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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB
AMENDMENT NO. 1
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTIONS 12 (B) OR (G) OF
THE SECURITIES EXCHANGE ACT OF 1934
---------------
MEDICAL DEVICE ALLIANCE INC.
(Exact name of Registrant as specified in its charter)
NEVADA 88-0345058
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
3800 HOWARD HUGHES PARKWAY, SUITE 1800, LAS VEGAS, NEVADA 89109
(Address of principal executive offices, including zip code)
(702) 791-2910
(Company's telephone number, including area code)
Securities Registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $0.001 PAR VALUE
(Title of Class)
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INFORMATION REQUIRED IN REGISTRATION STATEMENT
CERTAIN FORWARD-LOOKING INFORMATION
The information contained in this Registration Statement includes
forward-looking statements including, without limitation, statements set forth
in the sections entitled "Business" contained in Item 1. and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
contained in Item 2. of this Registration Statement. Since this information is
based on current expectations which involve risks and uncertainties, actual
results could differ materially from those expressed in the forward-looking
statements. Various important factors known to Medical Device Alliance Inc. that
could cause such material differences are identified in the section entitled
"Business Factors" contained in Item 1. of this Registration Statement. Certain
sentences in this Registration Statement have been identified as forward-looking
statements. The reader is cautioned that other sections and sentences not so
identified may also contain forward-looking statements.
ITEM 1. BUSINESS
OVERVIEW
MEDICAL DEVICE ALLIANCE INC. (the "Company") was founded in September
1995 to research, develop, manufacture, market, and/or acquire through business
combination or other strategic alliance, medical and surgical devices on a
worldwide basis, focused in the areas of plastic and reconstructive surgery,
specialized spinal/orthopedic products and development of engineered
biomaterials. Plastic and reconstructive surgery ("PRS") and niche
spinal/orthopedic surgery ("NSOS") represent expanding market segments within
the medical industry and the products identified or developed by the Company
have been chosen due to an inter-related technology base along with favorable
demographic projections. Unless otherwise indicated, reference to the Company
herein will also include the Company's wholly-owned subsidiaries.
Recent analysis of drivers in the medical device industry identified ten
top market considerations for 1997, including: aging and increasingly disabled
population; shift of patient care from hospitals to alternative care; high
conversion to minimally-invasive surgery; new technologies based on shorter
procedure times; disease management and preventative care approaches; and
introduction of new energy-based therapies. Technologies and product lines
identified by the Company meet a majority of these market drivers.
The demand for elective aesthetic procedures by the aging "baby boomer"
generation will continue to grow at a substantial rate over the next decade. The
American Society for Aesthetic Plastic Surgery ("ASAPS") states that 57% of the
overall U.S. population and, specifically, 69% of the baby boomer generation
approve of aesthetic procedures. This increased acceptance of elective, cosmetic
surgery procedures translated into a 50% increase of cosmetic procedures
performed in 1997 over procedures just five years earlier (1992). Additionally,
American men are increasingly choosing aesthetic procedures, accounting for 25%
of elective cosmetic procedures performed in 1997 and spending an estimated $9.5
billion per year on face-lifts, liposuction, hairpieces and related products.
Nearly 2.1 million surgical and non-surgical cosmetic procedures were performed
in 1997, with liposuction the number one procedure performed by aesthetic
plastic surgeons certified by the American Board of Plastic Surgery. A study by
the American Society of Plastic and Reconstructive Surgeons ("ASPRS") reported
that nearly 150,000 Americans had liposuction in 1997, more than tripling the
number of liposuction patients in 1992.
Similarly, the aging of the American and world population dictates an
increase in spinal-related conditions which require medical or surgical
intervention. The current, global spinal market is estimated at $1.75 billion
annually and is projected to increase to as much as $4.9 billion over the next 7
years. Of the current market, approximately 58% of expenditures are for spinal
implants, 26% are for tissue technology and 3% are for discetomy-related
instruments and implants. Approximately 26% of all musculoskeletal problems
occur in patients over the age of 65, which is the fastest growing segment of
the U.S. population. Currently, approximately 800,000 spinal discetomy
procedures
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are performed annually, with over half of those procedures performed in the U.S.
The NSOS market has, in the past, encountered a number of liability issues
related to spinal implants, which has discouraged many large orthopedic
companies from entering the market, providing an excellent opportunity for
smaller, innovative companies to capture segments of the industry.
Technological advances in engineered biomaterials will benefit both the
PRS and NSOS surgical specialties. Where, in the past, metal, plastic or
silicone materials have been used to re-shape and/or augment deformities in
tissue and bone, in the future tissue-engineered biomaterials will augment the
use of synthetic materials and provide for regeneration of bone, skin, tendons,
cartilage, muscle and even fat. The PRS and NSOS surgical specialties will
frequently rely on the same tissue-engineered matrices and growth proteins for
implantation and, logically, these matrices will be developed in anticipation of
uses in both surgical specialties. Both surgical specialties also share a
similar technology base, increasingly developing instrumentation for minimally
invasive procedures which include intra-operative visualization tools,
electrical and ultrasonic dissectors and surgical navigation systems.
In addition to the growth of PRS and NSOS markets, both medical
specialties demonstrate favorable characteristics with respect to monetary
reimbursement. Aesthetic procedures are usually elective and third party payors
are not applicable to this field. Spinal surgery has been one of the few
surgical specialties where reimbursement of both the surgeon's fee and the
implanted device have remained high, actually increasing over the past 2 years
for some selected procedures.
Medical device companies have traditionally served specialized markets
as compared to pharmaceutical or other medical industry businesses. When medical
device companies are acquired by large entities, a decline in responsiveness to
the customer and marketplace often occurs, resulting in a loss of market share
and decreased profitability over time. The Company's intention to develop and/or
acquire technologies in subsidiaries functioning as semi-autonomous companies
which benefit from technology transfer and synergistic sales and marketing
efforts should enable these subsidiaries to continue innovation and
responsiveness to the niche surgical specialties that they service.
Traditionally, start-up companies in the medical device industry spend a
significant amount of time pursuing adequate funding rather than developing
their products, a situation which substantially hampers technology development,
results in protracted regulatory clearance times and ultimately causes a delayed
entry of products into the marketplace. The alliance of small companies with
proprietary technology and the possibility of those companies to share or
combine direct sales forces offers increased chances of success for those small
companies and technologies and, thereby, increasing shareholder value at the
parent corporation level.
The Company believes that its strategy to combine a number of products
and technologies within the PRS and NSOS specialty markets should be viewed
favorably by the investment community. However, initial public offerings of
single technology medical and biomedical companies have not performed well in
recent months. The successful alliance of promising start-up technologies with
existing product lines already generating sales in the targeted surgical
specialties should enable the Company to benefit from future growth while, at
the same time, provide cash flow in a short period of time. Some large
pharmaceutical companies are in the process of divesting their medical device
technologies due to the lower profit margins generated by devices versus the
profit margin on pharmaceuticals. As previously discussed, lower profit margins
are due to the large pharmaceutical companies' inability to address niche
surgical specialties in the medical device industry. The Company believes that
the medical device industry remains a highly profitable and expanding area of
commercialization and its strategy to combine existing product lines with new
technologies, along with experienced management to provide funding, development,
regulatory and marketing expertise can take advantage of the current
opportunities.
PRINCIPAL PRODUCTS AND MARKETS
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PLASTIC AND RECONSTRUCTIVE SURGERY
The Company currently is the leader for an emerging medical procedure
which results in the removal of body fat through the use of ultrasound. The
removal of adipose (fat) tissue, a procedure known as suction lipectomy, is the
most frequently performed aesthetic (cosmetic) surgical procedure in the United
States. Traditionally, suction lipectomy has been performed using a probe (the
"cannula") and a suction device. The use of specialized ultrasonic devices and
probes for soft tissue aspiration, known as ultrasound-assisted lipoplasty
("UAL"), provides less traumatic soft tissue removal with less post-operative
bruising.
The Company holds the exclusive, worldwide rights to market and sell a
patented ultrasonic system (the "System") which has received clearance under a
510(K) from the United States Food & Drug Administration (the "FDA") to be
marketed for use in ultrasonic soft tissue aspiration. Although the FDA
clearance is specific for fragmentation and aspiration of soft tissue in plastic
surgery, the Company has prepared additional submissions to the FDA for
clearance of the System for the specific surgical nomenclature "lipoplasty".
Until the Company has obtained this additional clearance, the System cannot be
marketed as a lipoplasty device. In August 1998, the Company obtained
unconditional clearance from the FDA for an Investigational Device Exemption
("IDE") for the ultrasound-assisted lipoplasty designation and approval to begin
human clinical trials.
In November 1996, the Company incorporated its wholly-owned subsidiary,
LySonix Incorporated ("LySonix"), to market and distribute the System for
fragmentation and aspiration of soft tissue in plastic and reconstructive
surgery and to research, develop, market and distribute related surgical devices
and products. In December 1996, the Company incorporated its wholly-owned
subsidiary, MDA Capital Incorporated to provide financing for customers of
LySonix for medical equipment, including the System.
Within the medical industry, physicians are facing declining revenues as
a result of healthcare cost-containment and many have turned to non-reimbursed
aesthetic procedures to supplement their practices. This trend, combined with an
aging population which is increasingly willing to spend disposable income on
remedies that delay the symptoms of aging, is expected to increase the number of
cosmetic procedures in the United States and worldwide well into the 21st
century.
Suction-assisted lipectomy ("SAL" or "liposuction") is the most common
procedure performed in aesthetic surgery today, with an estimated 150,000
procedures performed annually in the United States. Traditional liposuction
techniques require the use of a cannula inserted into the subcutaneous (under
the skin) fat tissue and the application of suction. Once suction has begun, the
cannula is vigorously moved back and forth in a piston-like motion (not side to
side), creating channels through the fat as the tissue is aspirated by suction.
Unless the amount of fat being removed is very small, a second series of
intersecting channels is created through a second incision. Although fat tissue
is removed, complications can result from the movement of the cannula, including
damage to connective tissue, blood vessels and nerves.
Unlike current liposuction techniques, UAL differs significantly by
liquefying body fat using a specific ultrasonic energy delivered through a
cannula or probe. The energy generated by sound waves at the cannula tip causes
emulsification of fat cells through a process known as cavitation. The liquefied
fat is concomitantly removed from the body by suction. UAL has been practiced in
Europe and South America for almost a decade. Improvements in equipment and
technique in recent years appear to reduce the risk of complications and, as a
result, UAL has received significant attention from aesthetic surgeons in the
United States. Advances in technology have also resulted in ultrasonic equipment
and probe designs which are safer and more effective.
In numerous published papers, surgeons have reported advantages of UAL
over SAL including increased patient comfort during the procedure, reduced blood
loss, reduced damage to adjacent structures, less post-operative bruising and
swelling, a shorter recovery period and an ability to remove more fat per
procedure. The procedure has also received tremendous coverage in the popular
media, with magazine articles and
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segments on local and national news shows such as 20/20 and ABC Nightly News, as
well as on general television shows such as Oprah.
The Aesthetic, Cosmetic, Plastic and Reconstructive Surgery market is
comprised of many different medical specialties, including Plastic and
Reconstructive Surgeons, ENT Surgeons, Otolaryngology, Dermatology,
Oral-Maxillofacial and General Surgeons. The American Medical Association (the
"AMA") reports that there are approximately 5,000 Plastic Surgeons,
approximately 8,000 Dermatologists, approximately 8,000 ENT Surgeons, and
approximately 8,300 Oral/Ocular/Maxillofacial Surgeons, in the United States
alone. Internationally, the AMA reports approximately 24,500 physicians and
surgeons in these same specialties. An estimated 9,000 practitioners from these
various groups currently perform soft tissue removal procedures. An additional
100,000 liposuction procedures are performed annually outside the United States.
The Company has the exclusive worldwide license agreement from Misonix,
Inc. (Nasdaq: MSON) for the patented System (the LySonix 2000(TM) Ultrasonic
Surgical System), including all improvement patents, foreign patents and related
technology. The License Agreement also gives the Company the exclusive rights to
utilize the 510(K) clearance to market the System for use in fragmentation and
aspiration of soft tissue in plastic surgery. On October 22, 1998, Misonix, Inc.
transmitted a notice of default on its exclusive license agreement to the
Company due to late payments and other business developments (see Item 2.
"Management's Discussion and Analysis of Financial Condition and Results of
Operations"). The Company also has the worldwide (except for the former Soviet
Union) rights for a tip design which improves UAL results in certain
applications. UAL, SAL or a combination of either procedure. During 1998, the
Company received FDA 510(k) clearance to market the LySonix Series 250
Irrigation System.
In addition to the System, the Company has developed ancillary devices,
such as irrigation systems and aspiration systems, designed to work with the
ultrasonic surgical System. The Company's Irrigation System is available as a
stand alone system or as part of the ultrasonic surgical System Operative
Workstation to provide consistent and reliable irrigation. The LySonix Series
250 Irrigation System(TM) provides a mechanism of infusing tumescent fluid into
the patient in preparation for specialties.
The Company's Aspiration System, also available as a stand alone or as
part of the Operative Workstation, offers ultra-quiet, variable aspiration to
adapt suction rates. The LySonix Series 250 Aspiration System(TM) provides
intense vacuum generation for the removal of tissue and fluid during UAL, SAL or
a combination of either procedure. LySonix is the first company to have received
FDA 510(k) clearance to market an aspiration system specifically for SAL.
The Company's Operative Workstation, designed to hold and store the
Ultrasonic Surgical System, Irrigation System and Aspiration System, offers the
surgeon valuable operative working surface and convenient storage for the
surgical suite. The LySonix Series 250 Operative Workstation(TM) offers various
configurations to enable the surgeon to effectively operate using UAL, SAL or a
combination of both.
The Company has also developed the LySonix Ultra Precision TTD Cannula
Series(TM) for aspiration and irrigation, all with an advanced, ergonomically
designed handle. The Cannulas are available in five different tip configurations
and numerous diameters and lengths. During 1998, the Company received FDA 510(k)
clearance to market these cannulas for suction and aspiration. The Company also
sells a line of disposable system accessories which include irrigation sets,
aspiration tubing, aspiration filters and vacuum canister systems.
The Company has also acquired distribution rights for a number of
disposable, patient care products, including compression garments and
silicone-gel backed adhesive foam pads. Effective post-operative care is
essential in obtaining the best results and improving patient satisfaction. The
Company's line of high quality compression garments are manufactured using a
proprietary design and fabric to increase patient comfort. Each patient will
require an average of three compression garments for an ultrasonic-assisted
lipoplasty or traditional
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lipoplasty procedure. The Company also distributes a proprietary silicone-gel
backed adhesive foam, TopiFoam(TM), which provides a gentle adherent and
consistent compression distribution over which compression garments are applied.
TopiFoam can also be used for traditional lipoplasty post-operative care. The
Company is currently investigating other surgical accessories, including a line
of patient-positioning pads for use during surgical procedures.
The Company has also identified an external ultrasound system for use
post-operatively for relief of discomfort and increased maintenance of tissue
elasticity. The external ultrasound system consists of an externally applied,
low energy, unfocused ultrasound emitter which can be used either at the
surgeon's office or potentially by the patient for use at home during the first
month following a lipoplasty procedure. The Company anticipates private label
distribution of an external ultrasound system by the end of 1998.
The Company is also conducting preliminary investigation of a
proprietary-focused ultrasound system which has the potential to treat cellulite
and laxed skin. The transcutaneous ultrasound system would utilize focused
ultrasound to create a controlled plane of tissue damage at specific locations
within the subcutaenous tissue, which may result in controlled deposits of
fibrous tissue. The deposit of fibrous tissue could lead to the elimination of
cellulite, which is a dimpling of the posterior thighs and buttocks unrelated to
body fat content. The transcutaneous-focused ultrasound system would not require
incisions and could be performed under local anesthetic. Currently, no permanent
treatment for cellulite exists for the estimated 50% of the female population
who exhibit cellulite. The transcutaneous-focused ultrasound system may also
have the potential to tighten lax skin ("rhytids") on the face or elsewhere on
the body, such as the under side of the upper arm. Just as laser skin
resurfacing damages the external surface of the skin in a controlled manner
resulting in the amelioration of wrinkles, transcutaneous-focused ultrasound has
the potential to do the same to the deeper layers of the dermis and subcutaneous
fat, thereby resulting in skin contracture and "tightening". Used in conjunction
with laser resurfacing, transcutaneous-focused ultrasound could make a "no
incision" face lift procedure possible for selected patients. Again, the
investigation of this technology, the safety and efficacy of the ultrasound
equipment and controls have not been determined at this time for the focused
ultrasound project.
NICHE SPINAL/ORTHOPEDIC SURGERY
Approximately 400,000 spinal disectomies are performed annually in the
United States to alleviate herniated discs. When a disc herniates, the
gelatinous nucleus pulposa extrudes from the disc and pushes on spinal nerve
roots causing pain, numbness and weakness in the lower extremities. Relief of
this pain is directly proportional to the amount of nucleus pulposa removed
during the discetomy procedure. Open discetomy requires a large incision.
Approximately 80% of patients suffering from herniated discs are appropriate
candidates for percutaneous discetomy, a minimally invasive surgical technique
which utilizes a very small incision in the back under local anesthestic and
fluoroscopic guidance.
In percutaneous discetomy, the nucleus pulposa is percutaneously removed
using high vacuum aspiration combined with side-cutting probes, but is currently
limited in the amount of nucleus pulposa that can be removed by standard
mechanical aspirators. The use of ultrasound cavitation delivered via a surgical
system similar to the LySonix 2000 may allow a larger amount of disc material to
be aspirated and ultrasound-assisted percutaneous discetomy has the potential to
substantially decrease the number of patients who do not receive pain relief
from traditional percutaneous discetomy. The Company is currently developing
specialized instrumentation for the purpose of ultrasound-assisted percutaneous
spinal discetomy which could make percutaneous spinal discetomy procedures more
complete. The Company believes that the current 510(k) market clearance for the
LySonix 2000 would also cover ultrasound-assisted percutaneous spinal discetomy
and has initiated product development in conjunction with a number of spinal
surgeons.
Vertebral body compression fractures, caused by trauma, tumor ingrowth
or osteoporosis, result in severe back pain coupled with progressive
misalignment of the spine. When caused by osteoporosis, these compression
fractures tend to occur spontaneously and are much more common in women. Current
standard
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treatment for these fractures consists of a back brace and prolonged bed rest
with narcotic analgesics lasting as long as 2 to 3 months. The current standard
treatment is not uniformly successful in relieving the back pain and, because
the patients most susceptible to vertebral body compression fractures due to
osteoporosis are elderly women, extended periods of bed rest requires expensive
in-home or institutional care which can result in an overall decline in the
patient's health such that they can never fully return to self-care. Extended
bedrest also carries with it the potential for increased morbidity from deep
venous thrombosis formation (blood clots), pulmonary embolus and progressive
bone loss elsewhere in the body. Patients who have had one osteoporotic
compression fracture are at a substantial risk for the development of other
fractures and the prospect of multiple periods of prolonged bedrest and use of
pain-relieving narcotics to treat subsequent fractures leads to increased
debilitation.
Current demographics indicate that the U.S. population over the age of
50 will increase by 10% during the next 10 years and will grow another 24% in
the subsequent decade. By the year 2010, approximately 34% of the domestic
population will be over the age of 50. Occurrence of vertebral body compression
fractures is directly dependent on osteoporotic disease, which is directly
dependent on age. Approximately 1.5 million osteoporosis-related fractures occur
annually in the United States, with 700,000 vertebral body compression
fractures, 250,000 wrist fractures and 250,000 hip fractures. Current annual
treatment of osteoporosis-related fractures cost approximately $13.8 billion
annually, which includes surgical costs of approximately $3,500 per procedure
and prolonged rehabilitation for the largest percentage of fractures --
vertebral body compression fractures.
Percutaneous vertebroplasty is a minimally invasive technique whereby a
proprietary acrylic bone cement is injected into the vertebral body under
regional anesthesia and fluoroscopic control. Upon hardening, the cement
stabilizes the vertebral fracture, but does not expand the vertebra to its
original height. Stabilization of the fracture using minimally invasive bone
augmentation can relieve the pain within 24 hours in 85% to 90% of patients, who
usually leave the hospital within 24 hours of the procedure. The risk of
complication is very low, if the bone cement is appropriately opaque for
visualization under fluoroscopic guidance.
The Company recently completed the acquisition of Parallax Medical, Inc.
("PMI"), which was founded in 1997 to commercialize the technology of minimally
invasive bone augmentation ("MIBA"). PMI's scientific advisory board has treated
approximately 200 patients using the percutaneous vertebroplasty technique
described above, with approximately 800 patients treated over the past 3 years
in the United States. PMI has filed patents covering forms of cement
opacification for vertebroplasty, regardless of cement composition, along with
patents for specialized instrumentation for cement injection during percutaneous
vertebroplasty.
PMI has formed a strong alliance with the U.S. physicians who have
developed and modified this originally French technique for vertebroplasty.
Clinical efficacy has been demonstrated and the results for a large patient
series was published in the 1997 November/December issue of the peer-reviewed
journal, American Journal of Neuroradiology.
Epidemiological studies clearly show that the majority of vertebral
fractures occur between the fourth thoracic level and fifth lumbar level, with
the highest concentration between T8 and L3. Recent advances in technologies to
measure bone density coupled with the ability to use prophylactic injection of a
bone matrix material clearly has a market indication. Bone mineral density
("BMD") measurement techniques can be used to predict future vertebral
fractures, with some studies indicating that BMD measured 8 - 11 years prior can
be used to predict future vertebral fractures. The potential market for
prophylactic treatment of vertebrae could involve a percutaneous injection of 4
to 5 vertebral bodies with a bone matrix material to increase the compressive
strength of vertebral bodies between the T8 and L3 spine.
The percutaneous delivery technique has many potential applications. The
Company intends to leverage the current technology for expansion of the basic
PMI Vertebroplasty Plus(TM) Kit to meet the growing needs and develop the
targeted areas of bone augmentation for hips, knees and wrists. Fractures of the
spine
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and other load bearing skeletal structures due to trauma, degenerative diseases
and steroid treatment represent very large potential markets and the Company
believes it is in place to establish PMI as a potential leader in this niche
market.
Products currently scheduled for commercial sale in the United States
for the NSOS market segment include the PMI Vertebroplasty Patient Prep
Convenience Tray(TM), which contains the basic accessories for a vertebroplasty
procedure, and the Parallax CDS(TM) Cement Delivery System, which consists of
custom designed tools specifically developed for improved access to the
procedure site and controlled high pressure delivery of bone cement. Both of
these products will be supplied in sterile, ready to use packaging and are
classified as Class I Devices by the FDA. The Company has received FDA
clearances to market and expects to generate sales by early 1999. Products
scheduled for release later in 1999 include TRACERS(TM) which, when added to
bone cement, significantly increases the procedural visualization and safety,
and TRACER-RO(TM) RadioOpaque Bone Cement.
SALES AND MARKETING
The Company employs a specialized domestic direct sales force for sale
of the System and ancillary and disposable products. The sales force provides
product orientation, support and related services to doctors, hospitals, surgery
centers and clinics in the United States. The System is also being used
clinically in the United States under the auspices of the Ultrasound-Assisted
Lipoplasty Task Force (the "UAL Task Force"), which includes representatives of
the ASAPS, the ASPRS, the Plastic Surgery Educational Foundation ("PSEF"), the
Aesthetic Surgery Education and Research Foundation ("ASERF") and the Lipoplasty
Society of North America ("LSNA"). The System is also being used in the United
States under the auspices of the Liposuction Educational Research Foundation
Task Force (the "LERF" Task Force), which includes representatives of the
American Academy of Cosmetic Surgery ("AACS"). The Company is also working with
the American Academy of Dermatology ("AAD") which is studying the technology and
training physicians in the use of the System. The Company also promotes its
products through journal advertising, direct mail programs and participation in,
and sponsorship of, medical conferences and seminars.
The Company exports its products for sale internationally. The Company
has distribution arrangements for the sale of the System in Europe, Mexico,
Central and South America, Asia and the Pacific Rim. For the nine months ended
September 30, 1998 and the year ended December 31, 1997, export sales to
distributors were $1,765,455 and $989,609, 23.0% and 9.1% of total consolidated
revenues, respectively. There were no export sales during the year ended
December 31, 1996. Export sales have been made in United States dollars and
currency fluctuations have not constituted significant risks.
In general, the Company maintains sufficient inventories of finished
goods both domestically and internationally to support immediate shipment of
products upon receipt of customers' orders. From time to time, however, a
back-order situation may develop due to increased demand for a product or
special circumstances, such as regulatory restrictions.
See "Manufacturing" for a further discussion.
During the nine months ended September 30, 1998 and the year ended
December 31, 1997, no customer accounted for more than 10% of the Company's
revenue.
Although the Company cannot market the System specifically for UAL in
the United States, in 1996 the UAL Task Force issued a position paper that
reported the FDA "has provided a 510(K) to Medical Device Alliance Inc.,
manufacturer of an ultrasonic device for soft tissue removal in plastic
surgery....However, the FDA has not given approval of any ultrasonic device for
the specific purpose of lipoplasty. Clinical use of ultrasonic devices by
plastic surgeons for lipoplasty is therefore considered `off label' by the FDA,
although such use is not necessarily illegal or inappropriate."
COMPETITION
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The Company believes that it is one of the leading suppliers of
ultrasonic surgical systems for use in fragmentation and aspiration of soft
tissue in the United States, based upon the number of Systems shipped since the
Company's inception.
The Company currently competes with three entities involved in
developing devices for UAL: SMEI (Italy); Mentor Corporation (Santa Barbara,
California); and Sonics and Materials, Inc. (Danbury, Connecticut). Although
there may be other companies in Europe which are investigating UAL devices, to
the best of the Company's knowledge, these three competitors are the only
companies which have received regulatory approvals in the United States for soft
tissue aspiration using ultrasonic equipment or devices. To the best of the
Company's knowledge, out of these three competitors, only Mentor Corporation has
had limited commercial sales in the United States during the first half of
calendar year 1998.
It is the Company's belief that the Company's Ultrasonic Surgical System
offers advantages over the competition, including over 3 years of clinical use
at numerous sites in the United States. The Company's System has several
feedback circuits that assist the surgeon in monitoring the rate and efficiency
of fat removal. The System has a handpiece which is manufactured of medical
grade thermoplastics and titanium. The System's titanium alloy probes (cannulas)
are manufactured from hi-tech alloy metals and are precisely bored ("gun
drilled") and tuned to deliver and maintain a constant axial vibration with no
transverse (sideways) vibration which prevents hot spots from developing along
the probe. In the Company's opinion, the patented probe tip, with a truncated
inverted cone design, is the most efficient probe tip configuration which
captures and disintegrates fat tissue in the immediate proximity of the tip. In
addition, the tip's shape helps to push the liquefied fat up the probe shaft,
speeding the removal of the aspirant and preventing clogging of the probe. The
Company has developed a patent pending "skin protector" designed to prevent
abrasion at the incision site and is also developing disposable ancillary
devices and equipment for use in fat removal procedures.
While the Company believes that it can compete successfully in its
markets, one or more of the Company's competitors have substantially greater
financial and marketing resources. Additionally, one or more of the Company's
competitors may achieve patent protection which could have a material adverse
effect on the Company. The Company may pursue patent litigation or patent
interference proceedings with holders of competitive patents. In April 1997, the
Company was notified that an alleged patent infringement suit was filed against
the Company and its wholly-owned subsidiary, LySonix. The suit was filed by
Mentor Corporation (Nasdaq: MNTR), a medical and surgical device company that
develops and markets silicone-based products to specialty medical markets (see
Item 8. "Legal Proceedings"). Defending any alleged patent infringement or
pursuing patent litigation or interference proceedings will cause the Company to
incur substantial costs in such proceedings. In addition, such proceedings may
impact the Company's competitive position and there can be no assurance that
they will be successful.
GOVERNMENT REGULATION
The production, marketing and distribution of medical devices are
subject to regulation by various government authorities both in the United
States and other countries.
In the United States, the Company's medical device products are
regulated by the FDA through the Federal Food, Drug & Cosmetic (FD&C) Act. The
FD&C Act and various other federal and state statutes control and otherwise
impact the development, manufacture, testing, storage and distribution of the
Company's products. Under the "Medical Device Amendments of 1976" (the "Medical
Device Act"), the FDA has the authority to adopt regulations that: (i) set
standards for medical devices; (ii) require proof of safety and effectiveness
prior to marketing medical devices which the FDA believes require pre-market
clearance; (iii) require test data approval prior to clinical evaluation of
human use; (iv) permit detailed inspections of device manufacturing facilities;
(v) establish "good manufacturing practices" that must be followed in device
manufacturing; (vi) require reporting of product defects to the FDA; and (vii)
prohibit device exports that do not comply with the Medical Device Act unless
they comply with established foreign regulations, do not conflict with foreign
laws, and the FDA and the health agency of the importing country determine
export is not
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contrary to public health. All of the Company's products are "medical devices
intended for human use" within the meaning of the Medical Device Act and are,
therefore, subject to FDA regulation.
The Medical Device Act establishes complex procedures for compliance
based upon FDA regulations. Any company engaged in the manufacture, processing
or distribution of a medical device is subject to regulations enforced by FDA.
The level of regulation or control is determined by the "Class" in which a
device is placed by the agency.
Class I medical devices are subject to "General Control" requirements
which include facility registration, device listing, compliance with labeling
and recording keeping requirements, Premarket Notification and Current Good
Manufacturing Practices (CGMPs). Class II devices are subject to certain
performance standards in addition to General Controls.
Class III devices are the most extensively regulated because the FDA has
determined that they are life-supporting, are of substantial importance in
preventing impairment of health, or present a potential unreasonable risk of
illness or injury. The effect of classifying a device into Class III is to
require the manufacturer to submit information to the FDA, proving the device to
be substantially equivalent to devices marketed before the Medical Device Act
was mandated or providing appropriate clinical studies which includes
statistical analysis of the safety and effectiveness on the device in order to
obtain a 510(k) or Premarket Approval (PMA) application from FDA.
Some medical devices are intended only to be used for investigational
purposes. The FD&C Act authorizes FDA to exempt these manufacturers from certain
requirements, allowing distribution for use on humans without Premarket
Approval. FDA grants this exemption through an IDE and only to studies gathering
safety and effectiveness data.
The FDA has recently classified lipoplasty devices as Class II devices,
but the Company has not received clarification on whether ultrasonic surgical
systems used in lipoplasty will also be classified as Class II devices. The
Company's System and ancillary devices are, therefore, classified as Class II
devices, while most of the Company's disposable health care products are
classified as Class I.
To comply with the Medical Device Act, the Company has incurred, and
will continue to incur, substantial costs relating to laboratory and clinical
testing of new and existing products and the preparation and filing of documents
in the formats required by the FDA. From time to time, the Company may encounter
delays in bringing new products to the market as a result of being required by
the FDA to conduct and document additional investigations of product safety and
effectiveness. The Company is currently collecting data in support of various
FDA applications and although the Company believes its protocols and data to be
sufficient to satisfy FDA requirements, approval cannot be assured. Should the
Company's FDA applications be denied, it would have a material adverse effect on
the Company's operations and financial position.
Internationally, medical devices are subject to various regulatory
authorities and the controls vary widely from country to country. Approval
methods and timing of submissions will depend on the device product being
distributed and each country's regulatory requirements. Additionally, many
countries accept and will utilize data collected in support of a U.S. FDA market
clearance application (510(k) or PMA). Other regulations many require
comprehensive device approval requirements for some or all of the Company's
products to requests for product data or certifications.
As a manufacturer of medical devices, the Company's manufacturing
processes and facilities are subject to continuing review by the FDA and various
state agencies to insure compliance with CGMPs. In California, the Company is
also subject to regulation by the local Air Pollution Control District and the
United States Environmental Protection Agency as a result of some of the
chemicals used in its manufacturing processes.
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<PAGE> 11
HEALTH CARE COST CONTAINMENT
The cost of a significant portion of medical care in the United States
is funded by government and private insurance programs, such as Medicare and
corporate health insurance plans. Accordingly, third parties, rather than
patients, frequently pay all or a substantial portion of the costs of goods and
services delivered by health care providers. Procedures performed using the
Company's System are generally paid for directly by the patient, but in the
future some of the Company's products may be eligible for coverage under
third-party reimbursement programs. Currently, the Company's disposable
after-care products are also paid for directly by the patient.
In the future, eligibility for third-party reimbursement may be an
important factor in the success of the Company's medical products, although
traditionally products used for aesthetic surgery are paid for directly by the
patients. The Company may elect, in the future, to obtain eligibility of certain
products for such reimbursement. Reimbursement plans, whether through
government-funded Medicare or private third-party insurers, are developing
increasingly sophisticated methods of controlling health care costs through
prospective reimbursement programs, capitation programs, group buying, redesign
of benefits, requirements of a second opinion prior to major surgery, careful
review of bills, encouragement of healthier lifestyles and exploration of more
cost-effective methods of delivering health care. These types of programs can
potentially limit the amount which health care providers may be willing to pay
for medical products. There can be no assurance that the Company will be
successful in obtaining reimbursement for any products in the future and such
occurrence may have a detrimental effect on sales of an affected product.
PRODUCT DEVELOPMENT
At December 31, 1997, the Company employed 3 persons engaged in
full-time research and development. The Company intends to introduce new or
improved products during fiscal 1999 in its main product line, including
ancillary devices for use with the Company's System. However, the Company may
need to curtail spending on research and development as a result of its current
liquidity situation (see Item 2. "Management's Discussion and Analysis of
Financial Condition and Results of Operations").
The Company believes its future growth will continue to depend in part
upon the introduction of new products that provide superior results, command
premium prices and have significant growth potential. The Company works closely
with health care professionals to ensure new product development is responsive
to the needs and concerns of health care professionals and their patients.
During the nine months ended September 30, 1998 and the years ended
December 1997, 1996 and 1995, the Company spent a total of $346,457, $1,017,487,
$712,146 and $151,110, respectively, for research and development.
PATENTS AND LICENSES
It is the Company's policy to actively seek patent protection for its
products when appropriate. The Company's success will depend, in part, on its
and its licensors' ability to obtain, from Misonix, and protect patents, protect
trade secrets and operate without infringing on the proprietary rights of
others. The Company has been issued or has filed applications for U.S. and
foreign patents and has licenses or exclusive license options to patents or
patent applications of others. Through various agreements, the Company has
obtained exclusive worldwide rights for the System, all improvement patents,
foreign patents and related technology. The Company also has the exclusive
rights to utilize the 510(K) clearance to market the System for use in
fragmentation and aspiration of soft tissue in plastic surgery. The Company also
has the worldwide (except for the former Soviet Union) rights for a tip design
which is expected to improve UAL results in certain applications. The Company
also has exclusive distribution rights in the United States for a complete
product line of high quality compression garments.
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<PAGE> 12
The patent position of medical device firms generally is highly
uncertain and involves complex legal and factual questions. There can be no
assurance that the Company's patent applications will be approved, that any
issued patents will provide the Company with competitive advantages or will not
be challenged by others, or that the patents of others will not have an adverse
effect on the Company (see Item 8. "Legal Proceedings").
The Company's competitors and other companies, institutions and
individuals have been issued patents which are competitive with the Company's
patents or patent applications. In addition, the Company's competitors and other
companies, institutions and individuals may have been issued competitive patents
of which the Company is not aware. Furthermore, the Company's competitors and
other companies, institutions and individuals may in the future file
applications for, or may license or otherwise obtain proprietary rights to,
patents which are competitive with the Company's patents or patent applications,
or which conflict in certain respects with claims made under the Company's
applications. Such conflicts could result in a reduction in coverage or denial
of the Company's patent applications or patents or could have an adverse effect
on the Company's competitive position. In the event of such conflicts, the
Company may pursue interference proceedings against, or may be required to
defend patent litigation or patent interference proceedings with, holders of
such competitive patents (see Item 8. "Legal Proceedings"). The Company may
incur substantial costs in such proceedings. Such proceedings may adversely
effect the Company's competitive position and there can be no assurance that
they will be successful. In addition, if patents that contain competitive or
conflicting claims are issued to others and such claims are ultimately
determined to be valid, the Company may be required to obtain licenses to
patents or other proprietary rights of others. No assurance can be given that
any licenses required under any such patents or proprietary rights would be made
available on terms acceptable to the Company, if at all. If the Company does not
obtain such licenses, it could encounter delays or could find that the
development, manufacture or sale of products requiring such licenses is
foreclosed. Furthermore, there can be no assurance that others will not
independently develop similar products, will not duplicate any of the Company's
products or, if patents are issued to the Company or its licensors, will not
infringe such patents. The Company could incur substantial costs in defending
itself in suits brought against it on its patents or in bringing suits to
protect the Company's patents. There can be no assurance that any such
proceedings will be successful.
The Company also protects its proprietary technology and processes in
part by confidentiality agreements with its partners, employees and consultants.
There can be no assurance that these agreements will not be breached, that the
Company will have adequate remedies for any breach, or that the Company's trade
secrets will not otherwise become known or be independently discovered by
competitors.
PRODUCT LIABILITY AND WARRANTIES
The Company conducts its product development, manufacturing, marketing
and service and support activities with careful regard for the consequences to
its customers and patients. If the Company receives any communication from a
customer claiming a defective product, the Company's policy is to replace any
product claimed to have malfunctioned as soon as possible. The Company provides
a limited warranty on ultrasonic surgical systems and other capital equipment
against defects in workmanship and material. Estimated warranty costs are
provided at the time of sale and periodically adjusted to reflect actual
experience.
MANUFACTURING
Currently the Company's ultrasonic surgical system and ancillary devices
are manufactured for the Company by other companies. Each of the companies
manufacturing the Company's products have facilities designed to accommodate the
specialized requirements for the manufacture of medical devices and the
Company's future manufacturing facilities will also accommodate regulations for
GMP's. These include segregated shipping and storage areas, production
quarantine areas and, where necessary, clean rooms having separate air filtering
systems for sterile products. The facilities will also include recovery and
control equipment required to maintain compliance with applicable environmental
laws and regulations.
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<PAGE> 13
The Company obtains its raw materials, components and finished goods
relating to the System from one supplier, Misonix, Inc. In most other cases, the
Company's sources of supply could be replaced if necessary without undue
disruption, but in the case of Misonix, Inc., an interruption in required
deliveries would have a significant adverse impact on the Company's results of
operations. No material interruptions occurred during the nine months ended
September 30, 1998 and the year ended December 31, 1997. On October 22, 1998,
Misonix, Inc. transmitted a notice of default on its exclusive license agreement
to the Company due to late payments and other business developments (see Item 2.
"Management's Discussion and Analysis of Financial Condition and Results of
Operations").
EMPLOYEES
As of December 31, 1997, the Company had 59 employees of whom 10 were in
manufacturing, 32 in sales and marketing, 3 in research and development and 14
in finance and administration. None of the Company's employees is subject to a
collective bargaining agreement. The Company has never experienced a work
stoppage and considers its employee relations to be satisfactory. Since December
31, 1997, as a result of its current liquidity situation, the Company has
reduced its employee work force by 14 percent.
BUSINESS FACTORS
In evaluating the Company's business, the following business factors
should be carefully considered. In addition, this document contains certain
forward-looking statements and trend analysis based on current expectations.
Actual results may differ materially due to a number of factors, including those
set forth below.
Early Stage of the Company and its Products. The Company and its
products are in an early stage of development. The Company had no commercial
product sales in 1995 and generated limited commercial product sales of the
Company's devices in 1996. The Company's revenues in 1996 consisted of payments
for its devices which were purchased by others engaged in clinical testing of
UAL. The Company was able to dramatically increase product sales in 1997, but
its operations have not as yet attained profitability. To achieve profitable
operations and remain so on a continuing basis, the Company must successfully
improve, introduce, market and distribute its products. The time frame necessary
to achieve market success for any individual product is uncertain. Most of the
Company's products will require additional research and development,
pre-clinical testing and clinical testing prior to commercialization. There can
be no assurance that the Company's research or product development efforts will
be successfully completed, that required regulatory approvals can be obtained,
that products can be manufactured at acceptable cost and with appropriate
quality, that any approved products can be successfully marketed, or that any
products that may be marketed will be favorably accepted.
History of Losses; Uncertainty of Future Profitability. As of December
31, 1997, the Company had accumulated net losses of $8.9 million dollars since
its inception in 1995, and losses continue in 1998. These losses have resulted
primarily from the Company's acquisition of exclusive rights to a patented
ultrasonic system which has received 510(K) clearance to be marketed for use in
ultrasonic soft tissue aspiration, research and development activities,
pre-clinical and clinical testing, marketing activities and the general and
administrative expenses associated with these activities. In addition, the
Company has incurred significant costs related to its attempts to acquire or
form strategic alliances with other entities (see Item 7. "Certain Relationships
and Related Transactions"). The extent of losses and the time required to reach
profitability are highly uncertain. To achieve sustained profitable operations,
the Company must successfully develop, test, manufacture, market and distribute
its products. There can be no assurance that the Company will be able to achieve
profitability or that profitability, if achieved, can be sustained on an ongoing
basis. Moreover, if profitability is achieved, the level of that profitability
cannot be accurately predicted (see Item 2. "Management's Discussion and
Analysis of Financial Condition and Results of Operations").
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<PAGE> 14
Additional Financing Requirements and Uncertainty of Capital Funding.
The Company will require additional funding to be able to continue to conduct
its operations in the normal course of business (see Item 2. "Management's
Discussion and Analysis of Financial Condition and Results of Operations"),
acquire other patented technology, conduct research and development and
pre-clinical and clinical testing, obtain regulatory approval for its products,
and to manufacture, distribute and market its products. The Company currently
anticipates that it will also need to obtain additional financing in 1998 and
1999 to acquire additional targeted technologies and/or companies. The Company's
capital requirements will depend on numerous factors including the progress and
magnitude of the Company's sales, the time involved in obtaining additional
regulatory approvals, the cost involved in filing, prosecuting and enforcing
patent claims, technological advances, competitor and market conditions, the
ability of the Company to establish collaborative arrangements, and the cost and
effectiveness of commercialization activities and arrangements. The Company has
raised funds in the past through private stock sales to officers, directors and
accredited investors and may consider collaborations with various companies and
other potentials for equity investment, license agreements or other funding. The
Company contemplates raising funds in the future through public or private
financings, collaborative arrangements or from other sources. It is unlikely
that the Company will be able to satisfy its financing requirements from banks
or other traditional lending institutions. There can be no assurance that the
necessary additional financing will be available to the Company on acceptable
terms, if at all. If additional funding is not available to the Company when
needed, the Company will be required to curtail development programs if revenues
are not sufficient to fund these activities and the Company's business and
financial condition would be materially adversely affected.
Fluctuations in Quarterly Results: The Company's quarterly results have
varied in the past and the Company expects its quarterly operating results to
continue to fluctuate. The Company's net revenues may fluctuate due to a variety
of factors, including the level of expenditures by doctors, hospitals, clinics
and surgery centers for capital equipment, including the System, and related
products and services in general, demand for the Company's products and services
in particular, the timing of orders for the Company's products and services,
product supply constraints and customer demand driven by the introduction and
acceptance of new or competitive products. Due to its varying product gross
margins, the Company's operating results may be especially sensitive to changes
in the margin mix of products sold and the level of its operating expenses. The
Company's expenses may fluctuate as a result of numerous factors, including
interest rates, the timing and rate of new employee hiring, the amount and
timing of vendor-provided allowances, the utilization rate of service personnel,
competitive conditions and the impact of future alliances. The Company's costs
are largely fixed in the near term and the Company may be unable to adjust
spending in a timely manner to compensate for an unexpected revenue shortfall.
As a result, revenue shortfalls may have an immediate and disproportionate
adverse effect on operating results. In addition, if the Company spends to build
its capabilities to support higher revenue levels, the Company's near term
operating results will suffer until it achieves its revenue goals. Due to the
Company's sales history growth, it is difficult to discern seasonal trends.
However, the Company believes that 4th quarter revenues may be negatively
affected due to generally lower capital equipment purchases during the 4th
quarter; and, specifically, in December. Due to all of these factors, the
Company believes that its operating results are likely to vary on a quarterly
basis. As a result, period-to-period comparisons of its operating results are
not necessarily meaningful, and quarterly results may not be indicative of
results to be expected for a full year.
Gross Margin for Product Sales: Substantially all of the Company's net
revenue in the first nine months of 1998 and in fiscal 1996 and 1997 were
generated through sales of the System and related products. The Company believes
that competitive conditions will continue to place pressures on its product
gross margins. Furthermore, the original purchase price of products is often
offset by allowances and negotiated price reductions granted by the Company.
There can be no assurance that these allowances or price reductions will
continue at the current levels. An increase in such programs to meet competition
or generate sales could significantly decrease the Company's product gross
margins. Narrow product gross margins result in fluctuations in net revenues and
operating costs which may have a disproportionate impact on the Company's
operating results. Declines in the Company's product gross margins may have a
material adverse effect on the
14
<PAGE> 15
Company's business, operating results and financial condition. See Item 2.
"Management's Discussion and Analysis of Financial Condition and Results of
Operations".
Dependence upon Key Suppliers: The Company currently depends upon
outside suppliers to provide finished ultrasonic systems, compression garments,
TopiFoam and certain parts used in the Company's other products. Although the
Company has entered into exclusive agreements with certain of its suppliers,
there can be no assurance that such products will continue to be available to
the Company's standards or that these arrangements will be successful or that
the Company will not encounter delays or other problems which may adversely
affect its business. Where possible and appropriate, the Company intends to
identify alternative suppliers, enter into supply contracts or produce certain
materials or components in-house. There can be no assurance that the Company
will be able to produce needed materials or components in-house in a timely
manner or in sufficient quantities to meet the needs of the Company, if at all.
On October 22, 1998, Misonix, Inc. transmitted a notice of default on its
exclusive license agreement to the Company due to late payments and other
business developments (see Item 2. "Management's Discussion and Analysis of
Financial Condition and Results of Operations").
Dependence upon Key Personnel and Consultants:The Company's ability to
successfully develop its products, manage growth and maintain a competitive
position will depend in a large part on its ability to attract and retain highly
qualified executive officers, managers, technical and sales personnel and to
develop and maintain relationships with leading research institutions and
consultants. The Company is highly dependent upon its Chairman and President,
the principal members of its management, key employees, scientific staff and
consultants which the Company may retain from time to time. Competition for such
personnel and relationships is intense and there can be no assurance that the
Company will be able to continue to attract and retain such personnel. The
Company's consultants may be affiliated or employed by others and some have
consulting or other advisory arrangements with other entities that may conflict
or compete with their obligations to the Company. The Company addresses such
potential conflicts by requiring that its consultants, collaborators and
sponsored researchers execute confidentiality agreements upon commencement of
relationships with the Company, by closely monitoring the work of such persons
and by requiring material transfer and patent assignment agreements wherever
possible and appropriate. Inventions or processes discovered by such persons
will not necessarily become the property of the Company and may remain the
property of such persons or others.
Management of Growth: The Company has experienced significant growth
since its inception in September 1995. This growth has placed, and is expected
to continue to place, a significant strain on the Company's management,
financial, sales, technical and support systems and personnel. The Company's
ability to manage its growth effectively will require it to continue to develop
and improve its operational, financial and other internal systems and train,
manage and motivate its employees. The Company has in the past and will continue
in the future to evaluate the acquisition and/or strategic alliance of
businesses that complement or expand the Company's technical skills, product
lines or geographical presence. Integrating newly-acquired companies could be
costly and may result in the loss of customers and key personnel and may disrupt
operations. Additionally, integrating newly-acquired businesses may divert
significant management resources and attention from day-to-day operations.
Competition and Technological Uncertainty: The Company operates in a
rapidly evolving field and the medical device industry is intensely competitive.
Competition from other domestic and foreign companies, medical device and other
research and academic institutions in the areas of product development, product
and technology acquisition, manufacturing and marketing is intense and is
expected to increase. These competitors may succeed in obtaining approval from
the FDA or other regulatory agencies for their products more rapidly than the
Company. Competitors have also developed or are in the process of developing
technologies that are, or in the future may be, the basis for competitive
products. Some of these products may have an entirely different approach or
means of accomplishing the uses for which the Company is developing its
products. The Company has identified three competitors involved in developing
devices for UAL: SMEI (Italy); Mentor Corporation (Santa Barbara, California);
and Sonics and Materials, Inc. (Danbury, Connecticut).
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<PAGE> 16
Although there may be other companies in Europe which are investigating UAL
devices, to the best of the Company's knowledge, these three competitors are the
only companies which have received regulatory clearances in the United States
for UAL equipment or devices. The Company may also compete against other
regional and local companies, many of which may have long-standing customer
relationships. Some of the Company's competitors have greater financial and
marketing resources at a lower cost structure than the Company. As a result,
such competitors may be able to respond more quickly to new or emerging
technologies and changes in customer needs, devote more resources to the
development, promotion and sales of their products or deliver products at a
price lower than the Company. In addition, competition could result in price
decreases and depress gross margins in the industry. Further declines in the
Company's gross margins may exacerbate the impact of fluctuating net revenues on
the Company's operating results and have a material adverse effect on the
Company's business, operating results and financial condition.
Risk of Inventory Obsolescence; Inventory Management: In order to offer
rapid delivery and efficient support and service to its customer, the Company
maintains relatively high levels of products and parts inventory. The Company
attempts to protect itself from inventory obsolescence and inventory price
reductions by minimizing its purchase orders for future products at a reasonable
level. Changes in industry practices which increase the risk associated with
maintaining high levels of inventory, the Company's inability to effectively
manage its current and future inventory, or significant adjustments to the value
of its inventory could materially and adversely affect the Company's business,
operating results and financial condition.
Rapid Technological Change: The medical device industry is subject to
rapid technological change, evolving industry standards and frequent new product
and service introductions. The Company must, on a timely and cost-effective
basis, continuously respond to new product introductions and source such new
products, develop and introduce new products which keep pace with technological
developments and increasingly sophisticated medical environments, and train its
employees to provide the necessary services to support new products. There can
be no assurance that the Company will be able to source new products to meet
customer demand, respond to technological developments in a timely manner, if at
all, or that its service offerings will adequately meet the changing
requirements of its customers and achieve market acceptance. Further, suppliers
may restrict the Company's access to new products. The Company's failure to
successfully source new products or develop and introduce new products or
services which meet evolving customer needs could have a material adverse effect
on the Company's business, operating results and financial condition.
Absence of Dividends: The Company has never declared or paid any cash
dividends on its Common or Preferred Stock and does not presently intend to pay
cash dividends on the Common or Preferred Stock in the foreseeable future. The
Company currently anticipates that it will retain any future earnings for
reinvestment in its business.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following selected consolidated financial data should be read in
conjunction with the consolidated financial statements of the Company and the
related notes thereto included elsewhere herein. The consolidated statements of
operations data set forth below with respect to the nine months ended September
30, 1998 and the years ended December 31, 1997 and 1996 and the consolidated
balance sheet data set forth below as of September 30, 1998, December 31, 1997
and 1996 are derived from the consolidated financial statements of the Company
included elsewhere in this Registration Statement.
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<PAGE> 17
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------------------- ---------------------------------------------------
1998 1997 1997 1996 1995
------------ ----------- ------------ ------------ -----------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues $ 7,688,065 $ 8,699,413 $ 10,935,286 $ 295,108 $ -0-
Costs and expenses 14,207,786 13,707,925 1,822,587 18,782,011 170,887
Loss from operations (6,519,721) (5,008,512) (7,846,725) (1,527,479) (170,887)
Other income, net 506,137 251,792 624,675 --0-- --0--
Net loss (6,013,584) (4,756,720) (7,222,050) (1,527,479) (170,887)
============ ============ ============ ============ ============
Net loss per common share $ (0.65) $ (0.72) $ (1.09) $ (0.29) $ (0.04)
============ ============ ============ ============ ============
Shares used in computing net
Loss per common share (1) 9,190,203 6,583,223 6,637,418 5,348,316 4,002,703
============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
--------------- ----------------------------------------------------
1998 1997 1996 1995
-------------- ------------ ------------ ---------
(Unaudited)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents .............. $ 696,965 $ 3,746,577 $ 631,497 $--0--
Working capital ........................ 2,238,952 9,122,188 1,969,416 (340,252)
Total assets ........................... 23,625,718 22,409,549 2,733,068 327,490
Accumulated deficit .................... (14,934,000) (8,920,416) (1,698,366) (170,887)
Total stockholders' equity
(deficit) ............................. 16,783,998 13,721,749 2,470,434 (27,762)
============ ============ ============ ============
</TABLE>
(1) See Note 2 of Notes to Consolidated Financial Statements for information
concerning the computation of net loss per common share.
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<PAGE> 18
This section contains trend analysis and other forward-looking
statements based on current expectations. Actual results may differ materially,
due to a number of factors, including those set forth in the section entitled
"Business Factors" contained in Item 1. of this Registration Statement.
OVERVIEW
Since its inception, the Company has been principally engaged in
acquiring, developing, manufacturing and marketing devices and ancillary
products for an emerging medical procedure which results in the removal of body
fat through the use of ultrasound. The removal of fat tissue, a procedure known
as suction lipectomy, is the most frequently performed cosmetic surgical
procedure in the United States. Traditionally, suction lipectomy has been
performed using a cannula and a suction device. The use of specialized
ultrasonic devices and probes for soft tissue aspiration, known as UAL, provides
less traumatic soft tissue removal with less post-operative bruising. The
Company had no revenue in 1995, has been unprofitable since its founding and has
incurred a cumulative net loss of approximately $14.9 million as of September
30, 1998.
The Company's revenues were primarily derived from sales of the System
and related ancillary and disposable products. The Company had limited product
sales in 1996 and was able to dramatically increase product sales in 1997, but
has experienced a softening of sales during the first nine months of 1998. It
may be that until the Company is able to market its principal product
specifically for a designation of "lipoplasty" and receives requisite regulatory
approvals, increases in product sales may not occur.
The Company anticipates that future revenues and results of operations
will continue to fluctuate significantly depending on, among other factors, the
timing and outcome of applications for regulatory approvals, and the Company's
ability to successfully manufacture, market and distribute its products and new
products.
REVENUES
The Company's revenues for the nine months ended September 30, 1998 and
1997 were $7,688,065 and $8,699,413, respectively, and $10,935,286 and $295,108
for the full year 1997 and 1996, respectively. The strong growth from 1996 was a
result of increased sales of the System and related products caused by the
establishment of a sales force whose efforts created a strong initial demand for
these UAL products. International sales were $989,609 in 1997, representing 9.1%
of consolidated net sales in 1997. Since inception through December 31, 1997,
sales increases have been primarily due to the sale of UAL products. However,
during the first nine months of 1998, the Company has been experiencing a
softening in the sales of its UAL products, though international sales have
increased to $1,765,455 or 23.0% of consolidated net revenues.
COST OF REVENUES
Cost of product sales was 53.2% of revenues for the nine months ended
September 30, 1998, compared to 40.8% and 26.5% for the full year 1997 and 1996,
respectively. The cost of the Company's UAL products increased because of its
transition from the development stage in 1996 to production levels in 1997. Cost
of product sales as a percentage of revenues have continued to increase in 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses were 119.9% of revenues for
the nine months ended September 30, 1998, compared to 99.5% and 342.7% for the
full year 1997 and 1996, respectively. During late 1996 and continuing into
1998, the Company was in the process of building up its infrastructure by
arranging corporate offices, administrative staff and locating and recruiting
key management. However, as more fully
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<PAGE> 19
discussed in the "Liquidity and Capital Resources" section, the Company
implemented measures in September 1998 to reduce its infrastructure as a result
of continuing losses and current liquidity situation.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses decreased to 4.5% of revenues for the
nine months ended September 30, 1998, when compared to 9.4% and 241.3% for the
full year 1997 and 1996, respectively. The Company had expended funds on its FDA
applications for the System, ancillary devices and disposable patient care
products. In addition, the Company began clinical studies on several new
products, including, as a result of the PMI acquisition, the development of a
vertebroplasty delivery system and radiopaque bone cements. While the Company
had expected to spend approximately as much money on its research and
development projects in 1998 as was spent in 1997 at LySonix, and intends to
invest $4,000,000 at PMI over the subsequent four years from the date of
acquisition, it will curtail spending on research and development as a result of
its current liquidity situation until or unless it is able to achieve commercial
viability or obtain additional funds.
OTHER INCOME, NET
Other income, net, which represents primarily interest income, increased
in 1998 and 1997 primarily because of loans made by the Company to certain
shareholders and affiliates at interest rates above treasury and other bank
deposit interest rates (see Item 7. "Certain Relationships and Related
Transactions"). The Company had no interest income or expense in the years 1996
or 1995.
INCOME TAXES
As of December 31, 1997, the Company had approximately $5.1 million of
net operating loss carryforwards for federal income tax purposes, which expire
at various dates from the years 2010 through 2012. In addition, the Company has
approximately $100,000 general business tax credit carryovers which will expire
in 2011 and 2012. The Company's ability to utilize the net operating loss
carryforwards, without limitation, is uncertain.
NET LOSS
Net loss per common share in 1998 will be effected by the conversion of
a Convertible Debenture, which resulted in the issuance of 107,142 shares of
Common Stock in November 1998.
INFLATION
The Company does not believe that inflation has had a material impact on
its results of operations since inception through September 30, 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company has incurred net operating losses since inception and
expects to continue to incur such losses unless and until its products
successfully achieve commercial viability. In addition, a significant portion of
its contributed capital was invested in a publicly-traded company, Direct
Connect International (see Note 2 of Notes to Consolidated Financial
Statements), and advanced to an affiliated entity for the purpose of possibly
forming a strategic alliance with another medical device company, Inamed
Corporation (see Item 7. "Certain Relationships and Related Transactions" and
Note 4 of Notes to Consolidated Financial Statements). The repayment of these
advances was made primarily with long-term assets. These and other factors have
caused a severe liquidity problem at the Company. Management of the Company has
implemented a cost reduction plan which has reduced monthly operating expenses.
Among the actions taken by the Company in 1998 was the curtailment of certain
research and development activities and, in September, the reduction of its
sales and administration staff. While management believes that it has the means
through existing capital, forecasted
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<PAGE> 20
sales, the availability of other resources and by implementing cash-conserving
measures to fund its operations into the foreseeable future, it will be
necessary for the Company to obtain additional financing during 1998 and 1999 to
sustain its operations and support the future growth of the business.* However,
there can be no assurance that it will, among other things, be able to
successfully consummate and integrate any acquisition of businesses, complete
clinical trials, obtain appropriate regulatory clearance to market its products
(or that such clearance will be obtained on a timely basis), scale up its
manufacturing process or obtain capital when needed and on favorable terms in
order to successfully commercialize its products.
On October 22, 1998, Misonix, Inc. ("Misonix") transmitted a notice of
default on its exclusive license agreement to the Company due to late payments
and other business developments. Misonix also announced that it was taking a
reserve for possible bad debts of approximately $1,700,000 against accounts
receivable due and owing by the Company, and that it was exploring one or more
avenues leading to the collection of the amounts due and termination of the
exclusive license agreement which could lead to direct sale and exploitation of
the System. The Company has commenced discussions to resolve this matter and,
under the terms of the license agreement, has 60 days to cure the notice of
default. While the Company is optimistic that it will be able to satisfactorily
resolve this matter with Misonix, no assurances can be made at this time.
During the nine months ended September 30, 1998 and the years ended
December 31, 1997 and 1996, liquidity needs have been satisfied principally by
private placements of common and preferred stock and convertible securities.
Cash used in operating activities was $2,407,456, $7,260,922 and $3,184,569 for
the nine months ended September 30, 1998 and the full year 1997 and 1996,
respectively.
Cash used in investing activities was $1,467,243, $12,512,934, and
$209,609 for the nine months ended September 30, 1998 and the full year 1997 and
1996, respectively. Cash was used during these years primarily for capital
expenditures, investments and for advances to related parties and employees (see
item 7. "Certain Relationships and Related Transactions").
Cash provided by financing activities was $825,087, $22,888,936, and
$4,025,675 for the nine months ended September 30, 1998 and the full year 1997
and 1996, respectively, as a result of proceeds from securities privately placed
by the Company.
The Company is aware of the issues associated with the programming code
in existing computer systems as the millennium (year 2000) approaches. The "year
2000" problem is complex since virtually every computer operation will be
affected in some way by the rollover of the two digit year value to 00. The
Company has purchased and is currently in the process of implementing an
integrated manufacturing, financial and regulatory computer system which is year
2000 validated.
*This statement is a forward-looking statement reflecting current expectations.
There can be no assurance that the Company's actual future performance will meet
the Company's current expectations. Investors are strongly encouraged to review
the section entitled "Business Factors" contained in Item 1. of this
Registration Statement, for a discussion of factors that could affect future
performance. The reader is cautioned that other sentences or sections not so
identified may also contain forward-looking information.
ITEM 3. PROPERTIES
The Company leases approximately 4,000 square feet of office space in
Las Vegas, Nevada, as corporate headquarters for the Company (see Item 7.
"Certain Relationships and Related Transactions"). This one year lease expires
December 31, 1998. The Company's subsidiary, LySonix, leased approximately
61,132 square feet of office, manufacturing and warehouse space in Carpinteria,
California through July 1998. The Carpinteria facility lease commenced in April
1997 and had a term of fifteen years, renewable for two periods of five years
each. Effective July 1998, the Company was assigned the Carpinteria facility and
the lease was cancelled (See Item 7. "Certain Relationships and Related
Transactions"). The Company considers its facilities
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to be in good condition and more than suitable to accommodate it's current
operations; however, as a result of its current liquidity situation, the
Carpinteria facility is currently available for sale or sublease.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of November 30, 1998 for
(i) each person or entity who is known by the Company to beneficially own five
percent or more of the outstanding Common Stock of the Company, (ii) each of the
Company's nominated directors, and (iii) all directors and executive officers of
the Company as a group:
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF SHARES OUTSTANDING COMMON
NAME BENEFICIALLY OWNED(1)(2) STOCK (3)
- ---- ------------------------ -----------------
<S> <C> <C>
Donald K. McGhan (4)(5) ........................ 2,606,325 24.0%
Vegas Ventures, LLC ............................ 1,750,000 16.1%
Jim J. McGhan .................................. 75,000 *
Gerald W. Yankie ............................... 2,500 *
John S. Gaynor ................................. 0 *
Joseph J. Territo, M.D ......................... 0 *
All directors and officers as a
group (7 persons) ............................ 2,758,825 25.4%
</TABLE>
* Less than one percent.
(1) Each person has sole voting and investment power over the Common Stock
shown as beneficially owned, subject to community property laws where
applicable, and the information contained in the footnotes below. See
Item 11. "Description of Company's Securities to be Registered."
(2) There are no shares of Common Stock issuable upon exercise of options
exercisable within 60 days of November 30, 1998.
(3) Includes the Series B Preferred Stock issued in connection with the PMI
acquisition into 666,661 shares of Common Stock (see Item 10. "Recent
Sales of Unregistered Securities").
(4) Does not include 235,000 shares of Common Stock issued to members of Mr.
McGhan's immediate family as to which Mr. McGhan disclaims beneficial
ownership.
(5) Includes 1,033,000 shares of Common Stock issued to International
Integrated Industries, L.L.C., of which Mr. McGhan is the Managing
Member; 400,000 shares of Common Stock issued to Global Asset
Management, L.P., of which Mr. McGhan is the General Partner; 420,000
shares of Common Stock issued to MDA Equity Performance, L.P., of which
Mr. McGhan is the managing General Partner; 400,000 shares of Common
Stock issued to McGhan Management, L.P., of which Mr. McGhan is the
General Partner; and 200,000 shares of Common Stock issued to Mr.
McGhan's wife.
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<PAGE> 22
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS
MANAGEMENT -- EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and nominated directors of the Company, and their
ages and positions as of November 30, 1998, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------ ---- ---------------------------------------------------------------------
<S> <C> <C>
Donald K. McGhan................ 64 Chairman of the Board and President, Medical Device Alliance Inc.
Charles E. Barrantes.............. 46 Executive Vice President and Chief Financial Officer, Medical
Device Alliance Inc.
Jim J. McGhan...................... 45 Vice President and Chief Operating Officer, Medical Device Alliance
Inc.
Nikki M. Moseley.................. 43 Secretary, Medical Device Alliance Inc.
John S. Gaynor..................... 55 Director, Medical Device Alliance Inc.
Joseph J. Territo, M.D............ 70 Director, Medical Device Alliance Inc.
Gerald W. Yankie................. 59 Director, Medical Device Alliance Inc.
</TABLE>
Donald K. McGhan is a founder of the Company and has served as its
Chairman of the Board from its inception and has served as President of the
Company since September 30, 1998. Previously, Mr. McGhan was a founder and
Director of Miravant Medical Technologies, Inc. (Nasdaq: MRVT), which was
originally named PDT, Inc. Mr. McGhan was also a founder, Chairman of the Board
and President of INAMED Corporation (Nasdaq OTC: IMDC); founder, Chairman of the
Board and Chief Executive Officer of McGhan NuSil Corporation, which was
acquired by Union Carbide Corporation in 1990; and a founder, President and
Chairman of the Board of Immulok, Inc., which was acquired by Ortho Diagnostics
Systems, Inc., a subsidiary of Johnson & Johnson in 1983.
Charles E. Barrantes, a certified public accountant, joined the Company
in July 1998 as Vice President and Chief Financial Officer. Previously, Mr.
Barrantes was Vice President and Chief Financial Officer for Whittaker
Corporation, a NYSE-listed diversified company involved in the aerospace,
defense electronics and global networking industries. Prior to that, Mr.
Barrantes served as Executive Vice President and Chief Financial Officer and
Secretary of Thompson PBE, Inc., a Nasdaq-traded company with consolidated net
sales of over $200 million in 1996, and as Vice President, Corporate Controller
and Secretary of Superior Industries International, Inc., a NYSE-listed company
with consolidated net sales over $500 million. From May 1977 until January 1989,
Mr. Barrantes was employed by the international accounting firm of Arthur
Andersen.
Jim J. McGhan joined the Company in September 1998 as Vice President and
Chief Operating Officer. Mr. McGhan is also currently a Director of INAMED
Corporation. Previously Mr. McGhan was Chief Operating Officer for INAMED and
prior to that, President and Chief Executive Officer of INAMED's wholly-owned
subsidiary, McGhan Medical Corporation. In the past, Mr. McGhan also served as
President of INAMED's wholly-owned subsidiaries, CUI Corporation and BioEnterics
Corporation.
Nikki M. Moseley has served as Secretary of the Company since its
inception. Previously, Ms. Moseley was Secretary and a business consultant for
Miravant Medical Technologies, Inc. and, prior to that, served as a business
consultant for INAMED Corporation. Ms. Moseley has also served as a business
consultant for McGhan NuSil Corporation and Immulok, Inc.
John S. Gaynor is the President and Chief Executive Officer, Western
Region of Colonial Bank. He was previously the founding President, Chief
Executive Officer, and Director of Commercial Bank of Nevada
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<PAGE> 23
from October 1994, which merged with Colonial Bank on June 15, 1998. Prior to
joining Commercial Bank of Nevada, he was employed from February 1984 to
December 1993 by First Security Bank as its Executive Vice President and Chief
Banking Officer. Mr. Gaynor has held various management positions with First
Interstate Bank of Nevada from February 1970 to January 1984, both in Reno and
Las Vegas. He graduated from the University of Nevada, Reno in 1966 as a
distinguished military graduate and received his Master's degree from that same
institution in 1974. He is a graduate of the University of Washington Pacific
Coast Banking School, Command and General Staff School, and the Industrial
College of the Armed Forces. Mr. Gaynor is a retired Colonel from the Nevada
Army National Guard and a Vietnam veteran. Mr. Gaynor is currently
President-elect of the Nevada Bankers Association 1999-2000 term. He has served
on the American Bankers Association's Community Bankers Council as Nevada's
representative since November 1997. Mr. Gaynor is active in community affairs
and serves as trustee emeritus for the UNR Foundation; serves on the Board of
Directors of Opportunity Village and Nathan Adelson Hospice; and, is a volunteer
pilot for Miracle Flight (Angel Plane).
Joseph J. Territo, M.D. was appointed a Director of the Company in
November 1998. Dr. Territo is the President of Newtowne Equities, Ltd. He
received his medical degree from Georgetown University School of Medicine and
completed his residency in internal medicine in 1957. Dr. Territo retired on
November 1st, 1997 after practicing Internal Medicine for forty (40) years.
During his active medical career, he served as Field Consultant with John
Hopkins School of Medicine, Bariatric Unit, on the staff of Passaic General
Hospital in Passaic, New Jersey, and for a number of years combined the practice
of traditional medicine with the principles of alternative medicine. He authored
a book entitled Coping with Lyme Disease and has been a contributing editor on
several medical textbooks.
Gerald W. Yankie was appointed as a Director of the Company in November
1998. Mr. Yankie is a founder of G & G Technology, Inc., a design and product
development company specializing in micro high technology surgical power
instruments. Mr. Yankie served as Vice President of Operations for Miravant
Medical Technologies, Inc. and its subsidiaries from August 1992 until March
1998. From March 1987 until April 1992, Mr. Yankie served as President of
Techcon Systems, Inc. of Carson, California, a manufacturer and distributor of
specialty fluid dispensing equipment to the electronics and aerospace
industries. His previous experience includes positions as Manager of Marketing
and Sales of NuSil Technologies Corporation, Vice President of Manufacturing and
Engineering for Immulok, Inc. and Technical Manager for Dow Corning Corporation
in Midland, Michigan and Brussels, Belgium. Mr. Yankie holds a B.S. degree in
Mechanical Engineering from Michigan Technological University.
In November 1998, The Board of Directors appointed three (3) directors
(Jim J. McGhan, Joseph J. Territo, M.D., and Gerald W. Yankie). Dr. Territo and
Mr. Yankie are non-employee directors. Nikki M. Moseley resigned as a director.
All directors serve on the Board of Directors of the Company until the next
annual meeting of the stockholders of the Company and until their successors are
elected and qualified. Mr. Donald K. McGhan is the father of Mr. Jim J. McGhan
and Ms. Nikki M. Moseley. There are no other family relationships among any of
the executive officers of the Company. The Company's executive officers serve at
the discretion of the Board of Directors.
ITEM 6. EXECUTIVE COMPENSATION
There were no employed executive officers of the Company during the
fiscal years ended December 31, 1997, 1996 and 1995. Services rendered in all
capacities as executive officers were charged to the Company as management fees
by related parties (see Item 7. "Certain Relationships and Related
Transactions").
DIRECTOR COMPENSATION
Employees of the Company do not receive any additional compensation for
serving the Company as members of the Board of Directors or any of its
Committees. Directors who are not employees of the Company will receive fees to
be determined for Board and Committee Meetings attended and are eligible to
receive an
23
<PAGE> 24
annual stock option grant under the Non-Employee Directors' Stock Option Plan
portion of the 1998 Stock Compensation Program (the "Directors' Plan"). The
Directors' Plan provides for an automatic grant on non-qualified stock options
to purchase 15,000 shares of Common Stock to non-employees directors on the
first day of the fourth quarter of each year that a non-employee director serves
on the Board. Each stock option vests upon the grant date. The options are
granted at an option price equal to the fair market value of the Company's
Common Stock on the grant date. Each stock option is subject to a repurchase
option in favor of the Company for some or all of the underlying shares, and
such repurchase option lapses at a rate of 20% per year over five years
subsequent to the grant date. The options terminate the earlier of 90 days form
the date on which a director is no longer a member of the Board for any reason
other than death, ten years form the date of grant, or six months form the
director's death. No stock options have been issued under this plan. In
addition, the Company also reimburses directors for out-of-pocket expenses
incurred in connection with attending Board and Committee Meetings.
EMPLOYMENT AGREEMENT
On March 19, 1998, the Company entered into an employment agreement with
Peter D. Costantino, M.D. (the "Costantino Agreement"), whereby the Company
named Dr. Costantino the Chief Executive Officer for a term of five years. Under
the terms of the Costantino Agreement, Dr. Costantino is to be paid $400,000 per
year in addition to quarterly bonuses of a minimum of $30,000 and a maximum of
$100,000 on an annualized basis. Dr. Costantino resigned as an executive officer
effective November 9, 1998.
On October 24, 1998, the Company entered into an employment agreement
with Charles E. Barrantes (the "Barrantes Agreement"), whereby the Company named
Mr. Barrantes as Executive Vice President and Chief Financial Officer for a term
of three years. Under the terms of the Barrantes Agreement, Mr. Barrantes is to
be paid $180,000 per year.
On October 24, 1998, the Company entered into an employment agreement
with Jim J. McGhan (the "McGhan Agreement"), whereby the Company named Mr.
McGhan as Vice President and Chief Operating Officer for a term of three years.
Under the terms of the McGhan Agreement, Mr. McGhan is to be paid $180,000 per
year.
The Company also entered into separate severance and retention
agreements (the "Severance and Retention Agreements") with Messrs. Barrantes and
J. McGhan. Under the terms of the Severance and Retention Agreements, upon a
change in control of the Company, which may or may not result in the termination
of Messrs. Barrantes and J. McGhan, as defined, they will be entitled to certain
benefits, including salary continuation, through the term of their respective
employment agreements or longer, depending on certain defined conditions.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
SHARE OWNERSHIP
Donald K. McGhan, the Company's Chairman of the Board and President,
owns of record 153,325 shares of the Company's Common Stock. In addition,
International Integrated Industries, L.L.C., a limited liability company, owns
1,033,000 shares of the Company's Common Stock. Mr. McGhan is the Managing
Member of International Integrated Industries, L.L.C. Mr. McGhan is the General
Partner of McGhan Management, L.P., a limited partnership which owns 400,000
shares of the Company's Common Stock and of Global Asset Management, L.P., a
limited partnership which owns 400,000 shares of the Company's Common Stock. MDA
Equity Performance, L.P., a limited partnership, owns 420,000 shares of the
Company's Common Stock. McGhan Management Corporation, a Nevada corporation, is
the General Partner of MDA Equity Performance, L.P. and Mr. McGhan is the
Chairman of the Board and President of McGhan Management Corporation. Mr. McGhan
has voting and dispositive power over the shares of the Company's Common Stock
24
<PAGE> 25
held by the above listed entities and, accordingly, may be deemed to have
beneficial ownership with respect to these shares.
RELATED-PARTY TRANSACTIONS
Mr. Donald K. McGhan was the former Chairman of the Board and Chief
Executive Officer of Inamed Corporation ("Inamed"), a public company engaged in
the development, manufacturing and marketing of medical devices for the plastic
and reconstructive, bariatric and general surgery markets. During 1997 and
continuing in 1998, the Company made advances to International Integrated
Industries, L.L.C. ("III"), for the purpose of a possible business alliance with
and/or acquisition of technology from Inamed. These advances, which bore
interest at the rate of ten percent per annum, totaled $6,873,192 at December
31, 1997.
Effective July 8, 1998, the Company entered into an agreement to
receive, in satisfaction for this receivable from III, 860,000 restricted shares
of Inamed common stock with a value of $7.5625 per share and the assignment of
the Carpinteria facility previously leased by LySonix from McMark Limited
Partnership ("McMark"), an affiliated entity in which Mr. McGhan and certain
other stockholders have a controlling financial interest. In addition, Mr.
McGhan assigned warrants to purchase 260,000 shares of Inamed common stock at a
price of $12.40 per share to the Company. The Company, in receiving the Inamed
common stock, must adhere to various "standstill" provisions for a five-year
period, including voting the shares in proportion to the votes of all other
Inamed shareholders.
Under the terms of the agreement, III has agreed to make whole the
difference between the per share value of $7.5625 and any lesser amount that the
Company may realize upon any sale of the Inamed common stock through December
31, 2003, and also has agreed to make whole the difference between the net
equity of the real property recorded on the Company's books at July 8, 1998
($1,896,117) and any shortfall from the net proceeds received upon the sale, if
any, of the real property through December 31, 1999. As a result of this
agreement, the Company recorded a $2,000,000 valuation allowance as of December
31, 1997 based on the restrictions of the Inamed common stock. During the period
from July 8, 1998 through September 30, 1998, III repurchased approximately
200,000 shares of the Inamed common stock from the Company at a price of $7.5625
per share.
The Company incurred fees and expenses for management, administrative,
accounting and consulting services totaling $229,757 for the nine months ended
September 30, 1998, $583,587 in 1997 and $195,025 in 1996, payable to
stockholders, officers, directors, and entities in which certain stockholders
(including Mr. McGhan), officers and directors have a controlling financial
interest.
During 1997, the Company purchased property and equipment totaling
$140,000 through entities in which certain stockholders (including Mr. McGhan),
officers and directors have a controlling financial interest. During the nine
months ended September 30, 1998, and the full years of 1997 and 1996, the
Company incurred $410,740, $1,339,230 and $670,740, respectively, for aircraft
transportation provided by an entity in which certain stockholders (including
Mr. McGhan) and directors have a controlling financial interest.
The Company leased its Las Vegas, Nevada office facility from Inamed
from January 1, 1997 through December 1, 1997, and currently leases this office
facility from III through December 31, 1998 at a rental of $11,000 per month.
During 1997, the Company incurred fees and expenses for services
totaling $10,761, purchased property and equipment totaling $336,566 and
incurred rent for its Las Vegas, Nevada office facility totaling $120,000 as a
result of transactions with Inamed or its subsidiaries. In addition, during the
nine months ended September 30, 1998, and the full year 1997, LySonix sold
products internationally to and made purchases domestically from Inamed or its
subsidiaries totaling approximately $745,000 and $180,000, and $630,765 and
$63,100, respectively. Included in trade receivables at September 30, 1998 and
December 31, 1997, are
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<PAGE> 26
amounts due from Inamed and its subsidiaries totaling $888,000 and $570,765,
respectively. These amounts have been substantially reserved for as of the end
of each period.
The Company has made loans to certain key employees which totaled
$318,772 and $238,760 as of September 30, 1998 and December 31, 1997,
respectively. These loans bear interest at eight percent, are secured by the
common or preferred stock of the Company held by the employees and mature in
varying times through July 2003.
ITEM 8. LEGAL PROCEEDINGS
The Company was notified in April 1997, that an alleged patent
infringement suit has been filed against the Company and its wholly-owned
subsidiary, LySonix. The suit was filed by Mentor Corporation ("Mentor"), a
medical and surgical device company that develops and markets silicone-based
products to specialty medical markets. Mentor has been trying to develop a
device for ultrasound-assisted lipoplasty since 1995 and had limited commercial
sales since the 4th quarter of 1997. The Company believes that the suit filed by
Mentor is without merit and substance, however, the Company takes all legal
matters seriously and has retained patent litigation counsel to aggressively
pursue a successful conclusion to this matter and to take any other legal action
necessary to defend any of the Company's licenses or patents. On September 11,
1998, the U.S. District Court for the Central District of California denied the
preliminary injunction motion brought by Mentor attempting to bar the
manufacture and sale of the LySonix 2000(TM) Ultrasonic Surgical System and
restricted certain of Mentor's claims as to the scope of its patent. In
addition, the District Court set a trial date for January 5, 1999. In November
1998, the Company filed a motion for summary judgment to dismiss the action.
Management is very optimistic regarding the outcome of this suit, although there
can be no assurances regarding the alleged infringement and, to date, the
alleged infringement action has used up considerable resources of the Company in
terms of management's time, effort and payment of legal fees.
The Company has also been notified of a product liability claim filed against
LySonix which, in the opinion of the Company's counsel, is covered under the
Company's standard product liability insurance policy.
On October 29, 1998, a derivative action by certain shareholders of the Company
(the "Plaintiff Shareholders") was filed in the Superior Court of the State of
California for the County of Los Angeles. This action, Chieftain LLC, Vegas
Ventures, LLC, et. al., vs. Medical Device Alliance Inc., et. al., (Case No.
BC199819) alleges, among other things, gross violations of fiduciary duties by
the Company's two-person board of directors, Donald K. McGhan and Nikki Moseley.
The Plaintiff Shareholders sought a temporary restraining order and injunctive
relief from the defendants to (1) remove Mr. McGhan and Ms. Moseley from the
board of directors; (2) compel financial disclosure and prohibit any further
alleged diversion of assets; (3) halt any further attempt to take the Company
public until an independent board of directors has examined the facts; (4) vote
their shares in the Company proportionally with the non-defendant shareholders;
and (5) immediately open the books and records of the Company and its
subsidiaries for inspection and copying to the Plaintiff Shareholders and their
accountants. In its rulings during November 1998, The Superior Court of
California granted a temporary restraining order and preliminary injunction to
only allow the Plaintiff Shareholders and their accountants to inspect and copy
the books and records of the Company under a protective order and for defendants
not to divert corporate assets of the Company. On November 18, 1998, Vegas
Ventures, LLC, a significant shareholder with over 16% of the Company's Common
Stock (see Item 4. "Security Ownership of Certain Beneficial Owners and
Management"), dismissed itself from the action without prejudice. Management of
the Company believes that this derivative action is without merit and intends to
vigorously defend against it.
Other than as stated herein, neither the Company nor any officer or
director of the Company is a party to any pending legal proceedings relating to
the Company.
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE COMPANY'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
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<PAGE> 27
As of November 30, 1998, the Company had outstanding 10,212,572 shares
of Common Stock held by 567 stockholders and 666,661 shares of Series B
Preferred Stock held by 10 stockholders.
There is no established public trading market for any class of the
Company's equity securities.
The Company has not paid any dividends on any of its capital stock and
does not anticipate that any cash dividends will be declared in the foreseeable
future.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES
From September 11, 1995 through December 31, 1997, the Company issued
and sold the following securities:
(a) In September 1995, the Company issued 2,900,000 shares of Common
Stock to the founders of the Company for an aggregate purchase price of $145,000
and promissory notes totaling $1,875, all of which were paid by December 31,
1997.
(b) In November 1995, the Company issued 2,400,000 shares of Common
Stock to founders and insiders of the Company for an aggregate purchase price of
$1,200,000 and promissory notes totaling $1,200,000, all of which except $37,500
were paid by December 31, 1997.
(c) From October 1996 to March 1997, the Company issued an aggregate of
1,500,000 shares of Common Stock under a Private Placement Memorandum for
proceeds of $ $7,157,999, which is net of issuance costs totaling $342,001, and
promissory notes totaling $224,165, all of which remain outstanding as of
December 31, 1997.
(d) The Company adopted the 1998 Stock Compensation Program (the
"Program") for the benefit of selected individuals for the Company who will be
responsible for its future growth. The Program is contemplated to have a maximum
aggregate number of 1,300,000 shares available for grant and is to be composed
of seven parts in order to maintain flexibility in awarding stock benefits.
These parts include provisions for the granting of, among other things,
incentive stock options, non-qualified stock options, restricted shares of
common stock and stock appreciation rights. The Program is intended to remain in
effect for ten years, unless sooner terminated, as defined. As of November 30,
1998, 313,000 shares have been reserved for issuance to key individuals of the
Company.
(e) During the year ended December 31, 1997, the Company issued an
aggregate of 2,657,085 shares of Series A Preferred Stock under a Private
Placement Memorandum for proceeds of $14,437,831, which is net of issuance costs
totaling $1,504,679.
(f) During the year ended December 31, 1997, the Company issued an
aggregate of $4,859,246 worth of Convertible Debentures, all of which was
converted into 694,178 shares of common stock by May 30, 1998. In addition, in
1998, the Company issued an aggregate of $749,994 worth of a Convertible
Debenture, which was automatically converted in November 1998 into 107,142
shares of common stock.
(g) During the year ended December 31, 1997, a total of 62,416 warrants
to purchase common stock, 58,005 at $5.00 per share and 4,411 at $6.00 per
share, were issued to selling agents in connection with the Private Placement
Memorandums described in (c) and (e) above. Of these warrants, the 58,005 expire
on March 31, 2000 and the 4,411 expire on August 31, 2000.
(h) During September 1998, pursuant to a merger agreement, the Company
issued an aggregate of 666,661 shares of Series B Preferred Stock for the
acquisition of PMI. The shareholders of PMI each received one (1) share of the
Company's Series B Preferred Stock in exchange for approximately 13 shares of
PMI Class A Common Stock. The holders of the Company's Series B Preferred Stock
can elect the redemption right of $7.50 per share payable in three (3) equal
installments at any time after eighteen (18) months of the issuance
27
<PAGE> 28
date. In addition, the Series B Preferred shares also carry an optional
conversion privilege to exchange the shares for the Company's Class A Common
Stock at a "conversion price" of $7.50 per share at any time after the issuance
date. The Series B Preferred shares also carry a mandatory conversion date
defined as the effective date of a registration statement under the Securities
Act of 1933 relating to an initial public offering of the Company's Class A
Common Stock or the Company's Common Stock otherwise becoming publicly traded.
The issuances of the securities described in Items 10(a), (b), (c),
(e), (f), (g), and (h) were deemed to be exempt from registration under the
Securities Act of 1933, as amended (the "Securities Act") in reliance on Section
4(2). The issuance of the securities described in Items 10(a), (b), (c), (e),
(f), (g), and (h) were deemed to be exempt from registration under the
Securities Act in reliance on Rule 701 promulgated thereunder. The recipients of
securities in each such transaction represented their intentions to acquire the
securities for investment only and not with a view to or for sale in connection
with any distribution thereof and appropriate legends were affixed to the share
certificates issued in such transactions. All recipients had access, through
their relationships with the Company, to information about the Company.
ITEM 11. DESCRIPTION OF COMPANY'S SECURITIES TO BE REGISTERED
The Company is authorized to issue up to 50,000,000 shares of Common
Stock, $.001 par value, and 20,000,000 shares of Preferred Stock, par value
$.001, to be divided into such classes or series as the Board of Directors may
determine. As of November 30, 1998, 10,212,572 shares of Common Stock were
issued and outstanding.
The following summary of certain provisions of the Common Stock does not
purport to be complete and is subject to, and qualified in its entirety by, the
provisions of the Company's Certificate of Incorporation, as amended, which is
included as an exhibit to this Registration Statement, and by the provisions of
applicable law.
COMMON STOCK
Each holder of Common Stock is entitled to one vote for each share held
of record on each matter submitted to a vote of shareholders. Subject to the
preferences of the Series A Preferred Stock described below, each holder of
Common Stock is entitled to share ratably in distributions to shareholders, to
receive ratably such dividends as may be declared by the Board of Directors out
of funds legally available therefor and, in the event of the liquidation,
dissolution or winding up of the Company, is entitled to share ratably in all
assets remaining after payment of liabilities. The holders of Common Stock have
no conversion, pre-emptive or other rights to subscribe for additional shares
and are not subject to redemption or sinking fund provisions. The outstanding
shares of Common Stock are validly issued, fully paid and nonassessable.
Of the outstanding shares of Common Stock, 6,541,252 shares are subject
to first right of refusal by the Company or, if the Company does not exercise
its right to repurchase, then the shareholders of the Company have the first
right of refusal to purchase the shares at the same terms as offered, in
writing, to the shareholder who is selling such shares. The right of first
refusal terminates upon the effectiveness of a public offering.
The Company has agreed to issue to purchasers of Common Stock through
the Common Stock Offering additional shares of Common Stock, for no additional
consideration, if the Company from time to time until the Company completes an
initial public offering (an "IPO") of its Common Stock pursuant to a
registration statement filed with the Securities and Exchange Commission (the
"SEC") filed under the Securities Act of 1933, as amended (the "Act"), if the
Company subsequently completes any private placement sales of Common Stock, or
any preferred stock of the Company convertible into or exchangeable for Common
Stock of the Company, (each a "Private Placement") or an IPO at a purchase price
lower than $5.00 per share in the case of Common Stock, or with a conversion
price or exchange rate lower than $5.00 per share in the case of any preferred
stock, adjusted for stock splits, stock dividends or recapitalization,
sufficient to have the effect of reducing the price per share to the price per
share (or conversion price or exchange rate as applicable), as
28
<PAGE> 29
adjusted, that shares of Common Stock or preferred stock are sold in a private
placement or an IPO, excluding stock sales made to officers, directors,
employees or agents in the normal course of business.
The Company has also agreed to provide registration rights for the
purchasers of Common Stock in the Common Stock Offering (the "Common
Stockholders"). For the period commencing with the issuance of the Shares and
terminating two years after the Effective Date, as defined, if at any time the
Company shall propose to register any of its shares for sale or disposition for
its own account for cash under the Act in a public offering, including the
Company's IPO, other than a registration relating to its employee benefit plans,
the Company shall give to the Common Stockholders at least thirty (30) days'
written notice prior to the filing thereof and in any underwriting involved
therein, a portion of the Common Stockholders' Shares which are specified in a
written request, or requests, made by the Common Stockholders within ten (10)
days after receipt of such written notice from the Company by the Common
Stockholders (the "Piggyback Registration Rights"). The Piggyback Registration
Rights shall be conditioned upon the Common Stockholders' participation in any
underwriting relating to the Company's registered public offering. The
implementation of these registration rights will be subject to the approval of
the underwriter, in its sole discretion, and will be in proportion to the shares
sold by the Company. For example, if the Company agrees to sell 10% of the
outstanding shares, then the Common Stockholders who have these Piggyback
Registration Rights would be entitled to sell, on a pro rata basis among
themselves, up to 10% of their shares. The utilization of Piggyback Registration
Rights would include the obligation of the Common Stockholders to pay all
underwriting commissions with respect to the shares sold by the Common
Stockholders and to pay a pro rata share of all registration expenses and fees,
including legal, accounting and printing expenses.
In addition, from time to time, the Company has agreed to register the
Common Stockholders' Shares, at its expense, on registration statements or Form
S-3 after the date upon which the Company meets the requirements to register the
Common Stockholders' Shares on a Form S-3.
The Company has also granted Piggyback Registration Rights to
shareholders who purchased shares in November 1995, covering 2,400,000 shares.
CERTIFICATE OF INCORPORATION AND BY-LAWS
The Company's Articles of Incorporation authorizes the issuance of
additional shares of Common Stock, without stockholder approval. The Company's
Bylaws do not permit anyone other than the Board of Directors, the Chairman of
the Board or the President to call special meetings of the stockholders. These
provisions could discourage potential acquisition proposals and could delay or
prevent a change in control of the Company. Such provisions also may have the
effect of preventing changes in the management of the Company.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by Nevada law, the Company's Certificate of Incorporation,
as amended, includes a provision that eliminates the personal liability of its
directors for monetary damages for breach of their duty of care. In addition, as
permitted by Nevada law, the Bylaws of the Company provide that: (i) the Company
is required to indemnify its directors and officers and persons serving in such
capacities in other business enterprises (including, for example, subsidiaries
of the Company) at the Company's request, to the fullest extent permitted by
Nevada law; (ii) the Company is required to indemnify its directors and officers
and persons serving in such capacities in other business enterprises at the
Company's request in connection with any action, suit, or proceeding initiated
by such person only if such initiation was authorized by the Board of Directors;
(iii) the Company may, in its discretion, indemnify employees and agents in
those circumstances where indemnification is not required by law; (iv) the
Company is required to advance expenses, as incurred, to its directors and
officers in connection with defending a proceeding; (v) the rights conferred in
the Bylaws are not exclusive; and (vi) the Company may not retroactively amend
the Bylaw provisions in a way that is adverse to such directors, officers and
employees.
29
<PAGE> 30
The Company's policy is to enter into indemnification agreements with
each of its directors and officers that provide the maximum indemnity allowed to
directors and officers by Nevada law and the Bylaws, as well as certain
additional procedural protections. In addition, the indemnification agreements
provide that directors and officers will be indemnified to the fullest possible
extent not prohibited by law against all expenses (including attorney's fees)
and settlement amounts paid or incurred by them in any action or proceeding,
including any action by or in the right of the Company, arising out of such
person's services as a director, officer, employee, agent or fiduciary of the
Company, any subsidiary of the Company or any other company or enterprise to
which such person provides services at the request of the Company unless a
reviewing party as appointed by the Board of Directors determines that the
Company is not obligated to indemnify under applicable law. The Company will not
be obligated pursuant to the indemnification agreements to indemnify or advance
expenses to an indemnified party with respect to proceedings or claims initiated
by the indemnified party and not by way of defense, except with respect to
proceedings specifically authorized by the Board of Directors or brought to
enforce a right to indemnification under the indemnification agreement, the
Company's Bylaws or any statute or law or as otherwise required under Section
145 of the DGCL. Under the agreements, the Company is not obligated to indemnify
the indemnified party (i) for any expenses incurred by the indemnified party
with respect to any proceeding instituted by the indemnified party to enforce or
interpret the agreement, if a court having jurisdiction determines that each of
the material assertions made by the indemnified party in such proceeding was not
made in good faith or was frivolous (ii) for any expenses incurred by the
indemnified party with respect to any proceeding instituted by or in the name of
the Company to enforce or interpret the agreement, if a court of competent
jurisdiction determines that each of the material defenses made by the
indemnified party in such proceeding was made in bad faith or was frivolous,
(iii) for any amounts paid in settlement of a proceeding unless the Company
consents to such settlement; (iv) for any expenses resulting from acts,
omissions or transactions for which a court having jurisdiction makes a final
judicial determination that the indemnified party is prohibited from receiving
indemnification under the agreement or applicable law ; or (v) on account of any
suit in which judgment is rendered against the indemnified party for an
accounting of profits made from the purchase or sale by the indemnified party of
securities of the Company pursuant to the provisions of Section 16(b) of the
Securities Exchange Act of 1934, as amended, and related laws.
The indemnification provisions in the Bylaws and the indemnification
agreements entered into between the Company and its directors and officers may
be sufficiently broad to permit indemnification of the Company's directors and
officers for liabilities arising under the Securities Act.
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Item 15.
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
30
<PAGE> 31
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements and Schedules
1. Financial Statements. The following Consolidated Financial Statements of
Medical Device Alliance Inc. and subsidiaries and the Report of Independent
Auditors are included at pages F-l through F-15 of this Registration Statement.
<TABLE>
<S> <C>
Independent Auditors' Report ..............................................................F-1
Consolidated Balance Sheets as of September 30, 1998 (Unaudited),
December 31, 1997 and 1996.................................................................F-2
Consolidated Statements of Operations for the nine months ended September 30,
1998 (Unaudited), and the years ended December 31, 1997 and 1996...........................F-4
Consolidated Statements of Stockholders' Equity
for the years ended December 31, 1997 and 1996.............................................F-5
Consolidated Statements of Cash Flows for the nine months ended September 30,
1998 (Unaudited), and the years ended December 31, 1997 and 1996...........................F-6
Notes to Consolidated Financial Statements ................................................F-7
</TABLE>
2. Financial Statement Schedules
Schedules have been omitted because they are not applicable or are not required
or the information required to be set forth therein is included in the
Consolidated Financial Statements or notes thereto.
(b) Exhibits
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<S> <C>
3.1 Registrant's Articles of Incorporation.
3.2 Registrant's By-Laws.
4.1 Specimen Stock Certificate for Medical Device Alliance Inc.
Common Stock, par value $.001 per share.
10.1 Medical Device Alliance Inc. 1998 Stock Compensation Program
10.2 Form of Medical Device Alliance Inc. Common Stock Private
Placement Memorandum dated as of November 1, 1996.
10.3 Form of Medical Device Alliance Inc. Series A Preferred Stock
Private Placement Memorandum dated as of April 15, 1997.
10.4 Form of Medical Device Alliance Inc. Debenture Offering dated as
of October 10, 1997.
</TABLE>
31
<PAGE> 32
<TABLE>
<S> <C>
10.5 Convertible Debenture Agreement dated May 1, 1998 between
Medical Device Alliance Inc. and E* Capital Corporation.
10.6 Form of Indemnification Agreement entered into by Medical Device
Alliance Inc. with each of it's Directors and Executive
Officers.
10.7 Form of Selling Agent Warrant for Common Stock Private Placement
10.8 Form of Selling Agent Warrant for Series A Preferred Stock
Placement
10.9 Legal Consulting Agreement between Medical Device Alliance Inc.
and Nida & Maloney, P.C. dated as of April 1, 1998.
10.10 Employment Agreement between Medical Device Alliance Inc. and
Peter D. Costantino, M.D. dated as of March 19, 1998.
10.13 Exclusive License Agreement between Medical Device Alliance Inc.
and Misonix, Inc. dated as of December 10, 1995.
10.14 Modification to Exclusive License Agreement between Medical
Device Alliance Inc. and Misonix, Inc. dated as of February 27,
1996.
10.15 Private Label Vendor Agreement between Medical Device Alliance
Inc.'s wholly-owned subsidiary, MDA Capital Incorporated, and
Lighthouse Capital, Inc. dated as of January 15, 1997.
10.16 Addendum to Private Label Vendor Agreement between MDA Capital
Incorporated and Lighthouse Capital, Inc. as of January 15,
1997.
10.17 Second Addendum to Private Label Vendor Agreement between MDA
Capital Incorporated and Lighthouse Capital dated as of February
12, 1997.
10.18 Third addendum to Private Label Vendor Agreement between MDA
Capital Incorporated and Lighthouse Capital dated as of February
12, 1997.
10.19 Fourth addendum to Private Label Vendor Agreement between MDA
Capital Incorporated and Lighthouse Capital dated as of March 1,
1998.
10.20 Fifth addendum to Private Label Vendor Agreement between MDA
Capital Incorporated and Lighthouse Capital dated as of
September 1, 1998.
10.21 Distribution Agreement between Medical Device Alliance Inc.'s
wholly-owned subsidiary, LySonix Incorporated, and the Marena
Group dated as of September 24, 1997.
10.22 Distribution Agreement between LySonix Incorporated and
FlowMatrix Corporation dated as of October 8, 1997.
10.23 Co-Marketing Agreement by and among LySonix Incorporated, MDA
Capital Incorporated and McGhan Medical Corporation dated as of
January 1, 1998.
</TABLE>
32
<PAGE> 33
<TABLE>
<S> <C>
10.24 Debt Conversion Agreement by Medical Device Alliance Inc.,
International Integrated Industries, L.L.C. and McMark Limited
Partnership effective as of July 8, 1998.
10.25 Agreement and Plan of Merger among Medical Device Alliance Inc.;
it's wholly-owned subsidiary, PX Acquisition Corp., and Parallax
Medical, Inc. dated as of August 10, 1998.
10.26 Registration Rights Agreement between Medical Device Alliance
Inc. and Parallax Medical, Inc. Shareholders dated as of July
31, 1998.
10.27 Stockholders' Escrow Agreement among Medical Device Alliance
Inc., Santa Barbara Bank & Trust, Parallax Medical, Inc.
Shareholders and Stockholders' Agent dated as of July 31, 1998.
10.28 Escrow Fee Agreement letter dated August 10, 1998 from Medical
Device Alliance Inc. and Santa Barbara Bank & Trust.
10.29 Certificate of Designation, Rights and Preferences of the Series
B Convertible Preferred Stock of Medical Device Alliance Inc.
pursuant to Chapter 78 of the Nevada Revised Statutes for Series
B Preferred Stock dated August 10, 1998.
10.30 Certificate of Merger of Parallax Medical, Inc. into PX
Acquisition Corp. dated as of August 10, 1998.
10.31 Notice of Merger of Parallax Medical, Inc. into PX Acquisition
Corp., a wholly-owned subsidiary of Medical Device Alliance
Inc., dated September 21, 1998.
10.32 Funding Commitment Letter dated August 10, 1998 from Medical
Device Alliance Inc. to Parallax Medical, Inc.
10.33 Employment Agreement between Parallax Medical, Inc. and Howard
Preissman dated August 10, 1998.
10.34 Employment Agreement between Medical Device Alliance Inc. and
Charles E. Barrantes dated October 24, 1998.
10.35 Employment Agreement between Medical Device Alliance Inc. and
Jim J. McGhan dated October 24, 1998.
21 Registrant's Subsidiaries
</TABLE>
33
<PAGE> 34
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
MEDICAL DEVICE ALLIANCE INC.
By: /s/ DONALD K. MCGHAN
------------------------------
Donald K. McGhan, Chairman
and President
By: /s/ CHARLES E. BARRANTES
------------------------------
Charles E. Barrantes,
Executive Vice President
and Chief Financial Officer
Dated: December 21, 1998
34
<PAGE> 35
VERIFICATION
The undersigned hereby certifies as follows:
1. I am an officer and/or director of Medical Device Alliance Inc. As such, I
am personally familiar with the facts and circumstances pertaining to its
business.
2. I have read the Form 10-SB prepared by the corporation for filing with the
Securities and Exchange Commission. The descriptions of the Company's
business, properties, officers, directors, employees, description of
securities and all other matters set forth therein are true and correct to
the best of my knowledge.
3. Such Form 10-SB does not contain any untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements
made, in light of the circumstances under which they were made, not
misleading.
I certify that the foregoing statements made by me are true. I am aware
that if any of the foregoing statements made by me are willfully false, I am
subject to punishment.
Dated: December 21, 1998
/s/ DONALD K. MCGHAN
-----------------------------
Chairman and President
35
<PAGE> 36
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of Medical Device Alliance Inc. and
Subsidiaries:
We have audited the accompanying consolidated balance sheets of Medical Device
Alliance Inc. and its subsidiaries (the "Company") as of December 31, 1997 and
1996 and the related consolidated statements of operations, stockholders' equity
and cash flows for the years then ended. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 presentation of the financial
statements. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements present fairly, in all material
respects, the consolidated financial position of the Company at December 31,
1997 and 1996 and the consolidated results of its operations and its cash flows
for the years then ended, in conformity with generally accepted accounting
principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has suffered recurring losses
from operations which raises substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 6. The consolidated financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
Farber & Hass, LLP
Oxnard, California
August 7, 1998
F-1
<PAGE> 37
MEDICAL DEVICE ALLIANCE INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF
-----------------------------------------------------
ASSETS SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1998 1997 1996
------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 696,965 $ 3,746,577 $ 631,497
Receivables:
Trade, net 1,589,898 2,082,594 272,162
Lease 707,000 -- --
Related parties -- 296,956 --
Others 283,135 651,233 --
Investments, short-term 570,227 1,283,214 --
Inventories 3,754,447 4,402,520 844,391
Prepaid expenses and other current assets 511,974 848,154 484,000
------------ ------------ ------------
Total Current Assets 8,113,646 13,311,248 2,232,050
------------ ------------ ------------
PROPERTY AND EQUIPMENT:
Assignment in building 1,896,117 -- --
Leasehold improvements 73,076 73,076 --
Furniture and equipment 2,064,237 1,788,091 10,739
Less: accumulated depreciation and amortization (674,309) (214,035) (2,024)
------------ ------------ ------------
Net property and equipment 3,359,121 1,647,132 8,715
------------ ------------ ------------
Receivables, net of current portion:
Trade -- 30,543 --
Lease 530,032 -- --
Related parties, net -- 4,873,192 --
Employees 318,772 238,760 --
Investments, long-term 4,330,793 1,848,044 --
Intangible assets, net 6,692,143 417,635 492,303
Other assets 281,211 42,995 --
------------ ------------ ------------
TOTAL ASSETS $ 23,625,718 $ 22,409,549 $ 2,733,068
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
<PAGE> 38
MEDICAL DEVICE ALLIANCE INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF
-------------------------------------------------
LIABILITIES and STOCKHOLDERS' EQUITY SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1998 1997 1996
------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 3,264,719 $ 3,236,920 $ 226,301
Due to related parties 368,901 565,254 --
Advances from stockholders -- -- 24,750
Accrued expenses and other liabilities 2,241,074 386,886 11,583
------------ ------------ ------------
Total Current Liabilities 5,874,694 4,189,060 262,634
------------ ------------ ------------
Unearned interest revenue 217,032 -- --
Convertible debentures 749,994 4,498,740 --
Commitments and contingencies (Note 6) -- -- --
STOCKHOLDERS' EQUITY:
Preferred Stock--$ .001 par value; 20,000,000 shares authorized;
666,661 and 2,657,085 shares issued and outstanding at
September 30, 1998 and December 31, 1997, respectively 667 2,657 --
Common Stock--$ .001 par value; 50,000,000 shares authorized;
10,135,430, 6,800,000 and 5,889,600 shares issued and outstanding
at September 30, 1998, December 31, 1997 and 1996, respectively 10,135 6,800 5,890
Additional paid-in capital 32,321,603 22,931,373 4,200,410
Less: notes receivable (79,407) (261,665) (37,500)
Unrealized loss on investments (535,000) (37,000) --
Accumulated deficit (14,934,000) (8,920,416) (1,698,366)
------------ ------------ ------------
Total Stockholders' Equity 16,783,998 13,721,749 2,470,434
------------ ------------ ------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 23,625,718 $ 22,409,549 $ 2,733,068
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 39
MEDICAL DEVICE ALLIANCE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE NINE MONTHS FOR THE YEARS
ENDED ENDED
SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1998 1997 1996
------------ ------------ ------------
REVENUES: (Unaudited)
<S> <C> <C> <C>
Product sales $ 7,654,169 $ 10,935,286 $ 295,108
Interest on leasing arrangements 33,896 -- --
------------ ------------ ------------
7,688,065 10,935,286 295,108
------------ ------------ ------------
COSTS AND EXPENSES:
Cost of product sales 4,091,039 4,462,657 78,138
Selling, general and administrative 9,218,074 10,883,217 1,011,222
Research and development 346,457 1,017,487 712,146
Depreciation and amortization 552,216 418,650 21,081
Provision on long-term receivables
from related parties -- 2,000,000 --
------------ ------------ ------------
Total Costs and Expenses 14,207,786 18,782,011 1,822,587
------------ ------------ ------------
OPERATING LOSS (6,519,721) (7,846,725) (1,527,479)
Other income, net (including interest income of
$536,670 in 1998 and $544,934 in 1997) 506,137 624,675 --
------------ ------------ ------------
NET LOSS $ (6,013,584) $ (7,222,050) $ (1,527,479)
============ ============ ============
NET LOSS PER COMMON SHARE $ (0.65) $ (1.09) $ (0.29)
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 40
MEDICAL DEVICE ALLIANCE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
Additional
Preferred Stock Common Stock Paid-in
Shares Amount Shares Amount Capital
------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995 -- $ -- 5,300,000 $ 5,300 $ 1,339,700
Net collections of
subscriptions receivable -- -- -- -- --
Issuance of common stock -- -- 589,600 590 2,860,710
Net loss -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Balance at December 31, 1996 -- -- 5,889,600 5,890 4,200,410
Issuance of common stock -- -- 910,400 910 4,295,789
Issuance of preferred stock 2,657,085 2,657 -- -- 14,435,174
Unrealized loss on
investments -- -- -- -- --
Net loss -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Balance at December 31, 1997 2,657,085 $ 2,657 6,800,000 $ 6,800 $ 22,931,373
============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Unrealized
Notes Loss on Accumulated
Receivable Investments Deficit Total
---------- ----------- ------- -----
<S> <C> <C> <C>
Balance at December 31, 1995 $ (1,201,875) $ -- $ (170,887) $ (27,762)
Net collections of
subscriptions receivable 1,164,375 -- -- 1,164,375
Issuance of common stock -- -- -- 2,861,300
Net loss -- -- (1,527,479) (1,527,479)
------------ ------------ ------------ ------------
Balance at December 31, 1996 (37,500) -- (1,698,366) 2,470,434
Issuance of common stock (224,165) -- -- 4,072,534
Issuance of preferred stock -- -- -- 14,437,831
Unrealized loss on
investments -- (37,000) -- (37,000)
Net loss -- -- (7,222,050) (7,222,050)
------------ ------------ ------------ ------------
Balance at December 31, 1997 $ (261,665) $ (37,000) $ (8,920,416) $ 13,721,749
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 41
MEDICAL DEVICE ALLIANCE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR NINE MONTHS FOR THE YEARS
ENDED ENDED
------------ -----------------------------
SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1998 1997 1996
------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (6,013,584) $ (7,222,050) $ (1,527,479)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization 552,216 298,481 21,081
Provision on long-term receivables from related parties -- 2,000,000 --
Interest earned on leasing arrangements (33,896) -- --
Amortization of debenture issuance costs -- 120,169 --
Changes in operating assets and liabilities:
Receivables 153,794 (2,461,665) (272,162)
Inventories 648,073 (3,558,129) (844,391)
Prepaid expenses and other current assets 336,180 (364,154) (469,000)
Accounts payable and other liabilities 1,949,761 3,926,426 (92,618)
------------ ------------ ------------
Net Cash Used In Operating Activities (2,407,456) (7,260,922) (3,184,569)
------------ ------------ ------------
INVESTING ACTIVITIES:
Net sales/maturities (purchases) of investments 2,235,988 (3,168,258) --
Purchases of property and equipment (276,146) (1,850,428) (8,114)
Leasing arrangements (279,104) -- --
Net advances to related parties and employees (1,833,000) (7,408,908) --
Intangible and other assets (1,314,981) (85,340) (201,495)
------------ ------------ ------------
Net Cash Used In Investing Activities (1,467,243) (12,512,934) (209,609)
------------ ------------ ------------
FINANCING ACTIVITIES:
Proceeds from issuance of:
Common stock -- 4,552,000 2,948,000
Preferred stock -- 15,942,510 --
Convertible debentures 749,994 4,859,246 --
Stock and debenture issuance costs -- (2,240,655) (86,700)
Repurchase of common stock (98,000) -- --
Net change in notes receivable 173,093 (224,165) 1,164,375
------------ ------------ ------------
Net Cash Provided By Financing Activities 825,087 22,888,936 4,025,675
------------ ------------ ------------
Net Increase In Cash and Cash Equivalents (3,049,612) 3,115,080 631,497
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 3,746,577 631,497 --
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 696,965 $ 3,746,577 $ 631,497
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 42
MEDICAL DEVICE ALLIANCE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
1. THE COMPANY
Medical Device Alliance Inc. ("MDA"), a Nevada corporation, was formed on
September 11, 1995 to acquire, develop, and market medical and surgical
devices on a global basis. As of December 31, 1997, MDA has two wholly-owned
subsidiaries (collectively the "Company"), LySonix Incorporated ("LySonix"),
which is headquartered in Carpinteria, California, and MDA Capital
Incorporated, which is located at the corporate headquarters in Las Vegas,
Nevada. LySonix develops and markets ultrasonic surgical systems and related
products, and MDA Capital Incorporated provides financing programs to
customers of LySonix.
The Company has incurred net operating losses since inception and expects to
continue to incur such losses unless and until its products successfully
achieve commercial viability. In addition, a significant portion of its
contributed capital was advanced to an affiliated entity (see Note 4), the
repayment of which was primarily with long-term assets (see Note 9). These
and other factors have caused a severe liquidity problem at the Company. As
discussed in Note 6, management of the Company has developed an operating
plan which they believe will generate sufficient cash flow to enable the
Company to conduct its operations in the normal course of business.
The accompanying consolidated financial statements were prepared assuming
the Company will continue to operate on a going concern basis and do not
include any adjustments to the recorded amounts of assets or to the recorded
amounts or classification of liabilities which would be required if the
Company were unable to realize its assets and satisfy its liabilities and
obligations in the normal course of business.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of MDA and its
wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
CONCENTRATIONS OF CREDIT RISK
The Company grants credit terms in the normal course of business to its
customers, which consist primarily of hospitals, physicians, and
distributors. The Company monitors the credit worthiness of its customers
and provides an allowance for uncollectable accounts. At December 31, 1997,
such allowance totaled $1,305,664.
Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist principally of temporary cash
investments, trade receivables and investments. The Company places its
temporary cash investments in certificates of deposit and with high-quality
financial institutions. At December 31, 1997, substantially all cash and
cash equivalents were on deposit with two financial institutions.
Concentrations of credit risk with respect to trade receivables are limited
due to the large number of customers comprising the Company's customer base
and their dispersion across different geographic areas. No single customer
had a net balance due greater than 10% of consolidated net trade receivables
at December 31, 1997 and 1996. The Company does not normally require
collateral or other security to support sales of products on credit.
Investments totaling $2,940,256 are concentrated in equity and debt
securities of one publicly-traded company, Direct Connect International (see
"Investments" below).
F-7
<PAGE> 43
MEDICAL DEVICE ALLIANCE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out basis) or
market and consist primarily of ultrasonic systems and related parts and
accessories manufactured for the Company (see Note 6).
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of the assets,
which are estimated to range from two and seven years. During 1997 and 1996,
depreciation totaled $210,254 and $2,024, respectively. Leasehold
improvements are amortized over the shorter of the useful life of the asset
or the term of the related lease.
INVESTMENTS
Investments are carried at fair value and considered available for sale. Any
unrealized gains and losses, except those considered to be other than a
temporary impairment, are reported as a separate component of stockholders'
equity. Investments consist of the following at December 31, 1997:
<TABLE>
Short-Term
<S> <C>
Corporate notes, bearing interest
at eight to ten percent $1,092,212
Corporate common stock 191,002
----------
$1,283,214
==========
Long-Term
Corporate preferred stock $1,885,044
Unrealized loss (37,000)
----------
$1,848,044
==========
</TABLE>
INTANGIBLE ASSETS
Intangible assets consist of license, patent and trademark costs, less
accumulated amortization totaling $103,885 and $19,217 at December 31, 1997
and 1996, respectively. The Company periodically reviews its intangible
assets to determine the recoverability of the carrying values, which are
being amortized over the term of the related agreement (see Note 6).
RESEARCH AND DEVELOPMENT
Research and development costs are expensed in the period they are incurred.
REVENUE RECOGNITION
The Company records sales upon shipment of the product, net of any related
discounts. On any product where warranty is provided, the Company estimates
and records the related cost at the time of sale. Such amount will be
periodically adjusted to reflect actual experience.
F-8
<PAGE> 44
MEDICAL DEVICE ALLIANCE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company has financial instruments consisting of cash equivalents,
investments, receivables (including those from related parties), accounts
payable and convertible debentures. The carrying value of the Company's
financial instruments, based on current market and other indicators,
approximate their fair value.
NET LOSS PER SHARE
The Company adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings Per Share" that established standards
for the computation, presentation and disclosure of earnings per share
("EPS"), replacing the presentation of Primary EPS with a presentation of
Basic EPS. It also requires dual presentation of Basic EPS and Diluted EPS
on the face of the income statement for entities with complex capital
structures. Basic EPS is based on the weighted average number of common
shares outstanding during the period, which totaled 6,637,418 and 5,348,316
for 1997 and 1996, respectively. The Company did not present Diluted EPS
since the result was anti-dilutive.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Ultimate results could differ from those estimates.
NEW ACCOUNTING PRONOUNCEMENTS
SFAS No. 130, "Reporting Comprehensive Income", establishes standards for
reporting and displaying comprehensive income and its components in
financial statements. The Company will adopt the provisions of SFAS No. 130
in 1998, but does not expect its impact on the consolidated financial
statements to be significant.
SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information", establishes a new model for segment reporting, called the
"management approach" and requires certain disclosures for each segment. The
management approach is based on the way the chief operating decision-maker
organizes segments within a company for making operating decisions and
assessing performance. The Company will adopt the provisions of sfas no. 131
in 1998.
3. STOCKHOLDERS' EQUITY
The Company is authorized to issue up to 50,000,000 shares of common stock,
$.001 par value, and 20,000,000 shares of preferred stock, $.001 par value,
to be divided into such classes or series as the Board of Directors may
determine.
COMMON STOCK
Each holder of common stock is entitled to one vote for each share held of
record on each matter submitted to a vote of stockholders.
F-9
<PAGE> 45
MEDICAL DEVICE ALLIANCE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
Subject to the preferences of the Series A preferred stock described below,
each holder of common stock is entitled to share ratably in distributions to
stockholders, to receive ratably such dividends as may be declared by the
Board of Directors out of funds legally available and, in the event of the
liquidation, dissolution or winding up of the Company, is entitled to share
ratably in all assets remaining after payment of liabilities and preferred
stock. Certain of the holders of common stock have certain registration and
anti-dilution rights prior to the completion of an initial public offering
("IPO") by the Company, but no holders have conversion, pre-emptive or other
rights to subscribe for additional shares and are not subject to redemption
or sinking fund provisions. Of the outstanding shares of common stock,
3,900,000 shares are subject to first right of refusal by the company or, if
the Company does not exercise its right to repurchase, then the stockholders
of the Company have the first right of refusal to purchase the shares at the
same terms as offered, in writing, to the stockholder who is selling such
shares.
During 1995, the Company issued 5,300,000 shares of common stock to its
founders for a total consideration of $1,345,000. Pursuant to a private
offering dated November 1, 1996, the Company issued 910,400 and 589,600
shares of common stock for gross proceeds totaling $4,552,000 and $2,948,000
in 1997 and 1996, respectively. On March 31, 1997, 58,005 warrants to
purchase common stock at $5.00 per share were issued to selling agents in
connection with this offering. No value was assigned to any of the warrants
issued. The warrants expire on March 31, 2000 and are transferable subject
to approval and right of first refusal by the Company.
PREFERRED STOCK
Each holder of Series A preferred stock shall be entitled to vote on all
matters placed before the Company's stockholders. Such holder shall be
entitled to the number of votes equal to the number of full shares of common
stock into which such shares of Series A preferred stock could be converted
at the record date for the determination of the stockholders entitled to
vote on such matters or, if no such record date is established, at the date
such vote is taken. Except as otherwise expressly provided herein or as
required by law, the holders of Series A preferred stock and the holders of
common stock shall vote together and not as separate classes. Each holder of
preferred stock has certain registration and anti-dilution rights prior to
the completion of an IPO, and all outstanding shares of preferred stock are
subject to first right of refusal by the Company similar to that of the
common stock described above.
During 1997, 2,657,085 shares of Series A preferred stock were issued for
gross proceeds totaling $15,942,510. Each share of Series A preferred stock
was converted into one share of common stock by February 28, 1998. On July
31, 1997, 4,411 warrants to purchase common stock at $6.00 per share were
issued to a selling agent in connection with this offering. No value was
assigned to any of the warrants issued. The warrants expire August 31, 2000
and are transferable subject to approval and right of first refusal by the
Company.
CONVERTIBLE DEBENTURES
During 1997, the Company issued, for gross proceeds totaling $4,859,246,
debentures convertible into shares of the Company's common stock at $7.00
per share. All debentures were converted by May 30, 1998, resulting in the
issuance of 694,178 shares of common stock.
F-10
<PAGE> 46
MEDICAL DEVICE ALLIANCE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
1998 STOCK COMPENSATION PROGRAM
The Company intends to adopt the 1998 Stock Compensation Program (the
"Program") for the benefit of selected individuals of the Company who will
be responsible for its future growth. The Program requires approval from the
Company's Board of Directors and, within one year therefrom, its
stockholders.
The Program is contemplated to have a maximum aggregate number of 1,300,000
shares available for grant and is to be composed of seven parts in order to
maintain flexibility in awarding stock benefits. These parts include
provisions for the granting of, among other things, incentive stock options,
non-qualified stock options, restricted shares of common stock and stock
appreciation rights. The Program is intended to remain in effect for ten
years, unless sooner terminated, as defined. As of December 31, 1997,
248,000 shares have been reserved for issuance to key individuals of the
Company, subject to the appropriate adoption and approval of the Program.
4. RELATED-PARTY TRANSACTIONS
The Company incurred fees and expenses for management, administrative,
accounting and consulting services totaling $583,587 in 1997 and $195,025 in
1996, payable to stockholders, officers, directors, and entities in which
certain stockholders, officers and directors have a controlling financial
interest.
During 1997, the Company purchased property and equipment totaling $140,000
through entities in which certain stockholders, officers and directors have
a controlling financial interest. During 1997 and 1996, the Company incurred
$1,339,230 and $670,740, respectively, for aircraft transportation provided
by an entity in which certain stockholders and directors have a controlling
financial interest.
The Company leases its facilities (see Note 5) from entities in which
certain stockholders, officers and directors have a controlling financial
interest. Rental expense (including insurance and taxes) on these leased
facilities totaled $712,042 and $20,000 in 1997 and 1996, respectively.
The Company's Chairman of the Board was the former Chairman of the Board and
Chief Executive Officer of Inamed Corporation ("Inamed"), a public company
Engaged in the Development, Manufacturing and Marketing of Medical Devices
for the Plastic and Reconstructive, Bariatric and General Surgery Markets.
During 1997, the Company Incurred Fees and Expenses for Services Totaling
$10,761, purchased property and equipment totaling $336,566 and incurred
rent for its Las Vegas, Nevada office facility (See Note 5) totaling
$120,000 as a result of transactions with Inamed or its subsidiaries. In
addition, during 1997, Lysonix sold products internationally to and made
purchases domestically from Inamed or its subsidiaries totaling $630,765 and
$63,100, respectively. Included in trade receivables at December 31, 1997,
are amounts due from Inamed and its subsidiaries totaling $570,765. These
amounts have been substantially reserved for as of December 31, 1997.
During 1997 and continuing in 1998, the Company made advances to an entity
in which the Company's Chairman of the Board and certain other stockholders
have a controlling financial interest. The advances were, in turn, loaned to
Inamed by the affiliated entity. These advances, including interest at the
rate of ten percent per annum, are included in receivables from related
parties and totaled $6,873,192 at December 31, 1997. Subsequent to December
31, 1997, this receivable was paid off by the assignment to the Company of
real property (see Note 5) and Inamed common stock (see Note 9). Based on
certain restrictions on the
F-11
<PAGE> 47
MEDICAL DEVICE ALLIANCE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
common stock, an allowance of $2,000,000 has been provided on this
receivable at December 31, 1997.
The Company has made loans to certain key employees which totaled $238,760
as of December 31, 1997. These loans bear interest at eight percent, are
secured by the common or preferred stock of the Company held by the
employees and mature in varying times through July 2003.
5. OPERATING LEASES
The Company leases its Las Vegas, Nevada office facility from related
parties (See Note 4). On January 1, 1997, the Company entered into a
twelve-month lease at $10,000 per month, which was amended effective
December 1, 1997 to $11,000 per month with a lease term through December
31, 1998.
LySonix conducts its operations from facilities leased from a related party
(see Note 4) under a ten- year lease beginning April 1997. The lease
contains provisions for cost of living adjustments on April 1st each year
and an option to extend the lease for two additional sixty-month periods.
Subsequent to December 31, 1997, the Company obtained this facility as
partial payment for amounts owed to the Company by another related party
(see Notes 4 and 9).
Rental expense from operating leases totaled $748,606 and $20,000 for the
years ended December 31, 1997 and 1996, respectively.
6. COMMITMENTS AND CONTINGENCIES
COMMITMENTS
The Company has entered into a license agreement with Misonix, Inc.
("Misonix"), the designer and manufacturer of an ultrasonic surgical system
(the "System") specifically for use in performing fragmentation and
aspiration of soft tissue in plastic and reconstructive surgery. The Company
has received exclusive worldwide marketing and sales rights to the System
for a period of ten years ending on December 31, 2005, and has agreed to
purchase from Misonix a minimum amount of 200 units during 1998. The System
and its parts are a significant product line for LySonix and Misonix is its
sole supplier. As such, Misonix is a significant supplier of the Company.
Purchases from Misonix totaled approximately $8,400,000 and $895,000 in 1997
and 1996, respectively. Included in accounts payable at December 31, 1997,
are amounts totaling approximately $2,346,000 due to Misonix.
LySonix also has purchase agreements with two other suppliers, including a
wholly-owned subsidiary of Inamed (see Note 4), which require minimum
purchases totaling $1,700,000 in 1998, $2,125,000 in 1999 and $2,550,000 in
2000. The purchase agreements contain, among other things, termination
notices of 90 days prior to each renewal date at January 1, 1999 and January
1, 2000.
LITIGATION
The Company was notified in April 1997 that an alleged patent infringement
suit had been filed against the Company and LySonix. The suit was filed by
Mentor Corporation ("Mentor"), a medical and surgical device company, and
relates to the Company's license agreement with Misonix. The Company
believes that the suit filed by Mentor is without merit and substance and it
intends to vigorously defend this action.
F-12
<PAGE> 48
MEDICAL DEVICE ALLIANCE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
In addition, the Company is, and will most likely continue to be, involved
in claims and litigation, including product liability issues, which are
considered normal in the nature of its business. Although the ultimate
outcome of these suits cannot be ascertained at this time and liabilities of
indeterminate amounts maybe imposed upon the Company, it is the opinion of
management, based on information currently available, that the allegations
are without merit and that the resolution of these suits will not have a
material adverse effect on the consolidated financial position, results of
operations or cash flows of the Company.
MANAGEMENT PLANS
Management of the Company has implemented a cost reduction plan which has
reduced monthly operating expenses. Management also believes that it has the
means through existing capital, forecasted sales, the availability of other
resources and by implementing cash-conserving measures to fund its
operations into the foreseeable future and to continue to conduct business
on a going concern basis. However, there can be no assurance that it will,
among other things, be able to successfully consummate and integrate any
acquisition of businesses, complete clinical trials, obtain appropriate
regulatory clearance to market its products (or that such clearance will be
obtained on a timely basis), scale up its manufacturing process or obtain
capital when needed and on favorable terms in order to successfully
commercialize its products.
7. DEFINED CONTRIBUTION PLAN
The Company has a 401(k) defined contribution retirement plan for eligible
employees. The 401(k) plan provides for eligible employees to elect to
contribute up to 20% of their annual compensation. In addition, the 401(k)
plan provides for the Company to make additional contributions at its
discretion. No contributions have been made by the Company through December
31, 1997.
8. INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes", which requires an asset and liability
approach to financial accounting and reporting for income taxes. Deferred
income tax assets and liabilities are computed annually for temporary
differences between the financial statement basis and the income tax basis
of assets and liabilities that will result in taxable or deductible amounts
in the future. Such deferred income tax computations are based on enacted
tax laws and rates applicable to the years in which the differences are
expected to affect taxable income. A valuation allowance is established when
necessary to reduce deferred income tax assets to the amounts expected to be
realized.
At December 31, 1997, the Company has available net operating loss
carryovers of approximately $5,100,000 for federal income tax purposes that
will expire in 2010 through 2012. The temporary differences between reported
amounts for financial reporting and for income tax basis assets and
liabilities at December 31, 1997 were primarily allowance, valuation and
other reserve charges or provisions that are not currently deductible for
income tax purposes. The Company also has general business credit carryovers
of approximately $100,000 that will expire in 2011 and 2012. The Company has
established a valuation allowance for the full tax benefit of the operating
loss carryovers and temporary differences because the likelihood of any
realization cannot be assured at this time.
State income and franchise taxes have not been significant and are included
in selling, general and administrative expenses in the accompanying
consolidated statements of operations.
F-13
<PAGE> 49
MEDICAL DEVICE ALLIANCE INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
9. SUBSEQUENT EVENTS (UNAUDITED)
During the first half of 1998, the Company issued, for a total consideration
of $749,994, a debenture convertible into shares of the Company's common
stock. The debenture automatically converted in November 1998 into 107,142
shares of common stock.
Effective July 8, 1998, the Company entered into an agreement to receive, in
satisfaction for amounts owed by an entity in which the Company's Chairman
of the Board and certain other stockholders have a financial interest (see
Note 4), an assignment of real property by another affiliated entity, McMark
Limited Partnership (see Note 5), and 860,000 restricted shares of Inamed
common stock with a value of $7.5625 per share. The Company, in receiving
the Inamed common stock, must adhere to various "standstill" provisions for
a five-year period, including voting the shares in proportion to the votes
of all other Inamed shareholders. Under the terms of the agreement, the
affiliated entity, International Integrated Industries, L.L.C. ("III"),
which received the Company's advances has agreed to make whole the
difference between the per share value of $7.5625 and any lesser amount that
the Company may realize upon any sale of the Inamed common stock through
December 31, 2003. During the period from July 9, 1998 through September 30,
1998, III repurchased approximately 200,000 shares of the Inamed common
stock from the Company at a price of $7.5625 per share. In addition, III has
agreed to make whole the difference between the net equity of the real
property recorded on the Company's books at July 8, 1998 ($1,896,117) and
any shortfall from the net proceeds received upon the sale, if any, of the
real property through December 31, 1999.
In September 1998, the Company completed the acquisition of Parallax
Medical, Inc. ("Parallax"), an entity primarily engaged in product
development for vertebroplasty procedures in the niche spinal/orthopedic
market. In connection with this business combination, which will be recorded
under the purchase method of accounting, the Company issued 666,661 shares
of newly authorized Series B preferred stock valued at $7.50 per share in
exchange for all of the issued and outstanding preferred and common stock of
Parallax.
The above transactions, as well as the debentures converted by May 30, 1998
(see Note 3), were noncash investing and financing activities.
On October 22, 1998, Misonix, a significant supplier (see Note 6),
transmitted a notice of default on its exclusive license agreement to the
Company due to late payments and other business developments. Misonix also
announced that it was taking a reserve for possible bad debts of
approximately $1,700,000 against accounts receivable due and owing by the
Company, and that it was exploring one or more avenues leading to the
collection of the amounts due and termination of the exclusive license
agreement which could lead to direct sale and exploitation of the System.
The Company has commenced discussions to resolve this matter and, under the
terms of the license agreement, has 60 days to cure the notice of default.
While the Company is optimistic that it will be able to satisfactorily
resolve this matter with Misonix, no assurances can be made at this time.
On October 29, 1998, a derivative action by certain shareholders of the
Company (the "Plaintiff Shareholders") was filed in the Superior Court of
the State of California for the County of Los Angeles. This action,
Chieftain LLC, Vegas Ventures, LLC, et. al., vs. Medical Device Alliance
Inc., et. al., (Case No. BC199819) alleges, among other things, gross
violations of fiduciary duties by the Company's two-person board of
directors, Donald K. McGhan and Nikki Moseley. The Plaintiff Shareholders
sought a temporary restraining order and injunctive relief from the
defendants to (1) remove Mr. McGhan and Ms.
F-14
<PAGE> 50
MEDICAL DEVICE ALLIANCE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
Moseley from the board of directors; (2) compel financial disclosure and
prohibit any further alleged diversion of assets; (3) halt any further
attempt to take the Company public until an independent board of directors
has examined the facts; (4) vote their shares in the Company proportionally
with the non-defendant shareholders; and (5) immediately open the books and
records of the Company and its subsidiaries for inspection and copying to
the Plaintiff Shareholders and their accountants. In its rulings during
November 1998, The Superior Court of California granted a temporary
restraining order and preliminary injunction to only allow the Plaintiff
Shareholders and their accountants to inspect and copy the books and records
of the Company under a protective order and for defendants not to divert
corporate assets of the Company. On November 18, 1998, Vegas Ventures, LLC,
a significant shareholder, dismissed itself from the action without
prejudice. Management of the Company believes that this derivative action is
without merit and intends to vigorously defend against it.
10. INTERIM FINANCIAL INFORMATION (UNAUDITED)
The accompanying consolidated balance sheet as of September 30, 1998, and
the consolidated statements of operations and cash flows for the nine months
then ended include all significant adjustments that management of the
Company believes to be necessary for the fair presentation of results for
this interim period. The results of operations for the nine months ended
September 30, 1998 are not necessarily indicative of results to be expected
for the entire year.
Legal costs relating to protecting its exclusive license agreement have been
capitalized as incurred.
The Company recognizes the interest portion on leasing arrangements
involving LySonix products over the term of the lease.
Basic EPS for the nine months ended September 30, 1998 was based on the
weighted average number of common shares outstanding during the period,
which totaled 9,190,203.
F-15
<PAGE> 1
EXHIBIT 3.1
FILED
IN THE OFFICE OF THE
SECRETARY OF STATE OF THE
STATE OF NEVADA
SEP 11 1995
No. 15579-95
DEAN HELLER, SECRETARY OF STAFF
ARTICLES OF INCORPORATION
OF
Medical Device Alliance Inc.
FIRST. The name of the corporation is:
MEDICAL DEVICE ALLIANCE INC.
SECOND. Its registered office in the State of Nevada is located at 2533
North Carson Street, Carson City, Nevada 89706 that this Corporation may
maintain an office, or offices, in such other place within or without the State
of Nevada as may be from time to time designated by the Board of Directors, or
by the By-Laws of said Corporation, and that this Corporation may conduct all
Corporation business of every kind and nature, including the holding of all
meetings of Directors and Stockholders, outside the State of Nevada as well as
within the State of Nevada
THIRD. The objects for which this Corporation is formed are: To engage
in any lawful activity, including, but not limited to the following:
(A) Shall have such rights, privileges and powers as may be conferred
upon corporations by any existing law.
(B) May at any time exercise such rights, privileges and powers, when
not inconsistent with the purposes and objects for which this corporation is
organized.
1
<PAGE> 2
C) Shall have power to have succession by its corporate name for the
period limited in its certificate or articles of incorporation, and when no
period is limited, perpetually, or until dissolved and its affairs wound up
according to law.
(D) Shall have power to sue and be sued in any court of law or equity.
(E) Shall have power to make contracts.
(F) Shall have power to hold, purchase and convey real and personal
estate and to mortgage or lease any such real and personal estate with its
franchises. The power to hold real and personal estate shall include the power
to take the same by devise or bequest in the State of Nevada, or in any other
state, territory or country.
(G) Shall have power to appoint such officers and agents as the affairs
of the corporation shall require, and to allow them suitable compensation.
(H) Shall have power to make By-Laws not inconsistent with the
constitution or laws of the United States, or of the State of Nevada, for the
management, regulation and government of its affairs and property, the transfer
of its stock, the transaction of its business, and the calling and holding of
meetings of its stockholders.
(I) Shall have power to wind up and dissolve itself, or be wound up or
dissolved.
(J) Shall have power to adopt and use a common seal or stamp, and alter
the same at pleasure. The use of a seal or stamp by the corporation on any
corporate documents is not necessary. The corporation may use a seal or stamp,
if it desires, but such use or nonuse shall not in any way affect the legality
of the document.
(K) Shall have power to borrow money and contract debts when necessary
for the transaction of its business, or for the exercise of its corporate
rights, privileges or franchises,
2
<PAGE> 3
or for any other lawful purpose of its incorporation; to issue bonds, promissory
notes, bills of exchange, debentures, and other obligations and evidences of
indebtedness, payable at a specified time or times, or payable upon the
happening of a specified event or events, whether secured by mortgage, pledge
or otherwise, or unsecured, for money borrowed, or in payment for property
purchased, or acquired, or for any other lawful object.
(L) Shall have power to guarantee, purchase, hold, sell, assign,
transfer, mortgage, pledge or otherwise dispose of the shares of the capital
stock of, or any bonds, securities or evidences of the indebtedness created by,
any other corporation or corporations of the State of Nevada, or any other state
or government, and, while owners of such stock, bonds, securities or evidences
of indebtedness, to exercise all the rights, powers and privileges of ownership,
including the right to vote, if any.
(M) Shall have power to purchase, hold, sell and transfer shares of its
own capital stock, and use therefor its capital, capital surplus, surplus, or
other property or fund.
(N) Shall have power to conduct business, have one or more offices, and
hold, purchase, mortgage and convey real and personal property in the State of
Nevada, and in any of the several states, territories, possessions and
dependencies of the United States, the District of Columbia, and any foreign
countries.
(O) Shall have power to do all and everything necessary and proper for
the accomplishment of the objects enumerated in its certificate or articles of
incorporation, or any amendment thereof, or necessary or incidental to the
protection and benefit of the corporation, and, in general, to carry on any
lawful business necessary or incidental to the attainment of the
3
<PAGE> 4
objects of the corporation, whether or not such business is similar in nature to
the objects set forth in the certificate or articles of incorporation of the
corporation, or any amendment thereof.
(P) Shall have power to make donations for the public welfare or for
charitable, scientific or educational purposes.
(Q) Shall have power to enter into partnerships, general or limited, or
joint ventures, in connection with any lawful activities, as may be allowed by
law.
FOURTH. That the total number of stock authorized that may be issued by
the Corporation is SEVENTY MILLION (70,000,000) shares of stock as follows:
FIFTY MILLION (50,000,000) shares of common voting stock @ $.001 par value and
TWENTY MILLION (20,000,000) shares of preferred voting stock @$.001 par value
and no other class of stock shall be authorized. Said shares may be issued by
the corporation from time to time for such considerations as may be fixed by the
Board of Directors.
FIFTH. The governing board of this corporation shall be known as
directors, and the number of directors may from time to time be increased or
decreased in such manner as shall be provided by the By-Laws of this
Corporation, providing that the number of directors shall not be reduced to
fewer than one (1).
The name and post office address of the first Board of Directors shall
be one (1) in number and listed as follows:
<TABLE>
<CAPTION>
NAME POST OFFICE ADDRESS
- ---- -------------------
<S> <C>
Cheryl Mall 2533 North Carson Street
Carson City, Nevada 89706
</TABLE>
4
<PAGE> 5
SIXTH. The capital stock, after the amount of the subscription price, or
par value, has been paid in, shall not be subject to assessment to pay the debts
of the corporation.
SEVENTH. The name and post office address of the Incorporator signing
the Articles of Incorporation is as follows:
<TABLE>
<CAPTION>
NAME POST OFFICE ADDRESS
- ---- -------------------
<S> <C>
Cheryl Mall 2533 North Carson Street
Carson City, Nevada 89706
</TABLE>
EIGHTH. The resident agent for this corporation shall be:
LAUGHLIN ASSOCIATES, INC.
The address of said agent, and, the registered or statutory address of this
corporation in the state of Nevada, shall be:
2533 North Carson Street
Carson City, Nevada 89706
NINTH. The corporation is to have perpetual existence.
TENTH. In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized:
Subject to the By-Laws, if any, adopted by the Stockholders, to make,
alter or amend the By-Laws of the Corporation.
To fix the amount to be reserved as working capital over and above its
capital stock paid in; to authorize and cause to be executed, mortgages and
liens upon the real and personal property of this Corporation.
By resolution passed by a majority of the whole Board, to designate one
(1) or more
5
<PAGE> 6
committees, each committee to consist of one or more of the Directors of the
Corporation, which, to the extent provided in the resolution, or in the By-Laws
of the Corporation, shall have and may exercise the powers of the Board of
Directors in the management of the business and affairs of the Corporation. Such
committee, or committees, shall have such name, or names, as may be stated in
the By-Laws of the Corporation, or as may be determined from time to time by
resolution adopted by the Board of Directors.
When and as authorized by the affirmative vote of the Stockholders
holding stock entitling them to exercise at least a majority of the voting power
given at a Stockholders meeting called for that purpose, or when authorized by
the written consent of the holders of at least a majority of the voting stock
issued and outstanding, the Board of Directors shall have power and authority at
any meeting to sell, lease or exchange all of the property and assets of the
Corporation, including its good will and its corporate franchises, upon such
terms and conditions as its Board of Directors deems expedient and for the best
interests of the Corporation.
ELEVENTH. No shareholder shall be entitled as a matter of right to
subscribe for or receive additional shares of any class of stock of the
Corporation, whether now or hereafter authorized, or any bonds, debentures or
securities convertible into stock, but such additional shares of stock or other
securities convertible into stock may be issued or disposed of by the Board of
Directors to such persons and on such terms as in its discretion it shall deem
advisable.
TWELFTH. No director or officer of the Corporation shall be personally
liable to the Corporation or any of its stockholders for damages for breach of
fiduciary duty as a director or officer involving any act or omission of any
such director or officer; provided,
6
<PAGE> 7
however, that the foregoing provision shall not eliminate or limit the liability
of a director or officer (i) for acts or omissions which involve intentional
misconduct, fraud or a knowing violation of law, or (ii) the payment of
dividends in violation of Section 78.300 of the Nevada Revised Statutes. Any
repeal or modification of this Article by the stockholders of the Corporation
shall be prospective only, and shall not adversely affect any limitation on the
personal liability of a director or officer of the Corporation for acts or
omissions prior to such repeal or modification.
THIRTEENTH. This Corporation reserves the right to amend, alter, change
or repeal any provision contained in the Articles of Incorporation, in the
manner now or hereafter prescribed by statute, or by the Articles of
Incorporation, and all rights conferred upon Stockholders herein are granted
subject to this reservation.
7
<PAGE> 8
I, THE UNDERSIGNED, being the Incorporator hereinbefore named for the
purpose of forming a Corporation pursuant to the General Corporation Law of the
State of Nevada, do make and file these Articles of Incorporation, hereby
declaring and certifying that the facts herein stated are true, and accordingly
have hereunto set my hand this 11th day of September, 1995.
/s/ CHERYL MALL
---------------------------------
Cheryl Mall
STATE OF NEVADA )
) SS:
CARSON CITY )
On this 11th day of September, 1995, in Carson City, Nevada, before me, the
undersigned, a Notary Public in and for Carson City, State of Nevada, personally
appeared:
Cheryl Mall
Known to me to be the person whose name is subscribed to
the foregoing document and acknowledged to me that she executed the same.
MARK SHATAS
NOTARY PUBLIC - NEVADA
CARSON CITY
My Appt. Expires March 12, 1998
/s/ MARK SHATAS
---------------------------------
Notary
I, Laughlin Associates, Inc. hereby accept as Resident Agent for the previously
named Corporation.
