<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 21, 1998
REGISTRATION NO. 333-64499
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
IMPLANT SCIENCES CORPORATION
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
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<S> <C> <C>
MASSACHUSETTS 3842 04-2837126
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
107 AUDUBON ROAD, #5
WAKEFIELD, MASSACHUSETTS 01880
(781) 246-0700
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL PLACE OF BUSINESS AND PRINCIPAL
EXECUTIVE OFFICES)
ANTHONY J. ARMINI, PH.D.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
107 AUDUBON ROAD, #5
WAKEFIELD, MASSACHUSETTS 01880
(781) 246-0700
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
------------------------
COPIES TO:
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<S> <C>
ROBERT W. SWEET, JR., ESQ. WILLIAM M. PRIFTI, ESQ.
DAVID A. BROADWIN, ESQ. LYNNFIELD WOODS OFFICE PARK
FOLEY, HOAG & ELIOT LLP 220 BROADWAY, SUITE 204
ONE POST OFFICE SQUARE LYNNFIELD, MASSACHUSETTS 01940
BOSTON, MASSACHUSETTS 02109 (781) 593-4525
(617) 832-1000
</TABLE>
------------------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
As promptly as practicable after the Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED SHARE(1) PRICE(1) FEE
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<S> <C> <C> <C> <C>
Common Stock, par value $0.10
per share ("Common
Stock")(2).................. 1,150,000 $ 8.40 $ 9,660,000
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Redeemable Common Stock
Purchase Warrants
("Warrants")(2)............. 1,150,000 $ .10 $ 115,000
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Common Stock issuable upon
exercise of Warrants(2)..... 1,150,000 $11.76 $13,524,000
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Representative's Warrant...... 100,000 $ .001 $ 100
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Representative's Redeemable
Warrant..................... 100,000 $ .15 $ 15,000
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Common Stock issuable upon
exercise of Representative's
Warrant..................... 100,000 $12.60 $ 1,260,000
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Common Stock issuable upon
exercise of Representative's
Redeemable Warrant.......... 100,000 $17.64 $ 1,764,000
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Totals........................ $26,338,100 $7,770
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</TABLE>
(1) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(a) under the Securities Act of 1933. Other expenses
of the offering aggregate $779,500 and are itemized under Item 25 of Part II
of this Registration Statement.
(2) Includes shares or warrants represented by 150,000 Units, each consisting of
one share of Common Stock and one Warrant to purchase one share of Common
Stock, subject to an over-allotment option granted to the Underwriters by
the Registrant. See "Underwriting."
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
PROSPECTUS
SUBJECT TO COMPLETION, DATED , 1999
[IMPLANT SCIENCES LOGO]
1,000,000 UNITS
EACH CONSISTING OF
ONE SHARE OF COMMON STOCK
AND ONE REDEEMABLE COMMON STOCK PURCHASE WARRANT
------------------------
Implant Sciences Corporation, a Massachusetts corporation (the "Company"),
hereby offers 1,000,000 Units (collectively, the "Units"). Each Unit consists of
one share of common stock, $0.10 par value per share ("Common Stock"), and one
Redeemable Common Stock Purchase Warrant (a "Warrant"). No certificate
representing a Unit will be issued; only certificates representing Common Stock
and Warrants will be issued and will be immediately transferable. It is
currently estimated that the initial public offering price per share of the
Common Stock will be between $6.90 and $8.40 and that the initial public
offering price per Warrant will be $.10. Each Warrant entitles the registered
holder thereof to purchase, at any time over a three-year period commencing
thirteen months after the date of the Prospectus, one share of Common Stock at
120% of the initial public offering price. The Warrant exercise price is subject
to adjustment under certain circumstances. Commencing thirteen months from the
date of the Prospectus, the Warrants are subject to redemption by the Company at
$0.20 per Warrant if the closing bid price of the Common Stock as reported on
the Nasdaq SmallCap Market, Inc. averages at least 140% of the initial public
offering price for a period of fifteen consecutive trading days.
Prior to this offering (the "Offering"), there has been no public market
for the Common Stock or the Warrants, and there can be no assurance that an
active market will develop. The offering price of the Units and the exercise
price of the Warrants have been determined by negotiation between the Company
and ISG Solid Capital Markets, LLC and Schneider Securities, Inc., the
representatives of the several underwriters (the "Representatives") and are not
necessarily related to the Company's asset value, or any other established
criterion of value. For the method of determining the initial public offering
price of the Units, see "Underwriting." The Company has applied for listing of
its Common Stock and Warrants on the Nasdaq SmallCap Market, Inc. and the Boston
Stock Exchange under the symbols IMPL and IMPLW, respectively.
------------------------
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK
AND IMMEDIATE SUBSTANTIAL DILUTION FROM THE PUBLIC OFFERING PRICE. PROSPECTIVE
INVESTORS SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED UNDER THE CAPTION "RISK
FACTORS" WHICH APPEAR BEGINNING ON PAGE 9 OF THIS PROSPECTUS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
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PRICE TO UNDERWRITING DISCOUNTS PROCEEDS TO
PUBLIC AND COMMISSIONS(1) COMPANY(2)
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<S> <C> <C> <C>
Per Share of Common Stock........... $ -- $ -- $ --
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Per Warrant......................... $ -- $ -- $ --
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Total(3)............................ $ -- $ -- $ --
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</TABLE>
(1) Does not include additional compensation to be received by the
Representative in the form of (i) a non-accountable expense allowance of $--
(or $-- if the Underwriters' over-allotment option described in footnote (3)
is exercised in full), and (ii) a warrant to purchase up to -- Units at an
exercise price of $-- per Unit, exercisable over a period of four years,
commencing one year from the date of this Prospectus. In addition, the
Company has agreed to indemnify the Underwriters against certain civil
liabilities under the Securities Act of 1933, as amended (the "Securities
Act"). See "Underwriting."
(2) Before deducting expenses of the Offering payable by the Company, estimated
at $-- including the Representative's non-accountable expense allowance.
(3) The Underwriters have an option, exercisable within 45 days of the date of
this Prospectus, to purchase up to 150,000 additional shares of Common Stock
and/or Warrants on the same terms and conditions as set forth above to cover
over-allotments, if any. See "Underwriting." If all such Units are
purchased, the Price to Public, Underwriting Discounts and Commissions and
Proceeds to Company (before deducting expenses of the Offering payable by
the Company, estimated at $--), will be $--, $-- and $--, respectively.
These Units are offered on a "firm commitment" basis by the Underwriters
when, as and if delivered to and accepted by the Underwriters, and subject to
prior sale, withdrawal or cancellation of the offer without notice. It is
expected that closing will take place at on or about -- , 1998.
ISG SOLID CAPITAL MARKETS, LLC SCHNEIDER SECURITIES, INC.
The date of this Prospectus is --, 1999.
<PAGE> 3
[INSIDE FRONT COVER
On this page appear drawings of medical devices manufactured or processed
by Implant Sciences Corporation on an anatomical drawing of the human body.
Included in these drawings are stents, radioactive seeds, and orthopedic
implants.]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OR
WARRANTS OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN
THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY
TIME.
The Company intends to furnish to its security holders annual reports
containing audited financial statements and such other periodic reports as the
Company may determine to be appropriate or as may be required by law.
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by and should be read in
conjunction with the more detailed information, and the financial statements and
notes thereto, appearing elsewhere in this Prospectus. Unless otherwise
indicated, the information in this Prospectus has been adjusted to give
retroactive effect to a 7-for-1 stock split effected in the form of a Common
Stock dividend on September 9, 1998 (see "Description of Securities") and
assumes that the Underwriters' over-allotment option has not been exercised.
Each prospective investor is urged to read this Prospectus in its entirety.
The discussion in this Prospectus contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), that involve risks and uncertainties. The safe
harbor from private actions based on untrue statements or omissions of material
fact that is provided by the two statutory provisions does not apply to
statements made in connection with an initial public offering. The Company's
actual results and the timing of certain events may differ materially from the
results discussed in the forward-looking statements. Factors that could cause or
contribute to such differences include, but are not limited to, those discussed
in "Risk Factors," "Management's Discussion and Analysis of Financial Condition
and Results of Operation" and "Business."
The Company uses the following marks: MICROFUSION, PROFILE CODE, and
NITROCHROME. Other trademarks referred to in this Prospectus are not owned by
the Company and the Company makes no claim of association with respect to those
marks or their owners.
Certain terms are defined in a Glossary beginning on page 55.
THE COMPANY
Implant Sciences Corporation (the "Company") has developed proprietary
equipment and processes to produce radiation therapy implants (prostate seeds
and radioactive coronary stents), engineered surfaces for interventional
cardiology devices (radiopaque stents, guidewires and catheters), and orthopedic
implants (hip and knee replacements). The Company plans to manufacture
radioactive prostate seeds using a proprietary non-radioactive fabrication
process developed by the Company which it believes will be more cost-effective
and less hazardous than conventional processes. The seeds will be sealed and
then made radioactive in a nuclear reactor just prior to shipment to customers.
The Company expects to file a 510(k) notification of pre-market clearance for
its prostate seeds with the Food and Drug Administration ("FDA") in the first
quarter of calendar year 1999 and anticipates that it will take three to nine
months to obtain such clearance.
The Company currently uses its proprietary technology to apply radiopaque
(opaque to x-ray radiation) coatings to stents, guidewires, catheters and other
devices used in interventional cardiology procedures and to modify surfaces to
reduce polyethylene wear generation in orthopedic joint implants. The Company
also supplies ion implantation services to numerous semiconductor manufacturers,
research laboratories and universities. The Company has six issued United States
patents and eighteen United States patents pending covering its technologies and
processes. The Company also has pending two international patent applications.
Approximately 77% of the Company's revenues in fiscal 1998 were derived from its
medical products business and the remainder from its semiconductor ion
implantation business.
The Company's home page can be found at www.implantsciences.com.
TECHNOLOGIES
The Company uses two core technologies, ion implantation and thin film
coatings, to manufacture various medical implants and semiconductor products.
The Company's proprietary ion implantation process accelerates ionized atoms of
a material to high velocity in a vacuum and embeds them into the surface of
medical devices and semiconductor wafers to form new surface alloys. In
manufacturing its radioactive prostate seeds and radioactive coronary stents,
the Company plans to use this process to form a radioactive layer just under the
surface of metal or polymer implants. In manufacturing its metal orthopedic
implants, the Company uses a nitrogen ion implantation process to form a
near-surface layer which modifies the native oxide of the metal surface, thereby
producing less wear on the polyethylene component. Ion implantation offers
advantages in accuracy, cleanliness, controllability and reproducibility over
other methods of surface engineering.
3
<PAGE> 5
Thin film coatings modify surfaces by depositing a thin layer of a material
onto a medical device or other product. The Company's proprietary thin film
coating process, called microfusion(TM), improves visibility of catheters,
guidewires and stents used in interventional cardiology and other catheter-based
procedures that are guided by x-ray observation.
PROPOSED AND CURRENT PRODUCTS
Prostate Seeds. The Company has developed, and applied for three United
States patents covering radioactive seeds, implants and methods of manufacturing
radioactive seed implants by a proprietary process. These seeds are used
primarily in the treatment of prostate cancer. This treatment, known as
brachytherapy, involves implanting approximately 100 radioactive seeds
(encapsulated radioactive material, approximately half the size of a grain of
rice) directly into the prostate and can be done on an outpatient basis. A
ten-year study conducted by the Northwest Hospital, Seattle, Washington (the
"Northwest Hospital Study") shows that this treatment has a ten-year
disease-free survival rate equal to surgical removal of the prostate and may be
superior to other early stage treatments, with a substantial reduction of the
negative side effects -- impotence and incontinence -- frequently associated
with surgery and external beam radiation treatment. The Company intends to
manufacture and sell its prostate seeds to distributors of medical products as
well as directly to hospitals.
Radioactive Stents. The Company has developed, and applied for six United
States patents and has pending one international patent application for, new
methods of implanting radioactivity onto coronary stents (metal mesh tubes
designed to hold arteries open after angioplasty), which are used to prevent
restenosis (reocclusion or renarrowing of the artery). According to the American
Heart Association, restenosis occurs following 30% - 40% of balloon angioplasty
procedures. However, researchers in a number of studies at the Washington
Hospital Center, the Emory University School of Medicine and the Scripps Clinic
have found that the incidence of restenosis has been reduced when the artery is
treated with therapeutic intravascular radiation. Radiation applied locally to
the site is designed to inhibit intimal hyperplasia (smooth muscle cell
proliferation), thought to be a primary cause of restenosis. By implanting
therapeutic radioactivity onto a stent, the patient can receive the appropriate
dose of radiation within the coronary artery without significantly affecting the
surrounding tissue. The Company intends to implant therapeutic radioactivity
into stents manufactured by its customers.
Radiopaque Coatings. The Company applies coatings that increase the
visibility of medical devices manufactured by its customers and used in
interventional cardiology and other catheter-based procedures. Interventional
cardiology involves the positioning and manipulation of stents, guidewires,
catheters, and other instruments by x-ray or fluoroscopic observation of those
devices. Most of the instruments used in these procedures are transparent to
x-rays and therefore cannot be fully observed. The Company has developed a
proprietary process that provides an improved image of medical devices during
interventional cardiology procedures by creating a thin film coating of
radiopaque material over sections of the device.
Orthopedic Implants. The Company implants nitrogen ions in the metal
surfaces of knee and hip total joint replacements manufactured by its customers
to reduce polyethylene wear and thereby increase the life of the implant. Knee
and hip total joint replacements are typically composed of metal and
polyethylene components that articulate against one another. The generation of
polyethylene wear debris is one of the leading causes of osteolysis
(deterioration of the bone surrounding the implant) which causes implant
loosening and ultimately the need for revision surgery. In fiscal 1997, the
Company ion implanted approximately 50,000 metal components used in knee and hip
total joint replacements.
The Company is currently developing zirconia and alumina ceramic ion
implantation techniques and believes they will emerge as the preferred next
generation surface treatment method for orthopedic total joint replacements.
Management believes the use of bulk ceramic or ceramic coated femoral components
holds greater promise than other types of components in reducing osteolysis
because ceramics have wear characteristics superior to metals and are
biocompatible and inert. However, monolithic ceramic components are expensive
when used for hip joint replacements and are too brittle to be used for knee
joint replacements. The Company believes a ceramic coating of a metal implant
will combine the superior strength of metal with
4
<PAGE> 6
the surface characteristics of ceramic at a modest increase in cost over
traditional implants and will permit use in knee joint replacements.
Semiconductor Ion Implantation. The Company supplies ion implantation
services to numerous semiconductor manufacturers, research laboratories, and
universities. Ion implantation of electronic dopants into silicon, the process
by which silicon is turned into a semiconductor, is an integral part of the
integrated circuit fabrication process. Many of the Company's customers provide
semiconductor circuits and wafers to the communications satellite and cellular
telephone markets.
SALES
In fiscal 1998, the Company had revenue of approximately $2,904,000. All of
such revenue was derived from nitrogen ion implantation of total hip and knee
joint replacements, ion implantation of semiconductors, government research
grants, and contract research. The Company has not sold any prostate seeds,
radioactive coronary stents, or implanted ceramics into total hip and knee joint
replacements, for commercial use. The Company will not be able to sell any such
products until it, or its customer, has obtained appropriate clearance or
approval from the U.S. Food and Drug Administration ("FDA"), state agencies, and
foreign regulations and regulatory bodies.
The Company expects to file a 510(k) notice of premarket clearance with the
FDA for its iodine-125 prostate seed by March 1999 and believes this seed will
receive clearance for sale in the second half of 1999. Although the Company has
developed and delivered radioactive stents for use in animal studies, the
Company believes its radioactive stents will not be available for commercial
sale before 2001. The Company's customers will require FDA clearance or approval
before commercial sale of total hip and knee replacements treated with ceramic
ion implantation. The Company believes these total hip and knee replacements
will not be available for commercial sale before 2001.
MARKETS
The Company is focused on using its technologies to design, develop and
manufacture medical implants and devices used to treat prostate cancer, heart
disease, and in total joint replacements. These diseases occur most frequently
in people over the age of 50. The Company believes that the growth in the number
of people over the age of 50 in the United States and other highly developed
countries, as a result of the so-called baby boom, will lead to increased
numbers of procedures for the treatment of these diseases. For example,
according to a 1998 report by the Administration on Aging of the United States
Department of Health and Human Services, in the United States alone, 75 million
people, one third of the entire U. S. population, were born between 1946 and
1964. The first of the baby boomers turned age 50 in 1996.
The American Cancer Society estimates that in 1998 about 184,500 new cases
of prostate cancer will be diagnosed and 39,200 men will die of the disease in
the United States. According to the National Cancer Institute, over 80% of
prostate cancer is found in men over the age of 65. Radical prostectomies and
external beam radiation treatments are procedures that frequently have
significant side effects, including impotence and incontinence. According to the
American Cancer Society, in 58% of diagnosed cases, the cancers are localized in
the prostate and are potential candidates for brachytherapy. The Company
believes brachytherapy is an attractive alternative to surgery or external beam
radiation for these cases because research to date has shown that it has a lower
incidence of these side effects.
The American Heart Association estimates that in 1995 there were 434,000
balloon angioplasty procedures performed in the United States. Restenosis occurs
in approximately 30% to 40% of all such procedures. The American Society for
Therapeutic Radiology and Oncology has reported, and numerous clinical trials
have found, that delivery of an appropriate dose of therapeutic radiation can
reduce the incidence of restenosis and therefore the need for additional
procedures. The Company believes that stents treated with therapeutic radiation
will be an attractive alternative to traditional stents because they can reduce
restenosis by delivering an appropriate dose of radioactivity to the affected
site without adversely affecting the surrounding tissue.
5
<PAGE> 7
Osteoarthritis (a degenerative disease of joints) is a natural result of
the aging process and is the predominant cause of the need for joint
replacement. The Company believes that longer life expectancy as well as the
growth in the number of people over 50 will cause the demand for total joint
replacement to increase. According to the American Academy of Orthopedic
Surgeons, the total joint replacement market was approximately 500,000 units in
1995 in the United States. Over the last three years, the Company has treated
approximately 50,000 units each year using its ion implantation process.
6
<PAGE> 8
THE OFFERING
Securities Offered by the
Company............................ 1,000,000 Units, each consisting of one
share of common stock, $0.10 par value
per share (Common Stock"), and one
Redeemable Common Stock Purchase Warrant
("Warrant") to purchase one share of
Common Stock at 120% of the initial
offering price at any time over a three-
year period commencing thirteen months
after the date of this Prospectus.
Commencing thirteen months from the date
of this Prospectus, the Warrants are
subject to redemption by the Company at
$0.20 per Warrant if the closing bid
price of the Common Stock as reported on
the Nasdaq SmallCap Market, Inc. averages
in excess of 140% of the initial offering
price for a period of fifteen consecutive
trading days. See "Description of
Securities."
Common Stock Outstanding Prior to
the Offering....................... 4,372,291 shares(1)
Common Stock to be Outstanding
after the Offering................. 5,372,291 shares(1)
Use of Proceeds.................... The net proceeds of this Offering will be
used for research and development,
acquisition of additional manufacturing
equipment, infrastructure development,
manufacturing, quality assurance, quality
control, marketing, sales, and working
capital and general corporate purposes.
See "Use of Proceeds."
Proposed Nasdaq SmallCap Market(2)
and Boston Stock Exchange Symbols
Common Stock..................... IMPL
Warrants......................... IMPLW
Risk Factors....................... See "Risk Factors -- Intense Competition;
Rapid Technological Change,"
"-- Acceptance by Medical Community;
Market Acceptance," "Uncertainties of
Ability to Distribute," "-- Dependence on
Patents and Proprietary Technology,"
"-- Governmental Regulation," "-- No
Prior Securities Market; Possible
Volatility of Stock Price," "-- Immediate
and Substantial Dilution."
- ---------------
(1) Based on shares of Common Stock outstanding on September 1, 1998. Does not
give effect to an aggregate of up to 4,603,380 shares of Common Stock
issuable upon exercise of: (i) the Warrants; (ii) the Underwriters'
over-allotment option, including the shares underlying the Warrants included
in the Units subject to such option; (iii) the Representative's Warrant (iv)
the Warrants included in the Units issuable upon exercise of the
Representative's Warrant or (v) 3,103,380 shares reserved for issuance under
the Company's 1992 Stock Option Plan, the Company's 1998 Stock Option Plan,
the Company's Stock Purchase Plan and upon exercise of outstanding warrants.
See "Underwriting," "Certain Transactions" and "Management -- Benefit
Plans."
(2) The Company has applied for listing on the Nasdaq SmallCap Market and it
believes that it will meet all the criteria for listing.
7
<PAGE> 9
SUMMARY FINANCIAL INFORMATION
The following table sets forth summary financial information of the Company
at the dates and for the periods indicated. All information set forth below
should be read in conjunction with the audited financial statements and notes
thereto of the Company included elsewhere in this Prospectus. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED JUNE 30, ------------------------------
------------------------ SEPTEMBER 30, SEPTEMBER 30,
1997 1998 1997 1998
---------- ---------- ------------- -------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Product and contract research
revenues.............................. $2,678,918 $2,904,429 $ 689,424 $ 697,911
Equipment revenues(1)................... 350,754 -- -- --
---------- ---------- ---------- ----------
Total revenues.......................... 3,029,672 2,904,429 689,424 697,911
Total costs and expenses................ 2,628,899 3,014,599 645,846 660,990
---------- ---------- ---------- ----------
Operating income (loss)................. 400,773 (110,170) 43,578 36,921
Other income (expenses), net............ (21,043) 13,285 2,749 (5,496)
---------- ---------- ---------- ----------
Income (loss) before provision (benefit)
for income taxes...................... 379,730 (96,885) 46,327 31,425
Provision (benefit) for income taxes.... 161,400 (38,900) 24,586 5,000
---------- ---------- ---------- ----------
Net income (loss)....................... $ 218,330 $ (57,985) $ 21,741 $ 26,425
========== ========== ========== ==========
Net income (loss) per share
Basic................................. $ .06 $ (.01) $ .01 $ .01
Diluted............................... .05 (.01) .01 .01
Weighted average number of common and
common equivalent shares outstanding
Basic................................. 3,418,107 4,110,596 3,623,291 4,372,291
Diluted............................... 4,066,874 4,110,596 4,319,735 5,112,678
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
------------------------------
AS
ACTUAL ADJUSTED(2)
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<S> <C> <C>
BALANCE SHEET DATA
Cash........................................................ $ 85,163 $6,048,163
Current assets.............................................. 712,780 6,675,780
Working capital............................................. 98,056 6,130,282
Total assets................................................ 2,278,334 8,241,334
Current portion of long term debt, including capital
lease..................................................... 111,783 111,783
Long term debt, including capital lease, net of current
portion................................................... 433,677 433,677
Stockholders' equity........................................ 1,217,633 7,180,633
</TABLE>
- ---------------
(1) Represents non-recurring revenue from a contract to build one piece of
customized manufacturing equipment. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Overview" and
Footnote 5 of the audited financial statements.
(2) Adjusted to reflect the sale of 1,000,000 Units offered by the Company
hereby at an estimated initial public offering price of $7.75 per Unit,
after deducting estimated underwriting discounts and commissions and
offering expenses, and the application of the net proceeds thereof. See "Use
of Proceeds" and "Capitalization."
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RISK FACTORS
The Units being offered hereby represent a speculative investment and
involve a high degree of risk and substantial dilution, and should not be
purchased by persons who cannot afford the loss of their entire investment.
Prospective investors should thoroughly consider all of the risk factors
discussed below as well as other information in this Prospectus, including the
information contained in the Financial Statements and notes thereto included
elsewhere in this Prospectus, prior to purchasing the securities.
INTENSE COMPETITION; RAPID TECHNOLOGICAL CHANGE
The medical device industry is characterized by rapidly evolving technology
and intense competition. Other companies in the medical device industry are
currently marketing products that compete with the Company's products and may be
developing, or could in the future develop, additional products that are
competitive with the Company's products. Among the most closely competing
products in intracoronary radiation therapy are radioactive tipped guidewires
and radioactive fluid-filled balloons. Many of the Company's competitors have
substantially greater capital resources, greater research and development,
manufacturing and marketing resources and experience and greater name
recognition than the Company does. There can be no assurance that the Company's
competitors will not succeed in developing or marketing technologies and
products that are more effective than the Company's products or that would
render the Company's products obsolete or noncompetitive. Moreover, there can be
no assurance that the Company will be able to price its products at or below the
prices of competing products and technologies in order to facilitate market
acceptance. In addition, new procedures and medications could be developed that
replace or reduce the importance of procedures that use the Company's products.
Accordingly, the Company's success will depend in part on the Company's ability
to respond quickly to medical and technological changes through the development
and introduction of new products and enhancements. Product development involves
a high degree of risk and there can be no assurance that the Company's new
product development efforts will result in any commercially successful products.
The Company's failure to compete or respond to technological change in an
effective manner would have a material adverse effect on the Company. See
"Business -- Competition."
NO ASSURANCE OF ACCEPTANCE BY MEDICAL COMMUNITY OR MARKET ACCEPTANCE
There can be no assurance that the Company's radioactive seeds and stents,
orthopedic ceramic coatings, radiopaque coatings or antimicrobial coatings will
achieve acceptance, or continue to receive acceptance, by the medical community
and market acceptance generally. The degree of market acceptance for the
Company's products and services will depend upon a number of factors, including
the receipt and timing of regulatory approvals and the establishment and
demonstration in the medical community and among health care payers of the
clinical safety, efficacy and cost effectiveness of the Company's products.
Certain of the medical indications that can be treated by the Company's devices
or devices treated using the Company's coatings can also be treated by other
medical procedures. Decisions to purchase the Company's products will primarily
be influenced by members of the medical community, who will have the choice of
recommending medical treatments, such as radiotherapeutic seeds, or the more
traditional alternatives, such as surgery and external beam radiation therapy.
Many alternative treatments currently are widely accepted in the medical
community and have a long history of use. There can be no assurance that the
Company's devices or technologies will be able to replace such established
treatments or that physicians, health care payers, patients or the medical
community in general will accept and utilize the Company's devices or any other
medical products that may be developed or treated by the Company even if
regulatory and reimbursement approvals are obtained. Long-term market acceptance
of the Company's products and services will depend, in part, on the
capabilities, operating features and price of the Company's products and
technologies as compared to those of other available products and services.
Failure of the Company's products and technologies to gain market acceptance
would have a material adverse effect on the Company's business. See "-- Intense
Competition; Rapid Technological Change" and "Business -- Products."
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UNCERTAINTY OF ABILITY TO DISTRIBUTE
Because the Company's medical products will be targeted to the medical
community, the Company will have limited options in distributing its products
and may incur additional requirements imposed on it by the FDA or its customers
or distribution partners with respect to product characteristics and quality. A
significant portion of the Company's sales to date have depended on its ability
to provide products that meet the requirements of other medical product
companies. There can be no assurance that the Company will be able to market its
products successfully or that the Company will be able to enter into contracts
for distribution of its products. The Company has limited internal marketing and
sales resources and personnel. In order to market and sell its products and
services, the Company expects to enter into distribution agreements. There can
be no assurance that the Company will be able to enter into such agreements.
