<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 8, 1997
REGISTRATION NO. 33-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
MEDICAL SCIENCE SYSTEMS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
TEXAS 8099 94-3123681
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER)
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
4400 MACARTHUR BOULEVARD, SUITE 980
NEWPORT BEACH, CALIFORNIA 92660
(714) 440-9730
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES)
PAUL J. WHITE
PRESIDENT AND CHIEF EXECUTIVE OFFICER
MEDICAL SCIENCE SYSTEMS, INC.
4400 MACARTHUR BOULEVARD, SUITE 980
NEWPORT BEACH, CALIFORNIA 92660
(714) 440-9730
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE OF PROCESS)
THE COMMISSION IS REQUESTED TO SEND COPIES OF ALL COMMUNICATION TO:
CHRISTOPHER A. WILSON, ESQ.
DANIEL J. TANGEMAN, ESQ.
JEFFERS, WILSON, SHAFF & FALK, LLP
18881 VON KARMAN AVENUE, SUITE 1400
IRVINE, CALIFORNIA 92612
(714) 660-7700
WILLIAM M. PRIFTI, ESQ.
LYNNFIELD WOODS OFFICE PARK
220 BROADWAY
SUITE 204
LYNNFIELD, MASSACHUSETTS 01940
(781) 593-4525
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: NOVEMBER 15, 1997
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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<S> <C> <C> <C> <C>
============================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED SHARE PRICE(1) REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------
Common Stock, no par
value..................... 1,500,000 $ 9.00 $13,500,000 $4,091
Underwriter's Warrants(2)... 150,000 $ .001 $ 150 $ 0(3)
Common Stock, no par
value(4).................. 150,000 $12.15 $ 1,822,500 $ 552
Common Stock, no par
value(5) 225,000 $ 9.00 $ 2,025,000 $ 614
Total.............. $5,257
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(1) Estimated solely for purposes of calculating the registration fee, pursuant
to rule 457(a) and (g) under the Securities Act.
(2) To be sold to the Representatives of the Underwriter.
(3) None pursuant to Rule 457(g).
(4) Issuable upon exercise of the Underwriter's Warrants.
(5) Issuable upon exercise of the Underwriter's option to purchase to cover
over-allotments, if any.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED OCTOBER 8, 1997
Medical Science Systems, Inc.
4400 MacArthur Boulevard
Suite 980
Newport Beach, California 92660
(714) 440-9730
1,500,000 Shares
Common Stock
$8 to $9 per Share
NASDAQ/AMEX:
The Securities and Exchange Commission (SEC) and
state securities regulators have not approved
these securities or determined if this prospectus
is truthful or complete. Any representation to the
contrary is a criminal offense and should be
reported immediately to the SEC by calling
1-800-SEC-0330.
Initial Public Offering
October , 1997
[MEDICAL SCIENCE SYSTEMS LOGO]
Underwriters:
- - Nutmeg Securities, Inc.
- -
<PAGE> 3
[Pictorial Depiction of Biological and Behavioral Risk Factors Contributing to
Disease Progression]
This Prospectus includes the names and marks of companies other than Medical
Science Systems, Inc.
Upon the effective date of the Registration Statement, of which this Prospectus
is a part, our company will become a reporting company. Thereafter, we intend to
distribute to our shareholders annual reports containing audited financial
statements. We will also make available copies of quarterly reports for the
first three quarters of each fiscal year containing unaudited interim financial
information.
<PAGE> 4
MEDICAL SCIENCE SYSTEMS, INC.
INTRODUCTION
Please read this prospectus carefully. It describes our company, finances and
products. Federal and state securities laws require that we include in this
prospectus all the important information that investors will need to make an
investment decision.
You should rely only on the information contained in this prospectus to make
your investment decision. We have not authorized anyone to provide you with
information that is different from what is contained in this prospectus.
PROSPECTUS
TABLE OF CONTENTS
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Summary..................................... 1
Risk Factors................................ 7
The Company................................. 15
Use of Proceeds............................. 16
Dividend Policy............................. 17
Capitalization.............................. 18
Dilution.................................... 19
Selected Financial Data..................... 20
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................ 21
Business.................................... 23
Management.................................. 43
Certain Relationships and Related Party
Transactions.............................. 48
Principal Shareholders...................... 50
Description of Securities................... 51
Shares Eligible for Future Sale............. 52
Underwriting................................ 54
Legal Matters............................... 55
Experts..................................... 55
Additional Information...................... 55
Index to Financial Statements............... F-1
</TABLE>
<PAGE> 5
Medical Science Systems, Inc. Summary
About Our Company
Our company has developed genetic susceptibility testing services
for common diseases which are treatable and preventable. We have
focused on four diseases initially: periodontitis (gum disease),
osteoporosis (bone disease), coronary artery disease (heart
disease) and diabetic retinopathy (blindness associated with
diabetes). We have identified several genetic markers which, if
present in a patient, increase the probability that such patient
will be affected by the disease or that the disease will be more
severe. Moreover, we are the only company that we know of that has
brought to market a test (our periodontal susceptibility test) that
identifies a genetic marker which indicates a greater
susceptibility to a disease which is treatable and preventable. Our
company's ability to identify genetic markers related to common
diseases is enhanced by a strategic alliance with Sheffield
University. Sheffield University provides us with access to
critical biotechnology research in molecular genetics. This
arrangement helps provide for the development of additional genetic
testing products in the future and reduces our capital costs
relative to biotechnology firms that support large in-house
research programs. See "Competitive Advantages" at page 39.
We have presently filed a total of eleven (11) patent applications
including applications covering each of our four genetic
susceptibility tests. In June 1997, a Notice of Allowance was
issued by the United States Patent and Trademark Office with
respect to both our periodontal and osteoporosis susceptibility
tests. See "Intellectual Property" at page 37.
Mission
Our mission is to improve patient care and treatment outcomes by
incorporating genetic information about a patient's susceptibility
to disease into overall risk assessment and treatment planning. We
believe that doctors and dentists will use our genetic
susceptibility tests to assess the risk involved for any particular
patient and to adopt appropriate treatments or therapy, including
preventive measures.
Products and Services
Periodontal Susceptibility Test
- Description. Our periodontal susceptibility test is a
genetic test capable of detecting individuals with an
increased susceptibility to developing severe gum
disease (periodontitis). Periodontitis is a
bacterially-induced chronic inflammation that destroys
the collagen fibers and bone that support the teeth --
ultimately resulting in tooth loss.
- Market. According to industry data, in the United
States alone, an estimated one-third of all adults, or
67 million people, suffer from some form of
periodontitis. Approximately 13 million people seek
professional treatment annually for periodontal
disease, resulting in over 17 million periodontal
procedures and annual expenditures of approximately $6
billion.
1
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Summary (con't)
- Launch. On October 3, 1997, we commercially launched
our periodontal susceptibility test at the American
Academy of Periodontology's Annual Meeting in San
Diego, California.
Osteoporosis Susceptibility Test
- Description. Our osteoporosis susceptibility test is a
genetic test capable of detecting individuals with an
increased susceptibility to developing osteoporosis.
Osteoporosis is a disease which causes a decrease in
the amount of normal bone, making the affected
individual more susceptible to fractures.
- Market. According to industry data, in the United
States alone, an estimated 28 million people, suffer
from osteoporosis. Post-menopausal osteoporosis,
stemming from the loss of estrogen, affects more than
one-half of all women over 65 years of age and has
been detected in as many as 90% of the women over age
75. Osteoporosis is responsible for a majority of the
1.5 million bone fractures each year and leads to
disabilities costing more than $10 billion in medical,
social and nursing home costs.
Coronary Artery Disease Susceptibility Test
- Description. Our coronary artery disease
susceptibility test is a genetic test capable of
detecting individuals with an increased susceptibility
to developing coronary artery disease (or "CAD"). CAD
is a condition where the arteries that supply blood to
the heart have become partially obstructed by plaque
accumulation. CAD results in heart attacks due to
damage to the heart muscle when blood supply (and
therefore oxygen) is cut off and heart muscle cells
die. An individual testing positive under our CAD
susceptibility test has between a 2.4 to 5.4 times
greater change of developing coronary artery disease
than the general population.
- Market. More than one in four Americans, or about 60
million, now have some form of cardiovascular disease.
Cardiovascular diseases kill nearly one million
Americans every year. Every year since 1919,
cardiovascular disease has been the number one cause
of death in the U.S. Approximately 13.5 million
Americans suffer from coronary artery disease, and
approximately half a million Americans die each year
from this disease.
Diabetic Retinopathy Susceptibility Test
- Description. Our diabetic retinopathy susceptibility
test is a genetic test capable of detecting diabetic
individuals who have an increased susceptibility to
developing sight-threatening retinopathy. Diabetic
retinopathy refers to diabetic complications affecting
the retina that predictably lead to severe vision loss
or even blindness.
- Market. In the United States there are approximately
16 million people suffering from diabetes. It is
estimated that only one-half of this number have been
diagnosed. Diabetic retinopathy is one of the most
common complications of diabetes. It is the fourth
leading cause of legal blindness in the U.S. and the
2
<PAGE> 7
Summary (con't)
leading cause of blindness in people ages 20 to 74.
Each year 15,000 to 39,000 people lose their sight
from diabetic retinopathy.
Cost of Products and Services
We have recently commercially launched our periodontal
susceptibility test and are marketing the test at $210 per test.
Although we cannot be certain, we anticipate that the remainder of
our genetic susceptibility tests will be marketed at a price
between $200 and $250. Final pricing of these other tests will be
determined at the time of commercial launch. We anticipate our
direct cost (exclusive of sales and marketing) on a per test basis
to be between $45-$80 depending primarily upon volume
considerations.
Status of Clinical Trials And Commercial Launch Dates
The current trial status and the actual/anticipated commercial
launch date of each of our four genetic susceptibility tests is
depicted below. A more detailed discussion of this chart is found
under "Pre-Marketing Trials/Status of Susceptibility Tests" at
pages 33 and 34.
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INITIAL PROOF ACTUAL/ANTICIPATED
(PRIOR TO CONFIRMATORY CLINICAL COMMERCIAL
PATENT FILING) TRIAL UTILITY LAUNCH
-------------- ------------ ---------------- ------------------
<S> <C> <C> <C> <C>
Periodontal Disease......... Completed Completed Completed October 1997
Osteoporosis................ Completed Completed Underway Late 1998
Coronary Artery Disease..... Completed Completed Underway 1999
Diabetic Retinopathy........ Completed Underway Not Yet Started 1999
</TABLE>
Risks of Investing
An investment in our company is subject to many risks. We
summarize some of the most serious risks below. A more detailed
list of the risk factors is found under "Risk Factors" at page 7.
You should read and understand all risk factors before making your
decision to invest.
- Uncertainty of Market Acceptance for Genetic
Susceptibility Tests. Consumers may not accept our
current genetic susceptibility tests or others in
development or may accept the tests much later than we
anticipate.
- New Business Venture. Our genetic susceptibility
testing business is relatively new and may be affected
significantly by unknown economic and market
conditions over which we have no control.
- History of Operating Losses; Accumulated Deficit;
Uncertainty of Future Profitability. Our company
incurred a net loss of $788,546 in 1996 and
anticipates a net loss of approximately $3.6 million
in 1997. As of June 30, 1997, our accumulated deficit
was approximately $2.71 million. It is uncertain when
we will become profitable.
- Intense Competition. Our company faces intense
competition related to the discovery and use of
disease predisposing genes and genetic markers. Even
after our discovery of the genetic markers, our
competition may find and patent the same markers
before we do or may find other markers for the same
diseases. Additionally, our competitors may have
greater resources enabling them to more effectively
market their discoveries.
3
<PAGE> 8
Summary (con't)
- Difficulty of Developing Genetic Susceptibility
Tests. It is uncertain whether we will be successful
in bringing our complete portfolio of tests to market.
Even after identifying a genetic marker, many
additional trials must be run in order to verify and
confirm the test's accuracy and utility. Any delay in
clinical trials or negative clinical results could
slow or prevent our ability to successfully market our
tests.
- Uncertainty of Third Party Reimbursement. It is
uncertain whether third-party payors will elect to
reimburse patients for the cost of the genetic
susceptibility tests. If third-party payors elect not
to reimburse patients, it is uncertain whether
individuals will elect to pay directly for our tests.
- Reliance on Collaborative Partners. We have a
collaborative research relationship, evidenced by an
exclusive worldwide agreement, with the Section of
Molecular Medicine at Sheffield University. If this
agreement were terminated, we would need to enter into
additional collaborative arrangements in order to
continue to build a future pipeline of new products.
- Uncertain Ability to Protect Proprietary
Technology. The patent position of biotechnology
companies generally is highly uncertain and involves
complex legal and factual questions. Although initial
approvals have been granted by the Patent and
Trademark Office with respect to some of our tests,
certain of our patent applications may be rejected.
Even when patents are issued, the claims of any issued
patents may not provide meaningful protection for our
technology or products. In addition, there can be no
assurance that any patents issued to us will not be
challenged, and subsequently narrowed, invalidated or
circumvented.
- Technological Changes Resulting in Product
Obsolescence. It is possible that our competitors will
develop technologies more effective than those
contained or used in our products. Our competitors
could develop new products which make our products
less competitive or obsolete.
- Limited Marketing or Sales Experience. We have limited
experience in developing and commercially marketing
our genetic susceptibility testing services.
4
<PAGE> 9
Summary (con't)
Past Financial History
The following graph depicts our revenues and net income or loss
for each of the last three fiscal years. Our financial results are
described in more detail under "Management's Discussion and
Analysis of Financial Condition and Results of Operations" at page
21. Audited financial statements are included beginning at page
F-1.
[NET INCOME AND REVENUES GRAPH]
5
<PAGE> 10
Medical Science Systems, Inc. Summary (con't)
KEY FACTS
SHARES OFFERED TO THE PUBLIC:
1,500,000 Shares
OVER-ALLOTMENT OPTION:
Up to 225,000 Shares (not included in 1,500,000)
TOTAL SHARES OUTSTANDING PRIOR TO OFFERING:
3,738,007 Shares
TOTAL SHARES OUTSTANDING AFTER OFFERING:
5,238,007 Shares (assuming no exercise of the over-allotment option)
TOTAL SHARES OUTSTANDING AFTER OFFERING AND EXERCISE OF ALL OPTIONS/WARRANTS:
6,545,131 Shares
PRICE PER SHARE TO PUBLIC:
$9.00 per share
TOTAL PROCEEDS RAISED BY OFFERING:
$13,500,000
USE OF PROCEEDS:
Marketing, sales, customer service and
commercialization expenses; research and
development activities; capital investment; repayment
of bridge loans; and working capital and general
corporate purposes.
UNDERWRITER'S FEES:
$1,080,000/8% of the total proceeds plus a 3% non-accountable expense allowance
EXPENSES OF THE OFFERING:
$355,000
NET PROCEEDS:
$11,660,000
UNDERWRITER'S WARRANTS:
Underwriters shall be issued five (5) year warrants to purchase 150,000 Shares
at an exercise price of $12.15.
AVERAGE PRICE PER SHARE PAID BY CURRENT
SHAREHOLDERS(1):
$0.59
NET TANGIBLE BOOK VALUE(1):
$(694,796)
NET TANGIBLE BOOK VALUE PER SHARE BEFORE
DILUTION(1):
$(0.19)
NET TANGIBLE BOOK VALUE PER SHARE AFTER DILUTION:
$2.09
MARKET:
Nasdaq/AMEX ( )
DIVIDEND POLICY:
No Dividends Expected
UNDERWRITING:
Firm Commitment
(1) After giving effect to 108,060 shares of Common Stock sold after June 30,
1997.
6
<PAGE> 11
RISK FACTORS
The shares of Common Stock offered by this Prospectus are speculative and
involve a high degree of risk of loss. Prior to making an investment, you should
carefully read this entire Prospectus and consider the following risk and
speculative factors:
UNCERTAINTY OF MARKET ACCEPTANCE FOR GENETIC SUSCEPTIBILITY TESTS
The commercial success of our genetic susceptibility tests and those that
we may develop will depend upon their acceptance as medically useful and
cost-effective by patients, physicians, dentists, other members of the medical
and dental community and third-party payors. Broad market acceptance can be
achieved only with substantial education about the benefits and limitations of
such tests. We expect to expend substantial financial resources to effectively
promote the benefits of our genetic susceptibility tests and those that we may
develop. We intend to expend significant resources on educating medical and
dental caregivers, policymakers, patients, third-party payors and others. It is
uncertain whether current genetic susceptibility tests or others that we may
develop will gain market acceptance on a timely basis. If patients, dentists and
physicians do not accept our tests, or take a longer time to accept than we
anticipate, then our revenues and profit margins may be reduced and may result
in losses. See "Uncertainty of Third Party Reimbursement" at page 8.
NEW BUSINESS VENTURE
The securities being offered by us are subject to the risks inherent in any
new business venture. Although we have operated as a contract research firm
since 1986, we have limited experience and a short history of operations with
respect to marketing and selling susceptibility tests or therapeutics. We have
had only minimal revenues related to the sale of our genetic susceptibility
testing services. With the exception of our periodontal susceptibility test, the
genetic susceptibility tests anticipated to be sold by us have not yet been
finally designed, developed, tested or marketed. Therefore, there can be no
assurance that we will be able to complete these genetic susceptibility tests,
that those tests will be accepted in the marketplace, or that the tests can be
sold at a profit. Our business may also be affected significantly by economic
and market conditions over which we have no control. Consequently, an investment
in our Common Stock is highly speculative. We do not guarantee any return on an
investment in our Common Stock.
HISTORY OF OPERATING LOSSES; ACCUMULATED DEFICIT; UNCERTAINTY OF FUTURE
PROFITABILITY
We incurred a net operating loss of $788,546 in fiscal year 1996. We
anticipate a net loss of approximately $3.6 million in 1997. As of June 30,
1997, our accumulated deficit was $2,705,153. Our losses have resulted
principally from expenses incurred in research and development and from selling,
general and administrative expenses. These expenses have exceeded our revenues.
We have yet to generate any significant revenues from the sale of our genetic
susceptibility testing services and there can be no assurance that we will be
able to generate significant revenues in the future. We expect our operating
losses to continue for the near future as our research and development, sales
and marketing activities and operations continue. Our ability to achieve
profitability depends on our ability to develop our sales and marketing capacity
and our ability to successfully market and sell our products and services. It is
uncertain when we will become profitable. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" at page 21.
INTENSE COMPETITION
Research in the field of disease predisposing genes and genetic markers is
intense and highly competitive. Genetic research is characterized by rapid
technological change. Our competitors in the United States and abroad are
numerous and include, among others, major pharmaceutical and diagnostic
companies, specialized biotechnology firms, universities and other research
institutions (including those receiving funding from the Human Genome Project).
Many of our potential competitors have considerably greater financial,
technical, marketing and other resources than us. These greater resources may
allow our competitors to discover important genes or genetic markers before us.
If we, in conjunction with the Department of
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<PAGE> 12
Molecular and Genetic Medicine at the University of Sheffield, U.K., do not
discover disease predisposing genes or genetic markers associated with increased
disease severity, characterize their function, develop susceptibility tests and
related information services based on such discoveries, obtain regulatory and
other approvals, if needed, and launch such services or products before
competitors, then our revenues and earnings will be reduced or eliminated. In
addition, any of the susceptibility tests that we may develop, including our
periodontal susceptibility test, could be made obsolete by less expensive or
more effective tests or methods which may be developed in the future. We expect
competition to intensify in our industry as technical advances are made and
become more widely known. See "Uncertain Ability to Protect Proprietary
Technology" at page 9, "Competition" at page 39 and "Intellectual Property" at
page 37.
DIFFICULTY OF DEVELOPING GENETIC SUSCEPTIBILITY TESTS
It is uncertain whether we will be successful in developing and bringing to
market our current portfolio or future tests based on the genetic discoveries
made by us and our collaborators. Even when we discover a genetic marker (i.e.,
a genetic variation or polymorphism associated with increased disease incidence
or severity), additional clinical trials need to be conducted to confirm the
initial scientific discovery and to support the scientific discovery's clinical
utility in the marketplace. The results of a clinical trial could delay, reduce
the test's acceptance or cause our company to cancel a program. Such delays,
reduced acceptance or cancellations would reduce revenues and may result in
losses.
UNCERTAINTY OF THIRD PARTY REIMBURSEMENT
Our ability to successfully commercialize existing genetic susceptibility
tests and others that we may develop depends in part on obtaining adequate
reimbursement for such testing services and related treatments from government
and private health care insurers (including health maintenance organizations)
and other third-party payors. Physicians' and dentists' decisions to recommend
genetic susceptibility tests, as well as patients' elections to pursue testing,
are likely to be heavily influenced by the scope and extent of reimbursement for
such tests by third-party payors. Government and private third-party payors are
increasingly attempting to contain health care costs by limiting both the extent
of coverage and the reimbursement rate for new testing and treatment products
and services. In particular, services which are determined to be investigational
in nature or which are not considered "reasonable and necessary" for diagnosis
or treatment may be denied reimbursement coverage. To date, few third-party
payors have agreed to reimburse patients for genetic susceptibility tests. As a
result, we initially expect to bill patients directly for the genetic
susceptibility tests.
It remains uncertain whether third-party payors will elect to provide full
reimbursement coverage for the genetic susceptibility tests in the near future.
If adequate reimbursement coverage is not available from third-party payors, it
is uncertain whether individuals will elect to directly pay for the test. If
both third-party payors and individuals are unwilling to pay for the test, then
the number of tests performed will be significantly decreased. Such a scenario
would result in reduced revenues and possible losses.
RELIANCE ON COLLABORATIVE PARTNERS
In 1994 we entered into a strategic alliance with the Section of Molecular
Medicine at Sheffield University, a world leader in the genetic aspects of
common diseases with an inflammatory component. In 1996 we formalized our
relationship by entering into an exclusive worldwide agreement (the "Master
Agreement"). Under the terms of the Master Agreement, we will undertake the
development and commercialization of any discoveries resulting from the research
of Section of Molecular Medicine at Sheffield University. In exchange, Sheffield
University will receive a share of the resultant net profits, with the
percentage of net profits for us and Sheffield University to be agreed upon
separately under project agreements related to each test (each a "Project
Agreement"). The Master Agreement may be terminated with or without cause by
either party upon six-months notice. Although termination does not affect any
existing Project Agreements, any termination would limit or eliminate our access
to future Sheffield University genetic discoveries that fall outside of the
scope of our existing Project Agreements. If the Master
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<PAGE> 13
Agreement were terminated, we would need to enter into additional collaborative
arrangements in order to continue to build a future pipeline of products.
In the future we may, in order to facilitate the sale of our testing
services and/or products, enter into collaborative selling arrangements with one
or more other persons. It is uncertain whether we will be able to negotiate
acceptable collaborative arrangements in the future or that such collaborative
arrangements will be successful. If we are unable to identify collaborative
partners to sell certain of our services and/or products, we may be forced to
develop an internal sales force to market and sell our services and/or products
in markets where we are not intending on developing a direct selling presence.
Such a process would take more time and potentially cost more. As a result, our
revenues and earnings would be reduced. If we do enter into collaborative
selling arrangements, our success will depend upon the efforts of others and may
be beyond our control. Failure of any collaborative selling arrangement could
result in reduced revenues and possible losses.
UNCERTAIN ABILITY TO PROTECT PROPRIETARY TECHNOLOGY
Our success will partly depend on our ability to obtain patent protection,
both in the United States and in other countries, for our products and services.
In addition, our success will also depend upon our ability to preserve our trade
secrets and to operate without infringing the proprietary rights of third
parties.
We have presently filed a total of eleven (11) patent applications
including applications covering each of our four genetic susceptibility tests.
In June 1997, a Notice of Allowance was issued by the United States Patent and
Trademark Office with respect to the patent applications for both our
periodontal and osteoporosis susceptibility tests. However, there can be no
assurance that our patent applications will ever be issued as patents or that
the claims of any issued patents will afford meaningful protection for our
technology or products. In addition, there can be no assurance that any patents
issued to us will not be challenged, and subsequently narrowed, invalidated or
circumvented.
Our testing services and/or products may also conflict with patents which
have been or may be granted to others. As the biotechnology industry expands and
more patents are filed and issued, the risk increases that our products may give
rise to a declaration of interference by the Patent and Trademark Office, or to
claims of patent infringement by other companies, institutions or individuals.
Such entities or persons could bring legal proceedings against us seeking
damages or seeking to enjoin us from testing, manufacturing or marketing our
products. Patent litigation is costly, and even if we prevail, the cost of such
litigation could have an adverse effect on us. If the other parties in any such
actions are successful, in addition to any liability for damages, we could be
required to cease the infringing activity or obtain a license. It is uncertain
whether any license required would be available to us on acceptable terms, if at
all. Failure by us to obtain a license to any technology that we may require to
commercialize our products could have a material adverse effect on our business,
financial condition, results of operations and cash flows. In addition, there is
considerable pressure on academic institutions and other entities to publish
discoveries in the genetic field. Such a publication by an academic institution
or other entity, prior to our filing of a patent application on such discovery,
may compromise our ability to obtain U.S. and foreign patent protection for the
discovery.
We also rely upon unpatented proprietary technologies. We rely on
confidentiality agreements with our employees, consultants and collaborative
partners to protect such proprietary technology. There can be no assurance that
we can adequately protect our rights in such unpatented proprietary
technologies, that others will not independently develop substantially
equivalent proprietary information or techniques, or otherwise gain access to
our proprietary technologies or disclose such technologies. See "Intellectual
Property" at page 37.
The United States Patent and Trademark Office issued new Utility Guidelines
in July 1995 that address the requirements for demonstrating utility,
particularly in inventions relating to human therapeutics. While the guidelines
do not require clinical efficacy data for issuance of patents for human
therapeutics, there can be no assurance that the Patent and Trademark Office's
interpretations of such guidelines, and any chances to such interpretations will
not delay or adversely affect our or our collaborators' ability to obtain patent
protection. The biotechnology patent situation outside the United States is even
more uncertain and is currently undergoing review and revision in many
countries.
9
<PAGE> 14
TECHNOLOGICAL CHANGES RESULTING IN PRODUCT OBSOLESCENCE
Market acceptance and sales of our testing services could also be adversely
affected by technological change. It is uncertain whether our competitors will
succeed in developing genetic susceptibility tests that circumvent or are more
effective than our technologies or services. Further, it is uncertain whether
such developments would render our or our collaborators' technology or services
less competitive or obsolete. Further, our testing services could be rendered
obsolete as a result of future innovations in the treatment of gum disease,
osteoporosis, coronary artery disease or diabetes retinopathy, which could have
a significant negative impact on our company's ability to market our services
effectively. See "Uncertain Ability to Protect Proprietary Technology" at page
9, "Competition" at page 39 and "Intellectual Property" at page 37.
LIMITED MARKETING OR SALES EXPERIENCE
Our business strategy is to provide genetic susceptibility testing services
aimed at common diseases that are treatable and preventable. The commercial
introduction of the periodontal susceptibility test at the beginning of October
1997 represents our first such effort. In preparation for the launch of the
periodontal susceptibility test, we have devoted substantial human and financial
resources to the establishment and staffing of a customer service support
facility and the building of a sales and marketing infrastructure. However, we
have limited experience in developing and commercially marketing susceptibility
testing services. It is uncertain whether our customer service support
facilities and sales and marketing program will achieve efficient, effective or
successful operations. Failure to successfully market such tests could reduce
our revenues and may result in losses. See "Competition" at page 39 and
"Government Regulation" at pages 10 and 41.
GOVERNMENT REGULATION
The sampling of blood, saliva or cheek scrapings from patients and
subsequent analysis in a clinical laboratory does not, at the present time,
require FDA or regulatory authority approval outside the U.S. for either the
sampling procedure or the analysis itself. The samples are taken in the
healthcare provider's office, using standard materials previously approved as
medical devices, such as sterile lancets and swabs. The testing procedure itself
is performed in one or more registered, certified clinical laboratories under
the auspices of the Clinical Laboratory Improvement Amendments of 1988 ("CLIA"),
administered by the Health Care Financing Administration. In general, the
federal regulations governing approval of the laboratory facilities and
applicable state and local regulations governing the operation of clinical
laboratories apply to the laboratory but not to our company. However, changes in
the scope of the services offered by our company (e.g., establishing an in-house
clinical laboratory) would subject our company to applicable regulations.
Additionally, changes in existing regulations could require advance regulatory
approval of genetic susceptibility tests which may result in a substantial
curtailment or even prohibition of our activities without regulatory approval.
If our tests ever require regulatory approval, the costs of introduction will
increase and marketing and sales may be significantly delayed.
Further, eighteen months ago the FDA proposed to regulate as medical
devices the "active ingredients" (known as "analyte specific reagents" or
"ASRs") of certain tests developed by, or in conjunction with, clinical
laboratories. Currently, a final rule has not been issued. The FDA has
specifically stated that it is not proposing a comprehensive regulatory scheme
over the final tests, but rather the active ingredients (ASRs) provided to the
laboratories that perform them. According to the FDA, any contemplated
additional controls (e.g. submission for Pre-Market Approval applications) over
the tests themselves would likely involve those tests which identify genes
associated with cancer or diseases associated with dementia. If the FDA requires
Pre-Market Approval of our genetic susceptibility test, our company may be
required to conduct pre-clinical studies, obtain an investigational device
exemption to conduct clinical tests, file a Pre-Market Approval application, and
obtain FDA approval. There can be no assurance such approval would be received
on a timely basis, if at all. The failure to receive such approval could require
us to develop alternative testing methods or utilize approved ASRs, which could
result in the delay or stop the use of such tests. Such a delay or termination
could result in reduced revenues or losses.
10
<PAGE> 15
Although our primary business is to develop genetic susceptibility testing
services, we may also develop or assist others to develop, drugs or other
treatments for the diseases related to our tests. The FDA and comparable
agencies in state and local jurisdictions and in foreign countries impose
substantial requirements upon the manufacturing and marketing of drug products
such as those potentially to be developed by our company or any partner. The
process of obtaining FDA and other required regulatory approvals is lengthy and
expensive. The time required for FDA approvals is uncertain and typically takes
a number of years, depending on the type, complexity and novelty of the product.
We may encounter significant delays or excessive costs in our efforts to secure
necessary approvals or licenses. Because certain of the products likely to
result from our research and development programs involve the application of new
technologies and will be based on new approaches, such products may be subject
to substantial additional review by various governmental regulatory authorities
and as a result, regulatory approvals may be obtained more slowly than for
products using more conventional technologies. There can be no assurance that
FDA approvals will be obtained in a timely manner, if at all. Any delay in
obtaining, or the failure to obtain, such approvals would adversely affect our
ability to generate product or product sales. Even if FDA approvals are
obtained, the marketing and manufacturing of drug products are subject to
continuing FDA and other regulatory review, and later discovery of previously
unknown problems with a product, manufacturer or facility may result in
restrictions on the product or manufacturer, including withdrawal of the product
from the market. Additional governmental regulations may be promulgated which
could delay regulatory approval of our potential products. We cannot predict the
impact of adverse governmental regulation which might arise from future
legislative or administrative action.
We intend to generate product revenues from sales outside of the United
States. Distribution of our testing services or products outside the United
States may be subject to extensive government regulation. These regulations,
including the requirements for approvals or clearance to market, the time
required for regulatory review and the sanctions imposed for violations, vary by
country. It is uncertain whether we will obtain regulatory approvals in such
countries or that we will be required to incur significant costs in obtaining or
maintaining our foreign regulatory approvals. Failure to obtain necessary
regulatory approvals or any other failure to comply with regulatory requirements
could result in reduced revenues and earnings. See "Products and Services" at
page 25 and "Government Regulation" at page 41.
PRODUCT LIABILITY EXPOSURE
Our business exposes us to potential liability risks inherent in the
testing and marketing of medical and dental related services or products. It is
uncertain whether liability claims will be asserted against us. We have product
and professional liability insurance which we believe provides coverage for the
testing and commercial introduction of our genetic susceptibility tests. It is
uncertain whether we will be able to maintain such insurance on acceptable
terms. Any insurance obtained may not provide adequate coverage against
potential liabilities. A liability claim, even one without merit, could result
in significant legal defense costs thereby increasing our expenses, lowering our
earnings and even resulting in losses.
DEPENDENCE ON CLINICAL LABORATORY
The clinical laboratory operated by Baylor University currently performs
all of our genetics tests. Our company is not licensed as a clinical laboratory
and cannot perform genetic tests. Although we believe other clinical
laboratories are readily available if we cannot use Baylor University, the loss
of Baylor University may result in delays in the performance of genetic tests or
may increase the costs of performing genetic tests.
ETHICAL, LEGAL AND SOCIAL IMPLICATIONS OF GENETIC SUSCEPTIBILITY TESTING
The prospect of broadly available genetic susceptibility testing has raised
issues which are currently being widely discussed by the medical and scientific
communities, as well as other interested groups and organizations, regarding the
appropriate utilization and the confidentiality of information provided by such
testing. The recent movement towards discovery and commercialization of
susceptibility tests for assessing a person's likelihood of developing a chronic
disease has also focused public and legislative attention on the need to protect
the privacy of genetic assessment medical information. With the progression
towards more
11
<PAGE> 16
comprehensive record keeping by health insurers and managed care firms, this
need has led to a number of legal initiatives. The recently enacted federal
health insurance reform law (Kassebaum-Kennedy of 1996) recognizes the
comparability of information obtained by genetic means to other types of
personal medical information. The law prohibits insurance companies from
refusing health insurance coverage to individuals on the basis of their medical
history, including "genetic information." This legislation also prohibits
employees from discrimination in hiring practices on the same basis. This
legislation indicates a trend to protect the privacy of patients while allowing
them to be screened for conditions which, can be prevented, reduced in severity
or cured. In the most extreme scenario, governmental authorities could, for
social or other purposes, limit the use of genetic testing or prohibit testing
for genetic susceptibility to certain conditions. For these reasons, we could
experience a delay or reduction in test acceptance. Such a delay or reduction
could reduce our revenues or result in losses.
We are taking a proactive stance in the ethical arena. We have hired Dr.
Philip Reilly, who is both an M.D. (certified specialist in clinical genetics)
and an attorney, to advise us in the area of genetic testing and its ethical,
legal and clinical utility ramifications. Additionally, we are currently
advising doctors who administer our genetic susceptibility tests to take special
efforts to maintain the confidentiality of the test results. Our intent is to
avoid information about test results being disclosed to insurers until issues
regarding insurability have been fully analyzed and acted upon by the
appropriate legislative bodies.
DEPENDENCE ON KEY PERSONNEL AND CONSULTANTS
Because of the specialized scientific nature of our business, we are highly
dependent upon our ability to attract and retain qualified management,
scientific and technical personnel. Our company will also be dependent upon the
ability to hire qualified marketing and sales personnel. Competition for
scientific, marketing and sales personnel is intense. Loss of the services of
Mr. White, Dr. Kornman or Dr. Newman could adversely affect our research and
development programs and susceptibility testing service business and could
impede the achievement of our business objectives. We do not maintain key man
life insurance on any of our personnel.
CONTROL BY EXISTING SHAREHOLDERS
Following completion of this offering, our directors, executive officers
and certain of their affiliates, will beneficially own approximately 66.86% of
our outstanding Common Stock. Accordingly, these shareholders, individually and
as a group, may be able to influence the outcome of shareholder votes, including
votes concerning the election of directors, the adoption or amendment of
provisions in our Amended and Restated Articles of Incorporation or Amended and
Restated By-Laws and the approval of certain mergers and other significant
corporate transactions, including a sale of substantially all of our assets.
Such control by existing shareholders could have the effect of delaying,
deferring or preventing a change in control. See "Principal Shareholders" at
page 50.
DILUTION; ABSENCE OF DIVIDENDS
Purchasers in the offering will experience immediate and substantial
dilution in the net tangible book value of the Common Stock from the public
offering price. Additional dilution is likely to occur upon the exercise of any
options or warrants that we have granted. See "Dilution" at page 19. We have
never paid dividends and do not intend to pay any dividends in the foreseeable
future. See "Description of Securities" at page 51.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock in the public market following
this offering could lower the market price of the Common Stock. Of the 5,238,007
shares of Common Stock to be outstanding after this offering (assuming no
exercise of outstanding options, warrants or the overallotment option),
1,500,000 shares will be freely tradeable without restriction. Upon expiration
of the lock-up agreements entered into by the officers and directors of our
company, an additional 3,258,053 shares will become eligible for sale one year
12
<PAGE> 17
from the closing of this offering, subject to the provisions of Rule 144. See
"Shares Eligible for Future Sale" at page 52. Of the remaining 479,954 shares of
Common Stock, 5,000 shares will be eligible for resale under Rule 144 following
this offering. The remaining 474,954 shares will have been held for less than
one year and will become eligible for sale at various dates as the one-year
holding period under Rule 144 is satisfied.
In addition, we intend to file a registration statement on Form S-8 with
respect to the shares of Common Stock issuable upon exercise of options under
the 1996 Equity Incentive Plan (the "Plan"). The Plan authorizes the issuance of
options relating to up to 1,000,000 shares of Common Stock. Currently, there are
800,579 options that have been issued under the Plan which generally vest over
three years. See "1996 Equity Incentive Plan" at page 47. Upon filing of such
registration statement, the holders of such options may, subject to vesting
requirements, exercise and sell their shares immediately without restriction,
except affiliates who are subject to certain volume limitations and manner of
sale requirements of Rule 144. See "Shares Eligible for Future Sale" at page 52.
Holders of 356,545 warrants to purchase shares are entitled to certain
registration rights with respect to such shares. Upon registration, such shares
may be sold in the market without limitation. See "Registration Rights" at page
52. Sales of such shares may decrease the market price for our Common Stock. See
"Underwriting" at page 54.
IMPACT UPON FUTURE NET INCOME OR LOSS OF THE COMPANY BY CURRENT ACCOUNTING FOR
DEBT ISSUANCE COSTS
From August 1, 1997 through October 6, 1997, the Company issued Bridge
Loans to investors in the aggregate amount of $1,780,000. In connection with the
issuance of these Bridge Loans, the Company also issued 356,545 warrants to
purchase the Company's Common Stock for $5.50 per share. The Company has
determined that additional financing expense of $356,545 needs to be recognized
in connection with the issuance of these warrants. The $356,545 of additional
financing cost is currently being amortized over fourteen months, the terms of
the Bridge Loans. However, upon completion of the initial public offering, the
$1,780,000 Bridge Loans will be repaid and the unamortized amount of the
additional financing costs will be charged to earnings as an extraordinary loss
on debt extinguishment and will significantly impact the net income or loss of
the Company in the quarter in which the initial public offering is completed.
ARBITRARY OFFERING PRICE OF THE COMMON STOCK; POSSIBLE VOLATILITY OF COMMON
STOCK PRICE
The initial public offering price of the Common Stock has been determined
by negotiations between our company and the Underwriter. The initial public
offering price bears no relationship to earnings, asset values, book value or
any other recognized criteria of value. See "Underwriting" at page 54.
The market prices for securities of emerging health care companies have
been highly volatile. Announcements may have a significant impact on the market
price of the Common Stock. Such announcements may include biological or medical
discoveries, technological innovations or new commercial services by us or our
competitors, developments concerning proprietary rights, including patents and
litigation matters, regulatory developments in both the United States and
foreign countries, public concern as to the safety of new technologies, general
market conditions as well as quarterly fluctuations in our revenues and
financial results and other factors. The stock market has from time to time
experienced extreme price and volume fluctuations which have particularly
affected the market prices for emerging and biotechnology companies and which
have often been unrelated to the operating performance of such companies. These
broad market fluctuations may adversely affect the market price of our Common
Stock. In the past, following periods of volatility in the market price of a
company's stock, securities class action litigation has occurred against the
issuing company. Such litigation could result in substantial costs and a
diversion of management's attention and resources, which could have a material
adverse effect on our revenues and earnings. Any adverse determination in such
litigation could also subject us to significant liabilities.
EFFECT OF PREFERRED STOCK AND DIRECTOR REMOVAL PROVISIONS
Our Board of Directors is authorized to issue up to 5,000,000 shares of
Preferred Stock and to determine the price, rights, preferences and privileges
of those shares without any further vote or action by our shareholders. The
rights of the holders of Common Stock will be subject to, and may be adversely
affected by,
13
<PAGE> 18
the rights of the holders of any shares of Preferred Stock that may be issued in
the future. While we have no present intention to issue shares of Preferred
Stock, such issuance, while providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, could have the effect of
making it more difficult for a third party to acquire a majority of our
outstanding voting stock. In addition, such Preferred Stock may have other
rights, including economic rights, senior to the Common Stock. As a result, the
issuance of Preferred Stock could decrease the market value of the Common Stock.
Our Amended and Restated Articles of Incorporation provide that members of
the Board of Directors may be removed only for cause upon the affirmative vote
of holders of at least a majority of the shares of our outstanding capital stock
entitled to vote. Certain other provisions of our Amended and Restated Articles
of Incorporation could also have the effect of delaying or preventing changes of
control or in management. Such a delay or preventive effect could adversely
affect the price of our Common Stock.
14
<PAGE> 19
THE COMPANY
Drs. Kenneth S. Kornman and Michael G. Newman founded the Company in 1986
to develop and introduce new methods, tools and technology for dental
practitioners that would better predict treatment outcomes in patients. We
derived our initial revenue primarily from contract research to pharmaceutical
companies and others. In early 1992, we expanded our contract research program
to include both medical and dental research. In 1994, we implemented an internal
product discovery program. We then used profits generated from our contract
research programs to fund our own product research and development.
We originally operated under two separate Texas corporations, known as Oral
Science Systems and Oral Science Technologies. In August 1995, Oral Science
Systems was merged into Oral Science Technologies which changed its corporate
name to Medical Science Systems, Inc. ("MSS"). MSS continued to function as a
Subchapter S corporation until September 30, 1996, when it became a C
corporation. MSS' principal executive office is located at 4400 MacArthur
Boulevard, Suite 980, Newport Beach, California 92660, and may be reached by
telephone at (714) 550-9730.
15
<PAGE> 20
USE OF PROCEEDS
If all 1,500,000 shares of Common Stock offered by this Prospectus are
sold, we will receive net proceeds of approximately $11,660,000 (assuming the
public offering price is $9.00, and assuming the over-allotment option is not
exercised). If the Underwriters exercise the over-allotment option, our company
would receive an additional $1,802,250. Net proceeds are determined after
deduction of all commissions, discounts and expenses paid to the Underwriters
(estimated to be $1,485,000) and after all expenses of the offering (estimated
to be $355,000).
We intend, in the following order of priority, to use the net proceeds from
this offering to:
<TABLE>
<CAPTION>
PERCENTAGE
AMOUNT NET PROCEEDS
------------ -------------
<S> <C> <C>
Marketing, sales, customer service and commercialization
expenses.................................................. $ 5,200,000 44.60%
-- Expenses for sales and marketing in conjunction with
the market introduction of each susceptibility test.
Such expenses include market research studies,
marketing collateral materials, trade show
participation, public relations, advertising
expenses and sales and marketing personnel.
Research and development activities......................... 1,450,000 12.43%
-- Continuation of clinical trials for genetic
susceptibility tests under development, to provide
clinical utility data, amortization of capitalized
patent expense beginning when each patent issued and
salaries of research and development personnel.
Capital Investments......................................... 300,000 2.57%
-- Expenditures for computer equipment, furniture and
fixtures primarily related to increases in
personnel.
Repayment of bridge loans................................... 1,780,000 15.27%
Working capital and general corporate purposes.............. 2,930,000 25.13%
----------- -----
TOTAL............................................. $ 11,660,000 100.00%
=========== =====
</TABLE>
We may also use a portion of the net proceeds of the offering to acquire
businesses, technologies, or products complementary to our business. We do not
currently have any commitments or agreements for, and are not involved in any
negotiations for, any such acquisition. There can be no assurance that any such
acquisitions will be made.
The amount and timing of working capital expenditures may vary
significantly depending upon numerous factors, including the progress of our
research, discovery and development programs, the timing and costs involved in
obtaining regulatory approvals, the costs involved in filing, prosecuting and
enforcing patent claims, competing technological and market developments,
payments received under collaborative agreements, changes in collaborative
research relationships, the costs associated with potential commercialization of
our products, including the development of marketing and sales capabilities, the
cost and availability of third-party financing for capital expenditures and
administrative and legal expenses.
We believe that our available cash and existing sources of funding,
together with the proceeds of this offering and interest earned thereon, will be
adequate to maintain our current and planned operations for at least the next 18
months.
Until used, we intend to invest the net proceeds of this offering in
interest-bearing, investment-grade securities. While the net proceeds are so
invested, the interest earned by us on such proceeds will be limited by
available market rates. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" at page 21. We intend to invest and use
such proceeds so as not to be considered an "investment company" under the
Investment Company Act of 1940, as amended.
16
<PAGE> 21
DIVIDEND POLICY
Holders of shares of Common Stock are entitled to dividends when, as and if
declared by the Board of Directors, out of funds legally available therefor. We
have not yet paid any dividends and do not expect to do so in the foreseeable
future. We intend to use all retained earnings for working capital and to
finance the anticipated growth and expansion of our business.
17
<PAGE> 22
CAPITALIZATION
The following table sets forth our capitalization (i) as of June 30, 1997;
(ii) on a pro forma basis after giving effect to the sale of 108,060 shares of
Common Stock sold pursuant to our private placements and the issuance of
$1,780,000 in Bridge Loans subsequent to June 30, 1997 as if the sale of Common
Stock and issuance of Bridge Loans occurred on June 30, 1997; and (iii) on a pro
forma basis as adjusted to give effect to the receipt of net proceeds from the
sale of 1,500,000 shares of Common Stock offered hereby after deducting
underwriting discounts and commissions and estimated offering expenses:
<TABLE>
<CAPTION>
JUNE 30, 1997
-----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Long term debt and obligations under capital leases, less
current portion(1), and Bridge Loans....................... $ 565 $ 2,345 $ 565
------- --------- -----------
Shareholders' equity:
Preferred Stock, 5,000,000 shares authorized; none issued
and outstanding actual, pro forma or pro forma as
adjusted................................................ -0- -0- -0-
Common Stock, no par value, 10,000,000 shares authorized;
3,629,947 shares issued and outstanding; 3,738,007
shares issued and outstanding pro forma; 5,238,007
shares issued and outstanding pro forma as
adjusted(2)............................................. 1,691 2,232 14,248
Accumulated deficit........................................ (2,705) (2,705) (3,062)
------- --------- -----------
Total shareholders' equity.............................. (1,014) (473) 11,186
------- --------- -----------
Total capitalization.................................. $ (449) $ 1,872 $11,751
======= ======== =========
</TABLE>
- ---------------
(1) As of June 30, 1997, the current portion of obligations under long term debt
and capital leases was approximately $155,359.
(2) Excludes (i) 356,545 shares of Common Stock subject to Bridge Warrants,
exercisable at $5.50 per share; (ii) 800,579 shares of Common Stock subject
to outstanding options under our 1996 Equity Incentive Plan, exercisable at
$3.70 or $5.00 per share; (iii) 199,421 shares of Common Stock reserved for
issuance pursuant to our 1996 Equity Incentive Plan; (iv) the exercise of
the Underwriter's over-allotment option; and (v) 150,000 shares of Common
Stock subject to Underwriter's Warrants, exercisable at one hundred
thirty-five percent (135%) of the initial public offering price of the
Common Stock. See "Description of Securities" at page 51.
18
<PAGE> 23
DILUTION
As of June 30, 1997, there were 3,738,007 shares of our Common Stock
outstanding, having a negative net tangible book value per share of
approximately $(0.19) adjusted on a pro forma basis to reflect the sale of
108,060 shares of Common Stock from July 1997 through September 1997. Net
tangible book value per share represents the amount of our total tangible assets
less our total liabilities, divided by the number of shares of our Common Stock
outstanding.
After giving effect to the sale of the 1,500,000 shares of Common Stock
under this offering at a price of $9.00 per share and the application of the net
proceeds therefrom (but assuming none of the options or warrants are exercised),
there would be a total of 5,238,007 shares of our Common Stock outstanding with
a net tangible book value of approximately $2.09 per share. This would represent
an immediate increase in pro forma net tangible book value of $2.28 per share to
existing shareholders and an immediate dilution of $6.91 per share to new
investors. Dilution is determined by subtracting net tangible book value per
share after the offering from the amount paid by new investors per share of
Common Stock. The following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Initial public offering price per share.............................. $9.00
Pro forma net tangible book value per share as of June 30, 1997.... (0.19)
Increase attributable to new investors............................. 2.28
Adjusted pro forma net tangible book value per share after this
offering........................................................... 2.09
-----
Dilution per share to new investors.................................. $6.91
=====
</TABLE>
The following table summarizes, on a pro forma basis, as of June 30, 1997,
the difference between the existing shareholders and the new investors with
respect to the number of shares of Common Stock purchased from our company, the
total consideration paid and the average price per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders....... 3,738,007 71.36% $ 2,190,600 13.96% $0.59
New investors............... 1,500,000 28.64% 13,500,000 86.04% $9.00
--------- ------ ----------- ------
Total....................... 5,238,007 100.00% $15,690,600 100.00%
========= ====== =========== ======
</TABLE>
The foregoing table assumes (i) no exercise of the Underwriter's
over-allotment option; (ii) no exercise of the 150,000 Underwriter's Warrants;
(iii) no exercise of the 356,545 Bridge Warrants, exercisable at $5.50 per
share; and (iv) no exercise of stock options outstanding after August 31, 1997.
As of August 31, 1997, there were options outstanding to purchase a total of
800,579 shares of Common Stock under our 1996 Equity Incentive Plan, at a
weighted average exercise price of $4.37 per share. To the extent that any of
the shares of Common Stock are issued on exercise of any of these warrants,
options or additional options granted after August 31, 1997, there will be
further dilution to new investors. See "Description of Securities" at page 51.
19
<PAGE> 24
SELECTED FINANCIAL DATA
We are providing the following selected financial data to aid you in your
analysis of this potential investment. This information was derived from: (1)
our 1995 and 1996 historical financial statements; and (2) from our internally
prepared unaudited financial statements for the six-month periods ended June 30,
1996 and 1997. Our financial statements as of December 31, 1995 and 1996 with
the notes thereto and the related reports of Singer Lewak Greenbaum & Goldstein
LLP, independent public accountants, together with our internally prepared
unaudited financial statements for the six-month periods ended June 30, 1996 and
1997 are included elsewhere in this Prospectus. Our unaudited financial
statements, in the opinion of management, include all adjustments (consisting of
normal recurring adjustments) necessary for a fair presentation of our financial
position and results of operations for the unaudited interim periods. The
selected financial data set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" at page 21 and our financial statements and related notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, 1996 JUNE 30, 1996 JUNE 30, 1997
----------------- ---------------- ----------------
YEAR ENDED
DECEMBER 31, 1995 (AUDITED) (UNAUDITED) (UNAUDITED)
-----------------
(AUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues....................... $ 1,873 $ 1,919 $ 1,864 $ 100
Cost of sales.................. 368 548 477 104
---------- ---------- ---------- ----------
Gross profit (loss)............ 1,505 1,371 1,387 (4)
Expenses:
Research and development..... 582 958 429 419
Selling, general and
administrative............ 756 1,163 434 1,380
---------- ---------- ---------- ----------
Total expenses............ 1,338 2,121 863 1,799
---------- ---------- ---------- ----------
Operating income (loss)........ 167 (750) 524 (1,803)
Other income (expense), net.... (14) (33) (4) (31)
Provision for income taxes..... (3) (6) -0- -0-
Net income (loss).............. $ 150 $ (789) $ 520 $ (1,834)
========== ========== ========== ==========
Earnings (loss) per share...... $ .03 $ (.18) $ .12 $ (.43)
========== ========== ========== ==========
Shares used in computing
earnings (loss) per
share(1)..................... 4,288,436 4,288,436 4,288,436 4,288,436
========== ========== ========== ==========
</TABLE>
- ---------------
(1) Includes all shares issuable upon the exercise of options and warrants
granted within one year prior to the date of this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1997
------------------------------------------------
(UNAUDITED)
(IN THOUSANDS)
PRO FORMA
ACTUAL PRO FORMA(1) AS ADJUSTED(2)
------ -------------- --------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.......................... 30 2,350 12,230
Working capital.................................... (793) (253) 11,407
Total assets....................................... 415 2,735 12,615
Total shareholders' equity......................... (1,014) (473) 11,186
</TABLE>
- ---------------
(1) On a pro forma basis after giving effect to the sale of 108,060 shares of
Common Stock sold pursuant to our private placements and the issuance of
$1,780,000 in Bridge Loans subsequent to June 30, 1997 as if the sale of
Common Stock and issuance of Bridge Loans occurred on June 30, 1997.
(2) On a pro forma as adjusted basis to give effect to the receipt of net
proceeds from the sale of 1,500,000 shares of Common Stock offered hereby
after deducting underwriting discounts and commissions and estimated
offering expenses.
20
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Financial Statements and related Notes contained elsewhere in this
Prospectus. This Prospectus contains forward-looking statements which involve
risks and uncertainties. Our actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in "Risk
Factors" at page 7.
OVERVIEW
Since inception, we have devoted substantially all of our resources to
maintaining our research and development programs and supporting contract
research agreements. To date, we have received limited revenues from the sale of
our periodontal susceptibility test. Revenues received by us have historically
been payments pursuant to contract research agreements. For the fiscal year
ended December 31, 1996, we had a net loss of $789,000 and as of December 31,
1996 had a shareholder deficit of $700,000.
We had two research contracts with Alpharma, Inc. ("Alpharma") for the
clinical investigation of Alpharma's proprietary periodontitis antibiotic
product. These contracts and the payments associated therewith ended in June
1996.
We intend to enter into additional contract research agreements to assist
in the funding of our own internal research projects. There can be no assurance
that we will be able to enter into additional contract research agreements on
terms acceptable to us. We could incur losses for at least the next several
years, primarily due to expansion of our research and development programs,
increasing staffing costs and expansion of our facilities. Additionally, we
expect to incur substantial sales, marketing and other expenses in connection
with launching our genetic susceptibility testing business. We expect that
losses will fluctuate from quarter to quarter and that such fluctuations may be
substantial.
We devoted significant resources during the last fiscal year to the beta
testing and validation of our genetic susceptibility test related to
periodontitis, as well as building our sales and marketing force in preparation
for the commercial launch of the periodontal susceptibility test. Additional
outlays have been expended on the hiring of additional customer service
personnel and the associated increase in use of test materials and commercial
laboratory charges. We also incurred increased development expenses during the
year related to work on developing our genetic susceptibility tests for
osteoporosis, coronary artery disease and diabetic retinopathy. We expect
research and development expenses to continue to increase as personnel and
research and development facilities are expanded.
Selling, general and administrative expenses for the year ended December
31, 1996 increased $407,000 from the year ended December 31, 1995. The increase
was attributable to sales and marketing expenses related to the upcoming launch
of our periodontal susceptibility test and salaries and benefits paid to
existing and newly hired sales and marketing employees. We recently commercially
launched our periodontal susceptibility test on October 3, 1997. Additionally,
we expect that our general and administrative expenses will continue to increase
in support of our research and development efforts and the anticipated growth of
our genetic susceptibility testing business.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996.
Revenues for the six months ended June 30, 1997 decreased by $1,764,000 due
to the decrease in contract research agreements. Research and development
expenses of $419,000 for the six months ended June 30, 1997 were comparable to
the $429,000 for the same period in 1996. The research and development expenses
are attributed to development expenses during the period related to work on
developing our genetic susceptibility tests for periodontitis, osteoporosis,
coronary artery disease and diabetic retinopathy. Selling, general and
administrative expenses increased by $946,000 for the six month period ended
June 30, 1997 compared with the same period in 1996. The increase in 1997 was
primarily due to the hiring of additional
21
<PAGE> 26
sales and marketing personnel and costs related to the pre-commercial launch of
our periodontal susceptibility test.
Interest income for the six months ended June 30, 1997 decreased by $4,000
primarily due to decreased funds available for investment. Interest expense for
the six months ended June 30, 1997, amounted to $31,000, was an increase of
$23,000 over the same period in 1996. The increase was due primarily to an
increased working capital line of credit and a long term loan with Bank of
America.
The net income for the six months ended June 30, 1996 was $520,000 compared
to a net loss of $1,834,000 for the six months ended June 30, 1997. The
difference is a result of the increased research and development expenses,
increased selling, general and administrative expenses and the decrease in
research contract revenues.
YEARS ENDED DECEMBER 31, 1996 AND 1995.
Revenues for the year ended December 31, 1996 increased by $46,000.
Research and development expenses increased to $958,000 for the year ended
December 31, 1996 from $582,000 for the year ended December 31, 1995. The
increase in research and development expenses is attributed to development
expenses during the period related to work on developing our genetic
susceptibility tests for periodontitis, osteoporosis, coronary artery disease
and diabetic retinopathy. Selling, general and administrative expenses increased
to $1,163,000 for the year ended December 31, 1996 from $756,000 for the year
ended December 31, 1995. The increase in 1996 was primarily due to the hiring of
additional personnel and costs related to the pre-commercial launch of our
periodontal susceptibility test.
Interest income for the year ended December 31, 1996 increased to $9,000
from $0 for the prior year, due to the increased funds available for investment.
These funds were raised in our private placement of common stock in starting in
November 1996 and through our contract research agreements with various
companies. Interest expense for the year ended December 31,1996, amounting to
$34,000, was due entirely to a working capital line of credit and a long term
loan with Bank of America.
The net income for the year ended December 31, 1995 was $150,000 compared
to a net loss of $789,000 for the year ended December 31, 1996. The difference
is a result of the increase in research and development expense, the increase in
selling, general and administrative expenses and the decrease in research
contract revenues.
LIQUIDITY AND CAPITAL RESOURCES
We have financed our operations from inception through contract research
revenues and more recently through sales of common stock and borrowings. Since
June 30, 1997 we have received $540,000 in net proceeds from private placements
of our Common Stock. We raised an additional $1,780,000 through a debt/warrant
offering from August 1, 1997 through October 6, 1997.
We have also, for working capital purposes, entered into term loans with a
bank to effect borrowings originally in the amounts of $500,000 and $250,000. As
of September 30, 1997, our borrowings under the term loans were $483,000 and
$185,000, respectively.
As of September 30, 1997, our company had $879,000 in cash and cash
equivalents.
During the six months ended June 30, 1997 and 1996, and the fiscal years
ended December 31, 1996 and 1995, our cash provided by (used in) operations used
in was $(1,394,000), $536,000, $(435,000) and $112,000, respectively. The cash
used for operations was primarily to fund research and development and sales and
marketing expenses related to the introduction and support of our genetic
susceptibility tests.
We expect to use a portion of the net proceeds of this offering for
expanding sales and marketing efforts, funding of clinical studies, increasing
production or commercialization capacity, customer service and funding research
and development, the repayment of the investor Bridge Loans, as well as for
working capital and general corporate purposes. A portion of the proceeds may
also be used for investments in or acquisitions of complementary businesses,
products or technologies. See "Use of Proceeds" at page 16.
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<PAGE> 27
BUSINESS
GENERAL DESCRIPTION
We provide genetic susceptibility testing services for common diseases that
are treatable and preventable. We have focused on four diseases initially:
periodontitis (gum disease), osteoporosis (bone disease), coronary artery
disease (heart disease) and diabetic retinopathy (blindness associated with
diabetes). Our tests identify genetic markers which, if present in a patient,
increase the probability that such patient will be affected by the disease or
that the disease will progress more rapidly and become more severe. Doctors and
dentists will use our genetic susceptibility tests to assess the risk involved
for individual patients and to adopt appropriate treatments or therapy,
including preventive measures. Our genetic tests will allow early determination
of genetic predisposition to these four diseases with the following potential
benefits:
(1) Patients with genetic predisposition to a disease may adopt health
care and lifestyle changes that will delay or prevent onset of the
disease or reduce disease severity;
(2) Early detection of genetic predisposition will allow doctors and
dentists to select the most appropriate a) preventive strategy where
no disease symptoms are present or b) course of treatment once the
patient develops the disease; and
(3) Earlier and better treatment selection will motivate patients and
improve outcomes.
Our tests assist doctors in the development of better preventive treatment
strategies, aid patients in making more informed decisions, and help payers to
target healthcare investments where they make the biggest difference. We believe
that this will contribute to a better quality of life, while directing
healthcare resources to individuals who derive the greatest benefit.
Accordingly, our mission is to improve patient care and treatment outcomes by
incorporating genetic information regarding disease susceptibility into overall
risk assessment and treatment planning.
SCIENTIFIC BACKGROUND
Genetic Testing. For many years it was well accepted that genetics
influenced much of our health and behavior. Scientists frequently noted that
certain diseases "ran in families." The clear genetic influence on disease was
only known, however, for a few uncommon or rare conditions such as Down's
Syndrome or Tay-Sachs Disease. Such conditions involve either a major
abnormality in a chromosome or a genetic defect that is strong enough by itself
to cause a clinical problem. Both types of genetic abnormalities are so powerful
that they are usually evident in childhood.
Some diseases, such as Down's Syndrome, are essentially entirely genetic.
Others are essentially entirely environmental, such as an infected cut. The
purely genetic conditions tend to be rare, or at least uncommon. For example,
the defects in the gene associated with breast cancer are involved in only 5% to
10% of all breast cancers. Accordingly, 90% to 95% of all breast cancers are
caused by some other factor or factors.
Most of the common chronic diseases that cause the greatest debilitation
and cost for adults are diseases in which genetics interact with other factors,
such as lifestyle or environmental challenges to the body. We refer to such
diseases as "multi-factorial" because numerous factors contribute to the disease
(Figure 1). For example, while it has been demonstrated that there is a genetic
influence on the susceptibility to periodontitis, research has also shown that
periodontitis is influenced by factors such as smoking and oral hygiene.
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<PAGE> 28
FIGURE 1
[CHART DEPICTING BIOLOGICAL AND BEHAVORIAL RISK FACTORS CONTRIBUTING TO DISEASE
PROGRESSION]
Source: Chart developed by Medical Science Systems, Inc. Copyright Medical
Science Systems, Inc.
In multi-factorial diseases the genetic influence is not due to a "genetic
defect" but a normal variation within the population. For example, for a
specific gene, 20% to 30% of the population may have a slight variation in the
genetic code that alters the function of that gene just enough under certain
environmental challenges that a specific disease is accelerated (Figure 1).
Since these variations are multiple forms of the same gene, they are called
genetic polymorphisms or genetic markers.
If the genetic polymorphisms associated with a common disease can be
identified, it is possible to predict those at high risk for disease and alter
the individual's lifestyle or provide early medication to prevent clinical
disease. If the polymorphism can be shown to actually be involved functionally
in accelerating the disease, then that information may be used to develop
innovative new treatments or preventive agents.
For example, it is well established that two proteins, interleukin-1
("IL-1") and tumor necrosis factor ("TNF") play a central role in many chronic
diseases that have inflammatory components. We have discovered specific genetic
variations that influence how much IL-1 and TNF are produced in the body. Our
findings in periodontal disease provide an example of how this works. Normally,
the body produces IL-1 and TNF in responses to a bacterial infection to help
activate the inflammatory and immune responses that will fight the infection.
This happens without producing any longlasting tissue damage. In a person where
a certain genetic variation exists, excessive levels of IL-1 or TNF are
produced. This causes an inflammatory response that may lead to tissue damage.
Our research revealed that individuals with two specific polymorphisms in the
IL-1 genes were predisposed to more severe periodontitis. Our periodontal
susceptibility test determines whether an individual has such a genetic
predisposition.
In general, it may be said that the early detection of a predisposition to
genetic diseases presents the best opportunity for medical intervention. Early
genetic diagnosis may improve the prognosis for a patient through supervision
and early intervention before the clinically detectable disorder occurs.
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<PAGE> 29
PRODUCTS AND SERVICES
Genetic Susceptibility Test for Periodontal Disease (Patent Pending).
DESCRIPTION OF PERIODONTAL DISEASE TEST. Our first genetic susceptibility
test detects a genetic susceptibility to severe gum disease (periodontitis).
Periodontitis is a bacterially-induced chronic inflammation that destroys the
collagen fibers and bone that surround and support the teeth. Untreated,
periodontitis will eventually result in tooth loss.
Periodontitis results from a complex interplay of bacterial infection with
the patient which can often be modified through behavioral factors. The fact
that periodontal disease is both preventable and treatable makes predicting the
host response (or one's susceptibility to the development of periodontal
disease) "wanted information" for the patient and health care provider.
Periodontists have attempted for years to understand why patients with similar
plaque levels and oral bacterial profiles often show remarkably different
clinical characteristics. It is now possible to integrate genetics into overall
risk assessment so clinicians can identify that subset of patients who are
highly susceptible to rapid disease progression and severe periodontitis. This
discovery allows individual patients to be managed in a more targeted and
proactive way.
FIGURE 2
[BAR GRAPH DEPICTING DIFFERING SUSCEPTIBILITY TO PERIODONTITIS IN ADULTS]
Source: K. Kornman et al., Journal of Clinical Periodontology, January 1997.
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<PAGE> 30
FIGURE 3
[BAR GRAPH DEPICTING DIFFERING BLEEDING RESPONSE ON PROBING IN ADULTS]
Source: Unpublished data analysis based on data developed under the study
reported by K. Kornman et. al, Journal of Clinical Periodontology,
January 1997.
Our periodontal susceptibility test is the result of a scientific
breakthrough in which an association was discovered between a specific IL-1
genotype and severe periodontal disease (Figure 2). IL-1 is a cytokine or
protein that is known to play a role in inflammation and the expression of
periodontal disease. Patients with this specific genotype have been found to
progress more rapidly towards severe periodontal disease and show increased
bleeding on probing (Figure 3). It has also been determined that cells with this
genotype produce as much as four times more IL-1 in response to the same
bacterial challenge. Since IL-1 in high concentrations is known to be
destructive to tissues, this may explain the more rapid progression of
periodontal disease experienced by patients with this specific IL-1 genotype
when faced with a bacterial challenge. Prevention or therapeutic intervention
aimed at reducing the bacterial challenge should decrease the stimulus for IL-1
production and thereby protect the patient against the potentially destructive
effects of this genotype. It is estimated that approximately 30% of the
population will test positive for this genotype.
We have developed our periodontal susceptibility test and continue to be
governed by a project agreement between our company and Sheffield University.
See "Competitive Advantages" at page 39.
A patent application related to the detection of genetic predisposition to
periodontal disease has been filed and assigned to us from Sheffield University,
Dr. Gordon Duff and Dr. Kenneth Kornman. We have received a Notice of Allowance
from the U.S. Patent and Trademark Office related to the patent's anticipated
issuance.
MARKET FOR PERIODONTAL SUSCEPTIBILITY TEST. The American Academy of
Periodontology estimates that:
"$5 billion was spent in 1990 to treat gingivitis and periodontal
disease, more than $10 billion is spent annually for the replacement of
teeth lost to periodontal disease, that 80% of all employed American
adults have some stage of periodontal disease and that periodontal
disease is the primary cause of tooth loss in adults 35 years and
older."
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<PAGE> 31
In general, population based studies indicate that gingivitis (that is,
mild gum disease) affects 50% of the adult population. Studies also show that
periodontitis affects between 30% to 35% of U.S. adults and increases with age
after 35. Many of the affected individuals have mild clinical disease, but it
appears that 20% of the adult population have a level of periodontitis which
requires professional treatment.
The early identification of those individuals susceptible to severe
periodontal disease would allow for more aggressive prevention and treatment of
the disease. Early intervention is the key to preventing or stopping the
progression of the disease in order to minimize permanent loss of bone that
supports the teeth. Most periodontal disease is currently diagnosed only after
significant damage has already occurred. The patient is frequently referred to a
specialist if the patient does not respond to conventional cleaning therapy and
continues to experience substantial additional bone loss. The current dilemma is
the inability to differentiate between those patients likely to respond to the
normal conservative approaches such as scaling and root planing, oral hygiene
improvement and more regular dental visits, and those which will likely go
rapidly downhill despite customary therapy. Those who have periodontal disease
and are susceptible to the severe form of periodontitis need more aggressive
care such as more frequent monitoring and periodontal cleanings, earlier
treatment with drugs or even early surgical intervention in severe cases.
Early identification of patients at high risk for periodontitis will allow
general practitioner dentists, as well as periodontists, to better focus
resources and confidently choose the most cost-effective therapy. Moreover, use
of our periodontal susceptibility test will allow payors to better monitor
resource utilization and to better design dental insurance plans.
We commercially launched our periodontal susceptibility test on October 3,
1997.
Genetic Susceptibility Test for Osteoporosis (Patent Pending).
DESCRIPTION OF OSTEOPOROSIS SUSCEPTIBILITY TEST. The second genetic test we
are currently developing is a test for susceptibility to osteoporosis.
Osteoporosis, the most common bone disease, resulting in a decrease in the
amount of normal bone which leaves the affected individual more susceptible to
fractures. We have identified a genetic marker that in clinical trials was
associated with a more severe loss of bone through osteoporosis. The
osteoporosis susceptibility test is a genetic test capable of indicating a
greater susceptibility to severe osteoporosis in postmenopausal women. This
susceptibility appears to involve a more rapid loss of bone as estrogen levels
decrease and menopause occurs.
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We have completed three clinical trials of the osteoporosis susceptibility
test. The first trial focused on the relationship of the genetic test to
bone-mineral density ("BMD") in post-menopausal women with a history of bone
fractures. All three trials confirmed the association between the specific
genetic marker and the onset of osteoporosis (Figure 4).
FIGURE 4
[BAR GRAPH DEPICTING SUSCEPTIBILITY TO POST - MENOPAUSAL OSTEOPOROSIS]
Source: R. Eastell, G. Russell, G. W. Duff and co-workers, unpublished data on
file, Medical Science Systems, Inc.
Our test provides data that will allow practitioners to practice preventive
medicine. Ideally, all females should be tested for this genetic trait by
adolescence so that they are encouraged to develop healthy lifestyles to attain
peak bone mass prior to the onset of menopause. These lifestyles include
avoiding smoking, increasing the intake of calcium, and participating in regular
weight-bearing exercise. Results of this test will also assist women who are
approaching menopause in deciding whether to start treatment. On introduction
into the marketplace, this test will be targeted at all women in their
mid-thirties, the point in their lives when the estrogen level begins to
decrease. This will enable counseling at a sufficiently early stage in the
process that significant bone loss can be avoided through lifestyle modification
and/or drug/hormone therapy.
A patent application related to the method of testing for genetic
predisposition to osteoporosis has been filed and assigned to Sheffield
University. Sheffield University, has in turn, granted to us an exclusive
worldwide license to utilize the underlying patent. Under the terms of our
Project Agreement with Sheffield University, upon our commercialization of the
osteoporosis susceptibility test, Sheffield University is obligated to assign
the patent to us in its entirety. The U.S. Patent and Trademark Office has
recently issued a Notice of Allowance with respect to the aforementioned patent.
MARKET FOR OSTEOPOROSIS SUSCEPTIBILITY TEST. Twenty-eight million Americans
suffer from osteoporosis, of which 85% are women. Post-menopausal osteoporosis,
stemming from the loss of estrogen, affects more than one-half of all women over
65 years of age and has been detected in as many as 90% of women over age 75.
Osteoporosis is responsible for a majority of the 1.5 million bone fractures
each year, leading to disabilities costing more than $10 billion in medical,
social and nursing home costs. In 1991, one out of three
28
<PAGE> 33
American women were 50 years of age or older. The "baby boomer" generation began
to enter this age group in 1996.
In the past, a diagnosis of osteoporosis was made only after an elderly
individual had suffered a bone fracture. The current definition requires that
the individual has lost enough bone to put them at increased risk for fractures.
Since the strength of bones is largely determined by the mineral density of the
bones, an assessment of bone mineral density is currently the most reliable
method for determining whether one has osteoporosis. The diagnosis may therefore
be made by bone densitometry measurements that allow the calculation of the
density of bone relative to normal individuals. The key problem with this
approach is that it is directed at Those individuals who already have the
disease and have manifested symptoms. Although new therapies reverse some bone
loss, their primary benefit is in retarding future bone loss. Given that little
can be done to reverse damage that has already occurred, it appears that the
best management of osteoporosis will involve early detection and prevention.
By identifying at-risk individuals before symptoms appear, the individual
can be counseled to make appropriate life style changes or institute other
treatments. For example, calcium supplements and exercise have been shown to be
valuable preventive factors if used during a critical early age window. Hormone
replacement therapy has also been used successfully to combat osteoporosis
occurring after menopause. Hormone replacement therapy may be of greatest
benefit if used early in the disease process before major bone loss has
occurred. New treatment alternatives for osteoporosis include a class of drugs
that has recently been approved called bisphosphonates. Didronel(TM), a
bisphosphonate manufactured by Procter and Gamble Pharmaceuticals, is available
in much of Europe. Fosamax(TM), another new bisphosphonate produced by Merck,
has recently received FDA approval and is now marketed in the U.S.
Historically, it has been very difficult to reliably identify those women
who are at greater risk for developing severe osteoporosis. Although various
risk factors are strongly associated with osteoporosis, assessment of risk
factors in patients by means of questionnaires has not been a reliable means of
identifying women with low bone density. New urine or blood tests can detect
special chemical markers when the bone is actively being destroyed. However,
these chemical markers, like the bone density measurements, primarily provide
diagnostic information only after significant amounts of bone have been lost.
Unfortunately, the opportunity for increasing bone density by nutrition or
exercise occurs far before osteoporosis is detectable by such means.
Since our marker is genetic, we may test patients at an early age and
identify their risk. This provides the opportunity for disease prevention in the
form of lifestyle changes early enough to make a difference. This test may also
be valuable in selecting patients for early drug intervention to stop
osteoporosis. Such drugs include earlier supplementation with estrogen or a
preemptive use of a bisphosphonate-class drug such as Fosamax(TM).
We anticipate initiating marketing efforts related to a pre-commercial
phase for the osteoporosis susceptibility test in late 1997. See "Market
Development Strategy for Other Susceptibility Tests" at page 37. The full
commercial launch is anticipated to begin sometime in late 1998.
Genetic Susceptibility Test for Coronary Artery Disease (Patent Pending).
DESCRIPTION OF CAD TEST. The third genetic susceptibility test we are
developing is the coronary artery disease test (the "CAD test"). The CAD test is
a genetic test capable of detecting those individuals with a significantly
higher level of susceptibility to coronary artery disease. When an individual
has one copy of this specific genetic marker (i.e., is heterozygous) there is a
2.4 times greater chance of his developing coronary artery disease than the
general population. An individual who has two copies of the genetic marker
(i.e., is homozygous) has a 5.4 times greater chance of developing coronary
artery disease than the general population. It follows that being homozygous for
this particular genetic marker indicates a greater risk for coronary artery
disease than any other single risk factor (Figure 5).
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FIGURE 5
THE NEWLY IDENTIFIED GENETIC
POLYMORPHISM IS A STRONG RISK-MARKER
FOR CORONARY ARTERY DISEASE
<TABLE>
<CAPTION>
INCREASED RISK
RISK FACTOR/MARKER FOR CAD
------------------------------------ --------------
<S> <C>
Smoking 1 pack/day 2.4
Sedentary lifestyle 1.9
Severe obesity 3.3
Hypertension 2.1
High cholesterol (>240) 2.4
1 copy of new marker 2.4
2 copies of new marker 5.4
</TABLE>
Source: S. Francis, D. Crossman, G. W. Duff and co-workers. Submitted for
publication, 1997. Data on file at Medical Science Systems, Inc.
The availability of our CAD test will provide practitioners with a means of
truly practicing preventive medicine with respect to coronary artery disease.
The CAD test can be given to all individuals early in life because genetic risk
factors do not change over time. Individuals who test positive for the genotype
can be treated with more aggressive approaches to risk factor reduction. As
these individual age, they can be provided with more regular: (1) monitoring of
cholesterol levels; (2) blood pressure testing; and (3) early intervention to
alter the level of blood lipids (i.e., fats). Such an approach allows for truly
preventive medicine through early risk factor reduction and appropriate
monitoring for early detection of any problems.
A patent application related to the method of testing for genetic
predisposition to coronary artery disease has been filed and assigned to the
Sheffield University. Sheffield University, has in turn, granted to us an
exclusive worldwide license to utilize the underlying patent. Under the terms of
our Project Agreement with Sheffield University, upon our commercialization of
the CAD test, Sheffield University is obligated to assign the patent to us in
its entirety.
MARKET FOR CAD TEST. More than one in four Americans, or about 60 million,
have some form of cardiovascular disease. Cardiovascular diseases kill nearly
one million Americans every year -- more than all forms of cancer (about
500,000), accidents (about 85,000), and AIDS (about 38,000) combined. Since
1900, cardiovascular disease has been the number one cause of death in the U.S.
every year except 1918 (when there was a world-wide flu epidemic). If all forms
of cardiovascular disease were eliminated, life expectancy would rise by 7.78
years.
Atherosclerosis (or arteriosclerosis) refers to the progressive blockage of
arteries by plaque accumulation. Atherosclerosis is the principle cause of heart
attack, stroke and gangrene of the extremities. It is responsible for 50% of all
deaths in the U.S., Europe and Japan.
If atherosclerosis occurs in the arteries that supply blood to the heart,
then the disease is often referred to as coronary artery disease ("CAD"). CAD
results in heart attacks (myocardial infarctions) due to damage to the heart
muscle when blood supply (and therefore oxygen) is cut off and heart muscle
cells die. Approximately 13.5 million Americans suffer from coronary artery
disease, and approximately half a million Americans die each year from this
disease.
Although many theories exist, the causes and mechanisms of this build-up
are not completely understood. Because of this lack of understanding,
prediction, diagnosis, and treatment of atherosclerosis has centered on the
development of a set of risk factors that help to identify those individuals who
are most at
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<PAGE> 35
risk. The primary approach to treatment for atherosclerosis, once diagnosed,
centers on controlling these risk factors.
Unfortunately, many of the classic risk factors, such as smoking, high
cholesterol levels, and high blood pressure, only account for about half of the
incidence of CAD. Because CAD is the leading cause of death among people in the
U.S., a tremendous amount of research over the past four decades has been
directed at CAD. Initially, serum lipids (e.g., triglycerides and total
cholesterol) were linked with CAD during the 1940s and 1950s These observations
have been refined to focus on high and low density lipoproteins (i.e., "HDLs"
and "LDLs") as potential factors in the cause of the disease and as potential
markers of the disease.
Preventive treatment, including lifestyle changes and drug therapy, is
directed primarily at reducing the risk factors. Treatment strategies usually
involve coronary artery by-pass surgery or angioplasty (i.e., expansion of the
blood vessel), both of which only treat the result and not the root cause(s) of
the disease. Though an increasingly large number of risk factors have been
identified, they still only account for slightly over half of the cases of
atherosclerosis.
The genetic susceptibility test that we are developing may offer a
potential solution to this dilemma. The CAD test is based on a genetic marker
that is associated with an increased susceptibility to coronary artery disease
that substantially exceeded the increased risk of other commonly associated
factors, such as smoking or high cholesterol.
We anticipate initiating marketing efforts related to a pre-commercial
phase for the CAD test in late 1998. See "Market Development Strategy for Other
Susceptibility Tests" at page 37. The full commercial launch is anticipated to
begin in 1999.
Genetic Susceptibility Test for Retinopathy in Diabetics (Patent Pending).
DESCRIPTION OF THE DIABETIC RETINOPATHY TEST. The fourth genetic
susceptibility test we are developing is a test to determine the susceptibility
to sight-threatening retinopathy in diabetics. This susceptibility involves a
continued and increased risk of losing vision when an individual has been
diagnosed with diabetes. The data from our first clinical trial involving over
500 diabetics is shown below (Figure 6). Of the individuals who did not have the
specific genetic marker (genotype negative), approximately 10% developed
sight-threatening retinopathy. The risk for this group remained low and
relatively constant for many years. For genotype positive individuals, however,
the risk continued to increase dramatically until nearly 50% ultimately
developed sight-threatening diabetic retinopathy.
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FIGURE 6
[GRAPH DEPICTING SUSCEPTIBILITY TO DIABETIC RETINOPATHY]
Source: P. Richardson, I. Rennie, G. W. Duff and co-workers. Submitted for
publication, 1997. Data on file at Medical Science Systems, Inc.
Sight-threatening diabetic retinopathy refers to diabetic complications
affecting the retina that predictably lead to severe loss of vision. Retinal
disease is one of numerous problems related to diabetes. Retinal disease is
primarily the result of the disruption of small blood vessels in the retina due
to: (1) capillary leakage; and/or (2) destruction or obstruction of capillaries
causing damage to the tissues of the retina and the uncontrolled growth of new
blood vessels. Such retinal changes are a leading cause of blindness in the
western world.
A patent application related to the method of testing for the genetic
predisposition to retinopathy in patients with diabetes has been filed and
assigned to Sheffield University. Sheffield University, in turn, has granted us
an exclusive, worldwide license to utilize the underlying patent. Under the
terms of our Project Agreement with Sheffield University, upon our
commercialization of the diabetic retinopathy susceptibility test, Sheffield
University is obligated to assign the patent to us in its entirety.
MARKET FOR DIABETIC RETINOPATHY TEST. In the United States there are
approximately 16 million people suffering from diabetes mellitus (or are
diabetic). It is estimated that only half of this number have been diagnosed.
There are two general categories of diabetes mellitus. Type I diabetes, or
insulin-dependent diabetes mellitus, generally appears in patients under 20
years of age and is marked by severe insulin deficiency. Type I diabetes is
generally detected at its onset and requires insulin treatment to control. Type
II diabetes, or non-insulindependent diabetes mellitus, emerges in patients over
20, may remain undetected for years, and is marked by insulin resistance and an
insulin deficiency. Dietary changes may be able to control Type II diabetes,
however, insulin supplements (that is, injections) are often required. Ninety
percent of all diabetics have Type II diabetes.
Patients with either form of diabetes mellitus are at risk of developing
complications such as problems with their nervous system, kidneys, vision and
heart. Studies have shown that the duration of diabetes is
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associated with the increasing incidence of diabetic complications. Accordingly,
the longer an individual has diabetes, the greater his or her chances of
developing complications. These complications are a major clinical burden in
diabetes, but the origination and development of the disease are not well
understood.
Diabetic retinopathy is one of the most common complications of diabetes.
It is the fourth leading cause of legal blindness in the U.S. and the leading
cause of blindness in people ages 20 to 74. Each year 15,000 to 39,000 people
lose their sight from diabetic retinopathy. Early detection of retinopathy is
critical to the prevention of vision loss. The early stage of this disease is
known as nonproliferative retinopathy. Nonproliferative retinopathy is somewhat
difficult to detect but responds well to treatment. Nonproliferative
retinopathy, if untreated, can deteriorate with a resultant loss of vision.
Although treatment may arrest the condition, it will not restore lost vision.
Proliferative retinopathy is the final state of the disease. At this point,
the disease involves the production or growth of new tissue in and around the
retina. These types of growths can lead to serious vision loss including
blindness. Satisfactory treatment is difficult in advanced proliferative
retinopathy. Surgical procedures used at this stage will themselves result in a
loss of patient vision four percent of the time. Clearly, early treatment of
diabetic retinopathy is desirable.
We have identified a genetic marker that is correlated with an increased
risk of developing diabetic retinopathy in patients who have diabetes. This
correlation seems to indicate an earlier onset of retinopathy in patients who
have diabetes thus putting such individuals at risk of losing their sight at an
earlier age. The availability of such a test would allow practitioners to assess
a patient's risk of losing his or her sight due to diabetes at the time that he
or she is diagnosed with the disease. Preventive treatment would allow doctors
to practice truly preventive medicine, providing a means of identifying
susceptible patients early in the disease process. Enhanced assessment and
monitoring can then be initiated from the start, allowing early detection of
problems and preemptive treatment that will ultimately reduce the incidence of
diabetes related vision loss. This would translate into improvements in patient
quality of life and cost savings.
Confirmatory clinical studies of the diabetic retinopathy susceptibility
test are scheduled for completion in mid-1998. We anticipate initiating
marketing efforts related to a pre-commercial phase for the diabetic retinopathy
susceptibility test sometime in 1998. See "Market Development Strategy for Other
Susceptibility Tests" at page 37. The full commercial launch is anticipated to
begin sometime in 1999.
Testing Procedure. Each of our four genetic susceptibility tests will
require that the following single procedure be utilized. To conduct a genetic
susceptibility test, the doctor will draw a blood sample and submit it to our
customer service department. We will log in the sample and submit sample batches
to the testing laboratory. The laboratory will perform the test following our
specific protocol and inform us of the results. We, in turn, will advise the
doctor of the results, who informs the patient and determines the appropriate
course of action. At the time results are provided to the doctor, our billing
service (which we presently "outsource") will invoice the patient directly for
the test. The doctor will then invoice the patient for his or her professional
services related to administration of the test.
We are currently using Baylor University as our commercial laboratory. We
will continue to use one or more sophisticated, certified, and fully validated
laboratories, such as the Baylor facility, capable of providing consistent and
high quality analysis. Customer service is handled via our toll free "888"
numbers by our own staff who are knowledgeable about our genetic susceptibility
tests, the procedural requirements of the testing system and the related
diseases.
Pre-Marketing Trials/Status of Susceptibility Tests. As an internal
procedural standard, we conduct three categories of clinical trials in
conjunction with our genetic susceptibility tests. The first trial is called a
proof of principle trial, used to prove a laboratory finding. The results of
this trial are utilized to support the initial patent application and therefore
need to be completed before the patent application can be filed. The second
trial is a confirmatory trial. The purpose of the confirmatory trial is to
independently confirm the results of the proof of principle trial. The third
category of trial relates to clinical utility. The clinical utility trial is
conducted to learn what is the most effective utilization of the test in actual
clinical practice. The
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current trial status and actual and anticipated commercial launch date of each
of our four genetic susceptibility tests is depicted below:
STATUS OF CLINICAL TRIALS AND LAUNCH DATES
RELATED TO MSS' GENETIC SUSCEPTIBILITY TESTS
<TABLE>
<CAPTION>
INITIAL PROOF ACTUAL/ANTICIPATED
(PRIOR TO CONFIRMATORY COMMERCIAL
PATENT FILING) TRIAL CLINICAL UTILITY LAUNCH
-------------- ------------ ---------------- ------------------
<S> <C> <C> <C> <C>
Periodontal Disease................ Completed Completed Completed October 1997
Osteoporosis....................... Completed Completed Underway Late 1998
Coronary Artery Disease............ Completed Completed Underway 1999
Diabetic Retinopathy............... Completed Underway Not Yet Started 1999
</TABLE>
Following confirmatory studies, additional trials are completed on larger
populations to help develop broad scientific evidence supporting the clinical
utility of each of our tests. Such additional trials not only strengthen the
support for each tests' known use (i.e., detecting genetic susceptibility) but
also lead to additional practical uses of the susceptibility tests (e.g., use of
the susceptibility tests to determine a patient's responsiveness to a given
drug).
Product Development. Beyond our current four genetic susceptibility tests,
we have on-going research to continue to identify other genetic markers that
appear to be associated with certain other common diseases. We plan on filing
additional patent applications to cover these discoveries. It is our intent to
bring these discoveries to market in the form of additional genetic
susceptibility tests. We have also come upon certain genetic markers that might
be likely candidates to serve as therapeutic targets -- or in other words, be
susceptible to influence by drug agents. We are considering certain
collaborative long term relationships with pharmaceutical companies as a method
to provide for either the licensing of our discoveries or to assist in the
research and development of future products.
There may be additional applications of either our testing services or the
underlying technology that we use to develop and support our genetic testing
services. We will seek to exploit opportunities to develop such additional
applications in conjunction with other companies so long as our company's focus
remains on genetic susceptibility testing. For example, we have recently granted
a worldwide, nonexclusive, nontransferable license to Digisphere, LLC to market
customized versions of our computer modeling technology to pharmaceutical
companies. Previously, we had only used our computer modeling technology for the
internal development of our genetic testing services. Digisphere, LLC was formed
on August 1, 1997 and represents a joint venture between our company and Nelson
Communications Inc. ("NCI"). NCI is one of the largest providers of health care
marketing services to pharmaceutical companies in the United States. This joint
venture will involve our company acting as the information/technology partner
and NCI functioning as the marketing partner. The joint venture involves
providing doctors and patients with a medical education tool regarding disease
progression. As of September 30, 1997, we have not received any revenues from
this joint venture.
MARKET AND SELLING STRATEGIES
General Strategy. Our strategy is to build a commercial operation based on
the delivery of our genetic susceptibility testing services on a worldwide
basis. Our testing services are aimed at multi-factorial diseases which are
treatable and preventable. Our strategy assumes that genetic tests revealing
susceptibility to preventable diseases will ultimately be highly valued by the
public, by clinicians involved in prevention and treatment planning, by
industries involved in clinical trials and by healthcare payers and
administrators who need to direct limited resources where they will make the
biggest difference.
We intend to utilize a sales and marketing approach which will aim to
improve patient care and treatment outcomes by incorporating genetic information
regarding disease susceptibility into overall risk assessment and treatment
planning. We hope to accomplish this through educating doctors, managed care
organizations,
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industry and the public about the value of targeting healthcare investments
based on an individual's tendency to develop a specific disease. We will seek to
influence attitudes and mindsets through clearly articulating the benefit for
our customers and adopting a missionary sales approach in partnership with
crusaders in the field. Emphasis will be placed on building strong relationships
with key decision-makers and educators who will work with us to overcome the
obstacles and influence the acceptance of genetic testing, especially testing
that reveals wanted information, as part of the medical standard of care.
Our initial goal will be to establish genetic tests such as our periodontal
susceptibility test into overall risk assessment and treatment planning for
patients. Ultimately, we envision these tests being used more broadly by
healthcare administrators and practitioners as a screening tool to direct
limited resources in a more targeted and proactive way.
Market Strategy for Specific Tests.
MARKET STRATEGY FOR PERIODONTAL SUSCEPTIBILITY TEST. We plan to develop the
worldwide market for our periodontal susceptibility test directly through a
number of centrally-driven tactics and thereby establish an environment in which
locally appropriate, focused selling efforts will be most likely to succeed. The
worldwide market will be segmented according to geography and customer groups,
with appropriate emphasis being given to specific segments as the business
grows. Wherever possible, we will initially sell our periodontal susceptibility
test directly, anticipating that once demand has been created we may elect to
work in partnership with other selling organizations that offer significantly
greater access to the market and/or a better competitive position.
GEOGRAPHIC SEGMENTATION PLAN. Initial emphasis will be placed on sales of
our periodontal susceptibility test in North America. North America represents
at least half of the worldwide opportunity for our periodontal susceptibility
test. We intend to market directly in the U.S. and Canada, focusing on specific
customer segments as outlined below. In a parallel effort, we will also begin to
develop a sales program in Europe, in partnership with local sales organizations
familiar with the periodontal market. Emphasis will be placed on Italy, since
momentum and a customer base have already been established during our
pre-commercial phase. In the meantime, European customers who want access to our
periodontal susceptibility test are being serviced directly out of the U.S. The
same is true for Asia and South America. It is anticipated that partners will be
sought for sales efforts in these regions as well.
CUSTOMER SEGMENTATION PLAN. There are several potential customers for our
periodontal susceptibility test who need to be targeted in a specific order and
with appropriate emphasis over time. Our study of the value-chain involved in
making or influencing a purchasing decision for our periodontal susceptibility
test revealed that some of the key players involved include: specialists
(primarily periodontists), general dentists, hygienists, reimbursement groups
(i.e., insurance companies, managed care organizations, etc.) and, of course,
the individuals (and their families) who are being tested. The degree to which
each of these groups embrace our periodontal susceptibility test will be
influenced by how others in the value-chain view the value of the information.
For example, initial feedback indicates that patients will be strongly
influenced by their doctors. Whereas, generalists may be influenced by how
specialists view the value of the test. Managed care organizations are likely to
be influenced by how attractive the test is to their current or potential
members. The influence diagram for the decision to purchase the test reveals a
high degree of interdependence between all of the groups. For this reason, it is
critical to develop the market in the right order and with the appropriate
selling message for the specific group being targeted. It is important not to
skip a step in the process or believe that, just because resistance to change in
a specific segment may be great, such segment may be ignored. The initial
segmentation plan we have developed will allow us to focus resources on the
group most likely to generate early sales growth, while at the same time
ensuring long-term sustainability and opportunity for growth. In light of the
foregoing, we will be targeting four customer groups: (1) Periodontists/
periodontally-oriented GPs; (2) General Practitioners; (3) Managed Care/Buying
Groups; and (4) Oral Care Companies with Dental Research Programs.
Periodontist/Periodontally-oriented GPs. During the launch period and early
adoption phase, emphasis will be placed on this segment in both North America
and Europe. From a market development standpoint,
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we recognize that it is critical that our periodontal susceptibility test be
understood and accepted by "periodontists" for it to gain broad acceptance in
the other segments.
Relationships with opinion leaders and professional organizations are
already well established in this segment. Key opinion leaders have their own
data to present, which can be further supported with educational materials that
we have developed. Speakers will be engaged who can interpret the scientific
message and translate the breakthrough and effectively convey its clinical value
to others. Our goal is to be highly visible at major periodontal meetings
(international, national and "large" regional) the first year, with educational
information on our periodontal susceptibility test either incorporated into the
main program, or as part of an associated continuing education program wherever
possible. Our periodontal susceptibility test was recently featured at the last
general session of the American Academy of Periodontology meeting in October of
1997.
From a selling standpoint, periodontists can be reached with a relatively
small organization through attending their major meetings and sending targeted
mail/fax communications. We initially expect periodontists to be our major
source of revenue transitioning to dental general practitioners ("GPs") over the
course of the first year.
We will seek to convince/motivate periodontists, in addition to testing
their own patients, to take the "genetic susceptibility testing/risk assessment
message" to referring GPs, and in some cases, directly to patients to help build
their practices. As such, we see periodontists as important multipliers and an
integral part of the "selling effort." Support materials, such as updated
referral slide shows and general dentist's brochures, patient brochures,
"informatics" and press release packets, are already being provided to help
periodontists to be more effective in this role.
General Practitioners. We intend on developing this segment in a parallel
manner, with emphasis switching from periodontists to GPs as the business grows.
From a market development standpoint, we are working closely with leaders in the
American Dental Association to help them understand the benefits of our
periodontal susceptibility test to GPs, and to motivate then to educate their
membership. Our periodontal susceptibility test is already scheduled to be
presented at the American Dental Association's major fall meeting in Washington,
D.C., where the test will also be included in an exhibit on dental innovations
at the Smithsonian. Emphasis will be placed on translating the clinical value as
it relates to a general practice, with appropriate opinion leaders from their
own "camps" being identified for this purpose. GPs will be the target of mass
mailings and advertising campaigns to increase brand recognition for our
periodontal susceptibility test. In addition, we will seek to use periodontists
as "advocates" to reach their GP referral base. As the need for additional sales
activities within this segment grows, we will evaluate using a "co-marketing"
arrangement with a large GP-oriented sales organization.
Managed Care/Buying Groups. Initially, we expect most genetic tests to be
paid for by the consumer, not insurance companies or other payors. Our
contracted billing service will directly bill the patient who has utilized the
test. We realize, however, that successful commercialization of our products and
services may depend in part upon the availability of reimbursement or funding
from third-party health care payors such as federal and state governmental
agencies, private insurance plans and health maintenance organizations. Thus, In
the longer term, we intend to target this managed care/buying group segment by
building a sales and marketing organization aimed at understanding the value of
genetic testing and risk assessment to large buying groups (including managed
care organizations of all forms and governments in some countries) and "selling"
through negotiating contracts with the decision makers (and gate keepers). This
is clearly the trend in organized healthcare and presents an opportunity for
susceptibility tests such our periodontal susceptibility test. As we grow, this
capability should also generalize to other genetic tests. From a market
development standpoint, we intend to better understand the needs of this
segment, and tailor claim support studies/educational activities to satisfy
these needs. Our periodontal susceptibility test is already scheduled to be
featured at the next meeting of the National Association of Dental Plans.
Oral Care Companies with Dental Research Programs. An additional segment
that we intend to target involves companies with clinical research programs. We
have already sold some of our periodontal susceptibility tests to companies that
are interested in having patients in their clinical studies genotyped. Due to
the clear benefit of including this information in large clinical studies and
our strong preexisting
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relationships with many of the companies in this segment, we view this as an
opportunity to generate additional sales during the first year with a limited
selling effort. However, there can be no assurance that future sales will be
effected or that such sales will result in net income.
Public Awareness/PR Plan. Initially most of our sales and marketing effort
aimed at the general public will be indirect, primarily in the form of brochures
and other tools that a doctor can use to explain the tests and their value to
patients. We have initiated some public relations activities in order to
increase public awareness of our specific tests and genetic susceptibility
testing more generally through the popular media. For example, with our
periodontal susceptibility test, we have initiated some publications in
cooperation with a professional organization known as the American Association
of Periodontology, which has its own vested interest in increasing public
awareness about the disease and featuring significant discoveries that help
validate the importance of the profession. We will begin to use PR in
coordination with our other selling efforts aimed at each customer segment we
approach. With the commercial introduction of the periodontal susceptibility
test at the upcoming American Academy of Periodontology meeting this October, we
will begin a campaign aimed at reaching the periodontal and general dentists.
Ultimately, we plan on marketing directly to the public in order to create
consumer demand for our tests.
Educational and Promotional Materials. As with any change of behavior
product, we anticipate the sales and promotional effort for our genetic
susceptibility test to be highly education-intensive and are planning to develop
several materials to support this effort. In addition, some promotional
materials will be developed that are primarily aimed at increasing
brand/logo/company recognition and creating a "high tech/ high value" image for
ourselves.
Market Development Strategy for Other Susceptibility Tests. We are also
preparing market development plans to implement the "pre-commercial phase" for
our osteoporosis tests. We intend to implement a similar strategy as is
currently being utilized with our periodontal susceptibility test. We will
initially involve the current academic and research "thought leaders" in the
development and verification of our tests results and clinical utility. We will
then develop a speaker circuit where these thought leaders will begin to convey
the clinical utility and importance of our tests to specialists within each
testing area (e.g., cardiologist for the CAD test). As the thought leaders begin
to reach and influence the specialists we will then begin to target generalists,
who presumably will be or have been influenced by the specialists. At this point
direct marketing can be introduced to complete the progression, resulting in
consumer demand. This segmentation strategy has been proven to be effective with
other medical devices and is already being implemented with respect to our
periodontal susceptibility test.
SELLING METHODS
Direct Sales. We plan to build demand for our susceptibility tests using a
small direct consultative sales organization specializing in genetic testing,
risk assessment and change of behavior. We do not plan on building a large sales
force capability in any specific market; however, when the need for additional
sales force activity increases within a particular segment, we will consider
"co-marketing" or other business arrangements with companies with a large sales
organization in the field. Our direct sales capability will focus on the
profession segment initially, then shift to institutional and large buying group
sales. After a sales partner has been brought on, we will focus on sales partner
support and trade/professional association meetings. We will thereafter continue
to seek to establish corporate partnerships which will produce revenues,
credibility and a market presence for our other services and products.
Professional and Industry Meetings/Trade Associations. Initially, we will
be present and market our products and services at all national and selected
regional associations and meetings where a genetic susceptibility test has
applicability to the professionals in attendance. Over time, we anticipate our
partners playing an increasingly important role in the specific disease markets
where our tests are used.
INTELLECTUAL PROPERTY
Our commercial success will be dependent in part on our ability to obtain
patent protection on genes, genetic sequences and/or their relationship to
common diseases, or products or methods based on the
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association between particular genes and diseases, discovered by us and
Sheffield University. We have presently filed a total of eleven patent
applications including applications covering each of our four genetic
susceptibility tests. In June 1997, a Notice of Allowance was issued by the
United States Patent and Trademark Office with respect to both our periodontal
and osteoporosis susceptibility tests. We have filed and will continue to file
foreign counterparts of our U.S. applications within the appropriate time
frames. Where we have originally filed in another country, we plan to file U.S.
and other foreign counterparts within the appropriate time frame. These
applications seek to protect these gene markers and corresponding use of gene
markers, and products derived therefrom and uses therefor. Some of these
applications also identify possible biological functions for the genes and gene
fragments based in part on a comparison to genes or gene fragments included in
public databases but do not contain any laboratory or clinical data with respect
to such biological functions.
We own the patent covering the genetic marker related to our periodontal
susceptibility test. However, with each of the other tests, the Section of
Molecular Medicine at Sheffield University holds the patent application but has
granted us an exclusive worldwide, irrevocable, transferable license to make,
have made, use, offer to sell, license and otherwise transfer products created
under the applicable patents. Sheffield University has retained the right to
carry on internal research related to the underlying patents. However, under the
terms of our Project Agreements with Sheffield University, upon the
commercialization of each test, Sheffield University is obligated to assign the
patent to us in its entirety.
We have filed three patents related to our computer modeling software
technology, two of which are still pending and one of which has issued. We are
continuing to identify and develop applications related to additional genetic
markers. We have also applied for trademark protection for the name of our
periodontal susceptibility test. Our proprietary technology is subject to
numerous risks. See "Uncertain Ability to Protect Proprietary Technology" at
page 9.
ETHICAL, LEGAL AND SOCIAL IMPLICATIONS OF GENETIC SUSCEPTIBILITY TESTING
The prospect of broadly available genetic susceptibility testing has raised
issues which are currently being widely discussed by the medical and scientific
communities, as well as other interested groups and organizations, regarding the
appropriate utilization and the confidentiality of information provided by such
testing. The recent movement towards discovery and commercialization of
susceptibility tests for screening a person's likelihood of developing one or
more chronic conditions has also focused public and legislative attention on the
need to protect the privacy of genetic screening medical information. With the
progression towards more comprehensive record keeping by health insurers and
managed care firms, this need has led to a number of legal initiatives. The
recently enacted federal health insurance reform law (Kassebaum-Kennedy of 1996)
recognizes the comparability of information obtained by genetic means to other
types of personal medical information. The law prohibits insurance companies
from refusing health insurance coverage to individuals on the basis of their
medical history, including "genetic information." This legislation also
prohibits employees from discrimination in hiring practices on the same basis.
This should serve as an example of a trend to protect the privacy of patients,
while allowing them to be screened for conditions which, as medicine progresses,
can be prevented, reduced in severity, or cured. Although the current trend is
pro-genetic testing, governmental authorities could, for social or other
purposes, limit the use of genetic testing or prohibit testing for genetic
susceptibility to certain conditions.
We have attempted to take a proactive stance in the ethical arena. We have
engaged Dr. Philip Reilly, who is both an M.D. (board certified specialist in
clinical genetics) and an attorney to advise us in the area of genetic testing
and its ethical, legal and clinical utility ramifications. Additionally, we are
currently advising doctors who administer our genetic susceptibility tests to
take special efforts to maintain the confidentiality of the test results. Our
intent is to avoid information about test results being disclosed to insurers
until issues regarding insurability have been fully analyzed and acted upon by
the appropriate legislative bodies.
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COMPETITION
Although testing for major genetic defects, such as Down's Syndrome, has
been available for years, genetic susceptibility testing for multi-factorial
diseases is a newly emerging growth segment. Despite this segment's relatively
young age, companies other than ours do exist have research programs seeking
disease related genes for therapeutic and susceptibility testing purposes,
including some that involve treatable/ preventable disease. Other companies with
research programs include OncorMed, Inc. ("OncorMed"), Myriad Genetics, Inc.
("Myriad"), Genome Therapeutics Corp. ("GTC") and Sequana Therapeutics, Inc.
("Sequana"). Both GTC and Sequana have announced that they have research
programs focusing on osteoporosis. Myriad has a test for breast cancer and has
announced research programs for osteoporosis and coronary artery disease.
OncorMed, while engaged in the development of genetic susceptibility tests, is
focused solely on cancer.
Additionally, some of our competitors receive data and funding from the
Human Genome Project. The Human Genome Program is a federally funded program
focused on sequencing the human DNA and enriching the sequence data with
information about its biological function. To the extent our competitors receive
data and funding from the Human Genome Project at no cost to them, they may have
a competitive advantage over our company.
Each of the above noted company's involvement with genetic susceptibility
testing, together with large market capitalizations as public companies,
validates this newly emerging market. In the case of newly introduced products
requiring "change of behavior," (such as genetic susceptibility tests) multiple
competitors may accelerate market acceptance and penetration through increasing
awareness. Moreover, two different genetic susceptibility tests for the same
disease may in fact test or measure different components, and thus actually be
complementary when given in parallel as an overall assessment of risk, rather
than being competitive with each other.
Furthermore, with the exception of OncorMed, the primary focus of each of
the above-referenced companies is performing gene-identifying research for
pharmaceutical companies for therapeutic purposes, with genetic susceptibility
testing being a secondary goal. On the other hand, our company's primary
business focus is developing and commercializing genetic susceptibility tests
for common diseases, with only an ancillary drug discovery program. Factors
which further differentiate us from other companies are discussed below in
"Competitive Advantages" at page 39.
COMPETITIVE ADVANTAGES
Other companies have entered the market for genetic testing as medical
research has increasingly recognized the advantages provided by early detection
of genetic predisposition. Although many of these competitors have greater
financial and other resources than us (see "Competition" at page 39), we believe
that our company has many competitive advantages, including:
(1) Alliance with The University of Sheffield, U.K. Our efforts in the
genetic discovery and development process are complemented by a strategic
alliance with the Section of Molecular Medicine at The University of
Sheffield, U.K. Sheffield University is one of the world's leaders in
genetic aspects of common diseases with an inflammatory component.
Sheffield University's research is targeted around identifying and
discovering genes and genetic markers which appear to correlate with a
patient's susceptibility to common diseases.
Our relationship with Sheffield University offers another significant
advantage over our competitors in reducing the cost of genetics research.
The gene discovery process uses and generates vast amounts of information.
Such research is time consuming, costly, heavily dependent upon advanced
computer technology and unpredictable. Sheffield University has an
integrated genetics program consisting of approximately 45 M.D. and Ph.D.
scientists and researchers focusing on molecular genetics. Sheffield
University performs gene-identifying research for us, thereby reducing our
costs and allowing us to focus our attention on developing and
commercializing known genetic markers. Many of our competitors' primary
focus and capital is spent on performing gene-identifying research.
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In exchange for Sheffield University's providing us with research and
discoveries, the company has agreed to pay Sheffield University a share of
the resultant net profits, with the percentage of net profits for our
company and Sheffield University to be agreed upon separately under project
agreements related to each test (each a "Project Agreement"). Net profits
will be paid out to Sheffield University only after we have recovered the
cost of goods sold, all marketing and sales costs and all operational costs
related to each of the separate tests.
(2) Identified Genetic Markers. While many of our competitors are
currently seeking to identify diseaserelated genes, we have already
identified four genetic markers that indicate a patient's genetic
predisposition to certain diseases. Additionally, we are continuing to
identify other genetic markers and intend to file patent applications
related to the same.
(3) Focus on Diseases that are Treatable and Preventable. We are one of
the few companies that we know of that is focusing on genetic
susceptibility testing services for diseases that are treatable and
preventable. Most of our competitors have not focused on
treatable/preventable diseases but have instead focused on drug development
with a secondary emphasis on genetic testing. Other companies, such as
Myriad and OncorMed are developing tests for breast cancer for which there
is no known preventive treatment (except mastectomy). The value of this
information is, as a result, often times "unwanted" by the patient. Our
tests, on the other hand, when used in overall risk assessment, provide
doctors and patients with information regarding a patient's risk for
developing a potential future disease. Since the disease is treatable and
preventable, this information is "wanted." Doctors and patients may use
this wanted information to take preventive measures to slow down or avoid
disease progression and develop treatment plans based on a patient's future
risk for disease progression.
(4) Focus on Developing and Commercializing Genetic Susceptibility
Testing Services. Our company's primary business focus is to develop and
commercialize genetic susceptibility testing services. We are committed to
becoming one of the world's leaders in marketing and selling genetic
susceptibility tests. We believe that broad market acceptance of genetic
susceptibility testing, and any particular test, can be achieved only by
educating consumers and professionals about the benefits of genetic testing
and demonstrating how genetic testing can improve patient risk assessment
and treatment. In order to commercialize our own products and prepare the
markets we are entering, we have built and continue to expand a team with
significant experience in the commercialization process and marketing high
technology medical and dental products which require a change of behavior.
We have developed a focused marketing and sales strategy for our initial
product that includes segmentation, thought leader development, educational
marketing and consultative selling. See "Marketing and Selling Strategies"
at page 34.
(5) First to Market with a Genetic Susceptibility Test for a Disease
That is Treatable and Preventable. We are the only company that we know of
that has brought to market a test (our periodontal susceptibility test)
that identifies a genetic marker which indicates a greater susceptibility
to a disease which is treatable and preventable. As a result, we believe
that we are well-positioned to become a market leader in the periodontal
market and potentially in each of the other areas in which we have
developed or are developing tests.
(6) Computer Modeling Technology. We have developed a computer modeling
technology that simulates the biology of specific diseases. These
simulations include basic genetic, cellular and subcellular interactions,
as well as systems-level information about the clinical symptoms involved
in the disease process. They allow a comprehensive integration of
gene-expression data, basic biochemistry, and cell biology such that
disease-associated genetic findings may be linked to the clinical outcomes.
These simulations give us a competitive advantage by allowing us to more
accurately and efficiently:
(1) evaluate the combined effects of genetic markers and other risk
factors in order to establish risk assessment;
(2) link risk assessment profiles to treatment regimes;
(3) identify new candidate genes or genetic markers; and
40
<PAGE> 45
(4) design clinical trials more effectively.
(7) Integrated Risk Assessment and Treatment Planning Approach to
Multi-Factorial Diseases. While we recognize the importance of our genetic
susceptibility tests, we also acknowledge the reality of other risk factors
contributing to the development of disease. Thus certain diseases are often
referred to as "multi-factorial" given that several factors contribute to
their causation. See "Genetic Testing" at page 23. We have attempted to
take a holistic approach toward analyzing the disease process. Therefore
our risk assessment strategy includes not only the results of our genetic
susceptibility tests, but also other known risk factors. By combining our
test results together with present risk factors we are able to develop a
more accurate risk assessment tool. We then link patient testing criteria
to possible treatment suggestions. We package this data together with our
genetic susceptibility tests to enhance our tests' practical utility to
clinicians actually administering the tests.
(8) Experienced in Structuring Clinical Trials to Evaluate
Discoveries. We have extensive experience in product development, including
designing and conducting clinical trials to evaluate genetic and drug
discoveries. In the past, we provided clinical research services to
pharmaceutical and medical/dental device companies. We have performed
contract research for many of the world's leading health care and
pharmaceutical companies. Some of our representative clients have included:
Proctor & Gamble; Alpharma/Dumex; Implant Innovations, Inc.; W. L. Gore &
Associates; Teledyne WaterPik; and Oral B. Commencing in 1994, our research
team has increasingly focused on the development of our own products. Our
research capability expedites the development process and increases our
knowledge about target diseases. Moreover, we have already successfully
completed our initial proof trials on all four of our genetic
susceptibility test and confirmatory trials on three out of four of these
tests. See "Pre-Marketing Trials/Status of Susceptibility Tests" at page
33.
(9) Cost Effective Commercialization Process. Because we are focusing
primarily on genetic susceptibility testing services and intend to develop
at least four genetic susceptibility tests initially, with more tests in
the future, we have designed our current product distribution and customer
service operation in such a way that it can process, perform, track, bill
and collect large volumes of genetic tests with appropriate quality and
customer service support. We have carefully designed our product
distribution and customer service operations to allow for multi-test or
product capabilities. The design and functionality of our product
distribution and customer service operations has been created in such a way
as to enable us to easily move from a company currently selling only one
genetic susceptibility test to a company distributing a portfolio of four
or more such tests in multiple markets on a worldwide basis. Further, our
operations have the capability of processing additional tests or products
at even greater volumes with little or no modifications or increases in
capital outlays. Moreover, as each test or product is added into our
distribution stream, the cost per test to us decreases allowing for
increased profitability.
GOVERNMENT REGULATION
The sampling of blood, saliva or cheek scrapings from patients and
subsequent analysis in a clinical laboratory does not, at the present time,
require Federal Drug Administration ("FDA") or regulatory authority approval
inside the U.S. for either the sampling procedure or the analysis itself. The
samples are taken in the healthcare provider's office, using standard materials
previously approved as medical devices, such as sterile lancets and swabs. The
testing procedure itself is performed in one or more registered, certified
clinical laboratories under the auspices of the Clinical Laboratory Improvement
Amendments of 1988, administered by the Health Care Financing Administration.
The federal regulations governing approval of the laboratory facilities and
applicable state and local regulations governing the operation of clinical
laboratories would also apply. Changes in such regulatory schemes could require
advance regulatory approval of genetic susceptibility tests sometime in the
future could have a material adverse effect on our business.
In addition, while our main focus is on genetic susceptibility testing, we
may, in the future, endeavor to partner with pharmaceutical companies in the
area of drug development. Any drug products developed by us or our future
collaborative partners, prior to marketing in the United States, would be
required to undergo an extensive regulatory approval process by the FDA. The
regulatory process, which includes preclinical testing
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<PAGE> 46
and clinical trials of each therapeutic product in order to establish its safety
and efficacy, can take many years and requires the expenditure of substantial
resources. Data obtained from preclinical and clinical activities are
susceptible to varying interpretations which could delay, limit or prevent
regulatory agency approval. In addition, delays or rejections may be encountered
during the period of therapeutic development, including delays during the period
of review of any application. Delays in obtaining regulatory approvals could
adversely affect the marketing of any therapeutics developed by us or our
collaborative partners, impose costly procedures upon us and our collaborative
partners' activities, diminish any competitive advantages that we or our
collaborative partners may attain and adversely affect our ability to receive
royalties. Once regulatory approval of a product is granted, such approval may
impose limitations on the indicated uses for which it may be marketed. Further,
even if such regulatory approval is obtained, a marketed product and its
manufacturer are subject to continuing review. The discovery of previously
unknown problems with a product or manufacturer may result in restrictions on
such product or manufacturer. Such restriction could include withdrawal of the
product from the market.
FACILITIES
Our company has offices in the following locations: Flagstaff, Arizona; San
Antonio, Texas; and Newport Beach, California. Flagstaff, Arizona is the site of
our global commercial operations, including our marketing, sales and customer
service organization. The San Antonio Research Center is the principal site of
our research and development and employs teams of top medical, dental and
computer scientists. Newport Beach is the site of our corporate headquarters.
Our commercial operations office located at 3100 N. West Street, Bldg. A,
Flagstaff, Arizona, contains 6,000 square feet and is held under a three-year
lease which expires in September 2000. Our research and development office,
located at 100 N.E. Loop 410, San Antonio, Texas, contains 1,961 usable square
feet and is held under a five-year lease that will convert into a month to month
tenancy on December 1, 2000 unless either party gives a prior 30 day notice. Our
corporate headquarters, located at 4400 MacArthur Boulevard, Suite 980, Newport
Beach, California, contains 1,798 usable square feet and is held under a
five-year lease which expires in April of 2001.
We believe that our current facilities are adequate for the foreseeable
future and that alternate facilities are readily available.
EMPLOYEES
As of September 30, 1997, we had 27 full-time employees. Most of our
employees are engaged directly in the development and commercialization of our
tests. We believe that the success of our business will depend, in part, on our
ability to attract and retain qualified personnel.
Our employees are not covered by a collective bargaining agreement, and we
consider our relations with our employees to be good.
LEGAL PROCEEDINGS
We are not a party to, nor is our property the subject of, any pending
legal proceeding.
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<PAGE> 47
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of our company are:
<TABLE>
<CAPTION>
NAME AGE POSITION SINCE
- ------------------------------- --- --------------------------------------------- -----
<S> <C> <C> <C>
Paul J. White, J.D., L.L.M.(1) 41 President, Chief Executive Officer and 1994
Chairman of the Board of Directors
Kenneth S. Kornman, DDS, Ph.D. 50 Chief Scientific Officer and Director 1986
Michael G. Newman, DDS 50 Executive Vice President, Secretary and 1986
Director
U. Spencer Allen, MS, MBA 55 Chief Financial Officer and Treasurer 1997
Jeanne Ambruster 40 Vice President, Global Business Operations 1997
Thomas A. Moore(1,2) 46 Director 1997
To be determined(1,2) -- Independent Director 1997(3)
</TABLE>
- ---------------
(1) Member of Compensation Committee.
(2) Member of Audit Committee.
(3) To be determined.
Directors are elected to serve until the next annual meeting of
shareholders. Directors serve without cash compensation or other remuneration.
See "Principal Shareholders" at page 50.
Officers are elected by the Board of Directors and serve until their
successors are appointed by the Board of Directors. Biographical resumes of each
officer and director are set forth below.
Paul J. White, J.D., L.L.M. Mr. White joined the Company as President in
1994. Prior to joining our company, Mr. White was managing partner of White &
Resnick, Irvine, California, a mid-size law firm servicing emerging companies.
Mr. White was a business and corporate attorney and consultant to emerging
health care companies for 15 years. Mr. White holds a B.A. (History/Political
Science) from State University of New York at Brockport, a J.D. from
Southwestern University and an L.L.M. (Taxation) from the University of San
Diego.
Kenneth S. Kornman, D.D.S., Ph.D. Dr. Kornman is a co-founder, officer and
director of our company and currently serves as Chief Scientific Officer and
Director. Prior to founding our company in 1986, he was a Department Chair and
Professor at The University of Texas Health Science Center at San Antonio. He
has also been a consultant and scientific researcher for many of the major oral
care and pharmaceutical companies. Dr. Kornman currently holds academic
appointments at The University of Texas Health Science Center and Harvard
University. Dr. Kornman holds six patents in the pharmaceutical area, has
published two books and more than 100 articles and abstracts and has lectured
and consulted worldwide on the transfer of technology to clinical practice. Dr.
Kornman holds a B.A. in Economics from Duke University. He obtained a D.D.S.
from Emory University. Dr. Kornman also holds an M.S. (Periodontics) and a Ph.D.
(Microbiology) from the University of Michigan.
Michael G. Newman, D.D.S. Dr. Newman is a co-founder, officer and director
of our company and currently serves as Executive Vice President, Secretary and
Director. Prior to founding the Company in 1986, he was an adjunct Professor and
former Director of the Periodontal Microbiology Laboratory at the University of
California at Los Angeles (UCLA) and was president of the American Academy of
Periodontology. Dr. Newman is currently a member of the American College of
Dentists. Dr. Newman currently holds an academic appointment at UCLA. Dr. Newman
has published more than 200 articles and abstracts and is the co-author of four
books on microbiology, periodontitis and oral infections. Dr. Newman holds a
B.A. and a D.D.S. from the University of California at Los Angeles.
U. Spencer Allen, M.S., M.B.A. Mr. Allen joined the Company as Chief
Financial Officer in January 1997. From September 1996 to January 1997, Mr.
Allen functioned as an independent financial consultant. From August 1995 to
August 1996, Mr. Allen was the Vice President (Finance) and Chief
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<PAGE> 48
Financial Officer of Promart Industries, Inc., a houseware products
manufacturer. Mr. Allen worked as a self-employed financial consultant from
January 1994 to August 1995. Prior to that time, Mr. Allen functioned as general
manager of Slow Waltz Imports, Inc., a potpourri manufacturer. Mr. Allen holds
B.S. (Engineering Science) from the U.S. Air Force Academy, an M.S. (Electrical
Engineering) from the University of Southern California and an M.B.A. (Finance)
from George Washington University.
Jeanne Ambruster. Ms. Ambruster joined as Vice President, Global Business
Operations in February 1997. Prior to joining our company, Ms. Ambruster served
as Senior Manager of the Medical and Dental Technologies Business Division for
16 years with W.L. Gore & Associates. At W.L. Gore & Associates, she played a
key role in the growth of this division and was the senior business leader
responsible for building the company's dental product business. Ms. Ambruster
holds a B.A. (Biology and Chemistry) from Pitzer College.
Thomas A. Moore. Mr. Moore became a director of our company in 1997. Mr.
Moore is the Chief Executive Officer and President of Nelson Communications
Inc., one of the largest providers of health care marketing services in the
United States. Prior to joining NCI as President in 1996, Mr. Moore was
President of Procter & Gamble's $3 billion worldwide prescription and
over-the-counter health care business and Group Vice President of the Procter &
Gamble Company. He joined Procter & Gamble in 1973 and held positions of
increasing responsibility in the company's cleaning products, beauty care,
Richardson-Vicks and personal care divisions. He is Chairman of the American
Health Foundation -- a nonprofit organization that researched the nutritional
and environmental factors in cancer and other diseases. Mr. Moore holds a B.A.
(History) from Princeton University.
KEY EMPLOYEES
Pamela K. Fink, Ph.D., Executive Director, Biologic Modeling Group. Dr.
Fink has operational responsibility for our company's computer technology
development. Dr. Fink is an expert in knowledge acquisition and simulation of
complex systems. Dr. Fink joined the Company as Executive Director, Biologic
Modeling Group in July 1994. She was formerly with the Southwest Research
Institute for 10 years as a Section Manager and Staff Scientist. Dr. Fink holds
a B.A. (Mathematics and Philosophy of Language) from Eckerd College and an M.A.
and Ph.D. in Computer Science from Duke University.
Debra J. Moore, M.S., Vice President, Product Development. Ms. Moore joined
the Company as the Vice President, Product Development in September 1990. Ms.
Moore has 19 years practical experience in identification and development of new
health care products. Prior to joining us, Ms. Moore spent 13 years at Procter &
Gamble Health Care where she was a Senior Manager in the Oral Care Product
Development and Professional Relations Division. Ms. Moore was a leader in the
research, development, manufacture and FDA approval of such products as Tartar
Control Crest and Peridex, the first prescription drug approved by the FDA for
the treatment of periodontal disease. Ms. Moore holds a B.S. (Chemistry) from
Central Michigan University and an M.S. (Organic Chemistry) from the University
of Wisconsin, Madison.
Evan B. Siegel, M.Phil, Ph.D., Vice President, Regulatory Affairs. Dr.
Siegel joined our company as Vice President of Regulatory Affairs in August
1996. From January 1994 to July 1996, Dr. Siegel was employed by Quintiles,
Inc., a multinational contract research organization, where he held positions as
Director, Regulatory Services, Director, Regulatory Consulting, and Principal
Regulatory Scientist. From November 1991 until February 1994, he held senior
management positions at Astra Pharmaceutical Products, Inc. Previously, Dr.
Siegel was Director, OTC Regulatory Affairs at Syntex, USA, Inc. and Chief of
Special Services and Supervising Toxicologist at the California Food and Drug
Branch and a reviewer at the U.S. Food and Drug Administration. Dr. Siegel holds
a B.S. (Physics) from Bucknell University, an M.S. (Radiological Health), an
M.Phil. (Virology) and a Ph.D. (Virology) from Rutgers University.
Todd D. Snowden, Director of Worldwide Sales. Mr. Snowden joined our
company as Director of Worldwide Sales, in April 1997. From 1986 until joining
us, Mr. Snowden worked in the Regenerative Technologies division at W. L. Gore &
Associates, selling surgical devices and regenerative materials and as a product
manager with responsibility for all aspects of their products. Mr. Snowden holds
a B.S. (Biomedical Engineering) from Catholic University of America.
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<PAGE> 49
Nancy Whitley, Director of Market Development & Commercialization. Ms.
Whitley is involved in transitioning products in the development phase into the
marketplace, including leading pre and post-commercial product launches. Ms.
Whitley has been the Director of Market Development & Commercialization for our
company since February 1997. Prior to joining us, Ms. Whitley was a Senior
Manager in the Medical and Dental Technologies Business Division of W. L. Gore &
Associates where she worked for 19 years. Ms. Whitley holds a B.A. (Education)
from Northern Arizona University.
SCIENTIFIC EXPERTS
We have engaged a number of scientific experts to render services. With the
exception of one expert, we either (1) have entered into written agreements with
the expert, each of which provides that we are the sole and exclusive owner of
all proprietary rights to all genetic discoveries and related technology,
whether developed by us or our consultant; or (2) receive services from the
consultant underneath existing agreements between our company and Sheffield
University. We currently have no written agreement in place with Dr. Bailit.
Some of our scientific experts are engaged on a project basis while others are
kept on a retainer and utilized in accordance with our current needs. Set forth
below is a brief description of each scientific expert's background.
PROFESSOR GORDON W. DUFF, M.A., PH.D., FRCP
Lord Florey Chair and Director of the Division of Molecular and Genetic
Medicine
The University of Sheffield, U.K.
Professor Duff is internationally recognized as a leader and innovator in
the genetic aspects of cytokines and the immuno-inflammatory response. He is a
fellow of the Royal College of Physicians, Edinburgh. Professor Duff holds a
B.A. (Animal Physiology), an M.A. (Physiology) and a B.M., B.Ch., all from the
University of Oxford and a Ph.D. in Medicine from the University of London.
FRANCESCO S. DI GIOVINE, M.D., PH.D.
Head of the Section of Molecular Medicine
in the Department of Molecular and Genetic Medicine
The University of Sheffield, U.K.
Dr. di Giovine is a molecular geneticist managing the Sheffield University
Molecular Medicine research and development laboratory. Dr. di Giovine holds a
M.D. from the University of Florence, Italy and a Ph.D. (Molecular Immunology)
from the University of Edinburgh, U.K.
PROFESSOR GRAHAM RUSSELL, M.B., CH.B, D.M., PH.D
Director of Division of Biochemical and Musculoskeletal Sciences
Professor of Human Metabolism and Clinical Biochemistry
The University of Sheffield, U.K.
Professor Russell is an internationally recognized researcher in the field
of osteoporosis. Professor Russell holds a B.A. (Biochemistry), an M.A.
(Biochemistry) and an M.B., Ch.B. (Pharmacology, Therapeutics and Toxicology)
from Cambridge University. Dr. Russell also holds a Ph.D. (Chemical Pathology)
from Leeds University, as well as a Doctor of Medicine (D.M.) from Oxford
University.
PHILIP R. REILLY M.D., J.D.
Eunice Shriver Center
Dr. Reilly is an expert in the area of genetic testing and its ethical,
legal and clinical utility ramifications. Dr. Reilly is a board certified
specialist in clinical genetics and an attorney. Dr. Reilly holds a B.A.
(Government) from Cornell University, a J.D. from Columbia University and a M.D.
from Yale University.
HOWARD L. BAILIT, D.M.D., PH.D.
University of Connecticut Health Center
Dr. Bailit is a former senior vice president of Medical Policies and
Programs for Aetna Health Plans and was responsible for the assessment and
acceptance of new medical technology. Dr. Bailit assists with the
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<PAGE> 50
assessment of new product opportunities with understanding of third-party
payor issues. Dr. Bailit holds a D.M.D. from Tufts Dental School, an M.A.
(Anthropology) and a Ph.D. (Anthropology) from Harvard University.
EXECUTIVE COMPENSATION
The following table sets forth total compensation for the year ended
December 31, 1996 for the Chief Executive Officer, and each of the other
executive officers of our company for each of the last three fiscal years (the
"Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
-------------------------------
AWARDS
ANNUAL COMPENSATION --------------------- PAYOUTS
--------------------------------- RESTRICTED SECURITIES -------
OTHER ANNUAL STOCK UNDERLYING LTIP ALL OTHER
NAME AND PRINCIPAL SALARY BONUS COMPENSATION AWARD(S) OPTIONS/ PAYOUTS COMPENSATION
POSITION YEAR ($) ($) ($) ($) SARS (#) ($) ($)
- ------------------------ ---- ------- ----- ------------- ---------- -------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Paul J. White 1996 138,332 -0- -0- -0- -0- -0- -0-
CEO, President 1995 102,226 -0- -0- -0- -0- -0- -0-
1994 60,607 -0- -0- -0- -0- -0- -0-
- ------------------------------------------------------------------------------------------------------------------
Kenneth S. Kornman 1996 154,886 -0- -0- -0- -0- -0- -0-
Chief Scientific
Officer 1995 103,735 -0- 23,797* -0- -0- -0- -0-
1994 217,629 -0- 30,000* -0- -0- -0- -0-
- ------------------------------------------------------------------------------------------------------------------
Michael G. Newman 1996 141,695 -0- -0- -0- -0- -0- -0-
Executive Vice
President 1995 121,536 -0- 23,797* -0- -0- -0- -0-
Secretary 1994 274,146 -0- 30,000* -0- -0- -0- -0-
</TABLE>
- ---------------
* These amounts reflect contributions made to our profit sharing plan.
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information concerning each grant of options
to purchase our Common Stock made during the year ended December 31, 1996 to the
Named Executive Officers:
OPTION/SAR GRANTS IN LAST FISCAL YEAR
(INDIVIDUAL GRANTS)
<TABLE>
<CAPTION>
NUMBER OF SECURITIES PERCENT OF TOTAL
UNDERLYING OPTIONS/SARS
OPTIONS/SARS GRANTED GRANTED TO EMPLOYEES EXERCISE OR BASE EXPIRATION
NAME (#) IN FISCAL YEAR PRICE ($/SH) DATE
- ----------------------------- -------------------- -------------------- ---------------- ----------
<S> <C> <C> <C> <C>
Paul J. White -0-* -0- -0- N/A
Kenneth S. Kornman -0-** -0- -0- N/A
Michael G. Newman -0-*** -0- -0- N/A
</TABLE>
- ---------------
* Does not reflect 25,000 stock options issued in 1997. Does not reflect
20,000 warrants purchased as part of a debt/warrant offering in 1997. See
"Debt/Warrant Offering" at page 49.
** Does not reflect 22,000 stock options issued in 1997. Does not reflect
20,000 warrants purchased as part of a debt/warrant offering in 1997. See
"Debt/Warrant Offering" at page 49.
*** Does not reflect 35,125 stock options issued in 1997. Does not reflect
20,000 warrants purchased as part of a debt/warrant offering in 1997. See
"Debt/Warrant Offering" at page 49.
46
<PAGE> 51
1996 EQUITY INCENTIVE PLAN
Our 1996 Equity Incentive Plan (the "Plan") was adopted by the Board of
Directors and approved by the shareholders in June 1996. A total of 750,000
shares of Common Stock were originally reserved for issuance under the Plan. The
Plan was later amended by vote of both the Board of Directors and the
shareholders in May 1997 to increase the number of shares of Common Stock
reserved for issuance under the Plan to 1,000,000. The Plan provides for grants
of incentive stock options to employees (including officers and employee
directors), nonstatutory stock options to employees (including officers and
employee directors) and consultants (including non-employee directors), stock
appreciation rights ("SARs"), stock awards and stock bonuses. The Plan allows
for administration by either the Board of Directors or a committee thereunder,
which determines optionees and the terms of options granted, including the
exercise price, number of shares subject to the option and the exercisability
thereof.
The terms of options granted under the Plan generally may not exceed 10
years. The exercise price of options granted under the Plan is determined by the
Board of Directors, but, in the case of an incentive stock option, cannot be
less than 100% of the fair market value of the Common Stock on the date of
grant. The exercise price of all nonstatutory stock options must equal at least
85% of the fair market value of the Common Stock on the date of grant. The
exercise price of any stock option granted to an optionee who owns stock
possessing more than 10% of the voting power of all classes of stock of our
company must equal at least 110% of the fair market value of the Common Stock on
the date of grant. The exercise price may be paid in such consideration as
determined by the Board of Directors or a committee of the Board, including cash
and promissory notes. Options granted under the Plan to employees and
consultants have generally not been immediately exercisable and have vested over
a thirty-six (36) month period (at the rate of 16.66% of the shares subject to
the option at the end of six (6) months and 2.777% at the end of every full
month thereafter). No option may be transferred by the optionee other than by
will or the laws of descent or distribution. An optionee whose relationship with
us or any related corporation ceases for any reason (other than by death or
permanent and total disability) may exercise options in the three (3) month
period following such cessation (unless such options terminate or expire sooner
by their terms) or in such longer period determined by the Board of Directors,
provided a period of five (5) years is not exceeded.
Shares subject to options granted under the Plan which have lapsed or
terminated may again be subject to options granted under the Plan. Furthermore,
the Board of Directors may offer to exchange new options for existing options,
with the shares subject to the existing options again becoming available for
grant under the Plan. Upon any merger or consolidation in which we are not the
surviving corporation, all outstanding options shall either be assumed or
substituted by the surviving entity. If the surviving entity determines not to
assume or substitute such options, the options terminate as of the closing of
the merger or consolidation.
As of June 30, 1997, no shares of Common Stock had been issued upon the
exercise of options granted under the Plan, options to purchase 800,579 shares
of Common Stock at a weighted average exercise price of $4.37 per share were
outstanding and 199,421 shares remained available for future options grants.
Prior to this offering, no SARs or restricted stock awards had been given to our
employees and consultants. The Plan will terminate in June 2006, unless
terminated sooner by the Board of Directors.
EMPLOYMENT AGREEMENTS
In January 1996, we entered into employment contracts with all three of the
Named Executive Officers. Mr. Paul J. White, the Chief Executive Officer and
President, currently receives an annual base salary of $140,000 a year, which
will increase to $170,000 for 1998. Drs. Kenneth S. Kornman and Michael G.
Newman each currently receive an annual base salary of $135,000, which will
increase to $165,000 for 1998. Each Named Executive Officer's employment
contract has a five year term (beginning in January 1996) which is automatically
renewed for an additional twelve months unless six-months prior written notice
is given by either party. Each of the Named Executive Officers is also receiving
a $600 a month automobile allowance.
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<PAGE> 52
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Our company's Amended and Restated Articles of Incorporation eliminates the
liability of directors for monetary damages for an act or omission in the
director's capacity as a director, except for: (1) a breach of a director's duty
of loyalty to our company or our shareholders; (2) an act or omission not in
good faith that constitutes a breach of duty of that director to our Company or
an act or omission that involves intentional misconduct or a knowing violation
of the law; (3) a transaction from which a director received an improper
benefit, whether or not the benefit resulted from an action taken within the
scope of the director's office; or (4) an act or omission for which the
liability of a director is expressly provided for by an applicable statute.
If the Texas Miscellaneous Corporation Laws Act or the Texas Business
Corporation Act is amended to authorize action further eliminating or limiting
the personal liability of directors, then the liability of a director of our
company shall be eliminated or limited to the fullest extent permitted by such
statutes, as so amended. Any amendment, repeal or modification of such provision
shall be prospective only and shall not adversely affect any right or protection
of a director of our company existing at the time of such amendment, repeal or
modification.
Additionally, it is the position of the Securities and Exchange Commission
that indemnification of directors and officers for liabilities arising under the
Securities Act of 1933 is against public policy and unenforceable pursuant to
Section 14 of the Securities Act of 1933.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
We believe that the transactions set forth below were made on terms no less
favorable to us than could have been obtained from unaffiliated third parties.
All future transactions, including loans, between us and our officers,
directors, principal shareholders and their affiliates will be approved by a
majority of the Board of Directors, including a majority of the independent and
disinterested outside directors, and will continue to be on terms no less
favorable to us than could be obtained from unaffiliated third parties.
PRIVATE PLACEMENT OF SECURITIES
Between November 1996 and January 1997, we sold 189,188 shares of our
Common Stock in a private placement at a price of $3.70 per share. Between March
1997 and September 1997, we sold 292,060 shares of our Common Stock in a second
private placement transaction at a price of $5.00 per share. Except for Thomas
Moore, who subsequently became one of our directors, all investors in both such
private placements were unrelated third party investors who purchased in
arms'-length transactions.
DEBT/WARRANT OFFERING
From August 1, 1997 through October 6, 1997, we borrowed an aggregate of
$1,780,000 from a group of lenders evidenced by promissory notes bearing
interest at 10% interest rate and due the earlier of fourteen months from the
date of the notes or the closing date of an initial public offering (the "Bridge
Loans"). As additional consideration for the Bridge Loans, we issued one warrant
for each $5.00 loaned to the Company for a total of 356,545 warrants (the
"Bridge Warrants"). Each Bridge Warrant entitles the holder to purchase one
share of Common Stock at $5.50 per share for a period of five years from the
date of issuance. The following officers and directors subscribed to the Bridge
Loans in the principal amount indicated after their names: Paul J. White
($100,000/20,000 Bridge Warrants); Kenneth S. Kornman ($100,000/20,000 Bridge
Warrants); Michael G. Newman ($100,000/20,000 Bridge Warrants); U. Spencer Allen
($50,000/10,000 Bridge Warrants); Jeanne Ambruster ($50,000/10,000 Bridge
Warrants); and Thomas A. Moore ($75,000/15,000 Bridge Warrants).
TRANSACTIONS WITH DIRECTORS AND EXECUTIVE OFFICERS
Our shareholders have elected Thomas A. Moore to serve as a director. Mr.
Moore is also the CEO and President of Nelson Communications, Inc. ("NCI"). We
have recently formed a joint venture with NCI. This joint venture is expected to
provide medical education and relationship marketing information services
48
<PAGE> 53
using our computer modeling technology and patient information generated from
the susceptibility testing business. Under the terms of the joint venture, we
will be acting as the technology partner and NCI will be functioning as the
marketing partner. See "Product Development" at page 34. We believe that the
terms of the joint venture are at least as favorable to us as would be available
from a company other than NCI in an arm's length transaction. The disinterested
members of the Board of Directors have unanimously approved the execution of
this agreement.
EMPLOYEE SALARY REDUCTION PLAN
In May 1997, in order to reduce our overhead and as an additional incentive
to our employees, we instituted a voluntary salary reduction plan where our
employees could choose to receive stock options instead of salary. Employees
were offered options to purchase 600 shares of Common Stock for every $1,000
their salary was reduced. Most of our employees participated, including all of
our officers. A total of 267,079 options to purchase Common Stock at an exercise
price of $5.00 or $5.50 per share were issued to employees.
49
<PAGE> 54
PRINCIPAL SHAREHOLDERS
As of September 30, 1997, we have issued 3,738,007 shares of Common Stock
to 72 holders of record. The following table sets forth certain information
regarding the beneficial ownership of shares of our Common Stock as of September
30, 1997 by (i) each of our company's directors and executive officers, (ii)
each person who beneficially owns more than 5% of the outstanding shares of
Common Stock, and (iii) all directors and officers of our company as a group.
Unless otherwise indicated, the shareholders listed below may be reached at 4400
MacArthur Boulevard, Suite 980, Newport Beach, California 92660.
<TABLE>
<CAPTION>
PERCENTAGE BENEFICIALLY OWNED(1)
SHARES ---------------------------------
NAME BENEFICIALLY OWNED BEFORE OFFERING AFTER OFFERING
- ---------------------------------------------------- ------------------ --------------- --------------
<S> <C> <C> <C>
Kenneth S. Kornman(2)............................... 1,131,235 30.26% 21.60%
100 N.E. Loop 410
San Antonio, Texas
Paul J. White(3).................................... 1,121,110 29.99% 21.40%
Michael G. Newman(4)................................ 1,072,110 28.68% 20.47%
U. Spencer Allen(5)................................. 62,783 1.68% 1.20%
Jeanne Ambruster(6)................................. 38,999 1.04% *
3100 N. West St., Bldg. A
Flagstaff, Arizona 86004
Thomas A. Moore(7).................................. 75,998 2.03% 1.45%
41 Madison Avenue, Ste. 27
New York, NY 10010
All Officers and Directors as a Group (6
persons)(8)....................................... 3,502,235 93.69% 66.86%
</TABLE>
- ---------------
* Less than one percent.
(1) Percentage of ownership for each holder is based on 3,738,007 shares of
Common Stock outstanding on September 30, 1997 together with applicable
options and warrants for such shareholder. Beneficial ownership is
determined in accordance with the rules of the Securities and Exchange
Commission and generally includes shares over which the holder has voting or
investment power, subject to community property laws. Shares of Common Stock
subject to options and warrants that are currently exercisable or
exercisable within 60 days are deemed to be beneficially owned by the person
holding the option or warrants for computing such person's percentage, but
are not treated as outstanding for computing the percentage of any other
person.
(2) Includes 983,333 shares held in Rocklyn, Ltd., a Texas limited partnership
created for the benefit of the Kornman family, including Mr. Kornman.
Includes 27,902 shares issuable pursuant to options exercisable within 60
days of September 30, 1997 and 20,000 shares issuable pursuant to warrants
which are immediately exercisable.
(3) Mr. Paul J. White and Mrs. Suzette White, as trustees of the White Family
Trust, have voting power over 1,022,333 of such shares. The White Family
Trust was established for the benefit of members of the White family,
including Mr. White. Includes 60,000 shares held in irrevocable trusts
created for the benefit of the White's children. Mr. White disclaims
beneficial ownership of such shares. Includes 17,777 shares issuable
pursuant to options exercisable within 60 days of September 30, 1997 and
20,000 shares pursuant to warrants which are immediately exercisable.
(4) Mr. Michael G. Newman and Mrs. Susan L. Newman, as trustees of the Newman
Family Trust, have voting power over 806,556 of such shares. The Newman
Family Trust was created for the benefit of the family of Michael G. Newman
and Mrs. Susan L. Newman. Mr. and Mrs. Newman, as general partners of The
Michael and Susan Newman Family L.P., a Delaware limited partnership, have
voting power over 196,000 shares included therein. Mr. Newman disclaims
beneficial ownership of such shares. Includes 14,777 shares issuable
pursuant to options exercisable within 60 days of September 30, 1997 and
20,000 shares issuable pursuant to warrants which are immediately
exercisable.
50
<PAGE> 55
(5) Includes 52,783 shares issuable pursuant to options which are exercisable
within 60 days of September 30, 1997 and 10,000 shares issuable pursuant to
warrants which are immediately exercisable.
(6) Includes 28,999 shares issuable pursuant to options which are exercisable
within 60 days of September 30, 1997 and 10,000 shares issuable pursuant to
warrants which are immediately exercisable.
(7) Includes 6,944 shares issuable pursuant to options which are exercisable
within 60 days of September 30, 1997 and 15,000 shares issuable pursuant to
warrants which are immediately exercisable.
(8) Includes all shares deposited in trust by the officers and directors of our
company, in which shares such officers and directors disclaim any beneficial
ownership interest.
DESCRIPTION OF SECURITIES
We are authorized to issue up to 10,000,000 shares of no par value Common
Stock and 5,000,000 shares of Preferred Stock. As of September 30, 1997, there
were outstanding 3,738,007 shares of Common Stock held of record by 72 persons.
No shares of Preferred Stock were issued or outstanding.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share on all matters
to be voted upon by the shareholders. Holders of Common Stock are entitled to
receive ratably such dividends, if any, as may be declared by the Board of
Directors out of funds legally available therefor. Upon the liquidation,
dissolution, or winding up of our company, the holders of Common Stock are
entitled to share ratably in all of our assets which are legally available for
distribution, after payment of all debts and other liabilities and the
liquidation preference of any outstanding Common Stock. Holders of Common Stock
have no preemptive, subscription, redemption or conversion rights. The
outstanding shares of Common Stock are, and the shares being sold by us in this
offering will be, when issued and delivered, validly issued, fully paid and
nonassessable.
Based upon the number of shares outstanding as of that date, and after
giving effect to the sale of the Common Stock offered hereby, there will be
5,238,007 shares of Common Stock outstanding (assuming no exercise of
outstanding options, warrants or the Underwriter's over-allotment option).
PREFERRED STOCK
Our company is authorized to issue up to 5,000,000 shares of Preferred
Stock. No shares of Preferred Stock are outstanding. The Board has the authority
without any further action by our shareholders to issue any or all of the
authorized shares of Preferred Stock in one or more series and to establish the
rights, preferences, privileges and restrictions thereof, including dividend
rights, conversion rights, voting rights, terms of redemption, liquidation
preferences, sinking fund terms and the number of shares constituting any series
or the designation of such series. The issuance of Preferred Stock could
adversely affect the holders of Common Stock and could have the effect of
delaying, deferring or preventing a change in our control. We have no present
plans to issue any shares of Preferred Stock. See "Effect of Preferred Stock and
Director Removal Provisions" at page 13.
OPTIONS AND WARRANTS
Options. As of September 30, 1997, 800,579 options to purchase our Common
Stock had been issued under our 1996 Equity Incentive Plan. These options vest
over time and have a per share exercise price from $3.70 to $5.00. See "1996
Equity Incentive Plan" at page 47.
Underwriter's Warrants. Upon completion of this offering, we will have
warrants (the "Underwriter's Warrants") outstanding to purchase 150,000 shares
of Common stock. The Underwriter's Warrants are exercisable at a price per share
equal to 135% of the initial public offering price for a period of four years
commencing at the second year from the date of issuance. The Underwriter's
Warrants contain anti-dilution provisions providing for adjustments of the
exercise price and the number of shares underlying the Underwriter's Warrants
upon the occurrence of certain events, including any recapitalization,
reclassification,
51
<PAGE> 56
stock dividend, stock split, stock combination or similar transaction. The
Underwriter's Warrants grant to the holders thereof certain registration rights
which are described below. See "Registration Rights" at page 52 and
"Underwriting" at page 54.
Bridge Warrants. From August 1, 1997 through October 6, 1997, we borrowed
an aggregate of $1,780,000 from a group of lenders evidenced by promissory notes
bearing interest at 10% interest rate and due the earlier of fourteen months
from the date of the notes or the closing date an initial public offering (the
"Bridge Loans"). The Bridge Loans are subordinate to the prior payment in full
of all of our secured obligations currently existing or those created in the
future. As additional consideration for the Bridge Loans, we issued one warrant
for each $5.00 loaned to the Company for a total of 356,545 warrants (the
"Bridge Warrants"). Each Bridge Warrant entitles the holder to purchase one
share of Common Stock at $5.50 per share for a period of five years from the
date of issuance. We can call the Bridge Warrants if the Common Stock is listed
on a national market or NASDAQ system and has had a closing price of at least
$12.00 per share for thirty (30) consecutive trading days.