9/11/95 /s/ CHERYL MALL
- -------------------------------------------------
Date Service Coordinator
8
<PAGE> 1
EXHIBIT 3.2
Medical Device Alliance Inc.
BY-LAWS
ARTICLE I MEETINGS OF SHAREHOLDERS
1. Shareholders' Meetings shall be held in the office of the
corporation, at Carson City, NV, or at such other place or places as the
Directors shall, from time to time, determine.
2. The annual meeting of the shareholders of this corporation shall be
held at 11:00 a.m., on the 11th day of September of each year beginning in 1995,
at which time there shall be elected by the shareholders of the corporation a
Board of Directors for the ensuing year, and the shareholders shall transact
such other business as shall properly come before them. If the day fixed for the
annual meeting shall be a legal holiday such meeting shall be held on the next
succeeding business day.
3. A notice signed by any Officer of the corporation or by any person
designated by the Board of Directors, which sets forth the place of the annual
meeting, shall be personally delivered to each of the shareholders of record, or
mailed postage prepaid, at the address as appears on the stock book of the
corporation, or if no such address appears in the stock book of the corporation,
to his last known address, at least ten (10) days prior to the annual meeting.
Whenever any notice whatever is required to be given under any article
of these By-Laws, a waiver thereof in writing, signed by the person or persons
entitled to the notice, whether before or after the time of the meeting of the
shareholders, shall be deemed equivalent to proper notice.
<PAGE> 2
4. A majority of the shares issued and outstanding, either in person or
by proxy, shall constitute a quorum for the transaction of business at any
meeting of the shareholders.
5. If a quorum is not present at the annual meeting, the shareholders
present, in person or by proxy, may adjourn to such future time as shall be
agreed upon by them, and notice of such adjournment shall be mailed, postage
prepaid, to each shareholder of record at least ten (10) days before such date
to which the meeting was adjourned; but if a quorum is present, they may adjourn
from day to day as they see fit, and no notice of such adjournment need be
given.
6. Special meetings of the shareholders may be called at anytime by the
President; by all of the Directors provided there are no more than three, or if
more than three, by any three Directors, or by the holder of a majority share
of the capital stock of the corporation. The Secretary shall send a notice of
such called meeting to each shareholder of record at least ten (10) days before
such meeting, and such notice shall state the time and place of the meeting, and
the object thereof. No business shall be transacted at a special meeting except
as stated in the notice to the shareholders, unless by unanimous consent of all
shareholder present, either in person or by proxy, all such shares being
represented at the meeting.
7. Each shareholder shall be entitled to one vote for each share of
stock in his own name on the books of the corporation, whether represented in
person or by proxy.
8. At all meetings of shareholders, a shareholder may vote by proxy
executed in writing by the shareholder or by his duly authorized
attorney-in-fact. Such proxy shall be filed with the Secretary of the
corporation before or at the time of the meeting.
9. The following order of business shall be observed at all meetings of
the shareholders so far as is practicable:
<PAGE> 3
a. Call the roll;
b. Reading, correcting, and approving of the minutes of the
previous meeting;
c. Reports of Officers;
d. Reports of Committees;
e. Election of Directors;
f. Unfinished business; and
g. New business.
10. Unless otherwise provided by law, any action required to be taken at
a meeting of the shareholders, or any other action which may be taken at a
meeting of the shareholders, may be taken without a meeting, if a consent in
writing, setting forth the action to be taken, shall be signed by all of the
shareholders entitled to vote with respect to the subject matter thereof.
ARTICLE II STOCK
1. Certificates of stock shall be in a form adopted by the Board of
Directors and shall be signed by the President and Secretary of the corporation.
2. All certificates shall be consecutively numbered; the name of the
person owning the shares represented thereby, with the number of such shares and
the date of issue shall be entered on the company's books.
3. All certificates of stock transferred by endorsement thereon shall be
surrendered by cancellation and new certificates issued to the purchaser or
assignee.
4 Upon surrender to the corporation or the transfer agent of the
corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignment or authority to transfer, it shall be the
duty of the corporation to issue a new
<PAGE> 4
certificate to the person entitled thereto, and cancel the old certificate;
every such transfer shall be entered on the transfer book of the corporation.
5. The corporation shall be entitled to treat the holder of record of
any share as the holder in fact thereof, and, accordingly, shall not be bound to
recognize any equitable or other claim to or interest in such share on the part
of any other person whether or not it shall have express or other notice
thereof, except as expressly provided by the laws of this state.
ARTICLE III DIRECTORS
1. A Board of Directors, consisting of at least one (1) person shall be
chosen annually by the shareholders at their meeting to manage the affairs of
the corporation. The Directors' term of office shall be one (1) year, and
Directors may be re-elected for successive annual terms.
2. Vacancies on the Board of Directors by reason of death, resignation
or other causes shall be filled by the remaining Director or Directors choosing
a Director or Directors to fill the unexpired term.
3. Regular meetings of the Board of Directors shall be held at 1:00
p.m., on the 11th day of September of each year beginning in 1995 at the office
of the company at Carson City, NV, or at such other time or place as the Board
of Directors shall by resolution appoint; special meetings may be called by the
President or any Director giving ten (10) days notice to each Director. Special
meetings may also be called by execution of the appropriate waiver of notice and
called when executed by a majority of the Directors of the company. A majority
of the Directors shall constitute a quorum.
4. The Directors shall have the general management and control of the
business and affairs of the corporation and shall exercise all the powers that
may be exercised or performed
<PAGE> 5
by the corporation, under the statutes, the Articles of Incorporation, and the
By-Laws. Such management will be by equal vote of each member of the Board of
Directors with each Board member having an equal vote.
5. The act of the majority of the Directors present at a meeting at
which a quorum is present shall be the act of the Directors.
6. A resolution, in writing, signed by all or a majority of the members
of the Board of Directors, shall constitute action by the Board of Directors to
effect therein expressed, with the same force and effect as though such
resolution had been passed at a daily convened meeting; and it shall be the duty
of the Secretary to record every such resolution in the Minute Book of the
corporation under its proper date.
7. Any or all of the Directors may be removed for cause by vote of the
shareholders or by action of the Board. Directors may be removed without cause
only by vote of the shareholders.
8. A Director may resign at any time by giving written notice to the
Board, the President or the Secretary of the corporation. Unless otherwise
specified in the notice, the resignation shall take effect upon receipt thereof
by the Board or such Officer, and the acceptance of the resignation shall not be
necessary to make it effective.
9. A Director of the corporation who is present at a meeting of the
Directors at which action on any corporate matter is taken shall be presumed to
have assented to the action taken unless his dissent shall be entered in the
minutes of the meeting or unless he shall file his written dissent to such
action with the person acting as the Secretary of the meeting before the
adjournment thereof or shall forward such dissent by registered mail to the
Secretary of the corporation immediately after the adjournment of the meeting.
Such right to dissent shall not
<PAGE> 6
apply to a Director who voted in favor of such action.
ARTICLE IV OFFICERS
1. The Officers of this company shall consist of: a President, one or
more Vice Presidents, Secretary, Treasurer, and such other officers as shall,
from time to time, be elected or appointed by the Board of Directors.
2. The PRESIDENT shall preside at all meetings of the Directors and the
shareholders and shall have general charge and control over the affairs of the
corporation subject to the Board of Directors. He shall sign or countersign all
certificates, contracts and other instruments of the corporation as authorized
by the Board of Directors and shall perform all such other duties as are
incident to his office or are required by him by the Board of Directors.
3. The VICE PRESIDENT shall exercise the functions of the President
during the absence or disability of the President and shall have such powers and
such duties as may be assigned to him, from time to time, by the Board of
Directors.
4. The SECRETARY shall issue notices for all meetings as required by the
By-Laws, shall keep a record of the minutes of the proceedings of the meetings
of the shareholders and Directors, shall have charge of the corporate books, and
shall make such reports and perform such other duties as are incident to his
office, or properly required of him by the Board of Directors. He shall be
responsible that the corporation complies with Section 78.105 of the Nevada
Revised Statutes and supplies to the Nevada Resident Agent or Registered Office
in Nevada, any and all amendments to the corporation's Articles of Incorporation
and any and all amendments or changes to the By-Laws of the corporation. In
compliance with Section 78-105, he will also supply to the Nevada Resident Agent
or Registered Office in Nevada, and maintain a current statement setting out the
name of the custodian of the stock ledger or duplicate stock
<PAGE> 7
ledger, and the present and complete Post Office address, including street and
number, if any, where such stock ledger or duplicate stock ledger is kept.
5. The TREASURER shall have the custody of all monies and securities of
the corporation and shall keep regular books of account. He shall disburse the
funds of the corporation in payment of the just demands against the corporation,
or as may be ordered by the Board of Directors, making proper vouchers for such
disbursements and shall render to the Board of Directors, from time to time, as
may be required of him, an account of all his transactions as Treasurer and of
the financial condition of the corporation. He shall perform all duties incident
to his office or which are properly required of him by the Board of Directors.
6. The RESIDENT AGENT shall be in charge of the corporation's registered
office in the State of Nevada, upon whom process against the corporation may be
served and shall perform all duties required of him by statute.
7. The salaries of all Officers shall be fixed by the Board of Directors
and may be changed, from time to time, by a majority vote of the Board.
8. Each of such Officers shall serve for a term of one (1) year or until
their successors are chosen and qualified. Officers may be re-elected or
appointed for successive annual terms.
9. The Board of Directors may appoint such other Officers and Agents, as
it shall deem necessary or expedient, who shall hold their offices for such
terms and shall exercise such powers and perform such duties as shall be
determined, from time to time, by the Board of Directors.
10. Any Officer or Agent elected or appointed by the Directors may be
removed by the Directors whenever in their judgment the best interests of the
corporation would be served
<PAGE> 8
thereby, but such removal shall be without prejudice to the contract rights, if
any, of the person so removed.
11. A vacancy in any office because of death, resignation, removal,
disqualification or otherwise, may be filled by the Directors for the unexpired
portion of the term.
ARTICLE V INDEMNIFICATION OF OFFICERS AND DIRECTORS
The corporation shall indemnify any and all of its Directors and
Officers, and its former Directors and Officers, or any person who may have
served at the corporation's request as a Director or Officer of another
corporation in which it owns shares of capital stock or of which it is a
creditor, against expenses actually and necessarily incurred by them in
connection with the defense of any action, suit or proceeding in which they, or
any of them, are made parties, or a party, by reason of being or having been
Director(s) or Officer(s) of the corporation, or of such other corporation,
except, in relation to matters as to which any such Director or Officer or
former Director or Officer or person shall be adjudged in such action, suit or
proceeding to be liable for negligence or misconduct in the performance of duty.
Such indemnification shall not be deemed exclusive of any other rights to which
those indemnified may be entitled, under By-Law, agreement, vote of shareholders
or otherwise.
ARTICLE VI DIVIDENDS
The Directors may, from time to time, declare, and the corporation may
pay, dividends on its outstanding shares in the manner and upon the terms and
conditions provided by law.
ARTICLE VII WAIVER OF NOTICE
Unless otherwise provided by law, whenever any notice is required to be
given to any shareholder or Director of the corporation under the provisions of
these By-Laws or under the provisions of the Articles of Incorporation, a waiver
thereof in writing, signed by the person or
<PAGE> 9
persons entitled to such notice, whether before or after the time stated
therein, shall be deemed equivalent to the giving of such notice.
ARTICLE VIII AMENDMENTS
1. Any of these By-Laws may be amended by a majority vote of the
shareholders at any annual meeting or at any special meeting called for that
purpose.
2. The Board of Directors may amend the By-Laws or adopt additional
By-Laws, but shall not alter or repeal any By-Laws adopted by the shareholders
of the company.
CERTIFIED TO BE THE BY-LAWS OF:
Medical Device Alliance Inc.
By: /s/ NIKKI M. MOSELEY
----------------------------
Secretary
<PAGE> 1
EXHIBIT 4.1
NUMBER SHARES
1147
INCORPORATED UNDER THE LAWS OF THE STATE OF NEVADA SEPTEMBER [ILLEGIBLE]
MEDICAL DEVICE ALLIANCE, INC.
CAPITAL STOCK: 50,000,000 SHARES COMMON STOCK @ $.001 PAR VALUE
FULLY PAID AND NON-ASSESSABLE
VOID - VOID - VOID - VOID
This Certifies that ______________________________________________ is the
registered holder of _____________________________________________ Shares
of the Capital Stock of MEDICAL DEVICE ALLIANCE, INC.
transferrable only on the books of the Corporation by the holder hereof in
person or by Attorney upon surrender of this Certificate properly endorsed.
IN WITNESS WHEREOF, the said Corporation has caused this certificate to be
signed by its duly authorized officers and its Corporate Seal to be hereunto
affixed this __________________ day of _________________ A.D. 19 ____ .
VOID - VOID - VOID VOID - VOID - VOID
President __________________________ Secretary _______________________
<PAGE> 2
For Value Received, _________________________ hereby sells, assign
and transfers unto ____________________________________________________
_______________________________________________________________________
Shares of the Capital Stock represented by the within Certificate, and do
hereby irrevocably constitute and appoint _______________________________
to transfer the said Stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated _____________________ 19 ______
In presence of
_____________________
___________________________
NOTICE. THE SIGNATURE OF THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT ALTERATION
OR ENLARGEMENT OR ANY CHANGE WHATEVER.
<PAGE> 1
- --------------------------------------------------------------------------------
MEDICAL DEVICE ALLIANCE INC.
- --------------------------------------------------------------------------------
EXHIBIT 10.01
MEDICAL DEVICE ALLIANCE INC.
1998 STOCK COMPENSATION PROGRAM
<PAGE> 2
MEDICAL DEVICE ALLIANCE, INC.
1998 STOCK COMPENSATION PROGRAM
1. Purpose. This 1998 Stock Compensation Program (the "Program")
is intended to secure for Medical Device Alliance, Inc. (the "Company"), its
subsidiaries, and its stockholders the benefits arising from ownership of the
Company's common stock (the "Common Stock") by those selected individuals of the
Company and its subsidiaries, who will be responsible for the future growth of
such corporations. The Program is designed to help attract and retain superior
personnel for positions of substantial responsibility with the Company and its
subsidiaries, and to provide individuals with an additional incentive to
contribute to the success of the corporations. Nothing contained herein shall be
construed to amend or terminate any existing options, whether pursuant to any
existing plans or otherwise granted by the Company.
2. Elements of the Program. In order to maintain flexibility in
the award of stock benefits, the Program is composed of seven parts. The first
part is the Incentive Stock Option Plan (the "Incentive Plan") under which are
granted incentive stock options (the "Incentive Options"). The second part is
the Non-Qualified Stock Option Plan (the "Nonqualified Plan") under which are
granted nonqualified stock options (the "Nonqualified Options"). The third part
is the Restricted Share Plan (the "Restricted Plan") under which are granted
restricted shares of Common Stock. The fourth part is the Employee Stock
Purchase Plan (the "Stock Purchase Plan"). The fifth part is the Non-Employee
Director Stock Option Plan (the "Directors Plan") under which grants of options
to purchase shares of Common Stock may be made to non-employee directors of the
Company. The sixth part is the Stock Appreciation Rights Plan (the "SAR Plan")
under which SARs (as defined therein) are granted. The seventh part is the Other
Stock Rights Plan (the "Stock Rights Plan") under which (i) units representing
the equivalent of shares of Common Stock (the "Performance Shares") are granted;
(ii) payments of compensation in the form of shares of Common Stock (the "Stock
Payments") are granted; and (iii) rights to receive cash or shares of Common
Stock based on the value of dividends paid with respect to a share of Common
Stock (the "Dividend Equivalent Rights") are granted. The Incentive Plan, the
Nonqualified Plan, the Restricted Plan, the Stock Purchase Plan, the Directors
Plan, the SAR Plan and the Stock Rights Plan are included herein as Part I, Part
II, Part III, Part IV, Part V, Part VI and Part VII, respectively, and are
collectively referred to herein as the "Plans." The grant of an option, SAR or
restricted share or rights to purchase shares under one of the Plans shall not
be construed to prohibit the grant of an option, SAR or restricted share or
rights to purchase shares under any of the other Plans.
3. Applicability of General Provisions. Unless any Plan
specifically indicates to the contrary, all Plans shall be subject to the
General Provisions of the Medical Device Alliance, Inc. 1998 Stock Compensation
Program set forth below.
4. Administration of the Plans. The Plans shall be administered,
construed, governed, and amended in accordance with their respective terms.
<PAGE> 3
GENERAL PROVISIONS OF STOCK COMPENSATION PROGRAM
Article 1. Administration. The Program shall be administered by
the Company's Board of Directors (the "Board"). If an award is to be made to an
"Executive Officer" as defined in the Exchange Act (as hereinafter defined), it
must be approved if the Company has a class of equity securities registered
under Section 12 or 15(d) of the Exchange Act, by the Board or by a committee of
the Board, that is composed solely of two or more directors who are
"Non-Employee Directors" within the meaning of Rule 16b-3 promulgated pursuant
to the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The
members of the Board, such committee of the Board or such other persons
appointed to administer the Program, when acting to administer the Program, are
herein collectively referred to as the "Program Administrators." To the extent
permitted under the Exchange Act, the Internal Revenue Code of 1986, as amended
(the "Code") or any other applicable law, the Program Administrators, shall have
the authority to delegate any and all power and authority to administer and
operate the Program hereunder to such person or persons as the Program
Administrators deems appropriate which if formed may be referred to by such
title specified by the Board. Subject to the foregoing limitations, as
applicable, the Board may from time to time remove members from the committee,
fill all vacancies on the committee, however caused, and may select one of the
members of the committee as its Chairman.
The Program Administrators shall hold meetings at such times and
places as they may determine and as necessary to approve all grants and other
transactions under the Program as required under Rule 16b-3(d) of the Exchange
Act, shall keep minutes of their meetings, and shall adopt, amend, and revoke
such rules and procedures as they may deem proper with respect to the Program.
Any action of the Program Administrators shall be taken by majority vote or the
unanimous written consent of the Program Administrators.
Article 2. Authority of Program Administrators. Subject to the
other provisions of this Program, and with a view to effecting its purpose, the
Program Administrators shall have sole authority, in their absolute discretion,
(a) to construe and interpret the Program; (b) to define the terms used herein;
(c) to determine the individuals to whom options and restricted shares and
rights to purchase shares shall be granted under the Program; (d) to determine
the time or times at which options and restricted shares or rights to purchase
shares shall be granted under the Program; (e) to determine the number of shares
subject to each option, restricted share and purchase right, the duration of
each option granted under the Program, and the price of any share purchase; (f)
to determine all of the other terms and conditions of options and restricted
shares and purchase rights granted under the Program; and (g) to make all other
determinations necessary or advisable for the administration of the Program and
to do everything necessary or appropriate to administer the Program; provided,
however, that the Board shall establish the price for all shares issued
hereunder. All decisions, determinations, and interpretations made by the
Program Administrators shall be binding and conclusive on all participants in
the Program (the "Plan Participants") and on their legal representatives, heirs
and beneficiaries.
Article 3. Maximum Number of Shares Subject to the Program. The
maximum aggregate number of shares of Common Stock subject to the Plans shall be
1,300,000 shares, of which 175,000 shares shall be reserved for the directors,
officers, employees and agents of the Company's wholly owned subsidiary,
Parallax, Inc. In addition, upon full and final approval by the U.S. Food and
Drug Administration of Parallax, Inc.'s bone cement product, the Company shall
reserve an additional 125,000 shares of Common Stock under the Plans of
employee's of Parallax, Inc. The board of directors of Parallax, Inc. shall make
recommendations to the Program Administrators from time to time with respect to
the allocation of the shares reserved under the Plans for for the directors,
officers, employees and agents of Parallax, Inc. The shares of Common Stock to
be issued upon exercise of an option, to the
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extent exercised for shares of Common Stock, issued as restricted shares or
issued upon stock purchases may be authorized but unissued shares, shares issued
and reacquired by the Company or shares purchased by the Company on the open
market. If any of the options granted under the Program expire or terminate for
any reason before they have been exercised in full, the unpurchased shares
subject to those expired or terminated options shall cease to reduce the number
of shares available for purposes of the Program. If the conditions associated
with the grant of restricted shares are not achieved within the period specified
for satisfaction of the applicable conditions, or if the restricted share grant
terminates for any reason before the date on which the conditions must be
satisfied, the shares of Common Stock associated with such restricted shares
shall cease to reduce the number of shares available for purposes of the
Program.
The proceeds received by the Company from the sale of its Common
Stock pursuant to the exercise of options, transfer of restricted shares or
issuance of stock purchased under the Program, if in the form of cash, shall be
added to the Company's general funds and used for general corporate purposes.
Article 4. Eligibility and Participation. Officers, employees,
directors (whether employee directors or non-employee directors), and
independent contractors or agents of the Company or its subsidiaries who are
responsible for or contribute to the management, growth or profitability of the
business of the Company or its subsidiaries shall be eligible for selection by
the Program Administrators to participate in the Program. However, Incentive
Options may be granted under the Incentive Plan only to a person who is an
employee of the Company or its subsidiaries. An employee may be granted
Nonqualified Options under the Program; provided, however, that the grant of
Nonqualified Options and Incentive Options to an employee shall be the grant of
separate options and each Nonqualified Option and each Incentive Option shall be
specifically designated as such in accordance with applicable provisions of the
Treasury Regulations.
The term "subsidiary" as used herein means any company, other
than the Company, in an unbroken chain of companies, beginning with the Company
if, at the time of any grant hereunder, each of the companies, other than the
last company in the unbroken chain, owns stock possessing more than 50% of the
total combined voting power of all classes of stock in one of the other
companies in such chain.
Article 5. Effective Date and Term of Program. The Program shall
become effective upon its adoption by the Board of Directors of the Company
subject to approval of the Program by a majority of the voting shares of the
Company voting in person or by proxy at a meeting of stockholders, in either
case following adoption of the Program by the Board of Directors, which vote
shall be taken or consent granted within 12 months of adoption of the Program by
the Company's Board of Directors. The Program shall continue in effect for a
term of 10 years unless sooner terminated under Article 7 of these General
Provisions.
Article 6. Adjustments. If the outstanding shares of Common Stock
are increased, decreased, changed into, or exchanged for a different number or
kind of shares or securities through merger, consolidation, combination,
exchange of shares, other reorganization, recapitalization, reclassification,
stock dividend, stock split or reverse stock split, an appropriate and
proportionate adjustment shall be made in the maximum number and kind of shares
as to which options and restricted shares may be granted under this Program. A
corresponding adjustment changing the number and kind of shares allocated to
unexercised options, restricted shares, or portions thereof, which shall have
been granted prior to any such change, shall likewise be made. Any such
adjustment in outstanding options shall be made without change in the aggregate
purchase price applicable to the unexercised portion of the
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option, but with a corresponding adjustment in the price for each share or other
unit of any security covered by the option.
Article 7. Termination and Amendment of Program. The Program
shall terminate 10 years from the date the Program is adopted by the Board of
Directors, or, if applicable, the date a particular Plan is approved by the
stockholders, whichever is earlier, or shall terminate at such earlier time as
the Board of Directors may so determine. No options or restricted shares shall
be granted and no stock shall be sold and purchased under the Program after that
date. Subject to the limitation contained in Article 8 of these General
Provisions, the Program Administrators may at any time amend or revise the terms
of the Program, including the form and substance of the option, restricted share
and stock purchase agreements to be used hereunder; provided, however, that
without approval by the stockholders of the Company representing a majority of
the voting power (as contained in Article 5 of these General Provisions) no
amendment or revision shall (a) increase the maximum aggregate number of shares
that may be sold or distributed pursuant to options granted or stock sold and
purchased under Part 1 or Part IV, except as permitted under Article 6 of these
General Provisions; (b) change the minimum purchase price for shares under
Section 4 of Part I or the Purchase Price for shares under Part IV; (c) increase
the maximum term established under Parts I or IV for any option or restricted
share; (d) permit the granting of an option, or right to purchase shares under
Parts I or IV to anyone other than as provided in Article 4 of the General
Provisions; (e) change the term of Parts I or IV described in Article 5 of these
General Provisions; or (f) materially increase the benefits accruing to Plan
Participants under Parts I or IV of the Program.
Article 8. Prior Rights and Obligations. No amendment,
suspension, or termination of the Program shall, without the consent of the
individual who has received an option or restricted share or who has purchased a
specified share or shares under Part IV, alter or impair any of that person's
rights or obligations under any option or restricted share granted or shares
sold and purchased under the Program prior to that amendment, suspension, or
termination.
Article 9. Privileges of Stock Ownership. Notwithstanding the
exercise of any option granted pursuant to the terms of this Program, the
achievement of any conditions specified in any restricted share granted pursuant
to the terms of this Program or the election to purchase any shares pursuant to
the terms of this Program, no individual shall have any of the rights or
privileges of a stockholder of the Company in respect of any shares of stock
issuable upon the exercise of his or her option, the satisfaction of his or her
restricted share conditions or the sale, purchase and issuance of such purchased
shares until certificates representing the shares have been issued and
delivered. No shares shall be required to be issued and delivered upon exercise
of any option, satisfaction of any conditions with respect to a restricted share
or a purchaser under Part IV unless and until all of the requirements of law and
of all regulatory agencies having jurisdiction over the issuance and delivery of
the securities shall have been fully complied with.
Article 10. Reservation of Shares of Common Stock. The Company,
during the term of this Program, will at all times reserve and keep available
such number of shares of its Common Stock as shall be sufficient to satisfy the
requirements of the Program. In addition, the Company will from time to time, as
is necessary to accomplish the purposes of this Program, seek or obtain from any
regulatory agency having jurisdiction any requisite authority in order to issue
and sell shares of Common Stock hereunder. The inability of the Company to
obtain from any regulatory agency having jurisdiction the authority deemed by
the Company's counsel to be necessary to the lawful issuance and sale of any
shares of its stock hereunder shall relieve the Company of any liability in
respect of the nonissuance or sale of the stock as to which the requisite
authority shall not have been obtained.
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Article 11. Tax Withholding. The exercise of any option or
restricted share granted or the sale and issuance of any shares to be purchased
under this Program are subject to the condition that if at any time the Company
shall determine, in its discretion, that the satisfaction of withholding tax or
other withholding liabilities under any state or federal law is necessary or
desirable as a condition of, or in connection with, such exercise or the
delivery or purchase of shares pursuant thereto, then in such event, the
exercise of the option or restricted share or the sale and issuance of any
shares to be purchased shall not be effective unless such withholding shall have
been effected or obtained in a manner acceptable to the Company. At the
Company's sole and complete discretion, the Company may, from time to time,
accept shares of the Company's stock subject to one of the Plans as the source
of payment for such liabilities.
Article 12. Compliance with Law. It is the express intent of the
Company that this Program complies in all respect with all applicable provisions
of state and federal law, including without limitation Section 25102(o) of the
California Corporations Code to the extent such Section is applicable to the
Company. It is the express intent of the Company that when the Company becomes
publicly-traded that this Program shall comply in all respects with applicable
provisions of the Rule 16b-3 or Rule 16a-1(c)(3) under the Exchange Act in
connection with any grant of awards to, or other transaction by, a Plan
Participant who is subject to Section 16 of the Exchange Act (except for
transactions exempted under alternative Exchange Act Rules). Accordingly, if any
provision of the Program or any agreement relating to any award thereunder does
not comply with Rule 16b-3 or Rule 16a-1(c)(3) as then applicable to any such
transaction, such provision will be construed or deemed amended to the extent
necessary to conform to the applicable requirements of Rule 16b-3 or Rule
16a-1(c)(3) so that such Plan Participant shall avoid liability under Section
16(b). Unless otherwise provided in any grant or aware to any person who is or
may thereafter be subject to Section 16 of the Exchange Act the approval of
shall include the approval of the disposition of the Company of Company equity
securities for the purposes of satisfying the payment of the exercise or
purchase price or tax withholding obligations related to such grant or award
within the meaning of Section 16b-3(e).
Article 13. Performance-Based Awards.
(a) Each agreement for the grant of Performance
Shares shall specify the number of Performance Shares subject to
such agreement, the Performance Period and the Performance
Objective (each as defined below), and each agreement for the
grant of any other award that the Program Administrators
determine to make subject to a Performance Objective similarly
shall specify the applicable number of shares of Common Stock,
the period for measuring performance and the Performance
Objective. As used herein, "Performance Objective" means a
performance objective specified in the agreement for a
Performance Share, or for any other award which the Program
Administrators determine to make subject to a Performance
Objective, upon which the vesting or settlement of such award is
conditioned and "Performance Period" means the period of time
specified in an agreement over which Performance Shares, or
another award which the Program Administrators determine to make
subject to a Performance Objective, are to be earned. Each
agreement for a performance-based grant shall specify in respect
of a Performance Objective the minimum level of performance below
which no payment will be made, shall describe the method for
determining the amount of any payment to be made if performance
is at or above the minimum acceptable level, but falls short of
full achievement of the Performance Objective, and shall specify
the maximum percentage payout under the agreement. Such maximum
percentage in no event shall exceed one hundred percent (100%) in
the case of performance-based restricted shares and two hundred
percent (200%) in the case of Performance Shares or
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performance-based Dividend Equivalent Rights.
(b) The Program Administrators shall determine and
specify, in their discretion, the Performance Objective in the
agreement for a Performance Share or for any other
performance-based award, which Performance Objective shall
consist of: (i) one or more business criteria, including (except
as limited under subparagraph (c) below for awards to Covered
Employees (as defined below)) financial, service level and
individual performance criteria; and (ii) a targeted level or
levels of performance with respect to such criteria. Performance
Objectives may differ between Plan Participants and between types
of awards from year to year.
(c) The Performance Objective for Performance Shares
and any other performance-based award granted to a Covered
Employee, if deemed appropriate by the Program Administrators,
shall be objective and shall otherwise meet the requirements of
Section 162(m)(4)(C) of the Code, and shall be based upon one or
more of the following performance-based business criteria, either
on a business unit or Company-specific basis or in comparison
with peer group performance: net sales; gross sales; return on
net assets; return on assets; return on equity; return on
capital; return on revenues; cash flow; book value; share price
performance (including Options and SARs tied solely to
appreciation in the Fair Market Value of the shares); earnings
per share; stock price earnings ratio; earnings before interest,
taxes, depreciation and amortization expenses ("EBITDA");
earnings before interest and taxes ("EBIT"); or EBITDA, EBIT or
earnings before taxes and unusual or nonrecurring items as
measured either against the annual budget or as a ratio to
revenue. Achievement of any such Performance Objective shall be
measured over a period of years not to exceed ten (10) as
specified by the Program Administrators in the agreement for the
performance-based award. No business criterion other than those
named above in this Article 13(c) may be used in establishing the
Performance Objective for an award to a Covered Employee under
this Article 13. For each such award relating to a Covered
Employee, the Program Administrators shall establish the targeted
level or levels of performance for each such business criterion.
The Program Administrators may, in their discretion, reduce the
amount of a payout otherwise to be made in connection with an
award under this Article 13(c), but may not exercise discretion
to increase such amount, and the Program Administrators may
consider other performance criteria in exercising such
discretion. All determinations by the Program Administrators as
to the achievement of Performance Objectives under this Article
13(c) shall be made in writing. The Program Administrators may
not delegate any responsibility under this Article 13(c). As used
herein, "Covered Employee" shall mean, with respect to any grant
of an award, an executive of the Company or any subsidiary who is
a member of the executive compensation group under the Company's
compensation practices (not necessarily an executive officer)
whom the Program Administrators deem may be or become a covered
employee as defined in Section 162(m)(3) of the Code for any year
that such award may result in remuneration over $1 million which
would not be deductible under Section 162(m) of the Code but for
the provisions of the Program and any other "qualified
performance-based compensation" plan (as defined under Section
162(m) of the Code) of the Company; provided, however, that the
Program Administrators may determine that a Plan Participant has
ceased to be a Covered Employee prior to the settlement of any
award.
(d) The Program Administrators, in their sole
discretion, may
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require that one or more award agreements contain provisions
which provide that, in the event Section 162(m) of the Code, or
any successor provision relating to excessive employee
remuneration, would operate to disallow a deduction by the
Company with respect to all or part of any award under the
Program, a Plan Participant's receipt of the benefit relating to
such award that would not be deductible by the Company shall be
deferred until the next succeeding year or years in which the
Plan Participant's remuneration does not exceed the limit set
forth in such provisions of the Code.
Article 14. Death Beneficiaries. In the event of a Plan
Participant's death, all of such person's outstanding awards, including his or
her rights to receive any accrued but unpaid Stock Payments, will transfer to
the maximum extent permitted by law to such person's beneficiary (except to the
extent a permitted transfer of a Nonqualified Option or SAR was previously made
pursuant hereto). Each Plan Participant may name, from time to time, any
beneficiary or beneficiaries (which may be named contingently or successively)
as his or her beneficiary for purposes of this Program. Each designation shall
be on a form prescribed by the Program Administrators, will be effective only
when delivered to the Company, and when effective will revoke all prior
designations by the Plan Participant. If a Plan Participant dies with no such
beneficiary designation in effect, such person's beneficiary shall be his or her
estate and such person's awards will be transferable by will or pursuant to laws
of descent and distribution applicable to such person.
Article 15. Unfunded Program. The Program shall be unfunded and
the Company shall not be required to segregate any assets that may at any time
be represented by awards under the Program. Neither the Company, its affiliates,
the Program Administrators, nor the Board shall be deemed to be a trustee of any
amounts to be paid under the Program nor shall anything contained in the Program
or any action taken pursuant to its provisions create or be construed to create
a fiduciary relationship between any such party and a Plan Participant or anyone
claiming on his or her behalf. To the extent a Plan Participant or any other
person acquires a right to receive payment pursuant to an award under the
Program, such right shall be no greater than the right of an unsecured general
creditor of the Company.
Article 16. Choice of Law and Venue. The Program and all related
documents shall be governed by, and construed in accordance with, the laws of
the State of California. Acceptance of an award shall be deemed to constitute
consent to the jurisdiction and venue of the state and federal courts located in
Clark County, State of Nevada for all purposes in connection with any suit,
action or other proceeding relating to such award, including the enforcement of
any rights under the Program or any agreement or other document, and shall be
deemed to constitute consent to any process or notice of motion in connection
with such proceeding being served by certified or registered mail or personal
service within or without the State of California, provided a reasonable time
for appearance is allowed.
Article 17. Arbitration. Any disputes involving the Program will
be resolved by arbitration in Clark County, Nevada before one (1) arbitrator in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association.
Article 18. Program Administrators' Right. Except as may be
provided in an award agreement, the Program Administrators may, in their
discretion, waive any restrictions or conditions applicable to, or accelerate
the vesting of, any award (other than the right to purchase shares pursuant to
the Stock Purchase Plan).
Article 19. Termination of Benefits Under Certain Conditions. The
Program Administrators, in their sole discretion, may cancel any unexpired,
unpaid or deferred award (other than
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a right to purchase shares pursuant to the Stock Purchase Plan) at any time if
the Plan Participant is not in compliance with all applicable provisions of the
Program or any award agreement or if the Plan Participant, whether or not he or
she is currently employed by the Company or one of its subsidiaries, acts in a
manner contrary to the best interests of the Company and its subsidiaries.
Article 20. Conflicts in Program. In case of any conflict in the
terms of the Program, or between the Program and an award agreement, the
provisions in the Program which specifically grant such award shall control, and
the provisions in the Program shall control over the provisions in any award
agreement.
Article 21. Optional Deferral. The right to receive any award
under the Program (other than the right to purchase shares pursuant to the Stock
Purchase Plan) may, at the request of the Plan Participant, be deferred to such
period and upon such terms and conditions as the Program Administrators shall,
in their discretion, determine, which may include crediting of interest on
deferrals of cash and crediting of dividends on deferrals denominated in shares
of Common Stock.
Article 22. Information to Plan Participants. To the extent
required by applicable law, the Company shall provide Plan Participants with the
Company's financial statements at least annually.
Article 23. Company's Right of First Refusal. Right of First
Refusal. Any attempt by any Plan Participant to sell, transfer or otherwise
dispose of any securities issued to such Plan Participant hereunder or upon
exercise of any other security or other right issued hereunder, that is
transferable in accordance with the terms of this Program and applicable law,
must also comply with the following provisions:
(a) The Plan Participant must have received a bona
fide offer to purchase the securities (the "Offer") and the Plan
Participant must then give written notice to the Company outlining the
terms of the Offer (including the identity of the maker of the Offer
(the "Offeror")). The Company shall then have the right, for a period of
sixty (60) days, to repurchase all, but not less than all, of the
securities offered by the Plan Participant upon the terms contained in
the Offer. If the Offer includes the payment of non-cash consideration
for the securities, the Company shall pay an amount equal to the fair
market value of such non-cash consideration;
(b) If the Company does not exercise its rights
hereunder, the Plan Participant may, within sixty (60) days thereafter,
sell the offered securities to the Offeror upon terms not more favorable
to the Offeror than those contained in the Offer. Any sale of securities
by the Plan Participant after the expiration of the sixty (60) day
period referred to in the preceding sentence shall be deemed a new
transaction subject to the Company's right of first refusal here; and
(c) The Company's right of first refusal shall
terminate when the Company's securities become publicly traded.
Article 24. Lock-Up. To the extent requested by any managing
underwriter to the Company, the Plan Participants shall enter into such market
lock-up, escrow or other agreements as may be requested by such underwriter in
connection with any public offering of the Company's securities.
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PART I
MEDICAL DEVICE ALLIANCE, INC.
INCENTIVE STOCK OPTION PLAN
Section 1. Purpose. The purpose of this Medical Device Alliance,
Inc. Incentive Stock Option Plan (the "Incentive Plan") is to promote the growth
and general prosperity of the Company by permitting the Company to grant options
to purchase shares of its Common Stock. The Incentive Plan is designed to help
attract and retain superior personnel for positions of substantial
responsibility with the Company and its subsidiaries, and to provide individuals
with an additional incentive to contribute to the success of the Company. The
Company intends that options granted pursuant to the provisions of the Incentive
Plan will qualify as "incentive stock options" within the meaning of Section 422
of the Code. This Incentive Plan is Part I of the Program. Unless any provision
herein indicates to the contrary, this Incentive Plan shall be subject to the
General Provisions of the Program.
Section 2. Maximum Number of Shares; Option Terms and Conditions.
The maximum aggregate number of shares of Common Stock subject to the Incentive
Plan should be 1,300,000. The terms and conditions of options granted under the
Incentive Plan may differ from one another as the Program Administrators shall,
in its discretion, determine as long as all options granted under the Incentive
Plan satisfy the requirements of the Incentive Plan.
Section 3. Duration of Options. Each option and all rights
thereunder granted pursuant to the terms of the Incentive Plan shall expire on
the date determined by the Program Administrators, but in no event shall any
option granted under the Incentive Plan expire later than ten (10) years from
the date on which the option is granted. However, notwithstanding the above
portion of this Section 3, if at the time the option is granted the grantee (the
"Optionee") owns or would be considered to own by reason of Code Section 424(d)
more than 10% of the total combined voting power of all classes of stock of the
Company or its subsidiaries, such option shall expire not more than 5 years from
the date the option is granted. In addition, each option shall be subject to
early termination as provided in the Incentive Plan.
Section 4. Purchase Price. The purchase price for shares acquired
pursuant to the exercise, in whole or in part, of any option shall not be less
than the fair market value of the shares at the time of the grant of the option.
Fair market value (the "Fair Market Value") shall be determined by the Program
Administrators on the basis of such factors as they deem appropriate; provided,
however, that Fair Market Value on any day shall be deemed to be, if the Common
Stock is traded on a national securities exchange, the closing price (or, if no
reported sale takes place on such day, the mean of the reported bid and asked
prices) of the Common Stock on such day on the principal such exchange, or, if
the stock is included on the composite tape, the composite tape. In each case,
the Program Administrators' determination of Fair Market Value shall be
conclusive.
Notwithstanding the above portion of this Section 4, if at the
time an option is granted the Optionee owns or would be considered to own by
reason of Code Section 424(d) more than 10% of the total combined voting power
of all classes of stock of the Company or its subsidiaries, the purchase price
of the shares covered by such option shall not be less than 110% of the Fair
Market Value of a share of Common Stock on the date the option is granted.
Section 5. Maximum Amount of Options Exercisable in Any Calendar
Year. Notwithstanding any other provision of this Incentive Plan, the aggregate
Fair Market Value (determined
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at the time any Incentive Stock Option is granted) of the Common Stock with
respect to which Incentive Stock Options become exercisable for the first time
by any employee during any calendar year under all stock option plans of the
Company and its subsidiaries shall not exceed $100,000.
Section 6. Exercise of Options. Each option shall be exercisable
in one or more installments during its term as determined by the Program
Administrators, and the right to exercise may be cumulative as determined by the
Program Administrators. Each option shall be exercisable at a rate of at least
twenty percent (20%) per year over five (5) years from the date the option is
granted, subject to such reasonable conditions as determined by the Program
Administrators. No option may be exercised for a fraction of a share of Common
Stock. The purchase price of any shares purchased shall be paid in full in cash
or by certified or cashier's check payable to the order of the Company or by
shares of Common Stock, if permitted by the Program Administrators, or by a
combination of cash, check, or shares of Common Stock, at the time of exercise
of the option. If any portion of the purchase price is paid in shares of Common
Stock, those shares shall be tendered at their then Fair Market Value as
determined by the Program Administrators in accordance with Section 4 of this
Incentive Plan. Payment in shares of Common Stock includes the automatic
application of shares of Common Stock received upon exercise of an option to
satisfy the exercise price for additional options.
Section 7. Reorganization. In the event of the dissolution or
liquidation of the Company, any option granted under the Incentive Plan shall
terminate as of a date to be fixed by the Program Administrators; provided that
not less than 30 days' written notice of the date so fixed shall be given to
each Optionee and each such Optionee shall have the right during such period
(unless such option shall have previously expired) to exercise any option,
including any option that would not otherwise be exercisable by reason of an
insufficient lapse of time.
In the event of a Reorganization (as defined below) in which the
Company is not the surviving or acquiring company, or in which the Company is or
becomes a subsidiary of another company after the effective date of the
Reorganization, then:
(a) if there is no plan or agreement respecting the
Reorganization (the "Reorganization Agreement") or if the
Reorganization Agreement does not specifically provide for the
change, conversion or exchange of the outstanding options for
options of another corporation, then exercise and termination
provisions equivalent to those described in this Section 7 shall
apply; or
(b) if there is a Reorganization Agreement and if the
Reorganization Agreement specifically provides for the change,
conversion, or exchange of the outstanding options for options of
another corporation, then the Program Administrators shall adjust
the outstanding unexercised options (and shall adjust the options
remaining under the Incentive Plan which have not yet been
granted if the Reorganization Agreement makes specific provision
for such an adjustment) in a manner consistent with the
applicable provisions of the Reorganization Agreement.
The term "Reorganization" as used in this Section 7 shall mean any statutory
merger, statutory consolidation, sale of all or substantially all of the assets
of the Company or a sale of the Common Stock pursuant to which the Company is or
becomes a subsidiary of another company after the effective date of the
Reorganization.
Adjustments and determinations under this Section 7 shall be made
by the Program Administrators, whose decisions as to such adjustments or
determinations shall be final, binding, and
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conclusive.
Section 8. Written Notice Required. Any option granted pursuant
to the terms of the Incentive Plan shall be exercised when written notice of
that exercise has been given to the Company at its principal office by the
person entitled to exercise the option and full payment for the shares with
respect to which the option is exercised, together with payment of applicable
income taxes, has been received by the Company.
Section 9. Compliance with Securities Laws. Shares shall not be
issued with respect to any option granted under the Incentive Plan, unless the
exercise of that option and the issuance and delivery of the shares pursuant to
that exercise shall comply with all applicable provisions of foreign, state and
federal law including, without limitation, the Securities Act of 1933, as
amended, and the Exchange Act, and the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the shares may
then be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance. The Program Administrators may also
require an Optionee to furnish evidence satisfactory to the Company, including a
written and signed representation letter and consent to be bound by any transfer
restriction imposed by law, legend, condition, or otherwise, that the shares are
being purchased only for investment and without any present intention to sell or
distribute the shares in violation of any state or federal law, rule, or
regulation. Further, each Optionee shall consent to the imposition of a legend
on the shares of Common Stock subject to his or her Option and the imposition of
stop-transfer instructions restricting their transferability as required by law
or by this Section 9.
Section 10. Employment of Optionee. Each Optionee, if requested
by the Program Administrators, must agree in writing as a condition of receiving
his or her option, that he or she will remain in the employment of the Company
or its subsidiary corporations following the date of the granting of that option
for a period specified by the Program Administrators. Nothing in the Incentive
Plan or in any option granted hereunder shall confer upon any Optionee any right
to continued employment by the Company or its subsidiary corporations or limit
in any way the right of the Company or its subsidiary corporations at any time
to terminate or alter the terms of that employment.
Section 11. Option Rights Upon Termination of Employment. If an
Optionee ceases to be employed by the Company or any subsidiary corporation for
any reason other than death or disability, his or her option shall terminate
within thirty (30) days after the date of termination of employment; provided,
however, that in the event employment is terminated for cause as defined buy
applicable law, his or her option shall terminate immediately, provided,
further, however, that the Program Administrators may, in their sole and
absolute discretion, allow the option to be exercised (to the extent exercisable
on the date of termination of employment) at any time within sixty (60) days
after the date of termination of employment, unless either the option or the
Incentive Plan otherwise provides for earlier termination.
Section 12. Option Rights Upon Disability. If an Optionee becomes
disabled within the meaning of Code Section 422(e)(3) while employed by the
Company or any subsidiary corporation, the Program Administrators, in their
discretion, may allow the option to be exercised, to the extent exercisable on
the date of termination of employment, at any time within one year after the
date of termination of employment due to disability, unless either the option or
the Incentive Plan otherwise provides for earlier termination.
Section 13. Option Rights Upon Death of Optionee. Except as
otherwise limited by the Program Administrators at the time of the grant of an
option, if an Optionee dies while employed by the Company or any subsidiary
corporation, his or her Option shall expire one year after the date of death
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<PAGE> 13
unless by its terms it expires sooner. During this one year or shorter period,
the option may be exercised, to the extent that it remains unexercised on the
date of death, by the person or persons to whom the Optionee's rights under the
option shall pass by will or by the laws of descent and distribution, but only
to the extent that the Optionee is entitled to exercise the option at the date
of death.
Section 14. Options Not Transferable. Options granted pursuant to
the terms of the Incentive Plan may not be sold, pledged, assigned, or
transferred in any manner otherwise than by will or the laws of descent or
distribution and may be exercised during the lifetime of an Optionee only by
that Optionee. No such options shall be pledged or hypothecated in any way nor
shall they be subject to execution, attachment, or similar process.
Section 15. Adjustments to Number and Purchase Price of Optioned
Shares. All options granted pursuant to the terms of this Incentive Plan shall
be adjusted in the manner prescribed by Article 6 of the General Provisions of
this Program.
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MEDICAL DEVICE ALLIANCE, INC., INCENTIVE STOCK OPTION PLAN
GRANT OF OPTION
Date of Grant: ____________________, ____
THIS GRANT, dated as of the date of grant first stated above (the
"Date of Grant") , is delivered by, Medical Device Alliance, Inc., a
______________ corporation (the "Company") to ____________________ (the
"Grantee"), who is an employee of the Company or one of its subsidiaries (the
Grantee's employer is sometimes referred to herein as the "Employer").
WHEREAS, the Board of Directors of the Company (the "Board") on
________________, adopted, with subsequent stockholder approval, the Medical
Device Alliance, Inc., Incentive Stock Option Plan (the "Plan");
WHEREAS, the Plan provides for the granting of incentive stock
options by the Board or Program Administrators to employees of the Company or
any subsidiary of the Company to purchase, or to exercise certain rights with
respect to, shares of the Common Stock of the Company, no par value (the
"Stock"), in accordance with the terms and provisions thereof; and
WHEREAS, the Program Administrators consider the Grantee to be a
person who is eligible for a grant of incentive stock options under the Plan,
and has determined that it would be in the best interest of the Company to grant
the incentive stock options documented herein.
NOW, THEREFORE, the parties hereto, intending to be legally bound
hereby, agree as follows:
1. Grant of Option.
Subject to the terms and conditions hereinafter set forth, the Company,
with the approval and at the direction of the Program Administrators, hereby
grants to the Grantee, as of the Date of Grant, an option to purchase up to
_____ shares of Stock at a price of $_____ per share, the fair market value (or,
with respect to 10% stockholders, 110% of fair market value). Such option is
hereinafter referred to as the "Option" and the shares of stock purchasable upon
exercise of the Option are hereinafter sometimes referred to as the "Option
Shares." The Option is intended by the parties hereto to be, and shall be
treated as, an incentive stock option (as such term is defined under Section 422
of the Internal Revenue Code of 1986).
2. Installment Exercise.
Subject to such further limitations as are provided herein, the Option
shall become exercisable in __________ installments, the Grantee having the
right hereunder to purchase from the Company the following number of Option
Shares upon exercise of the Option, on and after the following dates, in
cumulative fashion as determined by the Program Administrators:
____________________________
3. Termination of Option.
(a) The Option and all rights hereunder with respect thereto, to the
extent such rights shall not have been exercised, shall terminate and become
null and void after the expiration of _____ years
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<PAGE> 15
from the Date of Grant (the "Option Term" [no more than 10 years from Date of
Grant or, in the case of a 10% owner, no more than 5 years from Date of Grant]).
(b) Upon the occurrence of the Grantee's ceasing for any reason to be
employed by the Employer (such occurrence being a "termination of the Grantee's
employment"), the Option, to the extent not previously exercised, shall
terminate and become null and void within thirty (30) days after the date of
such termination of the Grantee's employment, except (1) in the event employment
is terminated for cause as defined buy applicable law, in which case Grantee's
shall terminate and become null and void immediately or (2) in a case where the
Program Administrators may otherwise determine in its sole and absolute
discretion for up to sixty (60) days following the termination of employment. As
determined by the Program Administrators, upon a termination of the Grantee's
employment by reason of disability or death, the Option may be exercised, but
only to the extent that the Option was outstanding and exercisable on such date
of disability or death, up to a one-year period following the date of such
termination of the Grantee's employment.
(c) In the event of the death of the Grantee, the Option may be
exercised by the Grantee's legal representative, but only to the extent that the
option would otherwise have been exercisable by the Grantee.
(d) A transfer of the Grantee's employment between the Company and any
subsidiary of the Company, or between any subsidiaries of the Company, shall not
be deemed to be a termination of the Grantee's employment.
4. Exercise of Options.
(a) The Grantee may exercise the option with respect to all or any part
of the number of option Shares then exercisable hereunder by giving the
Secretary of the Company written notice of intent to exercise. The notice of
exercise shall specify the number of Option Shares as to which the Option is to
be exercised and the date of exercise thereof.
(b) Full payment (in U.S. dollars) by the Grantee of the option price
for the Option Shares purchased shall be made on or before the exercise date
specified in the notice of exercise in cash, or, with the prior written consent
of the Program Administrators, in whole or in part through the surrender of
shares of Stock at their fair market value on the exercise date. The Grantee
shall also pay any required income tax withholding taxes which may be payable in
U.S. dollars or Option shares if acceptable to the Company.
(c) On the exercise date specified in the Grantee's notice or as soon
thereafter as is practicable, the Company shall cause to be delivered to the
Grantee, a certificate or certificates for the option Shares then being
purchased (out of theretofore unissued stock or reacquired Stock, as the Company
may elect) upon full payment for such option Shares. However, if (i) the Grantee
is subject to Section 16 of the Securities Exchange Act of 1934 and (ii) the
Grantee exercises the Option before six months have passed from the Date of
Grant, the Company shall be permitted to hold in its custody any stock
certificate arising from such exercise until six months has passed from the Date
of Grant. The obligation of the Company to deliver Stock shall, however, be
subject to the condition that if at any time the Program Administrators shall
determine in its discretion that the listing, registration or qualification of
the Option or the Option Shares upon any securities exchange or under any state
or federal law, or the consent or approval of any governmental regulatory body,
is necessary or desirable as a condition of, or in connection with, the Option
or the issuance or purchase of Stock thereunder, the Option may not be exercised
in whole or in part unless such listing, registration, qualification, consent or
approval shall
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<PAGE> 16
have been effected or obtained free of any conditions not acceptable to the
Program Administrators.
(d) If the Grantee fails to pay for any of the Option Shares specified
in such notice or fails to accept delivery thereof, the Grantee's right to
purchase such Option Shares may be terminated by the Company. The date specified
in the Grantee's notice as the date of exercise shall be deemed the date of
exercise of the Option, provided that payment in full for the Option Shares to
be purchased upon such exercise shall have been received by such date.
5. Adjustment of and Changes in Stock of the Company.
In the event of a reorganization, recapitalization, change of shares,
stock split, spin-off, stock dividend, reclassification, subdivision or
combination of shares, merger, consolidation, rights offering, or any other
change in the corporate structure or shares of capital stock of the Company, the
Program Administrators shall make such adjustment as may be required under the
applicable reorganization agreement in the number and kind of shares of Stock
subject to the Option or in the option price; provided, however, that no such
adjustment shall give the Grantee any additional benefits under the Option. If
there is no provision for the treatment of the Option under an applicable
reorganization agreement, the Option may terminate on a date determined by the
Program Administrators following at least 30 days written notice to the Grantee.
6. Fair Market Value.
As used herein, the "fair market value? of a share of Stock shall be
determined by the Board. However, if the Stock is publicly-traded, fair market
value of a share of Stock shall be based upon the closing or other appropriate
trading price per share of Stock on a national securities exchange.
7. No Rights of Stockholders.
Neither the Grantee nor any personal representative shall be, or shall
have any of the rights and privileges of, a stockholder of the Company with
respect to any shares of Stock purchasable or issuable upon the exercise of the
Option, in whole or in part, prior to the date of exercise of the Option.
8. Non-Transferability of Option.
During the Grantee's lifetime, the Option hereunder shall be exercisable
only by the Grantee or any guardian or legal representative of the Grantee, and
the option shall not be transferable except, in case of the death of the
Grantee, by will or the laws of descent and distribution, nor shall the Option
be subject to attachment, execution or other similar process. In the event of
(a) any attempt by the Grantee to alienate, assign, pledge, hypothecate or
otherwise dispose of the option, except as provided for herein, or (b) the levy
of any attachment, execution or similar process upon the rights or interest
hereby conferred, the Company may terminate the Option by notice to the Grantee
and it shall thereupon become null and void.
9. Restriction on Exercise.
The Option may not be exercised if the issuance of the Option Shares
upon such exercise would constitute a violation of any applicable federal or
State securities or other law or valid regulation. As a condition to the
exercise of the Option, the Company may require the Grantee exercising the
Option to make any representation or warranty to the Company as may be required
by any applicable law or regulation and, specifically, may require the Grantee
to provide evidence satisfactory to the Company
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<PAGE> 17
that the Option Shares are being acquired only for investment purposes and
without any present intention to sell or distribute the shares in violation of
any federal or State securities or other law or valid regulation.
10. Employment Not Affected.
The granting of the option or its exercise shall not be construed as
granting to the Grantee any right with respect to continuance of employment of
the Employer. Except as may otherwise be limited by a written agreement between
the Employer and the Grantee, the right of the Employer to terminate at will the
Grantee's employment with it at any time (whether by dismissal, discharge,
retirement or otherwise) is specifically reserved by the Company, as the
Employer or on behalf of the Employer (whichever the case may be), and
acknowledged by the Grantee.
11. Amendment of Option.
The Option may be amended by the Program Administrators at any time (i)
if the Program Administrators determine, in their sole discretion, that
amendment is necessary or advisable in the light of any addition to or change in
the Internal Revenue Code of 1986 or in the regulations issued thereunder, or
any federal or state securities law or other law or regulation, which change
occurs after the Date of Grant and by its terms applies to the Option; or (ii)
other than in the circumstances described in clause (i), with the consent of the
Grantee.
12. Notice.
All notices, requests, demands, and other communications hereunder shall
be in writing and shall be deemed to have been duly given if delivered
personally or by certified mail, return receipt requested, as follows:
To Employer: Medical Device Alliance, Inc.
3800 Howard Hughes Parkway, Suite 1800
Las Vegas, Nevada 89109
Attn: Secretary
To Grantee: ________________________________
________________________________
________________________________
________________________________
13. Incorporation of Plan by Reference.
The Option is granted pursuant to the terms of the Plan, the terms of
which are incorporated herein by reference, and the option shall in all respects
be interpreted in accordance with the Plan. The Program Administrators shall
interpret and construe the Plan and this instrument, and its interpretations and
determinations shall be conclusive and binding on the parties hereto and any
other person claiming an interest hereunder, with respect to any issue arising
hereunder or thereunder.
14. Governing Law.
The validity, construction, interpretation and effect of this instrument
shall exclusively be governed by and determined in accordance with the law of
the State of California, except to the extent
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<PAGE> 18
preempted by federal law, which shall to the extent govern.
IN WITNESS WHEREOF, the Company has caused its duly authorized officers
to execute this Grant of Option, and to apply the corporate seal hereto, and the
Grantee has placed his or her signature hereon, effective as of the Date of
Grant.
MEDICAL DEVICE ALLIANCE, INC.
By: __________________________________
Name:
Title:
ACCEPTED AND AGREED TO:
______________________________________
[Grantee]
By: __________________________________
Name:
Title:
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<PAGE> 19
PART II
MEDICAL DEVICE ALLIANCE, INC.
NON-QUALIFIED STOCK OPTION PLAN
Section 1. Purpose. The purpose of this Medical Device Alliance,
Inc., Non-Qualified Stock Option Plan (the "Nonqualified Plan") is to permit the
Company to grant options to purchase shares of its Common Stock. The
Nonqualified Plan is designed to help attract and retain superior personnel for
positions of substantial responsibility with the Company and its subsidiaries,
and to provide individuals with an additional incentive to contribute to the
success of the Company. Any option granted pursuant to the Nonqualified Plan
shall be clearly and specifically designated as not being an incentive stock
option, as defined in Section 422 of the Code. This Nonqualified Plan is Part II
of the Program. Unless any provision herein indicates to the contrary, the
Nonqualified Plan shall be subject to the General Provisions of the Program.
Section 2. Option Terms and Conditions. The terms and conditions
of options granted under the Nonqualified Plan may differ from one another as
the Program Administrators shall in their discretion determine as long as all
options granted under the Nonqualified Plan satisfy the requirements of the
Nonqualified Plan.
Section 3. Duration of Options. Each option and all rights
thereunder granted pursuant to the terms of the Nonqualified Plan shall expire
on the date determined by the Program Administrators, but in no event shall any
option granted under the Nonqualified Plan expire later than ten (10) years from
the date on which the option is granted. In addition, each option shall be
subject to early termination as provided in the Nonqualified Plan.
Section 4. Purchase Price. The purchase price for shares acquired
pursuant to the exercise, in whole or in part, of any option shall not be less
than the fair market value of the shares at the time of the grant of the option.
Fair market value (the "Fair Market Value") shall be determined by the Program
Administrators on the basis of such factors as they deem appropriate; provided,
however, that Fair Market Value on any day shall be deemed to be, if the Common
Stock is traded on a national securities exchange, the closing price (or, if no
reported sale takes place on such day, the mean of the reported bid and asked
prices) of the Common Stock on such day on the principal such exchange, or, if
the stock is included on the composite tape, the composite tape. In each case,
the Program Administrators' determination of Fair Market Value shall be
conclusive.
Notwithstanding the above portion of this Section 4, if at the
time an option is granted the Optionee owns or would be considered to own by
reason of Code Section 424(d) more than 10% of the total combined voting power
of all classes of stock of the Company or its subsidiaries, the purchase price
of the shares covered by such option shall not be less than 110% of the Fair
Market Value of a share of Common Stock on the date the option is granted.
Section 5. Exercise of Options. Each option shall be exercisable
in one or more installments during its term and the right to exercise may be
cumulative as determined by the Program Administrators. Each option shall be
exercisable a rate of at least twenty percent (20%) per year over five (5) years
from the date the option is granted, subject to such reasonable conditions as
determined by the Program Administrators. No option may be exercised for a
fraction of a share of Common Stock. The purchase price of any shares purchased
shall be paid in full in cash or by certified or cashier's check payable to the
order of the Company or by shares of Common Stock, if permitted by the Program
Administrators, or by a combination of cash, check, or shares of Common Stock,
at the time of exercise
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<PAGE> 20
of the option. If any portion of the purchase price is paid in shares of Common
Stock, those shares shall be tendered at their then Fair Market Value as
determined by the Program Administrators in accordance with Section 4 of the
Nonqualified Plan. Payment in shares of Common Stock includes the automatic
application of shares of Common Stock received upon exercise of an option to
satisfy the exercise price for additional options.
Section 6. Reorganization. In the event of the dissolution or
liquidation of the Company, any option granted under the Nonqualified Plan shall
terminate as of a date to be fixed by the Program Administrators; provided that
not less than 30 days' written notice of the date so fixed shall be given to
each Optionee and each such Optionee shall have the right during such period
(unless such option shall have previously expired) to exercise any option,
including any option that would not otherwise be exercisable by reason of an
insufficient lapse of time.
In the event of a Reorganization (as defined below) in which the
Company is not the surviving or acquiring company, or in which the Company is or
becomes a subsidiary of another company after the effective date of the
Reorganization, then:
a. if there is no plan or agreement respecting the
Reorganization ("Reorganization Agreement") or if the
Reorganization Agreement does not specifically provide for the
change, conversion or exchange of the outstanding options for
options of another corporation, then exercise and termination
provisions equivalent to those described in this Section 6 shall
apply; or
(b) if there is a Reorganization Agreement and if the
Reorganization Agreement specifically provides for the change,
conversion, or exchange of the outstanding options for options of
another corporation, then the Program Administrators shall adjust
the outstanding unexercised options (and shall adjust the options
remaining under the Nonqualified Plan which have not yet been
granted if the Reorganization Agreement makes specific provision
for such an adjustment) in a manner consistent with the
applicable provisions of the Reorganization Agreement.
The term "Reorganization" as used in this Section 6 shall mean any statutory
merger, statutory consolidation, sale of all or substantially all of the assets
of the Company or a sale of the Common Stock pursuant to which the Company is or
becomes a subsidiary of another company after the effective date of the
Reorganization.
Adjustments and determinations under this Section 6 shall be made
by the Program Administrators, whose decisions as to such adjustments or
determinations shall be final, binding, and conclusive.
Section 7. Written Notice Required. Any option granted pursuant
to the terms of this Nonqualified Plan shall be exercised when written notice of
that exercise has been given to the Company at its principal office by the
person entitled to exercise the option and full payment for the shares with
respect to which the option is exercised has been received by the Company.
Section 8. Compliance with Securities Laws. Shares shall not be
issued with respect to any option granted under the Nonqualified Plan, unless
the exercise of that option and the issuance and delivery of the shares pursuant
thereto shall comply with all applicable provisions of foreign, state and
federal law, including, without limitation, the Securities Act of 1933, as
amended, and the Exchange Act, and the rules and regulations promulgated
thereunder, and the requirements of any
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<PAGE> 21
stock exchange upon which the shares may then be listed, and shall be further
subject to the approval of counsel for the Company with respect to such
compliance. The Program Administrators may also require an Optionee to furnish
evidence satisfactory to the Company, including a written and signed
representation letter and consent to be bound by any transfer restrictions
imposed by law, legend, condition, or otherwise, that the shares are being
purchased only for investment purposes and without any present intention to sell
or distribute the shares in violation of any state or federal law, rule, or
regulation. Further, each Optionee shall consent to the imposition of a legend
on the shares of Common Stock subject to his or her option and the imposition of
stop-transfer instructions restricting their transferability as required by law
or by this Section 8.
Section 9. Continued Employment or Service. Each Optionee, if
requested by the Program Administrators, must agree in writing as a condition of
receiving his or her Option, to remain in the employment of, or service to, the
Company or any of its subsidiaries following the date of the granting of that
option for a period specified by the Program Administrators. Nothing in this
Nonqualified Plan or in any option granted hereunder shall confer upon any
Optionee any right to continued employment by, or service to, the Company or any
of its subsidiaries, or limit in any way the right of the Company or any
subsidiary at any time to terminate or alter the terms of that employment or
service arrangement.
Section 10. Option Rights Upon Termination of Employment or
Service. If an Optionee ceases to be employed by the Company or any subsidiary
corporation for any reason other than death or disability, his or her option
shall terminate within thirty (30) days after the date of termination of
employment; provided, however, that in the event employment is terminated for
cause as defined buy applicable law, his or her option shall terminate
immediately, provided, further, however, that the Program Administrators may, in
their sole and absolute discretion, allow the option to be exercised (to the
extent exercisable on the date of termination of employment) at any time within
sixty (60) days after the date of termination of employment, unless either the
option or the Nonqualified Plan otherwise provides for earlier termination.
Section 11. Option Rights Upon Disability. If an Optionee becomes
disabled within the meaning of Code Section 422 (e) (3) while employed by the
Company or any subsidiary corporation, the Program Administrators, in their
discretion, may allow the option to be exercised, to the extent exercisable on
the date of termination of employment, at any time within one year after the
date of termination of employment due to disability, unless either the option or
the Nonqualified Plan otherwise provides for earlier termination.
Section 12. Option Rights Upon Death of Optionee. Except as
otherwise limited by the Program Administrators at the time of the grant of an
option, if an Optionee dies while employed by, or providing services to, the
Company or any of its subsidiaries, his or her option shall expire one year
after the date of death unless by its terms it expires sooner. During this one
year or shorter period, the option may be exercised, to the extent that it
remains unexercised on the date of death, by the person or persons to whom the
Optionee's rights under the option shall pass by will or by the laws of descent
and distribution, but only to the extent that the Optionee is entitled to
exercise the option at the date of death.
Section 13. Options Not Transferable. Options granted pursuant to
the terms of this Nonqualified Plan may not be sold, pledged, assigned, or
transferred in any manner otherwise than by will or the laws of descent or
distribution and may be exercised during the lifetime of an Optionee only by
that Optionee. No such options shall be pledged or hypothecated in any way nor
shall they be subject to execution, attachment, or similar process.
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<PAGE> 22
Section 14. Adjustments to Number and Purchase Price of Optioned
Shares. All options granted pursuant to the terms of this Nonqualified Plan
shall be adjusted in a manner prescribed by Article 6 of the General Provisions
of the Program.
22
<PAGE> 23
MEDICAL DEVICE ALLIANCE, INC.
NON-QUALIFIED STOCK OPTION PLAN
GRANT OF OPTION
Date of Grant: __________, ____
THIS GRANT, dated as of the date of grant first stated above (the
"Date of Grant"), is delivered by Medical Device Alliance, Inc., a _____________
corporation (the "Company"), to __________________ (the "Grantee"), who is a
employee or non-employee of the Company or one of its subsidiaries (the
Grantee's employer is sometimes referred to herein as the ("Employer").
WHEREAS, the Board of Directors of the Company (the "Board") on
______________________________, adopted the Medical Device Alliance, Inc.,
Non-Qualified Stock Option Plan (the "Plan");
WHEREAS, the Plan provides for the granting of stock options by
the Board or the Program Administrators to employees or non-employees of the
Company or any subsidiary of the Company to purchase, or to exercise certain
rights with respect to, shares of the Common Stock of the Company, no par value
(the "Stock"), in accordance with the terms and provisions thereof; and
WHEREAS, the Program Administrators consider the Grantee to be a
person who is eligible for a grant of non-qualified stock options under the
Plan, and has determined that it would be in the best interest of the Company to
grant the non-qualified stock options documented herein.
NOW, THEREFORE, the parties hereto, intending to be legally bound
hereby, agree as follows:
1. Grant of Option.
Subject to the terms and conditions hereinafter set forth, the
Company, with the approval and at the direction of the Program Administrators,
hereby grants to the Grantee, as of the Date of Grant, an option to purchase up
to __________ shares of Stock at a price of $__________ per share, the fair
market value. Such option is hereinafter referred to as the "Option" and the
shares of stock purchasable upon exercise of the Option are hereinafter
sometimes referred to as the "Option Shares." The Option is intended by the
parties hereto to be, and shall be treated as, an option not qualified as an
incentive stock option (as such term is defined under Section 422 of the
Internal Revenue Code of 1986).
2. Installment Exercise.
Subject to such further limitations as are provided herein, the
Option shall become exercisable in __________ installments, the Grantee having
the right hereunder to purchase from the Company the following number of Option
Shares upon exercise of the Option, on and after the following dates, in
cumulative fashion as determined by the Program Administrators: ________________
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<PAGE> 24
3. Termination of Option.
(a) The Option and all rights hereunder with respect thereto, to
the extent such rights shall not have been exercised, shall terminate and become
null and void after the expiration of __________ years from the Date of Grant
(the "Option Term") [no more than 10 years from Date of Grant].
(b) Upon the occurrence of the Grantee's ceasing for any reason
to be employed by the Employer (such occurrence being a "termination of the
Grantee's employment"), the Option, to the extent not previously exercised,
shall terminate and become null and void within thirty (30) days after the date
of such termination of the Grantee's employment, except (1) in the event
employment is terminated for cause as defined buy applicable law, in which case
Grantee's shall terminate and become null and void immediately or (2) in a case
where the Program Administrators may otherwise determine in its sole and
absolute discretion for up to sixty (60) days following the termination of
employment. As determined by the Program Administrators, upon a termination of
the Grantee's employment by reason of disability or death, the Option may be
exercised, but only to the extent that the Option was outstanding and
exercisable on such date of disability or death, up to a one-year period
following the date of such termination of the Grantee's employment.
(c) In the event of the death of the Grantee, the Option may be
exercised by the Grantee's legal representative, but only to the extent that the
Option would otherwise have been exercisable by the Grantee.
(d) A transfer of the Grantee's employment between the Company
and any subsidiary of the Company, or between any subsidiaries of the Company,
shall not be deemed to be a termination of the Grantee's employment.
4. Exercise of Options.
(a) The Grantee may exercise the Option with respect to all or
any part of the number of Option Shares then exercisable hereunder by giving the
Secretary of the Company written notice of intent to exercise. The notice of
exercise shall specify the number of Option Shares as to which the Option is to
be exercised and the date of exercise thereof.
(b) Full payment (in U.S. dollars) by the Grantee of the option
price for the Option Shares purchased shall be made on or before the exercise
date specified in the notice of exercise in cash, or, with the prior written
consent of the Program Administrators, in whole or in part through the surrender
of shares of Stock at their fair market value on the exercise date. The Grantee
shall also pay any required income tax withholding taxes which may be payable in
U.S. dollars or Option Shares if acceptable to the Company.
(c) On the exercise date specified in the Grantee's notice or as
soon thereafter as is practicable, the Company shall cause to be delivered to
the Grantee, a certificate or certificates for the Option Shares then being
purchased (out of theretofore unissued Stock or reacquired Stock, as the Company
may elect) upon full payment for such Option Shares. However, if (i) the Grantee
is subject to Section 16 of the Securities Exchange Act of 1934 and (ii) the
Grantee exercises the Option before six months have passed from the Date of
Grant, the Company shall be permitted to hold in its custody any stock
certificate arising from such exercise until six months has passed from the Date
of Grant. The obligation of the Company to deliver Stock shall, however, be
subject to the condition that if at any time the Program Administrators shall
determine in its discretion that the listing, registration or qualification
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<PAGE> 25
of the Option or the Option Shares upon any securities exchange or under any
state or federal law, or the consent or approval of any governmental regulatory
body, is necessary or desirable as a condition of, or in connection with, the
Option or the issuance or purchase of Stock thereunder, the Option may not be
exercised in whole or in part unless such listing, registration, qualification,
consent or approval shall have been effected or obtained free of any conditions
not acceptable to the Program Administrators..
(d) If the Grantee fails to pay for any of the Option Shares
specified in such notice or fails to accept delivery thereof, the Grantee's
right to purchase such Option Shares may be terminated by the Company. The date
specified in the Grantee's notice as the date of exercise shall be deemed the
date of exercise of the Option, provided that payment in full for the Option
shares to be purchased upon such exercise shall have been received by such date.
5. Adjustment of and Changes in Stock of the Company.
In the event of a reorganization, recapitalization, change of
shares, stock split, spin-off, stock dividend, reclassification, subdivision or
combination of shares, merger, consolidation, rights offering, or any other
change in the corporate structure or shares of capital stock of the Company, the
Program Administrators shall make such adjustment as may be required under the
applicable reorganization agreement in the number and kind of shares of Stock
subject to the Option or in the option price; provided, however, that no such
adjustment shall give the Grantee any additional benefits under the Option. If
there is no provision for the treatment of the Option under an applicable
reorganization agreement, the Option may terminate on a date determined by the
Program Administrators following at least 30 days written notice to the Grantee.
6. Fair Market Value.
As used herein, the "fair market value" of a share of Stock shall
be determined by the Board. However, if the Stock is publicly-traded, fair
market value of a share of Stock shall be based upon the closing or other
appropriate trading price per share of Stock on a national securities exchange.
7. No Rights of Stockholders.
Neither the Grantee nor any personal representative shall be, or
shall have any of the rights and privileges of, a stockholder of the Company
with respect to any shares of Stock purchasable or issuable upon the exercise of
the Option, in whole or in part, prior to the date of exercise of the Option.
8. Non-Transferability of Option.
During the Grantee's lifetime, the option hereunder shall be
exercisable only by the Grantee or any guardian or legal representative of the
Grantee, and the Option shall not be transferable except, in case of the death
of the Grantee, by will or the laws of descent and distribution, nor shall the
Option be subject to attachment, execution or other similar process. In the
event of (a) any attempt by the Grantee to alienate, assign, pledge, hypothecate
or otherwise dispose of the Option, except as provided for herein, or (b) the
levy of any attachment, execution or similar process upon the rights or interest
hereby conferred, the Company may terminate the option by notice to the Grantee
and it shall thereupon become null and void.
9. Restriction on Exercise.
The Option may not be exercised if the issuance of the Option
Shares upon such exercise
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<PAGE> 26
would constitute a violation of any applicable federal or state securities or
other law or valid regulation. As a condition to the exercise of the Option, the
Company may require the Grantee exercising the Option to make any representation
or warranty to the Company as may be required by any applicable law or
regulation and, specifically, may require the Grantee to provide evidence
satisfactory to the Company that the Option Shares are being acquired only for
investment purposes and without any present intention to sell or distribute the
shares in violation of any federal or state securities or other law or valid
regulation.
10. Employment of Service Not Affected.
The granting of the option or its exercise shall not be construed
as granting to the Grantee any right with respect to continuance of employment
or service relationship with the Employer. Except as may otherwise be limited by
a written agreement between the Employer and the Grantee, the right of the
Employer to terminate at will the Grantee's employment or service relationship
with it at any time (whether by dismissal, discharge, retirement or otherwise)
is specifically reserved by the Company, as the Employer or on behalf of the
Employer (whichever the case may be), and acknowledged by the Grantee.
11. Amendment of Option.
The Option may be amended by the Program Administrators at any
time (i) if the Program Administrators determine, in their sole discretion, that
amendment is necessary or advisable in the light of any addition to or change in
the Internal Revenue Code of 1986 or in the regulations issued thereunder, or
any federal or state securities law or other law or regulation, which change
occurs after the Date of Grant and by its terms applies to the option; or (ii)
other than in the circumstances described in clause (i), with the consent of the
Grantee.
12. Notice.
All notices, requests, demands, and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
delivered personally or by certified mail, return receipt requested, as follows:
To Employer: Medical Device Alliance, Inc.
3800 Howard Hughes Parkway, Suite 1800
Las Vegas, Nevada 89109
Attn: Secretary
To Grantee: __________________________
__________________________
__________________________
13. Incorporation of Plan by Reference.
The Option is granted pursuant to the terms of the Plan, the
terms of which are incorporated herein by reference, and the Option shall in all
respects be interpreted in accordance with the Plan. The Program Administrators
shall interpret and construe the Plan and this instrument, and its
interpretations and determinations shall be conclusive and binding on the
parties hereto and any other person claiming an interest hereunder, with respect
to any issue arising hereunder or thereunder.
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<PAGE> 27
14. Governing Law.
The validity, construction, interpretation and effect of this instrument
shall exclusively be governed by and determined in accordance with the law of
the State of California, except to the extent preempted by federal law, which
shall to the extent govern.
IN WITNESS WHEREOF, the Company has caused its duly authorized
officers to execute this Grant of Option, and to apply the corporate seal
hereto, and the Grantee has placed his or her signature hereon, effective as of
the Date of Grant.
MEDICAL DEVICE ALLIANCE, INC.
By: _______________________________
Name:
Title:
ACCEPTED AND AGREED TO:
____________________________________
[Grantee]
By: _______________________________
Name:
Title:
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<PAGE> 28
PART III
MEDICAL DEVICE ALLIANCE, INC.
RESTRICTED SHARE PLAN
Section 1. Purpose. The purpose of this Restricted Share Plan
(the "Restricted Plan") is to promote the growth and general prosperity of the
Company by permitting the Company to grant restricted shares to help attract and
retain superior personnel for positions of substantial responsibility with the
Company and its subsidiaries and to provide individuals with an additional
incentive to contribute to the success of the Company. The Restricted Plan is
Part III of the Program. Unless any provision herein indicates to the contrary,
the Restricted Plan shall be subject to the General Provisions of the Program.
Section 2. Terms and Conditions. The terms and conditions of
restricted shares granted under the Restricted Plan may differ from one another
as the Program Administrators shall, in their discretion, determine as long as
all restricted shares granted under the Restricted Plan satisfy the requirements
of the Restricted Plan.
Each restricted share grant shall provide to the recipient (the
"Holder") the transfer of a specified number of shares of Common Stock of the
Company that shall become nonforfeitable upon the achievement of specified
service or performance conditions within a specified period or periods (the
"Restriction Period") as determined by the Program Administrators. At the time
that the restricted share is granted, the Program Administrators shall specify
the service or performance conditions and the period of duration over which the
conditions apply.
The Holder of restricted shares shall not have any rights with
respect to such award, unless and until such Holder has executed an agreement
evidencing the terms and conditions of the award (the "Restricted Share Award
Agreement"). Each individual who is awarded restricted shares shall be issued a
stock certificate in respect of such shares. Such certificate shall be
registered in the name of the Holder and shall bear an appropriate legend
referring to the terms, conditions, and restrictions applicable to such award,
substantially in the following form:
The transferability of this certificate and the shares of stock
represented hereby are subject to the terms and conditions (including
forfeiture) of the Medical Device Alliance, Inc., Restricted Share Plan
and Restricted Share Award Agreement entered into between the registered
owner and Medical Device Alliance, Inc. Copies of such Plan and
Agreement are on file in the offices of Medical Device Alliance, Inc.
The Program Administrators shall require that the stock
certificates evidencing such shares be held in the custody of the Company until
the restrictions thereon shall have lapsed, and that, as a condition of any
restricted share award, the Holder shall have delivered a stock power, endorsed
in blank, relating to the stock covered by such award. At the expiration of each
Restriction Period, the Company shall redeliver to the Holder certificates held
by the Company representing the shares with respect to which the applicable
conditions have been satisfied.
Section 3. Nontransferable. Subject to the provisions of the
Restricted Plan and the Restricted Share Award Agreements, during the
Restriction Period as may be set by the Program Administrators commencing on the
grant date, the Holder shall not be permitted to sell, transfer, pledge, or
assign shares of restricted shares awarded under the Restricted Plan.
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<PAGE> 29
Section 4. Restricted Share Rights Upon Employment or Service. If
a Holder terminates employment or service with the company prior to the
expiration of the Restriction Period, any restricted shares granted to him
subject to such Restriction Period shall be forfeited by the Holder and shall be
transferred to the Company. The Program Administrators may, in their sole
discretion, accelerate the lapsing of or waive such restrictions in whole or in
part based upon such factors and such circumstances as the Program
Administrators may determine, in its sole discretion, including, but not limited
to, the Plan Participant's retirement, death, or disability.
Section 5. Stockholder Rights. The Holder shall have, with
respect to the restricted shares granted, all of the rights of a stockholder of
the Company, including the right to vote the shares, and the right to receive
any dividends thereon. Certificates for shares of unrestricted stock shall be
delivered to the grantee promptly after, and only after, the Restriction Period
shall expire without forfeiture in respect of such restricted shares.
Section 6. Compliance with Securities Laws. Shares shall not be
issued under the Restricted Plan unless the issuance and delivery of the shares
pursuant thereto shall comply with all relevant provisions of foreign, state and
federal law, including, without limitation, the Securities Act of 1933, as
amended, and the Exchange Act, and the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the shares may
then be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance. The Program Administrators may also
require a Holder to furnish evidence satisfactory to the Company, including a
written and signed representation letter and consent to be bound by any transfer
restrictions imposed by law, legend, condition, or otherwise, that the shares
are being purchased only for investment purposes and without any present
intention to sell or distribute the shares in violation of any state or federal
law, rule, or regulation. Further, each Holder shall consent to the imposition
of a legend on the shares of Common Stock issued pursuant to the Restricted
Share Plan and the imposition of stop-transfer instructions restricting their
transferability as required by law or by this Section 6.
Section 7. Continued Employment or Service. Each Holder, if
requested by the Program Administrators, must agree in writing as a condition of
the granting of his or her restricted shares, to remain in the employment of, or
service to, the Company or any of its subsidiaries following the date of the
granting of that restricted share for a period specified by the Program
Administrators. Nothing in the Restricted Plan or in any restricted share
granted hereunder shall confer upon any Holder any right to continued employment
by, or service to, the Company or any of its subsidiaries, or limit in any way
the right of the Company or any subsidiary at any time to terminate or alter the
terms of that employment or service arrangement.
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<PAGE> 30
MEDICAL DEVICE ALLIANCE, INC.
RESTRICTED SHARES PLAN
RESTRICTED SHARE AWARD AGREEMENT
THIS AGREEMENT is made as of __________, _____, by and between
Medical Device Alliance, Inc. (the "Company"), and _______________________
("Grantee"):
WHEREAS, the Company maintains the Medical Device Alliance, Inc.,
Restricted Shares Plan ("Restricted Shares Plan") under which the Program
Administrators may award shares of the Company's common stock, no par value
("Common Stock") to employees and non-employees as the Program Administrators
may determine, subject to terms, conditions, or restrictions as it may deem
appropriate; and
WHEREAS, pursuant to the Restricted Shares Plan, the Program
Administrators has awarded to Grantee a restricted stock award conditioned upon
the execution by the Company and Grantee of a Restricted Share Award Agreement
setting forth all the terms and conditions applicable to such award;
NOW, THEREFORE, in consideration of the mutual promise and
covenant contained herein, it is hereby agreed as follows:
1. Award of Shares.
Under the terms of the Restricted Shares Plan, the Program
Administrators hereby awards and transfers to Grantee a restricted stock
award on __________________ ("Grant Date"), covering shares of Common
Stock ("Shares") subject to the terms, conditions, and restrictions set
forth in this Agreement. This transfer of Shares shall constitute a
transfer of such property in connection with Grantee's performance of
service to the Company (which transfer is intended to constitute a
"transfer" for purposes of Section 83 of the Internal Revenue Code).
2. Share Restrictions.
During the period beginning on the Grant Date and ending on the
date(s) specified by the Program Administrators (the "Restriction
Period"), Grantee's ownership of the Shares shall be subject to a risk
of forfeiture (which risk is intended to constitute a "substantial risk
of forfeiture" for purposes of Section 83 of the Internal Revenue Code).
Specifically, if Grantee's employment or service with the Company is
terminated for any reason, including Grantee's death, disability, or
retirement at any time before the Restriction Period ends, Grantee shall
forfeit his or her ownership in the Shares. However, in the event of
Grantee's termination of employment or service, the Program
Administrators may, in its sole discretion, based upon relevant
circumstances such as the Grantee's death, disability, or retirement,
waive the minimum employment or service requirement and provide Grantee
with a nonforfeitable right to the Shares as of the date of such
termination of employment or service.
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<PAGE> 31
3. Stock Certificates.
A stock certificate evidencing the Shares shall be issued in the
name of Grantee as of the Grant Date. Grantee shall thereupon be the
shareholder of all the Shares represented by the stock certificate. As
such, Grantee shall be entitled to all rights of a stockholder of the
Company, including the right to vote the Shares and receive dividends
and/or other distributions declared on such Shares.
Physical possession or custody of the stock certificate shall be
retained by the Company until such time as the Restriction Period lapses
without the occurrence of any forfeiture of the Shares in a manner
described in the above Paragraph 2. Upon the expiration of the
Restriction Period without the occurrence of such a forfeiture, the
Company shall cause the stock certificate covering the Shares to be
delivered to Grantee. In the event that Grantee's employment or service
with the Company is terminated prior to the lapse of the Restriction
Period and there occurs a forfeiture of the Shares, the stock
certificate representing such Shares shall be then canceled and revert
to the Company.
4. Nontransferable.
During the Restriction Period, the Shares covered by the
restricted stock award shall not be transferable by Grantee by means of
sale, assignment, sale, pledge, encumbrance, or otherwise. During the
Restriction Period, the Company shall place a legend on the stock
certificate restricting the transferability of such certificate and
referring to the terms and conditions applicable to the Shares pursuant
to the Restricted Shares Plan and this Agreement.
Upon the lapse of the Restriction Period, the Shares shall not be
delivered to Grantee if such delivery would constitute a violation of
any applicable federal or state securities or other law or valid
regulation. As a condition to the delivery of the Shares to Grantee, the
Company may require Grantee to make any representation or warranty as
may be required by any applicable law or regulation and, specifically,
may require Grantee to provide evidence satisfactory to the Company that
the Shares are being acquired only for investment purposes and without
any present intention to sell or distribute the shares in violation of
any federal or state securities or other law or valid regulation.
5. Administration.
The Program Administrators shall have full authority and
discretion (subject only to the express provisions of the Restricted
Shares Plan) to decide all matters relating to the administration and
interpretation of the Restricted Shares Plan and this Agreement. All
such Program Administrators determinations shall be final, conclusive,
and binding upon the Company, Grantee, and any and all interested
parties.
6. Right to Continued Employment or Service.
Nothing in the Restricted Shares Plan or this Agreement shall
confer on a Grantee any right to continue in the employ of or service to
the Company or, except as may otherwise be limited by a written
agreement between the Company and the Grantee, in any way affect the
Company's right to terminate Grantee's employment or service, at will,
at any time without prior notice at any time for any or no reason
(whether by dismissal, discharge, retirement or otherwise).
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<PAGE> 32
7. Amendment.
This Agreement shall be subject to the terms of the Restricted
Shares Plan as amended, the terms of which are incorporated herein by
reference. However, the restricted stock award that is the subject of
this Agreement may not in any way be restricted or limited by any
Restricted Shares Plan amendment or termination approved after the date
of the award without Grantee's written consent.
8. Force and Effect.
The various provisions of this Agreement are severable in their
entirety. Any determination of invalidity or unenforceability of any one
provision shall have no effect on the continuing force and effect of the
remaining provisions.
9. Governing Law.
This Agreement shall be construed and enforced in accordance with
and governed by the laws of the State of California.
10. Successors.
This Agreement shall be binding upon and inure to the benefit of
the successors, assigns, and heirs of the respective parties.
11. Notice.
All notices, requests, demands, and other communications
hereunder shall be in writing and shall be deemed to have been duly
given if delivered personally or by certified mail, return receipt
requested, as follows:
To Employer: Medical Device Alliance, Inc.
3800 Howard Hughes Parkway, Suite 1800
Las Vegas, Nevada 89109
Attn: Secretary
To Grantee: ______________________________
______________________________
______________________________
______________________________
12. Incorporation of Plan by Reference.
The Option is granted pursuant to the terms of the Plan, the
terms of which are incorporated herein by reference, and the Option shall in all
respects be interpreted in accordance with the Plan. The Program Administrators
shall interpret and construe the Plan and this instrument, and its
interpretations and determinations shall be conclusive and binding on the
parties hereto and any other person claiming an interest hereunder, with respect
to any issue arising hereunder or thereunder.
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<PAGE> 33
IN WITNESS WHEREOF, the parties hereto have signed this Agreement as of
the date hereof.
MEDICAL DEVICE ALLIANCE, INC.
_______________________________
[Grantee]
By: _______________________________ _______________________________
Name: Name:
Title: Title:
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<PAGE> 34
PART IV
MEDICAL DEVICE ALLIANCE, INC.
EMPLOYEE STOCK PURCHASE PLAN
Section 1. Purpose. The purpose of the Medical Device Alliance,
Inc. Employee Stock Purchase Plan (the "Stock Purchase Plan") is to promote the
growth and general prosperity of the Company by permitting the Company to sell
to employees of the Company and its subsidiaries shares of the Company's stock
in accordance with Section 423 of the Code ("Section 423"), and it is the
intention of the Company to have the Stock Purchase Plan qualify as an Employee
Stock Purchase Plan in accordance with Section 423, and the Stock Purchase Plan
shall be construed to administer stock purchases and to extend and limit
participation consistent with the requirements of Section 423. The Stock
Purchase Plan will be administered by the Program Administrators.
Section 2. Maximum Number of Shares; Terms and Conditions. The
maximum aggregate number of shares of Common Stock subject to the Stock Purchase
price shall be ________. The terms and conditions of shares to be offered to be
sold to employees of the Company and its subsidiaries under the Stock Purchase
Plan shall comply with Section 423.
Section 3. Offering Periods and Participation. The Stock Purchase
Plan shall be implemented through a series of consecutive fiscal quarters of the
Company (the "Offering Periods"). A full-time employee may participate in the
Stock Purchase Plan and may enroll in an Offering Period by delivering to the
Company's payroll office an agreement evidencing the terms and conditions of the
stock subscription in a form prescribed by the Program Administrators (the
"Purchase Agreement") at least thirty (30) business days prior to the Enrollment
Date for that Offering Period (or such lesser number of business days as the
Program Administrators, in their sole discretion, may permit). Eligible
Employees who participate in the Stock Purchase Plan may do so in the Offering
Period. Purchases will be made through payroll deductions, unless direct
purchases have been approved by the Program Administrators. The first day of
each Offering Period will be the "Enrollment Date" and the last day of each
period will be the "Exercise Date."
Section 4. Purchase Price. The "Purchase Price" means an amount
as determined by the Program Administrators that is the lesser of: (a) the
Purchase Price Discount from the Fair Market Value of a share of Common Stock on
the Enrollment Date, or (b) the Purchase Price Discount from the Fair Market
Value of a share of Common Stock on the Exercise Date. The "Purchase Price
Discount" shall mean the amount of the discount from the Fair Market Value
granted to Plan Participants not to exceed fifteen percent (15%) of the Fair
Market Value as established by the Board from time to time. "Fair Market Value"
of a share of stock shall be determined by the Board. However, if the Stock is
publicly-traded, fair market value of a share of Stock shall be based upon the
closing or other appropriate trading price per share of Stock on a national
securities exchange.
Section 5. Grants.
(a) Grants. On the Enrollment Date for each Offering
Period, each Eligible Employee participating in such Offering Period
shall be granted the right to purchase on each Exercise Date during such
Offering Period (at the Purchase Price) shares of Common Stock in an
amount from time to time specified by the Program Administrators as set
forth in Section 5(b) below. The Program Administrators will also
establish the Purchase Price Discount and the Periodic Exercise Limit.
The right to purchase shall expire immediately after the last Exercise
Date of the Offering Period.
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<PAGE> 35
(b) Grant Limitations. Any provisions of the Stock
Purchase Plan to the contrary notwithstanding, no Plan Participant shall
be granted a right to purchase under the Stock Purchase Plan:
(i) if, immediately after the grant, such Plan
Participant would own stock possessing five percent (5%) or more of the
total combined voting power or value of all classes of stock of the
Company or of any subsidiary (applying the constructive ownership rules
of Section 424(d) of the Code and treating stock that a Plan Participant
may acquire under outstanding options as stock owned by the Plan
Participant);
(ii) that permits such Plan Participant's rights to
purchase stock under all employee stock purchase plans of the Company
and its subsidiaries to accrue at a rate that exceeds Twenty-Five
Thousand Dollars ($25,000) worth of stock (determined at the Fair Market
Value of the shares at the time such purchase) in any calendar year
(computed utilizing the rules of Section 423(b)(8) of the Code); or
(iii) that permits a Plan Participant to purchase
Stock in excess of twenty percent (20%) of his or her Compensation,
which shall include the gross base salary or hourly compensation paid to
a Plan Participant and the gross amount of any targeted bonus, without
reduction for contributions to any 401(k) plan sponsored by the Company.
(c) No Rights in Respect of Underlying Stock. The Plan
Participant will have no interest or voting right in shares covered by a
right to purchase until such purchase has been completed.
(d) Plan Account. The Company shall maintain a plan
account for the Plan Participants in the Stock Purchase Plan, to which
are credited the payroll deductions made for such Plan Participant
pursuant to Section 6 and from which are debited amounts paid for the
purchase of shares.
(e) Common Stock Account. As a condition of participation
in the Stock Purchase Plan, each Plan Participant shall be required to
receive shares purchased under the Stock Purchase Plan in a common stock
account (the "Common Stock Account") maintained by the Company to hold
the Common Stock purchased under the Stock Purchase Plan.
(f) Dividends on Shares. Subject to the limitations of
Section 5(a) hereof and Section 423(b)(8) of the Code, all cash
dividends, if any, paid with respect to shares of Common Stock purchased
under the Stock Purchase Plan and held in a Plan Participant's Common
Stock Account shall be automatically invested in shares of Common Stock
purchased at 100% of Fair Market Value on the next Exercise Date. All
non-cash distributions on Common Stock purchased under the Stock
Purchase Plan and held in a Plan Participant's Common Stock Account
shall be paid to the Plan Participant as soon as practicable.
Section 6. Payroll Deductions/Direct Purchases.
(a) Plan Participant Designations. The Purchase Agreement
applicable to an Offering Period shall designate payroll deductions to
be made on each payday during the Offering Period as a whole number
percentage specified by the Program Administrators of such
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<PAGE> 36
Eligible Employee's Compensation for the pay period preceding such
payday. Direct purchases may be permitted on such terms specified by the
Program Administrators.
(b) Plan Account Balances. The Company shall make payroll
deductions as specified in each Plan Participant's Subscription
Agreement on each payday during the Offering Period and credit such
payroll deductions to such Plan Participant's Plan Account. A Plan
Participant may not make any additional payments into such Plan Account.
No interest will accrue on any payroll deductions. All payroll
deductions received or held by the Company under the Stock Purchase Plan
may be used by the Company for any corporate purpose, and the Company
shall not be obligated to segregate such payroll deductions.
(c) Plan Participant Changes. A Plan Participant may
discontinue his or her participation in the Stock Purchase Plan as
provided in Section 8, or may increase or decrease (subject to such
limits as the Program Administrator may impose) the rate of his or her
payroll deductions during any Offering Period by filing with the Company
a new Subscription Agreement authorizing such a change in the payroll
deduction rate. The change in rate shall be effective with the first
full payroll period following fifteen (15) business days after the
Company's receipt of the new Subscription Agreement, unless the Company
elects to process a given change in participation more quickly.
(d) Decreases. Notwithstanding the foregoing, to the
extent necessary to comply with Section 423(b)(8) of the Code and
Section 4(b) herein, a Plan Participant's payroll deductions shall be
decreased to zero percent at such time during any Purchase Period that
is scheduled to end during a calendar year (the "Current Purchase
Period") when the aggregate of all payroll deductions previously used to
purchase stock under the Stock Purchase Plan in a prior Purchase Period
which ended during that calendar year plus all payroll deductions
accumulated with respect to the Current Purchase Period equal to the
maximum permitted by Section 423(b)(8) of the Code. Payroll deductions
shall recommence at the rate provided in such Plan Participant's
Subscription Agreement at the beginning of the first Purchase Period
that is scheduled to end in the following calendar year, unless
terminated by the Plan Participant as provided in Section 8.
(e) Tax Obligations. At the time of the purchase of
shares, and at the time any Common Stock issued under the Stock Purchase
Plan to a Plan Participant is disposed of, the Plan Participant must
adequately provide for the Company's federal, state or other tax
withholding obligations, if any, that arise upon the purchase of shares
or the disposition of the Common Stock. At any time, the Company may,
but will not be obligated to, withhold from the Plan Participant's
Compensation the amount necessary for the Company to meet applicable
withholding obligations, including, but not limited to, any withholding
required to make available to the Company any tax deductions or benefit
attributable to sale or early disposition of Common Stock by the
eligible employee.
(f) Statements of Account. The Company shall maintain each
Plan Participant's Plan Account and shall give each Plan Participant a
statement of account at least annually. Such statements will set forth
the amounts of payroll deductions, the Purchase Price applicable to the
Common Stock purchased, the number of shares purchased, the remaining
cash balance and the dividends received, if any, for the period covered.
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Section 7. Purchase of Shares.
(a) Automatic Exercise on Exercise Dates. Unless a Plan
Participant withdraws as provided in Section 8 below, his or her Option
for the purchase of shares will be exercised automatically on each
Exercise Date within the Offering Period in which such Plan Participant
is enrolled for the maximum whole number of shares of Common Stock as
can then be purchased at the applicable Purchase Price with the payroll
deductions accumulated in such Plan Participant's Plan Account and not
yet applied to the purchase of shares under the Stock Purchase Plan,
subject to the Periodic Exercise Limit. All such shares purchased under
the Stock Purchase Plan shall be credited to the Plan Participant's
Common Stock Account. During a Plan Participant's lifetime, a Plan
Participant's options to purchase shares under the Stock Purchase Plan
shall be exercisable only by the Plan Participant.
(b) Compliance With Securities Law. Shares of Common Stock
shall not be issued with respect to any purchase of shares granted under
the Stock Purchase Plan, unless the purchase of shares and the issuance
and delivery of those shares pursuant to that exercise comply with all
applicable provisions of foreign, state and federal law including,
without limitation, the Securities Act of 1933, as amended and the
Exchange Act, and the rules and regulations promulgated thereunder, and
the requirements of any stock exchange upon which the shares may then be
listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance. The Program Administrators may
also require a Plan Participant to furnish evidence satisfactory to the
Company, including a written and signed representation letter and
consent to be bound by any transfer restrictions imposed by law, legend,
condition, or otherwise, that the shares are being purchased only for
investment purposes and without any present intention to sell or
distribute the shares in violation of any state or federal law, rule, or
regulation. Further, each Plan Participant shall consent to the
imposition of a legend on the shares of Common Stock purchased and the
imposition of stop-transfer instructions restricting their
transferability as required by law or by this Section 7.
(c) Excess Plan Account Balances. If, due to application
of the Periodic Exercise Limit or otherwise, there remains in a Plan
Participant's Plan Account immediately following exercise of such Plan
Participant's option to purchase shares on an Exercise Date any cash
accumulated immediately preceding such Exercise Date and not applied to
the purchase of shares under the Stock Purchase Plan, such cash shall
promptly be returned to the Plan Participant; provided, however, that if
the Plan Participant shall be enrolled in the Offering Period
(including, without limitation, by not withdrawing pursuant to Section
8), such cash shall be contributed to the Plan Participant's Plan
Account for such next Purchase Period.
Section 8. Holding Period. The Program Administrators may
establish, as a condition to participation, a holding period of up to one (1)
year.
Section 9. Withdrawal; Termination of Employment.
(a) Voluntary Withdrawal. A Plan Participant may withdraw
from an Offering Period by giving written notice to the Company's
payroll office at least thirty (30) business days prior to the next
Exercise Date. Such withdrawal shall be effective beginning thirty (30)
business days after receipt by the Company's payroll office of notice
thereof. On or promptly following the effective date of any withdrawal,
all (but not less than all) of the withdrawing Plan Participant's
payroll deductions credited to his or her Plan Account and not yet
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<PAGE> 38
applied to the purchase of shares under the Stock Purchase Plan will be
paid to such Plan Participant, and on the effective date of such
withdrawal such Plan Participant's option to purchase shares for the
Offering Period will be automatically terminated and no further payroll
deductions for the purchase of shares will be made during the Offering
Period. If a Plan Participant withdraws from an Offering Period, payroll
deductions will not resume at the beginning of any succeeding Offering
Period, unless the Plan Participant delivers to the Company a new
Subscription Agreement with respect thereto.
(b) Termination of Employment. Promptly after a Plan
Participant's ceasing to be an employee for any reason all shares of
Common Stock held in a Plan Participant's Common Stock Account and the
payroll deductions credited to such Plan Participant's Plan Account and
not yet applied to the purchase of shares under the Stock Purchase Plan
will be returned to such Plan Participant or, in the case of his or her
death, to the person or persons entitled thereto, and such Plan
Participant's option to purchase shares will be automatically
terminated, provided that, if the Company does not learn of such death
more than five (5) business days prior to an Exercise Date, payroll
deductions credited to such Plan Participant's Plan Account may be
applied to the purchase of shares under the Stock Purchase Plan on such
Exercise Date.
Section 10. Non-transferability. Neither payroll deductions
credited to a Plan Participant's Plan Account nor any rights with regard to the
exercise of a purchase of shares or to receive shares under the Stock Purchase
Plan may be assigned, transferred, pledged or otherwise disposed of by the Plan
Participant in any way other than by will or the laws of descent and
distribution, and any purchase of shares by a Plan Participant shall, during
such Plan Participant's lifetime, be exercisable only by such Plan Participant.
Any such attempt at assignment, transfer, pledge or other disposition shall be
without effect, except that the Program Administrator may treat such act as an
election to withdraw from an offering period in accordance with Section 8.
Section 11. Compliance with Securities Laws. Shares shall not be
issued with respect to the Stock Purchase Plan, unless the issuance and delivery
of the shares pursuant thereto shall comply with all applicable provisions of
foreign, state and federal law, including, without limitation, the Securities
Act of 1933, as amended, and the Exchange Act, and the rules and regulations
promulgated thereunder, and the requirements of any stock exchange upon which
the shares may then be listed, and shall be further subject to the approval of
counsel for the Company with respect to such compliance. The Program
Administrators may also require a Plan Participant to furnish evidence
satisfactory to the Company, including a written and signed representation
letter and consent to be bound by any transfer restrictions imposed by law,
legend, condition, or otherwise, that the shares are being purchased only for
investment purposes and without any present intention to sell or distribute the
shares in violation of any state or federal law, rule, or regulation. Further,
each Plan Participant shall consent to the imposition of a legend on the shares
of Common Stock subject to his or her Option and the imposition of stop-transfer
instructions restricting their transferability as required by law or by this
Section 11.
Section 12. Continued Employment or Service. Each Plan
Participant, if requested by the Program Administrators, must agree in writing,
to remain in the employment of, or service to, the Company or any of its
subsidiaries following the date of the granting of that option to purchase
shares for a period specified by the Program Administrators. Nothing in this
Stock Purchase Plan shall confer upon any Plan Participant any right to
continued employment by, or service to, the Company or any of its subsidiaries,
or limit in any way the right of the Company or any subsidiary at any time to
terminate or alter the terms of that employment or service arrangement.
38
<PAGE> 39
PART V
MEDICAL DEVICE ALLIANCE, INC.
NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
Section 1. Purpose; Plan. The purpose of this Medical Device
Alliance, Inc., Non-Employee Director Stock Option Plan (the "Directors Plan")
is to permit the Company to grant options to purchase shares of its Common Stock
to non-employee directors of the Company. Any option granted pursuant to the
Directors Plan shall be clearly and specifically designated as not being an
incentive stock option, as defined in Section 422 of the Code. This Directors
Plan is Part V of the Program. Unless any provision herein indicates to the
contrary, the Directors Plan shall be subject to the General Provisions of the
Program. On the next to last business day of each fiscal year of the Company,
the Company shall grant to each non-employee director of the Company options to
purchase that number of shares of Common Stock as determined annually by the
Program Administrators. The terms and conditions of options granted under the
Directors Plan shall be in duration, form and substance as the Program
Administrators shall in their discretion determine, but in no event shall any
option granted under the Directors Plan expire later than ten (10) years from
the date on which the option is granted.
Section 2. Compliance with Securities Laws. Shares of Common
Stock shall not be issued with respect to any option granted under the Directors
Plan, unless the exercise of that option and the issuance and delivery of the
shares pursuant thereto shall comply with all applicable provisions of foreign,
state and federal law, including, without limitation, the Securities Act of
1933, as amended, and the Exchange Act, and the rules and regulations
promulgated thereunder, and the requirements of any stock exchange upon which
the shares may then be listed, and shall be further subject to the approval of
counsel for the Company with respect to such compliance. The Program
Administrators may also require an Optionee to furnish evidence satisfactory to
the Company, including a written and signed representation letter and consent to
be bound by any transfer restrictions imposed by law, legend, condition, or
otherwise, that the shares are being purchased only for investment purposes and
without any present intention to sell or distribute the shares in violation of
any state or federal law, rule, or regulation. Further, each Optionee shall
consent to the imposition of a legend on the shares of Common Stock subject to
his or her option and the imposition of stop-transfer instructions restricting
their transferability as required by law or by this Section 2.
Section 3. Adjustments to Number and Purchase Price of Optioned
Shares. All options granted pursuant to the terms of this Directors Plan shall
be adjusted in a manner prescribed by Article 6 of the General Provisions of the
Program.
Section 4. Purchase Price. The purchase price for shares acquired
pursuant to the exercise, in whole or in part, of any option shall not be less
than the fair market value of the shares at the time of the grant of the option.
Fair market value (the "Fair Market Value") shall be determined by the Program
Administrators on the basis of such factors as they deem appropriate; provided,
however, that Fair Market Value on any day shall be deemed to be, if the Common
Stock is traded on a national securities exchange, the closing price (or, if no
reported sale takes place on such day, the mean of the reported bid and asked
prices) of the Common Stock on such day on the principal such exchange, or, if
the stock is included on the composite tape, the composite tape. In each case,
the Program Administrators' determination of Fair Market Value shall be
conclusive.
Notwithstanding the above portion of this Section 4, if at the
time an option is granted the Optionee owns or would be considered to own by
reason of Code Section 424(d) more than 10% of
39
<PAGE> 40
the total combined voting power of all classes of stock of the Company or its
subsidiaries, the purchase price of the shares covered by such option shall not
be less than 110% of the Fair Market Value of a share of Common Stock on the
date the option is granted.
40
<PAGE> 41
PART VI
STOCK APPRECIATION RIGHTS PLAN
Section 1. SAR Terms and Conditions. The purpose of this Stock
Appreciation Rights Plan (the "SAR Plan") is to promote the growth and general
prosperity of the Company by permitting the Company to grant restricted shares
to help attract and retain superior personnel for positions of substantial
responsibility with the Company and its subsidiaries and to provide individuals
with an additional incentive to contribute to the success of the Company. The
terms and conditions of SARs granted under the SAR Plan may differ from one
another as the Program Administrators shall, in their discretion, determine in
each SAR agreement (the "SAR Agreement"). Unless any provision herein indicates
to the contrary, this SAR Plan shall be subject to the General Provisions of the
Program.
Section 2. Duration of SARs. Each SAR and all rights thereunder
granted pursuant to the terms of the SAR Plan shall expire on the date
determined by the Program Administrators as evidenced by the SAR Agreement, but
in no event shall any SAR expire later than ten (10) years from the date on
which the SAR is granted. In addition, each SAR shall be subject to early
termination as provided in the SAR Plan.
Section 3. Grant. Subject to the terms and conditions of the SAR
Agreement, the Program Administrators may grant the right to receive a payment
upon the exercise of a SAR which reflects the appreciation in the Fair Market
Value of the number of shares of Common Stock for which such SAR was granted to
any person who is eligible to receive Awards either: (i) in tandem with the
grant of an Incentive Option; (ii) in tandem with the grant of a Nonqualified
Option; or (iii) independent of the grant of an Incentive Option or Nonqualified
Option. Each grant of a SAR which is in tandem with the grant of an Incentive
Option or Nonqualified Option shall be evidenced by the same agreement as the
Incentive Option or Nonqualified Option which is granted in tandem with such SAR
and such SAR shall relate to the same number of shares of Common Stock to which
such Option shall relate and such other terms and conditions as the Program
Administrators, in their sole discretion, deem are not inconsistent with the
terms of the SAR Plan, including conditions on the exercise of such SAR which
relate to the employment of the Plan Participant or any requirement that the
Plan Participant exchange a prior outstanding option and/or SAR.
Section 4. Payment at Exercise. Upon the settlement of a SAR in
accordance with the terms of the SAR Agreement, the Plan Participant shall
(subject to the terms and conditions of the SAR Plan and SAR Agreement) receive
a payment equal to the excess, if any, of the SAR Exercise Price (as defined
below) for the number of shares of the SAR being exercised at that time over the
SAR Grant Price (as defined below) for such shares. Such payment may be paid in
cash or in shares of the Company's Common Stock or by a combination of the
foregoing, at the time of exercise of the SAR, specified by the Program
Administrators in the SAR Agreement. If any portion of the payment is paid
shares of the Company's Common Stock, such shares shall 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 fractional share shall
automatically be paid in cash based on such valuation. As used herein, "SAR
Exercise Date" shall mean the date on which the exercise of a SAR occurs under
the SAR Agreement, "SAR Exercise Price" shall mean the Fair Market Value of a
shares of Common Stock on a SAR Exercise Date and "SAR Grant Price" shall mean
the price which would have been the option exercise price for one share of
Common Stock if the SAR had been granted as an option, or if the SAR granted in
tandem with an option, the option exercise price per share for the related
option.
41
<PAGE> 42
Section 5. Special Terms and Conditions. Each SAR Agreement which
evidences the grant of a SAR shall incorporate such terms and conditions as the
Program Administrators in their absolute discretion deem are not inconsistent
with the terms of the SAR Plan and the agreement for Incentive Option or
Nonqualified Option, if any, granted in tandem with such SAR except that: (i) if
a SAR is granted in tandem with an Incentive Option or Nonqualified Option, the
SAR shall be exercisable only when the related Incentive Option or Nonqualified
Option is exercisable; and (ii) the Plan Participant's right to exercise a SAR
granted in tandem with an Incentive Option or Nonqualified Option shall be
forfeited to the extent that the Plan Participant exercises the related
Incentive Option or Nonqualified Option and the Plan Participant's right to
exercise the Incentive Option or Nonqualified Option shall be forfeited to the
extent the Plan Participant exercises the related SAR, but any such forfeiture
shall not count as a forfeiture for purposes of making the shares subject to
such option or SAR again available for use under the General Provisions of the
Plan.
Section 6. Compliance with Securities Laws. Shares shall not be
issued with respect to any option granted under the SAR Plan, unless the
exercise of that option and the issuance and delivery of the shares pursuant
thereto shall comply with all applicable provisions of foreign, state and
federal law, including, without limitation, the Securities Act of 1933, as
amended, and the Exchange Act, and the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the shares may
then be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance. The Program Administrators may also
require an Optionee to furnish evidence satisfactory to the Company, including a
written and signed representation letter and consent to be bound by any transfer
restrictions imposed by law, legend, condition, or otherwise, that the shares
are being purchased only for investment purposes and without any present
intention to sell or distribute the shares in violation of any state or federal
law, rule, or regulation. Further, each Optionee shall consent to the imposition
of a legend on the shares of Common Stock subject to his or her option and the
imposition of stop-transfer instructions restricting their transferability as
required by law or by this Section 6.
Section 7. Continued Employment or Service. Each Optionee, if
requested by the Program Administrators, must agree in writing as a condition of
receiving his or her option, to remain in the employment of, or service to, the
Company or any of its subsidiaries following the date of the granting of that
option for a period specified by the Program Administrators. Nothing in this SAR
Plan or in any option granted hereunder shall confer upon any Optionee any right
to continued employment by, or service to, the Company or any of its
subsidiaries, or limit in any way the right of the Company or any subsidiary at
any time to terminate or alter the terms of that employment or service
arrangement.
Section 8. Option Rights Upon Termination of Employment or
Service. If an Optionee under this SAR Plan ceases to be employed by, or provide
services to, the Company or any of its subsidiaries for any reason other than
death or disability, his or her option shall immediately terminate; provided,
however, that the Program Administrators may, in their sole and absolute
discretion, allow the option to be exercised, to the extent exercisable on the
date of termination of employment or service, at any time within sixty (60) days
after the date of termination of employment or service, unless either the option
or this Nonqualified Plan otherwise provides for earlier termination.
Section 9. Option Rights Upon Disability. If an Optionee becomes
disabled within the meaning of Code Section 422 (e) (3) while employed by the
Company or any subsidiary corporation, the Program Administrators, in their
discretion, may allow the option to be exercised, to the extent exercisable on
the date of termination of employment, at any time within one year after the
date of termination of employment due to disability, unless either the option or
the SAR Plan otherwise provides for earlier termination.
42
<PAGE> 43
PART VII
OTHER STOCK RIGHTS PLAN
Section 1. Terms and Conditions. The purpose of the Other Stock
Rights Plan (the "Stock Rights Plan") is to promote the growth and general
prosperity of the Company by permitting the Company to grant restricted shares
to help attract and retain superior personnel for positions of substantial
responsibility with the Company and its subsidiaries to provide individuals with
an additional incentive to the success of the Company. The terms and conditions
of Performance Shares, Stock Payments or Dividend Equivalent Rights granted
under the Stock Rights Plan may differ from one another as the Program
Administrators shall, in their discretion, determine in each stock rights
agreement (the "Stock Rights Agreement"). Unless any provision herein indicates
to the contrary, this Stock Rights Plan shall be subject to the General
Provisions of the Program.
Section 2. Duration. Each Performance Share or Dividend
Equivalent Right and all rights thereunder granted pursuant to the terms of the
Stock Rights Plan shall expire on the date determined by the Program
Administrators as evidenced by the Stock Rights Agreement, but in no event shall
any Performance Shares or Dividend Equivalent Rights expire later than ten (10)
years from the date on which the Performance Shares or Dividend Equivalent
Rights are granted. In addition, each Performance Share, Stock Payment or
Dividend Equivalent Right shall be subject to early termination as provided in
the Stock Rights Plan.
Section 3. Grant. Subject to the terms and conditions of the
Stock Rights Agreement, the Program Administrators may grant Performance Shares,
Stock Payments or Dividend Equivalent Rights as provided under the Stock Rights
Plant. Each grant of Performance Shares, Dividend Equivalent Rights and Stock
Payments shall be evidenced by a Stock Rights Agreement, which shall state the
terms and conditions of each as the Program Administrators, in their sole
discretion, deem are not inconsistent with the terms of the Stock Rights Plan.
Section 4. Performance Shares. Performance Shares shall become
payable to a Plan Participant based upon the achievement of specified
Performance Objectives and upon such other terms and conditions as the Program
Administrators may determine and specify in the Stock Rights Agreement
evidencing such Performance Shares. Each grant shall satisfy the conditions for
performance-based awards hereunder and under the General Provisions. A grant may
provide for the forfeiture of Performance Shares in the event of termination of
employment or other events, subject to exceptions for death, disability,
retirement or other events, all as the Program Administrators may determine and
specify in the Stock Rights Agreement for such grant. Payment may be made for
the Performance Shares at such time and in such form as the Program
Administrators shall determine and specify in the Stock Rights Agreement and
payment for any Performance Shares may be made in full in cash or by certified
cashier's check payable to the order of the Company or, if permitted by the
Program Administrators, by shares of the Company's Common Stock or by the
surrender of all or part of an Award, or in other property, rights or credits
deemed acceptable by the Program Administrators or, if permitted by the Program
Administrators, by a combination of the foregoing. If any portion of the
purchase price is paid in shares of the Company's Common Stock, those shares
shall be tendered at their then Fair Market Value as determined by the Program
Administrators in accordance herewith. Payment in shares of Common Stock
includes the automatic application of shares of Common Stock received upon the
exercise or settlement of Performance Shares or other option or Award to satisfy
the exercise or settlement price.
43
<PAGE> 44
Section 5. Stock Payments. The Program Administrators may grant
Stock Payments to a person eligible to receive the same as a bonus or additional
compensation or in lieu of the obligation of the Company or a subsidiary to pay
cash compensation under other compensatory arrangements, with or without the
election of the eligible person, provided that the Plan Participant will be
required to pay an amount equal to the aggregate par value of any newly issued
Stock Payments. A Plan Participant shall have all the voting, dividend,
liquidation and other rights with respect to shares of Common Stock issued to
the Plan Participant as a Stock Payment upon the Plan Participant becoming
holder of record of such shares of Common Stock; provided, however, the Program
Administrators may impose such restrictions on the assignment or transfer of
such shares of Common Stock as they deem appropriate and as are evidenced in the
Stock Rights Agreement for such Stock Payment.
Section 6. Dividend Equivalent Rights. The Program Administrators
may grant Dividend Equivalent Rights in tandem with the grant of Incentive
Option or Nonqualified Option, SARs, Restricted Shares or Performance Shares
that otherwise do not provide for the payment of dividends on the shares of
Common Stock subject to such awards for the period of time to which such
Dividend Equivalent Rights apply, or may grant Dividend Equivalent Rights that
are independent of any other such award. A Dividend Equivalent Right granted in
tandem with another award may be evidenced by the agreement for such other
award; otherwise, a Dividend Equivalent Right shall be evidenced by a separate
Stock Rights Agreement. Payment may be made by the Company in cash or by shares
of the Company's Common Stock or by a combination of the foregoing, may be
immediate or deferred and may be subject to such employment, performance
objectives or other conditions as the Program Administrators may determine and
specify in the Stock Rights Agreement for such Dividend Equivalent Rights. The
total payment attributable to a share of Common Stock subject to a Dividend
Equivalent Right shall not exceed one hundred percent (100%) of the equivalent
dividends payable with respect to an outstanding share of Common Stock during
the term of such Dividend Equivalent Right, taking into account any assumed
investment (including assumed reinvestment in shares of Common Stock) or
interest earnings on the equivalent dividends as determined under the Stock
Rights Agreement in the case of a deferred payment, provided that such
percentage may increase to a maximum of two hundred percent (200%) if a Dividend
Equivalent Right is subject to a Performance Objective.
Section 7. Compliance with Securities Laws. Shares shall not be
issued with respect to any option granted under the Stock Rights Plan, unless
the exercise of that option and the issuance and delivery of the shares pursuant
thereto shall comply with all applicable provisions of foreign, state and
federal law, including, without limitation, the Securities Act of 1933, as
amended, and the Exchange Act, and the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the shares may
then be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance. The Program Administrators may also
require an Optionee to furnish evidence satisfactory to the Company, including a
written and signed representation letter and consent to be bound by any transfer
restrictions imposed by law, legend, condition, or otherwise, that the shares
are being purchased only for investment purposes and without any present
intention to sell or distribute the shares in violation of any state or federal
law, rule, or regulation. Further, each Optionee shall consent to the imposition
of a legend on the shares of Common Stock subject to his or her option and the
imposition of stop-transfer instructions restricting their transferability as
required by law or by this Section 7.
Section 8. Continued Employment or Service. Each Optionee, if
requested by the Program Administrators, must agree in writing as a condition of
receiving his or her option, to remain in the employment of, or service to, the
Company or any of its subsidiaries following the date of the granting of that
option for a period specified by the Program Administrators. Nothing in this
Stock Rights Plan in any option granted hereunder shall confer upon any Optionee
any right to continued
44
<PAGE> 45
employment by, or service to, the Company or any of its subsidiaries, or limit
in any way the right of the Company or any subsidiary at any time to terminate
or alter the terms of that employment or service arrangement.
Section 9. Option Rights Upon Termination of Employment or
Service. If an Optionee under this Stock Rights Plan an ceases to be employed
by, or provide services to, the Company or any of its subsidiaries for any
reason other than death or disability, his or her option shall immediately
terminate; provided, however, that the Program Administrators may, in their sole
and absolute discretion, allow the option to be exercised, to the extent
exercisable on the date of termination of employment or service, at any time
within sixty (60) days after the date of termination of employment or service,
unless either the option or this Stock Rights Plan otherwise provides for
earlier termination.
Section 10. Option Rights Upon Disability. If an Optionee becomes
disabled within the meaning of Code Section 422 (e) (3) while employed by the
Company or any subsidiary corporation, the Program Administrators, in their
discretion, may allow the option to be exercised, to the extent exercisable on
the date of termination of employment, at any time within one year after the
date of termination of employment due to disability, unless either the option or
the Stock Rights Plan otherwise provides for earlier termination.
45
<PAGE> 1
MEDICAL DEVICE ALLIANCE INC.
EXHIBIT 10.02
FORM OF
MEDICAL DEVICE ALLIANCE INC.
COMMON STOCK
PRIVATE PLACEMENT
<PAGE> 2
CONFIDENTIAL
UP TO 1,000,000 SHARES*
OF COMMON STOCK
ISSUED BY
MEDICAL DEVICE ALLIANCE, INC.
PRIVATE PLACEMENT MEMORANDUM
-----------------------------------------------------------------
ACCREDITED INVESTORS ONLY
NOVEMBER 1, 1996
-----------------------------------------------------------------
For further information contact:
Donald K. McGhan, Chairman
871 Grier Avenue Suite B-2
Las Vegas, Nevada 89119
702/260-4707
*THE COMPANY RESERVES THE RIGHT TO SELL UP TO 500,000 ADDITIONAL SHARES.
<PAGE> 3
ACCREDITED INVESTORS ONLY
Medical Device Alliance, Inc.
A Nevada Corporation
Dated: November 1, 1996
PRIVATE PLACEMENT MEMORANDUM
1,000,000 Shares* of Common Stock
UP TO 1,000,000 SHARES* OF COMMON STOCK
ARE OFFERED AT $5.00 PER SHARE.
THE MINIMUM PURCHASE IS 10,000 SHARES ($50,000).
THIS MEMORANDUM RELATES TO THE SALE OF UP TO 1,000,000 SHARES* OF COMMON STOCK
(THE "SHARES") OF MEDICAL DEVICE ALLIANCE, INC. ("MDA" OR THE "COMPANY").--THERE
IS NO MINIMUM TOTAL NUMBER OF SHARES TO BE SOLD AND THE PROCEEDS FROM THE SALE
OF SHARES WILL NOT BE ESCROWED. --THE OFFERING WILL EXPIRE ON DECEMBER 15, 1996,
UNLESS EARLIER TERMINATED OR EXTENDED BY THE COMPANY. THE PURCHASE OF THE SHARES
INVOLVES A HIGH DEGREE OF RISK AND SHOULD BE CONSIDERED ONLY BY PERSONS WHO CAN
AFFORD A TOTAL LOSS OF THEIR INVESTMENT. THE STOCK WILL BE SOLD ONLY TO THOSE
WHO ARE "ACCREDITED INVESTORS." --THE MINIMUM INVESTMENT IS 10,000 SHARES
($50,000), UNLESS OTHERWISE AGREED TO BY THE COMPANY.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
PRICE TO INVESTORS SELLING COMMISSIONS PROCEEDS TO ISSUER
<S> <C> <C> <C>
PER SHARE $5.00 $0.25 (2) $4.75
TOTAL $5,000,000 (1) $250,000 (2) $4,750,000 (2)(3)
- -------------------------------------------------------------------------------------------
</TABLE>
(1) The Company reserves the right to sell up to 500,000 additional shares.
If the Company sells an additional 500,000 shares, the proceeds to the
Company would be $7,500,000, with selling commissions of $375,000 and
proceeds to the Issuer of $7,125,000 before deducting expenses payable
by the Company.
(2) The shares are being offered by the Company through selling agents and
through the efforts of the Company's officers and directors. To the
extent that sales of Common Stock hereunder are made by selling agents
who are not officers or directors of the Company, the selling agent will
receive a commission based on the offering price of the shares sold at a
rate of 5% in cash and warrants equal to 5% divided by $5.00 per warrant
(the offering price). The shares are also being offered in part through
the efforts of the Company's officers and directors. To the extent that
sales are made as a result of the efforts of the Company's officers, no
commissions will be paid. The amount of Selling Commissions in the table
above assumes that all sales are made through selling agents, with the
commission at the maximum rate.
(3) Before deducting expenses payable by the Company in connection with the
Offering which are not expected to exceed $100,000.
* THE COMPANY RESERVES THE RIGHT TO SELL UP TO 500,000 ADDITIONAL SHARES.
<PAGE> 4
THESE SECURITIES ARE SPECULATIVE AND
INVOLVE A HIGH DEGREE OF RISK
THIS MEMORANDUM IS SUBMITTED ON A CONFIDENTIAL BASIS FOR USE BY A LIMITED NUMBER
OF INVESTORS SOLELY IN CONNECTION WITH THE CONSIDERATION OF A PARTICIPATION IN
THE COMMON STOCK (THE "STOCK') DESCRIBED HEREIN. THE USE OF THIS MEMORANDUM FOR
ANY OTHER PURPOSE IS NOT AUTHORIZED. THE STOCK IS BEING OFFERED BY THE COMPANY,
A NEVADA CORPORATION. THIS MEMORANDUM MAY NOT BE REPRODUCED OR REDISTRIBUTED, IN
WHOLE OR IN PART, NOR MAY ITS CONTENTS BE DISCLOSED TO ANY PERSON OTHER THAN THE
INVESTORS TO WHOM IT IS SUBMITTED EXCEPT AS REQUIRED BY LAW OR BY ANY REGULATORY
AUTHORITY HAVING APPROPRIATE JURISDICTION. NO PERSON HAS BEEN AUTHORIZED TO MAKE
REPRESENTATIONS OR GIVE ANY INFORMATION WITH RESPECT TO THE COMPANY OR THE STOCK
DESCRIBED HEREIN, EXCEPT FOR THE INFORMATION CONTAINED HEREIN AND THE HISTORICAL
FINANCIAL INFORMATION PROVIDED AS EXHIBITS. INVESTORS PARTICIPATING IN THE STOCK
DESCRIBED HEREIN SHOULD NOT RELY ON INFORMATION NOT CONTAINED IN EITHER THIS
MEMORANDUM OR IN THE HISTORICAL FINANCIAL INFORMATION PROVIDED AS EXHIBITS.
THE STATEMENTS, ESTIMATES AND PROJECTIONS AS TO THE FUTURE FINANCIAL AND
OPERATING RESULTS OF THE COMPANY HAVE BEEN PROVIDED BY THE COMPANY'S MANAGEMENT.
THE PROJECTIONS OF FUTURE FINANCIAL AND OPERATING PERFORMANCE ARE INTENDED TO
ASSIST IN AN EVALUATION OF THE STOCK BUT ARE NOT TO BE VIEWED AS FACTS AND
SHOULD NOT BE RELIED UPON AS AN ACCURATE REPRESENTATION OF FUTURE RESULTS.
FURTHERMORE, BECAUSE THE PROJECTED FINANCIAL INFORMATION IS BASED ON ESTIMATES
AND ASSUMPTIONS ABOUT CIRCUMSTANCES AND EVENTS THAT HAVE NOT YET TAKEN PLACE AND
ARE SUBJECT TO VARIATION, THERE CAN BE NO ASSURANCE THAT THE PROJECTED RESULTS
WILL BE ATTAINED.
THE INFORMATION CONTAINED HEREIN IS PRESENTED AS OF THE DATE HEREOF, AND IS
SUBJECT TO CHANGE, COMPLETION OR AMENDMENT WITHOUT NOTICE. NEITHER THE DELIVERY
OF THIS MEMORANDUM AT ANY TIME NOR ANY STOCK ACQUIRED PURSUANT HERETO SHALL
IMPLY THAT INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE SET FORTH ON THE COVER HEREOF.
<PAGE> 5
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR BY THE SECURITIES ADMINISTRATOR OF ANY STATE, NOR HAS THE
COMMISSION OR ANY STATE ADMINISTRATOR PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS OFFERING MEMORANDUM. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THIS OFFERING HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, IN RELIANCE ON THE AVAILABILITY OF THE EXEMPTIONS PROVIDED BY SECTIONS
4(2) OF SAID ACT AND/OR RULE 506 OF REGULATION D PROMULGATED THEREUNDER. EACH
PURCHASER OR HIS PURCHASER REPRESENTATIVE(S) SHALL, DURING THE COURSE OF THIS
OFFERING AND PRIOR TO THE SALE OF COMMON STOCK, HAVE ACCESS TO, AS WELL AS THE
OPPORTUNITY TO ASK QUESTIONS OF, AND RECEIVE ANSWERS FROM, THE COMPANY, OR ANY
PERSON ACTING ON THE COMPANY'S BEHALF, CONCERNING ANY ASPECT OF THIS OFFERING,
AND THE RIGHT TO OBTAIN ANY ADDITIONAL INFORMATION NECESSARY TO VERIFY THE
ACCURACY OF THE INFORMATION CONTAINED HEREIN TO THE EXTENT THAT THE COMPANY HAS
SUCH INFORMATION OR IT CAN BE ACQUIRED WITHOUT UNREASONABLE EFFORT OR EXPENSE.
THESE SECURITIES HAVE NOT BEEN APPROVED BY THE CALIFORNIA DEPARTMENT OF
CORPORATIONS AND ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE
THE COMMON STOCK OFFERED HEREIN WILL NOT BE FREELY TRANSFERABLE AND NO MARKET
FOR THE COMMON STOCK EXISTS OR IS EXPECTED TO DEVELOP. ACCORDINGLY, PURCHASE OF
THE COMMON STOCK SHOULD BE CONSIDERED ONLY BY PERSONS WHO UNDERSTAND OR WHO HAVE
BEEN ADVISED WITH RESPECT TO THE LONG-TERM NATURE OF, THE CONSEQUENCES AND RISKS
ASSOCIATED WITH SUCH INVESTMENT AND WHO HAVE NO NEED FOR LIQUIDITY IN, AND CAN
AFFORD A TOTAL LOSS OF, THEIR INVESTMENT.
<PAGE> 6
NO REPRESENTATIONS OR WARRANTIES OF ANY KIND ARE INTENDED OR SHOULD BE INFERRED
WITH RESPECT TO THE ECONOMIC RETURN OR THE TAX TREATMENT WHICH MAY ACCRUE TO THE
INVESTOR. PROSPECTIVE INVESTORS ARE NOT TO CONSTRUE THE CONTENTS OF THIS
MEMORANDUM AS LEGAL, TAX OR INVESTMENT ADVICE. EACH SUBSCRIBER SHOULD CONSULT
HIS OWN COUNSEL, ACCOUNTANT AND BUSINESS ADVISOR AS TO THE LEGAL, TAX AND
RELATED CONSEQUENCES OF INVESTMENT IN THE COMPANY. INVESTORS MUST LOOK SOLELY
TO, AND RELY UPON, THEIR OWN ADVISORS WITH RESPECT TO THE TAX AND OTHER
CONSEQUENCES OF THIS INVESTMENT.
EACH INVESTOR MUST RELY ON THE INVESTOR'S OWN EVALUATION OF THE COMPANY AND THE
TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED IN MAKING AN
INVESTMENT IN THE STOCK.
THIS MEMORANDUM DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY THE STOCK IN ANY JURISDICTION TO ANY PERSON IF IT IS UNLAWFUL.
<PAGE> 7
AVAILABILITY OF DOCUMENTS/ACCESS TO INFORMATION
The description and summaries of the documents in this Memorandum do not purport
to be complete and reference is made to the actual documents (copies of which
are available at the offices of MDA) for a complete understanding of what they
contain. Also, each prospective Investor and any Purchaser Representative are
entitled to ask questions and to receive answers concerning the terms and
conditions of this offering and may obtain additional information necessary to
verify statements in this Memorandum that MDA can obtain without unreasonable
effort or expense.
All such requests for additional information must be made in writing and must be
acknowledged by MDA Except for MDA's response to acknowledged requests, no
person is authorized to give any information or to make any statement not
contained in this Memorandum and any information or statement not contained
herein cannot be relied upon as having been authorized by MDA or its directors
or officers, any affiliates thereof, or any professional advisors thereto.
Each prospective Investor should use this opportunity to communicate directly
with his own legal counsel, accountants and other professional advisors who can
help the prospective Investor evaluate the merits and risks of the proposed
investment.
The Company intends to furnish its shareholders with audited financial
statements on an annual basis.
For further information contact:
DONALD K. MCGHAN
CHAIRMAN OF THE BOARD
Medical Device Alliance, Inc.
871 Grier Avenue Suite B-2
Las Vegas, Nevada 89119
702/260-4707
<PAGE> 8
MEDICAL DEVICE ALLIANCE, INC.
TABLE OF CONTENTS
I. SUMMARY
A. The Company
B. The Offering
C. Sources and Uses of Funds
D. Capitalization
E. Proposed Equity Investment and Ownership
F. Dilution
II. SELECTED FINANCIAL INFORMATION
A. Historical Operating Data
B. Projected Operating Data
III. INVESTMENT CONSIDERATIONS
Attributes of Ultrasound Assisted Lipoplasty
Opportunities for UAL Applications
Management Team
Exclusive Licensing & Research Agreements
Market Size for the Company's Products
Risk Factors
IV. SUMMARY OF TERMS
Investor Suitability Standards
V. BUSINESS
A. BUSINESS SUMMARY
Background
Strategy
Products
Marketing
Licenses and Patents
Properties
Legal Proceedings
B. INDUSTRY AND COMPETITIVE ANALYSIS
Industry Trends
Government Regulation
<PAGE> 9
International
C. HISTORICAL PERFORMANCE
D. PROJECTED OPERATING RESULTS
E. PROJECTED EQUITY CAPITALIZATION
VI. MANAGEMENT
Management
Certain Transactions
VII. DESCRIPTION OF CAPITAL STOCK
VIII. INDEMNIFICATION OF OFFICERS AND DIRECTORS
IX. ADDITIONAL INFORMATION
X. EXHIBIT
<PAGE> 10
ACCREDITED INVESTORS ONLY
I. SUMMARY
A. THE COMPANY. MEDICAL DEVICE ALLIANCE, INC. ("MDA" or the "Company") was
founded in September, 1995, to develop, acquire, manufacture and market devices
for an emerging medical procedure which results in the removal of body fat
through the use of ultrasound. The removal of adipose (fat) tissue, a procedure
known as suction lipectomy, is the most frequently performed aesthetic
(cosmetic) surgical procedure in the United States. Traditionally, suction
lipectomy has been performed using a probe (the "cannula") and a suction device.
The use of specialized ultrasonic devices and probes for soft tissue aspiration,
known as ultrasound assisted lipoplasty, provides less traumatic soft tissue
removal with less post-operative bruising.
The Company holds the exclusive, worldwide rights to market and sell a patented
ultrasonic system (the "System") which has received clearance under a 510(K)
from the United States Food & Drug Administration ("FDA") to be marketed for use
in ultrasonic soft tissue aspiration. Although the FDA clearance is specific for
fragmentation and aspiration of soft tissue in plastic and reconstructive
surgery, the Company will prepare additional submissions to the FDA for 510(K)
clearance of the System specifically for Ultrasound Assisted Lipoplasty ("UAL")
and Ultrasound Assisted Body Contouring ("UBC"). Until the Company has obtained
510(K) clearance specifically for use in UAL and/or UBC, the System cannot be
marketed as a lipoplasty device.
The Company has the exclusive worldwide license agreement for the patented
System, all improvement patents, foreign patents and related technology. The
License Agreement also gives the Company the exclusive rights to utilize the
510(K) clearance to market the System for use in fragmentation and aspiration of
soft tissue in plastic and reconstructive surgery. The Company also has the
worldwide (except for the former Soviet Union) rights for a tip design which is
expected to improve UAL results in certain applications.
The System is in use clinically in the United States under the auspices of the
Ultrasound Assisted Lipoplasty Task Force (the "UAL Task Force"), which includes
representatives of the American Society for Aesthetic Plastic Surgery ("ASAPS"),
the American Society of Plastic and Reconstructive Surgeons ("ASPRS"), the
Plastic Surgery Educational Foundation ("PSEF"), the Aesthetic Surgery Education
and Research Foundation ("ASERF") and the Lipoplasty Society of North America
("LSNA"). The Company is also holding meetings and training seminars in the
United States and Europe for use of the System.
Page -1-
<PAGE> 11
Within the medical industry, physicians are facing declining incomes as a result
of healthcare cost-containment and many have turned to nonreimbursed aesthetic
procedures to supplement their practices. This trend, combined with an aging
population which is increasingly willing to spend disposable income on remedies
that delay the symptoms of aging, is expected to increase the number of cosmetic
procedures in the United States and worldwide well into the 21st century.
Suction lipectomy ("liposuction") is the most common procedure performed in
aesthetic surgery today, with an estimated 350,000 procedures performed in the
United States per year. Current liposuction techniques require the use of a
cannula inserted into the subcutaneous (under the skin) fat tissue and the
application of suction. Once suction has begun, the cannula is moved back and
forth in a piston-like motion (not side to side), creating channels through the
fat as the tissue is aspirated by suction. Unless the amount of fat being
removed is very small, a second series of intersecting channels is created
through a second incision. Although fat tissue is removed, complications can
result from the movement of the cannula, including damage to connective tissue,
blood vessels and nerves.
Unlike current liposuction techniques, UAL differs significantly by liquefying
body fat using a specific ultrasonic energy delivered through a cannula or
probe. The energy generated by sound waves at the cannula tip causes
emulsification of fat cells. The liquefied fat is concomitantly removed from the
body by suction. UAL has been practiced in Europe and South America for almost a
decade. Recent improvements in equipment and technique appear to reduce the risk
of complications and, as a result, UAL is receiving significant attention from
plastic surgeons around the country. Advances in technology have also resulted
in ultrasonic equipment and probe designs which are safer and more effective.
Results of trials in Europe, presented to the American Society of Aesthetic
Plastic Surgery, showed that UAL caused less trauma to the patients' tissue and
less blood loss, leading to faster patient recovery. A position paper by the UAL
Task Force highlights the advantages of UAL over conventional liposuction, which
include reduced blood loss and damage to adjacent structures, less
post-operative bruising and swelling, a shorter recovery period and an ability
to remove more fat per procedure.
The UAL Task Force paper also notes that the FDA "has provided a 510(K) to
Medical Device Alliance, Inc., manufacturer of an ultrasonic device for soft
tissue removal in plastic surgery....However, the FDA has not given approval of
any ultrasonic device for the specific purpose of lipoplasty. Clinical use of
ultrasonic devices by plastic surgeons for lipoplasty is therefore considered
`off label' by the FDA, although such use is not necessarily illegal or
inappropriate."
The Company is seeking approximately $5,000,000 in equity capital to finance
further research, development and testing of the Company's products, to fund
costs associated with continued commercial development, production and marketing
of the Company's products, to acquire other related technologies and targeted
companies and as working capital for general corporate expenditures.
Page -2-
<PAGE> 12
B. THE OFFERING. The Company is seeking to raise up to $5,000,000 in equity
capital to finance further research, development and testing of the Company's
products, to fund costs associated with commercial development, production and
marketing of the Company's products, to acquire other related technologies and
targeted companies and as working capital. The Company is offering 1,000,000
shares of common stock ("Common Stock" or the "Shares") in the Company, at $5.00
per share. The Shares thus offered will represent approximately 15.5% of the
Company on a fully diluted basis. The Company is not obligated to sell any
minimum total number of Shares, nor will the proceeds from the sale of Shares be
placed in escrow. The Company also reserves the right to sell up to an
additional 500,000 shares in the Offering. If the additional 500,000 shares are
sold in the Offering, the share offered hereunder will represent approximately
21.6% of the Company on a fully diluted basis.
The minimum subscription is 10,000 shares ($50,000). The purchase price for the
Common Stock must be paid entirely upon execution of the Investment Agreement.
The Company anticipates that the proceeds from this offering will be sufficient
to meet its capital needs through 1997 and that it may require additional
funding in 1998 to acquire targeted technologies and/or companies. The Company
also anticipates that it will incur losses through 1996.
An investment in the Company involves a high degree of risk and is suitable only
for persons of substantial financial means who have otherwise provided liquidity
in their investments and who can afford to lose their entire investment in the
Company.
Investment in the Company is highly speculative and involves a high degree of
risk. Realization of any economic benefit from an investment in the Company
depends entirely on the ability of the Company to develop products having
satisfactory commercial value and the Company's ability to successfully license
and/or form strategic alliances to market such products and the Company's
continuing performance under specific agreements.
The Company's Common Stock will not be freely transferable and it is not
anticipated that any trading market will be established. The Common Stock shall
be acquired for investment purposes only and not with a view to resale.
This Offering is made only to Accredited Investors as defined in Regulation D
promulgated under the Securities and Exchange Act and is being made by the
Company and selling agents. Qualified offerees and their representatives will
have the opportunity, upon their request, to meet with and ask questions of the
Company's Chairman of the Board concerning the terms and conditions of this
Offering.
The offeree, by accepting delivery of the Memorandum, agrees to return it and
all enclosed documents to the Company if the offeree does not purchase any of
the shares offered thereby.
