<PAGE>
As filed with the Securities and Exchange Commission on January 6, 1997
Registration No. 33- ______
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
___________
MYO DIAGNOSTICS, INC.
(Name of Small Business Issuer in its Charter)
<TABLE>
<S> <C> <C>
CALIFORNIA 384 95-4089525
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
</TABLE>
3760 SOUTH ROBERTSON BLVD.
CULVER CITY, CALIFORNIA 90232
(310) 559-5500
(Address and Telephone Number of Principal Executive Offices)
___________
3760 SOUTH ROBERTSON BLVD.
CULVER CITY, CALIFORNIA 90232
(310) 559-5500
(Address of Principal Place of Business or Intended Principal Place
of Business)
___________
GERALD D. APPEL
PRESIDENT
MYO DIAGNOSTIC, INC.
3760 SOUTH ROBERTSON BLVD.
CULVER CITY, CALIFORNIA 90232
(310) 559-5500
(Name, Address and Telephone number of Agent for Service)
___________
COPIES TO:
Alan B. Spatz
Troop Meisinger Steuber & Pasich
10940 Wilshire Boulevard
Los Angeles, California 90024
(310) 824-7000
Approximate Date of Proposed Sale to the Public: As soon as practicable after
the effective date of this Registration Statement.
<PAGE>
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If the delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED
MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED TO BE REGISTERED PER UNIT (1) PRICE (1) REGISTRATION FEE
- --------------------------- ---------------- -------------- ------------------- ----------------
<S> <C> <C> <C> <C>
Common Stock 3,255,561 shs. $2.42 $7,878,458 $2,388
</TABLE>
(1) Based on the price at which the Registrant sold shares to unaffiliated
third parties in December 1996.
___________
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 SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
<PAGE>
MYO DIAGNOSTICS, INC.
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
Item in Form SB-2 Location in Prospectus
- ----------------- ----------------------
<S> <C> <C>
ITEM 1. Front of Registration Statement and Outside
Front Cover of Prospectus . . . . . . . . . . . Outside Front Cover Page of Prospectus
ITEM 2. Inside Front and Outside Back Cover Pages of
Prospectus. . . . . . . . . . . . . . . . . . . Inside Front and Outside Back Cover Page of Prospectus
ITEM 3. Summary Information and Risk Factors. . . . . . "Prospectus Summary;" "Risk Factors"
ITEM 4. Use of Proceeds . . . . . . . . . . . . . . . . Not Applicable
ITEM 5. Determination of Offering Price . . . . . . . . Outside Front Cover Page of Prospectus
ITEM 6. Dilution. . . . . . . . . . . . . . . . . . . . Not Applicable
ITEM 7. Selling Security Holders. . . . . . . . . . . . "Principal and Selling Shareholders"
ITEM 8. Plan of Distribution. . . . . . . . . . . . . . Outside Front Cover Page of Prospectus
ITEM 9. Legal Proceedings . . . . . . . . . . . . . . . Not Applicable
ITEM 10. Directors, Executive Officers, Promoters and
Control Persons . . . . . . . . . . . . . . . . "Management"
ITEM 11. Security Ownership of Certain Beneficial Owners
and Management. . . . . . . . . . . . . . . . . "Principal and Selling Shareholders"
ITEM 12. Description of Securities . . . . . . . . . . . "Risk Factors;" "Dividend Policy;"
"Description of Capital Stock"
ITEM 13. Interest of Named Experts and Counsel . . . . . Not Applicable
ITEM 14. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities . . . . . . . . . . . . . . . . . . "Management"
ITEM 15. Organization Within Last Five Years . . . . . . Not Applicable
ITEM 16. Description of Business . . . . . . . . . . . . "Prospectus Summary;" "Management's Discussion and Analysis
of Results of Operations and Financial Condition;"
"Business"
ITEM 17. Management's Discussion and Analysis or Plan
of Operation. . . . . . . . . . . . . . . . . . "Management's Discussion and Analysis of Results of
Operations and Financial Condition"
ITEM 18. Description of Property . . . . . . . . . . . . "Business"
ITEM 19. Certain Relationships and Related
Transactions. . . . . . . . . . . . . . . . . . "Certain Transactions"
ITEM 20. Market for Common Equity and Related
Stockholder Matters . . . . . . . . . . . . . . "Common Stock Matters;" "Risk Factors;"
"Description of Capital Stock"
ITEM 21. Executive Compensation. . . . . . . . . . . . . "Management"
ITEM 22. Financial Statements. . . . . . . . . . . . . . Financial Statements
ITEM 23. Changes in and Disagreements With Accountants
on Account and Financial Disclosure . . . . . . Not Applicable
</TABLE>
<PAGE>
PROSPECTUS
3,255,561 SHARES
MYO DIAGNOSTICS, INC.
COMMON STOCK
This Prospectus relates to the offer and sale from time to time by certain
shareholders (the "Selling Shareholders") of Myo Diagnostics, Inc., a
California corporation (the "Company"), of up to 3,255,561 shares of Common
Stock, no par value (the "Shares"), of the Company. The Company will not
receive any proceeds from the sale of the Shares.
The Selling Shareholders may sell all or a portion of the shares of Common
Stock offered hereby from time to time in brokerage transactions in the
over-the-counter market at prices and terms prevailing at the times of such
sales. The Selling Shareholders may also make private sales directly or through
brokers. The Selling Shareholders may individually pay customary brokerage
commissions and expenses. In connection with any sales, the Selling
Shareholders and any brokers participating in such sales may be deemed to be
underwriters within the meaning of the Securities Act, in which event
commissions received by such brokers may be deemed underwriting commissions
under such Act.
Under the 1934 Act and the regulations thereunder, any person engaged in a
distribution of the shares of Common Stock offered by this Prospectus may not
simultaneously engage in market making activities with respect to the shares of
Common Stock of the Company during the applicable "cooling off" periods prior
to the commencement of such distribution. in addition, and without limiting
the foregoing, the Selling Shareholders will need to comply with applicable
provisions of the 1934 Act and the rules and regulations thereunder including,
without limitation, Rules 10b-6 and 10b-7, which provisions may limit the
timing of purchases and sales of shares of Common Stock by the Selling
Shareholders.
There is no public market for the Common Stock, and none is likely to
develop as a result of this offering.
THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE AND
SUBSTANTIAL DILUTION. SEE "RISK FACTORS."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The date of this Prospectus is ______________, 1997
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission in
Washington, D.C., a Registration Statement under the Securities Act with
respect to the shares offered hereby. This Prospectus does not contain all of
the information set forth in the Registration Statement and the exhibits
thereto. Statements contained in this Prospectus as to the contents of any
contract or any other document referred to are not necessarily complete, and
with respect to any contract 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 is qualified in its
entirety by such reference. For further information with respect to the
Company and the shares offered hereby, reference is hereby made to the
Registration Statement and exhibits thereto. A copy of the Registration
Statement, including the exhibits thereto, may be inspected without charge at
the Securities and Exchange Commission's principal office in Washington, D.C.,
and copies of all or any part thereof may be obtained from the Public Reference
Section of the Securities and Exchange Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, upon payment of certain prescribed rates.
The Company has become subject to the informational requirements of the
Exchange Act and, in accordance therewith, will file reports and other
information with the Securities and Exchange Commission in accordance with its
rules. Such reports and other information concerning the Company may be
inspected and copied at the public reference facilities referred to above as
well as certain regional offices of the Securities and Exchange Commission.
The Company intends to furnish its shareholders with audited reports
containing annual financial statements.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS APPEARING ELSEWHERE HEREIN. PROSPECTIVE
INVESTORS ARE URGED TO CAREFULLY READ THIS PROSPECTUS PRIOR TO MAKING AN
INVESTMENT IN THE COMPANY. THIS PROSPECTUS CONTAINS FORWARD-LOOKING
STATEMENTS, WHICH ARE INHERENTLY UNCERTAIN. ACTUAL RESULTS MAY DIFFER FROM
THOSE DISCUSSED IN SUCH FORWARD-LOOKING STATEMENTS FOR THE REASONS, AMONG
OTHERS, DESCRIBED IN "RISK FACTORS."
THE COMPANY
Myo Diagnostics, Inc. (the "Company"), is a development stage company which
was formed in 1988 to develop and bring to market a new medical diagnostic
technique: Muscle Pattern Recognition ("MPR"). MPR provides objective evidence
of soft tissue muscle injury and detailed information on the site, nature and
severity of muscle dysfunction. The Company believes that no other system in
use today is capable of objectively evaluating data to be used in diagnosing
muscle injury of the back and delivering a report outlining the existence,
nature and severity of abnormal muscle recruitment patterns of the back without
the need for a subjective evaluation of raw data by the treating physician.
The Company licenses the MPR process and related technology from Toomim
Research Group ("TRG"), a partnership of three of the Company's shareholders,
which holds a United States patent on the MPR technology. The Company's MPR
system involves proprietary hardware, software and protocols which presently
has the capability of evaluating back and neck muscles. Following successful
Alpha and Beta tests of the prototypes, the production design has been
completed. The system has been submitted to clinical and market tests and
the equipment, has been granted FDA pre-market approval, and is ready for
full-scale roll-out.
MPR is designed to assist physicians to help establish a diagnosis, select
a treatment and assess the effectiveness of such treatment. MPR also addresses
needs that have become increasingly important in the new health care
environment. In medical/legal cases for instance, MPR can serve as a forensic
medical tool. Furthermore, MPR supports the cost-containment and risk
management drive of managed care providers and health care insurers by giving
them the capability to measure treatment outcomes, to eliminate unnecessary
care, and prevent fraud. These providers have been routinely reimbursing the
cost of the procedure.
Back pain and back muscle injuries from automobile, sports and work related
accidents affect a large number of individuals. They represent the largest
cause of work days lost and a main component of employers' costs for workers
compensation. Bostonia Magazine quotes sources stating that there are over 75
million back-pain sufferers in the United States. According to the 1994
Statistical Abstract of the United States, in 1992, 13.8 million people
suffered some sort of sprain or strain.
The Company does not presently have sufficient funds to fully implement its
marketing plan. Absent additional funding, through debt or equity financing or
purchase order advances, it is not anticipated that the Company will be able to
operate profitably.
The Company's principal office is located at 3760 Robertson Blvd., Suite
212, Culver City, California 90232 and its telephone number is (310) 559-5500.
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF
RISK. PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY, IN ADDITION TO THE
OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, THE FOLLOWING RISK FACTORS
BEFORE PURCHASING THE SECURITIES OFFERED HEREBY.
RELIANCE ON LICENSE
The Company licenses the MPR process and related technology from TRG. The
license is exclusive. See "Business -- Intellectual Property." The license
terminates in 2013, but may be terminated earlier upon the occurrence of
certain events including (i) if the Company becomes insolvent or generally
fails to pay its debts when due, (ii) the assignment by the Company of its
property for the benefit of the Company's creditors or the appointment of a
receiver for any part of the Company's property, (iii) the commencement of
any proceedings under bankruptcy or insolvency law by or against the Company,
(iv) the sale or other transfer of the license by the Company without TRG's
consent and (v) the failure of the Company to comply with the terms of the
license. Because the Company's entire business is based upon the licensed
technology so licensed, any termination of the license would have a material
adverse effect on the Company and would likely result in the shares of the
Company being valueless.
DEVELOPMENT STAGE COMPANY, WITH LIMITED OPERATING HISTORY
The Company is in the development stage and its operations are subject to
all the risks inherent in launching a new business enterprise, in developing
and marketing a new product or service, and in establishing a name and a
business reputation. The likelihood of success of the Company must be
considered in the light of problems, expenses, difficulties and delays
frequently encountered in converting prototype designs into viable production
designs, and in achieving market acceptance with a new type of product or
service. The Company has had limited revenues to date and, because it is
only now entering its commercial stage, it will likely sustain operating
losses for an indeterminate time period. There can be no assurance that the
Company will ever generate material revenues or that the Company will ever be
profitable.
NEED FOR ADDITIONAL FUNDING
The Company presently needs additional financing in order to implement
fully its marketing plan. Without additional funds, through equity or debt
financing or purchase order advances, it is unlikely that the Company can
operate profitably.
INTELLECTUAL PROPERTY
TRG holds a United States patent on the MPR technology, and the Company is
the exclusive licensee of the rights under the patent. The Company believes
that its ability to be successful will be contingent on its ability to protect
the MPR technology, its future developments and its know how. There can be no
assurance, however, that this patent will provide substantial protection of the
MPR technology or that its validity will not be challenged. Pursuant to its
license agreement with TRG, the Company has the right to protect the MPR
technology.
The Company presently has no patent protection of the MPR technology
outside the United States. The Company has the right to file patent
applications and attempt to obtain patents in other jurisdictions. To date,
the Company has not done so, in part because of lack of funds. TRG is under no
obligation to patent the MPR technology in any jurisdiction and the Company's
determination as to whether or not to seek patent protection will depend upon a
number of factors, including the likelihood of the issuance of the patent, the
Company's financial resources and marketing plans.
COMPETITION
The Company believes that there is no competitive diagnostic technology in
use today capable of detecting, locating and evaluating soft tissue muscle
injuries in a manner similar to the MPR system. However, there are many
<PAGE>
companies, both public and private, which are active in the field of medical
diagnostic imaging. Some of these companies have substantially greater
financial, technical and human resources, have a well established name and
enjoy a strong market presence. There is no assurance that one or several
such companies are not currently developing, or will not start developing,
technology that will prove more effective or desirable than the Company's
technology. Such occurrence could severely affect the Company's ability to
establish and develop a market presence and to maintain its competitive
position.
NEW AND UNCERTAIN MARKET
Until now, muscle injuries have always been diagnosed and evaluated
subjectively by physicians through physical examination. Accordingly, there is
no established demand for a computer-assisted procedure to diagnose such
injuries, and it is difficult to predict if, and when, the procedure will gain
wide acceptance by prescribers. Factors that may affect market penetration
could include resistance to change, concerns over the lack of track record of
the procedure, and the risk for insurance companies to use the results of the
procedure to challenge or overrule the diagnostic or treatment decisions of a
physician.
DEPENDENCE ON THIRD PARTIES
Like other health care companies, the Company is dependent upon medical
institutions to conduct clinical trials of its product, upon physicians to
refer patients, and upon insurance companies and managed care organizations
to pay for or reimburse the procedure. While the Company has not experienced
difficulties in obtaining clinical and scientific testing services to this
date, and has found the market to be responsive to its offering during its
initial marketing efforts, there is no assurance that the Company's
dependence on third parties to succeed in the market place will not affect
its development.
DEPENDENCE ON KEY MANAGEMENT PERSONNEL
The Company is substantially dependent upon the experience and efforts of
Gerald D. Appel, President, Chief Executive Officer and founder of the Company.
The loss of the services of Mr. Appel could have a material adverse impact on
the Company and its business unless a suitable replacement for the individual
is found promptly, but there is no assurance that such replacement can be
found.
PRODUCT LIABILITY
The Company may be subject to substantial product liability costs if claims
arise out of problems associated with the use of the Company's MPR system. The
Company maintains insurance against such potential liabilities in amounts which
it believes to be adequate. However, there can be no assurance that such
product liability insurance will adequately insure against such risk.
CONTROL BY MANAGEMENT
Gerald D. Appel, owns beneficially 3,715,019 shares of the Common Stock,
(which includes voting rights with respect to 111,900 shares), representing
48.0% of the outstanding voting power of the Company as of December 31, 1996.
All directors and officers of the Company (including Mr. Appel) currently have
voting power with respect to 51.3% of the outstanding Common Stock.
Accordingly, Mr. Appel individually, and all directors and officers as a group,
have the power to control the election of directors, and therefore the business
and affairs of the Company. See "Principal and Selling Shareholders." This
concentration of stock ownership may have the effect of delaying or
preventing a change in the management or control of the Company.
PREFERRED STOCK
The Company is authorized to issue up to 10,000,000 shares of Preferred
Stock, issuable in one or more series, the rights, preferences, privileges and
restrictions of which may be established by the Company's Board of Directors
without stockholder approval. As a result, in the future, the Company could
issue Preferred Stock with voting and conversion rights that could adversely
effect the voting power and other rights of the holders of the Common
<PAGE>
Stock. No shares of Preferred Stock are presently outstanding and the Company
has no present plans to issue shares of Preferred Stock.
ABSENCE OF PUBLIC MARKET
Presently, there is no public market for any securities of the Company and
it is unlikely that one will develop as a result of the sale of the Shares. No
assurance can be given that any public market will ever develop for the Common
Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Any shares of Common Stock sold pursuant to this Prospectus will be freely
tradable without restriction or registration under the Securities Act. An
additional 5,016,031 shares of outstanding Common Stock are either "restricted
securities" as that term is defined in Rule 144 promulgated under the
Securities Act or shares which were issued to investors outside the United
States. In general, "restricted securities" may be resold publicly in
reliance on Rule 144. In general, under Rule 144 as currently in effect, any
person (or persons whose shares are aggregated) who has beneficially owned
shares for at least two years is entitled to sell, within any three-month
period, a number of shares that does not exceed the greater of 1% of the then
outstanding shares of Common Stock (approximately 77,000 shares) or the
average weekly public trading volume in the Common Stock during the four
calendar weeks preceding the date on which notice of sale is filed with the
Securities and Exchange Commission. Sales under Rule 144 are also subject to
certain manner of sale provisions, notice requirements and availability of
current public information about the Company. Any person (or persons whose
shares are aggregated) who is not deemed to have been an affiliate of the
Company at any time during the three months proceeding the sale and who is
deemed to have owned shares, provided in Rule 144, for at least three years,
is entitled to sell such shares under Rule 144(k) without limit regarding the
volume limitations, manner of sale provisions, public information or notice
requirements. In general, in the case of sales by non-public issuers (such as
the Company), equity securities sold outside the United States may not be
resold in the United States or to United States persons during a restricted
period of one year unless such sales are registered under the Securities Act.
At January 1, 1997 the Company had outstanding options or warrants to
purchase an aggregate of 1,673,553 shares of Common Stock at various times
through March 1999 at a weighted average exercise price of $1.67 per share.
Except with respect to the shares covered by this Prospectus and 600,000
shares included in units anticipated to be sold within two weeks from the date
of this Prospectus (see "Description of Capital Stock"), the Company has no
obligation to register any shares of Common Stock for its shareholders.
<PAGE>
THE COMPANY
The Company was incorporated in California on January 5, 1987 as AREX, Inc.
The name was changed to Devion Group and then to Myo Diagnostics, Inc. in
September 1989.
The Company held a 97.2% general partnership interest in Myo Diagnostics,
Ltd. (the "Partnership"), a California partnership, that began operations in
April 1991. The Partnership researched and developed the hardware and related
software to perform Muscle Pattern Recognition pursuant to a license agreement
with TRG. In December 1994, the Partnership's assets (including the license
agreement) and liabilities were transferred to the Company at their book value
and neither the Partnership nor the Company recognized any gain or loss. The
2.8% partners exchanged their interests in the Partnership, totaling $547,885,
for 755,330 shares of Common Stock and notes in the aggregate principal amount
of $175,000. The business combination was recorded in a manner similar to a
"pooling-of-interest" method of accounting. Under this method, assets and
liabilities of the Partnership were recorded at historical cost.
DIVIDEND POLICY
The present policy of the Company is to retain earnings to provide funds
for use in its business. The Company has not paid cash dividends on its Common
Stocks and does not anticipate that it will do so in the foreseeable future.
CAPITALIZATION
The following table sets forth the capitalization of the Company at
September 30, 1996.
At September 30, 1996
---------------------
Shareholders' Deficit
Common Stock, no par value -- 50,000,000 shares
authorized; 7,241,037 shares outstanding(1) $ 3,200,154
Deficit accumulated during the development stage (3,623,262)
-------------
Total Shareholders' Deficit $ (423,108)
-------------
-------------
______________________________
(1) Does not include: (i) 1,047,333 shares of Common Stock issuable upon
exercise of outstanding warrants and options; and (ii) 505,000 shares
of Common Stock issued in December 1996 and 163,200 shares of Common
Stock issuable upon exercise of warrants issued in December 1996. In
addition, by amendment of its Articles of Incorporation in December
1996, the Company is authorized to issue 10,000,000 shares of Preferred
Stock.
COMMON STOCK MATTERS
Presently, there is no public market for any securities of the Company and
it is unlikely that one will develop as a result of the sale of the Shares. No
assurance can be given that any public market will ever develop for the Common
Stock.
As of December 31, 1996, there were 95 holders of record of the Common
Stock.
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
The Company is a development stage company which has yet to realize any
material revenues. The Company is ready to bring its product to market, but
needs additional funding to implement its marketing plan.
RESULTS OF OPERATIONS
FISCAL 1995 COMPARED TO FISCAL 1994. The Company had revenues of $67,600
in fiscal 1995, compared to $8,041 in fiscal 1994. These revenues were derived
from sales of MPR evaluations in connection with test marketing the Company's
product.
The Company had operating expenses of $1,090,639 in fiscal 1995 as compared
to $784,802 in fiscal 1994. The increase was due to additional sales,
marketing and general and administrative expenses as the Company increased
its sales, marketing and administrative staffing in anticipation of
commencing full scale marketing efforts in 1996.
The Company suffered a net loss of $1,067,280 in fiscal 1995 compared to
$821,898 in fiscal 1994 due to the increase in operating expenses in fiscal
1995.
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1995. The Company's results of operations in these nine month
periods were substantially identical. In 1996 the Company spent a significant
portion of the year attempting to raise additional capital to finance the
implementation of its marketing plan.
Revenues declined in the nine months ended September 30, 1996 to $13,650 as
compared to $57,200 in the nine months ended September 30, 1995, because the
Company suspended marketing efforts pending raising additional capital. The
Company's operating expenses in these nine month periods were roughly
comparable, although in the nine months ended September 30, 1996 the Company
had lower research and development, technical services and sales and marketing
expenses, but higher general and administrative expenses, as the Company
incurred costs of raising capital and increased its general and administrative
staffs in anticipation of implementing its marketing plan.
FINANCIAL CONDITION
The Company has funded its operating expenses principally through equity
and debt financings, as the Company has had no material cash flows from
operations. During the nine months ended September 30, 1996, the Company
funded its operations principally through the sales of Common Stock
generating net proceeds of $1,171,818.
The Company has six revolving lines of credit from a commercial bank
pursuant to which the company may from time to time borrow up to $400,000 at
interest rates equal to the bank's prime rate of interest plus .75% to 1.50%.
These lines, which were fully utilized at September 30, 1996, mature at various
times from January 1997 to June 1997.
In December 1996, the Company received net proceeds of $1,116,000 from the
issuance and sale of 480,000 units, each unit consisting of one share of Common
Stock and one quarter stock purchase warrant. Each whole warrant entitles the
holder to purchase one share of Common Stock for $3.00 per share at any time on
or prior to December 1997. The Company has commitments to purchase another
480,000 units, which commitments are anticipated to be fulfilled within several
weeks after the date of this Prospectus.
The Company believes that the proceeds from the sale of these units will
enable the Company to fund operations through the end of fiscal 1997. However,
the Company needs additional funding in order to fully implement its marketing
plan. Absent additional funding, the Company does not anticipate it can
develop sufficient revenues to operate profitably.
<PAGE>
BUSINESS
OVERVIEW
The Company was formed to develop and bring to market a new patented
diagnostic technique called Muscle Pattern Recognition ("MPR"). Utilizing
proprietary hardware, expert systems and protocols, MPR analyzes patterns of
muscle recruitment to provide objective evidence of muscle dysfunction to
assist in the diagnosis of muscle injury. It can identify affected muscle
sites, determine the nature of the dysfunction, and measure its severity.
The results of an MPR evaluation are presented in a comprehensive report
which is generated at the Company's central processing facility.
The Company believes that the capabilities of its system are unique and MPR
addresses an unmet market need which has become even more pressing in view of
the cost-consciousness of the present health care environment. MPR supports
the cost-containment and risk management goals of insurers and managed care
providers by giving them means to measure treatment outcomes, to eliminate
unnecessary care and to detect outright fraud. It can serve as a forensic
medical tool in medical/legal cases and reduce the exposure of insurers of
disability and workers compensation risks. These benefits have been recognized
by the industry whose response to the new procedure has been very favorable.
MPR's scientific foundation originates from the research of Dr. Toomim, one
of the principals of the Company. Over the ten-year period that preceded the
formation of the Company, Dr. Toomim did extensive research on the patterns of
interactions occurring between the various muscles which participate in the
execution of a movement. Central to the MPR concept is the discovery of
movement-specific patterns which can be captured by simultaneously recording
the electromyographic ("EMG") signals of all participating muscles. The
comparison of a patient's patterns with those of "normal" subjects, using an
expert system, is the basis of the evaluation. Up until now, the Company has
focused its development efforts on the back and neck muscle application; it
plans to address other muscle groups in the future.
The first MPR system prototype capable of measuring simultaneously up to 14
muscle sites was Alpha and Beta tested in early 1990. A limited market test
was initiated in September 1990 in Southern California, through a non-exclusive
Mobile Diagnostic Distributor. Four technicians were certified and
approximately 300 patients were tested through June 1991. In the fourth
quarter of 1991, the Company appointed in-house and independent sales
representatives to expand the market test. These market tests served to
establish the prerequisites of a successful roll-out. These prerequisites
included: an independent scientific validation of the system, conclusive
clinical studies, a demonstration of the successful use the MPR information
as medical/legal evidence, and the publication of papers in peer reviewed
journals. In the opinion of management, these prerequisites were fully met
by mid 1995 when the Company began market testing in Southern California and
Chicago.
In February 1996, the Company entered into an agreement with a well
established, Cleveland-based diagnostic imaging service company which has
committed to introduce the procedure in 20 markets in the 5 states in which it
operates. Reimbursement for the procedure has been received from more than 60
local and national insurance companies.
MARKET
MARKET ENVIRONMENT: The United States health care delivery and payment
systems have been undergoing profound changes over the past few years. These
changes have been driven by the determination of employers to halt the alarming
escalation of health care spending, by the concerns of the health care industry
over the threat of regulatory controls, and by a general awareness that the
system was plagued by major flaws. Some studies have placed the cost of
unnecessary procedures and services at as high as 20% of total expenditures for
patient care, and the General Accounting Office estimated in 1992 that outright
fraud could represent a full 10% of the total health care budget. Lead by
managed care providers, the re-engineering of the industry has brought a new
focus on the cost-effectiveness of services and procedures. Capitated payment
plans have reversed the financial incentives of managed care providers, and
insurers of traditional indemnity plans have had to adopt similar
cost-containment techniques to compete.
<PAGE>
Management believes these trends will benefit the Company as MPR provides
important means required for cost-containment: means to objectively diagnose a
condition to aid in the selection of the most appropriate treatment course,
means to measure outcomes to prevent overuse, and means to detect fraud in
workers compensation, personal injury and disability cases involving back
injury.
BACK MUSCLE DIAGNOSTIC MARKET: According to the 1994 Statistical Abstract
of the United States, in 1992, 13.8 million people suffered some sort of sprain
or strain. Bostonia Magazine quotes sources stating that there are over 75
million back-pain sufferers in the United States. An article in California
Worker's Compensation Enquirer, under the signature of Dr. Richard Hyman,
estimates that, in 1994, soft tissue back injuries may have accounted for up to
70% or $2.1 billion of California's $3 billion annual Worker's Compensation
medical costs. The Company believes that the United States offers as many
annual examination opportunities for MPR as it does for MRI whose existing
market is in excess of 7 million examinations.
BUSINESS STRATEGY
The Company's goal is to establish MPR as a widely recognized and accepted
procedure, to capitalize upon the full potential of this technology by
developing protocols for other applications, and to achieve and maintain a
leadership position in muscle-related diagnostic techniques. The Company's
strategy to achieve these goals consists of the following principal elements:
- DEVELOP AND STRENGTHEN ITS PRESENCE in California and Illinois, the
markets where the Company has initiated its marketing program.
The Company will train and certify additional technicians to
service these sites, will explore new delivery channels and
continue to develop relationships in the insurance industry.
- EXPAND GEOGRAPHICALLY, primarily through limited exclusive
distribution arrangements with diagnostic imaging services and
strategic partners. The Company hopes that the existing referral
base of these providers, their reputation and infrastructure will
provide accelerated entry into a large number of markets. The
Company's approach of such providers has generated considerable
interest as the low capital investment and high margin of MPR
provide an attractive opportunity for incremental profits. One
distribution arrangement already in place gives the Company
immediate entry into five states.
- INCREASE EXPOSURE AND PEER RECOGNITION THROUGH PUBLICATIONS IN MEDICAL
AND SCIENTIFIC JOURNALS: Peer-reviewed publications play an
important role in overcoming physician resistance to new
procedures. Accordingly, the Company has an on-going program of
studies and trials aimed at providing statistical and clinical
evidence for publication. Two papers co-authored by leading
academicians have been published. One additional paper has been
accepted for publication in Spring 1997.
- DEVELOP NEW APPLICATIONS OF ITS CORE TECHNOLOGY: The Company intends
to further capitalize on its know-how and core technology by
addressing other applications related to arm and leg muscles.
For example, the development of appropriate protocols would allow
the Company to introduce evaluation systems for carpal tunnel
syndrome, rotator cuff injuries and pre- and post-operative
arthroscopic surgery evaluation.
PRODUCT
MPR is a computer-assisted evaluation procedure which is based on the
simultaneous measurement of electromyographic signals produced by up to 16
muscles during the execution of a movement. A patient's EMG readings, which
are collected during the examination procedure, digitized, then processed by
an expert system, can be converted into graphic "images" of recognizable muscle
patterns. A computer-assisted comparison of a patient's patterns with those
produced by normal subjects reveals differences which are the basis of the
diagnosis.
<PAGE>
All the components of the Company's MPR system have been designed and
built based on published and accepted scientific data and proven medical,
electronic, and statistical technology. The three proprietary components of
the system include:
- the Myo D 1600 Data Acquisition Module,
- the Myo Diagnostics Expert System, and
- the Myo Diagnostics Muscle Pattern Recognition Report.
DATA ACQUISITION MODULE: The data acquisition equipment consists of a
set of 29 cutaneous electrodes connected to the Myo D 1600 Data Acquisition
Module. The electrodes, which are commercially available, pick up the EMG
signals produced by muscles and feed them into the D 1600 whose design
provides for the simultaneous reception of up to 14 of these signals. The
Myo D 1600 has built-in features which analyze the quality of the signal
received from each electrode and recognize and warn the technician/operator
of any malfunction, thereby ensuring that data reflects accurate EMG
measurements. The Data Acquisition Module also assists the operator by
signaling the beginning and end of each movement through visual prompts and
audio tones, and by providing a real-time feedback on the patient's
performance through a graphic display.
After affixing the electrodes on the skin of the patient's back, at
carefully selected muscle sites, and after connecting the electrodes to the D
1600, the technician performs a calibration of the instrument. The purpose
of the calibration is to prevent skin-specific variances to affect the
readings, thereby ensuring that the patterns from various subjects can be
compared. The patient is then directed to execute four repetitions of each
of nine specific movements. Fourteen muscle sites are associated to each
movement and report to the D 1600 during the execution of such movement.
Their repetitions are important for the protocol. To convert these parallel
inflows of signals into digital patterns ("images"), the D 1600 processes
some 75,000 data points and calculates these points' relationships to each
other.
THE EXPERT SYSTEM: The data collected during the examination is
submitted to the Company for processing by the Company's expert system. A
report is generated which includes graphic, statistical and narrative
representations of each muscle group's pattern compared to the pattern of a
normative database of non-injured and pain-free subjects. The normative data
has been collected utilizing the same protocols performed by the patient.
The normative database is continuously updated as more data is collected.
The report which is produced is reviewed by qualified personnel to ascertain
that the data was properly collected and processed.
The analytical system was developed by the Company based on statistical
methodology in common use in this field for a number of years. In developing
the analysis, it was determined that a high degree of statistical certainty
would be required for the report to have the level of accuracy to be
completely reliable. Based on this design, the statistical analysis assures
results which have an average statistical certainty of 95%-99%.
THE MUSCLE PATTERN RECOGNITION REPORT: The MPR Report provides the
physician with findings to classify the patient as normal or with a graded
level of muscle dysfunction. It provides four critical statements about the
muscle groups examined, along with detailed information supportive of these
conclusions. The statements address the following questions:
- - EVIDENCE OF INJURY: Is there evidence that the patient's
muscles are dysfunctional? If so, where does
it occur?
- - FREQUENCY AND SEVERITY
OF THE INJURY: How severe is the dysfunction as compared to
normal and how often does the dysfunction
occur?
- - WHAT ARE THE MUSCLE PATTERNS?: What deviations from normal muscle
patterns exist in each movement and what are
the patterns of muscle compensation?
<PAGE>
- - ARE THERE PATTERNS OF SECONDARY
MUSCLE COMPENSATION?: Do the muscle patterns indicate that
there is secondary muscle dysfunction due to
muscles compensating involuntarily to protect
the injury?
- - WHAT IS THE RESULT OF THE
ABNORMAL MUSCLE RECRUITMENT?: What is the bio-mechanical explanation
for the muscle patterns?
When a patient is retested and the second MPR evaluation is compared to the
baseline test, several other critical questions are addressed:
- - IS THE PATIENT'S MUSCLE RECRUITMENT PATTERN NOW WITHIN THE RANGE OF NORMAL?
- - IF STILL DYSFUNCTIONAL, HAS THE PATIENT PROGRESSED THROUGH TREATMENT?
- - SHOULD THE INSURANCE COMPANY CONTINUE TO FUND FURTHER (OR DIFFERENT)
TREATMENT?
These questions address the issues of rehabilitation and short and long term
disability which affect insurance reserves.
SCIENTIFIC VALIDATION OF THE SYSTEM: In May 1992, an independent study of
the Company's evaluation methodology was completed. The study determined that
the overall classification accuracy of normal subjects was 90%. In a further
cross validation study involving 196 subjects, the results confirmed the
stability of the data base.
In June 1992, a second clinical study was completed. This study showed a
high correlation between the Company's evaluation of doctor-diagnosed injured
accident and Workers Compensation patients and the doctors' diagnoses. The
results were particularly impressive because the test was able to detect
injuries after a one to four week time lapse between the doctor's diagnosis
and the Company's examination. A test/retest study of 40 of these patients
indicated that 82% of the patients improved over a four week period. The
retest also validated the accuracy of the Company's classification.
The Company's MPR system was submitted to leading academicians and
clinicians. Dr. V. Reggie Edgerton of UCLA and Dr. Steven Wolf of Emory
University reviewed the technical aspects of the system in detail and
confirmed the validity of the science behind the system. They have
separately authored a total of three papers relating to the Company's
technology, two of which have been published and one of which has been
accepted for publication in Spring 1997.
LEGAL VALIDATION OF THE SYSTEM: In June 1992, the California Workers
Compensation Appeals Board (WCAB) began to hear testimony to determine if MPR
is a valid medical/legal procedure. In September 1993, the WCAB issued a
decision that the Company "...persuaded the court as to the validity of
lien-claimant's (Myo Diagnostics) methodology and mechanism. In addition,
the Opinion stated that, "it is found that the procedure (Muscle Pattern
Recognition) is a valid and useful diagnostic medical tool when used in the
proper case...." It further states that "...it is a reasonable and necessary
diagnostic test."
This opinion helped validate Muscle Pattern Recognition as a valid
medical/legal procedure. This case becomes a reference for any future legal
test.
COMPETITION
The Company believes it has no direct competition and that no other
system in use today is capable of delivering information similar in content,
comprehensiveness and reliability to the Company's MPR system. EMG signals
have been used by others to evaluate muscles at rest and muscles that do not
have kinesiological relationships; but the Company believes that these
methodologies are not supported by scientific studies and are not reliable.
The Company believes that Magnetic Resonance Imaging ("MRI") does not compete
with MPR because it cannot measure interactive muscle relationships when the
muscles are under constant tension. MRI's use in relation to back problems
is primarily to diagnose disk injuries.
<PAGE>
However, there are many companies, both public and private, which are
active in the field of medical diagnostic imaging. Some of these companies
have substantially greater financial, technical and human resources, have a
well established name and enjoy a strong market presence. There is no
assurance that one or several such companies are not currently developing, or
will not start developing, technology that will prove more effective or
desirable than the Company's technology. Such occurrence could severely
affect the Company's ability to establish and develop a market presence and
to maintain its competitive position.
MARKETING PLAN
SERVICE DELIVERY STRATEGIES: The Company markets its services on a
per-use basis, either directly ("Direct Services Operations") or through
third party "distributors". In the first instance, the Company itself
performs patient examinations, whereas this service is provided by a
distributor in the second mode of operation. In both cases, however, patient
data is processed by the Company's Central Processing Center, which also
produces the evaluation reports.
DISTRIBUTOR OPERATIONS: The Company intends to establish distributor
operations through limited exclusive arrangements with financially solid
firms which presently provide mobile and fixed-site MRI, CT and ultrasound
services to hospital, clinics and managed care locations. These firms, which
market to the same referral base of doctors which will refer MPR, are
attracted by the low capital investment and high margin of MPR.
DIRECT SERVICES OPERATIONS: In this mode of operation, services will
either be provided at a Company-owned and operated facility (Evaluation
Center), or at the facility of a provider (Mobile Services) using equipment
and personnel supplied by the Company.
The Company has already established an Evaluation Center at its
headquarters in Southern California. Until now this facility has been used
mostly for research, but the Company plans to initiate revenue producing
activities in the first quarter of 1997. Future Centers may be established
as stand alone co-ventures with existing diagnostic, physical therapy and
rehabilitation facilities, or based on lease arrangements with hospitals. An
Evaluation Center can be operated at very low fixed overhead by subleasing
space and services at existing clinics.
Mobile Testing Services is the format under which the Company presently
operates; it allows patient examination to take place on the premises of
medical providers, using the Company's equipment and personnel. This
approach overcomes providers' resistance to invest in equipment and incur
additional personnel costs. Mobile service contracts are offered on the
basis of a minimum daily rate plus a fee per test.
Direct Services Operations provide to the Company the full benefit of the
high margins of MPR while allowing it to remain in close contact with its
end-user market. However, the Company has elected to pursue simultaneously a
distribution strategy in order to achieve faster market penetration.
MARKET TARGETS
The Company's market is comprised of two major segments: the
medical/legal market which deals primarily with workers compensation and
personal injury claims, and the physical medicine market. Initially, the
Company will focus on the medical/legal segment. To this end, the Company
will target strategic alliances with firms servicing insurance companies,
HMOs (Health Maintenance Organizations) and PPOs (Preferred Provider
Organizations), self-insured employers and their third-party plan
administrators, and risk and case management companies. The Company will
also target the medical providers which service these markets such as
hospitals, rehabilitation clinics, industrial clinics, diagnostic centers,
physicians, physical therapists and MRI imaging centers. This second group
is also an important component of the Company's strategy because, in addition
to its capacity to prescribe MPR, it may serve as a delivery vehicle.
INSURANCE COMPANIES are a primary target because their reimbursement
policies and practices have a profound impact on the medical diagnostic
industry; they largely dictate pricing policies, methods of distribution and
growth strategies. Insurance companies are also playing an increasingly
important role as prescribers. For example, recent Workers Compensation
reforms in California have given insurers more control over treatment
regimen. An insurer
<PAGE>
can now dictate the treatment of a patient for up to four months. Because MPR
can serve to control direct medical costs and indirect costs such as lost
time, disability claims and litigation costs, the Company believes that its
procedure will be well received by insurers who may become a major source of
referrals, particularly in the Workers Compensation market. More than 60
insurance companies have already approved the reimbursement of MPR procedures.
HMOS AND PPOS are of vital importance to the Company due to their
leadership role in the cost containment drive and the considerable market
share they enjoy.
SELF-INSURED EMPLOYERS accounted for 18.7% of total worker's compensation
benefits paid in 1991. These employers represent a large volume of
opportunities for the Company.
HEALTH CARE PLAN ADMINISTRATORS are large organizations which provide
services to self-insured employers, public or private. In their role to
manage private plans, they can influence care strategies and/or treatment
selection criteria, and they may have authority to commit funds for
evaluation and treatment. Most of them have financial incentives to contain
costs and limit payors' exposure related to ongoing treatment and disability.
HOSPITALS, INDEPENDENT CLINICS, DIAGNOSTIC CENTERS AND INDIVIDUAL
PHYSICIANS will be recruited as Evaluation Centers. These providers may
become the delivery system for corporate clients and insurance companies.
They may service the medical/legal market and may later become the sites for
entry into the medical back pain and physical medicine market.
MANUFACTURING
The Data Acquisition Module consists of a standard laptop computer, a
modified board and the Company's proprietary software. The Company acquires the
laptop computers from an outside source. The modified boards are manufactured
by the subcontractor who participated in their development, and with whom the
Company has established a long term relationship. Once tested, the boards are
shipped to the Company which installs them along with its proprietary software
and tests the completed Module.
FACILITIES AND EMPLOYEES
The Company operates from leased facilities in Culver City, California.
Research and development, manufacturing and report processing activities are
centralized to allow closer control over service and response time, and to
better protect the technology.
The Company intends to maintain its central processing activities at this
headquarter location, but research and development and future clinical
studies will be conducted at various sites in Southern California, in
Atlanta, Georgia and at independent hospitals and universities throughout the
United States and Canada.
As of December 31, 1996, the Company had 15 full time employees.
REGULATORY REQUIREMENTS
The medical equipment manufactured and marketed by the Company is subject
to regulation by the Food and Drug Administration ("FDA"). Under the FDA
Act, manufacturers of medical devices must comply with certain regulations
governing the testing, manufacturing, packaging and marketing of medical
devices. Commercial sales or use of the Company's medical equipment must be
preceded by FDA pre-market clearance pursuant to section 510(k) of the FDA
Act. The Company has met all applicable FDA requirements in connection with
its product.
INTELLECTUAL PROPERTY
The Company licenses the right to manufacture, market, sell, distribute
and further develop the MPR system and technology and any related or
derivative technology throughout the world pursuant to an exclusive license
with
<PAGE>
TRG, a partnership among Gerald D. Appel, Daniel J. Levendowski and Hershel
Toomim, principal shareholders of the Company. The MPR system and technology
and all additions or modifications thereto remain the property of TRG,
provided, however, that any derivative technology developed by the Company
for purposes other than the evaluation and treatment of muscle dysfunction in
the back, arms and legs ("Derivative Technology") will be the property of the
Company.
The Company pays royalties to TRG for the use of the MPR technology and
any Derivative Technology as follows: (i) the lesser of $30.00 per use or 10%
of total revenues received by the Company for each of the first 10,000 times
the MPR procedure is used, (ii) the greater of $12.50 per use or 5% of total
revenues received by the Company for each use thereafter, (iii) 5% of total
revenues received by the Company for each sale, lease, license or other
transfer of the MPR procedure or related equipment or technology and (iv) 3%
of total revenues received by the Company for each sale, lease, license or
other transfer of the Derivative Technology. The Company is not required to
make any payments on revenues pursuant to (iii) or (iv) to the extent
royalties were previously paid on such revenues pursuant to (i) or (ii).
The license expires in 2013. The license is terminable by TRG upon 14
days notice (subject to cure during such period) (i) if the Company fails to
observe the terms of the Agreement, (ii) if the Company becomes insolvent or
generally fails to pay its debts when due, (iii) the assignment by the
Company of its property for the benefit of the Company's creditors or the
appointment of a receiver for any part of the Company's property, (iv) the
commencement of any proceedings under bankruptcy or insolvency law by or
against the Company and (v) the sale or other transfer of the license by the
Company without TRG's consent.
If the license is terminated for any reason, the Company becomes subject
to a three-year agreement not to engage in the manufacture, sale or
distribution of the MPR system or any similar product in any area in which
the MPR system or procedure has been sold.
The Company and TRG rely upon the law of trade secrets, patent protection
and unpatented proprietary know-how to protect the MPR technology. Due to
the rapid technological change that characterizes the medical device
industry, the Company believes that reliance upon trade secrets and
unpatented know-how, and on the continued introduction of improvements and
new products, are generally as important as patent protection in establishing
and maintaining a competitive advantage. TRG was granted a United States
patent covering the MPR system.
The Company presently has no patent protection of the MPR technology
outside the United States. The Company has the right to file patent
applications and attempt to obtain patents in other jurisdictions. To date, the
Company has not done so, in part because of lack of funds. TRG is under no
obligation to patent the MPR technology in any jurisdiction and the Company's
determination as to whether or not to seek patent protection will depend upon a
number of factors, including the likelihood of the issuance of the patent, the
Company's financial resources and marketing plans.
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information with respect to each executive
officer and director of the Company.
NAME AGE(1) POSITION
Gerald D. Appel 60 President, Chief Executive Officer and Chairman
of the Board of Directors
John Osborne 37 Vice President - Marketing
Scott Roecklein 39 Vice President of Operations, Secretary
J. Steven Nelson 32 Director of Research and Development
Dr. Hershel Toomim, Sc.D. 80 Director
Wayne C. Cockburn 40 Director
- ---------------
(1) At December 31, 1996
MR. APPEL has served as President and Chief Executive Officer of the
Company since 1991, and as a director of the Company since inception. Mr. Appel
is also Chairman of the Board of Directors.
MR. OSBORNE has served as Vice President--Marketing since November 1996.
From January 1995 to November 1996, Mr. Osborne served as Director of Sales
and Marketing for DermaNet, Inc., where he was responsible for developing
marketing plans, establishing distribution channels and overseeing sales
activity. From October 1993 to November 1994, Mr. Osborne was Vice President
and General Manager of KCI Clinical Systems, a division of KCI, Inc., a
publicly traded therapeutic specialty bed rental company, and from January
1983 to July 1993, Mr. Osborne served as Director Sales and Marketing for ATI
Medical, Inc., a medical equipment rental company.
MR. ROECKLEIN has been Vice President of Operations since September 1996
and Secretary since November 1996. For the two years prior to that he was an
independent health care consultant. From March 1991 through August 1994 Mr.
Roecklein was Vice President-Operations for Tokos Medical Corp., an in-home
provider of skilled nursing and activity monitoring for woman at risk of
pre-term labor.
MR. NELSON has served as Director of Research and Development of the
Company since October 1996. From August 1994 to September 1996, Mr. Nelson
served as Director of Operations and Finance of the Company. Prior to
joining the Company, Mr. Nelson earned a Masters Degree in Business
Administration in June 1994, and worked as a senior financial analyst for the
Operations Division of Mattel, Inc. from October 1990 to October 1992.
DR. TOOMIM has served as a Director of the Company since he co-founded it
with Mr. Appel in 1988. Dr. Toomim also served as Vice President of Research
and Development of the Company from 1988 to 1996.
MR. COCKBURN has served as a Director of the Company since July 1995. Mr.
Cockburn has been employed by Imutec Corporation, a Canadian
biopharmaceutical company, since January 1995, and is currently Vice
President of Corporate Development. From 1994 to 1995 Mr. Cockburn was an
investment banker with McDermid St. Laurence Chisholm, Ontario, Canada, and
for more than the three years prior to that, he was a securities broker with
Midland Walwyn, Ontario, Canada.
<PAGE>
MEDICAL ADVISORY BOARD
The Company has a Medical Advisory Board ("MAB") whose members are
physicians with expertise relevant to the Company's business. The role of
the MAB is to advise on the medical considerations involved in designing the
product, to provide a user/prescriber perspective, and to assist with the
design of clinical trials. The MAB meets on an ad hoc basis.
GUNNAR ANDERSSON M.D., PH.D. Dr. Andersson is Chairman of Orthopedic
Surgery at Rush Presbyterian - St. Luke's Medical Center in Chicago. He is
the deputy editor for the journal SPINE. Dr. Andersson is also a managing
partner of Midwest Orthopedics and has served as President of the
International Society for the Study of the Lumbar Spine.
PHILIP J. FAGAN, JR., M.D. Dr. Fagan obtained his medical degree from
the Tulane University School of Medicine, New Orleans in 1969. He is the
Chief Executive Officer and President of Emergency Department Physicians
Medical Group Inc. Dr. Fagan is the Director of the Emergency Department for
Daniel Freeman Marina Hospital, Marina Del Rey and the Hollywood Presbyterian
Medical Center, Los Angeles. He is the Medical Director of E.R. Physicians
Medical Group, Inc., and Chief Executive Officer and Medical Director of the
Burbank Urgent Care and Industrial Medicine Clinic. He is a Diplomate of the
American Board of the Emergency Physicians and the American Board of Family
Practice and a Fellow of the American Academy of Family Physicians and the
American College of Emergency Physicians.
ALAN J. GOLDMAN, M.D. Dr. Goldman was awarded his degree in medicine
from the University of Michigan Medical School in 1971. Currently he is in
private practice while serving as an Assistant Clinical Professor of
Neurology at the University of California at Irvine. For ten years beginning
in 1976, he was an Assistant Clinical Professor of Neurology at UCLA and was
the Chief of Staff and Chairman of the Department of Medicine at the Medicine
Center at Garden Grove, California. Dr. Goldman serves as a neurological
reviewer of new technologies for a number of national insurance carriers.
ROBERT SAMUEL MAYER, M.D. Dr. Mayer is an Assistant Professor in the
Department of Physical Medicine and Rehabilitation at Rush Medical College
and a practicing Physiatrist at the Rehabilitation Clinic, S.C. Dr. Mayer
serves as the Residency Program Director for the Rush-Marianjoy Residency in
Physical Medicine and Rehabilitation. Dr. Mayer also serves on the Editorial
Advisory Committee for the journal SPINE.
SCIENTIFIC ADVISORY BOARD
The Company has a Scientific Advisory Board ("SAB") to advise the Company
in the scientific aspects of its technology and in the area of statistical
analysis, including modeling. This Board meets twice yearly in January and
July.
ANTHONY DELITTO, PH.D. Dr. Delitto is an Associate Professor and
Chairman of the Department of Physical Therapy in the School of Health and
Rehabilitation Services at the University of Pittsburgh. Dr. Delitto also
serves as the Director of Research for the Comprehensive Spine Center at the
University of Pittsburgh and Vice President for Education and Research at
CORE network.
V. REGGIE EDGERTON, PH.D., M.S. Dr. Edgerton received his Bachelor of
Science in Physical Education and Biology from East Carolina University, his
Master of Science in Physical Education from the University of Iowa and Ph.D.
in Exercise Physiology from Michigan State University. Dr. Edgerton is
currently a professor within the Physiological Sciences Department at UCLA
and has served as Chairman of UCLA's Department of Kinesiology. Dr. Edgerton
has published over 200 papers in peer-reviewed journals focusing primarily on
muscle fiber and its activity. Since 1980, he has been the Project Program
Director of the NIH Grant regarding neurological sciences. He has also
worked with NASA and has published extensively regarding muscle adaptation
outside Earth's atmosphere. Dr. Edgerton has been an officer of and/or
associated with organizations including the American Physiological Society,
the American College of Sports Medicine, the American Society of
Gravitational Biology, the Society for Neurosciences, the Neurotrauma
Society, and the American Spinal Injury Association.
<PAGE>
HOWARD FULLMAN, M.D. Dr. Fullman has been trained as a medical
technologist and as such has consulted for major health care firms regarding
medical devices and procedures. He presently sits on the Board of Directors
of several privately held medical services companies. Dr. Fullman has a
medical practice in Los Angeles California.
ROBERT I. JENNRICH, PH.D., M.S. Dr. Jennrich received his Bachelor of
Science and Master of Science in Mathematics from the University of Wisconsin
and his Ph.D. in Mathematics from UCLA. Dr. Jennrich is currently a
professor within the Department of Mathematics at UCLA. He has published
over 60 papers in peer-reviewed journals, his most important papers
concerning biological and technical applications of advanced statistics. Dr.
Jennrich is an active member of the Institute of Mathematical Statistics, the
American Statistical Association and the Psychometric Society and has
received numerous honors from these and other societies.
JULES ROTHSTEIN, PH.D. Dr. Rothstein is a Professor and Chairman for The
Department of Physical Therapy at the University of Illinois at Chicago. Dr.
Rothstein is the Editor for the journal PHYSICAL THERAPY.
ROLAND ROY, PH.D. Dr. Roy is currently a Researcher for the Brain
Research Institute at the University of California at Los Angeles. Dr. Roy
also serves as the Co-Director for the Laboratory for Neural Control of
Movement and Neural Muscular Plasticity.
STEVEN L. WOLF, PH.D. Dr. Wolf received his Bachelor of Arts in Biology
from Clark University, his Master of Science degrees in Physical Therapy from
Boston University and Anatomy from Emory University and his Ph.D. in Anatomy
and Neurophysiology from Emory University. Dr. Wolf is currently a professor
and Director of Research within the Department of Rehabilitation Medicine,
Emory University School of Medicine. Dr. Wolf has published over 130 papers
in peer-reviewed journals, authored six books focusing on electromyography,
biofeedback, physical therapy and rehabilitation and has made over 300
presentations, including key note speaker, for groups including the American
Association of Orthopedic Surgeons, the American Physical Therapy
Association, the International Society for Electrokinesiology and the
American Neurology Association. Dr. Wolf has received over 20 grants from
organizations including the National Institute of Aging and the Veterans
Administration. Most recently, Dr. Wolf has served as Chairman of the
Advisory Council of the American Physical Therapy Association, Board of
Director of the International Society for Electrokinesiology, Chairman of the
Scientific Abstracts Committee of the World Confederation of Physical
Therapy, External Reviewer for Rehabilitation Graduate Programs for the
University of Toronto and Massachusetts General Hospital (Harvard University)
and on the Advisory Committee for the MGH Institute of Health Professions.
EXECUTIVE REMUNERATION
The following table sets for certain information regarding the
compensation of the Chief Executive Officer for the year ended December 31,
1995 and 1996 (no other officer had annual compensation in excess of $100,000
during these years):
SUMMARY COMPENSATION TABLE
-----------------------------
NAME AND PRINCIPAL POSITIONS YEAR SALARY
---------------------------- ---- ------
Gerald D. Appel, President and Chief 1995 $92,000
Executive Officer 1996 $124,000
EMPLOYEE STOCK OPTION PLAN
The Board of Directors has approved the establishment of a stock option
plan pursuant to which the Company may from time to time issue up to
1,000,000 shares of Common Stock to selected employees. No written plan has
been adopted, and no options have been granted under such a plan.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Articles of Incorporation include a provision that eliminates
the personal liability of its directors to the Company and its shareholders for
monetary damages for breach of the directors' fiduciary duties in
<PAGE>
certain circumstances. This limitation has no effect on a director's
liability (i) for acts or omissions that involve intentional misconduct or a
knowing and culpable violation of law, (ii) for acts or omissions that a
director believes to be contrary to the best interests of the Company or its
shareholders or that involve the absence of good faith on the part of the
director, (iii) for any transaction from which a director derived an improper
personal benefit, (iv) for acts or omissions that show a reckless disregard
for the director's duty to the Company or its shareholders in circumstances
in which the director was aware, or should have been aware, in the ordinary
course of performing a director's duties, of a risk of a serious injury to
the Company or its shareholders, (v) for acts or omissions that constitute an
unexcused pattern of inattention that amounts to an abdication of the
director's duty to the Company or its shareholders, (vi) under Section 310 of
the California Corporations Code (the "California Code") (concerning
contracts or transactions between the Company and a director) or (vii) under
Section 316 of the California Code (concerning directors' liability for
improper dividends, loans and guarantees). The provision does not extend to
acts or omissions of a director in his capacity as an officer. Further, the
provision will not affect the availability of injunctions and other equitable
remedies available to the Company's shareholders for any violation of a
director's fiduciary duty to the Company or its shareholders.
The Company's Articles of Incorporation also include an authorization for
the Company to indemnify its agents (as defined in Section 317 of the
California Code), through bylaw provisions, by agreement or otherwise, to the
fullest extent permitted by law. Pursuant to this latter provision, the
Company's Bylaws provide for indemnification of the Company's directors,
officers, agents and employees. In addition, the Company, at its discretion,
may provide indemnification to persons whom the Company is not obligated to
indemnify. The Company has entered into indemnity agreements with all
directors which provide the maximum indemnification permitted by law. These
agreements, together with the Company's Bylaws and Articles of Incorporation,
may require the Company, among other things, to indemnify such directors
against certain liabilities that may arise by reason of their status or
service as directors (other than liabilities resulting from willful
misconduct of a culpable nature), to advance expenses to them as they are
incurred, provided that they undertake to repay the amount advanced if it is
ultimately determined by a court that they are not entitled to
indemnification, and to obtain directors' and officers' insurance if
available on reasonable terms.
Section 317 of the California Code and the Company's Bylaws make
provision for the indemnification of officers, directors and other corporate
agents in terms sufficiently broad to indemnify such persons, under certain
circumstances, for liabilities (including reimbursement of expenses incurred)
arising under the Securities Act.
The Company is currently reviewing director and officer liability
insurance policies and may purchase such a policy in the future.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth as of the date hereof, certain information
regarding the ownership of the Common Stock by: (i) each person known by the
Company to be the beneficial owner of more than 5% of the outstanding Common
Stock; (ii) each of the Company's directors (other than members of the
Medical Advisory Board and Scientific Advisory Board); (iii) all of the
Company's executive officers and directors as a group and (iv) each Selling
Shareholder. Except as may be indicated in the footnotes to the table and
subject to applicable community property laws, each of the persons has sole
voting and investment power with respect to the Shares owned. Beneficial
ownership has been determined in accordance with Rule 13d-3 of the Securities
Exchange Act of 1934, as amended. Under this Rule, certain shares are deemed
to be beneficially owned by a person if the person has the right to acquire
the shares (for example, upon exercise of an option) within 60 days of the
date the information is provided; in computing the percentage ownership of
any person, the amount of shares outstanding is deemed to include the amount
of shares beneficially owned by such person (and only such person) by reason
of these acquisition rights. As a result, the percentage of outstanding
shares of any person as shown in the following table does not necessarily
reflect the persons actual voting power at any particular date.
<TABLE>
<CAPTION>
Beneficial Ownership Prior
to Beneficial Ownership
Offering After the Offering (1)
------------------------- ----------------------
Number Number of
of Shares Shares Number of
Name Owned Percent Offered Shares Percent
- ---------------------------------------- ----------- ------- --------- --------- -------
<S> <C> <C> <C> <C> <C>
Gerald D. Appel 3,715,019(2) 48.0% 1,000,000 2,715,019(2) 35.1%
3760 South Robertson Blvd.
Culver City, California 90232
Ontario Municipal Employees 1,401,561(3) 17.2% 1,401,561 0 0%
Retirement Board
One University Avenue, Suite 1100
Toronto, Ontario M5J 2P1 Canada
Altamira Management Ltd. 750,000(4) 9.2% 375,000 375,000 4.6%
250 Bloor Street East, Suite 300
Toronto, Ontario M4W 1E6 Canada
Bona Vista Asset Management Ltd. 450,000(5) 5.6% 225,000 225,000 2.8%
2300 Yonge Street, Suite 2900
P.O. Box 2384
Toronto, Ontario M4P 1E4 Canada
Hershel Toomim 192,000 2.5% 192,000 0 0%
3710 South Robertson Blvd.
Culver City, California 90232
Wayne Cockburn 63,000(6) 0.8% 62,000 1,000 --
Imutec Corporation
1285 Morningside Avenue
Scarboro, Ontario M1B 3W2 Canada
All directors and executive officers as a 3,985,019(2)(7) 51.3% 1,254,000 2,731,019 35.2%
group (6 persons)
</TABLE>
- -----------------------
(1) Assumes all shares offered are sold.
<PAGE>
(2) Includes 111,900 shares with respect to which Mr. Appel believes he has
voting power as a result of a proxy granted by Daniel J. Levendowski.
(3) Includes 405,555 shares which may be acquired upon exercise of warrants.
(4) Includes 75,000 shares which may be acquired upon exercise of warrants,
and 375,000 shares Altamira Management Ltd. has the right and obligation
to purchase immediately following the date of this Prospectus, of which
75,000 shares may be acquired upon the exercise of warrants.
(5) Includes 45,000 shares which may be acquired upon exercise of warrants,
and 225,000 shares Bona Vista Asset Management Ltd. has the right and
obligation to purchase immediately following the date of this
Prospectus, of which 45,000 shares may be acquired upon the exercise of
warrants.
(6) Includes 1,000 shares registered in the name of 260-274 Geary Avenue Ltd.
over which Mr. Cockburn has exclusive voting and investment power.
(7) Includes 15,000 shares which may be acquired upon exercise of an option.
CERTAIN TRANSACTIONS
In December 1994, the Company entered into a Securities Purchase
Agreement (the "December Purchase Agreement") with Ontario Municipal
Employees Retirement Board ("OMERB"). Pursuant to the terms of the December
Purchase Agreement, the Company sold to OMERB 680,741 shares of Common Stock
for an aggregate purchase price of $1,000,000, and granted to OMERB currently
exercisable warrants to purchase 100,000 shares (the "Series A Warrant") and
83,333 shares (the "Series B Warrant") of Common Stock with a current
exercise price of $1.50 and $1.75 per share, respectively. The Series A
Warrant expires on December 23, 1997 and the Series B Warrant expires on June
23, 1998.
In August 1995, the Company entered into another Securities Purchase
Agreement (the "August Purchase Agreement") with OMERB. Pursuant to the
terms of the August Purchase Agreement, the Company sold to OMERB 111,111
shares of Common Stock for an aggregate purchase price of $200,000, and
granted to OMERB currently exercisable warrants to purchase 222,222 shares of
Common Stock (the "Series C Warrant") with a current exercise price of $2.00
per share. The Series C Warrant expires on December 31, 1998.
The Company licenses the right to manufacture, market, sell, distribute
and further develop the MPR System and technology and any related or
derivative technology throughout the world pursuant to an exclusive
twenty-year license with TRG, a partnership among Gerald D. Appel, Daniel J.
Levendowski and Hershel Toomim. Mr. Appel is the Chairman of the Board,
Chief Executive Officer, President and a principal shareholder of the
Company, and Dr. Toomim is a director and a principal shareholder of the
Company. See "Business--Intellectual Property."
In May 1996 the Company issued to a corporation controlled by Mr.
Cockburn 100,000 shares of Common Stock in satisfaction of obligations of the
Company to such corporation for consulting services rendered during the prior
several years. This corporation presently provides no services to the
Company.
DESCRIPTION OF CAPITAL STOCK
The Company is authorized to issue up to 50,000,000 shares of Common
Stock. Subject to dividend and liquidation preferences that may be applicable
to any shares of Preferred Stock outstanding, the holders of Common Stock are
entitled to receive dividends as and when declared by the Board of Directors
out of funds legally available therefor, and, upon liquidation, dissolution
or winding up of the Company, the holders of Common Stock are entitled to
share ratably in all assets remaining after payment of liabilities. The
holders of Common Stock are entitled to one vote for each share of Common
Stock held of record by them, may cumulate votes in the election of
directors, have
<PAGE>
no preemptive or conversion rights and are not subject to further calls or
assessments by the Company. There are no redemption or sinking fund
provisions applicable to the Common Stock. The Common Stock currently
outstanding is fully paid and non-assessable.
The Company is also authorized to issue up to 10,000,000 shares of
Preferred Stock. The Board of Directors of the Company is authorized to fix
the dividend rights, dividend rate, conversion rights, voting rights,
liquidation preferences, rights and terms of redemption (including sinking
fund provisions) on any wholly-unissued series of Preferred Stock, the number
of shares constituting any such series and the designation thereof. At
present, no shares of Preferred Stock are outstanding and the Company has no
present plans to issue shares of Preferred Stock.
At January 1, 1997 the Company had outstanding options or warrants to
purchase an aggregate of 1,673,553 shares of Common Stock at various times
through March 1999 at a weighted average exercise price of $1.67 per share.
The Company has commitments from certain shareholders to purchase 480,000
shares of Common Stock and warrants to purchase 120,000 shares of Common
Stock, which warrants are exercisable at a price of $3.00 per share for one
year from issuance. It is anticipated that these units will be issued within
two weeks of the date of this Prospectus. In the event of such issuance, the
Company will issue a warrant to the broker/dealer participating in the
Offering to purchase 43,200 shares of Common Stock for an exercise price of
$2.50 per share at any time within two years from the date of issuance.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for
the Company by Troop Meisinger Steuber & Pasich, LLP, Los Angeles, California.
EXPERTS
The audited financial statements of the Company as of December 31, 1995
and for the two-years then ended have been audited by Lever, Lippe, Hellie &
Company LLP, independent certified public accountants, as indicated in their
report with respect thereto, and are included herein in reliance upon the
authority to said firm as experts in giving said report.
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AUDITED FINANCIAL STATEMENTS OF MYO DIAGNOSTICS, INC.
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . .F-2
Balance Sheets as of December 31, 1994 and 1995. . . . . . . . . . . . . . . . . . . .F-3
Statements of Operations for the years ended December 31, 1994 and 1995. . . . . . . .F-4
Statements of Shareholders' Deficit for the years ended December 31, 1994 and 1995 . .F-5
Statements of Cash Flows for the years ended December 31, 1994 and 1995. . . . . . . .F-6
Notes to Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . .F-7
UNAUDITED FINANCIAL STATEMENTS OF MYO DIAGNOSTICS, INC.
Balance Sheet as of September 30, 1996 . . . . . . . . . . . . . . . . . . . . . . . .F-16
Statements of Operations and Shareholders' Deficit for the nine
months ended September 30, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . .F-17
Statements of Cash Flows for the nine months ended September 30, 1995 and 1996 . . . .F-18
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
Myo Diagnostics, Inc.
Culver City, California
We have audited the accompanying balance sheets of Myo Diagnostics, Inc. (a
development stage company), a California corporation (the "Company"), as of
December 31, 1995 and 1994, and the related statements of operations,
shareholders' deficit, 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 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.
Statement of Financial Accounting Standards No. 7 "Accounting and Reporting
by Development Stage Enterprises", requires the statement of operations and
statement of cash flows to present cumulative amounts from the Company's
inception. The accompanying financial statements do not disclose the
cumulative amounts for the period from January 5, 1987 (date of inception) to
the year ended December 31, 1993.
In our opinion, except for the omission from the financial statements of the
disclosures described in the preceding paragraph, such financial statements
present fairly, in all material respects, the financial position of the
Company as of December 31, 1995 and 1994, and the results of its operations
and its cash flows for the years then ended in conformity with generally
accepted accounting principles.
LEVER, LIPPE, HELLIE & COMPANY LLP
June 6, 1996
F-2
<PAGE>
MYO DIAGNOSTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
ASSETS
1995 1994
----------- -----------
CURRENT ASSETS:
Cash $ 3,030 $ 657,584
Accounts receivable - less allowance for doubtful
accounts of $6,222 and $0 for 1995 and 1994,
respectively 31,468 5,200
Prepaid expenses and other assets 5,659 453
----------- -----------
Total Current Assets 40,157 663,237
FURNITURE AND EQUIPMENT, NET (Note 2) 63,487 58,486
OTHER ASSETS (Note 3) 26,079 14,399
----------- -----------
TOTAL ASSETS $ 129,723 $ 736,122
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable and accrued expenses (Note 7) $ 342,568 $ 77,995
Accrued interest payable (Note 5) 45,520 45,610
Notes payable to bank (Note 4) 400,000 400,000
Notes payable to related parties (Note 5) 146,000 248,500
----------- -----------
Total Current Liabilities 934,088 772,105
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 7)
SHAREHOLDERS' DEFICIT (Notes 5, 7, 8 and 9):
Common stock, no par value, 50,000,000 shares
authorized, 6,521,259 and 6,267,410 shares issued
and outstanding for 1995 and 1994, respectively 2,028,322 1,729,424
Deficit accumulated during the development stage (2,832,687) (1,765,407)
----------- -----------
TOTAL SHAREHOLDERS' DEFICIT (804,365) (35,983)
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT $ 129,723 $ 736,122
----------- -----------
----------- -----------
SEE ACCOMPANYING INDEPENDENT AUDITORS' REPORT
AND NOTES TO FINANCIAL STATEMENTS
F-3
<PAGE>
MYO DIAGNOSTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995 AND 1994
1995 1994
----------- ---------
REVENUE $ 67,600 $ 8,041
OPERATING EXPENSES:
Research and development 239,307 257,536
Technical services 191,588 155,688
Sales and marketing 143,934 55,983
General and administrative 515,810 315,595
----------- ---------
Total Operating Expenses 1,090,639 784,802
----------- ---------
Loss from Operations (1,023,039) (776,761)
OTHER INCOME (EXPENSE):
Interest expense (49,251) (45,427)
Interest income 5,810 1,090
----------- ---------
Total Other Income (Expense) (43,441) (44,337)
----------- ---------
Loss Before Provision for Income Taxes (1,066,480) (821,098)
Provision for Income Taxes (Note 6) 800 800
----------- ---------
Net Loss $(1,067,280) $(821,898)
----------- ---------
----------- ---------
SEE ACCOMPANYING INDEPENDENT AUDITORS' REPORT
AND NOTES TO FINANCIAL STATEMENTS
F-4
<PAGE>
MYO DIAGNOSTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF SHAREHOLDERS' DEFICIT
YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
NO. OF
VALUE SHARES ADDITIONAL
PER ISSUED COMMON PAID-IN ACCUMULATED
SHARE (NOTE 8) STOCK CAPITAL DEFICIT TOTAL
------- --------- -------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Issued upon incorporation for services $ 0.01 910,000 $ 9,100 $ (1,415) $ -- $ 7,685
Issued for services 0.01 952,250 9,523 -- 9,523
Net loss from inception through
December 31, 1990 -- -- -- $ (20,367) (20,367)
--------- -------- ----------- ----------- ------------
Balance - December 31, 1990 1,862,250 18,623 (1,415) (20,367) (3,159)
Issued for services 0.01 305,950 3,060 (656) -- 2,404
Issued for cash 2.23 11,230 112 24,888 -- 25,000
Net loss -- -- -- (243,621) (243,621)
--------- -------- ----------- ----------- ------------
Balance - December 31, 1991 2,179,430 21,795 22,817 (263,988) (219,376)
Net loss -- -- -- (258,180) (258,180)
--------- -------- ----------- ----------- ------------
Balance - December 31, 1992 2,179,430 21,795 22,817 (522,168) (477,556)
Issued for cash 0.10 11,230 112 1,011 1,123
Net loss -- -- -- (421,341) (421,341)
--------- -------- ----------- ----------- ------------
Balance - December 31, 1993 2,190,660 21,907 23,828 (943,509) (897,774)
Stock split 2,190,660 21,907 (21,907) -- --
Issued for exchange of $174,090 of debt 1.20 144,619 1,446 172,644 -- 174,090
Issued for services 0.01 60,000 600 -- -- 600
Issued for net assets of limited
partnership, net of related expenses
of $1,350 0.49 755,330 7,553 365,332 -- 372,885
Issued for cash in a private placement,
net of related expenses of $6,600 1.22 245,400 2,454 297,696 -- 300,150
Issued for cash in a private placement,
net of related expenses of $164,036 1.23 680,741 6,807 829,157 -- 835,964
Net loss -- -- -- (821,898) (821,898)
--------- -------- ----------- ----------- ------------
Balance - December 31, 1994 6,267,410 62,674 1,666,750 (1,765,407) (35,983)
Issued for cash 0.05 15,000 150 600 -- 750
Issued for cash in a private placement,
net of related expenses of $67,609 1.80 125,000 1,250 156,141 -- 157,391
Issued for cash in a private placement,
net of related expenses of $64,243 1.80 111,111 1,111 134,646 -- 135,757
Issued for cash 1.82 2,738 28 4,972 -- 5,000
Net loss -- -- -- (1,067,280) (1,067,280)
--------- -------- ----------- ----------- ------------
Balance - December 31, 1995 6,521,259 $ 65,213 $1,963,109 $(2,832,687) $ (804,365)
--------- -------- ----------- ----------- ------------
--------- -------- ----------- ----------- ------------
</TABLE>
SEE ACCOMPANYING INDEPENDENT AUDITORS' REPORT
AND NOTES TO FINANCIAL STATEMENTS
F-5
<PAGE>
MYO DIAGNOSTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
------------ -----------
<S> <S> <S>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,067,280) $ (821,898)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 36,104 27,054
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Accounts receivable (26,269) (5,200)
Prepaid expenses (5,206) (453)
Other assets (12,867) (2,061)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 264,483 84,609
------------ ----------
Net Cash Used in Operating Activities (811,035) (717,949)
------------ ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (39,917) (27,285)
------------ ----------
Net Cash Used in Investing Activities (39,917) (27,285)
------------ ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under bank revolving lines of credit -- 400,000
Borrowings on notes payable to related parties 12,000 48,500
Repayments on notes payable to related parties (114,500) (103,500)
Net proceeds from issuance of common stock 298,898 997,265
------------ ----------
Net Cash Provided by Financing Activities 196,398 1,342,265
------------ ----------
Net (Decrease) Increase in Cash (654,554) 597,031
CASH - Beginning of Year 657,584 60,553
------------ ----------
CASH - END OF YEAR $ 3,030 $ 657,584
------------ ----------
------------ ----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the years for:
Interest $ 49,251 $ 44,047
------------ ----------
------------ ----------
Taxes $ 800 $ 1,600
------------ ----------
------------ ----------
SUPPLEMENTAL DISCLOSURE OF NON-CASH
FINANCING ACTIVITIES:
During 1994, limited partners' interest in assets and
liabilities of the Partnership were transferred to the
Company through issuance of common stock and debt
as follows:
Notes payable to related parties $ - $ 175,000
Common stock issued - 372,885
------------ ----------
Limited partners' interest in net assets of Partnership $ - $ 547,885
------------ ----------
------------ ----------
During 1994, 144,619 Shares of common stock were issued upon
the conversion of notes payable to related parties $ - $ 174,090
------------ ----------
------------ ----------
</TABLE>
SEE ACCOMPANYING INDEPENDENT AUDITORS' REPORT
AND NOTES TO FINANCIAL STATEMENTS
F-6
<PAGE>
MYO DIAGNOSTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995 AND 1994
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT
ACCOUNTING POLICIES
GENERAL
Myo Diagnostics, Inc. (the "Company") (a development stage company), a
California corporation, was incorporated and commenced operations on
January 5, 1987 as AREX, Inc. The name was changed to Devion Group and
then to Myo Diagnostics, Inc. on September 15, 1989. The principal activity
of the Company is the research and development of Muscle Pattern
Recognition. Muscle Pattern Recognition provides an objective evaluation
of soft-tissue-muscle injuries.
BUSINESS COMBINATION
On December 19, 1994, the Company concluded a business combination as
discussed in the following paragraph:
The Company held a 97.2% sole general partner interest in Myo Diagnostics,
Ltd. (the "Partnership"), a California limited partnership, that began
operations on April 18, 1991. The Partnership researched and developed the
hardware and related software to perform Muscle Pattern Recognition.
Effective on December 19, 1994, the Partnership's assets and liabilities
were transferred to the Company at their book value and neither the
Partnership or Corporation recognized gain or loss. The 2.8% limited
partners exchanged their interests in the Partnership totaling $547,885
for 755,330 shares of common stock and $175,000 in notes payable (see
Note 5). The business combination was recorded in a manner similar to a
"pooling-of-interest" method of accounting. Under this method, assets and
liabilities of the Partnership were recorded at historical cost.
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to credit risk
include:
Cash on deposit with a financial institution amounting to
approximately $6,451 and $790,000 as of December 31, 1995 and 1994,
respectively, which was insured for up to $100,000 by the U.S. Federal
Deposit Insurance Corporation.
REVENUE
Revenue is reported at the estimated net realizable amounts from patients,
third-party payers and others for services rendered.
SEE ACCOMPANYING INDEPENDENT AUDITORS' REPORT
AND NOTES TO FINANCIAL STATEMENTS
F-7
<PAGE>
MYO DIAGNOSTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995 AND 1994
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT
ACCOUNTING POLICIES (Continued)
ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS
An allowance for uncollectibles is recorded to report the receivables for
services at their net realizable value. Estimates for uncollectible
accounts are reported in the period during which the services are provided
even though the actual amounts may become known at a later date. Included
in general and administrative expenses is bad debt expense of $18,291 and
$0 for the years ended December 31, 1995 and 1994, respectively.
FURNITURE AND EQUIPMENT
Furniture and equipment are stated at cost. Depreciation and amortization
are computed using the straight-line method over the estimated useful lives
of the related assets. The estimated useful lives are as follows:
Furniture and equipment 5 -7 years
Computer hardware and software 5 years
Leasehold improvements are amortized over 3 years, which is the shorter of
their estimated useful lives or the remaining term of the lease.
Expenditures for maintenance and repair are charged to operations as
incurred, while renewals and betterments are capitalized.
PATENT
Patents consist of legal fees incurred in securing a patent for the
Company's product. These costs are amortized over a period of seventeen
years using the straight-line method.
INCOME TAXES
Effective January 1, 1993, the Company became a taxable entity. Previously,
the Company was taxed as an "S" corporation. As such, the Company's
earnings and losses were included in the personal tax returns of the
stockholders, and the Company did not record an income-tax provision.
Effective with the change in tax status, income taxes are provided for the
tax effects of transactions reported in the financial statements and
consist of taxes currently due plus deferred taxes related primarily to
temporary differences between tax and financial reporting of certain assets
and liabilities.
SEE ACCOMPANYING INDEPENDENT AUDITORS' REPORT
AND NOTES TO FINANCIAL STATEMENTS
F-8
<PAGE>
MYO DIAGNOSTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995 AND 1994
1. DESCRIPTION OF BUSINESS AND 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 reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
RECLASSIFICATIONS
Certain amounts in the 1994 financial statements have been reclassified to
conform with the 1995 presentation.
2. FURNITURE AND EQUIPMENT
Furniture and equipment consists of the following:
1995 1994
--------- --------
Leasehold improvements $ 1,420 $ --
Furniture and equipment 67,911 60,095
Computer hardware and software 121,245 90,564
--------- --------
190,576 150,659
Accumulated depreciation (127,089) (92,173)
--------- --------
FURNITURE AND EQUIPMENT, NET $ 63,487 $ 58,486
--------- --------
--------- --------
Depreciation and amortization expense charged to operations during the
years ended December 31, 1995 and 1994 was $34,916 and $26,466,
respectively.
SEE ACCOMPANYING INDEPENDENT AUDITORS' REPORT
AND NOTES TO FINANCIAL STATEMENTS
F-9
<PAGE>
MYO DIAGNOSTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995 AND 1994
3. OTHER ASSETS
Other assets consist of the following:
1995 1994
------- -------
Patents (net of accumulated amortization
of $2,265 in 1995 and $1,077 in 1994) $19,957 $10,011
Security deposits 6,122 4,388
------- -------
TOTAL OTHER ASSETS $26,079 $14,399
------- -------
------- -------
Amortization expense on patent costs charged to operations during the years
ended December 31, 1995 and 1994 was $1,188 and $870.
4. NOTES PAYABLE TO BANK
The Company has six revolving lines of credit with a bank that provide for
borrowings up to a total of $400,000. Borrowings under these lines of
credit bear interest at the bank's prime rate (8.75% and 8.5% as of
December 31, 1995 and 1994, respectively) plus .75% to 1.5%, payable
monthly. These revolving lines of credit will mature beginning June 10,
1996 through January 10, 1997, and are collateralized by standby letters of
credit issued to certain third parties (see Note 9). The Company has
$400,000 outstanding on these revolving lines of credit as of December 31,
1995 and 1994.
SEE ACCOMPANYING INDEPENDENT AUDITORS' REPORT
AND NOTES TO FINANCIAL STATEMENTS
F-10
<PAGE>
MYO DIAGNOSTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995 AND 1994
5. RELATED PARTY TRANSACTIONS
NOTES PAYABLE TO RELATED PARTIES
Notes payable to related parties consist of amounts borrowed from
shareholders of the Company. These amounts are as follows as of
December 31, 1995 and 1994:
1995 1994
-------- --------
Unsecured-promissory notes payable to
shareholders in the original principal amount
totaling $175,000 were incurred in connection
with purchasing the 2.8% limited partners'
interest in the Partnership. These notes bear
interest at 8% per annum. The principal sum
of $87,500 plus accrued interest was due
January 31, 1995. The remaining principal
sum of $87,500 plus accrued interest was due
September 30, 1995. In the event of default of
the remaining principal sum of $87,500, the
Company shall issue 3,000 shares of common
stock to the holders of such notes in addition
to the payment of principal and interest. The
Company is in default on the $87,500 remaining
principal sum and is committed to issue 42,000
shares of common stock (see Note 7) $ 87,500 $175,000
Unsecured-promissory notes payable to the
Company's officer and majority shareholder.
These notes bear interest at 10% per annum and
are due upon demand. 58,500 73,500
-------- --------
TOTAL $146,000 $248,500
-------- --------
-------- --------
LICENSING AGREEMENT
The Company is obligated under a licensing agreement to a partnership whose
partners are officers and shareholders of the Company (see Note 7).
SEE ACCOMPANYING INDEPENDENT AUDITORS' REPORT
AND NOTES TO FINANCIAL STATEMENTS
F-11
<PAGE>
MYO DIAGNOSTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995 AND 1994
6. INCOME TAXES
As discussed in Note 1, the Company changed its tax status, effective
January 1, 1993. As of December 31, 1995, the Company has approximately
$2,267,000 in federal net operating loss carryforwards, attributable to
losses incurred since the change in its tax status, that may be offset
against future taxable income through the year 2008. The deferred-income-
tax benefit of the loss carryforward has been offset by a valuation
allowance of the same amount. Accordingly, no deferred-income-tax benefit
has been recognized in the 1995 and 1994 financial statements.
The provision for income taxes consists of current taxes payable in the
amount of $800, which represents the California minimum franchise tax.
7. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases its facilities and certain equipment under non-
cancelable-operating leases and sub-leases expiring at various dates
through 1997. Certain leases contain renewal provisions. Future minimum
lease payments under these operating leases as of December 31, 1995 are
summarized as follows:
YEARS ENDING AMOUNT
-------------- ----------
1996 $ 51,281
1997 50,761
1998 24,600
----------
Total $126,642
----------
----------
Rent expense under all operating leases was $41,309 and $35,187 for the
years ended December 31, 1995 and 1994.
LICENSING AGREEMENT
The Company has a licensing agreement with Toomim Research Group ("TRG"),
a partnership, whose partners are also shareholders of the Company (see
Note 5). Under the terms of the licensing agreement, the Company is
entitled to exclusive rights to the product under development by the
Company, beginning on August 1, 1993 and ending on August 1, 2013, unless
terminated earlier. As consideration for the exclusive rights to the
product, the Company shall pay TRG a royalty.
SEE ACCOMPANYING INDEPENDENT AUDITORS' REPORT
AND NOTES TO FINANCIAL STATEMENTS
F-12
<PAGE>
MYO DIAGNOSTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995 AND 1994
7. COMMITMENTS AND CONTINGENCIES (Continued)
The royalty is payable quarterly under the following terms:
- The Company shall pay a royalty on the lesser of 10% of total revenue
or $30 per patient examined and report prepared up to the first 10,000
examinations. After the first 10,000 examinations, the Company shall pay
a royalty of 5% of total revenue but not less than $12.50 per patient
examined and report prepared.
- The Company shall pay a royalty of 5% of total revenue for each sale,
lease, rental, license, transfer or assignment of the product under
license to the extent that no royalty was paid on such total revenue.
- The Company shall pay a royalty of 3% of total revenue for any derivative
technology developed by the Company to the extent that no royalty was
paid on such total revenue.
Under the terms of this agreement, included in accounts payable and accrued
expenses are royalties payable of $1,350 and $0 as of December 31, 1995 and
1994, respectively. There were no royalties paid during the years ended
December 31, 1995 and 1994.
COMMITMENTS TO ISSUE COMMON STOCK
The Company is committed to issue common stock as of December 31, 1995, as
follows:
As discussed in Note 5, the Company defaulted on the $87,500 remaining
principal sum of the notes payable to related parties and is obligated to
issue 42,000 shares of common stock. As of December 31, 1995, included in
accounts payable and accrued expenses is $75,600 that represents the
estimated fair value, on date of default, of the 42,000 shares of common
stock to be issued in 1996.
As of December 31, 1995, the Company is obligated to pay $100,000 in
connection with services rendered for common-stock-private placements. The
Company will settle this obligation with cash or common stock.
8. SHAREHOLDERS' DEFICIT
STOCK SPLIT
On May 4, 1994, the Board of Directors authorized a two-for-one-stock split
of the Company's no par value common stock for shareholders as of that
date. As a result of the split, 2,190,660 shares were issued. All
references in the accompanying financial statements to the per share
amounts for 1994 have been restated to reflect the stock split.
SEE ACCOMPANYING INDEPENDENT AUDITORS' REPORT
AND NOTES TO FINANCIAL STATEMENTS
F-13
<PAGE>
MYO DIAGNOSTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995 AND 1994
8. SHAREHOLDERS' DEFICIT (Continued)
COMMON STOCK ISSUED FOR SERVICES
Since its inception, the Company has issued a total of 4,396,400 shares of
common stock for services rendered. The common stock issued was recorded
at $.01 per share, which was the fair value determined by the Board of
Directors at the time of issuance.
COMMON STOCK ISSUED FOR NET ASSETS OF PARTNERSHIP
During 1994, the Company issued a total of 755,330 shares of common stock
for approximately $.49 per share in connection with a business combination
with the Partnership, as discussed in Note 1. The fair value assigned to
the common stock was determined by the Board of Directors on the date of
the business combination and represents the net book value of the limited
partners' interest in the net assets transferred, net of $175,000 notes
payable (Note 5).
STOCK ISSUE COSTS
The Company incurred a total of $44,984 in expenses relating to a withdrawn
1995-private placement. These expenses were charged to operations and are
included in general and administrative expenses for the year ended
December 31, 1995.
9. STOCK OPTIONS AND WARRANTS
STOCK OPTIONS
There were 70,000 and 50,000 options granted allowing employees and
consultants to purchase shares of common stock at option prices, ranging
from $.10 to $1.47 per share as of December 31, 1995 and 1994,
respectively. These options expire upon certain events. These options have
not been exercised as of December 31, 1995.
SEE ACCOMPANYING INDEPENDENT AUDITORS' REPORT
AND NOTES TO FINANCIAL STATEMENTS
F-14
<PAGE>
MYO DIAGNOSTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995 AND 1994
9. STOCK OPTIONS AND WARRANTS (Continued)
WARRANTS
As of December 31, 1995, the Company had outstanding warrants to purchase a
total of 615,555 shares of common stock as follows:
Warrant Expiration Date 12/23/97 6/23/98 12/31/98 12/31/96 12/31/96
--------- -------- --------- --------- ---------
Shares allocated 100,000 83,333 222,222 200,000 10,000
--------- -------- --------- --------- ---------
--------- -------- --------- --------- ---------
Warrant price per share $1.50 $1.75 $2.00 $2.50 $2.00
--------- -------- --------- --------- ---------
--------- -------- --------- --------- ---------
STOCK OPTIONS GRANTED FOR COLLATERALIZING NOTES PAYABLE TO BANK
As collateral for the bank revolving lines of credit (see Note 4), certain
third parties (the "Guarantors") have guaranteed the notes payable to bank
by obtaining standby letters of credit totaling $400,000. The Company
granted stock options to purchase the Company's common stock as
consideration for the guarantees. These options entitle the Guarantors to
purchase an aggregate of 400,000 shares of common stock for $1.13 per
share, if certain conditions are met. The options became exercisable at
various dates during 1995; and expire upon certain conditions. These
options have not been exercised as of December 31, 1995.
SEE ACCOMPANYING INDEPENDENT AUDITORS' REPORT
AND NOTES TO FINANCIAL STATEMENTS
F-15
<PAGE>
MYO DIAGNOSTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
SEPTEMBER 30, 1996
ASSETS
CURRENT ASSETS:
Cash $ 224,455
Accounts receivable - less allowance for doubtful
accounts of $9,150 18,022
Prepaid expenses and other assets 6,509
-------------
Total Current Assets 248,986
FURNITURE AND EQUIPMENT, Net of accumulated
depreciation of $155,030 128,165
OTHER ASSETS 29,251
-------------
Total Assets $ 406,402
-------------
-------------
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 106,954
Accrued interest payable 45,710
Capital lease obligation 47,346
Notes payable to bank 400,000
Notes payable to related parties 229,500
-------------
Total Current Liabilities 829,510
-------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' DEFICIT:
Common stock, no par value, 50,000,000 shares
authorized, 7,221,037 shares issued and outstanding 3,200,154
Deficit accumulated during the development stage (3,623,262)
-------------
Total Shareholders' Deficit (423,108)
-------------
Total Liabilities and Shareholders' Deficit $ 406,402
-------------
--------------
SEE ACCOMPANYING INDEPENDENT AUDITORS' REPORT
AND NOTES TO FINANCIAL STATEMENTS
F-16
<PAGE>
MYO DIAGNOSTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS AND SHAREHOLDERS' DEFICIT
NINE MONTHS ENDED SEPTEMBER 30, 1996
SEPTEMBER 30, SEPTEMBER 30,
1996 1995
----------------- -----------------
REVENUE $ 13,650 $ 57,200
OPERATING EXPENSES:
Research and development 164,253 194,959
Technical services 133,415 161,133
Sales and marketing 65,975 118,096
General and administrative 399,076 285,729
----------------- -----------------
Total Operating Expenses 762,719 759,917
----------------- -----------------
Loss from Operations (749,069) (702,717)
OTHER INCOME (EXPENSE):
Interest expense (46,612) (36,561)
Interest income 5,121 5,427
----------------- -----------------
Total Other Income (Expense) (41,491) (31,134)
----------------- -----------------
Net Loss (790,560) (733,851)
SHAREHOLDERS' DEFICIT ACCUMULATED DURING THE
DEVELOPMENT STAGE - BEGINNING OF YEAR (2,832,702) (1,765,090)
----------------- -----------------
SHAREHOLDERS' DEFICIT ACCUMULATED DURING THE
DEVELOPMENT STAGE - END OF YEAR $ (3,623,262) $ (2,498,941)
----------------- -----------------
----------------- -----------------
SEE ACCOMPANYING ACCOUNTANTS' COMPILATION REPORT
F-17
<PAGE>
MYO DIAGNOSTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
SEPTEMBER 30, SEPTEMBER 30,
1996 1995
----------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (790,560) $ (733,851)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 27,940 26,158
Changes in operating assets and
liabilities:
(Increase) decrease in assets:
Accounts receivable 13,446 (42,073)
Prepaid expenses (850) (14,189)
Other assets (3,172) (8,435)
Increase (decrease) in liabilities:
Accounts payable and accrued
expenses (235,424) 35,987
----------------- -----------------
Net Cash Used in Operating
Activities (988,620) (736,403)
----------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (92,619) (13,725)
----------------- -----------------
Net Cash Used in Investing
Activities (92,619) (13,725)
----------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on notes payable to related
parties 95,500 -
Repayments on notes payable to related
parties (12,000) (114,500)
Net proceeds from issuance of common
stock 1,171,818 -
Capital lease obligation 47,346 374,386
----------------- -----------------
Net Cash Provided by Financing
Activities 1,302,664 259,886
----------------- -----------------
Net Increase (Decrease) in Cash 221,425 (490,242)
CASH - Beginning of Periods 3,030 657,584
----------------- -----------------
CASH - End of Periods $ 224,455 $ 167,342
----------------- -----------------
----------------- -----------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the periods for:
Interest $ 40,483 $ 39,634
----------------- -----------------
----------------- -----------------
Income Taxes $ 800 $ 800
----------------- -----------------
----------------- -----------------
SEE ACCOMPANYING ACCOUNTANTS' COMPILATION REPORT
F-18
<PAGE>
No dealer, salesperson or any other individual has been
authorized to give any information or make any representations in
connection with the Offering covered by this Prospectus other
than those contained in this Prospectus. If given or made, such
information or representations must not be relied upon as having
been authorized by the Company. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy
any of the Shares in any jurisdiction to any person to whom it is
unlawful to make such offer or solicitation. Neither the
delivery of this Prospectus nor any sale made hereunder shall,
under any circumstances, create an implication that there has not
been any change in the facts set forth in this Prospectus or in
the affairs of the Company since the date hereof.
TABLE OF CONTENTS
Additional Information .................................. 2
Prospectus Summary ...................................... 3
Risk Factors ............................................ 4
The Company ............................................. 7
Dividend Policy ......................................... 7
Capitalization .......................................... 7
Common Stock Matters .................................... 7
Management's Discussion and Analysis of Results of
Operations and Financial Condition ................... 8
Business ................................................ 9
Management .............................................. 16
Principal and Selling Shareholders ...................... 20
Certain Transactions .................................... 21
Description of Capital Stock ............................ 21
Legal Matters ........................................... 22
Experts ................................................. 22
Index to Financial Statements ........................... F-1
UNTIL _______________, 1997, (90 DAYS AFTER THE DATE OF THIS
PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION,
MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
3,255,561 Shares
MYO DIAGNOSTICS, INC.
Common Stock
_______________
PROSPECTUS
_______________
______________ ____, 1997
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant's Articles of Incorporation include a provision that
eliminates the personal liability of its directors to the Registrant and its
shareholders for monetary damages for breach of the directors' fiduciary
duties in certain circumstances. This limitation has no effect on a
director's liability (i) for acts or omissions that involve intentional
misconduct or a knowing and culpable violation of law, (ii) for acts or
omissions that a director believes to be contrary to the best interests of
the Registrant or its shareholders or that involve the absence of good faith
on the part of the director, (iii) for any transaction from which a director
derived an improper personal benefit, (iv) for acts or omissions that show a
reckless disregard for the director's duty to the Registrant or its
shareholders in circumstances in which the director was aware, or should have
been aware, in the ordinary course of performing a director's duties, of a
risk of a serious injury to the Registrant or its shareholders, (v) for acts
or omissions that constitute an unexcused pattern of inattention that amounts
to an abdication of the director's duty to the Registrant or its
shareholders, (vi) under Section 310 of the California Corporations Code (the
"California Code") (concerning contracts or transactions between the
Registrant and a director) or (vii) under Section 316 of the California Code
(concerning directors' liability for improper dividends, loans and
guarantees). The provision does not extend to acts or omissions of a
director in his capacity as an officer. Further, the provision will not
affect the availability of injunctions and other equitable remedies available
to the Registrant's shareholders for any violation of a director's fiduciary
duty to the Registrant or its shareholders.