REGISTRATION RIGHTS
In connection with the Underwriter's Warrants, the holders of the Common
Stock issuable upon exercise of the Underwriter's Warrants have the right to
notice and inclusion in any registration statement filed by us for a period of
six (6) years commencing one year after our initial public offering closes
solely at our expense (but excluding fees and expenses of the holder's counsel
and any underwriting or selling commissions). Additionally, we agreed to allow
one demand registration for a period of four years from the effective date of
the registration statement, upon written demand of holder(s) representing a
majority of the outstanding Underwriter's Warrants, solely at our expense (but
excluding fees and expenses of the holder's counsel and any underwriting or
selling commissions). Additionally, the Bridge Warrant holders are permitted one
(1) S-3 demand registration upon request of holders of fifty percent (50%) of
the outstanding Bridge Warrants.
TRANSFER AGENT AND REGISTRAR
U.S. Stock Transfer Corporation will act as transfer agent and registrar
for our Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will have 5,238,007 outstanding shares
of Common Stock (assuming no exercise of outstanding options, warrants or
Underwriter's over-allotment option). Of these shares, the 1,500,000 shares sold
to the public in this offering will be freely tradeable without restrictions or
further registration under the Securities Act, except for any shares purchased
by our "affiliates" within the meaning of the Securities Act, which will be
subject to the resale limitations of Rule 144. The remaining 3,738,007 shares
held by existing shareholders were issued by us in private transactions in
reliance upon one or more exemptions under the Securities Act, are "restricted
securities" as that term is defined in Rule 144 promulgated under the Securities
Act. Such restricted securities may be sold in compliance with such Rule,
pursuant to registration under the Securities Act or pursuant to an exemption
therefrom. Generally, under Rule 144, each person holding restricted securities
for a period of one year may, every three months after such one year holding
period, sell in ordinary brokerage transactions or to market makers an amount of
shares equal to the greater of one percent of our then outstanding Common Stock
or the average weekly trading volume during the four weeks prior to the proposed
sale. In addition, sales under Rule 144 may be made only through unsolicited
"broker's transactions" or to a "market maker" and are subject to various other
conditions. The limitation on the number of shares which may be sold under Rule
144 and the "broker's transaction" requirement do not apply to restricted
securities sold for the account of a person who is not and has not been our
"affiliate" (as that term is defined in the Act) during the three months prior
to the proposed sale and who has beneficially owned the securities for at least
two years.
Prior to the offering, there has been no market for the Common Stock, and
no predictions can be made as to the effect, if any, that sales of shares under
Rule 144 or the availability of shares for sale will have on the market prices
prevailing from time to time. Sales of substantial amounts of Common Stock in
the public
52
<PAGE> 57
market following this offering could lower the market price of the Common Stock.
Of the 5,238,007 shares of Common Stock to be outstanding after this offering
(assuming no exercise of outstanding options, warrants or the overallotment
option), 1,500,000 shares will be freely tradeable without restriction. Upon
expiration of the lock-up agreements entered into by the officers and directors
of our company, an additional 3,258,053 shares will become eligible for sale one
year from the close of this offering, subject to the provisions of Rule 144. Of
the remaining 479,954 shares of Common Stock, 5,000 shares will be eligible for
resale under Rule 144 following this offering. The remaining 474,954 shares will
have been held for less than one year and will become eligible for sale at
various dates as the one-year holding period under Rule 144 is satisfied.
In addition, we intend to file a registration statement on Form S-8 with
respect to the shares of Common Stock issuable upon exercise of options under
the 1996 Equity Incentive Plan (the "Plan"). The Plan authorizes the issuance of
options relating to up to 1,000,000 shares of Common Stock. Currently, there are
800,579 options that have been issued under the Plan which generally vest over
three years. See "1996 Equity Incentive Plan" at page 47. Upon filing of such
registration statement, the holders of such options may, subject to vesting
requirements, exercise and sell their shares immediately without restriction,
except affiliates who are subject to certain volume limitations and manner of
sale requirements of Rule 144. Holders of 356,545 warrants to purchase shares
are entitled to certain registration rights with respect to such shares. Upon
registration, such shares may be sold in the market without limitation. See
"Registration Rights" at page 52. Sales of such shares may decrease the market
price for our Common Stock. See "Underwriting" at page 54 and "Arbitrary
Offering Price of the Common Stock; Possible Volatility of Common Stock Price"
at page 13.
53
<PAGE> 58
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting agreement
(the "Underwriting Agreement"), we have agreed to sell to each of the
underwriters named below (the "Underwriters"), and each of the Underwriters, for
whom Nutmeg Securities, Ltd. is acting as representative (the "Representative"),
has severally agreed to purchase, the number of shares of Common Stock set forth
opposite its name below. Under certain circumstances, the commitments of
nondefaulting Underwriters may be increased as set forth in the Agreement Among
Underwriters.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
------------------------------------------------------------------ ----------
<S> <C>
Nutmeg Securities, Ltd............................................
Total........................................................ 1,500,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriter
thereunder are subject to approval of certain legal matters by counsel and to
various other conditions. The nature of the Underwriter's obligations is such
that it is committed to purchase and pay for all of the above shares of Common
Stock if any are purchased. The Underwriter proposes to offer the shares of
Common Stock directly to the public at the public offering price set forth on
the cover page of this Prospectus.
We have granted to the Underwriter a 45-day over-allotment option to
purchase up to 225,000 additional shares of Common Stock at the public offering
price less the underwriting discount. The Underwriter may exercise such option
only to cover over-allotments made in connection with the sale of the shares of
Common Stock offered hereby.
We have also agreed to sell to the Underwriter, for nominal consideration,
warrants (the "Underwriter's Warrants") to purchase the number of shares of our
Common Stock equal to 10% of the total number of shares of Common Stock sold in
this offering at a price per share equal to 135% of the initial public offering
price of the Common Stock. The Underwriter's Warrants will be exercisable for a
period of four years commencing one year following the closing of this offering
and will contain certain demand and "piggyback" registration rights with respect
to the Common Stock issuable upon the exercise of the Underwriter's Warrants.
The Underwriter's Warrants are not transferable (except to certain employees and
affiliates of the Underwriter). The exercise price and the number of shares
issuable upon exercise may, under certain circumstances, be subject to
adjustment pursuant to antidilution provisions.
We have agreed to allow the Underwriter a commission of eight percent (8%)
of the public offering price of the shares of Common Stock. Additionally, we
will be paying the Underwriter, following the closing of this offering, a
nonaccountable expense allowance equal to three percent (3%) of the aggregate
public offering price of the shares of Common Stock, less any applicable
deposits.
We have further agreed to indemnify the Underwriter against certain
liabilities, losses and expenses, including liabilities under the Securities
Act, or to contribute to payments that the Underwriter may be required to make
in respect thereof. We also have agreed to reimburse the Underwriter for certain
out-of-pocket expenses incurred in connection with the offering.
The Underwriter has advised us that it does not intend to make sales to
discretionary accounts.
Our officers and directors who in the aggregate beneficially own 3,258,053
shares of Common Stock have agreed not to, directly or indirectly, sell, offer,
contract to sell, make any short sale, pledge or otherwise dispose of such
shares for a period of 12 months after the date of the closing of this offering.
54
<PAGE> 59
LEGAL MATTERS
Certain legal matters with respect to the legality of the issuance of the
Common Stock offered hereby will be passed upon for us by Jeffers, Wilson, Shaff
& Falk, LLP, Irvine, California. Certain legal matters in connection with the
offering will be passed upon for the Underwriter by William M. Prifti, Esq.,
Lynnfield, Massachusetts.
EXPERTS
The audited consolidated financial statements included in this Prospectus
and elsewhere in the Registration Statement have been audited by Singer Lewak
Greenbaum & Goldstein LLP, Los Angeles, California, independent public
accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said reports.
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (the "Registration Statement") under the
Securities Act with respect to the securities offered hereby. This Prospectus
does not contain all of the information set forth in the Registration Statement,
certain parts of which are omitted in accordance with the rules and regulations
of the Commission. For further information with respect to us and this offering,
reference is made to the Registration Statement, including the exhibits and
schedules filed therewith, copies of which may be obtained at prescribed rates
from the Commission at its principal office at 450 Fifth Street N.W.,
Washington, D.C. 20549, and at the following regional offices of the Commission:
75 Park Place, New York 10007, and Northwestern Atrium Center, 500 West Madison
Street, Suite 1400 Chicago, Illinois 60604. In addition, the Commission
maintains a World Wide Web site on the Internet at http://www.sec.gov that
contains reports, proxy and information statements and other documents filed
electronically with the Commission, including the Registration Statement.
Descriptions contained in this Prospectus as to the contents of any agreement or
other documents filed as an exhibit to the Registration Statement are not
necessarily complete and each such description is qualified by reference to such
agreement or document.
We intend to furnish to our shareholders annual reports containing
financial statements audited and reported upon by our independent public
accountants.
55
<PAGE> 60
INDEX TO FINANCIAL STATEMENTS OF MEDICAL SCIENCE SYSTEMS, INC.
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS............................... F-2
FINANCIAL STATEMENTS
Balance Sheets................................................................. F-3
Statements of Operations....................................................... F-4
Statements of Shareholders' Deficit............................................ F-5
Statements of Cash Flows....................................................... F-6
Notes to Financial Statements.................................................. F-7 - F-16
</TABLE>
F-1
<PAGE> 61
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
Medical Science Systems, Inc.
We have audited the accompanying balance sheet of Medical Science Systems,
Inc. as of December 31, 1996 and the related statements of operations,
shareholders' deficit, and cash flows for each of the two years in the period
ended December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Medical Science Systems,
Inc. as of December 31, 1996, and the results of its operations and its cash
flows, for each of the two years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Los Angeles, California
September 26, 1997
F-2
<PAGE> 62
MEDICAL SCIENCE SYSTEMS, INC.
BALANCE SHEETS
AS OF DECEMBER 31, 1996 AND JUNE 30, 1997 (UNAUDITED)
ASSETS (Note 3)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------- -----------
(UNAUDITED)
<S> <C> <C>
Current assets
Cash and cash equivalents....................................... $ 55,966 $ 29,982
Accounts receivable............................................. 12,359 40,434
Due from shareholder............................................ 6,565 --
---------- ----------
Total current assets......................................... 74,890 70,416
Furniture and equipment, net (Note 2)............................. 82,877 91,901
Patents........................................................... 154,195 221,200
Deferred offering costs........................................... -- 31,081
---------- ----------
Total assets............................................ $ 311,962 $ 414,598
========== ==========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities
Revolving line of credit (Note 3)............................... $ 353,723 $ --
Accounts payable................................................ 219,669 446,478
Accrued expenses................................................ 44,384 173,713
Accrued officer compensation (Note 9)........................... 127,500 75,000
Deferred rent................................................... 12,703 12,703
Current portion of long-term debt (Note 3)...................... 44,489 146,560
Current portion of capitalized lease obligations (Note 8)....... 8,408 8,799
---------- ----------
Total current liabilities.................................... 810,876 863,253
Long-term debt, less current portion (Note 3)..................... 173,798 553,073
Capitalized lease obligations, less current portion (Note 8)...... 27,036 12,168
---------- ----------
Total liabilities............................................ 1,011,710 1,428,494
---------- ----------
Commitments and contingencies (Note 8)
Shareholders' deficit (Notes 5 and 7) Preferred stock, no par
value 5,000,000 shares authorized none issued and outstanding... -- --
Common stock, no par value 10,000,000 shares authorized;
3,295,539 and 3,629,947 (unaudited) shares issued and
outstanding.................................................. 171,500 1,691,257
Accumulated deficit............................................. (871,248) (2,705,153)
---------- ----------
Total shareholders' deficit.................................. (699,748) (1,013,896)
---------- ----------
Total liabilities and shareholders' deficit............. $ 311,962 $ 414,598
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 63
MEDICAL SCIENCE SYSTEMS, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 AND
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------------------ --------------------------
1996 1995 1997 1996
---------- ---------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Sales....................................... $1,918,879 $1,872,932 $ 100,289 $ 1,864,526
Cost of sales............................... 547,766 367,520 104,596 477,330
---------- ---------- ----------- -----------
Gross profit (loss)......................... 1,371,113 1,505,412 (4,307) 1,387,196
---------- ---------- ----------- -----------
Expenses
Research and development.................. 958,249 582,595 419,335 429,494
Selling, general, and administrative...... 1,162,768 755,785 1,379,611 433,924
---------- ---------- ----------- -----------
Total expenses......................... 2,121,017 1,338,380 1,798,946 863,418
---------- ---------- ----------- -----------
Income (loss) from operations............... (749,904) 167,032 (1,803,253) 523,778
---------- ---------- ----------- -----------
Other income (expense)
Interest income........................... 8,561 35 38 4,078
Interest expense.......................... (34,229) (14,300) (30,690) (8,236)
Loss on disposal of assets................ (6,934) -- -- --
---------- ---------- ----------- -----------
Total other income (expense)........... (32,602) (14,265) (30,652) (4,158)
---------- ---------- ----------- -----------
Income (loss) before provision for income
taxes..................................... (782,506) 152,767 (1,833,905) 519,620
Provision for income taxes.................. 6,040 2,755 -- --
---------- ---------- ----------- -----------
Net income (loss)........................... $ (788,546) $ 150,012 $(1,833,905) $ 519,620
========== ========== =========== ===========
Earnings (loss) per common share............ $ (.18) $ .03 $ (.43) $ .12
========== ========== =========== ===========
Weighted average common shares
outstanding............................... 4,288,436 4,288,436 4,288,436 4,288,436
========== ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 64
MEDICAL SCIENCE SYSTEMS, INC.
STATEMENTS OF SHAREHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 AND
FOR THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK
----------------------- ACCUMULATED
SHARES AMOUNT DEFICIT TOTAL
--------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Balance, December 31, 1994.................. 3,249,999 $ 3,000 $ (100,714) $ (97,714)
Distribution to shareholders................ (132,000) (132,000)
Net income.................................. 150,012 150,012
--------- ---------- ----------- -----------
Balance, December 31, 1995.................. 3,249,999 3,000 (82,702) (79,702)
Sale of common stock (Note 5)............... 40,540 150,000 150,000
Common stock issued for services rendered... 5,000 18,500 18,500
Net loss.................................... (788,546) (788,546)
--------- ---------- ----------- -----------
Balance, December 31, 1996.................. 3,295,539 171,500 (871,248) (699,748)
Sale of common stock (unaudited) (Note 5)... 148,648 550,000 550,000
Sale of common stock (unaudited) (Note 5)... 185,760 928,800 928,800
Offering costs (unaudited) (Note 5)......... (107,420) (107,420)
Stock options issued for reduction in salary
(unaudited) (Note 7)...................... 148,377 148,377
Net loss (unaudited)........................ (1,833,905) (1,833,905)
--------- ---------- ----------- -----------
Balance, June 30, 1997 (unaudited).......... 3,629,947 $1,691,257 $(2,705,153) $(1,013,896)
========= ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 65
MEDICAL SCIENCE SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 AND
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
--------------------- --------------------------
1996 1995 1997 1996
--------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)..................................... $(788,546) $150,012 $(1,833,905) $ 519,620
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities
Loss on sale of assets............................. 6,934 -- -- --
Depreciation and amortization...................... 27,330 14,118 15,999 12,731
Issuance of common stock for services.............. 18,500 -- -- --
Issuance of stock options in exchange for a
reduction in salary.............................. -- -- 148,377 --
(Increase) decrease in
Accounts receivable................................ 315,241 (324,376) (28,075) 326,270
Prepaid expenses................................... -- 900 -- (6,329)
Increase (decrease) in
Accounts payable................................... 198,090 (69,143) 226,809 47,785
Accrued expenses................................... 140,323 (25,497) 76,829 2,400
Unearned revenues.................................. (366,051) 366,051 -- (366,051)
Deferred rent...................................... 12,703 -- -- --
--------- --------- ----------- ---------
Net cash provided by (used in) operating activities..... (435,476) 112,065 (1,393,966) 536,426
--------- --------- ----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of furniture and equipment................... (31,942) (35,743) (25,023) (3,473)
(Increase) decrease in due from shareholder........... (6,565) 394 6,565 --
Increase in patents................................... (128,559) (25,636) (67,005) (37,500)
Proceeds from sale of assets.......................... 13,000 -- -- --
--------- --------- ----------- ---------
Net cash used in investing activities................... (154,066) (60,985) (85,463) (40,973)
--------- --------- ----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Sale of common stock.................................. $ 150,000 $ -- $ 1,371,380 $ --
Increase in deferred offering costs................... -- -- (31,081) --
Distribution to shareholders.......................... -- (132,000) -- --
Proceeds from note payable............................ 250,000 -- -- 250,000
Principal payments on long-term debt.................. (31,713) -- (18,654) (11,070)
Borrowings on line of credit, net..................... 209,723 144,000 146,277 (144,000)
Principal payments on capital lease obligations....... (5,120) -- (14,477) (784)
--------- -------- ----------- -----------
Net cash provided by financing activities............... 572,890 12,000 1,453,445 94,146
--------- -------- ----------- -----------
Net increase (decrease) in cash......................... (16,652) 63,080 (25,984) 589,599
Cash and cash equivalents, beginning of period.......... 72,618 9,538 55,966 72,618
--------- -------- ----------- -----------
Cash and cash equivalents, end of period................ $ 55,966 $ 72,618 $ 29,982 $ 662,217
========= ======== ========== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid......................................... $ 29,549 $ 14,300 $ 30,690 $ 8,236
========= ======== ========== =========
Income taxes paid..................................... $ 6,040 $ 2,755 $ -- $ --
========= ======== ========== =========
</TABLE>
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
During the year ended December 31, 1996 and the six months ended June 30,
1996, the Company acquired furniture and equipment of $40,564 and $14,266
(unaudited) under capitalized lease obligations.
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 66
MEDICAL SCIENCE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 AND
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED)
(THE INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED
JUNE 30, 1997 AND 1996 IS UNAUDITED.)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Line of Business
Medical Science Systems, Inc., a Texas corporation, (the "Company")
originally operated under two separate corporations, known as Oral Science
Systems and Oral Science Technologies. In 1995 Oral Science Systems was merged
into Oral Science Technologies and Oral Science Technologies was renamed Medical
Science Systems, Inc. The merger was accounted for in a manner similar to a
pooling of interest, accordingly, the results of operations for the year ended
December 31, 1995 include Oral Science Systems from January 1, 1995 to the date
of the merger.
The Company is currently developing a line of genetic susceptibility tests
and therapeutic targets for common diseases. As of December 31, 1996, the
Company has commercially introduced one such product and is in various stages of
development for several others. The Company also provides clinical trials and
research services under contract to pharmaceutical companies, and such services
generated substantially all of the Company's revenues for the years ended
December 31, 1996 and 1995.
Interim Financial Information
The unaudited financial information furnished herein reflects all
adjustments, consisting only of normal recurring adjustments, which in the
opinion of management, are necessary to fairly state the Company's financial
position, the results of its operations, and cash flows for the periods present.
The results of operations for the six months ended June 30, 1997 are not
necessarily indicative of results for the entire fiscal year ending December 31,
1997.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements, as well as the reported amounts of revenues and expenses during the
reported periods. Actual results could differ from those estimates.
Fair Value of Financial Instruments
The Company measures its financial assets and liabilities in accordance
with generally accepted accounting principles. For certain of the Company's
financial instruments including cash, accounts receivable, accounts payable,
accrued expenses, and accrued officer compensation, the carrying amounts
approximate fair value due to their short maturities. The amounts shown for line
of credit, long-term debt, and capital lease obligations also approximate fair
value because current interest rates and terms offered to the Company for
similar debt and lease agreements are substantially the same.
F-7
<PAGE> 67
MEDICAL SCIENCE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 AND
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED)
(THE INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED
JUNE 30, 1997 AND 1996 IS UNAUDITED.)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Furniture and Equipment
Furniture and equipment, including equipment under capital leases, are
stated at cost, less accumulated depreciation and amortization. Depreciation and
amortization are provided using the straight-line method over the estimated
useful lives of three to five years as follows:
<TABLE>
<S> <C>
Computer equipment.................................. 3 years
Furniture and fixtures.............................. 5 years
Computer software................................... 3 years
Equipment under capital leases...................... 3 years
</TABLE>
Betterments, renewals, and extraordinary repairs that extend the life of
the asset are capitalized; other repairs and maintenance charges are expensed as
incurred. The cost and related accumulated depreciation applicable to assets
retired are removed from the accounts, and the gain or loss on disposition is
recognized in the statement of operations.
Patents
The cost of acquiring patents is being amortized using the straight-line
method of their useful lives of ten years beginning from the time the patents
are awarded. The Company was issued a patent in August 1997 and currently has
ten patents pending; accordingly, the Company had not recognized any
amortization related to these patents as of June 30, 1997.
Deferred Offering Costs
Amounts paid for costs associated with an anticipated initial public
offering ("IPO") are capitalized and will be recorded as a reduction to common
stock upon the completion of the IPO. In the event that the IPO is not
successful, the deferred offering costs will be charged to expense.
Revenue Recognition
Contract revenues are recognized ratably as services are provided based on
a fixed contract price or on negotiated hourly rates. The Company has no
unbilled accounts receivable under any contracts at December 31, 1996 and June
30, 1997 (unaudited). Provision for anticipated losses on fixed-price contracts
is made in the period such losses are identified. Revenue from genetic
susceptibility tests is recognized when the tests have been completed and the
results reported to the doctors.
Concentrations of Credit Risk
The Company sells products and provides contract services for customers
primarily in the United States and extends credit based on an evaluation of the
customer's financial condition, generally without requiring collateral. Exposure
to losses on receivables is principally dependent on each customer's financial
condition. The Company monitors its exposure for credit losses and maintains
allowances for anticipated losses.
During the year ended December 31, 1996, the Company did business with
three customers whose sales comprised approximately 99% of revenues. Amounts due
from these customers represented 100% of accounts receivable at December 31,
1996.
F-8
<PAGE> 68
MEDICAL SCIENCE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 AND
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED)
(THE INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED
JUNE 30, 1997 AND 1996 IS UNAUDITED.)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
During the year ended December 31, 1995, the Company did business with two
customers whose sales comprised approximately 85% of revenues.
During the six months ended June 30, 1996, the Company did business with
three customers whose sales comprised approximately 100% of revenues.
Research and Development
Research and development costs related to the development of new products
are expensed as incurred.
Income Taxes
Prior to September 30, 1996, the Company had elected to be treated as an
"S" corporation for federal and state tax purposes. Effective September 30,
1996, the Company terminated such election and became taxable as a "C"
corporation. The Company will not realize any future tax benefits of net
operating losses incurred prior to September 30, 1996.
The Company accounts for income taxes under the liability method required
by Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for
Income Taxes." Deferred tax assets and liabilities reflect the expected future
tax consequences of events that have been included in the financial statements
and tax returns. Deferred tax assets and liabilities are determined based upon
the difference between the financial statement and tax bases of assets and
liabilities, using the enacted tax rates in effect for the year in which the
differences are expected to reverse. The Company has not recorded any deferred
tax assets related to operating loss carryforwards generated subsequent to
September 30, 1996 due to the uncertainty of the Company's ability to ultimately
recognize the benefits of such carryforwards.
Net Income (Loss) Per Share
Net income (loss) per share is based on the weighted average number of
common and common equivalent shares outstanding during the period. In connection
with the Company's IPO, common stock issued for consideration below the IPO per
share price (assuming an IPO price of $9.00) during the twelve months before the
filing of the registration statement, plus options and warrants to purchase the
Company's common stock issued for consideration below the IPO per share price
during the same period (using the treasury stock method), have been included in
the calculation of common shares outstanding as if they had been outstanding for
all periods presented.
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considers all
highly-liquid investments purchased with original maturities of three months or
less to be cash equivalents.
Risks and Uncertainties
Commercial success of genetic susceptibility tests will depend upon their
acceptance as medically useful and cost-effective by patients, physicians,
dentists, other members of the medical and dental community, and third-party
payers. The Company plans to expend substantial financial resources to promote
the benefits of
F-9
<PAGE> 69
MEDICAL SCIENCE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 AND
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED)
(THE INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED
JUNE 30, 1997 AND 1996 IS UNAUDITED.)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
the Company's susceptibility tests. It is uncertain whether current genetic
susceptibility tests or others that the Company may develop will gain acceptance
on a timely basis.
Research in the field of disease predisposing genes and genetic markers is
intense and highly competitive. The Company has many competitors in the United
States and abroad which have considerably greater financial, technical,
marketing, and other resources available. If the Company does not discover
disease predisposing genes or genetic markers and develop susceptibility tests
and launch such services or products before their competitors, then sales and
earnings will be reduced or eliminated.
The Company's ability to successfully commercialize genetic susceptibility
tests depends on obtaining adequate reimbursement for such products and related
treatment from government and private health care insurers and other third-party
payers. Doctors' decisions to recommend genetic susceptibility tests will be
influenced by the scope and reimbursement for such tests by third-party payors.
If both third-party payors and individuals are unwilling to pay for the test,
then the number of tests performed will significantly decrease, therefore
resulting in a reduction of revenues.
The Company entered into an agreement with Sheffield University, whereby
the Company will undertake the development and commercialization of any
discoveries resulting from Sheffield University's research. The agreement may be
terminated with or without cause by either party upon six months notice. If
Sheffield University terminated the agreement, such termination could make the
discovery and commercial introduction of new products more difficult or
unlikely.
Recently Issued Accounting Pronouncement
The Financial Accounting Standards Board ("FASB") issued SFAS No. 128,
"Earnings Per Share," which is effective for financial statements issued for
periods ending after December 15, 1997, including interim periods. SFAS No. 128
requires public companies to present basic earnings per share and, if
applicable, diluted earnings per share instead of primary and fully-diluted
earnings per share. The Company does not believe that diluted earnings per share
in accordance with SFAS No. 128 will be materially different from the earnings
per share previously reported.
SFAS No. 129, "Disclosure of Information about Capital Structures," issued
by FASB is effective for financial statements ending after December 15, 1997.
The new standard reinstates various securities disclosure requirements
previously in effect under Accounting Principles Board ("APB") Opinion No. 15,
"Computing Earnings per Share," which has been superseded by SFAS No. 128. The
Company does not expect adoption of SFAS No. 129 to have a material effect, if
any, on its financial position or results of operations.
SFAS No. 130, "Reporting Comprehensive Income," issued by FASB is effective
for financial statements with fiscal years beginning after December 15, 1997.
SFAS No. 130 establishes standards for reporting and display of comprehensive
income and its components in a full set of general-purpose financial statements.
The Company does not expect adoption of SFAS No. 130 to have a material effect,
if any, on its financial position or results of operations.
F-10
<PAGE> 70
MEDICAL SCIENCE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 AND
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED)
(THE INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED
JUNE 30, 1997 AND 1996 IS UNAUDITED.)
NOTE 2 -- FURNITURE AND EQUIPMENT
Furniture and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
Computer equipment.................................. $113,470 $ 128,994
Furniture and fixtures.............................. 9,053 13,993
Computer software................................... 20,531 25,090
Equipment under capitalized leases.................. 40,564 40,564
-------- --------
183,618 208,641
Less accumulated depreciation and amortization...... 100,741 116,740
-------- --------
Total..................................... $ 82,877 $ 91,901
======== ========
</TABLE>
NOTE 3 -- NOTES PAYABLE AND REVOLVING LINE OF CREDIT WITH BANK
In March 1996, the Company entered into a revolving line of credit
agreement with a bank to borrow up to $250,000, and a note payable of $250,000,
for working capital purposes and to repay the outstanding borrowings under
certain promissory notes. In October 1996, the line of credit was increased to
provide for total borrowings of up to $500,000. The line of credit originally
matured in March 1997 and was extended to June 1997 at which time all
outstanding principal was converted into a five-year note payable, payable in
sixty monthly installments of $8,334 (unaudited) plus interest. The line of
credit bore interest at the bank's prime rate plus 1.75% (effectively 10% at
December 31, 1996) which was payable monthly in arrears. At December 31, 1996,
the Company had outstanding borrowings of $353,723 under the revolving line of
credit and at June 30, 1997 had outstanding borrowings of $699,633 (unaudited)
under the notes payable.
The $250,000 note payable matures in March 2001 and requires monthly
payments of principal and interest of $5,222. The $250,000 note payable bears
interest at a fixed rate of 9.125% per annum. Required principal payments under
the $250,000 note payable are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
--------------------------------------------------
<S> <C>
1997............................................ $ 44,489
1998............................................ 48,724
1999............................................ 53,361
2000............................................ 58,439
2001............................................ 13,274
--------
218,287
Less current portion.............................. 44,489
--------
Long-term portion............................ $ 173,798
========
</TABLE>
Both the notes payable and the revolving line of credit are secured by
substantially all of the Company's assets and accounts receivable. In addition,
three of the Company's officers have personally guaranteed the Company's
obligations under the notes payable and the revolving line of credit. The
agreements also include certain covenants which restrict, among other things,
the occurrence of new indebtedness.
F-11
<PAGE> 71
MEDICAL SCIENCE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 AND
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED)
(THE INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED
JUNE 30, 1997 AND 1996 IS UNAUDITED.)
NOTE 4 -- INCOME TAXES
Prior to September 30, 1996, the Company elected to be taxed as an "S"
corporation for federal and state income tax purposes; the Company's income or
loss for such periods was allocated among its shareholders. Consequently, the
Company has not recorded any tax provision for any period prior to such date.
Effective September 30, 1996, the Company terminated such election and became
taxable as a "C" corporation.
The Company has not recorded a current or deferred provision for federal
income taxes for the period from October 1, 1996 to December 31, 1996 due to
losses incurred during that period. The provision for income taxes represents
the minimum required for state franchise taxes. To reconcile from the federal
statutory tax rate of 34% to the Company's effective tax rate of approximately
1%, the deferred tax asset valuation reserve is deducted. At December 31, 1996,
the Company had net operating loss carryforwards of approximately $590,000 and
$295,000 for federal and state income tax purposes, respectively, expiring in
varying amounts through the year 2012, which are available to offset future
federal and state taxable income. The Company also had a research tax credit of
$14,400 at December 31, 1996 that expires in 2012. The ability of the Company to
utilize the federal and state net operating loss carryforwards may be subject to
annual limitations under certain provisions of the Internal Revenue Code as a
result of the private placements of common stock and issuance of stock options.
Deferred tax assets (liabilities) consisted of the following:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996
------------
<S> <C>
Deferred tax assets Net operating loss carryforwards............ $219,900
Research tax credit carryforwards............................. 14,400
Accrual to cash adjustments................................... 82,900
Accrued payroll related costs................................. 71,800
--------
Total deferred tax assets............................. 389,000
Valuation allowance for deferred tax assets..................... 327,300
--------
61,700
Deferred tax liabilities Patents................................ 61,700
--------
Net deferred tax assets............................... $ --
========
</TABLE>
The valuation allowance increased by $276,900 from September 30, 1996 (the
date the Company elected to be taxed as a "C" corporation) to December 31, 1996.
NOTE 5 -- CAPITAL STOCK
Stock Split
In June 1996, the Company's shareholders approved a 1,083.333 for 1 stock
split which was completed in July 1996. All references in the financial
statements to numbers of common shares and per common share amounts have been
restated to reflect the stock split. All disclosures related to sales of common
stock, warrants, employee stock plans, and other common stock transactions for
all periods presented have also been restated to reflect the stock split.
F-12
<PAGE> 72
MEDICAL SCIENCE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 AND
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED)
(THE INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED
JUNE 30, 1997 AND 1996 IS UNAUDITED.)
NOTE 5 -- CAPITAL STOCK (CONTINUED)
Private Placements of Common Stock
In September 1996, the Company's Board of Directors authorized the private
offering of shares of the Company's common stock at $3.70 per share up to an
aggregate of $5,250,000. For the year ended December 31, 1996 and the six months
ended June 30, 1997, the Company sold 40,540 and 148,648 (unaudited) shares,
respectively, of its common stock in private placement transactions at a price
of $3.70 per share. The gross proceeds of the sale were approximately $150,000
and $550,000 (unaudited), respectively.
During the six months ended June 30, 1997, the Company sold 185,760
(unaudited) shares of the Company's common stock at $5.00 (unaudited) per share
in a private placement. Gross proceeds from the sale were $928,800 (unaudited).
NOTE 6 -- EMPLOYEE BENEFIT PLAN
In 1988, the Company adopted a profit sharing plan covering substantially
all of its employees. Under the profit sharing plan, the Company may, at the
discretion of the Board of Directors, contribute a portion of the Company's
current or accumulated earnings. Company contributions, if any, are credited to
participant accounts and are immediately vested. During the years ended December
31, 1996 and 1995 and the six months ended June 30, 1997 (unaudited) and 1996
(unaudited), no contributions were made to the profit sharing plan.
NOTE 7 -- STOCK OPTION PLAN
In June 1996, the Company's shareholders approved the adoption of the
Medical Science Systems, Inc. 1996 Equity Incentive Plan (the "Plan"). The Plan
provides for the award of nonqualified and incentive stock options, restricted
stock, and stock bonuses to employees, directors, officers, and consultants of
the Company. The Plan provides for the grant of nonqualified and incentive stock
options to all directors, officers, and employees of the Company. A total of
1,000,000 shares of the Company's common stock have been reserved for award
under the amended Plan.
Nonqualified and incentive stock options are granted at exercise prices
equal to the fair market value of the common stock on the date of grant.
One-sixth of the options are generally available for exercise at the end of six
months which the remainder of the grant is exercisable ratably over the next
thirty-month period provided the optionee remains in service to the Company. The
Company may also award share appreciation rights ("SARs") either in tandem with
stock options or independently. At December 31, 1996 and June 30, 1997
(unaudited), no SARs has been awarded under the Plan.
The Company has adopted only the disclosure provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." It applies Accounting Principles
Bulletin ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and
related Interpretations in accounting for its plans and does not recognize
compensation expense for its stock-based compensation plans other than for
restricted stock and options issued to outside third parties. If the Company had
elected to recognize compensation expense based upon the fair value at the grant
date for awards under this plan consistent with the methodology prescribed by
F-13
<PAGE> 73
MEDICAL SCIENCE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 AND
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED)
(THE INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED
JUNE 30, 1997 AND 1996 IS UNAUDITED.)
NOTE 7 -- STOCK OPTION PLAN (CONTINUED)
SFAS 123, the Company's net loss and loss per share would be reduced to the pro
forma amounts indicated below:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996
------------
<S> <C>
Net loss
As reported................................... $ (788,546)
Pro forma..................................... $ (894,437)
Loss per common share
As reported................................... $ (0.18)
Pro forma..................................... $ (0.21)
</TABLE>
The fair value of these options was estimated at the date of grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions for the years ended December 31, 1996: dividend yields of 0%;
expected volatility of 70%; risk-free interest rates of 6.0%; and expected life
of 3 years. The weighted average fair value of options granted during the year
ended December 31, 1996 was $1.87, and the weighted average exercise price was
$3.70.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NUMBER GRANTED PRICE
OF SHARES PER SHARE
--------- ----------------
<S> <C> <C>
Outstanding, December 31, 1995..................... -- $ --
Granted.......................................... 142,500 $ 3.70
Exercised........................................ -- $ --
Canceled......................................... -- $ --
-------
Outstanding, December 31, 1996..................... 142,500 $ 3.70
Granted (unaudited).............................. 658,079 $ 4.52
Exercised (unaudited)............................ -- $ --
Canceled (unaudited)............................. -- $ --
-------
Outstanding, June 30, 1997 (unaudited)............. 800,579 $ 4.37
=======
</TABLE>
The weighted average remaining contractual life of options outstanding
issued under the Plan is ten years at December 31, 1996.
The Plan also provides for the award of restricted stock to eligible
persons. Such awards may be at prices not less than 85% of the fair market value
of the Company's common stock as determined by the Board of Directors. In
addition, stock bonuses may be awarded to certain employees or officers of the
Company at the
F-14
<PAGE> 74
MEDICAL SCIENCE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 AND
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED)
(THE INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED
JUNE 30, 1997 AND 1996 IS UNAUDITED.)
NOTE 7 -- STOCK OPTION PLAN (CONTINUED)
discretion of the Board of Directors. In September 1996, the Company's Board of
Directors issued a stock bonus of 5,000 shares to a consultant of the Company.
The estimated fair value of such shares at the date of the award was charged to
expanse in 1996. As of June 30, 1997, the Company has not awarded any restricted
stock awards.
In May 1997, the Company offered to its employees the opportunity to
receive stock options to acquire shares of the Company's common stock at $5.00
to $5.50 per share in an exchange for a reduction of salary. Employees elected
to reduce their salaries up to 50% for the period from May 1997 to October 1997
in exchange for 600 stock options for each $1,000 of salary reduction. As a
result the Company issued 267,079 stock options in exchange for salary
reductions of $445,132. The Company will record an expense relating to the
issuance of these stock option in the amount of $74,189 per month for each of
the six months from May 1997 to October 1997.
NOTE 8 -- COMMITMENTS AND CONTINGENCIES
The Company leases its office space under non-cancelable operating leases
expiring through April 2001. The Company also leases certain office furniture
and equipment under capitalized lease obligations. Future minimum rental
commitments under lease agreements with initial or remaining terms of one year
or more at December 31, 1996 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING OPERATING CAPITAL
DECEMBER 31, LEASES LEASES
------------------------------------------------------ -------- -------
<S> <C> <C>
1997................................................ $ 86,316 $11,376
1998................................................ 151,116 11,376
1999................................................ 151,116 11,376
2000................................................ 129,516 8,121
2001................................................ 9,440 891
-------- -------
$527,504 43,140
========
Less amount representing interest..................... 7,696
-------
35,444
Less current portion.................................. 8,408
-------
Long-term portion................................ $27,036
=======
</TABLE>
Included in furniture and equipment are capitalized leased equipment of
$40,564 and $40,564 (unaudited) with accumulated depreciation of $7,615 and
$14,376 (unaudited) at December 31, 1996 and June 30, 1997, respectively.
Rent expense was $59,594 and $30,943 for the years ended December 31, 1996
and 1995, respectively, and $50,004 (unaudited) and $23,531 (unaudited) for the
six months ended June 30, 1997 and 1996, respectively.
Employment Agreements
The Company entered into employment agreements with certain key employees
of the Company which range from one to five years.
F-15
<PAGE> 75
MEDICAL SCIENCE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 AND
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED)
(THE INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED
JUNE 30, 1997 AND 1996 IS UNAUDITED.)
NOTE 8 -- COMMITMENTS AND CONTINGENCIES (CONTINUED)
Sheffield University Master Agreement
In July 1996, the Company entered into a ten-year, exclusive agreement with
Sheffield University, whereby the Company will take the lead in the development
and commercialization of any discoveries resulting from Sheffield University's
research. The proceeds distributed to Sheffield University from the sale or
license of products or technologies developed or commercialized under this
agreement will be determined on a case-by-case basis.
Either party may terminate the agreement with no less than six-months
notice.
NOTE 9 -- RELATED PARTIES
During 1996, three officers of the Company agreed to defer a portion of
their salaries totaling $127,500. The Company intends to pay such amounts of
deferred compensation in 1997, and accordingly, they are presented as current
liabilities in the accompanying balance sheet as of December 31, 1996.
Unaudited
During the six months ended June 30, 1997, the Company paid a portion of
the deferred salaries; therefore, as of June 30, 1997, the remaining balance was
$75,000.
NOTE 10 -- SUBSEQUENT EVENTS (UNAUDITED)
In July and August, 1997, the Company sold 108,060 shares of common stock
at $5.00 per share in a private placement for a total consideration of $540,300.
From August 1, 1997 through October 6, 1997, the Company entered into
several subscription agreements to sell subordinated Promissory Notes ("Notes").
In addition, the Company granted one warrant to purchase common stock at an
exercise price of $5.50 per share for each $5.00 loaned. The Company issued
Notes in the amount of $1,780,000 and issued 356,545 warrants to purchase the
Company's common stock. The Notes accrue interest at 10% per annum, and all
unpaid principal and interest are due the earlier of fourteen months from the
date of issuance or the sale of equity securities which results in gross
proceeds in excess of $6,000,000. The warrants expire the earlier of five years
from the date of issuance or upon the occurrence of the Company's common stock
traded on a national or regional stock exchange and the closing price of the
common stock equals or exceeds $12.00 per share for thirty consecutive trading
days. In connection with the issuance of such warrants, the Company will
recognize additional financing costs of $356,545 over the fourteen month term of
the Notes with the unamortized portion at the closing of the Company's IPO being
expensed immediately as an extraordinary loss on the extinguishment of debt.
F-16
<PAGE> 76
======================================================
No dealer, salesman or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus in connection with the offer made by this Prospectus, and, if given
or made, such information or representations must not be relied upon as having
been authorized by the Company or any of the Underwriters. This Prospectus does
not constitute an offer to sell or the solicitation of any offer to buy any
security other than the shares of Common Stock offered by this Prospectus, nor
does it constitute an offer to sell or a solicitation of any offer to buy the
shares of Common Stock by anyone in any jurisdiction in which such offer or
solicitation is not authorized, or in which the person making such offer or
solicitation is not qualified to do so, or to any person to whom it is unlawful
to make such offer or solicitation. Neither the delivery of this Prospectus nor
any sale made hereunder shall, under any circumstances, create any implication
that information contained herein is correct as of any time subsequent to the
date hereof.
------------------------
TABLE OF CONTENTS
PROSPECTUS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary............................... 1
Risk Factors.......................... 7
The Company........................... 15
Use of Proceeds....................... 16
Dividend Policy....................... 17
Capitalization........................ 18
Dilution.............................. 19
Selected Financial Data............... 20
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 21
Business.............................. 23
Management............................ 43
Certain Relationships and Related
Party Transactions.................. 48
Principal Shareholders................ 50
Description of Securities............. 51
Shares Eligible for Future Sale....... 52
Underwriting.......................... 54
Legal Matters......................... 55
Experts............................... 55
Additional Information................ 55
Index to Financial Statements......... F-1
</TABLE>
UNTIL , 199 , ALL DEALERS THAT BUY, SELL OR TRADE THESE SECURITIES,
WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
======================================================
======================================================
INITIAL PUBLIC OFFERING
OCTOBER , 1997
[MEDICAL SCIENCE LOGO]
1,500,000 SHARES
COMMON STOCK
$8 TO $9 PER SHARE
NASDAQ/AMEX:
------------------------
PROSPECTUS
------------------------
UNDERWRITERS:
NUTMEG SECURITIES, INC.
495 POST ROAD EAST
WESTPORT, CT 06880
(203) 226-1857
======================================================
<PAGE> 77
PART II -- INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Our company's Amended and Restated Articles of Incorporation eliminates the
liability of directors for monetary damages for an act or omission in the
director's capacity as a director, except for: (1) a breach of a director's duty
of loyalty to our company or our shareholders; (2) an act or omission not in
good faith that constitutes a breach of duty of that director to our company or
an act or omission that involves intentional misconduct or a knowing violation
of the law; (3) a transaction from which a director received an improper
benefit, whether or not the benefit resulted from an action taken within the
scope of the director's office; or (4) an act or omission for which the
liability of a director is expressly provided for by an applicable statute.
If the Texas Miscellaneous Corporation Laws Act or the Texas Business
Corporation Act is amended to authorize action further eliminating or limiting
the personal liability of directors, then the liability of a director of our
company shall be eliminated or limited to the fullest extent permitted by such
statutes, as so amended. Any amendment, repeal or modification of such provision
shall be prospective only and shall not adversely affect any right or protection
of a director of our company existing at the time of such amendment, repeal or
modification.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses in connection with this
Registration Statement. All of such expenses are estimates, other than the
filing fees payable to the Securities and Exchange Commission.
<TABLE>
<S> <C>
Filing Fee -- Securities and Exchange Commission................ $ 5,257.00
Exchange Listing Fee............................................ 35,000.00
Fees and Expenses of Accountants................................ 45,000.00
Fees and Expenses of Counsel.................................... 120,000.00
Printing and Engraving Expenses................................. 75,000.00
Blue Sky Fees and Expenses...................................... 20,000.00
Transfer Agent Fees............................................. 4,000.00
Miscellaneous Expenses.......................................... 50,743.00
-----------
Total................................................. $ 355,000.00
===========
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
1. Between November 1996 and January 1997, we sold 189,188 shares of our
Common Stock to seven (7) investors in a private placement at a price of $3.70
per share. No commissions or finder's fees were paid.
2. Between March 1997 and September 1997, we sold 292,060 shares of our
Common Stock to forty-six (46) investors in a second private placement
transaction at a price of $5.00 per share. We issued 1,760 shares of our Common
Stock as a finder's fee with respect to such private placement.
3. From December 1996 through May 1997, our company has issued a total of
800,579 incentive and non-qualifying stock options to thirty-seven (37)
employees and consultants under our 1996 Equity Incentive Plan. Of the total
issued, 533,500 were issued in exchange for services rendered to our company.
These options generally vest over thirty-six months and have a per share
exercise price from $3.70 to $5.00. The balance of the options (267,079) were
issued in May 1997. In order to reduce our overhead and as an additional
incentive to our employees, we instituted a voluntary salary reduction plan
where our employees could choose to receive stock options instead of salary.
Employees were offered options to purchase 600 shares of Common Stock for every
$1,000 their salary was reduced. Most of our employees participated, including
all of our officers. A total of 267,079 options to purchase Common Stock at an
exercise price of $5.00 or $5.50 per share were issued. These options vested
immediately.
4. From August 1, 1997 through October 6, 1997, we borrowed an aggregate of
$1,780,000 from twenty-eight (28) lenders evidenced by promissory notes bearing
interest at 10% interest rate and due the earlier of
II-1
<PAGE> 78
fourteen months from the date of the notes or the closing date of an initial
public offering (the "Bridge Loans"). As additional consideration for the Bridge
Loans, we issued one warrant for each $5.00 loaned to the Company for a total of
356,000 warrants (the "Bridge Warrants"). Each Bridge Warrant entitles the
holder to purchase one share of Common Stock at $5.50 per share for a period of
five years from the date of issuance. An additional 545 Bridge Warrants were
issued as a finder's fee. The following officers and directors subscribed to the
Bridge Loans in the principal amount indicated after their names: Paul J. White
($100,000/20,000 Bridge Warrants); Kenneth S. Kornman ($100,000/20,000 Bridge
Warrants); Michael G. Newman ($100,000/20,000 Bridge Warrants); U. Spencer Allen
($50,000/10,000 Bridge Warrants); Jeanne Ambruster ($50,000/10,000 Bridge
Warrants); and Thomas A. Moore ($75,000/15,000 Bridge Warrants). The other
twenty-one investors were outside private parties. Other than the 545 Bridge
Warrants referenced above, no commissions or finder's fees were paid by the
Company.
No underwriter was involved in any of the above issuances of securities.
All of the above securities were issued in reliance upon the exemptions set
forth in Section 4(2) of the Securities Act (including, in certain instances
Regulation D promulgated thereunder) on the basis that they were issued under
circumstances not involving a public offering, or, in the case of certain
options and warrants to purchase Common Stock, Rule 701 of the Securities Act.
ITEM 27. EXHIBITS.
<TABLE>
<S> <C>
1.1 Form of Underwriting Agreement.
1.2 Form of Agreement Among Underwriters.
1.3 Form of Selected Dealers Agreement.
3.1 Amended and Restated Articles of Incorporation.
3.2 Articles of Amendment to the Amended and Restated Articles of Incorporation.
3.3 Amended and Restated Bylaws of the Company.
3.4 Amendment to the Amended and Restated Bylaws.
4.1 Form of Stock Certificate [to be filed by amendment].
4.2 Form of Underwriter's Warrant.
4.3 Form of Subordinated Promissory Note.
4.4 Form of Security Agreement.
4.5 Form of Warrant Agreement.
4.6 Form of Warrant Certificate.
4.7 $500,000 Term Loan with Bank of America.
4.8 $250,000 Term Loan with Bank of America.
5.1 Opinion of Jeffers, Wilson, Shaff & Falk, LLP [to be filed by amendment].
10.1 Master Agreement for Technology Evaluation, Sheffield University.*
10.2 Research Support Agreement and Amendments to Various Existing Project
Agreements, Sheffield University.*
10.3 Development and Commercialization Project Agreement (Atherosclerosis including
Coronary Artery Disease), Sheffield University.*
10.4 Development and Commercialization Project Agreement (Eye Disease Among
Diabetics), Sheffield University.*
10.5 Development and Commercialization Project Agreement (Osteoporosis), Sheffield
University.*
10.6 Joint Project Agreement Between Gordon Duff and Medical Science Systems, Inc.
Governing the Periodontal Susceptibility Test. *
10.7 Employment Agreement with Paul J. White.
10.8 Amendment of Employment Agreement with Paul J. White.
10.9 Employment Agreement with Kenneth S. Kornman.
10.10 Amendment of Employment Agreement with Kenneth S. Kornman.
10.11 Employment Agreement with Michael G. Newman.
</TABLE>
II-2
<PAGE> 79
<TABLE>
<S> <C>
10.12 Amendment of Employment Agreement with Michael G. Newman.
10.13 Service Agreement Relating to Laboratory Services with Baylor University. *
10.14 Lease Agreement dated March 21, 1996 between Koll Center Newport Number 9 and
Company.
10.15 Lease Agreement dated March 31, 1997 between Jim Jamison and Richard Henderson
and Company.
10.16 Lease Agreement dated October 23, 1995 between Diamond Shamrock Leasing, Inc.
and Company.
10.17 1996 Equity Incentive Plan.
10.18 Amendment to the 1996 Equity Incentive Plan.
10.19 Form of Stock Option Agreement.
10.20 Stock Option Exercise Agreement.
23.1 Consent of Singer Lewak Greenbaum & Goldstein LLP.
23.2 Consent of Counsel (previously filed under Exhibit 5.1).
24.1 Power of Attorney (included in signature page).
27.1 Financial Data Schedule.
</TABLE>
- ---------------
* Confidential treatment requested.
ITEM 28. UNDERTAKINGS.
The undersigned small business issuer hereby undertakes:
(1) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors, officers
and controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in
the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, we will, unless in the opinion of our counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
(2) The undersigned registrant hereby undertakes that:
(i) For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed
as part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed
to be part of this registration statement as of the time it was declared
effective.
(ii) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a
form of prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
II-3
<PAGE> 80
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that is has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of Newport
Beach, State of California, on October 8, 1997.
MEDICAL SCIENCE SYSTEMS, INC.
By: /s/ PAUL J. WHITE
------------------------------------
Paul J. White,
President and Chief Executive
Officer
POWER OF ATTORNEY
We, the undersigned directors and officers of Medical Science Systems, Inc.
do hereby constitute and appoint Paul J. White and U. Spencer Allen, or either
of them, acting individually, our true and lawful attorneys and agents, to do
any and all acts and things in our name and behalf in our capacities as
directors and officers and to execute any and all instruments for us and in our
names in the capacities indicated below, which said attorneys and agents, or any
one of them, may deem necessary or advisable to enable said corporation to
comply with the Securities Act of 1933, as amended, and any rules, regulations,
and requirements of the Securities and Exchange Commission, in connection with
this Registration Statement, including specifically, but without limitation,
power and authority to sign for us or any of us in our names and in the
capacities indicated below, any and all amendments (including post-effective
amendments) hereof; and we do hereby ratify and confirm all that the said
attorneys and agents, or any of them, shall do or cause to be done by virtue
hereof.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement was signed by the following persons in the capacities and
on the dates stated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- --------------------------------------------- ---------------------------- -----------------
<S> <C> <C>
/s/ PAUL J. WHITE President, Chief Executive October 8, 1997
- --------------------------------------------- Officer and Director
Paul J. White
/s/ U. SPENCER ALLEN Chief Financial Officer October 8, 1997
- --------------------------------------------- and Treasurer
U. Spencer Allen
/s/ KENNETH S. KORNMAN Chief Scientific Officer October 8, 1997
- --------------------------------------------- and Director
Kenneth S. Kornman
/s/ MICHAEL G. NEWMAN Executive Vice President, October 8, 1997
- --------------------------------------------- Secretary and Director
Michael G. Newman
/s/ THOMAS A. MOORE Director October 8, 1997
- ---------------------------------------------
Thomas A. Moore
</TABLE>
II-4
<PAGE> 81
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ ------------------------------------------------------------------------------
<S> <C>
1.1 Form of Underwriting Agreement.
1.2 Form of Agreement Among Underwriters.
1.3 Form of Selected Dealers Agreement.
3.1 Amended and Restated Articles of Incorporation.
3.2 Articles of Amendment to the Amended and Restated Articles of Incorporation.
3.3 Amended and Restated Bylaws of the Company.
3.4 Amendment to the Amended and Restated Bylaws.
Form of Stock Certificate [to be filed by amendment].
4.2 Form of Underwriter's Warrant.
4.3 Form of Subordinated Promissory Note.
4.4 Form of Security Agreement.
4.5 Form of Warrant Agreement.
4.6 Form of Warrant Certificate.
4.7 $500,000 Term Loan with Bank of America.
4.8 $250,000 Term Loan with Bank of America.
Opinion of Jeffers, Wilson, Shaff & Falk, LLP [to be filed by amendment].
10.1 Master Agreement for Technology Evaluation, Sheffield University. *
10.2 Research Support Agreement and Amendments to Various Existing Project
Agreements, Sheffield University. *
10.3 Development and Commercialization Project Agreement (Atherosclerosis including
Coronary Artery Disease), Sheffield University. *
10.4 Development and Commercialization Project Agreement (Eye Disease Among
Diabetics), Sheffield University. *
10.5 Development and Commercialization Project Agreement (Osteoporosis), Sheffield
University. *
10.6 Joint Project Agreement Between Gordon Duff and Medical Science Systems, Inc.
Governing the Periodontal Susceptibility Test. *
10.7 Employment Agreement with Paul J. White.
10.8 Amendment of Employment Agreement with Paul J. White.
10.9 Employment Agreement with Kenneth S. Kornman.
10.10 Amendment of Employment Agreement with Kenneth S. Kornman.
10.11 Employment Agreement with Michael G. Newman.
10.12 Amendment of Employment Agreement with Michael G. Newman.
10.13 Service Agreement Relating to Laboratory Services with Baylor University.*
10.14 Lease Agreement dated March 21, 1996 between Koll Center Newport Number 9 and
Company.
10.15 Lease Agreement dated March 31, 1997 between Jim Jamison and Richard Henderson
and Company.
10.16 Lease Agreement dated October 23, 1995 between Diamond Shamrock Leasing, Inc.
and Company.
10.17 1996 Equity Incentive Plan.
10.18 Amendment to the 1996 Equity Incentive Plan.
10.19 Form of Stock Option Agreement.
10.20 Stock Option Exercise Agreement.
23.1 Consent of Singer Lewak Greenbaum & Goldstein LLP.
27.1 Financial Data Schedule.
</TABLE>
- ---------------
* Confidential treatment requested.
<PAGE> 1
EXHIBIT 1.1
MEDICAL SCIENCE SYSTEMS, INC.
1,500,000 SHARES
OF COMMON STOCK
UNDERWRITING AGREEMENT
, 19
Nutmeg Securities ,Ltd.
495 Post Road East
Westport, CT 06880
DEAR SIRS:
Medical Science Systems, Inc.. a Texas corporation (the "Company"),
proposes to issue and sell to the several Underwriters named in Schedule I
hereto (the "Underwriters"), two million shares of common stock of the Company
(the "Securities"). The Company hereby confirms the agreement made by it with
respect to the purchase of the Securities by the Underwriter, which Securities
are more fully described in the Registration Statement referred to below. Nutmeg
Securities, Ltd. is referred to herein as the "Underwriter" or the
"Representative."
You have advised the Company that the Underwriters desire to act on a firm
commitment basis to publicly offer and sell the Securities for the Company and
that you are authorized to execute this Agreement. The Company confirms the
agreement made by it with respect to the relationship with the Underwriters as
follows:
1. Filing of Registration Statement with S.E.C. and Definitions. A
Registration Statement and Prospectus on Form SB-2 (File No. ) with respect
to the Securities has been carefully and accurately prepared by the Company in
conformity with the requirements of the Securities Act of 1933, as amended (the
"Act"), and the published rules and regulations (the "Rules and Regulations")
thereunder or under the Securities Exchange Act of 1934, as amended (the
"Exchange Act") and has been filed with the Securities and Exchange Commission
(the "Commission") and such other states that the Underwriter deems necessary in
its discretion to so file to permit a public offering and trading thereunder.
Such registration statement, including the prospectus, Part II, and all
financial schedules and exhibits thereto, as amended at the time when it shall
become effective, is herein referred to as the "Registration Statement," and the
prospectus included as part of the Registration Statement on file with the
Commission that discloses all the information that was omitted from the
prospectus on the effective date pursuant to Rule 430A of the Rules and
Regulations with any changes contained in any prospectus filed with the
Commission by the Company with the Underwriters consent after the effective date
of the Registration Statement, is herein referred to as the "Final Prospectus."
The prospectus included as part of the Registration Statement of the Company and
in any amendments thereto prior to the effective date of the Registration
Statement is referred to herein as a "Preliminary Prospectus."
2. Discount, Delivery, and Sale of the Securities
(a) Subject to the terms and conditions of this Agreement, and on the basis
of the representations, warranties, and agreements herein contained, the Company
agrees to sell to, and the Underwriters agree to buy from the Company at a
purchase price of $ per share before any underwriter expense allowances, an
aggregate of 1,500,000 shares of Common Stock, on a firm commitment basis the
"Initial Securities."
It is understood that the Underwriters propose to offer the Securities to
be purchased hereunder to the public upon the terms and conditions set forth in
the Registration Statement, after the Registration Statement becomes effective.
1
<PAGE> 2
(b) Delivery of the Securities against payment of the purchase price
therefor by certified or official bank check or checks or wire transfer in
next-day funds, payable to the order of the Company shall take place at the
offices of the clearing broker for the Underwriter at New York City, within
three (3) business days after the Securities are first traded (or such other
place as may be designated by agreement between you and the Company) at 11:00
A.M., New York time or such time and date as you and the Company may agree upon
in writing, such time and date of payment and delivery for the Securities being
herein called the "Initial Closing Date."
The Company will make the certificates for the shares of Common Stock and
Redeemable Warrants to be purchased by the Underwriters hereunder available to
the Underwriter for inspection and packaging at least two (2) full business days
prior to the Initial Closing Date. The certificates shall be in such names and
denominations as the Underwriter may request to the Company in writing at least
two (2) full business days prior to any Closing Date.
(c) In addition, subject to the terms and conditions of this Agreement and
on the basis of the representations, warranties and agreements herein contained,
the Company grants an option to the Underwriters to purchase up to an additional
225,000 shares of Common Stock ("Option Securities") at the same terms as the
Underwriters shall pay for the Initial Securities being sold by the Company
pursuant to the provisions of Section 2(a) hereof. This option may be exercised
from time to time, for the purpose of covering overallotments, within forty-five
(45) days after (i) the effective date of the Registration Statement if the
Company has elected not to rely on Rule 430A under the Rules and Regulations or
(ii) the date of this Agreement if the Company has elected to rely upon Rule
430A under the Rules and Regulations, upon written notice by the Underwriter
setting forth the number of Option Securities as to which the Underwriter is
exercising the option and the time and date at which such certificates are to be
delivered. Such time and date shall be determined by the Underwriter but shall
not be earlier than four (4) nor later than ten (10) full business days after
the date of the exercise of said option. Nothing herein shall obligate the
Underwriter to make any overallotment.
(d) Definitive certificates in negotiable form for the Securities to be
purchased by the Underwriter hereunder will be delivered at the closing by the
Company to the Underwriters against payment of the purchase price by the
Underwriters by certified or bank cashier's checks or wire transfer in next day
funds payable to the order of the Company.
(e) The information set forth under "Underwriting" in any preliminary
prospectus and Prospectus relating to the Securities and the information set
forth in the last paragraph on the front cover page, under the last paragraph on
page 2 concerning stabilization and over-allotment by the Underwriters, and
(insofar as such information relates to the Underwriters) constitutes the only
information furnished by the Underwriter to the Company for inclusion therein,
and you represent and warrant to the Company that the statements made therein
are correct.
(f) On the Initial Closing Date, the Company shall issue and sell to the
Representative, warrants (the "Representative's Warrants") at a purchase price
of $.001 per Representative's Warrant, which shall entitle the holders thereof
to purchase an aggregate of 150,000 shares of Common Stock. The shares of common
stock issuable upon the exercise of the Representative's Warrants are hereafter
referred to as the "Representative's Securities" or "Representative's Warrants."
The shares of common stock issuable upon exercise of the redeemable warrants are
hereinafter referred to collectively as the "Warrant Shares". The
Representative's Warrants shall be exercisable for a period of four (4) years
commencing one (1) year from the effective date of the Registration Statement at
a price equaling one hundred thirty five percent (135%) of the initial public
offering price of the Securities. The form of Representative's Warrant
Certificate shall be substantially in the form filed as an Exhibit to the
Registration Statement. Payment for the Representative's Warrant shall be made
on the Initial Closing Date.
2
<PAGE> 3
3. Representations and Warranties of the Company.
(a) The Company represents and warrants to you as follows:
(i) The Company has prepared and filed with the Commission a registration
statement, and an amendment or amendments thereto, on Form SB-2 (No. ),
including any related preliminary prospectus ("Preliminary Prospectus"), for the
registration of the Securities, the Representative's Warrant and the Warrant
Shares (sometimes referred to herein collectively as the "Registered
Securities"), under the Act, which registration statement and amendment or
amendments have been prepared by the Company in conformity with the requirements
of the Act, and the Rules and Regulations. The Company will promptly file a
further amendment to said registration statement in the form heretofore
delivered to the Underwriter and will not file any other amendment thereto to
which the Underwriter shall have objected verbally or in writing after having
been furnished with a copy thereof. Except as the context may otherwise require,
such registration statement, as amended, on file with the Commission at the time
the registration statement becomes effective (including the prospectus,
financial statements, any schedules, exhibits and all other documents filed as a
part thereof or that may be incorporated therein (including, but not limited to
those documents or information incorporated by reference therein) and all
information deemed to be a part thereof as of such time pursuant to paragraph
(b) of Rule 430(A) of the Rules and Regulations), is hereinafter called the
"Registration Statement," and the form of prospectus in the form first filed
with the Commission pursuant to Rule 424(b) of the Rules and Regulations, is
hereinafter called the "Prospectus."
(ii) Neither the Commission nor any state regulatory authority has issued
any order preventing or suspending the use of any Prospectus or the Registration
Statement and no proceeding for an order suspending the effectiveness of the
Registration Statement or any of the Company's securities has been instituted or
is pending or threatened. Each such Prospectus and/or any supplement thereto has
conformed in all material respects with the requirements of the Act and the
Rules and Regulations and on its date did not include any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
therein not misleading, in light of the circumstances under which they were made
and (i) the Prospectus and/or any supplement thereto will contain all statements
which are required to be stated therein by the Act and Rules and Regulations,
and (ii) the Prospectus and/or any supplement thereto will not include any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not misleading,
in light of the circumstances under which they were made; provided, however,
that no representations, warranties or agreements are made hereunder as to
information contained in or omitted from the Prospectus in reliance upon, and in
conformity with, the written information furnished to the Company by you as set
forth in Section 2(e) above.
(iii) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the state of its incorporation,
with full power and authority (corporate and other) to own its properties and
conduct its businesses as described in the Prospectus and is duly qualified to
do business as a foreign corporation in good standing in all other jurisdictions
in which the nature of its business or the character or location of its
properties requires such qualification, except where the failure to so qualify
would not have a material adverse effect on the business, properties or
operations of the Company and the subsidiaries as a whole.
(iv) The Company has full legal right, power and authority to authorize,
issue, deliver and sell the Securities, the Option Securities and the
Representative's Securities and to enter into this Agreement, the
Representative's Warrant dated as of the initial closing date to be exercised
and delivered by the Company to the Representative (the "Representative's
Warrant Agreement"), and to consummate the transactions provided for in such
agreements, and each of such agreements has been duly and properly authorized,
and on the Initial Closing Date will be duly and properly executed and delivered
by the Company. This Agreement constitutes and on the Initial Closing Date the
Representative's Warrant Agreement will then constitute valid and binding
agreements, enforceable in accordance with their respective terms (except as the
enforceability thereof may be limited by bankruptcy or other similar laws
affecting the rights of creditors generally or by general equitable principles
and except as the enforcement of indemnification provisions may be limited by
federal or state securities laws).
(v) Except as disclosed in the Prospectus, the Company is not in violation
of its respective certificate or articles of incorporation or bylaws or in
default in the performance or observance of any material obligation, agreement,
covenant or condition contained in any material bond, debenture, note or other
evidence of indebtedness or in any material contract, indenture, mortgage, loan
agreement, lease, joint venture, partnership or other agreement or
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instrument to which the Company is a party or by which it may be bound or is not
in material violation of any law, order, rule, regulation, writ, injunction or
decree of any governmental instrumentality or court, domestic or foreign; and
the execution and delivery of this Agreement, the Representative's Warrant
Agreement ;and the consummation of the transactions contemplated therein and in
the Prospectus and compliance with the terms of each such agreement will not
conflict with, or result in a material breach of any of the terms, conditions or
provisions of, or constitute a material default under, or result in the
imposition of any material lien, charge or encumbrance upon any of the property
or assets of the Company pursuant to, any material bond, debenture, note or
other evidence of indebtedness or any material contract, indenture, mortgage,
loan agreement, lease, joint venture, partnership or other agreement or
instrument to which the Company is a party nor will such action result in the
material violation by the Company of any of the provisions of its respective
certificate or articles of incorporation or bylaws or any law, order, rule,
regulation, writ, injunction, decree of any government, governmental
instrumentality or court, domestic or foreign, except where such violation will
not have a material adverse effect on the financial condition of the Company.
(vi) The authorized, issued and outstanding capital stock of the Company is
as set forth in the Prospectus and the Company will have the adjusted
capitalization set forth therein on the Initial Closing Date; all of the shares
of issued and outstanding capital stock of the Company set forth therein have
been duly authorized, validly issued and are fully paid and nonassessable; the
holders thereof do not have any rights of rescission with respect therefor and
are not subject to personal liability for any obligations of the Company by
reason of being stockholders under the laws of the State in which the Company is
incorporated; none of such outstanding capital stock is subject to or was issued
in violation of any preemptive or similar rights of any stockholder of the
Company; and such capital stock (including the Securities, the Option Securities
and the Representative's Securities) conforms in all material respects to all
statements relating thereto contained in the Prospectus.
(vii) The Company is not a party to or bound by any instrument, agreement
or other arrangement providing for it to issue any capital stock, rights,
warrants, options or other securities, except for this Agreement or as described
in the Prospectus. The Securities, the Option Securities and the
Representative's Securities are not and will not be subject to any preemptive or
other similar rights of any stockholder, have been duly authorized and, when
issued, paid for and delivered in accordance with the terms hereof, will be
validly issued, fully paid and non-assessable and will conform to the respective
descriptions thereof contained in the Prospectus; except for payment of the
applicable purchase price paid upon exercise of the options or warrants, as the
case may be the holders thereof will not be subject to any liability solely as
such holders; all corporate action required to be taken for the authorization,
issue and sale of the Securities, the Option Securities and the Representative's
Securities has been duly and validly taken; and the certificates representing
the Securities, the Option Securities and the Representative's Securities will
be in due and proper form. Upon the issuance and delivery pursuant to the terms
hereof of the Securities, the Option Securities and the Representative's
Securities to be sold by the Company hereunder, the Underwriter will acquire
good and marketable title to such Securities, Option Securities and
Representative's Securities free and clear of any lien, charge, claim,
encumbrance, pledge, security interest, defect or other restriction of any kind
whatsoever other than restrictions as may be imposed under the securities laws.
(viii) The Company has good and marketable title to all properties and
assets described in the Prospectus as owned by it, free and clear of all liens,
charges, encumbrances or restrictions, except such as are described or referred
to in the Prospectus or which are not materially significant or important in
relation to its business or which have been incurred in the ordinary course of
business; except as described in the Prospectus all of the leases and subleases
under which the Company holds properties or assets as lessee or sublessee as
described in the Prospectus are in full force and effect, and the Company is not
in material default in respect of any of the terms or provisions of any of such
leases or subleases, and no claim has been asserted by anyone adverse to the
Company's rights as lessor, sublessor, lessee or sublessee under any of the
leases or subleases mentioned above or affecting or questioning the Company's
right to the continued possession of the leased or subleased premises or assets
under any such lease or sublease; and the Company owns or leases all such
properties as are necessary to its operations as now conducted and as
contemplated to be conducted, except as otherwise stated in the Prospectus.
(ix) The financial statements, together with related notes, set forth in
the Prospectus fairly present the financial position and results of operations
of the Company at the respective dates and for the respective periods to which
they apply. Said statements and related notes have been prepared in accordance
with generally accepted
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<PAGE> 5
accounting principles applied on a basis which is consistent in all material
respects during the periods involved but any stub period has not been audited by
an independent accounting firm. There has been no material adverse change or
material development involving a prospective change in the condition, financial
or otherwise, or in the prospects, value, operation, properties, business or
results of operations of the Company whether or not arising in the ordinary
course of business, since the date of the financial statements included in the
Registration Statement and the Prospectus.
(x) Subsequent to the respective dates as of which information is given in
the Prospectus as it may be amended or supplemented, and except as described in
the Prospectus, the Company has not, directly or indirectly, incurred any
liabilities or obligations, direct or contingent, not in the ordinary course of
business or entered into any transactions not in the ordinary course of
business, which are material to the business of the Company as a whole and there
has not been any change in the capital stock of, or any incurrence of long term
debts by, the Company or any issuance of options, warrants or rights to purchase
the capital stock of the Company or declaration or payment of any dividend on
the capital stock of the Company or any material adverse change in the condition
(financial or other), net worth or results of operations of the Company as a
whole and the Company has not become a party to, any material litigation whether
or not in the ordinary course of business.
(xi) To the knowledge of the Company, there is no pending or threatened,
action, suit or proceeding to which the Company is a party before or by any
court or governmental agency or body, which might result in any material adverse
change in the condition (financial or other), business or prospects of the
Company as a whole or might materially and adversely affect the properties or
assets of the Company as a whole nor are there any actions, suits or proceedings
against the Company related to environmental matters or related to
discrimination on the basis of age, sex, religion or race which might be
expected to materially and adversely affect the conduct of the business,
property, operations, financial condition or earnings of the Company as a whole;
and no labor disturbance by the employees of the Company individually exists or
is, to the knowledge of the Company, imminent which might be expected to
materially and adversely affect the conduct of the business, property,
operations, financial condition or earnings of the Company as a whole.
(xii) Except as may be disclosed in the Prospectus, the Company has
properly prepared and filed all necessary federal, state, local and foreign
income and franchise tax returns, has paid all taxes shown as due thereon, has
established adequate reserves for such taxes which are not yet due and payable,
and does not have any tax deficiency or claims outstanding, proposed or assessed
against it.
(xiii) The Company has sufficient licenses, permits, right to use trade or
service marks and other governmental authorizations currently required for the
conduct of its business as now being conducted and as contemplated to be
conducted and the Company is in all material respects complying therewith.
Except as set forth in the Prospectus, the expiration of any such licenses,
permits, or other governmental authorizations would not materially affect the
Company's operations. To its knowledge, none of the activities or businesses of
the Company are in material violation of, or cause the Company to materially
violate any law, rule, regulations, or order of the United States, any state,
county or locality, or of any agency or body of the United States or of any
state, county or locality.
(xiv) The Company has not at any time (i) made any contributions to any
candidate for political office in violation of law, or failed to disclose fully
any such contribution, or (ii) made any payment to any state, federal or foreign
governmental officer or official, or other person charged with similar public or
quasi public duties, other than payments required or allowed by applicable law.
(xv) Except as set forth in the Prospectus the Company knows of no
outstanding claims for services either in the nature of a finder's fee,
brokerage fee or otherwise with respect to this financing for which the Company
or the Underwriters may be responsible, or which may affect the Underwriter's
compensation as determined by the National Association of Securities Dealers,
Inc. ("NASD") except as otherwise disclosed in the Prospectus or known by the
Underwriters.
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<PAGE> 6
(xvi) The Company has its property adequately insured against loss or
damage by fire and maintains such other insurance as is customarily maintained
by companies in the same or similar business.
(xvii) The Representative's Warrants herein described are duly and validly
authorized and upon delivery to the Representative in accordance herewith will
be duly issued and legal, valid and binding obligations of the Company, except
as the enforceability thereof may be limited by bankruptcy or other similar laws
affecting the rights of creditors generally or by equitable principles, and
except as the enforcement of indemnification provisions may be limited by
federal or state securities laws.
The Representative's Securities issuable upon exercise of any of the
Representative's Warrants have been duly authorized, and when issued upon
payment of the exercise price therefor, will be validly issued, fully paid and
nonassessable.
(xviii) Except as set forth in the Prospectus, no default exists in the due
performance and observance of any term, covenant or condition of any material
license, contract, indenture, mortgage, installment sale agreement, lease, deed
of trust, voting trust agreement, stockholders agreement, note, loan or credit
agreement, purchase order, or any other agreement or instrument evidencing an
obligation for borrowed money, or any other material agreement or instrument to
which the Company is a party or by which the Company may be bound or to which
the property or assets (tangible or intangible) of the Company is subject or
affected.
(xix) To the best of the Company's knowledge it has generally enjoyed a
satisfactory employer-employee relationship with its employees and, to the best
of its knowledge, is in substantial compliance in all material respects with all
federal, state, local, and foreign laws and regulations respecting employment
and employment practices, terms and conditions of employment and wages and
hours. To the best of the Company's knowledge, there are no pending
investigations involving the Company, by the U.S. Department of Labor, or any
other governmental agency responsible for the enforcement of such federal,
state, local, or foreign laws and regulations. To the best of the Company's
knowledge, there is no unfair labor practice charge or complaint against the
Company pending before the National Labor Relations Board or any strike,
picketing, boycott, dispute, slowdown or stoppage pending or threatened against
or to its knowledge involving the Company, or any predecessor entity, and none
has ever occurred. To the best of the Company's knowledge, no representation
question is pending respecting the employees of the Company, and no collective
bargaining agreement or modification thereof is currently being negotiated by
the Company. To the best of the Company's knowledge, no grievance or arbitration
proceeding is pending or to its knowledge threatened under any expired or
existing collective bargaining agreements of the Company. No labor dispute with
the employees of the Company is pending, or, to its knowledge is imminent; and
the Company is not aware of any pending or imminent labor disturbance by the
employees of any of its principal suppliers, manufacturers or contractors which
may result in any material adverse change in the condition, financial or
otherwise, or in the earnings, business affairs, position, prospects, value,
operation, properties, business or results of operations of the Company.
(xx) Except as may be set forth in the Registration Statement, the Company
does not maintain, sponsor or contribute to any program or arrangement that is
an "employee pension benefit plan," an "employee welfare benefit plan," or a
"multiemployer plan" as such terms are defined in Sections 3(2), 3(l) and 3(37),
respectively, of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") ("ERISA Plans"). The Company does not maintain or contribute, now or
at any time previously, to a defined benefit plan, as defined in Section 3(35)
of ERISA. No ERISA Plan (or any trust created thereunder) has engaged in a
"prohibited transaction" within the meaning of Section 406 of ERISA or Section
4975 of the Internal Revenue Code (the "Code"), which could subject the Company
to any tax penalty on prohibited transactions and which has not adequately been
corrected. Each ERISA Plan is in compliance with all material reporting,
disclosure and other requirements of the Code and ERISA as they relate to any
such ERISA Plan. Determination letters have been received from the Internal
Revenue Service with respect to each ERISA Plan which is intended to comply with
Code Section 401 (a), stating that such ERISA Plan and the attendant trust are
qualified thereunder. The Company has never completely or partially withdrawn
from a "multiemployer plan."
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<PAGE> 7
(xxi) None of the Company, or any of its employees, directors,
stockholders, or affiliates (within the meaning of the Rules and Regulations)
has taken or will take, directly or indirectly, any action designed to or which
has constituted or which might be expected to cause or result in, under the
Exchange Act, or otherwise, stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of the Securities,
Option Securities, Representative's Securities or otherwise.
(xxii) None of the patents, patent applications, trademarks, service marks,
trade names, copyrights, and licenses and rights to the foregoing presently
owned or held by the Company, are in dispute or, to the best knowledge of the
Company's management are in any conflict with the right of any other person or
entity. The Company (i) except as disclosed in the Prospectus owns or has the
right to use, all patents, trademarks, service marks, trade names and
copyrights, technology and licenses and rights with respect to the foregoing,
used in the conduct of its business as now conducted or proposed to be conducted
without infringing upon or otherwise acting adversely to the right or claimed
right of any person, corporation or other entity under or with respect to any of
the foregoing, and except as set forth in the Prospectus or otherwise disclosed
to the Underwriter in writing, to the best knowledge of the Company's management
is not obligated or under any liability whatsoever to make any material payments
by way of royalties, fees or otherwise to any owner or licensee of, or other
claimant to, any patent, trademark, service mark, trade name, copyright,
know-how, technology or other intangible asset, with respect to the use thereof
or in connection with the conduct of its business or otherwise.
(xxiii) Except as disclosed in the Prospectus the Company owns and has
adequate right to use to the best knowledge of the Company's management all
trade secrets, know-how (including all other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures), inventions,
designs, processes, works of authorship, computer programs and technical data
and information (collectively herein "intellectual property") required for or
incident to the development, manufacture, operation and sale of all products and
services sold or proposed to be sold by the Company. The Company is not aware of
any such development of similar or identical trade secrets or technical
information by others. The Company has valid and binding confidentiality
agreements with all of its officers, covering its intellectual property (subject
to the equitable powers of any court), which agreements have remaining terms of
at least two years from the effective date of the Registration Statement except
where the failure to have such agreements would not materially and adversely
effect the Company's business taken as a whole. The Company has good and
marketable title to, or valid and enforceable leasehold estates in, all items of
real and personal property stated in the Prospectus, to be owned or leased by it
free and clear of all liens, charges, claims, encumbrances, pledges, security
interests, defects, or other restrictions or equities of any kind whatsoever,
other than those referred to in the Prospectus and liens for taxes not yet due
and payable.
(xxiv) Singer Lewak Greenbaum & Goldstein, LLP, whose reports are filed
with the Commission as a part of the Registration Statement, are independent
certified public accountants as required by the Act and the Rules and
Regulations.
(xxv) The Company has agreed to cause to be duly executed agreements
pursuant to which each of the Company's officers and directors and shareholders
and any person or entity deemed to be an affiliate of the Company pursuant to
the Rules and Regulations has agreed not to, directly or indirectly, sell,
assign, transfer, or otherwise dispose of any shares of Common Stock or
securities convertible into, exercisable or exchangeable for or evidencing any
right to purchase or subscribe for any shares of Common Stock (either pursuant
to Rule 144 of the Rules and Regulations or otherwise) for a period of not less
than eighteen (18) months following such effective date without the prior
written consent of the Underwriter. The Company will cause the Transfer Agent,
as defined below, to mark an appropriate legend on the face of stock
certificates representing all of such securities and to place "stop transfer"
orders on the Company's stock ledgers. In addition the Company shall also obtain
from all other shareholders of the Company, written commitments restricting the
sale of 100% of the common shares of stock outstanding for thirteen (13) months
after the closing.
(xxvi) The Registered Securities have been approved for listing on NASDAQ
or an Exchange.
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(xxvii) Except as set forth in the Prospectus or disclosed in writing to
the Underwriter (which writing specifically refers to this Section), no officer
or director of the Company, holder of 5% or more of securities of the Company or
any "affiliate" or "associate" (as these terms are defined in Rule 405
promulgated under the Rules and Regulations) of any of the foregoing persons or
entities has or has had, either directly or indirectly, (i) an interest in any
person or entity which (A) furnishes or sells services or products which are
furnished or sold or are proposed to be furnished or sold by the Company, or (B)
purchases from or sells or furnishes to the Company any goods or services, or
(ii) a beneficiary interest in any contract or agreement to which the Company is
a party or by which it may be bound or affected. Except as set forth in the
Prospectus under "Certain Transactions" or disclosed in writing to the
Underwriter (which writing specifically refers to this Section) there are no
existing agreements, arrangements, understandings or transactions, or proposed
agreements, arrangements, understandings or transactions, between or among the
Company, and any officer, director, principal stockholder of the Company, or any
partner, affiliate or associate of any of the foregoing persons or entities.
(xxviii) Any certificate signed by any officer of the Company, and
delivered to the Underwriter or to the Underwriter's counsel (as defined herein)
shall be deemed a representation and warranty by the Company to the Underwriter
as to the matters covered thereby.
(xxix) Each of the minute books of the Company has been made available to
the Underwriter and contains a complete summary of all meetings and actions of
the directors and stockholders of the Company, since the time of its
incorporation and reflect all transactions referred to in such minutes
accurately in all respects.
(xxx)Intentionally left blank.
(xxxi) Except and only to the extent described in the Prospectus or
disclosed in writing to the Underwriter (which writing specifically refers to
this Section), no holders of any securities of the Company or of any options,
warrants or other convertible or exchangeable securities of the Company have the
right to include any securities issued by the Company in the Registration
Statement or any registration statement to be filed by the Company or to require
the Company to file a registration statement under the Act and no person or
entity holds any anti-dilution rights with respect to any securities of the
Company. Except as disclosed in the Prospectus, all rights so described or
disclosed have been waived or have not been triggered with respect to the
transactions contemplated by this Agreement and the Representative's Warrant
Agreement (including the warrants issuable thereunder).
(xxxii) The Company has not entered into any employment agreements with its
executive officers, except as disclosed in the Prospectus.
(xxxiii) No consent, approval, authorization or order of, and no filing
with, any court, regulatory body, government agency or other body, domestic or
foreign, is required for the issuance of the Registered Securities pursuant to
the Prospectus and the Registration Statement, the issuance of the Underwriter's
Warrants, the performance of this Agreement, the Representative's Warrant
Agreement, and the transactions contemplated hereby and thereby, including
without limitation, any waiver of any preemptive, first refusal or other rights
that any entity or person may have for the issue and/or sale of any of the
Securities, the Option Securities and the Underwriter's Securities, except such
as have been or may be obtained under the Act, otherwise or may be required
under state securities or blue sky laws in connection with the Underwriter's
purchase and distribution of the Securities, the Option Securities, the
Representative's Securities and the Underwriter's Warrants to be sold by the
Company hereunder or may be required by the Rules of the National Association of
Securities Dealer, Inc. ("NASD").
(xxxiv) All executed agreements, contracts or other documents or copies of
executed agreements, contracts or other documents filed as exhibits to the
Registration Statement to which the Company is a party or by which it may be
bound or to which its assets, properties or businesses may be subject have been
duly and validly authorized, executed and delivered by the Company and
constitute the legal, valid and binding agreements of the Company, enforceable
against the Company, in accordance with their respective terms. The descriptions
in the Registration Statement of agreements, contracts and other documents are
accurate and fairly present the information required to be
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<PAGE> 9
shown with respect thereto by Form SB-2, and there are no contracts or other
documents which are required by the Act to be described in the Registration
Statement or filed as exhibits to the Registration Statement which are not
described or filed as required, and the exhibits which have been filed are
complete and correct copies of the documents of which they purport to be copies.
(xxxv) Within the past five (5) years, none of the Company's independent
public accountants has brought to the attention of the Company's management any
"material weakness" as defined in the Statement of Auditing Standard No. 60 in
any of the Company's internal controls.
4. Covenants of the Company. The Company covenants and agrees with you that:
(a) It will cooperate in all respects in making the Prospectus effective
and will not at any time, whether before or after the effective date, file any
amendment to or supplement to the Prospectus of which you shall not previously
have been advised and furnished with a copy or to which you or your counsel
shall have reasonably objected or which is not in material compliance with the
Act and the Rules and Regulations or applicable state law.
As soon as the Company is advised thereof, the Company will advise you, and
confirm the advice in writing, of the receipt of any comments of the Commission
or any state securities department, when the Registration Statement becomes
effective if the provisions of Rule 430A promulgated under the Act will be
relied upon, when the Prospectus has been filed in accordance with said Rule
430A, of the effectiveness of any posteffective amendment to the Registration
Statement or Prospectus, or the filing of any supplement to the Prospectus or
any amended Prospectus, of any request made by the Commission or any state
securities department for amendment of the Prospectus or for supplementing of
the Prospectus or for additional information with respect thereto, of the
issuance of any stop order suspending the effectiveness of the Prospectus or any
order preventing or suspending the use of any Prospectus or any order suspending
trading in the Common Stock of the Company, or of the suspension of the
qualification of the Securities, the Option Securities or the Representatives
Securities for offering in any jurisdiction, or of the institution of any
proceedings for any such purposes, and will use its best efforts to prevent the
issuance of any such order and, if issued, to obtain as soon as possible the
lifting or dismissal thereof.
The Company has caused to be delivered to you copies of such Prospectus,
and the Company has consented and hereby consents to the use of such copies for
the purposes permitted by law. The Company authorizes you and the dealers to use
the Prospectus and such copies of the Prospectus in connection with the sale of
the Securities, the Option Securities and the Representative's Securities for
such period as in the opinion of your counsel and our counsel the use thereof is
required to comply with the applicable provisions of the Act and the Rules and
Regulations. The Company will prepare and file with the states, promptly upon
your request, any such amendments or supplements to the Prospectus, and take any
other action, as, in the opinion of your counsel, may be necessary or advisable
in connection with the initial sale of the Securities, the Option Securities and
the Underwriter's Securities and will use its best efforts to cause the same to
become effective as promptly as possible.
The Company shall file the Prospectus (in form and substance satisfactory
to the Underwriter) or transmit the Prospectus by a means reasonably calculated
to result in filing with the Commission pursuant to rule 424(b)(1) or pursuant
to Rule 424(b)(3) not later than the Commission's close of business on the
earlier of (i) the second business day following the execution and delivery of
this Agreement, and (ii) the fifth business day after the effective date of the
Registration Statement.
In case of the happening, at any time within such period as a Prospectus is
required under the Act to be delivered in connection with the initial sale of
the Securities, the Option Securities and the Representative's Securities of any
event of which the Company has knowledge and which materially affects the
Company, or the securities thereof, and which should be set forth in an
amendment of or a supplement to the Prospectus in order to make the statements
therein not then misleading, in light of the circumstances existing at the time
the Prospectus is required under the Act to be delivered, or in case it shall be
necessary to amend or supplement the Prospectus to comply with the Act, the
Rules and Regulations or any other law, the Company will forthwith prepare and
furnish to you copies of such
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<PAGE> 10
amended Prospectus or of such supplement to be attached to the Prospectus, in
such quantities as you may reasonably request, in order that the Prospectus, as
so amended or supplemented, will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances under which they are made. The preparation and furnishing of any
such amendment or supplement to the Prospectus or supplement to be attached to
the Prospectus shall be without expense to you.
The Company will to the best of its ability comply with the Act, the
Exchange Act and applicable state securities laws so as to permit the initial
offer and sales of the Securities, the Option Securities and the Representatives
Securities under the Act, the Rules and Regulations, and applicable state
securities laws.
(b) It will cooperate to qualify the Securities and the Option Securities
and the Representative's Securities for initial sale under the securities laws
of such jurisdictions as you may designate and will make such applications and
furnish such information as may be required for that purpose, provided the
Company shall not be required to qualify as a foreign corporation or a dealer in
securities. The Company will, from time to time, prepare and file such
statements and reports as are or may be required to continue such qualification
in effect for so long as the Underwriter may reasonably request.
(c) So long as any of the Securities, the Option Securities or the
Representative's Securities remain outstanding in the hands of the public, the
Company, at its expense, will annually furnish to its shareholders a report of
its operations to include financial statements audited by independent public
accountants, and will furnish to the Underwriter as soon as practicable after
the end of each fiscal year, a balance sheet of the Company as at the end of
such fiscal year, together with statements of operations, shareholders' equity,
and changes in cash flow of the Company for such fiscal year, all in reasonable
detail and accompanied by a copy of the certificate or report thereon of
independent public accountants.
(d) It will deliver to you at or before the Initial Closing Date three
signed copies of the Registration Statement including all financial statements
and exhibits filed therewith, whether or not incorporated by reference. The
Company will deliver to you, from time to time until the effective date of the
Prospectus, as many copies of the Prospectus as you may reasonably request. The
Company will deliver to you on the effective date of the Prospectus and
thereafter for so long as a Prospectus is required to be delivered under the Act
and the Rules and Regulations as many copies of the Prospectus, in final form,
or as thereafter amended or supplemented, as you may from time to time
reasonably request.
(e) The Company will apply the net proceeds from the sale of the Securities
and the Option Securities substantially in the manner set forth under "Use of
Proceeds" in the Prospectus. No portion of the proceeds shall be used, directly
or indirectly, to acquire any securities issued by the Company, without the
prior written consent of the Underwriter.
(f) As soon as it is practicable, but in any event not later than the first
(lst) day of the fifteenth (15th) full calendar month following the effective
date of the Registration Statement, the Company will make available to its
security holders and the Underwriter an earnings statement (which need not be
audited) covering a period of at least twelve (12) consecutive months beginning
after the effective date of the Registration Statement, which shall satisfy the
requirements of Section 11(a) of the Act and Rule 158(a) of the Rules and
Regulations.
(g) Non-Accountable Expense Allowance and other Costs and Expenses.
The Company shall pay to the Underwriter at each closing date, and to be
deducted from the purchase price for the Securities and the Option Securities,
an amount equal to three percent (3%) of the gross proceeds received by the
Company from the sale of the Securities and the Option Securities at such
closing date less in the case of the Initial Closing Date, the sum of $50,000
previously paid by the Company. If the sale of the Securities by the Underwriter
is not consummated for any reason not attributable to the Underwriter, or if (i)
the Company withdraws the Registration Statement from the Commission or does not
proceed with the public offering, or (ii) the representations in Section 3
hereof are not correct or the covenants cannot be complied with, or (iii) there
has been a
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materially adverse change in the condition, prospects or obligations of the
Company or a materially adverse change in stock market conditions from current
conditions, all as determined by the Underwriter, then the Company shall
reimburse the Underwriter for its out of pocket expenses including without
limitation, its legal fees and disbursements all on an accountable basis but not
to exceed $75,000 (less the $50,000 previously paid by the Company), and if any
excess remains from the advance previously paid, such excess will be returned to
the Company.
Costs and Expenses. Subject to the provisions above the Company will pay
all costs and expenses incident to the performance of this Agreement by the
Company including, but not limited to, the fees and expenses of counsel to the
Company and of the Company's accountants; the costs and expenses incident to the
preparation, printing, filing and distribution under the Act of the Registration
Statement and Prospectus (including the fee of the Commission, any securities
exchange and the NASD in connection with the filing required by the NASD
relating to the offering of the Securities contemplated hereby); all expenses,
including fees of counsel, which shall be due and payable on the Closing Date in
connection with the qualification of the Securities under the state securities
or blue sky laws; the cost of furnishing to you copies of the Prospectus, this
Agreement, the cost of printing the certificates representing the Securities and
of preparing and photocopying the Underwriting Agreement and related
Underwriting documents, the cost of three underwriter's bound volumes, any
advertising costs and expenses, including but not limited to the Company's
expenses on "road show" information meetings and presentations, prospectus
memorabilia, issue and transfer taxes, if any. The Company will also pay all
costs and expenses incident to the furnishing of any amended Prospectus of or
any supplement to be attached to the Prospectus.
(h) As a condition of the closing, the Company shall obtain from its
officers and directors of the Company written commitments restricting the sale
of 100% of their common stock for (12) months after the closing.
(i) During a date five years after the date hereof, the Company will make
available to its shareholders, as soon as practicable, and deliver to the
Underwriter:
(1) as soon as they are available, copies of all reports (financial or
other) mailed to shareholders;
(2) as soon as they are available, copies of all reports and financial
statements furnished to or filed with the Commission, the NASD or any
securities exchange;
(3) every press release and every material news item or article of
interest to the financial community in respect of the Company or its
affairs which was prepared and released by or on behalf of the Company; and
(4) any additional information of a public nature concerning the
Company (and any future subsidiaries) or its businesses which the
Underwriter may request.
During such five-year period, if the Company has active subsidiaries, the
foregoing financial statements will be on a consolidated basis to the extent
that the accounts of the Company and its subsidiaries are consolidated, and will
be accompanied by similar financial statements for any significant subsidiary
which is not so consolidated.
(j) The Company will maintain a Transfer Agent and, if necessary under the
jurisdiction of incorporation of the Company, a Registrar (which may be the same
entity as the Transfer Agent) for its Common Stock.
(k) The Company will furnish to the Underwriter or on the Underwriter's
order, without charge, at such place as the Underwriter may designate, copies of
each Preliminary Prospectus, the Final Prospectus the Registration Statement and
any pre-effective or post-effective amendments thereto (two of which copies will
be signed and will include all financial statements and exhibits), the
Prospectus, and all amendments and supplements thereto, including any prospectus
prepared after the effective date of the Registration Statement, in each case as
soon as available and in such quantities as the Underwriter may request.
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<PAGE> 12
(1) Neither the Company nor any of its officers, directors, stockholders or
any of its affiliates will take, directly or indirectly, any action designed to,
or which might in the future reasonably be expected to cause or result in
stabilization or manipulation of the price of any of the Company's securities.
(m) The Company shall timely file all such reports, forms or other
documents as may be required from time to time, under the Act, the Exchange Act,
and the Rules and Regulations, and all such reports, forms and documents filed
will comply as to form and substance with the applicable requirements under the
Act, the Exchange Act, and the Rules and Regulations.
(n) The Company shall cause the Securities to be listed on the NASDAQ Small
Cap Market or on an exchange for a period of five (5) years from the date
hereof, and use its best efforts to maintain the listing of the Securities to
the extent they are outstanding.
(o) As soon as practicable, (i) before the effective date of the
Registration Statement, file a Form 8-A with the Commission providing for the
registration under the Exchange Act of the Securities and (ii) but in no event
more than 30 days from the effective date of the Registration Statement, take
all necessary and appropriate actions to be included in Standard and Poor's
Corporation Descriptions and/or Moody's OTC Manual and to continue such
inclusion for a period of not less than five years if the securities are not
listed on an exchange.
(p) Until the completion of the distribution of the Securities, the Company
shall not without the prior written consent of the Underwriter and its counsel
which consent shall not be unreasonably withheld or delayed, issue, directly or
indirectly, any press release or other communication or hold any press
conference with respect to the Company or its activities or the offering
contemplated hereby, other than trade releases issued in 'the ordinary course of
the Company's business consistent with past practices with respect to the
Company's operations.
(q) Until the earlier of (i) five (5) years from the date hereof or (ii)
the sale to the public of the Warrant Shares, the Company will not take any
action or actions which may prevent or disqualify the Company's use of Form SB-2
(or other appropriate form) for the registration under the Act of the Warrant
Shares and the Representative's Securities.
5. Conditions of the Underwriter's Obligations. The obligation of the
Underwriters to offer and sell the Securities and the Option Securities is
subject to the accuracy (as of the date hereof, and as of the Closing Dates) of
and compliance with the representations and warranties of the Company to the
performance by it of its agreement and obligations hereunder and to the
following additional conditions:
(a) The Registration Statement shall have become effective as and when
cleared by the Commission, and you shall have received notice thereof, on
or prior to any closing date no stop order suspending the effectiveness of
the Prospectus shall have been issued and no proceedings for that or
similar purpose shall have been instituted or shall be pending, or, to your
knowledge or to the knowledge of the Company, shall be contemplated by the
Commission; any request on the part of the Commission for additional
information shall have been complied with to the reasonable satisfaction of
counsel to the Underwriter; and qualification, under the securities laws of
such states as you may designate, of the issue and sale of the Securities
upon the terms and conditions herein set forth or contemplated and
containing no provision unacceptable to you shall have been secured, and no
stop order shall be in effect denying or suspending effectiveness of such
qualification nor shall any stop order proceedings with respect thereto be
instituted or pending or threatened under such law.
(b) On any closing date and, with respect to the letter referred to in
subparagraph (iii), as of the date hereof, you shall have received:
(i) the opinion, together with such number of signed or
photostatic copies of such opinion as you may reasonably request,
addressed to you by Jeffers, Wilson, Shaff & Falk,LLP, Esqs., counsel
for the Company, in form
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<PAGE> 13
and substance reasonably satisfactory to the Underwriter and William
M. Prifti, Esq., counsel to the Underwriter, dated each such closing
date, to the effect that:
(A) The Company has been duly incorporated and is a validly
existing corporation in good standing under the laws of the
jurisdiction in which it is incorporated and has all necessary
corporate power and authority to carry on its business as
described in the Prospectus.
(B) The Company is qualified to do business in each
jurisdiction in which conducting its business requires such
qualification, except where the failure to be so qualified would
not have a material adverse effect on the Company's business or
assets.
(C) The Company has the full corporate power and authority
to enter into this Agreement, the Representative's Warrant
Agreement and to consummate the transactions provided for therein
and each such Agreement has been duly and validly authorized,
executed and delivered by the Company. Each of this Agreement and
the Representative's Warrant Agreement, assuming due
authorization, execution and delivery by each other party
thereto, constitutes a legal, valid and binding agreement of the
Company enforceable against the Company in accordance with its
terms, subject to bankruptcy, insolvency or similar laws
governing the rights of creditors and to general equitable
principles, and provided that no opinion need be given as to the
enforceability of any indemnification or contribution provisions,
and none of the Company's execution or delivery of this
Agreement, or the Representative's Warrant Agreement, its
performance hereunder or thereunder, its consummation of the
transactions contemplated herein or therein, or the conduct of
its business as described in the Registration Statement, the
Prospectus, and any amendments or supplements thereto, conflicts
with or will conflict with or results or will result in any
material breach or violation of any of the terms or provisions
of, or constitutes or will constitute a material default under,
or result in the creation or imposition of any material lien,
charge, claim, encumbrance, pledge, security interest, defect or
other restriction of any kind whatsoever upon, any property or
assets (tangible or intangible) of the Company pursuant to the
terms of (A) the articles of incorporation or by-laws of the
Company, (B) to the knowledge of such counsel, any material
license, contract, indenture, mortgage, deed of trust, voting
trust agreement, stockholders' agreement, note, loan or credit
agreement or any other agreement or instrument to which the
Company is a party or by which it is or may be bound, or (C) to
the knowledge of such counsel, any statute, judgment, decree,
order, rule or regulation applicable to the Company, whether
domestic or foreign.
(D) The Company had authorized and outstanding capital stock
as set forth in the Prospectus under the heading "Capitalization"
as of the date set forth therein, and all of such issued and
outstanding shares of capital stock have been duly and validly
authorized and issued, and to the knowledge of such counsel are
fully paid and nonassessable, and to the knowledge of such
counsel no stockholder of the Company is entitled to any
preemptive rights to subscribe for, or purchase shares of the
capital stock and to the knowledge of such counsel none of such
securities were issued in violation of the preemptive rights of
any holders of any securities of the Company.
(E) To the knowledge of such counsel, the Company is not a
party to or bound by any instrument, agreement or other
arrangement providing for it to issue any capital stock, rights,
warrants, options or other securities, except for this Agreement,
the Representative's Warrant Agreement, and except as described
in the Prospectus. The Common Stock, the Warrants and the
Representative's Warrants each conforms in all material respects
to the respective descriptions thereof contained in the
Prospectus. The outstanding shares of Common Stock, the
Redeemable Warrant and the Warrant Stock and the Representative's
Warrant Stock, upon issuance and delivery and payment therefore
in the manner described herein, the Warrant Agreement and the
Representative Agreement, as the case may be, will be, duly
authorized, validly issued, fully paid and nonassessable. There
are no preemptive or other rights to subscribe for or to
purchase, or any restriction upon the voting or transfer of, any
shares of Common Stock pursuant to the Company's articles of
incorporation, by-laws, other governing documents or any
agreement or other instrument known to such counsel to which the
Company is a party or by which it is bound.
(F) The certificates representing the Securities comprising
the Common Stock are in due and proper form and and the
Representative's Warrant has been duly authorized and reserved
for issuance and when issued and delivered
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<PAGE> 14
in accordance with the respective terms of the Warrant Agreement
and Representative's Warrant Agreement, respectively, will duly
and validly issued, fully paid and nonassessable.
(G) To the knowledge of such counsel, there are no claims,
suits or other legal proceedings pending or threatened against
the Company in any court or before or by any governmental body
which might materially affect the business of the Company or the
financial condition of the Company as a whole, except as set
forth in or contemplated by the Prospectus.
(H) Based on oral and/or written advice from the staff of
the Commission, the Registration Statement has become effective
and, to the knowledge of such counsel, no stop order suspending
the effectiveness of the Prospectus is in effect and no
proceedings for that purpose are pending before, or threatened
by, federal or by a state securities administrator.
(I) To the knowledge of such counsel, there are no legal or
governmental proceedings, actions, arbitrations, investigations,
inquiries or the like pending or threatened against the Company
of a character required to be disclosed in the Prospectus which
have not been so disclosed, questions the validity of the capital
stock of the Company or this Agreement or the Representative's
Warrant Agreement or might adversely affect the condition,
financial or otherwise, or the prospects of the Company or which
could adversely affect the Company's ability to perform any of
its obligations under this Agreement, or the Representative's
Warrant Agreement.
(J) To such counsel's knowledge, there are no material
agreements, contracts or other documents known to such counsel
required by the Act to be described in the Registration Statement
and the Prospectus and filed as exhibits to the Registration
Statement other than those described in the Registration
Statement and the Prospectus and filed as exhibits thereto, and
to such counsel's knowledge (A) the exhibits which have been
filed are correct copies of the documents of which they purport
to be copies; (B) the descriptions in the Registration Statement
and the Prospectus and any supplement or amendment thereto of
contracts and other documents to which the Company is a party or
by which it is bound, including any document to which the Company
is a party or by which it is bound incorporated by reference into
the Prospectus and any supplement or amendment thereto, are
accurate in all material respects and fairly represent the
information required to be shown by Form SB-2.
(K) No consent, approval, order or authorization from any
regulatory board, agency or instrumentality having jurisdiction
over the Company, or its properties (other than registration
under the Act or qualification under state or foreign securities
law or approval by the NASD) is required for the valid
authorization, issuance, sale and delivery of the Securities, the
Option Securities or the Representative's Warrant.
(L) The statements in the Prospectus under "Risk Factors-
Dependence on Key Personnel and Consultants,Control by Existing
Stockholders," "Management-Limitation of Liability" "Description
of the Securities," and "Shares Eligible For Future Sale" have
been reviewed by such counsel, and insofar as they refer to
statements of law, descriptions of statutes, licenses, rules or
regulations or legal conclusions, are correct in all material
respects.
In addition, such counsel shall state that such counsel has
participated in conferences with officials and other
representatives of the Company, the Representatives,
Underwriters' Counsel and the independent certified public
accountants of the Company, at which such conferences the
contents of the Registration Statement and Prospectus and related
matters were discussed, and although they have not certified the
accuracy or completeness of the statements contained in the
Registration Statement or the Prospectus, nothing has come to the
attention of such counsel which leads them to believe that, at
the time the Registration Statement became effective and at all
times subsequent thereto up to and on the Closing Date and on any
later date on which Option Shares are to be purchased, the
Registration Statement and any amendment or supplement, when such
documents became effective or were filed with the Commission
(other than the financial
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<PAGE> 15
statements including the notes thereto and supporting schedules
and other financial and statistical information derived
therefrom, as to which such counsel need express no comment)
contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary
to make the statements therein not misleading, or at the Closing
Date or any later date on which the Option Shares are to be
purchased, as the case may be, the Prospectus and any amendment
or supplement thereto (other than the financial statements
including the notes thereto and other financial and statistical
information derived therefrom, as to which such counsel need
express no comment) contained any untrue statement of a material
fact or omitted to state a material fact necessary to make the
statements therein, in the light of the circumstances under which
they were made, not misleading.
Such opinion shall also cover such other matters incident to
the transactions contemplated hereby and the offering Prospectus
as you or counsel to the Underwriter shall reasonably request. In
rendering such opinion, to the extent deemed reasonable by them,
such counsel may rely upon certificates of any officer of the
Company or public officials as to matters of fact of which the
maker of such certificate has knowledge.
(ii) a certificate, signed by the Chief Executive Officer and the
Principal Financial or Accounting Officer of the Company dated the
Closing Date, to the effect that with regard to the Company, each of
the conditions set forth in Section 5(d) have been satisfied.
(iii) a letter, addressed to the Underwriter and in form and
substance satisfactory to the Underwriter in all respects (including
the nonmaterial nature of the changes or decreases, if any, referred
to in clause (D) below), from, Singer Lewak Greenbaum & Goldstein, LLP
dated, respectively, as of the effective date of the Registration
Statement and as of the Closing Date, as the case may be:
(A) Confirming that they are independent public accountants
with respect to the Company and its consolidated subsidiaries, if
any, within the meaning of the Act and the applicable published
Rules and Regulations.
(B) Stating that, in their opinion, the financial
statements, related notes and schedules of the Company and its
consolidated subsidiaries, if any, included in the Registration
Statement examined by them comply as to form in all material
respects with the applicable accounting requirements of the Act
and the published Rules and Regulations thereunder.
(C) Stating that, with respect to the period from December
31, 1996, to a specified date (the specified date") not earlier
than five (5) business days prior to the date of such letter,
they have read the minutes of meetings of the stockholders and
board of directors (and various committees thereof) of the
Company and its consolidated subsidiaries, if any, for the period
from December 31, 1996 through the specified date, and made
inquiries of officers of the Company and its consolidated
subsidiaries, if any, responsible for financial and accounting
matters and, especially as to whether there was any decrease in
sales, income before extraordinary items or net income as
compared with the corresponding period in the preceding year; or
any change in the capital stock of the Company or any change in
the longterm debt or any increase in the short-term bank
borrowings or any decrease in net current assets or net assets of
the Company or of any of its consolidated subsidiaries, if any,
and further stating that while such procedures and inquiries do
not constitute an examination made in accordance with generally
accepted auditing standards, nothing came to their attention
which caused them to believe that during the period from December
31, 1996, through the specified date there were any decreases as
compared with the corresponding period in the preceding year in
sales, income before extraordinary items or net income; or any
change in the capital stock of the Company or consolidated
subsidiary, if any, or any change in the long term debt or any
increase in the short-term bank borrowings (other than any
increase in short-term bank borrowings in the ordinary course of
business) of the Company or any consolidated subsidiary, if any,
or any decrease in the net current assets or net assets of the
Company or any consolidated subsidiary, if any; and
(D) Stating that they have carried out certain specified
procedures (specifically set forth in such letter or letters) as
specified by the Underwriter (after consultations with Singer
Lewak Greenbaum & Goldstein, ,LLP relating to such procedures),
not constituting an audit, with respect to certain tables,
statistics and other financial data in the Prospectus specified
by the Underwriter and such financial data not included in the
Prospectus but from which information in the Prospectus is
derived, and which have been obtained from the general accounting
records of the Company or consolidated subsidiaries, if any, or
from such accounting records by analysis or computation, and
having compared such financial data with the accounting records
of the Company or the consolidated subsidiaries, if any, stating
that they have found such financial data to agree with the
accounting records of the Company.
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<PAGE> 16
(c) All corporate proceedings and other legal matters relating to this
Agreement, the Prospectus and other related matters shall be satisfactory
to or approved by counsel to the Underwriter and you shall have received
from Jeffers, Wilson, Shaff & Falk, LLP a signed opinion dated as of each
closing date, with respect to the incorporation of the Company, the
validity of the Securities, the form of the Prospectus, (other than the
financial statements together with related notes and other financial and
statistical data contained in the Prospectus or omitted therefrom, as to
which such counsel need express no opinion), the execution of this
Agreement and other related matters as you may reasonably require.
(d) At each closing date, (i) the representations and warranties of
the Company contained in this Agreement shall be true and correct in all
material respects with the same effect as if made on and as of such closing
date; (ii) the Prospectus and any amendments or supplements thereto shall
contain all statements which are required to be stated therein in
accordance with the Act and the Rules and Regulations and in all material
respects conform to the requirements thereof, and neither the Prospectus
nor any amendment or supplement thereto shall contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary, in light of the circumstances under which they were
made, in order to make the statements therein not misleading; (iii) there
shall have been since the respective dates as of which information is given
no material adverse change in the business, properties or condition
(financial or otherwise), results of operations, capital stock, longterm
debt or general affairs of the Company from that set forth in the
Prospectus, except changes which the Prospectus indicates might occur after
the effective date of the Prospectus, and the Company shall not have
incurred any material liabilities or material obligations, direct or
contingent, or entered into any material transaction, contract or agreement
not in the ordinary course of business other than as referred to in the
Prospectus and which would be required to be set forth in the Prospectus;
and (iv) except as set forth in the Prospectus, no action, suit or
proceeding at law or in equity shall be pending or threatened against the
Company which would be required to be set forth in the Prospectus, and no
proceedings shall be pending or threatened against the Company or any
subsidiary before or by any commission, board or administrative agency in
the United States or elsewhere, wherein an unfavorable decision, ruling or
finding would materially and adversely affect the business, property,
condition (financial or otherwise), results of operations or general
affairs of the Company.
(e) On the Initial Closing Date, the Company shall have executed and
delivered to the Underwriter, (i) the Representatives' Warrant Agreement
substantially in the form filed as an Exhibit to the Registration Statement
in final form and substance satisfactory to the Underwriter, and (ii) the
Representative's Warrants in such denominations and to such designees as
shall have been provided to the Company.
(f) On or before the Initial Closing Date, the Securities shall have
been duly approved for listing on an exchange or on NASDAQ, Small Cap
Market.
(g) On or before the Initial Closing Date, there shall have been
delivered to the Underwriter all of the Lock-up Agreements required to be
delivered pursuant to Section 3(a)(xxv) and 4(h), in form and substance
satisfactory to the Underwriter and Underwriter's counsel.
If any condition to the Underwriter's obligations hereunder to be fulfilled
prior to or at the Closing Date or the relevant Option Closing Date, as the case
may be, is not so fulfilled, the Underwriter may terminate this Agreement or, if
the Underwriter so elects, it may waive any such conditions which have not been
fulfilled or extend the time for their fulfillment.
6. Conditions of the Company's Obligations. The obligation of the Company
to sell and deliver the Securities is subject to the following:
(a) The provisions regarding the effective date, as described in
Section 10.
(b) At the Initial Closing Date, no stop order suspending the
effectiveness of the Prospectus shall have been issued under the Act or any
proceedings therefor initiated or threatened by the Commission or by any
state securities department.
(c) Tender of payment by the Underwriter in accord with Section 2
hereof.
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<PAGE> 17
7. Indemnification.
(a) The Company agrees to indemnify and hold harmless each Underwriter and
its employees and each person, if any, who controls you within the meaning of
the Act, against any losses, claims, damages or liabilities, joint or several
(which shall, for any purposes of this Agreement, include, but not be limited
to, all costs of defense and investigation and all attorneys' fees), to which
each Underwriter or such controlling person may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission made in the Prospectus, or such amendment or supplement to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, which is in reliance upon and in conformity
with written information furnished by the Company to you specifically for use in
the preparation thereof, and provided further that the indemnity agreement
contained in this subsection (a) shall not inure to the benefit of you with
respect to any person asserting any such loss, claim, damage or liability who
has purchased the Securities which are the subject thereof if you or any
participants failed to send or give a copy of the Prospectus to such person at
or prior to the written confirmation of the sale of such Securities to such
person and except that, with respect to any untrue statement or omission or any
alleged untrue statement or omission, made in any Pre-Effective Prospectus, the
indemnity agreement contained in this subsection (a) shall not inure to the
benefit of any Underwriter ( or to any person controlling any such underwriter)
from whom the person asserting any such loss, claim, damage or liability
purchased the securities concerned to the extent that such untrue statement or
omission, or alleged untrue statement or omission, has been corrected in a later
Pre-Effective Prospectus or in the Final Prospectus unless the Underwriter
circulated a later Pre-Effective Prospectus or the Final Prospectus to such
person
(b) Each Underwriter will indemnify and hold harmless the Company, each of
its directors, each of its officers, each person, if any, who controls the
Company within the meaning of the Act against any losses, claims, damages or
liabilities, joint or several (which shall, for all purposes of this Agreement,
include, but not be limited to, all costs of defense and investigation and all
attorneys' fees) to which the Company or any such director, officer or
controlling person may become subject under the Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in the Prospectus, or any amendment or supplement
thereto, or arise out of or are based upon the omission or the alleged omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, in each case to the extent, but only
to the extent, that such untrue statement or alleged untrue statement or
omission was made in the Prospectus, or such amendment or supplement, in
reliance upon and in conformity with written information furnished to the
Company by you specifically for use in the preparation thereof. This indemnity
will be in addition to any liability which any Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section, notify the indemnifying party of the commencement thereof, but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party otherwise than under this
Section. In case any such action is brought against any indemnified party, and
it notifies the indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate in, and, to the extent that it may wish,
jointly with any other indemnifying party, similarly notified, to assume the
defense thereof, subject to the provisions herein stated, with counsel
satisfactory to such indemnified party, and after notice from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party will not be liable to such indemnified party
under this Section for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation. The indemnified party shall have the right to employ
separate counsel in any such action and to participate in the defense thereof,
but the fees and expenses of such counsel shall not be at the expense of the
indemnifying party if the indemnifying party has assumed the defense of the
action with counsel reasonably satisfactory to the indemnified party; provided
that, if the indemnified party is you or a person who controls you, the fees and
expenses of such
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counsel shall be at the expense of the indemnifying party if (i) the employment
of such counsel has been specifically authorized in writing by the indemnifying
party or (ii) the named parties to any such action (including any impleaded
parties) include both you or such controlling person and the indemnifying party
and you or such controlling person shall have been advised by such counsel that
there is a conflict of interest which would prevent counsel for the indemnifying
party from representing the indemnifying party and you or such controlling
person (in which case the indemnifying party shall not have the right to assume
the defense of such action on behalf of you or such controlling person, it being
understood, however, that the indemnifying party shall not, in connection with
any one such action or separate but substantially similar or related actions in
the same jurisdiction or which are consolidated into the same jurisdiction
arising out of the same general allegations or circumstances, be liable for the
reasonable fees and expenses of more than one separate firm of attorneys for you
and all such controlling persons, which firm shall be designated in writing by
you). No settlement of any action against an indemnified party shall be made
without the consent of the indemnified party, which shall not be unreasonably
withheld in light of all factors of importance to such indemnified party.
8. Contribution. In order to provide for just and equitable contribution
tinder the Act in any case in which (i) the indemnifying party makes a claim for
indemnification pursuant to Section 7 hereof but it is judicially determined (by
the entry of a final judgment or decree by a court of competent jurisdiction and
the expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case notwithstanding the fact
that the express provisions of Section 7 provide for indemnification in such
case, or (ii) contribution under the Act may be required on the part of the
Underwriters, then the Company and the Underwriters in the aggregate shall
contribute to the aggregate losses, claims, damages, or liabilities to which
they may be subject (which shall, for all purposes of this Agreement, include,
but not be limited to, all costs of defense and investigation and all attorneys'
fees) in either such case (after contribution from others) in such proportions
that the Underwriters are responsible in the aggregate for that portion of such
losses, claims, damages or liabilities determined by multiplying the total
amount of such losses, claims, damages or liabilities times the difference
between the public offering price and the commission to the Underwriter and
dividing the product thereof by the public offering price, and the Company, if
applicable, shall be responsible for that portion of such losses, claims,
damages or liabilities times the commission to the Underwriters and dividing the
product thereof by the public offering price; provided, however, that the
Underwriters shall not be required to so contribute any amount in excess of the
underwriting discount applicable to the Securities purchased by the Underwriters
hereunder if such allocation is not permitted by applicable law, then the
relative fault of the Company and the Underwriters in connection with the
statements or omissions which resulted in such damages and other relevant
equitable considerations shall also be considered. No person guilty of a
fraudulent misrepresentation (within the meaning of Section 12(2) of the Act)
shall be entitled to contribution from any person who is not guilty of such
fraudulent misrepresentation. The foregoing contribution agreement shall in no
way affect the contribution liabilities of any person having liability under
Section 12 of the Act other than the Company and the Underwriter. As used in
this paragraph, the term "Underwriters" includes any person who controls the
Underwriters within the meaning of Section 15 of the Act. If the full amount of
the contribution specified in this paragraph is not permitted by law, then any
Underwriter and each person who controls any Underwriter shall be entitled to
contribution from the Company, to the full extent permitted by law.
9. Effective Date. This Agreement shall become effective at 10:00 a.m. New
York time on the next full business day following the effective date of the
Registration Statement, or at such other time after the effective date of the
Prospectus as you in your discretion shall first commence the public offering of
any of the Securities covered thereby, provided, however, that at all times the
provisions of Sections 7, 8, 9 and 11 shall be effective.
10. Termination.
(a) This Agreement, may be terminated at any time prior to the Closing Date
by you if in your judgment it is impracticable to offer for sale or to enforce
contracts made by you for the sale of the Securities agreed to be sold hereunder
by reason of (i) the Company as a whole having sustained a material loss,
whether or not insured, by reason of fire, earthquake, flood, accident or other
calamity, or from any labor dispute or court or government action, order or
decree, (ii) trading in securities of the Company having been suspended by a
state securities administrator or by the Commission, (iii) material governmental
restrictions having been imposed on trading in
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<PAGE> 19
securities generally (not in force and effect on the date hereof) or trading on
the New York Stock Exchange, American Stock Exchange, or in the over-the-counter
market shall have been suspended, (iv) a banking moratorium having been declared
by federal or New York State authorities, (v) an outbreak or escalation of
hostilities or other national or international calamity having occurred, (vi)
the passage by the Congress of the United States or by any state legislative
body, of any act or measure, or the adoption of any orders, rules or regulations
by any governmental body or any authoritative accounting institute or board, or
any governmental executive, which is believed likely by you to have a material
impact on the business, financial condition or financial statements of the
Company; or (vii) any material adverse change having occurred, since the
respective dates as of which information is given in the Prospectus, in the
condition, financial or otherwise, of the Company as a whole, whether or not
arising in the ordinary course of business, (viii) Paul J. White, Kenneth S.
Kornman and Michael G. Newman cease to be employed by the Company in his present
capacity; (ix) the Securities are not listed the American Stock Exchange or any
other exchange or on NASDAQ.
(b) If you elect to prevent this Agreement from becoming effective or to
terminate this Agreement as provided in this Section 10 or in Section 9, the
Company shall be promptly notified by you, by telephone or telegram, confirmed
by letter.
11. Representations, Warrants and Agreements to Survive Delivery. The
respective indemnities, agreements, representations, warranties and other
statements of the Company (or its officers) and the Underwriter set forth in or
made pursuant to this Agreement will remain in full force and effect, regardless
of any investigation made by or on behalf of the Underwriter, the Company, or
any of their officers or directors and will survive delivery of and payment for
the Securities.
12. Notices. All communications hereunder will be in writing and, except as
otherwise expressly provided herein, if sent to you, will be mailed, delivered
or telephoned and confirmed to you at, Nutmeg Securities,Ltd., 495 Post Road
East, Westport, Ct 06880 Attn: Daniel T. Guilfoile,Director, Investment Banking
Division; to the Company at 4400 MacArthur Boulevard, Suite 980, Newport Beach,
CA 92660
13. Parties in Interest. This Agreement is made solely for the benefit of
the Underwriter(s), and the Company, and their respective controlling persons,
directors and officers, and their respective successors, assigns, executors and
administrators. No other person shall acquire or have any right under or by
virtue of this Agreement.
14. Headings. The Section headings in this Agreement have been inserted as
a matter of convenience of reference and are not a part of this Agreement.
15. Applicable Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Connecticut, without giving effect to
conflict of law principles.
16. Counterparts. This Agreement may be executed in any number of
counterparts, each of which together shall constitute one and the same
instrument.
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<PAGE> 20
If the foregoing correctly sets forth the understanding between the Company
and you, as Representative of the several underwriters, please so indicate in
the space provided below for such purpose, whereupon this letter and your
acceptance shall constitute a binding agreement between us.
Very truly yours, Medical
Science Systems,Inc.
By:
------------------------
(Authorized Officer)
Paul J. White, President
Accepted as of the date first above written:
Nutmeg Securities, Ltd.
As Representative of the several Underwriters
By:
--------------------------------------
(Authorized Officer)
(Vice) President
Director, Investment Banking Division
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<PAGE> 21
EXHIBIT A
SCHEDULE I
UNDERWRITERS
Shares of
Underwriter Common Stock
- ----------- ------------
Nutmeg Securities,Ltd..
---------
TOTAL 1,500,000
=========
21
<PAGE> 1
EXHIBIT 1.2
MEDICAL SCIENCE SYSTEMS, INC.
1,500,000 SHARES
OF COMMON STOCK
AGREEMENT AMONG UNDERWRITERS
, 19
Nutmeg Securities, Ltd
495 Post Road East
Westport, Ct 06880
as Representative
GENTLEMEN:
We wish to confirm as follows the agreement among you, the undersigned and
the other members of the Underwriting Group named in Schedule I to the
Underwriting Agreement, as it is to be executed (all such parties being herein
called the "Underwriters"), with respect to the purchase by the Underwriters
severally from Medical Science Systems, Inc.. ("Company") of 1,500,000 shares of
Common Stock ("Securities") set forth in Schedule I to the Underwriting
Agreement. The number of Securities to be purchased by each Underwriter from the
Company shall be determined in accordance with Section 2 of the Underwriting
Agreement. It is understood that changes may be made in those who are to be
Underwriters and in the respective numbers of Securities to be purchased by
them, but that the Underwriting Agreement will not be changed without our
consent, except as provided herein, and in the Underwriting Agreement. The
obligations of the Underwriters to purchase the number of Securities set
opposite their respective names in Schedule I to the Underwriting Agreement, are
herein called their "underwriting obligations." The number of Securities set
opposite our name in said Schedule I, are herein called "our Securities." For
purposes of this Agreement the following definitions shall be applicable:
(a) "Manager's Concession" shall be the compensation to you for acting as
Manager as provided in Paragraph 1 of not less than percent ( %) of the
underwriting discount. The Manager's Concession shall include the right to a
portion of the warrants to be issued pursuant to the Underwriting Agreement and,
the right to the nonaccountable expenses to be paid pursuant to the Underwriting
Agreement.
(b) "Underwriting Group Concession" shall mean compensation to members of
the Underwriting Group for assuming the underwriting risk and shall be not less
than percent ( %) of the underwriting discount.
(c) "Dealer's Concession" shall mean compensation to Dealers, who are
members of the Selling Group and shall, as to Dealers who have executed an
agreement with you, be not less than percent ( %) of the underwriting
discount.
(d) "Dealer's Reallowance Concession" shall mean the compensation allowed
Dealers by Underwriters other than you and shall be one-half (1/2) of the
Dealer's Concession.
(e) It is contemplated that the underwriting discount will be ten percent
(10%) of the offering price. You, in your absolute discretion, shall determine,
within the foregoing limitations, the precise allocation of the underwriting
discount and shall notify us of same at least twenty-four (24) hours prior to
the execution of the Underwriting Agreement.
1. Authority and Compensation of Representative. We hereby authorize you,
as our Representative and on our behalf, (a) to enter into an agreement with the
Company substantially in the form attached hereto as Exhibit A ("Underwriting
Agreement"), but with such changes therein as in your judgment are not
materially adverse to the Underwriters, (b) to exercise all the authority and
discretion vested in the Underwriters and in you by the provisions
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<PAGE> 2
of the Underwriting Agreement, and (c) to take all such action as you, in your
discretion, may deem necessary or advisable in order to carry out the provisions
of the Underwriting Agreement and this Agreement and the sale and distribution
of the Securities, provided, however, that the time within which the
Registration Statement is required to become effective pursuant to the
Underwriting Agreement will not be extended more than forty-eight (48) hours
without the approval of a majority in interest of the Underwriters (including
you). We authorize you, in executing the Underwriting Agreement on our behalf,
to set forth in Schedule I of the Underwriting Agreement as our commitment to
purchase the number of Securities (which shall not be substantially in excess of
the number of Securities included in your invitation to participate unless we
have agreed otherwise) included in a wire, telex, or similar means of
communication transmitted by you to us at least twenty-four (24) hours prior to
the commencement of the offering as our finalized underwriting participation.
As our share of the compensation for your services hereunder, we will pay
you, and we authorize you to charge to our account, a sum equal to the Manager's
Concession.
2. Public Offering. A public offering of the Securities is to be made, as
herein provided, as soon after the Registration Statement relating thereto shall
become effective as in your judgment is advisable. The Securities shall be
initially offered to the public at the public offering price of $ per share.
You will advise us by telegraph or telephone when the Securities shall be
released for offering. We authorize you as Representative of the Underwriters,
after the initial public offering, to vary the public offering price, in your
sole discretion, by reason of changes in general market conditions or otherwise.
The public offering price of the Securities at any time in effect is herein
called the "Offering Price."
We hereby agree to deliver all preliminary and final Prospectuses as
required for compliance with the provisions of Rule 15c2-8 under the Securities
Exchange Act of 1934 and Section 5(b) of the Securities Act of 1933. You have
heretofore delivered to us such preliminary Prospectuses as have been requested
by us, receipt of which is hereby acknowledged, and will deliver such final
Prospectuses as will be requested by us.
3. Offering to Dealers and Group Sales. We authorize you to reserve for
offering and sale, and on our behalf to sell, to institutions or other retail
purchasers (such sales being herein called "Group Sales") and to dealers
selected by you (such dealers being herein called the "Dealers") all or any part
of our Securities as you may determine. Such sales of Securities, if any, shall
be made (i) in the case of Group Sales, at the Offering Price, and (ii) in the
case of sales to Dealers, at -the Offering Price less the Dealer's Concession.
Any Group Sales shall be as nearly as practicable in proportion to the
underwriting obligations of the respective Underwriters. Any sales to Dealers
made for our account shall be as nearly as practicable in the ratio that the
Securities reserved for our account for offering to Dealers bears to the
aggregate of all Securities of all Underwriters, including you, so reserved. On
any Group Sales or sales to Dealers made by you on our behalf, we shall be
entitled to receive only the Underwriter's Concession.
You agree to notify us not less than twenty-four (24) hours prior to the
commencement of the public offering as to the number of Securities, if any,
which we may retain for direct sale. Prior to the termination of this Agreement,
you may reserve for offering and sale, as herein before provided, any Securities
remaining unsold theretofore retained by us and we may, with your consent,
retain any Securities remaining unsold theretofore reserved by you. Sales to
Dealers shall be made under a Selected Dealers Agreement, attached hereto as
Exhibit B and by this reference incorporated herein. We authorize you to
determine the form and manner of any communications with Dealers, and to make
such changes in the Selected Dealers Agreement, as you may deem appropriate. In
the event that there shall be any such agreements with Dealers, you are
authorized to act as managers thereunder, and we agree, in such event, to be
governed by the terms and conditions of such agreements. Each Underwriter agrees
that it will not offer any of the Securities for sale at a price below the
Offering Price or allow any concession therefrom, except as herein otherwise
provided. We, as to our Securities, may enter into agreements with Dealers, but
any Dealer's Reallowance Concession shall not exceed half of the Dealer's
Concession.
It is understood that any person to whom an offer may be made, as herein
before provided, shall be a member of the National Association of Securities
Dealers, Inc. ("NASD") or dealers or institutions with their principal place of
2
<PAGE> 3
business located outside of the United States, its territories or possessions,
and who are not eligible for membership under Section 1 of the Bylaws of the
NASD who agree to make no sales within the United States, its territories or
possessions, or to persons who are nationals thereof, or residents therein, and,
in making sales, to comply with the NASD's Rules of Fair Practice.
We authorize you to determine the form and manner of any public
advertisement of the Securities.
Nothing in this Agreement contained shall be deemed to restrict our right,
subject to the provisions of this Section 3, to offer our Securities prior to
the effective date of the Registration Statement, provided, however, that any
such offer shall be made in compliance with any applicable requirements of the
Securities Act of 1933 and the Securities Exchange Act of 1934 and the rules and
regulations of the Securities and Exchange Commission thereunder and of any
applicable state securities laws.
4. Repurchases in the Open Market. Any Securities sold by us (otherwise
than through you) which, prior to the termination of this Agreement, or such
earlier date as you may determine, shall be contracted for or purchased in the
open market by you on behalf of any Underwriter or Underwriters, shall be
repurchased by us on demand at a price equal to the cost of such purchase plus
commissions and taxes, if any, on redelivery. Any Securities delivered on such
repurchase need not be the identical Securities originally sold by us. In lieu
of delivery of such Securities to us, you may (i) sell such Securities in any
manner for our account and charge us with the amount of any loss or expense, or
credit us with the amount of any profit, less any expense, resulting from such
sale, or (ii) charge our account with an amount not in excess of the concession
to Dealers on such Securities.
5. Delivery and Payment. We agree to deliver to you, at or before 9:00
A.M., New York, New York Time, on the Closing Date referred to in the
Underwriting Agreement, at your office, a certified or bank cashier's check
payable to your order for the offering price of the Securities less Dealer's
Concession of the Securities which we retained for direct sale by us, the
proceeds of which check shall be delivered to you, in the manner provided in the
Underwriting Agreement, to or for the account of the Company against delivery of
certificates for such Securities to you for our account. You are authorized to
accept such delivery and to give receipts therefor. You may advance funds for
Securities which have been sold or reserved for sale to retail purchasers or
Dealers for our account. If we fail (whether or not such failure shall
constitute a default hereunder) to deliver to you, or you fail to receive, our
check and/or payment for sales made by you for our account for the Securities
which we have agreed to purchase, you, individually and not as Representative of
the Underwriters, are authorized (but shall not be obligated) to make payment,
in the manner provided in the Underwriting Agreement, to or for the account of
the Company for such Securities for our account, but any such payment by you
shall not relieve us of any of our obligations under the Underwriting Agreement
or under this Agreement and we agree to repay you on demand the amount so
advanced for our account.
We also agree on demand to take up and pay for or to deliver to you funds
sufficient to pay for at cost any Securities of the Company purchased by you for
our account pursuant to the provisions of Section 9 hereof, and to deliver to
you on demand any Securities sold by you for our account, pursuant to any
provision of this Agreement.
We authorize you to deliver our Securities, and any other Securities
purchased by you for our account pursuant to the provisions of Section 9 hereof,
against sales made by you for our account pursuant to any provision of this
Agreement.
Upon receipt by you of payment for the Securities sold by us and/or through
you for our account, you will remit to us promptly an amount equal to the
Underwriter's Concession on such Securities. You agree to cause to be delivered
to us, as soon as practicable after the Closing Date referred to in the
Underwriting Agreement, such part of our Securities purchased on such Closing
Date as shall not have been sold or reserved for sale by your for our account.
In case any Securities reserved for sale in Group Sales or to Dealers shall
not be purchased and paid for in due course as contemplated hereby, we agree to
accept delivery when tendered by you of any Securities so reserved for our
account and not so purchased and pay you the offering price less the Dealer's
and Underwriter's Concessions.
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<PAGE> 4
6. Authority to Borrow. We authorize you to advance your funds for our
account (charging current interest rates) and to arrange loans for our account
for the purpose of carrying out this Agreement, and in connection therewith to
execute and deliver any notes or other instruments, and to hold, or pledge as
security therefor, all or any part of our Securities of the Company purchased
hereunder for our account. Any lending bank is hereby authorized to accept your
instructions as Representative in all matters relating to such loans. Any part
of our Securities held by you, may be delivered to us for carrying purposes, and
if so delivered, will be redelivered to you upon demand.
7. Allocation of Expense and Liability. We authorize you to charge our
account with, and we agree to pay (a) all transfer taxes on sales made by you
for our account, except as herein otherwise provided, and (b) our proportionate
share (based on our underwriting obligations) of all expenses in excess of those
reimbursed by the Company incurred by you in connection with the purchase,
carrying and distribution, or proposed purchase and distribution, of the
Securities and all other expenses arising under the terms of the Underwriting
Agreement or this Agreement. Your determination of all such expenses and your
allocation thereof shall be final and conclusive. Funds for our account at any
time in your hands as our Representative may be held in your general funds
without accountability for interest. As soon as practicable after the
termination of this Agreement, the net credit or debit balance in our account,
after proper charge and credit for all interim payments and receipts, shall be
paid to or paid by us, provided, however, that you, in your discretion, may
reserve from distribution an amount to cover possible additional expenses
chargeable to the several Underwriters.
8. Liability for Future Claims. Neither any statement by you, as
Representative of the Underwriters, of any credit or debit balance in our
account nor any reservation from distribution to cover possible additional
expenses relating to the Securities shall constitute any representation by you
as to the existence or nonexistence of possible unforeseen expenses or
liabilities of or charges against the several Underwriters. Notwithstanding the
distribution of any net credit balance to us or the termination of this
Agreement, or both, we shall be and remain liable for, and will pay on demand,
(a) our proportionate share (based on our underwriting obligations) of all
expenses and liabilities which may be incurred by, or for the accounts of the
Underwriters, including any liability which may be incurred by the Underwriters
or any of them, and (b) any transfer taxes paid after such settlement on account
of any sale or transfer for our account.
9. Stabilization. We authorize you, until the termination of this
Agreement, (a) to make purchases and sales of the Securities, in the open market
or otherwise, for long or short account, and on such terms, and at such prices
as you in your discretion may deem desirable, (b) in arranging for sales of
Securities, to overallot, and (c) either before or after the termination of this
Agreement, to cover any short position incurred pursuant to this Section 9;
subject, however, to the applicable rules and regulations of the Securities and
Exchange Commission under the Securities Exchange Act of 1934. All such
purchases, sales and overallotments shall be made for the accounts of the
several Underwriters as nearly as practicable in proportion to their respective
underwriting obligations; provided, however, that our net position resulting
from such purchases and sales and overallotments shall not at any time exceed,
either for long or short account, fifteen percent (15%) of the number of
Securities agreed to be purchased by us.
If you engage in any stabilizing transactions as representative of the
underwriters, you shall promptly notify us of that fact and in like manner you
agree to promptly notify and file with us any stabilizing transaction in
accordance with the requirements of Rule 17a-2(d) under the Securities Exchange
Act of 1934.
We agree to advise you from time to time, upon request, until the settlement of
accounts hereunder, of the number of Securities at the time retained by us
unsold, and we will upon request sell to you, for the accounts of one or more of
the several Underwriters, such number of our unsold Securities as you may
designate, at the Offering Price less such amount, not in excess of the
concession to Dealers, as you may determine.
10. Open Market Transactions. We agree that, except with your consent and
except as herein provided upon advice from you, we will not make purchases or
sales on the open market or otherwise, or attempt to induce others to make
purchases or sales, either before or after the purchase of the Securities, and
prior to the completion (as defined in Regulation M of the Securities Exchange
Act of 1934) of our participation in the distribution, we will otherwise
4
<PAGE> 5
comply with Regulation M. Nothing in this Section 10 contained shall prohibit us
from acting as broker or agent in the execution of unsolicited orders of
customers for the purchase or sale of any securities of the Company.
11. Blue Sky. Prior to the initial offering by the Underwriters, you will
inform us as to the states under the respective securities or Blue Sky laws of
which it is believed that the Securities have been qualified or are exempt for
sale, but you do not assume any responsibility or obligation as to the accuracy
of such information or as to the right of any Underwriter or Dealer to sell the
Securities in any jurisdiction. We will not sell any Securities in any other
state or jurisdiction and we will not sell Securities in any state or
jurisdiction unless we are qualified or licensed to sell securities in such
state or jurisdiction. We authorize you, if you deem it inadvisable in arranging
sales of Securities for our account hereunder, to sell any of our Securities to
any particular Dealer, or other buyer, because of the securities or Blue Sky
laws of any jurisdiction, to sell our Securities to one or more other
Underwriters at the Offering Price less, in the case of a sale to any Dealer,
such amount, not in excess of the concession to Dealers thereon, as you may
determine. The transfer tax on any such sales among Underwriters shall be
treated as an expense and charged to the respective accounts of the several
Underwriters, in proportion to their respective underwriting obligations.
12. Default by Underwriters. Default by one or more Underwriters, in
respect to their obligations under the Underwriting Agreement shall not release
us from any of our obligations. In case of such default by one or more
Underwriters, you are authorized to increase, pro rata, with the other
nondefaulting Underwriters, the number of defaulted Securities which we shall be
obligated to purchase from the Company, provided, however, that the aggregate
amount of all such increases for all Underwriters shall not exceed ten percent
(10%) of such Securities, and, if the aggregate number of the Securities not
taken up by such defaulting Underwriters exceeds such ten percent (10%), you are
further authorized, but shall not be obligated, to arrange for the purchase by
other persons, who may include yourselves, of all or a portion of the Securities
not taken up by such Underwriters. In the event any such increases or
arrangements are made, the respective numbers of Securities to be purchased by
the nondefaulting Underwriters and by any such other person or persons shall be
taken as the basis for the underwriting obligations under this Agreement, but
this shall not in any way affect the liability of any defaulting Underwriters to
the other Underwriters for damages resulting from such default.
In the event of default by one or more Underwriters in respect of their
obligations under this Agreement to take up and pay for any Securities purchased
by your for their respective accounts, pursuant to Section 9 hereof, or to
deliver any such Securities sold or overallotted by you for their respective
accounts pursuant to any provisions of this Agreement, and to the extent that
arrangements shall not have been made by you for other persons to assume the
obligations of such defaulting Underwriter or Underwriters, each nondefaulting
Underwriter shall assume its proportionate share of the aforesaid obligations of
each such defaulting Underwriter without relieving any such Underwriter of its
liability therefor.
13. Termination of Agreement. Unless earlier terminated by you, the
provisions of Sections 2, 3, 4, 6, 9 and 10 of this Agreement shall, except as
otherwise provided therein, terminate thirty (30) full business days after the
effective date of the Registration Statement herein referred to, but may be
extended by you for an additional period or periods not exceeding thirty (30)
full business days in the aggregate. You may, however, terminate this Agreement,
or any provisions hereof, at any time by written or telegraphic notice to us.
14. General Position of the Representative. In taking action under this
Agreement, you shall act only as agent of the several Underwriters. Your
authority as Representative of the several Underwriters shall include the taking
of such action as you may deem advisable in respect of all matters pertaining to
any and all offers and sales of the Securities, including the right to make any
modifications which you consider necessary or desirable in the arrangements with
Dealers or others. You shall be under no liability for or in respect of the
value of the Securities or the validity or the form thereof, the Registration
Statement, the Prospectus, the Underwriting Agreement, or other instruments
executed by the Company or others of any agreement on its or their part; nor
shall you, as such Representative or otherwise, be liable under any of the
provisions hereof, or for any matters connected herewith, except for want of
good faith, and except for any liability arising under the Securities Act of
1933; and no obligation not expressly assumed by you as such Representative
herein shall be implied from this Agreement. In representing the Underwriters
hereunder, you shall act as the representative of each of them respectively.
Nothing herein contained shall constitute the several Underwriters partners with
you or with each other, or render any Underwriter
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<PAGE> 6
liable for the commitments of any other Underwriter, except as otherwise
provided in Section 12 hereof. The commitments and liabilities of each of the
several Underwriters are several in accordance with their respective
underwriting obligations and are not joint.
15. Acknowledgment of Registration Statement, etc. We hereby confirm that
we have examined the Registration Statement (including all amendments thereto)
relating to the Securities as heretofore filed with the Securities and Exchange
Commission, that we are familiar with the amendment(s) to the Registration
Statement and the final form of Prospectus proposed to be filed, that we are
willing to accept the responsibilities of an underwriter thereunder, and that we
are willing to proceed as therein contemplated. We further confirm that the
statements made under the heading "Underwriting" in such proposed final form of
Prospectus are correct and we authorize you so to advise the Company on our
behalf. We understand that the aforementioned documents are subject to further
change and that we will be supplied with copies of any amendment or amendments
to the Registration Statement and of any amended Prospectus promptly, if and
when received by you, but the making of such changes and amendments shall not
release us or affect our obligations hereunder or under the Underwriting
Agreement.
16. Indemnification. Each Underwriter, including you, agrees to indemnify
and hold harmless each other Underwriter and each person who controls any other
Underwriter within the meaning of Section 15 of the Securities Act of 1933, as
amended, to the extent of their several commitments under the Underwriting
Agreement and upon the terms that such Underwriter agrees to indemnify and hold
harmless the Company as set forth in Section 7 of the Underwriting Agreement.
The Agreement contained in this Section 16 shall survive any termination of this
Agreement Among Underwriters.
17. Capital Requirements. We confirm that our ratio of aggregate
indebtedness to net capital is such that we may, in accordance with and pursuant
to Rule 15c3-1, promulgated by the Securities and Exchange Commission under the
Securities Exchange Act of 1934, agree to purchase the number of Securities we
may be obligated to purchase under any provision of the Underwriting Agreement
or this Agreement.
18. Miscellaneous. We have transmitted herewith a completed Underwriters'
Questionnaire on the form thereof supplied by you. Any notice hereunder from you
to us or from us to you shall be deemed to have been duly give if sent by
registered mail, telegram, teletype, telex, telecopier, graphic scan, or other
written form of telecommunication to us at our address as set forth in the
Underwriting Agreement, or to you at the address set forth on the first page of
this Agreement.
You hereby confirm that you are registered as a broker-dealer with the
United States Securities and Exchange Commission and that you are a member of
the NASD and we confirm that we are either a member of the NASD or a foreign
broker-dealer not eligible for membership under Section I of the Bylaws of the
NASD, who agrees to make no sales within the United States, its territories or
possessions, or to persons who are nationals thereof or residents therein, and,
in making sales, to comply with the requirements of the NASD's Interpretation
with Respect to Free Riding and Withholding, and with Sections 2730, 2740 and
2420 to the extent applicable to foreign nonmember brokers or dealers, and
Section 2750 of the NASD's Rules of Fair Practice.
We will comply with all applicable federal laws, the laws of the states or
other jurisdictions concerned and the Rules and Regulations of the NASD,
including, but not limited to, Section 2740 of the Rules of Fair Practice.
This instrument may be signed by the Underwriters in various counterparts
which together shall constitute one and the same agreement among all the
Underwriters and shall become effective as between us at such time as you shall
have confirmed same by returning an executed copy to us, and thereafter, as to
us and the other Underwriters, upon execution by them of counterparts which are
confirmed by you. In no event, however, shall we have any liability under this
Agreement if the Underwriting Agreement is not executed.
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<PAGE> 7
Please confirm that the foregoing correctly states the understanding between
us by signing and returning to us a counterpart hereof.
Very truly yours,
By
---------------------------------
Attorney-in-Fact
for the several Underwriters
named in Schedule I
to the Underwriting Agreement
Confirmed as of the date first above written.
NUTMEG SECURITIES,LTD.
As Representative
By
----------------------------------------
President or Director Investment Banking
7
<PAGE> 1
EXHIBIT 1.3
EXHIBIT B
A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION BUT HAS NOT YET BECOME EFFECTIVE. NO
OFFER TO BUY THE SECURITIES CAN BE ACCEPTED AND NO PART OF THE PURCHASE PRICE
CAN BE RECEIVED UNTIL THE REGISTRATION STATEMENT HAS BECOME EFFECTIVE, AND ANY
SUCH OFFER MAY BE WITHDRAWN OR REVOKED, WITHOUT OBLIGATION OR COMMITMENT OF ANY
KIND, AT ANY TIME PRIOR TO NOTICE OF ITS ACCEPTANCE GIVEN AFTER THE EFFECTIVE
DATE. YOUR EXECUTION HEREOF WELL INVOLVE NO OBLIGATION OR COMMITMENT OF ANY KIND
UNTIL THE REGISTRATION STATEMENT HAS BECOME EFFECTIVE.
MEDICAL SCIENCE SYSTEMS, INC.
SELECTED DEALERS AGREEMENT
, 19
Dear Sirs:
1. Nutmeg Securities ,Ltd.. named as the Underwriter ("Underwriter") in the
enclosed preliminary Prospectus, proposes to offer on a firm commitment basis,
subject to the terms and conditions and execution of the Underwriting Agreement,
1,500,000 Shares of Common Stock at $ per share ("Securities") of the above
Company. The Securities are more particularly described in the enclosed
preliminary Prospectus, additional copies of which will be supplied in
reasonable quantities upon request. Copies of the definitive Prospectus will be
supplied after the effective date of the Registration Statement.
2. The Underwriter is soliciting offers to buy, upon the terms and
conditions hereof, a part of the Securities from Selected Dealers, including you
who are to act as principal and who are (i) registered with the Securities and
Exchange Commission ("Commission") as broker-dealers under the Securities
Exchange Act of 1934, as amended ("1934 Act"), and members in good standing with
the National Association of Securities Dealers, Inc. ("NASD"), or (ii) dealers
or institutions with their principal place of business located outside the
United States, its territories and possessions who are not eligible for
membership in the NASD and who agree to make no sales within the United States,
its territories or possessions or to persons who are nationals thereof or
residents therein and, in making sales, to comply with the NASD's Interpretation
with Respect to FreeRiding and Withholding and with Sections 2730, 2740, 2420,
to the extent applicable to foreign nonmember brokers or dealers, and Section
2750 of the NASD's Rules of Fair Practice. The Securities are to be offered at a
public price of $ per share of Common Stock. Selected Dealers will be
allowed a concession of not less than $ per share, except as provided
below. You will be notified of the precise amount of such concession prior to
the effective date of the Registration Statement. You may reallow not in excess
of $ per share to dealers who meet the requirements set forth in this
Section 2. This offer is solicited subject to the issuance and delivery of the
Securities and their acceptance by the Underwriter, to the approval of legal
matters by counsel and to the terms and conditions as herein set forth.