Page -3-
<PAGE> 13
This Memorandum contains summaries of various executed and unexecuted documents
and of certain statutes, rulings and/or regulations. Such summaries do not
purport to be complete and are qualified in their entirety by reference to the
original documents and the statutes, rulings and/or regulations mentioned, and
by reference also to the definitions contained therein which may differ from
common usage and also from agreement to agreement.
Neither the Company, nor any advisor, affiliate or representative of any of the
foregoing, assumes any responsibility for the economic or tax consequences of
this transaction to an investor. The Company has not received an opinion of
counsel with respect to the tax consequences of this transaction. Each
prospective investor is urged to consult his or her own tax counsel and
accountant with respect to the tax implications of this Offering and must rely
upon the advice of such tax counsel or accountant in assessing the tax
implications of ownership of shares. Prospective investors and their advisors
should review the risk factors relating to the tax matters set forth in this
Memorandum with great care.
EACH PROSPECTIVE INVESTOR IS STRONGLY URGED TO CAREFULLY STUDY THIS MEMORANDUM
AND THE EXHIBIT HERETO, INCLUDING THE INVESTMENT AGREEMENT, AND TO SEEK THE
ADVICE OF TAX, INVESTMENT, LEGAL AND OTHER COUNSEL BEFORE SUBSCRIBING FOR ANY OF
THE SHARES. THE PROPOSED INVESTOR SHOULD NOT CONSTRUE THE CONTENTS OF THIS
MEMORANDUM AS LEGAL, TAX, ACCOUNTING OR OTHER EXPERT ADVICE.
Page -4-
<PAGE> 14
C. SOURCES AND USES OF FUNDS. Assuming the sale of 1,000,000 shares, the
Company's net proceeds from the sale of the Shares offered hereby are estimated
to be $4,650,000, after deducting commissions estimated at $250,000 and offering
expenses payable by the Company estimated at $100,000.
The following is a statement of the proposed use of the proceeds of the
Offering. Amounts are approximate and certain items could vary from those shown
below. The uses are shown in the order of their priority:
THE FIGURES SET FORTH IN THE TABLE BELOW ARE ESTIMATES AND MAY NOT REFLECT THE
ACTUAL APPLICATION OF THE PROCEEDS OF THIS OFFERING.
<TABLE>
<S> <C>
SOURCE OF PROCEEDS
Sale of Common Stock
(net of commissions
and offering expenses) (1) $4,650,000
ESTIMATED USE OF FUNDS
Regulatory and Clinical Testing 750,000
Research and Development 750,000
Operating Expenses (working capital) 2,550,000
Equipment/Facilities 500,000
Professional Fees/Patent Applications 100,000
Total Use of Funds $4,650,000 (2)
</TABLE>
(1) Assumes the sale of 1,000,000 shares in this Offering. The Company
reserves the right to sell an additional 500,000 shares in this
Offering.
Page -5-
<PAGE> 15
(2) The Company will seek to raise monies through additional equity
offerings if the funds raised in this offering are not sufficient for
these uses.
D. CAPITALIZATION. The Company's acquisition of marketing rights, further
development and testing of the System has been financed principally through the
sale of stock to the Company's officers and directors and insiders.
The following table outlines the Company's capitalization at September 30, 1996,
and pro forma to give effect to the net proceeds of the sale of 1,000,000 Shares
offered hereby:
<TABLE>
<CAPTION>
As of September 30, 1996 (1) Pro Forma (2)
---------------------------- -------------
<S> <C> <C>
Common Stock, $0.001 par value
50,000,000 shares authorized
Existing Shareholders $ 1,345,000 $ 1,345,000
Investors (3) -- 4,650,000
Preferred Stock, $0.001 par value
20,000,000 shares authorized
Existing Shareholders -- --
Accumulated Deficit (4) (937,357) (937,357)
Total Stockholders' Equity $ 407,643 $ 5,057,643
</TABLE>
(1) Reflects Company's Capitalization as of September 30, 1996. Does not
include up to 100,000 shares of Common Stock reserved for issuance
pursuant to options which have been granted by the Company.
(2) As adjusted to reflect net proceeds from the sale of 1,000,000 Shares
offered hereby. The Company reserves the right to sell an additional
500,000 Shares in this Offering.
(3) Does not include any warrants for Common Stock issuable to selling
agents as commissions in this Offering.
Page -6-
<PAGE> 16
E. PROPOSED EQUITY INVESTMENT AND OWNERSHIP.The following table summarizes, as
of September 30, 1996, the difference between the existing shareholders and the
investors purchasing shares of Common Stock in this offering with respect to the
number of shares purchased from the Company:
<TABLE>
<CAPTION>
PROPOSED EQUITY INVESTMENT AND OWNERSHIP
Common Stock Fully Diluted
Ownership at Close Common Stock Ownership
Shares (000) Percent (%) Shares (000) Percent (%)
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Existing shareholders 5,300 84.1% 5,300 82.2%
New investors (2) 1,000 15.9% 1,000 15.5%
Options 0 0% 150(1) 2.3%
Total 6,300 100% 6,450 100%
</TABLE>
(1) Includes up to 50,000 shares reserved for issuance in connection with
warrants issuable to selling agents as compensation in this Offering.
(2) The Company reserves the right to sell an additional 500,000 shares in
this Offering.
F. DILUTION. The Company has outstanding 5,300,000 shares of Common Stock at
September 30, 1996. The net tangible book value of the Company as of September
30, 1996 was $407,643 or $0.08 per share. Net tangible book value per share
represents the amount of the Company's total tangible assets less total
liabilities, divided by the number of shares of Common Stock outstanding. Net
tangible book value dilution per share represents the difference between the
amount per share paid by investors in this offering and the net tangible book
value per share after the offering. After giving effect to the sale of 1,000,000
shares in this offering at an offering price of $5.00 per share resulting in
estimated net proceeds to the Company of approximately $4,650,000, after
commissions and expenses associated with the offering, the net tangible book
value of the Company as of September 30, 1996 would have been $5,057,643, or
approximately $0.80 per share. This represents an immediate increase of net
tangible book value of $0.72 per share to the existing shareholders and an
immediate dilution of $4.20 per share to investors in this offering, as
illustrated in the following table:
Page -7-
<PAGE> 17
<TABLE>
<S> <C>
Offering price per share $5.00
Net tangible book value per share
at September 30, 1996 $0.08
Increase per share attributable to
payments by new investors (1) $0.72
Pro forma net tangible book value per share,
after this Offering $0.80
Dilution of net tangible book value per share
to investors in this offering (2) $4.20
</TABLE>
(1) Does not include warrants for up to 50,000 shares of Common Stock
issuable to selling agents as commissions in this Offering.
(2) The Company reserves the right to sell an additional 500,000 shares in
this Offering.
Because the Company expects to incur operating losses in 1996, actual dilution
to new investors at the completion of this offering will be greater than
indicated in the table above.
The above table does not include up to 100,000 shares of Common Stock reserved
for issuance upon exercise of outstanding options at a price of $1.00 per share,
nor does it include up to 50,000 shares reserved for issuance upon the exercise
of warrants issuable as commissions in this Offering.
Page -8-
<PAGE> 18
II. SELECTED FINANCIAL INFORMATION
A. HISTORICAL OPERATING DATA
The following is summary financial information for the Company. The information
listed below for the fiscal year ended December 31, 1995 and for the nine months
ended September 30, 1996 is unaudited and has been supplied by the Company.
<TABLE>
<CAPTION>
$'S IN 000'S
Fiscal Year Ending Nine Months Ending
December 31, 1995 September 30, 1996
----------------- ------------------
<S> <C> <C>
Revenues $ 0 $ 0
Gross Profit 0 0
Total Expenses 82 855
OPERATING INCOME (LOSS) $ (82) $(855)
</TABLE>
B. PROJECTED OPERATING DATA
Projected operating results are management's projections based on assumptions of
market growth and the competitive advantages of the Company's products as
discussed in this information memorandum. These figures represent management's
estimates and there are no assurances that the following results will be
achieved during the periods indicated.
<TABLE>
<CAPTION>
$'S IN 000'S
Projected
Fiscal Year Ending December 31,
-------------------------------------------------------
1996 1997 1998 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenue
Devices $ 700 40,590 55,623 67,086
Accessories/Disposables 80 4,710 13,165 23,172
Net Income (Loss) before taxes (289) 15,402 21,338 28,883
</TABLE>
Page -9-
<PAGE> 19
III. INVESTMENT CONSIDERATIONS
ATTRIBUTES OF ULTRASOUND ASSISTED LIPOPLASTY. Surgeons have reported that
Ultrasound Assisted Lipoplasty ("UAL") offers exceptional control of contouring,
as the cannula can be accurately positioned and tissue removal can be spot
specific. UAL requires considerably less physical exertion by the surgeon than
traditional liposuction techniques and equipment, which allows for performance
of precise body contouring. UAL also allows the surgeon to more precisely
identify where and how much fat is being removed which results in a more even
reshaping of overlying skin surfaces. Another advantage of UAL includes
preliminary results which indicate that difficult fibrous areas, such as the
male breast and back, are especially well treated. Surgeons have confirmed that
large volumes of fat can be effectively removed with minimal blood loss, little
or no bruising and exceptional control of contour.
OPPORTUNITIES FOR UAL. With over 350,000 liposuction procedures performed in the
United States annually, the Company estimates the total annual market for UAL,
as an adjunct or replacement for current liposuction techniques, to be
approximately $150 million (U.S. dollars). The Aesthetic, Cosmetic, Plastic and
Reconstructive Surgery market is comprised of many different medical
specialties, including Plastic and Reconstructive Surgeons, ENT Surgeons,
Otolaryngology, Dermatology, Oral-Maxillofacial and General Surgeons. An
estimated 9,000 practitioners from these various groups currently perform soft
tissue removal procedures. An additional 100,000 liposuction procedures are
performed annually outside the United States.
MANAGEMENT TEAM. The Company has assembled an experienced and skilled group of
entrepreneurs, business and technical managers in its organization. The
individuals involved have strong backgrounds in medical products development and
manufacture, as well as, experience in the management of large companies and
start-up companies. The Board of Directors and operational management are
especially accomplished in founding and building successful medical and
biotechnology firms. Within recent years, members of the Board of Directors have
founded and built companies that have been acquired by 3M Corporation, Johnson &
Johnson, Union Carbide Corporation or are publicly traded.
EXCLUSIVE LICENSING & RESEARCH AGREEMENTS. The Company has actively pursued long
term licensing agreements and patents to acquire and secure proprietary
technology. Through various agreements, the Company has obtained exclusive
worldwide rights for the a patented ultrasonic system (the "System"), all
improvement patents, foreign patents and related technology. The Company also
has the exclusive rights to utilize the 510(K) clearance to market the System
for use in fragmentation
Page -10-
<PAGE> 20
and aspiration of soft tissue in plastic and reconstructive surgery. The Company
also has the worldwide (except for the former Soviet Union) rights for a tip
design which is expected to improve UAL results in certain applications.
MARKET SIZE FOR THE COMPANY'S PRODUCTS. Within the medical industry, physicians
are facing declining incomes as a result of healthcare cost-containment and many
have turned to nonreimbursed aesthetic procedures to supplement their practices.
This trend, combined with an aging population which is increasingly willing to
spend disposable income on remedies that delay the symptoms of aging, is
expected to increase the number of cosmetic procedures in the United States and
worldwide well into the 21st century. Suction lipectomy ("liposuction") is the
most common procedure performed in aesthetic surgery today, with an estimated
350,000 procedures performed in the United States per year. The Company expects
procedures performed internationally to eventually reach the same number of
procedures per year as in the United States in the future.
RISK FACTORS. An investment in the Company involves various risk factors, in
addition to general investment risks and any risk peculiar to a prospective
investor. Prospective investors should carefully consider the following before
making a decision to invest in the Company.
Early Stage of the Company and its Products. The Company and its products are in
an early stage of development. No revenues have been generated from commercial
product sales of the Company's devices, although the Company expects limited
commercial sales in 1996. The Company's revenues to date have consisted of
payments for its devices which are purchased by others engaged in clinical
testing of UAL and UBC. To achieve profitable operations on a continuing basis,
the Company must successfully improve, introduce, market and distribute its
products. The time frame necessary to achieve market success for any individual
product is uncertain. Most of the Company's products will require additional
research and development, preclinical testing and clinical testing prior to
commercialization. There can be no assurance that the Company's research or
product development efforts will be successfully completed, that required
regulatory approvals can be obtained, that products can be manufactured at
acceptable cost and with appropriate quality, that any approved products can be
successfully marketed, or that any products that may be marketed will be
favorably accepted.
History of Losses; Uncertainty of Future Profitability. As of September 30,
1996, the Company had accumulated net losses of $937,357 since its inception in
1995. These losses have resulted primarily from the Company's acquisition of
exclusive rights to a patented ultrasonic system which has received 510(K)
clearance to be marketed for use in ultrasonic soft tissue aspiration, research
and development activities, preclinical and clinical testing, and the general
and administrative expenses associated with these activities. The extent of
losses and the time required to reach profitability are highly uncertain. To
achieve sustained profitable operations, the Company must successfully develop,
test, manufacture, market and distribute its products. There can be no assurance
that the Company will be able to achieve profitability or that profitability, if
achieved, can be sustained on an ongoing basis. Moreover, if profitability is
achieved, the level of that profitability cannot be accurately predicted.
Page -11-
<PAGE> 21
Additional Financing Requirements and Uncertainty of Capital Funding. The
Company will require additional funding to acquire other patented technology,
conduct research and development and preclinical and clinical testing, to obtain
regulatory approval for its products, and to manufacture, distribute and market
its products. The Company currently anticipates that it will need to obtain
additional financing by the second quarter of 1998 to acquire targeted
technologies and/or companies. The Company's capital requirements will depend on
numerous factors including the progress and magnitude of the Company's sales,
the time involved in obtaining additional regulatory approvals, the cost
involved in filing, prosecuting and enforcing patent claims, technological
advances, competitor and market conditions, the ability of the Company to
establish collaborative arrangements, and the cost and effectiveness of
commercialization activities and arrangements. The Company is dependent on the
proceeds of this offering to continue development and testing of its products
and to fund its working capital requirements. The Company may require funds in
addition to the proceeds of this offering and its current cash resources to fund
its operations. The Company has raised funds in the past through private stock
sales to officers, directors and insiders and may consider collaborations with
various companies and other potentials for equity investment, license agreements
or other funding. The Company contemplates raising funds in the future through
public or private financings, collaborative arrangements or from other sources.
It is unlikely that the Company will be able to satisfy its financing
requirements from banks or other traditional lending institutions. There can be
no assurance that the necessary additional financing will be available to the
Company on acceptable terms, if at all. If additional funding is not available
to the Company when needed, the Company will be required to curtail development
programs if revenues are not sufficient to fund these activities and the
Company's business and financial condition would be materially adversely
affected.
Competition and Technological Uncertainty. The Company operates in a rapidly
evolving field. Competition from other domestic and foreign companies, medical
device and other research and academic institutions in the areas of product
development, product and technology acquisition, manufacturing and marketing is
intense and is expected to increase. These competitors may succeed in obtaining
approval from the U.S. Food and Drug Administration (the "FDA") or other
regulatory agencies for their products more rapidly than the Company.
Competitors have also developed or are in the process of developing technologies
that are, or in the future may be, the basis for competitive products. Some of
these products may have an entirely different approach or means of accomplishing
the uses for which the Company is developing its products. The Company has
identified 3 competitors involved in developing devices for UAL: SMEI (Italy);
Medicamat (France); and Mentor Corporation (Santa Barbara, California). To the
best of the Company's knowledge, none of the Company's competitors have received
any regulatory approvals in the United States for UAL equipment or devices. The
Company's competitive position may be adversely affected by product developments
or approvals for UAL devices which may be achieved in the future by these or
other companies. Many of the Company's competitors have substantially greater
financial, technical and human resources than the Company and substantially
greater experience in developing products, conducting clinical trials, obtaining
regulatory approvals and manufacturing and marketing. There can be no assurance
that the
Page -12-
<PAGE> 22
Company's competitors will not succeed in developing technologies and products
that are more effective or affordable than those being developed by the Company
or that would render the Company's technology and products less competitive or
obsolete.
The Company's products are subject to the risks of failure inherent in the
development and testing of products based on innovative technologies. These
risks include the possibilities that this technology or any or all of the
Company's products may be found to be ineffective or to have limitations or
otherwise fail.
One or more of the Company's competitors may achieve patent protection which
could have a material adverse effect on the Company. Although the Company does
not currently have any specific plans to do so, it may pursue or may be required
to defend patent litigation or patent interference proceedings with holders of
competitive patents. The Company may incur substantial costs in such
proceedings. In addition, such proceedings may impact the Company's competitive
position and there can be no assurance that they will be successful.
Unproven Safety and Efficacy; Clinical Trials. The Company's System and other
devices currently under development will require additional clinical testing
prior to application for commercial use. Although there are numerous published
reports of clinical applications of ultrasound energy to dissect, emulsify or
fragment tissues prior to removal by aspiration, none of the Company's products
has been approved specifically for Ultrasound Assisted Lipoplasty or Ultrasound
Assisted Body Contouring and further testing efficacy and safety in humans will
be required. There can be no assurance that such testing will show the Company's
System or any other of the Company's products to be safe or efficacious. There
can be no assurance that additional applications for 510(K) market clearance by
the FDA for any of the Company's products currently under development will be
completed successfully within any specified time period, if at all. There can be
no assurance that the Company will not encounter problems in development or
clinical trials that will cause the Company to delay, suspend or cancel clinical
trials.
Government Regulation. The production and marketing of the Company's products
and its ongoing development, preclinical testing and clinical trial activities
are subject to regulation by numerous governmental authorities in the United
States and other countries. Most products developed by the Company must undergo
rigorous preclinical and clinical testing and an extensive regulatory approval
process mandated by the FDA and comparable foreign authorities before they can
be marketed. These processes can be lengthy and expensive. Failure to comply
with the applicable regulatory requirements can, among other things, result in
non-approval, suspensions of regulatory approvals, fines, product recalls,
operating restrictions, injunctions and criminal prosecution.
The time required for completing such testing and obtaining such approvals is
uncertain and approval itself may not be obtained. In addition, delays or
rejections may be encountered based upon changes in FDA policy during the period
of product development and FDA regulatory review of each submitted
Page -13-
<PAGE> 23
new device application or product license application. Similar delays may also
be encountered in foreign countries. There can be no assurance that even after
such time and expense regulatory approval will be obtained for any products
developed by the Company. Moreover, if regulatory approval of a product is
granted, such approval may entail limitations on the indicated uses for which
the product may be marketed. Further, even if such regulatory approval is
obtained, a marketed product, its manufacturer and the facilities in which the
product is manufactured are subject to continual review and periodic
inspections. Later discovery of previously unknown problems with a product,
manufacturer or facility may result in restrictions on such product or
manufacturer, including withdrawal of the product from the market and
litigation.
Product Liability Exposure; Insurance Coverage. The use of the Company's
products in clinical trials and the sale of such products may expose the Company
to liability claims. These claims could be made directly by consumers, or by
companies, institutions or others using or selling such products. Although the
Company has obtained product liability insurance coverage, there can be no
assurance that claims made against the Company could not exceed the limits of
the Company's insurance and such claims could have a material adverse effect on
the Company. In addition, there can be no assurance that, if the Company seeks
additional insurance coverage in the future, such coverage will be available at
reasonable cost and in amounts sufficient to protect the Company against claims
that could have a material adverse effect on the financial condition and
prospects of the Company. Further, adverse product liability claims could
negatively impact the Company's ability to obtain or maintain regulatory
approvals for its products.
Possible Adverse Effects of Future Legislation or Regulations. Heightened public
awareness and concerns regarding the growth in overall health care expenditures
in the United States, combined with the continuing efforts of government to
contain or reduce costs of health care, may result in the enactment of national
health care reform or other legislation or regulations that impose limits on the
number and type of medical procedures which may be performed or which have the
effect of restricting a physician's ability to select specific products for use
in certain procedures. Such new legislation or regulations may adversely affect
the demand for the Company's products or adversely affect the Company's
regulatory compliance efforts. In the United States, there have been, and the
Company expects that there will continue to be, a number of federal and state
proposed legislation and regulations to implement governmental control. For
example, the Clinton Administration and other federal legislators have proposed
health care reform legislation that may impose pricing or profitability
limitations or other restrictions on companies in the health care industry. The
announcement of such proposals may adversely affect the Company's ability to
raise capital or to form collaborations, and the enactment of any such reforms
could have a material adverse effect on the Company. In certain foreign markets,
the pricing and profitability of health care products are subject to
governmental influence or control. In addition, legislation or regulations that
impose restrictions on the price that may be charged for health care products or
medical devices may adversely affect the Company's results of operations. The
Company is unable to predict the likelihood of adverse effects which might arise
from future legislative or administrative action, either in the United States or
abroad.
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<PAGE> 24
Reimbursement. Although the procedures performed using the Company's devices are
not expected to be covered by health insurance plans, the Company's ability to
successfully commercialize its products may depend in part on the extent to
which reimbursement for such products and related treatment will be available
from government health administration authorities, private health insurers and
other organizations. Such payers are increasingly challenging the price of
medical products and services. Significant uncertainty exists as to the
reimbursement status of healthcare products, and there can be no assurance that
adequate reimbursement coverage will be available to enable the Company to
achieve market acceptance of its products or to maintain price levels sufficient
for realization of an appropriate return on its products.
Limited Capabilities and Experience. The Company has limited capabilities and
experience in regulatory activities, clinical trial testing, manufacturing,
marketing, sales and distribution of its products. Where possible and
appropriate, the Company intends to seek collaborative arrangements for
marketing and sales services, and to establish distribution channels for the
Company's devices. As noted above, there can be no assurance that such
collaborative arrangements can be negotiated or will be successful.
Patents and Proprietary Technology. The Company's success will depend, in part,
on its and its licensors' ability to obtain and protect patents, protect trade
secrets and operate without infringing on the proprietary rights of others. The
Company has been issued or has filed applications for U.S. and foreign patents
and has licenses or exclusive license options to patents or patent applications
of others. The patent position of medical device firms generally is highly
uncertain and involves complex legal and factual questions. There can be no
assurance that the Company's patent applications will be approved, that any
issued patents will provide the Company with competitive advantages or will not
be challenged by others, or that the patents of others will not have an adverse
effect on the Company.
The Company's competitors and other companies, institutions and individuals have
been issued patents which are competitive with the Company's patents or patent
applications. In addition, the Company's competitors and other companies,
institutions and individuals may have been issued competitive patents of which
the Company is not aware. Furthermore, the Company's competitors and other
companies, institutions and individuals may in the future file applications for,
or may license or otherwise obtain proprietary rights to, patents which are
competitive with the Company's patents or patent applications, or which conflict
in certain respects with claims made under the Company's applications. Such
conflicts could result in a reduction in coverage or denial of the Company's
patent applications or patents or could have an adverse effect on the Company's
competitive position. In the event of such conflicts, the Company may pursue
interference proceedings against, or may be required to defend patent litigation
or patent interference proceedings with, holders of such competitive patents.
The Company may incur substantial costs in such proceedings. Such proceedings
may adversely effect the Company's competitive position and there can be no
assurance that they will be successful. In addition, if patents that contain
competitive or conflicting claims are issued to others and such claims
Page -15-
<PAGE> 25
are ultimately determined to be valid, the Company may be required to obtain
licenses to patents or other proprietary rights of others. No assurance can be
given that any licenses required under any such patents or proprietary rights
would be made available on terms acceptable to the Company, if at all. If the
Company does not obtain such licenses, it could encounter delays or could find
that the development, manufacture or sale of products requiring such licenses is
foreclosed. Furthermore, there can be no assurance that others will not
independently develop similar products, will not duplicate any of the Company's
products or, if patents are issued to the Company or its licensors, will not
infringe such patents. The Company could incur substantial costs in defending
itself in suits brought against it on its patents or in bringing suits to
protect the Company's patents. There can be no assurance that any such
proceedings will be successful. The Company also protects its proprietary
technology and processes in part by confidentiality agreements with its
partners, employees and consultants. There can be no assurance that these
agreements will not be breached, that the Company will have adequate remedies
for any breach, or that the Company's trade secrets will not otherwise become
known or be independently discovered by competitors.
Dependence upon Key Personnel and Consultants. The Company's ability to
successfully develop its products, manage growth and maintain a competitive
position will depend in a large part on its ability to attract and retain highly
qualified technicians and management personnel and to develop and maintain
relationships with leading research institutions and consultants. The Company is
highly dependent upon its Chairman, the principal members of its management, key
employees, scientific staff and consultants which the Company may retain from
time to time. Competition for such personnel and relationships is intense and
there can be no assurance that the Company will be able to continue to attract
and retain such personnel. The Company's consultants may be affiliated or
employed by others and some have consulting or other advisory arrangements with
other entities that may conflict or compete with their obligations to the
Company. The Company addresses such potential conflicts by requiring that its
consultants, collaborators and sponsored researchers execute confidentiality
agreements upon commencement of relationships with the Company, by closely
monitoring the work of such persons and by requiring material transfer and
patent assignment agreements wherever possible and appropriate. Inventions or
processes discovered by such persons will not necessarily become the property of
the Company and may remain the property of such persons or others.
Dependence upon Suppliers. The Company currently depends upon an outside
supplier to provide finished ultrasonic systems. Although the Company has
entered into exclusive agreements with this supplier, there can be no assurance
that such ultrasonic systems will continue to be available to the Company's
standards or that these arrangements will be successful or that the Company will
not encounter delays or other problems which may adversely affect its business..
Where possible and appropriate, the Company intends to identify alternative
suppliers, enter into supply contracts or produce certain materials or
components in-house. There can be no assurance that the Company will be able to
produce needed materials or components in-house in a timely manner or in
sufficient quantities to meet the needs of the Company, if at all.
Page -16-
<PAGE> 26
Environmental Matters. The Company is subject to federal, state, county and
local laws and regulations relating to the protection of the environment. In the
course of its business, the Company may be involved in the handling, storage and
disposal of materials which are classified as hazardous. The Company believes
that its operations comply in all material respects with applicable
environmental laws and regulations. The Company continues to make capital and
operational expenditures for protection of the environment in amounts which are
not material. However, there can be no assurance that future expenditures will
not have a material adverse effect on the Company. In addition, there can be no
assurance that future laws and regulations will not adversely affect the
Company's business.
Control by Principal Shareholders. After this offering, the Company's officers,
directors, founders, employees and principal shareholders will own approximately
84.1% of the Company's outstanding Common Stock (77.9% of the outstanding Common
Stock if the Company elects to sell an additional 500,000 shares in this
Offering). These shareholders will be able to elect a majority of the Company's
Board of Directors and will have the ability to control the Company and direct
its business and affairs. Such concentration of ownership may have the effect of
delaying or preventing a change in control of the Company.
Limited Offering Proceeds. The Company is dependent on the proceeds of this
offering to continue development and testing of its products and to fund its
working capital requirements. The Company will require substantial funds in
addition to the proceeds of this offering and its current cash resources to fund
its operations.
No Dividends. The Company has never paid dividends, cash or otherwise, on its
capital stock and does not anticipate paying any such dividends in the
foreseeable future.
Dilution. Purchasers of shares in this offering will experience an immediate
dilution of $4.20 per share ($3.91 per share if the Company elects to sell an
additional 500,000 shares). The Company also contemplates future sales of Common
Stock through public or private offerings.
Restrictions on Transfer of Common Stock. There is no public or other market for
the Shares, nor will such market develop. A purchaser of Common Stock offered
pursuant to this private offering must, therefore, bear the economic risk of the
investment for an indefinite period of time. The Common Stock offered hereby has
not been registered under the Securities Act of 1933, as amended (the "Act"), or
under any state securities laws, and, therefore, cannot be sold or otherwise
transferred unless it is registered under the Act or an exemption from such
registration is available. Such restrictions upon the sale of Common Stock are
in addition to the restrictions upon the sale or other transfer of the Common
Stock which are provided in the Company's Certificate of Incorporation (see
"Description of Capital Stock"). The Company will not qualify as a reporting
company under the Act and, accordingly, Rule 144 promulgated thereunder will not
be available for resale of Shares by
Page -17-
<PAGE> 27
investors. In addition, the Company has not agreed, and thus is not required, to
register the Shares for resale by investors under the Act. In no event may an
investor sell or transfer his or her Common Stock unless such Shares are
registered under the Act or an exemption from such registration becomes
available.
Determination of Offering Price. The price of the Common Stock offered hereby
has been determined by the Company. There is no direct relation between such
price and the Company's assets, net worth, book value or any recognized
criterion of value.
THE FOREGOING IS A SUMMARY OF THE MORE SIGNIFICANT RISKS RELATING TO INVESTMENT
IN THE COMPANY. THE FOREGOING SHOULD NOT BE INTERPRETED AS A REPRESENTATION THAT
THE MATTERS REFERRED TO HEREIN ARE THE ONLY RISKS INVOLVED IN THIS INVESTMENT,
NOR SHOULD THE REFERENCE TO THE RISKS HEREIN BE DEEMED A REPRESENTATION THAT
SUCH RISKS ARE OF EQUAL MAGNITUDE. PROSPECTIVE INVESTORS ARE URGED TO CONSULT
THEIR OWN ADVISORS AS TO THE INVESTMENT AND ANY TAX CONSEQUENCES OF AN
INVESTMENT IN THE COMPANY.
Page -18-
<PAGE> 28
IV. SUMMARY OF TERMS
COMMON STOCK OFFERED HEREBY
ISSUE: 1,000,000 shares(1) of Common Stock (the
"Common Stock").
PROCEEDS: $5,000,000(2)(3).
PRICE: $5.00 per share.
MINIMUM SUBSCRIPTION: Ten Thousand (10,000) Shares of MDA Common
Stock; MINIMUM INVESTMENT -- $50,000, unless
otherwise agreed to by the Company. No
fractional shares will be issued to
Investors.
DATE OF TERMINATION
OF OFFERING: December 15, 1996, unless previously
terminated or extended by the Company.
DIVIDENDS ON COMMON STOCK: Dividends or distributions will be payable
when and if declared by the Board of
Directors. The Company does not expect to
pay dividends in the foreseeable future.
VOTING RIGHTS: All Common Stock will have voting rights as
provided by the Company's Certificate of
Incorporation.
FINANCIAL INFORMATION: The Company was incorporated in September
1995 and has a limited operating history.
The Company intends, in the future, to
furnish its shareholders with audited,
consolidated financial statements on an
annual basis.
(1) THE COMPANY RESERVES THE RIGHT TO SELL UP TO 500,000 ADDITIONAL SHARES.
(2) IF THE COMPANY SELLS AN ADDITIONAL 500,000 SHARES, THE PROCEEDS TO THE
COMPANY WOULD BE $7,500,000(3).
(3) BEFORE PAYMENT OF COMMISSIONS AND EXPENSES ASSOCIATED WITH THE OFFERING.
Page -19-
<PAGE> 29
STOCK SALES AT LESS THAN
$5.00 PER SHARE The Company will issue, from time to time
until the Company completes an initial
public offering (an "IPO") of its Common
Stock pursuant to a registration statement
filed with the Securities and Exchange
Commission (the "SEC") filed under the
Securities Act of 1933, as amended (the
"Act"), to purchasers of Common Stock
through this $5,000,000 Common Stock
Purchase (the "Investors") additional shares
of Common Stock (the "Dilution Shares") for
no additional consideration IF the Company
subsequently completes any private placement
sales of Common Stock, or any preferred
stock of the Company convertible into or
exchangeable for Common Stock of the
Company, (each a "Private Placement") or an
IPO at a purchase price lower than $5.00 per
share in the case of Common Stock, or with a
conversion price or exchange rate lower than
$5.00 per share in the case of any preferred
stock, ADJUSTED FOR STOCK SPLITS, STOCK
DIVIDENDS OR RECAPITALIZATION, sufficient to
have the effect of reducing the Investors'
price per share to the price per share (or
conversion price or exchange rate as
applicable), as adjusted, that shares of
Common Stock or preferred stock are sold in
a private placement or an IPO, EXCLUDING
stock sales made to officers, directors,
employees or agents in the normal course of
business.
RESTRICTIONS ON TRANSFER: Investors will receive shares of Common
Stock which are subject to restrictions on
transfer imposed under Federal and State
securities laws and are also subject to a
right of first refusal under the Investment
Agreement.
REGISTRATION RIGHTS: The Company agrees that Investors will be
provided with Registration Rights for the
Common Stock as detailed in the Investment
Agreement which terms and conditions are
incorporated herein by reference.
ACCREDITED INVESTORS ONLY: This Offering is limited to individuals or
entities that are Accredited Investors, as
defined in Regulation D promulgated under
the Securities Act of 1933. An Investor will
also be required to make certain
representations to the Company regarding the
suitability of this investment to said
Investor. The Investment Agreement also
contains a representation to be made by each
Investor that the Investor is acquiring the
Common Stock
Page -20-
<PAGE> 30
for investment and not for distribution or
sale to other persons or entities.
NO ESCROW: There is no minimum required number of
shares to be sold and the Company will
receive the proceeds from the Offering
directly. The Company needs to raise
promptly substantially all of the proceeds
sought to be raised in this Offering. The
inability to raise such funds promptly may
significantly and adversely effect the
Company's ability to achieve its financial
objectives and maintain its current
operations.
The proceeds raised from the Offering will
be immediately received from the Company and
will be used in its business. Accordingly,
Investors will be subject to the risk that
their investment proceeds will be spent by
the Company and that the Company will fail
to raise the additional proceeds necessary
to make the investments viable. The Company
believes that the lack of adequate funding
is the single most important obstacle which
must be overcome if its business is to be
successful. The Company may seek to raise
additional funds through other private or
public equity or debt offerings, among other
things, however, there can be no assurance
that additional financing can be obtained,
that the cost of any such financing will be
satisfactory to the Company or that the
terms of the financing will not dilute the
interests of existing investors.
RISK FACTORS: This Investment is subject to significant
risks as set forth herein.
COMMISSIONS/PLACEMENT AGENT: Commissions and finders fees may be paid
with respect to some or all of the sale of
Common Stock hereunder. Any such commissions
and fees shall be paid by the Company and
none shall be payable by the Investor. To
the extent that sales of Common Stock
hereunder are made by selling agents who are
not officers or directors of the Company, a
commission equal to Five Percent (5%) in
cash, and warrants equal to Five Percent
(5%) divided by Five Dollars ($5.00) per
warrant, will be paid on sales made by
selling agents. To the extent that sales of
Common Stock are made hereunder by officers
or directors of the Company, no commission
will be paid on such sales.
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<PAGE> 31
USE OF PROCEEDS: The Company intends to use the net proceeds
of the sale of the Common Stock to engage in
further research, development and testing of
the Company's products, to fund costs
associated with commercial development,
production and marketing of the Company's
products and as working capital.
PROSPECTIVE INVESTORS SHOULD NOT EXECUTE THE SUBSCRIPTION AGREEMENT AND INVESTOR
QUESTIONNAIRE UNTIL ANY QUESTIONS THEY MAY HAVE REGARDING THIS VENTURE HAVE BEEN
SATISFACTORILY ANSWERED.
INVESTOR SUITABILITY STANDARDS
Investment in Shares involves a high degree of risk. The Company and the
Company's selling agents in this offering will offer and sell the Shares only to
accredited investors as that term is defined under Regulation D promulgated with
the Securities Act of 1933, as amended ("the Act"). Each Investor should know
that: the Shares have to be held for an indefinite period of time; that there
will be no public market for the Shares; and the sale or transfer of Shares is
specifically restricted under the Company's Certificate of Incorporation. The
restrictions on transferability of Shares, combined with the lack of a public
market for the Shares, makes the investment in Shares suitable only for
investors who have no need for liquidity in this investment.
To be eligible to purchase Shares, prospective shareholders must meet the
Accredited Investor requirements described below.
Under Regulation D an "Accredited Investor" shall mean any person who comes
within any of the following categories, or who the issuer reasonably believes
comes within any of the following categories at the time of the sale of the
securities to that person:
(1) any bank as defined in section 3(a)(2) of the Act, or any savings and
loan association or other institution as defined in section 3(a)(5)(A)
of the Securities Act of 1991 whether acting in its individual or
fiduciary capacity; any broker or dealer registered pursuant to section
15 of the Securities Exchange Act of 1934; any insurance company as
defined in section 2(13) of the Act; any investment company registered
under the Investment Company Act of 1940 or a business development
company as defined in section 2(a)(48) of that Act; Small Business
Investment Company licensed by the U.S. Small Business Administration
under section 301(c) or (d) of the Small Business Investment Act of
1958; any plan established and maintained by a state, its political
subdivisions, or any agency or instrumentality of a state or its
political subdivisions for the benefit of its employees, if such plan
has total assets in excess of
Page -22-
<PAGE> 32
$5,000,000; employee benefit plan within the meaning of the Employee
Retirement Income Security Act of 1974 if the investment decision is
made by a plan fiduciary, as defined in Section 3(21) of such Act, which
is either a bank, savings and loan association, insurance company, or
registered investment adviser, or if the employee benefit plan has total
assets in excess of $5,000,000 or, if a self-directed plan, with
investment decisions made solely by persons that are accredited
investors;
(2) any private business development company as defined in section
202(a)(22) of the Investment Advisors Act of 1940;
(3) any organization described in Section 501(c)(3) of the Internal Revenue
Code, corporation, business trust, or partnership not formed for the
specific purpose of acquiring the securities offered, with total assets
in excess of $5,000,000;
(4) any director, executive officer or general partner of the issuer of the
securities being offered or sold, or any director, executive officer, or
general partner or a general partner of that issuer;
(5) any natural person whose individual net worth, or joint net worth with
that person's spouse, at the time of his purchase exceeds $1,000,000;
(6) any natural person who had an individual income in excess of $200,000 in
each of the two most recent years or joint income with that person's
spouse in excess of $300,000 in each of those years and has a reasonable
expectation of reaching the same income level in the current year;
(7) any trust with total assets in excess of $5,000,000 not formed for the
specific purpose of acquiring the securities offered, whose purchase is
directed by a sophisticated person as described in Section
230.506(b)(2)(ii);
(8) any entity in which all of the equity owners are accredited investors.
In addition to satisfying the above definition of Accredited Investor, each
prospective investor will be required to represent that he or she: has funds
adequate to meet personal needs and contingencies; has no need for liquidity of
the investment; is purchasing the Common Stock for investment only and not with
a view toward its resale or distribution; and that he or she is not acquiring
the Common Stock on behalf of a person who could not meet the standards for
investment in Common Stock and that he or she, either alone or together with a
Purchaser Representative (as defined in Regulation D), has sufficient knowledge
and experience in financial and business matters to be capable of evaluating the
merits and risks of investing in Common Stock.
Representations and requests for information regarding the foregoing are
included in the Investment Agreement which each prospective investor will be
required to complete. Prospective investors will
Page -23-
<PAGE> 33
also be required to provide whatever additional evidence is deemed necessary by
the Company to substantiate information or representations contained in the
Investment Agreement. In addition, the representations required by the
Investment Agreement are only minimum standards, and the satisfaction of those
standards does not necessarily mean that Common Stock is a suitable investment
for a prospective investor. The Company reserves the right, in its sole
discretion, to determine whether it will sell Shares to any particular
prospective investor, regardless of whether such investor meets the minimum
suitability standards. Sales of the Common Stock also will be made in compliance
with any applicable state suitability requirements, which may be higher than
those set forth above.
THE ACCEPTANCE OF A SUBSCRIPTION FOR COMMON STOCK BY THE COMPANY DOES NOT
CONSTITUTE A DETERMINATION BY THE COMPANY THAT AN INVESTMENT IN THE COMPANY IS
SUITABLE FOR A PROSPECTIVE INVESTOR. THE FINAL DETERMINATION AS TO THE
SUITABILITY OF INVESTMENT IN THE COMPANY MUST BE MADE BY THE PROSPECTIVE
INVESTOR AND HIS ADVISORS.
Page -24-
<PAGE> 34
V. BUSINESS
BACKGROUND. MEDICAL DEVICE ALLIANCE, INC. ("MDA" or the "Company") was founded
in September, 1995, to develop, acquire, manufacture and market devices for an
emerging medical procedure which results in the removal of body fat through the
use of ultrasound. The removal of adipose (fat) tissue, a procedure known as
suction lipectomy, is the most frequently performed aesthetic (cosmetic)
surgical procedure in the United States. Traditionally, suction lipectomy has
been performed using a probe (the "cannula") and a suction device. The use of
specialized ultrasonic devices and probes for soft tissue aspiration, known as
ultrasound assisted lipoplasty, provides less traumatic soft tissue removal with
less post-operative bruising.
The Company holds the exclusive, worldwide rights to market and sell a patented
ultrasonic system (the "System") which has received clearance under a 510(K)
from the United States Food & Drug Administration ("FDA") to be marketed for use
in ultrasonic fragmentation and aspiration of soft tissue in plastic and
reconstructive surgery. Although the FDA clearance is specific for soft tissue
aspiration, the Company will prepare additional submissions to the FDA for
510(K) clearance of the System specifically for Ultrasound Assisted Lipoplasty
("UAL") and Ultrasound Assisted Body Contouring ("UBC"). Until the Company has
obtained 510(K) clearance specifically for use in UAL and/or UBC, the System
cannot be marketed as a lipoplasty device.
The Company has the exclusive worldwide license agreement for the patented
System, all improvement patents, foreign patents and related technology. The
License Agreement also gives the Company the exclusive rights to utilize the
510(K) clearance to market the System for use in fragmentation and aspiration of
soft tissue in plastic and reconstructive surgery. The Company also has the
worldwide (except for the former Soviet Union) rights for a tip design which is
expected to improve UAL results in certain applications.
The System is in use clinically in the United States under the auspices of the
Ultrasound Assisted Lipoplasty Task Force (the "UAL Task Force"), which includes
representatives of the American Society for Aesthetic Plastic Surgery ("ASAPS"),
the American Society of Plastic and Reconstructive Surgeons ("ASPRS"), the
Plastic Surgery Educational Foundation ("PSEF"), the Aesthetic Surgery Education
and Research Foundation ("ASERF") and the Lipoplasty Society of North America
("LSNA"). The Company is also holding meetings and training seminars in the
United States and Europe for use of the System.
Page -25-
<PAGE> 35
Within the medical industry, physicians are facing declining incomes as a result
of healthcare cost-containment and many have turned to nonreimbursed aesthetic
procedures to supplement their practices. This trend, combined with an aging
population which is increasingly willing to spend disposable income on remedies
that delay the symptoms of aging, is expected to increase the number of cosmetic
procedures in the United States and worldwide well into the 21st century.
Suction lipectomy ("liposuction") is the most common procedure performed in
aesthetic surgery today, with an estimated 350,000 procedures performed in the
United States per year. Current liposuction techniques require the use of a
cannula inserted into the subcutaneous (under the skin) fat tissue and the
application of suction. Once suction has begun, the cannula is moved back and
forth in a piston-like motion (not side to side), creating channels through the
fat as the tissue is aspirated by suction. Unless the amount of fat being
removed is very small, a second series of intersecting channels is created
through a second incision. Although fat tissue is removed, complications can
result from the movement of the cannula, including damage to connective tissue,
blood vessels and nerves.
Unlike current liposuction techniques, UAL differs significantly by liquefying
body fat using a specific ultrasonic energy delivered through a cannula or
probe. The energy generated by sound waves at the cannula tip causes
emulsification of fat cells. The liquefied fat is concomitantly removed from the
body by suction. UAL has been practiced in Europe and South America for almost a
decade. Recent improvements in equipment and technique appear to reduce the risk
of complications and, as a result, UAL is receiving significant attention from
plastic surgeons around the country. Advances in technology have also resulted
in ultrasonic equipment and probe designs which are safer and more effective.
Results of trials in Europe, presented to the American Society of Aesthetic
Plastic Surgery, showed that UAL caused less trauma to the patients' tissue and
less blood loss, leading to faster patient recovery. A position paper by the UAL
Task Force, highlights the advantages of UAL over conventional liposuction,
which include reduced blood loss and damage to adjacent structures, less
post-operative bruising and swelling, a shorter recovery period and an ability
to remove more fat per procedure.
HISTORY OF THE COMPANY. In September, 1995, MDA acquired an option for the
exclusive world-wide rights to market and sell a patented ultrasonic system (the
"System") which has received clearance under a 510(K) from the United States
Food & Drug Administration ("FDA") to be marketed for use in ultrasonic
fragmentation and aspiration of soft tissue in plastic and reconstructive
surgery. Although the FDA clearance is specific for soft tissue aspiration, the
Company will prepare additional submissions to the FDA for 510(K) clearance of
the System specifically for Ultrasound Assisted Lipoplasty ("UAL") and
Ultrasound Assisted Body Contouring ("UBC"). Until the Company has obtained
510(K) clearance specifically for use in UAL and/or UBC, the System cannot be
marketed as a lipoplasty device.
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<PAGE> 36
In December, 1995, the Company entered into an exclusive world wide license
agreement for the patented System, all improvement patents, foreign patents and
related technology. The License Agreement also gives the Company the exclusive
rights to utilize the 510(K) clearance to market the System for use in
fragmentation and aspiration of soft tissue in plastic and reconstructive
surgery. In December, 1995, the Company also acquired the world wide (except for
the former Soviet Union) rights for a tip design which is expected to improve
UAL results in certain applications. The System has been used clinically in the
United States under the auspices of the Ultrasound Assisted Lipoplasty Task
Force (the "UAL Task Force"), which includes representatives of the American
Society for Aesthetic Plastic Surgery ("ASAPS"), the American Society of Plastic
and Reconstructive Surgeons ("ASPRS"), the Plastic Surgery Educational
Foundation ("PSEF"), the Aesthetic Surgery Education and Research Foundation
("ASERF") and the Lipoplasty Society of North America ("LSNA"). The Company has
also initiated meetings and training seminars in the United States and Europe
for use of the System.
The Company is also developing a smaller System for use in head and neck
applications and has developed a patent pending skin button for protection of
the incision site. Additionally, the Company will continue to actively pursue
licensing agreements and patents to acquire exclusive holdings and secure
proprietary technology.
The System has been used clinically in the United States under the auspices of
the Ultrasound Assisted Lipoplasty Task Force (the "UAL Task Force"), which
includes representatives of the American Society for Aesthetic Plastic Surgery
("ASAPS"), the American Society of Plastic and Reconstructive Surgeons
("ASPRS"), the Plastic Surgery Educational Foundation ("PSEF"), the Aesthetic
Surgery Education and Research Foundation ("ASERF") and the Lipoplasty Society
of North America ("LSNA"). The UAL Task Force has issued a position paper which
states that the FDA "has provided a 510(K) to Medical Device Alliance, Inc.,
manufacturer of an ultrasonic device for soft tissue removal in plastic
surgery....However, the FDA has not given approval of any ultrasonic device for
the specific purpose of lipoplasty. Clinical use of ultrasonic devices by
plastic surgeons for lipoplasty is therefore considered `off label' by the FDA,
although such use is not necessarily illegal or inappropriate."
STRATEGY. The strategic objective of the Company is to become the leader in UAL
devices and accessory equipment. The Company already has an advantage by having
the only ultrasonic device with FDA marketing clearance in the United States for
fragmentation and aspiration of soft tissue in plastic and reconstructive
surgery. The Company's rights to the patented System, all improvement patents,
foreign patents and related technology, along with the rights to existing
accessory technology, provide the Company with the advantage to react rapidly to
meet the increased interest and demand for UAL devices and technology.
Specifically, the Company believes it can:
CAPITALIZE ON THE ADVANTAGES OF UAL OVER TRADITIONAL SUCTION LIPECTOMY
(LIPOSUCTION) TECHNIQUES. Proponents of UAL and surgeons who have used
UAL report that it is a safe method of body contouring with a number of
advantages over traditional
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<PAGE> 37
liposuction techniques. In addition to being less physically demanding
for the surgeon, UAL is reported to allow greater suction volumes per
patient with significantly less blood loss and better control of surface
contour. UAL may also enhance contraction of the skin overlying the
treated areas. The traumatic nature of traditional liposuction
techniques makes bleeding an inherent problem and the lack of
specificity of the suction cannula in traditional liposuction makes
injury of other important body structures (i.e. nerves and connective
tissue) a potential problem. Contour irregularity from traditional
liposuction is the most common complaint associated with the procedure.
Despite the potential complications of traditional liposuction
techniques, it is the most commonly performed aesthetic procedure
performed in the United States today.
CAPITALIZE ON THE ADVANTAGES OF THE SYSTEM OVER OTHER UAL DEVICES UNDER
development. The Company has the exclusive worldwide rights to an
ultrasonic unit which has been developed for the safe and effective
removal of soft tissue (i.e. fat cells). The System has several feedback
circuits that assist the surgeon in monitoring the rate and efficiency
of fat removal. Following the insertion of the cannula into a
subcutaneous fat deposit, the ultrasonic energy delivered through the
cannula causes the fat to liquefy so that it can be removed via
aspiration into a collection receptacle. Only a single pass is necessary
through the fat tissue, instead of the numerous cross-channeling
required in traditional liposuction techniques, thus the duration of
surgery shortened. The incorporation of an aspiration tube conduit in
the cannula also provides a superior degree of efficiency, control and
safety. Ultrasonic units in use in Europe incorporate a "solid" probe
which offers no interpretive feedback to the surgeon who cannot
visualize the amount of fat removed, unlike the System which
incorporates concurrent fat removal through a hollow probe. Use of a
solid probe also prolongs the duration of the procedure, as the removal
of the fat must take place after the emulsification.
IMPROVE THE EQUIPMENT, INCLUDING PATENTED CANNULA TIPS AND ACCESSORY
EQUIPMENT. The Company's System has a handpiece which is manufactured of
medical grade thermoplastics and titanium. Internal sealant allows the
handpiece to be sterilized via autoclave or ETO sterilization and the
lightweight, ergonomic design allows for ease of use without fatigue.
The System incorporates an infusion pump which allows for flushing of
the surgical site and various other accessories are available, including
an optional vacuum pump and standard aspiration tubing sets. The
System's titanium alloy probes (cannulas) are manufactured from hi-tech
alloy metals and are precisely bored and tuned to deliver and maintain a
constant axial vibration with no transverse (sideways) vibration which
prevents hot spots from developing along the probe. The patented probe
tip, with a truncated inverted cone design, is the most efficient probe
tip configuration which captures and disintegrates fat tissue in the
immediate proximity of the tip. In addition, the tip's shape helps to
push the liquefied fat up the probe shaft,
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<PAGE> 38
speeding the removal of the aspirant and preventing clogging of the
probe. The Company is also developing another System, which will be
introduced in 1997, for use in facial and neck applications. The Company
has developed a patent pending "skin button" designed to prevents
abrasion at the incision site and is also developing disposable
ancillary devices and equipment for use in fat removal procedures.
PRODUCTS. The Company has the exclusive world-wide marketing and sales rights to
the LySonix(TM) 2000 Ultrasonic System (the "System"). The System consists of an
elongated rigid tube (the cannula) which is inserted through a small incision
into subcutaneous fat tissue. Ultrasonic energy is applied directly to the fat
targeted for removal. The fat is liquefied and aspirated from the surgical site
using the patented cannula. The ultrasonic energy delivered through the cannula
is of a range whereby other body tissue, such as muscle, connective tissue,
nerves and blood vessels are not easily injured, unlike traditional liposuction
technique which requires that channels be cut through all tissue at the surgical
site.
The System has several feedback circuits that assist the surgeon in monitoring
the rate and efficiency of fat removal. Following the insertion of the cannula
into a subcutaneous fat deposit, the ultrasonic energy delivered through the
cannula causes the fat to liquefy so that it can be removed via aspiration into
a collection receptacle. Only a single pass is necessary through the fat tissue,
instead of the numerous cross-channeling required in traditional liposuction
techniques, thus the duration of surgery shortened. The incorporation of an
aspiration tube conduit in the cannula also provides a superior degree of
efficiency, control and safety.
The Company owns the exclusive, world-wide marketing and sales rights to the
LySonixTM 2000 Ultrasonic System, including all proprietary and patented
technologies incorporated into the System: advanced ultrasonic circuitry; finely
crafted titanium alloy probes; and patented cannula tip designs. The generator
creates an electronic signal which is applied through a cable assembly to the
handpiece. The handpiece converts the electrical energy to mechanical vibrations
which are amplified by the titanium probe. Both the handpiece and probe are
hollow, which allows the emulsified tissue to be aspirated from the path created
at the cannula tip. The generator constantly monitors and maintains a consistent
energy amplitude through the use of advanced ultrasonic circuitry so that, as
tissue density changes when the probe is passed through the tissue plane, the
generator's internal circuitry senses any increased or decreased tissue
resistance and automatically adjusts the power needed to maintain the correct
amplitude. The System's advanced circuitry also incorporates safety features
which protect the patient, operator and ancillary personnel during a procedure.
Any electrical, mechanical or electrical ground fault automatically shuts down
the System.
The Company has also obtained marketing rights for other proprietary products,
including a patented tip design which is expected to improve UAL results in
certain applications and a skin button for protection of the incision site.
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<PAGE> 39
MARKETING. The Company has been working with the UAL Task Force to present
education programs in the United States for use of the System in soft tissue
aspiration. In the United States, the Company will be selling directly to
surgeons, hospitals and surgical centers utilizing technical sales and training
representatives. For international sales, the Company is investigating
distribution agreements with established medical device companies specializing
in plastic and reconstructive surgery.
LICENSES AND PATENTS. The Company has actively pursued long term licensing
agreements and patents to acquire and secure proprietary technology.
In 1995, the Company entered into a license agreement with Misonix, Inc.
("Misonix"), giving MDA exclusive world-wide marketing and sales rights for
Misonix's ultrasonic soft tissue aspiration medical device. Pursuant to the
license agreement, the Company will pay Misonix aggregate licensing fees, over
time, of approximately $500,000, plus royalties based upon net sales of the
System. As part of the licensing agreement, the Company has also agreed to
reimburse Misonix for certain product development expenditures, up to a maximum
of $30,000 per month.
Certain of the Company's agreements require substantial financial and
performance obligations by the Company.
Additionally, the Company intends to file application(s) with the FDA for 510(K)
marketing clearance in the areas of Ultrasound Assisted Lipoplasty ("UAL") and
Ultrasound Assisted Body Contouring ("UBC"). The Company will also file patent
applications for new developments in ultrasonic technology for use in UAL and
UBC, as applicable and any other developments in related medical devices.
PROPERTIES. The Company leases approximately 7,337 square feet of office,
laboratory and manufacturing space in Las Vegas, Nevada, as headquarters for the
Company. The Company considers its facilities to be in good condition.
LEGAL PROCEEDINGS As of September 30, 1996, neither the Company nor any officer
or director of the Company is a party to any pending legal proceedings relating
to the Company and no such proceedings are known to be contemplated.
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<PAGE> 40
B. INDUSTRY AND COMPETITIVE ANALYSIS
INDUSTRY TRENDS. Within the medical industry, physicians are facing declining
incomes as a result of healthcare cost-containment and many have turned to
nonreimbursed aesthetic procedures to supplement their practices. This trend,
combined with an aging population which is increasingly willing to spend
disposable income on remedies that delay the symptoms of aging, is expected to
increase the number of cosmetic procedures in the United States and worldwide
well into the 21st century.
Suction lipectomy ("liposuction") is the most common procedure performed in
aesthetic surgery today, with an estimated 350,000 procedures performed in the
United States per year. Current liposuction techniques require the use of a
cannula inserted into the subcutaneous (under the skin) fat tissue and the
application of suction. Once suction has begun, the cannula is moved back and
forth in a piston-like motion (not side to side), creating channels through the
fat as the tissue is aspirated by suction. Unless the amount of fat being
removed is very small, a second series of intersecting channels is created
through a second incision. Although fat tissue is removed, complications can
result from the movement of the cannula, including damage to connective tissue,
blood vessels and nerves.
Unlike current liposuction techniques, UAL differs significantly by liquefying
body fat using a specific ultrasonic energy delivered through a cannula or
probe. The energy generated by sound waves at the cannula tip causes
emulsification of fat cells. The liquefied fat is concomitantly removed from the
body by suction. UAL has been practiced in Europe and South America for almost a
decade. Recent improvements in equipment and technique appear to reduce the risk
of complications and, as a result, UAL is receiving significant attention from
plastic surgeons around the country. Advances in technology have also resulted
in ultrasonic equipment and probe designs which are safer and more effective.
Results of trials in Europe, presented to the American Society of Aesthetic
Plastic Surgery, showed that UAL caused less trauma to the patients' tissue and
less blood loss, leading to faster patient recovery. A position paper by the UAL
Task Force, highlights the advantages of UAL over conventional liposuction,
which include reduced blood loss and damage to adjacent structures, less
post-operative bruising and swelling, a shorter recovery period and an ability
to remove more fat per procedure.
Ultrasound energy is sound energy above 20kHz (the upper threshold for human
hearing). Ultrasound energy is used in many common medical applications,
including diagnostic imaging, ultrasonic dissection, cancer therapy and
lithotripsy ("shock wave" applied for spot-specific tissue destruction). The
fundamental basis of ultrasound's utility in medical applications is its
differential absorption and transmittal of energy through different tissue
types. The amount of collagen and the relative water and/ or fat content of a
cell are the critical factors in determining the effect of ultrasound on soft
tissue. Tissues high in collagen (which has a high resistance to ultrasonic
absorption), such as vessel walls and organ covering, are relatively resistant
to the action of ultrasound compared to cells and tissues with
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<PAGE> 41
little collagen and a high water or fat content. The difference between the
level of ultrasonic absorption by fat and by surrounding tissue enables the
System to liquefy the fat without injuring surrounding tissue. Surgeons have
confirmed that the System maintains cutaneous integrity and enhances skin
contraction after removal of soft tissue.
There are numerous published reports of clinical applications of ultrasound
energy to dissect, emulsify or fragment tissues prior to removal by aspiration.
The first use of ultrasound in this manner was for the removal
("phaecoemulsification") of cataracts and today ultrasonic devices are used in
neurosurgery and laparoscopic and endoscopic surgeries such as liver resection,
laparoscopic removal of the gall bladder, laparoscopic removal of the adrenal
gland, removal of tumors of the central nervous system and transurethal
resection of the prostate. The clinical applications of ultrasound energy
demonstrate the precision allowed by the sensitivity differential of various
tissues and structures to ultrasonic action. Post-operative complications and
blood loss are minimized due to the preservation of critical structures such as
blood vessels, nerves, ducts and organ capsules.
UAL is performed using a tumescent technique (the area is infused with saline
solution, sometimes containing a local anesthetic). Ultrasonic energy is applied
to the fat tissue in the subcutaneous plane using a solid or hollow titanium
probe which effectively "liquefies" the fat by cellular fragmentation. The
liquefied fat, along with the infused fluid, forms a stable fatty emulsion which
can be either simultaneously or subsequently extracted from the subcutaneous
space using low volume suction and small suction cannulas.
The LySonix(TM) 2000 Ultrasonic System consists of an elongated rigid tube (the
cannula) which is inserted through a small incision into subcutaneous fat
tissue. Ultrasonic energy is applied directly to the fat targeted for removal.
The fat is liquefied and aspirated from the surgical site using the patented
cannula. The ultrasonic energy delivered through the cannula is of a range
whereby other body tissue, such as muscle, connective tissue, nerves and blood
vessels are not easily injured, unlike traditional liposuction technique which
requires that channels be cut through all tissue at the surgical site.
The System has several feedback circuits that assist the surgeon in monitoring
the rate and efficiency of fat removal. Following the insertion of the cannula
into a subcutaneous fat deposit, the ultrasonic energy delivered through the
cannula causes the fat to liquefy so that it can be removed via aspiration into
a collection receptacle. Only a single pass is necessary through the fat tissue,
instead of the numerous cross-channeling required in traditional liposuction
techniques, thus the duration of surgery shortened. The incorporation of an
aspiration tube conduit in the cannula also provides a superior degree of
efficiency, control and safety.
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<PAGE> 42
COMPETITION. Several companies worldwide are pursuing various levels of devices
for use in UAL. The Company believes that, at this time, it is the only entity
which has marketing clearance in the United States for fragmentation and
aspiration of soft tissue in plastic and reconstructive surgery.
A limited number of companies are involved in developing ultrasonic units for
use in UAL. The Company has identified 3 competitors that presently have
ultrasonic units in the developmental and/or clinical stages: SMEI (Italy);
Medicamat (France); and Mentor Corporation (Santa Barbara, California). The SMEI
and Medicamat ultrasonic systems have been used by surgeons in the United States
and Europe, although, to the best of the Company's knowledge, neither system has
received any regulatory approvals in the United States. The SMEI system utilizes
a solid cannula, which prohibits the concurrent removal of the emulsified fat
which must be subsequently removed by suction, thus prolonging the procedure.
Surgeons have reported that the Medicamat system does not supply enough energy
to offer significant advantages over traditional liposuction techniques.
In addition to the System, the Company plans to market accessory equipment,
replacement cannula, a smaller System for use in head and neck applications, a
patent pending skin button for protection of the incision site and continued
upgrades and improvements on the System.
GOVERNMENT REGULATION.
The production, marketing and distribution of medical devices are subject to
regulation by various government authorities both in the United States and other
countries.
In the United States, the Company's medical device products are regulated by the
FDA through the Federal Food, Drug & Cosmetic (FD&C) Act. The FD&C Act and
various other federal and state statutes control and otherwise impact the
development, manufacture, testing, storage and distribution of the Company's
products.
Any company engaged in the manufacture, processing or distribution of a medical
device is subject to regulations enforced by FDA. The level of regulation or
control is determined by the "Class" in which a device is placed by the agency.
Class I medical devices are subject to "General Control" requirements which
include facility registration, device listing, Premarket Notification and Good
Manufacturing Practices (GMP). Class II devices are subject to certain
performance standards as well as general controls. Additionally, Class III
devices must be proven to be substantially equivalent to devices marketed before
the Medical Device legislation was mandated (May 28, 1976) or may be required to
have appropriate clinical studies performed and an approved Premarket Approval
(PMA) application from FDA.
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<PAGE> 43
Before a company intends to market a device for the first time, it must submit a
Premarket Notification to FDA. Various information is required in the submission
including identification of the device and facility, proposed labeling and
statements indicating how the device is similar to and/or different from other
comparable products already in commercial distribution. The FDA can issue a
510(K) marketing clearance for medical devices or may require additional
submissions to support evidence of the safety and/or efficacy of a medical
device.
Medical device companies must also conform to FDA's Good Manufacturing Practices
(GMP). These regulations dictate the methods, facilities and controls used in
the manufacture, packaging, storage and distribution of medical devices. The GMP
identify the essential elements of the quality assurance program.
Some medical devices are intended only to be used for investigational purposes.
The FD&C Act authorizes FDA to exempt these manufacturers from certain
requirements, allowing distribution for use on humans without Premarket
Approval. FDA grants this exemption through an Investigational Device Exemption
(IDE) and only to studies gathering safety and effectiveness data.
INTERNATIONAL. Internationally, a medical device is subject to various
regulatory authorities and the controls vary widely from country to country.
Approval methods and timing of submissions will depend on the device product
being distributed and each country's regulatory requirements. Additionally, many
countries accept and will utilize data collected in support of a U.S. FDA market
clearance application (510 (K)). The Company will exercise this approach when
appropriate.
C. HISTORICAL PERFORMANCE
The following is summary financial information for the Company. The information
listed below for the fiscal year ended December 31, 1995 and for the nine months
ended September 30, 1996 is unaudited and has been supplied by the Company.
<TABLE>
<CAPTION>
$'S IN 000'S
Fiscal Year Nine Months
Ending December 31, 1995 Ending September 30, 1996
------------------------ -------------------------
<S> <C> <C>
Revenues $0 $0
Gross Profit 0 0
Total Expenses 82 855
OPERATING INCOME (LOSS) $(82) $(855)
</TABLE>
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<PAGE> 44
D. PROJECTED OPERATING RESULTS
Projected operating results are management's projections based on assumptions of
market growth and the competitive advantages of the Company's products as
discussed in this information memorandum. These figures represent management's
estimates and there are no assurances that the following results will be
achieved during the periods indicated.
<TABLE>
<CAPTION>
$'S IN 000'S
Projected
Fiscal Year Ending December 31,
-------------------------------------------------
1996 1997 1998 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenue
Devices $ 700 40,590 55,623 67,086
Accessories/Disposables 80 4,710 13,165 23,172
Net Income (Loss) before taxes (289) 15,402 21,338 28,883
</TABLE>
E. PROJECTED EQUITY CAPITALIZATION
<TABLE>
<CAPTION>
$'S IN 000'S
Projected as of December 31,
-----------------------------------------------------
At Closing 1996 1997 1998 1999
---------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Common Stock (1) (2) $ 5,995 $ 5,995 $ 5,995 $ 5,995 $ 5,995
Preferred Stock -- -- -- -- --
Retained Earnings (937) (1,226) 14,176 35,314 64,396
Total Equity $ 5,058 $ 4,769 $20,171 $41,509 $70,391
</TABLE>
(1) The Company anticipates that it will need additional capital in 1998 to
pursue targeted acquisitions. This capital may potentially be raised
through an initial public offering or a private placement of debt or
equity. There is no assurance that the Company will be able to raise
this additional capital and the inability to do so will have a material
adverse impact on the Company and on investor returns.
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<PAGE> 45
(2) The Company reserves the right to sell an additional 500,000 shares of
Common Stock in this Offering.
VI. MANAGEMENT AND KEY ADVISORS
ENTREPRENEURIAL EXPERIENCE
The Company has assembled an experienced and skilled group of business and
technical managers in its organization. The individuals involved have strong
backgrounds in medical products development and manufacture.
The Board of Directors and operational management are especially accomplished in
founding and building successful medical and biotechnology firms. Within recent
years, they have created companies that have been acquired by 3M Corporation,
Johnson & Johnson, Union Carbide Corporation and the public stock market.
Collectively, this assembly of experienced business and technical personnel
represents a strong foundation for the successful development, manufacture and
marketing of medical devices for use in UAL, UBC and related applications.
Each of the consultants, key management and all employees of the Company have
signed an Intellectual Property and Confidentiality Agreement. No employee has a
long term employment agreement. There is no key man insurance policy on any of
the Company's officers, directors, or executives.
KEY PERSONNEL
JOHN GIMBEL
Chief Executive Officer and Director
Mr. Gimbel joined Medical Device Alliance, Inc. (the "Company") in October,
1996. Mr. Gimbel is a senior executive with worldwide experience in strategic
and operational planning, sales and marketing and general management of both
start-up and Fortune 500 companies. Prior to joining the Company, Mr. Gimbel was
President of Valutravel, Inc. in San Francisco, with responsibility for managing
daily operations, marketing and profit/loss for a multi-branch, leisure focused
travel management company and increased sales from $1 million to $20 million
annually in two years. From 1972-1994, Mr. Gimbel worked for United Airlines,
Inc. ("UAL") as a Vice President and Division Head, Vice President of Base
Maintenance Operations, Vice President of Engine Maintenance, Vice President of
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<PAGE> 46
Maintenance Planning and Finance and Vice President, Sales. While working for
UAL, Mr. Gimbel was responsible for the management of a $900 million division
with 2300 employees and a $400 million annual profit. Mr. Gimbel has experience
in reducing maintenance cycle time, reducing costs, staff productivity and
growth of a start-up business through sales and acquisitions. Mr. Gimbel has a
BSBA in Marketing and an MBA in Logistics from the Pennsylvania State
University.
DONALD K. MCGHAN
Chairman of the Board and Director
Mr. McGhan is a founder of the Company and has served as a Director since 1995.
Mr. McGhan concurrently serves as a Director of PDT, Inc. (Nasdaq: PDTI) of
Santa Barbara, California, an emerging medical technology company. Since 1989,
Mr. McGhan and his management team have been instrumental in raising over $70
million of capital in private and public offerings for PDTI for use in research
and development. Mr. McGhan also concurrently serves as Chairman of the Board of
Directors and President of INAMED of Las Vegas, Nevada. INAMED (1995 Annual
Sales: $82 million) develops, manufactures and markets medical devices for the
health care industry through sixteen operating subsidiaries including
wholly-owned subsidiaries in the United Kingdom, Europe, South America, Mexico
and Asia Pacific. Previously, Mr. McGhan was Founder, Chairman of the Board and
Chief Executive Officer of McGhan NuSil Corporation, which was acquired by Union
Carbide Corporation in 1990. Mr. McGhan was previously Founder, Chairman of the
Board and Chief Executive Officer of Immulok, Inc. which was acquired by Ortho
Diagnostic Systems, Inc., a wholly-owned subsidiary of Johnson & Johnson, Inc.,
in 1983. Mr. McGhan was previously Founder, President, Chairman of the Board and
Chief Executive Officer of McGhan Medical Corporation, which was acquired by
Minnesota Manufacturing and Mining (3M) in 1976.
CERTAIN TRANSACTIONS. In connection with the organization of the Company,
2,900,000 shares of Common Stock at a price of $0.05 per share were issued to
officers, directors, consultants and the MDA Equity Performance Limited
Partnership (see below), of which: 100,000 shares each were issued to Donald K.
McGhan and John Gimbel; 400,000 shares were issued to the Limited Partnership;
and the remaining shares were issued to consultants of the Company.
In addition, in November, 1995, founders, officers, directors and consultants of
the Company purchased 2,400,000 shares of Common Stock of the Company at a price
of $0.50 per share to raise the capital needed to complete the exclusive
licensing agreement with Misonix, Inc. and to repay advances made to the Company
by founders and directors for working capital.
In 1995, the Company's Board of Directors sold 400,000 shares of Common Stock
(see above) to an investment limited partnership organized for the purpose of
conveying ownership interest in the Company to future key employees and
consultants, as selected by the General Partner(s). The terms of each Limited
Partnership unit purchase will be governed by a limited partnership agreement
and a
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<PAGE> 47
limited partner's unit may be forfeited upon certain events, such as termination
for cause. As of September 30, 1996, no Limited Partnership units had been sold.
The Company has also granted an option to Misonix, Inc. to purchase up to
100,000 shares of the Company's Preferred Stock, convertible on a one-to-one
basis into Common Stock, at a price of $1.00 per share.
VII. DESCRIPTION OF CAPITAL STOCK
The Company is authorized to issue up to 50,000,000 shares of Common Stock and
25,000,000 shares of Preferred Stock to be divided into such classes or series
as the Board of Directors may determine. As of September 30, 1996, 5,300,000
shares of Common Stock were issued and outstanding and no shares of Preferred
Stock were issued or outstanding.
COMMON STOCK
Each holder of Common Stock is entitled to one vote for each share held of
record on each matter submitted to a vote of shareholders. Each holder of Common
Stock is entitled to share ratably in distributions to shareholders, to receive
ratably such dividends as may be declared by the Board of Directors out of funds
legally available therefor and, in the event of the liquidation, dissolution or
winding up of the Company, is entitled to share ratably in all assets remaining
after payment of liabilities. The holders of Common Stock have no conversion,
pre-emptive or other rights to subscribe for additional shares and are not
subject to redemption or sinking fund provisions. The outstanding shares of
Common Stock are validly issued, fully paid and nonassessable.
Of the outstanding shares of Common Stock, all shares are subject to first right
of refusal repurchase by the Company or, if the Company does not exercise its
right to repurchase, then the shareholders of the Company have the first right
of refusal to purchase the shares at the same terms as offered, in writing, to
the shareholder who is selling such shares.
The Company has agreed to issue to purchasers of Common Stock through this
Memorandum ("the Investors") additional shares of Common Stock, for no
additional consideration, if the Company from time to time until the Company
completes an initial public offering (an "IPO") of its Common Stock pursuant to
a registration statement filed with the Securities and Exchange Commission (the
"SEC") filed under the Securities Act of 1933, as amended (the "Act"), if the
Company subsequently completes any private placement sales of Common Stock, or
any preferred stock of the Company convertible into or exchangeable for Common
Stock of the Company, (each a "Private Placement") or an IPO at a
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<PAGE> 48
purchase price lower than $5.00 per share in the case of Common Stock, or with a
conversion price or exchange rate lower than $5.00 per share in the case of any
preferred stock, adjusted for stock splits, stock dividends or recapitalization,
sufficient to have the effect of reducing the Investors' price per share to the
price per share (or conversion price or exchange rate as applicable), as
adjusted, that shares of Common Stock or preferred stock are sold in a private
placement or an IPO, excluding stock sales made to officers, directors,
employees or agents in the normal course of business.
The Company has also agreed to provide registration rights for the Investors.
For the period commencing with the issuance of the Shares and terminating two
years after the Effective Date as defined below, if at any time the Company
shall propose to register any of its shares for sale or disposition for its own
account for cash under the Act in a public offering, including the Company's
IPO, other than a registration relating to its employee benefit plans, the
Company shall give to the Investor at least thirty (30) days' written notice
prior to the filing thereof and in any underwriting involved therein, a portion
of the Investor's Shares (as hereinafter defined) which are specified in a
written request, or requests, made by the Investor within ten (10) days after
receipt of such written notice from the Company by the Investor (the "Piggyback
Registration Rights"). The Piggyback Registration Rights of the Investor shall
be conditioned upon the Investor's participation in any underwriting relating to
the Company's registered public offering. The implementation of these
registration rights will be subject to the approval of the underwriter, in its
sole discretion, and will be in proportion to the shares sold by the Company.
For example, if the Company agrees to sell 10% of the outstanding shares, then
the Investors who have these Piggyback Registration Rights would be entitled to
sell, on a pro rata basis among themselves, up to 10% of their shares. The
utilization of Piggyback Registration Rights would include the obligation of the
Purchaser to pay all underwriting commissions with respect to the Shares sold by
the Purchaser and to pay a pro rata share of all registration expenses and fees,
including legal, accounting and printing expenses.
In addition, from time to time, the Company has agreed to register the
Investor's Shares, at its expense, on registration statements or Form S-3 after
the date upon which the Company meets the requirements to register Investor's
Shares on a Form S-3.
The Company has also granted Piggyback Registration Rights to shareholders who
purchased shares in November, 1995, covering 2,400,000 shares.
REPORTS TO SHAREHOLDERS
The Company intends to furnish its shareholders with audited financial
statements on an annual basis.
Page -39-
<PAGE> 49
VII. INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Company has executed Indemnification Agreements with its officers and
directors, so as to provide them with the maximum protection permitted by law.
The Company has agreed to indemnify its officers and directors against third
party proceedings, proceedings by or in the right of the Company, expenses of
successful party, advances of expenses, indemnification upon or advance
application, and partial indemnification of expenses, judgments, fines or
penalties under the governing laws of the state of Nevada.
IX. ADDITIONAL INFORMATION
The Company will make available, prior to the consummation of this offering, to
each prospective investor and such prospective investor's representatives and
advisors, if any, the opportunity to ask questions and receive answers
concerning the terms and conditions of this offering and to obtain any
additional information, which the Company possesses or can obtain without
unreasonable effort or expense, that is necessary to verify the accuracy of the
information furnished to such prospective investor. Any such questions should be
directed to: Chairman of the Board, Medical Device Alliance, Inc., 871 Grier
Avenue Suite B-2, Las Vegas, Nevada, 89119; telephone number 702/260-4707. No
other person has been authorized to give information or to make any
representations concerning this offering, and if given or made, such other
information or representations must not be relied upon as having been authorized
by the Company.
X. EXHIBIT
Investment Agreement
Page -40-
<PAGE> 50
EXHIBIT
MEDICAL DEVICE ALLIANCE, INC.
Investment Agreement
Page -41-
<PAGE> 1
MEDICAL DEVICE ALLIANCE INC.
EXHIBIT 10.03
FORM OF
MEDICAL DEVICE ALLIANCE INC.
SERIES A PREFERRED STOCK
PRIVATE PLACEMENT
<PAGE> 2
CONFIDENTIAL
No. _________________
UP TO 1,333,334 SHARES*
OF SERIES A PREFERRED STOCK
ISSUED BY
MEDICAL DEVICE ALLIANCE, INC.
PRIVATE PLACEMENT MEMORANDUM
-----------------------------------------------------------------
ACCREDITED INVESTORS ONLY
APRIL 15, 1997
-----------------------------------------------------------------
For further information contact:
Donald K. McGhan, Chairman
3800 Howard Hughes Parkway Suite 1800
Las Vegas, Nevada 89109
702/791-2910
*THE COMPANY RESERVES THE RIGHT TO SELL UP TO 333,334 ADDITIONAL SHARES.
MEDICAL DEVICE ALLIANCE, INC.
PRIVATE PLACEMENT MEMORANDUM
<PAGE> 3
ACCREDITED INVESTORS ONLY
Medical Device Alliance, Inc.
A Nevada Corporation
Dated: April 15, 1997
PRIVATE PLACEMENT MEMORANDUM
1,333,334 Shares* of Series A Preferred Stock
UP TO 1,333,334 SHARES* OF PREFERRED STOCK
ARE OFFERED AT $6.00 PER SHARE.
THE MINIMUM PURCHASE IS 10,000 SHARES ($60,000).
THIS MEMORANDUM RELATES TO THE SALE OF UP TO 1,333,334 SHARES* OF SERIES A
PREFERRED STOCK (THE "SHARES") OF MEDICAL DEVICE ALLIANCE, INC. ("MDA" OR THE
"COMPANY").--THERE IS NO MINIMUM TOTAL NUMBER OF SHARES TO BE SOLD AND THE
PROCEEDS FROM THE SALE OF SHARES WILL NOT BE ESCROWED.--THE OFFERING WILL
EXPIRE ON MAY 5, 1997, UNLESS EARLIER TERMINATED OR EXTENDED BY THE COMPANY. THE
PURCHASE OF THE SHARES INVOLVES A HIGH DEGREE OF RISK AND SHOULD BE CONSIDERED
ONLY BY PERSONS WHO CAN AFFORD A TOTAL LOSS OF THEIR INVESTMENT. THE STOCK WILL
BE SOLD ONLY TO THOSE WHO ARE "ACCREDITED INVESTORS."--THE MINIMUM INVESTMENT
IS 10,000 SHARES ($60,000), UNLESS OTHERWISE AGREED TO BY THE COMPANY.
<TABLE>
<CAPTION>
PRICE TO INVESTORS SELLING COMMISSIONS PROCEEDS TO ISSUER
<S> <C> <C> <C>
PER SHARE $6.00 $0.60(2) $5.40
TOTAL $8,000,004(1) $800,000(2) $7,200,004(2)(3)
</TABLE>
(1) The Company reserves the right to sell up to 333,334 additional shares.
If the Company sells an additional 333,334 shares, the proceeds to the
Company would be $10,000,008, with selling commissions of $940,000 and
proceeds to the Issuer of $9,060,008 before deducting expenses payable
by the Company.
(2) The shares are being offered by the Company through Brookehill
Equities, Inc. ("Brookehill"), selling agents and through the efforts
of the Company's officers and directors. The Company has reserved up to
1,333,334 shares of the Offering to be sold through Brookehill, which
has agreed to sell on a "best efforts" basis and will receive a fee
equal to three percent (3%) of the net sales up to $8,000,004.
Additionally, to the extent that sales of Common Stock hereunder are
made by Brookehill and/or selling agents who are not officers or
directors of the Company, a commission will be paid based on the
offering price of the shares sold at a rate of either (at the selling
agent's option): 7% in cash; or 3 1/2% in cash and warrants equal to
3 1/2% divided by $6.00 per warrant (the offering price). The shares
are also being offered in part through the efforts of the Company's
officers and directors. To the extent that sales are made as a result
of the efforts of the Company's officers, no commissions will be paid.
The amount of Selling Commissions in the table above assumes that all
sales up to $8,000,004 are made through Brookehill and the remaining
share sales are made through selling agents, with the commission at the
maximum rate.
(3) Before deducting expenses payable by the Company in connection with the
Offering which are not expected to exceed $200,000.
* THE COMPANY RESERVES THE RIGHT TO SELL UP TO 333,334 ADDITIONAL SHARES.
<PAGE> 4
THESE SECURITIES ARE SPECULATIVE AND
INVOLVE A HIGH DEGREE OF RISK
THIS MEMORANDUM IS SUBMITTED ON A CONFIDENTIAL BASIS FOR USE BY A LIMITED NUMBER
OF INVESTORS SOLELY IN CONNECTION WITH THE CONSIDERATION OF A PARTICIPATION IN
THE SERIES A PREFERRED STOCK (THE "STOCK') DESCRIBED HEREIN. THE USE OF THIS
MEMORANDUM FOR ANY OTHER PURPOSE IS NOT AUTHORIZED. THE STOCK IS BEING OFFERED
BY THE COMPANY, A NEVADA CORPORATION. THIS MEMORANDUM MAY NOT BE REPRODUCED OR
REDISTRIBUTED, IN WHOLE OR IN PART, NOR MAY ITS CONTENTS BE DISCLOSED TO ANY
PERSON OTHER THAN THE INVESTORS TO WHOM IT IS SUBMITTED EXCEPT AS REQUIRED BY
LAW OR BY ANY REGULATORY AUTHORITY HAVING APPROPRIATE JURISDICTION. NO PERSON
HAS BEEN AUTHORIZED TO MAKE REPRESENTATIONS OR GIVE ANY INFORMATION WITH RESPECT
TO THE COMPANY OR THE STOCK DESCRIBED HEREIN, EXCEPT FOR THE INFORMATION
CONTAINED HEREIN AND THE HISTORICAL FINANCIAL INFORMATION PROVIDED AS EXHIBITS.
INVESTORS PARTICIPATING IN THE STOCK DESCRIBED HEREIN SHOULD NOT RELY ON
INFORMATION NOT CONTAINED IN EITHER THIS MEMORANDUM OR IN THE HISTORICAL
FINANCIAL INFORMATION PROVIDED AS EXHIBITS.
THE STATEMENTS, ESTIMATES AND PROJECTIONS AS TO THE FUTURE FINANCIAL AND
OPERATING RESULTS OF THE COMPANY HAVE BEEN PROVIDED BY THE COMPANY'S MANAGEMENT.
THE PROJECTIONS OF FUTURE FINANCIAL AND OPERATING PERFORMANCE ARE INTENDED TO
ASSIST IN AN EVALUATION OF THE STOCK BUT ARE NOT TO BE VIEWED AS FACTS AND
SHOULD NOT BE RELIED UPON AS AN ACCURATE REPRESENTATION OF FUTURE RESULTS.
FURTHERMORE, BECAUSE THE PROJECTED FINANCIAL INFORMATION IS BASED ON ESTIMATES
AND ASSUMPTIONS ABOUT CIRCUMSTANCES AND EVENTS THAT HAVE NOT YET TAKEN PLACE AND
ARE SUBJECT TO VARIATION, THERE CAN BE NO ASSURANCE THAT THE PROJECTED RESULTS
WILL BE ATTAINED.
THE INFORMATION CONTAINED HEREIN IS PRESENTED AS OF THE DATE HEREOF, AND IS
SUBJECT TO CHANGE, COMPLETION OR AMENDMENT WITHOUT NOTICE. NEITHER THE DELIVERY
OF THIS MEMORANDUM AT ANY TIME NOR ANY STOCK ACQUIRED PURSUANT HERETO SHALL
IMPLY THAT INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE SET FORTH ON THE COVER HEREOF.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR BY THE SECURITIES ADMINISTRATOR OF ANY STATE, NOR HAS THE
COMMISSION OR ANY STATE ADMINISTRATOR PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS
<PAGE> 5
OFFERING MEMORANDUM. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS OFFERING HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, IN RELIANCE ON THE AVAILABILITY OF THE EXEMPTIONS PROVIDED BY SECTIONS
4(2) OF SAID ACT AND/OR RULE 506 OF REGULATION D PROMULGATED THEREUNDER. EACH
PURCHASER OR HIS PURCHASER REPRESENTATIVE(S) SHALL, DURING THE COURSE OF THIS
OFFERING AND PRIOR TO THE SALE OF COMMON STOCK, HAVE ACCESS TO, AS WELL AS THE
OPPORTUNITY TO ASK QUESTIONS OF, AND RECEIVE ANSWERS FROM, THE COMPANY, OR ANY
PERSON ACTING ON THE COMPANY'S BEHALF, CONCERNING ANY ASPECT OF THIS OFFERING,
AND THE RIGHT TO OBTAIN ANY ADDITIONAL INFORMATION NECESSARY TO VERIFY THE
ACCURACY OF THE INFORMATION CONTAINED HEREIN TO THE EXTENT THAT THE COMPANY HAS
SUCH INFORMATION OR IT CAN BE ACQUIRED WITHOUT UNREASONABLE EFFORT OR EXPENSE.
THESE SECURITIES HAVE NOT BEEN APPROVED BY ANY STATE'S DEPARTMENT OF
CORPORATIONS AND ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE PREFERRED STOCK OFFERED HEREIN WILL NOT BE FREELY TRANSFERABLE AND NO MARKET
FOR THE PREFERRED STOCK EXISTS OR IS EXPECTED TO DEVELOP. ACCORDINGLY, PURCHASE
OF THE PREFERRED STOCK SHOULD BE CONSIDERED ONLY BY PERSONS WHO UNDERSTAND OR
WHO HAVE BEEN ADVISED WITH RESPECT TO THE LONG-TERM NATURE OF, THE CONSEQUENCES
AND RISKS ASSOCIATED WITH SUCH INVESTMENT AND WHO HAVE NO NEED FOR LIQUIDITY IN,
AND CAN AFFORD A TOTAL LOSS OF, THEIR INVESTMENT.
NO REPRESENTATIONS OR WARRANTIES OF ANY KIND ARE INTENDED OR SHOULD BE INFERRED
WITH RESPECT TO THE ECONOMIC RETURN OR THE TAX TREATMENT WHICH MAY ACCRUE TO THE
INVESTOR. PROSPECTIVE INVESTORS ARE NOT TO CONSTRUE THE CONTENTS OF THIS
MEMORANDUM AS LEGAL, TAX OR INVESTMENT ADVICE. EACH SUBSCRIBER SHOULD CONSULT
HIS OWN COUNSEL, ACCOUNTANT AND BUSINESS ADVISOR AS TO THE LEGAL, TAX AND
RELATED CONSEQUENCES OF INVESTMENT IN THE COMPANY. INVESTORS MUST LOOK SOLELY
TO, AND RELY UPON, THEIR OWN ADVISORS WITH RESPECT TO THE TAX AND OTHER
CONSEQUENCES OF THIS INVESTMENT.
<PAGE> 6
EACH INVESTOR MUST RELY ON THE INVESTOR'S OWN EVALUATION OF THE COMPANY AND THE
TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED IN MAKING AN
INVESTMENT IN THE STOCK.
THIS MEMORANDUM DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY THE STOCK IN ANY JURISDICTION TO ANY PERSON IF IT IS UNLAWFUL.
AVAILABILITY OF DOCUMENTS/ACCESS TO INFORMATION
The description and summaries of the documents in this Memorandum do not purport
to be complete and reference is made to the actual documents (copies of which
are available at the offices of MDA) for a complete understanding of what they
contain. Also, each prospective Investor and any Purchaser Representative are
entitled to ask questions and to receive answers concerning the terms and
conditions of this offering and may obtain additional information necessary to
verify statements in this Memorandum that MDA can obtain without unreasonable
effort or expense.
All such requests for additional information must be made in writing and must be
acknowledged by MDA. Except for MDA's response to acknowledged requests, no
person is authorized to give any information or to make any statement not
contained in this Memorandum and any information or statement not contained
herein cannot be relied upon as having been authorized by MDA or its directors
or officers, any affiliates thereof, or any professional advisors thereto.
Each prospective Investor should use this opportunity to communicate directly
with his own legal counsel, accountants and other professional advisors who can
help the prospective Investor evaluate the merits and risks of the proposed
investment.
The Company intends to furnish its shareholders with audited financial
statements on an annual basis.
For further information contact:
DONALD K. McGHAN
CHAIRMAN OF THE BOARD
Medical Device Alliance, Inc.
3800 Howard Hughes Parkway Suite 1800
<PAGE> 7
Las Vegas, Nevada 89109
702/791-2910
<PAGE> 8
MEDICAL DEVICE ALLIANCE, INC.
TABLE OF CONTENTS
I. SUMMARY
A. The Company
B. The Offering
C. Sources and Uses of Funds
D. Capitalization
E. Proposed Equity Investment and Ownership
II. SELECTED FINANCIAL INFORMATION
A. Historical Operating Data
B. Projected Operating Data
III. INVESTMENT CONSIDERATIONS
Attributes of Ultrasound Assisted Lipoplasty
Opportunities for UAL Applications
Management Team
Exclusive Licensing & Research Agreements
Market Size for the Company's Products
Risk Factors
IV. SUMMARY OF TERMS
Investor Suitability Standards
V. BUSINESS
A. BUSINESS SUMMARY
Background
Strategy
Products
Marketing
Licenses and Patents
Properties
Legal Proceedings
B. INDUSTRY AND COMPETITIVE ANALYSIS
Industry Trends
Government Regulation
International
C. HISTORICAL PERFORMANCE
<PAGE> 9
D. PROJECTED OPERATING RESULTS
E. PROJECTED EQUITY CAPITALIZATION
VI. MANAGEMENT
Management
Certain Transactions
VII. DESCRIPTION OF CAPITAL STOCK
VIII. INDEMNIFICATION OF OFFICERS AND DIRECTORS
IX. ADDITIONAL INFORMATION
X. EXHIBIT
<PAGE> 10
ACCREDITED INVESTORS ONLY
I. SUMMARY
A. THE COMPANY. MEDICAL DEVICE ALLIANCE, INC. ("MDA" or the "Company") was
founded in September, 1995, to develop, acquire, manufacture and market devices
for an emerging medical procedure which results in the removal of body fat
through the use of ultrasound. The removal of adipose (fat) tissue, a procedure
known as suction lipectomy, is the most frequently performed aesthetic
(cosmetic) surgical procedure in the United States. Traditionally, suction
lipectomy has been performed using a probe (the "cannula") and a suction device.
The use of specialized ultrasonic devices and probes for soft tissue aspiration,
known as ultrasound assisted lipoplasty ("UAL"), provides less traumatic soft
tissue removal with less post-operative bruising.
The Company holds the exclusive, worldwide rights to market and sell a patented
ultrasonic system (the "System") which has received clearance under a 510(K)
from the United States Food & Drug Administration (the "FDA") to be marketed for
use in ultrasonic soft tissue aspiration. Although the FDA clearance is specific
for fragmentation and aspiration of soft tissue in plastic and reconstructive
surgery, the Company has prepared additional submissions to the FDA for 510(K)
clearance of the System for the specific surgical nomenclature "lipoplasty".
Until the Company has obtained this additional clearance, the System cannot be
marketed as a lipoplasty device.
In November, 1996, the Company incorporated its wholly-owned subsidiary,
Lisonix, Inc., to market and distribute the System for fragmentation and
aspiration of soft tissue in plastic and reconstructive surgery and to research,
develop, market and distribute related surgical devices and products. In
December, 1996, the Company incorporated its wholly-owned subsidiary, MDA
Capital, Inc., to provide financing and leasing to doctors, hospitals and
clinics for medical equipment, including the System. Unless otherwise clearly
indicated by context, reference to the Company herein will include the Company's
wholly-owned subsidiaries.
The Company has the exclusive worldwide license agreement for the patented
System, all improvement patents, foreign patents and related technology. The
License Agreement also gives the Company the exclusive rights to utilize the
510(K) clearance to market the System for use in fragmentation and aspiration of
soft tissue in plastic and reconstructive surgery. The Company also has the
worldwide (except for the former Soviet Union) rights for a tip design which is
expected to improve UAL results in certain applications.
The System is currently being sold in the United States through the Company's
direct sales force and technical representatives and is also being used
clinically in the United States under the auspices of the Ultrasound Assisted
Lipoplasty Task Force (the "UAL Task Force"), which includes representatives of
the American Society for Aesthetic Plastic Surgery ("ASAPS"), the American
Society of Plastic and Reconstructive Surgeons ("ASPRS"), the Plastic Surgery
Educational Foundation ("PSEF"), the
Page-1-
<PAGE> 11
Aesthetic Surgery Education and Research Foundation ("ASERF") and the Lipoplasty
Society of North America ("LSNA"). The Company also has distribution
arrangements for the sale of the System in Europe, Latin America and Asia,
Pacific Rim.
Within the medical industry, physicians are facing declining incomes as a result
of healthcare cost-containment and many have turned to nonreimbursed aesthetic
procedures to supplement their practices. This trend, combined with an aging
population which is increasingly willing to spend disposable income on remedies
that delay the symptoms of aging, is expected to increase the number of cosmetic
procedures in the United States and worldwide well into the 21st century.
Suction lipectomy ("liposuction") is the most common procedure performed in
aesthetic surgery today, with an estimated 350,000 procedures performed in the
United States per year. Current liposuction techniques require the use of a
cannula inserted into the subcutaneous (under the skin) fat tissue and the
application of suction. Once suction has begun, the cannula is moved back and
forth in a piston-like motion (not side to side), creating channels through the
fat as the tissue is aspirated by suction. Unless the amount of fat being
removed is very small, a second series of intersecting channels is created
through a second incision. Although fat tissue is removed, complications can
result from the movement of the cannula, including damage to connective tissue,
blood vessels and nerves.
Unlike current liposuction techniques, UAL differs significantly by liquefying
body fat using a specific ultrasonic energy delivered through a cannula or
probe. The energy generated by sound waves at the cannula tip causes
emulsification of fat cells. The liquefied fat is concomitantly removed from the
body by suction. UAL has been practiced in Europe and South America for almost a
decade. Recent improvements in equipment and technique appear to reduce the risk
of complications and, as a result, UAL is receiving significant attention from
plastic surgeons around the country. Advances in technology have also resulted
in ultrasonic equipment and probe designs which are safer and more effective.
Results of trials in Europe, presented to the American Society of Aesthetic
Plastic Surgery, showed that UAL caused less trauma to the patients' tissue and
less blood loss, leading to faster patient recovery. A position paper by the UAL
Task Force highlights the advantages of UAL over conventional liposuction, which
include reduced blood loss and damage to adjacent structures, less
post-operative bruising and swelling, a shorter recovery period and an ability
to remove more fat per procedure.
The UAL Task Force paper also notes that the FDA "has provided a 510(K) to
Medical Device Alliance, Inc., manufacturer of an ultrasonic device for soft
tissue removal in plastic surgery....However, the FDA has not given approval of
any ultrasonic device for the specific purpose of lipoplasty. Clinical use of
ultrasonic devices by plastic surgeons for lipoplasty is therefore considered
`off label' by the FDA, although such use is not necessarily illegal or
inappropriate." The Plastic Surgery Educational Foundation (PSEF), in
conjunction with the UAL Task Force, has scheduled training sessions where
surgeons can receive Certified Medical Education ("CME") accreditation in UAL
and over 2,000 surgeons are expected to attend such CME training sessions in
1997 alone.
Page-2-
<PAGE> 12
The Company is seeking approximately $8,000,004 in equity capital to finance
further research, development and testing of the Company's products, to fund
costs associated with continued commercial development, production and marketing
of the Company's products, to acquire other related technologies and targeted
companies and as working capital for general corporate expenditures.
Page-3-
<PAGE> 13
B. THE OFFERING. The Company is seeking to raise up to $8,000,004 in equity
capital to finance further research, development and testing of the Company's
products, to fund costs associated with commercial development, production and
marketing of the Company's products, to acquire other related technologies and
targeted companies and as working capital. The Company is offering 1,333,334
shares of Series A preferred stock (the "Series A Preferred Stock" or the
"Shares") in the Company, at $6.00 per share. The Shares thus offered will
represent approximately 16.0% of the Company on a fully diluted basis. The
Company is not obligated to sell any minimum total number of Shares, nor will
the proceeds from the sale of Shares be placed in escrow. The Company also
reserves the right to sell up to an additional 333,334 shares in the Offering.
If the additional 333,334 shares are sold in the Offering, the share offered
hereunder will represent approximately 19.2% of the Company on a fully diluted
basis.
The minimum subscription is 10,000 shares ($60,000). The purchase price for the
Series A Preferred Stock must be paid entirely upon execution of the Investment
Agreement.
The Company anticipates that the proceeds from this offering will be sufficient
to meet its capital needs through 1997 and that it may require additional
funding in 1998 to acquire additional targeted technologies and/or companies.
The Company anticipates that its operating subsidiaries will generate enough
revenues to cover operating expenses in 1997.
An investment in the Company involves a high degree of risk and is suitable only
for persons of substantial financial means who have otherwise provided liquidity
in their investments and who can afford to lose their entire investment in the
Company.
Investment in the Company is highly speculative and involves a high degree of
risk. Realization of any economic benefit from an investment in the Company
depends entirely on the ability of the Company to develop products having
satisfactory commercial value and the Company's ability to successfully license
and/or form strategic alliances to market such products and the Company's
continuing performance under specific agreements.
The Company's Series A Preferred Stock will not be freely transferable and it is
not anticipated that any trading market will be established. The Series A
Preferred Stock shall be acquired for investment purposes only and not with a
view to resale.
This Offering is made only to Accredited Investors as defined in Regulation D
promulgated under the Securities and Exchange Act and is being made by the
Company and selling agents. Qualified offerees and their representatives will
have the opportunity, upon their request, to meet with and ask questions of the
Company's Chairman of the Board concerning the terms and conditions of this
Offering.
The offeree, by accepting delivery of the Memorandum, agrees to return it and
all enclosed documents to the Company if the offeree does not purchase any of
the shares offered thereby.
This Memorandum contains summaries of various executed and unexecuted documents
and of certain statutes, rulings and/or regulations. Such summaries do not
purport to be complete and are qualified in
Page-4-
<PAGE> 14
their entirety by reference to the original documents and the statutes, rulings
and/or regulations mentioned, and by reference also to the definitions contained
therein which may differ from common usage and also from agreement to agreement.
Neither the Company, nor any advisor, affiliate or representative of any of the
foregoing, assumes any responsibility for the economic or tax consequences of
this transaction to an investor. The Company has not received an opinion of
counsel with respect to the tax consequences of this transaction. Each
prospective investor is urged to consult his or her own tax counsel and
accountant with respect to the tax implications of this Offering and must rely
upon the advice of such tax counsel or accountant in assessing the tax
implications of ownership of shares. Prospective investors and their advisors
should review the risk factors relating to the tax matters set forth in this
Memorandum with great care.
EACH PROSPECTIVE INVESTOR IS STRONGLY URGED TO CAREFULLY STUDY THIS MEMORANDUM
AND THE EXHIBIT HERETO, INCLUDING THE INVESTMENT AGREEMENT, AND TO SEEK THE
ADVICE OF TAX, INVESTMENT, LEGAL AND OTHER COUNSEL BEFORE SUBSCRIBING FOR ANY OF
THE SHARES. THE PROPOSED INVESTOR SHOULD NOT CONSTRUE THE CONTENTS OF THIS
MEMORANDUM AS LEGAL, TAX, ACCOUNTING OR OTHER EXPERT ADVICE.
Page-5-
<PAGE> 15
C. SOURCES AND USES OF FUNDS. Assuming the sale of 1,333,334 shares, the
Company's net proceeds from the sale of the Shares offered hereby are estimated
to be $7,000,004, after deducting commissions estimated at $800,000 and offering
expenses payable by the Company estimated at $200,000.
The following is a statement of the proposed use of the proceeds of the
Offering. Amounts are approximate and certain items could vary from those shown
below. The uses are shown in the order of their priority:
THE FIGURES SET FORTH IN THE TABLE BELOW ARE ESTIMATES AND MAY NOT REFLECT THE
ACTUAL APPLICATION OF THE PROCEEDS OF THIS OFFERING.
<TABLE>
<S> <C>
SOURCE OF PROCEEDS
Sale of Series A Preferred Stock
(net of commissions and offering expenses)(1) $7,000,004
ESTIMATED USE OF FUNDS
Regulatory and Clinical Testing 500,000
Research and Development 1,500,000
Operating Expenses (working capital) 1,300,004
Equipment/Facilities 500,000
Professional Fees/Patent Applications 200,000
Acquisition of technologies and companies 3,000,000
Total Use of Funds $7,000,004(2)
</TABLE>
(1) Assumes the sale of 1,333,334 shares in this Offering. The Company
reserves the right to sell an additional 333,334 shares in this
Offering.
(2) The Company will seek to raise monies through additional equity
offerings if the funds raised in this offering are not sufficient for
these uses.
Page-6-
<PAGE> 16
D. CAPITALIZATION. The Company's acquisition of marketing rights, further
development and testing of the System has been financed principally through the
sale of stock to the Company's officers and directors and insiders and through
the sale of 1,500,000 shares of the Company's Common Stock, par value $0.001
(the "Common Stock") at $5.00 per share under an offering and Private Placement
Memorandum dated November 1, 1996 (the "Common Stock Offering").
The following table outlines the Company's capitalization at December 31, 1996,
and pro forma to give effect to the net proceeds of the completion of the Common
Stock Offering and the sale of 1,333,334 Shares offered hereby:
<TABLE>
<CAPTION>
As of December 31, 1996(1) Pro Forma(2)
-------------------------- ------------
<S> <C> <C>
Common Stock, $0.001 par value
50,000,000 shares authorized
Existing Shareholders $ 4,214,199 $ 8,454,225
Investors -- --
Preferred Stock, $0.001 par value
20,000,000 shares authorized
Existing Shareholders -- --
Investors(3) -- 7,000,004
Accumulated Deficit(4) (1,876,873) (1,876,873)
Total Stockholders' Equity $ 2,337,326 $ 13,577,356
</TABLE>
(1) Reflects Company's Capitalization as of December 31, 1996. Does not
include up to 100,000 shares of Common Stock reserved for issuance
pursuant to options which have been granted by the Company or up to
57,655 shares of Common Stock reserved for issuance pursuant to warrants
which have been granted by the Company.
(2) As adjusted to reflect net proceeds from the sale of 1,333,334 Shares
offered hereby. The Company reserves the right to sell an additional
333,334 Shares in this Offering.
(3) Does not include any warrants for Common Stock issuable to selling
agents as commissions in this Offering.
(4) Unaudited and subject to change upon completion of an audit.
Page-7-
<PAGE> 17
E. PROPOSED EQUITY INVESTMENT AND OWNERSHIP.The following table summarizes, as
of March 31, 1997, the difference between the existing shareholders and the
investors purchasing shares of Series A Preferred Stock in this offering with
respect to the number of shares purchased from the Company:
<TABLE>
<CAPTION>
PROPOSED EQUITY INVESTMENT AND OWNERSHIP
Common and Preferred Stock Fully Diluted
Ownership at Close Stock Ownership
Shares(000) Percent(%) Shares(000) Percent(%)
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Existing shareholders 6,800 83.6% 6,800 81.6%
New investors(2) 1,334 16.4% 1,334 16.0%
Options and Warrants 0 0.0% 204(1) 2.4%
Total 8,134 100% 8,338 100%
</TABLE>
(1) Includes up to 58,334 shares reserved for issuance in connection with
warrants issuable to selling agents as compensation in this Offering.
(2) The Company reserves the right to sell an additional 333,334 shares in
this Offering.
Page-8-
<PAGE> 18
II. SELECTED FINANCIAL INFORMATION
A. HISTORICAL OPERATING DATA
The following is summary financial information for the Company. The information
listed below for the fiscal years ended December 31, 1995 and December 31, 1996
is unaudited, has been supplied by the Company and is subject to change upon the
completion of an audit.
<TABLE>
<CAPTION>
$'S IN 000'S
Fiscal Year
Ending December 31, 1995 Ending December 31, 1996
------------------------ ------------------------
<S> <C> <C>
Revenues $0 $294
Gross Profit 0 213
Total Expenses 82 2,008
OPERATING INCOME (LOSS) $(82) $(1,795)
</TABLE>
B. PROJECTED OPERATING DATA
Projected operating results are management's projections based on assumptions of
market growth and the competitive advantages of the Company's products as
discussed in this information memorandum. These figures represent management's
estimates and there are no assurances that the following results will be
achieved during the periods indicated.
<TABLE>
<CAPTION>
$'S IN 000'S
Projected
Fiscal Year Ending December 31,
1997 1998 1999 2000
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue
Devices $40,590 55,623 67,086 85,272
Accessories/Disposables 4,710 13,165 23,172 32,301
Net Income before taxes 15,402 21,338 28,883 42,327
</TABLE>
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<PAGE> 19
III. INVESTMENT CONSIDERATIONS
ATTRIBUTES OF ULTRASOUND ASSISTED LIPOPLASTY. Surgeons have reported that
Ultrasound Assisted Lipoplasty ("UAL") offers exceptional control of contouring,
as the cannula can be accurately positioned and tissue removal can be spot
specific. UAL requires considerably less physical exertion by the surgeon than
traditional liposuction techniques and equipment, which allows for performance
of precise body contouring. UAL also allows the surgeon to more precisely
identify where and how much fat is being removed which results in a more even
reshaping of overlying skin surfaces. Another advantage of UAL includes
preliminary results which indicate that difficult fibrous areas, such as the
male breast and back, are especially well treated. Surgeons have confirmed that
large volumes of fat can be effectively removed with minimal blood loss, little
or no bruising and exceptional control of contour.
OPPORTUNITIES FOR UAL. With over 350,000 liposuction procedures performed in the
United States annually, the Company estimates the total annual market for UAL,
as an adjunct or replacement for current liposuction techniques, to be
approximately $150 million (U.S. dollars). The Aesthetic, Cosmetic, Plastic and
Reconstructive Surgery market is comprised of many different medical
specialties, including Plastic and Reconstructive Surgeons, ENT Surgeons,
Otolaryngology, Dermatology, Oral-Maxillofacial and General Surgeons. The
American Medical Association (the "AMA") reports that there are approximately
5,000 Plastic Surgeons, approximately 8,000 Dermatologists, approximately 8,000
ENTs, and approximately 8,300 Oral/Ocular/Maxillofacial Surgeons, in the United
States alone. Internationally, the AMA reports approximately 24,500 physicians
and surgeons in these same specialties. An estimated 9,000 practitioners from
these various groups currently perform soft tissue removal procedures. An
additional 100,000 liposuction procedures are performed annually outside the
United States.
MANAGEMENT TEAM. The Company has assembled an experienced and skilled group of
entrepreneurs, business and technical managers in its organization. The
individuals involved have strong backgrounds in medical products development and
manufacture, as well as experience in the management of large companies and
start-up companies. The Board of Directors and operational management are
especially accomplished in founding and building successful medical and
biotechnology firms. Within recent years, members of the Board of Directors have
founded and built companies that have been acquired by 3M Corporation, Johnson &
Johnson, Union Carbide Corporation or are publicly traded.
EXCLUSIVE LICENSING & RESEARCH AGREEMENTS. The Company has actively pursued
long-term licensing agreements and patents to acquire and secure proprietary
technology. Through various agreements, the Company has obtained exclusive
worldwide rights for a patented ultrasonic system (the "System"), all
improvement patents, foreign patents and related technology. The Company also
has the exclusive rights to utilize the 510(K) clearance to market the System
for use in fragmentation and aspiration of soft tissue in plastic and
reconstructive surgery. The Company also has the
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<PAGE> 20
worldwide (except for the former Soviet Union) rights for a tip design which is
expected to improve UAL results in certain applications.
MARKET SIZE FOR THE COMPANY'S PRODUCTS. Within the medical industry, physicians
are facing declining incomes as a result of healthcare cost-containment and many
have turned to nonreimbursed aesthetic procedures to supplement their practices.
This trend, combined with an aging population which is increasingly willing to
spend disposable income on remedies that delay the symptoms of aging, is
expected to increase the number of cosmetic procedures in the United States and
worldwide well into the 21st century. Suction lipectomy ("liposuction") is the
most common procedure performed in aesthetic surgery today, with an estimated
350,000 procedures performed in the United States per year. The Company expects
procedures performed internationally to eventually reach the same number of
procedures per year as in the United States in the future.
RISK FACTORS. An investment in the Company involves various risk factors, in
addition to general investment risks and any risk peculiar to a prospective
investor. Prospective investors should carefully consider the following before
making a decision to invest in the Company.
Early Stage of the Company and its Products. The Company and its products are in
an early stage of development. The Company generated limited commercial product
sales of the Company's devices in 1996. The Company's revenues in 1996 consisted
of payments for its devices which were purchased by others engaged in clinical
testing of UAL and ultrasound assisted body contouring ("UBC"). To achieve
profitable operations on a continuing basis, the Company must successfully
improve, introduce, market and distribute its products. The time frame necessary
to achieve market success for any individual product is uncertain. Most of the
Company's products will require additional research and development, preclinical
testing and clinical testing prior to commercialization. There can be no
assurance that the Company's research or product development efforts will be
successfully completed, that required regulatory approvals can be obtained, that
products can be manufactured at acceptable cost and with appropriate quality,
that any approved products can be successfully marketed, or that any products
that may be marketed will be favorably accepted.
History of Losses; Uncertainty of Future Profitability. As of December 31, 1996,
the Company had accumulated net losses of $1,876,873 (unaudited) since its
inception in 1995. These losses have resulted primarily from the Company's
acquisition of exclusive rights to a patented ultrasonic system which has
received 510(K) clearance to be marketed for use in ultrasonic soft tissue
aspiration, research and development activities, preclinical and clinical
testing, limited marketing activities and the general and administrative
expenses associated with these activities. The extent of losses and the time
required to reach profitability are highly uncertain. To achieve sustained
profitable operations, the Company must successfully develop, test, manufacture,
market and distribute its products. There can be no assurance that the Company
will be able to achieve profitability or that profitability, if achieved, can be
sustained on an ongoing basis. Moreover, if profitability is achieved, the level
of that profitability cannot be accurately predicted.
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<PAGE> 21
Additional Financing Requirements and Uncertainty of Capital Funding. The
Company will require additional funding to acquire other patented technology,
conduct research and development and preclinical and clinical testing, to obtain
regulatory approval for its products, and to manufacture, distribute and market
its products. The Company currently anticipates that it may need to obtain
additional financing in 1998 to acquire additional targeted technologies and/or
companies. The Company's capital requirements will depend on numerous factors
including the progress and magnitude of the Company's sales, the time involved
in obtaining additional regulatory approvals, the cost involved in filing,
prosecuting and enforcing patent claims, technological advances, competitor and
market conditions, the ability of the Company to establish collaborative
arrangements, and the cost and effectiveness of commercialization activities and
arrangements. The Company is dependent on the proceeds of this offering to
continue development and testing of its products and to acquired targeted
technologies and businesses. The Company may require funds in addition to the
proceeds of this offering and its current cash resources to fund its operations.
The Company has raised funds in the past through private stock sales to
officers, directors and insiders and may consider collaborations with various
companies and other potentials for equity investment, license agreements or
other funding. The Company contemplates raising funds in the future through
public or private financings, collaborative arrangements or from other sources.
It is unlikely that the Company will be able to satisfy its financing
requirements from banks or other traditional lending institutions. There can be
no assurance that the necessary additional financing will be available to the
Company on acceptable terms, if at all. If additional funding is not available
to the Company when needed, the Company will be required to curtail development
programs if revenues are not sufficient to fund these activities and the
Company's business and financial condition would be materially adversely
affected.
Competition and Technological Uncertainty. The Company operates in a rapidly
evolving field. Competition from other domestic and foreign companies, medical
device and other research and academic institutions in the areas of product
development, product and technology acquisition, manufacturing and marketing is
intense and is expected to increase. These competitors may succeed in obtaining
approval from the U.S. Food and Drug Administration (the "FDA") or other
regulatory agencies for their products more rapidly than the Company.
Competitors have also developed or are in the process of developing technologies
that are, or in the future may be, the basis for competitive products. Some of
these products may have an entirely different approach or means of accomplishing
the uses for which the Company is developing its products. The Company has
identified four competitors involved in developing devices for UAL: SMEI
(Italy); Medicamat (Laboratory Sebbin) (France); Morwel (Tucson, Arizona); and
Mentor Corporation (Santa Barbara, California). To the best of the Company's
knowledge, none of the Company's competitors have received any regulatory
approvals in the United States for UAL equipment or devices. The Company's
competitive position may be adversely affected by product developments or
approvals for UAL devices which may be achieved in the future by these or other
companies. Many of the Company's competitors have substantially greater
financial, technical and human resources than the Company and substantially
greater experience in developing products, conducting clinical trials, obtaining
regulatory approvals and manufacturing and marketing. There can be no assurance
that the Company's competitors will not succeed in developing technologies and
products that are more effective or affordable than those being developed by the
Company or that would render the Company's technology and products less
competitive or obsolete.
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<PAGE> 22
The Company's products are subject to the risks of failure inherent in the
development and testing of products based on innovative technologies. These
risks include the possibilities that this technology or any or all of the
Company's products may be found to be ineffective or to have limitations or
otherwise fail.
One or more of the Company's competitors may achieve patent protection which
could have a material adverse effect on the Company. Although the Company does
not currently have any specific plans to do so, it may pursue or may be required
to defend patent litigation or patent interference proceedings with holders of
competitive patents. The Company may incur substantial costs in such
proceedings. In addition, such proceedings may impact the Company's competitive
position and there can be no assurance that they will be successful.
Unproven Safety and Efficacy; Clinical Trials. The Company's devices currently
under development will require clinical testing prior to application for
commercial use. Although there are numerous published reports of clinical
applications of ultrasound energy to dissect, emulsify or fragment tissues prior
to removal by aspiration, none of the Company's products has been approved for
the specific surgical nomenclature "lipoplasty" or for Ultrasound Assisted
Lipoplasty or Ultrasound Assisted Body Contouring and further testing efficacy
and safety in humans will be required. There can be no assurance that testing
will show the Company's products to be safe or efficacious. There can be no
assurance that additional applications for 510(K) market clearance by the FDA
for the System or any of the Company's products currently under development will
be completed successfully within any specified time period, if at all. There can
be no assurance that the Company will not encounter problems in development or
clinical trials that will cause the Company to delay, suspend or cancel clinical
trials.
Government Regulation. The production and marketing of the Company's products
and its ongoing development, preclinical testing and clinical trial activities
are subject to regulation by numerous governmental authorities in the United
States and other countries. Most products developed by the Company must undergo
rigorous preclinical and clinical testing and an extensive regulatory approval
process mandated by the FDA and comparable foreign authorities before they can
be marketed. These processes can be lengthy and expensive. Failure to comply
with the applicable regulatory requirements can, among other things, result in
non-approval, suspensions of regulatory approvals, fines, product recalls,
operating restrictions, injunctions and criminal prosecution.
The time required for completing such testing and obtaining such approvals is
uncertain and approval itself may not be obtained. In addition, delays or
rejections may be encountered based upon changes in FDA policy during the period
of product development and FDA regulatory review of each submitted new device
application or product license application. Similar delays may also be
encountered in foreign countries. There can be no assurance that even after such
time and expense regulatory approval will be obtained for any products developed
by the Company. Moreover, if regulatory approval of a product is granted, such
approval may entail limitations on the indicated uses for which the product may
be marketed. Further, even if such regulatory approval is obtained, a marketed
product, its
Page-13-
<PAGE> 23
manufacturer and the facilities in which the product is manufactured are subject
to continual review and periodic inspections. Later discovery of previously
unknown problems with a product, manufacturer or facility may result in
restrictions on such product or manufacturer, including withdrawal of the
product from the market and litigation.
Product Liability Exposure; Insurance Coverage. The use of the Company's
products in clinical trials and the sale of such products may expose the Company
to liability claims. These claims could be made directly by consumers, or by
companies, institutions or others using or selling such products. Although the
Company has obtained product liability insurance coverage, there can be no
assurance that claims made against the Company could not exceed the limits of
the Company's insurance and such claims could have a material adverse effect on
the Company. In addition, there can be no assurance that, if the Company seeks
additional insurance coverage in the future, such coverage will be available at
reasonable cost and in amounts sufficient to protect the Company against claims
that could have a material adverse effect on the financial condition and
prospects of the Company. Further, adverse product liability claims could
negatively impact the Company's ability to obtain or maintain regulatory
approvals for its products.
Possible Adverse Effects of Future Legislation or Regulations. Heightened public
awareness and concerns regarding the growth in overall health care expenditures
in the United States, combined with the continuing efforts of government to
contain or reduce costs of health care, may result in the enactment of national
health care reform or other legislation or regulations that impose limits on the
number and type of medical procedures which may be performed or which have the
effect of restricting a physician's ability to select specific products for use
in certain procedures. Such new legislation or regulations may adversely affect
the demand for the Company's products or adversely affect the Company's
regulatory compliance efforts. In the United States, there have been, and the
Company expects that there will continue to be, a number of federal and state
proposed legislation and regulations to implement governmental control. For
example, the Clinton Administration and other federal legislators have proposed
health care reform legislation that may impose pricing or profitability
limitations or other restrictions on companies in the health care industry. The
announcement of such proposals may adversely affect the Company's ability to
raise capital or to form collaborations, and the enactment of any such reforms
could have a material adverse effect on the Company. In certain foreign markets,
the pricing and profitability of health care products are subject to
governmental influence or control. In addition, legislation or regulations that
impose restrictions on the price that may be charged for health care products or
medical devices may adversely affect the Company's results of operations. The
Company is unable to predict the likelihood of adverse effects which might arise
from future legislative or administrative action, either in the United States or
abroad.
Reimbursement. Although the procedures performed using the Company's devices are
not expected to be covered by health insurance plans, the Company's ability to
successfully commercialize its products may depend in part on the extent to
which reimbursement for such products and related treatment will be available
from government health administration authorities, private health insurers and
other organizations. Such payers are increasingly challenging the price of
medical products and services. Significant uncertainty exists as to the
reimbursement status of healthcare products, and there can be no assurance that
adequate reimbursement coverage will be available to enable the Company to
Page-14-
<PAGE> 24
achieve market acceptance of its products or to maintain price levels sufficient
for realization of an appropriate return on its products.
Limited Capabilities and Experience. The Company has limited capabilities and
experience in regulatory activities, clinical trial testing, manufacturing,
marketing, sales and distribution of its products. Where possible and
appropriate, the Company intends to seek collaborative arrangements for
marketing and sales services, and to establish distribution channels for the
Company's devices. As noted above, there can be no assurance that such
collaborative arrangements can be negotiated or will be successful.
Patents and Proprietary Technology. The Company's success will depend, in part,
on its and its licensors' ability to obtain and protect patents, protect trade
secrets and operate without infringing on the proprietary rights of others. The
Company has been issued or has filed applications for U.S. and foreign patents
and has licenses or exclusive license options to patents or patent applications
of others. The patent position of medical device firms generally is highly
uncertain and involves complex legal and factual questions. There can be no
assurance that the Company's patent applications will be approved, that any
issued patents will provide the Company with competitive advantages or will not
be challenged by others, or that the patents of others will not have an adverse
effect on the Company.
The Company's competitors and other companies, institutions and individuals have
been issued patents which are competitive with the Company's patents or patent
applications. In addition, the Company's competitors and other companies,
institutions and individuals may have been issued competitive patents of which
the Company is not aware. Furthermore, the Company's competitors and other
companies, institutions and individuals may in the future file applications for,
or may license or otherwise obtain proprietary rights to, patents which are
competitive with the Company's patents or patent applications, or which conflict
in certain respects with claims made under the Company's applications. Such
conflicts could result in a reduction in coverage or denial of the Company's
patent applications or patents or could have an adverse effect on the Company's
competitive position. In the event of such conflicts, the Company may pursue
interference proceedings against, or may be required to defend patent litigation
or patent interference proceedings with, holders of such competitive patents.
The Company may incur substantial costs in such proceedings. Such proceedings
may adversely effect the Company's competitive position and there can be no
assurance that they will be successful. In addition, if patents that contain
competitive or conflicting claims are issued to others and such claims are
ultimately determined to be valid, the Company may be required to obtain
licenses to patents or other proprietary rights of others. No assurance can be
given that any licenses required under any such patents or proprietary rights
would be made available on terms acceptable to the Company, if at all. If the
Company does not obtain such licenses, it could encounter delays or could find
that the development, manufacture or sale of products requiring such licenses is
foreclosed. Furthermore, there can be no assurance that others will not
independently develop similar products, will not duplicate any of the Company's
products or, if patents are issued to the Company or its licensors, will not
infringe such patents. The Company could incur substantial costs in defending
itself in suits brought against it on its patents or in bringing suits to
protect the Company's patents. There can be no assurance that any such
proceedings will be successful. The Company also protects its proprietary
technology and processes in part by confidentiality agreements with its
partners, employees and consultants. There can
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<PAGE> 25
be no assurance that these agreements will not be breached, that the Company
will have adequate remedies for any breach, or that the Company's trade secrets
will not otherwise become known or be independently discovered by competitors.
Dependence upon Key Personnel and Consultants. The Company's ability to
successfully develop its products, manage growth and maintain a competitive
position will depend in a large part on its ability to attract and retain highly
qualified technicians and management personnel and to develop and maintain
relationships with leading research institutions and consultants. The Company is
highly dependent upon its Chairman, the principal members of its management, key
employees, scientific staff and consultants which the Company may retain from
time to time. Competition for such personnel and relationships is intense and
there can be no assurance that the Company will be able to continue to attract
and retain such personnel. The Company's consultants may be affiliated or
employed by others and some have consulting or other advisory arrangements with
other entities that may conflict or compete with their obligations to the
Company. The Company addresses such potential conflicts by requiring that its
consultants, collaborators and sponsored researchers execute confidentiality
agreements upon commencement of relationships with the Company, by closely
monitoring the work of such persons and by requiring material transfer and
patent assignment agreements wherever possible and appropriate. Inventions or
processes discovered by such persons will not necessarily become the property of
the Company and may remain the property of such persons or others.
Dependence upon Suppliers. The Company currently depends upon an outside
supplier to provide finished ultrasonic systems. Although the Company has
entered into exclusive agreements with this supplier, there can be no assurance
that such ultrasonic systems will continue to be available to the Company's
standards or that these arrangements will be successful or that the Company will
not encounter delays or other problems which may adversely affect its business..
Where possible and appropriate, the Company intends to identify alternative
suppliers, enter into supply contracts or produce certain materials or
components in-house. There can be no assurance that the Company will be able to
produce needed materials or components in-house in a timely manner or in
sufficient quantities to meet the needs of the Company, if at all.
Environmental Matters. The Company is subject to federal, state, county and
local laws and regulations relating to the protection of the environment. In the
course of its business, the Company may be involved in the handling, storage and
disposal of materials which are classified as hazardous. The Company believes
that its operations comply in all material respects with applicable
environmental laws and regulations. The Company continues to make capital and
operational expenditures for protection of the environment in amounts which are
not material. However, there can be no assurance that future expenditures will
not have a material adverse effect on the Company. In addition, there can be no
assurance that future laws and regulations will not adversely affect the
Company's business.
Control by Principal Shareholders. After this offering, the Company's officers,
directors, founders, employees and principal shareholders will own approximately
63.3% of the Company's outstanding Stock (60.8% of the outstanding Stock if the
Company elects to sell an additional 333,334 shares in
Page-16-
<PAGE> 26
this Offering). These shareholders will be able to elect a majority of the
Company's Board of Directors and will have the ability to control the Company
and direct its business and affairs. Such concentration of ownership may have
the effect of delaying or preventing a change in control of the Company.
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<PAGE> 27
Limited Offering Proceeds. The Company is dependent on the proceeds of this
offering to continue development and testing of its products and to acquire
targeted technologies and businesses. Although the Company expects it operating
subsidiaries to generate enough revenue to fund their operating expenses, the
Company will require substantial funds in addition to the proceeds of this
offering and its current cash resources to acquire additional technologies and
businesses.
No Dividends. The Company has never paid dividends, cash or otherwise, on its
capital stock and does not anticipate paying any such dividends in the
foreseeable future.
Dilution. Purchasers of shares in this offering will experience an immediate
substantial dilution per share. The Company also contemplates future sales of
Common and/or Preferred Stock through public or private offerings.
Restrictions on Transfer of Series A Preferred Stock. There is no public or
other market for the Shares, nor will such market develop. A purchaser of Series
A Preferred Stock offered pursuant to this private offering must, therefore,
bear the economic risk of the investment for an indefinite period of time.
Neither the Series A Preferred Stock offered hereby, nor the Common Stock into
which the Series A Preferred Stock is convertible, has been registered under the
Securities Act of 1933, as amended (the "Act"), or under any state securities
laws, and, therefore, cannot be sold or otherwise transferred unless it is
registered under the Act or an exemption from such registration is available.
Such restrictions upon the sale of Series A Preferred Stock are in addition to
the restrictions upon the sale or other transfer of the Series A Preferred Stock
which are provided in the Company's Certificate of Incorporation or the
Investment Agreement for this Offering (see "Description of Capital Stock"). The
Company will not qualify as a reporting company under the Act and, accordingly,
Rule 144 promulgated thereunder will not be available for resale of Shares by
investors. In addition, the Company has not agreed, and thus is not required, to
register the Shares for resale by investors under the Act. In no event may an
investor sell or transfer his or her Series A Preferred Stock unless such Shares
are registered under the Act or an exemption from such registration becomes
available.
Determination of Offering Price. The price of the Series A Preferred Stock
offered hereby has been determined by the Company. There is no direct relation
between such price and the Company's assets, net worth, book value or any
recognized criterion of value.
THE FOREGOING IS A SUMMARY OF THE MORE SIGNIFICANT RISKS RELATING TO INVESTMENT
IN THE COMPANY. THE FOREGOING SHOULD NOT BE INTERPRETED AS A REPRESENTATION THAT
THE MATTERS REFERRED TO HEREIN ARE THE ONLY RISKS INVOLVED IN THIS INVESTMENT,
NOR SHOULD THE REFERENCE TO THE RISKS HEREIN BE DEEMED A REPRESENTATION THAT
SUCH RISKS ARE OF EQUAL MAGNITUDE. PROSPECTIVE INVESTORS ARE URGED TO CONSULT
THEIR OWN ADVISORS AS TO THE INVESTMENT AND ANY TAX CONSEQUENCES OF AN
INVESTMENT IN THE COMPANY.
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<PAGE> 28
IV. SUMMARY OF TERMS
SERIES A PREFERRED STOCK OFFERED HEREBY
ISSUE: 1,333,334 shares(1) of Series A Preferred
Stock (the "Series A Preferred Stock").
PROCEEDS: $8,000,004(2)(3).
PRICE: $6.00 per share.
MINIMUM SUBSCRIPTION: Ten Thousand (10,000) Shares of MDA Series A
Preferred Stock; MINIMUM INVESTMENT --
$60,000, unless otherwise agreed to by the
Company. No fractional shares will be issued
to Investors.
DATE OF TERMINATION OF OFFERING: May 5, 1997,
unless previously terminated or extended by
the Company.
DIVIDENDS ON SERIES A PREFERRED
STOCK: Dividends or distributions will be payable
when and if declared by the Board of
Directors. The Company does not expect to
pay dividends in the foreseeable future.
VOTING RIGHTS: All Series A Preferred Stock will have
voting rights as provided by the Company's
Certificate of Determination of Preferences
of Preferred Stock.
FINANCIAL INFORMATION: The Company was incorporated in September
1995 and has a limited operating history.
The Company intends, in the future, to
furnish its shareholders with audited,
consolidated financial statements on an
annual basis.
(1) THE COMPANY RESERVES THE RIGHT TO SELL UP TO 333,334 ADDITIONAL SHARES.
(2) IF THE COMPANY SELLS AN ADDITIONAL 333,334 SHARES, THE PROCEEDS TO THE
COMPANY WOULD BE $10,000,008(3).
(3) BEFORE PAYMENT OF COMMISSIONS AND EXPENSES ASSOCIATED WITH THE OFFERING.
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<PAGE> 29
RESTRICTIONS
ON TRANSFER: Investors will receive shares of Series A
Preferred Stock which are subject to
restrictions on transfer imposed under
Federal and State securities laws and are
also subject to a right of first refusal
under the Investment Agreement.
REGISTRATION RIGHTS: The Company agrees that Investors will be
provided with Registration Rights for the
Series A Preferred Stock as detailed in the
Investment Agreement which terms and
conditions are incorporated herein by
reference.
ACCREDITED INVESTORS ONLY: This Offering is limited to individuals or
entities that are Accredited Investors, as
defined in Regulation D promulgated under
the Securities Act of 1933. An Investor will
also be required to make certain
representations to the Company regarding the
suitability of this investment to said
Investor. The Investment Agreement also
contains a representation to be made by each
Investor that the Investor is acquiring the
Common Stock for investment and not for
distribution or sale to other persons or
entities.
NO ESCROW: There is no minimum required number of
shares to be sold and the Company will
receive the proceeds from the Offering
directly. The Company needs to raise
promptly substantially all of the proceeds
sought to be raised in this Offering.
Although the Company's current operations
are profitable, the inability to raise such
funds promptly may significantly and
adversely effect the Company's ability to
achieve its financial objectives and future
operations.
The proceeds raised from the Offering will
be immediately received from the Company and
will be used in its business. Accordingly,
Investors will be subject to the risk that
their investment proceeds will be spent by
the Company and that the Company will fail
to raise the additional proceeds necessary
to make the investments viable. The Company
believes that the lack of adequate funding
is the single most important obstacle which
must be overcome if its business is to be
successful. The Company may seek to raise
additional funds through other private or
public equity or debt offerings, among other
things, however, there can be no assurance
that additional financing can be obtained,
that the cost of any such financing will be
satisfactory to the Company or that the
terms of the financing will not dilute the
interests of existing investors.
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<PAGE> 30
RISK FACTORS: This Investment is subject to significant
risks as set forth herein.
COMMISSIONS/PLACEMENT AGENT: Commissions and finder's fees may be paid
with respect to some or all of the sale of
Series A Preferred Stock hereunder. Any such
commissions and fees shall be paid by the
Company and none shall be payable by the
Investor. The Company has reserved up to
1,333,334 shares of the Offering to be sold
through Brookehill Equities, Inc., which has
agreed to sell the Series A Preferred Stock
on a "best efforts" basis and will receive a
fee equal to three percent (3%) of the net
sales up to $8,000,004. Additionally, to the
extent that sales of Series A Preferred
Stock hereunder are made by Brookehill
Equities, Inc. and/or other selling agents
who are not officers or directors of the
Company, a commission equal to (at the
selling agent's option) either: (i) Seven
Percent (7%) in cash; or (ii) Three and One
Half Percent (3 1/2%) in cash and warrants
equal to Three and One Half Percent (3 1/2%)
divided by Six Dollars ($6.00) per warrant,
will be paid on sales made by selling
agents. To the extent that sales of Series A
Preferred Stock are made hereunder by
officers or directors of the Company, no
commission will be paid on such sales.
USE OF PROCEEDS: The Company intends to use the net proceeds
of the sale of the Series A Preferred Stock
to engage in further research, development
and testing of the Company's products, to
fund costs associated with commercial
development, production and marketing of the
Company's products, acquire certain
businesses and technology identified as
desirable and compatible to the Company's
future plans and as working capital.
PROSPECTIVE INVESTORS SHOULD NOT EXECUTE THE INVESTMENT AGREEMENT UNTIL ANY
QUESTIONS THEY MAY HAVE REGARDING THIS VENTURE
HAVE BEEN SATISFACTORILY ANSWERED.
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<PAGE> 31
INVESTOR SUITABILITY STANDARDS
Investment in Shares involves a high degree of risk. The Company and the
Company's selling agents in this offering will offer and sell the Shares only to
accredited investors as that term is defined under Regulation D promulgated with
the Securities Act of 1933, as amended ("the Act"). Each Investor should know
that: the Shares have to be held for an indefinite period of time; that there
will be no public market for the Shares; and the sale or transfer of Shares is
specifically restricted under the Company's Certificate of Incorporation. The
restrictions on transferability of Shares, combined with the lack of a public
market for the Shares, makes the investment in Shares suitable only for
investors who have no need for liquidity in this investment.
To be eligible to purchase Shares, prospective shareholders must meet the
Accredited Investor requirements described below.
Under Regulation D an "Accredited Investor" shall mean any person who comes
within any of the following categories, or who the issuer reasonably believes
comes within any of the following categories at the time of the sale of the
securities to that person:
(1) any bank as defined in section 3(a)(2) of the Act, or any savings and
loan association or other institution as defined in section 3(a)(5)(A)
of the Securities Act of 1991 whether acting in its individual or
fiduciary capacity; any broker or dealer registered pursuant to section
15 of the Securities Exchange Act of 1934; any insurance company as
defined in section 2(13) of the Act; any investment company registered
under the Investment Company Act of 1940 or a business development
company as defined in section 2(a)(48) of that Act; Small Business
Investment Company licensed by the U.S. Small Business Administration
under section 301(c) or (d) of the Small Business Investment Act of
1958; any plan established and maintained by a state, its political
subdivisions, or any agency or instrumentality of a state or its
political subdivisions for the benefit of its employees, if such plan
has total assets in excess of $5,000,000; employee benefit plan within
the meaning of the Employee Retirement Income Security Act of 1974 if
the investment decision is made by a plan fiduciary, as defined in
Section 3(21) of such Act, which is either a bank, savings and loan
association, insurance company, or registered investment adviser, or if
the employee benefit plan has total assets in excess of $5,000,000 or,
if a self-directed plan, with investment decisions made solely by
persons that are accredited investors;
(2) any private business development company as defined in section
202(a)(22) of the Investment Advisors Act of 1940;
(3) any organization described in Section 501(c)(3) of the Internal Revenue
Code, corporation, business trust, or partnership not formed for the
specific purpose of acquiring the securities offered, with total assets
in excess of $5,000,000;
(4) any director, executive officer or general partner of the issuer of the
securities being offered or sold, or any director, executive officer,
or general partner or a general partner of that issuer;
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<PAGE> 32
(5) any natural person whose individual net worth, or joint net worth with
that person's spouse, at the time of his purchase exceeds $1,000,000;
(6) any natural person who had an individual income in excess of $200,000
in each of the two most recent years or joint income with that person's
spouse in excess of $300,000 in each of those years and has a
reasonable expectation of reaching the same income level in the current
year;
(7) any trust with total assets in excess of $5,000,000 not formed for the
specific purpose of acquiring the securities offered, whose purchase is
directed by a sophisticated person as described in Section
230.506(b)(2)(ii);
(8) any entity in which all of the equity owners are accredited investors.
In addition to satisfying the above definition of Accredited Investor, each
prospective investor will be required to represent that he or she: has funds
adequate to meet personal needs and contingencies; has no need for liquidity of
the investment; is purchasing the Series A Preferred Stock for investment only
and not with a view toward its resale or distribution; and that he or she is not
acquiring the Series A Preferred Stock on behalf of a person who could not meet
the standards for investment in Series A Preferred Stock and that he or she,
either alone or together with a Purchaser Representative (as defined in
Regulation D), has sufficient knowledge and experience in financial and business
matters to be capable of evaluating the merits and risks of investing in Series
A Preferred Stock.
Representations and requests for information regarding the foregoing are
included in the Investment Agreement which each prospective investor will be
required to complete. Prospective investors will also be required to provide
whatever additional evidence is deemed necessary by the Company to substantiate
information or representations contained in the Investment Agreement. In
addition, the representations required by the Investment Agreement are only
minimum standards, and the satisfaction of those standards does not necessarily
mean that Series A Preferred Stock is a suitable investment for a prospective
investor. The Company reserves the right, in its sole discretion, to determine
whether it will sell Shares to any particular prospective investor, regardless
of whether such investor meets the minimum suitability standards. Sales of the
Common Stock also will be made in compliance with any applicable state
suitability requirements, which may be higher than those set forth above.
THE ACCEPTANCE OF A SUBSCRIPTION FOR SERIES A PREFERRED STOCK BY THE COMPANY
DOES NOT CONSTITUTE A DETERMINATION BY THE COMPANY THAT AN INVESTMENT IN THE
COMPANY IS SUITABLE FOR A PROSPECTIVE INVESTOR. THE FINAL DETERMINATION AS TO
THE SUITABILITY OF INVESTMENT IN THE COMPANY MUST BE MADE BY THE PROSPECTIVE
INVESTOR AND HIS ADVISORS.
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<PAGE> 33
V. BUSINESS
BACKGROUND. MEDICAL DEVICE ALLIANCE, INC. ("MDA" or the "Company") was founded
in September, 1995, to develop, acquire, manufacture and market devices for an
emerging medical procedure which results in the removal of body fat through the
use of ultrasound. The removal of adipose (fat) tissue, a procedure known as
suction lipectomy, is the most frequently performed aesthetic (cosmetic)
surgical procedure in the United States. Traditionally, suction lipectomy has
been performed using a probe (the "cannula") and a suction device. The use of
specialized ultrasonic devices and probes for soft tissue aspiration, known as
ultrasound assisted lipoplasty, provides less traumatic soft tissue removal with
less post-operative bruising.
The Company holds the exclusive, worldwide rights to market and sell a patented
ultrasonic system (the "System") which has received clearance under a 510(K)
from the United States Food & Drug Administration (the "FDA") to be marketed for
use in ultrasonic soft tissue aspiration. Although the FDA clearance is specific
for fragmentation and aspiration of soft tissue in plastic and reconstructive
surgery, the Company has prepared additional submissions to the FDA for 510(K)
clearance of the System for the specific surgical nomenclature "lipoplasty".
Until the Company has obtained this additional clearance, the System cannot be
marketed as a lipoplasty device.
The Company has the exclusive worldwide license agreement for the patented
System, all improvement patents, foreign patents and related technology. The
License Agreement also gives the Company the exclusive rights to utilize the
510(K) clearance to market the System for use in fragmentation and aspiration of
soft tissue in plastic and reconstructive surgery. The Company also has the
worldwide (except for the former Soviet Union) rights for a tip design which is
expected to improve UAL results in certain applications.
The System is currently being sold in the United States through the Company's
direct sales force and technical representatives and is also being used
clinically in the United States under the auspices of the Ultrasound Assisted
Lipoplasty Task Force (the "UAL Task Force"), which includes representatives of
the American Society for Aesthetic Plastic Surgery ("ASAPS"), the American
Society of Plastic and Reconstructive Surgeons ("ASPRS"), the Plastic Surgery
Educational Foundation ("PSEF"), the Aesthetic Surgery Education and Research
Foundation ("ASERF") and the Lipoplasty Society of North America ("LSNA"). The
Company also has distribution arrangements for the sale of the System in Europe,
Latin America and Asia, Pacific Rim.
Within the medical industry, physicians are facing declining incomes as a result
of healthcare cost-containment and many have turned to nonreimbursed aesthetic
procedures to supplement their practices. This trend, combined with an aging
population which is increasingly willing to spend disposable income on remedies
that delay the symptoms of aging, is expected to increase the number of cosmetic
procedures in the United States and worldwide well into the 21st century.
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<PAGE> 34
Suction lipectomy ("liposuction") is the most common procedure performed in
aesthetic surgery today, with an estimated 350,000 procedures performed in the
United States per year. Current liposuction techniques require the use of a
cannula inserted into the subcutaneous (under the skin) fat tissue and the
application of suction. Once suction has begun, the cannula is moved back and
forth in a piston-like motion (not side to side), creating channels through the
fat as the tissue is aspirated by suction. Unless the amount of fat being
removed is very small, a second series of intersecting channels is created
through a second incision. Although fat tissue is removed, complications can
result from the movement of the cannula, including damage to connective tissue,
blood vessels and nerves.
Unlike current liposuction techniques, UAL differs significantly by liquefying
body fat using a specific ultrasonic energy delivered through a cannula or
probe. The energy generated by sound waves at the cannula tip causes
emulsification of fat cells. The liquefied fat is concomitantly removed from the
body by suction. UAL has been practiced in Europe and South America for almost a
decade. Recent improvements in equipment and technique appear to reduce the risk
of complications and, as a result, UAL is receiving significant attention from
plastic surgeons around the country. Advances in technology have also resulted
in ultrasonic equipment and probe designs which are safer and more effective.
Results of trials in Europe, presented to the American Society of Aesthetic
Plastic Surgery, showed that UAL caused less trauma to the patients' tissue and
less blood loss, leading to faster patient recovery. A position paper by the UAL
Task Force, highlights the advantages of UAL over conventional liposuction,
which include reduced blood loss and damage to adjacent structures, less
post-operative bruising and swelling, a shorter recovery period and an ability
to remove more fat per procedure.
HISTORY OF THE COMPANY. In September, 1995, the Company acquired an option for
the exclusive world-wide rights to market and sell a patented ultrasonic system
(the "System") which has received clearance under a 510(K) from the United
States Food & Drug Administration ("FDA") to be marketed for use in ultrasonic
fragmentation and aspiration of soft tissue in plastic and reconstructive
surgery. Although the FDA clearance is specific for soft tissue aspiration, the
Company will prepare additional submissions to the FDA for 510(K) clearance for
the specific surgical nomenclature "lipoplasty." Until the Company has obtained
this additional clearance, the System cannot be marketed as a lipoplasty device.