LIMITED COMMERCIALIZATION; UNCERTAINTY OF PRODUCT DEVELOPMENT
The Company currently markets or plans to market products, including
radioactive seeds and stents, orthopedic ceramic coatings, radiopaque coatings
and antimicrobial coatings that may require substantial further investment in
research, product development, preclinical and clinical testing and governmental
regulatory approvals prior to being marketed and sold. The Company's ability to
increase revenues and achieve profitability and positive cash flow will depend,
in part, on its ability to complete such product development efforts, obtain
such regulatory approvals, and establish manufacturing and marketing programs
and gain market acceptance for such proposed products.
In particular, the Company's radioactive stents are in an early stage of
development and are only being used in animal studies. There can be no assurance
that the clinical trials will ever be undertaken or, if undertaken, will
conclude that the radioactive stents have a sufficient degree of safety and
efficacy. In addition, there can be no assurance that the radioactive stents
will reduce the frequency of restenosis outside of test conditions.
The Company's product development efforts are subject to the risks inherent
in the development of such products. These risks include the possibility that
the Company's products will be found to be ineffective or unsafe, or will
otherwise fail to receive necessary regulatory approvals; that the products will
be difficult to manufacture on a large scale or be uneconomical to market; that
the proprietary rights of third parties will interfere with the Company's
product development; or that third parties will market superior or equivalent
products which achieve greater market acceptance. Furthermore, there can be no
assurance that the Company will be able to conduct its product development
efforts within the time frames currently anticipated or that such efforts will
be completed successfully. See "-- Product Liability" and "Business --
Products."
RISK OF THIRD-PARTY CLAIMS OF INFRINGEMENT
The Company's ability to compete effectively will depend to a significant
extent on its ability to operate without infringing the intellectual property
rights of others. Many participants in the medical device area aggressively seek
patent protection and have increasing numbers of patents, and have frequently
demonstrated a readiness to commence litigation based on patent infringement.
Third parties may assert exclusive patent rights to technologies that are
important to the Company.
The Company is aware of a U.S. patent of a third party having broad claims
covering radioactive stents and methods of using radioactive stents for the
treatment of restenosis. The Company plans to implant radioactivity onto
coronary stents manufactured by the patent holder, its licenses or others. The
Company has not sought a formal opinion of counsel regarding the validity of
this patent or whether the Company's processes may infringe this patent. If the
Company implants radioactivity onto stents that are not manufactured by the
patent holder or its licensees there can be no assurance that the holder of this
patent will not seek to enforce the patent against the Company or the
manufacturer of the stents, or that the Company would prevail in any such
enforcement action.
If the patent holder seeks to enforce the patent against the Company, the
Company may be required to engage in costly and protracted litigation;
discontinue the manufacture or activation of radioactive stents; develop
non-infringing technology; or enter into a license arrangement with respect to
the patent. There can be no assurance that the Company would be able to develop
non-infringing technology, or that any necessary
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licences would be available, or that, if available, such licences could be
obtained on commercially reasonable terms. There can be no assurance that any
such litigation would not result in the patent holder obtaining an injunction
which would prevent the Company from implanting radioactivity onto stents. In
addition, the costs associated with defending a patent infringement claim are
significant, even if the Company ultimately prevails, and the Company would be
required to commit considerable financial and management resources in defending
such claim which would have a material adverse effect on the Company's business,
financial condition, and results of operations.
DEPENDENCE ON PATENTS AND PROPRIETARY TECHNOLOGY
Although the Company has six United States patents issued and eighteen
United States and two international patent applications pending for its
technology and processes, the Company's success will depend, in part, on its
ability to obtain the patents applied for and maintain trade secret protection
for its technology and operate without infringing on the proprietary rights of
third parties. The validity and breadth of claims in medical technology patents
involve complex legal and factual questions and, therefore, may be highly
uncertain. No assurance can be given that any pending patent applications or any
future patent application will issue as patents, that the scope of any patent
protection obtained will be sufficient to exclude competitors or provide
competitive advantages to the Company, that any of its patents will be held
valid if subsequently challenged or that others will not claim rights in or
ownership of the patents and other proprietary rights held by the Company.
Furthermore, there can be no assurance that others have not or will not develop
similar products, duplicate any of the Company's products or design around any
patents issued or that may be issued in the future to the Company. In addition,
whether or not patents are issued to the Company, others may hold or receive
patents which contain claims having a scope that covers products or processes
developed by the Company.
Moreover, there can be no assurances that patents issued to the Company
will not be challenged, invalidated or circumvented or that the rights
thereunder will provide any competitive advantage. The Company could incur
substantial costs in defending any patent infringement suits or in asserting any
patent rights, including those granted to third parties. Patents and patent
applications in the United States may be subject to interference proceedings
brought by the U.S. Patent Office, or to opposition proceedings initiated in a
foreign patent office by third parties. The Company may incur significant costs
defending such proceedings. In addition, the Company may be required to obtain
licenses to patents or proprietary rights from third parties. There can be no
assurance that such licenses will be available on acceptable terms if at all. If
the Company does not obtain required licenses, the Company could encounter
delays in product development or find that the development, manufacture or sale
of products requiring such licenses could be foreclosed. See "Business."
The Company also relies on unpatented proprietary technology, trade secrets
and know-how and no assurance can be given that others will not independently
develop substantially equivalent proprietary information, techniques or
processes, that such technology or know-how will not be disclosed or that the
Company can meaningfully protect its rights to such unpatented proprietary
technology, trade secrets, or know-how. Although the Company has entered into
non-disclosure agreements with its employees and consultants, there can be no
assurance that such non-disclosure agreements will provide adequate protection
for its trade secrets or other proprietary know-how.
NO ASSURANCE THAT THE COMPANY WILL SUCCESSFULLY MANAGE GROWTH
The Company has limited experience in the commercial production of prostate
seeds or the commercial implantation of therapeutic radiation onto stents. The
Company's future success will depend upon, among other factors, its ability to
recruit, hire, train and retain highly educated, skilled and experienced
management and technical personnel, to generate capital from operations, to
scale-up its manufacturing process and expand its facilities and to manage the
effects of growth on all aspects of its business, including research,
development, manufacturing, distribution, sales and marketing, administration
and finance. The Company's failure to identify and exploit new product and
service opportunities, attract or retain necessary personnel, generate adequate
revenues or conduct its expansion or manage growth effectively could have a
material adverse effect on the Company's business.
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DEPENDENCE ON MAJOR CUSTOMERS
Approximately 48% of the Company's sales in fiscal 1998 were made to
Stryker Osteonics Corporation and Biomet Inc. All of these sales were of
orthopedic products. The Company has no significant purchase commitments from
these or other customers extending beyond one year. There can be no assurance
that these customers will continue to purchase the Company's products and
services at the same levels as in previous years or that such relationships will
continue in the future. The loss of a significant amount of business from any of
these customers would have a material adverse effect on the sales and operating
results of the Company. The Company has an agreement to supply an ion
implantation process to a customer through January 1999. There can be no
assurance that this agreement will be renewed. See "Business -- Products."
GOVERNMENTAL REGULATION
The manufacture and sale of the Company's medical device products are
subject to extensive regulation principally by the Food and Drug Administration
(the "FDA") in the United States and corresponding foreign regulatory agencies
in each country in which it sells its products. These regulations affect product
approvals, product standards, packaging requirements, design requirements,
manufacturing and quality assurance, labeling, import restrictions, tariffs and
other tax requirements. Securing FDA authorizations and approvals requires
submission of extensive clinical data and supporting information. In most
instances, the manufacturers or licensees of medical devices that are treated by
the Company will be responsible for securing regulatory approval for medical
devices incorporating the Company's technology. However, the Company plans on
preparing and maintaining Device Master Files which may be accessed by the FDA.
The Company expects to incur substantial product development, clinical research
and other expenses in connection with obtaining final regulatory clearance or
approval for and commercialization of its products.
Certain medical devices incorporating the Company's technology, including
prostate seeds, have historically been subject to the FDA's 510(k) notification
of pre-market clearance which typically requires about three to nine months from
submission to clearance to market. If the FDA determines that a particular
medical device should be subject to a supplemental or full pre-market approval
("PMA") review, a significantly longer review period may be required. The
Company's products for treating restenosis and certain other cardiology and
orthopedic medical devices typically must undergo a PMA review. The time
required to obtain approval for sale of a particular medical device
internationally may be longer or shorter than that required for FDA clearance or
approval.
There can be no assurance that the Company's medical device manufacturers
or licensees will be able to obtain regulatory clearance or approval for devices
incorporating the Company's technology on a timely basis, or at all. Regulatory
clearance or approvals, if granted, may include significant limitations of the
indicated uses for which the product may be marketed. In addition, product
clearance or approval could be withdrawn for failure to comply with regulatory
standards or the occurrence of unforeseen problems following initial marketing.
Changes in existing regulations or adoption of new governmental regulations or
policies could prevent or delay regulatory approval of products incorporating
the Company's technology or subject the Company to additional regulation.
In addition to FDA regulation, certain of the Company's activities are
regulated by and require approvals from other federal and state agencies. For
example, aspects of the Company's operations require the approval of the
Massachusetts Department of Public Health and registration with the Department
of Labor and Industries. Furthermore, the Company's use, management,
transportation, and disposal of certain chemicals and wastes are subject to
regulation by several federal and state agencies depending on the nature of the
chemical or waste material. Certain toxic chemicals and products containing
toxic chemicals may require special reporting to the United States Environmental
Protection Agency and/or its state counterparts. The Company's future operations
may require additional approvals from federal and/or state environmental
agencies. There can be no assurance that the Company will be able to obtain
necessary government approvals, or that it will be able to operate with the
conditions that may be attached to future regulatory approvals. Moreover, there
can be no assurance that the Company will be able to maintain
previously-obtained approvals. While it is the Company's policy to comply with
applicable regulations, failure to comply with existing or
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future regulatory requirements and failure to obtain or maintain necessary
approvals could have a material adverse effect on the Company's business,
financial condition, and results of operations.
Failure or delay of the Company's medical device manufacturers in obtaining
FDA and other necessary regulatory clearance or approval, the loss of previously
obtained clearance or approvals, as well as failure to comply with other
existing or future regulatory requirements could have a material adverse effect
on the Company's business, financial condition and results of operations. See
"Business -- Government Regulation."
Because certain of the Company's products utilize radiation sources, their
manufacture, distribution, transportation, import/export, use and disposal will
also be subject to federal, state and/or local laws and regulations relating to
the use, handling, procurement and storage of radioactive materials.
Specifically, the Company will need to obtain the approval of its radiation
sources for certain medical uses by the Department of Health of The Commonwealth
of Massachusetts to commercially distribute the radiation sources in the United
States. The Company must also comply with U.S. Department of Transportation
regulations on the labeling and packaging requirements for shipment of radiation
sources to hospitals or other users of the Company's products. The Company
expects that there will be comparable regulatory requirements and/or approvals
in markets outside the United States. If any of the foregoing approvals are
significantly delayed or not obtained, the Company's business could be
materially adversely affected. See "Business -- Government Regulation."
HAZARDOUS MATERIALS
The Company's research activities sometimes involve the use of various
hazardous materials. Although the Company believes that its safety procedures
for handling, manufacturing, distributing, transporting and disposing of such
materials comply with the standards for protection of human health, safety, and
the environment, prescribed by local, state, federal and international
regulations, the risk of accidental contamination or injury from these materials
cannot be completely eliminated. Nor can the Company eliminate the risk that one
or more of its hazardous material or hazardous waste handlers may cause
contamination for which, under laws imposing strict liability, the Company could
be held liable. While the Company currently maintains insurance in amounts which
it believes are appropriate in light of the risk of accident, the Company could
be held liable for any damages that might result from any such event. Any such
liability could exceed the Company's insurance and available resources and could
have a material adverse effect on its business. See "Business -- Government
Regulation."
DEPENDENCE ON STRATEGIC ALLIANCES
The Company intends to continue pursuing a strategy of researching,
developing and commercializing new products using the financial and technical
support of corporate partners. The Company's success will depend, in part, on
its ability to attract additional partners. There can be no assurance that the
Company can successfully enter into additional strategic alliances or that such
alliances will result in increased commercialization of the Company's products.
DEPENDENCE ON INTERNATIONAL SALES
The Company anticipates that international sales will increasingly account
for a significant portion of net sales and revenues. The Company intends to
expand its export sales and to enter additional international markets, which may
require significant management attention and financial resources. The Company's
operating results are subject to the risks inherent in international sales,
including, but not limited to, regulatory requirements, political and economic
changes and disruptions, transportation delays, national preferences for locally
manufactured products and import duties or other taxes which may affect the
prices of the Company's products in other countries relative to competitors'
products. In addition, present or future U.S. government trade restrictions
relating to sales to certain countries may limit the Company's ability to sell
its products in the affected foreign countries.
The Company currently sells its products only in U.S. dollars. As a result,
the Company's sales could be adversely affected to the extent that its customers
have limited access to U.S. dollars and to the extent that fluctuations in
exchange rates may render the Company's prices less competitive relative to
competitors' prices. If the Company chooses to accept payment for its products
in other currencies, it may be subject to
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<PAGE> 15
reduced profits from adverse changes in exchange rates. These factors could have
a material adverse effect on the Company's business, results of operations or
financial condition. See "Business -- Sales and Marketing."
UNCERTAIN AVAILABILITY OF THIRD PARTY REIMBURSEMENT; POSSIBLE HEALTH CARE
REFORMS
Medicare, Medicaid and other government insurance programs, as well as
private insurance reimbursement programs greatly affect suppliers of health care
products. Several of the products produced or processed by the Company,
including its orthopedic implants, prostate seeds, stents, and interventional
cardiology instruments and devices, are currently being reimbursed by third
party payers. The Company's customers rely on third-party reimbursements to
cover all or part of the costs of most of the procedures in which the Company's
products are used. Third party payers (including health maintenance
organizations) may affect the pricing or relative attractiveness of the
Company's products by regulating the maximum amount of reimbursement provided by
such payers to the physicians, hospitals and clinics using the Company's
devices, or by taking the position that such reimbursement is not available at
all. The amounts of reimbursement by third party payers in those states that do
provide reimbursement varies considerably. Major third party payers reimburse
inpatient medical treatment, including all or most operating costs and all or
most furnished items or services, including devices such as the Company's, at a
prospectively fixed rate based on the diagnosis-related group ("DRG") that
covers such treatment as established by the federal Health Care Financing
Administration. For interventional cardiology procedures, the fixed rate of
reimbursement is based on the procedure or procedures performed and is unrelated
to the specific devices used in such procedure. Therefore, the amount of profit
realized by suppliers of health care services in connection with the procedure
may be reduced by the use of the Company's devices if they prove to be costlier
than competing products. If a procedure is not covered by a DRG, certain third
party payers may deny reimbursement.
Alternatively, a DRG may be assigned that does not reflect the costs
associated with the use of the Company's devices or devices treated using the
Company's services, resulting in limited reimbursement. If, for any reason, the
cost of using the Company's products or services was not to be reimbursed by
third party payers, the Company's ability to sell its products and services
would be materially adversely affected. In the international market,
reimbursement by private third party medical insurance providers, and
governmental insurers and providers, varies from country to country. In certain
countries, the Company's ability to achieve significant market penetration may
depend upon the availability of third party governmental reimbursement. See
"Business -- Government Regulation."
PRODUCT LIABILITY RISKS; INSURANCE
To date no product liability claims have been asserted against the Company;
however, the testing, marketing and sale of implantable devices and materials
entail an inherent risk that product liability claims will be asserted against
the Company, if the use of its devices is alleged to have adverse effects on a
patient, including exacerbation of a patient's condition, further injury, or
death. A product liability claim or a product recall could have a material
adverse effect on the Company's business. Certain of the Company's devices are
designed to be used in treatments of diseases where there is a high risk of
serious medical complications or death. Although the Company intends to obtain
product liability insurance coverage when it commences sales of its seeds and
stents, there can be no assurance that in the future the Company will be able to
obtain such coverage on acceptable terms or that insurance will provide adequate
coverage against any or all potential claims. Furthermore there can be no
assurance that the Company will avoid significant product liability claims and
the attendant adverse publicity. Any product liability claim or other claim with
respect to uninsured or underinsured liabilities could have a material adverse
effect on the Company's business. See "Business -- Product Liability and
Insurance."
DEPENDENCE ON SUPPLIERS
The Company relies on a limited number of suppliers to provide materials
used to manufacture its products. If the Company cannot obtain adequate
quantities of necessary materials and services from its suppliers, there can be
no assurance that the Company would be able to access alternative sources of
supply within a reasonable period of time or at commercially reasonable rates.
Moreover, in order to maintain its relationship with major suppliers, the
Company may be required to enter into preferred supplier agreements
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that will increase the cost of materials obtained from such suppliers, thereby
also increasing the prices of the Company's products. The limited sources,
unavailability of adequate quantities, the inability to develop alternative
sources, a reduction or interruption in supply or a significant increase in the
price of raw materials or services could have a material adverse effect on the
Company's business.
UNCERTAIN FUTURE CAPITAL REQUIREMENTS
The Company may require funds in addition to the net proceeds of the
Offering for its research and development programs, operating expenses,
regulatory processes and manufacturing and marketing programs. The Company may
seek additional funding through public or private financing or licensing or
other arrangements with corporate partners. If the Company raises additional
funds by issuing equity securities, further dilution to existing stockholders
will result and future investors may be granted rights superior to those of
existing stockholders; debt financing, if available, may involve restrictive
covenants. The Company's capital requirements will depend on numerous factors,
including the sales of its products, the progress of its research and
development programs, the progress of preclinical and clinical testing, the time
and cost involved in obtaining regulatory approvals, the cost of filing,
prosecuting, defending and enforcing any patent claims and other intellectual
property rights, competing technological and market developments, developments
and changes in the Company's existing research, licensing and other
relationships and the terms of any new arrangements that the Company may
establish.
Under the provisions of its Loan Agreement, the Company is required to
maintain compliance with certain financial covenants including debt service
coverage, minimum levels of net worth and restrictions on indebtedness. At June
30, 1998, the Company's debt service coverage and net worth was less than the
required amounts. The Company's bank has waived its rights under the Loan
Agreement with respect to compliance with these financial covenants at June 30,
1998. The Company is required to comply with these covenants at September 30,
1998, and quarterly thereafter. The Company complied with these covenants at
September 30, 1998, and it believes that it will be able to satisfy its
covenants quarterly hereafter, however, there can be no assurance that the
Company will be successful.
There can be no assurance that additional financing will be available or
will be available on acceptable terms when needed. Insufficient funds may
prevent the Company from implementing its business strategy or may require the
Company to delay, scale back or eliminate certain of its research and product
development programs. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
RELIANCE UPON MANAGEMENT
The Company is substantially dependent, for the foreseeable future, upon
its Chairman of the Board, President and Chief Executive Officer, Dr. Anthony J.
Armini and its Vice President and Chief Scientist, Dr. Stephen N. Bunker, both
of whom currently devote their full time and efforts to the management of the
Company. The Company has entered into an employment agreement with each of these
officers. If the Company were to lose the services of Mr. Armini or Mr. Bunker
for any significant period of time, its business would be materially adversely
affected. The Company maintains key man life insurance policies of $500,000
insuring the lives of Messrs. Armini and Bunker. See "Management."
DEPENDENCE ON QUALIFIED PERSONNEL; ABILITY TO ATTRACT QUALIFIED PERSONNEL
There is intense competition for qualified personnel in the medical device
field, and there can be no assurance that the Company will be able to continue
to attract and retain qualified personnel necessary for the development of its
business. The loss of the services of existing personnel as well as the failure
to recruit additional qualified scientific, technical and managerial personnel
in a timely manner would be detrimental to the Company's anticipated growth and
expansion into areas and activities requiring additional expertise such as
marketing. The failure to attract and retain such personnel could adversely
affect the Company's business. See "Business -- Employees" and "Management."
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CONTROL BY MANAGEMENT AND PRINCIPAL STOCKHOLDERS
Upon completion of this Offering, current principal stockholders and
management of the Company will own approximately 77.6% of the outstanding Common
Stock, assuming no exercise of options or warrants. The Company's principal
stockholders and current management will, as a practical matter, be able to
direct the affairs of the Company. In addition, the Company's Chairman of the
Board, President and Chief Executive Officer, Anthony J. Armini, who currently
owns 32.9% of the outstanding Common Stock and currently controls 57% of the
voting shares of the Company, will, as a practical matter, be able to exert
significant influence over the affairs of the Company. See "Principal
Stockholders."
POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS
The Company believes that its operating results may be subject to
substantial quarterly fluctuations due to several factors, some of which are
outside its control, including fluctuating market demand for, and declines in
the average selling price of, the Company's products, the timing of significant
orders from customers, delays in the introduction of new or improved products,
delays in obtaining customer acceptance of new or changed products, the cost and
availability of raw materials, and general economic conditions. The Company
plans to further increase its expenditures to complete development and
commercialize its new products, to increase its manufacturing capacity, to
ensure compliance with the FDA's Quality Systems Regulations and to broaden its
sales and marketing capabilities. A substantial portion of the Company's revenue
in any quarter historically has been derived from orders booked in that quarter,
and historically, backlog has not been a meaningful indicator of revenues for a
particular period. Accordingly, the Company's sales expectations currently are
based almost entirely on its internal estimates of future demand and not from
firm customer orders. See "Business."
SHARES OF COMMON STOCK ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of the Common Stock in the public market, or
the prospect of such sales, could materially adversely affect the market price
of the Common Stock and the Warrants and the Company's ability to raise equity
capital in the future. Upon completion of this Offering, the Company will have
outstanding 5,372,291 shares of Common Stock. Of these shares, 4,372,291 shares
will be restricted shares (the "Restricted Shares") under the Securities Act of
1933, as amended (the "Securities Act"). The 1,000,000 shares offered hereby
will be immediately eligible for sale in the public market without restriction
on the date of the Prospectus. All of the Restricted Shares are subject to
lock-up agreements under which the holders of such shares have agreed not to
sell or otherwise dispose of any of their shares for thirteen months after the
date of this Prospectus, without the prior written consent of the
Representative. Taking into account the lock-up agreements and the restrictions
of Rules 144, 144(k) and 701 promulgated under the Securities Act, all of the
Restricted Shares will be available for sale in the public market beginning --,
1999 (thirteen months from the date of this Prospectus). Sales in the public
market of substantial amounts of Common Stock, or the perception that such sales
could occur, could depress prevailing market prices for the Common Stock and the
Company's ability to raise additional capital through the sale of equity
securities. See "Description of Securities," "Shares Eligible for Future Sale"
and "Underwriting."
SUBSTANTIAL SHARES OF COMMON STOCK RESERVED FOR ISSUANCE
The Company has reserved 1,000,000 shares of Common Stock for issuance upon
the exercise of the Warrants issued in this Offering exclusive of any
over-allotment option. The Company has reserved 2,827,300 shares of Common Stock
for issuance to employees, officers, directors, and consultants pursuant to
option exercises or sales of Common Stock under the Company's 1992 Stock Option
Plan and its 1998 Stock Option Plan. The Company intends to file a registration
statement on Form S-8 under the Securities Act to register the sale of these
2,827,300 shares 15 months after this offering. Shares of Common Stock issued
upon exercise of options after the effective date of the registration statement
on Form S-8 will be available for sale in the public market, subject in some
cases to volume and other limitations, including the lock-up agreements referred
to above. To date, the Company has granted options to purchase a total of
867,300 shares of Common Stock, at prices ranging from $0.36 to $6.00. The
Company will issue to the Representative, in connection with this Offering, the
Representative's Warrant to purchase 100,000 shares of Common Stock and 100,000
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Warrants, and has reserved 200,000 shares of Common Stock for issuance upon
exercise of the Representative's Warrant and the Warrants acquired upon such
exercise. The existence of the Warrants, the Representative's Warrant and any
other options or warrants may prove to be a hindrance to the Company's future
equity financing. Further, the holders of such warrants and options may exercise
them at a time when the Company would otherwise be able to obtain additional
equity capital on terms more favorable to the Company. Sales in the public
market of substantial amounts of Common Stock, or the perception that such sales
could occur, could depress prevailing market prices for the Common Stock and
Warrants. See "Management -- Benefit Plans" and "Description of Securities."
REQUIRED DISCLOSURE CONCERNING TRADING OF PENNY STOCKS OR LOW-PRICED SECURITIES
The Securities and Exchange Commission ("SEC") has adopted regulations that
define a "penny stock" to be any equity security that has a market price (as
defined) of less than $5.00 per share or an exercise price of less than $5.00
per share, subject to certain exceptions. Effective July 15, 1992, for any
transaction involving a penny stock, unless exempt, the rules require the
delivery, prior to the transaction, of a disclosure schedule prepared by the SEC
relating to the penny stock market. Commencing January 1, 1993, the
broker-dealer also must disclose the commissions payable to both the
broker-dealer and the registered representative, current quotations for the
securities and, if the broker-dealer is the sole market-maker, the broker-dealer
must disclose this fact and the broker-dealer's presumed control over the
market. Finally, monthly statements must be sent disclosing recent price
information for the penny stock held in the account and information on the
limited market in penny stocks.
While many NASDAQ-listed securities would be covered by the definition of
penny stock, transactions in a NASDAQ-listed security would be exempt from all
but the sole market-maker provision for (i) issuers who have at least $4,000,000
in tangible assets, (ii) transactions in which the customer is an institutional
accredited investor, and (iii) transactions that are not recommended by the
broker-dealer. In addition, transactions in a NASDAQ security directly with a
NASDAQ market-maker for such securities would be subject only to the sole
market-maker disclosure, and the disclosure with respect to commissions to be
paid to the broker-dealer and the registered representative. Finally, all NASDAQ
securities would be exempt if NASDAQ raised its requirements for continued
listing so that any issuer with less than $2,000,000 in net tangible assets or
stockholders' equity would be subject to delisting. These criteria are more
stringent than the current NASDAQ maintenance requirements. Consequently, these
rules may restrict the ability of broker-dealers to sell the Company's
securities and may affect the ability of purchasers to sell the Company's
securities in the secondary market.
POSSIBLE ILLIQUIDITY OF TRADING MARKETS
Upon completion of this Offering, the Company believes that the Common
Stock and Warrants will be eligible for initial quotation on the Nasdaq SmallCap
Market and the Boston Stock Exchange, which may be significantly less liquid
markets than the Nasdaq National Market System. Moreover, if the Company should
experience losses from operations, the Company may be unable to maintain the
standards for continued quotation on the Nasdaq SmallCap Market and the Boston
Stock Exchange, and the Common Stock and Warrants could be subject to removal
from the Nasdaq SmallCap Market and the Boston Stock Exchange. Trading, if any,
in the Common Stock and Warrants would thereafter be conducted in the
over-the-counter market on an electronic bulletin board or in what are commonly
referred to as the pink sheets. As a result, an investor would find it more
difficult to dispose of, or to obtain accurate quotations as to the price of,
the Company's securities. In addition, if the Company's securities were removed
from the Nasdaq SmallCap Market and the Boston Stock Exchange, they would be
subject to so-called penny stock rules that impose additional sales practice and
market-making requirements on broker-dealers who sell and/or make a market in
the Company's securities. The ability of purchasers of the Company's securities
to sell their securities in the secondary market would also be negatively
affected. Furthermore, if the market price of the Company's Common Stock is less
than $5.00 per share, the Company may become subject to certain penny stock
rules even if still quoted on the Nasdaq SmallCap Market. While such penny stock
rules would not affect the quotation of the Company's Common Stock or Warrants
on the Nasdaq SmallCap Market, such rules may
17
<PAGE> 19
further limit the market liquidity of Common Stock and Warrants and the ability
of purchasers in this Offering to sell such securities in the secondary market.