3. Your offer to purchase may be revoked in whole or in part without
obligation or commitment of any kind by you and any time prior to acceptance and
no offer may be accepted by us and no sale can be made until after the
registration statement covering the Securities has become effective with the
Commission. Subject to the foregoing, upon execution by you of the Offer to
Purchase below and the return of same to us, you shall be deemed to have offered
to purchase the number of Securities set forth in your offer on the basis set
forth in paragraph 2 above.
1
<PAGE> 2
Any oral notice by us of acceptance of your offer shall be immediately followed
by written or telegraphic confirmation preceded or accompanied by a copy of the
Prospectus. If a contractual commitment arises hereunder, all the terms of this
Selected Dealers Agreement shall be applicable. We may also make available to
you an allotment to purchase Securities, but such allotment shall be subject to
modification or termination upon notice from us any time prior to an exchange of
confirmations reflecting completed transactions. All references hereafter in
this Agreement to the purchase and sale of Securities assume and are applicable
only if contractual commitments to purchase are completed in accordance with the
foregoing.
4. You agree that in reoffering said Securities, if your offer is accepted
after the effective date, you will make a bona fide public distribution of same.
You will advise us upon request of Securities purchased by you remaining unsold
and we shall have the right to repurchase such Securities upon demand at the
public offering price without paying the concession with respect to any
Securities so repurchased. Any of the Securities purchased by you pursuant to
this Agreement are to be subject to the terms hereof. Securities shall not be
offered or sold by you below the public offering price before the termination of
this Agreement.
5. Payment for Securities which you purchase hereunder shall be made by you
on or before three (3) business days after the date of each confirmation by
certified or bank cashier's check payable to the Underwriter. Certificates for
the Securities shall be delivered as soon as practicable after delivery
instructions are received by the Underwriter.
6. A registration statement covering the offering has been filed with the
Securities and Exchange Commission in respect to the Securities. You will be
promptly advised when the registration statement becomes effective. Each
Selected Dealer in selling Securities pursuant hereto agrees (which agreement
shall also be for the benefit of the Company) that it will comply with the
applicable requirements of the Securities Act of 1933 and of the Securities
Exchange Act of 1934 and any applicable rules and regulations issued under said
Acts. No person is authorized by the Company or by the Underwriter to give any
information or to make any representations other than those contained in the
Prospectus in connection with the sale of the Securities. Nothing contained
herein shall render the Selected Dealers a member of the Underwriting Group or
partners with the Underwriter or with one another.
7. You will be informed by us as to the states in which we have been
advised by counsel the Securities have been qualified for sale or are exempt
under the respective securities or blue sky laws of such states, but we have not
assumed and will not assume any obligation or responsibility as to the right of
any Selected Dealer to sell Securities in any state. You agree not to sell
Securities in any other state or jurisdiction and to not sell Securities in any
state or jurisdiction unless you are qualified or licensed to sell securities in
such state or jurisdiction.
8. The Underwriter shall have full authority to take such action as it may
deem advisable in respect of all matters pertaining to the offering or arising
thereunder. The Underwriter shall not be under any liability to you, except such
as may be incurred under the Securities Act of 1933 and the rules and
regulations thereunder, except for lack of good faith and except for obligations
assumed by us in this Agreement, and no obligation on our part shall be implied
or inferred herefrom.
9. Selected Dealers will be governed by the conditions herein set forth
until this Agreement is terminated. This Agreement will terminate when the
offering is completed. Nothing herein contained shall be deemed a commitment on
our part to sell you any Securities; such contractual commitment can only be
made in accordance with the provisions of paragraph 3 hereof.
10. You represent that you are a member in good standing of the NASD and
registered as a broker-dealer with the Commission, or that you are a foreign
broker-dealer not eligible for membership under Section 1 of the Bylaws of the
NASD who agrees to make no sales within the United States, its territories or
possessions or to persons who are nationals thereof or residents therein and, in
making sales, to comply with the NASD's interpretation with Respect to
FreeRiding and Withholding and with Sections 2730, 2740, 2420 to the extent
applicable to foreign nonmember brokers and dealers, and Section 2750 of the
NASD's Rules of Fair Practice. Your attention is called to and you agree to
comply with the following: (a) Article III, Section 1 of the Rules of Fair
Practice of the NASD and the interpretations of said Section promulgated by the
Board of Governors of the NASD including Section 24 and the
2
<PAGE> 3
interpretation with respect to "Free-Riding and Withholding;" (b) Section 10(b)
of the 1934 Act and Regulation M and Rule 10b-10 of the general rules and
regulations promulgated under the 1934 Act; and (c) Rule 15c2-8 of the general
rules and regulations promulgated under the 1934 Act requiring the distribution
of a preliminary Prospectus to all persons reasonably expected to be purchasers
of the Securities from you at least 48 hours prior to the time you expect to
mail confirmations. You, as a member of the NASD, by signing this Agreement,
acknowledge that you are familiar with the cited laws and rules and agree that
you will not directly and/or indirectly violate any provisions of applicable law
in connection with your participation in the distribution of the Securities.
11. In addition to compliance with the provisions of paragraph 10 hereof,
you will not, until advised by us in writing or by wire that the entire offering
has been distributed and closed, bid for or purchase Securities in the open
market or otherwise make a market in the Securities or otherwise attempt to
induce others to purchase the Securities in the open market. Nothing contained
in this paragraph 11 shall, however, preclude you from acting as agent in the
execution of unsolicited orders of customers in transactions effectuated for
them through a market maker.
12. You understand that the Underwriter may in connection with the offering
engage in stabilizing transactions. If the Underwriter contracts for or
purchases in the open market in connection with such stabilization any
Securities sold to you hereunder and not effectively placed by you, the
Underwriter may charge you the Selected Dealer's concession originally allowed
you on the Securities so purchased and you agree to pay such amount to us on
demand.
13. By submitting an Offer to Purchase you confirm that you may, in
accordance with Rule 15c3-1 adopted under the 1934 Act, agree to purchase the
number of Securities you may become obligated to purchase under the provisions
of this Agreement.
14. All communications from you should be directed to us at 495 Post Road
East, Westport, CT 06880 Attn: Daniel T. Guilfoile, Director Investment Banking
Division (203-226-1857) and fax (203-226-5343). All communications from us to
you shall be directed to the address to which this letter is mailed.
Very truly yours,
Nutmeg Securities, Ltd.
By
--------------------------------
(Authorized Officer)
3
<PAGE> 4
OFFER TO PURCHASE
The undersigned does hereby offer to purchase (subject to the right to
revoke as set forth in paragraph 3) ___________________* Securities in
accordance with the terms and conditions set forth above. We hereby acknowledge
receipt of the Prospectus referred to in the first paragraph thereof relating to
such Securities. We further state that in purchasing such Securities we have
relied upon such Prospectus and upon no other statement whatsoever, written or
oral.
- ------------------------------------
By
---------------------------------
(Authorized Officer)
- ---------------
* If a number appears here which does not correspond with what you wish to offer
to purchase, you may change the number by crossing out the number, inserting a
different number and initializing the change.
4
<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
MEDICAL SCIENCE SYSTEMS, INC.
ARTICLE ONE
Medical Science Systems, Inc., a Texas corporation (the "Corporation"),
pursuant to the provisions of Article 4.07 of the Texas Business Corporation
Act, hereby adopts these Amended and Restated Articles of Incorporation, which
accurately copy the Articles of Incorporation of the Corporation, as amended
through, and in effect on the date hereof, as further amended by these Amended
and Restated Articles of Incorporation as hereinafter set forth, and contain no
other change in any provisions thereof.
ARTICLE TWO
The Articles of Incorporation, as amended, of the Corporation are
amended by these Amended and Restated Articles of Incorporation as follows:
The amendments made by these Amended and Restated Articles of
Incorporation (the "Amendments") alter or change Articles ONE through EIGHT of
the Articles of Incorporation and add Articles NINE, TEN and ELEVEN. The full
text of each provision altered or added is as set forth in Article FIVE hereof.
The Amendments confirm the reclassification and split effected pursuant
to the Articles of Amendment dated July 29, 1996 to the Articles of
Incorporation of the Company filed with the Secretary of State of Texas on
August 2, 1996 (the "First Amendment"), whereby simultaneously with the
effective date of the First Amendment, each issued and outstanding share of
previously authorized Class A Common Voting Stock, no par value, of the
Corporation, was thereby and thereupon reclassified, changed and split up into
1,083.333 validly issued, fully paid and nonassessable shares of common shares,
no par value, of the Corporation. Upon the filing of these Amended and Restated
Articles of Incorporation, all issued and outstanding shares of previously
authorized common shares of the Corporation shall remain outstanding without any
change thereto, but such shares and all other authorized shares of common shares
shall thereafter be designated as shares of common stock.
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<PAGE> 2
ARTICLE THREE
The Amendments have been effected in conformity with the provisions of
the Texas Business Corporation Act, and the Amended and Restated Articles of
Incorporation were duly adopted by all of the shareholders of the Corporation
pursuant to a consent dated September 27, 1996.
ARTICLE FOUR
On that date there were 3,254,999 common shares of the Corporation
outstanding, all of which were entitled to vote on the Amendments. All 3,254,999
shares of the Corporation were voted in favor of the Amendments.
ARTICLE FIVE
The Articles of Incorporation of the Corporation filed with the
Secretary of State of the State of Texas on August 2, 1996 are hereby superseded
by the following Amended and Restated Articles of Incorporation, which
accurately copy the entire text thereof as amended hereby:
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
MEDICAL SCIENCE SYSTEMS, INC.
ARTICLE ONE
The name of the Corporation is Medical Science Systems, Inc.
ARTICLE TWO
The period of its duration is perpetual.
ARTICLE THREE
The purpose or purposes for which the Corporation is organized is the
transaction of all lawful business for which a corporation may be incorporated
under the corporation laws of the State of Texas.
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<PAGE> 3
ARTICLE FOUR
The aggregate number of shares that the Corporation shall have the
authority to issue is 15,000,000 shares, consisting of 10,000,000 shares of
common stock, no par value per share (the "Common Stock"), and 5,000,000 shares
of preferred stock, no par value per share (the "Preferred Stock").
The descriptions of the different classes of capital stock of the
Corporation and the preferences, designations, relative rights, privileges and
powers, and the restrictions, limitations and qualifications thereof, of said
classes of stock are as follows:
Division A
The shares of Preferred Stock may be divided into and issued in one or
more series, the relative rights and preferences of which series may vary in any
and all respects. The board of directors of the Corporation is hereby vested
with the authority to establish series of Preferred Stock by fixing and
determining all the preferences, limitations and relative rights of the shares
of any series so established, to the extent not provided for in these Amended
and Restated Articles of Incorporation or any amendment hereto, and with the
authority to increase or decrease the number of shares within each such series;
provided, however, that the board of directors may not decrease the number of
shares within a series below the number of shares within such series that is
then issued. The authority of the board of directors with respect to each such
series shall include, but not be limited to, determination of the following:
1. the distinctive designation and number of shares of that series;
2. the rate of dividend (or the method of calculation thereof) payable
with respect to shares of that series, the dates, terms and other
conditions upon which such dividends shall be payable, and the relative
rights of priority of such dividends to dividends payable on any other
class or series of capital stock of the Corporation;
3. the nature of the dividend payable with respect to shares of that
series as cumulative, noncumulative or partially cumulative, and if
cumulative or partially cumulative, from which date or dates and under what
circumstances;
4. whether shares of that series shall be subject to redemption, and,
if made subject to redemption, the times, prices, rates, adjustments and
other terms and conditions of such redemption (including the manner of
selecting shares of that series for redemption if fewer than all shares of
such series are to be redeemed);
5. the rights of the holders of shares of that series in the event of
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation (which rights may be different if such action is voluntary than
if it is involuntary), including the relative
-3-
<PAGE> 4
rights of priority in such event as to the rights of the holders of any
other class or series of capital stock of the Corporation;
6. the terms, amounts and other conditions of any sinking or similar
purchase or other fund provided for the purchase or redemption of shares of
that series;
7. whether shares of that series shall be convertible into or
exchangeable for shares of capital stock or other securities of the
Corporation or of any other corporation or entity, and, if provision be
made for conversion or exchange, the times, prices, rates, adjustments and
other terms and conditions of such conversion or exchange;
8. the extent, if any, to which the holders of shares of that series
shall be entitled (in addition to any voting rights provided by law) to
vote as a class or otherwise with respect to the election of directors or
otherwise;
9. the restrictions and conditions, if any, upon the issue or reissue
of any additional Preferred Stock ranking on a parity with or prior to
shares of that series as to dividends or upon liquidation, dissolution or
winding up;
10. any other repurchase obligations of the Corporation, subject to any
limitations of applicable law; and
11. notwithstanding their failure to be included in (1) through (10)
above, any other designations, preferences, limitations or relative rights
of shares of that series.
Any of the designations, preferences, limitations or relative rights (including
the voting rights) of any series of Preferred Stock may be dependent on facts
ascertainable outside these Amended and Restated Articles of Incorporation.
Shares of any series of Preferred Stock shall have no voting rights except
as required by law or as provided in the preferences, limitations and relative
rights of such series.
Division B
1. Dividends. Dividends may be paid on the Common Stock out of any
assets of the Corporation available for such dividends subject to the rights of
all outstanding shares of capital stock ranking senior to the Common Stock in
respect of dividends.
2. Distribution of Assets. In the event of any liquidation, dissolution
or winding up of the Corporation, after there shall have been paid to or set
aside for the holders of capital stock ranking senior to the Common Stock in
respect of rights upon liquidation, dissolution or winding up the full
preferential amounts to which they are respectively entitled, the holders of
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<PAGE> 5
the Common Stock shall be entitled to receive, pro rata, all of the remaining
assets of the Corporation available for distribution to its shareholders.
3. Voting Rights. The holders of the Common Stock shall be entitled to
one vote per share for all purposes upon which such holders are entitled to
vote.
Division C
1. No Preemptive Rights. No shareholder of the Corporation shall by
reason of his holding shares of any class have any preemptive or preferential
right to acquire or subscribe for any additional, unissued or treasury shares of
any class of the Corporation now or hereafter to be authorized, or any notes,
debentures, bonds or other securities convertible into or carrying any right,
option or warrant to subscribe to or acquire shares of any class now or
hereafter to be authorized, whether or not the issuance of any such shares, or
such notes, debentures, bonds or other securities, would adversely affect the
dividends or voting or other rights of such shareholder, and the board of
directors may issue or authorize the issuance of shares of any class, or any
notes, debentures, bonds or other securities convertible into or carrying
rights, options or warrants to subscribe to or acquire shares of any class,
without offering any such shares of any class, either in whole or in part, to
the existing shareholders of any class.
2. Share Dividends. Subject to any restrictions in favor of any series
of Preferred Stock provided in the relative rights and preferences of such
series, the Corporation may pay a share dividend in shares of any class or
series of capital stock of the Corporation to the holders of shares of any class
or series of capital stock of the Corporation.
3. No Cumulative Voting. Cumulative voting for the election of
directors is expressly prohibited as to all shares of any class or series.
ARTICLE FIVE
The Corporation will not commence business until it has received for
the issuance of its shares consideration of at least the value of One Thousand
Dollars ($1,000.00), consisting of money, labor done or property actually
received.
ARTICLE SIX
The address of the Corporation's registered office is 100 N.E. Loop
410, Suite 1350, San Antonio, Texas 78216, and the name of its registered agent
at such address is Medical Science Systems, Inc., c/o Dr. Kenneth S. Kornman.
-5-
<PAGE> 6
ARTICLE SEVEN
1. Number and Terms of Directors. The number of directors of the
Corporation shall be fixed by, or in the manner provided in, the Amended and
Restated Bylaws of the Corporation; provided that the maximum number of
directors shall be nine (9). The number of directors constituting the current
board of directors is three (3), and the name and address of the persons who are
to serve as directors until their successors are elected and qualified are:
Paul J. White
4400 MacArthur Blvd.,
Suite 980
Newport Beach, CA 92660
Michael G. Newman
4400 MacArthur Blvd.,
Suite 980
Newport Beach, CA 92660
Kenneth S. Kornman
100 N.E. Loop 410, Suite 1350
San Antonio, Texas 78216
2. Removal of Directors. No director of the Corporation shall be
removed from such office by vote or other action of the shareholders of the
Corporation or otherwise, except by the affirmative vote of holders of at least
a majority of the then outstanding Voting Stock (as defined below), voting
together as a single class. The term "Voting Stock" shall mean all outstanding
shares of all classes and series of capital stock of the Corporation entitled to
vote generally in the election of directors of the Corporation, considered as
one class; and, if the Corporation shall have shares of Voting Stock entitled to
more or less than one vote for any such share, each reference in the Amended and
Restated Articles of Incorporation to a proportion or percentage of Voting Stock
shall be calculated by reference to the portion or percentage of votes entitled
to be cast by holders of such shares generally in the election of directors of
the Corporation. Prior to the first date (the "Public Status Date") on which the
Corporation has outstanding a class of equity securities registered under the
Securities Exchange Act of 1934, as may be amended from time to time (the
"Exchange Act"), any such removal of a director of the Corporation may be with
or without cause. On and after the Public Status Date, no director of the
Corporation shall be removed from such office by vote or other action of the
shareholders of the Corporation or otherwise, except for cause, which shall be
deemed to exist only if: (i) such director has been convicted, or such director
is granted immunity to testify where another has been convicted, of a felony by
a court of competent jurisdiction (and such conviction is no longer subject to
direct appeal); (ii) such director has been found by a court of competent
jurisdiction (and such finding is no longer subject to direct appeal) or by the
affirmative vote of at least a majority of the Whole Board (as defined below) at
any regular or special meeting of the board of directors called for such purpose
to have been grossly negligent or guilty of willful
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<PAGE> 7
misconduct in the performance of his duties to the Corporation in a matter of
substantial importance to the Corporation; (iii) such director has been
adjudicated by a court of competent jurisdiction to be mentally incompetent,
which mental incompetency directly affects his ability to perform as a director
of the Corporation; (iv) such director has been found by a court of competent
jurisdiction (and such finding is no longer subject to direct appeal) or by the
affirmative vote of at least a majority of the Whole Board at any regular or
special meeting of the board of directors called for such purpose to have
breached such director's duty of loyalty to the Corporation or its shareholders
or to have engaged in any transaction with the Corporation from which such
director derived an improper personal benefit; or (v) "cause" for removal
otherwise exists under Article 2.32.A. of the Texas Business Corporation Act
(the "TBCA"). No director of the Corporation so removed may be nominated,
re-elected or reinstated as a director of the Corporation so long as the cause
for removal continues to exist. The term "Whole Board" shall mean the total
number of authorized directors of the Corporation whether or not there exist any
vacancies in previously authorized directorships. This paragraph shall be
subject to the rights, if any, of holders of any class or series of stock to
elect directors and remove directors elected by them.
ARTICLE EIGHT
No director of the Corporation shall be liable to the Corporation or
its shareholders for monetary damages for an act or omission in the director's
capacity as a director, except that this article does not eliminate or limit the
liability of a director for: (1) a breach of a director's duty of loyalty to the
Corporation or its shareholders; (2) an act or omission not in good faith that
constitutes a breach of duty of that director to the Corporation or an act or
omission that involves intentional misconduct or a knowing violation of the law;
(3) a transaction from which a director received an improper benefit, whether or
not the benefit resulted from an action taken within the scope of the director's
office; or (4) an act or omission for which the liability of a director is
expressly provided for by an applicable statute.
If the Texas Miscellaneous Corporation Laws Act or the Texas Business
Corporation Act ("TBCA") is amended to authorize action further eliminating or
limiting the personal liability of directors, then the liability of a director
of the corporation shall be eliminated or limited to the fullest extent
permitted by such statutes, as so amended. Any amendment, repeal or modification
of this Article EIGHT shall be prospective only and shall not adversely affect
any right or protection of a director of the Corporation existing at the time of
such amendment, repeal or modification.
ARTICLE NINE
On and after the Public Status Date, the vote of shareholders required
for approval of (1) any plan of merger, consolidation, or exchange for which the
TBCA requires a shareholder vote, (2) any disposition of assets for which the
TBCA requires a shareholder vote, (3) any dissolution of the corporation for
which the TBCA requires a shareholder vote, and (4) any amendment of the
Restated Articles of Incorporation of the Corporation for which the TBCA
requires a shareholder vote, shall be (in lieu of any greater vote required by
the TBCA) the
-7-
<PAGE> 8
affirmative vote of the holders of a majority of the outstanding Voting Stock
entitled to vote thereon, unless any class or series of shares is entitled to
vote as a class thereon, in which event the vote required shall be the
affirmative vote of the holders of a majority of the outstanding shares within
each class or series of shares entitled to vote thereon as a class and at least
a majority of the outstanding Voting Stock otherwise entitled to vote thereon.
ARTICLE TEN
Special meetings of shareholders may be called by the Corporation's
chairman of the board, the president or the board of directors. Subject to the
provisions of the Corporation's Amended and Restated Bylaws governing special
meetings, holders of not less than (1) prior to the Public Status Date, 10% and
(2) on and after the Public Status Date, 50% of the outstanding shares of stock
entitled to vote at the proposed special meeting may also call a special meeting
of shareholders by furnishing the Corporation a written request which states the
purpose or purposes of the proposed meeting in the manner set forth in the
Amended and Restated Bylaws.
ARTICLE ELEVEN
Prior to the Public Status Date, any action required or permitted to be
taken at any annual or special meeting of shareholders of the Corporation may be
taken without a meeting, without prior notice and without a vote, if a consent
or counterpart consents in writing, setting forth the action so taken, shall be
signed by the holder or holders of shares having not less than the minimum
number of votes that would be necessary to take such action at a meeting at
which the holders of all shares entitled to vote on the action were present and
voted. Prompt notice of the taking of the corporate action without a meeting by
less than unanimous written consent shall be given to those shareholders who did
not consent in writing to the action.
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<PAGE> 9
EXECUTED AND EFFECTIVE this 27th day of September, 1996.
MEDICAL SCIENCE SYSTEMS, INC.
By: /s/ PAUL J. WHITE
--------------------------------
Paul J. White
President
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<PAGE> 1
EXHIBIT 3.2
ARTICLES OF AMENDMENT
TO THE
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
MEDICAL SCIENCE SYSTEMS, INC.
---------------------------------------
Pursuant to the provisions of Art. 4.04 of the Texas Business
Corporation Act, the undersigned corporation adopts the following Articles of
Amendment to its Amended and Restated Articles of Incorporation:
ARTICLE ONE. The name of the corporation is Medical Science Systems,
Inc.
ARTICLE TWO. The following amendment to the Amended and Restated
Articles of Incorporation was adopted by the shareholders of the corporation on
May 5, 1997.
ARTICLE TEN of the Amended and Restated Articles of Incorporation is
hereby amended to read as follows:
"ARTICLE TEN
Special meetings of shareholders may be called by the Corporation's
chairman of the board, the president or the board of directors. Subject to the
provisions of the Corporation's Amended and Restated Bylaws governing special
meetings, holders of not less than 50% of the outstanding shares of stock
entitled to vote at the proposed special meeting may also call a special meeting
of shareholders by furnishing the Corporation with a written request which
states the purpose or purposes of the proposed meeting in the manner set forth
in the Amended and Restated Bylaws."
ARTICLE THREE. The number of shares of the corporation outstanding at
the time of such adoption was 3,444,187 and the number of shares entitled to
vote thereon was 3,444,187.
Articles of Amendment
Page 1
<PAGE> 2
The number of shares of each class entitled to vote thereon as a class
voted for and against such amendment, respectively, was:
<TABLE>
<CAPTION>
Number of Shares Voted
---------------------------
Class For Against
----- --------- -------
<S> <C> <C>
Class A Common Voting 3,376,620 -0-
</TABLE>
Dated May 6, 1997 MEDICAL SCIENCE SYSTEMS, INC.
By: /s/ Paul J. White
-------------------------
Paul J. White
Its: President
Articles of Amendment
Page 2
<PAGE> 1
EXHIBIT 3.3
AMENDED AND RESTATED
BYLAWS
OF
MEDICAL SCIENCE SYSTEMS, INC.
Adopted and Effective
as of
September 27, 1996
<PAGE> 2
AMENDED AND RESTATED
BYLAWS
OF
MEDICAL SCIENCE SYSTEMS, INC.
The following Amended and Restated Bylaws, adopted by the Board of
Directors of Medical Science Systems, Inc. (the "Corporation") as of September
27, 1996, shall govern the business of the Corporation, except as the same may
be afterwards amended:
ARTICLE I
CAPITAL STOCK
Section 1. Certificates Representing Shares. The Corporation shall
deliver certificates representing all shares to which shareholders are entitled.
Such certificates shall be signed by the Chairman of the Board, Chief Executive
Officer, the President or a Vice President and either the Secretary or any
Assistant Secretary or such other officer or officers as the board of directors
shall designate, and shall bear the seal of the Corporation or a facsimile
thereof. The signatures of such officers upon a certificate may be facsimiles.
In case any officer who has signed or whose facsimile signature has been placed
upon such certificate shall have ceased to be such officer before such
certificate is issued, it may be issued by the Corporation with the same effect
as if he were such officer at the date of its issuance.
Section 2. Shareholders of Record. The Board of Directors of the
Corporation may appoint one or more transfer agents or registrars of any class
of stock of the Corporation. Unless and until such appointment is made, the
Secretary of the Corporation shall maintain among other records a stock transfer
book, the stubs in which shall set forth the names and addresses of the holders
of all issued shares of the Corporation, the number of shares held by each, the
certificate numbers representing such shares, the date of issue of the
certificates representing such shares, and whether or not such shares originate
from original issues or from transfer. The names and addresses of shareholders
as they appear on the stock transfer book shall be the official list of
shareholders of record of the Corporation for all purposes. The Corporation
shall be entitled to treat the holder of record of any shares of the Corporation
as the owner thereof for all purposes and shall not be bound to recognize any
equitable or other claim to, or interest in, such shares or any rights deriving
from such shares, on the part of any other person, including (but without
limitation) a purchaser, assignee or transferee, unless and until such other
person becomes the holder of record of such shares, whether or not the
Corporation shall have either actual or constructive notice of the interest of
such other person.
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Section 3. Transfer of Shares. The shares of the Corporation shall be
transferable on the stock transfer books of the Corporation by the holder of
record thereof, or his duly authorized attorney or legal representative, upon
endorsement and surrender for cancellation of the certificates for such shares.
All certificates surrendered for transfer shall be cancelled, and no new
certificate shall be issued until a former certificate or certificates for a
like number of shares shall have been surrendered and cancelled, except that in
the case of a lost, destroyed or mutilated certificate, a new certificate may be
issued therefor upon such conditions for the protection of the Corporation and
any transfer agent or registrar as the Board of Directors or the Secretary or
any other officer may prescribe.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. Place of Meetings. All meetings of shareholders shall be
held at the registered office of the Corporation, or at such other place within
or without the State of Texas as may be designated by the Board of Directors or
officer calling the meeting.
Section 2. Annual Meetings. The annual meeting of the shareholders of
the Corporation shall be held on such date, within 180 days of the end of each
prior fiscal year, as shall be designated by the Board of Directors and stated
in the notice of the meeting, and on any subsequent day or days to which such
meeting may be adjourned, for the purposes of electing directors and of
transacting such other business as may properly come before the meeting. The
Board of Directors shall designate the place and time for the holding of such
meeting. Failure to designate a time for the annual meeting or to hold the
annual meeting at the designated time shall not work a dissolution of the
Corporation.
Section 3. Special Meetings. Special meetings of the shareholders may
be called by the Chairman of the Board, the President or the Board of Directors.
Special meetings of shareholders shall be called by the Secretary upon the
written request of the holders of shares entitled to cast not less than the
following specified percentages of all the votes entitled to be cast at such
meeting: (a) prior to the first date (the "Public Status Date") on which the
Corporation has outstanding a class of equity securities registered under the
Securities and Exchange Act of 1934, as amended (the "Exchange Act"), 10% and
(b) on and after the Public Status Date, 50%. Such request shall state the
purpose or purposes of such meeting and the matters proposed to be acted on
thereat. Upon receipt of such request and any notice required by Sections 8
and/or 9 of Article II, the Board of Directors shall set a date for the special
meeting, set a record date in accordance with Article II, Section 5, and shall
cause an appropriate officer of the Corporation to give the notice required
under Article II, Section 4.
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Section 4. Notice of Meetings. Written notice of all meetings stating
the place, day and hour of the meeting and in the case of a special meeting, the
purpose or purposes for which the meeting is called, shall be delivered not less
than 10 nor more than 60 days before the meeting to the shareholders of record
entitled to vote at such meeting unless the Board of Directors is seeking
shareholder approval of a plan of merger or exchange, in which case notice shall
be delivered not less than 20 nor more than 60 days before the meeting to all
shareholders whether or not entitled to vote. If mailed, such notice shall be
deemed to be delivered when deposited in the United States mail addressed to the
shareholder at his address as it appears on the stock transfer books of the
Corporation, with postage thereon prepaid. Any notice required to be given to
any shareholder under any provision of the Texas Business Corporation Act or any
successor statutory provision, as from time to time amended (the "TBCA") or the
Amended and Restated Articles of Incorporation or these Amended and Restated
Bylaws need not be given to the shareholder if (1) notice of two consecutive
annual meetings and all notices of meetings held during the period between those
annual meetings, if any, or (2) all (but in no event less than two) payments (if
sent by first class mail) of distributions or interest on securities during a
12-month period have been mailed to that person, addressed at his address as
shown on the records of the Corporation, and have been returned undeliverable.
Any action or meeting taken or held without notice to such a person shall have
the same force and effect as if the notice had been duly given. If such a person
delivers to the Corporation a written notice setting forth his then current
address, the requirement that notice be given to that person shall be
reinstated.
Section 5. Closing of Transfer Books and Fixing of Record Date. The
Board of Directors may fix, in advance, a date as the record date for the
purpose of determining shareholders entitled to notice of or to vote at any
meeting of shareholders or any adjournment thereof, or shareholders entitled to
receive a distribution by the Corporation (other than a distribution involving a
purchase or redemption by the Corporation of any of its own shares) or a share
dividend, or in order to make a determination of shareholders for any other
proper purpose. Such date, in any case, shall be not more than 60 days, and in
the case of a meeting of shareholders not less than 10 days (20 days if voting
on a plan of merger or exchange), prior to the date on which the particular
action requiring such determination of shareholders is to be taken. In lieu of
fixing a record date, the Board of Directors may provide that the stock transfer
books shall be closed for a stated period not to exceed, in any case, 60 days.
If the stock transfer books are closed for the purpose of determining
shareholders entitled to notice of or to vote at a meeting of shareholders, such
books shall be closed for at least 10 days immediately preceding such meeting.
If the stock transfer books are not closed and no record date is fixed for the
determination of shareholders entitled to notice of or to vote at a meeting of
shareholders, or shareholders entitled to receive payment of a dividend, the
date on which notice of the mailing is mailed or the date on which the
resolution of the Board of Directors declaring such dividend is adopted, as the
case may be, shall be the record date for such determination of shareholders.
When a determination of shareholders entitled to vote at any meeting of
shareholders has been made as provided in this section, such determination shall
apply to any adjournment thereof except where the determination has been made
through the closing of the stock transfer books and the stated period of closing
has expired.
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Section 6. Voting List. The officer or agent having charge of the stock
transfer books of the Corporation shall make, at least 10 days before each
meeting of shareholders, a complete list of the shareholders entitled to vote at
such meeting or any adjournment thereof, arranged in alphabetical order, with
the address of and the number of shares held by each, which list, for a period
of 10 days prior to such meeting, shall be kept on file at the registered office
of the Corporation and shall be subject to inspection by any shareholder at any
time during usual business hours. Such list shall also be produced and kept open
at the time and place of the meeting and shall be subject to the inspection of
any shareholder during the whole time of the meeting. The original stock
transfer books shall be prima facie evidence as to who are the shareholders
entitled to examine such list or transfer books or to vote at any meeting of
shareholders. Failure to comply with any requirements of this Section 6 shall
not affect the validity of any action taken at such meeting.
Section 7. Voting. Except to the extent otherwise provided in the
Amended and Restated Articles of Incorporation, each holder of shares of the
Corporation entitled to vote shall be entitled to one (1) vote for each such
share, either in person or by proxy executed in writing by him or by his duly
authorized attorney-in-fact. No proxy shall be valid after 11 months from the
date of its execution unless otherwise provided in the proxy. Each proxy shall
be revocable unless the proxy form conspicuously states that the proxy is
irrevocable and the proxy is coupled with an interest.
Section 8. Nomination of Directors.
(a) The provisions of subsection (b) hereof shall become effective upon
(and, notwithstanding any other provision of these Amended and Restated
Bylaws, shall not be effective with respect to any action specified in
subsection (b) hereof to be taken on any date prior to) the Public Status
Date.
(b) Subject to the rights of holders of any class or series of stock
having a preference over Common Stock of the Corporation as to dividends or
upon liquidation to elect directors under specified circumstances,
nominations of persons for election to the Board of Directors may be made
only (a) by the Board of Directors or a committee appointed by the Board of
Directors or (b) by any shareholder who is a shareholder of record at the
time of giving of the shareholder's notice provided for in this Section 8,
who shall be entitled to vote at such meeting and who complies with the
notice procedures set forth in this Section 8. A shareholder wishing to
nominate one or more individuals to stand for election in the election of
members of the Board of Directors at an annual or special meeting must
provide written notice thereof to the Board of Directors not less than 80
days in advance of such meeting; provided, however, that in the event that
the date of the meeting was not publicly announced by the Corporation by a
mailing to shareholders, a press release or a filing with the Securities
and Exchange Commission pursuant to Section 13(a) or 14(a) of the Exchange
Act more than 90 days prior to the meeting, such notice, to be timely, must
be delivered to the Board of Directors not later than the close of business
on the tenth day following the day on which the date of the meeting was
publicly announced. A shareholder's notice shall set forth (i) the name and
address, as they appear on the Corporation's books,
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of the shareholder making the nomination or nominations; (ii) such
information regarding the nominee(s) proposed by such shareholder as would
be required to be included in a proxy statement filed pursuant to the proxy
rules of the Securities and Exchange Commission had the nominee(s) been
nominated or intended to be nominated by the Board of Directors; (iii) a
representation of the shareholder as to the class and number of shares of
capital stock of the Corporation that are beneficially owned by such
shareholder, and the shareholder's intent to appear in person or by proxy
at the meeting to propose such nomination; and (iv) the written consent of
the nominee(s) to serve as a member of the Board of Directors if so
elected. No shareholder nomination shall be effective unless made in
accordance with the procedures set forth in this Section 8. The chairman of
the meeting shall, if the facts warrant, determine and declare to the
meeting that a shareholder nomination was not made in accordance with the
provisions of the Amended and Restated Bylaws, and if the chairman should
so determine, he shall so declare to the meeting and the defective
nomination shall be disregarded.
Section 9. Proposals of Shareholders.
(a) The provisions of subsection (b) hereof shall become effective upon
(and, notwithstanding any other provision of these Amended and Restated
Bylaws, shall not be effective with respect to any action specified in
subsection (b) hereof to be taken on any date prior to) the Public Status
Date.
(b) At any meeting of shareholders, there shall be conducted only such
business as shall have been brought before the meeting (a) by or at the
direction of the Board of Directors or (b) by any shareholder of the
Corporation who is a shareholder of record at the time of giving of the
shareholder's notice provided for in this Section 9, who shall be entitled
to vote at such meeting and who complies with the notice procedure set
forth in this Section 9. For business to be properly brought before a
meeting of shareholders by a shareholder, the shareholder shall have given
timely notice thereof in writing to the Secretary of the Corporation. To be
timely, a shareholder's notice shall be delivered to or mailed and received
at the principal executive offices of the Corporation not less than 80 days
in advance of such meeting; provided, however, that in the event that the
date of the meeting was not publicly announced by the Corporation by a
mailing to shareholders, a press release or a filing with the Securities
and Exchange Commission pursuant to Section 13(a) or 14(a) of the Exchange
Act more than 90 days prior to the meeting, such notice, to be timely, must
be delivered to the Board of Directors not later than the close of business
on the tenth day following the day on which the date of the meeting was
first so publicly announced. A shareholder's notice shall set forth as to
each matter proposed to be brought before the meeting: (1) a brief
description of the business desired to be brought before the meeting, the
reasons for conducting such business at the meeting and, in the event that
such business includes a proposal regarding the amendment of either the
Amended and Restated Articles of Incorporation or Amended and Restated
Bylaws of the Corporation, the
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language of the proposed amendment; (2) the name and address, as they
appear on the Corporation's books, of the shareholder proposing such
business; (3) a representation of the shareholder as to the class and
number of shares of capital stock of the Corporation that are beneficially
owned by such shareholder, and the shareholder's intent to appear in person
or by proxy at the meeting to propose such business; and (4) any material
interest of such shareholder in such proposal or business. Notwithstanding
anything in these Amended and Restated Bylaws to the contrary, no business
shall be conducted at a shareholders meeting unless brought before the
meeting in accordance with the procedure set forth in this Section 9. The
chairman of the meeting shall, if the facts warrant, determine and declare
to the meeting that business was not properly brought before the meeting
and in accordance with the provisions of the Amended and Restated Bylaws,
and if the chairman should so determine, the chairman shall so declare to
the meeting and any such business not properly brought before the meeting
shall not be transacted.
Section 10. Quorum and Voting of Shareholders. The holders of a
majority of shares entitled to vote on a matter, represented in person or by
proxy, shall constitute a quorum as to that matter at a meeting of shareholders,
but, if a quorum is not present or represented, a majority in interest of those
present or represented may adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum shall be present or
represented. At such adjourned meeting at which a quorum shall be present or
represented any business may be transacted which might have been transacted at
the meeting as originally notified. With respect to any matter, other than a
matter for which the affirmative vote of the holders of a specified portion of
the shares entitled to vote is required by law, the Amended and Restated
Articles of Incorporation, or these Amended and Restated Bylaws, the vote of the
holders of a majority of the shares entitled to vote on that matter and
represented in person or by proxy at a meeting at which a quorum is present or
represented shall be the act of the shareholders' meeting.
Section 11. Officers. The Chairman of the Board, if there is one, or
the Chief Executive Officer, if there is one, or otherwise the President, shall,
if present, preside at and be the chairman of, and the Secretary shall keep the
records of, each meeting of shareholders. In the absence of either such officer,
his duties shall be performed by another officer of the Corporation appointed by
the Board of Directors or appointed at the meeting.
Section 12. Conduct of Meetings. The chairman of a meeting of
shareholders shall have the power to appoint inspectors of election and to
establish and interpret rules for the conduct of the meeting.
Section 13. Consent of Shareholders in Lieu of Meeting. Prior to the
Public Status Date, any action required or permitted to be taken at any annual
or special meeting of shareholders of the Corporation may be taken without a
meeting, without prior notice and without a vote, if a consent or counterpart
consents in writing, setting forth the action so taken, shall be signed by the
holder or holders of shares having not less than the minimum number of votes
that would be necessary to take such action at a meeting at which the holders of
all shares entitled to vote on the action were present and voted. Prompt notice
of the taking of the corporate action without a meeting
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by less than unanimous written consent shall be given to those shareholders who
did not consent in writing to the action.
ARTICLE III
DIRECTORS
Section 1. Number and Tenure. The business and affairs of the
Corporation shall be managed by a Board of Directors initially consisting of 3
directors. Subject to any limitations contained in the Amended and Restated
Articles of Incorporation, the number of directors may be increased or decreased
from time to time by resolution of the Board of Directors or by due election of
that number of directors by the shareholders, but no decrease by the Board of
Directors shall have the effect of shortening the term of any incumbent
director. Unless sooner removed in accordance with these Amended and Restated
Bylaws, members of the Board of Directors shall hold office until the next
annual meeting of shareholders and until their successors shall have been
elected and qualified.
Section 2. Qualifications. Directors need not be shareholders of the
Corporation.
Section 3. Vacancies. Any vacancy occurring in the Board of Directors
or any directorship to be filled by reason of an increase in the number of
directors may be filled by election at an annual or special meeting of
shareholders called for that purpose or by the affirmative vote of a majority of
the remaining directors, though less than a quorum of the entire Board;
provided, however, that any directorship to be filled by the Board of Directors
by reason of an increase in the number of directors may be filled for a term of
office continuing only until the next election of one or more directors by the
shareholders; and provided, further, that the Board of Directors may not fill
more than two directorships to be filled by reason of an increase in the number
of directors during the period between any two successive annual meetings of
shareholders. Subject to the foregoing, a director elected to fill a vacancy
shall be elected for the unexpired term of his predecessor in office.
Section 4. Place of Meeting. Meetings of the Board of Directors may be
held either within or without the State of Texas, at whatever place is specified
by the officer calling the meeting. In the absence of specific designation, the
meetings shall be held at the principal office of the Corporation.
Section 5. Regular Meetings. The Board of Directors shall meet each
year immediately following the annual meeting of the shareholders, at the place
of such meeting, for the transaction of such business as may properly be brought
before it. No notice of annual meetings need be given to either existing or
newly elected members of the Board of Directors. Regular meetings may be held at
such other times as shall be designated by the Board of Directors.
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Section 6. Special Meetings. Special meetings of the Board of Directors
may be held at any time upon the call of the Chairman of the Board, the
President or any two directors of the Corporation. Notice of special meetings
shall be given to each director, and may be given by any of the following
methods: (a) by mail or telegram sent to the last known business or residence
address of such director at least four days before the meeting, (b) by facsimile
to the last known business or residence facsimile number of such director
transmitted at least two days before the meeting or (c) orally at least one day
before the meeting. For purposes of the foregoing sentence, notice shall be
deemed given (i) by mail, when deposited in the U.S. mail, postage prepaid, or
by telegram, when the telegram is delivered to the telegraph company for
transmittal, (ii) by facsimile, when transmittal is confirmed by the sending
facsimile machine and (iii) orally, when communicated in person or by telephone
to the director or to a person at the business or residence of the director who
may reasonably be expected to communicate it to the director. In calculating the
number of days' notice received by a director, the date the notice is given by
any of the foregoing methods shall be counted, but the date of the meeting to
which the notice relates shall not be counted. Notice of the time, place and
purpose of a special meeting may be waived in writing before or after such
meeting, and shall be equivalent to the giving of notice. Attendance of a
director at such meeting shall also constitute a waiver of notice thereof,
except where the director attends for the announced purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened. Except as otherwise herein provided, neither the business to
be transacted at, nor the purpose of, any regular or special meeting of the
Board of Directors need be specified in the notice or waiver of notice of such
meeting.
Section 7. Quorum. One-half of the number of directors fixed in the
manner provided in these Amended and Restated Bylaws as from time to time
amended shall constitute a quorum for the transaction of business, but a smaller
number may adjourn from time to time until they can secure the attendance of a
quorum. The act of a majority of the directors present at any meeting at which a
quorum is present shall be the act of the Board of Directors. Any regular or
special directors' meeting may be adjourned from time to time by those present,
whether a quorum is present or not.
Section 8. Committees. The Board of Directors, by resolution or
resolutions passed by a majority of the whole Board of Directors, may designate
one or more members of the Board of Directors to constitute an Executive
Committee and one or more other committees, which shall in each case consist of
such number of directors as the Board of Directors may determine. The Executive
Committee shall have and may exercise, subject to such restrictions as may be
contained in the Amended and Restated Articles of Incorporation or that may be
imposed by law, all of the authority of the Board of Directors, including
without limitation the power and authority to declare a dividend and to
authorize the issuance of shares of the Corporation. Each other committee shall
have and may exercise such powers of the Board in the management of the business
and affairs of the Corporation, including without limitation the power and
authority to declare a dividend and to authorize the issuance of shares of the
Corporation, as the Board of Directors may determine by resolution and specify
in the respective resolutions appointing them, subject to such restrictions as
may be contained in the Amended and Restated Articles of Incorporation or that
may be imposed by law. Such committee or committees shall
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have such name or names as may be determined from time to time by resolution
adopted by the Board of Directors. A majority of all the members of any such
committee may fix its rules of procedure, determine its action and fix the time
and place, whether within or without the State of Texas, of its meetings and
specify what notice thereof, if any, shall be given, unless the Board of
Directors shall provide otherwise by resolution. The Board of Directors shall
have power to change the membership of any such committee at any time, to fill
vacancies therein and to disband any such committee, either with or without
cause, at any time. Each committee shall keep regular minutes of its proceedings
and report the same to the Board of Directors when required.
Section 9. Compensation. Directors may be paid their expenses, if any,
of attendance at each regular or special meeting of the Board of the Directors
or any committee thereof, and a salary as director as may be fixed by the Board
of Directors from time to time; provided, that nothing contained herein shall be
construed to preclude any director from serving the Corporation in any other
capacity and receiving compensation therefor.
Section 10. Removal. No director of the Corporation shall be removed
from such office by vote or other action of the shareholders of the Corporation
or otherwise, except by the affirmative vote of holders of at least a majority
of the then outstanding Voting Stock (as defined below), voting together as a
single class. The term "Voting Stock" shall mean all outstanding shares of all
classes and series of capital stock of the Corporation entitled to vote
generally in the election of directors of the Corporation, considered as one
class; and, if the Corporation shall have shares of Voting Stock entitled to
more or less than one vote for any such share, each reference in the Amended and
Restated Articles of Incorporation to a proportion or percentage in voting power
of Voting Stock shall be calculated by reference to the portion or percentage of
votes entitled to be cast by holders of such shares generally in the election of
directors of the Corporation. Prior to the Public Status Date, any such removal
of a director of the Corporation may be with or without cause. On and after the
Public Status Date, no director of the Corporation shall be removed from such
office by vote or other action of the shareholders of the Corporation or
otherwise, except for cause, which shall be deemed to exist only if: (i) such
director has been convicted, or such director is granted immunity to testify
where another has been convicted, of a felony by a court of competent
jurisdiction (and such conviction is no longer subject to direct appeal); (ii)
such director has been found by a court of competent jurisdiction (and such
finding is no longer subject to direct appeal) or by the affirmative vote of at
least a majority of the Whole Board (as defined below) at any regular or special
meeting of the board of directors called for such purpose to have been grossly
negligent or guilty of willful misconduct in the performance of his duties to
the Corporation in a matter of substantial importance to the Corporation; (iii)
such director has been adjudicated by a court of competent jurisdiction to be
mentally incompetent, which mental incompetency directly affects his ability to
perform as a director of the Corporation; (iv) such director has been found by a
court of competent jurisdiction (and such finding is no longer subject to direct
appeal) or by the affirmative vote of at least a majority of the Whole Board at
any regular or special meeting of the board of directors called for such purpose
to have breached such director's duty of loyalty to the Corporation or its
shareholders or to have engaged in any transaction with the Corporation from
which such director derived an improper personal benefit; or (v) "cause" for
removal otherwise exists under Article 2.32.A. of the TBCA. No director of the
Corporation so removed may be nominated, re-elected or reinstated as a director
of the Corporation so long as the cause for removal continues to
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exist. The term "Whole Board" shall mean the total number of authorized
directors of the Corporation whether or not there exist any vacancies in
previously authorized directorships. This paragraph shall be subject to the
rights, if any, of holders of any class or series of stock to elect directors
and remove directors elected by them.
Section 11. Action Without a Meeting. Any action required or permitted
to be taken at a meeting of directors or any committee may be taken without a
meeting if a consent in writing, setting forth the action so taken, shall be
signed by all of the directors or members of the committee, as the case may be,
and such consent shall have the same force and effect as a unanimous vote at a
meeting.
ARTICLE IV
OFFICERS
Section 1. Officers. The officers of the Corporation shall be elected
by the Board of Directors, and shall consist of a President and a Secretary. The
Board of Directors, in its discretion, may also elect a Chairman of the Board
(who must be a director), a Chief Executive Officer, a Chief Financial Officer,
a Chief Operating Officer, one or more Vice Presidents, a Treasurer and such
other officers as the Board of Directors may from time to time designate, all of
whom shall hold office until their successors are elected and qualified. Any two
or more offices may be held by the same person. The Board of Directors may
designate which of such officers are to be treated as executive officers for
purposes of these Amended and Restated Bylaws or for any other purpose.
The salaries of the officers shall be determined by the Board of
Directors, and may be altered by the Board of Directors from time to time except
as otherwise provided by contract. All officers shall be entitled to be paid or
reimbursed for all costs and expenditures incurred in the Corporation's
business.
Section 2. Vacancies. Whenever any vacancies shall occur in any office
by death, resignation, increase in the number of officers of the Corporation, or
otherwise, the same shall be filled by the Board of Directors, and the officer
so elected shall hold office until his successor is chosen and qualified.
Section 3. Removal. Any officer or agent elected or appointed by the
Board of Directors may be removed by the Board of Directors whenever in its
judgment the best interests of the Corporation will be served thereby, but such
removal shall be without prejudice to the contract rights, if any, of the person
so removed. Election or appointment of an officer or agent shall not of itself
create contract rights.
Section 4. Chairman of the Board. The Chairman of the Board, if there
is one, shall, if present, preside at all meetings of the shareholders and of
the Board of Directors. If so designated by the Board of Directors, the Chairman
of the Board shall be the chief executive officer of the Corporation. The
Chairman of the Board may sign, with the Secretary or any other proper
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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 Amended and Restated
Bylaws to some other officer or agent of the Corporation, or shall be required
by law to be otherwise signed and executed; and in general shall perform all
duties incident to the office of Chairman of the Board and such other duties as
may be prescribed by the Board of Directors from time to time.
Section 5. Chief Executive Officer. The Chief Executive Officer, if
there is one, shall be subject to the control of the Board of Directors, and
shall in general supervise and control all business and affairs of the
Corporation. The Chief Executive Officer 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
Amended and Restated Bylaws to some other officer or agent of the Corporation,
or shall be required by law to be otherwise signed and executed; and in general
shall perform all duties incident to the office of Chief Executive Officer and
such other duties as may be prescribed by the Board of Directors from time to
time. In the absence of the Chairman, or if the directors neglect or fail to
elect a Chairman, then the Chief Executive Officer of the Corporation, if he is
a member of the Board of Directors, shall automatically serve as Chairman of the
Board of Directors.
Section 6. President. In the absence of the Chief Executive Officer, or
in the event of his death or inability to act or refusal to act, the President
shall perform the duties of the Chief Executive Officer and when so acting shall
have all of the powers of and be subject to all of the restrictions upon the
Chief Executive Officer. In general, he shall perform all duties incident to the
office of President and such other duties as may be prescribed by the Chief
Executive Officer or the Board of Directors from time to time.
Section 7. Vice President. Any Vice President may perform the usual and
customary duties that pertain to such office (but no unusual or extraordinary
duties or powers conferred by the Board of Directors upon the President) and,
under the direction and subject to the control of the Board of Directors, such
other duties as may be assigned to a Vice President.
Section 8. Secretary. It shall be the duty of the Secretary to attend
all meetings of the shareholders and Board of Directors and record correctly the
proceedings had at such meetings in a book suitable for that purpose. It shall
also be the duty of the Secretary to attest with his signature and the seal of
the Corporation all stock certificates issued by the Corporation and to keep a
stock ledger in which shall be correctly recorded all transactions pertaining to
the capital stock of the Corporation. The Secretary shall also attest with his
signature and the seal of the Corporation all deeds, conveyances or other
instruments requiring the seal of the Corporation. The person holding the office
of Secretary shall also perform, under the direction and subject to the control
of the Board of Directors, such other duties as may be assigned to the
Secretary. The duties of the Secretary may also be performed by any Assistant
Secretary.
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Section 9. Treasurer. The Treasurer shall keep such moneys of the
Corporation as may be entrusted to his keeping and account for the same. The
Treasurer shall be prepared at all times to give information as to the condition
of the Corporation and shall make a detailed annual report of the entire
business and financial condition of the Corporation. The person holding the
office of Treasurer shall also perform, under the direction and subject to the
control of the Board of Directors, such other duties as may be assigned to the
Treasurer. The duties of the Treasurer may also be performed by any Assistant
Treasurer.
Section 10. Other Officers. Assistant Secretaries, if any, and
Assistant Treasurers, if any, shall have the duties set forth in Sections 8 and
9, respectively, of this Article IV. Any other officer whose duties are not set
forth in Sections 4 through 9 of this Article IV shall have such duties as the
Board of Directors, the Chief Executive Officer or the President may prescribe.
Section 11. Delegation of Authority. In the case of any absence of any
officer of the Corporation or for any other reason that the Board may deem
sufficient, the Board of Directors may delegate some or all of the powers or
duties of such officer to any other officer or to any director, employee,
shareholder or agent for whatever period of time seems desirable.
ARTICLE V
INDEMNITY
Section 1. Indemnification of Directors and Executive Officers. Each
person who at any time shall serve, or shall have served, as a director or
executive officer of the Corporation, or any person who, while a director or
executive officer of the Corporation, is or was serving at the request of the
Corporation as a director, officer, partner, venturer, proprietor, trustee,
employee, agent or similar functionary of another foreign or domestic
corporation, partnership, joint venture, sole proprietorship, trust, employee
benefit plan or other enterprise (each such person referred to herein as an
"Indemnitee"), shall be entitled to indemnification as and to the fullest extent
permitted by Article 2.02-1 of the TBCA. The foregoing right of indemnification
shall not be deemed exclusive of any other rights to which those to be
indemnified may be entitled as a matter of law or under any agreement, other
provision of these Amended and Restated Bylaws, vote of shareholders or
directors, or other arrangement. The Corporation may enter into indemnification
agreements with its officers and directors that contractually provide to them
the benefits of the provisions of this Article V and include related provisions
meant to facilitate the Indemnitees' receipt of such benefits and such other
indemnification protections as may be deemed appropriate.
Section 2. Advancement or Reimbursement of Expenses. The rights of
Indemnitee provided under the preceding section shall include, but not be
limited to, the right to be indemnified and to have expenses advanced in all
proceedings to the fullest extent permitted by Article 2.02-1 of the TBCA. In
the event that an Indemnitee is not wholly successful, on the merits or
otherwise, in a proceeding but is successful, on the merits or otherwise, as to
any claim in such proceeding, the Corporation shall indemnify Indemnitee against
all expenses actually and reasonably incurred by him or on his behalf relating
to each claim. The termination of a claim in a proceeding
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by dismissal, with or without prejudice, shall be deemed to be a successful
result as to such claim. In addition, to the extent an Indemnitee is, by reason
of his corporate status, a witness or otherwise participates in any proceeding
at a time when he is not named a defendant or respondent in the proceeding, he
shall be indemnified against all expenses actually and reasonably incurred by
him or on his behalf in connection therewith. The Corporation shall pay all
reasonable expenses incurred by or on behalf of Indemnitee in connection with
any proceeding or claim, whether brought by the Corporation or otherwise, in
advance of any determination respecting entitlement to indemnification pursuant
to this Article V within 10 days after the receipt by the Corporation of a
written request from Indemnitee reasonably evidencing such expenses and
requesting such payment or payments from time to time, whether prior to or after
final disposition of such proceeding or claim; provided that the Indemnitee
undertakes and agrees in writing that he will reimburse and repay the
Corporation for any expenses so advanced to the extent that it shall ultimately
be determined by a court, in a final adjudication from which there is no further
right of appeal, that Indemnitee is not entitled to be indemnified against such
expenses.
Section 3. Determination of Request. Upon written request to the
Corporation by an Indemnitee for indemnification pursuant to these Amended and
Restated Bylaws, a determination, if required by applicable law, with respect to
Indemnitee's entitlement thereto shall be made in accordance with Article 2.02-1
of the TBCA, provided, however, that, notwithstanding the foregoing, if a Change
in Control shall have occurred, such determination shall be made by Independent
Counsel selected by the Indemnitee, unless the Indemnitee shall request that
such determination be made in accordance with Article 2.02-1F (1) or (2). The
Corporation shall pay any and all reasonable fees and expenses of Independent
Counsel (as defined below) incurred in connection with any such determination.
If a Change in Control (as defined below) shall have occurred, the Indemnitee
shall be presumed (except as otherwise expressly provided in this Article V) to
be entitled to indemnification under this Article V upon submission of a request
to the Corporation for indemnification, and thereafter the Corporation shall
have the burden of proof in overcoming that presumption in reaching a
determination contrary to that presumption. The presumption shall be used by
Independent Counsel, or such other person or persons determining entitlement to
indemnification, as a basis for a determination of entitlement to
indemnification unless the Corporation provides information sufficient to
overcome such presumption by clear and convincing evidence or the investigation,
review and analysis of Independent Counsel or such other person or persons
convinces him or them by clear and convincing evidence that the presumption
should not apply.
Section 4. Effect of Certain Proceedings. The termination of any
proceeding or of any claim in a proceeding by judgment, order, settlement or
conviction, or upon a plea of nolo contendere or its equivalent, shall not
(except as otherwise expressly provided in this Article) by itself adversely
affect the right of Indemnitee to indemnification or create a presumption that
Indemnitee did conduct himself in good faith and in a manner that he reasonably
believed in the case of conduct in his official capacity, that was in the best
interests of the Corporation or, in all other cases, that was not opposed to the
best interests of the Corporation or, with respect to any criminal proceeding,
that Indemnitee had reasonable cause to believe that his conduct was unlawful
and Indemnitee shall be deemed to have been found liable in respect of any claim
only after he shall have been so adjudged by a court of competent jurisdiction
after exhaustion of all appeals therefrom.
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Section 5. Expenses of Enforcement of Article. In the event that
Indemnitee, pursuant to this Article V, seeks a judicial adjudication to enforce
his rights under, or to recover damages for breach of, rights created under or
pursuant to this Article V, Indemnitee shall be entitled to recover from the
Corporation, and shall be indemnified by the Corporation against, any and all
expenses actually and reasonably incurred by him in such judicial adjudication
but only if he prevails therein. If it shall be determined in said judicial
adjudication that Indemnitee is entitled to receive part but not all of the
indemnification or advancement of expenses sought, the expenses incurred by
Indemnitee in connection with such judicial adjudication shall be reasonably
prorated in good faith by counsel for Indemnitee. Notwithstanding the foregoing,
if a Change in Control shall have occurred, Indemnitee shall be entitled to
indemnification under this Article V, Section 5 regardless of whether Indemnitee
ultimately prevails in such judicial adjudication.
Section 6. Indemnification of Other Officers, Employees and Agents. The
Corporation, by adoption of a resolution of the Board of Directors, may
indemnify and advance expenses to an officer who is not an executive officer, an
employee or agent of the Corporation to the same extent and subject to the same
conditions (or to such lesser extent and/or with such other conditions as the
Board of Directors may determine) under which it may indemnify and advance
expenses to an Indemnitee under this Article V; and the Corporation may
indemnify and advance expenses to persons who are not or were not directors,
officers, employees or agents of the Corporation, but who are or were serving at
the request of the Corporation as a director, officer, partner, venturer,
proprietor, trustee, employee, agent or similar functionary of another foreign
or domestic corporation, partnership, joint venture, sole proprietorship, trust,
employee benefit plan or other enterprise against any liability asserted against
him and incurred by him in such a capacity or arising out of his status as such
a person to the same extent and subject to the same conditions (or to such
lesser extent and/or with such other conditions as the Board of Directors may
determine) that it may indemnify and advance expenses to Indemnitees under this
Article V.
Section 7. Insurance and Self-Insurance Arrangements. The Corporation
may procure or maintain insurance or other similar arrangements, at its expense,
to protect itself and any Indemnitee against any expense, liability or loss
asserted against or incurred by such person, incurred by him in such a capacity
or arising out of his status as such a person, whether or not the Corporation
would have the power to indemnify such person against such expense or liability.
In considering the cost and availability of such insurance, the Corporation,
(through the exercise of the business judgment of its directors and officers),
may from time to time, purchase insurance which provides for any and all of (i)
deductibles, (ii) limits on payments required to be made by the insurer, or
(iii) exclusions from insurance coverage for certain matters. The Corporation
may also, from time to time, determine not to purchase insurance coverage that
is or would be available to the Corporation, but which the officers or directors
of the Corporation determine is inadvisable for the Corporation to purchase,
given the cost involved. The purchase of insurance with deductibles, limits on
payments and coverage exclusions and the decision to decline or not to seek
available coverage will be deemed to be in the best interest of the Corporation
but may not be in the best interest of certain of the persons that are covered
thereby or would be covered, if such insurance had been purchased. As to the
Corporation, purchasing such insurance with deductibles, limits on payments, and
coverage exclusions or declining or not seeking such coverage is similar to the
Corporation's
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practice of self-insurance in other areas. In order to protect the Indemnitees
who would otherwise be more fully or entirely covered under such policies, the
Corporation shall indemnify and hold each of them harmless as provided in
Section 1 of this Article V, without regard to whether the Corporation would
otherwise be entitled to indemnify such officer or director under the other
provisions of this Article V, or under any law, agreement, vote of shareholders
or directors or other arrangement, to the extent (i) of such deductibles, (ii)
of amounts exceeding payments required to be made by an insurer, (iii) amounts
in respect of exclusions from such coverage or (iv) amounts covered under
policies of officer's and director's liability insurance that are available,
were available or which become available to the Corporation or which are
generally available to companies comparable to the Corporation but which the
officers or directors of the Corporation determine is inadvisable for the
Corporation to purchase, given the cost involved. Notwithstanding the foregoing
provision of this Article V, Section 7, no Indemnitee shall be entitled to
indemnification for the results of such person's conduct that is intentionally
adverse to the interests of the Corporation. This Article V, Section 7 is
authorized by Section 2.02-1(R) of the TBCA as in effect on the date of adoption
of these Amended and Restated Bylaws, and further, is intended to establish an
arrangement of self-insurance pursuant to that section.
Section 8. Severability. If any provision or provisions of this Article
shall be held to be invalid, illegal or unenforceable for any reason whatsoever,
the validity, legality and enforceability of the remaining provisions shall not
in any way be affected or impaired thereby; and, to the fullest extent possible,
the provisions of this Article shall be construed so as to give effect to the
intent manifested by the provision held invalid, illegal or unenforceable.
Section 9. Definitions. The following terms are used herein as follows:
"Change in Control" means a change in control of the Corporation
occurring after the date of adoption of these Amended and Restated Bylaws
of a nature that would be required to be reported in response to Item 6(e)
of Schedule 14A of Regulation 14A (or in response to any similar item on
any similar schedule or form) promulgated under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), whether or not the Corporation is
then subject to such reporting requirement; provided, however, that,
without limitation, such a Change in Control shall be deemed to have
occurred if at any time after the date of adoption of these Amended and
Restated Bylaws (i) any "person" (as such term is used in Sections 13(d)
and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Corporation representing 40% or more of the combined
voting power of the Corporation's then outstanding securities without the
prior approval of at least two-thirds of the members of the Board of
Directors in office immediately prior to such person attaining such
percentage interest; (ii) the Corporation is a party to a merger,
consolidation, share exchange, sale of assets or other reorganization, or a
proxy contest, as a consequence of which members of the Board of Directors
in office immediately prior to such transaction or event constitute less
than a majority of the Board of Directors thereafter; or (iii) during any
15-month period, individuals who at the beginning of such period
constituted the Board of Directors (including for this purpose any new
director whose election or nomination for election by the Corporation's
shareholders was approved by a vote of at least two-thirds of the directors
then
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still in office who were directors at the beginning of such period) cease
for any reason to constitute at least a majority of the Board of Directors.
"corporate status" means the status of a person who is or was a
director, officer, partner, employee, agent or fiduciary of the Corporation
or of any other corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise which such person is or was serving at the
request of the Corporation.
"Disinterested Director" means a director of the Corporation who is not
a named defendant or respondent to the proceeding or subject to a claim in
respect of which indemnification is sought by Indemnitee.
"Independent Counsel" means a law firm, or a member of a law firm, that
is experienced in matters of corporation law and neither contemporaneously
is, nor in the five years theretofore has been, retained to represent: (a)
the Corporation or Indemnitee in any matter material to either such party;
(b) any other party to the proceeding giving rise to a claim for
indemnification hereunder; or (c) the beneficial owner, directly or
indirectly, of securities of the Corporation representing 40% or more of
the combined voting power of the Corporation's then outstanding voting
securities. Notwithstanding the foregoing, the term "Independent Counsel"
shall not include any person who, under the applicable standards of
professional conduct then prevailing, would have a conflict of interest in
representing either the Corporation or Indemnitee in an action to determine
Indemnitee's rights to indemnification under these Amended and Restated
Bylaws.
ARTICLE VI
MISCELLANEOUS PROVISIONS
Section 1. Amendments. These Amended and Restated Bylaws may be amended
or repealed, or new bylaws adopted, (a) by the Board of Directors, unless the
shareholders in amending, repealing or adopting a particular bylaw expressly
provide that the Board of Directors may not amend or repeal that bylaw or unless
the Amended and Restated Articles of Incorporation or the Texas Business
Corporation Act reserves the power to take such action to the shareholders in
whole or part or (b) by the shareholders, unless the Amended and Restated
Articles of Incorporation or a bylaw adopted by the shareholders provides
otherwise as to all or some portion of the Amended and Restated Bylaws; provided
that after the Public Status Date any amendment or repeal of the Amended and
Restated Bylaws by the shareholders may only be effected at a shareholders
meeting for which notice has been given pursuant to Article II, Section 9 of
these Amended and Restated Bylaws.
Section 2. Waiver. Whenever any notice is required to be given to any
shareholder, director or committee member under the provisions of any law, the
Amended and Restated Articles of Incorporation or these Amended and Restated
Bylaws, a waiver thereof in
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writing signed by the person or persons entitled to such notice, whether before
or after the time stated therein, shall be equivalent to the giving of such
notice.
Section 3. Conference Telephone Meetings. Meetings of shareholders,
directors, or any committee thereof, may be held by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other. Participation in a meeting
pursuant to this Article VI, Section 3 shall constitute presence in person at
such meeting, except where a person participates in the meeting for the express
purpose of objecting to the transaction of any business on the ground that the
meeting is not lawfully called or convened.
Section 4. Offices. The principal office of the Corporation shall be
located in Houston, Texas, unless and until changed by resolution of the Board
of Directors. The Corporation may also have offices at such other places as the
Board of Directors may from time to time designate, or as the business of the
Corporation may require.
Section 5. Resignations. Any director or officer may resign at any
time. Such resignations shall be made in writing and shall take effect at the
time specified therein, or, if no time be specified, at the time of its receipt
by the Chief Executive Officer, President or Secretary. The acceptance of a
resignation shall not be necessary to make it effective, unless expressly so
provided in the resignation.
Section 6. Seal. The seal of the Corporation shall have inscribed
thereon the name of the corporation, the year of its organization and the words
"Corporate Seal, Texas" , or shall be in such other form as may be fixed by
resolution of the Board of Directors. The seal may be used by causing it or a
facsimile thereof to be impressed or affixed or in any manner reproduced.
Section 7. Fiscal Year. The fiscal year of the Corporation shall be as
fixed by resolution of the Board of Directors.
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EXHIBIT 3.4
AMENDMENT
TO THE
AMENDED AND RESTATED BYLAWS
OF
MEDICAL SCIENCE SYSTEMS, INC.
---------------------------------------
Pursuant to the provisions of Art. 2.23 of the Texas Business
Corporation Act, the undersigned corporation adopts, following a majority
shareholder vote at the annual meeting, the following Amendment to its Amended
and Restated Bylaws:
1. ARTICLE II of the Amended and Restated Bylaws is hereby amended to
read as follows:
"ARTICLE II
MEETING OF SHAREHOLDERS
. . .
Section 3. Special Meetings. Special meetings of the shareholders
may be called by the Chairman of the Board, the President or the Board of
Directors. Special meetings of shareholders shall be called by the Secretary
upon the written request of the holders of shares entitled to cast not less than
50% of all the votes entitled to be cast at such a meeting. Such request shall
state the purpose or purposes of such meeting and the matters proposed to be
acted on thereat. Upon receipt of such request and any notice required by
Sections 8 and/or 9 of Article II, the Board of Directors shall set a date for
the special meeting, set a record date in accordance with Article II, Section 5,
and shall cause an appropriate officer of the Corporation to give the notice
required under Article II, Section 4.
. . .
Section 8. Nomination of Directors.
. . .
(b) Subject to the rights of holders of any class or series of
stock having a preference over Common Stock of the Corporation as to
dividends or upon liquidation
Amendment to Amended and Restated Bylaws
Page 1
<PAGE> 2
to elect directors under specified circumstance, nominations of persons
for election to the Board of Directors may be made only (a) by the Board
of Directors or a committee appointed by the Board of Directors or (b)
by any shareholder who is a shareholder of record at the time of giving
of the shareholder's notice provided for in this Section 8, who shall be
entitled to vote at such meeting and who complies with the notice
procedures set forth in this Section 8. A shareholder wishing to
nominate one or more individuals to stand for election in the election
of members of the Board of Directors at an annual or special meeting
must provide written notice thereof to the Board of Directors no more
than one hundred twenty (120) days and no fewer than sixty (60) days
before the annual or special meeting called to effect the election. A
shareholder's notice shall set forth (i) the name and address, as they
appear on the Corporation's books, of the shareholder making the
nomination or nominations; (ii) such information regarding the
nominee(s) proposed by such shareholder as would be required to be
included in a proxy statement filed pursuant to the proxy rules of the
Securities and Exchange Commission had the nominee(s) been nominated or
intended to be nominated by the Board of Directors; (iii) a
representation of the shareholder as to the class and number of shares
of capital stock of the Corporation that are beneficially owned by such
shareholder, and the shareholder's intent to appear in person or by
proxy at the meeting to propose such nomination; and (iv) the written
consent of the nominee(s) to serve as a member of the Board of Directors
if so elected. No shareholder nomination shall be effective unless made
in accordance with the procedures set forth in this Section 8. The
chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that a shareholder nomination was not made in
accordance with the provisions of the Amended and Restated Bylaws, and
if the chairman should so determine, he shall so declare to the meeting
and the defective nomination shall be disregarded.
Section 9. Proposals of Shareholders.
(b) At any meeting of shareholders, there shall be conducted only
such business as shall have been brought before the meeting (a) by or at
the discretion of the Board of Directors or (b) by any shareholder of
the Corporation who is a shareholder of record at the time of giving of
the shareholder's notice provided for in this Section 9, who shall be
entitled to vote at such meeting and who complies with the notice
procedure set forth in this Section 9. For business to be properly
brought before a meeting of shareholders by a shareholder, the
shareholder shall have given timely notice thereof in writing to the
Secretary of the Corporation. To be timely, a shareholder's notice shall
be delivered to or mailed and received at the principal executive
offices of the Corporation no more than one hundred twenty (120) days
and no fewer than sixty (60) days before such a meeting. A shareholder's
notice shall set forth as to each matter proposed to be brought before
the meeting: (1) a brief description of the business desired to be
brought before the meeting, the reasons for conducting such
Amendment to Amended and Restated Bylaws
Page 2
<PAGE> 3
business at the meeting and, in the event that such business includes a
proposal regarding the amendment of either the Amended and Restated
Articles of Incorporation or Amended and Restated Bylaws of the
Corporation, the language of the proposed amendment; (2) the name and
address, as they appear on the Corporation's books, of the shareholder
proposing such business; (3) a representation of the shareholder as to
the class and number of shares of capital stock of the Corporation that
are beneficially owned by such shareholder, and the shareholder's intent
to appear in person or by proxy at the meeting to propose such business;
and (4) any material interest of such shareholder in such proposal or
business. Notwithstanding anything in these Amended and Restated Bylaws
to the contrary, no business shall be conducted at a shareholders
meeting unless brought before the meeting in accordance with the
procedure set forth in this Section 9. The chairman of the meeting
shall, if the facts warrant, determine and declare to the meeting that
business was not properly brought before the meting and in accordance
with the provisions of the Amended and Restated Bylaws, and if the
chairman should so determine, the chairman shall so declare to the
meeting and any such business not properly brought before the meeting
shall not be transacted."
Dated May 6, 1997 MEDICAL SCIENCE SYSTEMS, INC.
By:
-------------------------------
Paul J. White
Its: President
Amendment to Amended and Restated Bylaws
Page 3
<PAGE> 1
EXHIBIT 4.2
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") OR ANY STATE
SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF ANY EFFECTIVE REGISTRATION STATEMENT AS TO SUCH
SECURITIES FILED UNDER THE ACT, OR AN EXEMPTION FROM REGISTRATION, AND
COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS. THE ISSUER MAY REQUIRE AN
OPINION OF COUNSEL SATISFACTORY TO THE ISSUER HEREOF THAT SUCH REGISTRATION IS
NOT REQUIRED AND THAT SUCH LAWS ARE COMPLIED WITH.
VOID AFTER 3:30 P.M., EASTERN TIME, ON , 2002.
MEDICAL SCIENCE SYSTEMS, INC.
UNDERWRITER'S
WARRANT TO PURCHASE
SHARES OF COMMON STOCK
This is to Certify That, FOR VALUE RECEIVED, ____________________________
(the "Holder") is entitled to purchase, subject to the provisions of this
Warrant, from Medical Science Systems, Inc. ("Company"), a Texas corporation, at
any time on or after , 1998, and not later than 3:30 p.m., Eastern Time, on
2002, Shares of Common Stock of the Company ("Securities")
exercisable at a purchase price for the shares of Common Stock which is 135% of
the public offering price of the Common Stock ($ ). The number of Securities to
be received upon the exercise of this Warrant and the price to be paid for the
Securities may be adjusted from time to time as hereinafter set forth. The
purchase price of a share of Common Stock in effect at any time and as adjusted
from time to time is hereinafter sometimes referred to as the "Exercise Price."
This Warrant is or may be one of a series of Warrants identical in form issued
by the Company to purchase an aggregate of 150,000 shares of Common Stock. The
shares of Common Stock, as adjusted from time to time underlying the Warrants
are hereinafter sometimes referred to as "Warrant Stock". The Common Stock
issuable upon the exercise hereof are in all respects identical to the Common
Stock being purchased by the Underwriter for resale to the public pursuant to
the terms and conditions of the Underwriting Agreement.
(a) Exercise of Warrant. Subject to the provisions of Section (g) hereof,
this Warrant may be exercised in whole or in part at anytime or from time to
time on or after , 1998, but not later than 3:30 p.m., Eastern Time on
, 2002, or if , 2002, is a day on which banking
institutions are authorized by law to close, then on the next succeeding day
which shall not be such a day, by presentation and surrender hereof to the
Company or at the office of its stock transfer agent, if any, with the Purchase
Form annexed hereto duly executed and accompanied by payment of the Exercise
Price for the number of shares specified in such Form, together with all federal
and state taxes applicable upon such exercise. The Company agrees to provide
notice to the Holder that any tender offer is being made for the Company's
shares of Common Stock no later than the day the Company becomes aware that any
tender offer is being made for the Company's shares of Common Stock. If this
Warrant should be exercised in part only, the Company shall, upon surrender of
this Warrant for cancellation, execute and deliver a new Warrant evidencing the
right of the Holder to purchase the balance of the shares purchasable hereunder
along with any additional Redeemable Warrants not exercised. Upon receipt by the
Company of this Warrant at the office of the Company or at the office of the
Company's stock transfer agent, in proper form for exercise and accompanied by
the total Exercise Price, the Holder shall be deemed to be the holder of record
of the shares of Common Stock issuable upon such exercise, notwithstanding that
the stock transfer books of the Company shall then be closed or that
certificates representing such shares of Common Stock shall not then be actually
delivered to the Holder.
(b) Reservation of Securities. The Company hereby agrees that at all times
there shall be reserved for issuance and/or delivery upon exercise of this
Warrant such number of shares of its Common Stock as shall be required for
issuance or delivery upon exercise of this Warrant. The Company covenants and
agrees that, upon exercise of the
1
<PAGE> 2
Warrants and payment of the Exercise Price therefor, all shares of Common Stock
and other securities issuable upon such exercise shall be duly and validly
issued, fully paid, non-assessable .-and not subject to the preemptive rights of
any stockholder. As long as the Warrants shall be outstanding, the Company shall
use its best efforts to cause all shares of Common Stock issuable upon the
exercise of the Warrants to be listed (subject to official notice of issuance)
on all securities exchanges on which the Common Stock issued to the public in
connection herewith may then be listed and/or quoted on NASDAQ.
(c) Fractional Shares. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of this Warrant. With
respect to any fraction of a share called for upon any exercise hereof, the
Company shall pay to the Holder an amount in cash equal to such fraction
multiplied by the current market value of such fractional share, determined as
follows:
(1) If the Common Stock is listed on a national securities exchange or
admitted to unlisted trading privileges on such exchange, the current value
shall be the last reported sale price of the Common Stock on such exchange on
the last business day prior to the date of exercise of this Warrant or if no
such sale is made on such day, the average of the closing bid and asked prices
for such day on such exchange; or
(2) If the Common Stock is not so listed or admitted to unlisted trading
privileges, the current value shall be the mean of the last reported bid and
asked prices reported by the National Association of Securities Dealers
Automated Quotation System (or, if not so quoted on NASDAQ or by the National
Quotation Bureau, Inc.) on the last business day prior to the date of the
exercise of this Warrant; or
(3) If the Common Stock is not so listed or admitted to unlisted trading
privileges and bid and asked prices are not so reported, the current value shall
be an amount, not less than book value, determined in such reasonable manner as
may be prescribed by the Board of Directors of the Company, such determination
to be final and binding on the Holder.
(d) Exchange, Assignment or Loss of Warrant. This Warrant is exchangeable,
without expense, at the option of the Holder, upon presentation and surrender
hereof to the Company or at the office of its stock transfer agent, if any, for
other Warrants of different denominations entitling the Holder thereof to
purchase (under the same terms and conditions as provided by this Warrant) in
the aggregate the same number of shares of Common Stock purchasable hereunder.
This Warrant may not be sold, transferred, assigned, or hypothecated until after
one year from the effective date of the registration statement except that it
may be (i) assigned in whole or in part to the officers of the "Underwriter",
and (ii)transferred to any successor to the business of the "Underwriter." Any
such assignment shall be made by surrender of this Warrant to the Company, or at
the office of its stock transfer agent, if any, with the Assignment Form annexed
hereto duly executed and with funds sufficient to pay any transfer tax;
whereupon the Company shall, without charge, execute and deliver a new Warrant
in the name of the assignee named in-such instrument of assignment, and this
Warrant shall promptly be canceled. This Warrant may be divided or combined with
other Warrants which carry the same rights upon presentation hereof at the
office of the Company or at the office of its stock transfer agent, if any,
together with a written notice specifying the names and denominations in which
new Warrants are to be issued and signed by the Holder hereof. The term
"Warrant" as used herein includes any Warrants issued in substitution for or
replacement of this Warrant, or into which this Warrant may be divided or
exchanged. Upon receipt by the Company of evidence satisfactory to it of the
loss, theft, destruction or mutilation of this Warrant, and (in the case of
loss, theft or destruction) of reasonably satisfactory indemnification, and upon
surrender and cancellation of this Warrant, if mutilated, the Company will
execute and deliver a new Warrant of like tenor and date. Any such new Warrant
executed and delivered shall constitute an additional contractual obligation on
the part of the Company, whether or not this Warrant so lost, stolen, destroyed,
or mutilated shall be at any time enforceable by anyone.
(e) Rights of the Holder. The Holder shall not, by virtue hereof, be
entitled to any rights of a shareholder in the Company, either at law or equity,
and the rights of the Holder are limited to those expressed in the Warrant and
are not enforceable against the Company except to the extent set forth herein.
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<PAGE> 3
(f) Notices to Warrant Holders. So long as this Warrant shall be
outstanding and unexercised (i) if the Company shall make any stock distribution
upon the Common Stock, or (ii) if the Company shall offer to the holders of
Common Stock for subscription or purchase by them any shares of stock of any
class or any other rights, or (iii) if any capital reorganization of the
Company, reclassification of the capital stock of the Company, consolidation or
merger of the Company with or into another corporation, sale, lease or transfer
of all or substantially all of the property and assets of the Company to another
corporation, or voluntary or involuntary dissolution, liquidation or winding up
of the Company shall be effected, then, in any such case, the Company shall
cause to be delivered to the Holder, at least ten (10) days prior to the date
specified in (x) or (y) below, as the case may be, a notice containing a brief
description of the proposed action and stating the date on which (x) a record is
to be taken for the purpose of such dividend, distribution or rights, or (y)
such reclassification, reorganization, consolidation, merger, conveyance, lease,
dissolution, liquidation or winding up is to take place and the date, if any, is
to be fixed, as of which the holders of Common Stock of record shall be entitled
to exchange their shares of Common Stock for equivalent securities or other
property deliverable upon such reclassification, reorganization, consolidation,
merger, conveyance, dissolution, liquidation or winding up.
(g) Adjustment of Exercise Price and Number of Shares of Common Stock
Deliverable.
(A)(i) Except as hereinafter provided, in the event the Company shall, at
any time or from time to time after the date hereof, issue any shares of Common
Stock as a stock dividend to the holders of Common Stock, or subdivide or
combine the outstanding shares of Common Stock into a greater or lesser number
of shares (any such issuance, subdivision or combination being herein call a
"Change of Shares"), then, and thereafter upon each further Change of Shares,
the Exercise Price for the Warrants (whether or not the same shall be issued and
outstanding) in effect immediately prior to such Change of Shares shall be
changed to a price (including any applicable fraction of a cent to the nearest
cent) determined by dividing (i) the sum of (a) the total number of shares of
Common Stock outstanding immediately prior to such Change of Shares, multiplied
by the Exercise Price in effect immediately prior to such Change of Shares, and
(b) the consideration, if any, received by the Company upon such issuance,
subdivision or combination by (ii) the total number of shares of Common Stock
outstanding immediately after such Change of Shares; provided, however, that in
no event shall the Exercise Price be adjusted pursuant to this computation to an
amount in excess of the Exercise Price in effect immediately prior to such
computation, except in the case of a combination of outstanding shares of Common
Stock.
For the purposes of any adjustment to be made in accordance with this
Section (g) the following provisions shall be applicable:
(I) Shares of Common Stock issuable by way of dividend or other
distribution on any capital stock of the Company shall be deemed to have
been issued immediately after the opening of business on the day following
the record date for the determination of shareholders entitled to receive
such dividend or other distribution and shall be deemed to have been issued
without consideration.
(II) The number of shares of Common Stock at any one time outstanding
shall not be deemed to include the number of shares issuable (subject to
readjustment upon the actual issuance thereof) upon the exercise of
options, rights or warrants and upon the conversion or exchange of
convertible or exchangeable securities.
(ii) Upon each adjustment of the Exercise Price pursuant to this Section
(g), the number of shares of Common Stock purchasable upon the exercise of each
Warrant shall be the number derived by multiplying the number of shares of
Common Stock purchasable immediately prior to such adjustment by the Exercise
Price in effect prior to such adjustment and dividing the product so obtained by
the applicable adjusted Exercise Price.
(B) In case of any reclassification or change of outstanding shares of
Common Stock issuable upon exercise of the Warrants (other than a change in par
value, or from par value to no par value, or from no par value to par value or
as a result of a subdivision or combination), or in case of any consolidation or
merger of the Company with or into another corporation other than a merger with
a "Subsidiary" (which shall mean any corporation or corporations, as the
3
<PAGE> 4
case may be, of which capital stock having ordinary power to elect a majority of
the Board of Directors of such corporation (regardless of whether or not at the
time capital stock of any other class or classes of such corporation shall have
or may have voting power by reason of the happening of any contingency) is at
the time directly or indirectly owned by the Company or by one or more
Subsidiaries) or by the Company and one or more Subsidiaries in which merger the
Company is the continuing corporation and which does not result in any
reclassification or change of the then outstanding shares of Common Stock or
other capital stock issuable upon exercise of the Warrants (other than a change
in par value, or from par value to no par value, or from no par value to par
value or as a result of subdivision or combination) or in case of any sale or
conveyance to another corporation of the property of the Company as an entirety
or substantially as an entirety, then, as a condition of such reclassification,
change, consolidation, merger, sale or conveyance, the Company, or such
successor or purchasing corporation, as the case may be, shall make lawful and
adequate provision whereby the Holder of each Warrant then outstanding shall
have the right thereafter to receive on exercise of such Warrant the kind and
amount of securities and property receivable upon such reclassification, change,
consolidation, merger, sale or conveyance by a holder of the number of
securities issuable upon exercise of such Warrant immediately prior to such
reclassification, change, consolidation, merger, sale or conveyance and shall
forthwith file at the principal office of the Company a statement signed by its
President or a Vice President and by its Treasurer or an Assistant Treasurer or
its Secretary or an Assistant Secretary evidencing such provision. Such
provisions shall include provision for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in Section
(g)(A). The above provisions of this Section (g)(B) shall similarly apply to
successive reclassifications and changes of shares of Common Stock and to
successive consolidations, mergers, sales or conveyances.
(C) Irrespective of any adjustments or changes in the Exercise Pi ice or
the number of shares of Common Stock purchasable upon exercise of the Warrants,
the Warrant Certificates theretofore and thereafter issued shall, unless the
Company shall exercise its option to issue new Warrant Certificates pursuant
hereto, continue to express the Exercise Price per share and the number of
shares purchasable thereunder as the Exercise Price per share and the number of
shares purchasable thereunder as expressed in the Warrant Certificates when the
same were originally issued.
(D) After each adjustment of the Exercise Price pursuant to this Section
(g), the Company will promptly prepare a certificate signed by the Chairman or
President, and by the Treasurer or an Assistant Treasurer or the Secretary or an
Assistant Secretary, of the Company setting forth: (i) the Exercise Price as so
adjusted, (ii) the number of shares of Common Stock purchasable upon exercise of
each Warrant, after such adjustment, and (iii' a brief statement of the facts
accounting for such adjustment. The Company will promptly file such certificate
in the Company's minute books and cause a brief summary thereof to be sent by
ordinary first class mail to each Holder at his last address as it shall appear
on the registry books of the Company. No failure to mail such notice nor any
defect therein or in the mailing thereof shall affect the validity thereof
except as to the holder to whom the Company failed to mail such notice, or
except as to the holder whose notice was defective. The affidavit of an officer
or the Secretary or an Assistant Secretary of the Company that such notice has
been mailed shall, in the absence of fraud, be prima facie evidence of the facts
stated therein.
(E) No adjustment of the Exercise Price shall be made as a result of or in
connection with the issuance or sale of shares of Common Stock if the amount of
said adjustment shall be less than $.10, provided, however, that in such case,
any adjustment that would otherwise be required then to be made shall be carried
forward and shall be made at the time of and together with the next subsequent
adjustment that shall amount, together with any adjustment so carried forward,
to at least $.10. In addition, Holders shall not be entitled to cash dividends
paid by the Company prior to the exercise of any Warrant or Warrants held by
them.
(F) In the event that the Company shall at any time prior to the exercise
of all Warrants declare a dividend consisting solely of shares of Common Stock
or otherwise distribute to its stockholders any assets, property, rights,
evidences of indebtedness, the Holders of the unexercised Warrants shall
thereafter be entitled, in addition to the shares of Common Stock or other
securities and property receivable upon the exercise thereof, to receive, upon
the exercise of such Warrants, the same property, assets, rights, evidences of
indebtedness, that they would have been
4
<PAGE> 5
entitled to receive at the time of such dividend or distribution as if the
Warrants had been exercised immediately prior to such dividend or distribution.
At the time of any such dividend or distribution, the Company shall make
appropriate reserves to ensure the timely performance of the provisions of this
Section (g).
(h) Piggyback Registration. If, at any time commencing one year from the
date hereof and expiring six (6) years thereafter, the Company proposes to
register any of its securities under the Securities Act of 1933, as amended (the
"Act") (other than in connection with a merger or pursuant to Form S-8, S-4 or
other comparable registration statement) it will give written notice by
registered mail, at least thirty (30) days prior to the filing of each such
registration statement, to the Underwriter and to all other Holders of the
Warrants and/or the Warrant Stock of its intention to do so. If the Underwriter
or other Holders of the Warrants and/or Warrant Stock notify the Company within
twenty (20) days after receipt of any such notice of its or their desire to
include any such securities in such proposed registration statement, the Company
shall afford each of the Underwriter and such Holders of the Warrants and/or
Warrant Stock the opportunity to have any such Warrant Stock registered under
such registration statement.
Notwithstanding the provisions of this Section, the Company shall have the
right at any time after it shall have given written notice pursuant to this
Section (irrespective of whether a written request for inclusion of any such
securities shall have been made) to elect not to file any such proposed
registration statement, or to withdraw the same after the filing but prior to
the effective date thereof.
(i) Demand Registration.
(1) At any time commencing one year from the date hereof and expiring four
(4) years thereafter, the Holders of the Representative's Warrants and/or
Warrant Stock representing a "Majority" (as hereinafter defined) of such
securities (assuming the exercise of all of the Underwriter's Warrants) shall
have the right (which right is in addition to the registration rights under
Section (i) hereof), exercisable by written notice to the Company, to have the
Company prepare and file with the Securities and Exchange Commission (the
"Commission"), on one occasion, a registration statement and such other
documents, including a prospectus, as may be necessary in the opinion of both
counsel for the Company and counsel for the Underwriter and Holders, in order to
comply with the provisions of the Act, so as to permit a public offering and
sale of their respective Warrant Stock for nine (9) consecutive months by such
Holders and any other holders of the Representative's Warrants and/or Warrant
Stock who notify the Company within ten (10) days after receiving notice from
the Company of such request.
(2) The Company covenants and agrees to give written notice of any
registration request under this Section (i) by any Holder or Holders to all
other registered Holders of the Representative's Warrants and the Warrant Stock
within ten (10) days from the date of the receipt of any such registration
request.
(3) In addition to the registration rights under this Section (i) at any
time commencing one year after the date hereof and expiring four (4) years
thereafter, the Holders of Representative's Warrants and/or Warrant Stock shall
have the right, exercisable by written request to the Company, to have the
Company prepare and file, on one occasion, with the Commission a registration
statement so as to permit a public offering and sale for nine (9) consecutive
months by such Holders of its Warrant Stock; provided, however, that the
provisions of Section (i)(2) hereof shall not apply to any such registration
request and registration and all costs incident thereto shall be at the expense
of the Holder or Holders making such request.
(4) The Company shall include such Underwriter's Warrants in the
Registration Statement relating to this offering and shall keep such
Registration Statement current at least until the expiration of such
Underwriter's Warrants or shall bear all of the costs of a new registration
statement in the event the Underwriter"s Warrants are to be exercised. In the
event the Company grants the public investors any benefits upon the exercise of
the Public Redeemable Warrants not set forth in the terms thereof, then the
Underwriter shall be entitled to receive the identical benefits in the event it
elects to exercise any of its Underwriter's Warrant
(j) Covenants of the Company With Respect to Registration. In connection
with any registration under Section (h) or (i) hereof, the Company covenants and
agrees as follows:
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<PAGE> 6
(i) The Company shall use its best efforts to file a registration statement
within sixty (60) days of receipt of any demand therefor, shall use its best
efforts to have any registration statement declared effective at the earliest
possible time, and shall furnish each Holder desiring to sell Warrant Stock such
number of prospectuses as shall reasonably be requested.
(ii) The Company shall pay all costs (excluding fees and expenses of
Holder(s)' counsel and any underwriting or selling commissions), fees and
expenses in connection with all registration statements filed pursuant to
Sections (h), (i) and 0) hereof including, without limitation, the Company's
legal and accounting fees, printing expenses, blue sky fees and expenses. If the
Company shall fail to comply with the provisions of Section (j)(i), the Company
shall, in addition to any other equitable or other relief available to the
Holder(s), extend the Exercise Period by such number of days as shall equal the
delay caused by the Company's failure.
(iii) The Company will take all necessary action which may be required in
qualifying or registering the Warrant Stock included in a registration statement
for offering and sale under the securities or blue sky laws of such states as
reasonably are requested by the Holder(s), provided that the Company shall not
be obligated to execute or file any general consent to service of process or to
qualify as a foreign corporation to do business under the laws of any such
jurisdiction.
(iv) The Company shall indemnify the Holder(s) of the Warrant Stock to be
sold pursuant to any registration statement and each person, if any, who
controls such Holders within the meaning of Section 15 of the Act or Section
20(a) of the Securities Exchange Act of 1934, as amended ("Exchange Act"), from
and against all loss, claim, damage, expense or liability (including all
expenses reasonably incurred in investigating, preparing or defending against
any claim whatsoever) to which any of them may become subject under the Act, the
Exchange Act or otherwise, arising from such registration statement but only to
the same extent and with the same effect as the provisions pursuant to which the
Company has agreed to indemnify the Underwriter contained in Section 7 of the
Underwriting Agreement.
(v) The Holder(s) of the Warrant Stock to be sold pursuant to a
registration statement, and their successors and assigns, shall severally, and
not jointly, indemnify the Company, its officers and directors and each person,
if any, who controls the Company within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act, against all loss, claim, damage or expense or
liability (including all expenses reasonably incurred in investigating,
preparing or defending against any claim whatsoever) to which they may become
subject under the Act, the Exchange Act or otherwise, arising from information
furnished by or on behalf of such Holders, or their successors or assigns, for
specific inclusion in such registration statement to the same extent with the
same effect as the provisions contained in Section 7 of the Underwriting
Agreement pursuant to which the Underwriter has agreed to indemnify the Company.
(vi) The Holder(s) shall exercise their Warrants prior to the initial
filing of any registration statement or the effectiveness thereof.
(vii) The Company shall not permit the inclusion of any securities other
than the Warrant Stock to be included in any registration statement filed
pursuant to Section (i) hereof, or permit any other registration statement to be
or remain effective during the effectiveness of a registration statement filed
pursuant to Section (i) hereof, other than a secondary offering of equity
securities by the Company, without the prior written consent of the Holders of
the Warrants and Warrant Stock representing a Majority of such securities
(assuming an exercise of all the Warrants underlying the Warrants).
(viii) The Company shall furnish to each Holder participating in the
offering and to each underwriter, if any, a signed counterpart, addressed to
such Holder or underwriter, of (x) an opinion of counsel to the Company, dated
the effective date of such registration statement (and, if such registration
includes an underwritten public offering, an opinion dated the date of the
closing under the underwriting agreement), and (y) a "cold comfort" letter dated
the effective date of such registration statement (and, if such registration
includes an underwritten public offering, a letter dated the date of the closing
under the underwriting agreement) signed by the independent public accountants
who have issued a report on the Company's financial statements included in such
registration statement,
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<PAGE> 7
in each case covering substantially the same matters with respect to such
registration statement (and the prospectus included therein) and, in the case of
such accountants' letter, with respect to events subsequent to the date of such
financial statements, as are customarily covered in opinions of issuer's counsel
and in accountants' letters delivered to underwriters in underwritten public
offerings of securities.
(ix) The Company shall as soon as practicable after the effective date of
the registration statement, and in any event within 15 months thereafter, make
"generally available to its security holders" (within the meaning of Rule 158
under the Act) an earnings statement (which need not be audited) complying with
Section 11(a) of the Act and covering a period of at least 12 consecutive months
beginning after the effective date of the registration statement.
(x) The Company shall deliver promptly to each Holder participating in the
offering requesting the correspondence and memoranda described below and to the
managing underwriters, copies of all correspondence between the Commission and
the Company, its counsel or auditors and all memoranda relating to discussions
with the Commission or its staff with respect to the registration statement and
permit each Holder and underwriter to do such investigation, upon reasonable
advance notice, with respect to information contained in or omitted from the
registration statement as it deems reasonably necessary to comply with
applicable securities laws or rules of the National Association of Securities
Dealers, Inc. ("NASD"). Such investigation shall include access to books,
records and properties and opportunities to discuss the business of the Company
with its officers and independent auditors, all to such reasonable extent and at
such reasonable times and as often as any such Holder or underwriter shall
reasonably request.
(xi) The Company shall enter into an underwriting agreement with the
managing underwriters, which may be the Underwriter. Such agreement shall be
satisfactory in form and substance to the Company, and such managing
underwriters, and shall contain such representations, warranties and covenants
by the Company and such other terms as are customarily contained in agreements
of that type used by the managing underwriter; provided however, that no Holder
shall be required to make any representations, warranties or covenants or grant
any indemnity to which it shall object in any such underwriting agreement. The
Holders shall be parties to any underwriting agreement relating to an
underwritten sale of their Warrant Securities and may, at their option, require
that any or all the representations, warranties and covenants of the Company to
or for the benefit of such underwriters shall also be made to and for the
benefit of such Holders. Such Holders shall not be required to make any
representations or warranties to or agreements with the Company or the
underwriters except as they may relate to such Holders and their intended
methods of distribution.
(xii) For purposes of this Agreement, the term "Majority" in reference to
the Holders of Warrants or Warrant Stock, shall mean in excess of fifty (50%) of
the then outstanding Warrants or Warrant Stock that (i) are not held by the
Company, an affiliate, officer, creditor, employee or agent thereof or any of
their respective affiliates, members of their family, persons acting as nominees
or in conjunction therewith or (ii) have not been resold to the public pursuant
to a registration statement filed with the Commission under the Act.
(k) The Company's obligation under Section 6) hereof shall be conditioned
as to each such public offering, upon a timely receipt by the Company in writing
of:
(A) Information as to the terms of such public offering furnished by
or on behalf of the Holders making a public distribution of their Warrant
Stock; and
(B) Such other information as the Company may reasonably require from
such Holder, or any underwriter for any of them, for inclusion in such
registration statement or offering statement or post-effective amendment.
(C) An agreement by the Holder to sell his Warrants and Warrant Stock
on the basis provided in the Underwriting Agreement.
(l) The Company's agreements with respect to the Warrant Stock in this
Warrant will continue in effect regardless of the exercise or surrender of this
Warrant.
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<PAGE> 8
(m) Any notices or certificates by the Company to the Holder and by the
Holder to the Company shall be deemed delivered if in writing and delivered
personally or sent by certified mail, to the Holder, addressed to him or sent to
Nutmeg Securities, Ltd., 495 Post Road East, Westport, CT 06880, or, if the
Holder has designated, by notice in writing to the Company, any other address,
to such other address, and, if to the Company, addressed to it at 4400 MacArthur
boulevard, Suite 980, Newport Beach, CA 92660. The Company may change its
address by written notice to Nutmeg Securities, Ltd.
(n) Limited Transferability. This Warrant Certificate and the Warrant may
not be sold, transferred, assigned or hypothecated for a one-year period after
the effective date of the Registration Statement except to underwriters of the
Offering referred to in the Underwriting Agreement or to individuals who are
either partners or officers and shareholder of such an underwriter or by will or
by operation of law. The Warrant may be divided or combined, upon request to the
Company by the Warrantholder, into a certificate or certificates evidencing the
same aggregate number of Warrants. The Warrant may not be offered, sold,
transferred, pledged or hypothecated in the absence of any effective
registration statement as to such Warrant filed under the Act, or an exemption
from the requirement of such registration, and compliance with the applicable
state securities laws. The Company may require an opinion of counsel
satisfactory to the Company that such registration is not required and that such
laws are complied with. The Company may treat the registered holder of this
Warrant as he or it appears on the Company's book at any time as the Holder for
all purposes. The Company shall permit the Holder or his duly authorized
attorney, upon written request during ordinary business hours, to inspect and
copy or make extracts from its books showing the registered holders of Warrants.
(o) Transfer to Comply With the Securities Act of 1933. The Company may
cause the following legend, or one similar thereto, to be set forth on the
Warrants and on each certificate representing Warrant Stock, or any other
security issued or issuable upon exercise of this Warrant not theretofore
distributed to the public or sold to underwriters for distribution to the public
pursuant to Sections (h) or (i) hereof; unless counsel satisfactory to the
Company is of the opinion as to any such certificate that such legend, or one
similar thereto, is unnecessary:
"The warrants represented by this certificate may not be offered for sale,
sold or otherwise transferred except pursuant to an opinion of counsel
satisfactory to the Company is obtained stating that such offer or sale is
in compliance wrath state and federal securities law.
(p) Applicable Law. This Warrant shall be governed by, and construed in
accordance with, the laws of the State of Connecticut , without giving effect to
conflict of law principles.
(q) This Warrant may not be extended except in a writing signed by each
Holder and the Company.
(r) The indemnification provisions of this Warrant shall survive until
, 2005.
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<PAGE> 9
Medical Science Systems, Inc.
a Texas corporation
By
------------------------------
Paul J. White, President
Date:
--------------------------
S E A L
Attest:
- --------------------------------
Secretary
9
<PAGE> 10
PURCHASE FORM
Dated , 19
---------------- ---
The undersigned hereby irrevocably elects to exercise the Warrant to the
extent of purchasing _______ shares of Common Stock and hereby makes payment of
$________ in payment of the actual exercise price thereof.
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name ___________________________________________________________________________
(please typewrite or print in block letters)
Address ________________________________________________________________________
Signature ______________________________________________________________________
ASSIGNMENT FORM
FOR VALUE RECEIVED, ____________________________________________________________
hereby sells, assigns and transfers unto
Name ___________________________________________________________________________
(please typewrite or print in block letters)
Address ________________________________________________________________________
the right to purchase Common Stock as represented by this Warrant to the extent
of ____________ shares as to which such right is exercisable and does hereby
irrevocably constitute and appoint, ___________________________, attorney, to
transfer the same on the books of the Company with full power of substitution
in the premises.
Signature ______________________________________________________________________
Dated: _______________________, 19___
10
<PAGE> 1
EXHIBIT 4.3
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED OR REGISTERED OR QUALIFIED UNDER APPLICABLE STATE SECURITIES LAWS AND
THEREFORE THESE SECURITIES MAY NOT BE TRANSFERRED WITHOUT REGISTRATION
THEREUNDER OR PURSUANT TO AN EXEMPTION FROM REGISTRATION.
UPON THE OCCURRENCE OF CERTAIN EVENTS, PAYMENT OF THE INDEBTEDNESS EVIDENCED BY
THIS INSTRUMENT IS SUBORDINATED TO THE PRIOR PAYMENT IN FULL OF THE SENIOR
OBLIGATIONS (AS DEFINED HEREIN).
MEDICAL SCIENCE SYSTEMS, INC.
SUBORDINATED PROMISSORY NOTE
$___________ Dated: August 19, 1997
FOR VALUE RECEIVED, the undersigned, MEDICAL SCIENCE SYSTEMS, INC., a
Texas corporation (the "Company"), hereby promises to pay to the order of
___________________________ ("Lender"), at the offices of the Company in Newport
Beach, California, or at such other place as Lender may designate and so notify
the Company, the principal sum of ____________ ($____________), with interest
thereon from the date hereof at the rate per annum equal to ten percent (10%),
principal and interest payable as described herein.
1. Payment of Principal and Interest. Except as otherwise specifically provided
below, interest will accrue at the rate of ten percent (10%) per annum, simple
interest, on the unpaid principal amount of this Note. All principal of and
interest accrued on this Note shall be payable on the earlier of (i) October 18,
1998, fourteen (14) months from the date of issuance, or (ii) the closing of any
sale of equity securities of the Company which results in the receipt by the
Company of gross proceeds in excess of $6,000,000. Any payment pursuant hereto
shall first be applied to interest due and owing at the date of such payment,
and whatever remains after the amount of such interest is deducted from such
payment shall be applied to the principal balance due hereunder, and the
interest upon the portion of principal so credited shall thereupon cease.
Subject to the provisions of the following paragraph, the Company shall have the
right, without penalty, to prepay the indebtedness represented hereby in part or
in full at any time or times during the term hereof. Any prepayment pursuant
hereto shall first be applied to interest due and owing at the date of such
payment, and whatever remains after the amount of such interest is deducted from
such prepayment shall be applied to the principal balance due hereunder, and the
interest upon the portion of principal so credited shall thereupon cease.
2. Events of Default.
(a) Definition. For purposes of this Note, the occurrence of any of the
following events shall be an event of default ("Event of Default"):
(i) the Company fails to pay when due the full amount of
interest then accrued on this Note, or fails to pay when due the full
amount of any principal payment on this Note, and (in either case) such
nonpayment continues for ten (10) days;
(ii) the Company fails to perform or observe any other
material provision contained in this Note, or any other agreement
executed in connection with the transactions contemplated by this Note,
and such default continues for a period of thirty (30) days after
receipt of written notice thereof;
(iii) any representation or warranty made in any of the
Agreements, or in any writing furnished by the Company to the Lender,
is false or misleading (taken as a whole) in any materially adverse
respect on the date made or furnished; or
<PAGE> 2
(iv) the Company makes an assignment for the benefit of
creditors or admits in writing its inability to pay its debts as they
become due; or an order, judgment or decree is entered adjudicating the
Company to be bankrupt or insolvent is entered under the federal
Bankruptcy Code; or the Company petitions or applies for the
appointment of a custodian, trustee, receiver or liquidator of the
Company, or any substantial parts of the assets of the Company; or
commences any proceeding relating to the Company under any bankruptcy
reorganization, arrangement, insolvency, readjustment of debt,
dissolution or liquidation law of any jurisdiction; or any such
petition or application is filed, or any such proceeding commenced,
against the Company and either (A) the Company by any act indicates its
approval thereof or (B) such petition, application or proceeding is not
dismissed within 60 days.
(b) Consequences of Events of Default.
(i) If any Event of Default has occurred, subject to the
rights of Senior Lenders under Section 3 below, the Lender may demand
(by written notice delivered to the Company) immediate payment of all
or any portion of the outstanding principal amount of this Note, plus
all interest accrued thereon to date.
(ii) Subject to the rights of Senior Lenders under Section 3
below, the Lender may exercise or enforce any of the other rights that
Lender may have under applicable law.
3. Subordination Provisions.
(a) Agreement to Subordinate. The Lender agrees that the indebtedness
of the Company to the Lender evidenced by this Note, and interest and premiums,
if any, thereon and other amounts payable in respect thereof or in connection
therewith, and any other amounts payable subsequent to the date hereof pursuant
to, in respect of or in connection with this Note (the "Subordinated Debt") is
and shall be subordinate, to the extent and in the manner hereinafter set forth,
to the prior payment in full of all obligations of the Company now or hereafter
existing under any secured borrowings by the Company, whether such borrowings be
in the form of a loan, equipment lease financing or pursuant to any other
financing arrangement with a bank, equipment lease company or other financial
institution, or individual or entity providing bridge financing to the Company,
whether for principal, interest (including, without limitation, interest
accruing after the filing of a petition initiating any proceeding referred to
below, whether or not such interest accrues after the filing of such petition
for purposes of the Federal Bankruptcy Code or is an allowed claim in such
proceeding), fees, expenses or otherwise (such obligations being the "Senior
Obligations"). For the purposes of this Note, the Senior Obligations shall not
be deemed to have been paid in full unless and until the lenders thereunder (the
"Senior Lenders") shall have received payment of the Senior Obligations in full
in cash.
(b) Events of Subordination.
(i) In the event of any dissolution, winding up, liquidation,
arrangement, reorganization, adjustment, protection, relief or
composition of the Company or its debts, whether voluntary or
involuntary, in any bankruptcy, insolvency, arrangement,
reorganization, receivership, relief or other similar case or
proceeding under any Federal or State bankruptcy or similar law or upon
an assignment for the benefit of creditors or any other marshaling of
the assets and liabilities of the Company or otherwise, the Senior
Lenders shall be entitled to receive payment in full of the Senior
Obligations before the Lender is entitled to receive any payment of all
or any of the Subordinated Debt, and any further payment or
distribution of any kind (whether in cash, property or securities) that
otherwise would be payable or deliverable upon or with respect to the
Subordinated Debt in any such case, proceeding, assignment, marshaling
or otherwise shall be paid or delivered directly to the Senior Lenders
for application (in the case of cash) to, or as collateral (in the case
of non-cash property or securities) for, the payment or prepayment of
the Senior Obligations until the Senior Obligations shall have been
paid in full.
<PAGE> 3
(ii) The Lender shall not take or receive from the Company,
directly or indirectly, in cash or other property or by set-off or in
any other manner, including, without limitation, from or by way of
collateral, payment of all or any of the Subordinated Debt unless (A)
on the date as of which the calculation of such payment there is no
existing or continuing event of default under the Senior Obligations (a
"Senior Default") or any event which with the giving of notice or
passage of time, or both, would constitute a Senior Default, (B) on the
date on which payment is to be made there is no existing or continuing
Senior Default or any event which with the giving of notice or passage
of time, or both, would constitute a Senior Default, and (C) the
payment of the Subordinated Debt does not create a Senior Default or
any event which with the giving of notice or passage of time, or both,
would constitute a Senior Default. If the conditions set forth in
clauses (A) and (B) above are satisfied, the Company shall pay to the
Lender the amount of the Subordinate Debt to the extent that such
payment does not create a Senior Default. Any cure or waiver of a
Senior Default shall in no way prevent the occurrence of an additional
Senior Default or any event which with the giving of notice or passage
of time, or both, would constitute a Senior Default under the Senior
Obligations. In addition, unless each of the three payment conditions
set forth above in clauses (A) through (C) is fulfilled, the
Subordinated Debt may not be accelerated (either by the action of any
person or by its terms) and no holder of any Subordinated Debt may
commence any suits or actions, make any claims or take any other act to
obtain payment under or respect of the Subordinated Debt.
(iii) In the event that any Subordinated Debt is declared due
and payable before its stated maturity, the Senior Lenders shall be
entitled to receive payment in full of all amounts due or to become due
on or in respect of all Senior Obligations before the Lender is
entitled to receive any payment by the Company on account of the
Subordinated Debt.
(iv) Upon obtaining actual knowledge that any Senior Default
or any event which with the giving of notice or passage of time, or
both, would constitute a Senior Default under the Senior Obligation
shall have occurred or that any such Senior Default or any event which
with the giving of notice or passage of time, or both, would constitute
a Senior Default shall have been cured, the Senior Lenders (as the case
may be) shall give notice thereof to the Company; provided, however,
that in no event shall a delay in giving, or the failure to give, such
notice in any way affect the enforceability or validity of the
subordination provisions of this Note.
(c) In Furtherance of Subordination. So long as any amount of
Subordinated Debt remains payable under this Note, each Lender agrees as
follows:
(i) If any bankruptcy of similar proceeding is commenced by or
against the Company, the Senior Lenders are hereby irrevocably
authorized and empowered (in their own name or in the name of the
Lender or otherwise), but shall have no obligation, to demand, sue for,
collect and receive every payment or distribution referred to in
Section 3(a) and give acquittance therefor and to file claims and
proofs of claim and take such other action (including, without
limitation, enforcing any security interest or other lien securing
payment of the Subordinated Debt) as it may deem necessary or advisable
for the exercise or enforcement of any of the rights or interests of
the Senior Lenders hereunder.
(ii) Except as set forth in this Section 3(c), all payments or
distributions upon or with respect to the Subordinated Debt which are
received by the Lender contrary to the provisions of Section 3 of this
Note shall be received in trust for the benefit of the Senior Lenders,
shall be segregated from other funds and property held by the Lender
and shall be forthwith paid over to the Senior Lenders in the same form
as so received (with any necessary endorsement) to be applied (in the
case of cash) to, or held as collateral (in the case of non-cash
property or securities) for, the payment or prepayment of the
Obligations in accordance with the terms of the Senior Obligations.
(iii) The Lender hereby irrevocably waives any defense based
on the adequacy of a remedy at law, which might be asserted as a bar to
such remedy of specific performance.
<PAGE> 4
(d) No Commencement of Any Proceeding. The Lender agrees that, so long
as payments or distributions for or on account of the Subordinated Debt are not
permitted pursuant to Section 3(b), the Lender will not take, sue for, ask or
demand from the Company payment of all or any of the Subordinated Debt, or
commence, or join with any creditor other than the Senior Lenders in commencing,
directly or indirectly cause the Company to commence, or assist the Company in
commencing, any bankruptcy or similar proceeding.
(e) Rights of Subrogation. The Lender agrees that no payment or
distribution to the Senior Lenders pursuant to the provisions of this Note shall
entitle the Lender to exercise any right of subrogation in respect thereof until
the Senior Obligations shall have been paid in full.
(f) Subordination Legend; Further Assurances. The Company will cause
each Note to be endorsed with the following legend:
UPON THE OCCURRENCE OF CERTAIN EVENTS, PAYMENT OF THE INDEBTEDNESS EVIDENCED BY
THIS INSTRUMENT IS SUBORDINATED TO THE PRIOR PAYMENT IN FULL OF THE SENIOR
OBLIGATIONS (AS HEREINAFTER DEFINED).
The Company and the Lender will, in the case of any Subordinated Debt
which is not evidenced by any instrument, upon the Company's request, cause such
Subordinated Debt to be evidenced by an appropriate instrument or instruments
endorsed with the above legend. The Company and the Lender each will, at the
Company's expense and at any time and from time to time, promptly execute and
deliver all further instruments and documents, and take all further action, that
may be reasonably necessary for the Senior Lenders in order to protect any right
or interest granted hereby or to enable the Senior Lenders to exercise and
enforce their respective rights and remedies hereunder.
(g) Notes in Respect of Subordinated Debt.
(i) The Lender agrees that it will not:
A. Convert or exchange any of the Subordinated Debt into
or for any other indebtedness of the Company;
B. Sell, assign, pledge, encumber or otherwise dispose of
any of the Subordinated Debt unless such sale, assignment, pledge,
encumbrance or disposition (1) is to a person or entity other than the
Company or any subsidiary of the Company and (2) is made expressly
subject to this Section 3; or
C. Permit the terms of any of the Subordinated Debt to be
changed in such a manner as to have an adverse effect upon the rights
or interests of the Senior Lenders hereunder.
(ii) The Lender shall, to the extent the Lender has knowledge
thereof, promptly notify the Company of the occurrence of any Event of Default
under the Note.
<PAGE> 5
(iii) The Company agrees that it will notify the Lender of any
Senior Default or any event which with the giving of notice or passage of time,
or both, would constitute a Senior Default under the Senior Obligations of which
it has knowledge; provided, however, that in no event shall any delay in giving,
or any failure to give, any such notice in any way affect the enforceability or
validity of this Note.
(h) Actions by Company. The Company agrees that it will not make any
payment of any of the Subordinated Debt, or take any other action, in
contravention of the provisions of this Note.
(i) Waiver. The Lender by acceptance of this Note, and the Company, by
execution of this Note, for the benefit of the Senior Lender, each hereby waives
promptness of notice, diligence, notice of acceptance and any other notice
(except notice of any Senior Default or any event which with the giving of
notice or passage of time, or both, would constitute a Senior Default) with
respect to any of the Senior Obligations and any requirement that the Senior
Lenders protect, secure, perfect or insure any security interest or lien or any
property subject thereto or exhaust any right or take any action against the
Company or any other person or entity or any collateral.
(j) Amendments, Etc. No amendment or waiver of any provision of this
Note, and no consent to any departure by the Lender or the Company herefrom,
shall in any event be effective unless the same shall be in writing and signed
by the Senior Lenders, and then such waiver or consent shall be effective only
in the specific instance and for the specific purpose for which given.
(k) Continuing Note; Assignments. The provisions of this Note
constitute a continuing Note and shall (A) remain in full force and effect until
the payment in full of the Subordinated Debt, (B) inure to the benefit of and be
binding upon the Lender, the Company and their respective successors and
assigns, and (C) inure to the benefit of, be binding upon, and be enforceable
by, the Senior Lenders and their respective successors, transferees and assigns.
Without limiting the generality of the foregoing clause (C), the Senior Lenders
may assign or otherwise transfer all or any portion of its rights and
obligations under the Senior Obligations to any other person or entity, and such
other person or entity shall thereupon become vested with all the rights in
respect thereof.
4. Amendment and Waiver. Except as otherwise expressly provided herein, the
provisions of this Note shall not be amended and the Company shall not take any
action herein prohibited, or omit to perform any act herein required to be
performed by it, unless the Company has received written consent from the
Lender.
5. Attorneys' Fees. In the event any judicial proceedings are instituted to
enforce or interpret the rights and obligations of the Company and the Lender
under this Note, the prevailing party in such proceeding shall be entitled to
reasonable attorneys' fees and costs.
6. Governing Law. This Note and all transactions hereunder and/or evidenced
hereby shall be governed by, construed under, and enforced in accordance with
the laws of the State of California, without regard to any choice of law or
conflict of law provisions thereof.
7. Severability. Should any provision of this Note be declared or be determined
by any court to be invalid, illegal or unenforceable, such provision shall be
severable from the remainder of this Note, and the legality, validity and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
8. Notices. All notices, requests and other communications required or permitted
under this Note shall be in writing and may be delivered personally or sent by
first class mail, postage prepaid and addressed as follows:
To Debtor: MEDICAL SCIENCE SYSTEMS, INC.
4400 MacArthur Blvd., Suite 980
Newport Beach, California 92660
Attention: Paul J. White
<PAGE> 6
To Lender:
--------------------------------
--------------------------------
--------------------------------
Any notice, request or other communication under this Note shall be effective
when received by the addressee, but if sent by registered or certified mail
postage prepaid and addressed as provided above, it shall be effective exactly
three (3) business days after deposit in the United States Mail anywhere in the
United States. The parties may change their addresses as listed above by giving
notice of the new address to the other party in conformity with this section.
IN WITNESS WHEREOF, the Company has caused a duly authorized officer to
execute and deliver this Note as of the date first written above.
MEDICAL SCIENCE SYSTEMS, INC.
(the "Company")
By:
--------------------------------
Paul J. White
LENDER
------------------------------------
Signature
------------------------------------
Printed Name
<PAGE> 1
EXHIBIT 4.4
SECURITY AGREEMENT
THIS SECURITY AGREEMENT is entered into as of the 19th day of August,
1997 by and between Medical Science Systems, Inc., a Texas corporation (the
"Borrower") and (the "Secured Party").
1. Creation of Security Interest. In consideration of one or more
loans, advances, or other financial accommodations at any time before, at or
after the date hereof made or extended by the Secured Party to or for the
account of the Borrower, directly or indirectly, as principal, guarantor or
otherwise, at the sole discretion of the Secured Party in each instance,
including without limitation the loan and other accommodations incident to those
certain Subordinated Promissory Notes dated August 19, 1997 in the principal
amount of ________________________________Dollars ($ ) between the Borrower and
the Secured Party (the "Note"), the Borrower hereby grants to Secured Party a
continuing security interest in and a right of setoff against, and the Borrower
hereby assigns to the Secured Party, the Collateral described in Section 2, to
secure the prompt payment, performance and observance of any and all
indebtedness, liabilities, obligations and agreements of any kind of the
Borrower to Secured Party, however, evidenced, whether as principal, surety,
endorser, guarantor or otherwise, whether now existing or hereafter arising,
whether direct or indirect, absolute or contingent, joint or several, due or not
due, primary or secondary, liquidated or unliquidated, secured or unsecured,
original, renewed or extended, whether arising under any guarantee, endorsement
or undertaking which the Borrower may make or issue to others for the Secured
Party's account, whether arising directly or acquired from others, and of all
agreements, documents and instruments evidencing any of the foregoing or under
which any of the foregoing may have been issued, created assumed or guaranteed,
including without limitation, charges, commissions, interests, expenses, fees,
costs and reasonable attorneys' fees chargeable to Secured Party in connection
with any or all of the foregoing (all of the foregoing being herein referred to,
jointly and severally, as the "Obligations").
2. Description of Collateral. The Collateral is described as follows:
(a) All equipment in all forms, wherever located, now or
hereafter existing, including but not limited to all office equipment
and furniture, all machinery, and all parts thereof and accession
thereto;
(b) All inventory in all of its forms, wherever located, now
or hereafter existing, including but not limited to (i) raw materials
and work in progress, finished goods and materials used or consumed in
the manufacture or production, (ii) goods in which the Borrower has an
interest in mass or a joint or other interest or right of any kind, and
(iii) goods which are returned to or repossessed by the Borrower;
(c) All accounts, contract rights, chattel paper, instruments,
general intangibles and other obligations of any kind now or hereafter
existing arising out of or in connection with the sale or lease of
goods or the rendering of services, and all rights now or hereafter
existing in and to all security agreements, leases and other contract
rights securing or relating to such accounts, contract rights, chattel
paper, instruments, general intangibles or obligations;
(d) All vehicles; and
(e) All proceeds of any kind of any and all of the foregoing
and, to the extent not otherwise included, all payments under
insurance, or any indemnity, warranty or guaranty, payable by reason of
loss of or damage to any of the foregoing.
3. Term of Security Agreement. This Agreement shall continue, and
Secured Party shall retain its security interest in the Collateral, until (a)
payment in full of all amounts due under or by virtue of the Notes and any
provision of this Agreement, and (b) the full performance and discharge of all
Obligations.
<PAGE> 2
4. Subordinated Debt. The Secured Party acknowledges that the
indebtedness that this Agreement secures is and shall be subordinate, to the
extent and in the manner hereinafter set forth in Section 3 of the Note, to the
prior payment in full of all obligations of the Borrower now or hereafter
existing under any secured borrowings by the Borrower, whether such borrowings
be in the form of a loan, equipment lease financing or pursuant to any other
financing arrangement with a bank, equipment lease company or other financial
institution, whether for principal, interest (including, without limitation,
interest accruing after the filing of a petition initiating any proceeding
referred to below, whether or not such interest accrues after the filing of such
petition for purposes of the Federal Bankruptcy Code or is an allowed claim in
such proceeding), fees, expenses or otherwise (such obligations being the
"Senior Obligations"). For the purposes of this Agreement, the Senior
Obligations shall not be deemed to have been paid in full unless and until the
lenders thereunder (the "Senior Lenders") shall have received payment of the
Senior Obligations in full in cash.
5. Default. The occurrence of any one of the following events or
conditions shall constitute a default under this Agreement:
(a) the Borrower fails to pay when due the full amount of
interest then accrued on the Note, or fails to pay when due the full
amount of any principal payment on the Note, and (in either case) such
nonpayment continues for ten (10) days;
(b) the Borrower fails to perform or observe any other
material provision contained in the Note, or any other agreement
executed in connection with the transactions contemplated by the Note,
and such default continues for a period of thirty (30) days after
receipt of written notice thereof;
(c) any representation or warranty made in this Agreement, or
in any writing furnished by the Borrower to the Secured Party, is false
or misleading (taken as a whole) in any materially adverse respect on
the date made or furnished; or
(d) the Borrower makes an assignment for the benefit of
creditors or admits in writing its inability to pay its debts as they
become due; or an order, judgment or decree is entered adjudicating the
Borrower to be bankrupt or insolvent is entered under the federal
Bankruptcy Code; or the Borrower petitions or applies for the
appointment of a custodian, trustee, receiver or liquidator of the
Borrower, or any substantial parts of the assets of the Borrower; or
commences any proceeding relating to the Borrower under any bankruptcy
reorganization, arrangement, insolvency, readjustment of debt,
dissolution or liquidation law of any jurisdiction; or any such
petition or application is filed, or any such proceeding commenced,
against the Borrower and either (A) the Borrower by any act indicates
its approval thereof or (B) such petition, application or proceeding is
not dismissed within 60 days.
6. Secured Party's Remedies. Upon default as specified in section 5,
Secured Party may, at its option, exercise any one or more of the following
rights, subject to the rights of Senior Lenders set forth in Section 3 of the
Note:
(a) declare all unpaid principal and accrued interest
under the Notes immediately due and payable;
(b) exercise its rights and remedies under the California
Commercial Code as a secured creditor having a security interest in the
Collateral, and in particular, sell all or any part of the Collateral
at one or more public or private sales to be conducted in California,
on at least thirty (30) days' prior notice and otherwise in a
commercially reasonable manner and upon reasonable terms and
conditions, taking into account all the circumstances; and
(c) exercise any and all further rights or remedies of Secured
Party under the California Commercial Code or other applicable law.
To the extent permitted by law, Debtor hereby waives all requirements
for the exercise of any of Secured Party's remedies other than those provided in
this Agreement. Secured Party shall be entitled to enforce any of the
2
<PAGE> 3
remedies in this section successively or concurrently. The enforcement of any
remedy provided in this section shall not prejudice the right of Secured Party
to pursue any other or further remedy which it may have.
7. Disposition of Proceeds of Sale of Collateral. Secured Party may
retain from the proceeds of any sale of the Collateral provided for in Section 6
an amount sufficient to pay any and all amounts due Secured Party under the
Notes or this Agreement, together with all costs and expenses of preparing for,
promoting, conducting and closing the sale, including reasonable attorneys'
fees. Secured Party shall then pay any balance of the proceeds to the Borrower,
except as otherwise provided by law, subject to the rights of the holder of any
then existing lien of which Secured Party has notice.
8. Estoppel or Waiver. In addition to the specific provisions of
Section 6, Secured Party shall have the right to exercise or to refrain from
exercising any rights, powers or remedies under the Notes or this Agreement
successively or concurrently, and this shall not operate to estop or prevent
Secured Party from exercising any further or additional right, power or remedy
it may have. No act or failure to act on the part of Secured Party under this
Agreement shall be deemed or construed to be a waiver of or an election with
respect to any right, power or remedy Secured Party have under this Agreement or
the Notes, or that may otherwise be available to Secured Party.
9. Further Cooperation. The Borrower agrees that upon reasonable
request by Secured Party, the Borrower will promptly execute and deliver any
documents, and take all additional actions reasonably deemed necessary or
desirable by Secured Party to effect the purposes of this Agreement.
10. Personal Property. The parties hereby agree that the Collateral is,
and shall remain during the term of this Agreement, personal property. At no
time shall the Collateral, or any portion thereof, be fixtures, trade or
otherwise, even though attached or appurtenant to any building or real estate.
11. Financing Statement.
(a) Concurrently with the execution and delivery of this
Agreement, the Borrower shall execute and deliver a financing statement
on Form UCC-1 with respect to the Collateral and shall cause said
financing statement to be filed with the Uniform Commercial Code
Division of the Office of the California Secretary of State. From time
to time, as reasonably requested by Secured Party, the Borrower shall
execute and deliver to Secured Party such additional documents and
instruments as may be necessary to perfect and maintain Secured Party's
security interest in the Collateral.
(b) Upon termination of the security interest provided for
herein, each Secured Party shall promptly execute and deliver to the
Borrower any and all documents (including a termination statement in a
form suitable for filing under the Uniform Commercial Code of the State
of California) which the Borrower may deem to be necessary or
appropriate in order to adequately evidence the termination of such
security interest.
12. Severability. If any provision of this Agreement is determined to
be invalid or unenforceable, all of its other provisions shall nevertheless
remain in full force and effect.
3
<PAGE> 4
13. Notices. All notices, requests and other communications required or
permitted under this Agreement shall be in writing and may be delivered
personally or sent by first class mail, postage prepaid and addressed as
follows:
To the Borrower: Medical Science Systems, Inc.
4400 MacArthur Blvd., Suite 980
Newport Beach, California 92660
Attention: Paul J. White
Secured Party:
-------------------------------
-------------------------------
-------------------------------
Any notice, request or other communication under this Agreement shall be
effective when received by the addressee, but if sent by registered or certified
mail postage prepaid and addressed as provided above, it shall be effective
exactly three (3) business days after deposit in the United States Mail anywhere
in the United States. The parties may change their addresses as listed above by
giving notice of the new address to the other party in conformity with this
Section.
14. Binding Upon Successors. This Agreement shall inure to the benefit
of and be binding upon the successors and assigns of the parties.
15. Entire Agreement. This Agreement, together with the Notes and any
financing statement executed in connection with this Agreement, is intended by
the parties as the final, complete and exclusive expression of the terms and
conditions of their agreement, and supersedes all prior agreements and
representations.
16. Captions. The captions accompanying each Section of this Agreement
are for convenience only and shall not be deemed part of the context of this
Agreement.
17. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California.
18. Counterparts. This Agreement may be executed in counterparts,
including electronically transmitted counterparts, each of which shall be deemed
to be an original and shall be binding on any person who has signed it.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
SECURED PARTY MEDICAL SCIENCE SYSTEMS, INC.
By: By:
-------------------------- --------------------------
Paul J. White, President
--------------------------
4
<PAGE> 1
EXHIBIT 4.5
MEDICAL SCIENCE SYSTEMS, INC.
WARRANT AGREEMENT
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS. THIS WARRANT MAY NOT BE
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS AN EXEMPTION THEREFROM
IS AVAILABLE.
This Warrant (the "Warrant") is entered into by and between Medical
Science Systems, Inc., a Texas corporation (the "Company"), and
_________________ ("Holder") as of the 19th day of August, 1997.
RECITALS
--------
WHEREAS, the Company has issued and sold to Holder a subordinated
promissory note in the principal amount of $____________ (the "Note");
WHEREAS, in consideration for the loan to the Company pursuant to the
Note, the Company desires to grant to Holder warrants (the "Warrants") to
purchase 10,000 shares of Common Stock for each $50,000 principal amount of the
Note; and
WHEREAS, the Company desires to evidence such Warrants by executing and
delivering this Warrant Agreement (the "Agreement").
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the adequacy and receipt of which are irrevocably
acknowledged, the parties hereto agree as follow.
1. DESCRIPTION; EXECUTION: REGISTRATION.
(a) This certifies that, for value received, the Holder is hereby
granted warrants to purchase _________ shares of the Company's common stock,
(the "Common Stock") at the exercise price and on the terms set forth below. The
Company shall cause to be issued to the Holder a certificate in the form
attached hereto, as soon as practicable after the execution of the Agreement
(the "Warrant Certificate").
(b) This Agreement shall be executed on behalf of the Company by its
President. Upon delivery of this Warrant to the Holder, this Agreement shall be
binding upon the Company, and the Holder shall be entitled to all the benefits
set forth herein.
2. TERM OF WARRANTS.
(a) This Warrant shall remain exercisable as provided in Section 3
until the close of business on the earlier of (i) the date five (5) years from
the date first written above or (ii) the Call Date, as defined in paragraph (b)
below (the "Expiration Date").
(b) Upon the occurrence of the shares of the Company's Common Stock
being traded on any national or regional stock exchange or on the automated
quotation system of the National Association of Securities Dealers, Inc.
("NASDAQ") and the closing price of the Common Stock equals or exceeds $12.00
per share for a period of thirty (30) consecutive trading days, then the Company
may, at the option of the Board of Directors, establish a date on or before
which all of the Warrants must be exercised (the "Call Date"). Notwithstanding
anything herein to the contrary, any Warrants which are not exercised in the
manner provided in Section 3 on or before the Call Date shall automatically and
without further action by the Company expire and terminate. The Company shall
give each holder of Warrant written notice of the Call Date at least sixty (60)
days in advance.
<PAGE> 2
3. EXERCISE OF WARRANT.
(a) The Warrant shall be immediately exercisable. At any time until the
Expiration Date, the Holder shall have the right to purchase from the Company
(and the Company shall promptly issue to the Holder) up to __________ shares of
Common Stock at the Exercise Price (as defined below) by surrendering the
appropriate Warrant Certificate and the Subscription Form attached hereto to the
Company at its executive offices and paying the aggregate Exercise Price for the
shares of Common Stock to be purchased, in cash or by check or by the delivery
of the shares of Common Stock having a current fair market value equal to the
exercise price, which shares may be the shares underlying the warrants.
(b) The Warrants may be exercised in whole and in part, but not in
increments of less than 100 shares. In case of a partial exercise, the Warrant
Certificate shall be surrendered and a new Warrant Certificate of the same tenor
and for the purchase of the number of shares not purchased upon such partial
exercise shall be issued by the Company to the Holder hereof. Warrants shall be
deemed to have been exercised immediately prior to the close of business on the
date of their surrender for exercise as provided above, and the person or entity
entitled to receive the shares of Common Stock issuable upon the exercise shall
be treated for all purposes as the holder of such shares of record as of the
close of business on such date. Prior to any such exercise, neither the Holder
nor any person entitled to receive shares of Common Stock issuable upon exercise
shall be or have any of the rights of a shareholder of the Company. No
adjustment shall be made for dividends or other shareholder rights for which the
record date is prior to the date of exercise. As soon as practicable on or after
such date, the Company shall issue in the name of, and deliver to the person or
persons entitled to receive, a certificate or certificates for the full number
of shares of Common Stock issuable upon such exercise.
4. EXERCISE PRICE; ADJUSTMENT.
4.1 Exercise Price. The initial Exercise Price for each Share issuable
pursuant to the Warrants shall be Five Dollars and Fifty Cents ($5.50), adjusted
as provided below.
5. ADJUSTMENT OF WARRANT PRICE AND NUMBER OF SHARES. The number and kind of
securities purchasable upon the exercise of the Warrants and the Exercise Price
shall be subject to adjustment from time to time upon the happening of certain
events, as follows:
5.1 Adjustments. The number of shares of Common Stock purchasable upon
the exercise of each Warrant and the Exercise Price thereof shall be subject to
adjustment as follows:
(a) In case the Company shall (i) pay a dividend in shares of
Common Stock or make a distribution in shares of Common Stock, (ii) subdivide
its outstanding shares of Common Stock, (iii) combine its shares of Common
Stock, or (iv) issue, by reclassification of its shares of Common Stock, other
securities of the Company, the number of shares of Common Stock purchasable upon
exercise of the Warrant immediately prior thereto shall be adjusted so that the
holder of the Warrant shall be entitled to receive the kind and number of shares
of Common Stock or other securities of the Company which such holder would have
owned or would have been entitled to receive immediately after the happening of
any of the events described above, had the Warrant been exercised immediately
prior to the happening of such event or any record date with respect thereto.
Any adjustment made pursuant to this Subsection 5.1(a) shall become effective
immediately after the effective date of such event retroactive to the record
date, if any, for such event.
(b) In case the Company shall distribute to all or
substantially all holders of its shares of Common Stock, evidences of its
indebtedness or assets (excluding cash dividends or distributions out of
earnings) or rights, options, warrants or convertible securities containing the
right to subscribe for or purchase shares of Common Stock, then in each case the
number of shares of Common Stock thereafter
2
<PAGE> 3
purchasable upon the exercise of the Warrant shall be determined by multiplying
the number of shares of Common Stock theretofore purchasable upon exercise of
such Warrant by a fraction, of which the numerator shall be the then Current
Market Price (as defined in Section 7.1) on the date of such distribution, and
of which the denominator shall be such Current Market Price on such date minus
the then fair value (determined by the Company's Board of Directors) of the
portion of the assets or evidences of indebtedness so distributed or of such
subscription rights, options, warrants or convertible securities applicable to
one Unit. Such adjustment shall be made whenever any such distribution is made
and shall become effective on the date of distribution retroactive to the record
date for the determination of shareholders entitled to receive such
distribution.
(c) No adjustment in the number of shares of Common Stock
purchasable pursuant to the Warrants shall be required unless such adjustment
would require an increase or decrease of at least one percent in the number of
shares of Common Stock then purchasable upon the exercise of the Warrant or, if
the Warrant is not then exercisable, the number of shares of Common Stock
purchasable upon the exercise of the Warrants on the first date thereafter that
the Warrant become exercisable; provided, however, that any adjustments which by
reason of this Subsection 5.1(c) are not required to be made immediately shall
be carried forward and taken into account in any subsequent adjustment.
(d) Whenever the number of shares of Common Stock purchasable
upon the exercise of a Warrant is adjusted as herein provided, the Exercise
Price payable upon exercise of the Warrant shall be adjusted by multiplying such
Exercise Price immediately prior to such adjustment by a fraction, of which the
numerator shall be the number of shares of Common Stock purchasable upon the
exercise of such Warrant immediately prior to such adjustment, and of which the
denominator shall be the number of shares of Common Stock so purchasable
immediately thereafter.
(e) Whenever the number of shares of Common Stock purchasable
upon the exercise of a Warrant or the Exercise Price is adjusted as herein
provided, the Company shall cause to be promptly mailed to the Holder by first
class mail, postage prepaid, notice of such adjustment or adjustments.
(f) For the purpose of this Section 5, the term "shares of
Common Stock" shall mean (i) the class of shares of Common Stock designated as
Common Stock of the Company at the date of this Agreement, or (ii) any other
class of stock resulting from successive changes or reclassification of such
shares of Common Stock consisting solely of changes in par value, or from par
value to no par value, or from no par value to par value.
5.2 No Adjustment for Dividends. Except as provided in Section 5.1
hereof, no adjustment in respect of any dividends or distributions out of
earnings shall be made during the term of a Warrant or upon the exercise of a
Warrant.
5.3 No Adjustment in Certain Cases. No adjustments shall be made
pursuant to Section 5 hereof in connection with the grant or exercise of
presently authorized or outstanding options to purchase shares of Common Stock
under the Company's existing stock option plan or the exercise of presently
outstanding warrants to purchase shares of Common Stock.
5.4 Preservation of Purchase Rights upon Reclassification,
Consolidation, etc. In case of any consolidation of the Company with or merger
of the Company into another corporation or in case of any sale or conveyance to
another corporation of the property, assets or business of the Company as an
entirety or substantially as an entirety, the Company or such successor or
purchasing corporation, as the case may be, shall execute with the Holder an
agreement that the Holder shall have the right thereafter, upon payment of the
Exercise Price in effect immediately prior to such action, to purchase, upon
exercise of each Warrant, the kind and amount of shares of Common Stock and
other securities and property which it would have owned or have been entitled to
receive after the happening of such consolidation, merger, sale or
3
<PAGE> 4
conveyance had each Warrant been exercised immediately prior to such action. In
the event of a merger described in Section 368(a)(2)(E) of the Internal Revenue
Code of 1986, as amended, in which the Company is the surviving corporation, the
right to purchase shares of Common Stock under the Warrant shall terminate on
the date of such merger and thereupon the Warrant shall become null and void,
but only if the controlling corporation shall agree to substitute for the
Warrant its warrant which entitle the holders thereof to purchase upon their
exercise the kind and amount of shares of Common Stock and other securities and
property which they would have owned or been entitled to receive had the Warrant
been exercised immediately prior to such merger. Any such agreements referred to
in this Subsection 5.4 shall provide for adjustments, which shall be as nearly
equivalent as may be practicable to the adjustments provided for in Section 5
hereof. The provisions of this Subsection 5.4 shall similarly apply to
successive consolidations, mergers, sales or conveyances.
6. REGISTRATION RIGHTS The shares of Common Stock that Holder will hold upon
exercise of the Warrant(s) (the "Registrable Securities"), will be subject to
the following registration rights:
(a) Demand Registration On Form S-3. After its initial public offering,
the Company shall use its best efforts to qualify for registration on Form S-3
or any comparable successor form. After the Company has qualified for the use of
Form S-3, Holders of Registrable Securities shall have the right to demand one
(1) registration on Form S-3 (such demand shall be in writing and shall state
the number of shares of Registrable Securities to be disposed of and the
intended methods of disposition of such shares by such Holder or Holders),
provided however, that the Company shall be obligated to effect registration
only if the Holders of at least fifty percent (50%) of the then outstanding
Registrable Securities have joined in the demand.
(b) Notification of Demand. The Company shall, upon receipt of demand
brought by Holders of at least fifty percent (50%) of the then outstanding
Registrable Securities, notify the other Holders of Registrable Securities who
are not listed in the demand. Said Holders shall have twenty (20) calendar days
in which to respond to the Company and indicate whether or not they choose to
join in the demand. Holders not so responding shall be deemed to have elected
not to join in the demand.
(c) Restriction on Sales. Notwithstanding anything herein to the
contrary, each of the holders of Registrable Securities hereby agrees, upon the
request of any regulatory agency having jurisdiction over the Company, not to
sell, transfer or otherwise dispose of the Registrable Securities for a period
of one year after the initial public offering. Each holder shall execute and
deliver to the Company any agreements, documents or instruments as may be
required by the Company or any governmental agency to evidence such one year
restriction on sales, transfers and dispositions.
7. FRACTIONAL SHARES OF COMMON STOCK; ISSUANCE OF SHARES OF COMMON STOCK;
LEGENDS.
7.1 Fractional Shares of Common Stock. The Company shall not be
required to issue fractional shares of Common Stock on the exercise of the
Warrant. If any fraction of a Unit would, except for the provisions of this
Section 7.1, be issuable on the exercise of a Warrant (or specified portion
thereof), the Company shall in lieu thereof pay an amount in cash equal to the
then Current Market Price, multiplied by such fraction. For purposes of this
Agreement, the term "Current Market Price" shall mean (i) if the shares of
Common Stock are traded in the over-the-counter market and not in the NASDAQ
National Market System nor on any national securities exchange, the average of
the per Unit closing bid price of the shares of Common Stock on the thirty (30)
consecutive trading days immediately preceding the date in question, as reported
by NASDAQ or an equivalent generally accepted reporting service, or (ii) if the
shares of Common Stock are traded in the NASDAQ National Market System or on a
national securities exchange, the average for the thirty (30) consecutive
trading days immediately preceding the date in question of the daily per Unit
closing prices of the shares of Common Stock in the NASDAQ National Market
System or on the principal stock exchange on which it is listed, as the case may
be. For purposes of clause (i) above, if trading in the shares of Common Stock
is not reported by NASDAQ, the bid price referred to in said clause
4
<PAGE> 5
shall be the lowest bid price as reported in the "pink sheets" published by
National Quotation Bureau, Incorporated. The closing price referred to in clause
(ii) above shall be the last reported sale price or, in the case no such
reported sale takes place on such day, the average of the reported closing bid
and asked prices, in either case in the NASDAQ National Market System or on the
national securities exchange on which the shares of Common Stock are then
listed.
7.2 Issuance of Shares of Common Stock. All shares of Common Stock
issued upon exercise of the Warrant will be duly authorized, validly issued,
fully paid and nonassessable.
7.3 Legends. If the shares of Common Stock to be issued upon exercise
of this Warrant have not been registered under the Securities Act of 1933, as
amended, then the certificates representing such shares of Common Stock shall
bear a legend substantially in the following form:
THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") OR
APPLICABLE STATE SECURITIES LAWS AND ARE RESTRICTED SECURITIES. SUCH
SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM UNDER THE ACT AND STATE
SECURITIES LAWS.
5
<PAGE> 6
8. TRANSFERABILITY.
The Warrant may not be transferred, sold or otherwise disposed of,
except by will or devise and by the laws of descent. Any attempt to transfer,
sell or otherwise dispose of this Warrant (except as provided above) shall be
void and shall not convey any rights or privileges to the transferee.
9. MISCELLANEOUS.
9.1 Notices.
All notices, requests, demands and other communications required or
permitted to be given hereunder shall be deemed to have been duly given if in
writing and delivered personally, given by prepaid telegram, or mailed first
class, postage prepaid, registered or certified mail, return receipt requested,
to the following addresses:
If to the Company: Medical Science Systems, Inc.
4400 MacArthur Blvd.,
Suite 980
Newport Beach, California 92660
Attn: Paul J. White
With a copy to: Jeffers, Wilson, Shaff & Falk, LLP
18881 Von Karman Avenue, Suite 1400
Irvine, California 92612
Attention: Christopher A. Wilson, Esq.
If to the Holder:
Any party may change the address to which such communications are to be directed
to it by giving written notice to the other party. Except as otherwise provided
in this Warrant, all notices shall be deemed to be given when delivered in
person, or if placed in the mail as aforesaid, then two (2) days thereafter.
9.2 Modifications.
The parties may, by mutual consent, amend, modify, supplement and waive
any right under this Warrant in any manner agreed by them in writing at any
time.
9.3 Entire Agreement.
This Agreement and any documents, instruments or agreements
specifically referred to herein, set forth the entire agreement and
understanding of the parties with respect to the transactions contemplated
hereby and supersede all prior agreements, arrangements and understandings
relating to the subject matter hereof.
9.4 Headings.
The section and paragraph headings contained in this Warrant are for
convenient reference only, and shall not in any way affect the meaning or
interpretation hereof.
9.5 Governing Law.
This Agreement shall be governed by and construed in accordance with
the laws of the State of California, without any regard to the choice of law
provisions thereof.
6
<PAGE> 7
9.6 Severability.
If any provision of this Agreement shall be held to be invalid, illegal
or unenforceable, it shall be deemed severable from the remaining provisions of
this Agreement which shall remain in full force and effect.
9.7 Waiver.
No waiver of any provision of this Agreement or any breach thereof
shall be deemed or shall constitute a waiver of any other provision hereof
(whether or not similar) or any other breach hereunder nor shall such waiver
constitute a continuing waiver. Either party may waive performance of any
provision of this Agreement, the non-performance of which would otherwise
constitute a breach of this Agreement, including but not limited to the
non-performance of any condition precedent to such party's performance, without
affecting the enforceability of this Agreement or the provisions contained
herein.
9.8 Successors and Assigns.
The terms and conditions of this Agreement shall inure to the benefit
of and be binding upon the respective successors and assigns of the parties
hereto. The Company may not assign this Agreement without the prior written
consent of the Holder. Holders may transfer and assign the Warrant only as
provided in Section 8. Any assignment by either party in violation of the
foregoing shall be void.
9.9 Attorneys' Fees.
If any legal action is instituted to enforce or interpret the terms of
this Warrant, the prevailing party in such action shall be entitled to actual
attorneys' fees in addition to any other relief to which the party is entitled.
IN WITNESS WHEREOF, the parties have executed this instrument as of the
date first written above.
MEDICAL SCIENCE SYSTEMS, INC.
A TEXAS CORPORATION
By:
-------------------------------
Paul J. White, President
HOLDER
-----------------------------------
Signature
-----------------------------------
Printed Name
7
<PAGE> 8
WARRANT
SUBSCRIPTION FORM
(To be executed only upon exercise of Warrant)
The undersigned Holder of this Warrant hereby irrevocably exercises
this Warrant for the purchase of that number of shares of Common Stock of
MEDICAL SCIENCE SYSTEMS, INC. set forth below, up to a maximum of ______________
shares of Common Stock (or such other number of shares of Common Stock as may be
issuable upon the exercise of this Warrant pursuant to the adjustment provisions
hereof), and hereby makes payment of the aggregate Exercise Price therefor which
is also set forth below, all on the terms and subject to the conditions
specified in this Warrant.