In December, 1995, the Company entered into an exclusive world wide license
agreement for the patented System, all improvement patents, foreign patents and
related technology. The License Agreement also gives the Company the exclusive
rights to utilize the 510(K) clearance to market the System for use in
fragmentation and aspiration of soft tissue in plastic and reconstructive
surgery. In December, 1995, the Company also acquired the world wide (except for
the former Soviet Union) rights for a tip design which is expected to improve
UAL results in certain applications. The System is currently being sold in the
United States and is also used clinically in the United States under the
auspices of the Ultrasound Assisted Lipoplasty Task Force (the "UAL Task
Force"), which includes representatives of the American Society for Aesthetic
Plastic Surgery ("ASAPS"), the American Society of Plastic and Reconstructive
Surgeons ("ASPRS"), the Plastic Surgery Educational
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<PAGE> 35
Foundation ("PSEF"), the Aesthetic Surgery Education and Research Foundation
("ASERF") and the Lipoplasty Society of North America ("LSNA"). The Company also
has distribution arrangements for the sale of the System in Europe, Latin
America and Asia, Pacific Rim.
In November, 1996, the Company incorporated its wholly-owned subsidiary,
Lisonix, Inc., to market and distribute the System for fragmentation and
aspiration of soft tissue in plastic and reconstructive surgery and to research,
develop, market and distribute related surgical devices and products. In
December, 1996, the Company incorporated its wholly-owned subsidiary, MDA
Capital, Inc., to provide financing and leasing to doctors, hospitals and
clinics for medical equipment, including the System.
The Company is also developing a smaller System for use in head and neck
applications and has developed a patent pending skin button for protection of
the incision site. Additionally, the Company will continue to actively pursue
licensing agreements and patents to acquire exclusive holdings and secure
proprietary technology.
The System has been used clinically in the United States under the auspices of
the Ultrasound Assisted Lipoplasty Task Force (the "UAL Task Force"), which
includes representatives of the American Society for Aesthetic Plastic Surgery
("ASAPS"), the American Society of Plastic and Reconstructive Surgeons
("ASPRS"), the Plastic Surgery Educational Foundation ("PSEF"), the Aesthetic
Surgery Education and Research Foundation ("ASERF") and the Lipoplasty Society
of North America ("LSNA"). The UAL Task Force has issued a position paper which
states that the FDA "has provided a 510(K) to Medical Device Alliance, Inc.,
manufacturer of an ultrasonic device for soft tissue removal in plastic
surgery....However, the FDA has not given approval of any ultrasonic device for
the specific purpose of lipoplasty. Clinical use of ultrasonic devices by
plastic surgeons for lipoplasty is therefore considered `off label' by the FDA,
although such use is not necessarily illegal or inappropriate."
STRATEGY. The strategic objective of the Company is to become the leader in UAL
devices and accessory equipment. The Company already has an advantage by having
the only ultrasonic device with FDA marketing clearance in the United States for
fragmentation and aspiration of soft tissue in plastic and reconstructive
surgery. The Company's rights to the patented System, all improvement patents,
foreign patents and related technology, along with the rights to existing
accessory technology, provide the Company with the advantage to react rapidly to
meet the increased interest and demand for UAL devices and technology.
Specifically, the Company believes it can:
CAPITALIZE ON THE ADVANTAGES OF UAL OVER TRADITIONAL SUCTION LIPECTOMY
(LIPOSUCTION) TECHNIQUES. Proponents of UAL and surgeons who have used
UAL report that it is a safe method of body contouring with a number of
advantages over traditional liposuction techniques. In addition to
being less physically demanding for the surgeon, UAL is reported to
allow greater suction volumes per patient with significantly less blood
loss and better control of surface contour. UAL may also enhance
contraction of the skin overlying the treated areas. The traumatic
nature of traditional liposuction techniques makes bleeding an inherent
problem and the lack of specificity of the suction cannula in
traditional liposuction makes injury of other important body structures
(i.e.
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<PAGE> 36
nerves and connective tissue) a potential problem. Contour irregularity
from traditional liposuction is the most common complaint associated
with the procedure. Despite the potential complications of traditional
liposuction techniques, it is the most commonly performed aesthetic
procedure performed in the United States today.
CAPITALIZE ON THE ADVANTAGES OF THE SYSTEM OVER OTHER UAL DEVICES UNDER
DEVELOPMENT. The Company has the exclusive worldwide rights to an
ultrasonic unit which has been developed for the safe and effective
removal of soft tissue (i.e. fat cells). The System has several
feedback circuits that assist the surgeon in monitoring the rate and
efficiency of fat removal. Following the insertion of the cannula into
a subcutaneous fat deposit, the ultrasonic energy delivered through the
cannula causes the fat to liquefy so that it can be removed via
aspiration into a collection receptacle. Only a single pass is
necessary through the fat tissue, instead of the numerous
cross-channeling required in traditional liposuction techniques, thus
the duration of surgery shortened. The incorporation of an aspiration
tube conduit in the cannula also provides a superior degree of
efficiency, control and safety. Ultrasonic units in use in Europe
incorporate a "solid" probe which offers no interpretive feedback to
the surgeon who cannot visualize the amount of fat removed, unlike the
System which incorporates concurrent fat removal through a hollow
probe. Use of a solid probe also prolongs the duration of the
procedure, as the removal of the fat must take place after the
emulsification.
IMPROVE THE EQUIPMENT, INCLUDING PATENTED CANNULA TIPS AND ACCESSORY
EQUIPMENT. The Company's System has a handpiece which is manufactured
of medical grade thermoplastics and titanium. Internal sealant allows
the handpiece to be sterilized via autoclave or ETO sterilization and
the lightweight, ergonomic design allows for ease of use without
fatigue. The System incorporates an infusion pump which allows for
flushing of the surgical site and various other accessories are
available, including an optional vacuum pump and standard aspiration
tubing sets. The System's titanium alloy probes (cannulas) are
manufactured from hi-tech alloy metals and are precisely bored and
tuned to deliver and maintain a constant axial vibration with no
transverse (sideways) vibration which prevents hot spots from
developing along the probe. The patented probe tip, with a truncated
inverted cone design, is the most efficient probe tip configuration
which captures and disintegrates fat tissue in the immediate proximity
of the tip. In addition, the tip's shape helps to push the liquefied
fat up the probe shaft, speeding the removal of the aspirant and
preventing clogging of the probe. The Company is also developing
another System, which will be introduced in 1997, for use in facial and
neck applications. The Company has developed a patent pending "skin
button" designed to prevents abrasion at the incision site and is also
developing disposable ancillary devices and equipment for use in fat
removal procedures.
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<PAGE> 37
PRODUCTS. The Company has the exclusive world-wide marketing and sales rights to
the LySonix(TM) 2000 Ultrasonic System (the "System"). The System consists of an
elongated rigid tube (the cannula) which is inserted through a small incision
into subcutaneous fat tissue. Ultrasonic energy is applied directly to the fat
targeted for removal. The fat is liquefied and aspirated from the surgical site
using the patented cannula. The ultrasonic energy delivered through the cannula
is of a range whereby other body tissue, such as muscle, connective tissue,
nerves and blood vessels are not easily injured, unlike traditional liposuction
technique which requires that channels be cut through all tissue at the surgical
site.
The System has several feedback circuits that assist the surgeon in monitoring
the rate and efficiency of fat removal. Following the insertion of the cannula
into a subcutaneous fat deposit, the ultrasonic energy delivered through the
cannula causes the fat to liquefy so that it can be removed via aspiration into
a collection receptacle. Only a single pass is necessary through the fat tissue,
instead of the numerous cross-channeling required in traditional liposuction
techniques, thus the duration of surgery shortened. The incorporation of an
aspiration tube conduit in the cannula also provides a superior degree of
efficiency, control and safety.
The Company owns the exclusive, world-wide marketing and sales rights to the
LySonix(TM) 2000 Ultrasonic System, including all proprietary and patented
technologies incorporated into the System: advanced ultrasonic circuitry; finely
crafted titanium alloy probes; and patented cannula tip designs. The generator
creates an electronic signal which is applied through a cable assembly to the
handpiece. The handpiece converts the electrical energy to mechanical vibrations
which are amplified by the titanium probe. Both the handpiece and probe are
hollow, which allows the emulsified tissue to be aspirated from the path created
at the cannula tip. The generator constantly monitors and maintains a consistent
energy amplitude through the use of advanced ultrasonic circuitry so that, as
tissue density changes when the probe is passed through the tissue plane, the
generator's internal circuitry senses any increased or decreased tissue
resistance and automatically adjusts the power needed to maintain the correct
amplitude. The System's advanced circuitry also incorporates safety features
which protect the patient, operator and ancillary personnel during a procedure.
Any electrical, mechanical or electrical ground fault automatically shuts down
the System.
The Company has also obtained marketing rights for other proprietary products,
including a patented tip design which is expected to improve UAL results in
certain applications and a skin button for protection of the incision site.
MARKETING. The Company has been working with the UAL Task Force to present
education programs in the United States for use of the System in soft tissue
aspiration. The Plastic Surgery Educational Foundation (PSEF), in conjunction
with the UAL Task Force, has scheduled training sessions where surgeons can
receive Certified Medical Education ("CME") accreditation in UAL and over 2,000
surgeons are expected to attend such CME training sessions in 1997 alone. In the
United States, the Company sells directly to surgeons, hospitals and surgical
centers utilizing technical sales and training representatives. For
international sales, the Company has distribution arrangements with
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<PAGE> 38
established medical device companies specializing in plastic and reconstructive
surgery for Europe, Latin America and Asia, Pacific Rim.
LICENSES AND PATENTS. The Company has actively pursued long-term licensing
agreements and patents to acquire and secure proprietary technology.
In 1995, the Company entered into a license agreement with Misonix, Inc.
("Misonix"), giving MDA exclusive world-wide marketing and sales rights for
Misonix's ultrasonic soft tissue aspiration medical device. Pursuant to the
license agreement, the Company will pay Misonix aggregate licensing fees, over
time, of approximately $500,000, plus royalties based upon net sales of the
System. As part of the licensing agreement, the Company has also agreed to
reimburse Misonix for certain product development expenditures, up to a maximum
of $30,000 per month.
Certain of the Company's agreements require substantial financial and
performance obligations by the Company.
Additionally, the Company intends to file application(s) with the FDA for 510(K)
marketing clearance for the specific surgical nomenclature "lipoplasty." The
Company will also file patent applications for new developments in ultrasonic
technology for use in UAL and UBC, as applicable and any other developments in
related medical devices.
PROPERTIES. The Company leases approximately 5,000 square feet of office space
in Las Vegas, Nevada, as headquarters for the Company. The Company's subsidiary,
Lisonix, Inc., leases approximately 61,132 square feet of office, manufacturing
and warehouse space in Carpinteria, California. The Company considers its
facilities to be in good condition.
LEGAL PROCEEDINGS As of March 31, 1997, neither the Company nor any officer or
director of the Company is a party to any pending legal proceedings relating to
the Company and no such proceedings are known to be contemplated.
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<PAGE> 39
B. INDUSTRY AND COMPETITIVE ANALYSIS
INDUSTRY TRENDS. Within the medical industry, physicians are facing declining
incomes as a result of healthcare cost-containment and many have turned to
nonreimbursed aesthetic procedures to supplement their practices. This trend,
combined with an aging population which is increasingly willing to spend
disposable income on remedies that delay the symptoms of aging, is expected to
increase the number of cosmetic procedures in the United States and worldwide
well into the 21st century.
Suction lipectomy ("liposuction") is the most common procedure performed in
aesthetic surgery today, with an estimated 350,000 procedures performed in the
United States per year. Current liposuction techniques require the use of a
cannula inserted into the subcutaneous (under the skin) fat tissue and the
application of suction. Once suction has begun, the cannula is moved back and
forth in a piston-like motion (not side to side), creating channels through the
fat as the tissue is aspirated by suction. Unless the amount of fat being
removed is very small, a second series of intersecting channels is created
through a second incision. Although fat tissue is removed, complications can
result from the movement of the cannula, including damage to connective tissue,
blood vessels and nerves.
Unlike current liposuction techniques, UAL differs significantly by liquefying
body fat using a specific ultrasonic energy delivered through a cannula or
probe. The energy generated by sound waves at the cannula tip causes
emulsification of fat cells. The liquefied fat is concomitantly removed from the
body by suction. UAL has been practiced in Europe and South America for almost a
decade. Recent improvements in equipment and technique appear to reduce the risk
of complications and, as a result, UAL is receiving significant attention from
plastic surgeons around the country. Advances in technology have also resulted
in ultrasonic equipment and probe designs which are safer and more effective.
Results of trials in Europe, presented to the American Society of Aesthetic
Plastic Surgery, showed that UAL caused less trauma to the patients' tissue and
less blood loss, leading to faster patient recovery. A position paper by the UAL
Task Force, highlights the advantages of UAL over conventional liposuction,
which include reduced blood loss and damage to adjacent structures, less
post-operative bruising and swelling, a shorter recovery period and an ability
to remove more fat per procedure.
Ultrasound energy is sound energy above 20kHz (the upper threshold for human
hearing). Ultrasound energy is used in many common medical applications,
including diagnostic imaging, ultrasonic dissection, cancer therapy and
lithotripsy ("shock wave" applied for spot-specific tissue destruction). The
fundamental basis of ultrasound's utility in medical applications is its
differential absorption and transmittal of energy through different tissue
types. The amount of collagen and the relative water and/or fat content of a
cell are the critical factors in determining the effect of ultrasound on soft
tissue. Tissues high in collagen (which has a high resistance to ultrasonic
absorption), such as vessel walls and organ covering, are relatively resistant
to the action of ultrasound compared to cells and tissues with little collagen
and a high water or fat content. The difference between the level of ultrasonic
absorption by fat and by surrounding tissue enables the System to liquefy the
fat without injuring surrounding tissue. Surgeons have confirmed that the System
maintains cutaneous integrity and enhances skin contraction after removal of
soft tissue.
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There are numerous published reports of clinical applications of ultrasound
energy to dissect, emulsify or fragment tissues prior to removal by aspiration.
The first use of ultrasound in this manner was for the removal
("phaecoemulsification") of cataracts and today ultrasonic devices are used in
neurosurgery and laparoscopic and endoscopic surgeries such as liver resection,
laparoscopic removal of the gall bladder, laparoscopic removal of the adrenal
gland, removal of tumors of the central nervous system and transurethal
resection of the prostate. The clinical applications of ultrasound energy
demonstrate the precision allowed by the sensitivity differential of various
tissues and structures to ultrasonic action. Post-operative complications and
blood loss are minimized due to the preservation of critical structures such as
blood vessels, nerves, ducts and organ capsules.
UAL is performed using a tumescent technique (the area is infused with saline
solution, sometimes containing a local anesthetic). Ultrasonic energy is applied
to the fat tissue in the subcutaneous plane using a solid or hollow titanium
probe which effectively "liquefies" the fat by cellular fragmentation. The
liquefied fat, along with the infused fluid, forms a stable fatty emulsion which
can be either simultaneously or subsequently extracted from the subcutaneous
space using low volume suction and small suction cannulas.
The LySonix(TM) 2000 Ultrasonic System consists of an elongated rigid tube (the
cannula) which is inserted through a small incision into subcutaneous fat
tissue. Ultrasonic energy is applied directly to the fat targeted for removal.
The fat is liquefied and aspirated from the surgical site using the patented
cannula. The ultrasonic energy delivered through the cannula is of a range
whereby other body tissue, such as muscle, connective tissue, nerves and blood
vessels are not easily injured, unlike traditional liposuction technique which
requires that channels be cut through all tissue at the surgical site.
The System has several feedback circuits that assist the surgeon in monitoring
the rate and efficiency of fat removal. Following the insertion of the cannula
into a subcutaneous fat deposit, the ultrasonic energy delivered through the
cannula causes the fat to liquefy so that it can be removed via aspiration into
a collection receptacle. Only a single pass is necessary through the fat tissue,
instead of the numerous cross-channeling required in traditional liposuction
techniques, thus the duration of surgery shortened. The incorporation of an
aspiration tube conduit in the cannula also provides a superior degree of
efficiency, control and safety.
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<PAGE> 41
COMPETITION. Several companies worldwide are pursuing various levels of devices
for use in UAL. The Company believes that, at this time, it is the only entity
which has marketing clearance in the United States for fragmentation and
aspiration of soft tissue in plastic and reconstructive surgery.
A limited number of companies are involved in developing ultrasonic units for
use in UAL. The Company has identified 4 competitors that presently have
ultrasonic units in the developmental and/or clinical stages: SMEI (Italy);
Medicamat (Laboratory Sebbin) (France); Morwel (Tucson, Arizona) and Mentor
Corporation (Santa Barbara, California). The SMEI and Medicamat ultrasonic
systems have been used by surgeons in the United States and Europe, although, to
the best of the Company's knowledge, neither system has received any regulatory
approvals in the United States. The SMEI system utilizes a solid cannula, which
prohibits the concurrent removal of the emulsified fat which must be
subsequently removed by suction, thus prolonging the procedure. Surgeons have
reported that the Medicamat system does not supply enough energy to offer
significant advantages over traditional liposuction techniques. To the best of
the Company's knowledge, Mentor Corporation has not yet begun commercial sales
in the United States or Europe.
In addition to the System, the Company plans to market accessory equipment,
replacement cannula, a smaller System for use in head and neck applications, a
patent pending skin button for protection of the incision site and continued
upgrades and improvements on the System.
GOVERNMENT REGULATION.
The production, marketing and distribution of medical devices are subject to
regulation by various government authorities both in the United States and other
countries.
In the United States, the Company's medical device products are regulated by the
FDA through the Federal Food, Drug & Cosmetic (FD&C) Act. The FD&C Act and
various other federal and state statutes control and otherwise impact the
development, manufacture, testing, storage and distribution of the Company's
products.
Any company engaged in the manufacture, processing or distribution of a medical
device is subject to regulations enforced by FDA. The level of regulation or
control is determined by the "Class" in which a device is placed by the agency.
Class I medical devices are subject to "General Control" requirements which
include facility registration, device listing, Premarket Notification and Good
Manufacturing Practices (GMP). Class II devices are subject to certain
performance standards as well as general controls. Additionally, Class III
devices must be proven to be substantially equivalent to devices marketed before
the Medical Device legislation was mandated (May 28, 1976) or may be required to
have appropriate clinical studies performed and an approved Premarket Approval
(PMA) application from FDA.
Before a company intends to market a device for the first time, it must submit a
Premarket Notification to FDA. Various information is required in the submission
including identification of the device and
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<PAGE> 42
facility, proposed labeling and statements indicating how the device is similar
to and/or different from other comparable products already in commercial
distribution. The FDA can issue a 510(K) marketing clearance for medical devices
or may require additional submissions to support evidence of the safety and/or
efficacy of a medical device.
Medical device companies must also conform to FDA's Good Manufacturing Practices
(GMP). These regulations dictate the methods, facilities and controls used in
the manufacture, packaging, storage and distribution of medical devices. The GMP
identify the essential elements of the quality assurance program.
Some medical devices are intended only to be used for investigational purposes.
The FD&C Act authorizes FDA to exempt these manufacturers from certain
requirements, allowing distribution for use on humans without Premarket
Approval. FDA grants this exemption through an Investigational Device Exemption
(IDE) and only to studies gathering safety and effectiveness data.
INTERNATIONAL. Internationally, a medical device is subject to various
regulatory authorities and the controls vary widely from country to country.
Approval methods and timing of submissions will depend on the device product
being distributed and each country's regulatory requirements. Additionally, many
countries accept and will utilize data collected in support of a U.S. FDA market
clearance application (510 (K)). The Company will exercise this approach when
appropriate.
C. HISTORICAL PERFORMANCE
The following is summary financial information for the Company. The information
listed below for the fiscal years ended December 31, 1995 and December 31, 1996
is unaudited, has been supplied by the Company and is subject to change upon the
completion of an audit.
<TABLE>
<CAPTION>
$'S IN 000'S
Fiscal Year
Ending December 31, 1995 Ending December 31, 1996
------------------------ ------------------------
<S> <C> <C>
Revenues $0 $294
Gross Profit 0 213
Total Expenses 82 2,008
OPERATING INCOME (LOSS) $(82) $(1,795)
</TABLE>
Page-33-
<PAGE> 43
D. PROJECTED OPERATING RESULTS
Projected operating results are management's projections based on assumptions of
market growth and the competitive advantages of the Company's products as
discussed in this information memorandum. These figures represent management's
estimates and there are no assurances that the following results will be
achieved during the periods indicated.
<TABLE>
<CAPTION>
$'S IN 000'S
Projected
Fiscal Year Ending December 31,
1997 1998 1999 2000
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue
Devices $40,590 55,623 67,086 85,272
Accessories/Disposables 4,710 13,165 23,172 32,301
Net Income before taxes 15,402 21,338 28,883 42,327
</TABLE>
E. PROJECTED EQUITY CAPITALIZATION
<TABLE>
<CAPTION>
$'S IN 000'S
Projected as of December 31,
At Closing 1997 1998 1999 2000
---------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Common Stock(1) $ 8,454 $8,454 $8,454 $8,454 $8,454
Preferred Stock(2) 7,000 7,000 7,000 7,000 7,000
Retained Earnings (1,877)(3) 13,525 34,863 63,746 92,628
Total Equity $13,577 28,979 50,317 79,200 108,083
</TABLE>
(1) The Company anticipates that it will need additional capital in 1998 to
pursue targeted acquisitions. This capital may potentially be raised
through an initial public offering or a private placement of debt or
equity. There is no assurance that the Company will be able to raise
this additional capital and the inability to do so will have a material
adverse impact on the Company and on investor returns.
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<PAGE> 44
(2) The Company reserves the right to sell an additional 333,334 shares of
Common Stock in this Offering.
(3) Unaudited and subject to change upon completion of an audit.
VI. MANAGEMENT AND KEY ADVISORS
ENTREPRENEURIAL EXPERIENCE
The Company has assembled an experienced and skilled group of business and
technical managers in its organization. The individuals involved have strong
backgrounds in medical products development and manufacture.
The Board of Directors and operational management are especially accomplished in
founding and building successful medical and biotechnology firms. Within recent
years, they have created companies that have been acquired by 3M Corporation,
Johnson & Johnson, Union Carbide Corporation and the public stock market.
Collectively, this assembly of experienced business and technical personnel
represents a strong foundation for the successful development, manufacture and
marketing of medical devices for use in UAL, UBC and related applications.
Each of the consultants, key management and all employees of the Company have
signed an Intellectual Property and Confidentiality Agreement. No employee has a
long term employment agreement. There is no key man insurance policy on any of
the Company's officers, directors, or executives.
KEY PERSONNEL
JOHN GIMBEL
Chief Executive Officer and Director
Mr. Gimbel joined Medical Device Alliance, Inc. (the "Company") in October,
1996. Mr. Gimbel is a senior executive with worldwide experience in strategic
and operational planning, sales and marketing and general management of both
start-up and Fortune 500 companies. Prior to joining the Company, Mr. Gimbel was
President of Valutravel, Inc. in San Francisco, with responsibility for managing
daily operations, marketing and profit/loss for a multi-branch, leisure focused
travel management company and increased sales from $1 million to $20 million
annually in two years. From 1972-1994, Mr. Gimbel worked for United Airlines,
Inc. ("UAL") as a Vice President and Division Head, Vice President of Base
Maintenance Operations, Vice President of Engine Maintenance, Vice President of
Maintenance Planning and Finance and Vice President, Sales. While working for
UAL, Mr. Gimbel
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<PAGE> 45
was responsible for the management of a $900 million division with 2,300
employees and a $400 million annual profit. Mr. Gimbel has experience in
reducing maintenance cycle time, reducing costs, staff productivity and growth
of a start-up business through sales and acquisitions. Mr. Gimbel has a BSBA in
Marketing and an MBA in Logistics from the Pennsylvania State University.
DONALD K. MCGHAN
Chairman of the Board and Director
Mr. McGhan is a founder of the Company and has served as a Director since 1995.
Mr. McGhan concurrently serves as a Director of PDT, Inc. (Nasdaq: PDTI) of
Santa Barbara, California, an emerging medical technology company. Since 1989,
Mr. McGhan and his management team have been instrumental in raising over $70
million of capital in private and public offerings for PDTI for use in research
and development. Mr. McGhan also concurrently serves as Chairman of the Board of
Directors and President of INAMED of Las Vegas, Nevada. INAMED (1995 Annual
Sales: $82 million) develops, manufactures and markets medical devices for the
health care industry through sixteen operating subsidiaries including
wholly-owned subsidiaries in the United Kingdom, Europe, South America, Mexico
and Asia Pacific. Previously, Mr. McGhan was Founder, Chairman of the Board and
Chief Executive Officer of McGhan NuSil Corporation, which was acquired by Union
Carbide Corporation in 1990. Mr. McGhan was previously Founder, Chairman of the
Board and Chief Executive Officer of Immulok, Inc. which was acquired by Ortho
Diagnostic Systems, Inc., a wholly-owned subsidiary of Johnson & Johnson, Inc.,
in 1983. Mr. McGhan was previously Founder, President, Chairman of the Board and
Chief Executive Officer of McGhan Medical Corporation, which was acquired by
Minnesota Manufacturing and Mining (3M) in 1976.
CERTAIN TRANSACTIONS. In connection with the organization of the Company,
2,900,000 shares of Common Stock at a price of $0.05 per share were issued to
officers, directors, consultants and the MDA Equity Performance Limited
Partnership (see below), of which: 100,000 shares each were issued to Donald K.
McGhan and John Gimbel; 400,000 shares were issued to the Limited Partnership;
and the remaining shares were issued to consultants of the Company.
In addition, in November, 1995, founders, officers, directors and consultants of
the Company purchased 2,400,000 shares of Common Stock of the Company at a price
of $0.50 per share to raise the capital needed to complete the exclusive
licensing agreement with Misonix, Inc. and to repay advances made to the Company
by founders and directors for working capital.
In 1995, the Company's Board of Directors sold 400,000 shares of Common Stock
(see above) to an investment limited partnership organized for the purpose of
conveying ownership interest in the Company to future key employees and
consultants, as selected by the General Partner(s). The terms of each Limited
Partnership unit purchase will be governed by a limited partnership agreement
and a limited partner's unit may be forfeited upon certain events, such as
termination for cause.
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<PAGE> 46
The Company has also granted an option to Misonix, Inc. to purchase up to
100,000 shares of the Company's Preferred Stock, convertible on a one-to-one
basis into Common Stock, at a price of $1.00 per share.
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<PAGE> 47
In March, 1997, the Company completed an offering of Common Stock under a
Private Placement Memorandum dated November 1, 1996 (the "Common Stock
Offering") in which the Company sold 1,500,000 shares of Common Stock at $5.00
per share to Accredited Investors. In connection with the Common Stock Offering,
the Company issued warrants which are convertible into a total of 57,655 shares
of Common Stock at a price of $5.00 per share.
VII. DESCRIPTION OF CAPITAL STOCK
The Company is authorized to issue up to 50,000,000 shares of Common Stock and
20,000,000 shares of Preferred Stock to be divided into such classes or series
as the Board of Directors may determine. As of March 31, 1997, 6,800,000 shares
of Common Stock were issued and outstanding and no shares of Preferred Stock
were issued or outstanding.
COMMON STOCK
Each holder of Common Stock is entitled to one vote for each share held of
record on each matter submitted to a vote of shareholders. Subject to the
preferences of the Series A Preferred Stock described below, each holder of
Common Stock is entitled to share ratably in distributions to shareholders, to
receive ratably such dividends as may be declared by the Board of Directors out
of funds legally available therefor and, in the event of the liquidation,
dissolution or winding up of the Company, is entitled to share ratably in all
assets remaining after payment of liabilities. The holders of Common Stock have
no conversion, pre-emptive or other rights to subscribe for additional shares
and are not subject to redemption or sinking fund provisions. The outstanding
shares of Common Stock are validly issued, fully paid and nonassessable.
Of the outstanding shares of Common Stock, all shares are subject to first right
of refusal repurchase by the Company or, if the Company does not exercise its
right to repurchase, then the shareholders of the Company have the first right
of refusal to purchase the shares at the same terms as offered, in writing, to
the shareholder who is selling such shares.
The Company has agreed to issue to purchasers of Common Stock through the Common
Stock Offering additional shares of Common Stock, for no additional
consideration, if the Company from time to time until the Company completes an
initial public offering (an "IPO") of its Common Stock pursuant to a
registration statement filed with the Securities and Exchange Commission (the
"SEC") filed under the Securities Act of 1933, as amended (the "Act"), if the
Company subsequently completes any private placement sales of Common Stock, or
any preferred stock of the Company convertible into or exchangeable for Common
Stock of the Company, (each a "Private Placement") or an IPO at a purchase price
lower than $5.00 per share in the case of Common Stock, or with a conversion
price or exchange rate lower than $5.00 per share in the case of any preferred
stock, adjusted for stock splits,
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<PAGE> 48
stock dividends or recapitalization, sufficient to have the effect of reducing
the price per share to the price per share (or conversion price or exchange rate
as applicable), as adjusted, that shares of Common Stock or preferred stock are
sold in a private placement or an IPO, excluding stock sales made to officers,
directors, employees or agents in the normal course of business.
The Company has also agreed to provide registration rights for the purchasers of
Common Stock in the Common Stock Offering (the "Common Stockholder"). For the
period commencing with the issuance of the Shares and terminating two years
after the Effective Date as defined below, if at any time the Company shall
propose to register any of its shares for sale or disposition for its own
account for cash under the Act in a public offering, including the Company's
IPO, other than a registration relating to its employee benefit plans, the
Company shall give to the Common Stockholder at least thirty (30) days' written
notice prior to the filing thereof and in any underwriting involved therein, a
portion of the Common Stockholder's Shares which are specified in a written
request, or requests, made by the Common Stockholder within ten (10) days after
receipt of such written notice from the Company by the Common Stockholder (the
"Piggyback Registration Rights"). The Piggyback Registration Rights shall be
conditioned upon the Common Stockholder's participation in any underwriting
relating to the Company's registered public offering. The implementation of
these registration rights will be subject to the approval of the underwriter, in
its sole discretion, and will be in proportion to the shares sold by the
Company. For example, if the Company agrees to sell 10% of the outstanding
shares, then the Investors who have these Piggyback Registration Rights would be
entitled to sell, on a pro rata basis among themselves, up to 10% of their
shares. The utilization of Piggyback Registration Rights would include the
obligation of the Common Stockholder to pay all underwriting commissions with
respect to the shares sold by the Common Stockholder and to pay a pro rata share
of all registration expenses and fees, including legal, accounting and printing
expenses.
In addition, from time to time, the Company has agreed to register the Common
Stockholder's Shares, at its expense, on registration statements or Form S-3
after the date upon which the Company meets the requirements to register
Investor's Shares on a Form S-3.
The Company has also granted Piggyback Registration Rights to shareholders who
purchased shares in November, 1995, covering 2,400,000 shares.
SERIES A PREFERRED STOCK
Each holder of Series A Preferred Stock shall be entitled to vote on all matters
placed before the Company's shareholders for vote and shall be entitled to the
number of votes equal to the number of full shares of Common Stock into which
such shares of Series A Preferred Stock could be converted at the record date
for the determination of the shareholders entitled to vote on such matters or,
if no such record date is established, at the date such vote is taken. Except as
otherwise expressly provided herein or as required by law, the holders of Series
A Preferred Stock and the holders of Common Stock shall vote together and not as
separate classes.
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<PAGE> 49
The Company has agreed to issue to purchasers of Series A Preferred Stock
hereunder (the "Investor"), additional shares of Series A Preferred Stock, for
no additional consideration, if the Company from time to time until the Company
completes an initial public offering (an "IPO") of its Common Stock pursuant to
a registration statement filed with the Securities and Exchange Commission (the
"SEC") filed under the Securities Act of 1933, as amended (the "Act"), if the
Company subsequently completes any private placement sales of Common Stock, or
any preferred stock of the Company convertible into or exchangeable for Common
Stock of the Company, (each a "Private Placement") or an IPO at a purchase price
lower than $6.00 per share in the case of Common Stock, or with a conversion
price or exchange rate lower than $6.00 per share in the case of any preferred
stock, adjusted for stock splits, stock dividends or recapitalization,
sufficient to have the effect of reducing the price per share to the Investor to
the price per share (or conversion price or exchange rate as applicable), as
adjusted, that shares of Common Stock or preferred stock are sold in a private
placement or an IPO, excluding stock sales made to officers, directors,
employees or agents in the normal course of business.
The Company has also agreed to provide registration rights for the purchasers of
Series A Preferred Stock hereunder. For the period commencing with the issuance
of the Shares and terminating two years after the Effective Date as defined
below, if at any time the Company shall propose to register any of its shares
for sale or disposition for its own account for cash under the Act in a public
offering, including the Company's IPO, other than a registration relating to its
employee benefit plans, the Company shall give to the Investor at least thirty
(30) days' written notice prior to the filing thereof and in any underwriting
involved therein, a portion of the Investor's Shares which are specified in a
written request, or requests, made by the Investor within ten (10) days after
receipt of such written notice from the Company by the Investor (the "Series A
Piggyback Registration Rights"). The Series A Piggyback Registration Rights
shall be conditioned upon the Investor's participation in any underwriting
relating to the Company's registered public offering. The implementation of
these registration rights will be subject to the approval of the underwriter, in
its sole discretion, and will be in proportion to the shares sold by the
Company. For example, if the Company agrees to sell 10% of the outstanding
shares, then the Investors who have these Series A Piggyback Registration Rights
would be entitled to sell, on a pro rata basis among themselves, up to 10% of
their shares. The utilization of Series A Piggyback Registration Rights would
include the obligation of the Investor to pay all underwriting commissions with
respect to the shares sold by the Investor and to pay a pro rata share of all
registration expenses and fees, including legal, accounting and printing
expenses.
In addition, from time to time, the Company has agreed to register the
Investor's Shares, at its expense, on registration statements or Form S-3 after
the date upon which the Company meets the requirements to register Investor's
Shares on a Form S-3.
Each share of Series A Preferred Stock shall be convertible, at the option of
the Investor, at any time up to six (6) months after the date of issuance of
such share, at the office of the Company or any transfer agent for the Preferred
Stock or Common Stock, into one (1) fully paid and nonassessable share of Common
Stock (the "Conversion Ratio"). The Conversion Ratio shall be adjusted in the
case of stock splits, combinations, certain dividends and distributions,
reclassification, exchange and substitution, all
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<PAGE> 50
as described in the Form of Certificate of Determination of Preferences of
Preferred Stock of the Company attached as Exhibit A to the Investment
Agreement.
Each share of Series A Preferred Stock shall automatically be converted into
shares of Common Stock based on the then effective Conversion Ratio immediately
upon (i) the closing of an IPO as defined hereof; (ii) the effective date of: a
consolidation or merger of the Company with or into another corporation or
corporations; a consolidation or merger in which the Company is a constituent
corporation, it survives the consolidation or merger and its shareholders
receive capital stock of another corporation; or a sale of all or substantially
all of the assets of the Company, provided, however, that one of the other
constituent corporations, the acquiring corporation or the parent of any such
corporation has at that time a class of securities publicly traded on a national
securities exchange or quoted on a national quotation system; or (iii) on the
date which is six (6) months from the date of issuance of the Series A Preferred
Stock.
In the event of any liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, the holders of each share of Series A
Preferred Stock then outstanding shall be entitled to be paid out of the assets
of the Company available for distribution to its shareholders, whether such
assets are capital, surplus or earnings, before any payment or declaration and
setting apart for payment of any amount shall be made in respect of the Common
Stock, an amount equal to $6.00 per share plus an amount equal to all declared
and unpaid dividends thereon to and including the date full payment shall be
tendered to the holders of the Series A Preferred Stock with respect to such
liquidation, dissolution or winding up and no more. If upon any liquidation,
dissolution or winding up of the Company, whether voluntary or involuntary, the
assets to be distributed to the holders of the Series A Preferred Stock shall be
insufficient to permit the payment to such shareholders of the full preferential
amounts as aforesaid, then all of the assets of the Company to be distributed
shall be distributed ratably to the holders of the Series A Preferred Stock.
After the payment or distribution to the holders of the Series A Preferred Stock
of the full preferential amounts as aforesaid, the holders of the Common Stock
then outstanding shall be entitled to receive, out of any remaining assets of
the Company available for distribution to its shareholders, an amount equal to
the full preferential amount paid to the holders of the Series A Preferred Stock
as aforesaid, which amount shall be distributed ratably to the holders of Common
Stock, based on the number of shares of Common Stock held by each holder. If any
such remaining assets shall be insufficient to permit the payment to the holders
of the Common Stock of the full preferential amounts set forth in the preceding
sentence, then all of such remaining assets shall be distributed ratably to the
holders of Common Stock, based on the number of shares of Common Stock held by
each holder. After the payment or distribution of the full preferential amounts
set forth above, all of the remaining assets available for distribution to
shareholders shall be distributed ratably to the holders of both the Series A
Preferred Stock and the Common Stock, based upon the number of shares of either
class held by each holder.
The holders of the then outstanding Series A Preferred Stock shall be entitled
to receive, when and as declared by the Board, and out of any funds legally
available therefor, cash dividends at a rate of $0.50 per share per annum,
before any dividend is paid on Common Stock. Such dividends may be payable
quarterly or otherwise as the Board may from time to time determine. The right
to such dividends on Series A Preferred Stock shall not be cumulative, and no
right shall accrue to holders of Series A
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<PAGE> 51
Preferred Stock by reason of the fact that dividends on said shares are not
declared in any prior year, nor shall any undeclared or unpaid dividend bear or
accrue interest. The right to such dividend shall lapse upon conversion of the
Series A Preferred Stock into Common Stock to the extent any dividend is
declared payable on the Series A Preferred Stock. Unless dividends on the Series
A Preferred Stock at the foregoing annual rate for the then current fiscal
quarter shall have been paid or declared and a sum sufficient for the payment
thereof set apart, (i) no dividend whatsoever (other than a dividend payable
solely in Common Stock) shall be paid or declared, and no distribution shall be
made, on any Common Stock, and (ii) no shares of Common Stock shall be
purchased, redeemed or acquired by the Company and no money shall be paid into
or set aside or made available for a sinking fund for the purchase, redemption
or acquisition thereof; provided, however, that this restriction shall not apply
to the repurchase of shares of Common Stock from directors, officers, employees
or consultants of the Company or any subsidiary pursuant to agreements under
which the Company has the option to repurchase such shares upon the occurrence
of certain events including the termination of their employment or consulting
arrangement.
REPORTS TO SHAREHOLDERS
The Company intends to furnish its shareholders with audited financial
statements on an annual basis.
VII. INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Company has executed Indemnification Agreements with its officers and
directors, so as to provide them with the maximum protection permitted by law.
The Company has agreed to indemnify its officers and directors against third
party proceedings, proceedings by or in the right of the Company, expenses of
successful party, advances of expenses, indemnification upon or advance
application, and partial indemnification of expenses, judgments, fines or
penalties under the governing laws of the state of Nevada.
IX. ADDITIONAL INFORMATION
The Company will make available, prior to the consummation of this offering, to
each prospective investor and such prospective investor's representatives and
advisors, if any, the opportunity to ask questions and receive answers
concerning the terms and conditions of this offering and to obtain any
additional information, which the Company possesses or can obtain without
unreasonable effort or expense, that is necessary to verify the accuracy of the
information furnished to such prospective
Page-42-
<PAGE> 52
investor. Any such questions should be directed to: Chairman of the Board,
Medical Device Alliance, Inc., 3800 Howard Hughes Parkway Suite 1800, Las Vegas,
Nevada, 89109; telephone number 702/791-2910. No other person has been
authorized to give information or to make any representations concerning this
offering, and if given or made, such other information or representations must
not be relied upon as having been authorized by the Company.
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<PAGE> 53
X. EXHIBIT
Investment Agreement
Page-44-
<PAGE> 54
EXHIBIT
MEDICAL DEVICE ALLIANCE, INC.
Investment Agreement
Page-45-
<PAGE> 1
MEDICAL DEVICE ALLIANCE INC.
EXHIBIT 10.04
FORM OF
CONVERTIBLE DEBENTURE OFFERING
MEDICAL DEVICE ALLIANCE INC.
<PAGE> 2
FOR ACCREDITED INVESTORS ONLY
MEDICAL DEVICE ALLIANCE, INC.
$3,570,000 CONVERTIBLE DEBENTURE OFFERING
INVESTMENT AGREEMENT
THIS INVESTMENT AGREEMENT (the "Agreement") is by and between ________
____________________________________________ (the "Holder") and MEDICAL DEVICE
ALLIANCE, INC., A NEVADA CORPORATION (the "Company").
RECITALS:
WHEREAS:
A. The Holder agrees to purchase a Convertible Debenture, convertible
into the Company's Common Stock, $.001 par value per share (the "Common Stock")
on the terms set forth below in connection with the Company's $3,570,000
Convertible Debenture Offering (the "Offering"), which is limited to Accredited
Holders only; and
B. The Company and the Holder wish to enter into this Agreement to
reflect the other terms of the investment.
AGREEMENT
NOW, THEREFORE, intending to be legally bound, the parties hereto agree
as follows:
1. INVESTMENT. The Holder hereby agrees to purchase __________________
_________________________________ ($______________) in principal amount of
Convertible Debentures, convertible into shares of the Common Stock of the
Company (the "Debenture Shares") at a price of SEVEN DOLLARS ($7.00) (the
"Conversion Price") per share, payable in cash, or good funds (the "Purchase
Price"). In the event the Company should at any time, or from time to time after
the date of issuance hereof, fix a record date for the effectuation of a split
or subdivision of the outstanding shares of the Common Stock or the
determination of holders of the Common Stock entitled to receive a dividend or
other distribution payable in additional shares of the Common Stock, or other
securities or rights convertible into, or entitling the holder thereof to
receive directly or indirectly additional shares of the Common Stock
(hereinafter referred to as the "Common Stock Equivalents") without payment of
any consideration by such holder for the additional shares of the Common Stock
(or the Common Stock Equivalents issuable upon conversion or exercise thereof)
then, as of such record date (or the date of such dividend distribution, split
or subdivision if no record date is fixed), the Conversion Price shall be
appropriately decreased so that the number of Debenture Shares issuable upon
conversion of this Debenture shall be increased in proportion to such increase
of outstanding shares. If the number of shares of the Common Stock outstanding
at any time after the date hereof is decreased by a combination of the
outstanding shares of the Common Stock, then, following the record date of such
combination, the Conversion Price shall be appropriately increased so that the
number of
Page -2-
<PAGE> 3
shares of the Common Stock issuable on conversion hereof shall be decreased in
proportion to such decrease in outstanding shares.
2. ADDITIONAL CONVERTIBLE DEBENTURES AVAILABLE UNDER OFFERING. In the
sole discretion of the Company, the Company may sell up to an additional One
Million Four Hundred Seventy Thousand Dollars ($1,470,000) of Convertible
Debentures under the Offering.
3. COMPANY'S REPRESENTATIONS AND WARRANTIES. The Company hereby makes
the following representations and warranties to the Holder which shall also be
true and correct at the closing of the Offering of Convertible Debentures
hereunder (the "Closing"), and which shall survive the Closing:
3.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of Nevada and has all necessary corporate powers to own its properties, and to
carry on its business as now owned and operated by it, and is qualified to do
intrastate business, and is in good standing in Nevada and in all other
jurisdictions in which the nature of the Company's business, or of its
properties, makes such qualification necessary, except jurisdictions where
failure to so qualify would not have a material adverse effect on the business
of the Company.
3.2 CAPITAL STRUCTURE. The authorized number of shares of the Company
is Fifty Million (50,000,000) shares of Common Stock, of which approximately Six
Million Eight Hundred Thousand (6,800,000) shares were, as of September 30,
1997, issued and outstanding, together with options, conversion rights or other
rights to acquire approximately Five Hundred Seventy Thousand (570,000) shares.
In addition, the Company has authorized Twenty Million (20,000,000) shares of
Preferred Stock, of which approximately Two Million Six Hundred Fifty Seven
Thousand Eighty Five (2,657,085) shares were, as of September 30, 1997, issued
and outstanding. The Debenture Shares to be issued to the Holder shall be
validly issued, fully paid and non-assessable, and will be issued pursuant to
applicable exemptions from the registration provisions of all federal and state
securities laws. Except for the shares subject to options or conversion rights
as set forth above, there are no other outstanding subscriptions, options,
rights, warrants, securities of any nature obligating the Company to issue or to
transfer any additional shares or securities of any nature.
3.3 DEBTS AND LIABILITIES. The Company has no debts, liabilities or
obligations, whether accrued, absolute, contingent or otherwise, of a material
nature, except for such liabilities and obligations incurred in the ordinary
course of business, or incurred in connection with or as a result of the
transactions contemplated by this Agreement.
3.4 COMPLIANCE WITH LAWS.
(a) To the best of the Company's knowledge, the Company has
complied in all material respects with, and the Company has not been cited for
any violation of, federal, state or local environmental protection laws and/or
regulations, including specifically, without limitation, all laws and
regulations related to the sale of its products by the Company to state or local
or federal
Page -3-
<PAGE> 4
government purchasers or contracts to those governmental agencies, and the
Company has not received notice of any past, present or future events which
would reasonably be expected to give rise to any liability for failure to comply
with any federal, state, or local laws or regulations now in force relating to
the protection of the environment.
(b) The Company has not, at any time, operated or provided for
any of its employees, any pension or profit sharing, or similar retirement plan,
or any employer welfare or benefit plan qualified pursuant to the Internal
Revenue Code of 1986, or subject to the Employee Retirement Income Security Act
of 1974, except employee health insurance plans.
(c) To the best of the Company's knowledge, the Company has
complied with, and the Company has received no notice of non-compliance with,
all requirements of the Occupational Safety and Health Act and regulations
promulgated under this legislation, orders, judgments and decrees of any
tribunal pursuant to this legislation applicable to its business or assets,
except for possible instances of non-compliance which would not have a material
adverse effect on its operations.
(d) To the best of the Company's knowledge, the Company is not,
and has not received notice from any governmental agency that it is currently in
violation of any other applicable federal, state or local statute, law or
regulation (including, without limitation, any applicable building, or other
law, ordinance, or regulation) affecting its assets or the operation of its
business, except for possible instances of non-compliance which individually
would not be expected to have a material adverse effect on the business of the
Company.
(e) To the best of the Company's knowledge, it has not caused or
created any environmental discharge of any toxic or hazardous waste, is not
aware of any asbestos in its facilities, and has not violated any law dealing
with the environment, or toxic or hazardous waste.
(f) To the best of the Company's knowledge, the Company and all
of the products which it manufactures, marshals, sells, licenses, imports or
distributes have been at all times and continue to be in substantial compliance
with the Food, Drug and Cosmetic Act and all regulations promulgated thereunder
by the U.S. Food and Drug Administration.
(g) Subject to the truth and accuracy of the representations of
the Holder set forth in Section 4 hereof, the offer, sale and issuance of the
Convertible Debentures, the Debenture Shares are exempt from the registration
requirements of the Act. The Company has complied with all applicable state
"blue sky" or securities laws in connection with the offer, sale and issuance of
the Convertible Debentures as contemplated by this Agreement.
3.5 LITIGATION. The Company has no knowledge of any governmental
investigation against the Company, other than routine government contract
audits. To the best of the Company's knowledge, the Company is not in violation
or infringement of any intellectual property rights, or registrations or
applications therefor, of any other person or business, however, the Company has
been notified that an alleged patent infringement suit has been filed against
the Company and its wholly-owned subsidiary, LySonix, Inc. The suit was filed by
Mentor Corporation (Nasdaq: MNTR), a
Page -4-
<PAGE> 5
medical and surgical device company that develops and markets silicone-based
products to specialty medical markets. Mentor has been trying to develop a
device for ultrasound assisted lipoplasty since 1995 and, to date, has few
commercial sales. The Company believes that the suit filed by Mentor is without
merit and substance, however, the Company takes all legal matters seriously and
has retained patent litigation counsel to aggressively pursue a successful
conclusion to this matter and to take any other legal action necessary to defend
any of the Company's patents. The Company's Management has extensive experience
in protecting intellectual and proprietary medical device patents. Management is
very optimistic regarding the outcome of this suit. The Company has also been
notified of a product liability claim filed against its wholly owned subsidiary,
LySonix, Inc., which, in the opinion of the Company's counsel, is covered under
the Company's standard product liability insurance policy. Other than as
disclosed above, the Company knows of no suit, action, arbitration, or legal,
administrative, or other proceeding or pending investigation to which the
Company is a party to or, to the Company's knowledge, is threatened against the
Company or its business, assets or financial condition.
3.6 NO UNDISCLOSED LIABILITIES. There are no liabilities or
obligations of any nature, whether absolute, accrued, contingent or otherwise,
and whether due or to become due (including, without limitation, any liability
for taxes and interest, penalties and other charges payable with respect to any
such liability or obligation) which individually or in the aggregate are
material to the condition (financial or otherwise) of the Company, or prospects
of the Company, which are not incurred in the ordinary course of business.
3.7 FULL AND CORRECT DISCLOSURE. No representation or warranty made
by the Company contained in this Agreement or other information provided, and to
be provided by the Company in any other writing furnished pursuant hereto
contains or will contain an untrue statement of a material fact or fails or will
fail to state a material fact required to be stated herein or therein necessary
to make the statements and facts contained herein or therein, in light of the
circumstances which they were or are made, not false nor misleading.
3.8 CONFLICT OF INTEREST. All purchasing transactions relating to the
Company have been at market prices since inception. The Company has entered into
certain distribution agreements, both as distributor and supplier, and other
agreements with certain other companies in which officers or directors of the
Company or affiliates of officers or directors of the Company have, either
directly or indirectly, a beneficial interest.
3.9 NON-CONTRAVENTION. The execution and delivery of the Agreement by
the Company, and the consummations of the transactions contemplated hereby, does
not conflict with any material terms or provisions of any contract, agreement or
indenture to which the Company is a party, or by which the Company or any of its
properties is subject, or the Company's Certificate of Incorporation and ByLaws,
each as amended to date.
3.10 AUTHORITY; BINDING EFFECT. The Company has obtained all
necessary authorizations and approvals from its Board of Directors and
stockholders, if any, required for the execution and delivery of this Agreement
and the consummations of the transactions contemplated hereby. This Agreement
has been duly executed and delivered by the Company and constitutes the
Page -5-
<PAGE> 6
legal, valid and binding obligations of the Company, enforceable against the
Company in accordance with its terms.
3.11 OTHER PURCHASERS. No other purchaser of Convertible Debentures
in connection with the Company's $3,570,000 Convertible Debenture Stock Offering
has been permitted, nor will any be permitted, to enter into an Investment
Agreement containing terms and conditions more favorable to such purchaser than
those contained in this Agreement.
4. COVENANTS OF THE COMPANY. The Company hereby makes the following
covenants, intending to be bound hereby after the Closing.
4.1 The Company agrees to make and keep public information regarding
the Company available as those terms are understood and defined in Rule 144
promulgated under the Act ("Rule 144"), at all times from and after ninety (90)
days following the date of the Company's initial public offering, and to file
with the SEC in a timely manner all reports and other documents required of the
Company under the Act and the Securities Exchange Act of 1934 (the "1934 Act"),
at any time after it has become subject to such reporting requirements.
4.2 The Company shall at all times reserve and keep available out of
its authorized but unissued shares of Common Stock, for the purpose of complying
with the terms of Section 1 of this Agreement, such number of its duly
authorized shares of Common Stock as shall be sufficient to issue, from time to
time, the Debenture Shares to the Holder pursuant to, and in accordance with,
the terms of Section 1 hereof. If at any time the number of authorized but
unissued shares of Common Stock shall not be sufficient for the Company to issue
additional shares of Common Stock to the Holder pursuant to, and in accordance
with, the terms of Section 1 hereof, the Company will forthwith take such
corporate action as may be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purposes.
5. HOLDER'S REPRESENTATIONS. The Holder hereby makes the following
representations to the Company which shall also be true and correct at the
Closing and which shall survive the Closing:
5.1 The Holder represents and warrants that the Holder is an
"Accredited Holder" within the meaning of Regulation D promulgated under the
Act, and as more specifically described in Exhibit A hereto.
5.2 The Holder is, by reason of the Holder's business or financial
experience, or by reason of the business or financial experience of the Holder's
professional adviser, who is not affiliated with and is not compensated directly
or indirectly by the Company, or any affiliate or selling agent of the Company,
is capable of evaluating the merits and risks of the purchase of the Shares and
of protecting the Holder's own interests in connection with the investment
contemplated herein.
5.3 The Holder acknowledges that it has received and carefully
reviewed a copy of the Company's Terms for $3,570,000 Convertible Debenture
Offering (the "Terms"), a copy of which is attached hereto as Exhibit "B" and
the form of Convertible Debenture attached hereto as Exhibit
Page -6-
<PAGE> 7
"C". The Terms, the form of Convertible Debenture and this Agreement are
hereinafter collectively referred to as the "Materials," and the Holder further
acknowledges that it has read all of the disclosures set forth in the Materials.
The Holder has had the opportunity to ask questions and receive answers from the
Company concerning the terms and conditions of the offering described in the
Materials and by the Company. The Holder recognizes that the Company has a
limited operating history and is a speculative venture, and that if the Holder
invests therein, the Holder may lose the entire amount of its investment. The
Holder acknowledges that its representatives and the Holder have been provided
with the opportunity to obtain any additional information necessary to verify
the accuracy of all information provided to the Holder in the Materials.
5.4 In deciding whether to acquire the Convertible Debenture, the
Holder has relied exclusively upon consultations with its legal, financial and
tax advisers with respect to the nature of the investment and the information
provided by the Company in the Materials and this Agreement. None of the
Holder's advisors are affiliated with, or compensated directly or indirectly by,
the Company or any affiliate or selling agent of the Company.
5.5 The Holder understands that neither the Department of
Corporations of the State of Nevada, nor the SEC, nor any other governmental
agency having jurisdiction over the sale and issuance of the Convertible
Debentures will make any finding or determination relating to the
appropriateness for investment of the Convertible Debentures offered by the
Company and that none of them has or will recommend or endorse the Convertible
Debentures.
5.6 The Holder represents that the Convertible Debentures are
purchased for its own account for investment and are not being purchased with a
view to the resale or distribution thereof, and that the Holder has no present
intention of distributing or reselling any portion of the Convertible
Debentures. The Holder acknowledges that it has been informed by the Company
that the Convertible Debentures, and the Debenture Shares, to be issued and
delivered have not been registered under the Act and that the Convertible
Debenture and Debenture Shares must be held indefinitely unless subsequently
registered under the Act or an exemption for such registration is available. The
Holder acknowledges that, other than as may be set forth in the Materials, the
Company has no obligation to register the Convertible Debenture or the Debenture
Shares under the Act. The Holder also acknowledges that it is fully aware of the
restrictions on disposing of the Convertible Debenture and the Debenture Shares
resulting from the provisions of the Act and the General Rules and Regulations
of the SEC thereunder. The Holder further understands that the Convertible
Debentures are not qualified under Nevada Law on the ground that the sale
thereof is exempt under the applicable provisions of Nevada Law.
5.7 The Holder understands that the Convertible Debentures will not
be freely transferable and its ability to transfer the Debenture Shares is also
restricted.
5.8 The Holder recognizes that there is not a public market for the
Convertible Debentures and that there is no assurance that there will be such a
market for these securities. The Holder understands that it may have to hold the
Debenture Shares indefinitely due to the lack of such a market.
Page -7-
<PAGE> 8
5.9 The Holder recognizes that no escrow or minimum amount has been
established for the sale of the Convertible Debentures and that the proceeds
will be immediately received by the Company. The Holder recognizes that the
Company's inability to raise such funds, or additional funds, promptly may
significantly and adversely affect the Company's ability to achieve its
financial objectives, although the Company believes it could maintain its
current operations.
5.10 The Holder represents that it possesses such knowledge and
experience in business and financial matters that it is capable of evaluating
the merits and risks of its investment in the Convertible Debentures. The Holder
also has the degree of sophistication in these matters necessary to understand
(1) the financial and operational information provided to it relating to the
Company, and (2) the potential risk of losing all or a portion of its investment
in the Convertible Debentures. The Holder represents that it is able to bear the
economic risk of a loss of its investment in the securities, that it has funds
adequate to meet personal needs and contingencies and that it has no need for
liquidity of the investment in the Convertible Debentures.
5.11 The Holder recognizes that "stop transfer" instructions will be
issued against its Debenture Shares and that the following legend will be placed
on the Debenture Shares issued:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED SOLELY FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933. THE SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT.
6. REGISTRATION RIGHTS.
6.1 For the period commencing with the issuance of the Convertible
Debentures and terminating one years after the Effective Date as defined below,
if at any time the Company shall propose to register any of its shares for sale
or disposition for its own account for cash under the Act in a public offering,
including an initial public offering (the "IPO") under an S-1 registration
statement other than a registration relating to its employee benefit plans, the
Company shall:
(a) Promptly give to the Holder at least thirty (30) days'
written notice prior to the filing thereof (which shall include, if then
determined, the proposed date on which the registration statement is to be
filed, the proposed price and registration price per share, the number of shares
proposed to be included in such registration, the identity of any proposed
selling stockholders and a list of the jurisdictions in which the Company
intends to attempt to qualify such securities under the applicable blue sky or
other state securities laws); and
(b) Subject to Section 6.2 below, include in such registration
(and any related qualification under blue sky laws or other compliance), and in
any underwriting involved therein, a portion of the Holder's Shares (as
hereinafter defined) which are specified in a written request, or requests, made
by the Holder within ten (10) days after receipt of such written notice from the
Company by the Holder.
Page -8-
<PAGE> 9
The rights of the Holder to registration pursuant to this Section 6.1
shall be conditioned upon the Holder's participation in any underwriting
relating to the Company's registered public offering. The Holder shall (together
with the Company) enter into an underwriting agreement in customary form with
the underwriter or underwriters selected by the Company. The Company will use
its best efforts to include the Holder's Shares in such registration statement.
Notwithstanding any provision of this Section 6.1, if the underwriter, in its
sole discretion, determines that marketing factors require a limitation of the
number of securities to be underwritten, or that the registration statement be
limited to shares offered by the Company only, the underwriter may exclude some
or all of the Holder's Shares for which the Holder seeks registration from
inclusion in the registration and underwriting, which reduction shall be pro
rata among the Holder, the Company, and any other shareholder whose shares are
sought to be included in the registration. The Company will bear the expenses of
such registration, except for an underwriting commission or discount and the
expenses of special counsel for the Holder.
6.2 In addition, from time to time, the Company will register the
Holder's Shares, at its expense, on registration statements or Form S-3 after
the date upon which the Company meets the requirements to register Holder's
Shares on a Form S-3.
6.3 DEFINITIONS. For purposes of this Section 6:
6.3.1 The terms "register", "registered" and "registration" refer
to a registration effected by preparing and filing a registration statement or
similar document in compliance with the Act, and the declaration or ordering of
effectiveness of such registration statement or document; and
6.3.2 The term "Holder's Shares" means any Common Stock issued
upon conversion of the Convertible Debenture held by the Holder and purchased in
this Offering; and
6.3.3 The term "Effective Date" shall mean the date the
effectiveness of the Company's registration on Form S-1 for an initial public
offering (IPO) is declared effective by the SEC.
6.4 INDEMNIFICATION. In the event any Holder's Shares are included in
a registration statement under this Section 6:
6.4.1 To the extent permitted by law, the Company will indemnify
and hold harmless the Holder, and its partners, against any losses, claims,
damages or liabilities (joint or several) to which it may become subject under
the Act, the 1934 Act, or other federal or state law, insofar as such losses,
claims, damages or liabilities (or action in respect thereof) arise out of or
are based upon any of the following statements, omissions or violations
(collectively, a "Violation"): (i) any untrue statement or alleged untrue
statement of a material fact contained in such registration statement, including
any preliminary prospectus or final prospectus contained therein or any
amendments or supplements thereto, (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading, or (iii) any violation or alleged
violation by the Company of the Act, the 1934 Act, any state securities law or
any rule or
Page -9-
<PAGE> 10
regulation promulgated under the Act, the 1934 Act or any state securities law.
The Company will reimburse the Holder, and its partners, for any legal or other
expense actually incurred by them in connection with investigating or defending
any such loss, claim, damage, liability or action. Notwithstanding the
preceding, the indemnity agreement contained in this Section 6.4.1 shall not
apply to amounts paid in settlement of any such loss, claim, damage, liability
or action if such settlement is effected without the consent of the Company
(which consent shall not be unreasonably withheld), nor shall the Company be
liable in any such case for any such loss, claim, damage, liability or action to
the extent that it arises out of or is based upon a Violation which occurs
solely in reliance upon or in conformity with written information furnished
expressly for use in connection with such registration by the Holder.
6.4.2 To the extent permitted by law, the Holder will indemnify
and hold harmless the Company, each of its directors, each of its officers who
has signed the registration statement, each person, if any, who controls the
Company within the meaning of the Act, and any underwriter, against any losses,
claims, damages or liabilities (joint or several) to which the Company or any
such director, officer, controlling person, or underwriter may become subject,
under the Act, the 1934 Act or other federal or state law, insofar as such
losses, claims, damages or liabilities (or actions in respect thereto) arise out
of or are based upon any Violation, in each case to the extent (and only to the
extent) that such Violation occurs solely in reliance upon written information
furnished by the Holder and expressly for use in connection with such
registration. The Holder will reimburse any legal or other expense reasonably
incurred by the Company or any such director, officer, controlling person or
underwriter in connection with investigating or defending any such loss, claim,
damage, liability or action. Notwithstanding the preceding, the indemnity
agreement contained in this Section 6.4.2 shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder, which consent shall
not be unreasonably withheld.
6.4.3 Promptly after receipt by an indemnified party under this
Section 6.4 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 6.4, deliver to
the indemnifying party a written notice of the commencement thereof. Following
receipt of such notice, the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume the defense
thereof with counsel mutually satisfactory to the parties; provided, however,
that an indemnified party shall have the right to retain its own counsel, with
the fees and expenses to be paid by the indemnifying party, if representation of
such indemnified party by the counsel retained by the indemnifying party would
be inappropriate due to actual or potential differing interests between such
indemnified party and any other party represented by such counsel in such
proceeding. The failure to deliver written notice to the indemnifying party
within a reasonable time of the commencement of any such action, if prejudicial
to its ability to defend such action, shall relieve such indemnifying party of
any liability to the indemnified party under this Section 6.4. However, the
omission so to deliver written notice to the indemnifying party will not relieve
it of any liability that it may have to any indemnified party otherwise than
under this Section 6.4.
Page -10-
<PAGE> 11
6.4.4 The obligations of the Company under this Section 6.4 shall
survive the completing of any offering of the Holder's Shares in a registration
statement under this Section 6.
6.5 DELAY. The Holders shall have no right to take any action to
restrain, enjoin or otherwise delay any registration as a result of any
controversy that may arise with respect to the interpretation or implementation
of this undertaking.
6.6 TRANSFER OF REGISTRATION RIGHTS. The rights granted to the Holder
hereunder to cause the Company to register securities pursuant to the terms
hereof may be assigned to a transferee or assignee in connection with any
permitted transfer or assignment of any of the Holder's Shares (including,
without limitation, any transfers or assignments effected by operation of law),
but excluding any transferee who purchases the Company's Common Shares which
have been otherwise registered.
7. TRANSFER OF CONVERTIBLE DEBENTURES.
With respect to any offer, sale or other disposition of the
Convertible Debentures (or of any securities issued upon conversion of this
Debenture other than pursuant to Section 6.6 above), the Holder will give
written notice to the Company prior thereto, describing briefly the manner
thereof, together with a written opinion of such Holder's counsel, to the effect
that such offer, sale or other distribution may be effected without registration
or qualification (under any federal or state law then in effect). Promptly upon
receiving such written notice, the Company shall notify such Holder whether such
Holder may sell or otherwise dispose of the Convertible Debentures, all in
accordance with the terms of the notice delivered to the Company.
8. GENERAL PROVISIONS.
8.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations
and warranties of the parties hereto contained in this Agreement will survive
the Closing, are material and have been or will be relied upon by the other
parties.
8.2 NO THIRD PARTIES BENEFITED. This Agreement is made for the
purpose of defining and setting forth certain obligations, rights and duties of
the Company and the Holder in connection with the obligations under this
Agreement. This Agreement is made for the sole protection of the Company and the
Holder. No other person shall have any rights of any nature hereunder or by
reason hereof.
8.3 BINDING EFFECT. This Agreement shall bind, and shall inure to the
benefit of, the Company and the Holder, and their respective heirs, successors,
personal representatives and assigns.
8.4 EXECUTION IN COUNTERPARTS. This Agreement may be executed in any
number of counterparts and any party hereto or thereto may execute any
counterpart, each of which when executed and delivered will be deemed to be an
original and all of which counterparts of this Agreement taken together will be
deemed to be but one and the same instrument. The execution of this Agreement by
any party hereto will not become effective until counterparts hereof or thereof,
as the
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<PAGE> 12
case may be, have been executed by all the parties hereto or thereto, and
transmitted by facsimile copy with overnight delivery of manually executed
copies.
8.5 PRIOR AGREEMENTS; AMENDMENTS; CONSENTS. This Agreement contains
the entire agreement between the Holder and the Company in regards to the
$3,570,000 Convertible Debenture Offering, and all prior negotiations,
understandings and agreements with regards to the Offering are superseded by
this Agreement. No amendment, modification, supplement, termination or waiver of
any provision of this Agreement, and no consent to any departure by the Company
therefrom, shall be effective unless in writing and signed by the Holder, and
then only in the specific instance and for the specific purpose given.
"Including" as used herein means "including, but not limited to."
8.6 GOVERNING LAW. This Agreement shall be governed by, and construed
and enforced in accordance with, the laws of the State of Nevada.
8.7 SEVERABILITY OF PROVISIONS; CONFLICT. Any provision in this
Agreement that is held to be inoperative, unenforceable or invalid shall be
inoperative, unenforceable or invalid without affecting the remaining
provisions, and to this end the provisions of this Agreement are declared to be
severable. In the event of a conflict between this Agreement and the Materials
as defined herein, the terms of this Agreement shall prevail.
8.8 ATTORNEY'S FEES. In the event that any action, proceeding, or
arbitration is instituted by or against any of the parties in order to enforce
any of the terms or provisions hereof, to construe the rights of the parties
hereunder, then the prevailing party shall be entitled to recover all costs
thereof and reasonable attorneys' fees as part of the judgment, whether or not
such action is prosecuted to judgment.
8.9 CONFIDENTIALITY. The Holder acknowledges and agrees that the
non-public information it has received and will receive about the Company and
the Company's financial performance is confidential, and agrees to use all
reasonable efforts to maintain the confidentiality thereof. Any Confidentiality
Agreement between the Holder and the Company, including the foregoing, is hereby
modified, only to the extent necessary, to permit the Holder to exercise and
protect its rights under this Agreement, or as a shareholder of the Company.
9. NOTICES. Any notice or demand to the Company under this Agreement may
be given and shall conclusively be deemed and considered to have been given and
received upon the date shown to have been received on any postal receipt or
independent courier receipt at the address of the Company appearing on the
records of the Holder, but actual written notice (including by telefax, hand
delivery, Federal Express, or other means), however given or received, shall
always be effective. For the purposes hereof, the addresses of the Company and
the Holder (until notice of a change thereof is given as provided in this
Section 9. shall be as follows:
If to Holder: At the address set forth on the signature page hereof
If to the Company: MEDICAL DEVICE ALLIANCE, INC.
3800 Howard Hughes Parkway Suite 1800
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<PAGE> 13
Las Vegas, NV. 89109
Attn: Chairman of the Board
SIGNATURES ON NEXT PAGE
IN WITNESS WHEREOF, the parties have signed this Agreement as of
______________, 1997 at Las Vegas, Nevada.
"HOLDER"
________________________________________
Signed
By: ____________________________________
Printed Name
Title:__________________________________
Address:
________________________________________
________________________________________
Tax I.D. or Social Security Number:
________________________________________
THIS AGREEMENT IS ONLY EFFECTIVE
WHEN ACCEPTED IN WRITING BY THE COMPANY
"COMPANY"
MEDICAL DEVICE ALLIANCE, INC.
A NEVADA CORPORATION
Dated: _______________, 1997 By: ___________________________________
Its: ________________________________
Page -13-
<PAGE> 14
LIST OF EXHIBITS
TO
INVESTMENT AGREEMENT
EXHIBIT A - DEFINITION OF AN "ACCREDITED HOLDER"
EXHIBIT B - TERMS FOR $3,570,000 CONVERTIBLE DEBENTURE
OFFERING (THE OFFERING")
EXHIBIT C - FORM OF CONVERTIBLE DEBENTURE
Page -14-
<PAGE> 15
EXHIBIT A TO INVESTMENT AGREEMENT
DEFINITION OF ACCREDITED HOLDER
REGULATION D
To be eligible to purchase the Convertible Debentures, prospective investors
must meet the Accredited Investor requirements described below.
Under Regulation D an "Accredited Investor" shall mean any person who comes
within any of the following categories, or who the issuer reasonably believes
comes within any of the following categories at the time of the sale of the
securities to that person:
(1) any bank as defined in section 3(a)(2) of the Act, or any savings and loan
association or other institution as defined in section 3(a)(5)(A) of the
Securities Act of 1991 whether acting in its individual or fiduciary
capacity; any broker or dealer registered pursuant to section 15 of the
Securities Exchange Act of 1934; any insurance company as defined in
section 2(13) of the Act; any investment company registered under the
Investment Company Act of 1940 or a business development company as defined
in section 2(a)(48) of that Act; Small Business Investment Company licensed
by the U.S. Small Business Administration under section 301(c) or (d) of
the Small Business Investment Act of 1958; any plan established and
maintained by a state, its political subdivisions, or any agency or
instrumentality of a state or its political subdivisions for the benefit of
its employees, if such plan has total assets in excess of $5,000,000;
employee benefit plan within the meaning of the Employee Retirement Income
Security Act of 1974 if the investment decision is made by a plan
fiduciary, as defined in Section 3(21) of such Act, which is either a bank,
savings and loan association, insurance company, or registered investment
adviser, or if the employee benefit plan has total assets in excess of
$5,000,000 or, if a self-directed plan, with investment decisions made
solely by persons that are accredited Holders;
(2) any private business development company as defined in section 202(a)(22)
of the Investment Advisors Act of 1940;
(3) any organization described in Section 501(c)(3) of the Internal Revenue
Code, corporation, Massachusetts or similar business trust, or partnership
not formed for the specific purpose of acquiring the securities offered,
with total assets in excess of $5,000,000;
(4) any director, executive officer or general partner of the issuer of the
securities being offered or sold, or any director, executive officer, or
general partner of that issuer;
(5) any natural person whose individual net worth, or joint net worth with that
person's spouse, at the time of his purchase exceeds $1,000,000;
(6) any natural person who had an individual income in excess of $200,000 in
each of the two most recent years or joint income with that person's spouse
in excess of $300,000 in each of those years and has a reasonable
expectation of reaching the same income level in the current year;
(7) any trust with total assets in excess of $5,000,000 not formed for the
specific purpose of acquiring the securities offered, whose purchase is
directed by a sophisticated person as described in Section
230.506(b)(2)(ii);
(8) any entity in which all of the equity owners are accredited Investors.
Page -15-
<PAGE> 16
EXHIBIT B
TO INVESTMENT AGREEMENT
TERMS FOR $3,570,000 CONVERTIBLE DEBENTURE OFFERING
CONFIDENTIAL
Page -16-
<PAGE> 17
EXHIBIT C
TO INVESTMENT AGREEMENT
FORM OF CONVERTIBLE DEBENTURE
CONFIDENTIAL
Page -17-
<PAGE> 1
MEDICAL DEVICE ALLIANCE INC.
EXHIBIT 10.05
TERMS FOR CONVERTIBLE DEBENTURE
AGREEMENT
BETWEEN
MEDICAL DEVICE ALLIANCE INC.
AND
E* CAPITAL
<PAGE> 2
FOR ACCREDITED INVESTORS ONLY
MEDICAL DEVICE ALLIANCE, INC.
CONVERTIBLE DEBENTURE INVESTMENT AGREEMENT
THIS INVESTMENT AGREEMENT (the "Agreement") is by and between E* Capital
Corporation (the "Holder") and MEDICAL DEVICE ALLIANCE, INC., A NEVADA
CORPORATION (the "Company").
RECITALS:
WHEREAS:
A. The Holder agrees to purchase a Convertible Debenture, convertible
into the Company's Common Stock, $.001 par value per share (the "Common Stock")
on the terms set forth below which is limited to Accredited Holders only; and
B. The Company and the Holder wish to enter into this Agreement to
reflect the other terms of the investment.
AGREEMENT
NOW, THEREFORE, intending to be legally bound, the parties hereto agree
as follows:
1. INVESTMENT. The Holder hereby agrees to purchase SEVEN HUNDRED FORTY
NINE THOUSAND NINE HUNDRED NINETY FOUR DOLLARS ($749,994.00) in principal amount
of Convertible Debentures, convertible into shares of the Common Stock of the
Company (the "Debenture Shares") at a price of SEVEN DOLLARS ($7.00) (the
"Conversion Price") per share, payable in cash, or good funds (the "Purchase
Price"). In the event the Company should at any time, or from time to time after
the date of issuance hereof, fix a record date for the effectuation of a split
or subdivision of the outstanding shares of the Common Stock or the
determination of holders of the Common Stock entitled to receive a dividend or
other distribution payable in additional shares of the Common Stock, or other
securities or rights convertible into, or entitling the holder thereof to
receive directly or indirectly additional shares of the Common Stock
(hereinafter referred to as the "Common Stock Equivalents") without payment of
any consideration by such holder for the additional shares of the Common Stock
(or the Common Stock Equivalents issuable upon conversion or exercise thereof)
then, as of such record date (or the date of such dividend distribution, split
or subdivision if no record date is fixed), the Conversion Price shall be
appropriately decreased so that the number of Debenture Shares issuable upon
conversion of this Debenture shall be increased in proportion to such increase
of outstanding shares. If the number of shares of the Common Stock outstanding
at any time after the date hereof is decreased by a combination of the
outstanding shares of the Common Stock, then, following the record date of such
combination, the Conversion Price shall be appropriately increased so that the
number of shares of the Common Stock issuable on conversion hereof shall be
decreased in proportion to such decrease in outstanding shares.
Page -2-
<PAGE> 3
2. COMPANY'S REPRESENTATIONS AND WARRANTIES. The Company hereby makes
the following representations and warranties to the Holder which shall also be
true and correct at the closing of the Offering of Convertible Debentures
hereunder (the "Closing"), and which shall survive the Closing:
2.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of Nevada and has all necessary corporate powers to own its properties, and to
carry on its business as now owned and operated by it, and is qualified to do
intrastate business, and is in good standing in Nevada and in all other
jurisdictions in which the nature of the Company's business, or of its
properties, makes such qualification necessary, except jurisdictions where
failure to so qualify would not have a material adverse effect on the business
of the Company.
2.2 CAPITAL STRUCTURE. The authorized number of shares of the Company
is Fifty Million (50,000,000) shares of Common Stock, of which approximately
Nine Million Four Hundred Fifty Seven Thousand Eighty Five (9,457,085) shares
were, as of March 31, 1998, issued and outstanding, together with convertible
debentures, warrants, conversion rights or other rights to acquire approximately
Seven Hundred Fifty Six Thousand Five Hundred Ninety Four (756,594) shares. In
addition, the Company has authorized Twenty Million (20,000,000) shares of
Preferred Stock, of which approximately no shares were, as of March 31, 1998,
issued and outstanding. The Company also has reserved, subject to shareholder
approval, One Million shares issuable under the Medical Device Alliance, Inc.
1997 Stock Compensation Plan, of which options to acquire Two Hundred Forty
Thousand Five Hundred (240,500) have been issued to key employees of the
Company. The Debenture Shares to be issued to the Holder shall be validly
issued, fully paid and non-assessable, and will be issued pursuant to applicable
exemptions from the registration provisions of all federal and state securities
laws. Except for the shares subject to options or conversion rights as set forth
above, there are no other outstanding subscriptions, options, rights, warrants,
securities of any nature obligating the Company to issue or to transfer any
additional shares or securities of any nature.
2.3 DEBTS AND LIABILITIES. The Company has no debts, liabilities or
obligations, whether accrued, absolute, contingent or otherwise, of a material
nature, except for such liabilities and obligations incurred in the ordinary
course of business, or incurred in connection with or as a result of the
transactions contemplated by this Agreement.
2.4 COMPLIANCE WITH LAWS.
(a) To the best of the Company's knowledge, the Company has
complied in all material respects with, and the Company has not been cited for
any violation of, federal, state or local environmental protection laws and/or
regulations, including specifically, without limitation, all laws and
regulations related to the sale of its products by the Company to state or local
or federal government purchasers or contracts to those governmental agencies,
and the Company has not received notice of any past, present or future events
which would reasonably be expected to give rise to any liability for failure to
comply with any federal, state, or local laws or regulations now in force
relating to the protection of the environment.
Page -3-
<PAGE> 4
(b) The Company has not, at any time, operated or provided for
any of its employees, any pension or profit sharing, or similar retirement plan,
or any employer welfare or benefit plan qualified pursuant to the Internal
Revenue Code of 1986, or subject to the Employee Retirement Income Security Act
of 1974, except employee health insurance plans.
(c) To the best of the Company's knowledge, the Company has
complied with, and the Company has received no notice of non-compliance with,
all requirements of the Occupational Safety and Health Act and regulations
promulgated under this legislation, orders, judgments and decrees of any
tribunal pursuant to this legislation applicable to its business or assets,
except for possible instances of non-compliance which would not have a material
adverse effect on its operations.
(d) To the best of the Company's knowledge, the Company is not,
and has not received notice from any governmental agency that it is currently in
violation of any other applicable federal, state or local statute, law or
regulation (including, without limitation, any applicable building, or other
law, ordinance, or regulation) affecting its assets or the operation of its
business, except for possible instances of non-compliance which individually
would not be expected to have a material adverse effect on the business of the
Company.
(e) To the best of the Company's knowledge, it has not caused or
created any environmental discharge of any toxic or hazardous waste, is not
aware of any asbestos in its facilities, and has not violated any law dealing
with the environment, or toxic or hazardous waste.
(f) To the best of the Company's knowledge, the Company and all
of the products which it manufactures, marshals, sells, licenses, imports or
distributes have been at all times and continue to be in substantial compliance
with the Food, Drug and Cosmetic Act and all regulations promulgated thereunder
by the U.S. Food and Drug Administration.
(g) Subject to the truth and accuracy of the representations of
the Holder set forth in Section 4 hereof, the offer, sale and issuance of the
Convertible Debentures, the Debenture Shares are exempt from the registration
requirements of the Act. The Company has complied with all applicable state
"blue sky" or securities laws in connection with the offer, sale and issuance of
the Convertible Debentures as contemplated by this Agreement.
2.5 LITIGATION. The Company has no knowledge of any governmental
investigation against the Company, other than routine government contract
audits. To the best of the Company's knowledge, the Company is not in violation
or infringement of any intellectual property rights, or registrations or
applications therefor, of any other person or business, however, the Company has
been notified that an alleged patent infringement suit has been filed against
the Company and its wholly-owned subsidiary, LySonix, Inc. The suit was filed by
Mentor Corporation (Nasdaq: MNTR), a medical and surgical device company that
develops and markets silicone-based products to specialty medical markets.
Mentor has been trying to develop a device for ultrasound assisted lipoplasty
since 1995 and, to date, has few commercial sales. The Company believes that the
suit filed by Mentor is without merit and substance, however, the Company takes
all legal matters seriously and has retained patent litigation counsel to
aggressively pursue a successful conclusion to this matter and to take any
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<PAGE> 5
other legal action necessary to defend any of the Company's patents. The
Company's Management has extensive experience in protecting intellectual and
proprietary medical device patents. Management is very optimistic regarding the
outcome of this suit. The Company has also been notified of two product
liability claims filed against its wholly owned subsidiary, LySonix, Inc.,
which, in the opinion of the Company's counsel, are covered under the Company's
standard product liability insurance policy. Other than as disclosed above, the
Company knows of no suit, action, arbitration, or legal, administrative, or
other proceeding or pending investigation to which the Company is a party to or,
to the Company's knowledge, is threatened against the Company or its business,
assets or financial condition.
2.6 NO UNDISCLOSED LIABILITIES. There are no liabilities or
obligations of any nature, whether absolute, accrued, contingent or otherwise,
and whether due or to become due (including, without limitation, any liability
for taxes and interest, penalties and other charges payable with respect to any
such liability or obligation) which individually or in the aggregate are
material to the condition (financial or otherwise) of the Company, or prospects
of the Company, which are not incurred in the ordinary course of business.
2.7 FULL AND CORRECT DISCLOSURE. No representation or warranty made
by the Company contained in this Agreement or other information provided, and to
be provided by the Company in any other writing furnished pursuant hereto
contains or will contain an untrue statement of a material fact or fails or will
fail to state a material fact required to be stated herein or therein necessary
to make the statements and facts contained herein or therein, in light of the
circumstances which they were or are made, not false nor misleading.
2.8 CONFLICT OF INTEREST. All purchasing transactions relating to the
Company have been at market prices since inception. The Company has entered into
certain distribution agreements, both as distributor and supplier, and other
agreements with certain other companies in which officers or directors of the
Company or affiliates of officers or directors of the Company have, either
directly or indirectly, a beneficial interest.
2.9 NON-CONTRAVENTION. The execution and delivery of the Agreement by
the Company, and the consummations of the transactions contemplated hereby, does
not conflict with any material terms or provisions of any contract, agreement or
indenture to which the Company is a party, or by which the Company or any of its
properties is subject, or the Company's Certificate of Incorporation and ByLaws,
each as amended to date.
2.10 AUTHORITY; BINDING EFFECT. The Company has obtained all
necessary authorizations and approvals from its Board of Directors and
stockholders, if any, required for the execution and delivery of this Agreement
and the consummations of the transactions contemplated hereby. This Agreement
has been duly executed and delivered by the Company and constitutes the legal,
valid and binding obligations of the Company, enforceable against the Company in
accordance with its terms.
3. COVENANTS OF THE COMPANY. The Company hereby makes the following
covenants, intending to be bound hereby after the Closing.
Page -5-
<PAGE> 6
3.1 The Company agrees to make and keep public information regarding
the Company available as those terms are understood and defined in Rule 144
promulgated under the Act ("Rule 144"), at all times from and after ninety (90)
days following the date of the Company's initial public offering, and to file
with the SEC in a timely manner all reports and other documents required of the
Company under the Act and the Securities Exchange Act of 1934 (the "1934 Act"),
at any time after it has become subject to such reporting requirements.
3.2 The Company shall at all times reserve and keep available out of
its authorized but unissued shares of Common Stock, for the purpose of complying
with the terms of Section 1 of this Agreement, such number of its duly
authorized shares of Common Stock as shall be sufficient to issue, from time to
time, the Debenture Shares to the Holder pursuant to, and in accordance with,
the terms of Section 1 hereof. If at any time the number of authorized but
unissued shares of Common Stock shall not be sufficient for the Company to issue
additional shares of Common Stock to the Holder pursuant to, and in accordance
with, the terms of Section 1 hereof, the Company will forthwith take such
corporate action as may be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purposes.
4. HOLDER'S REPRESENTATIONS. The Holder hereby makes the following
representations to the Company which shall also be true and correct at the
Closing and which shall survive the Closing:
4.1 The Holder represents and warrants that the Holder is an
"Accredited Holder" within the meaning of Regulation D promulgated under the
Act, and as more specifically described in Exhibit A hereto.
4.2 The Holder is, by reason of the Holder's business or financial
experience, or by reason of the business or financial experience of the Holder's
professional adviser, who is not affiliated with and is not compensated directly
or indirectly by the Company, or any affiliate or selling agent of the Company,
is capable of evaluating the merits and risks of the purchase of the Shares and
of protecting the Holder's own interests in connection with the investment
contemplated herein.
4.3 The Holder acknowledges that it has received and carefully
reviewed a copy of the Company's Terms for Convertible Debenture (the "Terms"),
a copy of which is attached hereto as Exhibit "B" and the form of Convertible
Debenture attached hereto as Exhibit "C". The Terms, the form of Convertible
Debenture and this Agreement are hereinafter collectively referred to as the
"Materials," and the Holder further acknowledges that it has read all of the
disclosures set forth in the Materials. The Holder has had the opportunity to
ask questions and receive answers from the Company concerning the terms and
conditions of the offering described in the Materials and by the Company. The
Holder recognizes that the Company has a limited operating history and is a
speculative venture, and that if the Holder invests therein, the Holder may lose
the entire amount of its investment. The Holder acknowledges that its
representatives and the Holder have been provided with the opportunity to obtain
any additional information necessary to verify the accuracy of all information
provided to the Holder in the Materials.
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<PAGE> 7
4.4 In deciding whether to acquire the Convertible Debenture, the
Holder has relied exclusively upon consultations with its legal, financial and
tax advisers with respect to the nature of the investment and the information
provided by the Company in the Materials and this Agreement. None of the
Holder's advisors are affiliated with, or compensated directly or indirectly by,
the Company or any affiliate or selling agent of the Company.
4.5 The Holder understands that neither the Department of
Corporations of the State of Nevada, nor the SEC, nor any other governmental
agency having jurisdiction over the sale and issuance of the Convertible
Debentures will make any finding or determination relating to the
appropriateness for investment of the Convertible Debentures offered by the
Company and that none of them has or will recommend or endorse the Convertible
Debentures.
4.6 The Holder represents that the Convertible Debentures are
purchased for its own account for investment and are not being purchased with a
view to the resale or distribution thereof, and that the Holder has no present
intention of distributing or reselling any portion of the Convertible
Debentures. The Holder acknowledges that it has been informed by the Company
that the Convertible Debentures, and the Debenture Shares, to be issued and
delivered have not been registered under the Act and that the Convertible
Debenture and Debenture Shares must be held indefinitely unless subsequently
registered under the Act or an exemption for such registration is available. The
Holder acknowledges that, other than as may be set forth in the Materials, the
Company has no obligation to register the Convertible Debenture or the Debenture
Shares under the Act. The Holder also acknowledges that it is fully aware of the
restrictions on disposing of the Convertible Debenture and the Debenture Shares
resulting from the provisions of the Act and the General Rules and Regulations
of the SEC thereunder. The Holder further understands that the Convertible
Debentures are not qualified under Nevada Law on the ground that the sale
thereof is exempt under the applicable provisions of Nevada Law.
4.7 The Holder understands that the Convertible Debentures will not
be freely transferable and its ability to transfer the Debenture Shares is also
restricted.
4.8 The Holder recognizes that there is not a public market for the
Convertible Debentures and that there is no assurance that there will be such a
market for these securities. The Holder understands that it may have to hold the
Debenture Shares indefinitely due to the lack of such a market.
4.9 The Holder recognizes that no escrow or minimum amount has been
established for the sale of the Convertible Debentures and that the proceeds
will be immediately received by the Company. The Holder recognizes that the
Company's inability to raise such funds, or additional funds, promptly may
significantly and adversely affect the Company's ability to achieve its
financial objectives, although the Company believes it could maintain its
current operations.
4.10 The Holder represents that it possesses such knowledge and
experience in business and financial matters that it is capable of evaluating
the merits and risks of its investment in the Convertible Debentures. The Holder
also has the degree of sophistication in these matters necessary to understand
(1) the financial and operational information provided to it relating to the
Page -7-
<PAGE> 8
Company, and (2) the potential risk of losing all or a portion of its investment
in the Convertible Debentures. The Holder represents that it is able to bear the
economic risk of a loss of its investment in the securities, that it has funds
adequate to meet personal needs and contingencies and that it has no need for
liquidity of the investment in the Convertible Debentures.
4.11 The Holder recognizes that "stop transfer" instructions will be
issued against its Debenture Shares and that the following legend will be placed
on the Debenture Shares issued:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED SOLELY FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933. THE SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT.
5. REGISTRATION RIGHTS.
5.1 For the period commencing with the issuance of the Convertible
Debentures and terminating one years after the Effective Date as defined below,
if at any time the Company shall propose to register any of its shares for sale
or disposition for its own account for cash under the Act in a public offering,
including an initial public offering (the "IPO") under an S-1 registration
statement other than a registration relating to its employee benefit plans, the
Company shall:
(a) Promptly give to the Holder at least thirty (30) days'
written notice prior to the filing thereof (which shall include, if then
determined, the proposed date on which the registration statement is to be
filed, the proposed price and registration price per share, the number of shares
proposed to be included in such registration, the identity of any proposed
selling stockholders and a list of the jurisdictions in which the Company
intends to attempt to qualify such securities under the applicable blue sky or
other state securities laws); and
(b) Subject to Section 5.2 below, include in such registration
(and any related qualification under blue sky laws or other compliance), and in
any underwriting involved therein, a portion of the Holder's Shares (as
hereinafter defined) which are specified in a written request, or requests, made
by the Holder within ten (10) days after receipt of such written notice from the
Company by the Holder.
The rights of the Holder to registration pursuant to this Section 5.1
shall be conditioned upon the Holder's participation in any underwriting
relating to the Company's registered public offering. The Holder shall (together
with the Company) enter into an underwriting agreement in customary form with
the underwriter or underwriters selected by the Company. The Company will use
its best efforts to include the Holder's Shares in such registration statement.
Notwithstanding any provision of this Section 5.1, if the underwriter, in its
sole discretion, determines that marketing factors require a limitation of the
number of securities to be underwritten, or that the registration statement be
limited to shares offered by the Company only, the underwriter may exclude some
or all of the Holder's Shares for which the Holder seeks registration from
inclusion in the registration and underwriting, which reduction shall be pro
rata among the Holder, the Company, and any other
Page -8-
<PAGE> 9
shareholder whose shares are sought to be included in the registration. The
Company will bear the expenses of such registration, except for an underwriting
commission or discount and the expenses of special counsel for the Holder.
5.2 In addition, from time to time, the Company will register the
Holder's Shares, at its expense, on registration statements or Form S-3 after
the date upon which the Company meets the requirements to register Holder's
Shares on a Form S-3.
5.3 DEFINITIONS. For purposes of this Section 5:
5.3.1 The terms "register", "registered" and "registration" refer
to a registration effected by preparing and filing a registration statement or
similar document in compliance with the Act, and the declaration or ordering of
effectiveness of such registration statement or document; and
5.3.2 The term "Holder's Shares" means any Common Stock issued
upon conversion of the Convertible Debenture held by the Holder and purchased in
this Offering; and
5.3.3 The term "Effective Date" shall mean the date the
effectiveness of the Company's registration on Form S-1, or equivalent
registration, for an initial public offering (IPO) is declared effective by the
SEC.
5.4 INDEMNIFICATION. In the event any Holder's Shares are included in
a registration statement under this Section 5:
5.4.1 To the extent permitted by law, the Company will indemnify
and hold harmless the Holder, and its partners, against any losses, claims,
damages or liabilities (joint or several) to which it may become subject under
the Act, the 1934 Act, or other federal or state law, insofar as such losses,
claims, damages or liabilities (or action in respect thereof) arise out of or
are based upon any of the following statements, omissions or violations
(collectively, a "Violation"): (i) any untrue statement or alleged untrue
statement of a material fact contained in such registration statement, including
any preliminary prospectus or final prospectus contained therein or any
amendments or supplements thereto, (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading, or (iii) any violation or alleged
violation by the Company of the Act, the 1934 Act, any state securities law or
any rule or regulation promulgated under the Act, the 1934 Act or any state
securities law. The Company will reimburse the Holder, and its partners, for any
legal or other expense actually incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action.
Notwithstanding the preceding, the indemnity agreement contained in this Section
6.4.1 shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected without the consent
of the Company (which consent shall not be unreasonably withheld), nor shall the
Company be liable in any such case for any such loss, claim, damage, liability
or action to the extent that it arises out of or is based upon a Violation which
occurs solely in reliance upon or in conformity with written information
furnished expressly for use in connection with such registration by the Holder.
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<PAGE> 10
5.4.2 To the extent permitted by law, the Holder will indemnify
and hold harmless the Company, each of its directors, each of its officers who
has signed the registration statement, each person, if any, who controls the
Company within the meaning of the Act, and any underwriter, against any losses,
claims, damages or liabilities (joint or several) to which the Company or any
such director, officer, controlling person, or underwriter may become subject,
under the Act, the 1934 Act or other federal or state law, insofar as such
losses, claims, damages or liabilities (or actions in respect thereto) arise out
of or are based upon any Violation, in each case to the extent (and only to the
extent) that such Violation occurs solely in reliance upon written information
furnished by the Holder and expressly for use in connection with such
registration. The Holder will reimburse any legal or other expense reasonably
incurred by the Company or any such director, officer, controlling person or
underwriter in connection with investigating or defending any such loss, claim,
damage, liability or action. Notwithstanding the preceding, the indemnity
agreement contained in this Section 6.4.2 shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder, which consent shall
not be unreasonably withheld.
5.4.3 Promptly after receipt by an indemnified party under this
Section 6.4 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 6.4, deliver to
the indemnifying party a written notice of the commencement thereof. Following
receipt of such notice, the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume the defense
thereof with counsel mutually satisfactory to the parties; provided, however,
that an indemnified party shall have the right to retain its own counsel, with
the fees and expenses to be paid by the indemnifying party, if representation of
such indemnified party by the counsel retained by the indemnifying party would
be inappropriate due to actual or potential differing interests between such
indemnified party and any other party represented by such counsel in such
proceeding. The failure to deliver written notice to the indemnifying party
within a reasonable time of the commencement of any such action, if prejudicial
to its ability to defend such action, shall relieve such indemnifying party of
any liability to the indemnified party under this Section 5.4. However, the
omission so to deliver written notice to the indemnifying party will not relieve
it of any liability that it may have to any indemnified party otherwise than
under this Section 5.4.
5.4.4 The obligations of the Company under this Section 5.4 shall
survive the completing of any offering of the Holder's Shares in a registration
statement under this Section 5.
5.5 DELAY. The Holders shall have no right to take any action to
restrain, enjoin or otherwise delay any registration as a result of any
controversy that may arise with respect to the interpretation or implementation
of this undertaking.
5.6 TRANSFER OF REGISTRATION RIGHTS. The rights granted to the Holder
hereunder to cause the Company to register securities pursuant to the terms
hereof may be assigned to a transferee or assignee in connection with any
permitted transfer or assignment of any of the Holder's Shares (including,
without limitation, any transfers or assignments effected by operation of law),
but
Page -10-
<PAGE> 11
excluding any transferee who purchases the Company's Common Shares which have
been otherwise registered.
6. TRANSFER OF CONVERTIBLE DEBENTURES.
With respect to any offer, sale or other disposition of the
Convertible Debentures (or of any securities issued upon conversion of this
Debenture other than pursuant to Section 5 above), the Holder will give written
notice to the Company prior thereto, describing briefly the manner thereof,
together with a written opinion of such Holder's counsel, to the effect that
such offer, sale or other distribution may be effected without registration or
qualification (under any federal or state law then in effect). Promptly upon
receiving such written notice, the Company shall notify such Holder whether such
Holder may sell or otherwise dispose of the Convertible Debentures, all in
accordance with the terms of the notice delivered to the Company.
7. GENERAL PROVISIONS.
7.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations
and warranties of the parties hereto contained in this Agreement will survive
the Closing, are material and have been or will be relied upon by the other
parties.
7.2 NO THIRD PARTIES BENEFITED. This Agreement is made for the
purpose of defining and setting forth certain obligations, rights and duties of
the Company and the Holder in connection with the obligations under this
Agreement. This Agreement is made for the sole protection of the Company and the
Holder. No other person shall have any rights of any nature hereunder or by
reason hereof.
7.3 BINDING EFFECT. This Agreement shall bind, and shall inure to the
benefit of, the Company and the Holder, and their respective heirs, successors,
personal representatives and assigns.
7.4 EXECUTION IN COUNTERPARTS. This Agreement may be executed in any
number of counterparts and any party hereto or thereto may execute any
counterpart, each of which when executed and delivered will be deemed to be an
original and all of which counterparts of this Agreement taken together will be
deemed to be but one and the same instrument. The execution of this Agreement by
any party hereto will not become effective until counterparts hereof or thereof,
as the case may be, have been executed by all the parties hereto or thereto, and
transmitted by facsimile copy with overnight delivery of manually executed
copies.
7.5 PRIOR AGREEMENTS; AMENDMENTS; CONSENTS. This Agreement contains
the entire agreement between the Holder and the Company in regards to the
$2,000,005 Convertible Debenture, and all prior negotiations, understandings and
agreements with regards to the Convertible Debenture are superseded by this
Agreement. No amendment, modification, supplement, termination or waiver of any
provision of this Agreement, and no consent to any departure by the Company
therefrom, shall be effective unless in writing and signed by the Holder, and
then only in the specific instance and for the specific purpose given.
"Including" as used herein means "including, but not limited to."
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<PAGE> 12
7.6 GOVERNING LAW. This Agreement shall be governed by, and construed
and enforced in accordance with, the laws of the State of Nevada.
7.7 SEVERABILITY OF PROVISIONS; CONFLICT. Any provision in this
Agreement that is held to be inoperative, unenforceable or invalid shall be
inoperative, unenforceable or invalid without affecting the remaining
provisions, and to this end the provisions of this Agreement are declared to be
severable. In the event of a conflict between this Agreement and the Materials
as defined herein, the terms of this Agreement shall prevail.
7.8 ATTORNEY'S FEES. In the event that any action, proceeding, or
arbitration is instituted by or against any of the parties in order to enforce
any of the terms or provisions hereof, to construe the rights of the parties
hereunder, then the prevailing party shall be entitled to recover all costs
thereof and reasonable attorneys' fees as part of the judgment, whether or not
such action is prosecuted to judgment.
7.9 CONFIDENTIALITY. The Holder acknowledges and agrees that the
non-public information it has received and will receive about the Company and
the Company's financial performance is confidential, and agrees to use all
reasonable efforts to maintain the confidentiality thereof. Any Confidentiality
Agreement between the Holder and the Company, including the foregoing, is hereby
modified, only to the extent necessary, to permit the Holder to exercise and
protect its rights under this Agreement, or as a shareholder of the Company.
8. NOTICES. Any notice or demand to the Company under this Agreement may
be given and shall conclusively be deemed and considered to have been given and
received upon the date shown to have been received on any postal receipt or
independent courier receipt at the address of the Company appearing on the
records of the Holder, but actual written notice (including by telefax, hand
delivery, Federal Express, or other means), however given or received, shall
always be effective. For the purposes hereof, the addresses of the Company and
the Holder (until notice of a change thereof is given as provided in this
Section 9. shall be as follows:
If to Holder: At the address set forth on the signature page hereof
If to the Company: MEDICAL DEVICE ALLIANCE, INC.
3800 Howard Hughes Parkway Suite 1800
Las Vegas, NV. 89109
Attn: Chairman of the Board
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<PAGE> 13
SIGNATURES ON NEXT PAGE
IN WITNESS WHEREOF, the parties have signed this Agreement as of May 5,
1998 at Las Vegas, Nevada.
"HOLDER"
E* CAPITAL CORPORATION
/s/ E. Wedbush
----------------------------------------
Signed
By: E. Wedbush
-------------------------------------
Printed Name
Title: President
-----------
Address:
P.O. Box 71029
----------------------------------------
Los Angeles, CA 71029
----------------------------------------
Tax I.D. or Social Security Number:
95-356499
----------------------------------------
THIS AGREEMENT IS ONLY EFFECTIVE
WHEN ACCEPTED IN WRITING BY THE COMPANY
"COMPANY"
MEDICAL DEVICE ALLIANCE, INC.
A NEVADA CORPORATION
Dated: May 5, 1998 By: /s/ Donald K. McGhan
----- -------------------------------------
Its: Chairman
------------------------------------
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<PAGE> 14
LIST OF EXHIBITS
TO
INVESTMENT AGREEMENT
EXHIBIT A - DEFINITION OF AN "ACCREDITED HOLDER"
EXHIBIT B - TERMS FOR CONVERTIBLE DEBENTURE
EXHIBIT C - FORM OF CONVERTIBLE DEBENTURE
Page -14-
<PAGE> 15
EXHIBIT A TO INVESTMENT AGREEMENT
DEFINITION OF ACCREDITED HOLDER
REGULATION D
To be eligible to purchase the Convertible Debentures, prospective investors
must meet the Accredited Investor requirements described below.
Under Regulation D an "Accredited Investor" shall mean any person who comes
within any of the following categories, or who the issuer reasonably believes
comes within any of the following categories at the time of the sale of the
securities to that person:
(1) any bank as defined in section 3(a)(2) of the Act, or any savings and loan
association or other institution as defined in section 3(a)(5)(A) of the
Securities Act of 1991 whether acting in its individual or fiduciary
capacity; any broker or dealer registered pursuant to section 15 of the
Securities Exchange Act of 1934; any insurance company as defined in
section 2(13) of the Act; any investment company registered under the
Investment Company Act of 1940 or a business development company as defined
in section 2(a)(48) of that Act; Small Business Investment Company licensed
by the U.S. Small Business Administration under section 301(c) or (d) of
the Small Business Investment Act of 1958; any plan established and
maintained by a state, its political subdivisions, or any agency or
instrumentality of a state or its political subdivisions for the benefit of
its employees, if such plan has total assets in excess of $5,000,000;
employee benefit plan within the meaning of the Employee Retirement Income
Security Act of 1974 if the investment decision is made by a plan
fiduciary, as defined in Section 3(21) of such Act, which is either a bank,
savings and loan association, insurance company, or registered investment
adviser, or if the employee benefit plan has total assets in excess of
$5,000,000 or, if a self-directed plan, with investment decisions made
solely by persons that are accredited Holders;
(2) any private business development company as defined in section 202(a)(22)
of the Investment Advisors Act of 1940;
(3) any organization described in Section 501(c)(3) of the Internal Revenue
Code, corporation, Massachusetts or similar business trust, or partnership
not formed for the specific purpose of acquiring the securities offered,
with total assets in excess of $5,000,000;
(4) any director, executive officer or general partner of the issuer of the
securities being offered or sold, or any director, executive officer, or
general partner of that issuer;
(5) any natural person whose individual net worth, or joint net worth with that
person's spouse, at the time of his purchase exceeds $1,000,000;
(6) any natural person who had an individual income in excess of $200,000 in
each of the two most recent years or joint income with that person's spouse
in excess of $300,000 in each of those years and has a reasonable
expectation of reaching the same income level in the current year;
(7) any trust with total assets in excess of $5,000,000 not formed for the
specific purpose of acquiring the securities offered, whose purchase is
directed by a sophisticated person as described in Section
230.506(b)(2)(ii);
(8) any entity in which all of the equity owners are accredited Investors.
Page -15-
<PAGE> 16
EXHIBIT B
TO INVESTMENT AGREEMENT
TERMS FOR CONVERTIBLE DEBENTURE
CONFIDENTIAL
Page -16-
<PAGE> 17
EXHIBIT C
TO INVESTMENT AGREEMENT
FORM OF CONVERTIBLE DEBENTURE
CONFIDENTIAL
Page -17-
<PAGE> 1
MEDICAL DEVICE ALLIANCE INC.
EXHIBIT 10.06
FORM
OF
INDEMNIFICATION AGREEMENT
<PAGE> 2
FORM OF
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (the "Agreement) is entered into as of
the date hereinafter set forth between MEDICAL DEVICE ALLIANCE, INC., a Nevada
corporation and ____________________ ("Indemnitee").
RECITALS
A. The Indemnitee is currently serving or has agreed to serve as a
director, officer, employee or consultant of Medical Device Alliance, Inc.,
and/or a subsidiary of Medical Device Alliance, Inc. (collectively, the
"Company"), and in such capacity has rendered or will render valuable services
to the Company. Only those consultants or employees approved by the Board of
Directors of the Company will be offered an Indemnification Agreement; and
B. The Company has investigated the availability and sufficiency of
liability insurance and Nevada statutory indemnification provisions to provide
its directors, officers and certain consultants and employees with adequate
protection against various legal risks and potential liabilities to which such
individuals are subject due to their positions with the Company and has
concluded that such insurance and statutory provisions may provide inadequate
and unacceptable protection to certain individuals requested to serve as its
directors, officers and certain consultants and employees; and
C. In order to induce and encourage highly experienced and capable
persons such as the Indemnitee to continue to serve as a director, officer,
employee or consultant of the Company, the Board of Directors has determined,
after due consideration and investigation of the terms and provisions of this
Agreement and the various other options available to the Company and the
Indemnitee in lieu hereof, that this Agreement is not only reasonable and
prudent, but necessary to promote and ensure the best interests of the Company
and its shareholders.
AGREEMENT
NOW, THEREFORE, in consideration of the services of the Indemnitee and
in order to induce the Indemnitee to serve as a director, officer, consultant or
employee, the Company and Indemnitee hereby agree as follows:
1. DEFINITIONS. As used in this Agreement:
1.1 "Proceeding" means any threatened, pending or completed
action, suit or proceeding, formal or informal, whether brought in the name of
the Company or otherwise and whether of a civil, criminal, administrative or
investigative nature, in which Indemnitee may be or may have been involved as a
party or otherwise, by reason of the fact that Indemnitee is or was a director,
officer, consultant or employee of the Company, or is or was serving at the
request of the Company as a director, officer, consultant or employee of another
corporation, partnership, joint venture, trust or other enterprise, whether or
not he or she is serving in such capacity at the time any liability or expense
is incurred for which indemnification or reimbursement can be provided under
this Agreement.
<PAGE> 3
1.2 "Expenses" includes, without limitation, attorneys' fees,
disbursements and retainers, accounting and witness fees, travel and deposition
costs, expenses of investigations, judicial or administrative Proceedings and
appeals, amounts paid in settlement by or on behalf of Indemnitee, and any
expenses of establishing a right to indemnification, pursuant to this Agreement
or otherwise, including reasonable compensation for time spent by Indemnitee in
connection with the investigation, defense or appeal of a Proceeding or action
for indemnification for which he or she is not otherwise compensated by the
Company or any third party. The term "Expenses" does not include the amount of
judgments, fines, penalties or ERISA excise taxes actually levied against
Indemnitee.
1.3 "Other enterprise" shall include employee benefit plans;
"Fines" shall include any excise tax assessed with respect to any employee
benefit plan; and "Serving at the request of the Company" shall include any
service as a director, officer, consultant or employee of the Company which
imposes duties on, or involves services by, such director, officer, consultant
or employee with respect to an employee benefit plan, its participants, or
beneficiaries.
1.4 "Independent Legal Counsel" means an attorney mutually
agreeable to the Company and Indemnitee, with such attorney to be designation
within ten (10) days after notice by one party to the other. If the Company and
Indemnitee cannot agree upon the selection of such attorney within such ten (10)
days period, an attorney shall be selected by the Company from among five (5)
attorneys designated in writing by the Indemnitee and delivered to the Company
within five (5) days after the end of such ten (10) day period; provided,
however, that the attorneys so designated have a minimum of ten (10) years' of
experience in corporate law. If the Company and Indemnitee cannot agree upon the
selection of such attorney, and if Indemnitee fails to designate said five (5)
attorneys in writing to the Company within the period described above, the
Company alone shall choose the Independent Legal Counsel.
2. AGREEMENT TO SERVE. The Indemnitee agrees to continue to serve as a
director, officer, consultant or employee of the Company at the will of the
Company under the terms of his or her agreement with the Company, if any, for so
long as he or she is duly elected or appointed or until such time as he or she
tenders his or her resignation in writing or is removed as a director, officer,
consultant or employee.
3. INDEMNIFICATION IN THIRD PARTY ACTION. The Company shall indemnify
Indemnitee if Indemnitee is a party to or threatened to be made a party to or is
otherwise involved in any Proceeding (other than a Proceeding by or in the name
of the Company to procure a judgment in its favor) by reason of the fact that
Indemnitee is or was a director, officer, consultant or employee of the Company
or is or was serving at the request of the Company as a director, officer,
consultant or employee of another corporation, partnership, joint venture, trust
or other enterprise, against all Expenses, judgments, fines, penalties and ERISA
excise taxes actually and reasonably incurred by Indemnitee in connection with
the defense or settlement of such Proceeding, to the fullest extent permitted by
Nevada law and the Company's Articles of Incorporation; provided that any
settlement of a Proceeding is approved in writing by the Company prior to
settlement.
<PAGE> 4
4. INDEMNIFICATION IN PROCEEDINGS BY OR IN THE NAME OF THE COMPANY. The
Company shall indemnify Indemnitee if Indemnitee is a party to or threatened to
be made a party to or is otherwise involved in any Proceeding by or in the name
of the Company to procure a judgment in its favor by reason of the fact that
Indemnitee is or was a director, officer, consultant or employee of the Company
or is or was serving at the request of the Company as a director, officer,
consultant or employee of another corporation, partnership, joint venture, trust
or other enterprise, against all Expenses, judgments, fines, penalties and ERISA
excise taxes actually and reasonably incurred by Indemnitee in connection with
the defense or settlement of such Proceeding, to the fullest extent permitted by
Nevada law and the Company's Articles of Incorporation.
5. CONCLUSIVE PRESUMPTION REGARDING STANDARDS OF CONDUCT. Indemnitee
shall be conclusively presumed to have met the relevant standards of conduct, if
any, as defined by Nevada law, for indemnification pursuant to this Agreement,
unless a determination that Indemnitee has not met such standards is made by:
(i) the Board of Directors with a majority vote of a quorum thereof consisting
of directors who are not parties to any Proceeding under which a claim is made;
(ii) the shareholders of the Company with a majority vote of a quorum thereof
consisting of shareholders who are not parties to any Proceeding under which a
claim is made; (iii) a written opinion of the Independent Legal Counsel; or (iv)
a ruling by a court of competent jurisdiction.
6. INDEMNIFICATION OF EXPENSES OF SUCCESSFUL PARTY. Notwithstanding any
other provision of this Agreement, to the extent that Indemnitee has been
successful in defense of any Proceeding or in defense of any claim, issue or
matter therein, or the merits or otherwise, including the dismissal of a
Proceeding without prejudice or the settlement of a Proceeding without an
admission of liability, Indemnitee shall be indemnified against all Expenses
incurred in connection therewith to the fullest extent permitted by Nevada law.
7. ADVANCES OF EXPENSES. The Expenses incurred by Indemnitee in any
Proceeding shall be promptly paid by the Company in advance of the final
disposition of the Proceeding at the written request of Indemnitee to the
fullest extent permitted by Nevada law; provided that Indemnitee shall state in
writing that he or she will repay any advances if it is ultimately determined
that Indemnitee is not entitled to indemnification.
8. PARTIAL INDEMNIFICATION. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for a portion of
the Expenses, judgments, fines, penalties or ERISA excise taxes actually and
reasonably incurred by him or her in the investigation, defense, appeal or
settlement of any Proceeding but not, however, for the total amount of his or
her Expenses, judgments, fines, penalties or ERISA excise taxes, the Company
shall nevertheless indemnify Indemnitee for the portion of Expenses, judgments,
fines, penalties or ERISA excise taxes to which Indemnitee is entitled.
9. DETERMINATION OF RIGHT TO INDEMNIFICATION.
9.1 NOTICE. Promptly after receipt by Indemnitee of notice of
the commencement of any Proceeding, the Indemnitee shall, if a claim in respect
thereof is to be made against the Company under this Agreement, notify the
Company in writing of the commencement thereof. The omission to so notify the
Company will not relieve the Company from any liability which it may have to the
Indemnitee other than under this Agreement.
<PAGE> 5
9.2 ENFORCEMENT. If a claim for indemnification or advances
under this Agreement is not paid by the Company within thirty (30) days of
receipt of written notice by Indemnitee, the rights provided by this Agreement
shall be enforceable by Indemnitee in any court of competent jurisdiction. The
burden of proving by clear and convincing evidence that indemnification or
advances are not appropriate shall be on the Company. Neither the failure of the
directors or shareholders of the Company or the Independent Legal Counsel to
have made a determination prior to the commencement of such action that
indemnification or advances are proper in the circumstances because Indemnitee
has met the applicable standard of conduct, if any, nor an actual determination
by the directors or shareholder of the Company or Independent Legal Counsel that
Indemnitee has not met the applicable standard of conduct, shall be a defense to
the action or create a presumption for the purpose of an action that Indemnitee
has not met the applicable standard of conduct.
9.3 EXPENSES. Indemnitee's expenses incurred in connection with
any proceeding concerning his or her right to indemnification or advances in
whole or in part pursuant to this Agreement shall also be indemnified by the
Company regardless of the outcome of such proceeding.
9.4 PARTICIPATION. With respect to any Proceeding for which
indemnification is requested, the Company will be entitled to participate
therein at its own expenses and, except as otherwise provided below, the Company
may assume the defense thereof to the extent that it may wish, with counsel
satisfactory to Indemnitee. After notice from the Company to Indemnitee of its
election to assume the defense of a Proceeding, the Company will not be liable
to Indemnitee under this Agreement for any Expenses subsequently incurred by
Indemnitee in connection with the defense thereof, other than as provided below.
The Company shall not settle any Proceeding in any manner which would impose any
penalty or limitation on Indemnitee without Indemnitee's written consent.
Indemnitee shall have the right to employ his or her own counsel in any
Proceeding, but the fees and expenses of such counsel incurred after notice from
the Company of its assumption of the defense of the Proceeding shall be at the
expenses of Indemnitee, unless: (i) the employment of counsel by Indemnitee has
been authorized in writing by the Company; (ii) Indemnitee shall have reasonably
concluded that there may be a conflict of interest between the Company and
Indemnitee in the conduct of the defense of a Proceeding; or (iii) the Company
shall not, in fact, have employed counsel to assume the defense of a Proceeding,
in each of which cases the fees and expenses Indemnitee's counsel shall be
advanced by the Company. The Company shall not be entitled to assume the defense
of any Proceeding brought by or on behalf of the Company or as to which
Indemnitee has concluded that there may be a conflict of interest between the
Company and Indemnitee.
10. LIMITATIONS ON INDEMNIFICATION. No payments pursuant to this
Agreement shall be made by the Company:
10.1 VOLUNTARY ACTIONS. To indemnify or advance funds to
Indemnitee for Expenses with respect to Proceedings initiated or brought
voluntarily by Indemnitee and not by way of defense, except with respect to
Proceedings brought to establish or enforce a right to indemnification under
this Agreement or any other statute or law or otherwise as required under Nevada
law, but such indemnification or advancement of expenses may be provided in the
Company in specific cases if the Board of Directors finds it to be appropriate;
10.2 INSURANCE PROCEEDS. To indemnify Indemnitee for any
Expenses, judgments, fines, penalties or ERISA excise taxes sustained in any
Proceeding for which payment is actually made
<PAGE> 6
to Indemnitee under a valid and collectible insurance policy, except in respect
of any excess beyond the amount of payment under such insurance;
10.3 SECURITIES LAWS. To indemnify Indemnitee for any Expenses,
judgments, fines or penalties sustained in any Proceeding for an accounting of
profits made from the purchase or sale by Indemnitee of securities of the
Company pursuant to the provisions of Section 16(b) of the Securities Exchange
Act of 1934, the rules and regulations promulgated thereunder and amendments
thereto or similar provisions of any federal, state or local statutory law; and
10.4 UNLAWFUL. If a court of competent jurisdiction finally
determines that any indemnification hereunder is unlawful.
11. MAINTENANCE OF LIABILITY INSURANCE.
11.1 PURCHASE. Subject to Section 11.3 hereof, the Company
hereby covenants and agrees that, as long as Indemnitee continues to serve as a
director, officer, consultant or employee of the Company and thereafter as long
as Indemnitee may be subject to any possible Proceeding, the Company, subject to
Section 11.3, shall promptly obtain and maintain in full force and effect
directors' and officers' liability insurance ("D&O Insurance") in reasonable
amounts issued by established and reputable insurers.
11.2 INSURED. In all D&O Insurance policies, Indemnitee shall be
named as an insured in such a manner as to provide Indemnitee the same rights
and benefits as are accorded to the most favorably insured of the Company's
directors, officers, consultants or employees.
11.3 NO OBLIGATION. Notwithstanding the foregoing, the Company
shall have no obligation to obtain or maintain D&O Insurance if the Company
determines, in its sole and absolute discretion, that such insurance is not
reasonably available, the premium costs for such insurance are disproportionate
to the amount of coverage provided, the coverage provided by such insurance is
so limited by exclusions that it provides an insufficient benefit, or Indemnitee
is covered by similar insurance maintained by a subsidiary of the Company.
12. INDEMNIFICATION HEREUNDER NOT EXCLUSIVE. The indemnification
provided by this Agreement shall not be deemed exclusive of any other rights to
which Indemnitee may be entitled under the Articles of Incorporation, By-Laws,
any agreement, any vote of shareholders or disinterested directors, provision of
Nevada law, or otherwise, both as to action in his or her official capacity and
as to action in another capacity on behalf of the Company while holding such
office.
13. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon, and
shall inure to the benefit of, Indemnitee and his or her heirs, executors,
administrators and assigns, whether or not Indemnitee has ceased to be a
director, officer, consultant or employee, and the Company and its successors
and assigns.
14. SEPARABILITY. Each and every paragraph, sentence, term and provision
of this Agreement is separate and distinct so that if any paragraph, sentence,
term or provision hereof shall be held to be invalid or unenforceable for any
reason, such invalidity or unenforceability shall not affect the validity or
enforceability of any other paragraph, sentence, term and provision hereof. To
the extent required, any paragraph, sentence, term or provision of this
Agreement may be modified by a
<PAGE> 7
court of competent jurisdiction to preserve its validity and to provide
Indemnitee with the broadest possible indemnification permitted under Nevada
law.
15. SAVINGS CLAUSE. If this Agreement or any paragraph, sentence, term
or provision hereof shall be invalidated on any ground by any court of competent
jurisdiction, the Company shall nevertheless indemnify Indemnitee as to any
Expenses, judgments, fines, penalties or ERISA excise taxes incurred with
respect to any Proceeding to the full extent permitted by any applicable
paragraph, sentence, term or provision of this Agreement that has not been
invalidated or by any other applicable Nevada law.
16. INTERPRETATION; GOVERNING LAW. This Agreement shall be construed as
a whole and in accordance with its fair meaning. Headings are for convenience
only and shall not be used in construing meaning. This Agreement shall be
governed by and interpreted in accordance with the laws of the State of Nevada.
17. AMENDMENTS. No amendment, waiver, modification, termination or
cancellation of this Agreement shall be effective unless in writing signed by
the party against whom enforcement is sought. The indemnification rights
afforded to Indemnitee hereby are contract rights and may not be diminished,
eliminated or otherwise affected by amendments to the Articles of Incorporation,
By-Laws or by other agreements, including D&O Insurance policies.
18. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
party and delivered to the other.
19. NOTICES. Any notice required to be given under this Agreement shall
be directed to the Company at the address set forth below and to Indemnitee at
the address set forth after Indemnitee's signature below, or to such other
address as either shall designate in writing.
IN WITNESS WHEREOF, The parties have executed this Indemnification
Agreement to be effective as of the ____ day of ____, 1998.
"COMPANY" "INDEMNITEE"
MEDICAL DEVICE ALLIANCE, INC.
a Nevada Corporation
-----------------------------------------
By: Address:
---------------------------------
Its: Chairman of the Board ---------------------------------
Address: 3800 Howard Hughes Parkway
Suite 1800 ---------------------------------
Las Vegas, NV. 89109
<PAGE> 1
MEDICAL DEVICE ALLIANCE INC.
EXHIBIT 10.07
FORM
OF
SELLING AGENT WARRANT
MEDICAL DEVICE ALLIANCE INC.
COMMON STOCK
<PAGE> 2
FORM OF
MEDICAL DEVICE ALLIANCE, INC.
SELLING AGENT WARRANT
This MEDICAL DEVICE ALLIANCE, Inc. Selling Agent Warrant (the "Warrant")
is made and entered into at Las Vegas, Nevada, on the date hereinafter set forth
by and between MEDICAL DEVICE ALLIANCE, INC., a Nevada Corporation, hereinafter
called the "Company", and the undersigned, hereinafter called the "Holder".
WHEREAS:
A. The Holder has acted as an agent of the Company in selling Common Stock
for the Company pursuant to the Private Placement Memorandum dated
November 1, 1996, (the "Offering") whereby the Company offered for sale
SEVEN MILLION FIVE HUNDRED THOUSAND DOLLARS ($7,500,000) of Common Stock
at a price of FIVE DOLLARS ($5.00) per Share; and
B. The Holder is entitled to a warrant which gives the Holder the right,
but not the obligation, to acquire the amount of Common Stock set forth
on the signature page hereof at the price as defined below as a result
of services rendered to the Company in connection with the Offering.
NOW, THEREFORE, in consideration of the premises and promises, warranties and
representations herein contained, it is agreed as follows:
1. WARRANT. Subject to the conditions set forth herein, the Company
hereby grants to the Holder the right, privilege and option to purchase up to
that number of shares of Common Stock set forth on the signature page hereto at
the Strike Price per share set forth below (the "Warrant Shares"), said number
of Warrant Shares and said Strike Price being subject to adjustment as provided
herein. No fractional Warrants will be issued.
2. STRIKE PRICE. The initial price per share for the Warrant Shares (the
"Strike Price") shall be FIVE DOLLARS ($5.00) per share. If from time to time
after the date hereof the Company completes any private placement sales of
Common Stock, or any preferred stock of the Company convertible into or
exchangeable for Common Stock (each a "Private Placement"), or an Initial Public
Offering or issues any warrant to purchase Common Stock, at a purchase or
"strike" price (in the case of Common Stock), or with a conversion price or
exchange rate (in the case of any preferred stock of the Company), lower than $5
per share, adjusted for stock splits, stock dividends or recapitalization, the
Strike Price shall be reduced to the purchase price (or conversion price or
exchange rate, as applicable) per share, as adjusted, at which such shares of
Common Stock or convertible preferred stock are sold.
<PAGE> 3
3. METHOD OF EXERCISE. Stock purchased under this Warrant shall, at the
time of purchase, be paid for in full. The right to purchase shares hereunder
may be exercised, from time to time, by written notice to the Company stating
the number of shares with respect to which this Warrant is being exercised and
the time of delivery thereof, which shall be at least ten (10) days after the
giving of such notice, unless an earlier date shall have been mutually agreed
upon. At the time specified in such notice, the Company shall, without transfer
or issue tax to the Holder, deliver to him by certified mail, a certificate or
certificates for such shares, against the payment of the Strike Price, in full,
for the number of shares to be delivered, by certified or bank cashier's check,
or the equivalent thereof acceptable to the Company. Provided, however, that the
time of such delivery may be postponed by the Company for such period as may be
required for it, with reasonable diligence, to comply with any requirements of
any state or federal agency or any securities exchange and further provided that
no fractional shares of Common Stock will be issued. If the Holder fails to
accept delivery of and pay for all or any part of the number of shares specified
in the notice given by the Holder, upon tender and delivery of said shares, the
Holder's right to exercise this Warrant with respect to such undelivered shares
shall be terminated. If this Warrant is exercised within six (6) months of the
Company's Initial Public Offering (IPO), the Holder shall execute a lock-up
agreement for the balance of the six month period following the IPO.
4. TERMINATION OF WARRANT. Except as herein otherwise stated, this
Warrant, to the extent not theretofore exercised, shall terminate at 5:00 p.m.
Pacific Standard Time three (3) years after the date of issuance as stated on
the signature page hereof.
5. RECLASSIFICATION, CONSOLIDATION OR MERGER. If, and to the extent that
the number of issued shares of Common Stock of the Company shall be increased or
reduced by a change in par value, subdivision, combination, split-up,
reclassification, distribution of a dividend payable in stock, or the like (but
excluding dividends payable in cash), the number of Warrant Shares subject to
this Warrant, and the Strike Price therefor, shall be proportionately adjusted.
If the Company is reorganized or consolidated, or merged with any other
corporation, the Holder shall be entitled to receive warrants covering shares of
such reorganized, consolidated or merged Company in the same proportion, at an
equivalent price, and subject to the same conditions.
6. RIGHTS PRIOR TO EXERCISE OF WARRANT. The Holder shall have no rights
as a shareholder of shares subject to this Warrant until payment of the Strike
Price and the delivery of such shares as herein provided.
7. CERTAIN COVENANTS OF THE COMPANY. The Company covenants and agrees
that all shares which may be issued upon the exercise of this Warrant, will,
upon issuance, be duly and validly issued, fully paid and nonassessable; and
will from time to time take all such action as may be requisite to assure that
the par value per share of the Common Stock is at all times equal to or less
than the then effective purchase price per share of the Common Stock issuable
pursuant to the Warrant. The Company further
<PAGE> 4
covenants and agrees that, during the period within which the rights represented
by this Warrant may be exercised, the Company will at all times have authorized,
and reserved for the purpose of issuance upon exercise of the purchase rights
evidenced by this Warrant, a sufficient number of shares of its Common Stock to
provide for the exercise of the rights represented by this Warrant. The Company
also further covenants that it will not, by amendment of its Certificate of
Incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issuance or sale of securities or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
of this Warrant, but will at all times in good faith assist in the carrying out
of all such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the holder of this Warrant against
impairment. Without limiting the generality of the foregoing, the Company (a)
will not increase the par value of any shares of stock issuable upon the
exercise of this Warrant above the amount payable therefor on such exercise, and
(b) will take all action that may be necessary or appropriate in order that the
Company may validly and legally issue fully paid and nonassessable shares of
stock on the exercise of this Warrant. So long as this Warrant is outstanding,
the Company shall not grant to any person or entity any anti-dilution rights on
terms more favorable than those granted to the Holder hereunder.
8. TRANSFER OF WARRANT. This Warrant may be transferred by the Holder
with the prior written consent of the Company, which shall not be unreasonably
withheld, and subject to the transferee qualifying as an Accredited Investor and
making the same representations to the Company as set forth herein and subject
to the first refusal right described in Paragraph 9. below.
9. RIGHT OF FIRST REFUSAL. Prior to any transfer of this Warrant by the
Holder, the Holder shall give written notice by certified or registered mail,
return receipt requested, to the Company specifying the price, terms and name
and address of the proposed transferee (the "Notice"). The Company shall have
thirty (30) days from receipt of said Notice to acquire the Warrant under the
same price and terms as specified by the Holder in the Notice.
10. REGISTRATION RIGHTS. The Holder shall have no registration rights
for this Warrant.
11. UNDERSTANDING OF HOLDER. The Company's obligation to issue and/or
register the Warrant Shares as set forth herein shall be conditioned upon a
timely receipt by the Company in writing of:
(a) With respect to issuance, investment representations as
deemed appropriate by the Company in its sole and absolute discretion sufficient
to assure the Company that the Warrant Shares upon issuance will be exempt from
registration under the Securities Act of 1933, as amended (the "Act"); and
<PAGE> 5
(b) With respect to registration, information as the Company may
reasonably require from Holder, or any underwriter, for inclusion in such
registration statement.
12. BINDING EFFECT. This Warrant shall be binding upon the heirs,
executors, administrators and successors of the parties hereto.
13. GOVERNING LAW.This Warrant shall be governed by, and construed and
enforced in accordance with, the laws of the State of Nevada.
14. NOTICES. Any notice or demand to the Company under this Warrant may
be given and shall conclusively be deemed and considered to have been given and
received upon the date shown to have been received on any postal receipt or
independent courier receipt at the address of the Company appearing on the
records of the Holder, but actual written notice (including by telefax, hand
delivery, Federal Express, or other means), however given or received, shall
always be effective. For the purposes hereof, the addresses of the Company and
the Holder (until notice of a change thereof is given as provided in this
Section 14.) shall be as follows:
If to the Holder: At the address set forth on the
signature page hereof
If to the Company: MEDICAL DEVICE ALLIANCE, INC.
3800 Howard Hughes Pkwy. Suite 1800
Las Vegas, NV 89109
Attn: Chairman of the Board
15. EXECUTION IN COUNTERPARTS. This Warrant may be executed in any
number of counterparts and any party hereto or thereto may execute any
counterpart, each of which when executed and delivered will be deemed to be an
original and all of which counterparts of this Warrant taken together will be
deemed to be but one and the same instrument. The execution of this Warrant by
any party hereto will not become effective until counterparts hereof or thereof,
as the case may be, have been executed by all the parties hereto or thereto, and
transmitted by facsimile copy with overnight delivery of manually executed
copies. Notwithstanding the above, the date of issuance of this Warrant shall be
the date which is specifically indicated on the signature page hereof.
SIGNATURES ON NEXT PAGE
<PAGE> 6
IN WITNESS WHEREOF, the parties have caused this Selling Agent Warrant
to be executed on this 31st day of MARCH, 1997.
"Company"
MEDICAL DEVICE ALLIANCE, INC., a Nevada Corporation
By:
------------------------------------
Chairman of the Board
"Holder"
---------------------------------------
Signature
Address:
Tax Id. or Soc. Sec. Number:
DATE OF ISSUANCE OF WARRANT:
MARCH 31, 1997
AMOUNT OF WARRANT SHARES:
<PAGE> 1
MEDICAL DEVICE ALLIANCE INC.
EXHIBIT 10.08
FORM
OF
SELLING AGENT WARRANT
MEDICAL DEVICE ALLIANCE INC.
SERIES A PREFERRED STOCK
<PAGE> 2
FORM OF
MEDICAL DEVICE ALLIANCE, INC.
SELLING AGENT WARRANT
This MEDICAL DEVICE ALLIANCE, Inc. Selling Agent Warrant (the "Warrant")
is made and entered into at Las Vegas, Nevada, on the date hereinafter set forth
by and between MEDICAL DEVICE ALLIANCE, INC., a Nevada Corporation, hereinafter
called the "Company", and the undersigned, hereinafter called the "Holder".
WHEREAS:
A. The Holder has acted as an agent of the Company in selling Common Stock
for the Company pursuant to the Private Placement Memorandum dated
November 1, 1996, (the "Offering") whereby the Company offered for sale
SEVEN MILLION FIVE HUNDRED THOUSAND DOLLARS ($7,500,000) of Common Stock
at a price of FIVE DOLLARS ($5.00) per Share; and
B. The Holder is entitled to a warrant which gives the Holder the right,
but not the obligation, to acquire the amount of Common Stock set forth
on the signature page hereof at the price as defined below as a result
of services rendered to the Company in connection with the Offering.
NOW, THEREFORE, in consideration of the premises and promises, warranties and
representations herein contained, it is agreed as follows:
1. WARRANT. Subject to the conditions set forth herein, the Company
hereby grants to the Holder the right, privilege and option to purchase up to
that number of shares of Common Stock set forth on the signature page hereto at
the Strike Price per share set forth below (the "Warrant Shares"), said number
of Warrant Shares and said Strike Price being subject to adjustment as provided
herein. No fractional Warrants will be issued.
2. STRIKE PRICE. The initial price per share for the Warrant Shares (the
"Strike Price") shall be FIVE DOLLARS ($5.00) per share. If from time to time
after the date hereof the Company completes any private placement sales of
Common Stock, or any preferred stock of the Company convertible into or
exchangeable for Common Stock (each a "Private Placement"), or an Initial Public
Offering or issues any warrant to purchase Common Stock, at a purchase or
"strike" price (in the case of Common Stock), or with a conversion price or
exchange rate (in the case of any preferred stock of the Company), lower than $5
per share, adjusted for stock splits, stock dividends or recapitalization, the
Strike Price shall be reduced to the purchase price (or conversion price or
exchange rate, as applicable) per share, as adjusted, at which such shares of
Common Stock or convertible preferred stock are sold.
<PAGE> 3
3. METHOD OF EXERCISE. Stock purchased under this Warrant shall, at the
time of purchase, be paid for in full. The right to purchase shares hereunder
may be exercised, from time to time, by written notice to the Company stating
the number of shares with respect to which this Warrant is being exercised and
the time of delivery thereof, which shall be at least ten (10) days after the
giving of such notice, unless an earlier date shall have been mutually agreed
upon. At the time specified in such notice, the Company shall, without transfer
or issue tax to the Holder, deliver to him by certified mail, a certificate or
certificates for such shares, against the payment of the Strike Price, in full,
for the number of shares to be delivered, by certified or bank cashier's check,
or the equivalent thereof acceptable to the Company. Provided, however, that the
time of such delivery may be postponed by the Company for such period as may be
required for it, with reasonable diligence, to comply with any requirements of
any state or federal agency or any securities exchange and further provided that
no fractional shares of Common Stock will be issued. If the Holder fails to
accept delivery of and pay for all or any part of the number of shares specified
in the notice given by the Holder, upon tender and delivery of said shares, the
Holder's right to exercise this Warrant with respect to such undelivered shares
shall be terminated. If this Warrant is exercised within six (6) months of the
Company's Initial Public Offering (IPO), the Holder shall execute a lock-up
agreement for the balance of the six month period following the IPO.
4. TERMINATION OF WARRANT. Except as herein otherwise stated, this
Warrant, to the extent not theretofore exercised, shall terminate at 5:00 p.m.
Pacific Standard Time three (3) years after the date of issuance as stated on
the signature page hereof.
5. RECLASSIFICATION, CONSOLIDATION OR MERGER. If, and to the extent that
the number of issued shares of Common Stock of the Company shall be increased or
reduced by a change in par value, subdivision, combination, split-up,
reclassification, distribution of a dividend payable in stock, or the like (but
excluding dividends payable in cash), the number of Warrant Shares subject to
this Warrant, and the Strike Price therefor, shall be proportionately adjusted.
If the Company is reorganized or consolidated, or merged with any other
corporation, the Holder shall be entitled to receive warrants covering shares of
such reorganized, consolidated or merged Company in the same proportion, at an
equivalent price, and subject to the same conditions.
6. RIGHTS PRIOR TO EXERCISE OF WARRANT. The Holder shall have no rights
as a shareholder of shares subject to this Warrant until payment of the Strike
Price and the delivery of such shares as herein provided.
7. CERTAIN COVENANTS OF THE COMPANY. The Company covenants and agrees
that all shares which may be issued upon the exercise of this Warrant, will,
upon issuance, be duly and validly issued, fully paid and nonassessable; and
will from time to time take all such action as may be requisite to assure that
the par value per share of the Common Stock is at all times equal to or less
than the then effective purchase price per share of the Common Stock issuable
pursuant to the Warrant. The Company further covenants and agrees that, during
the period within which the rights represented by this
<PAGE> 4
Warrant may be exercised, the Company will at all times have authorized, and
reserved for the purpose of issuance upon exercise of the purchase rights
evidenced by this Warrant, a sufficient number of shares of its Common Stock to
provide for the exercise of the rights represented by this Warrant. The Company
also further covenants that it will not, by amendment of its Certificate of
Incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issuance or sale of securities or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
of this Warrant, but will at all times in good faith assist in the carrying out
of all such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the holder of this Warrant against
impairment. Without limiting the generality of the foregoing, the Company (a)
will not increase the par value of any shares of stock issuable upon the
exercise of this Warrant above the amount payable therefor on such exercise, and
(b) will take all action that may be necessary or appropriate in order that the
Company may validly and legally issue fully paid and nonassessable shares of
stock on the exercise of this Warrant. So long as this Warrant is outstanding,
the Company shall not grant to any person or entity any anti-dilution rights on
terms more favorable than those granted to the Holder hereunder.
8. TRANSFER OF WARRANT. This Warrant may be transferred by the Holder
with the prior written consent of the Company, which shall not be unreasonably
withheld, and subject to the transferee qualifying as an Accredited Investor and
making the same representations to the Company as set forth herein and subject
to the first refusal right described in Paragraph 9. below.
9. RIGHT OF FIRST REFUSAL. Prior to any transfer of this Warrant by the
Holder, the Holder shall give written notice by certified or registered mail,
return receipt requested, to the Company specifying the price, terms and name
and address of the proposed transferee (the "Notice"). The Company shall have
thirty (30) days from receipt of said Notice to acquire the Warrant under the
same price and terms as specified by the Holder in the Notice.
10. REGISTRATION RIGHTS. The Holder shall have no registration rights
for this Warrant.
11. UNDERSTANDING OF HOLDER. The Company's obligation to issue and/or
register the Warrant Shares as set forth herein shall be conditioned upon a
timely receipt by the Company in writing of:
(a) With respect to issuance, investment representations as
deemed appropriate by the Company in its sole and absolute discretion sufficient
to assure the Company that the Warrant Shares upon issuance will be exempt from
registration under the Securities Act of 1933, as amended (the "Act"); and
(b) With respect to registration, information as the Company may
reasonably require from Holder, or any underwriter, for inclusion in such
registration statement.
<PAGE> 5
12. BINDING EFFECT. This Warrant shall be binding upon the heirs,
executors, administrators and successors of the parties hereto.
13. GOVERNING LAW.This Warrant shall be governed by, and construed and
enforced in accordance with, the laws of the State of Nevada.
14. NOTICES. Any notice or demand to the Company under this Warrant may
be given and shall conclusively be deemed and considered to have been given and
received upon the date shown to have been received on any postal receipt or
independent courier receipt at the address of the Company appearing on the
records of the Holder, but actual written notice (including by telefax, hand
delivery, Federal Express, or other means), however given or received, shall
always be effective. For the purposes hereof, the addresses of the Company and
the Holder (until notice of a change thereof is given as provided in this
Section 14.) shall be as follows:
If to the Holder: At the address set forth on the
signature page hereof
If to the Company: MEDICAL DEVICE ALLIANCE, INC.
3800 Howard Hughes Pkwy. Suite 1800
Las Vegas, NV 89109
Attn: Chairman of the Board
15. EXECUTION IN COUNTERPARTS. This Warrant may be executed in any
number of counterparts and any party hereto or thereto may execute any
counterpart, each of which when executed and delivered will be deemed to be an
original and all of which counterparts of this Warrant taken together will be
deemed to be but one and the same instrument. The execution of this Warrant by
any party hereto will not become effective until counterparts hereof or thereof,
as the case may be, have been executed by all the parties hereto or thereto, and
transmitted by facsimile copy with overnight delivery of manually executed
copies. Notwithstanding the above, the date of issuance of this Warrant shall be
the date which is specifically indicated on the signature page hereof.
SIGNATURES ON NEXT PAGE
<PAGE> 6
IN WITNESS WHEREOF, the parties have caused this Selling Agent Warrant
to be executed on this 31st day of MARCH, 1997.
"Company"
MEDICAL DEVICE ALLIANCE, INC., a Nevada Corporation
By:
------------------------------------
Chairman of the Board
"Holder"
---------------------------------------
Signature
Address:
Tax Id. or Soc. Sec. Number:
DATE OF ISSUANCE OF WARRANT:
MARCH 31, 1997
AMOUNT OF WARRANT SHARES:
<PAGE> 7
MEDICAL DEVICE ALLIANCE, INC.
SELLING AGENT WARRANT
This MEDICAL DEVICE ALLIANCE, Inc. Selling Agent Warrant (the "Warrant")
is made and entered into at Las Vegas, Nevada, on the date hereinafter set forth
by and between MEDICAL DEVICE ALLIANCE, INC., a Nevada Corporation, hereinafter
called the "Company", and the undersigned, hereinafter called the "Holder".
WHEREAS:
A. The Holder has acted as an agent of the Company in selling Series A
Preferred Stock for the Company pursuant to the Private Placement
Memorandum dated April 15, 1997, (the "Offering") whereby the Company
offered for sale up to FIFTEEN MILLION NINE HUNDRED FORTY TWO THOUSAND
FIVE HUNDRED TEN DOLLARS ($15,942,510) of Series A Preferred Stock at a
price of SIX DOLLARS ($6.00) per Share; and
B. The Holder is entitled to a warrant which gives the Holder the right,
but not the obligation, to acquire the amount of Common Stock set forth
on the signature page hereof at the price as defined below as a result
of services rendered to the Company in connection with the Offering.
NOW, THEREFORE, in consideration of the premises and promises, warranties and
representations herein contained, it is agreed as follows:
1. WARRANT. Subject to the conditions set forth herein, the Company
hereby grants to the Holder the right, privilege and option to purchase up to
that number of shares of Common Stock set forth on the signature page hereto at
the Strike Price per share set forth below (the "Warrant Shares"), said number
of Warrant Shares and said Strike Price being subject to adjustment as provided
herein. No fractional Warrants will be issued.
