SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB/A-2
GENERAL FORM FOR REGISTRATION OF SECURITIES OF
SMALL BUSINESS ISSUERS UNDER THE 1934 ACT
NovaMed, Inc.
(Name of Small Business Issuer in Its Charter)
Nevada 77-0443643
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
623 Hoover Street, Minneapolis, Minnesota 55413
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(Address of Principal Executive Offices) (Zip Code)
612-378-1437
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(Issuer's Telephone Number, Including Area Code)
Securities to be registered under Section 12(b) of the Exchange Act: None
Securities to be registered under Section 12(g) of the Exchange Act:
Title of Each Class to be so registered: Common Stock ($0.001 Par Value)
Name of Each Exchange on Which Each Class is to be Registered: N/A
This form is being filed with the Securities and Exchange Commission in order to
become a reporting company under the Exchange Act of 1934 and to maintain the
Company's quotation on the OTC Bulletin Board in compliance with National
Association of Securities Dealers, Inc. (NASD(R)) Rules 6530 and 6540 to limit
quotations on the OTC Bulletin Board(R) (OTCBB) to the securities of companies
that report their current financial information to the SEC, banking, or
insurance regulators.
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TABLE OF CONTENTS
Page No.
PART I
Item 1. Description of Business .........................................1
Item 2. Management's Discussion and Analysis or Plan of Operation ......16
Item 3. Description of Property ........................................21
Item 4. Security Ownership of Certain Beneficial Owners and Management .23
Item 5. Directors, Executive Officers, Promoters and Control Persons ...23
Item 6. Executive Compensation .........................................25
Item 7. Certain Relationships and Related Transactions .................25
Item 8. Description of Securities ......................................26
PART II
Item 1. Market for Common Equity and Related Stockholder Matters .......27
Item 2. Legal Proceeding ...............................................28
Item 3. Changes in and Disagreements with Accountants ..................28
Item 4. Recent Sales of Unregistered Securities ........................28
Item 5. Indemnification of Directors and Officers ......................30
PART F/S
Consolidated Financial Statements - December 31, 1998 and 1997........F-1 - F-14
PART III
Item 1. Index to Exhibits ..............................................34
Item 2. Description of Exhibits ........................................36
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
A. CORPORATE ORGANIZATION
As used herein the term Company refers to NovaMed, Inc., its
subsidiaries and predecessors, unless the context indicates otherwise. NovaMed,
Inc. was incorporated in Nevada on November 26, 1996, as Conceptual
Technologies, Inc. The Company was initially incorporated for the purpose of
evaluating the merits of acquiring a company named Monojet, Inc. or the
technology of Monojet, Inc. whose business was the development and prospective
manufacture of a motorized surfboard. On April 9, 1998, the Company changed its
name to reflect the acquisition of the operating subsidiaries of NovaMed Medical
Products Incorporated (NMMP), and the resultant operational focus to the
development, manufacture, and sale of mammary prosthesis devices.
The Company acquired the operating subsidiaries of NMMP, pursuant to a
Stock Purchase and Sale agreement dated February 25, 1998. NMMP was formed as a
Nevada corporation in October of 1994 with the intent of producing a breast
implant that would provide a safe and credible alternative to silicone gel
filled implants. All of the outstanding shares of the three NMMP subsidiaries,
NovaMed Medical Products Manufacturing Inc., NovaMedical Products GmbH and
NovaMed Medical Supplies Corporation
were purchased for 6,301,558 shares of the Company's common stock.
B. DESCRIPTION OF BUSINESS
The Company is a medical device holding company that develops,
manufactures, and markets hydrogel and saline filled breast implant products
that are used in primary augmentations, revisions, or reconstructive procedures.
Primary breast augmentation is the process by which breast implants are used to
enhance the size or shape of a woman's breast for aesthetic reasons. Breast
implant surgery is usually performed in an outpatient operating room, either in
a surgeon's office or at a hospital. If the surgery is for augmentation
purposes, the surgery is typically performed on an outpatient basis and general
anesthesia is most commonly used. Augmentation surgery usually lasts one to two
hours during which the surgeon makes an incision and creates a pocket for the
implant. The implant is placed in the pocket and the incision is closed with
stitches and tape. Reconstructive surgery typically occurs at a hospital and can
often require more than one operation over several months.
The Company currently derives all of its sales revenue from the sale of
mammary prosthesis products. The Company expects that sales of such products
will continue to represent a substantial portion of its sales revenue unless and
until the Company develops and markets additional products.
On January 9, 1999, the Company submitted its IDE application to obtain
clearance from the Food and Drug Administration ("FDA") for the NOVAGOLD(TM)
product. On April 22, 1999, the Company submitted a 510k application to obtain
clearance from the FDA for the NOVASALINE(TM) inflatable product. On June 8,
1999, the Company submitted a 510k application to obtain clearance for the
NOVASALINE(TM) pre-filled product. The Company anticipates the start of
clinicals required under the NOVAGOLD(TM) IDE
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application before the end of 1999. The Company has obtained FDA scientific
clearance of the NOVASALINE(TM) products and is cleared to market subject to an
audit of the Company's Minneapolis, Minnesota facility. However, the FDA
announced on August 19, 1999 (21 CFR Part 878) that all saline filled implants
sold in the United States must evidence the collection of sufficient clinical
information through the submission to the FDA of a Pre-Market Approval (PMA)
document by November 17, 1999 in order to continue distribution of saline filled
implants. The Company is yet to place either the pre-filled or inflatable
NOVASALINE(TM) implants into production for distribution in the United States
and as a result does not have the requisite clinical information that would
satisfy the FDA's call for a PMA. Therefore, the Company must also submit a PMA
for its saline products prior to sale in the United States.
The Company intends to file an IDE for the pre-filled NOVASALINE(TM)
product. FDA approval of the IDE application will cause the Company to conduct a
clinical trial for the pre-filled NOVASALINE(TM) product. The clinical trial
would enroll five hundred patients and be conducted for at least eighteen months
prior to the submission of a PMA. Upon the FDA's acceptance of the clinical data
contained in the PMA, the pre-filled NOVASALINE(TM) would be cleared for market
in the United States. Based upon this time line, the Company could expect the
pre-filled NOVASALINE(TM) to be available for sale in the United States by 2002.
The Company has no intention of filing an IDE for the inflatable NOVASALINE(TM)
as the time and expense incurred in bringing such a product to market cannot be
presently justified in view of the fact that several competitive saline
inflatable products are now available in the U.S. market place. The Company
decision not to proceed at this time with the inflatable NOVASALINE(TM) product
is subject to ongoing regulatory and competitive marketing developments.
The Company has also begun efforts to increase its manufacturing
capabilities, based in part upon an expectation of increased sales as a direct
and indirect result of its new relationship with Inamed Corp. which has caused
the Company to seek government guaranteed loans and grants in the amount of
approximately twelve million seven hundred thousand dollars ($12,700,000). Two
million, five hundred thousand dollars ($2,500,000) of that amount to be offered
as a non repayable grant. The loan program offered by the German state
government of North Rhine Westphalia is designed to attract businesses that
utilize new technologies. The Company's application has been accepted subject to
the review of the government's auditors. Final approval is expected by December
1999. For more information on this facility, see "Item 3. Description of
Property."
INAMED CORPORATION STRATEGIC ALLIANCE AGREEMENT
A component to the success of the Company will be the realization of
the terms of a Strategic Alliance Agreement entered into on March 25, 1999 with
Inamed Corporation (the "Agreement"), the world's number one seller of breast
implants. The Agreement grants to Inamed the exclusive right to sell the
Company's pre- filled NOVAGOLD(TM) and NOVASALINE(TM) breast implants world
wide, subject to defined criteria, in exchange for Inamed's obligation to
purchase a minimum number of the Company's products over the term of the
Agreement and the satisfaction of certain milestone payments which include
Inamed's funding of the Company's FDA clinical inquiry. The term of the
Agreement is defined as the later of March 25, 2014 or the expiration date of
the last significant patent for the Company's products.
SALES OUTSIDE THE UNITED STATES. The Agreement provides for certain
quantities of the Company's products to be sold in specific territories broadly
divided into U.S. and Non-U.S. with the specific exclusion of Germany. Outside
of the United States, Inamed is required to purchase minimum quantities of the
pre-filled NOVAGOLD(TM) and NOVASALINE(TM) products as follows: Year One 12,000
units, Year Two 24,000 units,
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Year Three 24,000 units. Minimum quantities for all years remaining over the
term of the Agreement will be based upon a rolling average of the prior two
year's sales, but in no event less than 24,000 units per year after Year Three.
Year One is determined to be a sixteen month period for the purposes of the
Agreement, commencing on the delivery date of Inamed's first purchase order. The
Company is yet to make a delivery of products pursuant to the Agreement.
The initial pricing under the Agreement for the NOVAGOLD(TM) and
NOVASALINE(TM) products will be $300 and $200 respectively, per unit. Beginning
in the year 2000, the Company and Inamed will review the prices per unit on an
annual basis with discretion to make price adjustments based upon manufacturing
costs, end-user pricing, volume purchases and the competitive environment in the
marketplace. The overall price structure is predicated upon a cost plus basis,
which is designed to ensure that Inamed, receives at least a 50% gross margin
from sales. Therefore, the price per unit subsequent to the year 2000 could
vary, however, the Company does not anticipate any substantial pricing
variation.
Inamed will be required to purchase an aggregate of 342,000 units over
the term of the Agreement outside of the United States in order to maintain
sales exclusivity. The Agreement does not distinguish between the number of
NOVAGOLD(TM) and NOVASALINE(TM) products to be purchased by Inamed, therefore,
the Company can reasonably expect a minimum aggregate gross sales revenue of
$68,400,000, utilizing the lower NOVASALINE(TM) $200 per unit sales price, over
the term of the Agreement. Should Inamed fail to meet the minimum purchase
requirements in any given year, the Agreement permits Inamed to maintain
exclusivity by paying a deficiency payment of $67.50 per unit for the number of
units not purchased pursuant to minimum requirements. The Company has the option
to decline deficiency payments and terminate Inamed's right to exclusivity if
the minimum purchase requirement for the sales outside of the United States
falls 25% below agreed volumes for the first two years of operation or below 20%
of agreed volumes for any year after the second year.
SALES WITHIN GERMANY AND TO CURRENT DISTRIBUTORS. The Agreement
specifically exempts Germany from the Non-US sales territory in the near future.
The Company and Inamed have agreed to discuss the option of transitioning the
Company's sales business in Germany to Inamed's German sales subsidiary on a
mutually agreeable basis. The Agreement also permits the Company to continue its
current distribution relationships with third party sales representatives in the
Non-US territory in order to avoid any negative legal consequences of
terminating these relationships. The Company is to use its best efforts in
concluding these relationships by December 31, 2000.
SALES WITHIN THE UNITED STATES. The Company's products are not
currently available for sale in the United States. Subject to obtaining FDA
clearance to market the Company's products in the United States, the Company and
Inamed have agreed to form a joint venture for the exclusive manufacture and
sale of the NOVAGOLD(TM) product. Should FDA clearance be obtained, the
Agreement obligates Inamed to purchase through the joint venture a minimum
number of NOVAGOLD(TM) product as follows: Year One 12,000 units, Year Two
18,000 units, Year Three 24,000 units. Minimum quantities for all years
remaining over the term of the Agreement will be based upon a rolling average of
the prior two year's sales, but in no event less than 24,000 units per year
after Year Three. Further, should the FDA not approve silicone gel for use in
cosmetic augmentation, then Inamed's minimum purchase requirement for sales in
the United States will double starting in the second year subsequent to FDA
clearance of the NOVAGOLD(TM) product.
The Agreement does not fix the price to be paid by the joint venture to
the Company for the NOVAGOLD(TM) product. Certainty as to future decisions of
the FDA related to whether clearance to sell the
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NOVAGOLD(TM) product in the United States will ever be granted, or whether
silicone gel filled implants will ever be permitted for use in cosmetic surgery,
cannot be determined at this time. Therefore, the Company cannot provide a
minimum aggregate sales revenue figure for sales of the NOVAGOLD(TM) implant in
the United States. However, the Company can reasonably expect, if FDA clearance
to market is obtained, that the price paid by the joint venture for minimum
obligations agreed upon with Inamed will be at least equal to that price per
unit agreed for the sale of NOVAGOLD(TM) outside of the United States.
Therefore, provided FDA approval is received, the Company expects that the
minimum number of units purchased by Inamed for use within the United States
would be 342,000, which would generate income of $102,600,000. However, the
Company cannot guarantee that FDA approval will be obtained and therefore cannot
guarantee the purchase of any units inside the United States by Inamed. If the
Company should not receive FDA approval the minimum number of units required to
be purchased by Inamed would be zero. Should FDA clearance to market be obtained
for the NOVAGOLD(TM) product and Inamed fails to meet the minimum purchase
requirements in any given year, the Agreement permits Inamed to maintain
exclusivity by paying a deficiency payment of $67.50 per unit for the number of
units not purchased pursuant to minimum requirements. The Company has the option
to decline deficiency payments and terminate Inamed's right to exclusivity if
the minimum purchase requirement for the sales within the United States falls
25% below agreed volumes for the first two years of operation or below 20% of
agreed volumes for any year after the second year.
INAMED'S AGREEMENT TO FUND THE NOVAGOLD(TM) FDA CLEARANCE AND MILESTONE
PAYMENTS. The Agreement obligates Inamed to fund the FDA clearance for the
NOVAGOLD(TM) product in a process valued at two million dollars ($2,000,000) and
to make certain milestone payments to the Company totaling eight million dollars
($8,000,000). The milestone payments commence upon the FDA's approval of the
Investigative Device Exemption ("IDE") for NovaGold in the United States. Inamed
will pay two million ($2,000,000) within 30 days after such approval and an
additional two million ($2,000,000) within 30 days after the clinical trials are
fully enrolled. Within 30 days after the FDA approves the Pre-Market Approval
Application ("PMA") for NOVAGOLD(TM), Inamed will pay an additional two million
($2,000,000) dollars. Inamed will make a final payment of two million dollars
($2,000,000) upon the FDA's decision to clear the NOVAGOLD(TM) for market.
C. DESCRIPTION OF THE COMPANY'S PRODUCTS
The Company manufactures and markets two different pre-filled single
lumen mammary prostheses (breast implants), the NOVAGOLD(TM) and the
NOVASALINE(TM) . These products are designed to address the safety concerns
associated with silicone gel-filled implants, as voiced by the FDA's decision in
April of 1992 which mandated that silicone gel implants would thereafter only be
available under controlled clinical studies. Both products are used for routine
cosmetic breast augmentation and for breast reconstruction following either
subcutaneous or modified radical mastectomy. The Company's flagship product is
the NOVAGOLD(TM) breast implant, which utilizes a unique water based filling
material that is designed to be biocompatible and therefore safe for human use.
The Company has further developed an inflatable NOVASALINE(TM) breast implant
product.
The Company produces its own products through wholly owned subsidiaries
located in Minneapolis, Minnesota and Monheim, Germany. Products are
manufactured pursuant to Company owned patents or patents for which the Company
is the exclusive licensee.
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The Company owns the following U.S. Patents:
o #5,067,965 alternative fill material patent
o #5,662,708 alternative fill material patent
o #4,955,909 textured shell surface patent
o #5,630,844 water vapor barrier shell patent
The Company has the following Patents pending:
o 08/924,457 alternative fill material submission
o 08/858,098 biocompatible catheter
o 09/318,036 saline implant with single valve
The Company has the following European Patents pending:
o 96 926 926.5 alternative fill material submission
The products are comprised of two major component parts, the outer
shell and the inner filling material. Shell production is accomplished in
Minneapolis, Minnesota by NovaMed MN. Component parts are then shipped to
Monheim, Germany for final manufacturing and distribution by NovaMed GDR. The
Company also intends to complete, subject to requisite regulatory and
manufacturing approvals, the production process for the pre-filled
NOVASALINE(TM) breast implant from the NovaMed MN facility in Minneapolis.
D. DESCRIPTION OF TECHNOLOGY
The Company has researched and developed a range of breast prostheses
based upon patented technology. Confirmation of that technology has been through
the evaluation of results stemming from research protocols conducted by the
Company or contracted by the Company to third party research groups.
The safety and biocompatibility of the fill material used in the
NOVAGOLD(TM) breast implant was proven by the Company after subjecting the
finished product to a battery of biocompatibility testing in accordance with
guidelines in Europe and the United States. The toxicochemistry of the filling
material was evaluated by implanting gel samples in 15 test rabbits for a 28 day
period. The results of these tests indicated that the NOVAGOLD(TM) gel fill
material was non-irritant, non-toxic and biocompatible and therefore suitable
for use in medical devices. The Company's finished products have been subjected
to rigid and strenuous mechanical testing. The most frequently encountered
mechanical load on breast implants is fatigue, the result of oscillations from
ordinary movement, such as walking or jogging. Like other materials, the shell
of breast prostheses are subject to a finite fatigue lifetime when repeatedly
stressed or strained. The Company used an outside laboratory to perform fatigue
testing on 35 samples of the Company's shell at a frequency of 1Hz (one cycle
per second), which equates to the frequency of movement experienced under normal
conditions in the body. The results of that test indicated the long term
performance of the product to be 5 to 10 years in accordance with accepted
industry.
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The best indication of the efficacy of the Company's products has come
from patient feedback. Over four years of commercial experience with
NOVAGOLD(TM) around the world, involving the sale of approximately 10,000
implants, patients have identified a complication rate of 1.37%. Complaints
reported included capsular contracture, seromas and hemotomas. Although any
complications are serious matters, the complaint rate related to Company
products is minimal and not uncommon for any particular medical device.
Otherwise, patients that have the NOVAGOLD(TM) implants are generally pleased
with their results.
Despite these affirmations of the Company's technology, there is no
guarantee that the Company will obtain the necessary regulatory clearance to
sell its products in the United States.
Both the NOVAGOLD(TM) and the pre-filled NOVASALINE(TM) prostheses
consist of a single silicone elastomer (rubber) shell filled with either a water
based gel like material or with sterile saline (salt water). Both may be offered
as either a smooth or textured implant, depending on customer demand. Currently,
the products are offered only as textured implants, meaning that the surface of
the implant's shell is patterned through a patented process (US Patents #
4,955,909 and # 5,630,844). This textured pattern provides a surface which has
been shown to help reduce the incidence of capsular contracture, best described
as a hardening of the breast as scar tissue forms around the implant. The
textured surface provides a multi planar surface for the scar tissue to form
around, thus reducing the strength of the scar tissue. However, the Company does
intend to offer smooth NOVAGOLD(TM) and NOVASALINE(TM) implants as part of an
expansion of its present product range.
Pre-filled products consist of a single silicone elastomer (rubber)
shell that is patched and filled by the Company with either a water based gel
like material (NOVAGOLD(TM)) or with sterile saline, salt water, (NOVASALINE(TM)
pre-filled). The pre-filled products are then sealed and delivered to the
physicians ready for use in the augmentation or reconstructive surgery.
Inflatable products also consist of a silicone elastomer (rubber) shell that
incorporates a unique one-piece, self sealing filling valve / filling patch
assemble. Physicians use the shell's valve assembly to fill the implant with
saline during the actual surgery, enabling the physician to make volume
adjustments to the implants once they are placed in the body.
1. NOVAGOLD(TM)
The NOVAGOLD(TM) product is a patented single lumen alternative filling
material breast implant (US Patents # 5,067,965 and # 5,662,708) , developed in
response to demand for a replacement to silicone-gel filled implants. The
filling material is a hydrogel, meaning that is it is a water based gel
material. The current filling material consists of a low molecular weight
polyvinylpyrollidone (PVP, K-17), a rheological control agent, and water. PVP is
a biocompatible polymer which has been used in medical products for decades. PVP
has been used as a plasma expander, as a carrier for pharmaceuticals, and
topically in cosmetics. The rheological control agent is a substance generally
recognized as safe (GRAS) which was added to enhance the feel and thickness of
the gel filling material so that the device would feel more like natural breast
tissue when implanted. Despite the negative health connotations of silicone gel,
the viscosity achieved with silicone is considered the standard by which all
other fill materials are judged. The viscosity of the PVP filling material gives
the NOVAGOLD(TM) breast implant the feel of silicone gel-filled implants,
enabling it to compete successfully where silicone gel breast implants are still
available for use in routine cosmetic augmentations. Like silicone gel,
PVP-hydrogel filling material acts as a lubricant to the outer silicone shell,
potentially decreasing the effect of biomechanical stresses on the shell over
time. These stresses can lead to early degradation of the shell, and early
rupture or leakage of the implant.
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The PVP-hydrogel filling material has additional advantageous design
characteristics:
A. WATER BASED
NOVAGOLD(TM)'s filling material is water based and therefore is
expected to be excreted from the body in the event of a rupture or leakage of
the implant. While silicone gel appears to be inert, silicone gel is not
excretable from the body and has been shown to migrate throughout the body after
a rupture. Further, it is difficult to remove silicone gel from the body in the
event that a ruptured device should need to be removed.
B. RADIOLUCENT
Another advantage that the PVP-hydrogel filling material has over
silicone gel is that the NOVAGOLD(TM)'s filling material appears to be more
radiolucent to X-rays than silicone or saline fill materials. NOVAGOLD(TM)'s
PVP-hydrogel allows transmission of X-rays during routine mammography, something
that silicone gel does not do easily. More X-rays or a high dose of X-ray is
required during mammography of a woman with silicone gel filled implants. Thus
NOVAGOLD(TM)'s increased radiolucency may allow easier or earlier detection of
breast tumors in women that have implanted the NOVAGOLD(TM) versus silicone gel
implants.
C. OSMOTICALLY BALANCED
The PVP-hydrogel filling material has been demonstrated to be
osmotically balanced within the body unless a rupture or leak occurs in the
implant. The Company conducted a study utilizing 20 sterilized implants and
subjected the implants to degrees of temperature over time effected to simulate
the condition of the implant within the body. Test results confirmed that the
implant did not take up additional volume from the body over time. The Company's
study and an absence of customer complaints related to volume uptake caused by
osmotic imbalance within the body indicates that osmotic balance has been
achieved.
2. PRE-FILLED NOVASALINE(TM)
The pre-filled NOVASALINE(TM) breast implant was developed as a product
to be marketed in countries where a demand for breast implants existed, but
where no implants other than those filled with saline are permitted for primary
cosmetic augmentations. The primary market for the pre-filled NOVASALINE(TM)
implants is France. The United States is a potential primary market for the
products, pending FDA approval , the pre-filled NOVASALINE(TM) implants are not
presently available for sale in the United States.
One benefit of the pre-filled NOVASALINE(TM) implant is that it is
saline filled. In the event of rupture, only salt water is released into the
body. Another advantage of the pre-filled NOVASALINE(TM) is that the physician
cannot introduce substances into the device during surgery. Physicians have
independently added steroids and other antibiotics into inflatable prostheses in
the past. The device is sold pre-filled, sealed, and sterilized, thereby
lowering the risk of microbial contamination during surgery.
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3. INFLATABLE NOVASALINE(TM)
The inflatable NOVASALINE(TM) breast implant was also developed to be
marketed in countries where a demand for breast implants existed, but where no
implants other than those filled with saline are permitted for primary cosmetic
augmentations. The potential primary markets for the inflatable NOVASALINE(TM)
implants are the United States and France. The inflatable NOVASALINE(TM)
implants are not presently available for sale in any market.
The inflatable NOVASALINE(TM) implant offers advantages best understood
by the physician in connection with the actual surgery. Since the implant is
inflatable, the incision required to perform the procedure is less intrusive.
Physicians are also able to fill individual implants to insure that an equal
balance is realized for each breast, as many patients approach physicians with
complaints related to disproportionate breast sizes. The inflatable
NOVASALINE(TM) is subject to FDA regulatory clearance and is yet to be marketed
in the United States or elsewhere.
E. MARKETING
The Company believes that it can substantially increase its share of
the worldwide market for the sale of breast implants within five years. This
goal is predicated upon receiving FDA clearance of the Company's products in
addition to implementation of the Strategic Alliance Agreement with Inamed
Corporation. FDA acceptance would enable the Company to sell products in the
North American market, and the agreement with Inamed will ensure effective
distribution.
The Company had anticipated being able to sell the inflatable
NOVASALINE(TM) and pre-filled implants into the United States by the end of
1999. However, the FDA announced on August 19, 1999 (21 CFR Part 878) that all
saline filled implants sold in the United States must evidence the collection of
sufficient clinical information through the submission to the FDA of a
Pre-Market Approval (PMA) document by November 17, 1999 in order to continue
distribution of saline filled implants. The Company is yet to place either the
pre-filled or inflatable NOVASALINE(TM) implants into production for
distribution in the United States and as a result does not have the requisite
clinical information that would satisfy the FDA's call for a PMA. Therefore, the
Company does not expect to be able to market in the United States either the
pre-filled NOVASALINE(TM) product nor the inflatable NOVASALINE(TM) product
prior to 2002. The Company intends to file an IDE for the pre-filled
NOVASALINE(TM) product . which will require at least eighteen months of clinical
study and submission to the FDA prior to receiving clearance to market this
product in the United States. The Company has no present intention of conducting
a clinical trial for the inflatable NOVASALINE(TM) though this decision is
subject to ongoing regulatory and competitive marketing developments. Further,
the Company must pass a FDA audit of the Minneapolis, Minnesota facility prior
to manufacturing products for sale in the United States. The Company reasonably
expects to pass an FDA audit prior to obtaining clearance for marketing its
products in the United States.
The Company's immediate marketing strategy is to focus on increasing
NOVAGOLD(TM)'s market share in countries where it is currently approved,
registered directly, or working with its distribution partner Inamed. The
Company plans an increased advertising campaign through direct product mailings
to doctors and distributors in countries where the product is approved. The
Company also plans to advertise through the use of press conferences, television
programs, newspaper articles, advertising in major consumer and medical
journals, and an upgraded Internet site. The Company regularly attends major
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scientific meetings and trade show exhibitions throughout the world. The
Company's clinical study investigators have presented their clinical findings at
the annual meeting for Plastic Surgery in Venice, Italy in 1997, the Annual
Meeting of Plastic Surgery in Istanbul, Turkey in 1998, the EQUAM Conference in
Regensburg, Germany in 1998, and the Annual Meeting of Plastic Surgery in
Bochum, Germany in 1998. The Company anticipates that the results of these
studies will be published in major plastic surgery and gynecology journals
worldwide.
F. REGULATORY OVERVIEW
1. INTRODUCTION
The two major global regulatory pathways for medical products are the
United States Food and Drug Administration (FDA) regulatory pathway and the
European/EEA type regulatory pathway, which is based on the ISO system of
quality standards. Both systems are based on an assessment of the risk versus
the benefit of a medical product. The trend is towards harmonization, in
international regulatory pathways, though the FDA does not consider the European
regulatory pathway to be as stringent a system as the FDA system. Most countries
accept either FDA clearance or a CE mark as sufficient evidence that the
manufacturer provides a quality product which conforms to international quality
standards appropriate to the particular product.
