockville, Maryland 20850
If you do not provide this information within 45 days from the date of this
letter, we may take steps to propose withdrawal of approval of your IDE
application.
You should also give serious consideration to the following items which are
considered important for the analysis of your data for the purposes of
determining safety and effectiveness of a future PMA submission:
1. Although this supplement did not address the PMA concerns presented in the
July 5 letter, please be aware that these issues will still need to be
addressed when you submit your PMA. We strongly encourage you to address
these issues as soon as possible to avoid potential problems during the
review of your PMA.
2. Please be aware that the data from the testing that supports your table
weight limit should be presented and summarized when you submit your PMA.
<PAGE> 17
Page 3 - Ms. Marie E. Marlow
If you have any questions, please contact Russell Pagano, Ph.D., at (301)
594-2194.
Sincerely yours,
/s/ LILLIAN YIN
----------------------------------
Lillian Yin, Ph.D.
Director, Division of Reproductive,
Abdominal, Ear, Nose and Throat,
and Radiological Devices
Office of Device Evaluation
Center for Devices and
Radiological Health
Enclosure
<PAGE> 18
(LOGO) DEPARTMENT OF HEALTH & HUMAN SERVICES PUBLIC HEALTH SERVICES
Food and Drug Administration
9200 Corporate Boulevard
Rockville MD 20850
Ms. Suzanne E. Setzer
Clinical Monitor
HealthTronics, Inc.
13 West Park Square, Suite B
Marietta, Georgia 30060
Re: G960122
LithoTron(TM) Lithotripsy System
Indications for use: For the fragmentation of upper
urinary tract calculi
Dated: June 6, 1996
Received: June 7, 1996
HCFA Reimbursement Category: B2
Dear Ms. Setzer:
The Food and Drug Administration (FDA) has reviewed your investigational device
exemptions (IDE) application. Your application is conditionally approved, and
you may begin your investigation, using a revised informed consent document
which corrects deficiency number 1, at an institution in accordance with the
investigational site waiver granted below. Your investigation is limited to 4
institutions and 200 subjects.
This approval is being granted on the condition that, within 45 days from the
date of this letter, you submit information correcting the following
deficiencies:
Informed Consent Form:
1. Please revise your informed consent document as indicated below:
a. The "Study Description" section contains language which
appears to promote the LithoTron(TM) as being safe and
effective. Specifically, paragraph 1 of page 2 states that the
design of the device "improves the precise focusing of the
shock wave energy onto the stone, lessening the amount of
energy passing through surrounding tissue." Please revise this
form to make it clear that the safety and effectiveness of the
LithoTron(TM) is not known at the present time;
b. The "Study Description" section (paragraph 3 of page 2)
indicates that no side effects from the use of the device are
expected. Since lithotripsy can cause a variety of adverse
events, this statement should either be removed or
appropriately qualified to specifically state that few
long-term (i.e., > 3 months) complications are expected;
c. The "Risks" section should be revised to include the
possibility of nephrectomy;
<PAGE> 19
Page 2 - Ms. Suzanne E. Setzer
d. Several of the medical terms used in the "Risks" section
should be defined for the layperson (e.g., renal colic,
perirenal hematoma); and
e. The point-of-view in the informed consent document continually
changes from the first to the second person (i.e., "I" versus
"you"). To make the document more reader-friendly, this form
should be rewritten using only one point-of-view.
Labeling:
2. Please revise your LithoTron(TM) user's manual as indicated below:
a. The manual should include the required investigational use
caution statement and the prescription device caution
statement;
b. The indications for use of the device, as stated in the
labeling, should be revised to be consistent with those of the
protocol ( i.e., use in patients with upper urinary tract
calculi). Currently, the labeling (pages 1-4 and 3-4) states
that the device is for "all stones in the urinary system";
c. The manual should include the standard contraindications,
warnings, and precautions that are in the manuals of other
extracorporeal shock wave lithotripters;
d. Since the device is restricted to adults in the proposed
clinical study, all references to the safe and effective
treatment of children should be removed from the manual (e.g.,
pages 1-5 and 2-2);
e. The manual should include a statement that radiation exposure
to the patient and clinical personnel should be minimized;
f. The labeling should state the maximum patient weight that can
be supported by the treatment table. This maximum weight
should be based on the results of actual testing;
g. Since the study proposes to limit treatment power to a maximum
of 26 kV, the labeling should be revised to include a warning
statement that higher power levels should not be used.