The Registrant's Articles of Incorporation also include an authorization
for the Registrant to indemnify its agents (as defined in Section 317 of the
California Code), through bylaw provisions, by agreement or otherwise, to the
fullest extent permitted by law. Pursuant to this latter provision, the
Registrant's Bylaws provide for indemnification of the Registrant's
directors, officers, agents and employees. In addition, the Registrant, at
its discretion, may provide indemnification to persons whom the Registrant is
not obligated to indemnify. Registrant has entered into indemnity agreements
with all directors which provide the maximum indemnification permitted by
law. These agreements, together with the Registrant's Bylaws and Articles of
Incorporation, may require the Registrant, among other things, to indemnify
such directors against certain liabilities that may arise by reason of their
status or service as directors (other than liabilities resulting from willful
misconduct of a culpable nature), to advance expenses to them as they are
incurred, provided that they undertake to repay the amount advanced if it is
ultimately determined by a court that they are not entitled to
indemnification, and to obtain directors' and officers' insurance if
available on reasonable terms.
Section 317 of the California Code and the Registrant's Bylaws make
provision for the indemnification of officers, directors and other corporate
agents in terms sufficiently broad to indemnify such persons, under certain
circumstances, for liabilities (including reimbursement of expenses incurred)
arising under the Securities Act.
The Registrant is currently reviewing director and officer liability
insurance policies and may purchase such a policy in the future.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.
<PAGE>
Reference is made to the following documents filed as exhibits to this
Registration Statement regarding relevant indemnification provisions
described above and elsewhere herein:
DOCUMENT EXHIBIT NUMBER
Registrant's Amended and Restated Articles of
Incorporation........................................... 3.1
Registrant's Bylaws....................................... 3.2
Registrant's Form of Indemnification Agreement............ 10.1
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table itemizes the expenses incurred by the Registrant in
connection with the issuance and distribution of the securities being
registered. All the amounts shown are estimates except the Securities and
Exchange Commission registration fee:
Registration fee--Securities and
Exchange Commission ............................ $ 2,388
Accounting fees and expenses ........................ $ 1,500
Legal fees and expenses ............................. $30,000
Printing ............................................ $ 6,500
Miscellaneous ....................................... $ 1,000
-------
Total ..................................... $41,388
-------
-------
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
In May 1994 the Company issued 11,230 shares of Common Stock for $1,123
upon exercise of an option issued for a certain securities brokerage services
provided by a securities broker. The issuance of these shares was exempt from
registration pursuant to Section 4(2) of the Act as a transaction not
involving any public offering.
In August 1994 the Company issued options to purchase 400,000 shares of
Common Stock for $1.13 per share to six Canadian residents who provided
letters of credit to support the Company's bank debt. The issuance of these
shares was exempt from registration pursuant to Regulation S and pursuant to
Section 4(2) of the Act as a transaction not involving any public offering.
In December 1994 the Company issued 60,000 shares for $600 upon exercise
of an option granted to Wayne Cockburn, a Canadian resident, for financial
consulting and investment banking services provided by that individual. The
issuance of these shares was exempt from registration pursuant to Regulation
S and Section 4(2) of the Act as a transaction not involving any public
offering.
In December 1994 the Company issued an aggregate of 755,330 shares of
Common Stock and notes in the aggregate principal amount of $175,000 in
exchange for limited partnership interest and revenue participation interests
of limited partners and others in Myo Diagnostics, Ltd., a limited
partnership for which the Company was the general partner (the
"Partnership"). In June 1996 the Company issued 42,000 shares of Common
Stock to the former limited partners of the Partnership as a penalty for
failing to timely pay principal and interest on notes issued to such
partners. The issuance of these securities was exempt from registration
pursuant to Regulation S and pursuant to Section 4(2) of the Act as a
transaction not involving any public offering.
In December 1994 the Company issued 680,741 shares of Common Stock and
warrants to purchase 183,333 shares of Common Stock for an aggregate of
$1,000,000 to the Ontario Municipal Employees Retirement Board, Ontario,
Canada ("OMERB"). The issuance of these securities was exempt from
registration pursuant to Regulation S and pursuant to Section 4(2) as a
transaction not involving any public offering. The Company paid a
<PAGE>
brokerage commission of $100,000 to Michael Ryshpan, Ontario, Canada, for
services in connection with this transaction.
In December 1994 the Company issued 144,619 shares of Common Stock to
Gerald D. Appel, Chief Executive Officer, Chairman of the Board and principal
shareholder of the Company, in cancellation of indebtedness of $212,589 owed
by the Company to Mr. Appel for advances made by Mr. Appel to the Company.
The issuance of to these shares was exempt from registration pursuant to
Section 4(2) as a transaction not involving any public offering.
In March 1995, the Company issued: (i) an option to purchase 15,000
shares of Common Stock for $.10 per share to an executive officer of the
Company, and (ii) an option to purchase 5,000 shares of Common Stock for
$1.17 per share to an employee of the Company. The issuance of these options
was exempt from registration pursuant to Section 4(2) of the Act as a
transaction not involving any public offering.
In April 1995 the Company issued 15,000 shares of the Common Stock for
$750 upon an exercise of an option granted in 1992 to a physician who had
provided facilities and services in connection with clinical studies by the
Company. The issuance of these shares was exempt from registration pursuant
to Section 4(2) of the Act as a transaction not involving any public offering.
In August 1995 the Company issued 125,000 shares of Common Stock and
warrants to purchase 200,000 shares of Common Stock for an aggregate of
$225,000 to an institutional investment fund in Ontario, Canada, and issued
113,849 shares of Common Stock and warrants to purchase 222,000 shares of
Common Stock for an aggregate purchase price of $205,000 to OMERB. The
issuance of these securities was exempt from registration pursuant to
Regulation S and pursuant to Section 4(2) of the Act as a transaction not
involving any public offering.
In January 1996 the Company issued 27,778 shares for an aggregate of
$50,000 to a shareholder of the Company who was a resident of Canada. The
issuance of these shares was exempt from registration pursuant to Regulation
S and pursuant to Section 4(2) of the Act as a transaction not involving any
public offering.
In February 1996, the Company issued a note in the amount of $50,000 and
warrants to purchase 20,000 shares of Common Stock for $2.50 per share for an
aggregate of $50,000 to an investment fund in Ontario, Canada. In December
1996, the Company issued to the investment fund 25,000 shares of Common Stock
in cancellation of this note. The issuance of these securities was exempt
from registration pursuant to Regulation S and pursuant to Section 4(2) of
the Act as a transaction not involving any public offering.
In May 1996, Registrant sold 500,000 shares of its Common Stock for
$2.00 per share, or an aggregate purchase price of $1,000,000, to Canadian
investors. The issuance of these securities was exempt from registration
pursuant to Regulation S and pursuant to Section 4(2) of the Act as a
transaction not involving any public offering.
In June 1996, Registrant issued an option to purchase 12,000 shares of
Common Stock for $.50 per share to an individual who is on the Scientific
Advisory Board of the Registrant in satisfaction of certain consulting
services provided by this individual. The issuance of this option was exempt
from registration pursuant to Section 4(2) of the Act as a transaction not
involving any public offering by the Registrant.
In September 1996 the Registrant issued 50,000 shares of Common Stock
for $.10 per share upon exercise of an option granted in September 1993 to an
individual who is on the Company's Medical Advisory Board for consulting
services to the Registrant. The issuance of these shares was exempt from
registration pursuant to Section 4(2) of the Act as a transaction not
involving any public offering.
In December 1996 the Registrant issued and sold 480,000 units to two
Canadian institutional investors for an aggregate of $1,200,000. Each unit
was comprised of one share of Common Stock and one quarter stock purchase
warrant. Each whole warrant entitles the holder to purchase one share of
Common Stock at a price of $3.00 per share through December 1997. The
Registrant utilized the services of Griffiths McBurney & Partners, a
broker/dealer in Ontario, Canada, in connection with this transaction, which
received a fee of $84,000 and warrants to purchase 43,200 shares of Common
Stock at a price of $2.50 per share, exercisable through December 1998. The
issuance of these securities was exempt from registration pursuant to
Regulation S and pursuant to Section 4(2) of the Act as a transaction not
involving any public offering.
<PAGE>
ITEM 27. EXHIBITS.
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
3.1 Amended and Restated Articles of Incorporation of Registrant.
3.2 Bylaws of Registrant.
4.1 Specimen Stock Certificate of Common Stock of Registrant.
5.1 Opinion and Consent of Troop Meisinger Steuber & Pasich, LLP.*
10.1 Form of Indemnification Agreement.
10.2 Licensing Agreement, dated October 31, 1993, by and between
Registrant and Toomim Research Group, as amended.
10.3 Securities Purchase Agreement, dated December 23, 1994, by and
among Registrant, OMERB, Gerald Appel and Hershel Toomim.
10.4 Securities Purchase Agreement, dated August 18, 1995, by and among
Registrant, OMERB and Gerald Appel.
10.5 Series A Warrant of OMERB, dated December 23, 1994, as amended.
10.6 Series B Warrant of OMERB, dated December 23, 1994, as amended.
10.7 Series C Warrant of OMERB, dated August 18, 1995, as amended.
10.8 Waiver Letter, dated December 8, 1995, from OMERB to Registrant.
10.9 Letter Agreement, dated July 8, 1996, by and between Registrant and
OMERB.
10.10 Letter Agreement, dated December 13, 1994, by and among Registrant
and Donald Patterson, Ronald Goldsack, James Connacher, Chris Skillen,
Richard Reid and James Black, and Form of Stock Option Agreement,
dated December 19, 1994, by and among Registrant and such persons,
as amended.
10.11 Lease Agreement, dated August 1, 1996, by and between Registrant
and The Urcis Family Trust.
10.12 Non-transferable Warrant of Griffiths McBurney & Partners, dated
December 6, 1996.
10.13 Form of Warrant, dated December 6, 1996, by and among Registrant
and persons purchasing units in private placement of December 6,
1996.
10.14 Stock Option Agreement, dated March 23, 1995, by and between
Registrant and Steve Nelson.
10.15 Business PrimeLine Promissory Notes, between Registrant and Wells
Fargo Bank, National Association, as amended.
23.1 Consent of Troop Meisinger Steuber & Pasich, LLP (included in its
opinion to be filed as Exhibit 5.1 hereto).*
23.2 Consent of Lever, Lippe, Hellie & Company LLP
24.1 Power of Attorney (included in signature page).
27 Financial Data Schedule.
___________________________
* To be filed by Amendment.
<PAGE>
ITEM 28. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes:
(1) to file, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events
which, individually or together, represent a fundamental
change in the information in the registration statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form or
prospectus filed with the Commission pursuant to Rule 424(b)
if, in the aggregate, the changes in volume and price
represent no more than a 20 percent change in the maximum
aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration
statement.
(iii) Include any additional or changed material information on
the plan of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time
to be the initial BONA FIDE offering.
(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers, and controlling persons
of the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer of controlling person of the registrant in the successful defense of
any action, suite of proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by a 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.
<PAGE>
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 Los Angeles, State of California,
on January 3, 1997.
MYO DIAGNOSTICS, INC.
BY: /S/ GERALD D. APPEL
----------------------------------
GERALD D. APPEL, PRESIDENT, CHIEF
EXECUTIVE OFFICER AND CHAIRMAN OF
THE BOARD OF DIRECTORS
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints
Gerald D. Appel as his true and lawful attorney-in-fact and agent with full
power of substitution and resubstitution, for him and his name, place and
stead, in any and all capacities, to sign any or all amendments (including
post effective amendments) to this Registration Statement and a new
Registration Statement filed pursuant to Rule 462(b) of the Securities Act of
1933 and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done in
and about the foregoing, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his substitute, 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 and on the dates stated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Gerald D. Appel President, Chief Executive January 3, 1997
- ---------------------------- Officer and Chairman of
GERALD D. APPEL the Board of Directors
/s/ Scott Roecklein Vice President of Operations January 2, 1997
- ---------------------------- and Secretary
SCOTT ROECKLEIN (Principal Financial and
Accounting Officer)
/s/ Dr. Hershel Toomim, Sc.D. Director January 2, 1997
- ----------------------------
DR. HERSHEL TOOMIM, SC.D.
/s/ Wayne C. Cockburn Director January 3, 1997
- ----------------------------
WAYNE C. COCKBURN
<PAGE>
CERTIFICATE OF
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
MYO DIAGNOSTICS, INC.
Gerald D. Appel and Scott Roecklein certify that:
1. They are the President and the Secretary, respectively, of Myo
Diagnostics, Inc., a California corporation.
2. The Articles of Incorporation of the Corporation are amended and
restated to read as follows:
I
The name of this Corporation is Myo Diagnostics, Inc.
II
The purpose of this Corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
California other than the banking business, the trust company business, or the
practice of a profession permitted to be incorporated by the California
Corporations Code.
III
(a) The liability of the directors of this Corporation for monetary
damages shall be eliminated to the fullest extent permissible under California
law.
(b) This Corporation is authorized to provide for, whether by bylaw,
agreement or otherwise, the indemnification of agents (as defined in Section 317
of the California General Corporation Law) of this Corporation in excess of that
expressly permitted by such Section 317 for those agents, for breach of duty to
this Corporation and its shareholders to the extent permissible under California
law (as now or hereafter in effect). In furtherance and not in limitation of
the powers conferred by statute:
(i) this Corporation may purchase and maintain insurance on behalf of
any person who is or was a director, officer, employee or agent of this
Corporation, or is serving at the request of this Corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise against any liability asserted
against him and incurred by him in any such capacity, or arising out of his
<PAGE>
status as such, whether or not this Corporation would have the power to
indemnify against such liability under the provisions of law; and in furtherance
thereof, this Corporation is authorized to the fullest extent permissible under
California law (as now or hereafter in effect) to own all or any portion of the
shares of the company issuing any such policy of insurance; and
(ii) this Corporation may create a trust fund, grant a security
interest and/or use other means (including, without limitation, letters of
credit, surety bonds and/or other similar arrangements), as well as enter into
contracts providing indemnification to the fullest extent authorized or
permitted by law and including as part thereof provisions with respect to any or
all of the foregoing to ensure the payment of such amounts as may become
necessary to effect indemnification as provided therein, or elsewhere.
No such bylaw, agreement or other form of indemnification shall be
interpreted as limiting in any manner the rights which such agents would have to
indemnification in the absence of such bylaw, agreement or other form of
indemnification.
(c) Any repeal or modification of the foregoing provisions of this Article
III by the shareholders of this Corporation shall not adversely affect any right
or protection of a director of this Corporation existing at the time of such
repeal or modification.
IV
This Corporation is authorized to issue two classes of shares, designated,
respectively, "Preferred Stock" and "Common Stock." The number of shares of
Preferred Stock authorized to be issued is 10,000,000 and the number of shares
of Common Stock authorized to be issued is 50,000,000.
The Preferred Stock may be divided into such number of series as the Board
of Directors of this Corporation may determine. The Board of Directors of this
Corporation is authorized to determine and alter the rights, preferences,
privileges and restrictions granted to and imposed upon the Preferred Stock or
any series thereof with respect to any wholly unissued class or series of
Preferred Stock, and to fix the number of shares of any series of Preferred
Stock and the designation of any such series of Preferred Stock. The Board of
Directors of this Corporation, within the limits and restrictions stated in any
resolution or resolutions of the Board of Directors of this Corporation
originally fixing the number of shares constituting any series, may increase or
decrease (but not below the number of shares of such series then outstanding)
the number of shares of any series subsequent to the issue of that series.
3. The foregoing amendment and restatement of Articles of
Incorporation has been duly approved by the Board of Directors.
4. The foregoing amendment and restatement of Articles of
Incorporation has been duly approved by the required vote of shareholders in
accordance with Section 902 of the Corporations Code. The total number of
outstanding shares of the
2
<PAGE>
Corporation is 7,721,037. The number of shares voting in favor of the amendment
equaled or exceeded the vote required. The percentage vote required was more
than 50%.
We further declare under penalty of perjury under the laws of the
State of California that the matters set forth in this Certificate are true and
correct of our own knowledge.
DATE: December 23, 1996 /s/ Gerald D. Appel
----------------------------------------
Gerald D. Appel, President
/s/ Scott Roecklein
----------------------------------------
Scott Roecklein, Secretary
3
<PAGE>
BY-LAWS OF
MYO DIAGNOSTICS, INC.
(A California Corporation)
ARTICLE I
SHAREHOLDERS' MEETINGS
SECTION 1. TIME. An annual meeting for the election of directors and for the
transaction of any other proper business and any special meeting shall be held
on the date and at the time as the Board of Directors shall from time to time
fix. Time of Meeting: 1:30 o'clock p.m. Date of Meeting: The day of first of
November, 1990.
SECTION 2. PLACE. Annual meetings and special meetings shall be held at such
place, within or without the State of California, as the Directors may, from
time to time, fix. Whenever the Directors shall fail to fix such place, the
meetings shall be held at the principal executive office of the corporation.
SECTION 3. CALL. Annual meetings may be called by the Directors, by the
Chairman of the Board, if any, Vice Chairman of the Board, if any, the
President, if any, the Secretary, or by any officer instructed by the Directors
to call the meeting. Special meetings may be called in like manner and by the
holders of shares entitled to cast not less than ten percent of the votes at the
meeting being called.
SECTION 4. NOTICE. Written notice stating the place, day and hour of each
meeting, and, in the case of a special meeting, the general nature of the
business to be transacted or, in the case of an Annual Meeting, those matters
which the Board of Directors, at the time of mailing of the notice, intends to
present for action by the shareholders, shall be given not less than ten days
(or not less than any such other minimum period of days as may be prescribed by
the General Corporation Law) or more than sixty days (or more than any such
maximum period of days as may be prescribed by the General Corporation Law)
before the date of the meeting, by mail, personally, or by other means of
written communication, charges prepaid by or at the direction of the Directors,
the President, if any, the Secretary or the officer or persons calling the
meeting, addressed to each shareholder at his address appearing on the books of
the corporation or given by him to the corporation for the purpose of notice,
or, if no such address appears or is given, at the place where the principal
executive office of the corporation is located or by publication at least once
in a newspaper of general circulation in the county in which the said principal
executive office is located. Such notice shall be deemed to be delivered when
deposited in the United States mail with first class postage therein prepaid, or
sent by other means of written
<PAGE>
communication addressed to the shareholder at his address as it appears on the
stock transfer books of the corporation. The notice of any meeting at which
directors are to be elected shall include the names of nominees intended at the
time of notice to be presented by management for election. At an annual meeting
of shareholders, any matter relating to the affairs of the corporation, whether
or not stated in the notice of the meeting, may be brought up for action except
matters which the General Corporation Law requires to be stated in the notice of
the meeting. The notice of any annual or special meeting shall also include, or
be accompanied by, any additional statements, information, or documents
prescribed by the General Corporation Law. When a meeting is adjourned to
another time or place, notice of the adjourned meeting need not be given if the
time and place thereof are announced at the meeting at which the adjournment is
taken; provided that, if after the adjournment a new record date is fixed for
the adjourned meeting, a notice of the adjourned meeting shall be given to each
shareholder. At the adjourned meeting, the corporation may transact any
business which might have been transacted at the original meeting.
SECTION 5. CONSENT. The transaction of any meeting, however called and
noticed, and wherever held, shall be as valid as though had at a meeting duly
held after regular call and notice, if a quorum is present and if, either before
or after the meeting, each of the shareholders or his proxy signs a written
waiver of notice or a consent to the holding of the meeting or an approval of
the minutes thereof. All such waivers, consents and approvals shall be filed
with the corporate records or made a part of the minutes of the meeting.
Attendance of a person at a meeting constitutes a waiver of notice of such
meeting, except when the person objects, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened and except that attendance at a meeting shall not constitute a waiver
of any right to object to the consideration of matters required by the General
Corporation Law to be included in the notice if such objection is expressly made
at the meeting. Except as otherwise provided in subdivision (f) of Section 601
of the General Corporation Law, neither the business to be transacted at nor the
purpose of any regular or special meeting need be specified in any written
waiver of notice.
SECTION 6. CONDUCT OF MEETING. Meetings of the shareholders shall be presided
over by one of the following officers in the order of seniority and if present
and acting -- the Chairman of the Board, if any, the Vice-Chairman of the Board,
if any, the President, if any, a Vice President, or, if none of the foregoing is
in office and present and acting, by a chairman to be chosen by the
shareholders. The Secretary of the corporation, or in his absence, an Assistant
Secretary, shall act as secretary of every meeting, but, if neither the
Secretary nor an Assistant Secretary is present, the Chairman of the meeting
shall appoint a secretary of the meeting.
<PAGE>
SECTION 7. PROXY REPRESENTATION. Every shareholder may authorize another
person or persons to act as his proxy at a meeting or by written action. No
proxy shall be valid after the expiration of eleven months from the date of its
execution unless otherwise provided in the proxy. Every proxy shall be
revocable at the pleasure of the person executing it prior to the vote or
written action pursuant thereto, except as otherwise provided by the General
Corporation Law. As used herein, a "proxy" shall be deemed to mean a written
authorization signed by a shareholder or a shareholder's attorney in fact giving
another person or persons power to vote or consent in writing with respect to
the shares of such shareholder, and "Signed" as used herein shall be deemed to
mean the placing of such shareholder's name on the proxy, whether by manual
signature, typewriting, telegraphic transmission or otherwise by such
shareholder or such shareholder's attorney in fact. Where applicable, the form
of any proxy shall comply with the provisions of Section 604 of the General
Corporation Law.
SECTION 8. INSPECTORS - APPOINTMENT. In advance of any meeting, the Board of
Directors may appoint inspectors of election to act at the meeting and any
adjournment thereof. If inspectors of election are not so appointed, or, if any
persons so appointed fail to appear or refuse to act, the Chairman of any
meeting of shareholders may, and on the request of any shareholder or a
shareholder's proxy shall, appoint inspectors of election, or persons to replace
any of those who so fail or refuse, at the meeting. The number of inspectors
shall be either one or three. If appointed at a meeting on the request of one
or more shareholders or proxies, the majority of shares represented shall
determine whether one or three inspectors are to be appointed.
The inspectors of election shall determine the number of shares outstanding
and the voting power of each, the shares represented at the meeting, the
existence of a quorum, the authenticity, validity, and effect of proxies,
receive votes, ballots, if any, or consents, hear and determine all challenges
and questions in any way arising in connection with the right to vote, count and
tabulate all votes or consents, determine when the polls shall close, determine
the result, and do such acts as may be proper to conduct the election or vote
with fairness to all shareholders. If there are three inspectors of election,
the decision, act, or certificate of a majority shall be effective in all
respects as the decision, act, or certificate of all.
SECTION 9. SUBSIDIARY CORPORATIONS. Shares of this corporation owned by a
subsidiary shall not be entitled to vote on any matter. A subsidiary for these
purposes is defined as a corporation, the shares of which possessing more than
25% of the total combined voting power of all classes of shares entitled to
vote, are owned directly or indirectly through one or more subsidiaries.
SECTION 10. QUORUM; VOTE; WRITTEN CONSENT. The holders of a majority of the
voting shares shall constitute a quorum at a
<PAGE>
meeting of shareholders for the transaction of any business. The shareholders
present at a duly called or held meeting at which a quorum is present may
continue to do business until adjournment notwithstanding the withdrawal of
enough shareholders to leave less than a quorum if any action taken, other than
adjournment, is approved by at least a majority of the shares required to
constitute a quorum. In the absence of a quorum, any meeting of shareholders
may be adjourned from time to time by the vote of a majority of the shares
represented thereat, but no other business may be transacted except as
hereinbefore provided.
In the election of directors, a plurality of the votes cast shall elect.
No shareholder shall be entitled to exercise the right of cumulative voting at a
meeting for the election of director unless the candidate's name or the
candidates' names have been placed in nomination prior to the voting and the
shareholder has given notice at the meeting prior to the voting of the
shareholder's intention to cumulate the shareholder's votes. If any one
shareholder has given such notice, all shareholders may cumulate their votes for
such candidates in nomination.
Except as otherwise provided by the General Corporation Law, the Articles
of Incorporation or these By-Laws, any action required or permitted to be taken
at a meeting at which a quorum is present shall be authorized by the affirmative
vote of a majority of the shares represented at the meeting.
Except in the election of directors by written consent in lieu of a meeting,
and except as may otherwise be provided by the General Corporation Law, the
Articles of Incorporation or these By-Laws, any action which may be taken at any
annual or special meeting may be taken without a meeting and without prior
notice, if a consent in writing, setting forth the action so taken, shall be
signed by holders of shares having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted. Directors may not
be elected by written consent except by unanimous written consent of all shares
entitled to vote for the election of directors. Notice of any shareholder
approval pursuant to Section 310, 317, 1201 or 2007 without a meeting by less
than unanimous written consent shall be given at least ten days before the
consummation of the action authorized by such approval, and prompt notice shall
be given of the taking of any other corporate action approved by shareholders
without a meeting by less than unanimous written consent to those shareholders
entitled to vote who have not consented in writing.
SECTION 11. BALLOT. Elections of directors at a meeting need not be by ballot
unless a shareholder demands election by ballot at the election and before the
voting begins. In all other matters, voting need not be by ballot.
SECTION 12. SHAREHOLDERS' AGREEMENTS. Notwithstanding the above provisions in
the event this corporation elects to become a close corporation, an agreement
between two or more shareholders thereof,
<PAGE>
if in writing and signed by the parties thereof, may provide that in exercising
any voting rights the shares held by them shall be voted as provided therein or
in Section 706, and may otherwise modify these provisions as to shareholders'
meetings and actions.
ARTICLE II
BOARD OF DIRECTORS
SECTION 1. FUNCTIONS. The business and affairs of the corporation shall be
managed and all corporate powers shall be exercised by or under the direction of
its Board of Directors. The Board of Directors may delegate the management of
the day-to-day operation of the business of the corporation to a management
company or other person, provided that the business and affairs of the
corporation shall be managed and all corporate powers shall be exercised under
the ultimate direction of the Board of Directors. The Board of Directors shall
have authority to fix the compensation of directors for services in any lawful
capacity.
Each director shall exercise such powers and otherwise perform such duties
in good faith, in the manner such director believes to be in the best interests
of the corporation, and with care, including reasonable inquiry, using ordinary
prudence, as a person in a like position would use under similar circumstances.
(Section 309).
SECTION 2. EXCEPTION FOR CLOSE CORPORATION. Notwithstanding the provisions of
Section 1, in the event that this corporation shall elect to become a close
corporation as defined in Section 186, its shareholders may enter into a
Shareholders' Agreement as provided in Section 300 (b). Said Agreement may
provide for the exercise of corporate powers and the management of the business
and affairs of this corporation by the shareholders, provided however such
agreement shall, to the extent and so long as the discretion or the powers of
the Board in its management of corporate affairs is controlled by such
agreement, impose upon each shareholder who is a party thereof, liability for
managerial acts performed or omitted by such person pursuant thereto otherwise
imposed upon Directors as provided in Section 300 (d).
SECTION 3. QUALIFICATIONS AND NUMBER. A director need not be a shareholder of
the corporation, a citizen of the United States, or a resident of the State of
California. The authorized number of directors constituting the Board of
Directors until further changed shall be 3. Thereafter the authorized number of
directors constituting the Board shall be at least three provided that, whenever
the corporation shall have only two shareholders, the number of directors may be
at least two, and, whenever the corporation shall have only one shareholder, the
number of directors may be at least one. Subject to the foregoing provisions,
the number of directors may be changed from time to time by an amendment of
these By-Laws adopted by the shareholders. Any such amendment reducing the
number of directors to fewer than
<PAGE>
five cannot be adopted if the votes cast against its adoption at a meeting or
the shares not consenting in writing in the case of action by written consent
are equal to more than sixteen and two-thirds percent of the outstanding shares.
No decrease in the authorized number of directors shall have the effect of
shortening the term of any incumbent director.
SECTION 4. ELECTION AND TERM. The initial Board of Directors shall consist of
the persons elected at the meeting of the incorporator, all of whom shall hold
office until the first annual meeting of shareholders and until their successors
have been elected and qualified, or until their earlier resignation or removal
from office. Thereafter, directors who are elected to replace any or all of the
members of the initial Board of Directors or who are elected at an annual
meeting of shareholders, and directors who are elected in the interim to fill
vacancies, shall hold office until the next annual meeting of shareholders and
until their successors have been elected and qualified, or until their earlier
resignation, removal from office, or death. In the interim between annual
meetings of shareholders or of special meetings of shareholders called for the
election of directors, any vacancies in the Board of Directors, including
vacancies resulting from an increase in the authorized number of directors which
have not been filled by the shareholders, including any other vacancies which
the General Corporation Law authorizes directors to fill, and including
vacancies resulting from the removal of directors which are not filled at the
meeting of shareholders at which any such removal has been effected, if the
Articles of Incorporation or a By-Law adopted by the shareholders so provides,
may be filled by the vote of a majority of the directors then in office or of
the sole remaining director, although less than a quorum exists. Any director
may resign effective upon giving written notice to the Chairman of the Board, if
any, the President, the Secretary or the Board of Directors, unless the notice
specifies a later time for the effectiveness of such resignation. If the
resignation is effective at a future time, a successor may be elected to the
office when the resignation becomes effective.
The shareholders may elect a director at any time to fill any vacancy which
the directors are entitled to fill, but which they have not filled. Any such
election by written consent shall require the consent of a majority of the
shares.
SECTION 5. INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS.
The corporation may indemnify any Director, Officer, agent or employee as to
those liabilities and on those terms and conditions as are specified in
Section 317. In any event, the corporation shall have the right to purchase
and maintain insurance on behalf of any such persons whether or not the
corporation would have the power to indemnify such person against the liability
insured against.
SECTION 6. MEETINGS.
<PAGE>
TIME. Meetings shall be held at such time as the Board shall fix, except
that the first meeting of a newly elected Board shall be held as soon after its
election as the directors may conveniently assemble.
PLACE. Meetings may be held at any place, within or without the State of
California, which has been designated in any notice of the meeting, or, if not
stated in said notice, or, if there is no notice given, at the place designated
by resolution of the Board of Directors.
CALL. Meetings may be called by the Chairman of the Board, if any and
acting, by the Vice Chairman of the Board, if any, by the President, if any, by
any Vice President or Secretary, or by any two directors.
NOTICE AND WAIVER THEREOF. No notice shall be required for regular
meetings for which the time and place have been fixed by the Board of Directors.
Special meetings shall be held upon at least four days' notice by mail or upon
at least forty-eight hours' notice delivered personally or by telephone or
telegraph. Notice of a meeting need not be given to any director who signs a
waiver of notice, whether before or after the meeting, or who attends the
meeting without protesting, prior thereto or at its commencement, the lack of
notice to such director. A notice or waiver of notice need not specify the
purpose of any regular or special meeting of the Board of Directors.
SECTION 7. SOLE DIRECTOR PROVIDED BY ARTICLES OF INCORPORATION. In the event
only one director is required by the By-Laws or Articles of Incorporation, then
any reference herein to notices, waivers, consents, meetings or other actions by
a majority or quorum of the directors shall be deemed to refer to such notice,
waiver, etc., by such sole director, who shall have all the rights and duties
and shall be entitled to exercise all of the powers and shall assume all the
responsibilities otherwise herein described as given to a Board of Directors.
SECTION 8. QUORUM AND ACTION. A majority of the authorized number of directors
shall constitute a quorum except when a vacancy or vacancies prevents such
majority, whereupon a majority of the directors in office shall constitute a
quorum, provided such majority shall constitute at least either one-third of the
authorized number of directors or at least two directors, whichever is larger,
or unless the authorized number of directors is only one. A majority of the
directors present, whether or not a quorum is present, may adjourn any meeting
to another time and place. If the meeting is adjourned for more than
twenty-four hours, notice of any adjournment to another time or place shall be
given prior to the time of the adjourned meeting to the directors, if any, who
were not present at the time of the adjournment. Except as the Articles of
Incorporation, these By-Laws and the General
<PAGE>
Corporation Law may otherwise provide, the act or decision done or made by a
majority of the directors present at a meeting duly held at which a quorum is
present shall be the act of the Board of Directors. Members of the Board of
Directors may participate in a meeting through use of conference telephone or
similar communications equipment, so long as all members participating in such
meeting can hear one another, and participation by such use shall be deemed to
constitute presence in person at any such meeting.
A meeting at which a quorum is initially present may continue to transact
business notwithstanding the withdrawal of directors, provided that any action
which may be taken is approved by at least a majority of the required quorum for
such meeting.
SECTION 9. CHAIRMAN OF THE MEETING. The Chairman of the Board, if any and if
present and acting, the Vice Chairman of the Board, if any and if present and
acting, shall preside at all meetings. Otherwise, the President, if any and
present and acting, or any director chosen by the Board, shall preside.
SECTION 10. REMOVAL OF DIRECTORS. The entire Board of Directors or any
individual director may be removed from office without cause by approval of the
holders of at least a majority of the shares provided, that unless the entire
Board is removed, an individual director shall not be removed when the votes
cast against such removal, or not consenting in writing to such removal would be
sufficient to elect such director if voted cumulatively at an election of
directors at which the same total number of votes were cast, or, if such action
is taken by written consent, in lieu of a meeting, all shares entitled to vote
were voted, and the entire number of directors authorized at the time of the
director's most recent election were then being elected. If any or all
directors are so removed, new directors may be elected at the same meeting or by
such written consent. The Board of Director may declare vacant the office of
any director who has been declared of unsound mind by an order of court or
convicted of a felony.
SECTION 11. COMMITTEES. The Board of Directors, by resolution adopted by a
majority of the authorized number of directors, may designate one or more
committees, each consisting of two or more directors to serve at the pleasure of
the Board of Directors. The Board of Directors may designate one or more
directors as alternate members of any such committee, who may replace any absent
member at any meeting of such committee. Any such committee to the extent
provided in the resolution of the Board of Directors, shall have all the
authority of the Board of Directors except such authority as may not be
delegated by the provisions of the General Corporation Law.
SECTION 12. INFORMAL ACTION. The transactions of any meeting of the Board of
Directors, however called and noticed or wherever held shall be as valid as
though had at a meeting duly held after tee
<PAGE>
call and notice, if a quorum is present and if, either before or after the
meeting, each of the directors not present signs a written waiver of notice, a
consent to holding the meeting, or an approval of the minutes thereof. All such
waivers, consents, or approvals shall be filed with the corporate records or
made a part of the minutes of the meeting.
SECTION 13. WRITTEN ACTION. Any action required or permitted to be taken may
be taken without a meeting if all of the members of the Board of Directors shall
individually or collectively consent in writing to such action. Any such
written consent or consents shall be filed with the minutes of the proceedings
of the Board. Such action by written consent shall have the same force and
effect as a unanimous vote of such directors.
<PAGE>
ARTICLE III
OFFICERS
SECTION 1. OFFICERS. The officers of the corporation shall be a Chairman of
the Board or a President or both, a Secretary and a Chief Financial Officer.
The corporation may also have, at the discretion of the Board of Directors, one
or more Vice Presidents, one or more Assistant Secretaries and such other
officers as may be appointed in accordance with the provisions of Section 3 of
this Article. One person may hold two or more offices.
SECTION 2. ELECTION. The officers of the corporation, except such Officers as
may be appointed in accordance with the provisions of Section 3 or Section 5 of
this Article shall be chosen annually by the Board of Directors, and each shall
hold his office until he shall resign or shall be removed or otherwise
disqualified to serve, or his successor shall be elected and qualified.
SECTION 3. SUBORDINATE OFFICERS, ETC. The Board of Directors may appoint such
other officers as the business of the corporation may require, each of whom
shall hold office for such period, have such authority and perform such duties
as are provided in the By-Laws or as the Board of Directors may from time to
time determine.
SECTION 4. REMOVAL AND RESIGNATION. Any officer may be removed, either with or
without cause, by a majority of the directors at the time in office, at any
regular or special meeting of the Board, or, except in case of an officer chosen
by the Board of Directors, by any officer upon whom such power of removal may be
conferred by the Board of Directors.
Any officer may resign at any time by giving written notice to the Board of
Directors, or to the President, or to the Secretary of the corporation. Any
such resignation shall take effect at the date of the receipt of such notice or
at any later time specified therein; and, unless otherwise specified therein,
the acceptance of such resignation shall not be necessary to make it effective.
SECTION 5. VACANCIES. A vacancy in any office because of death, resignation,
removal, disqualification or any other cause shall be filled in the manner
prescribed in the By-Laws for regular appointments to such office.
SECTION 6. CHAIRMAN OF THE BOARD. The Chairman of the Board, if there shall be
such an officer, shall, if present, preside at all meetings of the Board of
Directors, and exercise and perform such other powers and duties as may be from
time to time assigned to him by the Board of Directors or prescribed by the
By-Laws.
SECTION 7. PRESIDENT. Subject to such supervisory powers, if any, as may be
given by the Board of Directors to the Chairman of the Board, if there be such
an officer, the President shall be the Chief Executive Officer of the
corporation and shall, subject to
<PAGE>
the control of the Board of Directors, have general supervision, direction and
control of the business and officers of the corporation. He shall preside at
all meetings of the shareholders and in the absence of the Chairman of the
Board, or if there be none, at all meetings of the Board of Directors. He shall
be ex officio a member of all the standing committees, including the Executive
Committee, if any, and shall have the general powers and duties of management
usually vested in the office of President of a corporation, and shall have such
other powers and duties as may be prescribed by the Board of Directors or the
By-Laws.
SECTION 8. VICE PRESIDENT. In the absence or disability of the President, the
Vice Presidents, in order of their rank as fixed by the Board of Directors, or
if not ranked, the Vice President designated by the Board of Directors, shall
perform all the duties of the President, and when so acting shall have all the
powers of, and be subject to, all the restrictions upon, the President. The
Vice Presidents shall have such other powers and perform such other duties as
from time to time may be prescribed for them respectively by the Board of
Directors or the By-Laws.
SECTION 9. SECRETARY. The Secretary shall keep, or cause to be kept, a book of
minutes at the principal office or such other place as the Board of Directors
may order, of all meetings of Directors and Shareholders, with the time and
place of holding, whether regular or special, and if special, how authorized,
the notice thereof given, the names of those present at Directors' meetings, the
number of shares present or represented at Shareholders' meetings and the
proceedings thereof.
The Secretary shall keep, or cause to be kept, at the principal office or
at the office of the corporation's transfer agent, a share register, or
duplicate share register, showing the names of the shareholders and their
addresses; the number and classes of shares held by each; the number and date of
certificates issued for the same; and the number and date of cancellation of
every certificate surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all the meetings
of the shareholders and of the Board of Directors required by the By-Laws or by
law to be given, and he shall keep the seal of the corporation in safe custody,
and shall have such other powers and perform such other duties as may be
prescribed by the Board of Directors or by the By-Laws.
SECTION 10. CHIEF FINANCIAL OFFICER. This officer shall keep and maintain, or
cause to be kept and maintained in accordance with generally accepted accounting
principles, adequate and correct accounts of the properties and business
transactions of the corporation, including accounts of its assets, liabilities,
receipts, disbursements, gains, losses, capital, earnings (or and shares. The
books of account shall at all reasonable times be open to inspection by any
director.
This officer shall deposit all monies and other valuables in
<PAGE>
the name and to the credit of the corporation with such depositaries as may be
designated by the Board of Directors. He shall disburse the funds of the
corporation as may be ordered by the Board of Directors, shall render to the
President and directors, whenever they request it, an account of all his
transactions and of the financial condition of the corporation, and shall have
such other powers and perform such other duties as may be prescribed by the
Board of Directors or the By-Laws.
ARTICLE IV
CERTIFICATES AND TRANSFERS OF SHARES
SECTION 1. CERTIFICATES FOR SHARES. Each certificate for shares of the
corporation shall set forth therein the name of the record holder of the shares
represented thereby, the number of shares and the class or series of shares
owned by said holder, the par value, if any, of the shares represented thereby,
and such other statements, as applicable, prescribed by Sections 416 - 419,
inclusive, and other relevant Sections of the General Corporation Law of the
State of California (the "General Corporation Law") and such other statements,
as applicable, which may be prescribed by the Corporate Securities Law of the
State of California and any other applicable provision of the law. Each such
certificate issued shall be signed in the name of the corporation by the
Chairman of the Board of Directors, if any, or the Vice Chairman of the Board of
Directors, if any, the President, if any, or a Vice President, if any, and by
the Chief Financial Officer or an Assistant Treasurer or the Secretary or an
Assistant Secretary. Any or all of the signatures on a certificate for shares
may be a facsimile. In case any officer, transfer agent or registrar who has
signed or whose facsimile signature has been placed upon a certificate for
shares shall have ceased to be such officer, transfer agent or registrar before
such certificate is issued, it may be issued by the corporation with the same
effect as if such person were an officer, transfer agent or registrar at the
date of issue.
In the event that the corporation shall issue the whole or any part of its
shares as partly paid and subject to call for the remainder of the consideration
to be paid therefor, any such certificate for shares shall set forth thereon the
statements prescribed by Section 409 of the General Corporation Law.
SECTION 2. LOST OR DESTROYED CERTIFICATES FOR SHARES. The corporation may
issue a new certificate for shares or for any other security in the place of any
other certificate theretofore issued by it, which is alleged to have been lost,
stolen or destroyed. As a condition to such issuance, the corporation may
require any such owner of the allegedly lost, stolen or destroyed certificate or
any such owner's legal representative to give the corporation a bond, or other
adequate security, sufficient to indemnify it against any claim that may be made
against it, including any expense or liability, on account of the alleged loss,
theft or destruction of
<PAGE>
any such certificate or the issuance of such new certificate.
SECTION 3. SHARE TRANSFERS. Upon compliance with any provisions of the General
Corporation Law and/or the Corporate Securities Law of 1968 which may restrict
the transferability of shares, transfers of shares of the corporation shall be
made only on the record of shareholders of the corporation by the registered
holder thereof, or by his attorney thereunto authorized by power of attorney
duly executed and filed with the Secretary of the corporation or with a transfer
agent or a registrar, if any, and on surrender of the certificate or
certificates for such shares properly endorsed and the payment of all taxes, if
any, due thereon
SECTION 4. RECORD DATE FOR SHAREHOLDERS. In order that the corporation may
determine the shareholders entitled to notice of any meeting or to vote or be
entitled to receive payment of any dividend or other distribution or allotment
of any rights or entitled to exercise any rights in respect of any other lawful
action, the Board of Directors may fix, in advance a record date, which shall
not be more than sixty days or fewer than ten days prior to the date of such
meeting or more than sixty days prior to any other action.
If the Board of Directors shall not have fixed a record date as aforesaid,
the record date for determining shareholders entitled to notice of or to vote at
a meeting of shareholders shall be at the close of business on the business day
next preceding the day on which notice is given or, if notice is waived, at the
close of business on the business day next preceding the day on which the
meeting is held; the record date for determining shareholders entitled to give
consent to corporate action in writing without a meeting, when no prior action
by the Board of Directors has been taken, shall be the day on which the first
written consent is given; and the record date for determining shareholders for
any other purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto, or the sixtieth day
prior to the day of such other action, whichever is later.
A determination of shareholders of record entitled to notice of or to vote
at a meeting of shareholders shall apply to any adjournment of the meeting
unless the Board of Directors fixes a new record date for the adjourned meeting,
but the Board of Directors shall fix a new record date if the meeting is
adjourned for more than forty-five days from the date set for the original
meeting.
Except as may be otherwise provided by the General Corporation Law,
shareholders on the record date shall be entitled to notice and to vote or to
receive any dividend, distribution or allotment of rights or to exercise the
rights, as the case may be, notwithstanding any transfer of any shares on the
books of the corporation after the record date.
SECTION 5. REPRESENTATION OF SHARES IN OTHER CORPORATIONS. Shares
<PAGE>
of other corporations standing in the name of this corporation may be voted or
represented and all incidents thereto may be exercised on behalf of the
corporation by the Chairman of the Board, the President or any Vice President or
any other person authorized by resolution of the Board of Directors.
SECTION 6. MEANING OF CERTAIN TERMS. As used in these By-Laws in respect of
the right to notice of a meeting of shareholders or a waiver thereof or to
participate or vote thereat or to assent or consent or dissent in writing in
lieu of a meeting, as the case may be, the term "share" or "shares" or
"shareholder" or "shareholders" refers to an outstanding share or shares and to
a holder or holders of record or outstanding shares when the corporation is
authorized to issue only one class of shares, and said reference is also
intended to include any outstanding share or shares and any holder or holders of
record of outstanding shares of any class upon which or upon whom the Articles
of Incorporation confer such rights where there are two or more classes or
series of shares or upon which or upon whom the General Corporation Law confers
such rights notwithstanding that the Articles of Incorporation may provide for
more than one class or series of shares, one or more of which are limited or
denied such rights thereunder.
SECTION 7. CLOSE CORPORATION CERTIFICATES. All certificates representing
shares of this corporation, in the event it shall elect to become a close
corporation, shall contain the legend required by Section 418(c).
ARTICLE V
EFFECT OF SHAREHOLDERS' AGREEMENT-CLOSE CORPORATION
Any Shareholders' Agreement authorized by Section 300 (b) shall only be
effective to modify the terms of these By-Laws if this corporation elects to
become a close corporation with appropriate filing of or amendment to its
Articles as required by Section 202 and shall terminate when this corporation
ceases to be a close corporation. Such an agreement cannot waive or alter
Sections 158 (defining close corporations), 202 (requirements of Articles of
Incorporation), 500 and 501 relative to distributions, 111 (merger), 1201(e)
(reorganization) or Chapters 15 (Records and Reports), 16 (Rights of
Inspection), 18 (Involuntary Dissolution) or 22 (Crimes and Penalties). Any
other provisions of the Code or these By-Laws may be altered or waived thereby,
but to the extent they are not so altered or waived, these By-Laws shall be
applicable.
ARTICLE VI
CORPORATE CONTRACTS AND INSTRUMENTS-HOW EXECUTED
The Board of Directors, except as in the By-Laws otherwise provided, may
authorize any officer or officers, agent or agents, to enter into any contract
or execute any instrument in the name of
<PAGE>
and on behalf of the corporation. Such authority may be general or confined to
specific instances. Unless so authorized by the Board of Directors, no officer,
agent or employee shall have any power or authority to bind the corporation by
any contract or agreement, or to pledge its credit, or to render it liable for
any purposes or any amount, except as provided in Section 313 of the
Corporations Code.
ARTICLE VII
CONTROL OVER BY-LAWS
After the initial By-Laws of the corporation shall have been adopted by the
incorporator or incorporators of the corporation, the By-Laws may be amended or
repealed or new By-Laws may be adopted by the shareholders entitled to exercise
a majority of the voting power or by the Board of Directors; provided, however,
that the Board of Directors shall have no control over any By-Law which fixes or
changes the authorized number of directors of the corporation; provided,
further, than any control over the By-Laws herein vested in the Board of
Directors shall be subject to the authority of the aforesaid shareholders to
amend or repeal the By-Laws or to adopt new By-Laws; and provided further that
any By-Law amendment or new By-Law which changes the minimum number of directors
to fewer than five shall require authorization by the greater proportion of
voting power of the shareholders as hereinbefore set forth.
ARTICLE VIII
BOOKS AND RECORDS - STATUTORY AGENT
SECTION 1. RECORDS: STORAGE AND INSPECTION. The corporation shall keep at its
principal executive office in the State of California, if its principal
executive office is not in the State of California, the original or a copy of
the By-Laws as amended to date, which be open to inspection by the shareholders
at all reasonable times during office hours. If the principal executive office
of the corporation is outside the State of California, and, if the corporation
has no principal business office in the State of California, it shall upon
request of any shareholder furnish a copy of the By-Laws as amended to date.
The corporation shall keep adequate and correct books and records of
account and shall keep minutes of the proceedings of its shareholders, Board of
Directors and committees, if any, of the Board of Directors. The corporation
shall keep at its principal executive office, or at the office of its transfer
agent or registrar, a record of its shareholders, giving the names and addresses
of all shareholders and the number and class of shares held by each. Such
minutes shall be in written form. Such other books and records shall be kept
either in written form or in any other form capable of being converted into
written form.
SECTION 2. RECORD OF PAYMENTS. All checks, drafts or other orders
<PAGE>
for payment of money, notes or other evidences of indebtedness, issue, in the
name of or payable to the corporation, shall be signed or endorsed by such
person or persons and in such manner as shall be determined from time to time by
resolution of the Board of Directors.
SECTION 3. ANNUAL REPORT. Whenever the corporation shall have fewer than one
hundred shareholders, the Board of Directors shall not be required to cause to
be sent to the shareholders of the corporation the annual report prescribed by
Section 1501 of the General Corporation Law unless it shall determine that a
useful purpose would be served by causing the same to be sent or unless the
Department of Corporations, pursuant to the provisions of the Corporate
Securities Law of 1968, shall direct the sending of the same.
SECTION 4. AGENT FOR SERVICE. The name of the agent for service of process
within the State of California is
ARTICLE IX
AMENDMENT OF BYLAWS
SECTION 1. BY SHAREHOLDERS. Bylaws may be adopted, amended or repealed by the
affirmative vote or by the written consent of holders of a majority of the
outstanding shares of the corporation entitled to vote. However, a bylaw
amendment which reduces the fixed number of directors to a number less than five
(5) shall not be effective the votes cast against the amendment or the shares
not consenting its adoption are equal to more than 33 per cent of the
outstanding shares entitled to vote.
SECTION 2. BY DIRECTORS. Subject to the right of the shareholders to adopt,
amend or repeal bylaws, the directors may adopt, amend or repeal any bylaw
except that a bylaw amendment changing the authorized number of directors may be
adopted by the board of directors only prior to the issuance of shares.
CERTIFICATE
This is to certify that the foregoing is a true and correct copy of the Bylaws
of the corporation named in the title thereto and that such Bylaws were duly
adopted by the board of directors of the corporation on the date set forth
below.
Dated November 1, 1990
-----------------------------
/s/ John Kasten
- ----------------------------------
, Secretary
<PAGE>
NUMBER SHARES
MYO DIAGNOSTICS INC.
Authorized Capital Stock: 50,000,000 Common Stock
This Certifies that _________________________________ is the registered holder
of __________________________________ Shares
Transferable only on the books of the corporation by the holder hereof in person
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 day of A.D. 19
/s/ Scott Roecklein /s/ Gerald D. Appel
- --------------------------- -----------------------------
Secretary President
[SEAL OF MYO DIAGNOSTICS INC.]
<PAGE>
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("AGREEMENT") is made as of this ____ day of
_____________, 19__, by and between Myo Diagnostics, Inc., a California
corporation (the "COMPANY"), and _________________________________
("INDEMNITEE").
R E C I T A L S
A. The Company and Indemnitee recognize that the vagaries of public
policy and the interpretation of ambiguous statutes, regulations and court
opinions are too uncertain to provide the Company's officers, directors,
employees and other agents with adequate or reliable advance knowledge or
guidance with respect to the legal risks and potential liabilities to which they
may become personally exposed as a result of performing their duties in good
faith for the Company.
B. The Company and Indemnitee recognize that the cost of defending
against lawsuits resulting from the performance of their duties in good faith
for the Company, whether or not meritorious, is typically beyond the financial
resources of most officers, directors, employees and other agents of the
Company.
C. The Company and Indemnitee further recognize the substantial increase
in corporate litigation in general, subjecting officers and directors to
expensive litigation risk at the same time that the availability and coverage of
liability insurance has been severely limited.
D. The Company and the Indemnitee recognize that the legal risks and
potential liabilities, and the very threat thereof, associated with lawsuits
filed against the officers, directors, employees and other agents of the
Company, and the resultant substantial time, expense, harassment, ridicule,
abuse and anxiety spent and endured in defending against such lawsuits bears no
reasonable or logical relationship to the amount of compensation received by the
Company's officers and directors, and thus poses a significant deterrent to and
results in increased reluctance on the part of experienced and capable
individuals to serve as officers or directors of the Company.
E. In order to induce and encourage highly experienced and capable
persons such as Indemnitee to serve as officers and/or directors of the Company
and to otherwise promote the desirable end that such persons will resist what
they consider unjustifiable lawsuits and claims made against them in connection
with the good faith performance of their duties to the Company, secure in the
knowledge that certain expenses, costs and liabilities incurred by them in their
defense of such litigation will be borne by the
<PAGE>
Company and that they will receive the maximum protection against such risks and
liabilities as may be afforded by law, the Board of Directors of the Company
(the "BOARD") has determined, after due consideration and investigation of the
terms and provisions of this Agreement and the various other options available
to the Company and Indemnitee in lieu hereof, that the following Agreement is
not only reasonable and prudent but necessary to promote and ensure the best
interests of the Company and the Company's shareholders.
F. The Company desires to have Indemnitee serve or continue to serve as
an officer and/or director of the Company, as the case may be, free from undue
concern for unpredictable, inappropriate or unreasonable legal risks and
personal liabilities by reason of his acting in good faith in the performance of
his duty to the Company; and Indemnitee desires to serve or continue to serve as
an officer or director of the Company; provided, and on the express condition,
that he is furnished with the indemnity set forth hereinafter.
G. The Company and Indemnitee desire that the indemnification rights
provided by this Agreement shall be supplemental to, and shall not supersede or
replace, any indemnification rights which may be provided by other sources,
including without limitation any indemnification which may be provided by the
Company pursuant to its bylaws, by contract or by applicable law.
A G R E E M E N T
The Company and Indemnitee hereby agree as follows:
1. INDEMNIFICATION.
(a) THIRD PARTY PROCEEDINGS. The Company shall indemnify Indemnitee
if Indemnitee is or was a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (collectively, "ACTION") (other than
an action by or in the right of the Company) by reason of the fact that
Indemnitee is or was a director, officer, employee or agent (collectively,
"AGENT") of the Company, or any subsidiary of the Company, by reason of any
action or inaction on the part of Indemnitee while an Agent or by reason of the
fact that Indemnitee is or was serving at the request of the Company as an Agent
of another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement (if such settlement is approved in advance by the Company, which
approval shall not be unreasonably withheld) and other amounts actually and
reasonably incurred by Indemnitee in connection with such Action if Indemnitee
acted in good faith and in a manner Indemnitee reasonably believed to be in the
best interest of the Company or subsidiary (as applicable) and, with respect to
any criminal action or proceeding,
2
<PAGE>
had no reasonable cause to believe Indemnitee's conduct was unlawful. The
termination of any action by judgment, order, settlement, conviction, or upon a
plea of NOLO CONTENDERE or its equivalent, shall not, of itself, create a
presumption that Indemnitee did not act in good faith and in a manner which
Indemnitee reasonably believed to be in the best interest of the Company, or
with respect to any criminal action or proceeding, had reasonable cause to
believe that Indemnitee's conduct was unlawful.
(b) PROCEEDINGS BY OR IN THE RIGHT OF THE COMPANY. The Company shall
indemnify Indemnitee if Indemnitee was or is a party or is threatened to be made
a party to any threatened, pending or completed Action by or in the right of the
Company or any subsidiary of the Company to procure a judgment in its favor by
reason of the fact that Indemnitee is or was an Agent of the Company or any
subsidiary of the Company, by reason of any action or inaction on the part of
Indemnitee while an Agent, or by reason of the fact that Indemnitee is or was
serving at the request of the Company as an Agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees) and, to the fullest extent permitted by law, amounts
paid in settlement, in each case to the extent actually and reasonably incurred
by Indemnitee in connection with the defense or settlement of such action or
suit in such circumstances and to the extent that indemnity is not expressly
prohibited by Section 317 of the California General Corporation Law as to the
indemnification by a corporation of its agents: (i) if Indemnitee acted in good
faith and in a manner Indemnitee reasonably believed to be in the best interests
of the Company and its shareholders; or (ii) to the extent that the action or
contemplated action seeks monetary damages for breach of Indemnitee's duties to
the Company and its shareholders, provided that no indemnification shall be made
for any acts or omissions or transactions for which a director may not be
relieved of liability pursuant to the exception to Section 204(a)(10) of the
California General Corporation Law. For purposes of this Section 1(b),
indemnification shall include, to the extent not prohibited by law,
indemnification against all judgments, fines and amounts paid in settlement
actually and reasonably incurred by Indemnitee in connection with such Action.
(c) MANDATORY PAYMENT OF EXPENSES. To the extent that Indemnitee has
been successful on the merits or otherwise in defense of any Action referred to
in subsection (a) or (b) of this Section 1 or the defense of any claim, issue or
matter therein, Indemnitee shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by Indemnitee in connection
therewith.
2. EXPENSES; INDEMNIFICATION PROCEDURE.
(a) ADVANCEMENT OF EXPENSES. The Company shall advance all
reasonable expenses actually incurred by Indemnitee in connection with the
investigation, defense, settlement or appeal of any Action referenced in
Section 1 hereof (but not amounts actually
3
<PAGE>
paid in settlement of any such action, suit or proceeding). Indemnitee hereby
undertakes to repay such amounts advanced only if, and to the extent that, it
shall ultimately be determined that Indemnitee is not entitled to be indemnified
by the Company as authorized hereby.
(b) NOTICE TO COMPANY BY INDEMNITEE. Indemnitee shall, as a
condition precedent to Indemnitee's right to be indemnified under this
Agreement, give the Company notice in writing as soon as practicable of any
claim made against Indemnitee for which such indemnification will or could be
sought under this Agreement. Notice to the Company shall be directed to the
Chief Executive Officer of the Company at the executive offices of the Company.
In addition, Indemnitee shall give the Company such information and cooperation
as it may reasonably require and as shall be within Indemnitee's power.
(c) PROCEDURE. Any indemnification and advances provided for in
Section 1 and this Section 2 shall be made no later than 45 days after receipt
of the written request of Indemnitee. If a claim under this Agreement is not
paid in full by the Company within 45 days after a written request for payment
therefor has first been received by the Company, Indemnitee may, but need not,
at any time thereafter bring an action against the Company to recover the unpaid
amount of the claim. It shall be a defense to any such action (other than an
action brought to enforce a claim for expenses incurred in connection with any
Action in advance of its final disposition) that Indemnitee has not met the
standards of conduct which make it permissible under the applicable law for the
Company to indemnify Indemnitee, but the burden of proving such defense shall be
on the Company and Indemnitee shall be entitled to receive interim payments of
expenses pursuant to subsection (a) of this Section 2 unless and until such
defense may be finally adjudicated by court order or judgment from which no
further right of appeal exists. It is the intention of the parties that if the
Company contests Indemnitee's right to indemnification under this Agreement or
applicable law, the question of Indemnitee's right to indemnification shall be
for the court to decide, and neither the failure of the Company (including its
officers, Board, any committee or subgroup of its Board, independent legal
counsel or its shareholders) to have made a determination that indemnification
of Indemnitee is or is not proper in the circumstances because Indemnitee has or
has not met the applicable standard of conduct required by this Agreement or by
applicable law, nor an actual determination by the Company (including its
officers, Board, any committee or subgroup of its Board, independent legal
counsel or its shareholders) that Indemnitee has or has not met such applicable
standard of conduct, shall create a presumption that Indemnitee has or has not
met the applicable standard of conduct.
(d) NOTICE TO INSURERS. If, at the time of the receipt of a notice
of a claim pursuant to Section 2(b) hereof, the Company has director and officer
liability insurance in effect, the Company shall give prompt notice of the
commencement of such proceeding to
4
<PAGE>
the insurers in accordance with the procedures set forth in the respective
policies. The Company shall thereafter take all necessary or desirable action
to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable
as a result of such proceeding in accordance with the terms of such policies.
(e) SELECTION OF COUNSEL. In the event the Company shall be
obligated under Section 2(a) hereof to pay the expenses of any proceedings
against Indemnitee, the Company, if appropriate, shall be entitled to assume the
defense of such proceeding, with counsel approved by Indemnitee, upon the
delivery to Indemnitee of written notice of its election so to do. After
delivery of such notice, approval of such counsel by Indemnitee and the
retention of such counsel by the Company, the Company will not be liable to
Indemnitee under this Agreement for any fees of counsel subsequently incurred by
Indemnitee with respect to the same proceeding, provided that (i) Indemnitee
shall have the right to employ separate counsel in any such proceeding at
Indemnitee's expense; and (ii) if (A) the employment of counsel by Indemnitee
has been previously authorized by the Company, (B) Indemnitee shall have
reasonably concluded that there may be a conflict of interest between the
Company and Indemnitee in the conduct of any such defense, or (C) the Company
shall not, in fact, have employed counsel to assume the defense of such
proceeding, then the fees and expenses of Indemnitee's counsel shall be at the
expense of the Company.
(f) EFFECT OF CHANGE IN LAW. Notwithstanding any other provision of
this Agreement, in the event of any change in any applicable law, statute or
rule which narrows the right of the Company to indemnify Indemnitee, such
change, to the extent not otherwise required by such law, statute or rule to be
applied to this Agreement, shall have no effect on this Agreement or the
parties' rights and obligations hereunder.
(g) NONEXCLUSIVITY. The indemnification provided by this Agreement
shall not be deemed exclusive of any rights to which Indemnitee may be entitled
under the Company's Articles of Incorporation, its Bylaws, any agreement, any
vote of shareholders or disinterested directors, applicable law, or otherwise,
both as to action in Indemnitee's official capacity and as to action in another
capacity while holding such office. The indemnification provided under this
Agreement shall continue as to Indemnitee from any action taken or not taken
while serving in an indemnified capacity even though he may have ceased to serve
in such capacity at the time of any action, suit or other covered proceeding.
3. PARTIAL INDEMNIFICATION. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of the expenses, judgments, fines or penalties actually or reasonably
incurred by him in the investigation, defense, appeal or settlement of any
Action, but not, however, for the total amount thereof, the Company shall
5
<PAGE>
nevertheless indemnify Indemnitee for the portion of such expenses, judgements,
fines or penalties to which Indemnitee is entitled.
4. MUTUAL ACKNOWLEDGEMENT. Both the Company and Indemnitee acknowledge
that in certain instances, Federal or state law, regulation or applicable public
policy may prohibit the Company from indemnifying Indemnitee under this
Agreement or otherwise. Indemnitee understands and acknowledges that the
Company has undertaken or may be required in the future to undertake with the
Securities and Exchange Commission to submit the question of indemnification to
a court in certain circumstances for a determination of the Company's right
under law or public policy to indemnify Indemnitee.
5. SEVERABILITY. Nothing in this Agreement is intended to require or
shall be construed as requiring the Company to do or fail to do any act in
violation of applicable law. The Company's inability, pursuant to law,
regulation or court order, to perform its obligations under this Agreement shall
be severable as provided in this Section 5. If this Agreement or any portion
hereof shall be invalidated on any ground by any court of competent
jurisdiction, then the Company shall nevertheless indemnify Indemnitee to the
full extent permitted by any applicable portion of this entire Agreement that
shall not have been invalidated, and the balance of this Agreement not so
invalidated shall be enforceable in accordance with its terms.
6. EXCEPTIONS. Any other provision herein to the contrary
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
(a) CLAIMS INITIATED BY INDEMNITEE. To indemnify or advance expenses
to Indemnitee with respect to Actions initiated or brought voluntarily by
Indemnitee and not by way of defense, but such indemnification or advancement of
expenses may be provided by the Company in specific cases if the Board has
approved the initiation or bringing of such suit;
(b) LACK OF GOOD FAITH. To indemnify Indemnitee for any expenses
incurred by Indemnitee with respect to any Action initiated by Indemnitee to
enforce or interpret this Agreement, if a court of competent jurisdiction
determines that each of the material assertions made by Indemnitee in such
proceedings was not made in good faith or was frivolous; or
(c) NO DUPLICATION OF PAYMENTS. To make any payment in connection
with any claim made against Indemnitee to the extent Indemnitee has otherwise
received payment (under any insurance policy, the Articles of Incorporation or
Bylaws of the Company, contract or otherwise) of the amounts otherwise
indemnifiable hereunder. If the Company makes any indemnification payment to
Indemnitee in connection with any claim made against Indemnitee and Indemnitee
has already received or thereafter receives payments in connection with the same
claim, then Indemnitee shall reimburse the
6
<PAGE>
Company in an amount equal to the lesser of (i) the amount of the payment
otherwise received by Indemnitee, and (ii) the full amount of the
indemnification payment made by the Company.
7. CONSTRUCTION OF CERTAIN PHRASES.
(a) For purposes of this Agreement, references to the "COMPANY" shall
include any successor, resulting, or surviving corporation of the Company.
(b) For purposes of this Agreement, references to "FINES" shall
include any excise taxes assessed on Indemnitee with respect to an employee
benefit plan; and references to "serving at the request of the Company" shall
include any service as an Agent of the Company or any subsidiary of the Company
which imposes duties on, or involves services by, such Agent with respect to an
employee benefit plan, its participants, or beneficiaries; and if Indemnitee
acted in good faith and in a manner Indemnitee reasonably believed to be in the
interest of the participants and beneficiaries of an employee benefit plan,
Indemnitee shall be deemed to have acted in a manner "in the best interest of
the Company" as referred to in this Agreement.
8. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original.
9. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the
Company and its successors and assigns, and shall inure to the benefit of
Indemnitee and Indemnitee's estate, heirs, legal representatives and assigns.
10. NOTICE. Addresses for notice to either party are as shown on the
signature page of this Agreement, or as subsequently modified by written notice.
All notices, requests, demands and other communications under this Agreement
shall be in writing and shall be deemed duly given (i) if delivered by hand and
receipted for by the party addressee, on the date of such receipt, or (ii) if
mailed by domestic certified or registered mail with postage prepaid, on the
third business day after the date postmarked if addressed as provided for on the
signature page of this Agreement, unless sooner received, or as subsequently
modified by written notice.
11. ATTORNEYS' FEES. If any action or proceeding is brought to enforce or
interpret any provision of this Agreement, the prevailing party shall be
entitled to recover as an element of its costs, and not its damages, reasonable
attorneys' fees to be fixed by the court. The prevailing party is the party who
is entitled to recover the costs of its action or proceeding, whether or not
such action or proceeding proceeds to final judgment. A party not entitled to
recover its costs of suit may not recover attorneys' fees. No sum for
attorneys' fees shall be counted in calculating the amount of a judgment for
purposes of determining whether a party is entitled to recover its costs or
attorneys' fees.
7
<PAGE>
12. CONSENT TO JURISDICTION. The Company and Indemnitee each hereby
irrevocably consents to the jurisdiction of the court of the State of California
for all purposes in connection with any action or proceeding which arises out of
or relates to this Agreement and agrees that any action instituted under this
Agreement shall be brought only in the state courts of the State of California,
or in Federal courts located in such State.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
MYO DIAGNOSTICS, INC.
By:
------------------------------
Its:
------------------------------
AGREED TO AND ACCEPTED:
INDEMNITEE:
- -----------------------------
(type name)
- -----------------------------
(signature)
- -----------------------------
- -----------------------------
(address)
8
<PAGE>
LICENSING AGREEMENT
This Agreement is entered into as of this 31st day of October, 1993, by and
between Toomim Research Group, a partnership ("Licensor") and Myo Diagnostic
Ltd., a California Corporation ("Licensee") (collectively, the "Parties").
RECITALS
A. WHEREAS, Licensor has developed (i) unique technology for the
measurement of muscle interrelationships and reporting of muscle dysfunction and
the monitoring of treatment of dysfunctional muscles including, but not limited
to, certain unique measuring and correlation instrumentation (the "Instruments")
and computer hardware including, but not limited to, schematics, board layouts,
parts tests, functional descriptions and testing procedures, and unique
technology (collectively, the "Technology"); (ii) computer software to accept
data as collected by the Instruments and analyze the data including, but not
limited to, the use of algorithms (the "Software"); (iii) certain examination
procedures and protocols and other processes (the "Processes") for which patents
have been applied; and (iv) a presentation of the results derived from the
Software wherein certain findings are presented and graphic presentation of
those findings called functional images are presented (the "Reports"); and
B. WHEREAS, Licensor's Instruments, Technology, Software, Processes and
Reports are directed toward the evaluation and treatment of muscle dysfunction
in the back, arms and legs; and
C. WHEREAS, Licensor's Instruments, Technology, Software, Processes and
Reports can be the basis for development of other related and/or derivative
technology (the "Derivative Technology") for purposes other than the evaluation
and treatment of muscle dysfunction in the back, arms and legs; and
D. WHEREAS, Licensor has the exclusive rights to manufacture and market
the Instruments, Technology, Software and Processes (collectively, the
"Product") and the Reports which derive from it; and
E. WHEREAS, Licensee desires to obtain an exclusive license to
manufacture, market, sell, distribute and further develop the Product and Report
and to design, develop, manufacture, market, sell and distribute Derivative
Technology;
NOW, THEREFORE, in consideration of the mutual terms, conditions and covenants
hereinafter set forth, and for other good and valuable consideration, the
receipt of which is hereby acknowledged, the Parties hereto, hereby agree as
follows:
1. GRANTING OF LICENSE:
<PAGE>
(a) Licensor hereby grants to Licensee the exclusive right to manufacture,
market, sell, distribute and further develop the Product and any Derivative
Technology throughout the world for a period commencing on August 1, 1993 (the
"Effective Date") and ending Twenty (20) years from the Effective Date (the
"Initial Term"), unless sooner terminated pursuant to this Agreement.
(b) Licensor grants to Licensee the right to sub-license any or all of the
rights granted under this Agreement, provided that Licensee obtains the prior
written consent of Licensor, which consent shall not be unreasonably withheld,
and further provided that at a minimum, any sub-license is subject to the
restrictions on sub-license by Licensor contained in this Agreement and subject
to the same provisions for the benefit of Licensor contained in this Agreement,
including but not limited to the provisions relating to Royalty Payments,
Confidentiality and Non-Competition.
(c) Licensor shall have the right to freely transfer and/or assign any and
all rights granted under this Agreement. Licensee shall have the right to
transfer and/or assign any and all rights under this Agreement, provided that
Licensee obtains the prior written consent of Licensor, which consent shall not
be unreasonably withheld, and further provided that at a minimum, any assignment
or transfer is subject to the restrictions on assignment or transfer by Licensor
contained in this Agreement and subject to the same provisions for the benefit
of Licensor contained in this Agreement, including but not limited to the
provisions relating to Royalty Payments, Confidentiality and Non-Competition.
(d) It is mutually agreed that either Party may terminate this Agreement
at the end of the Initial Term by giving the other Party written notice thereof
at least six (6) months, but no more than one (1) year prior to the end of the
Initial Term. Should either Party fail to give such notice, then this Agreement
shall continue in full force and effect upon the same terms and conditions in
force immediately prior to the expiration of the Initial Term, for an additional
period of Ten (10) years (the "Renewal Term"). During any Renewal Term, either
Party may terminate this Agreement at the end of such Renewal Term by giving six
(6) months', but no more than one (1) year's written notice of its intention to
terminate at any time prior to the expiration of the then current term. Should
either Party fail to give such notice, then this Agreement shall continue in
full force and effect upon the same terms and conditions in force immediately
prior to the expiration of such Renewal Term, for an additional Renewal Term.
(e) Notwithstanding the provisions of Paragraph 1(d) of this Agreement,
Licensor shall have no right pursuant to Paragraph 1(d) to terminate this
Agreement at the end of, or at any time after the Initial Term, if during the
Initial Term, Licensee shall have paid to Licensor a minimum of $1,000,000 in
royalties pursuant to this
<PAGE>
Agreement.
2. RESPONSIBILITIES OF LICENSEE:(a) Licensee hereby accepts the right to
manufacture, market, sell, distribute and further develop the Product and Report
and agrees to do so in accordance with this Agreement. Licensee acknowledges
and agrees, except with respect to the Derivative Technology, that Licensor
shall retain sole right and title to any further developments of the Product and
the Report.
(b) Licensee shall manufacture the Product and Report in strict conformity
with the specifications and standards provided to Licensee by Licensor.
Licensor reserves the right to amend the specifications and standards from time
to time. In addition, because of the value in preserving the reputation of
Licensor, its principals and its products and inventions, Licensor shall have
the right to approve or disapprove (in advance) of any processes, products, or
procedures proposed by, used by or associated with Licensee in the sale, lease,
rental, licensing and/or manufacture of the Product, the Report or any related
product associated with the Product, with Licensor or with Licensor's
principals.
(c) Licensee shall provide all resources necessary to continue to develop
and scientifically validate the Product and the Report. All improvements,
additions and/or extensions of the Product and the Report developed by Licensee
under the direction of Licensor or any of its additional partners shall remain
the sole and exclusive property of Licensor. With the exception of the
Derivative Technology, all additions and/or improvements made a part of the
Product or any portion thereof shall belong to Licensor at the termination of
this Agreement. However, the sole right and title to any and all Derivative
Technology resulting from the further development efforts by Licensee shall
remain with Licensee subject to the terms of Paragraphs 5 and 17 of this
Agreement.
3. INDEPENDENT CONTRACTOR: Licensee is an independent contractor and nothing
contained in this Agreement shall be deemed or interpreted to make Licensee the
agent or legal representative of Licensor for any purpose whatsoever. Licensee
is not granted any right or authority to assume or create any obligation or
responsibility, express or implied, on behalf of or in the name of Licensor, or
to bind Licensor in any manner or fashion whatsoever.
4. MINIMUM REQUIREMENTS: Commencing with the Effective Date, Licensee shall
make its best efforts to market the Product, to manufacture Instruments as
required, and to provide all of the resources including funding, materials
facilities and personnel to continue to develop the Product. Starting January
1, 1994, Licensee shall sell a minimum of one thousand (1,000) Reports and Five
(5) Instruments during each calendar year of this Agreement. Licensor may
consider the total units of Reports and Instruments sold in any calendar year of
this Agreement over and above the
<PAGE>
specified volume as cumulative, to be carried forward to the succeeding calendar
year. Licensor shall waive the minimum required for sale of Instruments and
Reports if Licensee sells in excess of Two Thousand (2,000) Reports in any
calendar year of this Agreement.
5. ROYALTY PAYMENTS: Licensee shall pay to Licensor a royalty for the sale,
lease or rental of the Product and the preparation of each Report as follows:
(a) The lesser of (i) thirty dollars ($30) of the total revenue received
by Licensee for each of the rust 10,000 times the Product is used to examine a
patient and prepare a Report, or (ii) ten percent (10%) of the total revenue
received by Licensee for each of the first 10,000 times the Product is used to
examine a patient and prepare a Report.
(b) After the first 10,000 times the Product is used to examine a patient
and prepare a Report, five percent (5%) of the total revenue received by
Licensee for each successive time the Product is used to examine a patient and
prepare a Report not to be less than $12.50.
(c) Five percent (5%) of the total revenue received by Licensee for each
sale, lease, rental, license, transfer or assignment of each Instrument,
Software Technology, and other Process to a party not owned or controlled by
Licensee, and provided that Licensee has not already paid a royalty on such
revenue pursuant to Paragraph 5(a) or (b) of this Agreement.
(d) Three percent (3%) of the total revenue received by Licensee from the
sale, lease, rental, license, transfer or assignment of any Derivative
Technology developed by Licensee, and provided that Licensee has not already
paid a royalty on such revenue pursuant to Paragraph 5(a), (b) or (c) of this
Agreement.
6. PAYMENT OF ROYALTY: Licensee shall pay Licensor all royalties due under
this Agreement, quarterly, on the 15th day of the month following the end of
each calendar quarter. Licensee shall also provide quarterly reports to
Licensor on the 15th day of the month following the end of each calendar quarter
to accompany the royalty payments due at that time. Each such report shall
contain basic information relating to the calculation of the royalty payment,
including, but not limited to, the quantity and type of Product sold, leased or
rented; the quantity and type of Derivative Technology sold, leased or rented;
the number of Reports produced; the revenue generated by each of the foregoing;
and an itemized calculation of the royalties paid and any deductions. In
addition, Licensee shall, within thirty (30) days of the termination of this
Agreement, make a full accounting of all royalties due to Licensor and shall pay
all such royalties to Licensor. Each royalty payment, that is not received by
Licensor by the twenty first
<PAGE>
(21st) day of the month that such royalty is due, shall bear Interest at a rate
which is equal to the lower of 10% per annum or the maximum limit on such
interest charges established by law.
7. LICENSOR'S WARRANTIES: Licensor hereby warrants and represents to Licensee
that:
(a) Licensor is the developer and sole owner of the Product, the Report
and of the rights thereto and has full right and authority to take the actions
contemplated by this Agreement;
(b) Licensor has not and will not grant (without Licensee's prior written
approval) any other license in any way relating to the Product, the Reports or
any Derivative Technology arising therefrom, unless required by law, to any
person or entity other than Licensee during the term of this Agreement; and
(c) Licensor owes no obligations and has contracted no liabilities
affecting the Product, the Report or the Derivative Technology or any of the
rights thereto, that will affect the consummation of the transactions
contemplated under this Agreement.
8. LIMIT ON WARRANTIES: Other than representations and warranties contained
above, LICENSEE ACKNOWLEDGES AND AGREES THAT THE PRODUCT AS WELL AS THE LICENSE
FURNISHED HEREUNDER, AND ANY AND ALL OTHER GOODS, EQUIPMENT, PERSONAL PROPERTY
AND RIGHTS ACQUIRED, LEASED, LICENSED OR OTHERWISE OBTAINED PURSUANT TO THIS
AGREEMENT ARE TAKEN BY LICENSEE IN "AS IS" CONDITION "WITH ALL FAULTS" AND
SPECIFICALLY AND EXPRESSLY WITHOUT ANY WARRANTIES, REPRESENTATIONS OR
GUARANTEES, EITHER EXPRESS OR IMPLIED, OF ANY KIND, NATURE OR TYPE WHATSOEVER
FROM OR ON BEHALF OF LICENSOR OR ARISING BY OPERATION OF LAW, INCLUDING, BUT IN
NO WAY LIMITED TO, ANY WARRANTY OF CONDITION, MERCHANTABILITY, OR FITNESS FOR A
PARTICULAR PURPOSE OR USE, OR WITH RESPECT TO THE VALUE, PROFITABILITY OR
MARKETABILITY OF THE PRODUCT OR THE LICENSE. ANY SUCH WARRANTIES,
REPRESENTATIONS, OR GUARANTEES WHETHER EXPRESS OR IMPLIED ARE DISCLAIMED.
IN NO EVENT SHALL LICENSOR BE LIABLE FOR ANY INCIDENTAL, INDIRECT, SPECIAL, OR
CONSEQUENTIAL DAMAGES (INCLUDING, BUT NOT LIMITED TO, LOSS OF USE, REVENUE OR
PROFIT OR ANY CLAIM, DEMAND OR ACTIONS BY A THIRD PARTY) IN CONNECTION WITH OR
ARISING OUT OF THIS AGREEMENT OR THE EXISTENCE, FURNISHING, FUNCTIONING OR USE
OF THE PRODUCT OR THE LICENSE FURNISHED HEREUNDER.
9. INFRINGEMENT: Each Party agrees to promptly notify the other Party of any
potential infringement or misappropriation by a third party relating to the
Product, the Reports or the Proprietary Information (as defined below), or any
patents or copyrights which may hereinafter be issued relating to the
aforementioned subjects. Within fourteen days (14) of such notice, Licensor, at
its election, may institute proceedings seeking to enjoin and recover
<PAGE>
damages from such third party. Licensee, at its own cost and expense, shall
have the right to join in any such proceeding in order to protect Licensee's
interests. In the event that Licensor does not institute such proceedings,
Licensee shall be entitled to seek such relief and remedies against such third
party as it deems proper. The failure of Licensor to take action hereunder
shall not excuse Licensee from its obligations and commitments under this
Agreement.
10. FURTHER DEVELOPMENTS: In the event that during the term of this Agreement,
Licensor develops or acquires any improvements, enhancements or information,
relating to the Product or to the Report (the "Developments"), Licensor shall
make such Developments known and available to Licensee and such Developments
shall be automatically included within the scope of this Agreement and within
the license granted hereunder with respect to the Product. With the exception
that the definition of "Technology" used in this Agreement shall be expanded to
include any such Developments, there shall be no change in the Royalty Payment
provisions of Paragraph 5 of this Agreement as a result of any such
developments.
11. INSPECTION OR PROPERTY, BOOKS AND RECORDS. Licensee covenants to Licensor
that (i) it will keep proper books of record and account in which full, true and
correct entries in conformity with generally accepted accounting principles
shall be made of all dealings and transactions in relation to Its business and
activities, and (ii) it will permit any person designated in writing by Licensor
to examine Licensee's corporate, financial and operating records and make copies
thereof or abstracts therefrom in order to verify that the proper payments have
been made by Licensee according to this Agreement, all st such reasonable times,
upon reasonable notice and as often as may reasonably be desired.
12. FINANCIAL STATEMENTS AND REPORTS. Licensee covenants that it will also
deliver to Licensor from time to time such additional information regarding the
financial position, results of operations, business or prospects of Licensee as
Licensor or may reasonably request.
13. INDEMNIFICATION BY LICENSEE: Licensee Covenants that it will protect,
defend, hold harmless and indemnify Licensor, its partners, officers, employees
and agents, from and against any and all expense, claims, actions, liabilities,
attorneys' fees, damages and losses of any kind whatsoever (including, without
limitation of the foregoing, death of or injury to persons and damage to
property), actually or allegedly resulting from or connected with the operation
of the Product, the Reports or the Derivative Technology (including, without
limitation of the foregoing, goods sold, work done, services rendered or
products utilized therein, operation of or defects in any machinery or equipment
used in connection with the Product, the Reports, or the Derivative Technology
or with Licensee's use of the License granted hereunder
<PAGE>
or arising out of any actual or alleged infringement of any patent or claim of
patent, copyright or trademark, service mark, or trade name) or from the
omission or commission of any act, lawful or unlawful, by Licensee or its
agents, officers, directors or employees. Licensee hereby agrees that this
indemnity shall survive the termination of this Agreement.
14. DEFAULT PROVISION. Notwithstanding any other provision contained In this
Agreement, in the event that Licensee shall default in the performance of the
terms and conditions of this Agreement on Licensee's part to be kept, performed
and observed, including without limiting the generality of the foregoing, prompt
payment of all royalties and other obligations incurred under the terms of this
Agreement or the occurrence of a default under Paragraph 15 of this Agreement,
this Agreement shall be subject to cancellation by Licensor upon fourteen (14)
days written notice by Certified Mail, Return Receipt Requested, to Licensee,
during which period of fourteen (14) days, Licensee shall have the right to
remedy such default. Upon the remedying of such default, the cancellation
notice shall have no further force or effect.
15. EVENTS OF DEFAULT. Notwithstanding any other provision contained in this
Agreement, the happening of any one or more of the following events for any
reason whatsoever (whether such occurrence shall be voluntary or involuntary or
come about or be effected by operation of law or otherwise) shall also
constitute a default of this Agreement by Licensee:
(a) The failure by Licensee to observe or perform any of its covenants,
conditions or agreements contained in this Agreement;
(b) If Licensee shall become insolvent or shall fail generally to pay its
debts as they become due;
(c) The assignment by Licensee of Licensee's property for the benefit of
Licensee's creditors or the appointment of a receiver for any part of Licensee's
property;
(d) Any proceedings under any bankruptcy or insolvency law which shall
have been commenced by or against Licensee.
(e) The sale of the license granted hereunder or any other transaction
which shifts the rights or liabilities of Licensee to another controlling
interest without the prior written approval of Licensor.
16. PRODUCT LIABILITY. Licensee will maintain, with financially sound and
reputable insurers, insurance on all property used, sold, leased, rented or
licensed in the operation of its business in at least such amounts and against
at least such risks (and with such risk retention) as are usually insured
against by companies of established repute engaged in the same or a similar
business.
<PAGE>
Licensee will furnish to Licensor upon written request full information as to
the insurance so carried. Notwithstanding, and without limiting the generality
of the foregoing, Licensee agrees that, at a minimum, it will obtain and
maintain during the Initial Term of this Agreement and during any Renewal Term
product liability insurance in the minimum amount of $1,000,000.
17. CONFIDENTIALITY: Licensee and Licensor agree that all information to be
made available to Licensee, and to Licensor by Licensee, in connection with this
Agreement, together with all data, studies, technical and scientific formulae,
processes, methods, secrets, procedures and other know-how, whether or not in
tangible form, related to the Product, the Reports and the Derivative Technology
is confidential and proprietary information (the "Proprietary Information") and
shall be disclosed only to those persons or entities to whom such disclosure is
necessary for the proper exercise of that Parties business operations. Each
Party further agrees to implement procedures and safeguards reasonably
calculated to prevent any unauthorized disclosure by it to by any person or
entity to whom proper disclosure has been made, which procedures and safeguards
shall include the use of non-disclosure agreements and shall be at least equal
to those measures taken by that Party with respect to the protection of its own
most proprietary information. The foregoing obligations shall not extend to any
information already in the possession of any recipient of such Proprietary
Information, as evidenced by prior written records, or to any information
subsequently and lawfully disclosed to the any recipient of such Proprietary
Information by a party other than Licensor or Licensee, or to any information
which is or becomes generally available to the public other than by any act or
omission of the Party seeking to disclose such Proprietary Information.
18. NON-COMPETITION. In the event of the termination of this Agreement, whether
voluntary or involuntary, Licensee agrees that Licensee will not for a period of
three (3) years from the effective date of termination, engage in the
manufacture, sale or distribution of the Product, the Report or any product
similar to the Product in any country, state, county, or municipality where the
Product or Report has been sold and where such a restriction is permitted by
law. If at the time of such termination, this restriction is prohibited by the
laws of the State of California, Licensee agrees to be bound by this provision
in all other territories as outlined above.
19. SOLE AGREEMENT. It is agreed between the Parties that there are no oral or
other agreements or understandings between them relating to the selling or
servicing of the Product. This Agreement constitutes the entire agreement
between the Parties with respect to the subject matter hereof and is intended as
a complete and exclusive statement of the full agreement between the Parties,
and shall supersede all previous proposals, both oral and written,
<PAGE>
negotiations, representations, commitments, agreements (including without
limitation of the foregoing the Contract and License Agreement by and between
the Parties, entered into on February 1, 1993), writings, and all other
communication between the Parties.
20. ARBITRATION. Should any dispute arise between the Parties relating to this
Agreement, its terms or any or the rights, responsibilities or obligations of
any of the Parties under this Agreement, the same shall be settled only by
Arbitration in the State of California, under the then pertaining rules,
guidelines and regulations of tile American Arbitration Association. The
determination of the arbitrators shall be final and binding upon the Parties to
any such arbitration and may be enforced in any court of appropriate
jurisdiction.
21. ATTORNEY'S FEES: If any arbitration, or any action at law or in equity is
necessary to enforce or interpret the terms of this Agreement, or any of the
rights, responsibilities or obligations of any of the Parties under this
Agreement, the prevailing party shall be entitled to reasonable attorneys' fees,
costs and necessary disbursements in addition to any other relief to which it
may be entitled. The Parties agree that the provisions contained in this
Paragraph shall survive the termination of this Agreement.
22. NOTICES: Unless specifically provided otherwise in this Agreement, any
notice to either Party given in relation or pursuant to this Agreement shall be
in writing and shall be delivered personally, by messenger or by mail, postage
prepaid, addressed as set forth below or by telecopy with receipt confirmed by
telephone. Service of any such communication shall be deemed made on the date of
actual receipt at such address. Any party may, from time to time, by notice in
writing served upon the other party as aforesaid, designate a different address,
different person, or reasonable additional persons to whom all communications
are thereafter to be made.
If To Licensor:
Toomim Research Group
% Gerald Appel
321 North La Peer Drive
Beverly Hills, CA 90211
If To Licensee:
Myo Diagnostics, Inc.
3710 S. Robertson Blvd., Suite 212
Culver City, CA 90232
23. RECITALS: The Recitals to this Agreement are incorporated into this
Agreement as though set forth in their entirety herein.
<PAGE>
24. BINDING EFFECT: All covenants, agreements, warranties, and the provisions
of this Agreement shall be binding upon and inure to the benefit of the Parties
hereto and their respective heirs, executors, administrators, personal
representatives, successors and permitted assigns.
25. PARTIAL INVALIDITY: If any provision in this Agreement is held by a court
(or arbitrator) of competent jurisdiction to be invalid, void or unenforceable,
the remaining provisions shall nevertheless continue in full force and effect
without being impaired or invalidated in any way.
26. HEADINGS: The paragraph headings in this Agreement are for convenience only
and are not to be used in interpreting this Agreement.
27. WAIVER AND AMENDMENT: This Agreement may not be released, discharged,
changed or modified except by an Instrument in writing duly signed by both
Parties. A waiver of, or failure to enforce any provision contained in this
Agreement on any occasion shall not be deemed to be a continuing waiver or a
waiver on any other occasion.
28. ENTIRE AGREEMENT: The Parties have read the entire Agreement and agree to
the terms and conditions contained herein.
IN WITNESS WHEREOF, the Parties hereto have caused this instrument to be
executed as of the date first written above.
TOOMIM RESEARCH GROUP MYO DIAGNOSTICS, INC.
(Licensor) (Licensee)
BY:/s/ Hershel Toomim BY:/s/ Gerald D. Appel
----------------------- -----------------------
Hershel Toomim Gerald D. Appel
President
/s/ Daniel J. Levendowski
- --------------------------
Daniel J. Levendowski
/s/ Gerald D. Appel
- --------------------------
Gerald D. Appel
<PAGE>
AMENDMENT NO. ONE, WAIVER AND CONSENT
This AMENDMENT NO. ONE, WAIVER AND CONSENT (this "Amendment"), is made as
of December 23, 1994, by and between Toomim Research Group, a partnership
("Licensor"), and Myo Diagnostics, Inc., a California corporation ("Licensee").
RECITALS
A. WHEREAS, Licensor and Licensee are parties to that certain Licensing
Agreement, dated as of October 31, 1993 (the "License Agreement"); and
B. WHEREAS, the License Agreement was assigned by Licensee to Myo
Diagnostics, A Limited Partnership, a California partnership, (the
"Partnership") with the consent of Licensor; and
C. WHEREAS, the Partnership has dissolved and the License Agreement has
been assigned to Licensee; and
D. WHEREAS, Licensor and Licensee desire to amend the License Agreement
in certain respects, and Licensor is willing to waive compliance with certain
provisions of the License and consent to the assignment of the License Agreement
to Licensee;
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt of which is hereby acknowledged, the parties
hereto hereby agree as follows:
1. Licensor hereby waives compliance by Licensee or the Partnership, as
the case may be, with the minimum sale requirements of Paragraph 4 of the
Agreement for all periods prior to January 1, 1995.
2. Licensor hereby consents to the assignment of the License Agreement
from the Partnership to the Licensee and waives any requirement of the License
Agreement that such consent be obtained prior to such assignment.
3. Paragraph 4 of the Agreement is hereby amended to read in full as
follows:
"4. MINIMUM REQUIREMENTS: Commencing with the Effective Date, Licensee
shall make its best efforts to market the Product, to manufacture
Instruments as required, and to provide all of the resources including
funding, materials, facilities and personnel to continue to develop
the Product. Starting January 1, 1995, Licensee shall sell a minimum
of one thousand (1,000) Reports during each calendar year of this
Agreement.
Licensor may consider the total units of Reports sold in
<PAGE>
any calendar year of this Agreement over and above the specified volume as
cumulative, to be carried forward to the succeeding calendar year. If
Licensor sells in excess of two thousand (2,000) Reports in any calendar
year of this Agreement, Licensor hereby waives the minimum required for
sale of Reports for all subsequent calendar years of this Agreement.
4. Licensor hereby represents and warrants to Licensee that this
Amendment has been duly executed and delivered by Licensor and that the License
Agreement, as amended or modified by this Amendment constitutes the legal,
valid, and binding obligation of Licensor, enforceable against Licensor in
accordance with its terms.
5. Licenseer hereby represents and warrants to Licensor that this
Amendment has been duly executed and delivered by Licensee and that the License
Agreement, as amended or modified by this Amendment constitutes the legal,
valid, and binding obligation of Licensee, enforceable against Licensee in
accordance with its terms.
6. This Amendment may be executed in two or more counterparts and by
different parties in separate counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same instrument
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed
as of the date first above written.
TOOMIM RESEARCH GROUP MYO DIAGNOSTICS, INC.
(Licensor) (Licensee)
BY:/s/ Hershel Toomim BY:/s/ Gerald D. Appel
----------------------- -----------------------
Hershel Toomim Gerald D. Appel
President
/s/ Daniel J. Levendowski
- --------------------------
Daniel J. Levendowski
/s/ Gerald D. Appel
- --------------------------
Gerald D. Appel
<PAGE>
AMENDMENT NO. TWO, WAIVER AND CONSENT
This AMENDMENT NO. TWO, WAIVER AND CONSENT (this "Amendment"), is made as of
November 30, 1995, by and between Toomim Research Group, a partnership
("Licensor") and Myo Diagnostics, Inc., a California corporation ("Licensee").
RECITALS
A. WHEREAS, Licensor and Licensee are parties to that certain Licensing
Agreement, dated as of October 31, 1993 (the "Licensing Agreement"); and
B. WHEREAS, the Licensing Agreement was assigned by Licensee to Myo
Diagnostics Ltd., A Limited Partnership, a California partnership, (the
"Partnership"} with the consent of Licensor; and
C. WHEREAS, the Partnership has dissolved and the License Agreement has
been assigned to the Licensee; and
D. WHEREAS, Licensor and Licensee desire to amend the License Agreement
in certain respects, and Licensor is willing to waive compliance with certain
provisions of the License;
NOW THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt of which is hereby acknowledged, the parties
hereby agree as follows:
1. Paragraph 4 of the Agreement is hereby deleted.
2. Licensor hereby represents and warrants to Licensee that this
Amendment has been duly executed and delivered by Licensor and that the License
Agreement, as amended or modified by this Amendment constitutes the legal,
valid, and binding obligation of Licensor, enforceable against Licensor
accordance with its terms.
