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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] Annual Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act
of 1934
For the fiscal year ended December 31, 1997
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
Commission file number 333-19285
MYO DIAGNOSTICS, INC.
(Name of Small Business Issuer In Its Charter)
CALIFORNIA 95-4089525
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
3760 SOUTH ROBERTSON BOULEVARD
CULVER CITY, CALIFORNIA 90232
(Address of Principal Executive Offices and Zip Code)
(310) 559-5500
(Issuer's telephone Number, Including Area Code)
Securities registered under to Section 12(b) of the Exchange Act:
Name of Each Exchange
Title of Each Class on which Registered
------------------- -------------------
NONE
Securities registered under to Section 12(g) of the Exchange Act:
NONE
Check whether the issuer: (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for past 90 days.
Yes X No
----- -----
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained in this form, and no disclosure
will be contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB [X]
Revenues for the fiscal year ended December 31, 1997 will be disclosed
pursuant to an amendment to this Form 10-KSB.
At March 27, 1998 the aggregate market value of the voting stock held
by non-affiliates of the issuer was $7,805,732.
At March 27, 1998 the issuer had 8,323,037 shares of Common Stock,
$0.001 par value, issued and outstanding.
Transitional Small Business Disclosure Format (check one): Yes No X
---- ----
DOCUMENTS INCORPORATED BY REFERENCE
None
ITEMS OMITTED PURSUANT TO RULE 12B-25
Items 6 and 7 of this Form 10-KSB have been omitted pursuant to Rule
12b-25 of the Exchange Act of 1934, as amended, and will be filed pursuant to
an Amendment to this Form 10-KSB on or before April 15, 1998.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
HISTORY AND PRIOR ACTIVITIES
Myo Diagnostics, Inc. (the "Company") is a development stage company
which was formed in 1988 to develop and bring to market a new patented medical
information system called Muscle Pattern Recognition ("MPR"). The Company,
headquartered in Culver City, California, was incorporated in California in
January 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 Toomim Research Group ("TRG"), a partnership of three of
the Company's shareholders, which holds a United States patent on the MPR
technology. 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 of the Company 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.
GENERAL
The Company was formed to develop and bring to market a new patented
medical information system called Muscle Pattern Recognition ("MPR"). MPR
analyzes patterns of muscle recruitment--the engagement of muscles in order to
perform a specific body movement--to provide objective evidence of muscle
dysfunction which assists in the diagnosis of muscle injury. It can identify
affected muscle sites, determine the existence of muscle 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 MPR System are
unique and the MPR System addresses an unmet market need which has become even
more pressing in view of the cost-consciousness of the present health care
environment. The MPR System 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.
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 (described in greater detail below), 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 technologists were certified
by the Company and approximately 300 patients were tested through June 1991.
The Company appointed in-house and independent sales representatives to expand
the market test. These market tests served to establish the prerequisites
necessary to commence marketing the product. These prerequisites included: an
independent scientific validation of the system, conclusive clinical studies, a
demonstration of the successful use of MPR information as medical/legal
evidence, and the publication of papers in peer reviewed journals. In the
opinion of management, these prerequisites have been met. See
"Product--Scientific Validation of the System" and "--Legal Validation of the
System."
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In February 1996, the Company entered into a distribution agreement
with Medical Consulting Images, Co. ("MCIC"), a well established,
Cleveland-based diagnostic imaging service company. Under the distribution
agreement, MCIC is committed to present the product to potential users to
create awareness of the MPR procedure ("introduce" the product) in 20 markets
in the five states in which it operates. As of December 31, 1997, MCIC has not
successfully introduced the product. As of December 31, 1997, no MPR
evaluations had been conducted through MCIC other than limited evaluations for
clinical purposes. On February 27, 1998 the Company terminated its distribution
agreement with MCIC.
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 is plagued by major flaws. "Liability System Incentives to Consume
Excess Medical Care," a study by the RAND Corporation Institute for Civil
Justice, found an estimated 59% of the costs submitted in support of soft
injury claims for auto accidents was excess. This study further indicated that
"the implications of this analysis reached far beyond auto insurance premiums.
Our data clearly suggests that large amounts of medical resources are being
unnecessarily consumed." 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.
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 which can prevent overuse, and means to
detect fraud in workers compensation, personal injury, and disability cases
involving back injury.
BACK MUSCLE DIAGNOSTIC MARKET. Back pain and back muscle injuries from
automobile, sports and work related accidents affect a large number of
individuals. In 1994, back injuries represented the largest cause of workdays
lost (27% of all non-fatal occupational injuries and illnesses involving days
away from work) according to the 75 Resource Tables, United States Department
of Commerce, Bureau of Labor Statistics (May 1996). According to Work Injury
Management, Vol. 2, No. 4 (July/August 1993), lower back injuries were the most
prevalent cause of compensable injuries in the United States with an estimated
cost of $16 billion per year. The United States Department of Health and Human
Services, Public Health Service, Agency for Health Care Policy and Research,
stated in Publication No. 95-0643, Acute Low Back Problems in Adults:
Assessment and Treatment (December 1994) that low back problems affect more
than 80% of the population sometime during their life. It also indicated that
50% of working aged adults experience symptoms of back pain each year. An
article in California Worker's Compensation Enquirer, Vol. 13, No. 4 (October
1995) 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. According to Market Intelligence Research Company
Annual Report (1993), there are in excess of seven million MRI examinations per
year.
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:
- ESTABLISH THE PRODUCT IN THE HMO AND CORPORATE MARKETS through
strategic partnerships with major health care firms, insurance
companies and through direct sales to targeted self-insured
corporations. The Company hopes that these strategic partners
will introduce MPR to users with whom they have existing
relationships, which will provide accelerated entry into a large
number of HMOs and major corporations. One such partnership is
presently being negotiated.
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- EXPAND GEOGRAPHICALLY through establishing regional and local
distribution arrangements with diagnostic imaging services,
rehabilitation centers and diagnostic clinics. The existing
physician referral base of these distributors will provide
access to the personal injury, workers compensation, and general
back pain markets more rapidly. While the Company does not
currently have any distributor relationships, the Company
believes that distributors will have interest as the low capital
investment and high margin of MPR provides an attractive
opportunity for incremental profits.
- 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. As of the date of this 10-KSB, the
Company had no clinical study in process, and its ability to
conduct additional clinical studies (each of which costs at
minimum approximately $250,000) is dependent upon obtaining
additional funding. See "Risk Factors--Need For Additional
Funding".
- DEVELOP NEW APPLICATIONS OF ITS CORE TECHNOLOGY. The Company
intends to use its know-how and core technology to address other
applications related to arm and leg muscles. For example, the
development of appropriate protocols may allow the Company to
introduce evaluation systems for carpal tunnel syndrome, rotator
cuff injuries and pre- and post-operative arthroscopic surgery
evaluation. In addition, the Company plans to develop a
disability management information system designed to provide the
elements necessary to predict potential high risk of injury,
avoid injuries through appropriate preventative intervention,
assess injury through MPR and other data, establish protocols
for treatment of injuries, manage chronic back injury cases and
establish outcome measures. This system of "disease management"
provides significant elements of cost containment which are
currently being sought by payors. The Company does not
anticipate completing development of new applications for at
least the next two years; in addition, its ability to complete
development of new applications will be contingent in part upon
obtaining additional funding or generating sufficient revenues
from the MPR System.