Currently, several pages of the manual refer to the use of
treatment powers of up to 28 kV (e.g., 1-5, 1-11, and 2-16);
h. The manual provides a relationship between the maximum number
of shocks per electrode and the kV used (see pages 1-5 and
2-3). In order to be included in the labeling, data should be
submitted to verify this relationship. Information on any
software used to calculate the electrode erosion (page 34)
should also be presented;
<PAGE> 20
Page 3 - Ms. Suzanne E. Setzer
i. The manual states that the LithoTron(TM) is capable of
triggering shocks in both a single ECG and a double ECG mode.
However, unless data are provided demonstrating that the
double ECG triggering mode does not present a significant
risk, this device capability should be disabled; and
j. The manual should include a warning stating that treatment
should be limited to a maximum of 3000 shocks. The manual
should also state that patients are limited to a maximum of
three consecutive treatments to the same region with a minimum
of 30 days between treatments.
3. Please revise your one-page investigator's agreement to specifically
reference the six-page addendum. This will help ensure that the
investigators fully understand their study responsibilities.
Study Design:
4. Please modify your Inclusion/Exclusion criteria as follows:
a. To be included in the study, women of child-bearing potential
must have a negative pregnancy test;
b. Patients with middle or lower ureteral stones should be
excluded. Please note that FDA defines middle ureteral stones
as those that overlay the bony pelvis;
c. Patients with unresolved urinary tract infections should be
excluded; and
d. Patients who have failed previous ESWL therapy and those with
impacted stones should be excluded.
5. Please address the following concerns about your adverse event
reporting plan:
a. You should justify your 2.5 cm cutoff for ecchymosis to be
considered an adverse event;
b. It is unclear what constitutes "severe" pain. In order to
assure uniform (and statistically poolable) reporting of this
event, please present a clear definition for both FDA and the
investigators; and
c. We recommend that you add skin redness/bruising, nausea and/or
vomiting, and cardiac arrhythmia to the adverse event section
and appropriate forms.
6. We strongly recommend that you add a one month follow-up visit. This
will give you a tighter window in which to report on the effectiveness
and safety parameters of your study. In addition, it is unclear how you
<PAGE> 21
Page 4 - Ms. Suzanne E. Setzer
plan to utilize your retreatment schedule (30 day interval between
treatments) if you do not include this one month follow-up visit.
7. Please modify your pre-treatment evaluation to include either an IVP or
a KUB and ultrasound (as opposed to the current plan which calls for
just a KUB).
8. Please modify your evaluation protocols to state that, if infection is
indicated by the urinalysis, a urine culture should be performed.
9. Please correct and comment (where appropriate) on the following
inconsistencies in your presentation of the shock wave characteristics
of the LithoTron(TM):
a. On page 12 of the Sonic Technologies report, the rise time of
your device is listed as 139.5 ns, while Appendix F (page
1-14) lists the rise time as < 10 ns. Please clarify this
inconsistency. If the 139.5 ns time is correct, please comment
on this figure since it is on the long end of the scale for
your type of device;
b. Figure 7 of the Sonic Technologies report shows the peak
compressional and rarefactional pressures to be between 23 and
29 MPa over a kV range of 16 to 28. Please explain why the
pressure does not change significantly as the kV setting is
increased. Also, Appendix F (page 1-14) lists the peak
pressure as 35 - 60 MPa. Please correct this discrepancy;
c. Page 14 of the Sonic Technologies report states that the
maximum compressional pressure was found to be 9 mm away from
the system reference position (in the z-direction). Please
discuss whether this fact is expected to have any influence on
the safety or effectiveness of the device;
d. Please explain why the beam was found to be asymmetric (pages
14 to 18, Sonic Technologies report). Also, Appendix F (page 1
- 14) states the focus size to be 8 mm in the lateral
dimension at 20 kV. This implies that the beam is symmetric.
Please correct this discrepancy; and
e. Your application lists the axial focal dimension as 35 mm
(page 19, Sonic Technologies), 38 mm (page 1-14, Appendix F),
and 55 mm (page 3, Report of Prior Investigations). Please
correct these discrepancies.
This information should be identified as an IDE supplement referencing the IDE
number above. and must be submitted in triplicate to:
IDE Document Mail Center (HFZ-401)
Center for Devices and Radiological Health
Food and Drug Administration
<PAGE> 22
Page 5 - Ms. Suzanne E. Setzer
9200 Corporate Boulevard
Rockville, Maryland 20850
If you do not provide this information within 45 days from the date of this
letter, we may take steps to propose withdrawal of approval of your IDE
application.
FDA will waive those requirements regarding the submission and prior FDA
approval of a supplemental application and receipt of certification of
institutional review board (IRB) approval for the addition of investigational
sites (21 CFR 812.35(b)) provided:
1. The total number of investigational sites does not exceed 4, and the
number of subjects does not exceed 200.