3. Licensee hereby represents and warrants to Licensee that this
Amendment has been duly executed and delivered by Licensor and that the License
Agreement, as amended or modified by this Amendment constitutes the legal,
valid, and binding obligation of Licensee, enforceable against Licensee
accordance with its terms.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed
as of the date first above written.
TOOMIM RESEARCH GROUP MYO DIAGNOSTICS, INC.
(Licensor) (Licensee)
BY:/s/ Hershel Toomim BY:/s/ Gerald D. Appel
----------------------- -----------------------
Hershel Toomim Gerald D. Appel
President
/s/ Daniel J. Levendowski
- --------------------------
Daniel J. Levendowski
/s/ Gerald D. Appel
- --------------------------
Gerald D. Appel
<PAGE>
SECURITIES PURCHASE AGREEMENT
This SECURITIES PURCHASE AGREEMENT, is entered into as of December 23,
1994, by and among MYO DIAGNOSTICS, INC., a California corporation (the
"Company") and ONTARIO MUNICIPAL EMPLOYEES RETIREMENT BOARD (THE "Purchaser")
and GERALD D. APPEL and HERSHEL TOOMIM (individually a "Stockholder" and
collectively, the "Stockholders").
In consideration of the premises and the mutual promises, representations,
warranties, covenants and conditions set forth below, the parties hereto agree
as follows:
ARTICLE 1. CERTAIN DEFINITIONS
1.01 Certain Definitions. For the purposes of this Agreement, the following
terms shall have the following meanings:
"Affiliate" of a specified Person means any Person who directly or
indirectly controls or is controlled by, or is under common control with, such
specified person.
"Agreement" or this "Agreement" means this Securities Purchase Agreement
including any Exhibits hereto.
"Blue Sky Laws" means the securities laws and regulations of any political
subdivision of the United States.
"Business Day" means any day other than a Saturday, Sunday or other day on
which commercial banks in Los Angeles, California, USA or Toronto, Ontario,
Canada are authorized by law to close.
"CERCLA" means the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended.
"Closing" shall have the meaning set forth in Section 2.01.
"Closing Date" means 9:00 a.m., Los Angeles time, on December 23, 1994, or
such later date as shall be agreed upon by the Company and the Purchaser.
"Closing Shares" shall have the meaning set forth in Section 2.01.
"Code" means the Internal Revenue Code of 1986, as amended.
"Combined Financial Statements" means the combined balance sheet of the
Company and the Partnership as at November 30, 1994 and the combined profit and
loss report of the Company and the Partnership for the eleven months then ended,
copies of which are attached hereto as Exhibit A.
<PAGE>
"Commission" means the Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act.
"Common Stock" means the Common Stock of the Company.
"Environmental Damages" means all claims, judgments, damages, losses,
penalties, fines, liabilities, encumbrances, taxes, fees, liens, costs and
expenses of investigation and defense of any claim, whether or not such claim is
ultimately defeated, including without limitation reasonable attorneys' fees and
disbursements and consultants' fees, any of which are incurred at any time as a
result of the existence or alleged existence of Hazardous Material in, on, under
or migrating to or from the Real Property or the existence or alleged existence
of a violation or obligation arising under any Environmental Requirements.
"Environmental Requirements" means all applicable statutes, laws,
regulations, rules, ordinances, codes, licenses, permits, orders, standards,
guidelines, policies and similar items of any governmental authority having
jurisdiction and all applicable judicial, administrative and regulatory decrees,
judgments and orders and common law relating to the protection of human health
or the environment including, without limitation, all requirements pertaining to
the reporting, licensing, permitting, use, handling, generation, storage,
treatment, transportation, disposal, release, discharge, investigation and
remediation of Hazardous Material.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the regulations promulgated and rulings issued thereunder.
"ERISA Affiliate" means any Person who is a member of the Company's
controlled group, or under common control with the Company, within the meaning
of Section 414 of the Code and the regulations promulgated and rulings issued
thereunder.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or
any similar successor federal statute, and the rules and regulations thereunder,
all as the same shall be in effect from time to time.
"Hazardous Material" means any substance (i) the presence of which requires
reporting, investigation or remediation under any applicable statute,
regulation, ordinance, order, action, policy or common law; or (ii) which is
defined as a "hazardous waste", "hazardous substance", pollutant or contaminant
under any statute, regulation, rule, or ordinance of any governmental authority
having jurisdiction; or (iii) which is toxic, explosive, corrosive, flammable,
infectious, radioactive, carcinogenic, mutagenic, or otherwise hazardous and is
regulated by any governmental authority having jurisdiction; or (iv) the
presence of which on the Real
2
<PAGE>
Property causes or threatens to cause a nuisance upon the Real Property or to
adjacent properties or poses or threatens to pose a hazard to the health or
safety of persons on or about the Real Property.
"Holder" means the Purchaser and any holder of Registrable Securities to
whom the Registration rights conferred by this Agreement have been transferred
in compliance with Section 8.11 of this Agreement.
"Indemnified Party" shall have the meaning set forth in Section 8.08(c).
"Indemnifying Party" shall have the meaning set forth in Section 8.08(c).
"Latest Balance Sheet" means the latest combined balance sheet of the
Company and the Partnership included in the Combined Financial Statements.
"License Agreement" means that certain Licensing Agreement, dated as of
October 31, 1993, by and between the Company and the Licensor.
"Licensor" means Toomim Research Group, a partnership.
"Ontco" means 1020826 Ontario Inc., a corporation incorporated under the
laws of the Province of Ontario, Canada.
"Ontco Documents" means, the Ontco Revenue Sharing Agreement, the
Agreements, each dated as of June 1, 1993, between the Company and each
shareholder of Ontco, that certain Agreement, dated as of December 6, 1994,
between the Partnership, the Company and Ontco, that certain Exercise Notice,
dated as of December 6, 1994, and sent by the Company to each shareholder of
Ontco, the form of Acceptance Notice executed or to be executed by each
shareholder of Ontco, and the form of Supplement to Acceptance Notice executed
or to be executed by each Ontco Shareholder.
"Ontco Revenue Sharing Agreement" means that certain Agreement, dated as of
June 1, 1993, between the Partnership, the Company and Ontco.
"Partnership" means MYO Diagnostics, A Limited Partnership, a California
partnership.
"Partnership Agreement" means the Partnership's Agreement of Limited
Partnership, dated as of September 17, 1991, as amended by Amendment to the
Agreement of Limited Partnership, dated as of May 20, 1993, Amendment B to the
Agreement of Limited Partnership, dated as of December 30, 1993, and Amendment C
to Agreement of Limited Partnership, dated as of November 20, 1994.
3
<PAGE>
"Person" means an individual, firm, corporation, division, operation,
partnership, joint venture, trust, unincorporated association, government or any
agency or political subdivision thereof, or any other entity.
"Proprietary Rights" means patents, inventions, shop rights, knowhow, trade
secrets, confidentiality agreements and confidential information; registered and
unregistered trademarks, service marks, logos, corporate names, trade names, and
other trademark rights; registered and unregistered copyrights; and all
registrations for, and applications for registration of, any of the foregoing.
"Projections" means the Two Year Financial Projections, a copy of which is
attached hereto as Exhibit B.
"Purchased Securities" means the Closing Shares, the Series A Warrant, the
Series B Warrant, the Series A Warrant Shares and the Series B Warrant Shares.
"Qualified Public Offering" means a firm commitment underwritten offer and
sale by the Company of its Common Stock pursuant to a Registered public offering
for an aggregate price to the public of not less than $5,000,000.
"RCRA" means the Resource Conservation and Recovery Act of 1976, as
amended.
"Real Property" means any real property owned or leased by the Company.
"Register", "Registered" and "Registration" shall refer to a registration
effected by preparing and filing a registration statement in compliance with the
Securities. Act, and the declaration or ordering of the effectiveness of such
registration statement.
"Registerable Securities" means (i) the Shares and (ii) any Common Stock
issued as a dividend or other distribution with respect to, or in exchange for,
or in replacement of, the shares referred to in the foregoing clause (i)
provided, however, that Registerable Securities shall not include any shares of
Common Stock which have been previously Registered and sold to the public or
which have been sold in a private transaction in which the transferor's rights
under this Agreement were not transferred.
"Registration Expenses" means all expenses incurred in effecting any
Registration pursuant to this Agreement, including, without limitation, all
registration, qualification, and filing fees, printing expenses, escrow fees,
fees and disbursements of counsel for the Company, fees under Blue Sky Laws, and
expenses of any regular or special audits incident to or required by any such
Registration, and fees and disbursements of one counsel for the
4
<PAGE>
selling Holders, but shall not include Selling Expenses, fees and disbursements
of additional counsel for the Holders and the compensation of regular employees
of the Company, which shall be paid in any event by the Company.
"Restricted Securities" means any Registrable Securities required to bear
the legend set forth in Section 4.06 of this Agreement.
"Rule 144" means Rule 144 as promulgated by the Commission under the
Securities Act, as such Rule may be amended from time to time, or any similar
successor rule that may be promulgated by the Commission.
"Rule 145" means Rule 145 as promulgated by the Commission under the
Securities Act, as such Rule may be amended from time to time, or any similar
successor rule that may be promulgated by the Commission.
"Securities Act" means the Securities Act of 1933, as amended, and any
similar successor federal statute and the rules and regulations thereunder, all
as the same may be in effect from time to time.
"Selling Expenses" means all underwriting discounts and selling commission
applicable to the sale of Registrable Securities and fees and disbursements of
counsel for any Holder (other than fees and disbursements of counsel included in
Registration Expenses.)
"Series A Warrant" shall have the meaning set forth in Section 5.01 (i).
"Series A Warrant Shares" means the shares of Common Stock issued or to be
issued upon exercise of the Series A Warrant.
"Series B Warrant" shall have the meaning set forth in Section 5.01(i).
"Series B Warrant Shares" means the shares of Common Stock issued or to be
issued upon exercise of the Series B Warrant.
"Shareholders Agreement" means that certain Shareholders Agreement dated as
of February 1, 1989 by and among Hershel Toomim, John Kasten and Gerald D.
Appel.
"Shares" means the Closing Shares, the Series A Warrant Shares and the
Series, B Warrant Shares.
"Significant Stockholder" means any stockholder (or one of a number of
stockholders acting in concert) who beneficially owns, or in the aggregate with
other stockholders acting in concert,
5
<PAGE>
directly or indirectly, more than 5% of the outstanding Common Stock or rights,
options or warrants to acquire the same.
"Taxes" means all federal, state, county, local, foreign and other taxes
and governmental assessments, including but not limited to, income taxes,
estimated taxes, withholding taxes, transfer taxes, excise taxes, real and
personal property taxes, ad valorem taxes, payroll-related taxes, employment
taxes, franchise taxes and import duties, together with any related liabilities
penalties, fines, additions to tax and interest.
"Tax Returns" means the Partnership's Form 1065 U.S. Partnership Return of
Income and the Company's Form 1120 U.S. Corporation Income Tax Return in each
case for each of the years in the three-year period ended December 31, 1993,
copies of which are attached hereto as Exhibit C.
"Warrants" means the Series A Warrant and the Series B Warrant.
ARTICLE 2. PURCHASE AND SALE OF SECURITIES
2.01 CLOSING. On the terms and subject to the conditions set forth in this
Agreement, at a closing (the "Closing") to be held on the Closing Date, and in
reliance on the representations and warranties contained in this Agreement, the
Company shall issue, sell and deliver to the Purchaser, and the Purchaser shall
purchase from the Company, 680,741 shares of Common Stock (the "Closing Shares")
for an aggregate purchase price of $1,000,000. At the Closing, the Company
shall issue and deliver to the Purchaser upon tender of the purchase price
therefor, one or more certificates representing the Closing Shares.
2.02 PLACE OF CLOSING. On the terms and subject to the conditions set forth
in this Agreement, the Closing shall be held at the offices of Pircher, Nichols
& Meeks, 1999 Avenue of the Stars, Los Angeles, California 90067 or at such
other place as shall be mutually agreed upon by the Company and the Purchaser.
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF THE
STOCKHOLDERS AND THE COMPANY
The Company and each Stockholder, jointly and severally, represents and
warrants to the Purchaser as follows:
3.01 ORGANIZATION AND GOOD STANDING, ETC. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California, and has all requisite corporate power and authority to own and lease
its properties and to carry on its business as presently conducted and as
proposed to be conducted. The Company is duly registered or qualified and in
good standing as a foreign corporation in each jurisdiction where
6
<PAGE>
the ownership or leasing of its properties or the conduct of its business makes
such registration or qualification necessary, the copies of the Company's
Articles of Incorporation and Bylaws which have been furnished to Pircher,
Nichols & Meeks, special counsel for the Purchaser, include all amendments made
thereto at any time prior to the date of this Agreement and are correct and
complete. The minute books of the Company made available to Pircher, Nichols &
Meeks, special counsel for the Purchaser, contain minutes of all meetings of
directors (and any committee of directors) and shareholders of the Company and
all actions by written consent without a meeting by the directors (or any
committee of directors) and stockholders since the date of incorporation of the
Company and accurately reflect all actions by the directors (or any committee of
directors) and shareholders of the Company with respect to all transactions
referred to in such minutes. Exhibit D hereto sets forth a true and complete
list of all the names of all directors of the Company and the names and offices
held of all officers of the Company.
3.02 SUBSIDIARIES. The Company does not own, beneficially or of record, any
shares or capital stock of, or hold any other equity interest in, any Person, is
not committed to purchase or acquire any such interest, and is not a participant
in any joint venture, partnership or similar arrangement except that the Company
intends to acquire all of the outstanding shares of Ontco pursuant to the Ontco
Documents. The Ontco Revenue Sharing Agreement has been terminated. To the best
knowledge of the Company or any Stockholder, (1) Ontco is a corporation duly
organized, validly existing and in good standing under the laws of the Provence
of Ontario, Canada, and has all requisite corporate power and authority to own
and lease its properties and to carry on its business; (2) the only business
conducted by Ontco was to enter into the Ontco Revenue Sharing Agreement; and
(3) Ontco has no assets or liabilities.
3.03 DISSOLUTION OF THE PARTNERSHIP. The Company has purchased all of the
Units held by all of the Unit Holders (as such terms are defined in the
Partnership Agreement) in consideration of the issuance by the Company to the
Unit Holders of an aggregate of 420,000 shares of Common Stock, no distributions
or other amounts are due from the Partnership or the Company to the Unit
Holders, the Partnership has been dissolved in accordance with the provisions of
the Partnership Agreement and/or California law, all of the assets (including,
without limitation, the License Agreement) of the Partnership have been
distributed to the Company, and the Company has assumed all of the liabilities
of the Partnership.
3.04 CAPITALIZATION. The authorized capital stock of the Company consists
of 10,000,000 shares of Common Stock, of which 5,106,720 shares are issued and
outstanding. The outstanding shares of Common Stock are owned by the
stockholders and in the
7
<PAGE>
numbers set forth in Exhibit E hereto. Except as set forth in Exhibit F hereto,
there are no authorized, issued or outstanding options, warrants, conversion
privileges, preemptive rights or other rights, agreements, arrangements or
understandings (whether or not presently exercisable) to purchase or otherwise
acquire any Common Stock or other securities of the Company or other securities
convertible into or evidencing the right to purchase or otherwise acquire any
shares of such stock or other securities except for the rights in favor of the
Purchaser created by this Agreement. All of the issued and outstanding shares
of Common Stock are, and all shares issued upon the exercise of all options and
warrants described in Exhibit F hereto for the consideration set forth therein
will be, duly authorized, validly issued, fully paid and nonassessable and were,
or will be, issued in compliance with the Securities Act and all applicable Blue
Sky Laws. Except as provided in this Agreement and as set froth in Exhibit F
hereto, (a) there are no shareholders' agreements, voting trusts, irrevocable
proxies or similar arrangements by which any Person other than the shareholders
of record of the Company in their individual capacities as such have or may
acquire authority to vote any Common Stock or other securities of the Company,
(b) there are no restrictions upon the sale, voting or transfer of any shares of
Common Stock pursuant to the Company's Articles of Incorporation, Bylaws or
other governing instruments or any agreement or other instrument to which the
Company or any Stockholder is a party or by which it or any of them may be
bound, (c) there are no preemptive or similar rights with respect to the Common
Stock or any other securities of the Company and (d) the Company is under no
obligation to redeem or repurchase any shares of Common Stock or other
securities of the Company.
3.05 AUTHORIZATION. The Company has all requisite power and authority to
execute and deliver this Agreement, to issue and sell the Shares, to issue and
deliver the Warrants, and to perform its obligations hereunder. All corporate
action on the part of the Company, its officers, directors and shareholders
which is necessary for the authorization, issuance (or reservation for
issuance), sale and delivery of the Shares, the issue and delivery of the
Warrants, the authorization, execution, delivery and performance of this
Agreement, has been taken. Each Stockholder has all requisite power, authority
and capacity to execute and deliver this Agreement and to perform his
obligations hereunder.
3.06 VALIDITY AND ENFORCEABILITY. This Agreement has been duly executed and
delivered by the Company and each Stockholder and constitutes, and the Warrants
when executed and delivered by the Company will constitute, legal, valid and
binding obligations of the Company and, in the case of this Agreement, each
Stockholder, enforceable against the Company and, in the case of this Agreement,
each Stockholder in accordance with its terms, except as enforceability (a) may
be limited by bankruptcy, insolvency, reorganization, moratorium or other laws
relating to or affecting
8
<PAGE>
the enforcement of creditors' rights generally or by general equitable
principles and (b) to the extent the indemnification provisions contained in
Article 8 hereof may be limited by applicable federal or state securities laws.
3.07 VALID ISSUANCE OF SHARES. The Closing Shares, the Series A Warrant
Shares and the Series B Warrant Shares, when issued, sold and delivered in
accordance with the terms of this Agreement, the Series A Warrant or the Series
B Warrant, as the case may be, for the consideration set forth herein or
therein, will be duly and validly authorized and issued, fully paid, and
nonassessable shares of Common Stock, and will be free of restrictions on
transfer other than restrictions on transfer contained in this Agreement and
under the Securities Act and applicable Blue Sky Laws. The Company has duly and
validly reserved 100,000 shares of the Common Stock for issuance upon the
exercise of the Series A Warrant and 83,333 shares of Common Stock for issuance
upon the exercise of the Series B Warrant.
3.08 NO CONFLICT. The Company is not in violation of or default under its
Articles or Incorporation or Bylaws or any provision of any indenture, mortgage,
lease, loan agreement or other agreement or instrument to which the Company is a
party or by which it is bound or to which any of its properties or assets is
subject or any judgment, order writ or decree applicable to the Company. None
of the execution and delivery of this Agreement by the Company or any
Stockholder, the issuance and sale of the Shares, the issuance and delivery of
the Warrants, or the consummation of the transactions contemplated hereunder,
will (i) conflict with or result in a breach or violation of, or constitute a
default under, or result in the creation of any lien, charge or encumbrance
upon, any of the properties or assets of the Company pursuant to the Articles of
Incorporation or Bylaws of the Company or any indenture, mortgage, lease, loan
agreement or other agreement or instrument to which the Company is a party or by
which it is bound or to which any of its properties or assets is subject or (ii)
violate any law, statute, rule, regulation, judgment or decree applicable to the
Company. Except as set forth in Exhibit G hereto, no third party consents are
required by the terms of any indenture, mortgage, lease, loan agreement or other
agreement or instrument to which the Company is a party or by which it is bound
or to which any of its properties or assets is subject for the execution and
delivery of this Agreement, the issuance of the Shares, the issuance and
delivery of the Warrants, or the consummation of the transactions provided for
herein.
3.09 NO CONSENT OR APPROVAL REQUIRED. No consent, approval or authorization
of, or declaration to or filing with, any governmental or regulatory authority
is required for the valid execution and delivery by the Company or any
Stockholder of this Agreement, the issuance and sale of the Shares, the issuance
and delivery of the Warrants or the consummation of the transactions
9
<PAGE>
provided for herein except the filing of any notice of sale required to be filed
under Regulation D adopted by the Commission or such post-closing filings as may
be required under applicable Blue Sky Laws, which will be timely filed within
the applicable periods provided therefor.
3.10 FINANCIAL STATEMENTS. The Combined Financial Statements were prepared
in accordance with generally accepted accounting principles consistently applied
throughout the periods involved, are complete and correct in all material
respects, and present fairly the combined financial condition of the Company and
the Partnership and their combined results of operations as of the dates and for
the periods indicated.
3.11 ABSENCE OF UNDISCLOSED LIABILITIES. Except as and to the extent
reflected or reserved against in the Latest Balance Sheet or set forth in
Schedule 3.11 hereto, at the date of the Latest Balance Sheet, the Company did
not have any material obligation or liability of any kind (whether accrued,
absolute, contingent, unliquidated, civil, criminal or otherwise and whether due
or to become due), whether or not any such liability or obligation would have
been required to be disclosed on a balance sheet prepared in accordance with
generally accepted accounting principles.
3.12 ABSENCE OF CERTAIN CHANGES OR EVENTS.
Since the date of the Latest Balance Sheet and except as set forth in
Schedule 3.12, the Company has been operated in the ordinary course of business,
and there has not been:
(a) Any change in the assets, liabilities, obligations, financial
condition or results of operations of the Company from that reflected in the
Financial Statements, except changes in the ordinary course of business that
have not been, either individually or in the aggregate, materially adverse;
(b) Any material change (individually or in the aggregate) in the
contingent obligations of the Company by way of guaranty, endorsement,
indemnity, warranty, or otherwise;
(c) Any change in material standards, principles, policies or practices
(including, without limitation, financial or financial reporting and accounting
methods and practices) relating to the Company's business;
(d) Any sale, assignment, lease or other transfer or disposition of any
assets of the Company other than in the ordinary course of business;
(e) Any damage, destruction or loss, whether or not covered by insurance,
materially and adversely affecting the business, properties, prospects or
financial condition of the Company;
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(f) Any satisfaction or discharge of any lien, claim, or encumbrance or
payment of any obligation by the Company, except in the ordinary course of
business and which is not material to the business, properties, prospects or
financial condition of the Company;
(g) Any termination, amendment or modification of any material contract or
arrangement to which the Company is a party or by which it is bound;
(h) Any sale, assignment, license, or other transfer or disposition of any
Proprietary Rights;
(i) Any resignation or termination of employment of any officer or key
employee of the Company or any termination of any consulting arrangement to
which the Company is a party;
(j) Any mortgage, pledge, grant of a security interest in, or lien,
created by the Company with respect to any of its properties or assets, except
liens for current property taxes not yet due and payable;
(k) Any waiver or compromise by the Company of any valuable right or of a
material debt owed to it;
(l) Any loans or advances to, guaranties for the benefit of, or
investments in, any Person (other than customary travel advances in accordance
with past practices);
(m) Any general increase in the salary or other compensation of the
Company's employees, officers, directors, or consultants, or any specific
increase in the salary or other compensation of any such employee, officer,
director, or consultant, whose combined salary and other compensation after such
increase would be in excess of $30,000;
(n) Any adoption of, or change in, any executive compensation plan, bonus
plan, incentive compensation plan, deferred compensation agreement or other
employee benefit plan or arrangement.
(o) Any declaration, setting aside, or payment of any dividend or other
distribution in respect of the Common Stock;
(p) Any issue or sale by the Company of any shares of Common Stock or
other securities or any purchase by the Company of any shares of Common Stock or
other securities;
(q) Any other event or condition (individually or in the aggregate) of any
character that has materially and adversely affected the Company's business or
prospects; or
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(r) Any agreement or commitment by the Company to do any of the things
described in this Section 3.12.
3.13 CONTRACTS AND COMMITMENTS. Except as set forth in Schedule 3.13
hereto, the Company is not a party to any contract, agreement, lease,
commitment, or proposed transaction, written or oral, other than (1) contracts
for the purchase of supplies and services that were entered to in the ordinary
course of business and that do not provide for aggregate payments in excess of
$25,000, and do not extend for more than one year from the date hereof, (2)
sales contracts entered into in the ordinary course of business, and (iii)
contracts terminable at will by the Company on no more than 30 days' notice
without any cost or liability to the Company and that do not involve any
employment or consulting arrangement and are not material to the conduct of the
business of the Company. For the purposes of this Section, employment and
consulting contracts, collective bargaining agreements, and licensing agreements
and other agreements relating to the acquisition of disposition of the Company's
Proprietary Rights (other than standard end-user license agreements), shall not
be considered to be contracts entered into in the ordinary course of business.
The Company has delivered to Pircher, Nichols & Meeks, special counsel to the
Purchaser, true and complete copies of all contracts and agreements, including
all amendments thereto, listed in Schedule 3.13. All contracts, agreements,
leases and commitments referred to in Schedule 3.13 are valid and enforceable in
accordance with their respective terms for the periods stated therein, and there
is not under any of them any existing breach, default, or event of default by
the Company or, to the best knowledge of the Company or any Stockholder, by any
other party thereto, or event which with notice or lapse of time would
constitute a default nor has any party thereto given notice of or made a claim
with respect to any breach or default. Neither the Company nor any Stockholder
has any knowledge of any existing laws, regulations or decrees, which materially
and adversely affect, or may materially and adversely affect any of such
contracts, agreements, leases, or commitments or the business, properties,
operations or condition, financial or other, of the Company.
3.14 TITLE TO PROPERTY AND ASSETS; LEASES. The Company does not own any
real property. Except (1) as reflected in the Financial Statements, (2) for
liens for current taxes not yet delinquent, (3) for liens imposed by law and
incurred in the ordinary course of business for obligations not past due to
carriers, warehousemen, laborers, materialmen and the like, (4) for minor
defects in title, none of which, individually or in the aggregate, materially
interferes with the use of such property, the Company owns its assets free and
clear of all mortgages, liens, claims, security interests, and encumbrances.
The Company's only lease of real property is a month-to-month lease for its
premises at 3710 South Robertson Boulevard, Suite 212 and Suite 220, Los
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Angeles, California 90232 with which lease the Company is in compliance.
3.15 ADEQUACY OF ASSETS. The Company owns or has a valid leasehold interest
in all assets, properties, real and personal, contract rights, licenses and
Proprietary Rights necessary for the continued operation of the Company in
substantially the same manner in which it has been and is now operating.
3.16 LITIGATION. Except as set forth in Schedule 3.16, there is no action,
suit, proceeding, or investigation pending or, to the best knowledge of each
Stockholder and the Company, threatened, against or affecting the Company that
questions the validity of this Agreement or the right of the Company to enter
into this Agreement or to consummate the transactions contemplated hereby or
that might result, either individually or in the aggregate, in any material
adverse change in the assets, business, properties, prospects, financial
condition or operating results of the Company, or in any material change in the
current equity ownership of the Company. The foregoing includes, without
limitation, any action, suit, proceeding or investigation pending or threatened
involving the prior employment of any of the Company's employees, their use in
connection with the Company's business of any information or techniques
allegedly proprietary to any of their former employees, their obligations under
any agreements with prior employees, or negotiations by the Company with
potential backers of, or investors in, the Company or its proposed business. The
Company is not a party to or, to the best knowledge of the Company and each
Stockholder, named in any order, writ, injunction, judgment or decree of any
court, governmental agency, or instrumentality. There is no action, suit or
proceeding by the Company currently pending or that the Company currently
intends to initiate.
3.17 TAXES. All returns and reports of all Taxes required to be filed by
the Company have been filed, and all such returns and reports, including without
limitation, the Tax Returns, are true, correct and complete in all material
respects, and all Taxes payable pursuant thereto have been paid. No deficiency
or adjustment in respect of any Taxes which was assessed against the Company
remains unpaid and no such claim or assessment is pending or, to the best
knowledge of the Company and each Stockholder, threatened. The Company has made
all withholdings of Taxes required to be made under all applicable federal,
state and local tax regulations and such withholdings have either been paid to
the respective governmental agencies or set side in accounts for such purpose or
accrued, reserved against and entered upon the books of the Company. No
provision for income taxes payable is required to be reflected on the Latest
Balance Sheet. There are no outstanding agreements or waivers extending the
statutory period of limitations applicable to any tax return or tax liability of
the Company, and to the best knowledge of the Company and each Stockholder,
there is no proposed liability for any Taxes for which there is not an
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adequate reserve reflected on the Latest Balance Sheet. The Company has not
filed any consent with the Internal Revenue Service described in Section 341(f)
of the Code.
3.18 PROPRIETARY RIGHTS. The Company owns or possesses adequate licenses or
other rights to all Proprietary Rights necessary for the conduct of the business
of the Company as presently conducted and as proposed to be conducted without,
to the best knowledge of the Company and each Stockholder, any conflict with or
infringement of, the Proprietary Rights of any other Person. Schedule 3.18
contains a complete list of all Proprietary rights of the Company. Except as
set forth in Schedule 3.18 and except for standard end-user agreements, there
are not outstanding options, licenses, or agreements of any kind relating to the
foregoing, nor is the Company bound by or a party to any option, license or
agreement of any kind with respect to its Proprietary Rights or the Proprietary
rights of any other Person. Neither the Company nor any Stockholder has
received any notice or other communication alleging that the Company has
violated, or, by conducting its business as presently conducted and proposed to
be conducted, would violate any Proprietary Rights of any other Person. Neither
the Company nor any Stockholder is aware that any of the Company's employees or
consultants is obligated under any contract (including licenses, covenants, or
commitments of any nature) or other agreement, or subject to any judgment,
decree or order of any court or administrative agency, that would interfere with
the use of such employee's or consultant's best efforts to promote the interests
of the Company or that would conflict with its business as presently conducted
and proposed to be conducted. Neither the execution and delivery of this
Agreement, nor the carrying on of the business of the Company by its employees
and consultants, nor the conduct of the Company's business as presently
conducted and proposed to be conducted, will, to the best knowledge of the
Company and each Stockholder, conflict with or result in a breach of, or
constitute a default under, any contract covenant or agreement under which any
of such employees or consultants is now obligated.
3.19 MANUFACTURING AND MARKETING RIGHTS. Except as set forth in Schedule
3.13 and Schedule 3.19, the Company has not granted rights to manufacture,
produce, assemble, license, market or sell its products or services to any other
Person and is not bound by any agreement that affects the Company's exclusive
right to develop, manufacture, assemble, distribute, market or sell its products
and services.
3.20 EMPLOYEES. Schedule 3.20 sets forth the names and current annual or
monthly compensation rates of all employees of the Company. There are no
material controversies pending or, to the best knowledge of the Company and each
Stockholder, threatened, between the Company and any of its employees, former
employees or
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applicants for employment. The Company has complied in all material respects
with all laws relating to the employment of labor, including any provisions
thereof relating to wages, hours, equal employment opportunity, collective
bargaining, federal immigration law, and the payment of social security and
similar taxes and is not liable for any arrears of wages or any taxes or
penalties for failure to comply with any of the foregoing. None of the
employees of the Company are covered by any collective bargaining agreement and,
to the best knowledge of the Company and each Stockholder, there are no
organizational efforts currently being made or threatened involving any
employees of the Company. Except as set forth in Schedule 3.20, the Company is
not a party to or bound by any currently effective employment agreement,
contract, deferred compensation arrangement, bonus plan, incentive compensation
plan, profit sharing plan, retirement agreement, stock option agreement, stock
option plan, group life, hospitalization or disability insurance, severance
policy or other employee compensation agreement or arrangement. The Company is
not aware that any officer or key employee intends to terminate his or her
employment by the Company, nor does the Company have any present intention to
terminate the employment of any such officer or key employee. Subject to
general principles relating to wrongful termination of employees, the employment
of each officer and employee of the Company is terminable at the will of the
Company.
3.21 ERISA. The Company does not maintain or contribute to and is not
obligated to contribute to, and has never maintained or contributed to or been
obligated to contribute to, (i) any employee plan that is subject to the
provisions of Title IV of ERISA or subject to the minimum funding standards of
Section 412 of the Code; (ii) any "multi employer plan" as defined in Section
4001(a)(3) of ERISA; or (iii) any "single employer plan" as defined in Section
4001(a)(15) of ERISA, which (a) is maintained for employees of the Company or
any ERISA Affiliate and at least one other Person or (b) was so maintained and
in respect of which the Company or an ERISA Affiliate could have liability under
Section 4064 or 4069 of ERISA in the event such plan has been or were to be
terminated.
3.22 TRANSACTIONS WITH MANAGEMENT. Except as set forth in Schedule 3.22,
the Company is not a party to any contract, lease, agreement or other commitment
with any officer, director or shareholder of the Company or any Affiliate of any
such Person, and there are no loans outstanding from the Company to, or to the
Company from, any such Person or any Affiliate of any such Person.
3.23 REGISTRATION RIGHTS. Except as set forth in Schedule 3.23 and except
as provided in this Agreement, the Company is not obligated to Register under
the Securities Act any of its presently outstanding securities or any of its
securities that may subsequently be issued.
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3.24 PERMITS; COMPLIANCE WITH LAWS. The Company holds all permits,
licenses, consents and authorizations issued by any government or governmental
authority which are material and necessary in connection with the conduct of the
business of the Company. The Company is not in default in any material respect
under any such permit, license, consent or authorization. The conduct of the
business of the Company as presently conducted complies in all material respects
with all applicable laws, ordinances, regulations and orders, including, without
limitation, all Environmental Requirements. The Company has not received any
notice of any violation of any law, ordinance, regulation or order applicable to
the Company or the business conducted by it.
3.25 ENVIRONMENTAL MATTERS. There has been no "release or threatened
release of a hazardous substance" (as defined in CERCLA) or any other release,
emission, disposal or discharge into the environment or any use, storage,
transport or handling (collectively, "activities") of Hazardous Material on,
under, about or from the Real Property other than those activities which have
not resulted and could not reasonably be expected to result in any material
liability on the part of the Company. To the best knowledge of the Company and
each Stockholder, all "hazardous waste" (as defined in RCRA and the regulations
thereunder) generated at the Real Property have been disposed of at sites which
maintain valid permits under RCRA and any other applicable Environmental
Requirement. To the best knowledge of the Company and each Stockholder, there
are no underground tanks, PCBs or asbestos containing materials on the Real
Property. The Company has no notice of any pending formal or informal assertion
by any governmental agency or other Person that the Company or any predecessor
business or owner or operator of the Real Property may be a responsible or
potentially responsible party in connection with any violation or obligation
arising under any Environmental Requirement at any site or facility (including
the Real Property itself.) Schedule 3.25 sets forth a list of all documents
pertaining to the environmental conditions (actual, potential or threatened) of
any of the Real Property including, without limitation, all environmental
reports, assessments and audits and all notices, orders, permits or any other
documents from any governmental authority which refer or relate to any
environmental condition of the Real Property or any personal property owned or
leased by the Company or which relate to any actual or potential liabilities or
obligations arising out of such environmental conditions.
3.26 ADVERSE AGREEMENTS. The Company is not a party to or subject to any
contract, agreement or commitment or subject to any charter or other corporate
restriction or any judgment, order, writ, injunction, decree, law, rule or
regulation which adversely affects, or could reasonably be expected to adversely
affect, the business, operations, prospects, properties, assets or condition,
financial or other, of the Company.
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3.27 NO BROKERS OR FINDERS. Neither the Company nor any Stockholder has
retained any investment banker, broker or finder in connection with the
transactions contemplated by this Agreement except Wayne Cockburn whose entire
compensation in connection therewith consists of $100,000 and will be paid by
the Company.
3.28 BOOKS AND RECORDS. The books, records and work papers of the Company
are complete and correct, have been maintained in accordance with good business
practice and accurately reflect the bases for the financial condition and
results of operations of the Company set forth in the Financial Statements.
3.29 DISCLOSURE. The Company has provided the Purchaser with all the
information reasonably available to it without undue expense that the Purchaser
has requested for deciding whether to purchase the Shares and all information
that the Company believes is reasonably necessary to enable the Purchaser to
make such decision. None of this Agreement, the Company Financial Statements,
the Combined Financial Statements, or any other written documents, statements or
certificates made or delivered to the Purchaser in connection herewith contains
any untrue statement of a material fact or omits to state a material fact
necessary to make the statements contained herein or therein, in the light of
the circumstances in which they were made, not misleading. Neither the Company
nor any Stockholder has knowledge of any liability, contingent or otherwise, not
disclosed in the Company Financial Statements, the Combined Financial Statements
or other document delivered to the Purchaser in connection herewith that
materially affects the financial position or results of operations of the
Company or the Projections.
3.30 PROJECTIONS. The Projections were made in good faith based upon
assumptions which the Company and each Stockholder believes are reasonable and
reflect all assumptions which the Company and each Stockholder believes are
necessary under the circumstances.
ARTICLE 4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser represents and warrants to the Company as follows:
4.01 REQUISITE POWER AND AUTHORITY. The Purchaser has all necessary power
and authority under all applicable provisions of law to execute, deliver and
perform this Agreement; all actions on the Purchaser's part required for the
lawful execution, delivery and performance of this Agreement have been or will
be duly and effectively taken prior to the Closing Date; and this Agreement
constitutes a legal, valid and binding obligation of the Purchaser enforceable
against the Purchaser in accordance with its terms, except as enforceability (a)
may be limited by bankruptcy, insolvency, reorganization, moratorium or other
laws relating to or
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affecting the enforcement of creditors' rights generally or by general equitable
principles and (b) to the extent the indemnification provisions contained in
Article 8 hereof may be limited by applicable federal or state securities laws.
4.02 PURCHASE FOR OWN ACCOUNT. This Agreement is made with the Purchaser in
reliance upon the Purchaser's representation to the Company, which by its
execution of this Agreement the Purchaser hereby confirms, that the Purchased
Securities are being acquired by the Purchaser for investment for the
Purchaser's own account, not as a nominee or agent, and not with a view to or
for sale in connection with any distribution of the Purchased Securities or any
part thereof, and that the Purchaser has no present intention of selling,
granting any participation in, or otherwise distributing the same, but subject
nevertheless to any requirement of law that the disposition of the Purchaser's
property shall at all times be within its control. By executing this Agreement,
the Purchaser further represents that it does not have any contract,
undertaking, agreement or arrangement with any Person to sell, transfer, or
grant participations to such Person, or to any third Person, with respect to the
Purchased Securities.
4.03 RELIANCE UPON PURCHASER'S REPRESENTATIONS. The Purchaser understands
that the Purchased Securities at the time of issuance may not be: (1) registered
under the Securities Act on the ground that the sale provided for in this
Agreement and the issuance of securities hereunder is exempt from registration
under the Securities Act pursuant to Section 3(b) thereof and Regulation D
promulgated thereunder, or (2) qualified with the Commissioner of Corporations
of the State of California on the ground that the sale provided for in this
Agreement and the issuance of securities is exempt from such qualification
pursuant to Section 25102(f) of the California Corporate Securities Law, and
that the Company's reliance on such exemptions is predicated in part on the
Purchaser's representations set forth herein.
4.04 INVESTOR EXPERIENCE. The Purchaser represents that it is experienced
in evaluating and investing in companies in the development stage, is able to
fend for itself, has such knowledge and experience in financial and business
matters as to be capable of evaluating the merits and risks of its investment in
the Purchased Securities, and has the ability to bear the economic risks of its
investment.
4.05 ACCESS TO INFORMATION. The Purchaser believes that it has had access,
during the course of the transaction and prior to its purchase of the Purchased
Securities hereunder, to all information as it deems necessary or appropriate
(to the extent the Company possessed such information or could acquire it
without unreasonable effort or expense) and that the Purchaser has had, during
the course of the transaction and prior to its purchase of the Purchased
Securities hereunder, the opportunity to ask questions
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of, and receive answers from, the Company concerning the terms and conditions of
the offering and to obtain additional information (to the extent the Company
possessed such information or could acquire it without unreasonable effort or
expense) necessary to verify the accuracy of any information furnished to the
Purchaser or to which the Purchaser had access. The foregoing, however, does
not limit or modify the representations and warranties of the Company and the
Stockholders contained in Article 3 of this Agreement or the right of the
Purchaser to rely thereon.
4.05 RESTRICTED SECURITIES. The Purchaser understands that the Purchased
Securities, or any portion thereof, may not be sold, transferred, or otherwise
disposed of without Registration under the Securities Act or an exemption
therefrom, and that in the absence of an effective registration statement
covering the Purchased Securities or an available exemption from Registration
under the Securities Act, the Purchased Securities must be held indefinitely.
In particular, the Purchaser is aware that the Purchased Securities may not be
sold pursuant to Rule 144 unless all of the conditions of that Rule are met.
Among the conditions for use of Rule 144 may be the availability of current
information to the public about the Company. Such information is not now
available and the Company has no present plans to make such information
available.
4.06 RESTRICTIVE LEGEND. Each certificate representing Shares may bear the
following legend:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED THEY MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED
OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
AS TO THE SECURITIES UNDER SAID ACT OR AN OPINION OF COUNSEL (WHO MAY
BE COUNSEL TO THE COMPANY) OR OTHER EVIDENCE SATISFACTORY TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
4.07 PUBLIC SALE. The Purchaser agrees not to make, without the prior
written consent of the Company, any public offering or sale of the Purchased
Securities although permitted to do so pursuant to Rule 144(k) promulgated under
the Securities Act, until the earlier of (i) the date on which the Company
effects its initial registered public offering pursuant to the Securities Act,
(ii) the date on which the Company becomes a registered company pursuant to
Section 12(g) of the Securities Exchange Act of 1934, as amended, or (iii) five
years after the Closing Date.
ARTICLE 5. CONDITIONS PRECEDENT TO THE OBLIGATIONS
OF THE PURCHASER
5.01 CLOSING. The obligation of the Purchaser to purchase the Closing
Shares is subject to the satisfaction at or prior to the
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Closing Date of each of the following conditions (compliance with which or the
occurrence of which may be waived in whole or in part by the Purchaser):
(a) Accuracy of Representations and Warranties. The representations and
warranties of the Company and the Stockholders contained herein shall be true
and correct on and as of the Closing Date with the same force and effect as
though made on and as of the Closing Date.
(b) Performance of Agreements. The Company and each Stockholder shall have
performed all obligations and agreements and complied with all covenants and
conditions contained in this Agreement to be performed or complied with by them
on or prior to the Closing Date.
(c) Stockholder Certificates. Each Stockholder shall have furnished the
Purchaser with a certificate, dated the Closing Date, to the effect that (i) the
representations and warranties of such Stockholder contained herein are true and
correct on and as of the Closing Date with the same force and effect as though
made on and as of the Closing Date and (ii) such Stockholder has performed and
complied with all covenants and conditions contained in this Agreement to be
performed or complied with by him on or prior to the Closing Date.
(d) Company Certificate. The Company shall have furnished the Purchaser
with a certificate, dated the Closing Date, of the President of the Company (i)
to the effect that the representations and warranties of the Company contained
herein are true and correct on and as of the Closing Date with the same force
and effect as though made on and as of the Closing Date and (ii) to the effect
that the Company has performed and complied with all covenants and conditions
contained in this Agreement to be performed or complied with by it on or prior
to the Closing Date.
(e) Charter Documents. There shall have been delivered to the Purchaser
(i) a Certificate, dated within ten days of the Closing Date, of the Secretary
of State of the State of California listing all charter documents of the Company
on file in the office of said Secretary of State and (ii) copies of the Articles
of Incorporation of the Company and all amendments thereto, certified as true
and correct by the Secretary of State of the State of California within ten days
of the Closing Date.
(f) Good Standing Certificates. There shall have been delivered to the
Purchaser (i) a Certificate, dated within ten days of the Closing Date, of the
Secretary of State of the State of California with respect to the incorporation,
subsistence and good legal standing of the Company, and (ii) a letter, dated
within ten days of the Closing Date, of the California Franchise Tax Board as
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to the good standing and entitlement to transact business of the Company.
(g) Secretary's Certificate of the Company. There shall have been
delivered to the Purchaser a Certificate, dated the Closing Date of the
Secretary of the Company (i) to the effect that the Articles of Incorporation of
the Company have not been amended since the date of the Certificate referred to
in Section 5.01(e)(i) above, (ii) attaching a true and complete copy of the
Bylaws of the Company as in effect on the Closing Date, (iii) attaching a true
and complete copy of the resolutions of the Board of Directors of the Company
approving the execution and delivery of this Agreement, the issuance and sale of
the Purchased Securities and authorizing the consummation of the transactions
contemplated herein.
(h) Incumbency Certificate of the Company. There shall have been delivered
to the Purchaser a Certificate, dated the Closing Date, with respect to the
incumbency and signatures of all officers of the Company signing this Agreement
and any other certificate, agreement or instrument delivered on behalf of the
Company in connection with this Agreement or the Closing.
(i) Warrants. The Company shall have issued and delivered to the Purchaser
(1) a warrant, dated the Closing Date and expiring on the first anniversary of
the Closing Date, to purchase 100,000 shares of Common Stock at an initial
exercise price of $2.50 per share, substantially in the form of Exhibit H hereto
(the "Series A Warrant") and (2) a warrant, dated the Closing Date and expiring
30 months following the Closing Date, to purchase 83,333 shares of Common Stock
at an initial exercise price of $3.00 per share, substantially in the form of
Exhibit I hereto (the "Series B Warrant").
(j) Opinion of Counsel There shall have been delivered to the Purchaser an
opinion of Pillsbury Madison & Sutro, special counsel to the Company, dated the
Closing Date and in form and substance satisfactory to the Purchaser and its
counsel to the following effect:
(1) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of California, and has all
requisite corporate power and authority to own and lease its Properties and
to carry on its business as presently conducted. The Company is duly
registered or qualified and in good standing in each jurisdiction where the
ownership or leasing of its properties or the conduct of its business makes
such registration or qualification necessary except for jurisdictions,
individually or in the aggregate, where the failure to be so registered or
qualified would not have a material adverse effect on the business,
properties, operations or condition, financial or other, of the Company.
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(2) The Partnership has been dissolved in accordance with the
provisions of the Partnership Agreement and California law, all of the
assets (including, without limitation, the License Agreement) of the
Partnership have been distributed to the Company, and the Company has
assumed all of the liabilities of the Partnership.
(3) The authorized capital stock of the Company consists of 10,000,000
shares of Common Stock, of which 5,106,720 shares are issued and
outstanding. The outstanding shares of Common Stock are owned of record by
the stockholders and in the numbers set forth in Exhibit E hereto. To the
knowledge of such counsel and except as set forth in Exhibit F hereto,
there are no authorized, issued or outstanding options, warrants,
conversion privileges, preemptive rights or other rights, agreements,
arrangements or understandings (whether or not presently exercisable) to
purchase or otherwise acquire any Common Stock or other securities of the
Company or other securities convertible into or evidencing the right to
purchase or otherwise acquire any shares of such stock or other securities
except for the rights in favor of the Purchaser created by this Agreement.
All of the issued and outstanding shares of Common Stock are, and all
shares issued upon the exercise of all options and warrants described in
Exhibit F hereto will be, duly authorized, validly issued, fully paid and
nonassessable. To the knowledge of such counsel and except as provided in
this Agreement and as set forth in Exhibit F hereto, (a) there are no
shareholders' agreements, voting trusts, irrevocable proxies or similar
arrangements by which any Person other than the shareholders of record of
the Company in their individual capacities as such have or may acquire
authority to vote any Common Stock or other securities of the Company, (b)
there are no restrictions upon the sale, voting or transfer of any shares
of Common Stock pursuant to the Company's Articles of Incorporation, Bylaws
or other governing instruments or any agreement or other instrument known
to such counsel to which the Company or any Stockholder is a party or by
which it or any of them may be bound, (c) there are no preemptive or
similar rights with respect to the Common Stock or any other securities of
the Company and (d) the Company is under no obligation to redeem or
repurchase any shares of Common Stock or other securities of the Company.
(4) The Company has all requisite corporate power and authority to
execute and deliver this Agreement, to issue and sell the Shares, to issue
and deliver the Warrants, and to perform its obligations hereunder. All
corporate action on the part of the Company, its officers, directors and
shareholders which is necessary for the authorization, issuance
(or reservation for issuance), sale and delivery of the Shares, the
issuance and delivery of the Warrants, the authorization,
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execution, delivery and performance of this Agreement, has been taken.
(5) This Agreement has been duly executed and delivered by the
Company and each Stockholder and constitutes a legal, valid and binding
obligation of the Company and each Stockholder enforceable against the
Company and each Stockholder in accordance with its terms, and the Warrants
have been duly executed and delivered by the Company and constitute legal,
valid and binding obligations of the Company enforceable against the
Company in accordance with their terms, except as enforceability (a) may be
limited by bankruptcy, insolvency, reorganization, moratorium or other laws
relating to or affecting the enforcement of creditors' rights generally or
by general equitable principles and (b) to the extent the indemnification
provisions contained in Article 8 hereof may be limited by applicable
federal or state securities laws.
(6) The Closing Shares constitute, the Series A Warrant Shares, when
issued, sold and delivered in accordance with the terms of the Series A
Warrant for the consideration set forth therein will constitute, and the
Series B Warrant Shares when issued sold and delivered in accordance with
the terms of the Series B Warrant for the consideration set forth therein,
will constitute, duly and validly authorized and issued, fully paid, and
nonassessable shares of Common Stock. The Company has duly and validly
reserved 100,000 shares of the Common Stock for issuance upon the exercise
of the Series A Warrant and 83,333 shares of Common Stock for issuance upon
the exercise of the Series B Warrant.
(7) None of the execution and delivery of this Agreement by the
Company, the issuance and sale of the Shares, the issuance and delivery of
the Warrants, or the consummation of the transactions contemplated
hereunder, will (i) conflict with or result in a breach or violation of, or
constitute a default under, or result in the creation of any lien, charge
or encumbrance upon, any of the properties or assets of the Company
pursuant to the Articles of Incorporation or Bylaws of the Company or any
indenture, mortgage, lease, loan agreement or other agreement or instrument
known to such counsel to which the Company is a party or by which it is
bound or to which any of its properties or assets is subject or (ii)
violate any law, statute, rule, regulation, judgment or decree applicable
to the Company. Except as set forth in Exhibit G hereto, no third party
consents are required by the terms of any indenture, mortgage, lease, loan
agreement or other agreement or instrument known to such counsel to which
the Company is a party or by which it is bound or to which any of its
properties or assets is subject for the execution and delivery of this
Agreement, the issuance of the Shares, the
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issuance and delivery of the Warrants, or the consummation of the
transactions provided for herein.
(8) No consent, approval or authorization of, or declaration to or
filing with, any governmental or regulatory authority is required for the
valid execution and delivery by the Company of this Agreement, the issuance
and sale of the Shares, or the issuance and delivery of the Warrants or the
consummation of the transactions provided for herein or therein except the
filing of any notice of sale required to be filed with under Regulation D
adopted by the Commission or such post-closing filings as may be required
under applicable Blue Sky Laws.
(9) To the knowledge of such counsel and except as set forth in
Schedule 3.16, there is no action, suit, proceeding, or investigation
pending or threatened, against or affecting the Company that questions the
validity of this Agreement or the right of the Company to enter into this
Agreement or to consummate the transactions contemplated hereby or that
might result, either individually or in the aggregate, in any material
adverse change in the assets, business, properties, prospects, financial
condition or operating results of the Company, or in any material change in
the current equity ownership of the Company. To the knowledge of such
counsel, the Company is not a party to or named in any order, writ,
injunction, judgment or decree of any court, governmental agency, or
instrumentality. To the knowledge of such counsel, there is no action,
suit or proceeding by the Company currently pending or that the Company
currently intends to initiate.
(k) Amendment of License Agreement. The Company and the Licensor shall
have executed and delivered an Amendment No. One, Waiver and Consent to the
License Agreement, in the form of Exhibit J hereto.
(l) Certificate and Estoppel The Licensor shall have executed and
delivered to the Purchaser a Licensor's Estoppel Certificate, dated the Closing
Date, and in the form of Exhibit K hereto.
(m) Consents and Approvals. All consents and approvals of any third
parties required in connection with the execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby shall have been
obtained and delivered to the Purchaser.
(n) No Litigation. No action, suit or proceeding shall be pending or
threatened by or before any court or governmental body in which an unfavorable
judgment, order or decree would prevent any of the transactions contemplated
hereby or cause any such transaction to be declared unlawful or rescinded or
which could
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reasonably be expected to materially and adversely affect the assets, financial
condition or results of operations of the Company, and no temporary restraining
order or injunction shall have been issued by any such court or governmental
authority restraining or prohibiting the performance of this Agreement or the
consummation of any of the transactions contemplated hereby.
(o) Termination of Shareholders Agreement. There shall have been
delivered to the Purchaser the written confirmation of the Stockholders, in form
and substance satisfactory to the Purchaser and its counsel, of the termination
of the Shareholders Agreement.
(p) Cancellation of Indebtedness. There shall have been delivered to the
Purchaser evidence in form and substance satisfactory to the Purchaser and its
counsel of the cancellation of indebtedness from the Company to Gerald D. Appel
in the aggregate principal amount of $212,590 in consideration of the issuance
by the Company to Gerald D. Appel of 144,619 shares of Common Stock.
(q) Payment of Fees. The Company shall have paid the estimated fees and
disbursements of Pircher, Nichols & Meeks, special counsel to the Purchaser,
through the Closing Date.
(r) Delivery of Certificates. The Company shall have delivered to the
Purchaser the certificate(s) representing the Closing Shares in accordance with
the provisions of Section 2.01.
(s) Proceedings and Documents. All corporate and other proceedings to be
taken by the Company or any Stockholders in connection with this Agreement and
the consummation of the transactions contemplated hereby and all documents and
instruments delivered by the Company or any Stockholder in connection therewith
shall be in form and substance reasonably satisfactory to the Purchaser and its
counsel, and the Purchaser shall have received such other documents and
instruments as it may reasonably request in connection therewith.
ARTICLE 6. CONDITIONS PRECEDENT TO THE OBLIGATIONS
OF THE COMPANY
6.01 CLOSING. The obligation of the Company to sell the Closing Shares is
subject to the satisfaction at or prior to the Closing Date of each of the
following conditions (compliance with which or the occurrence of which may be
waived in whole or in part by the Company):
(a) Accuracy of Representations and Warranties. The representations and
warranties of the Purchaser contained herein shall be true and correct on and as
of the Closing Date with the same force and effect as though made on and as of
the Closing Date.
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(b) Consideration. The Purchaser shall have tendered the purchase price
for the Closing Shares in accordance with the provisions of Section 2.01.
ARTICLE 7. COVENANTS
7.01 AFFIRMATIVE COVENANTS. The Company covenants and agrees that until the
earlier of (1) the consummation of a Qualified Public Offering and (2) the date
that the Holders of Registrable Securities hold fewer than 250,000 Shares:
(a) Corporate Existence. The Company will, and will cause each of its
subsidiaries (if any) at all times to maintain, preserve and renew its
respective corporate existence, rights and franchises and all licenses and other
rights to use patents, processes, licenses, trademarks, trade names, or
copyrights owned or possessed by it and deemed by the Company to be necessary to
the conduct of its business except that the Company may dissolve Ontco.
(b) Financial Statements. (1) as soon as practicable after the end of each
fiscal year of the Company, and in any event within 90 days thereafter, (A) a
consolidated balance sheet of the Company and its subsidiaries, if any, as at
the end of such fiscal year, and consolidated statements of income and cash
flows of the Company and its subsidiaries, if any, for such year, prepared in
accordance with generally accepted accounting principles consistently applied
and setting forth in each case in comparative form the figures for the previous
fiscal year, all in reasonable detail and certified by independent public
accountants selected by the Company and reasonably acceptable to the Purchaser;
(B) a comparison of the financial statements for the most recent fiscal year to
the financial plan required by Section 7.01(c) hereof and (2) as soon as
practicable after the end of the first, second and third quarterly accounting
periods in each fiscal year of the Company, and in any event within 45 days
thereafter, a consolidated balance sheet of the Company and its subsidiaries, if
any, as of the end of each such quarterly period, and consolidated statements of
income and cash flows of the Company and its subsidiaries, if any, for such
period and for the current fiscal year to date, prepared in accordance with
generally accepted accounting principles consistently applied and setting forth
in comparative form the figures for the corresponding periods of the previous
fiscal year and to the Company's financial plan required by Section 7.01 (c)
hereof, subject to changes resulting from normal year-end audit adjustments, all
in reasonable detail and certified by the principal financial or accounting
officer of the Company, except that such financial statements need not contain
the notes required by generally accepted accounting principles; (C) as soon as
practicable after the end of each month and in any event within 30 days
thereafter, a consolidated balance sheet of the Company and its subsidiaries, if
any, as at the end of such month and consolidated statements of income and cash
flows for the Company
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and its subsidiaries, if any, for such month and for the current fiscal year of
the Company to date, all subject to year-end audit adjustments, prepared in
accordance with generally accepted accounting principles consistently applied
and certified by the principal financial or accounting officer of the Company,
except that such financial statements need not contain the notes required by
generally accepted accounting principles: and (D) with reasonable promptness,
such other information and data with respect to the Company and its subsidiaries
(if any) as any Holder may from time to time reasonably request.
(c) Annual Budget. At least 60 days prior to the beginning of each fiscal
year of the Company, the Company shall furnish to each Holder a financial plan
of the Company for such fiscal year, which financial plan shall include at least
a projection of income and a projected cash flow statement for each fiscal
quarter in such fiscal year and a projected balance sheet as of the end of each
fiscal quarter in such fiscal year.
(d) Inspection. The Company shall permit each Holder and its
representatives, counsel and accountants to visit and inspect the Company's and
its subsidiaries' (if any) properties, to examine the Company's and its
subsidiaries' (if any) books of account and records (including, without
limitation, working papers), and to discuss the Company's and its subsidiaries'
(if any) affairs, finances and accounts with their respective officers, all at
such reasonable times as may be requested by such Holder. The foregoing rights
shall be in addition to all shareholder rights conferred by law.
(e) Taxes. The Company will, and will cause each subsidiary (if any) to,
promptly pay and discharge, or cause to be paid and discharged, when due and
payable, all taxes, assessments and governmental charges or levies imposed upon
its income, profits, property, or business; provided, however, that any such
tax, assessment, charge, or levy need not be paid if the validity thereof shall
currently be contested in good faith by appropriate proceedings and if adequate
reserves are established therefor in accordance with generally accepted
accounting principles, and provided further, that the Company or any such
subsidiary shall pay all such taxes, assessments, charges, or levies forthwith
upon the commencement of proceedings to foreclose any lien that may have
attached as security therefor.
(f) Maintenance of Properties. The Company will, and will cause each of
its subsidiaries (if any) to, maintain their respective properties in good
repair, working order, and condition, reasonable wear and tear excepted, and
from time to time make all needful and proper repairs, renewals, replacements,
additions, and improvements thereto. The Company will, and will cause each of
its subsidiaries (if any) to, at all times comply with the provisions of all
material leases to which it is a party or under which it
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occupied property so as to prevent any loss or forfeiture thereof or thereunder.
(g) Insurance. The Company will, and will cause each of its subsidiaries
(if any) to, keep its assets that are of an insurable character insured by
financially sound and reputable insurers against loss or damage by fire,
extended coverage, and explosion insurance in amounts customary for companies in
similar businesses similarly situated. The Company will, and will cause each of
its subsidiaries (if any) to, maintain with financially sound and reputable
insurers, insurance against other hazards, risks, and liabilities to persons and
property to the extent and in the manner customary for companies in similar
businesses similarly situated.
(h) Key-person Life Insurance. If requested by the Purchaser, the Company
shall obtain from financially sound and reputable insurers term life insurance
on the life of Gerald D. Appel in the amount of $1,000,000 and on the life of
Daniel J. Levendowski in the amount of $1,000,000 and maintain such insurance
unless otherwise agreed by the Purchaser. Such policies shall name the Company
as loss payee and shall not be cancellable by the Company without the prior
written approval of the Purchaser.
(i) Books and Records. The Company will, and will cause each of its
subsidiaries (if any) to, keep true records and books of account in which full,
true and correct entries will be made of dealings and transactions in relation
to its business and affairs in accordance with generally accepted accounting
principles applied on a consistent basis.
(j) Compliance. The Company will, and will cause each of its subsidiaries
(if any) to, duly observe and conform to all valid requirements of governmental
authorities relating to the conduct of its business or to its property or
assets.
(k) Use of Proceeds. The proceeds from the sale of the Closing Shares will
be used for general corporate purposes. Notwithstanding the foregoing, none of
such proceeds will be used (1) to repay indebtedness of the Company to Gerald D.
Appel and Daniel J. Levendowski in excess of $68,500 in the aggregate or (2) to
pay all or any part of the promissory notes described in Schedule 3.11 hereto.
7.02 NEGATIVE COVENANTS. The Company covenants and agrees that until the
earlier of (1) the consummation of a Qualified Public Offering and (2) the date
that the Holders of Registrable Securities hold fewer than 250,000 Shares:
(a) Amendments. The Company will not amend or permit any amendment of its
Articles of Incorporation. The Company will not amend or permit any amendment of
its By-Laws in any manner which
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would be materially adverse to the interests of the Holders of Registerable
Securities.
(b) Additional Stock. The Company will not authorize or issue any other
class or series of stock in addition to Common Stock.
(c) Dividends; Purchases. The Company will not, and will not permit any of
its subsidiaries (if any) to, redeem, retire, purchase or otherwise acquire any
shares of the Common Stock of the Company, and the Company will not declare or
pay any dividend or make any other distribution on its Common Stock other than
dividends payable solely in Common Stock and cash dividends payable out of
retained earnings.
(d) Loans and investments. The Company will not make, and will not permit
any of its subsidiaries (if any) to make, any loan or advance to, or own any
stock or other securities of, any subsidiary or other corporation, partnership,
or other entity unless it is wholly owned, directly or indirectly, by the
Company.
(e) Loans and Advances. The Company will not, and will not permit any of
its subsidiaries to, make any loan or advance to any Person, including, without
limitation, any employee, officer, director or shareholder of the Company or any
of its subsidiaries, except for advances for reimbursable expenses to be
incurred by any such employee, officer, or director.
(f) Guaranties. The Company will not, and will not permit any of its
subsidiaries to, directly or indirectly, guaranty any indebtedness or other
obligations of any Person.
(g) Merger. The Company will not, and will not permit any of its
subsidiaries (if any) to, merge with or into or consolidate with any other
corporation or entity except that (i) any wholly-owned subsidiary of the Company
may be merged with or consolidated into any other wholly-owned subsidiary and
(ii) any wholly-owned subsidiary of the Company may be merged with or
consolidated into the Company, provided that the Company shall be the surviving
or resulting corporation.
(h) Sale of Assets. The Company will not, and will not permit any of its
subsidiaries (if any) to, sell, lease or otherwise dispose of, in any one
transaction or in a series of related transactions, all or a substantial portion
of its assets.
(i) Compensation. The Company will not pay any salaries, bonuses,
retirement benefits or other remuneration or grant any stock options, stock
bonuses, or stock purchase plan rights to any Significant Stockholder of the
Company or any subsidiary of the Company or any Affiliate of any of the
foregoing except as approved by the unanimous vote of a Compensation Committee
consisting of two certified public accountants and Howard Fullman (or if he is
unable
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or unwilling to serve, a successor approved by the Company and the Purchaser).
(j) Partnerships, etc. The Company will not and will not permit any
subsidiary to enter into any partnership, joint venture or other similar
arrangement for the sharing of income, profits or expenses, with any Person
except that the foregoing shall not prohibit (1) the payment of commissions or
other compensation to sales representatives and agents or (2) other contracts
(other than any direct or indirect debt or equity financing) entered into by the
Company in the ordinary course of business.
(k) Other Investors. The Company will not agree to affirmative or negative
covenants more favorable to an equity investor in the Company than those
contained in this Article 7.
7.03 Board Representation. The Company covenants and agrees that so long as
the Purchaser is the owner of at least 50% of the Shares, upon the request of
the Purchaser, the Company will use its best efforts to cause and maintain the
election to the Board of Directors of the Company of such person as shall be
designated in writing to the Company by the Purchaser from time to time. Each
Shareholder agrees that (i) he will vote shares of the Common Stock of the
Company (including the cumulation of votes as necessary) to assure the election
and the maintenance of the election to the Board of Directors of the person so
designated by the Purchaser from time to time and (ii) he will not vote any
shares of the Common Stock of the Company owned by him (or give any consent,
waiver or ratification with respect thereto) for, or otherwise permit the
Company to take, any action which would be inconsistent with or violate any
term, condition or provision of this Agreement or any other document or
instrument required by this Agreement.
ARTICLE 8. REGISTRATION UNDER THE SECURITIES ACT
8.01 NOTICE OF PROPOSED DISPOSITIONS. The Holder of each certificate
representing Restricted Securities by acceptance thereof agrees to comply in all
respects with the provisions of this Section 8.01. Prior to any proposed
disposition of any Restricted Securities (unless there is in effect a
registration statement under the Securities Act covering such proposed
disposition and such disposition is made in accordance with such registration
statement) the holder thereof shall give written notice to the Company of such
Holder's intention to effect such disposition. Each such notice shall describe
the manner and circumstances of the proposed disposition, and shall be
accompanied (except in transactions intended to comply with Rule 144) by either
(a) a written opinion of legal counsel addressed to the Company and reasonably
satisfactory in form and substance to the Company, to the effect that
the proposed disposition of Restricted Securities may be effected without
Registration of such Restricted Securities or (b) a "no action" letter from the
Commission to the effect that
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such disposition without Registration of such Restricted Securities will not
result in a recommendation by the staff of the Commission that enforcement
action be taken with respect thereto, whereupon the Holder of such Restricted
Securities shall be entitled to transfer such Restricted Securities in
accordance with the terms of the notice delivered by the Holder to the
Company. Each certificate evidencing the Restricted Securities disposed of as
above provided shall bear the legend set forth in Section 4.06 of this
Agreement, except that such certificate shall not bear such legend if (1) the
opinion of counsel referred to above is to the further effect that such
legend is not required in order to establish compliance with any provisions
of the Securities Act, (2) the transfer is in connection with a transaction
intended to comply with Rule 144, or (3) an appropriate registration
statement with respect to such Restricted Securities has been filed by the
Company with the Commission and has been declared effective by the
Commission; in those events, the Company shall cause new unlegended
certificates to be issued promptly to the Holder in exchange for outstanding
legended certificates.
8.02 COMPANY REGISTRATION.
(a) If at any time, or from time to time, the Company shall determine to
Register any of its securities either for its own account for the account of any
holder of its securities (including a Holder) (other than pursuant to Section
8.03 or 8.05 hereof), other than a Registration relating solely to employee
benefit plans, or a Registration relating solely to a Rule 145 transaction or a
Registration on any Registration form that does not permit secondary sales, the
Company will:
(1) promptly give to each Holder written notice thereof;
(2) include in such Registration (and any related qualification under
Blue Sky Laws or other compliance), and in any underwriting involved
therein, all the Registrable Securities specified in a written request or
requests made within 20 days after receipt of such written notice from the
Company, by any Holder or Holders, except as set forth in Section 8.02(b)
hereof. Any such written request may specify all or a part of a Holder's
Registrable Securities.
(b) If the Registration of which the Company gives notice is for a
Registered public offering involving an underwriting, the Company shall so
advise the Holders as part of the written notice given pursuant to Section
8.02(a) hereof. In such event, the right of a Holder to Registration pursuant
to this Section 8.02 shall be conditioned upon such Holder's participation in
such underwriting and the inclusion of such Holder's Registrable Securities in
the underwriting to the extent provided herein. All Holders proposing to
distribute their Registrable Securities through such underwriting shall
(together with the Company and the other holders
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of securities of the Company with registration rights to participate therein
distributing their securities through such underwriting) enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting by the Company. Notwithstanding any other
provision of this Section 8.02, if the underwriter advises the Company in
writing that marketing factors require a limitation on the number of shares to
be underwritten, the underwriter may limit the amount of Registrable Securities
to be included in the Registration and underwriting, and the number of shares to
be included in such underwriting or Registration shall be allocated as set forth
in Section 13 hereof.
8.03 DEMAND REGISTRATION.
(a) At any time following the earlier of (1) the fifth anniversary of the
date of this Agreement, and (2) one year after the effective date of the first
registration statement filed by the Company covering an underwritten offering of
any of its securities to the public, if the Company shall receive a written
request (specifying that it is being made pursuant to this Section 8.03) from
any Holder or Holders that the Company file a registration statement under the
Securities Act covering the Registration of at least 50% of the Registrable
Securities, then the Company shall promptly notify all other Holders of such
request and shall use its best efforts to cause all Registrable Securities that
Holders have requested within 20 days after receipt of the Company's notice to
be registered under the Securities Act. The Company shall be obligated to effect
no more than two Registrations pursuant to this Section 8.03 and the Company
shall not be obligated to effect any Registration pursuant to this Section 8.03
if the written request therefor is made within 12 months following the effective
date of any previous registration statement filed by the Company pursuant to
this Section 8.03.
(b) Notwithstanding the foregoing, the Company shall not be obligated to
effect a Registration pursuant to Section 8.03(a) with respect to a proposed
distribution of Registrable Securities by a Holder thereof (1) during the period
starting with the date 30 days prior to the Company's estimated date of filing
of, and ending on a date 90 days following the effective date of, a registration
statement pertaining to an underwritten public offering of securities for the
account of the Company, provided that the Company is actively employing in good
faith all reasonable efforts to cause such registration statement to become
effective and that the Company's estimate of the date of filing of such
Registration is made in good faith; (2) within a period of 180 days after the
effective date of any previous Registration by the Company with respect to which
Holders of Registrable Securities were given the opportunity pursuant to this
Article 8 of this Agreement, to include therein all Registrable Securities which
were requested to be included therein; (3) if the Holders propose to dispose of
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Registrable Securities which may be immediately registered on Form S-3 pursuant
to a request made under Section 8.05 hereof; or (4) if (i) in the good faith
judgment of the Board of Directors of the Company, such Registration would be
seriously detrimental to the Company and the Board of Directors of the Company
concludes, as a result, that it is essential to defer the filing of a
registration statement with respect to such Registration at such time, and (ii)
the Company shall furnish to the Holders requesting such Registration a
certificate signed by the President of the Company stating that in the good
faith judgment of the Board of Director of the Company it would be seriously
detrimental to the Company for such registration statement to be filed in the
near future, and that it is, therefore essential to defer such filing (except as
provided in clause (1) above) for a period of not more than 180 days after the
receipt of the such request, and provided further, that the Company may not
defer its obligation in the manner provided in this clause (4) more than once in
any 12-month period.
(c) Any Registration statement filed pursuant to this Section 8.03 may,
subject to the provisions of Section 8.13 hereof, include other securities of
the Company with respect to which registration rights have been granted.
8.04 EXPENSES OF REGISTRATION. All Registration Expenses incurred in
connection with any Registration, qualification or compliance pursuant to
Sections 8.02, 8.03 and 8.04 hereof, shall be borne by the Company. All Selling
Expenses relating to the Registrable Securities so Registered shall be borne by
the Holders of such Registrable Securities pro rata on the basis of the number
of shares of Registrable Securities so Registered on their behalf.
8.05 REGISTRATION ON FORM S-3. After its initial public offering, the
Company shall use its best efforts to quality for registration on Form S-3 or
any comparable or successor form or forms. After the Company has qualified for
the use of Form S-3, in addition to the rights contained in the foregoing
provisions of this Article 8, the Holders of Registrable Securities shall have
the right to request registrations on Form S-3 (such requests shall be in
writing and shall state the number of shares of Registrable Securities to be
disposed of and the intended methods of disposition of such shares by such
Holder or Holders), provided, however, that the Company shall not be obligated
to effect any such Registration if (1) the Company shall have delivered to such
Holder an opinion of counsel to the Company, addressed to such Holder and
reasonably satisfactory in form and substance to such Holder to the effect that
such Registrable Securities proposed to be included may lawfully be so disposed
of without Registration or (2) within a period of 180 days after the effective
date of any previous such Registration. If a request complying with the
requirements of this Section 8.04 is delivered to the Company, the provisions of
Section 8.03(a) shall apply to such Registration.
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8.06 REGISTRATION PROCEDURES. In the case of each Registration effected by
the Company pursuant to this Article 8, the Company will keep each Holder
advised in writing as to the initiation of each registration and as to the
completion thereof. At its expense, the Company will:
(a) Keep such registration effective for a period of 180 days or until the
Holder or Holders have completed the distribution described in the registration
statement relating thereto, whichever first occurs; provided, however, that (i)
such 180-day period shall be extended for a period of time equal to the period
the Holder refrains from selling any securities included in such Registration at
the request of an underwriter of Common Stock (or other securities) of the
Company; and (ii) in the case of any registration of Registrable Securities on
Form S-3 which are intended to be offered on a continuous or delayed basis, such
180-day period shall be extended, if necessary, to keep the registration
statement effective until all such Registrable Securities are sold, provided
that Rule 145, or any successor rule under the Securities Act, permits an
offering on a continuous or delayed basis, and provided further that applicable
rules under the Securities Act governing the obligation to file a post-effective
amendment permit, in lieu of filing a post-effective amendment that (1) includes
any prospectus required by Section 10(a)(3) of the Securities Act or (2)
reflects facts or events representing a material or fundamental change in the
information set forth in the registration statement, the incorporation by
reference of information required to be included in (1) and (2) above to be
contained in periodic reports filed pursuant to Section 13 or 15(d) of the
Exchange Act in the registration statement;
(b) Prepare and file with the Commission such amendments and supplements
to such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement;
(c) Furnish such number of prospectuses and other documents incident
thereto, including any amendment of or supplement to the prospectus, as a Holder
from time to time may reasonably request;
(d) Register or qualify the securities covered by such registration
statement under the Blue Sky Laws of such jurisdictions as shall be reasonably
appropriate for the distribution of the securities covered thereby;
(e) At the time when any Registration statement pursuant to this Section 8
becomes effective, and at the time when any post-effective amendment thereto
becomes effective, furnish to the Holder or Holders of the Registrable
Securities being registered under such Registration statement, an opinion of
counsel
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satisfactory to such Holder or Holders to the effect that (1) to the best
knowledge of such counsel, no stop order suspending the effectiveness of the
Registration statement has been issued and no proceedings for that purpose have
been instituted or are pending or contemplated under the Securities Act, (2) the
Registration statement and the prospectus, and each amendment or supplement
thereto, as of their respective effective or issue dates, comply as to form in
all material respects with the requirements of the Securities Act, (3) such
counsel has no reason to believe that the Registration statement, the
prospectus, or any amendment or supplement thereto, as of their respective
dates, contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and (4) the descriptions in the Registration statement,
the prospectus and any amendment or supplement thereto of statutes, legal and
governmental proceedings, and contracts or other documents are accurate and
fairly present the information required to be shown, and such counsel does not
know of any legal or governmental proceedings required to be described in the
Registration statement, the prospectus or any amendment or supplement thereto
which are not described as required, nor of any contracts or documents of a
character required to be described in the Registration statement or prospectus
or any amendment or supplement thereto, or to be filed as exhibits to the
Registration statement which are not described and filed as required, provided
that such counsel need not express any opinion as to the financial statements
and schedules included in or omitted from any such Registration statement,
prospectus or amendment or supplement thereto.
(f) Notify each seller of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading or incomplete in the light of the
circumstances then existing, and at the request of any such seller, prepare and
furnish to such seller a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such shares, such prospectus shall not include an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make such statements therein not misleading or
incomplete in the light of the circumstances then existing;
(g) Cause all such Registrable Securities registered pursuant hereunder to
be listed on each securities exchange on which similar securities issued by the
Company are then listed;
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(h) Provide a transfer agent and registrar for all Registrable Securities
registered pursuant to such registration statement and a CUSIP number for all
such Registrable Securities, in each case not later than the effective date of
such registration;
(i) Otherwise use its best efforts to comply with all applicable rules and
regulations of the Commission, and make available to its security holders, as
soon as reasonably practicable, an earnings statement covering the period of at
least twelve months, but not more than eighteen months, beginning with the first
month after the effective date of the registration statement, which earnings
statement shall satisfy the provisions of Section 11 (a) of the Securities Act;
and
(j) In connection with any underwritten offering pursuant to a
registration statement filed pursuant to Section 8.03 hereof, the Company will
enter into an underwriting agreement in form reasonably necessary to effect the
offer and sale of Common Stock, provided such underwriting agreement contains
customary underwriting provisions and provided further than if the underwriter
so requests the underwriting agreement will contain customary contribution
provisions.
8.07 FURNISH INFORMATION. The Holder or Holders of Registrable Securities
included in any Registration shall furnish to the Company such information
regarding such Holder or Holders and the distribution proposed by such Holder or
Holders as the Company may request in writing and as shall be reasonably
required in connection with any Registration, qualification or compliance
referred to in this Article 8.
8.08 INDEMNIFICATION.
(a) The Company will indemnify each Holder, each of its officers,
directors and partners, legal counsel, and accountants and each Person
controlling such Holder within the meaning of Section 15 of the Securities Act,
with respect to which Registration, qualification, or compliance has been
effected pursuant to this Article 8; and each underwriter, if any, and each
Person who controls within the meaning of Section 15 of the Securities Act any
underwriter, against all expenses, claims, losses, damages, and liabilities (or
actions, proceedings, or settlements in respect thereof) arising out of or based
on any untrue statement (or alleged untrue statement) of a material fact
contained in any prospectus, offering circular, or other document (including any
related registration statement, notification, or the like) incident to any such
registration, qualification, or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or any violation by the
Company of the Securities Act or any rule or regulation
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thereunder applicable to the Company and relating to action or inaction required
of the Company in connection with any such Registration, qualification, or
compliance; and will reimburse each such Holder, each of its officers,
directors, partners, legal counsel, and accountants and each person controlling
such Holder, each such underwriter, and each Person who controls any such
underwriter, for any legal and any other expenses reasonably incurred in
connection with investigating and defending or settling any such claim, loss,
damage, liability, or action, provided that the Company will not be liable in
any such case to the extent that any such claim, loss, damage, liability, or
expense arises out of or is based on any untrue statement or omission based upon
written information furnished to the Company by such Holder or underwriter and
stated to be specifically for use therein. It is agreed that the indemnity
agreement contained in this Section 8.08(a) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability, or action if such
settlement is effected without the consent of the Company (which consent has not
been unreasonably withheld).
(b) Each Holder will, if Registrable Securities held by such Holder are
included in the securities as to which such Registration, qualification, or
compliance is being effected, indemnify the Company, each of its directors,
officers, partners, legal counsel, and accountants and each underwriter, if any,
of the Company's securities covered by such a registration statement, each
Person who controls the Company of such underwriter within the meaning of
Section 15 of the Securities Act, each other such Holder, and each of their
officers, directors, and partners, and each person controlling such Holder
against all claims, losses, damages and liabilities (or actions in respect
thereof) arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any such registration statement,
prospectus, offering circular, or other document, or any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse the
Company and such Holders, directors, officers, partners, legal counsel, and
accountants, persons, underwriters, or control persons for any legal or any
other expenses reasonably incurred in connection with investigating or defending
any such claim, loss, damage, liability, or action, in each case to the extent,
but only to the extent, that such untrue statement (or alleged untrue statement)
or omission (or alleged omission) is made in such registration statement,
prospectus, offering circular, or other document in reliance upon and in
conformity with written information furnished to the Company by such Holder and
stated to be specifically for use therein provided, however, that the
obligations of such Holder hereunder shall not apply to amounts paid in
settlement of any such claims, losses, damages, or liabilities (or actions in
respect thereof) if such settlement is effected without the consent of such
Holder (which consent shall not be unreasonably withheld); and provided that in
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no event shall any indemnity under this Section 8.08(b) exceed the gross
proceeds from the offering received by such Holder.
(c) Each party entitled to indemnification under this Section 8.08 (the
"Indemnified Party") shall give notice to the party required to provide
indemnity (the "Indemnifying Party") promptly after such Indemnified Party has
actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld), and the Indemnified Party may participate in such
defense at such party's expense, and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Article 8, to the extent such
failure is not prejudicial. No Indemnifying Party, in the defense of any such
claim or litigation, shall, except with the consent of each Indemnified Party,
consent to entry of any judgment or enter into any settlement that does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party of a release from all liability in respect to such
claim or litigation. Each Indemnified Party shall furnish such information
regarding itself or the claim in question as an Indemnifying Party may
reasonably request in writing and as shall be reasonably required in connection
with defense of such claim and litigation resulting therefrom.
(d) If the indemnification provided for in this Section 8.08 is held by a
court of competent jurisdiction to be unavailable to an Indemnified Party with
respect to any loss, liability, claim, damage, or expense referred to therein,
then the Indemnifying Party, in lieu of indemnifying such Indemnified Party
hereunder, shall contribute to the amount paid or payable by such Indemnified
Party hereunder as a result of such loss, liability, claim, damage, or expense
in such proportion as is appropriate to reflect the relative fault of the
Indemnifying Party on the one hand and of the Indemnified Party on the other in
connection with the statements or omissions that resulted in such loss,
liability, claim, damage, or expense as well as any other relevant equitable
considerations. The relative fault of the Indemnifying Party and of the
Indemnified Party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
Indemnifying Party or by the Indemnified Party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
(e) The obligations of the parties under this Section 8.08 shall survive
the completion of the offering of Registrable Securities under the registration
statement and, otherwise.
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8.09 LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. From and after the date
of this Agreement, the Company shall not, without the prior written consent of a
majority in interest of the Holders, enter into any agreement with any holder or
prospective holder of any securities of the Company giving such holder or
prospective holder any registration rights the terms of which are more favorable
than the registration rights granted to the Holders hereunder.
8.10 RULE 144 REPORTING. With a view to making available to the Holders the
benefits of certain rules and regulations of the Commission that may permit the
sale of the Restricted Securities to the public without registration, the
Company agrees, so long as any Holder owns Registrable Securities:
(a) Make and keep public information regarding the Company available as
those terms are understood and defined in Rule 144 under the Securities Act, at
all times from and after 90 days following the effective date of the first
Registration under the Securities Act filed by the Company for a public offering
of its securities;
(b) File with the Commission in a timely manner all reports and other
documents required of the company under the Securities Act and the Exchange Act
at any time after it has become subject to such reporting requirements;
(c) Furnish to the Holder forthwith upon written request a written
statement by the Company as to its compliance with the reporting requirements of
Rule 144 (at any time from and after 90 days following the effective date of the
first registration statement filed by the Company for an offering of its
securities to the general public), and of the Securities Act and the Exchange
Act (at any time after it has become subject to such reporting requirements), a
copy of the most recent annual or quarterly report of the Company, and such
other reports and documents so filed as a Holder may reasonably request in
availing itself of any rule or regulation of the Commission allowing a Holder to
sell any such securities without registration.
8.11 TRANSFER OR ASSIGNMENT OF REGISTRATION RIGHTS. The rights of any
Holder under this Agreement including, without limitation, the registration
rights under Article 8 and the rights of first refusal under Article 9 may be
transferred or assigned by a Holder only to a transferee or assignee of not less
than 25,000 shares of Registrable Securities (as presently constituted and
subject to subsequent adjustments for stock splits, stock dividends, reverse
stock splits, and the like), provided that the Company is given written notice
at the time of or within a reasonable time after said transfer or assignment,
stating the name and address of the transferee or assignee and identifying the
securities with respect
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to which such registration rights are being transferred or assigned.
8.12 LOCKUP AGREEMENT. The Holder of each certificate representing
Registrable Securities by acceptance thereof agrees in connection with any
Registration of the Company's securities that, upon the request of the Company
or the underwriter(s) managing any underwritten offering of the Company's
securities, not to sell, make any short sale of, loan, grant option for the
purchase of, or otherwise dispose of any Registrable Securities (other than
those included in such Registration) without the prior written consent of the
Company or such underwriter(s), as the case may be, for such period of time (not
to exceed 180 days) from the effective date of such Registration as the Company
or the underwriter(s) may specify, provided that all Holders and officers and
directors of the Company are bound by and have entered into similar agreements.
The obligations described in this Section 8.12 shall not apply to a Registration
relating solely to employee benefit plans on Form S-1 or S-8 or similar forms
that may be promulgated in the future or a Registration relating solely to a
Rule 145 transaction on Form S-4 or any similar form promulgated in the future.
8.13 ALLOCATION OF REGISTRATION OPPORTUNITIES. In any circumstance in which
all of the Registrable Securities and other shares of Common Stock of the
Company (including shares of Common Stock issued or issuable upon conversion of
shares of any currently unissued series of Preferred Stock of the Company) with
Registration rights (the "Other Shares") requested to be included in a
Registration on behalf of the Holders or other selling stockholders cannot be so
included as a result of limitations on the aggregate number of shares of
Registrable Securities and Other Shares that may be so included, the number of
shares of Registrable Securities and Other Shares that may be so included shall
be allocated among the Holders and other selling stockholders requesting
inclusion of shares pro rata based upon total number of shares requested to be
so included. In the event a Holder or other selling stockholder subsequently
withdraws or reduces a request for inclusion in such Registration, the number of
shares which may be so included shall be re-allocated in the same manner. The
Company may not limit the number of Registrable Securities to be included in a
Registration pursuant to this Agreement in order to accommodate the request of
any Significant Stockholder to include more than 25% (prior to the application
of the pro rata allocations provided for above) of the shares of Common Stock
held by such Significant Stockholder, or with respect to Registrations under
Section 8.03 or 8.06 hereof, in order to include in such Registration securities
registered for the Company's own account.
8.14 DELAY OF REGISTRATION. No Holder shall have any right to take any
action to restrain, enjoin, or otherwise delay any registration as the result of
any controversy that might arise with respect to the interpretation or
implementation of this Article 8.
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8.15 SUSPENSION OF REGISTRATION RIGHTS. Except as set forth in subparagraph
(b) below, no Holder may request Registration pursuant to Section 8.03 at any
time that all Registrable Securities held by such Holder may immediately be sold
under Rule 144 during any 90-day period, provided, however, that the foregoing
shall not be applicable in the case of any Holder who owns more than 2% of the
outstanding Common Stock of the Company.
(b) The provisions of subparagraph (a) above shall not apply to any Holder
who owns more than 2% of the Company's outstanding Common Stock at the time of
determination.
ARTICLE 9. RIGHT OF FIRST REFUSAL
9.01 RIGHT OF FIRST REFUSAL. The Company hereby grants to each Holder who
owns any Registrable Securities the right of first refusal to purchase a pro
rata share of New Securities (as defined in this Section 9.01) which the Company
may, from time to time, propose to sell and issue. A Holder's pro rata share,
for purposes of this right of first refusal, is the ratio of the number of
shares of Common Stock owned by such Holder immediately prior to the issuance of
New Securities, assuming full conversion of all outstanding securities
convertible into Common Stock and exercise of any option or warrant to purchase
Common Stock held by said Holder, to the total number of shares of Common Stock
outstanding immediately prior to the issuance of New Securities, assuming full
conversion of all securities convertible into Common Stock and exercise of all
outstanding rights, options and warrants to acquire Common Stock. Each Holder
shall have a right of over-allotment such that if any Holder fails to exercise
its right hereunder to purchase its pro rata share of New Securities, the other
Holders may purchase the non-purchasing Holder's portion on a pro rata basis
within ten days from the date such non-purchasing Holder fails to exercise its
right hereunder to purchase its pro rata share of New Securities. This right of
first refusal shall be subject to the following provisions:
(a) "New Securities" shall mean any capital stock (including Common Stock
and/or Preferred Stock) of the Company whether now authorized or not, and
rights, options or warrants to purchase such capital stock, and securities of
any type whatsoever that are, or may become, convertible into capital stock;
provided that the term "New Securities" does not include (1) securities issued
upon exercise of the Warrants; (2) securities issued upon the exercise of any
warrants or options described in Exhibit F hereto; (3) any borrowings, direct or
indirect, from financial institutions or other Persons by the Company, whether
or not presently authorized, including any type of loan or payment evidenced by
any type of debt instrument, provided such borrowings do not have any equity
features including warrants, options or other rights to purchase capital stock
and are not convertible into capital stock of the Company; (4) not in excess of
an aggregate of 400,000 shares of
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Common Stock issued to employees, consultants, officers or directors of the
Company pursuant to any stock option, stock purchase or stock bonus plan,
agreement or arrangement approved by the Board of Directors; (5) securities
issued in connection with any stock split, stock dividend or recapitalization of
the Company; and (6) any right, option or warrant to acquire any security
convertible into the securities excluded from the definition of New Securities
pursuant to subsections (1) through (5) above.
(b) In the event the Company proposes to undertake an issuance of New
Securities, it shall give each Holder written notice of its intention,
describing the type of New Securities, and their price and the general terms
upon which the Company proposes to issue the same. Each Holder shall have 20
days after receipt of such notice to agree to purchase such Holder's pro rata
share of such New Securities for the price and upon the terms specified in the
notice by giving written notice to the Company and stating therein the quantity
of New Securities to be purchased.
(c) In the event the Holders fail to exercise the right of first refusal
within said 20-day period and after the expiration of the ten-day period for the
exercise of the over-allotment provisions of this Section 9.01, the Company
shall have 120 days thereafter to sell or enter into an agreement (pursuant to
which the sale of New Securities covered thereby shall be closed, if at all,
within 120 days from the date of said agreement) to sell the New Securities
respecting which the Holders' right of first refusal option set forth in this
Section 9.01 was not exercised, at a price and upon terms no more favorable to
the purchasers thereof than specified in the Company's notice to Holders
pursuant to subsection (b) above. In the event the Company has not sold within
said 120-day period or entered into an agreement to sell the New Securities in
accordance with the foregoing within 120 days from the date of said agreement,
the Company shall not thereafter issue or sell any New Securities, without first
again offering such securities to the Holders in the manner provided in
subsection (b) above.
(d) The right of first refusal granted under this Agreement shall expire
upon, and shall not be applicable to, the first Qualified Public Offering
provided that the Holders are offered the opportunity to purchase, in whole or
in part, 10% of the Common Stock being sold in such sale.
ARTICLE 10. MISCELLANEOUS PROVISIONS
10.01 SURVIVAL. All covenants, agreements, representations and
warranties of the Company, the Stockholders and the Purchaser contained in or
made pursuant to this Agreement shall survive the Closing and the sale, issuance
and delivery of the Purchased Shares notwithstanding any investigation made by
or on behalf of the Purchaser, the Company or any Stockholder.
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10.02 AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived (either generally
or in a particular instance and either retroactively or prospectively), only
with the written consent of the Company and the Holders of 66 2/3% or more of
the Registerable Securities, provided that no consent under this Section 10.02
shall alter the provisions of this Agreement to reduce the percentage of the
Registrable Securities which is required for any consent to any amendment or
waiver without the consent of the Holders of all Registerable Securities. Any
amendment or waiver effected in accordance with this Section 10.02 shall be
binding upon each Holder of Purchased Securities, each future Holder of
Purchased Securities and the Company.
10.03 NON-WAIVER. No failure by or neglect of any party to this
Agreement in any instance to exercise any right, power or privilege under this
Agreement or under law shall constitute a waiver of any other right, power or
privilege or of the same right, power or privilege in any other instance.
10.04 PAYMENT OF EXPENSES. Except as expressly provided in this
Agreement to the contrary, whether or not the transactions contemplated by this
Agreement are consummated, each party to this Agreement shall pay the fees and
expenses of its counsel, accountants and other experts and all other expenses
incurred by it, incident to the negotiation, preparation and execution of this
Agreement and the performance by it of its obligations hereunder except that the
Company shall pay the reasonable fees and disbursements of Pircher, Nichols &
Meeks, special counsel to the Purchaser, incurred by the Purchaser in connection
with the negotiation, preparation and execution of this Agreement.
10.05 NOTICES. All notices or other communications hereunder shall be
in writing and shall be sufficiently given for all purposes when sent by first
class United States mail, postage prepaid, registered or certified, or by any
national express air courier which courier shall maintain written verification
of actual delivery, or by delivering the same in person to any party hereto as
follows:
If to the Purchaser to:
Ontario Municipal Employees Retirement Board
One University Avenue, Suite 1000
Toronto, Ontario M5J 2P1
Canada
Attention: Peter D. Friend
with a copy to:
Pircher, Nichols & Meeks
1999 Avenue of the Stars
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Los Angeles, California 90067
USA
Attention: Larry M. Meeks, Esq.
If to the Company to:
Myo Diagnostics, Inc.
3710 South Robertson Boulevard, Suite 212
Culver City, California 90232
USA
Attention: Gerald D. Appel
President
With a copy to:
Pillsbury, Madison & Sutro
725 S. Figueroa Street, Suite 1200
Los Angeles, California 90017
USA
Attention: Blase P. Dillingham, Esq.
or at such other address of which any such party shall have notified the party
giving such notice in writing in accordance with the foregoing requirements.
Notice so mailed shall be effective three Business Days following deposit or, if
sooner, upon receipt. Notice given in any other manner permitted herein shall be
effective only if and when received by the addressee.
10.06 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon,
inure to the benefit of, and be enforceable by, the parties hereto and their
respective successors, assigns, heirs, executors, and legal representatives but
shall not be assignable or delegable by any party without the prior written
consent of the other parties hereto except that the Purchaser may assign its
rights under this Agreement to any Affiliate of the Purchaser and as provided in
Sections 8.11 and 9.01 of this Agreement. This Agreement is not made for the
benefit of any Person not a party hereto, and no Person other than the parties
hereto or their respective successors, permitted assigns, heirs, or legal
representatives shall acquire or have any right, remedy or claim under or by
virtue of this Agreement.
10.07 SEVERABILITY. Any provision of this Agreement which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
10.08 ENTIRE AGREEMENT. This Agreement and the documents and
instruments referred to herein contain the complete agreement
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among the parties with respect to the transactions contemplated hereby and
supersede all previous negotiations, understandings, agreements, or
representations, written or oral, made by or among the parties, relating
thereto.
10.09 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of California applicable to contracts
entered into and to be performed within such state.
10.10 HEADINGS. The headings and subheadings used in this Agreement are
for convenience of reference only and shall not affect in any way the meaning or
interpretation of this Agreement.