MAINTENANCE REQUIREMENTS FOR NASDAQ SMALLCAP SECURITIES
It is anticipated that the Common Stock and the Warrants will be approved
for listing on the Nasdaq SmallCap Market. An issuer seeking continued inclusion
of its securities on the SmallCap Market is required to meet certain criteria
including (i) net tangible assets of at least $2,000,000, a market
capitalization of $35,000,000 or net income of $500,000 in the most recently
completed fiscal year or two of the three most recently completed fiscal years,
and (ii) a minimum bid price of $1.00 per share. Upon completion of the
Offering, the Company anticipates that it will satisfy the criteria for
continued inclusion of its securities on the Nasdaq SmallCap Market. However,
there can be no assurance that the Company will continue to satisfy such
criteria and for how long. See "Prospectus Summary -- Summary Financial
Information" and "Capitalization."
NO PRIOR SECURITIES MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
There has been no prior market for the Common Stock or the Warrants and
there can be no assurance that a public market for the Common Stock or the
Warrants will develop or be sustained after the Offering. In the absence of such
a market, purchasers of the Common Stock and the Warrants may experience
substantial difficulty in selling their securities. The initial public offering
price for the Common Stock and Warrants has been determined by negotiations
between the Company and the Representative. The trading price of the Common
Stock and Warrants could be subject to significant fluctuations in response to
variations in quarterly operating results, changes in analysts' estimates,
announcements of technological innovations, general conditions in the Company's
industries and other factors. In addition, the capital markets are subject to
price and volume fluctuations that affect the market prices of publicly traded
securities in general, and the market prices of less heavily capitalized high
technology companies in particular. Such fluctuations may be unrelated to actual
operating performance.
IMMEDIATE AND SUBSTANTIAL DILUTION
Purchasers of Common Stock offered hereby will incur immediate and
substantial dilution of approximately $6.44 per share, or 83% of their
investment in the shares of Common Stock (assuming an initial public offering
price of $7.75 per share), in that the net tangible book value of the Common
Stock after this Offering will be approximately $1.31 per share. See "Dilution."
LEGAL RESTRICTIONS ON SALES OF SHARES UNDERLYING THE WARRANTS
The Warrants are not exercisable unless, at the time of exercise, the
Company has a current prospectus covering the shares of Common Stock issuable
upon exercise of the Warrants, and such shares have been registered or deemed to
be exempt under the securities laws of the state of residence of the exercising
holder of the Warrants. Although the Company will use its best efforts to have
all the shares of the Common Stock issuable upon exercise of the Warrants
registered or qualified on or before the exercise date and to maintain effective
a registration statement relating thereto until the expiration of the Warrants,
there can be no assurance that it will be able to do so.
REDEMPTION OF WARRANTS
Commencing thirteen months from the date of this Prospectus, the Warrants
are subject to redemption at $0.20 per Warrant if the closing bid price of the
Common Stock as reported on the Nasdaq SmallCap Market (or any other market on
which the stock is then traded) averages in excess of 140% of the initial
offering price over a period of fifteen consecutive trading days. In the event
the Company elects to redeem the Warrants, such Warrants would be exercisable
until the close of business on the date fixed for redemption. If any Warrant
called for redemption is not exercised by such date, it will cease to be
exercisable and the holder will be entitled only to the redemption price. See
"Description of Securities -- Warrants."
18
<PAGE> 20
NO ANTICIPATED DIVIDENDS
The Company has not previously paid any dividends on the Common Stock and,
for the foreseeable future, intends to continue its policy of retaining any
earnings to finance the development and expansion of its business. The Company's
revolving credit line, term loan and equipment purchase facility with its
principal lender prohibit the payment of dividends other than common stock
dividends. See "Dividend Policy."
NEGATIVE EFFECTS OF POSSIBLE ISSUANCE OF PREFERRED STOCK
The Company's Articles of Organization authorize the issuance of up to
5,000,000 shares of preferred stock, $0.10 par value per share ("Preferred
Stock"), in series with designations, rights (including voting rights), and
preferences determined from time to time by its Board of Directors. Accordingly,
the Board of Directors is empowered, without stockholder approval, to issue
Preferred Stock with dividends, liquidation, conversion, voting, or other rights
that could adversely affect the voting power or other rights of the holders of
Common Stock. In the event of issuance, the Preferred Stock could be used to
restrict the Company's ability to merge with or sell its assets to a third party
and, under certain circumstances, as a method of discouraging, delaying or
preventing a change in control of the Company. See "Description of Securities."
LIMITATION ON LIABILITY AND INDEMNIFICATION MATTERS
As permitted by Massachusetts Business Corporation Act, the Company has
included in its Articles of Organization a provision to eliminate the personal
liability of the Board of Directors for monetary damages for breaches or alleged
breaches of their duties as directors, subject to certain exceptions. In
addition, the Bylaws provide that the Company is required to indemnify our
officers and directors under certain circumstances, including circumstances in
which indemnification would otherwise be discretionary, and that the Company is
required to advance expenses to its officers and directors as incurred in
connection with any proceeding against them for which they may be indemnified.
19
<PAGE> 21
USE OF PROCEEDS
If all 1,000,000 Units offered by this Prospectus are sold at an initial
public offering price per unit of $7.75, the Company will receive net proceeds
of approximately $5,963,000 ($6,974,375 if the over-allotment option is
exercised in full). Net proceeds are determined after estimated commissions,
discounts and offering expenses payable by the Company.
The Company intends to use the net proceeds of this offering for the
following purposes:
<TABLE>
<CAPTION>
PERCENTAGE OF
AMOUNT NET PROCEEDS
---------- -------------
<S> <C> <C>
Production equipment....................................... $2,100,000 35.2%
- Expenditures for additional equipment and personnel to
prepare for and to increase production capacity
Research and development activities and regulatory
matters.................................................. $1,500,000 25.2%
- Expenditures to increase research personnel,
development expenses, and regulatory matters
Marketing and sales........................................ $1,500,000 25.2%
- Expenditures for sales and marketing personnel,
introducing new products, market research studies,
marketing collateral materials, trade show
participation, public relations, advertising expenses
Working capital and general corporate purposes............. $ 863,000 14.4%
</TABLE>
The amount and timing of working capital expenditures may vary
significantly depending upon numerous factors, including the progress of the
Company's research and development programs, the timing and costs involved in
obtaining regulatory approvals, the costs involved in filing, prosecuting and
enforcing patent claims, competing technological and market developments,
payments received under collaborative agreements, changes in collaborative
research relationships, the costs associated with potential commercialization of
the Company's products, including the development of marketing and sales
capabilities, the cost and availability of third-party financing for capital
expenditures and administrative and legal expenses.
The Company believes that its available cash and existing sources of
funding, together with the proceeds of this offering and interest earned
thereon, will be adequate to maintain its current and planned operations for the
next 18 months.
Until used, the Company intends to invest the net proceeds of this offering
in interest-bearing, investment-grade securities. While the net proceeds are so
invested, the interest earned by the Company on such proceeds will be limited by
available market rates. The Company intends to invest and use such proceeds so
as not to be considered an "investment company" under the Investment Company Act
of 1940, as amended.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its Common
Stock. The Company currently anticipates that it will retain all future earnings
for the expansion and operation of its business, and does not anticipate paying
cash dividends in the foreseeable future. The Company's revolving credit line,
term loan and equipment purchase facility with its principal lender prohibit the
payment of dividends other than common stock dividends.
20
<PAGE> 22
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1998, on an actual basis and as adjusted to reflect the sale by
the Company of 1,000,000 Units offered hereby (at an assumed initial public
offering price of $7.75 per Unit and after deducting estimated underwriting
discounts and commissions and offering expenses payable by the Company) and the
application of the estimated net proceeds therefrom. The capitalization
information set forth in the following table is qualified by the more detailed
Financial Statements and Notes thereto included elsewhere in this Prospectus and
should be read in conjunction with such Financial Statements and Notes thereto.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
-------------------------
ACTUAL AS ADJUSTED
---------- -----------
<S> <C> <C>
Current portion of long-term debt, including capital
lease..................................................... $ 111,783 $ 111,783
Long-term debt, including capital lease, net of current
portion................................................... 433,677 433,677
Stockholders' equity:
Preferred Stock, par value $0.10 per share; 5,000,000
shares authorized, and no shares issued or
outstanding............................................ -- --
Common Stock, par value $.10 per share; 20,000,000 shares
authorized and 4,372,291 shares issued and outstanding,
actual; 5,372,291 shares issued and outstanding, as
adjusted(1)............................................ 437,229 537,229
Additional paid-in capital.................................. 1,019,339 6,882,339
Retained earnings (accumulated deficit)..................... (238,935) (238,935)
---------- ----------
Total stockholders' equity................................ 1,217,633 7,180,633
---------- ----------
Total capitalization.............................. $1,763,093 $7,726,093
========== ==========
</TABLE>
- ---------------
(1) Does not give effect to an aggregate of up to 4,603,380 shares of Common
Stock issuable upon exercise of: (i) the Warrants; (ii) the Underwriters'
over-allotment option, including the shares underlying the Warrants included
in the Units subject to such option; (iii) the Representative's Warrant;
(iv) the Warrants included in the Units issuable upon exercise of the
Representative's Warrant, or (v) the issuance of any of the 2,827,300 shares
reserved for issuance under the Company's 1992 Stock Option Plan, the
Company's 1998 Stock Option Plan, the 164,500 shares of Common Stock
reserved for issuance under the Company's 1998 Employee Stock Purchase Plan
and the 111,580 shares of Common Stock reserved for issuance upon exercise
of outstanding warrants. See "Underwriting" and "Management -- Benefit
Plans."
21
<PAGE> 23
DILUTION
The net tangible book value of the Company's Common Stock as of September
30, 1998 was approximately $592,549, or $0.14 per share. Net tangible book value
per share represents the amount of the Company's total tangible assets less
total liabilities, divided by the 4,372,291 shares of Common Stock outstanding
as of September 30, 1998 (after the 7-for-1 stock split).
Net tangible book value dilution per share represents the difference
between the amount per share paid by new investors who purchase Units in this
Offering and the pro forma net tangible book value per share of Common Stock
immediately after completion of this Offering. After giving effect to the sale
of 1,000,000 Units in this Offering at an assumed initial public offering price
of $7.75 per Unit, after deduction of estimated underwriting discounts and
commissions and offering expenses, the pro forma net tangible book value of the
Company at September 30, 1998 would have been $7,055,621 or $1.31 per share.
This represents an immediate increase in net tangible book value of $1.17
per share to existing shareholders, and an immediate dilution in net tangible
book value of $6.44 per share to new investors in the Offering, as illustrated
in the following table:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per Unit(1).................. $7.75
Net tangible book value per share at September 30, 1998... $0.14
Increase per share attributable to new investors.......... 1.17
-----
Pro forma net tangible book value per share after the
Offering(2)...................................................... 1.31
-----
Net tangible book value dilution per share to new investors(3)..... $6.44
=====
</TABLE>
- ---------------
(1) Before deduction of estimated underwriting discounts and commissions and
offering expenses to be paid by the Company. Assumed initial public offering
price includes $.10 for a warrant.
(2) Does not give effect to an aggregate of up to 4,603,380 shares of Common
Stock issuable upon exercise of: (i) the Warrants; (ii) the Underwriters'
over-allotment option, including the shares underlying the Warrants included
in the Units subject to such option; (iii) the Representative's Warrant;
(iv) the Warrants included in the Units issuable upon exercise of the
Representative's Warrant, or (v) the issuance of any of the 2,827,300 shares
reserved for issuance under the Company's Stock Option Plan, the 164,500
shares of Common Stock reserved for issuance under the Company's 1998
Employee Stock Option Purchase Plan and the 111,580 shares of Common Stock
reserved for issuance upon exercise of outstanding warrants. See
"Underwriting" and "Management -- Benefit Plans."
(3) Represents dilution of approximately 83% to purchasers of the Units.
The following table summarizes as of September 30, 1998, on a pro forma
basis to reflect the same adjustments described above, the number of shares of
Common Stock purchased from the Company, the total consideration paid and the
average price per share paid by (i) the existing holders of Common Stock and
(ii) the new investors in the Offering, assuming the sale of 1,000,000 Units by
the Company hereby at an initial public offering price of $7.75 per Unit. The
calculations are based upon total consideration given by new and existing
shareholders, before any deduction of estimated underwriting discounts and
commissions and offering expenses.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- --------------------- AVERAGE
NUMBER PERCENT AMOUNT PERCENT PRICE PER SHARE
--------- ------- ---------- ------- ---------------
<S> <C> <C> <C> <C> <C>
Existing shareholders.............. 4,372,291 81.4% $1,326,662 14.6% $0.30
New Investors...................... 1,000,000 18.6% $7,750,000 85.4% $7.75
--------- ----- ---------- -----
Total(1)................. 5,372,291 100.0% $9,076,662 100.0%
========= ===== ========== =====
</TABLE>
- ---------------
(1) The foregoing table does not give effect to the items described in footnotes
(1) and (2) to the previous dilution table.
22
<PAGE> 24
SELECTED FINANCIAL DATA
The following selected financial data for the fiscal years ended June 30,
1997 and June 30, 1998 has been derived from the Company's audited historical
financial statements, which are included in this Prospectus. The financial data
for the three month periods ended September 30, 1997 and 1998 are derived from
unaudited financial statements, which are included in this Prospectus. The
unaudited financial statements include all adjustments, consisting of normal
recurring accruals, which the Company considers necessary for a fair
presentation of the financial position and the results of operations for these
periods. Operating results for the three months ended September 30, 1998 are not
necessarily indicative of the results that may be expected for the entire year
ending June 30, 1999. This data should be read in conjunction with the Financial
Statements and Notes thereto and the other financial information included
elsewhere in this Prospectus. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED JUNE 30, ------------------------------
------------------------ SEPTEMBER 30, SEPTEMBER 30,
1997 1998 1997 1998
---------- ---------- ------------- -------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Product and contract research revenues.............. $2,678,918 $2,904,429 $689,424 $697,911
Equipment revenues(1)............................... 350,754 -- -- --
---------- ---------- -------- --------
Total revenues...................................... 3,029,672 2,904,429 689,424 697,911
Cost of product and contract research revenues...... 1,308,520 1,620,941 403,447 381,699
Cost of equipment revenues.......................... 347,414 -- -- --
Research and development............................ 346,604 390,157 69,773 72,605
Selling, general and administrative................. 626,361 1,003,501 172,626 206,686
---------- ---------- -------- --------
Total costs and expenses............................ 2,628,899 3,014,599 645,846 660,990
---------- ---------- -------- --------
Operating income (loss)............................. 400,773 (110,170) 43,578 36,921
Other income (expense).............................. (21,043) 13,285 2,749 (5,496)
---------- ---------- -------- --------
Income (loss) before provision (benefit) for income
taxes............................................. 379,730 (96,885) 46,327 31,425
Provision (benefit) for income taxes................ 161,400 (38,900) 24,586 5,000
---------- ---------- -------- --------
Net income (loss)................................... $ 218,330 $ (57,985) $ 21,741 $ 26,425
========== ========== ======== ========
Net income (loss) per share.........................
Basic............................................. $ .06 $ (.01) $ .01 $ .01
Diluted........................................... $ .05 $ (.01) $ .01 $ .01
Weighted average number of common and common
equivalent shares outstanding.....................
Basic............................................. 3,418,107 4,110,596 3,623,291 4,372,291
Diluted........................................... 4,066,874 4,110,596 4,319,735 5,112,678
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
----------------------------
ACTUAL AS ADJUSTED(2)
---------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash........................................................ $ 85,163 $6,048,163
Current assets.............................................. 712,780 6,675,780
Working capital............................................. 98,056 6,130,282
Total assets................................................ 2,278,334 8,241,334
Current portion of long term debt, including capital
lease..................................................... 111,783 111,783
Long term debt, including capital lease, net of current..... 433,677 433,667
Stockholders' equity........................................ 1,217,633 7,180,633
</TABLE>
- ---------------
(1) Represents non-recurring revenue from a contract to build one piece of
customized manufacturing equipment. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Overview" and
Footnote 5 of the audited financial statements.
(2) Adjusted to reflect the sale of 1,000,000 Units offered by the Company
hereby at an estimated initial public offering price of $7.75 per Unit,
after deducting estimated underwriting discounts and commissions and
offering expenses, and the application of the net proceeds thereof. See "Use
of Proceeds" and "Capitalization."
23
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Financial Data" and the Company's Financial Statements and Notes
thereto included elsewhere in this Prospectus. The discussion in this Section
contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), that
involve risks and uncertainties. The safe harbor from private actions based on
untrue statements or omissions of material fact that is provided by the two
statutory provisions does not apply to statements made in connection with an
initial public offering. The Company's actual results and the timing of certain
events may differ materially from the results discussed in the forward-looking
statements. Factors that could cause or contribute to such differences include,
but are not limited to, those discussed in "Risk Factors" and "Business."
OVERVIEW
Implant Sciences Corporation (the "Company") was founded in 1984 by its
present CEO and initially provided ion implantation services to the aerospace
and machine tool industries. The Company had proprietary equipment and processes
which provided increased hardness, wear resistance, and corrosion resistance to
its customers' components. In 1986, the Company added its first semiconductor
ion implantation machine to compete in the semiconductor industry. The Company
now has three automated semiconductor implanters which produced annual revenues
of approximately $667,000 in fiscal 1998.
In 1990, the Company developed, manufactured and began to sell wear testing
equipment to complement its ion implantation business. In 1994, the Company's
ion implantation business expanded into medical implants including total joint
replacements which is now the Company's largest revenue producer. By 1995, the
Company divested the wear test equipment product line through an asset sale to
Falex Corporation for a total price of $200,000 and future aggregate minimum
royalty payments of $175,000. This divestiture was made to focus the Company's
development and engineering personnel on the expanding medical device market.
In 1993 and in 1995, the Company accepted two significant government
contracts to design, construct and install two large ion implantation systems at
customer sites. The second system was completed in 1997 for a total contract
amount of approximately $1,933,000 of which $351,000 was recognized as revenue
in fiscal 1997. In 1998, the Company ceased producing this equipment line to
devote its entire engineering staff to the medical device business. The Company
continues to build ion implantation equipment for its own use. The Company
believes that its proprietary equipment expertise is best devoted to
manufacturing its own products such as radioactive prostate seeds, radioactive
stents, and coatings for orthopedic implants and other medical devices. In
addition to its three semiconductor ion implanters, the Company now operates
four implanters dedicated to medical production including one special purpose
ion implanter for the production of radioactive stents, two implanters dedicated
to research and development, and has two under construction. At present the
Company's revenues are approximately 77% from the medical products and services
business and the remainder from the semiconductor ion implantation business.
24
<PAGE> 26
RESULTS OF OPERATIONS
The following table sets forth certain consolidated statements of
operations data for the periods indicated as a percentage of total revenues:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED JUNE 30, ------------------------------
--------------------- SEPTEMBER 30, SEPTEMBER 30,
1997 1998 1997 1998
------- ------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Product and contract research
revenues:
Medical.......................... 73.7% 77.0% 78.4% 78.6%
Semiconductor.................... 14.8 23.0 21.6 21.4
Equipment........................... 11.5 -- -- --
----- ----- ----- -----
Total revenues.............. 100.0 100.0 100.0 100.0
Costs and expenses:
Cost of product and contract
research revenues................ 43.2 55.8 58.6 54.7
Cost of equipment revenues.......... 11.5 -- -- --
Research and development............ 11.4 13.4 10.1 10.4
Selling, general and
administrative................... 20.7 34.6 25.0 29.6
----- ----- ----- -----
Total costs and expenses.... 86.8 103.8 93.7 94.7
----- ----- ----- -----
Operating income (loss)............... 13.2 (3.8) 6.3 5.3
Other income (expense), net........... (0.7) 0.5 0.4 (0.8)
----- ----- ----- -----
Income before (benefit) provision for
income taxes........................ 12.5 (3.3) 6.7 4.5
(Benefit) provision for taxes......... 5.3 (1.3) 3.5 0.7
----- ----- ----- -----
Net income (loss)..................... 7.2% (2.0)% 3.2% 3.8%
===== ===== ===== =====
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
Revenues. Total revenues increased to approximately $698,000, in the three
months ended September 30, 1998 from approximately $689,000 in the three months
ended September 30, 1997. The 1.3% increase was primarily attributable to
increased medical revenues. Less than 5% of all revenues were derived from
foreign sources.
The Company's two major customers, Stryker Osteonics Corporation and
Biomet, Inc. accounted for 46.2% and 8.8%, respectively, of revenue in the three
months ended September 30, 1998 and 49.4% and 6.7%, respectively, in the three
months ended September 30, 1997. The Company's government contract and grant
revenue accounted for 13.9% and 21.5% of revenue for the three months ended
September 30, 1998 and 1997, respectively.
Medical revenues increased due to increased interventional cardiology and
orthopedic revenue offset by a slight decrease in government contract and grant
revenue.
Cost of Product and Contract Research Revenues. Cost of product and
contract research revenues decreased to approximately $382,000 for the three
months ended September 30, 1998 from approximately $403,000 in the three months
ended September 30, 1997 and decreased as a percentage of revenues to 54.7% from
58.5% in the same periods. This decrease in cost is primarily attributable to a
reduction in processing material costs.
Research and Development. Research and development expenses increased to
approximately $73,000 in the three months ended September 30, 1998 from
approximately $70,000 in the three months ended September 30, 1997, a 4.3%
increase. The Company anticipates that in future periods its research and
25
<PAGE> 27
development expenses will continue to increase in total dollars expended as a
result of its new product development plans.
Selling, General and Administrative. Selling general and administrative
expenses increased to approximately $207,000 in the three months ended September
30, 1998 from approximately $173,000 in the three months ended September 30,
1997. The 19.7% increase in selling, general administrative expenses is
primarily attributable to increased personnel, particularly the development of a
senior management team. The Company anticipates that in future periods its
selling, general and administrative expenses will increase in total dollars as a
result of its plans to commercialize its new products.
Other Income and Expenses, Net. Other income and expenses, net consist
primarily of interest earned on the Company's short term investments, interest
expense on loans and rental income for machine space. Other income and expenses
increased as a result of an increase in interest expense due to increased
borrowing, under the Company's equipment purchase facility loan.
FISCAL 1998 COMPARED TO FISCAL 1997
Revenues. Total revenues decreased to approximately $2,904,000, in fiscal
1998, from approximately $3,030,000, in fiscal 1997. The 4.2% decrease was
primarily attributable to the completion of a one-time contract, completed in
fiscal 1997, to build one piece of customized manufacturing equipment. The
Company's medical and semiconductor businesses both experienced revenue
increases in fiscal 1998. Less than 5% of all revenues were derived from foreign
sources.
The Company has three major customers, Stryker Osteonics Corporation,
Concurrent Technology Corporation and Biomet Inc. Sales to Osteonics accounted
for 48.9% of total revenues, in fiscal 1997, and 42.3% of total revenues, in
fiscal 1998. Sales to Concurrent Technology Corporation accounted for 11.6% of
total revenues, in fiscal 1997, and 0% of total revenues, in fiscal 1998. Sales
to Biomet Inc. accounted for 4.9% of total revenues, in fiscal 1997, and 6.0% of
total revenues, in fiscal 1998.
The Company's government contract and grant revenue accounted for less than
1% and 11% of total revenues, in fiscal 1997 and 1998, respectively, with
approximately one-third of the fiscal 1998 revenue derived from a National
Institutes of Health grant to develop radioactive coronary stents. The Company
also conducts research and development under cost sharing arrangements with its
commercial customers. Revenues under such arrangements were approximately
$110,000 and $100,000 for the years ended June 30, 1997 and 1998, respectively.
Medical revenues increased to approximately $2,237,000, in fiscal 1998,
from approximately $2,232,000, in fiscal 1997. The increase in fiscal 1998
revenues is primarily attributable to increased contract revenue from government
contracts and grants, and increased medical coatings revenue, offset by a
decrease in orthopedic revenue primarily due to a price reduction associated
with a negotiated supply agreement.
Semiconductor ion implantation revenues increased to approximately
$667,000, in fiscal 1998, from approximately $447,000, in fiscal 1997. The 49.2%
increase in semiconductor ion implantation revenue primarily reflects an
increase in customer base as well as volume increases from existing customers.
Cost of Product and Contract Research Revenues. Cost of product and
contract research increased to approximately $1,621,000, in fiscal 1998, from
approximately $1,309,000, in fiscal 1997, and increased as a percentage of
revenues from 43.2%, in fiscal 1997, to 55.8%, in fiscal 1998. The increase in
cost is primarily attributable to increased activity related to government
contracts and grants which generally have lower gross margins than product
revenues, increased production material costs and the absorption of fixed labor
and overhead expenses associated with the completion, in fiscal 1997, of a
one-time equipment production subcontract.
Research and Development. Research and development expenses increased to
approximately $390,000, in fiscal 1998, from approximately $347,000, in fiscal
1997, and increased as a percentage of revenues from 11.4%, in fiscal 1997, to
13.4%, in fiscal 1998. The increase primarily reflects an increased level of
research and development activity relating to the Company's new products, which
are radioactive seeds for the treatment of
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prostate cancer and radioactive and radiopaque stents for the treatment of
coronary artery reocclusion. The Company anticipates that its research and
development expenses will decrease as a percentage of revenues and will continue
to increase in total dollars expended.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to approximately $1,004,000, in fiscal 1998,
from approximately $626,000, in fiscal 1997, and increased as a percentage of
revenues from 20.7%, in fiscal 1997, to 34.6%, in fiscal 1998. The increase
primarily reflects the cost associated with a terminating an agreement with the
acting Financial Officer; sales and marketing expenses, personnel, travel, and
legal expenses. The Company anticipates that its selling, general and
administrative expenses will decrease as a percentage of revenues and will
increase in total dollars as a result of its plans to commercialize its new
products.
Other Income and Expenses, net. Other income and expenses, net consist
primarily of interest earned on the Company's short-term investments, interest
expense on loans and rental income for machine space. Other income and expense
increased to approximately $13,000, in fiscal 1998, from ($21,000), in fiscal
1997. This increase in income primarily reflects a reduction in interest expense
due to the repayment of loans provided by officers of the Company in fiscal
1996.
Liquidity and Capital Resources. As of September 30, 1998 the Company has
approximately $85,000 in cash in the form of checking and money market accounts.
The Company also has a $300,000 revolving line of credit from a commercial bank
at a rate of prime plus one percent, which was entirely available at September
30, 1998. This line of credit expires on September 30, 1999. The Company also
has a term loan and a $750,000 equipment purchase facility with a commercial
bank, under which approximately $69,000 and $450,000, respectively, were
outstanding at September 30, 1998. The Company has $300,000 available for future
borrowings under its equipment purchase facility. Under provisions of its Loan
Agreement, the Company is required to maintain compliance with certain financial
covenants, including debt service coverage, minimum levels of net worth and
restrictions on indebtedness. At June 30, 1998, the Company's debt service
coverage and net worth was less than the required amounts. The Company's bank
waived its rights under the Loan Agreement with respect to compliance with these
financial covenants at June 30, 1998. At September 30, 1998 the Company met all
of its financial covenants. The Company believes that it will be able to satisfy
its covenants quarterly hereafter. Accordingly, amounts payable under the Loan
Agreement are classified as long-term in the accompanying balance sheet. See
"Risk Factors -- Uncertain Future Capital Requirements."