PRODUCT
The MPR System is a computer-assisted evaluation procedure which is
based on the simultaneous measurement of electromyographic signals produced by
14 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 then 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.
All the proprietary components of the MPR System have been designed
and built based on published and accepted scientific data and proven medical,
electronic, and statistical technology. The two proprietary components of the
system include:
- the Myo Diagnostics Expert System, and
- the Myo Diagnostics Muscle Pattern Recognition Report.
The third component of the system is a data acquisition device which
is commercially available, and which the Company purchases from third parties.
The data acquisition device consists of a set of 33 cutaneous electrodes
connected to the data acquisition device. The electrodes, which are
commercially available, pick up the EMG signals produced by muscles and feed
them into the device whose design provides for the simultaneous reception of up
to 16 EMG signals.
The data acquisition device has built-in features which analyze the
quality of the signal received from each electrode and recognize and warn the
technologist/operator of any malfunction, thereby ensuring that data reflects
accurate EMG measurements. The data acquisition device 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, the patient is directed to execute four
repetitions of each of nine specific movements. Fourteen muscle sites are
associated to each movement and
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report to the data acquisition device 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 data acquisition
device processes some 75,000 data points and calculates these points'
relationships to each other.
Technologists who perform the tests on the patient are presently
required to receive three weeks training from the Company. No special
governmental or regulatory license or approval is required for the
technologists to perform the service.
THE EXPERT SYSTEM. The data collected during the examination is
submitted to the Company for processing. 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 periodically
updated as more data is collected. The report which is produced is reviewed to
ascertain that the data was properly collected and processed.
The system of statistical analysis used in the MPR evaluations is
based on well-established principles of statistics which indicate that data
which falls two standard deviations or more from the mean value of the data
base to which it is compared has a statistical certainly of 95%-99% depending
upon how far beyond two standard deviations the data falls. The MPR System
requires that this phenomenon occur in multiple instances before it is
considered to be significant for further analysis. This assures that there is a
very high probability that the data is significant and a very low probability
of falsely identifying an artifact as being significant.
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:
- - EVIDENCE OF DYSFUNCTION: Reports if muscle recruitment is normal
or abnormal and, if abnormal, the
location of the abnormality;
- - FREQUENCY AND SEVERITY The severity of the dysfunction as
OF THE DYSFUNCTION: compared to normal and the frequency it
occurs during the nine movements;
- - THE PATTERNS OF ABNORMAL Graphic presentation of the abnormal
MUSCLE RECRUITMENT: muscle patterns including the patterns
of muscle compensation;
- - THE BIO-MECHANICAL Describes the reason for the functional
EXPLANATION OF THE adjustments made during movement.
ABNORMAL MUSCLE
COMPENSATION:
Patients may be retested to measure progress and treatment and to
assist the physician in making a decision for discharge. Such retests are not
normal, but are done at the discretion of the physician. When a patient is
retested to ascertain if additional treatment is advisable 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 by Dr. Norman Carabet.
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 by Dr. Carabet.
This study showed a high correlation between the Company's evaluation of
doctor-diagnosed injured accident and Workers Compensation patients and the
doctors'
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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.
Dr. Carabet received an option to purchase 15,000 shares of Common
Stock for $750 for the provision of facilities and services in connection with
these studies. The Company does not believe this affected his independence for
purposes of the studies.
The Company's MPR technology 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 MPR System in detail and
confirmed the validity of the science behind the MPR technology. They have
authored three published articles relating to the Company's MPR technology,
entitled "Evaluating Patterns of EMG Amplitudes for Back and Trunk Muscles of
Patients and Controls," International Journal of Rehabilitation and Health,
Vol. 2, No. 1 (1996), "Theoretical Basis for Patterning EMG Amplitudes to
Assess Muscle Dysfunction," Medicine and Science in Sports Exercise, Vol. 28,
No. 6 (1996), and most recently, AEMG activity in neck and back muscles during
selected static postures in adult males and females, Physiotherapy Theory and
Practice, (1997) 13, 179-195.
Dr. Edgerton and Dr. Wolf are members of the Company's Scientific
Advisory Board and receive fees for attendance at meetings of that Board. See
"Management -- Scientific Advisory Board." They have also received consulting
fees on specific projects for the Company.
LEGAL VALIDATION OF THE SYSTEM. In 1993, the California Workers
Compensation Appeals Board ("WCAB") issued a decision that the Company had "...
persuaded the Court as to the validity of the lien-claimant's [Myo Diagnostics]
methodology and mechanism" and that "it found that the procedure (muscle pattern
recognition) is a valid and useful diagnostic medical tool when used in the
proper case...." This determination was in connection with an action pursuant to
which an insurance carrier had sought refund of payments made to a provider who
had submitted claims for use of the MPR System (and the WCAB denied the
insurance company such refund). The Company believes that this opinion helps to
validate MPR as a valid medical/legal procedure.
No court or administrative body other than the California Workers'
Compensation Appeals Board has examined the validity or invalidity of the MPR
System.
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.
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 AND DISTRIBUTION
MARKET AWARENESS. The Company's success will depend in substantial
part upon its ability to establish MPR as a standard medical practice for
diagnosis of muscle dysfunction. The Company hopes to achieve this awareness
through an active public relations campaign. Company personnel will contact
providers in the application of MPR and advise payors of the benefits of its
utilization. The Company will create a web page on the Internet which will
encourage easy access to information about the Company and the procedure. The
Company intends to sponsor additional clinical studies, with the
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expectation that the results will be submitted for publication in peer-reviewed
scientific journals. The Company will be assisted in these efforts through the
activities of the members of its Medical and Scientific Advisory Boards. The
Company will encourage these members to write articles about the MPR technology
and present the technology at various professional conferences. The Company
also intends to increase awareness through trade shows, seminars, professional
conferences and scientific presentations. The Company may utilize direct mail
to initiate contacts with key decision makers in target markets.
The extent to which the Company can create this market awareness will
depend in part upon obtaining additional funding. See "Risk Factors--Need for
Additional Funding."
MARKET TARGETS. The Company's market is comprised principally 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 primarily on the medical/legal segment. To
this end, the Company will continue to target strategic alliances with firms
servicing insurance companies, HMOs and PPOs, 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 primary targets 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 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.
HMOs AND PPOs are expected to be 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 paid claims representing 34% of the claims paid
in California for worker's compensation in 1995, according to Table No. 1, 1995
State Wide Totals, Department of Industrial Relations, Office of Self-Insurance
Plans, (1996). This could be a significant market for the MPR System.