2. U.S. FDA APPROVAL
Although most recent scientific studies do not support the FDA's 1992
ban on silicone breast implants, breast implants in general are still under
extreme scrutiny by the FDA, the media, and the public. FDA scrutiny developed
from the philosophy that the safety and efficacy of a product is related to its
final use. The FDA allows devices which save, support, or prolong life, to be
marketed if the calculated benefit to the patient outweighs the risk to the
patient. For cosmetic devices, the FDA has stated that "no risk" is acceptable,
and appears to consider breast implants as strictly cosmetic devices. In the
past, breast implants did not require Pre-Market Approval (PMA) but rather could
make a 510k application which allows manufacturers to claim substantial
equivalency to products which were established in the US marketplace before
1976. Unfortunately, that route is now not available for alternative fill breast
implant products.
While the Company obtained a CE Mark (the European equivalent of FDA
approval in the United States) on its breast implant products in 1996 allowing
the manufacturing, marketing and sale of its products in the European Union, the
Company has not yet obtained FDA approval for marketing and selling its breast
implant products in the United States. The Company has three products which it
has submitted to the FDA: (1) the NOVAGOLD(TM) pre filled mammary prosthesis;
(2) the NOVASALINE(TM) saline inflatable mammary prosthesis, and; (3) the
NOVASALINE(TM) saline pre filled mammary prosthesis.
9
<PAGE>
The following table sets forth the project FDA approval schedule for
the Company's products:
<TABLE>
<CAPTION>
UNITED STATES REGULATORY STATUS OF NOVAMED, INC. PRODUCTS
510(K) or IDE Title FDA Received FDA Response Projected FDA
Number Approval year.
- ----------------------- ----------------------- ----------------------- ----------------------- ----------------------
<S> <C> <C> <C> <C>
K990402 NOVASALINE(TM) 23 April 1999 3 June 1999 for 2002
Inflatable Breast technical review.
Require
GMP
inspection
to get
SE
letter.
K991930 NOVASALINE(TM) 8 June 1999 2 Sept. 1999 for 2002
Pre-Filled Breast technical review.
Prostheses Require GMP
inspection to get
SE letter.
IDE G990008 NOVAGOLD(TM) 12 January 1999 IDE - 11 Feb. 2004
Silicone Alternate 1999 letter from
Gel Filled Breast FDA - to be
Prostheses submitted October
1999
- ----------------------- ----------------------- ----------------------- ----------------------- ----------------------
</TABLE>
Obtaining FDA clearance can be a long and arduous process. While the
Company has retained experienced professionals to assist in the FDA acceptance
process, there is no assurance that the Company will obtain FDA clearance to
market or obtain FDA approval of its manufacturing facilities. If the Company
does not obtain FDA approval, for one or all of its products presently under
submission, it may not market or sell such breast implant products in the United
States. Inability to sell its breast implant products in the United States will
have a significant adverse impact on the financial future of the Company.
3. NOVAGOLD(TM) REGULATORY PATHWAY
The 510k process is not an option for the NOVAGOLD(TM) mammary
prosthesis. The FDA has informed the Company that NOVAGOLD(TM) is considered an
alternative fill implant. As such, a formal product submission (Investigational
Device Exemption or IDE) must be made and reviewed by FDA. As part of the IDE
submission, the product must be studied in FDA sanctioned and controlled
clinical trials before it can be placed on the market.
After the completion of the clinical study, or after a significant
portion of the study has been completed, the Company must submit a Pre-Market
Approval (PMA) application to the FDA for review. The application consists of
all the scientific data which supports the manufacturer's claims for the
product. It also includes a summary of the device's composition, stability,
manufacturing process and controls, all data collected from animal and human
clinical studies, and all product labeling (including advertising).
10
<PAGE>
The NOVAGOLD(TM) product has been submitted to the FDA for review and
approval under an Investigation Device Exemption ("IDE")/Pre-Market Approval
("PMA") process. The IDE includes the clinical protocol, a risk assessment, and
a strategic plan as to how risks are minimized and handled in the event of
device failure. Upon FDA acceptance of the IDE and the collection of sufficient
clinical data from controlled clinical trials, a PMA summary will be submitted
to the FDA. The FDA reviews the PMA and grants or withholds approval. If
approved, the NOVAGOLD(TM) may be sold freely in the United States. The Company
anticipates that the product could be cleared for full market release in the
U.S. by 2004. There is no guarantee the Company will obtain approval by 2004 or
may never be able to obtain FDA approval.
Data collected from worldwide marketing of the NOVAGOLD(TM) and limited
clinical studies in Germany may be referenced as supportive data for the FDA's
consideration of the Company's submission but is not considered determinative in
respect to the FDA's decision making process.
4. NOVASALINE(TM) SALINE INFLATABLE BREAST IMPLANT REGULATORY PATHWAY
The Company had planed to enter the US market in 1999 with the
development of the NOVASALINE(TM) saline inflatable breast implant. This product
was submitted to the FDA pursuant to the 510k regulatory pathway. A 510k
submission requires that the manufacturer demonstrate safety and efficacy
characteristics that are substantially similar to a device available in the U.S.
prior to 1976. On August 18, 1999 (21 CFR Part 878) the FDA announced that all
saline filled implants sold in the United States must evidence the collection of
sufficient information through the submission to the FDA of a Pre-Market
Approval (PMA) document by November 17, 1999 in order to continue the
distribution of saline filled implants. The Company has no present intention of
filing an IDE for the inflatable NOVASALINE(TM), as the time and expense
incurred in bringing such a product to market cannot be presently justified in
view of the fact that several competitive saline inflatable products are now
available in the U.S. market place. The Company's DECISION NOT TO PROCEED AT
THIS TIME WITH THE INFLATABLE NOVA SALINETM product is subject to ongoing
regulatory and competitive marketing developments.
5. NOVASALINE(TM) SALINE PRE-FILLED BREAST IMPLANT REGULATORY PATHWAY
The Company had planned to enter the United States market in 1999 with
the development of the NOVASALINE(TM) saline pre-filled breast implant. The
product was submitted to the FDA pursuant to the 510k regulatory pathway and has
since been cleared accordingly. However, on August 18, 1999 (21 CFR Part 878)
the FDA announced that all saline filled implants sold in the United States must
evidence the collection of sufficient clinical information through the
submission to the FDA of a Pre-Market Approval (PMA) document by November 17,
1999 in order to continue the distribution of saline filled implants. The
Company intends to file an IDE for the pre-filled NOVASALINE(TM) product . FDA
approval of the IDE application will cause the Company to conduct a clinical
trial for the pre-filled NOVASALINE(TM) product. The clinical trial would enroll
five hundred patients and be conducted for at least eighteen months prior to the
submission of a PMA. Upon the FDA's acceptance of the clinical data contained in
the PMA, the pre-filled NOVASAFINE(TM) would be cleared for market in the United
States. Based upon this timeline, the Company could expect the pre- filled
NOVASALINE(TM) to be available for sale in the United States by 2002.
11
<PAGE>
Obtaining FDA clearance can be a long and arduous process. While the
Company has retained experienced professionals to assist in the FDA acceptance
process, there is no assurance that the Company will obtain FDA clearance to
market or obtain FDA approval of its manufacturing facilities. If the Company
does not obtain FDA approval, for one or all of its products presently under
submission, it may not market or sell such breast implant products in the United
States. Inability to sell its breast implant products in the United States will
have a significant adverse impact on the financial future of the Company.
6. EUROPEAN UNION/ EUROPEAN ECONOMIC AREA
The Company is authorized to manufacture and sell its NOVAGOLD(TM) and
NOVASALINE(TM) pre- filled products in the European Union , which includes the
following countries: Austria, Belgium, Denmark, Finland, France, Germany,
Greece, Ireland, Italy, Luxembourg, The Netherlands Portugal, Spain, Sweden, and
The United Kingdom
The Company's European regulatory clearance is based upon the European
Medical Device Directive (Council Directive 93/42/EEC, June 14, 1993) which went
into effect on January 1, 1995. This Directive adopted a new classification for
mammary implants. According to this classification, breast implant products are
classified as IIb products. If a manufacturer fulfills all European Union (EU)
guidelines for design, production, and testing of a device and passes a
Certification Audit by a qualified Notified Body, the manufacturer may apply the
CE mark to his product. This Directive was phased in over five years, with a
deadline of June 14, 1998. Medical products manufactured after June 14, 1998 are
not allowed to be distributed in the European Union unless they carry the CE
mark, although medical products manufactured in Europe before June 14, 1998
which do not carry the CE mark may still be distributed until 2001. The
Company's conformity to the Medical Device Directive is monitored by ECM, a
Notified Body (Number 0481) certified by the German government.
The CE mark application and review process for medical products in the
IIb classification requires preparation of a Technical File or "Technical
Dossier" that describes the sum of the knowledge regarding the device, including
its design, manufacturing and sterilization processes, routine and animal
testing results, and clinical experience.
Both the NOVAGOLD(TM) and NOVASALINE(TM) saline pre filled product are
manufactured and distributed in conformance with the EU Medical Device and carry
the "CE" mark. The NOVAGOLD(TM) pre-filled mammary prosthesis has been on the
market since February 1996, when the Company obtained the right to apply a CE
mark to that product.
As part of the CE mark process, the Company agreed to conduct a
Post-Market Surveillance Study of the NOVAGOLD(TM) device. This study is a
limited clinical study conducted at 5-6 sites in Germany. The study examined the
rates of rupture, contracture, and infection for a defined patient group over a
two year post implantation follow-up period. This clinical study was completed
at the end of 1998; final results are to be summarized and presented to ECM. The
NOVASALINE(TM) pre-filled mammary prostheses has been sold since November 1996,
when it obtained the CE mark.
There is currently no uniform collation of data regarding the size of
markets outside the United States. Estimates as to the size of the market
outside of the U.S. are based upon public information as to the number of
implants sold outside of the U.S. by the major manufacturers of breast implant
(Inamed/Mentor). Based
12
<PAGE>
upon our sales experience in Germany the approximate market for breast implants
is 15,000 a year. NovaMed sold 987 breast implants in Germany in 1997 or 6.6% of
the market. Last year the Company captured 8.7% of this market with sales of
1316 implants. The Company in 1999 until the end of September has captured 9.9%
with sales of 1495 implants. Sales are expected to increase on a monthly basis
until the end of the year. Therefore, NovaMed expects to capture 15% of the
German market by the end of 1999. German sales as a percentage of total NovaMed
sales in 1997 were 30%, in 1998 were 36% and in 1999 to date are 44%.
Since there is no reliable estimate of single markets outside of the
U.S., we cannot provide accurate figures as the size of our market share in each
market. However, we can note that our only significant penetration of breast
implant markets to date has been in Germany. Elsewhere our sales are not
significant as a measure of market share.
7. OUTSIDE THE UNITED STATES - NON EU/EEA
The Company can sell its NOVAGOLD(TM) and NOVASALINE(TM) pre-filled
products in the following countries outside of the European Community: Brazil,
Bulgaria, Cayman Islands, China, Columbia, Dominican Republic, Hong Kong,
Indonesia, Mexico, New Zealand, Poland, Russia, South Korea, Turkey, Venezuela.
These devices have not been approved for sale in the United States, Canada,
Australia, or Japan.
G. COMPETITION
The Company's significant competitors are US based Mentor Corporation
and Inamed Corporation. Combined, these manufacturers account for over three
quarters of the market worldwide and own the majority of FDA approved breast
implant devices. All other major competitors discontinued production of the
breast implants in 1992 largely as the result of regulatory action by the FDA
and the ensuing wave of litigation.
Competition with Inamed is limited to the anticipated sale of the
NOVASALINE(TM) Inflatable breast implant in the US. The Company and Inamed have
executed a Strategic Alliance Agreement for the sale of the Company's
NOVAGOLD(TM) implant internationally and the sale of the NOVASALINE(TM)
Pre-Filled in the US, subject to FDA clearance to market.
Internationally, in addition to competing with Mentor, and Inamed in
areas not covered under the Inamed Strategic Alliance Agreement, the Company
competes with several smaller manufacturers including Silimed, Laboratories
Sebbin, L.P.I., PIP and Nagor. Several of these manufacturers have received
510(k) clearances for the FDA to market saline breast implants in the United
States.
The Company believes that the alternative fill NOVAGOLD(TM) product
distinguishes it in the international marketplace enabling effective marketing
against competing manufacturers. The Strategic Alliance Agreement with Inamed
and US clearance of the NOVAGOLD(TM) product in the United States will ensure
the Company a marked presence in the international marketplace.
13
<PAGE>
H. RESEARCH & DEVELOPMENT
The Company employs a staff that works in conjunction with outside
consultants to expand already existent product lines and develop new technical
innovations. The expansion of existing product lines would include the
development of anatomical shells for both the NOVAGOLD(TM) and NOVASALINE(TM)
breast implant products. Technological innovations include research into
different hydrogel filling materials along with new means for sterilization and
packaging processes. New product lines would encompass sizers, expanders, and
other forms of plastic surgery related implants.
Breast implant shapes are designed to satisfy different objects for
individual patients, as a result the majority of breast implant shells are
either round or anatomical. Round breast implants generally give a patient a
round curve in the upper part of the breasts. Anatomical shell implants give the
patient a more gentle slope in the curve of the breast often producing a more
natural breast shape.
Sizers are usually silicone elastomer shells filled with silicone that
are used by physicians to assist patients in making decisions as to the desired
breast shape and size augmentation and reconstructive implant procedures. Sizers
do not require regulatory approval and same are not used inside the body but
externally during the decision making process.
Tissue expanders are most often used in connection with reconstructive
surgery. A typical expander is implanted at the site where new tissue is
desired. Once implanted, fluid is injected into a injection port which then
flows into a larger expanding chamber. The increased pressure caused by the
fluid expanding the device results in tissue growth over a reduced period of
time. The expanded tissue can then be used to cover defects, injury sites or
provide a healthy site for an implant. Tissue expanders can either be
permanently implanted in the body or used between procedures.
The Company estimates that its R & D expenditures increased to $64,220
for 1998 as compared to $27,320 for 1997 , while as a percentage of sales, R&D
expenses were 5% in 1998 as compared to 2.7% in 1997. The Company expects the
trend towards increased spending related to R&D to continue due to expenses
related to compliance with FDA regulatory requirements, including the initiation
of Post Market Surveillance studies for the inflatable and pre-filled
NOVASALINE(TM) products. Expenses associated with the anticipated NOVAGOLD(TM)
clinical trials are to be absorbed by Inamed Corporation as part of the
agreement to distribute the product. The Company also expects to expend limited
R&D funds on expanding the Company product line and on certain projects related
to plastic surgery in an effort to expand the purview of internal R&D. For more
information on Inamed agreement, see "Item 2. Management's Discussion and
Analysis or Plan of Operation."
I. RAW MATERIAL SUPPLY
The Company obtains certain raw materials and components for its
products from single suppliers. In most cases the Company's sources of supply
could be replaced if necessary without undue disruption, but it is possible that
the process of qualifying new materials and/or vendors for certain raw materials
and components could cause a material interruption in manufacture or sales. No
material interruptions have occurred over the last two years.
14
<PAGE>
Although the Company has had no material interruptions in its supply of
raw materials, there can be no assurances that the Company's suppliers will be
able to supply the Company in quantities needed, or that regulatory or other
delays will not cause disruption in sales of affected products. The Company
believes that its supply of raw materials is adequate for the current fiscal
year.
All raw materials are now bought from single suppliers in order to keep
costs down, because the Company is a small manufacturer and must validate each
supplier of raw materials for regulatory purposes. However, for each of these
raw materials there exists competitive sources from which the Company could
purchase appropriate materials.
The Company does not believe that sales of its products would be
disrupted by the loss of a supplier. Inventories of raw materials are kept on a
45 - 60 day basis. The Company believes that a supplier of any given raw
material could be replaced within the time frame provided by inventories.
J. REPORTS TO SECURITY HOLDERS
The Company's annual report will contain audited financial statements.
The Company is not required to deliver an annual report to security holders and
will not voluntarily deliver a copy of the annual report to the security
holders. The Company intends to, from this date forward, to file all of its
required information with the Securities and Exchange Commission ("SEC"). Prior
to this form being filed there were not other forms filed. The Company plans to
file its 10KSB, 10QSB, and all other forms that may be or become applicable to
the Company with the SEC.
The public may read and copy any materials that are filed by the
Company with the SEC at the SEC's Public Reference Room at 450 Fifth Street,
N.W., Washington, D.C. 20549. The Public may obtain information on the operation
of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The
statements and forms filed by the Company with the SEC have also been filed
electronically and are available for viewing or copy on the SEC maintained
Internet site that contains reports, proxy and information statements, and other
information regarding issuers that file electronically with the SEC. The
Internet address for this site can be found at http://www.sec.gov. Additional
information can be found concerning the company on the Internet at
http://www.NovaMedinc.com.
K. EMPLOYEES
The Company has 20 full time employees; 12 in Minnesota and 8 in
Germany, with four part time employees.
15
<PAGE>
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
A. GENERAL
The Company's current and future focus has been research and
development related to the creation of innovative breast implant products.
Current regulatory approvals for Company products have been obtained according
to European regulatory guidelines and manufacturing practices, the Company
awaits approval from the FDA to manufacture and market its products in the
United States. The Company believes that it will receive approval for its
products but offers no gaurantees or assurances that it will receive approval
from the FDA. Production and sales to date have been minimal in relation to the
worldwide demand for such products. Direct sales with a small sales force has
been confined to certain European countries. Indirect access to markets has been
accomplished through distributors scattered outside of North America. The
Company now boasts a novel product line that it hopes will establish a new
standard in breast implant products.
The Company believes that several factors and expected trends will be
of substantial benefit to the Company in generating future revenues from the
sale of breast implants. For instance, according to a member survey published by
the American Society for Plastic and Reconstructive Surgeons ("ASPRS"),
approximately 132,000 women had augmentation surgery in 1998, as compared to
approximately 32,000 in 1992. Recipients of breast implants for augmentations
are typically women aged 18 to 50. The Company believes that with a large
proportion of the U.S. population currently aged between 25 and 40 that the
demand for cosmetic augmentation is likely to increase.
Also, according to the ASPRS, approximately 70,000 breast
reconstruction procedures were performed in 1998, as compared to approximately
29,000 similar procedures in 1992. Breast reconstructive surgery in the process
by which a surgeon recreates or reconstructs a woman's breast following a
masectomy. The Company believes that the aging U.S. population and the increased
awareness among women as to the dangers of breast cancer will lead to increased
numbers of mastectomies. The increase will create more demand for reconstructive
breast implants. Further, in October of 1998, the a federal law was passed which
mandates nationwide insurance coverage of reconstructive surgery following a
mastectomy.
B. RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999 AND JUNE 30, 1998 & YEARS ENDED DECEMBER 31, 1998
AND DECEMBER 31, 1997
SALES
Sales for the six months ended June 30, 1999 increased to $986,127 from
$634,131 for the comparable period in 1998, an increase of 36%. The increase in
revenues were primarily attributable to an increase in the number of implants
sold.
Sales for the year ended December 31, 1998 increased to $1,266,821 from
$1,015,207 for the year ended December 31, 1997, an increase of 25%. The
increase in revenues is primarily attributable to an increase in the number of
implants sold.
16
<PAGE>
International sales have accounted for 100% of total net sales in 1997
and 1998. The accelerated growth of sales in 1999 is due to increased
expenditures on marketing and a growing public perception in European markets
that silicone gel filled implants can result in negative health consequences.
Sales of the NOVAGOLD(TM) breast implant, which competes directly with silicone
gel filled breast implants, continues to dominate realized income, accounting
for over 97% of all Company revenues. The Company expects this percentage to
decrease upon US introduction of the NOVASALINE(TM) inflatable and
NOVASALINE(TM) pre-filled breast implants.
LOSSES
Net losses for the six months ended June 30, 1999, was $456,547 up from
a net loss of $51,493 for the comparable period in 1998, a change of $405,054.
The increase in losses were primarily attributable to non-cash expenses from the
issuance of common stock in the amount of $347,803.
Net losses for the year ended December 31, 1998 decreased to $213,348
from $1,097,224 for the year ended December 31, 1997, a decrease of 81%. The
substantial decrease in losses was attributable primarily from a decrease in
administrative costs associated with the sale of the breast implants.
The Company expects to continue to incur losses at least through fiscal
1999 and there can be no assurance that the Company will achieve or maintain
profitability or that its revenue growth can be sustained in the future.
EXPENSES
Selling, general and administrative expenses for the six months ended
June 30, 1999, increased to $647,989 from $214,068 in the comparable period in
1998, an increase of 468%. The increase in selling, general and administrative
expenses was the result of non-cash expenses related to the issuance of common
stock and options to acquire common stock.
Selling, general and administrative expenses for the year ended
December 31, 1998, decreased to $506,204 from $1,442,521 for the year ended
December 31, 1997, a decrease of 65%. The substantial decrease in selling
general and administrative expenses was the result of a decrease in
administrative costs associated with the sale of the breast implants.
Depreciation and amortization expenses for the six months ended June
30, 1999 and June 30, 1998 were $1,903 and $4,508, respectively. The decrease
was due to fully depreciated equipment.
Depreciation and amortization expenses for the years ended December 31,
1998 and December 31, 199 were $3,523 and $149, respectively. The increase was
due to an increase in equipment and fixtures held by the Company .
The Company expects increases in expenses through 1999 as the Company
moves toward engaging competent management for the anticipated increase in
product manufacturing and regulatory compliance costs.
17
<PAGE>
COST OF SALES
The largest factors in the variation from year to year in the cost of
sales as a percentage of net sales are the cost of raw materials and the yield
of finished goods from the Company's manufacturing facilities.
The cost of sales for the six months ended June 30, 1999 were $690,972
compared to $472,154 for the comparable period in 1998. The increase in the cost
of sales was primarily attributable to an increase in sales. Cost of sales as a
percentage of sales for six months ended June 30, 1999 and 1998 respectively,
were 70% and 74%.
The cost of sales for the year ended December 31, 1998 was $973,965
compared to $669,910 for the year ended December 31, 1997. The increase in the
cost of sales was primarily attributable to an increase in sales. Cost of sales
as a percentage of sales for December 31, 1998 and 1997 respectively, were 77%
and 66%. The Company anticipates that an increase in raw materials purchased as
the result of increased production volume demands will enable the Company to
negotiate reduced pricing on raw materials in the future and thereby decrease
the cost of sales.
C. INCOME TAX EXPENSE (BENEFIT)
The Company has an income tax benefit resulting from net operating
losses to offset operating profit.
D. IMPACT OF INFLATION
The Company believes that inflation has had a negligible effect on
operations over the past three years. The Company believes that it can offset
inflationary increases in the cost of materials and labor by increasing sales
and improving operating efficiencies.
E. LIQUIDITY AND CAPITAL RESOURCES
Six Months ended June 30, 1999 and June 30, 1998 & Years ended December 31, 1998
and December 31, 1997
Historically, the Company has expended significant resources on
Research and Development which includes regulatory compliance expenses. The
trend is likely to continue into the near future as new products seek
introduction in the United States. However, sales are now rising significantly,
therefore, the Company expects a swing from using cash in operating activities
to providing cash from operating activities by the end of 1999.
Cash flow generated by operations were $44,217 for the six months ended
June 30, 1999 as compared to cash flows used in operations of $182,096 for the
comparable period in 1998. Negative cash flows from operating activities for the
six months ended June 30, 1998 are primarily attributable to a decrease in
related party payables and an increase in receivables.
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<PAGE>
Cash flow generated by operations were a negative $610,303 for the year
ended December 31, 1998, and a positive $5,104 for the year ended December 31,
1997. Negative cash flows from operating activities for the year ended December
31, 1998 are primarily attributable to a decrease in related party payables and
an increase in receivables.
Cash flow generated from financing activities was $55,000 for the six
months ended June 30, 1999 and $733,910 for the comparable period in 1998. The
Company's financing activities primarily consisted of private placements of its
common stock.
Cash flow generated from financing activities was $636,000 for the year
ended December 31, 1998 and $0 for the year ended December 31, 1997. The Company
conducted a private placement offering in 1998 in an effort to improve its
operations.
The Company has funded its cash needs from inception through June 30,
1999 with a series of debt and equity transactions, including several private
placements and a convertible bond issuance. The Company expects its cash needs
to be primarily satisfied from sales of its products over the next twelve
months.
All rounds of financing, with the exception of the original $40,000
placement have been conducted outside the United States.
F. CAPITAL EXPENDITURES
The Company made no significant capital expenditures on property or
equipment for six months ended June 30, 1999 or 1998 and made no significant
capital expenditures on property or equipment for the years ended December 31,
1998 or 1997.
During 1999 and 2000 the Company expects to spend approximately
$10,000,0000 on certain capital projects, including the construction of a new
facility in Germany, management information systems and expanded manufacturing
capabilities. Funding for these capital expenditures are expected through
funding provided pursuant to German government guaranteed loans.
G. GOING CONCERN
The Company's auditors have expressed an opinion as to the Company's
ability to continue as a going concern as a result of an accumulated deficit of
$3,436,092 as of December 31, 1998. The Company's ability to continue as a going
concern is subject to the ability of the Company to obtain a profit and /or
obtaining the necessary funding from outside sources. Management's plan to
address the Company's ability to continue as a going concern, includes: (1)
obtaining funding from strategic partners based upon the Company's strategic
alliance agreement with Inamed. For more infomation on this agreement, see (Item
1. Description of Business; (2)obtaining additional funding from the sale of the
Company's securities; (3) increasing sales in Germany; (4) obtaining FDA
approval to sell its products in the United States; and (5) obtaining loans and
grants from various financial institutions where possible. Although management
believes that it will be able to obtain the necessary funding to allow the
Company to remain a going concern through the methods discussed above, there can
be no assurances that such methods will prove successful.
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<PAGE>
H. IMPACT OF YEAR 2000
General Description of the Year 2000 Issue and the Nature and Effects
of the Year 2000 on Information Technology (IT) and Non- IT Systems. The Year
2000 Issue is the result of computer programs being written using two digits
rather than four to define the applicable year. Any of the Company's computer
programs, hardware or embedded chips, that have date-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices, or engage in similar normal business activities.
Based on recent assessments, the Company determined that it will be
required to modify or replace portions of its distribution and manufacturing
software and certain hardware so that those systems will properly utilize dates
beyond December 31, 1999. The Company presently believes that with modifications
or replacements of certain existing software and hardware, the Year 2000 Issue
can be mitigated. However, even if such modifications and replacements are not
made, or are not completed in a timely manner, the Year 2000 Issue most likely
will not have a material impact on the operations of the Company.
The Company's plan to resolve any Year 2000 Issue involves the
following key phases: inventory, assessment, and remediation. The Company has
categorized its systems into several areas: core systems (i.e. distribution and
manufacturing systems), ancillary support systems to those core systems,
embedded systems, products, and third party vendors.