During fiscal 1998, operating activities used $83,000 of cash. Net cash
used by operating activities in fiscal 1998 primarily reflects the net loss of
$58,000.
During fiscal 1998, investing activities used $392,000 in cash. Net cash
used by investing activities included $559,000 of purchases of property and
equipment and $31,000 of patent fees. These uses of cash were partially offset
by the redemption of short-term investments of $198,000. Although the Company
does not currently have significant capital commitments, the Company intends to
make significant investments over the next several years to support the
development and commercialization of its products and the expansion of its
manufacturing facility. See "Use of Proceeds."
During fiscal 1998, financing activities provided $103,000 in cash. Net
cash provided by financing activities primarily includes proceeds from an
equipment loan and the sale of the Company's Common Stock, as a result of option
exercises, offset by the repayment in full of the Company's line of credit.
During the three months ended September 30, 1998, operating activities used
cash of approximately $322,000 due principally to the payment of operating
expenses and offering costs and an increase in accounts receivable.
During the three months ended September 30, 1998, investing activities used
approximately $162,000 in cash. Net cash used by investing activities included
$153,000 of purchases of property and equipment and
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$8,000 of patent fees. Although the Company does not have significant capital
commitments, the Company intends to make significant investments over the next
several years to support the development and commercialization of its products
and the expansion of its manufacturing equipment.
During the three months ended September 30, 1998, financing activities
provided approximately $257,000 in cash. Net cash provided by financing
activities primarily includes proceeds from an equipment loan.
The Company plans to further increase its expenditures to complete
development and commercialize its new products, to increase its manufacturing
capacity, to ensure compliance with GMP and FDA regulations and broaden its
sales and marketing capabilities.
The Company anticipates that the proceeds of the Offering and interest
thereon, together with existing cash and cash equivalents, will be sufficient to
fund its operations and planned new product development, including increased
working capital expenditures, through at least the next 18 months. See "Risk
Factors -- Uncertain Future Capital Requirements."
YEAR 2000 COMPLIANCE.
As the year 2000 approaches, it is generally anticipated that certain
computers, software and other equipment utilizing microprocessors may be unable
to recognize or properly process dates after the year 1999 without software
modification. The Company has evaluated this potential issue with respect to its
software, equipment, financial systems and suppliers. Expenditures by the
Company to date in connection with year 2000 compliance have not been material,
and the Company does not believe the year 2000 problem will have any material
adverse effect on its business, operations or financial condition.
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BUSINESS
Certain terms are defined in a glossary beginning on page 55.
GENERAL
Implant Sciences Corporation (the "Company") has developed proprietary
equipment and processes to produce radiation therapy implants (prostate seeds
and radioactive coronary stents), engineered surfaces for interventional
cardiology devices (radiopaque stents, guidewires and catheters) and orthopedic
implants (hip and knee replacements). The Company plans to manufacture
radioactive prostate seeds using a proprietary non-radioactive fabrication
process developed by the Company which it believes will be more cost-effective
and less hazardous than conventional processes. The seeds will be sealed and
then made radioactive in a nuclear reactor just prior to shipment to customers.
The Company plans to file a 510(k) notification of pre-market clearance for its
prostate seeds with the Food and Drug Administration ("FDA") in the first
quarter of calendar year 1999 and anticipates that it will take three to nine
months to obtain such clearance.
The Company currently uses its proprietary technology to apply radiopaque
(opaque to x-ray radiation) coatings to stents, guidewires, catheters and other
devices used in interventional cardiology procedures and to modify surfaces to
reduce polyethylene wear generation in orthopedic joint implants. The Company
also supplies ion implantation services to numerous semiconductor manufacturers,
research laboratories and universities. The Company has six issued United States
patents and eighteen United States patents pending covering its technologies and
processes. The Company also has pending two international patent applications.
Approximately 77% of the Company's revenues in fiscal 1998 were derived from its
medical products business and the remainder from its semiconductor business.
Although there are a wide range of commercial applications for the
Company's proprietary technologies, the Company has chosen to focus on the
medical device industry. Within the medical device industry, the Company is
concentrating on the prostate cancer, interventional cardiology and orthopedic
segments. The Company believes that each of these segments share similar growth
dynamics in that they represent diseases or chronic conditions that most
frequently occur in people over the age of 50. The Company expects that the
number of medical procedures performed annually in each of these segments will
continue to grow as the population in the United States over the age of 50
continues to grow. Similar trends appear in other highly developed countries.
TECHNOLOGIES
General. The Company uses two core technologies, ion implantation and thin
film coatings, to manufacture various medical implants and semiconductor
products. With respect to each core technology, the Company has developed
proprietary processes and equipment for the purpose of improving or altering the
surfaces of medical implants and semiconductor wafers.
Ion implantation and thin film coatings are techniques first developed in
the 1970s to improve the functional surface properties of metals, ceramics and
polymers, such as friction, wear, wettability and hardness. Ion implantation was
initially developed as a means to dope semiconductors in the fabrication of
integrated circuits. The accuracy, cleanliness and controllability of this
process has made it the standard for semiconductor manufacturing. Ion
implantation is generally preferred over other surface modification methods
because it does not delaminate, does not require high temperatures and does not
deform or alter the dimensions of the treated surface.
Thin film coatings were initially developed to interconnect transistors on
semiconductor chips. Thin films modify surfaces by layering a desired metal or
ceramic coating on the substrate material. Common thin film coating techniques
include chemical vapor deposition and physical vapor deposition.
Ion Implantation. Ion implantation is a process by which ions
(electrically charged atoms) are accelerated to high velocity in a vacuum and
directed toward a substrate or target material. The atoms become embedded just
below the surface of the material producing an alloy composed of the atoms and
the substrate material in the near-surface region of the target material. This
surface alloy may have new mechanical,
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electrical, chemical, optical and other properties. The Company believes its
proprietary technology, including high current ion sources and specialized
component holding fixtures, provides higher ion implant doses and higher beam
power and yields superior surface characteristics at lower cost than
commercially available equipment.
[HERE APPEARS A SCHEMATIC REPRESENTATION OF AN ION IMPLANTATION OF A FEMORAL
KNEE COMPONENT.]
Ion implantation can be used to embed single isotopes of radioactive
elements into components. The Company plans to use its proprietary equipment to
manufacture radioactive seed implants for the treatment of prostate cancer and
other carcinomas. The Company is in the process of developing radioactive
prostate seeds containing iodine-125, which can be manufactured without
expensive cyclotrons or linear accelerators and without hazardous radioactive
wet chemistry, the methods currently employed by existing suppliers. The Company
has two patents pending on its process. The Company also believes it can
cost-effectively implant ions of therapeutic radioisotopes including
phosphorous-32 or yttrium-90 into a device such as a coronary stent used to
reduce restenosis following balloon angioplasty.
Thin Film Coating. A thin film coating is grown upon a substrate in a
vacuum by the gradual deposition of atoms on the substrate. The Company's
proprietary unbalanced magnetron sputtering process results in coatings that are
extremely dense and free of voids, yielding good contrast and sharp edges under
x-ray or fluoroscopic examination. These coatings usually consist of gold or
platinum for radiopaque applications. The Company's proprietary manufacturing
process allows for efficient utilization of precious metals and for cost-
effective recovery and recycling of these precious metals. The Company is
developing processes to coat stents, guidewires and catheters used in
interventional cardiology procedures with substances, usually gold or platinum,
that allow those stents, guidewires and catheters to be visible under x-ray
observation during a procedure. The Company believes other techniques for
applying thin film coatings are less desirable for medical device applications
because of their inability to apply a dense coating, while continuing to be
flexible and adhering to the substrate.
PRODUCTS
Prostate Cancer Seeds
General. The alternatives generally presented to patients diagnosed with
prostate cancer are surgical removal of the prostate (radical prostatectomy) or
external beam radiation. Both techniques frequently have significant side
effects including impotence and incontinence. Brachytherapy is an increasingly
popular treatment technique whereby radioactive seeds (each of which is
approximately half the size of a grain of rice) are temporarily or permanently
implanted into the prostate. This technique allows the delivery of highly
concentrated yet confined doses of radiation directly to the prostate.
Surrounding healthy tissues and organs are spared significant radiation
exposure. Early applications of the technique were limited due to the quality of
imaging equipment available at that time and the inability to accurately place
the seeds. Advances in transrectal ultrasound and catscan imaging equipment
provide detailed and precise measurements of prostate size and shape, for seed
distribution and placement. Improved diagnostic methods, moreover, allow
physicians to better identify patients who are good candidates for
brachytherapy.
[HERE APPEARS A DRAWING OF A PROSTATE GLAND WITH IMPLANTED RADIOACTIVE SEEDS.]
Prostate Seeds. The Company has developed, and applied for three United
States patents covering radioactive seeds, implants and methods of manufacturing
radioactive seed implants by a proprietary process. These seeds are used
primarily in the treatment of prostate cancer. This treatment, known as
brachytherapy, involves implanting approximately 100 radioactive seeds directly
into the prostate and can be done on an outpatient basis. A ten-year study
conducted by the Northwest Hospital, Seattle, Washington (the "Northwest
Hospital Study") shows that this treatment has a ten-year disease-free survival
rate equal to surgical removal of the prostate and may be superior to other
early stage treatments, with a substantial reduction in the negative side
effects, impotence and incontinence, frequently associated with surgery and
external beam
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radiation treatment. The National Cancer Institute and American Cancer Society
have reported that sexual potency after implantation of radioactive seeds has
been 86% to 92%, which compares with rates of 10% to 40% for radical
prostectomies and 40% to 60% for external beam radiation therapy. The Company's
production method, involving a proprietary non-radioactive fabrication
procedure, does not use radioactive wet chemistry. Hospitals are currently
purchasing prostate seeds for approximately $39 to $55 each, for a cost of
$3,900 to $5,500 per procedure; however no assurance can be given that these
costs will remain the same. Initially the Company plans to introduce an
iodine-125 prostate seed. Later, the Company has plans to introduce
ytterbium-169 temporary implants.
Competitive Advantages. Management believes that the Company's
manufacturing process will result in lower capital equipment and manufacturing
assembly costs and will be less hazardous than the manufacturing processes used
by the Company's competitors. Other radioactive prostate seed manufacturers use
radioactive wet chemistry during seed assembly for iodine-125 products. These
technologies require much higher capital equipment costs than the Company's
technologies. The Company's dry process, for which it has patents pending, uses
no radioactive fabrication, and the Company believes it requires fewer personnel
and yields faster throughput. Following seed assembly the Company sends its
seeds to a nuclear reactor for activation. Using this non-radioactive
fabrication process, seeds can be fabricated and inventoried in large quantities
and activated only when ordered. Due to the short half life of iodine-125 (60
days), the competition must assemble and ship seeds on a tight schedule so they
can be implanted at the appropriate strength. For European and Asian markets,
the Company may ship and inventory "cold" seeds in overseas subsidiaries and
activate them in local nuclear reactors just prior to use. The Company believes
these factors will result in lower manufacturing costs and, therefore, will give
the Company a cost advantage over its competitors.
Sales. The Company intends to manufacture and sell its own prostate seeds
to distributors of medical products and directly to hospitals. The Company has
not yet sold any prostate seeds for commercial use and cannot make any such
sales until it has obtained appropriate clearance from the FDA and state
agencies. The Company expects to file a 510(k) notice of premarket clearance
with the FDA for its iodine-125 prostate seed by March 1999 and, if clearance is
granted upon this 510(k) notification, believes this radioactive seed will be
available for commercial sale in the second half of 1999.
Markets. 1998 research by the American Cancer Society shows that prostate
cancer is the second most common cancer in American men, after skin cancer. The
American Cancer Society estimates that in 1998 about 184,500 new cases of
prostate cancer will be diagnosed and 39,200 men will die of the disease in the
United States. According to the National Cancer Institute, over 80% of prostate
cancer is found in men over the age of 65. The National Cancer Institute
estimates that approximately 19 out of every 100 men born today will be
diagnosed with prostate cancer during their lifetimes. According to the American
Cancer Society, these numbers approximate the incidence and mortality for breast
cancer in women.
Radical prostectomies and external beam radiation treatments are procedures
that frequently have significant side effects including impotence or
incontinence. According to the American Cancer Society, in 58% of diagnosed
cases, the cancers are localized in the prostate and are potential candidates
for brachytherapy. The Company believes brachytherapy is an attractive
alternative to surgery or external beam radiation for these cases because
research to date has shown that it has a lower incidence of these side effects.
The Company believes that there is currently a shortage of radioactive
seeds, although this situation may change as new competitors enter this market
and existing competitors increase production capacity.
Interventional Cardiology Devices
General. The American Heart Association estimates that in 1995, there were
approximately 434,000 balloon angioplasty procedures performed in the United
States. According to the American Heart Association, of these approximately 30%
to 40% result in restenosis after balloon angioplasty. Research by the
Washington Hospital Center, the Emory University School of Medicine and the
Scripps Clinic has shown that delivery of an appropriate dose of therapeutic
intravascular radioactivity can reduce the incidence of restenosis and therefore
the need for additional procedures. In cooperation with certain device
manufacturers, the Company is in the process of developing a number of devices
to be used in interventional cardiology procedures. Among
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these devices are intravascular radioactive stents that are used to reduce
restenosis following balloon angioplasty and stents, guidewires and catheters
containing radiopaque markers. Coronary stents are made of metals which are not
radiopaque and in many cases must be coated with dense precious metals for
increased visibility that is critical to their guiding, positioning,
manipulation and placement.
[HERE APPEARS A CROSS SECTION DIAGRAM OF A CORONARY ARTERY WITH A RADIOACTIVE
STENT AND ANOTHER CROSS SECTION DIAGRAM OF A CORONARY ARTERY WITH A CONVENTIONAL
STENT.]
Radioactive Stents. The Company has developed, and applied for six United
States patents and has pending one international patent application for, new
methods of implanting radioactivity onto coronary stents that it believes will
reduce the incidence of restenosis. Ionizing radiation is recognized as a
promising approach to reducing restenosis at the site following balloon
angioplasty by inhibiting intimal hyperplasia. Radiosotopes, when implanted into
the stent itself, have shown marked inhibition of restenosis in animal studies.
Researchers at the Washington Hospital Center, the Emory University School of
Medicine and the Scripps Clinic researched a wide number of both external and
internal methods to deliver intravascular radiation to the coronary arteries,
some of which have problems associated with excessive whole-body radiation dose
exposure to the patient and cardiologist. The Company has developed a
proprietary technique for the ion implantation of both pure beta and pure x-ray
emitters into stents, which management believes has significant advantages over
other methods. These radioisotopes produce short-range radiation that only
affect the targeted tissues, rather than the entire body or region.
In fiscal 1998, the Company was awarded a grant from the National
Institutes of Health for the first phase of a possible two phase program to
further develop its radioactive stents on a commercial basis. The Company
currently has a joint development agreement with a major stent manufacturer to
develop a radioactive stent for animal studies which could lead to clinical
trials. Although the Company has developed and delivered radioactive stents
under this agreement, the Company believes that radioactive stents will not be
available for clinical use before 2001. See "Risk Factors -- Government
Regulation."
Radiopaque Coatings. The Company has developed proprietary methods for
applying radiopaque coatings onto a variety of medical devices manufactured by
its customers in order to increase the visibility of such devices during
interventional cardiology and other catheter-based procedures. These
biocompatible coatings are deposited using a proprietary unbalanced magnetron
sputtered coating process. The resulting coating is extremely dense and free of
voids yielding good contrast and sharp edges under x-ray or fluoroscopic
examination. The Company uses this process to coat stents, guidewires and
catheters. For a fractional increase in the manufacturing cost of a stent, the
Company believes its coatings can provide significant added value and enhanced
performance. The Company's thin film coatings are being evaluated by certain
customers for stents, guidewires and catheters.
Competitive Advantages. For manufacture of radioactive stents, the Company
uses a proprietary ion implanter that has been optimized for this application.
The Company also has developed a proprietary ion source which uses a relatively
non-toxic form of phosphorous as the radioactive phosphorous-32 source material.
The Company believes its proprietary equipment can be used for commercial
production with the safety and quality control required by the FDA. For
manufacture of its radiopaque coatings, the Company has developed a proprietary
gold coating process and has built equipment that uses unbalanced magnetron
sputtering which provides adherent coatings on implants with complex shapes
(such as stents) and which allows for efficient recovery of precious metals not
consumed in the process.
Sales. The Company intends to implant therapeutic radioactivity into
stents manufactured by its customers. Although the Company developed and
delivered radioactive stents for use in animal studies, the Company has not
implanted radioactivity into stents for commercial sale by its customers and
cannot make any such sales until it, or its customers, has obtained appropriate
approval from the FDA. The Company believes its radioactive stents will not be
available for commercial sale before 2001.
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Markets. The American Heart Association estimates that in 1995 over 58
million Americans had one or more forms of cardiovascular disease and that there
were 434,000 balloon angioplasty procedures performed in the U.S. Restenosis
occurs in approximately 30% to 40% of all such procedures. The American Society
for Therapeutic Radiology and Oncology has reported, and numerous clinical
trials have found, that delivery of an appropriate dose of therapeutic
radioactivity can reduce the incidence of restenosis and therefore the need for
additional procedures. The Company believes that stents treated with therapeutic
radiation will be an attractive alternative to traditional stents because they
can reduce restenosis by delivering an appropriate dose of radioactivity to the
affected site without adversely affecting the surrounding tissue.
Orthopedic Total Joint Replacements
General. The Company provides surface engineering technology to
manufacturers of orthopedic hip and knee total joint replacements. The majority
of existing hip and knee joint replacements are made of a cobalt-chromium
("CoCr") femoral component that articulates against a polyethylene component.
While offering excellent biocompatibility and superior wear resistance over
prior alloys and designs and potentially longer average life than prior alloys,
CoCr devices still suffer from particle generation where the metal and
polyethylene components articulate against each other. This particle generation
has been identified as a primary cause of implant loosening due to osteolysis
requiring repeat surgery.
[HERE APPEARS AN ANATOMICAL DIAGRAM OF A KNEE AND HIP JOINT REPLACEMENT.]
Orthopedics. The Company implants CoCr components of total joint
replacements manufactured by its customers with nitrogen ions. Nitrogen ion
implantation of these components reduces polyethylene wear by modifying the
native oxide present in CoCr alloys. Laboratory tests and clinical studies have
shown that nitrogen ion-implanted CoCr components offer superior performance
over untreated components, significantly reducing wear and slowing the incidence
of osteolysis which ultimately leads to revision surgery.
The Company is currently developing zirconia and alumina ceramic ion
implantation techniques and believes they will emerge as the preferred next
generation surface treatment method for orthopedic total joint replacements.
Management believes the use of monolithic ceramic or ceramic coated femoral
components holds greater promise than other types of components in reducing
osteolysis because ceramics have wear characteristics superior to metal and are
biocompatible and inert. The Company believes monolithic ceramic hip heads are
currently employed in a limited number of hip procedures in the US. Because of
their brittle nature, monolithic ceramics are not likely to be utilized for
femoral knee components. As an alternative to monolithic ceramic components, the
Company's ceramic coatings of CoCr devices using its "blended interface" process
can be applied to either hip or knee joint replacements. The Company believes
that ceramic coatings of CoCr devices would combine the bulk strength of a metal
alloy with the superior surface characteristics of a ceramic and would increase
the cost over untreated CoCr hips and knees by only approximately 10%. Several
orthopedic companies are considering the Company's surface treatment methods to
provide ceramic coated metal implants.
Competitive Advantages. The Company believes it now operates one of the
highest beam-current ion implanters used in the medical field. This equipment
has higher through-put and lower cost than equipment with a lower beam-current.
For the Company's new second generation orthopedic coating this equipment can
provide a ceramic coating with superior adhesion due to its patented "blended
interface" process.
Sales. The Company currently implants CoCr components of total joint
replacements made by its customers with nitrogen ions and is developing ceramic
ion implantation techniques for total joint replacements. The Company receives
untreated CoCr total joint replacements from its customers and implants them at
its facility. The Company then invoices and ships the implanted total joint
replacements to its customers. Total joint replacements treated with ceramic ion
implantation may not be sold commercially until the Company, or its customer,
has obtained appropriate approval from the FDA. The Company believes these total
joint replacements will not be available for commercial sale until after 2001.
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Markets. Osteoarthritis is a natural result of the aging process and is
the predominant cause of the need for joint replacement. The Company believes
that longer life expectancy as well as the growth in the number of people over
50 will cause the demand for total joint replacement to increase. According to
the American Academy of Orthopedic Surgeons, the hip and knee total joint
replacement market was estimated to be 500,000 units in 1995 in the United
States. The Company treats approximately 50,000 units each year using its ion
implantation process. Research by the Company has shown that the Company's
ceramic coatings can decrease wear debris generation by two-thirds, which the
Company believes will reduce osteolysis and thereby reduce the need for revision
surgery.
Semiconductor Ion Implantation
The Company supplies ion implantation services to numerous semiconductor
manufacturers, research laboratories, and research universities. Ion
implantation of electronic dopants into silicon, the process by which silicon is
turned into a semiconductor, is an integral part of the integrated circuit
fabrication process. While many of the Company's customers have their own ion
implantation equipment, they often use the Company's services and specialized
expertise for research and new product development because they do not want to
interfere with production or because they are unable to perform the services
themselves.
To serve this market, the Company offers the ion implantation of over 60 of
the 92 natural elements for its customers' research programs. The Company offers
all of the necessary dopants for silicon as well as for new materials such as
gallium arsenide, silicon carbide, indium phosphide and other advanced compound
semiconductors. The Company also performs high dose ion-implantation of silicon
and germanium to improve the crystallinity and to modify the semiconductor
properties of these materials.
PRINCIPAL SUPPLIERS
The Company uses several principal suppliers for the materials it uses to
prepare its products. PraxAir Distributors, Inc. provides the Company with
production gases. Newark Electronics Corp. and Eaton Corporation both provide
the Company with electronic components. The Company uses Glemco, Inc.,
McMaster-Carr Supply Co., Cambridge Valve and Fitting, Inc. and Copper and Brass
Sales for its machine shop supplies, including copper, aluminum, stainless
steel, graphite and hardware. The Company uses Refining Systems, Inc. for its
supply of gold. The Company believes that adequate supplies of its required
materials will continue to be available, however, no assurances can be given
that this will be the case. See "Risk Factors -- Dependence on Suppliers."
SALES AND MARKETING
The Company's marketing and sales methods vary according to the
characteristics of each of its main business areas. The Company's foreign sales
have comprised less than five percent of its total revenues. Sales and marketing
to the medical device and semiconductor markets are directed by the Company's
Vice President of Marketing and Sales who is assisted by the Company's Director
of Medical Devices and the Company's Director of Semiconductor Products. Sales
in the medical device and semiconductor arena are handled by three full time
salespeople, who handle both medical devices and semiconductor products. The
solicitation and proposal process for research and development contracts and
grants are conducted by the Company's President, its Chief Scientist, and its
scientific staff.
Medical Sales and Marketing
The Company plans to market its prostate seeds to distributors of medical
products as well as major hospitals and key physicians who might purchase
prostate seeds. The Company plans to hire additional sales personnel to make
direct calls on these potential customers. The Company plans to market its
implantation of radioactivity onto coronary stents directly to stent
manufacturers who will in turn sell the stents to hospitals.
In the provision of ion implantation for total joint replacements, the
Company concentrates on identifying and serving leading manufacturers. Where
possible, the Company attempts to become the sole provider of devices or surface
engineering services to each such manufacturer. The Company's marketing and
sales efforts
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require considerable direct contact and typically involve a process of customer
education in the merits of the Company's technology. The Company accomplishes
this by first researching customer needs, delivering scientific papers at
orthopedic and biomaterial conferences, and through presentations at customer
sites. The Company's internal research and government research grants are an
integral part of the marketing process. The Company's patent portfolio is also
very important in this process. See "Risk Factors -- Acceptance by Medical
Community; Market Acceptance."
In order to promote sales of its radiopaque coatings, the Company attends
trade shows and uses press releases. Once a customer's interest is established,
the sales process proceeds with an initial demonstration project funded by the
customer. A set of developmental runs are then performed to determine project
feasibility and to roughly optimize a parameter set for deposition. After
testing of samples generated and considering cost estimates for production
quantities, the customer may authorize the Company to proceed to pilot
production.
In pilot production, typically, several hundred units are produced in a
manner equivalent to the envisioned full production method. Pilot production may
be done on an existing piece of equipment with customer/device specific
fixturing, or a prototype machine depending on the complexity of the process and
device. Samples made in pilot production are fabricated into complete devices
and used by the customer for further testing, clinical studies, FDA submissions,
and marketing and sales efforts.
To date two types of implants have been coated for 6 companies in the
orthopedic market and 28 types of devices have been coated for 23 companies in
the interventional cardiology market. Although none have been shipped for
commercial sale, more than half of these are presently under evaluation by the
customers for commercial production.
The Company is a party to a research and development agreement with one of
its three major customers to develop radioactive stents for testing and
commercialization by the customer. The customer is required to fund the research
up to an amount totaling $375,000 provided that certain conditions are
satisfied. For the initial term of the agreement, the Company is required to
deal exclusively with the customer in developing radioactive stents and is
prohibited from entering into any discussions or agreement regarding any sale,
assignment, licensing or other disposition of any of its intellectual property
relating to radioactive stents. After the initial term and at the option of the
customer, the parties have agreed to negotiate for an exclusive supply agreement
and/or license relating to any intellectual property arising from the research.
Semiconductor Sales and Marketing
Since semiconductor ion implantation is a standard process in all
integrated circuit fabrication, customers usually know what they want and little
education is necessary. The Company's services are promoted and sold through
trade shows, advertising in trade magazines, direct mailings and press releases.
Most sales are between $600 and $2,500 per order, take less than one day to
complete, and the entire sales effort is often conducted by telephone. Most of
the Company's sales in this area are for outsourced customer-specified ion
implantation services which the customer's own ion implantation department is
unable or unwilling to perform.
Government Contracts
Research and development contracts from the U.S. government must be won
through a competitive proposal process which undergoes peer review. The Company
is in frequent contact with the Department of Defense, the Department of Energy
and other agencies at conferences to stay informed of the government's needs.
The Company believes its principals and senior scientific staff have earned a
strong reputation with these and other agencies. To date the Company has been
awarded research and development contracts by the National Institute of Health,
the Department of Defense, the National Science Foundation, and the National
Aeronautics and Space Administration ("NASA").
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<PAGE> 37
RESEARCH AND DEVELOPMENT
The technical staff of the Company consists of seven scientists including
four with Ph.D. degrees, and three with Bachelor Degrees and with expertise in
physical sciences and engineering. All of the Company's existing and planned
products rely on proprietary technologies developed in its research and
development laboratories. The Company's research and development efforts may be
self-funded, funded by corporate partners or by awards under the Small Business
Innovative Research ("SBIR") program. The Company has obtained over $4,000,000
in U.S. government grants and contracts over the past 10 years. Of this amount
approximately $160,000 and $438,000 was obtained in 1997 and 1998, respectively.
The Company also conducts research and development under cost-sharing
arrangements with its commercial customers. Revenues under such arrangements
were approximately $110,000 and $100,000 for the year ended June 30, 1997 and
1998, respectively.