2. STRIKE PRICE. The initial price per share for the Warrant Shares (the
"Strike Price") shall be SIX DOLLARS ($6.00) per share. If from time to time
after the date hereof the Company completes any private placement sales of
Common Stock, or any preferred stock of the Company convertible into or
exchangeable for Common Stock (each a "Private Placement"), or an Initial Public
Offering or issues any warrant to purchase Common Stock, at a purchase or
"strike" price (in the case of Common Stock), or with a conversion price or
exchange rate (in the case of any preferred stock of the Company), lower than $5
per share, adjusted for stock splits, stock dividends or recapitalization, the
Strike Price shall be reduced to the purchase price (or conversion price or
exchange rate, as applicable) per share, as adjusted, at which such shares of
Common Stock or convertible preferred stock are sold.
<PAGE> 8
3. METHOD OF EXERCISE. Stock purchased under this Warrant shall, at the
time of purchase, be paid for in full. The right to purchase shares hereunder
may be exercised, from time to time, by written notice to the Company stating
the number of shares with respect to which this Warrant is being exercised and
the time of delivery thereof, which shall be at least ten (10) days after the
giving of such notice, unless an earlier date shall have been mutually agreed
upon. At the time specified in such notice, the Company shall, without transfer
or issue tax to the Holder, deliver to him by certified mail, a certificate or
certificates for such shares, against the payment of the Strike Price, in full,
for the number of shares to be delivered, by certified or bank cashier's check,
or the equivalent thereof acceptable to the Company. Provided, however, that the
time of such delivery may be postponed by the Company for such period as may be
required for it, with reasonable diligence, to comply with any requirements of
any state or federal agency or any securities exchange and further provided that
no fractional shares of Common Stock will be issued. If the Holder fails to
accept delivery of and pay for all or any part of the number of shares specified
in the notice given by the Holder, upon tender and delivery of said shares, the
Holder's right to exercise this Warrant with respect to such undelivered shares
shall be terminated. If this Warrant is exercised within six (6) months of the
Company's Initial Public Offering (IPO), the Holder shall execute a lock-up
agreement for the balance of the six month period following the IPO.
4. TERMINATION OF WARRANT. Except as herein otherwise stated, this
Warrant, to the extent not theretofore exercised, shall terminate at 5:00 p.m.
Pacific Standard Time three (3) years after the date of issuance as state on the
signature page hereof.
5. RECLASSIFICATION, CONSOLIDATION OR MERGER. If, and to the extent that
the number of issued shares of Common Stock of the Company shall be increased or
reduced by a change in par value, subdivision, combination, split-up,
reclassification, distribution of a dividend payable in stock, or the like (but
excluding dividends payable in cash), the number of Warrant Shares subject to
this Warrant, and the Strike Price therefor, shall be proportionately adjusted.
If the Company is reorganized or consolidated, or merged with any other
corporation, the Holder shall be entitled to receive warrants covering shares of
such reorganized, consolidated or merged Company in the same proportion, at an
equivalent price, and subject to the same conditions.
6. RIGHTS PRIOR TO EXERCISE OF WARRANT. The Holder shall have no rights
as a shareholder of shares subject to this Warrant until payment of the Strike
Price and the delivery of such shares as herein provided.
7. CERTAIN COVENANTS OF THE COMPANY. The Company covenants and agrees
that all shares which may be issued upon the exercise of this Warrant, will,
upon issuance, be duly and validly issued, fully paid and nonassessable; and
will from time to time take all such action as may be requisite to assure that
the par value per share of the Common Stock is at all times equal to or less
than the then effective purchase price per share of the Common Stock issuable
pursuant to the Warrant. The Company further covenants and agrees that, during
the period within which the rights represented by this
<PAGE> 9
Warrant may be exercised, the Company will at all times have authorized, and
reserved for the purpose of issuance upon exercise of the purchase rights
evidenced by this Warrant, a sufficient number of shares of its Common Stock to
provide for the exercise of the rights represented by this Warrant. The Company
also further covenants that it will not, by amendment of its Certificate of
Incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issuance or sale of securities or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
of this Warrant, but will at all times in good faith assist in the carrying out
of all such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the holder of this Warrant against
impairment. Without limiting the generality of the foregoing, the Company (a)
will not increase the par value of any shares of stock issuable upon the
exercise of this Warrant above the amount payable therefor on such exercise, and
(b) will take all action that may be necessary or appropriate in order that the
Company may validly and legally issue fully paid and nonassessable shares of
stock on the exercise of this Warrant. So long as this Warrant is outstanding,
the Company shall not grant to any person or entity any anti-dilution rights on
terms more favorable than those granted to the Holder hereunder.
8. TRANSFER OF WARRANT. This Warrant may be transferred by the Holder
with the prior written consent of the Company, which shall not be unreasonably
withheld, and subject to the transferee qualifying as an Accredited Investor and
making the same representations to the Company as set forth herein and subject
to the first refusal right described in Paragraph 9. below.
9. RIGHT OF FIRST REFUSAL. Prior to any transfer of this Warrant by the
Holder, the Holder shall give written notice by certified or registered mail,
return receipt requested, to the Company specifying the price, terms and name
and address of the proposed transferee (the "Notice"). The Company shall have
thirty (30) days from receipt of said Notice to acquire the Warrant under the
same price and terms as specified by the Holder in the Notice.
10. REGISTRATION RIGHTS. The Holder shall have no registration rights
for this Warrant.
11. UNDERSTANDING OF HOLDER. The Company's obligation to issue and/or
register the Warrant Shares as set forth herein shall be conditioned upon a
timely receipt by the Company in writing of:
(a) With respect to issuance, investment representations as
deemed appropriate by the Company in its sole and absolute discretion sufficient
to assure the Company that the Warrant Shares upon issuance will be exempt from
registration under the Securities Act of 1933, as amended (the "Act"); and
(b) With respect to registration, information as the Company may
reasonably require from Holder, or any underwriter, for inclusion in such
registration statement.
<PAGE> 10
12. BINDING EFFECT. This Warrant shall be binding upon the heirs,
executors, administrators and successors of the parties hereto.
13. GOVERNING LAW.This Warrant shall be governed by, and construed and
enforced in accordance with, the laws of the State of Nevada.
14. NOTICES. Any notice or demand to the Company under this Warrant may
be given and shall conclusively be deemed and considered to have been given and
received upon the date shown to have been received on any postal receipt or
independent courier receipt at the address of the Company appearing on the
records of the Holder, but actual written notice (including by telefax, hand
delivery, Federal Express, or other means), however given or received, shall
always be effective. For the purposes hereof, the addresses of the Company and
the Holder (until notice of a change thereof is given as provided in this
Section 14.) shall be as follows:
If to the Holder: At the address set forth on the
signature page hereof
If to the Company: MEDICAL DEVICE ALLIANCE, INC.
3800 Howard Hughes Pkwy. Suite 1800
Las Vegas, NV 89109
Attn: Chairman of the Board
15. EXECUTION IN COUNTERPARTS. This Warrant may be executed in any
number of counterparts and any party hereto or thereto may execute any
counterpart, each of which when executed and delivered will be deemed to be an
original and all of which counterparts of this Warrant taken together will be
deemed to be but one and the same instrument. The execution of this Warrant by
any party hereto will not become effective until counterparts hereof or thereof,
as the case may be, have been executed by all the parties hereto or thereto, and
transmitted by facsimile copy with overnight delivery of manually executed
copies. Notwithstanding the above, the date of issuance of this Warrant shall be
the date which is specifically indicated on the signature page hereof.
SIGNATURES ON NEXT PAGE
<PAGE> 11
IN WITNESS WHEREOF, the parties have caused this Selling Agent Warrant
to be executed on this 31st day of JULY, 1997.
"Company"
MEDICAL DEVICE ALLIANCE, INC., a Nevada Corporation
By:
------------------------------------
Chairman of the Board
"Holder"
---------------------------------------
Signature
Address:
Tax Id. or Soc. Sec. Number:
------------------------
DATE OF ISSUANCE OF WARRANT:
JULY 31, 1997
AMOUNT OF WARRANT SHARES:
<PAGE> 1
MEDICAL DEVICE ALLIANCE INC.
EXHIBIT 10.09
LEGAL CONSULTING
AGREEMENT
<PAGE> 2
EXECUTION ORIGINAL
MEDICAL DEVICE ALLIANCE, INC.
LEGAL CONSULTING AGREEMENT
This MEDICAL DEVICE ALLIANCE, INC. LEGAL CONSULTING AGREEMENT (the
"Agreement") is entered into on the 1st day of April 1998 by and between Medical
Device Alliance, Inc., a Nevada corporation and/or its subsidiaries (the
"Company") and Nida & Maloney, P.C. ("Counsel").
WHEREAS
A. Counsel has agreed to provide legal services to the Company pursuant
to that certain letter dated July 18, 1997 (the "Engagement Letter");
B. The Company wishes to continue to retain Counsel as its primary legal
counsel on corporate and securities matters pursuant to the terms of the
Engagement Letter;
C. The Company would like through this Agreement to provide for certain
access to Counsel on terms not provided for in the Engagement Letter; and
D. The parties wish to amend the Engagement Letter to the extent
provided herein and to set such other terms and conditions as may be appropriate
to Counsel's work for the Company.
NOW, THEREFORE, in consideration of the premises and of the mutual
promises, warranties and representations herein contained, the parties agree as
follows:
1. REAFFIRMATION OF ENGAGEMENT. The Company hereby reaffirms its
engagement of Counsel and Counsel hereby reaffirms its acceptance of its
engagement as counsel to the Company as provided in the Engagement Letter. It is
understood and agreed, and it is the express intention of the parties to this
Agreement, that Counsel is an independent contractor, and not an employee of the
Company for any purpose whatsoever. Counsel agrees to be available at such times
as Counsel and the Company may mutually agree.
2. CONSULTING SERVICES. Commencing on the Effective Date hereof,
and, subject to ethical and legal requirements, until the end of the consulting
period set forth in Exhibit A (the "Consulting Period"), Counsel will make its
attorneys available to the Company for no less than five hours per week, either
at the Company's offices or at Counsel's offices to provide general business,
corporate and securities legal advice (the "Consulting Services"). In
consideration of such services and in lieu of payment therefore pursuant to the
Engagement Letter, the Company shall pay Counsel as provided in Section 3.
3. COMPENSATION. Counsel shall be paid in full for the Consulting
Services through grant of a Medical Device Alliance, Inc. Consulting Fee Warrant
in the form of Exhibit B attached hereto, plus any costs or disbursements
incurred or paid by Counsel in the performance of the Consulting Services,
pursuant to the terms of the Engagement Letter. All applicable federal, state
and local taxes due on all consideration paid to Consultant for Consulting
Services shall be the sole responsibility of Counsel.
-2-
<PAGE> 3
4. TERMINATION. Unless otherwise terminated as provided herein,
either party may terminate this Agreement at any time by giving written notice
to the other party.
5. REMEDIES. In the event of a dispute hereunder, the matter will
be resolved as provided in the Engagement Letter.
6. LAW; SEVERABILITY. This Agreement shall be construed in
accordance with and governed for all purposes by the laws of the State of
California and each party expressly consents to the personal jurisdiction of the
state and federal courts located in California. In case any one or more of the
provisions contained in this Agreement shall, for any reason, be held to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provisions of this Agreement, but
this Agreement shall be construed as if such invalid, illegal or unenforceable
provisions were not contained herein.
7. ATTORNEY'S FEES. In the event any action or proceeding is
brought to enforce this Agreement, the prevailing party shall be entitled to its
costs of such proceeding, including reasonable attorney's fees.
8. NOTICES. All notices shall be deemed to be received when
delivered in person or by facsimile, or on the third business day after the date
on which such notice was mailed, postage prepaid, to the party for whom intended
at the address given by such party on the signature page hereof, or at such
other address as is designated in writing by the parties hereto.
9. ENTIRE AGREEMENT; BINDING EFFECT. This Agreement together with
the Engagement Letter, contains the entire understanding of the parties and
cannot be altered or amended, except by a written amendment duly executed by the
parties. This Agreement shall be binding upon and inure to the benefit of the
Company and Counsel and their respective successors and assigns.
[Signature page to follow.]
-3-
<PAGE> 4
IN WITNESS WHEREOF, the parties have executed this Agreement effective
as of the date written above.
Company: Counsel:
MEDICAL DEVICE ALLIANCE, INC. NIDA & MALONEY, P.C.
By: /S/ Nikki Moseley By: /s/ C. Thomas Hopkins
-------------------------------- -------------------------------
Name: Nikki Moseley Name: C. Thomas Hopkins
------------------------------ -----------------------------
Title: Corporate Secretary Title: Vice President
----------------------------- ----------------------------
Address: 3800 Howard Hughes Parkway, Address: 800 Anacapa Street
Ste. 1800 Santa Barbara, CA 93101
Las Vegas, NV 89109
Phone: (702) 791-2910 Phone: (805) 568-1151
Fax: (702) 791-3267 Fax: (805) 568-1955
-4-
<PAGE> 5
EXHIBIT A
Consulting Period: April 1, 1998 through March 31, 1999.
<PAGE> 6
EXHIBIT B
MEDICAL DEVICE ALLIANCE, INC.
LEGAL CONSULTING FEE WARRANT
This MEDICAL DEVICE ALLIANCE, INC. LEGAL CONSULTING FEE WARRANT (the
"Warrant") is made and entered into at Carpinteria, California, on the date of
issuance set forth on the signature page hereof by and between Medical Device
Alliance, Inc., a Nevada corporation (the "Company") and the undersigned (the
"Holder").
WHEREAS
A. The Holder has contemporaneously entered into a Legal Consulting
Agreement with the Company (the "Agreement"); and
B. The Company has, as incentive to the Holder to perform the Holder's
consulting services, agreed to grant to the Holder this Warrant entitling the
Holder to acquire Thirty Thousand (30,000) shares of Medical Device Alliance,
Inc. Common Stock (the "Warrant Shares") at the Strike Price defined below,
subject to the terms and vesting upon the dates set forth below.
NOW, THEREFORE, in consideration of the premises and of the mutual
promises, warranties and representations herein contained, the parties agree as
follows:
1. WARRANT. Subject to the conditions set forth herein, the Company
hereby grants to the Holder the right, privilege and option to purchase up to
Thirty Thousand (30,000) shares of Common Stock (the "Warrant Shares") at the
Strike Price per share set forth below, said number of Warrant Shares and said
Strike Price being subject to adjustment as provided herein. No fractional
Warrant Shares will be issued.
2. VESTING. Subject to the continuation of the Agreement, the Warrants
will vest and the shares underlying the Warrants will be available for purchase,
in the following manner: One twelfth (1/12) of the total Warrants will vest
monthly on the last day of each calendar month during the Consulting Period
Neither the Warrant nor any part of the Warrant will be available for exercise
at the Strike Price prior to the vesting dates above. Termination of the
Agreement also terminates the vesting of the Warrants.
3. STRIKE PRICE. The exercise price per share for the Warrant Shares
(the "Strike Price") shall be Seven Dollars ($7.00) per share.
4. METHOD OF EXERCISE. Stock purchased under this Warrant shall, at the
time of purchase, be paid for in full. The right to purchase shares hereunder
may be exercised, from time to time after the vesting dates specified in Section
2 above, by written notice to the Company stating the number of shares of Common
Stock with respect to which this Warrant is being exercised and the time of
delivery thereof, which shall be at least ten (10) days after the giving of such
notice, unless an earlier date shall have been mutually agreed upon. At the time
specified in such notice, the Company shall, without transfer or issue tax to
the Holder, deliver to the Holder by certified mail, a certificate or
certificates for the number of shares of Common Stock with respect to which this
Warrant is being exercised, against (i) the payment of the Strike Price, in
full, for the number of
<PAGE> 7
shares to be delivered, by certified or bank cashier's check, or the equivalent
thereof acceptable to the Company or (ii) notice by Holder that Holder wishes to
exercise the Warrant in a cashless exercise pursuant to which Holder shall be
entitled to receive a net issuance of shares of Common Stock equal to the
quotient obtained by dividing (a) the value of the Warrant which is being
exercised (determined by subtracting the aggregate Warrant exercise price for
the Warrant Shares for which the Warrant is being exercised at the time of
exercise from the aggregate fair market value of the same number of Warrant
Shares (measured as the last sale price of the Common Stock on the date of
exercise) by (b) the fair market value of one share of Common Stock; provided,
however, that the time of such delivery may be postponed by the Company for such
period as may be required for it, with reasonable diligence, to comply with any
requirements of any state or federal agency or any securities exchange; and
provided further that no fractional shares of Common Stock will be issued. If
the Holder fails to accept delivery of and pay for all or any part of the number
of shares of Common Stock specified in the notice given by the Holder, upon
tender and delivery of said shares, the Holder's right to exercise this Warrant
with respect to such undelivered shares shall be terminated. As a condition of
the exercise of the Warrant, the Company may require the Holder to make such
investment representation(s) or other representation(s) to the Company as the
Company may deem to be necessary or appropriate under any applicable law or
regulation.
5. TERMINATION OF WARRANT. Except as herein otherwise stated, the
Warrant, to the extent not theretofore exercised, shall terminate at 5:00 p.m.
Pacific Standard Time on _____________, ______, the Seventh (7th) anniversary of
the issuance date hereof.
6. RECLASSIFICATION, CONSOLIDATION OR MERGER. If, and to the extent that
the number of issued shares of Common Stock of the Company shall be increased or
reduced by change in par value, subdivision, combination, split-up,
reclassification, distribution of a dividend payable in stock, or the like (but
excluding dividends payable in cash), the number of Warrant Shares subject to
this Warrant, and the Strike Price therefor, shall be proportionately adjusted.
Subject to the terms of any agreement and plan or merger or reorganization, if
the Company is reorganized or consolidated, or merged with any other
corporation, the Holder shall be entitled to receive warrants covering shares of
Common Stock of such reorganized, consolidated or merged Company in the same
proportion, at an equivalent aggregate exercise price, and subject to the same
conditions as holders of similar derivative securities of the Company.
7. RIGHTS PRIOR TO EXERCISE OF WARRANT. The Holder shall have no rights
as a shareholder of shares subject to this Warrant until payment of the Strike
Price and the delivery of the Warrant Shares upon such exercise as herein
provided.
8. CERTAIN COVENANTS OF THE COMPANY. The Company covenants and agrees
that all shares which may be issued upon the exercise of this Warrant, will,
upon issuance, be duly and validly issued, fully paid and nonassessable; and
will from time to time take all such action as may be requisite to assure that
the par value per share of the Common Stock is at all times equal to or less
than the then effective purchase price per share of the Common Stock issuable
pursuant to this Warrant. The Company further covenants and agrees that, during
the period within which the rights represented by this Warrant may be exercised,
the Company will at all times have authorized, and reserved for the purpose of
issuance upon exercise of the purchase rights evidenced by this Warrant, a
sufficient number of shares of its Common Stock to provide for the exercise of
the rights
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<PAGE> 8
represented by this Warrant. The Company also further covenants that it will
not, by amendment of its Certificate or Articles of Incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issuance
or sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such action as may be necessary or appropriate in order to protect
the rights of the holder of this Warrant against impairment. Without limiting
the generality of the foregoing, the Company (a) will not increase the par value
of any shares of stock issuable upon the exercise of this Warrant above the
amount payable therefor on such exercise, and (b) will take all action that may
be necessary or appropriate in order that the Company may validly and legally
issue fully paid and nonassessable shares of stock on the exercise of this
Warrant.
9. TRANSFER OF WARRANT. This Warrant may not be transferred by the
Holder without the prior written consent of the Company; provided, however, that
the Warrant and the Common Stock issuable upon conversion thereof may be
transferred or distributed to shareholders of Holder.
10. REGISTRATION RIGHTS. The Holder shall have such registration rights
for the shares of Common Stock issuable upon exercise of this Warrant as the
Company shall have granted or shall hereafter grant to any other consultant or
investor, on a most-favored-nation basis.
12. UNDERSTANDING OF HOLDER. Unless otherwise registered pursuant to
Section 11, the Company's obligation to issue the Warrant Shares as set forth
herein shall be conditioned upon a timely receipt by the Company in writing of
investment representations as deemed appropriate by the Company in its sole and
absolute discretion sufficient to assure the Company that the Warrant Shares
upon issuance will be exempt from registration under the Securities Act of 1933,
as amended.
13. BINDING EFFECT. This Warrant shall be binding upon and inure to the
benefit of the heirs, executors, administrators and successors of the parties
hereto.
14. GOVERNING LAW. This Warrant shall be governed by, and construed and
enforced in accordance with, the law of the State of California.
15. NOTICES. Any notice or demand to the Company under this Warrant may
be given and shall conclusively be deemed and considered to have been given and
received upon the date shown to have been received on any postal receipt or
independent courier receipt at the address of the Company appearing on the
records of the Holder, but actual written notice (including by telefax, hand
delivery, Federal Express, or other means), however given or received, shall
always be effective. For the purposes hereof, the addresses of the Company and
the Holder (until notice of a change thereof is given as provided in this
Section 15) shall be as follows:
If to the Holder: At the address set forth on the signature
page hereof
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If to the Company: Medical Device Alliance, Inc.
3800 Howard Hughes Parkway, Ste. 1800
Las Vegas, NV 89109
Attn: Treasurer
16. EXECUTION IN COUNTERPARTS. This Warrant may be executed in any
number of counterparts and any party hereto or thereto may execute any
counterpart, each of which when executed and delivered will be deemed to be an
original and all of which counterparts of this Warrant taken together will be
deemed to be but one and the same instrument. The execution of this Warrant by
any party hereto will not become effective until counterparts hereof or thereof,
as the case may be, have been executed by all the parties hereto or thereto, and
transmitted by facsimile copy with overnight delivery of manually executed
copies. Notwithstanding the above, the date of issuance of this Warrant shall be
the date which is specifically indicated on the signature page hereof.
IN WITNESS WHEREOF, the parties have caused this Legal Consulting Fee
Warrant to be executed as of the ___ day of ________, 1998.
"Company" The "Holder"
MEDICAL DEVICE ALLIANCE, INC., NIDA & MALONEY, P.C.
a Nevada corporation
By: ___________________________ By: _______________________________
Its: Its:
Address: 800 Anacapa Street
Santa Barbara, CA 93101
___________________________________
Tax Id. #: 770417415
DATE OF ISSUANCE OF WARRANT:
NUMBER OF WARRANT SHARES INITIALLY SUBJECT OF WARRANT:
THIRTY THOUSAND (30,000)
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<PAGE> 1
MEDICAL DEVICE ALLIANCE INC.
EXHIBIT 10.10
COSTANTINO
EMPLOYMENT AGREEMENT
<PAGE> 2
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into at
Las Vegas, Nevada, on the date hereinafter set forth, by and between PETER D.
COSTANTINO, M.D. (hereinafter referred to as the "Employee"), and MEDICAL DEVICE
ALLIANCE, INC., a Nevada corporation (hereinafter referred to as the
"Corporation").
The parties hereto, intending to be legally bound, do hereby agree as
follow:
1. EMPLOYMENT
1.1 POSITIONS AND DUTIES
The Corporation does hereby employ the Employee and the
Employee hereby accepts such employment as CHIEF EXECUTIVE OFFICER (CEO) upon
the terms and provisions set forth in this Agreement. The Employee shall perform
all the duties assigned to him by the Board of Directors of the Corporation,
shall observe and comply with the Corporation's rules and regulations regarding
the performance of his duties, and shall carry out and perform all orders,
directions, and policies stated to him by the Board of Directors of the
Corporation periodically, either orally or in writing. The Employee shall at all
times carry out the duties assigned to him in a loyal, trustworthy and
businesslike manner. The Employee agrees that this Agreement may be terminated
as provided in Paragraph 7 hereof.
1.2 PLACE OF EMPLOYMENT
Unless the parties agree otherwise in writing, during the
term of this Agreement, the Employee shall perform the services required by this
Agreement at the location mutually agreed by with the Board of Directors and the
Employee until such time a defined place of employment is determined for the CEO
function, provided, however, that the Corporation may, from time to time,
require the Employee to travel temporarily in carrying out his duties.
2. TERM
This Agreement shall commence as of the Effective Date specified
in Exhibit A hereto and shall continue for a period of five (5) years from the
date of this Agreement, and may be renewed for additional one (1) year periods
by mutual agreement of the parties, unless sooner terminated as provided in
Paragraph 7 hereof.
3. COMPENSATION
3.1 AMOUNT OF COMPENSATION
The Effective Date of this Agreement and the employee
compensation are set forth in Exhibit A hereto. The Corporation may, from time
to time, modify the employment conditions and compensation, subject to the other
terms and conditions of this Agreement. These changes will be recorded in
subsequent exhibits.
3.2 REIMBURSEMENTS
The Employee shall be reimbursed by the Corporation only
for amounts actually expended by the Employee in the course of performing duties
for the Corporation where:
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3.2.1 AUTHORIZATION
The Employee has been authorized by the Corporation
to incur such expenses that are reasonably consistent with practices or policies
of the Corporation.
3.2.2 DOCUMENTATION
The Employee tenders receipts or other
documentation substantiating the amounts as required by the corporation.
3.3 FRINGE BENEFITS
The Employee shall be entitled to receive, on the same
basis as the Corporation's other executive employees, all other benefits
maintained by the Corporation for its executive employees generally, including
but not limited to a cellular phone, leased automobile, country club fees, paid
leave, medical, dental, life and disability insurance and any other health and
welfare benefit plans and perquisites, as in effect from time to time. The
Employee will be granted paid leave consistent with the Corporation's paid leave
policy in effect from time to time.
3.4 WARRANTS AND STOCK OPTIONS
(a) WARRANTS. The Employee will, concurrently with the
signing of this Agreement, receive a Warrant as specified in Exhibit D hereto.
This employment warrant is not a part of the Corporation's Stock Compensation
Plan, and is not transferable and may be exercised only by the Employee, or by
the Employee's estate or personal representative within three (3) months of the
Employee's death. Employment with the Corporation is a condition of exercise of
the Warrant; providing that if Employee's employment with the Corporation is
terminated in a manner which gives Employee the right to Severance Compensation
under Section 8 of this Agreement, Employee shall have the right to exercise the
Warrant at any time during the 90-day period immediately following such
termination.
(b) STOCK OPTIONS. The Employee will receive stock options
to purchase One Hundred Thousand (100,000) shares of the Corporation's Common
Stock under the Corporation's Stock Compensation Plan at an original exercise
price per share of $5.00, vesting as follows: Twenty-Five percent (25%) on each
of the first, second, third and fourth anniversaries of the Effective Date as
defined herein. The Employee may receive additional stock options at later
date(s) as determined from time to time by the Corporation's Board of Directors.
The Stock Compensation Plan is specified in Exhibit E hereto.
(c) LOCK-UP AGREEMENTS. The Employee will execute any
other documents reasonably required by the Corporation in connection with said
Warrants and/or Stock Options, and hereby agrees to execute any lock-up or
similar agreements required by the Corporation's underwriters and executed by
other members of senior management of the Corporation in connection with an
offering or offerings of the Corporation's securities. If the Employee
terminates this Agreement or if the Corporation discontinues the Employment for
any reason other than Termination for Cause (Section 7.1.3) any lock-up
agreement will terminate immediately upon the occurrence of either event.
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3.5 REIMBURSEMENT FOR RELOCATION EXPENSES
The Corporation will reimburse the Employee for Relocation
Expenses under the terms and conditions of Exhibit F hereto.
4. NON-COMPETITION
The Employee agrees that during the term of this Agreement, he
shall diligently devote his time and efforts to the duties and responsibilities
assigned to him by the Corporation. In connection therewith:
4.1 NON-COMPETITION
The Employee agrees that during the term of this
Agreement, without the prior express written authorization of the Corporation's
Board of Directors, he shall not directly or indirectly engage in any
Competition (as defined in Section 4.7 herein) with the Corporation; provided,
however, that nothing contained in this Agreement shall be deemed to preclude
the Employee from continuing to be active with LifeCell Corporation, Ortho Fix
Corporation, and Howmedica-Leibinger to the degree necessary to continue his
previous consulting arrangements; provided, however, that those activities shall
not impair the Employee's agreement to devote his full-time attention to the
Corporation.
4.2 NON-COMPETITION FOLLOWING THE TERM OF THE AGREEMENT
For a period of one (1) year after termination of
employment, the Employee will not, directly or indirectly, without the prior
written consent of the Corporation, engage in any Competition with the
Corporation.
4.3 CIVIL AND CHARITABLE ACTIVITIES
The Employee may engage in civic, educational and
charitable activities. The Employee shall be entitled, with the approval of the
Corporation's Board, to serve as a director of any corporation other than a
corporation which, in the good faith opinion of the Corporation's Board, is in
competition with the Corporation. The Employee shall be entitled to receive
compensation from any corporation with respect to which he serves as a
consultant or as a director in accordance with this Section 4.3. Notwithstanding
anything to the contrary set forth herein, the Employee shall not be entitled to
engage in any of the activities set forth in this Section 4.3 if such
activities, in the good faith opinion of the Corporation's Board, interfere or
could reasonably be expected to interfere with the Employee's performance of his
duties and activities under this Agreement.
4.4 NON-SOLICITATION OF EMPLOYEES
After the termination of the Employee's employment
hereunder, the Employee shall not, either alone or jointly, with or on behalf of
others, either directly or indirectly whether as principal, partner, agent,
shareholder, director, officer, employee, consultant, or otherwise, at any time
during a period of one (1) year following such termination, offer employment to,
or solicit the employment or engagement of, or otherwise entice away from the
employment of the Corporation or any affiliated entity, either for the
Employee's own account or for any other person, firm, or company, any person who
is employed by the Corporation or any such affiliated entity, whether or not
such person would commit any breach
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<PAGE> 5
of his or her contract of employment by reason of leaving the service of the
Corporation or any affiliated entity.
4.5 NON-SOLICITATION OF CUSTOMERS
After the termination of the Employee's employment
hereunder, the Employee shall not, either alone or jointly, with or on behalf of
others, either directly or indirectly whether as principal, partner, agent,
shareholder, director, officer, employee, consultant, or otherwise, at any time
during a period of one (1) year following such termination, engage in any
activity for the purpose of influencing or attempting to influence any of the
Corporation's customers, to conduct business with any business enterprise in
competition with the Corporation.
4.6 FURTHER EMPLOYEE AGREEMENTS
For a period of one (1) year after the termination of the
Employee's employment, the Employee will not undertake any employment or
activity competitive with the Corporation wherein the loyal and complete
fulfillment of the duties of the competitive employment or activity would call
upon the Employee to make judgements on or otherwise to use any confidential
business information concerning the Corporation. The Employee will not, directly
or indirectly, either for himself or for any other person, firm or corporation,
divert or take away (or attempt to divert or take away), any of the
Corporation's present, former or prospective customers, including, but not
limited to, those upon whom he called, met with or became acquainted with while
engaged as an employee of the Corporation. The Employee will not interfere with
the contractual or business relationships of the Corporation, will not solicit
or attempt to solicit any employees or clients of the Corporation, nor slander
or disparage the Corporation, or undertake any activity which adversely impacts
the goodwill of the Corporation and its business opportunities.
4.7 COMPETITION DEFINED
"Competition" shall mean any participation in, assistance
of, employment by, ownership of any interest in, acceptance of business from or
assistance, promotion or organization of any person, partnership, corporation,
firm, association or other business organization, entity or enterprise which,
directly or indirectly, is engaged in, or hereinafter engages in, research on,
or development, production, marketing, leasing or selling of, any product,
process or service which is the same as, similar to, or in competition with, any
line of business or research in which the Corporation, its parent, subsidiary or
affiliated company, is now engaged or hereinafter engages, whether as an agent,
consultant, employee, officer, director, investor, partner, shareholder,
proprietor or in any other individual or representative capacity, but excluding
the holding for investment of less that 5% of the outstanding securities of any
corporation which are regularly traded on a recognized stock exchange.
4.8 SEPARATE COVENANTS
Each of the covenants of this paragraph 4 shall be
construed as a separate covenant covering its subject matter in each of the
separate counties, countries, states in the United States and governmental
subdivisions outside the United States (collectively, the "Governmental
Subdivisions"); to the extent that any covenant shall be judicially
unenforceable in any one or more of said Governmental Subdivisions, said
covenant shall not be affected with
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respect to each other Governmental Subdivision, each covenant with respect to
each Governmental Subdivision being construed as severable and independent.
5. INTELLECTUAL PROPERTY AND CONFIDENTIALITY AGREEMENT
The Employee has executed or will concurrently execute the
Corporation's Intellectual Property and Confidentiality Agreement, the terms of
which are incorporated herein by reference. The terms of this Employment
Agreement shall prevail in the case of any discrepancy between the Corporation's
Intellectual Property and Confidentiality Agreement and this Agreement. The
Corporation's Intellectual Property and Confidentiality Agreement is attached
hereto as Exhibit C.
6. TERMINATION OF AGREEMENT
6.1 GROUNDS
This Agreement shall terminate upon the occurrence of any
of the following events:
(a) EXPIRATION OF TERM
At any time upon expiration of the terms specified
in Paragraph 2 hereof;
(b) THIRTY (30) DAY TERMINATION BY EMPLOYEE
By the Employee (whether for Good Reason or
otherwise), upon thirty (30) days' prior written notice to the Corporation.
(c) TERMINATION BY EMPLOYER (FOR CAUSE)
This Agreement may be immediately terminated by the
Corporation for "Cause". For purposes of Section 6.1, the phrase "for cause"
means: (a) the breach of a material provision of this Agreement by the Employee
which continues uncured for 10 days after receipt by the Employee of written
notice of such breach from the Corporation; (b) the Employee's failure to comply
with or adhere to any written policy of the Corporation or its Affiliates, which
failure continues for 10 days after receipt by the Employee of written notice
from the Corporation which specifically identifies such failure; (c) the
appropriation (or attempted appropriation) of a business opportunity of the
Corporation or its Affiliates, including attempting to secure or securing any
personal profit in connection with any transaction entered into on behalf of the
Corporation or its Affiliates; (d) the misappropriation (or attempted
misappropriation) of any of the funds or property of the corporation or its
Affiliates; (e) the conviction of, the indictment for (or its procedural
equivalent), or the entering of a guilty plea or plea of no contest with respect
to, a felony, the equivalent thereof, or any other crime with respect to which
imprisonment is a possible punishment; or (f) any willful conduct by the
Employee which is demonstrably and materially injurious to the reputation of the
Corporation or its Affiliates. The termination of the Employee's employment
hereunder shall not be deemed "for cause" unless and until there shall have been
delivered to the Employee a copy of a resolution duly adopted by the affirmative
vote of not less than a majority of the entire membership of the Board at a
meeting of the Board called and held for that purpose (after reasonable notice
to and an opportunity for the Employee to be heard before the Board), finding
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that in the good faith opinion of the Board, the Employee was guilty of the
conduct set forth in any one or more of clauses (a) through (f) above.
6.2 DISABILITY
(a) TERMINATION
In the event that the Employee is unable to perform
his assigned duties and responsibilities due to illness, physical or mental
disability or any other reason, and such disability continues for a period of
six (6) consecutive months after all available sick leave has been utilized, the
Corporation may terminate this Agreement upon ten (10) days' written notice.
(b) DEATH
Upon the death of the Employee.
6.3 TERMINATION BY EMPLOYEE FOR GOOD REASON
The Employee shall have a Good Reason for terminating his
employment with the Corporation under this Employment Agreement if one or more
of the following occurs:
(a) an involuntary change in the Employee's status or
position with the Corporation which the Corporation deems to represent a
demotion from the Employee's then current status or position;
(b) layoff or involuntary termination of the Employee's
employment, except in connection with the termination of the Employee's
employment for Cause or as a result of the non-renewal of this Agreement or of
the Employee's disability, death or retirement;
(c) a reduction by the Corporation in the Employee's base
salary, excluding bonuses, other than in the case of reductions in salary with
respect to the Corporation's other executive officers generally;
(d) any action or inaction by the Corporation that would
adversely affect the Employee's continued participation in any Benefit Plan on
at least as favorable basis as was the case at the time of such action or
inaction, or that would materially reduce the Employee's benefits in the future
under the Benefit Plan or deprive him of any material benefits that he then
enjoyed, except to the extent that such action or inaction by the Corporation
(i) is also taken or not taken, as the case may be, in respect of all employees
generally, (ii) is required by the terms of any Benefit Plan as in effect
immediately before such action or inaction; or (iii) is necessary to comply with
applicable law or to preserve the qualification of any Benefit Plan under
section 401(a) of the Internal Revenue Code;
(e) the Corporation's failure to obtain express assumption
of this Employment Agreement by any successor to the Corporation; and
(f) any material violation by the Corporation of any
agreement, including this Employment Agreement, between the Corporation and the
Employee.
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(g) following the establishment of a defined location with
respect to the performance of services by the Employee in accordance with
Section 1.2, the relocation of the Corporation's offices to a location more than
60 miles from such defined location;
(h) the failure by the Corporation to pay Employee any
portion of his salary or bonus compensation under this Agreement within seven
(7) days of the date such compensation is due;
(i) any purported termination of the employment of
Employee which is not effected pursuant to a Notice of Termination satisfying
the requirements of Section 6.4 (and if applicable Section 6.1(c)), which
purported termination shall not be effective for purposes of this Agreement.
Notwithstanding the foregoing, no action by the Corporation shall give rise to a
Good Reason if it results from the Employee's termination for Cause, death or
retirement, and no action by the Corporation specified in paragraphs (a) through
(c) of this section shall give rise to a Good Reason if it results from the
Employee's disability.
6.4 NOTICE OF TERMINATION
Any purported termination of the Employee's employment by
the Corporation or by Employee shall be communicated by written Notice of
Termination to the other party hereto in accordance with Section 8.1. "Notice of
Termination" shall mean a notice that shall indicate the specific termination
provision in this Agreement relied upon and shall set forth in reasonable detail
the facts and circumstances claimed to provide a basis for termination of
Employee's employment under the provision so indicated.
7. SEVERANCE COMPENSATION
If the Corporation should terminate the Employee's employment
hereunder during the Term (as defined in Section 2) for reasons other than cause
(as defined in Section 6.1(c)) or Employee's death or disability (as defined in
Section 6.2), or if Employee should resign his employment for Good Reason as
defined in Section 6.3, the Employee shall be entitled to the following
Severance compensation:
(a) Payment of his base salary in effect at the time of
termination from the date of termination until March 31, 2003.
(b) Continuation of all benefits, including without limitation
medical, dental and life insurance, during the Post-Termination Period or until
the date on which the Employee first becomes eligible for insurance coverage of
a similar nature provided by a firm that employs him following termination of
employment by the Corporation, whichever occurs first.
Notwithstanding the foregoing, nothing in this Employment Agreement shall
require the Corporation to make any payment or to provide any benefit to the
Employee that the Corporation has made or otherwise provided under any other
contract, agreement or arrangement, including, without limitation, the Employee
Severance Agreement between the Corporation and the Employee, attached hereto as
Exhibit D, and the Employee Retention Agreement between the
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Corporation and the Employee, attached hereto as Exhibit E, both incorporated by
reference herein.
For purposes of this Section 7, "Benefit Plan" shall mean any compensation plan,
such as an incentive or stock option plan, or any employee benefit plan, such as
a thrift, pension, profit-sharing, stock bonus, long-term performance award,
medical disability, accident or life insurance plan, or any other plan, program
or policy of the Corporation that is intended to benefit employees.
8. MISCELLANEOUS
8.1 NOTICES
Any notice required to be given pursuant to this Agreement
shall be effective only if in writing and delivered personally or by mail. If
given by mail, such notice must be sent by registered or certified mail, postage
prepaid, mailed to the parties at the addresses set forth on the signature page
hereof, or at such other addresses as the parties may designate, from time to
time, by written notice. Mailed notices shall be deemed received two (2)
business days after the date of deposit in the mail.
8.2 REMEDIES
(a) EQUITABLE REMEDIES
The Employee acknowledges and agrees that in the
event of any breach, violation or evasion of the terms, conditions and
provisions of Sections 4, 6 and 7 above, or this Section 8, such breach,
violation or evasion shall result in immediate and irreparable injury and harm
to the Corporation and shall entitle the Corporation to injunctive relief, as
well as to all other legal or equitable remedies to which the Corporation may be
entitled.
(b) TERMINATION OF AGREEMENT
It is further agreed that in the event of such
breach, the Corporation may forthwith terminate this Agreement, notwithstanding
anything herein to the contrary.
8.3 PARTIAL INVALIDITY
If any term or provision of this Agreement or the
application thereof to any person or circumstance shall be held to be invalid or
unenforceable to any extent, the remainder of this Agreement or application of
such term or provision to persons or circumstances other than those to which it
is held invalid or unenforceable shall not be affected thereby, and each term
and provision of the Agreement shall be valid and be enforced to the fullest
extent permitted by law.
8.4 WAIVER
No waiver of any right hereunder shall be effective for
any purpose unless in writing, signed by the party hereto possessing said right,
nor shall any waiver be construed to be a waiver of any subsequent right, term
or provision of this Agreement.
8.5 ASSIGNMENT; EFFECT ON AGREEMENT
It is hereby acknowledged and agreed that the Employee's
rights and obligations under this Agreement are personal in nature and shall not
be assigned or delegated.
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This agreement shall be binding on and inure to the benefit of the heirs,
personal representatives, successors and assigns of the parties, subject,
however, to the restrictions on assignment and delegation contained herein.
8.6 DISPUTES AND ARBITRATION
Any dispute arising in connection with the interpretation
or enforcement of the provisions of this Agreement, or its application or
validity, will be submitted to arbitration. Such arbitration proceedings will be
held at the location which is established as the place of employment for the CEO
function in accordance with Section 1.2, or if such location has not been
established, Las Vegas, Nevada, in accordance with the rules then existing of
the American Arbitration Association. This agreement to arbitrate is
specifically enforceable.
Any award rendered in any such arbitration proceeding will
be made in writing and will be final and binding on each of the parties, and
judgment may be entered thereon in any court of competent jurisdiction. The
costs and fees of any such arbitration proceeding will be borne by the
respective parties. The arbitrators may in their discretion award costs and
reasonable attorneys' fees to the prevailing party.
8.7 GOVERNING LAW
This Agreement shall be governed by and construed in
accordance with the laws of the State of Nevada.
8.8 ENTIRE AGREEMENT
This Agreement contains the entire agreement and
understanding between the parties and supersedes all prior agreements and
understandings, oral or written. No modification, termination or attempted
waiver shall be valid, unless in writing and signed by both parties.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the 19th day of March, 1998.
"CORPORATION"
MEDICAL DEVICE ALLIANCE, INC.
By: /s/ Donald K. McGhan
------------------------------------
Donald K. McGhan
Title: Chairman of the Board
ADDRESS:
3800 Howard Hughes Parkway, Suite 1800
Las Vegas, Nevada 89109
"EMPLOYEE"
/s/ Peter D. Costantino, M.D.
----------------------------------------
Peter D. Costantino, M.D.
ADDRESS:
12 Wright's Mill Road
Armonk, New York, 10504
SOCIAL SECURITY NUMBER: ###-##-####
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<PAGE> 1
EXHIBIT 10.13
EXCLUSIVE LICENSE AGREEMENT
THIS EXCLUSIVE LICENSE AGREEMENT is made and entered into as of the 10th
day of December 1995 by and between MISONIX, INC., a New York Corporation with
its principal offices at 1938 New Highway, Farmingdale, New York 11735
(hereinafter referred to as "MISONIX") and MDA, INC., a Nevada Corporation
having its principal offices at 3315 East Russell Road, Suite H-193, Las Vegas,
Nevada 89120 (hereinafter referred to as "MIDA").
WITNESSETH:
WHEREAS, MISONIX has a business which is, in part, based on the
research, development, and manufacturing of ultrasonic equipment for scientific
and industrial purposes; and
WHEREAS, MDA has a business which is, in part, that has been organized
to market and sell, on a worldwide basis, medical devices specifically designed
to improve the treatment of patients desiring a surgical procedure commonly
referred to as "Liposuction" or "Liposculpturing" (hereinafter referred to as
the "Procedure"); and
WHEREAS, MISONIX has already utilized its engineering experience,
ultrasonic technology, and prototype manufacturing capabilities to design and
manufacture ultrasonic systems (hereinafter referred to as the "System")
specifically for use in performing the Procedure; and
WHEREAS, MDA has experience in identifying various needs in marketing
and selling to the medical fields on a worldwide basis, especially the
specialties of Plastic and Reconstructive Surgery, Cosmetic Surgery and Surgical
Dermatology; and
WHEREAS, MISONIX desires to continue further technical and application
engineering directed to advanced designs of the System utilizing its patented
technology and, in addition, manufacture the finished product; and
WHEREAS, MDA desires to use its marketing and selling skills to market
the System on an exclusive worldwide basis.
WHEREAS, the Parties entered a Letter of Agreement dated September 11,
1995, under which significant advancements have been made relative to
identifying the specifications and performance requirements of the System as a
result of cooperative efforts by both MISONIX and MDA.
NOW THEREFORE, in consideration of the premises and promises, warranties
and representations herein contained, the parties hereto agree to enter into
this
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<PAGE> 2
Exclusive License Agreement between MISONIX and MDA for the period of time
commencing with the day and year first above written for a period of ten (10)
years ending on December 31, 2005 under the following conditions:
A. MDA to Receive:
l. Exclusive worldwide marketing and sales rights to the System
utilizing MISONIX Ultrasonic Liposuction technology (including
Patent No. 5,419,761; and all improvement patents and foreign
patents now or hereafter held by MISONIX). MISONIX retains the
rights to ultrasonic technologies for non-medical applications.
2. Exclusive rights to utilize MISONIX letter, dated October 15,
1993, from the U.S. Food and Drug Administration, which provides
for marketing the System under Section 510(K), based on
substantial equivalence to devices marketed prior to enactment
of the Medical Device Act of 1976.
3. Access to MISONIX technical support and the design history of
the System.
4. Right to modify specifications to meet clinical/market needs at
MDA's cost.
5. Right of name and logo selection by MDA.
6. Commitment by MISONIX to designate and supply a dedicated
product development team to work with MDA market development
team and support staffs for sucessful future project
development(s).
7. First right of license for existing technology improvements or
future medical technology developed by MISONIX (except for
angioplasty) while the Exclusive License Agreement is in force.
B. MISONIX to Receive:
1. A License Fee payment of three hundred thousand dollars
($300,000.00) upon execution of the Exclusive License Agreement.
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<PAGE> 3
2. MDA will provide market and application development, and a
clinical and marketing plan (milestones) to MISONIX on or before
December 31, 1995, and on an every six (6) month basis
thereafter. MDA to be responsible for planning and funding
clinical tests of the System.
3. Upon delivery of five (5) prototype units, MDA will pay the cost
of the Systems which is four thousand dollars ($4,000.00) per
unit, plus an additional License Fee of one hundred thousand
dollars ($100,000.00).
4. At the start of regular production, or one year from the date of
the Exclusive License Agreement, whichever comes first, the
additional License Fee of one hundred thousand dollars
($100,000.00) will be paid by MDA for a total License Fee
payment of five hundred thousand dollars ($500,000.00).
5. Development funding for the autoclavability (i.e. sterilization)
of the converter and umbilical cable and the manufacturability
of the System including having printed circuit board and other
components established for production as contrasted with
prototypes will be provided by MDA. It is estimated at a maximum
of thirty thousand ($30,000.00) per month until the start of
production. Start of production is defined as production of
commercially saleable produced Systems in the quantities needed
to meet the minimum annual purchases specified in Schedule D. A
fifteen thousand dollar ($15,000.00) advance will be made by MDA
to MISONIX against future billings (the "Advance") for the
purpose of assuring that MISONIX will implement the start of the
subject development work as soon as possible. MISONIX will
invoice MDA following the end of each month for the actual
amount expended, which is to be paid by MDA within ten (10)
working days of invoicing by MISONIX. Estimated time frame will
be six months from the date first written above, subject to
suggestions of, and modifications by, technicians for both
parties.
6. MDA to grant MISONIX a security interest in this Exclusive
License Agreement to secure performances by MDA of its
obligations thereunder. UCC and other documents will be executed
by MDA in furtherance of the security interest.
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<PAGE> 4
C. Both Parties to Agree:
Mutual non-competition clause in Ultrasonic Assisted Liposuction for the
life of this Exclusive License Agreement. Each party agrees, during the
term of this Exclusive License Agreement, not to compete nor engage in,
directly or indirectly, the ultrasonic assisted liposuction business
except through this Exclusive License Agreement.
D. Quantity and Price. MISONIX agrees to sell to MDA and MDA agrees to buy
from MISONIX one hundred percent (100%) of MDA's requirement of the
aforesaid Ultrasonic Assemblies in accordance with the price list set
forth in Schedule A. Technological changes and variations from the
prototype specifications shall increase the cost appropriately. In
addition, the prices can be increased by MISONIX only under one of the
following circumstances: MISONIX may, with written notification to MDA,
increase the price in accordance with the rise in the Official Consumer
Price Index (CPI). Such increase in the price in accordance with the CPI
can be made once each year during the term of the Agreement, except
during the first year, and whenever the cost of labor and/or raw
material to MISONIX changes substantially, MISONIX may change the price
of the Ultrasonic Units, with a ninety (90) day advance written notice
to MDA, to reflect such substantially changing and/or raw material
costs. All Ultrasonic Units for MDA will be manufactured in accordance
with the specifications set forth in Schedule B which will be revised
from time to time by written consent of both parties.
All shipments will be F.O.B. point of origin. MDA will remit payment
within thirty (30) days from the date each invoice is received by MDA
with respect to shipments of Ultrasonic Units. Credit terms: (a) open
account for up to 20 Units at any time, (b) balance by Letter of Credit
or fifty percent (50%) cash payment at time of order. MDA has no
obligation to pay for any shipment of Ultrasonic Units that does not
meet the specifications as set forth in Schedule B and have been
returned to, and accepted by, MISONIX for credit.
E. Delivery. MDA shall submit purchase orders setting forth the quantities,
delivery date and shipping instructions with respect to each shipment
such purchase order to be received by MISONIX at least ninety (90) days
prior to the stipulated delivery date. MISONIX shall ship each order to
MDA or MDA's designee to the location specified, as instructed by MDA.
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<PAGE> 5
F. Quality. It is understood and agreed that all Ultrasonic Units sold to
MDA hereunder will meet the established specifications, as described in
the attached Schedule B, which Schedule may be revised from time to time
by agreement of the parties hereunder. Furthermore, MISONIX shall adhere
to current good manufacturing practice (GMP) and to all applicable US
governmental laws and regulations, as may be amended from time to time
relating to the manufacture, sale and shipment of Ultrasonic Units sold
hereunder. Cost of future filings and modifications of units
necessitated thereby to be borne by MDA, which shall receive prior
notice of proposed actions and expenditures and shall participate in the
decision making process.
G. Quality Assurance. MISONIX will provide MDA with the test results of all
Ultrasonic Units to be shipped to MDA. Furthermore, MISONIX shall advise
MDA of any changes in the manufacturing process or in materials which
have an impact on the quality or performance of the Ultrasonic Units
purchase hereunder.
All Ultrasonic Units delivered to MDA shall be subject to acceptance by
MDA's quality assurance staff. Unless MDA gives MISONIX notice to the
contrary within ten (10) working days after receipt of a shipment of a
Product, such shipment shall be deemed to be accepted by MDA. MDA or
MDA's designee shall have the right to reject any shipment made to it
hereunder which does not meet such quality assurance specifications when
received by it at such designation. In the event that any such shipment
is not approved by MDA because it does not meet said specification, MDA
shall advise MISONIX in writing and MISONIX agrees to replace such
shipment at its expense including charges incurred by MDA for freight
and customs clearance if application, and resubmit to MDA within
forty-five (45) days. At MISONIX'S option, MDA shall return any such
rejected shipment to MISONIX at MISONIX'S expense.
H. Taxes. Any and all taxes imposed upon or with respect to or measured by
the sale or delivery by MISONIX to MDA of Ultrasonic Units in accordance
with MDA's instructions shall be for MDA's account.
I. Force Majeure. MISONIX'S obligations and any delays in deliveries
hereunder or portion thereof, and MDA's obligations to take delivery
hereunder when due, shall be excused by strikes, riots, war, invasion,
acts of God, fire, explosion, floods, delay of carrier, shortages or
failures in the supply of materials, acts of
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<PAGE> 6
government agencies or instrumentality's, judicial action, delay in
constructing manufacturing facilities, and other contingencies beyond
the reasonable control of the party to be excused. In such event(s),
MISONIX will make reasonable efforts to fulfill MDA's requirements for
and MDA will make reasonable efforts to take delivery of Ultrasonic
Units as defined herein. If for any of the reasons set forth above,
MISONIX shall be unable to deliver any of the agreed upon quantities of
MISONIX Ultrasonic Units when due, MISONIX shall immediately notify MDA
of such inability and of the period for which such inability is expected
to continue. In the event MDA elects to manufacture or have Ultrasonic
Units manufactured by a third party during the period that MISONIX is
unable to do so, MDA may use or release to said third party MISONIX'S
confidential technical information and know-how relating to Ultrasonic
Units under a confidentiality agreement acceptable to MISONIX, which
shall not be unreasonably withheld, to enable MDA or said third party to
manufacture Ultrasonic Unit for MDA's account.
J. Royalty. In consideration for the assignment granted in Paragraph A (1.)
above, MDA shall be obligated to pay MISONIX a royalty of five percent
(5%) on net sales of system and/or accessories covered by one or more of
the patents owned or controlled by MISONIX and sold by MDA in any part
of the world.
K. Royalty Record Keeping. MDA shall keep complete and accurate records of
all sales of the systems and/or accessories identified in Paragraph J as
qualifying for royalties. On or before the thirtieth (30th) day after
the end of each calendar quarter, MDA shall submit a written report,
setting forth sales and calculations of the amount of royalty due and
payable based upon sales by MDA during said calendar quarter. Upon
MISONIX's request, and on reasonable notice, MDA shall permit, at the
expense of MISONIX, an independent certified public accountant
acceptable to both parties to have access during reasonable business
hours to such of MDA's records as may be necessary to determine, in
respect of any quarterly period ending not more than two (2) years prior
to the date of such request, the correctness of any reports and payments
made under this Exclusive License Agreement. In the event that the
MISONIX accountant discovers an underpayment of five percent (5%) or
more, the fees of such accountant shall be borne by MDA. MDA agrees that
the choice of MISONIX' regular independent accountants (presently Ernst
& Young LLP) is acceptable to MDA. MISONIX undertakes and agrees that
neither they nor any certified public accountant selected by them
pursuant
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<PAGE> 7
third party except to the extent necessary to enforce this Exclusive
License Agreement and that MISONIX and the certified public accountant
will otherwise keep such information strictly confidential. This right
of inspection may not be exercised more than once in any one (1)
calendar year.
L. Royalty Payment. The payment of the Royalty will be sixty (60) days
following the end of the previous calendar quarter. Net Sales as used
herein shall be the gross invoice price of the System and/or accessories
less the sum of the following:
a) Quantity and cash discounts allowed in amounts customary in the
trade.
b) Sales taxes, tariff duties and use taxes directly imposed with
reference to particular sales.
c) Outboard transportation prepaid.
d) Amounts credited or allowed on returns.
No deductions shall be made for commissions paid whether they be with
independent sales agencies or employees of MDA. Systems and/or
accessories shall be considered "sold" when billed or invoiced by MDA.
M. Infringement. MDA shall have the right, in its sole discretion and at
its expense, to initiate legal proceedings against any infringer of the
patents and technology covered by this Exclusive License Agreement. Any
settlement or recovery received from any such proceeding shall be one
hundred percent (100%) to MDA. MDA, in turn, shall pay MISONIX five
percent (5%) of any resulting settlement less the cost for obtaining the
recovery, including attorney's fees. In the event MDA initiates or
carries on legal proceedings to enforce any Patent covered by this
Exclusive License Agreement against an alleged infringer, MISONIX shall
cooperate reasonably with and supply all assistance reasonably requested
by MDA.
The cost of defending any challenges by third parties to the patents
and technology covered by this Exclusive License Agreement and their
application to the Procedure shall be that of MDA. MISONIX shall
cooperate with MDA by supplying all applicable technical information
including, but not limited to, patent application files.
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<PAGE> 8
The cost of defending any challenges by third parties and their
infringement outside of the Procedure to the patents and technology
covered by this Exclusive License Agreement shall be shared by MISONIX
and MDA on a fifty & fifty percent (50% & 50%) basis.
N. Term. This Exclusive License Agreement shall be effective when signed by
both parties, and shall continue in effect for a period of ten (10)
years. MDA shall have the option to renew this Exclusive License
Agreement for five (5) successive one (1) year periods on the same terms
and conditions, and the price of Ultrasonic Units to be purchased during
each one (1) year period shall also be determined pursuant to the terms
and conditions of this Exclusive License Agreement. MDA must notify
MISONIX that it intends to exercise the option at least sixty (60) days
prior to the expiration of the ten (10) year term of the present
Exclusive License Agreement, and thereafter in each successive year at
least sixty (60) days prior to the expiration of the year in which the
option is being exercised.
0. Termination for Cause. If either party shall at any time fail to abide
by any of the material provisions of the Exclusive License Agreement,
the other party shall have the right to terminate this Exclusive License
Agreement on sixty (60) days prior written notice to the defaulting
party specifying the default complained of, provided, however, if said
defaulting party cures the default complained of within the said sixty
(60) day period, or if a nonmonetary default which reasonably would take
more than sixty (60) days to cure and the defaulting party is actively
taking steps to cure the same, the Exclusive License Agreement shall
continue in full force and effect as if no default has occurred. The
right of either party to terminate this Exclusive License Agreement, as
hereinabove provided, shall not be affected in any way by its waiver of,
or its failure to take action with respect to, any previous default.
This Exclusive License Agreement may also be terminated by the other
party in the event that a petition of bankruptcy is filed by or against
a party and not dismissed within thirty (30) days, or a receiver or
trustee is appointed for all or a part of the property of a party, or a
party makes an assignment for the benefit of creditors.
P. Rights of Termination. Any termination of this Exclusive License
Agreement as provided herein shall not relieve either party of any
obligation arising hereunder prior to such termination. In the event of
termination, all patents developed by the parties for ultrasonic
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<PAGE> 9
liposuction during the term of the Exclusive License Agreement shall
revert to MISONIX.
Q. Inability To Supply Full Requirements. In the event that MISONIX cannot
supply one hundred percent (100%) of MDA's requirement of Ultrasonic
Units, after reasonable prior notice and time to gear up for this, MDA
may either itself manufacture or have a third party manufacture the
amount not supplied by MISONIX during the period that MISONIX cannot
supply the same. MDA may release to said third party MISONIX'S
confidential information and know-how relating to Ultrasonic Units under
a confidentiality agreement acceptable to MISONIX which shall not be
unreasonably withheld, to enable the third party to manufacture the
amount of Ultrasonic Units not supplied by MISONIX for MDA.
R. Purchase Orders. A schedule of the minimum required purchase orders is
annexed hereto as Schedule D. The provisions of this Exclusive License
Agreement shall prevail over any inconsistent statements of provisions
contained in any document related to this Exclusive License Agreement
passing between companies including, but not limited to, any purchase
order, acknowledgment, confirmation or notice. This Exclusive License
Agreement shall supersede and prevail over any other agreement
applicable to the subject matter of this Exclusive License Agreement
between the parties which may be in effect at the time this Exclusive
License Agreement is executed.
S. Limited Warranty and Liability
1. MISONIX warrants that the materials described herein shall meet
the specifications as set forth in Schedule B but DOES NOT
WARRANT THE SUITABILITY OR USES WHICH MAY BE MADE OF THE SAME OR
THE UNITS TO BE PRODUCED HEREUNDER.
2. Except as provided in Paragraph (3) hereafter, MISONIX shall not
be liable for, and MDA assumes responsibility for, and hereby
agrees to indemnify and hold harmless MISONIX for and against
all costs, expenses, and damage (including reasonable attorney's
fees arising from any claim for personal injury and property
damage resulting from the handling of the Ultrasonic Units)
following MDA's acceptance of the Ultrasonic Units after it has
completed its testing as provided in Quality Assurance.
<PAGE> 10
3. Except as provided in Paragraph (5) hereof, MDA shall not be
liable for, and MISONIX assumes responsibility for and agrees to
indemnify and save harmless, MDA, for all personal injury and
property damages which occur during MISONIX'S manufacturing
process of Ultrasonic Units or which Ultrasonic Units are being
delivered to MDA or its designees or for claims based on
violations of Federal, State or local laws or regulations
applicable to employee or environmental protection in such
manufacture or delivery by MISONIX; e.g., a claim based on
MISONIX'S violations of environmental standards, standards
dealing with providing a safe place to work, or the
transportation of hazardous materials.
4. Either party, upon learning of any claims or suits, under
Paragraphs (2) or (3) of this Article, shall notify the other,
but MDA's attorneys shall handle and control such claims or
suits which fall under Paragraph (2) above on Limited Warranty
and Liability and MISONIX'S attorneys shall handle and control
such claims or suits which fall under Paragraph (3) above on
Limited Warranty and Liability.
5. Notwithstanding the foregoing provisions hereof, MDA shall
secure product liability insurance coverage covering personal
injury and property damage for the products produced hereunder,
at the full cost and expense of MDA, in an amount of not less
than five million dollars ($5,000,000) with a deductible of not
greater than two hundred thousand dollars ($200,000), covering
both MISONIX and MDA for any and all liability.
T. Arbitration. All disputes between the parties arising hereunder shall be
finally settled by arbitration in the City of New York, by the American
Arbitration Association, by a board of three arbitrators one of whom is
selected by each party and the third selected by the two arbitrators, or
if they cannot agree, from the lists of the American Arbitration
Association.
U. Notices. Any notice or request required or permitted to be given under
or in connection with this Exclusive License Agreement shall be deemed
to have been sufficiently given if in writing and delivered to an
officer of such party or sent by registered airmail, telex or telegram,
prepaid, to the party for which such notice is intended, at the address
set forth for such party below:
<PAGE> 11
In the case of MDA: President
Medical Device Alliance, Inc.
3515 East Russell Road
Suite H-193
Las Vegas, Nevada 89120
In the case of MISONIX: President
MISONIX, Incorporated
1938 New Highway
Farmingdale, NY 11735
or to such other address for such party as it shall have therefore
furnished in writing to the other party. If sent by mail, telex or
telegram, the date of mailing or transmission shall be deemed to be the
date on which such notice or request has been given.
V. Assignment. MDA or MISONIX may assign rights under this Exclusive
License Agreement in whole or in part to any of their respective
affiliates or subsidiaries. Upon the other party's request, the
assigning party shall enter into a separate counterpart agreement with
any such affiliate or subsidiary; it being expressly agreed that the
assignor shall remain bound by the obligations hereof. Such counterpart
agreement shall be in the same form as this Exclusive License Agreement,
except for necessary changes to reflect the extent of the assignment,
the substitution of the affiliate's or subsidiary's name, the effective
date of the assignment and the inclusion of a new provision enabling the
non-assigning party to terminate such separate counterpart agreement in
the event that the assignee ceases to be an affiliate or subsidiary of
the assigning party. This Exclusive License Agreement shall not
otherwise be assignable by either party without the prior written
consent of the other party.
W. Entire Exclusive License Agreement. This Exclusive License Agreement
sets forth the entire Exclusive License Agreement and understanding
between the parties as to the subject matter hereof and merges all prior
discussions and negotiations between them, and neither of the parties
shall be bound by any conditions, definitions, warranties,
understandings or representations with respect to such subject matter
other than as expressly provided herein or as duly set for the on or
subsequent to the date hereof in writing and signed by a proper and duly
authorized officer or representative of the party to be bound thereby.
X. Governing Law. This Exclusive License Agreement shall be construed in
accordance with the laws of the State of New York.
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<PAGE> 12
Y. Confidentiality. After execution of the present Exclusive License
Agreement, MISONIX shall disclose to MDA all technical information
reasonably necessary to use Ultrasonic Units or their equivalents, and
MDA shall hold such information except as provided in Paragraph I
dealing with Force Majeure, and Paragraph Q, dealing with Inability To
Supply Full Requirement of this Exclusive License Agreement. MISONIX
shall also release to MDA all technical information and know-how which
are reasonably necessary to manufacture Ultrasonic Units, and MDA may
use such information the manner set forth in the aforementioned
Paragraphs of this Exclusive License Agreement to manufacture Ultrasonic
Units, and MDA may use such information in the manner set forth in the
aforementioned Paragraphs of this Exclusive License Agreement to
manufacture Ultrasonic Units or to have such devices manufactured by a
third party only as permitted in this Exclusive License Agreement. In
addition to and not in lieu hereof, the parties re-affirm the provisions
of the confidential Disclosure Agreement dated August 11, 1995, which
remains in effect and is annexed as Schedule C hereto provided, however,
that such non-disclosure obligation shall remain in effect for the term
of this Exclusive License Agreement and a period of two years
thereafter.
Information which is necessary for obtaining or maintaining approval of
Ultrasonic Units or its equivalents by any regulatory agency of any
foreign country shall be an exception to the above confidentiality
obligations, but only to the extent necessary and provided said
confidentiality is maintained to the fullest extent possible by MDA.
IN WITNESS WHEREOF, this Exclusive License Agreement has been entered into as of
the day and year first above written.
MISONIX, INCORPORATED MEDICAL DEVICE ALLIANCE, INC.
By: /s/ JOSEPH LIBRIZZI By: /s/ DONALD K. MCGHAN
---------------------------- ----------------------------
Joseph Librizzi Donald K. McGhan
Its: President and CEO Its: Chairman
<PAGE> 1
EXHIBIT 10.14
MODIFICATION TO EXCLUSIVE LICENSE AGREEMENT
Modification dated February 27, 1996 to a certain Exclusive License
Agreement entered into as of December 10, 1995 by and between Misonix, Inc. a
New York Corporation ("Misonix") and Medical Device Alliance, Inc., a Nevada
corporation ("MDA").
The parties to the Exclusive License Agreement desire to modify the same
as follows:
1. Paragraph B.3 shall be modified in its entirety to read as follows:
"Misonix will bill MDA on a monthly basis for parts that will compose
the clinical units scheduled for delivery during March and April, 1996.
This billing will be included in the regular R&D invoice and promptly
paid by MDA. In return MDA shall have the following stock of clinical
equipment at its disposal.
1. 12 Generators
2. 25 Hand Pieces
3. 35 5mm Probes
35 5mm Short Probes
35 4mm Probes
4. 30 5mm Sheath Assy.
30 5mm Short Sheath Assy.
30 4mm Sheath Assy.
5. 12 Irrigation Pumps
6. Various accessories (e.g. cleaning brushes, tube sets) in
reasonable quantities
On April 30, 1996 an additional License Fee of One Hundred Thousand
($100,000) Dollars shall be paid by MDA to Misonix."
2. Except as hereby modified, the terms of the Exclusive License Agreement
shall remain in full force and effect.
MISONIX, INCORPORATED MEDICAL DEVICE ALLIANCE, INC.
By /s/ JOSEPH LIBRIZZI By: /s/ DONALD K. MCGHAN
----------------------------- ---------------------------
Joseph Librizzi Donald K. McGhan
Its: President and CEO Its: Chairman
<PAGE> 1
EXHIBIT 10.15
PRIVATE LABEL VENDOR AGREEMENT
PRIVATE LABEL VENDOR AGREEMENT ("Agreement") made this 15 day of January 1997,
between LIGHTHOUSE CAPITAL, INC. ("Assignee") and MDA Capital Corp ("Assignor").
RECITALS
WHEREAS, Assignor is an authorized dealer of LySonix medical equipment:
WHEREAS, Assignee is engaged in the business of leasing medical equipment to
industry and government:
WHEREAS, The Assignor is engaged in the business of distributing, selling, and
servicing of medical equipment to industry and government: and
WHEREAS, The parties wish to enter into an arrangement whereby Assignor shall
assign creditworthy commercial, state and municipal leases and rentals and
related documentation ("Contracts") and the equipment subject to those leases
("Equipment") as those terms are defined herein and below, to Assignee on a
continuing basis.
DEFINITIONS
Commercial entities include, but are not limited to, proprietorships,
partnerships and corporations (profit and not-for-profit) engaged in business
activities.
State and municipal entities include, but are not limited to, counties, cities,
municipalities, villages, towns, school districts and other political
subdivisions of the state (including the District of Columbia).
Commercial, state and municipal Contracts include, but are not limited to,
purchase orders, lease agreements, customer acceptance certificates, schedules,
addendum's, installment contracts and assignments.
NOW WHEREFORE, in consideration of the mutual covenants contained herein, the
parties agree as follows:
SECTION I
This Agreement contemplates, the assignment of Contracts and Equipment subject
thereto from Assignor to Assignee as set forth below in Section II.
The Assignment shall be transparent to the Customer (e.g. Lessee of Assignor)
such that all Contracts, invoices and contacts with the Customer by Assignee
shall be under; Assignor's name. The Assignor authorizes the Assignee: (1) use
of Assignor's name solely for the purposes hereunder; and (2) the right to
endorse in the name of the Assignor all remittances received hereunder from
Customer. Assignor hereby expressly agrees that Assignee or, any bank providing,
services to Assignee may endorse in the name of Assignor any check or other item
received in such lockbox and Assignor waives any claim it may have against such
bank arising directly or indirectly from such endorsement.
SECTION II
Assignor hereby agrees to sell, assign, transfer and set over to Assignee, its
successors and assigns, Contracts (including security deposits and advance
payments), and all Assignor's right, title and interest in and to the Equipment
subject thereto ("Equipment"), unless Assignee gives Assignor notice within
thirty (30) days after a complete copy of the Contract is furnished to Assignee
that a specific Contract or the Equipment is not acceptable to Assignee.
Assignor also hereby agrees to sell, assign, transfer and set over to Assignee,
the rights to all remedies under the aforementioned Contracts, including the
rights to collect rent due thereon, to repossess the Equipment in the event of
default by Customer, and the right , either in Assignee's or Assignor's name, to
commence legal proceedings or otherwise as available to Assignor. Assignee shall
have the right to endorse, in the name of the Assignor, any negotiable Contract
or other document sent to Assignee by any Customer hereunder. Assignee shall
have the right to file any applicable UCC Statement without the signature of
Assignor. The assignment of each Contract shall be evidenced by: (1) delivery of
the original Contract to Assignee; (2) Assignee's failure to give thirty (30)
days notice to Assignor that the Contract is not acceptable; and (3) delivery of
the invoice and assignment/bill of sale.
<PAGE> 2
SECTION III
A. Assignor expressly agrees that Assignee may assign its rights to said
Contracts and Equipment to third parties prior to or subsequent to completion of
transfer. Such event shall not operate to terminate or impair any other terms of
this agreement.
B. Assignor agrees to permit Assignee to send notices of Assignment ("Notices")
to Customers of previously assigned and future Contracts. The Notices shall be
in a form and content chosen by the Assignee. The Notice shall not require the
signature of an officer, director or employee of the Assignor. The Notices shall
be on letterhead chosen by the Assignee. At the Assignee's option the Customer
shall thereafter receive invoices and future communications using the name of
the Assignee.
SECTION IV
Assignor warrants that: The Contracts and all related documents connected
therewith are genuine, and in all respects, what they purport to be and
enforceable according to their terms: all statements contained in the Contract
are true and that all unpaid balances shown therein are correct; that the
Contracts, and each of the obligations which they evidence and the Equipment
subject thereto are, and will continue to be free and clear of all defenses, set
offs, counter claims, liens and encumbrances of every kind and nature; at the
time of execution of the Contract, the Assignor had good title to the Equipment
and full right to enter into Contract; the Equipment has been delivered to the
Customer in satisfactory condition and has been accepted by the Customer under
the terms of the Contract; all parties to the Contract have full capacity to
enter into the Contract; there are no facts which impair the validity of any
Contract all UCC filings and other recordings required by law have been
completed and complied with; that Assignor will not accept the return of or
repossess any of the Equipment or modify, terminate or renew the Contract,
without Assignee's prior consent; and that the Assignor shall have no authority
to accept any collections or an sums under the Contract whether as rent or
otherwise without Assignee's consent; and that Assignor shall not sell, assign
or pledge the Contract and related documents, and the Equipment with any
Assignee other than LightHouse Capital, Inc.
SECTION V
Assignor hereby agrees to defend and hold Assignee, its successors and assigns,
harmless from any liability, cost and expense, including reasonable attorney's
fees, due to Assignor's negligence, breach of any warranty, covenant or
representation hereunder or due to any wrongful intentional act or omission or
Assignor, its agents or employees.
SECTION VI
In the event the Customer of any Contract assigned hereunder is in default then
Assignee shall notify Assignor of said default by regular mail. Upon request by
Assignee, Assignor shall use its best efforts to remarket the Equipment. The
Assignor further agrees to obtain possession and maintain the Equipment from the
defaulted Contract until a new customer is obtained, or the Equipment is sold.
Under this Section VI Assignor shall be reimbursed for all necessary and
reasonable costs incurred in repossession and marketing the Equipment. Assignor
shall also receive such compensation as Assignee agrees in advance to pay for
such repossession and marketing. All such costs and compensation shall be from
the resulting marketing.
SECTION VII
In the event that the Assignee consents to Assignor's requests that the Assignee
continue billing the Customer in Assignor's name, and that Customer withhold
Contract payments because of a legitimate service problem, Assignor shall make
good faith effort to resolve the service problem and further assist the
Assignee in the collection of all payments due.
SECTION VIII
Assignee's knowledge of any breach of the foregoing shall not constitute a
waiver thereof. This Agreement and the documents referred to herein constitute
the entire Agreement between the Assignor and the Assignee, and this Agreement
may not be changed or modified, except in writing, signed by both parties.
Assignor agrees that the rights and remedies of the parties shall be
interpreted, construed and enforced in accordance with the laws and public
policies of the State of New York without regard to the principles of conflict
of laws. In any legal action concerning this Agreement, you agree to personal
jurisdiction and venue in the United States District Court for the Northern
District of New York or the Supreme Court of the State of New York, County of
Onondaga.
<PAGE> 3
SECTION IX
Assignee shall provide timely financial statements in a form acceptable to
Assignor, upon request to Assignor. Such request shall not exceed two per annum.
Assignee shall provide Assignor with a Notice of Assignment Letter in the form
attached hereto, on Assignee Company Letterhead, that shall be held in escrow
pending either Lessee, Assignee, or Assignor default. Assignee shall provide
Assignor a Secretary's Certificate of Resolution authorizing the Assignee's
signor. Assignee shall provide the Assignor any other documentation that may be
reasonably requested.
SECTION X
Any claim of non performance of the Equipment by any Customer must be corrected
by Assignor or its designee within sixty (60) days of the initial notice by the
customer to Assignee. If customer continues to claim non-performance after the
sixty (60) day period, and customer fails to make timely payment on the
Contract, then Assignor shall be responsible for any and all payments due under
the contract and Assignor shall repurchase the Contract if requested by
Assignee. The purchase price shall be the sum of the net present value of the
remaining lease payments determined by using the implicit interest rate of the
Contract, plus accrued interest from the date the last payment was received by
Assignee to the Contract repurchase date, any outstanding late charges, any
applicable sales and personal property taxes, and the residual value of
Equipment as of the date of the final payment due under the contract. Upon
payment by Assignor to Assignee, Assignee shall assign promptly removed
Equipment and all related documentation to Assignor "as is and where is".
By. [SIG] By [SIG]
------------------------------ --------------------------------
Title Chief Exec Officer Title President
--------------------------- ------------------------------
Date 1/15/97 Date 1/21/96
---------------------------- ------------------------------
<PAGE> 1
EXHIBIT 10.16
ADDENDUM TO PRIVATE LABEL VENDOR AGREEMENT BETWEEN
MDA CAPITAL CORP & LIGHTHOUSE CAPITAL INC
THIS ADDENDUM TO PRIVATE LABEL VENDOR AGREEMENT is made as of January 15, 1997
by and between MDA CAPITAL CORP. ("Assignor"), both a corporation, and related
with its principle place of business at 70 Mark Ave., Carpenteria, CA 93013 and
LIGHTHOUSE CAPITAL, INC, ("Assignee") a wholly owned subsidiary of Syracuse
Supply Company, Inc., with its headquarters at 5921 Court Street Road, Syracuse,
NY 13206.
WITNESSETH
WHEREAS, Assignor in its ordinary course of business sells Equipment (as
such term is herein defined) to its customers; and
WHEREAS, Assignor proposes to give Assignee a right of first refusal to
provide leasing services to its customers; and
WHEREAS, Assignor desires to establish a Private Label Vendor Agreement
with addendum (as such term is herein defined) lease program, with Assignee
servicing the program; and
WHEREAS, Assignee desires to provide lease financing to qualified
customers of Assignor subject to the terms and conditions of this Agreement.
NOW THEREFORE, in consideration of the agreements and covenants
contained herein, the parties hereto agree as follows:
I. DEFINITIONS
As used herein, all capitalized terms shall have the meanings set forth
below:
"Agreement" means the Private Label Vendor Agreement, any Addendums and
all Exhibits annexed hereto and made a part hereof, as may be amended,
supplemented and/or modified from time to time by the parties hereto.
"Approval Letter" means the letter providing the terms and conditions of
Assignee's approval of a customer, or a rejection of such credit application.
"Contract" means the lease, and all related documents in the form shown
as Exhibit A hereto, executed by an authorized representative of the Lessee;
which serves as evidence that the Lessee has entered into a financing obligation
with Assignor. And that the Equipment has been delivered to and accepted by the
Lessee. An Approval Letter shall be part of each lease
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<PAGE> 2
"Distributor" means those sales representatives, independent companies,
and manufacturer representatives selected and authorized by Assignor to sell
products distributed and/or manufactured by Assignor or is affiliates.
"Equipment" means certain equipment, together with all components and
parts incorporated therein, sold or leased to a Lessee by the Distributor and
covered by a Contract.
"Lease Payments" means the monthly rental due from Lessee under the
terms of the Contract. Lease Payments are used interchangeably herein.
"Lessee" means a customer of Assignor, approved in an Approval Letter,
entering into a Contract for Equipment sold by a Distributor.
"Private Label" means an arrangement pursuant to which Assignor's name
and/or logo will appear prominently on the Contracts.
II. TERM AND TERMINATION
2.1 Term. This Agreement shall be deemed effective upon mutual execution. The
term of this Agreement shall continue from such effective date for a period of
one year, and will automatically renew for additional one year periods, unless
terminated by either party pursuant to the terms of subsection 2.2 herein.
2.2 Termination. Either party may terminate this Agreement at any time by
written notice given at least sixty (60) days prior to the effective date of
such termination. Upon termination of this Agreement, the obligations of the
parties with respect to applications not credit approved prior to the effective
date of termination shall cease.
For applications that are credit approved at the effective date of termination,
Assignee shall honor such approvals for the terms and under the conditions
described in subsections 3.4, 3.6, and 4.2 herein. The warranties, obligations,
and covenants of the parties with respect to Contracts prior to the effective
date of termination shall survive such termination and shall remain in effect
until the Contracts expire or are terminated.
III. OFFER AND ACCEPTANCE
3.1 Equipment to be Sold. The parties hereby agree that unless otherwise agreed
in writing, each transaction pursuant to this Agreement shall include the sale
of all Assignor's right, title and interest in the Equipment, but shall not
include assumption of its obligations or responsibilities with respect to
insurance of the Equipment, performance of the Equipment or any other obligation
or liability therein.
3.2 Credit Submission. In each instance in which Assignor shall wish to provide
lease financing for their customer, Assignee will require sufficient information
in order to make a credit determination, which shall at a minimum consist of the
following:
- payment terms requested:
- estimated delivery date;
- a completed credit application as shown in Exhibit B;
- any other information required by Assignee.
3.3 Confidentiality of Submissions. All information and materials furnished to
Assignee in the credit application, shall be held strictly confidential and
shall be used by Assignee solely for the purpose of
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<PAGE> 3
making a determination. Assignee shall retain such credit information, and shall
return to Assignor such information when requested via fax or mail.
3.4 Credit Decision. The decision to accept or reject any proposed transaction
shall be at the sole discretion of Assignee. Within twenty-four (24) hours of
receipt of all required information, Assignee shall notify Assignor by fax on
the Approval Letter of its decision to approve or reject a proposed transaction
at its primary place of business.
3.5 Credit Rejection.
Assignee is not a credit reporting agency and consequently Assignor agrees that
any details provided to substantiate Assignee's reason(s) for rejection of a
specific proposed transaction represent strictly Assignee's opinion of the
credit and financial risk(s) involved in the proposed transaction, and not
statements of fact. Assignor agrees to keep all such details and statements of
opinion strictly confidential, to the extent permitted by applicable law.
Assignee agrees to provide to any such proposed Lessee any notice required by
the Federal Equal Credit Opportunity Act.
3.6 Credit Approval. The Approval Letter shall give complete details regarding
the terms and conditions of the approval and shall be valid for a period of
sixty (60) days from the date of the Approval Letter, subject to interest rate
movements set forth below. Assignee may adjust the rates in accordance with
corresponding movements in like term US Treasury as listed in the Wall Street
Journal. Assignee's credit approval may be revoked prior to the funding of a
transaction should the Lessee thereunder experience a material adverse change in
its financial condition or ability to pay in Assignee's sole discretion.
IV. DOCUMENTATION and ADMINISTRATION
4.1 No Recourse to Assignor. Assignee hereby assumes all risk of the lessee's
insolvency or financial inability to make payments.
4.2 Documents Required.
a) Contract shown in Exhibit A or as amended from time to time by Assignee
will be used along with the standard terms and conditions. Personal
Guaranties shall be required unless waived by Assignee. Assignee
reserves the right to require additional documentation if the individual
circumstances warrant. Documentation may be prepared by Assignee or
Assignor and sent directly to the Lessee. All Lease Payment checks are
to be made payable to Assignee.
b) Assignor will provide Assignee with an invoice or bill of sale which
details the Equipment being sold (including serial numbers), the ship to
address of the customer and the bill to address of Assignee.
c) Upon receipt of the above, Assignee will immediately examine the
Contract and promptly notify Assignor of any deficiencies, if any.
d) All Contracts shall require a proof of insurance as listed therein from
the Lessee, adding Assignee as additional insured and loss payee, and
"Certificate of Complete" from PSEF and/or ASPRS.
e) All Contracts shall required UCC-1 filings and the cost of such shall be
borne by either the Lessee or Assignor. An administrative fee of $200.00
shall be charged on each contract to cover this cost.
4.3 Funding.
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<PAGE> 4
a) Payment will be made within twenty-four (24) hours once all properly
executed Contracts have been received by Assignee, and delivery and
acceptance of Lease and the Equipment subject thereto, of Lessee is
confirmed by Assignee.
b) Items to be funded will include Equipment, (shipping and installation
"soft costs" not to exceed 20% of Equipment cost) and acceptable soft
costs.
V. COMMUNICATION and MARKETING
5.1 Support. Assignee will support the marketing efforts of Assignor and the
marketing of this lease finance program to authorized Distributors of Assignor
products by having office hours from 8:00 am to 8:00 pm Monday through Friday,
(with certain exceptions), and ongoing sales and marketing programs and lease
training to Assignor personnel at lease once per year. Assignor will support the
efforts of Assignee by expressly noting in its literature and marketing material
that this Agreement is the sole leasing program to be offered by Assignor and
it's Distributor and actively promoting leasing in the selling process, provided
that Assignor's customers may choose to finance Equipment elsewhere.
5.2 Communication/Notices.
a) The following toll free numbers are established:
Central Processing Center: (888) 454-4481
Fax Transmissions: (888) 254-4481
Marketing Support: (315) 463-7050
b) Notices under this Agreement shall be deemed to have been given if
delivered by mail, or by courier service to the other party at the
address stated below or such other address as such party may provide by
written notice.
If to Lighthouse Capital, Inc. If to MDA Capital Corp:
Attn: VP Administration Attn:
Lighthouse Capital, Inc. MDA Capital Corp
PO Box 3324 3800 Howard Hughes Parkway
5921 Court Street Rd. Suite 1800
Syracuse, NY 13220 Las Vegas, NY 89109
5.3 Rental Factors. Assignee will provide competitive rental factors which it
may change at its sole discretion. The current rates in effect are shown in
Exhibit D. Special lease structures or deviations from those set forth in the
Exhibit D will be handled on a case by case basis. Assignee will support special
marketing programs, in it's sole discretion, desired by Assignor. Rates on
Exhibit D(i) are provided with 6 points built in for the sole benefit of
Assignor. Commissions shall be paid directly to Assignor monthly.
5.4 Marketing Assignee Services. Assignor will inform its Distributors of the
benefits to using the services under this agreement. Assignor will provide
access to its sales personnel and facilitate the attendance of Assignee's and
Assignor's personnel at scheduled sales meetings.
5.6 Distributor List. A current authorized Distributor listing will be provided
to Assignee along with any supporting information relative to the nature of the
Distributor's business and/or finances. Additions to or deletions from the
Distributor list will be provided in a timely manner. All information received
by Assignee will be treated as proprietary and confidential.
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<PAGE> 5
VI. LESSEE CANCELLATION
6.1 Lessee Cancellation. Any Lessee that defaults or cancels a Contract due to
failure of MDA/LySonix to perform any maintenance, services, failure of, related
governmental approvals or otherwise shall be considered an event of default
under Section 10.1 and be subject to the remedies of section 10.2(a). Any such
default shall have a cure period of thirty (30) days from the date of written
notification by Assignee to Assignor at the address listed in Section 5.2(b).
VII. REMARKETING
7.1 Agreement to Remarket. In order to allow Assignor to control the after
market for its Equipment and in an attempt to obtain reasonable proceeds from
Equipment under a defaulted contract, Assignor shall have the obligation to
remarket and/or repurchase such Equipment of Assignee as provided below.
7.2 Repossession. When Assignee has requested Assignor to remarket Equipment,
Assignee shall transfer legal right to such Equipment to Assignor and Assignor
agrees to retake the Equipment on behalf of Assignor upon such transfer by
Assignor. The risk of loss to any Equipment so transferred shall pass to
Assignor at the time and place of transfer.
7.3 Appraisal. Assignor shall appraise the Equipment and advise Assignee in
writing of its best estimate of the Equipment's market value in an "as is/where
is" condition. Additionally, Assignor shall makes its best estimate of all
recommended repairs and/or reconditioning costs and shall advise Assignee in
writing of its best estimate of the market value such Equipment would have after
recommended repairs and reconditioning are completed.
7.4 Repairs. Assignor agrees to perform such repairs and reconditioning as
Assignee may direct, and shall not cause any repairs or reconditioning to be
performed without the prior written consent of Assignee. Assignor shall keep
accurate records of all costs and expenses incurred in the performance of such
repair and reconditioning.
7.5 Manner of Remarketing. Assignor shall remarket the Equipment on a
non-discriminatory, priority basis within the 120 day Remarketing Period for
cash or on such extended payment terms as Assignee shall approve. Assignor in
the ordinary course of its business will be engaged in the marketing of other
equipment and such activity shall not be a breach of this Agreement
7.6 Distribution of Remarketing Proceeds. If a buyer or new lessee is obtained
by Assignor, the remarketing proceeds shall be distributed as follows:
a) first to the recovery by Assignor for the costs and expenses of
repossession, remarketing and reconditioning the Equipment as agreed to
in writing by Assignee;
b) then to Assignee for recovery of its Net Book Value of the Contract, and
the recovery of Assignee's other reasonable out-of-pocket expenses
incurred with respect to such lease and legal fees, if any; and last,
the remainder, if any, to be paid 50% to Assignor and 50% to Assignee,
as allowed by law.
7.7 Repurchase of Equipment. Assignor shall have the option to repurchase any
defaulted Contract for the Net Book Value plus any other outstanding amounts due
on such Contract. Such option shall become an obligation of the Assignor after
one hundred-twenty (120) days from default notice.
VIII. REPRESENTATIONS, WARRANTIES AND COVENANTS
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<PAGE> 6
8.1 Each Party Represents And Warrants To One Another That:
a) each is a corporation duly organized, validly existing and in good
standing under the laws of its representative state of incorporation.
That each is in good standing in every jurisdiction where the nature of
its business requires it to be qualified;
b) each has full power, authority and legal right to execute, deliver and
perform this Agreement and the execution, delivery and performance
hereof has been duly authorized by all necessary corporate action;
c) this Agreement has been duly executed and constitutes a legal, valid and
binding obligation enforceable in accordance with its terms; and
d) the execution, delivery and performance of this Agreement (1) is not in
contravention of any agreement or indenture by which the parties are
bound or by which properties may be affected, (2) does not require any
stockholder approval, or any approval or consent of, or filing or
registration with, any governmental body or regulatory authority or
agency, or any approval or consent of any trustees or holders of any
indebtedness or obligations of such party, or such approval or consent
has been obtained and (3) does not contravene any law, regulation,
judgment or decree applicable, or certificate of incorporation or
by-laws.
8.2 Assignor Representations and Warranties.
a) The Equipment shall perform in accordance with any Equipment performance
standards provided for in the Contract or otherwise.
b) There shall not have been and will not be any act, failure to act,
omission or misrepresentation of Assignor which (i) nullifies, modifies,
limits or in any way affects the genuineness, validity or enforceability
of any obligation of a Lessee, or (ii) modifies or amends the Contract
in any respect, or (iii) modifies the uses, maintenance or warranties of
the related Equipment.
c) Each Contract and Equipment related thereto shall not be subject to any
offset, deduction, defense, counter claim or lien as the result of any
act, failure to act, omission, or any alleged act, failure to act or
omission of Assignor.
d) Assignor will promptly fulfill and perform all obligations, covenants,
liabilities, warranties and duties, if any, on its part to be fulfilled
and performed in connection with the Contract and Equipment related
thereto and any other agreements or instruments executed by Assignor
with respect to the installation, maintenance or servicing by Assignor
of the Equipment covered by the Contract. Assignee or any subsequent
assignee shall have no obligation or liability under the Contract and
shall not be obligated to perform any of Assignor's obligations
thereunder; Assignor's obligations under the Contract may be performed
by Assignee or any subsequent assignee, however, without releasing
Assignor therefrom.
e) Assignor shall provide to Assignee within 90 days of each year end,
audited financial statements and any other information reasonably
requested by Assignee. Notice of any action or event that could cause a
material change in Assignor shall be provided to Assignee immediately.
Additionally, Assignor is not the subject of any litigation, charge,
lien, or other such encumbrance and shall notify PMEL immediately upon
becoming the subject of such an act.
f) Assignor has fully informed Lessee of the training courses,
certification requirement and malpractice insurance coverage exemption
for non-compliance. All Lessee have a certified employee at the time of
Contract acceptance. Such certification shall be done by PSEF or ASPRS.
IX. INDEMNITIES
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<PAGE> 7
9.1 Indemnity by Assignor. Assignor shall without limiting any other rights
which Assignee has hereunder, defend, indemnify, protect and save Assignee
harmless against and from any third party claims, damages, losses, liabilities,
obligations, demands, defenses, judgments, costs including reasonable attorney's
fees, disbursements or expense of any kind or of any nature whatsoever which may
be imposed upon, incurred by or asserted or awarded against Assignee and
arising from any breach by Assignor of the representations, warranties or
covenants made by Assignor in this Agreement, or any alleged infringement or
violation of a patent, copyright, trade secret or other proprietary right of any
third party based upon the sale, lease, use, operation or other disposition of
the Equipment (including the Equipment as modified or upgraded in any way)
unless such claim, loss or damage shall be based upon the negligence or
misconduct of Assignee.
9.2 Notice. If any claim or action is brought or threatened against Assignee
based on a claim, loss or damage for which Assignor is required to provide
indemnity hereunder, Assignee shall promptly notify Assignor in writing of such
claim.
9.3 Defense of Claim. Following the receipt of notice by Assignor then
unless otherwise directed by Assignee, Assignor shall defend such actions or
claims at its expense and pay all costs, damages and attorneys' fees which may
be awarded in any such action against Assignee. Assignee shall reasonably
cooperate (at the expense of Assignor) as may be reasonably requested by
Assignor to assist Assignor in the settlement and defense of such claims.
X. DEFAULTS and REMEDIES
10.1 Events of Default. The following shall be events of default hereunder:
a) The occurrence of a material breach by Assignor of any warranty,
representation or obligation contained in this Agreement;
b) Any Contract delivered to Assignee by Assignor is found to be executed
by someone other than the Lessee;
c) Assignor or its Distributor suspends or ceases to do business as a going
concern, becomes bankrupt, insolvent, unable to pay its debts as they
become due, or makes an assignment for the benefit of creditors.
10.2 Remedies. In the event of default hereunder, the following remedies shall
be available to Assignee:
a) In the event of a default described in Paragraphs 10.l(a), (b), or (c)
above, Assignor agrees, upon receipt of written request from Assignee, to
repurchase the affected Contract within five (5) days after Assignee's demand at
the present value, plus; any outstanding amounts due, applicable taxes, any
residual position, and any fees or other costs that Assignee may incur, for
example reasonable legal fees or costs to refile appropriate UCC's.
10.3 Cancellation. In the event of any breach or default by either Assignee or
Assignor of any terms and conditions contained herein, the aggrieved party shall
provide the other party with written notice thereof setting forth in reasonable
detail the basis of such breach or default, whereupon the defaulting party shall
have thirty (30) days to cure, and absent such cure, the aggrieved party may, in
addition to exercising any and all other remedies available herein, at law or in
equity, by written notice to the other party cancel this Agreement, effective
upon notice of cancellation.
XI. MISCELLANEOUS
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11.1 Power of Attorney. Assignor hereby appoints Assignee as Assignor's
attorney-in-fact to do, at Assignee's option, all lawful acts and things which
Assignee may deem necessary in accordance with this Agreement on behalf of
Assignor.
11.2 Assignments. PMEL may assign any or all of its right or obligations in the
Contracts as provided for therein.
11.3 Survival. All covenants, agreements, representation, warranties, and
indemnities (including any obligation to repurchase associated therewith)
contained in this Agreement (and any and each other agreement or instrument
delivered pursuant hereto) shall survive (i) the execution and delivery of this
Agreement, (ii) the consummation of the transactions contemplated hereby, (iii)
repurchase of any Contract by Assignor and (iv) termination of this Agreement
(but only with respect to assignments or credit approvals executed or
outstanding prior to the date of any such termination.
11.4 Governing Law. This Agreement shall be subject to and governed by the laws
of the State of New York.
11.5 Independent Contractors. Assignee and Assignor acknowledge that they are
separate entities, each of which has entered into this Agreement for independent
business reasons, and that neither Assignee nor Assignor has acted, acts, or
shall be deemed to have acted or act as an agent for the other.
11.6 Headings. The headings of the sections of this Agreement are for
convenience only and shall not be used to interpret or construe this Agreement.
11.7 Entirety; Amendments. This Agreement together with the Exhibits referred to
herein, constitute the entire agreement between Assignee and Assignor as to the
subject matter contemplated herein, and supersedes all prior agreements and
understandings relating thereto. No other agreements will be effective to
change, modify or terminate this Agreement in whole or in part unless such
agreement is in writing and duly executed by the party to be charged except as
expressly set forth herein.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
[SIG] 1/15/97 [SIG] 1/21/97
- ---------------------------------- -----------------------------------
Authorized Signature Date Authorized Signature Date
MDA Capital Corp
3800 Howard Hughes Parkway Lighthouse Capital, Inc
Suite 1800 5921 Court Street Road
Las Vegas, NV 89109 PO Box 3324
Syracuse, NY 13220
9
<PAGE> 1
EXHIBIT 10.17
SECOND ADDENDUM TO PRIVATE LABEL VENDOR PROGRAM
MDA CAPITAL INCORPORATED
THIS ADDENDUM TO PRIVATE LABEL VENDOR AGREEMENT is made as of February 12, 1997
by and between MDA CAPITAL CORP. ("Assignor"), both a corporation, and related
with its principle place of business at * and LIGHTHOUSE CAPITAL, INC,
("Assignee") a wholly owned subsidiary of Syracuse Supply Company, Inc., with
its headquarters at 5921 Court Street Road, Syracuse, NY 13206.
Let it be known that the original agreement signed under MDA Capital Corp shall
be officially modified to reflect MDA Capital Incorporated for all contents and
purposes by this addendum. All terms and conditions of the previous agreement
shall be binding hereunder.
Additionally, as of the date listed herein, MDA Capital Incorporated shall not
need to provide a Certificate of Training from "ASPRS or PSEF". Such notice
shall be modified on the document, but Lessee shall still be responsible for
all insurance and maintenance of the equipment.
MDA Capital Incorporated Lighthouse Capital, Inc
Signed by [SIG] Signed by [SIG}
- --------------------------------- ---------------------------------
Title President Title President
- --------------------------------- ---------------------------------
Date 2/12/97 Date 5-15-97
- --------------------------------- ---------------------------------
*3800 HOWARD HUGHES PKWY, SUITE 1800
LAS VEGAS, NV 89109
<PAGE> 1
EXHIBIT 10.18
THIRD ADDENDUM TO PRIVATE LABEL VENDOR PROGRAM
MDA Capital Incorporated
THIS ADDENDUM TO PRIVATE LABEL VENDOR AGREEMENT is made as of February 12, 1997
by and between MDA CAPITAL, INC. ("Assignor"), a corporation, with its
principle place of business at 3800 HOWARD HUGHES PKWY SUITE 1800, LAS VEGAS,
NV and LIGHTHOUSE CAPITAL, INC, ("Assignee") a wholly owned subsidiary of
Syracuse Supply Company, with its headquarters at 5921 Court Street Road,
Syracuse, NY 13206.
RECITALS
Assignor and Assignee are parties to a certain Private Label Vendor Agreement
dated as of the 15th day of January 1997 (the "Agreement"). The parties hereto
acknowledge that the Agreement originally identified A signor as "MDA Capital
Corp. and that the proper name of the Assignor is "MDA Capital, Inc." Any
reference in this Addendum, the Agreement, or any previous transactions under
the Agreement, to MDA Capital Corp. shall be deemed to refer to MDA Capital,
Inc.
Assignee and Assignor wish to expand the scope of the Private Label Vendor
Agreement pursuant to the terms of this Addendum.
The Parties hereby agree as follows:
Assignor may offer a 6 month noncancelable rental program ("Rental Program").
Such Rental Program shall only utilize documentation attached hereto as,
"Exhibit A". Acceptance of Rentals under the Rental Program shall be subject to
credit approval, receipt of documentation, and confirmation at the sole
discretion of Assignee.
Assignee may finance transactions under the Rental Program at an agreed upon
advance based upon a percentage of the stream of payments contracted between
Assignor and Customer. (Example: $8,100 on 6 payments of $1,500.00, first in
advance) An assignment document in the form of "Exhibit B" shall be signed by
Assignor and returned to Assignee. The assignment document shall provide for
the assignment of Assignor's rights, and interest in all the payments from the
Customer and Assignor's security interest in the Equipment for each Rental.
Assignments shall be on Assignor's letterhead.
Assignor shall provide Assignee credit information on each Customer as
required by Assignee. Assignee is not obligated to finance any transaction
unless an approval letter is provided to Assignor stating the terms and
conditions of the approval. Once approved, all documentation must be completed
and the originals returned to Assignee prior to funding by Assignee.
Documentation shall include at least the following; Rental agreement, proof of
insurance, acceptance notice, and advance payments, original invoice from
Assignor, assignment letter, any other documentation required by Assignee and
verbal verification of acceptance of the Equipment by the Customer.
Assignor shall guaranty the stream of payments from Customer to Assignee. It is
anticipated that the occurrence of one of the following is going to occur;
i) Early termination of Rental by Assignor.
ii) Early exercise of purchase by Customer.
iii) Early exercise of financed purchase or lease by Customer.
Assignor shall notify Assignee in writing of any early termination at least 10
business days prior to it's occurrence. Such notice shall include all terms and
conditions of early termination. If terminated for any reason. Assignor shall
pay Assignee all amounts due by Customer, including; rent payments, late fees,
or other amounts due.
<PAGE> 2
In the event the Equipment is returned at the end of the Rental term, Assignor
shall be responsible for the return of the Equipment to Assignor, including but
not limited to all transportation and insurance costs. Amounts that Assignor
shall provide to the Customer in the event of early purchase or termination of
the Rental, shall not affect the obligation of Customer to make Rental payments
to Assignee, unless released by Assignee in writing. Assignee shall release
it's security interest in the Equipment once all amounts due under a Rental are
paid by Customer or Assignor. If the Customer chooses to enter into a new
agreement, Assignor shall provide Assignee the right of first refusal to
provide such financing. Such new financing shall be consistent with the terms
and conditions of the Agreement.
This Addendum must be signed by Assignor and Assignee.
MDA Capital Incorporated Lighthouse Capital, Inc.
Signed by /s/ NIKKI MOSELEY Signed by /s/ [SIG]
-------------------- --------------------
Title President Title President
------------------------ -----------------------
Date 2/12/97 Date 5/15/97
------------------------- -------------------------
<PAGE> 3
ASSIGNMENT OF RENTAL
- --------------------------------------------------------------------------------
Customer: Rental#:
Assignor: Assignee:
Amount of Rental: Date of Rental:
Date of this Assignment:
In consideration for, and to secure repayment of, the amount advanced from
Assignee to Assignor pursuant to a certain Private Label Vendor Agreement by and
between Assignor and Assignee dated _________________ and any addendum thereto
("PLVA"), receipt and sufficiency of which are hereby acknowledged, Assignor
hereby assigns, transfers and sets over unto Assignee:
1. Assignor's right to receive rental payments pursuant to an
equipment rental agreement or schedule attached hereto ("Rental")
from the lessee of the Rental (the "Customer");
2. Assignor's right pursuant to any guaranty of payment with respect
to the Rental;
3. Assignor's security interests in any equipment leased pursuant to
the Rental (the "Equipment"), including but not limited to any
products or proceed thereof, the right to repossess the Equipment
in the event of default by the Customer, and the right to cure
defaults at the defaulting party's expense; and
4. Assignor's right, either in Assignees' own name or in the name of
Assignor to initiate, conduct, or settle any legal proceedings
under the terms and conditions set forth in the PLVA.
Assignor represents and warrants to Assignee that the information contained in
or pertaining to the Rental, including but not limited to any schedule to this
Agreement is accurate in all respects.
This Assignment has been delivered to Assignee in, and shall be construed under
the laws of the State of New York and any action or proceeding relating to this
Agreement shall be initiated in Onondaga County, New York. Assignor hereby
consents to the jurisdiction of the courts of the State of New York and situs
pursuant to this paragraph.
This Assignment shall not be modified or amended except in writing signed by
Assignee and Assignor.
A copy of the Rental and this Assignment kept in the normal course of Assignee's
business may be accepted into evidence as an original in any action related to
this transaction or the Rental.
Assignor
---------------------------------------
By:
---------------------------------------
Title:
---------------------------------------
Date:
---------------------------------------
<PAGE> 4
RENTAL NUMBER:
MDA Capital, Inc.
<TABLE>
<CAPTION>
<S> <C>
CUSTOMER SUPPLIER
- --------------------------------------------------- ----------------------------------------------------------------------
ADDRESS ADDRESS
- --------------------------------------------------- ----------------------------------------------------------------------
CITY STATE ZIP COUNTY CITY STATE ZIP
- --------------------------------------------------- ----------------------------------------------------------------------
PERSON TO CONTACT: PHONE: SALESMAN PHONE#
- --------------------------------------------------- ----------------------------------------------------------------------
EQUIP, LOCATION IF CUSTOMER BUSINESS TYPE:
DIFFERENT THAN ABOVE: (CHECK ONE) [] Corporation [] Partnership [] Proprietorship
- ---------------------------------------------------
DESCRIPTION OF EQUIPMENT BASE RENTAL PAYMENT
(Excluding Applicable Taxes) $1,500.00
QUANTITY (INCLUDE MAKE, MODEL NO. AND SERIAL NO.) -----------------------------------------------
- --------------------------------------------------------------------------- RENTAL TERM (Months) = 6 MONTH
-----------------------------------------------
PAYABLE SCHEDULE
-----------------------------------------------
ADVANCE PAYMENT: $1,500.00
This represents: First Payment
-------------------------------
Remaining Monthly Payments 5 at $1,500.00
-
Taxes and Fees Not Included
ADMINISTRATION FEE: $50.00
OTHER: $500.00 Cleaning Fee: The Security Deposit
- -------------------------------------------------------------------------- -------------------------------------------------
END OF RENTAL OTHER (Please State): ______ NAME OF CERTIFIED USER:________________________________________________
OPTION:
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
RENTAL AGREEMENT
TERMS AND CONDITIONS
DEAR CUSTOMER: We have written this user friendly Rental in plain language
because we want you to fully understand its terms. Please read your copy of
this Rental fully and feel free to ask us any questions you may have about it.
We use the words "you" and "your" to mean the Customer. The words "we" and
"our" refer to Owner.
1. RENTAL: We Rent to you and you Rent from us the Equipment described above on
this Rental and or any equipment schedule that references and incorporate the
terms and conditions of this Rental (collectively and individually the "Rent"
or "Rental").
2. NO WARRANTIES: WE RENT THE EQUIPMENT TO YOU "AS IS". YOU AGREE THAT YOU HAVE
SELECTED THE SIZE, MODEL, DESIGN AND BRAND OF THE EQUIPMENT USING YOUR OWN
JUDGMENT WITHOUT ANY RELIANCE ON US. WE MAKE NO WARRANTIES, EXPRESS OR IMPLIED,
CONCERNING THE EQUIPMENT, INCLUDING WITHOUT LIMITATION ANY WARRANTY OF FITNESS
FOR A PARTICULAR PURPOSE, ORDINARY USE OR MERCHANTABILITY. YOU AGREE THAT
REGARDLESS OF CAUSE, YOU WILL NOT MAKE ANY CLAIM OF ANY KIND AGAINST US OR
ANYONE TO WHOM WE MAY ASSIGN THIS RENTAL FOR LOSS OF EXPECTED PROFITS OR ANY
OTHER DIRECT, SPECIAL OR INDIRECT DAMAGES OR EXPENSE CAUSED BY THE FAILURE OF
THE EQUIPMENT. As long as you are not in default under any of the terms of this
Rental, we transfer to you any of the warranties made to us by the manufacturer
of the Equipment. Your only remedy for the breach of any of these warranties is
against the manufacturer of the Equipment, not against us. Such a breach shall
not have any effect at all on the rights and obligations of us and you under
this Rental.
3. IMPORTANT. PLEASE DO NOT SIGN THIS RENTAL UNTIL YOU READ AND UNDERSTAND ALL
OF ITS TERMS AND CONDITIONS (INCLUDING THOSE ON THE REVERSE SIDE), BECAUSE ONLY
THOSE TERMS ARE ENFORCEABLE, NO TERMS OR ORAL PROMISES OTHER THAN THOSE
CONTAINED IN THIS RENTAL MAY BE LEGALLY ENFORCED. YOU AGREE TO BE BOUND BY TERMS
AS STATED IN THIS RENTAL. THIS RENTAL IS NOT CANCELABLE. THIS RENTAL WILL NOT
BECOME EFFECTIVE OR BINDING ON US UNTIL WE SIGN IT.
4. TERMS: This Rental is for the number of months stated in the box labeled
"Rental Term" and cannot be canceled by you during its term. We may cancel this
Rental at any time and you are required to return the Equipment to us under the
conditions of paragraph "14" of this Rental. The rights and obligations of you
and us shall commence upon our acceptance of this Rental. At the expiration of
the term, in the event that you fail to return the Equipment as stated in
paragraph "14", then this Rental shall continue and we shall continue invoicing
you and you shall continue to pay us the monthly payment on a month to month
basis until the Equipment is returned to us by you. All of the terms and
conditions of this Rental remain in full force and effect until this Rental is
terminated as provided herein.
5. PAYMENT: You agree to pay to us all Renal payments stated in this Rental.
We shall bill you with an invoice for Rental payments at your address as stated
on the front side of this Rental. You shall send all Rental payments to us at
the address stated on the invoice. All of the terms and conditions of this
Rental remain in effect until it is terminated. Under no circumstances are you
excused or relieved from making Rental payments under this Rental.
6. ASSIGNMENT: You may not assign, Sublease, lend, transfer, or pledge this
Rental or the Equipment without our prior written approval. Any such transaction
without our written approval shall be void. This Rental and its covenants and
obligations are binding upon any approved assignee, successor, representative or
transferee of yours. We may assign transfer, pledge or sell our interest in the
Rental or the Equipment without notice to or approval from you. Our Assignee
shall have the opinion to bill you under our name or under its name. If our
Assignee bills under our name, that Assignee retains all rights, including the
enforcement of remedies, under the terms and conditions of the Rental. If our
Assignee bills under its own name, then upon notice of this assignment, you
shall send your payments directly to the address on the notification. In no
event shall our Assignee be obligated to perform any duty, condition or promise
under this Rental but we will remain fully obligated under this Rental.
<TABLE>
<CAPTION>
<S> <C>
MDA CAPITAL CORD CUSTOMER TO COMPLETE
--------------------------------------------------------------------
COMPANY NAME DATE
ACCEPTED BY OWNER ON:------------------------ X
(DATE) --------------------------------------------------------------------
AUTHORIZED SIGNATURE TITLE
(INDICATE CORP., OFFICER, PARTNER, OWNER, ETC.)
- --------------------------------------------- --------------------------------------------------------------------
BY: TITLE PRINT NAME
</TABLE>
<PAGE> 5
7. USE OF THE EQUIPMENT. You shall not permit the Equipment to be used by
anyone except a duly licensed physician who has been adequately trained and is
properly certified to use the Equipment and is familiar with the procedures for
use thereof. You shall not permit the Equipment to be used improperly or in a
manner inconsistent with its labeling specifications or instructions. You shall
comply with all laws, rules and regulations, and all manufacturer's or
supplier's suggested guidelines, relating to the use, handling, storage,
maintenance, possession and repair of the Equipment. You shall only permit the
Equipment to be located and used at your location set forth on this Rental, and
except for the return of the Equipment pursuant to this Rental, you shall not
relocate the Equipment without our prior written consent. Provided that you are
not in default under the terms and conditions of this Rental, you shall have
the right to peaceful possession of the Equipment.
8. REPAIRS: You, at your own expense, shall keep the Equipment in good repair,
condition, and working order. It shall be your responsibility to: (a) furnish
any labor, parts, mechanisms, and devices required and (b) not make any
alterations, additions or improvements to the equipment without our prior
written consent. You shall have a maintenance agreement at your own expense
throughout the term of this Rental.
9. INSURANCE: The Equipment must be insured against all risks of loss, theft,
damage, or destruction for its full replacement value until you have met all of
your obligations under this Rental. You shall provide us with a certificate of
insurance which shall name us as "Additional Insured and Loss Payee". You must
also carry Public Liability Insurance of no less than $1,000,000 combined
Single-limit coverage naming us as "Additional Insured" and containing an
endorsement that this insurance is primary and any other insurance covering us
is excess. Each policy is not subject to cancellation except on thirty (30)
days prior written notice. You must furnish us with a certificate showing that
the insurance required is in effect prior to commencement.
10. NET RENTAL: All Rental payments made under this Rental shall be net to us.
This means that you shall pay all taxes, tax pass along, fees and charges
resulting from the ownership, possession, or use of this Rental or the
Equipment during the term of this Rental. If the Equipment is subject to
personal tax, we shall have the option to bill and collect these charges when
assessed or to establish a personal property tax account ("PPTA"). If a PPTA is
established, we shall bill you and you shall pay us a monthly assessment based
on the average annual assessment charges in the State in which the Equipment is
located. We shall have the right to change the monthly assessment based on the
actual annual assessment. At the expiration of this Rental, you shall pay us
for any deficiency in the PPTA. If, at the expiration of this Rental, there are
any excess funds in the PPTA we shall pay that amount to you.
11. OWNERSHIP: You are not the owner and do not have title to the Equipment.
The only right and interest you shall have in the Equipment shall be under the
terms of this Rental. This is a rental of personal property and you agree to do
everything necessary or reasonably requested by us to ensure that the Equipment
shall be considered and remain personal property. You shall, at your own
expense, keep the Equipment free and clear of all liens, charges, claims and
other encumbrances.
12. INSPECTION: You will allow us to inspect the Equipment during your regular
business hours. You shall give us immediate notice of any legal action,
attachment or judicial process affecting the Equipment or our ownership
interest in the Equipment.
13. RISK OF LOSS: You are responsible for any damage to or loss of the
Equipment from any cause at any time after you receive the Equipment. Even if
the Equipment is damaged, lost or stolen you agree to fulfill all your
obligations under this Rental including the duty to make all Rental payments
subject to paragraph 5 of this Rental.
14. RETURN OF EQUIPMENT: When this Rental lawfully terminates or if you are in
default under this Rental, you will, at your own expense, promptly package,
insure and transport the Equipment to us or to a location designated by us in
the same condition it was at the commencement of this Rental, except for
reasonable wear and tear. If you have the option to purchase the Equipment and
as long as you are not in default of any provision of this Rental, you may
purchase all of the Equipment for the amount indicated on the front side of
this Rental provided you give us written notice of your intention to purchase
the Equipment at least thirty (30) days prior to the expiration of the Rental
term. If you choose to return the Equipment, we shall invoice you and you shall
pay us a $500.00 cleaning fee. We may waive the fee if you provide us certified
proof that the Equipment is sterilized, clean, and safe for handling, as
defined under the Guidelines for Reusable Medical Equipment, Association for the
Advancement of Medical Instrumentation, TIR #12, 1994.
15. DEFAULT: You will be in default of this Rental if you: (a) fail to make any
Rental payment within ten (10) days after that payment is due, (b) fail to
allow us to inspect the Equipment during regular business hours, (c) fail to
maintain the Equipment in the same condition it was in when you received it or
fail to maintain a service contract on the Equipment, (d) assign or otherwise
transfer this Rental or the Equipment to anyone or any other entity without our
prior written approval, (e) move the Equipment from the location on the front
side of this Rental without our prior written approval, (f) fail to return the
Equipment to us upon termination of this Rental or any renewal period, (g) file
a petition in bankruptcy or seek similar relief from your creditors, (h)
becomes insolvent, (i) default under any other lease or Agreement between you
and us, (j) fail to observe or perform any other provision of this Rental.
16. REMEDIES: You agree with us that your default under Paragraph 15 subparts
(a), (d), (f), (g), (h), (i), or (j) are primary defaults and we may, upon
written notice to you, demand that you cure that default. If you fail to cure
that within five (5) days of the notice, then we may: (1) demand payment of the
entire amount of the remaining Rental payments, including those past due, and
(2) take peaceful possession of the Equipment with or without a court order.
You agree with us that your default under paragraph 15, subparts (b), (c) or
(e) are secondary defaults and we may, upon written notice to you, demand that
you cure that default. If you fail to cure that default within twenty (20) days
of the notice, then we may exercise the same remedies available to us for a
primary default. Any right or remedy given to us under this Rental does not
exclude any other right or remedy available to us under this Rental or allowed
by law. Each right and remedy shall be cumulative and may be exercised singlely
or in combination. You shall pay all expenses incurred by us to enforce our
rights and remedy including expenses for repossession, repair, storage and sale
of this equipment. Also reasonable attorneys, collection and court fees or
costs.
17. PAYMENT OF EXPENSES: You agree to pay all of the costs and expenses,
including reasonable attorney's fees in exercising our rights or remedies under
this Rental. You shall pay us late charges at the monthly rate of ten percent
(10%) of past due Rental payments to defer our lost use of the payments and to
pay for the costs of collection. You shall pay us a returned check or
insufficient funds fee in the amount of $25.00.
18. INDEMNITY. You shall defend and indemnify us against, and hold us harmless
from, any and all claims, actions, suits, proceedings, costs, expenses,
damages, and liabilities, including reasonable attorney's fees, arising out of,
connected with, or resulting from this Rental and Equipment without any
limitations. You agree to indemnify us for any act or omission made by you, or
for any inaccurate representation you may have made in connection with this
Rental, which causes a delay, loss, disallowance or recapture of any of the tax
benefits we may anticipate pursuant to this Rental.
19. NO WAIVER: Any failure by us to require you to strictly perform any
provision of this Rental shall not be a waiver of our rights under that
provision.
20. SEVERABILITY: If any provision of this Rental is declared invalid, that
provision shall not apply and shall be considered omitted from this Rental. All
remaining provisions of this Rental, including the default and remedy
provisions, shall remain in full force and effect.
21. MODIFICATION AND ADDITIONAL TERMS: This Rental, shall not be modified,
amended, addended, supplemented or waived unless agreed to in writing by you
and us. This Rental does not incorporate the terms and conditions included in
any vendor packaging, invoice, catalog, brochure, technical data sheet or any
other document which attempts to carry, modify or add to the terms and
conditions stated in this Rental.
22. LAW: In the event this Rental is assigned by us, then you agree that the
rights and remedies of the parties shall be interpreted, construed and enforced
in a accordance with the laws and public policies of the State of incorporation
of the Owner or its assignee. In any legal action concerning this Rental, you
agree to personal jurisdiction and venue in the State of New York, or the state
of the Assignee's corporate headquarters. You agree that any judgment may be
entered by any court having jurisdiction.
23. CORRECTION: You authorize us to fill in dates and make minor corrections on
the front side of this Rental.
24. FILINGS AND ADMINISTRATIVE FEES: You grant us the right to file financing
statements (UCC-1's) without your signature or by signing your name to the
financing statements and amendments to (UCC-3's) as your power of attorney. You
shall pay us a one time administrative fee of $50.00.
25. SECURITY DEPOSIT: We shall retain the sum indicated on the front side of
this Rental as a security deposit ("Security Deposit") for your obligations
under this rental. At the lawful termination of this Rental, as long as you are
not in default under paragraph 15 of this Rental, the Security Deposit shall be
returned to you unless we choose to apply the Security Deposit to the cleaning
fee required under Paragraph 14 of this Rental. No interest shall be paid upon
the Security Deposit. If you are in default under Paragraph 15 of this Rental,
we may apply the Security Deposit to cure the default.
- --------------------------------------------------------------------------------
GUARANTY In order for us to enter into this Rental with you, we require that
the party or parties signing below, together and individually, guaranty to us,
our assessors and assigns, the performance and prompt payment of all payments
due under this Rental. The parties signing below acknowledge that they: (1)
will financially benefit from this Rental, (2) agree this Guaranty is of
payment and not of collection, (3) waive any and all notices concerning this
Rental (4) agree that they shall be bound by paragraph 22 of this Rental, and
(5) understand and agree that they are signing as individuals and not on behalf
on any entity.
- --------------------------------- ---------------------------------
SIGNATURE DATE SIGNATURE DATE
- --------------------------------- ---------------------------------
PRINT NAME PRINT NAME
- --------------------------------- ---------------------------------
ADDRESS (Not PO Box) HOME PHONE ADDRESS (Not PO Box) HOME PHONE
<PAGE> 6
Rental Number _________
MDA CAPITAL, INC.
- --------------------------------------------------------------------------------
EQUIPMENT ACCEPTANCE AUTHORIZATION
- --------------------------------------------------------------------------------
CUSTOMER INFORMATION:
<TABLE>
<S> <C> <C>
Customer Name _______________________________________________ Contact _____________________
Billing Address _____________________________________________ Phone _(____)________________
Equipment Location ________________________________________________________________________
Address City County State Zip
EQUIPMENT INFORMATION
___________________________________________________________________________________________
Quantity Model No. Description
___________________________________________________________________________________________
___________________________________________________________________________________________
___________________________________________________________________________________________
___________________________________________________________________________________________
___________________________________________________________________________________________
TERM/RENTAL PAYMENT SCHEDULE
Rental Term: Months Monthly Payment $_______________
</TABLE>
Payment frequency:
You hereby certify that all of the Equipment referred to in Rental Number _____
_______ with Us has been delivered to and has been received by You, that all
installation or other work necessary prior to the use thereof has been
completed, that the Equipment has been examined by You and is in good
operating order and condition and is in all respects satisfactory to You, and
that the Equipment is accepted by You for all purposes under the Rental.
ACCORDINGLY, YOU ACCEPT THIS RENTAL.
SELECTION OF EQUIPMENT: DISCLAIMER OF WARRANTY. You have selected both the
Equipment and the supplier from whom We agree to acquire the Equipment at Your
request. YOU ACKNOWLEDGES THAT WE HAVE NO EXPERTISE OR SPECIAL FAMILIARITY
CONCERNING THE EQUIPMENT OR ITS USE. YOU AGREE THAT THE EQUIPMENT IS RENTED "AS-
IS" AND IS AS SPECIFIED BY YOU, THAT IT IS SUITABLE FOR YOUR PURPOSE, AND THAT
WE HAVE MADE NO REPRESENTATION OR WARRANTY ABOUT THE SUITABILITY OR DURABILITY
OF THE EQUIPMENT FOR THE PURPOSES AND USES OF YOU, OR ANY OTHER REPRESENTATION
OR WARRANTY, EXPRESS OR IMPLIED INCLUDING THE IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. WE FURTHER DISCLAIM ANY
LIABILITY FOR LOSS, DAMAGE OR INJURY TO YOU OR THIRD PARTIES AS A RESULT OF ANY
DEFECTS, LATENT OR OTHERWISE, IN THE EQUIPMENT WHETHER ARISING FROM THE
APPLICATION OF THE LAWS OF STRICT LIABILITY OR OTHERWISE. If the Equipment is
not properly installed, does not operate as represented or warranted by the
supplier and/or manufacturer, or is unsatisfactory for any reason. You shall
make any claim only against the supplier and/or manufacturer and waive any such
claim against Us and shall, regardless of such claim, continue to pay Us all
payments under the Rental. So long as You are not in breach or default of the
Rental, We hereby assign to You any rights which We may have against the
supplier and/or manufacturer for breach of warranty or other representation
respecting any item of Equipment.
YOU ACKNOWLEDGE THAT NEITHER THE SUPPLIER, NOR ANY SALESMAN, EMPLOYEE,
REPRESENTATIVE OR AGENT OF THE SUPPLIER IS AN AGENT OR REPRESENTATIVE OF US,
AND THAT NONE OF THEM IS AUTHORIZED TO WAIVE OR CHANGE ANY TERM, PROVISION OR
CONDITION OF THE RENTAL EXCEPT AS AGREED TO IN WRITING AND APPROVED BY US, OR
MAKE ANY REPRESENTATION OR WARRANTY ABOUT THE RENTAL. We make no warranty as to
the treatment of the Rental, for tax or accounting purposes.
YOU AGREE TO ALL THE TERMS AND CONDITIONS OF THE RENTAL, AND SHALL PERFORM ALL
YOUR OBLIGATIONS UNDER THE RENTAL.
DO NO SIGN THIS EQUIPMENT ACCEPTANCE AUTHORIZATION UNTIL YOU HAVE ACTUALLY
RECEIVED ALL OF THE EQUIPMENT SET FORTH ABOVE.
CUSTOMER ______________________________________________________________________
By; ______________________________________________________________________
Title: ______________________________________________________________________
Authorized Signature
Date: ______________________________________________________________________
THE ABOVE SIGNATORY AFFIRMS THAT HE/SHE IS AUTHORIZED
TO ACCEPT ON BEHALF OF YOU.
<PAGE> 7
MDA CAPITAL, INC.
3800 Howard Hughes Parkway
Suite 1800
Las Vegas, NV. 89109
702/791-2910
- --------------------------------------------------------------------------------
ASSIGNMENT OF RENTAL
- --------------------------------------------------------------------------------
Customer: Rental #:
Assignor: Assignee:
Date of this Assignment:
In consideration for, and to secure repayment of, the amount advanced from
Assignee to Assignor pursuant to a certain Private Label Vendor Agreement by
and between Assignor and Assignee dated ___________ and any addendum thereto
("PLVA"), receipt and sufficiency of which are hereby acknowledged, Assignor
hereby assigns, transfers and sets over unto Assignee:
1. Assignor's right to receive rental payments pursuant to an equipment
rental agreement or schedule attached hereto ("Rental") from the lessee of
the Rental (the "Customer");
2. Assignor's rights pursuant to any guaranty of payment with respect to
the Rental;
3. Assignor's security interests in any equipment leased pursuant to the
Rental (the "Equipment"), including but not limited to any products or
proceeds thereof, the right to repossess the Equipment in the event of
default by the Customer, and the right to cure defaults at the defaulting
party's expense; and
4. Assignor's right, either in Assignee's own name or in the name of
Assignor to initiate, conduct, or settle any legal proceedings under the
terms and conditions set forth in the PLVA.
Assignor represents and warrants to Assignee that the information contained in
or pertaining to the Rental, including but not limited to any schedule to this
Agreement is accurate in all respects.
This Assignment has been delivered to Assignee in, and shall be construed under
the laws of the State of New York and any action or proceeding relating to this
Agreement shall be initiated in Onondaga County, New York. Assignor hereby
consents to the jurisdiction of the courts of the State of New York and situs
pursuant to this paragraph.
This Assignment shall not be modified or amended except in writing signed by
Assignee and Assignor.
A copy of the Rental and this Assignment kept in the normal course of
Assignee's business may be accepted into evidence as an original in any action
related to this transaction or the Rental.
Assignor:
MDA Capital, Inc.
By: /s/ NIKKI M. MOSELEY
------------------------
Nikki M. Moseley
Its: President
Dated:
------------------------
<PAGE> 8
MDA CAPITAL, INC.
3800 Howard Hughes Parkway
Suite 1800
Las Vegas, NV. 89109
702/791-2910
- --------------------------------------------------------------------------------
ASSIGNMENT OF RENTAL
- --------------------------------------------------------------------------------
Customer: Rental #:
Assignor: Assignee:
Date of this Assignment:
In consideration for, and to secure repayment of, the amount advanced from
Assignee to Assignor pursuant to a certain Private Label Vendor Agreement by
and between Assignor and Assignee dated ___________ and any addendum thereto
("PLVA"), receipt and sufficiency of which are hereby acknowledged, Assignor
hereby assigns, transfers and sets over unto Assignee:
1. Assignor's right to receive rental payments pursuant to an equipment
rental agreement or schedule attached hereto ("Rental") from the lessee of
the Rental (the "Customer");
2. Assignor's rights pursuant to any guaranty of payment with respect to
the Rental;
3. Assignor's security interests in any equipment leased pursuant to the
Rental (the "Equipment"), including but not limited to any products or
proceeds thereof, the right to repossess the Equipment in the event of
default by the Customer, and the right to cure defaults at the defaulting
party's expense; and
4. Assignor's right, either in Assignee's own name or in the name of
Assignor to initiate, conduct, or settle any legal proceedings under the
terms and conditions set forth in the PLVA.
Assignor represents and warrants to Assignee that the information contained in
or pertaining to the Rental, including but not limited to any schedule to this
Agreement is accurate in all respects.
This Assignment has been delivered to Assignee in, and shall be construed under
the laws of the State of New York and any action or proceeding relating to this
Agreement shall be initiated in Onondaga County, New York. Assignor hereby
consents to the jurisdiction of the courts of the State of New York and situs
pursuant to this paragraph.
This Assignment shall not be modified or amended except in writing signed by
Assignee and Assignor.
A copy of the Rental and this Assignment kept in the normal course of
Assignee's business may be accepted into evidence as an original in any action
related to this transaction or the Rental.
Assignor:
MDA Capital, Inc.
By: /s/ NIKKI M. MOSELEY
------------------------
Nikki M. Moseley
Its: President
Dated:
------------------------
<PAGE> 9
MDA CAPITAL, INC.
3800 Howard Hughes Parkway
Suite 1800
Las Vegas, NV. 89109
702/791-2910
- --------------------------------------------------------------------------------
ASSIGNMENT OF RENTAL
- --------------------------------------------------------------------------------
Customer: Rental #:
Assignor: Assignee:
Date of this Assignment:
In consideration for, and to secure repayment of, the amount advanced from
Assignee to Assignor pursuant to a certain Private Label Vendor Agreement by
and between Assignor and Assignee dated ___________ and any addendum thereto
("PLVA"), receipt and sufficiency of which are hereby acknowledged, Assignor
hereby assigns, transfers and sets over unto Assignee:
1. Assignor's right to receive rental payments pursuant to an equipment
rental agreement or schedule attached hereto ("Rental") from the lessee of
the Rental (the "Customer");
2. Assignor's rights pursuant to any guaranty of payment with respect to
the Rental;
3. Assignor's security interests in any equipment leased pursuant to the
Rental (the "Equipment"), including but not limited to any products or
proceeds thereof, the right to repossess the Equipment in the event of
default by the Customer, and the right to cure defaults at the defaulting
party's expense; and
4. Assignor's right, either in Assignee's own name or in the name of
Assignor to initiate, conduct, or settle any legal proceedings under the
terms and conditions set forth in the PLVA.
Assignor represents and warrants to Assignee that the information contained in
or pertaining to the Rental, including but not limited to any schedule to this
Agreement is accurate in all respects.
This Assignment has been delivered to Assignee in, and shall be construed under
the laws of the State of New York and any action or proceeding relating to this
Agreement shall be initiated in Onondaga County, New York. Assignor hereby
consents to the jurisdiction of the courts of the State of New York and situs
pursuant to this paragraph.
This Assignment shall not be modified or amended except in writing signed by
Assignee and Assignor.
A copy of the Rental and this Assignment kept in the normal course of
Assignee's business may be accepted into evidence as an original in any action
related to this transaction or the Rental.
Assignor:
MDA Capital, Inc.
By: /s/ NIKKI M. MOSELEY
------------------------
Nikki M. Moseley
Its: President
Dated:
------------------------
<PAGE> 10
MDA CAPITAL, INC.
3800 Howard Hughes Parkway
Suite 1800
Las Vegas, NV. 89109
702/791-2910
- --------------------------------------------------------------------------------
ASSIGNMENT OF RENTAL
- --------------------------------------------------------------------------------
Customer: Rental #:
Assignor: Assignee:
Date of this Assignment:
In consideration for, and to secure repayment of, the amount advanced from
Assignee to Assignor pursuant to a certain Private Label Vendor Agreement by
and between Assignor and Assignee dated ___________ and any addendum thereto
("PLVA"), receipt and sufficiency of which are hereby acknowledged, Assignor
hereby assigns, transfers and sets over unto Assignee:
1. Assignor's right to receive rental payments pursuant to an equipment
rental agreement or schedule attached hereto ("Rental") from the lessee of
the Rental (the "Customer");
2. Assignor's rights pursuant to any guaranty of payment with respect to
the Rental;
3. Assignor's security interests in any equipment leased pursuant to the
Rental (the "Equipment"), including but not limited to any products or
proceeds thereof, the right to repossess the Equipment in the event of
default by the Customer, and the right to cure defaults at the defaulting
party's expense; and
4. Assignor's right, either in Assignee's own name or in the name of
Assignor to initiate, conduct, or settle any legal proceedings under the
terms and conditions set forth in the PLVA.
Assignor represents and warrants to Assignee that the information contained in
or pertaining to the Rental, including but not limited to any schedule to this
Agreement is accurate in all respects.
This Assignment has been delivered to Assignee in, and shall be construed under
the laws of the State of New York and any action or proceeding relating to this
Agreement shall be initiated in Onondaga County, New York. Assignor hereby
consents to the jurisdiction of the courts of the State of New York and situs
pursuant to this paragraph.
This Assignment shall not be modified or amended except in writing signed by
Assignee and Assignor.
A copy of the Rental and this Assignment kept in the normal course of
Assignee's business may be accepted into evidence as an original in any action
related to this transaction or the Rental.
Assignor:
MDA Capital, Inc.
By: /s/ NIKKI M. MOSELEY
------------------------
Nikki M. Moseley
Its: President
Dated:
------------------------
<PAGE> 11
MDA CAPITAL, INC.
3800 Howard Hughes Parkway
Suite 1800
Las Vegas, NV. 89109
702/791-2910
- --------------------------------------------------------------------------------
ASSIGNMENT OF RENTAL
- --------------------------------------------------------------------------------
Customer: Rental #:
Assignor: Assignee:
Date of this Assignment:
In consideration for, and to secure repayment of, the amount advanced from
Assignee to Assignor pursuant to a certain Private Label Vendor Agreement by
and between Assignor and Assignee dated ___________ and any addendum thereto
("PLVA"), receipt and sufficiency of which are hereby acknowledged, Assignor
hereby assigns, transfers and sets over unto Assignee:
1. Assignor's right to receive rental payments pursuant to an equipment
rental agreement or schedule attached hereto ("Rental") from the lessee of
the Rental (the "Customer");
2. Assignor's rights pursuant to any guaranty of payment with respect to
the Rental;
3. Assignor's security interests in any equipment leased pursuant to the
Rental (the "Equipment"), including but not limited to any products or
proceeds thereof, the right to repossess the Equipment in the event of
default by the Customer, and the right to cure defaults at the defaulting
party's expense; and
4. Assignor's right, either in Assignee's own name or in the name of
Assignor to initiate, conduct, or settle any legal proceedings under the
terms and conditions set forth in the PLVA.
Assignor represents and warrants to Assignee that the information contained in
or pertaining to the Rental, including but not limited to any schedule to this
Agreement is accurate in all respects.
This Assignment has been delivered to Assignee in, and shall be construed under
the laws of the State of New York and any action or proceeding relating to this
Agreement shall be initiated in Onondaga County, New York. Assignor hereby
consents to the jurisdiction of the courts of the State of New York and situs
pursuant to this paragraph.
This Assignment shall not be modified or amended except in writing signed by
Assignee and Assignor.
A copy of the Rental and this Assignment kept in the normal course of
Assignee's business may be accepted into evidence as an original in any action
related to this transaction or the Rental.
Assignor:
MDA Capital, Inc.
By: /s/ NIKKI M. MOSELEY
------------------------
Nikki M. Moseley
Its: President
Dated:
------------------------
<PAGE> 12
MDA CAPITAL, INC.
3800 Howard Hughes Parkway
Suite 1800
Las Vegas, NV. 89109
702/791-2910
- --------------------------------------------------------------------------------
ASSIGNMENT OF RENTAL
- --------------------------------------------------------------------------------
Customer: Rental #:
Assignor: Assignee:
Date of this Assignment:
In consideration for, and to secure repayment of, the amount advanced from
Assignee to Assignor pursuant to a certain Private Label Vendor Agreement by
and between Assignor and Assignee dated ___________ and any addendum thereto
("PLVA"), receipt and sufficiency of which are hereby acknowledged, Assignor
hereby assigns, transfers and sets over unto Assignee:
1. Assignor's right to receive rental payments pursuant to an equipment
rental agreement or schedule attached hereto ("Rental") from the lessee of
the Rental (the "Customer");
2. Assignor's rights pursuant to any guaranty of payment with respect to
the Rental;
3. Assignor's security interests in any equipment leased pursuant to the
Rental (the "Equipment"), including but not limited to any products or
proceeds thereof, the right to repossess the Equipment in the event of
default by the Customer, and the right to cure defaults at the defaulting
party's expense; and
4. Assignor's right, either in Assignee's own name or in the name of
Assignor to initiate, conduct, or settle any legal proceedings under the
terms and conditions set forth in the PLVA.
Assignor represents and warrants to Assignee that the information contained in
or pertaining to the Rental, including but not limited to any schedule to this
Agreement is accurate in all respects.
This Assignment has been delivered to Assignee in, and shall be construed under
the laws of the State of New York and any action or proceeding relating to this
Agreement shall be initiated in Onondaga County, New York. Assignor hereby
consents to the jurisdiction of the courts of the State of New York and situs
pursuant to this paragraph.
This Assignment shall not be modified or amended except in writing signed by
Assignee and Assignor.
A copy of the Rental and this Assignment kept in the normal course of
Assignee's business may be accepted into evidence as an original in any action
related to this transaction or the Rental.
Assignor:
MDA Capital, Inc.
By: /s/ NIKKI M. MOSELEY
------------------------
Nikki M. Moseley
Its: President
Dated:
------------------------
<PAGE> 1
EXHIBIT 10.19
FOURTH ADDENDUM TO PRIVATE LABEL VENDOR PROGRAM
MDA Capital Incorporated
THIS ADDENDUM TO PRIVATE LABEL VENDOR AGREEMENT is made as of March 1, 1998 by
and between MDA CAPITAL, INC. ("Assignor"), a corporation, with its principle
place of business at 3800 Howard Hughes Pkwy Suite 1800, Las Vegas and
LIGHTHOUSE CAPITAL, INC, ("Assignee") a wholly owned subsidiary of Syracuse
Supply Company, with its headquarters at 5921 Court Street Road, Syracuse, NY
13206.
RECITALS
Assignor and Assignee are parties to a certain Private Label Vendor Agreement
dated as of the 12 day of February, 1997, and Addendums thereto which together
form the agreement of the parties (the "Agreement"). The parties hereto
acknowledge that the Agreement originally identified Assignor as "MDA Capital
Corp." and that the proper name of the Assignor is "MDA Capital, Inc." Any
reference in this Addendum, the Agreement, or any previous transactions under
the Agreement, to MDA Capital Corp. shall be deemed to refer to MDA Capital,
Inc.
Assignee and Assignor wish to expand the scope of the Private Label
Vendor Agreement pursuant to the terms of this Addendum.
The Parties hereby agree as follows:
Assignor may offer a 12 and 24 month noncancelable Interest Free Lease
("Interest Free Program"). Such Interest Free Program shall only utilize
documentation attached hereto as, "Exhibit A". Acceptance of Interest Free
Leases under the Interest Free Program shall be subject to credit approval,
receipt of documentation, and confirmation's at the sole discretion of Assignee.
Assignee may finance transactions under the Interest Free Program at an agreed
upon advance based upon a discounted percentage at then current rates of the
stream of payments contracted between Assignor and Lessee. (Example: (8%) eight
percent discount on (12) twelve months and (13%) thirteen percent on (24)
twenty-four month Leases. The first month's and a $200.00 document fee are due
in advance) An assignment document in the form of "Exhibit B" shall be signed by
Assignor and returned to Assignee. The assignment document shall provide for the
assignment of Assignor's rights, title and interest in all the Equipment and the
payments on each Lease under Interest Free Program. Assignments shall be on
Assignor's letterhead.
Assignor shall provide Assignee credit information on each Lessee as required by
Assignee. Assignee is not obligated to finance any transaction unless an
approval letter is provided to Assignor stating the terms and conditions of the
approval. Once approved, all documentation must be completed and the originals
returned to Assignee prior to funding by Assignee. Documentation shall include
at least the following; Interest Free Lease, proof of insurance, acceptance
notice, and advance payments, original invoice from Assignor, assignment letter,
any other documentation required by Assignee and verbal verification of
acceptance of the Equipment by the Lessee.
In the event the Equipment is returned by the Lessee at the end of the term for
any Lease under the Interest Free Program, Assignor shall have the right of
first refusal to purchase the Equipment from Assignee. Assignee shall release
it's security interest in the Equipment once all amounts due under such Lease
are paid by Lessee or Assignor. If the Lessee chooses to enter into a new
agreement, Assignor shall provide Assignee the right of first refusal to provide
such financing. Such new financing shall be consistent with the terms and
conditions of the Agreement, as modified by this Addendum. If terminated for any
reason other that credit default by Lessee, Assignor shall pay Assignee all
amounts due from Lessee under any lease, including; rent payments, late fees, or
other amounts due.
This Addendum must be signed by Assignor and Assignee.
MDA CAPITAL INCORPORATED LIGHTHOUSE CAPITAL, INC
Signed by NIKKI MOSELEY Signed by [SIG]
--------------------- ----------------------
Title President Title President
Date 3/1/98 Date 5/4/98
<PAGE> 2
Schedule "A" Fourth Addendum
LEASE NUMBER: ______________________
MDA CAPITAL, INC.
- ------------------------------------- -----------------------------------------
LESSEE LESSOR
- ------------------------------------- -----------------------------------------
ADDRESS ADDRESS
- ------------------------------------- -----------------------------------------
CITY STATE ZIP COUNTY CITY STATE ZIP
- ------------------------------------- -----------------------------------------
PERSON TO CONTACT: PHONE: SALESMAN PHONE #
- ------------------------------------- -----------------------------------------
EQUIP. LOCATION IF LESSEE BUSINESS TYPE:
DIFFERENT THAN ABOVE: (CHECK ONE) [ ] Corporation [ ] Partnership
[ ] Proprietorship
- --------------------------------------------------------------------------------
DESCRIPTION OF EQUIPMENT
QUANTITY (INCLUDE MAKE, MODEL NO., AND SERIAL NO.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BASE LEASE PAYMENT
(Excluding Applicable Taxes) $________________
- --------------------------------------------------------------------------------
LEASE TERM (Months) =
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PAYMENT SCHEDULE
- --------------------------------------------------------------------------------
ADVANCE PAYMENT: $________________
This represents: ___________________________________________________________
Remaining Monthly Payments _______________ at $______________
_______________ at $______________
ADMINISTRATION FEE: $200.00
OTHER:
- --------------------------------------------------------------------------------
PURCHASE OPTION: [ ] FMV [ ] $1.00 OTHER (PLEASE STATE): ___________
NAME OF CERTIFIED USER: ____________________________________________________
LEASE AGREEMENT
TERMS AND CONDITIONS
DEAR CUSTOMER: we have written this user friendly lease in plain language
because we want you to fully understand its terms. Please read your copy of
this Lease fully and feel free to ask us any questions you may have about it.