Number of Shares of Common Stock:
-------
x $5.50
Aggregate Purchase
Price paid: $
-------
Dated:
---------------------
HOLDER:
-----------------------------------
(Signature)
-----------------------------------
(Please print)
ACCEPTED:
MEDICAL SCIENCE SYSTEMS, INC.
a Texas corporation
By:
-------------------------
Title:
----------------------
<PAGE> 1
EXHIBIT 4.6
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAWS. THIS WARRANT MAY NOT BE TRANSFERRED IN
THE ABSENCE OF SUCH REGISTRATION OR UNLESS AN EXEMPTION THEREFROM IS AVAILABLE.
Warrant No._______ WARRANT CERTIFICATE
WARRANT TO PURCHASE _______________
SHARES OF COMMON STOCK
VOID AFTER 5:00 P.M.,
CALIFORNIA TIME, ON _____________ ___, _____
(UNLESS EARLIER CALLED BY COMPANY)
This certifies that, for value received, _________________________, the
registered holder hereof or assigns (the "Holder"), is entitled to purchase from
MEDICAL SCIENCE SYSTEMS, INC., a Texas corporation (the "Company"), at any time
before the earlier of (i) 5:00 p.m. California Time, on July __, 2002 (the date
five (5) years after the date of this Warrant Certificate) and (ii) the "Call
Date" (as defined in the Warrant Agreement) at the exercise price per share of
$5.50 (the "Exercise Price"), ____________ shares of Common Stock (the
"Shares"). The number of Shares purchasable upon exercise of the Warrant
evidenced hereby and the Exercise Price per Share shall be subject to adjustment
from time to time as set forth in the Warrant Agreement referred to below.
The Warrants evidenced hereby may be exercised in whole or in part by
presentation of this Warrant Certificate with the Subscription Form attached
hereto duly executed and simultaneous payment of the Exercise Price (subject to
adjustment) at the principal office of the Company in Newport Beach, California.
Payment of such price shall be made at the option of the Holder in cash or by
certified check or bank draft, or by the delivery of shares of Common Stock
having a value equal to the Exercise Price, all as provided in the Warrant
Agreement.
Upon any partial exercise of the Warrants evidenced hereby, there shall
be issued to the Holder a new Warrant certificate in respect of the Shares
evidenced hereby which shall not have been exercised. This Warrant certificate
may be exchanged at the office of the Company by surrender of this Warrant
certificate properly endorsed either separately or in combination with one or
more other Warrants for one or more new Warrants to purchase the same aggregate
number of Shares as here evidenced by the Warrant or Warrants exchanged. No
fractional Shares will be issued upon the exercise of rights to purchase
hereunder, but the Company shall pay the cash value of any fraction upon the
exercise of one or more Warrants. The Warrants evidenced hereby are not
transferable except in the manner and subject to the limitations set forth in
the Warrant Agreement.
The number of Shares issuable upon exercise of this Warrant to acquire
the Shares shall be subject to adjustment as provided in Section 5 of the
Warrant Agreement.
The Holder hereof may be treated by the Company and all other persons
dealing with this Warrant Certificate as the absolute owner hereof for all
purposes and as the person entitled to exercise the rights represented hereby,
any notice to the contrary notwithstanding, and until such transfer is entered
on such books, the Company may treat the Holder hereof as the owner for all
purposes.
MEDICAL SCIENCE SYSTEMS, INC.
Dated: , 1997 ---------------------------------
-------------- Paul J. White, President
<PAGE> 1
EXHIBIT 4.7
[BANK OF AMERICA LOGO]
===============================================================================
[ ] Business Line [X] Business Loan
Agreement
Secured
TO: Bank of America National Trust and Savings Association
Business Lending Services #1738
101 S. Marengo Avenue, 3rd Floor
Pasadena, CA 91122
- ----------------------------- ----------------------- ------------------------
CUSTOMER NAME LINE OF CREDIT/LOAN NO. CREDIT LIMITATION AMOUNT
MEDICAL SCIENCE SYSTEMS, INC. 0740829-9002 $500,000 .00
- ----------------------------- ----------------------- ------------------------
- --------------- --------------------------------
BRANCH NO. DEPOSIT ACCOUNT NO. ("ACCOUNTS")
6155 06940-18831
- --------------- --------------------------------
INTRODUCTION. This Agreement dated as of June 27, 1997, is entered into between
MEDICAL SCIENCE SYSTEMS, INC. _________________________________________________
_______________________________________________________________________________
(the "Borrower") and Bank of America National Trust and Savings Association
(the "Bank") concerning the Borrowing Business Loan credit facility with the
Bank. In consideration of, and to induce the Bank to make available to the
Borrower the Credit facility described herein, the Borrower agrees and warrants
as follows:
- -------------------------------------------------------------------------------
[ ] I. THE LINE OF CREDIT
- -------------------------------------------------------------------------------
A. NATURE OF THE LINE. If the box above is checked, the Bank has made
available to the Borrower a revolving line of credit ("Line") in the
principal amount shown above as "Credit Limit" subject to the terms and
conditions of this Agreement. This means that the Borrower, or any
person provided for in Section I.C. and I.D. below, may request an
advance of all or a part of the Line at any time while the Line is
available. Any amount repaid by the Borrower becomes available for the
Borrower to reborrow after the expiration of a hold period for payments
by personal checks of up to eleven business days. If the Bank delays the
availability of funds, it will mail to the Borrower a notice within one
business day.
B. ADVANCES. Advances under the Line may be in any amount not to exceed
the Credit Limit remaining available. Advances may be made by writing a
credit line check or by telephone authorization deposited into the
Borrower's account listed above, if any, or such other of the Borrower's
accounts with the Bank as designated by the Borrower in writing (the
"Account").
C. TELEPHONE AUTHORIZATION. The Bank may honor telephone instructions for
advances or repayments given by any one of the individuals who signed
the application for this Line on the Borrower's behalf, or any other
individual designated by any one of such authorized individuals.
Repayments authorized by telephone shall be withdrawn from the
Borrower's Account. The Borrower indemnifies and excuses the Bank
(including its officers, employees, and agents) from all liability,
loss, and costs in connection with any act resulting from telephone
instructions it reasonably believes are made by any individual
authorized by the Borrower to give such instructions. This indemnity and
excuse will survive this Agreement's termination.
D. CREDIT LINE CHECKS. The Bank will issue checks to the Borrower at no
cost. The Borrower may borrow money under the Line (up to the Credit
Limit remaining available) by writing checks. The Borrower agrees not to
write checks in an amount less than $300, and not to write more than
five checks in any one billing cycle. The Bank may charge a fee for any
checks written for a lesser amount, or if more than the permitted number
of checks are written. Each paid check will be charged to the Line.
checks may be signed by any one individual who signed the application
for credit. Only one signature shall be required on any check.
E. OVERDRAFT PROTECTION.
[ ] If the box to the left is checked, the following paragraph applies:
the Line has been linked for overdraft protection to the following
business checking account with the Bank: N/A. If the business checking
account is overdrawn, the Bank will transfer funds from the Line to
cover the overdraft in multiples of $50 as long as there is sufficient
available credit on the Line. Overdraft protection is not accessible by
in-branch transaction, ATM withdrawal or transfer through your home or
office computer.
F. DEFAULT. The Bank may, in its sole discretion, refuse to make advances
or pay checks hereunder if an Event of Default has occurred (as defined
in Section IX, below).
G. AVAILABILITY OF THE LINE. Advances under the Line will be available
until the earlier of the following (the "Termination Date"):
(1) _____________________; or (2) the date the Bank terminates the
Line because of an Event of Default pursuant to Section IX; or (3) the
date the Line is cancelled by the Borrower pursuant to Section IV.A.
On the Termination Date, no further advances will be available to the
Borrower. The entire outstanding principal balance of the Line,
together with all accrued and unpaid interest thereon, and fees and
charges owing in connection therewith, shall be due and payable in full
on the Termination Date.
H. CREDIT LIMIT. A credit limit has been set on the Line and is shown
above as "Credit Limit". The Borrower agrees not to allow the principal
amount which the Borrower owes at any one time under this Agreement to
exceed the Credit Limit. The Bank does not have to honor any request for
an advance or credit line check which, when added to the unpaid balance,
would exceed the Credit Limit.
- -------------------------------------------------------------------------------
[X] II. THE LOAN
- -------------------------------------------------------------------------------
A. AMOUNT. If the box above is checked, the Bank has made available to
the Borrower a term loan ("Loan") in the principal amount shown above
as "Loan Amount" subject to the terms and conditions of this Agreement.
- -------------------------------------------------------------------------------
[ ] III. PAYMENTS, INTEREST AND FEES
- -------------------------------------------------------------------------------
A. PAYMENTS.
1. AMOUNT. The Borrower promises to pay to the Bank principal and/or
interest payments as indicated by the box checked below.
[ ] a. INTEREST ONLY. The minimum payment due each month .... be the
amount of accrued interest.
[ ] b. PRINCIPAL AND INTEREST. Principal and interest in ..........
monthly installments of ______________________________________.
_______________________________ Dollars ($____________________
[X] c. PRINCIPAL PLUS INTEREST. Principal in 60 monthly installments
of Eight Thousand Three Hundred Thirty Four and 00/100 Dollars
($8,334.00) plus interest.
In addition, the Borrower must pay any amounts past due an amount that
exceeds the Credit Limit, if applicable, and any other charges assessed
as described in this Agreement.
2. PAYMENT DATE. The payments shall be due and payable monthly on
the 1st day of each month, beginning August 1, 1997 and continuing
until July 1, 2002, on which date any unpaid principal and interest
shall be paid in full. If the payment date falls on a Saturday or
Sunday, or on a holiday on which the Bank is closed, the payment shall
be due on the next business day. If this is a Loan, the principal and
interest may also at the Bank's option be due and payable in full upon
an Event of Default in accordance with Section IX, herein.
3. PAYMENT ALLOCATION. All sums received from the Borrower for
application to the Line or Loan shall be applied to the Borrower...
obligation under the Line or Loan in such order as determine by the
Bank.
4. PREPAYMENT. The Borrower can pay the balance of the credit
outstanding under this Agreement in full or part at any time without
premium or penalty. The Bank may accept partial payments, whether or
not marked "paid in full" without losing the Bank's rights under this
Agreement.
5. PAYMENT ADDRESS. Payments should be made to:
Bank of America National Trust and Savings Association
Business Lending Services #1738
P.O. Box 6012
Pasadena, CA 91102-6012
6. CREDITING THE PAYMENT. If the Bank receives the payment at the
above address by 9:00 a.m. on any business day, except Saturday or
Sunday, the Bank will credit the payment to the amount outstanding
under this Agreement as of that day. Payments may also be made at any
of the Bank's California branches. Payments received at a branch after
4 p.m. (7 p.m. on Fridays) or on a Saturday, Sunday or holiday will be
posted the following business day.
7. AUTOMATIC REPAYMENT.
[X] If the box to the left is checked, the following paragraphs apply.
a. AUTOMATIC PAYMENT SERVICE. The Borrower hereby chooses to have its
principal and interest payments made pursuant to the Bank's Automatic
Payment Service, and authorizes the Bank to collect all sums due
hereunder by charging the full amount hereof to the Borrower's Account.
Should there be insufficient funds in the Account to pay when due all
or any portion of the amount due, the full amount of such deficiency
shall be immediately due and payable by the Borrower.
b. TERMINATION. If, for any reason during the term of this Agreement,
this Automatic Payment Service is terminated by the Borrower or the
Bank, the interest rate under this Agreement will increase by one (1)
percentage point, the amount of each payment will be increased
accordingly, and the Borrower agrees to pay a documentation fee of $75.
<PAGE> 2
B. Interest Rate
1. Interest Rate Options. The principal balance outstanding under this
Agreement shall bear interest per annum equal to:
/x/ a. Variable Rate. The Bank's Reference Rate plus 1,750 percentage
points, as said Reference rate may change from time to time. The Reference Rate
is the rate of interest publicly announced from time to time by the Bank in San
Francisco, California as its Reference Rate. The Reference Rate is set by the
Bank based on various factors, including the Bank's costs and desired return,
general economic conditions and other factors, and is used as a reference point
for pricing some loans. The Bank may price loans to its customers at, above, or
below the Reference Rate. Any change in the Reference Rate shall take effect
at the opening of business on the day specified in the public announcement of a
change in the Bank's Reference Rate.
/ / b. Fixed Rate. A fixed rate of N/A percentage points.
2. Computation of Interest and Fees. All computations of interest and fees made
or called for hereunder shall be calculated on the basis of:
/x/ a. 360 day year. A 360 day year and the actual number of days elapsed.
This results in more interest or a higher fee than if a 365 day year is used.
/ / b. 365 day year. An actual 365/366 day year and the actual number of
days elapsed.
3. Default Rate. Upon the occurrence and during the continuation of any
default under this Agreement, amounts outstanding under this Agreement will at
the option of the Bank bear interest at a rate per annum which is five (5)
percentage points higher than the rate of interest otherwise provided under
this Agreement. This will not constitute a waiver of any default.
C. Fees
1. Promise to Pay Fees and Costs. The Borrower promises to pay according
to the terms of this Agreement, all amounts outstanding and fees and costs
which may be assessed under this Agreement including reasonable attorney's fees
(which may include the allocated costs of in-house counsel), court costs, and
collection costs.
2. Loan Fee. Upon the date of this Agreement, the Borrower will pay a
nonrefundable loan fee of $5,000.00. If this is a Line, this fee may be paid by
check, charged to the Account, or treated as an advance. The advance will be
subject to all the terms of this Agreement.
3. Overdraft Transfer Fee. Each overdraft advance shall be subject to an
overdraft transfer fee equal to 2 percent (2%) of the amount of the advance,
subject to a minimum of $3 and a maximum of $15.
4. Late Fees. A late charge of 6% of the unpaid portion of the payment
amount, with a minimum fee of $6.00 and a maximum fee of $15.00, may be
assessed if payment is not received within fifteen days after the date the
payment is due. This fee may be charged by the Bank at its option.
5. Overlimit Fees. An overlimit fee may be assessed each time the Borrower
exceeds the Credit Limit, regardless of whether the Bank permits the Borrower
to exceed the Credit Limit.
6. Returned Item Fee. The Borrower may be charged a returned item fee each
time a payment is returned or if there are insufficient funds in the Account
when a payment is attempted through Automatic Payment Service.
IV. OTHER TERMS
A. Cancellation by the Borrower. The Borrower may cancel this Agreement by
written notice to the Bank. The Borrower's request will take effect at the
time it is received by the Bank. If there is more than one Borrower, the
Bank may treat a request by one of them under this paragraph as a request by
all of them. At the time of cancellation, the outstanding balance will be
immediately due and payable.
B. Statement Copies. A fee may be charged for each statement copy requested,
plus an hourly charge for any necessary research time.
C. Stop Payments on Credit Line Checks. The Borrower may stop payment on a
check as long as the request is received by the Bank prior to the time the
check is posted to the Line. The request must include the information which
the Bank requires. The Borrower may be charged a fee to place or renew a
stop payment order. A stop payment shall be effective for 180 days. The
Borrower must renew the stop payment if it wishes the stop payment to be
effective for a longer period. In some cases, the Bank may pay a check even
if a stop payment is in effect. For example, if a branch of the Bank or
another person or entity becomes a "holder in due course" of a check, the
Bank may still pay the check and post the amount to the Line.
D. Check Certification. The Bank will not certify checks.
E. Lost or Stolen Checks. The Borrower must notify the Bank immediately at the
Bank of America Address shown at the top of the Agreement if any checks are
lost or stolen.
F. Cancelled Checks. The Bank will not return the cancelled checks to the
Borrower, but will retain photocopies for eight (8) years. The Borrower
agrees to examine the monthly billing statement on the Account promptly in
order to identify improper or unauthorized transactions. If the Borrower
requests a copy of a check, the Borrower must write a letter to the Bank,
including the Account Check posted to the billing statement. The Bank may
charge a fee for providing a copy of checks.
G. Authorized Use. The Checks issued to the Borrower must be used only by the
Borrower. If the Borrower permits anyone else to use its checks without the
Bank's consent, the Borrower will be obligated to pay for any advances
obtained by that person plus any interest and other charges attributable to
such advances.
H. Return of Checks. At the Bank's request, the Borrower will return to the
Bank any unused checks if the Account is terminated. If any such event
occurs, the Bank may return unpaid any checks presented against the Account.
V. SECURITY
A. Security. As security for payment of this Line or Loan and all obligations
provided for herein, the Borrower grants to the Bank a security interest in
the property described below. The Borrower also grants to the Bank a
security interest in all renewals of this property, other property
substituted for it, and proceeds.
ACCOUNTS RECEIVABLE & INVENTORY
O VIN - MISCELLANEOUS EQUIPMENT
B. Stock/Bonds.
1. Margin Call. If at any time the Credit Limit, if a Line, or
the outstanding balance, if a Loan, to collateral value ratio exceeds 60%
for a Line or Loan secured partially or completely by stock, or 65% for a
Line or Loan secured only by bonds, the Bank may determine collateral value
using any reasonable method. If the additional collateral is not received
within the time given in the notice, the Borrower will be in default and the
Bank may terminate the Line or Loan as provided in Section IX.
2. Restriction on Use of Funds. The Borrower agrees not to use the Line or
Loan to finance the purchase of margin stock (as defined by Regulation U) or
to pay obligations incurred in the purchase of such securities.
C. Insurance. The Borrower agrees to maintain all risk property damage
insurance policies covering the tangible property comprising the security.
Each insurance policy must be in an amount acceptable to the Bank. The
insurance must be issued by an insurance company acceptable to the Bank and
must include a lender's loss payable endorsement in favor of the Bank in a
form acceptable to the Bank. If the Borrower fails to maintain insurance on
the security described in Paragraph A, above, the Bank may, in its sole
discretion, obtain such insurance and the cost of the premiums shall be
payable on demand with interest at the interest rate herein.
VI. CONDITIONS
The Bank must receive the following items in form and content acceptable to
the Bank before it is required to extend any credit to the Borrower under
this Agreement.
A. Authorization. Evidence that the execution, delivery and performance by the
Borrower of this Agreement and any instrument or agreement required under
this Agreement have been duly authorized.
B. Guaranties. Guaranties signed by those persons and in the amounts as
required.
C. Security Agreement. Signed original security agreement, financing
statements and fixture filings (together with collateral in which the Bank
requires a possessory security interest), which the Bank requires.
D. Evidence of Priority. Evidence that security interests and liens in favor
of the Bank are valid, enforceable, and prior to all others' rights and
interests, except those the Bank consents to in writing.
VII. FINANCIAL STATEMENTS
The Borrower represents and warrants that:
A. Statements and data submitted in writing by the Borrower to the Bank in
connection with this request for credit are true and correct, and said
statements truly present the financial condition of the Borrower as of the
date thereof and the results of the operations of the Borrower for the
period covered thereby, and have been prepared on a consistently maintained
basis, in accordance with generally accepted accounting principles or
another basis acceptable to the Bank. Since such date there have been no
material adverse changes in the ordinary course of business. The Borrower
has no knowledge of any liabilities, contingent or otherwise, at such date
not reflected in said statements, and the Borrower has not entered into any
special commitments or substantial contracts which are not reflected in said
statements, other than in the ordinary and normal course of its business,
which may have a materially adverse effect upon its financial condition,
operations or business as now conducted.
B. The representation and warranty contained in Section VII.A. above shall
apply to each financial statement submitted pursuant to Section VIII.B.
herein and shall be continuous and shall be automatically restated for each
such financial statement as of the date of such statement.
N-2362-CA 12/96 Page 2 of 4 Classification: Confidential
<PAGE> 3
VIII. COVENANTS
The Borrower agrees that so long as credit is available under this
Agreement and until the Bank is repaid in full, it will, unless the Bank
shall otherwise consent in writing:
A. INSURANCE. Maintain public liability, property damage and worker's
compensation insurance and insurance on all its insurable property
against fire and other hazards with responsible insurance carriers to
the extent usually maintained by similar businesses.
B. RECORDS AND REPORTS. Maintain a standard and modern system of accounting
in accordance with generally accepted accounting principles or another
basis acceptable to the Bank on a basis consistently maintained; permit
Bank's representative to have access to and to examine its properties,
books and records at all reasonable times; and furnish the Bank; (1)
Promptly, a notice in writing of the occurrence of any event of default
hereunder or of any event which would become an event of default
hereunder upon giving of notice, lapse of time, or both; and (2) The
following financial information and statements by one year from the date
of this Agreement and annually thereafter, and such other information
relating to the affairs of the Borrower as the Bank may request from
time to time:
a. BORROWER'S FINANCIAL STATEMENT. The Borrower's annual financial
statements compiled by a Certified Public Accountant ("CPA") acceptable
to the Bank;
b. BORROWER'S TAX RETURN. The Borrower's federal income tax return
(with all K-1 forms attached), together with a statement of any
contributions made by the Borrower to any subchapter S corporation or
trust, and copies of any extensions of the filing date;
c. GUARANTOR'S FINANCIAL STATEMENT. Each guarantor's annual financial
statement in form satisfactory to the Bank; and
d. GUARANTOR'S TAX RETURN. Copies of each guarantor's federal income
tax return (with all K-1 forms attached), together with a statement of
any contributions made by the guarantor to any subchapter S corporation
or trust, and copies of any extensions of the filing date.
C. TYPE OF BUSINESS. Not make any substantial change in the character of
its business.
D. PURPOSE. Use the proceeds of this loan solely for business purposes.
E. OUTSIDE INDEBTEDNESS. Not create, incur, assume or permit to exist any
indebtedness for borrowed money other than loans from the Bank except
obligations now existing as shown on the credit application or the
personal financial statement or data submitted with such application
pursuant to Section VII.A, herein; or sell or transfer, either with or
without recourse, any accounts or notes receivable or any money due or
to become due.
F. LIENS AND ENCUMBRANCES. Not create, incur, assume or permit to exist any
mortgage, deed of trust, security interest (whether possessory or
nonpossessory) or other encumbrance of any kind (including without
limitation, the charge upon property purchased under conditional sale or
other title retention agreement) upon or on any of its property or
assets, or sell, assign, pledge or otherwise transfer for security any
of its accounts, contract rights, general intangibles, or chattel paper
with or without recourse, whether now owned or hereafter acquired
(hereinafter collectively called "Liens"), other than (1) Liens for
taxes not delinquent or being contested in good faith in appropriate
proceedings; (2) Liens in connection with worker's compensation,
unemployment insurance or social security obligations; (3) Mechanics',
workmens', materialmens', landlords', carriers', or other like liens
arising in the ordinary and normal course of business with respect to
obligations which are not due or which are being contested in good
faith; (4) Liens on margin stock as declined within Regulation U of
the Board of Governors of the Federal Reserve System, as amended from
time to time, and (5) Liens in favor of the Bank.
G. LOANS, SECONDARY LIABILITIES. Not make any loans or advances to any
person or other entity other than in the ordinary and normal course of
its business as now conducted; or guarantee or otherwise become liable
upon the obligation of any person or other entity, except by endorsement
of negotiable instruments for deposit or collection in the ordinary and
normal course of its business.
H. ACQUISITION OR SALE OF BUSINESS; MERGER OR CONSOLIDATION. Not purchase
or otherwise acquire the assets of business of any person or other
entity, or liquidate, dissolve, merge or consolidate, or commence any
proceedings therefor; or sell any assets except in the ordinary and
normal course of its business as now conducted, or sell, lease, assign,
or transfer any substantial part of its business or fixed assets, or any
property or other assets necessary for the continuance of its business
as now conducted, including without limitation the selling of any
property or other asset accompanied by the leasing back of the same.
I. COMPLIANCE WITH LAWS. Comply with the laws, regulations and orders of
any government body with authority over the Borrower's business.
J. TRUSTS. Not transfer any of the Borrower's assets to a trust.
IX. EVENTS OF DEFAULT
The occurrence of any of the following events of default shall, at the
Bank's option, terminate the Bank's obligation to extend credit under
this Agreement, and make all sums of principal and interest immediately
due and payable, all without demand, presentment or notice, all of which
are hereby expressly waived and the Bank may exercise all its rights
against the Borrower, any guarantor and any collateral as provided by
law.
A. FAILURE TO PAY INDEBTEDNESS. Failure to pay when due any obligation
of the Borrower to the Bank.
B. OTHER DEFAULTS. The occurrence of any event of default whether or not
waived by the obligee under any other indebtedness extended by any
institution or individual to the Borrower.
C. BREACH OF COVENANT. Failure of the Borrower to perform any other term or
condition of this Agreement binding upon the Borrower.
D. BREACH OF WARRANTY. Any of the Borrower's representations or
warranties made herein or any statement or certificate at any time
given pursuant hereto or in connection herewith shall be false or
misleading in any material respect.
E. INSOLVENCY; RECEIVER OR TRUSTEE. The Borrower, any guarantor or the
indebtedness of the Borrower to the Bank or general partner of the
Borrower shall become insolvent; or admit its inability to pay its
debts as they mature, or make an assignment for the benefit of
creditors; or apply for or consent to the appointment of a receiver
or trustee for it or for a substantial part of its property or
business?-?-?
F. JUDGMENTS, ATTACHMENTS. Any money judgment, writ, or warrant of
attachment, or similar process shall be entered or filed against the
Borrower or any guarantor of any of the Borrower's obligations to the
Bank or any of its assets and shall remain unvacated, unbonded or
unstayed for a period of 10 days or in any event later than 5 days prior
to the date of any proposed sale thereunder.
G. BANKRUPTCY. Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings for relief under any bankruptcy law or
any law for the relief of debtors shall be instituted by or against the
Borrower, any guarantor of the indebtedness of the Borrower to the
Bank or general partner of the Borrower.
H. MATERIAL ADVERSE CHANGE. A material adverse change occurs in the
Borrower's financial condition or the financial condition of any
guarantor of the Borrower's obligations to the Bank, which, in the
opinion of the Bank, would affect the ability of the Borrower to
repay any advances made by the Bank hereunder or any other of the
Borrower's obligations hereunder, or of such guarantor to perform
under its guaranty.
I. GUARANTY. Any guaranty of the indebtedness of the Borrower to the
Bank, at any time after the execution and delivery of such guaranty and
for any reason other than satisfaction in full of all indebtedness
incurred hereunder, ceases to be in full force and effect or is
declared to be null and void; or the validity or enforceability
thereof is contested in a judicial proceedings; or any guarantor
denies that it has any further liability under such guaranty; or any
guarantor defaults in any provision of any guaranty; or any financial
information provided by any guarantor is false or misleading in any
material respect.
J. DEATH. The Borrower of any guarantor dies; if the Borrower is a sole
proprietorship, any owner dies, if the Borrower is a trust, a
trustor dies; if the Borrower is a partnership, any general partner
dies; or if the Borrower is a corporation, any principal officer or
majority stockholder dies.
K. GOVERNMENT ACTION. Any government authority takes action the Bank
believes materially adversely affects the Borrower's or any
guarantor's financial condition or ability to repay.
L. DEFAULT IN SECURITY DOCUMENTS. A default shall occur in any document
or instrument provided by the Borrower to the Bank in connection
with the security provided the Bank pursuant to Section V.A. herein.
M. COLLATERAL VALUE. The Credit Limit, if a Line, or the principal balance,
if a Loan, equals or exceeds the collateral value.
N. LIEN PRIORITY. The Bank fails to have an enforceable first lien (except
for any prior liens to which the Bank has consented in writing) on or
security interest in any property given as security for this Line or
Loan.
If the Borrower is in default the Bank may also without prior notice, do any
one or more of the following: (a) exercise any remedies available to a
secured party under the Uniform Commercial Code or any other applicable law;
(b) proceed in the foreclosure of its security interest in the property
described in the paragraph entitled "Security"; (c) sell or otherwise dispose
of the property at public or private sale, upon terms and in such manner as it
may determine and it may purchase same at such sale; (d) refrain from
disposing of the property and continue to maintain possession of the property
for such time as it deems appropriate and the Borrower takes the risk of any
depreciation to the value of the property pending disposition; or (e) transfer
any of the property into the name of the Bank or the Bank's nominee.
X. MISCELLANEOUS PROVISIONS
A. FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of the
Bank, in the exercise of any power, right or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of
any such power, right or privilege preclude other or further exercise
thereof or of any other right, power or privilege. All rights and
remedies existing under this Agreement are cumulative to, and not
exclusive of, any rights or remedies otherwise available.
B. OTHER AGREEMENTS. Nothing herein shall in any way limit the effect of
the conditions set forth in any security or other agreement executed by
the Borrower, but each and every condition hereof shall be in addition
hereto.
<PAGE> 4
C. GOVERNING LAW AND WAIVER. The Borrower understands and agrees that (1) this
Agreement will be governed by and interpreted in accordance with the laws of
the State of the State of California; and (2) the Borrower waives its right,
under Section 1808.21 of the California Vehicle Code, to the confidentiality
of its residence address in the records of the Department of Motor Vehicles,
and the Borrower authorizes the Bank to request its residence address from
the Department of Motor Vehicles if required by the Bank enforcing this
Agreement.
D. SEVERABILITY. If any provision of this Agreement is held to be
unenforceable, such determination shall not affect the validity of the
remaining provisions of this Agreement.
E. SUCCESSORS AND ASSIGNS. This Agreement is binding on the Borrower's and the
Bank's successors and assigns. The Borrower agrees that it may not assign
this Agreement without the Bank's prior consent.
F. HAZARDOUS WASTE INDEMNIFICATION. The Borrower will indemnify and hold
harmless the Bank from any loss or liability directly or indirectly arising
out of the use, generation, manufacture, production, storage, release,
threatened release, discharge, disposal or presence of a hazardous substance.
This indemnity will apply whether the hazardous substance is on, under or
about the Borrower's property or operations of property leased to the
Borrower. The indemnity includes but is not limited to attorney's fees
(including the reasonable estimate of the allocated cost to in-house counsel
and staff. The indemnity extends to the Bank, its parent, subsidiaries and
all of their directors, officers, employees, agents, successors, attorneys
and assigns. For these purposes, the term "hazardous substances" means any
substance which is or becomes designated as "hazardous" or "toxic" under any
federal, state or local law. This indemnity will survive repayment of the
Borrower's obligations to the Bank.
G. MULTIPLE BORROWERS. If there are two or more Borrowers under this Agreement,
each will individually obligated to repay the Bank in full, and all will be
obligated to repay the Bank in full, and all will be obligated together. The
Bank may terminate the availability of credit under this Agreement if the
Bank receives conflicting instructions from the Borrowers.
H. ONE AGREEMENT. This Agreement and any related security or other agreements
required by this Agreement collectively: (1) represent the sum of the
understandings and agreements between the Bank and the Borrower concerning
this credit; and (2) replace any prior oral or written agreements between
the Bank and the Borrower concerning this credit; and (3) are intended by
the Bank and the Borrower as the final, complete and exclusive statement of
the terms agreed to by them. In the event of any conflict between this
Agreement and any other agreements required by this Agreement, this
Agreement will prevail.
I. CHANGE OF TERMS. The Bank may change any term or condition of this
Agreement, to the extent permitted by law, by providing written notice to
the Borrower. Any such change shall apply to any unpaid balance outstanding
under this Agreement as well as any future transactions under this
Agreement.
J. NOTICE. AS required herein, notice to the Bank shall be sent to the address
shown on the Borrower's latest billing statement, to be effective when
received. Any written notice to the Borrower shall be sent to the Borrower's
address in the Bank's records, to be effective when deposited in the U.S.
mail, postage prepaid, unless otherwise stated in the notice. The Borrower
agrees to notify the Bank promptly in writing of a change in the Borrower's
mailing address.
K. COSTS. If the Bank incurs any expense in connection with administering or
enforcing this Agreement, of if the Bank takes collection action under this
Agreement, it is entitled to costs and reasonable attorney's fees,
including any allocated costs of in-house counsel. At the Bank's option, the
Bank may add these costs to the principal amount outstanding under this
Agreement.
L. ATTORNEY'S FEES. In the event of a lawsuit or arbitration proceeding, the
prevailing party is entitled to recover costs and reasonable attorney's fees
(including any allocated costs of in-house counsel) incurred in connection
with the lawsuit or arbitration proceeding, as determined by the court or
arbitrator.
M. TELEPHONE MONITORING. To the extent not prohibited by law, the Bank's
personnel may listen to telephone calls between the Borrower and the Bank's
employees for the purpose of monitoring the quality of service the Borrower
receives.
N. ARBITRATION.
1. This paragraph concerns the resolution of any controversies or claims
between the Borrower and the Bank, including but not limited to those that
arise from: (a) This Agreement (including any renewals, extensions of
modifications of this Agreement); (b) Any document, agreement or procedure
related to or delivered in connection with this Agreement; (c) Any violation
of this Agreement; or (d) Any claims for damages resulting from any business
conducted between the Borrower and the Bank, including claims for injury to
persons, property or business interests (torts).
2. At the request of the Borrower or the Bank, any such controversies or
claims will be settled by arbitration in accordance with the United States
Arbitration Act. The United States Arbitration Act will apply despite the
provisions of paragraph C., "Governing Law and Waiver," above.
3. Arbitration proceeding will be administered by the American Arbitration
Association and will be subject to its commercial rules of arbitration.
4. For purposes of the application of the statute of limitations the filing
of an arbitration pursuant to this paragraph is the equivalent of the filing
of a lawsuit, and any claim or controversy which may be arbitrated under
this paragraph is subject to any applicable statute of limitations. The
arbitrators will have the authority to decide whether any such claim or
controversy is barred by the statute of limitations and, if so, to dismiss
the arbitration on that basis.
5. If there is a dispute as to whether an issue is arbitrable, the
arbitrators will have the authority to resolve any such dispute.
6. The decision that results from an arbitration proceeding may be
submitted to any authorized court of law to be confirmed and enforced.
7. This provision does not limit the right of the Borrower or the Bank to:
(a) exercise self-help remedies such as setoff; (b) foreclose against or
sell any real or personal property collateral; or (c) act in a court of law,
before, during or after the arbitration proceeding to obtain (i) an interim
remedy; and/or (iii) additional or supplementary remedies.
8. The pursuit of or a successful action for interim, additional or
supplemental remedies, or the filing of a court action, does not constitute
a waiver of the right of the Borrower or the Bank, including the suing
party, to submit the controversy of claim to arbitration if the other party
contests the lawsuit.
This Agreement is effective as of the date stated at the top of the first page.
MEDICAL SCIENCE SYSTEMS, INC.
By /s/ PAUL J. WHITE
-----------------------------------------------
Paul J. White, CEO
By /s/ KENNETH S. KORMAN
-----------------------------------------------
Kenneth S. Korman DDS, Chief Scientific Officer
By /s/ MICHAEL G. NEWMAN
-----------------------------------------------
Michael G. Newman DDS, Secretary
By
-----------------------------------------------
<PAGE> 1
EXHIBIT 4.8
[LOGO] BANK OF AMERICA
===============================================================================
TO: Bank of America National Trust and Savings Association BUSINESS LOAN
AGREEMENT-FIXED RATE
Unit No. 1737 SECURED BY PERSONAL PROPERTY
- --------------------------------
141 MISSION FALLS LANE
- --------------------------------
FREMONT, CA 94539
- --------------------------------
- ------------------------------------------- -----------------------------------
CUSTOMER NAME LOAN NO LOAN AMOUNT
MEDICAL SCIENCE SYSTEMS, INC. 0740829-9001 $250,000.00
- ------------------------------------------- -----------------------------------
- ------------------ --------------------------------
BANKING OFFICE NO. CHECKING ACCOUNT NO. ("ACCOUNT")
06940 18831
- ------------------ --------------------------------
INTRODUCTION. This Agreement dated as of March 01, 1996 between MEDICAL SCIENCE
SYSTEMS, INC. (herein collectively and individually called "Borrower") and Bank
of America National Trust and Savings Association (herein called "Bank") governs
Borrower's Bank of America National Trust and Savings Association Business Loan
("Loan"). The words Borrower, "you" or "your" mean Borrower. The words "we,"
"us," or Bank, mean Bank. In consideration of, and to induce the Bank to make
available to the Borrower the credit facility described herein, the Borrower
agrees and warrants as follows:
I. THE LOAN
A. AMOUNT. The Bank has made available to the Borrower a term loan ("Loan")
in the principal amount of $250,000.00 subject to the terms and
conditions of this Agreement.
B. INTEREST RATE.
1. Unless modified in accordance with Section 1.B.3 the outstanding
principal balance shall bear interest at a fixed rate. The Interest Rate
is 9.125 per year.
2. Computation of Interest and Fees. All computations of interest and
fees made or called for hereunder shall be calculated on the basis of a
360 day year and the actual number of days elapsed. This results in more
interest or a higher fee than if a 365 day year is used.
3. If, for any reason during the term of the loan, the Automatic
Repayment service mentioned in I.D.2. is terminated by the Borrower or
the Bank, the Interest Rate on the loan will increase by 1% (one
percent), the amount of each payment will be increased accordingly, and
the borrower agrees to pay a documentation fee of $75.
4. At the Bank's sole option in each instance, any amount not paid when
due under this Agreement (including interest) shall bear interest from
the due date at the interest rate shown above in paragraph (1).
C. SECURITY. As security for payment of this loan and all obligations
provided for herein, you grant to us a security interest in the property
described below. You also grant to us a security interest in all
renewals of this property, other property substituted for it, and
proceeds.
(1) ACCOUNTS REC & INVENTORY
D. PRINCIPAL AND INTEREST PAYMENTS
1. Borrower hereby promises to pay to the Bank principal including
interest on the Loan in installments of Five Thousand Two Hundred Twenty
One And 77/100 ********************************* Dollars, each payable
on the 1st day of each month beginning April 01, 1996, and continuing
until March 01, 2001, on which date all unpaid principal and interest
shall be paid in the full. The principal and interest on the Loan may
also at the Bank's option be due and payable in full upon an event of
Default in accordance with Section V herein.
2. Borrower hereby chooses to have the principal and interest payments
made pursuant to the Bank's Automatic Repayment service, and authorizes
Bank to collect all sums due hereunder by charging the Account the full
amount thereof. Should there be insufficient funds in the Account to pay
when due all or any portion of the interest due, the full amount of such
deficiency shall be immediately due and payable by Borrower. All sums
received from Borrower for application to the Loan shall be applied
first, to Interest then due, second, to the outstanding principal
balance and third, to any fees and charges outstanding. This applies to
payments initiated by Borrower and to any sums collected by Bank by
charges to the Account.
3. You can pay the outstanding balance on your Loan in full or in part.
E. PROMISE TO PAY FEES AND COSTS. For value received, you promise to pay
according to the terms of this Agreement, all fees and costs which may
be assessed on your Loan including reasonable attorney's fees, court
costs and collection costs.
F. FEES. Upon execution of this Agreement you will pay a nonrefundable loan
fee of $1,875.00.
G. CHANGE OF ADDRESS. You agree to notify us promptly in writing of a
change in your mailing address.
H. LOANS SECURED BY STOCKS/BONDS.
1. Margin Call. If at any time the loan to collateral value ratio
exceeds 60% for loans secured partially or completely by stock, or 65%
for loans secured only by bonds, we may send you notice requesting
additional collateral. If the additional collateral is not received with
the time given in the notice, you will be in default.
2. Restrictions on Use of Funds. You agree not to use your Loan to
finance the purchase of margin stock (as defined by Regulation U) or to
pay obligations incurred in the purchase of such securities.
II. CONDITIONS.
The Bank must receive the following items in form and content acceptable
to the Bank, before it is required to extend any credit to the Borrower
under this Agreement.
A. AUTHORIZATIONS. Evidence that the execution, delivery and performance by
the Borrower of this agreement and any instrument or agreement required
under this agreement have been duly authorized.
B. GUARANTIES. Guaranties signed by those persons and in the amounts as
required.
C. SECURITY AGREEMENTS. Signed original security agreements, deeds of
trust, financing statements and fixture filings (together with
collateral in which the Bank requires a possessory security interest),
which the Bank requires.
D. EVIDENCE OF PRIORITY. Evidence that security interests and liens in
favor of the Bank are valid, enforceable, and prior to all others'
rights and interests, except those the Bank consents to in writing.
III. FINANCIAL STATEMENTS
Borrower represents and warrants that:
A. Statements and data submitted in writing by Borrower to Bank in
connection with this request for credit are true and correct, and said
statements truly present the financial condition of Borrower as on the
date thereof and the results of the operations of Borrower for the
period covered thereby, and have been prepared in accordance with
generally accepted accounting principles on a basis consistently
maintained. Since such date there have been no material adverse changes
in the ordinary course of business. Borrower has no knowledge of any
liabilities, contingent or otherwise, at such date not reflected in said
statements, and Borrower has not entered into any special commitments or
substantial contracts which are not reflected in said statements, other
than in the ordinary and normal course of its business, which may have
materially adverse effect upon its financial condition, operations or
business as now conducted.
B. The representation and warranty contained in Section III.A. above shall
apply to each financial statement submitted pursuant to Section IV.B
herein and shall be continuous and shall be automatically restated for
each such financial statement as of the date of such statement.
IV. COVENANTS
Borrower agrees that so long as Bank may have any commitment to lend or
it is indebted to Bank, it will, unless Bank shall otherwise consent
to writing:
A. INSURANCE. Maintain public liability, property damage and worker's
compensation insurance and insurance on all its insurable property
against fire and other hazards with responsible insurance carriers to
the extent usually maintained by similar businesses. If the Borrower
Page 1 of 3
<PAGE> 2
fails to maintain insurance on the security described in Section 1.C.
herein, the Bank may, in its sole discretion, obtain such insurance and the
cost of premiums shall be payable on demand with interest at the Interest
Rate herein.
To maintain all risk property damage insurance policies covering the
tangible property comprising the collateral. Each insurance policy must be
in an amount acceptable to the Bank. The insurance must be issued by an
insurance company acceptable to the Bank and must include a lender's loss
payable endorsement in favor of the Bank in a form acceptable to the Bank.
B. RECORDS AND REPORTS. Maintain a standard and modern system of accounting in
accordance with generally accepted accounting principles on a basis
consistently maintained; permit Bank's representatives to have access to
and to examine its properties, books and records at all reasonable times;
and furnish Bank: (1) promptly, a notice in writing of the occurrence of any
event of default hereunder or of any event which would become an event of
default hereunder upon giving of notice, lapse of time, or both, and (2) the
following financial information and statements and such additional
information as requested by the Bank from time to time: (a) by one year from
the Agreement date and annually thereafter, the Borrower's annual financial
statements, (These financial statements must be complied by a Certified
Public Accountant ("CPA") acceptable to the Bank); (b) by one year from the
Agreement date and annually thereafter, the Borrower's federal income tax
return (with all forms K-1 attached), together with a statement of any
contributions made by the Borrower to any subchapter S corporation or trust,
and copies of any extensions of the filing date; (c) each guarantor's annual
financial statement in form satisfactory to the Bank by one year from the
Agreement date and annually thereafter; and (d) copies of each guarantor's
federal income tax return (with all forms K-1 attached) by one year from the
Agreement date and annually thereafter, together with a statement of any
contributions made by the guarantor to any subchapter S corporation or
trust, and copies of any extensions of the filing date.
C. TYPE OF BUSINESS. Not make any substantial change in the character of its
business.
D. PURPOSE. The proceeds of this loan shall be used solely for business
purposes.
E. LOANS, SECONDARY LIABILITIES. Not make any loans or advances to any person
or other entity other than in the ordinary and normal course of its business
as now conducted; or guarantee or otherwise become liable upon the
obligation of any person or other entity, except by endorsement of
negotiable instruments for deposit or collection in the ordinary and normal
course of its business.
F. ACQUISITION OR SALE OF BUSINESS; MERGER OR CONSOLIDATION. Not purchase or
otherwise acquire the assets or business of any person or other entity, or
liquidate, dissolve, merge or consolidate, or commence any proceedings
therefor; or sell any assets except in the ordinary and normal course of its
business as now conducted, or sell, lease, assign, or transfer any
substantial part of its business or fixed assets, or any property or other
assets necessary for the continuance of its business as now conducted,
including without limitation the selling of any property or other asset
accompanied by the leasing back of the same.
G. LIENS AND ENCUMBRANCES. Not create, incur, assume or permit to exist any
mortgage, deed of trust, security interest (whether possessory or
nonpossessory) or other encumbrance of any kind including without limitation
the charge upon property purchased under conditional sale or other title
retention agreement upon or otherwise transfer for security any of its
accounts contract rights, general intangibles, or chattel paper with or
without recourse, whether now owned or hereafter acquired (hereinafter
collectively called "Liens"), other than (1) Liens for taxes not
delinquent or being contested in good faith in appropriate proceedings; (2)
Liens in connection with worker's compensation, unemployment insurance or
social security obligations; (3) Mechanics', workmen's materialmen's,
landlords', carrier's', or other like liens arising in the ordinary and
normal course of business with respect to obligations which are not due or
which are being contested in good faith; (4) Liens on margin stock as
defined within Regulation U of the Board of Governors of the Federal Reserve
System, as amended from time to time, and (5) Liens in favor of Bank.
H. OUTSIDE INDEBTEDNESS. Not create, incur, assume or permit to exist any
indebtedness for borrowed moneys other than loans from Bank except
obligations now existing as shown on the credit application or the personal
financial statement or data submitted with such applications pursuant to
Section III.A. herein; or sell or transfer either with or without recourse,
any accounts or notes receivables or any moneys due or to become due.
I. COMPLIANCE WITH LAWS. Comply with the laws regulations and orders of any
government body with authority over the Borrower's business.
V. EVENTS OF DEFAULT
The occurrence of any of the following events of default shall, at Bank's
option, make all sums of principal and interest immediately due and payable,
all without demand, presentment or notice, all of which are hereby expressly
waived and the Bank may exercise all its rights against the Borrower, any
guarantor and any collateral as provided by law.
A. FAILURE TO PAY INDEBTEDNESS. Failure to pay any installments of interest on
any indebtedness of Borrower to Bank.
B. OTHER DEFAULTS. The occurrence of any event of default whether or not waived
by the obligee under any other indebtedness extended by any institution or
individual shall constitute an event of default hereunder.
C. BREACH OF COVENANT. Failure of Borrower to perform any other term or
conditions of this Agreement binding upon Borrower.
D. BREACH OF WARRANTY. Any of Borrower's representations or warranties made
herein or any statement or certificate at any time given in writing pursuant
hereto or in connection herewith shall be false or misleading in any
material respect.
E. INSOLVENCY; RECEIVER OR TRUSTEE. Borrower, any guarantor of the indebtedness
of Borrower to the Bank or general partner of Borrower shall become
insolvent; or admit its inability to pay its debts as they mature; or make
an assignment for the benefit of creditors; or apply for or consent to the
appointment of a receiver or trustee for it or for a substantial part of its
property or business.
F. JUDGMENTS, ATTACHMENTS. Any money judgment, writ, or warrant of attachment,
or similar process shall be entered or filed against Borrower or any
guarantor of any of Borrower's obligations to Bank or any of its assets and
shall remain unvacated, unbonded or unstayed for a period of 10 days or in
any event later than five days prior to the date of any proposed sale
thereunder.
G. BANKRUPTCY. Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings for relief under any bankruptcy law or any
law for the relief of debtors shall be instituted by or against Borrower,
any guarantor of the indebtedness of Borrower to the Bank or general partner
of Borrower, and, if instituted against it, shall be consented to.
H. DEFAULT IN SECURITY DOCUMENTS. A default shall occur in any document or
instrument provided by the Borrower to the Bank in connection with the
security provided the Bank pursuant to Paragraph I.C. herein.
I. MATERIAL ADVERSE CHANGE. Should a material adverse change occur in
Borrower's financial condition or the financial condition of any guarantor
of the Borrower's obligations to Bank, which, in the opinion of the Bank,
would affect the ability of the Borrower to repay any advances made by Bank
hereunder or any other of the Borrower's obligations hereunder, or of such
guarantor to perform under its guaranty.
J. LOAN BALANCE. If the loan to collateral value reaches 100%.
K. GUARANTY. Any guaranty of the indebtedness of the Borrower to the Bank, at
any time after the execution and delivery of such guaranty and for any
reason other than satisfaction if full of all indebtedness incurred
hereunder, ceases to be in full force and effect or is declared to be null
and void; or the validity or enforceability thereof is contested in a
judicial proceeding; or any guarantor denies that it has any further
liability under such guaranty; or should any guarantor default in any
provision of any guaranty.
L. LIEN PRIORITY. The Bank fails to have an enforceable first lien (except for
any prior liens to which the Bank has consented in writing) on or security
interest in any property given as security for this loan.
M. DEATH. The Borrower or any guarantor dies (if the Borrower is a sole
proprietorship, any owner dies; if the Borrower is a trust, a trustor dies;
if the Borrower is a partnership, any general partner dies; or if the
Borrower is a corporation any principal officer or majority stockholder
dies).
N. GOVERNMENT ACTION. Any government authority takes action that the Bank
believes materially adversely affects the Borrower's or any guarantor's
financial condition or ability to repay.
If the Borrower is in default the Bank may also without prior notice, do any
one or more of the following: (1) exercise any remedies available to a
secured party under the Uniform Commercial Code or any other applicable law;
(2) proceed in the foreclosure of its security interest in the property
described in the paragraph entitled "Security"; (3) sell or otherwise
dispose of the property at public or private sale, upon terms and in such
manner as it may determine and it may purchase same at such sale; (4)
refrain from disposing of the property and continue to maintain possession
of the property for such time as it deems appropriate, and Borrower takes
the risk of any depreciation in the value of the property pending
disposition, or (5) transfer any of the property into the name of Bank or
Bank's nominee.
VI. MISCELLANEOUS PROVISIONS
A. FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of Bank,
in the exercise of any power, right or privilege hereunder shall operate as
a waiver thereof, nor shall any single or partial exercise of any such
power, right or privilege preclude other or further exercise thereof or of
any other right, power or privilege. All rights and remedies existing
under this Agreement are cumulative to, and not exclusive of, any rights
or remedies otherwise available.
B. OTHER AGREEMENTS. Nothing herein shall in any way limit the effect of the
conditions set forth in any security or other agreement executed by the
Borrower, but each and every condition hereof shall be in addition thereto.
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<PAGE> 3
C. GOVERNING LAW. This Agreement will be governed and interpreted in
accordance with the laws of the State of California.
D. SEVERABILITY. If any provision of this Agreement is held to be
unenforceable, such determination shall not affect the validity of the
remaining provisions of the Agreement.
E. SUCCESSORS AND ASSIGNS. This Agreement is binding on the Borrower's and
the Bank's successors and assignees. The Borrower agrees that it may
not assign this agreement without the Bank's prior consent.
F. ARBITRATION.
1. This paragraph concerns the resolution of any controversies or
claims between the Borrower and the Bank, including but not limited to
those that arise from: (a) This Agreement (including any renewals,
extensions or modifications of this Agreement); (b) Any document,
agreement or procedure related to or delivered in connection with this
Agreement; (c) Any violation of this Agreement; or (d) Any claims for
damages resulting from any business conducted between the Borrower and
the Bank, including claims for injury to persons, property or business
interest (torts).
2. At the request of the Borrower or the Bank any such controversies or
claims will be settled by arbitration in accordance with the United
States Arbitration Act. The United States Arbitration Act will apply
even though this Agreement provides that it is governed by California
law.
3. Arbitration proceedings will be administered by the American
Arbitration Association and will be subject to its commercial rules of
arbitration.
4. For purposes of the application of the statute of limitations, the
filing of an arbitration pursuant to this paragraph is the equivalent of
the filing of a lawsuit, and any claim or controversy which may be
arbitrated under this paragraph is subject to any applicable statute of
limitations. The arbitrators will have the authority to decide whether
any such claim or controversy is barred by the statute of limitations
and, if so, to dismiss the arbitration on that basis.
5. If there is a dispute as to whether an issue is arbitrable, the
arbitrators will have the authority to resolve any such disputes.
6. The decision that results from an arbitration proceeding may be
submitted to any authorized court of law to be confirmed and enforced.
7. The procedure described above will not apply if the controversy or
claim, at the time of the proposed submission to arbitration, arises
from or relates to an obligation to the Bank secured by real property
located in California. In this case, both the Borrower and the Bank must
consent to submission of the claim or controversy to arbitration. If
both parties do not consent to arbitration, the controversy or claim
will be settled as follows: (a) The Borrower and the Bank will designate
a referee (or panel of referees) selected under the auspices of the
American Arbitration Association in the same manner as arbitrations are
selected in Association-sponsored proceedings; (b) The designated
referee (or panel of referees) will be appointed by a court as provided
in California Code of Civil Procedure Section 638 and the following
related sections; (c) The referee (or the presiding referee of the
panel) will be an active attorney or a retired judge; and (d) The award
that results from the decision of the referee (or the panel) will be
entered as a judgment in the court that appointed the referee in
accordance with the provisions of California Code of Civil Procedure
Sections 644 and 645.
8. This provision does not limit the right of the Borrower or the Bank
to: (a) exercise self-help remedies such as setoff; (b) foreclosure
against or sell any real or personal property collateral; or (c) act in
a court of law, before, during or after the arbitration proceeding to
obtain (i) an interim remedy; and/or (ii) additional or supplementary
remedies.
9. The pursuit of or a successful action for interim, additional or
supplementary remedies, or the filing of a court action, does not
constitute a waiver of the right of the Borrower or the Bank, including
the suing party, to submit the controversy or claim to arbitration if
the other party contests the lawsuit. However, if the controversy or
claim arises from or relates to an obligation to the Bank which is
secured by real property located in California at the time of the
proposed submission to arbitration, this right is limited according to
the provision above requiring the consent of both the Borrower and the
Bank to seek resolution through arbitration.
10. If the Bank forecloses against any real property securing this
Agreement, the Bank has the option to exercise the power of sale under
the deed of trust or mortgage, or to proceed by judicial foreclosure.
G. HAZARDOUS WASTE INDEMNIFICATION. The Borrower will indemnify and hold
harmless the Bank, for any loss or liability directly or indirectly
arising out of the use, generation, manufacture, production, storage,
release, threatened release, discharge, disposal or presence of a
hazardous substance. This indemnity will apply whether the hazardous
substance is on, under or about the Borrower's property or operations or
property leased to the Borrower. The Indemnity includes but is not
limited to attorneys' fees (including the reasonable estimate of the
allocated cost of in-house counsel and staff). The indemnity extends to
the Bank, its parent, subsidiaries and all of their directors, officers,
employees, agents, successors, attorneys and assigns. For these
purposes, the term "hazardous substances" means any substance which is
or becomes designated as "hazardous" or "toxic" under any federal, state
or local law. This indemnity will survive repayment of the Borrower's
obligations to the Bank.
H. MULTIPLE BORROWERS. If two or more Borrowers sign this Agreement, each
will be individually obligated to repay the Bank in full, and all will
be obligated together.
I. ONE AGREEMENT. This Agreement and any related security or other
agreements required by this Agreement, collectively; (1) represent the
sum of the understandings and agreements between the Bank and the
Borrower concerning this credit; and (2) replace any prior oral or
written agreements between the Bank and the Borrower concerning this
credit; and (3) are intended by the Bank and the Borrower as the final
complete and exclusive statement of the terms agreed to by them. In the
event of any conflict between this Agreement and any other agreements
required by this Agreement, this Agreement will prevail.
J. NOTICE. As required herein, notice to the Bank shall be sent to the
address shown on your latest billing statement, to be effective when
received.
Notice to you shall be sent to you at your address in our records, to be
effective when deposited in the U.S. mail, postage prepaid, unless
otherwise stated in the notice.
This Agreement is executed as of the date stated at the top of the first
page.
MEDICAL SCIENCE SYSTEMS, INC.
By: /s/ PAUL J. WHITE
--------------------------------------------------
Paul J. White, Chief Executive Officer
By: /s/ KENNETH S. KORMAN
--------------------------------------------------
Kenneth S. Korman, D.D.S. Chief Scientific Officer
By: /s/ MICHAEL G. NEWMAN
--------------------------------------------------
Michael G. Newman D.D.S., Secretary
Page 3 of 3
<PAGE> 1
EXHIBIT 10.1
MASTER AGREEMENT FOR TECHNOLOGY EVALUATION
This Agreement, effective as of _____________, 1996 (the "Effective
Date"), is entered into between The University of Sheffield, Western Bank,
Sheffield S10 2TN, England ("University") and Medical Science Systems, Inc.,
4400 MacArthur Blvd., Suite 980, Newport Beach, California 92660 ("MSS").
RECITALS
A. The University possesses scientific expertise in genetics and other
scientific disciplines, and has laboratories and other facilities, staff and
clinical investigators for creating and developing proprietary information and
technologies in such disciplines.
B. MSS has experience in product discovery and development and
technology transfer, including evaluation of market and clinical utility of
technologies, patent and regulatory strategy, design, implementation, management
and monitoring of clinical trials, identification of and negotiation with
product development partners and the use of proprietarty research systems and
technologies supporting product discovery and development, and scientific
expertise in microbiology, periodontitis, inflammatory diseases and other
scientific disciplines.
C. The University and MSS desire to establish a joint cooperative
relationship pursuant to which various technologies can be developed and
products based thereon can be commercialized. It is expected that University
will take the lead in conducting fundamental discovery research and laboratory
development of such technologies, and MSS will take the lead in commercializing
products based upon such technologies and related product development.
D. The parties desire to establish in this Agreement a procedure
pursuant to which either party may submit ideas, inventions and proposed
products to the other for evaluation for potential joint development and
commercialization. If, based on such evaluation procedure, the parties mutually
agree to embark on a project to develop and commercialize particular
technologies and/or products, the parties will enter into a specific project
agreement defining their respective obligations and rights with respect to such
project. This Agreement is intended to define the basic structure that the
specific project agreements will take.
NOW, THEREFORE, in consideration of the foregoing premises and of the covenants
and conditions set forth herein, the parties agree as follows:
1. DEFINITIONS
1.1 "Confidential Information" consists of (i) any information
designated by a disclosing party as confidential, (ii) information contained in
or disclosed in connection with an Evaluation Proposal submitted by one of the
parties hereunder, and (iii) any non-public information relating to the product
plans, product designs, product costs, product prices, product
- ---------
* Confidential Treatment requested.
<PAGE> 2
names, finances, marketing plans, business opportunities, personnel, industry
contacts, research, development or know-how of University or MSS (as the case
may be). "Confidential Information" shall not include, however, any information
that (i) is already rightfully known to the receiving party at the time of
disclosure by the disclosing party, (ii) has become publicly known through no
wrongful act of the receiving party, (iii) has been rightfully received from a
third party authorized to make such disclosure without restriction, (iv) has
been independently developed by the receiving party or (v) has been approved for
release by written authorization of the disclosing party.
1.2 "Department" means any department at the University.
1.3 "Evaluation Proposal" means a written confidential proposal for the
potential joint development and/or commercialization of one or more Technologies
and/or one or more Products based thereon which is submitted by one party to the
other pursuant to the provisions of Section 2 below.
1.4 "Products" means commercial products based upon one or more
Technologies developed pursuant to a Project Agreement.
1.5 "Project" means a project for the joint development and/or
commercialization of one or more Technologies and/or one or more Products based
thereon that the parties mutually agree to undertake after submission and
evaluation of an Evaluation Proposal in accordance with the procedures set forth
in Section 2 below.
1.6 "Project Agreement" means a separate written agreement between the
parties that defines the precise scope of a Project and the respective
obligations and rights of the parties with respect thereto.
1.7 "SMM" means The Section of Molecular Medicine of the University's
Department of Medicine and Pharmacology.
1.8 "Summary Proposal" means a written confidential memorandum
describing the general nature and subject matter of an Evaluation Proposal that
one party proposes to submit to the other for full evaluation pursuant to the
provisions of Section 2 below.
1.9 "Technologies" means ideas, inventions, apparatus, systems, data,
discoveries, methods, processes, test procedures, diagnostic procedures,
therapeutic procedures and works of authorship.
2. SUBMISSION AND EVALUATION PROCEDURES
2.1 Notice of a Proposed Project. If MSS or any Section of the
University desires to propose a Project to the other party, it will notify the
other party of its intention, and the other party will have fourteen (14) days
to decide whether it wishes to first receive a Summary Proposal of the proposed
Project on a confidential basis. If so, the proposing party (the
<PAGE> 3
"Submitter") will then submit a Summary Proposal of the proposed Project to the
other party (the "Recipient"). The Recipient will notify the Submitter within
ten (10) business days of receipt of the Summary Proposal whether the Recipient
wishes to receive an Evaluation Proposal with respect to such Project. All
Projects submitted by or to any Section of the University hereunder will be
processed through the SMM under the supervision and direction of Professor
Gordon Duff.
2.2 Inital Review of Evaluation Proposal. A Recipient will have a period
of one (1) month to conduct an initial review of an Evaluation Proposal for a
proposed Project submitted by the other party hereunder, during which time the
Submitter agrees to provide reasonable information regarding the proposed
Project and any Technologies associated therewith. The Recipient will notify the
Submitter on or before expiration of the initial review period whether or not it
wishes to engage in a formal evaluation of the proposed Project. If the
Recipient does not notify the Submitter of its desire to proceed with a formal
evaluation of the proposed Project, then the Recipient will be deemed to have
decided not to proceed with a formal evaluation. If the Recipient decides not to
proceed with a formal evaluation, the Submitter will be free to publish,
develop, commercialize, and submit the proposed Project to other third parties.
2.3 Formal Evaluation of a Proposed Project. If the Recipient decides to
conduct a formal evaluation of a proposed Project, it will use all good faith
and reasonable efforts to complete the evaluation as efficiently and
expeditiously as possible. Unless otherwise agreed, such formal evaluation will
be completed within three (3) months of Recipient's determination to conduct the
formal evaluation. The Submitter agrees to provide all reasonable information,
cooperation and consultation with respect to the proposed Project at its cost to
assist the Recipient's evaluation. At the conclusion of the Recipient's formal
evaluation of the proposed Project, the Recipient will notify the Submitter in
writing of its decision to accept or reject the proposed Project for further
development and/or commercialization. If the Recipient does not notify the
Submitter of its desire to proceed with the proposed Project before the
expiration of the formal evaluation period, then the Recipient will be deemed to
have decided not to proceed with the proposed Project. If the Recipient decides
not to proceed with the proposed Project, the Submitter will be free to publish,
develop, commercialize, and submit the Project to other third parties. If the
Recipient decides to proceed with the proposed Project, the parties will
negotiate in good faith a Project Agreement for the Project, and will use all
good faith reasonable efforts to enter into such a Project Agreement within two
(2) months after the Recipient's decision to proceed with the proposed Project.
The Project Agreement will incorporate at a minimum the structure and provisions
described in Section 3 below.
2.4 Exclusivity.
(a) Right of First Offer. MSS agrees that it will submit any
proposed Project with respect to which research and/or development could be
adequately performed on a timely and cost effective basis with sufficient
qualified faculty and staff within the laboratories and other facilities of The
Section of Molecular Medicine at the University under the supervision and
direction of Prof. Gordon Duff (a "Qualified Project") to SMM first for
evaluation in accordance with the procedures of this Section 2 before offering
any such proposed Project to any other third party. SMM agrees that it will
submit any proposed Project for the commercialization of and/or
<PAGE> 4
development and marketing of Products based upon one or more Technologies
developed by SMM to MSS first for evaluation in accordance with the procedures
of this Section 2 before offering any such proposed Project to any other third
party. Notwithstanding the preceding two sentences, neither party will have an
obligation to submit any proposed Project to the other (i) which would create a
conflict of interest with a preexisting client or business partner or (ii) which
comprises or would require use of research funded by a third party, the data or
results of which the proposing party hereunder does not own or have license
rights sufficient to utilize in a Project with the other party hereunder. Each
party shall be free to determine in its sole discretion whether or not to submit
to the other party any proposed Project that is not a Qualified Project.
(b) Forbearance During the Evaluation Period. In order to provide
the Recipient sufficient incentive to devote its resources to review and
evaluation of proposed Projects, the Submitter agrees not to publish, license or
assign any Technologies associated therewith, or enter into any agreements with
third parties for the development or commercialization thereof, unless and until
the Recipient determines not to proceed with the proposed Project.
(c) Exclusivity With Respect to the Scope of the Project. Upon
mutual determination to proceed with a Project, the Project Agreement will
provide that the parties' relationship with respect to the research and
development and/or commercialization of Products within the scope of the Project
defined in the Project Agreement will be exclusive, unless otherwise mutually
agreed by the parties.
3. STRUCTURE OF PROJECT AGREEMENTS
3.1 Responsibilities and Schedule. Project responsibilities and initial
milestones will be set forth in the applicable Project Agreement.
3.2 Cost and Expenses. Costs and expenses to be incurred by the parties
in connection with their responsibilities under a Project will be allocated in
the Project Agreement on a case-by-case basis, and will be a factor in
determining the appropriate allocation of proceeds from commercialization.
Unless otherwise mutually agreed, each party will be responsible for its costs
of any travel incurred in connection with a Project, and the parties will share
the legal fees incurred in connection with a business transaction with a
commercial partner, and all legal fees and costs (including filing fees and
translation costs) associated with international patent filings and prosecution.
3.3 Research Funding. All research funding provided by third parties
relating to a Project or the results thereof will be allocated between the
parties in proportion to the allocation of responsibilities for such research.
Where allocation of responsibilities is not determinable, funds will be divided
using the same allocation as applies to proceeds from sale, license or other
disposition of Products.
3.4 Status Reports. The Project Agreement will provide for a Steering
Committee which will manage and make joint decisions for the Project. In
addition, there will be at least
<PAGE> 5
two in-person meetings between the parties regarding Project status annually,
which could be combined with or incorporate the Steering Committee meetings set
forth in any Project.
3.5 Proceeds/Net Profits of Commercialization. The distribution of
proceeds/net profits from the sale, license or other disposition of Products or
Technologies developed or commercialized under a Project Agreement will be
determined on a case-by-case basis using the following factors: (a) relative
development efforts preceding the Project Agreement; (b) anticipated research
and development responsibilities for the Project; (c) anticipated
commercialization responsibility; and (d) source and nature of original
submission. Each party will be responsible for allocation and distribution of
its portion of the proceeds to its faculty, employees or other persons or
entities to which it may be obligated, provided, however, that a Project
Agreement may provide that MSS may pay directly to [ * ] any portion
of the University's share of such proceeds/net profits to which [ * ] is
entitled. Each Project Agreement may contain a change of scope clause providing
that the distribution of the proceeds/net profits from the sale, license or
other disposition of Products or Technologies may chage in the event the scope
of one party's responsibilities under the Project change.
4. INTELLECTUAL PROPERTY
4.1 Pre-existing and Individually-Developed Technology. During the
period of evaluation of a proposed Project, each party will retain all rights in
pre-existing or independently-developed Technologies.
4.2 Ownership of Technologies and Products. Upon mutual agreement to
proceed with the Project for further development and/or commercialization, the
parties will, as part of the Project Agreement, define their respective rights
with respect to ownership and exploitation of Technologies and Products within
the scope of the Project.
4.3 Patent Prosecution and Enforcement of Intellectual Property Rights.
The Project Agreement will specify and allocate responsibility for prosecution
of patents and enforcement of intellectual property rights with respect to
Technologies and Products within the scope of the Project.
4.4 Personnel. The Project Agreement will provide that each party will
cause its respective employees, faculty, consultants and staff to execute such
agreements, assignments, applications and other documents as necessary to
perfect and protect each party's rights in the Technologies and Products within
the scope of the Project.
5. CONFIDENTIALITY
5.1 Confidential Information. Each party shall use Confidential
Information of the other solely for implementing its respective rights and
obligations under this Agreement or any Project Agreement. Neither party will
use or disclose Confidential Information of the other except as expressly
permitted under this Agreement or any Project Agreement. Any such
<PAGE> 6
Confidential Information shall be protected by the recipient from disclosure to
others with at least the same degree of care as that which is accorded to its
own proprietary information, but in no event with less than reasonable care. The
obligations of this Section 5.1 will survive for a period of five (5) years from
disclosure (or, with respect to Confidential Information relating to a Project
Agreement, the later of such time or two (2) years from termination of such
Project Agreement), notwithstanding any earlier termination or expiration of
this Agreement or any Project Agreement.
5.2 Publication.
(a) Each party recognizes that publication of research results is
an important part of the mission of the University and is important to
scientific researchers at the University and at MSS. However, the parties
acknowledge the intent of this Agreement is to maximize the commercialization
potential of Project Technologies and Products, and that publication should not
unduly interfere with that goal. Consequently, the parties agree that
publication issues will be determined mutually in good faith in recognition of
these interests. In particular, the parties will submit in advance and review
jointly proposals for publishing any information relating to any Project
Technologies or Products and determine whether in each instance publication is
in the best interests of the parties and the scope, authorship (e.g., individual
or joint) and timing of such publication. The Project Agreements may further
define procedures for the clearance of such publications with respect to any
particular Project. Neither party, nor any person who participated in the
development of Project Technologies or Products shall submit for publication,
submit abstracts of, publish or present at any academic seminar, professional
society meeting or similar event any Project Technologies or Products unless it
has complied with the provisions of this Section 5.2 and any applicable
provisions in the relevant Project Agreement.
(b) Assuming publication has been agreed to by the parties, all
publications and presentations at meetings will, unless otherwise agreed in a
particular Project Agreement, comply with the following procedures. All persons
wishing to publish an article shall provide to a designated person of the other
party advance copies of all abstracts and articles proposed to be submitted for
publication at least ninety (90) days prior to intended publication or
disclosure. For presentations at meetings where written papers will not be
available, the person intending to make such presentation will inform a
designated person of the other party of such intent and the contents of the
intended presentation in writing at least ninety (90) days prior to the
presentation. Each party will use its reasonable best efforts to review such
information within thirty (30) days after submission to the designated person of
such party and provide the person intending to make such publication or
disclosure comments on such disclosure based on the protection of intellectual
property rights in the information to be published or disclosed and the
maximization of commercialization potential of Project Technologies and
Products. The parties will agree in good faith on appropriate modifications, if
any, to be made. In addition, each party will use its reasonable best efforts to
cooperate with the other in the filing of any patent applications prior to the
date of actual publication or disclosure. Each party will ensure that its
faculty, staff, students, employees and consultants comply with the requirements
of this Section 5.2
6. TERM AND TERMINATION
<PAGE> 7
6.1 Term. This Agreement will continue in effect for a period of ten
(10) years from the Effective Date, unless terminated earlier in accordance with
this section.
6.2 Termination for Cause. Either party may terminate this Agreement
upon written notice in the event: (a) the other party breaches a material term
of the Agreement, and fails to cure such breach within thirty (30) days
following notice of such breach from the non-breaching party; or (b) the other
party ceases to do business in the ordinary course, or files or has filed
against it a petition for bankruptcy, and such petition is not dismissed within
sixty (60) days of filing.
6.3 Termination Without Cause. Either party may terminate this Agreement
at any time with or without cause on not less than six (6) months notice. Such
termination, however, shall not apply to, and the Agreement will continue with
respect to, any proposed Projects which are, as of the effective date of
termination, under review or evaluation or approved for development and/or
commercialization.
6.4 Effect of Termination. In the event of any expiration or termination
of this Agreement, each party shall retain all of its rights in pre-existing or
independently developed Technologies not yet subject to a Project Agreement.
Rights with respect to Technologies and/or Products that are the subject of a
Project Agreement shall survive as provided in the applicable Project Agreement.
Termination or expiration of this Agreement will not affect the continued
enforceability of any Project Agreement or any rights governing Technologies
and/or Products subject to such Project Agreement. The provisions of Sections
5.1, 6.4, 7 and 8 of this Agreement will survive any termination or expiration.
7. DISCLAIMERS OF WARRANTY AND LIABILITY
7.1 Disclaimer of Warranties. EXCEPT AS EXPRESSLY SET FORTH IN A PROJECT
AGREEMENT, NEITHER PARTY MAKES ANY WARRANTY, EXPRESS OR IMPLIED, RELATING TO
THIS AGREEMENT, ANY PROJECT AGREEMENT OR ANY TECHNOLOGIES OR PRODUCTS, INCLUDING
BUT NOT LIMITED TO ANY IMPLIED WARRANTY OF MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE OR NON-INFRINGEMENT.
7.2 Limitation of Liability. EXCEPT FOR ANY WILLFUL BREACH OF SECTION 5,
NEITHER PARTY SHALL BE LIABLE TO THE OTHER FOR ANY INDIRECT, SPECIAL,
CONSEQUENTIAL OR INCIDENTAL DAMAGES, HOWEVER CAUSED AND ON ANY THEORY OF
LIABILITY, ARISING OUT OF THIS AGREEMENT OR ANY PROJECT AGREEMENT.
8. GENERAL PROVISIONS
<PAGE> 8
8.1 Governing Law. This Agreement and any Project Agreement will be
governed by and construed in accordance with the substantive laws of the United
States and the State of California, without regard to or application of choice
of law rules or principles.
8.2 Waiver and Modification. Failure by either party to enforce any
provision of this Agreement or any Project Agreement will not be deemed a waiver
of future enforcement of that or any other provision. Any waiver, amendment or
other modification of any provision of this Agreement or any Project Agreement
will be effective only if in writing and signed by the parties.
8.3 Severability. If for any reason a court of competent jurisdiction
finds any provision or portion of this Agreement or any Project Agreement to be
unenforceable, that provision of the Agreement or Project Agreement will be
enforced to the maximum extent permissible so as to effect the intent of the
parties, and the remainder of this Agreement or Project Agreement will continue
in full force and effect.
8.4 Notices. All notices required or permitted under this Agreement or
any Project Agreement will be in writing, will reference this Agreement or
Project Agreement and will be deemed given: (i) when sent by confirmed
facsimile; (ii) ten (10) working days after having been sent by registered or
certified mail, return receipt requested, postage prepaid; or (iii) five (5)
working day after deposit with a commercial overnight carrier, with written
verification of receipt. All communications will be sent to the addresses set
forth below or to such other address as may be designated by a party by giving
written notice to the other party pursuant to this section:
To MSS:
Paul J. White
President and CEO
Medical Science Systems, Inc.
4400 McArthur Blvd., Suite 980
Newport Beach, CA 92660
U.S.A.
To the University:
[ * ]
with a copy to:
<PAGE> 9
[ * ]
<PAGE> 10
[ * ]
8.5 Delays Beyond Control. Neither party will be liable to the other
party for any failure or delay in performance caused by reasons beyond such
party's reasonable control, and such failure or delay will not constitute a
material breach of this Agreement or any Project Agreement.
8.6 Assignment. Neither party may assign its rights or obligations
hereunder or under any Project Agreement, by operation of law or otherwise,
without express written consent of the other party, which consent will not be
unreasonably withheld. Any attempted assignment without such consent shall be
void. Subject to the foregoing, this Agreement and any Project Agreement will
benefit and bind the successors and assigns of the parties.
8.7 No Third Party Beneficiaries; No Agency. Except as expressly
provided herein to the contrary, no provision of this Agreement or any Project
Agreement, express or implied, is intended or will be construed to confer
rights, remedies or other benefits to any third party under or by reason of this
Agreement or any Project Agreement. This Agreement or any Project Agreement will
not be construed as creating an agency, partnership or any other form of legal
association (other than as expressly set forth herein) between the parties.
8.8 Entire Agreement. This Agreement, including all exhibits,
constitutes the entire agreement between the parties with respect to the subject
matter hereof, and supersedes and replaces all prior or contemporaneous
understandings or agreements, written or oral, regarding such subject matter.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement through
their duly authorized representatives as set forth below.
THE UNIVERSITY OF SHEFFIELD MEDICAL SCIENCE SYSTEMS, INC.
By: By:
----------------------------- ----------------------------------
Printed Name: Printed Name:
------------------- ------------------------
Title: Title:
-------------------------- -------------------------------
<PAGE> 1
EXHIBIT 10.2
MEDICAL SCIENCE SYSTEMS
RESEARCH SUPPORT AGREEMENT
AND
AMENDMENTS TO VARIOUS EXISTING PROJECT AGREEMENTS
This Research Support Agreement and Amendment to Various Existing
Project Agreements (this "Agreement") is entered into and made effective as of
this 1st day of July, 1997 by and between The University of Sheffield, Western
Bank, Sheffield S10 2TN, England ("University"), acting through The Department
of Molecular & Genetic Medicine, and Medical Science Systems Incorporated, 4400
MacArthur Blvd., Suite 980, Newport Beach, California 92660 ("MSS").
RECITALS
A. The University and MSS are parties to a Master Agreement for
Technology Evaluation dated July 1, 1996, as amended (the "Master Agreement"),
under which the parties established a joint cooperative relationship pursuant to
which various technologies can be developed and products based thereon can be
commercialized. Under the Master Agreement, it is expected that the University
will take the lead in conducting fundamental discovery research and laboratory
development of such technologies, and MSS will take the lead in commercializing
products based upon such technologies and related product development.
B. The Master Agreement establishes a procedure pursuant to which either
party may submit ideas, inventions and proposed products to the other for
evaluation for potential joint development and commercialization. If, based on
such evaluation procedure, the parties mutually agree to embark on one or more
projects to develop and commercialize particular technologies and/or products,
the Master Agreement contemplates that the parties will enter into one or more
specific project agreements (the "Project Agreements") defining their respective
obligations and rights with respect to such projects.
C. Pursuant to the procedures set forth in the Master Agreement, MSS and
the University have before the date of this Agreement entered into the following
Project Agreements (which shall be referred to collectively herein as the
"Existing Project Agreements"):
- "Development and Commercialization Project Agreement
(Atherosclerosis Including Coronary Artery Disease)" dated Sept.
1, 1996 (the "Atherosclerosis Project Agreement");
- "Development and Commercialization Project Agreement (Eye
Diseases Among Diabetics)" dated Sept. 1, 1996 (the "Eye
Diseases Project Agreement");
- "Development and Commercialization Project Agreement
(Osteoporosis)" dated Sept. 1, 1996 (the "Osteoporosis Project
Agreement").
D. Since the Existing Project Agreements were executed, the Steering
Committee has determined that MSS will itself market and commercialize the
initial genetic tests for screening
- ----------
* Confidential Treatment requested.
<PAGE> 2
patients for predisposition to atherosclerosis (including coronary artery
disease), eye diseases among diabetics, periodontal disease, and osteoporosis,
either directly and/or through co-promotion/distribution/agency relationships.
The Steering Committee has also determined that MSS will assume responsibility
and funding for all of the clinical utility studies and marketing enhancement
studies under the Atherosclerosis Project Agreement and the Eye Diseases Project
Agreement, and for any remaining clinical utility studies and marketing
enhancement studies under the Osteoporosis Project. Based on these
responsibilities on the part of MSS, the parties desire to amend the Existing
Project Agreements to provide for a reallocation of Net Proceeds between MSS and
the University.
E. MSS desires to provide funding to the University to support an
investigator employed by the University who will assist the University in
performing its obligations under various Project Agreements entered into by the
parties related to diagnostic and/or monitoring genetic tests. MSS further
desires to provide funding to the Research Consultancy Unit of the University to
support the work of the Research Consultancy Unit on such Project Agreements.
MSS and the University desire to set forth the terms and conditions on which MSS
will provide such funding.
NOW, THEREFORE, in consideration of the foregoing premises and of the
provisions of this Agreement, the parties agree as follows:
1. DEFINITIONS
Capitalized terms not otherwise defined in this Agreement shall have the
meaning given those terms in the Master Agreement and the various applicable
Project Agreements. In addition, the following terms shall have the following
meanings:
1.1 "Consultancy Agreement" means any agreement between MSS and
personnel of the University (other than a Project Agreement), whether existing
as of the effective date of this Agreement or entered into after the effective
date of this Agreement, pursuant to which MSS funds such personnel to render
services to or on behalf of MSS.
1.2 "Contract Period" means a one year period commencing upon the
execution of this Agreement, which period will be automatically extended by one
year increments unless either party elects not to renew this Agreement pursuant
to Section 5.1 below.
1.3 "Investigator" means a post-doctoral researcher to be employed by
the University, for whom MSS shall provide funding to the University hereunder
to assist the University in performing its obligations under various Project
Agreements between the parties.
2. PAYMENTS BY MSS TO THE UNIVERSITY
2.1 Payments by MSS. During the Contract Period, MSS agrees to provide
the University the following amounts annually:
<PAGE> 3
(a) Research Grant: A research grant to The Department of Molecular &
Genetic Medicine, commencing on July 1, 1997, of forty thousand dollars
($40,000) per year, payable monthly, which the University will use to
fund the efforts of the Investigator, who will devote his full time
efforts during the Contract Period solely to assisting the University in
performing its obligations under those Project Agreements between the
parties to which the parties have agreed the Investigator should devote
his efforts.
(b) RCU Funding: A grant to the Research Consultancy Unit ("RCU") of the
University, commencing on October 1, 1997, in the amount of twenty five
thousand dollars ($25,000) per year, payable monthly, to support the
work of the RCU on various Project Agreements.
2.2 Possible Funding of Additional Investigators. The parties
acknowledge that as additional Project Agreements are executed, it may be
desirable to fund one or more additional investigators to support the University
in performing its obligations under the Project Agreements. The parties will
discuss the need for such additional support and, if they agree such additional
support is necessary or desirable, will mutually agree to the amount of any such
additional research grant that MSS will provide to the University and the
duration of the same.
2.3 Credit Against Net Proceeds Payable to the University. All amounts
paid by MSS pursuant to this Section 2 and to any University personnel pursuant
to Consultancy Agreements shall be fully creditable by MSS against any portion
of Net Proceeds payable to the University by MSS under any Project Agreement
from the commercialization of any Product or technology developed and marketed
under a Project Agreement.
2.4 Stock Options in MSS. In addition to the payments described in
Sections 2.1 and 2.2 above, the University has been granted twenty-five thousand
(25,000) stock options in MSS, pursuant to and governed by the terms and
conditions of one or more separate written agreements between the parties.
3. TERMS GOVERNING WORK BY THE INVESTIGATOR
Any work performed by the Investigator with respect to a particular
Project shall be governed by the terms and conditions of the relevant Project
Agreement, as amended by Section 4 below of this Agreement, and any applicable
provisions of the Master Agreement. Without limiting the generality of the
preceding sentence, the ownership, pursuit of protection of Intellectual
Property Rights, and use of any Innovations and Joint Innovations created in
whole or in part out of the Investigator's work on a Project shall be governed
by the relevant provisions of the pertinent Project Agreement. Similarly,
publication of research results or other information resulting from the work of
the Investigator on a Project will be governed by the procedures set forth in
Section 5 of the Master Agreement.
<PAGE> 4
4. AMENDMENTS TO EXISTING PROJECT AGREEMENTS
4.1 Amendments Applicable to All Existing Project Agreements. In view of
the decisions of the Steering Committee reflected in Recital D above and of
other agreements reached between the parties, MSS and the University agree that
all Existing Project Agreements are hereby amended as follows:
(a) Revision of Definition of "Innovations". The definition of
"Innovations" in Section 1 of each of the Existing Project Agreements is
replaced with the following:
"Innovations" means all ideas, inventions, apparatus, systems, data,
discoveries, methods, processes, improvements, works of authorship and
other innovations of any kind within the Project Scope, whether or not
they are eligible for patent, copyright, trademark, service mark, trade
dress, trade secret or other legal protection. Examples of Innovations
include: [ * ] "Innovations" does not include any computer information
technology or products (including but not limited to MSS' Biofusion(TM)
or other software products and technology), and the usage of any such
technology or products shall not be deemed to be within the Project
Scope.
(b) Revision of Definition of "Intellectual Property Rights". The
definition of "Intellectual Property Rights" in Section 1 of each of the
Existing Project Agreements is replaced with the following:
"Intellectual Property Rights" means patent applications, patents,
design rights or other similar invention rights, rights of priority,
copyrights, trademarks, service marks, trade dress, trade secret rights
and other intangible rights, whether existing under statutory or common
law, in any country in the world.
(c) Revision of Definition of "Joint Innovations". The definition
of "Joint Innovations" in Section 1 of each of the Existing Project Agreements
is replaced with the following:
"Joint Innovations" means all inventions, improvements, works of
authorship and other innovations of any kind within the Project Scope
that may be made, conceived, developed or reduced to practice jointly by
MSS and by SMM and their respective employees, consultants, faculty,
technicians, visiting scientists, students, and/or post-doctoral
associates in the course of this Agreement, whether or not they are
eligible for patent, copyright, trademark, service mark, trade dress,
trade secret or other legal protection. Examples of Joint Innovations
include but are not limited to: [ * ].
<PAGE> 5
(d) Revision of Definition of "Licensed Patents". The definition
of "Licensed Patents" in Section 1 of each of the Existing Project Agreements is
replaced with the following:
"Licensed Patents" means (i) any United States patents that may issue to
the University during the term of this Agreement covering any test
developed by or on behalf of the University and all divisionals,
continuations, continuations-in-part, reissues, extensions, and
reexaminations thereof that may issue in the United States during the
term of this Agreement, (ii) any corresponding foreign patents that may
issue to the University during the term of this Agreement with respect
to any of the preceding patents, and all divisionals, continuations,
continuations-in-part, reissues, extensions, and reexaminations thereof,
and (iii) any other patents that may issue to the University during the
term of this Agreement, and all divisionals, continuations,
continuations-in-part, reissues, extensions, and reexaminations thereof,
to the extent they cover any Innovations within the Project Scope.
(e) Revision of Definition of "Net Proceeds". The definition of
"Net Proceeds" in Section 1 of each of the Existing Project Agreements is
replaced with the following:
"Net Proceeds" means all gross revenue to MSS from the commercial
distribution of a Product or payments related to a Product (whether for
sales agency rights or distribution rights, license fees, development
costs or other monies payable by a Third Party), minus the following:
(i) all promotional, trade, quantity, and cash discounts
actually allowed, and credits and allowances actually granted on account
of rejections, returns or billing errors;
(ii) the cost of goods sold (COGS), including but not
limited to all mailing, delivery or other transportation charges and
taxes imposed on the commercial distribution of a Product, any charges
by an Approved Lab incurred with respect to such Product (including an
Approved Lab operated in-house by MSS or by a Third Party), Test
Sampling Materials and labor, and commissions, royalties, or other fees
paid related to the Product;
(iii) all marketing and sales costs, including but not
limited to trade shows, educational programs, thought leader
development, marketing materials, market enhancement clinical studies,
marketing, sales and administrative personnel and consultants related to
the commercial distribution of the Product;
(iv) all operational costs, including but not limited to
supplies, customer service, billing and collection, production, quality
assurance personnel and consultants related to the commercial
distribution of the Product;
(v) all costs to sponsor and monitor clinical utility
trials which MSS is responsible for;
<PAGE> 6
(vi) all facility costs (including facilities used for an
in-house Approved Lab and commercial service centers that support the
marketing, distribution and collection of test materials, laboratory
routing, results reporting, invoicing and collection), including but not
limited to rent, directly related to the commercial distribution of the
Product;
(vii) all equipment and other capital expenditures and any
related depreciation;
(viii) legal fees incurred in engaging a Third Party;
(ix) all costs associated with the preparation, filing and
prosecution of all patent applications other than the initial patent
application filed in either the United Kingdom or the United States for
a Product, including but not limited to filing fees, translation costs
and legal fees (but not including any internal staff of MSS and overhead
costs incurred with respect to any patent applications that MSS has
responsibility for hereunder);
(x) regulatory costs, if any, including but not limited to
filing fees and legal fees; and
(xi) all other costs that may be incurred with respect to
the commercialization of the Product, such as patent litigation costs,
indemnities and warranties to a Third Party or to end users of Products,
and any insurance premiums to insure against potential liability.
In computing Net Proceeds, all revenue, costs and deductions will
be accounted for using generally accepted accounting principles
consistently applied. Losses, if any, from previous quarters will be
carried forward and revenues which become bad debt will be reconciled
quarterly. The parties recognize that, depending upon the specific
responsibilities assumed by each of the parties with respect to the
commercialization of a particular Product, the costs and expenses to be
deducted in computing Net Proceeds may be incurred by either MSS or the
University. The parties recognize that as multiple Products are
commercialized, some of the costs and expenses to be deducted in
computing Net Proceeds would be amortized over multiple Products or over
products within the scope of other project agreements between the
parties, all as determined by the Steering Committee.
(f) Costs of Carrying Out Responsibilities. Section 3.4 of each
of the Existing Project Agreements is replaced with the following:
3.4 Costs of Carrying Out Responsibilities; Sinking Fund.
(a) Costs to be Borne by the Parties Individually. Subject
to the deduction of costs in computing Net Proceeds as set forth in the
definition of "Net
<PAGE> 7
Proceeds" in Section 1 above, each party will carry out the activities
for which it is responsible at its own expense, including the costs of
any research and development, commercialization costs, internal staff
and overhead costs, consultants and other outside contractors assisting
a party in performing its duties.
(b) Sinking Fund. After a Commercialization Event occurs
with respect to a Product and Net Proceeds are being generated, the
Steering Committee will determine a percentage of the Net Proceeds that
will be directed into an MSS sinking fund out of which future costs that
are deductible in computing Net Proceeds in accordance with the
definition of "Net Proceeds" in Section 1 above and any liabilities
incurred will be paid.
(g) Deletion of Section 5.2. Section 5.2 of each of the Existing
Project Agreements is deleted and Section 5.3 is renumbered to be Section 5.2.
4.2 Amendments Applicable to the Atherosclerosis Project Agreement. In
view of the decisions of the Steering Committee reflected in Recital D above and
of other agreements reached between the parties, MSS and the University agree
that the Atherosclerosis Project Agreement is hereby amended as follows:
(a) Revision of Definition of "Products". The definition of
"Products" in Section 1.14 is replaced with the following:
1.14 "Products" means any products or services related to the
Project (such as the Initial Coronary Artery Disease Test or new
diagnostic and/or monitoring genetic tests, diagnostics, therapeutics,
or related services) based upon any University Innovation, MSS
Innovation, or Joint Innovation within the Project Scope.
(b) Revision of Definition of "Project Scope". Clause (ii) of the
definition of "Project Scope" in Section 1.16 is replaced with the following:
(ii) [ * ]
(c) Test Standards. Section 3.2(iii) is amended to read as
follows:
(iii) Ensuring that all tests are run consistent with United States and
European Community standards. MSS will monitor, audit, and assist the
University with the proper paperwork required under United States
standards.
<PAGE> 8
(d) Revision of Definition of "Test Sampling Materials". The
definition of "Test Sampling Materials" in Section 1.20 is replaced with the
following:
1.20 "Test Sampling Materials" means the packaging, the clinical
materials and accompanying instructional materials to be used to obtain
a sample from a patient for delivery to an Approved Lab for performing
the genetic analysis of an Atherosclerosis Test on such sample, and the
subsequent materials reporting the results of the genetic analysis to a
patient.
(e) Division of "Net Proceeds". The second paragraph of Section
5.1 is deleted in its entirety. The word "new" in the first line of the third
paragraph of Section 5.1 is deleted. The phrase "other type of" is inserted
before the word "Product" in the second line of the first sentence of the first
paragraph of Section 5.1, so that such sentence reads "The allocation of Net
Proceeds between MSS and the University with respect to each other type of
Product within the Project Scope ..." Insert the following sentence in front of
the first sentence of the first paragraph of Section 5.1:
Net Proceeds with respect to the Initial Coronary Artery Disease Test
and all other diagnostic and/or monitoring genetic tests that are
commercialized hereunder will be allocated [ * ] to MSS and [ * ]
to the University.
4.3 Amendments Applicable to the Eye Diseases Project Agreement. In view
of the decisions of the Steering Committee reflected in Recital D above and of
other agreements reached between the parties, MSS and the University agree that
the Eye Diseases Project Agreement is hereby amended as follows:
(a) Revision of Definition of "Products". The definition of
"Products" in Section 1.14 is replaced with the following:
1.14 "Products" means any products or services related to the
Project (such as the Initial Eye Disease Test or new diagnostic and/or
monitoring genetic tests, diagnostics, therapeutics, or related
services) based upon any University Innovation, MSS Innovation, or Joint
Innovation within the Project Scope.
(b) Revision of Definition of "Project Scope". Clause (ii) of the
definition of "Project Scope" in Section 1.16 is replaced with the following:
(ii) [ * ]
(c) Test Standards. Section 3.2(v) is amended to read as follows:
<PAGE> 9
(iii) Ensuring that all tests are run consistent with United States and
European Community standards. MSS will monitor, audit, and assist the
University with the proper paperwork required under United States
standards.
(d) Revision of Definition of "Test Sampling Materials". The
definition of "Test Sampling Materials" in Section 1.20 is replaced with the
following:
1.20 "Test Sampling Materials" means the packaging, the clinical
materials and accompanying instructional materials to be used to obtain
a sample from a patient for delivery to an Approved Lab for performing
the genetic analysis of an Eye Disease Test on such sample, and the
subsequent materials reporting the results of the genetic analysis to a
patient.
(e) Division of "Net Proceeds". The second paragraph of Section
5.1 is deleted in its entirety. The word "new" in the first line of the third
paragraph of Section 5.1 is deleted. The phrase "other type of" is inserted
before the word "Product" in the second line of the first sentence of the first
paragraph of Section 5.1, so that such sentence reads "The allocation of Net
Proceeds between MSS and the University with respect to each other type of
Product within the Project Scope ..." Insert the following sentence in front of
the first sentence of the first paragraph of Section 5.1:
Net Proceeds with respect to the Initial Eye Disease Test and all other
diagnostic and/or monitoring genetic tests that are commercialized
hereunder will be allocated [ * ] to MSS and [ * ] to the University.
4.4 Amendments Applicable to the Osteoporosis Project Agreement. In view
of the decisions of the Steering Committee reflected in Recital D above and of
other agreements reached between the parties, MSS and the University agree that
the Osteoporosis Project Agreement is hereby amended as follows:
(a) Revision of Definition of "Products". The definition of
"Products" in Section 1.14 is replaced with the following:
1.14 "Products" means any products or services related to the
Project (such as the Initial Osteoporosis Test or new diagnostic and/or
monitoring genetic tests, diagnostics, therapeutics, or related
services) based upon any University Innovation, MSS Innovation, or Joint
Innovation within the Project Scope.
(b) Revision of Definition of "Project Scope". Clause (ii) of the
definition of "Project Scope" in Section 1.16 is replaced with the following:
(ii) [ * ]
<PAGE> 10
[ * ]
<PAGE> 11
(c) Test Standards. Section 3.2(v) is amended to read as follows:
(iii) Ensuring that all tests are run consistent with United States and
European Community standards. MSS will monitor, audit, and assist the
University with the proper paperwork required under United States
standards.
(d) Revision of Definition of "Test Sampling Materials". The
definition of "Test Sampling Materials" in Section 1.20 is replaced with the
following:
1.20 "Test Sampling Materials" means the packaging, the clinical
materials and accompanying instructional materials to be used to obtain
a sample from a patient for delivery to an Approved Lab for performing
the genetic analysis of an Osteoporosis Test on such sample, and the
subsequent materials reporting the results of the genetic analysis to a
patient.
(e) Division of "Net Proceeds". The second paragraph of Section
5.1 is deleted in its entirety. The word "new" in the first line of the third
paragraph of Section 5.1 is deleted. The phrase "other type of" is inserted
before the word "Product" in the second line of the first sentence of the first
paragraph of Section 5.1, so that such sentence reads "The allocation of Net
Proceeds between MSS and the University with respect to each other type of
Product within the Project Scope ..." Insert the following sentence in front of
the first sentence of the first paragraph of Section 5.1:
Net Proceeds with respect to the Initial Osteoporosis Test will be
allocated [ * ] to MSS and [ * ] to the University. Net Proceeds with
respect to all other diagnostic and/or monitoring genetic tests that are
commercialized hereunder will be allocated [ * ] to MSS and [ * ] to the
University.
5. TERM AND TERMINATION
5.1 Term. Unless sooner terminated in accordance with the provisions of
this Section 5, this Agreement shall continue in effect for an initial Contract
Period of one year, which period will be automatically extended in one (1) year
increments unless either party gives the other party written notice of its
election not to renew this Agreement at least ninety (90) days in advance of the
scheduled renewal date.
5.2 Termination for Breach. Either party may, upon sixty (60) days
written notice to the other party, terminate this Agreement in the event of a
material breach of this Agreement by the other party, if such breach is not
cured during the sixty (60) day notice period.
5.3 Termination by MSS. MSS may terminate this Agreement at any time
upon six (6) months written notice to the University; provided, however, that
the budget allocated to support any particular Project on which the Investigator
is working shall be appropriately prorated to allow for reasonable costs and to
reimburse for all contractual commitments incurred
<PAGE> 12
by the Investigator or the University in performance of this Agreement prior to
such termination, if such contractual commitments cannot be canceled by the
Investigator or the University.
5.4 Survival. The provisions of Section 2.3, all of Section 4, and this
Section 5.4 shall survive the expiration or termination of this Agreement.
6. GENERAL
6.1 Independent Contractors. The University and the Investigator, on the
one hand, and MSS, on the other hand, are independent contractors, and nothing
in this Agreement or otherwise shall place MSS and the University in the
relationship of partners, joint venturers or agents, nor shall the Investigator
be deemed an employee of MSS or entitled to participate in any benefits of MSS
offered to its employees.
6.2 Governing Law. This Agreement will be governed by and construed in
accordance with the substantive laws of the United States and the State of
California, without regard to or application of provisions relating to choice of
law.
6.3 Waiver and Modification. Failure by either party to enforce any
provision of this Agreement will not be deemed a waiver of future enforcement of
that or any other provision. Any waiver, amendment or other modification of any
provision of this Agreement will be effective only if in writing and signed by
the parties.
6.4 Severability. If for any reason a court of competent jurisdiction
finds any provision or portion of this Agreement to be unenforceable, that
provision will be enforced to the maximum extent permissible so as to effect the
intent of the parties, and the remainder of this Agreement will continue in full
force and effect.
6.5 Notices. All notices required or permitted under this Agreement will
be in writing, will reference this Agreement and will be deemed given: (i) when
sent by confirmed facsimile; (ii) ten (10) working days after having been sent
by registered or certified mail, return receipt requested, postage prepaid; or
(iii) five (5) working days after deposit with a commercial overnight carrier,
with written verification of receipt. All communications will be sent to the
addresses set forth below or to such other address as may be designated by a
party by giving written notice to the other party pursuant to this section:
To MSS:
Paul J. White
President and CEO
Medical Science Systems, Inc.
4400 McArthur Blvd., Suite 980
Newport Beach, CA 92660
U.S.A.
<PAGE> 13
To the University:
[ * ]
6.6 Delays Beyond Control. Neither party will be liable to the other
party for any failure or delay in performance caused by reasons beyond such
party's reasonable control, and such failure or delay will not constitute a
material breach of this Agreement.
6.7 Assignment. Neither party may assign its rights or obligations
hereunder, by operation of law or otherwise, without express written consent of
the other party, which consent will not be unreasonably withheld. Any attempted
assignment without such consent shall be void. Subject to the foregoing, this
Agreement will benefit and bind the successors and assigns of the parties.
6.8 No Third Party Beneficiaries. Except as expressly provided herein to
the contrary, no provision of this Agreement, express or implied, is intended or
will be construed to confer rights, remedies or other benefits to any third
party under or by reason of this Agreement.
6.9 Entire Agreement. This Agreement, the Master Agreement and the
relevant Project Agreements, including all exhibits, constitute the entire
agreement between the parties with respect to the subject matter hereof, and
supersede and replace all prior or contemporaneous understandings or agreements,
written or oral, regarding such subject matter.
<PAGE> 14
6.10 Multiple Counterparts. This Agreement may be executed in multiple
counterparts, each of which will be considered an original and all of which
together will constitute one agreement. This Agreement may be executed by the
attachment of signature pages which have been previously executed.
6.11 Cumulation. All rights and remedies enumerated in this Agreement
will be cumulative and none will exclude any other right or remedy permitted
herein or by law.
6.12 Headings. The headings contained in this Agreement are inserted for
convenience of reference only and are not intended to be a part of or to affect
the meaning or interpretation of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement through
their duly authorized representatives as set forth below:
MEDICAL SCIENCE SYSTEMS, INC. THE UNIVERSITY OF SHEFFIELD
By: By:
----------------------------- --------------------------------------
Printed Name: Printed Name:
-------------------- ----------------------------
Title: Title:
--------------------------- -----------------------------------
<PAGE> 1
EXHIBIT 10.3
MEDICAL SCIENCE SYSTEMS
DEVELOPMENT AND COMMERCIALIZATION PROJECT AGREEMENT
(ATHEROSCLEROSIS INCLUDING CORONARY ARTERY DISEASE)
This Agreement is entered into and made effective as of this ___ day of
___________, 1996 (the "Effective Date") by and between Medical Science Systems,
Inc. a Texas corporation having its principal place of business at 4400
MacArthur Blvd., Suite 980, Newport Beach, CA 92660 ("MSS") and The University
of Sheffield, Western Bank, Sheffield S10 2TN, England ("University"), acting
through The Section of Molecular Medicine of the University's Department of
Medicine and Pharmacology ("SMM").
RECITALS
A. University and MSS have entered into a Master Agreement for
Technology Evaluation dated July 1, 1996 (the "Master Agreement"). Following the
procedures set forth in the Master Agreement, the parties have agreed to work
together on a project as defined herein to perform additional development and
commercialization of certain technology relating to the association between
genetics and coronary artery disease.
B. This Agreement is intended to supplement the provisions set forth in
the Master Agreement with respect to such technology, and sets forth additional
terms and conditions agreed to by the parties with respect to the project.
C. It is contemplated that MSS may locate and engage a third party to
assist in the commercialization of products based upon the technology that is
the subject of the project, or MSS may itself commercialize certain products
based upon the technology. This Agreement is also intended to set forth the
terms and conditions upon which MSS will locate and engage such third party or
itself commercialize such products.
NOW, THEREFORE, in consideration of the foregoing premises and of the
terms and conditions of this Agreement, the parties agree as follows:
1. DEFINITIONS
1.1 "Approved Lab" means a laboratory (which may be an internal
laboratory of the University and/or MSS or a third party laboratory) mutually
approved by MSS and SMM pursuant to Section 3.5 below to conduct Test
Administrations.
1.2 "Atherosclerosis Test" means [ * ].
- ---------
* Confidential Treatment requested.
<PAGE> 2
1.3 "Brand Name(s)" means the trademark(s), service mark(s) and/or
logo(s) or other designations under which Products are marketed and promoted by
MSS or a Third Party.
1.4 "Commercialization Event" means either of the following with respect
to a Product: (i) entry into a business arrangement with a Third Party (whether
through a license and/or development agreement, distribution agreement, joint
venture, co-promotion, or other structure) for the further development, clinical
testing, marketing and/or sale of such Product in one or more markets, or (ii)
decision by the Steering Committee to engage MSS to commercially distribute such
Product in one or more markets directly to end users or through distribution
channels set up by MSS (rather than through a Third Party).
1.5 "Confidential Information" shall be as defined in Section 1 of the
Master Agreement.
1.6 "Initial Coronary Artery Disease Test" means the [ * ].
1.7 "Innovations" means all ideas, inventions, apparatus, systems, data,
discoveries, methods, processes, improvements, works of authorship and other
innovations of any kind within the Project Scope, whether or not they are
eligible for patent, copyright, trademark, trade secret or other legal
protection. Examples of Innovations include: [ * ]. "Innovations" does not
include any preexisting MSS computer information technology or products
(including but not limited to MSS' Biofusion(TM) and Medical Decision
Explorer(TM) products and technology), and the usage of any such technology or
products shall not be deemed to be within the Project Scope.
1.8 "Intellectual Property Rights" means patent applications, patents,
design rights or other similar invention rights, rights of priority, copyrights,
trademarks, trade secret rights and other intangible rights, whether existing
under statutory or common law, in any country in the world.
1.9 "Joint Innovations" means all inventions, improvements, works of
authorship and other innovations of any kind within the Project Scope that may
be made, conceived, developed or reduced to practice jointly by MSS and by SMM
and their respective employees, consultants, faculty, technicians, visiting
scientists, students, and/or post-doctoral associates in the course of this
Agreement, whether or not they are eligible for patent, copyright, trademark,
trade secret or other legal protection. Examples of Joint Innovations include
but are not limited to: [ * ].
1.10 "Licensed Patents" means (i) any United States patents that may
issue to the University during the term of this Agreement covering an
Atherosclerosis Test (including the Initial Coronary Artery Disease Test)
developed by or on behalf of the University and all
<PAGE> 3
divisionals, reissues, and reexaminations thereof that may issue in the United
States during the term of this Agreement, (ii) any corresponding foreign patents
that may issue to the University during the term of this Agreement with respect
to any of the preceding patents, and all divisionals, reissues, and
reexaminations thereof, and (iii) any other patents that may issue to the
University during the term of this Agreement, and all divisionals, reissues, and
reexaminations thereof, to the extent they cover any Innovations within the
Project Scope.
1.11 "Licensed Invention" means any apparatus, system, process, method
or other invention claimed in any of the Licensed Patents, and any work of
authorship, know how, trade secret and other technology within the Project Scope
covered by any other Intellectual Property Right of the University.
1.12 "MSS Innovations" means all Innovations within the Project Scope
that may be made, conceived, developed or reduced to practice solely by MSS and
its employees, consultants, and technicians.
1.13 "Net Proceeds" means the following:
(i) In the case of a Commercialization Event with a Third Party,
all royalties, license fees, or other monies payable by such Third Party based
upon the commercial distribution of a Product in one or more markets; and
(ii) In the case of a decision by the Steering Committee to
engage MSS to commercially distribute one or more Products in one or more
markets directly to end users or through distribution channels set up by MSS,
the gross amount actually received by MSS from the commercial distribution of a
Product, less (i) any delivery or other transportation charges and taxes imposed
on the transaction, (ii) any charges by an Approved Lab incurred with respect to
such Product, (iii) the cost of goods sold (COGS), (iv) actual out of pocket
costs for advertising, travel, trade shows, educational programs and other
marketing and sales expenses (but not including salaries of personnel) directly
related to the commercial distribution of the Product, (v) as determined by the
Steering Committee, either a reasonable administrative and sales overhead
charge, or the actual personnel costs for marketing, sales and administrative
functions, with respect to the commercial distribution of the Product, all of
the foregoing computed in accordance with generally accepted accounting
principles, and (vi) carryover losses, if any, from a previous quarter. It is
recognized by the parties that, depending upon the specific responsibilities
assumed by each of the parties, the foregoing costs and expenses may be incurred
by either MSS or the University.
1.14 "Products" means any products or services related to the Project
(such as new tests, diagnostics, therapeutics, or related services) based upon
any University Innovation, MSS Innovation, or Joint Innovation within the
Project Scope.
1.15 "Project" means the development and commercialization activities to
be undertaken by MSS, SMM and Third Parties (if any) pursuant to this Agreement
within the Project Scope.
<PAGE> 4
1.16 "Project Scope" means:
(i) [ * ], and
(ii) [ * ].
1.17 "Steering Committee" shall be as defined in Section 2 below.
1.18 "Subsidiary" means a corporation, company or other entity more than
fifty percent (50%) of whose outstanding shares or securities (representing the
right to vote for the election of directors or other managing authority) are,
now or hereafter, owned or controlled, directly or indirectly, by a party to
this Agreement; provided that any such corporation, company or other entity will
be deemed to be a Subsidiary only so long as such ownership or control exists.
1.19 "Test Administration" means the performing of the genetic analysis
of an Atherosclerosis Test by an Approved Lab based upon a sample gathered from
a patient using Test Sampling Materials.
1.20 "Test Sampling Materials" means a container that will be used to
transport a sample from a patient to an Approved Lab for performing the genetic
analysis of an Atherosclerosis Test on such sample, and accompanying
instructional materials.
1.21 "Third Party" means a third party entity engaged by MSS, with the
approval of the Steering Committee, in accordance with this Agreement to assist
in the further development, clinical testing, marketing and/or commercial
distribution of one or more Products in one or more markets.
1.22 "University Innovations" means all Innovations within the Project
Scope that may be made, conceived, developed or reduced to practice solely by
SMM and its faculty, employees, consultants, technicians, visiting scientists,
students and post doctoral associates.
2. STEERING COMMITTEE
2.1 General Responsibilities of the Steering Committee. A four-person
steering committee, consisting initially of Paul White and Kenneth Kornman for
MSS and [ * ] for the University (the "Steering Committee"), will make joint
decisions
<PAGE> 5
and provide high level management with respect to the Project. [ * ] will
also serve on the Steering Committee as a representative of the employees,
faculty, consultants and staff working on the Project. Each person on the
Steering Committee will have one vote. Each party may nominate alternative or
replacement members to serve on the Steering Committee with the consent of the
other party, which consent will not be unreasonably withheld. The Steering
Committee will meet on a regular basis as the committee members may determine to
be necessary. Written minutes of the meetings of the Steering Committee will be
kept and will be promptly circulated after each meeting to the committee members
for approval. The Project will consist of an initial phase and any follow-on
phases that the Steering Committee may determine to pursue. During the initial
phase, the parties will, in accordance with their respective responsibilities
set forth in Section 3 below, file and prosecute U.S. and international patents
covering the Initial Coronary Artery Disease Test and any other Innovations that
the Steering Committee may determine, conduct clinical studies to generate
appropriate clinical data and, if such data demonstrates strong clinical utility
of potential Products, identify and engage an appropriate Third Party. If the
Steering Committee determines that the clinical data is not strong enough to
seek a Third Party, the Steering Committee will determine the next step(s) that
should be taken. After completion of the initial phase of the Project, the
Steering Committee will review and make decisions as to the next step(s) that
should be taken, which may include additional research and/or development and
testing of Products, seeking of additional Third Parties, direct sales, or
termination of the Project.
2.2 Determinations With Respect to Commercialization of Individual
Products. The Steering Committee will determine with respect to each Product or
class of Products to be commercialized pursuant to the Project, whether to
engage a Third Party to assist in the further development, clinical testing,
marketing and/or commercial distribution of such Product(s) in one or more
markets, or whether to engage MSS to commercially distribute such Product(s) in
one or more markets directly to end users or through distribution channels set
up by MSS. In the event that the Steering Committee determines to engage a Third
Party with respect to a particular Product, MSS will identify potential Third
Parties and the Steering Committee will select one with which MSS will be
authorized to negotiate an appropriate engagement with respect to such Product,
or to extend a previous engagement to cover such Product.
3. RESPONSIBILITIES OF THE PARTIES
This Section sets forth the responsibilities of the parties during the
Project, including but not limited to the initial phase of the Project.
3.1 Responsibilities of MSS. Subject to the high level management and
direction of the Steering Committee, MSS will have responsibility for the
following activities:
(i) Conducting overall management and oversight of the Project.
(ii) Developing a patent strategy with respect to Innovations and
Products and the determination of which countries patents should be filed in.
<PAGE> 6
(iii) Preparing and filing in the United States the initial
patent application with respect to the Initial Coronary Artery Disease Test and
any other Innovations the Steering Committee may determine to file patents for
during the Project.
(iv) Preparing, filing, and prosecuting all international patent
applications (subject to the shared cost obligations set forth in Section 3.4
below) that the Steering Committee determine to file during the Project, to the
extent the foregoing is not handled by one or more Third Parties.
(v) Developing an initial regulatory strategy with respect to
Innovations and Products to be developed during the Project for markets in which
the Steering Committee determines MSS should seek to establish Third Parties
(but not including the actual preparation or filing of documentation for any
regulatory approval or license, which will be handled by MSS or a Third Party as
the Steering Committee may determine, subject to the shared cost obligations set
forth in Section 3.4).
(vii) Identifying potential Third Parties and preparing the
business plans necessary to support the engagement of one or more Third Parties,
conducting negotiations with respect to such engagement, and monitoring of any
Third Parties engaged.
(vii) Handling public relations with respect to Innovations to
support the initial market development and the search for appropriate Third
Parties.
(viii) Handling public relations, with the input and consultation
of the University, with respect to scientific breakthroughs and data embodied in
or associated with Atherosclerosis Tests and other Products and their underlying
scientific research;
MSS will use reasonable efforts to perform its responsibilities set
forth in this Section 3.1 in accordance with any timeline set by the Steering
Committee.
3.2 Responsibilities of the University. Subject to the high level
management and direction of the Steering Committee, the University will have
responsibility for the following activities:
(i) Conducting genetic laboratory analysis on such data and
interpretation of the results for the Initial Coronary Artery Disease Test.
(ii) Further technical development of Innovations and Products by
seeking potential new gene sequences and running confirming genetic laboratory
tests.
(iii) Ensuring that all tests are run consistent with European
Community standards.
(iv) Ensuring that the employees, faculty, consultants and staff
working on the Project maintain written documentation of their work (such as
laboratory notebooks) sufficient to establish dates of invention, the substance
of their work on the Project at various dates, and any
<PAGE> 7
other information necessary or desirable for seeking patent protection and
establishing priority of invention.
(v) Providing assistance in validation of Approved Labs if
necessary.
(vi) Providing reasonable technical presentation support and
assistance to MSS if requested by MSS.
(vii) Participation in a reasonable number of educational
programs with respect to Innovations and Products, if requested by MSS or a
Third Party.
The University will use reasonable efforts to perform its
responsibilities set forth in this Section 3.2 in accordance with any timeline
set by the Steering Committee.
3.3 Additional Responsibilities and Reallocation of Responsibilities.
The parties recognize that with respect to the development, testing and
commercialization of any particular Product (including the Initial Coronary
Artery Disease Test), additional responsibilities not enumerated in Sections 3.1
and 3.2 above may need to be allocated to the parties, and it may further become
desirable to reallocate some of the responsibilities enumerated in Sections 3.1
and 3.2 between the parties. In either case, the Steering Committee will have
responsibility for making any such allocation or reallocation of
responsibilities.
3.4 Costs of Carrying Out Responsibilities; Shared Costs.
(a) Costs to be Borne by the Parties Individually. Subject to the
shared cost obligations of this Section 3.4, each party will carry out the
activities for which it is responsible at its own expense, including the costs
of any research and development, internal staff and overhead costs, consultants
and other outside contractors assisting a party in performing its duties, travel
costs, initial U.S. patent filing and prosecution costs, locating and engaging
Third Parties, and public relations.
(b) Shared Costs. The parties recognize that there will be shared
costs incurred under the Project, which will be borne by the parties in
proportion to each party's share of Net Proceeds. Shared costs will include the
following: legal fees incurred in engaging a Third Party; all costs associated
with the preparation, filing and prosecution of international patent
applications, including filing fees, translation costs and legal fees (although
MSS will be responsible for its internal staff and overhead costs incurred with
respect to any patent applications that it has responsibility for); regulatory
costs, if any, including filing fees and legal fees; other costs that may be
incurred with respect to the commercialization of Products, whether through MSS
or a Third Party, such as patent litigation costs, indemnities and warranties to
a Third Party or to end users of Products, and any insurance premiums to insure
against potential liability; and any other costs approved by the Steering
Committee to be shared costs.
(c) Payment of Shared Costs. The parties will contribute to
shared costs as they are incurred. After a Commercialization Event occurs with
respect to a Product and Net Proceeds are being generated: (i) The Steering
Committee will determine a percentage of the Net Proceeds that will be directed
into a sinking fund out of which shared costs and any liabilities
<PAGE> 8
incurred will be paid, and (ii) to the extent that the sinking fund contains
insufficient funds to pay any shared costs incurred, MSS will have the option to
require the University to contribute its share of the balance directly to MSS,
or to pay such shared costs directly and to offset the University's share of
such costs against the share of any Net Proceeds or development funds to which
the University is entitled hereunder.
3.5 Selection of Approved Labs. MSS and the University will by mutual
agreement establish one or more Approved Labs to conduct Test Administrations.
Neither party will unreasonably withhold its consent to the establishment of a
particular Approved Lab. Such Approved Labs must have the technical and
professional capability to conduct Test Administrations in a competent, cost
efficient and timely manner, must meet all applicable governmental regulatory
requirements, and must be able to handle reasonable anticipated volumes. In the
event that either party determines, in the exercise of good faith judgment, that
an Approved Lab previously agreed to by the parties is unacceptable or
undesirable, then the Steering Committee will determine whether a different
Approved Lab should be established and, if so, will establish a replacement
Approved Lab.
3.6 Use of Approved Labs. Each party agrees that it will conduct or
cause to be conducted Test Administrations only through an Approved Lab, except
that either party may at its option use other laboratories to conduct Test
Administrations in conjunction with internal development of products outside the
Project Scope.
4. GRANT OF LICENSES
4.1 Grant. Subject to the terms and conditions of this Agreement, the
University hereby grants to MSS a worldwide, irrevocable, transferable license
under the Licensed Patents and any other applicable Intellectual Property Rights
owned by the University to make, have made, use, offer to sell, sell, license
and otherwise transfer Products within the Project Scope and to conduct Test
Administrations, and to sublicense Third Parties, distributors and Subsidiaries
of MSS, and Approved Labs to do any of the foregoing, all subject to the
approval of the Steering Committee in accordance with Section 2 above.
4.2 Exclusivity. The license granted in Section 4.1 shall be exclusive
to MSS, except that the University retains the right to practice and use any
Licensed Invention for its own internal research purposes and in carrying out
any of its responsibilities under Section 3.2 above.
5. DIVISION OF NET PROCEEDS
5.1 Allocation of Net Proceeds With Respect to Products. The allocation
of Net Proceeds between MSS and the University with respect to each Product
within the Project Scope will be determined by the Steering Committee based on
general guidelines to be generated by the Steering Committee for each type of
Product to be developed and commercialized hereunder (the "General Guidelines").
The General Guidelines for a particular type of Product will contain a set of
weights assigned to each responsibility that could potentially be allocated
between the parties for the development and/or commercialization of a particular
Product of that type. With respect
<PAGE> 9
to each particular Product of a defined type, the parties will generate and
execute a set of specific guidelines for that particular Product (the "Specific
Guidelines"), which will list those of the responsibilities contained in the
General Guidelines that are applicable to that particular Product, will allocate
each such responsibility to one of the parties, and will credit to such party
the weight associated with such responsibility in the General Guidelines. Each
party's share of the Net Proceeds generated by such particular Product will then
equal its percentage share of the total weights in the Specific Guidelines
assigned to such party, subject to any minimum share such party may be entitled
to as listed in the General Guidelines and/or the Specific Guidelines. If a
responsibility listed in the General Guidelines for a type of Product is not
relevant to a particular Product of that type, then the weight for that
responsibility will be listed as zero in the Specific Guidelines for that
particular Product. For example, if the total weights for all assigned
responsibilities in the Specific Guidelines equals 80 and the weights associated
with the responsibilities assigned to one party in the Specific Guidelines
equals 30, then such party would be entitled to 37.5% of the Net Proceeds
generated by that particular Product.
Schedule 1 contains the General Guidelines for genetic test Products the
parties have agreed to as of the Effective Date. Schedule 2 contains the
Specific Guidelines the parties have agreed to as of the Effective Date for the
Initial Coronary Artery Disease Test based upon the responsibilities for the
Initial Coronary Artery Disease Test set forth in Section 3 above. In the event
that the Steering Committee reallocates the responsibilities for the Initial
Coronary Artery Disease Test, or adds new responsibilities to one or both of the
parties, the Steering Committee will determine and execute a revised set of
Specific Guidelines for the Initial Coronary Artery Disease Test based upon the
reallocated responsibilities and the cost thereof.
As new General Guidelines are generated by the Steering Committee for
other Product types, the parties will set forth such General Guidelines in a new
Schedule to this Agreement, and when executed by a majority of the members of
the Steering Committee, such General Guidelines shall then become a part of this
Agreement. Similarly, as Specific Guidelines for a particular Product of that
type are generated, the parties will set forth such Specific Guidelines in a new
Schedule to this Agreement, and when executed by a majority of the members of
the Steering Committee, such Specific Guidelines shall then become a part of
this Agreement. The Steering Committee may revise any General Guidelines or
Specific Guidelines based upon a reallocation of responsibilities thereunder and
the associated cost thereof and, upon doing so, shall set forth the revised
guidelines in a new Schedule which, when executed by a majority of the members
of the Steering Committee, shall become a part of this Agreement.
5.2 Development Funding from a Third Party. Any development funding
received from a Third Party will be allocated by the Steering Committee between
MSS and the University in proportion to the responsibilities each party
undertakes that is covered by such funding and the effect such responsibilities
may have on the division of Net Proceeds.
5.3 Payment Directly to [ * ]. MSS may pay directly to [ * ] any
portion of the University's share of Net Proceeds to which [ * ] is entitled.
<PAGE> 10
6. REPORTING AND DISTRIBUTION OF NET PROCEEDS
6.1 Reports and Payment. MSS will, within forty-five (45) days after the
close of each calendar quarter during the term of this Agreement, issue a
written report to the University reporting the Net Proceeds generated by MSS
during such quarter, and a computation of the share thereof due each party
hereunder. Full payment, net of any setoffs for shared costs to which MSS may be
entitled under Section 3.4(c) above, of the University's share of such Net
Proceeds for such calendar quarter will accompany such report.
6.2 Books and Records. MSS will keep, and will cause its distributors to
keep, full, true, and accurate records with respect to Net Proceeds. MSS will
give access to such records at reasonable times, no more than once per year, for
three (3) years following the end of the calendar year to which they pertain, to
a mutually acceptable independent certified public accountant retained by the
University for the purpose of verifying the accuracy of the reports supplied to
the University hereunder. The University will pay for the cost of such
independent certified public accountant, except in the event that such
inspection reveals that MSS has understated or underpaid the amounts due
hereunder to the University in an average amount of five percent (5%) or more
over a six (6) month period, then the MSS will pay or reimburse the University
for the entire cost of such inspection. MSS agrees to pay the balance of such
amounts due, together with the cost of the inspection, to the University within
ten (10) days after written notice by the University of MSS's understatement or
underpayment.
7. OWNERSHIP
7.1 MSS Innovations. MSS shall be the sole and exclusive owner of MSS
Innovations, any Product based thereon after a Commercialization Event, the
Brand Name(s), and all Intellectual Property Rights in the foregoing, subject to
the University's right to share in Net Proceeds generated from the
commercialization thereof in accordance with this Agreement. The University
agrees to execute documents, including but not limited to assignment documents,
as reasonably requested by MSS to establish, confirm and perfect MSS's rights in
any of the foregoing.
7.2 University Innovations. The University shall be the sole and
exclusive owner of University Innovations and of all Intellectual Property
Rights therein, provided, however, that upon the occurrence of a
Commercialization Event with respect to a University Innovation and/or a Product
based thereon, the University agrees to assign to MSS all right and title to
such University Innovation and/or Product and to all Intellectual Property
Rights therein, subject to the University's right to share in Net Proceeds
generated from the commercialization thereof in accordance with this Agreement.
Each party agrees to execute documents, including but not limited to assignment
documents, as reasonably requested by the other party to establish, confirm and
perfect the other party's rights in accordance with the foregoing.
7.3 Joint Ownership. MSS and the University shall be joint owners of
equal undivided interests in any Joint Innovations developed by them, provided,
however, that (i) during the term of this Agreement, each party agrees to
exploit its joint ownership rights consistent with MSS's exclusivity as defined
in Section 4.2 above, and (ii) upon the occurrence of a Commercialization
<PAGE> 11
Event with respect to a Joint Innovation and/or a Product based thereon, the
University agrees to assign to MSS all right and title to such Joint Innovation
and/or Product and to all Intellectual Property Rights therein, subject to the
University's right to share in Net Proceeds generated from the commercialization
thereof in accordance with this Agreement. After expiration or termination of
this Agreement, each party shall be free to exploit, without the permission of
the other party and without any duty of accounting, its joint ownership rights
in any Joint Innovations that have not been assigned to MSS under this Section
7.3.
8. PUBLICATION
Publication of research results or other information within the Project
Scope will be governed by the procedures set forth in Section 5 of the Master
Agreement. The Steering Committee will act as the "designated person" of each
party as referenced in Section 5 of the Master Agreement, and will have the
authority to determine the content and timing of any such publication.
9. TERM
Unless earlier terminated in accordance with the terms of Section 10
below or by determination of the Steering Committee to abandon the Project and
terminate this Agreement, this Agreement shall remain in effect from the
Effective Date for a period of ten (10) years, and shall thereafter
automatically renew for additional one (1) year periods, unless either party
gives written notice to the other party at least six (6) months in advance of
any renewal date that such party does not wish to renew this Agreement.
10. TERMINATION
10.1 Termination Upon Notice of Breach. In the event that either party
breaches or defaults under any material term or condition of this Agreement,
including but not limited to failure to make timely payment of monies due, and
such breach or default is not cured within thirty (30) days of written notice of
the same from the other party, the other party may, in addition to any other
remedy that it may have at law or in equity or under this Agreement, terminate
this Agreement.
10.2 Termination by the Steering Committee. The Steering Committee may
at any time determine to abandon the Project and terminate this Agreement on a
timeline as set by the Steering Committee.
10.3 Termination by MSS. MSS may at its option upon written notice to
the University terminate this Agreement in the event that [ * ] is no longer
an employee of the University or [ * ].
<PAGE> 12
10.4 Immediate Termination Upon Certain Events of Bankruptcy. Either
party may at its option terminate this Agreement immediately upon written notice
to the other party upon the occurrence of any of the following events:
(a) In the event that the other party makes an assignment for the
benefit of creditors; admits in writing its inability to pay its debts as they
become due; files a voluntary petition in bankruptcy; is adjudicated to be
bankrupt or insolvent; files a petition seeking for itself any reorganization,
arrangement, composition, readjustment, liquidation, dissolution or similar
arrangement under any present or future statute, law or regulation, or files an
answer or similar pleading admitting the material allegations of a petition
filed against it in any such proceeding; or consents to or acquiesces in the
appointment of, or has its business placed in the hands of, a trustee, receiver,
assignee, or liquidator of it or any substantial part of its business, assets or
properties, whether by voluntary act or otherwise; or
(b) In the event that either party ceases doing business as a
going concern, or it or its shareholders take any action in anticipation of or
furtherance of dissolution or liquidation.
10.5 Effect of Termination.
(a) Provisions Applying to All Terminations. In the event of any
termination of this Agreement for any reason, the following provisions shall
apply:
(i) except as provided in this Section 10.5 or under
Section 10.6 below, all further obligations of both parties under this Agreement
will cease as of the date of termination of this Agreement;
(ii) each party shall retain ownership (including joint
ownership) of any Innovations and/or Products to which it had title in
accordance with the provisions of this Agreement on the date of such
termination, including but not limited to title by virtue of an assignment after
a Commercialization Event; and
(iii) with respect to any Product(s) for which a
Commercialization Event has occurred as of the date of termination of this
Agreement, the Steering Committee will determine how the division of Net
Proceeds from such Product(s) should be reallocated between the parties, both
immediately and over time, based upon the additional responsibilities with
respect to such Product(s) that MSS will have to assume post termination of this
Agreement, and MSS will be entitled to deduct its reasonable cost of all such
additional responsibilities from the University's share of any such Net
Proceeds, provided, however, that in no event shall the deduction of such costs
cause the University's share of such Net Proceeds to fall below [ * ] in any
given calendar quarter.
(b) Provisions Applying to Specific Events of Termination. In
addition to the provisions of subsection (a), the following provisions shall
apply with respect to specific events of termination affecting Products for
which no Commercialization Event has occurred:
(i) Termination by MSS. In the event that MSS terminates
this Agreement pursuant to Sections 10.1 or 10.4, or the University elects not
to renew this
<PAGE> 13
Agreement pursuant to Section 9, then with respect to any Product for which data
exists or proof of principle studies are underway but no Commercialization Event
has yet occurred as of the date of termination, the license rights granted by
the University to MSS under Section 4 above shall continue, and MSS shall have
the right to continue development of any such Product and to take such Product
into commercial distribution (either itself or through a Third Party), provided
that (1) if such Product is placed into commercial distribution, then the
Steering Committee will determine how the Net Proceeds from such Product should
be allocated between the parties, both immediately and over time, based upon the
additional responsibilities that MSS assumes with respect to such Product post
termination of this Agreement and (2) MSS will be entitled to deduct its
reasonable cost of all such additional responsibilities from the University's
share of any Net Proceeds generated by such Product, except that, unless
otherwise determined by the Steering Committee, in no event shall the deduction
of such costs cause the University's share of such Net Proceeds to fall below
[ * ] in any given calendar quarter.
(ii) Termination by the University. In the event that the
University terminates this Agreement pursuant to Sections 10.1 or 10.4, or MSS
elects not to renew this Agreement pursuant to Section 9, then, at the
University's option, the University may either:
(1) terminate all licenses granted by the
University to MSS under this Agreement with respect to any Product(s) for which
no Commercialization Event has yet occurred as of the date of termination, and
elect to itself continue development of any such Product and to take such
Product into commercial distribution (either itself or through a Third Party),
provided that (x) if such Product is placed into commercial distribution, then
the Steering Committee will determine how the Net Proceeds from such Product
should be allocated between the parties, both immediately and over time, based
upon the additional responsibilities that the University assumes with respect to
such Product post termination of this Agreement and (y) the University will be
entitled to deduct its reasonable cost of all such additional responsibilities
from MSS's share of any Net Proceeds generated by such Product, except that,
unless otherwise determined by the Steering Committee, in no event shall the
deduction of such costs cause MSS's share of such Net Proceeds to fall below
[ * ] in any given calendar quarter; or
(2) allow the license rights granted by the
University to MSS under Section 4 above to continue and allow MSS to continue
development of any such Product and to take such Product into commercial
distribution (either itself or through a Third Party), provided that (x) if such
Product is placed into commercial distribution, then the Steering Committee will
determine how the Net Proceeds from such Product should be allocated between the
parties, both immediately and over time, based upon the additional
responsibilities that MSS assumes with respect to such Product post termination
of this Agreement and (y) MSS will be entitled to deduct its reasonable cost of
all such additional responsibilities from the University's share of any Net
Proceeds generated by such Product, except that, unless otherwise determined by
the Steering Committee, in no event shall the deduction of such costs cause the
University's share of such Net Proceeds to fall below [ * ] in any given
calendar quarter.
(iii) Termination by the Steering Committee or by MSS
Under Section 10.3. In the event this Agreement is terminated by the Steering
Committee pursuant to Section 10.2 or by MSS pursuant to Section 10.3, then the
Steering Committee will decide whether MSS or the University (if any) should
assume responsibility for continuing development of any
<PAGE> 14
Product for which a Commercialization Event has not occurred as of the date of
such termination, and in the event MSS assumes such responsibility, then any
licenses granted by the University to MSS under this Agreement will survive
termination of this Agreement. The Steering Committee will also determine how
the Net Proceeds generated by any such Product should be allocated between the
parties, based upon the additional responsibilities assumed by the party having
responsibility for continuing development of such Product post termination of
this Agreement, and the party assuming such responsibility will be entitled to
deduct its reasonable cost of all such additional responsibilities from the
other party's share of any Net Proceeds generated by such Product, except that,
unless otherwise determined by the Steering Committee, in no event shall the
deduction of such costs by one party cause the other party's share of such Net
Proceeds to fall below [ * ] in any given calendar quarter.
10.6 Survival of Certain Provisions. The provisions of Sections 6.2, 7,
10.5, 10.6, 12, 13.1, 13.2, 14.3, 15, 17, and 18 of this Agreement will survive
the expiration or termination of this Agreement.
11. PERSONNEL
Each party will cause its respective employees, faculty, consultants and
staff to execute such agreements, assignments, applications and other documents
as necessary to perfect and protect each party's rights as defined in this
Agreement with respect to Innovations and Products within the Project Scope.
12. SETTLEMENT OF DISPUTES
12.1 Basic Dispute Resolution Procedures. Any dispute between the
parties either with respect to the interpretation of any provision of this
Agreement or with respect to the performance of either party shall be resolved
as specified in this Section.
(a) Upon the written request of either party, each of the parties
will appoint a designated representative who does not devote substantially all
of his or her time to performance under this Agreement, whose task it will be to
meet for the purpose of endeavoring to resolve such dispute.
(b) The designated representatives shall meet as often as
necessary during a fifteen (15) day period (or such other time as the parties
may agree) to gather and furnish to the other all information with respect to
the matter in issue which is appropriate and germane in connection with its
resolution.
(c) Such representatives shall discuss the problem and negotiate
in good faith in an effort to resolve the dispute without the necessity of any
formal proceeding relating thereto.
(d) During the course of such negotiation, all reasonable
requests made by one party to the other for nonprivileged information reasonably
related to this Agreement, will be honored in order that each of the parties may
be fully advised of the other's position.
<PAGE> 15
(e) The specific format for such discussions will be left to the
discretion of the designated representatives, but may include the preparation of
agreed upon statements of fact or written statements of position furnished to
the other party.
12.2 Escalation Procedures. If the designated representatives cannot
resolve the dispute, then the dispute shall be escalated to a member of the
Board of Directors or Trustees of each of the University and of MSS, for their
review and resolution. If the dispute cannot be resolved by such persons, then
the parties may initiate formal proceedings; however, formal proceedings for the
resolution of any such dispute may not be commenced until the earlier of:
(a) The designated representatives concluding in good faith that
amicable resolution through continued negotiation of the matter in issue does
not appear likely; or
(b) Sixty (60) days after the initial request to negotiate such
dispute (unless preliminary or temporary relief of an emergency nature is sought
by one of the parties); or
(c) Thirty (30) days before the statute of limitations governing
any cause of action relating to such dispute would expire.
12.3 Arbitration of Monetary Disputes.
(a) Procedures. Any monetary disputes between the parties
concerning the amount of monies due or payable under this Agreement which the
parties are unable to resolve pursuant to the provisions of Sections 12.1 and
12.2 above, will be settled by arbitration in Orange County, California (unless
otherwise agreed) under the then-prevailing rules of American Arbitration
Association. There will be one (1) arbitrator chosen by mutual agreement of the
parties or, in the event the parties cannot agree within thirty (30) calendar
days of issuance of a written demand for arbitration by either party, by the
American Arbitration Association. All proceedings by the arbitrator shall be
conducted in accordance with the rules of the American Arbitration Association,
except to the extent the provisions of such rules are modified by this Agreement
or the mutual agreement of the parties. Either party will have the right to
discovery of evidence, but by the following methods only: requests for
production of documents and depositions of no more than three (3) individuals.
The arbitrator will supervise discovery and may, at the request of either party,
limit expenses of discovery (including reasonable attorneys' fees) to the
requesting party for good cause shown. All discovery will be completed, and the
arbitration hearing will commence, within forty-five (45) days after appointment
of the arbitrator. Subject to the foregoing, discovery matters will be governed
by the Federal Rules of Civil Procedure as applicable to civil actions in the
United States District Courts. The arbitration hearing will conclude within
thirty (30) days after it commences. The award rendered in arbitration will be
in writing and will be final and binding, and may be enforced in any court of
competent jurisdiction. The fees and expenses of the arbitrator will be paid by
the non-prevailing party.
(b) Approval of One Substantive Position of the Parties. In all
arbitration proceedings submitted under this Section 12.3, the arbitrator shall
be required to agree upon and approve the substantive position advocated by
either MSS or the University with respect to each
<PAGE> 16
disputed item(s). Any decision rendered by the arbitrator that does not reflect
a substantive position advocated by either MSS or the University shall be beyond
the scope of authority granted to the arbitrator and shall be void. No decision
of the arbitrator shall ever be construed as or have the effect of amending or
altering this Agreement or the parties' rights and responsibilities with respect
thereto.
12.4 Other Disputes. Except as provided in Section 12.3 above, the
parties will have no obligation to arbitrate any other disputes, claims or
controversies of any kind arising out of or related to this Agreement, including
but not limited to any dispute, claim or controversy relating to the scope of
the Project or the party's respective ownership rights to any Innovation or
Product. In addition, any claim by one party against the other for injunctive or
preliminary relief, whether or not related to this Agreement, may be litigated
in a court of competent jurisdiction.
13. CONFIDENTIALITY AND PRESS RELEASE
In addition to the provisions of Section 5 of the Master Agreement, the
following confidentiality provisions shall apply:
13.1 Confidentiality of the Agreement. The parties agree to maintain all
terms and conditions of this Agreement in confidence, except that (i) MSS may
state that it has received a license from the University under this Agreement
and may name the patents and Intellectual Property Rights to which such license
rights apply; (ii) The University may state that it has licensed certain
commercial exploitation rights within the Project Scope to MSS; (iii) this
Agreement may be disclosed to either party's attorneys, accountants or other
professional advisors in the course of seeking professional advice and to the
extent required by applicable law or regulations or court order; and (iv) this
Agreement may be disclosed by MSS to entities with which MSS is discussing a
proposed sale of its stock, sale of all or substantially all of its assets,
obtaining financing or entering into a partnering arrangement, provided that the
entity to whom the terms of this Agreement is to be disclosed has executed a
reasonable non-disclosure agreement.
13.2 Protection of Confidential Information. Each party agrees to keep
all Confidential Information of the other party to which it has access hereunder
strictly confidential, and agrees that it will not, except with the express
permission of the other party or as required by applicable law or regulations or
by court order, use such information except in the performance of this
Agreement, or disclose any such Confidential Information to any person or entity
other than its own employees, consultants, faculty, technicians, visiting
scientists, students, and/or post-doctoral associates who have a need to know
and who have been informed in advance of the receiving party's obligations with
respect to such Confidential Information.
13.3 Press Release. The parties agree to issue a mutually agreeable
joint press release with respect to this Agreement. Each party agrees that it
will not issue a press release with respect to this Agreement until such joint
press release has first been issued.
<PAGE> 17
14. REPRESENTATIONS AND WARRANTIES
14.1 By the University. The University represents and warrants to MSS
that:
(a) Ownership. The University is the sole and exclusive owner of
any Licensed Patents and any University Innovations supplied hereunder to MSS
for commercial exploitation;
(b) Authority. The University has the full right and power to
grant the licenses to MSS set forth in this Agreement and to supply the
University Innovations to MSS for commercialization hereunder;
(c) Inconsistent Obligations. There are no outstanding
agreements, licenses, assignments or encumbrances inconsistent with the
provisions of such licenses or with any other provision of this Agreement; and
(d) Infringement of Rights of Others. To the best of the
University's knowledge as of the Effective Date, the University knows of no
third parties' rights which would be infringed by practicing the inventions
claimed in the Licensed Patents within the scope of the licenses granted to MSS
hereunder or by the commercialization as contemplated hereunder of the
University Innovations in existence as of the Effective Date. The University
will promptly notify MSS in the event that it learns or has cause to believe at
any time that any third parties' rights would or might be infringed by
practicing the inventions claimed in any Licensed Patents or by any Product or
Innovation being commercialized hereunder. In the event that a claim is made
against MSS or a Third Party that the manufacture, use, sale, distribution or
other commercial exploitation of a Product or Innovation infringes the
Intellectual Property Rights of a third party, then MSS or the Third Party (as
applicable) will fund the cost of any litigation resulting out of such claim,
but will be entitled to recover up to two-thirds (or whatever other fraction of
the Net Proceeds generated by such Product or Innovation the University is
entitled to hereunder at the time such litigation commences) of its costs and
any damages awarded against it out of the sinking fund established pursuant to
Section 3.4 above and, to the extent the sinking fund contains insufficient
funds, the University's current and future share of any Net Proceeds; provided
that in the event MSS or the Third Party is found to have willfully infringed
such third party's Intellectual Property Rights (and such willfulness was not
caused by the University), then MSS or the Third Party shall not be entitled to
recover any portion of any enhanced damages awarded based upon such willfulness,
and provided further that the University will be entitled to have counsel of its
own choosing participate in (but not control) any such litigation at the
University's sole expense.
14.2 By MSS. MSS represents and warrants to the University that there
are no outstanding agreements, licenses, assignments or encumbrances
inconsistent with the provisions of such licenses or with any other provision of
this Agreement.
14.3 No Other Warranties. EXCEPT AS SET FORTH IN THIS SECTION, NEITHER
PARTY MAKES ANY OTHER WARRANTY, EXPRESS OR IMPLIED, RELATING TO THIS AGREEMENT
OR ANY INNOVATION OR PRODUCT, AND EACH PARTY SPECIFICALLY DISCLAIMS ANY IMPLIED
WARRANTY OR CONDITION OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
<PAGE> 18
15. INDEMNITIES
15.1 By MSS. MSS agrees to defend, indemnify, and hold the University
harmless from and against any and all third-party claims (other than claims for
infringement of a third party's Intellectual Property Rights to the extent such
claims fall within the provisions of Section 14 above), damages, actions,
liabilities, costs and expenses arising out of or in connection with (i) any
damage, including but not limited to damage to any property and personal injury
or death, by whomever suffered arising out of or resulting from any negligent or
willful act of MSS relating to the subject matter of this Agreement, and (ii)
any breach or claimed breach of the warranties and representations set forth in
Section 14.2 above.
15.2 By the University. The University agrees to defend, indemnify, and
hold MSS harmless from and against any and all third-party claims, damages,
actions, liabilities, costs and expenses arising out of or in connection with
(i) any damage, including but not limited to damage to any property and personal
injury or death, by whomever suffered arising out of or resulting from any
negligent or willful act of the University relating to the subject matter of
this Agreement, and (ii) any breach or claimed breach of the warranties and
representations set forth in Section 14.1 above.
16. ENFORCEMENT OF INTELLECTUAL PROPERTY RIGHTS
In the event that either party becomes aware of an infringement or
potential infringement of the Licensed Patents or of any other Intellectual
Property Right of either the University or MSS within the Project Scope, such
party will promptly notify the other party and provide the details known to it.
The Steering Committee will then promptly confer about such infringement or
potential infringement. Within ten (10) business days thereafter, each party
will notify the other of its decision whether or not it wishes to participate in
litigation against the infringer or potential infringer. Any such litigation
will proceed as follows:
(a) Both Parties Elect to Participate. In the event that both parties
elect to participate in such litigation, the parties will mutually agree upon
counsel to bring such litigation. The parties will share equally the costs
(including the fees of attorneys and other professionals) of any such
litigation. MSS may recover all or a portion of its share of any such costs from
the sinking fund established pursuant to Section 3.4 above and, to the extent
the sinking fund contains insufficient funds, as an offset to the University's
share of Net Proceeds. All damages or lump sum settlement payments recovered
from the prosecution or settlement of such litigation shall, after deduction of
all reasonable costs and fees of attorneys and other professionals incurred in
pursuing such litigation, be divided equally between the parties. Each party
agrees to join such action as a named plaintiff to the extent necessary to
obtain jurisdiction or if deemed a necessary party.
(b) MSS Decides to Participate and the University Does Not. In the event
that MSS elects to participate in such litigation and the University does not,
then MSS may initiate and control such litigation at its own expense. In the
event MSS institutes such litigation, (i) the
<PAGE> 19
University may at its option have counsel of its choosing participate in such
litigation provided such counsel does not interfere with MSS's control of such
litigation, (ii) the University will join such action as a plaintiff to the
extent necessary to obtain jurisdiction or if the University is deemed a
necessary party, and (iii) if such litigation is based upon the Licensed Patents
or any other Intellectual Property Rights of the University, MSS will not settle
any such litigation without the express approval of the University to the terms
and conditions of any such settlement. All damages or lump sum settlement
payments recovered from the prosecution or settlement of such litigation shall
be retained by MSS.
(c) The University Decides to Participate and MSS Does Not. In the event
that the University elects to participate in such litigation and MSS does not,
then the University may institute and control such litigation at its own
expense. In the event the University institutes such litigation, (i) MSS may at
its option have counsel of its choosing participate in such litigation provided
such counsel does not interfere with the University's control of such
litigation, (ii) MSS will join such action as a plaintiff to the extent
necessary to obtain jurisdiction or if MSS is deemed a necessary party, and
(iii) if such litigation is based upon any Intellectual Property Right of MSS,
the University will not settle any such litigation without the express approval
of MSS to the terms and conditions of any such settlement. All damages or lump
sum settlement payments recovered from the prosecution or settlement of such
litigation shall be retained by the University.
17. LIMITATION OF LIABILITY
EXCEPT FOR ANY WILLFUL BREACH OF SECTIONS 8 OR 13, NEITHER PARTY SHALL
BE LIABLE TO THE OTHER FOR ANY INDIRECT, SPECIAL, CONSEQUENTIAL OR INCIDENTAL
DAMAGES, HOWEVER CAUSED AND ON ANY THEORY OF LIABILITY, ARISING OUT OF THIS
AGREEMENT.
18. GENERAL
18.1 Governing Law. This Agreement will be governed by and construed in
accordance with the substantive laws of the United States and the State of
California, without regard to or application of provisions relating to choice of
law.
18.2 Waiver and Modification. Failure by either party to enforce any
provision of this Agreement will not be deemed a waiver of future enforcement of
that or any other provision. Any waiver, amendment or other modification of any
provision of this Agreement will be effective only if in writing and signed by
the parties.
18.3 Severability. If for any reason a court of competent jurisdiction
finds any provision or portion of this Agreement to be unenforceable, that
provision will be enforced to the maximum extent permissible so as to effect the
intent of the parties, and the remainder of this Agreement will continue in full
force and effect.
<PAGE> 20
18.4 Notices. All notices required or permitted under this Agreement
will be in writing, will reference this Agreement and will be deemed given: (i)
when sent by confirmed facsimile; (ii) ten (10) working days after having been
sent by registered or certified mail, return receipt requested, postage prepaid;
or (iii) five (5) working days after deposit with a commercial overnight
carrier, with written verification of receipt. All communications will be sent
to the addresses set forth below or to such other address as may be designated
by a party by giving written notice to the other party pursuant to this section:
To MSS:
Paul J. White
President and CEO
Medical Science Systems, Inc.
4400 McArthur Blvd., Suite 980
Newport Beach, CA 92660
U.S.A.
To the University:
[ * ]
with a copy to:
[ * ]
18.5 Delays Beyond Control. Neither party will be liable to the other
party for any failure or delay in performance caused by reasons beyond such
party's reasonable control, and such failure or delay will not constitute a
material breach of this Agreement.