PATENTS AND PROPRIETARY TECHNOLOGY
The Company's policy is to protect its proprietary position by, among other
methods, filing United States and foreign patent applications. The Company
currently has five issued United States patents and 19 United States patent
applications pending. The Company has two international patent applications
pending.
The Company has exclusive rights under patents covering the following
technologies: (i) an ion source generator which can be used in making
semiconductor devices while minimizing the use of toxic gases, (ii) a method of
using ion implantation for epitaxially growing thin films, which can be used for
semiconductor materials, (iii) a method of ion beam coating orthopedic implant
components to form a zirconium oxide interface layer with improved wear
properties, and (iv) an improved ceramic coated orthopedic implant component in
which the implant is first coated with a platinum alloy.
The Company is aware of a U.S. patent of a third party having broad claims
covering radioactive stents and methods of using radioactive stents for the
treatment of restenosis. The Company plans to implant radioactivity onto
coronary stents manufactured by the patent holder, its licensees or others. The
Company has not sought a formal opinion of counsel regarding the validity of
this patent or whether the Company's processes infringe this patent. If the
Company implants radioactivity onto stents that are not manufactured by the
patent holder or its licensees there can be no assurance that the holder of this
patent will not seek to enforce the patent against the Company or the
manufacturer of the stents, or that the Company would prevail in any such
enforcement action. See "Risk Factors -- Risk of Third-Party Claims of
Infringement."
The Company intends to seek further patents on its technologies, if
appropriate. However, there can be no assurance that patents will issue for any
of the Company's pending or future applications or that any claim allowed from
such applications will be of sufficient scope or strength, or be issued in all
countries where the Company sells its products and services, to provide
meaningful protection or any commercial advantage to the Company. See "Risk
Factors -- Dependence on Patents and Proprietary Technology."
GOVERNMENT REGULATION AND ENVIRONMENTAL MATTERS
Although the Company's present business itself is not directly regulated by
the FDA, the medical devices incorporating its technologies are subject to FDA
regulation. The burden of securing FDA clearance or approval for these medical
devices rests with the Company's medical device manufacturers or licensees.
However, the Company intends to prepare Device Master Files which may be
accessed by the FDA to assist it in its review of the applications filed by the
Company's medical device manufacturers. The Company's radioactive seeds for the
treatment of prostate cancer are subject to the FDA's 510(k) notification of
pre-market clearance submission. This submission usually requires about three to
nine months. The Company expects to file a 510(k) notification of pre-market
clearance submission for its iodine-125 prostate seeds by March, 1999, and
believes this radioactive seed will be available for sale in the second half of
1999. The Company has not decided when it will make submissions for its other
proposed prostate seed products.
Supplemental or full pre-market approval ("PMA") reviews require a
significantly longer period. A PMA will be required for the Company's
radioactive stents. Thus, significantly more time will be required to
36
<PAGE> 38
commercialize applications subjected to PMA review. The Company believes its
radioactive stents will not be available for commercial sale before 2001.
Furthermore, sales of medical devices outside the U.S. are subject to
international regulatory requirements that vary from country to country. The
time required to obtain clearance or approval for sale internationally may be
longer or shorter than that required for FDA approval. See "Risk Factors --
Government Regulation."
In addition to FDA regulation, certain of the Company's activities are
regulated by, and require approvals from, other federal and state agencies. For
example, aspects of the Company's operations require the approval of the
Massachusetts Department of Public Health and registration with the Department
of Labor and Industries. Furthermore, the Company's use, management,
transportation, and disposal of certain chemicals and wastes are subject to
regulation by several federal and state agencies depending on the nature of the
chemical or waste material. Certain toxic chemicals and products containing
toxic chemicals may require special reporting to the United States Environmental
Protection Agency and/or its state counterparts. The Company is not aware of any
specific environmental liabilities that it could incur. The Company's future
operations may require additional approvals from federal and/or state
environmental agencies.
FACILITIES AND EQUIPMENT
Pursuant to a lease, dated July 29, 1998, the Company operates from a
21,992 sq. ft. leased facility in Wakefield, Massachusetts. The Company
currently operates nine ion implantation machines, and has two more under
construction by its own technical staff. Four are dedicated to medical
production including one special purpose ion implanter dedicated to production
of radioactive stents. Three machines are dedicated to semiconductor ion
implantation. Two are used for research and development. Five machines are
housed in class 100 clean rooms. The Company maintains a machine shop facility
on its premises and employs four machinists which allows the Company to
fabricate and customize is specialized manufacturing equipment. The Company
expects that its space will be sufficient for the next 18 months. The Company's
current lease expires in May, 2000.
COMPETITION
In radioactive products, such as prostate seed implants and radioactive
stents, the Company expects to competes with Nycomed Amersham plc, Theragenics
Corp., North American Scientific, Inc. and International Isotopes Inc. Of these,
Nycomed Amersham plc, Theragenics Corp. and North American Scientific, Inc.
serve substantially the entire prostate seed market and International Isotopes
Inc. has announced that it plans to enter the seed market. In addition, the
Company's proposed radioactive stents will compete with alternative technologies
such as Novoste Corporation's Beta-Cath system, radioactive tipped guidewires
and radioactive filled balloons. The number and types of procedures being
performed on the prostate are increasingly drawing new entrants into the market.
The Company believes that competition, and, in turn, pricing pressures, may
increase. Many of the Company's competitors have substantially greater
financial, technical and marketing resources than the Company. See "Risk Factors
- -- Intense Competition; Rapid Technological Change."
Many medical device manufacturers have developed or are engaged in efforts
to develop internal surface modification technologies for use on their own
products. Most companies that market surface modification to the outside
marketplace are divisions of organizations with businesses in addition to
surface modification. Overall, the Company believes the worldwide market for
surface modification technologies applicable to medical devices is very
fragmented with no competitor having more than a 10% market share. Many of the
Company's existing and potential competitors (including medical device
manufacturers pursuing coating solutions through their own research and
development efforts) have substantially greater financial, technical and
marketing resources than the Company. See "Risk Factors -- Intense Competition;
Rapid Technological Change."
With respect to ion implantation of orthopedic implants, the Company
primarily competes with Spire Corporation. Competition within the orthopedic
implant industry is primarily conducted on the basis of service and product
design. Price competition has abated somewhat in the case of first time and more
youthful
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<PAGE> 39
patients where higher-cost and more durable reconstructive devices are
preferred. The Company attempts to differentiate itself from its competition by
providing what it believes are high value-added solutions to surface
modification. Management believes that the primary factors customers consider in
choosing a particular surface modification technology are performance, ease of
manufacturing, ability to produce multiple properties from a single process,
compliance with manufacturing regulations, customer service, pricing, turn
around time, and the ability to work with a variety of materials. The Company
believes that its process competes favorably with respect to these factors. The
Company believes that the cost and time required to acquire equipment and
technical engineering talent, as well as to obtain the necessary regulatory
approvals, significantly reduces the likelihood of a manufacturer changing the
coating process it uses after a device has been approved for marketing. See
"Risk Factors -- Intense Competition; Rapid Technological Change."
The Company's primary competition in the semiconductor industry consists of
three companies: Ion Implant Services, The Implant Center, and Ion Implant
Corporation. These companies are all located in Silicon Valley, California and
primarily serve the silicon wafer production needs of semiconductor factories in
their local area, although Ion Implant Corporation does research and development
implants nationwide. The Company mostly serves east coast factories with silicon
production and research and development laboratories worldwide.
Many of the Company's competitors and potential competitors have
substantially greater capital resources than the Company does and also have
greater resources and expertise in the areas of research and development,
obtaining regulatory approvals, manufacturing and marketing. There can be no
assurance that the Company's competitors and potential competitors will not
succeed in developing, marketing and distributing technologies and products that
are more effective than those developed and marketed by the Company or that
would render the Company's technology and products obsolete or noncompetitive.
Additionally, there is no assurance that the Company will be able to compete
effectively against such competitors and potential competitors in terms of
manufacturing, marketing and sales. See "Risk Factors -- Intense Competition;
Rapid Technological Change."
PRODUCT LIABILITY AND INSURANCE
The Company's business entails the risk of product liability claims.
Although the Company has not experienced any product liability claims to date,
there can be no assurance that such claims will not be asserted or that it will
have sufficient resources to satisfy any liability resulting from such claims.
The Company intends to acquire product liability insurance when its prostate
seed products and interventional cardiology devices are in commercial
production. There can be no assurance that product liability claims will not
exceed such insurance coverage limits, that such insurance will continue to be
available on commercially reasonable terms or at all, or that a product
liability claim would not materially adversely affect the business, financial
condition or results of operations of the Company. See "Risk Factors--Product
Liability Risk; Insurance."
EMPLOYEES
As of September 30, 1998, the Company employed 36 full-time individuals.
The Company believes it maintains good relations with its employees. None of the
Company's employees is represented by a union or covered by a collective
bargaining agreement. The Company's success will depend, in large part, upon its
ability to attract and retain qualified employees. The Company faces competition
in this regard from other companies, research and academic institutions and
other organizations.
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<PAGE> 40
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company and their ages as of
September 30, 1998 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Anthony J. Armini..................... 60 President, Chief Executive Officer and
Chairman of the Board of Directors
Darlene M. Deptula-Hicks.............. 41 Vice President and Chief Financial
Officer
Alan D. Lucas......................... 42 Vice President of Marketing, Sales and
Business Development
Stephen N. Bunker..................... 55 Vice President and Chief Scientist,
Director
Robert E. Hoisington.................. 62 Director
Shunkichi Shimizu..................... 52 Director
</TABLE>
The Company currently has four directors. All directors are elected to hold
office until the next annual meeting of shareholders of the Company and until
their successors have been duly elected and qualified. Officers are elected to
serve subject to the discretion of the Board of Directors and until their
successors are appointed. There are no family relationships among executive
officers and directors of the Company.
DR. ANTHONY J. ARMINI has been the President, Chief Executive Officer, and
Chairman of the Board of Directors since the Company's incorporation. From 1972
to 1984, prior to founding the Company, Dr. Armini was Executive Vice President
at Spire Corporation. From 1967 to 1972, Dr. Armini was a Senior Scientist at
McDonnell Douglas Corporation. Dr. Armini received a Ph.D. in nuclear physics
from the University of California, Los Angeles in 1967. Dr. Armini is the author
of ten patents and sixteen patents pending in the field of implant technology
and of fourteen publications in this field. Dr. Armini has over thirty years of
experience working with cyclotrons and linear accelerators, the production and
characterization of radioisotopes, and fifteen years of experience with ion
implantation in the medical and semiconductor fields.
DARLENE M. DEPTULA-HICKS joined the Company in July 1998 as Vice President
and Chief Financial Officer. Prior to joining the Company, from 1997 to 1998 Ms.
Deptula-Hicks was the Corporate Controller for ABIOMED, Inc., a medical device
manufacturer. From 1994 to 1997 Ms. Deptula-Hicks was an independent financial
consultant. From 1992 to 1994 Ms. Deptula-Hicks was the Vice President and Chief
Financial Officer of GCA, a division of General Signal Corporation, a
semiconductor equipment manufacturer. Ms. Deptula-Hicks holds a BS in Accounting
and an MBA.
ALAN D. LUCAS joined the Company in March 1998 as Vice President of
Marketing, Sales and Business Development. Prior to joining the Company, Mr.
Lucas accumulated over 20 years of experience in various marketing and business
development positions for medical device companies. Most recently, from 1996 to
1998, Mr. Lucas was the Director of Corporate Development at ABIOMED, Inc. From
1994 to 1996, Mr. Lucas was a strategic marketing and sales consultant focused
on medical technology. From 1991 to 1994 Mr. Lucas was the Director of Marketing
at Vision Sciences, Inc. a development stage medical device company.
DR. STEPHEN N. BUNKER has served as the Vice President and Chief Scientist
of the Company since 1987 and a Director of the Company since 1988. Prior to
joining the Company, from 1972 to 1987, Dr. Bunker was a Chief Scientist at
Spire Corporation. From 1971 to 1972, Dr. Bunker was an Engineer at McDonnell
Douglas Corporation. Dr. Bunker received a Ph.D. in nuclear physics from the
University of California, Los Angeles in 1969. Dr. Bunker is the author of five
patents in the field of implant technology.
ROBERT E. HOISINGTON has served on the Board of Directors of the Company
since August, 1992. He is the President and founder of Management Strategies, a
general line consulting firm providing strategic planning
39
<PAGE> 41
for businesses with annual revenues ranging from $10 million to $1 billion.
Prior to founding Management Strategies, Mr. Hoisington was a professional
management consultant at Arthur Young & Company.
SHUNKICHI SHIMIZU joined the Company's Board of Directors in March, 1998.
He is the Director of North American Operations of Takata Corporation, domiciled
in Tokyo, Japan. Takata Corporation is a manufacturer of seat belts and air
bags. The Company believes that the principal beneficial owner of Takata
Corporation is Juichiro Takada. Mr. Shimizu also is the Executive Vice President
of TK Holdings, Inc. of Ohio. Prior to joining Takata Corporation, he served as
the Head of International Finance Corporate Division at the Bank of Tokyo, Ltd.,
Headquarters. NAR Holding Corporation is a wholly-owned subsidiary of TREC
(Holland) Amsterdam B.V. Pursuant to an agreement with the Company, for so long
as NAR Holding Corporation owns at least 10% of the Company's issued and
outstanding shares of Common Stock, it is entitled to nominate one person for
election to the Board of Directors of the Company. Mr. Shimizu is NAR Holding
Corporation's nominee.
The Board of Directors has a Compensation Committee, which provides
recommendations concerning salaries and incentive compensation for employees of
and consultants to the Company. Messrs. Hoisington and Shimizu serve on this
committee. The Board of Directors also has an Audit Committee, which reviews the
scope and results of the audit and other services provided by the Company's
independent auditors. Messrs. Hoisington and Shimizu serve on this committee.
There are no family relationships among the directors and executive
officers of the Company.
COMPENSATION OF DIRECTORS
The Company's directors who are employees of the Company do not currently
receive any compensation for service on the Board of Directors. Directors who
are not employees of the Company, other than Mr. Shimizu, are paid a yearly
stipend of $2,500 and are reimbursed for reasonable expenses incurred in
connection with attendance at Board and committee meetings.
Under the 1998 Incentive and Nonqualified Stock Option Plan (the "Option
Plan"), each Director who is not an employee of the Company automatically
receives an annual grant of options to purchase 2,000 shares of Common Stock at
an exercise price equal to the closing price of the Common Stock on that date
for each year of service. Each such option will have a term of five years and
will vest in full on the date of grant.
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<PAGE> 42
MEDICAL ADVISORY BOARD
The Company has formed a Medical Advisory Board which will advise and
consult with the Company's Board of Directors and senior management at such
times as the Chief Executive Officer shall request. This advice and consultation
will relate generally to the Company's business and products. The Medical
Advisory Board advises on industry trends and new or experimental modalities of
treatment in the oncology, interventional cardiology and orthopedic specialties.
The Medical Advisory Board members may be employed on a full-time basis by
employers other than the Company, and these members may have commitments to, or
consulting, advisory or other contractual relationships with, other third
parties. These third party commitments and relationships may limit the
availability of the Medical Advisory Board members to the Company, and may
potentially result in conflicts of interest. Consultations with Medical Advisory
Board members may be either individually or as a group depending upon board
member availability. To date, the following individuals have agreed to serve as
members of the Medical Advisory Board.
<TABLE>
<CAPTION>
NAME CURRENT POSITION
- ---- ----------------
<S> <C>
William Capello, M.D. Professor, Orthopaedic Surgeon (Total
Joint Replacement)
Department of Orthopedic Surgery
Indiana University School of Medicine
Indianapolis, Indiana
Andrew J. Carter, D.O., FACC Interventional Cardiologist (Intra-
Vascular Radiation Therapy)
Cardiology Research Foundation
Washington, District of Columbia
Adam Dicker, M.D., Ph.D. Assistant Professor
Department of Radiation Oncology
Bodine Center for Cancer Treatment
Philadelphia, Pennsylvania
Stuart Goodman, M.D., Ph.D. Professor and Chairman, Orthopaedic
Surgeon (Total Joint Replacement)
Department of Orthopaedic Surgery
UCSF/Stanford Medical Center
Palo Alto, California
Robert Poss, M.D. Orthopedic Surgeon (Total Joint
Replacement)
Department of Orthopedic Surgery
Brigham and Women's Hospital
Boston, Massachusetts
</TABLE>
The Company has agreed to grant each member of the Advisory Board an option
to purchase 1,000 shares of Common Stock for each full year that such member
serves. The exercise price per share for the options issued with respect to the
first year of service is $7.00 per share. Each member also receives a yearly
stipend of $1,000.
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<PAGE> 43
EXECUTIVE COMPENSATION
The following table provides certain summary information concerning
compensation earned in the fiscal year ended June 30, 1998 by the Company's
Chief Executive Officer and Company's other executive officers (collectively,
the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
(FISCAL YEAR 1998)
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------- OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION(1) COMPENSATION
- --------------------------- -------- ------- --------------- ------------
<S> <C> <C> <C> <C>
Anthony J. Armini(2)...................... $104,000 -- $4,044 --
President, Chief Executive Officer and
Chairman of the Board
Stephen N. Bunker(3)...................... $79,000 -- $2,605 --
Vice President, Chief Scientist and
Director
Darlene M. Deptula-Hicks(4)............... -- -- -- --
Vice President and Chief Financial
Officer
Alan D. Lucas(5).......................... $22,500 $10,000 -- (6)
Vice President of Marketing, Sales and
Business Development
</TABLE>
- ---------------
(1) Other Annual Compensation consists of life and disability insurance premiums
and 401(k) plan benefits paid by the Company on behalf of the Named
Executive Officer. See "-- Benefit Plans."
(2) Dr. Armini entered into an Employment Agreement with the Company on
September 26, 1998. See "-- Employment Agreements."
(3) Dr. Bunker entered into an Employment Agreement with the Company on
September 26, 1998. See "-- Employment Agreements."
(4) Ms. Deptula-Hicks joined the Company in July of 1998 and receives an annual
salary of $100,000.
(5) Mr. Lucas joined the Company in March of 1998 and receives an annual salary
of $90,000.
(6) See "Option Grants in Last Fiscal Year," below.
The following table sets forth for each of the Named Executive Officers
certain information concerning stock options granted (as adjusted to give effect
to the 7-for-1 stock split effected in the form of a common stock dividend on
September 9, 1998) during the fiscal year ended June 30, 1998.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
PERCENT OF TOTAL
NUMBER OF SECURITIES OPTIONS GRANTED TO EXERCISE
UNDERLYING OPTIONS EMPLOYEES IN PRICE
NAME GRANTED FISCAL YEAR ($/SH) EXPIRATION DATE
- ---- -------------------- ------------------ -------- ---------------
<S> <C> <C> <C> <C>
Alan D. Lucas.................... 29,400 45.7% $6.00 2008
</TABLE>
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<PAGE> 44
The following table sets forth certain information concerning the value of
unexercised stock options held by the Named Executive Officers.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT JUNE 30, 1998 OPTIONS AT JUNE 30, 1998
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Anthony J. Armini......................... -- -- -- --
Stephen N. Bunker......................... -- -- -- --
Alan D. Lucas............................. -- 29,400 -- $51,500
</TABLE>
EMPLOYMENT AGREEMENTS
On September 26, 1998, the Company entered into employment agreements with
each of Anthony J. Armini, the President, Chief Executive Officer and Chairman
of the Board, and Stephen N. Bunker, the Vice President and Chief Scientist of
the Company. Pursuant to their employment agreements, each of which has a term
of five years, Dr. Armini is entitled to an annual base salary of $125,000 and
Dr. Bunker is entitled to an annual base salary of $100,000. Each of them is
eligible to receive additional bonuses at the discretion of the Board of
Directors.
BENEFIT PLANS
1998 Incentive and Nonqualified Stock Option Plan
The 1998 Incentive and Nonqualified Stock Option Plan (the "1998 Option
Plan") was adopted by the Board of Directors and the shareholders of the Company
in September, 1998. A total of 1,960,000 shares of Common Stock will be reserved
for issuance under the 1998 Incentive and Nonqualified Stock Option Plan.
However, the Company has entered into an agreement with the Representative
pursuant to which it has agreed not to issue options to purchase more than
100,000 shares of Common Stock in the next 18 months. The 1998 Option Plan will
authorize (i) the grant of options to purchase Common Stock intended to qualify
as incentive stock options ("Incentive Options"), as defined in Section 422 of
the Code and (ii) the grant of options that do not so qualify ("Nonqualified
Options"). The exercise price of Incentive Options granted under the 1998 Option
Plan must be at least equal to the fair market value of the Common Stock of the
Company on the date of grant. The exercise price of Incentive Options granted to
an optionee who owns stock possessing more than 10% of the voting power of the
Company's outstanding capital stock must be at least equal to 110% of the fair
market value of the Common Stock on the date of grant.
The 1998 Option Plan may be administered by the Board of Directors or the
Compensation Committee. Except in the case of certain formula grants to
nonemployee directors described above under "Director Compensation," the Board
or the Compensation Committee will select the individuals to whom options will
be granted and will determine the option exercise price and other terms of each
award, subject to the provisions of the 1998 Option Plan. Incentive Options may
be granted under the 1998 Option Plan to employees, including officers and
directors who are also employees. Nonqualified Options may be granted under the
1998 Option Plan to officers and other employees and to directors and other
individuals providing services to the Company, whether or not they are employees
of the Company.
1998 Employee Stock Purchase Plan
The 1998 Employee Stock Purchase Plan (the "Stock Purchase Plan") was
adopted by the Board of Directors and the shareholders of the Company in
September, 1998. The Stock Purchase Plan authorizes the issuance of up to an
aggregate of 164,500 shares of Common Stock to participating employees. The
Stock Purchase Plan may be administered by the Board of Directors or the
Compensation Committee.
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<PAGE> 45
Under the terms of the Stock Purchase Plan, all employees of the Company
(other than seasonal employees) who have completed one year of employment with
the Company and whose customary employment is more than part-time (i.e. more
than 20 hours per week and more than five months in the calendar year) are
eligible to participate in the Stock Purchase Plan. Employees who own five
percent or more of the outstanding Common Stock of the Company and directors who
are not employees are not eligible to participate in the Stock Purchase Plan.
The right to purchase Common Stock under the Stock Purchase Plan will be
made available through a series of one year offerings (each, an "Offering
Period"). On the first day of an Offering Period, the Company will grant to each
eligible employee who has elected in writing to participate in the Stock
Purchase Plan an option to purchase shares of Common Stock. The employee will be
required to authorize an amount (between one and ten percent of the employee's
compensation) to be deducted by the Company from the employee's pay during the
Offering Period. On the last day of the Offering Period, the employee will be
deemed to have exercised the option, at the option exercise price, to the extent
of accumulated payroll deductions. Under the terms of the Stock Purchase Plan,
the option exercise price is an amount equal to 85% of the fair market value of
one share of Common Stock on either the first or last day of the Offering
Period, whichever is lower.
No employee may be granted an option that would permit the employee's
rights to purchase Common Stock to accrue at a rate in excess of $25,000 of the
fair market value of the Common Stock, determined as of the date the option is
granted, in any calendar year.
The Company has made no determination as to when the first Offering Period
under the Stock Purchase Plan will commence.
1992 Stock Option Plan
The 1992 Stock Option Plan (the "1992 Option Plan") was adopted by the
Board of Directors and the shareholders in 1992. Upon the adoption of the 1998
Option Plan, the 1992 Option Plan was terminated. The 1992 Option Plan governs
only outstanding stock options that have already been issued under the 1992
Option Plan and that have not been exercised. No new stock options will be
granted under the 1992 Option Plan, which has been superseded by the 1998 Option
Plan.
The 1992 Option Plan authorized (i) the grant of options to purchase Common
Stock intended to qualify as incentive stock options ("Incentive Options"), as
defined in Section 422 of the Code, and (ii) the grant of options that did not
so qualify ("Nonqualified Options"). The exercise price of Incentive Options
granted under the 1992 Option Plan was required to be at least equal to the fair
market value of the Common Stock of the Company on the date of grant. The
exercise price of Incentive Options granted to an optionee who owned stock
possessing more than 10% of the voting power of the Company's outstanding
capital stock was required to be at least equal to 110% of the fair market value
of the Common Stock on the date of grant.
The 1992 Option Plan was required to be administered by the Board of
Directors or a committee designated by the Board. The Board or the designated
committee was empowered to select the individuals to whom options were granted
and to determine the option exercise price and other terms of each award,
subject to the provisions of the 1992 Option Plan. The Board or a designated
committee had authority to grant Incentive Options under the 1992 Option Plan to
employees, including directors who were also employees, and to grant
Nonqualified Options to employees and to directors and other individuals
providing services to the Company, whether or not they were employees of the
Company.
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<PAGE> 46
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of December 18, 1998, by (i) each
person or entity known to the Company to own beneficially five percent or more
of the Company's Common Stock, (ii) each of the Company's directors, (iii) the
Named Executive Officers, and (iv) all directors and executive officers of the
Company as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT BENEFICIALLY OWNED(3)
BENEFICIALLY ---------------------------------
NAME AND ADDRESSES(1) OWNED(2) BEFORE OFFERING AFTER OFFERING
- --------------------- ---------------- --------------- --------------
<S> <C> <C> <C>
Anthony J. Armini................................ 1,436,309 32.9% 26.7%
Patricia A. Armini............................... 1,086,309 24.8% 20.2%
NAR Holding Corporation(4)....................... 905,821 20.7% 16.9%
555 Madison Avenue, 27th Floor
New York, New York
Stephen N. Bunker................................ 742,406 17.0% 13.8%
Robert E. and Joan Hoisington.................... 35,000 * *
Shunkichi Shimizu................................ -- -- --
Darlene M. Deptula-Hicks......................... -- -- --
Alan D. Lucas.................................... -- -- --
All Directors and Officers as a group
(5 persons).................................... 2,213,715 50.6% 41.2%
</TABLE>
- ---------------
* Less than 1%.
(1) The address of all persons who are executive officers or directors of the
Company is care of the Company, 107 Audubon Road, Wakefield, Massachusetts
01880.
(2) To the Company's knowledge and subject to the information contained in the
footnotes to this table, all of the persons named in the table except
Patricia A. Armini, the former spouse of Anthony J. Armini, have sole voting
power with respect to all shares of Common Stock shown as beneficially owned
by them. All of Ms. Armini's shares are voted by Dr. Armini. Shares not
outstanding but deemed beneficially owned by virtue of the right of a person
or group to acquire them within 60 days of December 18, 1998 are treated as
outstanding only for purposes of determining the amount and percent owned by
such person or group.
(3) Percentage ownership is based on (i) before the Offering, 4,372,291 shares
of Common Stock outstanding as of December 18, 1998 and (ii) after the
Offering, an additional 1,000,000 shares to be issued by the Company in this
Offering.
(4) NAR Holding Corporation is a wholly-owned subsidiary of TREC (Holland)
Amsterdam B.V.
VOTING TRUST AGREEMENT
Two of the principal stockholders of the Company, Anthony J. Armini and
Patricia A. Armini, are parties to a Voting Trust Agreement, dated November 1,
1991. Under this agreement, so long as either party owns at least 25% of the
beneficial interest in the Common Stock of the Company and Mr. Armini continues
to serve as Trustee of the Voting Trust, all of Ms. Armini's shares are voted by
Mr. Armini. In addition, this agreement places certain restrictions on the
rights of either party to sell or encumber his or her shares.