INVENTORY AND ASSESSMENT. The Company has completed its inventory and
assessment of both its domestic and international core systems, indicating that
at one time, most of the core systems may have been adversely affected had no
actions been taken by the Company. For the ancillary support systems and
embedded systems, the Company has completed its inventory and assessment. This
identified two items that need to be updated. The Company has completed its
inventory and assessment of its product lines and has determined that most of
the products it has sold and will continue to sell do not require remediation to
be Year 2000 compliant. Accordingly, the Company does not believe that the Year
2000 presents a material exposure as it relates to the Company's products.
STATUS OF PROGRESS IN BECOMING YEAR 2000 COMPLIANT. For its domestic
core system exposures related to its distribution and manufacturing software,
the Company has completed all required remediation. For other domestic core
systems, such as desktop computers, networks, and off-the shelf application
software, the Company has completed the remediation.
The Company's current position is that it believes that since the
replacement of potentially vulnerable computers and the updating of software,
none of its core systems, software, third party systems or products will be
adversely affected by the Year 2000 problem. However, due to the unknown nature
of the problem there can be no assurances that the Company will not be effected
in someway by the problem, whether through some unforseen internal system or
through the system of a third party that the Company may depend on for its
communication, supply, distribution or other needs.
The remediation of the identified ancillary and embedded systems is
expected to be complete no later than November 30, 1999.
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NATURE AND LEVEL OF IMPORTANCE OF THIRD PARTIES AND THEIR EXPOSURE TO
THE YEAR 2000. Other than payroll and its banking relationships, the Company has
no other significant direct interfaces with third party vendors. The Company is
in the process of working with key third party vendors to ensure that the
Company's systems that interface directly with third party vendors are Year 2000
compliant by December 31, 1999. The Company understands that key vendors are in
the process of making their systems Year 2000 compliant. Each vendor queried by
the Company believed that its system would be Year 2000 compliant by the end of
1999.
The Company is beginning to query its significant suppliers and
subcontractors that do not share information systems with the Company (external
agents). To date, the Company is not aware of any external agent with a Year
2000 issue that would materially impact the Company's results of operations,
liquidity, or capital resources. The Company has no means of ensuring that
external agents will be Year 2000 ready. The inability of external agents to
complete their Year 2000 resolution process in a timely fashion could materially
impact the Company. The effect of non- compliance by external agents is not
determinable at this time.
All of the Company's queries with third parties have been made orally
and the Company has received no legally enforceable assurances in the event of
default from those third parties.
COSTS. The total cost to the Company of the Year 2000 project is
estimated at no more than $ 30,000 and is being funded through operating cash
flows. To date, the Company has incurred costs of approximately $5,000. This
amount includes upgrading its desktop systems and office software to the latest
release, which the Company would do in the normal course of business. The
majority of these costs relate to new hardware and software and are being
capitalized.
RISKS. Management of the company believes it has an effective program
in place to resolve the Year 2000 issue in a timely manner. The Company has not
yet completed all necessary phases of the Year 2000 program. In the event that
the Company does not complete any additional phases, the Company would be
constrained in taking customer orders, and might be unable to manufacture and
ship certain products, or invoice customers. In addition, disruptions in the
economy generally resulting from Year 2000 issues could also materially
adversely affect the Company.
CONTINGENCY PLANS. The Company currently has no contingency plans in
place in the event it does not complete all phases of the Year 2000 program. The
Company plans to evaluate the status of completion in November 1999 and
determine whether such a plan is necessary.
ITEM 3. DESCRIPTION OF PROPERTY
The Company is headquartered at 623 Hoover St. N.E., Minneapolis,
Minnesota 55413 where it leases office and manufacturing space totaling 15,000
square feet. The Company leases these facilities for $4,791.67 per month until
the January 31, 2001 at which time the lease payments will increase to $5,208.33
until January 31, 2004 at which time the lease will expire.
The Company also leases office and manufacturing space at Am Kieswerk
4, D-40789 Monheim, Germany totaling 10,000 square feet. The terms of the lease
are month to month. The Company leases these facilities for $8,108 per month
including utilities.
21
<PAGE>
The Company believes that its current facilities are generally suitable
and adequate to accommodate its current operations. However, the Company
anticipates that increased sales as a result of expected regulatory clearances
and distribution agreements will necessitate the need for additional
administrative, manufacturing, and laboratory space.
Consequently, the Company is in the preliminary stages of obtaining
sufficient financing to build a new turn key facility in Germany. The Company
currently has plans to build a 20,000 square foot research and development and
manufacturing facility in a technology park located in the City of Duisburg that
will accommodate the Company's needs outside of North America. The site is
expected to be constructed on 4,000 square meters of land. The Company has also
negotiated an option to purchase up to an additional 8,000 square meters of land
for future expansions.
The Company is currently in the process of obtaining an estimated
DM22,300,000 ( approximately US$12.7 million) in government financed loans from
the state government of North Rhine Westphlia to construct the Duisburg
facility. The terms of financing are to include DM17,408,000 (approximately
US$10.2 million) in long term fixed rate government guaranteed loans provided by
IKG AG and a non-repayable grant of DM4,496,000 (approximately US$2.5 million)
provided by the state government of North Rhine Westphalia.
The Company expects to receive the loans and grant monies by the Year
2000 and anticipates that the facilities will be fully operational by July,
2000. Although the Company has entered into the necessary approvals to obtain
the funding and has been tentatively approved to be funded there are several
issues which must be resolved before the Company can obtain the funding. Those
issues include the Company's equity contribution to the German subsidiary that
will be the recipient of the funding.
In the event the Company does not obtain funding necessary to construct
the new facilities, the Company will consider outsourcing the manufacturing of
its products and will investigate other lease or purchase prospects which will
accommodate the Company's expected increase in sales.
[THIS SPACE HAS BEEN LEFT BLANK INTENTIONALLY]
22
<PAGE>
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of the stock of the Company as of June 30, 1999, by each
shareholder who is known by the Company to beneficially own more than 5% of the
outstanding Common Stock, by each director, and by all executive officers and
directors as a group.
<TABLE>
<CAPTION>
Title of Class Name and Address of Amount and nature of Percent of Class
Beneficial Ownership Beneficial Ownership
<S> <C> <C> <C>
Common Ruairidh Campbell 150,000 1.0%
Stock
Common Dr. Aydin Dogan 425,000 3.2%
Stock
Common Dr. Howard Bellin 0 0
Stock
Common Dr. Franz Schain 0 0
Stock
Common All Executive Officers and 575,000 4.2%
Stock Directors as a Group (1)(2)
(Five persons)
</TABLE>
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS
The Officers and Directors of the Company as of June 30, 1999 are as follows:
NAME AGE POSITION
Ruairidh Campbell 36 President/CEO and Director
Dr. Aydin Dogan 46 Vice President and Director
Dr. Howard Bellin 63 Director
Dr. Franz Schain 49 Director
RUAIRIDH CAMPBELL has lead the Company since his appointment as
President in 1995. Mr. Campbell also performs the duties typically performed by
the Chief Financial Officer. During his tenure as president of the Company, Mr.
Campbell has guided the Company's subsidiaries through product development and
introduction to the international marketplace. Mr. Campbell has a depth of
experience managing and financing public companies, particularly through
start-up phases. He is licensed as an attorney in the State of California with a
Doctor of Jurisprudence from the University of Utah College of Law. Mr. Campbell
sits on the Board of Directors for Bren-Mar Resources, Inc, Allied Resources,
Inc., and Fernsoft Syence Ltd. Plc.
DR. AYDIN DOGAN while acting as the Company's Vice-President also serves
as the President of the Company's German subsidiary, NovaMedical Products GmbH.
Prior to his involvement with the Company
23
<PAGE>
in 1994, Dr. Dogan was the product manager for Genetic Laboratories, Inc. of St
Paul, Minnesota. He has also held positions as Sales Marketing Manager and
Managing Director of Bioplasty GmbH located in Cologne, Germany. Dr. Dogan holds
a Ph.D. in Chemistry from the University of Cologne.
DR. FRANZ SCHAIN is a physician who owns a private clinic and
Ambulatory Care Centre in Hanover, Germany. He is a specialist in knee diseases
who has been engaged for his expertise by the national football teams of
Bulgaria, Zimbabwe, and Nepal. Dr. Schain holds medical degrees from the
Universities of Bonn, Essen, and Muelheim. He is also a member of the American
Association of Arthroscopy.
DR. HOWARD BELLIN is a board certified plastic and reconstructive
surgeon with 29 years of private practice experience. He has extensive expertise
in breast augmentation, having performed nearly 2,000 of these procedures. He
has participated in three clinical trials of breast implants for FDA submissions
on behalf of breast implant manufacturers. Dr. Bellin has also published on this
subject in the Journal of Plastic and Reconstructive Surgery. Dr. Bellin is a
graduate of Amherst College and New York Medical College. He interned at the
University of California, San Francisco, had a residency in general surgery at
New York Medical College, and trained in plastic surgery at Columbia
Presbyterian Medical Center in New York City. He has taught at Columbia
University's College of Physicians and Surgeons and at New York Medical College.
Dr. Bellin was chief of plastic surgery at Cabrini Medical Center, and for the
past 15 years has owned and directed the CosMedica Plastic Surgery Center in New
York City.
[THIS SPACE HAS BEEN LEFT BLANK INTENTIONALLY]
24
<PAGE>
ITEM 6. EXECUTIVE COMPENSATION
The following table provides summary information for the years 1998,
1997 and 1996 concerning cash and noncash compensation paid or accrued by the
Company to or on behalf of president and the only other employee to receive
compensation in excess of $100,000.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation
Awards Payout
Restricted Securities
Name and Other Annual Stock Underlying LTIP All Other
Principal Year Salary Bonus Compensation Award(s) Options payouts Compensation
Position ($) ($) ($) ($) SARs(#) ($) ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
RUAIRIDH1 1998 120,000 - - - - - -
Campbel(l) 1997 61,875 - - - - - -
President 1996 42,500 - - - - - -
DR. AYDIN,(2)
President of 1998 160,000 - - - - - -
NovaMedical 1997 160,000 - - - - - -
Products 1996 160,000 - - - - - -
GmbH
</TABLE>
COMPENSATION OF DIRECTORS
The Company's directors are currently not compensated for their
services as director of the Company.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company leases one of its facilities from Gunther Biesel, a
shareholder who may have been deemed to be a control person up until July of
1998 at which time he resigned his position as a Company director. The lease
requires monthly payments of approximately $8,000 per month. Rent expense for
the periods ended December 31, 1998 and 1997 was approximately $96,000 each
year. Amounts due under this lease agreement at December 31, 1998 and 1997 was
approximately $179,400 and $259,350, respectively.
- --------
(1) Ruairidh Campbell received a grant of 55,000 options with an exercise
of $1.30 a share pursuant to the Company's stock option plan on March 19, 1999
(2) Dr. Aydin Dogan received a grant of 100,000 options with an exercise
price of $1.30 a share pursuant to the Company's Stock Option Plan on March 19,
1999.
25
<PAGE>
ITEM 8. DESCRIPTION OF SECURITIES
DIVIDEND, VOTING AND PREEMPTION RIGHTS
The Company only has one class of authorized shares: $.001 par value
common stock. Holders of common stock are entitled to receive ratably such
dividends as may be declared by the Board of Directors out of funds legally
available therefore. For more information on the Company's dividend policy, see
"Item 1. Market Price of and Dividends on the Registrant's Common Equity and
Other Shareholder Matters."
Holders of the Company's common stock are entitled to one vote for each
share held of record on all matters submitted to a vote of the security holders.
At all elections of directors of the Company, each holder of stock possessing
voting power is entitled to as many votes as equal to the number of his or her
shares of stock multiplied by the number of directors to be elected. Such votes
may be cast for a single director, for any two or more directors, or distributed
among the directors as he or she sees fit (cumulative voting).
In the event of a liquidation, dissolution or winding up of the
Company, holders of common stock are entitled to share ratably in all assets
remaining after payment of liabilities and the liquidation preference of any
other securities. The common stock has no preemptive or other subscription
rights. There are no redemption of sinking fund provisions applicable to the
common stock. All outstanding shares of common stock are duly authorized, fully
paid, and nonassessable.
[THIS SPACE HAS BEEN LEFT BLANK INTENTIONALLY]
26
<PAGE>
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY
AND OTHER SHAREHOLDER MATTERS
The Company's common stock is traded on Over the Counter Bulletin Board
under the symbol "NVMD.OB".
The table below sets forth the high and low sales prices for the
Company's Common Stock for each quarter of 1997, 1998 and the first two quarters
of 1999. The quote given for the third quarter in 1998 forward reflects a 1 for
14 reverse split which the Company effected on April 14, 1998. The quotations
below reflect inter-dealer prices, without retail mark-up, mark-down or
commission and may not represent actual transactions:
QUARTER HIGH LOW
------- ---- ---
1997 First $0 $0
Second $0 $0
Third $0 $0
Fourth $4.00 $4.00
QUARTER HIGH LOW
------- ---- ---
1998 First $4.50 $.025
Second(3) $8.00 $1.87
Third $5.44 $1.78
Fourth $2.38 $0.94
QUARTER HIGH LOW
------- ---- ---
1999 First $2.63 $1.06
Second $2.06 $1.50
- --------
(3)Prices reflect a 1 for 14 reverse split effected by the Company on April
14,1998.
27
<PAGE>
A. RECORD HOLDERS
As of June 30, 1999 there were approximately 377 shareholders of
record holding a total of 13,845,852 shares of Common Stock. The holders of the
Common Stock are entitled to one vote for each share held of record on all
matters submitted to a vote of stockholders. Holders of the Common Stock have no
preemptive rights and no right to convert their Common Stock into any other
securities. There are no redemption or sinking fund provisions applicable to the
Common Stock.
B. DIVIDENDS
The Company has not declared any cash dividends since inception and
does not anticipate paying any dividends in the foreseeable future. The payment
of dividends is within the discretion of the Board of Directors and will depend
on the Company's earnings, capital requirements, financial condition, and other
relevant factors. There are no restrictions that currently limit the Company's
ability to pay dividends on its Common Stock other than those generally imposed
by applicable state law.
ITEM 2. LEGAL PROCEEDINGS
The Company is currently not a party to any pending legal proceeding
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
The Company has had no changes in or disagreements with its accountants
in its two most recent fiscal or any later interim period.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
The following is a list of all securities sold by the Company within
the last three years or since its on November 26, 1996 including, where
applicable, the identity of the person who purchased the securities, title of
the securities, and the date sold are outlined below.
On December 6, 1996, the Company issued a total of 1,000,000 shares of
it common stock (Pre 1- for-14 reverse split shares) for $10,000 or $.01 per
share to two individuals pursuant to section 4(2) of the Securities Act of 1933
in an isolated private transaction by the Company which did not involve a public
offering. The two individuals included:
1. Frank J. Weinstock an original incorporator of the Company and
former president and director of the Company was issued
750,000 shares for $7,500.
2. Trish R. Francis an original incorporator of the Company and
former secretary/treasurer and director of the Company was
issued 250,000 shares for $2,500.
28
<PAGE>
On February 3, 1997, the Company issued a total of 1,000,000 shares of
its common stock (pre 1- for-14 reverse split shares) pursuant to Rule 504 of
Regulation D of the Securities Act of 1933 to 35 persons for $40,000 or $.04 per
share. The Company relied on the following facts in determining that Rule 504
Regulation D was available: (a) the Company was not subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act; (b) the Company was
formed for the express purpose of evaluating the merits of acquiring Monojet,
Inc. and therefore, was neither a development stage company with no specific
business plan or purpose nor a company whose plan was to merger with an
unidentified company; (c) the aggregate offering price did not exceed $1,000,000
and (d) the Company filed a Form D within 15 days of the first sale of the
shares subject to the offering. The Company also distributed a disclosure
document to the 35 investors and offered to allow them to inspect the books and
records of the Company.
On July 31, 1997 , the Company issued a total of 20,000 shares of its
common stock .(Pre 1-for-14 reverse split shares) for $800 or $.01 per share to
David Lemburg pursuant to section 4(2) of the Securities Act of 1933 in an
isolated private transaction by the Company which did not involve a public
offering.
On February 25, 1998, the Company entered into a Stock Purchase
Agreement and Sale Agreement with NovaMed Medical Products, Inc. pursuant to
which the Company issued 6,301,558 shares of its commons stock to NovaMed
Medical Products, Inc. in exchange for a 100% interest in the following
entities: (1) NovaMed Medical Products Manufacturing, Inc.; (2) NovaMedical
Products GmbH and (3) NovaMed Medical Supplies Corporation. The Company issued
the 6,301,558 shares (post 1-for-14 reverse split)on April 14, 1998 pursuant to
Regulation S and Rule 505 of Regulation D. As a result of the business
combination, approximately 300 shareholders of NovaMed Medical Products, Inc.
received shares in the Company pursuant to Regulation S and approximately 30
shareholders received shares pursuant to Rule 505 of Regulation D.
The Company relied on Regulation S in its distribution to the Non U.S.
persons based upon the following factors:
1. The Company obtained written agreements from the Non
U.S. persons that provided the following: (a) that
they will not sell their shares unless the shares are
registered under the Securities Act of 1933 (the
"Act")or an exemption from registration becomes
available or in accordance with Regulation S; and (b)
that they will not engage in hedging transactions
except as permitted by the Act; and
2 The Company placed a Restrictive Rule 144 legend on
all shares issued to the Non U.S. persons.
The Company is claiming an exemption from registration based upon Rule
505 in the issuance of shares to the U.S. persons based upon the following
factors:
1. The Company did not file a Form D, but believes that
it complied with the general Rules of Rule 501
through 503. According to Release No. 6825, filing a
Form D is not a condition to claiming a valid
exemption under Rule 504, 505 or 506.
2. The number of unaccredited U.S. investors did not
exceed 35 (only 30 U.S. investors total).
29
<PAGE>
3. The Company has reason to believe that all of the
shares were issued to accredited investors and in no
event did the number of unaccredited investors exceed
35 persons. The Company distributed its shareholder
disclosure documents to the individuals.
4. The Company is not disqualified from relying on Rule
505 because neither it nor its affiliates or
predecessors are described in Rule 262.
On June 30, 1998, the Company issued a total of 7,000,000 shares of it
common stock at $.10 per share pursuant to a Private Placement. The Company
issued the 7,000,000 shares of its common stock pursuant to Rule 504 under
Regulation D of the Securities Act of 1933. The Company issued the 7,000,000
shares to 26 accredited investors who were given a Private Placement Memorandum.
The Company 7,000,000 shares at $0.10 a share to the following individuals. The
Company relied on the following facts in determining that Rule 504 Regulation D
was available: (a) the Company was not subject to the reporting requirements of
Section 13 or 15(d) of the Exchange Act; (b) the Company was engaged in the
manufacture and sale of medical products and therefore was neither a development
stage company with no specific business plan or purpose nor a company whose plan
was to merger with an unidentified company; (c) the aggregate offering price did
not exceed $1,000,000 and (d) the Company filed a Form D within 15 days of the
first sale of the shares subject to the offering. The Company also distributed a
Private Placement Memorandum to the 26 investors and offered to allow them to
inspect the books and records of the Company.
In June of 1999, the Company issued 200,000 shares of common stock at
$1.10 per share to Euro Pacific Securities Service GmbH & Co. KG as compensation
for services rendered pursuant to section 4(2) of the Securities Act of 1933 in
a private transaction by the Company which did not involve a public offering.
In June of 1999, the Company issued 200,000 shares of common stock at
$1.10 per share to Euro Pacific Securities Service GmbH & Co. KG for cash
pursuant to section 4(2) of the Securities Act of 1933 in a private transaction
by the Company which did not involve a public offering.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Bylaws and section 78.751 of the Nevada Revised Statutes
provide for indemnification of the Company's officers and directors in certain
situations where they might otherwise personally incur liability, judgments,
penalties, fines and expenses in connection with a proceeding or lawsuit to
which they might become parties because of their position with the Company.
Section 78.751. Indemnification of officers, directors, employees and
agents; advancements of expenses, states the following:.
1. A corporation may indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, except an action by or in the
right of the corporation, by reason of the fact that he is or was
a director, officer, employee or agent of the corporation, or is
or was serving at the request of the corporation as a director,
officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses,
including attorneys' fees, judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection
with the action, suit or
30
<PAGE>
proceeding if he acted in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests
of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was
unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent, does not, of itself, create a
presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to
the best interests of the corporation, and that, with respect to
any criminal action or proceeding, he had reasonable cause to
believe that his conduct was unlawful.
2. A corporation may indemnify an person who was or is a party or is
threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that he is
or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against
expenses, including amounts paid in settlement and attorneys'
fees actually and reasonably incurred by him in connection with
the defense or settlement of the action or suit if he acted in
good faith and in a manner which he reasonably believed to be in
or not opposed to the best interests of the corporation.
Indemnification may not be made for any claim, issue or matter as
to which such a person has been adjudged by a court of competent
jurisdiction, after exhaustion of all appeals therefrom, to be
liable to the corporation or for amounts paid in settlement to
the corporation, unless and only to the extent that the court in
which the action or suit was brought or other court of competent
jurisdiction determines upon application that in view of all the
circumstances of the case, the person is fairly and reasonable
entitled to indemnity for such expenses as the court deems
proper.
3. To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in
defense of any action, suit or proceeding referred to in
subsections 1 and 2, or in defense of any claim, issue or matter
therein, he must be indemnified by the corporation against
expenses, including attorneys' fees, actually and reasonably
incurred by him in connection with the defense.
4. Any indemnification under subsections 1 and 2, unless ordered by
a court or advanced pursuant to subsection 5, must be made by the
corporation only as authorized in the specific case upon a
determination that indemnification of the director, officer,
employee or agent is proper in the circumstances. The
determination must be made:
(a) By the stockholders;
(b) By the board of directors by majority vote of a
quorum consisting of directors who were not parties
to the act, suit or proceeding;
(c) If a majority vote of a quorum consisting of
directors who were not parties to the act, suit or
proceeding so orders, by independent legal counsel in
a written opinion; or
(d) If a quorum consisting of directors who were not
parties tot he act, suit or proceeding cannot be
obtained, by independent legal counsel in a written
opinion.
31
<PAGE>
5. The articles of incorporation, the bylaws or an agreement made by
the corporation may provide that the expenses of officers and
directors incurred in defending a civil or criminal action, suit
or proceeding must be paid by the corporation as they are
incurred and in advance of the final disposition of the action,
suit or proceeding, upon receipt of an undertaking by or on
behalf of the director or officer to repay the amount if it is
ultimately determined by a court of competent jurisdiction that
he is not entitled to be indemnified by the corporation. The
provision of this subsection do not affect any rights to
advancement of expenses to which corporate personnel other than
directors or officers may be entitled under any contract or
otherwise by law.
6. The indemnification and advancement of expenses authorized in or
ordered by a court pursuant to this section:
(a) Does not exclude any other rights to which a person seeking
indemnification or advancement of expenses may be entitled
under the articles of incorporation or any bylaw, agreement,
vote of stockholders or disinterested directors or
otherwise, for either an action in his official capacity or
an action in another capacity while holding his office,
except that indemnification, unless ordered by a court
pursuant to subsection 5, may not be made to or on behalf of
any director or officer if a final adjudication establishes
that his acts or omissions involved intentional misconduct,
fraud or a knowing violation of the law and was material to
the cause of action.
(b) Continues for a person who has ceased to be a director,
officer, employee or agent and inures to the benefit of the
heirs, executors and administrators of such a person.
To the extent that indemnification may be related to liability arising
under the Securities Act, the Securities and Exchange Commission takes the
position that indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.
[THIS SPACE HAS BEEN LEFT BLANK INTENTIONALLY]
32
<PAGE>
PART F/S
The Company's financial statements for the fiscal year ended December
31, 1998 and the interim reports for June 30, 1999 are attached hereto as F-1
through F-14.
[THIS SPACE HAS BEEN LEFT BLANK INTENTIONALLY]
33
<PAGE>
NOVAMED INC.
Index to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Page
Independent auditors' report F-2
Consolidated balance sheet F-3
Consolidated statement of operations F-4
Consolidated statement of stockholders' equity F-5
Consolidated statement of cash flows F-6
Notes to consolidated financial statements F-7
- --------------------------------------------------------------------------------
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
and Stockholders of NovaMed, Inc.
We have audited the accompanying consolidated balance sheet of NovaMed, Inc. and
Subsidiaries, as of December 31, 1998 and 1997, and the related consolidated
statements of operations, stockholders' equity (deficit), and cash flows for the
years then ended. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of NovaMed, Inc. and
Subsidiaries, as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for the years then ended, in conformity with
generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company has an accumulated deficit and
has incurred losses since inception. These conditions raise substantial doubt
about its ability to continue as a going concern. Management's plans regarding
those matters also are described in Note 2. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/ TANNER + CO.
Salt Lake City, Utah
February 18, 1999
F-2
<PAGE>
<TABLE>
<CAPTION>
NOVAMED, INC.
Consolidated Balance Sheet
- -----------------------------------------------------------------------------------------------------------
June 30, 1999 December 31,
------------------------------
Assets (Unaudited) 1998 1997
- ------
----------------------------------------------------
<S> <C> <C> <C>
Current assets:
Cash $ 219,445 $ 129,754 $ 46,465
Receivables, net 371,705 330,826 102,181
Inventories 300,205 483,300 476,062
Prepaid expenses 26,371 1,707 92,341
----------------- ------------- -------------
Total current assets 917,726 945,587 717,049
Property and equipment, net 34,173 36,076 35,956
----------------- ------------- -------------
$ 951,899 $ 981,663 $ 753,005
----------------- ------------- -------------
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Liabilities and Stockholders' Equity (Deficit)
<S> <C> <C> <C>
Current liabilities:
Accounts payable $ 358,967 $ 379,202 $ 268,337
Accrued expenses 131,970 62,102 198,200
Related party payables 163,273 179,400 3,479,617
----------------- ------------- --------------
Total current liabilities 654,210 620,704 3,946,154
----------------- ------------- --------------
Commitments and contingencies - - -
Stockholders' equity (deficit):
Common stock, $.001 par value,
50,000,000 shares authorized;
13,845,852, 13,445,852 and
6,301,558
shares issued and outstanding, 13,846 13,446 6,302
respectively
Additional paid-in capital 4,266,480 3,699,077 -
Stock subscription receivable (165,000) - -
Cumulative translation adjustment 75,002 84,528 23,293
Accumulated deficit (3,892,639) (3,436,092) (3,222,744)
------------------ ----------- -----------
Total stockholders' equity (deficit) 297,689 360,959 (3,193,149)
----------------- ----------- -----------
$ 951,899 $ 981,663 $ 753,005
---------------- ------------- --------------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
NOVAMED, INC.