<PAGE> 21
18.6 Assignment. Neither party may assign its rights or obligations
hereunder, by operation of law or otherwise, without express written consent of
the other party, which consent will not be unreasonably withheld. Any attempted
assignment without such consent shall be void. Subject to the foregoing, this
Agreement will benefit and bind the successors and assigns of the parties.
18.7 No Third Party Beneficiaries; No Agency. Except as expressly
provided herein to the contrary, no provision of this Agreement, express or
implied, is intended or will be construed to confer rights, remedies or other
benefits to any third party under or by reason of this Agreement. This Agreement
will not be construed as creating an agency, partnership or any other form of
legal association (other than as expressly set forth herein) between the
parties.
18.8 Entire Agreement. This Agreement and the Master Agreement,
including all exhibits, constitutes the entire agreement between the parties
with respect to the subject matter hereof, and supersede and replace all prior
or contemporaneous understandings or agreements, written or oral, regarding such
subject matter.
18.9 Multiple Counterparts. This Agreement may be executed in multiple
counterparts, each of which will be considered an original and all of which
together will constitute one agreement. This Agreement may be executed by the
attachment of signature pages which have been previously executed.
18.10 Cumulation. All rights and remedies enumerated in this Agreement
will be cumulative and none will exclude any other right or remedy permitted
herein or by law.
18.11 Venue and Personal Jurisdiction. Any suit or other proceeding not
subject to arbitration under Section 12 will be brought solely in the federal
courts in the Central District of California, if jurisdiction in such court can
be obtained, and otherwise in the state courts of California, and each party
hereby irrevocably submits to, and waives any objections to, the exercise of
personal jurisdiction thereof and venue therein.
18.12 Headings. The headings contained in this Agreement are inserted
for convenience of reference only and are not intended to be a part of or to
affect the meaning or interpretation of this Agreement.
18.13 Incorporation of the Master Agreement. Except as specifically
provided in this Agreement, the relevant terms and conditions of the Master
Agreement are hereby incorporated by reference into this Agreement.
<PAGE> 22
IN WITNESS WHEREOF, the parties have executed this Agreement through
their duly authorized representatives as set forth below:
MEDICAL SCIENCE SYSTEMS, INC. THE UNIVERSITY OF SHEFFIELD
By: By:
---------------------------- ----------------------------------
Printed Name: Printed Name:
------------------ ------------------------
Title: Title:
------------------------- -------------------------------
<PAGE> 23
SCHEDULE 1
GENERAL GUIDELINES FOR ALLOCATING NET PROCEEDS FOR
GENETIC TEST PRODUCTS
[ * ]
<PAGE> 24
SCHEDULE 2
SPECIFIC GUIDELINES FOR ALLOCATING NET PROCEEDS FOR
INITIAL CORONARY ARTERY DISEASE TEST
[ * ]
<PAGE> 1
EXHIBIT 10.4
MEDICAL SCIENCE SYSTEMS
DEVELOPMENT AND COMMERCIALIZATION PROJECT AGREEMENT
(EYE DISEASES AMONG DIABETICS)
This Agreement is entered into and made effective as of this ___ day of
___________, 1996 (the "Effective Date") by and between Medical Science Systems,
Inc. a Texas corporation having its principal place of business at 4400
MacArthur Blvd., Suite 980, Newport Beach, CA 92660 ("MSS") and The University
of Sheffield, Western Bank, Sheffield S10 2TN, England ("University"), acting
through The Section of Molecular Medicine of the University's Department of
Medicine and Pharmacology ("SMM").
RECITALS
A. University and MSS have entered into a Master Agreement for
Technology Evaluation dated July 1, 1996 (the "Master Agreement"). Following the
procedures set forth in the Master Agreement, the parties have agreed to work
together on a project as defined herein to perform additional development and
commercialization of certain technology relating to the association between
genetics and eye diseases among diabetics.
B. This Agreement is intended to supplement the provisions set forth in
the Master Agreement with respect to such technology, and sets forth additional
terms and conditions agreed to by the parties with respect to the project.
C. It is contemplated that MSS may locate and engage a third party to
assist in the commercialization of products based upon the technology that is
the subject of the project, or MSS may itself commercialize certain products
based upon the technology. This Agreement is also intended to set forth the
terms and conditions upon which MSS will locate and engage such third party or
itself commercialize such products.
NOW, THEREFORE, in consideration of the foregoing premises and of the
terms and conditions of this Agreement, the parties agree as follows:
1. DEFINITIONS
1.1 "Approved Lab" means a laboratory (which may be an internal
laboratory of the University and/or MSS or a third party laboratory) mutually
approved by MSS and SMM pursuant to Section 3.5 below to conduct Test
Administrations.
1.2 "Brand Name(s)" means the trademark(s), service mark(s) and/or
logo(s) or other designations under which Products are marketed and promoted by
MSS or a Third Party.
1.3 "Commercialization Event" means either of the following with respect
to a Product: (i) entry into a business arrangement with a Third Party (whether
through a license and/or
- --------
* Confidential Treatment requested.
<PAGE> 2
development agreement, distribution agreement, joint venture, co-promotion, or
other structure) for the further development, clinical testing, marketing and/or
sale of such Product in one or more markets, or (ii) decision by the Steering
Committee to engage MSS to commercially distribute such Product in one or more
markets directly to end users or through distribution channels set up by MSS
(rather than through a Third Party).
1.4 "Confidential Information" shall be as defined in Section 1 of the
Master Agreement.
1.5 "Eye Disease Test" means [ * ].
1.6 "Initial Eye Disease Test" means [ * ].
1.7 "Innovations" means all ideas, inventions, apparatus, systems, data,
discoveries, methods, processes, improvements, works of authorship and other
innovations of any kind within the Project Scope, whether or not they are
eligible for patent, copyright, trademark, trade secret or other legal
protection. Examples of Innovations include: [ * ]. "Innovations" does not
include any preexisting MSS computer information technology or products
(including but not limited to MSS' Biofusion(TM) and Medical Decision
Explorer(TM) products and technology), and the usage of any such technology or
products shall not be deemed to be within the Project Scope.
1.8 "Intellectual Property Rights" means patent applications, patents,
design rights or other similar invention rights, rights of priority, copyrights,
trademarks, trade secret rights and other intangible rights, whether existing
under statutory or common law, in any country in the world.
1.9 "Joint Innovations" means all inventions, improvements, works of
authorship and other innovations of any kind within the Project Scope that may
be made, conceived, developed or reduced to practice jointly by MSS and by SMM
and their respective employees, consultants, faculty, technicians, visiting
scientists, students, and/or post-doctoral associates in the course of this
Agreement, whether or not they are eligible for patent, copyright, trademark,
trade secret or other legal protection. Examples of Joint Innovations include
but are not limited to: genetic, biochemical, or chemical based therapeutic
targets, new genes or gene sequences, DNA sequences, and improvements to any of
the foregoing.
1.10 "Licensed Patents" means (i) any United States patents that may
issue to the University during the term of this Agreement covering an Eye
Disease Test (including the Initial Eye Disease Test) developed by or on behalf
of the University and all divisionals, reissues, and
<PAGE> 3
reexaminations thereof that may issue in the United States during the term of
this Agreement, (ii) any corresponding foreign patents that may issue to the
University during the term of this Agreement with respect to any of the
preceding patents, and all divisionals, reissues, and reexaminations thereof,
and (iii) any other patents that may issue to the University during the term of
this Agreement, and all divisionals, reissues, and reexaminations thereof, to
the extent they cover any Innovations within the Project Scope.
1.11 "Licensed Invention" means any apparatus, system, process, method
or other invention claimed in any of the Licensed Patents, and any work of
authorship, know how, trade secret and other technology within the Project Scope
covered by any other Intellectual Property Right of the University.
1.12 "MSS Innovations" means all Innovations within the Project Scope
that may be made, conceived, developed or reduced to practice solely by MSS and
its employees, consultants, and technicians.
1.13 "Net Proceeds" means the following:
(i) In the case of a Commercialization Event with a Third Party,
all royalties, license fees, or other monies payable by such Third Party based
upon the commercial distribution of a Product in one or more markets; and
(ii) In the case of a decision by the Steering Committee to
engage MSS to commercially distribute one or more Products in one or more
markets directly to end users or through distribution channels set up by MSS,
the gross amount actually received by MSS from the commercial distribution of a
Product, less (i) any delivery or other transportation charges and taxes imposed
on the transaction, (ii) any charges by an Approved Lab incurred with respect to
such Product, (iii) the cost of goods sold (COGS), (iv) actual out of pocket
costs for advertising, travel, trade shows, educational programs and other
marketing and sales expenses (but not including salaries of personnel) directly
related to the commercial distribution of the Product, (v) as determined by the
Steering Committee, either a reasonable administrative and sales overhead
charge, or the actual personnel costs for marketing, sales and administrative
functions, with respect to the commercial distribution of the Product, all of
the foregoing computed in accordance with generally accepted accounting
principles, and (vi) carryover losses, if any, from a previous quarter. It is
recognized by the parties that, depending upon the specific responsibilities
assumed by each of the parties, the foregoing costs and expenses may be incurred
by either MSS or the University.
1.14 "Products" means any products or services related to the Project
(such as new tests, diagnostics, therapeutics, or related services) based upon
any University Innovation, MSS Innovation, or Joint Innovation within the
Project Scope.
1.15 "Project" means the development and commercialization activities to
be undertaken by MSS, SMM and Third Parties (if any) pursuant to this Agreement
within the Project Scope.
1.16 "Project Scope" means:
<PAGE> 4
(i) [ * ], and
(ii) [ * ].
1.17 "Steering Committee" shall be as defined in Section 2 below.
1.18 "Subsidiary" means a corporation, company or other entity more than
fifty percent (50%) of whose outstanding shares or securities (representing the
right to vote for the election of directors or other managing authority) are,
now or hereafter, owned or controlled, directly or indirectly, by a party to
this Agreement; provided that any such corporation, company or other entity will
be deemed to be a Subsidiary only so long as such ownership or control exists.
1.19 "Test Administration" means the performing of the genetic analysis
of an Eye Disease Test by an Approved Lab based upon a sample gathered from a
patient using Test Sampling Materials.
1.20 "Test Sampling Materials" means a container that will be used to
transport a sample from a patient to an Approved Lab for performing the genetic
analysis of an Eye Disease Test on such sample, and accompanying instructional
materials.
1.21 "Third Party" means a third party entity engaged by MSS, with the
approval of the Steering Committee, in accordance with this Agreement to assist
in the further development, clinical testing, marketing and/or commercial
distribution of one or more Products in one or more markets.
1.22 "University Innovations" means all Innovations within the Project
Scope that may be made, conceived, developed or reduced to practice solely by
SMM and its faculty, employees, consultants, technicians, visiting scientists,
students and post doctoral associates.
2. STEERING COMMITTEE
2.1 General Responsibilities of the Steering Committee. A four-person
steering committee, consisting initially of Paul White and Kenneth Kornman for
MSS and [ * ] for the University (the "Steering Committee"), will make joint
decisions and provide high level management with respect to the Project.
[ * ] will also serve on
<PAGE> 5
the Steering Committee as a representative of the employees, faculty,
consultants and staff working on the Project. Each person on the Steering
Committee will have one vote. Each party may nominate alternative or replacement
members to serve on the Steering Committee with the consent of the other party,
which consent will not be unreasonably withheld. The Steering Committee will
meet on a regular basis as the committee members may determine to be necessary.
Written minutes of the meetings of the Steering Committee will be kept and will
be promptly circulated after each meeting to the committee members for approval.
The Project will consist of an initial phase and any follow-on phases that the
Steering Committee may determine to pursue. During the initial phase, the
parties will, in accordance with their respective responsibilities set forth in
Section 3 below, file and prosecute U.S. and international patents covering the
Initial Eye Disease Test and any other Innovations that the Steering Committee
may determine, conduct clinical studies to generate appropriate clinical data
and, if such data demonstrates strong clinical utility of potential Products,
identify and engage an appropriate Third Party. If the Steering Committee
determines that the clinical data is not strong enough to seek a Third Party,
the Steering Committee will determine the next step(s) that should be taken.
After completion of the initial phase of the Project, the Steering Committee
will review and make decisions as to the next step(s) that should be taken,
which may include additional research and/or development and testing of
Products, seeking of additional Third Parties, direct sales, or termination of
the Project.
2.2 Determinations With Respect to Commercialization of Individual
Products. The Steering Committee will determine with respect to each Product or
class of Products to be commercialized pursuant to the Project, whether to
engage a Third Party to assist in the further development, clinical testing,
marketing and/or commercial distribution of such Product(s) in one or more
markets, or whether to engage MSS to commercially distribute such Product(s) in
one or more markets directly to end users or through distribution channels set
up by MSS. In the event that the Steering Committee determines to engage a Third
Party with respect to a particular Product, MSS will identify potential Third
Parties and the Steering Committee will select one with which MSS will be
authorized to negotiate an appropriate engagement with respect to such Product,
or to extend a previous engagement to cover such Product.
3. RESPONSIBILITIES OF THE PARTIES
This Section sets forth the responsibilities of the parties during the
Project, including but not limited to the initial phase of the Project.
3.1 Responsibilities of MSS. Subject to the high level management and
direction of the Steering Committee, MSS will have responsibility for the
following activities:
(i) Conducting overall management and oversight of the Project.
(ii) Providing assistance if needed with the design of
confirmatory clinical trials to demonstrate clinical utility or to support other
claims the University would like to make with respect to the results of research
conducted for the Initial Eye Disease Test.
<PAGE> 6
(iii) Providing assistance with data analysis and statistical
support with respect to the confirmatory clinical trials for the Initial Eye
Disease Test.
(iv) Developing a patent strategy with respect to Innovations and
Products and the determination of which countries patents should be filed in.
(v) Preparing and filing in the United States the initial patent
application with respect to the Initial Eye Disease Test and any other
Innovations the Steering Committee may determine to file patents for during the
Project.
(vi) Preparing, filing, and prosecuting all international patent
applications (subject to the shared cost obligations set forth in Section 3.4
below) that the Steering Committee determine to file during the Project, to the
extent the foregoing is not handled by one or more Third Parties.
(vii) Developing an initial regulatory strategy with respect to
Innovations and Products to be developed during the Project for markets in which
the Steering Committee determines MSS should seek to establish Third Parties
(but not including the actual preparation or filing of documentation for any
regulatory approval or license, which will be handled by MSS or a Third Party as
the Steering Committee may determine, subject to the shared cost obligations set
forth in Section 3.4).
(viii) Identifying potential Third Parties and preparing the
business plans necessary to support the engagement of one or more Third Parties,
conducting negotiations with respect to such engagement, and monitoring of any
Third Parties engaged.
(ix) Handling public relations with respect to Innovations to
support the initial market development and the search for appropriate Third
Parties.
(x) Handling public relations, with the input and consultation of
the University, with respect to scientific breakthroughs and data embodied in or
associated with Eye Disease Tests and other Products and their underlying
scientific research;
MSS will use reasonable efforts to perform its responsibilities set
forth in this Section 3.1 in accordance with any timeline set by the Steering
Committee.
3.2 Responsibilities of the University. Subject to the high level
management and direction of the Steering Committee, the University will have
responsibility for the following activities:
(i) Expanding the data and running confirmatory clinical studies
with respect to the Initial Eye Disease Test.
(ii) Conducting data analysis and providing statistical support
with respect to data being produced by the University for the Initial Eye
Disease Test.
<PAGE> 7
(iii) Conducting genetic laboratory analysis on all such data and
interpretation of the results for the Initial Eye Disease Test.
(iv) Further technical development of Innovations and Products by
seeking potential new gene sequences and running confirming genetic laboratory
tests.
(v) Ensuring that all tests are run consistent with European
Community standards.
(vi) Ensuring that the employees, faculty, consultants and staff
working on the Project maintain written documentation of their work (such as
laboratory notebooks) sufficient to establish dates of invention, the substance
of their work on the Project at various dates, and any other information
necessary or desirable for seeking patent protection and establishing priority
of invention.
(vii) Providing assistance in validation of Approved Labs if
necessary.
(viii) Providing reasonable technical presentation support and
assistance to MSS if requested by MSS.
(ix) Participation in a reasonable number of educational programs
with respect to Innovations and Products, if requested by MSS or a Third Party.
The University will use reasonable efforts to perform its
responsibilities set forth in this Section 3.2 in accordance with any timeline
set by the Steering Committee.
3.3 Additional Responsibilities and Reallocation of Responsibilities.
The parties recognize that with respect to the development, testing and
commercialization of any particular Product (including the Initial Eye Disease
Test), additional responsibilities not enumerated in Sections 3.1 and 3.2 above
may need to be allocated to the parties, and it may further become desirable to
reallocate some of the responsibilities enumerated in Sections 3.1 and 3.2
between the parties. In either case, the Steering Committee will have
responsibility for making any such allocation or reallocation of
responsibilities.
3.4 Costs of Carrying Out Responsibilities; Shared Costs.
(a) Costs to be Borne by the Parties Individually. Subject to the
shared cost obligations of this Section 3.4, each party will carry out the
activities for which it is responsible at its own expense, including the costs
of any research and development, internal staff and overhead costs, consultants
and other outside contractors assisting a party in performing its duties, travel
costs, initial U.S. patent filing and prosecution costs, locating and engaging
Third Parties, and public relations.
(b) Shared Costs. The parties recognize that there will be shared
costs incurred under the Project, which will be borne by the parties in
proportion to each party's share of Net Proceeds. Shared costs will include the
following: legal fees incurred in engaging a Third Party; all costs associated
with the preparation, filing and prosecution of international patent
<PAGE> 8
applications, including filing fees, translation costs and legal fees (although
MSS will be responsible for its internal staff and overhead costs incurred with
respect to any patent applications that it has responsibility for); regulatory
costs, if any, including filing fees and legal fees; other costs that may be
incurred with respect to the commercialization of Products, whether through MSS
or a Third Party, such as patent litigation costs, indemnities and warranties to
a Third Party or to end users of Products, and any insurance premiums to insure
against potential liability; and any other costs approved by the Steering
Committee to be shared costs.
(c) Payment of Shared Costs. The parties will contribute to
shared costs as they are incurred. After a Commercialization Event occurs with
respect to a Product and Net Proceeds are being generated: (i) The Steering
Committee will determine a percentage of the Net Proceeds that will be directed
into a sinking fund out of which shared costs and any liabilities incurred will
be paid, and (ii) to the extent that the sinking fund contains insufficient
funds to pay any shared costs incurred, MSS will have the option to require the
University to contribute its share of the balance directly to MSS, or to pay
such shared costs directly and to offset the University's share of such costs
against the share of any Net Proceeds or development funds to which the
University is entitled hereunder.
3.5 Selection of Approved Labs. MSS and the University will by mutual
agreement establish one or more Approved Labs to conduct Test Administrations.
Neither party will unreasonably withhold its consent to the establishment of a
particular Approved Lab. Such Approved Labs must have the technical and
professional capability to conduct Test Administrations in a competent, cost
efficient and timely manner, must meet all applicable governmental regulatory
requirements, and must be able to handle reasonable anticipated volumes. In the
event that either party determines, in the exercise of good faith judgment, that
an Approved Lab previously agreed to by the parties is unacceptable or
undesirable, then the Steering Committee will determine whether a different
Approved Lab should be established and, if so, will establish a replacement
Approved Lab.
3.6 Use of Approved Labs. Each party agrees that it will conduct or
cause to be conducted Test Administrations only through an Approved Lab, except
that either party may at its option use other laboratories to conduct Test
Administrations in conjunction with internal development of products outside the
Project Scope.
4. GRANT OF LICENSES
4.1 Grant. Subject to the terms and conditions of this Agreement, the
University hereby grants to MSS a worldwide, irrevocable, transferable license
under the Licensed Patents and any other applicable Intellectual Property Rights
owned by the University to make, have made, use, offer to sell, sell, license
and otherwise transfer Products within the Project Scope and to conduct Test
Administrations, and to sublicense Third Parties, distributors and Subsidiaries
of MSS, and Approved Labs to do any of the foregoing, all subject to the
approval of the Steering Committee in accordance with Section 2 above.
<PAGE> 9
4.2 Exclusivity. The license granted in Section 4.1 shall be exclusive
to MSS, except that the University retains the right to practice and use any
Licensed Invention for its own internal research purposes and in carrying out
any of its responsibilities under Section 3.2 above.
5. DIVISION OF NET PROCEEDS
5.1 Allocation of Net Proceeds With Respect to Products. The allocation
of Net Proceeds between MSS and the University with respect to each Product
within the Project Scope will be determined by the Steering Committee based on
general guidelines to be generated by the Steering Committee for each type of
Product to be developed and commercialized hereunder (the "General Guidelines").
The General Guidelines for a particular type of Product will contain a set of
weights assigned to each responsibility that could potentially be allocated
between the parties for the development and/or commercialization of a particular
Product of that type. With respect to each particular Product of a defined type,
the parties will generate and execute a set of specific guidelines for that
particular Product (the "Specific Guidelines"), which will list those of the
responsibilities contained in the General Guidelines that are applicable to that
particular Product, will allocate each such responsibility to one of the
parties, and will credit to such party the weight associated with such
responsibility in the General Guidelines. Each party's share of the Net Proceeds
generated by such particular Product will then equal its percentage share of the
total weights in the Specific Guidelines assigned to such party, subject to any
minimum share such party may be entitled to as listed in the General Guidelines
and/or the Specific Guidelines. If a responsibility listed in the General
Guidelines for a type of Product is not relevant to a particular Product of that
type, then the weight for that responsibility will be listed as zero in the
Specific Guidelines for that particular Product. For example, if the total
weights for all assigned responsibilities in the Specific Guidelines equals 80
and the weights associated with the responsibilities assigned to one party in
the Specific Guidelines equals 30, then such party would be entitled to 37.5% of
the Net Proceeds generated by that particular Product.
Schedule 1 contains the General Guidelines for genetic test Products the
parties have agreed to as of the Effective Date. Schedule 2 contains the
Specific Guidelines the parties have agreed to as of the Effective Date for the
Initial Eye Disease Test based upon the responsibilities for the Initial Eye
Disease Test set forth in Section 3 above. In the event that the Steering
Committee reallocates the responsibilities for the Initial Eye Disease Test, or
adds new responsibilities to one or both of the parties, the Steering Committee
will determine and execute a revised set of Specific Guidelines for the Initial
Eye Disease Test based upon the reallocated responsibilities and the cost
thereof.
As new General Guidelines are generated by the Steering Committee for
other Product types, the parties will set forth such General Guidelines in a new
Schedule to this Agreement, and when executed by a majority of the members of
the Steering Committee, such General Guidelines shall then become a part of this
Agreement. Similarly, as Specific Guidelines for a particular Product of that
type are generated, the parties will set forth such Specific Guidelines in a new
Schedule to this Agreement, and when executed by a majority of the members of
the Steering Committee, such Specific Guidelines shall then become a part of
this Agreement. The Steering Committee may revise any General Guidelines or
Specific Guidelines based upon a
<PAGE> 10
reallocation of responsibilities thereunder and the associated cost thereof and,
upon doing so, shall set forth the revised guidelines in a new Schedule which,
when executed by a majority of the members of the Steering Committee, shall
become a part of this Agreement.
5.2 Development Funding from a Third Party. Any development funding
received from a Third Party will be allocated by the Steering Committee between
MSS and the University in proportion to the responsibilities each party
undertakes that is covered by such funding and the effect such responsibilities
may have on the division of Net Proceeds.
5.3 Payment Directly to [ * ]. MSS may pay directly to [ * ] any
portion of the University's share of Net Proceeds to which [ * ] is entitled.
6. REPORTING AND DISTRIBUTION OF NET PROCEEDS
6.1 Reports and Payment. MSS will, within forty-five (45) days after the
close of each calendar quarter during the term of this Agreement, issue a
written report to the University reporting the Net Proceeds generated by MSS
during such quarter, and a computation of the share thereof due each party
hereunder. Full payment, net of any setoffs for shared costs to which MSS may be
entitled under Section 3.4(c) above, of the University's share of such Net
Proceeds for such calendar quarter will accompany such report.
6.2 Books and Records. MSS will keep, and will cause its distributors to
keep, full, true, and accurate records with respect to Net Proceeds. MSS will
give access to such records at reasonable times, no more than once per year, for
three (3) years following the end of the calendar year to which they pertain, to
a mutually acceptable independent certified public accountant retained by the
University for the purpose of verifying the accuracy of the reports supplied to
the University hereunder. The University will pay for the cost of such
independent certified public accountant, except in the event that such
inspection reveals that MSS has understated or underpaid the amounts due
hereunder to the University in an average amount of five percent (5%) or more
over a six (6) month period, then the MSS will pay or reimburse the University
for the entire cost of such inspection. MSS agrees to pay the balance of such
amounts due, together with the cost of the inspection, to the University within
ten (10) days after written notice by the University of MSS's understatement or
underpayment.
7. OWNERSHIP
7.1 MSS Innovations. MSS shall be the sole and exclusive owner of MSS
Innovations, any Product based thereon after a Commercialization Event, the
Brand Name(s), and all Intellectual Property Rights in the foregoing, subject to
the University's right to share in Net Proceeds generated from the
commercialization thereof in accordance with this Agreement. The University
agrees to execute documents, including but not limited to assignment documents,
as reasonably requested by MSS to establish, confirm and perfect MSS's rights in
any of the foregoing.
<PAGE> 11
7.2 University Innovations. The University shall be the sole and
exclusive owner of University Innovations and of all Intellectual Property
Rights therein, provided, however, that upon the occurrence of a
Commercialization Event with respect to a University Innovation and/or a Product
based thereon, the University agrees to assign to MSS all right and title to
such University Innovation and/or Product and to all Intellectual Property
Rights therein, subject to the University's right to share in Net Proceeds
generated from the commercialization thereof in accordance with this Agreement.
Each party agrees to execute documents, including but not limited to assignment
documents, as reasonably requested by the other party to establish, confirm and
perfect the other party's rights in accordance with the foregoing.
7.3 Joint Ownership. MSS and the University shall be joint owners of
equal undivided interests in any Joint Innovations developed by them, provided,
however, that (i) during the term of this Agreement, each party agrees to
exploit its joint ownership rights consistent with MSS's exclusivity as defined
in Section 4.2 above, and (ii) upon the occurrence of a Commercialization Event
with respect to a Joint Innovation and/or a Product based thereon, the
University agrees to assign to MSS all right and title to such Joint Innovation
and/or Product and to all Intellectual Property Rights therein, subject to the
University's right to share in Net Proceeds generated from the commercialization
thereof in accordance with this Agreement. After expiration or termination of
this Agreement, each party shall be free to exploit, without the permission of
the other party and without any duty of accounting, its joint ownership rights
in any Joint Innovations that have not been assigned to MSS under this Section
7.3.
8. PUBLICATION
Publication of research results or other information within the Project
Scope will be governed by the procedures set forth in Section 5 of the Master
Agreement. The Steering Committee will act as the "designated person" of each
party as referenced in Section 5 of the Master Agreement, and will have the
authority to determine the content and timing of any such publication.
9. TERM
Unless earlier terminated in accordance with the terms of Section 10
below or by determination of the Steering Committee to abandon the Project and
terminate this Agreement, this Agreement shall remain in effect from the
Effective Date for a period of ten (10) years, and shall thereafter
automatically renew for additional one (1) year periods, unless either party
gives written notice to the other party at least six (6) months in advance of
any renewal date that such party does not wish to renew this Agreement.
10. TERMINATION
10.1 Termination Upon Notice of Breach. In the event that either party
breaches or defaults under any material term or condition of this Agreement,
including but not limited to
<PAGE> 12
failure to make timely payment of monies due, and such breach or default is not
cured within thirty (30) days of written notice of the same from the other
party, the other party may, in addition to any other remedy that it may have at
law or in equity or under this Agreement, terminate this Agreement.
10.2 Termination by the Steering Committee. The Steering Committee may
at any time determine to abandon the Project and terminate this Agreement on a
timeline as set by the Steering Committee.
10.3 Termination by MSS. MSS may at its option upon written notice to
the University terminate this Agreement in the event that [ * ] is no longer
an employee of the University or [ * ].
10.4 Immediate Termination Upon Certain Events of Bankruptcy. Either
party may at its option terminate this Agreement immediately upon written notice
to the other party upon the occurrence of any of the following events:
(a) In the event that the other party makes an assignment for the
benefit of creditors; admits in writing its inability to pay its debts as they
become due; files a voluntary petition in bankruptcy; is adjudicated to be
bankrupt or insolvent; files a petition seeking for itself any reorganization,
arrangement, composition, readjustment, liquidation, dissolution or similar
arrangement under any present or future statute, law or regulation, or files an
answer or similar pleading admitting the material allegations of a petition
filed against it in any such proceeding; or consents to or acquiesces in the
appointment of, or has its business placed in the hands of, a trustee, receiver,
assignee, or liquidator of it or any substantial part of its business, assets or
properties, whether by voluntary act or otherwise; or
(b) In the event that either party ceases doing business as a
going concern, or it or its shareholders take any action in anticipation of or
furtherance of dissolution or liquidation.
10.5 Effect of Termination.
(a) Provisions Applying to All Terminations. In the event of any
termination of this Agreement for any reason, the following provisions shall
apply:
(i) except as provided in this Section 10.5 or under
Section 10.6 below, all further obligations of both parties under this Agreement
will cease as of the date of termination of this Agreement;
(ii) each party shall retain ownership (including joint
ownership) of any Innovations and/or Products to which it had title in
accordance with the provisions of this Agreement on the date of such
termination, including but not limited to title by virtue of an assignment after
a Commercialization Event; and
(iii) with respect to any Product(s) for which a
Commercialization Event has occurred as of the date of termination of this
Agreement, the Steering Committee will
<PAGE> 13
determine how the division of Net Proceeds from such Product(s) should be
reallocated between the parties, both immediately and over time, based upon the
additional responsibilities with respect to such Product(s) that MSS will have
to assume post termination of this Agreement, and MSS will be entitled to deduct
its reasonable cost of all such additional responsibilities from the
University's share of any such Net Proceeds, provided, however, that in no event
shall the deduction of such costs cause the University's share of such Net
Proceeds to fall below [ * ] in any given calendar quarter.
(b) Provisions Applying to Specific Events of Termination. In
addition to the provisions of subsection (a), the following provisions shall
apply with respect to specific events of termination affecting Products for
which no Commercialization Event has occurred:
(i) Termination by MSS. In the event that MSS terminates
this Agreement pursuant to Sections 10.1 or 10.4, or the University elects not
to renew this Agreement pursuant to Section 9, then with respect to any Product
for which data exists or proof of principle studies are underway but no
Commercialization Event has yet occurred as of the date of termination, the
license rights granted by the University to MSS under Section 4 above shall
continue, and MSS shall have the right to continue development of any such
Product and to take such Product into commercial distribution (either itself or
through a Third Party), provided that (1) if such Product is placed into
commercial distribution, then the Steering Committee will determine how the Net
Proceeds from such Product should be allocated between the parties, both
immediately and over time, based upon the additional responsibilities that MSS
assumes with respect to such Product post termination of this Agreement and (2)
MSS will be entitled to deduct its reasonable cost of all such additional
responsibilities from the University's share of any Net Proceeds generated by
such Product, except that, unless otherwise determined by the Steering
Committee, in no event shall the deduction of such costs cause the University's
share of such Net Proceeds to fall below [ * ] in any given calendar
quarter.
(ii) Termination by the University. In the event that the
University terminates this Agreement pursuant to Sections 10.1 or 10.4, or MSS
elects not to renew this Agreement pursuant to Section 9, then, at the
University's option, the University may either:
(1) terminate all licenses granted by the
University to MSS under this Agreement with respect to any Product(s) for which
no Commercialization Event has yet occurred as of the date of termination, and
elect to itself continue development of any such Product and to take such
Product into commercial distribution (either itself or through a Third Party),
provided that (x) if such Product is placed into commercial distribution, then
the Steering Committee will determine how the Net Proceeds from such Product
should be allocated between the parties, both immediately and over time, based
upon the additional responsibilities that the University assumes with respect to
such Product post termination of this Agreement and (y) the University will be
entitled to deduct its reasonable cost of all such additional responsibilities
from MSS's share of any Net Proceeds generated by such Product, except that,
unless otherwise determined by the Steering Committee, in no event shall the
deduction of such costs cause MSS's share of such Net Proceeds to fall below
[ * ] in any given calendar quarter; or
<PAGE> 14
(2) allow the license rights granted by the
University to MSS under Section 4 above to continue and allow MSS to continue
development of any such Product and to take such Product into commercial
distribution (either itself or through a Third Party), provided that (x) if such
Product is placed into commercial distribution, then the Steering Committee will
determine how the Net Proceeds from such Product should be allocated between the
parties, both immediately and over time, based upon the additional
responsibilities that MSS assumes with respect to such Product post termination
of this Agreement and (y) MSS will be entitled to deduct its reasonable cost of
all such additional responsibilities from the University's share of any Net
Proceeds generated by such Product, except that, unless otherwise determined by
the Steering Committee, in no event shall the deduction of such costs cause the
University's share of such Net Proceeds to fall below [ * ] in any given
calendar quarter.
(iii) Termination by the Steering Committee or by MSS
Under Section 10.3. In the event this Agreement is terminated by the Steering
Committee pursuant to Section 10.2 or by MSS pursuant to Section 10.3, then the
Steering Committee will decide whether MSS or the University (if any) should
assume responsibility for continuing development of any Product for which a
Commercialization Event has not occurred as of the date of such termination, and
in the event MSS assumes such responsibility, then any licenses granted by the
University to MSS under this Agreement will survive termination of this
Agreement. The Steering Committee will also determine how the Net Proceeds
generated by any such Product should be allocated between the parties, based
upon the additional responsibilities assumed by the party having responsibility
for continuing development of such Product post termination of this Agreement,
and the party assuming such responsibility will be entitled to deduct its
reasonable cost of all such additional responsibilities from the other party's
share of any Net Proceeds generated by such Product, except that, unless
otherwise determined by the Steering Committee, in no event shall the deduction
of such costs by one party cause the other party's share of such Net Proceeds to
fall below [ * ] in any given calendar quarter.
10.6 Survival of Certain Provisions. The provisions of Sections 6.2, 7,
10.5, 10.6, 12, 13.1, 13.2, 14.3, 15, 17, and 18 of this Agreement will survive
the expiration or termination of this Agreement.
11. PERSONNEL
Each party will cause its respective employees, faculty, consultants and
staff to execute such agreements, assignments, applications and other documents
as necessary to perfect and protect each party's rights as defined in this
Agreement with respect to Innovations and Products within the Project Scope.
12. SETTLEMENT OF DISPUTES
12.1 Basic Dispute Resolution Procedures. Any dispute between the
parties either with respect to the interpretation of any provision of this
Agreement or with respect to the performance of either party shall be resolved
as specified in this Section.
<PAGE> 15
(a) Upon the written request of either party, each of the parties
will appoint a designated representative who does not devote substantially all
of his or her time to performance under this Agreement, whose task it will be to
meet for the purpose of endeavoring to resolve such dispute.
(b) The designated representatives shall meet as often as
necessary during a fifteen (15) day period (or such other time as the parties
may agree) to gather and furnish to the other all information with respect to
the matter in issue which is appropriate and germane in connection with its
resolution.
(c) Such representatives shall discuss the problem and negotiate
in good faith in an effort to resolve the dispute without the necessity of any
formal proceeding relating thereto.
(d) During the course of such negotiation, all reasonable
requests made by one party to the other for nonprivileged information reasonably
related to this Agreement, will be honored in order that each of the parties may
be fully advised of the other's position.
(e) The specific format for such discussions will be left to the
discretion of the designated representatives, but may include the preparation of
agreed upon statements of fact or written statements of position furnished to
the other party.
12.2 Escalation Procedures. If the designated representatives cannot
resolve the dispute, then the dispute shall be escalated to a member of the
Board of Directors or Trustees of each of the University and of MSS, for their
review and resolution. If the dispute cannot be resolved by such persons, then
the parties may initiate formal proceedings; however, formal proceedings for the
resolution of any such dispute may not be commenced until the earlier of:
(a) The designated representatives concluding in good faith that
amicable resolution through continued negotiation of the matter in issue does
not appear likely; or
(b) Sixty (60) days after the initial request to negotiate such
dispute (unless preliminary or temporary relief of an emergency nature is sought
by one of the parties); or
(c) Thirty (30) days before the statute of limitations governing
any cause of action relating to such dispute would expire.
12.3 Arbitration of Monetary Disputes.
(a) Procedures. Any monetary disputes between the parties
concerning the amount of monies due or payable under this Agreement which the
parties are unable to resolve pursuant to the provisions of Sections 12.1 and
12.2 above, will be settled by arbitration in Orange County, California (unless
otherwise agreed) under the then-prevailing rules of American Arbitration
Association. There will be one (1) arbitrator chosen by mutual agreement of the
parties or, in the event the parties cannot agree within thirty (30) calendar
days of issuance of a written demand for arbitration by either party, by the
American Arbitration Association. All
<PAGE> 16
proceedings by the arbitrator shall be conducted in accordance with the rules of
the American Arbitration Association, except to the extent the provisions of
such rules are modified by this Agreement or the mutual agreement of the
parties. Either party will have the right to discovery of evidence, but by the
following methods only: requests for production of documents and depositions of
no more than three (3) individuals. The arbitrator will supervise discovery and
may, at the request of either party, limit expenses of discovery (including
reasonable attorneys' fees) to the requesting party for good cause shown. All
discovery will be completed, and the arbitration hearing will commence, within
forty-five (45) days after appointment of the arbitrator. Subject to the
foregoing, discovery matters will be governed by the Federal Rules of Civil
Procedure as applicable to civil actions in the United States District Courts.
The arbitration hearing will conclude within thirty (30) days after it
commences. The award rendered in arbitration will be in writing and will be
final and binding, and may be enforced in any court of competent jurisdiction.
The fees and expenses of the arbitrator will be paid by the non-prevailing
party.
(b) Approval of One Substantive Position of the Parties. In all
arbitration proceedings submitted under this Section 12.3, the arbitrator shall
be required to agree upon and approve the substantive position advocated by
either MSS or the University with respect to each disputed item(s). Any decision
rendered by the arbitrator that does not reflect a substantive position
advocated by either MSS or the University shall be beyond the scope of authority
granted to the arbitrator and shall be void. No decision of the arbitrator shall
ever be construed as or have the effect of amending or altering this Agreement
or the parties' rights and responsibilities with respect thereto.
12.4 Other Disputes. Except as provided in Section 12.3 above, the
parties will have no obligation to arbitrate any other disputes, claims or
controversies of any kind arising out of or related to this Agreement, including
but not limited to any dispute, claim or controversy relating to the scope of
the Project or the party's respective ownership rights to any Innovation or
Product. In addition, any claim by one party against the other for injunctive or
preliminary relief, whether or not related to this Agreement, may be litigated
in a court of competent jurisdiction.
13. CONFIDENTIALITY AND PRESS RELEASE
In addition to the provisions of Section 5 of the Master Agreement, the
following confidentiality provisions shall apply:
13.1 Confidentiality of the Agreement. The parties agree to maintain all
terms and conditions of this Agreement in confidence, except that (i) MSS may
state that it has received a license from the University under this Agreement
and may name the patents and Intellectual Property Rights to which such license
rights apply; (ii) The University may state that it has licensed certain
commercial exploitation rights within the Project Scope to MSS; (iii) this
Agreement may be disclosed to either party's attorneys, accountants or other
professional advisors in the course of seeking professional advice and to the
extent required by applicable law or regulations or court order; and (iv) this
Agreement may be disclosed by MSS to entities with which MSS is discussing a
proposed sale of its stock, sale of all or substantially all of its assets,
<PAGE> 17
obtaining financing or entering into a partnering arrangement, provided that the
entity to whom the terms of this Agreement is to be disclosed has executed a
reasonable non-disclosure agreement.
13.2 Protection of Confidential Information. Each party agrees to keep
all Confidential Information of the other party to which it has access hereunder
strictly confidential, and agrees that it will not, except with the express
permission of the other party or as required by applicable law or regulations or
by court order, use such information except in the performance of this
Agreement, or disclose any such Confidential Information to any person or entity
other than its own employees, consultants, faculty, technicians, visiting
scientists, students, and/or post-doctoral associates who have a need to know
and who have been informed in advance of the receiving party's obligations with
respect to such Confidential Information.
13.3 Press Release. The parties agree to issue a mutually agreeable
joint press release with respect to this Agreement. Each party agrees that it
will not issue a press release with respect to this Agreement until such joint
press release has first been issued.
14. REPRESENTATIONS AND WARRANTIES
14.1 By the University. The University represents and warrants to MSS
that:
(a) Ownership. The University is the sole and exclusive owner of
any Licensed Patents and any University Innovations supplied hereunder to MSS
for commercial exploitation;
(b) Authority. The University has the full right and power to
grant the licenses to MSS set forth in this Agreement and to supply the
University Innovations to MSS for commercialization hereunder;
(c) Inconsistent Obligations. There are no outstanding
agreements, licenses, assignments or encumbrances inconsistent with the
provisions of such licenses or with any other provision of this Agreement; and
(d) Infringement of Rights of Others. To the best of the
University's knowledge as of the Effective Date, the University knows of no
third parties' rights which would be infringed by practicing the inventions
claimed in the Licensed Patents within the scope of the licenses granted to MSS
hereunder or by the commercialization as contemplated hereunder of the
University Innovations in existence as of the Effective Date. The University
will promptly notify MSS in the event that it learns or has cause to believe at
any time that any third parties' rights would or might be infringed by
practicing the inventions claimed in any Licensed Patents or by any Product or
Innovation being commercialized hereunder. In the event that a claim is made
against MSS or a Third Party that the manufacture, use, sale, distribution or
other commercial exploitation of a Product or Innovation infringes the
Intellectual Property Rights of a third party, then MSS or the Third Party (as
applicable) will fund the cost of any litigation resulting out of such claim,
but will be entitled to recover up to two-thirds (or whatever other fraction of
the Net Proceeds generated by such Product or Innovation the University is
entitled to hereunder at the
<PAGE> 18
time such litigation commences) of its costs and any damages awarded against it
out of the sinking fund established pursuant to Section 3.4 above and, to the
extent the sinking fund contains insufficient funds, the University's current
and future share of any Net Proceeds; provided that in the event MSS or the
Third Party is found to have willfully infringed such third party's Intellectual
Property Rights (and such willfulness was not caused by the University), then
MSS or the Third Party shall not be entitled to recover any portion of any
enhanced damages awarded based upon such willfulness, and provided further that
the University will be entitled to have counsel of its own choosing participate
in (but not control) any such litigation at the University's sole expense.
14.2 By MSS. MSS represents and warrants to the University that there
are no outstanding agreements, licenses, assignments or encumbrances
inconsistent with the provisions of such licenses or with any other provision of
this Agreement.
14.3 No Other Warranties. EXCEPT AS SET FORTH IN THIS SECTION, NEITHER
PARTY MAKES ANY OTHER WARRANTY, EXPRESS OR IMPLIED, RELATING TO THIS AGREEMENT
OR ANY INNOVATION OR PRODUCT, AND EACH PARTY SPECIFICALLY DISCLAIMS ANY IMPLIED
WARRANTY OR CONDITION OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
15. INDEMNITIES
15.1 By MSS. MSS agrees to defend, indemnify, and hold the University
harmless from and against any and all third-party claims (other than claims for
infringement of a third party's Intellectual Property Rights to the extent such
claims fall within the provisions of Section 14 above), damages, actions,
liabilities, costs and expenses arising out of or in connection with (i) any
damage, including but not limited to damage to any property and personal injury
or death, by whomever suffered arising out of or resulting from any negligent or
willful act of MSS relating to the subject matter of this Agreement, and (ii)
any breach or claimed breach of the warranties and representations set forth in
Section 14.2 above.
15.2 By the University. The University agrees to defend, indemnify, and
hold MSS harmless from and against any and all third-party claims, damages,
actions, liabilities, costs and expenses arising out of or in connection with
(i) any damage, including but not limited to damage to any property and personal
injury or death, by whomever suffered arising out of or resulting from any
negligent or willful act of the University relating to the subject matter of
this Agreement, and (ii) any breach or claimed breach of the warranties and
representations set forth in Section 14.1 above.
16. ENFORCEMENT OF INTELLECTUAL PROPERTY RIGHTS
In the event that either party becomes aware of an infringement or
potential infringement of the Licensed Patents or of any other Intellectual
Property Right of either the University or MSS within the Project Scope, such
party will promptly notify the other party and provide the
<PAGE> 19
details known to it. The Steering Committee will then promptly confer about such
infringement or potential infringement. Within ten (10) business days
thereafter, each party will notify the other of its decision whether or not it
wishes to participate in litigation against the infringer or potential
infringer. Any such litigation will proceed as follows:
(a) Both Parties Elect to Participate. In the event that both parties
elect to participate in such litigation, the parties will mutually agree upon
counsel to bring such litigation. The parties will share equally the costs
(including the fees of attorneys and other professionals) of any such
litigation. MSS may recover all or a portion of its share of any such costs from
the sinking fund established pursuant to Section 3.4 above and, to the extent
the sinking fund contains insufficient funds, as an offset to the University's
share of Net Proceeds. All damages or lump sum settlement payments recovered
from the prosecution or settlement of such litigation shall, after deduction of
all reasonable costs and fees of attorneys and other professionals incurred in
pursuing such litigation, be divided equally between the parties. Each party
agrees to join such action as a named plaintiff to the extent necessary to
obtain jurisdiction or if deemed a necessary party.
(b) MSS Decides to Participate and the University Does Not. In the event
that MSS elects to participate in such litigation and the University does not,
then MSS may initiate and control such litigation at its own expense. In the
event MSS institutes such litigation, (i) the University may at its option have
counsel of its choosing participate in such litigation provided such counsel
does not interfere with MSS's control of such litigation, (ii) the University
will join such action as a plaintiff to the extent necessary to obtain
jurisdiction or if the University is deemed a necessary party, and (iii) if such
litigation is based upon the Licensed Patents or any other Intellectual Property
Rights of the University, MSS will not settle any such litigation without the
express approval of the University to the terms and conditions of any such
settlement. All damages or lump sum settlement payments recovered from the
prosecution or settlement of such litigation shall be retained by MSS.
(c) The University Decides to Participate and MSS Does Not. In the event
that the University elects to participate in such litigation and MSS does not,
then the University may institute and control such litigation at its own
expense. In the event the University institutes such litigation, (i) MSS may at
its option have counsel of its choosing participate in such litigation provided
such counsel does not interfere with the University's control of such
litigation, (ii) MSS will join such action as a plaintiff to the extent
necessary to obtain jurisdiction or if MSS is deemed a necessary party, and
(iii) if such litigation is based upon any Intellectual Property Right of MSS,
the University will not settle any such litigation without the express approval
of MSS to the terms and conditions of any such settlement. All damages or lump
sum settlement payments recovered from the prosecution or settlement of such
litigation shall be retained by the University.
17. LIMITATION OF LIABILITY
EXCEPT FOR ANY WILLFUL BREACH OF SECTIONS 8 OR 13, NEITHER PARTY SHALL
BE LIABLE TO THE OTHER FOR ANY INDIRECT, SPECIAL, CONSEQUENTIAL
<PAGE> 20
OR INCIDENTAL DAMAGES, HOWEVER CAUSED AND ON ANY THEORY OF LIABILITY, ARISING
OUT OF THIS AGREEMENT.
18. GENERAL
18.1 Governing Law. This Agreement will be governed by and construed in
accordance with the substantive laws of the United States and the State of
California, without regard to or application of provisions relating to choice of
law.
18.2 Waiver and Modification. Failure by either party to enforce any
provision of this Agreement will not be deemed a waiver of future enforcement of
that or any other provision. Any waiver, amendment or other modification of any
provision of this Agreement will be effective only if in writing and signed by
the parties.
18.3 Severability. If for any reason a court of competent jurisdiction
finds any provision or portion of this Agreement to be unenforceable, that
provision will be enforced to the maximum extent permissible so as to effect the
intent of the parties, and the remainder of this Agreement will continue in full
force and effect.
18.4 Notices. All notices required or permitted under this Agreement
will be in writing, will reference this Agreement and will be deemed given: (i)
when sent by confirmed facsimile; (ii) ten (10) working days after having been
sent by registered or certified mail, return receipt requested, postage prepaid;
or (iii) five (5) working days after deposit with a commercial overnight
carrier, with written verification of receipt. All communications will be sent
to the addresses set forth below or to such other address as may be designated
by a party by giving written notice to the other party pursuant to this section:
To MSS:
Paul J. White
President and CEO
Medical Science Systems, Inc.
4400 McArthur Blvd., Suite 980
Newport Beach, CA 92660
U.S.A.
To the University:
[ * ]
<PAGE> 21
with a copy to:
[ * ]
18.5 Delays Beyond Control. Neither party will be liable to the other
party for any failure or delay in performance caused by reasons beyond such
party's reasonable control, and such failure or delay will not constitute a
material breach of this Agreement.
18.6 Assignment. Neither party may assign its rights or obligations
hereunder, by operation of law or otherwise, without express written consent of
the other party, which consent will not be unreasonably withheld. Any attempted
assignment without such consent shall be void. Subject to the foregoing, this
Agreement will benefit and bind the successors and assigns of the parties.
18.7 No Third Party Beneficiaries; No Agency. Except as expressly
provided herein to the contrary, no provision of this Agreement, express or
implied, is intended or will be construed to confer rights, remedies or other
benefits to any third party under or by reason of this Agreement. This Agreement
will not be construed as creating an agency, partnership or any other form of
legal association (other than as expressly set forth herein) between the
parties.
18.8 Entire Agreement. This Agreement and the Master Agreement,
including all exhibits, constitutes the entire agreement between the parties
with respect to the subject matter hereof, and supersede and replace all prior
or contemporaneous understandings or agreements, written or oral, regarding such
subject matter.
18.9 Multiple Counterparts. This Agreement may be executed in multiple
counterparts, each of which will be considered an original and all of which
together will constitute one agreement. This Agreement may be executed by the
attachment of signature pages which have been previously executed.
18.10 Cumulation. All rights and remedies enumerated in this Agreement
will be cumulative and none will exclude any other right or remedy permitted
herein or by law.
<PAGE> 22
18.11 Venue and Personal Jurisdiction. Any suit or other proceeding not
subject to arbitration under Section 12 will be brought solely in the federal
courts in the Central District of California, if jurisdiction in such court can
be obtained, and otherwise in the state courts of California, and each party
hereby irrevocably submits to, and waives any objections to, the exercise of
personal jurisdiction thereof and venue therein.
18.12 Headings. The headings contained in this Agreement are inserted
for convenience of reference only and are not intended to be a part of or to
affect the meaning or interpretation of this Agreement.
18.13 Incorporation of the Master Agreement. Except as specifically
provided in this Agreement, the relevant terms and conditions of the Master
Agreement are hereby incorporated by reference into this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement through
their duly authorized representatives as set forth below:
MEDICAL SCIENCE SYSTEMS, INC. THE UNIVERSITY OF SHEFFIELD
By: By:
--------------------------------- -------------------------------------
Printed Name: Printed Name:
----------------------- ---------------------------
Title: Title:
------------------------------ ----------------------------------
<PAGE> 23
SCHEDULE 1
GENERAL GUIDELINES FOR ALLOCATING NET PROCEEDS FOR
GENETIC TEST PRODUCTS
<TABLE>
<CAPTION>
<S> <C> <C>
[ * ]
</TABLE>
<PAGE> 24
SCHEDULE 2
SPECIFIC GUIDELINES FOR ALLOCATING NET PROCEEDS FOR
INITIAL EYE DISEASE TEST
<TABLE>
<CAPTION>
<S> <C> <C> <C>
[ * ]
</TABLE>
<PAGE> 1
EXHIBIT 10.5
MEDICAL SCIENCE SYSTEMS
DEVELOPMENT AND COMMERCIALIZATION PROJECT AGREEMENT
(OSTEOPOROSIS)
This Agreement is entered into and made effective as of this ___ day of
___________, 1996 (the "Effective Date") by and between Medical Science Systems,
Inc. a Texas corporation having its principal place of business at 4400
MacArthur Blvd., Suite 980, Newport Beach, CA 92660 ("MSS") and The University
of Sheffield, Western Bank, Sheffield S10 2TN, England ("University"), acting
through The Section of Molecular Medicine of the University's Department of
Medicine and Pharmacology ("SMM").
RECITALS
A. University and MSS have entered into a Master Agreement for
Technology Evaluation dated July 1, 1996 (the "Master Agreement"). Following the
procedures set forth in the Master Agreement, the parties have agreed to work
together on a project as defined herein to perform additional development and
commercialization of certain technology relating to the association between
osteoporosis and genetics.
B. This Agreement is intended to supplement the provisions set forth in
the Master Agreement with respect to such technology, and sets forth additional
terms and conditions agreed to by the parties with respect to the project.
C. It is contemplated that MSS may locate and engage a third party to
assist in the commercialization of products based upon the technology that is
the subject of the project, or MSS may itself commercialize certain products
based upon the technology. This Agreement is also intended to set forth the
terms and conditions upon which MSS will locate and engage such third party or
itself commercialize such products.
NOW, THEREFORE, in consideration of the foregoing premises and of the
terms and conditions of this Agreement, the parties agree as follows:
1. DEFINITIONS
1.1 "Approved Lab" means a laboratory (which may be an internal
laboratory of the University and/or MSS or a third party laboratory) mutually
approved by MSS and SMM pursuant to Section 3.5 below to conduct Test
Administrations.
1.2 "Brand Name(s)" means the trademark(s), service mark(s) and/or
logo(s) or other designations under which Products are marketed and promoted by
MSS or a Third Party.
1.3 "Commercialization Event" means either of the following with respect
to a Product: (i) entry into a business arrangement with a Third Party (whether
through a license and/or development agreement, distribution agreement, joint
venture, co-promotion, or other structure)
- --------
* Confidential Treatment requested.
<PAGE> 2
for the further development, clinical testing, marketing and/or sale of such
Product in one or more markets, or (ii) decision by the Steering Committee to
engage MSS to commercially distribute such Product in one or more markets
directly to end users or through distribution channels set up by MSS (rather
than through a Third Party).
1.4 "Confidential Information" shall be as defined in Section 1 of the
Master Agreement.
1.5 "Initial Osteoporosis Test" means the [ * ].
1.6 "Innovations" means all ideas, inventions, apparatus, systems, data,
discoveries, methods, processes, improvements, works of authorship and other
innovations of any kind within the Project Scope, whether or not they are
eligible for patent, copyright, trademark, trade secret or other legal
protection. Examples of Innovations include: [ * ]. "Innovations" does not
include any preexisting MSS computer information technology or products
(including but not limited to MSS' Biofusion(TM) and Medical Decision
Explorer(TM) products and technology), and the usage of any such technology or
products shall not be deemed to be within the Project Scope.
1.7 "Intellectual Property Rights" means patent applications, patents,
design rights or other similar invention rights, rights of priority, copyrights,
trademarks, trade secret rights and other intangible rights, whether existing
under statutory or common law, in any country in the world.
1.8 "Joint Innovations" means all inventions, improvements, works of
authorship and other innovations of any kind within the Project Scope that may
be made, conceived, developed or reduced to practice jointly by MSS and by SMM
and their respective employees, consultants, faculty, technicians, visiting
scientists, students, and/or post-doctoral associates in the course of this
Agreement, whether or not they are eligible for patent, copyright, trademark,
trade secret or other legal protection. Examples of Joint Innovations include
but are not limited to: [ * ].
1.9 "Licensed Patents" means (i) any United States patents that may
issue to the University during the term of this Agreement covering an
Osteoporosis Test (including the Initial Osteoporosis Test) developed by or on
behalf of the University and all divisionals, reissues, and reexaminations
thereof that may issue in the United States during the term of this Agreement,
(ii) any corresponding foreign patents that may issue to the University during
the term of this Agreement with respect to any of the preceding patents, and all
divisionals, reissues, and reexaminations thereof, and (iii) any other patents
that may issue to the University during the
<PAGE> 3
term of this Agreement, and all divisionals, reissues, and reexaminations
thereof, to the extent they cover any Innovations within the Project Scope.
1.10 "Licensed Invention" means any apparatus, system, process, method
or other invention claimed in any of the Licensed Patents, and any work of
authorship, know how, trade secret and other technology within the Project Scope
covered by any other Intellectual Property Right of the University.
1.11 "MSS Innovations" means all Innovations within the Project Scope
that may be made, conceived, developed or reduced to practice solely by MSS and
its employees, consultants, and technicians.
1.12 "Net Proceeds" means the following:
(i) In the case of a Commercialization Event with a Third Party,
all royalties, license fees, or other monies payable by such Third Party based
upon the commercial distribution of a Product in one or more markets; and
(ii) In the case of a decision by the Steering Committee to
engage MSS to commercially distribute one or more Products in one or more
markets directly to end users or through distribution channels set up by MSS,
the gross amount actually received by MSS from the commercial distribution of a
Product, less (i) any delivery or other transportation charges and taxes imposed
on the transaction, (ii) any charges by an Approved Lab incurred with respect to
such Product, (iii) the cost of goods sold (COGS), (iv) actual out of pocket
costs for advertising, travel, trade shows, educational programs and other
marketing and sales expenses (but not including salaries of personnel) directly
related to the commercial distribution of the Product, (v) as determined by the
Steering Committee, either a reasonable administrative and sales overhead
charge, or the actual personnel costs for marketing, sales and administrative
functions, with respect to the commercial distribution of the Product, all of
the foregoing computed in accordance with generally accepted accounting
principles, and (vi) carryover losses, if any, from a previous quarter. It is
recognized by the parties that, depending upon the specific responsibilities
assumed by each of the parties, the foregoing costs and expenses may be incurred
by either MSS or the University.
1.13 "Osteoporosis Test" means [ * ].
1.14 "Products" means any products or services related to the Project
(such as new tests, diagnostics, therapeutics, or related services) based upon
any University Innovation, MSS Innovation, or Joint Innovation within the
Project Scope.
1.15 "Project" means the development and commercialization activities to
be undertaken by MSS, SMM and Third Parties (if any) pursuant to this Agreement
within the Project Scope.
1.16 "Project Scope" means:
<PAGE> 4
(i) [ * ], and
(ii) [ * ].
1.17 "Steering Committee" shall be as defined in Section 2 below.
1.18 "Subsidiary" means a corporation, company or other entity more than
fifty percent (50%) of whose outstanding shares or securities (representing the
right to vote for the election of directors or other managing authority) are,
now or hereafter, owned or controlled, directly or indirectly, by a party to
this Agreement; provided that any such corporation, company or other entity will
be deemed to be a Subsidiary only so long as such ownership or control exists.
1.19 "Test Administration" means the performing of the genetic analysis
of an Osteoporosis Test by an Approved Lab based upon a sample gathered from a
patient using Test Sampling Materials.
1.20 "Test Sampling Materials" means a container that will be used to
transport a sample from a patient to an Approved Lab for performing the genetic
analysis of an Osteoporosis Test on such sample, and accompanying instructional
materials.
1.21 "Third Party" means a third party entity engaged by MSS, with the
approval of the Steering Committee, in accordance with this Agreement to assist
in the further development, clinical testing, marketing and/or commercial
distribution of one or more Products in one or more markets.
1.22 "University Innovations" means all Innovations within the Project
Scope that may be made, conceived, developed or reduced to practice solely by
SMM and its faculty, employees, consultants, technicians, visiting scientists,
students and post doctoral associates.
2. STEERING COMMITTEE
2.1 General Responsibilities of the Steering Committee. A four-person
steering committee, consisting initially of Paul White and Kenneth Kornman for
MSS and [ * ] for the University (the "Steering Committee"), will make joint
decisions and provide high level management with respect to the Project.
[ * ] will also serve on the Steering Committee as a representative of the
employees, faculty, consultants and staff
<PAGE> 5
working on the Project. Each person on the Steering Committee will have one
vote. Each party may nominate alternative or replacement members to serve on the
Steering Committee with the consent of the other party, which consent will not
be unreasonably withheld. The Steering Committee will meet on a regular basis as
the committee members may determine to be necessary. Written minutes of the
meetings of the Steering Committee will be kept and will be promptly circulated
after each meeting to the committee members for approval. The Project will
consist of an initial phase and any follow-on phases that the Steering Committee
may determine to pursue. During the initial phase, the parties will, in
accordance with their respective responsibilities set forth in Section 3 below,
file and prosecute U.S. and international patents covering the Initial
Osteoporosis Test and any other Innovations that the Steering Committee may
determine, conduct clinical studies to generate appropriate clinical data and,
if such data demonstrates strong clinical utility of potential Products,
identify and engage an appropriate Third Party. If the Steering Committee
determines that the clinical data is not strong enough to seek a Third Party,
the Steering Committee will determine the next step(s) that should be taken.
After completion of the initial phase of the Project, the Steering Committee
will review and make decisions as to the next step(s) that should be taken,
which may include additional research and/or development and testing of
Products, seeking of additional Third Parties, direct sales, or termination of
the Project.
2.2 Determinations With Respect to Commercialization of Individual
Products. The Steering Committee will determine with respect to each Product or
class of Products to be commercialized pursuant to the Project, whether to
engage a Third Party to assist in the further development, clinical testing,
marketing and/or commercial distribution of such Product(s) in one or more
markets, or whether to engage MSS to commercially distribute such Product(s) in
one or more markets directly to end users or through distribution channels set
up by MSS. In the event that the Steering Committee determines to engage a Third
Party with respect to a particular Product, MSS will identify potential Third
Parties and the Steering Committee will select one with which MSS will be
authorized to negotiate an appropriate engagement with respect to such Product,
or to extend a previous engagement to cover such Product.
3. RESPONSIBILITIES OF THE PARTIES
This Section sets forth the responsibilities of the parties during the
Project, including but not limited to the initial phase of the Project.
3.1 Responsibilities of MSS. Subject to the high level management and
direction of the Steering Committee, MSS will have responsibility for the
following activities:
(i) Conducting overall management and oversight of the Project.
(ii) Providing assistance if needed with the design of
confirmatory clinical trials to demonstrate clinical utility or to support other
claims the University would like to make with respect to the results of research
conducted for the Initial Osteoporosis Test.
(iii) Providing assistance with data analysis and statistical
support with respect to the confirmatory clinical trials for the Initial
Osteoporosis Test.
<PAGE> 6
(iv) Developing a patent strategy with respect to Innovations and
Products and the determination of which countries patents should be filed in.
(v) Preparing and filing in the United States the initial patent
application with respect to the Initial Osteoporosis Test and any other
Innovations the Steering Committee may determine to file patents for during the
Project.
(vi) Preparing, filing, and prosecuting all international patent
applications (subject to the shared cost obligations set forth in Section 3.4
below) that the Steering Committee determine to file during the Project, to the
extent the foregoing is not handled by one or more Third Parties.
(vii) Developing an initial regulatory strategy with respect to
Innovations and Products to be developed during the Project for markets in which
the Steering Committee determines MSS should seek to establish Third Parties
(but not including the actual preparation or filing of documentation for any
regulatory approval or license, which will be handled by MSS or a Third Party as
the Steering Committee may determine, subject to the shared cost obligations set
forth in Section 3.4).
(viii) Identifying potential Third Parties and preparing the
business plans necessary to support the engagement of one or more Third Parties,
conducting negotiations with respect to such engagement, and monitoring of any
Third Parties engaged.
(ix) Handling public relations with respect to Innovations to
support the initial market development and the search for appropriate Third
Parties.
(x) Handling public relations, with the input and consultation of
the University, with respect to scientific breakthroughs and data embodied in or
associated with Osteoporosis Tests and other Products and their underlying
scientific research;
MSS will use reasonable efforts to perform its responsibilities set
forth in this Section 3.1 in accordance with any timeline set by the Steering
Committee.
3.2 Responsibilities of the University. Subject to the high level
management and direction of the Steering Committee, the University will have
responsibility for the following activities:
(i) Expanding the data and running confirmatory clinical studies
with respect to the Initial Osteoporosis Test.
(ii) Conducting data analysis and providing statistical support
with respect to data being produced by the University for the Initial
Osteoporosis Test.
(iii) Conducting genetic laboratory analysis on all such data and
interpretation of the results for the Initial Osteoporosis Test.
<PAGE> 7
(iv) Further technical development of Innovations and Products by
seeking potential new gene sequences and running confirming genetic laboratory
tests.
(v) Ensuring that all tests are run consistent with European
Community standards.
(vi) Ensuring that the employees, faculty, consultants and staff
working on the Project maintain written documentation of their work (such as
laboratory notebooks) sufficient to establish dates of invention, the substance
of their work on the Project at various dates, and any other information
necessary or desirable for seeking patent protection and establishing priority
of invention.
(vii) Providing assistance in validation of Approved Labs if
necessary.
(viii) Providing reasonable technical presentation support and
assistance to MSS if requested by MSS.
(ix) Participation in a reasonable number of educational programs
with respect to Innovations and Products, if requested by MSS or a Third Party.
The University will use reasonable efforts to perform its
responsibilities set forth in this Section 3.2 in accordance with any timeline
set by the Steering Committee.
3.3 Additional Responsibilities and Reallocation of Responsibilities.
The parties recognize that with respect to the development, testing and
commercialization of any particular Product (including the Initial Osteoporosis
Test), additional responsibilities not enumerated in Sections 3.1 and 3.2 above
may need to be allocated to the parties, and it may further become desirable to
reallocate some of the responsibilities enumerated in Sections 3.1 and 3.2
between the parties. In either case, the Steering Committee will have
responsibility for making any such allocation or reallocation of
responsibilities.
3.4 Costs of Carrying Out Responsibilities; Shared Costs.
(a) Costs to be Borne by the Parties Individually. Subject to the
shared cost obligations of this Section 3.4, each party will carry out the
activities for which it is responsible at its own expense, including the costs
of any research and development, internal staff and overhead costs, consultants
and other outside contractors assisting a party in performing its duties, travel
costs, initial U.S. patent filing and prosecution costs, locating and engaging
Third Parties, and public relations.
(b) Shared Costs. The parties recognize that there will be shared
costs incurred under the Project, which will be borne by the parties in
proportion to each party's share of Net Proceeds. Shared costs will include the
following: legal fees incurred in engaging a Third Party; all costs associated
with the preparation, filing and prosecution of international patent
applications, including filing fees, translation costs and legal fees (although
MSS will be responsible for its internal staff and overhead costs incurred with
respect to any patent applications that it has responsibility for); regulatory
costs, if any, including filing fees and legal fees; other costs that may be
incurred with respect to the commercialization of Products, whether
<PAGE> 8
through MSS or a Third Party, such as patent litigation costs, indemnities and
warranties to a Third Party or to end users of Products, and any insurance
premiums to insure against potential liability; and any other costs approved by
the Steering Committee to be shared costs.
(c) Payment of Shared Costs. The parties will contribute to
shared costs as they are incurred. After a Commercialization Event occurs with
respect to a Product and Net Proceeds are being generated: (i) The Steering
Committee will determine a percentage of the Net Proceeds that will be directed
into a sinking fund out of which shared costs and any liabilities incurred will
be paid, and (ii) to the extent that the sinking fund contains insufficient
funds to pay any shared costs incurred, MSS will have the option to require the
University to contribute its share of the balance directly to MSS, or to pay
such shared costs directly and to offset the University's share of such costs
against the share of any Net Proceeds or development funds to which the
University is entitled hereunder.
3.5 Selection of Approved Labs. MSS and the University will by mutual
agreement establish one or more Approved Labs to conduct Test Administrations.
Neither party will unreasonably withhold its consent to the establishment of a
particular Approved Lab. Such Approved Labs must have the technical and
professional capability to conduct Test Administrations in a competent, cost
efficient and timely manner, must meet all applicable governmental regulatory
requirements, and must be able to handle reasonable anticipated volumes. In the
event that either party determines, in the exercise of good faith judgment, that
an Approved Lab previously agreed to by the parties is unacceptable or
undesirable, then the Steering Committee will determine whether a different
Approved Lab should be established and, if so, will establish a replacement
Approved Lab.
3.6 Use of Approved Labs. Each party agrees that it will conduct or
cause to be conducted Test Administrations only through an Approved Lab, except
that either party may at its option use other laboratories to conduct Test
Administrations in conjunction with internal development of products outside the
Project Scope.
4. GRANT OF LICENSES
4.1 Grant. Subject to the terms and conditions of this Agreement, the
University hereby grants to MSS a worldwide, irrevocable, transferable license
under the Licensed Patents and any other applicable Intellectual Property Rights
owned by the University to make, have made, use, offer to sell, sell, license
and otherwise transfer Products within the Project Scope and to conduct Test
Administrations, and to sublicense Third Parties, distributors and Subsidiaries
of MSS, and Approved Labs to do any of the foregoing, all subject to the
approval of the Steering Committee in accordance with Section 2 above.
4.2 Exclusivity. The license granted in Section 4.1 shall be exclusive
to MSS, except that the University retains the right to practice and use any
Licensed Invention for its own internal research purposes and in carrying out
any of its responsibilities under Section 3.2 above.
<PAGE> 9
5. DIVISION OF NET PROCEEDS
5.1 Allocation of Net Proceeds With Respect to Products. The allocation
of Net Proceeds between MSS and the University with respect to each Product
within the Project Scope will be determined by the Steering Committee based on
general guidelines to be generated by the Steering Committee for each type of
Product to be developed and commercialized hereunder (the "General Guidelines").
The General Guidelines for a particular type of Product will contain a set of
weights assigned to each responsibility that could potentially be allocated
between the parties for the development and/or commercialization of a particular
Product of that type. With respect to each particular Product of a defined type,
the parties will generate and execute a set of specific guidelines for that
particular Product (the "Specific Guidelines"), which will list those of the
responsibilities contained in the General Guidelines that are applicable to that
particular Product, will allocate each such responsibility to one of the
parties, and will credit to such party the weight associated with such
responsibility in the General Guidelines. Each party's share of the Net Proceeds
generated by such particular Product will then equal its percentage share of the
total weights in the Specific Guidelines assigned to such party, subject to any
minimum share such party may be entitled to as listed in the General Guidelines
and/or the Specific Guidelines. If a responsibility listed in the General
Guidelines for a type of Product is not relevant to a particular Product of that
type, then the weight for that responsibility will be listed as zero in the
Specific Guidelines for that particular Product. For example, if the total
weights for all assigned responsibilities in the Specific Guidelines equals 80
and the weights associated with the responsibilities assigned to one party in
the Specific Guidelines equals 30, then such party would be entitled to 37.5% of
the Net Proceeds generated by that particular Product.
Schedule 1 contains the General Guidelines for genetic test Products the
parties have agreed to as of the Effective Date. Schedule 2 contains the
Specific Guidelines the parties have agreed to as of the Effective Date for the
Initial Osteoporosis Test based upon the responsibilities for the Initial
Osteoporosis Test set forth in Section 3 above. In the event that the Steering
Committee reallocates the responsibilities for the Initial Osteoporosis Test, or
adds new responsibilities to one or both of the parties, the Steering Committee
will determine and execute a revised set of Specific Guidelines for the Initial
Osteoporosis Test based upon the reallocated responsibilities and the cost
thereof.
As new General Guidelines are generated by the Steering Committee for
other Product types, the parties will set forth such General Guidelines in a new
Schedule to this Agreement, and when executed by a majority of the members of
the Steering Committee, such General Guidelines shall then become a part of this
Agreement. Similarly, as Specific Guidelines for a particular Product of that
type are generated, the parties will set forth such Specific Guidelines in a new
Schedule to this Agreement, and when executed by a majority of the members of
the Steering Committee, such Specific Guidelines shall then become a part of
this Agreement. The Steering Committee may revise any General Guidelines or
Specific Guidelines based upon a reallocation of responsibilities thereunder and
the associated cost thereof and, upon doing so, shall set forth the revised
guidelines in a new Schedule which, when executed by a majority of the members
of the Steering Committee, shall become a part of this Agreement.
5.2 Development Funding from a Third Party. Any development funding
received from a Third Party will be allocated by the Steering Committee between
MSS and the University in
<PAGE> 10
proportion to the responsibilities each party undertakes that is covered by such
funding and the effect such responsibilities may have on the division of Net
Proceeds.
5.3 Payment Directly to [ * ]. MSS may pay directly to [ * ] any
portion of the University's share of Net Proceeds to which [ * ] is entitled.
6. REPORTING AND DISTRIBUTION OF NET PROCEEDS
6.1 Reports and Payment. MSS will, within forty-five (45) days after the
close of each calendar quarter during the term of this Agreement, issue a
written report to the University reporting the Net Proceeds generated by MSS
during such quarter, and a computation of the share thereof due each party
hereunder. Full payment, net of any setoffs for shared costs to which MSS may be
entitled under Section 3.4(c) above, of the University's share of such Net
Proceeds for such calendar quarter will accompany such report.
6.2 Books and Records. MSS will keep, and will cause its distributors to
keep, full, true, and accurate records with respect to Net Proceeds. MSS will
give access to such records at reasonable times, no more than once per year, for
three (3) years following the end of the calendar year to which they pertain, to
a mutually acceptable independent certified public accountant retained by the
University for the purpose of verifying the accuracy of the reports supplied to
the University hereunder. The University will pay for the cost of such
independent certified public accountant, except in the event that such
inspection reveals that MSS has understated or underpaid the amounts due
hereunder to the University in an average amount of five percent (5%) or more
over a six (6) month period, then the MSS will pay or reimburse the University
for the entire cost of such inspection. MSS agrees to pay the balance of such
amounts due, together with the cost of the inspection, to the University within
ten (10) days after written notice by the University of MSS's understatement or
underpayment.
7. OWNERSHIP
7.1 MSS Innovations. MSS shall be the sole and exclusive owner of MSS
Innovations, any Product based thereon after a Commercialization Event, the
Brand Name(s), and all Intellectual Property Rights in the foregoing, subject to
the University's right to share in Net Proceeds generated from the
commercialization thereof in accordance with this Agreement. The University
agrees to execute documents, including but not limited to assignment documents,
as reasonably requested by MSS to establish, confirm and perfect MSS's rights in
any of the foregoing.
7.2 University Innovations. The University shall be the sole and
exclusive owner of University Innovations and of all Intellectual Property
Rights therein, provided, however, that upon the occurrence of a
Commercialization Event with respect to a University Innovation and/or a Product
based thereon, the University agrees to assign to MSS all right and title to
such University Innovation and/or Product and to all Intellectual Property
Rights therein, subject to the University's right to share in Net Proceeds
generated from the commercialization thereof in accordance with this Agreement.
Each party agrees to execute documents, including but not
<PAGE> 11
limited to assignment documents, as reasonably requested by the other party to
establish, confirm and perfect the other party's rights in accordance with the
foregoing.
7.3 Joint Ownership. MSS and the University shall be joint owners of
equal undivided interests in any Joint Innovations developed by them, provided,
however, that (i) during the term of this Agreement, each party agrees to
exploit its joint ownership rights consistent with MSS's exclusivity as defined
in Section 4.2 above, and (ii) upon the occurrence of a Commercialization Event
with respect to a Joint Innovation and/or a Product based thereon, the
University agrees to assign to MSS all right and title to such Joint Innovation
and/or Product and to all Intellectual Property Rights therein, subject to the
University's right to share in Net Proceeds generated from the commercialization
thereof in accordance with this Agreement. After expiration or termination of
this Agreement, each party shall be free to exploit, without the permission of
the other party and without any duty of accounting, its joint ownership rights
in any Joint Innovations that have not been assigned to MSS under this Section
7.3.
8. PUBLICATION
Publication of research results or other information within the Project
Scope will be governed by the procedures set forth in Section 5 of the Master
Agreement. The Steering Committee will act as the "designated person" of each
party as referenced in Section 5 of the Master Agreement, and will have the
authority to determine the content and timing of any such publication.
9. TERM
Unless earlier terminated in accordance with the terms of Section 10
below or by determination of the Steering Committee to abandon the Project and
terminate this Agreement, this Agreement shall remain in effect from the
Effective Date for a period of ten (10) years, and shall thereafter
automatically renew for additional one (1) year periods, unless either party
gives written notice to the other party at least six (6) months in advance of
any renewal date that such party does not wish to renew this Agreement.
10. TERMINATION
10.1 Termination Upon Notice of Breach. In the event that either party
breaches or defaults under any material term or condition of this Agreement,
including but not limited to failure to make timely payment of monies due, and
such breach or default is not cured within thirty (30) days of written notice of
the same from the other party, the other party may, in addition to any other
remedy that it may have at law or in equity or under this Agreement, terminate
this Agreement.
<PAGE> 12
10.2 Termination by the Steering Committee. The Steering Committee may
at any time determine to abandon the Project and terminate this Agreement on a
timeline as set by the Steering Committee.
10.3 Termination by MSS. MSS may at its option upon written notice to
the University terminate this Agreement in the event that [ * ] is no longer
an employee of the University or [ * ].
10.4 Immediate Termination Upon Certain Events of Bankruptcy. Either
party may at its option terminate this Agreement immediately upon written notice
to the other party upon the occurrence of any of the following events:
(a) In the event that the other party makes an assignment for the
benefit of creditors; admits in writing its inability to pay its debts as they
become due; files a voluntary petition in bankruptcy; is adjudicated to be
bankrupt or insolvent; files a petition seeking for itself any reorganization,
arrangement, composition, readjustment, liquidation, dissolution or similar
arrangement under any present or future statute, law or regulation, or files an
answer or similar pleading admitting the material allegations of a petition
filed against it in any such proceeding; or consents to or acquiesces in the
appointment of, or has its business placed in the hands of, a trustee, receiver,
assignee, or liquidator of it or any substantial part of its business, assets or
properties, whether by voluntary act or otherwise; or
(b) In the event that either party ceases doing business as a
going concern, or it or its shareholders take any action in anticipation of or
furtherance of dissolution or liquidation.
10.5 Effect of Termination.
(a) Provisions Applying to All Terminations. In the event of any
termination of this Agreement for any reason, the following provisions shall
apply:
(i) except as provided in this Section 10.5 or under
Section 10.6 below, all further obligations of both parties under this Agreement
will cease as of the date of termination of this Agreement;
(ii) each party shall retain ownership (including joint
ownership) of any Innovations and/or Products to which it had title in
accordance with the provisions of this Agreement on the date of such
termination, including but not limited to title by virtue of an assignment after
a Commercialization Event; and
(iii) with respect to any Product(s) for which a
Commercialization Event has occurred as of the date of termination of this
Agreement, the Steering Committee will determine how the division of Net
Proceeds from such Product(s) should be reallocated between the parties, both
immediately and over time, based upon the additional responsibilities with
respect to such Product(s) that MSS will have to assume post termination of this
Agreement, and MSS will be entitled to deduct its reasonable cost of all such
additional responsibilities from the University's share of any such Net
Proceeds, provided, however, that in no event shall the
<PAGE> 13
deduction of such costs cause the University's share of such Net Proceeds to
fall below [ * ] in any given calendar quarter.
(b) Provisions Applying to Specific Events of Termination. In
addition to the provisions of subsection (a), the following provisions shall
apply with respect to specific events of termination affecting Products for
which no Commercialization Event has occurred:
(i) Termination by MSS. In the event that MSS terminates
this Agreement pursuant to Sections 10.1 or 10.4, or the University elects not
to renew this Agreement pursuant to Section 9, then with respect to any Product
for which data exists or proof of principle studies are underway but no
Commercialization Event has yet occurred as of the date of termination, the
license rights granted by the University to MSS under Section 4 above shall
continue, and MSS shall have the right to continue development of any such
Product and to take such Product into commercial distribution (either itself or
through a Third Party), provided that (1) if such Product is placed into
commercial distribution, then the Steering Committee will determine how the Net
Proceeds from such Product should be allocated between the parties, both
immediately and over time, based upon the additional responsibilities that MSS
assumes with respect to such Product post termination of this Agreement and (2)
MSS will be entitled to deduct its reasonable cost of all such additional
responsibilities from the University's share of any Net Proceeds generated by
such Product, except that, unless otherwise determined by the Steering
Committee, in no event shall the deduction of such costs cause the University's
share of such Net Proceeds to fall below [ * ] in any given calendar quarter.
(ii) Termination by the University. In the event that the
University terminates this Agreement pursuant to Sections 10.1 or 10.4, or MSS
elects not to renew this Agreement pursuant to Section 9, then, at the
University's option, the University may either:
(1) terminate all licenses granted by the
University to MSS under this Agreement with respect to any Product(s) for which
no Commercialization Event has yet occurred as of the date of termination, and
elect to itself continue development of any such Product and to take such
Product into commercial distribution (either itself or through a Third Party),
provided that (x) if such Product is placed into commercial distribution, then
the Steering Committee will determine how the Net Proceeds from such Product
should be allocated between the parties, both immediately and over time, based
upon the additional responsibilities that the University assumes with respect to
such Product post termination of this Agreement and (y) the University will be
entitled to deduct its reasonable cost of all such additional responsibilities
from MSS's share of any Net Proceeds generated by such Product, except that,
unless otherwise determined by the Steering Committee, in no event shall the
deduction of such costs cause MSS's share of such Net Proceeds to fall below
[ * ] in any given calendar quarter; or
(2) allow the license rights granted by the
University to MSS under Section 4 above to continue and allow MSS to continue
development of any such Product and to take such Product into commercial
distribution (either itself or through a Third Party), provided that (x) if such
Product is placed into commercial distribution, then the Steering Committee will
determine how the Net Proceeds from such Product should be allocated between the
parties, both immediately and over time, based upon the additional
responsibilities that MSS assumes with respect to such Product post termination
of this Agreement and (y) MSS will be
<PAGE> 14
entitled to deduct its reasonable cost of all such additional responsibilities
from the University's share of any Net Proceeds generated by such Product,
except that, unless otherwise determined by the Steering Committee, in no event
shall the deduction of such costs cause the University's share of such Net
Proceeds to fall below [ * ] in any given calendar quarter.
(iii) Termination by the Steering Committee or by MSS
Under Section 10.3. In the event this Agreement is terminated by the Steering
Committee pursuant to Section 10.2 or by MSS pursuant to Section 10.3, then the
Steering Committee will decide whether MSS or the University (if any) should
assume responsibility for continuing development of any Product for which a
Commercialization Event has not occurred as of the date of such termination, and
in the event MSS assumes such responsibility, then any licenses granted by the
University to MSS under this Agreement will survive termination of this
Agreement. The Steering Committee will also determine how the Net Proceeds
generated by any such Product should be allocated between the parties, based
upon the additional responsibilities assumed by the party having responsibility
for continuing development of such Product post termination of this Agreement,
and the party assuming such responsibility will be entitled to deduct its
reasonable cost of all such additional responsibilities from the other party's
share of any Net Proceeds generated by such Product, except that, unless
otherwise determined by the Steering Committee, in no event shall the deduction
of such costs by one party cause the other party's share of such Net Proceeds to
fall below [ * ] in any given calendar quarter.
10.6 Survival of Certain Provisions. The provisions of Sections 6.2, 7,
10.5, 10.6, 12, 13.1, 13.2, 14.3, 15, 17, and 18 of this Agreement will survive
the expiration or termination of this Agreement.
11. PERSONNEL
Each party will cause its respective employees, faculty, consultants and
staff to execute such agreements, assignments, applications and other documents
as necessary to perfect and protect each party's rights as defined in this
Agreement with respect to Innovations and Products within the Project Scope.
12. SETTLEMENT OF DISPUTES
12.1 Basic Dispute Resolution Procedures. Any dispute between the
parties either with respect to the interpretation of any provision of this
Agreement or with respect to the performance of either party shall be resolved
as specified in this Section.
(a) Upon the written request of either party, each of the parties
will appoint a designated representative who does not devote substantially all
of his or her time to performance under this Agreement, whose task it will be to
meet for the purpose of endeavoring to resolve such dispute.
(b) The designated representatives shall meet as often as
necessary during a fifteen (15) day period (or such other time as the parties
may agree) to gather and furnish to the
<PAGE> 15
other all information with respect to the matter in issue which is appropriate
and germane in connection with its resolution.
(c) Such representatives shall discuss the problem and negotiate
in good faith in an effort to resolve the dispute without the necessity of any
formal proceeding relating thereto.
(d) During the course of such negotiation, all reasonable
requests made by one party to the other for nonprivileged information reasonably
related to this Agreement, will be honored in order that each of the parties may
be fully advised of the other's position.
(e) The specific format for such discussions will be left to the
discretion of the designated representatives, but may include the preparation of
agreed upon statements of fact or written statements of position furnished to
the other party.
12.2 Escalation Procedures. If the designated representatives cannot
resolve the dispute, then the dispute shall be escalated to a member of the
Board of Directors or Trustees of each of the University and of MSS, for their
review and resolution. If the dispute cannot be resolved by such persons, then
the parties may initiate formal proceedings; however, formal proceedings for the
resolution of any such dispute may not be commenced until the earlier of:
(a) The designated representatives concluding in good faith that
amicable resolution through continued negotiation of the matter in issue does
not appear likely; or
(b) Sixty (60) days after the initial request to negotiate such
dispute (unless preliminary or temporary relief of an emergency nature is sought
by one of the parties); or
(c) Thirty (30) days before the statute of limitations governing
any cause of action relating to such dispute would expire.
12.3 Arbitration of Monetary Disputes.
(a) Procedures. Any monetary disputes between the parties
concerning the amount of monies due or payable under this Agreement which the
parties are unable to resolve pursuant to the provisions of Sections 12.1 and
12.2 above, will be settled by arbitration in Orange County, California (unless
otherwise agreed) under the then-prevailing rules of American Arbitration
Association. There will be one (1) arbitrator chosen by mutual agreement of the
parties or, in the event the parties cannot agree within thirty (30) calendar
days of issuance of a written demand for arbitration by either party, by the
American Arbitration Association. All proceedings by the arbitrator shall be
conducted in accordance with the rules of the American Arbitration Association,
except to the extent the provisions of such rules are modified by this Agreement
or the mutual agreement of the parties. Either party will have the right to
discovery of evidence, but by the following methods only: requests for
production of documents and depositions of no more than three (3) individuals.
The arbitrator will supervise discovery and may, at the request of either party,
limit expenses of discovery (including reasonable attorneys' fees) to the
requesting party for good cause shown. All discovery will be completed, and the
arbitration hearing will commence, within forty-five (45) days after appointment
of the arbitrator. Subject to the foregoing, discovery matters will be governed
by the Federal Rules of Civil
<PAGE> 16
Procedure as applicable to civil actions in the United States District Courts.
The arbitration hearing will conclude within thirty (30) days after it
commences. The award rendered in arbitration will be in writing and will be
final and binding, and may be enforced in any court of competent jurisdiction.
The fees and expenses of the arbitrator will be paid by the non-prevailing
party.
(b) Approval of One Substantive Position of the Parties. In all
arbitration proceedings submitted under this Section 12.3, the arbitrator shall
be required to agree upon and approve the substantive position advocated by
either MSS or the University with respect to each disputed item(s). Any decision
rendered by the arbitrator that does not reflect a substantive position
advocated by either MSS or the University shall be beyond the scope of authority
granted to the arbitrator and shall be void. No decision of the arbitrator shall
ever be construed as or have the effect of amending or altering this Agreement
or the parties' rights and responsibilities with respect thereto.
12.4 Other Disputes. Except as provided in Section 12.3 above, the
parties will have no obligation to arbitrate any other disputes, claims or
controversies of any kind arising out of or related to this Agreement, including
but not limited to any dispute, claim or controversy relating to the scope of
the Project or the party's respective ownership rights to any Innovation or
Product. In addition, any claim by one party against the other for injunctive or
preliminary relief, whether or not related to this Agreement, may be litigated
in a court of competent jurisdiction.
13. CONFIDENTIALITY AND PRESS RELEASE
In addition to the provisions of Section 5 of the Master Agreement, the
following confidentiality provisions shall apply:
13.1 Confidentiality of the Agreement. The parties agree to maintain all
terms and conditions of this Agreement in confidence, except that (i) MSS may
state that it has received a license from the University under this Agreement
and may name the patents and Intellectual Property Rights to which such license
rights apply; (ii) The University may state that it has licensed certain
commercial exploitation rights within the Project Scope to MSS; (iii) this
Agreement may be disclosed to either party's attorneys, accountants or other
professional advisors in the course of seeking professional advice and to the
extent required by applicable law or regulations or court order; and (iv) this
Agreement may be disclosed by MSS to entities with which MSS is discussing a
proposed sale of its stock, sale of all or substantially all of its assets,
obtaining financing or entering into a partnering arrangement, provided that the
entity to whom the terms of this Agreement is to be disclosed has executed a
reasonable non-disclosure agreement.
13.2 Protection of Confidential Information. Each party agrees to keep
all Confidential Information of the other party to which it has access hereunder
strictly confidential, and agrees that it will not, except with the express
permission of the other party or as required by applicable law or regulations or
by court order, use such information except in the performance of this
Agreement, or disclose any such Confidential Information to any person or entity
other than its own employees, consultants, faculty, technicians, visiting
scientists, students, and/or post-
<PAGE> 17
doctoral associates who have a need to know and who have been informed in
advance of the receiving party's obligations with respect to such Confidential
Information.
13.3 Press Release. The parties agree to issue a mutually agreeable
joint press release with respect to this Agreement. Each party agrees that it
will not issue a press release with respect to this Agreement until such joint
press release has first been issued.
14. REPRESENTATIONS AND WARRANTIES
14.1 By the University. The University represents and warrants to MSS
that:
(a) Ownership. The University is the sole and exclusive owner of
any Licensed Patents and any University Innovations supplied hereunder to MSS
for commercial exploitation;
(b) Authority. The University has the full right and power to
grant the licenses to MSS set forth in this Agreement and to supply the
University Innovations to MSS for commercialization hereunder;
(c) Inconsistent Obligations. There are no outstanding
agreements, licenses, assignments or encumbrances inconsistent with the
provisions of such licenses or with any other provision of this Agreement; and
(d) Infringement of Rights of Others. To the best of the
University's knowledge as of the Effective Date, the University knows of no
third parties' rights which would be infringed by practicing the inventions
claimed in the Licensed Patents within the scope of the licenses granted to MSS
hereunder or by the commercialization as contemplated hereunder of the
University Innovations in existence as of the Effective Date. The University
will promptly notify MSS in the event that it learns or has cause to believe at
any time that any third parties' rights would or might be infringed by
practicing the inventions claimed in any Licensed Patents or by any Product or
Innovation being commercialized hereunder. In the event that a claim is made
against MSS or a Third Party that the manufacture, use, sale, distribution or
other commercial exploitation of a Product or Innovation infringes the
Intellectual Property Rights of a third party, then MSS or the Third Party (as
applicable) will fund the cost of any litigation resulting out of such claim,
but will be entitled to recover up to two-thirds (or whatever other fraction of
the Net Proceeds generated by such Product or Innovation the University is
entitled to hereunder at the time such litigation commences) of its costs and
any damages awarded against it out of the sinking fund established pursuant to
Section 3.4 above and, to the extent the sinking fund contains insufficient
funds, the University's current and future share of any Net Proceeds; provided
that in the event MSS or the Third Party is found to have willfully infringed
such third party's Intellectual Property Rights (and such willfulness was not
caused by the University), then MSS or the Third Party shall not be entitled to
recover any portion of any enhanced damages awarded based upon such willfulness,
and provided further that the University will be entitled to have counsel of its
own choosing participate in (but not control) any such litigation at the
University's sole expense.
<PAGE> 18
14.2 By MSS. MSS represents and warrants to the University that there
are no outstanding agreements, licenses, assignments or encumbrances
inconsistent with the provisions of such licenses or with any other provision of
this Agreement.
14.3 No Other Warranties. EXCEPT AS SET FORTH IN THIS SECTION, NEITHER
PARTY MAKES ANY OTHER WARRANTY, EXPRESS OR IMPLIED, RELATING TO THIS AGREEMENT
OR ANY INNOVATION OR PRODUCT, AND EACH PARTY SPECIFICALLY DISCLAIMS ANY IMPLIED
WARRANTY OR CONDITION OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
15. INDEMNITIES
15.1 By MSS. MSS agrees to defend, indemnify, and hold the University
harmless from and against any and all third-party claims (other than claims for
infringement of a third party's Intellectual Property Rights to the extent such
claims fall within the provisions of Section 14 above), damages, actions,
liabilities, costs and expenses arising out of or in connection with (i) any
damage, including but not limited to damage to any property and personal injury
or death, by whomever suffered arising out of or resulting from any negligent or
willful act of MSS relating to the subject matter of this Agreement, and (ii)
any breach or claimed breach of the warranties and representations set forth in
Section 14.2 above.
15.2 By the University. The University agrees to defend, indemnify, and
hold MSS harmless from and against any and all third-party claims, damages,
actions, liabilities, costs and expenses arising out of or in connection with
(i) any damage, including but not limited to damage to any property and personal
injury or death, by whomever suffered arising out of or resulting from any
negligent or willful act of the University relating to the subject matter of
this Agreement, and (ii) any breach or claimed breach of the warranties and
representations set forth in Section 14.1 above.
16. ENFORCEMENT OF INTELLECTUAL PROPERTY RIGHTS
In the event that either party becomes aware of an infringement or
potential infringement of the Licensed Patents or of any other Intellectual
Property Right of either the University or MSS within the Project Scope, such
party will promptly notify the other party and provide the details known to it.
The Steering Committee will then promptly confer about such infringement or
potential infringement. Within ten (10) business days thereafter, each party
will notify the other of its decision whether or not it wishes to participate in
litigation against the infringer or potential infringer. Any such litigation
will proceed as follows:
(a) Both Parties Elect to Participate. In the event that both parties
elect to participate in such litigation, the parties will mutually agree upon
counsel to bring such litigation. The parties will share equally the costs
(including the fees of attorneys and other professionals) of any such
litigation. MSS may recover all or a portion of its share of any such costs from
the sinking fund established pursuant to Section 3.4 above and, to the extent
the sinking fund contains insufficient funds, as an offset to the University's
share of Net Proceeds. All damages or lump sum
<PAGE> 19
settlement payments recovered from the prosecution or settlement of such
litigation shall, after deduction of all reasonable costs and fees of attorneys
and other professionals incurred in pursuing such litigation, be divided equally
between the parties. Each party agrees to join such action as a named plaintiff
to the extent necessary to obtain jurisdiction or if deemed a necessary party.
(b) MSS Decides to Participate and the University Does Not. In the event
that MSS elects to participate in such litigation and the University does not,
then MSS may initiate and control such litigation at its own expense. In the
event MSS institutes such litigation, (i) the University may at its option have
counsel of its choosing participate in such litigation provided such counsel
does not interfere with MSS's control of such litigation, (ii) the University
will join such action as a plaintiff to the extent necessary to obtain
jurisdiction or if the University is deemed a necessary party, and (iii) if such
litigation is based upon the Licensed Patents or any other Intellectual Property
Rights of the University, MSS will not settle any such litigation without the
express approval of the University to the terms and conditions of any such
settlement. All damages or lump sum settlement payments recovered from the
prosecution or settlement of such litigation shall be retained by MSS.
(c) The University Decides to Participate and MSS Does Not. In the event
that the University elects to participate in such litigation and MSS does not,
then the University may institute and control such litigation at its own
expense. In the event the University institutes such litigation, (i) MSS may at
its option have counsel of its choosing participate in such litigation provided
such counsel does not interfere with the University's control of such
litigation, (ii) MSS will join such action as a plaintiff to the extent
necessary to obtain jurisdiction or if MSS is deemed a necessary party, and
(iii) if such litigation is based upon any Intellectual Property Right of MSS,
the University will not settle any such litigation without the express approval
of MSS to the terms and conditions of any such settlement. All damages or lump
sum settlement payments recovered from the prosecution or settlement of such
litigation shall be retained by the University.
17. LIMITATION OF LIABILITY
EXCEPT FOR ANY WILLFUL BREACH OF SECTIONS 8 OR 13, NEITHER PARTY SHALL
BE LIABLE TO THE OTHER FOR ANY INDIRECT, SPECIAL, CONSEQUENTIAL OR INCIDENTAL
DAMAGES, HOWEVER CAUSED AND ON ANY THEORY OF LIABILITY, ARISING OUT OF THIS
AGREEMENT.
18. GENERAL
18.1 Governing Law. This Agreement will be governed by and construed in
accordance with the substantive laws of the United States and the State of
California, without regard to or application of provisions relating to choice of
law.
18.2 Waiver and Modification. Failure by either party to enforce any
provision of this Agreement will not be deemed a waiver of future enforcement of
that or any other provision.
<PAGE> 20
Any waiver, amendment or other modification of any provision of this Agreement
will be effective only if in writing and signed by the parties.
18.3 Severability. If for any reason a court of competent jurisdiction
finds any provision or portion of this Agreement to be unenforceable, that
provision will be enforced to the maximum extent permissible so as to effect the
intent of the parties, and the remainder of this Agreement will continue in full
force and effect.
18.4 Notices. All notices required or permitted under this Agreement
will be in writing, will reference this Agreement and will be deemed given: (i)
when sent by confirmed facsimile; (ii) ten (10) working days after having been
sent by registered or certified mail, return receipt requested, postage prepaid;
or (iii) five (5) working days after deposit with a commercial overnight
carrier, with written verification of receipt. All communications will be sent
to the addresses set forth below or to such other address as may be designated
by a party by giving written notice to the other party pursuant to this section:
To MSS:
Paul J. White
President and CEO
Medical Science Systems, Inc.
4400 McArthur Blvd., Suite 980
Newport Beach, CA 92660
U.S.A.
To the University:
[ * ]
with a copy to:
[ * ]
<PAGE> 21
[ * ]
18.5 Delays Beyond Control. Neither party will be liable to the other
party for any failure or delay in performance caused by reasons beyond such
party's reasonable control, and such failure or delay will not constitute a
material breach of this Agreement.
18.6 Assignment. Neither party may assign its rights or obligations
hereunder, by operation of law or otherwise, without express written consent of
the other party, which consent will not be unreasonably withheld. Any attempted
assignment without such consent shall be void. Subject to the foregoing, this
Agreement will benefit and bind the successors and assigns of the parties.
18.7 No Third Party Beneficiaries; No Agency. Except as expressly
provided herein to the contrary, no provision of this Agreement, express or
implied, is intended or will be construed to confer rights, remedies or other
benefits to any third party under or by reason of this Agreement. This Agreement
will not be construed as creating an agency, partnership or any other form of
legal association (other than as expressly set forth herein) between the
parties.
18.8 Entire Agreement. This Agreement and the Master Agreement,
including all exhibits, constitutes the entire agreement between the parties
with respect to the subject matter hereof, and supersede and replace all prior
or contemporaneous understandings or agreements, written or oral, regarding such
subject matter.
18.9 Multiple Counterparts. This Agreement may be executed in multiple
counterparts, each of which will be considered an original and all of which
together will constitute one agreement. This Agreement may be executed by the
attachment of signature pages which have been previously executed.
18.10 Cumulation. All rights and remedies enumerated in this Agreement
will be cumulative and none will exclude any other right or remedy permitted
herein or by law.
18.11 Venue and Personal Jurisdiction. Any suit or other proceeding not
subject to arbitration under Section 12 will be brought solely in the federal
courts in the Central District of California, if jurisdiction in such court can
be obtained, and otherwise in the state courts of California, and each party
hereby irrevocably submits to, and waives any objections to, the exercise of
personal jurisdiction thereof and venue therein.
18.12 Headings. The headings contained in this Agreement are inserted
for convenience of reference only and are not intended to be a part of or to
affect the meaning or interpretation of this Agreement.
<PAGE> 22
18.13 Incorporation of the Master Agreement. Except as specifically
provided in this Agreement, the relevant terms and conditions of the Master
Agreement are hereby incorporated by reference into this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement through
their duly authorized representatives as set forth below:
MEDICAL SCIENCE SYSTEMS, INC. THE UNIVERSITY OF SHEFFIELD
By: By:
------------------------------ --------------------------------------
Printed Name: Printed Name:
-------------------- ----------------------------
Title: Title:
--------------------------- -----------------------------------
<PAGE> 23
EXHIBIT A
DESCRIPTION OF SMM GENETIC OSTEOPOROSIS PROJECT
EXISTING AS OF THE EFFECTIVE DATE OF THIS AGREEMENT
<PAGE> 24
SCHEDULE 1
GENERAL GUIDELINES FOR ALLOCATING NET PROCEEDS FOR
GENETIC TEST PRODUCTS
[ * ]
<PAGE> 25
SCHEDULE 2
SPECIFIC GUIDELINES FOR ALLOCATING NET PROCEEDS FOR
INITIAL OSTEOPOROSIS TEST
[ * ]
<PAGE> 1
EXHIBIT 10.6
November 9, 1994
Gordon W. Duff, Ph.D., FRCP PERSONAL & CONFIDENTIAL
Sheffield S10 3BZ
Re: Joint Project
Dear Professor Duff:
The purpose of this letter is to outline the terms and conditions which
our company and you will be working together. We each agree as follows:
1) The purpose of the project is set forth in Exhibit A to the Mutual
Nondisclosure Agreement ("Nondisclosure Agreement") signed by us on October 19,
1994. Both parties agree to be bound by the terms and conditions of that
agreement, and will not disclose the details without the prior written consent
of the other party. The Nondisclosure Agreement is incorporated herein by this
reference.
2) MSS has provided and will be responsible to handle and provide for
the project, at its cost:
(a) the research concept and product concept idea set forth in
the Nondisclosure Agreement.
(b) patent analysis and strategy
(c) expertise in the selection of patients who are most likely to
be valuable in the project and access to the patient population.
(d) conducting a four month clinical trial for the collection of
patient samples and clinical data on a minimum of 150 patients in three groups
of 50 patients each;
(e) conduct a Simulated Biology ("Sim Bio") discovery research
project over a 4 month period to construct a computer biologic model to
incorporate the genetic markers.
- --------
* Confidential Treatment requested.
<PAGE> 2
Gordon W. Duff, Ph.D., FRCP
November 9, 1994
Page 2
(f) interpretation of how the resulting research data may apply
to periodontal diseases;
(g) handle all patent filings in the United States or Worldwide.
(h) attempt to transfer the research findings into a practical
diagnostic or other product;
(i) at MSS election, testing of the potential diagnostic or other
product in a small clinical trial to establish "proof of principle".
(j) handle the negotiations and contracts for the sale, license,
further development or other business arrangement with a company for
product development, commercialization and/or marketing.
You will be responsible to handle and provide for the project, at your
cost:
(a) Resources for the genetic analysis of the standard set of
markers of our samples and in interpretation of the results. We would provide
you with a minimum of fifty (50) patients in each of the three groups, so you
would have a minimum of one hundred fifty (150) samples. The maximum number of
samples that you will be required to analyze from each group is one hundred
(100) samples per group or three hundred (300) total. The specifics will be set
forth in Schedule A ;
3) The Project plan with relevant time tables and deliverable due dates
for each of us are set forth in Schedule A.
4) The economic sharing on the project would be as follows:
(a) [ * ].
5) Our organization would handle the negotiations and sale, license, or
other disposition of any inventions and discoveries. We would have the authority
to negotiate and be bound both of us to a business arrangement that would bring
a minimum of $500,000.00 paid
<PAGE> 3
Gordon W. Duff, Ph.D., FRCP
November 9, 1994
Page 3
over a 5 year period. If an offer came in that was below that amount, we would
need to mutually agree on the arrangement.
6) As part of this arrangement, we will each be exchanging information
that is either confidential and/or non-public information. We will each continue
to own our respective separate data and we would agree not to use the other
party's data without the permission of the party. All joint data and/or results
and any insights derived, including insights into the use of the new data or
results outside the scope of the current purpose of this project shall be
documented during and at the end of the project. As to joint data or results
coming from the clinical or laboratory analysis called for under this project,
or insights derived during the collaboration, we would each have the right to
use any such jointly developed data in any manner including another project,
only with the written approval and agreement of the other party. Neither of us
would publish or make presentations in any public forum as to joint data
developed without the permission of the other. Both parties will be authors on
any publications of the joint data. Primary authorship of joint data will be
determined by mutual agreement depending upon the particular focus of the
manuscript. Both of us recognize that this is a commercial venture and the need
for secrecy is of paramount importance to secure legal protection of the data
and results and device or product coming therefrom, and to secure a product
development business arrangement.
7) The parties agree that this arrangement is a mutually exclusive
arrangement so that neither of us would perform or be involved in any other
genetic research in the oral care area during the project. Additionally, you
agree not to conduct or be involved in any genetic research for periodontal
disease or dental caries without MSS written consent for a period of 5 years
from the date of this Agreement.
8) It is the intent of the parties to collaborate on future projects of
oral manifestations of systemic conditions or in other disease areas where the
application of our respective technologies and know-how can be applied in a
commercial venture. The parties agree to negotiate in good faith the terms and
conditions of such future venture(s) based upon tangible and intangible
contributions to the project.
9) Termination of Agreement. This Agreement shall immediately be deemed
terminated upon the occurrence of the following:
(a) Mutual Consent: Upon the mutual agreement of all parties.
(b) Death. Upon your death.
<PAGE> 4
Gordon W. Duff, Ph.D., FRCP
November 9, 1994
Page 4
(c) Cause. Should either party materially breach their
obligations under this Agreement after a thirty (30) day notice and cure period.
Notwithstanding termination of this Agreement, the provisions of Section 1, 4,
5, 6 and 7 shall survive the termination.
10) This letter is intended to constitute a binding letter agreement on
all parties. All parties agree to cooperate with each other and execute any and
all legal documents reasonably necessary or appropriate to carry out the intent
of this agreement.
11) This agreement constitutes the entire understanding between the
parties with respect to the subject matter hereof, superseding all negotiations,
prior discussion and preliminary agreements, if any.
12) This agreement shall not be modified or amended except in writing
signed by you and a duly empowered officer of the Company.
13) This agreement shall be construed under and governed in accordance
with, the laws of the State of California.
14) Except as otherwise provided in this Agreement, the provisions
hereof shall be binding upon and shall inure to the benefit of the parties
hereto, their personal representatives, heirs, executives, administrators,
successors and/or permitted assigns.
15) Neither this Agreement nor the rights, duties or obligations arising
hereunder shall be assignable by either of us.
Sincerely,
MEDICAL SCIENCE SYSTEMS
By:
--------------------------------------
PAUL J. WHITE
Chief Executive Officer
THE UNDERSIGNED AGREES TO ALL TERMS AND CONDITIONS SET FORTH IN THIS LETTER
<PAGE> 5
Gordon W. Duff, Ph.D., FRCP
November 9, 1994
Page 5
Dated: _______________________________
Professor Gordon W. Duff
<PAGE> 6
Gordon W. Duff, Ph.D., FRCP
November 9, 1994
Page 6
SCHEDULE A
----------
[ * ]
<PAGE> 1
EXHIBIT 10.7
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement"), by and between Medical Science
Systems, Inc., a Texas Corporation (the "Corporation"), and Paul J. White
("Employee"), is effective this 1st day of January, 1996 ("Effective Date").
The Corporation and Employee are hereinafter sometimes referred to, individually
and collectively, as a "Party" or the "Parties."
1 TERM. The term of employment of Employee hereunder shall commence as
of the date hereof and shall continue in full force and effect until the fifth
anniversary of the date hereof (the "Initial Term"), and shall automatically
continue thereafter for successive 12 month periods unless terminated at the
end of such Initial Term or any subsequent 12 month term after the Initial Term
by either party hereto on not less than six months prior written notice to
the other party (the "Employment Term"). The term of this Agreement shall be
coincident with the Employment Term.
2 DUTIES. Employee shall serve as President and Chief Executive Officer
of the Corporation or such other position as may be agreed between Employee and
the Corporation, and shall perform such duties, services and responsibilities
as are consistent with such position. Employee's duties, services and
responsibilities will be performed under the overall supervision of, and
consistent with the policies of, the Board of Directors of the Corporation
(the "Board of Directors"). Employee shall also be entitled to serve as a
director of the Corporation.
During the Employment Term, Employee shall devote his full business time,
attention and skill to the performance of such duties, services and
responsibilities, and will use his reasonable efforts to promote the interests
of the Corporation. Employee will not, without the prior written approval of
the Board of Directors, engage in any other business activity which would
interfere with the performance of his duties, services and responsibilities
hereunder or which is in violation of policies established from time to time
by the Corporation. Personal passive investments and personal business affairs
not inconsistent with this Agreement shall not be prohibited.
3 COMPENSATION. In consideration of the performance by Employee of
Employee's obligations during the Employment Term (including any services as an
officer, director, employee, member of any committee
1
<PAGE> 2
of the Corporation or any of its subsidiaries, or otherwise), the Corporation
will pay Employee a salary (the "Salary") at an annual rate of $250,000 per year
during the Employment Term.
The Salary shall be payable in accordance with the normal payroll practices of
the Corporation then in effect. The Salary, and all bonuses or other forms of
compensation paid to Employee hereunder, shall be subject to all applicable
taxes required to be withheld by the Corporation pursuant to federal, state or
local law. Employee shall be solely responsible for income taxes imposed on
Employee by reason of any cash or non-cash compensation and benefits provided
hereunder.
In addition to the payment of the Salary, Employee shall be entitled to
participate in any employee benefit plans then in effect for similarly situated
employees to the extent Employee meets the eligibility requirements for any
such plan, including group insurance, retirement, supplemental pension, bonus
plan, stock option or awards plans; provided, however, that the Corporation
shall provide health or medical insurance benefits to Employee and his spouse
or any dependent of Employee as provided by any health and medical insurance
plans sponsored for employees of the Corporation in general without any
eligibility requirements or waiting periods as permitted under those plans and
provided further that, at Employee's option, Employee shall be entitled to
maintain his current insurance policy and the Corporation shall reimburse or
pay directly Employee's insurance premiums. Employee may switch to the
Corporation's plan at any time.
4 WORKING CONDITIONS. Employee shall be provided with workspace, office
equipment, plain paper fax machine, computer equipment, furniture, supplies,
and such other facilities and services as determined by the Corporation as is
reasonably necessary for the performance of his duties.
5 EXPENSES. The Corporation shall reimburse Employee for all normal and
reasonable business expenses upon presentation of an approved expense report
and related receipts ("Expense Report"). Such reimbursable expenses will
include Employee's business airfare, travel, lodging, car rentals, automobile,
meals, long-distance telephone expenses, subscription dues, car telephone,
home business telephone, home facsimile, mobile telephone, facsimile expenses
(or similar technology as it becomes available) and reasonable client
entertainment. Employee shall be reimbursed for such reasonable business
expenses upon the verification and approval of such expenses. The Corporation
shall either approve or disapprove such expense report no later than thirty
(30) days after the submission of such expense report by Employee, and such
report
2
<PAGE> 3
shall be deemed approved unless expressly disapproved by Corporation
within the thirty (30) day period. The Corporation agrees that the accumulation
of frequent flyer mileage benefits shall be credited to Employee personally.
6 MISCELLANEOUS. The Corporation agrees to purchase professional books,
professional journals and publications in an amount that Employee and the
Corporation reasonably agree, for use by Employee during the term of this
Agreement. Such books, publications and journals shall be considered and shall
remain the property of the Corporation. The Corporation shall also pay
continuing education and certification fees of Employee.
7 LIFE INSURANCE. During the Employment Term, the Corporation shall pay
the premium on a policy of life insurance with a value of $1,000,000, naming
the Employee's spouse as beneficiary. At the end of the term of the Agreement
all rights under such policy (including any cash surrender value) shall belong
to Employee; prior thereto, they shall belong to the Corporation.
8 AUTOMOBILE REIMBURSEMENT. In recognition of Employee's need for an
automobile for business purposes, the Corporation shall reimburse Employee Six
Hundred Dollars ($600.00) per month for automobile expenses, including
automobile payments, maintenance, gasoline and car telephone costs incident
thereto.
9 VACATION. Employee shall be entitled to four (4) weeks vacation
annually, without loss of compensation, during Employee's full time employment
under the terms of this Agreement. The times for these vacation periods shall
be those most convenient to the Corporation's business, as may be orally
agreed upon by the Corporation. In the event Employee's total accrued vacation
is in excess of twelve (12) weeks vacation at the end of any calendar year
(December 31st), accrual of vacation shall cease.
10 LEAVE OF ABSENCE. Employee shall be entitled to take anunpaid leave of
absence (no compensation or benefits under this Agreement) only if approved by
the Corporation.
11 HOLIDAYS. Employee shall be entitled to all holidays designated by the
Corporation, without loss of compensation.
12 TERMINATION OF AGREEMENT.
12.1 TERMINATION WITHOUT CAUSE. Employee's employment with the
Corporation shall be terminated and, except as provided below, this Agreement
shall terminate as follows:
12.1.1 Whenever the Corporation and Employee shall mutually
agree, in writing, to termination; or
12.1.2 Upon the death of Employee; or
12.1.3 If (i) Employee is absent from work for 180 calendar
days in any twelve month period by reason of illness or incapacity (whether
physical or otherwise) or (ii) an independent
3
<PAGE> 4
medical examiner reasonably determines that Employee is unable to perform his
duties, services and responsibilities hereunder by reason of illness or
incapacity (whether physical or otherwise) for a total of 180 calendar days in
any twelve-month period during the employment Term ("Disability"), the
Corporation shall not be obligated to pay Employee any compensation (Salary or
bonus) for any period in excess of such days; furthermore, any such payments
shall be reduced by any amount Employee is entitled to receive as a result of
such disability under any plan provided through the Corporation or under state
or federal law. If the independent medical examiner certifies that Employee
can work part-time after the expiration of the 180 day period, the Corporation
shall reasonably accommodate Employee to allow him to work part-time.
Compensation will be reduced proportionately. All of Employee's non-compete
obligations shall survive any period of disability.
12.1.4 The existence of a disabling mental or physical condition
and the date upon which such condition preventing performance of such duties
commenced shall be determined by an independent medical examiner. In the event
either party requests to have an independent medical examiner determine whether
Employee is disabled, then the Corporation and Employee agree to meet and
confer in good faith with one another to mutually select an independent medical
examiner. The Corporation or Employee, whichever elects to request an
independent medical examiner, shall give written notice of that election to the
other party. The parties, or their legal representatives, agree to meet, at the
offices of the Corporation, within ten (10) days of the notice of election to
select an independent medical examiner. In the event that after meeting and
conferring in good faith, the Corporation and Employee are unable to agree on
the selection of an independent medical examiner within five (5) days, one
medical examiner shall be selected by the Corporation and one medical examiner
shall be selected by Employee, which two (2) medical examiners shall select
a third medical examiner, and the third medical examiner shall determine,
within fifteen (15) days after his or her appointment, if Employee is disabled.
In the event that Employee (or Employee's legal representative) refuses to
meet promptly with the Corporation to confer in good faith, or Employee
(or Employee's legal representative) fails to select a medical examiner within
said five (5) day period, the Corporation's selection of a medical examiner
shall be binding.
In accordance with the foregoing, Employee (or Employee's legal representative)
shall cooperate fully and comply with any requests made by the Corporation
and/or the medical examiner in allowing said medical examiner to make a
determination whether or not Employee is disabled and the estimated
commencement date of
4
<PAGE> 5
Disability.
12.2 TERMINATION FOR CAUSE. Notwithstanding anything herein
set forth in this Agreement to the contrary, the Corporation may, at any time,
terminate this Agreement for "cause." For purposes of this Agreement, "cause"
shall include, but not be limited to, the occurrence of any of the following
events:
12.2.1 Employee has committed an act of theft or embezzlement
from or fraud on the Corporation;
12.2.2 Employee shall materially breach any of the terms,
covenants and conditions of this Agreement, which shall include but not be
limited to, any violation of the restrictions against competition contained in
Section 14;
12.2.3 Employee shall have committed an act of sexual
harassment or discrimination;
12.2.4 Employee shall have been convicted of a felony and
sentenced to more than fourteen (14) days in jail;
12.2.5 Employee shall fail or refuse to abide by the lawful
directions set by the Board of Directors.
Notwithstanding the foregoing, in the event the Corporation decides to
terminate Employee under this Paragraph 12.2.5, then the Corporation shall
first give Employee written notice of the breach of this Agreement, specifying
the details thereof and shall give Employee thirty (30) days to cure ("Cure
Period") said conduct. If the conduct is not cured within said thirty (30) day
period, the Corporation may terminate this Agreement at the expiration of the
Cure Period. The Corporation may immediately terminate this Agreement for
violation under Sections 12.2.1, 12.2.3 and 12.2.4.
12.3 CONTINUING OBLIGATIONS. Employee shall be only entitled to a
pro-rata share of basic compensation and benefits, up to the Termination Date,
based on the ratio that the number of days that Employee has performed in
accordance with the terms and provisions of this Agreement in the relevant
term year that bears to three hundred sixty-five (365).
13 EMPLOYEE'S DUTIES UPON TERMINATION. In the event of termination of
working relationship with the Corporation, Employee agrees to deliver promptly
to the Corporation all Corporation owned equipment, notebooks, documents,
memoranda, reports, files, manuals, models, notes, logs, technical data,
software, samples, books, correspondence, lists, or other written or graphic
records,
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<PAGE> 6
keys, credit cards and the like, relating to the Corporation's
business, which are or have been in his possession or under his control.
14 COMPETITIVE ACTIVITIES. During the Employment Period, Employee agrees
that Employee will not, directly or indirectly, work for, provide consulting
services on his own behalf for, own an interest in (excluding a passive
investment in a public company where employee owns less than 5% of the stock of
such company), operate, join, control, or participate in, or be connected as an
officer, employee, agent, independent contractor, partner, shareholder, or
principal of any corporation, partnership, proprietorship, firm, association,
or person marketing products, goods, equipment, and/or services which directly
or indirectly competes with the Corporation's services or products or the
Corporation's business, without the prior written consent of Corporation.
15 NOTICES. Unless otherwise specifically provided, all notices and
demands required to be given hereunder shall be deemed to be duly given at the
time of delivery if such notice or demand is personally delivered, or
forty-eight (48) hours after mailing if such notice or demand is deposited with
the United States Postal Service, postage prepaid, for mailing via registered
or certified mail, return receipt requested, to the Secretary of the Corporation
and to Employee at the addresses set forth below. Such addresses may only be
changed by giving written notice of such change to all of the other Parties
hereto.
To Corporation: Chairman, Board of Directors
Medical Science Systems, Inc.
A Texas Corporation
4400 MacArthur Boulevard, Suite 980
Newport Beach, California 92660
To Employee: Paul J. White
3 Malea
Laguna Niguel, California 92677
Any notice so given by mail or delivery service shall be
deemed effectively given on the date actually received. Any Party
may by like written notice to the other specify a different address
for notice purposes.
16 ENTIRE AGREEMENT. This Agreement and the Confidentiality Agreement
described in Paragraph 16 contain the entire understanding between and among
the Parties hereto, and supersedes any prior written or oral agreement or
negotiations between or
6
<PAGE> 7
among the Parties concerning the subject matter contained herein. There are no
representations, agreements, arrangements, or understanding, oral or written,
between or among the Partie hereto, relating to the subject matter contained
in this Agreement, which are not fully expressed herein.
17 AMENDMENTS. This Agreement shall not be modified or amended except by
a writing signed by Employee and a duly empowered officer of the Corporation.
18 BINDING EFFECT. Subject to the restrictions against transfer or
assignment herein contained, the provisions of this Agreement shall inure to the
benefit of and shall be binding upon the heirs and legatees, successors-in-
interest, personal representatives, estates and assigns of each of the Parties
hereto.
19 CAPTIONS. Captions at the beginning of each numbered section of this
Agreement are solely for the convenience of the Parties and shall not be
deemed part of the context of this Agreement.
20 DEFINITIONS.
20.1 GENDER. As used herein, the masculine, feminine and neuter
gender, and the singular or plural number, shall each be deemed to include the
others whenever the context so indicates.
20.2 LEGAL REPRESENTATIVE. As used herein, the term "legal
representative" shall refer to the executor, administrator, attorney-in-fact,
guardian or conservator of the estate of Employee, Employee's surviving spouse,
if applicable, and any trustee or successor.
21 WAIVER. No waiver of any breach or default of this Agreement by any
Party hereto shall be considered to be a waiver of any other breach or default
of this Agreement.
22 FURTHER ACTS. Each Party hereto agrees to perform any further acts and
to execute and deliver any further documents which may be reasonably necessary
to carry out the provisions of this Agreement.
23 ATTORNEYS' FEES. Should any litigation or arbitration be commenced
between the Parties hereto or their personal representatives concerning any
provision of this Agreement or the rights and duties of any person in relation
thereto, the Party substantially prevailing in such litigation or arbitration
shall be entitled, in addition to such other relief that may be granted, to
all costs, expenses, expert witness fees, etc. and reasonable
7
<PAGE> 8
attorneys' fees.
24 CHOICE OF LAW; VENUE. This Agreement has bee construed under and
governed in accordance with the laws of the State of California. Venue shall be
in Orange County, California.
25 COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall be deemed to be an original, but such counterparts, when taken
together, shall constitute but one Agreement.
26 SEVERABILITY. Should any one or more of the provisions of this
Agreement be determined to be illegal or unenforceable, all other provisions of
this Agreement shall be given effect separately from the provisions so
determined and the other provisions shall not be affected by the illegality or
unenforceability.
27 BINDING ARBITRATION. Any controversy or claim arising out of or
relating to this Agreement, or the breach thereof (whether arising out of
contract, tort, statute or any legal or equitable theory, including, without
limitation, the issue of arbitrability), shall be settled by binding arbitration
administered by the American Arbitration Association in accordance with its
Commercial Arbitration Rules, except as expressly modified in this Agreement,
and judgment on the award rendered by the arbitrator(s) may be entered in any
court having jurisdiction thereof. The arbitration shall be conducted in
Orange County, California. The parties shall have the right to conduct
discovery as if the dispute were being litigated in the California Superior
Court. Without limiting the generality of the foregoing, the limitations on
discovery contained in Section 1283, 1283.50, and 1283.1 of the California Code
of Civil Procedure shall not apply. The only exception to the preceding
provisions of this paragraph 27 is that either party shall have the absolute
right, at any time prior to the entry of the award by the arbitrator, to seek
any provisional remedy including but not limited to temporary injunctive relief
(without waiver of any other rights or remedies under this Agreement) against
the other party or any third party from any court of competent jurisdiction on
such grounds as would exist for the granting of such provisional remedy in the
absence of this Agreement.
28 INDEMNITY. The Corporation shall hold harmless and indemnify Employee
against any and all liabilities, costs, damages, expenses and attorney fees
resulting from or attributable to any and all acts or omissions of Employee
relating to or arising out of Employee's employment with the Corporation
provided that Employee has acted in good faith and in a manner which Employee
reasonably
8
<PAGE> 9
believed to be in, or not opposed to, the best interests of the
Corporation. Except as provided herein, Employee shall not be required to
indemnify or reimburse the Corporation or any insurer for any such liabilities,
costs, damages, expenses and attorneys' fees, relating to or arising out of
actions of Employee undertaken in good faith and in a manner which Employee
reasonably believed to be in, or not opposed to, the best interests of the
Corporation.
29 SUCCESSORS AND ASSIGNS. Except as otherwise provided in this Agreement,
the provisions hereof shall be binding upon and shall inure to the benefit of
the Parties hereto, their personal representatives, heirs, executives,
administrators, successors and/or permitted assigns.
30 ASSIGNMENT. Neither this Agreement nor the rights, duties or
obligations arising hereunder shall be assignable by Employee.
9
<PAGE> 10
31 CONFIDENTIALITY AND INVENTION ASSIGNMENT AGREEMENT (the "CONFIDENTIALITY
AGREEMENT"). Employee will be required to sign and abide by the Corporation's
Confidentiality Agreement attached hereto, which the Corporation requires all
of its employees to sign.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on
the day and year first above written.
DATED: January 1, 1996 MEDICAL SCIENCE SYSTEMS, INC.,
A TEXAS CORPORATION
By: _____________________________
Michael G. Newman
Secretary
By: _____________________________
Kenneth S. Kornman
Chief Scientific Officer
EMPLOYEE
By: _____________________________
Paul J. White
10
<PAGE> 1
EXHIBIT 10.8
AMENDMENT TO EMPLOYMENT AGREEMENT
THIS AMENDMENT TO EMPLOYMENT AGREEMENT (the "Amendment"), by and
between Medical Science Systems, Inc., a Texas corporation (the "Corporation"),
and Paul J. White ("Employee"), is effective this 1st day of August, 1997. The
Corporation and Employee are hereinafter sometimes referred to, individually and
collectively, as a "Party" or the "Parties".
WHEREAS, the Corporation and Employee have previously entered into that
certain employment agreement dated January 1, 1996 (the "Agreement"); and
WHEREAS, the Corporation and Employee desire to amend the terms and
conditions of the Employee's employment with the Corporation.
NOW THEREFORE, in consideration of the promises and of the mutual
covenants and agreements set forth below, the Parties hereto agree to amend the
Agreement as follows:
The final clause of the first paragraph of section three (COMPENSATION)
shall be changed to read ". . . , the Corporation will pay Employee a salary
(the "Salary") at an annual rate of $140,000 per year during the five (5) month
period from August through December of 1997, and at an annual rate of $170,000
for the one-year period from January 1, 1998 through December 31, 1998. For each
fiscal year commencing after December 31, 1998, the Board of Directors (or a
committee thereof) may increase (but not decrease) Employee's annual salary,
award bonuses and stock awards based upon the compensation of comparable
officers at similarly situated companies.
This Amendment is intended to and shall only effect the change set forth
in the preceding paragraph. No other change, amendment, waiver, discharge or
termination shall be effected except by a subsequent written instrument.
IN WITNESS WHEREOF, the Parties hereto have executed this Amendment on
the day and year first above written.
DATED: August 1, 1997 MEDICAL SCIENCE SYSTEMS, INC.,
a Texas corporation
By:
------------------------------------
Paul J. White
President
EMPLOYEE
By:
------------------------------------
Paul J. White
<PAGE> 1
EXHIBIT 10.9
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("AGREEMENT"), by and between Medical Science
Systems, Inc., a Texas Corporation (the "CORPORATION"), and Kenneth S. Kornman
("EMPLOYEE"), is effective this 1st day of January, 1996 ("EFFECTIVE DATE"). The
Corporation and Employee are hereinafter sometimes referred to, individually and
collectively, as a "PARTY" or the "PARTIES."
1 TERM. The term of employment of Employee hereunder shall commence as of the
date hereof and shall continue in full force and effect until the fifth
anniversary of the date hereof (the "INITIAL TERM"), and shall automatically
continue thereafter for successive 12 month periods unless terminated at the end
of such Initial Term or any subsequent 12 month term after the Initial Term by
either party hereto on not less than six months prior written notice to the
other party (the "EMPLOYMENT TERM"). The term of this Agreement shall be
coincident with the Employment Term.
2 DUTIES. Employee shall serve as Chief Scientific Officer of Product Discovery
of the Corporation or such other position as may be agreed between Employee and
the Corporation, and shall perform such duties, services and responsibilities as
are consistent with such position. Employee's duties, services and
responsibilities will be performed under the overall supervision of, the
President of the Corporation. Employee shall also be entitled to serve as a
director of the Corporation.
During the Employment Term, Employee shall devote his full business time,
attention and skill to the performance of such duties, services and
responsibilities, and will use his reasonable efforts to promote the interests
of the Corporation. Employee will not, without the prior written approval of the
Board of Directors, engage in any other business activity which would interfere
with the performance of his duties, services and responsibilities hereunder or
which is in violation of policies established from time to time by the
Corporation. Personal passive investments and personal business affairs not
inconsistent with this Agreement shall not be prohibited.
3 COMPENSATION. In consideration of the performance by Employee of Employee's
obligations during the Employment Term (including any services as an officer,
director, employee, member of any committee
1
<PAGE> 2
of the Corporation or any of its subsidiaries, or otherwise), the Corporation
will pay Employee a salary (the "Salary") at an annual rate of $250,000 per year
during the Employment Term.
The Salary shall be payable in accordance with the normal payroll practices of
the Corporation then in effect. The Salary, and all bonuses or other forms of
compensation paid to Employee hereunder, shall be subject to all applicable
taxes required to be withheld by the Corporation pursuant to federal, state or
local law. Employee shall be solely responsible for income taxes imposed on
Employee by reason of any cash or non-cash compensation and benefits provided
hereunder.
In addition to the payment of the Salary, Employee shall be entitled to
participate in any employee benefit plans then in effect for similarly situated
employees to the extent Employee meets the eligibility requirements for any such
plan, including group insurance, retirement, supplemental pension, bonus plan,
stock option or awards plans; provided, however, that the Corporation shall
provide health or medical insurance benefits to Employee and his spouse or any
dependent of Employee as provided by any health and medical insurance plans
sponsored for employees of the Corporation in general without any eligibility
requirements or waiting periods as permitted under those plans and provided
further that, at Employee's option, Employee shall be entitled to maintain his
current insurance policy and the Corporation shall reimburse or pay directly
Employee's insurance premiums. Employee may switch to the Corporation's plan at
any time.
4 WORKING CONDITIONS. Employee shall be provided with workspace, office
equipment, plain paper fax machine, computer equipment, furniture, supplies, and
such other facilities and services as determined by the Corporation as is
reasonably necessary for the performance of his duties.
5 EXPENSES. The Corporation shall reimburse Employee for all normal and
reasonable business expenses upon presentation of an approved expense report and
related receipts ("Expense Report"). Such reimbursable expenses will include
Employee's business airfare, travel, lodging, car rentals, automobile, meals,
long-distance telephone expenses, subscription dues, car telephone, home
business telephone, home facsimile, mobile telephone, facsimile expenses (or
similar technology as it becomes available) and reasonable client entertainment.
Employee shall be reimbursed for such reasonable business expenses upon the
verification and approval of such expenses. The Corporation shall either approve
or disapprove such expense report no later than thirty (30) days after the
submission of such expense report by Employee, and such report
2
<PAGE> 3
shall be deemed approved unless expressly disapproved by Corporation within the
thirty (30) day period. The Corporation agrees that the accumulation of frequent
flyer mileage benefits shall be credited to Employee personally.
6 MISCELLANEOUS. The Corporation agrees to purchase professional books,
professional journals and publications in an amount that Employee and the
Corporation reasonably agree, for use by Employee during the term of this
Agreement. Such books, publications and journals shall be considered and shall
remain the property of the Corporation. The Corporation shall also pay
continuing education and certification fees of Employee.
7 LIFE INSURANCE. During the Employment Term, the Corporation shall pay the
premium on a policy of life insurance with a value of $1,000,000, naming the
Employee's spouse as beneficiary. At the end of the term of the Agreement all
rights under such policy (including any cash surrender value) shall belong to
Employee; prior thereto, they shall belong to the Corporation.
8 AUTOMOBILE REIMBURSEMENT. In recognition of Employee's need for an automobile
for business purposes, the Corporation shall reimburse Employee Six Hundred
Dollars ($600.00) per month for automobile expenses, including automobile
payments, maintenance, gasoline and car telephone costs incident thereto.
9 VACATION. Employee shall be entitled to four (4) weeks vacation annually,
without loss of compensation, during Employee's full time employment under the
terms of this Agreement. The times for these vacation periods shall be those
most convenient to the Corporation's business, as may be orally agreed upon by
the Corporation. In the event Employee's total accrued vacation is in excess of
twelve (12) weeks vacation at the end of any calendar year (December 31st),
accrual of vacation shall cease.
10 LEAVE OF ABSENCE. Employee shall be entitled to take an unpaid leave of
absence (no compensation or benefits under this Agreement) only if approved by
the Corporation.
11 HOLIDAYS. Employee shall be entitled to all holidays designated by the
Corporation, without loss of compensation.
12 TERMINATION OF AGREEMENT.
12.1 TERMINATION WITHOUT CAUSE. Employee's employment with the
Corporation shall be terminated and, except as provided below, this Agreement
shall terminate as follows:
12.1.1 Whenever the Corporation and Employee shall
3
<PAGE> 4
mutually agree, in writing, to termination; or
12.1.2 Upon the death of Employee; or
12.1.3 If (i) Employee is absent from work for 180 calendar days
in any twelve month period by reason of illness or incapacity (whether physical
or otherwise) or (ii) an independent
4
<PAGE> 5
medical examiner reasonably determines that Employee is unable to perform his
duties, services and responsibilities hereunder by reason of illness or
incapacity (whether physical or otherwise) for a total of 180 calendar days in
any twelve-month period during the Employment Term ("Disability"), the
Corporation shall not be obligated to pay Employee any compensation (Salary or
bonus) for any period in excess of such days; furthermore, any such payments
shall be reduced by any amount Employee is entitled to receive as a result of
such disability under any plan provided through the Corporation or under state
or federal law. If the independent medical examiner certifies that Employee can
work part-time after the expiration of the 180 day period, the Corporation shall
reasonably accommodate Employee to allow him to work part-time. Compensation
will be reduced proportionately. All of Employee's non-compete obligations shall
survive any period of disability.
12.1.4 The existence of a disabling mental or physical condition
and the date upon which such condition preventing performance of such duties
commenced shall be determined by an independent medical examiner. In the event
either party requests to have an independent medical examiner determine whether
Employee is disabled, then the Corporation and Employee agree to meet and confer
in good faith with one another to mutually select an independent medical
examiner. The Corporation or Employee, whichever elects to request an
independent medical examiner, shall give written notice of that election to the
other party. The parties, or their legal representatives, agree to meet, at the
offices of the Corporation, within ten (10) days of the notice of election to
select an independent medical examiner. In the event that after meeting and
conferring in good faith, the Corporation and Employee are unable to agree on
the selection of an independent medical examiner within five (5) days, one
medical examiner shall be selected by the Corporation and one medical examiner
shall be selected by Employee, which two (2) medical examiners shall select a
third medical examiner, and the third medical examiner shall determine, within
fifteen (15) days after his or her appointment, if Employee is disabled. In the
event that Employee (or Employee's legal representative) refuses to meet
promptly with the Corporation to confer in good faith, or Employee (or
Employee's legal representative) fails to select a medical examiner within said
five (5) day period, the Corporation's selection of a medical examiner shall be
binding.
In accordance with the foregoing, Employee (or Employee's legal representative)
shall cooperate fully and comply with any requests made by the Corporation
and/or the medical examiner in allowing said medical examiner to make a
determination whether or not Employee is disabled and the estimated commencement
date of
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<PAGE> 6
Disability.
12.2 TERMINATION FOR CAUSE. Notwithstanding anything herein set forth in
this Agreement to the contrary, the Corporation may, at any time, terminate this
Agreement for "cause." For purposes of this Agreement, "cause" shall include,
but not be limited to, the occurrence of any of the following events:
12.2.1 Employee has committed an act of theft or
embezzlement from or fraud on the Corporation;
12.2.2 Employee shall materially breach any of the terms,
covenants and conditions of this Agreement, which shall include but not be
limited to, any violation of the restrictions against competition contained in
Section 14;
12.2.3 Employee shall have committed an act of sexual
harassment or discrimination;
12.2.4 Employee shall have been convicted of a felony and
sentenced to more than fourteen (14) days in jail;
12.2.5 Employee shall fail or refuse to abide by the lawful
directions set by the Board of Directors.
Notwithstanding the foregoing, in the event the Corporation decides to
terminate Employee under this Paragraph 12.2.5, then the Corporation shall first
give Employee written notice of the breach of this Agreement, specifying the
details thereof and shall give Employee thirty (30) days to cure ("Cure Period")
said conduct. If the conduct is not cured within said thirty (30) day period,
the Corporation may terminate this Agreement at the expiration of the Cure
Period. The Corporation may immediately terminate this Agreement for violation
under Sections 12.2.1, 12.2.3 and 12.2.4.
12.3 CONTINUING OBLIGATIONS. Employee shall be only entitled to a
pro-rata share of basic compensation and benefits, up to the Termination Date,
based on the ratio that the number of days that Employee has performed in
accordance with the terms and provisions of this Agreement in the relevant term
year that bears to three hundred sixty-five (365).
13 EMPLOYEE'S DUTIES UPON TERMINATION. In the event of termination of working
relationship with the Corporation, Employee agrees to deliver promptly to the
Corporation all Corporation owned equipment, notebooks, documents, memoranda,
reports, files, manuals, models, notes, logs, technical data, software, samples,
books, correspondence, lists, or other written or graphic records,
<PAGE> 7
keys, credit cards and the like, relating to the Corporation's business, which
are or have been in his possession or under his control.
14 COMPETITIVE ACTIVITIES. During the Employment Period, Employee agrees that
Employee will not, directly or indirectly, work for, provide consulting services
on his own behalf for, own an interest in (excluding a passive investment in a
public company where employee owns less than 5% of the stock of such company),
operate, join, control, or participate in, or be connected as an officer,
employee, agent, independent contractor, partner, shareholder, or principal of
any corporation, partnership, proprietorship, firm, association, or person
marketing products, goods, equipment, and/or services which directly or
indirectly competes with the Corporation's services or products or the
Corporation's business, without the prior written consent of Corporation.
15 NOTICES. Unless otherwise specifically provided, all notices and demands
required to be given hereunder shall be deemed to be duly given at the time of
delivery if such notice or demand is personally delivered, or forty-eight (48)
hours after mailing if such notice or demand is deposited with the United States
Postal Service, postage prepaid, for mailing via registered or certified mail,
return receipt requested, to the Secretary of the Corporation and to Employee at
the addresses set forth below. Such addresses may only be changed by giving
written notice of such change to all of the other Parties hereto.
To Corporation: President
Medical Science Systems, Inc.
A Texas Corporation
4400 MacArthur Boulevard, Suite 980
Newport Beach, California 92660
To Employee: Kenneth S. Kornman
3007 Orchard Hill
San Antonio, Texas 78230
Any notice so given by mail or delivery service shall be deemed
effectively given on the date actually received. Any Party may by like written
notice to the other specify a different address for notice purposes.
16 ENTIRE AGREEMENT. This Agreement and the Confidentiality Agreement described
in Paragraph 16 contain the entire understanding between and among the Parties
hereto, and supersedes any prior written or oral agreement or negotiations
between or
7
<PAGE> 8
among the Parties concerning the subject matter contained herein. There are no
representations, agreements, arrangements, or understanding, oral or written,
between or among the Parties hereto, relating to the subject matter contained in
this Agreement, which are not fully expressed herein.
17 AMENDMENTS. This Agreement shall not be modified or amended except by a
writing signed by Employee and a duly empowered officer of the Corporation.
18 BINDING EFFECT. Subject to the restrictions against transfer or assignment
herein contained, the provisions of this Agreement shall inure to the benefit of
and shall be binding upon the heirs and legatees, successors-in-interest,
personal representatives, estates and assigns of each of the Parties hereto.
19 CAPTIONS. Captions at the beginning of each numbered section of this
Agreement are solely for the convenience of the Parties and shall not be deemed
part of the context of this Agreement.
20 DEFINITIONS.
20.1 GENDER. As used herein, the masculine, feminine and neuter gender,
and the singular or plural number, shall each be deemed to include the others
whenever the context so indicates.
20.2 LEGAL REPRESENTATIVE. As used herein, the term "legal
representative" shall refer to the executor, administrator, attorney-in-fact,
guardian or conservator of the estate of Employee, Employee's surviving spouse,
if applicable, and any trustee or successor.
21 WAIVER. No waiver of any breach or default of this Agreement by any Party
hereto shall be considered to be a waiver of any other breach or default of this
Agreement.
22 FURTHER ACTS. Each Party hereto agrees to perform any further acts and to
execute and deliver any further documents which may be reasonably necessary to
carry out the provisions of this Agreement.
23 ATTORNEYS' FEES. Should any litigation or arbitration be commenced between
the Parties hereto or their personal representatives concerning any provision of
this Agreement or the rights and duties of any person in relation thereto, the
Party substantially prevailing in such litigation or arbitration shall be
entitled, in addition to such other relief that may be granted, to all costs,
expenses, expert witness fees, etc. and reasonable
8
<PAGE> 9
attorneys' fees.
24 CHOICE OF LAW; VENUE. This Agreement has bee construed under and governed in
accordance with the laws of the State of California. Venue shall be in Orange
County, California.
25 COUNTERPARTS. This Agreement may be executed in counterparts, each of which
shall be deemed to be an original, but such counterparts, when taken together,
shall constitute but one Agreement.
26 SEVERABILITY. Should any one or more of the provisions of this Agreement be
determined to be illegal or unenforceable, all other provisions of this
Agreement shall be given effect separately from the provisions so determined and
the other provisions shall not be affected by the illegality or
unenforceability.
27 BINDING ARBITRATION. Any controversy or claim arising out of or relating to
this Agreement, or the breach thereof (whether arising out of contract, tort,
statute or any legal or equitable theory, including, without limitation, the
issue of arbitrability), shall be settled by binding arbitration administered by
the American Arbitration Association in accordance with its Commercial
Arbitration Rules, except as expressly modified in this Agreement, and judgment
on the award rendered by the arbitrator(s) may be entered in any court having
jurisdiction thereof. The arbitration shall be conducted in Orange County,
California. The parties shall have the right to conduct discovery as if the
dispute were being litigated in the California Superior Court. Without limiting
the generality of the foregoing, the limitations on discovery contained in
Section 1283, 1283.50, and 1283.1 of the California Code of Civil Procedure
shall not apply. The only exception to the preceding provisions of this
paragraph 27 is that either party shall have the absolute right, at any time
prior to the entry of the award by the arbitrator, to seek any provisional
remedy including but not limited to temporary injunctive relief (without waiver
of any other rights or remedies under this Agreement) against the other party or
any third party from any court of competent jurisdiction on such grounds as
would exist for the granting of such provisional remedy in the absence of this
Agreement.
28 INDEMNITY. The Corporation shall hold harmless and indemnify Employee against
any and all liabilities, costs, damages, expenses and attorney fees resulting
from or attributable to any and all acts or omissions of Employee relating to or
arising out of Employee's employment with the Corporation provided that Employee
has acted in good faith and in a manner which Employee reasonably
9
<PAGE> 10
believed to be in, or not opposed to, the best interests of the Corporation.
Except as provided herein, Employee shall not be required to indemnify or
reimburse the Corporation or any insurer for any such liabilities, costs,
damages, expenses and attorneys' fees, relating to or arising out of actions of
Employee undertaken in good faith and in a manner which Employee reasonably
believed to be in, or not opposed to, the best interests of the Corporation.
29 SUCCESSORS AND ASSIGNS. Except as otherwise provided in this Agreement, the
provisions hereof shall be binding upon and shall inure to the benefit of the
Parties hereto, their personal representatives, heirs, executives,
administrators, successors and/or permitted assigns.
30 ASSIGNMENT. Neither this Agreement nor the rights, duties or obligations
arising hereunder shall be assignable by Employee.
10
<PAGE> 11
31 CONFIDENTIALITY AND INVENTION ASSIGNMENT AGREEMENT (THE "CONFIDENTIALITY
AGREEMENT"). Employee will be required to sign and abide by the Corporation's
Confidentiality Agreement attached hereto, which the Corporation requires all of
its employees to sign.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on
the day and year first above written.
DATED: January 1, 1996 MEDICAL SCIENCE SYSTEMS, INC.,
A TEXAS CORPORATION
By:
---------------------------------
Paul J. White
President
By:
---------------------------------
Michael G. Newman
Secretary
EMPLOYEE
By:
---------------------------------
Kenneth S. Kornman
11
<PAGE> 1
EXHIBIT 10.10
AMENDMENT TO EMPLOYMENT AGREEMENT
THIS AMENDMENT TO EMPLOYMENT AGREEMENT (the "Amendment"), by and between
Medical Science Systems, Inc., a Texas corporation (the "Corporation"), and Dr.
Kenneth S. Kornman ("Employee"), is effective this 1st day of August, 1997. The
Corporation and Employee are hereinafter sometimes referred to, individually and
collectively, as a "Party" or the "Parties".
WHEREAS, the Corporation and Employee have previously entered into that
certain employment agreement dated January 1, 1996 (the "Agreement"); and
WHEREAS, the Corporation and Employee desire to amend the terms and
conditions of the Employee's employment with the Corporation.
NOW THEREFORE, in consideration of the promises and of the mutual
covenants and agreements set forth below, the Parties hereto agree to amend the
Agreement as follows:
The final clause of the first paragraph of section three (COMPENSATION)
shall be changed to read ". . . , the Corporation will pay Employee a salary
(the "Salary") at an annual rate of $135,000 per year during the five (5) month
period from August through December of 1997, and at an annual rate of $165,000
for the one-year period from January 1, 1998 through December 31, 1998. For each
fiscal year commencing after December 31, 1998, the Board of Directors (or a
committee thereof) may increase (but not decrease) Employee's annual salary,
award bonuses and stock awards based upon the compensation of comparable
officers at similarly situated companies.
This Amendment is intended to and shall only effect the change set forth
in the preceding paragraph. No other change, amendment, waiver, discharge or
termination shall be effected except by a subsequent written instrument.
IN WITNESS WHEREOF, the Parties hereto have executed this Amendment on
the day and year first above written.
DATED: August 1, 1997 MEDICAL SCIENCE SYSTEMS, INC.,
a Texas corporation
By: ___________________________
Paul J. White
President
EMPLOYEE
By: ___________________________
Dr. Kenneth S. Kornman
<PAGE> 1
EXHIBIT 10.11
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("AGREEMENT"), by and between Medical Science
Systems, Inc., a Texas Corporation (the "CORPORATION"), and Michael G. Newman
("EMPLOYEE"), is effective this 1st day of January, 1996 ("EFFECTIVE DATE"). The
Corporation and Employee are hereinafter sometimes referred to, individually and
collectively, as a "PARTY" or the "PARTIES."