45
<PAGE> 47
CERTAIN TRANSACTIONS
Between 1983 and 1994, two officers and shareholders of the Company, Dr.
Anthony J. Armini, and Dr. Stephen N. Bunker, did not receive certain
compensation. These underpayments of $562,070 for Dr. Armini and $249,755 for
Dr. Bunker were accrued by the Company as liabilities as the services were
rendered. In each of fiscal 1996 and 1997, a deferred compensation payment of
$193,252 and $119,000, respectively, was paid to Dr. Armini and $20,000 and $0,
respectively, was paid to Dr. Bunker, which payments were partial payments of
the accrued compensation due to each of them. The remaining amounts were
reflected as deferred compensation on the June 30, 1997 balance sheet. During
fiscal 1998, these two principal officers discharged the Company from its
remaining obligation.
On December 9, 1997, the Company entered into a Loan Agreement with Anthony
J. Armini. Pursuant to the terms of this Agreement, the Company loaned $137,500
to Dr. Armini for the purpose of exercising 350,000 options to purchase Common
Stock. The interest rate on the loan, which is unsecured, is six percent per
annum. The entire amount of the principal and accumulated interest will be due
on December 9, 2003.
In December, 1997, three of the directors of the Company exercised options
issued in 1993 to purchase shares of Common Stock of the Company in the
following amounts and at the following prices (as adjusted to give effect to the
7-for-1 stock split effected in the form of a Common Stock dividend on September
9, 1998): Stephen N. Bunker purchased 350,000 shares at a price of $.39 per
share; Anthony J. Armini purchased 350,000 shares at a price of $.39 per share;
and Robert E. Hoisington purchased 35,000 shares at a price of $.36 per share.
In addition, in June, 1997, NAR Holding Corporation exercised its preemptive
rights to purchase 351,946 shares of Common Stock of the Company at a price of
$.42 per share.
In July, 1998, as consideration for terminating an agreement with Eric
Akhund, acting chief financial officer of the Company, and his resignation from
the Company's board of directors, the Company provided the following benefits:
(i) a $60,000 lump sum cash payment; (ii) 12 additional payments of $4,125 per
month; (iii) warrants, with a three-year term, to purchase 101,080 shares of the
Common Stock of the Company at a price of $14.84 per share; (iv) warrants, with
a three-year term, to purchase 10,500 shares of the Common Stock of the Company
at a price of $1.29 per share; and (v) 14,000 shares of the Common Stock of the
Company. The total cost to the Company of terminating this agreement was
$144,050. The Company granted piggyback registration rights to this individual
in any public offering after the initial public offering of the Common Stock.
This individual has agreed to sign a lock-up agreement for future sale of such
warrants and shares equivalent to the lock-up agreements signed by the Company's
management.
Pursuant to an agreement with the Company, for so long as NAR Holding
Corporation owns at least 10% of the Company's issued and outstanding shares of
Common Stock, it is entitled to nominate one person for election to the Board of
Directors of the Company. Mr. Shimizu is NAR Holding Corporation's designated
director.
Any future transactions between the Company and its officers, directors,
principal stockholders or other affiliates will be on terms no less favorable
than could be obtained from independent third parties and will be subject to
approval by a majority of the independent and disinterested directors.
LEGAL PROCEEDINGS
The Company is not currently a party to any legal proceedings.
46
<PAGE> 48
DESCRIPTION OF SECURITIES
Following the closing of the sale of the Units offered hereby, the
authorized capital stock of the Company will consist of 20,000,000 shares of
Common Stock, $0.10 par value per share and 5,000,000 shares of Preferred Stock,
$0.10 par value per share.
UNITS
Each Unit being offered by the Company consists of one share of Common
Stock and a Warrant exercisable for one share of Common Stock. No certificate
representing a Unit will be issued. Only certificates representing the Common
Stock and the Warrants will be issued. The Common Stock and the Warrants will be
separately transferable upon issuance.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share in all matters
to be voted on by the shareholders. Subject to the preferences that may be
applicable to any Preferred Stock then outstanding, holders of Common Stock are
entitled to receive ratably such dividends, if any, as may be declared from time
to time by the Board of Directors out of funds legally available therefor. See
"Dividend Policy." In the event of liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary, holders of Common Stock are entitled
to share ratably in all assets remaining after payment of the Company's
liabilities and the liquidation preference, if any, of any then outstanding
shares of Preferred Stock. Holders of Common Stock have no preemptive rights and
no rights to convert their Common Stock into any other securities, and there are
no redemption or sinking fund provisions with respect to such shares. The
rights, preferences and privileges of holders of Common Stock are subject to,
and may be materially adversely affected by, the rights of the holders of shares
of any series of Preferred Stock which the Company may designate and issue in
the future. All outstanding shares of Common Stock are fully paid and
non-assessable. The shares of Common Stock to be issued by the Company in the
Offering will be fully paid and non-assessable.
WARRANTS
The following is a brief summary of certain provisions of the Warrants, but
such summary does not purport to be complete and is qualified in all respects by
reference to the actual text of the Warrant Agreement (the "Warrant Agreement")
between the Company and American Securities Transfer & Trust Inc. (the "Transfer
and Warrant Agent"). A copy of the Warrant Agreement has been filed as an
exhibit to the Registration Statement of which this Prospectus is a part. See
"Additional Information."
Each Warrant entitles the registered holder thereof to purchase, at any
time over a three-year period commencing thirteen months after the date of the
Prospectus, one share of Common Stock at a price equal to 120% per share of the
initial public offering price, at which time the Warrants will expire. The
Warrant exercise price is subject to adjustment under provisions referred to
below. The holder of any Warrant may exercise such Warrant by surrendering the
certificate representing the Warrant to the Transfer and Warrant Agent, with the
subscription form on the reverse side of such certificate properly completed and
executed, together with payment of the exercise price. The Warrants may be
exercised at any time in whole or in part at the applicable exercise price until
expiration of the Warrants. No fractional shares will be issued upon the
exercise of the Warrants.
The exercise price of the Warrants bears no relation to any objective
criteria of value and should in no event be regarded as an indication of any
future market price of the securities offered hereby.
The exercise price and number of shares of Common Stock purchasable upon
the exercise of the Warrants are subject to adjustment upon the occurrence of
certain events, including, without limitation, stock splits, stock dividends,
recapitalizations and reclassifications.
Commencing thirteen months from the date of the Prospectus (the "Redemption
Date"), the Warrants are subject to redemption by the Company at $0.20 per
Warrant if, after the Redemption Date, the closing bid price of the Common Stock
as reported on the Chicago Stock Exchange averages in excess of 140% per share
47
<PAGE> 49
of the initial public offering price of the Common Stock for a period of fifteen
consecutive trading days. In the event the Company exercises the right to redeem
the Warrants, such Warrants will be exercisable until the close of business on
the date of redemption. If any Warrant called for redemption is not exercised by
such time, it will cease to be exercisable and the holder will be entitled only
to the redemption price.
The Warrants are in registered form and may be presented to the Transfer
and Warrant Agent for transfer, exchange or exercise at any time on or prior to
their expiration from the date of this Prospectus, at which time
the Warrants become wholly void and of no value. If a market for the Warrants
develops, holders may sell Warrants instead of exercising them. There can be no
assurance, however, that a market for the Warrants will develop or continue.
The Warrants do not confer upon holders any voting, dividend or other
rights as shareholders of the Company.
The Company and the Transfer and Warrant Agent may make such modifications
to the Warrants that they deem necessary and desirable that do not materially
adversely affect the interests of the Warrant holders. No other modifications
may be made to the Warrants without the consent of the majority of the Warrant
holders. Modification of the number of securities purchasable upon the exercise
of any Warrant, the exercise price and the expiration date with respect to any
Warrant requires the consent of the holder of such Warrant unless such
modification occurs in connection with a stock split, stock dividend,
recapitalization, reclassification or similar event.
No gain or loss will be recognized by a holder upon the exercise of a
Warrant. The sale of a Warrant by a holder or the redemption of a Warrant by the
Company will result in the recognition of gain or loss in an amount equal to the
difference between the amount realized by the holder and the Warrant's adjusted
basis in the hands of the holder. Provided that the holder is not a dealer in
the Warrants and that the Common Stock would have been a capital asset in the
hands of the holder had the Warrant been exercised, gain or loss from the sale
or redemption of Warrant will be long-term or short-term capital gain or loss to
the holder. Loss on the expiration of the Warrant, equal to the Warrant's
adjusted basis in the hands of the holder, will be long-term or short-term
capital loss, depending on whether the Warrant had been held for more than one
year.
THE ABOVE DISCUSSION DOES NOT ADDRESS ALL OF THE TAX CONSIDERATIONS THAT MAY BE
RELEVANT TO A PARTICULAR PURCHASER. ACCORDINGLY, ALL PROSPECTIVE PURCHASERS ARE
ADVISED TO CONSULT THEIR OWN TAX ADVISORS REGARDING THE FEDERAL, STATE, LOCAL
AND FOREIGN TAX CONSEQUENCES OF THE PURCHASE OF THE UNITS AND THE OWNERSHIP AND
DISPOSITION OF THE WARRANTS AND THE COMMON STOCK.
PREFERRED STOCK
The Board of Directors is authorized, subject to limitations prescribed by
Massachusetts law, to provide for the issuance of Preferred Stock in one or more
series, to establish from time to time the number of shares to be included in
each such series, and to fix the designations, preferences, voting powers,
qualifications and special or relative rights or privileges thereof. The Board
of Directors is authorized to issue Preferred Stock with voting, conversion and
other rights and preferences that could adversely affect the voting power or
other rights of the holders of Common Stock. Although the Company has no current
plans to issue such shares, the issuance of Preferred Stock or of rights to
purchase Preferred Stock could have the effect of making it more difficult for a
third party to acquire, or of discouraging a third party from attempting to
acquire, a majority of the outstanding voting stock of the Company. As of the
date of this Prospectus, there were no shares of Preferred Stock outstanding.
The Company has agreed with the Representative that it will not issue any
shares of Preferred Stock for a period ending thirteen months after date of this
Prospectus, without the prior written consent of the Representative. See
"Underwriting."
48
<PAGE> 50
REPRESENTATIVE'S WARRANT
At the closing of this Offering, the Company will issue to the
Representative warrants (the "Representative's Warrants") to purchase 100,000
shares of Common Stock and 100,000 Redeemable Warrants. The Representative's
Warrants will be exercisable for a four-year period commencing one year from the
date of this Prospectus. The exercise price of the Representative's Warrants
will be 160% of the initial public offering price per share. The
Representative's Warrants will not be transferable prior to their exercise date
except to officers of the Representative and members of the syndicate and
officers and partners thereof. The Representative's Warrants will contain
provisions providing adjustment in the event of any recapitalization,
reclassification, stock dividend, stock split or similar transaction. The
Representative's Warrants and the securities issuable upon their exercise may
not be offered for sale except in compliance with the applicable provisions of
the Securities Act. The Company has agreed that, for a period of five years from
the date of this Prospectus, if the Company intends to file a registration
statement for the public sale of securities (other than a registration statement
on Form S-4, S-8 or a comparable registration statement), it will notify all of
the holders of the Representative's Warrants and securities issued upon exercise
thereof, and if so requested, it will include therein material to permit a
public offering of the securities underlying the Representative's Warrants
solely at the expense of the Company (excluding fees and expenses of the
Holder's counsel and any underwriting or selling commissions). See
"Underwriting."
REGISTRATION RIGHTS
The Company has granted registration rights to the holders of the
Representative's Warrants, which provides the holders with certain rights to
register the shares of Common Stock underlying the Representative's Warrants. In
addition, for a period of five years from the date of this Prospectus, upon
written demand of the holders of a majority of the Representative's Warrants,
the Company has agreed, on one occasion, to promptly register the underlying
securities solely at the expense of the Company (excluding fees and expenses of
the holder's counsel and any underwriting or selling commissions). Additionally,
for a period of five years from the date of this Prospectus, upon written demand
of any holder, the Company has agreed, on one occasion, to promptly register the
underlying securities for purposes of a public offering, solely at the expense
of such holder. See "Underwriting."
The Company has also granted to a former consultant piggyback registration
rights in any public offering after the initial public offering of the Common
Stock.
MASSACHUSETTS LAW
Following the Offering, the Company expects that it will have more than 200
stockholders, as a result of which it will be subject to the provisions of
Chapter 110F of the Massachusetts General Laws, an anti-takeover law. In
general, this statute prohibits a publicly held Massachusetts corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
becomes an interested stockholder, unless either (i) prior to that date, the
Board of Directors approved either the business combination or the transaction
in which the person became an interested stockholder, (ii) the interested
stockholder acquires 90% of the outstanding voting stock of the corporation
(excluding shares held by certain affiliates of the corporation) at the time it
becomes an interested stockholder or (iii) the business combination is approved
by the Board of Directors and by the holders of two-thirds of the outstanding
voting stock of the corporation (excluding shares held by the interested
stockholder) voting at a meeting. In general, an "interested stockholder" is a
person who owns 5% (15% in the case of a person eligible to file a Schedule 13G
under the Securities Act with respect to the Common Stock) or more of the
outstanding voting stock of the corporation or who is an affiliate or associate
of the corporation and was the owner of 5% (15% in the case of a person eligible
to file a Schedule 13G under the Securities Act with respect to the Common
Stock) or more of the outstanding voting stock within the prior three years. A
"business combination" includes mergers, consolidations, stock and asset sales,
and other transactions with the interested stockholder resulting in a financial
benefit (except proportionately as a stockholder of the corporation) to the
interested stockholder. The Company may at any time amend its Articles or
By-Laws to elect not to be governed by Chapter 110F by a vote of the holders of
a majority of its voting stock. Such an
49
<PAGE> 51
amendment would not be effective for twelve months and would not apply to a
business combination with any person who became an interested stockholder prior
to the date of the amendment.
The Company's By-Laws provide that any holder of 10% or more of the
outstanding shares of Common Stock may call a meeting of stockholders.
LIMITATION OF LIABILITY
The Company's Articles provide that no director of the Company shall be
personally liable to the Company or to its stockholders for monetary damages for
breach of fiduciary duty as a director, except that the limitation shall not
eliminate or limit liability (i) for any breach of the director's duty of
loyalty to the Company or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 61 or 62 of Chapter 156B of the Massachusetts General
Laws, dealing with liability for unauthorized distributions and loans to
insiders, respectively, or (iv) for any transaction from which the director
derived an improper personal benefit.
The Company's Articles and By-Laws further provide for the indemnification
of the Company's directors and officers to the fullest extent permitted by
Section 67 of Chapter 156B of the Massachusetts General Laws, including
circumstances in which indemnification is otherwise discretionary.
A principal effect of these provisions is to limit or eliminate the
potential liability of the Company's directors for monetary damages arising from
breaches of their duty of care, unless the breach involves one of the four
exceptions described in (i) through (iv) above. These provisions may also shield
directors from liability under federal and state securities laws.
TRANSFER AGENT AND WARRANT AGENT
The Transfer Agent and Registrar for the Common Stock and the Warrants is
American Securities Transfer and Trust Inc., Denver, Colorado.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this Offering, there has been no public market for the Common
Stock of the Company. Future sales of substantial amounts of Common Stock in the
public market could materially adversely affect the market price of the Common
Stock. As described below, only a limited number of shares will be available for
sale shortly after this Offering, due to certain contractual and legal
restrictions on resale. Nevertheless, sales of substantial amounts of the
Company's Common Stock in the public market or the perception that such sales
could occur after such restrictions lapse could materially adversely affect the
market price of the Common Stock and Warrants and the ability of the Company to
raise equity capital in the future. See "Risk Factors -- Shares of Common Stock
Eligible for Future Sale."
Upon completion of this Offering, the Company will have outstanding
5,372,291 shares of Common Stock, assuming no exercise of the Underwriters'
over-allotment option and no exercise of outstanding options. The 1,000,000
shares of Common Stock and the Warrants to purchase 100,000 shares of Common
Stock that are to be sold by the Company to the public in this Offering will be
freely tradable without restriction under the Securities Act, unless purchased
by affiliates of the Company as that term is defined in Rule 144 under the
Securities Act.
The remaining 4,372,291 shares of Common Stock outstanding upon completion
of this Offering will be restricted securities as that term is defined in Rule
144 under the Securities Act ("Restricted Shares"). Restricted Shares may be
sold in the public market only if registered or if they qualify for an exemption
from registration under Rule 144 or 701 promulgated under the Securities Act,
which are summarized below. Sales of the Restricted Shares in the public market,
or the availability of such shares for sale, could materially adversely affect
the market price of the Common Stock and Warrants. In general, under Rule 144 as
currently in effect, beginning 90 days after the date of this Prospectus, a
person (or persons whose shares are aggregated) who has beneficially owned
Restricted Shares for at least one year (including the holding period
50
<PAGE> 52
of any owner other than an affiliate of the Company) would be entitled to sell
within any three-month period a number of shares that does not exceed the
greater of (i) one percent of the number of shares of Common Stock then
outstanding or (ii) the average weekly trading volume of the Common Stock during
the four calendar weeks preceding the filing of notice of such sale. Sales under
Rule 144 are also subject to certain manner of sale provisions and notice
requirements and to the availability of current public information about the
Company. Under Rule 144(k), a person who is not deemed to have been an affiliate
of the Company at any time during the three months preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years
(including the holding period of any owner other than an affiliate of the
Company), is entitled to sell such shares without complying with the manner of
sale, public information volume limitations or notice provisions of Rule 144.
Any employee, officer or director of or consultant to the Company who
purchased shares pursuant to a written compensatory plan or contract may be
entitled to rely on the resale provisions of Rule 701. Rule 701 permits
affiliates of the Company to sell their Rule 701 shares under Rule 701 without
complying with the holding period requirements of Rule 144. Rule 701 further
provides that non-affiliates may sell such shares in reliance on Rule 144
without having to comply with the public information, volume limitation or
notice requirements of Rule 144. In both cases, a holder of Rule 701 shares is
required to wait until 90 days after the date of this Prospectus before selling
such shares.
Holders of 4,372,291 shares of Common Stock, including officers and
directors and holders of five percent or more of the Common Stock, have entered
into contractual lock-up agreements providing that they will not offer, sell,
contract to sell or grant any option to purchase or otherwise dispose of the
shares of stock owned by them or that could be purchased by them through the
exercise of options to purchase Common Stock of the Company, for thirteen months
after the date of this Prospectus without prior written consent of the
Representative. Taking into account the lock-up agreements and the restriction
of Rule 144, 144(k) and 701 described above, the number of Restricted Shares
that will first be eligible for sale in the public market will be 4,372,291
beginning thirteen months after the date of this Prospectus.
The Company has agreed that for a period of thirteen months from the date
of this Prospectus it will not sell or otherwise dispose of any securities
without the prior written consent of the Representative, shares may, however, be
issued pursuant to the exercise of options and warrants outstanding on the date
of this Prospectus or issued hereafter pursuant to the Company's 1998 Stock
Option Plan.
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<PAGE> 53
UNDERWRITING
The Underwriters named below have agreed, subject to the terms and
conditions of the Underwriting Agreement between the Company, ISG Solid Capital
Markets, LLC and Schneider Securities, Inc., as Representatives, to purchase
from the Company the number of Units set forth opposite their names. The
underwriting discount set forth on the cover page of this Prospectus will be
allowed to the Underwriters at the time of delivery to the Underwriters of the
Units so purchased.
<TABLE>
<CAPTION>
NUMBER
NAME OF UNDERWRITER OF UNITS
- ------------------- ---------
<S> <C>
ISG Solid Capital Markets, LLC..............................
Schneider Securities, Inc. .................................
Total............................................. 1,000,000
=========
</TABLE>
The Underwriters have advised the Company that they propose to offer the
Units to the public at an offering price $-- per Unit and that the Underwriters
may allow to certain dealers who are members of the National Association of
Securities Dealers, Inc. a concession not in excess of $-- per Unit, of which
the Underwriters may allow and such dealers may reallow concessions not in
excess of $-- per Unit to certain other dealers.
The Company has granted to the Underwriters an over-allotment option
exercisable during the 45-day period following the date of this Prospectus to
purchase up to a maximum of 150,000 additional shares of Common Stock or
Warrants at the public offering price, less the underwriting discount set forth
on the cover page of this Prospectus. The Underwriters may exercise such option
only to satisfy over-allotments in the sale of the Units.
The Company has agreed to pay to the Representatives a non-accountable
expense allowance equal to 3% of the total proceeds of this Offering, or $--
($-- if the Underwriters exercise the over-allotment option in full), of which
$50,000 has already been paid. The Underwriters do not intend to offer or sell
Common Stock or Warrants to accounts over which they exercise discretionary
authority.
At the closing of this Offering, the Company will issue to the
Representatives, for nominal consideration the Representatives' Warrants to
purchase 100,000 shares of Common Stock and 100,000 Warrants exercisable at 160%
of the initial public offering price for these Securities. See "Description of
Securities -- Representative's Warrants."
For the period during which the Representatives' Warrants is exercisable,
the holder(s) will have the opportunity to profit from a rise in the market
value of the Company's Common Stock, with a resulting dilution in the interests
of the other stockholders of the Company. The holder(s) of the Representatives'
Warrants can be expected to exercise it at a time which the Company would, in
all likelihood, be able to obtain any needed capital from an offering of
unissued Common Stock on terms more favorable to the Company than those provided
for in the Representatives' Warrants. Such facts may adversely affect the terms
on which the Company can obtain additional financing. To the extent that the
Representatives realize any gain from the resale of the Representatives'
Warrants or the securities issuable thereunder, such gain may be deemed
additional underwriting compensation under the Securities Act of 1933, as
amended.
The Company has agreed to enter into a two-year non-exclusive consulting
agreement with the Representatives, pursuant to which the Representatives will
act as a financial consultant to the Company, commencing on the closing date of
this Offering. The consulting fee of $36,000 for the first year of the
Representatives' services will be payable, in full, on the closing date of this
Offering and the consulting fee of $3,000 per month for the second year of the
Representatives' services will be payable monthly in advance beginning on the
first anniversary of the date of this Prospectus.
The Company has agreed that for a period of thirteen months from the date
of this Prospectus it will not sell or otherwise dispose of any securities
without the prior written consent of the Representatives, with the exception of
the grant of options and the issuance of shares issued upon the exercise of
options granted or to be granted under the Company's option plans and
outstanding warrants.
52
<PAGE> 54
The Underwriting Agreement provides for reciprocal indemnification between
the Company and the Underwriters against certain liabilities in connection with
the Registration Statement, including liabilities under the Securities Act.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.
The Company has agreed with the Representatives that for a period of 24
months from the closing date of this Offering, the Representatives may designate
an observer to the Board of Directors who will be entitled to attend and receive
notice of all meetings of the Board. The observer will be reimbursed for
out-of-pocket travel expenses incurred in attending such meetings but will
otherwise not be compensated by the Company.
Upon the exercise of the Redeemable Warrants more than one year after the
Offering and to the extent not inconsistent with the guidelines of the National
Association of Securities Dealers Regulation, Inc., and the rules and
regulations of the Securities and Exchange Commission, the Company has agreed to
pay the Representatives a commission equal to five percent of the exercise price
of the Redeemable Warrants. However, no compensation will be paid to the
Representatives in connection with the exercise of the Redeemable Warrants if
(a) the market price of the underlying shares of Common Stock is lower than the
exercise price, (b) the Redeemable Warrants are exercised in an unsolicited
transaction, or (c) the Redeemable Warrants are held in any discretionary
accounts. In addition, unless granted an exemption by the Commission from
Regulation M promulgated under the Exchange Act, the Representatives will be
prohibited from engaging in any market making activities or solicited brokerage
activities with regard to the Company's securities for a period of one or five
days before the solicitation of the exercise of any Redeemable Warrant or before
the exercise of any Redeemable Warrant based upon a prior solicitation, until
the later of the termination of such solicitation activity or the termination by
waiver or otherwise of any right the Representatives or any other soliciting
broker-dealers may have to receive a fee for the exercise of the Redeemable
Warrants following such solicitation.
DETERMINATION OF OFFERING PRICE
Prior to this Offering, there has been no public market for the Common
Stock. The offering price of the securities being offered hereby was determined
by negotiation between the Company and the Representatives. Factors considered
in determining such price include the history and the prospects for the industry
in which the Company competes, the past and present operations of the Company,
the future prospects of the Company, the abilities of the Company's management,
the earnings, net worth and financial condition of the Company, the general
condition of the securities markets at the time of this Offering, and the prices
of similar securities of comparable companies.
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for the
Company by Foley, Hoag & Eliot LLP, Boston, Massachusetts. Certain legal matters
in connection with this Offering will be passed upon for the Underwriter by
William M. Prifti, Esq., Lynnfield, Massachusetts.
EXPERTS
The financial statements of Implant Sciences Corporation at June 30, 1998
and 1997, and for each of the two years in the period ended June 30, 1998,
appearing in this Prospectus and Registration Statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
53
<PAGE> 55
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form SB-2 (the "Registration
Statement") under the Securities Act with respect to the Units offered hereby.
This Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto. For further
information with respect to the Company and the Units offered hereby, reference
is made to the Registration Statement and the exhibits and schedules filed as a
part thereof. Statements contained in this Prospectus concerning the contents of
any contract or any other document referred to are not necessarily complete and,
in each instance, if the contract or document is filed as an exhibit, reference
is made to the copy of such contract or document filed as an exhibit to the
Registration Statement. Each such statement is qualified in all respects by
reference to such exhibit. The Registration Statement, including exhibits and
schedules thereto, may be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the Regional Offices of the
Commission at Suite 1400, 500 West Madison Street, Chicago, Illinois 60661 and 7
World Trade Center, Thirteenth Floor, New York, New York 10048. Copies also may
be obtained from the Public Reference Section of the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington D.C. 20549, at prescribed
rates. The Commission also maintains a Web site at http://www.sec.gov that
contains reports, proxy and information statements and other information
regarding registrants, such as the Company, that make electronic filings with
the Commission.
54
<PAGE> 56
GLOSSARY
Alloy A mixture or solution of two or more metals.
Angioplasty A medical procedure used to repair a damaged or
diseased artery.
Balloon Catheter A tube with a balloon at its tip for dilating
arteries, used in angioplasty.
Beta Rays Radioactive emissions consisting of energetic
electrons.
Blended Interface The merging or blending of a coating into the
substrate material.
Brachytherapy Placement of a radioactive source in or near tissue to
deliver radiation therapy.
Cardiovascular System The heart with a network of blood vessels that
circulates blood around the body.
Catheter A flexible tubular device for insertion into a narrow
opening used to deliver a balloon and/or a stent
during angioplasty.
Chemical Vapor Deposition Depositing a coating by decomposition of a compound
gas on a surface.
Coronary Artery A vessel which delivers oxygenated blood to the heart
muscle.
Cyclotron A circular ion accelerator used in medicine to produce
radioisotopes.
Dopant An impurity element used to add positive or negative
charge to a semiconductor.
External Beam Radiation
Treatment A beam of x-rays or electrons usually generated by a
linear accelerator for radiation therapy.
Femoral Relating to the human femur or thigh bone.
Gamma Rays Electromagnetic radiation emitted by a nucleus.