Consolidated Statement of Operations
- -----------------------------------------------------------------------------------------------------------
Six Months Ended
June 30, Years Ended
(Unaudited) December 31,
----------------------------------------------------------------------
1999 1998 1998 1997
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 986,127 $ 634,131 $ 1,266,821 $ 1,015,207
----------------- ------------ -------------- ---------------
Costs and expenses:
Cost of sales 690,972 472,154 973,965 669,910
Selling, general and
administrative 647,989 214,068 506,204 1,442,521
Research and
development 204,100 - - -
----------------- ------------ -------------- --------------
1,543,061 686,222 1,480,169 2,112,431
----------------- ------------ -------------- ---------------
Operating loss (556,934) (52,091) (213,348) (1,097,224)
Other income 100,387 598 - -
----------------- ------------- --------------- ---------------
Loss before income taxes (456,547) (51,493) (213,348) (1,097,224)
Income taxes - - - -
----------------- ------------- -------------- --------------
Net loss $ (456,547) $ (51,493) $ (213,348) $ (1,097,224)
------------------ ------------- --------------- ---------------
Other comprehensive
income - foreign currency
translation, net of taxes of
$26,000, $22,000, $20,000
and $6,000, respectively 50,470 43,832 40,415 12,395
----------------- ------------ -------------- -------------
Total $ (406,077) $ (7,661) $ (172,903) $ (1,084,829)
------------------ -------------- --------------- ---------------
Loss per common share -
basic and diluted $ (.0) $ (.01) $ (.02) $ (.17)
------------------ ------------- -------------- ---------------
Weighted average shares
- - basic and diluted $ 13,513,000) $ 7,492,000) $ 9,874,000) $ 6,302,000
------------------ --------------- -------------- --------------
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statement of Stockholders' Equity (Deficit)
For the Years Ended December 31, 1998 and 1997
and the Six Months Ended June 30, 1999 (Unaudited)
- -------------------------------------------------------------------------------------------------------------------
Additional Stock Cumulative
Common Stock Paid-in Subscription Translation Accumulated
Shares Amount Capital Receivable Adjustment Deficit
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997 2,000 $ 2 $ - $ - $ 4,513 $ (2,119,220)
Restatement for reverse
acquisition of Conceptual
Technologies, Inc. by
NovaMed Subsidiaries 6,299,558 6,300 - - - (6,300)
Cumulative translation
adjustment - - - - 18,780 -
Net loss - - - - - (1,097,224)
------------ --------- ----------- --------- ----------- ---------------
Balance at
December 31, 1997 6,301,558 6,302 - - 23,293 (3,222,744)
Acquisition of Conceptual
(see note 1) 144,294 144 (144) - - -
Issuance of common stock
for cash 7,000,000 7,000 629,000 - - -
Capital contribution - - 3,070,221 - - -
Cumulative translation
adjustment - - - - 61,235 -
Net loss - - - - - (213,348)
------------ --------- ----------- -------- ----------- ---------------
Balance at
December 31, 1998 13,445,852 13,446 3,699,077 - 84,528 (3,436,092)
Stock issued for:
Services (unaudited) 200,000 200 219,800 - - -
Receivable (unaudited) 200,000 200 219,800 (220,000) - -
Payments on stock
subscription receivable
(unaudited) - - - 55,000 - -
Stock compensation
(unaudited) - - 127,803 - - -
Cumulative translation
adjustment (unaudited) - - - - (9,526) -
Net loss (unaudited) - - - - - (568,602)
------------ --------- ----------- --------- ------------- ---------------
Balance at
June 30, 1999 (unaudited) 13,845,852 $ 13,846 $ 4,266,480 $ (165,000 $ 75,002 $ (4,004,694)
</TABLE>
------------------------------------------------------
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
NOVAMED, INC.
Consolidated Statement of Cash Flows
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended June 30, Year Ended
(Unaudited) December 31,
----------------------------------------------------------------
1999 1998 1998 1997
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (456,547) $ (51,493) $ (213,348) $ (1,097,224)
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation 1,903 4,508 3,523 149
Stock issued for services 220,000 - - -
Stock based compensation 127,803 - - -
(Increase) decrease in:
Receivables (40,879) (88,287) (228,645) 124,196
Inventories 183,095 81,295 (7,238) 101,116
Prepaid expenses (24,664) 18,915 90,634 27,671
Other - (27,544) - -
Increase (decrease) in:
Accounts payable (20,235) (5,095) 110,865 (443,845)
Accrued expenses 69,868 237,861 (136,098) 123,721
Related party payable (16,127) (352,256) (229,996) 1,169,320
-------------- ----------- ----------- ------------
Net cash provided by
(used in) operating
activities 44,217 (182,096) (610,303) 5,104
------------- ----------- ----------- ------------
Cash flows from investing activities-
purchase of property and equipment - - (3,643) (5,859)
------------- ---------- ----------- ------------
Cash flows from financing activities:
Proceeds from note payable - 97,910 - -
Issuance of common stock 55,000 636,000 636,000 -
------------- ---------- ---------- -----------
Net cash provided by
financing activities 55,000 733,910 636,000 -
------------- ---------- ---------- -----------
Effect of exchange rate changes on cash (9,526) 42,539 61,235 18,780
------------- ---------- ---------- ------------
Net increase in cash 89,691 594,353 83,289 18,025
Cash, beginning of period 129,754 28,440 46,465 28,440
------------- ---------- ---------- ------------
Cash, end of period $ 219,445 $ 622,793 $ 129,754 $ 46,465
---------------- ------------ ----------- ------------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
NOVAMED, INC.
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
- --------------------------------------------------------------------------------
1. Organization and Presentation
On June 29, 1998, NovaMed, Inc. (formerly Conceptual Technologies, Inc.)
(Conceptual) closed a Stock Purchase and Sale agreement with International
Medical Products, Inc. (formerly NovaMed Medical Products Incorporated) (IMP)
whereby Conceptual purchased all of the issued and outstanding common stock of
IMP's wholly owned subsidiaries, consisting of NovaMed Medical Products
Manufacturing, Inc., NovaMed Medical Supplies Corporation and Novamedical
Products GmbH (the Subsidiaries) (the Company) in exchange for 6,301,553 common
shares of Conceptual, and the commitment to complete a private placement of its
common stock which occurred prior to December 31, 1998. The Company is engaged
primarily in the development, manufacture and sale of mammary prostheses
products. The flagship product is NOVAGOLD, a pre-filled hydrogel textured
single lumen breast implant that utilizes a unique water based filling material
that is designed to be biocompatible, and has been approved for sale in Europe
under the CE Mark regulatory process since February 1996.
The consolidated financial statements at December 31, 1998 and 1997 assumes the
acquisition of Conceptual by the Subsidiaries, occurred January 1, 1997. Because
the shares issued in the acquisition of the Subsidiaries represent control of
the total shares prior to the private placement of Conceptual's common stock
issued and outstanding immediately following the acquisition, the Subsidiaries
are deemed for financial reporting purposes to have acquired Conceptual in a
reverse acquisition. The business combination has been accounted for as a
recapitalization of Conceptual giving effect to the acquisition of 100% of the
outstanding common shares of the Subsidiaries. The surviving entity reflects the
assets and liabilities of Conceptual and the Subsidiaries at their historical
book value and the historical operations of the Company are those of the
Subsidiaries. The issued common stock is that of Conceptual and the accumulated
deficit is that of the Subsidiaries. The statement of operations is that of the
Subsidiaries for the two years ending December 31, 1998 and that of Conceptual
from June 29, 1998 (date of acquisition) through December 31, 1998. Separate
breakout of operations for Conceptual have not been presented as the amounts not
related to the Subsidiaries is immaterial.
- --------------------------------------------------------------------------------
F-7
<PAGE>
NOVAMED, INC.
Notes to Consolidated Financial Statements
Continued
- --------------------------------------------------------------------------------
2. Significant Accounting Policies
Going Concern
At December 31, 1998 the Company had, an accumulated deficit of $3,436,092 and
has incurred losses since inception. These conditions raise substantial doubt
about the ability of the Company to continue as a going concern. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
The Company's ability to continue as a going concern is subject to the
attainment of profitable operations and/or obtaining necessary funding from
outside sources. The Company plans to increase sales from obtaining U.S. Food
and Drug Administration (FDA) clearance for the sale of its products in the
United States. The Company is also currently seeking additional capital through
both private and public sources.
However, there can be no assurance they will be successful.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company, and
its wholly-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated.
Cash Equivalents
For purposes of the statement of cash flows, cash includes all cash and
investments with original maturities to the Company of three months or less.
Inventories
Inventories are recorded at the lower of cost or market, cost being determined
on a first-in, first-out (FIFO) method.
Property and Equipment
Property and equipment are recorded at cost, less accumulated depreciation.
Depreciation and amortization on property and equipment is determined using the
straight-line method over the estimated useful lives of the assets. Expenditures
for maintenance and repairs are expensed when incurred and betterments are
capitalized. Gains and losses on sale of property and equipment are reflected in
operations.
- --------------------------------------------------------------------------------
F-8
<PAGE>
NOVAMED MEDICAL PRODUCTS INCORPORATED
Notes to Consolidated Financial Statements
Continued
- --------------------------------------------------------------------------------
2. Significant Accounting Policies Continued
Income Taxes
Deferred income taxes are provided in amounts sufficient to give effect to
temporary differences between financial and tax reporting.
Foreign Currency Translation
Revenues and expenses denominated in foreign currencies are translated at
average monthly exchange rates during the year. Assets and liabilities are
translated into U.S. dollars based upon exchange rates prevailing at the end of
each year. The resulting translation adjustment is a component of shareholders'
deficit.
Revenue Recognition
Revenue is recognized upon shipment of product.
Loss Per Common and Common Equivalent Share The computation of basic earning per
common share is based on the weighted average number of shares outstanding
during each year.
The computation of diluted earnings per common share is based on the weighted
average number of shares outstanding during the year plus the common stock
equivalents which would arise from the exercise of stock options and warrants
outstanding using the treasury stock method and the average market price per
share during the year.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to concentration of
credit risk consist primarily of trade receivables. In the normal course of
business, the Company provides credit terms to its customers. Accordingly, the
Company performs ongoing credit evaluations of its customers and maintains
allowances for possible losses which, when realized, have been within the range
of management's expectations.
The Company maintains its cash in bank deposit accounts which, at times, may
exceed federally insured limits. The Company has not experienced any losses in
such account and believes it is not exposed to any significant credit risk on
cash and cash equivalents.
- --------------------------------------------------------------------------------
F-9
<PAGE>
NOVAMED MEDICAL PRODUCTS INCORPORATED
Notes to Consolidated Financial Statements
Continued
- --------------------------------------------------------------------------------
2. Significant Accounting Policies Continued
Use of Estimates in the Preparation of Financial Statements The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Unaudited Information
In the opinion of management, the accompanying unaudited financial statements
for the six month periods ended June 30, 1999 and 1998 contain all adjustments
(consisting only of normal recurring items) necessary to present fairly the
results of operations and cash flows of the Company for the six month period
ended June 30, 1999 and 1998.
3. Detail of Certain Balance Sheet Accounts
December 31
-----------------------------------
1998 1997
-----------------------------------
Receivables:
Trade receivables $ 225,880$ 102,181
Other receivables 104,946 -
-----------------------------------
$ 330,826$ 102,181
-----------------------------------
Inventories:
Finished goods $ 420,201$ 366,545
Work-in-process 16,849 96,494
Raw materials 46,250 13,023
-----------------------------------
$ 483,300$ 476,062
-----------------------------------
- --------------------------------------------------------------------------------
F-10
<PAGE>
NOVAMED MEDICAL PRODUCTS INCORPORATED
Notes to Consolidated Financial Statements
Continued
- --------------------------------------------------------------------------------
4. Property and Equipment
December 31
------------------------------------
1998 1997
------------------------------------
Property and equipment consist of the following:
Equipment and fixtures $ 50,673$ 47,030
Less accumulated depreciation (14,597) (11,074)
------------------------------------
$ 36,076$ 35,956
------------------------------------
5. Related Party Transactions
The Company leases one of its facilities from a shareholder. The lease requires
monthly payments of approximately $8,000 per month. Rent expense for the periods
ended December 31, 1998 and 1997 was approximately $96,000 each year. Amounts
due under this lease agreement at December 31, 1998 and 1997 was approximately
$179,400 and $259,350, respectively.
At December 31, 1997, the Company owed International Medical Products, Inc. (see
Note 1) approximately $3,220,000 related to cash advances made to facilitate
operations. On June 29, 1998, the amounts owed to IMP (totaling $3,070,221) were
contributed to the Company as additional capital.
- --------------------------------------------------------------------------------
F-11
<PAGE>
NOVAMED MEDICAL PRODUCTS INCORPORATED
Notes to Consolidated Financial Statements
Continued
- --------------------------------------------------------------------------------
6. Income Taxes
The provision for income taxes is different than amounts which would be provided
by applying the statutory federal income tax rate to loss before the provision
for income taxes for the following reasons:
Years Ended
December 31,
-----------------------------------
1998 1997
-----------------------------------
Federal income tax benefit at
statutory rate $ 73,000 $ 373,000
Change in valuation allowance (73,000) (373,000)
-----------------------------------
$ - $ -
-----------------------------------
At December 31, 1998, the Company has a net operating loss carryforward
available to offset future taxable income of approximately $2,200,000, which
beings to expire in 2010. The amount of net operating loss carryforward that can
be used in any one year will be limited by the applicable tax laws which are in
effect at the time such carryforward can be utilized. The change in ownership of
the Company may reduce the amount of loss allowable.
Deferred tax assets (liabilities) are comprised of the following:
December 31
-----------------------------------
1998 1997
-----------------------------------
Net operating loss carryforward $ 748,000 $ 675,000
Valuation allowance (748,000) (675,000)
-----------------------------------
$ - $ -
-----------------------------------
- --------------------------------------------------------------------------------
F-12
<PAGE>
NOVAMED MEDICAL PRODUCTS INCORPORATED
Notes to Consolidated Financial Statements
Continued
- --------------------------------------------------------------------------------
7. Supplemental Cash Flow Information
During the year ended December 31, 1998, a note payable of $3,070,077 was
contributed to capital (see note 5).
Years Ended
December 31
-----------------------------------
1998 1997
-----------------------------------
Interest $ - $ 378
-----------------------------------
Income taxes $ - $ -
-----------------------------------
8. Earnings Per Share
Financial accounting standards requires companies to present basic earnings per
share (EPS) and diluted earnings per share along with additional informational
disclosures. Information related to earnings per share is as follows:
Earnings per share information is as follows:
Years Ended
December 31
-----------------------------------
1998 1997
-----------------------------------
Net loss available to common
stockholders $ (213,348) $ (1,097,224)
-----------------------------------
Average equivalent shares
(basic and diluted) 9,874,000 6,302,000
-----------------------------------
Net loss per share
(basic and diluted) $ (.02) $ (.17)
-----------------------------------
9. Stock Split
As part of the reverse acquisition described under note 1, Conceptual had a
reverse stock split exchange of one share received for every fourteen shares
owned.
The financial statements have been adjusted to reflect the stock split as if it
had occurred January 1, 1997.
- --------------------------------------------------------------------------------
F-13
<PAGE>
NOVAMED MEDICAL PRODUCTS INCORPORATED
Notes to Consolidated Financial Statements
Continued
- --------------------------------------------------------------------------------
10. Commitments and Contingencies
The Company may become or is subject to investigations, claims or lawsuits
ensuing out of the conduct of its business, including those related to product
safety and health, product liability, commercial transactions, etc. The Company
is currently not aware of any such items which it believes could have a material
adverse effect on its financial position.
11. Fair Value of Financial Instruments
All financial instruments are held for purposes other than trading. The Company
estimates that the fair value of all financial instruments at December 31, 1998,
does not differ materially from the aggregate carrying values of its financial
instruments recorded in the accompanying consolidated balance sheet. The
estimated fair value amounts have been determined by the Company using available
market information and appropriate valuation methodologies. Considerable
judgement is necessarily required in interpreting market data to develop the
estimates of fair value, and, accordingly, the estimates are not necessarily
indicative of the amounts that the Company could realize in a current market
exchange.
12. Sales
Substantially all sales by the Company were made in Europe for the years ending
December 31, 1998 and 1997.
- --------------------------------------------------------------------------------
F-14
<PAGE>
PART III
ITEM 1. EXHIBITS
(A) EXHIBITS. Exhibits required to be attached are listed in the Index to
Exhibits beginning on page 36 of this form 10-SB under "Item 2.
Description of Exhibits."
[THIS SPACE HAS BEEN LEFT BLANK INTENTIONALLY]
34
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized, this 26th day of November 1999.
NovaMed, Inc.
/s/ Ruairidh Campbell
Name: Ruairidh Campbell
Title: President, CEO and Director
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.
Signature Title Date
/s/ Ruairidh Campbell
Ruairidh Campbell President/CEO and Director 26 November 1999
/s/ Dr. Aydin Dogan
Dr. Aydin Dogan Vice President and Director 26 November 1999
/s/ Dr. Howard Bellin
Dr. Howard Bellin Director 26 November 1999
/s/ Dr. Franz Schain
Dr. Franz Schain Director 26 November 1999
35
<PAGE>
ITEM 2. DESCRIPTION OF EXHIBITS.
INDEX TO EXHIBITS
Exhibit
No. Page No. Description
2(i) 37 Articles of Incorporation of the Company formerly known as
Conceptual Technologies, Inc., a Nevada corporation dated
November 26, 1996.
2(ii) 41 Certificate of Amendment of the Articles of Incorporation of
the Company filed on August 29, 1997 effecting the 1-for-14
reverse split and rounding each fractional share to one whole
share.
2(iii) 43 Certificate of Amendment of the Articles of Incorporation of
the Company changing the name from Conceptual Technologies,
Inc. to NovaMed, Inc.
2(iv) 45 By-laws of the Company adopted on November 12, 1996.
Material Contracts
6(i) 51 Stock Purchase and Sale Agreement between Conceptual Tech-
nologies, Inc. and NovaMed Medical Products, Inc. dated
February 25, 1998, pursuant to which the Company acquired all
of its current operations
6(ii) 62 Letter Agreement-Strategic Alliance between the Company and
Inamed, Inc. dated March 25, 1999 for the sale of the
Company's NOVAGOLD implant internationally and the sale of the
NOVASALINE pre-filled implants.
6(iii) 67 Second Amendment to the Lease Agreement between the Company
and Michelle Realty Company dated October 8, 1998 for the
lease of the Company's office and manufacturing facilities in
Minnesota.
6(iv) 68 The Company's Stock Option Plan dated March 19,1999, reserving
a maximum of 500,000 shares of common stock to provide
incentives to officer, and key employees.
6(v) 79 Stock Option Agreement between the Company and Ruiaridh
Campbell dated March 19, 1999, granting him an option to
purchase up to 55,000 shares of commo stock of the Company for
$1.30 per share.
6(vi) 86 Stock Option Agreement between the Company and Dr. Howard
Bellin dated March 19,1999, granting him an option to purchase
up to 35,000 shares of common stock of the Company for $1.30
per share.
6(vii) 93 Correspondence between the Company and IKB Deutche Industrie-
bank dated June 10, 1999 discussing various terms of the loan
to establish a production plant in Duisburg.
27 95 Financial Data Schedule "CE"
36
<PAGE>
Exhibit 2(i)
ARTICLES OF INCORPORATION
OF
CONCEPTUAL TECHNOLOGIES, INC.
THE UNDERSIGNED person, acting as incorporators under applicable provis
of the Nevada Business Corporation Act, does hereby adopt the following Article
Incorporation for said corporation.
ARTICLE I
NAME
The name of the corporation is CONCEPTUAL TECHNOLOGIES, INC.
ARTICLE II
DURATION
The duration of the corporation is perpetual.
ARTICLE III
PURPOSES
The special purpose for which the corporation is organized is to
evaluate privately held companies whose primary business is the manufacturing,
marketing, and distribution of recreational products with an emphasis on
motorized water vehicles.
1. To engage in any and all activities as may be reasonably
related to the foregoing and following purposes.
2. To enter into leases, contracts and agreements, to open bank
accounts and to conduct financial transactions.
3. To engage in any all other lawful purposes, activities and
pursuits, which are substantially similar to the foregoing, or
which would contribute to accomplishment of the expressed
purposes of the corporation.
4. To change its primary business purpose from time to time as
may be deemed advisable by the Board of Directors.
5. To engage in any other lawful business authorized by the laws
of Nevada or any other state or other jurisdiction in which
the corporation may be authorized to do business.
ARTICLE IV
CAPITAL
The corporation shall have authority to issue Fifty Million
(50,000,000) common shares, one mil (.001) par value. There shall be only one
class of authorized shares, to wit: common voting stock. The common stock shall
have unlimited voting rights provided in the Nevada Business Corporation Act.
None of the shares of the corporation shall carry with them the
pre-emptive right to acquire additional or other shares of the corporation.
There shall be no cumulative voting of shares.
37
<PAGE>
ARTICLE V
INDEMNIFICATION AND NUMBER OF DIRECTORS
No shareholders or directors of the corporation shall be individually
liable for the debts of the corporation or for monetary damages arising from the
conduct of the corporation. The corporation shall consist of no less than two
(2) officers and directors and no more than seven (7) officers and directors.
ARTICLE VI
BY-LAWS
Provisions for the regulation of the internal affairs of the
corporation not provided for in these Articles of Incorporation shall be set
forth in the By-Laws.
ARTICLE VII
RESIDENT OFFICE AND AGENT
The address of the corporation's initial resident office shall be 3230
East Flamingo Road, Suite 156, Las Vegas, NV 89121. The corporation's initial
registered agent at such address shall be Gateway Enterprises, Inc.
I hereby do acknowledge and accept appointment as corporation
registered agent:
Gateway Enterprises, Inc.
By:_____________________
ARTICLE VIII
INCORPORATORS
The identity and address of the incorporators are:
Frank J. Weinstock (President)
3525 Sunset Lane
Oxnard, California 93035
Trish R. Francis (Secretary & Treasurer)
3525 Sunset Lane
Oxnard, California 93039
The aforesaid incorporators shall be the initial Directors of the
corporation and shall act as such until the corporation shall have conducted its
organizational meeting or until one or more successors shall have been elected
and accepted their election as directors of the corporation.
------------------------
Frank J. Weinstock
------------------------
Trish R. Francis
38
<PAGE>
IN WITNESS WHEREOF, Frank J. Weinstock and Trish R. Francis, have
executed these Articles of Incorporation in duplicate this 12th day of November,
1996, and say:
The we are the incorporators herein; that we have read the above and
foregoing Articles of Incorporation; that I know the contents thereof and that
the same is true to the best of our knowledge and belief, excepting as to
matters herein alleged on information and belief, and as to those matters we
believe them to be true.
------------------------
Frank J. Weinstock
------------------------
Trish R. Francis
State of Utah }
} ss
County of Salt Lake }
Subscribed and sworn before me this 12th day of November, 1996 by
Frank J. Weinstock and Trish R. Francis.
------------------------
Notary Public
IN WITNESS WHEREOF, Frank J. Weinstock and Trish R. Francis, have
executed these Articles of Incorporation in duplicate this 12th day of November,
1996, and say:
The I am the incorporator herein; that I have read the above and
foregoing Articles of Incorporation; that I know the contents thereof and that
the same is true to the best of my knowledge and belief, excepting as to matters
herein alleged on information and belief, and as to those matters I believe them
to be true.
------------------------
Frank J. Weinstock
------------------------
Trish R. Francis
State of Utah }
} ss
County of Salt Lake }
39
<PAGE>
Subscribed and sworn before me this 12th day of November, 1996 by
Frank J. Weinstock and Trish R. Francis.
------------------------
Notary Public
40
Exhibit 2(ii)
CERTIFICATE
OF
AMENDMENT OF ARTICLES
OF
INCORPORATION
FOR
CONCEPTUAL TECHNOLOGIES, INC.
A Nevada Corporation
(After Issuance of Stock)
We, the undersigned, David Lehmburg, President, and Vicki Williams,
Secretary, of CONCEPTUAL TECHNOLOGIES, INC. (the "Corporation"), a Nevada
Corporation, do hereby certify:
That pursuant to a resolution of the Board of Directors of the
Corporation adopted by a Unanimous Written Consent, dated July 31, 1997, the
original Articles of Incorporation of the Corporation are hereby amended as
follows:
Article I is hereby amended to read as follows:
ARTICLE I
CAPITAL
1. The Corporation shall have authority to issue Fifty Million
(50,000,000) common shares, one mil ($.001) par value. There
shall be only one class of authorized shares, to wit: common
voting stock. The common stock shall have unlimited voting
rights provided in the Nevada Business Corporation Act.
2. None of the shares of the Corporation shall carry with them
the pre-emptive right to acquire additional or other shares of
the Corporation. There shall be no cumulative voting of
shares.
3. Of the 50,000,000 authorized shares of common stock, 2,000,000
are issued and outstanding on July 31, 1997. It is the
decision of the Board of Directors of the Corporation to
reverse split the outstanding common stock on a basis of 1
for 14, with the rounding up of each fractional share
resulting from the reverse split to a whole share, reducing
the 2,000,000 outstanding shares of common stock to 142,858,
and retaining the authorized shares of common stock at
50,000,000 and the par value at one mil($.001) per share, with
appropriate adjustments being made in the additional paid-in
capital and stated capital accounts of the Corporation.
4. Before the change described in paragraph 3, the current number
of authorized shares of the Corporation's common stock was
50,000,000, and the par value of each of those shares was one
mil ($.001).
41
<PAGE>
5. After the change described in paragraph 3 the number of
authorized shares of the Corporation's common stock is
50,000,000, and the par value of each of those shares is one
mil ($.001).
6. All of the outstanding 2,000,000 shares of the Corporation's
common stock outstanding before the change described in
paragraph 3 have been affected by the change by being reduced
on a basis of 1 for 14, with the rounding up of each
fractional share resulting from the change to a whole share,
so that, after the change, there are 142, 858 shares of the
Corporation's common stock outstanding.
7. Each fractional share resulting from the change described in
paragraph 3 has been rounded up to a whole share.
8. This amendment is made pursuant to the N.R.S. 78.383.
9. Pursuant to N.R.S. 78.390 this amendment and the change
described in paragraph 3 shall become affective upon the
filing of this certificate with the Secretary of State of
Nevada."
The number of shares of the Corporation outstanding and entitled to
vote on an amendment to the Articles of Incorporation is 2,000,000. The said
changes and amendment have been consented to and approved by a majority vote of
the stockholders holding at least a majority of each class of stock outstanding
and entitled to vote thereon.
This Certificate consists of four (4) pages, of which this is page 3
and the following page, containing the notarial acknowledgment is the last.
------------------------
David Lehmburg, President
------------------------
Vicki Williams, Secretary
State of Utah }
} ss
County of Salt Lake }
On 8-5, 1997, personally appeared before me, a Notary Public, DAVID
LEHMBURG and VICKI WILLIAMS, who acknowledged that they executed the above
instrument.
------------------------
Notary Public
Seal/Stamp
42
<PAGE>
Exhibit 2(iii)
CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION
FOR
NOVAMED, INC.
(formerly known as Conceptual Technologies, Inc.)