HEALTH CARE PLAN ADMINISTRATORS are large organizations which provide
services to public and private self-insured employers. 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 PHYSICIANS will
be recruited as evaluation centers for MPR evaluations. 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.
SERVICE DELIVERY STRATEGIES. The Company intends to market its
services on a per-use basis, directly ("Direct Services Operations") and
through distributors. As of the date of this 10-KSB, the Company has not
performed any MPR evaluations except as part of research and development,
clinical studies and test marketing.
Patient data will be processed by, and reports will be prepared at,
the Company's evaluation center at its executive offices in Los Angeles,
California. The Company may establish other evaluation centers either as stand
alone co-ventures with existing diagnostic, physical therapy and rehabilitation
facilities, or based on lease arrangements with hospitals. The Company believes
an evaluation center can be operated at very low fixed overhead by subleasing
space and services at existing clinics.
DIRECT SERVICES OPERATIONS. In this mode of operation, services will
be provided either at a Company-owned and operated facility (evaluation
center), or at the facility of a provider (mobile testing services). Mobile
testing services will allow patient examinations to take place on the premises
of medical providers, using the Company's equipment and
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personnel. The Company believes that this approach will overcome providers'
resistance to invest in equipment and incur additional personnel costs. As of
the date of this 10-KSB, the Company had no contracts for mobile testing
services.
DISTRIBUTORS. The Company intends to establish distributor operations
with 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, payors and HMO's which will refer
MPR, are attracted by the low capital investment and high margin of MPR.
REGULATORY REQUIREMENTS
The data acquisition device used in the MPR System 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. FDA
clearance to allow commercial sales and use may be acquired by means of a new
pre-market approval ("PMA") application to the FDA or by notification under
Section 510(k) of the FDA Act that the medical device used demonstrates
"substantial equivalence" to devices on the market prior to 1976 or already
approved under PMA applications. A substantially equivalent device requires no
clinical trials such as those needed to establish the efficacy of a drug or
invasive diagnostic system.
The Company purchases the data acquisition device from Thought
Technologies, Ltd., an unaffiliated manufacturer. The Company has been advised
by the manufacturer that the data acquisition device used in the MPR system may
be used as a result of notification under Section 510(k) of the FDA Act that it
is deemed to be a substantially equivalent medical device. The Company believes
that its use of the device is in compliance with the intended use of the device
as contemplated by the Thought Technologies, Inc. Section 510(k) notification.
The Company makes no marketing or use claims for the device inconsistent with
such intended use. Any person who distributes a medical device in violation of
the FDA Act is subject to having such distribution enjoined and to civil
monetary penalties.
If the Company distributes the device, the Company must notify the FDA
by filing two short data entry forms, which forms are not subject to review or
approval by the FDA. The Company has filed these forms.
In the event that the data acquisition module is not available from a
third party, the Company could manufacture the module itself (and, in past
years, did manufacture such device). The Company's authority to manufacture and
market the data acquisition module would be based upon its notification under
Section 510(k) of the FDA Act that its device was a substantially equivalent
medical device, which notification was accepted by the FDA in 1990.
The Company believes that no other aspect of the MPR System is subject
to regulation by the FDA.
INTELLECTUAL PROPERTY
The Company licenses the right to manufacture, market, sell,
distribute and further develop the MPR System and MPR technology and any
related or derivative technology throughout the world pursuant to an exclusive
license with TRG, a partnership among Gerald D. Appel, Daniel J. Levendowski
and Hershel Toomim. Mr. Appel and Mr. Toomim are directors of the Company, and
Mr. Appel is the principal shareholder and Chief Executive Officer of the
Company. The MPR System and related 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 ever 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 procedure has
been used in clinical tests approximately 350 times to date.
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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, which expires in 2013.
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.
EMPLOYEES
As of December 31, 1997, the Company had 13 full time and two part
time employees, including six involved in research and development and nine
involved in administration, operations and marketing.
ITEM 2. DESCRIPTION OF PROPERTIES.
The Company operates from leased facilities in Culver City, California
consisting of approximately 9,749 square feet. 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 current annual base rental for the facilities is $123,600 and the current
term of the lease expires in September 1999. The Company will also conduct
research and development activities and clinical studies at universities and
research hospital sites where the independent primary investigators reside. To
the extent that these studies are conducted, they will be funded by the Company.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not involved in any litigation.
ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITYHOLDERS.
On December 30, 1997, a majority of the Company's shareholders
approved by written consent an amendment to the Company's bylaws increasing the
authorized number of directors from three to a number not less than four nor
more than seven, and fixing the exact number of directors at five. The
amendment to the bylaws was approved by shareholders holding 4,183,185 shares,
or 50.3%, of the Company's outstanding Common Stock, the only securities of the
Company entitled to vote on the matter. The matter was not submitted for
approval to the remaining holders of the Company's outstanding Common Stock.
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED MATTERS.
COMMON STOCK AND DIVIDENDS
There is no public market for the Company's Common Stock. As of March
30, 1998, there were ninety-three holders of record of the Common Stock.
RECENT SALES OF UNREGISTERED SECURITIES
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. On December 15, 1997, OMERB
elected to exercise the "Series A Warrants" to purchase 100,000 shares of the
Company's Common Stock for $1.50 per share, for a total purchase price of
$150,000. The issuance of these securities was exempt from registration
pursuant to Section 4(2) of the Securities Act of 1933, as amended, as a
transaction not involving any public offering.
DIVIDENDS
Myo has never paid any dividends on its Common Stock. Myo intends to
retain any earnings for use in its business and does not intend paying any cash
dividends on its Common Stock in the foreseeable future.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
<PAGE>
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT.
The following table sets forth information with respect to each
director, executive officer and key personnel of the Company.
NAME AGE POSITION
---- --- --------
Gerald D. Appel 62 President, Chief Executive Officer and
Chairman of the Board of Directors
Gary D. Weinhouse, Esq. 29 Director of Operations
Kathleen Day 41 Director of Research and Development
Dr. Theodore Goldstein 60 Medical Director
Dr. Hershel Toomim, Sc.D. 81 Director
Wayne C. Cockburn 40 Director
Harvey Wineberg 65 Director
Donald Christie 43 Director
- -----------------
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. WEINHOUSE, JD, PFP, Director of Operations, is responsible for
training, technical services, and support operations. Previous experience
includes the practice of law and consulting for Arthur Andersen. He received
his BA and PFP from UCLA and JD from Loyola Law School. Mr. Weinhouse has
experience in Financial consulting, strategic planning, corporate, taxation,
negotiation, litigation and securities matters.
MS. DAY has served as Director of Research and Development of the
Company since March 1997. Ms. Day has been a member of the UCLA
Neurophysiology laboratory, headed by V. Reggie Edgerton. As such, she has
participated in projects funded by the National Institute of Health and NASA.
Ms. Day has been associated with the development of the MPR technology for the
past four years.
DR. GOLDSTEIN became Medical Director of the Company in March 1997.