2. You maintain current records on:
a. the names and addresses of all investigational sites,
b. the names and addresses of all investigators, identifying
those that are currently participating,
c. the names, addresses and chairpersons of all IRBs,
d. the dates of the IRB approvals, and
e. the dates of first shipment or first use of investigational
devices for all participating institutions.
3. Within 5 days of reaching the investigational site limit, you submit to
FDA a current list containing the information specified in 2(a-e)
above.
4. The current investigator list to be submitted to FDA at 6-month
intervals (21 CFR 812.150(b)(4)) will contain the information specified
in 2(a-e) above.
5. You submit to FDA, within 2 days of receipt of a request by FDA, a
current list containing the information specified in 2(a-e) above.
6. The reviewing IRB does not require any significant changes in the
investigational plan or in the informed consent, that is, require any
change which may increase the risks to subjects or affect the
scientific soundness of the study. (Please note: If a significant
change is requested, this change must be submitted to FDA for review
and approval prior to initiating the study at that investigational
site.) Minor changes requested by the IRB may be made without prior FDA
approval.
If you agree to these conditions, you may begin an investigation at a new
investigational site after the IRB has approved the investigation. No
documentation should be submitted for any institution within the approved limit
until the investigational site limit is reached or the 6-month current
investigator list is due. FDA assumes that you have agreed to the conditions of
this waiver unless you specifically notify us in writing of your disagreement.
Please note, however, that you must submit a supplemental IDE application, and
receive FDA approval, prior to expanding the investigation
<PAGE> 23
Page 6 - Ms. Suzanne E. Setzer
beyond the limit specified above. Additionally, if you do not agree to these
conditions, you must comply with the full requirements for the submission to FDA
of a supplemental IDE application for new investigational sites not already
specifically approved for participation in your study (21 CFR 812.35(b)).
We would like to point out that FDA approval of your IDE application does not
imply that this investigation will develop sufficient safety and effectiveness
data to assure FDA approval of a premarket approval (PMA) application for this
device.
You should also give serious consideration to the following items which are
considered important for the analysis of your data for the purposes of
determining safety and effectiveness for a future PMA application:
1. Please be aware that the statistical presentation of data for your PMA
application should include analyses of all parameters that may affect
the poolability of the data (e.g., site differences, stone size and
location, etc.). Any previous or concomitant treatments should also be
analyzed and discussed for their influence on study results.
2. Please be aware that the are and post-blood pressure measurements
collected should be reported on in a statistically sound manner in the
PMA. This analysis should measure the device's effect on hypertension.
3. You make general reference to a "refurbishment" process in your
"Manufacturing Information," section (Appendix G). Please clarify
whether any components of the LithoTron(TM) are refurbished. If any
components are refurbished, then the following additional information
should be provided: (i) a list of the components being refurbished;
(ii) a description of the refurbishment processes; (iii) a description
of how HMT determines that the component has been properly refurbished;
and (iv) data demonstrating that the refurbished components are
adequate prior to installation.
4. Please clarify whether the x-ray system is legally marketed in the
United States (i.e., give the 510(k) number).
5. You have utilized only one generator setting (20 kV) when reporting
your shock wave data. Please be aware that FDA recommends, in the Draft
of Suggested Information for Reporting Extracorporeal Shock Wave
Lithotripsy Device Shock Wave Measurements (enclosed), that this
information be provided at minimum, typical, and maximum settings. This
data will be requested prior to PMA approval.
We have enclosed the guidance document entitled "Sponsor's Responsibilities for
a Significant Risk Device Investigation" to help you understand the functions
and duties of a sponsor. Also enclosed is the guidance document "Investigators'
Responsibilities for a Significant Risk Device Investigation" which you should
provide to participating investigators.
<PAGE> 24
Page 7 - Ms. Suzanne E. Setzer
If you have any questions, please contact Russell Pagano, Ph.D., at (301)
594-2194.
Sincerely yours,
/s/ Lillian Yin, Ph.D.
-----------------------------------
Lillian Yin, Ph.D.
Director, Division of Reproductive,
Abdominal, Ear, Nose and Throat,
and Radiological Devices
Office of Device Evaluation
Center for Devices and
Radiological Health
Enclosures
(l) Sponsor's Responsibilities for a Significant Risk Device Investigation
(2) Investigators Responsibilities for a Significant Risk Device
Investigation
(3) Draft of Suggested Information for Reporting Extracorporeal Shock Wave
Lithotripsy Device Shock Wave Measurements