A Nevada Corporation
(After Issuance of Stock)
The undersigned, as President of NOVAMED, INC., a Nevada corporation
formerly known as Conceptual Technologies, Inc. (the "Corporation"), does hereby
certify:
That pursuant to a resolution of the Board of Directors dated July 31,
1997, the Articles of Incorporation of the Corporation were amended by a
Certificate of Amendment of Articles of Incorporation filed in the office of the
Secretary of State of the State of Nevada on August 29, 1997 (the "First
Certificate of Amendment"); and
That pursuant to a Unanimous Written Consent of the Board of Directors
dated March 25, 1998 and a vote of a majority of the stockholders held at a
meeting of the stockholders of the Corporation on April 9, 1998, the directors
and stockholders of the Corporation ratified the filing of the First Certificate
of Amendment and approved the filing of the Certificate of Amendment to correct
certain errors contained in the First Certificate; and
That pursuant to a Unanimous Written Consent of the Board of Directors
dated March 25, 1998 and a vote of a majority of the stockholders held at a
meeting of the stockholders of the Corporation on April 9, 1998, the directors
and stockholders of the Corporation approved the filing of a Certificate of
Amendment to change the name of the Corporation.
THEREFORE, Article I of the Articles of Incorporation of the
Corporation is hereby amended and restated in its entirety as follows:
ARTICLE I
The name of the Corporation is NOVAMED, INC.
Article IV is hereby amended and restated in its entirety as follows:
The number of shares of the Corporation outstanding and entitled to
vote on an amendment to the Articles of Incorporation is 144,294. The said
changes and amendment have been consented to and approved by a majority vote of
the stockholders holding at least a majority of each class of stock outstanding
and entitled to vote thereon.
This Certificate consists of two pages, of which this page 2 contains
the notarial acknowledgment.
43
<PAGE>
----------------------------
David Lehmberg, President
----------------------------
G.W. Norman Wareham, Secretary
STATE OF UTAH )
)ss.
COUNTY OF SALT LAKE )
On May ____, 1998, personally appeared before me, David Lehmberg, who
acknowledged that he executed the foregoing Certificate of Amendment of Articles
of Incorporation as President of NOVAMED, INC.
----------------------------
Notary Public
[THIS SPACE HAS BEEN LEFT BLANK INTENTIONALLY]
44
Exhibit 2(iv)
BY-LAWS
of
CONCEPTUAL TECHNOLOGIES, INC.
----------------------------------------------------------
ARTICLE I -OFFICES
Section 1. The principal office of the corporation in the State of
California shall be at 3525 Sunset Lane, Oxnard, California 93035. The officer
in charge thereof is Frank J. Weinstock.
Section 2. The corporation may have such other offices within or
without the state as the board of directors may from time to time designate.
ARTICLE II - STOCKHOLDERS
Section 1. Annual Meeting. The annual meeting of the stockholders shall
be held at the corporate office on the third Friday of April of each year
beginning in 1997, at the hour of 10:00 a.m., or at such other time as may be
fixed by the board of directors, for the purpose of electing directors and for
the transaction of such other business as may come before the meeting. If the
election of directors shall not be held on the day designated herein for the
annual meeting or at any adjournment thereof, the board of directors shall cause
the election to be held at a special meeting of the stockholders as soon
thereafter as may be convenient.
Section 2. Special Meetings. Special meetings of the stockholders, for
any purpose or purposes, unless otherwise prescribed by statute, may be called
by the president or by any director, and shall be called by the president at the
written request of fifteen percent (15%) of all outstanding shares of the
corporation entitled to vote at the meeting. Unless requested by stockholders
entitled to cast a majority or all the votes entitled to be cast at the meeting,
a special meeting need not be called to consider any matter which is
substantially the same as a matter voted on at any meeting of stockholders held
during the preceding twelve months.
Section 3. Place of Meeting. The board of directors may designated any
place, either in the State of Nevada or elsewhere, as the place of any annual or
special meeting of stockholders.
Section 4. Notice of Meeting. Written notice stating the place, day and
hour of the meeting and, in case of a special meeting, the purpose or purposes
for which the meeting is called, shall, unless otherwise prescribed by statute,
be delivered not less than ten (10) not more than fifty (50) days before the
meeting, either personally or by mail, to each stockholder of record entitled to
vote at such meeting. If mailed, such notice shall be deemed to be delivered ten
(10) days after it has been deposited in the United States Mail, addressed to
the stockholder at his address as it appears on the share registry of the
corporation, with postage thereon prepaid.
Section 5. Closing of Transfer Books or Fixing of Record Date. For any
purpose requiring identification of shareholders, the record date shall be
established by the board of directors, and shall be not more than twenty (20)
days from the date on which any such purpose is to be accomplished. Absent a
resolution establishing any such date, the record date shall be deemed to be the
date on which any such action is accomplished.
45
<PAGE>
Section 6. Voting List. The corporation shall maintain a stock ledger
which contains:
1. The name and address of each stockholder.
2. The number of shares of stock of each class which the
stockholder holds.
The stock ledger shall be written form and available for visual
inspection. The original or a duplicate of the stock ledger shall be kept at the
principal office of the corporation.
Section 7. Quorum. A majority of the outstanding shares of the
corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of stockholders. If less than a majority of the
outstanding shares are represented at a meeting, a majority of the shares so
represented may adjourn the meeting from time to time without further notice. At
such adjourned meeting at which a quorum shall be presented or represented, any
business may be transacted which might have been transacted at the meeting as
originally noticed. The stockholders present at a duly organized meeting may
continue to transact business until adjournment, notwithstanding the withdrawal
of enough stockholders to reduce the number of stockholders present to less than
a quorum.
Section 8. Proxies. At all meetings of stockholders, a stockholder may
vote in person or by proxy executed in writing by the stockholder or by his duly
authorized attorney in fact. Such proxy shall be filed with the secretary of the
corporation before or at the time of the meeting. A proxy shall be void one year
after it is executed unless it shall, prior to the expiration of one year, have
been renewed in writing. All proxies shall be revocable.
Section 9. Voting of Shares. Each outstanding share entitled to vote
shall be entitled to one vote upon each matter submitted to a vote at a meeting
of stockholders.
Section 10. Informal Action by Stockholders. Any action required or
permitted to be taken at a meeting of the stockholders, except matters as to
which dissenting stockholders may hold a statutory right of appraisal, may be
taken without a meeting if a consent in writing, setting forth the action so
take, shall be signed by a majority of the stockholders entitled to vote with
respect to the subject matter thereof. Notice of any such action shall be
provided to stockholders in the manner set forth in Section 4 of these By-laws,
with ten (10) days of the effective date of the action.
Section 11. Cumulative Voting. There shall be no cumulative voting of
shares.
Section 12. Removal of Directors. At a meeting called expressly for
that purpose, directors may be removed with or without cause, by a vote of the
holders of a majority of the shares entitled to vote at an election of
directors.
ARTICLE III - DIRECTORS
Section 1. The business and affairs of this corporation shall be
managed by its Board of Directors, which may be no less than two (2) nor more
than seven (7) in number. The directors need not be residents of this state or
stockholders in the corporation. They shall be elected by the stockholders at
the annual meeting of stockholder of the corporation. Each director shall be
elected for the term of one (1) year, and until his successor shall have been
elected and accepted his election to the Board in writing.
46
<PAGE>
Section 2. The number of directors may be increased or decreased from
time to time by the vote of a majority of the outstanding shares of the
corporation.
Section 3. Regular Meetings. A regular meeting of the board of
directors shall be held without any notice other than this by-law immediately
after, and at the same place as, the annual meeting of stockholders. The board
of directors may provide, by resolution, the time and place for the holding of
additional regular meetings without notice other than such resolution.
Section 4. Special Meetings. Special meetings of the board of
directors may be called by or at the request of the president or any director.
The person or persons calling any such meeting may fix the time and place of the
meeting.
Section 5. Notice. Notice of any special meeting shall be given at
least five (5) days previously thereto by written notice delivered personally,
mailed or delivered by fax to each director at his business address. Notices
shall be deemed to have been delivered when transmitted personally or by fax,
and two days after mailed. Any director may waive notice of any meeting so long
as such waiver is in writing. The business to be conducted at any special
meeting may not be specified in the notice.
Section 6. Quorum. A majority of duly elected board of directors shall
constitute a quorum of the board of directors for the transaction of business
at any meeting of the board of directors.
Section 7. Manner of Acting. The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the board
of directors.
Section 8. Informal Action by Directors. Action consented to by a
majority of the board of directors without a meeting is nevertheless board
action so long as (a) a written consent to the action is signed by all the
directors of the corporation and (b) a certificate or resolution detailing the
action taken is filed with the minutes of the corporation. Any one or more
directors may participate in any meeting of the board of directors by means of
conference telephone or other similar communications device which permits all
directors to hear the comments made by the others at the meeting.
Section 9. Executive and other Committees. The board of directors may,
from time to time, as the business of the corporation may demand, delegate its
authority to committees of the board of directors under such terms and
conditions as it may deem appropriate. The appointment of any such committee,
the delegation of authority to it or action by it under that authority does not
constitute of itself, compliance by any director not a member of the committee,
with the standard provided by statute for the performance of duties of
directors.
Section 10. Compensation. By resolution of the board of directors, each
director may be paid his expenses, if any, of attendance at each meeting of the
board of directors, and may be paid a state salary as director or a fixed per
diem for attendance at each such meeting of the board of directors, or both. No
such payments shall preclude any director from serving the corporation in any
other capacity and receiving compensation thereof.
Section 11. Presumption of Assent. A director of the corporation who is
present at a meeting of the board of directors at which action on any corporate
action is taken shall be presumed to have assented to the action taken unless he
shall announce his dissent at the meeting and his dissent is entered in the
minutes and he shall forward such dissent by registered mail to the secretary of
the corporation immediately after the adjournment of the meeting.
47
<PAGE>
Section 12. Certificates of Resolution. At any such time as there shall
be only one duly elected and qualified director, actions of the corporation may
be manifest by the execution by such director of a Certificate of Resolution
specifying the corporate action taken and the effective date of such action.
ARTICLE IV - OFFICERS
Section 1. Number. Officers of the corporation shall be a president and
a secretary, each of whom shall be elected by the board of directors. Such other
officers and assistant officers as may be deemed necessary may be elected or
appointed by the board of directors. Any two or more offices may be held by the
same person, except that no officer may act in more than one capacity where
action of two or more officers is required by law.
Section 2. Election and Term of Office. The officers of the corporation
shall be elected annually by the board of directors after each annual meeting of
the stockholders. Each officer shall hold office for a period of one (1) year
and until his successor shall have been duly elected and shall have accepted his
election as an officer of the corporation in writing.
Section 3. Removal. Any officer or agent may be removed by the board of
directors whenever in its judgment, the best interests of the corporation will
be served thereby. Election to an office in the corporation shall not create any
contractual right of any type or sort in the person elected.
Section 4. Vacancies. A vacancy in any office may be filled by the
board of directors for the unexpired portion of the term.
Section 5. President. The president shall be a director of the
corporation and shall be the principal executive officer of the corporation, and
subject to the control of the board of directors, shall in general supervise and
control all of the business and affairs of the corporation. The president shall
have authority to institute or defend legal proceedings when the directors are
deadlocked. He shall, when present, preside at all meetings of the stockholders
and of the board of directors. He may sign, with the secretary or any other
proper officer of the corporation thereunto authorized by the board of
directors, certificates for shares of the corporation, any deeds, mortgages,
bonds, contracts, or other instruments which the board of directors has
authorized to be executed, except in cases where the signing and execution
thereof shall be expressly delegated by the board of directors or by these
by-laws to some other officer or agent of the corporation, or shall be required
by law to be otherwise signed or executed; and in general shall perform all
duties incident to the office of president and such other duties as may be
prescribed by the board of directors from time to time.
Section 6. Secretary. The secretary shall: (a) keep the minutes of the
proceedings of the stockholders and of the board of directors in one or more
books provided for that purpose; (b) see that all notices are duly given in
accordance with the provisions of these by-laws or as required by law; (c) be
custodian of the corporate records and of the seal of the corporation, if any;
(d) keep a register of the post office address of each stockholder which shall
be furnished to the secretary by such stockholder; (e) sign, with the president,
certificates for shares of the corporation, the issuance of which shall have
been authorized by resolution of the board of directors; (f) have general charge
of the stock registry of the corporation; (g) have charge and custody of and be
responsible for all funds and securities of the corporation; (h) receive and
give receipts for moneys due and payable to the corporation and deposit all such
moneys in the name of the corporation in such bank
48
<PAGE>
accounts as may be established for that purposed; and (i) in general, perform
all duties incident to the office of secretary, as well as such duties as
generally required upon treasurers of corporations.
Section 7. Salaries. The salaries of the officers shall be fixed from
time to time by the board of directors and no officer shall be prevented from
receiving such salary by reason of the fact that he is also a director of the
corporation.
ARTICLE V - INDEMNIFICATION OF THE DIRECTORS AND OFFICERS OF THE
CORPORATION
Section 1. The corporation shall indemnify any person who was or is a
party or threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director or officer of the corporation,
against expenses (including attorney's fees), judgements, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding, if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent shall not, without more, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interest of the
corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
ARTICLE VI - CONTRACTS, LOANS, CHECKS, AND DEPOSITS
Section 1. Contracts. The board of directors may authorize any officer
or officers or agents to enter into any contract or execute and deliver any
instrument, including loans, mortgages, checks, drafts, deposits, deeds and
documents evidencing other transactions, in the name of the corporation. Such
authority may be general or confined to specific instances.
ARTICLE VII - CERTIFICATES FOR SHARES AND THEIR TRANSFER
Section 1. Certificates for Shares. Certificates representing shares of
the corporation shall be in the form approved in the organizational resolutions
of the corporation. They shall be signed by the president and secretary of the
corporation. Each certificate shall be consecutively numbered or otherwise
identified. The name and address of the person to whom the shares represented
thereby are issued, with the number of shares and date to issue, shall be
entered on each certificate and on the stock registry of the corporation. All
certificates surrendered to the corporation for transfer shall be canceled and
no new certificate shall be issued until the former certificate for a like
number of shares shall have been surrendered and canceled, except in the case of
a lost, destroyed or mutilated certificate, a new one may be issued therefor
upon such terms of indemnity to the corporation as the board of directors may
prescribe.
Section 2. Transfer of Shares. Transfer of shares of the corporation
shall be made only on the stock registry of the corporation by the holder of
record thereof or by his legal representative, who shall furnish proper evidence
of authority to transfer, or by his attorney thereunto authorize by power of
attorney duly executed and filed with the secretary of the corporation, and on
surrender for cancellation of the certificate for such shares. The person in
whose name shares stand on the books of the corporation shall be deemed by the
49
<PAGE>
corporation to be the owner thereof for all purposes.
ARTICLE VIII - FISCAL YEAR
Section 1. The fiscal year of the corporation shall begin on the first
day of January of each year and expire on the thirty-first day of December each
year.
ARTICLE IX - CORPORATE SEAL
Section 1. Use of the corporate seal adopted by the board of directors
shall be optional with the officer or agent of the corporation signing any
document on behalf of the corporation. No duly executed corporate document shall
be void because it does not bear the imprint of a seal.
ARTICLE X - WAIVER OF NOTICE
Section 1. Whenever any notice is required to be given to any
stockholder or director of the corporation under these By-laws, by provisions of
the Articles of Incorporation, or by the statutes of the State of Nevada, a
waiver thereof in writing, signed by the person or persons entitled to such
notice, whether before or after the time stated therein, shall be deemed
equivalent to the giving of such notice.
ARTICLE XI - AMENDMENTS
Section 1. The board of directors shall have the power to make, alter
and repeal by-laws; but by-laws made by the board may be altered or repealed, or
new by-laws made, by the stockholders.
ADOPTED by order of the directors of the corporation on November 12,
1996.
CONCEPTUAL TECHNOLOGIES, INC.
/ s /
Frank J. Weinstock, Director
/ s /
Trish R. Francis, Director
[THIS SPACE HAS BEEN LEFT BLANK INTENTIONALLY]
50
Exhibit 6(i)
STOCK PURCHASE AND SALE AGREEMENT
Between Conceptual Technologies, Inc. and
NovaMed Medical Products, Inc.
February 25, 1998
51
<PAGE>
TABLE OF CONTENTS
RECITALS 1
6. Purchase and Sale of Property; Release 1
--------------------------------------
1.1 Property 1
--------
1.2 Release 2
-------
7. Closing Date; Delivery 2
----------------------
2.1 Closing Date 2
------------
2.2 Deliveries at Closing 2
---------------------
8. Representations and Warranties of NovaMed 3
-----------------------------------------
3.1 Organization, Standing and Authority of NovaMed 3
-----------------------------------------------
3.2 Organization, Standing and Ownership of the
Subsidiaries 5
--------------------------------------------------------
3.3 Financial and Operating Status of the
Subsidiaries 6
--------------------------------------------------
9. Representations and Warranties of CTI 8
-------------------------------------
4.1 Corporate Organization 8
----------------------
4.2 Due Exception and Enforceability 9
--------------------------------
10. Conditions to Closing 9
---------------------
5.1 Conditions to Obligations of CTI 9
--------------------------------
5.2 Conditions to Obligations of NovaMed 12
------------------------------------
11. Covenants and Agreements of NovaMed 13
-----------------------------------
6.1 Access to Information 13
---------------------
6.2 Conduct of Business Pending the Closing 13
---------------------------------------
12. Miscellaneous 15
-------------
7.1 Successors and Assigns 15
----------------------
7.2 Governing Law; Severability 15
---------------------------
7.3 Waivers 15
-------
7.4 Entire Agreement; Modifications 16
-------------------------------
7.5 Notices 16
-------
7.6 Counterparts 17
------------
7.7 Headings; References 17
--------------------
52
<PAGE>
STOCK PURCHASE AND SALE AGREEMENT
THIS STOCK PURCHASE AND SALE AGREEMENT (this "Agreement"), dated
effective as of February 25, 1998, is between Conceptual Technologies, Inc., a
Nevada corporation ("CTI") and NovaMed Medical Products, Inc., a Nevada
Corporation ("NovaMed").
RECITALS
A. NovaMed is the sole shareholder and owner of the following
subsidiaries: NovaMed Medical Products Manufacturing, Inc., a Minnesota
corporation ("NovaMed MN"), NovaMedical Products GmbH, a German corporation
("NovaMed GDR"), and NovaMed Medical Supplies Corporation, a Nevada corporation
("NovaMed NV,"and together with NovaMed MN and NovaMed GR, the "Subsidiaries").
B. NovaMed desires to sell and CTI desires to purchase all of the
outstanding shares of the Subsidiaries pursuant to the terms and conditions of
this Agreement.
AGREEMENT
In consideration of the foregoing recitals and the mutual promises and
benefits contained herein, CTI and NovaMed hereby agree as follows:
1. Purchase and Sale of Property; Release.
1.1 Property. Subject to the terms and conditions of this
Agreement, Novamed agrees to sell and assign to CTI on the Closing Date (as
defined below), free and clear of all mortgages, security interests, liens,
pledges, adverse claims and other encumbrances, (a) all of the outstanding
shares of stock of each of the Subsidiaries as set forth on Exhibit A attached
hereto (collectively, the "Shares"); and (b) all of NovaMed's right, title and
interest to the trade or business name "NovaMed"(together with the Shares, the
"Property"). In exchange for the Property, CTI agrees to sell and assign
6,301,558 shares of CTI common stock to NovaMed on the Closing Date.
1.2 Release. As further inducement to CTI's performance under
this Agreement, effective as of the Closing Date, NovaMed hereby releases and
discharges each of the Subsidiaries, their officers, directors, shareholders,
agents and successors from any and all claims, losses, demands, actions,
expenses, obligations or liabilities relating to any matters of any kind,
presently known or unknown which it may have arising from any act, omission,
event or claims relating to or arising out of its association with or investment
in any Subsidiary.
2. Closing Date; Delivery.
2.1 Closing Date. The closing of the purchase and sale of the
Property (the "Closing") will be held at the offices of Manning Curtis Bradshaw
& Bednar, LLC, 370 East South Temple, Suite 200, Salt Lake City, Utah, 84111, at
10:00am on April 14, 1998, or at such earlier date as may be agreed in writing
by CTI and NovaMed (the "Closing Date").
2.2 Deliveries at Closing.
53
<PAGE>
(a) Deliveries of NovaMed to CTI. At the Closing, if the
conditions precedent set forth in Section 5.2 are fulfilled to its reasonable
satisfaction, NovaMed will deliver to CTI (1) stock certificates or other
documents of title representing all of the Subsidiaries' shares of stock held of
record or beneficially owned by NovaMed on the Closing Date, duly endorsed by
NovaMed for transfer to CTI; (2) all of NovaMed's documents of title pertaining
to its rights to and interest in the trade or business name "NovaMed"; and (3)
evidence, effective as of the Closing Date, satisfactory to CTI that NovaMed has
changed its name to a name that does not include the word "NovaMed" or any
derivation thereof, and such other documents as are reasonably necessary to
ensure that CTI has full right and title to the name "NovaMed" in each of the
jurisdictions in which it does business. NovaMed will also deliver such other
documents and instruments as CTI may reasonably request to confirm that NovaMed
has performed all of its obligations and fulfilled all of the conditions
precedent to CTI's performance under this Agreement.
(b) Deliveries of CTI to NovaMed. At the Closing, if the
conditions precedent set forth in Section 5.1 are fulfilled to its reasonable
satisfaction, CTI will deliver to Novamed stock certificates representing
6,301,558 shares of CTI's common stock issued in the name of NovaMed. CTI will
also deliver such other documents and instruments as NovaMed may reasonably
request to confirm that CTI has performed all of its obligations and fulfilled
all of the conditions precedent to NovaMed's performance under this Agreement.
3. Representations and Warranties of NovaMed. NovaMed hereby represents
and warrants to CTI that, except as may be set forth in Schedule 1 attached
hereto (the "Disclosure Schedule"), the matters set forth in this Section 3 are
true and correct:
3.1 Organization, Standing and Authority of NovaMed.
(a) Organization. NovaMed is a corporation duly organized
and validly existing under the laws of the State of Nevada and is in good
standing as a domestic corporation under the laws of said State.
(b) Charter Documents. NovaMed has furnished counsel for
CTI with true and complete copies of its Articles of Incorporation, as amended
to date, and its Bylaws as currently in effect.
(c) Corporate Power. NovaMed has all requisite corporate
power to enter into this Agreement and to carry out and perform its obligations
hereunder.
(d) Authorization for Agreement. The execution and perf-
ormance of this Agreement by NovaMed has been duly authorized by its Board of
Directors and shareholders. Upon execution and delivery of this Agreement on
behalf of NovaMed, this Agreement will constitute the valid and legally binding
obligation of NovaMed, enforceable in accordance with its terms and conditions.
The execution, delivery and performance of this Agreement and compliance with
the provisions of this Agreement by NovaMed does not conflict with, or result in
a breach or violation of the terms, conditions or provisions of, or constitute a
default under, or result in the creation or imposition of any lien pursuant to
the terms of, NovaMed's Articles of Incorporation, as amended, NovaMed's current
Bylaws, or any statute, law, rule or regulation or any order, judgment, decree,
indenture, mortgage, lease or other agreement or instrument to which NovaMed is
subject.
(e) Financial Statements. The audited consolidated fin-
ancial statements of NovaMed and the Subsidiaries as of September 30, 1996
54
<PAGE>
and the unaudited consolidated financial statements of NovaMed and the
Subsidiaries as of December 31, 1996 are attached hereto as Exhibit C (the
"NovaMed Financial Statements"). The NovaMed Financial Statements are complete
and correct in all material respects and present fairly the financial condition
of NovaMed and the Subsidiaries as of the periods covered in conformity with
generally accepted accounting principles applied on a basis consistent with
preceding periods.
(f) Material Changes. Since September 30, 1996, there have
been no material adverse changes in the financial condition of NovaMed or the
Subsidiaries from that shown on the NovaMed Financial Statements as of such
date.
(g) Ecoprogress and Daystar Lonas. As of the Closing Date,
NovaMed has repaid or otherwise satisfied all of its indebtedness to (1)
Ecoprogress International Limited ("Ecoprogress") under that certain Note
executed in connection with the Exclusive License Agreement between Ecoprogress
and NovaMed dated January 1, 1995, as amended May 30, 1996; and (2) DayStar
Partners, Ltd. ("DayStar") under that certain Note executed in connection with
the Purchase Agreement between Daystar and NovaMed dated April 26, 1996.
3.2 Organization, Standing and Ownership of the Subsidiaries.
(a) Organization. NovaMed MN is a corporation duly
organized and validly existing under the laws of the State of Minnesota and is
in good standing as a domestic corporation under the laws of said State. NovaMed
GDR is a corporation duly organized and validly existing under the laws of the
German Democratic Republic and is in good standing as a domestic corporation
under the laws of said Republic. NovaMed NV is a corporation duly organized and
validly existing under the laws of the State of Nevada and is in good standing
as a domestic corporation under the laws of said State.
(b) Charter Documents. NovaMed has furnished counsel for
CTI with true and complete copies of the Articles of Incorporation, as amended
to date, and the Bylaws as currently in effect, of each of the Subsidiaries.
(c) Corporate Power. Each of the Subsidiaries has all
corporate power and authority to own, lease and operate its properties and to
conduct its business as such is presently conducted.
(d) Capitalization. The authorized, issued and outstanding
capital stock of each of the Subsidiaries is set forth on Exhibit A. All issued
and outstanding shares of the Subsidiaries are fully paid and nonassessable.
There are no outstanding option, warrants or rights to purchase shares of the
capital stock of any Subsidiary.
(e) Title to Property. NovaMed is the sole shareholder of
each of the Subsidiaries, an downs all right, title and interest in and to the
Property, free and clear of all mortgages, liens or encumbrances of any nature.
3.3 Financial and Operating Status of the Subsidiaries.
(a) Tax Returns. Each of the Subsidiaries has duly filed
all federal, state and local tax returns required to be filed by it, and all
taxes, assessments and penalties set forth in such returns have been timely and
fully paid or adequately reserved against in the NovaMed Financial Statements.
None of the Subsidiary's tax returns have ever been audited by a ny governmental
taxing authority.
55
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(b) Contracts and Commitments. None of the Subsidiaries
has any written or oral contracts or commitments involving any obligation,
consideration or expenditure, except as set forth in the Schedule of Disclosure
or except for purchases of normal inventory items in quantities in accordance
with previous practices. NovaMed has delivered to CTI's counsel true, complete
and correct copies of all such contracts and commitments, together with all
amendments thereto, all of which are listed on the Schedule of Disclosures, and
all such contracts are in full force and effect in the for delivered. NovaMed
has set forth in the Schedule of Disclosures (i) all insurance policies with
respect to any Subsidiary in force on the date of this Agreement; (ii) the names
and locations of all banks and other depositories in which an y Subsidiary has
accounts or safe deposit boxes and the names of persons authorized to sign
checks, drafts or other instruments drawn thereon or to have access thereof;
(iii) all mortgages, promissory notes, deeds of trust, loan or credit agreements
or similar agreements, or modifications thereof, to which any Subsidiary is a
party and all amounts thereof; and (iv) all accounts receivable of any
Subsidiary as of December 31, 1997 and as reflected in the NovaMed Financial
Statements.