10.11 ATTORNEYS' FEES. If any action at law or in equity is necessary
to enforce or interpret the terms of this Agreement, the prevailing party shall
be entitled to reasonable attorneys' fees, costs and disbursements in addition
to any other relief to which such party may be entitled.
10.12 ADJUSTMENTS. In interpreting any provision of this Agreement
which refers to a specific number of shares of Purchased Securities, such number
shall be appropriately adjusted to account for stock splits, combinations and
like events which may occur from time to time.
10.13 COUNTERPARTS. This Agreement may be executed in two or more
counterparts and by different parties in separate counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same agreement.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first above written.
MYO DIAGNOSTICS, INC.
By/S/ Gerald D. Appel
--------------------------------------
Gerald D. Appel
President
/S/ Gerald D. Appel
----------------------------------------
GERALD D. APPEL
/S/ Hershel Toomim
----------------------------------------
HERSHEL TOOMIM
ONTARIO MUNICIPAL EMPLOYEES
RETIREMENT BOARD
By/S/ Peter D. Friend
--------------------------------------
Peter D. Friend
Portfolio Manager
By/S/ Henry A. Rachfalowski
--------------------------------------
Henry A. Rachfalowski
Vice President
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SECURITIES PURCHASE AGREEMENT
This SECURITIES PURCHASE AGREEMENT, is entered into as of August 18, 1995,
by and among MYO DIAGNOSTICS, INC., a California corporation (the "Company") and
ONTARIO MUNICIPAL EMPLOYEES RETIREMENT BOARD (the "Purchaser") and GERALD D.
APPEL (the "Stockholder").
In consideration of the premises and the mutual promises, representations,
warranties, covenants and conditions set forth below, the parties hereto agree
as follows:
ARTICLE 1. CERTAIN DEFINITIONS
1.01 CERTAIN DEFINITIONS. For the purposes of this Agreement, the
following terms shall have the following meanings:
"Additional Shares" shall have the meaning set forth in Section 2.03.
"Affiliate" of a specified Person means any Person who directly or
indirectly controls or is controlled by, or is under common control with, such
specified person.
"Agreement" or this "Agreement" means this Securities Purchase Agreement
including any Exhibits hereto.
"Blue Sky Laws" means the securities laws and regulations of any political
subdivision of the United States.
"Business Day" means any day other than a Saturday, Sunday or other day on
which commercial banks in Los Angeles, California, USA or Toronto, Ontario,
Canada are authorized by law to close.
"CERCLA" means the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended.
"Closing" shall have the meaning set forth in Section 2.01.
"Closing Date" means 9:00 a.m., Los Angeles time, on August 18, 1995, or
such later date as shall be agreed upon by the Company and the Purchaser.
"Closing Shares" shall have the meaning set forth in Section 2.01.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act.
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"Common Stock" means the Common Stock of the Company.
"Company Financial Statements" means (i) the audited balance sheet of the
Company as at December 31, 1994, and the related audited statements of
operations, shareholders' deficit and cash flows for the year then ended,
together with the notes thereto and the report of Lever, Lippe, Hellie & Kaplan
thereon, (ii) the unaudited balance sheets of the Company as at January 31,
1995, February 28, 1995 and March 31, 1995, and the unaudited income statement
of the Company for the three months ended March 31, 1995, and (iii) the
unaudited balance sheets of the Company as at May 31, 1995, and June 30, 1995,
and the unaudited income statements of the Company for the months of May and
June, 1995, copies of which are attached hereto as Exhibit A.
"Environmental Damages" means all claims, judgments, damages, losses,
penalties, fines, liabilities, encumbrances, taxes, fees, liens, costs and
expenses of investigation and defense of any claim, whether or not such claim is
ultimately defeated, including without limitation reasonable attorneys' fees and
disbursements and consultants' fees, any of which are incurred at any time as a
result of the existence or alleged existence of Hazardous Material in, on, under
or migrating to or from the Real Property or the existence or alleged existence
of a violation or obligation arising under any Environmental Requirements.
"Environmental Requirements" means all applicable statutes, laws,
regulations, rules, ordinances, codes, licenses, permits, orders, standards,
guidelines, policies and similar items of any governmental authority having
jurisdiction and all applicable judicial, administrative and regulatory decrees,
judgments and orders and common law relating to the protection of human health
or the environment including, without limitation, all requirements pertaining to
the reporting, licensing, permitting, use, handling, generation, storage,
treatment, transportation, disposal, release, discharge, investigation and
remediation of Hazardous Material.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the regulations promulgated and rulings issued thereunder.
"ERISA Affiliate" means any Person who is a member of the Company's
controlled group, or under common control with the Company, within the meaning
of Section 414 of the Code and the regulations promulgated and rulings issued
thereunder.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or
any similar successor federal statute, and the rules and regulations thereunder,
all as the same shall be in effect from time to time.
<PAGE>
"Hazardous Material" means any substance (i) the presence of which requires
reporting, investigation or remediation under any applicable statute,
regulation, ordinance, order, action, policy or common law; or (ii) which is
defined as a "hazardous waste", "hazardous substance", pollutant or contaminant
under any statute, regulation, rule, or ordinance of any governmental authority
having jurisdiction; or (iii) which is toxic, explosive, corrosive, flammable,
infectious, radioactive, carcinogenic, mutagenic, or otherwise hazardous and is
regulated by any governmental authority having jurisdiction; or (iv) the
presence of which on the Real Property causes or threatens to cause a nuisance
upon the Real Property or to adjacent properties or poses or threatens to pose a
hazard to the health or safety of persons on or about the Real Property.
"Holder" means the Purchaser and any holder of Registrable Securities to
whom the Registration rights conferred by this Agreement have been transferred
in compliance with Section 8.11 of this Agreement.
"Hydra Transaction" means the subscription for, and sale by the Company of,
125,000 shares Common Stock, together with warrants to acquire an additional
200,000 shares of Common Stock pursuant to the terms and provisions of that
certain Subscription Agreement, dated as of August 18, 1995, between the
Company, Hydra Capital Corporation, and Gerald D. Appel.
"Indemnified Party" shall have the meaning set forth in Section 8.08(c).
"Indemnifying Party" shall have the meaning set forth in Section 8.08(c).
"Latest Balance Sheet" means the latest balance sheet of the Company
included in the Company Financial Statements.
"License Agreement" means that certain Licensing Agreement, dated as of
October 31, 1993, by and between the Company and the Licensor, as amended by
Amendment No. One, Waiver & Consent, dated as of December 23, 1994..
"Licensor" means Toomim Research Group, a partnership.
"Ontco" means 1020826 Ontario Inc., a corporation incorporated under the
laws of the Province of Ontario, Canada.
"Ontco Revenue Sharing Agreement" means that certain Agreement, dated as of
June 1, 1993, between the Partnership, the Company and Ontco.
"Partnership" means MYO Diagnostics, A Limited Partnership, a California
partnership.
<PAGE>
"Partnership Agreement" means the Partnership's Agreement of Limited
Partnership, dated as of September 17, 1991, as amended by Amendment to the
Agreement of Limited Partnership, dated as of May 20, 1993, Amendment B to the
Agreement of Limited Partnership, dated as of December 30, 1993, and Amendment C
to Agreement of Limited Partnership, dated as of November 20, 1994.
"Person" means an individual, firm, corporation, division, operation,
partnership, joint venture, trust, unincorporated association, government or any
agency or political subdivision thereof, or any other entity.
"PN&M Fees" shall have the meaning set forth in Section 10.04.
"Proprietary Rights" means patents, inventions, shop rights, knowhow, trade
secrets, confidentiality agreements and confidential information; registered and
unregistered trademarks, service marks, logos, corporate names, trade names, and
other trademark rights; registered and unregistered copyrights; and all
registrations for, and applications for registration of, any of the foregoing.
"Prior Agreement" means that certain Securities Purchase Agreement, dated
as of December 23, 1994, by and among the Company, the Purchaser, the
Stockholder, and Hershel Toomim.
"Purchased Securities" means the Closing Shares, the Additional Shares, the
Series C Warrant, and the Series C Warrant Shares.
"Qualified Public Offering" means a firm commitment underwritten offer and
sale by the Company of its Common Stock pursuant to a Registered public offering
for an aggregate price to the public of not less than $5,000,000.
"RCRA" means the Resource Conservation and Recovery Act of 1976, as
amended.
"Real Property" means any real property owned or leased by the Company.
"Register", "Registered" and "Registration" shall refer to a registration
effected by preparing and filing a registration statement in compliance with the
Securities Act, and the declaration or ordering of the effectiveness of such
registration statement,
"Registerable Securities" means (i) the 680,741 shares of Common Stock
issued and sole by the Company to the Purchaser pursuant to the Prior Agreement,
(ii) the Series A Warrant Shares, (iii) the Series B Warrant Shares, (iv) the
Shares and (v) any Common Stock issued as a dividend or other distribution with
respect to, or in exchange for, or in replacement of, the shares
<PAGE>
referred to in the foregoing clause (i), (ii), (iii) and (iv) provided, however,
that Registerable Securities shall not include any shares of Common Stock which
have been previously Registered and sold to the public or which have been sold
in a private transaction in which the transferor's rights under this Agreement
were not transferred.
"Registration Expenses" means all expenses incurred in effecting any
Registration pursuant to this Agreement, including, without limitation, all
registration, qualification, and filing fees, printing expenses, escrow fees,
fees and disbursements of counsel for the Company, fees under Blue Sky Laws, and
expenses of any regular or special audits incident to or required by any such
Registration, and fees and disbursements of one counsel for the selling Holders,
but shall not include Selling Expenses, fees and disbursements of additional
counsel for the Holders and the compensation of regular employees of the
Company, which shall be paid in any event by the Company.
"Restricted Securities" means any Registrable Securities required to bear
the legend set forth in Section 4.06 of this Agreement.
"Rule 144" means Rule 144 as promulgated by the Commission under the
Securities Act, as such Rule may be amended from time to time, or any similar
successor rule that may be promulgated by the Commission.
"Rule 145" means Rule 145 as promulgated by the Commission under the
Securities Act, as such Rule may be amended from time to time, or any similar
successor rule that may be promulgated by the Commission.
"Securities Act" means the Securities Act of 1933, as amended, and any
similar successor federal statute and the rules and regulations thereunder, all
as the same may be in effect from time to time.
"Selling Expenses" means all underwriting discounts and selling commission
applicable to the sale of Registrable Securities and fees and disbursements of
counsel for any Holder (other than fees and disbursements of counsel included in
Registration Expenses.)
"Series A Warrant" means that certain Series A Warrant, dated December 23,
1994, for 100,000 shares of Common Stock, issued by the Company to the
Purchaser, as the same may be amended from time to time, and any warrant or
warrants issued in exchange therefor or in substitution thereof.
"Series A Warrant Shares" means the shares of Common Stock issued or to be
issued upon exercise of the Series A Warrant.
<PAGE>
"Series B Warrant" means that certain Series B Warrant, dated December 23,
1994, for 83,333 shares of Common Stock, issued by the Company to the Purchaser,
as the same may be amended from time to time, and any warrant or warrants issued
in exchange therefor or in substitution thereof.
"Series B Warrant Shares" means the shares of Common Stock issued or to be
issued upon exercise of the Series B Warrant.
"Series C Warrant" shall have the meaning set forth in Section 5.01(i).
"Series C Warrant Shares" means the shares of Common Stock issued or to be
issued upon exercise of the Series C Warrant.
"Shares" means the Closing Shares, the Additional Shares, and the Series C
Warrant Shares.
"Significant Stockholder" means any stockholder (or one of a number of
stockholders acting in concert) who beneficially owns, or in the aggregate with
other stockholders acting in concert, directly or indirectly, more than 5% of
the outstanding Common Stock or rights, options or warrants to acquire the same.
"Taxes" means all federal, state, county, local, foreign and other taxes
and governmental assessments, including but not limited to, income taxes,
estimated taxes, withholding taxes, transfer taxes, excise taxes, real and
personal property taxes, ad valorem taxes, payroll-related taxes, employment
taxes, franchise taxes and import duties, together with any related liabilities
penalties, fines, additions to tax and interest.
"Tax Returns" means the Partnership's Form 1065 U.S. Partnership Return of
Income for the period January 1, 1994, through December 18, 1994, and the
Company's Form 1120 U.S. Corporation Income Tax Return for the year ended
December 31, 1994, copies of which are attached hereto as Exhibit B.
ARTICLE 2. PURCHASE AND SALE OF SECURITIES
2.01 CLOSING. On the terms and subject to the conditions set forth in this
Agreement, at a closing (the "Closing") to be held on the Closing Date, and in
reliance on the representations and warranties contained in this Agreement, the
Company shall issue, sell and deliver to the Purchaser, and the Purchaser shall
purchase from the Company, 111,111 shares of Common Stock (the "Closing Shares")
for an aggregate purchase price of $200,000. At the Closing, the Company shall
issue and deliver to the Purchaser upon tender of the purchase price therefor,
one or more certificates representing the Closing Shares.
<PAGE>
2.02 ADDITIONAL SHARES. In the event that the PN&M Fees exceed $7,500,
provided that the Closing has occurred and in reliance on the representations
and warranties contained in this Agreement, the Company shall issue, sell and
deliver to the Purchaser, and the Purchaser shall purchase from the Company such
number of additional shares of Common Stock (the "Additional Shares") as shall
equal the number of shares (rounded to the nearest full share) obtained by
dividing the difference between the PN&M Fees and $7,500 by a per share purchase
price of $1.80. Such purchase and sale shall occur promptly following the
determination of the PN&M Fees, and the Company shall deliver to the Purchaser a
certificate representing the Additional Shares against receipt of payment of an
amount equal to the number of Additional Shares times $1.80.
2.03 PLACE OF CLOSING. On the terms and subject to the conditions set forth
in this Agreement, the Closing shall be held at the offices of Pircher, Nichols
& Meeks, 1999 Avenue of the Stars, Los Angeles, California 90067 or at such
other place as shall be mutually agreed upon by the Company and the Purchaser.
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF THE
STOCKHOLDER AND THE COMPANY
The Company and the Stockholder, jointly and severally, represents and
warrants to the Purchaser as follows:
3.01 ORGANIZATION AND GOOD STANDING, ETC. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California, and has all requisite corporate power and authority to own and lease
its properties and to carry on its business as presently conducted and as
proposed to be conducted. The Company is duly registered or qualified and in
good standing as a foreign corporation in each jurisdiction where the ownership
or leasing of its properties or the conduct of its business makes such
registration or qualification necessary. The copies of the Company's Articles
of Incorporation and Bylaws which have been furnished to Pircher, Nichols &
Meeks, special counsel for the Purchaser, include all amendments made thereto at
any time prior to the date of this Agreement and are correct and complete.
Exhibit C hereto sets forth a true and complete list of the names of all
directors of the Company and the names and offices held of all officers of the
Company.
3.02 SUBSIDIARIES. The Company does not own, beneficially or of record, any
shares or capital stock of, or hold any other equity interest in, any Person, is
not committed to purchase or acquire any such interest, and is not a participant
in any joint venture, partnership or similar arrangement except that the Company
is the legal and beneficial owner of all of the outstanding shares of Ontco. To
the best knowledge of the Company and the Stockholder, (1) Ontco is a
corporation duly organized, validly existing and in good standing under the laws
of the Provence of Ontario, Canada,
<PAGE>
and has all requisite corporate power and authority to own and lease its
properties and to carry on its business; (2) the only business conducted by
Ontco was to enter into the Ontco Revenue Sharing Agreement, which has been
terminated; and (3) Ontco has no assets or liabilities.
3.03 DISSOLUTION OF THE PARTNERSHIP. The Company has purchased all of the
Units held by all of the Unit Holders (as such terms are defined in the
Partnership Agreement) in consideration of the issuance by the Company to the
Unit Holders of an aggregate of 420,000 shares of Common Stock, no distributions
or other amounts are due from the Partnership or the Company to the Unit
Holders, the Partnership has been dissolved in accordance with the provisions of
the Partnership Agreement and/or California law, all of the assets (including,
without limitation, the License Agreement) of the Partnership have been
distributed to the Company, and the Company has assumed all of the liabilities
of the Partnership.
3.04 CAPITALIZATION. The authorized capital stock of the Company consists
of 50,000,000 shares of Common Stock, of which 6,282,410 shares are issued and
outstanding, not including any shares issued or to be issued pursuant to the
Hydra Transaction. The outstanding shares of Common Stock are owned by the
stockholders and in the numbers set forth in Exhibit D hereto. Except for the
Hydra Transaction, the Series A Warrant and the Series B Warrant and except as
set forth in Exhibit E hereto, there are no authorized, issued or outstanding
options, warrants, conversion privileges, preemptive rights or other rights,
agreements, arrangements or understandings (whether or not presently
exercisable) to purchase or otherwise acquire any Common Stock or other
securities of the Company or other securities convertible into or evidencing the
right to purchase or otherwise acquire any shares of such stock or other
securities except for the rights in favor of the Purchaser created by this
Agreement. All of the issued and outstanding shares of Common Stock are, and
all shares issued upon the exercise of the Series A Warrant, the Series B
Warrant, and all options and warrants described in Exhibit E hereto for the
consideration set forth therein will be, duly authorized, validly issued, fully
paid and nonassessable and were, or will be, issued in compliance with the
Securities Act and all applicable Blue Sky Laws. Except as provided in this
Agreement and the Prior Agreement and except as set forth in Exhibit E hereto,
(a) there are no shareholders' agreements, voting trusts, irrevocable proxies or
similar arrangements by which any Person other than the shareholders of record
of the Company in their individual capacities as such have or may acquire
authority to vote any Common Stock or other securities of the Company, (b) there
are no restrictions upon the sale, voting or transfer of any shares of Common
Stock pursuant to the Company's Articles of Incorporation, Bylaws or other
governing instruments or any agreement or other instrument to which the Company
or the Stockholder is a party or by
<PAGE>
which it or any of them may be bound, (c) there are no preemptive or similar
rights with respect to the Common Stock or any other securities of the Company
and (d) the Company is under no obligation to redeem or repurchase any shares of
Common Stock or other securities of the Company.
3.05 AUTHORIZATION. The Company has all requisite power and authority to
execute and deliver this Agreement, to issue and sell the Shares, to issue and
deliver the Series C Warrant, and to perform its obligations hereunder. All
corporate action on the part of the Company, its officers, directors and
shareholders which is necessary for the authorization, issuance (or reservation
for issuance), sale and delivery of the Shares, the issue and delivery of the
Series C Warrant, the authorization, execution, delivery and performance of this
Agreement, has been taken. The Stockholder has all requisite power, authority
and capacity to execute and deliver this Agreement and to perform his
obligations hereunder.
3.06 VALIDITY AND ENFORCEABILITY. This Agreement has been duly executed and
delivered by the Company and the Stockholder and constitutes, and the Series C
Warrant when executed and delivered by the Company will constitute, legal, valid
and binding obligations of the Company and, in the case of this Agreement, the
Stockholder, enforceable against the Company and, in the case of this Agreement,
the Stockholder in accordance with its terms, except as enforceability (a) may
be limited by bankruptcy, insolvency, reorganization, moratorium or other laws
relating to or affecting the enforcement of creditors' rights generally or by
general equitable principles and (b) to the extent the indemnification
provisions contained in Article 8 hereof may be limited by applicable federal or
state securities laws.
3.07 VALID ISSUANCE OF SHARES. The Closing Shares, the Additional Shares,
and the Series C Warrant Shares, when issued, sold and delivered in accordance
with the terms of this Agreement or the Series C Warrant, as the case may be,
for the consideration set forth herein or therein, will be duly and validly
authorized and issued, fully paid, and nonassessable shares of Common Stock, and
will be free of restrictions on transfer other than restrictions on transfer
contained in this Agreement and under the Securities Act and applicable Blue Sky
Laws. The Company has duly and validly reserved 1,333,333 shares of the Common
Stock for issuance upon the exercise of the Series C Warrant plus such
additional number of shares of Common Stock as may from time to time be issuable
upon exercise of the Series C Warrant after giving effect to any adjustments in
the number of shares issuable thereunder pursuant to the terms thereof.
3.08 NO CONFLICT. The Company is not in violation of or default under its
Articles or Incorporation or Bylaws or any provision of any indenture, mortgage,
lease, loan agreement or other agreement or instrument to which the Company is a
party or by
<PAGE>
which it is bound or to which any of its properties or assets is subject or any
judgment, order writ or decree applicable to the Company. None of the execution
and delivery of this Agreement by the Company or the Stockholder, the issuance
and sale of the Shares, the issuance and delivery of the Series C Warrant, or
the consummation of the transactions contemplated hereunder, will (i) conflict
with or result in a breach or violation of, or constitute a default under, or
result in the creation of any lien, charge or encumbrance upon, any of the
properties or assets of the Company pursuant to the Articles of Incorporation or
Bylaws of the Company or any indenture, mortgage, lease, loan agreement or other
agreement or instrument to which the Company is a party or by which it is bound
or to which any of its properties or assets is subject or (ii) violate any law,
statute, rule, regulation, judgment or decree applicable to the Company. Except
as set forth in Exhibit F hereto, no third party consents are required by the
terms of any indenture, mortgage, lease, loan agreement or other agreement or
instrument to which the Company is a party or by which it is bound or to which
any of its properties or assets is subject for the execution and delivery of
this Agreement, the issuance of the Shares, the issuance and delivery of the
Series C Warrant, or the consummation of the transactions provided for herein.
3.09 NO CONSENT OR APPROVAL REQUIRED. No consent, approval or authorization
of, or declaration to or filing with, any governmental or regulatory authority
is required for the valid execution and delivery by the Company or the
Stockholder of this Agreement, the issuance and sale of the Shares, the issuance
and delivery of the Series C Warrant or the consummation of the transactions
provided for herein except the filing of any notice of sale required to be filed
under Regulation D adopted by the Commission or such post-closing filings as may
be required under applicable Blue Sky Laws, which will be timely filed within
the applicable periods provided therefor.
3.10 FINANCIAL STATEMENTS. The Company Financial Statements were prepared
in accordance with generally accepted accounting principles consistently applied
throughout the periods involved, are complete and correct in all material
respects, and present fairly the financial condition of the Company and its
results of operations as of the dates and for the periods indicated.
3.11 ABSENCE OF UNDISCLOSED LIABILITIES. Except as and to the extent
reflected or reserved against in the Latest Balance Sheet or set forth in
Schedule 3.11 hereto, at the date of the Latest Balance Sheet, the Company did
not have any material obligation or liability of any kind (whether accrued,
absolute, contingent, unliquidated, civil, criminal or otherwise and whether due
or to become due), whether or not any such liability or obligation would have
been required to be disclosed on a balance sheet prepared in accordance with
generally accepted accounting principles.
<PAGE>
3.12 ABSENCE OF CERTAIN CHANGES OR EVENTS.
Since the date of the Latest Balance Sheet and except as set forth in
Schedule 3.12, the Company has been operated in the ordinary course of business,
and there has not been:
(a) Any change in the assets, liabilities, obligations, financial
condition or results of operations of the Company from that reflected in the
Financial Statements, except changes in the ordinary course of business that
have not been, either individually or in the aggregate, materially adverse;
(b) Any material change (individually or in the aggregate) in the
contingent obligations of the Company by way of guaranty, endorsement,
indemnity, warranty, or otherwise;
(c) Any change in material standards, principles, policies or
practices (including, without limitation, financial or financial reporting and
accounting methods and practices) relating to the Company's business;
(d) Any sale, assignment, lease or other transfer or disposition of
any assets of the Company other than in the ordinary course of business;
(e) Any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the business, properties,
prospects or financial condition of the Company;
(f) Any satisfaction or discharge of any lien, claim, or encumbrance
or payment of any obligation by the Company, except in the ordinary course of
business and which is not material to the business, properties, prospects or
financial condition of the Company;
(g) Any termination, amendment or modification of any material
contract or arrangement to which the Company is a party or by which it is bound;
(h) Any sale, assignment, license, or other transfer or disposition
of any Proprietary Rights;
(i) Any resignation or termination of employment of any officer or
key employee of the Company or any termination of any consulting arrangement to
which the Company is a party;
(j) Any mortgage, pledge, grant of a security interest in, or lien,
created by the Company with respect to any of its properties or assets, except
liens for current property taxes not yet due and payable;
<PAGE>
(k) Any waiver or compromise by the Company of any valuable right or
of a material debt owed to it;
(i) Any loans or advances to, guaranties for the benefit of, or
investments in, any Person (other than customary travel advances in accordance
with past practices);
(m) Any general increase in the salary or other compensation of the
Company's employees, officers, directors, or consultants, or any specific
increase in the salary or other compensation of any such employee, officer,
director, or consultant, whose combined salary and other compensation after such
increase would be in excess of $30,000;
(n) Any adoption of, or change in, any executive compensation plan,
bonus plan, incentive compensation plan, deferred compensation agreement or
other employee benefit plan or arrangement.
(o) Any declaration, setting aside, or payment of any dividend or
other distribution in respect of the Common Stock;
(p) Any issue or sale by the Company of any shares of Common Stock or
other securities or any purchase by the Company of any shares of Common Stock or
other securities;
(q) Any other event or condition (individually or in the aggregate)
of any character that has materially and adversely affected the Company's
business or prospects; or
(r) Any agreement or commitment by the Company to do any of the
things described in this Section 3.12.
3.13 CONTRACTS AND COMMITMENTS. Except as set forth in Schedule 3.13
hereto, the Company is not a party to any contract, agreement, lease,
commitment, or proposed transaction, written or oral, other than (1) contracts
for the purchase of supplies and services that were entered to in the ordinary
course of business and that do not provide for aggregate payments in excess of
$25,000, and do not extend for more than one year from the date hereof, (2)
sales contracts entered into in the ordinary course of business, and (iii)
contracts terminable at will by the Company on no more than 30 days' notice
without any cost or liability to the Company and that do not involve any
employment or consulting arrangement and are not material to the conduct of the
business of the Company. For the purposes of this Section, employment and
consulting contracts, collective bargaining agreements, and licensing agreements
and other agreements relating to the acquisition of disposition of the Company's
Proprietary Rights (other than standard end-user license agreements), shall not
be considered to be contracts entered into in the ordinary course of business.
The Company has delivered to Pircher, Nichols & Meeks,
<PAGE>
special counsel to the Purchaser, true and complete copies of all contracts and
agreements, including all amendments thereto, listed in Schedule 3.13. All
contracts, agreements, leases and commitments referred to in Schedule 3.13 are
valid and enforceable in accordance with their respective terms for the periods
stated therein, and there is not under any of them any existing breach, default,
or event of default by the Company or, to the best knowledge of the Company and
the Stockholder, by any other party thereto, or event which with notice or lapse
of time would constitute a default nor has any party thereto given notice of or
made a claim with respect to any breach or default. Neither the Company nor the
Stockholder has any knowledge of any existing laws, regulations or decrees,
which materially and adversely affect, or may materially and adversely affect
any of such contracts, agreements, leases, or commitments or the business,
properties, operations or condition, financial or other, of the Company.
3.14 TITLE TO PROPERTY AND ASSETS; LEASES. The Company does not own any
real property. Except (1) as reflected in the Financial Statements, (2) for
liens for current taxes not yet delinquent, (3) for liens imposed by law and
incurred in the ordinary course of business for obligations not past due to
carriers, warehousemen, laborers, materialmen and the like, (4) for minor
defects in title, none of which, individually or in the aggregate, materially
interferes with the use of such property, the Company owns its assets free and
clear of all mortgages, liens, claims, security interests, and encumbrances.
The Company's only lease of real property is the lease (described in Schedule
3.13) for its premises at 3710 South Robertson Boulevard, Suite 212 and Suite
220, Los Angeles, California 90232 with which lease the Company is in
compliance.
3.15 ADEQUACY OF ASSETS. The Company owns or has a valid leasehold interest
in all assets, properties, real and personal, contract rights, licenses and
Proprietary Rights necessary for the continued operation of the Company in
substantially the same manner in which it has been and is now operating.
3.16 LITIGATION. Except as set forth in Schedule 3.16, there is no action,
suit, proceeding, or investigation pending or, to the best knowledge of the
Stockholder and the Company, threatened, against or affecting the Company that
questions the validity of this Agreement or the right of the Company to enter
into this Agreement or to consummate the transactions contemplated hereby or
that might result, either individually or in the aggregate, in any material
adverse change in the assets, business, properties, prospects, financial
condition or operating results of the Company, or in any material change in the
current equity ownership of the Company. The foregoing includes, without
limitation, any action, suit, proceeding or investigation pending or threatened
involving the prior employment of any of the Company's employees, their use in
connection with the Company's business of any information or
<PAGE>
techniques allegedly proprietary to any of their former employees, their
obligations under any agreements with prior employees, or negotiations by the
Company with potential backers of, or investors in, the Company or its proposed
business. The Company is not a party to or, to the best knowledge of the
Company and the Stockholder, named in any order, writ, injunction, judgment or
decree of any court, governmental agency, or instrumentality. There is no
action, suit or proceeding by the Company currently pending or that the Company
currently intends to initiate.
3.17 TAXES. All returns and reports of all Taxes required to be filed by
the Company have been filed, and all such returns and reports, including without
limitation, the Tax Returns, are true, correct and complete in all material
respects, and all Taxes payable pursuant thereto have been paid. No deficiency
or adjustment in respect of any Taxes which was assessed against the Company
remains unpaid and no such claim or assessment is pending or, to the best
knowledge of the Company and the Stockholder, threatened. The Company has made
all withholdings of Taxes required to be made under all applicable federal,
state and local tax regulations and such withholdings have either been paid to
the respective governmental agencies or set side in accounts for such purpose or
accrued, reserved against and entered upon the books of the Company. No
provision for income taxes payable is required to be reflected on the Latest
Balance Sheet. There are no outstanding agreements or waivers extending the
statutory period of limitations applicable to any tax return or tax liability of
the Company, and to the best knowledge of the Company and the Stockholder, there
is no proposed liability for any Taxes for which there is not an adequate
reserve reflected on the Latest Balance Sheet. The Company has not filed any
consent with the Internal Revenue Service described in Section 341(f) of the
Code.
3.18 PROPRIETARY RIGHTS. The Company owns or possesses adequate licenses or
other rights to all Proprietary Rights necessary for the conduct of the business
of the Company as presently conducted and as proposed to be conducted without,
to the best knowledge of the Company and the Stockholder, any conflict with or
infringement of, the Proprietary Rights of any other Person. Schedule 3.18
contains a complete list of all Proprietary rights of the Company. Except as
set forth in Schedule 3.18 and except for standard end-user agreements, there
are no outstanding options, licenses, or agreements of any kind relating to the
foregoing, nor is the Company bound by or a party to any option, license or
agreement of any kind with respect to its Proprietary Rights or the Proprietary
rights of any other Person. Neither the Company nor the Stockholder has received
any notice or other communication alleging that the Company has violated, or, by
conducting its business as presently conducted and proposed to be conducted,
would violate any Proprietary Rights of any other Person. Neither the Company
nor the Stockholder is aware that any of the Company's employees or consultants
is obligated under any
<PAGE>
contract (including licenses, covenants, or commitments of any nature) or other
agreement, or subject to any judgment, decree or order of any court or
administrative agency, that would interfere with the use of such employee's or
consultant's best efforts to promote the interests of the Company or that would
conflict with its business as presently conducted and proposed to be conducted.
Neither the execution and delivery of this Agreement, nor the carrying on of the
business of the Company by its employees and consultants, nor the conduct of the
Company's business as presently conducted and proposed to be conducted, will, to
the best knowledge of the Company and the Stockholder, conflict with or result
in a breach of, or constitute a default under, any contract covenant or
agreement under which any of such employees or consultants is now obligated.
3.19 MANUFACTURING AND MARKETING RIGHTS. Except as set forth in Schedule
3.13 and Schedule 3.19, the Company has not granted rights to manufacture,
produce, assemble, license, market or sell its products or services to any other
Person and is not bound by any agreement that affects the Company's exclusive
right to develop, manufacture, assemble, distribute, market or sell its products
and services.
3.20 EMPLOYEES. Schedule 3.20 sets forth the names and current annual or
monthly compensation rates of all employees of the Company. There are no
material controversies pending or, to the best knowledge of the Company and the
Stockholder, threatened, between the Company and any of its employees, former
employees or applicants for employment. The Company has complied in all
material respects with all laws relating to the employment of labor, including
any provisions thereof relating to wages, hours, equal employment opportunity,
collective bargaining, federal immigration law, and the payment of social
security and similar taxes and is not liable for any arrears of wages or any
taxes or penalties for failure to comply with any of the foregoing. None of the
employees of the Company are covered by any collective bargaining agreement and,
to the best knowledge of the Company and the Stockholder, there are no
organizational efforts currently being made or threatened involving any
employees of the Company. Except as set forth in Schedule 3.20, the Company is
not a party to or bound by any currently effective employment agreement,
contract, deferred compensation arrangement, bonus plan, incentive compensation
plan, profit sharing plan, retirement agreement, stock option agreement, stock
option plan, group life, hospitalization or disability insurance, severance
policy or other employee compensation agreement or arrangement. The Company is
not aware that any officer or key employee intends to terminate his or her
employment by the Company, nor does the Company have any present intention to
terminate the employment of any such officer or key employee. Subject to
general principles relating to wrongful termination of employees, the employment
of each officer and employee of the Company is terminable at the will of the
Company.
<PAGE>
3.21 ERISA. The Company does not maintain or contribute to and is not
obligated to contribute to, and has never maintained or contributed to or been
obligated to contribute to, (i) any employee plan that is subject to the
provisions of Title IV of ERISA or subject to the minimum funding standards of
Section 412 of the Code; (ii) any "multi-employer plan" as defined in Section
4001(a)(3) of ERISA; or (iii) any "single employer plan" as defined in Section
4001(a)(15) of ERISA, which (a) is maintained for employees of the Company or
any ERISA Affiliate and at least one other Person or (b) was so maintained and
in respect of which the Company or an ERISA Affiliate could have liability under
Section 4064 or 4069 of ERISA in the event such plan has been or were to be
terminated.
3.22 TRANSACTIONS WITH MANAGEMENT. Except as set forth in Schedule 3.22,
the Company is not a party to any contract, lease, agreement or other commitment
with any officer, director or shareholder of the Company or any Affiliate of any
such Person, and there are no loans outstanding from the Company to, or to the
Company from, any such Person or any Affiliate of any such Person.
3.23 REGISTRATION RIGHTS. Except as set forth in Schedule 3.23 and except
as provided in this Agreement and the Prior Agreement, the Company is not
obligated to Register under the Securities Act any of its presently outstanding
securities or any of its securities that may subsequently be issued.
3.24 PERMITS, COMPLIANCE WITH LAWS. The Company holds all permits,
licenses, consents and authorizations issued by any government or governmental
authority which are material and necessary in connection with the conduct of the
business of the Company. The Company is not in default in any material respect
under any such permit, license, consent or authorization. The conduct of the
business of the Company as presently conducted complies in all material respects
with all applicable laws, ordinances, regulations and orders, including, without
limitation, all Environmental Requirements. The Company has not received any
notice of any violation of any law, ordinance, regulation or order applicable to
the Company or the business conducted by it.
3.25 ENVIRONMENTAL MATTERS. There has been no "release or threatened
release of a hazardous substance" (as defined in CERCLA) or any other release,
emission, disposal or discharge into the environment or any use, storage,
transport or handling (collectively, "activities") of Hazardous Material on,
under, about or from the Real Property other than those activities which have
not resulted and could not reasonably be expected to result in any material
liability on the part of the Company. To the best knowledge of the Company and
the Stockholder, all "hazardous waste" (as defined in RCRA and the regulations
thereunder) generated at the Real Property have been disposed of at sites which
maintain valid permits under RCRA and any other applicable Environmental
<PAGE>
Requirement. To the best knowledge of the Company and the Stockholder, there
are no underground tanks, PCBs or asbestos containing materials on the Real
Property. The Company has no notice of any pending formal or informal assertion
by any governmental agency or other Person that the Company or any predecessor
business or owner or operator of the Real Property may be a responsible or
potentially responsible party in connection with any violation or obligation
arising under any Environmental Requirement at any site or facility (including
the Real Property itself.) Schedule 3.25 sets forth a list of all documents
pertaining to the environmental conditions (actual, potential or threatened) of
any of the Real Property including, without limitation, all environmental
reports, assessments and audits and all notices, orders, permits or any other
documents from any governmental authority which refer or relate to any
environmental condition of the Real Property or any personal property owned or
leased by the Company or which relate to any actual or potential liabilities or
obligations arising out of such environmental conditions.
3.26 ADVERSE AGREEMENTS. The Company is not a party to or subject to any
contract, agreement or commitment or subject to any charter or other corporate
restriction or any judgment, order, writ, injunction, decree, law, rule or
regulation which adversely affects, or could reasonably be expected to adversely
affect, the business, operations, prospects, properties, assets or condition,
financial or other, of the Company.
3.27 NO BROKERS OR FINDERS. Neither the Company nor the Stockholder has
retained any investment banker, broker or finder in connection with the
transactions contemplated by this Agreement.
3.28 BOOKS AND RECORDS. The books, records and work papers of the Company
are complete and correct, have been maintained in accordance with good business
practice and accurately reflect the bases for the financial condition and
results of operations of the Company set forth in the Company Financial
Statements.
3.29 DISCLOSURE. The Company has provided the Purchaser with all the
information reasonably available to it without undue expense that the Purchaser
has requested for deciding whether to purchase the Shares and all information
that the Company believes is reasonably necessary to enable the Purchaser to
make such decision. None of this Agreement, the Company Financial Statements,
or any other written documents, statements or certificates made or delivered to
the Purchaser in connection herewith contains any untrue statement of a material
fact or omits to state a material fact necessary to make the statements
contained herein or therein, in the light of the circumstances in which they
were made, not misleading. Neither the Company nor the Stockholder has
knowledge of any liability, contingent or otherwise, not disclosed in the
Company Financial Statements or other document
<PAGE>
delivered to the Purchaser in connection herewith that materially affects the
financial position or results of operations of the Company or the Projections.
ARTICLE 4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser represents and warrants to the Company as follows:
4.01 REQUISITE POWER AND AUTHORITY. The Purchaser has all necessary power
and authority under all applicable provisions of law to execute, deliver and
perform this Agreement; all actions on the Purchaser's part required for the
lawful execution, delivery and performance of this Agreement have been or will
be duly and effectively taken prior to the Closing Date; and this Agreement
constitutes a legal, valid and binding obligation of the Purchaser enforceable
against the Purchaser in accordance with its terms, except as enforceability (a)
may be limited by bankruptcy, insolvency, reorganization, moratorium or other
laws relating to or affecting the enforcement of creditors' rights generally or
by general equitable principles and (b) to the extent the indemnification
provisions contained in Article 8 hereof may be limited by applicable federal or
state securities laws.
4.02 PURCHASE FOR OWN ACCOUNT. This Agreement is made with the Purchaser in
reliance upon the Purchaser's representation to the Company, which by its
execution of this Agreement the Purchaser hereby confirms, that the Purchased
Securities are being acquired by the Purchaser for investment for the
Purchaser's own account, not as a nominee or agent, and not with a view to or
for sale in connection with any distribution of the Purchased Securities or any
part thereof, and that the Purchaser has no present intention of selling,
granting any participation in, or otherwise distributing the same, but subject
nevertheless to any requirement of law that the disposition of the Purchaser's
property shall at all times be within its control. By executing this Agreement,
the Purchaser further represents that it does not have any contract,
undertaking, agreement or arrangement with any Person to sell, transfer, or
grant participations to such Person, or to any third Person, with respect to the
Purchased Securities.
4.03 RELIANCE UPON PURCHASER'S REPRESENTATIONS. The Purchaser understands
that the Purchased Securities at the time of issuance may not be: (1) registered
under the Securities Act on the ground that the sale provided for in this
Agreement and the issuance of securities hereunder is exempt from registration
under the Securities Act pursuant to Section 3(b) thereof and Regulation D
promulgated thereunder, or (2) qualified with the Commissioner of Corporations
of the State of California on the ground that the sale provided for in this
Agreement and the issuance of securities is exempt from such qualification
pursuant to Section 25102(f) of the California Corporate Securities Law, and
that the Company's
<PAGE>
reliance on such exemptions is predicated in part on the Purchaser's
representations set forth herein.
4.04 INVESTOR EXPERIENCE. The Purchaser represents that it is experienced
in evaluating and investing in companies in the development stage, is able to
fend for itself, has such knowledge and experience in financial and business
matters as to be capable of evaluating the merits and risks of its investment in
the Purchased Securities, and has the ability to bear the economic risks of its
investment.
4.05 ACCESS TO INFORMATION. The Purchaser believes that it has had access,
during the course of the transaction and prior to its purchase of the Purchased
Securities hereunder, to all information as it deems necessary or appropriate
(to the extent the Company possessed such information or could acquire it
without unreasonable effort or expense) and that the Purchaser has had, during
the course of the transaction and prior to its purchase of the Purchased
Securities hereunder, the opportunity to ask questions of, and receive answers
from, the Company concerning the terms and conditions of the offering and to
obtain additional information (to the extent the Company possessed such
information or could acquire it without unreasonable effort or expense)
necessary to verify the accuracy of any information furnished to the Purchaser
or to which the Purchaser had access. The foregoing, however, does not limit or
modify the representations and warranties of the Company and the Stockholder
contained in Article 3 of this Agreement or the right of the Purchaser to rely
thereon.
4.06 RESTRICTED SECURITIES. The Purchaser understands that the Purchased
Securities, or any portion thereof, may not be sold, transferred, or otherwise
disposed of without Registration under the Securities Act or an exemption
therefrom, and that in the absence of an effective registration statement
covering the Purchased Securities or an available exemption from Registration
under the Securities Act, the Purchased Securities must be held indefinitely. In
particular, the Purchaser is aware that the Purchased Securities may not be sold
pursuant to Rule 144 unless all of the conditions of that Rule are met. Among
the conditions for use of Rule 144 may be the availability of current
information to the public about the Company. Such information is not now
available and the Company has no present plans to make such information
available.
4.07 RESTRICTIVE LEGEND. Each certificate representing Shares may bear the
following legend:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED THEY MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED
OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
AS TO THE SECURITIES UNDER SAID ACT OR AN OPINION OF COUNSEL (WHO
<PAGE>
MAY BE COUNSEL TO THE COMPANY) OR OTHER EVIDENCE SATISFACTORY TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
4.08 PUBLIC SALE. The Purchaser agrees not to make, without the prior
written consent of the Company, any public offering or sale of the Purchased
Securities although permitted to do so pursuant to Rule 144(k) promulgated under
the Securities Act, until the earlier of (i) the date on which the Company
effects its initial registered public offering pursuant to the Securities Act,
(ii) the date on which the Company becomes a registered company pursuant to
Section 12(g) of the Securities Exchange Act of 1934, as amended, or (iii)
December 23, 1999.
ARTICLE 5. CONDITIONS PRECEDENT TO THE OBLIGATIONS
OF THE PURCHASER
5.01 CLOSING. The obligation of the Purchaser to purchase the Closing
Shares is subject to the satisfaction at or prior to the Closing Date of each of
the following conditions (compliance with which or the occurrence of which may
be waived in whole or in part by the Purchaser):
(a) Accuracy of Representations and Warranties. The representations and
warranties of the Company and the Stockholder contained herein shall be true and
correct on and as of the Closing Date with the same force and effect as though
made on and as of the Closing Date.
(b) Performance of Agreements. The Company and the Stockholder shall have
performed all obligations and agreements and complied with all covenants and
conditions contained in this Agreement to be performed or complied with by them
on or prior to the Closing Date.
(c) Stockholder Certificate. The Stockholder shall have furnished the
Purchaser with a certificate, dated the Closing Date, to the effect that (i) the
representations and warranties of the Stockholder contained herein are true and
correct on and as of the Closing Date with the same force and effect as though
made on and as of the Closing Date and (ii) the Stockholder has performed and
complied with all covenants and conditions contained in this Agreement to be
performed or complied with by him on or prior to the Closing Date.
(d) Company Certificate. The Company shall have furnished the Purchaser
with a certificate, dated the Closing Date, of the President of the Company (i)
to the effect that the representations and warranties of the Company contained
herein are true and correct on and as of the Closing Date with the same force
and effect as though made on and as of the Closing Date and (ii) to the effect
that the Company has performed and complied with all covenants and
<PAGE>
conditions contained in this Agreement to be performed or complied with by it on
or prior to the Closing Date.
(e) Charter Documents. There shall have been delivered to the Purchaser
(i) a Certificate, dated within ten days of the Closing Date, of the Secretary
of State of the State of California listing all charter documents of the Company
on file in the office of said Secretary of State and (ii) copies of all
amendments, if any, to the Articles of Incorporation of the Company filed with
the Secretary of State of the State of California on or after December 21, 1994,
certified as true and correct by the Secretary of State of the State of
California within ten days of the Closing Date.
(f) Good Standing Certificates. There shall have been delivered to the
Purchaser (i) a Certificate, dated within ten days of the Closing Date, of the
Secretary of State of the State of California with respect to the incorporation,
subsistence and good legal standing of the Company, and (ii) a letter, dated
within ten days of the Closing Date, of the California Franchise Tax Board as to
the good standing and entitlement to transact business of the Company.
(g) Secretary's Certificate of the Company. There shall have been
delivered to the Purchaser a Certificate, dated the Closing Date of the
Secretary of the Company (i) to the effect that the Articles of Incorporation of
the Company have not been amended since the date of the Certificate referred to
in Section 5.01(e)(i) above, (ii) attaching a true and complete copy of the
Bylaws of the Company as in effect on the Closing Date, (iii) attaching a true
and complete copy of the resolutions of the Board of Directors of the Company
approving the execution and delivery of this Agreement, the issuance and sale of
the Purchased Securities and authorizing the consummation of the transactions
contemplated herein.
(h) Incumbency Certificate of the Company. There shall have been delivered
to the Purchaser a Certificate, dated the Closing Date, with respect to the
incumbency and signatures of all officers of the Company signing this Agreement
and any other certificate, agreement or instrument delivered on behalf of the
Company in connection with this Agreement or the Closing.
(i) Series C Warrant. The Company shall have issued and delivered to the
Purchaser a warrant, dated the Closing Date and expiring on August 30, 1996,
substantially in the form of Exhibit G hereto (the "Series C Warrant").
(j) Amendment to Series A Warrant. The Company shall have executed to the
Purchaser an Amendment to Series A Warrant, dated the and substantially in the
form of Exhibit H hereto.
<PAGE>
(k) Amendment to Series B Warrant. The Company shall have executed to the
Purchaser an Amendment to Series B Warrant, dated the and substantially in the
form of Exhibit I hereto.
(l) Hydra Transaction. There shall have been delivered to the Purchaser
evidence satisfactory to the Purchaser of the closing and funding of the Hydra
Transaction.
(m) Certificate and Estoppel The Licensor shall have executed and
delivered to the Purchaser a Licensor's Estoppel Certificate, dated the Closing
Date, and in the form of Exhibit J hereto.
(n) Consents and Approvals. All consents and approvals of any third
parties required in connection with the execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby shall have been
obtained and delivered to the Purchaser.
(o) No Litigation. No action, suit or proceeding shall be pending or
threatened by or before any court or governmental body in which an unfavorable
judgment, order or decree would prevent any of the transactions contemplated
hereby or cause any such transaction to be declared unlawful or rescinded or
which could reasonably be expected to materially and adversely affect the
assets, financial condition or results of operations of the Company, and no
temporary restraining order or injunction shall have been issued by any such
court or governmental authority restraining or prohibiting the performance of
this Agreement or the consummation of any of the transactions contemplated
hereby.
(p) Payment of Fees. The Company shall have paid the estimated fees and
disbursements of Pircher, Nichols & Meeks, special counsel to the Purchaser,
through the Closing Date.
(q) Delivery of Certificates. The Company shall have delivered to the
Purchaser the certificate(s) representing the Closing Shares in accordance with
the provisions of Section 2.01.
(r) Proceedings and Documents. All corporate and other proceedings to be
taken by the Company or the Stockholder in connection with this Agreement and
the consummation of the transactions contemplated hereby and all documents and
instruments delivered by the Company or the Stockholder in connection therewith
shall be in form and substance reasonably satisfactory to the Purchaser and its
counsel, and the Purchaser shall have received such other documents and
instruments as it may reasonably request in connection therewith.
ARTICLE 6. CONDITIONS PRECEDENT TO THE OBLIGATIONS
OF THE COMPANY
<PAGE>
6.01 CLOSING. The obligation of the Company to sell the Closing Shares is
subject to the satisfaction at or prior to the Closing Date of each of the
following conditions (compliance with which or the occurrence of which may be
waived in whole or in part by the Company):
(a) Accuracy of Representations and Warranties. The representations and
warranties of the Purchaser contained herein shall be true and correct on and as
of the Closing Date with the same force and effect as though made on and as of
the Closing Date.
(b) Consideration. The Purchaser shall have tendered the purchase price
for the Closing Shares in accordance with the provisions of Section 2.01.
ARTICLE 7. COVENANTS
7.01 AFFIRMATIVE COVENANTS. The Company covenants and agrees that until the
earlier of (1) the consummation of a Qualified Public Offering and (2) the date
that the Holders of Registrable Securities hold fewer than 250,000 Shares:
(a) Corporate Existence. The Company will, and will cause each of its
subsidiaries (if any) at all times to maintain, preserve and renew its
respective corporate existence, rights and franchises and all licenses and other
rights to use patents, processes, licenses, trademarks, trade names, or
copyrights owned or possessed by it and deemed by the Company to be necessary to
the conduct of its business except that the Company may dissolve Ontco.
(b) Financial Statements. (1) as soon as practicable after the end of each
fiscal year of the Company, and in any event within 90 days thereafter, (A) a
consolidated balance sheet of the Company and its subsidiaries, if any, as at
the end of such fiscal year, and consolidated statements of income and cash
flows of the Company and its subsidiaries, if any, for such year, prepared in
accordance with generally accepted accounting principles consistently applied
and setting forth in each case in comparative form the figures for the previous
fiscal year, all in reasonable detail and certified by independent public
accountants selected by the Company and reasonably acceptable to the Purchaser;
(B) a comparison of the financial statements for the most recent fiscal year to
the financial plan required by Section 7.01 (c) hereof and (2) as soon as
practicable after the end of the first, second and third quarterly accounting
periods in each fiscal year of the Company, and in any event within 45 days
thereafter, a consolidated balance sheet of the Company and its subsidiaries, if
any, as of the end of each such quarterly period, and consolidated statements of
income and cash flows of the Company and its subsidiaries, if any, for such
period and for the current fiscal year to date, prepared in accordance with
generally accepted accounting principles consistently applied and setting forth
in comparative form the
<PAGE>
figures for the corresponding periods of the previous fiscal year and to the
Company's financial plan required by Section 7.01(c) hereof, subject to changes
resulting from normal year-end audit adjustments, all in reasonable detail and
certified by the principal financial or accounting officer of the Company,
except that such financial statements need not contain the notes required by
generally accepted accounting principles; (C) as soon as practicable after the
end of each month and in any event within 30 days thereafter, a consolidated
balance sheet of the Company and its subsidiaries, if any, as at the end of such
month and consolidated statements of income and cash flows for the Company and
its subsidiaries, if any, for such month and for the current fiscal year of the
Company to date, all subject to year-end audit adjustments, prepared in
accordance with generally accepted accounting principles consistently applied
and certified by the principal financial or accounting officer of the Company,
except that such financial statements need not contain the notes required by
generally accepted accounting principles: and (D) with reasonable promptness,
such other information and data with respect to the Company and its subsidiaries
(if any) as any Holder may from time to time reasonably request.
(c) Annual Budget. At least 60 days prior to the beginning of each fiscal
year of the Company, the Company shall furnish to each Holder a financial plan
of the Company for such fiscal year, which financial plan shall include at least
a projection of income and a projected cash flow statement for each fiscal
quarter in such fiscal year and a projected balance sheet as of the end of each
fiscal quarter in such fiscal year.
(d) Inspection. The Company shall permit each Holder and its
representatives, counsel and accountants to visit and inspect the Company's and
its subsidiaries' (if any) properties, to examine the Company's and its
subsidiaries' (if any) books of account and records (including, without
limitation, working papers), and to discuss the Company's and its subsidiaries'
(if any) affairs, finances and accounts with their respective officers, all at
such reasonable times as may be requested by such Holder. The foregoing rights
shall be in addition to all shareholder rights conferred by law.
(e) Taxes. The Company will, and will cause each subsidiary (if any) to,
promptly pay and discharge, or cause to be paid and discharged, when due and
payable, all taxes, assessments and governmental charges or levies imposed upon
its income, profits, property, or business; provided, however, that any such
tax, assessment, charge, or levy need not be paid if the validity thereof shall
currently be contested in good faith by appropriate proceedings and if adequate
reserves are established therefor in accordance with generally accepted
accounting principles, and provided further, that the Company or any such
subsidiary shall pay all such taxes, assessments, charges, or levies forthwith
upon the
<PAGE>
commencement of proceedings to foreclose any lien that may have attached as
security therefor.
(f) Maintenance of Properties. The Company will, and will cause each of
its subsidiaries (if any) to, maintain their respective properties in good
repair, working order, and condition, reasonable wear and tear excepted, and
from time to time make all needful and proper repairs, renewals, replacements,
additions, and improvements thereto. The Company will, and will cause each of
its subsidiaries (if any) to, at all times comply with the provisions of all
material leases to which it is a party or under which it occupied property so as
to prevent any loss or forfeiture thereof or thereunder.
(g) Insurance. The Company will, and will cause each of its subsidiaries
(if any) to, keep its assets that are of an insurable character insured by
financially sound and reputable insurers against loss or damage by fire,
extended coverage, and explosion insurance in amounts customary for companies in
similar businesses similarly situated. The Company will, and will cause each of
its subsidiaries (if any) to, maintain with financially sound and reputable
insurers, insurance against other hazards, risks, and liabilities to persons and
property to the extent and in the manner customary for companies in similar
businesses similarly situated.
(h) Key-person Life Insurance. If requested by the Purchaser, the Company
shall obtain from financially sound and reputable insurers term life insurance
on the life of Gerald D. Appel in the amount of $1,000,000 and on the life of
Daniel J. Levendowski in the amount of $1,000,000 and maintain such insurance
unless otherwise agreed by the Purchaser. Such policies shall name the Company
as loss payee and shall not be cancellable by the Company without the prior
written approval of the Purchaser.
(i) Books and Records. The Company will, and will cause each of its
subsidiaries (if any) to, keep true records and books of account in which full,
true and correct entries will be made of dealings and transactions in relation
to its business and affairs in accordance with generally accepted accounting
principles applied on a consistent basis.
(j) Compliance. The Company will, and will cause each of its subsidiaries
(if any) to, duly observe and conform to all valid requirements of governmental
authorities relating to the conduct of its business or to its property or
assets.
(k) Use of Proceeds. The proceeds from the sale of the Closing Shares and
the Additional Shares will be used for general corporate purposes.
Notwithstanding the foregoing, none of such proceeds will be used to pay all or
any part of the promissory notes described in Schedule 3.11 hereto.
<PAGE>
7.02 Negative Covenants. The Company covenants and agrees that until the
earlier of (1) the consummation of a Qualified Public Offering and (2) the date
that the Holders of Registrable Securities hold fewer than 250,000 Shares:
(a) Amendments. The Company will not amend or permit any amendment of its
Articles of Incorporation. The Company will not amend or permit any amendment
of its By-Laws in any manner which would be materially adverse to the interests
of the Holders of Registerable Securities.
(b) Additional Stock. The Company will not authorize or issue any other
class or series of stock in addition to Common Stock.
(c) Dividends; Purchases. The Company will not, and will not permit any of
its subsidiaries (if any) to, redeem, retire, purchase or otherwise acquire any
shares of the Common Stock of the Company, and the Company will not declare or
pay any dividend or make any other distribution on its Common Stock other than
dividends payable solely in Common Stock and cash dividends payable out of
retained earnings.
(d) Loans and Investments. The Company will not make, and will not permit
any of its subsidiaries (if any) to make, any loan or advance to, or own any
stock or other securities of, any subsidiary or other corporation, partnership,
or other entity unless it is wholly owned, directly or indirectly, by the
Company.
(e) Loans and Advances. The Company will not, and will not permit any of
its subsidiaries to, make any loan or advance to any Person, including, without
limitation, any employee, officer, director or shareholder of the Company or any
of its subsidiaries, except for advances for reimbursable expenses to be
incurred by any such employee, officer, or director.
(f) Guaranties. The Company will not, and will not permit any of its
subsidiaries to, directly or indirectly, guaranty any indebtedness or other
obligations of any Person.
(g) Merger. The Company will not, and will not permit any of its
subsidiaries (if any) to, merge with or into or consolidate with any other
corporation or entity except that (i) any wholly-owned subsidiary of the Company
may be merged with or consolidated into any other wholly-owned subsidiary and
(ii) any wholly-owned subsidiary of the Company may be merged with or
consolidated into the Company, provided that the Company shall be the surviving
or resulting corporation.
(h) Sale of Assets. The Company will not, and will not permit any of its
subsidiaries (if any) to, sell, lease or otherwise dispose of, in any one
transaction or in a series of related transactions, all or a substantial portion
of its assets.
<PAGE>
(i) Compensation. The Company will not pay any salaries, bonuses,
retirement benefits or other remuneration or grant any stock options, stock
bonuses, or stock purchase plan rights to any Significant Stockholder of the
Company or any subsidiary of the Company or any Affiliate of any of the
foregoing except as approved by the unanimous vote of a Compensation Committee
consisting of two certified public accountants and Howard Fullman (or if he is
unable or unwilling to serve, a successor approved by the Company and the
Purchaser).
(j) Partnerships, etc. The Company will not and will not permit any
subsidiary to enter into any partnership, joint venture or other similar
arrangement for the sharing of income, profits or expenses, with any Person
except that the foregoing shall not prohibit (1) the payment of commissions or
other compensation to sales representatives and agents or (2) other contracts
(other than any direct or indirect debt or equity financing) entered into by the
Company in the ordinary course of business.
(k) Other Investors. The Company will not agree to affirmative or negative
covenants more favorable to an equity investor in the Company than those
contained in this Article 7.
ARTICLE 8. REGISTRATION UNDER THE SECURITIES ACT
8.01 NOTICE OF PROPOSED DISPOSITIONS. The Holder of each certificate
representing Restricted Securities by acceptance thereof agrees to comply in all
respects with the provisions of this Section 8.01. Prior to any proposed
disposition of any Restricted Securities (unless there is in effect a
registration statement under the Securities Act covering such proposed
disposition and such disposition is made in accordance with such registration
statement) the holder thereof shall give written notice to the Company of such
Holder's intention to effect such disposition. Each such notice shall describe
the manner and circumstances of the proposed disposition, and shall be
accompanied (except in transactions intended to comply with Rule 144) by either
(a) a written opinion of legal counsel addressed to the Company and reasonably
satisfactory in form and substance to the Company, to the effect that the
proposed disposition of Restricted Securities may be effected without
Registration of such Restricted Securities or (b) a "no action" letter from the
Commission to the effect that such disposition without Registration of such
Restricted Securities will not result in a recommendation by the staff of the
Commission that enforcement action be taken with respect thereto, whereupon the
Holder of such Restricted Securities shall be entitled to transfer such
Restricted Securities in accordance with the terms of the notice delivered by
the Holder to the Company. Each certificate evidencing the Restricted Securities
disposed of as above provided shall bear the legend set forth in Section 4.06 of
this Agreement, except that such certificate shall not bear such legend if (1)
the opinion of counsel referred to above is to the further effect that
<PAGE>
such legend is not required in order to establish compliance with any provisions
of the Securities Act, (2) the transfer is in connection with a transaction
intended to comply with Rule 144, or (3) an appropriate registration statement
with respect to such Restricted Securities has been filed by the Company with
the Commission and has been declared effective by the Commission; in those
events, the Company shall cause new legended certificates to be issued promptly
to the Holder in exchange for outstanding legended certificates.
8.02 COMPANY REGISTRATION.
(a) If at any time, or from time to time, the Company shall determine to
Register any of its securities either for its own account or for the account of
any holder of its securities (including a Holder) (other than pursuant to
Section 8.03 or 8.05 hereof), other than a Registration relating solely to
employee benefit plans, or a Registration relating solely to a Rule 145
transaction or a Registration on any Registration form that does not permit
secondary sales, the Company will:
(1) promptly give to each Holder written notice thereof;
(2) include in such Registration (and any related qualification
under Blue Sky Laws or other compliance), and in any underwriting
involved therein, all the Registrable Securities specified in a
written request or requests made within 20 days after receipt of
such written notice from the Company, by any Holder or Holders,
except as set forth in Section 8.02(b) hereof. Any such written
request may specify all or a part of a Holder's Registrable
Securities.
(b) If the Registration of which the Company gives notice is for a
Registered public offering involving an underwriting, the Company shall so
advise the Holders as part of the written notice given pursuant to Section
8.02(a) hereof. In such event, the right of a Holder to Registration pursuant
to this Section 8.02 shall be conditioned upon such Holder's participation in
such underwriting and the inclusion of such Holder's Registrable Securities in
the underwriting to the extent provided herein. All Holders proposing to
distribute their Registrable Securities through such underwriting shall
(together with the Company and the other holders of securities of the Company
with registration rights to participate therein distributing their securities
through such underwriting) enter into an underwriting agreement in customary
form with the underwriter or underwriters selected for such underwriting by the
Company. Notwithstanding any other provision of this Section 8.02, if the
underwriter advises the Company in writing that marketing factors require a
limitation on the number
<PAGE>
of shares to be underwritten, the underwriter may limit the amount of
Registrable Securities to be included in the Registration and underwriting, and
the number of shares to be included in such underwriting or Registration shall
be allocated as set forth in Section 13 hereof.
8.03 DEMAND REGISTRATION.
(a) At any time following the earlier of (1) December 23, 1999, and (2)
one year after the effective date of the first registration statement filed by
the Company covering an underwritten offering of any of its securities to the
public, if the Company shall receive a written request (specifying that it is
being made pursuant to this Section 8.03) from any Holder or Holders that the
Company file a registration statement under the Securities Act covering the
Registration of at least 50% of the Registrable Securities, then the Company
shall promptly notify all other Holders of such request and shall use its best
efforts to cause all Registrable Securities that Holders have requested within
20 days after receipt of the Company's notice to be registered under the
Securities Act. The Company shall be obligated to effect no more than two
Registrations pursuant to this Section 8.03 and the Company shall not be
obligated to effect any Registration pursuant to this Section 8.03 if the
written request therefor is made within 12 months following the effective date
of any previous registration statement filed by the Company pursuant to this
Section 8.03.
(b) Notwithstanding the foregoing, the Company shall not be obligated to
effect a Registration pursuant to Section 8.03(a) with respect to a proposed
distribution of Registrable Securities by a Holder thereof (1) during the period
starting with the date 30 days prior to the Company's estimated date of filing
of, and ending on a date 90 days following the effective date of, a registration
statement pertaining to an underwritten public offering of securities for the
account of the Company, provided that the Company is actively employing in good
faith all reasonable efforts to cause such registration statement to become
effective and that the Company's estimate of the date of filing of such
Registration is made in good faith; (2) within a period of 180 days after the
effective date of any previous Registration by the Company with respect to which
Holders of Registrable Securities were given the opportunity pursuant to this
Article 8 of this Agreement, to include therein all Registrable Securities which
were requested to be included therein; (3) if the Holders propose to dispose of
Registrable Securities which may be immediately registered on Form S-3 pursuant
to a request made under Section 8.05 hereof; or (4) if (i) in the good faith
judgment of the Board of Directors of the Company, such Registration would be
seriously detrimental to the Company and the Board of Directors of the Company
concludes, as a result, that it is essential to defer the filing of a
registration statement with respect to such Registration at such time, and (ii)
<PAGE>
the Company shall furnish to the Holders requesting such Registration a
certificate signed by the President of the Company stating that in the good
faith judgment of the Board of Director of the Company it would be seriously
detrimental to the Company for such registration statement to be filed in the
near future, and that it is, therefore essential to defer such filing (except as
provided in clause (1) above) for a period of not more than 180 days after the
receipt of the such request, and provided further, that the Company may not
defer its obligation in the manner provided in this clause (4) more than once in
any 12-month period.
(c) Any Registration statement filed pursuant to this Section 8.03 may,
subject to the provisions of Section 8.13 hereof, include other securities of
the Company with respect to which registration rights have been granted.
8.04 EXPENSES OF REGISTRATION. All Registration Expenses incurred in
connection with any Registration, qualification or compliance pursuant to
Sections 8.02, 8.03 and 8.04 hereof, shall be borne by the Company. All Selling
Expenses relating to the Registrable Securities so Registered shall be borne by
the Holders of such Registrable Securities pro rata on the basis of the number
of shares of Registrable Securities so Registered on their behalf.
8.05 REGISTRATION ON FORM S-3. After its initial public offering, the
Company shall use its best efforts to quality for registration on Form S-3 or
any comparable or successor form or forms. After the Company has qualified for
the use of Form S-3, in addition to the rights contained in the foregoing
provisions of this Article 8, the Holders of Registrable Securities shall have
the right to request registrations on Form S-3 (such requests shall be in
writing and shall state the number of shares of Registrable Securities to be
disposed of and the intended methods of disposition of such shares by such
Holder or Holders), provided, however, that the Company shall not be obligated
to effect any such Registration if (1) the Company shall have delivered to such
Holder an opinion of counsel to the Company, addressed to such Holder and
reasonably satisfactory in form and substance to such Holder to the effect that
such Registrable Securities proposed to be included may lawfully be so disposed
of without Registration or (2) within a period of 180 days after the effective
date of any previous such Registration. If a request complying with the
requirements of this Section 8.04 is delivered to the Company, the provisions of
Section 8.03(a) shall apply to such Registration.
8.06 REGISTRATION PROCEDURES. In the case of each Registration effected by
the Company pursuant to this Article 8, the Company will keep each Holder
advised in writing as to the initiation of each registration and as to the
completion thereof. At its expense, the Company will:
<PAGE>
(a) Keep such registration effective for a period of 180 days or until the
Holder or Holders have completed the distribution described in the registration
statement relating thereto, whichever first occurs; provided, however, that (i)
such 180-day period shall be extended for a period of time equal to the period
the Holder refrains from selling any securities included in such Registration at
the request of an underwriter of Common Stock (or other securities) of the
Company; and (ii) in the case of any registration of Registrable Securities on
Form S-3 which are intended to be. offered on a continuous or delayed basis,
such 180-day period shall be extended, if necessary, to keep the registration
statement effective until all such Registrable Securities are sold, provided
that Rule 145, or any successor rule under the Securities Act, permits an
offering on a continuous or delayed basis, and provided further that applicable
rules under the Securities Act governing the obligation to file a post-effective
amendment permit, in lieu of filing a post-effective amendment that (1) includes
any prospectus required by Section 10(a)(3) of the Securities Act or (2)
reflects facts or events representing a material or fundamental change in the
information set forth in the registration statement, the incorporation by
reference of information required to be included in (1) and (2) above to be
contained in periodic reports filed pursuant to Section 13 or 15(d) of the
Exchange Act in the registration statement;
(b) Prepare and file with the Commission such amendments and supplements
to such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement;
(c) Furnish such number of prospectuses and other documents incident
thereto, including any amendment of or supplement to the prospectus, as a Holder
from time to time may reasonably request;
(d) Register or qualify the securities covered by such registration
statement under the Blue Sky Laws of such jurisdictions as shall be reasonably
appropriate for the distribution of the securities covered thereby;
(e) At the time when any Registration statement pursuant to this Section 8
becomes effective, and at the time when any post-effective amendment thereto
becomes effective, furnish to the Holder or Holders of the Registrable
Securities being registered under such Registration statement, an opinion of
counsel satisfactory to such Holder or Holders to the effect that (1) to the
best knowledge of such counsel, no stop order suspending the effectiveness of
the Registration statement has been issued and no proceedings for that purpose
have been instituted or are pending or contemplated under the Securities Act,
(2) the Registration statement and the prospectus, and each amendment or
supplement
<PAGE>
thereto, as of their respective effective or issue dates, comply as to form in
all material respects with the requirements of the Securities Act, (3) such
counsel has no reason to believe that the Registration statement, the
prospectus, or any amendment or supplement thereto, as of their respective
dates, contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and (4) the descriptions in the Registration statement,
the prospectus and any amendment or supplement thereto of statutes, legal and
governmental proceedings, and contracts or other documents are accurate and
fairly present the information required to be shown, and such counsel does not
know of any legal or governmental proceedings required to be described in the
Registration statement, the prospectus or any amendment or supplement thereto
which are not described as required, nor of any contracts or documents of a
character required to be described in the Registration statement or prospectus
or any amendment or supplement thereto, or to be filed as exhibits to the
Registration statement which are not described and filed as required, provided
that such counsel need not express any opinion as to the financial statements
and schedules included in or omitted from any such Registration statement,
prospectus or amendment or supplement thereto.
(f) Notify each seller of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading or incomplete in the light of the
circumstances then existing, and at the request of any such seller, prepare and
furnish to such seller a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such shares, such prospectus shall not include an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make such statements therein not misleading or
incomplete in the light of the circumstances then existing;
(g) Cause all such Registrable Securities registered pursuant hereunder to
be listed on each securities exchange on which similar securities issued by the
Company are then listed;
(h) Provide a transfer agent and registrar for all Registrable Securities
registered pursuant to such registration statement and a CUSIP number for all
such Registrable Securities, in each case not later than the effective date of
such registration;
<PAGE>
(i) Otherwise use its best efforts to comply with all applicable rules and
regulations of the Commission, and make available to its security holders, as
soon as reasonably practicable, an earnings statement covering the period of at
least twelve months, but not more than eighteen months, beginning with the first
month after the effective date of the registration statement, which earnings
statement shall satisfy the provisions. of Section 11(a) of the Securities Act;
and
(j) In connection with any underwritten offering pursuant to a
registration statement filed pursuant to Section 8.03 hereof, the Company will
enter into an underwriting agreement in form reasonably necessary to effect the
offer and sale of Common Stock, provided such underwriting agreement contains
customary underwriting provisions and provided further than if the underwriter
so requests the underwriting agreement will contain customary contribution
provisions.
8.07 FURNISH INFORMATION. The Holder or Holders of Registrable Securities
included in any Registration shall furnish to the Company such information
regarding such Holder or Holders and the distribution proposed by such Holder or
Holders as the Company may request in writing and as shall be reasonably
required in connection with any Registration, qualification or compliance
referred to in this Article 8.
8.08 INDEMNIFICATION.
(a) The Company will indemnify each Holder, each of its officers,
directors and partners, legal counsel, and accountants and each Person
controlling such Holder within the meaning of Section 15 of the Securities Act,
with respect to which Registration, qualification, or compliance has been
effected pursuant to this Article 8; and each underwriter, if any, and each
Person who controls within the meaning of Section 15 of the Securities Act any
underwriter, against all expenses, claims, losses, damages, and liabilities (or
actions, proceedings, or settlements in respect thereof) arising out of or based
on any untrue statement (or alleged untrue statement) of a material fact
contained in any prospectus, offering circular, or other document (including any
related registration statement, notification, or the like) incident to any such
registration, qualification, or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or any violation by the
Company of the Securities Act or any rule or regulation thereunder applicable to
the Company and relating to action or inaction required of the Company in
connection with any such Registration, qualification, or compliance, and will
reimburse each such Holder, each of its officers, directors, partners, legal
counsel, and accountants and each person controlling such Holder, each such
underwriter, and each Person who controls any such
<PAGE>
underwriter, for any legal and any other expenses reasonably incurred in
connection with investigating and defending or settling any such claim, loss,
damage, liability, or action, provided that the Company will not be liable in
any such case to the extent that any such claim, loss, damage, liability, or
expense arises out of or is based on any untrue statement or omission based upon
written information furnished to the Company by such Holder or underwriter and
stated to be specifically for use therein. It is agreed that the indemnity
agreement contained in this Section 8.08(a) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability, or action if such
settlement is effected without the consent of the Company (which consent has not
been unreasonably withheld).
(b) Each Holder will, if Registrable Securities held by such Holder are
included in the securities as to which such Registration, qualification, or
compliance is being effected, indemnify the Company, each of its directors,
officers, partners, legal counsel, and accountants and each underwriter, if any,
of the Company's securities covered by such a registration statement, each
Person who controls the Company of such underwriter within the meaning of
Section 15 of the Securities Act, each other such Holder, and each of their
officers, directors, and partners, and each person controlling such Holder
against all claims, losses, damages and liabilities (or actions in respect
thereof) arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any such registration statement,
prospectus, offering circular, or other document, or any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse the
Company and such Holders, directors, officers, partners, legal counsel, and
accountants, persons, underwriters, or control persons for any legal or any
other expenses reasonably incurred in connection with investigating or defending
any such claim, loss, damage, liability, or action, in each case to the extent,
but only to the extent, that such untrue statement (or alleged untrue statement)
or omission (or alleged omission) is made in such registration statement,
prospectus, offering circular, or other document in reliance upon and in
conformity with written information furnished to the Company by such Holder and
stated to be specifically for use therein provided, however, that the
obligations of such Holder hereunder shall not apply to amounts paid in
settlement of any such claims, losses, damages, or liabilities (or actions in
respect thereof) if such settlement is effected without the consent of such
Holder (which consent shall not be unreasonably withheld); and provided that in
no event shall any indemnity under this Section 8.08(b) exceed the gross
proceeds from the offering received by such Holder.
(c) Each party entitled to indemnification under this Section 8.08 (the
"Indemnified Party") shall give notice to the party required to provide
indemnity (the "Indemnifying Party") promptly
<PAGE>
after such Indemnified Party has actual knowledge of any claim as to which
indemnity may be sought, and shall permit the Indemnifying Party to assume the
defense of such claim or any litigation resulting therefrom, provided that
counsel for the Indemnifying Party, who shall conduct the defense of such claim
or any litigation resulting therefrom, shall be approved by the Indemnified
Party (whose approval shall not unreasonably be withheld), and the Indemnified
Party may participate in such defense at such party's expense, and provided
further that the failure of any Indemnified Party to give notice as provided
herein shall not relieve the Indemnifying Party of its obligations under this
Article 8, to the extent such failure is not prejudicial. No Indemnifying Party,
in the defense of any such claim or litigation, shall, except with the consent
of each Indemnified Party, consent to entry of any judgment or enter into any
settlement that does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such Indemnified Party of a release from all
liability in respect to such claim or litigation. Each Indemnified Party shall
furnish such information regarding itself or the claim in question as an
Indemnifying Party may reasonably request in writing and as shall be reasonably
required in connection with defense of such claim and litigation resulting
therefrom.
(d) If the indemnification provided for in this Section 8.08 is held by a
court of competent jurisdiction to be unavailable to an Indemnified Party with
respect to any loss, liability, claim, damage, or expense referred to therein,
then the Indemnifying Party, in lieu of indemnifying such Indemnified Party
hereunder, shall contribute to the amount paid or payable by such Indemnified
Party hereunder as a result of such loss, liability, claim, damage, or expense
in such proportion as is appropriate to reflect the relative fault of the
Indemnifying Party on the one hand and of the Indemnified Party on the other in
connection with the statements or omissions that resulted in such loss,
liability, claim, damage, or expense as well as any other relevant equitable
considerations. The relative fault of the Indemnifying Party and of the
Indemnified Party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
Indemnifying Party or by the Indemnified Party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
(e) The obligations of the parties under this Section 8.08 shall survive
the completion of the offering of Registrable Securities under the registration
statement and otherwise.
8.09 LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. From and after the date
of this Agreement, the Company shall not, without the prior written consent of a
majority in interest of the Holders, enter into any agreement with any holder or
prospective holder of any securities of the Company giving such holder or
prospective
<PAGE>
holder any registration rights the terms of which are more favorable than the
registration rights granted to the Holders hereunder.
8.10 RULE 144 REPORTING. With a view to making available to the Holders the
benefits of certain rules and regulations of the Commission that may permit the
sale of the Restricted Securities to the public without registration, the
Company agrees, so long as any Holder owns Registrable Securities:
(a) Make and keep public information regarding the Company available as
those terms are understood and defined in Rule 144 under the Securities Act, at
all times from and after 90 days following the effective date of the first
Registration under the Securities Act filed by the Company for a public offering
of its securities;
(b) File with the Commission in a timely manner all reports and other
documents required of the company under the Securities Act and the Exchange Act
at any time after it has become subject to such reporting requirements;
(c) Furnish to the Holder forthwith upon written request a written
statement by the Company as to its compliance with the reporting requirements of
Rule 144 (at any time from and after 90 days following the effective date of the
first registration statement filed by the Company for an offering of its
securities to the general public), and of the Securities Act and the Exchange
Act (at any time after it has become subject to such reporting requirements), a
copy of the most recent annual or quarterly report of the Company, and such
other reports and documents so filed as a Holder may reasonably request in
availing itself of any rule or regulation of the Commission allowing a Holder to
sell any such securities without registration.
8.11 TRANSFER OR ASSIGNMENT OF REGISTRATION RIGHTS. The rights of any
Holder under this Agreement including, without limitation, the registration
rights under Article 8 and the rights of first refusal under Article 9 may be
transferred or assigned by a Holder only to a transferee or assignee of not less
than 25,000 shares of Registrable Securities (as presently constituted and
subject to subsequent adjustments for stock splits, stock dividends, reverse
stock splits, and the like), provided that the Company is given written notice
at the time of or within a reasonable time after said transfer or assignment,
stating the name and address of the transferee or assignee and identifying the
securities with respect to which such registration rights are being transferred
or assigned.
8.12 LOCKUP AGREEMENT. The Holder of each certificate representing
Registrable Securities by acceptance thereof agrees in connection with any
Registration of the Company's securities that,
<PAGE>
upon the request of the Company or the underwriter(s) managing any underwritten
offering of the Company's securities, not to sell, make any short sale of, loan,
grant option for the purchase of, or otherwise dispose of any Registrable
Securities (other than those included in such Registration) without the prior
written consent of the Company or such underwriter(s), as the case may be, for
such period of time (not to exceed 180 days) from the effective date of such
Registration as the Company or the underwriter(s) may specify, provided that all
Holders and officers and directors of the Company are bound by and have entered
into similar agreements. The obligations described in this Section 8.12 shall
not apply to a Registration relating solely to employee benefit plans on Form
S-1 or S-8 or similar forms that may be promulgated in the future or a
Registration relating solely to a Rule 145 transaction on Form S-4 or any
similar form promulgated in the future.
8.13 ALLOCATION OF REGISTRATION OPPORTUNITIES. In any circumstance in which
all of the Registrable Securities and other shares of Common Stock of the
Company (including shares of Common Stock issued or issuable upon conversion of
shares of any currently unissued series of Preferred Stock of the Company) with
Registration rights (the "Other Shares") requested to be included in a
Registration on behalf of the Holders or other selling stockholders cannot be so
included as a result of limitations on the aggregate number of shares of
Registrable Securities and Other Shares that may be so included, the number of
shares of Registrable Securities and Other Shares that may be so included shall
be allocated among the Holders and other selling stockholders requesting
inclusion of shares pro rata based upon total number of shares requested to be
so included. In the event a Holder or other selling stockholder subsequently
withdraws or reduces a request for inclusion in such Registration, the number of
shares which may be so included shall be re-allocated in the same manner. The
Company may not limit the number of Registrable Securities to be included in a
Registration pursuant to this Agreement in order to accommodate the request of
any Significant Stockholder to include more than 25% (prior to the application
of the pro rata allocations provided for above) of the shares of Common Stock
held by such Significant Stockholder, or with respect to Registrations under
Section 8.03 or 8.06 hereof, in order to include in such Registration securities
registered for the Company's own account.
8.14 DELAY OF REGISTRATION. No Holder shall have any right to take any
action to restrain, enjoin, or otherwise delay any registration as the result of
any controversy that might arise with respect to the interpretation or
implementation of this Article 8.
8.15 SUSPENSION OF REGISTRATION RIGHTS. Except as set forth in subparagraph
(b) below, no Holder may request Registration pursuant to Section 8.03 at any
time that all Registrable Securities held by such Holder may immediately be sold
under Rule 144 during any 90-day period, provided, however, that the foregoing
shall not be
<PAGE>
applicable in the case of any Holder who owns more than 2% of the outstanding
Common Stock of the Company.
(b) The provisions of subparagraph (a) above shall not apply to any Holder
who owns more than 2% of the Company's outstanding Common Stock at the time of
determination.
8.14 PRIOR AGREEMENT. If the Closing occurs, effective from and after the
Closing Date, the provisions of this Article 8 shall supersede the provisions of
Article 8 of the Prior Agreement.
ARTICLE 9. RIGHT OF FIRST REFUSAL
9.01 RIGHT OF FIRST REFUSAL. The Company hereby grants to each Holder who
owns any Registrable Securities the right of first refusal to purchase a pro
rata share of New Securities (as defined in this Section 9.O1) which the Company
may, from time to time, propose to sell and issue. A Holder's pro rata share,
for purposes of this right of first refusal, is the ratio of the number of
shares of Common Stock owned by such Holder immediately prior to the issuance of
New Securities, assuming full conversion of all outstanding securities
convertible into Common Stock and exercise of any option or warrant to purchase
Common Stock held by said Holder, to the total number of shares of Common Stock
outstanding immediately prior to the issuance of New Securities, assuming full
conversion of all securities convertible into Common Stock and exercise of all
outstanding rights, options and warrants to acquire Common Stock. Each Holder
shall have a right of over-allotment such that if any Holder fails to exercise
its right hereunder to purchase its pro rata share of New Securities, the other
Holders may purchase the non-purchasing Holder's portion on a pro rata basis
within ten days from the date such non-purchasing Holder fails to exercise its
right hereunder to purchase its pro rata share of New Securities. This right of
first refusal shall be subject to the following provisions:
(a) "New Securities" shall mean any capital stock (including Common Stock
and/or Preferred Stock) of the Company whether now authorized or not, and
rights, options or warrants to purchase such capital stock, and securities of
any type whatsoever that are, or may become, convertible into capital stock;
provides that the term "New Securities" does not include (1) securities issued
upon exercise of the Series A Warrant, the Series B Warrant or the Series C
Warrant; (2) securities issued upon the exercise of any warrants or options
described in Exhibit E hereto; (3) any borrowings, direct or indirect, from
financial institutions or other Persons by the Company, whether or not presently
authorized, including any type of loan or payment evidenced by any type of debt
instrument, provided such borrowings do not have any equity features including
warrants, options or other rights to purchase capital stock and are not
convertible into capital stock of the Company; (4) not in excess of an aggregate
of 400,000 shares of
<PAGE>
Common Stock issued to employees, consultants, officers or directors of the
Company pursuant to any stock option, stock purchase or stock bonus plan,
agreement or arrangement approved by the Board of Directors; (5) securities
issued in connection with any stock split, stock dividend or recapitalization of
the Company; and (6) any right, option or warrant to acquire any security
convertible into the securities excluded from the definition of New Securities
pursuant to subsections (1) through (5) above.
(b) In the event the Company proposes to undertake an issuance of New
Securities, it shall give each Holder written notice of its intention,
describing the type of New Securities, and their price and the general terms
upon which the Company proposes to issue the same. Each Holder shall have 20
days after receipt of such notice to agree to purchase such Holder's pro rata
share of such New Securities for the price and upon the terms specified in the
notice by giving written notice to the Company and stating therein the quantity
of New Securities to be purchased.
(c) In the event the Holders fail to exercise the right of first refusal
within said 20-day period and after the expiration of the ten-day period for the
exercise of the over-allotment provisions of this Section 9.01, the Company
shall have 120 days thereafter to sell or enter into an agreement (pursuant to
which the sale of New Securities covered thereby shall be closed, if at all,
within 120 days from the date of said agreement) to sell the New Securities
respecting which the Holders' right of first refusal option set forth in this
Section 9.01 was not exercised, at a price and upon terms no more favorable to
the purchasers thereof than specified in the Company's notice to Holders
pursuant to subsection (b) above. In the event the Company has not sold within
said 120-day period or entered into an agreement to sell the New Securities in
accordance with the foregoing within 120 days from the date of said agreement,
the Company shall not thereafter issue or sell any New Securities, without first
again offering such securities to the Holders in the manner provided in
subsection (b) above.
(d) The right of first refusal granted under this Agreement shall expire
upon, and shall not be applicable to, the first Qualified Public Offering
provided that the Holders are offered the opportunity to purchase, in whole or
in part, 10% of the Common Stock being sold in such sale.
9.02 PRIOR AGREEMENT. If the Closing occurs, effective from and after the
Closing Date, the provisions of this Article 9 shall supersede the provisions of
Article 9 of the Prior Agreement.
ARTICLE 10. MISCELLANEOUS PROVISIONS
10.01 SURVIVAL. All covenants, agreements, representations and
warranties of the Company, the Stockholder and the Purchaser contained in or
made pursuant to this Agreement shall survive the
<PAGE>
Closing and the sale, issuance and delivery of the Purchased Shares
notwithstanding any investigation made by or on behalf of the Purchaser, the
Company or the Stockholder.
10.02. AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived (either generally
or in a particular instance and either retroactively or prospectively), only
with the written consent of the Company and the Holders of 662/3% or more of the
Registerable Securities, provided that no consent under this Section 10.02 shall
alter the provisions of this Agreement to reduce the percentage of the
Registrable Securities which is required for any consent to any amendment or
waiver without the consent of the Holders of all Registerable Securities. Any
amendment or waiver effected in accordance with this Section 10.02 shall be
binding upon each Holder of Purchased Securities, each future Holder of
Purchased Securities and the Company.
10.03 NON-WAIVER. No failure by or neglect of any party to this
Agreement in any instance to exercise any right, power or privilege under this
Agreement or under law shall constitute a waiver of any other right, power or
privilege or of the same right, power or privilege in any other instance.
10.04 PAYMENT OF EXPENSES. Except as expressly provided in this
Agreement to the contrary, whether or not the transactions contemplated by this
Agreement are consummated, each party to this Agreement shall pay the fees and
expenses of its counsel, accountants and other experts and all other expenses
incurred by it, incident to the negotiation, preparation and execution of this
Agreement and the performance by it of its obligations hereunder except that the
Company shall pay the reasonable fees and disbursements of Pircher, Nichols &
Meeks (the "PN&M Fees"), special counsel to the Purchaser, incurred by the
Purchaser in connection with the negotiation, preparation and execution of this
Agreement.
10.05 NOTICES. All notices or other communications hereunder shall be
in writing and shall be sufficiently given for all purposes when sent by first
class United States mail, postage prepaid, registered or certified, or by any
national express air courier which courier shall maintain written verification
of actual delivery, or by delivering the same in person to any party hereto as
follows:
If to the Purchaser to:
Ontario Municipal Employees Retirement Board
One University Avenue, Suite 1000
Toronto, Ontario M5J 2P1
Canada
Attention: Peter D. Friend
<PAGE>
with a copy to:
Pircher, Nichols & Meeks
1999 Avenue of the Stars
Los Angeles, California 90067
USA
Attention: Larry M. Meeks, Esq.
If to the Company to:
Myo Diagnostics, Inc.
3710 South Robertson Boulevard, Suite 212
Culver City, California 90232 USA
Attention: Gerald D. Appel
President
or at such other address of which any such party shall have notified the party
giving such notice in writing in accordance with the foregoing requirements.
Notice so mailed shall be effective three Business Days following deposit or, if
sooner, upon receipt. Notice given in any other manner permitted herein shall be
effective only if and when received by the addressee.
10.06 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon,
inure to the benefit of, and be enforceable by, the parties hereto and their
respective successors, assigns, heirs, executors, and legal representatives but
shall not be assignable or delegable by any party without the prior written
consent of the other parties hereto except that the Purchaser may assign its
rights under this Agreement to any Affiliate of the Purchaser and as provided in
Sections 8.11 and 9.01 of this Agreement. This Agreement is not made for the
benefit of any Person not a party hereto, and no Person other than the parties
hereto or their respective successors, permitted assigns, heirs, or legal
representatives shall acquire or have any right, remedy or claim under or by
virtue of this Agreement.
10.07 SEVERABILITY. Any provision of this Agreement which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
10.08 ENTIRE AGREEMENT. This Agreement and the documents and
instruments referred to herein contain the complete agreement among the parties
with respect to the transactions contemplated hereby and supersede all previous
negotiations, understandings, agreements, or representations, written or oral,
made by or among the parties, relating thereto.
<PAGE>
10.09 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of California applicable to contracts
entered into and to be performed within such state.
10.10 HEADINGS. The headings and subheadings used in this Agreement are
for convenience of reference only and shall not affect in any way the meaning or
interpretation of this Agreement.
10.11 ATTORNEYS' FEES. If any action at law or in equity is necessary
to enforce or interpret the terms of this Agreement, the prevailing party shall
be entitled to reasonable attorneys' fees, costs and disbursements in addition
to any other relief to which such party may be entitled.
10.12 ADJUSTMENTS. In interpreting any provision of this Agreement
which refers to a specific number of shares of Purchased Securities, such number
shall be appropriately adjusted to account for stock splits, combinations and
like events which may occur from time to time.
10.13 WAIVER. The Purchaser (a) hereby waives its right of first
refusal under Article 9 of the Prior Agreement with respect to the sale of
Common Stock of the Company pursuant to the Hydra Transaction, (b) agrees and
confirms that the reduction in the exercise price under the Series A Warrants to
be effected by the Amendment to Series A Warrant substantially in the form of
Exhibit H to this Agreement shall be in lieu of any adjustment of the exercise
price under the Series A Warrant in accordance with its terms in connection with
the Hydra Transaction and (c) agrees and confirms that the reduction in the
exercise price under the Series B Warrants to be effected by the Amendment to
Series B Warrant substantially in the form of Exhibit I to this Agreement shall
be in lieu of any adjustment of the exercise price under the Series B Warrant in
accordance with its terms in connection with the Hydra Transaction.
<PAGE>
10.14 Counterparts. This Agreement may be executed in two or more
counterparts and by different parties in separate counterparts, each in which
shall be deemed an original, but all of which together shall constitute one and
the same agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first above written.
MYO DIAGNOSTICS, INC.
By /S/ GERALD D. APPEL
----------------------------
Gerald D. Appel
President
/S/ GERALD D. APPEL
-------------------------------
GERALD D. APPEL
ONTARIO MUNICIPAL EMPLOYEES
RETIREMENT BOARD
By /S/ PETER D. FRIEND
----------------------------
Peter D. Friend
Portfolio Manager
By /S/ HENRY A. RACHFALOWSKI
----------------------------
Henry A. Rachfalowski
Vice President
CONSENT
The undersigned hereby consents and agrees to the execution and delivery of
the foregoing Stock Purchase Agreement including, without limitation, any and
all provisions thereof which amend, modify, supplement or supersede any
provisions of that certain Securities Purchase Agreement, dated as of December
23, 1994, by and among Myo Diagnostics, Inc., Ontario Municipal Employees
Retirement Board, Gerald D. Appel and the undersigned.
/S/ HERSHEL TOOMIM
--------------------------------
Hershel Toomim
<PAGE>
THESE WARRANTS AND THE UNDERLYING COMMON STOCK HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 OR THE SECURITIES LAWS OF ANY STATE. THESE WARRANTS
HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE,
AND THESE WARRANTS AND THE UNDERLYING COMMON STOCK MAY NOT BE SOLD, MORTGAGED,
PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933 AND APPLICABLE STATE SECURITIES LAWS,
OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT
REQUIRED UNDER SUCH ACT OR LAWS.
MYO DIAGNOSTICS, INC.
SERIES A WARRANT
100,000 Shares of Common Stock
No. A-1 Dated: December 23, 1994
THIS CERTIFIES THAT, FOR VALUE RECEIVED, ONTARIO MUNICIPAL EMPLOYEES
RETIREMENT BOARD, or registered assigns ("Holder") is entitled to purchase, upon
the terms and subject to the provisions of this Warrant, from MYO DIAGNOSTICS,
INC., a California corporation (the "Company") 100,000 fully paid and
nonassessable shares of the Common Stock of the Company at the price of $2.50
per share at any time during the period from the date hereof to 5:00 P.M., Los
Angeles time, on December 23, 1995 (the "Expiration Date"), at which time this
Warrant shall expire and become void. The number of shares of Common Stock to be
received upon the exercise of this Warrant and the price to be paid for each
share of Common Stock shall be adjusted from time to time as hereinafter set
forth. As used herein, "Common Stock" shall mean the Company's currently
authorized Common Stock and any stock into which such Common Stock may be
exchanged, and the exercise price for a share of Common Stock in effect at any
time and as adjusted from time to time is hereinafter sometimes referred to as
the "Exercise Price". Unless the context otherwise requires, the term "Warrant",
as used herein, includes this Warrant and any other Warrant or Warrants which
may be issued pursuant to the provisions of this Warrant, whether upon transfer,
assignment, partial exercise, divisions, combinations, exchange or otherwise,
and the term "Holder" includes any transferee or transferees or assignee or
assignees of the Holder named above, all of whom shall be subject to the
provisions of this Warrant.
1. METHOD OF EXERCISE. This Warrant may be exercised in whole or in part
at any time or from time to time after the date hereof but not after the
Expiration Date by presentation and surrender hereof to the Company at 3710
South Robertson Blvd., Suite 212, Culver City, California 90232 or at such other
office as may be designated by the Company, with the Purchase Form attached
hereto duly executed and accompanied by payment to the Company by cash or check
or bank draft payable to the order of the Company, of
<PAGE>
an amount equal to the then applicable Exercise Price multiplied by the number
of shares of Common Stock specified in such Form. If this Warrant should be
exercised in part only, the Company shall, upon presentation of this Warrant
upon such exercise, execute and deliver a new Warrant evidencing the right of
the Holder hereof to purchase the balance of the shares of Common Stock
purchasable hereunder upon the same terms and conditions as herein set forth.