He has been a practicing orthopedist for more than 30 years. He is currently
the Director of the West Coast Spine Institute in Los Angeles, California. Dr.
Goldstein lectures extensively on back injury and has co-authored the book,
"Win The Battle Against Back Pain," (1996). He graduated from the University of
Illinois Medical School with honors in 1964.
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.
HARVEY WINEBERG has served as a director of the Company since January
1998. Mr. Wineberg received his C.P.A. in 1956. Since 1963, he has been the
President and Managing Partner of the C.P.A. firm of Wineberg & Lewis of
Chicago,
<PAGE>
Illinois. Prior to that he was a founder of Ticketron, Inc. Wineberg is a
Director of the Columbus Hospital Foundation and has served on the Board of
Directors of the Mid-Town Bank of Chicago, Illinois for 20 years. In 1978, Mr.
Wineberg completed study at the Kent College of Law and was admitted to the
Illinois Bar in 1979.
DONALD CHRISTIE has served as a director of the Company since January
1998. Mr. Christie is a Director of Newcourt Capital's head office investment
banking group in Toronto, Canada. He is responsible for the syndication of
structured debt financings underwritten by Newcourt Capital. Prior to joining
Newcourt, Mr. Christie was a Vice President with First City Capital Markets
Inc., a merchant bank. Mr. Christie began his career in 1977 at Coopers &
Lybrand. In 1982 he joined Continental Bank of Canada and gained further
corporate finance experience with Toronto Dominion Securities Inc.
MEDICAL ADVISORY BOARD
The Company has a Medical Advisory Board ("MAB") whose members are
physicians who were contacted by the Company based upon their prominence and
expertise in medical fields which the Company believed relevant to the
Company's business, and who accepted invitations to serve upon the MAB. 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. Members
of the MAB presently receive $750 for each meeting attended. Certain members of
the MAB are, and others may become, shareholders of the Company.
THEODORE GOLDSTEIN, M.D., F.A.C.S., MEDICAL DIRECTOR: Dr. Goldstein
graduated from the University of Illinois Medical School with honors in 1964.
He is a practicing orthopedist for more than 30 years. He is currently the
Director of the West Coast Spine Institute in Los Angeles, California. Dr.
Goldstein lectures extensively on back injury and has co-authored the book,
"Win The Battle Against Back Pain," (1996).
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.
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.
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.
DR. MICHAEL SINEL, M.D. Dr. Sinel received his medical degree from
the State University of New York at Downstate Medical Center. He is board
certified in physical medicine, rehabilitation and pain management. He is
engaged in ongoing clinical research and has published several scientific
articles. Dr. Sinel is attending physician at Cedars-Sinai Medical and with
the UCLA Comprehensive Spine Center.
SCIENTIFIC ADVISORY BOARD
The Company has a Scientific Advisory Board ("SAB") whose members are
persons who were contacted by the Company, based upon their prominence and
expertise in scientific fields related to the Company's business (including the
scientific aspects of the MPR technology and in the area of statistical
analysis, including modeling), who accepted invitations
<PAGE>
to serve upon the SAB. This Board meets twice yearly in January and July, and
members receive $2,500 for each meeting attended.
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.
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.
JULES ROTHSTEIN, PH.D., PT. Dr. Rothstein received his B.S. in
Physical Therapy, physical therapy certification, M.A. in Kinesiology and Ph.D.
in Physical Therapy from New York University. Dr. Rothstein is currently Chair
and Professor of Physical Therapy at the University of Illinois at Chicago. He
serves as an editor of the JOURNAL OF PHYSICAL THERAPY, the leading peer review
journal for physical therapy. He joined with Dr. Wolf and Serge Roy to author
the ARehabilitation Specialist's Handbook.
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.
JONATHAN FIELDING MD MPH MBA, Senior Advisor, is a successful health
care entrepreneur as the founder of a wellness company selling to the employer
market, former Johnson & Johnson executive, and an expert in public health
research and practice. He is a Professor at the Schools of Public Health and
Medicine, UCLA, a consultant to health care companies and government agencies,
and Acting Health Officer of Los Angeles County. He is advising Myo management
on strategic planning, alliance development and research and development. He
received his MD, MPH and MA degrees from Harvard University and MBA in Finance
from Wharton School of Business.
BILL FINKLE PHD is an economist with a MS in Mathematics and a Ph.D.
in Economics from M.I.T. Dr. Finkle has conducted epidemiological studies,
including many projects sponsored by the National Institutes of Health, since
the 1970s. Dr. Finkle is President of Consolidated Research, Inc., a firm of
specialists in Epidemiology, Economics, and Statistics conduction research for
clients in the health care industry with emphasis on firms in the
Pharmaceutical Industry. Dr. Finkle brings to Myo Diagnostics, Inc. a
combination of research and business experience which we expect to be
exceedingly useful.
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets for certain information regarding the
compensation of the Company's Chief Executive Officer for the fiscal years
ended December 31, 1997 and 1996 (no other officer had annual compensation in
excess of $100,000 during either of those years):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Compensation
------------
Number of
Fiscal Year Annual Compensation Securities
Ended ------------------- Underlying All Other
Name and Principal Position December 31, Salary Bonus Options Compensation
- --------------------------- ------------ ------------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Gerald Appel, President and 1997 $ 124,000 $ 0 0 $ 0
Chief Executive Officer 1996 $ 124,000 $ 0 0 $ 0
</TABLE>
STOCK OPTION PLAN
The Company adopted a Stock Option Plan (the "1997 Plan") in December
1997. The purpose of the 1997 Plan is to attract, retain and motivate certain
key employees of the Company by giving them incentives which are linked
directly to increases in the value of the Common Stock of the Company. Each
director, officer, employee or consultant of the Company is eligible to be
considered for the grant of awards under the 1997 Plan. The maximum number of
shares of Common Stock that may be issued pursuant to awards granted under the
1997 Plan is 1,000,000, subject to certain adjustments to prevent dilution. Any
shares of Common Stock subject to an award which for any reason expires or
terminates unexercised are again available for issuance under the 1997 Plan.
The 1997 Plan authorizes the Board of Directors or a committee of the
Board whose members shall serve at the pleasure of the Board (the
"Administrator") to grant stock options to eligible directors, officers,
employees and consultants of the Company. Stock Options granted under the 1997
Plan may, at the discretion of the Administrator, either be "incentive stock
options" within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), or options which do not qualify as "incentive
stock options." The 1997 Plan currently is administered by the Board of
Directors of the Company. Subject to the provisions of the 1997 Plan, the Board
will have full and final authority to select the executives and other employees
to whom options will be granted thereunder, to grant the options and to
determine the terms and conditions of the options and the number of shares to
be issued pursuant thereto.
As of March 27, 1998, the Board had granted options covering an
aggregate of 445,000 shares of Common Stock under the 1997 Plan to certain
directors, executive officers and consultants of the Company.