(c) Employees. None of the Subsidiaries has any collective
bargaining agreements with any of its employees. No Subsidiary is a party to any
contract with any of its employees, consultants, advisors, sales
representatives, distributors or customers that is not terminable by NovaMed
without liability, penalty or premium on 30 days' notice, except as otherwise
set forth in the Schedule of Disclosures.
(d) Benefits. None of the Subsidiaries has any health,
dental, pension, retirement, or other benefit programs for its employees or in
which its employees participate, except as set forth in the Schedule of
Disclosures.
(e) Inventory. All inventory of the Subsidiaries is
saleable and in good condition, the value of which as of December 31, 1997 has
been written down or reserved to amounts not in excess of realizable market
value.
(f) Equipment. All equipment of the Subsidiaries is in
good order and repair except minor defects which do not materially interfere
with the continued use of such equipment.
(g) Litigation. There is no action, proceeding or invest-
igation pending or, to the knowledge of NovaMed, threatened against any
Subsidiary, or any Subsidiary's property or assets which might result in any
material and adverse change in the property, assets or financial condition of
any Subsidiary, nor, to the knowledge of NovaMed, is there any basis for any
such action, proceeding or investigation. To the best knowledge of NovaMed and
the Subsidiaries, the Subsidiaries are in compliance in all material respects
with all laws and regulations applicable to the Subsidiaries, their properties
and their businesses.
4. Representations and Warranties of CTI. CTI hereby represents and
warrants to NovaMed that the matters set forth in the following subsections of
this Section 4 are or will be true and correct on the Closing Date.
4.1 Corporate Organization.
(a) Organization. CTI is a corporation duly organized,
validly existing and in good standing under the laws of the State of Nevada.
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(b) Financial Statements. The audited financial statements
of CTI as of February 28, 1997 and December 31, 1996 are attached hereto as
Exhibit D (the "CTI Financial Statements"). The CTI Financial Statements are
complete and correct in all material respects and present fairly the financial
condition of CTI as of the periods covered in conformity with generally accepted
accounting principles applied on a basis consistent with preceding periods.
(c) Material Changes. Since February 28, 1997, there have
been no material adverse changes in the financial condition of CTI from that
shown on the CTI Financial Statements as of such date.
4.2 Due Execution and Enforceability. The execution, delivery
and performance of this Agreement and the other agreements between the parties
referred to herein by and on behalf of CTI have been duly and validly authorized
by the Board of Directors and shareholders of CTI. CTI has taken all such other
corporate action necessary or required to enter into, execute and deliver this
Agreement and to perform its obligations hereunder. Upon execution and delivery
of this Agreement on behalf of CTI, this Agreement shall constitute the valid
and legally binding obligation of CTI enforceable in accordance with its terms
and conditions.
5. Conditions to Closing.
5.1 Conditions to Obligations of CTI. The obligations of CTI
to purchase the Property at the Closing and to consummate any other transactions
contemplated by this Agreement are subject to the fulfillment of CTI's
satisfaction on or prior to the Closing Date of the following conditions, any of
which may be waived in whole or in part by CTI:
(a) Representations and Warranties True at Closing. The
representations and warranties made by NovaMed in Section 3 above shall be true
and correct in all materials respects on and as of the Closing Date with the
same force and effect as if they had been made and given on and as of the
Closing Date, and NovaMed shall have performed and complied with all agreements
and obligations to be performed by it under this Agreement on or prior to the
Closing.
(b) Authorization. NovaMed shall have obtained all Board
of Directors and shareholder approvals necessary to authorize its participation
in the transaction described in this Agreement.
(c) No Adverse Change. Prior to the Closing there shall
not have occurred any loss or destruction of any material part of the assets of
NovaMed or and Subsidiary or any material adverse change in the financial
condition, properties, business or operations of any Subsidiary from that shown
on the NovaMed Financial Statements.
(d) 1997 Financial Statements. NovaMed shall have provided
to CTI the unaudited individual financial statements of each of the Subsidiaries
as of December 31, 1997, together with a sworn statement of the officers and
directors of NovaMed that the unaudited 1997 financial statements accurately and
completely reflect the financial condition of NovaMed and the Subsidiaries to
the best of their knowledge and belief.
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(e) Due Diligence Satisfactory. CTI has received all of the
information reasonable requested by it from NovaMed in connection with this
transaction, and, based on its due diligence investigation, is satisfied with
the financial and operating condition of the NovaMed Subsidiaries.
(f) Rule D Private Placement. CTI has completed a private
placement of up to 7,000,000 shares of the Company's common stock at a price
determined to be fair by the Board of Directors, but not less than $0.10 per
share, pursuant to Rule D, Section 504 of the 1933 Securities Act, and will have
issued and outstanding shares of common stock equal to 144,294 plus the shares
issued pursuant to the Regulation D private placement (not including the
6,301,558 shares of common stock to be issued to NovaMed at Closing under this
Agreement).
(g) Closing Certificate; Good Standing. At the Closing,
NovaMed will deliver or cause to be delivered to CTI a certificate executed by
the President of NovaMed and the President of each of the Subsidiaries, dated as
of the Closing Date and certifying to the fulfillment of the condition specified
in subparagraphs (a), (b) and (c) above. On or prior to the Closing Date,
NovaMed will deliver to CTI certificates issued by the Minnesota Secretary of
State, the Secretary of State of the German Democratic Republic (or equivalent
governmental authority), and the Nevada Secretary of State evidencing the
corporate and good standing of each of the Subsidiaries as of the date not more
than 30 days prior to the Closing Date.
(h) Rights to NovaMed. NovaMed shall have obtained such
director and shareholder approval and prepared and filed such documents with the
Nevada Secretary of State as are necessary make the name "NovaMed, Inc."
available to CTI as a business name registered in the State of Nevada and every
other jurisdiction in which the Subsidiaries are authorized to do business.
(i) Documents and Instruments Satisfactory. All documents
and instruments to be provided by NovaMed or the Subsidiaries in connection with
the transactions contemplated by this Agreement must be satisfactory in form and
substance to counsel for CTI.
(j) Opinion of Counsel for NovaMed. At the Closing, NovaMed
will deliver to CTI an opinion of counsel dated as of the Closing Date,
addressed to CTI and in form and substance acceptable to CTI.
5.2 Conditions to Obligations of NovaMed. The obligations of
NovaMed to consummate this Agreement and carry out and perform its obligations
hereunder are subject to the fulfillment to NovaMed's satisfaction on or prior
to the Closing Date of the following conditions, any of which may be waived in
whole or in part by NovaMed:
(a) Representations and Warranties True at Closing. The
representations and warranties made by CTI in Section 4 above shall be true and
correct in all material respects on and as of the Closing Date with the same
force and effect as if they had been made and given on and as of the Closing
Date. CTI shall have performed and complied in all material respects with all
agreements and obligations to be performed by it under this Agreement on or
before the Closing Date.
(b) Authorization. CTI shall have obtained all Board of
Directors and shareholder approvals necessary to authorize its participation in
the transaction described in this Agreement.
(c) No Adverse Change. Prior to the Closing there shall not
have occurred any
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material adverse change in the financial condition, properties, business or
operations of CTI since the date of this Agreement.
(d) Number of Issued and Outstanding Shares. CTI's issued
and outstanding shares of common stock will be equal to 144,294 plus the shares
issued pursuant to the Regulation D private placement (not including the
6,301,558 shares of common stock to be issued to NovaMed at Closing under this
Agreement).
(e) Closing Certificate; Good Standing. At the Closing, CTI
will deliver or cause to be delivered to NovaMed a certificate executed by the
President of CTI, dated as of the Closing Date and certifying to the fulfillment
of the conditions specified in subparagraphs (a), (b), and (c) above. On or
prior to the Closing Date, CTI will deliver to NovaMed a certificate issued by
the Nevada Secretary of State evidencing the corporate and good standing of CTI
as of the date not more than 30 days prior to the Closing Date.
(f) Documents and Instruments Satisfactory. All documents
and instruments to be provided by CTI in connection with the transactions
contemplated by this Agreement must be satisfactory in form and substance to
counsel for NovaMed.
(g) Opinion of Counsel for CTI. At the Closing, CTI will
deliver to NovaMed an opinion of counsel dated as of the Closing Date, addressed
to NovaMed and in form and substance acceptable to NovaMed.
6. Covenants and Agreements of NovaMed.
6.1 Access to Information. From and after the date of this
Agreement and until the Closing, NovaMed agrees that the authorized
representatives of CTI will have access during normal business hours to the
properties, facilities, books, records, contracts and documents of the
Subsidiaries, and NovaMed will furnish or cause to be furnished to the
authorized representatives of CTI copies of all documents and all information
with respect to the affairs and businesses of the Subsidiaries that CTI's
representatives may reasonably request.
6.2 Conduct of Business Pending the Closing. Unless expressly
consented to by CTI or otherwise permitted or required under this Agreement,
from and after the date of this Agreement and until the Closing or the
termination or abandonment of this Agreement as provided herein:
(a) Business in the Ordinary Course. Each of the Sub-
sidiaries (i) will conduct its business only in the ordinary course and in the
same manner as before the date of this Agreement, (ii) will not institute any
unusual or novel methods of manufacture, purchase, sale, lease, service,
accounting or operation, (iii) will not grant any increase in the rate of pay or
other benefits or compensation of any officers or employees, and (iv) will not
enter into, amen or terminate any contract or commitment not in the usual and
ordinary course of business and consistent with such Subsidiary's past practice.
(b) Indebtedness. Each of the Subsidiaries will not (i)
incur or assume or guarantee any indebtedness other then indebtedness incurred
in the usual and ordinary course of business for goods or services or pursuant
to existing commitments or agreements previously disclosed in writing to CTI
under this Agreement, or (ii) enter into, execute or deliver any agreement or
writing to the release or settlement
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of claims, except as otherwise provided by this Agreement.
(c) Corporate Structure. Each of the Subsidiaries will not
(i) amend its articles of incorporation or bylaws or change its officers or
directors, (ii) issue any additional capital stock or other securities of the
Subsidiary or grant any warrants, options or rights to purchase or acquire any
capital stock or other securities of the Subsidiary, or (iii) merge or
consolidate with any other corporation or acquire all or substantially all of
the stock, business or assets of any other person or entity or sell, assign or
transfer substantially all of its assets or outstanding securities to any other
person or entity.
(d) Dividends and Capital Stock. Each of the Subsidiaries
will not (i) declare or pay any dividend or make any stock split or stock
dividend or other distribution with respect to its capital stock, or (ii)
directly or indirectly redeem, purchase or otherwise acquire for value any of
its capital stock.
(e) Banking Relationships. No change will be made affecting
the Subsidiary's banking relationships and the Subsidiary will open no new bank
or other deposit accounts.
(f) Insurance. Each of the Subsidiaries will maintain in
full force and effect all policies of insurance now in effect and will give all
notices and present all claims under all policies in a timely fashion.
7. Miscellaneous.
7.1 Successors and Assigns. This Agreement and the terms and
conditions contained in this Agreement are binding upon, and will inure to the
benefit of, the parties hereto and their respective representatives, executors,
administrators, heirs, successors and assigns, but, except as otherwise
specifically provided in this Agreement, neither this Agreement nor any rights
or obligations hereunder may be assigned, directly, indirectly, voluntarily, or
involuntarily, except by operation or law, by any party to this Agreement.
7.2 Governing Law; Severability. This Agreement will be
governed by and construed in accordance with the laws of the State of Utah. If
any provision of this Agreement is found to be invalid, illegal or unenforceable
in any respect, such provision will be enforced to the maximum extent possible
and the remaining provisions of this Agreement will continue unaffected.
7.3 Waivers. No waiver by any party hereto of any term or
condition of this Agreement will be effective unless set forth in a writing
signed by such a party. No waiver of any provision of this Agreement will be
deemed a waiver of any other provision, or constitute a continuing waiver unless
otherwise expressly provided in writing by the waiving party. No failure or
delay on the part of any party in exercising any right, power or privilege under
this Agreement will operate as a waiver thereof, nor will a single or partial
exercise thereof preclude any other or further exercise of any other rights,
powers or privileges.
7.4 Entire Agreement; Modifications. This Agreement, together
with the exhibits and schedules attached hereto, each of which is incorporated
herein by this reference, constitutes the entire agreement between the parties
hereto pertaining to the subject matter herein and supersedes in its entirety
all prior and contemporaneous agreements, understandings, negotiations and
discussions between the parties (including without limitation the Letter of
Intent dated February 4, 1998 and executed by CTI and NovaMed in connection with
this Agreement), whether oral or written, with respect to the subject matter of
this Agreement. No supplement, modification or amendment to this Agreement will
be binding unless executed in
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writing by CTI and NovaMed.
7.5 Notices. All notices and other communications required or
permitted under this Agreement will be in writing and may be hand delivered,
mailed by first-class mail, postage prepaid, or sent via facsimile. Unless
otherwise agreed to in writing by the parties, such notices and other
communications shall be addressed as follows:
If to CTI:
G.W. Norman Warcham
1818-1177 West Hastings Street
Vancouver, British Colombia
Canada V6E2K3
Facsimile: (604) 683-2370
with a copy to:
Brent V. Manning
Manning Curtis Bradshaw & Bedner, LLC
370 East South Temple, Suite 200
Salt Lake City, Utah 84111
Facsimile: (801) 364-5678
If to NovaMed:
Ruairidh Campbell, President
NovaMed Medical Products, Inc.
623 Hoover Street N.E.
Minneapolis, Minnesota 55413
Facsimile: (612) 378-0110
with a copy to:
Thomas L. Steffens
Stuffens & Rasmussen
300 Southdale Place
3400 West 66th Street
Edna, Minnesota 55435
Facsimile: (612) 920-2209
7.6 Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed on original and all of which
together shall constitute one instrument.
7.7 Headings; References. Headings used in this Agreement are
used for convenience only and are not to be considered in construing or
interpreting this Agreement
IN WITNESS WHEREOF, the parties have executed this Agreement
on the dates set forth below, to be effective for all purposes as of the date
first written above
CONCEPTUAL TECHNOLOGIES, INC. NOVAMED MEDICAL PRODUCTS, INC
a Nevada corporation, a Nevada corporation
By: ______/s/______________________ By: ________/s/___________________
David Luhmberg, President Ruairidh Campbell, President
Date ________________________, 1998 Date: _______________________, 1998
61
Exhibit 6(ii)
Letter Agreement
Strategic Alliance Between NovaMed Inc. and Inamed Corporation
1. Preamble. This document sets forth the principles governing the strategic
alliance between NovaMed Inc. ("NovaMed") and Inamed Corporation ("Inamed") with
respect to their mutual objectives of obtaining broader regulatory approval for,
and greater sales of, certain breast implant products which are currently
manufactured by NovaMed. Through this strategic alliance it is the parties'
intention to utilize NovaMed's product technology and its regulatory approvals
which are already in place in certain extensive sales and marketing network, to
enhance the sales and profitability of both parties. This document is meant to
provide a framework for the negotiation and execution of binding legal
agreements under which various aspects of the strategic alliance will be
implemented. In the absence of any such formal documentation, it is the parties'
intention to be governed by this statement of principles.
2. Products and Territories Covered. The products included within the strategic
alliance are NovaMed's NovaGold alternate fill breast implant and NovaMed's
pre-filled NovaSaline breast implant, including any improvements or
modifications to these products. Effective immediately, these NovaMed products
will be made available for exclusive marketing, distribution and sale by
Inamed's sales and marketing network on a worldwide basis, with the following
exceptions:
1. NovaMed has an existing sales network in Germany, which will
continue to be the exclusive seller of the products. However,
by December 31, 1999 the parties will seek to discuss and, if
possible, formalize a mutually agreeable basis for
transitioning this NovaMed sales network into Inamed's sales
subsidiary in Germany.
2. NovaMed has distribution relationships with third party sales
representatives in certain territories throughout the world.
In order to avoid legal liability, NovaMed can continue to
supply those representatives on a non-exclusive basis; it
being the parties' intention that NovaMed would terminate all
such third party arrangements by December 31, 2000. The names
of such third party representatives and their territories of
operation will be furnished to Inamed by April 30, 1999.
3. In certain countries where NovaMed currently does business
(e.g., Poland and Russia), as well as other territories where
Inamed does not wish to establish or maintain a sales
presence, NovaMed would continue to sell its products. The
parties will mutually agree from time to time on the
territories which fall under this exception.
As used in this document, Inamed's sales and marketing network includes
both direct sales representatives who are employed by Inamed or its subsidiaries
and affiliates, as well as third party distributors with whom Inamed (either
directly or through its subsidiaries or affiliates) has arranged for the
exclusive sale of its products in certain territories. A list with the names of
such third party representatives and their territories of operation will be
furnished to NovaMed by April 30, 1999; that list will be updated on an annual
basis.
3. Term and Scope of the Strategic Alliance. The term of the strategic alliance
will be until the later of fifteen years from the date this statement of
principles is signed or the expiration of the last significant patent for any of
the NovaMed products. During the term of the strategic alliance, so long as the
minimum sales
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thresholds required to maintain Inamed's exclusive sales and distribution rights
are being met, neither party will discuss, negotiate or enter into any agreement
or understanding with any third party for the manufacture, sale or distribution
of either pre-filled saline breast implant or an alternate fill breast implant
(e.g., a breast implant meant to contain a filler material that is not either
saline or silicone gel); except that either party can study and conduct due
diligence with respect to alternate fill material concepts pursuant to existing
arrangements, or proposals made by inventors of in the ordinary course of
business, or as an ancillary result of any potential acquisition of a company
for which the alternate fill breast implant business is not a significant
portion.
4. Pricing. The NovaMed products will be sold to the Inamed entities (either
directly or through its subsidiaries, affiliates or third party distributors) on
the following terms:
a. With respect to the NovaGold product (except in the United States)
and pre-filled NovaSaline product, the price charged by NovaMed
will be on a cost plus basis which is designed to ensure that the
Inamed entities receive at least a 50% gross margin for their
sales to healthcare providers. Initially, the per unit (implant)
price will be $300 for NovaGold and $200 for pre-filled
NovaSaline. The parties will review these prices on an annual
basis, beginning for the year 2000, and make appropriate adjust-
ments based on manufacturing costs, end-user pricing, the volume
to be purchased, and the competitive environment in the various
major marketplaces.
b. With respect to the NovaGold product in the United States (which
for purposes of this document also includes Canada and Puerto
Rico), the parties will establish a joint venture entity so that
they can share on a 50/50 basis the profits and losses arising
from the sales of that product. The joint venture entity will
contract with its parents for manufacturing, administrative,
regulatory and sales and marketing services on a cost plus basis
which will be specified and negotiated by the parties prior to the
receipt of FDA approval of the PMA to sell the NovaGold product in
the United States. It is the present intention of the parties that
the mark-up above cost for such manufacturing, administrative,
regulatory and sales and marketing services would be 10%.
c. Unless the parties agree otherwise with respect to a specific
product or territory, all sales under the strategic alliance shall
be paid within 45 days of the invoice date. The invoice date
cannot be any earlier that the shipment date.
5. Volume. The minimum volume of implant products which the Inamed entities
shall purchase under the strategic alliance in order to retain exclusivity will
be:
a. With respect to NovaGold (except in the United States) and
pre-filled NovaSaline products, 12,000 units in year one,
18,000 units in year two, and 24,000 units in year three.
Thereafter, the minimum volume purchase requirement will be
based on a rolling annual average of the prior two years'
sales, but in no event less than 24,000 units per year.
b. With respect to NovaGold product in the United States,
assuming that the FDA approves PMAs for augmentation use of
both silicone gel and NovaGold, 12,000 units in year one,
18,000 units in year two, and 24,000 units in year three.
Thereafter, the minimum purchase requirement will be based on
a rolling annual average of the prior two years' sales, but in
no
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event less than 24,000 units per year. In the event the FDA
does not approve a PMA for silicone gel for augmentation use,
the minimum purchase requirements noted above would be doubled
starting in year two.
c. In the event of a failure to meet the minimum volume purchase
threshold for any given year, the Inamed entities shall have
the right to make up such deficiency by paying NovaMed $67.50
per implant needed to reach the minimum volume level; except
that in the event such eficiency payments represent more that
25% of the target minimum volume (for years one or two),
NovaMed has the option of refusing to accept any deficiency
payment and, instead, terminating the exclusivity rights in
the territory in question. From and after year three,
NovaMed's ability to terminate exclusivity rights in the
territory in question will arise if the deficiency payments
represent more than 20% of the target minimum volume for that
year.
d. The failure to meet the minimum volume threshold under clause
(a) or (b) above will not affect the exclusivity rights of the
Inamed entities under the clause where the Inamed entities did
meet the minimum volume threshold (whether through actual
purchases or through a deficiency payment under clause (c)),
or where the measuring period did not yet begin due to
regulatory issues.
e. For purposes of measuring the unit sales under this section,
there will be a four month ramp- up period from the later of
the date of this document and the receipt of all appropriate
regulatory approvals which are necessary to sell the product
in all significant territories. Accordingly, the first year of
any annual measurement period will consist of sixteen months
of sales from the appropriate starting date.
6. Manufacturing. It is the intention of the parties that during the term of the
strategic alliance NovaMed will continue to manufacture the NovaGold and
pre-filled NovaSaline products. The parties will examine that decision from time
to time and mutually agree on the appropriate course of action, based on
NovaMed's manufacturing capacity, financial resources available to expand, and
any costing advantages which may be obtained by allowing the Inamed entities to
manufacture any of those products. In the event a change of manufacturer is
made, the parties will mutually agree on new financial terms which are
consistent to the greatest extent feasible with the objectives set forth in this
document.
7. Joint Venture. No later than January 1, 2001 the parties will agree on the
form and governance of the joint venture entity which will mange the manufacture
and sale of NovaGold for the United States.
8. Regulatory. NovaMed will promptly take all appropriate steps to obtain 510(k)
clearance for the sale of pre-filled NovaSaline in the United States. NovaMed
and Inamed will fully cooperate in obtaining an IDE for NovaGold in the United
States, and following the signing of this document, Inamed will bear all of the
costs of obtaining such regulatory approval (including preparing the PMA and
conducting the clinical trials.) Based on estimates of the third party costs of
obtaining regulatory approval for NovaGold in the United States, the value of
Inamed's agreement to bear those costs is approximately $2 million.
9. Payments by Inamed. In addition to Inamed's payments to NovaMed for products,
and the assumption by Inamed of regulatory costs for NovaGold in the United
States, as outlined above, Inamed shall make the following payments to NovaMed
in consideration for the arrangements which constitute the strategic
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alliance between them:
a. Within 10 days after the execution of this document, Inamed
shall pay $100,000 as non-refundable "earnest money". In the
event Inamed elects to extend the due diligence period
referred to in Section 13 below, Inamed would be obligated to
pay an additional $100,000 withing 10 days of making that
election, which would also be non-refundable.
b. Once the FDA grants an IDE for NovaGold in the United States,
Inamed shall pay $2 million within 30 days after the clinical
trial is fully enrolled. Inamed shall receive a credit against
that first $2 million payment for all of the sums paid under
Section 9(a).
c. Within 30 days after the filing of the PMA for NovaGold in the
United States, Inamed shall pay $2 million.
d. Within 30 days after the FDA approves the PMA for NovaGold in
the United States, Inamed shall pay $2 million.
e. The parties shall consider the alternative of Inamed making an
equity investment for at least 10% of NovaMed, under such
terms as the parties (and their respective investment bankers)
may agree. Such an investment may take the place of the
payments specified in clauses (c) and (d) above.
10. Inflatable NovaSaline Product. By May 30, 1999 Inamed will undertake and
complete a technical and marketplace evaluation of the inflatable NovaSaline
product, for which NovaMed has already filed a 510(k) application with the FDA.
By that date Inamed shall have a right of first refusal to either (a)
incorporate this product within the exclusive distribution rights contemplated
by Sections 4(a) and 5(a) of this document (with minimum target volumes to be
agreed upon), or (b) pay NovaMed $275,000 to shelve the product. In the event
Inamed does not exercise either such right, NovaMed would be entitled to sell
and distribute the inflatable NovaSaline product as it chooses, including in
competition with Inamed's existing inflatable saline breast implant products.
11. Liability Insurance. NovaMed and the joint venture, as appropriate, will
carry at least $10 million of product liability insurance for the NovaMed
products which are included within the strategic alliance. Inamed and NovaMed
will be named as an insured party under any such insurance policies and make
such appropriate adjustments as they may mutually agree upon.
12. Labeling on Packages; Intellectual Property. At Inamed's option, the
labeling on the packaging for the products which are included within the
strategic alliance shall include one or more brand names of the Inamed entities,
and will also include NovaMed's name. NovaMed will grant the appropriate
licenses to the Inamed entities to use its intellectual property in order to
carry out the objectives of this document, and will indemnify Inamed against any
third party claims due to manufacturing defects.
13. Due Diligence and Cooperation. The parties agree to use their respective
best efforts to cooperate in implementing the terms of this document, so that
the strategic alliance can fully achieve its objectives. Toward that end,
promptly following the execution of this document, NovaMed will afford the
Inamed entities complete and full due diligence so that it can become familiar
with the current status of the scientific, technical and regulatory aspects of
the products which are included within the strategic alliance; such
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initial due diligence period will be completed by May 15, 1999 and the
definitive documentation needed to formalize the first aspects of the strategic
alliance will be completed by June 30, 1999. However, Inamed can elect to extend
the initial due diligence period to June 30, 1999 (and the deadline for
formalizing the definitive documentation to July 31, 1999), at its sole option,
by making the second payment described in Section 9(a). The confidentiality
agreement between the parties will govern all such discussions and exchanges of
information.
Agreed and accepted as of
March 25, 1999
Nova Med, Inc. Inamed Corporation
- ---------------------- ------------------------
Ruairidh Campbell Ilan Reich
President President
66
Exhibit 6(iii) SECOND AMENDMENT TO LEASE
This Second Amendment to Lease, made as of this 8th day of October, 1998, by and
between Michelle Realty Company, a co-partnership as "Lessor", and
Bio-Manufacturing, Inc., a Minnesota corporation and now by Novum Plasty
Manufacturing Corporation a Minnesota corporation by Assignment and Assumption
of Lease dated November 7,1994, as "Lessee".
WITNESSETH:
WHEREAS, Lessor and Lessee have heretofore entered into that certain Lease
Agreement dated September 5, 1990, and as amended September 12, 1995, for
certain premises located at 623 Hoover St, NE, Minneapolis, MN.
WHEREAS, Lessor and lessee mutually desire to amend the aforementioned Lease in
certain particulars.