We use the words "you" and "your" to mean the Lessee. The words "we" and "our"
refer to Lessor.
1. LEASE: We Lease to you and you Lease from us the Equipment described above
on this Lease and or any equipment schedule that references and incorporate the
terms and conditions of this Lease (collectively and individually the "Lease").
2. NO WARRANTIES: WE LEASE THE EQUIPMENT TO YOU "AS IS". YOU AGREE THAT YOU
HAVE SELECTED THE SIZE, MODEL, DESIGN AND BRAND OF THE EQUIPMENT USING YOUR OWN
JUDGMENT WITHOUT ANY RELIANCE ON US. WE MAKE NO WARRANTIES, EXPRESS OR IMPLIED,
CONCERNING THE EQUIPMENT, INCLUDING WITHOUT LIMITATION ANY WARRANTY FITNESS FOR
A PARTICULAR PURPOSE, ORDINARY USE OR MERCHANTABILITY. YOU AGREE THAT,
REGARDLESS OF CAUSE, YOU WILL NOT MAKE ANY CLAIM OF ANY KIND AGAINST US OR
ANYONE TO WHOM WE MAY ASSIGN THIS LEASE FOR LOSS OF EXPECTED PROFITS OR ANY
OTHER DIRECT, SPECIAL OR INDIRECT DAMAGES OR EXPENSE CAUSED BY THE FAILURE OF
THE EQUIPMENT. As long as you are not in default under any of the terms of this
Lease, we transfer to you any of the warranties made to us by the manufacturer
of the Equipment. Your only remedy for the breach of any of these warranties is
against the manufacturer of the Equipment, not against us. Such a breach shall
not have any effect at all on the rights and obligations of us and you under
this Lease.
3. IMPORTANT: PLEASE DO NOT SIGN THIS LEASE UNTIL YOU READ AND UNDERSTAND ALL
OF ITS TERMS AND CONDITIONS (INCLUDING THOSE ON THE REVERSE SIDE), BECAUSE ONLY
THOSE TERMS ARE ENFORCEABLE. NO TERMS OR ORAL PROMISES OTHER THAN THOSE
CONTAINED IN THIS LEASE MAY BE LEGALLY ENFORCED. YOU AGREE TO BE BOUND BY TERMS
AS STATED IN THIS LEASE. THIS LEASE IS NOT CANCELABLE. THIS LEASE WILL NOT
BECOME EFFECTIVE OR BINDING ON US UNTIL WE SIGN IT.
4. TERM: This lease is for the number of months stated in the box labeled
"Lease Term" and cannot be canceled during its term. The rights and obligations
of you and us shall commence upon our acceptance of this Lease. At the
expiration of the term, in the event that you fail to return the Equipment as
stated in paragraph "16", then this Lease shall continue and we shall continue
invoicing you and you shall continue to pay us the monthly payment on a month
to month basis until the Equipment is returned to us by you or until the
purchase option is exercised. All of the terms and conditions of this Lease
remain in full force and effect until this Lease is terminated as provided
herein.
5. PAYMENT: You agree to pay to us all Lease payments stated in this Lease.
We shall bill you with an invoice for Lease payments at your address as stated
on the front side of this Lease. You shall send all Lease payments to us at the
address stated on the invoice. All of the terms and conditions of this Lease
remain in effect until it is terminated. Under no circumstances are you excused
or relieved from making Lease payments under this Lease.
6. ASSIGNMENT: You may not assign, Sublease, lend, transfer, or pledge this
Lease on the Equipment without our prior written approval. This Lease and its
covenants and obligations are binding upon any approved assignee, successor,
representative or transferee of yours. We may assign, transfer, pledge or sell
our interest in the Lease or the Equipment without notice to or approval from
you. Our Assignee shall have the option to bill you under our name or under its
name. If our Assignee bills under our name, that Assignee retains all rights,
including the enforcement of remedies, under the terms and conditions of the
Lease. If our Assignee bills under its own name, then upon notice to you of
this assignment, you shall send your payments directly to the address on the
notification. In no event shall our Assignee be obligated to perform any duty,
condition or promise under this Lease but we will remain fully obligated under
this Lease.
7. PURCHASE OPTION: Upon lawful termination of the Lease, as long as you are
not in default under paragraph 17 of this Lease, if the "FMV" (fair market
value), or "Other" box is checked, you shall have the option to purchase the
Equipment for that amount as stated on the front side of this Lease. If the
"$1.00" box is checked, you shall pay that amount to release the security
interest you granted to us in paragraph 13 of the Lease.
MDA CAPITAL, INC.
ACCEPTED BY LESSOR ON: ____________________________________________________
DATE
____________________________________________________________________________
BY: TITLE
LESSEE TO COMPLETE
____________________________________________________________________________
COMPANY NAME DATE
X __________________________________________________________________________
AUTHORIZED SIGNATURE TITLE
(INDICATE CORP., OFFICER, PARTNER, OWNER, ETC.)
_______________________________
PRINT NAME
<PAGE> 3
8. USE OF THE EQUIPMENT: You shall be Certified by the ASPRS or PSEF for the use
of this Equipment at all times during term of this Lease and any extension
period. You shall use the Equipment at the locations indicated on the front side
of this Lease. You may not move the Equipment from those locations without prior
written consent. You shall use the Equipment in a careful and proper manner and
shall obey all statutes, rules, ordinances, licensing requirements, laws and
regulations relating to the possession, use, maintenance, and repair of that
Equipment. You shall follow all Manufacturer's or Supplier's suggested
guidelines when using the Equipment. As long as you are not in default under the
terms of the Lease, you shall have the right to quiet and peaceful use of the
Equipment.
9. REPAIRS: You, at your own expense, shall keep the Equipment in good repair,
condition, and working order. It shall be your responsibility to: (a) furnish
any labor, parts mechanisms, and devices required and (b) not make any
alterations, additions or improvements to the equipment without our prior
written consent. You shall have a maintenance agreement at your own expense
throughout the term of this Lease.
10. INSURANCE: The Equipment must be insured against all risks of loss, theft,
damage, or destruction for its full replacement value until you have met all of
your obligations under this Lease naming us as "Additional Insured and Loss
Payee". You must also carry Public Liability Insurance of not less than
$1,000,000 combined Single-limit coverage naming us as additional insured and
containing an endorsement that this insurance is primary and any other insurance
covering us is excess. Each policy is not subject to cancellation except on
thirty (30) days prior written notice. You must furnish us with a certificate
showing that the insurance required is in effect prior to commencement.
11. NET LEASE: All Lease payments made under this Lease shall be net to us.
This means that you shall pay all taxes, tax pass along, fees and charges
resulting from the ownership, possession, or use of this Lease or the Equipment
during the term of this Lease. If the Equipment is subject to personal tax, we
shall have the option to bill and collect these charges when assessed or to
establish a personal property tax account ("PPTA"). If a PPTA is established, we
shall bill you and you shall pay us a monthly assessment based on the average
annual assessment charges in the State in which the Equipment is located. We
shall have the right to change the monthly assessment based on the actual annual
assessment. At the expiration of this Lease, you shall pay us for any deficiency
in the PPTA. If, at the expiration of this Lease, there are any excess funds in
the PPTA we shall pay that amount to you.
12. OWNERSHIP: We are the owner and have title to the Equipment, unless the
$1.00 release fee box is checked. If the $1.00 release fee box is checked you
shall be considered the owner and have title to the Equipment. The only right,
title or interest you shall have in the Equipment shall be under the terms of
this Lease. This is a lease of personal property and you agree to do everything
necessary or reasonably requested by us to ensure that the Equipment shall be
considered and remain personal property. You shall, at your own expense, keep
the Equipment free and clear of all liens, charges, claims and other
encumbrances.
13. SECURITY AGREEMENT: To secure your payments under this Lease, you agree to
give us a security interest in the Equipment and all additions, attachments,
upgrades, accessories and substitutions to it. You also agree to any assignment
of that security interest.
14. INSPECTION: You will allow us to inspect the Equipment during your regular
business hours. You shall give us immediate notice of any legal action,
attachment or judicial process affecting the Equipment or our ownership interest
in the Equipment.
15. RISK OF LOSS: You are responsible for any damage to or loss of the Equipment
from any cause at any time after you receive the Equipment. Even if the
Equipment is damaged, lost or stolen you agree to fulfill all your obligations
under this Lease including the duty to make all Lease payments subject to
paragraph 5 of this Lease.
16. RETURN OF EQUIPMENT: When this Lease lawfully terminates or if you are in
default under this Lease, you will, at your own expense, promptly package,
insure and transport the Equipment to us or to a location designated by us in
the same condition it was at the commencement of this Lease, except for
reasonable wear and tear. If you have the option to purchase the Equipment and
as long as you are not in default of any provision of this Lease, you may
purchase all of the Equipment for the amount indicated on the front side of this
Lease on termination date provided you give us written notice of your intention
to purchase the Equipment at lease thirty (30) days prior to the expiration of
the Lease term. If you have a FMV purchase option we shall together agree on the
fair market value of the equipment. If we cannot agree then the fair market
value shall be determined by an independent appraiser selected by us at your
expense.
17. DEFAULT: You will be in default of this Lease if you: (a) fail to make any
Lease payment within ten (10) days after that payment is due, (b) fail to allow
us to inspect the Equipment during regular business hours, (c) fail to maintain
the Equipment in the same condition it was in when you received it or fail to
maintain a service contract on the Equipment, (d) assign or otherwise transfer
this Lease or the Equipment to anyone or any other entity without our prior
written approval, (e) move the Equipment from the location on the front side of
this Lease without our prior written approval, (f) fail to return the Equipment
to us upon termination of this Lease or any renewal period, (g) file a petition
in bankruptcy or seek similar relief from your creditors, (h) becomes insolvent,
(i) default under any other lease or Agreement between you and us, (j) fail to
observe or perform any other provision of this Lease.
18. REMEDIES: You agree with us that your default under Paragraph 17 subparts
(a),(d),(f),(g),(h),(i), or (j) are primary defaults and we may, upon written
notice to you, demand that you cure that default. If you fail to cure that
within five (5) days of the notice, then we may: (1) demand payment of the
entire amount of the remaining Lease payments, including those past due, and (2)
take peaceful possession of the Equipment with or without a court order. You
agree with us that your default under paragraph 17, subparts (b), (c), or (e)
are secondary defaults and we may, upon written notice to you, demand that you
cure that default. If you fail to cure that default within twenty (20) days of
the notice, then we may exercise the same remedies available to us for a primary
default. Any right or remedy given to us under this Lease does not exclude any
other right or remedy available to us under this Lease or allowed by law. Each
right and remedy shall be cumulative and may be exercised singly or in
combination. You shall pay all expenses incurred by us to enforce our rights and
remedy including expenses for repossession, repair, storage and sale of this
equipment. Also reasonable attorneys, collection and court fees or costs.
19. PAYMENT OF EXPENSES: You agree to pay all of the costs and expenses,
including reasonable attorney's fees in exercising our rights or remedies under
this Lease. You shall pay us late charges at the monthly rate of five percent
(5%) of past due Lease payments to defer our lost use of the payments and to pay
for the costs of collection. You shall pay us a returned check or insufficient
funds fee in the amount of $25.00.
20. INDEMNITY: You shall defend and indemnify us against, and hold us harmless
from, any and all claims, actions, suits, proceedings, costs, expenses, damages,
and liabilities including reasonable attorney's fees, arising out of, connected
with, or resulting from this Lease without any limitations. You agree to
indemnify us for any act or omission made by you, or for any inaccurate
representation you may have made in connection with this Lease, which causes a
delay, loss, disallowance or recapture of any of the tax benefits we may
anticipate pursuant to this Lease.
21. NO WAIVER: Any failure by us to require you to strictly perform any
provision of this lease shall not be waiver of our rights under that provision
22. SEVERABILITY: If any provision of this Lease is declared invalid, that
provision shall not apply and shall be considered omitted from this Lease. All
remaining provisions of this Lease, including the default and remedy provisions,
shall remain in full force and effect.
23. MODIFICATION AND ADDITIONAL TERMS: This Lease, shall not be modified,
amended, addended, supplemented or waived unless agreed to in writing by you and
us. This Lease does not incorporate the terms and conditions included in any
vendor packaging, invoice, catalog, brochure, technical data sheet or any other
document which attempts to carry, modify or add to the terms and conditions
stated in this Lease.
24. LAW: In the event this Lease is assigned by us, then you agree that the
rights and remedies of the parties shall be interpreted, construed and enforced
in accordance with the laws and public policies of the State of incorporation of
the Lessor or its assignee. In any legal action concerning this Lease, you agree
to personal jurisdiction and venue in the State of New York, or the state of the
Assignee's corporate headquarters. You agree that any judgment may be entered
by any court having jurisdiction.
25. CORRECTION: You authorize us to fill in dates and make minor corrections on
the front side of this Lease.
26. FILINGS AND ADMINISTRATIVE FEES: You grant us the right to file financing
statements (UCC-1's) without your signature or by signing your name to the
financing statements and amendments to (UCC-3's) as your power of attorney. You
shall pay us a one time administrative fee up to $200.00.
- --------------------------------------------------------------------------------
GUARANTY
In order for us to enter into this Lease with you, we require that the party or
parties signing below, together and individually, guaranty to us, our assessors
and assigns, the performance and prompt payment of all payments due under this
Lease. The parties signing below acknowledge that they: (1) will financially
benefit from this Lease, (2) agree this Guaranty is of payment and not of
collection, (3) waive any and all notices concerning this Lease (4) agree that
they shall be bound by paragraph 24 of this Lease, and (5) understand and agree
that they are signing as individuals and not on behalf on any entity.
- -------------------------------------- -------------------------------
SIGNATURE DATE SIGNATURE DATE
- -------------------------------------- -------------------------------
PRINT NAME PRINT NAME
- -------------------------------------- -------------------------------
ADDRESS (Not PO Box) HOME PHONE ADDRESS (Not PO Box) HOME PHONE
<PAGE> 4
Schedule "B" Fourth Addendum
[MDA CAPITAL, INC. LETTERHEAD]
LESSEE NOTICE OF ASSIGNMENT
(Private Label Vendor Program)
RE: LEASE CONTRACT #
Dear:
We are pleased to inform you that all of our right, title and interest (but
none of our obligations as Lessor) in the attached Lease with MDA Capital, Inc.
and all the Equipment listed on the Lease and/or any Equipment Schedule with
has been assigned to Lighthouse Capital, Inc.
From this point forward, you will receive a monthly invoice for the remaining
payments on your Lease from Lighthouse Capital, Inc., or their assigns.
Pursuant to Private Label Vendor Agreement ("PLVA") between Lighthouse Capital,
Inc. and MDA Capital, Inc., we are entitled to send you this notice.
Lighthouse Capital, Inc. will be responsible for forwarding all payments
included in your monthly Lease payment to the appropriate parties. You are
relieved from all obligations to the Lessor, but you remain liable to
Lighthouse Capital, Inc., or it's assigns for all obligations under this Lease.
You are hereby directed by this notice to send all current and future payments
to:
Attn: Accounts Receivable
Lighthouse Capital, Inc.
P.O. Box 3324
Syracuse, NY. 13220
The undersigned indemnifies you and holds you harmless from any and all costs
and expenses you incur as a result of acting upon this notice.
Yours truly,
MDA CAPITAL, INC.
/s/ NIKKI MOSELEY
- ---------------------
Nikki M. Moseley
Secretary
<PAGE> 1
EXHIBIT 10.20
FIFTH ADDENDUM TO PRIVATE LABEL VENDOR PROGRAM
MDA Capital Incorporated
THIS ADDENDUM TO PRIVATE LABEL VENDOR AGREEMENT is made as of September 1, 1998
by and between MDA CAPITAL INC. ("Assignor"), a corporation, with its principle
place of business at 3800 Howard Hughes Pkwy #1800, Las Vegas, NV 89109, and
LIGHTHOUSE CAPITAL, INC. ("Assignee") a wholly owned subsidiary of Syracuse
Supply Company, with its headquarters at 5921 Court Street Road, Syracuse, NY
13206.
RECITALS
Assignor and Assignee are parties to a certain Private Label Vendor Agreement
dated as of the 15th day of January, 1997, and Addendum's thereto which
together form the agreement of the parties (the "Agreement"). The parties
hereto acknowledge that the Agreement originally identified Assignor as "MDA
Capital Corp." and that the proper name of the Assignor is "MDA Capital, Inc."
Any reference in this Addendum, the Agreement, or any previous transactions
under the Agreement, to MDA Capital Corp. shall be deemed to refer to MDA
Capital, Inc.
Assignee and Assignor wish to expand the scope of the Private Label Vendor
Agreement pursuant to the terms of this Addendum.
The Parties hereby agree as follows:
Assignor may offer a 12 to 60 month noncancellable Rental Agreement ("Rental").
Such Rental shall only utilize documentation attached hereto as "Exhibit A".
Acceptance of a Rental shall be subject to credit approval, receipt of
documentation, and confirmation's at the sole discretion of Assignee.
Assignee may finance transactions under the Rental at an agreed upon advance
based upon the Fair Market Value rates times the sales price times ninety
percent (90%) contracted between Assignor and Lessee. Rates may be changed with
30 days written notice from Assignee to Assignor. The first months rent and a
$200.00 document fee are due in advance on all Rentals. Security Deposits can
be required based upon credit. An assignment document in the form of "Exhibit
B" shall be signed by Assignor and returned to Assignee for each Rental. The
assignment document shall provide for the assignment of Assignor's rights,
title and interest in all the Equipment and the payments on each Lease under
Rental. Assignments shall be on Assignor's letterhead.
Assignor shall provide Assignee credit information on each Lessee as required
by Assignee. Assignee is not obligated to finance any transaction unless an
approval letter is provided to Assignor stating the terms and conditions of the
approval. Once approved, all documentation must be completed and the originals
returned to Assignee prior to funding by Assignee. Documentation shall include
at least the following; Rental contract, proof of insurance, acceptance notice,
and advance payments, original invoice from Assignor, assignment letter, any
other documentation required by Assignee and verbal verification of acceptance
of the Equipment by the Lessee.
In the event the Equipment is returned by the Lessee at the end of the term for
any Rental, Assignor shall have the right of first refusal to purchase
Equipment from Assignee for ten percent (10%) of the original equipment price.
If Lessee continues to rent the same equipment, or purchases the equipment for
more than ten percent (10%), than Assignee shall split income received in
excess of the ten percent (10%) equally with Assignor. Assignee shall release
it's security interest in the Equipment once all amounts due under such Lease
are paid by Lessee, or Assignor. If the Lessee chooses to enter into a new
agreement, Assignor shall provide Assignee the right of first refusal to
provide such financing. Such new financing shall be consistent with the terms
and conditions of the Agreement, as modified by this Addendum. If a Rental is
terminated for any reason by Assignor or the Equipment supplier, than Assignor
shall pay Assignee all amounts due from Lessee under the lease, including; rent
payments, late fees, or other amounts due.
This Addendum must be signed by Assignor and Assignee.
MDA Capital Incorporation Lighthouse Capital, Inc.
Signed by /s/ [SIG] Signed by /s/ [SIG]
------------------------- ---------------------------
Title Vice President & CFO Title President
---------------------------- ------------------------------
Date 9/1/98 Date 9/8/98
------------------------------ -------------------------------
<PAGE> 1
- --------------------------------------------------------------------------------
MEDICAL DEVICE ALLIANCE INC.
- --------------------------------------------------------------------------------
EXHIBIT 10.21
DISTRIBUTION AGREEMENT
BETWEEN
LYSONIX INCORPORATED
AND
MARENA GROUP
<PAGE> 2
DISTRIBUTION AGREEMENT
The Marena Group, Inc., a Georgia corporation with its principal
offices located at 1072 Stovall Ridge Court, Lawrenceville, GA. 30243,
(hereinafter referred to as "Supplier"), hereby grants to LYSONIX, INC., a
Nevada corporation with its principal offices located at 1170 Mark Avenue,
Carpinteria, California 93013, (hereinafter referred to as "Distributor"), the
right to distribute and sell throughout the Territories, as defined below, those
products set forth in paragraph 1, and Distributor accepts such grant for the
term and on the conditions herein stated (the "Agreement").
1. PRODUCTS COVERED BY THE AGREEMENT
The products covered by the Agreement are those products and
accessories set forth in the separate schedule, initialed by the parties, and
attached to the Agreement as Exhibit "A", together with the parts and components
necessary for the repair and replacement thereof, and all modifications,
improvements, and developments pertaining to such products, accessories and
components, all of which are hereinafter referred to as the "Products".
2. NEW PRODUCTS
Supplier may submit to Distributor specifications and, where
feasible, samples of each new product which Supplier intends to manufacture.
Within sixty (60) days after such submission, Distributor may acquire
distribution rights for such new products by advising Supplier in writing that
Distributor is electing to have such new products included within the Products
described in paragraph 1 hereof. A revised Exhibit "A' setting forth the
original products and the new products covered by the Agreement shall be
prepared immediately, initialed by the parties hereto and attached to the
Agreement. It is expressly understood and agreed that, in the event Distributor
does not exercise its option to the exclusivity to distribute such new products,
Supplier shall have the right to market those products as it deems fit in its
sole discretion.
3. TERRITORIES
a. EXCLUSIVE DISTRIBUTION TERRITORIES. The Distributor
shall have the right to sell and distribute the Products on an exclusive basis
throughout the United States of America and any of the territories, possessions,
protectorates and affiliates of the United States, excluding Puerto Rico
(collectively, the "Exclusive Territories"). Supplier will not itself sell
Products into the Exclusive Territories and will not appoint any other
distributors, dealers, direct or indirect selling agents or in any way
distribute or sell the Products in the Exclusive Territories during the term
hereof.
b. INTERNATIONAL DISTRIBUTION TERRITORIES. The
Distributor shall have the right to sell and distribute the Products on an
exclusive basis in all international markets not identified as having existing
assigned exclusive distributors previously appointed by Supplier and/or as
identified in Exhibit B hereto. The Supplier shall identify all international
countries in which exclusive distribution agreements exist prior to the
execution of this Agreement.
LYSONIX, INC.
DISTRIBUTION AGREEMENT
Page -2-
<PAGE> 3
4. TERMS AND RENEWAL
The initial term of the Agreement shall begin September 17,
1997, and ending on December 31, 1998, unless earlier terminated as provided
herein. The Agreement will be automatically renewed under two additional and
separate renewals, annually, on January 1st of each of the next two subsequent
years (the "Anniversary Date") unless written notice of non-renewal is given by
either party ninety (90) days prior to the Anniversary Date. If such notice of
non-renewal is given, the Agreement shall not be renewed and shall expire and
terminate. Either party may terminate the Agreement "for cause" at any time in
accordance with Paragraph 9 hereto. Upon expiration or termination of the
Agreement, the Distributor shall only have the right to sell Products then in
its possession and inventory.
5. DISTRIBUTOR'S DUTIES
a. Distributor shall purchase from Supplier for its own
account for resale such Products and in such quantities to meet the demand in
the Exclusive Territories and to always actively promote and sell the Products
in the Exclusive Territories
b. Distributor shall submit its order for the Products
on its standard purchase order form, a copy of which is attached hereto as
Exhibit "C", without regard to any terms and conditions which may appear on the
reverse of such standard purchase form;
c. Distributor shall promote and sell the Products,
subject to Supplier's standard warranty, as may be amended from time to time by
Supplier;
d. Distributor shall provide instructions to its
customers in the use and routine maintenance of the Products and post-sale
follow-up with customers as related to warranty, exchange, information, service
or otherwise and to provide Supplier with feedback on leads in the Exclusive
Territories provided to Distributor by Supplier;
e. Distributor shall work with and assist Supplier,
using whenever feasible, the facilities of Distributor, and/or its related
companies and divisions, in the modification and improvement of the Products and
the development of new products;
f. Distributor shall promote and advertise the Products
at important regional and national plastic surgery, cosmetic surgery and/or
aesthetic surgery meetings attended by the Distributor, including the ASPRS
annual trade show. Distributor shall coordinate with Supplier's Mr. Watkins for
any travel required by Mr. Watkins with Distributor's sales persons;
g. Distributor shall maintain customer service staff, a
direct sales force and sufficient inventory of the Products to meet the needs of
the customers in the Exclusive Territories;
h. Distributor shall pay for printing of adequate
quantities of brochures for use in sales of the Products and will coordinate
with Supplier on a marketing and sales plan for each year under this Agreement
during the fourth quarter of the preceding year;
LYSONIX, INC.
DISTRIBUTION AGREEMENT
Page -3-
<PAGE> 4
i. Distributor shall name Supplier as an additional
insured on its product liability insurance;
j. Distributor shall not disclose during the term of the
Agreement or for a period of two (2) years thereafter, any trade secrets or
proprietary information obtained from Supplier before or during the term of the
Agreement except to the extent that disclosure is required by law, the
information is otherwise available to the public or the industry, the
information is presently known to the Distributor, or the information is
disclosed to Distributor by a third party who has a lawful right to disclose
same.
6. SUPPLIER'S DUTIES
a. Supplier shall ship Distributor's orders for the
Products, fob Atlanta, Georgia, at the prices set forth on Exhibit "A" hereto;
b. Supplier shall work with Distributor to provide the
following information for the Products set forth in Exhibit "A":
i. Typical patient measurements for developing
a product selection guide; and
ii. Quality control specifications including
testing methods, sampling procedures, and
acceptance levels.
c. Supplier shall give at least sixty (60) days prior
written notice of each increase in price of the Products and honor Distributor's
existing purchase orders at the prices in effect immediately prior to the
effective date of such price increase if such purchase orders as placed sixty
(60) days prior to any announced price increase. Supplier hereby expressly
warrants to Distributor that each such price increase shall be in full
compliance with any and all price control restrictions, if any, imposed by the
federal or any state government during the term of the Agreement;
d. Supplier shall adequately label, package and deliver
the Products, using references to and trademarks of Supplier shall bear all
costs associated with tagging, labeling and/or packaging of the products except
that Distributor shall bear all costs associated with printing of package
inserts for the Products, which the Supplier shall include in the Products'
packaging;
e. At the Distributor's written request, Supplier will
specifically label the Products on behalf of the Distributor, the cost of such
special labeling shall be borne by the Distributor and all such labels shall
include the Supplier's trademarked brand name, Marena, as approved by the
Supplier;
f. Supplier shall notify Distributor immediately in
writing should Supplier become aware of any defect or condition which may render
any of the Products in violation of the United States Food, Drug and Cosmetic
Act, or in any way alters the specifications and the quality of the Products;
g. Supplier shall notify Distributor prior to
implementing any design changes in the Products and/or the manufacture, assembly
or labeling process of the Products which could affect the quality of the
Products;
LYSONIX, INC.
DISTRIBUTION AGREEMENT
Page -4-
<PAGE> 5
h. Supplier shall promptly turn over all sales leads for
the Products from the Exclusive USA and International Territories covered in the
Agreement to Distributor;
i. Supplier shall maintain property and comprehensive
insurance to the levels needed to, in its sole discretion, maintain supplies of
the Products;
j. Supplier shall furnish Distributor, upon written
request and at Distributor's expense, suitable copy and photographs for use by
Distributor in advertising and cataloging.
7. RETURNS AND CREDITS.
All returns shall be sent to Supplier freight and
miscellaneous costs pre-paid, with approve return authorizations by Supplier
noted on all packaging and documentation. At its discretion, Supplier may
replace or repair any returned Products. If replacement or repair of the
returned Products is not possible, the Supplier shall issue credit for returned
merchandise according to the schedule below:
a. Merchandise returned in unused, salable condition
(outside seal intact) within thirty (30) days of delivery: CREDIT @ 80% OF
DISTRIBUTOR NET COST.
b. Orders for merchandise accepted by the Supplier and
terminated by the Distributor prior to delivery: CREDIT @ 90% OF DISTRIBUTOR NET
COST.
c. Defective merchandise: CREDIT @ 100% OF DISTRIBUTOR
NET COST.
d. Merchandise processed in error by Supplier: CREDIT @
100% OF DISTRIBUTOR NET COST.
e. Merchandise not suitable for resale: NO CREDIT.
f. Merchandise returned due to changes in product line:
CREDIT AMOUNT DETERMINED BY EACH CIRCUMSTANCE.
8. MINIMUM ORDERS AND PAYMENTS/DELIVERY SCHEDULE
a. Distributor agrees to order a minimum of $1,200,000
worth of Products under the Agreement from September 17, 1997 through December
31, 1998 (the first year of the Agreement), under non-revocable purchase orders
issued to Supplier on a monthly basis by Distributor, with subsequent monthly
purchase orders to be progressively increasing in dollar amounts but not to
exceed an increase of ten percent (10%) of the previous month's purchase order
dollar value, unless approved in writing by the Supplier. Distributor agrees to
pay a deposit of Thirty Percent (30%) of each purchase order, to be enclosed
with any purchase orders issued during the first year of the Agreement and the
balance to be net 30 days from the date of shipment of the Products by the
Supplier.
b. Upon the execution of the Agreement, Distributor
agrees to pay the Supplier a non-refundable manufacturing incentive fee of Three
Hundred Sixty Thousand Dollars ($360,000) to be credited first against the 30%
deposit on the year's purchase orders.
LYSONIX, INC.
DISTRIBUTION AGREEMENT
Page -5-
<PAGE> 6
c. Distributor agrees to order a minimum of $1,500,000
worth of Products under the Agreement from January 1, 1999 through December 31,
1999 (the second year of the Agreement), under non-revocable purchase orders
issued to Supplier on a monthly basis by Distributor, with any subsequent
monthly purchase orders not to exceed an increase of ten percent (10%) of the
previous month's purchase order dollar value, unless approved in writing by the
Supplier.. Distributor agrees to pay a deposit of Ten Percent (10%) of each
purchase order, to be enclosed with any purchase orders issued during the second
year of the Agreement and the balance to be net 30 days from the date of
shipment of the Products by the Supplier.
d. Distributor agrees to order a minimum of $1,800,000
worth of Products under the Agreement from January 1, 2000 through December 31,
2000 (the third year of the Agreement), under non-revocable purchase orders
issued to Supplier on a monthly basis by Distributor, with any subsequent
monthly purchase orders not to exceed an increase of ten percent (10%) of the
previous month's purchase order dollar value, unless approved in writing by the
Supplier.. Distributor agrees to pay any invoice balance net 30 days from the
date of shipment of the Products by the Supplier for purchase orders issued
during the third year of the Agreement.
e. Timely payment by Distributor to Supplier is of the
essence. A finance charge of 1.5% per month shall be applied on all invoices not
paid within thirty (30) days. Invoices shall be paid without deduction or
offset. Distributor shall pay all costs of collection, including reasonable
attorneys' fees if past due balances are collected by or through an attorney.
f. Distributor agrees that any delivery schedules agreed
to by Supplier shall be construed as estimates and not firm commitments, unless
a firm delivery date is agreed to in writing by Supplier.
9. PATENTS AND TRADEMARKS
a. PATENTS
Supplier shall, in its reasonable discretion, prosecute
diligently each application for United States and foreign patent which is now or
hereafter pending covering some one or more of the Products and, upon issuance,
shall, in its reasonable discretion, diligently prosecute each infringer
thereof. Supplier shall defend, indemnify and hold harmless Distributor from and
against any liability arising out of a claim of patent infringement made with
respect to any of the Products. Supplier agrees to repurchase from Distributor,
at a price equivalent to the full purchase price paid by Distributor, any
quantity of the Products in Distributor's inventory which Products Distributor
reasonably believes it should not or cannot sell, based on an opinion of counsel
of the parties hereto that future sales by Distributor may result in patent
infringement, or because of a decision, whether interlocutory or final, rendered
in any patent infringement action.
b. TRADEMARKS AND TRADE NAMES
Distributor recognizes that Supplier is the owner of the
trademarks and trade names which may be used in the promotion and sale of the
Products and that Distributor has no right or interest in such trademarks and
trade names. Distributor further recognizes that Supplier, through its duly
authorized representatives shall have the right to inspect Distributor's
facilities at reasonable times to determine the quality of such labeling,
packaging and inserts which will be placed on the Products.
LYSONIX, INC.
DISTRIBUTION AGREEMENT
Page -6-
<PAGE> 7
c. TRADEMARK LICENSE
Supplier hereby grants to Distributor the royalty-free right
to use Supplier's trademarks on the products during the term of the Agreement,
it being understood that Distributor shall discontinue the use of such
trademarks upon the termination of the Agreement and disclaims any rights in the
trademarks other than the said license.
10. TERMINATION
Either party shall have the right to terminate the Agreement,
for cause, on written notice if the other: (a) commits or suffers any act of
bankruptcy or insolvency; or (b) fails to cure any material breach in the
provisions of the Agreement within forty five (45) days after written notice to
the other party hereto of such breach.
11. PROCEDURES ON TERMINATION
a. WINDUP
On the termination of the Agreement, for whatever reason,
Supplier shall continue to honor Distributor's orders for the Products up to the
effective date of termination and Distributor shall pay for such products all on
the terms and conditions of the Agreement.
b. REPURCHASE OF INVENTORY
Returns that cannot be replaced or repaired will be credited
as per the Credit Schedule in paragraph 6 above for returned Products.
12. FORCE MAJEURE
The obligations of either party to perform under the Agreement shall be
excused during each period of delay caused by matters such as strikes, shortages
of power or raw material, government orders or acts of God, which are reasonably
beyond the control of the party obligated to perform.
13. CONFIDENTIAL INFORMATION
a. CONFIDENTIALITY
Supplier and Distributor acknowledge and agree that, pursuant
to the Agreement, valuable information of a confidential nature may be disclosed
by Distributor to Supplier or Supplier to Distributor; that such information
shall be retained by either party in confidence; that the transmittal of such
information by Distributor to Supplier or Supplier to Distributor is upon the
expressed condition that the information is to be used solely for the purpose of
effectuating the Agreement; and that Supplier or Distributor shall not, either
during the term of the Agreement or for a period of two (2) years after its
termination, use, publish or disclose or cause anyone else to use, publish or
disclose any confidential information supplied by Supplier or Distributor,
whether purchased by either party or provided free of charge by either party.
Notwithstanding anything in the foregoing, the above restrictions on disclosure
and use shall not apply to any information which Supplier or Distributor can
show by written evidence was known to it at the time of receipt thereof from
Supplier or Distributor or which may subsequently be obtained from sources other
than Distributor or Supplier who are not bound by a confidentiality agreement
with Distributor or Supplier. The cutting, spreading and sewing methods and the
source and content of textiles and trims used by Supplier in the Products shall,
LYSONIX, INC.
DISTRIBUTION AGREEMENT
Page -7-
<PAGE> 8
without limitation, be considered confidential information hereunder and for a
period of two (2) years after its termination.
b. PAYMENT FOR CONFIDENTIAL INFORMATION
The parties shall mutually agree as to what information, if
any, will be provided to either party and what the cost, if any, will be to
either party for such information. The nonpayment by either party of financial
charges for confidential information is grounds for immediate termination of all
such information.
c. REMEDY
Supplier and Distributor recognize and acknowledge that either
party would not have any adequate remedy at law for the breach of any one or
more of the covenants contained in this paragraph and agree that, in the event
of such breach, Distributor or Supplier may, in addition to the other remedies
which may be available to it, arbitrate in equity to enjoin Supplier or
Distributor from the breach of any of the terms of the Agreement.
14. ADDITIONAL COVENANTS OF SUPPLIER AND DISTRIBUTOR
During the term of the Agreement and for a one year period
commencing on the date of termination or expiration of the Agreement (the
"Termination Date"), neither Supplier nor Distributor shall engage in or attempt
to engage, directly or indirectly, in any of the following acts: (i) Solicit,
recruit, hire or contract with any person who was employed by, served as an
employee, officer, agent, dealer, distributor or representative of the other
party hereto, as the case may be, at any time during one-year prior to the
Termination Date, without the expressed written consent of such party; (ii)
disclose, divulge, sell, give away or otherwise make known to any other person,
any confidential information or trade secrets of the other party hereto, as the
case may be; or (iii) acquire, without the express written consent of the other
party hereto, as the case may be, any equity ownership interest in any business
engaged in a substantially similar or identical business to that of the other,
as the case may be, on the Termination Date.
15. WARRANTIES AND REMEDIES
Products sold to Distributor are warranted only to the extent
set forth below:
a. Neither Distributor nor any other person is
authorized to make any other warranty and Distributor agrees that all of its
sales of the Products will be made in accordance with the warranty set forth
below.
b. Supplier warrants that the Product delivered by it
will for a period of ninety (90) days from the date of the delivery from the
Distributor to the customer, be free of defects in material and workmanship;
c. The sole and exclusive remedy under this warranty is
limited to, at the Supplier's option, repair or replacement of the Product for
defects in material and workmanship;
d. To qualify for this warranty, Distributor must (i)
promptly notify Supplier of any defects, in writing; and (ii) have met
Distributor's obligations under the Agreement;
LYSONIX, INC.
DISTRIBUTION AGREEMENT
Page -8-
<PAGE> 9
e. LIMITATION OF WARRANTY. THE WARRANTIES SET FORTH
HEREIN ARE EXPRESSLY IN LIEU OF ANY AND ALL OTHER WARRANTIES AND OBLIGATIONS
EXPRESS AND IMPLIED INCLUDING ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE;
f. Distributor expressly acknowledges that it is not
entitled to incidental or consequential damages from Supplier, except for
Supplier's intentional breach of the Agreement, and Supplier will not be liable
for same.
16. SECURITY AGREEMENT
Supplier retains a security interest in any Products sold by
Supplier to Distributor for inventory or warehousing, as well as in any
insurance proceeds thereof, until all outstanding accounts on Products that have
been delivered to Distributor have been paid to Supplier.
17. ASSIGNMENT
The Agreement shall be binding upon and inure to the benefit
of the parties hereto and their respective successors and assigns, provided,
however, that neither party shall have the right to transfer or assign its
interest in the Agreement without the prior written authorization of the other
party, which consent shall not be unreasonably withheld; provided, however that,
either party may assign the Agreement to a person who or entity which has
acquired all or substantially all of the stock or assets of the assigning party,
upon written notification to the other party hereto.
18. ARBITRATION
Any controversy or claim arising out of or relating to the
Agreement, or its breach, shall be settled by arbitration, using one arbitrator,
in the city of the source of supply of Products in accordance with the governing
rules of the American Arbitration Association and applying Georgia law. Judgment
upon the award rendered by the arbitrator may be entered into any court of
competent jurisdiction.
19. MISCELLANEOUS
a. NOTICES
Any notice required by the Agreement shall be deemed
sufficient if sent by fax, overnight courier or certified mail, postage prepaid,
to the party to be notified at the address set forth in the initial paragraph of
the Agreement until written notice of a different address is supplied to the
other party.
b. ENTIRE AGREEMENT
The Agreement is the entire agreement between the parties
hereto, there being no prior written or oral promises or representations not
incorporated herein. No terms or conditions included in Distributor's purchase
orders or other documents submitted by Distributor shall be of any effect and
shall not be applicable to the ordering or supplying of Products, the terms and
conditions in this Agreement being the only ones applicable.
LYSONIX, INC.
DISTRIBUTION AGREEMENT
Page -9-
<PAGE> 10
c. APPLICABLE LAW
The Agreement shall be governed by the laws of the State of
Georgia.
d. AMENDMENTS
No amendments or modifications of the terms of the Agreement
shall be binding on either party unless reduced to writing and signed by an
authorized officer of both parties hereto.
e. EXISTING OBLIGATIONS
Distributor and Supplier represent and warrant that the terms
of the Agreement do not violate any existing obligations or contracts of either
party. Supplier and Distributor shall defend, indemnify and hold harmless
Supplier and Distributor from and against any and all claims, demands, actions
or causes of action which are hereafter made or brought against Distributor or
Supplier and which allege any such violation.
f. NO AGENT
Neither party by reason of the Agreement or otherwise shall be
an agent or legal representative of the other for any purpose whatsoever, and
neither has any authority, either express or implied, to obligate or act for the
other.
g. DESIGN AND DISCONTINUANCE
Supplier reserves the sole right and discretion to change the
design of or discontinue any Product and shall provide written notice to
Distributor any such changes or discontinuances.
20. COUNTERPARTS
For the convenience of the parties hereto, this Agreement may
be executed in one or more counterparts, each of which shall be deemed an
original for all purposes.
IN WITNESS WHEREOF, the parties have by their duly authorized officers,
executed the Agreement on the 24th day of September, 1997.
"DISTRIBUTOR"
LYSONIX, INC., a Nevada corporation
By: /s/ Donald K. McGhan
-------------------------------------
Its: Chairman of the Board
"SUPPLIER"
THE MARENA GROUP, INC., a Georgia corporation
By: /s/ Vera Watkins
--------------------------------
Name: Vera Watkins
------------------------------
Its: President
LYSONIX, INC.
DISTRIBUTION AGREEMENT
Page -10-
<PAGE> 11
EXHIBIT A TO DISTRIBUTION AGREEMENT
PRODUCTS AND PRICING
LYSONIX, INC.
DISTRIBUTION AGREEMENT
PAGE -11-
<PAGE> 12
EXHIBIT B TO DISTRIBUTION AGREEMENT
EXISTING TERRITORIES COVERED BY DISTRIBUTORS APPOINTED BY SUPPLIER
EXCLUSIVE DISTRIBUTORS ALREADY IN PLACE
NO SALES PERMITTED BY DISTRIBUTOR (LySONIX, INC.)
- -------------------------------------------------------------------
ARGENTINA ECUADOR PANAMA
- -------------------------------------------------------------------
BOLIVIA EL SALVADOR URUGUAY
- -------------------------------------------------------------------
BRAZIL GUATEMALA PARAGUAY
- -------------------------------------------------------------------
CHILE HONDURAS PERU
- -------------------------------------------------------------------
COLUMBIA MEXICO PUERTO RICO
- -------------------------------------------------------------------
COSTA RICA NICARAGUA VENEZUELA
- -------------------------------------------------------------------
DOMINICAN REPUBLIC
- -------------------------------------------------------------------
NON-EXCLUSIVE DISTRIBUTORS ALREADY IN PLACE
SALES PERMITTED BY DISTRIBUTOR (LySONIX, INC.) ON NON-EXCLUSIVE BASIS
GERMANY
ITALY
SERBIA
SWITZERLAND
ALL INTERNATIONAL TERRITORIES NOT LISTED BECOME EXCLUSIVE TO DISTRIBUTOR
(LYSONIX, INC.)
LYSONIX, INC.
DISTRIBUTION AGREEMENT
Page -11-
<PAGE> 13
EXHIBIT C TO DISTRIBUTION AGREEMENT
STANDARD PURCHASE ORDER
NOTHING ON REVERSE
LYSONIX, INC.
DISTRIBUTION AGREEMENT
PAGE -13-
<PAGE> 1
MEDICAL DEVICE ALLIANCE INC.
EXHIBIT 10.22
DISTRIBUTION AGREEMENT
BETWEEN
LYSONIX INCORPORATED
AND
FLOWMATRIX CORPORATION
<PAGE> 2
DISTRIBUTION AGREEMENT
FLOWMATRIX CORPORATION, a Nevada corporation with its principal offices
located at 1160 Mark Avenue, Carpinteria, CA. 93013, (hereinafter referred to as
"Supplier"), hereby grants to LYSONIX, INC., a Nevada corporation with its
principal offices located at 1170 Mark Avenue, Carpinteria, California 93013,
(hereinafter referred to as "Distributor"), the right to distribute and sell
those products set forth in paragraph 1, and Distributor accepts such grant for
the term and on the conditions herein stated (the "Agreement").
1. PRODUCTS COVERED BY THE AGREEMENT
The products covered by the Agreement are those products and
accessories set forth in the separate schedule, initialed by the parties, and
attached to the Agreement as Exhibit "A", together with all modifications,
improvements, and developments pertaining to such products, accessories and
components, all of which are hereinafter referred to as the "Products".
2. NEW PRODUCTS
Supplier may submit to Distributor specifications and, where
feasible, samples of each new product which Supplier intends to manufacture.
Within sixty (60) days after such submission, Distributor may acquire
distribution rights for such new products by advising Supplier in writing that
Distributor is electing to have such new products included within the Products
described in paragraph 1 hereof. A revised Exhibit "A" setting forth the
original products and the new products covered by the Agreement shall be
prepared immediately, initialed by the parties hereto and attached to the
Agreement.
3. TERMS AND RENEWAL
The initial term of the Agreement shall begin September 17, 1997,
and ending on December 31, 1998, unless earlier terminated as provided herein.
The Agreement will be automatically renewed under two additional and separate
renewals, annually, on January 1st of each of the next two subsequent years (the
"Anniversary Date") unless written notice of non-renewal is given by either
party ninety (90) days prior to the Anniversary Date. If such notice of
non-renewal is given, the Agreement shall not be renewed and shall expire and
terminate. Either party may terminate the Agreement "for cause" at any time in
accordance with Paragraph 9 hereto. Upon expiration or termination of the
Agreement, the Distributor shall only have the right to sell Products then in
its possession and inventory.
4. DISTRIBUTOR'S DUTIES
a. Distributor shall purchase from Supplier for its own account
for resale such Products and in such quantities to meet Distributor's sales
demands and to always actively promote and sell the Products;
Page -2-
<PAGE> 3
b. Distributor shall submit its order for the Products on its
standard purchase order form, a copy of which is attached hereto as Exhibit "B",
without regard to any terms and conditions which may appear on the reverse of
such standard purchase form, which is blank;
c. Distributor shall promote and sell the Products, subject to
Supplier's standard warranty, as may be amended from time to time by Supplier;
d. Distributor shall provide instructions to its customers in the
use and routine maintenance of the Products and post-sale follow-up with
customers as related to warranty, exchange, information, service or otherwise
and to provide Supplier with feedback on leads provided to Distributor by
Supplier;
e. Distributor shall work with and assist Supplier, using
whenever feasible, the facilities of Distributor, and/or its related companies
and divisions, in the modification and improvement of the Products and the
development of new products;
f. Distributor shall promote and advertise the Products at
important regional and national plastic surgery, cosmetic surgery and/or
aesthetic surgery meetings attended by the Distributor, including the ASPRS
annual trade show;
g. Distributor shall maintain customer service staff, a direct
sales force and sufficient inventory of the Products to meet the needs of the
Distributor's customers;
h. Distributor shall pay for printing of adequate quantities of
brochures for use in sales of the Products and will coordinate with Supplier on
a marketing and sales plan for each year under this Agreement during the fourth
quarter of each preceding year hereunder;
i. Distributor shall name Supplier as an additional insured on
its product liability insurance;
j. Distributor shall not disclose during the term of the
Agreement or for a period of two (2) years thereafter, any trade secrets or
proprietary information obtained from Supplier before or during the term of the
Agreement except to the extent that disclosure is required by law, the
information is otherwise available to the public or the industry, the
information is presently known to the Distributor, or the information is
disclosed to Distributor by a third party who has a lawful right to disclose
same;
k. Distributor shall provide Supplier, or have Distributor's
vendors provide Supplier at Distributor's expense, with adequate labels and
primary and secondary packaging, to meet all purchase orders for the Products
hereunder and shall notify Supplier, in advance and in writing, of any changes
to the labels and primary and secondary packaging for Supplier's GMP and quality
tracking documentation.
l. Distributor to maintain adequate distribution records for the
Products which will be available to Supplier upon written request for Supplier's
tracking documentation.
Page -3-
<PAGE> 4
5. SUPPLIER'S DUTIES
a. Supplier shall ship Distributor's orders for the Products, fob
Carpinteria, California, at the prices set forth on Exhibit "A" hereto;
b. Supplier shall work with Distributor to provide Quality
control specifications including testing methods, sampling procedures, and
acceptance levels for the Products set forth in Exhibit "A";
c. Supplier shall give at least ninety (90) days prior written
notice of each increase in price of the Products and honor Distributor's
existing purchase orders at the prices in effect immediately prior to the
effective date of such price increase if such purchase orders as placed ninety
(90) days prior to any announced price increase. Supplier hereby expressly
warrants to Distributor that each such price increase shall be in full
compliance with any and all price control restrictions, if any, imposed by the
federal or any state government during the term of the Agreement and that, in no
case shall any price increase be more than ten percent (10%) of the prices in
effect immediately prior to any such price increase;
d. Supplier shall adequately label the Products on a
"manufactured for" basis and package and deliver the Products to the Supplier,
using references to and trademarks of Supplier as required under regulatory
documentation. Supplier shall remain as the manufacturer of record for the
Products;
e. Supplier shall notify Distributor immediately in writing
should Supplier become aware of any defect or condition which may render any of
the Products in violation of the United States Food, Drug and Cosmetic Act, or
in any way alters the specifications and the quality of the Products;
f. Supplier shall notify Distributor prior to implementing any
design changes in the Products and/or the manufacture, assembly or labeling
process of the Products which could affect the quality of the Products;
g. Supplier shall maintain property and comprehensive insurance
to the levels needed to, in its sole discretion, maintain supplies of the
Products;
h. Supplier shall furnish Distributor, upon written request and
at Distributor's expense, suitable copy and photographs for use by Distributor
in advertising and cataloging.
6. RETURNS AND CREDITS.
All returns shall be sent to Supplier freight and miscellaneous
costs pre-paid, with approve return authorizations by Supplier noted on all
packaging and documentation. At its discretion, Supplier may replace any
returned Products. If replacement of the returned Products is not possible, the
Supplier shall issue credit for returned merchandise according to the schedule
below:
a. Merchandise returned in unused, salable condition (outside
seal intact) within thirty (30) days of delivery: CREDIT @ 80% OF DISTRIBUTOR
NET COST.
Page -4-
<PAGE> 5
b. Orders for merchandise accepted by the Supplier and terminated
by the Distributor prior to delivery: CREDIT @ 90% OF DISTRIBUTOR NET COST.
c. Defective merchandise: CREDIT @ 100% OF DISTRIBUTOR NET COST.
d. Merchandise processed in error by Supplier: CREDIT @ 100% OF
DISTRIBUTOR NET COST.
e. Merchandise not suitable for resale: NO CREDIT.
f. Merchandise returned due to changes in product line: CREDIT
AMOUNT DETERMINED BY EACH CIRCUMSTANCE.
7. MINIMUM ORDERS AND PAYMENTS/DELIVERY SCHEDULE
a. Distributor agrees to order a minimum of Five Hundred Thousand
Dollars ($500,000.00) worth of Products under the Agreement from September 17,
1997 through December 31, 1998 (the first year of the Agreement), under
non-revocable purchase orders issued to Supplier on a monthly basis by
Distributor, with subsequent monthly purchase orders to be progressively
increasing in dollar amounts but not to exceed an increase of ten percent (10%)
of the previous month's purchase order dollar value, unless approved in writing
by the Supplier.
b. Upon the execution of the Agreement, Distributor agrees to pay
the Supplier a deposit of Fifty Thousand Dollars ($50,000) to be credited as a
Ten Percent (10%) pre-payment on each of the first year's purchase orders up to
the minimum order specified in Section 7(a) above.
c. Distributor agrees to order a minimum of Six Hundred and
Twenty Five Thousand Dollars ($625,000.00) worth of Products under the Agreement
from January 1, 1999 through December 31, 1999 (the second year of the
Agreement), under non-revocable purchase orders issued to Supplier on a monthly
basis by Distributor, with any subsequent monthly purchase orders not to exceed
an increase of ten percent (10%) of the previous month's purchase order dollar
value, unless approved in writing by the Supplier. Distributor agrees to pay any
invoice balance net 30 days from the date of shipment of the Products by the
Supplier for purchase orders issued during the second year of the Agreement.
d. Distributor agrees to order a minimum of Seven Hundred and
Fifty Thousand Dollars ($750,000.00) worth of Products under the Agreement from
January 1, 2000 through December 31, 2000 (the third year of the Agreement),
under non-revocable purchase orders issued to Supplier on a monthly basis by
Distributor, with any subsequent monthly purchase orders not to exceed an
increase of ten percent (10%) of the previous month's purchase order dollar
value, unless approved in writing by the Supplier. Distributor agrees to pay any
invoice balance net 30 days from the date of shipment of the Products by the
Supplier for purchase orders issued during the third year of the Agreement.
Page -5-
<PAGE> 6
e. Timely payment by Distributor to Supplier is of the essence. A
finance charge of 1.5% per month shall be applied on all invoices not paid
within thirty (30) days. Invoices shall be paid without deduction or offset.
Distributor shall pay all costs of collection, including reasonable attorneys'
fees if past due balances are collected by or through an attorney.
f. Distributor agrees that any delivery schedules agreed to by
Supplier shall be construed as estimates and not firm commitments, unless a firm
delivery date is agreed to in writing by Supplier to be provided within five (5)
business days of the receipt of Distributor's purchase order.
8. PATENTS AND TRADEMARKS
a. PATENTS
Supplier shall, in its reasonable discretion, prosecute
diligently each application for United States and foreign patent which is now or
hereafter pending covering some one or more of the Products and, upon issuance,
shall, in its reasonable discretion, diligently prosecute each infringer
thereof. Supplier shall defend, indemnify and hold harmless Distributor from and
against any liability arising out of a claim of patent infringement made with
respect to any of the Products. Supplier agrees to repurchase from Distributor,
at a price equivalent to the full purchase price paid by Distributor, any
quantity of the Products in Distributor's inventory which Products Distributor
reasonably believes it should not or cannot sell, based on an opinion of counsel
of the parties hereto that future sales by Distributor may result in patent
infringement, or because of a decision, whether interlocutory or final, rendered
in any patent infringement action.
b. TRADEMARKS AND TRADE NAMES
Distributor recognizes that Supplier is the owner of the
trademarks and trade names which may be used in the promotion and sale of the
Products and that Distributor has no right or interest in such trademarks and
trade names, except for the trademark TopiFoamTM which is the sole property of
the Distributor.
c. TRADEMARK LICENSE
Supplier hereby grants to Distributor the royalty-free right to
use Supplier's trademarks on the products during the term of the Agreement, it
being understood that Distributor shall discontinue the use of such trademarks
upon the termination of the Agreement and disclaims any rights in the trademarks
other than the said license.
9. TERMINATION
Either party shall have the right to terminate the Agreement, for
cause, on written notice if the other: (a) commits or suffers any act of
bankruptcy or insolvency; or (b) fails to cure any material breach in the
provisions of the Agreement within forty five (45) days after written notice to
the other party hereto of such breach.
Page -6-
<PAGE> 7
10. PROCEDURES ON TERMINATION
a. WINDUP
On the termination of the Agreement, for whatever reason,
Supplier shall continue to honor Distributor's orders for the Products up to the
effective date of termination and Distributor shall pay for such products all on
the terms and conditions of the Agreement.
b. REPURCHASE OF INVENTORY
Returns that cannot be replaced or repaired will be credited as
per the Credit Schedule in paragraph 6 above for returned Products.
11. FORCE MAJEURE
The obligations of either party to perform under the Agreement shall be
excused during each period of delay caused by matters such as strikes, shortages
of power or raw material, government orders or acts of God, which are reasonably
beyond the control of the party obligated to perform.
12. CONFIDENTIAL INFORMATION
a. CONFIDENTIALITY
Supplier and Distributor acknowledge and agree that, pursuant to
the Agreement, valuable information of a confidential nature may be disclosed by
Distributor to Supplier or Supplier to Distributor; that such information shall
be retained by either party in confidence; that the transmittal of such
information by Distributor to Supplier or Supplier to Distributor is upon the
expressed condition that the information is to be used solely for the purpose of
effectuating the Agreement; and that Supplier or Distributor shall not, either
during the term of the Agreement or for a period of two (2) years after its
termination, use, publish or disclose or cause anyone else to use, publish or
disclose any confidential information supplied by Supplier or Distributor,
whether purchased by either party or provided free of charge by either party.
Notwithstanding anything in the foregoing, the above restrictions on disclosure
and use shall not apply to any information which Supplier or Distributor can
show by written evidence was known to it at the time of receipt thereof from
Supplier or Distributor or which may subsequently be obtained from sources other
than Distributor or Supplier who are not bound by a confidentiality agreement
with Distributor or Supplier.
b. PAYMENT FOR CONFIDENTIAL INFORMATION
The parties shall mutually agree as to what information, if any,
will be provided to either party and what the cost, if any, will be to either
party for such information. The nonpayment by either party of financial charges
for confidential information is grounds for immediate termination of all such
information.
c. REMEDY
Supplier and Distributor recognize and acknowledge that either
party would not have any adequate remedy at law for the breach of any one or
more of the covenants contained in this paragraph and agree that, in the event
of such breach, Distributor or Supplier may, in addition to the other remedies
which may be available to it, arbitrate in equity to enjoin Supplier or
Distributor from the breach of any of the terms of the Agreement.
Page -7-
<PAGE> 8
13. WARRANTIES AND REMEDIES
Products sold to Distributor are warranted only to the extent set
forth below:
a. Neither Distributor nor any other person is authorized to make
any other warranty and Distributor agrees that all of its sales of the Products
will be made in accordance with the warranty set forth below;
b. Supplier warrants that the Product delivered by it will for a
period of ninety (90) days from the date of the delivery from the Distributor to
the customer, be free of defects in material and workmanship;
c. The sole and exclusive remedy under this warranty is limited
to, at the Supplier's option, replacement of the Product for defects in material
and workmanship;
d. LIMITATION OF WARRANTY. THE WARRANTIES SET FORTH HEREIN ARE
EXPRESSLY IN LIEU OF ANY AND ALL OTHER WARRANTIES AND OBLIGATIONS EXPRESS AND
IMPLIED INCLUDING ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE;
e. Distributor expressly acknowledges that it is not entitled to
incidental or consequential damages from Supplier, except for Supplier's
intentional breach of the Agreement, and Supplier will not be liable for same.
14. ASSIGNMENT
The Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns, provided,
however, that neither party shall have the right to transfer or assign its
interest in the Agreement without the prior written authorization of the other
party, which consent shall not be unreasonably withheld; provided, however that,
either party may assign the Agreement to a person who or entity which has
acquired all or substantially all of the stock or assets of the assigning party,
upon written notification to the other party hereto.
15. ARBITRATION
Any controversy or claim arising out of or relating to the
Agreement, or its breach, shall be settled by arbitration, using one arbitrator,
in the city of the source of supply of Products in accordance with the governing
rules of the American Arbitration Association and applying Nevada law. Judgment
upon the award rendered by the arbitrator may be entered into any court of
competent jurisdiction.
16. MISCELLANEOUS
a. NOTICES
Any notice required by the Agreement shall be deemed sufficient
if sent by fax, overnight courier or certified mail, postage prepaid, to the
party to be notified at the address set forth in the initial paragraph of the
Agreement until written notice of a different address is supplied to the other
party.
Page -8-
<PAGE> 9
b. ENTIRE AGREEMENT
The Agreement is the entire agreement between the parties hereto,
there being no prior written or oral promises or representations not
incorporated herein. No terms or conditions included in Distributor's purchase
orders or other documents submitted by Distributor shall be of any effect and
shall not be applicable to the ordering or supplying of Products, the terms and
conditions in this Agreement being the only ones applicable.
c. APPLICABLE LAW
The Agreement shall be governed by the laws of the State of
Nevada.
d. AMENDMENTS
No amendments or modifications of the terms of the Agreement
shall be binding on either party unless reduced to writing and signed by an
authorized officer of both parties hereto.
e. EXISTING OBLIGATIONS
Distributor and Supplier represent and warrant that the terms of
the Agreement do not violate any existing obligations or contracts of either
party. Supplier and Distributor shall defend, indemnify and hold harmless
Supplier and Distributor from and against any and all claims, demands, actions
or causes of action which are hereafter made or brought against Distributor or
Supplier and which allege any such violation.
f. NO AGENT
Neither party by reason of the Agreement or otherwise shall be an
agent or legal representative of the other for any purpose whatsoever, and
neither has any authority, either express or implied, to obligate or act for the
other.
g. DESIGN AND DISCONTINUANCE
Supplier reserves the sole right and discretion to change the
design of or discontinue any Product and shall provide written notice to
Distributor any such changes or discontinuances.
17. COUNTERPARTS
For the convenience of the parties hereto, this Agreement may be
executed in one or more counterparts, each of which shall be deemed an original
for all purposes.
SIGNATURES ON NEXT PAGE
Page -9-
<PAGE> 10
IN WITNESS WHEREOF, the parties have by their duly authorized
officers, executed the Agreement on the 8th day of October, 1997.
"DISTRIBUTOR"
LYSONIX, INC., a Nevada corporation
By: /s/ Rick A. Hawk
------------------------------------
Its: Vice President, Sales & Marketing
"SUPPLIER"
FLOWMATRIX CORPORATION, a Nevada corporation
By: /s/ Miles Hartfeld
--------------------------------
Its: President
Page -10-
<PAGE> 11
EXHIBIT A TO DISTRIBUTION AGREEMENT
PRODUCTS AND PRICING
<TABLE>
<S> <C> <C>
LySonix, Inc. SKU#
5710-30 TopiFoam(TM) foam backed gel dressing
packaged by Supplier:
3 sheets/pack
5 packs/box
2 boxes/case
(30 count/case) Price: $5.00/sheet
5810-01 TopiFoam(TM) foam backed gel dressing
packaged by Supplier
sample sheet Price: $1.25/sheet
</TABLE>
Page -11-
<PAGE> 12
EXHIBIT B TO DISTRIBUTION AGREEMENT
STANDARD PURCHASE ORDER
NOTHING ON REVERSE
Page -12-
<PAGE> 1
MEDICAL DEVICE ALLIANCE INC.
EXHIBIT 10.23
CO-MARKETING AGREEMENT
BETWEEN
MDA CAPITAL INCORPORATED
AND
McGHAN MEDICAL CORPORATION
AND
LySONIX INCORPORATED
<PAGE> 2
CO-MARKETING AGREEMENT
This CO-MARKETING AGREEMENT (this "Agreement"), dated as of January 1,
1998, is made and by and among McGhan Medical Corporation, a California
corporation ("MMC"), LySonix, Inc., a Nevada corporation ("LySonix") and MDA
Capital, Inc., a Nevada corporation ("MDA Capital") with reference to the
following:
A. To meet competition in their respective markets, MMC and LySonix
have agreed to co-market their products to certain of their customers under
terms which will involve LySonix selling its equipment and related products
("LySonix Products") to customers who will commit to purchase a specified number
of MMC implant products ("MMC Products") over a set period of time (the
"Commitment Period").
B. Prior hereto, and pursuant to an agreement (as amended and in
effect from time to time, the "Master Agreement") between MDA Capital and
LySonix, MDA Capital has agreed to acquire from LySonix LySonix Products and
provide financing directly to purchasers of such LySonix Products ("Customer
Financing") pursuant to the terms and conditions set forth in the Master
Agreement.
C. MMC, LySonix and MDA Capital now desire to provide for certain
agreements that will permit MMC and LySonix to co-market their products with the
financial participation of MDA Capital under circumstances where each of MMC and
LySonix (or MDA Capital) will be the seller of their respective products, MDA
Capital will provide Customer Financing, and MMC will act as collecting agent
from the purchasers of MMC Products and LySonix Products, on its own behalf and
on behalf of MDA Capital, all on the terms and conditions set forth herein.
NOW THEREFORE, in consideration of the foregoing and of the mutual
agreements hereinafter set forth, the parties hereto agree as follows:
1. Definitions. The following terms shall have the respective
meanings as used in this Agreement or the Schedule or Exhibits hereto:
"Co-Marketed Products" shall mean MMC Products and LySonix Products
when co-marketed by MMC and LySonix to a customer pursuant to the terms of
this Agreement.
"Co-Marketing Funds Transfer Agreement" shall have the meaning
ascribed to such term in Section 3(b) of this Agreement.
"Commitment Period" shall have the meaning ascribed to such term in
the recitals to this Agreement.
"Customer Financing" shall have the meaning ascribed to such term in
the recitals to this Agreement.
<PAGE> 3
"Customer Financing Documents" shall mean secured transaction documents
entered into among MMC, LySonix and MDA Capital on one part and the customer for
Co-Marketed Products or another part and comprising part of the Sale Documents.
"Financing Payments" shall have the meaning ascribed to such term in
Section 3(b) of this Agreement.
"Funds Transfer Fee" shall mean the Funds Transfer Fee as described in
Section 8(a) of this Agreement.
"Gross Revenues" shall have the meaning ascribed to such term in Section
6(b) of this Agreement.
"LySonix" shall have the meaning ascribed to such term in the first
paragraph of this Agreement.
"LySonix Products" shall have the meaning ascribed to such term in the
recitals to this Agreement.
"LySonix Purchase Credit" shall have the meaning ascribed to such term in
Section 2(c) of this Agreement.
"LySonix Terms" shall have the meaning ascribed to such term in Section
2(b) of this Agreement.
"Master Agreement" shall have the meaning ascribed to such term in the
recitals to this Agreement.
"MDA Capital" shall have the meaning ascribed to such term in the first
paragraph of this Agreement and shall include any assignee of any rights or
obligations of MDA Capital hereunder.
"MMC" shall have the meaning ascribed to such term in the first paragraph
of this Agreement.
"MMC Products" shall have the meaning ascribed to such term in the
recitals to this Agreement.
"Sale Documents" shall mean all documents entered into with a customer in
connection with a sale of Co-Marketed Products.
2. Co-Marketing.
(a) MMC and LySonix shall, in order to meet competition, co-market
their respective products on the terms and conditions set forth in this
Agreement.
2
<PAGE> 4
(b) In the event MMC or LySonix determines that it is reasonably
necessary to meet competition for a customer or potential customer of MMC
Products or LySonix Products, respectively, to be offered the opportunity to
acquire LySonix Products or MMC Products, respectively, then LySonix and MMC
shall co-market LySonix Products and MMC Products, respectively, to such
customer or potential customer at the rates and on the terms set forth on
Schedule 2(b) hereto as amended and in effect from time to time (the "LySonix
Terms").
(c) MMC and LySonix shall document any transaction with a customer
using Sales Documents substantially in the form of Exhibit 2(c) hereto, such
Sale Documents to make clear that MMC is the seller of MMC Products and LySonix
(or MDA Capital) is the seller of LySonix Products to such customer. In
addition, each such purchase form shall provide that (i) payments made to MMC
for the purchase of Co-Marketed Products shall be received and accounted for by
MMC as payment for each of (A) the MMC Products purchased and sold, (B) the
LySonix Products purchased and sold and (C) applicable sales tax and (ii) a
specified amount of each such payment shall be credited to the purchase of the
LySonix Products (the "LySonix Purchase Credit").
(d) MMC and LySonix hereby covenant and agree to use their
respective best efforts in the control and distribution of their inventory to
maintain at all times a first priority allocation of their respective
inventories to supply commitments of Co-Marketed Products resulting from
transactions entered into pursuant to this Agreement.
3. Financing; Payments and Collection.
(a) In connection with the sale of Co-Marketed Products pursuant to
Section 2 of this Agreement, MDA Capital shall provide Customer Financing,
subject to (i) the purchaser of LySonix Products satisfying the credit and other
qualifications established by MDA Capital and applicable from time to time and
(ii) there not having occurred and then continuing any default by MMC or LySonix
under this Agreement or any other document or instrument executed and delivered
by LySonix or MMC pursuant to this Agreement.
(b) The terms of any Customer Financing shall be as set forth in an
addendum to this Agreement and the Master Agreement in substantially the form of
Exhibit 3(b) hereto (a "Co-Marketing Funds Transfer Agreement"). Pursuant to
the terms of such Co-Marketing Funds Transfer Agreement, (i) MDA Capital shall
acquire from LySonix the Lysonix Products specified therein, (ii) the amount of
the LySonix Purchase Credit for each payment to MMC shall be established and
(iii) MMC shall agree to receive specified amounts of the agreed payments by the
customer over the Commitment Period in consideration of the purchase and sale of
the Co-Marketed Products (A) as agent for MDA Capital for (1) payment of the
principal obligation of the customer under the Customer Financing Documents and
(2) agreed sums payable to MDA Capital under the terms of the Co-Marketing Funds
Transfer Agreement for (a) MDA Capital's services under this Agreement and the
Co-Marketing Funds Transfer Agreement and (b) taxes attributable to the sale of
the LySonix Products (collectively, the "Financing Payments") and (B) on account
of the Funds Transfer Fee. The parties agree and acknowledge that the aggregate
amount of the Financing Payments payable under clauses (iii)(A)(1) and
(iii)(A)(2) will not equal the LySonix Purchase Credit. Sums not payable to MDA
Capital,
3
<PAGE> 5
LySonix or MMC as Financing Payments or Funds Transfer Fees under clauses
(iii)(A)(1), (iii)(A)(2) and (iii)(B) above shall be the property of MMC.
(c) LySonix hereby agrees to sell to MDA Capital and MDA Capital
hereby agrees to purchase from LySonix the LySonix Products identified in each
Co-Marketing Funds Transfer Agreement in a manner and at such time as shall be
reasonably necessary to effect the sale of the Co-Marketed Products described in
such Co-Marketing Funds Transfer Agreement in accordance with this Agreement and
the LySonix Terms.
4. Appointment; Scope of Duties; and Standard of Responsibility.
(a) Appointment of Collecting Agent. MDA Capital hereby appoints
MMC as, and MMC agrees to act as, collecting agent for MDA Capital under the
Customer Financing Documents entered into pursuant to the terms of the
Co-Marketing Funds Transfer Agreements, for the account of MDA Capital and as
MDA Capital's exclusive representative and agent.
(b) Scope of Collecting Agent Duties. MMC shall receive and hold
in trust for the benefit of MDA Capital from each payment received under any
Sale Documents an amount equal to the Financing Payments due with respect to
such payment received. MMC shall separate and hold apart such amounts and shall
account to MDA Capital with respect to all amounts received as provided in
Section 6(a) of this Agreement. MMC shall transfer to MDA Capital all Financing
Payments in its possession or under its control periodically pursuant to Section
5(b).
(c) Standard of Responsibility. MMC further agrees to use all
necessary and reasonable measures and to exercise the care of a fiduciary in all
aspects of the receipt, possession and disposition of the Financing Payments.
5. Collection and Disbursement of Revenues.
(a) MMC shall collect all Gross Revenues of whatever nature from
Co-Marketed Products. In fulfilling its duties hereunder, MMC shall
(i) Deposit of Collections. Establish and maintain in a bank,
whose deposits are insured by the Federal Deposit Insurance Corporation and
which is reasonably acceptable to MDA Capital, an interest bearing account
in the name of MMC, as trustee, for the deposit of amounts equal to all
Financing Payments collected by MMC in connection with the sale of
Co-Marketed Products. MDA Capital and MMC agree and acknowledge that all
interest or other income earned on funds in such account shall be the
property of MDA Capital and shall be reported under MDA Capital's tax
identification number.
(ii) Required Transfers. From the funds deposited in such
account, MMC shall disburse Financing Payments transferable under Section
3(b) of this Agreement and the applicable Co-Marketing Funds Transfer
Agreement, plus all interest accrued in such account (in excess of any
balance required to maintain such account), for the account of MDA Capital
4
<PAGE> 6
on a monthly basis concurrent with the delivery of the report due pursuant
to Section 6(a) of this Agreement.
(b) MDA Capital shall establish and maintain with the bank
maintaining the account pursuant to Section 5(a)(i) an account to which the
transfers required pursuant to Section 5(a)(ii) may be made.
6. Financial Records and Reports. MMC shall keep and maintain accurate,
complete and separate records in connection with all sums received for the sale
of Co-Marketed Products. In fulfilling its duties, MMC shall:
(a) Monthly Statements. Prepare and deliver to MDA Capital (with a
copy of LySonix), within five business days of the end of the previous month, a
monthly statement (i) showing in detail the gross payments received in
connection with sales of Co-Marketed Products ("Gross Revenues") during such
month, (ii) indicating on which customers' and transactions' accounts such Gross
Revenues were received, (iii) identifying any delinquent accounts and (iv)
setting forth the transfers of Financing Payments for the previous month's
Gross Revenues (with copies of all payments received and transfers made if so
requested by MDA Capital).
(b) Monthly Reconciliation. Within five business days of receipt of
each monthly report delivered pursuant to Section 6(a), LySonix and MDA Capital
shall deliver to MMC a reconciliation to amounts reflected in the report
delivered pursuant to Section 6(a). Such reconciliation shall include an
identification of all delinquent accounts. To the extent any discrepancies
exist between the initial report and such reconciliation, the parties shall
meet and confer prior to the end of the month in which such reports were
delivered to agree on a final reconciliation.
(c) Records. Permit and accord MDA Capital the right to inspect,
during usual business hours or at any other reasonable time, all records
maintained in connection with the payments made in connection with sales of
Co-Marketed Products and to cause such audits as they consider appropriate to
be performed of all such accounting books and records. MMC's books and records
shall be maintained in accordance with generally accepted accounting principles
to be applied on a consistent basis. In the event that an annual audit is
requested by MDA Capital and the Gross Revenues or Financing Payments in
connection with sales of Co-Marketed Products are misstated by more than three
percent (3%) of the actual figure, all audit fees and related expenses will be
borne by MMC.
7. Taxes. Each of MMC and LySonix shall be responsible for timely
payment of all taxes and other charges due or claimed to be due from it by
federal, state or local taxing authorities (including, without limitation,
those due in respect to properties, income, franchises, licenses, sales or
payrolls) relating to the sale of their respective Co-Marketed Products. If MDA
Capital is deemed the seller of LySonix Products in a transaction subject to
tax, MDA Capital shall be responsible for the calculation and timely payment of
such tax with respect to such LySonix Products. Each party has the duty to
provide all information reasonably required by another party to file all tax
reports and tax returns required to be filed by such other party. Amounts
relating to taxes with respect to LySonix Products
5
<PAGE> 7
included in a transaction subject to a Co-Marketing Funds Transfer Agreement
shall be received and forwarded by MMC together with other Financing Payments
under Section 3(b).
8. Compensation.
(a) MMC. For services rendered pursuant to this Agreement, MMC
shall be entitled to receive from the Gross Revenues from the sale of
Co-Marketed Products a fee equal to the Funds Transfer Fee set forth in each
respective Co-Marketing Funds Transfer Agreement, such fee shall be calculated
by MMC and paid periodically by MMC to itself pursuant to this Agreement.
(b) MDA Capital. For services rendered pursuant to this
Agreement and the Co-Marketing Funds Transfer Agreements, MDA Capital shall be
entitled to receive a fee equal to the Financing Fee set forth in each
respective Co-Marketing Purchase Agreement. Such fee shall be calculated by MMC
and paid as part of the Financing Payments transfer.
9. Customer Defaults.
(a) General. In the event the monthly report delivered by MMC
pursuant to Section 6(a) or the reconciliation delivered by MDA Capital or
LySonix pursuant to Section 6(b) shall initially indicate that a customer of
Co-Marketed Products is in default under its payment or purchase obligations,
MMC's sole responsibility shall be to contact, in consultation with MDA
Capital, such customer to seek timely payments; provided, however, that if MDA
Capital has notified MMC or MDA Capital's intent to exercise MDA Capital's
enforcement or collection rights under the Customer Financing Documents with
respect to a customer, then MMC shall cease collection efforts with respect to
such client until otherwise notified by MDA Capital. In the event MMC's efforts
to contact such customer do not result in a cure of the customer's default, MDA
Capital assumes full responsibility for enforcement and collection of the
Financing Payments.
(b) Customer Equipment Payoff. In the event a customer
determines to pay off in advance of the scheduled final payment date under the
Financing Documents such customer's purchase of the LySonics Products purchased,
MDA Capital and MMC agree that from such payoff proceeds MDA Capital shall be
entitled to receive and retain an amount equal to the amount that when added to
the amounts previously received by MDA Capital on account of such LySonix
Products equals the total MMC Funds Transfer Commitment as set forth on Annex A
hereto and MMC shall be entitled to receive and retain the balance of such
payoff proceeds.
10. Term and Termination.
(a) Term. This Agreement shall be effective as of the date hereof,
and shall continue until the termination by one of the parties hereto pursuant
to the term of this Agreement. Notwithstanding termination, the obligations of
MMC with respect to the receipt, maintenance and disposition of Financing
Payments shall not cease.
(b) Termination.
6
<PAGE> 8
(i) MDA Capital reserves the right to terminate this Agreement
immediately upon written notice in the event that MMC or LySonix is in breach
of any material obligation under this Agreement or any document or instrument
executed and delivered by MMC or LySonix pursuant to this Agreement.
(ii) Each party reserves the right to terminate this Agreement,
upon [ninety (90)] days' written notice to the other parties.
11. Miscellaneous Provisions.
(a) Notices. Notices, demands and requests of any kind which either
party may be required or desire to serve upon the other hereunder shall be in
writing and signed by the party so giving notice, and shall be effective when
personally delivered or telecopied with a mailed confirming copy or 24 hours
after dispatch by Federal Express or equivalent overnight delivery service,
carriage prepaid, or 72 hours after dispatch by regular mail, postage prepaid
addressed to:
MMC:
McGhan Medical Corporation
700 Ward Drive
Santa Barbara, CA 93111
Attn: C. Scott Eschbach, Ph.D.
Facsimile: 805-967-6469
LySonix:
LySonix, Inc.
1170 Mark Avenue
Carpinteria, CA 93013
Attn: Michael Glove
Facsimile: 805-684-0170
MDA Capital:
MDA Capital, Inc.
3800 Howard Hughes Parkway, Suite 1800
Las Vegas, NV 89109
Attn: Lon McGhan
Facsimile: 702-791-3267
or to such other address as any party may from time to time designate pursuant
to this Section 11(a).
(b) Governing Law. This Agreement shall be construed in accordance
with, and governed by, the laws of the State of California applicable to
contracts made and to be performed wholly within such State, and without to the
conflicts of laws principles thereof.
7
<PAGE> 9
(c) Counterparts. This Agreement may be executed simultaneously in
two or more counterparts, each of which shall be deemed an original but all of
which taken together shall constitute one and the same instrument. In making
proof of this Agreement it shall not be necessary to produce or account for
more than one counterpart.
(d) Successors in Interest. Each and all of the covenants,
agreements, terms and provisions of this Agreement shall be binding on and
inure to the benefit of the parties hereto, and, to the extent permitted by
this Agreement, their respective successors and assigns.
(e) Integration. This Agreement, together with the MDA Capital
Master Agreement, constitutes the entire agreement among the parties pertaining
to the subject matter hereof and supersedes all prior and contemporaneous
agreements and understandings of such parties in connection herewith. This
Agreement may not be changed, terminated or discharged orally.
(f) Severability. In the event that any provisions of the Agreement
or part thereof shall be held invalid, illegal or unenforceable in any respect
by any court of competent jurisdiction, such holding shall not invalidate or
render unenforceable any other provisions or part hereof.
(g) Waivers. The failure of any party to seek redress for violation
of or to insist upon the strict performance of any covenant or condition of
this Agreement shall not prevent a subsequent act, which would have originally
constituted a violation, from having the effect of any original violation.
(h) Headings. The headings in this Agreement are inserted for
convenience and identification only and are in no way intended to describe,
interpret, define, or limit the scope, extent, or intent of this Agreement or
any provision hereof.
(i) Rights and Remedies Cumulative. The rights and remedies provided
by this Agreement are cumulative and the use of any one right or remedy by any
participant shall not preclude or waive its right to use any or all other
remedies. Said rights and remedies are given in addition to any other rights at
law or in equity.
(j) Attorney's Fees. In any action or proceeding brought by either
party hereto to enforce any provision of this Agreement or to seek damages for
a breach of any provision hereof, or where any provision hereof is successfully
asserted as a defense, the prevailing party shall be entitled to recover
reasonable attorney's fees in addition to any other available remedy.
[Signature page to follow]
8
<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have executed this Co-Marketing
Agreement upon the date first written above.
McGHAN MEDICAL CORPORATION,
a California corporation
By: /s/ [SIG]
------------------------------------
Its: PRESIDENT
--------------------------------
LYSONIX, INC.,
a Nevada corporation
By: /s/ MICHAEL F. GIAVE
------------------------------------
Its: PRESIDENT
--------------------------------
MDA CAPITAL, INC.,
a Nevada corporation
By: /s/ NIKKI MOSELEY
------------------------------------
Its: PRESIDENT
--------------------------------
9
<PAGE> 11
SCHEDULE 2(b)
LYSONIX TERMS
Sale Price: Equal to 60% of LySonix, Inc.'s transaction strike price
(stated price to customer).
<PAGE> 12
EXHIBIT 2(c)
CUSTOMER SALES FORMS
1. Breast implant and Upcharge Agreement.
2. Sales Worksheet.
<PAGE> 13
McGHAN MEDICAL / LYSONIX
BREAST IMPLANT / ULTRASONIC SURGICAL SYSTEM COLLECTION AGREEMENT
This Agreement is established between McGhan Medical Corporation ("McGhan") and
- ----------------------------------------------------------------------
Name:
- ----------------------------------------------------------------------
Address:
- ----------------------------------------------------------------------
Phone:
- ----------------------------------------------------------------------
("Physician").
Physician has purchased a Lysonix System from Lysonix, Inc. / MDA Capital, Inc.
Physician wishes to satisfy the payment for the Lysonix System by purchasing
McGhan products with an added charge.
McGhan wishes to sell breast implants with an added charge and forward on
behalf of Physician the appropriate portion of the added charge for McGhan
products purchased by Physician to satisfy the payment terms associated with
Lysonix System.
McGhan and Physician also agree to the following:
Physician agrees to:
A. Purchase from McGhan a minimum of ______ of the McGhan Medical
Style ______ Breast Implants ("Implant") within a ______ year
period, commencing on ________________ (date) and ending on
___________________ (date).
B. Purchase a minimum of ______ Implants every six months.
C. Pay a price of $______ for each Implant; such price including a
base price of $______, an added charge of $______, and an
applicable sales tax on the purchase of the Lysonix System of
$______.
McGhan agrees to:
A. Collect a payment for the Implants from Physician and forward to
MDA Capital, Inc. a payment for the Lysonix System on behalf of
Physician.
B. Periodically, notify MDA Capital, Inc. of Physician's performance
under this Agreement.
In the event Physician wishes to satisfy this Agreement by purchasing a McGhan
implant other than that defined in Physician Section A of the Agreement, McGhan
will establish a standard price for the desired implant and Physician will pay
the standard price plus the added charge and sales tax increments as specified
in Physician Section C of this Agreement.
Should the Physician fail to fulfill any obligation of this Agreement, McGhan
will notify MDA Capital, Inc. of such failure to perform. Such notification
could result in MDA Capital, Inc. enforcing the purchasing agreement terms, and
may involve removal of the Lysonix System.
Physician understands the McGhan is not responsible to make any payments to MDA
Capital, Inc., which have not been paid to McGhan by Physician under this
Agreement.
- --------------------------------------------------- ------------------------
Surgeon Signature Date
- --------------------------------------------------- ------------------------
McGhan Medical Representative Signature Date
<PAGE> 14
McGHAN MEDICAL/LYSONIX
ULTRASONIC SURGICAL SYSTEM AND BREAST IMPLANT
UPCHARGE WORKSHEET
A. Breast Implant Style _____________________________________________
B. Number of Augmentations Per Year _________________________________
C. Breast Implant Price $___________________________________________
D. Desired LySonix System ___________________________________________
(Workstation, Generator only, or Generator with Irrigator)
E. Desired Payment Period: _______________________ yr(s)
(1 or 2 years)
F. Number of Implants to be Included in Payment Plan ________________
(B times 2 Implants times E)
G. LySonix System Price $____________________________________________
H. State Tax @ ___________% = $_________________
(G x % Tax)
I. Less LySonix System Down Payment (optional) < $___________________>
J. Net LySonix System Payment Balance $______________________________
(G plus H minus I)
K. Implant Upcharge for LySonix System: $____________________________
(J divided by F)
L. Total Implant Cost including LySonix System: $____________________
(C plus K)
________________________________ _________________________________
LySonix Regional Manager McGhan Medical Regional Manager
<PAGE> 15
EXHIBIT 3(b)
FORM OF CO-MARKETING FUNDS TRANSFER AGREEMENT
McGHAN MEDICAL CORPORATION/MDA CAPITAL, INC.
This CO-MARKETING PURCHASE AGREEMENT is entered into as of the date set
forth below between MDA Capital, Inc., a Nevada corporation ("MDA Capital") and
McGhan Medical Corporation, a California corporation ("MMC") with reference to
the following facts:
WHEREAS MDA Capital, LySonix and MMC have entered into a Co-Marketing
Agreement dated as of January 1, 1998; capitalized terms used but not defined
herein shall have the respective meanings ascribed thereto in the Co-Marketing
Agreement.
WHEREAS LySonix and MMC have agreed to co-market their respective
products to the customer identified below (the "Customer") pursuant to the
terms of the Co-Marketing Agreement (the "Transaction").
WHEREAS in connection with the Transaction, LySonix and MMC have entered
into the Sale Documents identified in Annex B hereto.
WHEREAS MDA Capital has agreed to provided Customer Financing in
connection with the Transaction pursuant to the terms of this Co-Marketing
Purchase Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
representations, covenants and agreements of the parties contained herein, the
parties agree as follows:
1. Purchase; Financing. MDA Capital is concurrently herewith
purchasing from LySonix and LySonix is concurrently transferring and conveying
to MDA Capital the equipment identified in the Sale Documents in consideration
of the payment by MDA Capital to LySonix of the purchase price set forth in an
invoice being concurrently delivered by LySonix to MDA Capital. MDA Capital
hereby agrees to provide financing to the Customer pursuant to the Customer
Financing Documents identified in Annex C hereto. MDA Capital interest rate
charged will be the higher of 10%, or the Prime Rate plus 1-1/2% annual simple
interest.
2. Payment and Collection of Gross Revenues and Financing Payments.
(a) The parties agree that MMC shall act as collecting agent with
respect to all Gross Revenues to be received in connection with the
Transaction and all Financing Payments to be included therein, which
Financing Payments shall be received, held and disposed of in accordance
with the Co-Marketing Agreement.
(b) The parties agree that the schedule included in Annex A hereto of
the (i) Customer, (ii) Purchase Price, (iii) Gross Revenues, (iv) Commitment
Period, (v) Financing Payments, (vi) Financing Fee, (vii) LySonix Purchase
Credit and (viii) MMC Sales Fee, the MMC
<PAGE> 16
Sales Fee accurately sets forth the terms of the transaction between the
parties hereto as contemplated hereby and by the Co-Marketing Agreement
with respect to the Transaction.
IN WITNESS WHEREOF, the parties hereto have executed this
Co-Marketing Purchasing Agreement as of the date set forth above.
McGHAN MEDICAL CORPORATION,
a California corporation
By:
-------------------------------------
Its:
---------------------------------
MDA CAPITAL, INC.,
a Nevada corporation
By:
-------------------------------------
Its:
---------------------------------
2
<PAGE> 17
ANNEX A
TO CO-MARKETING FUNDS TRANSFER AGREEMENT
Terms of Financing and Payments
-------------------------------
<TABLE>
<S> <C>
A. Date:
B. Transaction Reference:
C. Customer:
D. Equipment:
E. MMC Style No.: Style No.______
F. Equipment Gross Price: $_______
G. Sales Tax (%/Total): _______%/______
H. Equipment Price to Customer: $_______
I. Less LySonix Agreed Discount Percent (%): _______%
J. MDA Capital/MMC Discounted Price: $_______
K. MDA Capital Financing Fee:
1. Total: $_______
2. Per Unit (K-1/L.1.a): $_______
L. Commitment Period:
1. MMC Implant Commitment (a. Units/b. Price/c. Price + a._______/b. $_______/
Tax/d. Period): c. $_______/d. _______
2. Periodic Commitment (a. Units/b. Period): a._______/b._______
M. LySonix Purchase Credit (Applicable Upcharge) (H/L.1.a): $_______
N. MMC Funds Transfer Commitment:
1. Total (G + J + K1): $_______
2. Unit (N/L.1.a): $_______
O. MMC Funds Transfer Fee:
1. Unit (M-N.2): $_______
2. Total (O.1 x L.1.a): $_______
</TABLE>
<PAGE> 1
EXHIBIT 10.24
DEBT CONVERSION AGREEMENT
among
INTERNATIONAL INTEGRATED INDUSTRIES, L.L.C.,
a Nevada limited liability company,
MEDICAL DEVICE ALLIANCE INC.
a Nevada Corporation
and
MCMARK LIMITED PARTNERSHIP,
a Nevada limited partnership
---------------------------
Effective as of July 8, 1998
---------------------------
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED, QUALIFIED, APPROVED OR
DISAPPROVED UNDER ANY FEDERAL OR STATE SECURITIES LAWS, NOR HAS THE UNITED
STATES SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION") OR ANY OTHER
FEDERAL OR STATE REGULATORY AUTHORITY RECOMMENDED THE SECURITIES, PASSED ON OR
ENDORSED THE MERITS OF THIS OFFERING OR CONFIRMED THE ACCURACY OR DETERMINED THE
ADEQUACY OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE. THE SECURITIES MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED,
HYPOTHECATED OR OTHERWISE TRANSFERRED BY AN INVESTOR UNLESS THE SECURITIES ARE
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") AND, WHERE
REQUIRED, UNDER THE LAWS OF OTHER JURISDICTIONS, UNLESS AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE ACT AND SUCH LAWS IS AVAILABLE.
<PAGE> 2
DEBT CONVERSION AGREEMENT
This DEBT CONVERSION AGREEMENT (this "Agreement") is effective as of
July 8, 1998, by Medical Device Alliance Inc., a Nevada corporation (the
"Purchaser"), and International Integrated Industries, L.L.C., a Nevada limited
liability company (the "Seller"), and McMark Limited Partnership, a Nevada
limited partnership (the "Partnership").
RECITALS
WHEREAS, the Seller is obligated, under the terms of that certain
Revolving Promissory Note (the "Note") made by the Seller in favor of the
Purchaser, to repay the Purchaser principle and interest for certain loans made
by the Purchaser to the Seller between April 1997 and July 1998;
WHEREAS, the Partnership is the owner of that certain real property
located at 1170 Mark Avenue, Carpinteria, California 93013 (the "Property")
which is currently occupied by the Purchaser's principal operating subsidiary,
LySonix Incorporated;
WHEREAS, the current outstanding principal of the Note at July 8, 1998,
was $8,315,201.82 and the accrued interest on the principal amount of the Note
at July 8, 1998, was $84,665.11;
WHEREAS, the Seller, the Partnership and the Purchaser have determined
that it is desirable to restructure and satisfy the Seller's payment obligations
under the Note through (i) the transfer of 860,000 fully paid and nonassessable
shares of Common Stock of Inamed Corporation, a Florida corporation (the
"Issuer"), held by or issuable to the Seller (the "Common Stock"), and (ii)
transfer of the Partnership's right, title and interest in and to the Property
(the "Debt Conversion"); and
WHEREAS, the Purchaser has determined that approval of the Debt
Conversion in cancellation of all of the Seller's obligations under the Note is
in the best interest of the Purchaser and its shareholders:
NOW, THEREFORE, in consideration of their respective promises contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Purchaser, the Partnership and the Seller,
intending to be legally bound, hereby agree as follows:
AGREEMENT
SECTION 1. DEBT CONVERSION
1.01 SATISFACTION AND CANCELLATION OF DEBT. The repayment obligation of
the Seller under the terms of the Note consisting of outstanding principal of
Eight Million Three Hundred Fifteen Thousand Two Hundred One Dollars and
Eighty-Two Cents ($8,315,201.82) and the
<PAGE> 3
accrued interest of Eighty-Four Thousand Six Hundred Sixty-Five Dollars and
Eleven Cents ($84,665.11) (collectively, the "Debt"), shall be fully satisfied,
and the Note canceled, by (i) the Seller's transfer to the Purchaser of the
Common Stock and warrants pursuant to Section 1.02 and (ii) the Partnership's
transfer to the Purchaser of the Property pursuant to Section 1.03 of this
Agreement.
1.02 PURCHASE AND SALE OF SHARES The Seller agrees to sell to the
Purchaser, and the Purchaser agrees to purchase from the Seller, all of the
right, title, and interest of the Seller in and to the 860,000 shares of Common
Stock at a price of $7.5625 per share, on the Effective Date (as defined below),
on the terms and subject to the conditions set forth herein. Seller agrees to
assign warrants to purchase 260,000 shares of Issuer's Common Stock at $12.40
per share, subject to the terms and conditions of Issuer's Warrant Agreement
(the "Warrants").
(a) PURCHASE PRICE. The aggregate purchase price for the
Common Stock is Six Million Five Hundred Three Thousand Seven Hundred Fifty
Dollars ($6,503,750) (the "Shares Purchase Price"), payable on the Effective
Date in the manner provided in Section 1.02(b).
(b) PAYMENT OF PURCHASE PRICE. On the Effective Date, the
Seller shall assign and transfer to the Purchaser (or cause to be issued to the
Purchaser) all of the Seller's right, title and interest in and to the Common
Stock by delivering to the Purchaser a certificate or certificates representing
the Common Stock, in genuine and unaltered form, issued in the Purchaser's name
or duly endorsed in blank or accompanied by duly executed stock powers endorsed
in blank, with requisite stock transfer tax stamps, if any, attached. With
respect to 200,000 shares of such Common stock which is subject to a pledge in
favor of Inamed Corporation, such shares shall be subject to such pledge and
delivery thereof shall be effected at such time as such pledge is terminated.
The Purchaser agrees and acknowledges that upon such transfer, the Six Million
Five Hundred Three Thousand Seven Hundred Fifty Dollars ($6,503,750) of the Debt
under the Note shall be paid. On the Effective Date, the Purchaser shall make a
notation on the Note reflecting such payment under the Note.
1.03 PURCHASE AND SALE OF REAL ESTATE. The Partnership agrees to sell
to the Purchaser, and the Purchaser agrees to purchase from the Seller, all of
the right, title, and interest of the Partnership in and to the Property, on the
Effective Date, on the terms and subject to the conditions set forth herein.
(a) PURCHASE PRICE. The purchase price for the Property is One
Million Eight Hundred Ninety-Six Thousand One Hundred Sixteen Dollars and
Ninety-Three Cents ($1,896,116.93) (the "Property Purchase Price"), which the
parties acknowledge as fair market value, payable as soon as practicable
following the Effective Date in the manner provided in Section 1.03(b).
(b) PAYMENT OF PURCHASE PRICE. As soon as practicable
following the Effective Date, the Partnership shall assign and transfer to the
Purchaser all of the Partnership's right, title and interest in and to the
Property. Upon receipt by the Partnership and the Purchaser of the consent to
such transfer by the holder of the first trust deed encumbering the Property
(the
2
<PAGE> 4
"Consent") the Partnership shall deliver to the Purchaser a grant deed relating
to the property. The Purchaser agrees and acknowledges that upon such transfer
of the Partnership's right, title and interest in and to the property another
One Million Eight Hundred Ninety-Six Thousand One Hundred Sixteen Dollars and
Ninety-Three Cents ($1,896,116.93) of the Debt shall be paid. Upon the
effectiveness of such transfer, the Purchaser shall deliver to the Seller the
original of the Note and such other evidence of satisfaction of the Debt as the
Seller shall reasonably request.
1.04 EFFECTIVE DATE. The consummation of the transactions contemplated
by Sections 1.02 and 1.03 of this Agreement (the "Effective Date") is now agreed
to have taken place on July 8, 1998.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE SELLER
The Seller represents and warrants to the Purchaser that:
2.01 DUE ORGANIZATION; AUTHORIZATION.
(a) The Seller is a limited liability corporation duly
organized, validly existing and in good standing under the laws of the State of
Nevada with full corporate power and authority to (i) conduct its business in
the manner in which it is now being conducted, (ii) own and use its assets in
the manner in which its assets are now being owned and used and (iii) execute
and deliver this Agreement.
(b) All action on the part of the Seller, its members and
managers necessary for the authorization, execution and delivery of this
Agreement has been taken by the Seller. This Agreement constitutes valid and
legally binding obligations of the Seller, enforceable in accordance with its
terms, except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditor's rights generally and (ii) as limited by laws relating
to the availability of specific performance, injunctive relief or other
equitable remedies.
2.02 TITLE TO ASSETS. The Seller owns, and has good and valid title to,
or the right to have title to, all assets purported to be owned by it, including
the Common Stock and Warrants. All of said assets are owned by the Seller free
and clear of any liens or other encumbrances, except for (i) any lien for
current taxes not yet due and payable and (ii) minor liens that have arisen in
the ordinary course of business and that do not (in any case or in the
aggregate) materially detract from the value of the assets subject thereto or
materially impair the operations of the Seller.
2.03 NO CONFLICT. The execution or the delivery by the Seller of this
Agreement or the performance by the Seller of its obligations hereunder or the
consummation of the transactions contemplated hereby will not (A) conflict with
or result in any violation or constitute a default under the governing
instruments of the Seller or any agreement, mortgage, indenture, franchise,
license, permit, authorization, lease or other instrument, or any judgment,
decree, order, law or regulation by which the Seller or any of its properties or
assets is bound, or (B) result in the
3
<PAGE> 5
creation or imposition of any lien, security interest, charge, encumbrance,
restriction or claim of any nature upon, or give to others any interest or
right, including any right of termination or cancellation, in or with respect
to, or otherwise adversely affect, any property, asset or business of the
Seller, or (C) require the Seller to obtain or make any consent, authorization,
approval, registration, declaration or filing under any statute, law, ordinance,
regulation, rule, judgment, decree or order of any court of any governmental
agency, board, bureau, body, department or authority of any United States or
foreign jurisdiction, except those which have been completed at the date of this
Agreement, or (D) conflict with any other restriction of any kind or character
to which the Seller is subject or to which any of its properties is bound.
2.04 COMPLIANCE WITH OTHER INSTRUMENTS. The Seller is not in violation
or in default in any material respect of any provision of any mortgage,
indenture, agreement, instrument or contract to which it is a party or by which
it is bound, or, to the best of its knowledge, of any federal or state judgment,
order, writ, decree, statute, rule or regulation applicable to the Seller. The
execution, delivery and performance by the Seller of this Agreement, and the
consummation of the transaction contemplated hereby, will not result in any such
violation or be in material conflict with or constitute, with or without the
passage of time or giving of notice, either a material default under any such
provision or an event that results in the creation of any material lien, charge,
or encumbrance upon any assets of the Seller or the suspension, revocation,
impairment, forfeiture or non-renewal of any material permit, license,
authorization or approval applicable to the Seller, its business or operations,
or any of its assets or properties.
2.05 FULL DISCLOSURE. This Agreement does not (i) contain any
representation, warranty or information that is false or misleading with respect
to any material fact or (ii) omit to state any material fact necessary in order
to make the representations, warranties and information contained and to be
contained herein and therein not false or misleading.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE PARTNERSHIP
The Partnership represents and warrants to the Purchaser that:
3.01 DUE ORGANIZATION; AUTHORIZATION.
(a) The Partnership is a limited partnership duly organized,
validly existing and in good standing under the laws of the State of Nevada with
full power and authority to (i) conduct its business in the manner in which it
is now being conducted, (ii) own and use its assets in the manner in which its
assets are now being owned and used and (iii) execute and deliver this
Agreement.
(b) All action on the part of the Partnership and its partners
necessary for the authorization, execution and delivery of this Agreement has
been taken by the Partnership. This Agreement constitutes valid and legally
binding obligations of the Partnership, enforceable in accordance with its
terms, except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditor's rights generally and (ii) as limited by laws relating
to the availability of specific performance, injunctive relief or other
equitable remedies.
4
<PAGE> 6
3.02 TITLE TO ASSETS. The Partnership owns, and has good and valid
title to, all assets purported to be owned by it, including the Property. All of
said assets are owned by the Partnership free and clear of any liens or other
encumbrances, except for (i) the lien in favor of the holder of the first trust
deed against the Property, (ii) any lien for current taxes not yet due and
payable and (iii) minor liens that have arisen in the ordinary course of
business and that do not (in any case or in the aggregate) materially detract
from the value of the assets subject thereto or materially impair the operations
of the Partnership.
3.03 NO CONFLICT. The execution or the delivery by the Partnership of
this Agreement or the performance by the Partnership of its obligations
hereunder or the consummation of the transactions contemplated hereby will not
(A) conflict with or result in any violation or constitute a default under the
governing instruments of the Partnership or, following the Consent, any
agreement, mortgage, indenture, franchise, license, permit, authorization, lease
or other instrument, or any judgment, decree, order, law or regulation by which
the Partnership or any of its properties or assets is bound, or (B) following
the Consent, result in the creation or imposition of any lien, security
interest, charge, encumbrance, restriction or claim of any nature upon, or give
to others any interest or right, including any right of termination or
cancellation, in or with respect to, or otherwise adversely affect, any
property, asset or business of the Partnership, or (C) other than the Consent
and the recording of a grant deed, require the Partnership to obtain or make any
consent, authorization, approval, registration, declaration or filing under any
statute, law, ordinance, regulation, rule, judgment, decree or order of any
court of any governmental agency, board, bureau, body, department or authority
of any United States or foreign jurisdiction, except those which have been
completed at the date of this Agreement, or (D) following the Consent, conflict
with any other restriction of any kind or character to which the Partnership is
subject or to which any of its properties is bound.
3.04 COMPLIANCE WITH OTHER INSTRUMENTS. The Partnership is not in
violation or in default in any material respect of any provision of any
mortgage, indenture, agreement, instrument or contract to which it is a party or
by which it is bound, or, to the best of its knowledge, of any federal or state
judgment, order, writ, decree, statute, rule or regulation applicable to the
Partnership. Following the Consent to which this Agreement is subject, the
execution, delivery and performance by the Partnership of this Agreement, and
the consummation of the transaction contemplated hereby, will not result in any
such violation or be in material conflict with or constitute, with or without
the passage of time or giving of notice, either a material default under any
such provision or an event that results in the creation of any material lien,
charge, or encumbrance upon any assets of the Partnership or the suspension,
revocation, impairment, forfeiture, or non-renewal of any material permit,
license, authorization, or approval applicable to the Partnership, its business,
or operations, or any of its assets or properties.
3.05 FULL DISCLOSURE. This Agreement does not (i) contain any
representation, warranty or information that is false or misleading with respect
to any material fact or (ii) omit to state any material fact necessary in order
to make the representations, warranties and information contained and to be
contained herein and therein not false or misleading.
5
<PAGE> 7
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser represents and warrants to the Seller that:
4.01 DUE ORGANIZATION; AUTHORIZATION.
(a) The Purchaser is a corporation duly organized, validly
existing and in good standing under the laws of the State of Nevada with full
corporate power and authority to (i) conduct its business in the manner in which
it is now being conducted, (ii) own and use its assets in the manner in which
its assets are now being owned and used and (iii) execute and deliver this
Agreement.
(b) All corporate action on the part of the Purchaser, its
officers, directors and shareholders necessary for the authorization, execution
and delivery of this Agreement has been taken by the Purchaser. This Agreement
constitutes valid and legally binding obligations of the Purchaser, enforceable
in accordance with its terms, except (i) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium and other laws of general application
affecting enforcement of creditor's rights generally and (ii) as limited by laws
relating to the availability of specific performance, injunctive relief or other
equitable remedies.
4.02 DISTRIBUTION. The Purchaser is not acquiring the Common Stock with
a view to the distribution or sale of the Common Stock in violation of the
Securities Act of 1933, as amended (the "Securities Act"), subject, however, to
any requirement of law that the disposition of its property be at all times
within its control.
4.03 TRANSFER OF COMMON STOCK. The Purchaser will not sell, assign or
transfer all or any part of the Common Stock acquired by them unless the
Purchaser shall have furnished to the Issuer, if reasonably requested to do so,
either (i) an opinion, reasonably satisfactory to counsel for the Issuer, to the
effect that the proposed sale or transfer may be made without registration under
the Securities Act, or (ii) an interpretive letter from the Securities and
Exchange Commission to the effect that no enforcement action will be recommended
if the proposed sale or transfer is made without registration under the
Securities Act, in either case accompanied by evidence reasonably satisfactory
to the Issuer that such transfer will be in compliance with applicable state
securities laws; provided, however, that the foregoing conditions shall not
apply with respect to any transfer pursuant to an effective registration
statement under the Securities Act, or with respect to any repurchase of the
Common Stock by Seller.
Upon the assignment or transfer by the Purchaser of all or any part of
the Common Stock or its interest therein pursuant to this Section 4.03, the term
"Purchaser" as used herein shall thereafter include, to the extent of the
interest so assigned or transferred, the assignee or transferee of such
interest; provided, however, that the foregoing shall not apply with respect to
any transfer pursuant to an effective registration statement under the
Securities Act or pursuant to Section 4(1) of the Securities Act.
Purchaser also agrees that, until June 17, 2003, Purchaser, without the
consent of the Issuer's Board of Directors, 1) will not participate in or
otherwise support in any manner any
6
<PAGE> 8
proxy contest on any issue submitted to a vote or consent of stockholders; 2)
not commence a tender offer for any shares of the Issuer's common stock, or
otherwise make any proposal for a business combination, recapitalization or
other similar transaction, or other major corporate transaction involving the
Issuer; 3) not transfer any of the shares of Common Stock beneficially owned in
one or a series of transactions in a manner which would result in the
acquiror(s) owning 5% or more of the outstanding common stock of the Issuer,
except (a) transfers by will or the laws of descent and distribution, or (b)
transfers to Seller, provided that in both such instances the transferees would
continue to be bound by this Section 5; 4) vote all of the shares of Common
Stock owned (including shares which may be acquired after today) in proportion
to the votes (or abstentions) of all other shareholders on any matter submitted
to a vote or consent of stockholders, except for a vote to any proposed business
combination, recapitalization or other similar transaction, in which case
Purchaser may vote the shares; 5) not join in any "group" or otherwise take any
action, directly or indirectly, which may contravene the purposes or intentions
of this Section 5.
4.04 ACCREDITED INVESTOR. The Purchaser is an "accredited investor"
within the meaning of Regulation D under the Securities Act, and is acquiring
the Common Stock for investment for its own account, and not with a view to
distribution subject, nevertheless, to any requirement of law that the
disposition of their property shall at all times be within their control. The
Purchaser has such knowledge and experience in financial and business matters
that it is capable of evaluating the merits and risks of purchasing the Common
Stock. The Purchaser is aware that it may be required to bear the economic risk
of an investment in the Common Stock for an indefinite period. The Purchaser
acknowledges that the Common Stock being acquired by it is not being registered
under the Securities Act on the grounds that the issuance of such securities is
exempt from registration under Section 4(2) of the Securities Act as not
involving any public offering.
4.05 LEGAL COMPLIANCE. The purchase of the Common Stock by the
Purchaser will not violate in any material respect any present law, rule or
regulation binding upon the Purchaser so as to have a material adverse effect on
the Issuer; provided, that in the event the foregoing representation is
incorrect, the Purchaser shall take such reasonable action within the
Purchaser's power as may be reasonably necessary to comply in all material
respects with such laws, rules and regulations; and neither the Issuer nor any
other person shall have any other right, claim or remedy against the Purchaser
as a result thereof.
4.06 PRIVATE PLACEMENT; LEGENDS. The Purchaser acknowledges, and
agrees, that the Common Stock has not been registered under the Securities Act.
Unless counsel to the Issuer shall have advised the Issuer that such legend is
no longer needed, each certificate evidencing the Common Stock shall bear a
legend in substantially the following form:
The securities represented by this certificate have not been registered
pursuant to the Securities Act of 1933, as amended (the "Act"), or any
state securities law, and such securities may not be sold, transferred
or otherwise disposed of unless the same are registered and qualified
in accordance with the Act and any
7
<PAGE> 9
applicable state securities laws, or in the opinion of counsel
reasonably satisfactory to the Company such registration and
qualification are not required.
SECTION 5. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE PURCHASER
The obligations of the Purchaser to consummate the transactions
contemplated by this Agreement are subject to the satisfaction, at or prior to
the Effective Date and on the date of transfer of the Property of each of the
following conditions:
5.01 ACCURACY OF REPRESENTATIONS. The representations and warranties
made by the Seller and the Partnership in this Agreement and in each of the
other agreements and instruments delivered to Purchaser in connection with the
transactions contemplated by this Agreement shall have been accurate in all
material respects as of the date of this Agreement, and shall be accurate in all
material respects as of the Effective Date and the date of the transfer of the
Property as if made on such respective date, except as to matters previously
approved by the Purchaser in writing.
5.02 NO MATERIAL ADVERSE EFFECT. Since the date of this Agreement,
there shall not have occurred any change or development, or any combination of
changes or developments, that would reasonably be expected to have a material
adverse effect the Seller's or the Partnership's ability to perform its
respective obligations under this Agreement or on this Property.
SECTION 6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLER AND THE PARTNERSHIP
6.01 CONDITIONS TO THE EFFECTIVE DATE. The obligations of the Seller
and the Partnership to consummate the transactions contemplated by this
Agreement are subject to the satisfaction, at or prior to the Effective Date and
on the date of the transfer of the Property, of each of the following
conditions:
(a) The representations and warranties made by the Purchaser in this
Agreement and in each of the other agreements and instruments delivered by the
Purchaser in connection with the transactions contemplated by this Agreement
shall have been accurate in all material respects as of the date of this
Agreement, and shall be accurate in all material respects as of the Effective
Date and the date of the transfer of the Property as if made on such respective
date, except as to matters previously approved by the Seller and the Partnership
in writing.
(b) Since the date of this Agreement, there shall not have occurred any
change or development, or any combination of changes or developments, that would
reasonably be expected to have a material adverse effect on the Purchaser's
ability to perform its obligations under this Agreement.
6.02 CONDITIONS TO TRANSFER OF PROPERTY. The issuance of a grant deed
evidencing the transfer of the Property shall be conditioned upon and subject to
the receipt of the Consent (see 1.03 (b)).
8
<PAGE> 10
SECTION 7. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION
7.01 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties made by the parties hereto shall survive the Effective Date and
shall expire on the first (1st) anniversary of the Effective Date (the
"Expiration Date"), provided, however, that to the extent that a claim for
indemnification by the Purchaser has been asserted against the Seller or the
Partnership, or by the Partnership or the Seller against the Purchaser, for an
alleged inaccuracy in or breach of said representations and warranties, such
claim shall survive the Expiration Date until such date as such claim is fully
and finally resolved.
7.02 INDEMNIFICATION BY THE SELLER AND THE PARTNERSHIP. The Seller and
the Partnership, severally and not jointly, shall hold harmless and indemnify
the Purchaser from and against, and shall compensate and reimburse the Purchaser
for any damages which are directly or indirectly suffered or incurred by the
Purchaser or to which the Purchaser may otherwise become and which arise from or
as a result of, or are directly or indirectly connected with any inaccuracy in
or breach of any representation or warranty made by the Seller or the
Partnership, respectively, contained in this Agreement or contained in any other
document or instrument delivered by the Seller or the Partnership, respectively,
to the Purchaser.
7.03 INDEMNIFICATION BY THE PURCHASER. The Purchaser shall hold
harmless and indemnify the Seller and the Partnership from and against, and
shall compensate and reimburse the Seller and the Partnership for any damages
which are directly or indirectly suffered or incurred by the Seller or the
Partnership or to which the Seller or the Partnership may otherwise become and
which arise from or as a result of, or are directly or indirectly connected with
any inaccuracy in or breach of any representation or warranty made by the
Purchaser contained in this Agreement or contained in any other document or
instrument delivered by the Purchaser to the Seller.
SECTION 8. ARBITRATION
8.01 ARBITRATION. Any action to enforce or interpret this Agreement or
to resolve disputes between the parties hereto or by or against any party hereto
shall be settled by arbitration in accordance with the rules of the American
Arbitration Association. Such demand shall set forth the nature of the matter to
be resolved by arbitration. The Arbitration shall be conducted by one arbitrator
in Las Vegas, Nevada. The prevailing party shall be entitled to reimbursement of
attorney fees, costs and expenses incurred in connection with the arbitration
including the costs of the arbitrator. All decisions of the arbitrator shall be
final, binding and conclusive on all parties. Judgment may be entered upon any
such decision in accordance with applicable law in any court having jurisdiction
thereof.
SECTION 9. MISCELLANEOUS PROVISIONS
9.01 FURTHER ASSURANCES. Each party hereto shall execute and cause to
be delivered to each other party hereto such instruments and other documents,
and shall take such other
9
<PAGE> 11
actions, as such other party may reasonably request prior to, at or after the
Effective Date for the purpose of carrying out or evidencing any of the
transactions contemplated by this Agreement.
9.02 ATTORNEYS' FEES. If any action at law or suit in equity to enforce
this Agreement or the rights of any of the parties hereunder is brought against
any party hereto, the prevailing party shall be entitled to recover reasonable
attorneys' fees, costs and disbursements, in addition to any other relief to
which the prevailing party may be entitled.
9.03 NOTICES. Any notice or other communication required or permitted
to be delivered to any party under this Agreement shall be in writing to the
address or facsimile telephone number set forth beneath the name of such party
below (or to such other address or facsimile telephone number as such party
shall have specified in a written notice given to the other parties hereto):
if to the Purchaser:
Medical Device Alliance Inc.
3800 Howard Hughes Parkway, Suite 1800
Las Vegas, NV 89109
Telephone: 702-791-2910
Facsimile: 702-791-5365
if to the Seller:
International Integrated Industries, L.L.C.
3800 Howard Hughes Parkway, Suite 1800
Las Vegas, NV 89109
Telephone: 702-791-2519
Facsimile: 702-791-3253
if to the Partnership:
McMark Limited Partnership
4432 S. Rainbow, Suite 457
Las Vegas, NV 89103
Telephone: 702-791-2519
Facsimile: 702-791-3253
10
<PAGE> 12
9.04 GOVERNING LAW. This Agreement shall be construed in accordance
with, and governed in all respects by, the internal laws of the State of Nevada
(without giving effect to principles of conflicts of laws).
9.05 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
shall be enforceable by and inure solely to the benefit of, the parties hereto
and their successors and assigns; provided, however, that this Agreement may not
be assigned by any party without the written consent of the other parties, and
any attempted assignment without such consent shall be void and of no effect.
None of the provisions of this Agreement are intended to provide any rights or
remedies to any person other than the parties hereto and their respective
successors and assigns (if any).
9.06 REMEDIES CUMULATIVE; SPECIFIC PERFORMANCE. The rights and remedies
of the parties hereto shall be cumulative (and not alternative). The parties to
this Agreement agree that, in the event of any breach or threatened breach by
any party to this Agreement of any covenant, obligation or other provision set
forth in this Agreement for the benefit of any other party to this Agreement,
such other party shall be entitled (in addition to any other remedy that may be
available to it) to (a) a decree or order of specific performance or mandamus to
enforce the observance and performance of such covenant, obligation or other
provision, and (b) an injunction restraining such breach or threatened breach.
9.07 WAIVER.
(a) No failure on the part of any person to exercise any
power, right, privilege or remedy under this Agreement, and no delay on the part
of any person in exercising any power, right, privilege or remedy under this
Agreement, shall operate as a waiver of such power, right, privilege or remedy;
and no single or partial exercise of any such power, right, privilege or remedy
shall preclude any other or further exercise thereof or of any other power,
right, privilege or remedy.
(b) No person shall be deemed to have waived any claim arising
out of this Agreement, or any power, right, privilege or remedy under this
Agreement, unless the waiver of such claim, power, right, privilege or remedy is
expressly set forth in a written instrument duly executed and delivered on
behalf of such person; and any such waiver shall not be applicable or have any
effect except in the specific instance in which it is given.
9.08 AMENDMENTS. This Agreement may not be amended, modified, altered
or supplemented other than by means of a written instrument duly executed and
delivered on behalf of all of the parties hereto.
9.09 SEVERABILITY. In the event that any provision of this Agreement,
or the application of any such provision to any person or set of circumstances,
shall be determined to be invalid, unlawful, void or unenforceable to any
extent, the remainder of this Agreement, and the application of such provision
to persons or circumstances other than those as to which it is determined to be
invalid, unlawful, void or unenforceable, shall not be impaired or otherwise
affected and shall continue to be valid and enforceable to the fullest extent
permitted by law.
11
<PAGE> 13
9.10 ENTIRE AGREEMENT. This Agreement and the other agreements referred
to herein set forth the entire understanding of the parties hereto relating to
the subject matter hereof and, supersede all prior and contemporaneous
agreements and understandings among or between any of the parties relating to
the subject matter hereof.
9.11 CONSTRUCTION.
(a) For purposes of this Agreement, whenever the context
requires: the singular number shall include the plural, and vice versa; the
masculine gender shall include the feminine and neuter genders; the feminine
gender shall include the masculine and neuter genders; and the neuter gender
shall include the masculine and feminine genders.
(b) The parties hereto agree that any rule of construction to
the effect that ambiguities are to be resolved against the drafting party shall
not be applied in the construction or interpretation of this Agreement.
(c) As used in this Agreement, the words "include" and
"including," and variations thereof, shall not be deemed to be terms of
limitation, but rather shall be deemed to be followed by the words "without
limitation."
(d) Except as otherwise indicated, all references in this
Agreement to "Sections" are intended to refer to numbered sections of this
Agreement.
9.12 HEADINGS. The bold-faced section headings contained in this
Agreement are for convenience of reference only, shall not be deemed to be a
part of this Agreement and shall not be referred to in connection with the
construction or interpretation of this Agreement.
9.13 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall constitute an original and all of which, when
taken together, shall constitute one and the same instrument. Signatures may be
exchanged by telecopy, with original signatures to follow. Each of the parties
hereto agrees that it will be bound by its own telecopied signature and that it
accepts the telecopied signatures of the other parties to this Agreement. The
original signature pages shall be forwarded to the Purchaser or its counsel and
the Purchaser and its counsel will provide all of the parties hereto with a copy
of the entire Agreement.
12
<PAGE> 14
IN WITNESS WHEREOF, the undersigned have made and entered into this Debt
Conversion Agreement, executed on October 15, 1998.
<TABLE>
<CAPTION>
MEDICAL DEVICE ALLIANCE INC.,
a Nevada corporation
<S> <C>
By: /s/ Charles E. Barrantes
--------------------------------------------------
Name: Charles E. Barrantes
------------------------------------------------
Title: Vice President and Chief Financial Officer
-----------------------------------------------
INTERNATIONAL INTEGRATED INDUSTRIES, L.L.C.
a Nevada limited liability company
By: /s/ Donald K. McGhan
-------------------------------------
Name: Donald K. McGhan
-----------------------------------
Title: Managing Member
----------------------------------
MCMARK LIMITED PARTNERSHIP,
a Nevada limited partnership
By: McGhan Management Corporation
-------------------------------------
Title: General Partner
----------------------------------
By: /s/ Donald K. McGhan
-------------------------------------
Title: President and Chairman
----------------------------------
</TABLE>
13
<PAGE> 1
MEDICAL DEVICE ALLIANCE INC.
EXHIBIT 10.25
AGREEMENT
AND
PLAN OF MERGER
AMONG
MEDICAL DEVICE ALLIANCE INC.;
PX ACQUISTION CORP.;
AND
PARALLAX MEDICAL, INC.
<PAGE> 2
EXECUTION ORIGINAL
AGREEMENT AND PLAN OF MERGER
among:
MEDICAL DEVICE ALLIANCE, INC.,
a Nevada corporation;
PX ACQUISITION CORP.,
a Delaware corporation;
and
PARALLAX MEDICAL, INC.,
a Delaware corporation.
---------------------------
Dated as of August 10, 1998
---------------------------
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
SECTION 1
CERTAIN DEFINITIONS.................................................................. 1
SECTION 2................................................................................. 7
2.1 Merger of the Company into Merger Sub; Company Action.......................... 7
2.2 Effect of Merger............................................................... 8
2.3 Closing; Effective Date........................................................ 8
2.4 Certificate of Incorporation and Bylaws; Directors and Officers................ 8
2.5 Conversion of Shares; Issuance of Contingent Stock; Treatment of Options....... 8
2.6 Closing of the Company's Transfer Books........................................ 10
2.7 Exchange of Certificates....................................................... 10
(a) Exchange Procedures...................................................... 10
(b) Fractional Shares........................................................ 10
(c) Legends.................................................................. 11
(d) No Liability............................................................. 11
2.8 Tax Consequences............................................................... 11
2.9 Dissenting Shares.............................................................. 11
2.10 Further Action................................................................. 11
2.11 Company Stockholders' Indemnity Shares......................................... 12
SECTION 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY......................................... 12
3.1 Due Organization; No Subsidiaries, Etc.......................................... 12
3.2 Certificate of Incorporation and Bylaws; Records................................ 12
3.3 Capitalization.................................................................. 13
3.4 Financial Statements............................................................ 13
3.5 Absence of Changes.............................................................. 14
3.6 Title to Assets................................................................. 15
3.7 Accounts Receivable; Loans and Advances......................................... 16
3.8 Equipment; Real Property........................................................ 16
3.9 Proprietary Assets.............................................................. 16
3.10 Contracts...................................................................... 17
3.11 No Undisclosed Liabilities..................................................... 19
3.12 Compliance with Legal Requirements............................................. 19
3.13 Governmental Authorizations.................................................... 19
3.14 Tax Matters.................................................................... 19
3.15 Employee and Labor Matters; Benefit Plans...................................... 22
3.16 Environmental Matters.......................................................... 24
3.17 Insurance...................................................................... 25
3.18 Related Party Transactions..................................................... 25
3.19 Legal Proceedings; Orders...................................................... 26
3.20 Authority; Binding Nature of Agreement......................................... 26
</TABLE>
i
<PAGE> 4
<TABLE>
<S> <C> <C>
3.21 Non-Contravention; Consents and Notices........................................ 26
3.22 Full Disclosure................................................................ 27
3.23 Finder's Fee................................................................... 27
SECTION 4
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB.............................. 27
4.1 Due Organization, Etc........................................................... 27
4.2 Certificate of Incorporation and Bylaws; Records................................ 28
4.3 Capitalization.................................................................. 28
4.4 Financial Statements............................................................ 28
4.5 Absence of Changes.............................................................. 29
4.6 Title to Assets................................................................. 30
4.7 Accounts Receivable; Loans and Advances......................................... 30
4.8 Equipment; Real Property........................................................ 31
4.9 Proprietary Assets.............................................................. 31
4.10 Contracts...................................................................... 32
4.11 No Undisclosed Liabilities..................................................... 33
4.12 Compliance with Legal Requirements............................................. 33
4.13 Governmental Authorizations.................................................... 33
4.14 Tax Matters.................................................................... 34
4.15 Employee and Labor Matters; Benefit Plans...................................... 38
4.16 Environmental Matters.......................................................... 40
4.17 Insurance...................................................................... 40
4.18 Related Party Transactions..................................................... 41
4.19 Legal Proceedings; Orders...................................................... 41
4.20 Authority; Binding Nature of Agreement......................................... 41
4.21 Non-Contravention; Consents and Notices........................................ 42
4.22 Full Disclosure................................................................ 43
4.23 Finder's Fee................................................................... 43
SECTION 5
CERTAIN COVENANTS OF THE COMPANY..................................................... 43
5.1 Access and Investigation........................................................ 43
5.2 Operation of the Company's Business............................................. 43
5.3 Notification; Updates to Company Disclosure Schedule............................ 45
5.4 No Solicitation................................................................. 46
SECTION 6
CERTAIN COVENANTS OF PARENT.......................................................... 46
6.1 Access and Investigation........................................................ 46
6.2 Operation of the Parent's Business.............................................. 46
6.3 Notification; Updates to Parent Disclosure Schedule............................. 47
6.4 Regulatory Filings; Fairness Hearing............................................ 48
6.5 Stock Option Plan; Employee Benefits ........................................... 48
</TABLE>
ii
<PAGE> 5
<TABLE>
<S> <C> <C>
6.6 Reorganization.................................................................. 48
6.7 Loan............................................................................ 48
SECTION 7
CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND MERGER SUB......................... 48
7.1 Accuracy of Representations..................................................... 48
7.2 Performance of Covenants........................................................ 49
7.3 No Material Adverse Effect...................................................... 49
7.4 Compliance Certificate.......................................................... 49
7.5 Stockholder Approval............................................................ 49
7.6 Consents........................................................................ 49
7.7 Legal Opinion................................................................... 49
7.8 No Restraints................................................................... 49
7.9 No Governmental Litigation...................................................... 49
7.10 No Other Litigation............................................................ 49
7.11 Continuity of Interest Certificates............................................ 50
7.12 Dissenting Shares.............................................................. 50
SECTION 8
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY................................... 50
8.1 Accuracy of Representations..................................................... 50
8.2 Performance of Covenants........................................................ 50
8.3 No Material Adverse Effect...................................................... 50
8.4 Compliance Certificate.......................................................... 50
8.5 Stockholder Approval............................................................ 50
8.6 Consents........................................................................ 50
8.7 Legal Opinion................................................................... 51
8.8 Registration Rights ............................................................ 51
8.9 Funding Commitment Letter....................................................... 51
8.10 Stock Option Plan.............................................................. 51
8.11 Preissman Employment Agreement................................................. 51
8.12 No Restraints.................................................................. 51
8.13 No Governmental Litigation..................................................... 51
8.14 No Other Litigation............................................................ 51
8.15 Certificate of Designation...................................................... 51
8.16 Dissenting Shares.............................................................. 52
SECTION 9
TERMINATION.......................................................................... 52
9.1 Termination..................................................................... 52
9.2 Effect of Termination........................................................... 52
9.3 Fees and Expenses............................................................... 52
</TABLE>
iii
<PAGE> 6
<TABLE>
<S> <C> <C>
SECTION 10
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION.......................... 53
10.1 Survival of Company Representations and Warranties............................. 53
10.2 Survival of Parent and Merger Sub Representations and Warranties............... 53
10.3 Indemnification by the Company Stockholders.................................... 54
10.4 Indemnification by Parent and Merger Sub....................................... 54
10.5 Notice; Defense of Claim....................................................... 54
10.6 Further Limitations on Indemnification......................................... 55
10.7 Stockholders' Agent............................................................ 56
10.8 Actions of the Stockholders' Agent............................................. 56
SECTION 11
MISCELLANEOUS PROVISIONS............................................................. 57
11.1 Further Assurances............................................................. 57
11.2 Attorneys' Fees................................................................ 57
11.3 Notices ....................................................................... 57
11.4 Time of the Essence............................................................ 58
11.5 Governing Law.................................................................. 58
11.6 Successors and Assigns......................................................... 58
11.7 Waiver.......................................................................... 58
11.8 Amendments..................................................................... 59
11.9 Severability .................................................................. 59
11.10 Disclosure Schedules.......................................................... 59
11.11 Entire Agreement.............................................................. 59
11.12 Construction.................................................................. 59
11.13 Headings...................................................................... 59
11.14 Counterparts................................................................... 59
11.15 Confidentiality................................................................ 60
</TABLE>
EXHIBIT A - Intentionally omitted
EXHIBIT B - Directors and Officers of the Surviving Corporation
EXHIBIT C - Form of Opinion of Gunderson Dettmer
EXHIBIT D - Form of Opinion of Nida & Maloney
EXHIBIT E - Form of Registration Rights Agreement
EXHIBIT F - Form of Funding Commitment Letter
EXHIBIT G - Form of Escrow Agreement
EXHIBIT H - Form of Preissman Employment Agreement
EXHIBIT I - 1998 Plan
EXHIBIT J - Form of Continuity of Interest Certificate
EXHIBIT K - Form of Certificate of Designation
PARENT DISCLOSURE SCHEDULE
COMPANY DISCLOSURE SCHEDULE
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<PAGE> 7
AGREEMENT AND PLAN
OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and entered
into as of August 10, 1998, by and among MEDICAL DEVICE ALLIANCE, INC., a Nevada
corporation ("PARENT"), PX ACQUISITION CORP., a Delaware corporation and a
wholly owned Subsidiary of Parent ("Merger Sub"), PARALLAX MEDICAL, INC., a
Delaware corporation (the "Company"). Certain capitalized terms used in this
Agreement are defined in Section 1 hereof.
RECITALS
A. Parent, Merger Sub and the Company intend to effect a merger of the
Company into Merger Sub (the "Merger") in accordance with this Agreement and the
Delaware General Corporation Law (the "DGCL"). Upon consummation of the Merger,
the Company will cease to exist, and Merger Sub will remain a wholly owned
Subsidiary of Parent.
B. It is intended that the Merger qualify as a tax-free reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code").
C. This Agreement has been adopted and approved by the respective boards
of directors of Parent, Merger Sub and the Company and by Parent, as the sole
stockholder of Merger Sub.
AGREEMENT
The parties to this Agreement, intending to be legally bound, agree as
follows:
SECTION 1
CERTAIN DEFINITIONS
For purposes of the Agreement
1998 PLAN. "1998 Plan" shall have the meaning set forth in Section 6.5.
ACQUISITION PROPOSAL. "Acquisition Proposal" shall mean any offer or
proposal (other than an offer or proposal by Parent) contemplating or otherwise
relating to any Company Acquisition Transaction.
AFFILIATES. "Affiliates" shall mean any Person that directly, or
indirectly through one or more intermediaries, controls or is controlled by or
is under common control with, a specified Person.
AGGREGATE LIQUIDATION PREFERENCE. "Aggregate Liquidation Preference"
shall mean that amount equal to (i) the total number of shares of the Company's
Series A Preferred stock issued and outstanding at the Effective Time multiplied
by (ii) 0.09401 plus the amount of all declared but unpaid dividends per each
share of Series A Preferred Stock.
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<PAGE> 8
AGREEMENT. "Agreement" shall mean this Agreement and Plan of Merger
(including the Exhibits and Disclosure Schedules hereto ), as it may be amended
from time to time.
CERTIFICATE OF MERGER. "Certificate of Merger" shall have the meaning
set forth in Section 2.3.
SERIES B PREFERRED STOCK. "Series B Preferred Stock" shall have the
meaning set forth in Section 2.5(a).
CLOSING. "Closing" shall have the meaning set forth in Section 2.3.
CLOSING DATE. "Closing Date" shall have the meaning set forth in Section
2.3.
CODE. "Code" shall mean the Internal Revenue Code of 1968, as amended.
COMPANY. "Company" shall mean Parallax Medical, Inc., a Delaware
corporation.
COMPANY ACCOUNTS RECEIVABLE. "Company Accounts Receivable" shall have
the meaning set forth in Section 3.7.
COMPANY ACQUISITION TRANSACTION. "Company Acquisition Transaction" shall
mean any transaction not contemplated by this Agreement involving:
(a) any sale, lease, exchange, transfer, license or other
disposition or acquisition of the business or assets of the Company
constituting more than 20% of the business or assets of the Company or
accounting for more than 20% of the revenues of the Company in any one
transaction or in a series of related transactions;
(b) any offer to purchase, tender offer, exchange offer or any
similar transaction or series of related transactions made by any Person
involving more than 20% of the outstanding shares of the capital stock
of the Company; or
(c) any merger, consolidation, business combination, share
exchange, reorganization or similar transaction or series of related
transactions involving the Company.
COMPANY COMMON STOCK. "Company Common Stock" shall have the meaning set
forth in Section 2.5(a)(i).
COMPANY CONTRACT. "Company Contract" shall mean any Contract: (a) to
which the Company is a party; (b) by which the Company or any of its assets is
or may become bound or under which the Company has, or may become subject to,
any obligation; or (c) under which the Company has or may acquire any right or
interest.
COMPANY DISCLOSURE SCHEDULE. "Company Disclosure Schedule" shall have
the meaning set forth in the Preamble to Section 3.
COMPANY FINANCIAL STATEMENTS. "Company Financial Statements" shall mean
those financial statements of the Company set forth in clauses (i) and (ii) of
Section 3.4(a).
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<PAGE> 9
COMPANY OPTION. "Company Option" shall mean any option to purchase
capital stock of the Company held by any director, officer or employee of, or
consultant to, the Company.
COMPANY PENSION PLAN. "Company Pension Plan" shall have the meaning set
forth in Section 3.15(c).
COMPANY PLANS. "Company Plans" shall have the meaning set forth in
Section 3.15(b).
COMPANY PROPRIETARY ASSETS. "Company Proprietary Assets" shall mean any
Proprietary Asset owned by or licensed to the Company or otherwise used by the
Company.
COMPANY RELATED PARTY. "Company Related Party" shall have the meaning
set forth in Section 3.18.
COMPANY RETURNS. "Company Returns" shall have the meaning set forth in
Section 3.14.
COMPANY STOCK CERTIFICATE. "Company Stock Certificate" shall have the
meaning set forth in Section 2.6.
COMPANY STOCKHOLDERS. "Company Stockholders" shall mean all stockholders
of the Company as of the Effective Time.
COMPANY STOCKHOLDERS' INDEMNITY SHARES. "Company Stockholders' Indemnity
Shares" shall have the meaning set forth in Section 2.11.
COMPANY WELFARE PLAN. "Company Welfare Plan" shall have the meaning set
forth in Section 3.15(d).
CONSENT. "Consent" shall mean any approval, consent, ratification,
permission, waiver or authorization (including any Governmental Authorization).
CONTRACT. "Contract" shall mean any written, oral or other agreement,
contract, subcontract, lease, understanding, instrument, note, warranty,
insurance policy, benefit plan, or legally binding commitment or undertaking of
any nature.
DAMAGES. "Damages" shall include any loss, damage, injury, liability,
settlement, judgment, award, fine, penalty, Tax, fee (including reasonable
attorneys' fees), charge, cost (including costs of investigation) or expense of
any nature. Damages shall not include lost profits, lost savings, or other
indirect, special, incidental or consequential damages whether such damages are
based on tort, contract, or any other legal theory, and even if the Indemnitee
has been advised of the possibility of such damages.
DGCL. "DGCL" shall mean the Delaware General Corporation Law.
DISSENTING SHARES. "Dissenting Shares" shall have the meaning set forth
in Section 2.9.
EFFECTIVE TIME. "Effective Time" shall have the meaning set forth in
Section 2.3.
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<PAGE> 10
EMPLOYEE BENEFIT PLAN. "Employee Benefit Plan" shall have the meaning
specified in Section 3(3) of ERISA.
ENCUMBRANCE. "Encumbrance" shall mean any lien, pledge, hypothecation,
charge, mortgage, security interest, encumbrance, option, right of first
refusal, preemptive right, community property interest or restriction of any
nature (including any restriction on the voting of any security, any restriction
on the transfer of any security or other asset, any restriction on the receipt
of any income derived from any asset, any restriction on the use of any asset
and any restriction on the possession, exercise or transfer of any other
attribute of ownership of any asset).
ENTITY. "Entity" shall mean any corporation (including any non-profit
corporation), general partnership, limited partnership, limited liability
partnership, joint venture, estate, trust, company, limited liability company,
joint stock company, firm or other enterprise, association, organization or
entity.
ENVIRONMENTAL LAW. "Environmental Law" shall have the meaning set forth
in Section 3.16.
ERISA. "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
ESCROW AGENT. "Escrow Agent" shall be the Person or entity appointed to
act as escrow agent for the Company Stockholders' Indemnity Shares pursuant to
the Escrow Agreement.
ESCROW AGREEMENT. "Escrow Agreement shall have the meaning set forth in
Section 2.11.
ESCROW FUND. "Escrow Fund" shall have the meaning set forth in Section
2.11.
ESCROW PERIOD. "Escrow Period" shall have the meaning set forth in
Section 2.11.
EXCHANGE RATIO. "Exchange Ratio" shall have the meaning set forth in
Section 2.5(a)(i).
EXPIRATION DATE. "Expiration Date" shall have the meaning set forth in
Section 10.1.
GAAP. "GAAP" means generally accepted accounting principals as currently
in effect in the United States.
GOVERNMENTAL AUTHORIZATION. "Governmental Authorization" shall mean any:
(a) permit, license, certificate, franchise, permission, clearance,
registration, qualification or authorization issued, granted, given or otherwise
made available by or under the authority of any Governmental Body or pursuant to
any Legal Requirement; or (b) right under any Contract with any Governmental
Body.
GOVERNMENTAL BODY. "Governmental Body" shall mean any: (a) federal,
state, local, municipal or other government; or (b) governmental or
quasi-governmental authority of any nature (including any governmental division,
department, agency, commission, instrumentality, official, organization, unit,
body or Entity and any court or other tribunal).
4
<PAGE> 11
INDEMNIFIED PARTY. "Indemnified Party" shall have the meaning set forth
in Section 10.5.
INDEMNIFYING PARTY. "Indemnifying Party" shall have the meaning set
forth in Section 10.5.
INDEMNIFICATION NOTICE. "Indemnification Notice" shall have the meaning
set forth in Section 10.5.
LEGAL PROCEEDING. "Legal Proceeding" shall mean any action, suit,
litigation, arbitration, proceeding (including any civil, criminal,
administrative, investigative or appellate proceeding), hearing, inquiry, audit,
examination or investigation commenced, brought, conducted or heard by or
before, or otherwise involving, any court or other Governmental Body or any
arbitrator or arbitration panel.
LEGAL REQUIREMENT. "Legal Requirement" shall mean any federal, state,
local, municipal, foreign or other law, statute, constitution, principle of
common law, resolution, ordinance, code, edict, decree, rule, regulation, ruling
or requirement issued, enacted, adopted, promulgated, implemented or otherwise
put into effect by or under the authority of any Governmental Body.
MATERIAL ADVERSE EFFECT. A violation of a representation or warranty or
any other matter will be deemed to have a "Material Adverse Effect" on the
Company or Parent, as the case may be, if such violation or other matter would
have a material adverse effect on the Company's or, taken as a whole, Parent's
and Parent's Subsidiaries, as the case may be, business, condition, assets,
liabilities, operations, financial performance or prospects. "Material Adverse
Effect" shall not include continuing operating losses of the parties, failure to
receive Food and Drug Administration or other regulatory approval or issuances
of patents, any change in economic conditions, business conditions or GAAP
generally affecting the medical devices industry, or any effect on either party
hereto directly resulting from such parties' compliance with Sections 5.2 or
6.2, as applicable.
MATERIAL COMPANY CONTRACT. "Material Company Contract" shall have the
meaning set forth in Section 3.10.
MATERIAL PARENT CONTRACT. "Material Parent Contract" shall have the
meaning set forth in Section 4.10.
MATERIALS OF ENVIRONMENTAL CONCERN. "Materials of Environmental Concern"
shall have the meaning set forth in Section 3.16.
MERGER SHARES. "Merger Shares" shall have the meaning set forth in
Section 2.5.
MERGER SUB. "Merger Sub" shall mean PX Acquisition Corp., a Delaware
corporation.
PARENT. "Parent" shall mean Medical Device Alliance, Inc., a Nevada
corporation.
PARENT ACCOUNTS RECEIVABLE. "Parent Accounts Receivable" shall have the
meaning set forth in Section 4.7.
5
<PAGE> 12
PARENT COMMON STOCK. "Parent Common Stock" shall have the meaning set
forth in Section 2.5.
PARENT DISCLOSURE SCHEDULE. "Parent Disclosure Schedule" shall have the
meaning set forth in the Preamble to Section 4.
PARENT FINANCIAL STATEMENTS. "Parent Financial Statements" shall have
the meaning set forth in Section 4.4.
PARENT PENSION PLAN. "Parent Pension Plan" shall have the meaning set
forth in Section 4.15(d).
PARENT PLANS. "Parent Plans" shall have the meaning set forth in Section
4.15(b).
PARENT PROPRIETARY ASSETS. "Parent Proprietary Assets" shall mean any
Proprietary Assets owned by or licensed to, or otherwise used by, Parent and its
Subsidiaries.
PARENT RELATED PARTY. "Parent Related Party" shall have the meaning set
forth in Section 4.18.
PARENT RETURNS. "Parent Returns" shall have the meaning set forth in
Section 4.14.
PARENT UNAUDITED INTERIM BALANCE SHEET. "Parent Unaudited Interim
Balance Sheet" shall have the meaning set forth in Section 4.4.
PARENT WELFARE PLAN. "Parent Welfare Plan" shall have the meaning set
forth in Section 4.15(d).
PERSON. "Person" shall mean any individual, Entity or Governmental Body.
PRE-CLOSING PERIOD. "Pre-Closing Period" shall have the meaning set
forth in Section 5.1.
PROPRIETARY ASSET. "Proprietary Asset" shall mean any patent, patent
application, trademark (whether registered or unregistered), trademark
application, trade name, fictitious business name, service mark (whether
registered or unregistered), service mark application, copyright (whether
registered or unregistered), copyright application, maskwork, maskwork
application, trade secret, know-how, customer list, franchise, system, computer
software, source code, computer program, invention, design, blueprint,
engineering drawing, proprietary product, technology, proprietary right or other
intellectual property right or intangible asset.
RELATED AGREEMENTS. "Related Agreements" shall have the meaning set
forth in Section 4.20.