OPTION GRANTS IN LAST FISCAL YEAR
There were no stock options granted to the Chief Executive Officer
during the year ended December 31, 1997.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTIONS
The Chief Executive Officer did not hold any stock options of the
Company during the fiscal year ended December 31, 1997.
DIRECTOR COMPENSATION
On December 30, 1997, the Board of Directors approved the grant under
the Company's 1997 Plan of an option to purchase 20,000 shares of Common Stock
for $1.80 per share to each non-employee director of the Company (Hershel
Toomim and Wayne Cockburn). These grants were to compensate Messrs. Toomim and
Cockburn for services rendered in
<PAGE>
1997 as they did not receive any other compensation for such services. Each
option has a five-year term, but expires earlier if the optionee ceases to be a
director.
In addition, the Board of Directors approved the grant under the 1997
Plan to each of the four non-employee directors as of January 1, 1998 of an
option to purchase 20,000 shares for services to be rendered in 1998 for $1.80
per share. The options are identical to the options granted for services
rendered in 1997, except they are not exercisable unless the optionee continues
to serve as a director through December 31, 1998.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
PRINCIPAL SHAREHOLDERS
The following table sets forth as of March 31, 1998, certain
information relating to the ownership of the Company's Common Stock by (i) each
person known by the Company to be the beneficial owner of more than 5% of the
outstanding shares of the Company's Common Stock, (ii) each of the Company's
directors, (iii) the Chief Executive Officer and (iv) all of the Company's
executive officers and directors as a group. Except as may be indicated in the
footnotes to the table and subject to applicable community property laws, each
of such persons has the sole voting and investment power with respect to the
shares owned. Beneficial ownership has been determined in accordance with Rule
13d-3 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). Under this Rule, certain shares may be deemed to be beneficially owned
by more than one person (such as where persons share voting power or investment
power). In addition, 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 as of which 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 person's actual voting power
at any particular date. The address of each individual listed is in care of the
Company, 3760 South Robertson Boulevard, Culver City, California 90232, unless
otherwise set forth below such person's name.
<TABLE>
<CAPTION>
Number
Name and Address of Shares Percent of Class
- ---------------- ------------ ----------------
<S> <C> <C>
Gerald D. Appel (1)............................................ 3,715,019 44.64%
Ontario Municipal Employees Retirement Board (2)............... 1,401,561 16.24
One University Avenue, Ste 1000, Tornoto, Ontario M5J 2P1
Altamira Management Ltd. (3)................................... 750,000 8.85
250 Bloor Street East, Ste 300, Toronto, Ontario M4W 1E6
Bona Vista Asset Management Ltd. (4)........................... 450,000 5.35
2300 Younge Street, Ste 2900, Toronto, Ontario M4P 1E4
Dr. Hershel Toomim, Sc.D (5)................................... 212,000 2.54
Wayne C. Cockburn (6).......................................... 82,000 *
Harvey Wineberg................................................ -- --
Donald Christie (7) ........................................... 37,500 *
All of the directors and executive officers as a group
(8 persons) (8).......................................... 4,076,519 48.45%
</TABLE>
- ----------------------------
* Less than 1%
(1) 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
<PAGE>
(2) Includes 305,555 shares of Common Stock reserved for issuance upon exercise
of warrants which are currently exercisable.
(3) Includes 150,000 shares of Common Stock reserved for issuance upon exercise
of warrants which are currently exercisable.
(4) Includes 90,000 shares of Common Stock reserved for issuance upon exercise
of warrants which are currently exercisable.
(5) Includes 20,000 shares of Common Stock reserved for issuance upon exercise
of warrants which are currently exercisable.
(6) Includes 20,000 shares of Common Stock reserved for issuance upon exercise
of warrants which are currently exercisable.
(7) Includes 20,000 shares of Common Stock reserved for issuance upon exercise
of warrants which are currently exercisable.
(8) Includes 111,900 shares with respect to which Mr. Appel believes he has
voting power as a result of a proxy, and 90,000 shares of Common Stock
reserved for issuance upon exercise of stock options which are currently
exercisable.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED 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. On December 15, 1997, OMERB
elected to exercise the "Series A Warrant" to purchase 100,000 shares of the
Company's Common Stock for $1.50 per share, for a total purchase price of
$150,000. 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 "Description of
Business--Intellectual Property."
In May 1996 the Company issued to Waldorf Investment Advisory
Services, a corporation controlled by Mr. Cockburn, 100,000 shares of Common
Stock in satisfaction of obligations aggregating $100,000 of the Company to
such corporation for investment banking and financial consulting services
rendered during the prior several years. This corporation presently provides no
services to the Company.
On December 30, 1997, the Board approved the extension of the
expiration date of certain warrants (the "Guaranty Warrants") which had been
issued by the Company to six individuals who had guaranteed an aggregate of
$400,000 of loans obtained by the Company from Wells Fargo Bank. The Board
approved the extension of the expiration date of such Guaranty Warrants to
December 31, 1998.
On December 30, 1997, the Board approved the extension of the
expiration date of certain warrants issued to Altamira Management, Ltd. And
Bona Vista Asset Management, Ltd. Such warrants to purchase an aggregate of
240,000 shares of Common Stock (hereinafter the "Financing Warrants") were
granted in December 1996 and April 1997 as part of a private placement. The
expiration date of the Financing Warrants was extended to December 31, 1998.
On December 30, 1997, the Board approved the grant of an option to
Jonathan Fielding in connection with services which Mr. Fielding has provided
and will provide as a consultant to the Company (which services commenced in
September 1997). Mr. Fielding also serves on the Scientific Advisory Board of
the Company. The option provides for the purchase of up to 205,000 shares of
Common Stock for $1.80 per share, of which 75,000 shares were vested as of the
date of grant and
<PAGE>
65,000 shares will vest on each of September 30, 1998 and 1999. In addition,
the option provides for the purchase of up to an additional 50,000 shares of
Common Stock for $2.00 per share if the fair market value of the Common Stock
exceeds $7.00 per share. This option expires on September 30, 2002.
On December 30, 1997, the Board of Directors also approved the grant
to Donald Christie of a five-year option to purchase 20,000 shares for $1.80
per share. This option was granted in consideration of consulting services
provided by Mr. Christie to the Company.
From time to time Gerald D. Appel has loaned funds to the Company.
These loans were payable on demand with interest at the rate of 10% per annum.
The largest amount outstanding to Mr. Appel for these loans at any time since
January 1, 1995 was $90,000. At March 30, 1998, no loans were outstanding.
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K.
(a) Exhibits:
See attached Exhibit List.
(b) Reports on Form 8-K.
None.
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH
REPORTS FILED PURSUANT TO SECTION 15(d) OF THE
EXCHANGE ACT BY NON-REPORTING ISSUERS
As of the date this Form 10-KSB is filed with the Securities and
Exchange Commission, the Company has not provided to its security holders any
annual report with respect to the fiscal year ended December 31, 1997, nor has
the Company sent to more than 10 of its security holders any proxy statement,
form of proxy or other proxy soliciting material with respect to any annual or
other meetng of security holders for the fiscal year ended December 31, 1997.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
MYO DIAGNOSTICS, INC.