1 TERM. The term of employment of Employee hereunder shall commence as of the
date hereof and shall continue in full force and effect until the fifth
anniversary of the date hereof (the "INITIAL TERM"), and shall automatically
continue thereafter for successive 12 month periods unless terminated at the end
of such Initial Term or any subsequent 12 month term after the Initial Term by
either party hereto on not less than six months prior written notice to the
other party (the "EMPLOYMENT TERM"). The term of this Agreement shall be
coincident with the Employment Term.
2 DUTIES. Employee shall serve as Chief Scientific Officer of Product
Development of the Corporation or such other position as may be agreed between
Employee and the Corporation, and shall perform such duties, services and
responsibilities as are consistent with such position. Employee's duties,
services and responsibilities will be performed under the overall supervision of
the President of the Corporation. Employee shall also be entitled to serve as a
director of the Corporation.
During the Employment Term, Employee shall devote his full business time,
attention and skill to the performance of such duties, services and
responsibilities, and will use his reasonable efforts to promote the interests
of the Corporation. Employee will not, without the prior written approval of the
Board of Directors, engage in any other business activity which would interfere
with the performance of his duties, services and responsibilities hereunder or
which is in violation of policies established from time to time by the
Corporation. Personal passive investments and personal business affairs not
inconsistent with this Agreement shall not be prohibited.
3 COMPENSATION. In consideration of the performance by Employee of Employee's
obligations during the Employment Term (including any services as an officer,
director, employee, member of any committee
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of the Corporation or any of its subsidiaries, or otherwise), the Corporation
will pay Employee a salary (the "Salary") at an annual rate of $250,000 per year
during the Employment Term.
The Salary shall be payable in accordance with the normal payroll practices of
the Corporation then in effect. The Salary, and all bonuses or other forms of
compensation paid to Employee hereunder, shall be subject to all applicable
taxes required to be withheld by the Corporation pursuant to federal, state or
local law. Employee shall be solely responsible for income taxes imposed on
Employee by reason of any cash or non-cash compensation and benefits provided
hereunder.
In addition to the payment of the Salary, Employee shall be entitled to
participate in any employee benefit plans then in effect for similarly situated
employees to the extent Employee meets the eligibility requirements for any such
plan, including group insurance, retirement, supplemental pension, bonus plan,
stock option or awards plans; provided, however, that the Corporation shall
provide health or medical insurance benefits to Employee and his spouse or any
dependent of Employee as provided by any health and medical insurance plans
sponsored for employees of the Corporation in general without any eligibility
requirements or waiting periods as permitted under those plans and provided
further that, at Employee's option, Employee shall be entitled to maintain his
current insurance policy and the Corporation shall reimburse or pay directly
Employee's insurance premiums. Employee may switch to the Corporation's plan at
any time.
4 WORKING CONDITIONS. Employee shall be provided with workspace, office
equipment, plain paper fax machine, computer equipment, furniture, supplies, and
such other facilities and services as determined by the Corporation as is
reasonably necessary for the performance of his duties.
5 EXPENSES. The Corporation shall reimburse Employee for all normal and
reasonable business expenses upon presentation of an approved expense report and
related receipts ("Expense Report"). Such reimbursable expenses will include
Employee's business airfare, travel, lodging, car rentals, automobile, meals,
long-distance telephone expenses, subscription dues, car telephone, home
business telephone, home facsimile, mobile telephone, facsimile expenses (or
similar technology as it becomes available) and reasonable client entertainment.
Employee shall be reimbursed for such reasonable business expenses upon the
verification and approval of such expenses. The Corporation shall either approve
or disapprove such expense report no later than thirty (30) days after the
submission of such expense report by Employee, and such report
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shall be deemed approved unless expressly disapproved by Corporation within the
thirty (30) day period. The Corporation agrees that the accumulation of frequent
flyer mileage benefits shall be credited to Employee personally.
6 MISCELLANEOUS. The Corporation agrees to purchase professional books,
professional journals and publications in an amount that Employee and the
Corporation reasonably agree, for use by Employee during the term of this
Agreement. Such books, publications and journals shall be considered and shall
remain the property of the Corporation. The Corporation shall also pay
continuing education and certification fees of Employee.
7 LIFE INSURANCE. During the Employment Term, the Corporation shall pay the
premium on a policy of life insurance with a value of $1,000,000, naming the
Employee's spouse as beneficiary. At the end of the term of the Agreement all
rights under such policy (including any cash surrender value) shall belong to
Employee; prior thereto, they shall belong to the Corporation.
8 AUTOMOBILE REIMBURSEMENT. In recognition of Employee's need for an automobile
for business purposes, the Corporation shall reimburse Employee Six Hundred
Dollars ($600.00) per month for automobile expenses, including automobile
payments, maintenance, gasoline and car telephone costs incident thereto.
9 VACATION. Employee shall be entitled to four (4) weeks vacation annually,
without loss of compensation, during Employee's full time employment under the
terms of this Agreement. The times for these vacation periods shall be those
most convenient to the Corporation's business, as may be orally agreed upon by
the Corporation. In the event Employee's total accrued vacation is in excess of
twelve (12) weeks vacation at the end of any calendar year (December 31st),
accrual of vacation shall cease.
10 LEAVE OF ABSENCE. Employee shall be entitled to take an unpaid leave of
absence (no compensation or benefits under this Agreement) only if approved by
the Corporation.
11 HOLIDAYS. Employee shall be entitled to all holidays designated by the
Corporation, without loss of compensation.
12 TERMINATION OF AGREEMENT.
12.1 TERMINATION WITHOUT CAUSE. Employee's employment with the
Corporation shall be terminated and, except as provided below, this Agreement
shall terminate as follows:
12.1.1 Whenever the Corporation and Employee shall
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mutually agree, in writing, to termination; or
12.1.2 Upon the death of Employee; or
12.1.3 If (i) Employee is absent from work for 180 calendar days
in any twelve month period by reason of illness or incapacity (whether physical
or otherwise) or (ii) an independent
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medical examiner reasonably determines that Employee is unable to perform his
duties, services and responsibilities hereunder by reason of illness or
incapacity (whether physical or otherwise) for a total of 180 calendar days in
any twelve-month period during the Employment Term ("Disability"), the
Corporation shall not be obligated to pay Employee any compensation (Salary or
bonus) for any period in excess of such days; furthermore, any such payments
shall be reduced by any amount Employee is entitled to receive as a result of
such disability under any plan provided through the Corporation or under state
or federal law. If the independent medical examiner certifies that Employee can
work part-time after the expiration of the 180 day period, the Corporation shall
reasonably accommodate Employee to allow him to work part-time. Compensation
will be reduced proportionately. All of Employee's non-compete obligations shall
survive any period of disability.
12.1.4 The existence of a disabling mental or physical condition
and the date upon which such condition preventing performance of such duties
commenced shall be determined by an independent medical examiner. In the event
either party requests to have an independent medical examiner determine whether
Employee is disabled, then the Corporation and Employee agree to meet and confer
in good faith with one another to mutually select an independent medical
examiner. The Corporation or Employee, whichever elects to request an
independent medical examiner, shall give written notice of that election to the
other party. The parties, or their legal representatives, agree to meet, at the
offices of the Corporation, within ten (10) days of the notice of election to
select an independent medical examiner. In the event that after meeting and
conferring in good faith, the Corporation and Employee are unable to agree on
the selection of an independent medical examiner within five (5) days, one
medical examiner shall be selected by the Corporation and one medical examiner
shall be selected by Employee, which two (2) medical examiners shall select a
third medical examiner, and the third medical examiner shall determine, within
fifteen (15) days after his or her appointment, if Employee is disabled. In the
event that Employee (or Employee's legal representative) refuses to meet
promptly with the Corporation to confer in good faith, or Employee (or
Employee's legal representative) fails to select a medical examiner within said
five (5) day period, the Corporation's selection of a medical examiner shall be
binding.
In accordance with the foregoing, Employee (or Employee's legal representative)
shall cooperate fully and comply with any requests made by the Corporation
and/or the medical examiner in allowing said medical examiner to make a
determination whether or not Employee is disabled and the estimated commencement
date of
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Disability.
12.2 TERMINATION FOR CAUSE. Notwithstanding anything herein set forth in
this Agreement to the contrary, the Corporation may, t any time, terminate this
Agreement for "cause." For purposes of this Agreement, "cause" shall include,
but not be limited to, the occurrence of any of the following events:
12.2.1 Employee has committed an act of theft or
embezzlement from or fraud on the Corporation;
12.2.2 Employee shall materially breach any of the terms,
covenants and conditions of this Agreement, which shall include but not be
limited to, any violation of the restrictions against competition contained in
Section 14;
12.2.3 Employee shall have committed an act of sexual
harassment or discrimination;
12.2.4 Employee shall have been convicted of a felony and
sentenced to more than fourteen (14) days in jail;
12.2.5 Employee shall fail or refuse to abide by the lawful
directions set by the Board of Directors.
Notwithstanding the foregoing, in the event the Corporation decides to
terminate Employee under this Paragraph 12.2.5, then the Corporation shall first
give Employee written notice of the breach of this Agreement, specifying the
details thereof and shall give Employee thirty (30) days to cure ("Cure Period")
said conduct. If the conduct is not cured within said thirty (30) day period,
the Corporation may terminate this Agreement at the expiration of the Cure
Period. The Corporation may immediately terminate this Agreement for violation
under Sections 12.2.1, 12.2.3 and 12.2.4.
12.3 CONTINUING OBLIGATIONS. Employee shall be only entitled to a
pro-rata share of basic compensation and benefits, up to the Termination Date,
based on the ratio that the number of days that Employee has performed in
accordance with the terms and provisions of this Agreement in the relevant term
year that bears to three hundred sixty-five (365).
13 EMPLOYEE'S DUTIES UPON TERMINATION. In the event of termination of working
relationship with the Corporation, Employee agrees to deliver promptly to the
Corporation all Corporation owned equipment, notebooks, documents, memoranda,
reports, files, manuals, models, notes, logs, technical data, software, samples,
books, correspondence, lists, or other written or graphic records,
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keys, credit cards and the like, relating to the Corporation's business, which
are or have been in his possession or under his control.
14 COMPETITIVE ACTIVITIES. During the Employment Period, Employee agrees that
Employee will not, directly or indirectly, work for, provide consulting services
on his own behalf for, own an interest in (excluding a passive investment in a
public company where employee owns less than 5% of the stock of such company),
operate, join, control, or participate in, or be connected as an officer,
employee, agent, independent contractor, partner, shareholder, or principal of
any corporation, partnership, proprietorship, firm, association, or person
marketing products, goods, equipment, and/or services which directly or
indirectly competes with the Corporation's services or products or the
Corporation's business, without the prior written consent of Corporation.
15 NOTICES. Unless otherwise specifically provided, all notices and demands
required to be given hereunder shall be deemed to be duly given at the time of
delivery if such notice or demand is personally delivered, or forty-eight (48)
hours after mailing if such notice or demand is deposited with the United States
Postal Service, postage prepaid, for mailing via registered or certified mail,
return receipt requested, to the Secretary of the Corporation and to Employee at
the addresses set forth below. Such addresses may only be changed by giving
written notice of such change to all of the other Parties hereto.
To Corporation: President
Medical Science Systems, Inc.
A Texas Corporation
4400 MacArthur Boulevard, Suite 980
Newport Beach, California 92660
To Employee: Michael G. Newman
809 Alma Real Drive
Pacific Palisades, California 90272
Any notice so given by mail or delivery service shall be deemed
effectively given on the date actually received. Any Party may by like written
notice to the other specify a different address for notice purposes.
16 ENTIRE AGREEMENT. This Agreement and the Confidentiality Agreement described
in Paragraph 16 contain the entire understanding between and among the Parties
hereto, and supersedes any prior written or oral agreement or negotiations
between or
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among the Parties concerning the subject matter contained herein. There are no
representations, agreements, arrangements, or understanding, oral or written,
between or among the Parties hereto, relating to the subject matter contained in
this Agreement, which are not fully expressed herein.
17 AMENDMENTS. This Agreement shall not be modified or amended except by a
writing signed by Employee and a duly empowered officer of the Corporation.
18 BINDING EFFECT. Subject to the restrictions against transfer or assignment
herein contained, the provisions of this Agreement shall inure to the benefit of
and shall be binding upon the heirs and legatees, successors-in-interest,
personal representatives, estates and assigns of each of the Parties hereto.
19 CAPTIONS. Captions at the beginning of each numbered section of this
Agreement are solely for the convenience of the Parties and shall not be deemed
part of the context of this Agreement.
20 DEFINITIONS.
20.1 GENDER. As used herein, the masculine, feminine and neuter gender,
and the singular or plural number, shall each be deemed to include the others
whenever the context so indicates.
20.2 LEGAL REPRESENTATIVE. As used herein, the term "legal
representative" shall refer to the executor, administrator, attorney-in-fact,
guardian or conservator of the estate of Employee, Employee's surviving spouse,
if applicable, and any trustee or successor.
21 WAIVER. No waiver of any breach or default of this Agreement by any Party
hereto shall be considered to be a waiver of any other breach or default of this
Agreement.
22 FURTHER ACTS. Each Party hereto agrees to perform any further acts and to
execute and deliver any further documents which may be reasonably necessary to
carry out the provisions of this Agreement.
23 ATTORNEYS' FEES. Should any litigation or arbitration be commenced between
the Parties hereto or their personal representatives concerning any provision of
this Agreement or the rights and duties of any person in relation thereto, the
Party substantially prevailing in such litigation or arbitration shall be
entitled, in addition to such other relief that may be granted, to all costs,
expenses, expert witness fees, etc. and reasonable
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attorneys' fees.
24 CHOICE OF LAW; VENUE. This Agreement has bee construed under and governed in
accordance with the laws of the State of California. Venue shall be in Orange
County, California.
25 COUNTERPARTS. This Agreement may be executed in counterparts, each of which
shall be deemed to be an original, but such counterparts, when taken together,
shall constitute but one Agreement.
26 SEVERABILITY. Should any one or more of the provisions of this Agreement be
determined to be illegal or unenforceable, all other provisions of this
Agreement shall be given effect separately from the provisions so determined and
the other provisions shall not be affected by the illegality or
unenforceability.
27 BINDING ARBITRATION. Any controversy or claim arising out of or relating to
this Agreement, or the breach thereof (whether arising out of contract, tort,
statute or any legal or equitable theory, including, without limitation, the
issue of arbitrability), shall be settled by binding arbitration administered by
the American Arbitration Association in accordance with its Commercial
Arbitration Rules, except as expressly modified in this Agreement, and judgment
on the award rendered by the arbitrator(s) may be entered in any court having
jurisdiction thereof. The arbitration shall be conducted in Orange County,
California. The parties shall have the right to conduct discovery as if the
dispute were being litigated in the California Superior Court. Without limiting
the generality of the foregoing, the limitations on discovery contained in
Section 1283, 1283.50, and 1283.1 of the California Code of Civil Procedure
shall not apply. The only exception to the preceding provisions of this
paragraph 27 is that either party shall have the absolute right, at any time
prior to the entry of the award by the arbitrator, to seek any provisional
remedy including but not limited to temporary injunctive relief (without waiver
of any other rights or remedies under this Agreement) against the other party or
any third party from any court of competent jurisdiction on such grounds as
would exist for the granting of such provisional remedy in the absence of this
Agreement.
28 INDEMNITY. The Corporation shall hold harmless and indemnify Employee against
any and all liabilities, costs, damages, expenses and attorney fees resulting
from or attributable to any and all acts or omissions of Employee relating to or
arising out of Employee's employment with the Corporation provided that Employee
has acted in good faith and in a manner which Employee reasonably
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believed to be in, or not opposed to, the best interests of the Corporation.
Except as provided herein, Employee shall not be required to indemnify or
reimburse the Corporation or any insurer for any such liabilities, costs,
damages, expenses and attorneys' fees, relating to or arising out of actions of
Employee undertaken in good faith and in a manner which Employee reasonably
believed to be in, or not opposed to, the best interests of the Corporation.
29 SUCCESSORS AND ASSIGNS. Except as otherwise provided in this Agreement, the
provisions hereof shall be binding upon and shall inure to the benefit of the
Parties hereto, their personal representatives, heirs, executives,
administrators, successors and/or permitted assigns.
30 ASSIGNMENT. Neither this Agreement nor the rights, duties or obligations
arising hereunder shall be assignable by Employee.
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31 CONFIDENTIALITY AND INVENTION ASSIGNMENT AGREEMENT (THE "CONFIDENTIALITY
AGREEMENT"). Employee will be required to sign and abide by the Corporation's
Confidentiality Agreement attached hereto, which the Corporation requires all of
its employees to sign.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on
the day and year first above written.
DATED: January 1, 1996 MEDICAL SCIENCE SYSTEMS, INC.,
A TEXAS CORPORATION
By:
---------------------------------
Paul J. White
President
By:
---------------------------------
Kenneth S. Kornman
Chief Scientific Officer
EMPLOYEE
By:
---------------------------------
Michael G. Newman
11
<PAGE> 1
EXHIBIT 10.12
AMENDMENT TO EMPLOYMENT AGREEMENT
THIS AMENDMENT TO EMPLOYMENT AGREEMENT (the "Amendment"), by and
between Medical Science Systems, Inc., a Texas corporation (the "Corporation"),
and Dr. Michael G. Newman ("Employee"), is effective this 1st day of August,
1997. The Corporation and Employee are hereinafter sometimes referred to,
individually and collectively, as a "Party" or the "Parties".
WHEREAS, the Corporation and Employee have previously entered into that
certain employment agreement dated January 1, 1996 (the "Agreement"); and
WHEREAS, the Corporation and Employee desire to amend the terms and
conditions of the Employee's employment with the Corporation.
NOW THEREFORE, in consideration of the promises and of the mutual
covenants and agreements set forth below, the Parties hereto agree to amend the
Agreement as follows:
The final clause of the first paragraph of section three (COMPENSATION)
shall be changed to read ". . . , the Corporation will pay Employee a salary
(the "Salary") at an annual rate of $135,000 per year during the five (5) month
period from August through December of 1997, and at an annual rate of $165,000
for the one-year period from January 1, 1998 through December 31, 1998. For each
fiscal year commencing after December 31, 1998, the Board of Directors (or a
committee thereof) may increase (but not decrease) Employee's annual salary,
award bonuses and stock award based upon the compensation of comparable officers
at similarly situated companies.
This Amendment is intended to and shall only effect the change set forth
in the preceding paragraph. No other change, amendment, waiver, discharge or
termination shall be effected except by a subsequent written instrument.
IN WITNESS WHEREOF, the Parties hereto have executed this Amendment on
the day and year first above written.
DATED: August 1, 1997 MEDICAL SCIENCE SYSTEMS, INC.,
a Texas corporation
By: ___________________________
Paul J. White
President
EMPLOYEE
By: ___________________________
Dr. Michael G. Newman
<PAGE> 1
EXHIBIT 10.13
SERVICE AGREEMENT
This AGREEMENT is entered into between MEDICAL SCIENCE SYSTEMS, 4400
MACARTHUR BLVD., STE. 980, NEWPORT BEACH, CA 92660 (hereinafter referred to as
"COMPANY"), and BAYLOR COLLEGE OF MEDICINE, DEPARTMENT OF MOLECULAR AND HUMAN
GENETICS, DNA DIAGNOSTIC LABORATORY, located at One Baylor Plaza, Houston, Texas
77030-3498 (hereinafter referred to as "BAYLOR"), with C. SUE RICHARDS, PH.D.
(herein referred to as "PRINCIPAL INVESTIGATOR"). COMPANY, PRINCIPAL
INVESTIGATOR, and BAYLOR may hereinafter be referred to individually as a
"PARTY" and collectively as the "PARTIES".
WHEREAS, COMPANY has developed a genetic test for screening patients for
predisposition to severe periodontal disease (the "PERIODONTAL TEST", defined as
IL1alpha and IL1-beta), the description for which is set forth in Exhibit A
hereto;
WHEREAS, BAYLOR has adequate laboratory facilities and skilled personnel
to perform the PERIODONTAL TEST in accordance with an assay which was developed
at Baylor, using specimens collected from patients, as described in Exhibit A,
under the supervision and direction of PRINCIPAL INVESTIGATOR;
WHEREAS, COMPANY desires to retain BAYLOR to perform the PERIODONTAL TEST
based upon specimens sent to BAYLOR by COMPANY or its customers and to deliver
the results of such tests back to COMPANY on the terms and conditions set forth
in this AGREEMENT ("TEST SERVICES");
WHEREAS, it is anticipated that representatives of each PARTY will receive
or have access to technical and scientific information which is in writing and
is labeled as being confidential by the disclosing PARTY (hereafter referred to
as the "CONFIDENTIAL INFORMATION");
WHEREAS, the PARTIES are willing to maintain such CONFIDENTIAL INFORMATION
in confidence and each believes it would be seriously harmed if the CONFIDENTIAL
INFORMATION were disclosed to third parties;
NOW, THEREFORE, in consideration of the foregoing and the mutual
benefits to be derived from the above-mentioned services and other good and
valuable consideration, the PARTIES do hereby agree as follows:
1.0 Each PARTY agrees to:
1.1 restrict CONFIDENTIAL INFORMATION received solely to its
employees and consultants on a need-to-know basis and solely to
the extent reasonably necessary to enable the PARTIES and their
employees to perform their obligations under this AGREEMENT;
and
- --------
* Confidential Treatment requested.
<PAGE> 2
1.2 not disclose CONFIDENTIAL INFORMATION to any third party unless
prior to such disclosure the PARTY from whom the CONFIDENTIAL
INFORMATION was received shall have expressly agreed in writing
to such a disclosure; and
1.3 use the CONFIDENTIAL INFORMATION solely for the performance of
the PARTIES' obligations under this AGREEMENT and not make
copies thereof, except as necessary to perform such
obligations; and
1.4 instruct all recipients of the CONFIDENTIAL INFORMATION that it
is subject to a Non-Disclosure and Confidentiality Agreement
and cannot be used or disclosed except pursuant to a written
agreement; and
1.5 use, and require all recipients to use, the same degree of
care to protect the CONFIDENTIAL INFORMATION against
unauthorized use or disclosure as the receiving PARTY uses to
protect its own proprietary CONFIDENTIAL INFORMATION.
BAYLOR agrees that the PERIODONTAL TEST, whether disclosed to BAYLOR
in writing or orally, and all results of performing the PERIODONTAL
TEST on specimens hereunder, shall be deemed to be CONFIDENTIAL
INFORMATION subject to the restrictions of this AGREEMENT.
2.0 EXCEPTIONS. Notwithstanding anything to the contrary contained
herein, the PARTY receiving CONFIDENTIAL INFORMATION shall have no
obligation to preserve the confidentiality of any CONFIDENTIAL
INFORMATION (whether received before or after the date of this
AGREEMENT) which:
2.1 has passed into the public domain prior to or after its
disclosure to the PARTY, other than through acts or omissions
attributable to the receiving PARTY; or
2.2 was rightfully obtained subsequent to the date of this
AGREEMENT, other than under binder of secrecy from a third
party not acquiring the CONFIDENTIAL INFORMATION under an
obligation of confidentiality from the disclosing PARTY; or
2.3 the receiving PARTY can show the CONFIDENTIAL INFORMATION was
previously in its possession prior to disclosure thereof by the
disclosing Party; or
2.4 the receiving PARTY is required to disclose by law or legal
process, provided that, prior to any such disclosure the
receiving PARTY will notify the disclosing PARTY that it
intends to make such disclosure; or
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2.5 developed by the recipient independent of the information
received, or performed under, this AGREEMENT.
3.0 RETURN OF CONFIDENTIAL INFORMATION. Upon request, PRINCIPAL
INVESTIGATOR will return all CONFIDENTIAL INFORMATION provided by
COMPANY and all copies thereof. Nothing contained in this AGREEMENT
shall be construed as granting or conferring any rights, by license
or otherwise, in any CONFIDENTIAL INFORMATION disclosed to the
receiving PARTY other than to use such CONFIDENTIAL INFORMATION
in the performance of obligations under this AGREEMENT, in
accordance with Section 1.0 above. Not withstanding the above, a
party may retain a copy of any confidential information of the other
party to the extent required by any regulation or law.
4.0 BAYLOR SERVICES. BAYLOR agrees to perform the PERIODONTAL TEST based
upon specimens shipped to BAYLOR by COMPANY or its customers in
accordance with the requirements set forth in Exhibit A for the
PERIODONTAL TEST. Pricing and payment terms for the performance of
the PERIODONTAL TEST is specified in Exhibit A. BAYLOR will report
the results of the performance of such tests directly to COMPANY,
in accordance with the terms set forth in Exhibit A. BAYLOR warrants
that it has adequate laboratory facilities and skilled personnel to
perform the PERIODONTAL TEST properly developed by Baylor. BAYLOR
warrants that all TEST SERVICES will be performed in accordance
with current laboratory standards, and in compliance with all
applicable federal, state and local laws and regulations.
5.0 NOTICE OF PUBLICATION. BAYLOR agrees to submit a copy to COMPANY of
any proposed publication or presentation relating to the PERIODONTAL
TEST, INVENTIONS, or JOINT INVENTION to COMPANY, for its review, at
least sixty (60) days prior to the estimated date of publication or
presentation of such material to a journal, editor, or other third
party, and if no response is received within thirty (30) days of the
date submitted to COMPANY, it will be conclusively presumed that the
presentation or publication may proceed without delay. If COMPANY
determines that the proposed presentation or publication contains
patentable subject matters which require protection or CONFIDENTIAL
INFORMATION, COMPANY may request the delay of the presentation or
publication for a period of time not to exceed ninety (90) days for
the purpose of allowing the pursuit of such protection. In the event
that COMPANY identifies CONFIDENTIAL INFORMATION contained in the
proposed presentation or publication, the PARTIES shall discuss
changes which shall prevent disclosure of CONFIDENTIAL INFORMATION.
Title to any copyrightable material produced or composed in relation
to such presentation or publication by BAYLOR or its RESEARCHERS
shall remain with BAYLOR and RESEARCHERS, provided that BAYLOR and
its RESEARCHERS shall grant to
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COMPANY an irrevocable, royalty-free, non-exclusive right to
reproduce, distribute and use all such copyrighted material in
conjunction with the approval, registration, marketing or sale of
the PERIODONTAL TEST or any INVENTION or JOINT INVENTION. In all
such cases, COMPANY will use its best efforts to implement such
protection in ways that minimize the impact on planned publication
schedules.
6.0 INDEMNIFICATION
6.1 BAYLOR'S INDEMNIFICATION. COMPANY shall indemnify, defend and
hold harmless BAYLOR and its researchers, their affiliates,
officers, directors, employees and agents from any and all
claims, demands, suits or proceedings arising out of any side
effect, adverse reaction or illness occurring as a result of
the performance of the PERIODONTAL TEST, provided, however,
any such injury, loss or damage is not due to the negligence
or intentional misconduct of BAYLOR or its RESEARCHERS,
and the PERIODONTAL TEST has been administered in accordance
with the assay supplied by COMPANY and any other protocol or
instructions that COMPANY may supply from time to time to
BAYLOR for the performance of the PERIODONTAL TEST. The
foregoing indemnity is subject to the conditions that (i)
BAYLOR and its RESEARCHERS promptly notify COMPANY in writing
after BAYLOR or its RESEARCHERS receives notice of any claim;
(ii) COMPANY is given the opportunity, at its option at any
time during the pendency of such claim, to have the sole
control of the defense, trial and/or any related settlement
negotiations; and (iii) BAYLOR and its RESEARCHERS fully
cooperate with COMPANY in the defense, trial and/or settlement
of any such claim.
6.2 COMPANY'S INDEMNIFICATION. BAYLOR shall indemnify, defend and
hold harmless COMPANY and its affiliates, officers, directors,
employees and agents from any and all claims, demands, suits or
proceedings arising out of the negligence or willful act of
BAYLOR or its RESEARCHERS or the performance of this AGREEMENT.
The foregoing indemnity is subject to the conditions that (i)
COMPANY promptly notifies BAYLOR in writing after COMPANY
receives notice of any claim; (ii) BAYLOR is given the
opportunity, at its option at any time during the pendency of
such claim, to have the sole control of the defense, trial
and/or any related settlement negotiations; and (iii) COMPANY
fully cooperates with BAYLOR in the defense, trial and/or
settlement of any such claim.
7.0 TERM AND TERMINATION
7.1 EFFECTIVE DATE. This AGREEMENT shall become effective as of
its execution by both PARTIES and shall continue in effect
until terminated as set forth herein.
7.2 TERMINATION. Either PARTY may, upon thirty (30) days written
notice to the other PARTY, terminate this Agreement in the
event of a material breach of this
4
<PAGE> 5
AGREEMENT by the other PARTY; provided, however, if such breach
is cured within such thirty (30) day period, this AGREEMENT
shall not be terminated. Either PARTY may terminate this
AGREEMENT for any reason or no reason, at any time, upon six
(6) months advance written notice to the other PARTY.
7.3 RETURN OF CONFIDENTIAL INFORMATION. Upon AGREEMENT termination,
each PARTY shall return all CONFIDENTIAL INFORMATION and copies
of CONFIDENTIAL INFORMATION of the other PARTY within its
possession or under its control to the other PARTY, within ten
(10) days thereof. COMPANY shall,within thirty (30) days of
termination, pay any sums due and owing to BAYLOR hereunder.
The provisions of Paragraphs 3.0, 5.0-7.0, 8.1, and 9.0-15.0
shall survive the termination of expiration of this AGREEMENT.
The provisions of Paragraph 1.0 of this AGREEMENT shall
survive. In accordance with Paragraph 12.0 below. Not
withstanding the above, a party may retain a copy of any
confidential information of the other party to the extent
required by any regulation or law.
8.0 RECORD KEEPING. PARTIES agree that unauthorized disclosure of
CONFIDENTIAL INFORMATION would result in irreparable harm.
Accordingly, in the event that a PARTY breaches its obligations
as provided under the AGREEMENT by disclosure or use of CONFIDENTIAL
INFORMATION, it is agreed by the PARTIES that the injured PARTY
shall be entitled to enjoin any further breach and may take such
additional action as it deems necessary and appropriate, including
seeking damages in any court of competent jurisdiction.
8.1 CONFIDENTIALITY. Either PARTY may disclose CONFIDENTIAL
INFORMATION to the extent, but only to the extent, that
disclosure is reasonably necessary in prosecuting or defending
litigation where material harm to the disclosing PARTY would
otherwise result (but such disclosure shall be subject to an
appropriate protective order in such litigation) or in
complying with or demonstrating compliance with government
regulations.
8.2 RECORD ACCESS. Each PARTY shall keep and allow the other
PARTY reasonable access to full and accurate books and records
of all services rendered under this AGREEMENT as required by
state and/or federal law.
9.0 USE OF BAYLOR NAME. COMPANY agrees that it will not at any time
during or following termination of this AGREEMENT use the name of
BAYLOR or any other names, insignia, symbol(s), or logotypes
associated with BAYLOR or any variant, or variants thereof, or the
names of the Principal Investigator, or any other BAYLOR faculty
member or employee, orally or in any literature, advertising, or
other materials (other than simply to state that BAYLOR will perform
the PERIODONTAL TEST for COMPANY and its customers) without the
prior written consent of BAYLOR, which consent may be withheld at
BAYLOR'S sole discretion.
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<PAGE> 6
10.0 CONFIDENTIALITY OF TRADE SECRETS AND OTHER INTELLECTUAL PROPERTY.
BAYLOR agrees to make no public presentations about the PERIODONTAL
TEST or this AGREEMENT outside of appropriate scientific meetings,
to issue no news releases about the PERIODONTAL TEST or this
AGREEMENT, and neither PARTY shall make use of the other's name, in
any form of public information, without the written permission of
the other PARTY, except as permitted in this paragraph or in
paragraph 10.0 above.
11.0 SURVIVAL. Except as provided in Paragraph 2.0, the provisions of
this AGREEMENT shall continue as to any item of CONFIDENTIAL
INFORMATION disclosed for a period of five (5) years following
termination or expiration of this AGREEMENT.
12.0 INSURANCE.
12.1 BAYLOR'S INSURANCE OBLIGATIONS. Throughout the term of this
AGREEMENT, BAYLOR shall provide the following insurance or
equivalent coverage through the self-insurance program of
BAYLOR:
12.1.1 Worker's compensation and employer's liability insurance
covering its statutory and legal obligations for
employee, job-related injuries. Said policy shall
provide at least for statutory benefits;
12.1.2 General liability insurance coverage for third-party
claims for bodily injury and property damage with
limits of at least one million dollars ($1,000,000)
per occurrence and two million dollars ($2,000,000)
annual aggregate.
All such insurance shall contain a waiver of subrogation pursuant
to which the insurer waives all express and implied rights of
subrogation against COMPANY and its directors, officers, staff
members, employees, and agents. Upon receipt of COMPANY's written
request, BAYLOR shall provide COMPANY with certificates evidencing
the above insurance or equivalent coverages.
12.2 COMPANY'S INSURANCE OBLIGATIONS. During the term of this
Agreement, COMPANY shall provide the following insurance:
12.2.1 Worker's compensation and employer's liability insurance
covering its statutory and legal obligations for
employee job-related injuries. Said policy shall at
least provide for statutory benefits;
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<PAGE> 7
12.2.2 General liability insurance coverage for third-party
claims for bodily injury and property damage with
limits of at least one million dollars ($1,000,000)
per occurrence and two million dollars ($2,000,000)
annual aggregate;
All such insurance shall contain a waiver of subrogation
pursuant to which the insurer waives all express and implied
rights of subrogation against BAYLOR and its trustees,
officers, employees, residents, faculty, and agents.
12.3 Proof of Insurance. Upon receipt of a written request from
either PARTY, the other PARTY shall provide the requesting
PARTY with certificates evidencing the above insurance
coverage.
13.0 NOTICES. Except as otherwise expressly provided herein, all notices
required or permitted to be given under this AGREEMENT must be in
writing and must either be delivered personally to the designated
agent of the PARTY to whom the notice is directed or be mailed by
registered or certified mails, return receipt requested, addressed
as shown below. Either PARTY may, at any time, change the address
for notices by delivering or mailing, as aforesaid, a notice stating
the change and setting forth the changed address. Any notice
hereunder shall be deemed effective when personally delivered or
when deposited, postage prepaid, with the United States Postal
Services, addressed as herein before provided. Notice must be given
to the following:
MEDICAL SCIENCE SYSTEMS BAYLOR COLLEGE OF MEDICINE
ATTN: PAUL WHITE, J.D. ATTN: C. SUE RICHARDS, PH.D.
President Laboratory Director
Medical Science Systems Baylor DNA Diagnostic Laboratory
4400 MacArthur Blvd, Suite 980 Department of Molecular and Human
Newport Beach, CA 92660 Genetics
One Baylor Plaza
Houston, TX 77030-3498
14.0 This AGREEMENT shall inure to the benefit of and be binding upon
the PARTIES.
15.0 ASSIGNMENT. This AGREEMENT and all rights and obligations hereunder
are personal to the PARTIES hereto and may not be assigned without
the express prior written consent of the other PARTY. Any assignment
or attempt to assign in the absences of such written consent shall
be void and without effect.
7
<PAGE> 8
16.0 SEVERABILITY. Each provision of this AGREEMENT shall be considered
separable and, if for any reason, a provision which is not essential
to the effectuation of the basic purposes of the AGREEMENT is
determined to be invalid or contrary to any existing or future law,
such invalidity shall not impair the operation of or affect those
provisions of this AGREEMENT that are valid.
17.0 FORCE MAJEURE. Neither PARTY shall be liable nor deemed to be in
default for any delay or failure in performance under this AGREEMENT
or other interruption of service deemed resulting, directly or
indirectly, from acts of God, acts of public enemy, war, accidents,
fires, explosions, hurricanes, floods, failure of transportation,
strikers, or other work interruptions by either PARTY's employees,
or any similar cause beyond the reasonable control of either PARTY.
18.0 WAIVER. A waiver by either PARTY of breach or violation of any
provision or clause of this AGREEMENT shall not operate as, or be
construed to be, a waiver of any subsequent breach of this
AGREEMENT. No delay in acting with regard to any breach of this
AGREEMENT shall be construed to be a waiver of such breach.
19.0 NON-DISCRIMINATION. The PARTIES hereby agree that neither PARTY
shall fail or refuse to hire or to discharge any individual, or
otherwise to discriminate against any individual with respect to his
or her compensation, terms, conditions or privileges OF employment
under any provision of this AGREEMENT, because of such individual's
race, color, religion, sex, age, veteran status, handicap or
national origin.
20.0 AGREEMENT EXECUTION. Each multiple original of this document shall
be deemed an original, but all multiple copies together shall
constitute one and the same instrument.
21.0 ENTIRE AGREEMENT. This AGREEMENT sets forth the entire agreement of
the PARTIES with respect to the subject matter contained herein and
may not be modified, amended, or discharged, except as expressly
stated herein or by a written agreement duly executed by all PARTIES
hereto.
22.0 CAPTIONS. All captions in this Agreement are solely for convenience
and are not part of this agreement.
8
<PAGE> 9
IN WITNESS WHEREOF, the PARTIES hereto have caused this AGREEMENT to be
executed in duplicate and delivered this AGREEMENT as of the date and year as
executed below.
MEDICAL SCIENCE SYSTEMS BAYLOR COLLEGE OF MEDICINE
Department of Molecular and Human
Genetics.
/s/ PAUL WHITE /s/ C. SUE RICHARDS
- --------------------------------- --------------------------------
Signature C. Sue Richards, Ph.D
Laboratory Director
Baylor DNA Diagnostic Laboratory
Paul White, J.D.
President
Date: 12-7-96 Date: 12-3-97
------- -------
9
<PAGE> 10
EXHIBIT A
REFERRAL SERVICE
Performing the PERIODONTAL TEST of COMPANY.
DEFINITION OF PERIODONTAL TEST:
IL-1alpha and IL-1 beta
SPECIMEN REQUIREMENTS
Buccal Swab: two swabs per patient, 40 seconds each from both cheeks
Blood: Blood spots on filter paper/cardboard mounts from finger sticks
SHIPPING SAMPLES
Overnight shipping (within the United States only) will be provided BY Baylor
via AIRBORNE EXPRESS. Company will be responsible for all international
shipping. Company will arrange for specimens to be shipped directly to Baylor.
Specimens will not be received on weekends. Company will request referring
physicians to mark packages appropriately for weekday arrival at Baylor.
Specific information should be preprinted on Airborne air-bills:
- the TO section should have the Baylor DNA Lab's address filled in
- the BILL RECEIVER box should be checked and the Baylor DNA Lab's
account # should be printed on the line next to it
- the NUMBER OF PKGS box should say 1
- the WEIGHT box should say 1 lb
Baylor will not pay for shipping of unmarked packages
- LAB PACK should be checked
- TYPE of service should be checked Express
REPORTING
BAYLOR will report batched test results directly to COMPANY via diskette. BAYLOR
will provide patient and doctor data agreed to by both parties to COMPANY.
WEEKLY TESTING
AS of the Effective Date, the Baylor DNA laboratory plans to run the PST(TM)
weekly. Sample shipments will need to be scheduled to arrive no later than
Friday afternoon in order to make the next run date.
BILLING
BAYLOR will bill COMPANY monthly for submitted samples.
10
<PAGE> 11
[ * ]
11
<PAGE> 1
EXHIBIT 10.14
STANDARD LEASE
BETWEEN
KOLL CENTER NEWPORT NUMBER 9
LANDLORD
AND
MEDICAL SCIENCE SYSTEMS, INC.
TENANT
<PAGE> 2
OFFICE BUILDING LEASE
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
1. BASIC LEASE TERMS............................................. 1
2. PREMISES AND COMMON AREAS..................................... 3
3. TERM.......................................................... 3
4. POSSESSION.................................................... 3
5. RENT.......................................................... 4
6. OPERATING EXPENSES............................................ 4
7. SECURITY DEPOSIT. ............................................ 5
8. USE........................................................... 5
9. NOTICES....................................................... 5
10. BROKERS....................................................... 6
11. SURRENDER; HOLDING OVER....................................... 6
12. TAXES ON TENANT'S PROPERTY.................................... 6
13. ALTERATIONS................................................... 6
14. REPAIRS....................................................... 7
15. LIENS......................................................... 8
16. ENTRY BY LANDLORD............................................. 8
17. UTILITIES AND SERVICES........................................ 8
18. ASSUMPTION OF RISK AND INDEMNIFICATION........................ 8
19. INSURANCE..................................................... 9
20. DAMAGE OR DESTRUCTION......................................... 10
21. EMINENT DOMAIN................................................ 11
22. DEFAULTS AND REMEDIES......................................... 12
23. LANDLORD'S DEFAULT............................................ 13
24. ASSIGNMENT AND SUBLETTING..................................... 13
25. SUBORDINATION................................................. 15
26. ESTOPPEL CERTIFICATE.......................................... 15
27. BUILDING PLANNING............................................. 15
28. RULES AND REGULATIONS......................................... 16
29. MODIFICATION AND CURE RIGHTS OF LANDLORD'S
MORTGAGES AND LESSORS......................................... 16
30. DEFINITION OF LANDLORD........................................ 16
31. WAIVER........................................................ 16
32. PARKING....................................................... 16
33. FORCE MAJEURE................................................. 17
34. SIGNS......................................................... 17
35. LIMITATION ON LIABILITY....................................... 18
36. FINANCIAL STATEMENTS.......................................... 18
37. QUIET ENJOYMENT............................................... 18
38. MISCELLANEOUS................................................. 18
39. EXECUTION OF LEASE............................................ 19
SIGNATURE PAGE.............................................. 19
EXHIBITS:
A-I Site Plan
A-II Outline of Floor Plan of Premises
B Rentable Square Feet and Usable Square Feet
C Work Letter Agreement
D Notice of Lease Term Dates and Tenant's Percentage
E Definition of Operating Expenses
F Standards for Utilities and Services
G Estoppel Certificate
H Rules and Regulations
</TABLE>
<PAGE> 3
OFFICE BUILDING LEASE
This OFFICE BUILDING LEASE ("Lease") is entered into as of the 21 day of March,
1996 by and between Koll Center Newport Number 9, a California Limited
Partnership ("Landlord"), and Medical Science Systems, Inc., a Texas
Corporation ("Tenant").
1. BASIC LEASE TERMS. For purposes of this Lease, the following terms
have the following definitions and meanings:
(a) LANDLORD: Koll Center Newport Number 9, a California Limited Partnership
(b) LANDLORD'S ADDRESS (FOR NOTICES): 4350 Von Karman Avenue, Suite 100,
Newport Beach, CA 92660. Attention: KCN 9 Manager, or such other place as
Landlord may from time to time designate by notice to Tenant.
(c) TENANT: Medical Science Systems, Inc., a Texas Corporation.
(d) TENANT'S ADDRESS (PREMISES): 4400 MacArthur Boulevard, Suite 980, Newport
Beach, CA 92660. Attention: Paul White.
(e) DEVELOPMENT: The parcel(s) of real property commonly known as Koll Center
Newport and located in the City of Newport Beach (the "City"), County of Orange
(the "County"), State of California ("State"), as shown on the site plan
attached hereto as Exhibit "A-1".
(f) BUILDING: A nine (9) story office building located within the Development,
which Building contains approximately 150,987 Rentable Square Feet, with the
street address of 4400 MacArthur Boulevard.
(g) PREMISES: Those certain premises known as Suite 980 as generally shown on
the floor plan attached hereto as Exhibit "A-II", located on the ninth (9th)
floor(s) of the Building, which Premises contains approximately 1,798 Rentable
Square Feet and 1,605 Usable Square Feet (subject to adjustment as provided in
Exhibit "B" and Exhibit "D").
(h) TENANT'S PERCENTAGE: Tenant's percentage of the Building on a Rentable
Square Foot basis, which initially is 1.1908%, subject to final determination
as provided in Exhibit "B" and Exhibit "D".
(i) TERM: Five (5) Lease Years and Zero (0) Months.
(j) ESTIMATED COMMENCEMENT DATE: April 15, 1996.
ESTIMATED EXPIRATION DATE: April 14, 2001.
(k) COMMENCEMENT DATE: The date on which the Term of this Lease will commence
as determined in accordance with the provisions of Exhibit "C" and as stated on
Exhibit "D".
(l) MONTHLY BASE RENT: $2,697.00.
<PAGE> 4
(n) OPERATING EXPENSE ALLOWANCE: Operating Expense Allowance means that portion
of Tenant's Percentage of Operating Expenses as described in Paragraph 6 below
which Landlord has included in Monthly Base Rent, which, for purposes of this
Lease, will be an amount equal to Tenant's Percentage of Operating Expenses for
the Building for the 1996 Calendar Year*
(o) SECURITY DEPOSIT: $2,966.70
(p) TENANT IMPROVEMENTS: All tenant improvements installed or to be installed
by Landlord or Tenant within the Premises to prepare the Premises for occupancy
pursuant to the terms of the Work Letter Agreement attached hereto as Exhibit
"C".
(r) PERMITTED USE: General office use consistent with other Class "A" office
uses at Koll Center Newport and no other use without the express written
consent of Landlord, which consent Landlord may withhold in its sole and
absolute discretion.
(s) PARKING: Up to six (6) unreserved employee parking spaces for the initial
lease term and one (1) reserved employee parking spaces for the initial Lease
Term subject to the terms and conditions of Paragraph 32 and Paragraph 42 below
and the Rules and Regulations regarding parking contained in Exhibit "H".
(t) BROKER(S): Koll Marketing Group
(u) GUARANTOR(S): N/A
(v) INTEREST RATE: shall mean the greater of ten percent (10%) per annum or two
percent (2%) in excess of the prime lending reference rate of Wells Fargo Bank
N.A. or any successor bank in effect on the twenty-fifth (25th) day of the
calendar month immediately prior to the event giving rise to the Interest Rate
imposition; provided, however, the Interest Rate will in no event exceed the
maximum interest rate permitted to be charged by applicable law.
(w) EXHIBITS: "A-I" through "H", inclusive, which Exhibits are attached to
this Lease and incorporated herein by this reference. As provided in Paragraph
3 below, a completed version of Exhibit "D" will be delivered to Tenant after
Landlord delivers possession of the Premises to Tenant.
(x) ADDENDUM PARAGRAPHS: 40 through 44, inclusive, which Addendum Paragraphs
are attached to this Lease and incorporated herein by this reference.
This Paragraph 1 represents a summary of the basic terms and definitions of
this Lease. In the event of any inconsistency between the terms contained in
this Paragraph 1 and any specific provisions of this Lease, the terms of the
more specific provision shall prevail.
*In no event shall Tenant pay Operating Expenses in excess of the Operating
Expense Allowance during the 1996 Calendar Year.
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<PAGE> 5
2. PREMISES AND COMMON AREAS.
(a) PREMISES. Landlord hereby leases to Tenant and Tenant hereby leases from
Landlord the Premises as improved or to be improved with the Tenant
improvements described in the Work Letter Agreement, a copy of which is
attached hereto as Exhibit "C".
(b) MUTUAL COVENANTS. Landlord and Tenant agree that the letting and hiring of
the Premises is upon and subject to the terms, covenants and conditions
contained in this Lease and each party covenants as a material part of the
consideration for this Lease to keep and perform their respective obligations
under this Lease.
(c) TENANT'S USE OF COMMON AREAS. During the Term of this Lease. Tenant shall
have the nonexclusive right to use in common with Landlord and all persons,
firms and corporations conducting business in the Development and their
respective customers, guests, licensees, invitees, subtenants, employees and
agents (collectively, "Development Occupants"), subject to the terms of this
Lease, the Rules and Regulations referenced in Paragraph 32 below and all
covenants, conditions and restrictions now or hereafter affecting the
Development, the following common area of the Building and/or the Development
(collectively, the "Common Areas"):
(i) The Building's common entrances, hallways, lobbies, public restrooms on
multi-tenant floors, elevators, stairways and accessways, loading docks, ramps,
drives and platforms and any passageways and serviceways thereto, and the
common pipes, conduits, wires and appurtenant equipment within the Building
which serve the Premises (collectively, "Building Common Areas"); and
(ii) The parking facilities of the Development which serve the Building
(subject to the provisions of Exhibit "H"), loading and unloading areas, trash
areas, roadways, sidewalks, walkways, parkways, driveways, landscaped areas,
plaza areas, fountains and similar areas and facilities situated within the
Development and appurtenant to the Building which are not reserved for the
exclusive use of any Development Occupants (collectively, "Development Common
Areas").
(d) LANDLORD'S RESERVATION OF RIGHTS. Provided Tenant's use of and access to
the Premises and parking to be provided to Tenant under this Lease is not
interfered with in an unreasonable manner. Landlord reserves for itself and for
all other owner(s) and operator(s) of the Development Common Areas and the
balance of the Development, the right from time to time to (i) install, use,
maintain, repair, replace and relocate pipes, ducts, conduits, wires and
appurtenant meters and equipment above the ceiling surfaces, below the floor
surfaces, within the walls and in the central core areas of the Building; (ii)
make changes to the design and layout of the Development, including, without
limitation, changes to buildings, driveways, entrances, loading and unloading
areas, direction of traffic, landscaped areas and walkways, and, subject to the
parking provisions contained in Paragraph 32 and Exhibit "H", parking spaces
and parking areas; and (iii) use or close temporarily the Building Common
Areas, the Development Common Areas and/or other portions of the Development
while engaged in making improvements, repairs or alterations to the Building,
the Development, or any portion thereof.
3. TERM. The term of this Lease ("Term") will be for the period designated
in Subparagraph 1(i), commencing on the Commencement Date, and ending on the
last day of the month in which the expiration of such period occurs, including
any extensions of the Term pursuant to any provision of this Lease or written
agreement of the parties. Notwithstanding the foregoing, if the Commencement
Date falls on any day other than the first day of a calendar month then the
Term of this Lease will be measured from the first day of the month following
the month in which the Commencement Date occurs. Each consecutive twelve (12)
month period of the Term of this Lease, commencing on the Commencement Date,
will be referred to herein as a "Lease Year". Landlord's Notice of Lease Term
Dates and Tenant's Percentage ("Notice"), in the form of Exhibit "D" attached
hereto, will set forth the Commencement Date, the date upon which the Term of
this Lease shall end, the Rentable Square Feet within the Premises and the
Building and Tenant's Percentage and will be delivered to Tenant after Landlord
delivers possession of the Premises to Tenant. The Notice will be binding upon
Tenant unless Tenant objects to the Notice in writing within five (5) days of
Tenant's receipt of the Notice.
4. POSSESSION.
(a) DELIVERY OF POSSESSION. Landlord agrees to deliver possession of the
Premises to Tenant in accordance with the terms of the Work Letter Agreement
attached hereto as Exhibit "C", or, if no Work Letter Agreement is required for
this Lease, then Landlord agrees to deliver possession of the Premises to
Tenant on the Commencement Date; provided, however, Tenant agrees that if
Landlord is unable to deliver possession of the Premises to Tenant on the
Commencement Date for any reason other than Tenant Delays as defined in Exhibit
"C", then this Lease will not be void or voidable and Landlord will not be
liable to Tenant for any loss or damage resulting therefrom, but the
Commencement Date and the Expiration Date will be extended by the number of
days Landlord is late in delivering the Premises to Tenant, and rent will not
commence to accrue under this Lease until Landlord delivers the Premises to
Tenant. Notwithstanding the foregoing, Landlord will not be obligated to
deliver possession of the Premises to Tenant (but Tenant will be liable for
rent if Landlord can otherwise deliver the Premises to Tenant) until Landlord
has received from Tenant all of the following: (i) a copy of this Lease fully
executed by Tenant; (ii) the Security Deposit and the first installment of
Monthly Base Rent; (iii) executed copies of policies of insurance or
certificates thereof as required under Paragraph 19 of this Lease; (iv) copies
of all governmental permits and authorizations, if any, required in connection
with Tenant's operation of its business within the Premises; and (v) if Tenant
is a corporation or partnership, such evidence of due formation, valid
existence and authority as Landlord may reasonably require, which may include,
without limitation, a certificate of good standing, certificate of secretary,
articles of incorporation, statement of partnership, or other similar
documentation.
(b) CONDITION OF PREMISES. Prior to the Commencement Date and in accordance
with the Work Letter Agreement attached hereto as Exhibit "C", Landlord and
Tenant will jointly conduct a walk-through inspection of the Premises and will
jointly prepare a punch-list ("Punch-List") of items required to be installed
by Landlord under the Work Letter Agreement which require finishing or
correction. The Punch-List will not include any items of damage to the Premises
caused by Tenant's move-in or early entry, if permitted, which damage will be
corrected or repaired by Landlord, at Tenant's expense or, at Landlord's
election, by Tenant, at Tenant's expense. Other than the items specified in the
Punch-List, and except for latent defects, by taking possession of the
Premises, Tenant will be deemed to have accepted the Premises in its condition
on the date of delivery of possession and to have acknowledged that the Tenant
-3-
<PAGE> 6
Improvements have been installed as required by the Work Letter Agreement and
that there are no additional items needing work or repair. Landlord will cause
all items in the Punch-List to be repaired or corrected within thirty (30) days
following the preparation of the Punch-List or as soon as practicable after the
preparation of the Punch-List. Tenant acknowledges that neither Landlord nor
any agent of Landlord has made any representation or warranty with respect to
the Premises, the Building, the Development or any portions thereof or with
respect to the suitability of same for the conduct of Tenant's business and
Tenant further acknowledges that Landlord will have no obligation to construct
or complete any additional buildings or improvement within the Development.
5. RENT.
(a) MONTHLY BASE RENT. Tenant agrees to pay Landlord the Monthly Base Rent for
the Premises (subject to adjustment as hereinafter provided) in advance on the
first day of each calendar month during the Term without prior notice or
demand, except that Tenant agrees to pay the Monthly Base Rent for the first
month of the Term directly to Landlord prior to Tenant's occupancy of the
Premises. If the Term of this Lease commences or ends on a day other than the
first day of a calendar month, then the rent for such period will be prorated
in the proportion that the number of days this Lease is in effect during such
period bears to the number of days in such month. All rent must be paid to
Landlord, without any deduction or offset, in lawful money of the United States
of America, at the address designated by Landlord or to such other person or at
such other place as Landlord may from time to time designate in writing.
Monthly Base Rent will be adjusted during the Term of this Lease as provided in
Subparagraph 1(m).
(b) ADDITIONAL RENT. All amounts and charges to be paid by Tenant hereunder,
including, without limitation, payments for Operating Expenses, insurance,
repairs and parking, will be considered additional rent for purposes of this
Lease, and the word "rent" as used in this Lease will include all such
additional rent unless the context specifically or clearly implies that only
Monthly Base Rent is intended.
(c) LATE PAYMENTS. Late payments of Monthly Base Rent and/or any item of
additional rent will be subject to interest and a late charge as provided in
Subparagraph 22(f) below.
6. OPERATING EXPENSES.
(a) OPERATING EXPENSES. In addition to Monthly Base Rent, throughout the Term
of this Lease beginning on January 1, 1997, Tenant agrees to pay Landlord as
additional rent in accordance with the terms of this Paragraph 6, Tenant's
Percentage of Operating Expenses as defined in Exhibit "E" attached hereto to
the extent Tenant's Percentage of Operating Expenses exceeds Tenant's Operating
Expense Allowance.
(b) ESTIMATE STATEMENT. Prior to the Commencement Date and on or about March
1st of each subsequent calendar year during the Term of this Lease, Landlord
will endeavor to deliver to Tenant a statement ("Estimate Statement") wherein
Landlord will estimate both the Operating Expenses and Tenant's Percentage of
Operating Expenses for the then current calendar year. If the estimate of
Tenant's Percentage of Operating Expenses in the Estimate Statements exceeds
Tenant's Operating Expense Allowance, Tenant agrees to pay Landlord, as
"Additional Rent", one-twelfth (1/12th) of such excess each month thereafter,
beginning with the next installment of rent due, until such time as Landlord
issues a revised Estimate Statement or the Estimate Statement for the
succeeding calendar year, except that, concurrently with the regular monthly
rent payment next due following the receipt of each such Estimate Statement,
Tenant agrees to pay Landlord an amount equal to one monthly installment of
such excess (less any applicable Operating Expenses already paid) multiplied by
the number of months from January, in the current calendar year, to the month
of such rent payment next due, all months inclusive. If at any time during the
Term of this Lease, but not more often than quarterly, Landlord reasonably
determines that Tenant's Percentage of Operating Expenses for the current year
will be greater than the amount set forth in the then current Estimate
Statement, Landlord may issue a revised Estimate Statement and Tenant agrees to
pay Landlord, within ten (10) days of receipt of the revised Estimate
Statement, the difference between the amount owed by Tenant under such revised
Estimate Statement and the amount owed by Tenant under the original Estimate
Statement for the portion of the then current calendar year which has expired.
Thereafter Tenant agrees to pay Tenant's Percentage of Operating Expenses based
on such revised Estimate Statement until Tenant receives the next calendar
year's Estimate Statement or a new revised Estimate Statement for the current
calendar year. In the event Tenant's Percentage of Operating Expenses for any
calendar year is less than Tenant's Operating Expense Allowance, Tenant will
not be entitled to a credit against any rent, additional rent or Tenant's
Percentage of future Operating Expenses payable hereunder.
(c) ACTUAL STATEMENT. By March 1st of each calendar year during the Term of
this Lease, Landlord will also endeavor to deliver to Tenant a statement
("Actual Statement") which states the actual Operating Expenses for the
preceding calendar year. If the Actual Statement reveals that Tenant's
Percentage of the actual Operating Expenses is more than the total Additional
Rent paid by Tenant for Operating Expenses on account of the preceding calendar
year, Tenant agrees to pay Landlord the difference in a lump sum within (10)
days of receipt of the Actual Statement. If the Actual Statement reveals that
Tenant's Percentage of the actual Operating Expenses is less than the
Additional Rent paid by Tenant for Operating Expenses on account of the
preceding calendar year, Landlord will credit any overpayment toward the next
monthly installment(s) of Tenant's Percentage of the Operating Expenses due
under this Lease.
(d) MISCELLANEOUS. Any delay or failure by Landlord in delivering any Estimate
Statement or Actual Statement pursuant to this Paragraph 6 will not constitute
a waiver of its right to require an increase in rent nor will it relieve Tenant
of its obligations pursuant to this Paragraph 6, except that Tenant will not be
obligated to make any payments based on such Estimate Statement or Actual
Statement until ten (10) days after receipt of such Estimate Statement or
Actual Statement. Even though the Term has expired and Tenant has vacated the
Premises, when the final determination is made of Tenant's Percentage of the
actual Operating Expenses for the year in which this Lease terminates, Tenant
agrees to promptly pay any increase due over the estimated expenses paid and,
conversely, any overpayment made in the event said expenses decrease shall
promptly be rebated by Landlord to Tenant. Such obligation will be a continuing
one which will survive the expiration or earlier termination of this Lease.
Prior to the expiration or sooner termination of the Lease Term and Landlord's
acceptance of Tenant's surrender of the Premises, Landlord will have the right
to estimate the actual Operating Expenses for the then current Lease Year and
to collect from Tenant prior to Tenant's surrender of the Premises, Tenant's
Percentage of any excess of such actual Operating Expenses over the estimated
Operating Expenses paid by Tenant in such Lease Year.
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7. SECURITY DEPOSIT. Concurrently with Tenant's execution of this Lease,
Tenant will deposit with Landlord the Security Deposit designated in
Subparagraph 1(o). The Security Deposit will be held by Landlord as security
for the full and faithful performance by Tenant of all of the terms, covenants,
and conditions of this Lease to be kept and performed by Tenant during the Term
hereof. If Tenant fully and faithfully performs its obligations under this
Lease, including, without limitation, surrendering the Premises upon the
expiration or sooner termination of this Lease in compliance with Subparagraph
11(a) below, the Security Deposit or any balance thereof will be returned to
Tenant (or, at Landlord's option, to the last assignee of Tenant's interest
hereunder) within thirty (30) days following the expiration of the Lease Term
or as required under applicable law, provided that Landlord may retain the
Security Deposit until such time as any outstanding rent or additional rent
amount has been determined and paid in full. The Security Deposit is not, and
may not be construed by Tenant to constitute, rent for the last month or any
portion thereof. If Tenant defaults with respect to any provisions of this
Lease including, but not limited to, the provisions relating to the payment of
rent or additional rent, Landlord may (but will not be required to) use, apply
or retain all or any part of the Security Deposit for the payment of any rent
or any other sum in default, or for the payment of any other amount which
Landlord may spend or become obligated to spend by reason of Tenant's default
or to compensate Landlord for any loss or damage which Landlord may suffer by
reason of Tenant's default. If any portion of the Security Deposit is so used
or applied, Tenant agrees, within ten (10) days after Landlord's written demand
therefor, to deposit cash with Landlord in an amount sufficient to restore the
Security Deposit to its original amount and Tenant's failure to do so shall
constitute a default under this Lease. Landlord is not required to keep
Tenant's Security Deposit separate from its general funds, and Tenant is not
entitled to interest on such Security Deposit. Should Landlord sell its
interest in the Premises during the Term hereof and deposit with the purchaser
thereof the then unappropriated Security Deposit funds, Landlord will be
discharged from any further liability with respect to such Security Deposit.
8. USE.
(a) TENANT'S USE OF THE PREMISES. The Premises may be used for the use or uses
set forth in Subparagraph 1(r) only, and Tenant will not use or permit the
Premises to be used for any other purpose without the prior written consent of
Landlord, which consent Landlord may withhold in its sole and absolute
discretion. Nothing in this Lease will be deemed to give Tenant any exclusive
right to such use in the Building or the Development.
(b) COMPLIANCE. At Tenant's sole cost and expense, Tenant agrees to procure,
maintain and hold available for Landlord's inspection, all governmental
licenses and permits required for the proper and lawful conduct of Tenant's
business from the Premises, if any. Tenant agrees not to use, alter or occupy
the Premises or allow the Premises to be used, altered or occupied in violation
of, and Tenant, at its sole cost and expense, agrees to use and occupy the
Premises and cause the Premises to be used and occupied in compliance with: (i)
any and all laws, statutes, zoning restrictions, ordinances, rules,
regulations, orders and rulings now or hereafter in force and any requirements
of any insurer, insurance authority or duly constituted public authority having
jurisdiction over the Premises, the Building or the Development now or
hereafter in force, (ii) the requirements of the Board of Fire Underwriters and
any other similar body, (iii) the Certificate of Occupancy issued for the
Building, and (iv) any recorded covenants, conditions and restrictions and
similar regulatory agreements, if any, which affect the use, occupation or
alteration of the Premises, the Building and/or the Development. Tenant agrees
to comply with the Rules and Regulations referenced in Paragraph 28 below.
Tenant agrees not to do or permit anything to be done in or about the Premises
which will in any manner obstruct or interfere with the rights of other tenants
or occupants of the Development, or injure or unreasonably annoy them, or use
or allow the Premises to be used for any unlawful or unreasonably objectionable
purpose. Tenant agrees not to cause, maintain or permit any nuisance or waste
in, on, under or about the Premises or elsewhere within the Development.
Notwithstanding anything contained in this Lease to the contrary, all
transferable development rights related in any way to the Development are and
will remain vested in Landlord, and Tenant hereby waives any rights thereto.
(c) HAZARDOUS MATERIALS. Except for ordinary and general office supplies
typically used in the ordinary course of business within office buildings, such
as copier toner, liquid paper, glue, ink and common household cleaning
materials (some or all of which may constitute "Hazardous Materials" as defined
in this Lease), Tenant agrees not to cause or permit any Hazardous Materials to
be brought upon, stored, used, handled, generated, released or disposed of on,
in, under or about the Premises, the Building, the Common Areas or any other
portion of the Development by Tenant, its agents, employees, subtenants,
assignees, licensees, contractors or invitees (collectively, "Tenant's
Parties"), without the prior written consent of Landlord, which consent
Landlord may withhold in its sole and absolute discretion. Upon the expiration
or earlier termination of this Lease, Tenant agrees to promptly remove from the
Premises, the Building and the Development, at its sole cost and expense, any
and all Hazardous Materials, including any equipment or systems containing
Hazardous Materials which are installed, brought upon, stored, used, generated
or released upon, in, under or about the Premises, the Building and/or the
Development or any portion thereof by Tenant or any of Tenant's Parties. To the
fullest extent permitted by law, Tenant agrees to promptly indemnify, protect,
defend and hold harmless Landlord and Landlord's partners, officers, directors,
employees, agents, successors and assigns (collectively, "Landlord Indemnified
Parties") from and against any and all claims, damages, judgments, suits,
causes of action, losses, liabilities, penalties, fines, expenses and costs
(including, without limitation, clean-up, removal, remediation and restoration
costs, sums paid in settlement of claims, attorneys' fees, consultant fees and
expert fees and court costs) which arise or result from the presence of
Hazardous Materials on, in, under or about the Premises, the Building or any
other portion of the Development and which are caused or permitted by Tenant or
any of Tenant's Parties. Tenant agrees to promptly notify Landlord of any
release of Hazardous Materials at the Premises, the Building or any other
portion of the Development which Tenant becomes aware of during the Term of
this Lease, whether caused by Tenant or any other person or entities. In the
event of any release of Hazardous Materials caused or permitted by Tenant or
any of Tenant's Parties, Landlord shall have the right, but not the obligation,
to cause Tenant to immediately take all steps Landlord deems necessary or
appropriate to remediate such release and prevent any similar future release to
the satisfaction of Landlord and Landlord's mortgagee(s). As used in this
Lease, the term "Hazardous Materials" shall mean and include any hazardous or
toxic materials, substances or wastes as now or hereafter designated under any
law, statute, ordinance, rule, regulation, order or ruling of any agency of the
State, the United States Government or any local governmental authority,
including, without limitation, asbestos, petroleum, petroleum hydrocarbons and
petroleum based products, urea formaldehyde foam insulation, polychlorinated
biphenyls ("PCBs"), and freon and other chlorofluorocarbons. The provisions of
this Subparagraph 8(c) will survive the expiration or earlier termination of
this Lease.
9. NOTICES. Any notice required or permitted to be given hereunder must be
in writing and may be given by personal delivery (including delivery by
overnight courier or an express mailing service) or by mail, if sent by
registered or certified mail. Notices to Tenant shall be sufficient if
delivered to Tenant at the Premises and notices to Landlord shall be sufficient
if delivered to Landlord
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at the address designated in Subparagraph 1(b). Either party may specify a
different address for notice purposes by written notice to the other, except
that the Landlord may in any event use the Premises as Tenant's address for
notice purposes.
10. BROKERS. The parties acknowledge that the broker(s) who negotiated this
Lease are stated in Subparagraph 1(t). Each party represents and warrants to
the other, that, to its knowledge, no other broker, agent or finder (a)
negotiated or was instrumental in negotiating or consummating this Lease on its
behalf, and (b) is or might be entitled to a commission or compensation in
connection with this Lease. Landlord and Tenant each agree to promptly
indemnify, protect, defend and hold harmless the other from and against any and
all claims, damages, judgments, suits, causes of action, losses, liabilities,
penalties, fines, expenses and costs (including attorney's fees and court
costs) resulting from any breach by the indemnifying party of the foregoing
representation, including, without limitation, any claims that may be asserted
by any broker, agent, or finder undisclosed by the indemnifying party. The
foregoing mutual indemnity shall survive the expiration or earlier termination
of this Lease.
11. SURRENDER; HOLDING OVER.
(a) Surrender. The voluntary or other surrender of this Lease by Tenant, or
a mutual cancellation thereof, shall not constitute a merger, and shall, at the
option of Landlord, operate as an assignment to Landlord of any or all
subleases or subtenancies. Upon the expiration or earlier termination of this
Lease, Tenant agrees to peaceably surrender the Premises to Landlord broom
clean and in a state of first-class order, repair and condition, ordinary wear
and tear and casualty damage (if this Lease is terminated as a result thereof
pursuant to Paragraph 20) excepted, with all of Tenant's personal property and
Alterations (as defined in Paragraph 13) removed from the Premises to the
extent required under Paragraph 13 and all damage caused by such removal
repaired as required by Paragraph 13. Prior to the date Tenant is to actually
surrender the Premises so that Landlord and Tenant can schedule a walk-through
of the Premises to review the condition of the Premises and identify the
Alterations and personal property which are to remain upon the Premises and
which items Tenant is to remove, as well as any repairs Tenant is to make upon
surrender of the Premises. The delivery of keys to any employee of Landlord or
to Landlord's agent or any employee thereof alone will not be sufficient to
constitute a termination of this Lease or a surrender of the Premises.
(b) Holding Over. Tenant will not be permitted to hold over possession of the
Premises after the expiration or earlier termination of the term without the
express written consent of Landlord, which consent Landlord may withhold in its
sole and absolute discretion. If Tenant holds over after the expiration or
earlier termination of the Term, Landlord may, at its option, treat Tenant as a
tenant at sufferance only, and such continued occupancy by Tenant shall be
subject to all of the terms, covenants and conditions of this Lease, so far as
applicable, except that the Monthly Base Rent for any such holdover period
shall be equal to the greater of (i) one hundred twenty-five percent (125%) of
the Monthly Base Rent in effect under this Lease immediately prior to such
holdover, or (ii) the then currently scheduled rental rate for comparable space
in the Building, in either event prorated on a daily basis. Acceptance by
Landlord of rent after such expiration or earlier termination will not result
in a renewal of this Lease. The foregoing provisions of this Paragraph 11 are
in addition to and do not affect Landlord's right of re-entry or any rights of
Landlord under this Lease or as otherwise provided by law. If Tenant fails to
surrender the Premises upon the expiration of this Lease in accordance with the
terms of this Paragraph 11 despite demand to do so by Landlord, Tenant agrees
to promptly indemnify, protect, defend and hold Landlord harmless from all
claims, damages, judgments, suits, causes of action, losses, liabilities,
penalties, fines, expenses and costs (including attorneys' fees and costs),
including, without limitation, costs and expenses incurred by Landlord in
returning the Premises to the condition in which Tenant was to surrender it and
claims made by any succeeding tenant founded on or resulting from Tenant's
failure to surrender the Premises. The provisions of this subparagraph 11(b)
will survive the expiration or earlier termination of this Lease.
12. TAXES ON TENANTS PROPERTY. Tenant agrees to pay before delinquency, all
taxes and assessments (real and personal) levied against (a) any personal
property or trade fixtures placed by Tenant in or about the Premises (including
any increase in the assessed value of the Premises based upon the value of any
such personal property or trade fixtures), and (b) any Tenant Improvements or
Alterations to the Premises (whether installed and/or paid for by Landlord or
Tenant) to the extent such items are assessed at a valuation higher than the
valuation at which tenant improvements conforming to Landlord's building
standard tenant improvement are assessed. If any such taxes or assessments are
levied against Landlord or Landlord's property, Landlord may, after written
notice to Tenant (and under proper protest if requested by Tenant) pay such
taxes and assessments, in which event Tenant agrees to reimburse Landlord all
amounts paid by Landlord within ten (10) business days after demand by
Landlord, provided, however, Tenant, at its sole cost and expense, will have
the right, with Landlord's cooperation, to bring suit in any court of competent
jurisdiction to recover the amount of any such taxes and assessments so paid
under protest.
13. ALTERATIONS. After installation of the initial Tenant Improvements for the
Premises pursuant to Exhibit "C", Tenant may, at its sole cost and expense,
make alterations, additions, improvements and decorations to the Premises
(collectively, "Alterations") subject to and upon the following terms and
conditions.
(a) Prohibited Alterations. Tenant may not make any Alterations which (i) affect
any area outside the Premises, (ii) affect the Building's structure, equipment,
services or systems, or the proper functioning thereof, or Landlord's access
thereto, (iii) affect the outside appearance, character or use of the building
or the Building Common Areas; (iv) in the reasonable opinion of Landlord, lessen
the value of the Building; or (v) will violate or require a change in any
occupancy certificate applicable to the Premises.
(b) Landlord's Approval. Before proceeding with any Alterations which are not
prohibited in Subparagraph 13(a) above, Tenant must first obtain Landlord's
written approval of the plans, specifications and working drawings for such
Alterations, which approval Landlord will not unreasonably withhold or delay,
provided, however, Landlord's prior approval will not be required for any such
Alterations which are not prohibited by Subparagraph 13(a) above and which cost
less than Two thousand Five Hundred Dollars ($2,500) as long as (i) Tenant
delivers to Landlord notice and a copy of any final plans, specifications and
working drawings for any such Alterations at least ten (10) days prior to
commencement of the work thereof, and (ii) the other conditions of this
Paragraph 13 are satisfied, including, without limitation, conforming to
Landlord's rules, regulations and insurance requirements which govern
contractors. Landlord's approval of plans, specifications and/or working
drawings for Alterations will not create any responsibility or liability on the
part of Landlord for their completeness, design sufficiency, or compliance with
applicable permits, laws, rules and regulations of governmental agencies or
authorities. In approving any Alterations, Landlord reserves the right to
require Tenant to
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increase its Security Deposit to provide Landlord with additional reasonable
security for the removal of such Alterations by Tenant as may be required by
this Lease.
(c) CONTRACTORS. Alterations may be made or installed only by contractors
and subcontractors which have been approved by Landlord, which approval
Landlord will not unreasonably withhold or delay, provided, however, Landlord
reserves the right to require that Landlord's contractor for the Building be
given the first opportunity to bid for any Alteration work. Before proceeding
with any Alterations, Tenant agrees to provide Landlord with ten (10) days
prior written notice and Tenant's contractors must obtain and maintain, on
behalf of Tenant and at Tenant's sole cost and expense (i) all necessary
governmental permits and approvals for the commencement and completion of such
Alternations; and (ii) if requested by Landlord, a completion and lien
indemnity bond, or other surety, reasonably satisfactory to Landlord for such
Alterations. Throughout the performance of any Alterations, Tenant agrees to
obtain, or cause its contractors to obtain, workers compensation insurance and
general liability insurance in compliance with the provisions of Paragraph 19
of this Lease.
(d) MANNER OF PERFORMANCE. All Alterations must be performed (i) in
accordance with the approved plans, specifications and working drawings; (ii)
in a lien-free and first-class and workmanlike manner; (iii) in compliance with
all applicable permits, laws, statutes, ordinances, rules, regulations, orders
and rulings now or hereafter in effect and imposed by any government agencies
and authorities which assert jurisdiction; (iv) in such a manner so as not to
interfere with the occupancy of any other tenant in the Building, nor impose
any additional expense upon nor delay Landlord in the maintenance and operation
of the Building; and (v) at such times, in such manner, and subject to such
rules and regulations as Landlord may from time to time reasonably designate.
(e) OWNERSHIP. The Tenant Improvements, including, without limitation, all
affixed sinks, dishwashers, microwave ovens and other fixtures, and all
Alterations will become the property of Landlord and will remain upon and be
surrendered with the Premises at the end of the Term of this Lease; provided,
however, Landlord may, by written notice delivered to Tenant concurrently with
Landlord's approval of the final working drawings for any Alterations, identify
those Alterations which Landlord will require Tenant to remove at the end of
the Term of this Lease. Landlord may also require Tenant to remove Alterations
which Landlord did not have the opportunity to approve as provided in this
Paragraph 13. If Landlord requires Tenant to remove any Alterations, Tenant, at
its sole cost and expense, agrees to remove the identified Alterations on or
before the expiration or earlier termination of this Lease and repair any
damage to the Premises caused by such removal (or, at Landlord's option, Tenant
agrees to pay Landlord all of Landlord's costs of such removal and repair).
(f) PLAN REVIEW. Tenant agrees to pay Landlord, as additional rent, the
reasonable costs of professional services and costs for general conditions of
Landlord's third party consultants if utilized by Landlord (but not Landlord's
"in-house" personnel) for review of all plans, specifications and working
drawings to any Alterations, within ten (10) business days after Tenant's
receipt of invoices either from Landlord or such consultants. In addition,
Tenant agrees to pay Landlord, within ten (10) business days after completion
of any Alterations, a fee to cover Landlord's costs of supervising and
administering the installation of such Alterations, in the amount of eight
percent (8%) of the cost of such Alterations, but in no event less than Two
Hundred Fifty Dollars ($250.00).
(g) PERSONAL PROPERTY. All articles of personal property owned by Tenant or
installed by Tenant at its expense in the Premises (including Tenant's
business and trade fixtures, movable partitions and equipment [such as
telephones, copy machines, computer terminals, refrigerators and facsimile
machines]) will be and remain the property of Tenant, and must be removed by
Tenant from the Premises, at Tenant's sole cost and expense, on or before the
expiration or earlier termination of this Lease. Tenant agrees to repair any
damage caused by such removal at its cost on or before the expiration or
earlier termination of this Lease.
(h) REMOVAL OF ALTERATIONS. If Tenant fails to remove by the expiration or
earlier termination of this Lease all of its personal property, or any
Alterations identified by Landlord for removal, Landlord may, at its option,
treat such failure as a hold-over pursuant to Subparagraph 11(b) above, and/or
Landlord may (without liability to Tenant for loss thereof) treat such personal
property and/or Alterations as abandoned and, at Tenant's sole cost and
expense, and in addition to Landlord's other rights and remedies under this
Lease, at law or in equity: (a) remove and store such items; and/or (b) upon
ten (10) days prior notice to Tenant, sell, discard or otherwise dispose of all
or any such items at private or public sale for such price as Landlord may
obtain or by other commercially reasonable means. Tenant shall be liable for
all costs of disposition of Tenant's abandoned property and Landlord shall have
no liability to Tenant with respect to any such abandoned property.
Landlord agrees to apply the proceeds of any sale of any such property to any
amounts due to Landlord under this Lease from Tenant (including Landlord's
reasonable attorney's fees and other costs incurred in the removal, storage
and/or sale of such items), with any remainder to be paid to Tenant.
14. REPAIRS
(a) LANDLORD'S OBLIGATIONS. Landlord agrees to repair and maintain the
structural portions of the Building and the plumbing, heating, ventilating, air
conditioning, elevator and electrical systems installed or furnished by
Landlord, unless such maintenance and repairs are (i) attributable to items
installed in Tenant's Premises which are above standard interior improvements
(such as, for example, custom lighting, special HVAC and/or electrical panels
or systems, kitchen or restroom facilities and appliances constructed or
installed within Tenant's Premises) or (ii) caused in part or in whole by the
act, neglect or omission of any duty by Tenant, its agents, servants, employees
or invitees, in which case Tenant will pay to Landlord, as additional rent, the
reasonable cost of such maintenance and repairs. Landlord will not be liable
for any failure to make any such repairs or to perform any maintenance unless
such failure shall persist for an unreasonable time after written notice of the
need of such repairs or maintenance is given to Landlord by Tenant. Except as
provided in Paragraph 20, Tenant will not be entitled to any abatement of rent
and Landlord will not have any liability by reason of any injury to or
interference with Tenant's business arising from the making of any repairs,
alterations or improvements in or to any portion of the Building or the
Premises or in or to fixtures, appurtenances and equipment therein. Tenant
waives the right to make repairs at Landlord's expense under any law, statute,
ordinance, rule, regulation, order or ruling, (including, without limitation, to
the extent the Premises are located in California, the provisions of California
Civil Code Section 1941 and 1942 and any successor statutes or laws of a
similar nature).
(b) TENANT'S OBLIGATIONS. Tenant agrees to keep, maintain and preserve the
Premises in first class condition and repair and, when and if needed, at
Tenant's sole cost and expense, to make all repairs to the Premises and every
part thereof. Any such maintenance and repairs will be performed by Landlord's
contractor, or at Landlord's option, by such contractor or contractors as
Tenant may choose from an approved list to be submitted by Landlord. Tenant
agrees to pay all costs and expenses incurred in such
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maintenance and repair within seven (7) days after billing by Landlord or such
contractor or contractors. Tenant agrees to cause any mechanics' liens or other
liens arising as a result of work performed by Tenant or at Tenant's direction
to be eliminated as provided in Paragraph 15 below. Except as provided in
Subparagraph 14(a) above, Landlord has no obligation to alter, remodel, improve,
repair, decorate or paint the Premises or any part thereof.
(c) TENANT'S FAILURE TO REPAIR. If Tenant refuses or neglects to repair and
maintain the Premises properly as required hereunder to the reasonable
satisfaction of Landlord, Landlord, at any time following ten (10) days from the
date on which Landlord makes a written demand on Tenant to effect such repair
and maintenance, may enter upon the Premises and make such repairs and/or
maintenance, and upon completion thereof, Tenant agrees to pay to Landlord as
additional rent. Landlord's costs for making such repairs plus an amount not to
exceed ten percent (10%) of such costs for overhead, within ten (10 days of
receipt from Landlord of a written itemized bill therefor. Any amounts not
reimbursed by Tenant within such ten (10) day period will bear interest at the
Interest Rate until paid by Tenant.
15. LIENS. Tenant agrees not to permit any mechanic's, materialmen's or
other liens to be filed against all or any part of the Development, the
Building or the Premises, nor against Tenant's leasehold interest in the
Premises, by reason of or in connection with any repairs, alterations,
improvements or other work contracted for or undertaken by Tenant or any other
act or omission of Tenant or Tenant's agents, employees, contractors,
licensees or invitees. At Landlord's request, Tenant agrees to provide
Landlord with enforceable, conditional and final lien releases (or other
evidence reasonably requested by Landlord to demonstrate protection from liens)
from all persons furnishing labor and/or materials at the Premises. Landlord
will have the right at all reasonable times to post on the Premises and record
any notices of non-responsibility which it deems necessary for protection from
such liens. If any such liens are filed, Tenant will, at its sole cost,
promptly cause such liens to be released of record or bonded so that it no
longer affects title to the Development, the Building or the Premises. If
Tenant fails to cause any such liens to be so released or bonded within ten
(10) days after filing thereof, such failure will be deemed a material breach
by Tenant under this Lease without the benefit of any additional notice or cure
period described in Paragraph 22 below, and Landlord may, without waiving its
rights and remedies based on such breach, and without releasing Tenant from any
of its obligations, cause such liens to be released by any means it shall deem
proper, including payment in satisfaction of the claims giving rise to such
liens. Tenant agrees to pay to Landlord within ten (10) days after receipt of
invoice from Landlord, any sum paid by Landlord to remove such liens, together
with interest at the Interest Rate from the date of such payment by Landlord.
16. ENTRY BY LANDLORD. Landlord and its employees and agents will at all
times have the right to enter the Premises to inspect the same, to supply
janitorial service and any other service to be provided by Landlord to Tenant
hereunder, to show the Premises to prospective purchasers or tenants, to post
notices of nonresponsibility, and/or to repair the Premises as permitted or
required by this Lease. In exercising such entry rights, Landlord will
endeavor to minimize, as reasonably practicable, the interference with
Tenant's business, and will provide Tenant with reasonable advance notice of
any such entry (except in emergency situations). Landlord may, in order to
carry out such purposes, erect scaffolding and other necessary structures where
reasonably required by the character of the work to be performed. Landlord
will at all times have and retain a key with which to unlock all doors in the
Premises, excluding Tenant's vaults and safes. Landlord will have the right to
use any and all means which Landlord may reasonably deem proper to open said
doors in an emergency in order to obtain entry to the Premises. Any entry to
the Premises obtained by Landlord by an of said means, or otherwise, will not be
construed or deemed to be a forcible or unlawful entry unto the Premises, or
an eviction of Tenant from the Premises. Landlord will not be liable to Tenant
for any damages or losses for any entry by Landlord.
17. UTILITIES AND SERVICES. Throughout the Term of the Lease so long as the
Premises are occupied, Landlord agrees to furnish or cause to be furnished to
the Premises the utilities and services described in the Standards for Utilities
and Services attached hereto as Exhibit "F" subject to the conditions and in
accordance with the standards set forth therein. Landlord may require Tenant
from time to time to provide Landlord with a list of Tenant's employees and/or
agents which are authorized by Tenant to subscribe on behalf of Tenant for any
additional services which may be provided by Landlord. Any such additional
services will be provided to Tenant at Tenant's cost. Landlord will not be
liable to Tenant for any failure to furnish any of the foregoing utilities and
services if such failure is caused by all or any of the following: (i) accident,
breakage or repairs; (ii) strikes, lockouts or other labor disturbance or labor
dispute of any character, (iii) governmental regulation, moratorium or other
governmental action or inaction; (iv) inability despite the exercise of
reasonable diligence to obtain electricity, water or fuel; or (v) any other
cause beyond Landlord's reasonable control. In addition, in the event of any
stoppage or interruption of services or utilities, Tenant shall not be entitled
to any abatement or reduction of rent (except as expressly provided in
subparagraph 20(f) or 21(b) if such failure results from a damage or taking
described therein), no eviction of Tenant will result from such failure and
Tenant will not be relieved from the performance of any covenant or agreement in
this Lease because of such failure. In the event of any failure, stoppage or
interruption thereof, Landlord agrees to diligently attempt to resume service
promptly. If Tenant requires or utilizes more water or electrical power than is
considered reasonable or normal by Landlord, Landlord may at is option require
Tenant to pay, as additional rent, the cost, as fairly determined by Landlord,
incurred by such extraordinary usage and/or Landlord may install separate
meter(s) for the Premises, at Tenant's sole expense, and Tenant agrees
thereafter to pay all charges of the utility providing service and Landlord will
make an appropriate adjustment to Tenant's Operating Expenses calculation to
account for the fact Tenant is directly paying such metered charges, provided
Tenant will remain obligated to pay its proportionate share of Operating
Expenses subject to such adjustment.
18. ASSUMPTION OF RISK AND INDEMNIFICATION.
(A) ASSUMPTION OF RISK. Tenant, as a material part of the consideration
to Landlord, hereby agrees that neither Landlord nor any Landlord Indemnified
parties (as defined in Subparagraph 8(c) above) will be liable to Tenant for,
and Tenant expressly assumes the risk of and waives any and all claims it may
have against Landlord or any Landlord Indemnified Parties with respect to, (i)
any and all damage to property or injury to persons in, upon or about the
Premises, the Building or the Development resulting from any act or omission
(except for the grossly negligent or intentionally wrongful act or omission)
of Landlord, (ii) any such damage caused by other tenants or persons in or
about the Building or the Development, or caused by quasi-public work, (iii)
any damage to property entrusted to employees of the Building, (iv) any loss of
or damage to property by theft or otherwise, or (v) any injury or damage to
persons or property resulting from any casualty, explosion, falling plaster or
other masonry or glass, steam, gas electricity, water or rain which may leak
from any part of the Building or any other portion of the Development or from
the pipes, appliances or plumbing works therein or from the roof, street or
subsurface or from any other place, or resulting from dampness.
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Notwithstanding anything to the contrary contained in this Lease, neither
Landlord nor any Landlord Indemnified Parties will be liable for consequential
damages arising out of any loss of the use of the Premises or any equipment or
facilities therein by Tenant or any Tenant Parties or for interference with
light or other incorporeal hereditaments. Tenant agrees to give prompt notice
to Landlord in case of fire or accidents in the Premises or the Building, or of
defects therein or in the fixtures or equipment.
(b) INDEMNIFICATION. Tenant will be liable for, and agrees, to the maximum
extent permissible under applicable law, to promptly indemnify, protect, defend
and hold harmless Landlord and all Landlord Indemnified Parties, from and
against, any and all claims, damages, judgments, suits, causes of action,
losses, liabilities, penalties, fines, expenses and costs, including reasonable
attorneys' fees and court costs (collectively, "Indemnified Claims"), arising
or resulting from (i) any act or omission of Tenant or any Tenant Parties (as
defined in Subparagraph 8(c) above), (ii) the use of the Premises and Common
Areas and conduct of tenant's business by Tenant or any Tenant Parties, or any
other activity, work or thing done, permitted or suffered by Tenant or any
Tenant Parties, in or about the Premises, the Building or elsewhere within the
Development; and/or (iii) any default by Tenant of any obligations on Tenant's
part to be performed under the terms of this Lease with the exception of claims
resulting from Landlord gross negligence. In case any action or proceeding is
brought against Landlord or any Landlord Indemnified Parties by reason of any
such Indemnified Claims, Tenant, upon notice from Landlord, agrees to promptly
defend the same at Tenant's sole cost and expense by counsel approved in
writing by Landlord, which approval Landlord will not unreasonably withhold.
(c) SURVIVAL; NO RELEASE OF INSURERS. Tenant's indemnification obligations
under Subparagraph 18(b) will survive the expiration or earlier termination of
this Lease. Tenant's covenants, agreements and indemnification obligation in
Subparagraphs 18(a) and 18(b) above, are not intended to and will not relieve
any insurance carrier of its obligations under policies required to be carried
by Tenant pursuant to the provisions of this Lease.
19. INSURANCE.
(a) TENANT'S INSURANCE. On or before the earlier to occur of (i) the
Commencement Date, or (ii) the date Tenant commences any work of any type in
the Premises pursuant to this Lease (which may be prior to the Commencement
Date), and continuing throughout the entire Term hereof and any other period of
occupancy, Tenant agrees to keep in full force and effect, at its sole cost and
expense, the following insurance:
(i) "All Risks" property insurance including at least the following perils:
fire and extended coverage, smoke damage, vandalism, malicious mischief,
sprinkler leakage (including earthquake sprinkler leakage). This insurance
policy must be upon all property owned by Tenant, for which Tenant is legally
liable, or which is installed at Tenant's expense, and which is located in the
Building including, without limitation, any Tenant Improvements which satisfy
the foregoing qualification and any Alterations, and all furniture, fittings,
installations, fixtures and any other personal property of Tenant, in an amount
not less than the full replacement cost thereof. If there is a dispute as to
full replacement cost, the decision of Landlord or any mortgagee of Landlord
will be presumptive.
(iii) Commercial General Liability Insurance or Comprehensive General Liability
Insurance (on an occurrence form) insuring bodily injury, personal injury and
property damage including the following divisions and extensions of coverage:
Premises and Operations; Owners and Contractors protective; blanket contractual
liability (including coverage for Tenant's indemnity obligations under this
Lease); products and completed operations, liquor liability (if Tenant serves
alcohol on the Premises); and fire damage legal liability in an amount equal to
$50,000, including Tenant improvements, that are rented under the terms of this
Lease. Such insurance must have the following minimum limits of liability:
bodily injury, personal injury and property damage - $1,000,000 each occurrence,
provided that if liability coverage is provided by a Commercial General
Liability policy the general aggregate limit shall apply separately and in total
to this location only (per location general aggregate), and provided further,
such minimum limits of liability may be adjusted from year to year to reflect
increases in coverages as recommended by Landlord's insurance carrier as being
prudent and commercially reasonable for tenants of first class office buildings
comparable to the Building, rounded to the nearest five hundred thousand
dollars.
(iv) Comprehensive Automobile Liability insuring bodily injury and property
damage arising from all owned, non-owned and hired vehicles, if any, with
minimum limits of liability of $1,000,000 per accident.
(v) Worker's Compensation as required by the laws of the State with the
following minimum limits of liability: Coverage A - statutory benefits;
Coverage B - $1,000,000 per accident and disease.
(vi) Any other form or forms of insurance as Tenant or Landlord or any
mortgagees of Landlord may reasonably require from time to time in form, in
amounts, and for insurance risks against which, a prudent tenant would protect
itself, but only to the extent coverage for such risks and amounts are
available in the insurance market at commercially acceptable rates. Landlord
makes no representation that the limits of liability required to be carried by
Tenant under the terms of this Lease are adequate to protect Tenant's interests
and Tenant should obtain such additional insurance or increased liability
limits as Tenant deems appropriate.
(b) SUPPLEMENTAL TENANT INSURANCE REQUIREMENTS.
(i) All policies must be in a form reasonably satisfactory to Landlord and
issued by an insurer admitted to do business in the State.
(ii) All policies must be issued by insurers with a policyholder rating of "A"
and a financial rating of "X" in the most recent version of Best's Key Rating
Guide.
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(iii) All policies must contain a requirement to notify Landlord (and
Landlord's property manager and any mortgagees or ground lessors of Landlord
who are named as additional insureds, if any) in writing not less than thirty
(30) days prior to any material change, reduction in coverage, cancellation or
other termination thereof. Tenant agrees to deliver to Landlord, as soon as
practicable after placing the required insurance, but in any event within the
time frame specified in Subparagraph 19(a) above, certificate(s) of insurance
and/or if required by Landlord, certified copies of each policy evidencing the
existence of such insurance and Tenant's compliance with the provisions of this
Paragraph 19. Tenant agrees to cause replacement policies or certificates to be
delivered to Landlord not less than thirty (30) days prior to the expiration of
any such policy or policies. If any such initial or replacement policies or
certificates are not furnished within the tune(s) specified herein, Tenant will
be deemed to be in material default under this Lease without the benefit of any
additional notice or cure period provided in Subparagraph 22(a)(iii) below, and
Landlord will have the right, but not the obligation, to procure such insurance
as Landlord deems necessary to protect Landlord's interests at Tenant's
expense. If Landlord obtains any insurance that is the responsibility of Tenant
under this Paragraph 19, Landlord agrees to deliver to Tenant a written
statement setting forth the cost of any such insurance and showing in
reasonable detail the manner in which it has been computed and Tenant agrees to
promptly reimburse Landlord for such costs as additional rent.
(iv) General Liability and Automobile Liability policies under Subparagraphs
19(a)(iii) and (iv) must name Landlord and Landlord's property manager (and at
Landlord's request, Landlord's mortgagees and ground lessors of which Tenant
has been informed in writing) as additional insureds and must also contain a
provision that the insurance afforded by such policy is primary insurance and
any insurance carried by Landlord and Landlord's property manager or Landlord's
mortgagees or ground lessors, if any, will be excess over and non-contributing
with Tenant's insurance.
(c) TENANT'S USE. Tenant will not keep, use, sell or offer for sale in or upon
the Premises any article which may be prohibited by any insurance policy
periodically in force covering the Building or the Development Common Areas. If
Tenant's occupancy or business in, or on, the Premises, whether or not Landlord
has consented to the same, results in any increase in premiums for the
insurance periodically carried by Landlord with respect to the Building or the
Development Common Areas or results in the need for Landlord to maintain
special or additional insurance, Tenant agrees to pay Landlord the cost of any
such increase in premiums or special or additional coverage as additional rent
within ten (10) days after being billed therefor by Landlord. In determining
whether increased premiums are a result of Tenant's use of the Premises, a
schedule issued by the organization computing the insurance rate on the
Building, the Development Common Areas or the Tenant Improvements showing the
various components of such rate, will be conclusive evidence of the several
items and charges which make up such rate. Tenant agrees to promptly comply
with all reasonable requirements of the insurance authority or any present or
future insurer relating to the Premises.
(d) CANCELLATION OF LANDLORD'S POLICIES. If any of Landlord's insurance
policies are cancelled or cancellation is threatened or the coverage reduced or
threatened to be reduced in any way because of the use of the Premises or any
part thereof by Tenant or any assignee or subtenant of Tenant or by anyone
Tenant permits on the Premises and, if tenant fails to remedy the condition
giving rise to such cancellation, threatened cancellation, reduction of
coverage, threatened reduction of coverage, increase in premiums, or threatened
increase in premiums, within forty-eight (48) hours after notice thereof,
Tenant will be deemed to be in material default of this Lease and Landlord may,
at its option, either terminate this Lease or enter upon the Premises and
attempt to remedy such condition, and Tenant shall promptly pay Landlord the
reasonable costs of such remedy as additional rent. If Landlord is unable, or
elects not to remedy such condition, then Landlord will have all of the
remedies provided for in this Lease in the event of a default by Tenant.
(e) WAIVER OF SUBROGATION. Tenant's property insurance shall contain a clause
whereby the insurer waives all rights of recovery by way of subrogation against
Landlord. Tenant shall also obtain and furnish evidence to Landlord of the
waiver by Tenant's worker's compensation insurance carrier of all rights of
recovery by way of subrogation against Landlord.
Notwithstanding any provisions of this Lease to the contrary, whenever (a) any
loss, cost, damage or expense relating to personal property (excluding personal
injuries or death) resulting from fire, explosion or any other casualty is
incurred by either Landlord or by Tenant or by anyone claiming by, through or
under Landlord or Tenant in connection with the Premises or the building, and
(b) such party is covered in whole or in part by insurance with respect to such
loss, cost, damage or expense or is required under this Lease to be so insured,
then the party so insured (or so required) hereby waives (on its own behalf and
on behalf of its insurer) any claims against and releases the other party from
any liability said other party may have on account of such loss, cost, damage
or expense.
20. DAMAGE OR DESTRUCTION.
(a) PARTIAL DESTRUCTION. If the Premises or the building are damaged by fire or
other casualty to an extent not exceeding twenty-five percent (25%) of the full
replacement cost thereof, and Landlord's contractor reasonably estimates in a
writing delivered to Landlord and Tenant that the damage thereto may be
repaired, reconstructed or restored to substantially its condition immediately
prior to such damage within one hundred eighty (180) days from the date of such
casualty, and Landlord will receive insurance proceeds sufficient to cover the
costs of such repairs, reconstruction and restoration (including proceeds from
Tenant and/or Tenant's insurance which Tenant is required to deliver to
Landlord pursuant to Subparagraph 20(3) below to cover Tenant's obligation for
the costs of repair, reconstruction and restoration of any portion of the
Tenant improvements and any Alterations for which Tenant is responsible under
this lease), then Landlord agrees to commence and proceed diligently with the
work of repair, reconstruction and restoration and this Lease will continue in
full force and effect.
(b) SUBSTANTIAL DESTRUCTION. Any damage or destruction to the Premises or the
Building which Landlord is not obligated to repair pursuant to Subparagraph
20(a) above will be deemed a substantial destruction. In the event of a
substantial destruction Landlord may elect to either (i) repair, reconstruct
and restore the portion of the Building or the Premises damaged by such
casualty, in which case this Lease will continue in full force and effect,
subject to Tenant's termination right contained in Subparagraph 20(d) below; or
(ii) terminate this Lease effective as of the date which is thirty (30) days
after Tenant's receipt of Landlord's election to so terminate.
(c) NOTICE. Under any of the conditions of Subparagraph 20(a) or (b) above,
Landlord agrees to give written notice to Tenant of its intention to repair or
terminate, as permitted in such paragraphs, within the earlier of sixty (60)
days after the occurrence of such casualty, or fifteen (15) days after
Landlord's receipt of the estimate from Landlord's contractor (the applicable
time period to be referred to herein as the "Notice Period").
(d) TENANT'S TERMINATION RIGHTS. If Landlord elects to repair, reconstruct and
restore pursuant to Subparagraph 20(b)(i) hereinabove, and if Landlord's
contractor estimates that as a result of such damage, Tenant cannot be given
reasonable use of and access to the Premises within three hundred sixty-five
(365) days after the date of such damage, then Tenant may terminate this Lease
effective upon delivery of written notice to Landlord within ten (10) days
after Landlord delivers notice to Tenant of its election to so repair,
reconstruct or restore.
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<PAGE> 13
(e) TENANT'S COSTS AND INSURANCE PROCEEDS. In the event of any damage or
destruction of all or any part of the Premises, Tenant agrees to immediately
(i) notify Landlord thereof, and (ii) deliver to Landlord all property
insurance proceeds received by Tenant with respect to any Tenant Improvements
installed by or at the cost of Tenant and any Alterations, but excluding
proceeds for Tenant's furniture, fixtures, equipment and other personal
property, whether or not this Lease is terminated as permitted in this
Paragraph 20, and Tenant hereby assigns to Landlord all rights to receive such
insurance proceeds. If, for any reason (including Tenant's failure to obtain
insurance for the full replacement cost of any Tenant Improvements installed by
or at the cost of Tenant and any Alterations from any and all casualties),
Tenant fails to receive insurance proceeds covering the full replacement cost
of any Tenant Improvements installed by or at the cost of Tenant and any
Alterations which are damaged, Tenant will be deemed to have self-insured the
replacement cost of such items, and upon any damage or destruction thereto.
Tenant agrees to immediately pay to Landlord the full replacement cost of such
items, less any insurance proceeds actually received by Landlord from
Landlord's or Tenant's insurance with respect to such items.
(f) ABATEMENT OF RENT. In the event of any damage, repair, reconstruction
and/or restoration described in this Paragraph 20, rent will be abated or
reduced, as the case may be, from the date of such casualty, in proportion to
the degree to which Tenant's use of the Premises is impaired during such period
or repair until such use is restored. Except for abatement of rent as provided
hereinabove, Tenant will not be entitled to any compensation or damages for
loss of, or interference with, Tenant's business or use of all or any part of
the Premises or for lost profits or any other consequential damages of any kind
or nature, which result from any such damage, repair, reconstruction or
restoration.
(g) INABILITY TO COMPLETE. Notwithstanding anything to the contrary
contained in this Paragraph 20, if Landlord is obligated or elects to repair,
reconstruct and/or restore the damaged portion of the Building of the Premises
pursuant to Subparagraph 20(a) or 20(b)(i) above, but is delayed from
completing such repair, reconstruction and/or restoration beyond the date which
is one hundred eighty (180) days after the date estimated by Landlord's
contractor for completion thereof by reason of any causes (other than delays
caused by Tenant, its subtenants, employees, agents or contractors) which are
beyond the reasonable control of Landlord as described in Paragraph 33, then
either Landlord or Tenant may elect to terminate this Lease upon ten (10) days
prior written notice given to the other after the expiration of such one
hundred eighty (180) day period.
(h) DAMAGE NEAR END OF TERM. Landlord and Tenant shall each have the right
to terminate this Lease if any damage to the Premises of the Building occurs
during the last twelve (12) months of the Term of this Lease where Landlord's
contractor estimates in a writing delivered to Landlord and Tenant that the
repair, reconstruction or restoration of such damage cannot be completed within
sixty (60) days after the date of such casualty. If either party desires to
terminate this Lease under this Subparagraph (h), it shall provide written
notice to the other party of such election within ten (10) days after receipt
of Landlord's contractor's repair estimates.
(i) WAIVER OF TERMINATION RIGHTS. Landlord and Tenant agree that the
foregoing provisions of this Paragraph 20 are to govern their respective rights
and obligations in the event of any damage or destruction and supersede and are
in lieu of the provisions of any applicable law, statute, ordinance, rule,
regulation, order of ruling now or hereafter in force which provide remedies
for damage or destruction of leased premises (including, without limitation, to
the extent the Premises are located in California, the provisions of California
Civil Code Section 1932, Subsection 2, and Section 1933, Subsection 4 and any
successor statute or laws of a similar nature).
(j) TERMINATION. Upon any termination of this Lease under any of the
provisions of this Paragraph 20, the parties will be released without further
obligation to the other from the date possession of the Premises is surrendered
to Landlord except for items which have accrued and are unpaid as of the date
of termination and matters which are to survive any termination of this Lease
as provided in this Lease.
21. EMINENT DOMAIN.
(a) SUBSTANTIAL TAKING. If the whole of the Premises, or such part thereof
as shall substantially interfere with Tenant's use and occupancy of the
Premises, as contemplated by this Lease, is taken for any public or
quasi-public purpose by any lawful power or authority by exercise of the right
of appropriation, condemnation or eminent domain, or sold to prevent such
taking, either party will have the right to terminate this Lease effective as
of the date possession is required to be surrendered to such authority.
(b) PARTIAL TAKING; ABATEMENT OF RENT. In the event of a taking of a
portion of the Premises which does not substantially interfere with Tenant's use
and occupancy of the Premises, then, neither party will have the right to
terminate this Lease and Landlord will thereafter proceed to make a functional
unit of the remaining portion of the Premises (but only to the extent Landlord
receives proceeds therefor from the condemning authority), and rent will be
abated with respect to the part of the Premises which Tenant is deprived of on
account of such taking. Notwithstanding the immediately preceding sentence to
the contrary, if any part of the Building or the Development is taken (whether
or not such taking substantially interferes with Tenant's use of the Premises),
Landlord may terminate this Lease upon thirty (30) days prior written notice to
Tenant if Landlord also terminates the leases of the other tenants of the
Building which are leasing comparably sized space for comparable lease terms.
(c) CONDEMNATION AWARD. In connection with any taking of the Premises or the
Building, Landlord will be entitled to receive the entire amount of any award
which may be made or given in such taking or condemnation, without deduction or
apportionment for any estate or interest of Tenant, it being expressly
understood and agreed by Tenant that no portion of any such award will be
allowed or paid to Tenant for any so-called bonus or excess value of this Lease,
and such bonus or excess value will be the sole property of Landlord. Tenant
agrees not to assert any claim against Landlord or the taking authority for any
compensation because of such taking (including any claim for bonus or excess
value of this Lease); provided, however, if any portion of the Premises is
taken, Tenant will have the right to recover from the condemning authority (but
not from Landlord) and compensation as may be separately awarded or recoverable
by Tenant for the taking of Tenant's furniture, fixtures, equipment and other
personal property within the Premises, for Tenant's relocation expenses, and for
any loss of goodwill or other damage to Tenant's business by reason of such
taking.
(d) TEMPORARY TAKING. In the event of taking of the Premises or any part
thereof for temporary use, (i) this Lease will remain unaffected thereby and
rent will not abate, and (ii) Tenant will be entitled to receive such portion
or portions of any award made for
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such use with respect to the period of the taking which is within the Term,
provided that if such taking remains in force at the expiration or earlier
termination of this Lease, Tenant will then pay to Landlord a sum equal to the
reasonable cost of performing Tenant's obligations under Paragraph 11 with
respect to surrender of the Premises and upon such payment Tenant will be
excused from such obligations. For purpose of this Subparagraph 21(d), a
temporary taking shall be defined as a taking for a period of ninety (90) days
or less.
22. DEFAULTS AND REMEDIES.
(a) DEFAULTS. The occurrence of any one or more of the following events
will be deemed a default by Tenant.
(i) The abandonment of the Premises by Tenant, which for purposes of this
Lease means any absence by Tenant from the Premises for five (5) business days
or longer while in default of any other material provision of this Lease and,
with respect to ground floor space only, any vacation of the Premises, which
for purposes of this Lease means any absence by Tenant from the Premises for
thirty (30) days or longer whether or not Tenant is in default under any
provision of this Lease.
(ii) The failure by Tenant to make any payment of rent or additional rent or
any other payment required to be made by a Tenant hereunder, as and when due,
where such failure continues for a period of three (3) days after written
notice thereof from Landlord to Tenant; provided, however, that any such notice
will be in lieu of, and not in addition to, any notice required under
applicable law (including, without limitation, to the extent the Premises are
located in California, the provisions of California Code of Civil Procedure
Section 1161 regarding unlawful detainer actions or any successor statute or
law of a similar nature).
(iii) The failure by Tenant to observe or perform any of the express or
implied covenants or provisions of this Lease to be observed or performed by
Tenant, other than as specified in Subparagraph 22(a)(i) or (ii) above, where
such failure continues for a period of ten (10) days after written notice
thereof from Landlord to Tenant. The provisions of any such notice will be in
lieu of, and not in addition to, any notice required under applicable law
(including, without limitation, to the extent the Premises are located in
California, California Code of Civil Procedure Section 1161 regarding unlawful
detainer actions and any successor statute or similar law). If the nature of
Tenant's default is such that more than ten (10) days are reasonably required
for its cure, then Tenant will not be deemed to be in default if Tenant, with
Landlord's concurrence, commences with cure within such ten (10) day period and
thereafter diligently prosecutes such cure to completion.
(iv) (A) The making by Tenant of any general assignment for the benefit of
creditors; (B) the filing by or against Tenant of a petition to have Tenant
adjudged a bankrupt or a petition for reorganization or arrangement under any
law relating to bankruptcy (unless, in the case of a petition filed against
Tenant, the same is dismissed within sixty (60) days); (C) the appointment of a
trustee or receiver to take possession of substantially all of Tenant's assets
located at the Premises or of Tenant's interest in this Lease, where possession
is not restored to Tenant within thirty (30) days; or (D) the attachment,
executive or other such judicial seizure of substantially all of Tenant's assets
located at the Premises or of Tenant's interest in the Lease where such seizure
is not discharged within thirty (30) days.
(b) LANDLORD'S REMEDIES; TERMINATION. In the event of any default by Tenant,
in addition to any other remedies available to Landlord at law or in equity
under applicable law (including, without limitation, to the extent the Premises
are located in California, the remedies of Civil Code Section 1951.4 and any
successor statute or similar law), Landlord will have the immediate right and
option to terminate this Lease and all rights of Tenant hereunder. If Landlord
elects to terminate this Lease then, to the extent permitted under applicable
law, Landlord may recover from Tenant (i) The worth at the time of award of any
unpaid rent which had been earned at the time of such termination; plus (ii) the
worth at the time of award of the amount by which the unpaid rent which would
have been earned after termination until the time of award exceeds the amount of
such rent loss that Tenant proves could have been reasonably avoided; plus (iii)
the worth at the time of award of the amount by which the unpaid rent for the
balance of the Term after the time of award exceeds the amount of such rent loss
that Tenant proves could be reasonably avoided; plus (iv) any other amount
necessary to compensate Landlord for all the detriment proximately caused by
Tenant's failure to perform its obligations under this Lease or which, in the
ordinary course of things, results therefrom including, but not limited to:
reasonable attorneys' fees and costs; broker's commissions; the costs of
refurbishment, alterations, renovation and repair of the Premises, and removal
(including the repair of any damage caused by such removal) and storage (or
disposal) of Tenant's personal property, equipment, fixtures, Alterations, the
Tenant Improvements and any other items which Tenant is required under this
Lease to remove but does not remove, as well as the unamortized value of any
free rent, reduced rent, free parking, reduced rate parking and any Tenant
Improvement Allowance or other costs or economic concessions provided, paid,
granted or incurred by Landlord pursuant to this Lease. The unamortized value of
such concessions shall be determined by taking the total value of such
concessions and multiplying such value by a fraction, the numerator of which is
the number of months of the Lease Term not yet elapsed as of the date on which
the Lease is terminated, and the denominator of which is the total number of
months of the Lease Term. As used in Subparagraphs 22(b)(i) and (ii) above, the
"worth at the time of award" is computed by allowing interest at the Interest
Rate. As used in Subparagraph 22(b)(iii) above, the "worth at the time of award"
is computed by discounting such amount at the discount rate of the Federal
Reserve Bank of San Francisco at the time of award plus one percent (1%).
(c) LANDLORD'S REMEDIES; RE-ENTRY RIGHTS. In the event of any default by
Tenant, in addition to any other remedies available to Landlord under this
Lease, at law or in equity, Landlord will also have the right, with or without
terminating this Lease, to re-enter the Premises and remove all persons and
property from the Premises; such property may be removed and stored in a public
warehouse or elsewhere and/or disposed of at the sole cost and expense of and
for the account of Tenant in accordance with the provisions of Subparagraph
13(h) of this Lease or any other procedures permitted by applicable law. No
re-entry or taking possession of the Premises by Landlord pursuant to this
Subparagraph 22(c) will be construed as an election to terminate this Lease
unless a written notice of such intention is given to Tenant or unless the
termination thereof is decreed by a court of competent jurisdiction.
(d) LANDLORD'S REMEDIES; RE-LETTING. In the event of the vacation or
abandonment of the Premises by Tenant or in the event that Landlord elects to
re-enter the Premises or takes possession of the Premises pursuant to legal
proceeding or pursuant to any notice provided by law, then if Landlord does not
elect to terminate this Lease, Landlord may from time to time, without
terminating this Lease, either recover all rent as it becomes due or relet the
Premises or any part thereof on terms and conditions as Landlord in its sole
and absolute discretion may deem advisable with the right to make alterations
and repairs to the Premises in connection with
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such reletting. If Landlord elects to relet the Premises, then rents received
by Landlord from such reletting will be applied first, to the payment of any
indebtedness other than rent due hereunder from Tenant to Landlord; second, to
the payment of any cost of such reletting; third, to the payment of the cost of
any alterations and repairs to the Premises incurred in connection with such
reletting, forth, to the payment of rent due and unpaid hereunder and the
residue, if any, will be held by Landlord and applied to payment of future rent
as the same may become due and payable hereunder. Should that portion of such
rents received from such reletting during any month, which is applied to the
payment of rent hereunder, be less than the rent payable during that month by
Tenant hereunder, then Tenant agrees to pay such deficiency to Landlord
immediately upon demand therefor by Landlord. Such deficiency will be calculated
and paid monthly.
(e) LANDLORD'S REMEDIES; PERFORMANCE FOR TENANT. All covenants and agreements to
be performed by Tenant under any of the terms of this Lease are to be performed
by Tenant at Tenant's sole cost and expense and without any abatement of rent.
If Tenant fails to pay any sum of money owed to any party other than Landlord,
for which it is liable under this Lease, or if Tenant fails to perform any
other act on its part to be performed hereunder, and such failure continues for
ten (10) days after notice thereof by Landlord, Landlord may, without waiving
or releasing Tenant from its obligations, but shall not be obligated to make
any such payment or perform any such other act to be made or performed by
Tenant. Tenant agrees to reimburse Landlord upon demand for all sums so paid by
Landlord and all necessary incidental costs, together with interest thereon at
the Interest Rate, from the date of such payment by Landlord until reimbursed
by Tenant. This remedy shall be in addition to any other right or remedy of
Landlord set forth in this Paragraph 22.
(f) LATE PAYMENT. If Tenant fails to pay any installment of rent within five
(5) days of when due or if Tenant fails to make any other payment for which
Tenant is obligated under this Lease within (5) days of when due, such late
amount will accrue interest at the Interest Rate and Tenant agrees to pay
Landlord as additional rent such interest in such amount from the date such
amount becomes due until such amount is paid. In addition, Tenant agrees to
pay to Landlord concurrently with such late payment amount, as additional rent,
a late charge equal to five percent (5%) of the amount due to compensate
Landlord for the extra costs Landlord will incur as a result of such late
payment. The parties agree that (i) it would be impractical and extremely
difficult to fix the actual damage Landlord will suffer in the event of Tenant's
late payment, (ii) such interest and late charge represents a fair and
reasonable estimate of the detriment that Landlord will suffer by reason of late
payment by Tenant, and (iii) the payment of interest and late charges are
distinct and separate in that the payment of interest is to compensate Landlord
for the use of Landlord's money by Tenant, while the payment of late charges is
to compensate Landlord for Landlord's processing, administrative and other
costs incurred by Landlord as a result of Tenant's delinquent payments.
Acceptance of any such interest and late charge will not constitute a waiver of
the Tenant's default with respect to the overdue amount, or prevent landlord
from exercising any of the other rights and remedies available to Landlord. If
Tenant incurs a late charge more than three (3) times in any period of twelve
(12) months during the Lease Term, then, notwithstanding that Tenant cures the
late payments for which such late charges are imposed, Landlord will have the
right to require Tenant thereafter to pay all installments of Monthly Base Rent
quarterly in advance throughout the remainder of the Lease Term.
(g) LANDLORD'S SECURITY INTEREST. Subject to Tenant's equipment leasing and
rights associated with bank loans, Tenant hereby grants to Landlord a lien and
security interest on all property of Tenant now or hereafter placed in or upon
the Premises including, but not limited to, all fixtures, machinery, equipment,
furnishings and other articles of personal property, and all proceeds of the
sale or other disposition of such property (collectively, the "Collateral") to
secure the payment of all rent to be paid by Tenant pursuant to this Lease. Such
lien and security interest shall be in addition to any landlord's lien provided
by law. This Lease shall constitute a security agreement under the Commercial
Code of the State so that Landlord shall have and may enforce a security
interest in the Collateral. Tenant agrees to execute as debtor and deliver such
financing statement or statements and any further documents as Landlord may now
or hereafter reasonably request to protect such security interest pursuant to
such code. Landlord may also at any time file a copy of this Lease as a
financing statement. Landlord, as secured party, shall be entitled to all rights
and remedies afforded as secured party under such code, which rights and
remedies shall be in addition to Landlord's liens and rights provided by law or
by the other terms and provisions of this Lease.
(h) RIGHTS AND REMEDIES CUMULATIVE. All rights, options, and remedies of
Landlord contained in this Lease will be construed and held to be cumulative,
and no one of them will be exclusive of the other, and landlord shall have the
right to pursue any one or all of such remedies or any other remedy or relief
which may be provided by law or in equity, whether or not stated in this Lease.
Nothing in this Paragraph 22 will be deemed to limit or otherwise effect
Tenant's indemnification of Landlord pursuant to any provision of this Lease.
23. LANDLORD'S DEFAULT. Landlord will not be in default in the performance of
any obligation required to be performed by Landlord under this Lease unless
Landlord fails to perform such obligation within thirty (30) days after the
receipt of written notice from Tenant specifying in detail Landlord's failure
to perform, provided however, that if the nature of Landlord's obligation is
such that more than thirty (30) days are required for performance, then
Landlord will not be deemed in default if it commences such performance within
such thirty (30) day period and thereafter diligently pursues the same to
completion. Upon any default by Landlord, Tenant may exercise any of its
rights provided at law or in equity, subject to the limitations on liability
set forth in Paragraph 35 of this Lease.
24. ASSIGNMENT AND SUBLETTING.
(a) RESTRICTION ON TRANSFER. Except as expressly provided in this Paragraph 24,
Tenant will not, either voluntarily or by operation of law, assign or encumber
this Lease or any interest herein or sublet the Premises or any part thereof, or
permit the use of occupancy of the Premises by any party other than Tenant (any
such assignment, incumbrance, sublease or the like will sometimes be referred to
as a "Transfer"), without the prior written consent of Landlord, which consent
Landlord will not unreasonably withhold.
(b) CORPORATE AND PARTNERSHIP TRANSFERS. For purposes of this Paragraph 24, if
Tenant is a corporation, partnership or other entity, any transfer,
assignment, encumbrance or hypothecation of thirty-four percent (34%) or more
(individually or in the aggregate) of any stock or other ownership interest in
such entity, and/or any transfer, assignment, hypothecation or encumbrance of
any controlling ownership or voting interest in such entity, will be deemed a
Transfer and will be subject to all of the restrictions and provisions
contained in this Paragraph 24. Notwithstanding the foregoing, the immediately
preceding sentence will not apply to
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any transfers of stock of Tenant if Tenant is a publicly-held corporation and
such stock is transferred publicly over a recognized security exchange or
over-the-counter market.
(c) PERMITTED CONTROLLED TRANSFERS. Notwithstanding the provisions of this
Paragraph 24 to the contrary, Tenant may assign this Lease or sublet the
Premises or any portion thereof ("Permitted Transfer"), without Landlord's
consent and without extending any sublease termination option to Landlord, to
any parent, subsidiary or affiliate corporation which controls, is controlled by
or is under common control with Tenant, or to any corporation resulting from a
merger or consolidation with Tenant, or to any person or entity which acquires
all the assets of Tenant's business as a going concern, provided that: (i) at
least twenty (20) days prior to such assignment or sublease, Tenant delivers to
Landlord the financial statements and other financial and background information
of the assignee or sublessee described in Subparagraph 24(d) below; (ii) if an
assignment, the assignee assumes, in full, the obligations of Tenant under this
Lease (or if a sublease, the sublessee of a portion of the Premises or Term
assumes, in full, the obligations of Tenant with respect to such portion); (iii)
the financial net worth of the assignee or sublessee as of the time of the
proposed assignment or sublease equals or exceeds that of Tenant as of the date
of execution of this Lease; (iv) Tenant remains fully liable under this Lease;
and (v) the use of the Premises under Paragraph 8 remains unchanged.
(d) TRANSFER NOTICE. If Tenant desires to effect a Transfer, then at least
thirty (30) days prior to the date when Tenant desires the Transfer to be
effective (the "Transfer Date"), Tenant agrees to give Landlord a notice (the
"Transfer Notice"), stating the name, address and business of the proposed
assignee, sublessee or other transferee (sometimes referred to hereinafter as
"Transferee"), reasonable information (including references) concerning the
character, ownership, and financial condition of the proposed Transferee, the
Transfer Date, any ownership or commercial relationship between Tenant and the
proposed Transferee, and the consideration and all other material terms and
conditions of the proposed Transfer, all in such detail as Landlord may
reasonably require. If Landlord reasonably requests additional detail, the
Transfer Notice will not be deemed to have been received until Landlord
receives such additional detail, and Landlord may withhold consent to any
Transfer until such information is provided to it.
(e) LANDLORD'S OPTIONS. Within fifteen (15) days of Landlord's receipt of
any Transfer Notice, and any additional information requested by Landlord
concerning the proposed Transferee's financial responsibility, Landlord will
elect to do one of the following (i) consent to the proposed Transfer, (ii)
refuse such consent, which refusal shall be on reasonable grounds including,
without limitation those set forth in Subparagraph 24(f) below, or (iii)
terminate this Lease as to all or such portion of the Premises which is proposed
to be sublet or assigned and recapture all or such portion of the Premises for
reletting by Landlord transfers involving twenty-five percent (25%) or less of
the Premises.
(f) REASONABLE DISAPPROVAL. Landlord and Tenant hereby acknowledge that
Landlord's disapproval of any proposed Transfer pursuant to Subparagraph 24(e)
will be deemed reasonably withheld if based upon any reasonable factor,
including, without limitation, any or all of the following factors: (i) if the
Building is less than eighty percent (80%) occupied, if the net effective rent
payable by the Transferee (adjusted on a rentable square foot basis) is less
than the net effective rent then being quoted by Landlord for new leases in the
Building for comparable size space for a comparable period of time; (ii) the
proposed-Transferee is a governmental entity; (iii) the portion of the Premises
to be sublet or assigned is irregular in shape with inadequate means of ingress
and egress; (iv) the use of the Premises by the Transferee (A) is not permitted
by the use provisions in Paragraph 8 hereof, (B) violates any exclusive use
granted by Landlord to another tenant in the Building, or (C) otherwise poses a
risk of increased liability to Landlord; (v) the Transfer would likely result in
a significant and inappropriate increase in the use of the parking areas or
Development Common Areas by the Transferee's employees or visitors, and/or
significantly increase the demand upon utilities and services to be provided by
Landlord to the Premises; (vi) the Transferee does not have the financial
capability to fulfill the obligations imposed by the Transfer and this Lease;
(vii) the Transferee is not in Landlords' reasonable opinion consistent with
Landlord's desired tenant mix; or (viii) the Transferee poses a business or
other economic risk which Landlord deems unacceptable.
(g) ADDITIONAL CONDITIONS. A condition to Landlord's consent to any
Transfer of this Lease will be the delivery to Landlord of a true copy of the
fully executed instrument of assignment, sublease, transfer or hypothecation,
and, in the case of an assignment, the delivery to Landlord of an agreement
executed by the Transferee in form and substance reasonably satisfactory to
Landlord, whereby the Transferee assumes and agrees to be bound by all of the
terms and provisions of this Lease and to perform all of the obligations of
Tenant hereunder. As a condition for granting its consent to any assignment or
sublease, Landlord may require that the assignee or sublessee remit directly to
Landlord on a monthly basis, all monies due to Tenant by said assignee or
sublessee. As a condition to Landlord's consent to any sublease, such sublease
must provide that it is subject and subordinate to this Lease and to all
mortgages; that landlord may enforce the provisions of the sublease, including
collection of rent; that in the event of termination of this Lease for any
reason, including without limitation a voluntary surrender by Tenant, or in the
event of any reentry or repossession of the Premises by Landlord, Landlord may,
at is option, either (i) terminate the sublease, or (ii) take over all of the
right, title and interest of Tenant, as sublessor, under such sublease, in which
case such sublessee will attorn to Landlord, but that nevertheless Landlord will
not (1) be liable for any previous act or omission of Tenant under such
sublease, (2) be subject to any defense or offset previously accrued in favor of
the sublessee against Tenant, or (3) be bound by any previous modification of
any sublease made without Landlord's written consent, or by any previous
prepayment by sublessee of more than one month's rent.
(h) EXCESS RENT. If Landlord consents to any assignment of this Lease,
Tenant agrees to pay to Landlord, as additional rent, fifty percent (50%) of all
sums and other consideration payable to and for the benefit of Tenant by the
assignee on account of the assignment, as and when such sums and other
consideration are due and payable by the assignee to or for the benefit of
Tenant (or, if Landlord so requires, and without any release of Tenant's
liability for the same, Tenant agrees to instruct the assignee to pay such sums
and other consideration directly to Landlord). If for any sublease, Tenant
receives rent or other consideration, either initially or over the term of the
sublease, in excess of the rent fairly allocable to the portion of the Premises
which is subleased based on square footage. Tenant agrees to pay to Landlord
as additional rent fifty percent (50%) of the excess of each such payment of
rent or other consideration received by Tenant promptly after its receipt. In
calculating excess rent or other consideration which may be payable to Landlord
under this paragraph, Tenant will be entitled to deduct commercially reasonable
third party brokerage commissions and attorneys' fees and other amounts
reasonably and actually expended by Tenant in connection with such assignment or
subletting if acceptable written evidence of such expenditures is provided to
Landlord.
(i) TERMINATION RIGHTS. If Tenant requests Landlord's consent to any
assignment or subletting of all or a portion of the Premises, Landlord will have
the right, as provided in Subparagraph 24(e), to terminate this Lease as to all
or such portion of the Premises which is proposed to be sublet or assigned
effective as of the date Tenant proposes to sublet or assign all or less than
all of
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the Premises. Landlord's right to terminate this Lease as to less than all of
the Premises proposed to be sublet or assigned will not terminate as to any
future additional subletting or assignment as a result of Landlord's consent to
a subletting of less than all of the Premises or Landlord's failure to exercise
its termination right with respect to any subletting or assignment. Landlord
will exercise such termination right, if at all, by giving written notice to
Tenant within thirty (30) days of receipt by Landlord of the financial
responsibility information required by this Paragraph 24. Tenant understands
and acknowledges that the option, as provided in this Paragraph 24, to
terminate this Lease as to all or such portion of the Premises which is
proposed to be sublet or assigned rather than approve the subletting or
assignment of all or a portion of the Premises, is a material inducement for
Landlord's agreeing to lease the Premises to Tenant upon the terms and
conditions herein set forth. In the event of any such termination with respect
to less than all of the Premises, the cost of segregating the recaptured space
from the balance of the Premises will be paid by Tenant and Tenant's future
monetary obligations under this Lease will be reduced proportionately on a
square footage basis to correspond to the balance of the Premises which Tenant
continues to lease.
(j) NO RELEASE. No Transfer will release Tenant of Tenant's obligations under
this Lease or alter the primary liability of Tenant to pay the rent and to
perform all other obligations to be performed by Tenant hereunder. Landlord may
require that any Transferee remit directly to Landlord on a monthly basis, all
monies due Tenant by said Transferee. However, the acceptance of rent by
Landlord from any other person will not be deemed to be a waiver by Landlord of
any provisions hereof. Consent by Landlord to one Transfer will not be deemed
consent to any subsequent Transfer. In the event of default by any Transferee
of Tenant or any successor of Tenant in the performance of any of the terms
hereof, Landlord may proceed directly against Tenant without the necessity of
exhausting remedies against such Transferee or successor. Landlord may consent
to subsequent assignments of this Lease or sublettings or amendments or
modifications to this Lease with assignees of Tenant, without notifying Tenant,
or any successor of Tenant, and without obtaining its or their consent thereto
and any such actions will not relieve tenant of liability under this Lease.
(k) ADMINISTRATIVE AND ATTORNEYS' FEES. If Tenant effects a transfer or
requests the consent of Landlord to any Transfer (whether or not such Transfer
is consummated), then, upon demand, Tenant agrees to pay Landlord a
non-refundable administrative fee of Two Hundred Fifty Dollars ($250.00), plus
any reasonable attorneys' and paralegal fees incurred by Landlord in connection
with such Transfer or request for consent (whether attributable to Landlord's
in-house attorneys or paralegals or otherwise) not to exceed One Hundred Dollars
($100.00) for each one thousand (1,000) rentable square feet of area contained
within the Premises or portion thereof to be assigned or sublet. Acceptance of
the Two Hundred Fifty Dollar ($250.00) administrative fee and/or reimbursement
of Landlord's attorneys' and paralegal fees will in no event obligate Landlord
to consent to any proposed Transfer or the premises shall not exceed $100.00.
25. SUBORDINATION. Without the necessity of any additional document being
executed by Tenant for the purpose of effecting a subordination, and at the
election of Landlord or any mortgagee or beneficiary with a deed of trust
encumbering the Building and/or the Development, or any lessor of a ground or
underlying lease with respect to the Building, this Lease will be subject and
subordinate at all times to: (i) all ground leases or underlying leases which
may now exist or hereafter be executed affecting the Building; and (ii) the lien
of any mortgage or deed of trust which may now exist or hereafter be executed
for which the Building, the Development or any leases thereof, or Landlord's
interest and estate in any of said items, is specified as security.
Notwithstanding the foregoing, Landlord reserves the right to subordinate any
such ground leases or underlying leases or any such liens to this Lease. If any
such ground lease or underlying lease terminates for any reason or any such
mortgage or deed of trust is foreclosed or a conveyance in lieu of foreclosure
is made for any reason, at the election of Landlord's successor in interest,
Tenant agrees to attorn to and become the tenant of such successor in which
event Tenant's right to possession of the Premises will not be disturbed as long
as Tenant is not in default under this Lease. Tenant hereby waives its rights
under any law which gives or purports to give Tenant any right to terminate or
otherwise adversely affect this Lease and the obligations of Tenant hereunder in
the event of any such foreclosure proceeding or sale. Tenant covenants and
agrees to execute and deliver, upon demand by Landlord and in the form
reasonably required by Landlord, any additional documents evidencing the
priority or subordination of this Lease and Tenant's attornment agreement with
respect to any such ground lease or underlying leases or the lien of any such
mortgage or deed of trust. If Tenant fails to sign and return any such documents
within ten (10) days of receipt, Tenant will be in default hereunder.
26. ESTOPPEL CERTIFICATE.
(a) TENANT'S OBLIGATIONS. Within ten (10) days following any written request
which Landlord may make from time to time, Tenant agrees to execute and deliver
to Landlord a statement, in a form substantially similar to the form of Exhibit
"G" attached hereto or as may reasonably be required by Landlord's lender,
certifying: (i) the date of commencement of this Lease; (ii) the fact that this
Lease is unmodified and in full force and effect (or, if there have been
modifications, that this Lease is in full force and effect, and stating the
date and nature of such modifications); (iii) the date to which the rent and
other sums payable under this Lease have been paid; (iv) that there are no
current defaults under this Lease by either Landlord or Tenant except as
specified in Tenant's statement; and (v) such other matters reasonably
requested by Landlord. Landlord and Tenant intend that any statement delivered
pursuant to this Paragraph 26 may be relied upon by any mortgagee, beneficiary,
purchaser or prospective purchaser of the Building or any interest therein.
(b) TENANT'S FAILURE TO DELIVER. Tenant's failure to deliver such statement
within such time will be conclusive upon Tenant (i) that this Lease is in full
force and effect, without modification except as may be represented by
Landlord, (ii) that there are no uncured defaults in Landlord's performance,
and (iii) that not more than one (1) month's rent has been paid in advance.
Without limiting the foregoing, if Tenant fails to deliver any such statement
within such ten (10) day period, Landlord may deliver to Tenant an additional
request for such statement and Tenant's failure to deliver such statement to
Landlord within ten (10) days after delivery of such additional request will
constitute a default under this Lease. Tenant agrees to indemnify and protect
Landlord from and against any and all claims, damages, losses, liabilities and
expenses (including attorneys' fees and costs) attributable to any failure by
Tenant to timely deliver any such estoppel certificate to Landlord as required
by this Paragraph 26.
27. BUILDING PLANNING. If Landlord requires the Premises for use in
conjunction with another suite or for other reasons connected with the planning
program for the Building, Landlord will have the right, upon sixty (60) days
prior written notice to Tenant, to move Tenant to other space in the Building
of substantially similar size as the Premises, and with tenant improvements of
substantially similar age, quality and layout as then existing in the Premises.
Any such relocation will be at Landlord's cost and expense, including the cost
of providing such substantially similar tenant improvements (but not any
furniture or personal property) and Tenant's reasonable moving, telephone
installation and stationery reprinting costs. If Landlord so relocates Tenant,
the terms
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and conditions of this Lease will remain in full force and effect and apply to
the new space, except that (a) a revised Exhibit "A-II" will become part of
this Lease and will reflect the location of the new space, (b) Paragraph 1 of
this Lease will be amended to include and state all correct data as to the new
space, (c) the new space will thereafter be deemed to be on the "Premises" and
(d) all economic terms and conditions (e.g. rent, total Operating Expense
Allowance, etc.) will be adjusted to on a per square foot basis based on the
total number of rentable square feet of area contained in the new space.
Landlord and Tenant agree to cooperate fully with one another in order to
minimize the inconvenience of Tenant resulting from any such relocation.
However, if the new space does not meet with Tenant's reasonable approval,
Tenant will have the right to cancel this Lease upon giving Landlord thirty
(30) days notice within ten (10) days following receipt of Tenant's
cancellation notice to rescind Landlord's relocation notice, in which event
Landlord's relocation notice will be rescinded, Tenant's cancellation notice
will be cancelled and this Lease will remain in full force and effect. If
Tenant cancels this Lease pursuant to this Paragraph 27, Tenant agrees to
vacate the Building and the Premises within thirty (30) days of its delivery to
Landlord of the notice of cancellation.
28. RULES AND REGULATIONS. Tenant agrees to faithfully observe and comply with
the "Rules and Regulations," a copy of which is attached hereto and
incorporated herein by this reference as Exhibit "H," and all reasonable and
nondiscriminatory modifications thereof and additions thereto from time to time
put into effect by Landlord. Landlord will not be responsible to Tenant for the
violation or non-performance by any other tenant or occupant of the Building of
any of the Rules and Regulations.
29. MODIFICATION AND CURE RIGHTS OF LANDLORD'S MORTGAGEES AND LESSORS.
(a) MODIFICATIONS. If, in connection with Landlord's obtaining or entering
into any financing or ground lease for any portion of the Building or the
Development, the lender or ground lessor requests modifications to this Lease,
Tenant, within ten (10) days after request therefor, agrees to execute an
amendment to this Lease incorporating such modifications, provided such
modifications are reasonable and do not increase the obligations of Tenant
under this Lease or adversely affect the leasehold estate created by this Lease.
(b) CURE RIGHTS. In the event of any default on the part of Landlord, Tenant
will give notice by registered or certified mail to any beneficiary of a deed of
trust or mortgage covering the Premises or ground lessor of Landlord whose
address has been furnished to Tenant, and Tenant agrees to offer such
beneficiary, mortgagee or ground lessor a reasonable opportunity to cure the
default (including with respect to any such beneficiary or mortgagee, time to
obtain possession of the Premises, subject to this Lease and Tenant's rights
hereunder, by power of sale or a judicial foreclosure, if such should prove
necessary to effect a cure).
30. DEFINITION OF LANDLORD. The term "Landlord," as used in this Lease, so far
as covenants or obligations on the part of Landlord are concerned, means and
includes only the owner or owners, at the time in question, of the fee title of
the Premises or the lessees under any ground lease, if any. In the event of any
transfer, assignment or other conveyance or transfers of any such title (other
than a transfer for security purposes only), Landlord herein named (and in case
of any subsequent transfers or conveyances, the then grantor) will be
automatically relieved from and after the date of such transfer, assignment or
conveyance of all the liability as respects the performance of any covenants or
obligations on the part of Landlord contained in this Lease thereafter to be
performed, so long as the transferee assumes in writing all such covenants and
obligations of Landlord arising after the date of such transfer. Landlord and
Landlord's transferees and assignees have the absolute right to transfer all or
any portion of their respective title and interest in the Development, the
Building, the Premises and/or this Lease without the consent of Tenant, and
such transfer or subsequent transfer will not be deemed a violation on
Landlord's part of any of the terms and conditions of this Lease.
31. WAIVER. The waiver by either party of any breach of any term, covenant or
condition herein contained will not be deemed to be a waiver of any subsequent
breach of the same or any other term, covenant or condition herein contained,
nor will any custom or practice which may develop between the parties in the
administration of the terms hereof be deemed a waiver of or in any way affect
the right of either party to insist upon performance in strict accordance with
said terms. The subsequent acceptance of rent or any other payment hereunder by
Landlord will not be deemed to be a waiver of any preceding breach by Tenant of
any term, covenant or condition of this Lease, other than the failure of Tenant
to pay the particular rent so accepted, regardless of Landlord's knowledge of
such preceding breach at the time of acceptance of such rent. No acceptance by
Landlord of a lesser sum than the basic rent and additional rent or other sum
then due will be deemed to be other than on account of the earliest installment
of such rent or other amount due, nor will any endorsement or statement on any
check or any letter accompanying any check be deemed an accord and
satisfaction, and Landlord may accept such check or payment without prejudice
to Landlord's right to recover the balance of such installment or other amount
or pursue any other remedy provided in this Lease. The consent or approval of
Landlord to or of any act by Tenant requiring Landlord's consent or approval
will not be deemed to waive or render unnecessary Landlord's consent or
approval to or any of subsequent similar acts by Tenant.
32. PARKING.
(a) GRANT OF PARKING RIGHTS. So long as this Lease is in effect and
provided Tenant is not in default hereunder, Landlord grants to Tenant and
Tenant's Authorized Users (as defined below) a license to use the number and
type of parking spaces designated in Subparagraph 1(s) subject to the terms and
conditions of this Paragraph 32 and the Rules and Regulations regarding parking
contained in Exhibit "H" attached hereto. Except as otherwise expressly set
forth in Subparagraph 1(s), as consideration for the use of such parking
spaces, Tenant agrees to pay Landlord or, at Landlord's election, directly to
Landlord's parking operator, as additional rent under this Lease, the
prevailing parking rate for each such parking space as established by Landlord
in its discretion from time to time. Tenant agrees that all parking charges
will be payable on a monthly basis concurrently with each monthly payment of
Monthly Base Rent. Tenant agrees to submit to Landlord or, at Landlord's
election, directly to Landlord's parking operator with a copy to Landlord,
written notice in a form reasonably specified by Landlord containing the names,
home and office addresses and telephone numbers of those persons who are
authorized by Tenant to use Tenant's parking spaces on a monthly basis
("Tenant's Authorized Users") and shall use its best efforts to identify each
vehicle of Tenant's Authorized Users by make, model and license number. Tenant
agrees to deliver such notice prior to the beginning of the Term of this Lease
and to periodically update such notice as well as upon specific request by
Landlord or Landlord's parking operator to reflect charges to Tenant's
Authorized Users or their vehicles.
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(b) VISITOR PARKING. So long as this Lease is in effect, Tenant's visitors and
guests will be entitled to use those specific parking areas which are
designated for short term visitor parking and which are located within the
surface parking area(s), if any, and/or within the parking structure(s) which
serve the Building. Visitor parking will be made available at a charge to
Tenant's visitors and guests, with the rate being established by Landlord in
its discretion from time to time. Tenant, at its sole cost and expense, may
elect to validate such parking for its visitors and guests. All such visitor
parking will be on a non-exclusive, in common basis with all other visitors and
guests of the Development.
(c) USE OF PARKING SPACES. Tenant will not use or allow any of Tenant's
Authorized Users to use any parking spaces which have been specifically assigned
by Landlord to other tenants or occupants or for other uses such as visitor
parking or which have been designated by any governmental entity as being
restricted to certain uses. Tenant will not be entitled to increase or reduce
its parking privileges applicable to the Premises during the Term of the Lease
except as follows. If at any time Tenant desires to increase or reduce the
number of parking spaces allocated to it under the terms of this Lease, Tenant
must notify Landlord in writing of such desire and Landlord will have the right,
in its sole and absolute discretion, to either (a) approve such requested
increase in the number of parking spaces allocated to Tenant (with an
appropriate increase to the additional rent payable by Tenant for such
additional spaces based on the then prevailing parking rates), (b) approve such
requested decrease in the number of parking spaces allocated to Tenant (with an
appropriate reduction in the additional rent payable by Tenant for such
eliminated parking spaces based on the then prevailing parking rates), or (c)
disapprove such requested increase or decrease in the number of parking spaces
allocated to Tenant. Promptly following receipt of Tenant's written request,
Landlord will provide Tenant with written notice of its decision including a
statement of any adjustments to the additional rent payable by Tenant for
parking under the Lease, if applicable.
(d) GENERAL PROVISIONS. Except as otherwise expressly set forth in Subparagraph
1(s), Landlord reserves the right to set and increase monthly fees and/or daily
and hourly rates for parking privileges from time to time during the Term of the
lease. Landlord may assign any unreserved and unassigned parking spaces and/or
make all or any portion of such spaces reserved, if Landlord reasonably
determines that it is necessary for orderly and efficient parking or for any
other reasonable reason. Failure to pay the rent for any particular parking
spaces or failure to comply with any terms and conditions of this Lease
applicable to parking may be teated by Landlord as a default under this Lease
and, in addition to all other remedies available to Landlord under the Lease,
at law or in equity, Landlord may elect to recapture such parking spaces for the
balance of the Term of this Lease if Tenant does not cure such failure within
the applicable cure period set forth in Paragraph 22 of this Lease. In such
event, Tenant and Tenant's Authorized Users will be deemed visitors for
purposes of parking space use and will be entitled to use only those parking
areas specifically designated for visitor parking subject to all provisions of
this Lease. Tenant's parking rights and privileges described therein are
personal to Tenant and may not be assigned or transferred, or otherwise
conveyed, without Landlord's prior written consent, which consent Landlord may
withhold in its sole and absolute discretion. In any event, under no
circumstances may Tenant's parking rights and privileges be transferred,
assigned or otherwise conveyed separate and apart form Tenant's interest in
this Lease.
(e) COOPERATION WITH TRAFFIC MITIGATION MEASURES. Tenant agrees to use its
reasonable, good faith efforts to cooperate in traffic mitigation programs which
may be undertaken by Landlord independently, or in cooperation with local
municipalities or governmental agencies or other property owners in the
vicinity of the Building. Such programs may include, but will not be limited
to, carpools, vanpools and other ridesharing programs, public and private
transit, flexible work hours, preferential assigned parking programs and
programs to coordinate tenants within the Development with existing or
proposed traffic mitigation programs.
(f) PARKING RULES AND REGULATIONS. Tenant and Tenant's Authorized Users shall
comply with all rules and regulations regarding parking set forth in Exhibit
"H" attached hereto and Tenant agrees to cause its employees, subtenants,
assignees, contractors, suppliers, customers and invitees to comply with such
rules and regulations. Landlord reserves the right from time to time to modify
and/or adopt such other reasonable and non-discriminatory rules and regulations
for the parking facilities as it deems reasonably necessary for the operation
of the parking facilities.
33. FORCE MAJEURE. If either Landlord or Tenant is delayed, hindered in or
prevented from the performance of any act required under this Lease by reason
of strikes, lock-outs, labor troubles, inability to procure standard materials,
failure of power, restrictive governmental laws, regulations or orders or
governmental action or inaction (including failure, refusal or delay in issuing
permits, approvals and/or authorizations which is not the result of the action
or inaction of the party claiming such delay), riots, civil unrest or
insurrection, war, fire, earthquake, flood or other natural disaster, unusual
and unforeseeable delay which results from an interruption of any public
utilities (e.g., electricity, gas, water, telephone) or other unusual and
unforeseeable delay not within the reasonable control of the party delayed in
performing work or doing acts required under the provisions of this Lease, then
performance of such act will be excused for the period of the delay and the
period for the performance of any such act will be extended for a period
equivalent to the period of such delay. The provisions of this Paragraph 33
will not operate to excuse Tenant from prompt payment of rent or any other
payments required under the provisions of this Lease.
34. SIGNS. Landlord will designate the location on the Premises, if any, for
one or more Tenant identification sign(s). Tenant agrees to have Landlord
install and maintain Tenant's identification sign(s) in such designated
location in accordance with this Paragraph 34 at Tenant's sole cost and
expense. Tenant has no right to install Tenant identification signs in any
other location in, on or about the Premises or the Development and will not
display or erect any other signs, displays or other advertising materials that
are visible from the exterior of the Building or from within the Building in
any interior or exterior common areas. The size, design, color and other
physical aspects of any and all permitted sign(s) will be subject to (i)
Landlord's written approval prior to installation, which approval may be
withheld in Landlord's discretion, (ii) any covenants, conditions or
restrictions governing the Premises, and (iii) any applicable municipal or
governmental permits and approvals. Tenant will be solely responsible for all
costs for installation, maintenance, repair and removal of any Tenant
identification sign(s). If Tenant fails to remove Tenant's sign(s) upon
termination of this Lease and repair any damage caused by such removal,
Landlord may do so at Tenant's sole cost and expense. Tenant agrees to reimburse
Landlord for all costs incurred by Landlord to effect any installation,
maintenance or removal on Tenant's account, which amount will be deemed
additional rent, and may include, without limitation, all sums disbursed,
incurred or deposited by Landlord including Landlord's costs, expenses and
actual attorney's fees with interest thereon at the Interest Rate form the date
of Landlord's demand until paid by Tenant. Any sign rights granted to Tenant
under this Lease are personal to
-17-
<PAGE> 20
Tenant and may not be assigned, transferred or otherwise conveyed to any
assignee or subtenant of Tenant without Landlord's prior written consent, which
consent Landlord may withhold in its sole and absolute discretion.
35. LIMITATION ON LIABILITY. In consideration of the benefits accruing
hereunder, Tenant on behalf of itself and all successors and assigns of Tenant
covenants and agrees that, in the event of any actual or alleged failure,
breach or default hereunder by Landlord: (a) Tenant's recourse against Landlord
for monetary damages will be limited to Landlord's interest in the Building
including, subject to the prior rights of any Mortgagee, Landlord's interest in
the rents of the Building and any insurance proceeds payable to Landlord; (b)
Except as may be necessary to secure jurisdiction of the partnership, no
partner of Landlord shall be sued or named as a party in any suit or action,
and no service of process shall be made against any partner of Landlord; (c) No
partner of Landlord shall be required to answer or otherwise plead to any
service of process; (d) No judgment will be taken against any partner of
Landlord and any judgment taken against any partner of Landlord may be vacated
and set aside at any time after the fact; (e) No writ of execution will be
levied against the assets of any partner of Landlord; (f) The obligations under
this Lease do not constitute personal obligations of the individual partners,
directors, officers or shareholders of Landlord, and Tenant shall not seek
recourse against the individual partners, directors, officers or shareholders
of Landlord or any of their personal assets for satisfaction of any liability
in respect to this Lease; and (g) These covenants and agreements are
enforceable both by Landlord and also by any partner of Landlord.