The Company agrees that the shares so purchased shall be deemed to be issued to
the Holder hereof as the record owner of such shares as of the close of business
on the date on which this Warrant shall have been surrendered and payment made
for such shares as aforesaid. Certificates for the shares of Common Stock so
purchased shall be dated the date of exercise and delivered to the Holder hereof
within a reasonable time, not exceeding 10 Trading Days (as hereinafter
defined), after the rights represented by this Warrant shall have been
exercised.
2. RESERVATION AND LISTING OF SHARES; ISSUE TAXES. The Company hereby
agrees that at all times prior to the Expiration Date it will have authorized,
and reserved for the purpose of issue upon exercise of this Warrant, a
sufficient number of shares of its Common Stock to provide for the exercise of
this Warrant in full and that, upon issuance, such shares will be listed on each
national securities exchange, if any, on which the other shares of the
outstanding Common Stock of the Company are then listed. The Company hereby
agrees that all shares of Common Stock issuable upon exercise of this Warrant
will, upon issuance, be fully paid and nonassessable. The Company hereby agrees
that it will pay all documentary, stamp or similar taxes and other governmental
charges which may be imposed with respect to the issuance or delivery of any
shares of Common Stock upon exercise of this Warrant; provided, however, that if
the shares of Common Stock are to be issued in a name other than the name of the
Holder of this Warrant, then no such issuance or delivery shall be made unless
the person requesting the same has paid to the Company any necessary transfer
tax or other governmental charge incident thereto.
3. FRACTIONAL SHARES. If the number of shares of Common Stock purchasable
upon the exercise of this Warrant is adjusted pursuant to the provisions of
Section 6 hereof, the Company shall nevertheless not be required to issue any
fractional shares or scrip representing fractional shares upon the exercise of
this Warrant. With respect to any fraction of a share called for upon any
exercise hereof, the Company shall pay to the Holder an amount in cash equal to
such fraction multiplied by the Current Market Price (determined as hereinafter
provided) of one share of Common Stock on the last Trading Day prior to the date
of exercise of this Warrant. The Current Market Price of a share of Common Stock
for any day shall be determined as follows:
(a) If the Common Stock is listed on one or more national securities
exchanges or admitted to unlisted trading privileges on
<PAGE>
any such exchange, the Current Market Price shall be the last sale price of the
Common Stock reported by the principal exchange on which the Common Stock is
traded on such day; or
(b) If the Common Stock is not so listed or admitted to unlisted trading
privileges, the Current Market Price shall be the mean of the last reported bid
and asked prices on such day, as reported by the National Association of
Securities Dealers Automated Quotation System, or if not so reported, as
furnished by the National Quotation Bureau, Inc., or, if such firm at the time
is not engaged in the business of reporting such prices, as furnished by any
similar firm then engaged in such business as selected by the Company, or if
there is no such firm, as furnished by any member of the National Association of
Securities Dealers, Inc. selected by the Company; or
(c) If the Common Stock is not so listed or admitted to unlisted trading
privileges and bid and asked prices are not so reported, the Current Market
Price shall be an amount determined in good faith and in a reasonable manner by
the Board of Directors of the Company.
"Trading Day" means any day on which trades in the Common Stock of the
Company are reported by a national securities exchange or if such Common Stock
is not listed or admitted to trading privileges on any such exchange, any day
such Common Stock is traded in the over-the-counter market, provided that if
Current Market Price is being determined pursuant to clause (c) of Section 3,
"Trading Day" shall mean any day on which the New York Stock Exchange is open
for trading.
4. TRANSFER AND EXCHANGE. Subject to the provisions of Section 8 hereof,
this Warrant and all rights hereunder are transferable, in whole or in part, on
the books of the Company by the Holder hereof in person or by duly authorized
attorney, upon presentation and surrender of this Warrant at the principal
office of the Company with the Assignment Form attached hereto duly executed and
upon payment of any necessary transfer tax or other governmental charge imposed
upon such transfer. Upon any partial transfer of this Warrant, the Company will
issue and deliver to the Holder an appropriate new Warrant or Warrants. Each
taker and Holder of this Warrant, by taking or holding the same, consents and
agrees that this Warrant when endorsed in blank shall be deemed negotiable and
that when this Warrant shall have been so endorsed, the Holder hereof may be
treated by the Company and all other persons dealing with this Warrant as the
absolute owner hereof for any purpose and as the person entitled to exercise the
rights represented hereby, or to the transfer hereof on the books of the
Company, any notice to the contrary notwithstanding; but until such transfer on
such books, the Company may treat the registered Holder hereof as the owner for
all purposes. This Warrant is exchangeable at the principal office of the
Company for Warrants for the
<PAGE>
purchase of the same aggregate number of shares of Common Stock, each new
Warrant to represent the right to purchase such number of shares of Common Stock
as the Holder hereof shall designate at the time of such exchange. All Warrants
issued on transfers or exchanges shall be dated the date hereof and shall be
identical to this Warrant except as to the number of shares of Common Stock
issuable pursuant thereto.
5. LOSS OR MUTILATION. Upon receipt by the Company of evidence
satisfactory to it of the ownership of and loss, theft, destruction or
mutilation of this Warrant and, in the case of loss, theft or destruction, of
indemnity satisfactory to the Company and, in the case of mutilation, upon
surrender and cancellation thereof, the Company shall (in the absence of notice
to the Company that this Warrant has been acquired by a bona fide purchaser)
execute and deliver to the Holder hereof in lieu hereof, a new Warrant of like
tenor and date and any such lost, stolen or destroyed Warrant shall thereupon
become void.
6. ADJUSTMENT OF PURCHASE PRICE AND NUMBER OF SHARES. The number and kind
of securities purchasable upon the exercise of this Warrant and the Exercise
Price shall be subject to adjustment from time to time upon the happening of
certain events, as follows:
(a) RECLASSIFICATION, CONSOLIDATION OR MERGER. In case of any
reclassification or change of outstanding securities of the class issuable upon
exercise of this Warrant (other than a change in par value, or from par value to
no par value, or from no par value to par value or as a result of a subdivision
or combination), or in case of any consolidation or merger of the Company with
or into another corporation (other than a merger with another corporation in
which the Company is the continuing corporation and which does not result in any
reclassification or change of outstanding securities issuable upon exercise of
this Warrant), the Company, or such successor, as the case may be, shall,
without payment of additional consideration therefor, execute a new Warrant,
providing that the Holder of this Warrant shall have the right to exercise such
new Warrant and procure upon such exercise, in lieu of each share of Common
Stock theretofore issuable upon exercise of this Warrant, the kind and amount of
shares of stock, other securities, money and property receivable upon such
reclassification, change, consolidation, or merger, by a holder of one share of
Common Stock issuable upon exercise of this Warrant, had this Warrant been
exercised immediately prior to the record date for determining the holders of
Common Stock to receive such shares of stock, other securities, money and
property in connection with any such reclassification, change, consolidation, or
merger. Such new Warrant shall provide for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this Section
6.
The provisions of this Section 6(a) shall similarly apply to
<PAGE>
successive reclassifications, changes, consolidations and mergers.
(b) SUBDIVISION OR COMBINATION OF SHARES. If the Company, at any time
while this Warrant remains outstanding and unexpired, shall subdivide or combine
its Common Stock, the Exercise Price shall be proportionately decreased in the
case of a subdivision or increased in the case of a combination at the effective
time of such subdivision or combination, or if the Company shall set a record
date for the purpose of determining the Common Stock initially affected by such
subdivision or combination, if earlier, as of such record date.
(c) STOCK DIVIDENDS. If the Company at any time while this Warrant is
outstanding and unexpired shall pay a dividend or make any other distribution
(except any distribution specifically provided for in Section 6(a) or 6(b)
hereof) on the Common Stock in shares of Common Stock, then the Exercise Price
shall be adjusted, from and after the date of determination of stockholders
entitled to receive such dividend or distribution, to that price determined by
multiplying the Exercise Price in effect immediately prior to such date of
determination by a fraction (i) the numerator of which shall be the total number
of shares of Common Stock outstanding immediately prior to such dividend or
distribution, and (ii) the denominator of which shall be the total number of
shares of Common Stock outstanding immediately after such dividend or
distribution (plus, in the event that the Company pays cash for fractional
shares, the number of additional shares which would have been outstanding had
the Company issued fractional shares in connection with such dividend).
(d) RIGHTS OFFERINGS. If the Company shall issue rights, options, or
warrants to all holders of its outstanding shares of Common Stock, entitling
them (for a period expiring within 45 days after the record date for the
determination of shareholders entitled to receive such rights, options or
warrants) to subscribe for or purchase shares of Common Stock (or securities
exchangeable for or convertible into shares of Common Stock) at a price per
share of Common Stock (or having an exchange or conversion price per share of
Common Stock, with respect to a security exchangeable for or convertible into
shares of Common Stock) that is less than the Exercise Price in effect,
immediately prior to such record date, then such Exercise Price shall be
adjusted by multiplying such Exercise Price by a fraction, the numerator of
which shall be the number of shares of Common Stock outstanding on such record
date plus the number of shares of Common Stock that the aggregate offering price
of the total number of shares of Common Stock so to be offered (or,the aggregate
initial exchange or conversion price of the exchangeable or convertible
securities so to be offered) would purchase at such Exercise Price and the
denominator of which shall be the number of shares of Common Stock outstanding
on such record date plus the number of additional shares of Common Stock to be
offered for subscription or purchase (or into which the
<PAGE>
exchangeable or convertible securities so to be offered are initially
exchangeable or convertible). Such adjustment shall become effective at the
close of business on such record date; however, to the extent that shares of
Common Stock (or securities exchangeable for or convertible into shares of
Common Stock) are not delivered after the expiration of such rights, options, or
warrants, the Exercise Price shall be readjusted (but only to the extent this
Warrant is unexercised after such expiration) to the Exercise Price that would
then be in effect had the adjustment made upon the issuance of such rights,
options, or warrants been made upon the basis of delivery of only the number of
shares of Common Stock (or securities exchangeable for or convertible into
shares of Common Stock) actually issued. In case any subscription price may be
paid in a consideration, part or all of which shall be in a form other than
cash, the value of such consideration shall be as determined by the Board of
Directors in good faith and in a reasonable manner.
(e) DISTRIBUTIONS OF ASSETS AND INDEBTEDNESS. If the Company shall
distribute to all holders of its shares of Common Stock (including any such
distribution made in connection with a consolidation or merger in which the
Company is the surviving corporation) evidences of its indebtedness or assets,
then in each case the Exercise Price shall be adjusted by multiplying the
Exercise Price in effect immediately prior to the record date for the
determination of shareholders entitled to receive such distribution by a
fraction, the numerator of which shall be such Exercise Price, less the fair
market value (as determined by the Board of Directors of the Company acting in
good faith and in a reasonable manner) of the portion of the evidences of
indebtedness or assets so to be distributed applicable to one share of Common
Stock and the denominator of which shall be such Exercise Price. Such adjustment
shall be made whenever any such distribution is made, and shall become effective
on the date of distribution retroactive to the record date for the determination
of shareholders entitled to receive such distribution. This Section 6(e) does
not apply to (i) cash dividends payable out of consolidated retained earnings,
(ii) dividends or distributions payable in shares of stock referred to in
Section 6(c) above or (iii) rights, options or warrants referred to in Section
6(d) above.
(f) COMMON STOCK ISSUE, OPTIONS, WARRANTS, CONVERTIBLE SECURITIES, ETC. If
the Company shall sell or issue shares of Common Stock, or rights, options,
warrants or convertible or exchangeable securities containing the right to
subscribe for or purchase shares of Common Stock for a consideration per share
of Common Stock (determined, in the case of such rights, options, warrants or
convertible or exchangeable securities, by dividing (i) the total amount
received or receivable by the Company in consideration of the sale and issuance
of such rights, options, warrants or convertible or exchangeable securities,
plus the total
<PAGE>
consideration payable to the Company upon exercise or conversion or exchange
thereof, by (ii) the total number of shares of Common Stock covered by such
rights, options, warrants or convertible or exchangeable securities) lower than
the Exercise Price in effect on the date the Company fixes the offering price
(or exercise price, option price or conversion price, as the case may be) per
share of such Common Stock, then the Exercise Price shall be reduced to a price
determined by multiplying the Exercise Price in effect immediately prior thereto
by a fraction, the numerator of which shall be an amount equal to the sum of (A)
the number of shares of Common Stock outstanding immediately prior to such sale
and issuance plus (B) the number of shares of Common Stock which the aggregate
consideration received (determined as provided below) for such sale or issuance
would purchase at such Exercise Price, and the denominator of which shall be the
total number of shares of Common Stock to be outstanding immediately after such
sale and issuance. Such adjustment shall be made successively whenever such an
issuance is made. For the purposes of such adjustments, the shares of Common
Stock which the holder of any such rights, options, warrants, or convertible or
exchangeable securities shall be entitled to subscribe for or purchase shall be
deemed to be issued and outstanding as of the date of such sale and issuance and
the consideration received by the Company therefor shall be deemed to be the
consideration received by the Company for such rights, options, warrants or
convertible or exchangeable securities, plus the consideration or premiums
stated in such rights, options, warrants or convertible or exchangeable
securities to be paid for the shares of Common Stock covered thereby. For the
purposes of determining "consideration per share of Common Stock" or
"consideration received by the Company" for the purposes of the first sentence
of this Section 6(f), no deduction shall be made for commissions, discounts or
other expenses incurred by the Company for any underwriting of the issue or
otherwise in connection therewith. In case the Company shall sell and issue
shares of Common Stock, or rights, options, warrants or convertible or
exchangeable securities containing the right to subscribe for or purchase shares
of Common Stock, for a consideration consisting, in whole or in part, of
property other than cash or its equivalent, then in determining the
"consideration per share of Common Stock" and the "consideration received by the
Company" for purposes of the first sentence of this Section 6(f), the Board of
Directors shall determine the fair value of such property, acting in good faith
and in a reasonable manner. This Section 6(f) does not apply to (i) shares,
rights, options, warrants or convertible or exchangeable securities issued in
any of the transactions described in Sections 6(a) through 6(e), (ii) Common
Stock issued upon the exercise of rights, options, or warrants (including this
Warrant) or upon the conversion or exchange of convertible or exchangeable
securities, (iii) options to purchase not in excess of 400,000 shares of Common
Stock issued or to be issued pursuant to that certain Agreement, dated December
13, 1994, between the Company and Donald Patterson, Ronald Goldsack, James
Connacher, Chris Skillen, Richard Reid and
<PAGE>
James Black, or (iv) options to purchase not in excess of 400,000 shares of
Common Stock issued after the date hereof to employees, consultants, officers or
directors of the Company (other than Gerald D, Appel).
(g) OTHER ADJUSTMENTS. If any event occurs as to which in the opinion of
the Board of Directors of the Company, the other provisions of this Section 6
are not strictly applicable or if strictly applicable would not fairly protect
the purchase rights of the Holder in accordance with the essential intent and
principles of such provisions, then the Board of Directors shall make an
adjustment in the application of such provisions, in accordance with such
essential intent and principles, so as to protect such purchase rights as
aforesaid, but in no event shall any such adjustment have the effect of
increasing the Exercise Price as otherwise determined pursuant to this Section
6.
(h) ADJUSTMENT OF NUMBER OF SHARES. Upon each adjustment of the Exercise
Price, the number of shares of Common Stock purchasable hereunder shall be
adjusted to the product obtained by multiplying such number of shares
purchasable immediately prior to such adjustment in the Exercise Price by a
fraction, the numerator of which shalt be the Exercise Price in effect
immediately prior to such adjustment and the denominator of which shall be the
Exercise Price in effect immediately thereafter.
(i) MINIMUM ADJUSTMENT. No adjustment in the Exercise Price shall be
required unless such adjustment would require an increase or decrease of at
least $.05 in the Exercise Price; provided, however, that any adjustments which
by reason of this Section 6(i) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All calculations
under this Section 6 shall be made to the nearest one-tenth of one cent or to
the nearest one-tenth of a share, as the case may be.
(j) SECURITIES OTHER THAN COMMON STOCK. In the event that at any time, as
a result of an adjustment made pursuant to this Section 6, the Holders of this
Warrant shall become entitled to purchase any shares or securities of the
Company other than shares of Common Stock, thereafter the number of such other
shares or securities so purchasable upon exercise of this Warrant and the
Exercise Price for such shares or securities shall be subject to adjustment from
time to time in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the shares of Common Stock contained in Section 6(a)
through 6(h), inclusive, of this Section 6 and the other provisions hereof with
respect to the shares of Common Stock shall apply on like terms to any such
other shares.
(k) DEFERMENT OF ADJUSTMENT. In any case in which this Section 6 shall
require that an adjustment in the Exercise Price be made effective as of a
record date for a specified event, the
<PAGE>
Company may elect to defer until the occurrence of such event issuing to the
Holder of any Warrant exercised after such record date the shares of Common
Stock, if any, issuable upon such exercise over and above the shares of Common
Stock, if any, issuable upon such exercise on the basis of the Exercise Price in
effect prior to such adjustment.
(l) VOLUNTARY ADJUSTMENT BY THE COMPANY. The Company may at its option, at
any time during the term of this Warrant, reduce the then current Exercise Price
for any period of time to any amount deemed appropriate by the Board of
Directors of the Company.
7. NOTICE OF ADJUSTMENTS. Whenever any Exercise Price shall be adjusted
pursuant to Section 6 hereof, the Company shall promptly prepare a certificate
of its chief financial officer setting forth, in reasonable detail the event
requiring the adjustment, the amount of the adjustment, the method by which such
adjustment was calculated, and the Exercise Price after giving effect to such
adjustment, and shall promptly cause copies of such certificate to be made (by
first class mail, postage prepaid) to the Holder of this Warrant.
8. RESTRICTIONS ON TRANSFER; LEGENDS. This Warrant was issued pursuant to
that certain Securities Purchase Agreement dated as of December 23, 1994, among
the Company, Ontario Municipal Employees Retirement Board, Gerald D. Appel and
Hershel Toomim (the "Purchase Agreement"), a copy of which will be furnished,
without charge, to the Holder hereof upon written request to the Company. Each
taker and Holder of this Warrant, by taking and holding the same, represents,
acknowledges and agrees that (a) this Warrant was, and any shares of Common
Stock acquired upon exercise hereof will be (unless then registered under the
Securities Act of 1933 or an exemption from such registration not requiring such
representation is available for the sale of the Common Stock), acquired for
investment and not with a view to or for sale in connection with any
distribution thereof, (b) this Warrant has not been, and the shares of Common
Stock issuable upon exercise hereof may not be, registered under the Securities
Act of 1933 (the "1933 Act"), may not be transferred in violation of the 1933
Act, and must be held indefinitely unless they are subsequently registered
thereunder or an exemption from such registration is available, and (c) this
Warrant and the shares of Common Stock issuable upon exercise hereof are subject
to other restrictions on transfer by the provisions of the Purchase Agreement,
including, without limitation, Sections 8.01 and 8.12 thereof. Each taker and
Holder of this Warrant, by taking and holding the same, also agrees that all
certificates representing Common Stock issued upon exercise of this Warrant may
bear the restrictive legend set forth in Section 4.06 of the Purchase Agreement
and may bear such other legends and endorsements as shall be required to comply
with any law or with any rule or regulation of any stock exchange on which such
securities may be listed.
<PAGE>
9. EXTENSION OF EXPIRATION DATE. In addition, and notwithstanding any
provision contained herein to the contrary, in the event that (a) at the
Expiration Date the Company is required, pursuant to an effective request
therefor received by the Company from the Holder pursuant to the provisions of
Section 8.03 of the Purchase Agreement at least 90 days prior to the Expiration
Date, to effect a Registration under the Securities Act of 1933 with respect to
any shares of Common Stock subject to this Warrant or (b) at the Expiration Date
the Company is in the process of effecting a registration under the Securities
Act of 1933 for an underwritten public offering in which shares of Common Stock
subject to this Warrant are entitled to be included pursuant an effective
request therefor received by the Company from the Holder pursuant to the
provisions of Section 8.02 of the Purchase Agreement on or prior to the
Expiration Date, the Expiration Date shall be extended to 5:00 P.M., Los Angeles
time, on the 30th day following the date on which such Registration shall have
become effective but in no event longer than 180 days after the date this
Warrant would otherwise have expired. In the event that the Expiration Date is
extended in accordance with the provisions of this Section 9, all references
contained in this Warrant to the "Expiration Date" shall be deemed to be
references to the Expiration Date as so extended.
10. NO STOCKHOLDER RIGHTS. Nothing contained in this Warrant shall be
construed as conferring upon the Holders or their transferees the right to vote
or to receive dividends or to consent to or receive notice as shareholders in
respect of any meeting of shareholders for the election of directors of the
Company or any other matter, or any rights whatsoever as shareholders of the
Company. If, however, at any time prior to the expiration of this Warrant and
prior to its exercise in full, any of the following events shall occur:
(a) the Company shall declare any dividend payable in any securities upon
its shares of Common Stock or make any distribution to the holders of its shares
of Common Stock (other than a cash dividend or a dividend payable in additional
shares of Common Stock);
(b) the Company shall offer to the holders of its shares of Common Stock
any additional shares of Common Stock or securities convertible into shares of
Common Stock or any right to subscribe to shares of Common Stock or securities
convertible or exchangeable into shares of Common Stock;
(c) any reclassification of the capital stock of the Company (other than a
subdivision or combination of Common Stock), or any consolidation or merger to
which the Company is a party or any sale of all or substantially all of the
assets of the Company shall be proposed, and in each case shareholder approval
is required; or
<PAGE>
(d) a dissolution, liquidation or winding up of the Company shall be
proposed;
then in any one or more of such events, the Company shall give notice in writing
of such event to the Holders of this Warrant at least 20 days prior to the date
fixed as a record date or the date of closing the transfer books for the
determination of the shareholders entitled to such dividend, distribution, or
subscription rights, or for the determination of shareholders entitled to vote
on any such proposed transactions. Such notice shall specify such record date or
date of the closing of the transfer books, as the case may be.
11. GOVERNING LAW. This Warrant shall be governed by and construed in
accordance with the laws of the State of California.
<PAGE>
MYO DIAGNOSTICS, INC.
By /s/ Gerald D. Appel
--------------------------------
Name: Gerald D. Appel
Title: President
<PAGE>
PURCHASE FORM
Dated: , 199
--------------- --
The undersigned hereby irrevocably elects to exercise the within Warrant to the
extent of purchasing shares of Common Stock and hereby makes
payment of $ in payment of the actual exercise price thereof.
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name
-------------------------------------------
(Please typewrite or print in block letters)
Address
----------------------------------
----------------------------------
Signature:
-------------------------
ASSIGNMENT FORM
FOR VALUE RECEIVED, hereby sells, assigns and
transfers unto
Name
---------------------------------------------
(Please typewrite or print in block letters)
Address the right to purchase
Common Stock represented by this Warrant to the extent of shares as to
which such right is exercisable and does hereby irrevocably constitute and
appoint , attorney, to transfer the same on the books of
the Company with full power of substitution in the premises.
Signature:
-------------------------
Dated: , 199
------- --
<PAGE>
AMENDMENT TO SERIES A WARRANT
This AMENDMENT TO SERIES A WARRANT (this "Amendment"), is made as of August
18, 1995, by and between Myo Diagnostics, Inc., a California corporation (the
"Company") and Ontario Municipal Employees Retirement Board ("OMERB")
RECITALS
A. WHEREAS, OMERB is the holder of that certain Series A Warrant, No. A-l,
dated December 23, 1994, for 100,000 shares of the Common Stock of the Company
(the "Warrant"); and
B. WHEREAS, the Company, OMERB, and Gerald D. Appel are parties to that
certain Securities Purchase Agreement, dated as of August 18, 1995, providing,
INTER ALIA, for the purchase by OMERB from the Company of 111,111 shares (the
"Closing Shares") of the Common Stock of the Company; and
C. WHEREAS, the execution and delivery of this Amendment is a condition
precedent to the obligation of OMERB to purchaser the Closing Shares pursuant to
the Purchase Agreement
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt of which is hereby acknowledged, the parties
hereto hereby agree as follows:
1. The first sentence of the introductory paragraph of the Warrant is
hereby amended to read in its entirety as follows:
THIS CERTIFIES THAT, FOR VALUE RECEIVED, ONTARIO MUNICIPAL EMPLOYEES
RETIREMENT BOARD, or registered assigns ("Holder") is entitled to
purchase, upon the terms and subject to the provisions of this
Warrant, from MYO DIAGNOSTICS, INC., a California corporation (the
"Company") 100,000 fully paid and nonassessable shares of the Common
Stock of the Company at the price of $1.90 per share at any time
during the period from the date hereof to 5:00 P.M., Los Angeles time,
on December 23, 1995 (the "Expiration Date"), at which time this
Warrant shall expire and become void.
2. The Company hereby represents and warrants to OMERB that this
Amendment has been duly executed and delivered by the Company and that the
Warrant, as amended by this Amendment constitutes the legal, valid, and binding
obligation of the Company, enforceable against the Company in accordance with
its terms.
3. OMERB hereby represents and warrants to the Company that this
Amendment has been duly executed and delivered by OMERB.
4. This Amendment may be executed in two or more
<PAGE>
counterparts and by different parties in separate counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed
as of the date first above written.
MYO DIAGNOSTICS, INC.
By /s/ Gerald D. Appel
--------------------------------
Gerald D. Appel
President
ONTARIO MUNICIPAL EMPLOYEES
RETIREMENT BOARD
By /s/ Peter F. Friend
--------------------------------
Peter D. Friend
Portfolio Manager
By /s/ Henry A. Rachfalowski
--------------------------------
Henry A. Rachfalowski
Vice President
<PAGE>
SECOND AMENDMENT TO SERIES A WARRANT
This SECOND AMENDMENT TO SERIES A WARRANT (this "Amendment"), is made as of
December 22, 1995, by and between Myo Diagnostics, Inc,, a California
corporation (the "Company") and Ontario Municipal Employees Retirement Board
("OMERB")
RECITALS
A. WHEREAS, OMERB is the holder of that certain Series A Warrant, No. A-l,
dated December 23, 1994, for 100,000 shares of the Common Stock of the Company,
as amended by that certain Amendment to Series A Warrant, dated as of August 18,
1995 (as so amended, the "Warrant"); and
B. WHEREAS, the Company and OMERB desire to further amend the Warrant as
hereinafter provided
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt of which is hereby acknowledged, the parties
hereto hereby agree as follows:
1. The first sentence of the introductory paragraph of the Warrant is
hereby amended to read in its entirety as follows:
THIS CERTIFIES THAT, FOR VALUE RECEIVED, ONTARIO MUNICIPAL EMPLOYEES
RETIREMENT BOARD, or registered assigns ("Holder") is entitled to
purchase, upon the terms and subject to the provisions of this
Warrant, from MYO DIAGNOSTICS, INC., a California corporation (the
"Company") 100,000 fully paid and nonassessable shares of the Common
Stock of the Company at the price of $1.50 per share at any time
during the period from the date hereof to 5:00 P.M., Los Angeles time,
on December 23, 1997 (the "Expiration Date"), at which time this
Warrant shall expire and become void.
2. The Company hereby represents and warrants to OMERB that this Amendment
has been duly executed and delivered by the Company and that the Warrant, as
amended by this Amendment constitutes the legal, valid, and binding obligation
of the Company, enforceable against the Company in accordance with its terms.
3. OMERB hereby represents and warrants to the Company that this Amendment
has been duly executed and delivered by OMERB.
4. This Amendment may be executed in two or more counterparts and by
different parties in separate counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same instrument
IN WITNESS WHEREOF, the parties have caused this Amendment to
<PAGE>
be executed as of the date first above written.
MYO DIAGNOSTICS, INC.
By /s/ Gerald D. Appel
--------------------------------
Gerald D. Appel
President
ONTARIO MUNICIPAL EMPLOYEES
RETIREMENT BOARD
By /s/ Peter F. Friend
--------------------------------
Peter D. Friend
Portfolio Manager
By /s/ Henry A. Rachfalowski
--------------------------------
Henry A. Rachfalowski
Vice President
<PAGE>
THESE WARRANTS AND THE UNDERLYING COMMON STOCK HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 OR THE SECURITIES LAWS OF ANY STATE. THESE WARRANTS
HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE,
AND THESE WARRANTS AND THE UNDERLYING COMMON STOCK MAY NOT BE SOLD, MORTGAGED,
PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933 AND APPLICABLE STATE SECURITIES LAWS,
OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT
REQUIRED UNDER SUCH ACT OR LAWS.
MYO DIAGNOSTICS, INC.
SERIES B WARRANT
83,333 Shares of Common Stock
No. B-1 Dated: December 23, 1994
THIS CERTIFIES THAT, FOR VALUE RECEIVED, ONTARIO MUNICIPAL EMPLOYEES
RETIREMENT BOARD, or registered assigns ("Holder") is entitled to purchase, upon
the terms and subject to the provisions of this Warrant, from MYO DIAGNOSTICS,
INC., a California corporation (the "Company") 83,333 fully paid and
nonassessable shares of the Common Stock of the Company at the price of $3.00
per share at any time during the period from the date hereof to 5:00 P.M., Los
Angeles time, on June 23, 1997 (the "Expiration Date"), at which time this
Warrant shall expire and become void. The number of shares of Common Stock to
be received upon the exercise of this Warrant and the price to be paid for each
share of Common Stock shall be adjusted from time to time as hereinafter set
forth. As used herein, "Common Stock" shall mean the Company's currently
authorized Common Stock and any stock into which such Common Stock may be
exchanged, and the exercise price for a share of Common Stock in effect at any
time and as adjusted from time to time is hereinafter sometimes referred to as
the "Exercise Price". Unless the context otherwise requires, the term
"Warrant", as used herein, includes this Warrant and any other Warrant or
Warrants which may be issued pursuant to the provisions of this Warrant, whether
upon transfer, assignment, partial exercise, divisions, combinations, exchange
or otherwise, and the term "Holder" includes any transferee or transferees or
assignee or assignees of the Holder named above, all of whom shall be subject to
the provisions of this Warrant.
1. METHOD OF EXERCISE. This Warrant may be exercised in whole or in part
at any time or from time to time after the date hereof but not after the
Expiration Date by presentation and surrender hereof to the Company at 3710
South Robertson Blvd., Suite 212, Culver City, California 90232 or at such other
office as may be designated by the Company, with the Purchase Form attached
hereto duly executed and accompanied by payment to the Company by cash or check
or bank draft payable to the order of the Company, of
<PAGE>
an amount equal to the then applicable Exercise Price multiplied by the number
of shares of Common Stock specified in such Form. If this Warrant should be
exercised in part only, the Company shall, upon presentation of this Warrant
upon such exercise, execute and deliver a new Warrant evidencing the right of
the Holder hereof to purchase the balance of the shares of Common Stock
purchasable hereunder upon the same terms and conditions as herein set forth.
The Company agrees that the shares so purchased shall be deemed to be issued to
the Holder hereof as the record owner of such shares as of the close of business
on the date on which this Warrant shall have been surrendered and payment made
for such shares as aforesaid. Certificates for the shares of Common Stock so
purchased shall be dated the date of exercise and delivered to the Holder hereof
within a reasonable time, not exceeding 10 Trading Days (as hereinafter
defined), after the rights represented by this Warrant shall have been
exercised.
2. RESERVATION AND LISTING OF SHARES; ISSUE TAXES. The Company hereby
agrees that at all times prior to the Expiration Date it will have authorized,
and reserved for the purpose of issue upon exercise of this Warrant, a
sufficient number of shares of its Common Stock to provide for the exercise of
this Warrant, in full and that, upon issuance, such shares will be listed on
each national securities exchange, if any, on which the other shares of the
outstanding Common Stock of the Company are then listed. The Company hereby
agrees that all shares of Common Stock issuable upon exercise of this Warrant
will, upon issuance, be fully paid and nonassessable. The Company hereby agrees
that it will pay all documentary, stamp or similar taxes and other governmental
charges which may be imposed with respect to the issuance or delivery of any
shares of Common Stock upon exercise of this Warrant; provided, however, that if
the shares of Common Stock are to be issued in a name other than the name of the
Holder of this Warrant, then no such issuance or delivery shall be made unless
the person requesting the same has paid to the Company any necessary transfer
tax or other governmental charge incident thereto.
3. FRACTIONAL SHARES. If the number of shares of Common Stock purchasable
upon the exercise of this Warrant is adjusted pursuant to the provisions of
Section 6 hereof, the Company shall nevertheless not be required to issue any
fractional shares or scrip representing fractional shares upon the exercise of
this Warrant. With respect to any fraction of a share called for upon any
exercise hereof, the Company shall pay to the Holder an amount in cash equal to
such fraction multiplied by the Current Market Price (determined as hereinafter
provided) of one share of Common Stock on the last Trading Day prior to the date
of exercise of this Warrant. The Current Market Price of a share of Common
Stock for any day shall be determined as follows:
(a) If the Common Stock is listed on one or more national securities
exchanges or admitted to unlisted trading privileges on
<PAGE>
any such exchange, the Current Market Price shall be the last sale price of the
Common Stock reported by the principal exchange on which the Common Stock is
traded on such day; or
(b) If the Common Stock is not so listed or admitted to unlisted trading
privileges, the Current Market Price shall be the mean of the last reported bid
and asked prices on such day, as reported by the National Association of
Securities Dealers Automated Quotation System, or if not so reported, as
furnished by the National Quotation Bureau, Inc., or, if such firm at the time
is not engaged in the business of reporting such prices, as furnished by any
similar firm then engaged in such business as selected by the Company, or if
there is no such firm, as furnished by any member of the National Association of
Securities Dealers, Inc. selected by the Company; or
(c) If the Common Stock is not so listed or admitted to unlisted trading
privileges and bid and asked prices are not so reported, the Current Market
Price shall be an amount determined in good faith and in a reasonable manner by
the Board of Directors of the Company.
"Trading Day" means any day on which trades in the Common Stock of the
Company are reported by a national securities exchange or if such Common Stock
is not listed or admitted to trading privileges on any such exchange, any day
such Common Stock is traded in the over-the-counter market, provided that if
Current Market Price is being determined pursuant to clause (c) of Section 3,
"Trading Day" shall mean any day on which the New York Stock Exchange is open
for trading.
4. TRANSFER AND EXCHANGE. Subject to the provisions of Section 8 hereof,
this Warrant and all rights hereunder are transferable, in whole or in part, on
the books of the Company by the Holder hereof in person or by duly authorized
attorney, upon presentation and surrender of this Warrant at the principal
office of the Company with the Assignment Form attached hereto duly executed and
upon payment of any necessary transfer tax or other governmental charge imposed
upon such transfer. Upon any partial transfer of this Warrant, the Company will
issue and deliver to the Holder an appropriate new Warrant or Warrants. Each
taker and Holder of this Warrant, by taking or holding the same, consents and
agrees that this Warrant when endorsed in blank shall be deemed negotiable and
that when this Warrant shall have been so endorsed, the Holder hereof may be
treated by the Company and all other persons dealing with this Warrant as the
absolute owner hereof for any purpose and as the person entitled to exercise the
rights represented hereby, or to the transfer hereof on the books of the
Company, any notice to the contrary notwithstanding; but until such transfer on
such books, the Company may treat the registered Holder hereof as the owner for
all purposes. This Warrant is exchangeable at the principal office of the
Company for Warrants for the
<PAGE>
purchase of the same aggregate number of shares of Common Stock, each new
Warrant to represent the right to purchase such number of shares of Common Stock
as the Holder hereof shall designate at the time of such exchange. All Warrants
issued on transfers or exchanges shall be dated the date hereof and shall be
identical to this Warrant except as to the number of shares of Common Stock
issuable pursuant thereto.
5. LOSS OR MUTILATION. Upon receipt by the Company of evidence
satisfactory to it of the ownership of and loss, theft, destruction or
mutilation of this Warrant and, in the case of loss, theft or destruction, of
indemnity satisfactory to the Company and, in the case of mutilation, upon
surrender and cancellation thereof, the Company shall (in the absence of notice
to the Company that this Warrant has been acquired by a bona fide purchaser)
execute and deliver to the Holder hereof in lieu hereof, a new Warrant of like
tenor and date and any such lost, stolen or destroyed Warrant shall thereupon
become void.
6. ADJUSTMENT OF PURCHASE PRICE AND NUMBER OF SHARES. The number and kind
of securities purchasable upon the exercise of this Warrant and the Exercise
Price shall be subject to adjustment from time to time upon the happening of
certain events, as follows:
(a) RECLASSIFICATION, CONSOLIDATION OR MERGER. In case of any
reclassification or change of outstanding securities of the class issuable upon
exercise of this Warrant (other than a change in par value, or from par value to
no par value, or from no par value to par value or as a result of a subdivision
or combination), or in case of any consolidation or merger of the Company with
or into another corporation (other than a merger with another corporation in
which the Company is the continuing corporation and which does not result in any
reclassification or change of outstanding securities issuable upon exercise of
this Warrant), the Company, or such successor, as the case may be, shall,
without payment of additional consideration therefor, execute a new Warrant,
providing that the Holder of this Warrant shall have the right to exercise such
new Warrant and procure upon such exercise, in lieu of each share of Common
Stock theretofore issuable upon exercise of this Warrant, the kind and amount of
shares of stock, other securities, money and property receivable upon such
reclassification, change, consolidation, or merger, by a holder of one share of
Common Stock issuable upon exercise of this Warrant, had this Warrant been
exercised immediately prior to the record date for determining the holders of
Common Stock to receive such shares of stock, other securities, money and
property in connection with any such reclassification, change, consolidation, or
merger. Such new Warrant shall provide for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this Section
6.
The provisions of this Section 6(a) shall similarly apply to
<PAGE>
successive reclassifications, changes, consolidations and mergers.
(b) SUBDIVISION OR COMBINATION OF SHARES. If the Company, at any time
while this Warrant remains outstanding and unexpired, shall subdivide or combine
its Common Stock, the Exercise Price shall be proportionately decreased in the
case of a subdivision or increased in the case of a combination at the effective
time of such subdivision or combination, or if the Company shall set a record
date for the purpose of determining the Common Stock initially affected by such
subdivision or combination, if earlier, as of such record date.
(c) STOCK DIVIDENDS. If the Company at any time while this Warrant is
outstanding and unexpired shall pay a dividend or make any other distribution
(except any distribution specifically provided for in Section 6(a) or 6(b)
hereof) on the Common Stock in shares of Common Stock, then the Exercise Price
shall be adjusted, from and after the date of determination of stockholders
entitled to receive such dividend or distribution, to that price determined by
multiplying the Exercise Price in effect immediately prior to such date of
determination by a fraction (i) the numerator of which shall be the total number
of shares of Common Stock outstanding immediately prior to such dividend or
distribution, and (ii) the denominator of which shall be the total number of
shares of Common Stock outstanding immediately after such dividend or
distribution (plus, in the event the Company pays cash for fractional shares,
the number of additional shares which would have been outstanding had the
Company issued fractional shares in connection with such dividend).
(d) RIGHTS OFFERINGS. If the Company shall issue rights, options, or
warrants to all holders of its outstanding shares of Common Stock, entitling
them (for a period expiring within 45 days after the record date for the
determination of shareholders entitled to receive such rights, options or
warrants) to subscribe for or purchase shares of Common Stock (or securities
exchangeable for or convertible into shares of Common Stock) at a price per
share of Common Stock (or having an exchange or conversion price per share of
Common Stock, with respect to a security exchangeable for or convertible into
shares of Common Stock) that is less than the Exercise Price in effect,
immediately prior to such record date, then such Exercise Price shall be
adjusted by multiplying such Exercise Price by a fraction, the numerator of
which shall be the number of shares of Common Stock outstanding on such record
date plus the number of shares of Common Stock that the aggregate offering price
of the total number of shares of Common Stock so to be offered (or,the aggregate
initial exchange or conversion price of the exchangeable or convertible
securities so to be offered) would purchase at such Exercise Price and the
denominator of which shall be the number of shares of Common Stock outstanding
on such record date plus the number of additional shares of Common Stock to be
offered for subscription or purchase (or into which the
<PAGE>
exchangeable or convertible securities so to be offered are initially
exchangeable or convertible). Such adjustment shall become effective at the
close of business on such record date; however, to the extent that shares of
Common Stock (or securities exchangeable for or convertible into shares of
Common Stock) are not delivered after the expiration of such rights, options, or
warrants, the Exercise Price shall be readjusted (but only to the extent this
Warrant is unexercised after such expiration) to the Exercise Price that would
then be in effect had the adjustment made upon the issuance of such rights,
options, or warrants been made upon the basis of delivery of only the number of
shares of Common Stock (or securities exchangeable for or convertible into
shares of Common Stock) actually issued. In case any subscription price may be
paid in a consideration, part or all of which shall be in a form other than
cash, the value of such consideration shall be as determined by the Board of
Directors in good faith and in a reasonable manner.
(e) DISTRIBUTIONS OF ASSETS AND INDEBTEDNESS. If the Company shall
distribute to all holders of its shares of Common Stock (including any such
distribution made in connection with a consolidation or merger in which the
Company is the surviving corporation) evidences of its indebtedness or assets,
then in each case the Exercise Price shall be adjusted by multiplying the
Exercise Price in effect immediately prior to the record date for the
determination of shareholders entitled to receive such distribution by a
fraction, the numerator of which shall be such Exercise Price, less the fair
market value (as determined by the Board of Directors of the Company acting in
good faith and in a reasonable manner) of the portion of the evidences of
indebtedness or assets so to be distributed applicable to one share of Common
Stock and the denominator of which shall be such Exercise Price. Such
adjustment shall be made whenever any such distribution is made, and shall
become effective on the date of distribution retroactive to the record date for
the determination of shareholders entitled to receive such distribution. This
Section 6(e) does not apply to (i) cash dividends payable out of consolidated
retained earnings, (ii) dividends or distributions payable in shares of stock
referred to in Section 6(c) above or (iii) rights, options or warrants referred
to in Section 6(d) above.
(f) COMMON STOCK ISSUE, OPTIONS, WARRANTS, CONVERTIBLE SECURITIES, ETC. If
the Company shall sell or issue shares of Common Stock, or rights, options,
warrants or convertible or exchangeable securities containing the right to
subscribe for or purchase shares of Common Stock for a consideration per share
of Common Stock (determined, in the case of such rights, options, warrants or
convertible or exchangeable securities, by dividing (i) the total amount
received or receivable by the Company in consideration of the sale and issuance
of such rights, options, warrants or convertible or exchangeable securities,
plus the total
<PAGE>
consideration payable to the Company upon exercise or conversion or exchange
thereof, by (ii) the total number of shares of Common Stock covered by such
rights, options, warrants or convertible or exchangeable securities) lower than
the Exercise Price in effect on the date the Company fixes the offering price
(or exercise price, option price or conversion price, as the case may be) per
share of such Common Stock, then the Exercise Price shall be reduced to a price
determined by multiplying the Exercise Price in effect immediately prior thereto
by a fraction, the numerator of which shall be an amount equal to the sum of (A)
the number of shares of Common Stock outstanding immediately prior to such sale
and issuance plus (B) the number of shares of Common Stock which the aggregate
consideration received (determined as provided below) for such sale or issuance
would purchase at such Exercise Price, and the denominator of which shall be the
total number of shares of Common Stock to be outstanding immediately after such
sale and issuance. Such adjustment shall be made successively whenever such an
issuance is made. For the purposes of such adjustments, the shares of Common
Stock which the holder of any such rights, options, warrants, or convertible or
exchangeable securities shall be entitled to subscribe for or purchase shall be
deemed to be issued and outstanding as of the date of such sale and issuance and
the consideration received by the Company therefor shall be deemed to be the
consideration received by the Company for such rights, options, warrants or
convertible or exchangeable securities, plus the consideration or premiums
stated in such rights, options, warrants or convertible or exchangeable
securities to be paid for the shares of Common Stock covered thereby. For the
purposes of determining "consideration per share of Common Stock" or
"consideration received by the Company" for the purposes of the first sentence
of this Section 6(f), no deduction shall be made for commissions, discounts or
other expenses incurred by the Company for any underwriting of the issue or
otherwise in connection therewith. In case the Company shall sell and issue
shares of Common Stock, or rights, options, warrants or convertible or
exchangeable securities containing the right to subscribe for or purchase shares
of Common Stock, for a consideration consisting, in whole or in part, of
property other than cash or its equivalent, then in determining the
"consideration per share of Common Stock" and the "consideration received by the
Company" for purposes of the first sentence of this Section 6(f), the Board of
Directors shall determine the fair value of such property, acting in good faith
and in a reasonable manner. This Section 6(f) does not apply to (i) shares,
rights, options, warrants or convertible or exchangeable securities issued in
any of the transactions described in Sections 6(a) through 6(e), (ii) Common
Stock issued upon the exercise of rights, options, or warrants (including this
Warrant) or upon the conversion or exchange of convertible or exchangeable
securities, (iii) options to purchase not in excess of 400,000 shares of Common
Stock issued or to be issued pursuant to that certain Agreement, dated December
13, 1994, between the Company and Donald Patterson, Ronald Goldsack, James
Connacher, Chris Skillen, Richard Reid and
<PAGE>
James Black, or (iv) options to purchase not in excess of 400,000 shares of
Common Stock issued after the date hereof to employees, consultants, officers or
directors of the Company (other than Gerald D. Appel).
(g) OTHER ADJUSTMENTS. If any event occurs as to which in the opinion of
the Board of Directors of the Company, the other provisions of this Section 6
are not strictly applicable or if strictly applicable would not fairly protect
the purchase rights of the Holder in accordance with the essential intent and
principles of such provisions, then the Board of Directors shall make an
adjustment in the application of such provisions, in accordance with such
essential intent and principles, so as to protect such purchase rights as
aforesaid, but in no event shall any such adjustment have the effect of
increasing the Exercise Price as otherwise determined pursuant to this Section
6.
(h) ADJUSTMENT OF NUMBER OF SHARES. Upon each adjustment of the Exercise
Price, the number of shares of Common Stock purchasable hereunder shall be
adjusted to the product obtained by multiplying such number of shares
purchasable immediately prior to such adjustment in the Exercise Price by a
fraction, the numerator of which shalt be the Exercise Price in effect
immediately prior to such adjustment and the denominator of which shall be the
Exercise Price in effect immediately thereafter.
(i) MINIMUM ADJUSTMENT. No adjustment in the Exercise Price shall be
required unless such adjustment would require an increase or decrease of at
least $.05 in the Exercise Price; provided, however, that any adjustments which
by reason of this Section 6(i) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All calculations
under this Section 6 shall be made to the nearest one-tenth of one cent or to
the nearest one-tenth of a share, as the case may be.
(j) SECURITIES OTHER THAN COMMON STOCK. In the event that at any time, as
a result of an adjustment made pursuant to this Section 6, the Holders of this
Warrant shall become entitled to purchase any shares or securities of the
Company other than shares of Common Stock, thereafter the number of such other
shares or securities so purchasable upon exercise of this Warrant and the
Exercise Price for such shares or securities shall be subject to adjustment from
time to time in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the shares of Common Stock contained in Section 6(a)
through 6(h), inclusive, of this Section 6 and the other provisions hereof with
respect to the shares of Common Stock shall apply on like terms to any such
other shares.
(k) DEFERMENT OF ADJUSTMENT. In any case in which this Section 6 shall
require that an adjustment in the Exercise Price be made effective as of a
record date for a specified event, the
<PAGE>
Company may elect to defer until the occurrence of such event issuing to the
Holder of any Warrant exercised after such record date the shares of Common
Stock, if any, issuable upon such exercise over and above the shares of Common
Stock, if any, issuable upon such exercise on the basis of the Exercise Price in
effect prior to such adjustment.
(l) VOLUNTARY ADJUSTMENT BY THE COMPANY. The Company may at its option, at
any time during the term of this Warrant, reduce the then current Exercise Price
for any period of time to any amount deemed appropriate by the Board of
Directors of the Company.
7. NOTICE OF ADJUSTMENTS. Whenever any Exercise Price shall be adjusted
pursuant to Section 6 hereof, the Company shall promptly prepare a certificate
of its chief financial officer setting forth, in reasonable detail the event
requiring the adjustment, the amount of the adjustment, the method by which such
adjustment was calculated, and the Exercise Price after giving effect to such
adjustment, and shall promptly cause copies of such certificate to be made (by
first class mail, postage prepaid) to the Holder of this Warrant.
8. RESTRICTIONS ON TRANSFER; LEGENDS. This Warrant was issued pursuant to
that certain Securities Purchase Agreement dated as of December 23, 1994, among
the Company, Ontario Municipal Employees Retirement Board, Gerald D. Appel and
Hershel Toomim (the "Purchase Agreement"), a copy of which will be furnished,
without charge, to the Holder hereof upon written request to the Company. Each
taker and Holder of this Warrant, by taking and holding the same, represents,
acknowledges and agrees that (a) this Warrant was, and any shares of Common
Stock acquired upon exercise hereof will be (unless then registered under the
Securities Act of 1933 or an exemption from such registration not requiring such
representation is available for the sale of the Common Stock), acquired for
investment and not with a view to or for sale in connection with any
distribution thereof, (b) this Warrant has not been, and the shares of Common
Stock issuable upon exercise hereof may not be, registered under the Securities
Act of 1933 (the "1933 Act"), may not be transferred in violation of the 1933
Act, and must be held indefinitely unless they are subsequently registered
thereunder or an exemption from such registration is available, and (c) this
Warrant and the shares of Common Stock issuable upon exercise hereof are subject
to other restrictions on transfer by the provisions of the Purchase Agreement,
including, without limitation, Sections 8.01 and 8.12 thereof. Each taker and
Holder of this Warrant, by taking and holding the same, also agrees that all
certificates representing Common Stock issued upon exercise of this Warrant may
bear the restrictive legend set forth in Section 4.06 of the Purchase Agreement
and may bear such other legends and endorsements as shall be required to comply
with any law or with any rule or regulation of any stock exchange on which such
securities may be listed.
<PAGE>
9. EXTENSION OF EXPIRATION DATE. In addition, and notwithstanding any
provision contained herein to the contrary, in the event that (a) at the
Expiration Date the Company is required, pursuant to an effective request
therefor received by the Company from the Holder pursuant to the provisions of
Section 8.03 of the Purchase Agreement at least 90 days prior to the Expiration
Date, to effect a Registration under the Securities Act of 1933 with respect to
any shares of Common Stock subject to this Warrant or (b) at the Expiration Date
the Company is in the process of effecting a registration under the Securities
Act of 1933 for an underwritten public offering in which shares of Common Stock
subject to this Warrant are entitled to be included pursuant an effective
request therefor received by the Company from the Holder pursuant to the
provisions of Section 8.02 of the Purchase Agreement on or prior to the
Expiration Date, the Expiration Date shall be extended to 5:00 P.M., Los Angeles
time, on the 30th day following the date on which such Registration shall have
become effective but in no event longer than 180 days after the date this
Warrant would otherwise have expired. In the event that the Expiration Date is
extended in accordance with the provisions of this Section 9, all references
contained in this Warrant to the "Expiration Date" shall be deemed to be
references to the Expiration Date as so extended.
10. NO STOCKHOLDER RIGHTS. Nothing contained in this Warrant shall be
construed as conferring upon the Holders or their transferees the right to vote
or to receive dividends or to consent to or receive notice as shareholders in
respect of any meeting of shareholders for the election of directors of the
Company or any other matter, or any rights whatsoever as shareholders of the
Company. If, however, at any time prior to the expiration of this Warrant and
prior to its exercise in full, any of the following events shall occur:
(a) the Company shall declare any dividend payable in any securities upon
its shares of Common Stock or make any distribution to the holders of its shares
of Common Stock (other than a cash dividend or a dividend payable in additional
shares of Common Stock);
(b) the Company shall offer to the holders of its shares of Common Stock
any additional shares of Common Stock or securities convertible into shares of
Common Stock or any right to subscribe to shares of Common Stock or securities
convertible or exchangeable into shares of Common Stock;
(c) any reclassification of the capital stock of the Company (other than a
subdivision or combination of Common Stock), or any consolidation or merger to
which the Company is a party or any sale of all or substantially all of the
assets of the Company shall be proposed, and in each case shareholder approval
is required; or
<PAGE>
(d) a dissolution, liquidation or winding up of the Company shall be
proposed;
then in any one or more of such events, the Company shall give notice in writing
of such event to the Holders of this Warrant at least 20 days prior to the date
fixed as a record date or the date of closing the transfer books for the
determination of the shareholders entitled to such dividend, distribution, or
subscription rights, or for the determination of shareholders entitled to vote
on any such proposed transactions. Such notice shall specify such record date
or date of the closing of the transfer books, as the case may be.
<PAGE>
11. GOVERNING LAW. This Warrant shall be governed by and construed in
accordance with the laws of the State of California.
MYO DIAGNOSTICS, INC.
By: /s/ Gerald D. Appel
------------------------------
Name: GERALD APPEL
Title: President
<PAGE>
PURCHASE FORM
Dated: , 199
--------- --
The undersigned hereby irrevocably elects to exercise the within Warrant to the
extent of purchasing ________ shares of Common Stock and hereby makes payment of
$_____________ in payment of the actual exercise price thereof.
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name
-----------------------------------------------
(Please typewrite or print in block letters)
Address
------------------------------------------
------------------------------------------
Signature:
------------------------------
ASSIGNMENT FORM
FOR VALUE RECEIVED, ________________________________ hereby sells, assigns
and transfers unto
Name
-------------------------------------------
(Please typewrite or print in block letters)
Address ________________________________________________ the right to purchase
Common Stock represented by this Warrant to the extent of ______ shares as to
which such right is exercisable and does hereby irrevocably constitute and
appoint ____________________________, attorney, to transfer the same on the
books of the Company with full power of substitution in the premises.
Signature:
------------------------------
Dated: , 199
-------------- --
<PAGE>
AMENDMENT TO SERIES B WARRANT
This AMENDMENT TO SERIES B WARRANT (this "Amendment"), is made as of August
18, 1995, by and between Myo Diagnostics, Inc., a California corporation (the
"Company") and Ontario Municipal Employees Retirement Board ("OMERB")
RECITALS
A. WHEREAS, OMERB is the holder of that certain Series B Warrant, No.
B-l, dated December 23, 1994, for 83,333 shares of the Common Stock of the
Company (the "Warrant"); and
B. WHEREAS, the Company, OMERB, Gerald D. and Appel are parties to that
certain Securities Purchase Agreement, dated as of August 18, 1995, providing,
INTER ALIA, for the purchase by OMERB from the Company of 111,111 shares (the
"Closing Shares") of the Common Stock of the Company; and
C. WHEREAS, the execution and delivery of this Amendment is a condition
precedent to the obligation of OMERB to purchaser the Closing Shares pursuant to
the Purchase Agreement
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt of which is hereby acknowledged, the parties
hereto hereby agree as follows:
1. The first sentence of the introductory paragraph of the Warrant is
hereby amended to read in its entirety as follows:
THIS CERTIFIES THAT, FOR VALUE RECEIVED, ONTARIO MUNICIPAL EMPLOYEES
RETIREMENT BOARD, or registered assigns ("Holder") is entitled to
purchase, upon the terms and subject to the provisions of this
Warrant, from MYO DIAGNOSTICS, INC., a California corporation (the
"Company") 83,333 fully paid and nonassessable shares of the Common
Stock of the Company at the price of $2.25 per share at any time
during the period from the date hereof to 5:00 P.M., Los Angeles time,
on June 23, 1997 (the "Expiration Date"), at which time this Warrant
shall expire and become void.
2. The Company hereby represents and warrants to OMERB that this Amendment
has been duly executed and delivered by the Company and that the Warrant, as
amended by this Amendment constitutes the legal, valid, and binding obligation
of the Company, enforceable against the Company in accordance with its terms.
3. OMERB hereby represents and warrants to the Company that this Amendment
has been duly executed and delivered by OMERB.
4. This Amendment may be executed in two or more counterparts
<PAGE>
and by different parties in separate counterparts, each of which shall be deemed
an original, but all of which together shall constitute one and the same
instrument
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed
as of the date first above written.
MYO DIAGNOSTICS, INC.
By /s/ Gerald D. Appel
--------------------------------
Gerald D. Appel
President
ONTARIO MUNICIPAL EMPLOYEES
RETIREMENT BOARD
By /s/ Peter F. Friend
--------------------------------
Peter D. Friend
Portfolio Manager
By /s/ Henry A. Rachfalowski
--------------------------------
Henry A. Rachfalowski
Vice President
<PAGE>
SECOND AMENDMENT TO SERIES B WARRANT
This SECOND AMENDMENT TO SERIES B WARRANT (this "Amendment"), is made as of
December 22, 1995, by and between Myo Diagnostics, Inc,, a California
corporation (the "Company") and Ontario Municipal Employees Retirement Board
("OMERB")
RECITALS
A. WHEREAS, OMERB is the holder of that certain Series B Warrant, No. B-l,
dated December 23, 1994, for 83,333 shares of the Common Stock of the Company,
as amended by that certain Amendment to Series B Warrant dated as of August 18,
1995 (as so amended, the "Warrant"); and
B. WHEREAS, the Company and OMERB desire to further amend the Warrant as
hereinafter provided
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt of which is hereby acknowledged, the parties
hereto hereby agree as follows:
1. The first sentence of the introductory paragraph of the Warrant is
hereby amended to read in its entirety as follows:
THIS CERTIFIES THAT, FOR VALUE RECEIVED, ONTARIO MUNICIPAL EMPLOYEES
RETIREMENT BOARD, or registered assigns ("Holder") is entitled to purchase,
upon the terms and subject to the provisions of this Warrant, from MYO
DIAGNOSTICS, INC., a California corporation (the "Company") 83,333 fully
paid and nonassessable shares of the Common Stock of the Company at the
price of $1.75 per share at any time during the period from the date hereof
to 5:00 P.M., Los Angeles time, on June 23, 1998 (the "Expiration Date"),
at which time this Warrant shall expire and become void.
2. The Company hereby represents and warrants to OMERB that this Amendment
has been duly executed and delivered by the Company and that the Warrant, as
amended by this Amendment constitutes the legal, valid, and binding obligation
of the Company, enforceable against the Company in accordance with its terms.
3. OMERB hereby represents and warrants to the Company that this Amendment
has been duly executed and delivered by OMERB.
4. This Amendment may be executed in two or more counterparts and by
different parties in separate counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same instrument
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed
as of the date first above written.
MYO DIAGNOSTICS, INC.
By /s/ Gerald D. Appel
--------------------------------
Gerald D. Appel
President
ONTARIO MUNICIPAL EMPLOYEES
RETIREMENT BOARD
By /s/ Peter F. Friend
--------------------------------
Peter D. Friend
Portfolio Manager
By /s/ Henry A. Rachfalowski
--------------------------------
Henry A. Rachfalowski
Vice President
<PAGE>
THESE WARRANTS AND THE UNDERLYING COMMON STOCK HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 OR THE SECURITIES LAWS OF ANY STATE. THESE WARRANTS
HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE,
AND THESE WARRANTS AND THE UNDERLYING COMMON STOCK MAY NOT BE SOLD, MORTGAGED,
PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933 AND APPLICABLE STATE SECURITIES LAWS,
OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT
REQUIRED UNDER SUCH ACT OR LAWS.
MYO DIAGNOSTICS, INC.
SERIES C WARRANT
To Purchase Shares of Common Stock
No. C-1 Dated: August 18, 1995
THIS CERTIFIES THAT, FOR VALUE RECEIVED, ONTARIO MUNICIPAL EMPLOYEES
RETIREMENT BOARD, or registered assigns ("Holder") is entitled to purchase, upon
the terms and subject to the provisions of this Warrant, from MYO DIAGNOSTICS,
INC., a California corporation (the "Company") the number of fully paid and
nonassessable shares of the Common Stock of the Company specified below at the
price per share specified below at any time during the period from the Initial
Exercise Date (as hereinafter defined) to 5:00 P.M., Los Angeles time, on August
30, 1996 (the "Expiration Date"), at which time this Warrant shall expire and
become void. "Initial Exercise Date" means January 31, 1996, provided, however,
that if on January 31, 1996, the Company has a firm written commitment from a
person which is not an Affiliate of the Company (as hereinafter defined) for
Gross Proceeds (as hereinafter defined), which together with all Gross Proceeds
previously realized by the Company exceeds $500,000, then the Initial Exercise
Date shall mean February 28, 1996, or if earlier, the date on which such firm
written commitment is terminated. "Gross Proceeds" shall mean the aggregate
proceeds realized by the Company subsequent to August 18, 1995, and prior to the
Initial Exercise Date from the sale of its Common Stock or other equity
securities to any person who is not an Affiliate of the Company in a transaction
not involving a public offering. Gross Proceeds shall not include proceeds
realized by the Company from (a) the subscription for and sale of securities of
the Company pursuant to that certain Subscription Agreement, dated as of August
18, 1995 between the Company and Hydra Capital Corporation and Gerald D. Appel
or the subscription for and sale of securities of the Company pursuant to the
Share Purchase Warrant issued or to be issued in accordance with the terms
thereof, (b) the sale of securities of the Company pursuant to that certain
Securities Purchase Agreement, dated as of August 18, 1995, by and among the
Company, Holder and Gerald D. Appel or upon the exercise of this Warrant, (c)
the sale of securities of the Company upon the exercise of that certain Series A
Warrant, dated December 23, 1994, and issued to Holder, as amended, or (d) the
sale of securities of the Company upon the exercise of that
<PAGE>
certain Series B Warrant, dated December 23, 1994, and issued to Holder, as
amended. "Affiliate of the Company" means Gerald D. Appel, any person who
controls, is controlled by or is under common control with Mr. Appel or any
relative by blood or marriage (not more remote than first cousin) of Mr. Appel.
The number of shares of Common Stock initially issuable upon exercise of this
Warrant and the initial price to be paid for each share of Common Stock shall be
determined on the Initial Exercise Date as follows:
If Gross Proceeds are greater than $1,500,000, such number of shares shall
be 222,222 and such price shall be $2.30;
If Gross Proceeds are greater than $1,400,000 but not greater than
$1,500,000, such number of shares shall be 222,222 and such price shall be
$2.20;
If Gross Proceeds are greater than $1,300,000 but not greater than
$1,400,000, such number of shares shall be 222,222 and such price shall be
$2.10;
If Gross Proceeds are greater than $1,200,000 but not greater than
$1,300,000, such number of shares shall be 222,222 and such price shall be
$2.00;
If Gross Proceeds are greater than $1,100,000 but not greater than
$1,200,000, such number of shares shall be 222,222 and such price shall be
$1.90;
If Gross Proceeds are greater than $1,000,000 but not greater than
$1,100,000, such number of shares shall be 222,222 and such price shall be
$1.80;
If Gross Proceeds are greater than $900,000 but not greater than
$1,000,000, such number of shares shall be 444,444 and such price shall be
$1.50;
If Gross Proceeds are greater than $800,000 but not greater than $900,000,
such number of shares shall be 666,667 and such price shall be $1.00;
If Gross Proceeds are greater than $700,000 but not greater than $800,000,
such number of shares shall be 888,889 and such price shall be $0.25;
If Gross Proceeds are greater than $600,000 but not greater than $700,000,
such number of shares shall be 1,111,111 and such price shall be $0.10;
If Gross Proceeds are greater than $500,000 but not greater than $600,000,
such number of shares shall be 1,333,333 and such price shall be $0.05; and
<PAGE>
If Gross Proceeds are $500,000 or less, such number of shares shall be such
number as would be equal 50.1% of the total number of outstanding shares
Common Stock of the Company after giving effect to the issuance thereof and
such price shall be $0.001.
The number of shares of Common Stock to be received upon the exercise of this
Warrant and the price to be paid for each share of Common Stock shall be
adjusted from time to time as hereinafter set forth. As used herein, "Common
Stock" shall mean the Company's currently authorized Common Stock and any stock
into which such Common Stock may be exchanged, and the exercise price for a
share of Common Stock in effect at any time and as adjusted from time to time is
hereinafter sometimes referred to as the "Exercise Price". Unless the context
otherwise requires, the term "Warrant", as used herein, includes this Warrant
and any other Warrant or Warrants which may be issued pursuant to the provisions
of this Warrant, whether upon transfer, assignment, partial exercise, divisions,
combinations, exchange or otherwise, and the term "Holder" includes any
transferee or transferees or assignee or assignees of the Holder named above,
all of whom shall be subject to the provisions of this Warrant.
If Gross Proceeds are greater than $700,000 but not greater than $800,000,
such number of shares shall be 888,889 and such price shall be $0.25;
If Gross Proceeds are greater than $600,000 but not greater than $700,000,
such number of shares shall be 1,111,111 and such price shall be $0.10;
If Gross Proceeds are greater than $500,000 but not greater than $600,000,
such number of shares shall be 1,333,333 and such price shall be $0.05; and
If Gross Proceeds are $500,000 or less, such number of shares shall be such
number as would be equal 50.1% of the total number of outstanding shares
Common Stock of the Company after giving effect to the issuance thereof and
such price shall be $0.001.
The number of shares of Common Stock to be received upon the exercise of this
Warrant and the price to be paid for each share of Common Stock shall be
adjusted from time to time as hereinafter set forth. As used herein, "Common
Stock" shall mean the Company's currently authorized Common Stock and any stock
into which such Common Stock may be exchanged, and the exercise price for a
share of Common Stock in effect at any time and as adjusted from time to time is
hereinafter sometimes referred to as the "Exercise Price". Unless the context
otherwise requires, the term "Warrant", as used herein, includes this Warrant
and any other Warrant or Warrants which may be issued pursuant to the provisions
of this Warrant, whether upon transfer, assignment, partial exercise, divisions,
combinations, exchange or otherwise, and the term "Holder" includes any
transferee or transferees or
<PAGE>
assignee or assignees of the Holder named above, all of whom shall be subject to
the provisions of this Warrant.
1. METHOD OF EXERCISE. This Warrant may be exercised in whole or in part
at any time or from time to time after the date hereof but not after the
Expiration Date by presentation and surrender hereof to the Company at 3710
South Robertson Blvd., Suite 212, Culver City, California 90232 or at such other
office as may be designated by the Company, with the Purchase Form attached
hereto duly executed and accompanied by payment to the Company by cash or check
or bank draft payable to the order of the Company, of an amount equal to the
then applicable Exercise Price multiplied by the number of shares of Common
Stock specified in such Form. If this Warrant should be exercised in part only,
the Company shall, upon presentation of this Warrant upon such exercise, execute
and deliver a new Warrant evidencing the right of the Holder hereof to purchase
the balance of the shares of Common Stock purchasable hereunder upon the same
terms and conditions as herein set forth. The Company agrees that the shares so
purchased shall be deemed to be issued to the Holder hereof as the record owner
of such shares as of the close of business on the date on which this Warrant
shall have been surrendered and payment made for such shares as aforesaid.
Certificates for the shares of Common Stock so purchased shall be dated the date
of exercise and delivered to the Holder hereof within a reasonable time, not
exceeding 10 Trading Days (as hereinafter defined), after the rights represented
by this Warrant shall have been exercised.
2. RESERVATION AND LISTING OF SHARES; ISSUE TAXES. The Company hereby
agrees that at all times prior to the Expiration Date it will have authorized,
and reserved for the purpose of issue upon exercise of this Warrant, a
sufficient number of shares of its Common Stock to provide for the exercise of
this Warrant in full and that, upon issuance, such shares will be listed on each
national securities exchange, if any, on which the other shares of the
outstanding Common Stock of the Company are then listed. The Company hereby
agrees that all shares of Common Stock issuable upon exercise of this Warrant
will, upon issuance, be fully paid and nonassessable. The Company hereby agrees
that it will pay all documentary, stamp or similar taxes and other governmental
charges which may be imposed with respect to the issuance or delivery of any
shares of Common Stock upon exercise of this Warrant; provided, however, that if
the shares of Common Stock are to be issued in a name other than the name of the
Holder of this Warrant, then no such issuance or delivery shall be made unless
the person requesting the same has paid to the Company any necessary transfer
tax or other governmental charge incident thereto.
3. FRACTIONAL SHARES. If the number of shares of Common Stock purchasable
upon the exercise of this Warrant is adjusted pursuant to the provisions of
Section 6 hereof, the Company shall nevertheless not be required to issue any
fractional shares or scrip representing fractional shares upon the exercise of
this
<PAGE>
Warrant. With respect to any fraction of a share called for upon any exercise
hereof, the Company shall pay to the Holder an amount in cash equal to such
fraction multiplied by the Current Market Price (determined as hereinafter
provided) of one share of Common Stock on the last Trading Day prior to the date
of exercise of this Warrant. The Current Market Price of a share of Common Stock
for any day shall be determined as follows:
(a) If the Common Stock is listed on one or more national securities
exchanges or admitted to unlisted trading privileges on any such exchange, the
Current Market Price shall be the last sale price of the Common Stock reported
by the principal exchange on which the Common Stock is traded on such day; or
(b) If the Common Stock is not so listed or admitted to unlisted trading
privileges, the Current Market Price shall be the mean of the last reported bid
and asked prices on such day, as reported by the National Association of
Securities Dealers Automated Quotation System, or if not so reported, as
furnished by the National Quotation Bureau, Inc., or, if such firm at the time
is not engaged in the business of reporting such prices, as furnished by any
similar firm then engaged in such business as selected by the Company, or if
there is no such firm, as furnished by any member of the National Association of
Securities Dealers, Inc. selected by the Company; or
(c) If the Common Stock is not so listed or admitted to unlisted trading
privileges and bid and asked prices are not so reported, the Current Market
Price shall be an amount determined in good faith and in a reasonable manner by
the Board of Directors of the Company.
"Trading Day" means any day on which trades in the Common Stock of the
Company are reported by a national securities exchange or if such Common Stock
is not listed or admitted to trading privileges on any such exchange, any day
such Common Stock is traded in the over-the-counter market, provided that if
Current Market Price is being determined pursuant to clause (c) of Section 3,
"Trading Day" shall mean any day on which the New York Stock Exchange is open
for trading.
4. TRANSFER AND EXCHANGE. Subject to the provisions of Section 8 hereof
this Warrant and all rights hereunder are transferable, in whole or in part, on
the books of the Company by the Holder hereof in person or by duly authorized
attorney, upon presentation and surrender of this Warrant at the principal
office of the Company with the Assignment Form attached hereto duly executed and
upon payment of any necessary transfer tax or other governmental charge imposed
upon such transfer. Upon any partial transfer of this Warrant, the Company will
issue and deliver to the Holder an appropriate new Warrant or Warrants. Each
taker and Holder of this Warrant, by taking or holding the same, consents and
agrees that this Warrant when endorsed in blank shall be deemed negotiable and
that when this Warrant shall have been so endorsed, the Holder hereof may be
treated by the
<PAGE>
Company and all other persons dealing with this Warrant as the absolute owner
hereof for any purpose and as the person entitled to exercise the rights
represented hereby, or to the transfer hereof on the books of the Company, any
notice to the contrary notwithstanding; but until such transfer on such books,
the Company may treat the registered Holder hereof as the owner for all
purposes. This Warrant is exchangeable at the principal office of the Company
for Warrants for the purchase of the same aggregate number of shares of Common
Stock, each new Warrant to represent the right to purchase such number of shares
of Common Stock as the Holder hereof shall designate at the time of such
exchange. All Warrants issued on transfers or exchanges shall be dated the date
hereof and shall be identical to this Warrant except as to the number of shares
of Common Stock issuable pursuant thereto.
5. LOSS OR MUTILATION. Upon receipt by the Company of evidence
satisfactory to it of the ownership of and loss, theft, destruction or
mutilation of this Warrant and, in the case of loss, theft or destruction, of
indemnity satisfactory to the Company and, in the case of mutilation, upon
surrender and cancellation thereof, the Company shall (in the absence of notice
to the Company that this Warrant has been acquired by a bona fide purchaser)
execute and deliver to the Holder hereof in lieu hereof, a new Warrant of like
tenor and date and any such lost, stolen or destroyed Warrant shall thereupon
become void.
6. ADJUSTMENT OF PURCHASE PRICE AND NUMBER OF SHARES. The number and kind
of securities purchasable upon the exercise of this Warrant and the Exercise
Price shall be subject to adjustment from time to time upon the happening of
certain events, as follows:
(a) RECLASSIFICATION, CONSOLIDATION OR MERGER. In case of any
reclassification or change of outstanding securities of the class issuable upon
exercise of this Warrant (other than a change in par value, or from par value to
no par value, or from no par value to par value or as a result of a subdivision
or combination), or in case of any consolidation or merger of the Company with
or into another corporation (other than a merger with another corporation in
which the Company is the continuing corporation and which does not result in any
reclassification or change of outstanding securities issuable upon exercise of
this Warrant), the Company, or such successor, as the case may be, shall,
without payment of additional consideration therefor, execute a new Warrant,
providing that the Holder of this Warrant shall have the right to exercise such
new Warrant and procure upon such exercise, in lieu of each share of Common
Stock theretofore issuable upon exercise of this Warrant, the kind and amount of
shares of stock, other securities, money and property receivable upon such
reclassification, change, consolidation, or merger, by a holder of one share of
Common Stock issuable upon exercise of this Warrant, had this Warrant been
exercised immediately prior to the record date for determining the holders of
Common Stock to receive such shares of stock, other
<PAGE>
securities, money and property in connection with any such reclassification,
change, consolidation, or merger. Such new Warrant shall provide for adjustments
which shall be as nearly equivalent as may be practicable to the adjustments
provided for in this Section 6. The provisions of this Section 6(a) shall
similarly apply to successive reclassifications, changes, consolidations and
mergers.
(b) SUBDIVISION OR COMBINATION OF SHARES. If the Company, at any time while
this Warrant remains outstanding and unexpired, shall subdivide or combine its
Common Stock, the Exercise Price shall be proportionately decreased in the case
of a subdivision or increased in the case of a combination at the effective time
of such subdivision or combination, or if the Company shall set a record date
for the purpose of determining the Common Stock initially affected by such
subdivision or combination, if earlier, as of such record date.
(c) STOCK DIVIDENDS. If the Company at any time while this Warrant is
outstanding and unexpired shall pay a dividend or make any other distribution
(except any distribution specifically provided for in Section 6(a) or 6(b)
hereof) on the Common Stock in shares of Common Stock, then the Exercise Price
shall be adjusted, from and after the date of determination of stockholders
entitled to receive such dividend or distribution, to that price determined by
multiplying the Exercise Price in effect immediately prior to such date of
determination by a fraction (i) the numerator of which shall be the total number
of shares of Common Stock outstanding immediately prior to such dividend or
distribution, and (ii) the denominator of which shall be the total number of
shares of Common Stock outstanding immediately after such dividend or
distribution (plus, in the event that the Company pays cash for fractional
shares, the number of additional shares which would have been outstanding had
the Company issued fractional shares in connection with such dividend).
(d) RIGHTS OFFERINGS. If the Company shall issue rights, options, or
warrants to all holders of its outstanding shares of Common Stock, entitling
them (for a period expiring within 45 days after the record date for the
determination of shareholders entitled to receive such rights, options or
warrants) to subscribe for or purchase shares of Common Stock (or securities
exchangeable for or convertible into shares of Common Stock) at a price per
share of Common Stock (or having an exchange or conversion price per share of
Common Stock, with respect to a security exchangeable for or convertible into
shares of Common Stock) that is less than the Exercise Price in effect,
immediately prior to such record date, then such Exercise Price shall be
adjusted by multiplying such Exercise Price by a fraction, the numerator of
which shall be the number of shares of Common Stock outstanding on such record
date plus the number of shares of Common Stock that the aggregate offering price
of the total number of shares of Common Stock so to be offered (or,the aggregate
initial exchange or conversion price of the
<PAGE>
exchangeable or convertible securities so to be offered) would purchase at such
Exercise Price and the denominator of which shall be the number of shares of
Common Stock outstanding on such record date plus the number of additional
shares of Common Stock to be offered for subscription or purchase (or into which
the exchangeable or convertible securities so to be offered are initially
exchangeable or convertible). Such adjustment shall become effective at the
close of business on such record date; however, to the extent that shares of
Common Stock (or securities exchangeable for or convertible into shares of
Common Stock) are not delivered after the expiration of such rights, options, or
warrants, the Exercise Price shall be readjusted (but only to the extent this
Warrant is unexercised after such expiration) to the Exercise Price that would
then be in effect had the adjustment made upon the issuance of such rights,
options, or warrants been made upon the basis of delivery of only the number of
shares of Common Stock (or securities exchangeable for or convertible into
shares of Common Stock) actually issued. In case any subscription price may be
paid in a consideration, part or all of which shall be in a form other than
cash, the value of such consideration shall be as determined by the Board of
Directors in good faith and in a reasonable manner.
(e) DISTRIBUTIONS OF ASSETS AND INDEBTEDNESS. If the Company shall
distribute to all holders of its shares of Common Stock (including any such
distribution made in connection with a consolidation or merger in which the
Company is the surviving corporation) evidences of its indebtedness or assets,
then in each case the Exercise Price shall be adjusted by multiplying the
Exercise Price in effect immediately prior to the record date for the
determination of shareholders entitled to receive such distribution by a
fraction, the numerator of which shall be such Exercise Price, less the fair
market value (as determined by the Board of Directors of the Company acting in
good faith and in a reasonable manner) of the portion of the evidences of
indebtedness or assets so to be distributed applicable to one share of Common
Stock and the denominator of which shall be such Exercise Price. Such adjustment
shall be made whenever any such distribution is made, and shall become effective
on the date of distribution retroactive to the record date for the determination
of shareholders entitled to receive such distribution. This Section 6(e) does
not apply to (i) cash dividends payable out of consolidated retained earnings,
(ii) dividends or distributions payable in shares of stock referred to in
Section 6(c) above or (iii) rights, options or warrants referred to in Section
6(d) above.
(f) COMMON STOCK ISSUE, OPTIONS, WARRANTS, CONVERTIBLE SECURITIES, ETC. If
the Company shall sell or issue shares of Common Stock, or rights, options,
warrants or convertible or exchangeable securities containing the right to
subscribe for or purchase shares of Common Stock for a consideration per share
of Common Stock (determined, in the case of such rights, options, warrants or
convertible or exchangeable securities, by dividing (i) the total amount
received or receivable by the Company in
<PAGE>
consideration of the sale and issuance of such rights, options, warrants or
convertible or exchangeable securities, plus the total consideration payable to
the Company upon exercise or conversion or exchange thereof, by (ii) the total
number of shares of Common Stock covered by such rights, options, warrants or
convertible or exchangeable securities) lower than the Exercise Price in effect
on the date the Company fixes the offering price (or exercise price, option
price or conversion price, as the case may be) per share of such Common Stock,
then the Exercise Price shall be reduced to a price determined by multiplying
the Exercise Price in effect immediately prior thereto by a fraction, the
numerator of which shall be an amount equal to the sum of (A) the number of
shares of Common Stock outstanding immediately prior to such sale and issuance
plus (B) the number of shares of Common Stock which the aggregate consideration
received (determined as provided below) for such sale or issuance would purchase
at such Exercise Price, and the denominator of which shall be the total number
of shares of Common Stock to be outstanding immediately after such sale and
issuance. Such adjustment shall be made successively whenever such an issuance
is made. For the purposes of such adjustments, the shares of Common Stock which
the holder of any such rights, options, warrants, or convertible or exchangeable
securities shall be entitled to subscribe for or purchase shall be deemed to be
issued and outstanding as of the date of such sale and issuance and the
consideration received by the Company therefor shall be deemed to be the
consideration received by the Company for such rights, options, warrants or
convertible or exchangeable securities, plus the consideration or premiums
stated in such rights, options, warrants or convertible or exchangeable
securities to be paid for the shares of Common Stock covered thereby. For the
purposes of determining "consideration per share of Common Stock" or
"consideration received by the Company" for the purposes of the first sentence
of this Section 6(f), no deduction shall be made for commissions, discounts or
other expenses incurred by the Company for any underwriting of the issue or
otherwise in connection therewith. In case the Company shall sell and issue
shares of Common Stock, or rights, options, warrants or convertible or
exchangeable securities containing the right to subscribe for or purchase shares
of Common Stock, for a consideration consisting, in whole or in part, of
property other than cash or its equivalent, then in determining the
"consideration per share of Common Stock" and the "consideration received by the
Company" for purposes of the first sentence of this Section 6(f), the Board of
Directors shall determine the fair value of such property, acting in good faith
and in a reasonable manner. This Section 6(f) does not apply to (i) shares,
rights, options, warrants or convertible or exchangeable securities issued in
any of the transactions described in Sections 6(a) through 6(e), (ii) Common
Stock issued upon the exercise of rights, options, or warrants (including this
Warrant) or upon the conversion or exchange of convertible or exchangeable
securities, (iii) options to purchase not in excess of 400,000 shares of Common
Stock issued pursuant to that certain Agreement, dated December 13, 1994,
between the Company and Donald
<PAGE>
Patterson, Ronald Goldsack, James Connacher, Chris Skillen, Richard Reid and
James Black, or (iv) options to purchase not in excess of 400,000 shares of
Common Stock issued after the date hereof to employees, consultants, officers or
directors of the Company (other than Gerald D. Appel).
(g) OTHER ADJUSTMENTS. If any event occurs as to which in the opinion of
the Board of Directors of the Company, the other provisions of this Section 6
are not strictly applicable or if strictly applicable would not fairly protect
the purchase rights of the Holder in accordance with the essential intent and
principles of such provisions, then the Board of Directors shall make an
adjustment in the application of such provisions, in accordance with such
essential intent and principles, so as to protect such purchase rights as
aforesaid, but in no event shall any such adjustment have the effect of
increasing the Exercise Price as otherwise determined pursuant to this Section
6.
(h) ADJUSTMENT OF NUMBER OF SHARES. Upon each adjustment of the Exercise
Price, the number of shares of Common Stock purchasable hereunder shall be
adjusted to the product obtained by multiplying such number of shares
purchasable immediately prior to such adjustment in the Exercise Price by a
fraction, the numerator of which shalt be the Exercise Price in effect
immediately prior to such adjustment and the denominator of which shall be the
Exercise Price in effect immediately thereafter.
(i) MINIMUM ADJUSTMENT. No adjustment in the Exercise Price shall be
required unless such adjustment would require an increase or decrease of at
least $.05 in the Exercise Price; provided, however, that any adjustments which
by reason of this Section 6(i) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All calculations
under this Section 6 shall be made to the nearest one-tenth of one cent or to
the nearest one-tenth of a share, as the case may be.
(j) SECURITIES OTHER THAN COMMON STOCK. In the event that at any time, as a
result of an adjustment made pursuant to this Section 6, the Holders of this
Warrant shall become entitled to purchase any shares or securities of the
Company other than shares of Common Stock, thereafter the number of such other
shares or securities so purchasable upon exercise of this Warrant and the
Exercise Price for such shares or securities shall be subject to adjustment from
time to time in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the shares of Common Stock contained in Section 6(a)
through 6(h), inclusive, of this Section 6 and the other provisions hereof with
respect to the shares of Common Stock shall apply on like terms to any such
other shares.
(k) DEFERMENT OF ADJUSTMENT. In any case in which this Section 6 shall
require that an adjustment in the Exercise Price be made effective as of a
record date for a specified event, the Company may elect to defer until the
occurrence of such event
<PAGE>
issuing to the Holder of any Warrant exercised after such record date the shares
of Common Stock, if any, issuable upon such exercise over and above the shares
of Common Stock, if any, issuable upon such exercise on the basis of the
Exercise Price in effect prior to such adjustment.
(l) Voluntary Adjustment by the Company. The Company may at its option, at
any time during the term of this Warrant, reduce the then current Exercise Price
for any period of time to any amount deemed appropriate by the Board of
Directors of the Company.
7. NOTICE OF ADJUSTMENTS. Whenever any Exercise Price shall be adjusted
pursuant to Section 6 hereof, the Company shall promptly prepare a certificate
of its chief financial officer setting forth, in reasonable detail the event
requiring the adjustment, the amount of the adjustment, the method by which such
adjustment was calculated, and the Exercise Price after giving effect to such
adjustment, and shall promptly cause copies of such certificate to be made (by
first class mail, postage prepaid) to the Holder of this Warrant.
8. RESTRICTIONS ON TRANSFER; LEGENDS. This Warrant was issued pursuant to
that certain Securities Purchase Agreement dated as of August 18, 1995, among
the Company, Ontario Municipal Employees Retirement Board, and Gerald D. Appel
(the "Purchase Agreement"), a copy of which will be furnished, without charge,
to the Holder hereof upon written request to the Company. Each taker and Holder
of this Warrant, by taking and holding the same, represents, acknowledges and
agrees that (a) this Warrant was, and any shares of Common Stock acquired upon
exercise hereof will be (unless then registered under the Securities Act of 1933
or an exemption from such registration not requiring such representation is
available for the sale of the Common Stock), acquired for investment and not
with a view to or for sale in connection with any distribution thereof, (b) this
Warrant has not been, and the shares of Common Stock issuable upon exercise
hereof may not be, registered under the Securities Act of 1933 (the 1933 Act ),
may not be transferred in violation of the 1933 Act, and must be held
indefinitely unless they are subsequently registered thereunder or an exemption
from such registration is available, and (c) this Warrant and the shares of
Common Stock issuable upon exercise hereof are subject to other restrictions on
transfer by the provisions of the Purchase Agreement, including, without
limitation, Sections 8.01 and 8.12 thereof. Each taker and Holder of this
Warrant, by taking and holding the same, also agrees that all certificates
representing Common Stock issued upon exercise of this Warrant may bear the
restrictive legend set forth in Section 4.06 of the Purchase Agreement and may
bear such other legends and endorsements as shall be required to comply with any
law or with any rule or regulation of any stock exchange on which such
securities may be listed.
9. EXTENSION OF EXPIRATION DATE. In addition, and notwithstanding any
provision contained herein to the contrary,
<PAGE>
in the event that (a) at the Expiration Date the Company is required, pursuant
to an effective request therefor received by the Company from the Holder
pursuant to the provisions of Section 8.03 of the Purchase Agreement at least 90
days prior to the Expiration Date, to effect a Registration under the Securities
Act of 1933 with respect to any shares of Common Stock subject to this Warrant
or (b) at the Expiration Date the Company is in the process of effecting a
registration under the Securities Act of 1933 for an underwritten public
offering in which shares of Common Stock subject to this Warrant are entitled to
be included pursuant an effective request therefor received by the Company from
the Holder pursuant to the provisions of Section 8.02 of the Purchase Agreement
on or prior to the Expiration Date, the Expiration Date shall be extended to
5:00 P.M., Los Angeles time, on the 30th day following the date on which such
Registration shall have become effective but in no event longer than 180 days
after the date this Warrant would otherwise have expired. In the event that the
Expiration Date is extended in accordance with the provisions of this Section 9,
all references contained in this Warrant to the "Expiration Date" shall be
deemed to be references to the Expiration Date as so extended.
10. NO STOCKHOLDER RIGHTS. Nothing contained in this Warrant shall be
construed as conferring upon the Holders or their transferees the right to vote
or to receive dividends or to consent to or receive notice as shareholders in
respect of any meeting of shareholders for the election of directors of the
Company or any other matter, or any rights whatsoever as shareholders of the
Company. If, however, at any time prior to the expiration of this Warrant and
prior to its exercise in full, any of the following events shall occur:
(a) the Company shall declare any dividend payable in any securities upon
its shares of Common Stock or make any distribution to the holders of its shares
of Common Stock (other than a cash dividend or a dividend payable in additional
shares of Common Stock);
(b) the Company shall offer to the holders of its shares of Common Stock
any additional shares of Common Stock or securities convertible into shares of
Common Stock or any right to subscribe to shares of Common Stock or securities
convertible or exchangeable into shares of Common Stock;
(c) any reclassification of the capital stock of the Company (other than a
subdivision or combination of Common Stock), or any consolidation or merger to
which the Company is a party or any sale of all or substantially all of the
assets of the Company shall be proposed, and in each case shareholder approval
is required;
or
(d) a dissolution, liquidation or winding up of the Company shall be
proposed;
<PAGE>
then in any one or more of such events, the Company shall give notice in writing
of such event to the Holders of this Warrant at least 20 days prior to the date
fixed as a record date or the date of closing the transfer books for the
determination of the shareholders entitled to such dividend, distribution, or
subscription rights, or for the determination of shareholders entitled to vote
on any such proposed transactions. Such notice shall specify such record date or
date of the closing of the transfer books, as the case may be.
11. GOVERNING LAW. This Warrant shall be governed by and construed in
accordance with the laws of the State of California.
MYO DIAGNOSTICS, INC.
/s/
By___________________________
Name:
Title:
<PAGE>
PURCHASE FORM
Dated: ____________, 199__
The undersigned hereby irrevocably elects to exercise the within Warrant to the
extent of purchasing _________ shares of Common Stock and hereby makes payment
of $______ in payment of the actual exercise price thereof.
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name ______________________________________________
(please typewrite or print in block letters)
Address ______________________________________
______________________________________
Signature:
---------------------------
ASSIGNMENT FORM
FOR VALUE RECEIVED, _______________________________ hereby sells, assigns
and transfers unto
Name ___________________________________________________________
(Please typewrite or print in block letters)
Address _________________________________________ the right to purchase Common
Stock represented by this Warrant to the extent of ____________ shares as to
which such right is exercisable and does hereby irrevocably constitute and
appoint ___________________, attorney, to transfer the same on the books of the
Company with full power of substitution in the premises.
Signature:
-----------------------------
Dated: ____________, 199__
<PAGE>
AMENDMENT TO SERIES C WARRANT
This AMENDMENT TO SERIES C WARRANT (this "Amendment"), is made as of
December 22, 1995, by and between Myo Diagnostics, Inc,, a California
corporation (the "Company") and Ontario Municipal Employees Retirement Board
("OMERB")
RECITALS
A. WHEREAS, OMERB is the holder of that certain Series C Warrant, No. C-1,
dated August 18, 1995 for shares of the Common Stock of the Company (the
"Warrant"); and
B. WHEREAS, the Company and OMERB, and Gerald D. Appel desire to amend the
Warrant as hereinafter provided
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt of which is hereby acknowledged, the parties
hereto hereby agree as follows:
1. The introductory paragraph of the Warrant is hereby amended to read in
its entirety as follows:
THIS CERTIFIES THAT, FOR VALUE RECEIVED, ONTARIO MUNICIPAL EMPLOYEES
RETIREMENT BOARD, or registered assigns ("Holder") is entitled to purchase,
upon the terms and subject to the provisions of this Warrant, from MYO
DIAGNOSTICS, INC., a California corporation (the "Company") the number of
fully paid and nonassessable shares of the Common Stock of the Company
specified below at the price per share specified below at any time during
the period from the Initial Exercise Date (as hereinafter defined) to 5:00
P.M., Los Angeles time, on December 31, 1998 (the "Expiration Date"), at
which time this Warrant shall expire and become void. "Initial Exercise
Date" means March 31, 1996, provided, however, that if on March 31, 1996,
the Company has a firm written commitment from a person which is not an
Affiliate of the Company (as hereinafter defined) for Gross Proceeds (as
hereinafter defined), which together with all Gross Proceeds previously
realized by the Company exceeds $500,000, then the Initial Exercise Date
shall mean April 30, 1996, or if earlier, the date on which such firm
written commitment is terminated. "Gross Proceeds" shall mean the aggregate
proceeds realized by the Company subsequent to August 18, 1995, and prior
to the Initial Exercise Date from the sale of its Common Stock or other
equity securities to any person who is not an Affiliate of the Company in a
transaction not involving a public offering. Gross Proceeds shall not
include proceeds realized by the Company from (a) the subscription for and
sale of securities of the Company pursuant to that certain Subscription
Agreement, dated as of August 18, 1995 between the Company and Hydra
Capital Corporation and Gerald D. Appel or the subscription for and sale of
securities of the Company pursuant to the Share Purchase Warrant issued or
to be issued in accordance with
<PAGE>
the terms thereof, (b) the sale of securities of the Company pursuant to that
certain Securities Purchase Agreement, dated as of August 18, 1995, by and among
the Company, Holder and Gerald D. Appel or upon the exercise of this Warrant,
(c) the sale of securities of the Company upon the exercise of that certain
Series A Warrant, dated December 23, 1994, and issued to Holder, as amended, or
(d) the sale of securities of the Company upon the exercise of that certain
Series B Warrant, dated December 23, 1994, and issued to Holder, as amended.
"Affiliate of the Company" means Gerald D. Appel, any person who controls, is
controlled by or is under common control with Mr. Appel or any relative by blood
or marriage (not more remote than first cousin) of Mr. Appel. The number of
shares of Common Stock initially issuable upon exercise of this Warrant and the
initial price to be paid for each share of Common Stock shall be determined on
the Initial Exercise Date as follows:
If Gross Proceeds are greater than $1,200,000, such number of shares
shall be 222,222 and such price shall be $2.00;
If Gross Proceeds are greater than $1,100,000 but not greater than
$1,200,000, such number of shares shall be 222,222 and such price
shall be $1.90;
If Gross Proceeds are greater than $1,000,000 but not greater than
$1,100,000, such number of shares shall be 222,222 and such price
shall be $1.80;
If Gross Proceeds are greater than $900,000 but not greater than
$1,000,000, such number of shares shall be 444,444 and such price
shall be $1.50;
If Gross Proceeds are greater than $800,000 but not greater than
$900,000, such number of shares shall be 666,667 and such price shall
be $1.00;
If Gross Proceeds are greater than $700,000 but not greater than
$800,000, such number of shares shall be 888,889 and such price shall
be $0.25;
4. This Amendment may be executed in two or more counterparts and by
different parties in separate counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same instrument
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed
as of the date first above written.
MYO DIAGNOSTICS, INC.
By: /s/ Gerald D. Appel
----------------------------
Gerald D. Appel
President
ONTARIO MUNICIPAL EMPLOYEES
RETIREMENT BOARD
By: /s/ Peter D.Friend
-----------------------------
Peter D. Friend
Portfolio Manager
By: /s/ Henry A. Rachfalowski
----------------------------
Henry A. Rachfalowski
Vice President
<PAGE>
SECOND AMENDMENT TO SERIES C WARRANT
This SECOND AMENDMENT TO SERIES C WARRANT (this "Amendment") is made as of
July 8, 1996, by and between Myo Diagnostics, Inc., a California corporation
(the "Company") and Ontario Municipal Employees Retirement Board ("OMERB").