/s/ Gerald Appel
-----------------------------------------
By: Gerald D. Appel
Its: President, Chief Executive Officer and
Chairman of the Board (Principal Financial
and Accounting Officer)
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints
Gerald D. Appel and Gary Weinhouse, and each of them, as his true and lawful
attorneys-in-fact and agents 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 to this Annual Report on Form 10-KSB
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, 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 attorneys-in-fact and agents, or either of them, or their
substitutes, may lawfully do or cause to be done by virtue hereof.
SIGNATURES
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the Registrant and in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Gerald D. Appel President, Chief Executive Officer and March 30, 1998
- --------------------------------- Chairman of the Board of Directors
Gerald D. Appel (Principal Financial and Accounting Officer)
/s/ Hershel Toomim Director March 30, 1998
- ---------------------------------
Dr. Hershel Toomim, Sc.D.
/s/ Wayne Cockburn Director March 30, 1998
- ---------------------------------
Wayne C. Cockburn
/s/ Harvey Wineberg Director March 30, 1998
- ---------------------------------
Harvey Wineberg
/s/ Donald Christie Director March 30, 1998
- ---------------------------------
Donald Christie
</TABLE>
<PAGE>
EXHIBIT INDEX
Exhibit
Number Exhibit Description
------- -------------------
3.1 Amended and Restated Articles of Incorporation of Registrant.
Incorporated by reference to Exhibit 3.1 to Form SB-2 filed on
January 6, 1997, and the amendments thereto.
3.2 Bylaws of Registrant.
4.1 Specimen Stock Certificate of Common Stock of Registrant.
Incorporated by reference to Exhibit 4.1 to Form SB-2 filed on
January 6, 1997, and the amendments thereto.
10.1 Form of Registrant's Indemnification Agreement. Incorporated by
reference to Exhibit 10.1 to Form SB-2 filed on January 6, 1997, and
the amendments thereto.
10.2 Licensing Agreement, dated October 31, 1993, by and between
Registrant and Toomim Research Group, as amended. Incorporated by
reference to Exhibit 10.2 to Form SB-2 filed on January 6, 1997, and
the amendments thereto.
10.3 Securities Purchase Agreement, dated December 23, 1994, by and
among Registrant, OMERB, Gerald Appel and Hershel Toomim.
Incorporated by reference to Exhibit 10.3 to Form SB-2 filed on
January 6, 1997, and the amendments thereto.
10.4 Securities Purchase Agreement, dated August 18, 1995, by and among
Registrant, OMERB and Gerald Appel. Incorporated by reference to
Exhibit 10.4 to Form SB-2 filed on January 6, 1997, and the
amendments thereto.
10.5 Series A Warrant of OMERB, dated December 23, 1994, as amended.
Incorporated by reference to Exhibit 10.5 to Form SB-2 filed on
January 6, 1997, and the amendments thereto.
10.6 Series B Warrant of OMERB, dated December 23, 1994, as amended.
Incorporated by reference to Exhibit 10.6 to Form SB-2 filed on
January 6, 1997, and the amendments thereto.
10.7 Series C Warrant of OMERB, dated August 18, 1995, as amended.
Incorporated by reference to Exhibit 10.7 to Form SB-2 filed on
January 6, 1997, and the amendments thereto.
10.8 Waiver Letter, dated December 8, 1995, from OMERB to Registrant.
Incorporated by reference to Exhibit 10.8 to Form SB-2 filed on
January 6, 1997, and the amendments thereto.
10.9 Letter Agreement, dated July 8, 1996, by and between Registrant
and OMERB. Incorporated by reference to Exhibit 10.9 to Form SB-2
filed on January 6, 1997, and the amendments thereto.
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. Incorporated by reference to Exhibit 10.10 to
Form SB-2 filed on January 6, 1997, and the amendments thereto.
10.11 Lease Agreement, dated August 1, 1996, by and between Registrant and
The Urcis Family Trust. Incorporated by reference to Exhibit 10.11
to Form SB-2 filed on January 6, 1997, and the amendments thereto.
10.12 Non-transferable Warrant of Griffiths McBurney & Partners, dated
December 6, 1996. Incorporated by reference to Exhibit 10.12 to
Form SB-2 filed on January 6, 1997, and the amendments thereto.
10.13 Form of Warrant, dated December 6, 1996, by and among Registrant
and persons purchasing units in private placement of December 6,
1996. Incorporated by reference to Exhibit 10.13 to Form SB-2 filed
on January 6, 1997, and the amendments thereto. Form of Amendment to
Warrant.
10.14 Stock Option Agreement, dated March 23, 1995, by and between
Registrant and Steve Nelson. Incorporated by reference to Exhibit
10.14 to Form SB-2 filed on January 6, 1997, and the amendments
thereto.
10.15 Business PrimeLine Promissory Notes, between Registrant and Wells
Fargo Bank, National Association, as amended. Incorporated by
reference to Exhibit 10.15 to Form SB-2 filed on January 6, 1997,
and the amendments thereto.
10.16 Master Equipment Lease Agreement, dated March 1, 1996 by and between
Registrant and Medical Consulting Imaging Co., and Distribution
Agreement, dated March 1, 1996, by and among Registrant, Medical
Consulting Imaging Co. and MCIC/HNI. Incorporated by reference to
Exhibit 10.16 to Form SB-2 filed on January 6, 1997, and the
amendments thereto. Termination of Distribution Agreement, dated
February 23, 1998.
10.17 Renewal Notices with respect to Business PrimeLine Promissory Notes
between Registrant and
<PAGE>
Exhibit
Number Exhibit Description
------- -------------------
Wells Fargo Bank, National Association. Incorporated by reference
to Exhibit 10.1 to Form 10-QSB for the quarter ended June 30, 1997.
10.18 Form of Warrant, dated April 16, 1997, by and among Registrant and
persons purchasing units in private placement of April 16, 1997.
Form of Amendment to Warrant.
10.19 1997 Stock Option Plan.
24.1 Power of Attorney (included on signature page).
27.1 Financial Data Schedule.*
- --------------------
* To be filed by amendment.
<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 shall be not less
than four nor more than seven until changed by amendment of the Articles or
by a Bylaw duly adopted by the shareholders amending this Section 3. The
exact number of directors shall be fixed, within the limits specified, by
amendment of the next sentence duly adopted either by the Board or the
shareholders. The exact number of directors shall be five until changes as
provided in this Section 3. No decrease in the authorized number of directors
shall have the effect of shortening the term of any incumbent director.
<PAGE>
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.
<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.
AMENDMENT TO WARRANT AGREEMENT TO
PURCHASE COMMON SHARES OF
MYO DIAGNOSTICS, INC.