36. FINANCIAL STATEMENTS. Prior to the execution of this Lease by Landlord and
at any time during the Term of this Lease upon thirty (30) days prior written
notice from Landlord, Tenant agrees to provide Landlord with a current
financial statement for Tenant and any guarantors of Tenant and financial
statements for the two (2) years prior to the current financial statement year
for Tenant and any guarantors of Tenant. Such statements are to be prepared in
accordance with generally accepted accounting principles and, if such is the
normal practice of Tenant, audited by an independent certified public
accountant.
37. QUIET ENJOYMENT. Landlord covenants and agrees with Tenant that upon Tenant
paying the rent required under this Lease and paying all other charges and
performing all of the covenants and provisions on Tenant's part to be observed
and performed under this Lease, Tenant may peaceably and quietly have, hold and
enjoy the Premises in accordance with this Lease.
38. MISCELLANEOUS.
(a) CONFLICT OF LAWS. This Lease shall be governed by and construed solely
pursuant to the laws of the State, without giving effect to choice of law
principles thereunder.
(b) SUCCESSORS AND ASSIGNS. Except as otherwise provided in this Lease, all of
the covenants, conditions and provisions of this Lease shall be binding upon and
shall inure to the benefit of the parties hereto and their respective heirs,
personal representatives, successors and assigns.
(c) PROFESSIONAL FEES AND COSTS. If either Landlord or Tenant should bring suit
against the other with respect to this Lease, then all costs and expenses,
including without limitation, actual reasonable professional fees and costs such
as appraisers', accountants' and attorneys' fees and costs, incurred by the
party which prevails in such action, whether by final judgment or out of court
settlement, shall be paid by the other party, which obligation on the part of
the other party shall be deemed to have accrued on the date of the commencement
of such action and shall be enforceable whether or not the action is prosecuted
to judgment. As used herein, attorneys' fees and costs shall include, without
limitation, reasonable attorneys' fees, costs and expenses incurred in
connection with any (i) postjudgment motions; (ii) contempt proceedings; (iii)
garnishment, levy and debtor and third party examination; (iv) discovery; and
(v) bankruptcy litigation.
(d) TERMS AND HEADINGS. The words "Landlord" and "Tenant" as used herein shall
include the plural as well as the singular. Words used in any gender include
other genders. The paragraph headings of this Lease are not a part of this Lease
and shall have no effect upon the construction or interpretation of any part
hereof.
(e) TIME. Time is of the essence with respect to the performance of every
provision of this Lease in which time of performance is a factor.
(f) PRIOR AGREEMENT; AMENDMENTS. This Lease constitutes and is intended by the
parties to be a final, complete and exclusive statement of their entire
agreement with respect to the subject matter of this Lease. This lease
supersedes any and all prior and contemporaneous agreements and understandings
of any kind relating to the subject matter of this Lease. There are no other
agreements, understandings, representations, warranties, or statements, either
oral or in written form, concerning the subject matter of this Lease. No
alteration, modification, amendment or interpretation of this Lease shall be
binding on the parties unless contained in a writing which is signed by both
parties.
(g) SEPARABILITY. The provisions of this Lease shall be considered separable
such that if any provision or part of this Lease is ever held to be invalid,
void or illegal under any law or ruling, all remaining provisions of this Lease
shall remain in full force and effect to the maximum extent permitted by law.
(h) RECORDING. Neither Landlord nor Tenant shall record this Lease nor a short
form memorandum thereof without the consent of the other.
(i) COUNTERPARTS. This Lease may be executed in one or more counterparts, each
of which shall constitute an original and all of which shall be one and the
same agreement.
(j) NONDISCLOSURE OF LEASE TERMS. Tenant acknowledges and agrees that the terms
of this Lease are confidential and constitute proprietary information of
Landlord. Disclosure of the terms could adversely affect the ability of
Landlord to negotiate other leases and impair Landlord's relationship with
other tenants. Accordingly, Tenant agrees that it, and its partners, officers,
directors, employees, agents and attorneys, shall not intentionally and
voluntarily disclose the terms and conditions of this Lease to any newspaper or
other publication or any other tenant or apparent prospective tenant of the
Building or other portion of the
-18-
<PAGE> 21
Development, or real estate agent, either directly or indirectly, without the
prior written consent of Landlord, provided, however, that Tenant may disclose
the terms to prospective subtenants or assignees under this Lease.
(k) NON-DISCRIMINATION. Tenant acknowledges and agrees that there shall be
no discrimination against, or segregation of, any person, group of persons, or
entity on the basis of race, color, creed, religion, age, sex, marital status,
national origin, or ancestry in the leasing, subleasing, transferring,
assignment, occupancy, tenure, use, or enjoyment of the Premises, or any
portion thereof.
39. EXECUTION OF LEASE.
(a) JOINT AND SEVERAL OBLIGATIONS. If more than one person executes this
Lease as Tenant, their execution of this Lease will constitute their covenant
and agreement that (i) each of them is jointly and severally liable for the
keeping, observing and performing of all of the terms, covenants, conditions,
provisions and agreements of this Lease to be kept, observed and performed by
Tenant, and (ii) the term "Tenant" as used in this Lease means and includes
each of them jointly and severally. The act of or notice from, or notice or
refund to, or the signature of any one or more of them, with respect to the
tenancy of this Lease, including, but not limited to, any renewal, extension,
expiration, termination or modification of this Lease, will be binding upon
each and all of the persons executing this Lease as Tenant with the same force
and effect as if each and all of them had so acted or so given or received such
notice or refund or so signed.
(b) TENANT AS CORPORATION OR PARTNERSHIP. If Tenant executes this Lease as
a corporation or partnership, then Tenant and the persons executing this Lease
on behalf of Tenant represent and warrant that such entity is duly qualified
and in good standing to do business in California and that the individuals
executing this Lease on Tenant's behalf are duly authorized to execute and
deliver this Lease on its behalf, and in the case of a corporation, in
accordance with a duly adopted resolution of the board of directors of Tenant,
a copy of which is to be delivered to Landlord on execution hereof, if
requested by Landlord, and in accordance with the by-laws of Tenant, and, in
the case of a partnership, in accordance with the partnership agreement and
the most current amendments thereto, if any, copies of which are to be delivered
to Landlord on execution hereof, if requested by Landlord, and that this Lease
is binding upon Tenant in accordance with its terms.
(c) EXAMINATION OF LEASE. Submission of this instrument by Landlord to
Tenant for examination or signature by Tenant does not constitute a reservation
of or option for lease, and it is not effective as a lease or otherwise until
execution by and delivery to both Landlord and Tenant.
IN WITNESS WHEREOF, the parties have caused this Lease to be duly executed by
their duly authorized representatives as of the date first above written.
TENANT LANDLORD
MEDICAL SCIENCE SYSTEMS, INC. KOLL CENTER NEWPORT NUMBER 9,
a Texas Corporation a California limited partnership
By: /s/ PAUL J. WHITE By: KOLL MANAGEMENT SERVICES, INC.,
- ----------------------
Print Name: Paul J. White a Delaware corporation,
-------------
Title: President as Agent
------------------
Date: 3-18-96
-------------------- By: /s/ RICHARD KOENIG
By: ---------------------
-------------------------- Print Name: Richard Koenig
Print Name: ---------------
--------------- Title: Senior Manager
Title: --------------------
-------------------- Date:
Date: -----------------------
---------------------
-19-
<PAGE> 22
ADDENDUM TO OFFICE BUILDING LEASE
DATED 21 MARCH, 1996
BY AND BETWEEN KOLL CENTER NEWPORT NUMBER 9,
A CALIFORNIA LIMITED PARTNERSHIP, AS "LANDLORD" AND
MEDICAL SCIENCE SYSTEMS, INC., A TEXAS CORPORATION
AS "TENANT"
- --------------------------------------------------------------------------------
40. OPTION TO TERMINATE: Subject to the terms of this Paragraph 40 and Paragraph
41, entitled "Options," and notwithstanding anything to the contrary contained
in this Lease, Tenant will have a one-time option to terminate and cancel this
Lease (the "Termination Option"), effective as of the last day of the
twenty-forth (24th) month of the Lease Term (the "Termination Date"), by
delivering to Landlord, on or before the first day of the twentieth (20th)
month of the Lease Term, written notice ("Termination Notice") of Tenant's
exercise of its Termination Option. As a condition to the effectiveness of
Tenant's exercise of its Termination Option and in addition to Tenant's
obligation to satisfy all other monetary and non monetary obligations arising
under this Lease through the Termination Date, Tenant must pay to Landlord cash
(or its equivalent) in the amount Thirty-Eight Thousand Two Hundred and One
Dollars ($38,201.00) (the "Termination Consideration"). The payment of the
Termination Consideration must be paid upon submittal of the Termination Notice
from Tenant to Landlord. If Tenant properly and timely delivers the Termination
Notice and the Termination Consideration to Landlord and satisfies all other
monetary and non monetary obligations under this Lease through the Termination
Date, including, without limitation, the provisions regarding surrender of the
Premises, then this Lease will terminate as of midnight on the Termination Date
and Tenant's security deposit shall be refunded in accordance with the terms of
the Lease.
41. OPTION:
(a) Definition: As used in this Paragraph, the word "Option" has the
following meaning:
(i) The Option to Terminate pursuant to Paragraph 40 herein.
(b) Effect of Default on Option: Tenant shall have no right to exercise
any Option, notwithstanding any provision of the grant of Option to the
contrary, and Tenant's exercise of any Option may be nullified by Landlord and
deemed of no further force or effect, if (i) Tenant shall be in default after
applicable notice and cure period of any monetary obligation or material
non-monetary obligation under the terms of the Lease (or if Tenant would be in
such default under the Lease but for the passage of time or the giving of
notice, or both) as of Tenant's exercise of the Option in question or at any
time after the exercise of any such and prior to the commencement of the Option
event, or (ii) Landlord has given Tenant three (3) or more notices of monetary
(non-payment of Monthly Base Rent or Additional Rent) default beyond applicable
notice and cure period, whether or not such defaults are subsequently cured,
during any twelve (12) consecutive month period of the Lease.
(c) Options Personal: Tenant's Option is personal to Tenant and shall
not be transferable or assignable.
42. PARKING:
(a) Unreserved Employee Parking: Notwithstanding anything contained to
the contrary in Paragraphs 1(s) and 32 of this lease, and so long as this Lease
is in effect, Landlord shall lease to Tenant up to six (6) unreserved employee
parking spaces. All such unreserved employee parking spaces shall be available
to all tenants on a non-exclusive, in-common basis within the non-visitor
portions of the parking facilities.
Tenant's parking rent shall be as follows for up to six (6) unreserved
parking spaces for the initial Lease term:
Months 01 - 36: $15.00 per space per month;
Months 37 - 60: $20.00 per space per month.
(b) Reserved Parking: So long as this Lease is in effect, Landlord
shall lease to Tenant one (1) reserved parking spaces in the parking structure
adjacent to the Building. The location of such reserved parking spaces within
the parking structure shall be determined by Landlord, in its sole discretion.
Tenant's parking rent shall be as follows for one (1) reserved parking
spaces for the initial Lease term:
Months 01 - 36: $50.00 per month;
Months 37 - 60: $75.00 per month.
43. RELOCATION PROVISION: Provided Tenant is not in default under this
Lease, or would be in default but for the passage of time of the giving of
notice, or both, Tenant shall have the right, upon the terms and conditions
hereinafter set forth, to relocate to a building within Kull Center Newport
having the same ownership entity as the Building. Tenant's exercise of its
right to relocate shall be contingent upon its
<PAGE> 23
Medical Science Systems, Inc.
March 13, 1996
Page 2
leasing space equal to not less than one hundred thirty percent (130%) of the
space Tenant occupies under the terms of this Lease. If at any time during the
term of this Lease, Tenant desires to exercise its right to relocate contained
herein, Tenant shall notify Landlord in writing of such fact. From and after
Landlord receives such written notice, Landlord shall use its best efforts to
notify Tenant of space availability within Koll Center Newport. In the event
Tenant exercises its right to relocate with respect to any such available
space, Landlord and Tenant shall negotiate in good faith the terms of a new
Lease for the relocation space. Landlord and Tenant hereby agree that if
Landlord and Tenant are unable to agree upon the terms of a new lease for a
relocation space, neither party shall have the right to terminate this Lease,
but this Lease shall remain in full force and effect for its remaining term and
any extension thereof.
44. CONFLICT WITH BASIC LEASE: To the extent of any conflict between the
printed portion of this Lease and the provisions of this Addendum Sections 40
through 43, the provisions of this Addendum shall prevail.
"TENANT" "LANDLORD"
MEDICAL SCIENCE SYSTEMS, INC., KOLL CENTER NEWPORT NUMBER 9,
a Texas corporation a California general partnership
By: /s/ PAUL J. WHITE By: KOLL MANAGEMENT SERVICES, INC.,
--------------------------- a Delaware corporation
Print Name: Paul J. White Its Authorized Agent
----------------
Print Title: President By: /s/ RICHARD KOENIG
--------------- -------------------------------
Date: 3-18-96 Print Name: Richard Koenig
---------------------- --------------------
Print Title: Senior Manager
-------------------
By: Date:
--------------------------- --------------------------
Print Name:
----------------
Print Title:
---------------
Date:
----------------------
<PAGE> 24
SITE PLAN
KOLL CENTER NEWPORT
[MAP]
EXHIBIT "A-1"
-------------
9313803H.OC1/KMS FORM/05-20-93/km
<PAGE> 25
OUTLINE OF FLOOR
PLAN OF PREMISES
----------------
PRELIMINARY
PLEASE REVIEW LOCATION
OF DEMISING WALLS.
SQUARE FOOTAGES HAVE
NOT BEEN FINALIZED.
[DRAWING OF FLOOR PLAN]
<TABLE>
<CAPTION>
FLOOR 9
Koll Center Newport
Building 9
4400 MacAuthur Blvd.
Tenant Load Factor: 1.1205 Newport Beach, CA
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
e#: 980 Tenant: Medical Science Systems Suite Usable: 1540.4 STEVENSON
D#: 9-13 Corridor Ext: 64.5 SYSTEMS INC
[LOGO]
Usable: 1605 KCN9A
Date: 12/4/95 Rentable: 1798 (C) 1990 ALL RIGHTS RESERVED
</TABLE>
EXHIBIT "A-11"
9313803H.OC1/KMS FORM/05-20-93/km
<PAGE> 26
RENTABLE SQUARE FEET AND USABLE SQUARE FEET
-------------------------------------------
1. The term "Rentable Square Feet" as used in the Lease will be deemed to
include (a) with respect to the Premises, the usable area of the Premises
determined in accordance with the Method for Measuring Floor Area in Office
Buildings, ANSI Z65 1-1980 (the "BOMA Standard"), plus a pro rata portion of the
main lobby area on the ground floor and all elevator machine rooms, electrical
and telephone equipment rooms and mail delivery facilities and other areas used
by all tenants of the Building, if any, plus (i) for single tenancy floors, all
the area covered by the elevator lobbies, corridors, special stairways,
restrooms, mechanical rooms, electrical rooms and telephone closets on such
floors, or (ii) for multiple tenancy floors, a pro-rata portion of all of the
area covered by the elevator lobbies, corridors, special stairways, restrooms,
mechanical rooms, electrical rooms and telephone closets on such floor, and (b)
with respect to the Building, the total rentable area for all floors in the
Building computed in accordance with the provisions of Subparagraph 1(a) above.
In calculating the "Rentable Square Feet" of the Premises or the Building, the
area contained within the exterior walls of the Building stairs, fire towers,
vertical ducts, elevator shafts, flues, vents, stacks and major pipe shafts
will be excluded.
2. The term "Usable Square Feet" as used in Exhibit "C" with respect to the
Premises will be deemed to include the usable area of the Premises as
determined in accordance with the BOMA Standard.
3. For purposes of establishing the initial Tenant's Percentage, Tenant's
Operating Expense Allowance, Monthly Base Rent, and Security Deposit as shown
in Paragraph 1 of the Lease, the number of Rentable Square Feet of the Premises
is deemed to be as set forth in Subparagraph 1(g) of the Lease, and the number
of Rentable Square Feet of the Building is deemed to be as set forth in
Subparagraph 1(f) of the Lease. For the purposes of establishing the amount of
the Tenant Improvement Allowance in Exhibit "C", the number of Usable Square
Feet of the Premises is deemed to be as set forth in Subparagraph 1(g). From
time to time at Landlord's option, Landlord's architect may redetermine the
actual number of Rentable Square Feet of the Premises, and the Building, and
the actual number of Usable Square Feet of the Premises respectively, based
upon the criteria set forth in Paragraph 1 and Paragraph 2 above, which
determination will be conclusive, and thereupon Tenant's Percentage, Tenant's
Operating Expense Allowance, Monthly Base Rent and the Security Deposit and the
Tenant Improvement Allowance will be adjusted accordingly.
EXHIBIT "B"
9313803H.OC1/KMS FORM/05-20-93/km
<PAGE> 27
WORK LETTER AGREEMENT
This WORK LETTER AGREEMENT ("Work Letter Agreement") is entered into as of the
21 day of March, 1996, by and between Koll Center Newport Number 9, a
California Limited Partnership ("Landlord"), and Medical Science Systems, Inc.,
a Texas Corporation ("Tenant").
R E C I T A L S:
A. Concurrently with the execution of this Work Letter Agreement, Landlord
and Tenant have entered into a lease (the "Lease") covering certain premises
(the "Premises") more particularly described in EXHIBIT "A" attached to the
Lease. All terms not defined herein shall have the same meaning a set forth in
the Lease. To the extent applicable, the provisions of the Lease are hereby
incorporated herein by this reference.
B. In order to induce Tenant to enter into the Lease and in consideration
of the mutual covenants hereinafter contained, Landlord and Tenant hereby agree
as follows:
1. TENANT IMPROVEMENTS. Landlord shall construct and, except as provided
below to the contrary, pay for the entire cost of constructing the tenant
improvements ("Tenant Improvements") described by the plans and specifications
identified in Schedule "1" attached hereto and incorporated herein by this
reference (the "Plans"). Tenant may request changes to the Plans provided that
(a) the changes shall not be of a lesser quality than Landlord's standard
specifications for tenant improvements for the Building, as the same may be
changed from time to time by Landlord (the "Standards"); (b) the changes
conform to applicable governmental regulations and necessary governmental
permits and approvals can be secured; (c) the changes do not require building
service beyond the levels normally provided to other tenants in the Building;
(d) the changes do not have any adverse affect on the structural integrity or
systems of the Building; (e) the changes will not, in Landlord's opinion,
unreasonably delay construction of the Tenant Improvements; and (f) Landlord
has determined in its sole discretion that the changes are of a nature and
quality consistent with the overall objectives of Landlord for the Building. If
Landlord approves a change requested by Tenant, then, as a condition to the
effectiveness of Landlord's approval, Tenant shall pay to Landlord upon demand
by Landlord the increased cost attributable to such change, if any, as
reasonably determined by Landlord. To the extent any such change results in a
delay of completion of construction of the Tenant Improvements, then such delay
shall constitute a delay caused by Tenant as described below.
2. CONSTRUCTING OF TENANT IMPROVEMENTS. Upon Tenant's payment to Landlord
of the total amount of the cost of any changes to the Plans, if any, Landlord's
contractor shall commence and diligently proceed with the constructing of the
Tenant Improvements, subject to Tenant Delays (as described in Paragraph 4
below) and Force Majeure Delays (as described in Paragraph 5 below). Promptly
upon the commencement of the Tenant Improvements. Landlord shall furnish Tenant
with a construction schedule letter setting forth the projected completion
dates therefor and showing the deadlines for any actions required to be taken
by Tenant during such construction, and Landlord may from time to time during
construction of the Tenant Improvements modify such schedule.
3. COMMENCEMENT DATE AND SUBSTANTIAL COMPLETION
(a) Commencement Date. The Term of the Lease shall commence on the date
(the "Commencement Date") which is the earlier of: (i) the date Tenant moves
into the Premises to commence operation of its business in all or any portion of
the Premises; or (ii) the date the Tenant Improvements have been "substantially
completed" (as defined below); provided, however, that if substantial
completion of the Tenant Improvements is delayed as a result of any Tenant
Delays described in Paragraph 4 below, then the Commencement Date as would
otherwise have been established pursuant to this Subparagraph 3(a)(ii) shall be
accelerated by the number of days of such Tenant Delays.
(b) Substantial Completion; Punch-List. For purposes of Subparagraph
3(a)(ii) above, the Tenant Improvements shall be deemed to be "substantially
completed" when Landlord's contractor certifies in writing to Landlord and
Tenant that Landlord: (a) is able to provide Tenant reasonable access to the
Premises; (b) has substantially completed the Tenant Improvements in accordance
with the Plans, other than decoration and minor "punch-list" type items and
adjustments which do not materially interfere with Tenant's access to or use of
the Premises; and (c) has obtained a temporary certificate of occupancy or
other required equivalent approval from the local governmental authority
permitting occupancy of the Premises: Within ten (10) days after receipt of
such certificate from Landlord's contractor, Tenant shall conduct a
walk-through inspection of the Premises with Landlord and provide to Landlord a
written punch-list specifying those decoration and other punch-list items which
require completion, which items Landlord shall thereafter diligently complete.
(c) Delivery of Possession. Landlord agrees to deliver possession of the
Premises to Tenant when the Tenant Improvements have been substantially
completed in accordance with Subparagraph (b) above. The parties estimate that
Landlord will deliver possession of the Premises to Tenant and the Term of this
Lease will commence on or before the Estimated Commencement Date set forth in
subparagraph 1(j) of the Lease. Landlord shall use its commercially reasonable
efforts to cause the Premises to be substantially completed on or before the
Estimated Commencement Date. Tenant agrees that if Landlord is unable to
deliver possession of the Premises to Tenant on or prior to the Estimated
Commencement Date specified in Subparagraph 1(i) of the Lease, the Lease shall
not be void or voidable, nor shall Landlord be liable to Tenant for any loss or
damage resulting therefrom, but if such late delivery is not due to Tenant
Delays or negligence, then, as Tenant's sole remedy, the commencement Date and
the Expiration Date of the Term shall be extended one (1) day for each day
Landlord is delayed in delivering possession of the Premises to Tenant.
EXHIBIT "C"
<PAGE> 28
4. TENANT DELAYS. For purposes of this Work Letter Agreement, "Tenant Delays"
shall mean any delay in the completion of the Tenant Improvements resulting
from any or all of the following: (a) Tenant's failure to timely perform any of
its obligations pursuant to this Work Letter Agreement, including any failure
to complete, on or before the due date therefor, any action item which is
Tenant's responsibility pursuant to the construction schedule delivered by
Landlord to Tenant pursuant to this Work Letter Agreement; (b) Tenant's changes
to the Plans; (c) Tenant's request for materials, finishes, or installations
which are not readily available or which are incompatible with the Standards;
(d) any delay of Tenant in making payment to Landlord for Tenant's share of any
costs in excess of the cost of the Tenant Improvements as described in the
Plans; or (e) any other act or failure to act by Tenant, Tenant's employees,
agents, architects, independent contractors, consultants and/or any other
person performing or required to perform services on behalf of Tenant.
5. FORCE MAJEURE DELAYS. For purposes of this Work Letter, "Force Majeure
Delays" shall mean any actual delay in the construction of the Tenant
Improvements, which is beyond the reasonable control of Landlord or Tenant, as
the case may be, as described in Paragraph 33 of the Lease.
6. FREIGHT/CONSTRUCTION ELEVATOR. Landlord shall, consistent with its
obligation to other tenants in the Building, make the freight/construction
elevator reasonably available to Tenant in connection with initial decorating,
furnishing and moving into the Premises. Tenant shall pay for any after-hours
staffing of the freight/construction elevator.
IN WITNESS WHEREOF, the undersigned Landlord and Tenant have caused this Work
Letter Agreement to be duly executed by their duly authorized representatives
as of the date of the Lease.
<TABLE>
<CAPTION>
<S> <C>
"TENANT" "LANDLORD"
MEDICAL SCIENCE SYSTEMS, INC., KOLL CENTER NEWPORT NUMBER 9,
a Texas Corporation a California general partnership
By: /s/ PAUL J. WHITE By: KOLL MANAGEMENT SERVICES, INC.
-------------------------------- a Delaware corporation
Its Authorized Agent
Print Name: Paul J. White By: /s/ RICHARD KOENIG
-------------------- ----------------------
Print Title: President Print Name: Richard Koenig
-------------------- ----------------------
Date: 3/18/96 Print Title: Senior Manager
--------------------------- ---------------------
Date:
By: ----------------------------
--------------------------------
Print Name:
--------------------
Print Title:
--------------------
Date:
---------------------------
</TABLE>
<PAGE> 29
DESCRIPTION OF PLANS AND SPECIFICATIONS
MAP GOES HERE
SCHEDULE "1"
Page 1 of 3
<PAGE> 30
DESCRIPTION OF PLANS AND SPECIFICATIONS
1. ALL CONSTRUCTION IS EXISTING, U.O.N.
2. PATCH AND REPAIR ALL AFFECTED AREAS DUE TO DEMOLITION.
3. PATCH AND REPAIR ALL PARTITIONS REMAINING FOR REUSE.
4. PROVIDE PARTITIONS AS KEYED TO PARTITION LEGEND.
5. PROVIDE NEW AND/OR MODIFY EXISTING PARTITION TO BECOME BUILDING STANDARD
DEMISING PARTITION.
6. MODIFY HVAC AND FIRE/LIFE SAFETY SYSTEMS AS REQUIRED PER NEW LAYOUT.
7. RELOCATE APPROX. (35) EXISTING DOORS, AND PROVIDE APPROX. (5) NEW BLDG.
STD. DOORS (WITH BLDG. STD. FRAME AND LEVER HARDWARE).
TOUCH UP ALL EXISTING DOORS TO A "LIKE NEW" CONDITION.
8. ALL HARDWARE TO BE LEVER TYPE PROVIDE NEW TO MATCH EXISTING BUILDING
STANDARD. REPLACE ALL SCRATCHED/DAMAGED HARDWARE WITH NEW.
9. ALL DOORS TO HAVE STANDARD LATCHSET U.O.N.
10. DEMO ALL EXISTING INTERIOR GLAZING AND SIDELIGHTS, U.O.N. PATCH WALLS AS
REQUIRED.
11. DEMO EXISTING MILLWORK, U.O.N.
12. EXISTING ELECTRICAL TO BE REMAIN, U.O.N.
13. DEMO ALL EXISTING FLOOR OUTLETS AND NON-STANDARD ELECTRICAL, U.O.N.
14. OUTLETS WITH SUBSCRIPT "E" ARE EXISTING. ALL OTHERS ARE NEW.
15. PROVIDE NEW LIGHT FIXTURES AS REQUIRED TO ALLOW FOR (1) 2 X 4 FIXTURE FOR
EVERY 70 SQUARE FEET OF OFFICE SPACE. REPLACE ALL NON-BUILDING STANDARD
FIXTURES. RECIRCUIT/RESWITCH AS REQUIRED. PROVIDE NEW LAMPS IN EXISTING
FIXTURES TO ALLOW FOR CONSISTENT COLOR RENDITION IN EACH OFFICE.
16. RETURN AIR GRILLES TO BE PAINTED AS REQUIRED TO A "LIKE NEW" CONDITION.
PAINT TO MATCH EXISTING.
17. REPLACE DAMAGED/DISCOLORED CEILING TILES AS NECESSARY. CONTACT ARCHITECT
IF TILES TO MATCH SUITE EXISTING ARE NOT AVAILABLE.
18. DEMO ALL NON-STANDARD CONCEALED SPLINE CEILING, AND REPLACE WITH NEW BLDG.
STD. CEILING GRID AND TILES, U.O.N. ALIGN WITH EXISTING AS REQUIRED. PAINT
GRID AS REQUIRED - FOR PRICING PURPOSES, ASSUME 50% TO BE REPAINTED.
UPGRADE CEILING AS REQUIRED TO COMPLY WITH SEISMIC BRACING.
19. DEMO ALL EXISTING FINISHES, U.O.N. DEMO TO INCLUDE WOOD BASE, CHAIR RAIL
WAINSCOT, TRIM, AND MARBLE FLOORING BORDER, U.O.N.
20. PREPARE SURFACE AND PROVIDE NEW BLDG. STD. CARPET (DESIGNWEAVE, NEW
WINDSWEPT), PAD, AND 4" BASE THROUGHOUT, U.O.N.
21. PREPARE WALLS AND PROVIDE TWO COATS FLAT PAINT THROUGHOUT SUITE, U.O.N.
22. PREPARE SURFACE, AND PROVIDE NEW V.C.T. FLOORING.
23. REPAIR BLINDS TO A "LIKE-NEW" CONDITION.
SCHEDULE "1"
Page 2 of 3
<PAGE> 31
DESCRIPTION OF PLANS AND SPECIFICATIONS
SUITE 980 NOTES (MEDICAL SCIENCE SYSTEMS)
(37.) PROVIDE NEW PL. LAM. UPPER CABINET AND LOWER CABINET WITH NEW SINK,
GARBAGE DISPOSAL, INSTALL HOT WATER HEATER, AND ASSOCIATED ELECTRICAL.
PROVIDE SPACE BELOW COUNTER FOR N.I.C. GE "SPACEMAKER" REFRIGERATOR
W/FREEZER (34-1/4"H X 23-5/8"W AND 24-7/8"D), AND PROVIDE ASSOCIATED
ELECTRICAL.
(38.) PROVIDE NEW 30"D X 34"H PL. LAM. L-SHAPED WORK COUNTER.
(39.) PROVIDE (2) NEW PL. LAM. CLOSED OVERHEAD SHELVES, MOUNT @ 5'-6" A.F.F.
AND PROVIDE NECESSARY BLOCKING/SUPPORTS.
sht 2 of 2
SCHEDULE "I"
Page 3 of 3
<PAGE> 32
NOTICE OF LEASE TERM DATES
AND TENANT'S PERCENTAGE
To __________________________
_____________________________
_____________________________
Date: _______________________
Re: Lease dated ___________________________, 19___ (the "Lease"), between
______________________, Landlord, and ___________________________, Tenant,
concerning Suite ______________ located at _________________________ (the
"Premises").
To Whom It May Concern:
In accordance with the subject Lease, we wish to advise and/or confirm as
follows:
1. That the Premises have been accepted by the Tenant as being
substantially complete in accordance with the subject Lease and that there is no
deficiency in construction except for latent defects as may be indicated on the
"Punch-List" prepared by Landlord and Tenant, a copy of which is attached
hereto.
2. That the Tenant has possession of the subject Premises and acknowledges
that under the provisions of the Lease the Commencement Date is
_____________________, and the Term of the Lease will expire on
_____________________.
3. That in accordance with the Lease, rent commenced to accrue on
___________________.
4. If the Commencement Date of the Lease is other than the first day of the
month, the first billing will contain a pro rata adjustment. Each billing
thereafter will be for the full amount of the monthly installment as provided
for in the Lease.
5. Rent is due and payable in advance on the first day of each and every
month during the Term of the Lease. Your rent checks should be made payable to
_____________________________ at _________________________________________.
6. The number of Rentable Square Feet within the Premises is
_________________ square feet as determined by Landlord's architect in
accordance with the terms of the Lease.
7. The number of Rentable Square Feet within the Building is ____________
square feet as determined by Landlord's architect in accordance with the terms
of the Lease.
8. Tenant's Percentage, as adjusted based upon the number of Rentable
Square Feet within the Premises, is ____________%.
LANDLORD:
________________________________
a ______________________________
By: ____________________________
Print Name: ________________
Title: _____________________
By: ____________________________
Print Name: ________________
Title: _____________________
SAMPLE ONLY
[NOT FOR EXECUTION]
EXHIBIT "D"
<PAGE> 33
DEFINITION OF OPERATING EXPENSES
1. ITEMS INCLUDED IN OPERATING EXPENSES. The term "Operating Expenses" as
used in the Lease to which this Exhibit "E" is attached means all costs and
expenses of operation and maintenance of the Building and the Common Areas (as
such terms are defined in the Lease), as determined by standard accounting
practices, calculated assuming the Building is ninety-five percent (95%)
occupied, including the following costs by way of illustration but not
limitation, but excluding those items specifically set forth in Paragraph 3
below:
(a) Real Property Taxes and Assessments (as defined in Paragraph 2 below)
and any taxes or assessments imposed in lieu thereof;
(b) any and all assessments imposed with respect to the Building pursuant
to any covenants, conditions and restrictions affecting the Development, the
Common Areas or the Building;
(c) water and sewer charges and the costs of electricity, heating,
ventilating, air conditioning and other utilities;
(d) utilities surcharges and any other costs, levies or assessments
resulting from statutes or regulations promulgated by any government or
quasi-government authority in connection with the use, occupancy or alteration
of the Building or the Premises or the parking facilities serving the Building
or the Premises;
(e) costs of insurance obtained by Landlord pursuant to Paragraph i9 of the
Lease;
(f) waste disposal and janitorial services;
(g) labor;
(h) costs incurred in the management of the Building, including, without
limitation: (i) supplies, (ii) wages and salaries (and payroll taxes and
similar governmental charges related thereto) of employees used in the
management, operation and maintenance of the Building, (iii) Building
management office rental, supplies, equipment and related operating expenses,
and (iv) a management/administrative fee determined as a percentage of the
annual gross revenues of the Building exclusive of the proceeds of financing or
a sale of the Building and an administrative fee for the management of the
Development Common Area determined as a percentage of Development Common Area
Operating Expenses;
(i) supplies, materials, equipment and tools including rental of personal
property used for maintenance;
(j) repair and maintenance of the elevators and the structural portions of
the Building, including the plumbing, heating, ventilating, air-conditioning
and electrical systems installed or furnished by Landlord.
(k) maintenance, costs and upkeep of all parking and Development Common
Areas;
(l) depreciation on a straight line basis and rental of personal property
used in maintenance;
(m) amortization on a straight line basis over the useful life [together
with interest at the Interest Rate on the unamortized balance] of all
capitalized expenditures which are: (i) reasonably intended to produce a
reduction in operating charges or energy consumption; or (ii) required under
any governmental law or regulation that was not applicable to the Building at
the time it was originally constructed; or (iii) for replacement of any
Building equipment needed to operate the Building at the same quality levels as
prior to the replacement;
(n) costs and expenses of gardening and landscaping;
(o) maintenance of signs (other than signs of tenants of the Building);
(p) personal property taxes levied on or attributable to personal property
used in connection with the Building or the Common Areas;
(q) reasonable accounting, audit, verification, legal and other consulting
fees; and
(r) costs and expenses of repairs, resurfacing, repairing, maintenance,
painting, lighting, cleaning, refuse removal, security and similar items,
including appropriate reserves.
When calculating Operating Expenses for purposes of establishing Tenant's
Operating Expense Allowance, Operating Expenses shall not include Real Property
Taxes and Assessments attributable to special assessments, charges, costs, or
fees or due to modifications or changes in governmental laws or regulations
including, but not limited to, the institution of a split tax roll, and shall
exclude market-wide labor-rate increases due to extraordinary circumstances
including, but not limited to, boycotts and strikes and utility increases due
to extraordinary circumstances including, but not limited to, conservation
surcharges, boycotts, embargoes or other shortages.
2. REAL PROPERTY TAXES AND ASSESSMENTS. The term "Real Property Taxes and
Assessments", as used in this Exhibit "E" means; any form of assessment,
license fee, license tax, business license fee, commercial rental tax, levy,
charge, improvement bond, tax or similar imposition imposed by any authority
having the direct power to tax, including any city, county, state or federal
government, or any school, agricultural, lighting, drainage or other
improvement or special assessment district thereof, as against any legal or
equitable interest of Landlord in the Premises, Building, Common Areas or the
Development (as such terms are defined in the Lease), adjusted to reflect an
assumption that the Building is fully assessed for real property tax purposes
as a completed building ready for occupancy, including the following by way of
illustration but not limitation:
EXHIBIT "E"
<PAGE> 34
(a) any tax on Landlord's "right" to rent or "right" to other income from
the Premises or as against Landlord's business of leasing the Premises;
(b) any assessment, tax, fee, levy or charge in substitution, partially or
totally, of any assessment, tax, fee, levy or charge previously included within
the definition of real property tax, it being acknowledged by Tenant and
Landlord that Proposition 13 was adopted by the voters of the State of
California in the June, 1978 election and that assessments, taxes, fees, levies
and charges may be imposed by governmental agencies for such services as fire
protection, street, sidewalk and road maintenance, refuse removal and for other
governmental services formerly provided without charge to property owners or
occupants. It is the intention of Tenant and Landlord that all such new and
increased assessments, taxes, fees, levies and charges be included within the
definition of "real property taxes" for the purposes of this Lease.
(c) any assessment, tax, fee, levy or charge allocable to or measured by the
area of the Premises or other premises in the Building or the rent payable by
Tenant hereunder or other tenants of the Building, including, without
limitation, any gross receipts tax or excise tax levied by state, city or
federal government, or any political subdivision thereof, with respect to the
receipt of such rent, or upon or with respect to the possession, leasing,
operation, management, maintenance, alteration, repair, use or occupancy by
Tenant of the Premises, or any portion thereof but not on Landlord's other
operations;
(d) any assessment, tax, fee, levy or charge upon this transaction or any
document to which Tenant is a party, creating or transferring an interest or an
estate in the Premises; and/or
(e) any assessment, tax, fee, levy or charge by any governmental agency
related to any transportation plan, fund or system (including assessment
districts) instituted within the geographic area of which the Building is a
part.
Notwithstanding the foregoing, if at any time after the Commencement Date, the
amount of Real Property Taxes and Assessments decreases, then for purposes of
all subsequent Lease Years, including the Lease Year in which such decrease in
Real Property Taxes and Assessments occurs, Tenant's Operating Expense
Allowance shall be decreased by an amount equal to such decrease in Real
Property Taxes and Assessments.
3. ITEMS EXCLUDED FROM OPERATING EXPENSES. Notwithstanding the provisions
of Paragraphs 1 and 2 above to the contrary, "Operating Expenses" will not
include.
(a) Landlord's federal or state income, franchise, inheritance or estate
taxes;
(b) any ground lease rental;
(c) costs incurred by Landlord for the repair of damage to the Building to
the extent that Landlord is reimbursed by insurance or condemnation proceeds or
by tenants, warrantors or other third persons;
(d) depreciation, amortization and interest payments, except as
specifically provided herein, and except on materials, tools, supplies and
vendor-type equipment purchased by Landlord to enable Landlord to supply
services Landlord might otherwise contract for with a third party, where such
depreciation, amortization and interest payments would otherwise have been
included in the charge for such third party's services, all as determined in
accordance with standard accounting practices;
(e) brokerage commissions, finders' fees, attorneys' fees, space planning
costs and other costs incurred by Landlord in leasing or attempting to lease
space in the Building;
(f) costs of a capital nature, including, without limitation, capital
improvements, capital replacements, capital repairs, capital equipment and
capital tools, all as determined in accordance with standard accounting
practices; provided, however, the capital expenditures set forth in
Subparagraph 1(m) above will in any event be included in the definition of
Operating Expenses;
(g) interest, principal, points and fees on debt or amortization on any
mortgage, deed of trust or other debt encumbering the Building or the
Development;
(h) costs, including permit, license and inspection costs, incurred with
respect to the installation of tenant improvements for tenants in the Building
(including the original Tenant Improvements for the Premises), or incurred in
renovating or otherwise improving, decorating, painting or redecorating space
for tenants or other occupants of the Building, including space planning and
interior design costs and fees;
(i) attorneys' fees and other costs and expenses incurred in connection with
negotiations or disputes with present or prospective tenants or other occupants
of the Building; provided, however, that Operating Expenses will include those
attorneys' fees and other costs and expenses incurred in connection with
negotiations, disputes or claims relating to items of Operating Expenses,
enforcement of rules and regulations of the Building, and such other matters
relating to the maintenance of standards required of Landlord under the Lease;
(j) except for the administrative/management fees described in Subparagraph
1(h) above, costs of Landlord's general corporate overhead;
(k) all items and services for which Tenant or any other tenant in the
Building reimburses Landlord (other than through operating expense pass-through
provisions);
(l) electric power costs for which any tenant directly contracts with the
local public service company; and
(m) costs arising from Landlord's charitable or political contributions.
E-2
<PAGE> 35
STANDARDS FOR UTILITIES AND SERVICES
The following standards for utilities and services are in effect. Landlord
reserves the right to adopt nondiscriminatory modifications and additions
hereto.
Subject to the terms and conditions of the Lease and provided Tenant remains in
occupancy of the Premises, Landlord will provide or make available the
following utilities and services.
1. Provide non-attended automatic elevator facilities Monday through
Friday, except holidays, from 8 a.m. to 6 p.m. and have one elevator available
for Tenant's use at all other times.
2. On Monday through Friday, except holidays, from 8 a.m. to 6 p.m. and on
Saturday from 8 a.m. to 12 Noon (and other times for a reasonable additional
charge to be fixed by Landlord), ventilate the Premises and furnish air
conditioning or heating on such days and hours, when in the reasonable judgment
of Landlord it may be required for the comfortable occupancy of the Premises.
The air conditioning system achieves maximum cooling when the window coverings
are extended to the full length of the window opening and adjusted to a 45
degree angle upwards. Landlord will not be responsible for room temperatures if
Tenant does not keep all window coverings in the Premises extended to the full
length of the window opening and adjusted to a 45 degree angle upwards whenever
the system is in operation. Tenant agrees to cooperate fully at all times with
Landlord, and to abide by all reasonable regulations and requirements which
Landlord may prescribe for the proper function and protection of said air
conditioning system. Tenant agrees not to connect any apparatus, device,
conduit or pipe to the chilled and hot water air conditioning supply lines of
the Building. Tenant further agrees that neither Tenant nor its servants,
employees, agents, visitors, licensees or contractors shall at any time enter
the mechanical installations or facilities of the Building or the Development
or adjust, tamper with, touch or otherwise in any manner affect said
installations or facilities. The cost of maintenance and service calls to
adjust and regulate the air conditioning system will be charged to Tenant if
the need for maintenance work results from either Tenant's adjustment of room
thermostats or Tenant's failure to comply with its obligations under this
Exhibit, including keeping window coverings extended to the full length of the
window opening and adjusted to a 45 degree angle upwards. Such work will be
charged at hourly rates equal to then-current journeyman's wages for air
conditioning mechanics.
3. Landlord will make available to the Premises, 24 hours per day, seven
days a week, electric current as required by the Building standard office
lighting and fractional horsepower office business machines including copiers,
personal computers and word processing equipment in an amount not to exceed six
(6) watts per square foot per normal business day. Tenant agrees, should its
electrical installation or electrical consumption be in excess of the aforesaid
quantity or extend beyond normal business hours, to reimburse Landlord monthly
for the measured consumption at the average cost per kilowatt hour charged to
the Building during the period. If a separate meter is not installed at
Tenant's cost, such excess cost will be established by an estimate agreed upon
by Landlord and Tenant, and if the parties fail to agree, such cost will be
established by an independent licensed engineer selected in Landlord's
reasonable discretion, whose fee shall be shared equally by Landlord and
Tenant. Tenant agrees not to use any apparatus or device in, upon or about the
Premises (other than standard office business machines, personal computers and
word processing equipment) which may in any way increase the amount of such
services usually furnished or supplied to said Premises, and Tenant further
agrees not to connect any apparatus or device with wires, conduits or pipes, or
other means by which such services are supplied, for the purpose of using
additional or unusual amounts of such services without the written consent of
Landlord. Should Tenant use the same to excess, the refusal on the part of
Tenant to pay upon demand of Landlord the amount established by Landlord for
such excess charge will constitute a breach of the obligation to pay rent under
this Lease and will entitle Landlord to the rights therein granted for such
breach. Tenant's use of electric current will never exceed the capacity of the
feeders to the Building, or the risers or wiring installation and Tenants will
not install or use or permit the installation or use of any computer or
electronic data processing equipment in the Premises (except standard office
business machines, personal computers and word processing equipment) without
the prior written consent of Landlord.
4. Water will be available in public areas for drinking and lavatory
purposes only, but if Tenant requires, uses or consumes water for any purpose
in addition to ordinary drinking and lavatory purposes, of which fact Tenant
constitutes Landlord to be the sole judge, Landlord may install a water meter
and thereby measure Tenant's water consumption for all purposes. Tenant agrees
to pay Landlord for the cost of the meter and the cost of the installation
thereof and throughout the duration of Tenant's occupancy. Tenant will keep said
meter and installation equipment in good working order and repair at Tenant's
own cost and expense, in default of which Landlord may cause such meter and
equipment to be replaced or repaired and collect the cost thereof from Tenant.
Tenant agrees to pay for water consumed, as shown on such meter, as and when
bills are rendered, and on default in making such payment, Landlord may pay
such charges and collect the same from Tenant. Any such costs or expenses
incurred, or payments made by Landlord for any of the reasons or purposes
hereinabove stated will be deemed to be additional rent payable by Tenant and
collectible by Landlord as such.
5. Landlord will provide janitor service to the Premises, provided the
same are used exclusively as offices, and are kept reasonably in order by
Tenant, and unless otherwise agreed to by Landlord and Tenant no one other than
persons approved by Landlord shall be permitted to enter the Premises for such
purposes. If the Premises are not used exclusively as offices, they will be
kept clean and in order by Tenant, at Tenant's expense, and to the satisfaction
of Landlord, and by persons approved by Landlord. Tenant agrees to pay to
Landlord the cost of removal of any of Tenant's refuse and rubbish to the
extent that the same exceeds the refuse and rubbish to the extent that the same
exceeds the refuse and rubbish usually attendant upon the use of the Premises
as offices.
6. Landlord reserves the right to stop service of the elevator, plumbing,
ventilation, air conditioning and electrical systems, when necessary, by reason
of accident or emergency or for repairs, alterations or improvements, when in
the judgment of Landlord such actions are desirable or necessary to be made,
until said repairs, alterations or improvements shall have been completed, and
Landlord will have no responsibility or liability for failure to supply elevator
facilities, plumbing, ventilating, air conditioning or electric service, when
prevented from so doing by strike or accident or by any cause beyond Landlord's
reasonable control, or by laws, rules, orders, ordinances, directions,
regulations or by reason of the requirements of any federal, state, county or
municipal authority or failure of gas, oil or other suitable fuel supply or
inability by exercise of reasonable diligence to obtain gas, oil or other
suitable fuel supply. It is expressly understood and agreed that any covenants
on Landlord's part to furnish any services pursuant to any of the terms,
covenants, conditions, provisions or agreements of this Lease, or to perform any
act or thing for the benefit of Tenant, will not be deemed breached if Landlord
is unable to furnish or perform the same by virtue of a strike or labor trouble
or any other cause whatsoever beyond Landlord's control.
EXHIBIT "F"
<PAGE> 36
ESTOPPEL CERTIFICATE
The undersigned, ___________________________ ("Tenant"), hereby certifies to
_______________________________, as follows:
1. Attached hereto is a true, correct and complete copy of that certain
lease dated _________________, 1993, between ____________________, a
__________________ ("Landlord") and Tenant (the "Lease"), regarding the premises
located at ______________________________ (the "Premises"). The Lease is now in
full force and effect and has not been amended, modified or supplemented, except
as set forth in Paragraph 4 below.
2. The Term of the Lease commenced on ___________________, 19__.
3. The Term of the Lease will expire on ___________________, 19__.
4. The Lease has: (Initial one)
(_________) not been amended, modified, supplemented, extended, renewed or
assigned.
(_________) been amended, modified, supplemented, extended, renewed or
assigned by the following described terms or agreements, copies of which are
attached hereto:
_______________________________________________________________________________
_______________________________________________________________________________
5. Tenant has accepted and is now in possession of the Premises.
6. Tenant and Landlord acknowledge that Landlord's interest in the Lease
will be assigned to _______________________________ and that no modification,
adjustment, revision or cancellation of the Lease or amendments thereto shall
be effective unless written consent of _________________________ is obtained,
and that until further notice, payments under the Lease may continue as
heretofore.
7. The amount of Monthly Base Rent is $________________
8. The amount of Security Deposit (if any) is $________________. No other
security deposits have been made except as follows: ___________________________
__________________________________________________________
9. Tenant is paying the full lease rental which has been paid in full as of
the date hereof. No rent or other charges under the Lease have been paid for
more than thirty (30) days in advance of its due date except as follows
_______________________________________________________________________________
10. All work required to be performed by Landlord under the Lease has been
completed except as follows
_______________________________________________________________________________
11. There are no defaults on the part of the Landlord or Tenant under the
Lease except as follows
_______________________________________________________________________________
12. Neither Landlord nor Tenant has any defense as to its obligations under
the Lease and claims no set-off or counterclaim against the other party except
as follows:
_______________________________________________________________________________
13. Tenant has no right to any concession (rental or otherwise) or similar
compensation in connection with renting the space it occupies other than as
provided in the Lease except as follows: ______________________________________
__________________________________________
All provisions of the Lease and the amendments thereto (if any) referred to
above are hereby ratified.
The foregoing certification is made with the knowledge that ___________________
is relying upon the representations herein made in funding a loan to Landlord
in purchasing the Premises.
IN WITNESS WHEREOF, this certificate has been duly executed and delivered by
the authorized officers of the undersigned as of __________________, 19___.
TENANT:
_____________________________________
a ___________________________________
By: _________________________________ SAMPLE ONLY
Print Name: _____________________
Title: __________________________ [NOT FOR EXECUTION]
By: _________________________________
Print Name: _____________________
Title: __________________________
EXHIBIT "G"
<PAGE> 37
RULES AND REGULATIONS
A. GENERAL RULES AND REGULATIONS The following rules and regulations
govern the use of the Building and the Development Common Areas. Tenant will be
bound by such rules and regulations and agrees to cause Tenant's Authorized
Users, its employees, subtenants, assignees, contractors, suppliers, customers
and invitees to observe the same.
1. Except as specifically provided in the Lease to which these Rules and
Regulations are attached, no sign, placard, picture, advertisement, name or
notice may be installed or displayed on any part of the outside or inside of the
Building or the Development without the prior written consent of Landlord.
Landlord will have the right to remove, at Tenant's expense and without notice,
any sign installed or displayed in violation of this rule. All approved signs or
lettering on doors and walls are to be printed, painted, affixed or inscribed at
the expense of Tenant and under the direction of Landlord by a person or company
designated or approved by Landlord.
2. If Landlord objects in writing to any curtains, blinds, shades, screens
or hanging plants or other similar objects attached to or used in connection
with any window or door of the Premises, or placed on any windowsill, which is
visible from the exterior of the Premises, Tenant will immediately discontinue
such use. Tenant agrees not to place anything against or near glass partitions
or doors or windows which may appear unsightly from outside the Premises
including from within any interior common areas.
3. Tenant will not obstruct any sidewalks, halls, passages, exits,
entrances, elevators, escalators, or stairways of the Development. The halls,
passages, exits, entrances, elevators and stairways are not open to the general
public, but are open, subject to reasonable regulations, to Tenant's business
invitees. Landlord will in all cases retain the right to control and prevent
access thereto of all persons whose presence in the reasonable judgment of
Landlord would be prejudicial to the safety, character, reputation and interest
of the Development and its tenants, provided that nothing herein contained will
be construed to prevent such access to persons with whom any tenant normally
deals in the ordinary course of its business, unless such persons are engaged in
illegal or unlawful activities. No tenant and no employee or invitee of any
tenant will go upon the roof of the Building.
4. Tenant will not obtain for use on the Premises ice, drinking water,
food, food vendors, beverage, towel or other similar services or accept
barbering or bootblacking service upon the Premises, except at such reasonable
hours and under such reasonable regulations as may be fixed by Landlord.
Landlord expressly reserves the right to absolutely prohibit solicitation,
canvassing, distribution of handbills or any other written material, peddling,
sales and displays of products, goods and wares in all portions of the
Development except as may be expressly permitted under the Lease. Landlord
reserves the right to restrict and regulate the use of the common areas of the
Development and Building by invitees of tenants providing services to tenants on
a periodic or daily basis including food and beverage vendors. Such restrictions
may include limitations on time, place, manner and duration of access to a
tenant's premises for such purposes. Without limiting the foregoing, Landlord
may require that such parties use service elevators, halls, passageways and
stairways for such purposes to preserve access within the Building for tenants
and the general public.
5. Landlord reserves the right to require tenants to periodically provide
Landlord with a written list of any and all business invitees which periodically
or regularly provide goods and services to such tenants at the premises.
Landlord reserves the right to preclude all vendors from entering or conducting
business within the Building and the Development if such vendors are not listed
on a tenant's list of requested vendors.
6. Landlord reserves the right to exclude from the Building between the
hours of 6 p.m. and 8 a.m. the following business day, or such other hours as
may be established from time to time by Landlord, and on Sundays and legal
holidays, any person unless that person is known to the person or employee in
charge of the Building or has a pass or is properly identified. Tenant will be
responsible for all persons for whom it requests passes and will be liable to
Landlord for all acts of such persons. Landlord will not be liable for damages
for any error with regard to the admission to or exclusion from the Building of
any person. Landlord reserves the right to prevent access to the Building in
case of invasion, mob, riot, public excitement or other commotion by closing the
doors or by other appropriate action.
7. The directory of the Building or the Development will be provided
exclusively for the display of the name and location of tenants only and
Landlord reserves the right to exclude any other names therefrom.
8. All cleaning and janitorial services for the Development and the
Premises will be provided exclusively through Landlord, and except with the
written consent of Landlord, no person or persons other than those approved by
Landlord will be employed by Tenant or permitted to enter the Development for
the purpose of cleaning the same. Tenant will not cause any unnecessary labor by
carelessness or indifference to the good order and cleanliness of the Premises.
9. Landlord will furnish Tenant, free of charge, with two keys to each door
lock in the Premises. Landlord may make a reasonable charge for any additional
keys. Tenant shall not make or have made additional keys, and Tenant shall not
alter any lock or install any new additional lock or bolt on any door of the
Premises. Tenant, upon the termination of its tenancy, will deliver to Landlord
the keys to all doors which have been furnished to Tenant, and in the event of
loss of any keys so furnished, will pay Landlord therefor.
10. If Tenant requires telegraphic, telephonic, burglar alarm, satellite
dishes, antennae or similar services, it will first obtain Landlord's approval,
and comply with, Landlord's reasonable rules and requirements applicable to such
services, which may include separate licensing by, and fees paid to, Landlord.
11. Freight elevator(s) will be available for use by all tenants in the
Building, subject to such reasonable scheduling as Landlord, in its direction,
deems appropriate. No equipment, materials, furniture, packages, supplies,
merchandise or other property will be received in the Building or carried in the
elevators except between such hours and in such elevators as may be designated
by Landlord. Tenant's initial move in and subsequent deliveries of bulky items,
such as furniture, safes and similar items will, unless otherwise agreed in
writing by Landlord, be made during the hours of 6:00 p.m. to 6:00 a.m. or on
Saturday or Sunday. Deliveries
EXHIBIT "H"
<PAGE> 38
during normal office hours shall be limited to normal office supplies and other
small items. No deliveries will be made which impede or interfere with other
tenants or the operation of the Building.
12. Tenant will not place a load upon any floor of the Premises which
exceeds the load per square foot which such floor was designed to carry and
which is allowed by law. Landlord will have the right to reasonably prescribe
the weight, size and position of all safes, heavy equipment, files, materials,
furniture or other property brought into the Building. Heavy objects will, if
considered necessary by Landlord, stand on such platforms as determined by
Landlord to be necessary to properly distribute the weight which platforms will
be provided at Tenant's expense. Business machines and mechanical equipment
belonging to Tenant, which cause noise or vibration that may be transmitted to
the structure of the Building or to any space therein to such a degree as to be
objectionable to any tenants in the Building or Landlord, are to be placed and
maintained by Tenant, at Tenant's expense on vibration eliminators or other
devises sufficient to eliminate noise or vibration. Tenant will be responsible
for all structural engineering required to determine structural load, as well as
the expense thereof. The persons employed to move such equipment in or out of
the Building must be reasonably acceptable to Landlord. Landlord will not be
responsible for loss of, or damages to, any such equipment or other property
from any cause, and all damage done to the Building by maintaining or moving
such equipment or other property will be repaired at the expense of Tenant.
13. Tenant will not use or keep in the Premises any kerosene, gasoline or
inflammable or combustible fluid or material other than those limited quantities
necessary for the operation or maintenance of office equipment. Tenant will not
use or permit to be used in the Premises any foul or noxious gas or substance,
or permit or allow the Premises to be occupied or used in a manner offensive or
objectionable to Landlord or other occupants of the Building by reason of noise,
odors or vibrations, nor will Tenant bring into or keep in or about the Premises
any birds or animals.
14. Tenant will not use any method of heating or air conditioning other than
that supplied by Landlord without Landlord's prior written consent.
15. Tenant will not waste electricity, water or air conditioning and agrees
to cooperate fully with Landlord to assure the most effective operation of the
Building's heating and air conditioning and to comply with any governmental
energy-saving rules, laws or regulations of which Tenant has actual notice, and
will refrain from attempting to adjust controls. Tenant will keep corridor doors
closed, and shall keep all window coverings pulled down.
16. Landlord reserves the right, exercisable without notice and without
liability to Tenant,to change the name and street address of the Building.
Without the written consent of Landlord, Tenant will not use the name of the
Building or the Development in connection with or in promoting or advertising
the business of Tenant except as Tenant's address.
17. Tenant will close and lock the doors of its Premises and entirely shut
off all water faucets or other water apparatus and lighting or gas before Tenant
and its employees leave the Premises. Tenant will be responsible for any damage
or injuries sustained by other tenants or occupants of the Building or by
Landlord for noncompliance with this rule.
18. The toilet rooms, toilets, urinals, wash bowls and other apparatus will
not be used for any purpose other than that for which they were constructed and
no foreign substance of any kind whatsoever shall be thrown therein. The expense
of any breakage, stoppage or damage resulting from any violation of this rule
will be borne by the tenant who, or whose employees or invitees, break this
rule. Cleaning of equipment of any type is prohibited. Shaving is prohibited.
19. Tenant will not sell, or permit the sale at retail of newspapers,
magazines, periodicals, theater tickets or any other goods or merchandise to the
general public in or on the Premises. Tenant will not use the Premises for any
business or activity other than that specifically provided for in this Lease.
Tenant will not conduct, nor permit to be conducted, either voluntarily or
involuntarily, any auction upon the Premises without first having obtained
Landlord's prior written consent, which consent Landlord may withhold in its
sole and absolute discretion.
20. Tenant will not install any radio or television antenna, loudspeaker,
satellite dishes or other devices on the roof(s) or exterior walls of the
Building or the Development. Tenant will not interfere with radio or television
broadcasting or reception from or in the Development or elsewhere.
21. Except for the ordinary hanging of pictures and wall decorations, Tenant
will not mar, drive nails, screw or drill into the partitions, woodwork or
plaster or in any way deface the Premises or any part thereof, except in
accordance with the provisions of the Lease pertaining to alterations. Landlord
reserves the right to direct electricians as to where and how telephone and
telegraph wires are to be introduced to the Premises. Tenant will not cut or
bore holes for wires. Tenant will not affix any floor covering to the floor of
the Premises in any manner except as approved by Landlord. Tenant shall repair
any damage resulting from noncompliance with this rule.
22. Tenant will not install, maintain or operate upon the Premises any
vending machines without the written consent of Landlord.
23. Landlord reserves the right to exclude or expel from the Development any
person who, in Landlord's judgment, is intoxicated or under the influence of
liquor or drugs or who is in violation of any of the Rules and Regulations of
the Building.
24. Tenant will store all its trash and garbage within its Premises or in
other facilities provided by Landlord. Tenant will not place in any trash box or
receptacle any material which cannot be disposed of in the ordinary and
customary manner of trash and garbage disposal. All garbage and refuse disposal
is to be made in accordance with directions issued from time to time by
Landlord.
25. The Premises will not be used for lodging or for the storage of
merchandise held for sale to the general public, or for lodging or for
manufacturing of any kind, nor shall the Premises be used for any improper,
immoral or objectionable purpose. No cooking will be done or permitted on the
Premises without Landlord's consent, except the use by Tenant of Underwriters'
Laboratory approved equipment for brewing coffee, tea, hot chocolate and similar
beverages shall be permitted, and the use of a microwave oven for employees use
will be permitted, provided that such equipment and use is in accordance with
all applicable federal, state, county and city laws, codes, ordinances, rules
and regulations.
H-2
<PAGE> 39
26. Neither Tenant nor any of its employees, agents, customers and invitees
may use in any space or in the public halls of the Building or the Development
any hand truck except those equipped with rubber tires and side guards or such
other material-handling equipment as Landlord may approve. Tenant will not
bring any other vehicles of any kind into the Building.
27. Tenant agrees to comply with all safety, fire protection and evacuation
procedures and regulations established by Landlord or any governmental agency.
28. Tenant assumes any and all responsibility for protecting its Premises
from theft, robbery and pilferage, which includes keeping doors locked and
other means of entry to the Premises closed.
29. To the extent Landlord reasonably deems it necessary to exercise
exclusive control over any portions of the Common Areas for the mutual benefit
of the tenants in the Building or the Development, Landlord may do so subject
to reasonable, non-discriminatory additional rules and regulations.
30. Landlord may prohibit smoking in the Building and may require Tenant and
any of its employees, agents, clients, customers, invitees and guests who desire
to smoke, to smoke within designated smoking areas within the Development.
31. Tenant's requirements will be attended to only upon appropriate
application to Landlord's asset management office for the Development by an
authorized individual of Tenant. Employees of Landlord will not perform any
work or do anything outside of their regular duties unless under special
instructions from Landlord, and no employee of Landlord will admit any person
(Tenant or otherwise) to any office without specific instructions from Landlord.
32. These Rules and Regulations are in addition to, and will not be
construed to in any way modify or amend, in whole or in part, the terms,
covenants, agreements and conditions of the Lease. Landlord may waive any one
or more of these Rules and Regulations for the benefit of Tenant or any other
tenant, but no such waiver by Landlord will be construed as a waiver of such
Rules and Regulations in favor of Tenant or any other tenant, nor prevent
Landlord from thereafter enforcing any such Rules and Regulations against any
or all of the tenants of the Development.
33. Landlord reserves the right to make such other and reasonable and
non-discriminatory Rules and Regulations as in its judgment, may from time to
time be needed for safety and security, for care and cleanliness of the
Development and for the preservation of good order therein. Tenant agrees to
abide by all such Rules and Regulations herein above stated and any additional
reasonable and non-discriminatory rules and regulations which are adopted.
Tenant is responsible for the observance of all of the foregoing rules by
Tenant's employees, agents, clients, customers, invitees and guests.
B. PARKING RULES AND REGULATIONS The following rules and regulations
govern the use of the parking facilities which serve the Building. Tenant will
be bound by such rules and regulations and agrees to cause its employees,
subtenants, assignees, contractors, suppliers, customers and invitees to
observe the same:
1. Tenant will not permit or allow any vehicles that belong to or are
controlled by Tenant or Tenant's employees, subtenants, customers or invitees
to be loaded, unloaded or parked in areas other than those designated by
Landlord for such activities. No vehicles are to be left in the parking areas
overnight and no vehicles are to be parked in the parking areas other than
normally sized passenger automobiles, motorcycles and pick-up trucks. No
extended term storage of vehicles is permitted.
2. Vehicles must be parked entirely within painted stall lines of a single
parking stall.
3. All directional signs and arrows must be observed.
4. The speed limit within all parking areas shall be five (5) miles per
hour.
5. Parking is prohibited: (a) in areas not striped for parking; (b) in
aisles or on ramps; (c) where "no parking" signs are posted; (d) in
cross-hatched areas; and (e) in such other areas as may be designated from time
to time by Landlord or Landlord's parking operator.
6. Landlord reserves the right, without cost or liability to Landlord, to
tow any vehicle if such vehicle's audio theft alarm system remains engaged for
an unreasonable period of time.
7. Washing, waxing, cleaning or servicing of any vehicle in any area not
specifically reserved for such purpose is prohibited.
8. Landlord may refuse to permit any person to park in the parking
facilities who violates these rules with unreasonable frequency, and any
violation of these rules shall subject the violator's car to removal, at such
car owner's expense. Tenant agrees to use its best efforts to acquaint its
employees, subtenants, assignees, contractors, suppliers, customers and
invitees with these parking provisions, rules and regulations.
9. Parking stickers, access cards, or any other device or form of
identification supplied by Landlord as a condition of use of the parking
facilities shall remain the property of Landlord. Parking identification
devices, if utilized by Landlord, must be displayed as requested and may not be
mutilated in any manner. The serial number of the parking identification device
may not be obliterated. Parking identification devices, if any, are not
transferable and any device in the possession of an unauthorized holder will be
void. Landlord reserves the right to refuse the sale of monthly stickers or
other parking identification devices to Tenant or any of its agents, employees
or representatives who willfully refuse to comply with these rules and
regulations and all unposted city, state or federal ordinances, laws or
agreements.
10. Loss or theft of parking identification devices or access cards must be
reported to the management office in the Development immediately, and a lost or
stolen report must be filed by the Tenant or user of such parking
identification device or access card at the time. Landlord has the right to
exclude any vehicle from the parking facilities that does not have a parking
identification device
H-3
<PAGE> 40
or valid access card. Any parking identification device or access card which is
reported lost or stolen and which is subsequently found in the possession of an
unauthorized person will be confiscated and the illegal holder will be subject
to prosecution.
11. All damage or loss claimed to be the responsibility of Landlord must be
reported, itemized in writing and delivered to the management office located
within the Development within ten (10) business days after any claimed damage
or loss occurs. Any claim not so made is waived. Landlord is not responsible
for damage by water or fire, or for the acts or omissions of others, or for
articles left in vehicles. In any event, the total liability of Landlord, if
any, is limited to Two Hundred Fifty Dollars ($250.00) for all damages or loss
to any car. Landlord is not responsible for loss of use.
12. The parking operators, managers or attendants are not authorized to make
or allow any exceptions to these rules and regulations, without the express
written consent of Landlord. Any exceptions to these rules and regulations made
by the parking operators, managers or attendants without the express written
consent of Landlord will not be deemed to have been approved by Landlord.
13. Landlord reserves the right, without cost or liability to Landlord, to
tow any vehicles which are used or parked in violation of these rules and
regulations.
14. Landlord reserves the right from time to time to modify and/or adopt
such other reasonable and non-discriminatory rules and regulations for the
parking facilities as it deems reasonably necessary for the operation of the
parking facilities.
H-4
<PAGE> 1
EXHIBIT 10.15
LEASE
DATE: March 31, 1997
LESSOR: Jim Jamison and Richard Henderson
P. O. Box 30155
Flagstaff, Arizona 86003
LESSEE: Medical Science Systems, Inc.
a Texas corporation
4400 Macarthur Blvd.
Newport Beach, California 92660
PREMISES: A portion of the property described in Exhibit A consisting of
the building of approximately 6,000 square feet to be erected
thereon, together with the non-exclusive use of the drives,
parking and open space adjacent thereto.
Lessor hereby leases to Lessee, and Lessee accepts, the subject
premises on the following terms and conditions.
1. CONSTRUCTION OF PREMISES. The Building which is to be the subject
premises shall be constructed by Lessor for the purpose of this lease. The
building shall be constructed according to the plans and specifications prepared
by architect Josh Barclay. Both parties shall approve the plans and
specifications by their signatures on such documents no later than April 11,
1997.
2. LEASE TERM. The lease term shall commence on the date that the
premises is certified for occupancy by the City of Flagstaff. Such date,
however, shall not be sooner than August 1, 1997, nor later than October 1,
1997.
If the premises are not certified for occupancy by October 1, 1997,
Lessee may, at its option, cancel this lease without liability of any kind. If
Lessor does not deliver occupancy to Lessee by October 1, 1997, this lease may
be cancelled by Lessor and Lessor's only liability to Lessee shall be payment
of two months rent for Lessee at its current Flagstaff location.
The term shall continue for three years from the first day of the first
full month after the date of commencement.
<PAGE> 2
3. MONTHLY RENTAL. The monthly rental paid by Lessee to Lessor shall
be equal to the number of gross square feet of the completed building (based on
exterior dimensions) times $1.20. In addition, Lessee shall reimburse Lessor
for all transaction taxes imposed on this rental transaction by the State,
County and City. Such reimbursement shall be paid to Lessor at the same time as
the monthly rental.
If the rental term commences on a date other than the first day of a
month, the rent shall be prorated for the first partial month. Thereafter, the
full monthly rent shall be due on the first day of each month.
4. RENT ADJUSTMENTS. Each October, beginning with October 2000, the
monthly rental shall be increased if the Consumer Price Index -- U.S. City
Average -- All Urban Consumers (1967-100), as published by the United States
Department of Labor's Bureau of Statistics, increases over the base period
Index. The base period Index shall be the Index for the calendar month in which
the lease term commences. The base period Index shall be compared with the
Index for the same calendar month for each subsequent year (comparison month).
If the Index for the comparison month is higher than the base period Index,
then the Minimum Rent for the next year shall be increased by the identical
percentage commencing with the next rental commencement month. Such increase
shall be limited to 3% for any one year.
5. SECURITY DEPOSIT. No security deposit shall be required from Lessee.
6. USE OF PREMISES. Lessor represents and warrants that there are no
deed restrictions or covenants restricting the use of the premises for Lessee's
purposes. Lessee is satisfied that its proposed use is allowed by the City of
Flagstaff.
7. ENVIRONMENTAL HAZARDS. Lessor warrants that the premise is free of
any environmental hazards. Lessor, at its sole expense, will remedy any such
hazards that may be found unless such hazards were caused or created by Lessee.
Lessee shall remedy any environmental hazards caused or created by Lessee.
8. RENEWAL OPTION. Lessee shall have the option to renew this lease
for two additional terms of three years each. Such renewals shall be on the
same terms and conditions. To exercise these renewal options, Lessee must give
Lessor notice of intent to renew, in writing, at least 90 days prior to the
expiration of the current term. Such notice is binding on both parties. If
<PAGE> 3
Lessee does not elect to renew the lease then Lessor or its agents may enter
the premises during regular hours, after 24 hours notice to Lessee, to show the
premises to prospective new tenants.
9. CONDITION OF PREMISES. Lessor shall deliver the premises to Lessee
clean and free of debris on the commencement date of this Lease, and Lessor
further warrants to Lessee that the plumbing, lighting, heating and other
systems in the premises shall be in good operating condition and the roof free
of leaks on said commencement date. Except as otherwise provided herein, Lessee
hereby accepts the premises in their condition existing as of the date that
Lessee takes possession of the premises.
10. MAINTENANCE, REPAIRS AND ALTERATIONS. Lessee, at Lessee's expense,
shall provide the routine maintenance for the heating and air conditioning
systems, plumbing and electrical. So long as no failure or needed repair is due
to lack of maintenance, Lessor shall keep in good order, condition and repair
the heating and ventilating systems, hot water heater, plumbing and electrical
systems. Lessor shall maintain the exterior walls and surfaces including
painting. Lessor shall also maintain the exterior roof and structural integrity
of the premises. Lessor shall provide snow removal. Lessor shall keep in good
repair the asphalt and concrete of the sidewalks and parking areas. Lessee, at
Lessee's sole cost and expense, shall keep the interior premises in good order,
condition and repair.
If Lessee fails to perform Lessee's obligations under this paragraph,
Lessor may at Lessor's option, enter upon the premises after 15 days' prior
written notice to Lessee (except in the case of emergency, in which case no
notice shall be required), perform such obligations on Lessee's behalf and put
the premises in good order, condition and repair, and the cost thereof,
together with interest thereon at the maximum rate then allowable by law, shall
be due and payable as additional rent to Lessor with Lessee's next rental
installment. On the last day of the term hereof, or on any sooner termination,
Lessee shall surrender the premises to Lessor in the same condition as
received, clean and free of debris, but obsolescence, ordinary wear and tear
and damage by fire or the elements excepted. Lessee shall repair any damage to
the premises occasioned by the installation or removal of its trade fixtures,
furnishings and equipment.
11. INTERIOR REMODELING. Lessee shall not, without Lessor's prior
written consent, except for any nonstructural alterations, improvements or
additions, make any alterations, improvements, additions or utility
installations in, on or about the premises. All such work shall be at Lessee's
expense.
3
<PAGE> 4
Any alterations, improvements, additions or utility installations in or
about the premises which Lessee shall desire to make and which requires the
consent of Lessor shall be presented to Lessor in written form with proposed
detailed plans. If Lessor shall give its consent, the consent shall be deemed
conditioned upon Lessee acquiring a permit to perform the work from appropriate
governmental agencies and all work being done at Lessee's sole expense. If
Lessor fails to respond to Lessee's request for consent in 15 days, consent
will be deemed given. Lessor's consent shall not be unreasonably withheld.
Unless Lessor requires their removal, all alterations, improvements,
additions and utility installations which may be made on the premises shall
become the property of Lessor and remain upon and be surrendered with the
premises at the expiration of the term; provided, however, Lessee's machinery,
equipment, computers, telephone systems and similar items and systems, trade
fixtures and furnishings shall remain the property of Lessee and may be removed
by Lessee.
12. INSURANCE. Lessee shall, at Lessee's expense, obtain and keep in
force during the term of this lease a policy of Combined Single Limit Bodily
Injury and Property Damage Liability Insurance policy insuring Lessee against
any liability arising out of the use, occupancy or maintenance of the premises.
Such insurance shall be in an amount not less than $1,000,000 per occurrence.
Lessor shall be named as an additional insured on said policy.
Lessor at Lessor's expense shall obtain a policy of casualty insurance
insuring the building against damage to the premises from fire and other
casualties.
Lessee shall be solely responsible for insuring its own contents and
personal property against casualty loss at its own expense.
13. INDEMNITY. Except for any act, omissions, fault or negligence of
Lessor or Lessor's agents, employees, representatives or invitees, Lessee shall
indemnify and hold harmless Lessor from and against any and all claims of third
parties arising from Lessee's use of the premises, or from the conduct of
Lessee's business. Lessee shall further indemnify and hold harmless Lessor from
and against any and all claims arising from any negligence of Lessee, or any of
Lessee's agents, contractors, or employees, and from and against all costs,
attorney's fees, expenses and liabilities incurred in the defense of any such
claim or any action or proceeding brought thereon; and in case any action or
proceeding be brought against Lessor by reason of any such claim, Lessee upon
notice from Lessor shall defend the same at Lessee's expense.
4
<PAGE> 5
14. DAMAGE OR DESTRUCTION. If the premises is totally or substantially
destroyed by any cause whatsoever this lease shall terminate as of the date the
destruction occurred.
If the property is only partially damaged, Lessor, at its sole
discretion, may repair the damage as soon as reasonably possible. If Lessor
makes such repairs, the lease shall remain in effect with Lessee being entitled
to a proportionate deduction of rent while such repairs are being made with such
proportionate deduction based upon the extent to which the making of such
repairs shall interfere with the business carried on by the Lessee on the
property. If Lessor does not elect to repair such partial damage, Lessor shall
notify Lessee within 30 days of the occurrence of the damage and the lease
shall terminate as of the date of the damage.
15. COMMON AREA EXPENSES. Lessor shall pay all common area or other
charges assessed by the owners of the Cedar Pines Shopping Center.
16. REAL PROPERTY TAX. Lessor shall pay and be solely responsible for
all real property tax assessed against the premises during the lease term up to
the amount assessed for the first full year of assessment of the property as
improved property. One-half of any increase in subsequent years ("one-half"
being one-half of the total parcel described in Exhibit A) will be paid by
Lessee at least ten days before the taxes are due to the County Treasurer.
17. PERSONAL PROPERTY TAX. Lessee shall pay, to the extent required by
law, and be solely responsible for all personal property tax assessed to the
premises or Lessee's operations at the premises.
18. UTILITIES. Lessee shall pay for all water, gas, heat, light,
power, telephone and other utilities and services supplied to the premises,
together with any tax thereon.
19. ASSIGNMENT AND SUBLETTING. Lessee may, with Lessor's consent, (not
to be unreasonably withheld) assign or sublet all or part of Lessee's interest
in this lease. No subletting or assignment shall release Lessee or Lessee's
obligation or alter the primary liability of Lessee to pay the rent and to
perform all other obligations to be performed by lessee hereunder.
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<PAGE> 6
20. LESSEE DEFAULTS. The occurrence of any one or more of the
following events shall constitute a material default and breach of this lease
by Lessee:
a. The vacating or abandonment of the property by Lessee.
b. The failure of Lessee to make any payment of rent or other payment
required to be made by Lessee under the lease where such failure shall continue
for a period of 10 days after the receipt of written notice thereof from Lessor
to Lessee.
c. The failure by Lessee to observe or perform any of the covenants,
conditions or provisions of this lease to be observed or performed by Lessee,
other than #b above, where such failure shall continue for a period of 15 days
after receipt of written notice of such from Lessor to Lessee; provided,
however, that if the nature of Lessee's default is such that more than 15 days
are reasonably required for its cure, then Lessee shall not be deemed in
default if Lessee commences such cure within the 15-day period and thereafter
diligently prosecutes such cure to completion.
d. The making by Lessee of any general assignment or general
arrangement for the benefit of creditors or the filing by or against Lessee of
a petition to have Lessee adjudged a bankrupt or a petition for reorganization
or arrangement under any law relating to bankruptcy, the appointment of a
trustee or receiver to take possession of substantially all of Lessee's assets
located at the property or of Lessee's interest in the lease, or the
attachment, execution or other judicial seizure of substantially all of
Lessee's assets located at the property or of Lessee's interest in the lease.
21. LESSOR REMEDIES. In the event of any material default or breach by
Lessee, Lessor may at any time thereafter, with or without notice or demand and
without limiting Lessor in the exercise of any right or remedy which Lessor may
have by reason of such default or breach:
a. Terminate Lessee's right to possession of the property by any
lawful means, in which case this lease shall terminate and Lessee shall
immediately surrender possession of the property to the Lessor. In such event,
Lessor shall be entitled to recover from lessee all damages incurred by Lessor
by reason of Lessee's default including, but not limited to, the cost of
recovering possession of the property, expenses or reletting, including
necessary renovation and alteration of the property, reasonable attorney's
fees, and any real estate commission actually paid as well as the worth at the
time of award by the court having jurisdiction thereof of the amount by which
the unpaid rent for the balance of the term after the time such award exceeds
the amount of such rental loss for the same period that Lessee proves could be
reasonably avoided.
6
<PAGE> 7
b. Maintain Lessee's right to possession in which case this lease
shall continue in effect whether or not Lessee shall have abandoned the
property. In such event, Lessor shall be entitled to enforce all of Lessor's
rights and remedies under this lease, including the right to recover rent as it
becomes due.
c. Pursue any other remedy now or hereafter available to Lessor under
law with unpaid installments of rent and any other unpaid monetary obligations
of Lessee under the terms of this lease to bear interest from the date due at
the maximum rate then allowable by law no matter which remedy or remedies are
selected and enforced.
d. It is agreed remedies which are not inconsistent at law or equity
are cumulative.
22. LATE CHARGE. Lessee acknowledges that late payment by Lessee to
Lessor of rent and other sums due hereunder will cause Lessor to incur costs
not contemplated by the lease, the exact amount of which is extremely difficult
to ascertain. Accordingly, if any installment of rent or any other sum due from
Lessee shall not be received by Lessor by the tenth day of the month in which
it is due, then Lessee shall pay to Lessor a late charge of $300. If the
monthly rent has not been paid by the 25th of the month, Lessee will be deemed
to have breached this lease.
23. DEFAULT BY LESSOR. Lessor shall not be in default unless Lessor
fails to perform obligations required of Lessor within a reasonable time, but
in no event later than 15 days after written notice by Lessee to Lessor
specifying the exact nature of the default; however, if the nature of Lessor's
obligation is such that more than 15 days are required to perform, then Lessor
shall not be in default if Lessor commences performance within such 15 days
period and thereafter diligently prosecutes the same to completion.
24. TIME IS OF THE ESSENCE. Time is of the essence.
25. SIGNS. Lessee may place signs upon the property at its own expense
with the approval of the City of Flagstaff.
26. WAIVERS. No waiver by Lessor of any provision of this lease shall be
deemed a waiver of any other provision or any subsequent breach by Lessee of the
same or any other provision. Lessor's consent to, or approval of any act, shall
not be deemed to render unnecessary the obtaining of Lessor's consent to or
7
<PAGE> 8
approval of any subsequent act of Lessee. The acceptance of rent by Lessor
shall not be a waiver of any preceding breach by Lessee of any provision of the
lease, other than the failure of Lessee to pay the particular rents so accepted.
27. TRANSFER BY LESSOR. In the event Richard Henderson or Jim
Jamison (or any successor owner of the property) shall sell, convey or transfer
interest in the property, the Lessor's obligations in regard to this lease
shall be fully binding on such successor owner. The memorandum of lease to be
recorded pursuant to Paragraph 29 shall specifically state that by acceptance
of a deed to the property the grantee is accepting the obligations of this
lease. However, neither Richard Henderson nor Jim Jamison nor any successor
owner shall have any personal liability for the performance of the Lessor's
obligation after a transfer of the property to another party.
28. GENERAL PROVISIONS. If any term or provision of this lease
shall be deemed invalid or unenforceable, the remainder of the lease or the
application of such term or provision to the extent it is valid, shall be in
full force and effect.
The parties agree in the event of a breach of this lease by either
party, the breaching party shall pay the non-breaching party costs and
reasonable attorney's fees incurred because of the breach whether a lawsuit is
instituted or not.
Lessee understands and agrees this is a proposal to lease and does not
bind the Lessor until approved by the Lessor or its agent.
Each individual executing this lease on behalf of Lessee represents and
warrants that he or she is duly authorized to execute and deliver this lease on
behalf of the entity.
Lessor through an authorized agent, accompanied by Lessee, shall have
the right to enter the property at reasonable times for the purpose of
inspecting the same or showing the property to prospective purchasers, lenders
or tenants, and for making such alterations, repairs, improvements or additions
to the property or to the building which Lessor deems necessary or desirable.
Lessee shall not record this lease in any form. However, a memorandum
of this lease shall be recorded.
Captions and paragraph headings used in this lease are for convenience
only and are not part of this agreement and shall not be deemed to limit or
alter any provisions of the agreement and shall not be deemed relevant in
construing the agreement.
8
<PAGE> 9
LESSOR LESSEE
MEDICAL SCIENCE SYSTEMS, INC.
/s/ RICHARD HENDERSON By /s/ PAUL J. WHITE
- -------------------------------------- -----------------------------------
Richard Henderson Paul J. White, President
/s/ JIM JAMISON By /s/ MICHAEL G. NEWMAN
- -------------------------------------- -----------------------------------
Jim Jamison Michael G. Newman, Secretary
ACKNOWLEDGEMENT OF SPOUSES:
I agree to the foregoing lease and agree that my community property
interest is bound hereto.
/s/ DARLENE JAMISON
-----------------------------------
Darlene Jamison
I acknowledge that the subject property is Richard Henderson's sole and
separate property and acknowledge that I have no community property interest.
/s/ CLARISA HENDERSON
-----------------------------------
Clarisa Henderson
9
<PAGE> 1
EXHIBIT 10.16
OFFICE LEASE
ONE INTERNATIONAL CENTRE
This is a Lease Agreement made and entered into between Diamond Shamrock
Leasing, Inc. ("Lessor"), and Medical Science Systems, Incorporated as
("Lessee"), whether one or more.
1.1. THE LEASED PREMISES. Lessor hereby leases to Lessee, and Lessee hereby
leases from Lessor the "Leased Premises" which consists of Lessee's "Office
Space" and "Common Area" as defined below.
(a) LESSEE'S OFFICE SPACE. Lessee's "Office Space", to which Lessee shall
have exclusive use rights, consists of suite(s) 1350 representing the Office
Space outlined and shaded on the floor plan contained in Exhibit A. Such Office
Space is located in the office building known as One International Centre
("Office Building") on a tract of land, legally described by lot and block and
metes and bounds in Exhibit B. The street address of the Office Building is 100
N.E. Loop 410, San Antonio, Texas 78216-4742. The "Property" shall mean the
land, the Office Building, the parking building, the parking areas and all other
improvements to the land.
b) COMMON AREA. The "Common Area", to which Lessee shall have non-exclusive
use rights, consists of (1) the interior Common Area located in the Office
Building, i.e., areas normally accessible to all tenants such as the hallways,
stairwells, elevators, lobby, restrooms, and snack bar areas, and (2) the
exterior Common Area located outside the Office Building on the above described
land, i.e., loading areas, sidewalks, driveways, parking garage, parking areas,
and other open areas (if any), subject to paragraph 9.2 on parking.
1 .2. USE. Lessee's Office Space may be used only for general office
purposes. The name of Lessee's business will be Medical Science Systems,
Incorporated.
1.3. RENTABLE AREA.
(a) The term "Rentable Area" as used herein means (i) in a case of a single
lessee floor, all floor area measured from the inside surface of the outer glass
of the Office Building, excluding only the area ("Service Area") within the
outside wall used for building stairs, fire towers, elevator shafts, flues,
vents, stacks, pipestacks, and vertical ducts (which areas shall be measured
from the mid-point of walls enclosing such areas) but including any Service Area
which is for the specific use of Lessee, such as special stairs or elevators,
plus a proportionate part of the square footage of the Office Building central
areas for providing electrical, mechanical, janitorial, security and mail
services as well as the central lobby, central fire exit corridor, and central
loading dock ("Central Area"), and (b) in the case of a floor to be occupied by
more than one (1) lessee, all floor areas within the inside surface of the outer
glass enclosing the space on such floor and measured to the mid-point of the
walls separating areas leased by or held for lease to other lessees or from
Common Area devoted to public corridors, electrical and telephone rooms,
elevators, foyers, restrooms, mechanical, janitor's closet, vending areas, and
other similar facilities for the use of all lessees on the particular floor,
plus Lessee's proportionate part of such Common Area located on such floor plus
a proportionate share of the square footage of the Office Building's Central
Area. In the case of both single and multiple tenant floors, telephone,
electrical, mechanical, maintenance, janitorial and security rooms not included
in the Office Building Central Area, but which serve more than one (1) floor
shall be considered Common Area and shall be allocated among lessees whose
office spaces are served thereby, regardless of whether such Office Spaces are
located on the same floor as the rooms in question. Such allocation shall be
made in proportion with the Rentable Areas of all Tenants so served. No
deductions from Rentable Area shall be made for columns or projections necessary
to the Office Building.
(b) The Rentable Area of the Office Building is approximately two hundred
ninety-five thousand twenty-one square feet (295,021 sq.ft.) and the Rentable
Area of the Office Space is estimated to be 1,961 and shall be specifically
calculated in accordance with the above definition by Lessor or Lessor's
architect when floor plans are complete. Upon such determination, the Rentable
Area of the Office Space shall be appropriately adjusted to reflect the actual
square feet of the Rentable Area of the Office Space as determined by such
calculation. The Rentable Area of the
<PAGE> 2
Office Building shall be subject to further adjustment only in the event of any
future expansion or modification of the Office Building.
1.4. USABLE AREA. The term "Usable Area" as used herein means the Rentable
Area less Lessee's proportionate part Common Area on a multiple lessee floor and
less Lessee's allocation of Central Area.
2.1. BASE RENT AND ADDITIONAL RENTS. Lessee shall pay to Lessor a "Base Rent"
of $145,212.05 in total for the initial lease term, which amounts to $1,315.51
per calendar month for months 1 - 12 and $2,696.38 per calendar month for months
13 - 60. Such Base Rent is equivalent to $8.05 per square foot per year for year
1 and $16.50 per square foot per year for years 2 - 5 for Lessee's Rentable
Area. "Additional Rent" representing Lessee's prorata share of Office Building
Operating Expenses shall be paid in accordance with paragraph 32.1.
3.1. DATE AND PLACE OF PAYMENT. The monthly rent and one-twelfth of
Lessee's share of estimated Office Building Operating Expenses under paragraph
32.1 shall be due and payable in advance on the first day of each calendar month
without demand. Partial months shall be prorated. All rent and other sums are
due and payable in San Antonio, Bexar County, Texas at the address designated by
Lessor from time to time. All sums due by Lessee are without right of set-off or
deduction. Monies mailed are considered timely paid only if received by Lessor
by the due date or if received later than the due date, in an envelope
postmarked more than two (2) days before the due date. Rent shall be paid
without notice or demand. All other sums shall be due as otherwise provided
herein (or upon delivery of written notice in accordance with paragraph 29.1).
3.2. LATE PAYMENTS. If any rent payment or other sum due by Lessee to Lessor
is received and accepted by Lessor later than five (5) days after its due date,
Lessee shall pay a late charge of five (5%) of such rent payment or other sum.
Lessor's acceptance of late rent or other sum shall not constitute permission
for Lessee to pay the rent or other sum late thereafter and shall not constitute
a waiver of Lessor's remedies for subsequent late payments. Late payment charges
are due immediately upon notice or demand. For each returned check, Lessee shall
pay all applicable bank charges incurred by Lessor plus $25.00. Payments of any
kind received by Lessor on behalf of Lessee may be applied at Lessor's option to
non-rent items first, then to rent. Payment of rent by Lessee shall be an
independent covenant. If Lessee has not timely paid rentals and other sums due
on two or more occasions, or if a check from Lessee is returned for insufficient
funds or no account, Lessor may require that all rent and other sums due be paid
by cashier's check, certified check, or money order.
3.3. SECURITY DEPOSIT. At the time of execution of this lease, Lessee shall
deposit with Lessor $2,696.30 cash to secure performance of Lessee's obligations
under this lease. If Lessee fails to pay rent or other sums when due under this
lease, Lessor may apply any cash security deposit toward amounts due and unpaid
by Lessee. Lessee shall immediately restore the security deposit to its original
amount after any portion of it is applied to amounts due and unpaid by Lessee.
Lessee acknowledges that Lessor has the right to transfer or mortgage its
interest in the property and in this Lease and Lessee agrees that in the event
of any such transfer or mortgage, Lessor shall have the right to transfer or
assign the security deposit of Lessee to the transferee or mortgagee. Lessee's
security deposit shall not be mortgaged, assigned or encumbered in any manner
whatsoever by Lessee.
4.1 TERM, COMMENCEMENT, AND ANNIVERSARY. The initial lease term shall start
on the commencement date and shall continue for any partial first calendar month
plus 60 full calendar months thereafter and shall continue for month-to-month
thereafter until Lessor or Lessee gives thirty (30) days prior written notice of
termination. The lease commencement date shall be the 1st day of December, 1995
or the date Lessee occupies all or any part of Lessee's Office Space, whichever
occurs first. The annual anniversary date of this lease shall be the first day
of the first full month following the commencement date of the lease, unless the
lease commencement date is the first day of the month. The date rent commences
shall be the same day as the above lease commencement date.
4.2. ACKNOWLEDGEMENT OF LEASE. Upon commencement of this lease, Lessor and
Lessee shall execute a recordable acknowledgement of this lease in a form which
is attached as Exhibit D and which will confirm the commencement date, ending
date, annual anniversary date of the lease, Rentable Area and Usable Area in
Lessee's Office Space.
4.3. DELIVERY OF POSSESSION. Lessor shall deliver keys and/or access cards or
codes and possession of Lessee's Office Space to Lessee on the lease
commencement date stated in paragraph 4.1 unless otherwise agreed in writing by
the parties. Lessee shall not be liable for rent until Lessor delivers
possession of the Leased Premises to Lessee. If there is a delay in delivery of
possession, rent shall be abated until Lessee's Office Space is ready for
occupancy; and neither Lessor nor Lessor's agents shall otherwise be liable for
any damages; and the lease shall not terminate.
Initials [SIG] [SIG]
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5.1 TENANT FINISH-OUT. Lessor shall provide standard building finish-out,
as described in Exhibit E. Lessor shall perform any special construction
described in Exhibit E. Costs of tenant finish-out special construction shall
be paid for pursuant to such exhibit.
6.1. QUIET POSSESSION. If Lessee is current and in compliance with all of
Lessee's obligations under this lease, Lessee shall be entitled to peaceful and
quiet possession and enjoyment of Lessee's Office Space, subject to the terms
and conditions of this lease. Lessee shall have access to the building parking
garage and common parking areas at all times, subject to parking fees and the
rules referred to in paragraphs 9.2 and 23.1. Lessor shall make diligent efforts
to have all other tenants in the Office Building comply with parking and
building rules. Failure of other tenants to comply with such rules shall not be
considered a default by Lessor. Construction noise or vibrations shall not be
considered a default by Lessor.
7.1. UTILITIES AND SERVICES BY LESSOR. Except where otherwise stated in this
lease, Lessor shall pay for and furnish in a timely and diligent manner to
Lessee the following utilities and services and no others, subject to paragraph
32.1 regarding Lessee's payment of Lessee's prorata share of Office Building
Operating Expenses.
(a) electricity, gas, water and waste water services for Common Area as well
as electric lighting service;
(b) air conditioning and heating as reasonably required on a seasonal basis
to maintain the average temperature in the Lessee's Office Space at no
lower than 68 degrees fahrenheit, but no more than 74 degrees
fahrenheit for comfortable use and occupancy under normal office
conditions from 7:00 a.m. to 7:00 p.m. on Monday through Friday
inclusive, and from 7:00 a.m. to 1:00 p.m. on Saturday upon request,
(but not on Sunday, New Year's Day, Memorial Day, July 4th, Labor Day,
Thanksgiving and Christmas) or during such other times or days as
Landlord may reasonably designate;
(c) janitorial service, five (5) day per week (excluding the above
holidays);
(d) electricity for standard office equipment and lighting;
(e) trash collection services (dumpster or garbage cans);
(f) pest control services as needed in the reasonable judgment of Lessor;
(g) landscaping and parking lot maintenance services;
(h) repair and maintenance services pursuant to paragraph 8.1
(i) replacement of fluorescent light bulbs and ballasts in building standard
lighting fixtures (but not incandescent light bulbs for nonstandard
fixtures or for Lessee's lamps); and
(j) elevator service.
7.2. UTILITIES AND SERVICES BY LESSEE. Charges for any services for which
Lessee is required to pay from time to time hereunder shall be due and payable
within five (5) days after such billing. If Lessee shall fail to make payment
for such services in full within three (3) days after Lessor hand delivers to
Lessee or to Lessee's representative written notice of Lessor's intent to
terminate utilities or services which are furnished by Lessor, then Lessor may
terminate such utilities or services after such three (3) day notice period
without further notice, and such discontinuance shall not be deemed to
constitute an eviction or disturbance of the Lessee's use and possession of the
Leased Premises or relieve Lessee from paying rent or performing any of its
obligations under this Lease. Lessor reserves the right to submeter electricity
and/or water. Any electricity or water submetering shall be billed to and paid
by Lessee at Lessor's average cost per KWH or gallon, and no more. If the water
bill from the utility company includes waste water charges, Lessee's liability
for water submetering shall include corresponding waste water costs (if any).
7.3. INTERRUPTION OF UTILITIES OR SERVICES. Temporary interruption or
malfunction of utilities, services, and/or telephones shall not render Lessor
liable for damages, rent abatements, or release of any Lessee obligation. Lessor
shall use diligent efforts to have such utilities and services restored as soon
as reasonably possible. Should interruption of utilities or services render
Office Space unusable for three (3) consecutive days, then Lessee's rent shall
abate until such utilities or services are restored.
7.4. EXTRA ELECTRICITY. There shall be no extra electricity charges for
typewriters, word processors, dictating equipment, adding machines, desk top
calculators, lamps, or other standard 110 volt office equipment. However,
Lessee shall pay Lessor monthly, as billed, for charges which are separately
metered or which Lessor may reasonably compute for electricity utilized by
Lessee for the following purposes: x-ray machines, hotplates, electric heaters,
220 volt equipment, computers (other than desktop or word processor computers),
or other electrical service not standard for the Office Building.
7.5. EXTRA HEATING OR AIR CONDITIONING. If Lessee requests air conditioning
or heating after the hours as set forth in paragraph 7.1(a), Lessor may charge
Lessee an hourly fee established from time to time by Lessor for after-hour air
conditioning or heating in the Office Building.
Initials [SIG] [SIG]
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<PAGE> 4
8.1 MAINTENANCE AND REPAIRS BY LESSOR. Except as described herein, Lessor
shall maintain the interior of Lessee's Office Space in good repair, at
Lessee's expense. Lessor shall use diligence to provide for the reasonable
cleaning, maintenance, repair, reconnection of interrupted utilities or
services, and landscaping of Common Area, subject to any reimbursement
obligations of Lessee under paragraph 8.2. Lessor may rekey at any time without
reduction in access to Office Space. Lessor may temporarily close any part of
the common facilities if reasonably necessary for repairs or construction.
Repairs and maintenance shall be in accordance with applicable governmental
requirements.
8.2. MAINTENANCE AND REPAIRS BY LESSEE. Lessee shall promptly reimburse
Lessor for Lessor's cost of repairing or replacing damage which is caused inside
Lessee's Office Space by Lessee, Lessee's agents, employees, family, or
licensees, invitees, visitors, or customers or outside Lessee's Office Space by
Lessee or Lessee's employee's, agents, or contractors. Lessor's cost of repair
shall include 15% for overhead. Lessor may require advance payment therefor
prior to repair or replacement. Lessor shall have right of approval of all
repairmen or maintenance personnel. Lessee shall not damage or allow other
persons listed above to damage any portion of the Leased Premises. Lessee shall
pay for replacement of all incandescent light bulbs and for unstopping any
drains or water closets in Lessee's Office Space. If Lessor or Lessee's workmen
or contractors are permitted to repair, alter, or modify Lessee's Office Space,
Lessee shall warrant that no mechanic's or materialman's lien shall be filed
against the Leased Premises. All such work shall be in accordance with
applicable governmental requirements.
8.3. TELECOMMUNICATIONS EQUIPMENT. All telecommunications equipment necessary
to serve Lessee shall be located in Lessee's Office Space and paid for by
Lessee.
9.1. ACCESS, KEYS, LOCKS, AND SECURITY. (a) ACCESS. Lessee shall have access
to Lessee's Office Space at all times. Lessor shall have access to Lessee's
Office Space at reasonable times for reasonable business purposes.
(b) KEYS. Lessor shall furnish Lessee two (2) keys or access codes or cards
for Lessee's Office Space, two (2) keys or access codes or cards for the main
exterior entry doors of the Office Building if such door is locked after hours,
and two (2) keys or access codes or cards to Lessee's mailbox in the Office
Building. A deposit of $10.00 shall be charged for each mailbox key and office
key, and access card. Additional or replacement keys or access codes or cards
shall be furnished at the same amount charged to all other tenants in the Office
Building at the time of Lessee's request. Lessor shall not be liable for risk of
loss resulting from Lessee's keys, access codes, or cards being lost or used by
unauthorized persons. Lessor reserves the right to rekey or change locks for
security reasons if new keys are timely furnished to Lessee.
(c) LOCKS. Lessee may not add locks, change locks, or rekey locks without
written permission of Lessor. Locks may be changed at Lessee's request and
expense. If locks to the Office Space are changed, Lessor may specify kind and
brand of locks, placement, installation, master key compatibility, etc.
(d) SECURITY. Lessor shall have no duty to provide any security services of
any kind unless expressly provided in this lease. Lessor shall not be liable to
Lessee or Lessee's employees, family, customers, invitees, contractors, or
agents for injury, damage, or loss to person or property caused by criminal
conduct of other persons, including theft, burglary, assault, vandalism or other
crimes. Lessee shall be responsible for locking its Office Space doors when the
last person leaves such Office Space for the day.
9.2. PARKING. Lessee shall have the use of seven (7) free unreserved
parking spaces (one (1) space for each three hundred square feet (300 sq. ft.)
of Rentable Area of the Leased Premises) in the parking garage. Lessor shall
have sole control over parking and the parking building and parking areas.
Parking rules are contained in attached Exhibit F-1. If vehicles are parked in
violation of Lessor parking rules or in violation of state statutes, Lessor may
exercise vehicle removal remedies under Articles 6701 g-1 and 6701 g-2 of the
Texas Civil Statutes upon compliance with statutory notice. There shall be no
reserved parking spaces unless agreed in writing by Lessor.
10.1. OCCUPANCY, NUISANCE, AND HAZARDS. Lessee's Office Space shall be
occupied only by Lessee or Lessee's employees and shall not be left entirely
vacant or used exclusively for storage. Lessee and Lessee's agents, employees,
family, licensees, invitees, visitors, and contractors shall comply with all
federal, state, and local laws relating to occupancy or to criminal conduct
while such persons are on the Leased Premises. Lessee and the persons listed
above shall not (1 ) use, occupy, or permit the use or occupancy of the Leased
Premises for any purpose which is directly or indirectly forbidden by such laws
or which may be dangerous to life or property, (2) permit any public or private
nuisance, (3) disturb the quiet enjoyment of other tenants, (4) do anything
which might emit offensive odors or fumes, (5) make undue noise or vibrations,
(6) permit anything which would cancel insurance coverage or increase the
insurance rate on the Office Building or contents, (7) otherwise damage the
Leased Premises.
Initials [SIG] [SIG]
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<PAGE> 5
11.1 TAXES. Lessor shall be responsible for payment of all taxes and
assessments against the Office Building subject to Lessee's obligation to pay
Lessor for Lessee's share thereof, on a prorata square ft. basis, as additional
rent pursuant to paragraph 32-1. Lessee shall timely pay any taxes assessed
against Lessee's furniture, equipment, fixtures, or other personal property in
Lessee's Office Space.
12.1. INSURANCE. Lessor and Lessee shall comply with the respective insurance
obligations as set forth below:
(a) LESSOR. Lessor, at its option, may maintain (1) fire and extended
coverage insurance, including vandalism and malicious mischief, on the office
building, and (2) comprehensive general liability insurance. If Lessor elects to
so insure, the amounts shall be as Lessor may deem reasonably appropriate.
Lessor shall have no responsibility to maintain fire and extended coverage
insurance on Lessee's contents.
(b) LESSEE. Lessee shall carry insurance from the first day of Lessee's
occupancy and then during the entire occupancy hereof insuring Lessee and Lessor
as their interests may appear with terms and coverages and by companies
satisfactory to Lessor, and with such increases in limits as Lessor may from
time to time request, but initially Lessee shall maintain the following
coverages in the amounts as follows:
(i) in case of personal injury to or death of any person or persons,
not less than $1,000,000.00 for each injury or death to a
person and $1,000,000.00 for each incident involving personal
injury or death of person, and, in the case of property damage,
not less than $1,000,000.00 for one occurrence; and
(ii) in case of fire, sprinkler leakage, malicious mischief,
vandalism, and other extended coverage perils, for the full
insurable replacement value of all additions, improvements and
alterations to the Office Space which are beyond those tenant
improvements initially provided by Lessor, as per Exhibit E, and
all office furniture, trade fixtures, office equipment,
merchandise, and all other items of Lessee's property on the
Leased Premises.
(c) WAIVER OF SUBROGATION. Upon written request after signing this lease,
but before any loss or damage occurs, Lessor may require that Lessee's
fire/casualty and liability insurance policy provide a waiver for all right of
recovery by way of subrogation in connection with any loss or damage covered by
such insurance policies. Notwithstanding the foregoing, if such waiver of
subrogation is not incorporated into the policy and cannot be procured or if it
can be procured only with an additional premium charge, such party shall furnish
to the other party written evidence from the insurance company or insurance
agent, verifying that such waiver is (1) not obtainable or (2) not obtainable
without extra charge. Thereafter, within a reasonable time after receiving such
notice, the party for whose benefit the waiver is sought may (1) agree to pay
any additional charge necessary to obtain the waiver of subrogation or (2) place
the insurance with a company which is reasonably satisfactory to the other party
and its mortgagees with a policy of the same terms and coverage, the extra cost
of which will be entirely borne by the party for whose benefit the waiver of
subrogation is sought.
(d) INSURANCE CERTIFICATES. Lessee shall provide Lessor with a certificate
of Lessee's insurance as required prior to the date Lessee initially occupies
Lessee's Office Space or any portion thereof. Lessor and Lessor's managing agent
(if any) shall be named as additional insureds on Lessee's liability insurance
policy. Upon written request by Lessor, changes in the name of Lessor or
Lessor's managing agent shall be reflected on such certificate. Upon written
request, Lessee shall furnish to Lessor copies of the policies of insurance
referred to in this lease, including any waivers of subrogation, or satisfactory
evidence of same.
(e) NOTICE FROM LESSEE'S INSURANCE CARRIER. All policies of insurance to be
provided by Lessee shall contain a provision (to the extent legally permitted)
that the insurance company shall give Lessor thirty (30) days' written notice in
advance of (1) any cancellation or non-renewal of the policy, (2) any reduction
in the policy amount, and (3) any deletion of additional insureds.
12.2. MUTUAL RELEASES. (a) To the extent that the coverage of their respective
insurance policies are not adversely affected, Lessor and Lessee release each
other and their respective officers, directors, employees, and agents from any
claims for loss or damage to any person or property on the Leased Premises which
is caused by or which results from risks insured against under insurance
policies carried by Lessor or Lessee and in force at the time of any such loss
or damage. The foregoing release shall not apply to property losses or damages
in excess of policy limits or to losses or damages not covered by insurance due
to a deductible clause in the policy.
12.3. HOLD HARMLESS. (a) Except to the extent caused by the gross negligence
or willful misconduct of Lessor, its employees, duly authorized agents,
licensees, contractors, servants, or invitees, Lessee hereby waives any and all
claims against Lessor for (i) any death of or injury of person or damage to
property due to the condition or design of or any defect
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in the Property or any attached mechanical systems and equipment which may exist
or occur, or any defect in or failure of pipes or wiring, or the backing up of
drains or to the bursting or leaking of pipes, faucets and plumbing fixtures, or
to gas, water, steam, electricity or oil leaking, escaping or flowing into the
Office Space, (ii) any damage caused by other persons on the Property, and (iii)
any damage caused by private, public or quasi-public construction or other work
on about or adjoining the Property. Lessee for itself and its agents, employees,
licensees, servants, and invitees, expressly assume such risks of death or
injury to person or damage to Property resulting from the condition of the
Property.
Lessee hereby defends and indemnifies Lessor and holds Lessor harmless
from any damage to any property, or injury or death of any person arising from
any event, regardless of cause, including, without limitations, the negligence
of Lessor, its employees, duly authorized agents, licensees, contractors,
servants or invitees (except as hereinafter provided), which occurs within the
Office Space (and outside the Office Space if caused by gross negligence or
willful misconduct of Lessee or Lessee's agents, licensees, employees, servants,
and invitees) including without limitation, reasonable attorneys fees,
investigation costs, and all other reasonable costs and expenses incurred by
Lessor following the first notice that any claim or demand has been made or may
be made against Lessor unless such damage or injury results from the gross
negligence or willful misconduct of Lessor, its employees, duly authorized
agents, licensees, contractors, servants, or invitees and then only to the
extent not collectable by insurance carried under Lessee.
(c) If Lessor is made a party to any litigation commenced by or against
Lessee or relating to this Lease or Lessee's use of the Office Space, the Leased
Premises or the Property, and in any such litigation Lessor is adjudicated not
to have any legal responsibility by reasons of its gross negligence or willful
misconduct, then Lessee shall pay all costs and expenses, including reasonable
attorneys fees and costs, incurred by or imposed against Lessor because of any
such litigation and the amount of such costs and expenses, including reasonable
attorneys fees and court costs, shall be a demand obligation owed by Lessee to
Lessor. However, if Lessor is adjudicated to have been comparatively negligent,
then Lessee's payment to Lessor of all costs and expenses shall be reduced by
the percentage of Lessor's comparative negligence.
(d) In no event shall Lessor be liable to Lessee for incidental,
consequential, special or indirect damages, including without limitation, lost
business profits, and in no event shall Lessee be liable to Lessor for
incidental, consequential, special or indirect damages, including, without
limitation lost business profits. Lessor's liability to Lessee for any default
by Lessor under the Lease or for any other claim arising out of Lessee's
occupancy, possession or use of the Leased Premises shall be limited to Lessor's
interest in the Property, and Lessee agrees to look solely to Lessor's interest
in the Property for the recovery of any judgement from Lessor, it being agreed
by Lessee that neither Lessor nor any shareholder, officer or director Lessor
shall be personally liable for any such liability, judgment or deficiency.
This paragraph 1 2.3 shall survive any expiration or earlier termination
of this Lease for a period not to exceed two (2) years during which time any and
all claims hereunder must be asserted.
13.1. ALTERATIONS BY LESSEE. Lessee may not make any alterations,
improvements, door lock changes, or other modifications of any kind to the
Leased Premises without Lessor's written consent. 'Alterations' include but are
not limited to improvements glued, screwed, nailed, or otherwise permanently
attached to the Office Building, structural changes, roof and wall penetrations,
and all plumbing, electrical, and HVAC changes. Requests for Lessor's approval
shall be in writing and shall be detailed to Lessor's reasonable satisfaction.
The foregoing shall be done only by Lessor's contractors or employees or by
third parties approved by Lessor in writing. Lessee shall pay in advance for any
requested alterations, improvements, lock changes, or other modifications which
are approved and performed by Lessor. If same are performed by Lessee with
Lessor's permission, Lessee shall not allow any liens to be placed against the
Office Building as a result of such additions or alterations. Alterations,
improvements, and modifications done at Lessee's request shall comply with all
applicable laws. Changes in Lessee's alterations or improvements which may be
later required by governmental action shall also be paid for by Lessee.
14.1. REMOVAL OF PROPERTY BY LESSEE. Lessee may remove its trade fixtures,
furniture, and equipment only if (1) such removal is made prior to the end of
the lease term, (2) Lessee is not in default under this lease at time of
removal, and (3) such removal is not in anticipation of an early move-out prior
to the end of the lease term. Lessee shall pay all costs of removal. Lessee
shall have no rights to property remaining on the Leased Premises after move-out
and all such property shall be conclusively presumed to have been abandoned by
Lessee and title to such property shall pass to Lessor under this Lease as in a
bill of sale. Lessee may not remove any alterations as defined in paragraph 1
3.1 or improvements such as wall-to-wall carpeting, book shelves, window
coverings, drapes, cabinets, paneling, counters, kitchen or break room
built-ins, shelving, wall covering, and anything else attached to the floor,
walls, or ceilings. If Lessor requests in writing, Lessee shall, immediately
prior to moving out, remove any alterations, fixtures, equipment, and other
property installed by Lessee unless previously approved in writing by Lessor.
Lessee shall pay for cleaning or repairing damage caused by Lessee's removal of
any property.
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15.1. SUBLETTING AND ASSIGNMENT. Lessee may not sublet, assign, pledge, or
mortgage this lease and may not grant licenses, commissions, or other rights of
occupancy to all or any part of the Leased Premises without Lessor's prior
written approval, not to be unreasonably withheld. Sale, transfer, or merger of
the majority of the voting shares or voting partnership interests in Lessee (if
a corporation or partnership) shall be considered an assignment; likewise for
issuance of treasury stock or admission of a new general partner. Lessor shall
not be obligated to approve any sublease or assignment. However, if Lessor gives
such approval, Lessor shall be entitled to (1) the excess between Lessee's
rental per square foot under the lease and the rental per square foot under the
sublease or assignment, and (2) any other consideration flowing directly or
indirectly from the sublessee or assignee to Lessee or Lessee's agents,
excluding commissions to independent real estate brokers. The foregoing is in
consideration of additional management performed or to be performed by Lessor
under such sublease or assignment. In addition to the foregoing, Lessor may
charge Lessee a one-time fee equal to one month's lease rental for such
additional administrative, investigative, and management services. Violation of
this lease by sublessees or assignees shall be deemed a violation by Lessee.
Approval by Lessor of any sublease or assignment shall not release Lessee from
any obligation under this lease and shall not constitute approval for subsequent
subletting or assignment. Sublessees or assignees shall be liable for all of
Lessee's obligations under this lease unless otherwise specified in writing.
Upon default by Lessee any sublessee shall pay all sublease rentals and other
sums due Lessor, direct to Lessor, to be credited against sums owed to Lessor by
Lessee under this lease. Unless otherwise agreed in writing, no sublease or
assignment shall be valid unless (1) a copy of this lease is attached thereto,
(2) the sublessee or assignee agrees in writing to be liable for all of Lessee's
obligations under this lease, and (3) Lessor's written approval is attached to
the sublease or assignment.
16.1. DESTRUCTION BY FIRE OR OTHER CASUALTY. (a) TOTAL DESTRUCTION, RENT
ABATEMENT, AND RESTORATION. If Lessee's Office Space, is totally damaged by fire
or other casualty so that it cannot reasonably be used by Lessee and if this
lease is not terminated as provided in subparagraph (d) below, there shall be a
total abatement of Lessee's rent and Lessee's obligation to pay Office Building
Operating Expenses until Lessee's Office Space is restored by Lessor and Lessee.
(b) PARTIAL DESTRUCTION, RENT ABATEMENT, AND RESTORATION. If Lessee's Office
Space is partially destroyed or damaged by fire or other hazard so that it can
be only partially used by Lessee for the purposes allowed in this lease and if
this lease is not terminated as provided in subparagraph (d) below, there shall
be a partial abatement of Lessee's rent and Lessee's obligation to pay Office
Building Operating Expenses which fairly and reasonably corresponds to the time
and extent to which Lessee's Office Space cannot reasonably be used by Lessee.
(c) RESTORATION. Lessor's obligation to restore shall be limited to the
condition of the Leased Premises as constructed by Lessor or as otherwise
delivered to Lessee by Lessor on the commencement date. Lessor shall proceed
with diligence to restore. During restoration, Lessee shall continue business to
the extent practical in Lessee's reasonable judgment.
(d) LEASE TERMINATION. If Lessee's Office Space or the Office Building is so
badly damaged that restoration and repairs cannot be completed within one
hundred fifty (150) days after the fire or casualty, then this lease may be
terminated as of the date of the destruction by either Lessor or Lessee by
serving written notice upon the other. Termination notice must be delivered
within 30 days after the casualty.
17.1. CONDEMNATION. If any part of Lessee's Office Space is taken by
condemnation or by deed in lieu of condemnation by any governmental authority,
this lease shall terminate one day prior to such taking. If any part of the
Office Building's parking building is so taken, Lessee's right to use such
portion shall terminate one day prior to such taking; and Lessee's rent shall be
reduced only to the extent that such partial taking reduces the fair market
value of Lessee's Office Space. Lessor shall pay all costs associated with
construction reasonably necessary to render the Leased Premises usable for
Lessee's permitted purposes after such partial taking. All compensation awarded
for any partial or total taking of the Property shall be the property of Lessor.
If Lessor has received written notice of intent to condemn, Lessee shall upon
ten (10) days written request by Lessor execute an acknowledgement that the
lease terminates one day prior to the condemnation or deed in lieu of
condemnation and that Lessee claims no interest in the condemnation award.
Lessor shall have no interest in any monies paid by the condemning authorities
to Lessee for moving costs or for the other personal property within the Leased
Premises (excluding leasehold improvements) if a separate award for such items
is made to Lessee.
18.1. DEFAULT BY LESSOR. Lessee shall be entitled to recover actual damages
and terminate this lease if (1) Lessor fails to pay any sum due and owing to
Lessee within seven (7) days after written demand from Lessee, or (2) Lessor
remains in default on any other obligation for seven (7) days after Lessee's
written demand for performance. However, Lessor shall not be in default if
Lessor promptly commences to cure such noncompliance and diligently proceeds in
good faith to cure same after receiving written notice of such default. If taxes
and utilities are not timely paid, Lessee may pay same to the extent that it is
necessary to avert foreclosure or cutoff.
19.1. DEFAULT BY LESSEE. If Lessee defaults, Lessor shall have any or all
remedies set forth below.
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(a) DEFINITION OF DEFAULT. The occurrence of any of the following shall
constitute a default by Lessee: (1) failure to pay rent or any other sum due by
Lessee under the lease within three (3) days after the due date; (2) failure to
vacate on or before the last day of the lease term, renewal term, or extension
period; (3) failure to pay rent in advance on a daily basis in the event of
unlawful holdover by Lessee; (4) unauthorized early move-out or notice of same
as set forth below; (5) acquisition of Lessee's interest in the lease by a third
party by judicial or non-judicial process; or (6) failure to comply with any
other provision of the lease (including rules). However, Lessee shall not be in
default under subclause (6) above if Lessee promptly commences to cure such
noncompliance and diligently proceeds in good faith to cure same after receiving
written notice of such default.
(b) DOOR LOCKS. If Lessee is in default for nonpayment of rent or other sums
due and if Lessee fails to pay same in full within three (3) days after Lessor
delivers to Lessee or to Lessee's Office Space written demand or notice of
nonpayment, then Lessor shall be entitled to change or modify door locks on all
entry doors of Lessee's Office Space until all such sums are paid in full;
provided, however, Lessor shall immediately thereafter post a notice on the
primary entry door to Lessee's Office Space, stating that Lessor has expressed
such lockout rights. No other notice requirements or lockout laws shall apply.
Lessor's right to modify or change locks shall occur automatically and without
notice if Lessee's rent is accelerated under subparagraph (e) below, relating to
unlawful early move-out. If Lessee moves out or abandons Lessee's Office Space
for ten (10) consecutive days, Lessor may permanently change the locks without
notice to Lessee, and Lessee shall not be entitled to a key or to reentry.
(c) UTILITIES AND SERVICES. If Lessee is in default for nonpayment of rent
or other sums due and if Lessee fails to pay same in full within three (3) days
after Lessor hand delivers to Lessee or to Lessee's representative written
notice of Lessor's intent to terminate utilities or services which are furnished
by Lessor, then Lessor may terminate such utilities or services after such three
(3) day notice period, without further notice. Lessor's right to terminate such
utilities or services shall occur automatically and without notice if Lessee's
rent is accelerated under subparagraph (e) below, relating to unlawful early
move-out.
(d) ACCELERATION AFTER NOTICE OF RENTAL DELINQUENCY. If Lessee is in default
for nonpayment of rent or other sums due and if Lessee fails to pay same in full
within three (3) days after Lessor delivers to Lessee or to Lessee's Office
Space a written notice of Lessor's intent to accelerate, then all rent for the
remainder of the lease term shall be accelerated, due, and delinquent at the end
of such three (3) day notice period without further demand or notice. Such
acceleration rights are in consideration of the rentals for the entire term
being payable in monthly installments rather than in one lump sum at the
beginning of the lease term. If Lessee has already vacated the Leased Premises,
notice of acceleration may be delivered to Lessee pursuant to paragraph 29.1.
Liability for additional rents accruing in the future (over and above any Base
Rents) shall not be waived by such acceleration.
(e) ACCELERATION UPON EARLY MOVE-OUT. If Lessee is lawfully evicted, or if
Lessee moves out or gives written notice of intent to move-out prior to the end
of the lease term without the rent being paid in full for the entire remainder
of the lease term or renewal or extension period or without prior written
consent of Lessor, all remaining rents for the remainder of the lease term shall
be accelerated immediately and automatically, without demand or notice. Such
accelerated rents shall be due and delinquent without notice before or after
such acceleration. Such acceleration shall occur even if the rent for the
current month has been paid in full.
(f) TERMINATION OF POSSESSION. If Lessee is in default as defined in
subparagraph (a) above and if Lessee remains in default for three (3) days after
Lessor gives notice of such default to Lessee, or if Lessee abandons the Leased
Premises, Lessor may (with or without demand for performance) terminate Lessee's
right of possession by giving one day's written notice to vacate; and Lessor
shall be entitled to immediate possession without termination of Lessee's
obligations under the lease. Lessor's repossession shall not be considered an
election to terminate this lease unless written notice of such intention to
terminate is given to Lessee by Lessor. Repossession may be by voluntary
agreement or by eviction lawsuit. Commencement of an eviction lawsuit shall not
preclude other Lessor remedies under this lease or other laws.
(g) RELETTING COSTS. If Lessee is in default as defined in subparagraph (a)
above and if Lessor terminates Lessee's right of possession without terminating
this lease, Lessee shall pay upon Lessor's demand the following: (1) all
reasonable costs of reletting (which in no event shall be less than one month's
rent), including leasing commissions, rent concessions, but excluding assuming
or buying out lease remainders elsewhere, but including free rent for a period
of time, or reduced rental rates), utilities during the vacancy, advertising
costs, administrative overhead, and all costs of repair, remodeling, or
redecorating for replacement tenants in Lessee's Office Space, (2) all rent and
other indebtedness due from Lessee to Lessor through the date of termination of
Lessee's right of possession, and (3) all rent and other sums required to be
paid by Lessee requiring the remainder of the entire lease term, subject to the
acceleration paragraphs above.
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(h) Mitigation by Lessor. Upon eviction or voluntary vacation of the Leased
Premises by Lessee without the lease terminated by Lessor, Lessor shall make
reasonable efforts to relet the Leased Premises. After deduction of reasonable
expenses incurred by Lessor, Lessee shall receive credit for any rentals
received by Lessor through reletting the Leased Premises during the remainder of
the lease term or renewal or extension period. Such deductible expenses may
include reasonable real estate commissions, reasonable attorney's fees, and all
other reasonable expenses in connection with reletting. Lawsuits to collect
amounts due by Lessee under this lease may be brought from time to time on one
or more occasions without the necessity of Lessor's waiting until the expiration
of the lease term. If judgment for accelerated rents recovered, Lessor shall
give credit against such judgment for subsequent payments made by Lessee and
subsequent rentals received by Lessor from other tenants of Lessee's Office
Space, less lawful deductions and expenses of reletting.
(i) Termination of Lease. Lessor may terminate this lease (as contrasted to
termination of possession rights only) upon default by Lessee or at any time
after Lessor's lawful re-entry or repossession following default by Lessee.
Lessor's agents have authority to terminate the Lease only by written notice
given pursuant to paragraph 29.1.
(j) Damages. In addition to other remedies, Lessor may recover actual
damages incurred.
20.1. LIEN FOR RENT. (a) Notwithstanding anything to the contrary in this
lease, Lessor's landlord lien shall be subordinate to any existing security
interest and any future purchase money security interests on Lessee's personal
property if such security interest is properly perfected and timely recorded as
required by the Texas Business Code. Lessor shall cooperate in signing lien
subordinations in accordance with the foregoing. Any lien subordination shall be
on forms reasonably acceptable to Lessor.
(b) Subject to the limitations of subparagraph (a) above, Lessee gives to
Lessor a contractual lien on all of Lessee's property which may be found on the
Leased Premises to secure payment of all monies and damages owed by Lessee under
the Lease. Such lien also covers all insurance proceeds on such property. Lessee
shall not remove such property while rent or other sums remain due and unpaid to
Lessor and such property shall not be removed until all Lessee's obligations
under the Lease have been complied with. This lien is in addition to Lessor's
statutory lien under Section 54.021 of the Texas Property Code. If Lessee is in
default for nonpayment of rent or any other sums due by Lessee, Lessor's
representatives may peacefully enter the Leased Premises and remove and store
all property. If Lessor removes any property under this lien, Lessor shall leave
the following information in a conspicuous place inside Lessee's Office Space:
(1) written notice of exercise of lien, (2) a list of items removed, (3) the
name of Lessor's representative who removed such items, and (4) the date of such
removal. Lessor shall be entitled to reasonable charges for packing, removing,
or storing abandoned or seized property, and may sell at public or private sale
(subject to any properly recorded chattel mortgage or recorded financing
statement) after 30 days' written notice of time and place of sale is given to
Lessee by certified mail, return receipt requested. Upon request by Lessor,
Lessee shall acknowledge the above lien rights by executing a UCC-1 form or
similar form reflecting same.
21.1. ATTORNEY'S FEES, INTEREST, AND OTHER EXPENSES. If Lessee or Lessor is in
default and if the nondefaulting party places the Lease in the hands of an
attorney in order to enforce lease rights or remedies, the nondefaulting party
may recover reasonable attorney's fees from the defaulting party even if suit
has not been filed. In any lawsuit enforcing lease rights, the prevailing party
shall be entitled to recover reasonable attorney's fees from the nonprevailing
party, plus all out-of-pocket expenses. All delinquent sums due by Lessor or
Lessee shall bear interest at the maximum lawful rate of interest, compounded
annually, from date of default until paid, plus any late payment fees. Late
payment fees as set forth in paragraph 3.2 shall be considered reasonable
liquidated damages for the time, trouble, inconvenience, and administrative
overhead expense incurred by Lessor in collecting late rentals, such elements of
damages being uncertain and difficult to ascertain. Late payment fees shall not
be liquidated damages for attorney's fees or for Lessor's loss of use of such
funds during the time of delinquency.
22.1. NONWAIVER. The acceptance of monies past due or the failure to complain
of any action, nonaction, delayed payment, or default, whether singular or
repetitive, shall not constitute a waiver of rights or obligations under the
Lease. Lessor's or Lessee's waiver of any right or any default shall not
constitute waiver of other rights, violations, defaults, or subsequent rights,
violations, or defaults under this lease. No act or omission by Lessor or
Lessor's agents shall be deemed an acceptance of surrender by Lessee of the
Leased Premises, and no agreement by Lessor to accept a surrender of the Leased
Premises shall be valid unless it is in writing and signed by a duly authorized
agent of Lessor.
23.1. COMPLIANCE WITH LAWS AND RULES OF OFFICE BUILDING. Lessee shall comply
with all laws, ordinances, rules and regulations (state, federal, municipal and
other agencies or bodies having any jurisdiction hereof) relating to the use,
condition or occupancy of the Leased Premises, including but not limited to the
Americans with Disabilities Act of 1990. Lessee will comply with the rules of
the Office Building adopted by Lessor which are set forth in Exhibit F-2
attached hereto. Separate parking rules are contained in Exhibit F-1. Lessor
shall have the right, if necessary, to change such rules and
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regulations or amend them in any reasonable manner and for preservation of good
order therein, all of which changes and amendments will be sent by Lessor to
Lessee in writing and shall be thereafter carried out and observed by Lessee.
Lessee shall further be responsible for the compliance with such rules and
regulations by its employees, servants, authorized agents visitors and invitees.
24.1. TRANSFER OF OWNERSHIP BY LESSOR. If Lessor transfers ownership of the
Property (other than as security for mortgage) and if Lessor has delivered to
the transferee all of Lessee's security deposits and any prepaid rents, Lessor
shall be released from all liability under the Lease; and such transferee shall
become liable as Lessor. Such right to be released of liability shall accrue to
subsequent owners only if such transfer is in good faith and for consideration.
25.1. GROUND LEASES; MORTGAGES. (a) This Lease is subject and subordinate to
all present and future ground and underlying leases of the Property and to the
lien of any mortgages or trust deeds, now or hereafter enforced against the
Property, and to all renewals, extensions, modifications, consolidations and
replacements thereof, and to all advances made or hereafter to be made upon the
security of such mortgages or trust deeds. Lessee shall at Lessor's request
execute such further instruments or assurances as Lessor may reasonably deem
necessary to evidence or confirm the subordination of this Lease to any
mortgages, trust deeds, ground leases or underlying Leases. In the event of
execution by Lessor after the date of this Lease of any mortgage, deed of trust,
security instrument, ground or primary lease, renewal, replacement or extension,
Lessee agrees to execute a non-disturbance and subordination with the holder
thereof, which agreement shall provide that:
(i) such holder shall not disturb the possession and other right of
Lessee under this Lease so long as Lessee is not in default;
(ii) In the event of acquisition of title to the Property by such
holder, such holder shall accept the Lessee of the Leased
Premises, under the terms and conditions of this Lease and shall
perform all the obligation of Lessor hereunder; provided,
however, that such holder shall not (x) have any responsibility
or liability for any act or omission of Lessor under this Lease
and prior to such holder obtaining possession of the Property or
occurring after such holder is no longer in possession of the
Property; (y) be subject to any offsets or defenses which Lessee
may have with respect to this Lease or Lessor hereunder arising
prior to such holder obtaining possession of the Property; or
(z) be bound by or responsible for any such security deposits;
(iii) Lessee shall recognize such holder as Lessor hereunder and;
(iv) Such other provisions as Lessee and such holder may reasonably
approve.
This Lease is further subject and subordinate to: (x) all applicable ordinances
of the city of San Antonio and all easements, franchises, and other interests or
rights upon, across or pertinent to the Property; and (y) all utility easements
and agreements.
(b) Notwithstanding the generality of the foregoing provisions of paragraph
25.1 (a) above, any such mortgagee or ground or primary lessor shall have the
right at any time to subordinate any such ground or primary leases or such deeds
of trusts, mortgages or other security instruments to this Lease on such terms
and subject to such conditions as such ground or primary lessor or such
mortgagee may consider appropriate in its discretion. At any time, before or
after the institution of any proceedings for the foreclosure of any such deed of
trusts, mortgages or any other security instruments or sale of the Property
under any such deeds and trusts, mortgages, or other security instruments, or
termination of any ground or primary lease, Lessee shall attorn to such ground
or primary lessor or such purchaser upon any sale or the grantee under a deed in
lieu of foreclosure and shall recognize any such ground or primary lessor,
purchaser or grantee as Lessor under this Lease. The agreement of Lessee to
attorn contained in the immediately preceding sentence shall survive any such
termination of ground or primary lease, foreclosure sale, trustee sale or
conveyance in lieu thereof. Lessee shall upon demand at any time, before or
after such termination of ground or primary lease, foreclosure sale, trustee
sale or conveyance in lieu thereof, execute, acknowledge and deliver to Lessor's
mortgagee or the ground or primary lessor as, the case may be, any written
instruments or certificates evidencing such attornment as Lessor's mortgagee or
ground or primary lessor may be reasonably required.
26.1. SURRENDER OF PREMISES. When Lessee moves out, Lessee shall surrender
Lessee's Office Space in the same condition as on the date of lease commencement
by Lessee (as changed or improved from time to time in accordance with (this
lease), less ordinary wear and shall return all keys and/or access cards.
Removal of property from the Leased Premises subject to paragraph 14.1 above.
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27.1 HOLDING OVER. If Lessee remains in possession of the Leased Premises
after the expiration or mutually-agreed termination date of the Lease, without
the execution by Lessor and Lessee of a new lease or a renewal or extension of
the Lease, then (1) Lessee shall be deemed to be occupying the Leased Premises
as a tenant-at-sufferance on a daily basis, subject to all obligations of the
Lease, (2) Lessee shall pay rent daily for the entire holdover period at a daily
rate equal to 150% of the last monthly payment of Base Rent plus Additional Rent
divided by thirty (30), (3) Lessee shall be subject to all other remedies of
Lessor as provided in paragraph 19.1, (4) Lessee shall indemnify Lessor and/or
prospective tenants for damages, including lost rentals, storage expenses, and
reasonable attorney's fees, and (5) at Lessor's sole option, Lessor may extend
the Lease term for a period of one month at the then current rental rates for
the Office Building, as reasonably determined by Lessor, by delivering written
notice to Lessee or to Lessee's Office Space while Lessee is holding over.
Holdover rents shall be immediately due on a daily basis and delinquent without
notice or demand; and the prior written notice and waiting period requirements
of this Lease shall not be necessary in order for Lessor to exercise remedies
thereunder.
28.1. SIGNS AND BUILDING NAME. Except for standard suite signage and Office
Building directory listings, there shall be no signs, symbols, or identifying
marks on or in the Office Building, halls, elevators, staircases, entrances,
parking areas, landscape areas, doors, walls, or windows without prior written
approval of Lessor. All signs or lettering shall conform to the sign and
lettering criteria established by Lessor. Unless otherwise stated in the rules,
suite signage and Office Building directory changes shall be done exclusively by
Lessor and at Lessee's expense. Lessor may remove all unapproved signs without
prior notice to Lessee and at Lessee's expense. Lessor may at any time change
the name of the Office Building upon fifteen (15) days' written notice to
Lessee.
28.2. RELOCATION OF LESSEE. Upon at least twenty (20) days notice to Lessee,
Lessor shall have the right to relocate Lessee within the Office Building to
lease space which is the same size or larger and suited to Lessee's use. Such
relocation shall be made at Lessor's sole expense, including necessary
reprinting of Lessee's stationary, envelopes, business cards, door signs, etc.
Rent shall not be increased if the relocation Office Space is larger or better
quality. The Relocation date shall be contained in the relocation notice
referred to above. Lessor shall not be liable to Lessee in connection with such
relocation except for undue delay or property damages caused by Lessor or
Lessor's employees, agents, or contractors.
28.3. FOOD SERVICE ESTABLISHMENT ON PROPERTY. Lessor shall have no obligation
at any time to maintain or replace any food service establishment on the
Property.
28.4. LESSEE FINANCIAL STATEMENTS. Prior to execution of the Lease and
thereafter no more than once per year from time to time, Lessee shall, upon
written request, furnish to Lessor a statement of Lessee's financial condition
in a form reasonably satisfactory to Lessor. All financial statements shall be
originally signed by Lessee or Lessee's certified public accountant.
29.1. NOTICES. Whenever notice is required or permitted under this lease,
such notice shall be in writing and shall be either (a) delivered personally to
the party being notified, (b) delivered to or inside such party's mailing
address, or (c) delivered at such party's mailing address by certified mail,
return receipt requested, postage prepaid. The mailing address of Lessor shall
be the address to which Lessee normally mails or delivers the monthly rent
unless Lessor notifies Lessee of a different address in writing. The mailing
address of Lessee shall be Lessee's Office Space under this lease. However, if
Lessee moves out, it shall be Lessee's last address known by Lessor. Hand
delivered notice is required only when expressly required in the Lease. Notice
by noncertified mail is sufficient if actually received by the addressee or an
employee or agent of addressee. The term "notice" shall be inclusive of notices,
billings, requests, and demands.
30.1. ESTOPPEL CERTIFICATES. From time to time, upon seven (7) days' prior
written request from Lessor, Lessee shall execute and deliver to Lessor the
estoppel certificate attached as Exhibit G. The form in Exhibit G may be changed
as reasonably required by a prospective purchaser or lender. If any statement in
the estoppel certificate form is contrary to the facts existing at the time of
execution of such form, Lessee may correct same before signing. The estoppel
certificate may be conclusively relied upon by Lessor and by any prospective
lienholder or purchaser of the Leased Premises. If Lessee fails to comply with
the foregoing by the end of such seven (7) day period, it shall be conclusively
presumed that (1) this Lease is in full force and effect without any subleases
or assignments and is unamended or modified except for amendments verified by
affidavit of Lessor to the prospective lienholder or purchaser, (2) no rents, or
other charges except for security deposits, have been prepaid, (3) the
statements contained in the estoppel certificate form (Exhibit G) are correct,
(4) there are no uncured defaults by Lessor, (5) Lessee has no right of offset
or rescission, and (6) any prospective purchaser or lienholder may conclusively
rely on such silence or noncompliance by Lessee and may conclusively assume no
Lessor defaults within the 120 days preceding Lessee's receipt of Lessor's
request for an estoppel certificate.
Initials [SIG] [SIG]
----- -----
-11-
<PAGE> 12
31.1. SUCCESSORS. This Lease shall bind and inure to the benefit of the
parties, any guarantors of this Lease, and their respective successors and
assigns.
31.2. LEASING AGENT COMMISSIONS. No leasing commission shall be due by Lessor
to any leasing agent unless in writing. Commission agreements executed by Lessor
shall be binding on subsequent Property owners if the tenant of the Lease in
question is in possession at the time of transfer of Property ownership.
At the time of the execution of this lease, Lessee shall deposit with Lessor
$9,706.95 for commissions. Such commission shall be paid to Investment Realty
Company $6,471.30 and Orion Partners, Inc. $3,235.65.
32.1. BUILDING OPERATING EXPENSES. In addition to the monthly Base Rent in
paragraph 2.1, Lessee shall pay Additional Rent on a monthly basis, equivalent
to Lessee's prorata share of actual Office Building Operating Expenses as per
Exhibit C.
33.1. REPRESENTATIONS AND WARRANTIES BY LESSOR. Lessor warrants that Lessor
has full right to enter into this Lease. Lessor's duties and warranties are
limited to those expressly stated in this Lease and shall not include any
implied duties or implied warranties, now or in the future. No representations
or warranties have been made by Lessor other than those expressly contained in
this Lease.
34.1. REPRESENTATIONS AND WARRANTIES BY LESSEE. Lessee warrants to Lessor
that (1) the financial statements of Lessee heretofore furnished to Lessor are
true and correct to the best of Lessee's knowledge, (2) there has been no
significant adverse change in Lessee's financial condition since the date of the
financial statements, (3) the financial statements fairly represent the
financial condition of Lessee upon those dates and at the time of execution
hereof, (4) there are no delinquent taxes due and unpaid by Lessee, and (5)
Lessee and none of the officers or partners of Lessee (if Lessee is a
corporation or partnership) have ever declared bankruptcy. Lessee warrants that
Lessee has disclosed in writing to Lessor all lawsuits pending or threatened
against Lessee, and Lessee has made no material misrepresentation or material
omission of facts regarding Lessee's financial condition or business operations.
All financial statements must be dated and signed by Lessee or Lessee's
certified public accountant. Lessee acknowledges that Lessor has relied on the
above information furnished by Lessee to Lessor and that Lessor would not have
entered into this lease otherwise.
35.1. PLACE OF PERFORMANCE. Unless otherwise expressly stated in this lease,
all obligations under this lease, including payment of rent and other sums due,
shall be performed in San Antonio, Texas, at the address designated from time to
time Lessor.
36.1. MISCELLANEOUS. This Lease contains the entire agreement of the parties.
No other written or oral promises or representations have been made, and none
shall be binding. This Lease supersedes and replaces any previous Lease between
the parties on Lessee's Office Space, including any renewals or extensions
thereunder. Except for reasonable changes in written rules, this Lease shall not
be amended or changed except by written instrument, signed by both Lessor and
Lessee. Lessor's agents do not and will not have authority to (1) make
exceptions, changes or amendments to this Lease, or factual representations not
expressly contained in this Lease, (2) waive any right, requirement, or
provision of this Lease, or (3) release Lessee from all or part of this Lease,
unless such action is in writing. Multiple lessees shall be jointly and
severally liable under this Lease. Notices, requests, or agreements to, from, or
with one of multiple lessees shall be deemed to be to, from, or with all such
Lessees. Under no circumstances shall Lessor or Lessee be considered an agent of
the other. The Lease shall not be construed against either party more or less
favorably by reason of authorship or origin of language. Texas law applies. If
any date of performance or exercise of a right ends on a Saturday, Sunday, or
state holiday, such date shall be automatically extended through the next
business day. Time is of the essence; and all performance dates, time schedules,
and conditions precedent to exercising a right shall be strictly adhered to
without delay except where otherwise expressly provided. If any provision of
this Lease is invalid under present or future laws, the remainder of this Lease
shall not be affected.
37.1. GUARANTY. This Lease ( ) is or (X) is not guaranteed by others. The
names and titles of any guarantors are shown on the signature page(s) at the end
of this Lease. The specific obligations of such guarantors; if any, shall be
pursuant to attached Exhibit H entitled "Lease Guaranty". Such guaranty shall
continue and shall be unaffected by any modification or amendment to this lease
or any renewal or extension thereof. The signature requirements and corporate
resolution requirements for any guarantors shall conform to the requirements for
Lessees in paragraph 39.1 below.
37.2. SPECIAL CONDITIONS. None.
Initials PW RS
---- ----
-12-
<PAGE> 13
38.1 EXHIBIT LIST. The exhibits attached to this lease are listed below. All
exhibits are a part of this lease except for those which have been lined out or
which have been shown below as omitted.
Exhibit A Floor Plan of Lessee's Office Space (paragraph 1.1)
Exhibit B Legal Description of Office Building (paragraph 1.1)
Exhibit C Building Operating Expense Passthrough Calculations
(paragraphs 2.1 and 32.1)
Exhibit D Acknowledgement of Lease (paragraph 4.2)
Exhibit E Construction by Lessor (paragraph 5.1)
Exhibit F-1 Parking Rules (paragraphs 9.2 and 23.1)
Exhibit F-2 Building Rules (paragraph 23.1)
Exhibit G Estoppel Certificate (paragraph 30.1)
Exhibit H None Provided
Exhibit I Corporate Resolution Authorizing Lease or Guaranty
(paragraphs 37.1 and 39.1)
Exhibit J Option to Renew
39.1. LESSEE SIGNATURE REQUIREMENTS. Lessee is (__) an individual, (__)
several individuals, (__) a general partnership, (__) a limited partnership,
(__) a joint venture, (__) an unincorporated association, (__) a professional
corporation, (__) professional association, or (X) a corporation (check one).
Such partnership, JOINT venture, unincorporated association, or corporation is
organized or chartered under the laws of the State of Texas. Lessee's name
stated at the beginning of this Lease (__) is or (X) is not an assumed name. If
so, an assumed name certificate has been or will be filed by Lessee in Bexar
County, Texas or with the Texas Secretary of State's Office in Austin, Texas,
whichever is appropriate. Lessee shall disclose to Lessor the names and
addresses of all partners or venturers of Lessee if Lessee is a partnership or
joint venture. If Lessee or Guarantor is a corporation, corporate resolutions
shall be executed on the form in Exhibit 1.
39.2. LEASE DATE AND AUTHORITY TO SIGN. This lease has been executed
effective this 23 day of October, 1995. The names and signatures of all parties
are shown below; and all persons signing have been duly authorized to sign.
LESSOR
DIAMOND SHAMROCK LEASING, INC.
By: [SIG]
----------------------------------
Vice President
LESSEE
MEDICAL SCIENCE SYSTEMS, INCORPORATED
-------------------------------------
Printed Name of Company or Firm
(if applicable)
/s/ PAUL J. WHITE
-------------------------------------
Signature
Paul J. White
-------------------------------------
Printed name of person signing
Chief Executive Officer
-------------------------------------
Title of person signing
(if applicable)
Initials PW RS
-13-
<PAGE> 14
ORION PARTNERS. INC.
-------------------------------------
Printed name of company or firm
(if applicable)
[SIG] /s/ W. DEAN BUNDRICK
-------------------------------------
Signature
W. Dean Bundrick
-------------------------------------
Printed name of person signing
Vice President, Sales & Leasing
-------------------------------------
Title of person signing
(if applicable)
-14-
<PAGE> 15
EXHIBIT A
FLOOR PLAN OF LESSEE'S OFFICE SPACE
(see paragraph 1.1 of lease)
The parties agree that the floor plan below is a true and correct diagram
of Lessee's office space referred to in paragraph 1.1 and reflects 1,961 square
feet of Rentable Area and 1,683 square feet of Usable Area.
<PAGE> 16
EXHIBIT B
LEGAL DESCRIPTION OF OFFICE BUILDING
by lot, block, subdivision, and county or
by metes and bounds description
(See paragraph 1.1 of lease)
Field Notes for 4.345 Acres of Land in Bexar County, Texas.
BEING 4.345 acres of land which is Lot 72, Block 6, N.C.B. 8673, City of San
Antonio, Bexar County, Texas, being also Uranga Towers Subdivision, of Record in
Volume 9507, Page 44, of the Plat Records of Bexar County, Texas, and being more
particularly described by metes and bounds as follows:
BEGINNING at a found Texas Highway Department brass cap monument on the South
right-of-way line of Interstate Highway Loop 410 for a cutback corner of said
Interstate Highway Loop 410 and Jones Maltsberger Road for the Northwest corner
of this tract;
THENCE South 88 (degrees) 58 feet 42 inches East, a distance of 442.26 feet
coincident with the South right-of-way line of said Interstate Highway Loop 410
and the North property line of this tract to a set iron rod on the West
right-of-way line of a 50-foot drainage right-of-way for the Northeast corner of
this tract;
THENCE coincident with the West and South right-of-way lines of those particular
drainage rights-of-way as shown on the plat of said Uranga Towers Subdivision
and the East property line of this tract the following courses and distances:
South 11 degrees 26 ft. 00 in. West, a distance of 61.24 feet to a set
iron rod;
South 19 degrees 50 ft. 00 in. East, a distance of 270.52 feet
to a set iron rod;
South 89 degrees 30 ft. 00 in. West, a distance of 30.73 feet to a set
iron rod;
South 19 degrees 50 ft. 00 in. East, a distance of 63.59 feet to a set
iron rod;
North 89 degrees 30 ft. 00 in. East, a distance of 64.36 feet to a
point of curvature of a non-tangent curve on the North right-of-way
line of Haim Boulevard for the Southeast corner of this tract;
THENCE coincident with the North right-of-way line of said Haim Boulevard and
the South property line of this tract the following courses and distances;
Curving to the right with a radius bearing of North 44 degrees 50 ft.
16 in. West, a radius distance of 69.98 feet, and a central angle of
45 degrees 51 ft. 34 in., and arc length of 56.01 feet to a set iron
rod for a point of tangency; North 88 degrees 58 ft. 42 in. West, a
distance of 486.69 feet to a set iron rod for a point of curvature
and the Southwest corner of this tract; Curving to the right with a
radius bearing of North 01 degrees 01 ft. 18 in. East, a radius
distance of 15.00 feet, and a central angle of 79 degrees 29 ft.
12 in., an arc length of 20.81 feet to a set iron rod for a point of
tangency on the East right-of-way line of said Jones Maltsberger
Road;
THENCE coincident with the East right-of-way line of said Jones Maltsberger Road
and the West property line of this tract and the following courses and
distances;
North 09 degrees 29 ft. 29 in. West, a distance of 348.20 feet
to a set iron rod;
North 40 degrees 28 ft. 05 in. East, a distance of 49.44 feet to the
POINT OF BEGINNING and containing 4.345 acres of land in Bexar
County, Texas.