RECITALS
A. WHEREAS, OMERB is the holder of that certain Series C Warrant No. C-1,
dated August 18, 1995 for shares of the Common Stock of the Company, as amended
by that certain Amendment to Series C Warrant, dated as of December 22, 1995 (as
so amended, the "Warrant"); and
B. WHEREAS, the Company and OMERB desire to further amend the Warrant as
hereinafter provided.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt of which is hereby acknowledged, the parties
hereto hereby agree as follows:
1. The introductory paragraph of the Warrant is hereby amended to read in
its entirety as follows:
THIS CERTIFIES THAT, FOR VALUE RECEIVED, ONTARIO MUNICIPAL EMPLOYEES
RETIREMENT BOARD, or registered assigns ("Holder") is entitled to purchase,
upon the terms and subject to the provisions of this Warrant, from MYO
DIAGNOSTICS. INC., a California corporation (the "Company"), 222,222 fully
paid and nonassessable shares of the Common Stock of the Company at the
price of $2.00 per share at any time during the period from December 22,
1995 to 5:00 P.M., Los Angeles time, on December 31, 1998 (the "Expiration
Date"), at which time this Warrant shall expire and become void. The number
of shares of Common Stock to be received upon the exercise of this Warrant
and the price to be paid for each share of Common Stock shall be adjusted
from time to time as hereinafter set forth. As used herein, "Common Stock"
shall mean the Company's currently authorized Common Stock and any stock
into which such Common Stock may be exchanged, and the exercise price for a
share of Common Stock in effect at any time and as adjusted from time to
time is hereinafter sometimes referred to as the "Exercise Price". Unless
the context otherwise requires, the term "Warrant", as used herein,
includes this Warrant and any other Warrant or Warrants which may be issued
pursuant to the provisions of this Warrant. whether upon transfer,
assignment, partial exercise, divisions, combinations, exchange or
otherwise, and the term "Holder" includes any transferee or transferees or
assignee or assignees of the Holder named above, all of whom shall be
subject to the provisions of this Warrant.
<PAGE>
2. The Company hereby represents and warrants to OMERB that this Amendment
has been duly executed and delivered by the Company and that the Warrant, as
amended by this Amendment, constitutes the legal, valid, and binding obligation
of the Company, enforceable against the Company in accordance with its terms.
3. OMERB hereby represents and warrants to the Company that this Amendment
has been duly executed and delivered by OMERB.
4. This Amendment may be executed in two or more counterparts and by
different parties in separate counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed
as of the date first above written.
MYO DIAGNOSTICS. INC.
By /s/ Gerald D. Appel
-------------------------
Gerald D. Appel
President
ONTARIO MUNICIPAL EMPLOYEES RETIREMENT BOARD
By /s/ Peter D. Friend
--------------------------
Peter D. Friend
Portfolio Manager
by /s/ Tom Gunn
--------------------------
Tom Gunn
Senior Vice President, Investments
<PAGE>
[Letterhead of Ontario Municipal Employees Retirement Board]
December 8, 1995
Myo Diagnostics, Inc.
3710 South Robertson Blvd., Suite 212
Culver City, California 90232
Attn: Mr. Gerald D. Appel
Re: Waiver of Rights
----------------
Ladies and Gentlemen:
Reference is made to (1) that certain Securities Purchase Agreement, dated
as of December 23, 1994 (the "First Purchase Agreement"), by and among Myo
Diagnostics, Inc. (the "Company"), Ontario Municipal Employees Retirement Board
("OMERB"), Gerald D. Appel and Hershel Toomim and (2) that certain Securities
Purchase Agreement, dated as of August 18, 1995 (the "Second Purchase
Agreement"), by and among the Company, OMERB and Gerald D. Appel OMERB is the
Holder of 100% of the Registrable Securities (as deemed in the First and Second
Purchase Agreements).
OMERB understands that the Company wishes to sell and issue not less than
300,000 nor more than 750,000 shares of cumulative convertible redeemable
preferred stock at a purchase price of $5.00 per share (the "Proposed
Offering"), such convertible preferred stock (the "Preferred Stock") to have the
rights and preferences described in that certain Confidential Offering
Memorandum of the Company dated as of December 8, 1995 a copy of which is
attached hereto as Exhibit A (the "Memorandum"). In connection with the Proposed
Offering, the Company has requested OMERB to waive its rights of first refusal
under Section 9.01 of the First Purchase Agreement and Section 9.01 of the
Second Purchase Agreement and to waive compliance by the Company with certain
covenants contained in the First Purchase Agreement and the Second Purchase
Agreement in connection with the Proposed Offering.
Accordingly, pursuant to Section 10.02 of the First Purchase Agreement and
Section 10.02 of the Second Purchase Agreement, the undersigned hereby (1)
waives its rights of first refusal set forth in Section 9.01 of the First
Purchase Agreement and Section 9.01, of the Second Purchase Agreement in
connection with the sale and issuance by the Company of not less titan 300,000
shares nor more than 750,000 shares of Preferred Stock in accordance with the
terms of the Proposed Offering; (2) waives its rights under Section 9.01(b) of
the First Purchase Agreement and Section 9.01(b) of the Second Purchase
Agreement to notice of the Proposed Offering, any subsequent conversion of the
Preferred Stock into Common Stock or any subsequent exercise of any warrants
issuable upon conversion of the Preferred Stock; (3) waives compliance by the
Company with the
<PAGE>
provisions of Sections 7.02(a), 7.02(b), and 7.02(c) of the First Purchase
Agreement and Sections 7.02(a), 7.02(b) and 7.02(c) of the Second Purchase
Agreement insofar as required to permit the consummation of the sale and
issuance of the Preferred Stock pursuant to the Proposed Offering, the
subsequent conversion of the Preferred Stock Into Common Stock, the payment of
cumulative annual dividends on the Preferred Stock at the rate of $.50 per
share, and the performance by the Company of the other covenants and agreements
in the terms of the Preferred Stock described in the Memorandum; and (4) waives
compliance by the Company with the provisions of Section 7.02(k) of the First
Purchase Agreement and Section 7.02(k) of the Second Purchase Agreement insofar
as the terms of the Preferred Stock described in the Memorandum may be deemed to
be "affirmative or negative covenants more favorable to an equity investor in
the Company" than those contained in the two Purchase Agreements.
This waiver is conditioned upon the consummation of the Proposed Offering
on or before August 13, 1996 and in the event that the Proposed Offering is not
consummated on or before such date, this waiver shall be of no further force of
effect.
ONTARIO MUNICIPAL EMPLOYEES RETIREMENT BOARD
By: /s/ Peter D. Friend
-------------------------------------
Peter D. Friend
Portfolio Manager
By: /s/ Henry A. Rachfalowski
-------------------------------------
Henry A. Rachfalowski
Vice President
2
<PAGE>
[Letterhead of MYO Diagnostics, Inc.]
July 8, 1996
Ontario Municipal Employees
Retirement Board
One University Avenue, Suite 1000
Toronto, Ontario MSJ2P1 Canada
Attn: Peter D. Friend
Re: Securities Purchase Agreements; Warrants
----------------------------------------
Ladies and Gentlemen:
Reference is made to (1) that certain Securities Purchase Agreement, dated
as of December 23, 1994 (the "1994 Agreement"), by and among Myo Diagnostics,
Inc. (the "Company), Ontario Municipal Employees Retirement Board ("OMERB"),
Gerald D. Appel and Hershel Toomim, (2) that certain Securities Purchase
Agreement, dated as of August 18, 1995 (the "1995 Agreement" and, collectively
with the 1994 Agreement, the "Purchase Agreements"), by and among the Company,
OMERB and Gerald D. Appel, (3) that certain Series A Warrant, No. A-l, dated
December 23, 1994, entitling OMERB to purchase 100,000 shares of the common
stock (the "Common Stock") of the Company, as amended (the "Series A Warrant"),
(4) that certain Series B Warrant, No. B-l, dated December 23, 1994, entitling
OMERB to purchase 83,333 shares of the Common Stock of the Company, as amended
(the "Series B Warrant"), and (5) that certain Series C Warrant, No. C-l, dated
August 18, 1995, entitling OMERB to purchase 222,222 shares of the Common Stock
of the Company, as amended (the "Series C Warrant" and, collectively with the
Series A Warrant and the Series B Warrant, the "Warrants"). OMERB is the Holder
of 100% of the Registrable Securities (as defined in both the 1994 Agreement and
the 1995 Agreement).
In connection with a number of past and pending issuances of securities by
the Company, the Company is interested in obtaining from OMERB the waiver of
certain rights provided to OMERB in the Purchase Agreements and the Warrants, as
well as the waiver of compliance by the Company with respect to certain
covenants contained in the Purchase Agreements.
In addition, to facilitate one such proposed issuance, the Company is
interested in obtaining from OMERB an agreement to terminate certain affirmative
and negative covenants contained in the Purchase Agreements, with such
termination to be contingent upon OMERB receiving from the Company, or a
successor corporation, in a merger involving the Company, securities registered
under the Securities Act of 1933, as amended (the "1933 Act").
<PAGE>
THE FIRST OFFERING
In May 1996, the Company issued and sold 500,000 shares of Common Stock
(the "First Offering Stock") at a purchase price of $2.00 per share (the "First
Offering") to Canadian investors in a private placement.
The Company requests that OMERB, pursuant to Section 10.02 of the 1995
Agreement, (1) waive its rights of first refusal set forth in Section 9.01 of
the 1995 Agreement in connection with the sale and issuance by the Company of
the First Offering Stock in accordance with the First Offering; and (2) waive
its rights under Section 9.01(b) of the 1995 Agreement to notice of the First
Offering.
THE SECOND OFFERING
The Company proposes to sell and issue up to 2,000,000 units (each a "Unit"
and collectively the "Units") at a purchase price of $2.50 per Unit for an
aggregate purchase price of $5,000,000. Each Unit consists of one share of
Common Stock and one-quarter warrant. Each whole warrant will entitle the holder
thereof to acquire one share of Common Stock at a price of $3.00 per share for a
period of one year after the closing of the offering. In connection with this
offer, the Company proposes to issue to the agents selling the Units up to
180,000 compensation warrants (the "Compensation Warrants"). Each Compensation
Warrant will entitle the holder thereof to acquire one share of Common Stock at
a price of $2.50 per share for a period of two years after the closing of the
offering. The Units, the shares and warrants included in the Units, the
Compensation Warrants, and the shares issuable upon exercise of the warrants and
the Compensation Warrants, are referred to herein as the "Securities". The sale
and/or issuance of the Securities is referred to herein as the "Second
Offering". The Second Offering is described more fully in that certain
Confidential Private Placement Offering Memorandum, dated as of May 10, 1996, a
copy of which has been separately provided to you (the "Offering Memorandum")
(Note: the Offering Memorandum relates to 1,600,000 Units offered outside of the
United States; a separate memorandum will be prepared for the offer of 400,000
Units in the United States on substantially the same terms and conditions).
The closing of the Second Offering is subject to a number of conditions,
including that the Company complete a reverse take-over with a company trading
through the NASDAQ trading system within no later than six months after the date
proceeds for the purchase of the Units are deposited with the agent in such
offering, which occurred in early June. The Company will make certain
affirmative and negative covenants to the Unit purchasers which will remain in
effect until completion of the Second Offering.
The Company requests that OMERB, pursuant to Section 10.02 of
<PAGE>
the 1994 Agreement and Section 10.02 of the 1995 Agreement, (1) waive its rights
of first refusal set forth in Section 9.01 of the 1995 Agreement in connection
with the sale and/or issuance by the Company of the Securities in accordance
with the terms of the Offering Memorandum; (2) waive its rights under Section
9.01(b) of the 1995 Agreement to notice of the Second Offering; and (3) waive
compliance by the Company with the provisions of Section 7.02(k) of the 1994
Agreement and Section 7.02(k) of the 1995 Agreement insofar as the terms of the
Offering Memorandum, or the affirmative or negative covenants contained in any
agency agreement or subscription agreement executed or issued in connection with
the Second Offering, may be deemed to be "affirmative or negative covenants more
favorable to an equity investor in the Company" than those contained in the
Purchase Agreements.
THE REVERSE TAKE-OVER
As a condition to the closing of the Second Offering, the Company must
complete a reverse take-over with a company trading through the NASDAQ trading
system, or a subsidiary of such company (the "Reverse Take-Over"). Upon
consummation of the Reverse Take-Over, the holders of Common Stock immediately
preceding the Reverse Take-Over must hold at least 97% of the outstanding equity
voting shares (the "Successor Shares") of the successor company (the "Successor
Company"). The Successor Shares must be registered under the 1933 Act.
The Company requests that OMERB, pursuant to Section 10.02 of the 1994
Agreement and Section 10.02 of the 1995 Agreement, (1) waive compliance by the
Company with the provisions of Sections 7.01(a) and 7.02(g) of the 1994
Agreement and Sections 7.01(a) and 7.02(g) of the 1995 Agreement insofar as
required to permit the Reverse Take-Over; and (2) waive compliance by the
Company with the provisions of Section 7.02(k) of the 1994 Agreement and Section
7.02(k) of the 1995 Agreement insofar as the terms of the Reverse Take-Over may
be deemed to be "affirmative or negative covenants more favorable to an equity
investor in the Company" than those contained in the Purchase Agreements.
TERMINATION OF RIGHTS AND COVENANTS
To facilitate the Reverse Take-Over, the Company requests, in addition to
the waiver by OMERB of the rights and covenants as provided for above, that
OMERB terminate the following rights and affirmative and negative covenants:
(a) The rights and affirmative and negative covenants contained in Article
7 of the 1994 Agreement and Articles 7 and 9 of the 1995 Agreement, with such
terminations to take effect, and be contingent, upon consummation of the Reverse
Take-Over and issuance to OMERB of Successor Shares registered under the 1933
Act in exchange for the shares of Common Stock held by OMERB
<PAGE>
immediately prior to the Reverse Take-Over; and
(b) The rights contained in Article 8 of the 1995 Agreement with respect to
any Successor Shares registered under the 1933 Act which OMERB receives in
exchange for Common Stock of the Company or upon exercise of the Warrants. OMERB
will continue to have registration rights with respect to any unregistered
securities it receives in exchange for Common Stock of the Company or upon
exercise of the Warrants.
In the event that the Reverse Take-Over does not occur by December 31,
1996, the waiver granted with respect to the Reverse Take-Over shall be deemed
to be withdrawn and the above provisions shall continue in full force and
effect.
Upon the request of the Company or OMERB, the Company and OMERB shall
execute formal amendments to the Purchase Agreements to reflect the agreements
contained herein.
THE LOCK-UP AGREEMENT
It is anticipated that the agents involved in the Reverse Take-Over and/or
the Second Offering will require all significant stockholders of the Company
(those owning beneficially or of record 5% or more of the Common Stock) to enter
into an agreement precluding the sale, short sale, loan, grant of options for
the purchase of, or other disposition of any of the Successor Shares without the
prior written consent of the agents, for a period of up to 180 days from the
closing of the Reverse Take-Over (the "Lock-Up Agreement").
The Company requests that OMERB agree that, upon request of the agents
involved in the Reverse Take-Over and/or the Second Offering, it will enter into
such a Lock-Up Agreement; provided that the period of any such Lock-Up Agreement
will not exceed the shortest period of any other Lock-Up Agreement required of
the Company's other 5% stockholders or directors in connection with the Reverse
Take-Over.
THE PARTNERSHIP NOTES
In connection with the transaction in which Myo Diagnostics, Ltd. (the
"Partnership") transferred all of its assets and liabilities to the Company in
December 1994, the limited partners of the Partnership (other than the Company)
received, among other things, notes of the Company in the aggregate amount of
$175,000 (the "Partnership Notes"). One-half of the Partnership Notes has been
paid, but the balance, which was due in September 1995, has not been paid.
Pursuant to the terms of the Partnership Notes, because of this default, the
noteholders are entitled to receive, for no additional consideration, 42,000
shares (the "Default Shares") of the Common Stock.
<PAGE>
The Company believes that the issuance of the Default Shares was known and
contemplated by the Company and OMERB at the time of negotiation and execution
of the 1995 Agreement, and that it was not intended by the Company or OMERB that
the Default Shares would be subject to either (i) OMERB's right of first refusal
set forth in Section 9.01 of the 1995 Agreement, or (ii) OMERB's rights under
Article 6 of each of the Warrants to have the Exercise Price (as defined in the
Warrants) of, and the aggregate number of shares purchasable under, each of the
Series A Warrant, the Series B Warrant and the Series C Warrant adjusted due to
the issuance of the Default Shares. The Company requests that OMERB confirm the
Company's understanding with respect to the foregoing.
Please acknowledge OMERB's (A) agreement to (i) waive its rights, and to
waive compliance by the Company, with respect to the First Offering, the Second
Offering and the Reverse Take-Over, (ii) terminate the provisions of the
Purchase Agreements and, if requested by the Company, to enter into formal
amendments to the Purchase Agreements providing for the termination of such
provisions, and (iii) enter into a Lock-Up Agreement in connection with the
Reverse Take-Over if and when requested by the agents involved in the Reverse
Take-Over and/or the Second Offering, and (B) confirmation of the Company's
understanding with respect to the Default Shares, each as provided for above, by
signing the acknowledgement below.
MYO DIAGNOSTICS, INC.
By: /s/ Gerald D. Appel
--------------------------------
Gerald D. Appel
President, CEO and Chairman
of the Board
ACKNOWLEDGEMENT
The undersigned hereby (A) agrees to (i) waive its rights, and to waive
compliance by the Company, with respect to the First Offering, the Second
Offering and the Reverse Take-Over, (ii) terminate the provisions of the
Purchase Agreements and, if requested by the Company, to enter into formal
amendments to the Purchase Agreements providing for the termination of such
provisions, and (iii) enter into a Lock-Up Agreement in connection with the
Reverse Take-Over if and when requested by the agents involved in the Reverse
Take-Over and/or the Second Offering, and (B) confirms the Company's
understanding with respect to the Default Shares, each as provided for above,
subject to the terms and conditions as provided for above.
ONTARIO MUNICIPAL EMPLOYEES RETIREMENT BOARD
<PAGE>
By: /s/ Peter D. Friend By: /s/ Tom Gunn
--------------------------- -----------------------------
Peter D. Friend Tom Gunn
Portfolio Manager Senior Vice President,
Investment
<PAGE>
December 13, 1994
Donald Patterson et al.
24 Elgin Avenue
Toronto Ontario
Canada
M5R 1G6
Dear Don:
This letter shall serve as an Agreement made between Myo Diagnostics Inc.
("Myo") and Donald Patterson, Ronald Goldsack, James Connacher, Chris Skillen,
Richard Reid and James Black ("Guarantors").
1. PREVIOUS LETTER
Myo and Guarantor hereby cancel the letter agreement between us dated March 23,
1994 (the "Previous Agreement")and replace it with the following agreement.
2. PROVISIONS OF THE LETTER OF CREDIT
The Guarantors have furnished a series of irrevocable Letters of Credit (the
"L.C.s") in favor of the Wells Fargo Bank, Century City branch for the account
of Myo Diagnostics Ltd. The L. C.s are in the aggregate amount of $400,000
(U.S.).
The Letters of Credit were issued according to the following schedule:
Date Issued Amount Guarantor
----------- ------ ---------
May 27, 1994 - $75,000 Donald Patterson
July 7, 1994 - $65,000 Ronald Goldsack
July 7, 1994 - $65,000 James Connacher
August 8, 1994 - $65,000 Chris Skillen
September 15, 1994- $65,000 Richard Reid
October 17, 1994 - $65,000 James Black
Each L.C. expires one year from the date of issue. Myo has assumed all costs
associated with the issuance of the L.C.s.
3. ENTITLEMENT TO STOCK OPTIONS
As consideration for providing the guarantee for the L.C.s, Myo shall issue to
the Guarantors, Options (the "Options") each substantially in the form of
Exhibit A hereto, to purchase an aggregate of 400,000 shares of the Common Stock
of Myo. Each Guarantor's option shall be for an aggregate number of shares equal
to one share of Myo Common stock for each dollar guaranteed by such Guarantor as
set forth opposite his name in the foregoing schedule.
<PAGE>
Myo proposes to enter into a Securities Purchase Agreement (the "Purchase
Agreement") with Ontario Municipal Employees Retirement Board ("OMERB")
providing, among other things, for the purchase by OMERB of shares of Myo Common
Stock for an aggregate purchase price of $1,000,000. In the event that this
transaction is consummated, the options shall be executed and delivered to the
Guarantors as soon as is practicable following such consummation, ant the per
share purchase price of each Option shall be equal to 75% of the per share
purchase price paid by OMERB. In the event that such transaction is not
consummated, the Options shall be issuable at the time of the completion of
Myo's next private placement of Common Stock with aggregate purchase price in
excess of $500,000, and the per share exercise price shall be equal to 75% of
the per share purchase price paid in such a private placement.
Each Guarantor's option shall become exercisable nine months following the
issuance date of the corresponding Letter of Credit as set forth opposite his
name in the foregoing schedule or pursuant to the provisions of Section 3 (a) or
5 (b) thereof. Each option shall expire on the first anniversary of the
completion of an initial public offering by Myo of shares of its Common Stock
unless sooner terminated in accordance with the provisions of Section 4 or
Section 5(a) thereof.
In the event that the options are exercised in part or in full, the Guarantors
shall have the same "piggyback" registration rights and be subject to the same
limitations as are provided to OMERB in the Purchase Agreement.
4. GENERAL TERMS AND CONDITIONS
At the date of the closing of the OMERS transaction, Myo will provide to the
Guarantors a copy of Myo's latest financials, a copy of the resolution of the
Board of Directors authorizing the issuance of the Options on these terms and
conditions agreed upon, and a copy of the resolution of the Board of Directors
authorizing the use of proceeds of any offering of shares subsequent to the
OMERB transaction to repay and cancel the letters of credit. Audited financial
statements for Myo for the fiscal year ending December 31, 1994 shall be
provided to Guarantors when available.
Myo agrees to indemnify and hold harmless the Guarantors, their servants, agents
or employees, against claims of, or liability to, any third person resulting
from negligence or misconduct of Myo or its against, servants or employees.
<PAGE>
5. REPRESENTATIONS OF GUARANTORS
The Guarantors represent and warrant to Myo that they constitute all persons
having any rights as "Guarantor" under the previous Agreement. This is the
complete agreement between the parties with respect to the transactions
contemplated hereby and supersedes all previous negotiations, understandings
agreements, or representations, written or oral, made by or among the parties,
relating thereto.
AGREED on this _____ day of December, 1994.
GUARANTORS MYO DIAGNOSTICS, INC.
By /s/ Donald Paterson By /s/ Gerald D. Appel
------------------------- -----------------------
Donald Paterson Gerald D. Appel,
President
By /s/ Ronald Goldsack
-------------------------
Ronald Goldsack
By /s/ James Connacher
-------------------------
James Connacher
By /s/ Chris Skillen
-------------------------
Chris Skillen
By /s/ Richard Reid
-------------------------
Richard Reid
By /s/ James Black
-------------------------
James Black
<PAGE>
THIS OPTION AND THE UNDERLYING COMMON STOCK HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 OR THE SECURITIES LAWS OF ANY STATE. THIS OPTION HAS BEEN
ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE, AND THIS
OPTION AND THE UNDERLYING COMMON STOCK MAY NOT BE SOLD, MORTGAGED, PLEDGED,
HYPOTHECATED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933 AND APPLICABLE STATE SECURITIES LAWS,
OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT
REQUIRED UNDER SUCH ACT OR LAWS.
MYO DIAGNOSTICS, INC.
STOCK OPTION AGREEMENT
OPTION AGREEMENT made as of the 19th day of December, 1994 between Myo
Diagnostics, Inc., a California corporation (the "Company"), and ______________
(the "Optionee").
1. GRANT OF OPTION.
The Company hereby irrevocably grants to the Optionee the right and option
to purchase all or any part of an aggregate of sixty-five thousand (65,000)
shares of its common stock (the "Shares") on the terms and conditions herein set
forth.
2. EXERCISE PRICE.
The exercise price of each of the Shares covered by the Option shall be
$1.13.
3. TIME AND MANNER OF EXERCISE OF OPTION.
(a) This Option shall become exercisable on July 17, 1995. Notwithstanding
the foregoing, in the event that any person or entity, including a "group" as
contemplated by Section 13(d) (3) of the Securities Exchange Act of 1934, as
amended, acquires more than 50% of the outstanding Common Stock of the Company,
this Option shall become exercisable immediately prior to the occurrence of any
such acquisition (a "Change in Control"). This Option shall also become
exercisable pursuant to the provisions of Section 5(b) hereof.
(b) To the extent that this Option has become exercisable and prior to its
termination, this Option may be exercised by giving written notice, signed by
the person or persons exercising the Option, to the Company, stating the number
of Shares with respect to which the Option is being exercised, accompanied by
payment in full by cash or certified check for such Shares, provided, however,
that no less than One Thousand (1,000) Shares may be purchased upon any one
exercise of this Option unless the number of Shares purchased at such time is
the total number of Shares in respect of which this Option is then exercisable.
Upon
<PAGE>
such exercise, instructions shall be given to issue and deliver to the Optionee
a certificate for paid-up non-assessable Shares. The Optionee shall not have
any rights as an owner of Common Stock of the Company by reason of the exercise
of this Option until the date of issuance to him or her of a certificate or
certificates representing the shares of Common Stock purchased.
4. TERM OF OPTION.
This Option shall terminate the earlier of either i) one year from the date
of COMPLETION of the first public offering of the Company's shares in an
offering registered under the Securities Act of 1933, as amended, or ii) the
occurrence of a Change in Control. This Option shall also terminate in
accordance with the provisions of Section 5(b) hereof.
5. ADJUSTMENTS.
(a) In the event of any change in the outstanding Common Stock of the
Company by reason of stock dividends, split-ups, consolidations,
recapitalization, or reorganizations, an appropriate and proportionate
adjustment shall be made by the Company in the number of shares subject to this
Option and in the exercise price per share with respect to any unpurchased
shares hereunder. Any such adjustment hereto shall be made without a change in
the total exercise price applicable to such unpurchased shares but with a
corresponding adjustment in the per share exercise price. No fractional shares
of Common Stock shall be issued under this Option on account of any adjustment
under this Section 5(a).
(b) Notwithstanding anything in paragraph 5(a) above to the contrary, in
the event of any merger, consolidation or other reorganization of the Company or
in the event of the liquidation or dissolution of the Company, this Option shall
terminate on the effective date of such merger, consolidation, reorganization,
liquidation or dissolution. Notwithstanding any other provision of this Option
to the contrary, this Option shall be exercisable for a period of 30 days prior
to the effective date of any such merger, consolidation, reorganization,
liquidation or dissolution.
6. TRANSFERABILITY OF THE OPTION.
The Optionee may transfer the Shares to or for the benefit of any spouse,
child or grandchild, or to a trust for their benefit, or by will or the laws of
descent and distribution.
7. OPTIONEE'S AGREEMENT TO GUARANTEE LETTER OF CREDIT TO THE COMPANY.
In consideration for the grant of this Option, the Optionee
<PAGE>
hereby has guaranteed a Letter of Credit in the amount of $65,000 (U.S.) to a
bank selected by the Company. The terms of this Stock Option Agreement require
that the Letter of Credit remain guaranteed by the Optionee for a minimum of one
year from the date of the Letter of Credit.
8. PURCHASE FOR INVESTMENT.
By his execution of this Option, Optionee represents, acknowledges and
agrees that (a) this Option is, and any shares of Common Stock acquired upon
exercise hereof will be (unless then registered under the United States
Securities Act of 1933 (the "Act") or unless an exemption from such registration
not requiring such representation is then available for the sale of the Common
Stock), acquired for investment and not with a view to or for sale in connection
with any distribution thereof, (b) this Option has not been, and the shares of
Common Stock issuable upon exercise hereof may not be, registered under the Act,
may not be transferred in violation of the Act, and must be held indefinitely
unless they are subsequently registered thereunder or an exemption from such
registration is available, and (c) all Certificates representing Common Stock
issued upon exercise of this Option may bear a restrictive legend as may be
required to comply with any law or with any rule or regulation of any stock
exchange on which such securities may be listed.
9. GOVERNING LAW.
This Option shall be governed by and interpreted in accordance with the
laws of the State of California.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Stock Option Agreement to
be duly executed by its officer thereunto duly authorized, and the Optionee has
hereunto set his hand as of the date and year first above written.
MYO DIAGNOSTICS INC.
By /s/ Gerald D. Appel
----------------------------
Gerald D. Appel, President
Optionee
______________________________
Address:
______________________________
______________________________
______________________________
<PAGE>
FIRST AMENDMENT TO STOCK OPTION AGREEMENT
This FIRST AMENDMENT TO STOCK OPTION AGREEMENT (this "Amendment") is made
as of June 30, 1996, by and between Myo Diagnostics, Inc., a California
corporation (the "Company") and ______________ ("Optionee").
R E C I T A L S
A. The Company and Optionee are parties to that certain Myo
Diagnostics, Inc. Stock Option Agreement (the "Option"), dated as of December
19, 1994; and
B. The Company and Optionee desire to amend the Option as hereinafter
provided.
A G R E E M E N T
NOW, THEREFORE, in consideration of the foregoing facts, and other good and
valuable consideration, the receipt of which is hereby acknowledged, the parties
hereto agree as follows:
1. TIME AND MANNER OF EXERCISE OF OPTION. Section 3(a) of the Option is
hereby amended to read in its entirety as follows:
"This Option shall become exercisable on July 17, 1995. Notwithstanding
the foregoing, in the event that any person or entity, including a "group"
as contemplated by Section 13(d)(3) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), acquires more than 50% of the outstanding
Common Stock of the Company or the securities of a successor company for
which this Option may be exercised, this Option shall become exercisable
immediately prior to the occurrence of any such acquisition (a "Change in
Control")."
2. TERM OF OPTION. Section 4 of the Option is hereby amended to read in
its entirety as follows:
"This Option shall terminate on the earliest of (i) one year from the
date the Common Stock of the Company or any other securities for which this
Option may be exercised becomes registered under Section 12 of the Exchange
Act, (ii) one year from the date the Common Stock of the Company is
exchanged for a security which is registered under Section 12 of the
Exchange Act, or (iii) the occurrence of a Change in Control."
<PAGE>
3. ADJUSTMENTS. Section 5(b) of the Option is hereby amended to read in
its entirety as follows:
"Subject to Section 4 hereof, in case any capital reorganization or
reclassification, change in the outstanding Common Stock of the Company,
merger or consolidation of the Company with or into another entity, or sale
of substantially all of the assets of the Company to another entity, shall
be effected in such a way that holders of Common Stock shall be entitled to
receive stock, securities, or assets with respect to or in exchange for
Common Stock, the Option shall, without any further act or the execution of
any further instrument whatsoever, become an Option to purchase or receive,
at the exercise price, such shares of stock or other securities or assets
as Optionee would have been entitled to receive upon such reorganization,
reclassification, change, merger or consolidation, or sale of assets, in
exchange for or in respect of that portion of the Shares which remain
unexercised immediately prior to such reorganization, reclassification,
change, merger or consolidation, or sale of assets, and appropriate
adjustment (as reasonably determined by the Board of Directors of the
Company or the surviving entity, as the case may be) shall be made in the
application of the provisions herein set forth with respect to the rights
of Optionee, to the end that such provisions (including provisions with
respect to changes in and other adjustments of the exercise price) shall
thereafter be applicable, as nearly as reasonably may be, in relation to
any shares of stock or other property thereafter deliverable upon exercise
of such Option, provided that the aggregate purchase price shall remain the
same."
4. This Amendment may be executed in two or more counterparts and by
different parties in separate counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
5. Except as otherwise expressly provided for herein, all of the terms
and conditions of the Option shall remain in full force and effect.
2
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed
as of the date first above written.
"THE COMPANY"
MYO DIAGNOSTICS, INC.
By
---------------------------------
Gerald D. Appel
President
"OPTIONEE"
By
----------------------------------
3
<PAGE>
STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE--MODIFIED NET
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
1.0 BASIC PROVISIONS ("BASIC PROVISIONS").
1.1 PARTIES: This Lease ("Lease"), dated for reference purposes only,
August 1, 1996, is made by and between THE URCIS FAMILY TRUST ("Lessor") and MYO
DIAGNOSTICS, INC. ("Lessee"), (collectively the "Parties," or individually a
"Party").
1.2(a) PREMISES: That certain portion of the Building, including all
improvements therein or to be provided by Lessor under the terms of this Lease,
commonly known by the street address of 3760 South Robertson Boulevard, located
in the City of Culver City, County of LOS ANGELES, State of CALIFORNIA, with zip
code 90232, as outlined on Exhibit ___ attached hereto ("Premises"). The
"Building" is that certain building containing the Premises and generally
described as (describe briefly the nature of the Building): Approximately 9,749
Rentable Square Feet of a Larger Second Floor Bldg. as generally depicted on
Exhibit "A" attached hereto. In addition to Lessee's rights to use and occupy
the Premises as hereinafter specified, Lessee shall have non-exclusive rights to
the Common Areas (as defined in Paragraph 2.7 below) as hereinafter specified,
but shall not have any rights to the roof, exterior walls or utility raceways of
the Building or to any other buildings in the Industrial Center. The Premises,
the Building, the Common Areas, the land upon which they are located, along with
all other buildings and improvements thereon, are herein collectively referred
to as the "INDUSTRIAL CENTER." (Also see Paragraph 2.)
1.2(b) PARKING: ________________________ unreserved vehicle parking
spaces ("UNRESERVED PARKING SPACES"); and 30 reserved vehicle parking spaces
("RESERVED PARKING SPACES"). (Also see Paragraph 2.6.)
1.3 TERM: 3 years and 0 months ("ORIGINAL TERM") commencing October 1,
1996 (See Attached Addendum) ("COMMENCEMENT DATE") and ending September 30, 1999
("EXPIRATION DATE"). (Also see Paragraph 3.)
1.4 EARLY POSSESSION: _______________________ ("EARLY POSSESSION
DATE"). (Also see Paragraphs 3.2 and 3.3.)
1.5 BASE RENT: $10,300.00 per month ("BASE RENT"), payable on the
First day of each month commencing October 1, 1996 (Also see Paragraph 4.)
[ ] If this box is checked, this Lease provides for the Base Rent to be
adjusted per Addendum _______, attached hereto.
1.6(a) BASE RENT PAID UPON EXECUTION: $10,300 as Base Rent for the period
October 1, 1996.
1.6(b) LESSEE'S SHARE OF COMMON AREA OPERATING EXPENSES: 0% except for as
provided in attached Addendum.
1.7 SECURITY DEPOSIT: $10,300.00 ** ("SECURITY DEPOSIT"). (also see
Paragraph 5**.) $4,100.00 previously deposited plus $6,200.00 due upon
execution.
1.8 PERMITTED USE: General Office Use and Diagnostic Evaluation
(Non-Invasive) and any legal use. ("PERMITTED USE") (Also see Paragraph 6.)
1.9 INSURING PARTY. Lessor is the "INSURING PARTY." (Also see
Paragraph 8.)
1.10(a) REAL ESTATE BROKERS. The following real estate broker(s)
(collectively, the "BROKERS") and brokerage relationships exist in this
transaction and are consented to by the Parties (check applicable boxes):
[ ] ______________________________________ represents Lessor exclusively
("LESSOR'S BROKER");
[ ] N/A represents Lessee exclusively
("LESSEE'S BROKER");
[ ] _______________________________________ represents both Lessor and
Lessee exclusively (DUAL AGENCY"). (Also see Paragraph 15.)
1.10(b) PAYMENT TO BROKERS. Upon the execution of this Lease by both
Parties, Lessor shall pay to said Broker(s) jointly, or in such separate shares
as they may mutually designate in writing, a fee as set forth in a separate
written agreement between Lessor and said Broker(s) (or in the event there is no
separate written agreement between Lessor and said Broker(s), the sum of
$_________) for brokerage services rendered by said Broker(s) in connection with
this transaction.
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1.11 GUARANTOR. The obligations of the Lessee under this Lease are to
be guaranteed by N/A ("GUARANTOR"). (Also see paragraph 37.)
1.12 ADDENDA AND EXHIBITS. Attached hereto is an Addendum through
_____, and Exhibits "A" through _____, all of which constitute a part of this
Lease.
2. PREMISES, PARKING AND COMMON AREAS.
2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby leases
from Lessor, the Premises, for the term, at the rental, and upon all of the
terms, covenants and conditions set forth in this Lease. Unless otherwise
provided herein, any statement of square footage set forth in this Lease, or
that may have been used in calculating rental and/or Common Area Operating
Expenses, is an approximation which Lessor and Lessee agree is reasonable and
the rental and Lessee's Share (as defined in Paragraph 1.6(b)) based thereon is
not subject to revision whether or not the actual square footage is more or
less.
2.2 CONDITION. Lessor shall deliver the Premises to Lessee clean and
free of debris on the Commencement Date and warrants to Lessee that the existing
plumbing, electrical systems, fire sprinkler system, lighting, air conditioning
and heating systems and loading doors, if any, in the Premises, other than those
constructed by Lessee, are in good operating condition on the Commencement Date.
If a non-compliance with said warranty exists as of the Commencement Date,
Lessor shall, except as otherwise provided in this Lease, promptly after receipt
of written notice form Lessee setting forth with specificity the nature and
extent of such non-compliance, rectify same at Lessor's expense. If Lessee does
not give Lessor written notice of a non-compliance with this warranty within
thirty (30) days after the Commencement Date, correction of that non-compliance
shall be the obligation of Lessee at Lessee's sole cost and expense. SEE
ADDENDUM ATTACHED HERETO.
2.3 COMPLIANCE WITH COVENANTS, RESTRICTIONS AND BUILDING CODE. Lessor
warrants that any improvements (other than those constructed by Lessee or at
Lessee's direction) on or in the Premises which have been constructed or
installed by Lessor or with Lessor's consent or at Lessor's direction shall
comply with all applicable covenants or restrictions of record and applicable
building codes, regulations and ordinances in effect on the Commencement Date.
Lessor further warrants to Lessee that Lessor has no knowledge of any claim
having been made by any governmental agency that a violation or violations of
applicable building codes, regulations, or ordinances exist with regard to the
Premises as of the Commencement Date. Said warranties shall not apply to any
Alterations or Utility Installations (defined in paragraph 7.3(a)) made or to be
made by Lessee. If the Premises do not comply with said warranties, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee given within six (6) months following the
Commencement Date and setting forth with specificity the nature and extent of
such non-compliance take such action, at Lessor's expense, as maybe reasonable
or appropriate to rectify the non-compliance. Lessor makes no warranty that the
Permitted Use in Paragraph 1.8 is permitted for the Premises under Applicable
Laws (as defined in paragraph 2.4).
2.4 ACCEPTANCE OF PREMISES. Lessee hereby acknowledges: (a) that it
has been advised to satisfy itself with respect to the condition of the
Premises (including but not limited to the electrical and fire sprinkler
systems, security, environmental aspects, seismic and earthquake requirements,
and compliance with the Americans with Disabilities Act and applicable zoning,
municipal, county, state and federal laws, ordinances and regulations and any
covenants or restrictions of record (collectively, "APPLICABLE LAWS") and the
present and future suitability of the Premises for Lessee's intended use; (b)
that Lessee has made such investigation as it deems necessary with reference to
such matters, is satisfied with reference thereto, and assumes all
responsibility therefore as the same relate to Lessee's occupancy of the
Premises and/or the terms of this Lease; and (c) that neither Lessor, nor any of
Lessor's agents, has made any oral or written representations or warranties with
respect to said matters other than as set forth in this Lease.
2.5 LESSEE AS PRIOR OWNER/OCCUPANT. The warranties made by Lessor in
this paragraph 2 shall be of no force or effect if immediately prior to the date
set forth in Paragraph 1.1 Lessee was the owner of occupant of the Premises. In
such event, Lessee shall, at Lessee's sole cost and expense, correct any
non-compliance of the Premises with said warranties.
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2.6 VEHICLE PARKING. Lessee shall be entitled to use the number of
Unreserved Parking Spaces and Reserved parking Spaces specified in Paragraph
1.2(b) on those portions of the Common Areas designated from time to time by
Lessor for parking. Lessee shall not use more parking spaces than said number.
Said parking spaces shall be used for parking by vehicles no larger than
full-size passenger automobiles or pick-up trucks, herein called "PERMITTED SIZE
VEHICLES." Vehicles other than Permitted Size Vehicles shall be parked and
loaded or unloaded as directed by Lessor in the Rules and Regulations (as
defined in Paragraph 40) issued by Lessor. (Also see paragraph 2.9.)
(a) Lessee shall not permit or allow any vehicles that belong to
or are controlled by Lessee or Lessee's employees, suppliers, shippers,
customers, contractors or invitees to be loaded, unloaded, or parked in areas
other than those designated by Lessor for such activities.
(b) If Lessee permits or allows any of the prohibited activities
described in this Paragraph 2.6, then Lessor shall have the right, without
notice, in addition to such other rights and remedies that it may have, to
remove or tow away the vehicle involved and charge the cost to Lessee; which
cost shall be immediately payable upon demand by Lessor.
(c) Lessor shall at the Commencement Date of this Lease, provide
the parking facilities required by Applicable Law.
2.7 COMMON AREAS - DEFINITION. The term "Common Areas" is defined as
all areas and facilities outside the Promises and within the exterior boundary
line of the Industrial Center and Interior utility raceways within the Premises
that are provided and designated by the Lessor from time to time for the general
non-exclusive use of Lessor, Lessee and other lessees of the Industrial Center
and their respective employees, suppliers, shippers, customers, contractors and
invitees, including parking areas, loading and unloading areas, trash areas,
roadways, sidewalks, walkways, parkways, driveways and landscaped areas.
2.8 COMMON AREAS - LESSEE'S RIGHTS. Lessor hereby grants to Lessee,
for the benefit of Lessee and its employees, suppliers, shippers, contractors,
customers and invitees, during the term of this Lease, the non-exclusive right
to use, in common with others entitled to such use, the Common Areas as they
exist from time to time, subject to any rights, powers, and privileges reserved
by Lessor under the terms hereof or under the terms of any rules and regulations
or restrictions governing the use of the Industrial Center. Under no
circumstances shall the right herein granted to use the Common Areas be deemed
to include the right to store any property, temporarily or permanently, in the
Common Areas. Any such storage shall be permitted only by the prior written
consent of Lessor or Lessor's designated agent, which consent may be revoked at
any time. In the event that any unauthorized storage shall occur then Lessor
shall have the right, without notice, in addition to such other rights and
remedies that it may have, to remove the property and charge the cost to Lessee,
which cost shall be immediately payable upon demand by Lessor.
2.9 COMMON AREAS - RULES AND REGULATIONS. Lessor or such other
person(s) as Lessor may appoint shall have the exclusive control and management
of the Common Areas and shall have the right, from time to time, to establish,
modify, amend and enforce reasonable Rules and Regulations with respect thereto
in accordance with paragraph 40. Lessee agrees to abide by and conform to all
such Rules and Regulations, and to cause its employees, suppliers, shippers,
customers, contractors and invitees to so abide and conform. Lessor shall not
be responsible to Lessee for the non-compliance with said rules and regulations
by other lessees of the Industrial Center.
2.10 COMMON AREAS - CHANGES. Lessor shall have the right, in Lessor's
sole discretion, from time to time:
(a) To make changes to the Common Areas, including, without
limitation, changes in the location, size, shape and number of driveways,
entrances, parking spaces, parking areas, loading and unloading areas, ingress,
egress, direction of traffic, landscaped areas, walkways and utility raceways;
(b) To close temporarily any of the Common Areas for maintenance
purposes so long as reasonable access to the Premises remains available;
(c) To designate other land outside the boundaries of the
Industrial Center to be a part of the Common Areas;
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(d) To add additional buildings and improvements to the Common
Areas;
(e) To use the Common Areas while engaged in making additional
improvements, repairs, or alterations to the Industrial Center, or any portion
thereof; and
(f) To do and perform such other acts and make such other
changes in, to or with respect to the Common Areas and Industria Center as
Lessor may, in the exercise of sound business judgment, deem to be appropriate.
3. TERM.
3.1 TERM. The Commencement Date, Expiration Date and Original Term of
this Lease are as specified in Paragraph 1.3.
3.2 EARLY POSSESSION. If an Early Possession Date is specified in
Paragraph 1.4 and if Lessee totally or partially occupies the Premises alter the
Early Possession Date but prior to the Commencement Date, the obligation to pay
Base Rent shall be abated for the period of such early occupancy. All other
terms of this Lease, however, (including but not limited to the obligations to
pay Lessee's Share of Common Area Operating Expenses and to carry the insurance
required by Paragraph 8) shall be in effect during such period. Any such early
possession shall not affect nor advance the Expiration Date of the Original
Terms. SEE ADDENDUM ATTACHED.
3.3 DELAY IN POSSESSION. If for any reason Lessor cannot deliver
possession of the Premises to Lessee by the early Possession Date, if one is
specified in Paragraph 1.4, or if no Early Possession Date is specified, by the
Commencement Date, Lessor shall not be subject to any liability therefor, nor
shall such failure affect the validity of this Lease, or the obligations of
Lessee hereunder, or extend the term hereof, but in such case, Lessee shall not,
except as otherwise provided herein, be obligated to pay rent or perform any
other obligation of Lessee under the terms of this Lease until Lessor delivers
possession of the Premises to Lessee. If possession of the Premises is not
delivered to Lessee within sixty (60) days after the Commencement Date, Lessee
may, at its option, by notice in writing to Lessor within ten (10) days alter
the end of said sixty (60) day period, cancel this Lease, in which event the
parties shall be discharged form all obligations hereunder; provided further,
however, that if such written notice of Lessee is not received by Lessor within
said ten (10) day period. Lessee's right to cancel this Lease hereunder shall
terminate and be of no further force or effect. Except as maybe otherwise
provided, and regardless of when the Original Term actually commences, if
possession is not tendered to Lessee when required by this Lease and Lessee does
not terminate this Lease, as aforesaid, the period free of the obligation to pay
Base Rent, if any, that Lessee would otherwise have enjoyed shall run from the
date of delivery of possession and continue for a period equal to the period
during which the Lessee would have otherwise enjoyed under the terms hereof, but
minus any days of delay caused by the acts, changes or omissions of Lessee. SEE
ADDENDUM ATTACHED.
4 RENT.
4.1 BASE RENT. Lessee shall pay Base Rent and other rent or charges,
as the same may be adjusted from time to time, to Lessor in lawful money of the
United States, without offset or deduction, on or before the day on which it is
due under the terms of this Lease. Base Rent and all other rent and charges for
any period during the term hereof which is for less than one full month shall be
prorated based upon the actual number of days of the month involved. Payment of
Base Rent and other charges shall be made to Lessor at its address stated herein
or to such other persons or at such other addresses as Lessor may from time to
time designate in writing to Lessee.
4.2 COMMON AREA OPERATING EXPENSES. Lessee shall pay to Lessor during
the term hereof, in addition to the Base Rent, Lessee's Share (as specified in
Paragraph 1.6(b)) of all Common Area Operating Expenses, as hereinafter defined,
during each calendar year of the term of this Lease, in accordance with the
following provisions: SEE ADDENDUM ATTACHED.
(a) "Common Area Operating Expenses" are defined, for purposes
of this Lease, as all costs incurred by Lessor relating to the ownership and
operation of the Industrial Center, including, but not limited to, the
following:
(i) The operation, repair and maintenance, in neat,
clean, good order and condition, of the following: SEE ADDENDUM ATTACHED.
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(aa) The Common Areas, including parking areas, loading
and unloading areas, trash areas, roadways, sidewalks, walkways, parkways,
driveways, landscaped areas, striping, bumpers, irrigation systems, Common Area
lighting facilities, fences and gates, elevators and roof.
(bb) Exterior signs and any tenant directories.
(cc) Fire detection and sprinkler systems.
(ii) The cost of water, gas, electricity and telephone to
service the Common Areas.
(iii) Trash disposal, property management and security
services and the costs of any environmental inspections.
(iv) Reserves set aside for maintenance and repair of Common
Areas.
(v) Real Property Taxes (as defined in paragraph 10.2) to
be paid by Lessor for the Building and the Common Areas under paragraph 10
hereof.
(vi) The cost of the premiums for the insurance policies
maintained by Lessor under Paragraph 8 hereof.
(vii) Any deductible portion of an insured loss
concerning the Building or the Common Areas.
(viii) Any other services to be provided by Lessor that
are stated elsewhere in this Lease to be a Common Area Operating Expense.
(b) Any Common Area Operating Expenses and Real Property Taxes
that are specifically attributable to the Building or to any other building in
the Industrial Center or to the operation, repair and maintenance thereof, shall
be allocated entirely to the Building or to such other building. However, any
Common Area Operating Expenses and Real Property Taxes that are not specifically
attributable to the Building or to any other building or to the operation,
repair and maintenance thereof, shall be equitably allocated by Lessor to all
buildings in the Industrial Center.
(c) The inclusion of the improvements, facilities and services
set forth in Subparagraph 4.2(a) shall not be deemed to impose an obligation
upon Lessor to either have said improvements of facilities or to provide those
services unless the Industrial Center already has the same, Lessor already
provides the services, or Lessor has agreed elsewhere in this Lease to provide
the same or some of them.
(d) Lessee's Share of Common Area Operating Expenses shall be
payable by Lessee within ten (10) days after a reasonably detailed statement of
actual expenses is presented to Lessee by Lessor. At Lessor's option, however,
an amount may be estimated by Lessor from time to time of Lessee's Share of
annual Common Area Operating Expenses and the same shall be payable monthly or
quarterly, as Lessor shall designate, during each 12-month period of the Lease
term, on the same day as the Base Rent is due hereunder, Lessor shall deliver to
Lessee within sixty (60) days after the expiration of each calendar year a
reasonably detailed statement showing Lessee's Share of the actual Common Area
Operating Expenses incurred during the preceding year. If Lessee's payments
under this Paragraph 4.2(d) during said preceding year exceed Lessee's Share as
indicated on said statement, Lessor shall be credited the amount of such
overpayment against Lessee's Share of Common Area Operating Expenses next
becoming due. If Lessee's payments under this Paragraph 4.2(d) during said
preceding year were less than Lessee's Share as indicated on said statement,
Lessee shall pay to Lessor the amount of the deficiency within ten (10) days
after delivery by lessor to Lessee of said statement.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon Lessee's execution
hereof the Security Deposit set forth in paragraph 1.7 as security for Lessee's
faithful performance of Lessee's obligations under this Lease. If Lessee fails
to pay Base Rent or other rent or charges due hereunder, or otherwise Defaults
under this Lease (as defined in paragraph 13.1), Lessor may use, apply or retain
all or any portion of said Security Deposit for the payment of any amount due
Lessor or to reimburse or compensate Lessor for any liability, cost, expense,
loss or damage (including attorneys' fees) which Lessor may suffer or incur by
reason thereof. If Lessor uses or applies all or any portion of said Security
Deposit, Lessee shall within ten (10) days after written request therefore
deposit monies with Lessor sufficient to restore said Security Deposit to the
full amount required by this Lease. Any time the Base Rent increases during the
term of this lease, Lessee shall, upon written request from Lessor, deposit
additional monies with Lessor as an addition to the Security Deposit so that the
total
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amount of the Security Deposit shall at all times bear the same proportion to
the then current Base Rent as the Initial Security Deposit bears to the Initial
Base Rent set forth in paragraph 1.5 Lessor shall not be required to keep all or
any part of the Security Deposit separate from its general accounts. Lessor
shall, at the expiration of earlier termination of the term hereof and after
Lessee has vacated the Premises, return to Lessee (or, at Lessor's option, to
the last assignee, if any, of Lessee's interest herein), that portion of the
Security Deposit not used or applied by Lessor. Unless otherwise expressly
agreed in writing by Lessor, no part of the Security Deposit shall be considered
to be held in trust, to bear interest or other increment for its use, or to be
prepayment for any monies to be paid by Lessee under this Lease.
6. USE.
6.1 PERMITTED USE.
(a) Lessee shall use and occupy the Premises only for the
Permitted Use set forth in Paragraph 1.8, or any other legal use which is
reasonably comparable thereto, and for no other purpose. Lessee shall not use
or permit the use of the Premises in a manner that is unlawful, creates waste or
a nuisance, or that disturbs owners and/or occupants of, or causes damage to the
Premises or neighboring premises or properties.
(b) Lessor hereby agrees to not unreasonably withhold or delay
its consent to any written request by Lessee, Lessee's assignees or subtenants,
and by prospective assignees and subtenants of Lessee, its assignees and
subtenants, for a modification of said Permitted Use, so long as the same will
not impair the structural integrity of the improvements on the Premises or in
the Building or the mechanical or electrical systems therein, does not conflict
with uses by other lessees, is not significantly more burdensome to the Premises
or the Building and the improvements thereon, and is otherwise permissible
pursuant to this Paragraph 6. If Lessor elects to withhold such consent, Lessor
shall within five (5) business days after such request give a written
notification of same, which notice shall include an explanation of Lessor's
reasonable objections to the change in use.
6.2 HAZARDOUS SUBSTANCES.
(a) Reportable Uses Require Consent. The term "Hazardous
Substance" as used in this Lease shall mean any product, substance,
chemical,material or waste whose presence,nature, quantity and/or intensity of
existence, use, manufacture, disposal, transportation, spill, release or effect,
either by itself or in combination with other materials expected to be on the
Premises, is either: (i) potentially injurious to the public health, safety or
welfare, the environment, or the Premises; (ii) regulated or monitored by any
governmental authority; or (iii) a basis for potential liability of Lessor to
any governmental agency or third party under any applicable statute or common
law theory. Hazardous Substance shall include, but not be limited to,
hydrocarbons, petroleum, gasoline, crude oil or any products or by-products
thereof. Lessee shall not engage in any activity in or about the Premises which
constitutes a Reportable Use (as hereinafter defined) of Hazardous Substances
without the express prior written consent of Lessor and compliance in a timely
manner (at Lessee's sole cost and expense) with all Applicable Requirements (as
defined in paragraph 6.3). "Reportable Use" shall mean (i) the installation or
use of any above or below ground storage tank, (ii) the generation, possession,
storage, use, transportation, or disposal of a Hazardous Substance that requires
a permit from, or with respect to which a report, notice, registration or
business plan is required to be filed with, any governmental authority, and
(iii) the presence in, on or about the Premises of a Hazardous Substance with
respect to which any Applicable laws require that a notice given to persons
entering or occupying the Premises or neighboring properties. Notwithstanding
the foregoing, Lessee may, without Lessor's prior consent, but upon notice to
Lessor and in compliance with all Applicable Requirements, use any ordinary and
customary materials reasonably required to be used by Lessee in the normal
course of the Permitted Use, so long as such use is not a Reportable Use and
does not expose the Premises or neighboring properties to any meaningful risk of
contamination or damage or expose Lessor to any liability therefor. In
addition, Lessor may (but without any obligation to do so) condition its consent
to any Reportable Use of any Hazardous Substance by Lessee upon Lessee's giving
Lessor such additional assurances as Lessor, in its reasonable discretion, deems
necessary to protect itself, the public, the Premises and the environment
against damage, contamination or injury and/or liability therefor, including but
not limited to the installation (and, at Lessor's option, removal on or before
Lease expiration or earlier termination) of reasonably necessary protective
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modifications to the Premises (such as concrete encasements) and/or the deposit
of an additional Security Deposit under Paragraph 5 hereof.
(b) Duty to Inform Lessor. If Lessee knows, or has reasonable
cause to believe, that a Hazardous Substance has come to be located in, on,
under or about the Premises or the Building, other than as previously consented
to by Lessor, Lessee shall immediately give Lessor written notice thereof,
together with a copy of any statement, report, notice, registration,
application,permit, business plan, license, claim, action , or proceeding given
to, or received from, any governmental authority or private party concerning the
presence, spill, release, discharge of, or exposure to, such Hazardous Substance
including but not limited to all such documents as may be involved in any
Reportable Use involving the Premises. Lessee shall not cause or permit any
Hazardous Substance to be spilled or released in, on, under or about the
Premises (including, without limitation, through the plumbing or sanitary sewer
system).
(c) Indemnification. Lessee shall indemnify, protect, defend
and hold Lessor, its agents, employees, lenders and ground lessor, if nay, and
the Premises, harmless from and against any and all damages, liabilities,
judgments, costs, claims, liens, expenses, penalties, loss of permits and
attorneys' and consultants' fees arising out of or involving any Hazardous
Substance brought onto the Premises by or for Lessee or by anyone under Lessee's
control. Lessee's obligations under this Paragraph 6.2(c) shall include, but
not be limited to, the effects of any contamination or injury to person,
property or the environment created or suffered by Lessee, and the cost of
investigation (including consultants' and attorneys' fees and testing), removal,
remediation, restoration and or abatement thereof, or of any contamination
therein involved, and shall survive the expiration or earlier termination of
this Lease. No termination, cancellation or release agreement entered into by
Lessor and Lessee shall release Lessee from its obligations under this Lease
with respect to Hazardous Substances, unless specifically so agreed by Lessor in
writing at the time of such agreement.
6.3 LESSEE'S COMPLIANCE WITH REQUIREMENTS. Lessee shall, at Lessee's
sole cost and expense, fully, diligently and in a timely manner, comply with all
"Applicable Requirements," which term is used in this Lease to mean all laws,
rules, regulations, ordinances, directives, covenants, easements and
restrictions of record, permits, the requirements of any applicable fire
insurance underwriter or rating bureau, and the recommendations of Lessor's
engineers and/or consultants, relating in any manner to the Premises (including
but to limited to matters pertaining to (i) industrial hygiene, (ii)
environmental conditions on, in, under or about the Premises, including soil and
groundwater conditions, and (iii) the use, generation, manufacture, production,
installation, maintenance, removal, transportation, storage, spill, or release
of any Hazardous Substance), now in effect or which may hereafter come into
effect. Lessee shall, within five (5) days after receipt of Lessor's written
request, provide Lessor with copies of all documents and information, including
but not limited to permits, registrations, manifests, applications, reports and
certificates, evidencing Lessee's compliance with any Applicable Requirements
specified by Lessor, and shall immediately upon receipt notify Lessor in writing
(with copies of any documents involved) of any threatened or actual claim,
notice, citation, warning, complaint or report pertaining to or involving
failure by Lessee or the Premises to comply with any Applicable Requirements.
6.4 INSPECTION; COMPLIANCE WITH LAW. Lessor, Lessor's agents,
employees, contractors and designated representatives, and the holders of any
mortgages, deeds of trust or ground leases on the Premises ("Lenders") shall
have the right to enter the Premises at any time in the case of an emergency,
and otherwise at reasonable times, for the purpose of inspecting the condition
of the Premises and for verifying compliance by Lessee with this Lease and all
Applicable Requirements (as defined in Paragraph 6.3), and Lessor shall be
entitled to employ experts and/or consultants in connection therewith to advise
Lessor with respect to Lessee's activities, including but not limited to
Lessee's installation, operation, use, monitoring, maintenance, or removal of
any Hazardous Substance on or from the Premises. The costs and expenses of any
such inspections shall be paid by the party requesting same, unless a Default or
Breach of this Lease by Lessee or a violation of Applicable Requirements or a
contamination, caused or materially contributed to by Lessee, is found to exist
or to be imminent, or unless the inspection is requested or ordered by a
governmental authority as the result of any such existing or imminent violation
or contamination. In such case, Lessee shall upon request reimburse Lessor or
Lessor's Lender, as the case maybe, for the costs and expenses of such
inspections.
7.0 MAINTENANCE, REPAIRS, UTILITY INSTALLATIONS, TRADE FIXTURES AND
ALTERATIONS.
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7.1 LESSEE'S OBLIGATIONS.
(a) Subject to the provisions of Paragraphs 2.2 (Condition), 2.3
(Compliance with Covenants, Restrictions and Building Code), 7.2 (Lessor's
Obligations), 9 (Damage or Destruction), and 14 (Condemnation), Lessee shall, at
Lessee's sole cost and expense and at all times, keep the Premises and every
part thereof in good order, condition and repair (whether or not such portion of
the Premises requiring repair, or the means of repairing the same, are
reasonably or readily accessible to Lessee, and whether or not the need for such
repairs occurs as a result of Lessee's use, any prior use, the elements of the
age of such portion of the Premises), including, without limiting the generality
of the foregoing, all equipment or facilities specifically servicing the
Premises, such as lighting facilities, , fired or unfired pressure vessels,
fire hose connections if within the Premises, fixtures, interior walls, interior
surfaces of exterior walls, , floors, windows, doors, , and , but excluding any
items which are the responsibility of Lessor pursuant to Paragraph 7.2 below.
Lessee, in keeping the Premises in good order, condition and repair, shall
exercise and perform good maintenance practices. Lessee's obligations shall
include restorations, replacements or renewals when necessary to keep the
Premises and all Improvements thereon or a part thereof in good order, condition
and state of repair.
(b) , Lessor reserves the right, , to procure and maintain the
contract for the heating, air conditioning and ventilating systems.
(c) If Lessee fails to perform Lessee's obligations under this
Paragraph 7.1, Lessor may enter upon the Premises after ten (10) days' prior
written notice to Lessee (except in the case of an emergency, in which case no
notice shall be required), perform such obligations on Lessee's behalf, and put
the Premises in good order, condition and repair, in accordance with Paragraph
13.2 below.
7.2 LESSOR'S OBLIGATIONS. Subject to the provisions of paragraph 2.2
(Condition), 2.3 (Compliance with Covenants, Restrictions and Building Code),
4.2 (Common Area Operating Expenses), 6 (Use), 7.1 (Lessee's Obligations), 9
(Damage or Destruction) and 14 (Condemnation), Lessor, subject to reimbursement
pursuant to Paragraph 4.2, shall keep in good order, condition and repair the
foundations, exterior walls, structural condition of interior bearing walls,
exterior roof, fire sprinkler and/or standpipe and hose (if located in the
Common Areas) or other automatic fire extinguishing system including fire alarm
and/or smoke detection systems and equipment, fire hydrants, parking lots,
walkways, parkways, driveways, landscaping, fences, signs and utility systems
serving the Common Areas and all parts thereof, as well as providing the
services for which there is a Common Area Operating Expense pursuant to
Paragraph 4.2. Lessor shall not be obligated to paint the exterior or interior
surfaces of exterior walls nor shall Lessor be obligated to maintain, repair or
replace windows, doors or plate glass of the Premises. Lessee expressly waives
the benefit of any statute now or hereafter in effect which would otherwise
afford Lessee the right to make repairs at Lessor's expenses or to terminate
this Lease because of Lessor's failure to keep the Building, Industrial Center
or Common Areas in good order, condition and repair.
7.3 UTILITY INSTALLATIONS, TRADE FIXTURES, ALTERATIONS.
(a) Definitions; Consent Required. The term "Utility
Installations" is used in this Lease to refer to all air lines, power panels,
electrical distribution, security, fire protection systems, communications
systems, lighting fixtures, heating, ventilating and air conditioning equipment,
plumbing, and fencing in, on or about the Premises. The term "Trade Fixtures"
shall mean Lessee's machinery and equipment which can be removed without doing
material damage to the Premises. The term "Alterations" shall mean any
modification of the improvements on the Premises which are provided by Lessor
under the terms of this Lease, other than Utility Installations or Trade
Fixtures. "Lessee-Owned Alterations and/or Utility Installations" are defined
as Alterations and/or Utility Installations made by Lessee that are not yet
owned by Lessor pursuant to Paragraph 7.4(a). Lessee shall not make nor cause
to be made any Alterations or Utility Installations in, on, under or about the
Premises without Lessor's prior written consent. Lessee may, however, make
non-structural Utility Installations to the interior of the Premises (excluding
the roof) without Lessor's consent but upon notice to Lessor, so long
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as they are not visible from the outside of the Premises, do not involve
puncturing, relocating or removing the roof or any existing walls, or changing
or interfering with the fire sprinkler or fire detection systems and the
cumulative cost thereof during the term of this Lease as extended does not
exceed $2,500.00.
(b) Consent. Any Alterations or Utility Installations that
Lessee shall desire to make and which require the consent of the Lessor shall be
presented to Lessor in written form with detailed plans. All consents given by
Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent specific consent,
shall be deemed conditioned upon: i) Lessee's acquiring all applicable permits
required by governmental authorities; (ii) the furnishing of copies of such
permits together with a copy of the plans and specifications for the Alteration
or Utility installation to Lessor prior to commencement of the work thereon; and
(iii) the compliance by Lessee with all conditions of said permits in a prompt
and expeditious manner. Any Alterations or Utility Installations by Lessee
during the term of this Lease shall be done in a good and workmanlike manner,
with good and sufficient materials, and be in compliance with all Applicable
Requirements. Lessee shall promptly upon completion thereof furnish Lessor with
as-built plans and specifications therefor. Lessor may, (but without obligation
to do so) condition its consent to any requested Alteration or Utility
Installation that costs $2,500.00 or more upon Lessee's providing Lessor with a
lien and completion bond in an amount equal to one and one-half times the
estimated cost of such Alteration or Utility Installation.
(c) Lien Protection. Lessee shall pay when due all claims for
labor or materials furnished or alleged to have been furnished to or for Lessee
at or for use on the Premises, which claims are or may be secured by any
mechanic's or materialmen's lien against the Premises or any interest therein.
Lessee shall give Lessor not less than ten (10) days' notice prior to the
commencement of any work in, on, or about the Premises, and Lessor shall have
the right to pose notices of non-responsibility in or on the Premises as
provided by law. If Lessee shall, in good faith, contest the validity of any
such lien, claim or demand, then Lessee shall, at its sole expense, defend and
protect itself, Lessor and the Premises against the same and shall pay and
satisfy any such adverse judgment that may be rendered thereon before the
enforcement thereof against the Lessor or the Premises. If Lessor shall
require, Lessee shall furnish to Lessor a surety bond satisfactory to Lessor in
an amount equal to one and one-half times the amount of such contested lien
claim or demand, Indemnifying Lessor against liability for the same, as required
by law for the holding of the Premises free from the effect of such lien or
claim. In addition, Lessor may require Lessee to pay Lessor's attorneys' fees
and costs in participating in such action if Lessor shall decide it is to its
best interest to do so.
7.4 OWNERSHIP, REMOVAL, SURRENDER, AND RESTORATION.
(a) Ownership. Subject to Lessor's right to require their
removal and to cause Lessee to become the owner thereof as hereinafter provided
in this Paragraph 7.4, all Alterations and Utility Installations made to the
Premises by Lessee shall be the property of and owned by Lessee, but considered
a part of the Premises. Lessor may, at any time and at its option, elect in
writing to Lessee to be the owner of all or any specified part of the
Lessee-Owned Alterations and Utility Installations. Unless otherwise instructed
per Subparagraph 7.4(b) hereof, all Lessee-Owned Alterations and Utility
installations shall, at the expiration or earlier termination of this Lease,
become the property of Lessor and remain upon the Premises and be surrendered
with the Premises by lessee.
(b) Removal. Unless otherwise agreed in writing, Lessor may
require that any or all Lessee-Owned Alterations or Utility Installations be
removed by the expiration or earlier termination of this Lease, notwithstanding
that their installation may have been consented to by Lessor. Lessor may
require the removal at any time of all or any part of any Alterations or Utility
Installations made without the required consent of Lessor.
(c) Surrender/Restoration. Lessee shall surrender the Premises
by the end of the last day of the Lessee term or any earlier termination date,
clean and free of debris and in good operating order, condition and state of
repair, ordinary wear and tear excepted. Ordinary wear and tear shall not
include any damage or deterioration that would have been prevented by good
maintenance practice or by Lessee performing all of its obligations under this
Lease. Except as otherwise agreed or specified herein, the Premises, as
surrendered, shall include the Alterations and Utility Installations. The
obligation of Lessee shall include the repair of any damage occasioned by the
installation, maintenance or removal of Lessee's Trade Fixtures, furnishings,
equipment, and Lessee-Owned Alterations and Utility Installations, as well as
the
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removal of any storage tank installed by or for Lessee, and the removal,
replacement, or remediation of any soil, material or ground water contaminated
by Lessee, all as may then be required by Applicable Requirements and/or good
practice. Lessee's Trade Fixtures shall remain the property of Lessee and shall
be removed by Lessee subject to its obligation to repair and restore the
Premises per this Lease.
8. INSURANCE; INDEMNITY.
8.1 PAYMENT OF PREMIUMS. The cost of the premiums for the Insurance
policies maintained by Lessor under this Paragraph 8 shall be paid by Lessor. .
8.2 LIABILITY INSURANCE.
(a) Carried by Lessee. Lessee shall obtain and keep in force
during the term of this Lease a Commercial General Liability policy of insurance
protecting Lessee, Lessor and any Lender(s) whose names have been provided to
Lessee in writing (as additional insureds) against claims for bodily injury,
personal injury and property damage based upon, involving or arising out of the
ownership, use, occupancy or maintenance of the Premises and all areas
appurtenant thereto. Such insurance shall be on an occurrence basis providing
single limit coverage in an amount not less than $1,000,000 per occurrence with
an "Additional Insured-Managers or Lessors of Premises" endorsement and contain
the "Amendment of the Pollution Exclusion" endorsement for damage caused by
heat, smoke or fumes from a hostile fire. The policy shall not contain any
Intra-Insured exclusions as between insured persons or organizations, but shall
include coverage for liability assumed under this Lease as an "Insured contract"
for the performance of Lessee's Indemnity obligations under this Lease. The
limits of said insurance required by this Lease or as carried by Lessee shall
not, however, limit the liability of Lessee nor relieve Lessee of any obligation
hereunder. All insurance to be carried by Lessee shall be primary to and not
contributory with any similar insurance carried by Lessor, whose insurance shall
be considered excess insurance only.
(b) Carried by Lessor. Lessor shall also maintain liability
insurance described in Paragraph 8.2(a) above, in addition to and not in lieu
of, the insurance required to be maintained by Lessee. Lessee shall not be
named as an additional insured therein.
8.3 PROPERTY INSURANCE-BUILDING, IMPROVEMENTS AND RENTAL VALUE.
(a) Building and Improvements. Lessor shall obtain and keep in
force during the term of this Lease a policy or policies in the name of Lessor,
with loss payable to Lessor and to any Lender(s), insuring against loss or
damage to the Premises. Such insurance shall be for full replacement cost, as
the same shall exist from time to time, or the amount required by any Lender(s),
but in no event more than the commercially reasonable and available insurable
value thereof if, by reason of the unique nature or age of the improvements
involved, such latter amount is less than full replacement cost. Lessee-Owned
Alterations and Utility Installations, Trade Fixtures and Lessee's personal
property shall be insured by Lessee pursuant to Paragraph 8.4. If the coverage
is available and commercially appropriate, Lessor's policy or policies shall
insure against all risks of direct physical loss or damage (except the perils of
flood and/or earthquake unless required by a Lender), including coverage for any
additional costs resulting from debris removal and reasonable amounts of
coverage for the enforcement of any ordinance or law regulating the
reconstruction or replacement of any undamaged sections of the Building required
to be demolished or removed by reason of the enforcement of any building,
zoning, safety or land use laws as the result of a covered loss, but not
including plate glass insurance. Said policy or policies shall also contain an
agreed valuation provision in lieu of any co-insurance clause, waiver of
subrogation, and inflation guard protection causing an increase in the annual
property insurance coverage amount by a factor of not less than the adjusted
U.S. Department of Labor Consumer Price Index for All Urban Consumers for the
city nearest to where the Premises are located, at its election.
(b) Rental Value. Lessor shall also obtain and keep in force
during the term of this Lease a policy or policies in the name of Lessor, with
loss payable to Lessor and any Lender(s), insuring the loss of the full rental
and other charges payable by all lessees of the Building to Lessor for one year
(including all Real Property Taxes, insurance
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costs, all Common Area Operating Expenses and any scheduled rental increases).
Said insurance may provide that in the event the Lease is terminated by reason
of an insured loss, the period of indemnity for such coverage shall be extended
beyond the date of the completion of repairs or replacement of the Premises, to
provide for one full year's loss of rental revenues from the date of any such
loss. Said insurance shall contain an agreed valuation provision in lieu of any
co-insurance clause, and the amount of coverage shall be adjusted annually to
reflect the projected rental income. Real Property Taxes, insurance premium
costs and other expenses, if any, otherwise payable, for the next 12-month
period. Common Area Operating Expenses shall include any deductible amount in
the event of such loss.
(c) Adjacent Premises. Lessee shall pay for any increase in the
premiums for the property insurance of the Building and for the Common Areas or
other buildings in the Industrial Center if said increase is caused by Lessee's
acts, omissions, use or occupancy of the Premises.
(d) Lessee's Improvements. Since Lessor is the Insuring Party,
Lessor shall not be required to insure Lessee-Owned Alterations and Utility
installations unless the item in question has become the property of Lessor
under the terms of this Lease.
8.4 LESSEE'S PROPERTY INSURANCE. Subject to the requirements of
Paragraph 8.5, Lessee at its cost shall either by separate policy or, at
Lessor's option, by endorsement to a policy already carried, maintain insurance
coverage on all of Lessee's personal property, Trade Fixtures and Lessee-Owned
Alterations and Utility Installations in, on, or about the Premises similar in
coverage to that carried by Lessor as the Insuring Party under Paragraph 8.3(a).
Such insurance shall be full replacement cost coverage with a deductible not to
exceed $1,000 per occurrence. The proceeds from any such insurance shall be
used by Lessee for the replacement of personal property and the restoration of
Trade Fixtures and Lessee-Owned Alterations and Utility Installations. Upon
request from Lessor, Lessee shall provide Lessor with written evidence that such
insurance is in force.
8.5 INSURANCE POLICIES. Insurance required hereunder shall be in
companies duly licensed to transact business in the state where the Premises are
located, and maintaining during the policy term a "General Policyholders Rating"
of at least B+, V, or such other rating as may be required by a Lender, as set
forth in the most current issue of "Best's Insurance Guide." Lessee shall not
do or permit to be done anything which shall invalidate the insurance policies
referred to in this Paragraph 8. Lessee shall cause to be delivered to Lessor,
within seven (7) days after the earlier of the Early Possession Date or the
Commencement Date, certified copies of, or certificates evidencing the existence
and amounts of, the insurance required under Paragraph 8.2(a) and 8.4. No such
policy shall be cancelable or subject to modification except after thirty (30)
days' prior written notice to Lessor. Lessee shall at least thirty (30) days
prior to the expiration of such policies, furnish Lessor with evidence of
renewals or "insurance binders" evidencing renewal thereof, or Lessor may order
such insurance and charge the cost thereof to Lessee, which amount shall be
payable by Lessee to Lessor upon demand.
8.6 WAIVER OF SUBROGATION. Without affecting any other rights or
remedies, Lessee and Lessor each hereby release and relieve the other, and waive
their entire right to recover damages (whether in contract or in tort) against
the other, for loss or damage to their property arising out of or incident to
the perils required to be insured against under Paragraph 8. The effect of such
releases and waivers of the right to recover damages shall not be limited by the
amount of insurance carried or required, or by any deductibles applicable
thereto. Lessor and Lessee agree to have their respective insurance companies
issuing property damage insurance waive any right to subrogation that such
companies may have against Lessor or Lessee, as the case may be, so long as the
insurance is not invalidated thereby.
8.7 INDEMNITY. Except for Lessor's negligence and/or breach of express
warranties, Lessee shall indemnify, protect, defend and hold harmless the
Premises, Lessor and its agents, Lessor's master or ground lessor, partners and
Lenders, from and against any and all claims, loss of rents and/or damages,
occupancy of the Premises by Lessee, the conduct of Lessee's business, any act,
omission or neglect of Lessee, its agents, contractors, employees or invitees,
and out of any Default or Breach by Lessee in the performance in a timely manner
of any obligation on Lessee's part to be performed under this Lease. The
foregoing shall include, but not be limited to, the defense or pursuit of any
claim or any action or proceeding involved therein, and whether or not (in the
case of claims made against Lessor) litigated and/or reduced to judgment. In
case any action or proceeding be brought against Lessor by reason of any of the
foregoing matters. Lessee
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upon notice from Lessor shall defend the same at Lessee's expense by counsel
reasonably satisfactory to Lessor and Lessor shall cooperate with Lessee in such
defense. Lessor need not have first paid any such claim in order to be so
indemnified.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessor shall not be liable for
injury or damage to the person or goods, wares, merchandise or other property of
Lessee, Lessee's employees, contractors, invitees, customers, or any other
person in or about the Premises, whether such damage or injury is caused by or
results from fire, steam, electricity, gas, water or rain, or from the breakage,
leakage, obstruction or other defects or pipes, fire sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, or from any other
cause, whether said injury or damage results from conditions arising upon the
Premises or upon other portions of the Building of which the Premises are a
part, from other sources or places, and regardless of whether the cause of such
damage or injury or the means of repairing the same is accessible or not.
Lessor shall not be liable for any damages arising from any act or neglect of
any other lessee of Lessor nor from the failure by Lessor to enforce the
provisions of any other lease in the Industrial Center. Notwithstanding
Lessor's negligence or breach of this Lease, Lessor shall under no circumstances
be liable for injury to Lessee's business or for any loss of income or profit
therefrom.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "Premises Partial Damage" shall mean damage or destruction
to the Premises, other than Lessee-Owned Alterations and Utility Installations,
the repair cost of which damage or destruction is less than fifty percent (50%)
of the then Replacement Cost (as defined in Paragraph 9.1(d) of the Premises
(excluding Lessee-Owned Alterations and Utility Installations and Trade Fixtures
immediately prior to such damage or destruction. In addition, damage or
destruction to the Building, other than Lessee-Owned alterations and Utility
Installations and Trade Fixtures) immediately prior to such damage or
destruction.
(b) "Premises Total Destruction" shall mean damage or
destruction to the Premises, other than Lessee-Owned Alterations and Utility
Installations, the repair cost of which damage or destruction is fifty percent
(50%) or more of the then Replacement Cost of the Premises (excluding
Lessee-Owned Alterations and Utility Installations and Trade Fixtures of any
lessees of the Building, the cost of which damage or destruction is fifty
percent (50%) or more of the then Replacement Cost (excluding Lessee-Owned
Alterations and Utility Installations and Trade Fixtures of any lessees of the
Building) of the Building shall, at the option of Lessor, be deemed to be
Premises Total Destruction.
(c) "Insured Loss" shall mean damage or destruction to the
Premises, other than Lessee-Owned Alterations and Utility Installations and
Trade Fixtures, which was caused by an event required to be covered by the
insurance described in Paragraph 8.3(a) irrespective of any deductible amounts
or coverage limits involved.
(d) "Replacement Cost" shall mean the cost to repair or rebuild
the improvements owned by Lessor at the time of the occurrence to their
condition existing immediately prior thereto, including demolition, debris
removal and upgrading required by the operation of applicable building codes,
ordinances or laws, and without deduction for depreciation.
(e) "Hazardous Substance Condition" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the
Premises.
9.2 PREMISES PARTIAL DAMAGE - INSURED LOSS. If Premises Partial Damage
that is an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair
such damage (but not Lessee's Trade Fixtures or Lessee-Owned Alterations and
Utility Installations) as soon as reasonably possible and this Lease shall
continue in full force and effect. In the event, however, that there is a
shortage of insurance proceeds and such shortage is due to the fact that, by
reason of the unique nature of the improvements in the Premises, full
replacement cost insurance coverage was not commercially reasonable and
available, Lessor shall have no obligation to pay for the shortage in insurance
proceeds or to fully restore the unique aspects of the Premises unless Lessee
provides Lessor with the funds to cover same, or adequate assurance thereof,
within ten (10) days following receipt of written notice of such shortage and
request therefor. If Lessor
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receives said funds or adequate assurance thereof within ten (10) days following
receipt of written notice of such shortage and request therefor. If Lessor
receives said funds or adequate assurance thereof within said ten (10) day
period, lessor shall complete them as soon as reasonably possible and this Lease
shall remain in full force and effect. If Lessor does not receive such funds or
assurance within said period, Lessor may nevertheless elect by written notice to
Lessee within ten (10) days thereafter to make such restoration and repair as is
commercially reasonable with Lessor paying any shortage in proceeds, in which
case this Lease shall remain in full force and effect. If Lessor does not
receive such funds or assurance within such ten (10) day period, and if Lessor
does not so elect to restore and repair, then this Lease shall terminate sixty
(60) days following the occurrence of the damage or destruction. Unless
otherwise agreed, Lessee shall in no event have any right to reimbursement from
Lessor for any funds contributed by Lessee to repair any such damage or
destruction. Unless otherwise agreed, Lessee shall in no event have any right
to reimbursement from Lessor for any funds contributed by Lessee to repair any
such damage or destruction. Premises Partial damage due to flood or earthquake
shall be subject to Paragraph 9.3 rather than Paragraph 9.2, notwithstanding
that there may be some insurance coverage, but the net proceeds of any such
insurance shall be made available for the repairs if made by either Party.
9.3 PARTIAL DAMAGE - UNINSURED LOSS. If Premises Partial Damage that
is not an Insured Loss occurs, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense and
this Lease shall continue in full force and effect). Lessor may at Lessor's
option, either (i) repair such damage as soon as reasonably possible at Lessor's
expense, in which event this Lease shall continue in full force and effect, or
(ii) give written notice to lessee within thirty (30) days after receipt by
Lessor of knowledge of the occurrence of such damage of Lessor's desire to
terminate this Lease as of the date sixty (60) days following the date of such
notice. In the event Lessor elects to give such notice of Lessor's intention to
terminate this Lease, Lessee shall have the right within ten (10) days after the
receipt of such notice to give written notice to Lessor of Lessee's commitment
to pay for the repair of such damage totally at Lessee's expense and without
reimbursement from Lessor. Lessee shall provide Lessor with the required funds
or satisfactory assurance thereof within thirty (30) days following such
commitment from Lessee. In such event this Lease shall continue in full force
and effect, and Lessor shall proceed to make such repairs as soon as reasonably
possible after the required funds are available. If Lessee does not give such
notice and provide the funds or assurance thereof within the times specified
above, this Lease shall terminate as of the date specified in Lessor's notice of
termination.
9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof, if
Premises Total Destruction occurs (including any destruction required by any
authorized public authority), this Lease shall terminate sixty (60) days
following the date of such Premises Total destruction, whether or not the damage
or destruction is an Insured Loss or was caused by a negligent or willful act of
Lessee. In the event, however, that the damage or destruction was caused by
lessee, Lessor shall have the right to recover Lessor's damages from Lessee
except as released and waived in Paragraph 9.7.
9.5 DAMAGE NEAR END OF TERM. If at any time during the last six (6)
months of the term of this Lease there is damage for which the cost to repair
exceeds one month's Base Rent, whether or not an Insured Loss, Lessor may, at
Lessor's option, terminate this Lease effective sixty (60) days following the
date of occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within thirty (30) days after the date of occurrence of such
damage. Provided, however, if Lessee at that time has an exercisable option to
extend this Lease or to purchase the Premises, then Lessee may preserve this
Lease by (a) exercising such option, and (b) providing Lessor with any shortage
in insurance proceeds (or adequate assurance thereof) needed to make the repairs
on or before the earlier of (i) the date which is ten (10) days after Lessee's
receipt of Lessor's written notice purporting to terminate this Lease, or (ii)
the day prior to the date upon which such option expires. If Lessee duly
exercises such option during such period and provides Lessor with funds (or
adequate assurance thereof) needed to make the repairs on or before the earlier
of (i) the date which is ten (10) days after Lessee's receipt of Lessor's
written notice purporting to terminate this Lease, or (ii) the day prior to the
date upon which such option expires. If Lessee duly exercises such option
during such period and provides Lessor with funds (or adequate assurance
thereof) to cover any shortage in insurance proceeds, Lessor shall, at Lessor's
expense repair such damage as soon as reasonably possible and this Lease shall
continue in full force and effect. If Lessee fails to exercise such option and
provide such funds or assurance during such period, then this Lease shall
terminate as of the date set forth in the first sentence of this Paragraph 9.5.
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9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event of (i) Premises Partial Damage or (ii)
Hazardous Substance Condition for which Lessee is not legally responsible, the
Base Rent, Common Area Operating Expenses and other charges, if any, payable by
Lessee hereunder for the period during which such damage or condition, its
repair, remediation or restoration continues, shall be abated in proportion to
the degree to which Lessee's use of the Premises is impaired, but not in excess
of proceeds from insurance required to be carried under Paragraph 8.3(b).
Except for abatement of Base Rent, Common Area Operating Expenses and other
charges, if any, as aforesaid, all other obligations of Lessee hereunder shall
be performed by Lessee, and Lessee shall have no claim against Lessor for any
damage suffered by reason of any such damage, destruction, repair, remediation
or restoration.
(b) If Lessor shall be obligated to repair or restore the
Premises under the provisions of this Paragraph 9 and shall not commence, in a
substantial and meaningful way, the repair or restoration of the Premises within
ninety (90) days after such obligation shall accrue, Lessee may, at any time
prior to the commencement of such repair or restoration, give written notice to
Lessor and to any Lenders of which Lessee has actual notice of Lessee's election
to terminate this Lease on a date not less than sixty (60) days following the
giving of such notice. If Lessee gives such notice to Lessor and such Lenders
and such repair or restoration is not commenced within thirty (30) days after
receipt of such notice, this Lease shall terminate as of the date specified in
said notice. If Lessor or a Lender commences the repair or restoration of the
Premises within thirty (30) days after the receipt of such notice, this Lease
shall continue in full force and effect. "Commence" as used in this Paragraph
9.6 shall mean either the unconditional authorization of the preparation of the
required plans, or the beginning of the actual work on the Premises, whichever
occurs first.
9.7 HAZARDOUS SUBSTANCE CONDITIONS. If a Hazardous Substance
Condition occurs, unless Lessee is legally responsible therefor (in which case
Lessee shall make the investigation and remediation thereof required by
Applicable Requirements and this Lease shall continue in full force and effect,
but subject to Lessor's rights under Paragraph 6.2(c) and Paragraph 13), Lessor
may at Lessor's option either (i) investigate and remediate such Hazardous
Substance Condition, if required, as soon as reasonably possible at Lessor's
expense, in which event this Lease shall continue in full force and effect, or
(ii) if the estimated cost to investigate and remediate such condition exceeds
twelve (12) times the then month Base Rent or $100,000 whichever is greater,
give written notice to Lessee within thirty (30) days after receipt by Lessor of
knowledge of the occurrence of such Hazardous Substance Condition of Lessor's
desire to terminate this Lease as of the date sixty (60) days following the date
of such notice. In the event Lessor elects to give such notice of Lessor's
intention to terminate this Lease, Lessee shall have the right within ten (10)
days after the receipt of such notice to give written notice to Lessor of
Lessee's commitment to pay for the excess costs of (a) investigation and
remediation of such Hazardous Substance Condition to the extent required by
Applicable Requirements, over (b) an amount equal to twelve (12) times the then
monthly Base Rent or $100,000, whichever is greater. Lessee shall provide
Lessor with the funds required of Lessee or satisfactory assurance thereof
within thirty (30) days following said commitment by Lessee. In such event this
Lease shall continue in full force and effect, and Lessor shall proceed to make
such investigation and remediation as soon as reasonably possible after the
required funds are available. If Lessee does not give such notice and provide
the required funds or assurance thereof within the time period specified above,
this Lease shall terminate as of the date specified in Lessor's notice of
termination.
9.8 TERMINATION - ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to this Paragraph 9, Lessor shall return to Lessee any advance payment
made by Lessee to Lessor and so much of Lessee's Security Deposit as has not
been, or is not then required to be, used by Lessor under the terms of this
Lease.
9.9 WAIVER OF STATUTES. Lessor and Less agree that the terms of this
Lease shall govern the effect of any damage to or destruction of the Premises
and the Building with respect to the termination of this Lease and hereby waive
the provisions of any present or future statute to the extent it is inconsistent
herewith.
10. REAL PROPERTY TAXES.
10.1 PAYMENT OF TAXES. Lessor shall pay the Real Property Taxes, as
defined in Paragraph 10.2, applicable to the Industrial Center.
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10.2 LESSEE'S PROPERTY TAXES. Lessee shall pay prior to delinquency all
taxes assessed against and levied upon Lessee-Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises or stored within the Industrial Center.
When possible, Lessee shall cause its Lessee-Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all other personal
property to be assessed and billed separately from the real property of Lessor.
If any of Lessee's said property shall be assessed with Lessor's real property,
Lessee shall pay Lessor the taxes attributable to Lessee's property within ten
(10) days after receipt of a written statement setting forth the taxes
applicable to Lessee's property.
11. UTILITIES. Lessee shall pay directly for all utilities and services
supplied to the Premises, including but not limited to electricity, telephone,
security, gas and cleaning of the Premises, together with any taxes thereon. If
any such utilities or services are not separately metered to the Premises or
separately billed to the Premises, Lessee shall pay to Lessor a reasonable
proportion to be determined by Lessor of all such charges jointly metered or
billed with other premises in the Building, in the manner and within the time
periods set forth in Paragraph 4.2(d). See Addendum attached.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED.
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or otherwise transfer or encumber (collectively, "assign") or
sublet all or any part of Lessee's interest in this Lease or in the Premises
without Lessor's prior written consent given under and subject to the terms of
Paragraph 36.
(b) A change in the control of Lessee shall constitute an
assignment requiring Lessor's consent. The transfer, on a cumulative basis, of
twenty-five percent (25%) or more of the voting control of Lessee shall
constitute a change in control for this purpose. See Addendum attached.
(c) The involvement of Lessee or its assets in any transaction,
or series of transactions (by way of merger, sale, acquisition, financing,
refinancing, transfer, leveraged buy-out or otherwise), whether or not a formal
assignment or hypothecation of this Lease or Lessee's assets occurs, which
results or will result in a reduction of the Net Worth of Lessee, as hereinafter
defined, by an amount equal to or greater than twenty-five percent (25%) of such
Net Worth of Lessee as it was represented to Lessor at the time of full
execution and delivery of this Lease or at the time of the most recent
assignment to which Lessor has consented, or as it exists immediately prior to
said transaction or transactions constituting such reduction, at whichever time
said Net Worth of Lessee was or is greater, shall be considered an assignment of
this Lease by Lessee to which Lessor may reasonably withhold its consent. "Net
Worth of Lessee" for purposes of this Lease shall be the net worth of Lessee
(excluding any Guarantors) established under generally accepted accounting
principles consistently applied.
(d) An assignment or subletting of Lessee's interest in this
Lease without Lessor's specific prior written consent shall, at Lessor's option,
be a Default curable after notice per Paragraph 13.1, or a non-curable Breach
without the necessity of any notice and grace period. If Lessor elects to treat
such unconsented to assignment or subletting as a non-curable Breach, Lessor
shall have the right to either: (i) terminate this Lease, or (ii) upon thirty
(30) days' written notice ("Lessor's Notice"), increase the monthly Base Rent
for the Premises to the greater of the then fair market rental value of the
Premises, as reasonably determined by Lessor, or one hundred ten percent (110%)
of the Base Rent then in effect. Pending determination of the new fair market
rental value, if disputed by Lessee, Lessee shall pay the amount set forth in
Lessor's Notice, with any overpayment credited against the next installment(s)
of Base Rent coming due, and any underpayment for the period retroactively to
the effective date of the adjustment being due and payable immediately upon the
determination thereof. Further, in the event of such Breach and rental
adjustment, (i) the purchase price of any option to purchase the Premises held
by Lessee shall be subject to similar adjustment to the then fair market value
as reasonably determined by Lessor (without the Lease being considered an
encumbrance or any deduction for depreciation or obsolescence, and considering
the Premises at its highest and best use and in good condition) or one hundred
ten percent (110%) of the price previously in effect, (ii) any index-oriented
rental or price adjustment formulas contained in this Lease shall be adjusted to
require that the base index be determined with reference to the index applicable
to the time of such adjustment, and
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(iii) any fixed rental adjustments scheduled during the remainder of the Lease
term shall be increased in the same ratio as the new rental bears to the Base
Rent in effect immediately prior to the adjustment specified in Lessor's Notice.
(e) Lessee's remedy for any breach of this Paragraph 12.1 by
Lessor shall be limited to compensatory damages and/or injunctive relief.
12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, any assignment or subletting
shall not (i) be effective without the express written assumption by such
assignee or sublessee of the obligations of Lessee under this Lease,
(ii) release Lessee of any obligations hereunder, nor (iii) alter the primary
liability of Lessee for the payment of Base Rent and other sums due Lessor
hereunder or for the performance of any other obligations to be performed by
Lessee under this Lease.
(b) Lessor may accept any rent or performance of Lessee's
obligations from any person other than Lessee pending approval or disapproval of
an assignment. Neither a delay in the approval or disapproval of such
assignment nor the acceptance of any rent for performance shall constitute a
waiver or estoppel of Lessor's right to exercise its remedies for the Default or
Breach by Lessee of any of the terms, covenants or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting shall
not constitute a consent to any subsequent assignment or subletting by Lessee or
to any subsequent or successive assignment or subletting by the assignee or
sublessee. However, Lessor may consent to subsequent sublettings and
assignments of the sublease or any amendments or modifications thereto without
notifying Lessee or anyone else liable under this Lease or the sublease and
without obtaining their consent, and such action shall not relieve such persons
from liability under this Lease or the sublease.
(d) In the event of any Default or Breach of Lessee's
obligations under this Lease, Lessor may proceed directly against Lessee, any
Guarantors or anyone else responsible for the performance of the Lessee's
obligations under this Lease, including any sublessee, without first exhausting
Lessor's remedies against any other person or entity responsible therefor to
Lessor, or any security held by Lessor.