This AMENDMENT TO WARRANT (this "Amendment") is made as of December 6,
1997, by and between Myo Diagnostics, Inc., a California corporation (the
"Company") and _________________________________ (the "Holder").
A. WHEREAS, __________________________________ (the "Holder") is the
holder of that certain Warrant dated December 6, 1996 for shares of the Common
Stock of the Company (the "Warrant"); and
B. WHEREAS, the Company and the Holder desire to amend the Warrant as
hereinafter provided
NOW, THEREFORE, in consideration of the promises 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, ______________ (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 31, 1998 (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.
<PAGE>
2. The Company hereby represents and warrants to the Holder 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.
IN WITNESS WHEREOF the Company has caused this Certificate to be signed by
its duly authorized officers and its corporate seal hereto affixed.
MYO DIAGNOSTICS, INC.
Dated: January ___, 1998
Signature:
-------------------------
Print Name: GERALD D. APPEL
------------------------
Its: PRESIDENT
-------------------------------
<PAGE>
SCHEDULE "A"
ELECTION TO EXERCISE
The undersigned hereby irrevocably elects to exercise the number of
Warrants of Myo Diagnostics, 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.
DATED this_____day of__________________, 199__
---------------------------------
Name of Holder
By:
------------------------------
<PAGE>
[LETTERHEAD OF MYO DIAGNOSTICS, INC.]
February 23, 1998
VIA FACSIMILE AND US MAIL 800-949-5219
Dr. George Angelidis
Alliance (formerly MCIC)
1621 Euclid Avenue, Suite 1620
Cleveland, OH 44115
Re: TERMINATION OF DISTRIBUTION AGREEMENT
Dear George:
This letter shall confirm our telephonic conversation of last week with
regard to the status of the Distribution Agreement (hereinafter "Agreement")
signed by and between Myo Diagnostics, Inc. and Medical Consultants Imaging
Co. (MCIC) as of March 1, 1996. Based upon our conversation, we have agreed
to terminate the Agreement effective immediately pursuant to Article VIII,
Section B of same. You have agreed to return all leased equipment and
supplies to us (with the sole exception of the laptop computer which you
purchased) as soon as possible.
Please sign and date below to indicate your agreement with this letter and
notice of termination, and fax and mail me a copy once you have done so.
Thank you for your cooperation and assistance in these matters. It has been
a pleasure working with you. If you have any questions with regard to the
foregoing, or otherwise, please contact me.
Sincerely,
Myo Diagnostics, Inc.
/s/ Gary D. Weinhouse
Gary D. Weinhouse
Director of Operations
I, GEORGE ANGELIDIS, REPRESENTATIVE OF ALLIANCE (FORMERLY MCIC), HAVE
READ AND UNDERSTOOD THIS LETTER AND AGREE TO ITS TERMS AND THE TERMINATION OF
THE DISTRIBUTION AGREEMENT.
Dated: 2/27/98 Signature: s/s Ian Woodburn
------------ -----------------------------------
MCIC, by: Ian Woodburn
<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 April 16, 1998 (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
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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.
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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
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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 16th day of April, 1997.
MYO DIAGNOSTICS, INC.
Per: /s/ Gerald D. Appel
------------------------------
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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:
---------------------------
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<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.
AMENDMENT TO WARRANT AGREEMENT TO
PURCHASE COMMON SHARES OF
MYO DIAGNOSTICS, INC.
This AMENDMENT TO WARRANT (this "Amendment") is made as of December 6,
1997, by and between Myo Diagnostics, Inc., a California corporation (the
"Company") and _________________________ (the "Holder").
A. WHEREAS, ____________________ (the "Holder") is the holder of that
certain Warrant dated April 16, 1997 for shares of the Common Stock of the
Company (the "Warrant"); and
B. WHEREAS, the Company and the Holder desire to amend the Warrant as
hereinafter provided
NOW, THEREFORE, in consideration of the promises 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, ________________ (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 31, 1998 (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.
<PAGE>
2. The Company hereby represents and warrants to the Holder 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.
IN WITNESS WHEREOF the Company has caused this Certificate to be signed by
its duly authorized officers and its corporate seal hereto affixed.
MYO DIAGNOSTICS, INC.
Dated: January ___, 1998
Signature:
--------------------------
Print Name: Gerald D. Appel
-------------------------
Its: President
--------------------------------
<PAGE>
SCHEDULE "A"
ELECTION TO EXERCISE
The undersigned hereby irrevocably elects to exercise the number of
Warrants of Myo Diagnostics, 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.
DATED this_____day of__________________, 199__
-----------------------------------
Name of Holder
By:
--------------------------------------
<PAGE>
MYO DIAGNOSTICS, INC.
1997 STOCK OPTION PLAN
1. PURPOSE OF THE PLAN.
The purpose of this 1997 Stock Option Plan (the "PLAN") is to provide
incentives and rewards to selected eligible directors, officers, employees
and consultants of Myo Diagnostics, Inc. (the "COMPANY") and its subsidiaries
in order to assist the Company and its subsidiaries in attracting, retaining
and motivating those persons by providing for or increasing the proprietary
interests of those persons in the Company, and by associating their interests
in the Company with those of the Company's shareholders.
2. ADMINISTRATION OF THE PLAN.
The Plan shall be administered by the Board of Directors of the Company
(the "BOARD"), or a committee of the Board (the "COMMITTEE") whose members
shall serve at the pleasure of the Board. The administrator of the Plan
shall be referred to as the "ADMINISTRATOR." During such time that
administration is delegated to the Committee, the Committee shall have, in
connection with the administration of the Plan, the powers theretofore
possessed by the Board subject, however, to such resolutions, not
inconsistent with the provisions of the Plan, as may be adopted from time to
time by the Board.
The Administrator shall have all the powers vested in it by the terms of
the Plan, including exclusive authority (i) to select from among eligible
directors, officers, employees and consultants, those persons to be granted
"Options" (as defined below) under the Plan; (ii) to determine the type, size
and terms of individual Options (which need not be identical) to be made to
each person selected; (iii) to determine the time when Options will be
granted and to establish objectives and conditions (including, without
limitation, vesting and performance conditions), if any, for earning Options;
(iv) to amend the terms or conditions of any outstanding Options, subject to
applicable legal restrictions and to the consent of the other party to such
Options; (v) to determine the duration and purpose of leaves of absences
which may be granted to holders of Options without constituting termination
of their employment for purposes of their Options; (vi) to authorize any
person to execute, on behalf of the Company, any instrument required to carry
out the purposes of the Plan; and (vii) to make any and all other
determinations which it determines to be necessary or advisable in the
administration of the Plan. The Administrator shall have full power and
authority to administer and interpret the Plan and to adopt, amend and revoke
such rules, regulations, agreements, guidelines and instruments for the
administration of the Plan and for the conduct of its business as the
Administrator deems necessary or advisable. The Administrator's
interpretation of the Plan, and all actions taken and determinations made by
the Administrator pursuant to the powers vested in it hereunder, shall be
conclusive and binding on all parties concerned, including the Company, its
shareholders, any optionees Plan and any other employee of the Company or any
of its subsidiaries.