<PAGE> 17
EXHIBIT C
BUILDING OPERATING EXPENSE PASS THROUGH CALCULATIONS
(see paragraphs 2.1 and 32.1 of lease)
A. In the event that during the term hereof the Office Building Operating
Expenses during any Calendar Year shall exceed the Office Building Operating
Expenses during the Base Year, Lessee shall pay in addition to Base Rent as
described in Paragraph 2.1 as Additional Rent its Proportionate Share of such
excess.
B. As promptly as practical following the close of the Base Year and each
Calendar Year thereafter, Lessor shall furnish to Lessee, in reasonable detail,
a schedule of the Office Building Operating Expenses for such year, including
the Base Rent. Failure of Lessee to notify Lessor in writing of any objections
to the schedule of Office Building Operating Expenses within thirty (30) days of
receipt of the schedule by Lessee shall conclusively constitute acceptance by
Lessee of such schedule. In the event of a timely objection by Lessee, Lessee
shall have the right, at its expense and reasonable time, to review Lessor's
Office Building Operating Expense invoices or checks relating to the year for
which such schedule was prepared. Lessor shall cause to be kept books and
records showing Office Building Operating Expenses in accordance with an
appropriate system of accounts and accounting practices consistently maintained.
Notwithstanding the foregoing, should Lessor provide Lessee with an audited
schedule of Office Building Operating Expenses certified by an independent
certified public accountant, such schedule of Office Building Operating Expenses
shall be deemed final and conclusive on Lessee.
C. At such time as Lessor delivers the schedule of Office Building Operating
Expenses for a year other than the Base Year, Lessor shall deliver to Lessee a
computation notice setting forth:
1) the adjustment for the Additional Rent, if any, due Lessor
resulting from the Office Building Operating Expenses for the
immediately preceding Calendar Year ("Lump Sum Adjustment");
2) an adjustment in the monthly Base Rent for the current Calendar
Year resulting from the Office Building Operating Expenses for the
immediately preceding year ("Catch Up Adjustment"); and
3) an adjustment in the monthly Base Rent for the current Calendar
Year based upon Landlord's estimate of the increase in Office Building
Operating Expenses for the current Calendar Year ("Estimate
Adjustment").
(a) In determining the Lump Sum Adjustment for the immediately
preceding Calendar Year:
(1) a comparison shall be made between the Office Building
Operating Expenses for such Calendar Year and the
Office Building Operating Expenses for the immediately
preceding Calendar Year; and
(2) a credit against the Lump Sum Adjustment shall be
provided Lessee for the Estimate Adjustment, if any,
made by Lessee, attributable to such Calendar Year.
Lessee shall pay in full the Lump Sum Adjustment
<PAGE> 18
attributable to the previous Calendar Year within
thirty (30) days from receipt of the computation
notice from Landlord.
(b) In addition to the Lump Sum Adjustment, on the first day for
the payment of a monthly Base Rent installment following
the furnishing to Lessee of the computation notice for the
immediately preceding Calendar Year, Lessee shall pay to
Lessor an amount equal to
(1) One-twelfth (1/12) of the Lump Sum Adjustment (prior
credit for the Estimate Adjustment), multiplied by
(2) the number of months of the lease term elapsed during
the current Calendar Year.
(c) Thereafter, commencing with the next due installment of
monthly Base Rent for the current Calendar Year and
continuing monthly thereafter, until a different computation
notice is received by Lessee, the monthly Base Rent shall
be increased by
(1) an amount equal to one-twelfth (1/12) of the Lump Sum
Adjustment (prior credit for the Estimate Adjustment,
and
(2) the Estimate Adjustment, if any.
D. In the event that Office Building Operating Expenses for a Calendar Year
are less than Office Building Operating Expenses for the immediately preceding
Calendar Year, and/or the Lump Sum Adjustment for any Calendar Year is less than
the Estimate Adjustment for such year, Lessee shall receive a lump sum payment
refunding such excess payments within one hundred twenty (120) days after the
close of the Calendar Year:
E. Definitions:
(1) "Base Year" shall mean Calendar Year 1996;
(2) "Calendar Year" shall mean each calendar year or part
thereof during the Term of this Lease;
(3) "Proportionate Share" shall be the percentage calculated
by dividing the Rentable Area of the Leased Premises
by 100% of the Rentable Area of the Office Building;
(4) "Office Building Operating Expenses" shall mean Taxes
and all cost of operation and maintenance of the
Property of every kind and nature paid or incurred by
Lessor in connection with the ownership, management,
operation and repair of the Property, including but not
limited to utility charges, sewerage charges, insurance
premiums, management, janitorial and cleaning services,
elevator services, licenses, permits and inspection
fees, heating and cooling, maintenance and repairs,
labor and supplies, but not including costs normally
capitalized under generally accepted accounting
principles, except for the costs of capital investment
items that are intended to primarily reduce
<PAGE> 19
attributable to the previous Calendar year within thirty (30)
days from receipt of the computation notice from Landlord.
(b) In addition to the Lump Sum Adjustment, on the first day for the
payment of a monthly Base Rent installment following the
furnishing to Lessee of the computation notice for the immediately
preceding Calendar Year, Lessee shall pay to Lessor an amount
equal to
(1) One-twelfth (1/12) of the Lump Sum Adjustment (prior credit
for the Estimate Adjustment), multiplied by
(2) the number of months of the lease term elapsed during the
current Calendar Year.
(c) Thereafter, commencing with the next due installment of monthly
Base Rent for the current Calendar Year and continuing monthly
thereafter, until a different computation notice is received by
Lessee, the monthly Base Rent shall be increased by
(1) an amount equal to one-twelfth (1/12) of the Lump Sum
Adjustment (prior credit for the Estimate Adjustment, and
(2) the Estimate Adjustment, if any.
D. In the event that Office Building Operating Expenses for a Calendar Year
are less than Office Building Operating Expenses for the immediately preceding
Calendar Year, and/or the Lump Sum Adjustment for any Calendar Year is less
than the Estimate Adjustment for such year, Lessee shall receive a lump sum
payment refunding such excess payments within one hundred twenty (120) days
after the close of the Calendar Year:
E. Definitions:
(1) "Base Year" shall mean Calendar Year 1996;
(2) "Calendar Year" shall mean each calendar year or part thereof during
the Term of this Lease;
(3) "Proportionate Share" shall be the percentage calculated by dividing
the Rentable Area of the Leased Premises by 100% of the Rentable Area
of the Office Building;
(4) "Office Building Operating Expenses" shall mean Taxes and all cost of
operation and maintenance of the Property of every kind and nature
paid or incurred by Lessor in connection with the ownership,
management, operation and repair of the Property, including but not
limited to utility charges, sewerage charges, insurance premiums,
management, janitorial and cleaning services, elevator services,
licenses, permits and inspection fees, heating and cooling,
maintenance and repairs, labor and supplies, but not including costs
normally capitalized under generally accepted accounting principles,
except for the costs of capital investment items that are intended to
primarily reduce operating costs for the Leased Premises or the
Property as a whole or that are required by any governmental
authority, which costs shall be included in Office Building Operating
Expenses; and
(5) "Taxes" shall mean all real estate taxes and assessments, special or
otherwise, levied or assessed upon or with respect to the Property and
ad valorem taxes for any personal property used in connection
therewith. Should, by way of substitution, for such real estate taxes
and ad valorem personal property taxes, the State in which the
Property is located, or any political subdivision thereof, or any
other governmental authority having jurisdiction over the Property,
impose a tax, assessment, charge or fee, including but not limited to
an income or franchise tax or a tax on rents, all such taxes,
assessments, fees or charges (hereinafter defined as "in lieu Taxes")
shall be deemed to constitute Taxes hereunder. Taxes may also include
all fees and costs incurred by Lessor in seeking to obtain a reduction
of, or a limitation on the increase in, any taxes, regardless of
whether any reduction or limitation is obtained. Except as hereinabove
provided with regard to "in lieu Taxes". Taxes shall not include any
inheritance, estate, succession, transfer, gift, franchise, net income
or capital stock tax; and
F. Any payment to be made pursuant to this Section with respect to the
Calendar Year in which the Lease commences and/or terminates shall be prorated
if less than a full year, with such proration to be calculated on a daily basis.
Any obligations of Tenant applicable to the Calendar Year in which this Lease
terminates shall survive the expiration of this Lease.
G. At Lessor's option, adjustments may be delayed. Lessor's delay in
implementing such adjustments shall not waive Lessor's right thereto, and the
most recent monthly rental figures shall continue to be paid during such delay.
If Lessor delays in timely calculating adjustments, such adjustments shall be
retroactive to the respective date on which Lessor had a right to make such
adjustment; and such delayed rent adjustments shall become due upon written
notice to Lessee.
<PAGE> 20
EXHIBIT D
ACKNOWLEDGEMENT OF LEASE
(see paragraph 4.2 of lease)
The undersigned parties acknowledge that the Lease described below is in full
force and effect and that Lessee has taken possession of the space.
Date of Lease:
Lessor: Diamond Shamrock Leasing, Inc.
Lessee: Medical Science Systems, Incorporated
Guarantor, if any
(not Lessee's name): None
Building name: One International Centre
Suite No.:
1,961 square feet Rentable Area;
1,683 square feet Useable Area; and
7 unreserved parking spaces.
Building address: 100 N.E. Loop 410
San Antonio, Texas 78216-4742
Legal description of property: See Attached Exhibit "B" to the Lease
Agreement
The commencement date, annual anniversary date, and ending date of the
initial lease term as defined in paragraph 4.1 of above Lease are as follows:
Commencement date: December 1, 1995
Annual Anniversary date: December 1
Ending date: November 30, 2000
The parties acknowledge that the Lease has not been amended or modified and that
this acknowledgement may be filed of record with the Texas Secretary of State or
in Bexar County in order to record (1) Lessee's possession rights to the Leased
Premises, and (2) Lessor's contractual landlord lien rights over all personal
property therein. The entire Lease is hereby affirmed and incorporated herein.
The Lease will cease to be an encumbrance to Lessor's title if Lessor files an
affidavit of record, stating that Lessee no longer occupies the premises and
that Lessee's right of possession has been lawfully terminated.
<PAGE> 21
LESSEE LESSOR
(To be signed at move-in) (To be signed at move-in)
-------------------------------- Diamond Shamrock Leasing, Inc.
Printed name of Lessee
(company or firm)
------------------------------- ---------------------------------
Signature of person Signature of person
signing signing
------------------------------- ---------------------------------
Printed name of person Printed name of person
signing signing
------------------------------- ---------------------------------
Title of person signing Title of person signing
(if applicable) (if applicable)
------------------------------- ---------------------------------
Date signed Date signed
STATE OF TEXAS )
)
COUNTY OF BEXAR )
This instrument was acknowledged before me on ______________________________ by
_____________________________on behalf of the above stated LESSOR and in the
above stated capacity.
----------------------------------------------------
Notary Public for the State of Texas
Printed name of notary:
-----------------------------
My commission expires:
------------------------------
<PAGE> 22
STATE OF TEXAS )
)
COUNTY OF BEXAR )
This instrument was acknowledged before me on ____________________________ by
____________________________________ on behalf of the above stated LESSEE
and in the above stated capacity.
----------------------------------------------------
Notary Public for the State of Texas
Printed name of notary:
-----------------------------
My commission expires:
------------------------------
<PAGE> 23
EXHIBIT E
CONSTRUCTION BY LESSOR
(see paragraph 5.1 of lease)
Lessor: Diamond Shamrock Leasing, Inc.
Lessee: Medical Service Systems, Inc.
Date of lease:
Office space: Suite 1350
Building name or address: One International Centre
1. STANDARD CONSTRUCTION BY LESSOR. Lessor shall construct and furnish all
common facilities, the building shell, and standard office finish work as set
forth below. All construction work and all standard and non-standard finish work
and other improvements to the Leased Premises will be performed by Lessor's
employees or contractors.
2. STANDARD OFFICE FINISH WORK. The standard office finish work to be
constructed by Lessor at Lessor's expense includes the items set forth below.
(Non-standard finish work is addressed in paragraphs 3 and 4.) The allowance
for standard office finish work as set forth in paragraph 4 hereunder
contemplates providing the items described in subsections (a) through (i)
below. Finish out requirements of less than the standards set forth below shall
not result in credits or refunds to Lessee.
a. Standard carpet or carpet allowance of $12.50 per square yard of carpet
installed, including tax.
b. One linear foot of painted and textured drywall partitioning, including
vinyl baseboard, per __ square feet of Usable Area.
c. Electrical duplex outlets equivalent to one duplex outlet for every __
square feet of Usable Area.
d. One light switch for every __ square feet of Usable Area.
e. One wall telephone outlet per __ square feet of Usable Area.
f. One corridor door to Lessee's Office Space.
g. One interior door per ____ square feet of Usable Area, complete with
frames, metal jambs, and standard hardware.
h. One air conditioning register per __ square feet of Usable Area.
i. Lessor will provide ordinary space planning services and ordinary
standard finish work plans and specifications for Lessee's Office
Space. Such services shall be done by project architect or designer of
Lessor's choice.
3. CHARGES FOR ADDITIONAL OR NON-STANDARD FINISH WORK. Any other finish items
desired by Lessee which are not included in the standard finish work as
described above will be designed and constructed at Lessee's expense. Payment
therefor is set out in paragraph 7 below or will be agreed upon at the signing
of any change order by Lessor and Lessee. All additional or nonstandard finish
work items must be approved by Lessor's architect in advance.
4. ALLOWANCE FOR STANDARD FINISH WORK. If Lessee desires to substantially
depart from the standard finish work design, and if calculation of charges for
additional or non-standard finish work is not done under paragraph 2 above,
Lessee shall be provided a standard allowance of $0 per square foot of Rentable
Area as defined in paragraph 1.3 of the Lease to cover Lessor's obligations
regarding finish work. All costs of additional or non-standard finish work in
excess of such standard allowance
[SIG]
[SIG]
<PAGE> 24
shall be paid by Lessee prior to construction of such improvements, as set
forth in paragraph 7 below, All additional or nonstandard finish work items must
be approved by Lessor's architect in advance.
PLANS FOR LESSEE'S OFFICE SPACE. Final plans and specifications for Lessee's
Office Space [ ] are or [X] are not attached to this lease (check one). If such
plans and specifications are not attached hereto, Lessee agrees to deliver to
Lessor not later than November 1, 1995, a complete set of plans and
specifications of finish work, including partitions, electrical and telephone
outlets, and other improvements which Lessee desires to be made in or to Office
Space. Such plans shall be prepared by [X] Lessor's architect or [ ] Lessee's
architect at [X] Lessor's expense or [ ] Lessee's expense (check appropriate
items).
6. CHANGE ORDERS. Change orders are permitted if they are provided in a timely
manner and are agreed in writing. Lessor shall not be responsible for delays
resulting from change orders unless the change order states otherwise.
7. PAYMENT FOR ADDITIONAL OR NON-STANDARD FINISH WORK.
a. Payment for additional or non-standard finish work which is known at
time of lease signing shall be as follows:
50% upon signing of the lease.
50% upon completion of the job.
b. Payment for change orders or for additional or non-standard
finish work in initial plans which may be approved by
Lessor after lease signing, shall be as follows:
100% upon execution by Lessor of the change order.
8. ESTIMATED COMPLETION DATE. Lessor's estimated completion date for finishing
Lessor's standard construction and any additional or non-standard finish work
for Lessee shall be November 20, 1995. If construction pursuant to initial plans
or change orders for Lessee's Office Space will cause delay in such estimated
completion date and if Lessor and Lessee mutually note on such initial plans or
change orders that same will cause a specified number of days of delay, the
estimated completion date above shall be extended by such specified number of
days. Also, in the event of such mutually agreed construction delay periods,
Lessee shall pay additional rent which shall be prorated on a daily basis for
such periods and payable when the Leased Premises are ready for occupancy by
Lessee.
9. DELAY. If the Leased Premises are not ready for occupancy within 30 days
following the above estimated completion date, Lessee may terminate the Lease by
written notice to Lessor prior to the date the Leased Premises are ready for
occupancy by Lessee. In such event, neither party shall have any further
liability or obligations under the Lease; and Lessor shall refund to Lessee any
prepaid rent, security deposits, and any amounts paid by Lessee in excess of the
construction allowance. Otherwise, if the Leased Premises are not ready on or
before such estimated completion date, then (a) Lessor shall not be deemed to be
in default or liable in damages to Lessee, (b) rent and lease term shall begin
when the Leased Premises are ready for occupancy, and (c) the Lease shall not be
further affected.
<PAGE> 25
EXHIBIT F-1
OFFICE BUILDING
PARKING RULES
(see paragraph 9.2 of lease)
It is the desire of Lessor to maintain and operate the parking garage and
parking areas in an orderly manner. The following rules and regulations apply to
all tenants in the building and their agents, employees, family, licensees,
invitees, visitors, and contractors unless otherwise stated. Lessor reserves the
right to rescind these rules, make reasonable changes, or make other reasonable
rules and regulations for the safety, care, and cleanliness of the parking
garage and parking areas and for the preservation of good order.
1. TRAFFIC SIGNS. All persons parking in the parking areas and parking
garage shall observe posted signs and markings regarding speed, stop signs,
traffic lanes, reserved parking, no parking, parking stripes, etc.
2. LESSEE EMPLOYEE AND CUSTOMER PARKING. Except as may otherwise be
provided in the lease agreement of a particular lease, Lessees and their
employees and customers may park without charge in spaces which are not
specifically reserved for other tenants or for "Visitors", fire lanes, loading
zones, handicapped parking, or other specialized parking and so marked. Lessee's
and other tenant's usage of the parking building and parking areas shall be
limited to parking of vehicles during the normal operating hours of the Office
building. If Lessee desires from time to time to park a vehicle for a period
exceeding seventy-two (72) hours, Lessee shall notify Lessor of such desire and
Lessor may allow Lessee to park a vehicle for such period. Lessor reserves the
right to utilize any reasonable system by which building tenants may access and
pay for parking of their guests or customers.
3. TRASH. All persons parking in the parking garage or parking areas shall
refrain from throwing trash, ashtray contents, or other debris on the parking
garage floor or parking areas.
4. FLAT TIRES. All vehicle owners and all persons parking in the parking
garage or parking areas shall be responsible for promptly repairing flat tires
or other conditions of the vehicle which cause unsightliness in the reasonable
judgment of Lessor.
5. REMOVAL OF UNAUTHORIZED VEHICLES. If vehicles are blocking driveways or
passageways or parked in violation of these rules and regulations or state
statutes, Lessor may exercise vehicle removal remedies under Article 6701g-1 and
6701g-2 upon compliance with statutory notice.
6. SECURITY. Lessor shall use reasonable diligence in the maintenance of
existing lighting in the parking garage or parking areas. Lessor shall have no
duty for additional lighting or further security measures in the parking areas,
including the parking garage.
7. PARKING OF EMPLOYEE VEHICLES. Lessor may from time to time designate
specific areas in which vehicles owned by Lessee and Lessee's employees,
sublessees, assignees, licensees, and concessionaires shall be parked. Lessee
shall use best efforts to see that such vehicles are parked in such areas. Upon
request by Lessor, Lessee shall furnish Lessor a complete list of license
numbers of all vehicles operated by Lessee and the above listed persons. Lessor
may charge penalty fees for vehicles not parked in the designated areas.
<PAGE> 26
8. PARKING OF TRUCKS AND DELIVERY VEHICLES. Without Lessor's prior written
approval, no trailers or large trucks may be parked in the parking areas except
for temporary loading or unloading. Service and delivery vehicles may be parked
in loading zones only when necessary.
9. ALLOTTED SPACES. At no time shall Lessee or its employees use more than
the number of unreserved parking spaces allotted to Lessee in its lease.
10. TIMELY PAYMENT OF PARKING RENT. Lessee shall be entitled to monthly
parking rights in the parking garage for reserved spaces only upon timely
payment of the then current monthly parking rent, in advance. Lessee may rent
less than the allowed number of spaces. Lessee may rent more than the allowed
number of spaces if available in the reasonable judgment of Lessor.
11. CONTROL DEVICES. Lessor reserves the right to install or utilize any
reasonable system of entry and exit control devices in the parking garage,
parking areas and marked loading areas.
<PAGE> 27
EXHIBIT F-2
BUILDING RULES AND REGULATIONS
1. Normal Office Building operating hours are defined as 7:00 a.m. to 7:00
p.m. Monday through Friday, holidays excepted. In addition, the building
will be unlocked on Saturday from 7:00 a.m. to 1:00 p.m., but an access
card will be needed to operate the elevators. During non-office building
working hours, access to the Office Building, or to the halls,
corridors, elevators, or stairways in the Office building, or to the
office space premises may be refused unless the person seeking has a
pass or is properly identified. Lessee, its employees, guests and
invitees may be called upon to show identification and sign Office
Building register when entering or leaving the Office Building at times
other than normal Office Building operating hours and Lessee shall
cooperate fully with Office Building security procedures, if any, in
complying with such requirements.
2. Janitorial service will be provided on Sunday through Thursday. Should
Lessee find specific fault with the service rendered, he will so inform
the building manager who will be responsible for arranging corrective
action. The janitorial contractor is only responsible for services and
standards established in the service contract. Lessee may be provided a
copy of contract specifications upon request.
Lessee shall not employ any person for the purpose of cleaning other
than the authorized cleaning and maintenance personnel for the Office
Building unless otherwise approved in writing by Lessor. In those
instances when Lessee contracts, with Lessor's written approval, for its
own janitorial services, rubbish removal and exterminating shall be part
of the work of the lessee's contractor. Janitorial service shall not be
hindered by Lessee after 7:00 p.m. unless specific arrangements have
been made with the building management office.
3. Lessee will refer all contractors, contractor's representatives and
installation technicians, rendering any service on or to the Leased
Premises for Lessee, to Lessor for Lessor's approval and supervision
before performance of any contractual service. This provision shall
apply to all work performed in the Office Building including
installation of telephones, telegraph equipment, electrical devices and
attachments and installations of any nature affecting floors, walls,
woodwork, trim, windows, ceiling, equipment or any other physical
portion of the Office Building.
4. No Lessee shall at any time occupy any part of the Office Building as
sleeping or lodging quarters.
5. Lessee shall not place, install or operate on the Leased Premises or any
part of Office Building, any engine, stove or machinery, or conduct
mechanical operations or cook thereon or therein, or place or use on or
about the Leased Premises any explosives, gasoline, kerosene, oil,
acids, caustics, or any inflammable, explosive, or hazardous material
without written consent of Lessor. Microwave ovens, refrigerators and
coffee makers for Lessee's own use and installed in Lessee's Office
space are exceptions to these conditions.
6. Lessee shall exercise caution in the protection of personal property
located within the Office Space from loss or damage by keeping doors to
unattended areas locked. Lessor shall not be responsible to the Lessee,
its agents, employees or invitees for any losses of money, jewelry or
other personnel property from the Office Space or public areas or for
any damages to any
[SIG]
[SIG]
<PAGE> 28
property therein from any cause whatsoever whether such loss or damage
occurs when an area is locked against entry or not. Lessee shall report
any thefts or losses to the Building Manager and security personnel as
soon as reasonably possible after discovery and shall also notify the
Building Manager and security personnel of the presence of any persons
whose conduct is suspicious or causes a disturbance.
7. No birds, fowl, fish, reptiles or animals shall be brought into or kept
in or about the Office Building.
8. Employees of Lessor shall not receive or carry messages for or to any
Lessee or other person, nor contract with or render free or paid
services to any Lessee or Lessee's agents, employees or invitees.
9. Lessor will not permit entrance to Lessee's Office Space by use of pass
key controlled by Lessor, to any person at any time without permission
by Lessee, except Lessor's employees, contractors, or service personnel.
10. None of the entries, passages, doors, elevators, hallways, stairways, or
other common areas shall be blocked or obstructed, or any rubbish,
litter, trash or material of any nature placed, emptied or thrown into
the Common Areas, or such areas be used at any time except for access or
egress by Lessee, Lessee's agent, employees or invitees.
11. During move-in, and at other times when receiving large items on the
Office Building, Lessee shall give Lessor at least one day's notice to
provide time to equip elevators, and office building walls and floors
with protective covering as necessary. Only the freight elevator will be
used for move-in or move-out, and all hand cart/dolly traffic. Further,
Lessee will insure that delivery personnel make deliveries through the
west emergency exit, and that they use all caution necessary to prevent
any damage to the Office Building structure and furnishings. Lessee
shall be responsible for any damages resulting from its own or its
employee's, agent's, or invitee's activities on the Property, and may be
billed for any repairs required as a result of such damage.
12. Lessor will provide outside waste containers available to Lessee for the
disposal of waste too large to deposit in Office Space containers.
Lessee may use the outside containers, but must ensure that waste is
deposited only in the containers provided, and that the area around the
Office Space and the waste containers is kept in a neat, orderly
condition. Packing cartons, large boxes or other items must be broken
down before depositing so as to fit in the hopper.
13. Planters are not waste containers. Waste paper, smoking materials, drink
or food remains, or any other refuse must not be deposited in any area
or container designed or used for growing plants in the Office
Building's Common Areas either inside or outside.
14. The water closets and other water fixtures shall not be used for any
purpose other than that for which they were constructed, and any damage
resulting to them from misuse, or the defacing or injury of any part of
the Office Building shall be borne by the person who shall occasion it.
No person shall waste water by interfering with the faucets or
otherwise. Lessee shall bear the cost of any repairs which may from time
to time be required to plumbing into the Lessee's Leased Premises, such
responsibility to include all pipes and fixtures from the point at which
they depart the office building's Common Areas either inside or outside.
[SIG]
[SIG]
<PAGE> 29
15. No person shall disturb the occupants of the Office Building by the use of
any musical instruments, the making of unseemly noises, or any unreasonable
use.
16. Nothing shall be thrown from the top of the Office Building, or down the
stairways, corridors, or from balconies.
17. Uninvited soliciting is prohibited on the Property. Any Lessee annoyed by
uninvited solicitors should report them to the Building Manager.
18. Lessee, its employees, agents, customers, guests and invitees shall have
access to the parking facilities as may be provided by Lessor, to the
extent available, but not so as to unreasonably interfere with the similar
parking rights of other tenants in the Office Building; parking rights, if
any, of Lessee pursuant to the terms and conditions of this Lease are
subject to the parking rules and to the rights and interests of municipal
and other governmental agencies and authorities as with respect thereto and
the exercise of any such right or authority by any such party shall in no
event be or constitute a default of any of the terms hereof.
19. Lessor shall have the right to prescribe the weight, size and position of
all safes and other heavy equipment brought into the Office Building. Safes
or other heavy objects shall, if considered necessary by Lessor, stand on
supports of such thickness as is necessary to properly distribute the
weight, with the cost thereof being borne by Lessee. Lessor will not be
responsible for loss or damage done to the Office Building by moving or
maintaining any such safe or other property and all such damage shall be
repaired at the expense of Lessee.
20. Unauthorized storage or abandonment of vehicles or equipment in or about
the Property is prohibited Lessor has the right to enforce this restriction
by removal and storage of same and such cost of storage and removal shall
be borne by Lessee.
21. Lessor reserves the right to approve all vending machines or any other
machines and all concessionaires, vending machines operators or other
distributors of cold drinks, coffee, food or other concessions, water,
towels or newspapers.
22. Lessor reserves the right, at any time, to grant to anyone the exclusive
right to conduct any business or render any service in the Office Building.
23. Glass that reflects or admits light into passageways or into any place in
the Office Building or Leased Premises shall not be covered or obstructed
by Lessee. Lessor shall designate Building Standard window coverings.
24. Lessor reserves the right to erect, use and maintain pipes, ducts, wiring
and conduits, and appurtenances thereto in and through the Leased Premises
at reasonable locations.
25. Lessee and Lessee's agents, employees, family, licensees, invitees,
visitors and contractors shall comply with all federal, state and local
laws relating to occupancy or use of the Office Space, the Leased Premises
and the Property, including but not limited to, the observance of
designated non-smoking areas.
It is the Lessor's desire to maintain in the Office Building the highest
standard of dignity and good taste consistent with comfort and convenience for
Lessee. Any action or condition not meeting this high
[SIG]
[SIG]
<PAGE> 30
standard should be reported directly to Lessor. Your cooperation will be
mutually beneficial and sincerely appreciated. Lessor reserves the right to
make such other and further reasonable rules and regulations as in its judgment
may from time to time be needful, for the safety, care and cleanliness of the
Property, and for the preservation of good order therein.
<PAGE> 31
EXHIBIT G
This form is not to be executed at time of lease execution.
ESTOPPEL CERTIFICATE
(see paragraph 30.1 of lease)
The purpose of this certificate is to confirm the current status of matters
relating to the lease described below. It is for the benefit of the owner or
prospective purchaser or mortgagee of the building in which the leased premises
are located.
1. The undersigned is the Lessee under a lease between________________
______________, as Lessor, and _______________________________________________
_______, as Lessee, dated ________________________ on leased premises locally
known as the _____________________________ building and located at 100 N.E.
Loop 410 in San Antonio, Texas. A copy of the fully executed lease and any
amendments or modifications thereto are attached. There are no other
modifications or amendments to the above described lease. The dates of any
amendments or modifications are: (put "none" if inapplicable) _______________.
2. There are no unfulfilled written or verbal promises, representations,
or warranties by Lessor.
3. There are no subleases of the leased premises or any portions thereof.
4. The lease (together with any amendments or modifications referred to
above) is in good standing and in full force and effect. Lessor is not in
default. Lessee agrees to give notice of any Lessor default to any purchaser
or lender making written requests to Lessee for same.
5. Except for rents (if any) which may be due under the lease for the
current month, there are no rents or other charges which have been prepaid by
the undersigned Lessee to Lessor under the lease other than the following:
6. The amount of security deposit currently posted by Lessee with Lessor
is $________ in the form of cash.
7. Lessee acknowledges that the space being leased consists of _____
square feet of Rentable Area according to the lease, that the improvements to
be constructed by Lessor have been satisfactorily completed, that the lease
space has been accepted by Lessee, that Lessee now occupies the lease space,
and that the commencement date for the lease term was ______________________.
8. There are no rentals which are due and unpaid. Rentals are fully paid
(if required by the lease) through the last day of the month in which this
estoppel certificate has been executed.
<PAGE> 32
9. There are no known offsets or credits against rentals except as
expressly provided by the terms of the lease. There is no known right of
rescission and no known defense to Lessee's future obligations to pay the
specified rentals at the times and in accordance with the lease terms. Lessee
has not received any concession (rental or otherwise) or similar compensation
not expressed in the lease which is presently in effect.
10. Lessee has no options or rights of refusal regarding the leased
premises or additional rental space other than as set out in the lease.
11. Lessee has not: (a) made a general assignment for the benefit of
creditors; and (b) commenced any case, proceeding or other action seeking
reorganization, arrangement, adjustment, liquidation, dissolution, or
composition of it or its debts under any law relating to bankruptcy,
insolvency, reorganization, or relief of debtors; or (c) had any law relating
to bankruptcy, insolvency, reorganization, or relief of debtors; or (c) had any
involuntary case, proceeding, or other action commenced against it which seeks
to have an order for relief entered against it, as debtor, or seeks
reorganization, arrangement, adjustment, adjustment, liquidation, dissolution,
or composition of it or its debts under any law relating to bankruptcy,
insolvency, reorganization, or relief of debtors; or (d) concealed, removed, or
permitted to be concealed or removed, any part of its property, with intent to
hinder, delay, or defraud its creditors or any of them, or made or suffered a
transfer of any of its property which may be fraudulent under any bankruptcy,
fraudulent conveyance, or similar law; or made any transfer of its property to
or for the benefit of a creditor at a time when other creditors similarly
situated have not been paid; or (e) had a trustee, receiver, custodian or other
similar official appointed for or take possession of all or any part of its
property or had any court take jurisdiction of any other of its property.
12. Lessee agrees to furnish Lessor with estoppel letters on this form
within 10 days (stating the then-current facts) after written request by Lessor
or subsequent owners of the building.
13. Lessee acknowledges that, upon 10 days' prior written request of
Lessor's mortgagee at any time after foreclosure proceedings or a deed in lieu
of foreclosure, Lessee shall attorn to the mortgage or foreclosure purchaser by
recognizing such new owner as Lessor under the lease provided that such
purchaser shall recognize the rights of Lessee under the lease as long as
tenant is not in default. The agreement of Lessee to attorn shall survive any
foreclosure sale or deed in lieu of foreclosure. Lessee shall, upon 10 days'
written notice from Lessor's mortgagee anytime before or after foreclosure
sale, execute, acknowledge, and deliver to Lessor's mortgagee all instruments
and certificates that in the reasonable judgment of Lessor's mortgagee may be
necessary or proper to confirm such attornment.
14. Lessee acknowledges that this estoppel certificate and the statements
therein may be conclusively relied upon by Lessor and by any prospective
purchaser or lien holder of the leased premises.
15. The form of this estoppel certificate may vary, depending on lender or
purchaser requirements. It is agreed that this certificate may be modified to
conform to reasonable requests by lenders or purchasers.
----
----
<PAGE> 33
16. This agreement shall be binding upon and shall inure to the benefit of
the Lessor, any present or future mortgage, any prospective buyer or master
Lessee of the property, and their successors and assigns.
Dated this ______________ day of __________, 19___.
LESSEE
By:____________________________
Signature
_______________________________
Printed name of signatory
Title:________________________
<PAGE> 34
EXHIBIT I
CERTIFICATE OF CORPORATE RESOLUTION
AUTHORIZING LEASE OR GUARANTY
(see paragraphs 37.1 and 39.1 of lease)
The undersigned, as secretary of the corporation named below, certifies that at
a meeting of the board of directors of the corporation, duly called and held on
the ____ day of ____________, 19___, at which a quorum of the directors were
present and acting throughout, the following resolutions were unanimously
adopted and are still in force and effect:
RESOLVED that the president or any vice president of the corporation shall be
authorized to execute a lease for office space on behalf of the corporation
and/or to guarantee performance of a lease for office space, described below:
Date of lease:
Lessor: Diamond Shamrock Leasing, Inc.
Lessee: Medical Science Systems, Incorporated
Guarantor, if any
(not Lessee's name): None
Building name: One International Centre
Suite No.: 1350
Building address: 100 N.E. Loop 410
San Antonio, Texas 78216-4742
RESOLVED FURTHER, that the president or any vice president is authorized on
behalf of the Corporation to execute and deliver to the Lessor all instruments
reasonably necessary for the lease. Lessor is entitled to rely upon the above
resolutions until the board of directors of the corporation revokes or alters
same in written form, certified by the secretary of the corporation, and
delivers same, certified mail, return receipt requested, to the Lessor. The
corporation is duly organized and is in good standing under the laws of the
State of Texas. The undersigned further certifies that on the meeting date
referred to above, the names and respective titles of the officers of the
corporation were as follows:
WITNESS MY HAND this 18th day of October, 1995
Medical Science Systems, Incorporated
-------------------------------------
Typed name of corporation
/s/ PAUL J. WHITE
-------------------------------------
Signature of secretary of corporation
/s/ PAUL J. WHITE
-------------------------------------
Printed name of secretary
[SIG]
[SIG]
<PAGE> 35
STATE OF CALIFORNIA )
)
COUNTY OF ORANGE )
This instrument was acknowledged before me on October 18, 1995 by Paul J. White
on behalf of the above stated LESSOR and in the above stated capacity.
/s/ DEVON D. GRANT
-----------------------------------------
Notary Public for the State of California
Printed name of notary: Devon D. Grant
My commission expires: August 25, 1999
[SEAL]
[SIG]
[SIG]
<PAGE> 36
EXHIBIT J
RIGHT TO RENEW
Provided Lessee is not in default, Lessor shall grant Lessor an option to renew
this Lease for an additional period of three (3) years. Lessee shall provide
Lessor with not less than one hundred twenty (120) days' prior written notice
of its intentions to renew. Rental rate shall be based on the rental rate
currently being charged by One International Centre to other tenants. All other
terms and conditions shall remain the same.
[SIG]
[SIG]
<PAGE> 1
EXHIBIT 10.17
MEDICAL SCIENCE SYSTEMS, INC.
1996 EQUITY INCENTIVE PLAN
As Adopted As of June 28, 1996
1. PURPOSE. The purpose of this Plan is to provide incentives to
attract, retain and motivate eligible persons whose present and potential
contributions are important to the success of the Company, its Parent and
Subsidiaries, by offering them an opportunity to participate in the Company's
future performance through awards of Options, Restricted Stock and Stock
Bonuses. Capitalized terms not defined in the text are defined in Section 24
hereof.
2. SHARES SUBJECT TO THE PLAN.
2.1 Number of Shares Available. Subject to Sections 2.2 and 18
hereof, the total number of Shares reserved and available for grant and issuance
pursuant to this Plan will be 750,000 Shares. Subject to Sections 2.2 and 19
hereof, Shares will again be available for grant and issuance in connection with
future Awards under this Plan that: (a) are subject to issuance upon exercise of
an Option but cease to be subject to such Option for any reason other than
exercise of such Option, (b) are subject to an Award granted hereunder but are
forfeited or are repurchased by the Company at the original issue price, or (c)
are subject to an Award that otherwise terminates without Shares being issued.
At all times the Company will reserve and keep available a sufficient number of
Shares as will be required to satisfy the requirements of all outstanding
Options granted under this Plan and all other outstanding but unvested Awards
granted under this Plan.
2.2 Adjustment of Shares. In the event that the number of
outstanding Shares is changed by a stock dividend, recapitalization, stock
split, reverse stock split, subdivision, combination, reclassification or
similar change in the capital structure of the Company without consideration,
then (a) the number of Shares reserved for issuance under this Plan, (b) the
Exercise Prices of and number of Shares subject to outstanding Options, and (c)
the number of Shares subject to other outstanding Awards will be proportionately
adjusted, subject to any required action by the Board or the shareholders of the
Company and compliance with applicable securities laws; provided, however, that
fractions of a Share will not be issued but will either be paid in cash at Fair
Market Value of such fraction of a Share or will be rounded up to the nearest
whole Share, as determined by the Committee.
3. ELIGIBILITY. ISOs (as defined in Section 5 hereof) may be granted
only to employees (including officers and directors who are also employees) of
the Company or of a Parent or Subsidiary of the Company. All other Awards may be
granted to employees, officers, directors, consultants and advisors of the
Company or any Parent or Subsidiary of the Company; provided such consultants
and advisors render bona fide services not in connection with the offer and sale
of securities in a capital-raising transaction. A person may be granted more
than one Award under this Plan.
<PAGE> 2
4. ADMINISTRATION.
4.1 Committee Authority. This Plan will be administered by the
Committee or the Board acting as the Committee. Subject to the general purposes,
terms and conditions of this Plan, and to the direction of the Board, the
Committee will have full power to implement and carry out this Plan. Without
limitation, the Committee will have the authority to:
(a) construe and interpret this Plan, any Award Agreement and
any other agreement or document executed pursuant to this Plan;
(b) prescribe, amend and rescind rules and regulations relating
to this Plan;
(c) select persons to receive Awards;
(d) determine the form and terms of Awards;
(e) determine the number of Shares or other consideration
subject to Awards;
(f) determine whether Awards will be granted singly, in
combination with, in tandem with, in replacement of, or as alternatives to,
other Awards under this Plan or any other incentive or compensation plan of the
Company or any Parent or Subsidiary of the Company;
(g) grant waivers of Plan or Award conditions;
(h) determine the vesting, exercisability and payment of
Awards;
(i) correct any defect, supply any omission, or reconcile any
inconsistency in this Plan, any Award or any Award Agreement;
(j) determine whether an Award has been earned; and
(k) make all other determinations necessary or advisable for
the administration of this Plan.
4.2 Committee Discretion. Any determination made by the Committee
with respect to any Award will be made in its sole discretion at the time of
grant of the Award or, unless in contravention of any express term of this Plan
or Award, at any later time, and such determination will be final and binding on
the Company and on all persons having an interest in any Award under this Plan.
The Committee may delegate to one or more officers of the Company the authority
to grant an Award under this Plan to Participants who are not Insiders of the
Company.
4.3 Exchange Act Requirements. If the Company is subject to the
Exchange Act, the Company will take appropriate steps to comply with the
disinterested director requirements of Section 16(b) of the Exchange Act,
including but not limited to, the appointment
-2-
<PAGE> 3
by the Board of a Committee consisting of not less than two persons (who are
members of the Board), each of whom is a Disinterested Person.
5. OPTIONS. The Committee may grant Options to eligible persons and
will determine whether such Options will be Incentive Stock Options within the
meaning of the Code ("ISOS") or Nonqualified Stock Options ("NQSOS"), the number
of Shares subject to the Option, the Exercise Price of the Option, the period
during which the Option may be exercised, and all other terms and conditions of
the Option, subject to the following:
5.1 Form of Option Grant. Each Option granted under this Plan will
be evidenced by an Award Agreement which will expressly identify the Option as
an ISO or an NQSO ("STOCK OPTION AGREEMENT"), and will be in such form and
contain such provisions (which need not be the same for each Participant) as the
Committee may from time to time approve, and which will comply with and be
subject to the terms and conditions of this Plan.
5.2 Date of Grant. The date of grant of an Option will be the date
on which the Committee makes the determination to grant such Option, unless
otherwise specified by the Committee. The Stock Option Agreement and a copy of
this Plan will be delivered to the Participant within a reasonable time after
the granting of the Option.
5.3 Exercise Period. Options may be exercisable immediately (subject
to repurchase pursuant to Section 13 hereof) or may be exercisable within the
times or upon the events determined by the Committee as set forth in the Stock
Option Agreement governing such Option, including the date such Option is
forfeited or deemed to expire upon the exercise of any tandem SAR; provided,
however, that no Option will be exercisable after the expiration of ten (10)
years from the date the Option is granted; and provided further that no ISO
granted to a person who directly or by attribution owns more than ten percent
(10%) of the total combined voting power of all classes of stock of the Company
or of any Parent or Subsidiary of the Company ("TEN PERCENT SHAREHOLDER") will
be exercisable after the expiration of five (5) years from the date the ISO is
granted. The Committee also may provide for the exercise of Options to become
exercisable at one time or from time to time, periodically or otherwise, in such
number of Shares or percentage of Shares as the Committee determines.
5.4 Exercise Price. The Exercise Price of an Option will be
determined by the Committee when the Option is granted and may be not less than
85% of the Fair Market Value of the Shares on the date of grant; provided that
(i) the Exercise Price of an ISO will be not less than 100% of the Fair Market
Value of the Shares on the date of grant and (ii) the Exercise Price of any
Option granted to a Ten Percent Shareholder will not be less than 110% of the
Fair Market Value of the Shares on the date of grant. Payment for the Shares
purchased may be made in accordance with Section 9 hereof.
5.5 Method of Exercise. Options may be exercised only by delivery to
the Company of a written stock option exercise agreement (the "EXERCISE
AGREEMENT") in a form approved by the Committee (which need not be the same for
each Participant), stating the number of Shares being purchased, the
restrictions imposed on the Shares purchased under such Exercise Agreement, if
any, and such representations and agreements regarding Participant's
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investment intent and access to information and other matters, if any, as may be
required or desirable by the Company to comply with applicable securities laws,
together with payment in full of the Exercise Price for the number of Shares
being purchased.
5.6 Termination. Subject to earlier termination pursuant to Section
18.1 hereof and notwithstanding the exercise periods set forth in the Stock
Option Agreement, exercise of Option will always be subject to the following:
(a) If the Participant is Terminated for any reason except
death, Disability or for Cause, then the Participant may
exercise such Participant's Options only to the extent that
such Options would have been exercisable upon the
Termination Date no later than three (3) months after the
Termination Date (or such shorter time period as may be
specified in the Stock Option Agreement) or longer time
period not exceeding five (5) years after the Termination
Date as may be determined by the Committee, with any
exercise beyond three (3) months after the Termination Date
deemed to be an NQSO, but in any event, no later than the
expiration date of the Options.
(b) If the Participant is Terminated because of Participant's
death or Disability (or the Participant dies within three
(3) months after a Termination other than because of
Participant's death or Disability), then Participant's
Options may be exercised only to the extent that such
Options would have been exercisable by Participant on the
Termination Date and must be exercised by Participant (or
Participant's legal representative or authorized assignee)
no later than twelve (12) months after the Termination Date
(or such shorter time period as may be specified in the
Stock Option Agreement) or longer time period not exceeding
five (5) years after the Termination Date as may be
determined by the Committee, with any exercise beyond (a)
three (3) months after the Termination Date when the
Termination is for any reason other than the Participant's
death or disability within the meaning of Section 22(e)(3)
of the Code, or (b) twelve (12) months after the Termination
Date when the Termination is for Participant's death or
disability within the meaning of Section 22(e)(3) of the
Code, deemed to be an NQSO, but in any event no later than
the expiration date of the Options.
(c) If the Participant is terminated for Cause, then
Participant's options shall expire on such Participant's
Termination Date, or at such later time and on such
conditions as determined by the Committee.
5.7 Limitations on Exercise. The Committee may specify a reasonable
minimum number of Shares that may be purchased on any exercise of an Option, or
subject to a
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SAR not granted in tandem with an Option (including a SAR that can be settled in
cash), provided that such minimum number will not prevent Participant from
exercising the Option for the full number of Shares for which it is then
exercisable, or such SAR.
5.8 Limitations on ISOs. The aggregate Fair Market Value (determined
as of the date of grant) of Shares with respect to which ISOs are exercisable
for the first time by a Participant during any calendar year (under this Plan or
under any other incentive stock option plan of the Company or any Parent or
Subsidiary of the Company) will not exceed $100,000.00. If the Fair Market Value
of Shares on the date of grant with respect to which ISOs are exercisable for
the first time by a Participant during any calendar year exceeds $100,000.00,
then the Options for the first $100,000.00 worth of Shares to become exercisable
in such calendar year will be ISOs and the Options for the amount in excess of
$100,000.00 that become exercisable in that calendar year will be NQSOs. In the
event that the Code or the regulations promulgated thereunder are amended after
the Effective Date (as defined below) of this Plan to provide for a different
limit on the Fair Market Value of Shares permitted to be subject to ISOs, such
different limit will be automatically incorporated herein and will apply to any
Options granted after the effective date of such amendment.
5.9 Modification, Extension or Renewal. The Committee may modify,
extend or renew outstanding Options and authorize the grant of new Options in
substitution therefor, provided that any such action may not, without the
written consent of a Participant, impair any of such Participant's rights under
any Option previously granted. Any outstanding ISO that is modified, extended,
renewed or otherwise altered will be treated in accordance with Section 424(h)
of the Code. The Committee may reduce the Exercise Price of outstanding Options
without the consent of Participants affected by a written notice to them;
provided, however, that the Exercise Price may not be reduced below the minimum
Exercise Price that would be permitted under Section 5.4 hereof for Options
granted on the date the action is taken to reduce the Exercise Price.
5.10 No Disqualification. Notwithstanding any other provision in
this Plan, no term of this Plan relating to ISOs will be interpreted, amended or
altered, nor will any discretion or authority granted under this Plan be
exercised, so as to disqualify this Plan under Section 422 of the Code or,
without the consent of the Participant affected, to disqualify any ISO under
Section 422 of the Code.
6. STOCK APPRECIATION RIGHTS.
6.1 Grant. Subject to the terms and conditions of this Plan, the
Committee may grant a SAR to any Participant either (a) in tandem with the grant
of an ISO, (b) in tandem with the grant of an NQSO or (c) independent of the
grant of an ISO or NQSO. Each grant of a SAR which is in tandem with the grant
of an ISO or an NQSO will be evidenced by the same Award Agreement as the ISO or
NQSO which is granted in tandem with such SAR and such SAR will relate to the
same number of Shares as such Option. Each SAR which is granted independent of
an ISO or NQSO will be evidenced by a separate Award Agreement which will state
the number of Shares to which such SAR will relate and such other terms and
conditions as the Committee in its sole discretion deems are consistent with the
terms of this Plan, including
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conditions on the exercise of such SAR which relate to the employment of the
Participant or the requirement that the Participant exchange a prior outstanding
Option and/or SAR.
6.2 Payment at Exercise. Upon the settlement of a SAR in accordance
with the terms of the related Award Agreement, the Participant will (subject to
the terms and conditions of this Plan and such Award Agreement) receive a
payment equal to the excess, if any, of the SAR Exercise Price for the number of
Shares of the SAR being exercised at that time over the SAR Grant Price for such
Shares. Such payment may be made in whole Shares or in cash, or partially in
Shares and partially in cash, as determined under the Award Agreement. If
payment is made in whole or in part in Shares, such Shares will be valued for
this purpose at the SAR Exercise Price on the date the SAR is exercised, and any
payment in Shares which calls for a payment in a fractional Share automatically
will be paid in cash based on such valuation.
6.3 Special Terms and Conditions. Each Award Agreement which
evidences the grant of a SAR will incorporate such terms and conditions as the
Committee in its absolute discretion deems are consistent with the terms of this
Plan and the Award Agreement for the ISOs and NQSOs, if any, granted in tandem
with such SAR except that (a) if a SAR is granted in tandem with an ISO or a
NQSO, the SAR will be exercisable only when the related ISO or NQSO is
exercisable and (b) the Participant's right to exercise a SAR granted in tandem
with an ISO or NQSO will be forfeited to the extent that the Participant
exercises the related ISO or NQSO and the Participant's right to exercise the
ISO or NQSO will be forfeited to the extent Participant exercises the related
SAR, but any such forfeiture will not count as a forfeiture for purposes of
making the Shares subject to such Option or SAR again available for use under
Section 2 hereof.
7. RESTRICTED STOCK. A Restricted Stock Award is an offer by the
Company to sell to an eligible person Shares that are subject to restrictions.
The Committee will determine to whom an offer will be made, the number of Shares
the person may purchase, the price to be paid (the "PURCHASE PRICE"), the
restrictions to which the Shares will be subject, and all other terms and
conditions of the Restricted Stock Award, subject to the following:
7.1 Form of Restricted Stock Award. All purchases under a Restricted
Stock Award made pursuant to this Plan will be evidenced by an Award Agreement
("RESTRICTED STOCK PURCHASE AGREEMENT") that will be in such form (which need
not be the same for each Participant) as the Committee will from time to time
approve, and will comply with and be subject to the terms and conditions of this
Plan. The offer of Restricted Stock will be accepted by the Participant's
execution and delivery of the Restricted Stock Purchase Agreement and full
payment for the Shares to the Company within thirty (30) days from the date the
Restricted Stock Purchase Agreement is delivered to the person. If such person
does not execute and deliver the Restricted Stock Purchase Agreement along with
full payment for the Shares to the Company within thirty (30) days, then the
offer will terminate, unless otherwise determined by the Committee.
7.2 Purchase Price. The Purchase Price of Shares sold pursuant to a
Restricted Stock Award will be determined by the Committee and will be at least
85% of the Fair Market Value of the Shares on the date the Restricted Stock
Award is granted, except in the case of a
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sale to a Ten Percent Shareholder, in which case the Purchase Price will be 100%
of the Fair Market Value. Payment of the Purchase Price may be made in
accordance with Section 9 hereof.
7.3 Restrictions. Restricted Stock Awards will be subject to such
restrictions (if any) as the Committee may impose.
8. STOCK BONUSES.
8.1 Awards of Stock Bonuses. A Stock Bonus is an award of Shares
(which may consist of Restricted Stock) for services rendered to the Company or
any Parent or Subsidiary of the Company. A Stock Bonus may be awarded for past
services already rendered to the Company, or any Parent or Subsidiary of the
Company pursuant to an Award Agreement (the "STOCK BONUS AGREEMENT") that will
be in such form (which need not be the same for each Participant) as the
Committee will from time to time approve, and will comply with and be subject to
the terms and conditions of this Plan. A Stock Bonus may be awarded upon
satisfaction of such performance goals as are set out in advance in the
Participant's individual Award Agreement (the "PERFORMANCE STOCK BONUS
AGREEMENT") that will be in such form (which need not be the same for each
Participant) as the Committee will from time to time approve, and will comply
with and be subject to the terms and conditions of this Plan. Stock Bonuses may
vary from Participant to Participant and between groups of Participants, and may
be based upon the achievement of the Company, Parent or Subsidiary and/or
individual performance factors or upon such other criteria as the Committee may
determine; provided, however, that performance-based bonuses shall be restricted
to individuals earning at least $60,000.00 per year and of adequate
sophistication and sufficiently empowered to achieve the performance goals.
8.2 Terms of Stock Bonuses. The Committee will determine the number
of Shares to be awarded to the Participant and whether such Shares will be
Restricted Stock. If the Stock Bonus is being earned upon the satisfaction of
performance goals pursuant to a Performance Stock Bonus Agreement, then the
Committee will determine: (a) the nature, length and starting date of any period
during which performance is to be measured (the "PERFORMANCE PERIOD") for each
Stock Bonus; (b) the performance goals and criteria to be used to measure the
performance, if any; (c) the number of Shares that may be awarded to the
Participant; and (d) the extent to which such Stock Bonuses have been earned.
Performance Periods may overlap and Participants may participate simultaneously
with respect to Stock Bonuses that are subject to different Performance Periods
and different performance goals and other criteria. The number of Shares may be
fixed or may vary in accordance with such performance goals and criteria as may
be determined by the Committee. The Committee may adjust the performance goals
applicable to the Stock Bonuses to take into account changes in law and
accounting or tax rules and to make such adjustments as the Committee deems
necessary or appropriate to reflect the impact of extraordinary or unusual
items, events or circumstances to avoid windfalls or hardships.
8.3 Form of Payment. The earned portion of a Stock Bonus may be paid
currently or on a deferred basis with such interest or dividend equivalent, if
any, as the Committee may determine. Payment may be made in the form of cash,
whole Shares, including
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Restricted Stock, or a combination thereof, either in a lump sum payment or in
installments, all as the Committee will determine.
8.4 Termination During Performance Period. If a Participant is
Terminated during a Performance Period for any reason, then such Participant
will be entitled to payment (whether in Shares, cash or otherwise) with respect
to the Stock Bonus only to the extent earned as of the date of Termination in
accordance with the Performance Stock Bonus Agreement, unless the Committee will
determine otherwise.
9. PAYMENT FOR SHARE PURCHASES.
9.1 Payment. Payment for Shares purchased pursuant to this Plan may
be made in cash (by check) or, where expressly approved for the Participant by
the Committee and where permitted by law:
(a) by cancellation of indebtedness of the Company to the
Participant;
(b) by surrender of shares that either: (1) have been owned by
Participant for more than six (6) months and have been paid
for within the meaning of SEC Rule 144 (and, if such shares
were purchased from the Company by use of a promissory note,
such note has been fully paid with respect to such Shares);
or (2) were obtained by Participant in the public market;
(c) by tender of a full recourse promissory note having such
terms as may be approved by the Committee and bearing
interest at a rate sufficient to avoid imputation of income
under Sections 483 and 1274 of the Code; provided, however,
that Participants who are not employees or directors of the
Company will not be entitled to purchase Shares with a
promissory note unless the note is adequately secured by
collateral other than the Shares.
(d) by waiver of compensation due or accrued to the Participant
for services rendered;
(e) with respect only to purchases upon exercise of an Option,
and provided that a public market for the Company's stock
exists:
(1) through a "same day sale" commitment from the
Participant and a broker-dealer that is a member of the
National Association of Securities Dealers (an "NASD
DEALER") whereby the Participant irrevocably elects to
exercise the Option and to sell a portion of the Shares
so purchased to pay for the Exercise Price, and whereby
the NASD Dealer irrevocably commits upon receipt of such
Shares to forward the Exercise Price directly to the
Company; or
(2) through a "margin" commitment from the Participant and a
NASD Dealer whereby the Participant irrevocably elects
to exercise the
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Option and to pledge the Shares so purchased to the NASD
Dealer in a margin account as security for a loan from
the NASD Dealer in the amount of the Exercise Price, and
whereby the NASD Dealer irrevocably commits upon receipt
of such Shares to forward the Exercise Price directly to
the Company; or
(f) by any combination of the foregoing.
9.2 Loan Guarantees. The Committee may help the Participant pay for
Shares purchased under this Plan by authorizing a guarantee by the Company of a
third-party loan to the Participant.
10. WITHHOLDING TAXES.
10.1 Withholding Generally. Whenever Shares are to be issued in
satisfaction of Awards granted under this Plan, the Company may require the
Participant to remit to the Company an amount sufficient to satisfy federal,
state and local withholding tax requirements prior to the delivery of any
certificate or certificates for such Shares. Whenever, under this Plan, payments
in satisfaction of Awards are to be made in cash, such payment will be net of an
amount sufficient to satisfy federal, state, and local withholding tax
requirements.
10.2 Stock Withholding. When, under applicable tax laws, a
Participant incurs tax liability in connection with the exercise or vesting of
any Award that is subject to tax withholding and the Participant is obligated to
pay the Company the amount required to be withheld, the Committee may in its
sole discretion allow the Participant to satisfy the minimum withholding tax
obligation by electing to have the Company withhold from the Shares to be issued
that number of Shares having a Fair Market Value equal to the minimum amount
required to be withheld, determined on the date that the amount of tax to be
withheld is to be determined (the "TAX DATE"). All elections by a Participant to
have Shares withheld for this purpose will be made in writing in a form
acceptable to the Committee and will be subject to the following restrictions:
(a) the election must be made on or prior to the applicable Tax
Date;
(b) once made, then except as provided below, the election will
be irrevocable as to the particular Shares as to which the
election is made;
(c) all elections will be subject to the consent or disapproval
of the Committee;
(d) if the Participant is an Insider and if the Company is
subject to Section 16(b) of the Exchange Act: (1) the
election may not be made within six (6) months of the date
of grant of the Award, except as otherwise permitted by SEC
Rule 16b-3(e) under the Exchange Act, and (2) either (A) the
election to use stock withholding must be irrevocably made
at least six (6) months prior to the Tax Date (although such
election may be revoked at any time at least six (6) months
prior to the Tax Date) or (B)
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the exercise of the Option or election to use stock
withholding must be made in the ten (10) day period
beginning on the third day following the release of the
Company's quarterly or annual summary statement of sales or
earnings; and
(e) in the event that the Tax Date is deferred until six (6)
months after the delivery of Shares under Section 83(b) of
the Code, the Participant will receive the full number of
Shares with respect to which the exercise occurs, but such
Participant will be unconditionally obligated to tender back
to the Company the proper number of Shares on the Tax Date.
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11. PRIVILEGES OF STOCK OWNERSHIP.
11.1 Voting and Dividends. No Participant will have any of the
rights of a shareholder with respect to any Shares until the Shares are issued
to the Participant. After Shares are issued to the Participant, the Participant
will be a shareholder and have all the rights of a shareholder with respect to
such Shares, including the right to vote and receive all dividends or other
distributions made or paid with respect to such Shares; provided, that if such
Shares are Restricted Stock, then any new, additional or different securities
the Participant may become entitled to receive with respect to such Shares by
virtue of a stock dividend, stock split or any other change in the corporate or
capital structure of the Company will be subject to the same restrictions as the
Restricted Stock; provided, further, that the Participant will have no right to
retain such stock dividends or stock distributions with respect to Shares that
are repurchased at the Participant's original Purchase Price pursuant to Section
13 hereof.
11.2 Financial Statements. The Company will provide financial
statements to each Participant prior to such Participant's purchase of Shares
under this Plan, and to each Participant annually during the period such
Participant has Awards outstanding; provided, however, the Company will not be
required to provide such financial statements to Participants whose services in
connection with the Company assure them access to equivalent information.
12. TRANSFERABILITY. Awards granted under this Plan, and any interest
therein, will not be transferable or assignable by Participant, and may not be
made subject to execution, attachment or similar process, otherwise than by will
or by the laws of descent and distribution or as consistent with the specific
Plan and Award Agreement provisions relating thereto. During the lifetime of the
Participant an Award will be exercisable only by the Participant, and any
elections with respect to an Award, may be made only by the Participant.
13. RESTRICTIONS ON SHARES. At the discretion of the Committee, the
Company may reserve to itself and/or its assignee(s) in the Award Agreement (a)
a right of first refusal to purchase all Shares that a Participant (or a
subsequent transferee) may propose to transfer to a third party, and/or (b) a
right to repurchase a portion of or all Shares held by a Participant following
such Participant's Termination at any time within ninety (90) days after the
later of Participant's Termination Date and the date Participant purchases
Shares under this Plan, for cash and/or cancellation of purchase money
indebtedness, at: (A) with respect to Shares that are "Vested" (as defined in
the Award Agreement), the Fair Market Value of such Shares on Participant's
Termination Date, provided, that such right of repurchase (i) must be exercised
as to all such "Vested" Shares unless a Participant consents to the Company's
repurchase of only a portion of such "Vested" Shares and (ii) terminates when
the Company's securities become publicly traded; or (B) with respect to Shares
that are not "Vested" (as defined in the Award Agreement), at the Participant's
original Purchase Price or such higher price as determined by the Committee,
provided, that to the extent the Participant is not an officer, director or
consultant of the Company, the right to repurchase at the original Purchase
Price lapses at the rate of at least 20% per year over five (5) years from the
date the Shares were purchased (or from the date of grant of options in the case
of Shares obtained pursuant to a Stock Option Agreement and Stock Option
Exercise Agreement).
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14. CERTIFICATES. All certificates for Shares or other securities
delivered under this Plan will be subject to such stock transfer orders, legends
and other restrictions as the Committee may deem necessary or advisable,
including restrictions under any applicable federal, state or foreign securities
law, or any rules, regulations and other requirements of the SEC or any stock
exchange or automated quotation system upon which the Shares may be listed or
quoted.
15. ESCROW; PLEDGE OF SHARES. To enforce any restrictions on a
Participant's Unvested Shares, the Committee may require the Participant to
deposit all certificates representing Shares, together with stock powers or
other instruments of transfer approved by the Committee, appropriately endorsed
in blank, with the Company or an agent designated by the Company to hold in
escrow until such restrictions have lapsed or terminated, and the Committee may
cause a legend or legends referencing such restrictions to be placed on the
certificates. Any Participant who is permitted to execute a promissory note as
partial or full consideration for the purchase of Shares under this Plan will be
required to pledge and deposit with the Company all or part of the Shares so
purchased as collateral to secure the payment of Participant's obligation to the
Company under the promissory note; provided, however, that the Committee may
require or accept other or additional forms of collateral to secure the payment
of such obligation and, in any event, the Company will have full recourse
against the Participant under the promissory note notwithstanding any pledge of
the Participant's Shares or other collateral. In connection with any pledge of
the Shares, Participant will be required to execute and deliver a written pledge
agreement in such form as the Committee will from time to time approve. The
Shares purchased with the promissory note may be released from the pledge on a
pro rata basis as the promissory note is paid.
16. EXCHANGE AND BUYOUT OF AWARDS. The Committee may, at any time or
from time to time, authorize the Company, with the consent of the respective
Participants, to issue new Awards in exchange for the surrender and cancellation
of any or all outstanding Awards. The Committee may at any time buy from a
Participant an Award previously granted with payment in cash, Shares (including
Restricted Stock) or other consideration, based on such terms and conditions as
the Committee and the Participant may agree.
17. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. An Award will not
be effective unless such Award is in compliance with all applicable federal and
state securities laws, rules and regulations of any governmental body, and the
requirements of any stock exchange or automated quotation system upon which the
Shares may then be listed or quoted, as they are in effect on the date of grant
of the Award and also on the date of exercise or other issuance. Notwithstanding
any other provision in this Plan, the Company will have no obligation to issue
or deliver certificates for Shares under this Plan prior to (a) obtaining any
approvals from governmental agencies that the Company determines are necessary
or advisable, and/or (b) completion of any registration or other qualification
of such Shares under any state or federal law or ruling of any governmental body
that the Company determines to be necessary or advisable. The Company will be
under no obligation to register the Shares with the SEC or to effect compliance
with the registration, qualification or listing requirements of any state
securities laws, stock exchange or automated quotation system, and the Company
will have no liability for any inability or failure to do so.
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18. NO OBLIGATION TO EMPLOY. Nothing in this Plan or any Award granted
under this Plan will confer or be deemed to confer on any Participant any right
to continue in the employ of, or to continue any other relationship with, the
Company or any Parent or Subsidiary of the Company or limit in any way the right
of the Company or any Parent or Subsidiary of the Company to terminate
Participant's employment or other relationship at any time, with or without
cause.
19. CORPORATE TRANSACTIONS.
19.1 Assumption or Replacement of Awards by Successor. In the event
of (a) a dissolution or liquidation of the Company, (b) a merger or
consolidation in which the Company is not the surviving corporation (other than
a merger or consolidation with a wholly-owned subsidiary, a reincorporation of
the Company in a different jurisdiction, or other transaction in which there is
no substantial change in the shareholders of the Company or their relative stock
holdings and the Awards granted under this Plan are assumed, converted or
replaced by the successor corporation, which assumption will be binding on all
Participants), (c) a merger in which the Company is the surviving corporation
but after which shareholders owning at least 80% of the voting stock of the
Company (other than any shareholder which merges, or which owns or controls
another corporation which merges, with the Company in such merger) cease to own
their shares or other equity interests in the Company, or (d) the sale of
substantially all of the assets of the Company, any or all outstanding Awards
may be assumed, converted or replaced by the successor corporation (if any),
which assumption, conversion or replacement will be binding on all Participants.
In the alternative, the successor corporation may substitute equivalent Awards
or provide substantially similar consideration to Participants as was provided
to shareholders (after taking into account the existing provisions of the
Awards). The successor corporation may also issue, in place of outstanding
Shares of the Company held by the Participant, substantially similar shares or
other property subject to repurchase restrictions no less favorable to the
Participant. In the event such successor corporation (if any) refuses to assume
or substitute Options, as provided above, pursuant to a transaction described in
this Section 19.1, then notwithstanding any other provision in this Plan to the
contrary, such Options will expire on such transaction at such time and on such
conditions as the Board will determine.
19.2 Other Treatment of Awards. Subject to any greater rights
granted to Participants under the foregoing provisions of this Section 19, in
the event of the occurrence of any transaction described in Section 19.1 hereof,
any outstanding Awards will be treated as provided in the applicable agreement
or plan of merger, consolidation, dissolution, liquidation, sale of assets or
other transaction.
19.3 Assumption of Awards by the Company. The Company, from time to
time, also may substitute or assume outstanding awards granted by another
company, whether in connection with an acquisition of such other company or
otherwise, by either (a) granting an Award under this Plan in substitution of
such other company's award, or (b) assuming such award as if it had been granted
under this Plan if the terms of such assumed award could be applied to an Award
granted under this Plan. Such substitution or assumption will be permissible if
the holder of the substituted or assumed award would have been eligible to be
granted an Award under this Plan if the other company had applied the rules of
this Plan to such
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grant. In the event the Company assumes an award granted by another company, the
terms and conditions of such award will remain unchanged (except that the
exercise price and the number and nature of Shares issuable upon exercise of any
such option will be adjusted appropriately pursuant to Section 424(a) of the
Code). In the event the Company elects to grant a new Option rather than
assuming an existing option, such new Option may be granted with a similarly
adjusted Exercise Price.
20. ADOPTION AND SHAREHOLDER APPROVAL. This Plan will become effective
on the date that it is adopted by the Board (the "EFFECTIVE DATE"). This Plan
will be approved by the shareholders of the Company (excluding Shares issued
pursuant to this Plan), consistent with applicable laws, within twelve (12)
months before or after the date this Plan is adopted by the Board. Upon the
Effective Date, the Board may grant Awards pursuant to this Plan; provided,
however, that: (a) no Option may be exercised prior to initial shareholder
approval of this Plan; (b) no Option granted pursuant to an increase in the
number of Shares subject to this Plan approved by the Board will be exercised
prior to the time such increase has been approved by the shareholders of the
Company; and (c) in the event that shareholder approval of such increase is not
obtained within the time period provided herein, all Awards granted hereunder
will be canceled, any Shares issued pursuant to any Award will be canceled and
any purchase of Shares hereunder will be rescinded. So long as the Company is
subject to Section 16(b) of the Exchange Act, the Company will comply with the
requirements of Rule 16b-3 (or its successor), as amended, with respect to
shareholder approval.
21. TERM OF PLAN/GOVERNING LAW. Unless earlier terminated as provided
herein, this Plan will terminate ten (10) years after the date this Plan is
adopted by the Board or, if earlier, ten (10) years after the date of
shareholder approval. This Plan and all agreements thereunder shall be governed
by and construed in accordance with the laws of the State of California.
22. AMENDMENT OR TERMINATION OF PLAN. The Board may at any time
terminate or amend this Plan in any respect, including without limitation
amendment of any form of Award Agreement or instrument to be executed pursuant
to this Plan; provided, however, that the Board will not, without the approval
of the shareholders of the Company, amend this Plan in any manner that requires
such shareholder approval pursuant to the Code or the regulations promulgated
thereunder as such provisions apply to ISO plans.
23. NONEXCLUSIVITY OF THE PLAN. Neither the adoption of this Plan by
the Board, the submission of this Plan to the shareholders of the Company for
approval, nor any provision of this Plan will be construed as creating any
limitations on the power of the Board to adopt such additional compensation
arrangements as it may deem desirable, including, without limitation, the
granting of stock options and bonuses otherwise than under this Plan, and such
arrangements may be either generally applicable or applicable only in specific
cases.
24. DEFINITIONS. As used in this Plan, the following terms will have
the following meanings:
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<PAGE> 15
"AWARD" means any award under this Plan, including any Option,
Restricted Stock or Stock Bonus, or SAR.
"AWARD AGREEMENT" means, with respect to each Award, the signed written
agreement between the Company and the Participant setting forth the terms and
conditions of the Award.
"BOARD" means the Board of Directors of the Company.
"CAUSE" means Termination because of (i) any willful material violation
by the Participant of any law or regulation applicable to the business of the
Company or a Parent or Subsidiary of the Company, the Participant's conviction
for, or guilty plea to, a felony or a crime involving moral turpitude, any
willful perpetration by the Participant of a common law fraud or any unlawful
use by the Participant of drugs or other controlled substances, (ii) the
Participant's commission of an act of personal dishonesty which involves
personal profit in connection with the Company or any other entity having a
business relationship with the Company, (iii) any material breach by the
Participant of any provision of any agreement or understanding between the
Company and the Participant regarding the terms of the Participant's service as
an employee, director, consultant, independent contractor or adviser to the
Company or a Parent or Subsidiary of the Company, including without limitation,
the willful and continued failure or refusal of the Participant to perform the
material duties required of such Participant as an employee, director,
consultant, independent contractor or adviser of the Company or a Parent or
Subsidiary of the Company, other than as a result of being found to have a
Disability, or a breach of any applicable invention assignment and
confidentiality agreement or similar agreement between the Company and the
Participant, (iv) Participant's disregard of the policies of the Company so as
to cause loss, damage or injury to the property, reputation or employees of the
Company or a Parent or Subsidiary of the Company, or (v) any other misconduct by
the Participant which is materially injurious to the financial condition or
business reputation of, or is otherwise materially injurious to, the Company or
a Parent or Subsidiary of the Company.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMITTEE" means the committee appointed by the Board to administer
this Plan, or if no committee is appointed, the Board.
"COMPANY" means Medical Science Systems, Inc. or any successor
corporation.
"DISABILITY" means a disability, whether temporary or permanent,
partial or total, as determined by the Committee.
"DISINTERESTED PERSON" means a director who has not, during the period
that person is a member of the Committee and for one year prior to commencing
service as a member of the Committee, been granted or awarded equity securities
pursuant to this Plan or any other plan of the Company or any Parent or
Subsidiary of the Company, except in accordance with the requirements set forth
in Rule 16b-3(c)(2)(i) (and any successor regulation thereto) as promulgated by
the SEC under Section 16(b) of the Exchange Act, as such rule is amended from
time to time and as interpreted by the SEC.
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<PAGE> 16
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXERCISE PRICE" means the price at which a holder of an Option may
purchase the Shares issuable upon exercise of the Option.
"FAIR MARKET VALUE" means, as of any date, the value of a share of the
Company's Common Stock determined as follows:
(a) if such Common Stock is then quoted on the NASDAQ National Market,
its closing price on the NASDAQ National Market on the last trading
day prior to the date of determination as reported in The Wall
Street Journal;
(b) if such Common Stock is publicly traded and is then listed on a
national securities exchange, its closing price on the last trading
day prior to the date of determination on the principal national
securities exchange on which the Common Stock is listed or admitted
to trading as reported in The Wall Street Journal;
(c) if such Common Stock is publicly traded but is not quoted on the
NASDAQ National Market nor listed or admitted to trading on a
national securities exchange, the average of the closing bid and
asked prices on the last trading day prior to the date of
determination as reported by The Wall Street Journal; or
(d) if none of the foregoing is applicable, by the Committee in good
faith.
"INSIDER" means an officer or director of the Company or any other
person whose transactions in the Company's Common Stock are subject to Section
16 of the Exchange Act.
"OPTION" means an award of an option to purchase Shares pursuant to
Section 5 hereof.
"PARENT" means any corporation (other than the Company) in an unbroken
chain of corporations ending with the Company, if at the time of the granting of
an Award under this Plan, each of such corporations other than the Company owns
stock possessing 50% or more of the total combined voting power of all classes
of stock in one of the other corporations in such chain.
"PARTICIPANT" means a person who receives an Award under this Plan.
"PLAN" means this Medical Science Systems, Inc. 1996 Equity Incentive
Plan, as amended from time to time.
"RESTRICTED STOCK AWARD" means an award of Shares pursuant to Section 7
hereof.
"SAR" or "STOCK APPRECIATION RIGHT" means the contractual right granted
to a Participant pursuant to Section 6.1 hereof to receive a payment upon the
exercise of such right
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1
<PAGE> 17
which reflects the appreciation in the Fair Market Value of the number of Shares
for which such right was granted.
"SAR EXERCISE DATE" means the date on which the exercise of an SAR
occurs under the related Award Agreement.
"SAR EXERCISE PRICE" means the Fair Market Value of a Share on the SAR
Exercise Date.
"SAR GRANT PRICE" means the price which would have been the Exercise
Price for one Share if the SAR had been granted as an Option or, if the SAR is
granted in tandem with an Option, the Exercise Price for the related Option.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SHARES" means shares of the Company's Common Stock, no par value,
reserved for issuance under this Plan, as adjusted pursuant to Sections 2 and 19
hereof, and any successor security.
"STOCK BONUS" means an award of Shares, or cash in lieu of Shares,
pursuant to Section 8 hereof.
"SUBSIDIARY" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
"TERMINATION" or "TERMINATED" means, for purposes of this Plan with
respect to a Participant, that the Participant has for any reason ceased to
provide services as an employee, director, consultant or advisor to the Company
or a Parent or Subsidiary of the Company. An employee will not be deemed to have
ceased to provide services in the case of (i) sick leave, (ii) military leave,
or (iii) any other leave of absence approved by the Committee, provided that
such leave is for a period of not more than 90 days unless reemployment upon the
expiration of such leave is guaranteed by contract or statute, or unless
provided otherwise pursuant to formal policy adopted from time to time by the
Company and issued and promulgated to employees in writing. In the case of any
employee on an approved leave of absence, the Committee may make such provisions
respecting suspension of vesting of the Option while on leave from the employ of
the Company or a Subsidiary as it may deem appropriate, except that in no event
may an Option be exercised after the expiration of the term set forth in the
Option agreement. The Committee will have sole discretion to determine whether a
Participant has ceased to provide services and the effective date on which the
Participant ceased to provide services (the "Termination Date").
"UNVESTED SHARES" means "Unvested Shares" as defined in the Award
Agreement.
"VESTED SHARES" means "Vested Shares" as defined in the Award
Agreement.
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<PAGE> 1
EXHIBIT 10.18
AMENDMENT
TO THE
1996 EQUITY INCENTIVE PLAN
Pursuant to the provisions of Paragraph 22 of the 1996 Equity Incentive
Plan, the undersigned corporation adopts, following a majority shareholder vote
at the annual meeting, the following Amendment to its 1996 Equity Incentive
Plan:
1. Paragraph 2 of the 1996 Equity Incentive Plan is hereby amended
to read as follows:
"2. SHARES SUBJECT TO THE PLAN.
2.1 Number of Shares Available. Subject to Sections 2.2
and 18 hereof, the total number of Shares reserved and available
for grant and issuance pursuant to this Plan will be 1,000,000
Shares. Subject to Sections 2.2 and 19 hereof, Shares will again
be available for grant and issuance in connection with future
Awards under this Plan that: (a) are subject to issuance upon
exercise of such Option, (b) are subject to an Award granted
hereunder but are forfeited or are repurchased by the Company at
the original issue price, or (c) are subject to an Award that
otherwise terminates without Shares being issued. At all times
the Company will reserve and keep available a sufficient number
of Shares as will be required to satisfy the requirements of all
outstanding Options granted under this Plan and all other
outstanding but unvested Awards granted under this Plan."
2. Paragraph 20 of the 1996 Equity Incentive Plan is hereby amended
to read as follows:
"20. ADOPTION AND SHAREHOLDER APPROVAL. This Plan became
effective on June 28, 1996, the date that it was adopted by the Board so
long as the shareholder approval was received within one year (the
"EFFECTIVE DATE"). Shareholder approval of the Plan was received in the
form of a unanimous written consent dated June 28, 1996. So long as the
Company is subject to Section 16(b) of the Exchange Act, the Company
will comply with the requirements of Rule 16b-3 (or its successor), as
amended, with respect to shareholder approval."
Dated May 6, 1997 MEDICAL SCIENCE SYSTEMS, INC.
By: ______________________________
Paul J. White
Its: President
<PAGE> 1
EXHIBIT 10.19
FORM OF STOCK OPTION AGREEMENT
This Stock Option Agreement ("Agreement") is made and entered
into as of the date of grant set forth below (the "Date of Grant") by and
between Medical Science Systems, Inc., a Texas corporation (the "Company"), and
the participant named below ("Participant"). Capitalized terms not defined
herein shall have the meaning ascribed to them in the Company's 1996 Equity
Incentive Plan (the "Plan").
PARTICIPANT: _________________
SOCIAL SECURITY NUMBER: _________________
ADDRESS: _________________
_________________
TOTAL OPTION SHARES: _________________
EXERCISE PRICE PER SHARE: _________________
DATE OF GRANT: _________________
FIRST VESTING DATE: _________________
EXPIRATION DATE: _________________
TYPE OF STOCK OPTION (CHECK ONE):
[__] INCENTIVE STOCK OPTION
[__] NONQUALIFIED STOCK OPTION
1. GRANT OF OPTION. The Company hereby grants to Participant an
option (the "Option") to purchase the total number of shares of Common Stock, no
par value, of the Company set forth above (the "Shares") at the Exercise Price
Per Share set forth above (the "Exercise Price"), subject to all of the terms
and conditions of this Agreement and the Plan. If designated as an Incentive
Stock Option above, the Option is intended to qualify as an "incentive stock
option" ("ISO") within the meaning of Section 422 of the Internal Revenue Code
of 1986, as amended (the "Code").
<PAGE> 2
2. EXERCISE PERIOD.
2.1 Exercise Period of Option. At the end of each month
(with "month" defined for purposes hereof as the period from the Vesting
Commencement Date, such as "March 12," through the same numerical date in the
next calendar month, such as "April 12") throughout the thirty-six (36) month
period commencing on _____________ (the "Vesting Commencement Date") and ending
on _____________ (the "Vesting Period"), if at the end of such month Participant
has not been Terminated, the Option shall become exercisable as to portions of
the Shares as follows: (a) This Option shall not be exercisable with respect to
any of the Shares until ______________ (the "First Vesting Date"), which is the
date 6 months after the Vesting Commencement Date; (b) on the First Vesting Date
the Option shall become exercisable as to sixteen and sixty-six one thousandths
percent (16.66%) of the Shares (i.e., for ______ Shares); and (c) and thereafter
at the end of each full succeeding month the Option shall become exercisable as
to two and seven hundred seventy-seven one thousandths percent (2.777%) of the
Shares (i.e., for ______ additional Shares). If application of such vesting
percentage results in a fractional Share, such Share shall be rounded downward
to the nearest whole Share for each month except for the last month in such
Vesting Period, at the end of which last month this Option shall become
exercisable for the full remainder.
2.2 Vesting of Options. Shares that are vested pursuant to
the schedule set forth in Section 2.1 are "Vested Shares." Shares that are not
vested pursuant to the schedule set forth in Section 2.1 are "Unvested Shares."
Unvested Shares may not be sold or otherwise transferred by Participant without
the Company's prior written consent.
2.3 Expiration. The Option shall expire on the Expiration
Date set forth above and must be exercised, if at all, on or before the
Expiration Date.
3. TERMINATION.
3.1 Termination for Any Reason Except Death, Disability or
Cause. If Participant is Terminated for any reason, except death, Disability or
for Cause, the Option, to the extent (and only to the extent) that it would have
been exercisable by Participant on the date of Termination, may be exercised by
Participant no later than three (3) months after the date of Termination, but in
any event no later than the Expiration Date.
3.2 Termination Because of Death or Disability. If
Participant is Terminated because of death or Disability of Participant, the
Option, to the extent that it is exercisable by Participant on the date of
Termination, may be exercised by Participant (or Participant's legal
representative) no later than twelve (12) months after the date of Termination,
but in any event no later than the Expiration Date.
3.3 Termination for Cause. If Participant is Terminated for
Cause, then Participant's options shall expire on such Participant's Termination
Date, or at such later time and on such conditions as determined by the
Committee.
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<PAGE> 3
3.4 No Obligation to Employ. Nothing in the Plan or this
Agreement shall confer on Participant any right to continue in the employ of, or
other relationship with, the Company or any Parent or Subsidiary of the Company,
or limit in any way the right of the Company or any Parent or Subsidiary of the
Company to terminate Participant's employment or other relationship at any time,
with or without cause.
4. MANNER OF EXERCISE.
4.1 Stock Option Exercise Agreement. To exercise this
Option, Participant (or in the case of exercise after Participant's death,
Participant's executor, administrator, heir or legatee, as the case may be) musT
deliver to the Company an executed stock option exercise agreement in the form
attached hereto as Exhibit A, or in such other form as may be approved by the
Company from time to time (the "Exercise Agreement"), which shall set forth,
inter alia, Participant's election to exercise the Option, the number of Shares
being purchased, any restrictions imposed on the Shares and any representations,
warranties and agreements regarding Participant's investment intent and access
to information as may be required by the Company to comply with applicable
securities laws. If someone other than Participant exercises the Option, then
such person must submit documentation reasonably acceptable to the Company that
such person has the right to exercise the Option.
4.2 Limitations on Exercise. The Option may not be
exercised unless such exercise is in compliance with all applicable federal and
state securities laws, as they are in effect on the date of exercise. The Option
may not be exercised as to fewer than one hundred (100) Shares unless it is
exercised as to all Shares as to which the Option is then exercisable.
4.3 Payment. The Exercise Agreement shall be accompanied
by full payment of the Exercise Price for the Shares being purchased in cash (by
check), or where permitted by law:
(a) by cancellation of indebtedness of the Company to the
Participant;
(b) at the discretion of the Committee, by surrender of shares of
the Company's Common Stock that either: (1) have been owned
by Participant for more than six (6) months and have been
paid for within the meaning of SEC Rule 144 and, if such
shares were purchased from the Company by use of a
promissory note, such note has been fully paid with respect
to such shares); or (2) were obtained by Participant in the
open public market; and (3) are clear of all liens, claims,
encumbrances or security interests;
(c) at the discretion of the Committee, by tender of a full
recourse promissory note having such terms as may be
approved by the Committee and bearing interest at a rate
sufficient to avoid imputation of income under Sections
483 and 1274 of the Code;
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<PAGE> 4
(d) by waiver of compensation due or accrued to Participant
for services rendered;
(e) provided that a public market for the Company's stock exists,
(1) through a "same day sale" commitment from Participant and
a broker-dealer that is a member of the National Association
of Securities Dealers (an "NASD Dealer") whereby Participant
irrevocably elects to exercise the Option and to sell a
portion of the Shares so purchased to pay for the exercise
price and whereby the NASD Dealer irrevocably commits upon
receipt of such Shares to forward the exercise price directly
to the Company, or (2) through a "margin" commitment from
Participant and an NASD Dealer whereby Participant irrevocably
elects to exercise the Option and to pledge the Shares so
purchased to the NASD Dealer in a margin account as security
for a loan from the NASD Dealer in the amount of the exercise
price, and whereby the NASD Dealer irrevocably commits upon
receipt of such Shares to forward the exercise price directly
to the Company; or
(f) by any combination of the foregoing.
4.4 Tax Withholding. Prior to the issuance of the Shares
upon exercise of the Option, Participant must pay or provide for any applicable
federal, state and local withholding obligations of the Company. If the
Committee permits, Participant may provide for payment of withholding taxes upon
exercise of the Option by requesting that the Company retain Shares with a Fair
Market Value equal to the minimum amount of taxes required to be withheld. In
such case, the Company shall issue the net number of Shares to the Participant
by deducting the Shares retained from the Shares issuable upon exercise.
4.5 Issuance of Shares. Provided that the Exercise
Agreement and payment are in form and substance satisfactory to counsel for the
Company, the Company shall issue the Shares registered in the name of
Participant, Participant's authorized assignee, or Participant's legal
representative, and shall deliver certificates representing the Shares with the
appropriate legends affixed thereto.
5. NOTICE OF DISQUALIFYING DISPOSITION OF ISO SHARES. If the Option
is an ISO, and if Participant sells or otherwise disposes of any of the Shares
acquired pursuant to the ISO on or before the later of (a) the date two (2)
years after the Date of Grant, and (b) the date one (1) year after transfer of
such Shares to Participant upon exercise of the Option, Participant shall
immediately notify the Company in writing of such disposition. Participant
agrees that Participant may be subject to income tax withholding by the Company
on the compensation income recognized by Participant from the early disposition
by payment in cash or out of the current wages or other compensation payable to
Participant.
6. COMPLIANCE WITH LAWS AND REGULATIONS. The exercise of the Option
and the issuance and transfer of Shares shall be subject to compliance by the
Company and Participant with all applicable requirements of federal and state
securities laws and with all
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<PAGE> 5
applicable requirements of any stock exchange on which the Company's Common
Stock may be listed at the time of such issuance or transfer. Participant
understands that the Company is under no obligation to register or qualify
the Shares with the Securities and Exchange Commission, any state securities
commission or any stock exchange to effect such compliance.
7. NONTRANSFERABILITY OF OPTION. The Option may not be transferred
in any manner other than by will or by the laws of descent and distribution and
may be exercised during the lifetime of Participant only by Participant. The
terms of the Option shall be binding upon the executors, administrators,
successors and assigns of Participant.
8. TAX CONSEQUENCES. Set forth below is a brief summary as of the
Date of Grant of some of the federal and California tax consequences of exercise
of the Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY
INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. PARTICIPANT
SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THE OPTION OR DISPOSING OF THE
SHARES.
8.1 Exercise of ISO. If the Option qualifies as an ISO,
there will be no regular federal or California income tax liability upon the
exercise of the Option, although the excess, if any, of the fair market value of
the Shares on the date of exercise over the Exercise Price will be treated as a
tax preference item for federal income tax purposes and may subject the
Participant to the alternative minimum tax in the year of exercise.
8.2 Exercise of Nonqualified Stock Option. If the Option
does not qualify as an ISO, there may be a regular federal and California
income tax liability upon the exercise of the Option. Participant will be
treated as having received compensation income (taxable at ordinary income tax
rates) equal to the excess, if any, of the fair market value of the Shares on
the date of exercise over the Exercise Price. The Company will be required to
withhold from Participant's compensation or collect from Participant and pay to
the applicable taxing authorities an amount equal to a percentage of this
compensation income at the time of exercise.
8.3 Disposition of Shares. If the Shares are held for more
than twelve (12) months after the date of the transfer of the Shares pursuant to
the exercise of the Option (and, in the case of an ISO, are disposed of more
than two (2) years after the Date of Grant), any gain realized on disposition
of the Shares will be treated as long term capital gain for federal and
California income tax purposes. If Shares purchased under an ISO are disposed
of within one (1) year of exercise or within two (2) years after the Date of
Grant, any gain realized on such disposition will be treated as compensation
income (taxable at ordinary income rates) to the extent of the excess, if any,
of the Fair Market Value of the Shares on the date of exercise over the
Exercise Price. The Company will be required to withhold from Participant's
compensation or collect from Participant and pay to the applicable taxing
authorities an amount equal to a percentage of this compensation income at
the time of exercise.
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<PAGE> 6
9. PRIVILEGES OF STOCK OWNERSHIP. Participant shall not have any of
the rights of a shareholder with respect to any Shares until Participant
exercises the Option and pays the Exercise Price.
10. INTERPRETATION. Any dispute regarding the interpretation of this
Agreement shall be submitted by Participant or the Company to the Committee for
review. The resolution of such a dispute by the Committee shall be final and
binding on the Company and Participant.
11. ENTIRE AGREEMENT. The Plan is incorporated herein by reference.
This Agreement and the Plan constitute the entire agreement of the parties and
supersede all prior undertakings and agreements with respect to the subject
matter hereof.
12. NOTICES. Any notice required to be given or delivered to the
Company under the terms of this Agreement shall be in writing and addressed to
the Corporate Secretary of the Company at its principal corporate offices. Any
notice required to be given or delivered to Participant shall be in writing and
addressed to Participant at the address indicated above or to such other address
as such party may designate in writing from time to time to the Company. All
notices shall be deemed to have been given or delivered upon: personal delivery;
three (3) days after deposit in the United States mail by certified or
registered mail (return receipt requested); one (1) business day after deposit
with any return receipt express courier (prepaid); or one (1) business day after
confirmed transmission by facsimile.
13. SUCCESSORS AND ASSIGNS. The Company may assign any of its rights
under this Agreement. This Agreement shall be binding upon and inure to the
benefit of the successors and assigns of the Company. Subject to the
restrictions on transfer set forth herein, this Agreement shall be binding upon
Participant and Participant's heirs, executors, administrators, legal
representatives, successors and assigns.
14. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of California as such laws are applied
to agreements between California residents entered into and to be performed
entirely within California.
15. ACCEPTANCE. Participant hereby acknowledges receipt of a copy of
the Plan and this Agreement. Participant has read and understands the terms and
provisions thereof, and accepts the Option subject to all the terms and
conditions of the Plan and this Agreement. Participant acknowledges that there
may be adverse tax consequences upon exercise of the Option or disposition of
the Shares and that Participant should consult a tax adviser prior to such
exercise or disposition.
[REMAINDER OF THIS PAGE LEFT BLANK INTENTIONALLY]
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<PAGE> 7
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed in duplicate by its duly authorized representative and Participant has
executed this Agreement in duplicate as of the Effective Date.
MEDICAL SCIENCE SYSTEMS, INC. PARTICIPANT
By: --------------------------- --------------------------------
(Signature)
Paul J. White
- ------------------------------- --------------------------------
(Please print name) (Please print name)
President
- -------------------------------
(Please print title)
[SIGNATURE PAGE TO MEDICAL SCIENCE SYSTEMS, INC. STOCK OPTION AGREEMENT]
-7-
<PAGE> 1
EXHIBIT 10.20
MEDICAL SCIENCE SYSTEMS, INC.
1996 EQUITY INCENTIVE PLAN
STOCK OPTION EXERCISE AGREEMENT
This Exercise Agreement is made and entered into as of ________, 199_ (the
"Effective Date") by and between Medical Science Systems, Inc., a Texas
corporation (the "Company"), and the purchaser named below (the "Purchaser").
Capitalized terms not defined herein shall have the meaning ascribed to them in
the Company's 1996 Equity Incentive Plan (the "Plan").
PURCHASER: _______________________________________
SOCIAL SECURITY NUMBER: _______________________________________
ADDRESS: _______________________________________
_______________________________________
TOTAL NUMBER OF SHARES: _______________________________________
PURCHASE PRICE PER SHARE: _______________________________________
TOTAL PURCHASE PRICE: _______________________________________
OPTION NO.: _______________________________________
DATE OF GRANT: _______________________________________
TYPE OF OPTION (CHECK ONE): [_] INCENTIVE STOCK OPTION
[_] NONQUALIFIED STOCK OPTION
<PAGE> 2
1. EXERCISE OF OPTION.
1.1 EXERCISE. Pursuant to exercise of that certain option
("Option") granted to Purchaser under the Plan and subject to the terms and
conditions of this Agreement, Purchaser hereby purchases from the Company, and
the Company hereby sells to Purchaser, the total number of shares set forth
above ("Shares") of the Company's Common Stock, no par value per share, at a
purchase price per share set forth above for a total purchase price set forth
above (the "Purchase Price"). As used in this Agreement, the term "Shares"
refers to the Shares purchased under this Exercise Agreement and includes all
securities received (a) in replacement of the Shares, (b) as a result of stock
dividends or stock splits with respect to the Shares, and (c) all securities
received in replacement of the Shares in a merger, recapitalization,
reorganization or similar corporate transaction.
1.2 TITLE TO SHARES. The exact spelling of the name(s) under
which Purchaser will take title to the Shares is:
_______________________________________________
_______________________________________________
Purchaser desires to take title to the Shares as follows:
[_] Individual, as separate property
[_] Husband and wife, as community property
[_] Joint Tenants
[_] Alone or with spouse as trustee(s) of the following trust (including date):
_____________________________________________________
_____________________________________________________
[_] Other; please specify:_______________________________
_______________________________
1.3 PAYMENT. Purchaser hereby delivers payment of the Purchase
Price in the manner permitted in the Stock Option Agreement as follows (check
and complete as appropriate):
[_] in cash in the amount of $__________, receipt of which is acknowledged by
the Company;
[_] by cancellation of indebtedness of the Company to Purchaser in the amount
of $________;
[_] at the discretion of the Committee, by delivery of __________
fully-paid, nonassessable and vested shares of the Common Stock of the
Company owned by Purchaser for at least six (6) months prior to the date
hereof which have been paid for within the meaning of SEC Rule 144, if
purchased by use of a promissory note, such note has been fully paid
with respect to such vested shares), or obtained by Purchaser in the
open public market, and owned free and clear of all liens, claims,
encumbrances or security interests, valued at the current Fair Market
Value of $_______ per share;
[_] at the discretion of the Committee, by tender of a Full Recourse
Promissory Note in the principal amount of $_______, secured by a Pledge
Agreement of even date herewith;
[_] by the waiver hereby of compensation due or accrued for services rendered
in the amount of $_____.
<PAGE> 3
2. DELIVERY.
2.1 DELIVERIES BY PURCHASER. Purchaser hereby delivers to the
Company (i) this Exercise Agreement, (ii) two (2) copies of a blank Stock Power
and Assignment Separate from Stock Certificate in the form of Exhibit 1 attached
hereto (the "Stock Powers"), both executed by Purchaser (and Purchaser's spouse,
if any), (iii) if Purchaser is married, a Consent of Spouse in the form of
Exhibit 2 attached hereto (the "Spouse Consent") executed by Purchaser's spouse,
and (iv) the Purchase Price [NOTE FOR PREPARATION OF SPECIFIC EXERCISE
AGREEMENT: USE THE FOLLOWING IF ALL OR PART OF THE PURCHASE PRICE IS PAID WITH A
NOTE: [BY DELIVERY OF A SECURED FULL RECOURSE PROMISSORY NOTE IN THE FORM OF
EXHIBIT 4 AND (V) A STOCK PLEDGE AGREEMENT IN THE FORM OF EXHIBIT 5, EXECUTED BY
PURCHASER (THE "PLEDGE AGREEMENT")]
2.2 DELIVERIES BY THE COMPANY. Upon its receipt of the Purchase
Price and all the documents to be executed and delivered by Purchaser to the
Company under Section 2.1, the Company will issue a duly executed stock
certificate evidencing the Shares in the name of Purchaser, to be placed in
escrow as provided in Section [11] until expiration or termination of the
Company's [REPURCHASE OPTION AND] Right of First Refusal described in Section[S
8 AND 9.
3. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser represents and
warrants to the Company that:
3.1 AGREES TO TERMS OF THE PLAN. Purchaser has received a copy of
the Plan and the Stock Option Agreement, has read and understands the terms of
the Plan, the Stock Option Agreement and this Exercise Agreement, and agrees to
be bound by their terms and conditions. Purchaser acknowledges that there may be
adverse tax consequences upon exercise of the Option or disposition of the
Shares, and that Purchaser should consult a tax adviser prior to such exercise
or disposition.
3.2 PURCHASE FOR OWN ACCOUNT FOR INVESTMENT. Purchaser is
purchasing the Shares for Purchaser's own account for investment purposes only
and not with a view to, or for sale in connection with, a distribution of the
Shares within the meaning of the Securities Act of 1933, as amended (the
"Securities Act"). Purchaser has no present intention of selling or otherwise
disposing of all or any portion of the Shares and no one other than Purchaser
has any beneficial ownership of any of the Shares.
3.3 ACCESS TO INFORMATION. Purchaser has had access to all
information regarding the Company and its present and prospective business,
assets, liabilities and financial condition that Purchaser reasonably considers
important in making the decision to purchase the Shares, and Purchaser has had
ample opportunity to ask questions of the Company's representatives concerning
such matters and this investment.
3.4 UNDERSTANDING OF RISKS. Purchaser is fully aware of: (i) the
highly speculative nature of the investment in the Shares; (ii) the financial
hazards involved; (iii) the lack of liquidity of the Shares and the restrictions
on transferability of the Shares (~, that Purchaser may not be able to sell or
dispose of the Shares or use them as collateral for loans); (iv) the
qualifications and backgrounds of the management of the Company; and (v) the tax
consequences of investment in the Shares. Purchaser is capable of evaluating the
merits and risks of this investment, has the ability to protect Purchaser's own
interests in this transaction and is financially capable of bearing a total loss
of this investment.
<PAGE> 4
3.5 NO GENERAL SOLICITATION. At no time was Purchaser presented
with or solicited by any publicly issued or circulated newspaper, mail, radio,
television or other form of general advertising or solicitation in connection
with the offer, sale and purchase of the Shares.
4. COMPLIANCE WITH SECURITIES LAWS.
4.1 COMPLIANCE WITH FEDERAL SECURITIES LAWS. Purchaser understands
and acknowledges that the Shares have not been registered with the Securities
and Exchange Commission ("SEC") under the Securities Act and that,
notwithstanding any other provision of the Stock Option Agreement to the
contrary, the exercise of any rights to purchase any Shares is expressly
conditioned upon compliance with the Securities Act and all applicable state
securities laws. Purchaser agrees to cooperate with the Company to ensure
compliance with such laws. The Shares are being issued under the Securities Act
pursuant to the following (the Company will check the applicable box):
[_] the exemption provided by SEC Rule 701;
[_] the exemption provided by SEC Rule 504;
[_] the exemption provided by Section 4(2) of the Securities Act;
[_] other: _________________________________________.
4.2 COMPLIANCE WITH CALIFORNIA SECURITIES LAWS. THE SALE OF THE
SECURITIES THAT ARE THE SUBJECT OF THIS EXERCISE AGREEMENT, IF NOT YET QUALIFIED
WITH THE CALIFORNIA COMMISSIONER OF CORPORATIONS AND NOT EXEMPT FROM SUCH
QUALIFICATION, IS SUBJECT TO SUCH QUALIFICATION, AND THE ISSUANCE OF SUCH
SECURITIES, AND THE RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO
SUCH QUALIFICATION IS UNLAWFUL UNLESS THE SALE IS EXEMPT. THE RIGHTS OF THE
PARTIES TO THIS EXERCISE AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH
QUALIFICATION BEING OBTAINED OR AN EXEMPTION BEING AVAILABLE.
5. RESTRICTED SECURITIES.
5.1 NO TRANSFER UNLESS REGISTERED OR EXEMPT. Purchaser understands
that Purchaser may not transfer any Shares unless such Shares are registered
under the Securities Act or qualified under applicable state securities laws
or unless, in the opinion of counsel to the Company, exemptions from such
registration and qualification requirements are available. Purchaser
understands that only the Company may file a registration statement with the SEC
and that the Company is under no obligation to do so with respect to the Shares.
Purchaser has also been advised that exemptions from registration and
qualification may not be available or may not permit Purchaser to transfer all
or any of the Shares in the amounts or at the times proposed by Purchaser.
5.2 SEC RULE 144. In addition, Purchaser has been advised that
SEC Rule l44 promulgated under the Securities Act, which permits certain limited
sales of unregistered securities, is not presently available with respect to the
Shares and, in any event, requires that the Shares be held for a minimum of two
years, and in certain cases three years, after they have been purchased and paid
for (within the meaning of Rule 144). [[NOTE FOR PREPARATION OF SPECIFIC
EXERCISE
<PAGE> 5
AGREEMENT: USE THE FOLLOWING IF SHARES ARE PURCHASED WITH A NOTE:]
[PURCHASER UNDERSTANDS THAT SHARES PAID FOR WITH A NOTE MAY NOT BE DEEMED TO BE
FULLY "PAID FOR" WITHIN THE MEANING OF RULE 144 UNLESS CERTAIN CONDITIONS ARE
MET AND THAT, ACCORDINGLY, THE RULE 144 HOLDING PERIOD OF SUCH SHARES MAY NOT
BEGIN TO RUN UNTIL SUCH SHARES ARE FULLY PAID FOR WITHIN THE MEANING OF RULE
144]. Purchaser understands that Rule l44 may indefinitely restrict transfer of
the Shares so long as Purchaser remains an "affiliate" of the Company or if
"current public information" about the Company (as defined in Rule 144) is not
publicly available.
5.3 SEC RULE 701. The Shares may become freely tradable by
non-affiliates if issued pursuant to SEC Rule 701 promulgated under the
Securities Act (under limited conditions regarding the method of sale) 90 days
after the first sale of Common Stock of the Company to the general public
pursuant to a registration statement filed with and declared effective by the
SEC, subject to the lengthier market standoff agreement contained in Section 7
of this Exercise Agreement or any other agreement entered into by Purchaser.
Affiliates must comply with the provisions (other than the holding period
requirements) of Rule l44.
5.4 STATE LAW RESTRICTIONS ON TRANSFER. Purchaser understands
that transfer of the Shares may be restricted by Section 260.14 l .11 of the
Rules of the California Commissioner of Corporations, a copy of which is
attached hereto as Exhibit 3, and that the certificate(s) representing the
Shares may bear a legend to that effect.
6. RESTRICTIONS ON TRANSFERS.
6.1 DISPOSITION OF SHARES. Purchaser hereby agrees that Purchaser
shall make no disposition of the Shares (other than as permitted by this
Agreement) unless and until:
(a) Purchaser shall have notified the Company of the proposed
disposition and provided a written summary of the terms and conditions of the
proposed disposition;
(b) Purchaser shall have complied with all requirements of this
Exercise Agreement applicable to the disposition of the Shares;
(c) Purchaser shall have provided the Company with written
assurances, in form and substance satisfactory to counsel for the Company, that
(i) the proposed disposition does not require registration of the Shares under
the Securities Act or (ii) all appropriate action necessary for compliance with
the registration requirements of the Securities Act or of any exemption from
registration available under the Securities Act (including Rule 144) has been
taken: and
(d) Purchaser shall have provided the Company with written
assurances, in form and substance satisfactory to the Company, that the proposed
disposition will not result in the contravention of any transfer restrictions
applicable to the Shares pursuant to the provisions of the Commissioner Rules
identified in Section 4.2.
6.2 RESTRICTION ON TRANSFER. Purchaser shall not transfer, assign,
grant a lien or security interest in, pledge, hypothecate, encumber or otherwise
dispose of any of the Shares which are
<PAGE> 6
subject to [THE COMPANY'S REPURCHASE OPTION OR] the Company's Right of First
Refusal. except as permitted by this Agreement.
6.3 TRANSFEREE OBLIGATIONS. Each person (other than the Company)
to whom the Shares are transferred by means of one of the permitted transfers
specified in this Agreement must, as a condition precedent to the validity of
such transfer, acknowledge in writing to the Company that such person is bound
by the provisions of this Exercise Agreement and that the transferred shares are
subject to (i) [BOTH THE COMPANY'S REPURCHASE OPTION (only with respect to
Vested Shares) and] the Company's Right of First Refusal granted hereunder and
(ii) the market stand-off provisions of Section 7, to the same extent such
shares would be so subject if retained by the Purchaser.
7. MARKET STANDOFF AGREEMENT. Purchaser agrees in connection with any
registration of the Company's securities that, upon the request of the Company
or the underwriters managing any public offering of the Company's securities,
Purchaser will not sell or otherwise dispose of any Shares without the prior
written consent of the Company or such underwriters, as the case may be, for
such period of time (not to exceed 180 days) after the effective date of such
registration requested by such managing underwriters and subject to all
restrictions as the Company or the underwriters may specify.
[NOTE FOR PREPARATION OF SPECIFIC EXERCISE AGREEMENT: IF THE REPURCHASE RIGHT
ALTERNATIVE IS NOT USED, REMEMBER TO RENUMBER SUBSEQUENT SECTIONS AND CHECK
SECTION REFERENCES THROUGHOUT TO CONFORM TO THIS FACT, AND TO DELETE REFERENCES
THROUGHOUT TO REPURCHASE OPTION]
8. COMPANY'S REPURCHASE OPTION. The Company, or its assignee, shall have
the option to repurchase the Unvested Shares (as defined in the Option) on the
terms and conditions set forth in this Section (the "Repurchase Option") if
Purchaser is Terminated (as defined in the Option) for any reason, or no reason,
including without limitation Purchaser's death, Disability (as defined in the
Plan), voluntary resignation or termination by the Company with or without
cause.
8.1 TERMINATION AND TERMINATION DATE. In case of any dispute as
to whether Purchaser is Terminated, the Committee shall have discretion to
determine whether Purchaser has been Terminated and the effective date of such
Termination (the "Termination Date").
8.2 EXERCISE OF REPURCHASE OPTION. At any time within ninety (90)
days after the later of the Termination Date or the date the Purchaser purchased
the Shares, the Company, or its assignee, may elect to repurchase the Unvested
Shares by giving Purchaser written notice of exercise of the Repurchase Option
as specified below.
8.3 CALCULATION OF REPURCHASE PRICE. The Company or its assignee
shall have the option to repurchase from Purchaser (or from Purchaser's personal
representative as the case may be) the Unvested Shares at the Purchaser's
original Purchase Price Per Share (as adjusted to reflect any stock dividend,
stock split, reverse stock split or recapitalization of the Common Stock of the
Company occurring after the Effective Date).
<PAGE> 7
8.4 PAYMENT OF REPURCHASE PRICE. The repurchase price shall be
payable, at the option of the Company or its assignee, by check or by
cancellation of all or a portion of any outstanding indebtedness of Purchaser to
the Company or such assignee, or by any combination thereof. The repurchase
price shall be paid without interest within thirty (30) days after exercise of
the Repurchase Option.
8.5 RIGHT OF TERMINATION UNAFFECTED. Nothing in this Exercise
Agreement shall be construed to limit or otherwise affect in any manner
whatsoever the right or power of the Company (or any Parent or Subsidiary of the
Company) to terminate Purchaser's employment or other relationship with Company
(or the Parent or Subsidiary of the Company) at any time, for any reason or no
reason, with or without cause.]
[NOTE FOR PREPARATION OF SPECIFIC EXERCISE AGREEMENT: IF THE COMPANY'S BYLAWS
ALREADY CONTAIN, AT THE DATE THE OPTION IS EXERCISED, A RIGHT OF FIRST REFUSAL
ON TRANSFERS, THIS SECTION 9 WILL NOT BE NECESSARY AND SHOULD BE DELETED. IF
DELETED, REMEMBER TO RENUMBER SUBSEQUENT SECTIONS AND CHECK SECTION REFERENCES
THROUGHOUT TO CONFORM TO THIS FACT.]
9. COMPANY'S RIGHT OF FIRST REFUSAL. Unvested Shares may not be sold or
otherwise transferee by Purchaser without the Company's prior written consent.
Before any Vested Shares held by Purchaser or any transferee of such Vested
Shares (either being sometimes referred to herein as the "Holder") may be sold
or otherwise transferred (including without limitation a transfer by gift or
operation of law), the Company and/or its assignee(s) shall have an assignable
right of first refusal to purchase the Vested Shares to be sold or transferred
(the "Offered Shares") on the terms and conditions set forth in this Section
(the "Right of First Refusal").
9.1 NOTICE OF PROPOSED TRANSFER. The Holder of the Shares shall
deliver to the Company a written notice (the "Notice") stating: (i) the Holder's
bona fide intention to sell or otherwise transfer the Offered Shares; (ii) the
name of each proposed bona fide purchaser or other transferee ("Proposed
Transferee"); (iii) the number of Offered Shares to be transferred to each
Proposed Transferee; (iv) the bona fide cash price or other consideration for
which the Holder proposes to transfer the Offered Shares (the "Offered Price");
and (v) that the Holder will offer to sell the Offered Shares to the Company
and/or its assignee(s) at the Offered Price as provided in this Section.
9.2 EXERCISE OF RIGHT OF FIRST REFUSAL. At any time within thirty
(30) days after the date of the Notice, the Company and/or its assignee(s) may,
by giving written notice to the Holder, elect to purchase all of the Offered
Shares proposed to be transferred to any one or more of the Proposed Transferees
named in the Notice, at the purchase price determined as specified below.
9.3 PURCHASE PRICE. The purchase price for the Offered Shares
purchased under this Section will be the Offered Price. If the Offered Price
includes consideration other than cash, then the cash equivalent value of the
non-cash consideration shall conclusively be deemed to be the value of such
non-cash consideration as determined in good faith by the Company's Board of
Directors.
9.4 PAYMENT. Payment of the purchase price for Offered Shares
will be payable, at the option of the Company and/or its assignee(s) (as
applicable), by check or by cancellation of all or a portion
<PAGE> 8
of any outstanding indebtedness of the Holder to the Company (or to such
assignee, in the case of a purchase of Offered Shares by such assignee) or by
any combination thereof. The purchase price will be paid without interest within
thirty (30) days after the Company's receipt of the Notice, or, at the option of
the Company and/or its assignee(s), in the manner and at the time(s) set forth
in the Notice.
9.5 HOLDER'S RIGHT TO TRANSFER. If all of the Offered Shares
proposed in the Notice to be transferred to a given Proposed Transferee are not
purchased by the Company and/or its assignee(s) as provided in this Section,
then the Holder may sell or otherwise transfer such Offered Shares to that
Proposed Transferee at the Offered Price or at a higher price, provided that
such sale or other transfer is consummated within 120 days after the date of the
Notice, and provided further, that (i) any such sale or other transfer is
effected in compliance with all applicable securities laws and (ii) the Proposed
Transferee agrees in writing that the provisions of this Section will continue
to apply to the Offered Shares in the hands of such Proposed Transferee. If the
Offered Shares described in the Notice are not transferred to the Proposed
Transferee within such 120 day period, then a new Notice must be given to the
Company, and the Company will again be offered the Right of First Refusal before
any Shares held by the Holder may be sold or otherwise transferred.
9.6 EXEMPT TRANSFERS. Notwithstanding anything to the contrary in
this Section, the following transfers of Shares will be exempt from the Right of
First Refusal: (i) the transfer of any or all of the Vested Shares during
Purchaser's lifetime by gift or on Purchaser's death by will or intestacy to
Purchaser's "immediate family" (as determined below) or to a trust for the
benefit of Purchaser or Purchaser's immediate family, provided that each
transferee or other recipient agrees in a writing satisfactory to the Company
that the provisions of this Section Will continue to apply to the transferred
Vested Shares in the hands of such transferee or other recipient; (ii) any
transfer of Vested Shares made pursuant to a statutory merger or statutory
consolidation of the Company with or into another corporation or corporations
(except that the Right of First Refusal will continue to apply thereafter to
such Vested Shares, in which case the surviving corporation of such merger or
consolidation shall succeed to the rights of the Company under this Section
unless the agreement of merger or consolidation expressly otherwise provides);
or (iii) any transfer of Shares pursuant to the winding up and dissolution of
the Company. As used herein, the term "immediate family" will mean Purchaser's
spouse, the lineal descendant or antecedent, father, mother, brother or sister,
adopted child or grandchild of the Purchaser or the Purchaser's spouse, or the
spouse of any child, adopted child, grandchild or adopted grandchild of
Purchaser or the Purchaser's spouse.
9.7 TERMINATION OF RIGHT OF FIRST REFUSAL. The Right of First
Refusal will terminate as to all Shares on the effective date of the first sale
of Common Stock of the Company to the general public pursuant to a registration
statement filed with and declared effective by the SEC under the Securities Act
(other than a registration statement relating solely to the issuance of Common
Stock pursuant to a business combination or an employee incentive or benefit
plan).]
10. RIGHTS AS SHAREHOLDER. Subject to the terms and conditions of this
Exercise Agreement, Purchaser will have all of the rights of a shareholder of
the Company with respect to the Shares from and after the date that Purchaser
delivers payment of the Purchase Price until such time as Purchaser disposes of
the Shares or the Company and/or its assignee(s) exercise(s) [THE REPURCHASE
OPTION OR] Right of First Refusal. Upon an exercise of [THE REPURCHASE OPTION
OR]THE Right of First Refusal, Purchaser will have no further rights as a holder
of the Shares so purchased upon such exercise, except the right to receive
<PAGE> 9
payment for the Shares so purchased in accordance with the provisions of this
Exercise Agreement, and Purchaser will promptly surrender the stock
certificate(s) evidencing the Shares so purchased to the Company for transfer or
cancellation.
11. ESCROW. As security for Purchaser's faithful performance of this
Agreement, Purchaser agrees, immediately upon receipt of the stock
certificate(s) evidencing Unvested Shares subject to the Repurchase Option or
Shares purchased with a promissory note, to deliver such certificate(s),
together with the Stock Powers executed by Purchaser and by Purchaser's spouse,
if any (with the date and number of Shares left blank), to the Secretary of the
Company or other designee of the Company ("Escrow Holder"), who is hereby
appointed to hold such certificate(s) and Stock Powers in escrow and to take all
such actions and to effectuate all such transfers and/or releases of such Shares
as are in accordance with the terms of this Agreement. Purchaser and the Company
agree that Escrow Holder will not be liable to any party to this Exercise
Agreement (or to any other party) for any actions or omissions unless Escrow
Holder is grossly negligent or intentionally fraudulent in carrying out the
duties of Escrow Holder under this Exercise Agreement. Escrow Holder may rely
upon any letter, notice or other document executed by any signature purported to
be genuine and may rely on the advice of counsel and obey any order of any court
with respect to the transactions contemplated by this Agreement. The Shares will
be released from escrow upon termination of the Repurchase Option for Unvested
Shares [NOTE FOR PREPARATION OF SPECIFIC EXERCISE AGREEMENT: ADD IF SHARES ARE
PLEDGED:] [PROVIDED, HOWEVER, THAT THE SHARES WILL BE RETAINED IN ESCROW SO LONG
AS THEY ARE SUBJECT TO THE PLEDGE AGREEMENT].
12. RESTRICTIVE LEGENDS AND STOP-TRANSFER ORDERS.
12.1 LEGENDS. Purchaser understands and agrees that the Company
will place the legends set forth below or similar legends on any stock
certificate(s) evidencing the Shares, together with any other legends that may
be required by state or federal securities laws, the Company's Articles
Certificate of Incorporation or Bylaws, any other agreement between Purchaser
and the Company or any agreement between Purchaser and any third party:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR
UNDER THE SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES ARE
SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT
BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND
APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR
EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE
REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN
INDEFINITE PERIOD OF TIME. THE ISSUER OF THESE SECURITIES MAY
REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY
TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE
IS IN COMPLIANCE WITH THE SECURITIES ACT AND ANY APPLICABLE STATE
SECURITIES LAWS.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON PUBLIC RESALE, TRANSFER, [RIGHT OF REPURCHASE]
AND RIGHT OF FIRST REFUSAL OPTIONS HELD BY THE ISSUER AND/OR ITS
<PAGE> 10
ASSIGNEE(S) AS SET FORTH IN A STOCK OPTION EXERCISE AGREEMENT
BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A
COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE
ISSUER. SUCH PUBLIC SALE AND TRANSFER RESTRICTIONS AND THE [RIGHT
OF REPURCHASE AND] RIGHT OF FIRST REFUSAL ARE BINDING ON
TRANSFEREES OF THESE SHARES.
The California Commissioner of Corporations may require that the
following legend also be placed upon the share certificate(s) evidencing
ownership of the Shares:
IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR
ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR,
WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS
OF THE STATE OF CALIFORNIA. EXCEPT AS PERMITTED IN THE COMMISSIONER'S
RULES.
12.2 STOP-TRANSFER INSTRUCTIONS. Purchaser agrees that, to ensure
compliance with the restrictions imposed by this Agreement, the Company may
issue appropriate "stop-transfer" instructions to its transfer agent, if any,
and if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
12.3 REFUSAL TO TRANSFER. The Company will not be required (i) to
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares, or to accord the right to vote or pay dividends to any purchaser
or other transferee to whom such Shares have been so transferred.
13. TAX CONSEQUENCES. PURCHASER UNDERSTANDS THAT PURCHASER MAY SUFFER
ADVERSE TAX CONSEQUENCES AS A RESULT OF PURCHASER'S PURCHASE OR DISPOSITION OF
THE SHARES. PURCHASER REPRESENTS THAT PURCHASER HAS CONSULTED WITH ANY TAX
ADVISER PURCHASER DEEMS ADVISABLE IN CONNECTION WITH THE PURCHASE OR DISPOSITION
OF THE SHARES AND THAT PURCHASER IS NOT RELYING ON THE COMPANY FOR ANY TAX
ADVICE. IN PARTICULAR, IF THE SHARES ARE SUBJECT TO REPURCHASE BY THE COMPANY OR
IF PURCHASER IS AN INSIDER SUBJECT TO SECTION 16(b) OF THE EXCHANGE ACT,
PURCHASER REPRESENTS THAT PURCHASER HAS CONSULTED WITH PURCHASER'S TAX ADVISER
CONCERNING THE ADVISABILITY OF FILING AN 83(b) ELECTION WITH THE INTERNAL
REVENUE SERVICE. Set forth below is a brief summary as of the date of this
Exercise Agreement of some of the federal and California tax consequences of
exercise of the Option and disposition of the Shares. THIS SUMMARY IS
NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE.
PARTICIPANT SHOULD CONSULT A TAX ADVISER BEFORE EXECUTING THIS OPTION OR
DISPOSING OF THE SHARES.
13.1 EXERCISE OF INCENTIVE STOCK OPTION. If the Option qualifies
as an incentive stock option, there will be no regular federal income tax
liability or California income tax liability upon the exercise of the Option,
although the excess, if any, of the fair market value of the Shares on the date
of exercise over the Purchase Price Per Share will be treated as a tax
preference item for federal income tax
<PAGE> 11
purposes and may subject Purchaser to the alternative minimum tax in the year
of exercise as discussed further in Section 13.4 below.
13.2 EXERCISE OF NONQUALIFIED STOCK OPTION. If the Option does
not qualify as an incentive stock option, there may be a regular federal income
tax liability and a California income tax liability upon the exercise of the
Option. Purchaser will be treated as having received compensation income
(taxable at ordinary income tax rates) equal to the excess, if any, of the fair
market value of the Shares on the date of exercise over the Purchase Price Per
Share. The Company will be required to withhold from Purchaser's compensation or
collect from Purchaser and pay to the applicable taxing authorities an amount
equal to a percentage of this compensation income at the time of exercise.
13.3 DISPOSITION OF SHARES. If the Shares are held for more than
twelve months after the date of the transfer of the Shares pursuant to the
exercise of the Option (and, in the case of an ISO, are disposed of more than
two years after the Option Date of Grant), any gain realized on disposition of
the Shares will be treated as long term capital gain for federal and California
income tax purposes. If Shares purchased under an ISO are disposed of within one
year of exercise or within two years after the Option Date of Grant, any gain
realized on such disposition will be treated as compensation income (taxable at
ordinary income rates) to the extent of the excess, if any, of the fair market
value of the Shares on the date of exercise over the Purchase Price Per Share.
The Company will be required to withhold from Purchaser's compensation or
collect from Purchaser and pay to the applicable taxing authorities an amount
equal to a percentage of this compensation income at the time of exercise.
13.4 SECTION 83(b) ELECTION FOR UNVESTED SHARES. With respect to
Unvested Shares, which are subject to repurchase at the original Purchase Price,
Purchaser hereby acknowledges that Purchaser has been informed that, unless and
election is filed by the Purchaser with the Internal Revenue Service (and, if
necessary, the proper state taxing authorities), within 30 days of the purchase
of the Unvested Shares, electing pursuant to Section 83(b) of the Internal
Revenue Code (and similar state tax provisions, if applicable) to be taxed
currently on any difference between the Purchase Price of the of the Unvested
Shares and their Fair Market Value on the date of purchase, there may be a
recognition of taxable income (including, where applicable, alternative minimum
tax) to the Purchaser, measured by the excess, if any, of the Fair Market Value
of the Unvested Shares. Purchaser represents that Purchaser has consulted any
tax advisers Purchaser deems advisable in connection with Purchaser's purchase
of the Unvested Shares and the filing of the election under Section 83(b) and
similar tax provisions. A form of Election under Section 83(b) is attached
hereto as Exhibit 5 for reference. PURCHASER HEREBY ASSUMES ALL RESPONSIBILITY
FOR FILING SUCH ELECTION AND PAYING ANY TAXES RESULTING FROM SUCH ELECTION OR
FROM FAILURE TO FILE THE ELECTION AND PAYING TAXES RESULTING FROM THE LAPSE OF
THE REPURCHASE RESTRICTIONS ON THE UNVESTED SHARES.
14. COMPLIANCE WITH LAWS AND REGULATIONS. The issuance and transfer of
the Shares will be subject to and conditioned upon compliance by the Company and
Purchaser with all applicable state and federal laws and regulations and with
all applicable requirements of any stock exchange or automated quotation system
on which the Company's Common Stock may be listed or quoted at the time of such
issuance or transfer.
<PAGE> 12
15. SUCCESSORS AND ASSIGNS. The Company may assign any of its rights
under this Agreement, including its rights to repurchase Shares under [THE
REPURCHASE OPTION AND] the Right of First Refusal. This Agreement shall be
binding upon and inure to the benefit of the successors and assigns of the
Company. Subject to the restrictions on transfer herein set forth, this
Agreement will be binding upon Purchaser and Purchaser's heirs, executors,
administrators, legal representatives, successors and assigns.
16. GOVERNING LAW: SEVERABILITV. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of California as
such laws are applied TO AGREEMENTS between California residents entered into
and to be performed entirely within California, excluding that body of laws
pertaining to conflict of laws. If any provision of this Agreement is determined
by a court of law to be illegal or unenforceable, then such provision will be
enforced to the maximum extent possible and the other provisions will remain
fully effective and enforceable.
17. NOTICES. Any notice required to be given or delivered to the Company
shall be in writing and addressed to the Corporate Secretary of the Company at
its principal corporate offices. Any notice required to be given or delivered to
Purchaser shall be in writing and addressed to Purchaser at the address
indicated above or to such other address as Purchaser may designate in writing
from time to time to the Company. All notices shall be deemed effectively given
upon personal delivery, three (3) days after deposit in the United States mail
by certified or registered mail (return receipt requested), one ( l ) business
day after its deposit with any return receipt express courier (prepaid), or one
(l) business day after transmission by rapifax or telecopier.
18. FURTHER INSTRUMENTS. The parties agree to execute such further
instruments and to take such further action as may be reasonably necessary to
carry out the purposes and intent of this Agreement.
19. HEADINGS. The captions and headings of this Agreement are included
for ease of reference only and will be disregarded in interpreting or construing
this Agreement. All references herein to Sections will refer to Sections of this
Agreement.
20. ENTIRE AGREEMENT. The Plan, the Stock Option Agreement and this
Exercise Agreement, together with all its Exhibits, constitute the entire
agreement and understanding of the parties with respect to the subject matter of
this Agreement, and supersede all prior understandings and agreements, whether
oral or written, between the parties hereto with respect to the specific subject
matter hereof.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed in duplicate by its duly authorized representative and Purchaser has
executed this Agreement in duplicate as of the Effective Date.
MEDICAL SCIENCE SYSTEMS, INC. PURCHASER
By: _______________________________ _______________________________
(Signature)
___________________________________ _______________________________
(Please print name) (Please print name)
___________________________________
(Please print title)
[SIGNATURE PAGE TO MEDICAL SCIENCE SYSTEMS, INC.
STOCK OPTION EXERCISE AGREEMENT]
<PAGE> 13
LIST OF EXHIBITS
Exhibit 1: Stock Power and Assignment Separate from Stock Certificate
Exhibit 2: Spouse Consent
Exhibit 3: California Commissioner Rule 260.141.11
Exhibit 4: Copy of Purchaser's Check [AND/OR SECURED FULL RECOURSE
PROMISSORY NOTE
Exhibit 5: STOCK PLEDGE AGREEMENT]
<PAGE> 14
EXHIBIT 1
STOCK POWER AND ASSIGNMENT
SEPARATE FROM STOCK CERTIFICATE
<PAGE> 15
STOCK POWER AND ASSIGNMENT
SEPARATE FROM STOCK CERTIFICATE
FOR VALUE RECEIVED and pursuant to that certain Stock Option Exercise
Agreement No.__ dated as of __________, 199_, (the "Agreement"), the undersigned
hereby sells, assigns and transfers unto ______________________, shares of the
Common Stock of Medical Science Systems, Inc., a Texas corporation (the
"Company"), standing in the undersigned's name on the books of the Company
represented by Certificate No(s).________ delivered herewith, and does hereby
irrevocably constitute and appoint the Secretary of the Company as the
undersigned's attorney-in-fact, with full power of substitution, to transfer
said stock on the books of the Company. THIS ASSIGNMENT MAY ONLY BE USED AS
AUTHORIZED BY THE AGREEMENT AND ANY EXHIBITS THERETO.
Dated: ____________, 199_
PURCHASER
__________________________________
(Signature)
-------------------------------
(Please Print Name)
-------------------------------
(Spouse's Signature, if any)
-------------------------------
(Please Print Spouse's Name)
INSTRUCTIONS: Please do not fill in any blanks other than the signature line.
The purpose of this Stock Power and Assignment is to enable the Company to
acquire the shares upon [A DEFAULT UNDER PURCHASER'S NOTE AND TO] exercise of
its ["REPURCHASE OPTION" AND/OR "RIGHT OF FIRST REFUSAL"] set forth in the
Agreement without requiring additional signatures on the part of the PURCHASER
[OR PURCHASER'S SPOUSE].
<PAGE> 16
EXHIBIT 2
SPOUSE CONSENT
<PAGE> 17
SPOUSE CONSENT
The undersigned spouse of Purchaser has read, understands, and hereby
approves the Stock Option Exercise Agreement (the "Agreement") between Purchaser
and Medical Science Systems, Inc. (the "Company"). In consideration of the
Company's granting my spouse the right to purchase the Shares as set forth in
the Agreement, the undersigned hereby agrees to be irrevocably bound by the
Agreement and further agrees that any community property interest shall
similarly be bound by the Agreement. The undersigned hereby appoints Purchaser
as my attorney-in-fact with respect to any amendment or exercise of any rights
under the Agreement.
Date: ____________ ____________________
Signature of Purchaser's Spouse
Printed Name: ____________________
Address: ____________________
____________________
<PAGE> 18
EXHIBIT 3
CALIFORNIA COMMISSIONER RULE 260.141.11
(a) The issuer of any security upon which a restriction on transfer has been
imposed pursuant to Sections 260.102.6, 260.141.10 or 260.534 shall
cause a copy of this section to be delivered to each issuee or
transferee of such security at the time the certificate evidencing the
security is delivered to the issuee or transferee.
(b) It is unlawful for the holder of any such security to consummate a sale
or transfer of such security, or any interest therein, without the prior
written consent of the Commissioner (until this condition is removed
pursuant to Section 260.141.12 of these rules), except:
(1) to the issuer;
(2) pursuant to the order or process of any court;
(3) to any person described in Subdivision (i) of Section 25102 of the Code or
Section 260.105.14 of these rules:
(4) to the transferor's ancestors, descendants or spouse, or any custodian
or trustee for the account of the transferor or the transferor's
ancestors, descendants, or spouse; or to a transferee by a trustee or
custodian for the account of the transferee or the transferee's
ancestors, descendants or spouse;
(5) to holders of securities of the same class of the same issuer;
(6) by way of gift or donation intervivos or on death;
(7) by or through a broker-dealer licensed under the Code (either acting as
such or as a finder) to a resident of a foreign state, territory or
country who is neither domiciled in this state to the knowledge of the
broker-dealer, nor actually present in this state if the sale of such
securities is not in violation of any securities law of the foreign
state, territory or country concerned;
(8) to a broker-dealer licensed under the Code in a principal transaction,
or as an underwriter or member of an underwriting syndicate or selling
group;
(9) if the interest sold or transferred is a pledge or other lien given by
the purchaser to the seller upon a sale of the security for which the
Commissioner's written consent is obtained or under this rule not
required;
(10) by way of a sale qualified under Section 25111, 25112, 25113, or 25121 of
the Code, of the securities to be transferred, provided that no order
under Section 25140 or subdivision (a) of Section 25143 is in effect with
respect to such qualification;
(11) by a corporation to a wholly owned subsidiary of such corporation, or by
a wholly owned subsidiary of a corporation to such corporation;
<PAGE> 19
(12) by way of an exchange qualified under Section 25111, 25112 or 25113 of
the Code, provided that no order under Section 25140 or subdivision (a)
of Section 25143 is in effect with respect to such qualification;
(13) between residents of foreign states, territories or countries who are
neither domiciled nor actually present in this slate;
(14) to the State Controller pursuant to the Unclaimed Property Law or the
administrator of the unclaimed property law of another state; or
(15) by the State Controller pursuant to the Unclaimed Property Law or by the
administrator of the unclaimed property law of another state if, in
either such case, such person (i) discloses to potential purchasers at
the sale that transfer of the securities is restricted under this rule,
(ii) delivers to each purchaser a copy of this rule, and (iii) advises
the Commissioner of the name of each purchaser;
(16) by a trustee to a successor trustee when such transfer does not involve
a change in the beneficial ownership of the securities;
(17) by way of an offer and sale of outstanding securities in an issuer
transaction that is subject to the qualification requirements of Section
25110 of the Code but exempt from that qualification requirement by
subdivision (f) of Section 25102;
provided that any such transfer is on the condition that any certificate
evidencing the security issued to such transferee shall contain the legend
required by this section.
(c) The certificates representing all such securities subject to such a
restriction on transfer, whether upon initial issuance or upon any
transfer thereof, shall bear on their face a legend, prominently stamped
or printed thereon in capital letters of not less than 10-point size,
reading as follows:
IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY
INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFORE, WITHOUT THE
PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE
OF CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES.
<PAGE> 20
EXHIBIT 4
COPY OF PURCHASER'S CHECK [AND/OR
SECURED FULL RECOURSE PROMISSORY NOTE]
<PAGE> 21
SECURED FULL RECOURSE PROMISSORY NOTE
___________________, California
$ _________________ _________, 199_
1. OBLIGATION. In exchange for the issuance to the undersigned
("Purchaser") of ________ shares (the "Shares") of the Common Stock of Medical
Science Systems, Inc., a Texas corporation (the "Company"), receipt of which is
hereby acknowledged, Purchaser hereby promises to pay to the order of the
Company on or before _______________, 199_, at the Company's principal place of
business at _______________, California __________, or at such other place as
the Company may direct, [ALTERNATIVE FOR PREPARATION OF SPECIFIC PROMISSORY
NOTE:] [IN INSTALLMENTS AS HEREINAFTER SET FORTH] the principal sum of
____________ Dollars ($______) together with interest compounded semi-annually
on the unpaid principal at the rate of __________ percent (____%), which rate
is not less than the minimum rate established pursuant to Section 1274(d) of
the Internal Revenue Code of 1986, as amended, on the earliest date on which
there was a binding contract in writing for the purchase of the Shares;
provided, however, that the rate at which interest will accrue on unpaid
principal under this Note will not exceed the highest rate permitted by
applicable law. [NOTE FOR PREPARATION OF SPECIFIC PROMISSORY NOTE: IF NOTE WILL
BE PAID IN INSTALLMENTS ADD FOLLOWING:] [THE PRINCIPAL SUM WILL BE PAYABLE IN
SUCCESSIVE [MONTHLY] [QUARTERLY] [ANNUAL] INSTALLMENTS OF $_____ EACH, EACH DUE
AND PAYABLE ON [IF MONTHLY: THE FIRST DAY OF EACH CALENDAR MONTH BEGINNING
__________, 19___ [IF QUARTERLY: MARCH 31, JUNE 30, SEPTEMBER 30 AND DECEMBER
31 OF EACH YEAR] [IF ANNUALLY: EACH SUCCESSIVE ANNIVERSARY OF THE DATE OF THIS
NOTE] AND ALL PAYMENTS OF ACCRUED INTEREST WILL BE PAYABLE WITH EACH INSTALLMENT
OF PRINCIPAL.]
2. SECURITY. Payment of this Note is secured by a security interest in
the Shares granted to the Company by Purchaser under a Stock Pledge Agreement
dated of even date herewith between the Company and Purchaser (the "Pledge
Agreement"). This Note is being tendered by Purchaser to the Company as part of
the purchase price of the Shares pursuant to that certain Stock Option Exercise
Agreement between Purchaser and the Company dated of even date with this Note
(the "Purchase Agreement").
3. DEFAULT: ACCELERATION OF OBLIGATION. Purchaser will be deemed to be
in default under this Note and the principal sum of this Note, together with all
interest accrued thereon, will immediately become due and payable in full: (a)
upon Purchaser's failure to make any payment when due under this Note; (b) in
the event Purchaser is Terminated (as defined in the Company's 1996 Equity
Incentive Plan) for any reason; [ALTERNATIVE FOR PREPARATION OF SPECIFIC
PROMISSORY NOTE:] [(c) UPON ANY TRANSFER OF ANY OF THE SHARES (EXCEPT A TRANSFER
TO THE COMPANY);] (d) upon the filing by or against Purchaser of any voluntary
or involuntary petition in bankruptcy or any petition for relief under the
federal bankruptcy code or any other state or federal law for the relief of
debtors; or (e) upon the execution by Purchaser of an assignment for the benefit
of creditors or the appointment of a receiver, custodian, trustee or similar
party to take possession of Purchaser's assets or property.
<PAGE> 22
4. REMEDIES ON DEFAULT. Upon any default of Purchaser under this Note,
the Company will have, in addition to its rights and remedies under this Note
and the Pledge Agreement, full recourse against any real, personal, tangible or
intangible assets of Purchaser, and may pursue any legal or equitable remedies
that are available to it.
5. PREPAYMENT. Prepayment of principal and/or interest due under this
Note may be made at any time without penalty. Unless otherwise agreed in writing
by the Company, all payments will be made in lawful tender of the United States
and will be applied first to the payment of accrued interest, and the remaining
balance of such payment, if any, will then he applied to the payment of
principal. If Purchaser prepays all or a portion of the principal amount of this
Note, the Shares paid for by the portion of principal so paid will continue to
be held in pledge under the Pledge Agreement to serve as independent collateral
for the outstanding portion of this Note for the purpose of commencing the
holding period under Rule 144(d) of the Securities and Exchange Commission with
respect to other Shares purchased with this Note unless Purchaser notifies the
Company in writing otherwise and the Company consents to release of the Shares
from the Pledge Agreement.
6. GOVERNING LAW: WAIVER. The validity, construction and performance of
this Note will be governed by the internal laws of the State of California,
excluding that body of law pertaining to conflicts of law. Purchaser hereby
waives presentment, notice of non-payment, notice of dishonor, protest, demand
and diligence.
7. ATTORNEYS' FEES. If suit is brought for collection of this Note,
Purchaser agrees to pay all reasonable expenses, including attorneys' fees,
incurred by the holder in connection therewith whether or not such suit is
prosecuted to judgment.
8. RULE 144 HOLDING PERIOD. PURCHASER UNDERSTANDS THAT THE HOLDING
PERIOD SPECIFIED UNDER RULE 144(d) OF THE SECURITIES AND EXCHANGE COMMISSION
WILL NOT BEGIN TO RUN WITH RESPECT TO SHARES PURCHASED WITH THIS NOTE UNTIL
EITHER (A) THE PURCHASE PRICE OF SUCH SHARES IS PAID IN FULL IN CASH OR BY OTHER
PROPERTY ACCEPTED BY THE COMPANY, OR (B) THIS NOTE IS SECURED BY COLLATERAL,
OTHER THAN THE SHARES THAT HAVE NOT BEEN FULLY PAID FOR, HAVING A FAIR MARKET
VALUE AT LEAST EQUAL TO THE AMOUNT OF PURCHASER'S THEN OUTSTANDING OBLIGATION
UNDER THIS NOTE (INCLUDING ACCRUED INTEREST).
IN WITNESS WHEREOF, Purchaser has executed this Note as of the date and
year first above written
____________________________________ __________________________________
Purchaser's Name [type or print] Purchaser's Signature
[SIGNATURE PAGE TO MEDICAL SCIENCE SYSTEMS, INC.
SECURED FULL RECOURSE PROMISSORY NOTE]
<PAGE> 23
EXHIBIT 5
STOCK PLEDGE AGREEMENT
<PAGE> 24
STOCK PLEDGE AGREEMENT
This Agreement is made and entered into as of __________, 199_ between Medical
Science Systems, Inc., a Texas corporation (the "Company"), and
__________________________("Pledgor").
RECITALS
A. In exchange for Pledgor's Secured Full Recourse Promissory
Note to the Company of even date herewith (the "Note"), the Company has issued
and sold to Pledgor ______ shares of its Common Stock, no par value per share
(the "Shares"), pursuant to the terms and conditions of that Stock Option
Exercise Agreement between the Company and Pledgor of even date herewith (the
"Purchase Agreement").
B. Pledgor has agreed that repayment of the Note will be secured
by the pledge of the Shares pursuant to this Agreement.
NOW, THEREFORE, the parties agree as follows:
1. CREATION OF SECURITY INTEREST. Pursuant to the provisions of
the California Commercial Code, Pledgor hereby grants to the Company, and the
Company hereby accepts, a first and present security interest in the Shares as
collateral to secure the payment of Pledgor's obligation to the Company under
the Note. Pledgor herewith delivers to the Company Common Stock certificate(s)
No(s)._________, representing all the Shares, together with one stock power for
each certificate in the form attached as an Exhibit to the Purchase Agreement,
duly executed (with the date and number of shares left blank) by Pledgor and
Pledgor's spouse, if any. For purposes of this Agreement, the Shares pledged to
the Company hereby, together with any additional collateral pledged pursuant to
Sections 5 and 6 hereof, will hereinafter be collectively referred to as the
"Collateral." Pledgor agrees that the Collateral pledged to the Company will be
deposited with and held by the Escrow Holder (as defined in the Purchase
Agreement) and that, notwithstanding anything to the contrary in the Purchase
Agreement, for purposes of carrying out the provisions of this Agreement, Escrow
Holder will act solely for the Company as its agent.
2. REPRESENTATIONS AND WARRANTIES. Pledgor hereby represents and
warrants to the Company that Pledgor has good title (both record and beneficial)
to the Collateral, free and clear of all claims, pledges, security interests,
liens or encumbrances of every nature whatsoever, and that Pledgor has the right
to pledge and grant the Company the security interest in the Collateral granted
under this Agreement. Pledgor further agrees that, until the entire principal
sum and all accrued interest due under the Note has been paid in full, Purchaser
will not, without the Company's prior written consent, (i) sell, assign or
transfer, or attempt to sell, assign or transfer, any of the Collateral, or (ii)
grant or create, or attempt to grant or create, any security interest, lien,
pledge, claim or other encumbrance with respect to any of the Collateral.
<PAGE> 25
3. RIGHTS ON DEFAULT. In the event of default (as defined in the
Note) by Pledgor under the Note, the Company will have full power to sell,
assign and deliver the whole or any part of the Collateral at any broker's
exchange or elsewhere, at public or private sale, at the option of the Company,
in order to satisfy any part of the obligations of Pledgor now existing or
hereinafter arising under the Note. On any such sale, the Company or its assigns
may purchase all or any part of the Collateral. In addition, at its sole option,
the Company may elect to retain all the Collateral in full satisfaction of
Pledgor's obligation under the Note, in accordance with the provisions and
procedures set forth in the California Commercial Code.
4. ADDITIONAL REMEDIES. The rights and remedies granted to the
Company herein upon default under the Note will be in addition to all the
rights, powers and remedies of the Company under the California Commercial Code
and applicable law and such rights, powers and remedies will be exercisable by
the Company with respect to all of the Collateral. Pledgor agrees that the
Company's reasonable expenses of holding the Collateral, preparing it for resale
or other disposition, and selling or otherwise disposing of the Collateral,
including attorneys' fees and other legal expenses, will be deducted from the
proceeds of any sale or other disposition and will be included in the amounts
Pledgor must tender to redeem the Collateral. All rights, powers and remedies of
the Company will be cumulative and not alternative. Any forbearance or failure
or delay by the Company in exercising any right, power or remedy hereunder will
not be deemed to be a waiver of any such right, power or remedy and any single
or partial exercise of any such right. power or remedy hereunder will not
preclude the further exercise thereof.
5. DIVIDENDS: VOTING. All dividends hereinafter declared on or
payable with respect to the Collateral during the term of this pledge (excluding
only ordinary cash dividends, which will be payable to Pledgor so long as
Pledgor is not in default under the Note) will be immediately delivered to the
Company to be held in pledge under this Agreement. Notwithstanding this
Agreement, so long as Pledgor owns the Shares and is not in default under the
Note, Pledgor will be entitled to vote any shares comprising the Collateral,
subject to any proxies granted by Pledgor.
6. ADJUSTMENTS. In the event that during the term of this pledge,
any stock dividend, reclassification, readjustment, stock split or other change
is declared or made with respect to the Collateral, or if warrants or any other
rights, options or securities are issued in respect of the Collateral, then all
new, substituted and/or additional shares or other securities issued by reason
of such change or by reason of the exercise of such warrants, rights, options or
securities, will be immediately pledged to the Company to be held under the
terms of this Agreement in the same manner as the Collateral is held hereunder.
7. RIGHTS UNDER PURCHASE AGREEMENT. Pledgor understands and
agrees that the Company's rights to repurchase the Collateral under the Purchase
Agreement, if any, will continue for the periods and on the terms and conditions
specified in the Purchase Agreement, whether or not the Note has been paid
during such period of time, and that to the extent that the Note is not paid
during such period of time, the repurchase by the Company of the Collateral may
be made by way of cancellation of all or any part of Pledgor's indebtedness
under the Note.
<PAGE> 26
8. REDELIVERY OF COLLATERAL. Upon payment in full of the entire
principal sum and all accrued interest due under the Note, and subject to the
terms and conditions of the Purchase Agreement, the Company will immediately
redeliver the Collateral to Pledgor and this Agreement will terminate; provided,
however, that all rights of the Company to retain possession of the Shares
pursuant to the Purchase Agreement will survive termination of this Agreement.
9. SUCCESSORS AND ASSIGNS. This Agreement will inure to the
benefit of the respective heirs, personal representatives, successors and
assigns of the parties hereto.
10. GOVERNING LAW: SEVERABILITV. This Agreement will be governed
by and construed in accordance with the internal laws of the State of
California, excluding that body of law relating to conflicts of law. Should one
or more of the provisions of this Agreement be determined by a court of law to
be illegal or unenforceable, the other provisions nevertheless will remain
effective and will be enforceable.
11. MODIFICATION: ENTIRE AGREEMENT. This Agreement will not be
amended without the written consent of both parties hereto. This Agreement
constitutes the entire agreement of the parties hereto with respect to the
subject matter hereof and supersedes all prior agreements and understandings
related to such subject matter.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date and year first above written.
MEDICAL SCIENCE SYSTEMS, INC. PLEDGOR
By:____________________________ _______________________________
(Signature)
_______________________________ _______________________________
(Please print name) (Please print name)
_______________________________
(Please print title)
[SIGNATURE PAGE TO MEDICAL SCIENCE SYSTEMS, INC.
STOCK PLEDGE AGREEMENT]
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated September 26, 1997, accompanying the financial
statements of Medical Science Systems, Inc. contained in the Registration
Statement and Prospectus. We consent to the use of the aforementioned report in
the Registration Statement and Prospectus, and to the use of our name as it
appears under the caption "Experts."
SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Los Angeles, California
October 8, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997
<PERIOD-START> JAN-01-1996 JAN-01-1997
<PERIOD-END> DEC-31-1996 JUN-30-1997
<CASH> 55,966 29,982
<SECURITIES> 0 0
<RECEIVABLES> 12,359 40,434
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 74,890 70,416
<PP&E> 183,618 208,641
<DEPRECIATION> 100,741 116,740
<TOTAL-ASSETS> 311,962 414,598
<CURRENT-LIABILITIES> 810,876 863,253
<BONDS> 0 0
0 0
0 0
<COMMON> 171,500 1,691,257
<OTHER-SE> (871,248) (2,705,153)
<TOTAL-LIABILITY-AND-EQUITY> 311,962 414,598
<SALES> 1,918,879 100,289
<TOTAL-REVENUES> 1,918,879 100,289
<CGS> 672,766 104,596
<TOTAL-COSTS> 1,996,017 1,798,946
<OTHER-EXPENSES> (1,627) (38)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 34,229 30,690
<INCOME-PRETAX> (782,506) (1,833,905)
<INCOME-TAX> 6,040 0
<INCOME-CONTINUING> (782,506) (1,833,905)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (782,506) (1,833,905)
<EPS-PRIMARY> (0.18) (0.43)
<EPS-DILUTED> (0.18) (0.43)
</TABLE>