(e) Each request for consent to an assignment or subletting
shall be in writing, accompanied by information relevant to Lessor's
determination as to the financial and operational responsibility and
appropriateness of the proposed assignee or sublessee, including but not limited
to the intended use and/or required modification of the Premises, if any,
together with a non-refundable deposit of $1,000 or ten percent (10%) of the
monthly Base Rent applicable to the portion of the Premises which is the subject
of the proposed assignment or sublease, whichever is greater. Lessee agrees to
provide Lessor with such other or additional information and/or documentation as
may be reasonably requested by Lessor.
(f) Any assignee of, or sublessee under, this Lease shall, by
reason of accepting such assignment or entering in such sublease, be deemed, for
the benefit of Lessor, to have assumed and agreed to conform and comply with
each and every term, covenant, condition and obligation herein to be observed or
performed by Lessee during the term of said assignment or sublease, other than
such obligations as are contrary to or inconsistent with provisions of an
assignment or sublease to which lessor has specifically consented in writing.
(g) The occurrence of a transaction described in Paragraph
12.2(c) shall give Lessor the right (but not the obligation) to require that the
Security Deposit be increased by an amount equal to three (3) times the then
monthly Base Rent, and Lessor may make the actual receipt by Lessor of the
Security Deposit increase a condition to Lessor's consent to such transaction.
(h) Lessor, as a condition to giving its consent to any
assignment or subletting, may require that the amount and adjustment schedule of
the rent payable under this Lease by adjusted to what is then the market value
and/or adjustment schedule for property similar to the Premises as then
constituted, as determined by Lessor.
12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The
following terms and conditions shall apply to any subletting by Lessee of all or
any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein:
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(a) Lessee hereby assigns and transfers to Lessor all of
Lessee's interest in all rentals and income arising from any sublease of all or
a portion of the Premises heretofore or hereafter made by Lessee, and Lessor may
collect such rent and income and apply same toward Lessee's obligations under
this Lease; provided, however, that until a Breach (as defined in Paragraph
13.1) shall occur in the performance of Lessee's obligations under this Lease,
Lessee may, except as otherwise provided in this Lease, receive, collect and
enjoy the rents accruing under such sublease. Lessor shall not, by reason of
the foregoing provision or any other assignment of such sublease to Lessor, nor
by reason of the collection of the rents from a sublessee, be deemed liable to
the sublessee for any failure of Lessee to perform and comply with any of
Lessee's obligations to such sublessee under such Sublease. Lessee hereby
irrevocably authorizes and directs any such sublessee, upon receipt of a written
notice from Lessor stating that a Breach exists in the performance of Lessee's
obligations under this Lease, to pay to Lessor the rents and other charges due
and to become due under the sublease. Sublessee shall rely upon any such
statement and request from Lessor and shall pay such rents and other charges to
Lessor without any obligation or right to inquire as to whether such Breach
exists and notwithstanding any notice from or claim from Lessee to the contrary.
Lessee shall have no right or claim against such sublessee, or, until the Breach
has been cured, against Lessor, for any such rents and other charges so paid by
said sublessee to Lessor.
(b) In the event of a Breach by Lessee in the performance of its
obligations under this Lease, Lessor, at its option and without any obligation
to do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of the sublessor under such sublease from the
time of the exercise of said option to the expiration of such sublease;
provided, however, Lessor shall not be liable for any prepaid rents or security
deposit paid by such sublessee to such sublessor or for any other prior defaults
or breaches of such sublessor under such sublease.
(c) Any matter or thing requiring the consent of the sublessor
under a sublease shall also require the consent of Lessor herein.
(d) No sublessee under a sublease approved by Lessor shall
further assign or sublet all or any part of the Premises without Lessor's prior
written consent.
(e) Lessor shall deliver a copy of any notice of Default or
breach by Lessee to the sublessee, who shall have the right to cure the Default
of Lessee within the grace period, if any, specified in such notice. The
sublessee shall have a right of reimbursement and offset from and against Lessee
for any such Defaults cured by the sublessee.
13. DEFAULT; BREACH; REMEDIES.
13.1 DEFAULT; BREACH. Lessor and Lessee agree that if an attorney is
consulted by Lessor in connection with a Lessee Default or Breach (as
hereinafter defined), $350.00 is a reasonable minimum sum per such occurrence
for legal services and costs in the preparation and service of a notice of
Default, and that Lessor may include the cost of such services and costs in said
notice as rent due and payable to cure said default. A "Default" by Lessee is
defined as a failure by Lessee to observe, comply with or perform any of the
terms, covenants, conditions or rules applicable to Lessee under this Lease. A
"Breach" by Lessee is defined as the occurrence of any one or more of the
following Defaults, and, where a grace period for cure after notice is specified
herein, the failure by Lessee to cure such Default prior to the expiration of
the applicable grace period, and shall entitle Lessor to pursue the remedies set
forth in Paragraphs 13.2 and/or 13.3:
(a) The vacating of the Premises without the intention to
reoccupy same, or the abandonment of the Premises.
(b) Except as expressly otherwise provided in this Lease, the
failure by Lessee to make any payment of Base Rent, Lessee's Share of Common
Area Operating Expenses, or any other monetary payment required to be made by
Lessee hereunder as and when due, the failure by Lessee to provide Lessor with
reasonable evidence of insurance or surety bond required under this Lease, or
the failure of Lessee to fulfill any obligation under this lease which endangers
or threatens life or property, where such failure continues for a period of
three (3) days following written notice thereof by or on behalf of Lessor to
Lessee.
(c) Except as expressly otherwise provided in this Lease, the
failure by Lessee to provide Lessor with reasonable written evidence (in duly
executed original form, if applicable) of (i) compliance with Applicable
Requirements per Paragraph 6.3, (ii) the inspection, maintenance and service
contracts required under Paragraph 7.1(b),
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(iii) the rescission of an unauthorized assignment or subletting per Paragraph
12.1, (iv) a Tenancy Statement per Paragraphs 16 or 37, (v) the subordination or
non-subordination of this Lease per Paragraph 30, (vi) the guaranty of the
performance of Lessee's obligations under this Lease if required under
Paragraphs 1.11 and 37, (vii) the execution of any document requested under
Paragraph 42 (easements), or (viii) any other documentation or information which
Lessor may reasonably require of Lessee under the terms of this Lease, where any
such failure continues for a period of ten (10) days following written notice by
or on behalf of Lessor to Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions
or provisions of this Lease, or of the rules adopted under Paragraph 40 hereof
that are to be observed, complied with or performed by Lessee, other than those
described in Subparagraphs 13.1(a), (b) or (c), above, where such Default
continues for a period of thirty (30) days after written notice thereof by or on
behalf of Lessor to Lessee; provided, however, that if the nature of Lessee's
Default is such that more than thirty (30) days are reasonably required for its
cure, then it shall not be deemed to be a Breach of this Lease by Lessee if
Lessee commences such cure within said thirty (30) day period and thereafter
diligently prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) the
making by Lessee of any general arrangement or assignment for the benefit of
creditors; (ii) Lessee's becoming a "debtor" as defined in 11 U.S. Code Section
101 or any successor statute thereto (unless, in the case of a petition filed
against Lessee, the same is dismissed within sixty (60) days); (iii) the
appointment of a trustee or receiver to take possession of substantially all of
Lessee's assets located at the Premises or of Lessee's interest in this Lease,
where possession is not restored to Lessee within thirty (30) days; or (iv) the
attachment, execution or other judicial seizure of substantially all of Lessee's
assets located at the Premises or of Lessee's interest in this Lease, where such
seizure is not discharged within thirty (30) days; provided, however, in the
event that any provision of this Subparagraph 13.1(e) is contrary to any
applicable law, such provision shall be of no force or effect, and shall not
affect the validity of the remaining provisions.
(f) The discovery by lessor that any financial statement of
Lessee or of any Guarantor, given to Lessor by Lessee or any Guarantor, was
materially false.
(g) If the performance of Lessee's obligations under this Lease
is guaranteed: (i) the death of a Guarantor, (ii) the termination of a
Guarantor's liability with respect to this Lease other than in accordance with
the terms of such guaranty, (iii) a Guarantor's becoming insolvent or the
subject of a bankruptcy filing, (iv) a Guarantor's refusal to honor the
guaranty, or (v) a Guarantor's breach of its guaranty obligation on an
anticipatory breach basis, and Lessee's failure, within sixty (60) days
following written notice by or on behalf of Lessor to Lessee of any such event,
to provide Lessor with written alternative assurances of security, which, when
coupled with the then existing resources of Lessee, equals or exceeds the
combined financial resources of Lessee and the Guarantors that existed at the
time of execution of this Lease.
13.2 REMEDIES. If Lessee fails to perform any affirmative duty or
obligation of Lessee under this Lease, within ten (10) days after written notice
to Lessee (or in case of an emergency, without notice), Lessor may at its option
(but without obligation to do so), perform such duty or obligation on Lessee's
behalf, including but not limited to the obtaining of reasonably required bonds,
insurance policies, or governmental licenses, permits or approvals. The costs
and expenses of any such performance by Lessor shall be due and payable by
Lessee to Lessor upon invoice therefor. If any check given to Lessor by Lessee
shall not be honored by the bank upon which it is drawn, Lessor, at its own
option, may require all future payments to be made under this Lease by Lessee to
be made only by cashier's check. In the event of a Breach of this Lease by
Lessee (as defined in Paragraph 13.1), with or without further notice or demand,
and without limiting Lessor in the exercise of any right or remedy which Lessor
may have by reason of such Breach, Lessor may:
(a) Terminate Lessee's right to possession of the Premises by
any lawful means, in which case this Lease and the term hereof shall terminate
and Lessee shall immediately surrender possession of the Premises to Lessor. In
such event Lessor shall be entitled to recover from Lessee: (i) the worth at
the time of the award of the unpaid rent which had been earned at the time of
termination; (ii) the worth at the time of award of the amount by which the
unpaid
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rent which would have been earned after termination until the time of award
exceeds the amount of such rental loss that the Lessee proves could have been
reasonably avoided; (iii) the worth at the time of award of the amount by which
the unpaid rent for the balance of the term after the time of award exceeds the
amount of such rental loss that the Lessee proves could be reasonably avoided;
and (iv) any other amount necessary to compensate Lessor for all the detriment
proximately caused by the Lessee's failure to perform its obligations under this
Lease or which in the ordinary course of things would be likely to result
therefrom, including but not limited to the cost of recovering possession of the
Premises, expenses of reletting, including necessary renovation and alteration
of the Premises, reasonable attorneys' fees, and that portion of any leasing
commission paid by Lessor in connection with this Lease applicable to the
unexpired term of this Lease. The worth at the time of award of the amount
referred to in provision (iii) of the immediately preceding sentence shall be
computed by discounting such amount at the discount rate of the Federal Reserve
Bank of San Francisco or the Federal Reserve Bank District in which the Premises
are located at the time of award plus one percent (1%). Efforts by Lessor to
mitigate damages caused by Lessee's Default or Breach of this Lease shall not
waive Lessor's right to recover damages under this Paragraph 13.2. If
termination of this Lease is obtained through the provisional remedy of unlawful
detainer, Lessor shall have the right to recover in such proceeding the unpaid
rent and damages as are recoverable therein, or Lessor may reserve the right to
recover all or any part thereof in a separate suit for such rent and/or damages.
If a notice and grace period required under Subparagraph 13.1(b), (c) or (d) was
not previously given, a notice to pay rent or quit, or to perform or quit, as
the case may be, given to Lessee under any statute authorizing the forfeiture of
leases for unlawful detainer shall also constitute the applicable notice for
grace period purposes required by Subparagraph 13.1(b), (c) or (d). In such
case, the applicable grace period under the unlawful detainer statute shall run
concurrently after the one such statutory notice, and the failure of Lessee to
cure the Default within the greater of the two (2) such grace periods shall
constitute both an unlawful detainer and a Breach of this Lease entitling Lessor
to the remedies provided for in this Lease and/or by said statute.
(b) Continue the Lease and Lessee's right to possession in
effect (in California under California Civil Code Section 1951.4) after Lessee's
Breach and recover the rent as it becomes due, provided Lessee has the right to
sublet or assign, subject only to reasonable limitations. Lessor and Lessee
agree that the limitations on assignment and subletting in this Lease are
reasonable. Acts of maintenance or preservation, efforts to relet the Premises,
or the appointment of a receiver to protect the Lessor's interest under this
Lease, shall not constitute a termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to Lessor
under the laws or judicial decisions of the state wherein the Premises are
located.
(d) The expiration or termination of this Lease and/or the
termination of Lessee's right to possession shall not relieve Lessee from
liability under any indemnity provisions of this Lease as to matters occurring
or accruing during the term hereof or by reason of Lessee's occupancy of the
Premises.
13.3 INDUCEMENT RECAPTURE IN EVENT OF BREACH. Any agreement by Lessor
for free or abated rent or other charges applicable to the Premises, or for the
giving or paying by Lessor to or for Lessee of any cash or other bonus,
inducement or consideration for Lessee's entering into this Lease, all of which
concessions are hereinafter referred to as "Inducement Provisions" shall be
deemed conditioned upon Lessee's full and faithful performance of all of the
terms, covenants and conditions of this Lease to be performed or observed by
Lessee during the term hereof as the same may be extended. Upon the occurrence
of a Breach (as defined in Paragraph 13.1) of this Lease by Lessee, any such
Inducement Provision shall automatically be deemed deleted from this Lease and
of no further force or effect, and any rent, other charge, bonus, inducement or
consideration theretofore abated, given or paid by Lessor under such an
Inducement Provision shall be immediately due and payable by Lessee to Lessor,
and recoverable by Lessor, as additional rent due under this Lease,
notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by
Lessor of rent or the cure of the Breach which initiated the operation of this
Paragraph 13.3 shall not be deemed a waiver by Lessor of the provisions of this
Paragraph 13.3 unless specifically so stated in writing by Lessor at the time of
such acceptance.
13.4 LATE CHARGES. Lessee hereby acknowledges that the late payment by
Lessee to Lessor of rent and other sums due hereunder will cause Lessor to incur
costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed upon
Lessor by the terms of any ground lease, mortgage or deed of trust covering the
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Premises. Accordingly, if any installment of rent or other sum due from Lessee
shall not be received by Lessor or Lessor's designee within ten (10) days after
such amount shall be due, then, without any requirement for notice to Lessee,
Lessee shall pay to Lessor a late charge equal to six percent (6%) of such
overdue amount. The parties hereby agree that such late charge represents a
fair and reasonable estimate of the costs Lessor will incur by reason of late
payment by Lessee. Acceptance of such late charge by Lessor shall in no event
constitute a waiver of Lessee's Default or Breach with respect to such overdue
amount, nor prevent Lessor from exercising any of the other rights and remedies
granted hereunder. In the event that a late charge is payable hereunder,
whether or not collected, for three (3) consecutive installments of Base Rent,
then notwithstanding Paragraph 4.1 or any other provision of this Lease to the
contrary, Base Rent shall, at Lessor's option, become due and payable quarterly
in advance.
13.5 BREACH BY LESSOR. Lessor shall not be deemed in breach of this
Lease unless Lessor falls within a reasonable time to perform an obligation
required to be performed by Lessor. For purposes of this Paragraph 13.5, a
reasonable time shall in no event be less than thirty (30) days after receipt by
Lessor, and by any Lender(s) whose name and address shall have been furnished to
Lessee in writing for such purpose, of written notice specifying wherein such
obligation of Lessor has not been performed; provided, however, that if the
nature of Lessor's obligation is such that more than thirty (30) days after such
notice are reasonably required for its performance, then Lessor shall not be in
breach of this Lease if performance is commenced within such thirty (30) day
period and thereafter diligently pursued to completion.
14. CONDEMNATION. If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of said power
(all of which are herein called "condemnation"), this Lease shall terminate as
to the part so taken as of the date the condemning authority takes title or
possession, whichever first occurs. If more than ten percent (10%) of the floor
area of the Premises, or more than twenty-five percent (25%) of the portion of
the Common Areas designated for Lessee's parking, is taken by condemnation,
Lessee may, at Lessee's option, to be exercised in writing within ten (10) days
after Lessor shall have given Lessee written notice of such taking (or in the
absence of such notice, within ten (10) days after the condemning authority
shall have taken possession) terminate this Lease as of the date the condemning
authority takes such possession. If Lessee does not terminate this Lease in
accordance with the foregoing, this Lease shall remain in full force and effect
as to the portion of the Premises remaining, except that the Base Rent shall be
reduced in the same proportion as the rentable floor area of the Premises taken
bears to the total rentable floor area of the Premises. No reduction of Base
Rent shall occur if the condemnation does not apply to any portion of the
Premises. Any award for the taking of all or any part of the Premises under the
power of eminent domain or any payment made under threat of the exercise of such
power shall be the property of Lessor, whether such award shall be made as
compensation for diminution of value of the leasehold or for the taking of the
fee, or as severance damages; provided, however, that Lessee shall be entitled
to any compensation, separately awarded to Lessee for Lessee's relocation
expenses and/or loss of Lessee's Trade Fixtures. In the event that this Lease
is not terminated by reason of such condemnation, Lessor shall to the extent of
its net severance damages received, over and above Lessee's Share of the legal
and other expenses incurred by Lessor in the condemnation matter, repair any
damage to the Premises caused by such condemnation authority. Lessee shall be
responsible for the payment of any amount in excess of such net severance
damages required to complete such repair.
15. BROKERS' FEES.
15.1 PROCURING CAUSE. The Broker(s) named in Paragraph 1.10 is/are the
procuring cause of this Lease.
15.2 ADDITIONAL TERMS. Unless Lessor and Broker(s) have otherwise
agreed in writing, Lessor agrees that: (a) if Lessee exercises any Option (as
defined in Paragraph 39.1) granted under this Lease or any Option subsequently
granted, or (b) if Lessee acquires any rights to the Premises or other premises
in which Lessor has an interest, or (c) if Lessee remains in possession of the
Premises with the consent of Lessor after the expiration of the term of this
Lease after having failed to exercise an Option, or (d) if said Brokers are the
procuring cause of any other lease or sale entered into between the Parties
pertaining to the Premises and/or any adjacent property in which Lessor has an
interest, or (e) if Base Rent is increased, whether by agreement or operation of
an escalation clause herein, then as to any of said transactions, Lessor shall
pay said Broker(s) a fee in accordance with the schedule of said Broker(s) in
effect at the time of the execution of this Lease.
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15.3 ASSUMPTION OF OBLIGATIONS. Any buyer or transferee of Lessor's
interest in this Lease, whether such transfer is by agreement or by operation of
law, shall be deemed to have assumed Lessor's obligation under this Paragraph
15. Each Broker shall be an intended third party beneficiary of the provisions
of Paragraph 1.10 and of this Paragraph 15 to the extent of its interest in any
commission arising from this Lease and may enforce that right directly against
Lessor and its successors:
15.4 REPRESENTATIONS AND WARRANTIES. Lessee and Lessor each represent
and warrant to the other that it has had no dealings with any person, firm,
broker or finder other than as named in Paragraph 1.10(a) in connection with the
negotiation of this Lease and/or the consummation of the transaction
contemplated hereby, and that no broker or other person, firm or entity other
than said named Broker(s) is entitled to any commission or finder's fee in
connection with said transaction. Lessee and Lessor do each hereby agree to
indemnify, protect, defend and hold the other harmless from and against
liability for compensation or charges which may be claimed by any such unnamed
broker, finder or other similar party by reason of any dealings or actions of
the Indemnifying Party, including any costs, expenses, and/or attorneys' fees
reasonably incurred with respect thereto.
16. TENANCY AND FINANCIAL STATEMENTS.
16.1 TENANCY STATEMENT. Each Party (as "Responding Party") shall within
ten (10) days after written notice from the other Party (the "Requesting Party")
execute, acknowledge and deliver to the Requesting Party a statement in writing
in a form similar to the then most current "Tenancy Statement" form published by
the American Industrial Real Estate Association, plus such additional
information, confirmation and/or statements as may be reasonably requested by
the Requesting Party.
16.2 FINANCIAL STATEMENT. If Lessor desires to finance, refinance, or
sell the Premises or the Building, or any part thereof, Lessee and all
Guarantors shall deliver to any potential lender or purchaser designated by
Lessor such financial statements of Lessee and such Guarantors as may be
reasonably required by such lender or purchaser, including but not limited to
Lessee's financial statements for the past three (3) years. All such financial
statements shall be received by Lessor and such lender or purchaser in
confidence and shall be used only for the purposes herein set forth.
17. LESSOR'S LIABILITY. The term "Lessor" as used herein shall mean the owner
or owners at the time in question of the fee title to the Premises. In the
event of a transfer of Lessor's title or interest in the Premises or in this
Lease, Lessor shall deliver to the transferee or assignee (in cash or by credit)
any unused Security Deposit held by Lessor at the time of such transfer or
assignment. Except as provided in Paragraph 15.3, upon such transfer or
assignment and delivery of the Security Deposit, as aforesaid, the prior Lessor
shall be relieved of all liability with respect to the obligations and/or
covenants under this Lease thereafter to be performed by the Lessor. Subject to
the foregoing, the obligations and/or covenants in this Lease to be performed by
the Lessor shall be binding only upon the Lessor as hereinabove defined.
18. SEVERABILITY. The invalidity of any provision of this Lease, as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Any monetary payment due Lessor
hereunder, other than late charges, not received by Lessor within ten (10) days
following the date on which it was due, shall bear interest from the date due at
the prime rate charged by the largest state chartered bank in the state in which
the Premises are located plus four percent (4%) per annum, but not exceeding the
maximum rate allowed by law, in addition to the potential late charge provided
for in Paragraph 13.4.
20. TIME OF ESSENCE. Time is of the essence with respect to the performance of
all obligations to be performed or observed by the Parties under this Lease.
21. RENT DEFINED. All monetary obligations of Lessee to Lessor under the terms
of this Lease are deemed to be rent.
22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein, and
no other prior or contemporaneous agreement or understanding shall be effective.
Lessor and Lessee each represents and warrants to the Brokers that it has made,
and is relying solely upon, its own investigation as to the nature, quality,
character and financial responsibility of the other party to this Lease and as
to the nature, quality and character of the Premises. Brokers have no
responsibility with respect thereto or with respect to any
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default or breach hereof by either Party. Each Broker shall be an intended
third party beneficiary of the provisions of this Paragraph 22.
23. NOTICES.
23.1 NOTICE REQUIREMENTS. All notices required or permitted by this
Lease shall be in writing and may be delivered in person (by hand or by
messenger or courier service) or may be sent by regular, certified or registered
mail or U.S. Postal Service Express Mail, with postage prepaid, or by facsimile
transmission during normal business hours, and shall be deemed sufficiently
given if served in a manner specified in this Paragraph 23. The addresses noted
adjacent to a Party's signature on this Lease shall be that Party's address for
delivery or mailing of notice purposes. Either Party may by written notice to
the other specify a different address for notice purposes, except that upon
Lessee's taking possession of the Premises, the Premises shall constitute
Lessee's address for the purpose of mailing or delivering notices to Lessee. A
copy of all notices required or permitted to be given to Lessor hereunder shall
be concurrently transmitted to such party or parties at such addresses as Lessor
may from time to time hereafter designate by written notice to Lessee.
23.2 DATE OF NOTICE. Any notice sent by registered or certified mail,
return receipt requested, shall be deemed given on the date of delivery shown on
the receipt card, or if no delivery date is shown, the postmark thereon. If
sent by regular mail, the notice shall be deemed given forty-eight (48) hours
after the same is addressed as required herein and mailed with postage prepaid.
Notices delivered by United States Express Mail or overnight courier that
guarantees next day delivery shall be deemed given twenty-four (24) hours after
delivery of the same to the United States Postal Service or the courier. If any
notice is transmitted by facsimile transmission or similar means, the same shall
be deemed served or delivered upon telephone or facsimile confirmation of
receipt of the transmission thereof, provided a copy is also delivered via
delivery or mail. If notice is received on a Saturday or a Sunday or a legal
holiday, it shall be deemed received on the next business day.
24. WAIVERS. No waiver by Lessor of the Default or Breach of any term,
covenant or condition hereof by Lessee, shall be deemed a waiver of any other
term, covenant or condition hereof, or of any subsequent Default or Breach by
Lessee of the same or any other term, covenant or condition hereof. Lessor's
consent to, or approval of, any such act shall not be deemed to render
unnecessary the obtaining of Lessor's consent to, or approval of, any subsequent
or similar act by Lessee, or be construed as the basis of an estoppel to enforce
the provision or provisions of this Lease requiring such consent. Regardless of
Lessor's knowledge of a Default or Breach at the time of accepting rent, the
acceptance of rent by Lessor shall not be a waiver of any Default or breach by
Lessee of any provision hereof. Any payment given Lessor by Lessee may be
accepted by Lessor on account of moneys or damages due Lessor, notwithstanding
any qualifying statements or conditions made by Lessee in connection therewith,
which such statements and/or conditions shall be of no force or effect
whatsoever unless specifically agreed to in writing by Lessor at or before the
time of deposit of such payment.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.
26. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease. In the event that Lessee holds over in violation of this Paragraph
26 then the Base Rent payable from and after the time of the expiration or
earlier termination of this Lease shall be increased to two hundred percent
(200%) of the Base Rent applicable during the month immediately preceding such
expiration or earlier termination. Nothing contained herein shall be construed
as a consent by Lessor to any holding over by Lessee.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. COVENANTS AND CONDITIONS. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.
29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the
Parties, their personal representatives, successors and assigns and be governed
by the laws of the State in which the Premises are located. Any litigation
between the Parties hereto concerning this Lease shall be initiated in the
county in which the Premises are located.
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30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.
30.1 SUBORDINATION. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "Security Device"), nor or
hereafter placed by Lessor upon the real property of which the Premises are a
part, to any and all advances made on the security thereof, and to all renewals,
modifications, consolidations, replacements and extensions thereof. Lessee
agrees that the Lenders holding any such Security Device shall have no duty,
liability or obligation to perform any of the obligations of Lessor under this
Lease, but that in the event of Lessor's default with respect to any such
obligation, Lessee will give andy Lender whose name and address have been
furnished Lessee in writing for such purpose notice of Lessor's default pursuant
to Paragraph 13.5. If any Lender shall elect to have this Lease and/or any
Option granted hereby superior to the lien of its Security Device and shall give
written notice thereof to Lessee, this Lease and such Options shall be deemed
prior to such Security Device, notwithstanding the relative dates of the
documentation or recordation thereof.
30.2 ATTORNMENT. Subject to the non-disturbance provisions of Paragraph
30.3, Lessee agrees to attorn to a Lender or any other party who acquires
ownership of the Premises by reason of a foreclosure of a Security Device, and
that in the event of such foreclosure, such new owner shall not: (i) be liable
for any act or omission of any prior lessor or with respect to events occurring
prior to acquisition of ownership, (ii) be subject to any offsets or defenses
which Lessee might have against any prior lessor, or (iii) be bound by
prepayment of more than one month's rent.
30.3 NON-DISTURBANCE. With respect to Security Devices entered into by
Lessor after the execution of this Lease, Lessee's subordination of this Lease
shall be subject to receiving assurance (a "non-disturbance agreement") from the
Lender that Lessee's possession and this Lease, including any options to extend
the term hereof, will not be disturbed so long as Lessee is not in Breach hereof
and attorns to the record owner of the Premises.
30.4 SELF-EXECUTING. The agreements contained in this Paragraph 30
shall be effective without the execution of any further documents; provided,
however, that upon written request from Lessor or a Lender in connection with a
sale, financing or refinancing of Premises, Lessee and Lessor shall execute such
further writings as may be reasonably required to separately document any such
subordination or non-subordination, attornment and/or non-disturbance agreement
as is provided for herein.
31. ATTORNEYS' FEES. If any Party or Broker brings an action or proceeding to
enforce the terms hereof or declare rights hereunder, the Prevailing Party (as
hereafter defined) in any such proceeding, action, or appeal thereon, shall be
entitled to reasonable attorneys' fees. Such fees may be awarded in the same
suit or recovered in a separate suit, whether or not such action or proceeding
is pursued to decision or judgment. The term "Prevailing Party" shall include,
without limitation, a Party or Broker who substantially obtains or defeats the
relief sought, as the case may be, whether by compromise, settlement, judgment,
or the abandonment by the other Party or Broker of its claim or defense. The
attorneys' fee award shall not be computed in accordance with any court fee
schedule, but shall be such as to fully reimburse all attorneys' fees reasonably
incurred. Lessor shall be entitled to attorneys' fees, costs and expenses
incurred in preparation and service of notices of Default and consultations in
connection therewith, whether or not a legal action is subsequently commenced in
connection with such Default or resulting Breach. Broker(s) shall be intended
third party beneficiaries of this Paragraph 31.
32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents
shall have the right to enter the Premises at any time, in the case of an
emergency, and otherwise at reasonable times for the purpose of showing the same
to prospective purchasers, lenders, or lessees, and making such alterations,
repairs, improvements or additions to the Premises or to the Building, as Lessor
may reasonably deem necessary. Lessor may at any time place on or about the
Premises or Building any ordinary "For Sale" signs and Lessor may at any time
during the last one hundred eighty (180) days of the term hereof place on or
about the Premises any ordinary "For Lease" signs. All such activities of
Lessor shall be without abatement of rent or liability to Lessee.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.
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34. SIGNS. Lessee shall not place any sign upon the exterior of the Premises
or the Building, except that Lessee may, with Lessor's prior written consent,
install (but not on the roof) such signs as are reasonably required to advertise
Lessee's own business so long as such signs are in a location designated by
Lessor and comply with Applicable Requirements and the signage criteria
established for the Industrial Center by Lessor. The installation of any sign
on the Premises by or for Lessee shall be subject to the provisions of Paragraph
7 (Maintenance, Repairs, Utility Installations, Trade Fixtures and Alterations).
Unless otherwise expressly agreed herein, Lessor reserves all rights to the use
of the roof of the Building, and the right to install advertising signs on the
Building, including the roof, which do not unreasonably interfere with the
conduct of Lessee's business; Lessor shall be entitled to all revenues from such
advertising signs.
35. TERMINATION; MERGER. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, Lessor shall, in the event of any such surrender,
termination or cancellation, have the option to continue any one or all of any
existing subtenancies. Lessor's failure within ten (10) days following any such
event to make a written election to the contrary by written notice to the holder
of any such lesser interest, shall constitute Lessor's election to have such
event constitute the termination of such interest.
36. CONSENTS.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise
provided herein, wherever in this Lease the consent of a Party is required to an
act by or for the other Party, such consent shall not be unreasonably withheld
or delayed. Lessor's actual reasonable costs and expenses (including but not
limited to architects', attorneys', engineers' and other consultants' fees)
incurred in the consideration of, or response to, a request by Lessee for any
Lessor consent pertaining to this Lease or the Premises, including but not
limited to consents to an assignment a subletting or the presence or use of a
Hazardous Substance, shall be paid by Lessee to Lessor upon receipt of an
invoice and supporting documentation therefor. In addition to the deposit
described in Paragraph 12.2(e), Lessor may, as a condition to considering such
request by Lessee, require that Lessee deposit with Lessor an amount of money
(in addition to the Security Deposit held under Paragraph 5) reasonably
calculated by Lessor to represent the cost Lessor will incur in considering and
responding to Lessee's request. Any unused portion of said deposit shall be
refunded to Lessee without interest. Lessor's consent to any act, assignment of
this Lease or subletting of the Premises by Lessee shall not constitute an
acknowledgment that no Default or Breach by Lessee of this Lease exists, nor
shall such consent be deemed a waiver of any then existing Default or Breach,
except as may be otherwise specifically stated in writing by Lessor at the time
of such consent.
(b) All conditions to Lessor's consent authorized by this Lease
are acknowledged by Lessee as being reasonable. The failure to specify herein
any particular condition to Lessor's consent shall not preclude the impositions
by Lessor at the time of consent of such further or other conditions as are then
reasonable with reference to the particular matter for which consent is being
given.
37. GUARANTOR.
37.1 FORM OF GUARANTY. If there are to be any Guarantors of this Lease
per Paragraph 1.11, the form of the guaranty to be executed by each such
Guarantor shall be in the form most recently published by the American
Industrial Real Estate Association, and each such Guarantor shall have the same
obligations as Lessee under this Lease, including but not limited to the
obligation to provide the Tenancy Statement and information required in
Paragraph 16.
37.2 ADDITIONAL OBLIGATIONS OF GUARANTOR. It shall constitute a Default
of the Lessee under this Lease if any such Guarantor fails or refuses, upon
reasonable request by Lessor to give: (a) evidence of the due execution of the
guaranty called for by this Lease, including the authority of the Guarantor (and
of the party signing on Guarantor's behalf) to obligate such Guarantor on said
guaranty, and resolution of its board of directors authorizing the making of
such guaranty, together with a certificate of incumbency showing the signatures
of the persons authorized to sign on its behalf, (b) current financial
statements of Guarantor as may from time to time be requested by Lessor, (c) a
Tenancy Statement, or (d) written confirmation that the guaranty is still in
effect.
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38. QUIET POSSESSION. Upon payment by Lessee of the rent for the Premises and
the performance of all of the covenants, conditions and provisions on Lessee's
part to be observed and performed under this Lease, Lessee shall have quiet
possession of the Premises for the entire term hereof subject to all of the
provisions of this Lease.
39. OPTIONS.
39.1 DEFINITION. As used in this Lease, the word "Option" has the
following meaning: (a) the right to extend the term of this Lease or to renew
this Lease or to extend or renew any lease that Lessee has on other property of
Lessor; (b) the right of first refusal to lease the Premises or the right of
first offer to lease the Premises, or the right of first refusal to lease other
property of Lessor or the right of first offer to lease other property of
Lessor; (c) the right to purchase the Premises, or the right of first refusal to
purchase the Premises, or the right of first offer to purchase the Premises, or
the right to purchase other property of Lessor, or the right of first refusal to
purchase other property of Lessor, or the right of first offer to purchase other
property of Lessor.
39.2 OPTIONS PERSONAL TO ORIGINAL LESSEE. Each Option granted to Lessee
in this Lease is personal to the original Lessee named in Paragraph 1.1 hereof,
and cannot be voluntarily or involuntarily assigned or exercised by any person
or entity other than said original Lessee while the original lessee is in full
and actual possession of the Premises and without the intention of thereafter
assigning or subletting. The Options, if any, herein granted to Lessee are not
assignable, either as a part of an assignment of this Lease or separately or
apart therefrom, and no Option may be separated from this Lease in any manner,
by reservation or otherwise.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple
Options to extend or renew this Lease, a later option cannot be exercised unless
the prior Options to extend or renew this Lease have been validly exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option,
notwithstanding any provision in the grant of Option to the contrary, (i) during
the period commencing with the giving of any notice of Default under Paragraph
13.1 and continuing until the noticed Default is cured, or (ii) during the
period of time any monetary obligation due Lessor from Lessee is unpaid (without
regard to whether notice thereof is given Lessee), or (iii) during the time
Lessee is in Breach of this Lease, or (iv) in the event that Lessor has given to
Lessee three (3) or more notices of separate Defaults under Paragraph 13.1
during the twelve (12) month period immediately preceding the exercise of the
Option, whether or not the Defaults are cured.
(b) The period of time within which an Option may be exercised
shall not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of Paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due and
timely exercise of the Option, if, after such exercise and during the term of
this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee
for a period of thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), or (ii) Lessor gives to
Lessee three (3) or more notices of separate Defaults under Paragraph 13.1
during any twelve (12) month period, whether or not the Defaults are cured, or
(iii) if Lessee commits a Breach of this Lease.
40. RULES AND REGULATIONS. Lessee agrees that it will abide by, and keep and
observe all reasonable rules and regulations ("Rules and Regulations") which
Lessor may make from time to time for the management, safety, care, and
cleanliness of the grounds, the parking and unloading of vehicles and the
preservation of good order, as well as for the convenience of other occupants or
tenants of the Building and the Industrial Center and their invitees.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third parties.
42. RESERVATIONS. Lessor reserves the right, from time to time, to grant,
without the consent or joinder of Lessee, such easements, rights of way,
utility raceways, and dedications that Lessor deems necessary, and to cause
the recordation of parcel maps and restrictions, so long as such easements,
rights of way, utility raceways, dedications, maps and restrictions
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do not reasonably interfere with the use of the Premises by Lessee. Lessee
agrees to sign any documents reasonably requested by Lessor to effectuate any
such easement rights, dedication, map or restrictions.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the provisions
hereof, the Party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment and there shall survive the right on the part of
said Party to institute suit for recovery of such sum. If it shall be adjudged
that there was no legal obligation on the part of said Party to pay such sum or
any part thereof, said Party shall be entitled to recover such sum or so much
thereof as it was not legally required to pay under the provisions of this
Lease.
44. AUTHORITY. If either Party hereto is a corporation, trust, or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute and
deliver this Lease on its behalf. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
45. CONFLICT. Any conflict between the printed provisions of this Lease and
the typewritten or handwritten provisions shall be controlled by the typewritten
or handwritten provisions.
46. OFFER. Preparation of this Lease by either Lessor or Lessee or Lessor's
agent or Lessee's agent and submission of same to Lessee or Lessor shall not be
deemed an offer to lease. This Lease is not intended to be binding until
executed and delivered by all Parties hereto.
47. AMENDMENTS. This Lease may be modified only in writing, signed by the
parties in interest at the time of the modification. The Parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by an institutional insurance company or pension plan Lender in
connection with the obtaining of normal financing or refinancing of the property
of which the Premises are a part.
48. MULTIPLE PARTIES. Except as otherwise expressly provided herein, if more
than one person or entity is named herein as either Lessor or Lessee, the
obligations of such multiple parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee.
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LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR YOUR ATTORNEY'S
REVIEW AND APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED TO EVALUATE THE
CONDITION OF THE PROPERTY FOR THE POSSIBLE PRESENCE OF ASBESTOS,
UNDERGROUND STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO REPRESENTATION OR
RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
OR BY THE REAL ESTATE BROKERS OR THEIR CONTRACTORS, AGENTS OR EMPLOYEES AS
TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE
OR THE TRANSACTION TO WHICH IT RELATES; THE PARTIES SHALL RELY SOLELY UPON
THE ADVICE OF THEIR OWN COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF
THIS LEASE. IF THE SUBJECT PROPERTY IS IN A STATE OTHER THAN CALIFORNIA,
AN ATTORNEY FROM THE STATE WHERE THE PROPERTY IS LOCATED SHOULD BE
CONSULTED.
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The parties hereto have executed this Lease at the place and on the dates
specified above their respective signatures.
Executed at: Culver City, CA Executed at: Culver City, CA
-------------------------- --------------------------
on: 9-12-96 on: 9-12-96
------------------------- -------------------------
By LESSOR: By LESSEE:
URCIS Family Trust MYO Diagnostics LTD.
- ------------------------------ ------------------------------
- ------------------------------ ------------------------------
By: /S/ Ruben Urcis By: /S/ Gerald Appel
------------------------------- -------------------------
Name Printed: Ruben Urcis Name Printed: Gerald Appel
---------------------- ----------------
Title: Trustee Title: President
-------------- ------------------
Initials:
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ADDENDUM TO STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE - MODIFIED NET
DATED AUGUST 1, 1996 BETWEEN
THE URCIS FAMILY TRUST, AS LESSOR, AND
MYO DIAGNOSTICS, LTD., AS LESSEE
This Addendum dated for reference purposes only August 1, 1996 is attached to
and made a part of the above referenced Standard Industrial/Commercial Multi-
Tenant Lease - Modified Net ("Lease Agreement" together with this Addendum, the
"Lease"). The provisions of this Addendum shall govern and supersede any and
all contrary, conflicting or inconsistent provisions of the Lease Agreement.
The defined terms herein have the meaning ascribed thereto in the Lease
Agreement unless otherwise indicated. The paragraph numbers set forth herein
correspond to the paragraph numbers of the Lease Agreement for convenience of
reference.
1.3 The Term of the Lease shall commence on the date that Lessor tenders
possession of the Premises to Lessee by delivery of written notice
thereof from Lessor to Lessee, provided that the basic monthly Rent
shall commence to accrue starting on the tenth day following such
Commencement Date, it being understood that Lessee shall be entitled
to occupy the Premises free of basic Rent during the first ten
calendar days of the Term of the Lease. Lessee acknowledges that
another tenant is currently in possession of the Premises but is
expected to vacate the Premises on or about October 1, 1996. Lessor
and Lessee are currently the lessor and lessee, respectively, under
Lease dated June 14, 1995 (the "Prior Lease") concerning a portion of
certain real property commonly referred to as 3710 Robertson Blvd.,
Culver City, California. The tenancy and leasehold interest under the
Prior Lease shall be terminated on the close of the tenth calendar day
following the Commencement Date of the Lease. If Lessee continues in
possession of the premises covered by the Prior Lease beyond such
tenth day, Lessee shall be considered a hold-over tenant as provided
for in Paragraph 26 of the Prior Lease.
2.2 Notwithstanding anything in the Lease to the contrary, except as
herein provided, Lessee is leasing the Premises in an "as-is"
condition and Lessor shall not be required to make any improvements or
alterations to the Premises. Lessor shall repaint that portion of the
Premises previously occupied by IKON and as shown on Exhibit "A" and
shall also cause to be cleaned all carpeting in the Premises. Any
other improvements or alterations necessary or requested by Lessee
shall be made by Lessee at its sole cost and expense and in conformity
with the provisions of the Lease.
4.2 Lessee shall pay its pro rata charge for electricity supplied to the
second floor of the Building. The Premises contain approximately 9749
rentable square feet. The second floor of the Building contains
approximately 13,349 square feet. Lessee agrees to pay to Lessor an
amount equal to 73.032% of electricity supplied to the second floor of
the Building, Lessee acknowledging that the Premises are not
separately metered and all of the tenants on the second floor of the
Building are on the same meter. If the entire second floor of the
Building at any time is not fully leased and occupied, then Lessee
shall pay that percentage of the electricity costs derived by dividing
the rental area of the Premises by the rentable area of that portion
of the second floor of the Building which is leased and occupied. In
the event Lessee requires janitorial services for the Premises, Lessee
shall either contract for services directly or request that Lessor
provide them, in either case, at Lessee's expense. Lessee shall be
responsible for all of Lessee's own light bulbs or fluorescent
replacement, door re-keying and like expenses.
Lessor and Lessee agree that Lessee shall not be responsible for real
property taxes assessed against the Building or for the costs of
property damage or liability insurance maintained by Lessor.
8.8 Lessor shall not be liable for injury or damage to the person or
goods, wares, merchandise or other property of Lessee, of Lessee's
lessees, employees, contractors, invitees, customers, or any other
person in or about the Premises whether such injury or damage results
from conditions arising upon the Premises from any act whether or not
such act be the result of negligence on the part of Lessee or its
invitees, except for any injury or damage which may be caused by
incidents occurring from outside of the Premises. Lessor shall under
no circumstances be liable for injury to Lessee's business or for any
loss or income or profit therefrom; however, Lessor shall remain
liable to Lessee for actions arising out of Lessor's negligence.
12.1(f) Lessee may assign all, but not less than all, of its rights under the
Lease, without Lessor's consent to any corporation which controls, is
controlled by or is under common control with Lessee or to any
corporation resulting from a merger or consolidation with Lessee, or
to any person or entity which acquires substantially all the assets of
Lessee as a going concern of the business that is being conducted on
the Premises, each of which are referred to as a "Lessee Affiliate,"
provided that before such assignment shall be effective said assignee
shall assume, in full, the obligations of Lessee under this Lease.
Any such assignment shall not, in any way, affect or limit the
liability of Lessee under the terms of this Lease. Lessor shall
execute and deliver a formal consent to any such assignment or
subletting to a Lessee Affiliate if requested by Lessee.
49. No payment by Lessee or receipt by Lessor of a lesser amount than on
account of the Rent, nor shall any endorsement or statement on any
letter accompanying any check or payment of Rent be deemed an accord
and satisfaction, and Lessor may accept a check or payment without
prejudice to any Lessor's right to recover the balance of Rent or
pursue any other remedy provided in this Lease.
29
<PAGE>
50. Lessor hereby grants to Lessee the First Right of Negotiation to lease
additional space on the second floor of the Building when and as any
such space becomes available for rent. Lessor shall, from time to
time, advise Lessee in writing at least thirty days in advance of the
date that any such additional space is to become available for lease.
Lessee shall have thirty days from the date of notification by Lessor
to decide whether or not Lessee desires to lease such additional
space. If Lessee desires to lease such additional space, Lessee shall
give Lessor written notice thereof within such thirty-day period. If
Lessee does not give Lessor written notice of its desire to Lease such
space within such thirty-day period, then Lessee's right of first
negotiation with respect to such space shall forever be terminated.
If Lessee gives Lessor written notice of Lessee's desire to lease such
space within such thirty-day period, then Lessor and Lessee shall
negotiate in good faith for the lease of such space from Lessor to
Lessee, the term of which lease shall end with the termination date of
this Lease, and on other terms and conditions acceptable to the
parties. In the event that Lessor and Lessee have not entered into a
written lease for such additional space within twenty days after
delivery of Lessee's notice to Lessor, then Lessee's right of first
negotiation with respect to such space shall be deemed forever
terminated.
51. Lessor hereby grants to Lessee the option ("Option") to extend the
term of this Lease for one (1) additional two (2) year period upon all
of the following terms and conditions:
(i) Lessee gives to Lessor, and Lessor actually receives, on a date
which is prior to the date that the option period would commence
(if exercised) by at least three (3) and not more than nine (9)
months, a written notice of the exercise of the option to extend
this Lease for said additional term, time being of the essence.
If said notification of the exercise of said option is not so
given and received, the Option shall automatically expire;
(ii) The provisions of Paragraph 39 of this Lease, including the
provision relating to default of Lessee set forth in Paragraph
39.3, are conditions of the Option; and
(iii) The Rent during the Option Period shall be 115% of the Rent in
effect as of the last day of the original term of this Lease.
All other terms and conditions of this Lease, except where
specifically modified by this Paragraph 51 and this Paragraph
51, shall apply.
[Remainder of page intentionally left blank]
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<PAGE>
In witness whereof, the Lessor and Lessee have executed this Addendum to Lease
as of the date and year first above written.
"Lessor"
The Urcis Family Trust
by: /S/ Ruben Urcis
----------------------------------
Ruben Urcis, trustee
"Lessee"
Myo Diagnostics, Inc.
by: /S/ Gerald D. Appel
----------------------------------
its President
------------------------------
31
<PAGE>
THESE AGENT'S WARRANTS ARE ONLY EXERCISABLE IN THE PROVINCE OF ONTARIO. NO
SHARES ISSUABLE UPON EXERCISE OF THE AGENT'S WARRANTS WILL BE DELIVERED IN ANY
JURISDICTION OTHER THAN THE PROVINCE OF ONTARIO.
THE AGENT'S WARRANTS AND THE SHARES ISSUABLE UPON EXERCISE OF THE AGENT'S
WARRANTS HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES
LAWS OF ANY STATE OF THE UNITED STATES AND ARE NOT OFFERED, DIRECTLY OR
INDIRECTLY, IN THE UNITED STATES OR TO A "U.S. PERSON," AS DEFINED BY REGULATION
S UNDER THE SECURITIES ACT, UNLESS REGISTERED UNDER THE SECURITIES ACT AND THE
SECURITIES LAWS OF ALL APPLICABLE STATES OF THE UNITED STATES OR AN EXEMPTION
FROM SUCH REGISTRATION REQUIREMENTS IS AVAILABLE. THE AGENT IN ACCEPTING
DELIVERY OF THE AGENT'S WARRANTS ACKNOWLEDGES AND AGREES THAT THE AGENT'S
WARRANTS MAY NOT BE SOLD AND THE RIGHTS HEREIN PROVIDED MAY NOT BE EXERCISED IN
THE UNITED STATES OR BY OR ON BEHALF OF A U.S. PERSON UNLESS REGISTERED UNDER
THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR UNLESS AN
EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE, AND THAT CERTIFICATES
REPRESENTING THE AGENT'S WARRANTS AND THE SHARES ISSUABLE UPON THEIR EXERCISE
WILL BEAR A LEGEND TO SUCH EFFECT.
NON-TRANSFERABLE AGENT'S WARRANTS
TO PURCHASE COMMON SHARES OF
MYO DIAGNOSTICS, INC.
EXERCISABLE COMMENCING
DECEMBER 6, 1996
VOID AFTER
DECEMBER 6, 1998
THIS CERTIFIES that, for value received, Griffiths McBurney & Partners
(the "Agent"), is the registered holder of 43,200 Agent's warrants (the "Agent's
Warrants"). Each Agent's Warrant entitles the Agent, subject to the terms and
conditions set forth in this Agent's Warrant Certificate, to purchase from Myo
Diagnostics, Inc. (the "Company"), one fully paid and non-assessable common
shares of the Company (a "Share"), at any time commencing on the date hereof and
continuing up to 5:00 p.m. Toronto time on December 6, 1998 (the "Time of
Expiry") on payment of U.S$2.50 per Share (the "Exercise Price"). The number of
Shares which the Agent is entitled to acquire upon exercise of the Agent's
Warrants and the Exercise Price are subject to adjustment as hereinafter
provided.
1. EXERCISE OF AGENT'S WARRANTS
<PAGE>
(a) ELECTION TO PURCHASE. The rights evidenced by this certificate may be
exercised by the Agent in whole or in part and in accordance with the
provisions hereof by delivery of an Election to Purchase in
substantially the form attached hereto as Schedule "A", properly
completed and executed, together with payment of the Exercise Price in
United States Dollars for the number of Shares specified in the
Election to Purchase at the principal office of the Company or such
other address as may be notified in writing by the Company (the
"Company Office"). In the event that the rights evidenced by this
certificate are exercised in part, the Company shall,
contemporaneously with the issuance of the Shares issuable on the
exercise of the Agent's Warrants so exercised, issue to the Agent a
substitute certificate, on identical terms in respect of that number
of Shares in respect of which the Agent has not exercised the rights
evidenced by this certificate.
(b) EXERCISE. The Company shall, on the date it receives a duly executed
Election to Purchase and the Exercise Price for the number of Shares
specified in the Election to Purchase (the "Exercise Date"), issue
that number of Shares specified in the Election to Purchase as fully
paid and non-assessable common shares in the capital of the Company.
(c) SHARE CERTIFICATES. As promptly as practicable after the Exercise
Date, the Company shall issue and deliver to the Agent, registered in
the name of the Agent, a certificate or certificates for the number of
Shares specified in the Election to Purchase. To the extent permitted
by law, such exercise shall be deemed to have been effected as of the
close of business on the Exercise Date, and at such time the rights of
the Agent with respect to the number of Agent's Warrants which have
been exercised as such shall cease, and the person or persons in whose
name or names any certificate or certificates for Shares shall then be
issuable upon such exercise shall be deemed to have become the holder
or holders of record of the Shares represented thereby.
(d) FRACTIONAL SHARES. No fractional Shares shall be issued upon exercise
of any Agent's Warrants and no payments or adjustment shall be made
upon any exercise on account of any cash dividends on the Shares
issued upon such exercise. If any fractional interest in a Share
would, except for the provisions of the first sentence of this Section
l(d), be deliverable upon the exercise of an Agent's Warrant, the
Company shall, in lieu of delivering the fractional share therefor,
pay to the Agent an amount
2
<PAGE>
in cash equal to the Fair Market Value (as hereinafter defined) of
such fractional interest.
(e) CORPORATE CHANGES.
(i) Subject to paragraph l(e)(ii) hereof, if the Company shall be a
party to any reorganization, merger, dissolution or sale of all
or substantially all of its assets, whether or not the Company is
the surviving entity, the number of Agent's Warrants evidenced by
this certificate shall be adjusted so as to apply to the
securities to which the holder of that number of Shares of the
Company subject to the unexercised Agent's Warrants would have
been entitled by reason of such reorganization, merger,
dissolution or sale of all or substantially all of its assets
(the "Event"), and the Exercise Price shall be adjusted to be the
amount determined by multiplying the Exercise Price in effect
immediately prior to the Event by the number of Shares subject to
the unexercised Agent's Warrants immediately prior to the Event,
and dividing the product thereof by the number of securities to
which the holder of that number of Shares subject to the
unexercised Agent's Warrants would have been entitled to by
reason of such Event.
(ii) If the Company is unable to deliver securities to the Agent
pursuant to the proper exercise of an Agent's Warrant, the
Company may satisfy such obligations to the Agent hereunder by
paying to the Agent in cash the difference between the Exercise
Price of all unexercised Agent's Warrants granted hereunder and
the Fair Market Value of the securities to which the Agent would
be entitled to upon exercise of all unexercised Agent's Warrants.
Adjustments under this subparagraph (e) or (subject to
subparagraph (o)) any determinations as to the Fair Market Value
of any securities shall be made by the board of directors of the
Company, or any committee thereof specifically designated by the
board of directors to be responsible therefor, and any reasonable
determination made by such board or committee thereof shall be
binding and conclusive, subject only to any disputes being
resolved by the Company's auditors, whose determination shall be
binding and conclusive.
(f) SUBDIVISION OR CONSOLIDATION OF SHARES
3
<PAGE>
(i) In the event the Company shall subdivide its outstanding common
shares into a greater number of shares, the Exercise Price in
effect immediately prior to such subdivision shall be
proportionately reduced, and conversely, in case the outstanding
common shares of the Company shall be consolidated into a smaller
number of common shares, the Exercise Price in effect immediately
prior to such consolidation shall be proportionately increased.
(ii) Upon each adjustment of the Exercise Price as provided herein,
the Agent shall thereafter be entitled to acquire, at the
Exercise Price resulting from such adjustment, the number of
Shares (calculated to the nearest tenth of a Share) obtained by
multiplying the Exercise Price in effect immediately prior to
such adjustment by the number of Shares which may be acquired
hereunder immediately prior to such adjustment and dividing the
product thereof by the Exercise Price resulting from such
adjustment.
(g) CHANGE OR RECLASSIFICATION OF SHARES. In the event the Company shall
change or reclassify its outstanding common shares into a different
class of securities, the rights evidenced by the Agent's Warrants
shall be adjusted as follows so as to apply to the successor class of
securities:
(i) the number of the successor class of securities which the Agent
shall be entitled to acquire shall be that number of the
successor class of securities which a holder of that number of
Shares subject to the unexercised Agent's Warrants immediately
prior to the change or reclassification would have been entitled
to by reason of such change or reclassification; and
(ii) the Exercise Price shall be determined by multiplying the
Exercise Price in effect immediately prior to the change or
reclassification by the number of Shares subject to the
unexercised Agent's Warrants immediately prior to the change or
reclassification, and dividing the product thereof by the number
of common shares determined in paragraph 1(g)(i) hereof.
(h) OFFERING TO SHAREHOLDERS. If and whenever at any time prior to the
Time of Expiry, the Company shall fix a record date or if a date of
entitlement to receive is otherwise established (any such date being
hereinafter referred to in this Subsection 1(h) as the "record date")
4
<PAGE>
for the issuance of rights, options or warrants to all or
substantially all the holders or the outstanding common shares of the
Company entitling them, for a period expiring not more than 45 days
after such record date, to subscribe for or purchase common shares of
the Company or securities convertible into or exchangeable for common
shares at a price per share or, as the case may be, having a
conversion or exchange price per share less than 80% of the Fair
Market Value (as hereinafter defined) on such record date, the
Exercise Price shall be adjusted immediately after such record date so
that it shall equal the price determined by multiplying the Exercise
Price in effect on such record date by a fraction, of which the
numerator shall be the total number of common shares outstanding on
such record date plus a number equal to the number arrived at by
dividing the aggregate subscription or purchase price of the total
number of additional common shares offered for subscription or
purchase or, as the case may be, the aggregate conversion or exchange
price of the convertible or exchangeable securities so offered by such
Fair Market Value, and of which the denominator shall be the total
number of common shares outstanding on such record date plus the total
number of additional common shares so offered (or into which the
convertible or exchangeable securities so offered are convertible or
exchangeable); common shares owned by or held for the account of the
Company or any subsidiary of the Company shall be deemed not to be
outstanding for the purpose of any such computation; such adjustment
shall be made successively whenever such a record date is fixed; to
the extent that any rights or warrants are not so issued or any such
rights or warrants are not exercised prior to the expiration thereof,
the Exercise Price shall then be readjusted to the Exercise Price
which would then be in effect if such record date had not been fixed
or to the Exercise Price which would then be in effect based upon the
number of common shares or conversion or exchange rights contained in
convertible or exchangeable securities actually issued upon the
exercise of such rights or warrants, as the case may be.
(i) CARRY OVER OF ADJUSTMENTS. No adjustment of the Exercise Price shall
be made if the amount of such adjustment shall be less than 1% of the
Exercise Price in effect immediately prior to the event giving rise to
the adjustment, provided, however, that in such case any adjustment
that would otherwise be required then to be made shall be carried
forward and shall be made at the time of and together with the next
subsequent adjustment which, together with any adjustment so carried
forward, shall amount to at least 1% of the Exercise Price.
5
<PAGE>
(j) NOTICE OF ADJUSTMENT. Upon any adjustment of the number of Shares and
upon any adjustment of the Exercise Price, then and in each such case
the Company shall give written notice thereof to the Agent, which
notice shall state the Exercise Price and the number of Shares or
other securities subject to the unexercised Agent's Warrants resulting
from such adjustment, and shall set forth in reasonable detail the
method of calculation and the facts upon which such calculation is
based. Upon the request of the Agent there shall be transmitted
promptly to the Agent a statement of the firm of independent chartered
accountants retained to audit the financial statements of the Company
to the effect that such firm concurs in the Company's calculation of
the change.
(k) OTHER NOTICES. In case at any time:
(i) the Company shall declare any dividend upon its common shares
payable in Shares;
(ii) the Company shall offer for subscription pro rata to the holders
of its common shares any additional shares of any class or other
rights;
(iii) there shall be any capital reorganization or reclassification of
the capital stock of the Company, or consolidation, amalgamation
or merger of the Company with, or sale of all or substantially
all of its assets to, another corporation; or
(iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company,
then, in any one or more of such cases, the Company shall give to
the Agent (A) at least 10 days' prior written notice of the date
on which a record shall be taken for such dividend, distribution
or subscription rights or for determining rights to vote in
respect of any such reorganization, reclassification,
consolidation, merger, amalgamation, sale, dissolution,
liquidation or winding-up and (B) in the case of any such
reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation or winding-up, at least 10 days' prior
written notice of the date when the same shall take place. Such
notice in accordance with the foregoing clause (A) shall also
specify, in the case of any such dividend, distribution or
subscription rights, the date on which the holders of common
shares shall be
6
<PAGE>
entitled thereto, and such notice in accordance with the
foregoing clause (B) shall also specify the date on which the
holders of common shares shall be entitled to exchange their
common shares for securities or other property deliverable upon
such reorganization, reclassification, consolidation, merger,
amalgamation, sale, dissolution, liquidation or winding-up, as
the case may be.
(l) SHARES TO BE RESERVED. The Company will at all times keep available,
and reserve if necessary under applicable law, out of its authorized
common shares, solely for the purpose of issue upon the exercise of
the Agent's Warrants, such number of Shares as shall then be issuable
upon the exercise of the Agent's Warrants. The Company covenants and
agrees that all Shares which shall be so issuable will, upon issuance,
be duly authorized and issued as fully paid and non-assessable. The
Company will take all such actions as may be necessary to ensure that
all such Shares may be so issued without violation of any applicable
requirements of any exchange upon which the common shares of the
Company may be listed or in respect of which the common shares are
qualified for unlisted trading privileges. The Company will take all
such actions are within its power to ensure that all such Shares may
be so issued without violation of any applicable law.
(m) ISSUE TAX. The issuance of certificates for Shares upon the exercise
of Agent's Warrants shall be made without charge to the Agent for any
issuance tax in respect thereto, provided that the Company shall not
be required to pay any tax which may be payable in respect of any
transfer involved in the issuance and delivery of any certificate in a
name other than that of the Agent.
(n) FAIR MARKET VALUE. For the purposes of any computation hereunder, the
"Fair Market Value" at any date shall be the weighted average sale
price per share for the common shares of the Company for the 20
consecutive trading days immediately before such date on The Toronto
Stock Exchange, or, if the shares in respect of which a determination
of Fair Market Value is being made are not listed on any stock
exchange, the Fair Market Value shall be determined by the directors,
which determination shall be conclusive. The weighted average price
shall be determined by dividing the aggregate sale price of all such
shares sold on the said exchange during the said 20 consecutive
trading days by the total number of such shares so sold.
7
<PAGE>
2. REPLACEMENT
Upon receipt of evidence satisfactory to the Company of the loss,
theft, destruction or mutilation of this Agent's Warrant Certificate and, if
requested by the Company, upon delivery of a bond of indemnity satisfactory to
the Company (or, in the case of mutilation, upon surrender of this Agent's
Warrant Certificate), the Company will issue to the Agent a replacement
certificate (containing the same terms and conditions as this Agent's Warrant
Certificate).
3. EXPIRY DATE
The Agent's Warrants shall expire and all rights to purchase Shares
hereunder shall cease and become null and void at the Time of Expiry.
4. GOVERNING LAW
The laws of the State of California and the federal laws of United
States of America applicable therein shall govern the Warrants.
5. SUCCESSORS
This Agent's Warrant Certificate shall enure to the benefit of and
shall be binding upon the Agent and the Company and their respective successors.
6. NON U.S. PERSON
The Agent in accepting delivery of this Agent's Warrant Certificate,
acknowledges it is not a U.S. Person (as defined in Rule 902(0) of Regulation S
("Regulation s") promulgated by the United States Securities and Exchange
Commission, which definition includes, but is not limited to, any natural person
resident in the United States, any corporation or partnership incorporated or
organized under the laws of the United States, or any estate or trust of which
any executor, administrator or trustee is a U.S. Person), the Agent will not
receive delivery of the Agent's Warrants or the Shares for the account or
benefit of any U.S. Person or for offering, resale or delivery for the account
or benefit of any U.S. Person or for the account of any person in any
jurisdiction other than the Province of Ontario.
7. WARRANTS NON-TRANSFERABLE
The Warrants are non-transferable.
IN WITNESS WHEREOF the Company has caused this Agent's Warrant
Certificate to be signed by its duly authorized officers and its corporate seal
hereto affixed.
8
<PAGE>
DATED as of December 6, 1996.
MYO DIAGNOSTICS, INC.
Per: /s/ Gerald Appel
-------------------------
Gerald Appel, President
9
<PAGE>
SCHEDULE "A"
ELECTION TO EXERCISE
The undersigned hereby irrevocably elects to exercise the number of Agent's
Warrants of MYO Diagnostics, Inc. set out below for the number of Shares (or
other property or securities subject thereto) as set forth below:
(a) Number of Agent's Warrants to be Exercised: __________
(b) Number of Shares to be Acquired: __________
(c) Exercise Price per Share: $_________
(d) Aggregate Purchase Price
[(b) multiplied by (c)] $_________
and hereby tenders a certified cheque, bank draft or cash in United States
dollars for such aggregate purchase price, and directs such Shares to be
registered and a certificate therefor to be issued as directed below.
DATED this __ day of __________, 199___
GRIFFITHS MCBURNEY & PARTNERS
Per:
--------------------------
10
<PAGE>
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED, (THE "SECURITIES ACT") AND MAY NOT BE SOLD,
TRANSFERRED, PLEDGED, ASSIGNED, HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT IN
ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL
UNDERSIGNED OF THE SECURITIES, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL
EXECUTIVE OFFICE OF THE ISSUER.
WARRANTS TO PURCHASE COMMON SHARES OF
MYO DIAGNOSTICS, INC.
THIS CERTIFIES that, for value received, ________________ (the
"Holder"), is the registered holder of _______ warrants (the "Warrants"). Each
Warrant entitles the holder, subject to the terms and conditions set forth in
this Certificate, to purchase from Myo Diagnostics, Inc. (the "Company"), one
fully paid and non-assessable Common Share of the Company (the "Share") at any
time commencing on the date hereof and continuing up to 5:00 p.m. (Toronto time)
on December 6, 1997 (the "Time of Expiry") on payment of U.S$3.00 per Share (the
"Exercise Price"). The number of Shares which the Holder is entitled to acquire
upon exercise of the Warrants and the Exercise Price are subject to adjustment
as hereinafter provided.
1. EXERCISE OF HOLDER'S WARRANTS
(a) ELECTION TO PURCHASE. The rights evidenced by this Certificate may be
exercised by the Holder in whole or in part and in accordance with the
provisions hereof by delivery of an Election to Purchase in substantially the
form attached hereto as Schedule "A", properly completed and executed, together
with payment of the Exercise Price for the number of Shares specified in the
Election to Purchase at the principal office of the Company at its head office
or as may be notified in writing by the Company (the "Company Office"). It is a
condition to the Company's obligation to issue Shares upon exercise that the
representation and warranties of the undersigned in a Subscription Agreement
dated May 9, 1996, as amended by an Amendment dated May 16, 1996, be true and
correct as of the date of exercise. In the event that the rights evidenced by
this Certificate are exercised in part, the Company shall, contemporaneously
with the issuance of the Shares issuable on the exercise of the Warrants so
exercised, issue to the Holder a Certificate on identical terms in respect of
that number of Shares in respect of which the Holder has not exercised the
rights evidenced by this certificate.
(b) EXERCISE. The Company shall, on the date it receives a duly executed
Election to Purchase and the Exercise Price for the number of Shares specified
in the Election to Purchase (the "Exercise Date"), issue that number of Shares
specified in the Election to Purchase as fully paid and non-assessable Shares in
the
<PAGE>
capital of the Company.
(c) CERTIFICATES. As promptly as practicable after the Exercise Date and,
in any event, within five (5) business days of receipt of the Election to
Purchase, the Company shall issue and deliver to the Holder, registered in the
name of the Holder, a certificate or certificates for the number of Shares
specified in the Election to Purchase. To the extent permitted by law, such
exercise shall be deemed to have been effected as of the close of business on
the Exercise Date, and at such time the rights of the Holder with respect to the
number of Warrants which have been exercised as such shall cease, and the person
or persons in whose name or names any certificate or certificates for Shares
shall then be issuable upon such exercise shall be deemed to have become the
holder or holders of record of the Shares represented thereby.
(d) FRACTIONAL SHARES OR WARRANTS. No fractional Shares shall be issued
upon exercise of any Warrants and no payments or adjustment shall be made upon
any exercise on account of any cash dividends on the Shares issued upon such
exercise. If any fractional interest in a Share would, except for the
provisions of the first sentence of this Section l(d), be deliverable upon the
exercise of Warrants, the Company shall, in lieu of delivering the fractional
share therefor, pay to the Holder an amount in cash equal to the Fair Market
Value (as hereinafter defined) of such fractional interest.
(e) CORPORATE CHANGES
(i) Subject to paragraph 1(e)(ii) hereof, if the Company shall be a
party to any reorganization, merger, dissolution or sale of all or substantially
all of its assets, whether or not the Company is the surviving entity, the
number of Warrants evidenced by this certificate shall be adjusted so as to
apply to the securities to which the holder of that number of Shares subject to
the unexercised Warrants would have been entitled by reason of such
reorganization, merger, dissolution or sale of all or substantially all of its
assets (the "Event"), and the Exercise Price shall be adjusted to be the amount
determined by multiplying the Exercise Price in effect immediately prior to the
Event by the number of Shares subject to the unexercised Warrants immediately
prior to the Event, and dividing the product thereof by the number of securities
to Which the holder of that number of Shares subject to the unexercised Warrants
would have been entitled to by reason of such Event.
(ii) If the Company is unable to deliver securities to the Holder
pursuant to the proper exercise of Warrants, the Company may satisfy such
obligations to the Holder hereunder by paying to the Holder in cash the
difference between the Exercise Price of all unexercised Warrants granted
hereunder and the Fair Market Value of the securities to which the Holder would
be entitled to upon
2
<PAGE>
exercise of all unexercised Warrants. Adjustments under this subparagraph (e)
or (subject to subparagraph (n)) any determinations as to the Fair Market Value
of any securities shall be made by the board of directors of the Company, or any
committee thereof specifically designated by the board of directors to be
responsible therefor, and any reasonable determination made by such board or
committee thereof shall be binding and conclusive, subject only to any disputes
being resolved by the Company's auditors, whose determination shall be binding
and conclusive.
(f) SUBDIVISION OR CONSOLIDATION OF SHARES
(i) In the event the Company shall subdivide its outstanding common
shares into a greater number of shares, the Exercise Price in effect immediately
prior to such subdivision shall be proportionately reduced, and conversely, in
case the outstanding common shares of the Company shall be consolidated into a
smaller number of shares, the Exercise Price in effect immediately prior to such
consolidation shall be proportionately increased.
(ii) Upon each adjustment of the Exercise Price as provided herein,
the Holder shall thereafter be entitled to acquire, at the Exercise Price
resulting from such adjustment, the number of Shares (calculated to the nearest
tenth of a Share) obtained by multiplying the Exercise Price in effect
immediately prior to such adjustment by the number of Shares which may be
acquired hereunder immediately prior to such adjustment and dividing the product
thereof by the Exercise Price resulting from such adjustment.
(g) CHANGE OR RECLASSIFICATION OF SHARES. In the event the Company shall
change or reclassify its outstanding common shares into a different class of
securities, the rights evidenced by the Warrants shall be adjusted as follows so
as to apply to the successor class of securities:
(i) the number of the successor class of securities which the Holder
shall be entitled to acquire shall be that number of the successor class of
securities which a holder of that number of Shares subject to the unexercised
Warrants immediately prior to the change or reclassification would have been
entitled to by reason of such change or reclassification; and
(ii) the Exercise Price shall be determined by multiplying the
Exercise Price in effect immediately prior to the change or reclassification by
the number of Shares subject to the unexercised Warrants immediately prior to
the change or reclassification, and dividing the product thereof by the number
of shares determined in paragraph 1(g)(i) hereof.
(h) OFFERING TO SHAREHOLDERS. If and whenever at any time
3
<PAGE>
prior to the Time of Expiry, the Company shall fix a record date or if a date of
entitlement to receive is otherwise established (any such date being hereinafter
referred to in this Subsection 1(h) as the "record date") for the issuance of
rights, options or warrants to all or substantially all the holders or the
outstanding common shares of the Company entitling them, for a period expiring
not more than 45 days after such record date, to subscribe for or purchase
common shares of the Company or securities convertible into or exchangeable for
common shares at a price per share or, as the case may be, having a conversion
or exchange price per share less than 95% of the Fair Market Value (as
hereinafter defined) on such record date, the Exercise Price shall be adjusted
immediately after such record date so that it shall equal the price determined
by multiplying the Exercise Price in effect on such record date by a fraction,
of which the numerator shall be the total number of common shares outstanding on
such record date plus a number equal to the number arrived at by dividing the
aggregate subscription or purchase price of the total number of additional
common shares offered for subscription or purchase or, as the case may be, the
aggregate conversion or exchange price of the convertible or exchangeable
securities so offered by such Fair Market Value, and of which the denominator
shall be the total number of common shares outstanding on such record date plus
the total number of additional common shares so offered (or into which the
convertible or exchangeable securities so offered are convertible or
exchangeable); common shares owned by or held for the account of the Company or
any subsidiary of the Company shall be deemed not to be outstanding for the
purpose of any such computation; such adjustment shall be made successively
whenever such a record date is fixed; to the extent that any rights or warrants
are not so issued or any such rights or warrants are not exercised prior to the
expiration thereof, the Exercise Price shall then be readjusted to the Exercise
Price which would then be in effect if such record date had not been fixed or to
the Exercise Price which would then be in effect based upon the number of common
shares or conversion or exchange rights contained in convertible or exchangeable
securities actually issued upon the exercise of such rights or warrants, as the
case may be.
(i) CARRY OVER OF ADJUSTMENTS. No adjustment of the Exercise Price shall
be made if the amount of such adjustment shall be less than 1% of the Exercise
Price in effect immediately prior to the event giving rise to the adjustment,
provided, however, that in such case any adjustment that would otherwise be
required then to be made shall be carried forward and shall be made at the time
of and together with the next subsequent adjustment which, together with any
adjustment so carried forward, shall amount to at least 1% of the Exercise
Price.
(j) NOTICE OF ADJUSTMENT. Upon any adjustment of the number of Shares and
upon any adjustment of the Exercise Price, then and in each such case the
Company shall give written notice thereof to
4
<PAGE>
the Holder, which notice shall state the Exercise Price and the number of Shares
subject to the Warrants resulting from such adjustment, and shall set forth in
reasonable detail the method of calculation and the facts upon which such
calculation is based. Upon the request of the Holder there shall be transmitted
promptly to the Holder a statement of the firm of independent chartered
accountants retained to audit the financial statements of the Company to the
effect that such firm concurs in the Company's calculation of the change.
(k) OTHER NOTICES. In case at any time:
(i) the Company shall declare any dividend upon its common shares
payable in Shares;
(ii) the Company shall offer for subscription pro rata to the holders
of its common shares any additional shares of any class or other rights;
(iii) there shall be any capital reorganization or reclassification of
the capital stock of the Company, or consolidation, amalgamation or merger of
the Company with, or sale of all or substantially all of its assets to, another
corporation; or
(iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company,
then, in any one or more of such cases, the Company shall give to the
Holder (A) at least 10 days' prior written notice of the date on which a record
shall be taken for such dividend, distribution or subscription rights or for
determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, amalgamation, sale, dissolution,
liquidation or winding-up and (B) in the case of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up, at least 10 days' prior written notice of the date when the same
shall take place. Such notice in accordance with the foregoing clause (A) shall
also specify, in the case of any such dividend, distribution or subscription
rights, the date on which the holders of common shares shall be entitled
thereto, and such notice in accordance with the foregoing clause (B) shall also
specify the date on which the holders of common shares shall be entitled to
exchange their common shares for securities or other property deliverable upon
such reorganization, reclassification, consolidation, merger, amalgamation,
sale, dissolution, liquidation or winding-up, as the case may be.
(l) SHARES TO BE RESERVED. The Company will at all times keep available,
and reserve if necessary out of its authorized common shares, solely for the
purpose of issue upon the exercise of the Warrants, such number of Shares as
shall then be issuable upon
5
<PAGE>
the exercise of the Warrants. The Company covenants and agrees that all Shares
which shall be so issuable will, upon issuance, be duly authorized and issued as
fully paid and non-assessable and issued. The Company will take all such
actions as may be necessary to ensure that all such Shares may be so issued
without violation of any applicable requirements of any exchange upon which the
common shares of the Company may be listed or in respect of which the common
shares are qualified for unlisted trading privileges. The Company will take all
such actions are within its power to ensure that all such Shares may be so
issued without violation of any applicable law.
(m) ISSUE TAX. The issuance of certificates for Shares upon the exercise
of Warrants shall be made without charge to the Holder for any issuance tax in
respect thereto, provided that the Company shall not be required to pay any tax
which may be payable in respect of any transfer involved in the issuance and
delivery of any certificate in a name other than that of the Holder.
(n) FAIR MARKET VALUE. For the purposes of any computation hereunder, the
"Fair Market Value" at any date shall be the weighted average sale price per
share for the common shares of the Company for the 20 consecutive trading days
immediately before such date on such principal stock exchange or
over-the-counter market as the common shares may then be listed or quoted (as
the case may be), or, if the shares in respect of which a determination of Fair
Market Value is being made are not listed on any stock exchange or quoted for
trading by a recognized over-the-counter market, the Fair Market Value shall be
determined by the firm of independent chartered accountants retained to audit
the financial statements of the Company, which determination shall be
conclusive. The weighted average price shall be determined by dividing the
aggregate sale price of all such shares sold on the said exchange during the
said 20 consecutive trading days by the total number of such shares so sold.
2. REPLACEMENT
Upon receipt of evidence satisfactory to the Company of the loss, theft,
destruction or mutilation of this Certificate and, if requested by the Company,
upon delivery of a bond of indemnity satisfactory to the Company (or, in the
case of mutilation, upon surrender of this Certificate), the Company will issue
to the Holder a replacement certificate (containing the same terms and
conditions as this Certificate).
3. NO TRANSFER OF WARRANT
The Warrant shall not be assignable or transferable except in accordance
with applicable securities laws and with the prior written consent of the
Company, such consent not to be unreasonably withheld.
6
<PAGE>
4. EXPIRY DATE
The Warrants shall expire and all rights to purchase Shares hereunder shall
cease and become null and void at the Time of Expiry.
5. GOVERNING LAW
The laws of the State of California and the federal laws of United States
of America applicable therein shall govern the Warrants.
6. SUCCESSORS
This Certificate shall enure to the benefit of and shall be binding upon
the Holder and the Company and their respective successors.
7. TRANSFER OF SHARES
The Holder agrees that none of the Shares or Warrants may be sold,
transferred, assigned, pledged, hypothecated or otherwise disposed of
("Transferred") except pursuant to an effective registration statement under the
Securities Act or unless the Company shall have received a written opinion of
counsel, in form and substance satisfactory to the Company and its counsel, to
the effect that the Transfer may be effected without registration under the
Securities Act. As a further condition to any such Transfer, except in the
event that such Transfer is made pursuant to an effective registration statement
under the Securities Act, if in the reasonable opinion of counsel to the Company
any Transfer of the Shares or Warrants by the contemplated transferee thereof
would not be exempt from the registration and prospectus delivery requirements
of the Securities Act, the Company may require the contemplated transferee to
furnish the Company with an investment letter setting forth such information and
agreements as may be reasonably requested by the Company to ensure compliance by
such transferee with the Securities Act.
Each certificate evidencing the Shares will bear the following legend:
"THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED,
PLEDGED, ASSIGNED, HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT IN ACCORDANCE
WITH THE TERMS OF AN AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL UNDERSIGNED
OF THE SECURITIES, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL EXECUTIVE OFFICE
OF THE ISSUER."
The Company shall have no obligation to register any purported Transfer of
any of the Shares or any Warrants in violation of this
7
<PAGE>
agreement on its stock transfer records, and any such Transfer shall be null,
void and of no force and effect.
8. PLACE OF EXECUTION
These Warrants are exercisable only in the Province of Ontario. No shares
issuable upon exercise of the Warrants will be delivered in any other
jurisdiction.
IN WITNESS WHEREOF the Company has caused this Certificate to be signed by
its duly authorized officers and its corporate seal hereto affixed.
DATED as of the 6th day of December, 1996.
MYO DIAGNOSTICS, INC.
Per: /s/ Gerald D. Appel
------------------------------
8
<PAGE>
SCHEDULE "A"
Election to Exercise
The undersigned hereby irrevocably elects to exercise the number of Warrants of
Myo Diagnostics Inc. Inc. set out below for the number of Shares as set forth
below:
(a) Number of Warrants to be Exercised: ____________
(b) Number of Shares to be Acquired: ____________
(c) Exercise Price per Share: $___________
(d) Aggregate Purchase Price
[(a) MULTIPLIED BY (c)] $___________
and hereby tenders a certified cheque, bank draft or cash in United States
dollars for such aggregate purchase price, and directs such Shares to be
registered and a certificate therefor to be issued as directed below.
The undersigned hereby represents and warrants that the representations and
warranties of the undersigned in a Subscription Agreement dated May 9, 1996, as
amended by an Amendment dated May 16, 1996, are true and correct as of the date
hereof.
DATED this ____ day of _________________, 199__.
------------------------------
Name of Holder
By:
---------------------------
9
<PAGE>
THIS OPTION AND THE UNDERLYING COMMON STOCK HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 OR THE SECURITIES LAWS OF ANY STATE. THIS OPTION HAS
BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE, AND
THIS OPTION AND THE UNDERLYING COMMON STOCK MAY NOT BE SOLD, MORTGAGED, PLEDGED,
HYPOTHECATED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933 AND APPLICABLE STATE SECURITIES LAWS,
OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT
REQUIRED UNDER SUCH ACT OR LAWS.
MYO DIAGNOSTICS, INC.
STOCK OPTION AGREEMENT
OPTION AGREEMENT made as of the 23rd day of March, 1995 between Myo
Diagnostics, Inc, a California corporation (hereafter called the "Company"), and
Steve Nelson (hereafter called the "Optionee").
1. GRANT OF OPTION.
The Company hereby irrevocably grants to the Optionee the right and option
to purchase all or any part of an aggregate of Fifteen Thousand (15,000) shares
of its common stock, $ .01 par value (the "Shares"), on the terms and conditions
herein set forth.
2. EXERCISE PRICE.
The exercise price of each of the Shares covered by the Option shall be $
.10 representing the fair market value as of the date hereof.
3. TIME AND MANNER OF EXERCISE OF OPTION.
(a) This Option shall be exercisable in accordance with the schedule
attached hereto as Schedule A and immediately prior to the acceptance of an
offer made to acquire all or a majority of the shares of the company.
(b) To the extent that the right to exercise this Option has accrued and
is in effect, this Option may be exercised by giving written notice, signed by
the person or persons exercising the Option, to the Company, stating the number
of Shares with respect to which the Option is being exercised, accompanied by
payment in full by cash or certified check for such Shares, provided, however,
that no less than One Thousand (1,000) Shares may be purchased upon any one
exercise of this Option unless the number of Shares purchased at such time is
the total number of Shares in respect of which this Option is then exercisable.
Upon such exercise, instructions shall be given to issue and deliver to the
Optionee a certificate for paid-up non-assessable Shares.
<PAGE>
4. TERM OF OPTION.
This Option shall expire the earlier of either i) one year from the date of
an Initial Public Offering of the Company's shares, or ii) upon acceptance of an
offer made to acquire all or a majority of the shares of the Company.
5. ADJUSTMENTS
In the event of any change in the outstanding Common Stock of the Company
by reason of stock dividends, split-ups, consolidations, recapitalizations, or
reorganizations, an appropriate and proportionate adjustment shall be made by
the Company in the number of shares subject to this Option and in the exercise
price per share with respect to any unpurchased shares hereunder. Any such
adjustment hereto shall be made without a change in the total exercise price
applicable to such unpurchased shares but with a corresponding adjustment in the
per share exercise price. No fractional shares of Common Stock shall be issued
under this Option on account of under this Section 5.
6. TRANSFERABILITY OF THE OPTION
The Optionee may transfer the Shares to or for the benefit of any spouse,
child or grandchild, or to a trust for their benefit, or by the will or the laws
of descent and distribution.
7. RESTRICTIONS
(a) In the event the Optionee owns more than 5% of, becomes employed by or
associated with or is in any fiduciary relationship with a competitor of the
Company, the options shall be exercised and transferred to the Company at a
value of $.10 per share.
(b) In the event that more than 6% of the outstanding shares of the Company
are purchased by an individual or entity, these options shall be exercised and
transferred, upon the Company's request, to the purchaser at a value equal to
the value received by the shareholders
8. PURCHASE FOR INVESTMENT
The Shares to be issued upon exercise of this Option are unregistered
shares and are subject to Rule 144 under the Securities Act of 1933 as now in
force or hereafter amended. The person who exercises this option is acquiring
the Shares as an investment and not with the view to, or for sale in connection
with, the distribution of any such Shares, and that he will make no transfer of
the same except in compliance with any rules and regulations in force at the
time of transfer under the Securities Act of 1933, or any other applicable law,
and a legend to this effect will be endorsed upon the securities so issued.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Stock Option Agreement to
be duly executed by its officer thereunto duly authorized, and the Optionee has
hereunto set his hand and seal as of the date and year first above written.
MYO DIAGNOSTICS INC.
By /s/ Gerald D. Appel
-----------------------------
Gerald D. Appel, President
Attest:
/s/
- ------------------------------
Optionee:
/s/
-------------------------------
Bearer
Address:
444 31st Street
-------------------------------
Manhattan Beach, CA 90266
-------------------------------
<PAGE>
MYO DIAGNOSTICS, INC.
STOCK OPTION AGREEMENT
SCHEDULE A
Name of Optionee Steve Nelson
Date of Grant March 23, 1995
Number of Options 15,000
Shares: 15,000
Vested: March 23, 1995
<PAGE>
EXHIBIT 10.15
<TABLE>
<CAPTION>
<S> <C>
BUSINESS PRIMELINE
PROMISSORY NOTE
- ---------------------------------------------------------------------------------------------------------------------
PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
$65,000 10-10-1995 10-17-1994 LA01295491 650 5542712565 BLM
- ---------------------------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the applicability of this document to any
particular loan or item.
- ---------------------------------------------------------------------------------------------------------------------
Borrower: MYO DIAGNOSTICS, INC Lender: Wells Fargo Bank, National Association
3710 SOUTH ROBERTSON BOULEVARD Business Loan Division
CULVER CITY, CA 90232-0000 84 W. Santa Clara St. 0552-023
San Jose, CA 95113
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Principal Amount: $65,000.00 Initial Rate: 8.50% Date of Note: October 17, 1994
</TABLE>
PROMISE TO PAY. MYO DIAGNOSTICS, INC. ("Borrower") promises to pay to Wells
Fargo Bank, National Association ("Lender"), or order, in lawful money of the
United States of America, the principal amount of Sixty Five Thousand & 00/100
Dollars ($65,000.00) or so much as may be outstanding, together with interest on
the unpaid outstanding principal balance of each advance. Interest shall be
calculated from the date of each advance until repayment of each advance.
PAYMENT. BORROWER WILL PAY THIS LOAN IN ONE PAYMENT OF ALL OUTSTANDING
PRINCIPAL PLUS ALL ACCRUED UNPAID INTEREST ON OCTOBER 10, 1995. IN ADDITION,
BORROWER WILL PAY REGULAR MONTHLY PAYMENTS OF ACCRUED UNPAID INTEREST BEGINNING
NOVEMBER 10, 1994, AND ALL SUBSEQUENT INTEREST PAYMENTS ARE DUE ON THE SAME DAY
OF EACH MONTH AFTER THAT. Interest on this Note is computed on a 365/360 simple
interest basis; that is, by applying the ratio of the annual interest rate over
a year of 360 days, multiplied by the outstanding principal balance, multiplied
by the actual number of clays the principal balance is outstanding. Borrower
will pay Lender at Lender's address shown above or at such other place as Lender
may designate in writing. Unless otherwise agreed or required by applicable
law, payments will be applied first to accrued unpaid interest, then to
principal, and any remaining amount to any unpaid collection costs and late
charges.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change
from time to time based on changes in an index which is the Prime Rate (the
"Index"). The Prime Rate is a base rate that the Lender from time to time
establishes and which serves as the basis upon which effective rates of interest
are calculated for those loans making reference thereto. The Prime Rate is not
necessarily the lowest or best rate at which the Lender makes loans. Each
change in the rate of interest shall become effective on the date each Prime
Rate change is announced within the Lender. Lender will tell Borrower the
current Index rate upon Borrower's request. Borrower understands that Lender
may make loans based on other rates as well. THE INTEREST RATE CHANGE WILL NOT
OCCUR MORE OFTEN THAN EACH TIME THE RATE CHANGES. THE INDEX CURRENTLY IS 7.750%
PER ANNUM. THE INTEREST RATE TO BE APPLIED TO THE UNPAID PRINCIPAL BALANCE OF
THIS NOTE WILL BE AT A RATE OF 0.750 PERCENTAGE POINTS OVER THE INDEX, RESULTING
IN AN INITIAL RATE OF 8.500% PER ANNUM. NOTICE: Under no circumstances will the
interest rate on this Note be more than the maximum rate allowed by applicable
law.
PREPAYMENT. Borrower agrees that all loan fees and other prepaid finance
charges are earned fully as of the date of the loan and will not be subject to
refund upon early payment (whether voluntary or as a result of default), except
as otherwise required by law. Except for the foregoing, Borrower may pay
without penalty all or a portion of the amount owed earlier than it is due.
Early payments will not, unless agreed to by Lender in writing, relieve Borrower
of Borrower's obligation to continue to make payments of accrued unpaid
interest. Rather, they will reduce the principal balance due.
LATE CHARGE. If a payment is 15 days or more late, Borrower will be charged
5.000% of the regularly scheduled payment or $15.00, whichever is greater.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to perform promptly at the time
and strictly in the manner provided in this Note or any agreement related to
this Note, or in any other agreement or loan Borrower has with Lender. (c)
Borrower defaults under any loan, extension of credit, security agreement,
purchase or sales agreement, or any other agreement, in favor of any other
creditor or person that may materially affect any of Borrower's property or
Borrower's ability to repay this Note or perform Borrower's obligations under
this Note or any of the Related Documents. (d) Any representation or statement
made or furnished to Lender by Borrower or on Borrower's behalf is false or
misleading in any material respect. (e) Borrower becomes insolvent, a receiver
is appointed for any part of Borrower's property, Borrower makes an assignment
for the benefit of creditors, or any proceeding
<PAGE>
is commenced either by Borrower or against Borrower under any bankruptcy or
insolvency laws. (f) Any creditor tries to take any of Borrower's property on
or in which Lender has a lien or security interest. This includes a garnishment
of any of Borrower's accounts with Lender. (g) Any of the events described in
this default section occurs with respect to any guarantor of this Note. (h)
Lender in good faith deems itself insecure.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, without
notice, and then Borrower will pay that amount. Subject to any right of Lender
to increase the interest rate on this Note in the event of a breach or other
default, the interest rate will continue at the stated Note rate. Lender may
hire or pay someone else to help collect this Note if Borrower does not pay.
Borrower also will pay Lender that amount. This includes, subject to any limits
under applicable law, Lender's attorneys' fees and Lender's legal expenses
whether or not there is a lawsuit, including attorneys' fees and legal expenses
for bankruptcy proceedings (including efforts to modify or vacate any automatic
stay or injunction), appeals, and any anticipated post-judgment collection
services. Borrower also will pay any court costs, in addition to all other sums
provided by law. This Note has been delivered to Lender and accepted by Lender
in the State of California. If there is a lawsuit, Borrower agrees upon
Lender's request to submit to the Jurisdiction of the courts of any County, the
State of California. This Note shall be governed by and construed in accordance
with the laws of the State of California.
DEPOSIT ACCOUNTS. Borrower grants to Lender a contractual possessory security
interest in, and hereby assigns, conveys, delivers, pledges, and transfers to
Lender all Borrower's right, title and interest in and to, Borrower's accounts
with Lender (whether checking, savings, or some other account), including
without limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future, excluding however all IRA, Keogh, and trust
accounts.
LINE OF CREDIT. This Note evidences a revolving line of credit. Advances under
this Note may be requested either orally or in writing by Borrower or as
provided in this paragraph. Lender may, but need not, require that all oral
requests be confirmed in writing. All communications, instructions, or
directions by telephone or otherwise to Lender are to be directed to Lender's
office shown above. Advances must be in amounts of at least $1,000, or the
amount of the principal remaining available, whichever is less. Borrower agrees
to be liable for all sums either: (a) advanced in accordance with the
instructions of an authorized person or (b) credited to any of Borrower's
accounts with Lender. The unpaid principal balance owing on this Note at any
time may be evidenced by endorsements on this Note or by Lender's internal
records, including daily computer print-outs. Lender will have no obligation to
advance funds under this Note if: (a) Borrower or any guarantor is in default
under the terms of this Note or any agreement that Borrower or any guarantor has
with Lender, including any agreement made in connection with the signing of this
Note; (b) Borrower or any guarantor ceases doing business or is insolvent; (c)
any guarantor seeks, claims or otherwise attempts to limit, modify or revoke
such guarantor's guarantee of this Note or any other loan with Lender; (d)
Borrower has applied funds provided pursuant to this Note for purposes other
than those authorized by Lender; or (e) Lender in good faith deems itself
insecure under this Note or any other agreement between Lender and Borrower.
LETTER OF CREDIT COLLATERAL. As a condition precedent to Lender's obligation to
make advances under this Note, and as security for the payment and performance
of all obligations of Borrower to Lender under this Note, Borrower shall provide
to Lender a Standby Letter of Credit, issued by a bank and in a form
satisfactory to Lender, naming Lender as beneficiary in an amount not less than
the principal amount of this Note (in dollars) and with an expiry date no
earlier than 120 days following the scheduled maturity date of this Note.
OVERDRAFT PROTECTION. If Borrower has elected Overdraft Protection on a
designated business checking account with Lender, overdrafts in amounts in
excess of $10 will be automatically covered by an Advance under this Note. The
Lender will automatically transfer enough money to cc the overdraft unless this
Note is delinquent or closed, or the Advance would cause the Note balance to
exceed the maximum amount available up this Note.
INTEREST RATE ADJUSTMENT. If for any reason Borrower fails to maintain its
primary deposit account with Lender (defined as the deposit account into which
substantially all Borrower's receipts from its operations are deposited and from
which substantially all Borrower's disbursements operations are made), or if
Lender is not able to collect all payments on this Note by charging Borrower's
primary deposit account with Lender, whether because Borrower cancels the
authorization to Lender to do so, or Borrower fails at any time to maintain
sufficient sums in said account, or for any other reason, then the interest rate
applicable to this Note shall be increased immediately and without notice by one
percent (1%).
CREDIT BUREAU INQUIRIES. Borrower authorizes Lender to obtain business and/or
personal credit bureau reports on Borrower at any time.
2
<PAGE>
APPLICATION OF PAYMENT. Notwithstanding the application of payments provided in
the Payment section of this Note, all sums received application to Borrower's
obligations under this Note shall be applied first, to interest then due,
second, to any fees and charges then due, and, the outstanding principal balance
thereof.
ADDITIONAL PROVISION. Notwithstanding anything herein to the contrary, at no
time shall the rate of interest on this Note be less than two (2%) above the
highest effective annual rate of interest rounded upward to the next highest
quarter percent (taking into account any interest) earned by Borrower on any
time deposit, market rate account or savings account pledged to Lender as
collateral for such amounts.
PAYMENT DATE DEFERRAL. If this loan is not entered on Lender's books during the
month this Note is dated, the due dates of all scheduled payments shall be
deferred one month.