<PAGE>
3. PERSONS ELIGIBLE UNDER THE PLAN.
Any person who is a director, officer, employee or consultant of the
Company or any of its subsidiaries shall be eligible to be considered for the
grant of Options under the Plan.
4. OPTIONS.
(a) TYPE OF OPTIONS. Options granted under the Plan ("OPTIONS") may,
at the discretion of the Administrator, either be "incentive stock options"
("INCENTIVE STOCK OPTIONS") within the meaning of Section 422 of Internal
Revenue Code of 1986, as amended (the "CODE"), or options which do not
qualify as "INCENTIVE STOCK OPTIONS" under Section 422 of the Code
("NONQUALIFIED OPTIONS").
(b) TERMS AND CONDITIONS OF OPTIONS.
(i) Subject to the provisions of the Plan, the Administrator, in its
sole and absolute discretion, shall determine all of the terms
and conditions of each Option granted pursuant to the Plan.
(ii) The terms and conditions of an Option may include, among other
things:
(A) any provision necessary for the Option to qualify as an
Incentive Stock Option; and
(B) a provision permitting the optionee to pay the purchase
price of the Common Stock or other property issuable
pursuant to the Option, or to pay such recipient's tax
withholding obligation with respect to such issuance, in
whole or in part, by delivering previously owned shares of
capital stock of the Company (including "pyramiding") or
other property, or by reducing the number of shares of
Common Stock or the amount of other property otherwise
issuable pursuant to the Option.
(c) MAXIMUM GRANT OF OPTIONS TO ANY PERSON. No person shall receive
Options representing more than 50% of the aggregate number of shares of
Common Stock that may be issued pursuant to all Options under the Plan as set
forth in Section 5 hereof.
5. SHARES OF COMMON STOCK SUBJECT TO THE PLAN.
The aggregate number of shares of Common Stock that may be issued or
issuable pursuant to the Plan shall not exceed an aggregate of 1,000,000
shares of Common Stock, subject to adjustment as provided in Section 6 of the
Plan. Any shares of Common Stock subject to an Option which for any reason
expires or is terminated unexercised as to such shares shall again be
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<PAGE>
available for issuance under the Plan. The aggregate number of shares of
Common Stock that may be issued at any time pursuant to Options granted under
the Plan shall be reduced by the number of shares of Common Stock which were
otherwise issuable pursuant to Options granted under this Plan but which were
withheld by the Company as payment of the purchase price of the Common Stock
issued pursuant to such Options or as payment of the recipient's tax
withholding obligation with respect to such issuance.
6. DILUTION AND OTHER ADJUSTMENT.
In the event of any change in the outstanding shares of the Common Stock
or other securities then subject to the Plan by reason of any stock split,
reverse stock split, stock dividend, recapitalization, merger, consolidation,
combination or exchange of shares or other similar corporate change, or if
the outstanding securities of the class then subject to the Plan are
exchanged for or converted into cash, property or a different kind of
securities, or if cash, property or securities are distributed in respect of
such outstanding securities as a class (other than cash dividends), then the
Administrator may, and shall in the event of a stock split, reverse stock
split, stock dividend, recapitalization, combination of recapitalization of
the Company's stock, make such equitable adjustments to the Plan and the
Options thereunder (including, without limitation, appropriate and
proportionate adjustments in (i) the number and type of shares or other
securities or cash or other property that may be acquired pursuant to
Incentive Stock Options and other Options theretofore granted under the Plan,
(ii) the maximum number and type of shares or other securities that may be
issued pursuant to Incentive Stock Options and other Options thereafter
granted under the Plan; and (iii) the maximum number of shares with respect
to which Options may thereafter be granted to any optionee in any fiscal
year) as the Administrator in its sole discretion determines appropriate,
including any adjustments in the maximum number of shares referred to in
Section 5 of the Plan. Such adjustments shall be conclusive and binding for
all purposes of the Plan.
7. MISCELLANEOUS PROVISIONS.
(a) DEFINITIONS. As used herein, "SUBSIDIARY" means any future
corporation which would be a "SUBSIDIARY CORPORATION," as that term is
defined in Section 424(f) of the Code, of the Company; and the term "OR"
means "AND/OR."
(b) CONDITIONS ON ISSUANCE. Securities shall not be issued pursuant to
Options unless the grant and issuance thereof shall comply with all relevant
provisions of law and the requirements of any securities exchange or
quotation system upon which any securities of the Company are listed, and
shall be further subject to approval of counsel for the Company with respect
to such compliance. Inability of the Company to obtain authority from any
regulatory body having jurisdiction, which authority is determined by Company
counsel to be necessary to the lawful issuance and sale of any security or
Options, shall relieve the Company of any liability in respect of the
nonissuance or sale of such securities as to which requisite authority shall
not have been obtained.
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(c) RIGHTS AS SHAREHOLDER. An optionee shall have no rights as a
holder of Common Stock with respect to Options hereunder, unless and until
certificates for shares of such stock are issued to the optionee.
(d) AGREEMENTS. All Options granted under the Plan shall be evidenced
by written agreements in such form and containing such terms and conditions
(not inconsistent with the Plan) as the Administrator shall from time to time
adopt.
(e) WITHHOLDING TAXES. The Company shall have the right to require
upon exercise of an Option the payment (through withholding from the
optionee's salary or otherwise) of any federal, state, local or foreign taxes
required by law to be withheld. The obligation of the Company to issue
Common Stock shall be subject to the restrictions imposed by any and all
governmental authorities.
(f) NO RIGHTS TO OPTION. No person shall have any right to be granted
an Option under the Plan. Neither the Plan nor any action taken hereunder
shall be construed as giving any person any right to be retained in the
employ of the Company or any of its subsidiaries or shall interfere with or
restrict in any way the rights of the Company or any of its subsidiaries,
which are hereby reserved, to discharge an employee at any time for any
reason whatsoever, with or without good cause.
8. AMENDMENTS AND TERMINATION.
(a) AMENDMENTS. The Board may at any time terminate or from time to
time amend the Plan in whole or in part, but no such action shall adversely
affect any rights or obligations with respect to any outstanding Options.
However, with the consent of the optionee affected, the Administrator may
amend outstanding agreements evidencing Options under the Plan in a manner
not inconsistent with the terms of the Plan.
(b) TERMINATION. Unless the Plan shall theretofore have been
terminated as above provided, the Plan (but not the Options theretofore
granted under the Plan) shall terminate on and no Options shall be granted
after December 30, 2007.
9. EFFECTIVE DATE.
The Plan is effective on December 30, 1997, the date on which it was
adopted by the Board of Directors of the Company.
10. GOVERNING LAW.
The Plan and any agreements entered into thereunder shall be construed
and governed by the laws of the State of California applicable to contracts
made within, and to be performed wholly within, such state, without regard to
the application of conflict of laws rules thereof.
4