NOW, therefore, in consideration of One and 00/100 Dollar ($1.00) and other good
and valuable consideration, receipt and sufficiency of which is hereby
acknowledged, Lessor and Lessee mutually agree to the following modifications to
Lease.
I . TERM:
The term of the lease will be extended for one (1) period of five (5) years
commencing on February 1, 1999, and expiring on January 31, 2004.
2. BASE RENT:
Tenant shall pay to Landlord monthly base rent in accordance with the following
schedule:
February 1, 1999 - January 31, 2001 - $4,791.67
February 1. 2001 - January 31, 2004 - $5,208.33
All other terms and conditions of the original Lease, except as amended herein,
are to remain in full force and effect.
IN WITNESS WHEREOF, Lessor and Lessee have caused this FIRST AMENDMENT TO LEASE
to be signed and sealed as of the day and year first above written.
LESSEE: LESSOR-
Novum Plasty Manufacturing Corporation, a Michelle Realty Company,
Minnesota corporation a co-partnership
By /S/ By /S/
its President its Partner
67
Exhibit 6(iv) NOVAMED,INC
1999 STOCK OPTION PLAN
(Effective March 19 1 999)
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TABLE OF CONTENTS
1. INTRODUCTION 83
1.1 Purpose of the Plan 83
1.2 Definitions 83
2. THE STOCK OPTION PLAN 88
2.1 Stock Subject to the Plan 88
2.2 Administration of the Plan 88
2.3 Eligibility and Limits 89
3. TERMS OF OPTIONS 89
3.1 General Terms and Conditions 89
3.2 Option Price 89
3.3 Option Term 90
3.4 Exercise of Option 90
3.5 Payment 90
3.6 Termination and Conservation of ISOs 91
3.7 Special Provisions for Certain Substitute Options 91
4. RESTRICTIONS ON STOCK 92
4.1 Escrow of Shares 92
4.2 Restrictions on Transfer 92
4.3 Restrictions on Delivery and Sale of Shares; Legends 92
5. GENERAL PROVISIONS 93
5.1 Withholding 93
-----------------------------------
5.2 Changes in Capitalization, Merger; Liquidation 93
-----------------------------------
5.3 Cash Awards 94
5.4 Legal Compliance 94
5.5 Right to Terminate Employment 94
5.6 Non-Alienation of Benefits 94
5.7 Termination and Amendment of the Plan 95
5.9 Choice of Law 95
5.10 Stock Approval 95
5.11 Effective Date of Plan 95
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NOVAMED,INC
1999 STOCK OPTION PLAN
1. INTRODUCTION
1.1 Purpose of the Plan. The Plan is intended to (a) provide
incentive to officers and key employees of the Company and its Affiliates to
stimulate their efforts toward the continued success of the Company and to
operate and manage the business in a manner that will provide for the long-term
growth and profitability of the Company; (b) encourage stock ownership by
officers and key employees by providing them with a means to acquire a
proprietary interest in the Company; and (c) provide a means of obtaining,
rewarding and retaining key personnel and consultants.
1.2 Definitions. Whenever used herein, the masculine pronoun
will be deemed to include the feminine, and the singular to include the plural,
unless the context clearly indicates otherwise, and the following capitalized
words and phrases will have the following meaning:
(a) "Affiliate" means:
(i) an entity that directly or through one
or more intermediaries is controlled
by the Company, and
(ii) any entity in which the Company has a
significant equity interest, as deter-
mined by the Company.
(b) "Board of Directors" means the board of
directors of the Company.
(c) "Code" means the Internal Revenue Code of
1986, as amended.
(d) "Committee" means the committee appointed by
the Board of Directors to administer the Plan, or the Board of Directors if it
does not appoint a committee to administer the Plan. The Board of Directors
shall consider the advisability of whether the members of the Committee shall
consist solely of at least two members of the Board of Directors who are both
"outside directors" as defined in Treas. Reg. ss. 1.162-27(e) as promulgated by
the Internal Revenue Service and "non-employee directors" as defined in Rule
16b-3(b)(3) as promulgated under the Exchange Act.
(e) "Company" means NOVAMED, INC., a Nevada
corporation.
(f) "Disability" has the same meaning as provided
in the long-term disability plan or policy maintained or, if applicable, most
recently maintained, by the Company or, if applicable, any Affiliate of the
Company for the Participant. If no long-term disability plan or policy was ever
maintained on behalf of the Participant or, if the determination of Disability
relates to an Incentive Stock Option, Disability means that condition described
in Code Section22(e)(3). In the event of a dispute, the determination of
Disability will be made by the Committee and will be supported by advice of a
physician competent in the area to which such Disability relates.
(g) "Exchange Act" means the Securities Exchange
Act of 1934, as amended
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from time to time.
(h) "Fair Market Value" with regard to a date
means:
(i) the average of the high and low prices
at which Stock was sold on that date or the
last trading date prior to that date as
reported by the Nasdaq Stock Market (or, if
applicable, as reported by a national
securities exchange selected by the
Committee on which the shares of Stock are
then actively traded) and published in The
Wall Street Journal,
(ii) if Stock is not traded on a securities
exchange, but is reported by the Nasdaq
Stock Market and market information is
published on a regular basis in The Wall
Street Journal, the average of the published
high and low sales prices for that date of
the last business day prior to that date as
published in The Wall Street Journal,
(iii) if such market information in not
published on a regular basis, the average of
the high bid and low asked prices of Stock
in the over-the-counter market on that date
of the last business day prior to that date,
as reported by the Nasdaq Stock Market, or,
if not so reported, by a generally accepted
reporting service, or
(iv) if Stock is not publicly traded, as
determined in good faith by the Committee
with due consideration being given to the
most recent independent appraisal of the
Company, if such appraisal is not more than
12 months old and the valuation methodology
used in any such appraisal. For purposes of
granting awards other than Incentive Stock
Options, Fair Market Value of the shares of
Stock may be determined by the Committee by
reference to the average market value
determined over a period certain or as of
specified dates, to a tender offer price of
the shares of Stock (if settlement of an
award is triggered by such an event) or to
any other reasonable measure of fair market
value.
(i) "ISO" means an option to purchase Stock in
the Company that qualifies as an "incentive stock option" under Code Section
422(b).
(j) "Non Qualifying Option" means an option to
purchase Stock in the Company that does not qualify as an ISO.
(k) "Option" means a Non-qualified Stock Option
or an ISO.
(1) "Over 10% Owner" means an individual who
at the time an ISO is granted owns Stock possessing more than IO% of the total
combined voting power of the Company or one of its Subsidiaries, determined by
applying the attribution rules of Code Section 424(d).
(m) "Participant" means an Individual who
receives an Option hereunder.
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(n) "Plan" means the NovaMed, Inc., 1999 Stock
Option Plan.
(o) "Stock" means the Company's common stock.
(p) "Stock Option Agreement" means an agreement
between the Company and a Participant or other documentation evidencing an award
of an Option.
(q) "Stock Option Program" means a written
program established by the Committee, pursuant to which Options are awarded
under the Plan under uniform terms, conditions and restrictions set forth in
such written program.
(r) "Subsidiary" means any corporation (other
than the Company) in an unbroken chain of corporations beginning with the
Company if, with respect to ISOS, at the time of the granting of the Option,
each of the corporations other than the last corporation in the unbroken chain
owns stock processing 50% or more of the total combined voting power of all
classes of stock in one of the other corporations in the chain.
(s) "Termination Of Employment" means the term-
ination of the employee- employer relationship between a Participant and the
Company and its Affiliates, regardless of whether severance or similar payments
are made to the Participant for any reason, including, but not by way of
limitation, a termination by resignation, discharge, death, disability or
retirement. The Committee will, in its absolute discretion, determine the effect
of all matters and questions relating to a Termination of Employment, including,
but not by way of limitation, the question of whether a leave of absence
constitutes a Termination of Employment.
2. THE STOCK OPTION PLAN
2.1 Stock Subject to the Plan. Subject to adjustment in
accordance with Section 5.2, 500,000 shares of Stock (the "Maximum Plan Shares")
are hereby reserved exclusively for issuance pursuant to Options. At no time may
the Company have outstanding under the Plan, Options subject to Section 16 of
the Exchange Act and shares of Stock issued in respect of Options under the Plan
in excess of the Maximum Plan Shares. The shares of Stock attributable to the
nonvested, unpaid, unexercised, unconverted or otherwise unsettled portion of
any Option that is forfeited or canceled or expires or terminates for any reason
without becoming vested, paid, exercised, converted or otherwise settled in full
will again be available for purposes of the Plan.
2.2 Administration of the Plan. The Plan is administered by
the Committee, the Company or its Affiliates to whom Options will be granted and
the terms and provisions of Options, subject to the Plan. Subject to the
provisions of the Plan, the Committee has full and conclusive authority to
interpret the Plan; to prescribe, amend and rescind rules and regulations
relating to the Plan; to determine the terms and provisions of the respective
Stock Option Agreements and to make all other determinations necessary or
advisable for the proper administration of the Plan. The Committee's
determinations under the Plan need not be uniform and may be made by it
selectively among persons who receive, or are eligible to receive, awards under
the Plan (whether or not such persons are similarly situated). The Committee's
decisions are final and binding on all Participants.
2.3 Eligibility and Limits. Options may be granted only
to officers, directors and key
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employees and consultants of the Company, or any Affiliate of the Company;
provided, however, that an ISO may only be granted to an employee of the Company
or any Subsidiary. In the case of ISOS, the aggregate Fair Market Value
(determined as at the date an ISO is granted) of stock with respect to which
Options intended to meet the requirements of Code Section 422 become exercisable
for the first time by an individual during any calendar year under all plans of
the Company and its Subsidiaries may not exceed $ 1 00,000; provided further,
that if the limitation is exceeded, the ISO(S) which cause the limitation to be
exceeded will be treated as Non-Qualified Option(s).
3. TERMS OF OPTIONS
3.1 General Terms and Conditions.
(a) Number. The number of shares of Stock as to
which an Option may be granted will be determined by the Committee in its sole
discretion, subject to the provisions of Section 2.2 as to the total number of
shares available for grants under the Plan.
(b) Stock Option Agreement. Each Option will
either be evidenced by a Stock Option Agreement in such form and containing such
terms, conditions and restrictions as the committee may determine to be
appropriate, or be made subject to the terms of a Stock Option Program,
containing such terms, conditions and restrictions as the Committee may
determine to be appropriate. Each Stock Option Agreement or Stock Option Program
is subject to the terms of the Plan and any provisions contained in the Stock
Option Agreement or Stock Option Program that are inconsistent with the Plan are
null and void.
(c) Date Granted. The date an Option is granted
will be the date on which the Committee has approved the terms and conditions of
the Option and has determined the recipient of the Option and the number of
shares covered by the Option, and has taken all such other actions necessary to
complete the grant of the Option.
(d) Previous Option. Any Option may be granted
in connection with all or any portion of a previously or contemporaneously
granted Option. Exercise or vesting of an Option granted in connection with
another Option may result in a pro rata surrender or cancellation of any related
Option, as specified in the applicable Option Agreement or Option Program.
3.2 Option..Price.
(a) Non-Qualified Options. The exercise price
per share specified in the agreement relating to each Non-Qualified Option
granted under the Plan shall in no event be less than the lesser or (1) the book
value per share of Common Stock at the end of the fiscal year of the Company
immediately preceding the date of such grant; or (2) 50% of the Fair Market
Value per share of Common Stock on the date of such grant.
(b) ISOS. The exercise price per share specified
in the agreement relating to each ISO granted under the plan shall not be less
than the Fair Market Value per share of Common Stock on the date of such grant.
In the case of an ISO to be granted to an Over 10% Owner, the price per share
specified in the agreement relating to such incentive stock option shall not be
less than I 00% of the fair market value per share of Stock on the date of such
grant.
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3.3 Option Tenn. Subject to earlier termination due to a
Participant's Termination of Employment, death or Disability, each Option shall
expire on the date specified by the Committee, but not more than (a) ten (IO)
years and one day from the date of grant in the case of Non-Qualified Options
(b) ten IO years from the date in the case of ISOs generally, and (c) five (5)
years from the date of grant in the case of ISOs granted to an over 1 0% Owner.
Subject to earlier termination as set forth above, the term of each ISO shall be
the ten-n set forth in the original instrument granting such ISO, except with
respect to any part of such ISO that is converted into a Non-Qualified Option
under this Plan.
3.4 Exercise of Option. Subject to an Option's earlier
termination under the Plan, each Option granted under the Plan shall be
exercisable as follows:
(a) vesting. The Option shall be either fully
exercisable on the date of grant or shall become exercisable thereafter in such
installments as the Committee may specify. Once an installment becomes
exercisable, it shall remain exercisable until expiration or termination of the
Option, unless otherwise specified by the Committee.
(b) Partial Exercise. Each Option or installment
may be exercised at any time or from time to time, in whole or in part, for up
to the total number of shares with respect to which it is then exercisable.
(c) Acceleration of VestinZ. The Committee shall
have the right to accelerate the date of exercise of any installment of any
Option, provided that the Committee shall not, without the consent of an
optionee, accelerate the exercise date of any installment of any Option granted
to any employee as an ISO (and not previously converted into a NonQualified
Option) if such acceleration would violate the annual vesting limitation
contained in Code Section 422(d) as described in Section 2.3.
3.5 Payment. Payment must be made at the time that the Option
or any part thereof is exercised, and no shares may be issued or delivered upon
exercise of an Option until full payment has been made by the Participant. The
holder of an Option, as such, has none of the rights of a stockholder.
3.6 Termination and Conversion of ISOS
(a) termination. With respect to an ISO, in the
event of Termination of Employment of a Participant, the Option or portion
thereof held by the Participant which is unexercised will expire, terminate, and
become unexercisable no later than the expiration of three (3) months after the
date of termination of employment; provided, however, that in the case of a
holder whose termination of employment is due to death or Disability, one (1)
year will be substituted for such three (3) month period; provided, further that
such time limits may be exceeded by the Committee under the temis of the grant,
in which case, the ISO will be a NonQualified Option if it is exercised after
the time limits that would otherwise apply.
(b) Conversion. The Committee, on written request
of any Participant, may in its discretion take such actions as may be necessary
to convert such Participant's ISOs (or any installments or portions of
installments thereof) that have not been exercised on the date of conversion to
Non-Qualified Options at any time prior to the expiration of such ISOS. Such
actions may include, without limitation, extending the exercise period or
reducing the exercise price of the appropriate
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<PAGE>
installments of such Options. At the time of such conversion, the Committee
(with the Participant's consent) may impose such conditions on the exercise of
the resulting Non-Qualified Options as the Committee in its discretion may
determine, provided that such conditions shall not be inconsistent with this
Plan. Nothing in this Plan gives any Participant the right to have his ISOs
converted into Non-Qualified Options, and no such conversion may occur unless
and until the Committee takes appropriate action.
3.7 Special Provisions for Certain Substitute Options.
Notwithstanding anything to the contrary in this Section 3, any Option issued in
substitution for an option previously issued by another entity, which
substitution occurs in connection with a transaction to which Code Section
424(a) is applicable, may provide for an exercise price computing in accordance
with such Code Section and the regulations thereunder and may contain such other
terms and conditions as the Committee may prescribe to cause such substitute
Option to contain as nearly as possible the same terms and conditions (including
the applicable vesting and termination provisions) as those contained in the
previously issued option being replaced thereby.
3.8 Notice to Company of Disqualifying Disposition . Each
employee who receives an ISO must agree to notify the Company in writing
immediately after the employee makes a Disqualifying Disposition of any Stock
acquired pursuant to the exercise of an ISO. A "Disqualifying Disposition" is
any disposition (including any sale) of such Stock before the later of (a) two
(2) years after the date the employee was granted the ISO, or (b) one (1) year
after the date the employee acquired Stock by exercising an ISO. If the employee
has died before such Stock is sole, these holding period requirements do not
apply, and no Disqualifying Disposition can occur thereafter.
4. RESTRICTIONS ON STOCK
4.1 Escrow in Shares. Any certificates representing the shares
of Stock issued under the Plan will be issued in Participant's name, but, if the
applicable Stock Option Agreement or Stock Option Program so provides, the
shares of Stock will be held by a custodian designated by the Committee (the
"Custodian"). Each applicable Stock Option Agreement or Stock Option Program
providing for transfer of shares of Stock to the Custodian must appoint the
Custodian as the attorney-in-fact for the Participant for the term specified in
the applicable Stock Option Agreement or Stock Option Program, with full power
and authority in the Participant's name, place and stead to transfer, assign and
convey to the Company any shares of Stock held by the Custodian for such
Participant, if the Participant forfeits the shares under the terms of the
applicable Stock Option Agreement or Stock Option Program. During the period
that the Custodian holds the shares subject to this Section, the Participant is
entitled to all rights, except as provided in the applicable Stock Option
Agreement or Stock Option Program, applicable to shares of Stock not so held.
Any dividends declared on shares of Stock held by the Custodian must provide in
the applicable Stock Option Agreement or Stock Option Program, be paid directly
to the Participant or, in the alternative, be retained by the Custodian or by
the Company until the expiration of the term specified in the applicable Stock
Option Agreement or Stock Option Program and shall then be delivered, together
with any proceeds, with the shares of Stock to the Participant or to the
Company, as applicable.
4.2 Restrictions on Transfer. The Participant does not have
the right to make or permit to exist any disposition of the shares of Stock
issued pursuant to the Plan except as provided in the Plan or the applicable
Stock Option Agreement or Stock Option Program. Any disposition of the shares of
Stock issued under the Plan by the Participant not made in accordance with the
Plan or the applicable
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Stock Option Agreement or Stock Option Program will be void. The Company will
not recognize, or have the duty to recognize, any disposition not made in
accordance with the Plan and the applicable Stock Option Agreement or Stock
Option Program, and the shares so transferred will continue to be bound by the
Plan and the applicable Stock Option Agreement or Stock Option Program.
4.3 Restrictions on Delivery and Sale of Shares: Legends. Each
Option is subject to the conditions that if at any time the Committee, in it,
discretion, shall determine that the listing, registration or qualification of
the shares covered by such Option upon any securities exchange or under any
state or federal law is necessary or desirable as a condition of or in
connection with the granting of such Option or the purchase or delivery of
shares thereunder, the delivery of any or all shares pursuant to such Option may
be withheld unless and until such listing, registration or qualification shall
have been effected. If a registration statement is not in effect under the
Securities Act of 1933 or any applicable state securities laws with respect to
the shares of Stock purchasable or otherwise deliverable under Options then
outstanding, the Committee may require, as a condition of exercise of any
Option, that the Participant represent in writing, that the shares received
pursuant to the Option are being acquired for investment and not with a view to
distribution and agree that the shares will not be disposed of except pursuant
to an effective registration statement, unless the Company shall have received
an opinion of counsel that such disposition is exempt from such requirement
under the Securities Act of 1933 and any applicable state securities laws. The
Company may include on certificates representing shares delivered pursuant to an
Option such legends referring to the foregoing representations or restrictions
or any other applicable restrictions on resale as the Company, in its
discretion, shall deem appropriate.
5. GENERAL PROVISIONS
5.1 The Company must deduct from all cash distributions under
the Plan any taxes required to be withheld by federal, state or local
government. Whenever the Company proposes or is required to issue or transfer
shares of Stock under the Plan, the Company has the right to require the
recipient to remit to the Company an amount sufficient to satisfy any federal,
state and local withholding tax requirements prior to the delivery of any
certificate or certificates for such shares. A Participant may pay the
withholding tax in cash, or, if the applicable Stock Option Agreement or Stock
Option Program provides, a Participant may elect to have the number of shares of
Stock he is to receive reduced by the smallest number of whole shares of Stock
which, when multiplied by the Fair Market Value of the shares of Stock
determined as of the Tax Date (defined below), is sufficient to satisfy federal,
state and local, if any, withholding taxes arising from exercise of an Option (a
"Withholding Election"). A Participant may make a Withholding Election only if
both of the following conditions are met: (a) the Withholding Election must be
made on or prior to the date on which the amount of tax required to be withheld
is determined (the "Tax Date") by executing and delivering to the Company a
properly completed notice of Withholding Election as prescribed by the
Committee; and (b) any Withholding Election made will be irrevocable except on
six months advance written notice delivered to the Company; however, the
Committee may in its sole discretion disapprove and give no effect to the
Withholding Election.
5.2 Changes in Capitalization: Merger; Liquidation.
(a) Capitalization. The number of shares of Stock
reserved for the grant of Options; the number of shares of Stock reserved for
issuance upon the exercise of each outstanding Option; the Exercise Price of
each outstanding Option must be proportionately adjusted for any increase or
decrease in the number of issued shares of stock resulting from a subdivision or
combination of shares or the payment of a stock dividend in shares of Stock
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to holders of outstanding
shares of Stock or any other increase or decrease in the number of shares of
Stock outstanding effected without receipt of consideration by the Company.
(b) Merger. In the event of a merger, consolid-
ation or other reorganization of the Company or tender offer for shares of
Stock, the Committee may make such adjustments with respect to awards and take
such other action as it deems necessary or appropriate to reflect such merger,
consolidation, reorganization or tender offer, including, without limitation,
the substitution of new awards, or the adjustment of outstanding awards, the
acceleration of awards, the removal of restrictions on outstanding awards, or
the termination of outstanding awards in exchange for the cash value determined
in good faith by the Committee of the vested portion of the award. Any
adjustment pursuant to this Section 5.2 may provide, in the Committee's
discretion, for the elimination without payment therefor of any fractional
shares that might otherwise become subject to any Option, but except as set
forth in this Section 5.2 may not otherwise diminish the then value of the Stock
Incentive.
(c) Reorganization, Liquidation. The existence
of the Plan and the Options granted pursuant to the Plan must not affect in any
way the right or power of the Company to make or authorize any adjustment,
reclassification, reorganization or other change in its capital or business
structure, any merger or consolidation of the Company, any issue of debt or
equity securities having preferences or priorities as to the Stock or the rights
thereof, the dissolution or liquidation of the Company, any sale or transfer of
all or any part of its business or assets, or any other corporate act or
proceeding.
5.3 Cash Awards. The Committee may, at any time and in its
discretion, grant to any holder of an Option the right to receive, at such times
and in such amounts as determined by the Committee in its discretion, a cash
amount which is intended to reimburse such person for all or a portion of the
federal, state and local income taxes imposed upon such person as a consequence
of the receipt of the Option or the exercise of rights thereunder.
5.4 Legal Compliance. All ISOs to be granted hereunder are
intended to comply with Code Section 422, and all provisions of the Plan and all
ISOs granted hereunder must be construed in such manner as to effectuate that
intent. The Company's obligation to sell and deliver shares of Stock under this
Plan is subject to the approval of any governmental authority required in
connection with the authorization, issuance or sale of such shares. The
Committee may suspend the exercise Option so long as it determines that
securities exchange listing or registration or qualification under any
securities laws is required in connection therewith and has not been completed
on ten-ns acceptable to the Committee.
5.5 Right to Terminate. Nothing in the Plan or in any Option
confers upon any Participant the right to continue as an employee or officer of
the Company or any of its Affiliates or affect the right of the Company or any
of its Affiliates to terminate the Participant's employment at any time.
5.6 Non-Alienation of Benefits. Other than as specifically
provided with regard to the death of a Participant, no benefit under the Plan
may be subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance or charge; and any attempt to do so shall be
void. No such benefit may, prior to receipt by the Participant, be in any manner
liable for or subject to the debts, contracts, liabilities, engagements or torts
of the Participant.
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5.7 Termination and Amendment of the Plan. The Board of
Directors at any time may amend or terminate the Plan without stockholder
approval; provided, however, that the Board of Directors may condition any
amendment on the approval of stockholders of the Company if such approval is
necessary to advisable with respect to tax, securities or other applicable laws.
No such termination or amendment without the consent of the holder of an Option
may adversely affect the rights of the Participant under such Option.
5.8 Application of Funds. The proceeds received by the Company
from the sale of shares pursuant to Options granted shall be used for general
corporate purposes.
5.9 Choice of Law. The laws of the State of Nevada govern the
Plan, to the extent not preempted by federal law, without reference to the
principles of conflict of laws.
5.10 Stock Approval. The Plan was submitted to the
stockholders of the Company for their approval on April 9, 1998, which was
within twelve (I 2) months before the adoption of the Plan by the Board of
Directors of the Company.
5.11 Effective Date of Plan. The Plan shall become effective
1999.
NOVAMED, INC., a Nevada corporation
By:_______________________________
Ruairidh Campbell, President
78
Exhibit 6(v)
STOCK OPTION AGREEMENT
AGREEMENT made this 19th day of March, 1999, by and between NovaMed, Inc., a
Nevada corporation ("NovaMed"), and Ruairidh Campbell, whose address is 600
Westwood Terrace, Austin, TX 78746 ("Option Holder").
WITNESSETH:
WHEREAS, NovaMed has adopted a Stock Option Plan (the "Plan") whereunder NovaMed
intends to grant to Option Holder an option to purchase shares of NovaMed's
common stock ("Stock"); and
WHEREAS, Option Holder is a key employee of NovaMed and NovaMed desires him/her
to remain in such capacity by providing him/her with an added incentive to work
effectively for and in NovaMed's interest and with the means to acquire or to
increase his/her proprietary interest in NovaMed and to share in its Success.
NOW, THEREFORE, in consideration of the mutual covenants and conditions
hereinafter set forth, NovaMed and Option Holder agree as follows:
1. Grant of Option. Subject to the terms and conditions of the
Plan, a copy of which is attached hereto as Exhibit "A" and by reference made a
part hereof, NovaMed hereby irrevocably grants to Option Holder, as a matter of
separate agreement and not in lieu of salary or any other compensation or
services, the right and option (the "Option") to purchase all or any part of an
aggregate number of Fifty Five Thousand (55,000) shares of authorized but
unissued common stock of NovaMed ("Optioned Shares") on the terms and conditions
hereof.
2. Price. The purchase price of the Optioned Shares shall be
the sum of One US Dollar and Thirty Cents (US$1.30) per share. The parties
acknowledge that the price is not less than One Hundred Percent (100%) of the
fair market value, as determined by the Board of Directors of NovaMed, of a
share of stock of NovaMed on the date of the grant of the Option.
3. Date of Exercise. Subject to the provisions of paragraph 7,
the Option may be exercised at any time from and after either of the following
times, whichever shall be the earlier:
a. Option Holder may exercise the Option at any time
and from time to time before two (2) years from the date of grant of the Option.
b. The agreement of NovaMed to sell all or substant-
ially all of its assets or business.
4. Method of Exercise. The Option shall be exercised by
written notice, delivered or mailed by post paid or certified mad, addressed to
NovaMed at it principal offices, specifying the number of Optioned Shares being
purchased. Such notice shall be accompanied by payment, in cash or its
equivalent, of the full price of the Optioned Shares being purchased. In the
event the Option is being exercised pursuant to paragraph 6 below by any person
or persons other than Option Holder, the notice shall be accompanied by
appropriate proof of the right of such person to exercise the Option.