REPRESENTATIVES. "Representatives" shall mean officers, directors,
employees, agents, attorneys, accountants, advisors and representatives.
SEC. "SEC" shall mean the United States Securities and Exchange
Commission.
6
<PAGE> 13
SUBSIDIARIES. "Subsidiaries" shall mean, with respect to any party, any
corporation or other organization, whether incorporated or unincorporated, of
which more than fifty percent (50%) of either the equity interest in, or the
voting control of, such corporation or other organization is, directly or
indirectly through Subsidiaries or otherwise, beneficially owned by such party.
SECURITIES ACT. "Securities Act" shall mean the Securities Act of 1933,
as amended.
SERIES A PREFERRED STOCK. "Series A. Preferred Stock" shall have the
meaning set forth in Section 2.5.
SURVIVING CORPORATION. "Surviving Corporation" shall have the meaning
set forth in Section 2.1.
TAX. "Tax" (and, with correlative meaning, "Taxes" and "Taxable") means
any and all taxes including, without limitation, (i) any net income, alternative
or add-on minimum tax, gross income, gross receipts, sales, use, ad valorem,
transfer, franchise, profits, value added, net worth, license, withholding
payroll, employment, exercise, severance, stamp, occupation, premium, property,
environmental or windfall profit tax, custom, duty or other tax governmental fee
or other like assessment or charge of any kind whatsoever, together with any
interest or any penalty, addition to tax or additional amount imposed by any
Governmental Entity (a "Tax authority") responsible for the imposition of any
such tax (domestic or foreign), (ii) any liability for the payment of any
amounts of the type described in (i) as a result of being a member of an
affiliated, consolidated, combined or unitary group for any Taxable period or as
the result of being a transferee or successor thereof and (iii) any liability
for the payment of any amounts of the type described in (i) or (ii) as a result
of any express or implied obligation to indemnify any other Person.
TAX RETURN. "Tax Return" shall mean any return (including any
information return), report, statement, declaration, estimate, schedule, notice,
notification, form, election, certificate or other document or information filed
with or submitted to, or required to be filed with or submitted to, any
Governmental Body in connection with the determination, assessment, collection
or payment of any Tax or in connection with the administration, implementation
or enforcement of or compliance with any Legal Requirement relating to any Tax.
THIRD PARTY CLAIM. "Third Party Claim" shall have the meaning set forth
in Section 10.6.
UNAUDITED INTERIM BALANCE SHEET. "Unaudited Interim Balance Sheet" shall
have the meaning set forth in Section 3.4(a)(ii).
SECTION 2
2.1 MERGER OF THE COMPANY INTO MERGER SUB; COMPANY ACTION. Upon the
terms and subject to the conditions set forth in this Agreement, at the
Effective Time, the Company shall be merged with and into Merger Sub, and the
separate existence of the Company shall cease. Merger Sub will continue as the
surviving corporation in the Merger (the "Surviving
7
<PAGE> 14
Corporation"). The Company hereby represents that the Board of Directors of the
Company has (A) determined that this Agreement and the transactions contemplated
hereby, including the Merger, are fair to and in the best interests of the
stockholders of the Company, (B) approved and adopted this Agreement and the
transactions contemplated hereby, (C) recommended that the stockholders of the
Company, if required by applicable law in order to consummate the Merger,
approve and adopt this Agreement and the transactions contemplated hereby, and
(D) determined that the consideration to be received by stockholders and other
security holders of the Company pursuant to the Merger is fair to such holders.
2.2 EFFECT OF THE MERGER. The Merger shall have the effects set forth in
this Agreement and in the applicable provisions of the DGCL.
2.3 CLOSING; EFFECTIVE DATE. The consummation of the transactions
contemplated by this Agreement (the "Closing") shall take place at the offices
of Nida & Maloney, PC, 800 Anacapa Street, Santa Barbara, California 93101, or
at such other place, time and date as the parties may designate, but in any
event shall be no later than the second business day after the date that all of
the conditions set forth in Sections 7 and 8 have been satisfied or waived (the
"Closing Date"). Contemporaneously with the Closing, a properly executed
certificate of merger conforming to the requirements of the DGCL (the
"Certificate of Merger") shall be filed with the Secretary of State of the State
of Delaware. The Merger shall take effect at the time the Certificate of Merger
is filed with and accepted by the Secretary of State of the State of Delaware
(the "Effective Time").
2.4 CERTIFICATE OF INCORPORATION AND BYLAWS; DIRECTORS AND OFFICERS.
Unless otherwise agreed to in writing by the Company and Parent prior to the
Effective Time:
(a) the Certificate of Incorporation of the Surviving Corporation
shall be the Certificate of Incorporation of Merger Sub as in effect immediately
prior to the Effective Time, provided, that the name of the Surviving
Corporation shall be "Parallax Medical, Inc.";
(b) the Bylaws of the Surviving Corporation shall be the Bylaws
of Merger Sub as in effect immediately prior to the Effective Time;
(c) the directors and officers of the Surviving Corporation
immediately after the Effective Time shall be the individuals identified on
Exhibit B;
2.5 CONVERSION OF SHARES; ISSUANCE OF CONTINGENT STOCK; TREATMENT OF
OPTIONS.
(a) Subject to Section 2.7(b) and Section 2.9, at the Effective
Time, by virtue of the Merger and without any further action on the part of
Parent, stockholders of the Parent, Merger Sub, the Company or stockholders of
the Company:
(i) except for Dissenting Shares, each share of common
stock, par value $.001 per share, of the Company (the "Company Common Stock")
issued and outstanding immediately prior to the Effective Time shall be
converted into the right to receive that number of duly authorized, validly
issued, fully paid and nonassessable shares of Series B Convertible Preferred
Stock, par value $.001 per share, of Parent (the "Series B Preferred Stock;" the
Series B Preferred Stock to be issued in connection with the Merger is referred
to herein as the "Merger
8
<PAGE> 15
Shares") equal to (i)(A) 5,000,000 less (B) the Aggregate Liquidation Preference
divided by (ii) the product of (C) the total number of shares of Company Common
Stock issued and outstanding at the Effective Time and (D) 7.50 (rounded to the
nearest eight decimal place) (the "Exchange Ratio"). Except for Dissenting
Shares, each share of Series A Preferred Stock issued and outstanding
immediately prior to the Effective Time shall be converted into the right to
receive that number of shares of Series B Preferred Stock equal to (i) the
Aggregate Liquidation Preference divided by (ii) the product of (A) the total
number of shares of the Company's Series A Preferred Stock, par value $.001 per
share (the "Series A Preferred Stock"), issued and outstanding at the Effective
Time and (B) 7.50; and
(ii) each share of Common Stock, par value $.001 per
share, of Merger Sub outstanding immediately prior to the Effective Time shall
be converted into one share of common stock, par value $.001 per share, of the
Surviving Corporation.
(b) If, between the date of this Agreement and the Effective
Time, the shares of Company Common Stock or Parent Common Stock deemed
outstanding are changed into a different number or class of shares by reason of
any stock dividend, subdivision, reclassification, reorganization, stock split,
combination or similar transaction, the total number of Merger Shares shall be
appropriately adjusted, provided that any such adjustment shall in all events
result in the holders of shares of Company Common Stock immediately prior to the
Effective Date receiving no less than the pro rata percentage of Merger Shares
that would have been received by such holders prior to any such adjustment.
(c) At the Effective Time, all rights with respect to Company
Common Stock under Company Options that are then outstanding shall be converted
into and become rights with respect to Parent Common Stock, and Parent shall
assume each Company Option in accordance with the terms (as in effect as of the
date thereof) of the stock option or other agreement, as the case may be, by
which it is evidenced. From and after the Effective Time, (i) each Company
Option assumed by Parent may be exercised solely for shares of Parent Common
Stock, (ii) the number of shares of Parent Common Stock subject to each Company
Option shall be equal to the number of shares of Company Common Stock subject to
such Company Option immediately prior to the Effective Date multiplied by the
Exchange Ratio, rounding down to the nearest whole share of Parent Common Stock
(with cash, less the applicable exercise price, being payable for any fraction
of a share), (iii) the per share exercise price that such Company Option shall
be adjusted by dividing the per share exercise price under each such Company
Option was exercisable immediately prior to the Effective Time by the Exchange
Ratio and rounding up to the nearest cent and (iv) any restriction on the
exercise of any Company Option shall continue in full force and effect and the
term, exercisability, vesting schedule and other provisions of such Company
Option shall otherwise remain unchanged; provided, however, that each such
Company Option shall, in accordance with its terms, be subject to further
adjustment as appropriate to reflect any stock split, stock dividend,
subdivision, reclassification, reorganization, stock split, combination or
similar transaction subsequent to the Effective Time. The Company shall take all
actions that may be necessary (under the stock option or other agreements
pursuant to which Company Options are outstanding) to effectuate the provisions
of this Section 2.5(c) and to ensure that, from and after the Effective Time,
holders of Company Options have no rights with respect thereto other than those
specifically provided herein. As soon as practicable after the Effective
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<PAGE> 16
Time, Parent shall issue to each holder of an outstanding Company Option, a
document evidencing assumption of the Company Option by Parent.
2.6 CLOSING OF THE COMPANY'S TRANSFER BOOKS. At the Effective Time, (a) all
certificates representing shares of Company Common Stock or Series A Preferred
Stock outstanding immediately prior to the Effective Time shall automatically be
canceled and retired and shall cease to exist, and all holders of certificates
representing shares of Company Common Stock and Series A Preferred Stock that
were outstanding immediately prior to the Effective Time shall cease to have any
rights as stockholders of the Company, and (b) the stock transfer books of the
Company shall be closed with respect to all shares of such Company Common Stock
and Series A Preferred Stock outstanding immediately prior to the Effective
Time. No further transfer of any such shares of Company Common Stock and Series
A Preferred Stock shall be made on such stock transfer books after the Effective
Time. If, after the Effective Time, a valid certificate previously representing
any of such shares of Company Common Stock or Series A Preferred Stock (a
"Company Stock Certificate") is presented to the Surviving Corporation or
Parent, such Company Stock Certificate shall be canceled and shall be exchanged
as provided in Section 2.7.
2.7 EXCHANGE OF CERTIFICATES.
(a) EXCHANGE PROCEDURES. Within fifteen (15) days after the
Effective Time, Parent will send or cause to be sent to the holders of Company
Stock Certificates (i) a letter of transmittal in customary form and containing
such provisions as Parent may reasonably specify, and (ii) instructions for use
in effecting the surrender of Company Stock Certificates in exchange for
certificates representing Series B Preferred Stock. Subject to Section 2.7(b),
upon surrender of a Company Stock Certificate for exchange, together with a duly
executed letter of transmittal and such other documents as may be reasonably
required by Parent, (1) the holder of such Company Stock Certificate shall be
issued and delivered in exchange therefor a certificate registered in the name
of such holder representing the number of shares of Series B Preferred Stock
that such holder has the right to receive pursuant to Section 2.5(a)(i) (less
the number of shares to be placed in escrow pursuant to Sections 2.11 and 10.3),
and (2) the Company Stock Certificate so surrendered shall be canceled. Until
surrendered as contemplated by this Section 2.7(a), each Company Stock
Certificate shall be deemed, from and after the Effective Time, to represent
only the right to receive shares of Series B Preferred Stock (and cash in lieu
of any fractional share of Series B Preferred Stock as contemplated by Section
2.7(b)). If any Company Stock Certificate shall have been lost, stolen or
destroyed, Parent may, in its discretion and as a condition precedent to the
issuance of any certificate representing Series B Preferred Stock, require the
owner of such lost, stolen or destroyed Company Stock Certificate to provide an
appropriate affidavit of loss and indemnity agreement against any claim that may
be made against Parent or the Surviving Corporation with respect to such Company
Stock Certificate.
(b) FRACTIONAL SHARES. No fractional shares of Series B Preferred
Stock shall be issued in connection with the Merger, and no certificates for any
such fractional shares shall be issued. In lieu of such fractional shares, any
holder of Company Common Stock who would otherwise be entitled to receive a
fraction of a share of Series B Preferred Stock (after aggregating all
fractional shares of Series B Preferred Stock issuable to such holder) shall,
upon surrender of such holder's Company Stock Certificate(s), be paid in cash
the dollar amount (rounded to the nearest whole cent), without interest,
determined by multiplying such fraction by 7.50.
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<PAGE> 17
(c) LEGENDS. The Merger Shares to be issued in the Merger shall
be characterized as "restricted securities" for purposes of Rule 144 under the
Securities Act, and each certificate representing any of such shares shall bear
a legend identical or similar in effect to the following legend (together with
any other legend or legends required by applicable state securities laws or
otherwise):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER ANY
APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS
AND UNTIL REGISTERED UNDER THE ACT AND SUCH LAWS OR IN COMPLIANCE
WITH AN EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS.
(d) NO LIABILITY. Neither Parent nor the Surviving Corporation
shall be liable to any holder or former holder of Company Common Stock or Series
A Preferred Stock for any Merger Shares (or dividends or distributions with
respect thereto), or for any cash amounts, delivered to any public official
pursuant to any applicable abandoned property, escheat or similar law.
2.8 TAX CONSEQUENCES. For federal income tax purposes, the Merger is
intended to constitute a reorganization within the meaning of Section 368(a) of
the Code. The parties to this Agreement hereby adopt this Agreement as a "plan
of reorganization" within the meaning of Sections 1.368-2(g) and 1.368-3(a) of
the United States Treasury Regulations.
2.9 DISSENTING SHARES. Notwithstanding anything to the contrary
contained in this Agreement, any shares of Company Common Stock outstanding
immediately prior to the Effective Time that were not voted in favor of the
Merger and are held by stockholders who have complied with the applicable
provisions of the DGCL (the "Dissenting Shares") shall not be converted into or
represent the right to receive Series B Preferred Stock in accordance with
Section 2.5(a)(i) (or cash in lieu of fractional shares in accordance with
Section 2.7(b)), and each holder of Dissenting Shares shall be entitled only to
such rights as may be granted to such holder under the DGCL. From and after the
Effective Time, a holder of Dissenting Shares shall not have and shall not be
entitled to exercise any of the voting rights or other rights of a stockholder
of the Surviving Corporation. If any holder of Dissenting Shares shall fail to
assert or perfect, or shall waive, rescind, withdraw or otherwise lose, such
holder's right to dissent and obtain payment under the DGCL, then such shares
shall automatically be converted into and shall represent only the right to
receive (upon the surrender of Company Stock Certificate(s) previously
representing such shares) Series B Preferred Stock in accordance with Section
2.5(a)(i) (and cash in lieu of any fractional share in accordance with Section
2.7(b)).
2.10 FURTHER ACTION. If, at any time after the Effective Time, any further
action is necessary to carry out the purposes of this Agreement or to vest the
Surviving Corporation with full right, title and possession of and to all rights
and property of Merger Sub and the Company, the officers and directors of the
Surviving Corporation shall be fully authorized (in the name of Merger Sub, in
the name of the Company and otherwise) to take such action.
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2.11 COMPANY STOCKHOLDERS' INDEMNITY SHARES. At the Effective Time, Parent shall
withhold fifty percent (50%) of the total number of Merger Shares to be issued
to each Company Stockholder in connection with the Merger (the "Company
Stockholders' Indemnity Shares"). The Company Stockholders' Indemnity Shares
will be represented by a certificate or certificates issued in the names of the
respective Company Stockholders, shall be delivered to the Escrow Agent as
collateral security for the Company's indemnification obligations set forth in
Section 10.3 and the Company Stockholder's indemnification obligations under the
Escrow Agreement, and except as set forth in Section 10, shall be held in escrow
(the "Escrow Fund") by the Escrow Agent to satisfy any claims made on or before
the first anniversary of the Closing Date (the "Escrow Period"). Each Company
Stockholder shall deposit with the Escrow Agent a stock power duly executed in
blank, with the instructions to attach such stock power to such Company
Stockholder's respective Company Stockholder Indemnity Shares. The
administration of the Company Stockholders' Indemnity Shares during the Escrow
Period by the Escrow Agent shall be pursuant to the terms of an Escrow Agreement
substantially in the form attached hereto as Exhibit G (the "Escrow Agreement")
among Parent, the Company Stockholders, and Escrow Agent. The Escrow Fund shall
be allocated among the Company Stockholders on a pro-rata basis in accordance
with the number of Merger Shares to be received by the Company Stockholders at
the Effective Time (excluding for purposes of this calculation any Dissenting
Shares). Upon compliance with the terms hereof and subject to the provisions of
the Escrow Agreement, Parent shall be entitled to obtain indemnity from the
Escrow Fund for Damages covered by the indemnity provided for in Section 10.3 of
this Agreement.
SECTION 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Merger Sub
that, except as set forth in the disclosure schedule prepared by the Company in
accordance with the requirements of Section 11.11 and delivered by the Company
to Parent on the date of this Agreement (the "Company Disclosure Schedule"):
3.1 DUE ORGANIZATION; NO SUBSIDIARIES; ETC.
(a) The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware with full corporate
power and authority to (i) conduct its business in the manner in which it is now
being conducted, (ii) own and use its assets in the manner in which its assets
are now being owned and used and (iii) perform its obligations under all
Material Company Contracts by which it is bound. The Company has no
Subsidiaries.
(b) The Company is qualified to do business as a foreign
corporation, and is in good standing, under the laws of the jurisdictions set
forth in Part 3.1(b) of the Company Disclosure Schedule, which are all the
jurisdictions where the nature of its business requires such qualification and
where the failure to be so qualified would have a Material Adverse Effect on the
Company.
3.2 CERTIFICATE OF INCORPORATION AND BYLAWS; RECORDS. The Company has
delivered or otherwise made available to Parent accurate and complete copies of:
(1) the Company's
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certificate of incorporation and bylaws as currently in effect, including all
amendments thereto; (2) the stock records of the Company; and (3) the minutes
and other records of the meetings and other proceedings (including any actions
taken by written consent or otherwise without a meeting) of the stockholders of
the Company, the Board of Directors of the Company and all committees of the
Board of Directors of the Company. The Company is not in violation of any of the
provisions of its certificate of incorporation or bylaws. The books of account,
stock records, minute books and other records of the Company are accurate and
complete in all material respects, and have been maintained in accordance with
prudent business practices.
3.3 CAPITALIZATION. The authorized capital stock of the Company consists
of: (a) 20,000,000 shares of Company Common Stock, of which 6,318,695 shares
have been issued and are outstanding as of the date hereof and (b) 5,000,000
shares of preferred stock, of which 2,233,882 shares of Series A Preferred Stock
have been issued and are outstanding as of the date hereof. The Company has
reserved 3,000,000 shares of capital stock for issuance under its 1998 Stock
Plan, of which no shares or options have been issued. Part 3.3(a) of the Company
Disclosure Schedule sets forth the names of stockholders of the Company and the
number of shares and certificate numbers of Company Common Stock or Series A
Preferred Stock owned of record by each of such stockholders. Part 3.3(b) of the
Company Disclosure Schedule sets forth, with respect to each Company Option that
is outstanding on the date of this Agreement: (i) the name of the holder of such
Company Option; (ii) the total amount of Company Common Stock subject to such
Company Option; (iii) the date of which such Company Option was granted; (iv)
the vesting schedule for such Company Option; and (v) the exercise price of such
Company Option. All of the outstanding shares of Company Common Stock and Series
A Preferred Stock have been duly authorized and validly issued, and are fully
paid and nonassessable, and none of such shares is subject to any repurchase
option (except as set forth in Part 3.3(c) of the Company Disclosure Schedule)
or restriction on transfer other than restrictions imposed by federal or state
securities laws. Except as set forth in this Section 3.3 or on Part 3.3 of the
Company Disclosure Schedule, there are no authorized or outstanding shares,
subscriptions, options, calls, warrants or other rights (whether or not
currently exercisable) to acquire any shares of the capital stock or other
securities of the Company. All outstanding shares of Company Common Stock have
been issued in substantial compliance with applicable federal and state
securities laws and other applicable Legal Requirements and all requirements set
forth in applicable Company Contracts. Except as provided on Part 3.3 of the
Company Disclosure Schedule, the Company has never repurchased, redeemed or
otherwise reacquired any shares of capital stock or other securities.
3.4 FINANCIAL STATEMENTS.
(a) The Company has delivered to Parent the unaudited balance
sheet of the Company as of May 31, 1998 (the "Unaudited Interim Balance Sheet"),
and the related unaudited statement of income of the Company for the five-month
period then ended (collectively, the "Company Financial Statements").
(b) The Company Financial Statements present fairly the financial
position of the Company as of the respective dates thereof and the results of
operations and cash flows of the Company for the periods covered thereby.
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3.5 ABSENCE OF CHANGES. Since May 31, 1998:
(a) The Company has not suffered any Material Adverse Effect and,
to the Company's knowledge, no event has occurred that will, or could reasonably
be expected to, have a Material Adverse Effect on the Company;
(b) there has not been any material damage or destruction to any
of the Company's assets (whether or not covered by insurance);
(c) the Company has not declared, accrued, set aside or paid any
dividend or made any other distribution in respect of any shares of capital
stock and has not repurchased, redeemed or otherwise reacquired any shares of
capital stock or other securities;
(d) the Company has not sold, issued or authorized the issuance
of (i) any capital stock or other security (except for Company Common Stock
issued upon the exercise of outstanding Company Options), (ii) any option, call,
warrant or right to acquire, or otherwise relating to, any capital stock or any
other security (except for Company Options described in Part 3.3 of the Company
Disclosure Schedule), or (iii) any instrument convertible into or exchangeable
for any capital stock or other security;
(e) there has been no amendment to the Company's certificate of
incorporation or bylaws, and the Company has not effected or been a party to any
Company Acquisition Transaction, recapitalization, reclassification of shares,
stock split, reverse stock split or similar transaction;
(f) the Company has not amended or waived any of its rights
under, or permitted the acceleration of vesting under (i) any provision of any
agreement evidencing any outstanding Company Option, or (ii) any restricted
stock purchase agreement;
(g) the Company has not formed any Subsidiary or acquired any
equity interest or other interest in any other Entity;
(h) except for expenditures incurred in connection herewith and
the transactions contemplated hereby, which shall not exceed $65,000, the
Company has not made any capital expenditure which, when added to all other
capital expenditures made by the Company since May 31, 1998, exceeds $25,000 in
the aggregate;
(i) except for this Agreement and the agreements contemplated
herein, the Company has not (i) entered into any Material Company Contract, or
(ii) amended or prematurely terminated, or waived any material right or remedy
under, any Material Company Contract to which it is or was a party or under
which it has or had any material rights or obligations;
(j) the Company has not (i) acquired, leased or licensed any
right or other asset from any other Person, (ii) sold or otherwise disposed of,
or leased or licensed, any right or other asset to any other Person, or (iii)
waived or relinquished any right, except for immaterial rights or other
immaterial assets acquired, leased, licensed or disposed of in the ordinary
course of business and consistent with the Company's past practices;
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(k) the Company has not written off as uncollectible, or
established any reserve with respect to, any account receivable or other
indebtedness in excess of $25,000 individually or in the aggregate;
(l) the Company has not made any pledge of any of its assets or
otherwise permitted any of its assets to become subject to any Encumbrance,
except for pledges of assets valued at $25,000 or less, individually or in the
aggregate, made in the ordinary course of business and consistent with the
Company's past practices;
(m) the Company has not (i) lent money to any Person, or (ii)
incurred or guaranteed any indebtedness for borrowed money in excess of $25,000
individually or in the aggregate;
(n) the Company has not (i) established, adopted or amended any
Employee Benefit Plan, (ii) paid any bonus or made any profit-sharing or similar
payment to, or increased the amount of the wages, salary, commissions, fringe
benefits or other compensation or remuneration payable to, any of its directors,
officers or employees, or (iii) hired any new employee except in the ordinary
course of business and consistent with past practices;
(o) the Company has not changed any of its methods of accounting
or accounting practices in any respect;
(p) the Company has not made any material Tax election other than
in the ordinary course of business;
(q) the Company has not commenced or settled any Legal
Proceeding;
(r) the Company has not entered into any material transaction or
taken any other material action outside the ordinary course of business or
inconsistent with its past practices; and
(s) the Company has not agreed or committed to take any of the
actions referred to in clauses "(c)" through "(r)" above.
3.6 TITLE TO ASSETS.
(a) The Company owns, and has good and valid title to, all assets
purported to be owned by it, including all of the assets reflected in the
Company Financial Statements and all other assets reflected in the Company's
books and records as being owned by the Company. All of said assets are owned by
the Company free and clear of any liens or other Encumbrances, except for (i)
any lien for current taxes not yet due and payable, and (ii) minor liens that
have arisen in the ordinary course of business and that do not (in any case or
in the aggregate) materially detract from the value of the assets subject
thereto or materially impair the operations of the Company.
(b) Part 3.6(b) of the Company Disclosure Schedule identifies all
assets that are being leased or licensed to the Company that involve obligations
of the Company in excess of $25,000 on an individual basis.
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3.7 ACCOUNTS RECEIVABLE; LOANS AND ADVANCES.
(a) All accounts receivable of the Company, if any, that are
reflected in the Unaudited Interim Balance Sheet or in the accounting records of
the Company as of the Closing Date (collectively, the "Company Accounts
Receivable") represent or will represent valid obligations arising from sales
actually made or services actually performed in the ordinary course of business.
Unless paid prior to the Closing Date, the Company Accounts Receivable, if any,
are or will be, as of the Closing Date, current and collectible net of any
respective reserves shown in the Unaudited Interim Balance Sheet (which reserves
are adequate and calculated consistent with past practice). There is no contest,
claim, or right of set-off, other than returns in the ordinary course of
business, under any Contract with any obligor of any Company Accounts Receivable
relating to the amount or validity of such Company Accounts Receivable.
(b) Part 3.7(b) of the Company Disclosure Schedule contains an
accurate and complete list as of the date of this Agreement of all loans and
advances made by the Company to all employees, directors, consultants or
independent contractors of the Company, other than routine travel advances made
to employees in the ordinary course of business.
3.8 EQUIPMENT; REAL PROPERTY.
(a) The assets of the Company are adequate for the uses to which
they are being put, are in good condition and repair (ordinary wear and tear
excepted) and are adequate for the conduct of the Company's business in the
manner in which such business is now being conducted.
(b) The Company does not own any real property. Part 3.8 of the
Company Disclosure Schedule contains an accurate and complete list of all, if
any, leases or subleases of real property entered into by the Company.
3.9 PROPRIETARY ASSETS.
(a) The Company has good and valid title to, or has sufficient
licenses to use, all Company Proprietary Assets free and clear of all liens and
other Encumbrances, and has a valid right to use all Company Proprietary Assets.
Part 3.9 of the Company Disclosure Schedule contains a complete and accurate
list of all patents, patent applications, trademarks (registered or
unregistered), trademark applications, registered copyrights owned and licenses
held by the Company. The Company is not obligated to make any payment to any
Person for the use of any Company Proprietary Asset. Except as set forth on Part
3.9 of the Company Disclosure Schedule, to the knowledge of the Company, the
Company is free to use, modify, copy, distribute, sell, license or otherwise
exploit on an exclusive basis each of the Company Proprietary Assets that is
owned by the Company and is able to use each of the Company Proprietary Assets
that is licensed by the Company.
(b) The Company has taken reasonable measures and precautions
necessary to protect and maintain the confidentiality and secrecy of all Company
Proprietary Assets (except Company Proprietary Assets whose value would not be
impaired by public disclosure in any material respect) and otherwise to maintain
and protect the value of all Company Proprietary Assets.
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(c) To the knowledge of the Company, none of the Company
Proprietary Assets infringes or conflicts with any Proprietary Asset owned or
used by any other Person. To the knowledge of the Company, the Company is not
misappropriating or making any unlawful use of, and the Company has not at any
time misappropriated or made any unlawful use of, or received any notice or
other communication of any actual, alleged, possible or potential infringement,
misappropriation or unlawful use of, any Proprietary Asset owned or used by any
other Person. To the knowledge of the Company, no other Person is infringing,
misappropriating or making any unlawful use of, and to the knowledge of the
Company, no Proprietary Asset owned or used by any other Person infringes or
conflicts with, any Company Proprietary Asset.
(d) To the knowledge of the Company, the Company Proprietary
Assets constitute all the Proprietary Assets necessary to enable the Company to
conduct its business in the manner in which such business has been conducted.
The Company has not licensed any of the Company Proprietary Assets to any Person
on an exclusive basis and the Company has not entered into any covenant not to
compete or Contract limiting its ability to exploit fully any of its Proprietary
Assets or to transact business in any market or geographical area or with any
Person.
3.10 CONTRACTS.
(a) Part 3.10(a) of the Company Disclosure Schedule identifies
each Company Contract that constitutes a "Material Company Contract." For
purposes of this Agreement, a "Material Company Contract" shall be deemed to be
any Contract:
(i) relating to the employment or engagement of, or the
performance of services by, any employee, consultant or independent contractor
which involves a potential commitment of the Company in excess of $50,000 per
year;
(ii) relating to the acquisition, transfer, use,
development, sharing or license of any technology or any Company Proprietary
Asset (except for any Company Proprietary Asset that is licensed to the Company
under any third party software license agreement generally available to the
public at a cost of less than $10,000);
(iii) imposing any restriction on the Company's right or
ability (A) to compete with any other Person, (B) to acquire any product or
other asset or any services from any other Person, to sell any product or other
asset to or perform any services for any other Person or to transact business or
deal in any other manner with any other Person, or (C) to develop or distribute
any technology;
(iv) creating or involving any agency relationship,
distribution arrangement or franchise relationship involving payments or
obligations in excess of $25,000 per year;
(v) creating or relating to the creation of any
Encumbrance with respect to any asset owned or used by the Company having a
value in excess of $25,000;
(vi) involving or incorporating any guaranty, any pledge,
any performance or completion bond, any indemnity (other than customary
intellectual property indemnities for hardware and software sold by the
Company), any right of contribution or any
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surety arrangement, any of which obligations involve a Company obligation in
excess of $25,000 per year;
(vii) creating or relating to any partnership or joint
venture or any sharing of revenues, profits, losses, costs or liabilities;
(viii) relating to the purchase or sale of any product or
other asset by or to, or the performance of any services by or for, any Company
Related Party;
(ix) entered into outside the ordinary course of business;
(x) that may not be terminated by the Company (without
penalty) within 60 days after the delivery of a termination notice by the
Company;
(xi) contemplating or involving (A) the payment or
delivery of cash or other consideration in an amount or having a value in excess
of $25,000 in the aggregate, or (B) the performance of services having a value
in excess of $25,000 in the aggregate); and
(xii) relating to the lease or sublease, either as lessee
or sublessee, lessor or sublessor, of real or Personal property or intangibles,
having annual payments in excess of $25,000.
(b) The Company has delivered to Parent accurate and complete
copies of all Material Company Contracts identified in Part 3.10(a) of the
Company Disclosure Schedule, including all amendments thereto. Each Contract
identified in Part 3.10(a) of the Company Disclosure Schedule is valid and in
full force and effect, and is enforceable by the Company in accordance with its
terms, subject to (i) laws of general application relating to bankruptcy,
insolvency and the relief of debtors, and (ii) rules of law governing specific
performance, injunctive relief and other equitable remedies.
(c) The Company:
(i) has not violated or breached, or committed any
material default under, any Material Company Contract in any material respect;
(ii) represents that, to its knowledge, no event has
occurred, and no circumstance or condition exists, that (with or without notice
or lapse of time) will, or could reasonably be expected to, (A) result in a
violation or breach of any of the provisions of any Material Company Contract,
(B) give any Person the right to declare a default or exercise any remedy under
any Material Company Contract, (C) give any Person the right to accelerate the
maturity or performance of any Material Company Contract, or (D) give any Person
the right to cancel, terminate or modify any Material Company Contract;
(iii) has not, since May 31, 1998, received any notice or
other communication regarding (i) any actual or possible violation or breach of,
or default under, any Material Company Contract, or (ii) any actual or possible
termination of any Material Company Contract; and
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(iv) has not waived any of its material rights under any
Material Company Contract.
3.11 NO UNDISCLOSED LIABILITIES. Except as set forth in the Company
Financial Statements and except for current liabilities incurred in the ordinary
course of business since the date of the Company Financial Statements, the
Company has no accrued, contingent or other liabilities of any nature, either
matured or unmatured.
3.12 COMPLIANCE WITH LEGAL REQUIREMENTS. The Company is, and has at all
times been, in compliance with all applicable Legal Requirements, except where
the failure to comply with such Legal Requirements has not had and will not have
a Material Adverse Effect on the Company. The Company has not received any
notice or other communication from any Governmental Body regarding any actual or
possible violation of, or failure to comply with, any Legal Requirement.
3.13 GOVERNMENTAL AUTHORIZATIONS. The Company has all Governmental
Authorizations necessary to enable the Company to conduct its business in the
manner in which its business is currently being conducted. The Company is, and
at all times has been, in compliance with the material terms and requirements of
such Governmental Authorizations. The Company has not received any notice or
other communication from any Governmental Body regarding (a) any actual or
possible violation of or failure to comply with any term or requirement of any
Governmental Authorization, or (b) any actual or possible revocation,
withdrawal, suspension, cancellation, termination or modification of any
Governmental Authorization.
3.14 TAX MATTERS.
(a) All Tax Returns required to be filed with any Tax authority
with respect to any Taxable period ending on or before the Closing, by or on
behalf of Company, have been or will be completed and filed when due (including
any extensions of such due date) and all amounts shown due on such Tax Returns
on or before the Effective Time have been or will be paid on or before such
date. The Company Financial Statements (i) fully accrue all actual and
contingent liabilities for Taxes with respect to all periods through the date of
the balance sheet included in such Financial Statements (the "Company Balance
Sheet") and Company has not and will not incur any Tax liability in excess of
the amount reflected on such Company Balance Sheet (excluding any amounts
reserved or accrued thereon to reflect timing differences between financial
accounting and taxable income) with respect to such periods and (ii) properly
accrues in accordance with GAAP all material liabilities for Taxes payable after
the date of the Company Balance Sheet with respect to all transactions and
events occurring on or prior to such date. All information set forth in the
Company Financial Statements relating to Tax matters is true, complete and
accurate in all material respects. No material Tax liability since the date of
the Company Balance Sheet has been incurred by Company other than in the
ordinary course of business, and adequate provision has been made by Company for
all Taxes since that date in accordance with GAAP on at least a quarterly basis.
(b) Company has previously provided or made available to Parent
true and correct copies of all income, franchise, and sales Tax Returns, and, as
reasonably requested by Parent, prior to or following the date hereof, presently
existing information statements and reports. Company has withheld and paid to
the applicable financial institutions or Tax authority
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all amounts required to be withheld. To the best knowledge of Company, no Tax
Returns filed with respect to Taxable years of Company through the Taxable year
ended December 31, 1997 in the case of the United States, have been examined and
closed. Company (or any member of any affiliated or combined group of which
Company has been a member) has not granted any extension or waiver of the
limitation period applicable to any Tax Returns that is still in effect. There
is no material claim, audit, action, suit, proceeding, or (to the knowledge of
Company) investigation now pending or (to the knowledge of Company) threatened
against or with respect to Company in respect of any Tax or assessment. No
notice of deficiency or similar document of any Tax authority has been received
by Company, and there are no liabilities for Taxes (including liabilities for
interest, additions to Tax and penalties thereof and related expenses) with
respect to the issues that have been raised (and are currently pending) by any
Tax authority that could, if determined adversely to Company, materially and
adversely affect the liability of Company for Taxes. There are no liens for
Taxes (other than for current Taxes not yet due and payable) upon the assets of
Company. Company has never been a member of an affiliated group of corporations,
within the meaning of Section 1504 of the Code. Company is in full compliance
with all the terms and conditions of any Tax exemptions or other Tax-sharing
agreement or order of a foreign government and the consummation of the Merger
will not have any adverse effect on the continued validity and effectiveness of
any such Tax exemption or other Tax-sharing agreement or order. Neither Company
nor any Person on behalf of Company has entered into or will enter into any
agreement or consent pursuant to the collapsible corporation provisions of
Section 341(f) of the Code (or any corresponding provision of state, local or
foreign income tax law) or agreed to have Section 341(f)(2) of the Code (or any
corresponding provision of state, local or foreign income tax law) apply to any
disposition of any asset owned by Company. None of the assets of the Company are
property that the Company is required to treat as being property of any other
person pursuant to the so-called "safe harbor lease" provisions of Section
168(f)(8) of the Code. None of the assets of Company is "tax-exempt use
property" within the meaning of Section 168(h) of the Code. Company has not made
and will not make a deemed dividend election under Treas. Reg.
Section1.1502-32(f)(2) or a consent dividend election under Section 565 of the
Code. Company has never been a party to any transaction intended to qualify
under Section 355 of the Internal Revenue Code or any corresponding provision of
state law. Company has not participated in (and will not participate in) an
international boycott within the meaning of Section 999 of the Code. No Company
shareholder is other than a United States Person within the meaning of the Code.
Company does not have and has not had a permanent establishment in any foreign
country, as defined in any applicable tax treaty or convention between the
United States of America and such foreign country and Company has not engaged in
a trade or business within any foreign country. Company has never elected to be
treated as an S-corporation under Section 1362 of the code or any corresponding
provision of federal or state law. All material elections with respect to
Company's three most recent taxable years are reflected on the Company Tax
Returns for such periods, copies of which have been provided or made available
to Parent. After the date of this Agreement, no material election with respect
to Taxes will be made without the prior written consent of Parent, which consent
will not be unreasonably withheld or delayed. Company is not currently and never
has been subject to the reporting requirements of Section 6038A of the Code.
There is no agreement, contract or arrangement to which Company is a party that
could, individually or collectively, result in the payment of any amount that
would not be deductible by reason of Sections 280G (as determined without regard
to Section 280G(b)(4), 162 (other than 162(a)) or 404 of the Code. Company is
not a party to or bound by any Tax indemnity, Tax sharing or Tax allocation
agreement (whether written or unwritten or arising
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under operation of federal law as a result of being a member of a group filing
consolidated Tax returns, under operation of certain state laws as a result of
being a member of a unitary group, or under comparable laws of other states or
foreign jurisdictions) which includes a party other than Company nor does
Company owe any amount under any such Agreement. Company has previously provided
or made available to Parent true and correct copies of all income, franchise,
and sales Tax Returns, and, as reasonably requested by Parent, prior to or
following the date hereof, presently existing information statements and
reports. Company is not, and has not been, a United States real property holding
corporation (as defined in Section 897(c)(2) of the Code) during the applicable
period specified in Section 978(c)(1)(A)(ii) of the Code. Other than by reason
of the Merger, Company bas not been and will not be required to include any
material adjustment in Taxable income for any Tax period (or portion thereof)
pursuant to Section 481 or 263A of the Code or any comparable provision under
state or foreign Tax laws as a result of transactions, events or accounting
methods employed prior to the Merger. As used in this Section 3.14, the term
"Company" means Company and any entity included in or required under GAAP to be
included in any of the Company Financial Statements.
(c) No claim or Legal Proceeding is pending or has been
threatened against or with respect to the Company in respect of any Tax. There
are no unsatisfied liabilities for Taxes (including liabilities for interest,
additions to tax and penalties thereon and related expenses) with respect to any
notice of deficiency or similar document received by the Company. There are no
liens for Taxes upon any of the assets of the Company, except liens for current
Taxes not yet due and payable.
(d) At least ninety percent (90%) of the fair market value of the
net assets and at least seventy percent (70%) of the fair market value of the
gross assets held by the Company immediately prior to the Merger will be
transferred to Merger Sub in the Merger. For the purpose of determining the
percentage of the Company's net and gross assets transferred by it in the
Merger, the following assets will be treated as property held by the Company
immediately prior but not transferred in the Merger: (i) assets disposed of by
the Company prior to or by Merger Sub subsequent to the Merger and in
contemplation thereof (including without limitation any asset disposed of by the
Company, other than in the ordinary course of business, pursuant to a plan or
intent existing during the period ending on the Effective Time and beginning
with the commencement of negotiations (whether formal or informal) with Parent
regarding the Merger (the "Pre-Merger Period")), (ii) assets used to pay
Stockholders with respect to Dissenting Shares or other expenses or liabilities
incurred in connection with the Merger, and (iii) assets used to make
distribution, redemption or other payments in respect of the Company capital
stock or rights to acquire such stock (including payments treated as such for
tax purposes) that are made in contemplation of the Merger or related thereto;
(e) The Company has made no transfer of any of its assets
(including any distribution of assets with respect to, or in redemption of,
stock) in contemplation of the Merger or during the Pre-Merger Period other than
(i) in the ordinary course of business, (ii) cash paid to the Company
Stockholders with respect to Dissenting Shares, and (iii) payments for expenses
incurred in connection with the Merger;
(f) The Company has not declared any dividends on shares of the
Company preferred stock;
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(g) The Company will continue to operate its historic business
through the Effective Time;
(h) The liabilities of the Company and the liabilities to which
the Company's assets are subject have been incurred by the Company in the
ordinary course of its business;
(i) Other than shares of the Company capital stock or options to
acquire the Company capital stock issued as compensation to present or former
service providers (including, without limitation, employees and directors) of
the Company in the ordinary course of business, no issuances of the Company
capital stock or rights to acquire the Company capital stock have occurred or
will occur during the Pre-Merger Period other than pursuant to options,
warrants, agreements or conversion rights outstanding prior to the Pre-Merger
Period;
(j) The Company is not and will not be, on the Effective Time, an
"investment company" within the meaning of Section 368(a)(2)(F)(iii) and (iv) of
the Code;
(k) The Company is not under the jurisdiction of a court in a
Title 11 or similar case within the meaning of Section 368 (a)(3)(A) of the
Code;
(l) Other than the possible payment of cash to the Company
Stockholders with respect to Dissenting Shares in accordance with the terms of
the Agreement, neither the Company nor any Person related to the Company (within
the meaning of Treasury Regulation Sections 1.368-1(e)(3), (4) and (5)) has or
will during the Pre-Merger Period acquire any the Company capital stock or any
interest therein (including by way of options, pledges or similar arrangements
or any transaction that reduces the risk of loss of owning the Company capital
stock).
(m) Merger Sub, Parent, the Company and the Company Stockholders
will each pay separately its or their own expenses in connection with the Merger
as contemplated by the Agreement, other than the Company expenses solely and
directly related to the Merger in accordance with Rev. Rul. 73-54, 1973-1 C.B.
187;
(n) No direct or indirect Subsidiary of the Company owns any
shares of the Company capital stock;
(o) Notwithstanding anything above in this Section 3.14 to the
contrary, the Company makes no representations regarding any actions or conduct
of Merger Sub pursuant to Parent's exercise of control over Merger Sub or
Parent.
3.15 EMPLOYEE AND LABOR MATTERS; BENEFIT PLANS.
(a) Part 3.15(a) of the Company Disclosure Schedule contains a
list of all salaried employees of the Company as of the date of this Agreement
whose annual salaries are greater than $50,000, and correctly reflects their
salaries, any other compensation payable to them (including compensation payable
pursuant to bonus, deferred compensation or commission arrangements), their
dates of employment and their positions. The Company is not a party to any
collective bargaining contract or other Contract with a labor union involving
any of its employees.
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(b) Part 3.15(b) of the Company Disclosure Schedule identifies
each salary, bonus, deferred compensation, incentive compensation, stock
purchase, stock option, severance pay, termination pay, hospitalization,
medical, insurance, supplemental unemployment benefits, profit-sharing, pension
or retirement plan, program or agreement (individually referred to as a "Company
Plan" and collectively referred to as the "Company Plans") sponsored,
maintained, contributed to or required to be contributed to by the Company for
the benefit of any current or former employee of the Company.
(c) The Company does not maintain, sponsor or contribute to, and,
has not at any time in the past maintained, sponsored or contributed to, any
employee pension benefit plan (as defined in Section 3(2) of ERISA, whether or
not excluded from coverage under specific Titles or Merger Subtitles of ERISA)
for the benefit of employees or former employees of the Company (a "Company
Pension Plan").
(d) The Company does not maintain, sponsor or contribute to any
employee welfare benefit plan (as defined in Section 3(1) of ERISA, whether or
not excluded from coverage under specific Titles or Merger Subtitles of ERISA)
for the benefit of employees or former employees of the Company (a "Company
Welfare Plan") except for those Company Welfare Plans described in Part 3.15(d)
of the Company Disclosure Schedule, none of which is a multiemployer plan
(within the meaning of Section 3(37) of ERISA).
(e) With respect to each Company Plan, the Company has delivered
to Parent:
(i) an accurate and complete copy of such Company Plan
(including all amendments thereto);
(ii) an accurate and complete copy of the annual report
(if required under ERISA) with respect to such Company Plan for each of 1996 and
1997;
(iii) an accurate and complete copy of (A) the most recent
summary plan description, together with each Summary of Material Modifications
(if required under ERISA) with respect to such Company Plan, and (B) each
material employee communication relating to such Company Plan;
(iv) if such Company Plan is funded through a trust or any
third party funding vehicle, an accurate and complete copy of the trust or other
funding agreement (including all amendments thereto) and accurate and complete
copies the most recent financial statements thereof;
(v) accurate and complete copies of all Contracts relating
to such Company Plan, including service provider agreements, insurance
contracts, minimum premium contracts, stop-loss agreements, investment
management agreements, subscription and participation agreements and
recordkeeping agreements; and
(vi) an accurate and complete copy of the most recent
determination letter received from the Internal Revenue Service with respect to
such Plan (if such Plan is intended to be qualified under Section 401(a) of the
Code).
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(f) The Company is not required to be, and, to the knowledge of
the Company, the Company has never been required to be, treated as a single
employer with any other Person under Section 4001(b)(1) of ERISA or Section
414(b), (c), (m) or (o) of the Code. The Company has never been a member of an
"affiliated service group" within the meaning of Section 414(m) of the Code. The
Company has never made a complete or partial withdrawal from a "multiemployer
plan" (as defined in Section 3(37) of ERISA) resulting in "withdrawal liability"
(as defined in Section 4201 of ERISA), without regard to subsequent reduction or
waiver of such liability under either Section 4207 or 4208 of ERISA.
(g) The Company does not have any plan or commitment to create
any additional Company Welfare Plan or any Company Pension Plan, or to modify or
change any existing Company Welfare Plan or Company Pension Plan (other than to
comply with applicable law).
(h) No Company Welfare Plan provides death, medical or health
benefits (whether or not insured) with respect to any current or former employee
of the Company after any such employee's termination of service (other than (i)
benefit coverage mandated by applicable law, including coverage provided
pursuant to Section 4980B of the Code, (ii) deferred compensation benefits
accrued as liabilities on the Unaudited Interim Balance Sheet, and (iii)
benefits the full cost of which are borne by current or former employees of the
Company (or their beneficiaries)).
(i) With respect to each of the Company Welfare Plans
constituting a group health plan within the meaning of Section 4980B(g)(2) of
the Code, the provisions of Section 4980B of the Code ("COBRA") have been
complied with in all material respects.
(j) Each of the Company Plans has been operated and administered
in all material respects in accordance with applicable Legal Requirements,
including ERISA and the Code.
(k) Each of the Company Plans intended to be qualified under
Section 401(a) of the Code has received a favorable determination from the
Internal Revenue Service, and the Company is not aware of any reason why any
such determination letter should be revoked.
(l) Neither the execution, delivery or performance of this
Agreement, nor the consummation of the Merger or any of the other transactions
contemplated by this Agreement, will result in any bonus payment, golden
parachute payment, severance payment or other payment to any current or former
employee or director of the Company (whether or not under any Company Plan), or
materially increase the benefits payable under any Company Plan, or result in
any acceleration of the time of payment or vesting of any such benefits.
(m) The Company is in compliance in all material respects with
all applicable Legal Requirements and Contracts relating to employment,
employment practices, employee compensation, wages, bonuses and terms and
conditions of employment.
3.16 ENVIRONMENTAL MATTERS. The Company is and has at all times been in
compliance, in all material respects, with all applicable Environmental Laws.
The Company possesses all material permits and other Governmental Authorizations
required under applicable
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Environmental Laws, and the Company is and has at all times been in material
compliance with the terms and requirements of all such Governmental
Authorizations. The Company has not received any notice or other communication
(whether from a Governmental Body, citizens group, employee or otherwise) that
alleges that the Company is not in compliance with any Environmental Law, and,
to the knowledge of the Company, there are no circumstances that could
reasonably be expected to prevent or interfere with the Company's compliance
with any Environmental Law in the future. To the knowledge of the Company, no
current or prior owner of any real property leased or controlled by the Company
has received any notice or other communication (whether from a Governmental
Body, citizens group, employee or otherwise) that alleges that such current or
prior owner or the Company is not or was not in compliance with any
Environmental Law. (For purposes of this Section 3.16 and Section 4.16: (i)
"Environmental Law" means any federal, state or local Legal Requirement relating
to pollution or protection of human health or the environment (including ambient
air, surface water, ground water, land surface or subsurface strata), including
any law or regulation relating to emissions, discharges, releases or threatened
releases of Materials of Environmental Concern, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Materials of Environmental Concern; and (ii) "Materials
of Environmental Concern" include chemicals, pollutants, contaminants, wastes,
toxic substances, petroleum and petroleum products and any other substance that
is now regulated by any Environmental Law or that is otherwise a danger to
health, reproduction or the environment).
3.17 INSURANCE. The business and properties of the Company are insured
for the benefit of the Company in amounts deemed adequate by the Company's
management against risks usually insured against by Persons operating businesses
similar to those of the Company in the localities where such properties are
located and at a similar stage as the Company is in product development. Part
3.17 of the Company Disclosure Schedule contains a complete and accurate list of
all insurance policies held by the Company. All such policies have been
delivered by the Company to Parent.
3.18 RELATED PARTY TRANSACTIONS. Except as set forth in the Company
Financial Statements: (a) no Company Related Party has, and no Company Related
Party has at any time had, any direct or indirect interest in any material asset
used in or otherwise relating to the business of the Company; (b) no Company
Related Party is, or has at any time been, indebted to the Company nor has
Company been indebted to a Company Related Party; (c) no Company Related Party
has entered into, or has had any direct or indirect financial interest in, any
Material Company Contract, transaction or business dealing involving the
Company; (d) no Company Related Party is competing, or has at any time competed,
directly or indirectly, with the Company; and (e) no Company Related Party has
any claim or right against the Company (other than rights to receive
compensation for services performed as an employee of the Company). (For
purposes of this Section 3.18, each of the following shall be deemed to be a
"Company Related Party": (i) each individual who is, or who has at any time
been, an officer or director of the Company or directly or indirectly, a holder
of ten percent (10%) or more of the equity securities of a Company; (ii) each
individual who is, or who at any time has been, a member of the immediate family
of any of the individuals referred to in clause "(i)" above; and (iii) any trust
or other Entity (other than the Company) in which any one of the individuals
referred to in clauses "(i)" and "(ii)" above holds (or in which more than one
of such individuals collectively hold), beneficially or otherwise, a material
voting, proprietary or equity interest.)
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3.19 LEGAL PROCEEDINGS; ORDERS. There is no pending Legal Proceeding,
and, to the knowledge of the Company, no Person has threatened to commence any
Legal Proceeding that: (i) may have a Material Adverse Effect on the Company or
its business; or (ii) challenges, or that may have the effect of preventing,
delaying, making illegal or otherwise interfering with, the Merger or any of the
other transactions contemplated by this Agreement. To the knowledge of the
Company, no event has occurred, and no claim, dispute or other condition or
circumstance exists, that will, or that could reasonably be expected to, give
rise to or serve as a basis for the commencement of any such Legal Proceeding.
There is no order, writ, injunction, judgment or decree to which the Company, or
any of the material assets owned or used by the Company, is subject. To the
knowledge of the Company, no officer or other employee of the Company is subject
to any order, writ, injunction, judgment or decree that prohibits such officer
or other employee from engaging in or continuing any conduct, activity or
practice relating to the Company's business. There is no action, suit,
proceeding or investigation by the Company currently pending or which the
Company intends to initiate.
3.20 AUTHORITY; BINDING NATURE OF AGREEMENT. Except for the approval of
the Merger by the stockholders of the Company, the Company has full corporate
power and authority to enter into and to perform its obligations under this
Agreement and the other agreements to be executed by the Company in connection
herewith to which it is a party; and the execution, delivery and performance by
the Company of this Agreement, the other agreements to be executed in connection
herewith to which it is a party and the transactions contemplated hereby have
been duly authorized by all necessary action on the part of the Company, its
Board of Directors and its stockholders. This Agreement and the other agreements
executed in connection herewith to which the Company is a party constitute the
legal, valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms, except as enforcement thereof may be
limited by (i) laws of general application relating to bankruptcy, insolvency,
moratorium, reorganization or other similar laws, both state and federal,
affecting the enforcement of creditors' rights or remedies in general, and (ii)
rules of law governing specific performance, injunctive relief and other
equitable remedies.
3.21 NON-CONTRAVENTION; CONSENTS AND NOTICES. Neither (1) the execution,
delivery or performance of this Agreement or any of the other agreements
referred to in this Agreement to which it is a party, nor (2) the consummation
of the Merger or any of the other transactions contemplated by this Agreement,
will directly or indirectly (with or without notice or lapse of time):
(a) contravene, conflict with or result in a violation of any of
the provisions of the Company's certificate of incorporation or bylaws;
(b) with respect to the Company, contravene, conflict with or
result in a violation of, or give any Governmental Body or other Person the
right to challenge any of the transactions contemplated by this Agreement or to
exercise any remedy or obtain any relief under, any Legal Requirement or any
order, writ, injunction, judgment or decree to which the Company, or any of the
material assets owned or used by the Company, is subject;
(c) with respect to the Company, contravene, conflict with or
result in a violation of any of the terms or requirements of, or give any
Governmental Body the right to
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revoke, withdraw, suspend, cancel, terminate or modify, any Governmental
Authorization that is held by the Company or that otherwise relates to the
Company's business or to any of the material assets owned or used by the
Company;
(d) contravene, conflict with or result in a violation or breach
of, or result in a default under, any provision of any Material Company
Contract, or give any Person the right to (i) declare a default or exercise any
remedy under any Material Company Contract, (ii) accelerate the maturity or
performance of any Material Company Contract, or (iii) cancel, terminate or
modify any Material Company Contract; or
(e) result in the imposition or creation of any lien or other
Encumbrance upon or with respect to any asset owned or used by the Company
(except for minor liens that will not, in any case or in the aggregate,
materially detract from the value of the assets subject thereto or materially
impair the operations of the Company).
Except as may be required by the DGCL and any applicable state
securities or blue sky laws, the Company is not and will not be required to make
any filing with or give any notice to, or to obtain any Consent from, any Person
in connection with (x) the execution, delivery or performance of this Agreement
or any of the other agreements referred to in this Agreement, or (y) the
consummation of the Merger or any of the other transactions contemplated by this
Agreement.
3.22 FULL DISCLOSURE. This Agreement (including the Company Disclosure
Schedule) does not, (i) contain any representation, warranty or information that
is false or misleading with respect to any material fact, or (ii) omit to state
any material fact necessary in order to make the representations, warranties and
information contained and to be contained herein and therein not false or
misleading.
3.23 FINDER'S FEE. No broker, finder or investment banker is entitled to
any brokerage, finder's or other fee or commission in connection with the Merger
or any of the other transactions contemplated thereby based upon arrangements
made by or on behalf of the Company.
SECTION 4
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub, jointly and severally, represent and warrant to the
Company and the Company Stockholders, all of whom shall be third party
beneficiaries of this Section 4, that, except as set forth in the disclosure
schedule prepared by Parent in accordance with the requirements of Section 11.10
and that has been delivered by Parent to the Company on the date of this
Agreement (the "Parent Disclosure Schedule"):
4.1 DUE ORGANIZATION, ETC.
(a) Parent and its Subsidiaries are corporations duly organized,
validly existing and in good standing under the laws of their respective
jurisdictions of incorporation and each has full corporate power and authority
to (i) conduct its business in the manner in which it is now being conducted,
(ii) own and use its assets in the manner in which its assets are now being
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owned and used and (iii) perform its obligations under all Material Parent
Contracts by which it is bound. The Subsidiaries of Parent are listed on Part
4.1(a) of the Parent Disclosure Schedule.
(b) Parent and its Subsidiaries are qualified to do business as a
foreign corporation, and are in good standing, under the laws of each
jurisdiction, where the nature of their business requires such qualification and
where the failure to be so qualified would have a Material Adverse Effect on
Parent.
4.2 CERTIFICATE OF INCORPORATION AND BYLAWS; RECORDS. Parent has
delivered or otherwise made available to Company accurate and complete copies
of: (1) Parent's certificate of incorporation and bylaws as currently in effect,
including all amendments thereto; (2) the stock records of Parent; and (3) the
minutes and other records of the meetings and other proceedings (including any
actions taken by written consent or otherwise without a meeting) of the
stockholders of Parent, the Board of Directors of Parent and all committees of
the Board of Directors of Parent. Parent is not in violation of any of the
provisions of its certificate of incorporation or bylaws. The books of account,
stock records, minute books and other records of Parent are accurate and
complete in all material respects, and have been maintained in accordance with
prudent business practices.
4.3 CAPITALIZATION. The authorized capital stock of Parent consists of
50,000,000 shares of Parent Common Stock, 10,151,263 shares of which have been
issued and are outstanding as of the date hereof, and 20,000,000 shares of
preferred stock, none of which are issued and outstanding as of the date hereof.
Except as disclosed on Part 4.3 of the Parent Disclosure Schedule, Parent has no
outstanding stock options, warrants or other convertible securities to purchase
of Parent Common Stock as of the date hereof (the "Parent Options"). Parent has
reserved 1,300,000 shares for issuance under the 1998 Plan of which 300,000
shares shall be reserved for issuance to directors, officers, employees or
agents of the Surviving Corporation. All of the outstanding shares of Parent and
Merger Sub capital stock have been duly authorized and validly issued, and are
fully paid and nonassessable, and none of such shares is subject to any
repurchase option or restriction on transfer other than restrictions imposed by
federal or state securities laws. All outstanding shares of Parent and Merger
Sub capital stock have been issued in compliance with all applicable federal and
state securities laws and other applicable Legal Requirements, and all
requirements set forth in applicable Parent Contracts. All of the outstanding
shares of capital stock of Parent's Subsidiaries are owned beneficially and of
record by Parent, free and clear of any Encumbrances. Except as set forth above,
there are no authorized or outstanding shares, subscriptions, options, calls,
warrants or other rights (whether or not currently exercisable) to acquire any
shares of the capital stock or other securities of Parent. The Merger Shares,
when issued by Parent to the Company's stockholders in accordance with the terms
of this Agreement, will be duly authorized, validly issued, fully paid and
nonassessable, will be issued in compliance with applicable federal and state
securities laws and will be free and clear of any Encumbrances created or
imposed, directly or indirectly, by Parent. There are no preemptive or similar
rights with respect to the Parent's capital stock.
4.4 FINANCIAL STATEMENTS.
(a) Parent has delivered to the Company the following
consolidated financial statements (collectively, the "Parent Financial
Statements"):
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(i) the unaudited balance sheets of Parent as of December
31, 1997 and 1996, and the related unaudited statements of income, statements of
stockholders' equity and statements of cash flows of Parent for the year then
ended; and
(ii) The unaudited balance sheet of Parent as of May 31,
1998 (the "Parent Unaudited Interim Balance Sheet"), and the related unaudited
statement of income of Parent for the five-month period then ended.
(b) The Parent Financial Statements present fairly the financial
position of Parent on a consolidated basis, which includes Parent's
Subsidiaries, as of the respective dates thereof and the results of operations
and cash flows of Parent for the periods covered thereby. The Parent Financial
Statements have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods covered (except
that the Parent Financial Statements do not contain footnotes and are subject to
normal and recurring year end audit adjustments, which will not, individually or
in the aggregate be material in magnitude).
4.5 ABSENCE OF CHANGES. Since May 31, 1998:
(a) Parent has not suffered any Material Adverse Effect, and, to
the knowledge of Parent, no event has occurred that will, or could reasonably be
expected to, have a Material Adverse Effect on Parent and its Subsidiaries;
(b) there has not been any material loss, damage or destruction
to any of the assets of Parent (whether or not covered by insurance);
(c) Parent has not declared, accrued, set aside or paid any
dividend or made any other distribution in respect of any shares of capital
stock nor has repurchased, redeemed or otherwise reacquired any shares of
capital stock or other securities;
(d) Parent has not sold, issued or authorized the issuance of (i)
any capital stock or other security (except for Parent Common Stock issued upon
the exercise of outstanding Parent Options), (ii) any option, call, warrant or
right to acquire, or otherwise relating to, any capital stock or any other
security (except for Parent Options), or (iii) any instrument convertible into
or exchangeable for any capital stock or other security;
(e) there has been no amendment to the certificate of
incorporation or bylaws of Parent, and Parent has not effected any
recapitalization, reclassification of shares, stock split, reverse stock split
or similar transaction;
(f) Parent has not amended or waived any of its rights under, or
permitted the acceleration of vesting under (i) any provision of any agreement
evidencing any outstanding Parent Option, or (ii) any restricted stock purchase
agreement;
(g) Neither Parent nor its Subsidiaries have written off as
uncollectible, or established any reserve with respect to, any account
receivable or other indebtedness in excess of $100,000 individually or in the
aggregate;
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(h) Parent has not made any pledge of any of its assets or
otherwise permitted any of its assets to become subject to any Encumbrance,
except for pledges of assets valued at $100,000 or less, individually or in the
aggregate, made in the ordinary course of business and consistent with past
practices;
(i) Parent has not changed any of its methods of accounting or
accounting practices in any respect;
(j) Parent has not made any material Tax election other than in
the ordinary course of business;
(k) Neither Parent nor its Subsidiaries have commenced or settled
any Legal Proceeding;
(l) Neither Parent nor its Subsidiaries have agreed or committed
to take any of the actions referred to in clauses "(c)" through "(k)" above.
4.6 TITLE TO ASSETS.
(a) Parent and each of its Subsidiaries owns, and has good and
valid title to, all assets purported to be owned by it, including the assets
reflected in the Parent Financial Statements and all other assets reflected in
such entity's books and records as being owned by it. All of said assets are
owned by Parent and each of its Subsidiaries, free and clear of any
Encumbrances, except for (i) any lien for current taxes not yet due and payable
and (ii) minor liens that have arisen in the ordinary course of business and
that do not (in any case or in the aggregate) materially detract from the value
of the assets subject thereto or materially impair the operations of Parent.
(b) Part 4.6(b) of the Parent Disclosure Schedule identifies all
assets that are being leased or licensed to Parent that involve obligations in
excess of $100,000 on an individual basis.
4.7 ACCOUNTS RECEIVABLE; LOANS AND ADVANCES.
(a) All accounts receivable of Parent and its Subsidiaries that
are reflected in the Parent Unaudited Interim Balance Sheet (collectively, the
"Parent Accounts Receivable") represent or will represent valid obligations
arising from sales actually made or services actually performed in the ordinary
course of business. Unless paid prior to the Closing Date, the Parent Accounts
Receivable are or will be, as of the Closing Date, current and collectible net
of any respective reserves shown in the Parent Unaudited Interim Balance Sheet
(which reserves are adequate and calculated consistent with past practice).
There is no contest, claim, or right of set-off, other than returns in the
ordinary course of business, under any Contract with any obligor of any Parent
Accounts Receivable relating to the amount or validity of such Parent Accounts
Receivable.
(b) Part 4.7(b) of Parent Disclosure Schedule contains an
accurate and complete list as of the date of this Agreement of all loans and
advances made by Parent to any
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employee, director, consultant or independent contractor of Parent other than
routine travel advances made to employees in the ordinary course of business.
4.8 EQUIPMENT; REAL PROPERTY.
(a) The assets of Parent are adequate for the uses to which they
are being put, are in good condition and repair (ordinary wear and tear
excepted) and are adequate for the conduct of Parent's business in the manner in
which such business is now being conducted.
(b) Parent does not own any real property. Part 4.8 of the Parent
Disclosure Schedule contains a complete and accurate list of all leases or
sublessees of real property entered into by Parent.
4.9 PROPRIETARY ASSETS.
(a) Parent and its Subsidiaries have good and valid title to, or
have sufficient licenses to use, all Parent Proprietary Assets free and clear of
all Encumbrances, and have a valid right to use all Parent Proprietary Assets.
Neither Parent nor its Subsidiaries are obligated to make any payment to any
Person for the use of any Parent Proprietary Asset. To the knowledge of Parent,
Parent and its Subsidiaries are free to use, modify, copy, distribute, sell,
license or otherwise exploit on an exclusive basis each of the Parent
Proprietary Assets.
(b) Parent and its Subsidiaries have taken reasonable measures
and precautions necessary to protect and maintain the confidentiality and
secrecy of all Parent Proprietary Assets (except Parent Proprietary Assets whose
value would be unimpaired by public disclosure) and otherwise to maintain and
protect the value of all Parent Proprietary Assets.
(c) To the knowledge of Parent, none of the Parent Proprietary
Assets infringes or conflicts with any Proprietary Asset owned or used by any
other Person. To the knowledge of Parent, neither Parent nor its Subsidiaries
are misappropriating or making any unlawful use of, and neither Parent nor its
Subsidiaries has at any time misappropriated or made any unlawful use of, or
received any notice or other communication of any actual, alleged, possible or
potential infringement, misappropriation or unlawful use of, any Proprietary
Asset owned or used by any other Person. To the knowledge of Parent, no other
Person is infringing, misappropriating or making any unlawful use of, and no
Proprietary Asset owned or used by any other Person infringes or conflicts with,
any Parent Proprietary Asset.
(d) To the knowledge of Parent, Parent Proprietary Assets
constitute all the Proprietary Assets necessary to enable Parent or its
Subsidiaries to conduct their respective businesses in the manner in which such
businesses have been conducted. Neither Parent nor its Subsidiaries have
licensed any of the Parent Proprietary Assets to any Person on an exclusive
basis and Parent or its Subsidiaries have not entered into any covenant not to
compete or Contract limiting its ability to exploit fully any of its Proprietary
Assets or to transact business in any market or geographical area or with any
Person.
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4.10 CONTRACTS.
(a) Part 4.10(a) of the Parent Disclosure Schedule identifies
each Parent Contract that constitutes a "Material Parent Contract." For purposes
of this Agreement, a "Material Parent Contract" shall be deemed to be any
Contract:
(i) relating to the employment or engagement of, or the
performance of services by, any employee, consultant or independent contractor
which involves a potential commitment of Parent in excess of $100,000 per year;
(ii) relating to the acquisition, transfer, use,
development, sharing or license of any technology or any Parent Proprietary
Asset (except for any Parent Proprietary Asset that is licensed to the Parent
under any third party software license agreement generally available to the
public at a cost of less than $25,000);
(iii) imposing any restriction on Parent's right or
ability (A) to compete with any other Person, (B) to acquire any product or
other asset or any services from any other Person, to sell any product or other
asset to or perform any services for any other Person or to transact business or
deal in any other manner with any other Person, or (C) to develop or distribute
any technology;
(iv) creating or involving any agency relationship,
distribution arrangement or franchise relationship involving payments or
obligations in excess of $100,000 per year;
(v) creating or relating to the creation of any
Encumbrance with respect to any asset owned or used by Parent having a value in
excess of $100,000;
(vi) involving or incorporating any guaranty, any pledge,
any performance or completion bond, any indemnity (other than customary
intellectual property indemnities for hardware and software sold by Parent), any
right of contribution or any surety arrangement, any of which obligations
involve a Parent obligation in excess of $100,000 per year;
(vii) creating or relating to any partnership or joint
venture or any sharing of revenues, profits, losses, costs or liabilities;
(viii) relating to the purchase or sale of any product or
other asset by or to, or the performance of any services by or for, any Parent
Related Party;
(ix) entered into outside the ordinary course of business;
(x) that may not be terminated by Parent (without penalty)
within 60 days after the delivery of a termination notice by Parent;
(xi) contemplating or involving (A) the payment or
delivery of cash or other consideration in an amount or having a value in excess
of $100,000 in the aggregate, or (B) the performance of services having a value
in excess of $100,000 in the aggregate; and
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(xii) relating to the lease or sublease, either as lessee
or lessor, sublessee or sublessor, of real or Personal property or intangibles.
(b) Parent has delivered to the Company accurate and complete
copies of all Material Parent Contracts identified in Part 4.10(a) of the Parent
Disclosure Schedule, including all amendments thereto. Each Material Parent
Contract identified in Part 4.10(a) of the Parent Disclosure Schedule is valid
and in full force and effect, and is enforceable by Parent in accordance with
its terms, subject to (i) laws of general application relating to bankruptcy,
insolvency and the relief of debtors, and (ii) rules of law governing specific
performance, injunctive relief and other equitable remedies.
(c) Parent:
(i) has not violated or breached, or committed any
material default under, any Material Parent Contract in any material respect;
(ii) represents that, to its knowledge, no event has
occurred, and no circumstance or condition exists, that (with or without notice
or lapse of time) will, or could reasonably be expected to, (A) result in a
violation or breach of any of the provisions of any Material Parent Contract,
(B) give any Person the right to declare a default or exercise any remedy under
any Material Parent Contract, (C) give any Person the right to accelerate the
maturity or performance of any Material Parent Contract, or (D) give any Person
the right to cancel, terminate or modify any Material Parent Contract;
(iii) has not received any notice or other communication
regarding (i) any actual or possible violation or breach of, or default under,
any Material Parent Contract, or (ii) any actual or possible termination of any
Material Parent Contract; and
(iv) has not waived any of their material rights under any
Material Parent Contract.
4.11 NO UNDISCLOSED LIABILITIES. Except as set forth in the Parent
Financial Statements and except for current liabilities incurred in the ordinary
course of business since the date of the Parent Financial Statements, neither
Parent nor its Subsidiaries have accrued, contingent or other liabilities of any
nature, either matured or unmatured.
4.12 COMPLIANCE WITH LEGAL REQUIREMENTS. Parent and its Subsidiaries
are, and have at all times been, in compliance with all applicable Legal
Requirements, except where the failure to comply with such Legal Requirements
has not had and will not have a Material Adverse Effect on Parent. Neither
Parent nor its Subsidiaries have received any notice or other communication from
any Governmental Body regarding any actual or possible violation of, or failure
to comply with, any Legal Requirement.
4.13 GOVERNMENTAL AUTHORIZATIONS. Parent and each of its Subsidiaries
have all Governmental Authorizations necessary to enable Parent and each of its
Subsidiaries to conduct its business in the manner in which its business is
currently being conducted. Parent and each of its Subsidiaries are, and at all
times has been, in compliance with the material terms and requirements of such
Governmental Authorizations. Neither Parent nor its Subsidiaries have
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received any notice or other communication from any Governmental Body regarding
(a) any actual or possible violation of or failure to comply with any term or
requirement of any Governmental Authorization, or (b) any actual or possible
revocation, withdrawal, suspension, cancellation, termination or modification of
any Governmental Authorization.
4.14 TAX MATTERS.
(a) All Tax Returns required to be filed with any Tax authority
with respect to any Taxable period ending on or before the Closing, by or on
behalf of Parent, have been or will be completed and filed when due (including
any extensions of such due date) and all amounts show due on such Tax Returns on
or before the Effective Time have been or will be paid on or before such date.
The Parent Financial Statements (i) fully accrue all actual and contingent
liabilities for Taxes with respect to all periods through the date of the
balance sheet included in the Parent Financial Statements (the "Parent Balance
Sheet") and Parent has not and will not incur any Tax liability in excess of the
amount reflected on such Parent Balance Sheet (excluding any amounts reserved or
accrued thereon to reflect timing differences between financial accounting and
taxable income) with respect to such periods and (ii) properly accrues in
accordance with GAAP all material liabilities for Taxes payable after the date
of the Parent Balance Sheet with respect to all transactions and events
occurring on or prior to such date. All information set forth in the Parent
Financial Statements relating to Tax matters is true, complete and accurate in
all material respects. No material Tax liability since the date of the Parent
Balance Sheet has been incurred by Parent other than in the ordinary course of
business, and adequate provision has been made by Parent for all Taxes since
that date in accordance with GAAP on at least a quarterly basis.
(b) Parent has previously provided or made available to the
Company true and correct copies of all income, franchise, and sales Tax Returns,
and, as reasonably requested by Parent, prior to or following the date hereof,
presently existing information statements and reports. Parent has withheld and
paid to the applicable financial institutions or Tax authority all amounts
required to be withheld. To the best knowledge of Parent, no Tax Returns filed
with respect to Taxable years of Parent through the Taxable year ended December
31, 1997 in the case of the United States, have been examined and closed. Parent
(or any member of any affiliated or combined group of which Parent has been a
member) has not granted any extension or waiver of the limitation period
applicable to any Tax Returns that is still in effect. There is no material
claim, audit, action, suit, proceeding, or (to the knowledge of Parent)
investigation now pending or (to the knowledge of Parent) threatened against or
with respect to Parent in respect of any Tax or assessment. No notice of
deficiency or similar document of any Tax authority has been received by Parent,
and there are no liabilities for Taxes (including liabilities for interest,
additions to Tax and penalties thereof and related expenses) with respect to the
issues that have been raised (and are currently pending) by any Tax authority
that could, if determined adversely to Parent, materially and adversely affect
the liability of Parent for Taxes. There are no liens for Taxes (other than for
current Taxes not yet due and payable) upon the assets of Parent. Parent has
never been a member of an affiliated group of corporations, within the meaning
of Section 1504 of the Code. Parent is in full compliance with all the terms and
conditions of any Tax exemptions or other Tax-sharing agreement or order of a
foreign government and the consummation of the Merger will not have any adverse
effect on the continued validity and effectiveness of any such Tax exemption or
other Tax-sharing agreement or order. Neither Parent nor any Person on behalf
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of Parent has entered into or will enter into any agreement or consent pursuant
to the collapsible corporation provisions of Section 341(f) of the Code (or any
corresponding provision of state, local or foreign income tax law) or agreed to
have Section 341(f)(2) of the Code (or any corresponding provision of state,
local or foreign income tax law) apply to any disposition of any asset owned by
Parent. None of the assets of the Parent are property that the Parent is
required to treat as being property of any other person pursuant to the
so-called "safe harbor lease" provisions of Section 168(f)(8) of the Code. None
of the assets of Parent is "tax-exempt use property" within the meaning of
Section 168(h) of the Code. Parent has not made and will not make a deemed
dividend election under Treas. Reg. Section1.1502-32(f)(2) or a consent dividend
election under Section 565 of the Code. Parent has never been a party to any
transaction intended to qualify under Section 355 of the Internal Revenue Code
or any corresponding provision of state law. Parent has not participated in (
and will not participate in) an international boycott within the meaning of
Section 999 of the Code. No Parent shareholder is other than a United States
Person within the meaning of the Code. Parent does not have and has not had a
permanent establishment in any foreign country, as defined in any applicable tax
treaty or convention between the United States of America and such foreign
country and Parent has not engaged in a trade or business within any foreign
country. Parent has never elected to be treated as an S-corporation under
Section 1362 of the code or any corresponding provision of federal or state law.
All material elections with respect to Parent's three most recent taxable years
are reflected on the Parent Tax Returns for such periods, copies of which have
been provided or made available to Parent. After the date of this Agreement, no
material election with respect to Taxes will be made without the prior written
consent of Parent, which consent will not be unreasonably withheld or delayed.
Parent is not currently and never has been subject to the reporting requirements
of Section 6038A of the Code. There is no agreement, contract or arrangement to
which Parent is a party that could, individually or collectively, result in the
payment of any amount that would not be deductible by reason of Sections 280G
(as determined without regard to Section 280G(b)(4), 162 (other than 162(a)) or
404 of the Code. Parent is not a party to or bound by any Tax indemnity, Tax
sharing or Tax allocation agreement (whether written or unwritten or arising
under operation of federal law as a result of being a member of a group filing
consolidated Tax returns, under operation of certain state laws as a result of
being a member of a unitary group, or under comparable laws of other states or
foreign jurisdictions) which includes a party other than Parent nor does Parent
owe any amount under any such Agreement. Parent has previously provided or made
available to Parent true and correct copies of all income, franchise, and sales
Tax Returns, and, as reasonably requested by Parent, prior to or following the
date hereof, presently existing information statements and reports. Parent is
not, and has not been, a United States real property holding corporation (as
defined in Section 897(c)(2) of the Code) during the applicable period specified
in Section 978(c)(1)(A)(ii) of the Code. Other than by reason of the Merger,
Parent bas not been and will not be required to include any material adjustment
in Taxable income for any Tax period (or portion thereof) pursuant to Section
481 or 263A of the Code or any comparable provision under state or foreign Tax
laws as a result of transactions, events or accounting methods employed prior to
the Merger. As used in this Section 4.14, the term "Parent" means Parent and
entity included or required under GAAP to be included in any of the Parent
Financial Statements.
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(c) No claim or Legal Proceeding is pending or has been
threatened against or with respect to Parent or any of its Subsidiaries in
respect of any Tax. There are no unsatisfied liabilities for Taxes (including
liabilities for interest, additions to tax and penalties thereon and related
expenses) with respect to any notice of deficiency or similar document received
by Parent or its Subsidiaries. There are no liens for Taxes upon any of the
assets of Parent or its Subsidiaries, except liens for current Taxes not yet due
and payable.
(d) Parent is participating in the Merger for good and valid
business reasons and not for tax purposes;
(e) Prior to the Merger, Parent will be in "Control" of Merger
Sub. As used herein, "Control" of a corporation shall consist of ownership of
stock possessing at least eighty percent (80%) of the total combined voting
power of all classes of stock entitled to vote and at least eighty percent (80%)
of the total number of shares of all other classes of stock of the corporation.
For purposes of determining Control, a Person shall not be considered to own
voting stock if rights to vote such stock (or to restrict or otherwise control
the voting of such stock) are held by a third party (including a voting trust)
other than an agent of such Person;
(f) Other than the acquisition of shares of Company capital stock
upon the consummation of the Merger in accordance with the terms of this
Agreement, neither Parent nor any Person related to Parent (within the meaning
of Treasury Regulation Sections 1.368-1(e)(3), (4) and (5)) has or will acquire
any Company capital stock or any interest therein (including by way of options,
pledges or similar arrangements or any transaction that reduces the risk of loss
of owning Company capital stock). Other than (i) the possible reacquisition of
shares held in escrow pursuant to the Escrow Agreement and (ii) the possible
redemption of shares pursuant to the election of the holders thereof pursuant to
the Certificate of Designation, Rights and Preferences of the Series B
Convertible Preferred Stock (the "Certificate of Designation"), neither Parent
nor any Person related to Parent (within the meaning of Treasury Regulation
Sections 1.368-1(e)(3), (4) and (5)) has or, as of the Effective Time will have,
any plan or intention to reacquire any of the shares of Parent capital stock
issued in the Merger or acquire any interest in such shares (including by way of
options, pledges or similar arrangements or any transaction that reduces the
risk of loss of owning such Parent capital stock) and no such reacquisition of
shares or acquisition of an interest therein will occur (even if not pursuant to
a plan or intent existing as of the effective time) during the two-year period
following the effective time.
(g) Parent has no plan or intention to cause Merger Sub to issue
additional shares of stock after the Merger that would result in Parent losing
Control of Merger Sub;
(h) Except for transfers described in both Section 368(a)(2)(C)
of the Code and Treasury Regulation Section 1.368-2(j)(4) ("Permissible
Transfers"), Parent has no plan or intention to take any of the following
actions: (i) liquidate Merger Sub; (ii) except for the Merger, merge Merger Sub
with or into another corporation including Parent or its affiliates; (iii) sell,
distribute or otherwise dispose of the capital stock of Merger Sub; or (iv)
cause Merger Sub to sell or otherwise dispose of any of its assets or of any of
the assets acquired from Company except for dispositions made in the ordinary
course of business or payment of expenses incurred by Merger Sub pursuant to the
Merger (including payments with respect to Dissenting Shares and fractional
shares, if any); provided, however, that nothing herein shall be understood to
impose any
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limitation on the right of Parent to transfer assets or engage in any other
transaction which Parent may determine to be necessary, appropriate or desirable
in the exercise of its business judgment after the Merger in response to the
circumstances then existing (as opposed to a plan or intention arising prior to
the Merger);
(i) At the time of the Merger, Merger Sub will have no
liabilities or assets subject to liabilities, except to the extent incurred in
connection with the transactions contemplated by the Agreement. Merger Sub is a
newly formed corporation that was created for the sole purpose of facilitating
the Merger, and it has conducted no business activities prior to the Effective
Time;
(j) Following the Merger, either the historic business of Company
will be continued or a significant portion of Company's historic business assets
will be utilized in a business; provided, however, that to the extent that the
business or assets of Merger Sub are subject to a Permissible Transfer, Parent
will cause the transferee to continue the historic business of Company or use a
significant portion of Company's assets in a business;
(k) Neither Parent nor any current or former Subsidiary of Parent
owns, or has owned during the past five (5) years, directly or indirectly, any
shares of Company capital stock, or the right to acquire or vote any such
shares;
(l) Neither Parent nor Merger Sub is an investment company within
the meaning of Section 368(a)(2)(F)(iii) and (iv) of the Code;
(m) No Stockholder of Company is acting as agent for Parent in
connection with the Merger or approval thereof, and Parent will not reimburse
any Company Stockholder for Company capital stock such Stockholder may have
purchased or for other obligations such Stockholder may have incurred;
(n) Neither Parent nor Merger Sub is under the jurisdiction of a
court in a Title 11 or similar case within the meaning of Section 368(a)(3)(A)
of the Code;
(o) The payment of cash in lieu of fractional shares of Parent is
solely for the purpose of avoiding the expense and inconvenience to Parent of
issuing fractional shares and does not represent separately bargained-for
consideration. The total cash consideration that will be paid in the Merger to
Company Stockholders in lieu of fractional shares of Series B Preferred Stock
will not exceed one percent (1%) of the total consideration that will be issued
in the Merger to Company Stockholders in exchange for their shares of Company
capital stock. The fractional share interests of each Company Stockholder will
be aggregated and no Company Stockholder will receive cash in an amount greater
than the value of one full share of Series B Preferred Stock;
(p) No shares of Merger Sub have been or will be used as
consideration or issued to Stockholders of Company pursuant to the Merger;
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(q) The Series B Preferred Stock held in escrow pursuant to the
Escrow Agreement will appear as issued and outstanding on the balance sheet of
Parent;
(r) Except as otherwise specifically provided in this Agreement,
Merger Sub, Parent, the Company and the Stockholders of the Company will each
pay separately its or their own expenses in connection with the Merger as
contemplated by the Agreement;
(s) There is no intercorporate indebtedness existing between
Parent and Company or between Merger Sub and the Company that was issued,
acquired or will be settled at a discount as a result of the Merger, and Parent
will assume no liabilities of the Company or any Company Stockholder in
connection with the Merger, other than the Company expenses solely and directly
related to the Merger in accordance with Rev. Rul. 73-54, 1973-1 C.B. 187;
(t) None of the compensation received by any
stockholder-employees of the Company will be separate consideration for, or
allocable to, any of their shares of the Company capital stock; none of the
shares of Series B Preferred Stock received by any stockholder-employees of the
Company will be separate consideration for, or allocable to, any employment
agreement or any covenants not to compete; and the compensation paid to any
stockholder-employees of the Company will be for services actually rendered and
will be commensurate with amounts paid to third parties bargaining at arm's
length for similar services;
(u) Notwithstanding anything above in this Section 4.14 to the
contrary, Parent makes no representations regarding any actions or conduct of
the Company prior to the Effective Time.
4.15 EMPLOYEE AND LABOR MATTERS; BENEFIT PLANS.
(a) Part 4.15(a) of the Parent Disclosure Schedule contains a
list of all salaried employees of Parent as of the date of this Agreement whose
annual salaries are greater than $100,000, and correctly reflects their
salaries, any other compensation payable to them (including compensation payable
pursuant to bonus, deferred compensation or commission arrangements), their
dates of employment and their positions. Parent is not a party to any collective
bargaining contract or other Contract with a labor union involving any of its
employees.
(b) Part 4.15(b) of the Parent Disclosure Documents identifies
each salary, bonus, deferred compensation, incentive compensation, stock
purchase, stock option, severance pay, termination pay, hospitalization,
medical, insurance, supplemental unemployment benefits, profit-sharing, pension
or retirement plan, program or agreement (individually referred to as a "Parent
Plan" and collectively referred to as the "Parent Plans") sponsored, maintained,
contributed to or required to be contributed to by Parent for the benefit of any
current or former employee of Parent.
(c) Parent does not maintain, sponsor or contribute to, and has
not at any time in the past maintained, sponsored or contributed to, any
employee pension benefit plan (as defined in Section 3(2) of ERISA), whether or
not excluded from coverage under specific Titles or Merger Subtitles of ERISA)
for the benefit of employees or former employees of Parent (a "Parent Pension
Plan").
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(d) Parent does not maintain, sponsor or contribute to any
employee welfare benefit plan (as defined in Section 3(1) of ERISA, whether or
not excluded from coverage under specific Titles or Merger Subtitles of ERISA)
for the benefit of employees or former employees of Parent (a "Parent Welfare
Plan") except for those Parent Welfare Plans described in Part 4.15(d) of the
Parent Disclosure Schedule, none of which is a multiemployer plan (within the
meaning of Section 3(37) of ERISA).
(e) With respect to each Parent Plan, Parent has delivered to the
Company:
(i) an accurate and complete copy of such Parent Plan
(including all amendments thereto);
(ii) an accurate and complete copy of the annual report
(if required under ERISA) with respect to such Parent Plan for each of 1996 and
1997;
(iii) an accurate and complete copy of (A) the most recent
summary plan description, together with each Summary of Material Modifications
(if required under ERISA) with respect to such Parent Plan, and (B) each
material employee communication relating to such Parent Plan;
(iv) if such Parent Plan is funded through a trust or any
third party funding vehicle, an accurate and complete copy of the trust or other
funding agreement (including all amendments thereto) and accurate and complete
copies the most recent financial statements thereof;
(v) accurate and complete copies of all Contracts relating
to such Parent Plan, including service provider agreements, insurance contracts,
minimum premium contracts, stop-loss agreements, investment management
agreements, subscription and participation agreements and recordkeeping
agreements; and
(vi) an accurate and complete copy of the most recent
determination letter received from the Internal Revenue Service with respect to
such Plan (if such Plan is intended to be qualified under Section 401(a) of the
Code).
(f) Parent is not required to be, and, to the knowledge of
Parent, Parent has never been required to be, treated as a single employer with
any other Person under Section 4001(b)(1) of ERISA or Section 414(b), (c), (m)
or (o) of the Code. Parent has never been a member of an "affiliated service
group" within the meaning of Section 414(m) of the Code. Parent has never made a
complete or partial withdrawal from a "multiemployer plan" (as defined in
Section 3(37) of ERISA) resulting in "withdrawal liability" (as defined in
Section 4201 of ERISA), without regard to subsequent reduction or waiver of such
liability under either Section 4207 or 4208 of ERISA.
(g) Parent does not have any plan or commitment to create any
additional Parent Welfare Plan or any Parent Pension Plan, or to modify or
change any existing Parent Welfare Plan or Parent Pension Plan (other than to
comply with applicable law).
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(h) No Parent Welfare Plan provides death, medical or health
benefits (whether or not insured) with respect to any current or former employee
of Parent after any such employee's termination of service (other than (i)
benefit coverage mandated by applicable law, including coverage provided
pursuant to Section 4980B of the Code, (ii) deferred compensation benefits
accrued as liabilities on the Parent Unaudited Interim Balance Sheet, and (iii)
benefits the full cost of which are borne by current or former employees of
Parent (or their beneficiaries)).
(i) With respect to each of Parent Welfare Plans constituting a
group health plan within the meaning of Section 4980B(g)(2) of the Code, the
provisions of Section 4980B of the Code ("COBRA") have been complied with in all
material respects.
(j) Each of the Parent Plans has been operated and administered
in all material respects in accordance with applicable Legal Requirements,
including ERISA and the Code.
(k) Each of the Parent Plans intended to be qualified under
Section 401(a) of the Code has received a favorable determination from the
Internal Revenue Service, and Parent is not aware of any reason why any such
determination letter should be revoked.
(l) Neither the execution, delivery or performance of this
Agreement, nor the consummation of the Merger or any of the other transactions
contemplated by this Agreement, will result in any bonus payment, golden
parachute payment, severance payment or other payment to any current or former
employee or director of Parent (whether or not under any Parent Plan), or
materially increase the benefits payable under any Parent Plan, or result in any
acceleration of the time of payment or vesting of any such benefits.
(m) Parent is in compliance in all material respects with all
applicable Legal Requirements and Contracts relating to employment, employment
practices, employee compensation, wages, bonuses and terms and conditions of
employment.
4.16 ENVIRONMENTAL MATTERS. Parent is and has at all times been in
compliance, in all material respects, with all applicable Environmental Laws.
Parent possesses all material permits and other Governmental Authorizations
required under applicable Environmental Laws, and Parent is and has at all times
been in material compliance with the terms and requirements of all such
Governmental Authorizations. Parent has not received any notice or other
communication (whether from a Governmental Body, citizens group, employee or
otherwise) that alleges that Parent is not in compliance with any Environmental
Law, and, to the knowledge of Parent, there are no circumstances that could
reasonably be expected to prevent or interfere with Parent's compliance with any
Environmental Law in the future. To the knowledge of Parent, no current or prior
owner of any real property leased or controlled by Parent has received any
notice or other communication (whether from a Governmental Body, citizens group,
employee or otherwise) that alleges that such current or prior owner or Parent
is not or was not in compliance with any Environmental Law.
4.17 INSURANCE. The business and properties of Parent and each of its
Subsidiaries are insured for the benefit of Parent and each of its Subsidiaries
in amounts deemed adequate by their respective management against risks usually
insured against by Persons operating businesses similar to those of Parent or
such Subsidiaries in the localities where such properties are located. Part 4.17
of the Parent Disclosure Schedule contains a complete and accurate list of all
insurance
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policies held by Parent. Copies of all such policies have been delivered by the
Parent to the Company.
4.18 RELATED PARTY TRANSACTIONS. Except as set forth in Part 4.18 of the
Parent Disclosure Schedule or in the Parent Financial Statements: (a) no Parent
Related Party has, and no Parent Related Party has at any time had, any direct
or indirect interest in any material asset used in or otherwise relating to the
business of Parent; (b) no Parent Related Party is, or has at any time been,
indebted to Parent or any of its Subsidiaries nor has Parent or any of its
Subsidiaries been indebted to a Parent Related Party; (c) no Parent Related
Party has entered into, or has had any direct or indirect financial interest in,
any Material Parent Contract, transaction or business dealing involving Parent;
(d) no Parent Related Party is competing, or has at any time competed, directly
or indirectly, with Parent; and (e) no Parent Related Party has any claim or
right against Parent (other than rights to receive compensation for services
performed as an employee of Parent). (For purposes of this Section 4.18, each of
the following shall be deemed to be a "Parent Related Party": (i) each
individual who is, or who has at any time been, an officer or director of Parent
or, directly or indirectly, a holder of ten percent (10%) or more of the equity
securities of Parent; (ii) each individual who is, or who at any time has been,
a member of the immediate family of any of the individuals referred to in clause
"(i)" above; (iii) any trust or other Entity (other than Parent) in which any
one of the individuals referred to in clauses "(i)" and "(ii)" above holds (or
in which more than one of such individuals collectively hold), beneficially or
otherwise, a material voting, proprietary or equity interest); (iv) any entity
which is under common ownership or control with Parent or stockholders holding
ten percent (10%) of the equity securities of Parent; or (v) any entity owned or
controlled by Inamed Corporation or McGhan Medical Corporation.
4.19 LEGAL PROCEEDINGS; ORDERS. Except as discussed on Part 4.19 of the
Parent Disclosure Schedule, there is no pending Legal Proceeding, and, to the
knowledge of Parent, no Person has threatened to commence any Legal Proceeding
that: (i) may have a Material Adverse Effect on Parent its Subsidiaries or their
business; or (ii) challenges, or that may have the effect of preventing,
delaying, making illegal or otherwise interfering with, the Merger or any of the
other transactions contemplated by this Agreement. To the knowledge of Parent,
no event has occurred, and no claim, dispute or other condition or circumstance
exists, that will, or that could reasonably be expected to, give rise to or
serve as a basis for the commencement of any such Legal Proceeding. There is no
order, writ, injunction, judgment or decree to which Parent, its Subsidiaries or
any of the material assets owned or used by Parent or its Subsidiaries, is
subject. To the knowledge of Parent, no officer or other employee of Parent or
its Subsidiaries is subject to any order, writ, injunction, judgment or decree
that prohibits such officer or other employee from engaging in or continuing any
conduct, activity or practice relating to Parent's or its Subsidiaries'
business. There is no action, suit, proceeding or investigation by Parent or its
Subsidiaries currently pending or which Parent or its Subsidiaries intend to
initiate.
4.20 AUTHORITY; BINDING NATURE OF AGREEMENT. Parent and Merger Sub have
the full corporate power and authority to perform their obligations under this
Agreement and the other agreements to be executed by each of them in connection
herewith to which each is party (collectively, "Related Agreements"); the
execution, delivery and performance by Parent and Merger Sub of this Agreement
and the Related Agreements to which each is a party have been duly authorized by
all necessary action on the part of Parent and its Boards of Directors, and the
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execution, delivery and performance of this Agreement and the Related Agreements
to which each is a party by Merger Sub have been duly authorized by all
necessary action on the part of Parent, as the sole shareholder of Merger Sub.
This Agreement and the Related Agreements to which each is a party constitutes
the legal, valid and binding obligation of Parent and Merger Sub, enforceable
against them in accordance with its terms, except as enforcement thereof may be
limited by (i) laws of general application relating to bankruptcy, insolvency
moratorium, reorganization or other similar laws, both state and federal,
affecting the enforcement of creditors' rights or remedies in general, and (ii)
rules of law governing specific performance, injunctive relief and other
equitable remedies.
4.21 NON-CONTRAVENTION; CONSENTS AND NOTICES. Neither (1) the execution,
delivery or performance of this Agreement or any of the other agreements
referred to in this Agreement, nor (2) the consummation of the Merger or any of
the other transactions contemplated by this Agreement, will directly or
indirectly (with or without notice or lapse of time):
(a) contravene, conflict with or result in a violation of any of
the provisions of Parent's certificate of incorporation or bylaws;
(b) with respect to Parent, contravene, conflict with or result
in a violation of, or give any Governmental Body or other Person the right to
challenge any of the transactions contemplated by this Agreement or to exercise
any remedy or obtain any relief under, any Legal Requirement or any order, writ,
injunction, judgment or decree to which Parent, or any of the material assets
owned or used by Parent, is subject;
(c) with respect to Parent, contravene, conflict with or result
in a violation of any of the terms or requirements of, or give any Governmental
Body the right to revoke, withdraw, any Governmental Authorization that is held
by Parent or that otherwise relates to Parent's business or to any of the
material assets owned or used by Parent;
(d) contravene, conflict with or result in a violation of breach
of, or result in a default under, any provision of any Material Parent Contract,
or give any Person the right to (i) declare a default or exercise any remedy
under any Material Parent Contract, (ii) accelerate the maturity or performance
of any Material Parent Contract, or (iii) cancel, terminate or modify any
Material Parent Contract; or
(e) result in the imposition or creation of any lien or other
Encumbrance upon or with respect to any asset owned or used by Parent (except
for minor liens that will not, in any case or in the aggregate, materially
detract from the value of the assets subject thereto or materially impair the
operations of Parent).
Except as may be required by the Securities Act, the Exchange Act, state
securities or "blue sky" laws, and the DGCL, Parent is not, nor will be
required, to make any filing with or give any notice to, or to obtain any
Consent from, any Person in connection with the execution and delivery of this
Agreement or the consummation of the Merger.
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4.22 FULL DISCLOSURE. This Agreement (including the Parent Disclosure
Schedule) does not, (i) contain any representation, warranty or information that
is false or misleading with respect to any material fact, or (ii) omit to state
any material fact necessary in order to make the representations, warranties and
information contained and to be contained herein and therein not false or
misleading.
4.23 FINDER'S FEE. No broker, finder or investment banker is entitled to
any brokerage, finder's or other fee or commission in connection with the Merger
or any of the other transactions contemplated thereby based upon arrangements
made by or on behalf of Parent.
SECTION 5
CERTAIN COVENANTS OF THE COMPANY
5.1 ACCESS AND INVESTIGATION. During the period from the date of this
Agreement through the earlier of (i) the Effective Time or (ii) termination of
this Agreement (the "Pre-Closing Period"), the Company shall, and shall cause
its Representatives to: (a) provide Parent and Parent's Representatives, at
Parent's expense, with reasonable access to the Company's Representatives,
Personnel and assets and to all existing books, records, Tax Returns, work
papers and other documents and information relating to the Company and (b)
provide Parent and Parent's Representatives, at Parent's expense, with such
copies of the existing books, records, Tax Returns, work papers and other
documents and information relating to the Company, and with such additional
financial, operating and other data and information regarding the Company, as
Parent or its Representatives may reasonably request.
5.2 OPERATION OF THE COMPANY'S BUSINESS. During the Pre-Closing Period,
except as contemplated by or made in connection with this Agreement or consented
to by Parent in writing, the Company shall:
(a) conduct its business and operations in the ordinary course
and in substantially the same manner as such business and operations have been
conducted prior to the date of this Agreement;
(b) use commercially reasonable efforts to preserve intact its
current business organization, keep available the services of its current
officers and employees and maintain its relations and goodwill with all
suppliers, customers, landlords, creditors, employees and other Persons having
business relationships with the Company in each case, in all material respects;
(c) use commercially reasonable efforts to keep in full force all
insurance policies in effect as of the date of this Agreement;
(d) cause its chief executive officer to report regularly (but in
no event less frequently than every two weeks) to Parent concerning the status
of the Company's business;
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(e) not declare, accrue, set aside or pay any dividend or make
any other distribution in respect of any shares of capital stock, and shall not
repurchase, redeem or otherwise reacquire any shares of capital stock or other
securities except that the Company may repurchase shares from former service
providers in accordance with the agreements identified in Part 5.2(e) of the
Company Disclosure Schedule in connection with any termination of services
thereunder;
(f) not sell, issue or authorize the issuance of (i) any capital
stock or other security, (ii) any option, call, warrant or right to acquire, or
relating to, any capital stock or other security or (iii) any instrument
convertible into or exchangeable for any capital stock or other security (except
that the Company shall be permitted to issue Company Common Stock upon the
exercise of outstanding Company Options);
(g) not amend or waive any of its rights under, or authorize the
acceleration of vesting under (i) any provision of any agreement evidencing any
outstanding Company Option or (ii) any provision of any restricted stock
purchase agreement;
(h) not amend or permit the adoption of any amendment to the
Company's certificate of incorporation or bylaws, or effect or permit the
Company to become a party to any Company Acquisition Transaction,
recapitalization, reclassification of shares, stock split, reverse stock split
or similar transaction;
(i) not form any Subsidiary or acquire any equity interest or
other interest in any other Entity;
(j) not make any capital expenditure, except for capital
expenditures that, when added to all other capital expenditures made on behalf
of the Company during the Pre-Closing Period, do not exceed $10,000 in the
aggregate;
(k) not (i) enter into or become bound by, or permit any of the
assets owned or used by it to become bound by, any Material Company Contract, or
(ii) amend or prematurely terminate, or waive any material right or remedy
under, any Material Company Contract;
(l) not (i) acquire, lease or license any material right or other
material asset from any other Person, (ii) sell or otherwise dispose of, or
lease or license, any material right or other material asset to any other Person
except that the Company may sell or license inventory in the ordinary course of
business, or (iii) waive or relinquish any right, except for immaterial assets
acquired, leased, licensed or disposed of by the Company pursuant to Contracts
that are not Material Company Contracts;
(m) not (i) lend money to any Person (other than ordinary
advances for travel and entertainment), or (ii) incur or guarantee any
indebtedness in excess of $10,000;
(n) not (i) pay any bonus or make any profit-sharing or similar
payment to, or increase the amount of the wages, salary, commissions, fringe
benefits or other compensation or remuneration payable to, any of its directors,
officers or employees except pursuant to agreements in effect on the date
hereof, or (ii) hire any new employee whose aggregate annual compensation is
expected to exceed $50,000;
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(o) not change any of its methods of accounting or accounting
practices in any respect (except as otherwise required by generally accepted
accounting principles or any change therein);
(p) not make any material Tax election except in the ordinary
care of business;
(q) not commence or settle any Legal Proceeding;
(r) except as contemplated by this Agreement, not enter into any
material transaction or take any other material action outside the ordinary
course of business or inconsistent with its past practices; and
(s) not agree or commit to take any of the actions described in
clauses "(e)" through "(r)" of this Section 5.2.
5.3 NOTIFICATION; UPDATES TO COMPANY DISCLOSURE SCHEDULE.
(a) During the Pre-Closing Period, the Company shall promptly
notify Parent in writing of:
(i) the discovery by the Company of any event, condition,
fact or circumstance that occurred or existed on or prior to the date of this
Agreement and that caused or constitutes an inaccuracy in or breach of any
representation or warranty made by the Company in this Agreement;
(ii) any event, condition, fact or circumstance that
occurs, arises or exists after the date of this Agreement and that would cause
or constitute an inaccuracy in or breach of any representation or warranty made
by the Company in this Agreement if (A) such representation or warranty had been
made as of the time of the occurrence, existence or discovery of such event,
condition, fact or circumstance, or (B) such event, condition, fact or
circumstance had occurred, arisen or existed on or prior to the date of this
Agreement;
(iii) any breach of any covenant or obligation of the
Company; and
(iv) any event, condition, fact or circumstance that would
make the timely satisfaction of any of the conditions set forth in Section 7 or
Section 8 impossible or unlikely.
(b) If any event, condition, fact or circumstance that is
required to be disclosed pursuant to Section 5.3(a) requires any change in the
Company Disclosure Schedule, or if any such event, condition, fact or
circumstance would require such a change assuming the Company Disclosure
Schedule were dated as of the date of the occurrence, existence or discovery of
such event, condition, fact or circumstance, then the Company shall promptly
deliver to Parent an update to the Company Disclosure Schedule specifying such
change. Any such update shall be deemed to be disclosed under the Company
Disclosure Schedule, provided, however, that no such update shall be deemed to
supplement or amend the Company Disclosure Schedule for the purpose of
determining whether any of the conditions set forth in Section 7 has been
satisfied.
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5.4 NO SOLICITATION. Upon the execution of this Agreement, the Company
shall, and shall cause each of its Representatives to, discontinue any ongoing
discussions or negotiations (other than any ongoing discussions with Parent)
relating to a possible Company Acquisition Transaction. During the Pre-Closing
Period, the Company shall not directly or indirectly, and shall not authorize or
permit any Representative of the Company directly or indirectly to, (i) solicit,
initiate, encourage or induce the making, submission or announcement of any
Acquisition Proposal or take any action that could reasonably be expected to
lead to an Acquisition Proposal, (ii) furnish any information regarding the
Company to any Person in connection with or in response to any inquiry, interest
or proposal relating to possible Acquisition Proposal, (iii) continue or engage
in any discussions or negotiations, with any Person with respect to any possible
Acquisition Proposal, (iv) approve, endorse or recommend any Acquisition
Proposal or (v) enter into any letter of intent or similar document or Contract
contemplating or otherwise relating to any Company Acquisition Transaction. The
Company shall, and shall cause each of its representatives to, promptly provide
Parent with an oral and written description of any expression of interest,
inquiry, proposal or offer relating to a possible Company Acquisition
Transaction that is received by the Company or any of the Company's
representatives from any Person (other than Parent) on or prior to the Effective
Time.
SECTION 6
CERTAIN COVENANTS OF PARENT
6.1 ACCESS AND INVESTIGATION. During the Pre-Closing Period, Parent
shall, and shall cause its Representatives to: (a) provide the Company and the
Company's Representatives, at Company's expense, with reasonable access to
Parent's Representatives, Personnel and assets and to all existing books,
records, Tax Returns, work papers and other documents and information relating
to Parent; and (b) provide the Company and the Company's Representatives, at
Company's expense, with such copies of the existing books, records, Tax Returns,
work papers and other documents and information relating to Parent, and with
such additional financial, operating and other data and information regarding
Parent, as the Company or its Representatives may reasonably request.
6.2 OPERATION OF PARENT'S BUSINESS. During the Pre-Closing Period,
except as contemplated by or made in connection with this Agreement or consented
to by the Company in writing, Parent shall:
(a) conduct its business and operations in the ordinary course
and in substantially the same manner as such business and operations have been
conducted prior to the date of this Agreement;
(b) use commercially reasonable efforts to preserve intact its
current business organization, keep available the services of its current
officers and employees and maintain its relations and goodwill with all
suppliers, customers, landlords, creditors, employees and other Persons having
business relationships with Parent, in all material respects;
(c) use commercially reasonable efforts to keep in full force all
insurance policies in place as of the date of this Agreement;
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(d) not declare, accrue, set aside or pay any dividend or make
any other distribution in respect of any shares of capital stock, and shall not
repurchase, redeem or otherwise reacquire any shares of capital stock or other
securities (other than the surrender of options in connection with terminations
of employment);
(e) not change any of its methods of accounting or accounting
practices in any respect (except as otherwise required by generally accepted
accounting principles or any change therein);
(f) not make any material Tax election except in the ordinary
course of business;
(g) not commence or settle any Legal Proceeding; and
(h) not agree or commit to take any of the actions described in
clauses "(d)" through "(g)" of this Section 6.2.
6.3 NOTIFICATION; UPDATES TO PARENT DISCLOSURE SCHEDULE.
(a) During the Pre-Closing Period, Parent shall promptly notify
the Company in writing of:
(i) the discovery by Parent of any event, condition, fact
or circumstance that occurred or existed on or prior to the date of this
Agreement and that caused or constitutes an inaccuracy in or breach of any
representation or warranty made by Parent in this Agreement;
(ii) any event, condition, fact or circumstance that
occurs, arises or exists after the date of this Agreement and that would cause
or constitute an inaccuracy in or breach of any representation or warranty made
by Parent in this Agreement; if (A) such representation or warranty had been
made as of the time of the occurrence, existence or discovery of such event,
condition, fact or circumstance, or (B) such event, condition, fact or
circumstance had occurred, arisen or existed on or prior to the date of this
Agreement;
(iii) any breach of any covenant or obligation of Parent;
and
(iv) any event, condition, fact or circumstance that would
make the timely satisfaction of any of the conditions set forth in Section 7 or
Section 8 impossible or unlikely.
(b) If any event, condition, fact or circumstance that is
required to be disclosed pursuant to Section 6.3(a) requires any change in the
Parent Disclosure Schedule, or if any such event, condition, fact or
circumstance would require such a change assuming the Parent Disclosure Schedule
were dated as of the date of the occurrence, existence or discovery of such
event, condition, fact or circumstance, then Parent shall promptly deliver to
the Company an update to the Parent Disclosure Schedule specifying such change.
Any such update shall be deemed to be disclosed under the Parent Disclosure
Schedule, provided, however, that no such
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update shall be deemed to supplement or amend the Parent Disclosure Schedule
for the purpose of determining whether any of the conditions set forth in
Section 8 has been satisfied.
6.4 REGULATORY FILINGS. Prior to the Effective Time, Parent shall make
all required filings with state regulatory authorities, and shall ensure that
the Merger Shares will be issued in compliance under the securities or "blue
sky" laws of every jurisdiction of the United States in which any registered
stockholder of the Company has an address of record on the record date for
determining the stockholders entitled to notice of and to vote on the Merger.
6.5 STOCK OPTION PLAN; EMPLOYEE BENEFITS. At the Effective Time, Parent
shall reserve 300,000 shares of Parent Common Stock (the "Reserve Shares") to be
issued pursuant to option grants under Parent's 1998 Stock Compensation Program,
in the form attached hereto as Exhibit I (the "1998 Plan"), to employees and
future employees of Surviving Corporation at the recommendation of the Board of
Directors of the Surviving Corporation. One Hundred Twenty Five Thousand of the
Reserve Shares shall be reserved for issuance to employees of Surviving
Corporation under the 1998 Plan only in the event that Surviving Corporation
receives final U.S. Food and Drug Administration approval of its bone cement
product. Parent shall cause the employee benefits made available to employees of
the Surviving Corporation to be substantially equivalent to employee benefits
made available to similarly situated employees of Parent and Parent's other
subsidiaries.
6.6 REORGANIZATION. Neither Parent nor Merger Sub will, either before or
after the Effective Time, take any action or fail to take any action if such
action or failure to act could reasonably be expected to cause the Merger to
fail to qualify as a "reorganization" within the meaning of Section 368 of the
Code or materially increase the risk thereof other than actions expressly
contemplated by this Agreement.
6.7 LOAN. At or within five business days following the Closing, Parent
will loan to Surviving Corporation $200,000 pursuant to the Funding Commitment
Letter, a form of which is attached hereto on Exhibit F.
SECTION 7
CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND MERGER SUB
The obligations of Parent and Merger Sub to effect the Merger and
otherwise consummate the transactions contemplated by this Agreement are subject
to the satisfaction, at or prior to the Closing, of each of the following
conditions:
7.1 ACCURACY OF REPRESENTATIONS. The representations and warranties made
by the Company in this Agreement and in each of the other agreements and
instruments entered into and delivered by the Company to Parent in connection
with the transactions contemplated by this Agreement shall have been accurate in
all material respects as of the date of this Agreement, and shall be accurate in
all material respects as of the Closing Date as if made at the Closing Date
(without giving effect to any update to the Company Disclosure Schedule except
as to matters previously approved by Parent in writing).
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7.2 PERFORMANCE OF COVENANTS. Each covenant or obligation that the
Company is required to comply with or to perform at or prior to the Closing
shall have been complied with and performed in all respects.
7.3 NO MATERIAL ADVERSE EFFECT. Since the date of this Agreement, there
shall have been no Material Adverse Effect on the Company and there shall not
have occurred any change or development, or any combination of changes or
developments, that would reasonably be expected to have a Material Adverse
Effect on the Company.
7.4 COMPLIANCE CERTIFICATE. The Company shall have delivered to Parent a
certificate of the Chief Executive Officer of the Company evidencing compliance
with the conditions set forth in Sections 7.1, 7.2 and 7.3.
7.5 STOCKHOLDER APPROVAL. The stockholders of the Company shall have
approved this Agreement and the Merger in accordance with and as required by the
DGCL.
7.6 CONSENTS. All Consents required to be obtained in connection with
the Merger and the other transactions contemplated by this Agreement (including
the Consents identified in Part 3.21 of the Company Disclosure Schedule) shall
have been obtained and shall be in full force and effect.
7.7 LEGAL OPINION. Parent shall have received a legal opinion of
Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP in the form of
Exhibit C, dated as of the Closing Date;
7.8 NO RESTRAINTS. No temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation of the Merger
shall have been issued by any court of competent jurisdiction and remain in
effect, and there shall not be any Legal Requirement enacted or deemed
applicable to the Merger that makes consummation of the Merger illegal.
7.9 NO GOVERNMENTAL LITIGATION. There shall not be pending or threatened
any Proceeding in which a Governmental Authority is or is threatened to become a
party: (a) challenging or seeking to restrain or prohibit the consummation of
the Merger or any of the transactions contemplated thereby; (b) relating to the
Merger and seeking to obtain from Parent or the Company any damages that may be
material to Parent or the Company; (c) seeking to prohibit or limit in any
material respect Parent's ability to vote, receive dividends with respect to or
otherwise exercise ownership rights with respect to the stock of the Surviving
Corporation; or (d) which would materially and adversely affect the right of
Parent or the Surviving Corporation to own the assets or operate the business of
the Company.
7.10 NO OTHER LITIGATION. There shall not be pending any Proceeding in
which there is a reasonable possibility of an outcome that would have a Material
Adverse Effect on Parent or the Company by: (a) challenging or seeking to
restrain or prohibit the consummation of the Merger or any of the transactions
contemplated thereby; (b) relating to the Merger and seeking to obtain from
Parent or the Company any damages that may be material to Parent or the Company;
(c) seeking to prohibit or limit in any material respect Parent's ability to
vote, receive dividends with respect to or otherwise exercise ownership rights
with respect to the stock of the Surviving
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Corporation; or (d) which would affect adversely the right of Parent or the
Surviving Corporation to own the assets or operate the business of the Company.
7.11 CONTINUITY OF INTEREST CERTIFICATES. Company shall use commercially
reasonable efforts to deliver or cause to be delivered to counsel for Parent and
Company prior to the Effective Time, from each stockholder of the Company, a
Continuity of Interest Certificate in the form attached hereto as Exhibit J.
7.12 DISSENTING SHARES. Holders of not more than ten percent (10%) of
the Company's outstanding capital stock shall have not voted in favor of the
Merger.
SECTION 8
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY
The obligations of the Company to effect the Merger and otherwise
consummate the transactions contemplated by this Agreement are subject to the
satisfaction, at or prior to the Closing, of each of the following conditions:
8.1 ACCURACY OF REPRESENTATIONS. The representations and warranties made
by Parent and Merger Sub in this Agreement and in each of the other agreements
and instruments delivered entered into and by Parent or Merger Sub to the
Company in connection with the transactions contemplated by this Agreement shall
have been accurate in all material respects as of the date of this Agreement,
and shall be accurate in all material respects as of the Closing Date as if made
at the Closing Date (without giving effect to any update to the Parent
Disclosure Schedule except as to matters previously approved by the Company in
writing).
8.2 PERFORMANCE OF COVENANTS. Each covenant or obligation that Parent
and/or Merger Sub is required to comply with or to perform at or prior to the
Closing shall have been complied with and performed in all respects.
8.3 NO MATERIAL ADVERSE EFFECT. Since the date of this Agreement, there
shall have been no Material Adverse Effect on Parent and there shall not have
occurred any change or development, or any combination of changes or
developments, that would reasonably be expected to have a Material Adverse
Effect on Parent.
8.4 COMPLIANCE CERTIFICATE. Parent shall have delivered to the Company a
certificate of the Chief Executive Officer of Parent evidencing compliance with
the conditions set forth in Sections 8.1, 8.2 and 8.3.
8.5 STOCKHOLDER APPROVAL. The stockholders of the Company, if necessary,
shall have approved this Agreement and the Merger in accordance with and as
required by the DGCL.
8.6 CONSENTS. All Consents required to be obtained in connection with
the Merger and the other transactions contemplated by this Agreement (including
the Consents identified in Part 4.21 of the Parent Disclosure Schedule) shall
have been obtained and shall be in full force and effect.
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8.7 LEGAL OPINION. The Company shall have received a legal opinion of
Nida & Maloney, P.C., dated as of the Closing Date, in the form of Exhibit D.
8.8 REGISTRATION RIGHTS. Parent and the stockholders of the Company
shall have executed and delivered a Registration Rights Agreement, dated as of
the Closing Date, in the form of Exhibit E.
8.9 FUNDING COMMITMENT LETTER. Parent shall have executed and delivered
a Funding Commitment Letter in favor of the Surviving Corporation, dated as of
the Closing Date, in the form of Exhibit F.
8.10 STOCK OPTION PLAN. Parent shall have adopted the 1998 Plan.
8.11 PREISSMAN EMPLOYMENT AGREEMENT. The Surviving Corporation and
Howard Preissman shall have executed and delivered an Employment Agreement,
dated as of the Closing Date, in the form of Exhibit H.
8.12 NO RESTRAINTS. No temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation of the Merger
shall have been issued by any court of competent jurisdiction and remain in
effect, and there shall not be any Legal Requirement enacted or deemed
applicable to the Merger that makes consummation of the Merger illegal.
8.13 NO GOVERNMENTAL LITIGATION. There shall not be pending or
threatened any Proceeding in which a Governmental Authority is or is threatened
to become a party: (a) challenging or seeking to restrain or prohibit the
consummation of the Merger or any of the transactions contemplated thereby; (b)
relating to the Merger and seeking to obtain from Parent or the Company any
damages that may be material to Parent or the Company; (c) seeking to prohibit
or limit in any material respect Parent's ability to vote, receive dividends
with respect to or otherwise exercise ownership rights with respect to the stock
of the Surviving Corporation; or (d) which would materially and adversely affect
the right of Parent or the Surviving Corporation to own the assets or operate
the business of the Company.
8.14 NO OTHER LITIGATION. There shall not be pending any Proceeding in
which there is a reasonable possibility of an outcome that would have a Material
Adverse Effect on Parent or the Company: (a) challenging or seeking to restrain
or prohibit the consummation of the Merger or any of the transactions
contemplated thereby; (b) relating to the Merger and seeking to obtain from
Parent or the Company any damages that may be material to Parent or the Company;
(c) seeking to prohibit or limit in any material respect Parent's ability to
vote, receive dividends with respect to or otherwise exercise ownership rights
with respect to the stock of the Surviving Corporation; or (d) which would
affect adversely the right of Parent or the Surviving Corporation to own the
assets or operate the business of the Company.
8.15 CERTIFICATE OF DESIGNATION. Parent shall have authorized and filed
with the Secretary of State of the State of Delaware the Certificate of
Designation attached hereto as Exhibit K.
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8.16 DISSENTING SHARES. Holders of not more than ten percent (10%) of
the Company's outstanding capital stock shall have not voted in favor of the
Merger.
SECTION 9
TERMINATION
9.1 TERMINATION. This Agreement may be terminated prior to the Effective
Date:
(a) by mutual written consent of Parent and the Company;
(b) by either Parent or the Company if the Merger shall not have
been consummated within sixty (60) days of the date hereof (unless the failure
to consummate the Merger is attributable to a failure on the part of the party
seeking to terminate this Agreement to perform any material obligation required
to be performed by such party at or prior to the Effective Date);
(c) by either Parent or the Company if a court of competent
jurisdiction or other Governmental Body shall have issued a final and
nonappealable order, decree or ruling, or shall have taken any other action,
having the effect of permanently restraining, enjoining or otherwise prohibiting
the Merger;
(d) by either Parent or the Company if this Agreement is not
approved by the stockholders of the Company; or
(e) by such party if any of the other party's representations and
warranties contained in this Agreement shall be or shall have become materially
inaccurate, or if any of the other party's covenants contained in this Agreement
shall have been breached in any material respect; provided, however, that if an
inaccuracy in a party's representations and warranties or a breach of a covenant
by a party is curable by such party and such party is continuing to exercise all
reasonable efforts to cure such inaccuracy or breach, then the breaching party
shall have thirty (30) days from the time of receipt of written notice from the
nonbreaching party of such breach or inaccuracy to cure such breach and if it is
not cured within such thirty (30) day period, the nonbreaching party may
terminate this Agreement under this Section 9.1(e) on account of such inaccuracy
or breach.
9.2 EFFECT OF TERMINATION. In the event of the termination of this
Agreement as provided in Section 9.1, this Agreement shall be of no further
force or effect; provided, however, that (i) this Section 9.2, Section 9.3,
Section 10 and Section 11.16 shall survive the termination of this Agreement and
shall remain in full force and effect, and (ii) the termination of this
Agreement shall not relieve any party from any liability for any breach of this
Agreement.
9.3 FEES AND EXPENSES. Each party to this Agreement shall bear and pay
all fees, costs and expenses (including legal fees and accounting fees) that
have been incurred or that are incurred in the future by such party in
connection with the transactions contemplated by this Agreement, including all
fees, costs and expenses incurred by such party in connection with or by virtue
of (a) the investigation and review conducted by such party (or its
Representatives) with respect to the other party's business (and the furnishing
of information to the other party and its
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Representatives in connection with such investigation and review), (b) the
negotiation, preparation and review of this Agreement and all agreements,
certificates, opinions and other instruments and documents delivered or to be
delivered in connection with the transactions contemplated by this Agreement,
(c) the preparation and submission of any filing or notice required to be made
or given in connection with any of the transactions contemplated by this
Agreement, and the obtaining of all Consents and Governmental Authorizations
required to be obtained in connection with any of such transactions, and (d) the
consummation of the Merger, provided however, that the fees and expenses of
Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, L.P. not to exceed
$80,000, shall be paid within five (5) business days of Closing by Surviving
Corporation.
SECTION 10
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION.
10.1 SURVIVAL OF COMPANY REPRESENTATIONS AND WARRANTIES. The
representations and warranties made by the Company herein (including the
representations and warranties set forth in Section 3 or contained in the
certificate delivered by an officer of the Company pursuant to Section 7.4)
shall survive the Closing and shall expire on the first anniversary of the
Closing Date (the "Expiration Date"); provided, however, that if, at any date
prior to the Expiration Date, Parent delivers to Howard Preissman (the
"Stockholders' Agent") a written notice alleging the existence of an inaccuracy
in or a breach of any of the representations or warranties made by the Company
(and setting forth in reasonable detail the basis for Parent's belief that such
an inaccuracy or breach may exist) and asserting a claim for recovery under
Section 10.3 based on such alleged inaccuracy or breach, then the claim asserted
in such notice shall survive the Expiration Date until such date as such claim
is fully and finally resolved. The representations, warranties, covenants and
obligations of the Company and the rights and remedies that may be exercised by
Parent shall not be limited or otherwise affected by or as a result of any
information furnished to, or any investigation made by or knowledge of, the
Parent; provided, however, that there shall be no liability for any matter
disclosed to Parent pursuant to Section 5.3 and which Parent expressly waives in
writing as a condition to closing. For purposes of this Agreement, each
statement or other item of information set forth in the Company Disclosure
Schedule or any update to the Company Disclosure Schedule shall be deemed to be
a representation and warranty made by the Company in this Agreement.
10.2 SURVIVAL OF PARENT AND MERGER SUB REPRESENTATIONS AND WARRANTIES.
The representations and warranties made by Parent and Merger Sub herein
(including the representations and warranties set forth in Section 4 or
contained in any certificate delivered by an officer of Parent) shall survive
the Closing and shall expire on the Expiration Date; provided however, that if,
at any date prior to the Expiration Date, the Company delivers to Parent a
written notice alleging the existence of an inaccuracy in or a breach of any of
the representations or warranties made by Parent or Merger Sub (and setting
forth in reasonable detail the basis for the Company's belief that such an
inaccuracy or breach may exist) and asserting a claim for recovery under Section
10.4 based on such alleged inaccuracy or breach, then the claim asserted in such
notice shall survive the Expiration Date until such date as such claim is fully
and finally resolved. The representations, warranties, covenants and obligations
of the Parent and Merger Sub and the rights and remedies that may be exercised
by the Company, shall not be limited or otherwise
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affected by or as a result of any information furnished to, or any investigation
made by or knowledge of, the Company; provided, however, that there shall be no
liability for any matters disclosed to the Company pursuant to Section 6.3 and
which the Company expressly waives in writing as a condition to closing. For
purposes of this Agreement, each statement or other item of information set
forth in the Parent Disclosure Schedule or in any update to the Parent
Disclosure Schedule shall be deemed to be a representation and warranty made by
Parent and Merger Sub in this Agreement.
10.3 INDEMNIFICATION BY THE COMPANY STOCKHOLDERS. Subject to the
limitations contained in Section 10.1, and Section 10.6, from and after the
Effective Time, pursuant to the terms and conditions of the Escrow Agreement and
as set forth herein, the Company Stockholders shall hold harmless and indemnify
Parent and Merger Sub from and against, and shall compensate and reimburse
Parent for, any Damages which are directly suffered or incurred by Parent or
Merger Sub (regardless of whether or not such Damages relate to any Third Party
Claim) and which arise from or as a result of, or are directly connected with
any inaccuracy in or breach of any representation or warranty made by the
Company in this Agreement (including Section 3) or contained in the certificate
delivered by an officer of the Company pursuant to Section 7.4.
10.4 INDEMNIFICATION BY PARENT AND MERGER SUB. Subject to the
limitations contained in Sections 10.2 and Section 10.6, from and after the
Effective Time, Parent shall hold harmless and indemnify the Company and the
Company Stockholders from and against, and shall compensate and reimburse the
Company and the Company Stockholders for any Damages which are directly suffered
or incurred by the Company Stockholders (regardless of whether or not such
Damages relate to any Third Party Claim) and which arise from or as a result of,
or are directly connected with any inaccuracy in or breach of any representation
or warranty made by Parent or Merger Sub in this Agreement (including Section 4)
or contained in the certificate delivered by an officer of Parent pursuant to
Section 8.4.
10.5 NOTICE; DEFENSE OF CLAIM.
(a) If any party entitled to indemnification under Section 10.3
or Section 10.4 (which for purposes of this Section 10.5 shall include the
Surviving Corporation and Parent) (the "Indemnified Party") shall receive notice
or otherwise learn of the assertion by any other Person of any claim or of the
commencement by any such Person of any action (a "Third Party Claim") with
respect to which a party may be obligated to provide indemnification pursuant to
Section 10.3 or Section 10.4 (the "Indemnifying Party"), such Indemnified Party
shall give written notice thereof to the Indemnifying Party within ten (10)
business days after becoming aware of such Third Party Claim (provided, that any
notice to the Company Stockholders shall be provided to the Stockholders' Agent)
(the "Indemnification Notice"); provided, however, that the failure of any
Indemnified Party to give notice as provided in this Section 10.5 shall not
relieve the Indemnifying Party of its obligations under Section 10.3 or Section
10.4, as the case may be, except to the extent that the Indemnifying Party
actually is prejudiced by such failure to give notice. Such notice shall
describe the Third Party Claim in reasonable detail, and shall indicate the
amount of the Damages that has been paid or reasonably expects to pay or incur
(in accordance with GAAP) by such Indemnified Party. Thereafter, such
Indemnified Party shall deliver to the Indemnifying Party within 5 business days
after the Indemnified Party's receipt
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thereof, copies of all notices and documents received by the Indemnified Party
relating to the Third Party Claim (including court papers).
(b) If, promptly after receipt by the Indemnifying Party of
notice of any Third Party Claim as provided in Section 10.5(a), the Indemnifying
Party shall give written notice to the Indemnified Party stating that it intends
to assume the defense thereof, at its own cost, then the defense of such Third
Party Claim, including selection of counsel reasonably satisfactory to the
Indemnified Party, shall be by the Indemnifying Party and the Indemnified Party
shall make no payment on such Third Party Claim as long as the Indemnifying
Party is conducting a good faith and diligent defense. The Indemnified Party
shall make available all information and assistance that the Indemnifying Party
may reasonably request and shall cooperate with the Indemnifying party in such
defense. Notwithstanding the foregoing, the Indemnified Party shall at all times
have the right to fully participate in such defense at its own expense directly
or through counsel. If no such notice to assume the defense against a Third
Party Claim is received by the Indemnified Party from the Indemnifying Party,
the Indemnified Party shall, at the expense of the Indemnifying Party, undertake
the defense of such Third Party Claim, with counsel selected by the Indemnified
Party, and shall have the right to compromise or settle the same exercising
reasonable judgment.
(c) No Third Party Claim made against any Indemnified Party shall
be settled without the prior written consent of the Indemnifying Party.
10.6 FURTHER LIMITATIONS ON INDEMNIFICATION. Notwithstanding the
foregoing, the right to indemnification under this Section 10 shall be subject
to the following:
(a) No Indemnifying Party shall have liability under Section 10.3
or Section 10.4 except to the extent that the Damages exceed $50,000 in the
aggregate, in which event the Indemnifying Party shall be liable for all
Damages.
(b) No indemnification shall be payable pursuant to Sections 10.3
or 10.4, as the case may be, after the Expiration Date, except for claims for
Damages made prior to the Expiration Date but not then resolved.
(c) Parent shall be entitled to offset the amount of any Damages
incurred by Parent pursuant to Section 10.3. Any such offset for Damages under
this Section 10.6(c) shall be effected by the cancellation of that number of
Merger Shares in the Escrow Fund. For purposes of determining the number of
Merger Shares to be delivered to Parent out of the Escrow Fund, the Merger
Shares will be valued at $7.50 per share (as adjusted for stock splits,
combinations, recapitalizations or similar events).
(d) The limitations of Sections 10.1, 10.2 and 10.6(a) shall not
apply to any claim for Damages that are determined by a court of competent
jurisdiction in a proceeding from which no further appeal is permitted to be
taken to have been primarily caused by fraud or intentional misrepresentation or
intentional breach of any party.
(e) In determining the amount of any indemnity under Section 10.3
or 10.4, the Damages shall be reduced (including, without limitation,
retroactively) by any insurance proceeds, tax benefit or other similar recovery
or offset realized, directly or indirectly, by the
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Indemnified Party actually recovered by or on behalf of such Indemnified Party
in reduction of the loss giving rise to the claim for Damages.
(f) The rights of Parent to make claims upon the Escrow Fund in
accordance with this Section 10 shall be the sole and exclusive remedy of Parent
after the Closing with respect to any representation, warranty, covenant or
agreement made by the Company under this Agreement and no former stockholder,
optionholder, warrantholder, director, officer, employee or agent of the Company
shall have any personal liability to Parent or the Surviving Corporation after
the Closing in connection with the Merger.
10.7 STOCKHOLDERS' AGENT.
(a) The Stockholder's Agent shall be constituted and appointed as
agent for and on behalf of the Company Stockholders to give and receive notices
and communications, to authorize delivery to Parent of the Merger Shares or
other property from the Escrow Fund in satisfaction of claims by Parent, to
object to such deliveries, to agree to, negotiate, enter into settlements and
compromises of, and demand arbitration and comply with orders of courts and
awards of arbitrators with respect to such claims, and to take all actions
necessary or appropriate in the judgment of the Stockholders' Agent for the
accomplishment of the foregoing. Such agency may be changed by the holders of a
majority in interest of the Merger Shares in the Escrow Fund from time to time
upon not less than ten (10) days' prior written notice to Parent. The
Stockholders' Agent may resign upon thirty (30) days notice to the parties to
this Agreement and the Company Stockholders. No bond shall be required of the
Stockholders' Agent, and the Stockholders' Agent shall receive no compensation
for his services. Notices or communications to or from the Stockholders' Agent
shall constitute notice to or from each of the Company Stockholders.
(b) The Stockholders' Agent shall not be liable for any act done
or omitted hereunder as Stockholders' Agent while acting in good faith and in
the exercise of reasonable judgment, and any act done or omitted pursuant to the
advice of counsel shall be conclusive evidence of such good faith. The Company
Stockholders shall severally indemnify the Stockholders' Agent and hold him
harmless against any loss, liability or expense incurred without gross
negligence or bad faith on the part of the Stockholders' Agent and arising out
of or in connection with the acceptance or administration of his duties
hereunder.
(c) The Stockholders' Agent shall have reasonable access to
information about Parent and Surviving Corporation and the reasonable assistance
of Parent and Surviving Corporation's officers and employees for purposes of
performing its duties and exercising its rights hereunder, provided that the
Stockholders' Agent shall treat confidentially and not disclose any nonpublic
information from or about Parent and Surviving Corporation to anyone (except on
a need to know basis to individuals who agree to treat such information
confidentially).
10.8 ACTIONS OF THE STOCKHOLDERS' AGENT. A decision, act, consent or
instruction of the Stockholders' Agent shall constitute a decision of all
Company Stockholders for whom Merger Shares otherwise issuable to them are
deposited in the Escrow Fund and shall be final, binding and conclusive upon
each of the Company Stockholders, and the Escrow Agent and Parent may rely upon
any decision, act, consent or instruction of the Stockholders' Agent as being
the decision, act, consent or instruction of each and every Company Stockholder.
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SECTION 11
MISCELLANEOUS PROVISIONS
11.1 FURTHER ASSURANCES. Each party hereto shall execute and cause to be
delivered to each other party hereto such instruments and other documents, and
shall take such other actions, as such other party may reasonably request (prior
to, at or after the Closing) for the purpose of carrying out or evidencing any
of the transactions contemplated by this Agreement.
11.2 ATTORNEYS' FEES. Subject to Section 9.3, if any action at law or
suit in equity to enforce this Agreement or the rights of any of the parties
hereunder is brought against any party hereto, the prevailing party shall be
entitled to recover reasonable attorneys' fees, costs and disbursements (in
addition to any other relief to which the prevailing party may be entitled).
11.3 NOTICES. Any notice or other communication required or permitted to
be delivered to any party under this Agreement shall be in writing to the
address or facsimile telephone number set forth beneath the name of such party
below (or to such other address or facsimile telephone number as such party
shall have specified in a written notice given to the other parties hereto):
if to Parent or Merger Sub:
Medical Device Alliance, Inc.
3800 Howard Hughes Parkway, Suite 1800
Las Vegas, NV 89109
Attention: Donald K. McGhan, Chairman of the Board
Telephone: (702) 791-2910
Facsimile: (702) 791-3267
and
Medical Device Alliance, Inc.
12 Wright's Mill Road
Armonk, NY 10504
Attention: Peter D. Costantino, Chief Executive Officer
Telephone: (914) 765-0042
Facsimile: (914) 273-4647
with a copy to (which shall not constitute notice):
Nida and Maloney, P.C.
800 Anacapa Street
Santa Barbara, CA 93101
Attention: C. Thomas Hopkins, Esq.
Facsimile: (805) 568-1955
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if to the Company or Stockholders' Agent:
Parallax Medical, Inc.
2140 Jonathan Avenue
San Jose, CA 95125
Attention: Howard Preissman, President
Telephone: (408) 978-5890
Facsimile: (408) 978-5891
with a copy to (which shall not constitute notice):
Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian, L.L.P.
155 Constitution Drive
Menlo Park, CA 94025
Attention: Bennett L. Yee, Esq.
Telephone: (650) 321-2400
Facsimile: (650) 321-2800
11.4 TIME OF THE ESSENCE. Time is of the essence of this Agreement.
11.5 GOVERNING LAW. This Agreement shall be construed in accordance
with, and governed in all respects by, the internal laws of the State of
California (without giving effect to principles of conflicts of laws).
11.6 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
shall be enforceable by and inure solely to the benefit of, the parties hereto
and their successors and assigns; provided, however, that this Agreement may not
be assigned by any party without the written consent of the other parties, and
any attempted assignment without such consent shall be void and of no effect.
None of the provisions of this Agreement are intended to provide any rights or
remedies to any Person other than the parties hereto and their respective
successors and assigns, if any, and the Company Stockholders and holders of
Company Options with respect to their right to receive Parent securities
pursuant to Section 2.5 and under Section 6.7.
11.7 WAIVER.
(a) No failure on the part of any Person to exercise any power,
right, privilege or remedy under this Agreement, and no delay on the part of any
Person in exercising any power, right, privilege or remedy under this Agreement,
shall operate as a waiver of such power, right, privilege or remedy; and no
single or partial exercise of any such power, right, privilege or remedy shall
preclude any other or further exercise thereof or of any other power, right,
privilege or remedy.
(b) No Person shall be deemed to have waived any claim arising
out of this Agreement, or any power, right, privilege or remedy under this
Agreement, unless the waiver of such claim, power, right, privilege or remedy is
expressly set forth in a written instrument duly executed and delivered on
behalf of such Person; and any such waiver shall not be applicable or have any
effect except in the specific instance in which it is given.
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11.8 AMENDMENTS. This Agreement may not be amended, modified, altered or
supplemented other than by means of a written instrument duly executed and
delivered on behalf of all of the parties hereto.
11.9 SEVERABILITY. In the event that any provision of this Agreement, or
the application of any such provision to any Person or set of circumstances,
shall be determined to be invalid, unlawful, void or unenforceable to any
extent, the remainder of this Agreement, and the application of such provision
to Persons or circumstances other than those as to which it is determined to be
invalid, unlawful, void or unenforceable, shall not be impaired or otherwise
affected and shall continue to be valid and enforceable to the fullest extent
permitted by law.
11.10 DISCLOSURE SCHEDULES. The disclosure schedules shall be arranged
in separate parts corresponding to the numbered and lettered sections contained
in Section 3 or in Section 4, as the case may be, and the information disclosed
in any numbered or lettered part shall be deemed to relate to and to qualify
only the particular representation and warranty set forth in the corresponding
numbered or lettered section in Section 3 or in Section 4, as the case may be,
and shall not be deemed to relate to or to qualify any other representation or
warranty.
11.11 ENTIRE AGREEMENT. This Agreement and the other agreements referred
to herein set forth the entire understanding of the parties hereto relating to
the subject matter hereof and, supersede all prior and contemporaneous
agreements and understandings among or between any of the parties relating to
the subject matter hereof.
11.12 CONSTRUCTION.
(a) For purposes of this Agreement, whenever the context
requires: the singular number shall include the plural, and vice versa; the
masculine gender shall include the feminine and neuter genders; the feminine
gender shall include the masculine and neuter genders; and the neuter gender
shall include the masculine and feminine genders.
(b) The parties hereto agree that any rule of construction to the
effect that ambiguities are to be resolved against the drafting party shall not
be applied in the construction or interpretation of this Agreement.
(c) As used in this Agreement, the words "include" and
"including," and variations thereof, shall not be deemed to be terms of
limitation, but rather shall be deemed to be followed by the words "without
limitation."
(d) Except as otherwise indicated, all references in this
Agreement to "Sections" and "Exhibits" are intended to refer to Sections of this
Agreement and Exhibits to this Agreement.
11.13 HEADINGS. The bold-faced section headings contained in this
Agreement are for convenience of reference only, shall not be deemed to be a
part of this Agreement and shall not be referred to in connection with the
construction or interpretation of this Agreement.
11.14 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall constitute an original and all of which, when
taken together, shall constitute one and
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the same instrument. Signatures may be exchanged by telecopy, with original
signatures to follow. Each of the parties hereto agrees that it will be bound by
its own telecopied signature and that it accepts the telecopied signatures of
the other parties to this Agreement. The original signature pages shall be
forwarded to Parent or its counsel and Parent and its counsel will provide all
of the parties hereto with a copy of the entire Agreement.
11.15 CONFIDENTIALITY. The parties acknowledge that Parent and Company have
previously executed a Confidentiality Disclosure Agreement, dated June 3, 1998,
which Confidentiality Disclosure Agreement shall continue in full force and
effect in accordance with its terms.
The parties hereto have caused this Agreement to be executed and
delivered as of July ____, 1998.
MEDICAL DEVICE ALLIANCE, INC.,
a Nevada corporation
By: /s/ Donald K. McGhan
-----------------------------------------
Donald K. McGhan
Chairman of the Board
PX ACQUISITION CORP., a Delaware
corporation
By: /s/ Donald K. McGhan
-----------------------------------------
Donald K. McGhan
Chairman of the Board
PARALLAX MEDICAL, INC., a Delaware
corporation
By: /s/ Howard Preissman
-----------------------------------------
Howard Preissman
President
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EXHIBIT B
DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION
Directors
Donald K. McGhan
Peter Costantino
Howard Preissman
Officers
Chairman of the Board --- Donald K. McGhan
Chief Executive Officer --- Peter Costantino
President --- Howard Preissman
Treasurer and Secretary --- Nikki M. Moseley
<PAGE> 68
EXHIBIT C
FORM OF OPINION OF GUNDERSON DETTMER
2
<PAGE> 69
EXHIBIT D
FORM OF OPINION OF NIDA & MALONEY
3
<PAGE> 70
EXHIBIT E
FORM OF REGISTRATION RIGHTS AGREEMENT
4
<PAGE> 71
EXHIBIT F
FORM OF FUNDING COMMITMENT LETTER
5
<PAGE> 72
EXHIBIT G
FORM OF ESCROW AGREEMENT
6
<PAGE> 73
EXHIBIT H
FORM OF PREISSMAN EMPLOYMENT AGREEMENT
7
<PAGE> 74
EXHIBIT I
1998 PLAN
8
<PAGE> 75
EXHIBIT J
FORM OF CONTINUITY OF INTEREST CERTIFICATE
9
<PAGE> 76
EXHIBIT K
FORM OF CERTIFICATE OF DESIGNATION
10
<PAGE> 77
PARENT DISCLOSURE SCHEDULE
11
<PAGE> 78
COMPANY DISCLOSURE SCHEDULE
12
<PAGE> 1
MEDICAL DEVICE ALLIANCE INC.
EXHIBIT 10.26
REGISTRATION
RIGHTS
AGREEMENT
BETWEEN
MEDICAL DEVICE ALLIANCE INC.
AND
HOLDERS IDENTIFIED ON SCHEDULE 1
<PAGE> 2
EXECUTION ORIGINAL
MEDICAL DEVICE ALLIANCE, INC.
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT") is made and
entered into as of July 31, 1998, by and between MEDICAL DEVICE ALLIANCE, INC.,
a Nevada corporation (the "COMPANY"), and the HOLDERS IDENTIFIED ON SCHEDULE 1
HERETO (each individually a "HOLDER" and, collectively, the "HOLDERS").
The parties hereby agree as follows:
SECTION 1. DEFINITIONS. The following terms shall have the meanings
indicated (all terms not otherwise defined herein shall have the meaning
ascribed to such terms in that certain Agreement and Plan of Merger between the
Company, PX Acquisition Corp. and Parallax Medical, Inc. of even date herewith
(the "Merger Agreement"):
"COMMISSION" means the Securities and Exchange Commission, or
any other federal agency then administering the Securities Act.