Guidewire Wire used to guide a catheter through a narrow
opening.
Hyperplasia Excessive proliferation of smooth muscle cells within
the coronary artery.
Intima The inner layer of cells of an artery.
Iodine-125 A radioisotope emitting x-rays with a 60-day
half-life.
Ion Implantation The acceleration of ions to high velocity to embed
them into a surface.
Ion Charged atom, usually positive.
Linear Accelerator A straight ion accelerator used for external radiation
therapy or radioisotope production.
Magnetron Sputtering A process used to intensify the emission of material
from the surface of a target by magnetic means in
order to form a coating on a substrate.
Native Oxide The natural oxide which exists on most active metals
such as stainless steel, cobalt chrome or titanium.
Osteoarthritis A disease of the joint cartilage and underlying bone,
which may cause pain and impair joint function.
Osteolysis A dissolution of the organic matrix of bone resulting
in destruction.
Phosphorus-32 A radioisotope emitting only beta rays with a 14 day
half-life.
Physical Vapor Deposition Depositing a coating by condensing it from the vapor
onto a substrate.
55
<PAGE> 57
Radioactive Seed A small permanently implanted pellet containing
therapeutic radioactivity.
Radioactive Stent A stent which contains a radioactive isotope embedded
within its metal surface.
Radioactive Wet Chemistry A chemical process using radioactive liquid solutions.
Radiopaque Opaque to x-ray radiation and thus visible on x-ray
film.
Restenosis The reocclusion or closure of an artery after a new
channel has been formed using a balloon catheter or
stent.
Stent A metal mesh tube implanted into an artery to hold it
open.
Thin Film Coatings Coatings of an element or compound usually less than
10 microns thick.
X-Rays Electromagnetic radiation emitted by atomic electrons.
Ytterbium-169 A radioisotope emitting x-rays and gamma rays with a
32 day half-life.
56
<PAGE> 58
IMPLANT SCIENCES CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors.............................. F-2
Balance Sheets as of June 30, 1997 and 1998 and September
30, 1998 (Unaudited)...................................... F-3
Statements of Operations for the Years Ended June 30, 1997
and 1998 and for the Three Months Ended September 30, 1997
and 1998 (Unaudited)...................................... F-4
Statements of Changes in Stockholders' Equity for the Years
Ended June 30, 1997 and 1998 and for the Three Months
Ended September 30, 1998 (Unaudited)...................... F-5
Statements of Cash Flows for the Years Ended June 30, 1997
and 1998 and for the Three Months Ended September 30, 1998
(Unaudited)............................................... F-6
Notes to Financial Statements (Including Data Applicable to
Unaudited Periods)........................................ F-7
</TABLE>
F-1
<PAGE> 59
IMPLANT SCIENCES CORPORATION
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Implant Sciences Corporation
We have audited the accompanying balance sheets of Implant Sciences
Corporation as of June 30, 1997 and 1998, and the related statements of
operations, stockholders' equity, and cash flows for each of the two years in
the period ended June 30, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Implant Sciences Corporation
at June 30, 1997 and 1998, and the results of its operations and its cash flows
for each of the two years in the period ended June 30, 1998, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Boston, Massachusetts
July 31, 1998 except as to
Note 13 as to which the
date is September 9, 1998
F-2
<PAGE> 60
IMPLANT SCIENCES CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, JUNE 30, SEPTEMBER 30,
1997 1998 1998
---------- ---------- ----------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash...................................................... $ 683,076 $ 311,189 $ 85,163
Short-term investment..................................... 197,729 -- --
Accounts receivable, less allowances of $2,000............ 389,409 388,235 457,577
Inventories............................................... 24,785 31,338 29,425
Deferred income taxes..................................... 13,000 18,000 18,000
Prepaid income taxes...................................... -- 118,781 118,781
Prepaid expenses.......................................... 10,351 3,746 3,834
---------- ---------- ----------
1,318,350 871,289 712,780
Property and Equipment, at cost:
Machinery and equipment................................... 770,113 1,314,850 1,459,445
Leasehold improvements.................................... 60,141 62,553 63,152
Computer software......................................... 36,335 36,335 36,335
Furniture and fixtures.................................... 38,096 49,833 57,842
Motor vehicles............................................ 14,822 14,822 14,822
Leased property under capital lease....................... -- 28,360 28,360
---------- ---------- ----------
919,507 1,506,753 1,659,956
Less accumulated depreciation............................. (602,842) (692,808) (719,486)
---------- ---------- ----------
316,665 813,945 940,470
Other Assets:
Patent costs, net of accumulated amortization of $10,627
and $15,699, at June 30, 1997 and 1998, respectively,
and of $16,828 at September 30, 1998.................... 91,871 117,738 125,012
Other noncurrent assets................................... 18,402 363,511 500,072
Deferred income taxes..................................... 176,000 -- --
---------- ---------- ----------
286,273 481,249 625,084
---------- ---------- ----------
Total Assets....................................... $1,921,288 $2,166,483 $2,278,334
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Revolving line of credit.................................. $ 210,000 $ -- $ --
Accounts payable.......................................... 95,173 107,359 77,402
Accrued expenses.......................................... 694,572 567,435 425,539
Current portion of long-term debt......................... 66,667 50,278 106,111
Obligations under capital lease........................... -- 5,074 5,672
---------- ---------- ----------
1,066,412 730,146 614,724
Long Term Liabilities:
Long term debt, net of current portion.................... 38,889 224,491 412,754
Obligations under capital lease........................... -- 22,090 20,923
Deferred income taxes..................................... -- 12,300 12,300
---------- ---------- ----------
38,889 258,881 445,977
Stockholders' Equity:
Common stock, $0.10 par value; 1,000,000 and 6,500,000
shares authorized; 517,613 and 622,613 shares issued and
outstanding at June 30, 1997 and 1998, respectively and
20,000,000 shares authorized; 4,372,291 shares issued
and outstanding at September 30, 1998................... 51,761 62,261 437,229
Additional paid-in capital................................ 971,601 1,380,555 1,019,339
Retained earnings (accumulated deficit)................... (207,375) (265,360) (238,935)
---------- ---------- ----------
Total Stockholders' Equity......................... 815,987 1,177,456 1,217,633
---------- ---------- ----------
Total Liabilities and Stockholders' Equity......... $1,921,288 $2,166,483 $2,278,334
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 61
IMPLANT SCIENCES CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
------------------------ ------------------------
1997 1998 1997 1998
---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Product and contract research revenues:
Medical.............................. $2,231,918 $2,237,417 $ 540,759 $ 548,414
Semiconductor........................ 447,000 667,012 148,665 149,497
Equipment............................... 350,754 -- 0 0
---------- ---------- ---------- ----------
Total Revenues.................. 3,029,672 2,904,429 689,424 697,911
Costs and Expenses:
Cost of product and contract research
revenues............................. 1,308,520 1,620,941 403,447 381,699
Cost of equipment revenues.............. 347,414 -- 0 0
Research and development................ 346,604 390,157 69,773 72,605
Selling, general and administrative..... 626,361 1,003,501 172,626 206,686
---------- ---------- ---------- ----------
Total Costs and Expenses........ 2,628,899 3,014,599 645,846 660,990
---------- ---------- ---------- ----------
Operating income (loss)................... 400,773 (110,170) 43,578 36,921
Other income (expense):
Interest income......................... 20,717 18,872 4,274 2,625
Interest expense........................ (41,760) (11,563) (3,019) (8,121)
Other................................... -- 5,976 1,494 0
---------- ---------- ---------- ----------
Income (loss) before provision (benefit)
for income taxes........................ 379,730 (96,885) 46,327 31,425
Provision (benefit) for income taxes...... 161,400 (38,900) 24,586 5,000
---------- ---------- ---------- ----------
Net income (loss)....................... $ 218,330 $ (57,985) $ 21,741 $ 26,425
========== ========== ========== ==========
Net income (loss) per share--basic...... $ .06 $ (0.01) $ 0.01 $ 0.01
========== ========== ========== ==========
Net income (loss) per share--diluted.... $ .05 $ (0.01) $ 0.01 $ 0.01
========== ========== ========== ==========
Weighted average number of common shares
outstanding used for basic earnings
per share............................ 3,418,107 4,110,596 3,623,291 4,372,291
========== ========== ========== ==========
Weighted average number of common and
common equivalent shares outstanding
used for diluted earnings per
share................................ 4,066,874 4,110,596 4,319,735 5,112,678
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 62
IMPLANT SCIENCES CORPORATION
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK RETAINED
--------------------- ADDITIONAL EARNINGS TOTAL
NUMBER OF PAR PAID-IN (ACCUMULATED STOCKHOLDERS'
SHARES VALUE CAPITAL DEFICIT) EQUITY
--------- -------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1996...... 467,335 $ 46,734 $ 828,398 $(425,705) $ 449,427
Net income.................. 218,330 218,330
Issuance of common stock.... 50,278 5,027 143,203 -- 148,230
--------- -------- ---------- --------- ----------
Balance at June 30, 1997...... 517,613 51,761 971,601 (207,375) 815,987
Net loss.................... (57,985) (57,985)
Issuance of common stock.... 105,000 10,500 134,881 -- 145,381
Forgiveness of obligation to
stockholders, net of
related tax effect....... -- -- 274,073 -- 274,073
--------- -------- ---------- --------- ----------
Balance at June 30, 1998...... 622,613 $ 62,261 $1,380,555 $(265,360) $1,177,456
Net income (unaudited)........ -- -- -- 26,425 26,425
Issuance of common stock
(unaudited)................. 2,000 200 13,552 -- 13,752
Adjustment to reflect 7-for-1
stock split (unaudited)..... 3,747,678 374,768 (374,768) -- --
--------- -------- ---------- --------- ----------
Balance at September 30, 1998
(unaudited)................. 4,372,291 $437,229 $1,019,339 $(238,935) $1,217,633
========= ======== ========== ========= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 63
IMPLANT SCIENCES CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
--------------------- ---------------------
1997 1998 1997 1998
--------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss).............................. $ 218,330 $ (57,985) $ 21,741 $ 26,425
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Depreciation and amortization................ 65,052 101,075 21,000 24,704
Deferred income taxes provision (benefit).... 91,000 (3,200) 13,000 --
Changes in operating assets and liabilities:
(Increase) decrease in accounts
receivable.............................. 216,330 1,174 166,758 (69,343)
(Increase) decrease in inventories........ (24,785) (6,553) -- 1,913
(Increase) decrease in prepaid income
taxes................................... -- (118,781) -- --
(Increase) decrease in prepaid expenses... (7,512) 6,605 (9,500) (88)
(Increase) decrease in other noncurrent
assets.................................. (15,853) (351,146) 1,476 (133,458)
Increase (decrease) in accounts payable... 32,002 12,186 (31,259) (29,958)
Increase (decrease) in accrued expenses... (125,963) 333,436 (567,597) (141,896)
--------- --------- --------- ---------
Net cash provided by (used in) operating
activities................................... 448,601 (83,189) (384,381) (321,701)
CASH FLOWS USED IN INVESTING ACTIVITIES
Redemption (purchase) of short-term
investments.................................. (197,729) 197,729 2,734 --
Purchase of property and equipment............. (51,708) (558,886) (119,887) (153,203)
Capitalized patent costs....................... (27,076) (30,939) (2,900) (8,403)
--------- --------- --------- ---------
Net cash used in investing activities.......... (276,513) (392,096) (120,053) (161,606)
CASH FLOWS USED IN FINANCING ACTIVITIES
Proceeds from common stock issued.............. 148,230 145,381 -- 13,753
Proceeds from long-term debt................... -- 200,000 466,494 243,528
Repayments of long-term debt................... (195,595) (31,983) -- --
Proceeds from revolving line of credit......... 210,000 -- -- --
Repayments of revolving line of credit......... (210,000) (210,000) --
Repayments of notes payable--related parties... (207,000) -- -- --
--------- --------- --------- ---------
Net cash provided by (used in) financing
activities................................... (44,365) 103,398 256,494 257,281
--------- --------- --------- ---------
Net increase (decrease) in cash................ 127,723 (371,887) (247,940) (226,026)
Cash at beginning of year...................... 555,353 683,076 683,076 311,189
--------- --------- --------- ---------
Cash at end of year............................ $ 683,076 $ 311,189 $ 435,136 $ 85,163
========= ========= ========= =========
Supplemental Disclosures:
Interest paid................................ $ 42,948 $ 10,835 $ 3,019 $ 8,121
========= ========= ========= =========
Income taxes paid............................ $ 83,815 $ 98,393 $ 24,000 --
========= ========= ========= =========
Obligations under capital lease.............. -- $ 28,360 -- --
========= ========= ========= =========
Forgiveness of obligation to stockholders.... -- $ 460,573 -- --
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 64
IMPLANT SCIENCES CORPORATION
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE QUARTERS ENDED
SEPTEMBER 30, 1997 AND SEPTEMBER 30, 1998 IS UNAUDITED.)
1. DESCRIPTION OF BUSINESS
Implant Sciences Corporation is a provider of patented and proprietary
surface modification services to the medical device and semiconductor
industries. Ion implantation and thin film coating techniques are utilized to
enhance the surfaces for orthopedic implants (hip and knee total joint
replacements), to implant radioactive material into prostate seeds and coronary
stents, coatings on guidewires, stents and catheters for interventional
cardiology devices, and ion implantation of electronic dopants for the
semiconductor industry. The Company's principal markets are the orthopedic,
interventional cardiology and semiconductor markets.
Interm Financial Statements
The financial information at September 30, 1998, and for the three months
ended September 30, 1997 and 1998, is unaudited but includes all adjustments
(consisting only of normal recurring adjustments) which the Company considers
necessary for a fair presentation of the financial position at such date and of
the operating results and cash flows for these periods. The results of
operations and cash flows for the quarters ended September 30, 1997 and 1998 are
not necessarily indicative of results that may be expected for the entire year.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
The Company considers any security with a maturity of 90 days or less to be
cash equivalents.
Short-Term Investment
Short-term investment consists of a U.S. Treasury bill with an original
maturity of six months. The investment is recorded at cost plus accrued interest
which approximates market value.
Inventories
Inventories consist of gold and other precious metal raw materials used in
the manufacturing process and are carried at the lower of cost (first-in,
first-out) or market.
Property and Equipment and Capital Lease
Property and equipment are stated at cost and depreciated using the
straight-line method over the estimated useful lives of the respective assets as
follows:
<TABLE>
<S> <C>
Leasehold improvements.......................... life of lease
Furniture and fixtures.......................... 5-7 years
Machinery and equipment......................... 7 years
</TABLE>
Equipment under the capital lease is being amortized over the life of the
lease.
Warranty Costs
The Company accrues warranty costs in the period the related revenue is
recognized. Warranty costs are not material to operating results.
F-7
<PAGE> 65
IMPLANT SCIENCES CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Income Taxes
The liability method is used to account for income taxes. Deferred tax
assets and liabilities are determined based on differences between the financial
reporting and income tax basis of assets and liabilities as well as net
operating loss and tax credit carryforwards and are measured using the enacted
tax rates and laws that will be in effect when the differences reverse. Deferred
tax assets may be reduced by a valuation allowance to reflect the uncertainty
associated with their ultimate realization.
Patent Costs
The costs to obtain patents are capitalized. The Company amortizes the cost
of patents ratably over their legal lives commencing with the month in which the
patents are issued. As of June 30, 1998, there were four patents issued.
Accumulated amortization at June 30, 1997 and 1998 was $10,627 and $15,699,
respectively.
Concentrations of Credit Risk
The Company grants credit to its customers, primarily large corporations in
the medical device and semiconductor industries. The Company performs periodic
credit evaluations of customer financial condition and does not require
collateral. Receivables are generally due within thirty days. Credit losses have
historically been minimal, which is consistent with management's expectations.
The Company has three major customers which accounted for the following
annual revenue:
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Company A........................................... $1,482,000 $1,229,000
Company B (see Note 5).............................. 350,000 --
Company C........................................... 148,000 175,000
</TABLE>
Total accounts receivable at June 30, 1997 and 1998 for Company A was
approximately $223,000 and $138,000, respectively.
Stock Based Compensation
The Company accounts for its stock based compensation arrangements under
the provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees,
rather than the alternative fair value accounting method provided for under FAS
No. 123, Accounting for Stock-Based Compensation. Under APB 25, when the
exercise price of options granted to employees and non-employee directors under
these plans equals the market price of the underlying stock on the date of
grant, no compensation expense is recorded.
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. Actual results could differ from those estimates.
Revenue Recognition
Revenues are recognized at the time product is shipped. During fiscal 1996,
the Company was awarded a non-recurring, long-term, fixed price contract to
build one piece of customized manufacturing equipment, which was completed in
fiscal 1997. Revenues under this contract were recognized as costs were
incurred. The Company uses the percentage-of-completion method under the
contract and measures progress towards the completion using the cost-to-cost
method.
F-8
<PAGE> 66
IMPLANT SCIENCES CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Contract revenue under cost-sharing research and development agreements is
recognized as eligible research and development expenses are incurred. The
Company's obligation with respect to these agreements is to perform the research
on a best-efforts basis.
Research and Development Costs
All costs of research and development activities are expensed as incurred.
The Company performs research and development for itself and under contracts
with others, primarily the U.S. government. Company funded research and
development includes the excess of expenses over revenues on its commercial and
government research contracts and, therefore, is included in cost of product and
contract research revenues in the accompanying statement of operations.
The Company funded and customer funded research and development costs for
1997 and 1998 were as follows:
<TABLE>
<CAPTION>
JUNE 30,
--------------------
1997 1998
-------- --------
<S> <C> <C>
Company funded......................................... $522,765 $495,098
Customer funded........................................ 118,539 289,530
-------- --------
Total research and development............... $641,304 $784,628
======== ========
</TABLE>
Impact of Recently Issued Accounting Standards
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement No. 130, Reporting Comprehensive Income and Statement No. 131,
Disclosures About Segments of an Enterprise and Related Information. Statement
No. 130 establishes standards for the reporting and display of comprehensive
income and its components. Statement No. 131 establishes standards for public
companies to report information about operating segments in financial
statements. It also establishes standards for related disclosures about products
and services, geographic areas, and customers. Statement 131 is effective for
financial statements for fiscal years beginning after December 15, 1997, and
therefore the Company will adopt the new requirements retroactively in 1999.
Under Statement 131 the Company believes that it will operate in one business
segment. Accordingly, the Company does not anticipate that the adoption of this
statement will have a significant effect on the Company's disclosures. Statement
130, which will be adopted in 1999, will not have a significant impact on the
Company's disclosures.
Earnings per Share
In 1998, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 128, Earnings per Share. This Standard revises certain
methodology for computing earnings per common share (EPS) and requires the
reporting of two earnings per share figures: basic earnings per share and
diluted earnings per share. Basic earnings per common share are computed by
dividing net income by the weighted-average number of common shares outstanding.
Diluted earnings per share are computed by dividing net income by the sum of the
weighted-average number of common shares outstanding plus the dilutive effect of
shares issuable through the exercise of stock options (common stock
equivalents).
F-9
<PAGE> 67
IMPLANT SCIENCES CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The shares used for basic earnings per common share and diluted earnings
per common share are reconciled as follows:
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
---------------------- ----------------------
1997 1998 1997 1998
--------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Average shares outstanding for basic
earnings per share.................. 3,418,107 4,110,596 3,623,291 4,372,291
Dilutive effect of stock options...... 648,767 -- 696,444 740,387
--------- --------- --------- ---------
Average shares outstanding for diluted
earnings per share.................. 4,066,874 4,110,596 4,319,735 5,112,678
========= ========= ========= =========
</TABLE>
3. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
--------------------
1997 1998
-------- --------
<S> <C> <C>
Accrued compensation and benefits........................... $549,366 $ 90,573
Deferred revenue............................................ -- 125,000
Accrued income taxes........................................ 14,900 --
Warranty.................................................... 8,700 8,000
Accrued consulting fees..................................... -- 125,300
Other....................................................... 121,606 218,562
-------- --------
$694,572 $567,435
======== ========
</TABLE>
4. RESEARCH AND DEVELOPMENT ARRANGEMENTS
The Company is the recipient of several grants under the U.S. Government's
Small Business Innovative Research (SBIR) program. These grants are firm
fixed-priced contracts and generally range in length from six to nine months.
Revenues under such arrangements were approximately $12,000 and $308,000 for the
years ended June 30, 1997 and 1998, respectively.
The Company also conducts research and development under cost-sharing
arrangements with its commercial customers. Revenues under such arrangements
were approximately $110,000 and $100,000 for the years ended June 30, 1997 and
1998, respectively.
5. LONG-TERM CONTRACT
During 1996, the Company entered into a one-time contract as a
subcontractor under a cost-plus fixed fee arrangement at a total contract price
of approximately $1,933,000, as amended.
Amounts subject to retainage provisions were $13,500 at June 30, 1997. The
Company incurred general and administrative expenses relating to this contract
of approximately $88,000 for the year ended June 30, 1997. No general and
administrative expense relating to this contract were incurred for the year
ended June 30, 1998.
F-10
<PAGE> 68
IMPLANT SCIENCES CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. LONG-TERM DEBT
Maturities of long-term debt at June 30, 1998 are as follows:
<TABLE>
<S> <C>
Year ending June 30:
1999............................................ $ 50,278
2000............................................ 63,611
2001............................................ 63,611
2002............................................ 43,936
2003............................................ 40,000
Thereafter...................................... 13,333
--------
274,769
Less current portion.............................. 50,278
--------
$224,491
========
</TABLE>
The Company finances its operations utilizing a Revolving Credit Facility
("Credit Facility") and two Equipment Term Loans under a Loan Agreement with its
bank. Both borrowings under the Loan Agreement are cross-collateralized and
cross-defaulted. The Loan Agreement has a first lien on substantially all of the
Company's assets.
The Credit Facility bears interest at the bank's base rate, plus 1% (9.5%
at June 30, 1998). Advances under the Credit Facility are limited to 70% of
qualifying accounts receivable and payable on demand. At June 30, 1998 the
Company had $300,000 available under the Credit Facility.
In August 1997, the Company refinanced one of its Term Loans. The Term Loan
is payable in 48 monthly installments of $1,968, and matures September 30, 2001.
Interest is payable monthly at the same rate as the Credit Facility.
In January 1998, the Company increased the amount available under its
Equipment Term Loan to $750,000. The Company may utilize this facility to
finance capital expenditures through October 1998. Principal repayments commence
November 1998 in sixty equal monthly installments. Interest is payable monthly
at 1% above the banks base rate commencing February 1998.
Under the provisions of its Loan Agreement, the Company is required to
maintain compliance with certain financial covenants including debt service
coverage, minimum levels of net worth and restrictions on indebtedness. At June
30, 1998, the Company's debt service coverage and net worth was less than the
required amounts. The Company's bank has waived its rights under the Loan
Agreement with respect to compliance with these financial covenants at June 30,
1998. The Company is required to comply with these covenants at September 30,
1998, and quarterly thereafter. The Company believes that it will be able to
satisfy its covenants at September 30, 1998, and quarterly thereafter, based on
the projected Business Plan for 1999 as presented to its bank. Accordingly,
amounts payable under the Loan Agreement are classified as long-term in the
accompanying balance sheet.
At September 30, 1998, the Company complied with all financial covenants.
7. RELATED-PARTY TRANSACTIONS
Accounts receivable from related parties as of June 30, 1998 consisted of a
loan of $137,500 to a principal shareholder. The interest rate on the loan,
which is unsecured, is six percent per annum. The entire amount of the principal
and accumulated interest will be due on December 9, 2003. This was accounted for
as a reduction of stockholders' equity.
F-11
<PAGE> 69
IMPLANT SCIENCES CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Between 1984 and 1994, two officers, Dr. Armini and Dr. Bunker, of the
Company, were not paid certain compensation. As a result, deferred compensation
of $811,825 was accrued by the Company as the services were rendered. In 1996
and 1997, payments of $213,252 and $119,000, respectively, were made to these
individuals. The remaining obligation was included in accrued compensation in
the June 30, 1997 balance sheet.
During 1998, these individuals discharged the Company from the remaining
obligation of $461,000 which was recorded as an increase to Additional Paid-In
Capital, net of related tax effect of $186,500.
In 1998, as consideration for terminating an agreement with an acting Chief
Financial Officer and resignation from the Company's board of directors, the
Company provided the following benefits to the consultant: (i) a $60,000 lump
sum cash payment; (ii) 12 additional payments of $4,125 per month; (iii)
warrants, with a three-year term, to purchase 101,080 shares of the Common Stock
of the Company at a price of $14.84 per share; (iv) warrants, with a three-year
term, to purchase 10,500 shares of the Common Stock of the Company at a price of
$1.29 per share; and (v) 14,000 shares of the Common Stock of the Company. All
such consideration was accrued as of June 30, 1998.
8. LEASE OBLIGATION
The Company has an operating lease for its manufacturing, research and
office space which expires on May 31, 2000. Under the terms of the lease, the
Company is responsible for their proportionate share of real estate taxes and
operating expenses relating to this facility. Total rental expense for fiscal
years ended June 30, 1997 and 1998 was $115,954 and $160,224, respectively.
Included in property and equipment at June 30, 1998 is equipment recorded
under a capital lease, net of accumulated depreciation of $28,360.
Future minimum rental of payments required under capital leases and
operating leases with noncancellable terms in excess of one year at June 30,
1998, together with the present value of net minimum lease payments:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASE LEASE TOTAL
------- --------- --------
<S> <C> <C> <C>
Year ending June 30:
1999.............................................. $ 6,578 $146,229 $152,807
2000.............................................. 7,176 163,963 171,139
2001.............................................. 7,176 -- 7,176
2002.............................................. 7,176 -- 7,176
2003.............................................. 6,578 -- 6,578
------- -------- --------
Net minimum lease payments........................ $34,684 $310,192 $344,876
======== ========
Less finance charges.............................. 7,520
-------
Present value of net minimum lease payments....... $27,164
=======
</TABLE>
F-12
<PAGE> 70
IMPLANT SCIENCES CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
9. INCOME TAXES
The components of the income tax provision (benefit) are as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------
1997 1998
-------- --------
<S> <C> <C>
Current:
Federal................................................... $ 53,900 $(30,100)
State..................................................... 16,500 (5,600)
-------- --------
70,400 (35,700)
Deferred.................................................... 91,000 (3,200)
-------- --------
$161,400 $(38,900)
======== ========
</TABLE>
The income tax provision (benefit) is greater than the amounts computed by
applying the statutory federal income tax rate of 34% to income before the
provision for income taxes, primarily as a result of state income taxes.
Significant components of the Company's deferred tax assets as of June 30
are as follows:
<TABLE>
<CAPTION>
1997 1998
-------- -------
<S> <C> <C>
Deferred tax assets:
Deferred compensation..................................... $185,000 $ --
Net operating loss and tax credit carryforwards........... 8,000 8,000
Other..................................................... 14,000 18,000
-------- -------
Total deferred tax assets................................... 207,000 26,000
Deferred tax liabilities:
Tax over book depreciation................................ 18,000 20,300
-------- -------
Total deferred tax liabilities.............................. 18,000 20,300
-------- -------
Net deferred tax assets..................................... $189,000 $ 5,700
======== =======
</TABLE>
10. STOCKHOLDERS' EQUITY
Each share of the Company's outstanding common stock has one vote. The 1992
Stock Option Plan (the "1992 Plan") provides for the grant of incentive stock
options and nonqualified stock options to employees. The exercise price of the
options equals 100% of the fair market value on the date of the grant, and vest
ratably over three years commencing with the second year. A total of 1,960,000
shares have been reserved for issuance under the 1992 Plan.