EXTENSION AND RENEWAL. Unless Borrower's obligations under this Note have been
extended or renewed by Lender, no further advances available to Borrower and the
entire outstanding principal balance of this Note, together with all accrued and
unpaid interest thereon and fees charges owing in connection therewith, shall be
due and payable in full as stated above. The date at which Borrower's
obligations hereunder are and payable in full shall be considered extended or
renewed only if Lender has sent to Borrower a written notice of renewal or
extension, effective the next maturity date of this Note (each, a Renewal or
Extension Notice).
Borrower's obligation under this Note may be renewed or extended at the Lender's
sole discretion and may be conditioned among modification of Borrower's
obligations hereunder, including but not limited to a decrease in the amount
available under this Note, an increase in interest rate applicable to this Note
and/or payment of a fee for such renewal or extension. In addition, Lender may
increase the principal amount available under the Note at any time. Borrower
shall be deemed to have accepted the terms of each Renewal or Extension Notice,
including any notice of an increase in availability, if Borrower does not
deliver to Lender written rejection of such Notice within 10 days following the
date of such Notice.
If Borrower's obligations under this Note are renewed and/or extended, they will
be subject to all terms and conditions of this Note, as modified by Renewal or
Extension Notice. Borrower understands and agrees that the interest rate
applicable to this Note may be increased upon any extension and that the new
interest rate will apply to the entire outstanding balance of this Note,
including the outstanding balance of advances made prior to the effective date
of the Renewal or Extension Notice. After any renewal or extension of
Borrower's obligations under this Note the "maturity date" as used in this Note
shall be deemed to mean the new maturity date set forth in the Renewal or
Extension Notice, and the same renewal or extension shall apply to any renewal
or extension of this Note and its new maturity date.
LOAN FEES - AUTHORIZATION. Borrower shall pay to Lender any and all fees as
specified in the "Disbursement Request and Authorization" executed by Borrower
in connection with this Note. Such fees are non-refundable and shall be due and
payable in full immediately upon execution of this Note.
COLLECTION FROM DEPOSIT ACCOUNT. Borrower authorizes Lender to Collect all
payments, including principal, interest, fees, charges, and amounts due under
this Note by charging Borrower's primary deposit account with Lender as
specified in the "Disbursement Authorization" executed by Borrower in connection
with this Note for the full amount thereof, or such other deposit account of
Borrower Borrower shall designate in writing. Should there be insufficient
funds in said account to pay when due all or any portion of the total amount due
Borrower to Lender, the full amount of such deficiency shall be immediately due
and payable by Borrower.
ALTERNATIVE DISPUTE RESOLUTION. It is understood that, upon request of any
party to this Agreement, any dispute, claim, or controversy kind, whether in
contract or in tort, statutory or common law, legal or equitable now existing or
hereafter arising between the parties, in any way arising out of, pertaining to
or in connection with this Agreement, or any related agreements, documents, or
instruments shall be resolved through a dispute resolution process administered
by Judicial Arbitration and Mediation Services, Inc. (JAMS) involving first,
mediation before a retired judge the JAMS panel followed, if necessary by final
and binding arbitration (conducted at a location determined by the arbitrator in
a city located miles of the Borrower's business address) administered by and in
accordance with the then existing JAMS' Rules or Practice and Procedure.
Judgment upon any award rendered by the arbitrator(s) may be entered by any
state or federal court having jurisdiction thereof. BORROWER UNDERSTANDS THAT
BY SIGNING THIS NOTE, BORROWER IS GIVING UP ANY RIGHTS BORROWER MIGHT POSSESS TO
HAVE ANY DISPUTE, CLAIM, OR LITIGATED IN A COURT OR JURY TRIAL.
As soon as practicable after selection of the arbitrator, the arbitrator or his
(her) designated
3
<PAGE>
representatives shall determine a anticipated fees and costs of the arbitrator,
and render a statement to each party seeing forth that party's pro-rata share of
said fees and Thereafter, each party shall, within ten (10) days of receipt of
said statement, deposit said sum with the arbitrator. Failure of any party to
make deposit shall result in a forfeiture by the non-depositing party of the
fight to prosecute or defend the claim which is the subject of the arbitration,
shall not otherwise serve to abate, stay or suspend the arbitration proceedings.
The arbitrator shall determine which is the prevailing party and shall include
in the award that party's reasonable attorney fees and costs.
If for any reason JAMS is not able to provide, or is legally precluded from
providing, a judge in accordance with any of the provisions above, or if parties
stipulate, the mediation or the arbitration will be conducted by a mediator or
arbitrator selected by the American Arbitration Association, and accordance with
its procedures. All of the above provisions not in conflict with the procedures
of AAA would remain in effect to the extent law in any such proceedings.
This section applies only to disputes involving $250,000 or more in value,
including claim(s) asserted on behalf of others or a class of $250,000 or in
value when aggregated.
This section does not apply to the Lender's exercise of any judicial or
non-judicial remedies in the event of a default under this Agreement or security
agreement, deed of trust or other security instrument securing the Agreement.
The Lender's exercise of such a remedy shall not be deemed waive the Lender's
right to enforce the terms of this section.
TELEPHONE TRANSFER. Borrower authorizes Lender to make transfers, up to the
available balance or credit limit, between designated accounts specified in
writing, upon Lender's receipt of instructions from any of Borrower's
Owners/Principals. Lender will have no liability for any upon the written or
venal request of any person believed by Lender in good faith to be an authorized
representative of Borrower. Borrower will indemnify and hold Lender harmless
from and against any damages, liabilities, costs or expenses (including
attorney's fees) arising out of any claim Borrower or any third party against
Lender in connection with Lender's performance of transfers as described above.
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or
remedies under this Note without losing them. Borrower and other person who
signs, guarantees or endorses this Note, to the extent allowed by law, waive any
applicable statute of limitations, presentment, demand for payment, protest and
notice of dishonor. Upon any change in the terms of this Note, and unless
otherwise expressly stated in writing, party who signs this Note, whether as
maker, guarantor, accommodation maker or endorser, shall be released from
liability. All such parties agree Lender may renew or extend (repeatedly and
for any length of time) this loan, or release any party or guarantor or
collateral; or impair, fail to upon or perfect Lender's security interest in the
collateral; and take any other action deemed necessary by Lender without the
consent of or notice anyone. All such parties also agree that Lender may modify
this loan without the consent of or notice to anyone other than the party with
whom modification is made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO
THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COPY OF THE NOTE.
BORROWER:
MYO DIAGNOSTICS, INC.
By: /s/ By: /s/
--------------------------------------- --------------------------------
NAME:, TITLE: NAME:, TITLE:
By: /s/ By: /s/
--------------------------------------- --------------------------------
NAME:, TITLE: NAME:, TITLE:
4
<PAGE>
WELLS FARGO BANK, NATIONAL ASSOCIATION
January 4, 1996
MYO DIAGNOSTICS, INC.
3710 S. ROBERTSON BLVD. #212
CULVER CITY, CA 90232-2350
RENEWAL NOTICE
RE: Renewal of Business PrimeLine of Credit
Application #LA02257641
Account #5542712565
Dear Customer:
Wells Fargo Bank, National Association ("Lender") is pleased to inform you
that your Business PrimeLine Line of Credit ("Line") granted pursuant to your
Business Loan Agreement dated JULY 7, 1994, and your Promissory Note ("Note")
dated OCTOBER 17, 1994 and other related documents (collectively, the
"Agreement"), will be renewed in ten (1O) days. The new maturity date will be
JANUARY 10, 1997.
Your Business Primeline Line of Credit remains subject to all terms and
conditions of the Agreement, as modified by this Renewal Notice.
A non-refundable Renewal Fee of $250.00 will be charged to your account
#0619073265 ten (10) days after the date of this letter unless prior to that
date we receive your written rejection of this Renewal Notice.
If you have any questions please do not hesitate to call us at our toll
free number 800-932-4343 or (408) 277-6049. We appreciate your business and
look forward to continuing to serve as your business bank.
WELLS FARGO BANK,
NATIONAL ASSOCIATION
By: /s/
----------------------------------
Title: Credit Officer
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
BUSINESS PRIMELINE
PROMISSORY NOTE
- ---------------------------------------------------------------------------------------------------------------------
PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
$75,000 05-27-1994 06-10-1995 LA01032661 650 NEW JFT
- ---------------------------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the applicability of this document to any
particular loan or item.
- ---------------------------------------------------------------------------------------------------------------------
Borrower: MYO DIAGNOSTICS, INC Lender: Wells Fargo Bank, National Association
3710 SOUTH ROBERTSON BOULEVARD Business Loan Division
CULVER CITY, CA 90232-0000 84 W. Santa Clara St. 0552-023
San Jose, CA 95113
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Principal Amount: $75,000.00 Initial Rate: 8.750% Date of Note: May 27, 1994
</TABLE>
PROMISE TO PAY. MYO DIAGNOSTICS, INC. ("Borrower") promises to pay to Wells
Fargo Bank, National Association ("Lender"), or order, in lawful money of the
United States of America, the principal amount of Seventy Five Thousand & 00/100
Dollars ($75,000.00) or so much as may be outstanding, together with interest on
the unpaid outstanding principal balance of each advance. Interest shall be
calculated from the date of each advance until repayment of each advance.
PAYMENT. Borrower will pay this loan in one payment of all outstanding
principal plus all accrued unpaid interest on June 10, 1995. In addition,
Borrower will pay regular monthly payments of accrued unpaid interest beginning
June 10, 1994, and all subsequent interest payments are due on the same day of
each month after that. Interest on this Note is computed on a 365/360 simple
interest basis; that is, by applying the ratio of the annual interest rate over
a year of 360 days, multiplied by the outstanding principal balance, multiplied
by the actual number of days the principal balance is outstanding. Borrower
will pay Lender at Lender's address shown above or at such other place as Lender
may designate in writing. Unless otherwise agreed or required by applicable
law, payments will be applied first to accrued unpaid interest, then to
principal, and any remaining amount to any unpaid collection costs and late
charges.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change
from time to time based on changes in an index which is the Prime Rate (the
"Index"). The Prime Rate is a base rate that the Lender from time to time
establishes and which serves as the basis upon which effective rates of interest
are calculated for those loans making reference thereto. The Prime Rate is not
necessarily the lowest or best rate at which the Lender makes loans. Each
change in the rate of interest shall become effective on the date each Prime
Rate change is announced within the Lender. Landed will tell Borrower the
current Index rate upon Borrower's request. Borrower understands that Lender
may make loans based on other rates as we,I The interest rate change will not
occur more often than each TIME THE RATE CHANGES. The Index currently Is 7.250%
per annum. The interest rate to be applied to the unpaid principal balance of
this Note will be at a rate of 1.500 percentage points over the Index, resulting
in an initial rate of 8.750% per annum. NOTICE: Under no circumstances will the
interest rate on this Note be more than the maximum rate allowed by applicable
law.
PREPAYMENT. Borrower agrees that all loan fees and other prepaid finance
charges are earned fully as of the date of the loan and will not be subject to
refund upon early payment (whether voluntary or as a result of default), except
as otherwise required by law. Except for the foregoing, Borrower may pay
without penalty all or a portion of the amount owed earlier than it is due.
Early payments will not, unless agreed to by Lender in writing, relieve Borrower
of Borrower's obligation to continue to make payments under the payment
schedule. Rather, they will reduce the principal balance due and may result in
Borrower making fewer payments.
LATE CHARGE. If a payment is 15 days or more late, Borrower will be charged
5.000% of the regularly scheduled payment or $15.00, whichever is greater.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to perform promptly at the time
and strictly in the manner provided in this Note or any agreement related to
this Note, or in any other agreement or loan Borrower has with Lender. (c)
Borrower defaults under any loan, extension of credit, security agreement,
purchase or sales agreement, or any other agreement, in favor of any other
creditor or person that may materially affect any of Borrower's property or
Borrower's ability to repay this Note or perform Borrower's obligations under
this Note or any of the Related Documents. (d) Any representation or statement
made or furnished to Lender by Borrower or on Borrower's behalf is false or
misleading in any material respect. (e) Borrower becomes insolvent, a receiver
is appointed for any part of Borrower's property, Borrower makes an assignment
for the benefit of creditors, or any proceeding
<PAGE>
is commenced either by Borrower or against Borrower under any bankruptcy or
insolvency laws. (f) Any creditor tries to take any of Borrower's property on
or in which Lender has a lien or security interest. This includes a garnishment
of any of Borrower's accounts with Lender. (g) Any of the events described in
this default section occurs with respect to any guarantor of this Note. (h)
Lender in good faith deems itself insecure.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, without
notice, and then Borrower will pay that amount. Subject to any right of Lender
to increase the interest rate on this Note in the event of a breach or other
default, the interest rate will continue at the stated Note rate. Lender may
hire or pay someone else to help collect this Note if Borrower does not pay.
Borrower also will pay Lender that amount. This includes, subject to any limits
under applicable law, Lender's attorneys' fees and Lender's legal expenses
whether or not there is a lawsuit, including attorneys' fees and legal expenses
for bankruptcy proceedings (including efforts to modify or vacate any automatic
stay or injunction), appeals, and any anticipated post-judgment collection
services, Borrower also will pay any court costs, in addition to all other sums
provided by law. This Note has been delivered to Lender and accepted by Lender
in the State of California. If there is a lawsuit, Borrower agrees upon
Lender's request to submit to the jurisdiction of the courts of any County, the
State of California. This Note shall be governed by and construed in accordance
with the laws of the State of California.
DEPOSIT ACCOUNTS. Borrower grants to Lender a contractual possessory security
interest in, and hereby assigns, conveys, delivers, pledges, and transfers to
Lender all Borrower's right, title and interest in and to, Borrower's accounts
with Lender (whether checking, savings, or some other account), including
without limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future, excluding however all IRA, Keogh, and trust
accounts.
LINE OF CREDIT. This Note evidences a revolving line of credit. Advances under
this Note may be requested either orally or in writing by Borrower or as
provided in this paragraph. Lender may, but need not, require that all oral
requests be confirmed in writing. All communications, instructions, or
directions by telephone or otherwise to Lender are to be directed to Lender's
office shown above. Advances must be in amounts of at [east $1,000, or the
amount of principal remaining available, whichever is less. Borrower agrees to
be liable for all sums either: (a) advanced in accordance with the instructions
of an authorized person or (b) credited to any of Borrower's accounts with
Lender. The unpaid principal balance owing on this Note at any time may be
evidenced by endorsements on this Note or by Lender's internal records,
including daily computer print-outs. Lender will have no obligation to advance
funds under this Note if: (a) Borrower or any guarantor is in default under the
terms of this Note or any agreement that Borrower or any guarantor has with
Lender, including any agreement made in connection with the signing of this
Note; (b) Borrower or any guarantor ceases doing business or is insolvent; (c)
any guarantor seeks, claims or otherwise attempts to limit, modify or revoke
such guarantor's guarantee of this Note or any other loan with Lender; (d)
Borrower has applied funds provided pursuant to this Note for purposes other
than those authorized by Lender; or (e) Lender in good faith deems itself
insecure under this Note or any other agreement between Lender and Borrower.
OVERDRAFT PROTECTION. If Borrower has elected Overdraft Protection on a
designated business checking account with Lender, overdrafts in amounts in
excess of $10 will be automatically covered by an Advance under this Note. The
Lender will automatically transfer enough money to cover the overdraft unless
the Note is delinquent or closed, or the Advance would cause the Note balance to
exceed the maximum amount available this Note.
INTEREST RATE ADJUSTMENT. If for any reason Borrower fails to maintain its
primary deposit account with Lender (defined as the deposit account into which
substantially all Borrower's receipts from its operations are deposited and from
which substantially all Borrower's disbursements operations are made), or if
Lender is not able to collect all payments on this Note by charging Borrower's
deposit account with Lender, because Borrower cancels the authorization to
Lender to do so, or Borrower fails at any time to maintain sufficient sums in
said deposit account, or any other reason, then the interest rate applicable to
this Note shall he increased immediately and without notice by one percent(l%).
CREDIT BUREAU INQUIRIES. Borrower authorizes Lender to obtain business and/or
personal credit bureau reports on Borrower at any time.
APPLICATION OF PAYMENT. Notwithstanding the application of payments provided in
the Payment section of this Note, all sums received application to Borrower's
obligations under this Note shall be applied first, to interest then due,
second, to any fees and charges then due, and, the outstanding principal balance
thereof.
PAYMENT DATE DEFERRAL. If this loan is not entered on Lender's books during the
month this Note is
2
<PAGE>
dated, the due dates of all scheduled payments shall be deferred one month.
LETTER OF CREDIT COLLATERAL. As a condition precedent to Lender's obligation to
make advances under this Note, and as security for payment and performance of
all obligations of Borrower to Lender under this Note, Borrower shall provide to
Lender a Standby Letter of Credit, issued by a bank and in a form satisfactory
to Lender, naming Lender as beneficiary in an amount not less than the principal
amount of this Note (in dollars) and with an expiry date no earlier than 120
days following the scheduled maturity date of this Note.
EXTENSION AND RENEWAL. Unless Borrower's obligations under this Note have been
extended or renewed by Lender, no further advances shall available to Borrower
and the entire outstanding principal balance of this Note, together with all
accrued and unpaid interest thereon and fees charges owing in connection
therewith, shall be due and payable in full as stated above. The date at which
Borrower's obligations hereunder are and payable in full shall be considered
extended or renewed only if Lender has sent to Borrower a written notice of
renewal or extension, effective the next maturity date of this Note (each, a
Renewal or Extension Notice).
Borrower's obligation under this Note may be renewed or extended at the Lender's
sole discretion and may be conditioned among other things modification of
Borrower's obligations hereunder, including but not limited to a decrease in the
amount available under this Note, an increase in interest rate applicable to
this Note and/or payment of a fee for such renewal or extension. In addition,
Lender may increase the principal amount available under the Note at any time.
Borrower shall be deemed to have accepted the terms of each Renewal or Extension
Notice, including any notice of an increase in availability, if Borrower does
not deliver to Lender written rejection of such Notice within 10 days following
the date of such Notice.
If Borrower's obligations under this Note are renewed and/or extended, they will
be subject to all terms and conditions of this Note, as modified by Renewal or
Extension Notice. Borrower understands and agrees that the interest rate
applicable to this Note may be increased upon any renewal extension and that the
new interest rate will apply to the entire outstanding balance of this Note,
including the outstanding balance of advances made prior to the effective date
of the Renewal or Extension Notice. After any renewal or extension of
Borrower's obligations under this Note the ta "maturity date" as used in this
Note shall be deemed to mean the new maturity date set forth in the Renewal or
Extension Notice, and the same rules renewal or extension shall apply to any
renewal or extension of this Note and its new maturity date.
LOAN FEES - AUTHORIZATION. Borrower shall pay to Lender any and all fees as
specified in the "Disbursement Request and Authorization" executed by Borrower
in connection with this Note. Such fees are non-refundable and shall be due and
payable in full immediately upon Borrower's execution of this Note.
COLLECTION FROM DEPOSIT ACCOUNT. Borrower authorizes Lender to collect all
payments, including principal, interest, fees, charges, and other amounts due
under this Note by charging Borrower's primary deposit account with Lender as
specified in the "Disbursement Request a Authorization" executed by Borrower in
connection with this Note for the full amount thereof, or such other deposit
account of Borrower with Lender Borrower shall designate in writing. Should
there be insufficient funds in said account to pay when due all or any portion
of the total amount due from Borrower to Lender, the full amount of such
deficiency shall be immediately due and payable by Borrower.
ALTERNATIVE DISPUTE RESOLUTION. It is understood that, upon request of any
party to this Agreement, any dispute, claim, or controversy of a kind, whether
in contract or in tort, statutory or common law, legal or equitable now existing
or hereafter arising between the parties, in any way arising out of, pertaining
to or in connection with this Agreement, or any related agreements, documents,
or instruments shall be resolved through a two-step dispute resolution process
administered by Judicial Arbitration and Mediation Services, Inc. (JAMS)
involving first, mediation before a retired judge from the JAMS panel followed,
if necessary, by final and binding arbitration (conducted at a location
determined by the arbitrator in a city located within 1 miles of the Borrower's
business address) administered by and in accordance with the then existing JAMS'
Rules or Practice and Procedure. Judgment upon any award rendered by the
arbitrator(s) may be entered by any state or federal court having jurisdiction
thereof. Borrower understands that by signing this Note, Borrower Is giving up
any rights Borrower might possess to have any dispute, claim, or controversy
litigated in a court or jury trial.
As soon as practicable after selection of the arbitrator, the arbitrator or his
(her) designated representatives shall determine a reasonable estimate
anticipated fees and costs of the arbitrator, and render a statement to each
party setting forth that party's pro-rata share of said fees and costs.
Thereafter, each party shall, within ten (10) days of receipt of said statement,
deposit said sum with the arbitrator. Failure of any party to make such deposit
shall result in a
3
<PAGE>
forfeiture by the non-depositing party of the right to prosecute or defend the
claim which is the subject of the arbitration, shall not otherwise serve to
abate, stay or suspend the arbitration proceedings.
The arbitrator shall determine which is the prevailing party and shall include
in the award that party's reasonable attorney fees and costs.
If for any reason JAMS is not able to provide, or is legally precluded from
providing, a judge in accordance with any of the provisions above, or if parties
stipulate, the mediation or the arbitration will be conducted by a mediator or
arbitrator selected by the American Arbitration Association, and accordance with
its procedures. All of the above provisions not in conflict with the procedures
of AAA would remain in effect to the extent allowed law in any such proceedings.
This section applies only to disputes involving $250,000 or more in value,
including claim(s) asserted on behalf of others or a class of $250,000 or more
in value when aggregated.
This section does not apply to the Lender's exercise of any judicial or
non-judicial remedies in the event of a default under this Agreement or a
security agreement, deed of trust or other security instrument securing the
Agreement. The Lender's exercise of such a remedy shall not be deemed waive the
Lender's right to enforce the terms of this section.
TELEPHONE TRANSFER. Borrower authorizes Lender to make transfers, up to the
available balance or credit limit, between designated accounts specified in
writing, upon Lender's receipt of instructions from any of Borrower's
Owners/Principals. Lender will have no liability for any transfer me( upon the
written or verbal request of any person believed by Lender in good faith to be
an authorized representative of Borrower. Borrower indemnify and hold Lender
harmless from and against any damages, liabilities, costs or expenses (including
attorney's fees) arising out of any claim by Borrower or any third party against
Lender in connection with Lender's performance of transfers as described above.
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or
remedies under this Note without losing them. Borrower and any other person who
signs, guarantees or endorses this Note, to the extent allowed by law, waive any
applicable statute of limitations, presentment, demand for payment, protest and
notice of dishonor. Upon any change in the terms of this Note, and unless
otherwise expressly stated in party who signs this Note, whether as maker,
guarantor, accommodation maker or endorser, shall be released from liability.
All such parties agree that Lender may renew or extend (repeatedly and for any
length of time) this loan, or release any party or guarantor or collateral; or
impair, fail to upon or perfect Lender's security interest in the collateral;
and take any other action deemed necessary by Lender without the consent of or
anyone. All such parties also agree that Lender may modify this loan without
the consent of or notice to anyone other than the party with whom the
modification is made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO
THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE.
BORROWER:
MYO DIAGNOSTICS, INC.
By: /s/ By: /s/
---------------------------- ------------------------------
NAME:, TITLE: NAME:, TITLE:
By: /s/ By: /s/
---------------------------- ------------------------------
NAME:, TITLE: NAME:, TITLE:
4
<PAGE>
[WELLS FARGO BANK LETTERHEAD]
* * * Renewal Notice * * *
June 14, 1996
Myo Diagnostics, Inc.
3710 S. Robertson Blvd. #212
Culver City, CA 90232-2347
RE: Renewal of Business PrimeLine
Application #: 02406454
Customer #: 5542712565
Dear Myo Diagnostics, Inc.:
Wells Fargo Bank is pleased to inform you that your Business PrimeLine
#5542712565, in the amount of $75,000.00, was renewed on June 14, 1996. The new
maturity date is June 10, 1997.
Your PrimeLine remains subject to all terms and conditions of the Business Loan
Agreement, as modified by this Renewal Notice. The interest rate to be applied
to the unpaid Principal balance of the Note will be at a rate of 0.75% over the
Index.
A non-refundable renewal fee of $375.00 will be charged to your account
#0619073265.
If you have any questions, please do not hesitate to call us at our toll free
number (800) 932-4343 or (408) 277-6049 and press 1. We appreciate your
business and look forward to continuing to serve as your business bank.
Sincerely,
Wells Fargo Bank, N.A.
/s/ Liela Alemania
- -------------------------------
Liela Alemania
Documentation Representative
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
BUSINESS PRIMELINE
PROMISSORY NOTE
- ---------------------------------------------------------------------------------------------------------------------
PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
$65,000 07-07-1994 07-10-1995 LA01122592 650 5542712565 MDB
- ---------------------------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the applicability of this document to any
particular loan or item.
- ---------------------------------------------------------------------------------------------------------------------
Borrower: MYO DIAGNOSTICS, INC Lender: Wells Fargo Bank, National Association
3710 SOUTH ROBERTSON BOULEVARD Business Loan Division
CULVER CITY, CA 90232-0000 84 W. Santa Clara St. 0552-023
San Jose, CA 95113
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Principal Amount: $65,000.00 Initial Rate: 8.000% Date of Note: July 7, 1994
</TABLE>
PROMISE TO PAY. MYO DIAGNOSTICS, INC. ("Borrower") promises to pay to Wells
Fargo Bank, National Association ("Lender"), or order, in lawful money of the
United States of America, the principal amount of Sixty Five Thousand & 00/100
Dollars ($65,000.00) or so much as may be outstanding, together with interest on
the unpaid outstanding principal balance of each advance. Interest shall be
calculated from the date of each advance until repayment of each advance.
PAYMENT. Borrower will pay this loan in one payment of all outstanding
principal plus all accrued unpaid interest on July 10, 1995. In addition,
Borrower will pay regular monthly payments of accrued unpaid interest beginning
August 10, 1994, and all subsequent interest payments are due on the same day of
each month after that. Interest on this Note is computed on a 365/360 simple
interest basis; that is, by applying the ratio of the annual interest rate over
a year of 360 days, multiplied by the outstanding principal balance, multiplied
by the actual number of days the principal balance is outstanding. Borrower
will pay Lender at Lender's address shown above or at such other place as Lender
may designate in writing. Unless otherwise agreed or required by applicable
law, payments will be applied first to accrued unpaid interest, then to
principal, and any remaining amount to any unpaid collection costs and late
charges.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change
from time to time based on changes in an index which is the Prime Rate (the
"Index"). The Prime Rate is a base rate that the Lender from time to time
establishes and which serves as the basis upon which effective rates of interest
are calculated for those loans making reference thereto. The Prime Rate is not
necessarily the lowest or best rate at which the Lender makes loans. Each
change in the rate of interest shall become effective on the date each Prime
Rate change is announced within the Lender. Landed will tell Borrower the
current Index rate upon Borrower's request. Borrower understands that Lender
may make loans based on other rates as we,I The interest rate change will not
occur more often than each TIME THE RATE CHANGES. The Index currently Is 7.250%
per annum. The interest rate to be applied to the unpaid principal balance of
this Note will be at a rate of 0.750 percentage points over the Index, resulting
in an initial rate of 8.000% per annum. NOTICE: Under no circumstances will the
interest rate on this Note be more than the maximum rate allowed by applicable
law.
PREPAYMENT. Borrower agrees that all loan fees and other prepaid finance
charges are earned fully as of the date of the loan and will not be subject to
refund upon early payment (whether voluntary or as a result of default), except
as otherwise required by law. Except for the foregoing, Borrower may pay
without penalty all or a portion of the amount owed earlier than it is due.
Early payments will not, unless agreed to by Lender in writing, relieve Borrower
of Borrower's obligation to continue to make payments under the payment
schedule. Rather, they will reduce the principal balance due and may result in
Borrower making fewer payments.
LATE CHARGE. If a payment is 15 days or more late, Borrower will be charged
5.000% of the regularly scheduled payment or $15.00, whichever is greater.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to perform promptly at the time
and strictly in the manner provided in this Note or any agreement related to
this Note, or in any other agreement or loan Borrower has with Lender. (c)
Borrower defaults under any loan, extension of credit, security agreement,
purchase or sales agreement, or any other agreement, in favor of any other
creditor or person that may materially affect any of Borrower's property or
Borrower's ability to repay this Note or perform Borrower's obligations under
this Note or any of the Related Documents. (d) Any representation or statement
made or furnished to Lender by Borrower or on Borrower's behalf is false or
misleading in any material respect. (e) Borrower becomes insolvent, a receiver
is appointed for any part of Borrower's property, Borrower makes an assignment
for the benefit of creditors, or any proceeding
<PAGE>
is commenced either by Borrower or against Borrower under any bankruptcy or
insolvency laws. (f) Any creditor tries to take any of Borrower's property on
or in which Lender has a lien or security interest. This includes a garnishment
of any of Borrower's accounts with Lender. (g) Any of the events described in
this default section occurs with respect to any guarantor of this Note. (h)
Lender in good faith deems itself insecure.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, without
notice, and then Borrower will pay that amount. Subject to any right of Lender
to increase the interest rate on this Note in the event of a breach or other
default, the interest rate will continue at the stated Note rate. Lender may
hire or pay someone else to help collect this Note if Borrower does not pay.
Borrower also will pay Lender that amount. This includes, subject to any limits
under applicable law, Lender's attorneys' fees and Lender's legal expenses
whether or not there is a lawsuit, including attorneys' fees and legal expenses
for bankruptcy proceedings (including efforts to modify or vacate any automatic
stay or injunction), appeals, and any anticipated post-judgment collection
services, Borrower also will pay any court costs, in addition to all other sums
provided by law. This Note has been delivered to Lender and accepted by Lender
in the State of California. If there is a lawsuit, Borrower agrees upon
Lender's request to submit to the jurisdiction of the courts of any County, the
State of California. This Note shall be governed by and construed in accordance
with the laws of the State of California.
DEPOSIT ACCOUNTS. Borrower grants to Lender a contractual possessory security
interest in, and hereby assigns, conveys, delivers, pledges, and transfers to
Lender all Borrower's right, title and interest in and to, Borrower's accounts
with Lender (whether checking, savings, or some other account), including
without limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future, excluding however all IRA, Keogh, and trust
accounts.
LINE OF CREDIT. This Note evidences a revolving line of credit. Advances under
this Note may be requested either orally or in writing by Borrower or as
provided in this paragraph. Lender may, but need not, require that all oral
requests be confirmed in writing. All communications, instructions, or
directions by telephone or otherwise to Lender are to be directed to Lender's
office shown above. Advances must be in amounts of at [east $1,000, or the
amount of principal remaining available, whichever is less. Borrower agrees to
be liable for all sums either: (a) advanced in accordance with the instructions
of an authorized person or (b) credited to any of Borrower's accounts with
Lender. The unpaid principal balance owing on this Note at any time may be
evidenced by endorsements on this Note or by Lender's internal records,
including daily computer print-outs. Lender will have no obligation to advance
funds under this Note if: (a) Borrower or any guarantor is in default under the
terms of this Note or any agreement that Borrower or any guarantor has with
Lender, including any agreement made in connection with the signing of this
Note; (b) Borrower or any guarantor ceases doing business or is insolvent; (c)
any guarantor seeks, claims or otherwise attempts to limit, modify or revoke
such guarantor's guarantee of this Note or any other loan with Lender; (d)
Borrower has applied funds provided pursuant to this Note for purposes other
than those authorized by Lender; or (e) Lender in good faith deems itself
insecure under this Note or any other agreement between Lender and Borrower.
LETTER OF CREDIT COLLATERAL. As a condition precedent to Lender's obligation to
make advances under this Note, and as security for the payment and performance
of all obligations of Borrower to Lender under this Note, Borrower shall provide
to Lender a Standby Letter of Credit, issued by a bank and in a form
satisfactory to Lender, naming Lender as beneficiary in an amount not less than
the principal amount of this Note (in U.S. dollars) and with an expiry date no
earlier than 120 days following the scheduled maturity date of this Note.
OVERDRAFT PROTECTION. If Borrower has elected Overdraft Protection on a
designated business checking account with Lender, overdrafts in amounts in
excess of $10 will be automatically covered by an Advance under this Note. The
Lender will automatically transfer enough money to cover the overdraft unless
the Note is delinquent or closed, or the Advance would cause the Note balance to
exceed the maximum amount available this Note.
INTEREST RATE ADJUSTMENT. If for any reason Borrower fails to maintain its
primary deposit account with Lender (defined as the deposit account into which
substantially all Borrower's receipts from its operations are deposited and from
which substantially all Borrower's disbursements operations are made), or if
Lender is not able to collect all payments on this Note by charging Borrower's
deposit account with Lender, because Borrower cancels the authorization to
Lender to do so, or Borrower fails at any time to maintain sufficient sums in
said deposit account, or any other reason, then the interest rate applicable to
this Note shall he increased immediately and without notice by one percent(l%).
CREDIT BUREAU INQUIRIES. Borrower authorizes Lender to obtain business and/or
personal credit bureau reports on Borrower at any time.
2
<PAGE>
APPLICATION OF PAYMENT. Notwithstanding the application of payments provided in
the Payment section of this Note, all sums received application to Borrower's
obligations under this Note shall be applied first, to interest then due,
second, to any fees and charges then due, and, the outstanding principal balance
thereof.
ADDITIONAL PROVISION. Notwithstanding anything herein to the contrary, at no
time shall the rate of interest on this Note be less than two percent (2%) above
the highest effective annual rate of interest rounded upward to the next highest
quarter percent (taking into account any compounding of interest) earned by
Borrower on any time deposit, market rate account or savings account pledged to
Lender as collateral for such amounts.
PAYMENT DATE DEFERRAL. If this loan is not entered on Lender's books during the
month this Note is dated, the due dates of all scheduled payments shall be
deferred one month.
EXTENSION AND RENEWAL. Unless Borrower's obligations under this Note have been
extended or renewed by Lender, no further advances shall available to Borrower
and the entire outstanding principal balance of this Note, together with all
accrued and unpaid interest thereon and fees charges owing in connection
therewith, shall be due and payable in full as stated above. The date at which
Borrower's obligations hereunder are and payable in full shall be considered
extended or renewed only if Lender has sent to Borrower a written notice of
renewal or extension, effective the next maturity date of this Note (each, a
Renewal or Extension Notice).
Borrower's obligation under this Note may be renewed or extended at the Lender's
sole discretion and may be conditioned among other things modification of
Borrower's obligations hereunder, including but not limited to a decrease in the
amount available under this Note, an increase in interest rate applicable to
this Note and/or payment of a fee for such renewal or extension. In addition,
Lender may increase the principal amount available under the Note at any time.
Borrower shall be deemed to have accepted the terms of each Renewal or Extension
Notice, including any notice of an increase in availability, if Borrower does
not deliver to Lender written rejection of such Notice within 10 days following
the date of such Notice.
If Borrower's obligations under this Note are renewed and/or extended, they will
be subject to all terms and conditions of this Note, as modified by Renewal or
Extension Notice. Borrower understands and agrees that the interest rate
applicable to this Note may be increased upon any renewal extension and that the
new interest rate will apply to the entire outstanding balance of this Note,
including the outstanding balance of advances made prior to the effective date
of the Renewal or Extension Notice. After any renewal or extension of
Borrower's obligations under this Note the ta "maturity date" as used in this
Note shall be deemed to mean the new maturity date set forth in the Renewal or
Extension Notice, and the same rules renewal or extension shall apply to any
renewal or extension of this Note and its new maturity date.
LOAN FEES - AUTHORIZATION. Borrower shall pay to Lender any and all fees as
specified in the "Disbursement Request and Authorization" executed by Borrower
in connection with this Note. Such fees are non-refundable and shall be due and
payable in full immediately upon Borrower's execution of this Note.
COLLECTION FROM DEPOSIT ACCOUNT. Borrower authorizes Lender to collect all
payments, including principal, interest, fees, charges, and other amounts due
under this Note by charging Borrower's primary deposit account with Lender as
specified in the "Disbursement Request a Authorization" executed by Borrower in
connection with this Note for the full amount thereof, or such other deposit
account of Borrower with Lender Borrower shall designate in writing. Should
there be insufficient funds in said account to pay when due all or any portion
of the total amount due from Borrower to Lender, the full amount of such
deficiency shall be immediately due and payable by Borrower.
ALTERNATIVE DISPUTE RESOLUTION. It is understood that, upon request of any
party to this Agreement, any dispute, claim, or controversy of a kind, whether
in contract or in tort, statutory or common law, legal or equitable now existing
or hereafter arising between the parties, in any way arising out of, pertaining
to or in connection with this Agreement, or any related agreements, documents,
or instruments shall be resolved through a two-step dispute resolution process
administered by Judicial Arbitration and Mediation Services, Inc. (JAMS)
involving first, mediation before a retired judge from the JAMS panel followed,
if necessary, by final and binding arbitration (conducted at a location
determined by the arbitrator in a city located within 1 miles of the Borrower's
business address) administered by and in accordance with the then existing JAMS'
Rules or Practice and Procedure. Judgment upon any award rendered by the
arbitrator(s) may be entered by any state or federal court having jurisdiction
thereof. Borrower understands that by signing this Note, Borrower Is giving up
any rights Borrower might possess to have any dispute, claim, or controversy
litigated in a court or jury trial.
3
<PAGE>
As soon as practicable after selection of the arbitrator, the arbitrator or his
(her) designated representatives shall determine a reasonable estimate
anticipated fees and costs of the arbitrator, and render a statement to each
party setting forth that party's pro-rata share of said fees and costs.
Thereafter, each party shall, within ten (10) days of receipt of said statement,
deposit said sum with the arbitrator. Failure of any party to make such deposit
shall result in a forfeiture by the non-depositing party of the right to
prosecute or defend the claim which is the subject of the arbitration, shall not
otherwise serve to abate, stay or suspend the arbitration proceedings.
The arbitrator shall determine which is the prevailing party and shall include
in the award that party's reasonable attorney fees and costs.
If for any reason JAMS is not able to provide, or is legally precluded from
providing, a judge in accordance with any of the provisions above, or if parties
stipulate, the mediation or the arbitration will be conducted by a mediator or
arbitrator selected by the American Arbitration Association, and accordance with
its procedures. All of the above provisions not in conflict with the procedures
of AAA would remain in effect to the extent allowed law in any such proceedings.
This section applies only to disputes involving $250,000 or more in value,
including claim(s) asserted on behalf of others or a class of $250,000 or more
in value when aggregated.
This section does not apply to the Lender's exercise of any judicial or
non-judicial remedies in the event of a default under this Agreement or a
security agreement, deed of trust or other security instrument securing the
Agreement. The Lender's exercise of such a remedy shall not be deemed waive the
Lender's right to enforce the terms of this section.
TELEPHONE TRANSFER. Borrower authorizes Lender to make transfers, up to the
available balance or credit limit, between designated accounts specified in
writing, upon Lender's receipt of instructions from any of Borrower's
Owners/Principals. Lender will have no liability for any transfer made upon the
written or verbal request of any person believed by Lender in good faith to be
an authorized representative of Borrower. Borrower indemnify and hold Lender
harmless from and against any damages, liabilities, costs or expenses (including
attorney's fees) arising out of any claim by Borrower or any third party against
Lender in connection with Lender's performance of transfers as described above.
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or
remedies under this Note without losing them. Borrower and any other person who
signs, guarantees or endorses this Note, to the extent allowed by law, waive any
applicable statute of limitations, presentment, demand for payment, protest and
notice of dishonor. Upon any change in the terms of this Note, and unless
otherwise expressly stated in party who signs this Note, whether as maker,
guarantor, accommodation maker or endorser, shall be released from liability.
All such parties agree that Lender may renew or extend (repeatedly and for any
length of time) this loan, or release any party or guarantor or collateral; or
impair, fail to upon or perfect Lender's security interest in the collateral;
and take any other action deemed necessary by Lender without the consent of or
anyone. All such parties also agree that Lender may modify this loan without
the consent of or notice to anyone other than the party with whom the
modification is made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO
THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE.
BORROWER:
MYO DIAGNOSTICS, INC.
By: /s/ By: /s/
-------------------------------- ---------------------------------
NAME:, TITLE: NAME:, TITLE:
By: /s/ By: /s/
-------------------------------- ---------------------------------
NAME:, TITLE: NAME:, TITLE:
4
<PAGE>
[WELLS FARGO BANK LETTERHEAD]
* * * * Renewal Notice * * * *
June 14,1996
Myo Diagnostics, Inc.
3710 S. Robertson Blvd. #212
Culver City, CA 90232-2347
RE: Renewal of Business PrimeLine
Application #: 02406451
Customer #: 5542712565
Dear Myo Diagnostics, Inc.:
Wells Fargo Bank is pleased to inform you that your Business PrimeLine
#5542712565, in the amount of $65,000.00, was renewed on June 14, 1996. The new
maturity date is June 10, 1997.
Your PrimeLine remains subject to all terms and conditions of the Business Loan
Agreement, as modified by this Renewal Notice. The interest rate to be applied
to the unpaid Principal balance of the Note will be at a rate of 0.75% over the
Index.
A non-refundable renewal fee of $325.00 will be charged to your account
#0619073265.
If you have any questions, please do not hesitate to call us at our toll free
number (800) 932-4343 or (408) 277-6049 and press 1. We appreciate your
business and look forward to continuing to serve as your business bank.
Sincerely,
Wells Fargo Bank, N.A.
/s/ Liela Alemania
- ---------------------------------
Liela Alemania
Documentation Representative
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
BUSINESS PRIMELINE
PROMISSORY NOTE
- ---------------------------------------------------------------------------------------------------------------------
PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
$65,000 07-07-1994 07-10-1995 LA01122593 650 5542712565 MDB
- ---------------------------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the applicability of this document to any
particular loan or item.
- ---------------------------------------------------------------------------------------------------------------------
Borrower: MYO DIAGNOSTICS, INC Lender: Wells Fargo Bank, National Association
3710 SOUTH ROBERTSON BOULEVARD Business Loan Division
CULVER CITY, CA 90232-0000 84 W. Santa Clara St. 0552-023
San Jose, CA 95113
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Principal Amount: $65,000.00 Initial Rate: 8.000% Date of Note: July 7, 1994
</TABLE>
PROMISE TO PAY. MYO DIAGNOSTICS, INC. ("Borrower") promises to pay to Wells
Fargo Bank, National Association ("Lender"), or order, in lawful money of the
United States of America, the principal amount of Sixty Five Thousand & 00/100
Dollars ($65,000.00) or so much as may be outstanding, together with interest on
the unpaid outstanding principal balance of each advance. Interest shall be
calculated from the date of each advance until repayment of each advance.
PAYMENT. Borrower will pay this loan in one payment of all outstanding
principal plus all accrued unpaid interest on July 10, 1995. In addition,
Borrower will pay regular monthly payments of accrued unpaid interest beginning
August 10, 1994, and all subsequent Interest payments are due on the same day of
each month after that. Interest on this Note is computed on a 365/360 simple
interest basis; that is, by applying the ratio of the annual interest rate over
a year of 360 days, multiplied by the outstanding principal balance, multiplied
by the actual number of clays the principal balance is outstanding. Borrower
will pay Lender at Lender's address shown above or at such other place as Lender
may designate in writing. Unless otherwise agreed or required by applicable
law, payments will be applied first to accrued unpaid interest, then to
principal, and any remaining amount to any unpaid collection costs and late
charges.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change
from time to time based on changes in an index which is the Prime Rate (the
"Index"). The Prime Rate is a base rate that the Lender from time to time
establishes and which serves as the basis upon which effective rates of interest
are calculated for those loans making reference thereto. The Prime Rate is not
necessarily the lowest or best rate at which the Lender makes loans. Each
change in the rate of interest shall become effective on the date each Prime
Rate change is announced within the Lender. Lender will tell Borrower the
current Index rate upon Borrower's request. Borrower understands that Lender
may make loans based on other rates as well. The interest rate change will not
occur more often than each TIME THE RATE CHANGES. The Index currently is 7.250%
per annum. The interest rate to be applied to the unpaid principal balance of
this Note will be at a rate of 0.750 percentage points over the Index, resulting
in an initial rate of 8.000% per annum. NOTICE: Under no circumstances will the
interest rate on this Note be more than the maximum rate allowed by applicable
law.
PREPAYMENT. Borrower agrees that all loan fees and other prepaid finance
charges are earned fully as of the date of the loan and will not be subject to
refund upon early payment (whether voluntary or as a result of default), except
as otherwise required by law. Except for the foregoing, Borrower may pay
without penalty all or a portion of the amount owed earlier than it is due.
Early payments will not, unless agreed to by Lender in writing, relieve Borrower
of Borrower's obligation to continue to make payments under the payment
schedule. Rather, they will reduce the principal balance due and may result in
Borrower making fewer payments.
LATE CHARGE. If a payment is 15 days or more late, Borrower will be charged
5.000% of the regularly scheduled payment or $15.00, whichever is greater.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to perform promptly at the time
and strictly in the manner provided in this Note or any agreement related to
this Note, or in any other agreement or loan Borrower has with Lender. (c)
Borrower defaults under any loan, extension of credit, security agreement,
purchase or sales agreement, or any other agreement, in favor of any other
creditor or person that may materially affect any of Borrower's property or
Borrower's ability to repay this Note or perform Borrower's obligations under
this Note or any of the Related Documents. (d) Any representation or statement
made or furnished to Lender by Borrower or on Borrower's behalf is false or
misleading in any material respect. (e) Borrower becomes insolvent, a receiver
is appointed for any part of Borrower's property, Borrower makes an assignment
for the benefit of creditors, or any proceeding
<PAGE>
is commenced either by Borrower or against Borrower under any bankruptcy or
insolvency laws. (f) Any creditor tries to take any of Borrower's property on
or in which Lender has a lien or security interest. This includes a garnishment
of any of Borrower's accounts with Lender. (g) Any of the events described in
this default section occurs with respect to any guarantor of this Note. (h)
Lender in good faith deems itself insecure.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, without
notice, and then Borrower will pay that amount. Subject to any right of Lender
to increase the interest rate on this Note in the event of a breach or other
default, the interest rate will continue at the stated Note rate. Lender may
hire or pay someone else to help collect this Note if Borrower does not pay.
Borrower also will pay Lender that amount. This includes, subject to any limits
under applicable law, Lender's attorneys' fees and Lender's legal expenses
whether or not there is a lawsuit, including attorneys' fees and legal expenses
for bankruptcy proceedings (including efforts to modify or vacate any automatic
stay or injunction), appeals, and any anticipated post-judgment collection
services. Borrower also will pay any court costs, in addition to all other sums
provided by law. This Note has been delivered to Lender and accepted by Lender
in the State of California. If there is a lawsuit, Borrower agrees upon
Lender's request to submit to the Jurisdiction of the courts of any County, the
State of California. This Note shall be governed by and construed in accordance
with the laws of the State of California.
DEPOSIT ACCOUNTS. Borrower grants to Lender a contractual possessory security
interest in, and hereby assigns, conveys, delivers, pledges, and transfers to
Lender all Borrower's right, title and interest in and to, Borrower's accounts
with Lender (whether checking, savings, or some other account), including
without limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future, excluding however all IRA, Keogh, and trust
accounts.
LINE OF CREDIT. This Note evidences a revolving line of credit. Advances under
this Note may be requested either orally or in writing by Borrower or as
provided in this paragraph. Lender may, but need not, require that all oral
requests be confirmed in writing. All communications, instructions, or
directions by telephone or otherwise to Lender are to be directed to Lender's
office shown above. Advances must be in amounts of at least $1,000, or the
amount of the principal remaining available, whichever is less. Borrower agrees
to be liable for all sums either: (a) advanced in accordance with the
instructions of an authorized person or (b) credited to any of Borrower's
accounts with Lender. The unpaid principal balance owing on this Note at any
time may be evidenced by endorsements on this Note or by Lender's internal
records, including daily computer print-outs. Lender will have no obligation to
advance funds under this Note if: (a) Borrower or any guarantor is in default
under the terms of this Note or any agreement that Borrower or any guarantor has
with Lender, including any agreement made in connection with the signing of this
Note; (b) Borrower or any guarantor ceases doing business or is insolvent; (c)
any guarantor seeks, claims or otherwise attempts to limit, modify or revoke
such guarantor's guarantee of this Note or any other loan with Lender; (d)
Borrower has applied funds provided pursuant to this Note for purposes other
than those authorized by Lender; or (e) Lender in good faith deems itself
insecure under this Note or any other agreement between Lender and Borrower.
LETTER OF CREDIT COLLATERAL. As a condition precedent to Lender's obligation to
make advances under this Note, and as security for the payment and performance
of all obligations of Borrower to Lender under this Note, Borrower shall provide
to Lender a Standby Letter of Credit, issued by a bank and in a form
satisfactory to Lender, naming Lender as beneficiary in an amount not less than
the principal amount of this Note (in dollars) and with an expiry date no
earlier than 120 days following the scheduled maturity date of this Note.
OVERDRAFT PROTECTION. If Borrower has elected Overdraft Protection on a
designated business checking account with Lender, overdrafts in amounts in
excess of $10 will be automatically covered by an Advance under this Note. The
Lender will automatically transfer enough money to cc the overdraft unless this
Note is delinquent or closed, or the Advance would cause the Note balance to
exceed the maximum amount available up this Note.
INTEREST RATE ADJUSTMENT. If for any reason Borrower fails to maintain its
primary deposit account with Lender (defined as the deposit account into which
substantially all Borrower's receipts from its operations are deposited and from
which substantially all Borrower's disbursements operations are made), or if
Lender is not able to collect all payments on this Note by charging Borrower's
primary deposit account with Lender, whether because Borrower cancels the
authorization to Lender to do so, or Borrower fails at any time to maintain
sufficient sums in said account, or for any other reason, then the interest rate
applicable to this Note shall be increased immediately and without notice by one
percent(1%).
CREDIT BUREAU INQUIRIES. Borrower authorizes Lender to obtain business and/or
personal credit bureau reports on Borrower at any time.
2
<PAGE>
APPLICATION OF PAYMENT. Notwithstanding the application of payments provided in
the Payment section of this Note, all sums received application to Borrower's
obligations under this Note shall be applied first, to interest then due,
second, to any fees and charges then due, and, the outstanding principal balance
thereof.
ADDITIONAL PROVISION. Notwithstanding anything herein to the contrary, at no
time shall the rate of interest on this Note be less than two (2%) above the
highest effective annual rate of interest rounded upward to the next highest
quarter percent (taking into account any interest) earned by Borrower on any
time deposit, market rate account or savings account pledged to Lender as
collateral for such amounts.
PAYMENT DATE DEFERRAL. If this loan is not entered on Lender's books during the
month this Note is dated, the due dates of all scheduled payments shall be
deferred one month.
EXTENSION AND RENEWAL. Unless Borrower's obligations under this Note have been
extended or renewed by Lender, no further advances available to Borrower and the
entire outstanding principal balance of this Note, together with all accrued and
unpaid interest thereon and fees charges owing in connection therewith, shall be
due and payable in full as stated above. The date at which Borrower's
obligations hereunder are and payable in full shall be considered extended or
renewed only if Lender has sent to Borrower a written notice of renewal or
extension, effective the next maturity date of this Note (each, a Renewal or
Extension Notice).
Borrower's obligation under this Note may be renewed or extended at the Lender's
sole discretion and may be conditioned among modification of Borrower's
obligations hereunder, including but not limited to a decrease in the amount
available under this Note, an increase in interest rate applicable to this Note
and/or payment of a fee for such renewal or extension. In addition, Lender may
increase the principal amount available under the Note at any time. Borrower
shall be deemed to have accepted the terms of each Renewal or Extension Notice,
including any notice of an increase in availability, if Borrower does not
deliver to Lender written rejection of such Notice within 10 days following the
date of such Notice.
If Borrower's obligations under this Note are renewed and/or extended, they will
be subject to all terms and conditions of this Note, as modified by Renewal or
Extension Notice. Borrower understands and agrees that the interest rate
applicable to this Note may be increased upon any extension and that the new
interest rate will apply to the entire outstanding balance of this Note,
including the outstanding balance of advances made prior to the effective date
of the Renewal or Extension Notice. After any renewal or extension of
Borrower's obligations under this Note the "maturity date" as used in this Note
shall be deemed to mean the new maturity date set forth in the Renewal or
Extension Notice, and the same renewal or extension shall apply to any renewal
or extension of this Note and its new maturity date.
LOAN FEES - AUTHORIZATION. Borrower shall pay to Lender any and all fees as
specified in the "Disbursement Request and Authorization" executed by Borrower
in connection with this Note. Such fees are non-refundable and shall be due and
payable in full immediately upon execution of this Note.
COLLECTION FROM DEPOSIT ACCOUNT. Borrower authorizes Lender to Collect all
payments, including principal, interest, fees, charges, and amounts due under
this Note by charging Borrower's primary deposit account with Lender as
specified in the "Disbursement Authorization" executed by Borrower in connection
with this Note for the full amount thereof, or such other deposit account of
Borrower Borrower shall designate in writing. Should there be insufficient
funds in said account to pay when due all or any portion of the total amount due
Borrower to Lender, the full amount of such deficiency shall be immediately due
and payable by Borrower.
ALTERNATIVE DISPUTE RESOLUTION. It is understood that, upon request of any
party to this Agreement, any dispute, claim, or controversy kind, whether in
contract or in tort, statutory or common law, legal or equitable now existing or
hereafter arising between the parties, in any way arising out of, pertaining to
or in connection with this Agreement, or any related agreements, documents, or
instruments shall be resolved through a dispute resolution process administered
by Judicial Arbitration and Mediation Services, Inc. (JAMS) involving first,
mediation before a retired judge the JAMS panel followed, if necessary by final
and binding arbitration (conducted at a location determined by the arbitrator in
a city located miles of the Borrower's business address) administered by and in
accordance with the then existing JAMS' Rules or Practice and Procedure.
Judgment upon any award rendered by the arbitrator(s) may be entered by any
state or federal court having jurisdiction thereof. Borrower understands that
by signing this Note, Borrower is giving up any rights Borrower might possess to
have any dispute, claim, or litigated in a court or jury trial.
As soon as practicable after selection of the arbitrator, the arbitrator or his
(her) designated
3
<PAGE>
representatives shall determine a anticipated fees and costs of the arbitrator,
and render a statement to each party seeing forth that party's pro-rata share of
said fees and Thereafter, each party shall, within ten (10) days of receipt of
said statement, deposit said sum with the arbitrator. Failure of any party to
make deposit shall result in a forfeiture by the non-depositing party of the
fight to prosecute or defend the claim which is the subject of the arbitration,
shall not otherwise serve to abate, stay or suspend the arbitration proceedings.
The arbitrator shall determine which is the prevailing party and shall include
in the award that party's reasonable attorney fees and costs.
If for any reason JAMS is not able to provide, or is legally precluded from
providing, a judge in accordance with any of the provisions above, or if parties
stipulate, the mediation or the arbitration will be conducted by a mediator or
arbitrator selected by the American Arbitration Association, and accordance with
its procedures. All of the above provisions not in conflict with the procedures
of AAA would remain in effect to the extent law in any such proceedings.
This section applies only to disputes involving $250,000 or more in value,
including claim(s) asserted on behalf of others or a class of $250,000 or in
value when aggregated.
This section does not apply to the Lender's exercise of any judicial or
non-judicial remedies in the event of a default under this Agreement or security
agreement, deed of trust or other security instrument securing the Agreement.
The Lender's exercise of such a remedy shall not be deemed waive the Lender's
right to enforce the terms of this section.
TELEPHONE TRANSFER. Borrower authorizes Lender to make transfers, up to the
available balance or credit limit, between designated accounts specified in
writing, upon Lender's receipt of instructions from any of Borrower's
Owners/Principals. Lender will have no liability for any upon the written or
venal request of any person believed by Lender in good faith to be an authorized
representative of Borrower. Borrower will indemnify and hold Lender harmless
from and against any damages, liabilities, costs or expenses (including
attorney's fees) arising out of any claim Borrower or any third party against
Lender in connection with Lender's performance of transfers as described above.
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or
remedies under this Note without losing them. Borrower and other person who
signs, guarantees or endorses this Note, to the extent allowed by law, waive any
applicable statute of limitations, presentment, demand for payment, protest and
notice of dishonor. Upon any change in the terms of this Note, and unless
otherwise expressly stated in writing, party who signs this Note, whether as
maker, guarantor, accommodation maker or endorser, shall be released from
liability. All such parties agree Lender may renew or extend (repeatedly and
for any length of time) this loan, or release any party or guarantor or
collateral; or impair, fail to upon or perfect Lender's security interest in the
collateral; and take any other action deemed necessary by Lender without the
consent of or notice anyone. All such parties also agree that Lender may modify
this loan without the consent of or notice to anyone other than the party with
whom modification is made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO
THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COPY OF THE NOTE.
BORROWER:
MYO DIAGNOSTICS, INC.
By: /s/ By: /s/
--------------------------- -------------------------------
NAME:, TITLE: NAME:, TITLE:
By: /s/ By: /s/
--------------------------- -------------------------------
NAME:, TITLE: NAME:, TITLE:
4
<PAGE>
[WELLS FARGO BANK LETTERHEAD]
* * * * Renewal Notice * * * *
June 14, 1996
Myo Diagnostics, Inc.
3710 S. Robertson Blvd. #212
Culver City, CA 90232-2347
RE: Renewal of Business PrimeLine
Application #: 02406452
Customer #: 5542712565
Dear Myo Diagnostics, Inc.:
Wells Fargo Bank is pleased to inform you that your Business PrimeLine
#5542712565, in the amount of $65,000.00, was renewed on June 14, 1996. The new
maturity date is June 10, 1997.
Your PrimeLine remains subject to all terms and conditions of the Business Loan
Agreement, as modified by this Renewal Notice. The interest rate to be applied
to the unpaid Principal balance of the Note will be at a rate of 0.75% over the
Index.
A non-refundable renewal fee of $325.00 will be charged to your account
#0619073265.
If you have any questions, please do not hesitate to call us at our toll free
number (800) 932-4343 or (408) 277-6049 and press 1. We appreciate your
business and look forward to continuing to serve as your business bank.
Sincerely,
Wells Fargo Bank, N.A.
/s/ Liela Alemania
- ---------------------------------
Liela Alemania
Documentation Representative
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
BUSINESS PRIMELINE
PROMISSORY NOTE
- ---------------------------------------------------------------------------------------------------------------------
PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
$65,000 09-15-1994 10-10-1995 LA01245351 650 5542712565 BLM
- ---------------------------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the applicability of this document to any
particular loan or item.
- ---------------------------------------------------------------------------------------------------------------------
Borrower: MYO DIAGNOSTICS, INC Lender: Wells Fargo Bank, National Association
3710 SOUTH ROBERTSON BOULEVARD Business Loan Division
CULVER CITY, CA 90232-0000 84 W. Santa Clara St. 0552-023
San Jose, CA 95113
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Principal Amount: $65,000.00 Initial Rate: 8.500% Date of Note: September 15, 1994
</TABLE>
PROMISE TO PAY. MYO DIAGNOSTICS, INC. ("Borrower") promises to pay to Wells
Fargo Bank, National Association ("Lender"), or order, in lawful money of the
United States of America, the principal amount of Sixty Five Thousand & 00/100
Dollars ($65,000.00) or so much as may be outstanding, together with interest on
the unpaid outstanding principal balance of each advance. Interest shall be
calculated from the date of each advance until repayment of each advance.
PAYMENT. Borrower will pay this loan in one payment of all outstanding
principal plus all accrued unpaid interest on October 10, 1995. In addition,
Borrower will pay regular monthly payments of accrued unpaid interest beginning
October 10, 1994, and all subsequent Interest payments are due on the same day
of each month after that. Interest on this Note is computed on a 365/360 simple
interest basis; that is, by applying the ratio of the annual interest rate over
a year of 360 days, multiplied by the outstanding principal balance, multiplied
by the actual number of clays the principal balance is outstanding. Borrower
will pay Lender at Lender's address shown above or at such other place as Lender
may designate in writing. Unless otherwise agreed or required by applicable
law, payments will be applied first to accrued unpaid interest, then to
principal, and any remaining amount to any unpaid collection costs and late
charges.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change
from time to time based on changes in an index which is the Prime Rate (the
"Index"). The Prime Rate is a base rate that the Lender from time to time
establishes and which serves as the basis upon which effective rates of interest
are calculated for those loans making reference thereto. The Prime Rate is not
necessarily the lowest or best rate at which the Lender makes loans. Each
change in the rate of interest shall become effective on the date each Prime
Rate change is announced within the Lender. Lender will tell Borrower the
current Index rate upon Borrower's request. Borrower understands that Lender
may make loans based on other rates as well. The interest rate change will not
occur more often than each TIME THE RATE CHANGES. The Index currently is 7.250%
per annum. The interest rate to be applied to the unpaid principal balance of
this Note will be at a rate of 0.750 percentage points over the Index, resulting
in an initial rate of 8.000% per annum. NOTICE: Under no circumstances will the
interest rate on this Note be more than the maximum rate allowed by applicable
law.
PREPAYMENT. Borrower agrees that all loan fees and other prepaid finance
charges are earned fully as of the date of the loan and will not be subject to
refund upon early payment (whether voluntary or as a result of default), except
as otherwise required by law. Except for the foregoing, Borrower may pay
without penalty all or a portion of the amount owed earlier than it is due.
Early payments will not, unless agreed to by Lender in writing, relieve Borrower
of Borrower's obligation to continue to make payments under the payment
schedule. Rather, they will reduce the principal balance due and may result in
Borrower making fewer payments.
LATE CHARGE. If a payment is 15 days or more late, Borrower will be charged
5.000% of the regularly scheduled payment or $15.00, whichever is greater.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to perform promptly at the time
and strictly in the manner provided in this Note or any agreement related to
this Note, or in any other agreement or loan Borrower has with Lender. (c)
Borrower defaults under any loan, extension of credit, security agreement,
purchase or sales agreement, or any other agreement, in favor of any other
creditor or person that may materially affect any of Borrower's property or
Borrower's ability to repay this Note or perform Borrower's obligations under
this Note or any of the Related Documents. (d) Any representation or statement
made or furnished to Lender by Borrower or on Borrower's behalf is false or
misleading in any material respect. (e) Borrower becomes insolvent, a receiver
is appointed for any part of Borrower's property, Borrower makes an assignment
for the benefit of creditors, or any proceeding
<PAGE>
is commenced either by Borrower or against Borrower under any bankruptcy or
insolvency laws. (f) Any creditor tries to take any of Borrower's property on
or in which Lender has a lien or security interest. This includes a garnishment
of any of Borrower's accounts with Lender. (g) Any of the events described in
this default section occurs with respect to any guarantor of this Note. (h)
Lender in good faith deems itself insecure.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, without
notice, and then Borrower will pay that amount. Subject to any right of Lender
to increase the interest rate on this Note in the event of a breach or other
default, the interest rate will continue at the stated Note rate. Lender may
hire or pay someone else to help collect this Note if Borrower does not pay.
Borrower also will pay Lender that amount. This includes, subject to any limits
under applicable law, Lender's attorneys' fees and Lender's legal expenses
whether or not there is a lawsuit, including attorneys' fees and legal expenses
for bankruptcy proceedings (including efforts to modify or vacate any automatic
stay or injunction), appeals, and any anticipated post-judgment collection
services. Borrower also will pay any court costs, in addition to all other sums
provided by law. This Note has been delivered to Lender and accepted by Lender
in the State of California. If there is a lawsuit, Borrower agrees upon
Lender's request to submit to the Jurisdiction of the courts of any County, the
State of California. This Note shall be governed by and construed in accordance
with the laws of the State of California.
DEPOSIT ACCOUNTS. Borrower grants to Lender a contractual possessory security
interest in, and hereby assigns, conveys, delivers, pledges, and transfers to
Lender all Borrower's right, title and interest in and to, Borrower's accounts
with Lender (whether checking, savings, or some other account), including
without limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future, excluding however all IRA, Keogh, and trust
accounts.
LINE OF CREDIT. This Note evidences a revolving line of credit. Advances under
this Note may be requested either orally or in writing by Borrower or as
provided in this paragraph. Lender may, but need not, require that all oral
requests be confirmed in writing. All communications, instructions, or
directions by telephone or otherwise to Lender are to be directed to Lender's
office shown above. Advances must be in amounts of at least $1,000, or the
amount of the principal remaining available, whichever is less. Borrower agrees
to be liable for all sums either: (a) advanced in accordance with the
instructions of an authorized person or (b) credited to any of Borrower's
accounts with Lender. The unpaid principal balance owing on this Note at any
time may be evidenced by endorsements on this Note or by Lender's internal
records, including daily computer print-outs. Lender will have no obligation to
advance funds under this Note if: (a) Borrower or any guarantor is in default
under the terms of this Note or any agreement that Borrower or any guarantor has
with Lender, including any agreement made in connection with the signing of this
Note; (b) Borrower or any guarantor ceases doing business or is insolvent; (c)
any guarantor seeks, claims or otherwise attempts to limit, modify or revoke
such guarantor's guarantee of this Note or any other loan with Lender; (d)
Borrower has applied funds provided pursuant to this Note for purposes other
than those authorized by Lender; or (e) Lender in good faith deems itself
insecure under this Note or any other agreement between Lender and Borrower.
LETTER OF CREDIT COLLATERAL. As a condition precedent to Lender's obligation to
make advances under this Note, and as security for the payment and performance
of all obligations of Borrower to Lender under this Note, Borrower shall provide
to Lender a Standby Letter of Credit, issued by a bank and in a form
satisfactory to Lender, naming Lender as beneficiary in an amount not less than
the principal amount of this Note (in dollars) and with an expiry date no
earlier than 120 days following the scheduled maturity date of this Note.
OVERDRAFT PROTECTION. If Borrower has elected Overdraft Protection on a
designated business checking account with Lender, overdrafts in amounts in
excess of $10 will be automatically covered by an Advance under this Note. The
Lender will automatically transfer enough money to cc the overdraft unless this
Note is delinquent or closed, or the Advance would cause the Note balance to
exceed the maximum amount available up this Note.
INTEREST RATE ADJUSTMENT. If for any reason Borrower fails to maintain its
primary deposit account with Lender (defined as the deposit account into which
substantially all Borrower's receipts from its operations are deposited and from
which substantially all Borrower's disbursements operations are made), or if
Lender is not able to collect all payments on this Note by charging Borrower's
primary deposit account with Lender, whether because Borrower cancels the
authorization to Lender to do so, or Borrower fails at any time to maintain
sufficient sums in said account, or for any other reason, then the interest rate
applicable to this Note shall be increased immediately and without notice by one
percent(1%).
CREDIT BUREAU INQUIRIES. Borrower authorizes Lender to obtain business and/or
personal credit bureau reports on Borrower at any time.
2
<PAGE>
APPLICATION OF PAYMENT. Notwithstanding the application of payments provided in
the Payment section of this Note, all sums received application to Borrower's
obligations under this Note shall be applied first, to interest then due,
second, to any fees and charges then due, and, the outstanding principal balance
thereof.
ADDITIONAL PROVISION. Notwithstanding anything herein to the contrary, at no
time shall the rate of interest on this Note be less than two (2%) above the
highest effective annual rate of interest rounded upward to the next highest
quarter percent (taking into account any interest) earned by Borrower on any
time deposit, market rate account or savings account pledged to Lender as
collateral for such amounts.
PAYMENT DATE DEFERRAL. If this loan is not entered on Lender's books during the
month this Note is dated, the due dates of all scheduled payments shall be
deferred one month.
EXTENSION AND RENEWAL. Unless Borrower's obligations under this Note have been
extended or renewed by Lender, no further advances available to Borrower and the
entire outstanding principal balance of this Note, together with all accrued and
unpaid interest thereon and fees charges owing in connection therewith, shall be
due and payable in full as stated above. The date at which Borrower's
obligations hereunder are and payable in full shall be considered extended or
renewed only if Lender has sent to Borrower a written notice of renewal or
extension, effective the next maturity date of this Note (each, a Renewal or
Extension Notice).
Borrower's obligation under this Note may be renewed or extended at the Lender's
sole discretion and may be conditioned among modification of Borrower's
obligations hereunder, including but not limited to a decrease in the amount
available under this Note, an increase in interest rate applicable to this Note
and/or payment of a fee for such renewal or extension. In addition, Lender may
increase the principal amount available under the Note at any time. Borrower
shall be deemed to have accepted the terms of each Renewal or Extension Notice,
including any notice of an increase in availability, if Borrower does not
deliver to Lender written rejection of such Notice within 10 days following the
date of such Notice.
If Borrower's obligations under this Note are renewed and/or extended, they will
be subject to all terms and conditions of this Note, as modified by Renewal or
Extension Notice. Borrower understands and agrees that the interest rate
applicable to this Note may be increased upon any extension and that the new
interest rate will apply to the entire outstanding balance of this Note,
including the outstanding balance of advances made prior to the effective date
of the Renewal or Extension Notice. After any renewal or extension of
Borrower's obligations under this Note the "maturity date" as used in this Note
shall be deemed to mean the new maturity date set forth in the Renewal or
Extension Notice, and the same renewal or extension shall apply to any renewal
or extension of this Note and its new maturity date.
LOAN FEES - AUTHORIZATION. Borrower shall pay to Lender any and all fees as
specified in the "Disbursement Request and Authorization" executed by Borrower
in connection with this Note. Such fees are non-refundable and shall be due and
payable in full immediately upon execution of this Note.
COLLECTION FROM DEPOSIT ACCOUNT. Borrower authorizes Lender to Collect all
payments, including principal, interest, fees, charges, and amounts due under
this Note by charging Borrower's primary deposit account with Lender as
specified in the "Disbursement Authorization" executed by Borrower in connection
with this Note for the full amount thereof, or such other deposit account of
Borrower Borrower shall designate in writing. Should there be insufficient
funds in said account to pay when due all or any portion of the total amount due
Borrower to Lender, the full amount of such deficiency shall be immediately due
and payable by Borrower.
ALTERNATIVE DISPUTE RESOLUTION. It is understood that, upon request of any
party to this Agreement, any dispute, claim, or controversy kind, whether in
contract or in tort, statutory or common law, legal or equitable now existing or
hereafter arising between the parties, in any way arising out of, pertaining to
or in connection with this Agreement, or any related agreements, documents, or
instruments shall be resolved through a dispute resolution process administered
by Judicial Arbitration and Mediation Services, Inc. (JAMS) involving first,
mediation before a retired judge the JAMS panel followed, if necessary by final
and binding arbitration (conducted at a location determined by the arbitrator in
a city located miles of the Borrower's business address) administered by and in
accordance with the then existing JAMS' Rules or Practice and Procedure.
Judgment upon any award rendered by the arbitrator(s) may be entered by any
state or federal court having jurisdiction thereof. Borrower understands that
by signing this Note, Borrower is giving up any rights Borrower might possess to
have any dispute, claim, or litigated in a court or jury trial.
As soon as practicable after selection of the arbitrator, the arbitrator or his
(her) designated
3
<PAGE>
representatives shall determine a anticipated fees and costs of the arbitrator,
and render a statement to each party seeing forth that party's pro-rata share of
said fees and Thereafter, each party shall, within ten (10) days of receipt of
said statement, deposit said sum with the arbitrator. Failure of any party to
make deposit shall result in a forfeiture by the non-depositing party of the
fight to prosecute or defend the claim which is the subject of the arbitration,
shall not otherwise serve to abate, stay or suspend the arbitration proceedings.
The arbitrator shall determine which is the prevailing party and shall include
in the award that party's reasonable attorney fees and costs.
If for any reason JAMS is not able to provide, or is legally precluded from
providing, a judge in accordance with any of the provisions above, or if parties
stipulate, the mediation or the arbitration will be conducted by a mediator or
arbitrator selected by the American Arbitration Association, and accordance with
its procedures. All of the above provisions not in conflict with the procedures
of AAA would remain in effect to the extent law in any such proceedings.
This section applies only to disputes involving $250,000 or more in value,
including claim(s) asserted on behalf of others or a class of $250,000 or in
value when aggregated.
This section does not apply to the Lender's exercise of any judicial or
non-judicial remedies in the event of a default under this Agreement or security
agreement, deed of trust or other security instrument securing the Agreement.
The Lender's exercise of such a remedy shall not be deemed waive the Lender's
right to enforce the terms of this section.
TELEPHONE TRANSFER. Borrower authorizes Lender to make transfers, up to the
available balance or credit limit, between designated accounts specified in
writing, upon Lender's receipt of instructions from any of Borrower's
Owners/Principals. Lender will have no liability for any upon the written or
venal request of any person believed by Lender in good faith to be an authorized
representative of Borrower. Borrower will indemnify and hold Lender harmless
from and against any damages, liabilities, costs or expenses (including
attorney's fees) arising out of any claim Borrower or any third party against
Lender in connection with Lender's performance of transfers as described above.
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or
remedies under this Note without losing them. Borrower and other person who
signs, guarantees or endorses this Note, to the extent allowed by law, waive any
applicable statute of limitations, presentment, demand for payment, protest and
notice of dishonor. Upon any change in the terms of this Note, and unless
otherwise expressly stated in writing, party who signs this Note, whether as
maker, guarantor, accommodation maker or endorser, shall be released from
liability. All such parties agree Lender may renew or extend (repeatedly and
for any length of time) this loan, or release any party or guarantor or
collateral; or impair, fail to upon or perfect Lender's security interest in the
collateral; and take any other action deemed necessary by Lender without the
consent of or notice anyone. All such parties also agree that Lender may modify
this loan without the consent of or notice to anyone other than the party with
whom modification is made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO
THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COPY OF THE NOTE.
BORROWER:
MYO DIAGNOSTICS, INC.
By: /s/ By: /s/
-------------------------------- ---------------------------------
NAME:, TITLE: NAME:, TITLE:
By: /s/ By: /s/
-------------------------------- ---------------------------------
NAME:, TITLE: NAME:, TITLE:
4
<PAGE>
WELLS FARGO BANK, NATIONAL ASSOCIATION
MYO DIAGNOSTICS, INC.
3710 SOUTH ROBERTSON BLVD
CULVER CITY, CA 90232
APRIL 12, 1996
RENEWAL NOTICE
RE: Renewal of Business PrimeLine of Credit
Application #LA02328671
Account #5542712565
Dear Customer:
Wells Fargo Bank, National Association ("Lender") is pleased to inform you
that your Business PrimeLine Line of Credit ("Line") granted pursuant to your
Business Loan Agreement dated JULY 7, 1994, and your Promissory Note ("Note")
dated OCTOBER 17, 1994 and other related documents (collectively, the
"Agreement"), will be renewed in ONE (1) day. The new maturity date will be
JANUARY 10, 1997.
Your Business Primeline Line of Credit remains subject to all terms and
conditions of the Agreement, as modified by this Renewal Notice.
A non-refundable Renewal Fee of $187.50 will be charged to your account
#0619073265 ONE (1) day after the date of this letter unless prior to that date
we receive your written rejection of this Renewal Notice.
If you have any questions please do not hesitate to call us at our toll
free number 800-932-4343 or (408) 277-6049. We appreciate your business and
look forward to continuing to serve as your business bank.
WELLS FARGO BANK, NATIONAL ASSOCIATION
By /s/
---------------------------------
Title: Credit Officer
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
BUSINESS PRIMELINE
PROMISSORY NOTE
- ---------------------------------------------------------------------------------------------------------------------
PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
$65,000 07-07-1994 07-10-1995 LA01122591 650 5542712565 MDB
- ---------------------------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the applicability of this document to any
particular loan or item.
- ---------------------------------------------------------------------------------------------------------------------
Borrower: MYO DIAGNOSTICS, INC Lender: Wells Fargo Bank, National Association
3710 SOUTH ROBERTSON BOULEVARD Business Loan Division
CULVER CITY, CA 90232-0000 84 W. Santa Clara St. 0552-023
San Jose, CA 95113
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Principal Amount: $65,000.00 Initial Rate: 8.000% Date of Note: July 7, 1994
</TABLE>
PROMISE TO PAY. MYO DIAGNOSTICS, INC. ("Borrower") promises to pay to Wells
Fargo Bank, National Association ("Lender"), or order, in lawful money of the
United States of America, the principal amount of Sixty Five Thousand & 00/100
Dollars ($65,000.00) or so much as may be outstanding, together with interest on
the unpaid outstanding principal balance of each advance. Interest shall be
calculated from the date of each advance until repayment of each advance.
PAYMENT. Borrower will pay this loan in one payment of all outstanding
principal plus all accrued unpaid interest on July 10, 1995. In addition,
Borrower will pay regular monthly payments of accrued unpaid interest beginning
August 10, 1994, and all subsequent Interest payments are due on the same day of
each month after that. Interest on this Note is computed on a 365/360 simple
interest basis; that is, by applying the ratio of the annual interest rate over
a year of 360 days, multiplied by the outstanding principal balance, multiplied
by the actual number of clays the principal balance is outstanding. Borrower
will pay Lender at Lender's address shown above or at such other place as Lender
may designate in writing. Unless otherwise agreed or required by applicable
law, payments will be applied first to accrued unpaid interest, then to
principal, and any remaining amount to any unpaid collection costs and late
charges.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change
from time to time based on changes in an index which is the Prime Rate (the
"Index"). The Prime Rate is a base rate that the Lender from time to time
establishes and which serves as the basis upon which effective rates of interest
are calculated for those loans making reference thereto. The Prime Rate is not
necessarily the lowest or best rate at which the Lender makes loans. Each
change in the rate of interest shall become effective on the date each Prime
Rate change is announced within the Lender. Lender will tell Borrower the
current Index rate upon Borrower's request. Borrower understands that Lender
may make loans based on other rates as well. The interest rate change will not
occur more often than each TIME THE RATE CHANGES. The Index currently is 7.250%
per annum. The interest rate to be applied to the unpaid principal balance of
this Note will be at a rate of 0.750 percentage points over the Index, resulting
in an initial rate of 8.000% per annum. NOTICE: Under no circumstances will the
interest rate on this Note be more than the maximum rate allowed by applicable
law.
PREPAYMENT. Borrower agrees that all loan fees and other prepaid finance
charges are earned fully as of the date of the loan and will not be subject to
refund upon early payment (whether voluntary or as a result of default), except
as otherwise required by law. Except for the foregoing, Borrower may pay
without penalty all or a portion of the amount owed earlier than it is due.
Early payments will not, unless agreed to by Lender in writing, relieve Borrower
of Borrower's obligation to continue to make payments under the payment
schedule. Rather, they will reduce the principal balance due and may result in
Borrower making fewer payments.
LATE CHARGE. If a payment is 15 days or more late, Borrower will be charged
5.000% of the regularly scheduled payment or $15.00, whichever is greater.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to perform promptly at the time
and strictly in the manner provided in this Note or any agreement related to
this Note, or in any other agreement or loan Borrower has with Lender. (c)
Borrower defaults under any loan, extension of credit, security agreement,
purchase or sales agreement, or any other agreement, in favor of any other
creditor or person that may materially affect any of Borrower's property or
Borrower's ability to repay this Note or perform Borrower's obligations under
this Note or any of the Related Documents. (d) Any representation or statement
made or furnished to Lender by Borrower or on Borrower's behalf is false or
misleading in any material respect. (e) Borrower becomes insolvent, a receiver
is appointed for any part of Borrower's property, Borrower makes an assignment
for the benefit of creditors, or any proceeding
<PAGE>
is commenced either by Borrower or against Borrower under any bankruptcy or
insolvency laws. (f) Any creditor tries to take any of Borrower's property on
or in which Lender has a lien or security interest. This includes a garnishment
of any of Borrower's accounts with Lender. (g) Any of the events described in
this default section occurs with respect to any guarantor of this Note. (h)
Lender in good faith deems itself insecure.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, without
notice, and then Borrower will pay that amount. Subject to any right of Lender
to increase the interest rate on this Note in the event of a breach or other
default, the interest rate will continue at the stated Note rate. Lender may
hire or pay someone else to help collect this Note if Borrower does not pay.
Borrower also will pay Lender that amount. This includes, subject to any limits
under applicable law, Lender's attorneys' fees and Lender's legal expenses
whether or not there is a lawsuit, including attorneys' fees and legal expenses
for bankruptcy proceedings (including efforts to modify or vacate any automatic
stay or injunction), appeals, and any anticipated post-judgment collection
services. Borrower also will pay any court costs, in addition to all other sums
provided by law. This Note has been delivered to Lender and accepted by Lender
in the State of California. If there is a lawsuit, Borrower agrees upon
Lender's request to submit to the Jurisdiction of the courts of any County, the
State of California. This Note shall be governed by and construed in accordance
with the laws of the State of California.
DEPOSIT ACCOUNTS. Borrower grants to Lender a contractual possessory security
interest in, and hereby assigns, conveys, delivers, pledges, and transfers to
Lender all Borrower's right, title and interest in and to, Borrower's accounts
with Lender (whether checking, savings, or some other account), including
without limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future, excluding however all IRA, Keogh, and trust
accounts.
LINE OF CREDIT. This Note evidences a revolving line of credit. Advances under
this Note may be requested either orally or in writing by Borrower or as
provided in this paragraph. Lender may, but need not, require that all oral
requests be confirmed in writing. All communications, instructions, or
directions by telephone or otherwise to Lender are to be directed to Lender's
office shown above. Advances must be in amounts of at least $1,000, or the
amount of the principal remaining available, whichever is less. Borrower agrees
to be liable for all sums either: (a) advanced in accordance with the
instructions of an authorized person or (b) credited to any of Borrower's
accounts with Lender. The unpaid principal balance owing on this Note at any
time may be evidenced by endorsements on this Note or by Lender's internal
records, including daily computer print-outs. Lender will have no obligation to
advance funds under this Note if: (a) Borrower or any guarantor is in default
under the terms of this Note or any agreement that Borrower or any guarantor has
with Lender, including any agreement made in connection with the signing of this
Note; (b) Borrower or any guarantor ceases doing business or is insolvent; (c)
any guarantor seeks, claims or otherwise attempts to limit, modify or revoke
such guarantor's guarantee of this Note or any other loan with Lender; (d)
Borrower has applied funds provided pursuant to this Note for purposes other
than those authorized by Lender; or (e) Lender in good faith deems itself
insecure under this Note or any other agreement between Lender and Borrower.
LETTER OF CREDIT COLLATERAL. As a condition precedent to Lender's obligation to
make advances under this Note, and as security for the payment and performance
of all obligations of Borrower to Lender under this Note, Borrower shall provide
to Lender a Standby Letter of Credit, issued by a bank and in a form
satisfactory to Lender, naming Lender as beneficiary in an amount not less than
the principal amount of this Note (in dollars) and with an expiry date no
earlier than 120 days following the scheduled maturity date of this Note.
OVERDRAFT PROTECTION. If Borrower has elected Overdraft Protection on a
designated business checking account with Lender, overdrafts in amounts in
excess of $10 will be automatically covered by an Advance under this Note. The
Lender will automatically transfer enough money to cc the overdraft unless this
Note is delinquent or closed, or the Advance would cause the Note balance to
exceed the maximum amount available up this Note.
INTEREST RATE ADJUSTMENT. If for any reason Borrower fails to maintain its
primary deposit account with Lender (defined as the deposit account into which
substantially all Borrower's receipts from its operations are deposited and from
which substantially all Borrower's disbursements operations are made), or if
Lender is not able to collect all payments on this Note by charging Borrower's
primary deposit account with Lender, whether because Borrower cancels the
authorization to Lender to do so, or Borrower fails at any time to maintain
sufficient sums in said account, or for any other reason, then the interest rate
applicable to this Note shall be increased immediately and without notice by one
percent(1%).
CREDIT BUREAU INQUIRIES. Borrower authorizes Lender to obtain business and/or
personal credit bureau reports on Borrower at any time.
2
<PAGE>
APPLICATION OF PAYMENT. Notwithstanding the application of payments provided in
the Payment section of this Note, all sums received application to Borrower's
obligations under this Note shall be applied first, to interest then due,
second, to any fees and charges then due, and, the outstanding principal balance
thereof.
ADDITIONAL PROVISION. Notwithstanding anything herein to the contrary, at no
time shall the rate of interest on this Note be less than two (2%) above the
highest effective annual rate of interest rounded upward to the next highest
quarter percent (taking into account any interest) earned by Borrower on any
time deposit, market rate account or savings account pledged to Lender as
collateral for such amounts.
PAYMENT DATE DEFERRAL. If this loan is not entered on Lender's books during the
month this Note is dated, the due dates of all scheduled payments shall be
deferred one month.
EXTENSION AND RENEWAL. Unless Borrower's obligations under this Note have been
extended or renewed by Lender, no further advances available to Borrower and the
entire outstanding principal balance of this Note, together with all accrued and
unpaid interest thereon and fees charges owing in connection therewith, shall be
due and payable in full as stated above. The date at which Borrower's
obligations hereunder are and payable in full shall be considered extended or
renewed only if Lender has sent to Borrower a written notice of renewal or
extension, effective the next maturity date of this Note (each, a Renewal or
Extension Notice).
Borrower's obligation under this Note may be renewed or extended at the Lender's
sole discretion and may be conditioned among modification of Borrower's
obligations hereunder, including but not limited to a decrease in the amount
available under this Note, an increase in interest rate applicable to this Note
and/or payment of a fee for such renewal or extension. In addition, Lender may
increase the principal amount available under the Note at any time. Borrower
shall be deemed to have accepted the terms of each Renewal or Extension Notice,
including any notice of an increase in availability, if Borrower does not
deliver to Lender written rejection of such Notice within 10 days following the
date of such Notice.
If Borrower's obligations under this Note are renewed and/or extended, they will
be subject to all terms and conditions of this Note, as modified by Renewal or
Extension Notice. Borrower understands and agrees that the interest rate
applicable to this Note may be increased upon any extension and that the new
interest rate will apply to the entire outstanding balance of this Note,
including the outstanding balance of advances made prior to the effective date
of the Renewal or Extension Notice. After any renewal or extension of
Borrower's obligations under this Note the "maturity date" as used in this Note
shall be deemed to mean the new maturity date set forth in the Renewal or
Extension Notice, and the same renewal or extension shall apply to any renewal
or extension of this Note and its new maturity date.
LOAN FEES - AUTHORIZATION. Borrower shall pay to Lender any and all fees as
specified in the "Disbursement Request and Authorization" executed by Borrower
in connection with this Note. Such fees are non-refundable and shall be due and
payable in full immediately upon execution of this Note.
COLLECTION FROM DEPOSIT ACCOUNT. Borrower authorizes Lender to Collect all
payments, including principal, interest, fees, charges, and amounts due under
this Note by charging Borrower's primary deposit account with Lender as
specified in the "Disbursement Authorization" executed by Borrower in connection
with this Note for the full amount thereof, or such other deposit account of
Borrower Borrower shall designate in writing. Should there be insufficient
funds in said account to pay when due all or any portion of the total amount due
Borrower to Lender, the full amount of such deficiency shall be immediately due
and payable by Borrower.
ALTERNATIVE DISPUTE RESOLUTION. It is understood that, upon request of any
party to this Agreement, any dispute, claim, or controversy kind, whether in
contract or in tort, statutory or common law, legal or equitable now existing or
hereafter arising between the parties, in any way arising out of, pertaining to
or in connection with this Agreement, or any related agreements, documents, or
instruments shall be resolved through a dispute resolution process administered
by Judicial Arbitration and Mediation Services, Inc. (JAMS) involving first,
mediation before a retired judge the JAMS panel followed, if necessary by final
and binding arbitration (conducted at a location determined by the arbitrator in
a city located miles of the Borrower's business address) administered by and in
accordance with the then existing JAMS' Rules or Practice and Procedure.
Judgment upon any award rendered by the arbitrator(s) may be entered by any
state or federal court having jurisdiction thereof. Borrower understands that
by signing this Note, Borrower is giving up any rights Borrower might possess to
have any dispute, claim, or litigated in a court or jury trial.
As soon as practicable after selection of the arbitrator, the arbitrator or his
(her) designated
3
<PAGE>
representatives shall determine a anticipated fees and costs of the arbitrator,
and render a statement to each party seeing forth that party's pro-rata share of
said fees and Thereafter, each party shall, within ten (10) days of receipt of
said statement, deposit said sum with the arbitrator. Failure of any party to
make deposit shall result in a forfeiture by the non-depositing party of the
fight to prosecute or defend the claim which is the subject of the arbitration,
shall not otherwise serve to abate, stay or suspend the arbitration proceedings.
The arbitrator shall determine which is the prevailing party and shall include
in the award that party's reasonable attorney fees and costs.
If for any reason JAMS is not able to provide, or is legally precluded from
providing, a judge in accordance with any of the provisions above, or if parties
stipulate, the mediation or the arbitration will be conducted by a mediator or
arbitrator selected by the American Arbitration Association, and accordance with
its procedures. All of the above provisions not in conflict with the procedures
of AAA would remain in effect to the extent law in any such proceedings.
This section applies only to disputes involving $250,000 or more in value,
including claim(s) asserted on behalf of others or a class of $250,000 or in
value when aggregated.
This section does not apply to the Lender's exercise of any judicial or
non-judicial remedies in the event of a default under this Agreement or security
agreement, deed of trust or other security instrument securing the Agreement.
The Lender's exercise of such a remedy shall not be deemed waive the Lender's
right to enforce the terms of this section.
TELEPHONE TRANSFER. Borrower authorizes Lender to make transfers, up to the
available balance or credit limit, between designated accounts specified in
writing, upon Lender's receipt of instructions from any of Borrower's
Owners/Principals. Lender will have no liability for any upon the written or
venal request of any person believed by Lender in good faith to be an authorized
representative of Borrower. Borrower will indemnify and hold Lender harmless
from and against any damages, liabilities, costs or expenses (including
attorney's fees) arising out of any claim Borrower or any third party against
Lender in connection with Lender's performance of transfers as described above.
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or
remedies under this Note without losing them. Borrower and other person who
signs, guarantees or endorses this Note, to the extent allowed by law, waive any
applicable statute of limitations, presentment, demand for payment, protest and
notice of dishonor. Upon any change in the terms of this Note, and unless
otherwise expressly stated in writing, party who signs this Note, whether as
maker, guarantor, accommodation maker or endorser, shall be released from
liability. All such parties agree Lender may renew or extend (repeatedly and
for any length of time) this loan, or release any party or guarantor or
collateral; or impair, fail to upon or perfect Lender's security interest in the
collateral; and take any other action deemed necessary by Lender without the
consent of or notice anyone. All such parties also agree that Lender may modify
this loan without the consent of or notice to anyone other than the party with
whom modification is made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO
THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COPY OF THE NOTE.
BORROWER:
MYO DIAGNOSTICS, INC.
By: /s/ By: /s/
-------------------------------- --------------------------------
NAME:, TITLE: NAME:, TITLE:
By: /s/ By: /s/
-------------------------------- --------------------------------
NAME:, TITLE: NAME:, TITLE:
4
<PAGE>
WELLS FARGO BANK, NATIONAL ASSOCIATION
MYO DIAGNOSTICS, INC.
3710 S. ROBERTSON BLVD. #212
CULVER CITY, CA 90232-2350
RENEWAL NOTICE
January 4, 1996
RE: Renewal of Business PrimeLine of Credit
Application #LA02257641
Account #5542712565
Dear Customer:
Wells Fargo Bank, National Association ("Lender") is pleased to inform you
that your Business PrimeLine Line of Credit ("Line") granted pursuant to your
Business Loan Agreement dated JULY 7, 1994, and your Promissory Note ("Note")
dated OCTOBER 17, 1994 and other related documents (collectively, the
"Agreement"), will be renewed in ten (10) days. The new maturity date will be
JANUARY 10, 1997.
Your Business Primeline Line of Credit remains subject to all terms and
conditions of the Agreement, as modified by this Renewal Notice.
A non-refundable Renewal Fee of $250.00 will be charged to your account
#0619073265 ten (10) days after the date of this letter unless prior to that
date we receive your written rejection of this Renewal Notice.
If you have any questions please do not hesitate to call us at our toll
free number 800-932-4343 or (408) 277-6049. We appreciate your business and
look forward to continuing to serve as your business bank.
WELLS FARGO BANK, NATIONAL ASSOCIATION
By /s/ Title:
Credit Officer -------------------------------
<PAGE>
[Letterhead of Lever, Lippe, Hellie & Company LLP]
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Myo Diagnostics, Inc. on
Form SB-2 of our report dated June 6, 1996, appearing in the Prospectus, which
is a part of this Registration Statement, and to the references to us under the
heading "Experts" in such Prospectus.
/s/ Lever, Lippe, Hellie & Company LLP
LEVER, LIPPE, HELLIE & COMPANY LLP
December 30, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AUDITED
FINANCIAL STATEMENTS OF MYO DIAGNOSTICS, INC. DATED DECEMBER 31, 1995 AND
UNAUDITED FINANCIAL STATEMENTS OF MYO DIAGNOSTICS, INC. DATED SEPTEMBER 30, 1996
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996
<PERIOD-START> JAN-01-1995 JAN-01-1996
<PERIOD-END> DEC-31-1995 SEP-30-1996
<CASH> 3,030 224,455
<SECURITIES> 0 0
<RECEIVABLES> 37,690 27,172
<ALLOWANCES> 6,222 9,150
<INVENTORY> 0 0
<CURRENT-ASSETS> 40,157 248,986
<PP&E> 190,576 283,195
<DEPRECIATION> 127,089 155,030
<TOTAL-ASSETS> 129,723 406,402
<CURRENT-LIABILITIES> 934,088 829,510
<BONDS> 0 0
0 0
0 0
<COMMON> 2,028,322 3,200,154
<OTHER-SE> (2,832,687) (3,623,262)
<TOTAL-LIABILITY-AND-EQUITY> 129,723 406,402
<SALES> 67,600 13,650
<TOTAL-REVENUES> 67,600 13,650
<CGS> 143,934 65,975
<TOTAL-COSTS> 1,090,639 762,720
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 18,291 28,059
<INTEREST-EXPENSE> 49,251 46,612
<INCOME-PRETAX> (1,066,480) (790,560)
<INCOME-TAX> 800 0
<INCOME-CONTINUING> (1,067,280) (790,560)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,067,280) (790,560)
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