"COMMON STOCK" means the common stock, $.001 par value, of the
Company.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended, or any similar federal statute, and the rules and regulations
of the Commission thereunder, all as the same shall be in effect from
time to time.
"HOLDER or HOLDERS" means and includes each of the individuals
or organizations identified on Schedule 1 hereto and their successors,
assigns, and transferees, but excludes any other holder of shares of
Common Stock of the Company.
"LOSSES" means all losses, claims, damages or liabilities.
"REGISTRABLE SECURITIES" means all shares of Common Stock issued
to the Holders pursuant to the Merger Agreement, but excludes all other
shares of the Common Stock or other securities of the Company.
"SECURITIES ACT" means the Securities Act of 1933, as amended,
or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect from time to
time.
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<PAGE> 3
SECTION 2. DEMAND REGISTRATION.
(a) At any time from and after the earlier of (i) three (3) years after
the Closing Date or (ii) one hundred eighty (180) days after an initial public
offering by the Company of its Common Stock, upon the written demand of the
Holders of a majority of the Registrable Securities, the Company shall prepare
and file a registration statement under the Securities Act covering an offering
of such number of Registrable Securities as shall have been requested by such
Holders in such demand (the "REGISTRATION STATEMENT"), and shall use reasonable
efforts to cause such Registration Statement to become effective, all in
accordance with the provisions of this Agreement. The Company shall only be
required to cause one Registration Statement to become effective under this
Section 2(a).
(b) Whenever the Company shall have received a demand pursuant to
Section 2(a) to effect the registration of any Registrable Securities, the
Company shall promptly give written notice of such proposed registration to all
other Holders. Any such Holder may, within 30 days after receipt of such notice,
request in writing that all of such Holder's Registrable Securities, or any
portion thereof designated by such Holder, be included in the offering.
(c) The Company shall proceed as expeditiously as possible after receipt
of a demand pursuant to Section 2(a) to file a Registration Statement, and in
any event shall file such Registration Statement within 60 days after the giving
of such written demand. The Company shall use its best efforts to effect, within
120 days after the giving of such written demand the registration of an offering
under the Securities Act. Such offering shall include:
(i) the Registrable Securities specified in the demand given
pursuant to Section 2(a); and
(ii) all other Registrable Securities that the Holders thereof
have requested be included in the offering pursuant to Section 2(b);
all to the extent required to permit the Holders to dispose of such Registrable
Securities in compliance with applicable law. Unless otherwise recommended by
the managing underwriter, if any, to facilitate such offering, the Company shall
have the right to include in such offering authorized but unissued shares of its
Common Stock, shares of its Common Stock held in its treasury and other
outstanding securities of the Company, provided, however, that the Company's
participation in the offering shall not reduce the number of shares the Holders
may include in the offering. The Company shall select the representative, if
any, of the underwriters to be engaged in connection with any such registration.
SECTION 3. PIGGYBACK REGISTRATION. If at any time, and each time that,
the Company proposes to register any offering of shares of its capital stock
under the Securities Act, and if such registration is to be on a form of the
Commission that may include, or is at any time amended or changed to such a form
that may include, the Registrable Securities, the Company will at any such
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<PAGE> 4
time give written notice to all Holders of Registrable Securities of its
intention so to do at least 30 days prior to the filing of such registration
statement.
(a) The Company's notice shall afford the Holders of Registrable
Securities an opportunity to elect to include in such filing all or any part of
the Registrable Securities owned by them. Each Holder shall have 15 days after
receipt of the Company's notice to notify the Company in writing of the number
of Registrable Securities which such Holder elects to include in the offering
(the "ELECTED SHARES"). The Elected Shares shall be included in the offering to
the extent permitted by the managing underwriter of the offering.
(b) The Company shall use reasonable efforts to cause the managing
underwriter of any offering to permit the Holders of the Elected Shares to
include all such shares in such offering on the same terms and conditions as any
other securities included therein. If the managing underwriter of an offering,
in its sole discretion, determines the total amount or nature of the Elected
Shares is such as to materially and adversely affect the success of such
offering, then the amount of Elected Shares to be offered for the account of the
Holders of such shares shall be reduced pro rata among such Holders to the
extent necessary to reduce the total amount of securities to be included in such
offering to the amount recommended by the managing underwriter of the offering.
Notwithstanding the provisions of this Section 3(b), in no event shall the
managing underwriter reduce the amount of Elected Shares to be offered for the
account of the Holders to less than 30 percent of the shares offered in the
offering except in connection with the Company's initial public offering, in
which case the managing underwriter may reduce the Elected Shares by 100
percent, or unless the reduction is ratable with other holders of registration
rights and all other shares are sold by the Company.
(c) The Company agrees that any Holder entitled to include a given
number of Registrable Securities in a filing may assign or transfer such
entitlement to any other Holder.
(d) The inclusion in such filing of Registrable Securities shall be upon
the condition that the Holders thereof participate on substantially the same
terms and conditions as the Company and any other selling shareholders, provided
such terms and conditions are reasonable.
SECTION 4. PARTICIPATING SHAREHOLDERS. To include any Registrable
Securities in any registration, a Holder thereof shall:
(a) cooperate fully with the Company in preparing each such registration
and execute all such agreements as may be reasonably necessary in connection
therewith; and
(b) promptly supply the Company with all information, documents,
representations and agreements as may be reasonably necessary in connection with
such registration.
SECTION 5. REGISTRATION PROCEDURES. If and whenever the Company is
obligated by the provisions of this Agreement to effect the registration of any
offering of Registrable Securities
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<PAGE> 5
under the Securities Act, as expeditiously as possible the Company will, or will
use its reasonable efforts to, as the case may be:
(a) Prepare and file with the Commission a registration statement with
respect to such Registrable Securities and cause such registration statement to
become effective; provided, however, that at least five days before filing a
registration statement or prospectus or any amendments or supplements thereto,
the Company shall furnish to the Holders of the Registrable Securities covered
by such registration statement, their counsel and the representative of the
underwriter, if any, copies of all such documents proposed to be filed, which
documents will be subject to the review of such Holders, their counsel and the
representative of the underwriter, if any, during such period; and the Company
shall consider, but shall not be obligated to make any revisions to such
documents as may be requested by the Holders, their counsel or the
representative of the underwriter, if any, other than revisions requested with
respect to information pertaining to the Registrable Securities held by the
Holders and the Elected Shares covered by such registration statement.
(b) Prepare and file with the Commission such amendments and supplements
to such registration statement and the prospectus used in connection therewith
as may be necessary to keep such registration statement effective until the
earlier of the sale of all shares of Common Stock covered thereby and the
expiration of a period of 180 days after its effective date, and comply with the
provisions of the Securities Act with respect to the disposition of all shares
of Common Stock covered by such registration statement. In the event that any
shares of Common Stock included in a registration statement subject to, or
required by, this Agreement remain unsold at the end of the period during which
the Company is obligated to maintain the effectiveness of such registration
statement, the Company, if and when a further amendment or supplement would be
required to comply with Section 10 of the Securities Act, may file a
post-effective amendment to the registration statement for the purpose of
removing such shares from registered status.
(c) Furnish to Holders for whom Registrable Securities are registered or
are to be registered so many copies of a prospectus, including a preliminary
prospectus, in conformity with the requirements of the Securities Act, and such
other documents, as such Holders may reasonably request.
(d) Register or qualify the securities covered by such registration
statement under such other securities or blue sky laws of such jurisdictions as
the Holders for whom Registrable Securities are registered shall request, and do
any and all other acts and things that may be reasonably necessary or advisable
to enable such Holders to consummate the disposition in such jurisdictions of
such Registrable Securities; provided, however, that the Company shall not be
obligated, by reason thereof, to qualify as a foreign corporation or file any
general consent to service of process under the laws of any such jurisdiction or
subject itself to taxation as doing business in any such jurisdiction.
5
<PAGE> 6
(e) In case the Company shall receive from the Holders of Registrable
Securities a written request or requests that the Company effect a registration
on Form S-3 and any related qualification or compliance with respect to all or a
part of the Registrable Securities owned by such Holder or Holders, the Company
shall: (i) promptly give written notice of the proposed registration, and any
related qualification or compliance, to all other Holders; and (ii) use best
efforts to effect, as soon as practicable, such registration and all such
qualifications and compliances as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of such Holders'
Registrable Securities as are specified in such request, together with all or
such portion of the Registrable Securities of any Holders joining in such
request as are specified in a written request given within fifteen (15) days
after receipt of such written notice from the Company, provided, however, that
the Company shall not be obligated to effect any such registration,
qualification or compliance, pursuant to this Section 5(e): (A) if Form S-3 is
not available for such offering by the Holders; (B) if the Holders, together
with the holders of any other securities of the Company entitled to inclusion in
such registration, propose to sell Registerable Securities and such other
securities (if any) at an aggregate price to the public (net of any
underwriters' discounts or commissions) of less than $1,000,000; or (C) if the
Company has, within the twelve (12) months period proceeding the date of such
request, already effected one registration on Form S-3 for the Holders pursuant
to this Section 5(e). Subject to the foregoing, the Company shall file a
registration statement covering the Registrable Securities and other securities
so requested to be registered as soon as practicable after receipt of the
request or requests of the Holders. Registrations effected pursuant to this
Section 5(e) shall not be counted as requests for registration effected pursuant
to Section 2.
SECTION 6. REGISTRATION EXPENSES. The costs and expenses (other than
underwriting discounts or commissions, such other fees as state securities
officials may require that the Holders of Registerable Securities pay, and fees
and expenses of counsel to the Holders) of all registrations and qualifications
under the Securities Act, and of all other actions that the Company is required
to take or effect pursuant to this Agreement, shall be paid by the Company
(including, without limitation, all registration and filing fees, printing
expenses, costs of special audits incident to or required by any such
registration, fees and disbursements of counsel for the Company, and fees and
disbursements of one (1) special counsel to the Holders, which counsel shall be
reasonably acceptable to the Company) except that all such expenses in
connection with any amendment or supplement to the registration statement or the
prospectus used in connection therewith required to be filed more than 180 days
after the date on which such registration statement becomes effective under the
Securities Act because any Holder has not effected the disposition of
Registerable Securities covered by such registration statement shall be borne
pro rata by such Holder or Holders; provided, however, if such inability of such
Holders to sell registered stock prior to the expiration of 180 days after the
effective date of the Registration Statement is solely caused by the Company,
the Company shall pay such expenses.
SECTION 7. INDEMNIFICATION BY COMPANY. In the event of any registration
under the Securities Act of any offering of Registrable Securities, the Company
hereby agrees to indemnify and hold harmless each Holder of Registrable
Securities and each other person, if any, who controls such Holder (within the
meaning of the Securities Act) and each other person (including each
6
<PAGE> 7
underwriter, and each other person, if any, who controls such underwriter) who
participates in the offering of such Registrable Securities against any Losses,
joint or several, to which such Holder or controlling person or participating
person may become subject under the Securities Act or otherwise, insofar as such
Losses (or proceedings in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained, on
the effective date thereof, in any registration statement under which
Registrable Securities were registered under the Securities Act, in any
preliminary prospectus or final prospectus contained therein, or in any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, and will
reimburse such Holder and each such controlling person or participating person
for any legal or other expenses reasonably incurred by such Holder or such
controlling person or participating person in connection with investigating or
defending any such Loss as such expenses are incurred; provided, that the
Company will not be liable in any such case to the extent that any such Loss
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in such registration statement, such final
prospectus or such amendment or supplement in reliance upon and in conformity
with written information furnished by an instrument duly executed by such Holder
or such controlling or participating person, as the case may be, specifically
for use in the preparation thereof. The Company shall also indemnify
underwriters, selling brokers, dealer managers and similar securities industry
professionals participating in the distribution, their officers, directors,
agents and employees and each person who controls such persons (within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act)
to the same extent as provided above with respect to the indemnification of the
Holders of Registrable Securities.
SECTION 8. INDEMNIFICATION BY HOLDERS. In the event of any registration
under the Securities Act of any offering of Registrable Securities, each Holder
of such Registrable Securities hereby severally agrees to indemnify and hold
harmless the Company, each other Holder and each other person, if any, who
controls the Company within the meaning of the Securities Act and each other
person (including each underwriter, and each other person, if any, who controls
such underwriter) who participates in the offering of such Registrable
Securities against any Losses, joint or several, to which the Company, such
Holder or controlling person or participating person may become subject under
the Securities Act or otherwise, insofar as such Losses (or proceedings in
respect thereof) arise out of or are based upon any untrue statement of any
material fact contained, on the effective date thereof, in any registration
statement under which an offering of such Registrable Securities was registered
under the Securities Act, in any final prospectus contained therein, or in any
amendment or supplement thereto, or arise out of or are based upon the omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, and will reimburse the Company, such
Holder and each such controlling person or participating person for any legal or
other expenses reasonably incurred by the Company, such Holder or such
controlling person or participating person in connection with investigating or
defending any such Loss or proceeding; provided, that such Holder will be liable
in any such case to the extent, and only to the extent, that any such Loss
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in such registration
7
<PAGE> 8
statement, such preliminary or final prospectus or such amendment or supplement
in reliance upon and in conformity with written information furnished in an
instrument duly executed by such Holder specifically for use in the preparation
thereof and provided, further, that such Holder's liability shall not exceed the
net proceeds received by such Holder in connection with the sale of such
securities in the registered offering. The Company shall be entitled to receive
indemnities from underwriters, selling brokers, dealer managers and similar
securities industry professionals participating in the distribution to the same
extent as provided above with respect to information so furnished in writing by
such persons specifically for inclusion in any registration statement or
prospectus.
SECTION 9. CONDUCT OF INDEMNIFICATION PROCEEDINGS. If any action or
proceeding (including any governmental investigation or inquiry) shall be
brought or any claim shall be asserted against any person entitled to indemnity
hereunder (an "INDEMNIFIED PARTY"), such indemnified party shall promptly notify
the party from which such indemnity is sought (the "INDEMNIFYING PARTY") in
writing, and the indemnifying party shall assume and control the defense
thereof, including the employment of counsel reasonably satisfactory to the
indemnified party and the payment of all fees and expenses incurred in
connection with the defense thereof. Any such fees and expenses borne by the
indemnified party (including any fees and expenses incurred in connection with
investigating or preparing to defend such action or proceeding) shall be paid to
the indemnified party, as incurred, within 15 days of written notice thereof to
the indemnifying party (regardless of whether it is ultimately determined that
an indemnified party is not entitled to indemnification hereunder; provided the
indemnified person shall reimburse such fees and expenses if it is finally
determined that such indemnified person is not entitled to indemnity hereunder).
Any such indemnified party shall have the right to employ separate counsel in
any such action, claim or proceeding and to participate in the defense thereof,
but the fees and expenses of such counsel shall be the expenses of such
indemnified party unless (a) the indemnifying party has agreed to pay such fees
and expenses or (b) the indemnifying party shall have failed to assume promptly
the defense of such action, claim or proceeding or (c) the named parties to any
such action, claim or proceeding (including any impleaded parties) include both
such indemnified party and the indemnifying party, and such indemnified party
shall have been advised by counsel that there may be one or more legal defenses
available to it which are different from or in addition to those available to
the indemnifying party and that the assertion of such defenses would create a
conflict of interest such that counsel employed by the indemnifying party could
not faithfully represent the indemnified party (in which case, if such
indemnified party notifies the indemnifying party in writing that it elects to
employ separate counsel at the expense of the indemnifying party, the
indemnifying party shall not have the right to assume the defense of such
action, claim or proceeding on behalf of such indemnified party; it being
understood, however, that the indemnifying party shall not, in connection with
any one such action, claim or proceeding or separate but substantially similar
or related actions, claims or proceedings in 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 (together with
appropriate local counsel) at any time for all such indemnified parties, unless
in the reasonable judgment of such indemnified party a conflict of interest may
exist between such indemnified party and any other of such indemnified parties
with respect to such action, claim or proceeding, in which event the
indemnifying party shall be obligated to pay the fees and expenses of such
additional
8
<PAGE> 9
counsel or counsels). The indemnifying party shall not be liable for any
settlement of any such action or proceeding effected without its written
consent.
SECTION 10. CONTRIBUTION. If the indemnification provided for in this
Agreement is unavailable to an indemnified party under Section 7 or 8 hereof
(other than by reason of exceptions provided in those Sections) in respect of
any Losses, then each applicable indemnifying party in lieu of indemnifying such
indemnified party shall contribute to the amount paid or payable by such
indemnified party as a result of such Losses, in such proportion as is
appropriate to reflect the relative fault of the indemnifying party and
indemnified parties in connection with the actions, statements or omissions
which resulted in such Losses as well as any other relevant equitable
considerations. The relative fault of such indemnifying party and the
indemnified party shall be determined by reference to, among other things,
whether any action in question, including any untrue statement or alleged untrue
statement of a material fact or omission or alleged omission of a material fact,
has been taken or made by, or relates to information supplied by, such
indemnifying party or indemnified party, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
action, statement or omission. The amount paid or payable by a party as a result
of any Losses shall be deemed to include, subject to the limitations set forth
in Section 10, any legal or other fees or expenses reasonably incurred by such
party in connection with any action, suit, claim, investigation or proceeding.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 10 were determined by pro rata allocation
or by any other method of allocation which does not take into account the
equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 10, an indemnifying party which
is a selling Holder of Registrable Securities shall not be required to
contribute any amount in excess of the amount by which the total price at which
the Registrable Securities sold by such indemnifying party and distributed to
the public were offered to the public exceeds the amount of any damages which
such indemnifying party has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation.
SECTION 11. EQUITABLE RELIEF. The parties hereto agree and declare that
legal remedies may be inadequate to enforce the provisions of this Agreement and
that equitable relief, including specific performance and injunctive relief, may
be used to enforce such provisions.
SECTION 12. MISCELLANEOUS.
(a) Notices. All notices and other communications provided for in this
Agreement shall be in writing and delivered, telecopied or mailed, first class
postage prepaid, addressed:
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<PAGE> 10
(i) If to the Company:
Medical Device Alliance, Inc.
3800 Howard Hughes Parkway, Suite 1800
Las Vegas, NV 89109
Attention: Donald K. McGhan, Chairman of the Board
Telephone: (702) 791-2910
Telecopy: (702) 791-3267
and to:
Medical Device Alliance, Inc.
12 Wright's Mill Road
Armonk, NY 10504
Attention: Peter D. Costantino,
Chief Executive Officer
Telephone:(914) 765-0042
Telecopy: (914) 273-4647
with a copy to:
Nida & Maloney, P.C.
800 Anacapa Street
Santa Barbara, CA 93101
Attention: C. Thomas Hopkins, Esq.
Telephone: (805) 568-1151
Telecopy: (805) 568-1955
(ii) If to the Holders, at the addresses set forth on Schedule 1 or as
may be designated by notice to the Company.
Any such notice or communication shall be deemed to have been duly given
when delivered, telecopied or mailed as aforesaid.
(b) Successors and Assigns. This Agreement shall bind and inure to the
benefit of and be enforceable by the Company and each of the Holders, and the
Holders' respective successors and assigns. The Company may not assign its
rights under this Agreement.
(c) Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument. Signatures may be
exchanged by telecopy, with original signatures to follow. Each of the parties
hereto agrees that it will be bound by its own telecopied signature and that it
accepts the telecopied signatures of the other parties to this Agreement. The
original signature pages shall be
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<PAGE> 11
forwarded to Parent or its counsel and Parent and its counsel will provide all
of the parties hereto with a copy of the entire Agreement.
(d) Governing Law. This Agreement and (unless otherwise provided) all
amendments, supplements, waivers and consents relating hereto or thereto shall
be governed by and construed in accordance with the laws of the State of
California without reference to conflicts of law principles.
(e) Amendments. No change in or modification of this Agreement shall be
valid unless the same shall be in writing and signed by the Company and Holders
representing a majority of the Registrable Securities.
(f) Waiver. No failure or delay on the part of the parties or any of
them in exercising any right, power or privilege hereunder, nor any course of
dealing between the parties or any of them shall operate as a waiver of any such
right, power or privilege nor shall any single or partial exercise of any such
right, power or privilege preclude the simultaneous or later exercise of any
other right, power or privilege. The rights and remedies herein expressly
provided are cumulative and are not exclusive of any rights or remedies which
the parties or any of them would otherwise have. No notice to or demand on the
Company in any case shall entitle the Company to any other or further notice or
demand in similar or other circumstances or constitute a waiver of the rights of
the other parties or any of them to take any other or further action in any
circumstances without notice or demand.
(g) Severability. In the event that any part of this Agreement shall be
held to be invalid or unenforceable, the remaining parts hereof shall
nevertheless continue to be valid and enforceable as though the invalid portions
were not a part hereof.
(h) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(i) Attorney's Fees. In any action or proceeding brought to enforce any
provision of this Agreement, or where any provision hereof is validly asserted
as a defense, the successful party shall be entitled to recover reasonable
attorneys' fees in addition to its costs and expenses and any other available
remedy.
[signature page follows]
<PAGE> 12
THE COMPANY:
MEDICAL DEVICE ALLIANCE, INC.,
a Nevada corporation
By: /s/ Donald K. McGhan
--------------------------------------
Donald K. McGhan
Chairman of the Board
THE HOLDERS:
/s/ Raul Arechiga
-----------------------------------------
Raul Arechiga
/s/ Peter Costantino
-----------------------------------------
Peter Costantino
/s/ Gunderson, Dettmer, Stough, et al.,
-----------------------------------------
Gunderson, Dettmer, Stough,
Villeneuve, Franklin & Hachigian, LLP
/s/ Jacques Dion
-----------------------------------------
Jacques Dion
/s/ Mary Jensen
-----------------------------------------
Mary Jensen
/s/ Kirby J. Kaufman
-----------------------------------------
Kirby J. Kaufman
/s/ Sharon Lake
-----------------------------------------
Sharon Lake
/s/ Daniel Murray
-----------------------------------------
Daniel Murray
/s/ Howard Preissman
-----------------------------------------
Howard Preissman
/s/ Victor Rodgers
-----------------------------------------
Victor Rodgers
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<PAGE> 13
SCHEDULE 1
HOLDERS
Raul Arechiga
4990 Peach Terrace
Campbell, CA 95008
Peter Costantino
12 Wright's Mill Road
Armonk, NY 10504
Gunderson, Dettmer, Stough, Villeneuve, Franklin & Hachigian, LLP
155 Constitution Drive
Menlo Park, CA 94025
Jacques Dion
794 Springdale Road
Atlanta, GA 30306
Mary Jensen, M.D.
6819 Jarmans Gap Road
Crozet, VA 22922
Kirby J. Kaufman
807 Long Point road
Grasonville, MD 21638
Sharon Lake
171 Emerson
Palo Alto, CA 94301
Daniel Murray
601 Franklin Square
Michigan City, IN 46360
Howard Preissman
2140 Jonathan Avenue
San Jose, CA 95125
Victor Rodgers
16456 Baywood Lane
Granger, IL 46530
<PAGE> 1
MEDICAL DEVICE ALLIANCE INC.
EXHIBIT 10.27
STOCKHOLDERS' ESCROW
AGREEMENT
AMONG
MEDICAL DEVICE ALLIANCE INC.;
SANTA BARBARA BANK & TRUST;
PARALLAX MEDICAL, INC.
SHAREHOLDERS & STOCKHOLDERS
<PAGE> 2
EXECUTION ORIGINAL
COMPANY STOCKHOLDERS' ESCROW AGREEMENT
THIS COMPANY STOCKHOLDERS' ESCROW AGREEMENT dated as of July 31, 1998
(the "Agreement") is made and entered into by and among MEDICAL DEVICE ALLIANCE,
INC., a Nevada corporation ("Parent"), SANTA BARBARA BANK & TRUST (the "Escrow
Agent"), the undersigned stockholders (the "Company Stockholders") of PARALLAX,
INC., a Delaware corporation (the "Company"), and by HOWARD PRIESSMAN in his
capacity as agent to the Company Stockholders (The "Stockholders' Agent").
RECITALS
WHEREAS, the Company, Parent and PX Acquisition Corp., a Delaware
corporation and wholly owned subsidiary of Parent ("Merger Sub") are parties to
that certain Agreement and Plan of Merger dated as of July 31, 1998 (the "Merger
Agreement"), whereby the Company will be merged with and into Merger Sub (the
"Merger") and Merger Sub will be the surviving corporation and remain a wholly
owned subsidiary of Parent;
WHEREAS, pursuant to the Merger Agreement, an aggregate of approximately
666,667 shares of Series B Preferred Stock of Parent are to be issued in the
Merger to the Company Stockholders (the "Merger Shares");
WHEREAS, the Merger Agreement provides that fifty percent (50%) of the
Merger Shares to be issued to the Company Stockholders in the Merger (the
"Company Stockholders' Indemnity Shares") be placed in an escrow account as
collateral to secure certain indemnification obligations of the Company
Stockholders hereunder and under the Merger Agreement on the terms and
conditions set forth herein; and
WHEREAS, the parties hereto desire to establish the terms and conditions
pursuant to which such escrow account will be established and maintained.
AGREEMENT
NOW, THEREFORE, the parties hereby agree as follows:
1. DEFINED TERMS. Capitalized terms used in this Agreement and not
otherwise defined shall have the meanings given them in the Merger Agreement.
2. ESCROW AND INDEMNIFICATION.
(a) ESCROW FUND. At the Effective Time, Parent shall deposit or
shall cause its transfer agent to deposit with the Escrow Agent the Company
Stockholders' Indemnity Shares, such deposit to constitute an escrow account
(the "Escrow Fund"). The Company Stockholders' Indemnity Shares allocable to a
Company Stockholder shall be delivered by Parent
<PAGE> 3
or Parent's transfer agent to the Escrow Agent in the form of a duly authorized
stock certificate issued in the respective names of each Company Stockholder
thereof representing that number of shares set forth next to such Company
Stockholder's name on Exhibit A hereto, together with endorsed stock powers. The
Escrow Agent agrees to accept delivery of the Company Stockholders' Indemnity
Shares and to hold such in the Escrow Fund subject to the terms and conditions
of this Agreement.
(b) CLAIMS UNDER INDEMNITY OBLIGATIONS. The parties agree that
the Company Stockholders' Indemnity Shares will be held as collateral security
for the indemnification obligations of the Company Stockholders pursuant to
Section 10 of the Merger Agreement. Promptly after the receipt by Parent of
notice or discovery of any claim giving rise to Parent's rights under this
Agreement or Section 10 of the Merger Agreement, Parent will give the
Stockholders' Agent and the Escrow Agent written notice of such claim in
accordance with Section 3 below. Failure of Parent to furnish written notice in
a prompt manner to the Stockholders' Agent of a claim shall not release the
Company Stockholders from their obligations hereunder, except to the extent that
the Company Stockholders are prejudiced by such failure, provided that no claim
shall be honored as to which written notice is delivered after the Expiration
Date.
(c) PROTECTION OF ESCROW FUND. The Escrow Agent shall hold and
safeguard the Company Stockholders' Indemnity Shares so long as such shares
remain in the Escrow Fund, in accordance with the terms of this Agreement and
not as the property of Parent, and shall hold and dispose of the Company
Stockholders' Indemnity Shares only in accordance with the terms hereof.
(d) COMPANY STOCKHOLDER INDEMNIFICATION.
(i) Subject to the limitations contained in Section 10.1
of the Merger Agreement and Section 2(d) (iii) below, from and after the
Effective Time, the Company Stockholders shall hold harmless and indemnify
Parent and Merger Sub from and against, and shall compensate and reimburse
Parent and Merger Sub for, any Damages which are directly suffered or incurred
by Parent or Merger Sub (regardless of whether or not such Damages relate to any
Third Party Claim) and which arise from or as a result of, or are directly
connected with any inaccuracy in or breach of any covenant, representation or
warranty made by the Company contained in the Merger Agreement (including
Section 3 thereof or contained in the certificate delivered by an officer of the
Company pursuant to Section 7.4 thereof).
(ii) The representations and warranties made by the
Company in the Merger Agreement (including the representations and warranties
set forth in Section 3 of the Merger Agreement or contained in the certificate
delivered by an officer of the Company pursuant to Section 7.4 of the Merger
Agreement) shall survive the Closing and shall expire on the first anniversary
of the Closing Date (the "Expiration Date"); provided, however, that if, at any
date prior to the Expiration Date, Parent delivers to the Stockholders' Agent a
written notice alleging the existence of an inaccuracy in or a breach of any of
the representations or warranties made by the Company (and setting forth in
reasonable detail the basis for Parent's belief that
3
<PAGE> 4
such an inaccuracy or breach may exist) and asserting a claim for recovery
hereunder based on such alleged inaccuracy or breach, then the claim asserted in
such notice shall survive the Expiration Date until such date as such claim is
fully and finally resolved. The representations, warranties, covenants and
obligations of the Company Stockholders and the rights and remedies that may be
exercised by Parent shall not be limited or otherwise affected by or as a result
of any information furnished to, or any investigation made by or knowledge of,
the Parent; provided, however, that there shall be no liability for any matter
disclosed to Parent pursuant to Section 5.3 of the Merger Agreement or which
Parent expressly waives in writing as a condition to closing. For purposes of
this Agreement, each statement or other item of information set forth in the
Company Disclosure Schedule or any update to the Company Disclosure Schedule
shall be deemed to be a representation and warranty made by the Company in the
Merger Agreement.
(iii) Notwithstanding the foregoing, Parent's right to
indemnification hereunder shall be subject to the following:
(A) No Company Stockholder shall have liability
hereunder except to the extent that the Damages exceed $50,000 in the
aggregate, in which event the Company Stockholders shall be liable for
all Damages.
(B) No indemnification shall be payable hereunder after
the Expiration Date, except for claims for Damages made prior to the
Expiration Date but not then resolved.
(C) Parent shall be entitled to offset the amount of any
claim for Damages incurred by Parent pursuant to Section 10.3 of the
Merger Agreement. Any such offset for Damages under this section shall
be effected by the cancellation of that number of Merger Shares in the
Escrow Fund equal to the amount of any such Damages. For purposes of
determining the number of Merger Shares to be delivered to Parent out of
the Escrow Fund, the Merger Shares shall be valued at $7.50 per share
(as adjusted for stock splits, combinations, or similar events).
(D) The limitations herein shall not apply to any claim
for Damages that are determined by a court of competent jurisdiction in
a proceeding from which no further appeal is permitted to be taken to
have been primarily caused by fraud or intentional misrepresentation or
intentional breach of any party.
(E) In determining the amount of any indemnity hereunder
the Damages shall be reduced (including, without limitation,
retroactively) by any insurance proceeds, tax benefit or other similar
recovery or offset realized, directly or indirectly, by Parent actually
recovered by or on behalf of Parent in reduction of the loss giving rise
to the claim for Damages.
(F) The rights of Parent to make claims upon the Escrow
Fund hereunder shall be the sole and exclusive remedy of Parent after
the Closing with respect to any representation, warranty, covenant, or
agreement made by the Company under the Merger Agreement and no former
stockholder, optionholder, warrantholder, director,
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<PAGE> 5
officer, employee or agent of the Company shall have any further
personal liability to Parent of the Surviving Corporation after the
Closing in connection with the Merger.
(e) DIVIDENDS, VOTING AND RIGHTS OF OWNERSHIP. Any dividends
other than stock dividends that are not taxable by reason of Section 305 of the
Internal Revenue Code of 1986, as amended shall be distributed currently by
Parent (or Parent's transfer agent) to the Company Stockholders and will not be
available to satisfy the indemnification obligations of the Company
Stockholders. The Company Stockholders will have the right to vote the Company
Stockholders' Indemnity Shares so long as such Company Stockholders' Indemnity
Shares are held in the Escrow Fund and Parent will take all reasonable steps
necessary to allow the exercise of such rights. While the Company Stockholders'
Indemnity Shares remain in the Escrow Agent's possession pursuant to this
Agreement, the Company Stockholders will retain and will be able to exercise all
incidents of ownership of such shares that are not inconsistent with the terms
of this Agreement. Escrow Agent shall have no responsibility or liability with
respect to the provisions of this Section (2)(e).
(f) NO TRANSFER BY COMPANY STOCKHOLDERS. The Company
Stockholders may not, without the prior written consent of Parent, sell, assign,
pledge or otherwise transfer any of the Company Stockholders' Indemnity Shares
or any beneficial interest therein prior to the delivery of such shares to the
Company Stockholders.
(g) ESCROW AGENT'S POWER TO TRANSFER. The Escrow Agent is hereby
granted the power to effect any transfer of the Company Stockholders' Indemnity
Shares contemplated by this Agreement. Parent shall cooperate with the Escrow
Agent in promptly issuing (or causing Parent's transfer agent to issue) stock
certificates to effect such transfer.
3. RELEASE OF INDEMNITY SHARES TO SATISFY CLAIMS FOR DAMAGES.
(a) DELIVERY OF INDEMNIFICATION NOTICE. If Parent has incurred
or suffered Damages for which it is entitled to indemnification hereunder or
under the Merger Agreement, Parent shall, on or prior to the Expiration Date and
within ten (10) business days after becoming aware of such claim, give an
Indemnification Notice to the Stockholders' Agent, with a copy being provided to
the Escrow Agent. Each Indemnification Notice shall describe the claim in
reasonable detail, and shall indicate the amount of the Damages that have been
paid or which Parent reasonably expects to pay or incur (in accordance with
GAAP) (the "Claimed Amount"). Except as contemplated by the Merger Agreement,
Parent shall not make any claim for Damages after the Expiration Date.
(b) RESPONSE NOTICE; UNCONTESTED CLAIMS. Within twenty (20)
calendar days of receipt of an Indemnification Notice, the Stockholders' Agent
shall provide to Parent, with a copy being provided to the Escrow Agent, a
written response (the "Response Notice") in which the Stockholders' Agent shall
(i) agree that the full Claimed Amount is valid, (ii) agree that part, but not
all, of the Claimed Amount (the "Agreed Amount") is valid, or (iii) contest that
any of the Claimed Amount is valid. The Stockholders' Agent may contest all or a
portion of a Claimed Amount only based upon a good faith belief that all, or
such portion of the Claimed Amount, does not constitute Damages for which Parent
is entitled to indemnification hereunder
5
<PAGE> 6
or under the Merger Agreement. If no response notice is delivered by the
Stockholders' Agent within such twenty (20) day period, the Stockholders' Agent
shall be deemed to have agreed that the Claimed Amount is valid and that Parent
is entitled to indemnification.
(c) UNCONTESTED CLAIMS. If the Stockholders' Agent in the
Response Notice agrees or is deemed to have agreed that the Claimed Amount is
valid, the Escrow Agent shall in a timely manner following the required delivery
date for the Response Notice release to Parent for cancellation in accordance
with Section 2(d)(iii)(C) above that number of Company Stockholders' Indemnity
Shares sufficient to satisfy the Claimed Amount. The number of Company
Stockholders' Indemnity Shares sufficient to satisfy the Claimed Amount shall be
calculated and agreed upon by the Stockholders' Agent and Parent and certified
in writing to the Escrow Agent. The Escrow Agent shall have no duty to verify or
determine the number of Company Stockholder Indemnity Shares sufficient to
satisfy the Claimed Amount (D) PARTIALLY CONTESTED CLAIMS. If the Stockholders'
Agent in the Response Notice agrees that part, but not all, of the Claimed
Amount is valid, the Escrow Agent shall in a timely manner following the
required delivery date for the Response Notice release to Parent for
cancellation in accordance with Section 2(d)(iii)(C) above that number of
Company Stockholders' Indemnity Shares sufficient to satisfy the Agreed Amount.
The number of Company Stockholders' Indemnity Shares sufficient to satisfy the
Agreed Amount shall be calculated and agreed upon by the Stockholders' Agent and
Parent and certified in writing to the Escrow Agent. The Escrow Agent shall have
no duty to verify or determine the number of Company Stockholders' Indemnity
Shares sufficient to satisfy the Agreed Amount.
(e) CONTESTED CLAIMS. If the Stockholders' Agent in the Response
Notice contests the release of all, or a part of, the Claimed Amount (the
"Contested Amount"), the Escrow Agent shall continue to hold that number of
Company Stockholders' Indemnity Shares necessary to satisfy the Contested
Amount, as determined pursuant to Section 2(d)(iii)(C) above, notwithstanding
the occurrence of the Expiration Date, until (i) delivery of a copy of a
settlement agreement executed by the Stockholders' Agent and Parent setting
forth instructions to the Escrow Agent as to the number of Company Stockholders'
Indemnity Shares to be released to Parent for cancellation in accordance with
Section 2(d)(iii)(C) above, if any, or (ii) delivery of a copy of a court order
setting forth instructions to the Escrow Agent as to the number of Company
Stockholders' Indemnity Shares to be released to Parent for cancellation in
accordance with Section 2(d)(iii)(C) above, if any, or (iii) a decision by
arbitrators selected in accordance with Section 3(f) below. The number of
Company Stockholders' Indemnity Shares sufficient to satisfy the Contested
Amount shall be calculated and agreed upon by the Stockholders' Agent and Parent
and certified in writing to the Escrow Agent. The Escrow Agent shall have no
duty to verify or determine the number of Company Stockholders' Indemnity Shares
sufficient to satisfy the Contested Amount.
(f) The Stockholders' Agent and Parent shall attempt in good
faith for sixty (60) days to agree upon the rights of the respective parties
with respect to each of such claims. If the Stockholders' Agent and Parent
should so agree, an agreement setting forth the terms of such agreement shall be
prepared, executed and delivered by both parties and shall be furnished to the
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<PAGE> 7
Escrow Agent. The Escrow Agent shall be entitled to rely on any such agreement
shall distribute the cash or other property from the Escrow Fund in accordance
with the terms thereof.
(i) If no such agreement can be reached, either Parent
or the Stockholders' Agent may, by written notice to the other, demand
arbitration of the matter unless the amount of the damage or loss is at issue in
pending litigation with a third party, in which event arbitration shall not be
commenced until such amount is ascertained or both parties agree to arbitration;
and in either such event the matter shall be settled by arbitration conducted by
an arbitrator. Within fifteen (15) days after such written notice is sent,
Parent and the Stockholders' Agent shall select an arbitrator. The decision of
the arbitrator as to the validity and Claim Amount shall be binding and
conclusive upon the parties to this Agreement, and the Escrow Agent shall be
entitled to act in accordance with such decision and make or withhold payments
out of the Escrow Fund in accordance therewith.
(ii) Judgment upon any award rendered by the arbitrator
may be entered in any court having jurisdiction. Any such arbitration shall be
held in Santa Barbara County, California under the commercial rules then in
effect of the American Arbitration Association. For purposes of this Section
3(f), in any arbitration hereunder in which any Claim Amount is at issue, Parent
shall be deemed to be the "Non-Prevailing Party" unless the arbitrators award
Parent one-half (1/2) or more of the amount in dispute, plus any amounts not in
dispute; otherwise, the Company Stockholders shall be deemed to be the
"Non-Prevailing Party". The Non-Prevailing Party to an arbitration shall pay its
own expenses, the fees of the arbitrator, the administrative fee of the American
Arbitration Association, and the expenses, including without limitation,
attorneys' fees and costs, reasonably incurred by the other party to the
arbitration.
(g) RELEASE OF COMPANY STOCKHOLDERS' INDEMNITY SHARES. Within
five (5) business days after the Expiration Date, the Escrow Agent shall
distribute to the Company Stockholders on a pro rata basis, all of the Company
Stockholders' Indemnity Shares then held by the Escrow Agent. Notwithstanding
the foregoing, if Parent shall assert a claim for indemnification prior to the
Expiration Date and such claim has not yet been resolved, the Escrow Agent shall
retain in escrow that number of Company Stockholders' Indemnity Shares
reasonably deemed necessary to satisfy the Claimed Amount of Damages. The number
of Company Stockholders' Indemnity Shares reasonably deemed necessary to satisfy
the Claimed Amount shall be calculated in accordance with Section 2(d)(iii)(C)
and agreed upon by the Stockholders' Agent and Parent and certified in writing
to the Escrow Agent. The Escrow Agent shall have no duty to verify or determine
the number of Company Stockholders' Indemnity Shares sufficient to satisfy the
Claimed Amount.
4. FEES AND EXPENSES. Upon execution of this Agreement and initial
deposit of the Company Stockholders' Indemnity Shares with the Escrow Agent,
Escrow Agent will be entitled to fees in accordance with the Escrow Agent's fee
schedules in effect at that time. The Escrow Agent will also be entitled to
reimbursement on demand for extraordinary expenses incurred in performance of
its duties hereunder including, without limitation, payment of any reasonable
legal fees and expenses incurred by the Escrow Agent in connection with the
resolution of any
7
<PAGE> 8
claim by any party hereunder in accordance with the Escrow Agent's fee schedule
in effect from time to time. Parent shall pay the reasonable fees and
extraordinary expenses of the Escrow Agent for the services to be rendered by
the Escrow Agent hereunder including reasonable legal fees incurred in
connection with the preparation of this Agreement.
5. LIMITATION OF ESCROW AGENT'S LIABILITY.
(a) Neither Escrow Agent nor any of its directors, officers or
employees shall incur any liability with respect to any action taken or suffered
by it in reliance upon any notice, direction, instruction, consent, statement or
other documents believed by it to be genuine and duly authorized, nor for other
action or inaction except its own willful misconduct or gross negligence. The
Escrow Agent shall have no duty to inquire into or investigate the validity,
accuracy or content of any document delivered to it nor shall the Escrow Agent
be responsible for the validity or sufficiency of this Agreement. In all
questions arising under this Agreement, the Escrow Agent may rely on the advice
of counsel, including in-house counsel, and for anything done, omitted or
suffered in good faith by the Escrow Agent based on such advice the Escrow Agent
shall not be liable to anyone. The Escrow Agent shall not be required to take
any action hereunder involving any expense unless the payment of such expense is
made or provided for in a manner reasonably satisfactory to it. The Escrow Agent
shall not be responsible for any of the agreements referred to herein, including
the Merger Agreement, but shall be obligated only for the performance of such
duties as are specifically set forth in this Agreement.
(b) In the event conflicting demands are made or conflicting
notices are served upon the Escrow Agent with respect to the Company
Stockholders' Indemnity Shares, the Escrow Agent will have the absolute right,
at the Escrow Agent's election, to do either or both of the following: (i)
resign so a successor can be appointed pursuant to Section 8 hereof, or (ii)
file a suit in interpleader and obtain an order from a court of competent
jurisdiction requiring the parties to interplead and litigate in such court
their several claims and rights among themselves. In the event such interpleader
suit is brought, the Escrow Agent will thereby be fully released and discharged
from all further obligations imposed upon it under this Agreement, and Parent
will pay the Escrow Agent all costs, expenses and reasonable attorneys' fees
expended or incurred by the Escrow Agent pursuant to the exercise of the Escrow
Agent's rights under this Section 5(b) (such costs, fees and expenses will be
treated as extraordinary fees and expenses for the purposes of Section 4
hereof).
(c) Parent and the Company Stockholders, jointly and severally,
hereby agree to indemnify the Escrow Agent for, and hold it harmless against,
any loss, damage, liability or expense incurred without gross negligence or
willful misconduct on the part of Escrow Agent, arising out of or in connection
with its carrying out of its duties hereunder including, but not limited to
reasonable legal fees and other costs and expenses of defending or preparing to
defend against any claim or liability in the premises. As among themselves, each
of Parent and the Company Stockholders as a group shall be liable for one-half
(1/2) of such amounts and Parent shall be entitled to reimbursement from the
Company Stockholders' Indemnity Shares in accordance with Section 2(d)(iii)(C)
above of the Company Stockholders share of any such loss, liability or expense.
In no event shall the Escrow Agent be liable for indirect, punitive, special or
8
<PAGE> 9
consequential damages. Any indemnification of the Escrow Agent by the Company
Stockholders shall be limited to the Escrow Account.
(d) Parent and the Company Stockholders jointly and severally,
agree to assume any and all obligations imposed now or hereafter by any
applicable tax law with respect to the release of any Company Stockholders'
Indemnity Shares under this Agreement, and to indemnify and hold the Escrow
Agent harmless from and against any taxes, additions for late payment, interest,
penalties and other expenses, that may be assessed against the Escrow Agent in
any such release or other activities under this Agreement. Parent and the
Company Stockholders undertake to instruct the Escrow Agent in writing with
respect to the Escrow Agent's responsibility for withholding and other taxes,
assessments or other governmental charges, certifications and governmental
reporting in connection with its acting as Escrow Agent under this Agreement.
Parent and the Company Stockholders, jointly and severally, agree to indemnify
and hold the Escrow Agent harmless from any liability on account of taxes,
assessments or other governmental charges, including without limitation the
withholding or deduction or the failure to withhold or deduct the same, and any
liability for failure to obtain proper certifications or to properly report to
governmental authorities, to which the Escrow Agent may be or become subject in
connection with or which arises out of this Agreement, including costs and
expenses (including reasonable legal fees and expenses), interest and penalties.
6. TERMINATION. This Agreement shall terminate upon the later of the
Expiration Date or the release by the Escrow Agent of all of the Company
Stockholders' Indemnity Shares in accordance with this Agreement. The provisions
of Section 5 shall survive termination of this Agreement.
7. NOTICES. All notices, instruction and other communications given
hereunder or in connection herewith shall be in writing. Any such notice,
instruction or communication shall be sent either (i) by registered or certified
mail, return receipt requested, postage prepaid, or (ii) via a reputable
nationwide overnight courier service, or (iii) via facsimile, in each case to
the address set forth below. Any such notice, instruction or communication shall
be deemed to have been delivered three business days after it is sent prepaid,
or one (1) business day after it is sent via a reputable nationwide overnight
courier service, or upon confirmed receipt if sent by facsimile.
If to Parent: Medical Device Alliance, Inc.
3800 Howard Hughes Parkway, Ste. 1800
Las Vegas, NV 89109
Attn: Donald K. McGhan, Chairman
(Facsimile: 702-791-3267)
9
<PAGE> 10
and to: Medical Device Alliance, Inc.
12 Wright's Mill Road
Armonk, NY 10504
Attn: Peter D. Costantino,
Chief Executive Officer
(Facsimile: 914-273-4647)
and to: Nida & Maloney, P.C.
800 Anacapa Street
Santa Barbara, CA 93101
Attn: C. Thomas Hopkins, Esq.
(Facsimile: 805-568-1955)
If to the Stockholders' Agent: Parallax Medical, Inc.
2140 Jonathan Avenue
San Jose, CA 95125
Attn: Howard Preissman, President & CEO
(Facsimile: 408-978-5891)
If to the Escrow Agent: Santa Barbara Bank & Trust
Escrow Department
1002 Anacapa Street
Santa Barbara, CA 93101
Attn: Pamela Martin
(Facsimile: 805-564-6366)
Any party may give any notice, instruction or communication in
connection with this Agreement using any other means (including personal
delivery, telecopy or ordinary mail), but no such notice, instruction or
communication shall be deemed to have been delivered unless and until it is
actually received by the party to whom it was sent. Any party may change the
address to which notices, instructions or communications are to be delivered by
giving the other parties to this Agreement notice thereof in the manner set
forth in this Section 7.
8. SUCCESSOR ESCROW AGENT. In the event the Escrow Agent becomes
unavailable or unwilling to continue in its capacity herewith, the Escrow Agent
may resign and be discharged from its duties or obligations hereunder by giving
its resignation to the parties to this Agreement, specifying not less than 30
days' prior written notice of the date when such resignation shall take effect.
Parent may appoint a successor Escrow Agent without the consent of the
Stockholders' Agent so long as such successor is a bank with assets of at least
$500 million, and may appoint any other successor Escrow Agent with the consent
of the Stockholders' Agent, which shall not be unreasonably withheld. If, within
such notice period, Parent provides to the Escrow Agent written instructions
with respect to the appointment of a successor Escrow Agent and directions for
the transfer of the Company Stockholders' Indemnity Shares then held by the
Escrow Agent to such successor, the Escrow Agent shall act in accordance with
such instructions and promptly transfer the Company Stockholders' Indemnity
Shares to such designated successor. If,
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<PAGE> 11
however, Parent shall fail to name such a successor escrow agent within twenty
(20) days after the notice of resignation from the Escrow Agent, the Escrow
Agent may apply to a court of competent jurisdiction for appointment of a
successor escrow agent.
9. STOCKHOLDERS' AGENT.
(a) For purposes of this Agreement, the Company Stockholders
hereby consent to the appointment of Howard Preissman, as the Stockholders'
Agent and as attorney-in-fact for and on behalf of each of the Company
Stockholders, and the taking by the Stockholders' Agent of any and all actions
and the making of any decisions required or permitted to be taken by him under
this Agreement, including without limitation, the exercise of the power to (i)
authorize delivery to Parent of the Company Stockholders' Indemnity Shares for
cancellation in accordance with Section 2(d)(iii)(C), or any portion thereof, in
satisfaction of Claims, (ii) agree to negotiate, enter into settlements and
compromises with respect to such Claims, (iii) resolve any Claims, and (iv) take
all actions necessary in the judgment of the Stockholders' Agent for the
accomplishment of the foregoing and all of the other terms, conditions and
limitations contained in this Agreement.
(b) The Stockholders' Agent represents that it has been
appointed and constituted as agent for and on behalf of the Company
Stockholders: to enter into and perform in accordance with the terms and
conditions of this Agreement; to give and receive notices and communications; to
authorize delivery to Parent of funds from the Escrow Fund in satisfaction of
claims by Parent; to object to such deliveries; to agree to, negotiate, enter
into settlements and compromises of, and demand arbitration and comply with
orders of courts and awards of arbitrators with respect to such claims; and to
take all actions necessary or appropriate in the judgment of the Stockholders'
Agent for the accomplishment of the foregoing and this Agreement. The
Stockholders' Agent may resign upon thirty (30) days notice to the parties to
this Agreement. The Stockholders' Agent may be replaced by the Company
Stockholders with a right to a majority of the Escrow Fund from time to time
upon not less than ten (10) days prior written notice to Parent and the Escrow
Agent. No bond shall be required of the Stockholders' Agent, and the
Stockholders' Agent shall receive no compensation for his services except as
provided in Section 9(c). Notices or communications to or from the Stockholders'
Agent shall constitute notice to or from each of the Company Stockholders.
(c) The Stockholders' Agent shall not be personally liable to
Parent or the Company Stockholders for any act done or omitted hereunder as
Stockholders' Agent while acting in good faith, and any act performed or omitted
pursuant to the advice of counsel shall be conclusive evidence of good faith.
The Company Stockholders shall indemnify the Stockholders' Agent and hold the
Stockholders' Agent harmless for their respective pro rata share against, any
loss, liability or expense (including but not limited to the fees and expenses
of legal counsel) that is incurred without bad faith on the part of the
Stockholders' Agent and arises out of or in connection with the acceptance of
administration of the Stockholders' Agent's duties hereunder. The Stockholders'
Agent shall have reasonable access to information about Parent, and the
reasonable assistance of Parent's officers and employees for the purpose of
performing his duties and exercising his rights hereunder; provided, however,
that the Stockholders' Agent
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<PAGE> 12
shall treat as confidential and not disclose any nonpublic information from or
about Parent to anyone (except on a need to know basis to his legal counsel and
other individuals who agree in writing with Parent to treat such information as
confidential). The Stockholders' Agent shall be entitled to a distribution from
the Escrow Fund equal to any such indemnity claim which has not been satisfied;
provided, however, that no such distribution shall be made until all claims of
Parent made on or prior to the Expiration Date have been resolved. Any indemnity
amounts paid out to the Stockholders' Agent under this Section 9(c) shall be set
forth in a written notice provided to the Escrow Agent executed by both Parent
and the Stockholders' Agent.
(d) A decision, act, consent or instruction of the Stockholders'
Agent shall constitute a decision of all of the Company Stockholders, and shall
be final, binding and conclusive upon each of the Company Stockholders, and the
Escrow Agent and Parent may rely upon any decision, act, consent or instruction
of the Stockholders' Agent as being the decision, act, consent or instruction of
each and all of the Company Stockholders. The Escrow Agent and Parent are hereby
relieved from any liability to any person for any acts done by them in
accordance with such decision, act, consent or instruction of the Stockholders'
Agent.
10. GENERAL.
(a) GOVERNING LAW; FORUM.
(i) This Agreement shall be construed in accordance
with, and governed in all respects by, the internal laws of the State of
California (without giving effect to principles of conflicts of laws).
(ii) Except as otherwise provided herein, any legal
action or other legal proceeding relating to this Agreement or the enforcement
of any provision of this Agreement shall be brought or otherwise commenced in
any state or federal court located in Clark County, Nevada.
(iii) Nothing contained in Section 10 shall be deemed to
limit or otherwise affect the right of any Person entitled to indemnification
hereunder to commence any legal proceeding or otherwise proceed against the
indemnifying party in any other forum or jurisdiction.
(b) COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be decreed an original, but all of which
together shall constitute one and the same instrument.
(c) ENTIRE AGREEMENT. This Agreement constitutes the entire
understanding and agreement of the parties with respect to the subject matter of
this Agreement and supersedes all prior agreements or understandings, written or
oral, between the parties with respect to the subject matter hereof.
(d) WAIVERS. No waiver by any party hereto of any condition or
of any breach of any provision of this Agreement shall be effective unless in
writing. No waiver by any
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<PAGE> 13
party of any such condition or breach, in any one instance, shall be deemed to
be a further or continuing waiver of any such condition or breach or a waiver of
any other condition or breach of any other provision contained herein.
(e) AMENDMENT. This Agreement may be amended only with the
written consent of Parent, the Escrow Agent and the Stockholders' Agent (or
their duly designated successors).
(f) DISPUTE RESOLUTION. It is understood and agreed that should
any dispute arise with respect to the delivery, ownership, right of possession,
and/or disposition of the Company Stockholders' Indemnity Shares, or should any
claim be made upon such Company Stockholders' Indemnity Shares by a third party,
the Escrow Agent upon receipt of written notice of such dispute or claim by the
parties hereto or by a third party, is authorized and directed to retain in its
possession without liability to anyone, all or any of said Company Stockholders'
Indemnity Shares until such dispute shall have been settled either by the mutual
written agreement of the parties involved or by a final order, decree or
judgment of a Court in the United States of America, the time for perfection of
an appeal of such order, decree or judgment having expired. The Escrow Agent
may, but shall be under no duty whatsoever to, institute or defend any legal
proceedings which relate to the Company Stockholders' Indemnity Shares.
(g) FORCE MAJEURE. The Escrow Agent shall not be responsible for
delays or failures in performance resulting from acts beyond its control. Such
acts shall include but not be limited to acts of God, strikes, lockouts, riots,
acts of war, epidemics, governmental regulations superimposed after the fact,
fire, communication line failures, computer viruses, power failures, earthquakes
or other disasters.
(h) BINDING EFFECT. This Agreement shall be binding upon the
respective parties hereto and their heirs, executors, successors and assigns.
(i) REPRODUCTION OF DOCUMENTS. This Agreement and all documents
relating thereto, including, without limitation, (a) consents, waivers and
modifications which may hereafter be executed, and (b) certificates and other
information previously or hereafter furnished, may be reproduced by any
photographic, photostatic, microfilm, optical disk, micro-card, miniature
photographic or other similar process. The parties agree that any such
reproduction shall be admissible in evidence as the original itself in any
judicial or administrative proceeding, whether or not the original is in
existence and whether or not such reproduction was made by a party in the
regular course of business, and that any enlargement, facsimile or further
reproduction of such reproduction shall likewise be admissible in evidence.
[Signature page to follow.]
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<PAGE> 14
IN WITNESS WHEREOF, the parties hereto have duly executed this Company
Stockholders Escrow Agreement as of the day and year first above written.
MEDICAL DEVICE ALLIANCE, INC.
By: /s/ Donald K. McGhan
--------------------------------------
Donald K. McGhan
Chairman of the Board
SANTA BARBARA BANK & TRUST
By: /s/ Pam Martin
--------------------------------------
Name: Pam Martin
--------------------------------
Title: Asst. Vice President
--------------------------------
STOCKHOLDERS' AGENT
By: /s/ Howard Preissman
--------------------------------------
Howard Priessman
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<PAGE> 15
COMPANY STOCKHOLDERS:
/s/ Raul Arechiga
-----------------------------------------
Raul Arechiga
/s/ Peter Costantino
-----------------------------------------
Peter Costantino
/s/ Gunderson, Dettmer, Stough, et at.,
-----------------------------------------
Gunderson, Dettmer, Stough,
Villeneuve, Franklin & Hachigian, LLP
/s/ Jacques Dion
-----------------------------------------
Jacques Dion
/s/ Mary Jensen
-----------------------------------------
Mary Jensen
/s/ Kirby J. Kaufman
-----------------------------------------
Kirby J. Kaufman
/s/ Sharon Lake
-----------------------------------------
Sharon Lake
/s/ Daniel Murray
-----------------------------------------
Daniel Murray
/s/ Howard Preissman
-----------------------------------------
Howard Preissman
/s/ Victor Rodgers
-----------------------------------------
Victor Rodgers
15
<PAGE> 1
MEDICAL DEVICE ALLIANCE INC.
EXHIBIT 10.28
ESCROW FEE AGREEMENT
AMONG
MEDICAL DEVICE ALLIANCE INC.
AND
SANTA BARBARA BANK & TRUST
<PAGE> 2
MEDICAL DEVICE ALLIANCE, INC.
3800 Howard Hughes Parkway, Suite 1800
Las Vegas, NV 89109
August 10, 1998
Santa Barbara Bank & Trust
Escrow Department
1002 Anacapa Street
Santa Barbara, CA 93101
Re: Escrow Fee Agreement
Ladies and Gentlemen:
Medical Device Alliance, Inc., a Nevada corporation ("MDA"), in order
induce Santa Barbara Bank & Trust (the "Escrow Agent") to enter into that
certain Company Stockholders' Escrow Agreement dated August 10 (the "Escrow
Agreement") made and entered into by and among MDA, the Escrow Agent, and the
stockholders of Parallax Medical, Inc., agrees as follows:
MDA shall pay the Escrow Agent compensation (as payment in full) for the
services to be rendered by the Escrow Agent hereunder in the amount of $1,500.00
at the time of execution of the Escrow Agreement and agree to reimburse the
Escrow Agent for all reasonable expenses, disbursements and advances incurred or
made by the Escrow Agent in connection with the operation, administration,
enforcement and performance of the Escrow Agreement and its obligations
(including reasonable fees, expenses and disbursements of its counsel) as set
forth in the Escrow Agreement.
Please evidence Escrow Agent?s acceptance of the fee by executing this
fee agreement and returning the same to MDA.
Very truly yours,
MEDICAL DEVICE ALLIANCE, INC.,
a Nevada corporation
By: /s/ Donald K. McGhan
-----------------------------------
Donald K. McGhan
Chairman of the Board
ACCEPTED AND AGREED TO
AS OF 9/18, 1998
SANTA BARBARA BANK & TRUST
By: /s/ Pam Martin
-----------------------------
Name: Pam Martin
---------------------------
Title: Asst. Vice President
--------------------------
<PAGE> 1
MEDICAL DEVICE ALLIANCE INC.
EXHIBIT 10.29
CERTIFICATE OF DESIGNATION,
RIGHTS
AND
PREFERENCES
OF THE
SERIES B
CONVERTIBLE PREFERRED STOCK
<PAGE> 2
CERTIFICATE OF DESIGNATION,
RIGHTS AND PREFERENCES
OF THE
SERIES B CONVERTIBLE PREFERRED STOCK
OF
MEDICAL DEVICE ALLIANCE, INC.
----------------------------
Pursuant to Chapter 78 of the
Nevada Revised Statutes
----------------------------
Medical Device Alliance, Inc. (the "Corporation"), a corporation
organized and existing under and by virtue of the provisions of the Nevada
Revised Statutes, certifies as follows:
FIRST: The Articles of Incorporation, as amended, of the Corporation
authorizes the issuance of 20,000,000 shares of Preferred Stock, par value $.001
per share ("Preferred Stock"), and, further, authorizes the Board of Directors
of the Corporation (the "Board of Directors"), by resolution or resolutions, at
any time and from time to time, to divide and establish any or all of the
unissued shares of Preferred Stock not then allocated to any class or series of
Preferred Stock into one or more classes or series, and without limiting the
generality of the foregoing, to fix and determine the designation of each such
class or series, the number of shares which shall constitute such class or
series and such voting powers, and such preferences and relative participating,
optional or other special rights, and qualifications, limitations or
restrictions thereof of the shares of each class or series so established.
SECOND: The Board of Directors at a meeting held on the 10th day of
August, 1998, in accordance with Chapter 78 of the Nevada Revised Statutes, did
duly adopt the following resolutions authorizing the creation and issuance of a
series of said Preferred Stock to be known as Series B Convertible Preferred
Stock:
RESOLVED, that the Board of Directors, pursuant to authority
vested in it by the provisions of the Articles of Incorporation of the
Corporation, hereby authorizes the issue of a series of the
Corporation's Preferred Stock, par value $.001 per share, and hereby
fixes the number, designation, preferences, rights and limitations and
restrictions thereof in addition to those set forth in said Articles of
Incorporation as follows:
2
<PAGE> 3
(1) Designation; Rank.
A series of the Corporation's Preferred Stock is designated as Series B
Convertible Preferred Stock (the "Series B Preferred Stock") and the maximum
number of shares of Series B Preferred Stock shall be 666,667 and no more.
The Series B Preferred Stock ranks, with respect to rights to receive
dividends and distributions upon liquidation, winding up or dissolution of the
Corporation (a) senior to any series of Preferred Stock issued by the
Corporation whose terms provide specifically that such class or series will rank
junior to the Series B Preferred Stock with respect to rights to receive payment
of dividends and distributions upon liquidation, (b) on a parity with the
corporation's Common Stock, par value $.001 per share (the "Common Stock") and
with any other class or series of Preferred Stock issued by the Corporation
whose terms provide specifically that such series shall rank on a parity with
the Series B Preferred Stock with respect to rights to receive payment of
dividends and distributions upon liquidation (the "Parity Securities") and (c)
junior to any class or series of stock ranking senior to the Series B Preferred
Stock with respect to rights to receive payment of dividends and distributions
upon liquidation.
(2) Dividends.
The holders of shares of Series B Preferred Stock shall be entitled to
participate in and receive dividend payments out of the funds or Capital Stock
of the Corporation legally available therefor on a pari passu basis with all
other Parity Securities of the Corporation.
3. Redemption; Conversion
(a) Redemption. At any time after eighteen (18) months after the
Corporation first issues shares of Series B Preferred Stock, but within ninety
(90) days after the receipt by the Corporation of a written request from the
holders of not less than a majority of the then outstanding Series B Preferred
Stock that all of such holders' shares of Series B Preferred Stock be redeemed
(the "Redemption Notice"), the Corporation shall, to the extent it may lawfully
do so, commence to redeem in three equal installments, the shares specified in
such request by paying in cash therefor a sum per share equal to $7.50 per share
of Series B Preferred Stock (as adjusted for any stock splits, stock dividends,
recapitalizations or the like) plus all declared but unpaid dividends on such
shares (the "Redemption Price"). Such redemptions shall occur (i) on a date
within 90 days of the Redemption Notice Date (the "Initial Redemption Date") of
which the Company shall notify the Holders within 30 days of the Redemption
Notice Date, (ii) 270 days after the Initial Redemption Date, and (iii) 540 days
after the Initial Redemption Date (each date being referred to herein as a
("Redemption Date"); provided, however, that the Corporation shall not be
required to redeem any Series B Preferred Stock after the Mandatory Conversion
Date (as defined below). The number of shares of Series B Preferred Stock that
the Corporation shall be required to redeem on any Redemption Date shall be
equal to the amount determined by dividing (i) the aggregate number of shares of
Series B Preferred Stock outstanding immediately prior to such Redemption Date
that have
3
<PAGE> 4
been required to be redeemed pursuant to this Section 3(a) by (ii) the number of
remaining Redemption Dates (including the Redemption Date to which such
calculation applies). Any redemption of Series B Preferred Stock effected
pursuant to this Section 3(a) shall be made on a pro rata basis among the
holders of the Series B Preferred Stock in proportion to the number of shares of
Series B Preferred Stock proposed to be redeemed by such holders.
(b) Redemption Notice. At least fifteen (15) but no more than thirty
(30) days prior to each Redemption Date, written notice shall be mailed, first
class postage prepaid, to each holder of record (at the close of business on the
business day next preceding the day on which notice is given) of the Series B
Preferred Stock to be redeemed, at the address last shown on the records of the
Corporation for such holder, notifying such holder of the redemption to be
effected on the applicable Redemption Date, specifying the number of shares to
be redeemed from such holder, the Redemption Date, the Redemption Price, the
place at which payment may be obtained and calling upon such holder to surrender
to the Corporation, in the manner and at the place designated, his, her or its
certificate or certificates representing the shares to be redeemed (the
"Redemption Notice"). Except as provided in this Section 3(b), on or after each
Redemption Date, each holder of Series B Preferred Stock to be redeemed on such
Redemption Date shall surrender to the Corporation the certificate or
certificates representing such shares, in the manner and at the place designated
in the Redemption Notice, and thereupon the applicable Redemption Price of such
shares shall be payable to the order of the person whose name appears on such
certificate or certificates as the owner thereof and each surrendered
certificate shall be canceled. In the event less than all the shares represented
by any such certificate are redeemed, a new certificate shall be issued
representing the unredeemed shares.
(c) Funds for Redemption. From and after each Redemption Date, unless
there shall have been a default in payment of the Redemption Price, all rights
of the holders of shares of Series B Preferred Stock designated for redemption
on such Redemption Date in the Redemption Notice as holders of Series B
Preferred Stock (except the right to receive the applicable Redemption Price
without interest upon surrender of their certificate or certificates) shall
cease with respect to such shares, and such shares shall not thereafter be
transferred on the books of the Corporation or be deemed to be outstanding for
any purpose whatsoever. If the funds of the Corporation legally available for
redemption of shares of Series B Preferred Stock on a Redemption Date are
insufficient to redeem the total number of shares of Series B Preferred Stock to
be redeemed on such date, those funds that are legally available will be used to
redeem the maximum possible number of such shares ratably among the holders of
such shares to be redeemed such that each holder of a share of Series B
Preferred Stock receives the same percentage of the applicable Redemption Price.
The shares of Series B Preferred Stock not redeemed shall remain outstanding and
entitled to all the rights and preferences provided herein. At any time
thereafter when additional funds of the Corporation are legally available for
the redemption of shares of Series B Preferred Stock, such funds will
immediately be used to redeem the balance of the shares that the Corporation has
become obliged to redeem on any Redemption Date but that it has not redeemed.
4
<PAGE> 5
(d) Optional Conversion. Each share of Series B Preferred Stock shall
be convertible, at the option of the Holder thereof, at any time after the date
of issuance (and prior to the Redemption Notice Date with respect to which a
notice of redemption shall have been issued pursuant to Section 3(a)), into such
number of fully paid and nonassessable shares of Common Stock as is determined
by dividing $7.50 by the Conversion Price (as defined below) applicable to such
share, determined as hereafter provided, in effect on the date the certificate
is surrendered for conversion. The initial "Conversion Price" per share for
shares of Series B Preferred Stock shall be $7.50; provided, however, that the
Conversion Price for the Series B Preferred Stock shall be subject to adjustment
for any stock splits, stock dividends, recapitalization or the like.
To exercise, in whole or in part, the conversion privilege with respect
to any Series B Preferred Stock, the Holder of such Series B Preferred Stock
shall surrender such Series B Preferred Stock, duly endorsed, at an office or
agency maintained by the Corporation for such purpose (which may be office of
the transfer agent for the Corporation?s capital stock) and shall give written
notice of conversion in the form provided on the certificate for the Series B
Preferred Stock (or such other notice which is acceptable to the Corporation) (a
"Conversion Notice") to such office or agency that the Holder of Series B
Preferred Stock elects to convert such Series B Preferred Stock or such portion
thereof specified in said notice. Such notice shall also state the name or names
(with address or addresses) in which the certificate or certificates for shares
of Common Stock which are issuable on such conversion shall be issued, and shall
be accompanied by transfer taxes, if required. Each such certificate for Series
B Preferred Stock surrendered for conversion shall, unless the shares issuable
on conversion are to be issued in the same name as the registration of such
Series B Preferred Stock, be duly endorsed by, or be accompanied by instruments
of transfer in form satisfactory to the Corporation duly executed by, the Holder
of Series B Preferred Stock or its duly authorized attorney.
As promptly as practicable after satisfaction of the requirements for
conversion set forth above the Corporation shall issue and shall deliver to such
Holder at the office or agency maintained by the Corporation for such purpose, a
certificate or certificates for the number of full shares of Common Stock
issuable upon the conversion of such Series B Preferred Stock or portion thereof
in accordance with the provisions of this Section 3 and a check or cash in
respect of any fractional interest in respect of a share of Common Stock arising
upon such conversion as provided below (which payment, if any, shall be paid no
later than five business days after satisfaction of the requirements for
conversion set forth above).
Each conversion shall be deemed to have been effected as to any such
Series B Preferred Stock (or portion thereof) on the date on which the
requirements set forth above in this Section 3(d) have been satisfied as to such
Series B Preferred Stock (or portion thereof) (the "Conversion Date"), and the
person in whose name any certificate or certificates for shares of Common Stock
are issuable upon such conversion shall be deemed to have become on said date
the Holder of record of the shares represented thereby; provided, however, that
any such surrender on any date when the Corporation's stock transfer books are
closed shall constitute the person in whose name the certificates are to be
issued as the record Holder thereof for all purposes on the next succeeding day
5
<PAGE> 6
on which such stock transfer books are open, but such conversion shall be at the
Conversion Price in effect on the date upon which such Series B Preferred Stock
is surrendered.
No fractional shares of Common Stock or scrip representing fractional
shares shall be issued upon conversion of Series B Preferred Stock. If more than
one certificate for shares of Series B Preferred Stock shall be surrendered for
conversion at one time by the same Holder, the number of full shares which shall
be issuable upon conversion shall be computed on the basis of the total number
of shares of Series B Preferred Stock (or specified portions thereof to the
extent permitted hereby) so surrendered for conversion. If any fractional share
of stock otherwise would be issuable upon the conversion of any Series B
Preferred Stock, the Corporation shall make an adjustment therefor in cash based
upon the current market price of the Common Stock on the last trading day
preceding the Conversion Date.
(e) Mandatory Conversion. If any shares of Series B Preferred Stock
remain outstanding on the Mandatory Conversion Date (as defined below), then all
such shares of Series B Preferred Stock will be automatically converted as of
such date in accordance with this Section 3 as if the holders of such shares of
Series B Preferred Stock had exercised a privilege to convert such shares and
voluntarily surrendered such shares for conversion on the date immediately
preceding the Mandatory Conversion Date, and the conversion date had been fixed
as of the Mandatory Conversion Date. All holders of Series B Preferred Stock
shall thereupon and within two (2) Business Days (as defined in Section 7) after
receipt of notice of the occurrence of the Mandatory Conversion Date surrender
all certificates for Series B Preferred Stock, duly endorsed for cancellation,
to the Conversion Agent (as defined in Section 7). No Person shall thereafter
have any rights in respect of Series B Preferred Stock, except the right to
receive shares of Common Stock on conversion thereof. "Mandatory Conversion
Date" means the effective date of a registration statement under the Securities
Act (as defined in Section 7) relating to an initial public offering of the
Corporation's Common Stock or the Corporation's Common Stock otherwise becoming
publicly traded on a national securities exchange or interdealer quotation
system.
(f) Issuances of Shares Upon Conversion. As promptly as practicable
on or after the Mandatory Conversion Date, the Corporation shall issue and
deliver, out of its authorized but previously unissued (or, in the case of
treasury stock of the Corporation, validly issued) shares of Common Stock, at
the office of the Conversion Agent a certificate or certificates for the number
of full shares of Common Stock issuable upon conversion, together with payment
in lieu of any fraction of a share, as provided in Section 3(d).
All Common Stock delivered upon such conversion of Series B Preferred
Stock which has not been registered under the Securities Act (the "Restricted
Securities") shall bear a restrictive legend in the form provided by the
Corporation and shall be subject to the restrictions on transfer provided in
such legend. No Conversion Agent other than the Corporation shall have any
responsibility for the inclusion or content of any such restrictive legend on
such Common Stock; provided, however, that any Conversion Agent shall have
provided to the Corporation or to the Corporation's transfer agent for such
Common Stock, prior to or concurrently with a request to the
6
<PAGE> 7
Corporation to deliver to such agent maintained for the purpose of such
conversion certificates for such Common Stock, written notice that the
securities delivered for conversion are Restricted Securities.
Unless otherwise specified by the holder thereof, if Common Stock to
be issued upon conversion of a Series B Preferred Stock is to be registered in a
name other than that of the holder of such surrendered Series B Preferred Stock,
then such transaction shall be deemed a transfer, prior to the conversion of
such Series B Preferred Stock, of that portion of the Series B Preferred Stock
to be so converted or issued to the Person in whose name such Common Stock is to
be registered.
(g) Adjustments to the Conversion Price. In the event the Corporation
issues any equity securities, or securities exercisable or convertible into
equity securities of the Corporation, in one or more private financing
transactions (excluding (i) the issuance of Common Stock upon the exercise of
existing convertible or exercisable securities of the Corporation, (ii) the
issuance or exercise of securities under the Corporation's 1998 Stock
Compensation Program or any similar plan and (iii) the issuance or exercise of
exercisable securities of the Corporation issued in connection with any issuance
of debt securities of the Corporation, as a unit or otherwise, provided, that
(x) the debt securities are (1) issued on or before December 31, 1998 and (2)
cannot be converted into equity of the Company under the terms of such debt
securities, and (y) the exercisable securities of the Corporation issued in
connection with any issuance of debt securities of the Corporation, as a unit or
otherwise, shall not constitute more than 10 percent of the aggregate of (I) the
equity securities of the Company then outstanding, (II) the equity securities
issuable upon the exercise or conversion of any of the securities described in
clauses (i) and (ii) above and (III) the Series B Preferred Stock), with an
aggregate purchase price of $1 million or more, after the date hereof and prior
to the Mandatory Conversion Date, at a price per share of less than $7.50
(subject to adjustment in the event of a stock split, recapitalization, stock
dividend, subdivision, reclassification, reorganization, combination or other
similar event ("Dilutive Securities), the Conversion Price shall be the price
per share of the Dilutive Securities being issued by the Corporation in such
private financing.
No adjustment of the Conversion Price shall occur and this Section
3(g) shall be of no further force and effect from and after the Mandatory
Conversion Date.
(h) Fractions of Common Stock. No fractional Common Stock or scrip
certificates in respect thereof shall be issued upon conversion of any Series B
Preferred Stock. Instead of any fractional Common Stock which would otherwise be
issuable upon conversion of any Series B Preferred Stock, the Corporation shall
pay a cash adjustment in respect of such fraction (calculated to the nearest
1/100 of a share) in an amount in Dollars equal to the same fraction of the
current market price per share of Common Stock (as calculated by the Board of
Directors, whose determination shall be conclusive and described in a Board
resolution) at the close of business on the day of conversion, or alternatively,
at the Corporation's option, the Corporation shall round up the conversion
transaction to the next higher whole share. (i) Corporation To Reserve Common
Stock. The Corporation shall at all times while any shares of Series B Preferred
Stock are outstanding reserve and keep available, free from preemptive rights,
out of its authorized but previously unissued Common Stock, for the purpose of
effecting the conversion of Series B Preferred Stock, the full number of shares
of Common Stock then issuable upon the conversion of all such outstanding shares
of Series B Preferred Stock.
7
<PAGE> 8
(j) Taxes on Conversions. Except as provided in the next sentence,
the Corporation will pay any and all transfer, stamp, documentary and other
similar taxes and duties that may be payable in respect of the issue or delivery
of Common Stock on conversion of Series B Preferred Stock pursuant hereto. A
holder delivering Series B Preferred Stock for conversion will be required to
pay any tax or duty which may be payable in respect of any transfer involved in
the issue and delivery of Common Stock in a name other than that of the holder
of the Series B Preferred Stock to be converted, and no such issue or delivery
shall be made unless and until the Person requesting such issue has paid to the
Corporation the amount of any such tax or duty or has established to the
satisfaction of the Corporation that such tax or duty has been paid.
4. Liquidation Rights; Priority.
The holders of the Series B Preferred Stock shall not be entitled to any
preferences in the event of any liquidation, dissolution or winding up of the
affairs of the Corporation, whether voluntary or involuntary.
5. Voting.
Each holder of outstanding shares of Series B Preferred Stock shall be
entitled to the number of votes equal to the number of whole shares of Common
Stock into which the shares of Series B Preferred Stock held by such holder are
convertible (as adjusted from time to time pursuant to Section 3(f)) at the
record date for the determination of stockholders entitled to vote on such
matters, or if no such record date is established, at the date such vote is
taken or written consent solicited, at each meeting of stockholders of the
Corporation (and written actions of stockholders in lieu of meetings) with
respect to any and all matters presented to the stockholders of the Corporation
for their action or consideration. Except as provided by law or by the
provisions establishing any other series of Preferred Stock or Common Stock,
holders of Series B Preferred Stock shall vote together with the holders of
Common Stock and any other class or series of stock as a single class; provided,
however, that the Corporation shall not (i) authorize additional shares of
Series B Preferred Stock or (ii) change the rights, preferences and privileges
of the Series B Preferred Stock, without the consent of the Holders of the
majority of the then outstanding shares of Series B Preferred Stock.
8
<PAGE> 9
6. Reports.
So long as the Series B Preferred Stock remains outstanding, the
Corporation shall cause its annual reports to stockholders and any quarterly or
other financial reports and information furnished by it to holders of Common
Stock, to be mailed to the holders of Series B Preferred Stock (no later than
the date such materials are mailed to the holders of the Corporation's Common
Stock) at their addresses appearing on the books of the Corporation.
7. Certain Definitions.
The following terms shall have the meanings set forth below:
"Business Day" means any day other than a Saturday, a Sunday, any day on
which the New York Stock Exchange is closed or any other day on which banking
institutions in New York, New York are authorized or required by law to be
closed.
"Capital Stock" means any and all shares, interests, participations or
other equivalents (however designated) of corporate stock or any and all
equivalent ownership interests in a Person (other than a corporation).
"Conversion Agent" means the Corporation of such other Person or Persons
designated by the Corporation to and as agent for purpose of processing
conversions of shares of Series B Preferred Stock pursuant to Section 3.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder and any successor statute, rules
and regulations.
AND FURTHER RESOLVED, that, before the Corporation shall issue
any shares of the Series B Preferred Stock, a certificate pursuant to
Chapter 78 of the Nevada Revised Statutes shall be made, executed,
acknowledged, filed and recorded in accordance with the provisions of
said Chapter 78, and the proper officers of the Corporation are hereby
authorized and directed to do all acts and things which may be necessary
or proper in their opinion to carry into effect the purposes of and
intent of this and the foregoing resolutions.
[Signatures on following page]
9
<PAGE> 10
IN WITNESS WHEREOF, the Corporation has caused this Certificate
to be signed in its name and on its behalf and attested on this 10th day of
August, 1998 by duly authorized officers of the Corporation.
MEDICAL DEVICE ALLIANCE, INC.,
a Nevada corporation
By: /s/ Donald K. McGhan
-----------------------------------
Donald K. McGhan
President
ATTEST:
By: /s/ Nikki M. Moseley
-----------------------------
Nikki M. Moseley
Secretary
<PAGE> 1
MEDICAL DEVICE ALLIANCE INC.
EXHIBIT 10.30
CERTIFICATE OF MERGER
OF
PARALLAX MEDICAL, INC.
INTO
PX ACQUISTION CORP.;
<PAGE> 2
CERTIFICATE OF MERGER
OF
PARALLAX MEDICAL, INC., A DELAWARE CORPORATION
INTO
PX ACQUISITION CORP., A DELAWARE CORPORATION
Under Section 251 of the General Corporation Law of the State of
Delaware, PX Acquisition Corp., a Delaware corporation, hereby certifies that:
(1) The name and state of incorporation of each of the constituent
corporations are:
(a) Parallax Medical, Inc., a Delaware corporation ("Parallax"); and
(b) PX Acquisition Corp., a Delaware corporation ("PXAC").
(2) An Agreement and Plan of Merger has been approved, adopted,
certified, executed and acknowledged by Parallax and PXAC in accordance with the
provisions of subsection (c) of Section 251 of the General Corporation Law of
the State of Delaware.
(3) The name of the surviving corporation is PX Acquisition Corp., a
Delaware corporation.
(4) Upon the filing of this Certificate of Merger, the Certificate of
Incorporation of PXAC shall be amended to change the name of the surviving
corporation to "Parallax Medical, Inc." The amendment to the Certificate of
Incorporation changing the name of the surviving corporation has been approved
and adopted by the board of directors of PXAC.
(5) The surviving corporation is a corporation of the State of Delaware.
(6) The executed Agreement and Plan of Merger is on file at the
principal place of business of PXAC at 3800 Howard Hughes Parkway, Suite 1800,
Las Vegas, Nevada 89109.
(7) A copy of the Agreement and Plan of Merger will be furnished by
PXAC, on request and without cost, to any stockholder of Parallax or PXAC.
(8) The authorized capital stock of Parallax, as of the date hereof,
consists of 20,000,000 shares of common stock of which 6,318,695 shares have
been issued and are outstanding, and 5,000,000 shares of Preferred Stock of
which 2,233,882 shares, designated as Series A Preferred Stock, have been issued
and are outstanding.
IN WITNESS WHEREOF, PX Acquisition Corp. has caused this certificate to
be signed by Donald K. McGhan, in his capacity as President and Secretary, on
the 10th day of August, 1998.
PX ACQUISITION CORP., A DELAWARE CORPORATION
/s/ Donald K. McGhan
--------------------------------------------
Donald K. McGhan, President and Secretary
<PAGE> 1
MEDICAL DEVICE ALLIANCE INC.
EXHIBIT 10.31
NOTICE OF MERGER
BETWEEN
PARALLAX MEDICAL, INC.
INTO
PX ACQUISTION CORP.
A WHOLLY-OWNED SUBSIDIARY OF
MEDICAL DEVICE ALLIANCE INC.;
<PAGE> 2
NOTICE OF MERGER OF
PARALLAX MEDICAL, INC.
A SUBSIDIARY OF
MEDICAL DEVICE ALLIANCE
INTO
PX ACQUISITION CORP.
Holders of Shares of Capital Stock
of Parallax Medical, Inc.
MERGER NOTIFICATION
Notice is hereby given that on September 21, 1998, effective upon the
filing of a Certificate of Merger with the office of the Secretary of State of
the State of Delaware, Parallax Medical, Inc., a Delaware corporation (the
"Company") merged (the "Merger") with and into PX Acquisition Corp., a Delaware
corporation ("Merger Sub") and wholly-owned subsidiary of Medical Device
Alliance, Inc., a Nevada corporation ("Parent"). ALL NECESSARY CORPORATE ACTION
TO APPROVE THE MERGER HAS BEEN TAKEN. Accordingly, under applicable Delaware
law, no further action is required of the Company's shareholders and the Merger
is effective.
Under the terms and conditions of an Agreement and Plan of Merger
between the Company, Parent and Merger Sub, pursuant to which the Merger is
being accomplished:
o Preferred Stock. All holders of record of the shares of
Preferred Stock of the Company converted such shares into Common
Stock of the Company prior to the Merger.
o Common Stock. Holders of record of the shares of Common Stock of
the Company are entitled, as a result of the Merger, to receive
.077949214 shares (the "Exchange Rate") of Series B Convertible
Preferred Stock of Parent for each share of Common Stock held,
upon the surrender of their certificates representing such
shares.
o Stock Options and Warrants. Outstanding stock options and
warrants of the Company shall be assumed by Parent with each
such option or warrant being exercisable (i) solely for shares
of Parent's Common Stock, (ii) in an amount equal to the number
of shares of Common Stock subject to such option or warrant
immediately prior to the Merger multiplied by the Exchange
Ratio, and (iii) the per share exercise price that such option
or warrant will be
<PAGE> 3
adjusted by dividing the per share exercise price under each
such option or warrant immediately prior to the Merger by the
Exchange Ratio for each Company stock option or warrant held,
upon the surrender of their instruments representing such
options or warrants.
All of the Company's outstanding shares of all classes of stock and
options and warrants (collectively, the "Company Securities") have been canceled
as a result and by virtue of the Merger, and each holder of Company Securities
("Securityholder") no longer has any rights with respect to such Company
Securities other than a right as a former Securityholder of the Company to
receive the securities specified above for each of their Company Securities.
EXCHANGE PROCEDURE
In order to exchange the Company Securities held by you, you must
deliver or mail your original certificates representing such Company Securities,
together with the enclosed Letter of Transmittal, duly and properly completed
and signed, and any other documents required by such Letter of Transmittal, to
Nida & Maloney, P.C., counsel to Parent, as follows:
By Mail: By Hand or Overnight Courier:
Nida & Maloney, P.C. Nida & Maloney, P.C.
800 Anacapa Street 800 Anacapa Street
Santa Barbara, CA 93101 Santa Barbara, CA 93101
Attn: Noelle Tepas Attn: Noelle Tepas
Telephone: (805) 568-1151 Telephone: (805) 568-1151
Facsimile: (805) 568-1955 Facsimile: (805) 568-1955
Please read and follow carefully the instructions contained in the
Letter of Transmittal. A return envelope for your certificates and the Letter of
Transmittal is enclosed for your convenience.
The method of delivery of all documents is at the option and risk of the
Securityholder. If delivery is by mail, it is recommended that such delivery be
by registered mail with return receipt requested, properly insured. Delivery
will be deemed made only when actually received by Nida & Maloney, P.C.
You should note that no exchange will be made until you surrender the
stock certificate(s) representing the Company Securities to Nida & Maloney, P.C.
If any certificate(s) or instrument(s) representing Company Securities has been
lost, stolen, or destroyed, notify Nida & Maloney, P.C. promptly at the address
specified above.
If you have any questions concerning the instructions for surrendering
the Company Securities, please call Nida & Maloney, P.C. at (805) 568-1151.
<PAGE> 1
MEDICAL DEVICE ALLIANCE INC.
EXHIBIT 10.32
FUNDING COMMITMENT LETTER
FROM
MEDICAL DEVICE ALLIANCE INC.
TO
PARALLAX MEDICAL, INC.
<PAGE> 2
MEDICAL DEVICE ALLIANCE, INC.
3800 Howard Hughes Parkway, Ste. 1800
Las Vegas, NV 89109
August 10, 1998
Parallax Medical, Inc.
2140 Jonathan Avenue
San Jose, CA 95125
Re: Funding Commitment
Ladies and Gentlemen:
Medical Device Alliance, Inc., a Nevada corporation ("MDA"), is pleased
to inform Parallax Medical, Inc., a Delaware corporation ("borrower") that MDA
has committed to make a loan in the amount of up to $4,000,000.00 (the "Loan"),
subject to the terms and conditions of this commitment letter (this
"commitment").
MDA's obligation to close and to advance the Loan shall be subject to
the following (a) the terms and conditions set forth in the Summary of Terms set
forth herein (the "Summary of Terms"), (b) the satisfaction by Borrower of
certain Performance Objectives as set forth below and (c) such other customary
terms and conditions as set forth in the form of the documents evidencing or
securing the Loan attached hereto as Exhibit A (the "Loan Documents")
SUMMARY OF TERMS
Loan Amount:
The amount of the Loan will be up to $4,000,000.00, subject to the terms
and conditions of this Commitment, $250,000.00 of the Loan (of which amount,
$65,000 shall be used to pay the fees and expenses of Gunderson Dettmer Stough
Villeneuve Franklin & Hachigian, L.P.) will be funded within five (5) business
days of the Closing (as defined in the Agreement and Plan of Merger between MDA,
Borrower and PX Acquisition Corp. dated as of August 10, 1998) and at least an
additional $250,000 of the loan will be funded upon the expiration of each
three-month period after the Closing up to an aggregate amount of $1,000,000
during the first year after the Closing. Thereafter, subject to the terms and
conditions hereof, up to an additional $1,000,000.00 of the Loan will be funded
between the first and second anniversary of the Closing
<PAGE> 3
Parallax Medical, Inc.
August 10, 1998
Page 3
and up to an additional $1,000,000.00 of the Loan will be funded between the
second and third anniversary of the Closing and up to an additional $1,000,000
will be funded between the third and fourth anniversary of the Closing. Except
for the initial funding, fundings of the Loan shall be made within five (5)
business days after Borrower makes a written funding request to MDA. The
interest rate on the Loan will be set based on current commercially available
interest rates for similar loans to borrowers that are substantially similar to
Borrower and MDA's cost of funds. Interest shall be payable at maturity of the
outstanding amount of the Loans calculated on the basis of a 360-day year and
charged for the actual number of days elapsed.
Amortization:
All principal and interest on the Loan will be payable at maturity.
Term:
The term of the Loan shall be five (5) years from the date of each
advance.
Prepayment:
The Loan may be prepaid, in whole or in part, without penalty or premium
upon ten (10) days prior written notice.
Loan Documentation:
The Loan Documentation shall be in the form attached hereto as
Exhibit A.
Closing Conditions; Performance Objectives:
The Loan shall be conditioned upon (i) consummation of MDA's acquisition
of Borrower and (ii) no material adverse change in Borrower having occurred.
The Loan is subject to Borrower's acceptance of the Commitment within
the time provided for therein.
In addition, Borrower will achieve the following performance objectives
("Performance Objectives") in a timely manner or MDA will have the right to
cease funding of the Loan:
<PAGE> 4
Parallax Medical, Inc.
August 10, 1998
Page 4
Borrower will:
1. Within one year of the date hereof, have a GMP-compliant
manufacturing facility;
2. Within two (2) years of the date hereof, receive issuance
of a patent for the percutaneous delivery of bone cement
for the stabilization of vertebro bodies (the "Bone
Cement") fractures; and
3. Within three years of the date hereof, receive an IDE for
the Bone Cement.
<PAGE> 5
Parallax Medical, Inc.
August 10, 1998
Page 5
Please evidence Borrower's acceptance of this Commitment, and agreement
to take the Loan pursuant to the Commitment, by executing the enclosed
counterpart hereof in the place provided and returning the same to MDA, the
receipt of which is hereby acknowledged by MDA upon countersignature hereof,
failing which this Commitment shall, at the option of MDA be and become null and
void and of no further force or effect.
Very truly yours,
MEDICAL DEVICE ALLIANCE, INC.,
a Nevada corporation
By: /s/ Donald K. McGhan
------------------------------------
Donald K. McGhan
Chairman of the Board
ACCEPTED AND AGREE TO
AS OF AUGUST 10, 1998
PARALLAX MEDICAL, INC.,
a Delaware corporation
By: /s/ Howard Preissman
--------------------------------
Howard Preissman
President
<PAGE> 1
MEDICAL DEVICE ALLIANCE INC.
EXHIBIT 10.33
EMPLOYMENT AGREEMENT
BETWEEN
PARALLAX MEDICAL, INC.
AND
HOWARD E. PREISSMAN
<PAGE> 2
EXECUTION ORIGINAL
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made as of August 10,
1998, between PARALLAX MEDICAL, INC., a Delaware corporation (the "Company"),
and HOWARD PREISSMAN ("employee").
WHEREAS:
1. The Company desires to employ Employee as its President, and
2. Employee wishes to accept such employment on the terms and
conditions set forth herein.
NOW, THEREFORE, in consideration of the promises and mutual
covenants herein set forth, the parties, intending to be legally bound, do
hereby agree and promise as follows:
1. EMPLOYMENT
1.1 The Company hereby employs Employee and Employee hereby
accepts employment under the terms and conditions set forth below. Employee's
initial title shall be President.
1.2 Unless the parties agree otherwise in writing, during the
term of this Agreement, Employee shall perform the services required by this
Agreement at the Company's administrative offices, provided, however, that the
Company may, from time to time, require Employee to travel in carrying out
Employee's duties.
2. DUTIES. During the term of this Agreement:
2.1 Employee shall (a) perform such managerial, supervisory,
development or executive duties in connection with the business of the Company
as the board of directors (the "Board of Directors") or Chief Executive Officer
of the Company may from time to time assign consistent with Employee's title of
President, (b) observe and comply with the Company's rules and regulations
regarding the performance of Employee's duties and (c) carry out and perform all
orders, directions and policies stated to Employee by the Company periodically,
either orally or in writing. Employee shall carry out the duties assigned to
Employee in a trustworthy, businesslike and loyal manner.
2.2 Employee will report and be responsible to the Company's
Chief Executive Officer.
2.3 Employee agrees to devote Employee's full business time,
energy and skills to such employment subject to absences and customary vacations
and for temporary illnesses.
<PAGE> 3
2.4 Without the Company's prior written consent in each
instance:
2.4.1 Employee will not engage in other gainful occupation
or perform or render any services of a business, professional or commercial
nature during the term of this Agreement without prior written consent of the
Company.
2.4.2 Employee will not engage in any activity directly or
indirectly in competition with or adverse to the Company.
2.4.3 Employee will not engage in any activity for
purposes of influencing or attempting to influence the Company's customers,
either directly or indirectly, to conduct business with any business enterprise
in competition with the Company.
2.4.4 Employee will not undertake or participate in any
planning for or organization of any business activity that is or will be in
competition with the Company in any field(s) or area(s) in which Employee has
worked or with which Employee has come into contact, or of which Employee has
gained knowledge during the term of Employee's employment under this Agreement.
2.4.5 Employee will not engage in any other business
activity that would materially interfere with the performance of any of
Employee's obligations and duties under this Agreement.
2.4.6 Employee will not engage in any activities which
could result in a conflict of interest between the Company and Employee.
3. TERM
The term of this Agreement shall begin on the date the merger
between the Company and PX Acquisition Corp., a Delaware corporation, is
consummated by the filing of a Certificate of Merger with the Delaware Secretary
of State, and shall continue for a term of two (2) years, unless earlier
terminated pursuant to the provisions hereof. The Company, at its option and
upon terms agreeable to Employee, exercisable by delivering a written notice to
Employee at least thirty (30) days prior to the end of the initial term hereof,
may extend the term for an additional two (2) years, unless earlier terminated
pursuant to the provisions hereof. Notwithstanding the foregoing, if this
Agreement is not terminated in accordance with the provisions hereof on or
before the expiration of such option term, the Agreement shall continue in force
for successive one-year terms unless, at least ninety (90) days prior to the
expiration of such option initial term, or ninety (90) days prior to the
expiration of any subsequent one-year term, either Employee or the Company gives
the other party written notice of its intent to terminate the Agreement at the
end of such term.
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<PAGE> 4
4. COMPENSATION
4.1 Employee shall receive a salary of $144,000.00 per year
payable in equal installments on the Company's regular payroll dates ("Salary").
Employee's compensation shall be reviewed by the Board of Directors at least
annually and adjusted in the discretion of the Board of Directors.
4.2 Employee shall be reimbursed by the Company only for amounts
actually expended by Employee in the course of performing duties for the Company
where:
4.2.1 Employee has been authorized by the Company to incur
such expenses that are reasonably consistent with current established
practices or policies as applied to Employee, and those consistent with
and available to senior management of companies with similar growth and
size to the Company's growth and size; or
4.2.2 Employee tenders receipts or other documentation
substantiating the amounts as required by the Company.
4.3 The Company agrees that Employee shall also be entitled to
participate in such benefits plans and programs which are generally made
available by the Company to senior executives of the Company and which shall be
substantially equivalent to benefit plans and programs which are generally made
available to the officers of the Company's corporate parent, Medical Device
Alliance, Inc. and its operating subsidiaries.
4.4 Employee shall be entitled to three weeks vacation time, sick
leave and personal days in accordance with the Company's standard policies and
procedures from time to time.
5. TERMINATION
5.1 The Company may terminate this Agreement for cause by giving
Employee written notice. "Cause" shall mean gross negligence or willful
misconduct in the performance of Employee's duties hereunder, willful breach or
habitual neglect of duties, defalcation, fraud, conviction of a felony, or
incarceration for not less than 30 consecutive days, all as determined by the
Board of Directors. If Employee disputes the Company's right to terminate this
Agreement for cause, the dispute shall be resolved in accordance with Section 10
hereof.
5.2 This Agreement shall terminate upon the death of Employee.
5.3 The Company may terminate this Agreement if Employee is
mentally or physically disabled and such disability renders Employee unable to
perform Employee's duties under this Agreement for 90 consecutive days in any
12-month period.
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<PAGE> 5
5.4 This Agreement may be terminated voluntary by Employee by
providing the Company with written notice specifying the date of such
termination not less than 30 days prior to the effective date of termination.
5.5 This Agreement shall terminate upon expiration of the term
specified in Section 3 above.
5.6 Subject to the provisions of Section 6 hereof, this Agreement
may be terminated by the Company without cause by providing Employee with
written notice specifying the date of such termination not less than 30 days
prior to the effective date of termination.
6. EFFECT OF TERMINATION
If Employee's employment hereunder is terminated without Cause
pursuant to Section 5.6, the Company shall continue to pay to Employee the
Salary for one year from the date of any such termination, plus the value of any
accrued or unused vacation. If Employee's employment hereunder is terminated
pursuant to Sections 5.1 through 5.5, the Company shall have no further
obligation, including the payment of Salary, to Employee, except for any payment
for accrued and unused vacation. The provisions of this Section 6 shall survive
termination of this Agreement.
7. WITHHOLDING TAXES AND OTHER DEDUCTIONS
To the extent required by law, the Company shall withhold from
any payments due Employee under this Agreement any applicable federal, state or
local taxes and such other deductions as are prescribed by law or Company
policy.
8. PROPRIETARY INFORMATION
8.1 Employee understands that the Company possesses and will
continue to possess information that has been created, discovered, developed or
otherwise become known to the Company (including, without limitation,
information created, discovered, developed or made known by Employee during the
period of or arising out of Employee's employment by the Company, whether prior
to or after the date hereof) or in which property rights have been assigned or
otherwise conveyed to the Company, which information has commercial value in the
business in which the Company is engaged. All such information is hereinafter
called "Proprietary Information." By way of illustration, but not limitation,
Proprietary Information includes processes, formulas, codes, data, programs,
know-how, improvements, discoveries, developments, designs, inventions,
techniques, marketing plans, strategies, forecasts, new products, unpublished
financial statements, budgets, projections, licenses, prices, costs, contracts
and customer and supplier lists.
8.2 In consideration of the compensation received by Employee
from the Company and the covenants contained in this Agreement, Employee agrees
as follows:
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<PAGE> 6
8.2.1 All Proprietary Information shall be the sole
property of the Company and its assigns, and the Company and its assigns
shall be the sole owner of all patents, copyrights, and other rights in
connection therewith. Employee hereby assigns to the Company all rights
he may have or acquire in such Proprietary Information. At all times,
both during Employee's employment by the Company and after its
termination, Employee will keep in strictest confidence and trust all
Proprietary Information and will not use or disclose any Proprietary
Information without the written consent of the Company, except as may be
necessary in the ordinary course of performing Employee's duties under
this Agreement.
8.2.2 All documents, records, equipment and other physical
property, whether or not pertaining to Proprietary Information,
furnished to Employee by the Company or produced by Employee or others
in connection with Employee's employment with the Company shall be and
remain the sole property of the Company. In the event of the termination
of Employment's employment by Employee or Employee for any reason,
Employee will deliver to the Company all documents, notes, drawings,
specifications, programs, data, customer lists and other materials of
any nature pertaining to Employee's work with the Company and Employee
will not take with Employee or use any of the foregoing, any
reproduction of any of the foregoing, or any Proprietary Information
that is embodied in a tangible medium of expression.
8.3 Employee recognizes that the Company is engaged in a
continuous program of development and marketing respecting its present and
future business. Employee understands that as part of Employee's employment by
the Company he has been and is expected to make new contributions of value to
the Company and that Employee's employment has created a relationship of
confidence and trust between Employee and the Company with respect to certain
information applicable to the business of the Company or applicable to the
business of any customer of the Company, which has been or may be made known to
Employee by the Company or by any customer of the Company or which may have been
or may be learned by Employee during the period of Employee's employment by the
Company.
9. COVENANT NOT TO COMPETE
9.1 In consideration for the payments to be made under this
Agreement and for other consideration, Employee shall refrain from, for a period
covering the later of (i) two (2) years after the date hereof or (ii) one (1)
year after termination of Employee's employment with the Company, either alone
or in conjunction with any other person, or directly or indirectly through its
present or future affiliates:
(i) directly or indirectly engage in the business of developing
and marketing medical devices for the percutaneous delivery of bone
cement for the stabilization of vertebro body fractures or any
substantially similar business (the "Prohibited Business");
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<PAGE> 7
(ii) induce or solicit any person who had been an officer or
employee of the Company at the time of Employee's termination:
(a) to terminate such employment or
(b) accept employment with anyone other than the Company
or its affiliates;
(iii) causing or attempting to cause (A) any client, customer or
supplier of the Company to terminate or materially reduce its business
with the Company or (B) any officer, employee or consultant of the
Company at the time of Employee's termination to resign or sever a
relationship with the Company; or
(iv) participating or engaging in (other than through the
ownership of five percent (5%) or less of any class of securities
registered under the Securities Exchange Act of 1934, as amended), or
otherwise lending assistance (financial or otherwise) to any person
participating or engaged in the Prohibited Business, in any jurisdiction
in which the Company participates or engages in the Prohibited Business.
9.2 The parties hereto recognize that the laws and public
policies of the various states of the United States may differ as to the
validity and enforceability of covenants similar to those set forth in this
Section. It is the intention of the parties that the provisions of this Section
be enforced to the fullest extent permissible under the laws and policies of
each jurisdiction in which enforcement may be sought, and that the
unenforceability (or the modification to conform to such laws or policies) of
any provisions of this Section shall not render unenforceable, or impair, the
remainder of the provisions of this Section. Accordingly, if any provision of
this Section shall be determined to be invalid or unenforceable, such invalidity
or unenforceability shall be deemed to apply only with respect to the operation
of such provision in the particular jurisdiction in which such determination is
made and not with respect to any other provision or jurisdiction.
9.3 The Company and Employee acknowledge that the foregoing
restrictive covenants in this Section 9 are essential elements of this Agreement
and that, but for the agreement of Employee to comply with those covenants, the
Company would not have agreed to enter into this Agreement. The covenants by
Employee shall be construed as agreements independent of any other provision in
this Agreement.
9.4 The Company and Employee intend that the covenants contained
in this Section 9 shall be construed as a series of separate covenants, one for
each county of the State of California and one for each State of the United
States other than California.
9.5 The Company and Employee understand and agree that, if any
portion of the restrictive covenants set forth in this Section 9 is held to be
unreasonable, arbitrary, or against public policy, then that portion of those
covenants shall be considered divisible as to time and geographical area. The
Company and Employee agree that, if any court of competent jurisdiction
determines that
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<PAGE> 8
the specified time period or the specified geographical area of application in
any covenant is unreasonable, arbitrary, or against public policy, then a lesser
time period, geographical area, or both, that is determined to be reasonable,
nonarbitrary, and not against public policy may be enforced against Employee.
The Company and Employee agree and acknowledge that they are familiar with the
present and proposed operations of the Company and believe that the restrictive
covenants set forth in this Section 9 are reasonable with respect to their
subject matter, duration, and geographical application.
9.6 The parties acknowledge that the status of Employee in this
business and industry is unique and the success of the Company in said business
is materially and substantially dependent upon the continued employment of
Employee, and in the event the employment of Employee is terminated for any
reason, such business of the Company will be substantially and irrevocably
damaged. In view thereof, the parties acknowledge that monetary damages alone
will not fully compensate the Company in the event Employee fails or refuses to
comply with the terms of this Section 9 above when applicable, and agree that
the Company, in addition to all other remedies provided in law and in equity,
shall have the remedy of injunctive relief and specific performance to enforce
the terms of said Section.
9.7 The business of the Company is materially and substantially
dependent upon the continued employment of Employee, and in the event the
employment of Employee is terminated for any reason, such business will be
substantially and irrevocably damaged. In view thereof, the parties acknowledge
that monetary damages alone will not fully compensate the Company in the event
Employee fails or refuses to comply with the terms of this Section 9, and agree
that the Company, in addition to all other remedies provided in law and in
equity, shall have the remedy of injunctive relief and specific performance to
enforce the terms of said Section. Employee hereby consents to the granting by
any court of an injunction or other equitable relief, without the necessity of
actual monetary loss being proved, in order that the breach or threatened breach
of such provisions may be effectively restrained.
10. ARBITRATION
Except as otherwise provided herein, any controversies or claims
arising out of, or relating to this Agreement or the breach thereof, shall be
settled by arbitration in Clark County, Nevada in accordance with the rules of
the American Arbitration Association, which decision shall be final and binding
on the parties, and judgment upon the award rendered may be entered in any court
having jurisdiction thereof. For these purposes the arbitrator shall be an
individual who has demonstrated that such individual is familiar with and has
experience in the legal issues involving employer-employee relationships and has
had no prior prejudicial contacts with either party. In addition to all other
remedies provided in law or in equity, the arbitrator is hereby authorized to
assess costs and attorney's fees against either party if the arbitrator finds,
based on all the facts and circumstances, that the conduct of or the claims made
by such party were unreasonable or substantially without merit.
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<PAGE> 9
11. NOTICE
All notices, requests and other communications hereunder must be
in writing and will be deemed to have been duly given only if delivered
personally or by facsimile transmission or mailed (first class postage prepaid)
to the parties at the following addresses or facsimile numbers:
If to Employee, to:
Howard Preissman
2140 Jonathan Avenue
San Jose, CA 95125
If to the Company, to:
Parallax Medical, Inc.
2140 Jonathan Avenue
San Jose, CA 95125
Facsimile No.: (408) 978-5891
Attn: Board of Directors
All such notices, requests and other communications will (i) if delivered
personally to the address as provided in this Section, be deemed given upon
delivery, (ii) if delivered by facsimile transmission to the facsimile number as
provided in this Section, be deemed given upon receipt, and (iii) if delivered
by mail in the manner described above to the address as provided in this
Section, be deemed given upon receipt (in each case regardless of whether such
notice, request or other communication is received by any other person to whom a
copy of such notice, request or other communication is to be delivered pursuant
to this Section). Any party from time to time may change its address, facsimile
number or other information for the purpose of notices to that party by giving
notice specifying such change to the other party hereto.
12. INVALID PROVISION
The invalidity or unenforceability of any particular provision of
this Agreement in any jurisdiction shall not affect the other provisions hereof
or the validity of that particular provision in any other jurisdiction, and the
Agreement shall be construed in all respects as though such invalid or
unenforceable provisions were omitted only in the jurisdiction in which the same
is held to be invalid or unenforceable.
13. INTERPRETATION
This Agreement shall be governed by and construed in accordance
with the laws of the State of California, without regard to the conflict of laws
provisions thereof.
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<PAGE> 10
14. SUCCESSORS
The rights and duties of Employee hereunder shall not be
assignable by Employee. This Agreement shall be binding upon and shall inure to
the benefit of any successor of the Company and Employee, and any such successor
shall be deemed substituted for the Company or Employee under the terms of this
Agreement. The term successor as used herein shall include any person, firm,
corporation or other business entity which at any time, by merger, purchase or
otherwise, acquires substantially all of the assets or business of the Company.
15. MODIFICATION
This instrument constitutes the entire agreement between the
parties, and may be changed only by an agreement in writing signed by the
parties.
16. HEADINGS
Sections and other headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretations of this Agreement.
17. COUNTERPARTS
This Agreement may be executed in two or more counterparts, each
of which shall be deemed an original but all of which together shall constitute
one and the same instrument. Signatures may be exchanged by telecopy, with
original signatures to follow. Each of the parties hereto agrees that it will be
bound by its own telecopied signature and that it accepts the telecopied
signatures of the other parties to this Agreement. The original signature pages
shall be forwarded to the Company or its counsel and the Company or its counsel
will provide all of the parties hereto with a copy of the entire Agreement.
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by the duly authorized officer of each party hereto as of the date
first above written.
THE COMPANY: PARALLAX MEDICAL, INC.,
a Delaware corporation
By: /s/ Howard Preissman
-------------------------------------
Name: Howard Preissman
Title: President
EMPLOYEE: /s/ HOWARD PREISSMAN
----------------------------------------
HOWARD PREISSMAN, in his individual
capacity
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<PAGE> 1
MEDICAL DEVICE ALLIANCE INC.
EXHIBIT 10.34
BARRANTES
EMPLOYMENT AGREEMENT
<PAGE> 2
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into at
Las Vegas, Nevada, on the date hereinafter set forth, by and between CHARLES E.
BARRANTES (hereinafter referred to as the "Employee"), and MEDICAL DEVICE
ALLIANCE, INC., a Nevada corporation (hereinafter referred to as the
"Corporation").
The parties hereto, intending to be legally bound, do hereby agree as
follow:
1. EMPLOYMENT
1.1 POSITIONS AND DUTIES
The Corporation does hereby employ the Employee and the Employee
hereby accepts such employment as EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL
OFFICER of Medical Device Alliance, Inc. upon the terms and provisions set forth
in this Agreement. The Employee shall perform all the duties assigned to him by
the Corporation, shall observe and comply with the Corporation's rules and
regulations regarding the performance of his duties, and shall carry out and
perform all orders, directions, and policies stated to him by the Corporation
periodically, either orally or in writing. The Employee shall at all times carry
out the duties assigned to him in a loyal, trustworthy and businesslike manner.
The Employee agrees that this Agreement may be terminated as provided in Section
7. hereof.
1.2 PLACE OF EMPLOYMENT
Unless the parties agree otherwise in writing, during the term of
this Agreement, the Employee shall perform the services required by this
Agreement at Medical Device Alliance, Inc. headquarters in Las Vegas, Nevada.
The Corporation will require Employee to travel from time to time for various
business purposes including those of the Corporation's subsidiaries.
2. TERM
This Agreement shall commence as of the Effective Date specified in
Exhibit A hereto and shall continue for a period of three (3) years from the
date of this Agreement. On the anniversary of this Agreement, the term of
Employee's employment shall automatically be extended by one year, unless either
party gives 60 (sixty) days prior written notice of its intention to discontinue
this automatic extension.
3. COMPENSATION
3.1 AMOUNT OF COMPENSATION
The Effective Date of this Agreement and the employee
compensation are set forth in Exhibit A hereto. The Corporation may, from time
to time, modify the employment conditions and compensation. These changes will
be recorded in subsequent exhibits.
3.2 REIMBURSEMENTS
The Employee shall be reimbursed by the Corporation only for
amounts actually expended by the Employee in the course of performing duties for
the Corporation where:
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<PAGE> 3
3.2.1 AUTHORIZATION
The Employee has been authorized by the Corporation to
incur such expenses that are reasonably consistent with practices or policies of
the Corporation.
3.2.2 DOCUMENTATION
The Employee tenders receipts or other documentation
substantiating the amounts as required by the Corporation.
3.3 FRINGE BENEFITS
The Employee shall be entitled to receive, on the same basis as
the Corporation's other executive employees, all other benefits maintained by
the Corporation for its executive employees generally including, but not limited
to, a cellular phone, automobile allowance, paid leave, medical, dental, life
and disability insurance and any other health and welfare benefit plans and
perquisites, as in effect from time to time. The Employee will be granted paid
leave consistent with the Corporation's paid leave policy in effect from time to
time.
3.4 STOCK OPTIONS
The Employee may receive stock options to purchase the
Corporation's Stock under the Corporation's Stock Option Plans or Warrants, as
determined from time to time by the Corporation's Board of Directors. The
Employee will also execute any other documents reasonably required by the
Corporation in connection with said Warrants and/or options, and hereby agrees
to execute any lock-up or similar agreements required by the Corporation's
underwriters in connection with an offering or offerings of the Corporation's
securities.
4. COMPETITION
The Employee agrees that during the term of this Agreement he
shall diligently devote his time and efforts to the duties and responsibilities
assigned to him by the Corporation, and without prior express written
authorization of the Corporation's Board of Directors, the Employee shall not,
directly or indirectly, either alone or in concert with others, during the term
of this Agreement:
4.1 OTHER SERVICES
Perform or render any services of a business, professional or
commercial nature, relating to service or products in direct competition with
the Corporation, to or for the benefit of any other person or firm, whether for
compensation or otherwise, except for personal investments, and for other
activities approved by the Corporation;
4.2 COMPETITION
Engage in any activity directly in competition with or adverse to
the Corporation;
4.3 SOLICITATION
Engage in any activity for purposes of influence or attempting to
influence the Corporation's customers or to conduct business with any business
enterprise in competition with the Corporation;
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<PAGE> 4
4.4 COMPETING ENTERPRISE
Undertake or participate in any planning for or organization of
any business activity that is or will be in direct competition with the
Corporation for products in which the Employee has worked or with which the
Employee has come into contact, or of which the Employee has gained knowledge
during the term of his employment under this Agreement; or
4.5 OTHER ACTIVITIES
Engage in any other business activity that would materially
interfere with the performance of any of the Employee's obligations and duties
under this Agreement.
5. PROHIBITION AGAINST COMPETITION
5.1 AGREEMENT NOT TO COMPETE
As a result of the Employee's employment, the Employee will have
access to trade secrets and confidential information about the Corporation, its
products, its services, its customers and its methods of doing business. In
consideration for access to this information, the Employee agrees that for a
period of one (1) year after termination of employment, the Employee will not
compete with the Corporation without the Corporation's prior express written
approval.
5.2 COMPETITION DEFINED
"Competition" shall mean any participation in, assistance of,
employment by, ownership of any interest in, acceptance of business from or
assistance, promotion or organization of any person partnership, corporation,
firm, association or other business organization, entity or enterprise which is
engaged in, or hereinafter engages in, research on, or development, production,
marketing, leasing or selling of, any product, process or service which is the
same as or in competition with, any products or research in which the
Corporation, its parent, subsidiary or affiliated company, is now engaged or
hereinafter engages, whether as an agent, consultant, employee, officer,
director, investor, partner, shareholder, proprietor or in any other individual
or representative capacity, but excluding the holding for investment of less
that 5% of the outstanding securities of any Corporation which are regularly
traded on Nasdaq or on a recognized stock exchange.
5.3 FURTHER EMPLOYEE AGREEMENTS
For a period of one (1) year after the termination of the
Employee's employment, the Employee will not undertake any employment or
activity competitive with the Corporation wherein the loyal and complete
fulfillment of the duties of the competitive employment or activity would call
upon the Employee to make judgements on or otherwise to use any confidential
business information concerning the Corporation. The Employee will not, either
for himself or for any other person, firm or corporation, divert or take away
(or attempt to divert or take away), any of the Corporation's present, former or
prospective customers, including, but not limited to, those upon whom he called,
met with or became acquainted with while engaged as an employee of the
Corporation. The Employee will not interfere with the contractual or business
relationships of the Corporation, will not solicit or attempt to solicit any
employees or clients of the Corporation, nor slander or disparage the
Corporation, or undertake any activity which adversely impacts the goodwill of
the Corporation and its business opportunities.
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<PAGE> 5
5.4 SEPARATE COVENANTS
Each of the convenants of Section 5. shall be construed as
separate convenants covering their subject matter in each of the separate
counties, countries and states in the United States and governmental
subdivisions outside of the United States (collectively, the "Governmental
Subdivisions"); to the extent that any covenant shall be judicially
unenforceable in any one or more of said counties, states or countries, said
covenant shall not be affected with respect to each other Governmental
Subdivision, each covenant with respect to each Governmental Subdivision being
construed as severable and independent.
6. INTELLECTUAL PROPERTY AND CONFIDENTIALITY AGREEMENT
The Employee has executed or will concurrently execute the
Corporation's Intellectual Property and Confidentiality Agreement, the terms of
which are incorporated herein by reference. The terms of this Employment
Agreement shall prevail in the case of any discrepancy between the Corporation's
Intellectual Property and Confidentiality Agreement and this Agreement.
7. TERMINATION OF AGREEMENT
7.1 GROUNDS
This Agreement shall terminate upon the occurrence of any of the
following events:
7.1.1 EXPIRATION OF TERM
At any time upon expiration of the terms specified in
Section 2. hereof.
7.1.2 FOURTEEN (14) DAY TERMINATION BY EMPLOYEE
By the Employee, upon fourteen (14) days' prior written
notice to the Corporation.
7.1.3 TERMINATION BY EMPLOYER (FOR CAUSE)
This Agreement may be immediately terminated by the
Corporation for the following causes: The Employee's personal dishonesty, lack
of trustworthiness, incompetence, willful misconduct, breach of fiduciary duty
involving personal profit, intentional failure to perform stated duties, willful
violation of any law, rule or regulation (other than minor misdemeanors such as
minor traffic violation) or a material breach of any provision of this
Agreement, or any other agreement between the Employee and the Corporation.
7.2 DISABILITY
7.2.1 TERMINATION
In the event that the Employee is unable to perform his
assigned duties and responsibilities due to illness, physical or mental
disability or any other reason, and such disability continues for a period of
six (6) consecutive months after all available sick leave has been utilized, the
Corporation may terminate this Agreement upon ten (10) days' written notice.
7.2.2 DEATH
Upon the death of the Employee.
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<PAGE> 6
8. SEVERANCE COMPENSATION
If the Corporation should terminate the Employee's employment
hereunder during the Term (as defined in Section 2) for reasons other than cause
(as defined in Section 7.1.3) or Employee's death or disability (as defined in
Section 7.2), or if Employee should resign his employment for Good Reason, as
defined below, the Employee shall be entitled to the following Severance
compensation:
(a) Payment of his base salary at the greater of the rate in effect
at the time of termination or at the rate in effect immediately prior to the
occurrence defined in Section 8.1(c), from the date of termination until the
expiration date of this Agreement under Section 2.
(b) Continuation of all benefits including, without limitation,
medical, dental and life insurance, during the Post-Termination Period or until
the date on which the Employee first becomes eligible for insurance coverage of
a similar nature provided by a firm that employs him following termination of
employment by the Corporation, whichever occurs first.
Notwithstanding the foregoing, nothing in this Employment Agreement shall
require the Corporation to make any payment or to provide any benefit to the
Employee that the Corporation is otherwise required to provide under any other
contract, agreement or arrangement, including, without limitation, the Employee
Severance Agreement between the Corporation and the Employee, attached hereto as
Exhibit C, and the Employee Retention Agreement between the Corporation and the
Employee, attached hereto as Exhibit D, both incorporated by reference herein.
8.1 TERMINATION BY EMPLOYEE FOR GOOD REASON
The Employee shall have a Good Reason for terminating his
employment with the Corporation under this Employment Agreement if one or more
of the following occurs:
(a) an involuntary change in the Employee's status or position with
the Corporation which represents a demotion from the Employee's then current
status or position;
(b) layoff or involuntary termination of the Employee's employment,
except in connection with the termination of the Employee's employment for Cause
(as defined in Section 7.1.3), or as a result of the non-renewal of this
Agreement (as defined in Section 2.) or of the Employee's disability, death or
retirement (as defined in Section 7.2);
(c) a reduction by the Corporation in the Employee's base salary,
excluding bonuses, other than in the case of reductions in salary with respect
to the Corporation's other executive officers generally;
(d) any action or inaction by the Corporation that would adversely
affect the Employee's continued participation in any Benefit Plan on at least as
favorable basis as was the case at the time of such action or inaction, or that
would materially reduce the Employee's benefits in the future under the Benefit
Plan or deprive him of any material benefits that he then enjoyed, except to the
extent that such action or inaction by the Corporation (i) is also taken or not
taken, as the case may be, in respect of all employees generally, (ii) is
required by the terms of any Benefit Plan as in effect immediately before such
action or inaction; or (iii) is necessary to comply with applicable law or to
preserve the qualification of any Benefit Plan under section 401(a) of the
Internal Revenue Code;
Page -6-
<PAGE> 7
(e) the Corporation's failure to obtain express assumption of this
Employment Agreement by any successor to the Corporation; and
(f) any material violation by the Corporation of any agreement,
including this Employment Agreement, between the Corporation and the Employee.
Notwithstanding the foregoing, no action by the Corporation shall give rise to a
Good Reason if it results from the Employee's termination for Cause, death or
retirement, and no action by the Corporation specified in paragraphs (a) through
(c) of this section shall give rise to a Good Reason if it results from the
Employee's disability.
For purposes of this Section 8, "Benefit Plan" shall mean any compensation plan,
such as an incentive or stock option plan, or any employee benefit plan, such as
a thrift, pension, profit-sharing, stock bonus, long-term performance award,
medical disability, accident or life insurance plan, or any other plan, program
or policy of the Corporation that is intended to benefit employees.
9. MISCELLANEOUS
9.1 NOTICES
Any notice required to be given pursuant to this Agreement shall
be effective only if in writing and delivered personally or by mail. If given by
mail, such notice must be sent by registered or certified mail, postage prepaid,
mailed to the parties at the addresses set forth on the signature page hereof,
or at such other addresses as the parties may designate, from time to time, by
written notice. Mailed notices shall be deemed received two (2) business days
after the date of deposit in the mail.
9.2 REMEDIES
9.2.1 EQUITABLE REMEDIES
The Employee acknowledges and agrees that in the event of
any material breach, violation or evasion of the terms, conditions and
provisions of Sections 4, 5, 6, and 7 above, or this Section 9, such breach,
violation or evasion shall result in immediate and irreparable injury and harm
to the Corporation and shall entitle the Corporation to injunctive relief, as
well as to all other legal or equitable remedies to which the Corporation may be
entitled.
9.2.2 TERMINATION OF AGREEMENT
It is further agreed that in the event of such breach, the
Corporation may forthwith terminate this Agreement, notwithstanding anything
herein to the contrary.
9.3 PARTIAL INVALIDITY
If any term or provision of this Agreement or the application
thereof to any person or circumstance shall be held to be invalid or
unenforceable to any extent, the remainder of this Agreement or application of
such term or provision to persons or circumstances other than those to which it
is held invalid or unenforceable shall not be affected thereby, and each term
and provision of the Agreement shall be valid and be enforced to the fullest
extent permitted by law.
Page -7-
<PAGE> 8
9.4 WAIVER
No waiver of any right hereunder shall be effective for any
purpose unless in writing, signed by the party hereto possessing said right, nor
shall any waiver be construed to be a waiver of any subsequent right, term or
provision of this Agreement.
9.5 ASSIGNMENT; EFFECT ON AGREEMENT
It is hereby acknowledged and agreed that the Employee's rights
and obligations under this Agreement are personal in nature and shall not be
assigned or delegated. This agreement shall be binding on and inure to the
benefit of the heirs, personal representatives, successors and assigns of the
parties, subject, however, to the restrictions on assignment and delegation
contained herein.
9.6 DISPUTES AND ARBITRATION
Any dispute arising in connection with the interpretation or
enforcement of the provisions of this Agreement, or its application or validity,
will be submitted to arbitration. Such arbitration proceedings will be held in
Las Vegas, Nevada, in accordance with the rules then existing of the American
Arbitration Association. This agreement to arbitrate is specifically
enforceable. Any award rendered in any such arbitration proceeding will be final
and binding on each of the parties, and judgment may be entered thereon in any
court of competent jurisdiction. The costs and fees of any such arbitration
proceeding will be borne by the respective parties. The arbitrators may in their
discretion award costs and reasonable attorneys' fees to the prevailing party.
9.7 GOVERNING LAW
This Agreement shall be governed by and construed in accordance
with the laws of the State of Nevada.
9.8 ENTIRE AGREEMENT
This Agreement contains the entire agreement and understanding
between the parties and supersedes all prior agreements and understandings, oral
or written. No modification, termination or attempted waiver shall be valid,
unless in writing and signed by both parties.
[SIGNATURES ON FOLLOWING PAGE]
Page -8-
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the 24th day of October, 1998.
"CORPORATION"
MEDICAL DEVICE ALLIANCE, INC.
By: /s/ DONALD K. MCGHAN
-------------------------------------
Donald K. McGhan
Title: Chairman of the Board and
President
Address:
3800 Howard Hughes Parkway, Suite 1800
Las Vegas, Nevada 89109
"EMPLOYEE"
/s/ CHARLES E. BARRANTES
----------------------------------------
Charles E. Barrantes
Address:
210 E. Flamingo Rd. #106
Las Vegas, NV 89109
Social Security Number: ###-##-####
Page -9-
<PAGE> 1
MEDICAL DEVICE ALLIANCE INC.
EXHIBIT 10.35
MCGHAN
EMPLOYMENT AGREEMENT
<PAGE> 2
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into at
Las Vegas, Nevada, on the date hereinafter set forth, by and between JIM J.
MCGHAN (hereinafter referred to as the "Employee"), and MEDICAL DEVICE ALLIANCE,
INC., a Nevada corporation (hereinafter referred to as the "Corporation").
The parties hereto, intending to be legally bound, do hereby agree as
follow:
1. EMPLOYMENT
1.1 POSITIONS AND DUTIES
The Corporation does hereby employ the Employee and the Employee
hereby accepts such employment as VICE PRESIDENT AND CHIEF OPERATING OFFICER of
Medical Device Alliance, Inc. upon the terms and provisions set forth in this
Agreement. The Employee shall perform all the duties assigned to him by the
Corporation, shall observe and comply with the Corporation's rules and
regulations regarding the performance of his duties, and shall carry out and
perform all orders, directions, and policies stated to him by the Corporation
periodically, either orally or in writing. The Employee shall at all times carry
out the duties assigned to him in a loyal, trustworthy and businesslike manner.
The Employee agrees that this Agreement may be terminated as provided in Section
7. hereof.
1.2 PLACE OF EMPLOYMENT
Unless the parties agree otherwise in writing, during the term of
this Agreement, the Employee shall perform the services required by this
Agreement at Medical Device Alliance, Inc. headquarters and at it's operating
subsidiaries. The Corporation will require Employee to travel from time to time
for various business purposes including those of the Corporation's subsidiaries.
2. TERM
This Agreement shall commence as of the Effective Date specified in
Exhibit A hereto and shall continue for a period of three (3) years from the
date of this Agreement. On the anniversary of this Agreement, the term of
Employee's employment shall automatically be extended by one year, unless either
party gives 60 (sixty) days prior written notice of its intention to discontinue
this automatic extension.
3. COMPENSATION
3.1 AMOUNT OF COMPENSATION
The Effective Date of this Agreement and the employee
compensation are set forth in Exhibit A hereto. The Corporation may, from time
to time, modify the employment conditions and compensation. These changes will
be recorded in subsequent exhibits.
3.2 REIMBURSEMENTS
The Employee shall be reimbursed by the Corporation only for
amounts actually expended by the Employee in the course of performing duties for
the Corporation where:
Page -2-
<PAGE> 3
3.2.1 AUTHORIZATION
The Employee has been authorized by the Corporation to
incur such expenses that are reasonably consistent with practices or policies of
the Corporation.
3.2.2 DOCUMENTATION
The Employee tenders receipts or other documentation
substantiating the amounts as required by the Corporation.
3.3 FRINGE BENEFITS
The Employee shall be entitled to receive, on the same basis as
the Corporation's other executive employees, all other benefits maintained by
the Corporation for its executive employees generally including, but not limited
to, a cellular phone, automobile allowance, paid leave, medical, dental, life
and disability insurance and any other health and welfare benefit plans and
perquisites, as in effect from time to time. The Employee will be granted paid
leave consistent with the Corporation's paid leave policy in effect from time to
time.
3.4 STOCK OPTIONS
The Employee may receive stock options to purchase the
Corporation's Stock under the Corporation's Stock Option Plans or Warrants, as
determined from time to time by the Corporation's Board of Directors. The
Employee will also execute any other documents reasonably required by the
Corporation in connection with said Warrants and/or options, and hereby agrees
to execute any lock-up or similar agreements required by the Corporation's
underwriters in connection with an offering or offerings of the Corporation's
securities.
4. COMPETITION
The Employee agrees that during the term of this Agreement he shall
diligently devote his time and efforts to the duties and responsibilities
assigned to him by the Corporation, and without prior express written
authorization of the Corporation's Board of Directors, the Employee shall not,
directly or indirectly, either alone or in concert with others, during the term
of this Agreement:
4.1 OTHER SERVICES
Perform or render any services of a business, professional or
commercial nature, relating to service or products in direct competition with
the Corporation, to or for the benefit of any other person or firm, whether for
compensation or otherwise, except for personal investments, and for other
activities approved by the Corporation;
4.2 COMPETITION
Engage in any activity directly in competition with or adverse to
the Corporation;
4.3 SOLICITATION
Engage in any activity for purposes of influence or attempting to
influence the Corporation's customers or to conduct business with any business
enterprise in competition with the Corporation;
Page -3-
<PAGE> 4
4.4 COMPETING ENTERPRISE
Undertake or participate in any planning for or organization of
any business activity that is or will be in direct competition with the
Corporation for products in which the Employee has worked or with which the
Employee has come into contact, or of which the Employee has gained knowledge
during the term of his employment under this Agreement; or
4.5 OTHER ACTIVITIES
Engage in any other business activity that would materially
interfere with the performance of any of the Employee's obligations and duties
under this Agreement.
5. PROHIBITION AGAINST COMPETITION
5.1 AGREEMENT NOT TO COMPETE
As a result of the Employee's employment, the Employee will have
access to trade secrets and confidential information about the Corporation, its
products, its services, its customers and its methods of doing business. In
consideration for access to this information, the Employee agrees that for a
period of one (1) year after termination of employment, the Employee will not
compete with the Corporation without the Corporation's prior express written
approval.
5.2 COMPETITION DEFINED
"Competition" shall mean any participation in, assistance of,
employment by, ownership of any interest in, acceptance of business from or
assistance, promotion or organization of any person partnership, corporation,
firm, association or other business organization, entity or enterprise which, is
engaged in, or hereinafter engages in, research on, or development, production,
marketing, leasing or selling of, any product, process or service which is the
same as or in competition with, any products or research in which the
Corporation, its parent, subsidiary or affiliated company, is now engaged or
hereinafter engages, whether as an agent, consultant, employee, officer,
director, investor, partner, shareholder, proprietor or in any other individual
or representative capacity, but excluding the holding for investment of less
that 5% of the outstanding securities of any Corporation which are regularly
traded on Nasdaq or a recognized stock exchange.
5.3 FURTHER EMPLOYEE AGREEMENTS
For a period of one (1) year after the termination of the
Employee's employment, the Employee will not undertake any employment or
activity competitive with the Corporation wherein the loyal and complete
fulfillment of the duties of the competitive employment or activity would call
upon the Employee to make judgements on or otherwise to use any confidential
business information concerning the Corporation. The Employee will not, either
for himself or for any other person, firm or corporation, divert or take away
(or attempt to divert or take away), any of the Corporation's present, former or
prospective customers, including, but not limited to, those upon whom he called,
met with or became acquainted with while engaged as an employee of the
Corporation. The Employee will not interfere with the contractual or business
relationships of the Corporation, will not solicit or attempt to solicit any
employees or clients of the Corporation, nor slander or disparage the
Corporation, or undertake any activity which adversely impacts the goodwill of
the Corporation and its business opportunities.
Page -4-
<PAGE> 5
5.4 SEPARATE COVENANTS
Each of the convenants of Section 5. shall be construed as
separate convenants covering their subject matter in each of the separate
counties, countries and states in the United States and governmental
subdivisions outside of the United States (collectively, the "Governmental
Subdivisions"); to the extent that any covenant shall be judicially
unenforceable in any one or more of said counties, states or countries, said
covenant shall not be affected with respect to each other Governmental
Subdivision, each covenant with respect to each Governmental Subdivision being
construed as severable and independent.
6. INTELLECTUAL PROPERTY AND CONFIDENTIALITY AGREEMENT
The Employee has executed or will concurrently execute the
Corporation's Intellectual Property and Confidentiality Agreement, the terms of
which are incorporated herein by reference. The terms of this Employment
Agreement shall prevail in the case of any discrepancy between the Corporation's
Intellectual Property and Confidentiality Agreement and this Agreement.
7. TERMINATION OF AGREEMENT
7.1 GROUNDS
This Agreement shall terminate upon the occurrence of any of the
following events:
7.1.1 EXPIRATION OF TERM
At any time upon expiration of the terms specified in
Section 2. hereof.
7.1.2 FOURTEEN (14) DAY TERMINATION BY EMPLOYEE
By the Employee, upon fourteen (14) days' prior written
notice to the Corporation.
7.1.3 TERMINATION BY EMPLOYER (FOR CAUSE)
This Agreement may be immediately terminated by the
Corporation for the following causes: The Employee's personal dishonesty, lack
of trustworthiness, incompetence, willful misconduct, breach of fiduciary duty
involving personal profit, intentional failure to perform stated duties, willful
violation of any law, rule or regulation (other than minor misdemeanors such as
minor traffic violation) or a material breach of any provision of this
Agreement, or any other agreement between the Employee and the Corporation.
7.2 DISABILITY
7.2.1 TERMINATION
In the event that the Employee is unable to perform his
assigned duties and responsibilities due to illness, physical or mental
disability or any other reason, and such disability continues for a period of
six (6) consecutive months after all available sick leave has been utilized, the
Corporation may terminate this Agreement upon ten (10) days' written notice.
7.2.2 DEATH
Upon the death of the Employee.
Page -5-
<PAGE> 6
8. SEVERANCE COMPENSATION
If the Corporation should terminate the Employee's employment
hereunder during the Term (as defined in Section 2) for reasons other than cause
(as defined in Section 7.1.3) or Employee's death or disability (as defined in
Section 7.2), or if Employee should resign his employment for Good Reason, as
defined below, the Employee shall be entitled to the following Severance
compensation:
(a) Payment of his base salary at the greater of the rate in effect
at the time of termination from the date of termination or at the rate in effect
immediately prior to the occurrence (as defined in Section 8.1(c)) until the
expiration date of this Agreement under Section 2.
(b) Continuation of all benefits including, without limitation,
medical, dental and life insurance, during the Post-Termination Period or until
the date on which the Employee first becomes eligible for insurance coverage of
a similar nature provided by a firm that employs him following termination of
employment by the Corporation, whichever occurs first.
Notwithstanding the foregoing, nothing in this Employment Agreement shall
require the Corporation to make any payment or to provide any benefit to the
Employee that the Corporation is otherwise required to provide under any other
contract, agreement or arrangement, including, without limitation, the Employee
Severance Agreement between the Corporation and the Employee, attached hereto as
Exhibit C, and the Employee Retention Agreement between the Corporation and the
Employee, attached hereto as Exhibit D, both incorporated by reference herein.
8.1 TERMINATION BY EMPLOYEE FOR GOOD REASON
The Employee shall have a Good Reason for terminating his
employment with the Corporation under this Employment Agreement if one or more
of the following occurs:
(a) an involuntary change in the Employee's status or position with
the Corporation which represents a demotion from the Employee's then current
status or position;
(b) layoff or involuntary termination of the Employee's employment,
except in connection with the termination of the Employee's employment for Cause
(as defined is Section 7.1.3) or as a result of the non-renewal of this
Agreement (as defined in Section 2.) or of the Employee's disability, death or
retirement (as defined in Section 7.2);
(c) a reduction by the Corporation in the Employee's base salary,
excluding bonuses, other than in the case of reductions in salary with respect
to the Corporation's other executive officers generally;
(d) any action or inaction by the Corporation that would adversely
affect the Employee's continued participation in any Benefit Plan on at least as
favorable basis as was the case at the time of such action or inaction, or that
would materially reduce the Employee's benefits in the future under the Benefit
Plan or deprive him of any material benefits that he then enjoyed, except to the
extent that such action or inaction by the Corporation (i) is also taken or not
taken, as the case may be, in respect of all employees generally, (ii) is
required by the terms of any Benefit Plan as in effect immediately before such
action or inaction; or (iii) is necessary to
Page -6-
<PAGE> 7
comply with applicable law or to preserve the qualification of any Benefit Plan
under section 401(a) of the Internal Revenue Code;
(e) the Corporation's failure to obtain express assumption of this
Employment Agreement by any successor to the Corporation; and
(f) any material violation by the Corporation of any agreement,
including this Employment Agreement, between the Corporation and the Employee.
Notwithstanding the foregoing, no action by the Corporation shall give rise to a
Good Reason if it results from the Employee's termination for Cause, death or
retirement, and no action by the Corporation specified in paragraphs (a) through
(c) of this section shall give rise to a Good Reason if it results from the
Employee's disability.
For purposes of this Section 8, "Benefit Plan" shall mean any compensation plan,
such as an incentive or stock option plan, or any employee benefit plan, such as
a thrift, pension, profit-sharing, stock bonus, long-term performance award,
medical disability, accident or life insurance plan, or any other plan, program
or policy of the Corporation that is intended to benefit employees.
9. MISCELLANEOUS
9.1 NOTICES
Any notice required to be given pursuant to this Agreement shall
be effective only if in writing and delivered personally or by mail. If given by
mail, such notice must be sent by registered or certified mail, postage prepaid,
mailed to the parties at the addresses set forth on the signature page hereof,
or at such other addresses as the parties may designate, from time to time, by
written notice. Mailed notices shall be deemed received two (2) business days
after the date of deposit in the mail.
9.2 REMEDIES
9.2.1 EQUITABLE REMEDIES
The Employee acknowledges and agrees that in the event of
any material breach, violation or evasion of the terms, conditions and
provisions of Sections 4, 5, 6, and 7 above, or this Section 9, such breach,
violation or evasion shall result in immediate and irreparable injury and harm
to the Corporation and shall entitle the Corporation to injunctive relief, as
well as to all other legal or equitable remedies to which the Corporation may be
entitled.
9.2.2 TERMINATION OF AGREEMENT
It is further agreed that in the event of such breach, the
Corporation may forthwith terminate this Agreement, notwithstanding anything
herein to the contrary.
9.3 PARTIAL INVALIDITY
If any term or provision of this Agreement or the application
thereof to any person or circumstance shall be held to be invalid or
unenforceable to any extent, the remainder of this Agreement or application of
such term or provision to persons or circumstances other than those to which it
is held invalid or unenforceable shall not be affected thereby, and
Page -7-
<PAGE> 8
each term and provision of the Agreement shall be valid and be enforced to the
fullest extent permitted by law.
9.4 WAIVER
No waiver of any right hereunder shall be effective for any
purpose unless in writing, signed by the party hereto possessing said right, nor
shall any waiver be construed to be a waiver of any subsequent right, term or
provision of this Agreement.
9.5 ASSIGNMENT; EFFECT ON AGREEMENT
It is hereby acknowledged and agreed that the Employee's rights
and obligations under this Agreement are personal in nature and shall not be
assigned or delegated. This agreement shall be binding on and inure to the
benefit of the heirs, personal representatives, successors and assigns of the
parties, subject, however, to the restrictions on assignment and delegation
contained herein.
9.6 DISPUTES AND ARBITRATION
Any dispute arising in connection with the interpretation or
enforcement of the provisions of this Agreement, or its application or validity,
will be submitted to arbitration. Such arbitration proceedings will be held in
Las Vegas, Nevada, in accordance with the rules then existing of the American
Arbitration Association. This agreement to arbitrate is specifically
enforceable.
Any award rendered in any such arbitration proceeding will be
final and binding on each of the parties, and judgment may be entered thereon in
any court of competent jurisdiction. The costs and fees of any such arbitration
proceeding will be borne by the respective parties. The arbitrators may in their
discretion award costs and reasonable attorneys' fees to the prevailing party.
9.7 GOVERNING LAW
This Agreement shall be governed by and construed in accordance
with the laws of the State of Nevada.
9.8 ENTIRE AGREEMENT
This Agreement contains the entire agreement and understanding
between the parties and supersedes all prior agreements and understandings, oral
or written. No modification, termination or attempted waiver shall be valid,
unless in writing and signed by both parties.
[SIGNATURES ON FOLLOWING PAGE]
Page -8-
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
24th day of October, 1998.
"CORPORATION"
MEDICAL DEVICE ALLIANCE, INC.
By: /s/ DONALD K. MCGHAN
-------------------------------------
Donald K. McGhan
Title: Chairman of the Board
President
Address:
3800 Howard Hughes Parkway, Suite 1800
Las Vegas, Nevada 89109
"EMPLOYEE"
/s/ JIM J. MCGHAN
----------------------------------------
Jim J. McGhan
Address:
1865 Meiners Road
Ojai, CA 93023
Social Security Number: ###-##-####
<PAGE> 1
MEDICAL DEVICE ALLIANCE INC.
EXHIBIT 21
REGISTRANT'S
SUBSIDIARIES
<PAGE> 2
MEDICAL DEVICE ALLIANCE, INC.
Wholly-owned subsidiaries
SUBSIDIARY STATE OF INCORPORATION
LySonix Incorporated Nevada
MDA Capital Incorporated Nevada
Parallax Medical, Inc. Delaware
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