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5. Issuance of Shares. The certificate or certificates
representing the shares purchased hereunder shall be issued and delivered by
NovaMed as soon as practical after receipt of the notice of exercise and
required payment. Such certificate or certificates shall be registered in the
name of the person exercising the Option and shall be delivered to or on the
written order of such person.
6. Transfer of Obligation. The Option shall not be
transferable by Option Holder except by his/her Last Will or the laws of the
Holder's domicile at the time of his/her death relating to intestacy. During
his/her lifetime, Option Holder is the only person who may exercise the Option.
More specifically, without limiting the generality of the foregoing, the Option
may not be assigned, transferred (except as permitted herein) pledged or
hypothecated in any way, whether by operation of law or otherwise, and shall not
be subject to execution, attachment or similar process. Any attempted
assignment, transfer, pledge, hypothecation or other disposition of the Option
contrary to the provisions hereof, and the levy of any attachment or similar
process on the Option shall be null and void and without effect.
7. Termination of Option.
(a) Termination of Employment. The right to exercise
the option shall end:
(1) In the event of voluntary termination by
Option Holder, on the date of notice of such
termination.
(2) In the event of involuntary termination
by NovaMed, with cause, on the date of
notice of such termination.
(3) In the event of involuntary termination
by NovaMed, without cause, thirty (30) days
from the date of notice of such termination.
(b) Death. U Option Holder shall die within the above
mentioned thirty (30) day period, or if he shall die
while in the employ of NovaMed, the Option will
terminate unless the person or persons to whom the
Option shall have been transferred by his/her Last
Will or the laws of intestacy shall have, within six
(6) months from the date of Option Holder's death,
exercised the Option.
(c) Proof of Succession. No transfer of the Option by
Option Holder by his/her just Will or under the laws
of intestacy shall be effective to bind NovaMed
unless NovaMed shall have been furnished with written
notice thereof and a copy of Option Holder's Last
Will and /or such other evidence as the Board of
Directors of NovaMed may deem necessary to establish
the validity of the transfer and the acceptance by
the transferee or transferees of the terms and
conditions of the Option.
(d) Notwithstanding any provision of this Agreement
to the contrary, the right to exercise the Option
will terminate on March 19, 2001.
8. Effect of Merger or Consolidation.
(a) Substitution of Shares. After any merger of one
or more corporations into
80
<PAGE>
NovaMed, or after any consolidation of NovaMed and
one or more corporation in which NovaMed shall be the
surviving corporation, Option Holder shall, at not
additional cost, be entitled, upon the exercise of
the Option, to receive, subject to any required
action by the shareholders of NovaMed and in lieu of
the number of shares as to which the Option shall
then be so exercised, the number and class of shares
of stock or securities to which Option Holder would
have been entitled pursuant to the terms of the
Agreement of Merger or Consolidation if at the time
of such merger or consolidation Option Holder had
been a holder of record of a number of shares of
common stock of NovaMed equal to the number of shares
as to which the Option shall then be so exercised.
(b) Future Merger or Consolidation. Comparable rights
shall accrue to Option Holder in the event of any
successive merger or consolidation of the character
above.
(c) Dissolution of NovaMed. Notwithstanding anything
herein to the contrary, upon the dissolution or
liquidation of NovaMed, or upon any merger or
consolidation in which NovaMed is not the surviving
corporation, the Option shall terminate, but Option
Holder shall have the right, immediately prior to
dissolution, liquidation, merger or consolidation to
exercise the Option in full.
9. Shareholder Status. Option Holder, or any transferee of the
Option, shall have no right as a shareholder with respect to any Optioned Share
until he shall have become a shareholder of record of such share. No adjustment
shall be made for dividends or cash distributions, ordinary or extraordinary,
whether in cash, securities or other property, or distributions or other rights
in respect of such share for which the record date is prior to the date on which
Option Holder shall become the holder of record thereof.
10. Reservation of Right to Terminate Employment.
Nothing contained in this Agreement shall restrict the right of NovaMed to
terminate the employment of Option Holder at any time, with or without cause.
11. Purchase for Investment Only. Option Holder represents to
NovaMed that it is his/her intention to exercise the Option, and to acquire any
stock covered thereby, for investment and not with a view to the distribution or
resale thereof, and any person who shall exercise the Option shall be required
to so represent in writing at the time of exercise. Option Holder further
acknowledges that he will not sell or otherwise dispose of shares covered by the
Option except pursuant to an effective registration statement under the
Securities Act of 1933, as amended, or except in a transaction which, in the
opinion of counsel for NovaMed, is exempt from registration under that Act.
12. Registration of Shares. If, at any time, the Board of
Directors of NovaMed shall determine, in its discretion, that the registration
or qualification of any shares covered by the Option is necessary or desirable
under any state or federal law, as a condition of or in connection with the
delivery of such shares on the exercise of the Option, the delivery of such
shares shall be deferred until such registration or qualification shall have
been effected. In the event the Board of Directors of NovaMed determines that
registration or qualification of shares covered by the Option is necessary or
desirable, NovaMed shall, at its expense, take such action as may be required to
effect such registration or qualification.
81
<PAGE>
13. Restriction on Transfer.
(a) Death or Termination of Employment.
(1) Option of NovaMed to Repurchase.
Option Holder hereby grants to NovaMed an
irrevocable right to repurchase, at any time
within one hundred eighty (180) days from
and after his/her death or any termination
of employment, any or all of the shares
acquired hereunder. NovaMed shall exercise
this option by delivering written notice
thereof to the record owner of such shares
together with payment in the sum provided
below. Concurrently with the exercise by
NovaMed of this option, the record owner of
such shares shall deliver to NovaMed all
certificates representing the said shares.
which certificates shall be properly
endorsed in blank.
(2) Option to Sell to NovaMed. Following the
full and complete exercise of the Option and
the purchase of all Optioned Shares
described herein, NovaMed grants to Option
Holder an irrevocable right to sell, at any
time within One Hundred Eighty (180) days
from and after Option Holder's death or any
termination of employment, all of Option
Holder's right, title and interest in and to
the Optioned Shares so purchased. This
option may be exercised only with respect to
all of the shares of NovaMed owned by Option
Holder and cannot be exercised with respect
to any smaller portion thereof, an is not
assignable to any other person other than
Option Holder's legal representatives in the
event of his/her death.
(3) Purchase Price. The purchase price to be
paid by NovaMed in the event of a sale to or
purchase by NovaMed under either of the
foregoing shall be an amount mutually
determined by NovaMed and Option Holder or
his/her legal representatives. If the
parties cannot mutually agree on an
acceptable price, a qualified appraiser
shall be selected by the parties and the
determination of the appraiser shall be
final and binding. If the parties cannot
agree on the identity of an acceptable
appraiser, either of the parties may
petition a court of appropriate jurisdiction
for an order which shall determine the
manner in which the price shall be
ascertained. All costs of any appraisal and
all costs of any legal action, including any
reasonable attorney's fees incurred by
NovaMed in connection therewith, shall be
the exclusive responsibility of Option
Holder and shall be deducted from any price
to be paid by NovaMed hereunder.
Notwithstanding anything herein to the
contrary, the purchase price shall be not
less than the sum of One Dollar ($ 1.00) per
share.
(b) Proposed Disposition of Shares.
(1) Except as set forth in subparagraph 4
below, neither Option
82
<PAGE>
Holder nor any vendee, transferee,
successor, assignee, donee or pledgee of any
of the shares acquired hereunder nor any
person or firm that acquires any interest in
any of the said shares by contract or
otherwise shall sell, encumber, pledge,
hypothecate, give or otherwise transfer any
or all of said shares or any interest
therein, voluntarily, by operation of law or
otherwise, without obtaining a prior written
consent of NovaMed unless Option Holder or
such transferee shall give notice to NovaMed
of an intention to do so. The said notice
shall specify the name of the proposed
transferee, the number of such shares to be
transferred, the price offered per share,
payment terms, and any other material terms
or conditions of the proposed transfer.
(2) At any time within sixty (60) days after
receipt of the above described notice by
NovaMed, NovaMed shall have the right to
purchase all or any of the subject shares
for the same price as shall be paid by the
transferee. If the proposed transfer does
not involve or include a price per share,
NovaMed shall pay the fair market value of
said shares as the same shall be determined
by the independent certified public
accountant of NovaMed. NovaMed shall pay the
purchase price, by check or in cash, to the
owner of the subject shares and the owner
shall deliver to NovaMed all certificates
representing the subject shares properly
endorsed in blank.
(3) After the expiration of the above stated
sixty (60) day period, but prior to the
expiration of ninety (90) days after receipt
of the said notice by NovaMed, any of the
subject shares with respect to which NovaMed
has not exercised the right described herein
may be transferred as specified in the said
notice. Any transferee of the subject shares
shall hold them subject to all of the terms
and conditions of this Agreement, including
restrictions upon any subsequent transfer.
(4) Notwithstanding the foregoing, any owner
of the shares acquired in compliance with
the terms of this Agreement may make a gift,
inter vivos or testamentary, of such shares
to such person's spouse or issue, or to a
trust or other fiduciary account for the
benefit of any of them so long as such
fiduciary account is not also for the
benefit of any other person. Any such donee
shall hold such shares subject to all of the
provisions of this Agreement and shall not
sell, encumber, pledge, hypothecate, give or
otherwise transfer any or all of said shares
or any right or interest therein except in
accordance with all the terms and conditions
of this Agreement.
14. Statement on Certificate. The certificate representing any
shares acquired hereunder will bear a legend on the face thereof in
substantially the following form:
These securities have not been registered under the Securities
Act of 1933, and may not be offered, offered for sale, or sold
in the absence of an effective registration statement under
the Act or an opinion of counsel satisfactory to the
corporation that registration is not required. Additionally,
sale, encumbrance, hypothecation, gift or other transfer of
such shares or any interest therein is restricted by and
subject to a Stock Option.
83
<PAGE>
Agreement dated March 19,1999, a copy of which may be
inspected at the principal offices of the corporation and all
of the provisions of which are incorporated herein by
reference.
15. Life Insurance. NovaMed may procure insurance on the life
of Option Holder, naming itself as beneficiary, in such face amounts as NovaMed
shall determine. The principal purpose of such life insurance shall be to assist
NovaMed in making payment of any obligation due by NovaMed hereunder.
16. Succession. This Agreement shall be binding upon the
parties and their heirs, distributees, legal representatives, successors and
assigns.
17. Amendment. This Agreement may not be altered or amended
except by a written instrument setting forth such changes signed by NovaMed and
Option Holder.
18. Interpretation. Whenever the context so requires, the
singular shall include the plural, the plural shall include the singular, the
whole include and part thereof, and any gender shall include all other genders.
19. Notices. All notices required to be given under this
Agreement shall be in writing, and shall be sufficiently given if personally
delivered, or if mailed, postage prepaid, registered mail, return receipt
requested, as follows:
Name Address
NovaMed, Inc. 623 Hoover Street N.E.
Minneapolis, MN 55413 USA
Ruairidh Campbell 600 Westwood Terrace
Austin, Texas 78746
20. Attorney's Fees. If any party hereto should default in the
performance of any obligation hereunder, any other party shall be entitled to a
reasonable attorney's fee and all costs incurred in connection with the
enforcement of any of the terms and conditions hereof.
21. Governing Law. This Agreement shall be construed in
accordance with the laws of the State of Nevada, United States of America and in
the English language.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and
year first above written.
NovaMed, Inc.
By_________________________
Dr. Howard Bellin, Director
---------------------------
Ruairidh Campbell
84
<PAGE>
Exhibit 6(vi)
STOCK OPTION AGREEMENT
AGREEMENT made this 19th day of March, 1999, by and between NovaMed, Inc., a
Nevada corporation ("NovaMed"), and Dr. Howard Bellin, whose address is 105 East
73d Street, New York City, NY 10021 ("Option Holder").
WITNESSETH:
WHEREAS, NovaMed has adopted a Stock Option Plan (the "Plan") whereunder NovaMed
intends to grant to Option Holder an option to purchase shares of NovaMed's
common stock ("Stock"); and
WHEREAS, Option Holder is a key employee of NovaMed and NovaMed desires him/her
to remain in such capacity by providing him/her with an added incentive to work
effectively for and in NovaMed's interest and with the means to acquire or to
increase his/her proprietary interest in NovaMed and to share in its success.
NOW, THEREFORE, in consideration of the mutual covenants and
conditions hereinafter set forth, NovaMed and Option Holder agree as follows:
1. Grant of Option. Subject to the terms and conditions of the
Plan, a copy of which is attached hereto as Exhibit "A" and by reference made a
part hereof, NovaMed hereby irrevocably grants to Option Holder, as a matter of
separate agreement and not in lieu of salary or any other compensation or
services, the right and option (the "Option") to purchase all or any part of an
aggregate number of Thirty Five Thousand (35,000) shares of authorized but
unissued common stock of NovaMed ("Optioned Shares") on the terms and conditions
hereof
2. Price. The purchase price of the Optioned Shares shall be
the sum of One US Dollar and Thirty Cents (US$1.30) per share. The parties
acknowledge that the price is not less than One Hundred Percent (100%) of the
fair market value, as determined by the Board of Directors of NovaMed, of share
of stock of NovaMed on the date of the grant of the Option.
3. Date of Exercise. Subject to the provisions of paragraph 7,
the Option may be exercised at any time from and after either of the following
times, whichever shall be the earlier:
a. Option Holder may exercise the Option at any
time and from time to time before two (2) years from the date of grant of the
Option.
b. The agreement of NovaMed to sell all or sub-
stantially all of its assets or business.
4. Method of Exercise. The Option shall be exercised by
written notice, delivered or mailed by post paid or certified mad, addressed to
NovaMed at it principal offices, specifying the number of Optioned Shares being
purchased. Such notice shall be accompanied by payment, in cash or its
equivalent, of the full price of the Optioned Shares being purchased. In the
event the Option is being exercised pursuant to paragraph 6 below by any person
or persons other than Option Holder, the notice shall be accompanied by
appropriate proof of the right of such person to exercise the Option.
86
<PAGE>
5. Issuance of Shares. The certificate or certificates
representing the shares purchased hereunder shall be issued and delivered by
NovaMed as soon as practical after receipt of the notice of exercise and
required payment. Such certificate or certificates shall be registered in the
name of the person exercising the Option and shall be delivered to or on the
written order of such person.
6. Transfer of Option. The Option shall not be transferable by
Option Holder except by his/her Last Will or the laws of the Holder's domicile
at the time of his/her death relating to intestacy. During his/her lifetime,
Option Holder is the only person who may exercise the Option. More specifically,
without limiting the generality of the foregoing, the Option may not be
assigned, transferred (except as permitted herein) pledged or hypothecated in
any way, whether by operation of law or otherwise, and shall not be subject to
execution, attachment or similar process. Any attempted assignment, transfer,
pledge, hypothecation or other disposition of the Option contrary to the
provisions hereof, and the levy of any attachment or similar process on the
Option shall be null and void and without effect.
7. Termination of Option.
(a) Termination of Employment. The right to exercise
the option shall end:
(1) In the event of voluntary termination by
Option Holder, on the date of notice of such
termination.
(2) In the event of involuntary termination
by NovaMed, with cause, on the date of
notice of such termination.
(3) In the event of involuntary termination
by NovaMed, without cause, thirty (30) days
from the date of notice of such termination.
(b) Death. If Option Holder shall die within the
above mentioned thirty (30) day period, or if he
shall die while in the employ of NovaMed, the Option
will terminate unless the person or persons to whom
the Option shall have been transferred by his/her
Last Will or the laws of intestacy shall have, within
six (6) months from the date of Option Holder's
death, exercised the Option.
(c) Proof of Succession. No transfer of the Option by
Option Holder by his/her Last Will or under the laws
of intestacy shall be effective to bind NovaMed
unless NovaMed shall have been finished with written
notice thereof and a copy of Option Holder's Last
Will and /or such other evidence as the Board of
Directors of NovaMed may deem necessary to establish
the validity of the transfer and the acceptance by
the transferee or transferees of the terms and
conditions of the Option.
(d) Notwithstanding any provision of this Agreement
to the contrary, the right to exercise the Option
will terminate on March 19, 2001.
8. Effect of Merger or Consolidation.
(a) Substitution of Shares. After any merger of one
or more corporations into NovaMed, or after any
87
<PAGE>
consolidation of NovaMed and one or more corporation
in which NovaMed shall be the surviving corporation,
Option Holder shall, at not additional cost, be
entitled, upon the exercise of the Option, to
receive, subject to any required action by the share-
holders of NovaMed and in lieu of the number of
shares as to which the Option shall then be so exer-
cised, the number and class of shares of stock or
securities to which Option Holder would have been
entitled pursuant to the terms of the Agreement of
Merger or Consolidation if at the time of such merger
or consolidation Option Holder had been a holder of
record of a number of shares of common stock of
NovaMed equal to the number of shares as to which
the Option shall then be so exercised.
(b) Future Merger or Consolidation. Comparable rights
shall accrue to Option Holder in the event of any
successive merger or consolidation of the character
above.
(c) Dissolution of NovaMed. Notwithstanding anything
herein to the contrary, upon the dissolution or
liquidation of NovaMed, or upon any merger or
consolidation in which NovaMed is not the surviving
corporation, the Option shall terminate, but Option
Holder shall have the right, immediately prior to
dissolution, liquidation, merger or consolidation to
exercise the Option in full.
9. Shareholder Status. Option Holder, or any transferee of the
Option, shall have no right as a shareholder with respect to any Optioned Share
until he shall have become a shareholder of record of such share. No adjustment
shall be made for dividends or cash distributions, ordinary or extraordinary,
whether in cash, securities or other property, or distributions or other rights
in respect of such share for which the record date is prior to the date on which
Option Holder shall become the holder of record thereof.
10. Reservation of Right to Terminate Employment. Nothing
contained in this Agreement shall restrict the right of NovaMed to terminate the
employment of Option Holder at any time, with or without cause.
11. Purchase for Investment Only. Option Holder represents to
NovaMed that it is his/her intention to exercise the Option, and to acquire any
stock covered thereby, for investment and not with a view to the distribution or
resale thereof, and any person who shall exercise the Option shall be required
to so represent in writing at the time of exercise, Option Holder further
acknowledges that he will not sell or otherwise dispose of shares covered by the
Option except pursuant to an effective registration statement under the
Securities Act of 1933, as amended, or except in a transaction which, in the
opinion of counsel for NovaMed, is exempt from registration under that Act.
12. Registration of Shares. If, at any time, the Board of
Directors of NovaMed shall determine, in its discretion, that the registration
or qualification of any shares covered by the Option is necessary or desirable
under any state or federal law, as a condition of or in connection with the
delivery of such shares on the exercise of the Option, the delivery of such
shares shall be deferred until such registration or qualification shall have
been effected. In the event the Board of Directors of NovaMed determines that
registration or qualification of shares covered by the Option is necessary or
desirable, NovaMed shall, at its expense, take such action as may be required to
effect such registration or qualification.
88
<PAGE>
13. Restriction on Transfer.
(a) Death or Termination of Employment.
(1) Option of NovaMed to Repurchase. Option
Holder hereby grants to NovaMed an
irrevocable right to repurchase, at any time
within one hundred eighty (180) days from
and after his/her death or any termination
of employment, any or all of the shares
acquired hereunder. NovaMed shall exercise
this option by delivering written notice
thereof to the record owner of such shares
together with payment in the sum provided
below. Concurrently with the exercise by
NovaMed of this option, the record owner of
such shares shall deliver to NovaMed all
certificates representing the said shares.
which certificates shall be properly
endorsed in blank.
(2) Option to Sell to NovaMed. Following the
full and complete exercise of the Option and
the purchase of all Optioned Shares
described herein, NovaMed grants to Option
Holder an irrevocable right to sell, at any
time within One Hundred Eighty (180) days
from and after Option Holder's death or any
termination of employment, all of Option
Holder's right, title and interest in and to
the Optioned Shares so purchased. This
option may be exercised only with respect to
all of the shares of NovaMed owned by Option
Holder and cannot be exercised with respect
to any smaller portion thereof, an is not
assignable to any other person other than
Option Holder's legal representatives in the
event of his/her death.
(3) Purchase Price. The purchase price to be
paid by NovaMed in the event of a sale to or
purchase by NovaMed under either of the
foregoing shall be an amount mutually
determined by NovaMed and Option Holder or
his/her legal representatives. If the
parties cannot mutually agree on an
acceptable price, a qualified appraiser
shall be selected by the parties and the
determination of the appraiser shall be
final and binding. If the parties cannot
agree on the identity of an acceptable
appraiser, either of the parties may
petition a court of appropriate jurisdiction
for an order which shall determine the
manner in which the price shall be
ascertained. All costs of any appraisal and
all costs of any legal action, including any
reasonable attorney's fees incurred by
NovaMed in connection therewith, shall be
the exclusive responsibility of Option
Holder and shall be deducted from any price
to be paid by NovaMed hereunder.
Notwithstanding anything herein to the
contrary, the purchase price shall be not
less than the sum of One Dollar ($1.00) per
share.
(b) Proposed Disposition of Shares.
89
<PAGE>
(1) Except as set forth in subparagraph 4
below, neither Option Holder nor any vendee,
transferee, successor, assignee, donee or
pledgee of any of the shares acquired
hereunder nor any person or firm that
acquires any interest in any of the said
shares by contract or otherwise shall sell,
encumber, pledge, hypothecate, give or
otherwise transfer any or all of said shares
or any interest therein, voluntarily, by
operation of law or otherwise, without
obtaining a prior written consent of NovaMed
unless Option Holder or such transferee
shall give notice to NovaMed of an intention
to do so. The said notice shall specify the
name of the proposed transferee, the number
of such shares to be transferred, the price
offered per share, payment terms, and any
other material terms or conditions of the
proposed transfer.
(2) At any time within sixty (60) days after
receipt of the above described notice by
NovaMed, NovaMed shall have the right to
purchase all or any of the subject shares
for the same price as shall be paid by the
transferee. If the proposed transfer does
not involve or include a price per share,
NovaMed shall pay the fair market value of
said shares as the same shall be determined
by the independent certified public
accountant of NovaMed. NovaMed shall pay the
purchase price, by check or in cash, to the
owner of the subject shares and the owner
shall deliver to NovaMed all certificates
representing the subject shares properly
endorsed in blank.
(3) After the expiration of the above stated
sixty (60) day period, but prior to the
expiration of ninety (90) days after receipt
of the said notice by NovaMed, any of the
subject shares with respect to which NovaMed
has not exercised the right described herein
may be transferred as specified in the said
notice. Any transferee of the subject shares
shall hold them subject to all of the terms
and conditions of this Agreement, including
restrictions upon any subsequent transfer.
(4) Notwithstanding the foregoing, any owner
of the shares acquired in compliance with
the term of this Agreement may make a gift,
inter vivos or testamentary, of such shares
to such person's spouse or issue, or to a
trust or other fiduciary account for the
benefit of any of them so long as such
fiduciary account is not also for the
benefit of any other person. Any such donee
shall hold such shares subject to all of the
provisions of this Agreement and shall not
sell, encumber, pledge, hypothecate, give or
otherwise transfer any or all of said shares
or any right or interest therein except in
accordance with all the terms and conditions
of this Agreement.
14. Statement on Certificate. The certificate representing any
shares acquired hereunder will bear a legend on the face thereof in
substantially the following form:
These securities have not been registered under the Securities
Act of 1933, and may not be offered, offered for sale, or sold
in the absence of an effective registration statement
90
<PAGE>
under the Act or an opinion of counsel satisfactory to the
corporation that registration is not required. Additionally,
sale, encumbrance, hypothecation, gift or other transfer of
such shares or any interest therein is restricted by and
subject to a Stock Option Agreement dated March 19,1999, a
copy of which may be inspected at the principal offices of the
corporation and all of the provisions of which are
incorporated herein by reference.
15. Life Insurance. NovaMed may procure insurance on the life
of Option Holder, naming itself as beneficiary, in such face amounts as NovaMed
shall determine. The principal purpose of such life insurance shall be to assist
NovaMed in making payment of any obligation due by NovaMed hereunder.
16. Succession. This Agreement shall be binding upon the
parties and their heirs, distributees, legal representatives, successors and
assigns.
17. Amendment. This Agreement may not be altered or amended
except by a written instrument setting forth such changes signed by NovaMed and
Option Holder.
18. Interpretation. Whenever the context so requires, the
singular shall include the plural, the plural shall include the singular, the
whole include and part thereof, and any gender shall include all other genders.
19. Notices. All notices required to be given under this
Agreement shall be in writing, and shall be sufficiently given if personally
delivered, or if mailed, postage prepaid, registered mail, return receipt
requested, as follows:
Name Address
NovaMed, Inc. 623 Hoover Street N.E.
Minneapolis, MN 55413 USA
Dr. Howard Bellin 105 East 73d Street
New York City, NY 10021
20. Attorney's Fees. If any party hereto should default in the
performance of any obligation hereunder, any other party shall be entitled
to a reasonable attorney's fee and all costs incurred in connection with the
enforcement of any of the terms and conditions hereof.
21. Governing Law. This Agreement shall be construed in accor-
dance with the laws of the State of Nevada, United States of America and
in the English language. IN WITNESS WHEREOF, the parties have executed this
Agreement as of the date and year first above written.
NovaMed, Inc.
By ________________________
Ruairidh Campbell
91
<PAGE>
---------------------------
Dr. Howard Bellin
92
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
CONSOLIDATED AUDITED AND UNAUDITED CONDENSED FINANCIAL STATEMENTS FOR THE
PERIODS ENDING DECEMBER 31,1998 AND JUNE 30, 1999, RESPECTIVELY, FILED WITH
THE COMPANY'S ANNUAL REPORT ON FORM 10-SB AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001036478
<NAME> NovaMed, Inc.
<MULTIPLIER> 1
<CURRENCY> U. S. DOLLARS
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-END> DEC-31-1998 JUN-30-1999
<EXCHANGE-RATE> 1 1
<CASH> 129,754 219,445
<SECURITIES> 0 0
<RECEIVABLES> 330,826 371,705
<ALLOWANCES> 0 0
<INVENTORY> 483,300 300,205
<CURRENT-ASSETS> 945,587 917,726
<PP&E> 50,673 50,673
<DEPRECIATION> (145,597) 16,500
<TOTAL-ASSETS> 981,663 951,899
<CURRENT-LIABILITIES> 620,704 654,210
<BONDS> 0 0
0 0
0 0
<COMMON> 13,446 13,826
<OTHER-SE> 347,513 283,843
<TOTAL-LIABILITY-AND-EQUITY> 981,663 951,899
<SALES> 1,266,821 986,127
<TOTAL-REVENUES> 1,266,821 986,127
<CGS> 973,965 690,972
<TOTAL-COSTS> 1,480,169 1,543,061
<OTHER-EXPENSES> 0 (100,387)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (213,348) (456,547)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (213,348) (456,547)
<EPS-BASIC> (.02) (.03)
<EPS-DILUTED> (.02) (.03)
</TABLE>