F-13
<PAGE> 71
IMPLANT SCIENCES CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following table presents the activity of the 1992 Plan for the years
ended June 30, 1997 and 1998:
<TABLE>
<CAPTION>
1997 1998
--------------------- ---------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Outstanding at beginning of period....... 1,666,000 $ .67 1,788,500 $ .70
Granted.................................. 122,500 1.18 64,400 3.38
Exercised................................ -- -- (735,000) .39
Canceled................................. -- -- (280,000) 1.29
--------- ----- --------- -----
Outstanding at end of period............. 1,788,500 $ .70 837,900 $ .98
========= ===== ========= =====
Options exercisable at end of period..... 1,292,669 $ .50 598,500 $ .67
========= ===== ========= =====
Weighted average fair value per share of
options granted during the period...... $ .09 $ .40
===== =====
</TABLE>
The following table presents weighted average price and life information
about significant option groups outstanding at June 30, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------- -------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE CONTRACTUAL EXERCISE EXERCISE
PRICES NUMBER LIFE (YRS) PRICE NUMBER PRICE
- -------- ------- ----------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
$ .36 371,000 5.05 $ .36 371,000 $ .36
1.18 437,500 8.02 1.18 227,500 1.18
6.00 29,400 9.74 6.00 -- --
------- -------
837,900 598,500
======= =======
</TABLE>
The Company has adopted the disclosure provisions only of Statement of
Financial Accounting Standards No. 123, Accounting for Stock-based Compensation
(FAS 123). If the compensation cost for the option plans had been determined
based on the fair value at the grant date for grants in 1997 and 1998,
consistent with the provisions of FAS 123, the pro forma net income for 1997 and
1998, would have decreased by $45,000 and $55,000 respectively, and by $.01 per
share and $.01 per share-diluted, respectively.
The fair value of options and warrants issued at the date of grant were
estimated using the Minimum-Value method with the following weighted average
assumptions:
<TABLE>
<CAPTION>
OPTIONS GRANTED
-------------------------
1997 1998
---------- -----------
<S> <C> <C>
Expected life (years)............................ 5 5
Risk free interest rate.......................... 6.9%-6.96% 5.55%-5.75%
Dividend yield................................... 0% 0%
</TABLE>
The Company has never declared nor paid dividends and does not expect to do
so in the foreseeable future.
The effects on 1997 and 1998 pro forma net income of expensing the
estimated fair value of stock options are not necessarily representative of the
effects on the results of operations for future years as the periods presented
include only two and three years, respectively, of option grants under the
Company's plans.
F-14
<PAGE> 72
IMPLANT SCIENCES CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
11. ROYALTY AGREEMENT
Under the terms of the sale of a former product line, the Company is
entitled to minimum annual royalties which aggregate $175,000 over four years.
During 1997 and 1998, the Company recognized approximately $75,000 and $44,000,
respectively, of royalties under this arrangement.
12. 401(k) PLAN
The Company has a defined contribution retirement plan which contains a
401(k) program. All employees who are 21 years of age and who have completed one
year of service during which they worked at least 1,000 hours are eligible for
participation in the plan. The Company may make discretionary contributions. The
Company made contributions to the plan of $1,100 and $3,200 in 1997 and 1998,
respectively.
13. SUBSEQUENT EVENTS
In connection with a planned initial public offering of the Company's
Common Stock, the Company amended and restated its articles of incorporation in
September 1998. The amendment, among other things, included the following:
- The Company's Board of Directors increased the authorized Common Stock
to 20,000,000 shares.
- The Company's Board of Directors authorized 5,000,000 shares of
Preferred Stock ($.10 par value). The Board of Directors was also
authorized to issue the Preferred Stock in one or more series, and to
fix the powers, designations, preferences and other rights, including
dividend rights, conversion rights, voting rights, redemption terms
and liquidation preferences without any further action by the
Company's stockholders.
- The Board of Directors declared a 7-for-1 stock split effected in the
form of a stock dividend.
Except for historical share amounts in the accompanying balance sheet and
statement of changes in stockholders' equity, the Company has restated all
historical share and per-share data to give retroactive effect to the 7-for-1
stock split effected in the form of a stock dividend. Upon distribution of the
shares the par value of the shares distributed will be transferred from
additional paid-in-capital to Common Stock.
In addition, in September 1998, the Company adopted two new employee
benefit plans, the 1998 Incentive and Nonqualified Stock Option Plan ("Incentive
Plan") and the 1998 Employee Stock Purchase Plan ("Stock Purchase Plan").
The Incentive Plan provides for the grant of incentive stock options and
nonqualified stock options to officers and key employees for the purchase of up
to 1,960,000 shares of Common Stock. Options granted to purchase shares of
Common Stock are exercisable as determined by an appointed committee consisting
of two or more non-employee directors (Committee), expire within ten years from
date of grant and have an exercise price not less than the fair market value of
the Company's Common Stock on the date of grant. However, in the case of
qualified options, if an employee owns more than 10% of the voting power of all
classes of stock, the option granted will be at 110% of the fair market value of
the Company's Common Stock on the date of grant and will expire over a period
not to exceed five years.
Under the terms of the Incentive Plan each non-employee director, upon
election and each subsequent reelection to the Board of Directors, shall
automatically receive a Nonqualified Option to purchase 2,000 shares of Common
Stock subject to the same terms and conditions referred to in the immediately
preceding paragraph.
The 1998 Employee Stock Purchase Plan ("Purchase Plan") provides for the
issuance of 164,500 shares of common stock thereunder. Under the Purchase Plan,
eligible employees may purchase common shares at a price per share equal to 85%
of the lower of the fair market value of the common stock on the first or last
day of a one-year offering period. Participation in the offering period is
limited to $25,000 in any calendar year.
F-15
<PAGE> 73
INSIDE BACK COVER
On this page appear photographs of an ion implanter, the production
facilities and orthopedic hips being ion implanted knee components, radiopaque
coatings, hip components and radioactive prostate seeds.
<PAGE> 74
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED IN CONNECTION
WITH THIS OFFERING TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER OR A SOLICITATION OF ANY OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY
TO ANY PERSON OR BY ANYONE IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE
SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE CIRCUMSTANCES OF THE COMPANY OR THE FACTS HEREIN
SET FORTH SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary............................... 3
Risk Factors.......................... 9
Use of Proceeds....................... 20
Dividend Policy....................... 20
Capitalization........................ 21
Dilution.............................. 22
Selected Financial Data............... 23
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 24
Business.............................. 29
Management............................ 39
Principal Stockholders................ 45
Certain Transactions.................. 46
Legal Proceedings..................... 46
Description of Securities............. 47
Shares Eligible for Future Sale....... 50
Underwriting.......................... 52
Legal Matters......................... 53
Experts............................... 53
Additional Information................ 54
Glossary.............................. 55
Index to Financial Statements......... F-1
</TABLE>
------------------------
UNTIL --, 1999 (25 DAYS AFTER THE EFFECTIVE DATE OF THE REGISTRATION STATEMENT)
ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN DISTRIBUTIONS, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
1,000,000 UNITS
EACH CONSISTING OF
ONE SHARE OF COMMON STOCK
AND
ONE REDEEMABLE COMMON STOCK
PURCHASE WARRANT
[IMPLANT SCIENCES LOGO]
--------------------
PROSPECTUS
--------------------
ISG SOLID CAPITAL MARKETS, LLC
SCHNEIDER SECURITIES, INC.
--, 1999
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 75
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24: INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article VI.C. of the Company's Amended and Restated Articles of
Organization provides that a director shall not have personal liability to the
Company or its stockholders for monetary damages arising out of the director's
breach of fiduciary duty as a director of the Company, to the maximum extent
permitted by Massachusetts law. Section 13(b)(1 1/2) of Chapter 156B of the
Massachusetts General Laws provides that the articles of organization of a
corporation may state a provision eliminating or limiting the personal liability
of a director to a corporation or its stockholders for monetary damages for
breach of fiduciary duty as a director, provided, however, that such provision
shall not eliminate or limit the liability of a director (i) for any breach of
the director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under sections 61 or 62 of Chapter 156B of the
Massachusetts General Laws, which relate to liability for unauthorized
distributions and loans to insiders, respectively, or (iv) for any transaction
from which the director derived an improper personal benefit.
Article VI.D. of the Company's Amended and Restated Articles of
Organization further provides that the Company shall, to the fullest extent
authorized by Chapter 156B of the Massachusetts General Laws, indemnify each
person who is, or shall have been, a director or officer of the Company or who
is or was a director or employee of the Company and is serving, or shall have
served, at the request of the Company, as a director or officer of another
organization or in any capacity with respect to any employee benefit plan of the
Company, against all liabilities and expenses (including judgments, fines,
penalties, amounts paid or to be paid in settlement, and reasonable attorneys'
fees) imposed upon or incurred by any such person in connection with, or arising
out of, the defense or disposition of any action, suit or other proceeding,
whether civil or criminal, in which they may be involved by reason of being or
having been such a director or officer or as a result of service with respect to
any such employee benefit plan. Section 67 of Chapter 156B of the Massachusetts
General Laws authorizes a corporation to indemnify its directors, officers,
employees and other agents unless such person shall have been adjudicated in any
proceeding not to have acted in good faith in the reasonable belief that such
action was in the best interests of the corporation or, to the extent such
matter related to service with respect to an employee benefit plan, in the best
interests of the participants or beneficiaries of such employee benefit plan.
The effect of these provisions would be to permit indemnification by the
Company for, among other liabilities, liabilities arising out of the Securities
Act of 1933, as amended (the "Securities Act").
Section 67 of Chapter 156B of the Massachusetts General Laws also affords a
Massachusetts corporation the power to obtain insurance on behalf of its
directors and officers against liabilities incurred by them in those capacities.
The Company intends to procure a directors and officers liability and company
reimbursement liability insurance policy that (i) insures directors and officers
of the Company against losses (above a deductible amount) arising from certain
claims made against them by reason of certain acts done or attempted by such
directors or officers and (ii) insures the Company against losses (above a
deductible amount) arising from any such claims, but only if the Company is
required or permitted to indemnify such directors or officers for such losses
under statutory or common law or under provisions of the Company's Amended and
Restated Articles of Organization or Amended and Restated By-Laws.
Reference is hereby made to Section -- of the Underwriting Agreement
between the Company and the Underwriters, filed as Exhibit 1.1 to this
Registration Statement, for a description of indemnification arrangements
between the Company and the Underwriters.
II-1
<PAGE> 76
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
An itemized statement of expenses in connection with the issuance and
distribution of the securities to be registered, other than underwriting
discounts and commissions, appears below. All amounts are estimates, except for
the SEC registration fee, the NASD filing fee and the American Stock Exchange
listing fee.
<TABLE>
<S> <C>
SEC Registration Fee........................................ $ 7,862
NASD Filing Fee............................................. 4,000
Nasdaq and Boston Stock Exchange Listing Fees............... 15,000
Blue Sky Qualification Fees and Expenses.................... 10,000
Accounting Fees and Expenses................................ 272,140
Legal Fees and Expenses..................................... 250,000
Transfer Agent Fees......................................... 3,000
Printing and Engraving Expenses............................. 75,000
Road Show................................................... 10,000
Miscellaneous Expenses...................................... 132,498
--------
Total............................................. $779,500
========
</TABLE>
ITEM 26: RECENT SALES OF UNREGISTERED SECURITIES.
The following information is furnished with regard to all securities sold
by the Company within the past three years which were not registered under the
Securities Act. The share numbers set forth below have been adjusted to reflect
the 7-for-1 stock split effected by the Company on September 9, 1998.
(a) On July 1, 1998, as partial consideration for terminating an
agreement with the acting Chief Financial Officer to the Company and his
resignation from the Company's board of directors, the Company provided the
following: (i) 14,000 shares of the Common Stock of the Company; (ii)
warrants, with a three-year term, to purchase 101,080 shares of the Common
Stock of the Company at a price of $14.84 per share; and (iii) warrants,
with a three-year term, to purchase 10,800 shares of the Common Stock of
the Company at a price of $1.29 per share. The Company granted piggyback
registration rights to this individual in any public offering after the
initial public offering of the Common Stock.
(b) On June 17, 1997, NAR Holding Corporation exercised its preemptive
rights to purchase 351,946 shares of Common Stock of the Company at a price
of $.42 per share.
The issuances described in this Item 26 were made in reliance upon the
exemption from registration set forth in Section 4(2) of the Securities Act
relating to sales by an issuer not involving any public offering. None of the
foregoing transactions involved a distribution or public offering. No
underwriters were engaged in connection with the foregoing issuances of
securities, and no underwriting discounts or commissions were paid.
ITEM 27: EXHIBITS
<TABLE>
<C> <S>
*1.1 Agreement Among Underwriters (preliminary copy)
*1.2 Underwriting Agreement (preliminary copy)
*1.3 Selected Dealer Agreement (preliminary copy)
*1.4 Representative's Warrant Agreement (preliminary copy)
*1.5 Consulting Agreement with the Representative (preliminary
copy)
*3.1 Restated Articles of Organization of the Company
*3.2 By-Laws of the Company
4.1 Specimen certificate for the Common Stock of the Company
+4.2 Specimen certificate for the Redeemable Warrants of the
Company
**5.1 Opinion of Foley, Hoag & Eliot LLP
+9 Armini Voting Trust Agreement, dated November 1, 1991
+10.1 Employment Agreement with Anthony J. Armini, dated September
26, 1998
</TABLE>
II-2
<PAGE> 77
<TABLE>
<C> <S>
+10.2 Employment Agreement with Stephen N. Bunker, dated September
26, 1998
*10.3 Employment Offer Letter to Darlene Deptula-Hicks, dated June
15, 1998
*10.4 Employment Offer Letter to Alan Lucas, dated March 20, 1998
*10.5 Amendment to Employment Offer Letter to Alan Lucas, dated
September 24, 1998
*10.6 Form of Employee Agreement on Ideas, Inventions, and
Confidential Information used between 1993 and 1995
*10.7 Form of Employee Agreement on Ideas, Inventions, and
Confidential Information used in 1993
*10.8 Form of Employee Agreement on Ideas, Inventions, and
Confidential Information used between 1997 and 1998
*10.9 Loan Agreement between the Company and US Trust, dated May
1, 1996
*10.10 $100,000 Commercial Promissory Note signed by the Company in
favor of US Trust, dated May 1, 1996
*10.11 $300,000 Commercial Promissory Note signed by the Company in
favor of US Trust, dated May 1, 1996
*10.12 Guaranty of Loan Agreement between the Company and US Trust,
by Anthony J. Armini, dated May 1, 1996
*10.13 Security Agreement between the Company and US Trust, dated
May 1, 1996
*10.14 Lessor's Subordination and Consent between the Company and
Teacher's Insurance and Annuity Association of America,
dated May 1, 1996
*10.15 First Amendment to Loan Agreement between the Company and US
Trust, dated July 24, 1997
*10.16 $300,000 Commercial Promissory Note signed by the Company in
favor of US Trust, dated July 24, 1997
*10.17 $94,444.40 Commercial Promissory Note signed by the Company
in favor of US Trust, dated August 12, 1997
*10.18 Second Amendment to Loan Agreement between the Company and
US Trust, dated January 16, 1998
*10.19 $750,000 Commercial Promissory Note signed by the Company in
favor of US Trust, dated January 16, 1998
*10.20 Promissory Note signed by Anthony J. Armini in favor of the
Company, dated September 26, 1998
*10.21 Shareholders Agreement between NAR Holding Corporation and
Anthony J. Armini, dated July 15, 1987
*10.22 Lease between the Company and Teachers Insurance and Annuity
Association of America, dated September 29, 1995
*10.23 First Amendment to Lease and Expansion Agreement between the
Company and Teachers Insurance and Annuity Association of
America, dated July 29, 1998
*10.24 Standard Cooperative Research and Development Agreement
between the Company and the Naval Research Laboratory, dated
January 21, 1997***
*10.25 Cooperative Agreement between the Company and the United
States of America U.S. Army Tank-Automotive and Armaments
Command Armamanet Research, Development and Engineering
Center, dated September 30, 1997***
*10.26 Vendor Agreement Memorandum between the Company and
Osteonics, dated February 2, 1998***
*10.27 Sample Purchase Order between the Company and MicroSpring
Company, Inc., dated October 24, 1996***
*10.28 Asset Purchase Agreement between the Company and Falex
Corporation, dated November 17, 1995***
*10.29 Settlement between the Company and Erik Akhund, dated July
1, 1998
*10.30 1992 Stock Option Plan
*10.31 Form of Stock Option Agreement under the 1992 Stock Option
Plan
*10.32 1998 Incentive and Nonqualified Stock Option Plan
+10.33 Form of Incentive Stock Option under the 1998 Incentive and
Nonqualified Stock Option Plan
+10.34 Form of Nonqualified Stock Option under the 1998 Incentive
and Nonqualified Stock Option Plan
</TABLE>
II-3
<PAGE> 78
<TABLE>
<C> <S>
+10.35 Form of Nonqualified Stock Option for Non-Employee Directors
under the 1998 Incentive and Nonqualified Stock Option Plan
*10.36 Form of Lock-Up Agreement
10.37 Agreement Appointing Transfer Agent and Registrar between
the Company and American Securities Transfer & Trust, Inc.,
dated October 19, 1998
10.38 Certification of Corporate Secretary dated October 19, 1998
concerning Agreement Appointing Transfer Agent and Registrar
between the Company and American Securities Transfer &
Trust, Inc.
10.39 Research and Development Agreement between the Company and
Guidant Corporation, dated May 20, 1998***
10.40 Letter Agreement between the Company and Guidant
Corporation, dated September 29, 1998***
*21.1 Subsidiaries of the Company
23.1 Consent of Ernst & Young LLP
**23.2 Consent of Foley, Hoag & Eliot LLP (included in Exhibit 5.1)
*24.1 Power of Attorney
*27.1 Financial Data Schedule
27.2 Financial Data Schedule -- Three Months Ended September 30,
1998
27.3 Financial Data Schedule -- Three Months Ended September 30,
1997
</TABLE>
- ---------------
* Previously filed.
** To be filed by amendment.
*** Filed under application for confidential treatment.
+ Supplants exhibit filed previously.
ITEM 28. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreements certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the small business issuer of expenses incurred or paid by a director, officer or
controlling person of the small business issuer in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the small business
issuer will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
The undersigned registrant hereby undertakes to:
(1) File, during any period in which it offers or sells, a
post-effective amendment to this Registration Statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in the registration statement; and
(iii) Include any additional or changed material information on the
plan of distribution.
II-4
<PAGE> 79
(2) For determining any liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of such securities at that time to be the initial
bona fide offering.
(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the termination of the offering.
(4) For determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the small business issuer under Rule 424(b)(1) or
(4) of 497(h) under the Securities Act as part of this registration
statement as of the time the Commission declared it effective.
(5) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration
statement, and that offering of the securities at that time as the initial
bona fide offering of those securities.
II-5
<PAGE> 80
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the Town of Wakefield, The Commonwealth of Massachusetts, on
December 21, 1998.
IMPLANT SCIENCES CORPORATION
By: /s/ ANTHONY J. ARMINI
------------------------------------
Anthony J. Armini
President
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement was signed by the following persons in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ ANTHONY J. ARMINI President, Chief Executive December 21, 1998
- --------------------------------------------------- Officer and Chairman of the
Anthony J. Armini Board of Directors
(Principal Executive
Officer)
/s/ DARLENE M. DEPTULA-HICKS Vice President and Chief December 21, 1998
- --------------------------------------------------- Financial Officer
Darlene M. Deptula-Hicks (Principal Financial and
Accounting Officer)
/s/ STEPHEN N. BUNKER Vice President and Chief December 21, 1998
- --------------------------------------------------- Scientist, Director
Stephen N. Bunker
* /s/ ROBERT E. HOISINGTON Director December 21, 1998
- ---------------------------------------------------
Robert E. Hoisington
* /s/ SHUNKICHI SHIMIZU Director December 21, 1998
- ---------------------------------------------------
Shunkichi Shimizu
*By: /s/ ANTHONY J. ARMINI
----------------------------------------------
Anthony J. Armini, as Attorney-in-Fact
</TABLE>
II-6
<PAGE> 81
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
<C> <S> <C>
*1.1 Agreement Among Underwriters (preliminary copy).............
*1.2 Underwriting Agreement (preliminary copy)...................
*1.3 Selected Dealer Agreement (preliminary copy)................
*1.4 Representative's Warrant Agreement (preliminary copy).......
*1.5 Consulting Agreement with the Representative (preliminary
copy).......................................................
*3.1 Restated Articles of Organization of the Company............
*3.2 By-Laws of the Company......................................
4.1 Specimen certificate for the Common Stock of the Company....
+4.2 Specimen certificate for the Redeemable Warrants of the
Company.....................................................
**5.1 Opinion of Foley, Hoag & Eliot LLP..........................
+9 Armini Voting Trust Agreement, dated November 1, 1991.......
+10.1 Employment Agreement with Anthony J. Armini, dated September
26, 1998....................................................
+10.2 Employment Agreement with Stephen N. Bunker, dated September
26, 1998....................................................
*10.3 Employment Offer Letter to Darlene Deptula-Hicks, dated June
15, 1998....................................................
*10.4 Employment Offer Letter to Alan Lucas, dated March 20,
1998........................................................
*10.5 Amendment to Employment Offer Letter to Alan Lucas, dated
September 24, 1998..........................................
*10.6 Form of Employee Agreement on Ideas, Inventions, and
Confidential Information used between 1993 and 1995.........
*10.7 Form of Employee Agreement on Ideas, Inventions, and
Confidential Information used in 1993.......................
*10.8 Form of Employee Agreement on Ideas, Inventions, and
Confidential Information used between 1997 and 1998.........
*10.9 Loan Agreement between the Company and US Trust, dated May
1, 1996.....................................................
*10.10 $100,000 Commercial Promissory Note signed by the Company in
favor of US Trust, dated May 1, 1996........................
*10.11 $300,000 Commercial Promissory Note signed by the Company in
favor of US Trust, dated May 1, 1996........................
*10.12 Guaranty of Loan Agreement between the Company and US Trust,
by Anthony J. Armini, dated May 1, 1996.....................
*10.13 Security Agreement between the Company and US Trust, dated
May 1, 1996.................................................
*10.14 Lessor's Subordination and Consent between the Company and
Teacher's Insurance and Annuity Association of America,
dated May 1, 1996...........................................
*10.15 First Amendment to Loan Agreement between the Company and US
Trust, dated July 24, 1997..................................
*10.16 $300,000 Commercial Promissory Note signed by the Company in
favor of US Trust, dated July 24, 1997......................
*10.17 $94,444.40 Commercial Promissory Note signed by the Company
in favor of US Trust, dated August 12, 1997.................
*10.18 Second Amendment to Loan Agreement between the Company and
US Trust, dated January 16, 1998............................
*10.19 $750,000 Commercial Promissory Note signed by the Company in
favor of US Trust, dated January 16, 1998...................
*10.20 Promissory Note signed by Anthony J. Armini in favor of the
Company, dated September 26, 1998...........................
*10.21 Shareholders Agreement between NAR Holding Corporation and
Anthony J. Armini, dated July 15, 1987......................
*10.22 Lease between the Company and Teachers Insurance and Annuity
Association of America, dated September 29, 1995............
</TABLE>
<PAGE> 82
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
<C> <S> <C>
*10.23 First Amendment to Lease and Expansion Agreement between the
Company and Teachers Insurance and Annuity Association of
America, dated July 29, 1998................................
*10.24 Standard Cooperative Research and Development Agreement
between the Company and the Naval Research Laboratory, dated
January 21, 1997***.........................................
*10.25 Cooperative Agreement between the Company and the United
States of America U.S. Army Tank-Automotive and Armaments
Command Armamanet Research, Development and Engineering
Center, dated September 30, 1997***.........................
*10.26 Vendor Agreement Memorandum between the Company and
Osteonics, dated February 2, 1998***........................
*10.27 Sample Purchase Order between the Company and MicroSpring
Company, Inc., dated October 24, 1996***....................
*10.28 Asset Purchase Agreement between the Company and Falex
Corporation, dated November 17, 1995***.....................
*10.29 Settlement between the Company and Erik Akhund, dated July
1, 1998.....................................................
*10.30 1992 Stock Option Plan......................................
*10.31 Form of Stock Option Agreement under the 1992 Stock Option
Plan........................................................
*10.32 1998 Incentive and Nonqualified Stock Option Plan...........
+10.33 Form of Incentive Stock Option under the 1998 Incentive and
Nonqualified Stock Option Plan..............................
+10.34 Form of Nonqualified Stock Option under the 1998 Incentive
and Nonqualified Stock Option Plan..........................
+10.35 Form of Nonqualified Stock Option for Non-Employee Directors
under the 1998 Incentive and Nonqualified Stock Option
Plan........................................................
*10.36 Form of Lock-Up Agreement...................................
10.37 Agreement Appointing Transfer Agent and Registrar between
the Company and American Securities Transfer & Trust, Inc.,
dated October 19, 1998......................................
10.38 Certification of Corporate Secretary dated October 19, 1998
concerning Agreement Appointing Transfer Agent and Registrar
between the Company and American Securities Transfer &
Trust, Inc..................................................
10.39 Research and Development Agreement between the Company and
Guidant Corporation, dated May 20, 1998***..................
10.40 Letter Agreement between the Company and Guidant
Corporation, dated September 28, 1998***....................
*21.1 Subsidiaries of the Company.................................
23.1 Consent of Ernst & Young LLP................................
**23.2 Consent of Foley, Hoag & Eliot LLP (included in Exhibit
5.1)........................................................
*24.1 Power of Attorney...........................................
*27.1 Financial Data Schedule.....................................
27.2 Financial Data Schedule -- Three Months Ended September 30,
1998
27.3 Financial Data Schedule -- Three Months Ended September 30,
1998
</TABLE>
- ---------------
* Previously filed.
** To be filed by amendment.
*** Filed under application for confidential treatment.
+ Supplants exhibit filed previously.
<PAGE> 83
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
EXHIBITS
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
IMPLANT SCIENCES CORPORATION
(Exact name of registrant as specified in its charter)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 1
<TABLE>
<S> <C>
EXHIBIT 4.1
[IMPLANT SCIENCES --------------------
------------ CORPORATION LOGO] SHARES
NUMBER --------------------
------------
SEE REVERSE FOR
CERTAIN DEFINITIONS
INCORPORATED UNDER THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS
COMMON STOCK
-----------------------------------------------------------------------------------------------------------------
THIS CERTIFIES THAT CUSIP 45320R 10 8
IS THE OWNER OF
-----------------------------------------------------------------------------------------------------------------
FULLY-PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK $.10 PAR VALUE OF
Implant Sciences Corporation transferable upon the books of the Company in person or by attorney upon surrender
of this certificate duly endorsed or assigned. This certificate and the shares represented hereby are subject to
the laws of The Commonwealth of Massachusetts and to the Articles of Organization and By-laws of the Company as
from time to time amended.
This certificate is not valid unless countersigned and registered by the Transfer Agent and Registrar.
IN WITNESS WHEREOF, Implant Sciences Corporation has caused its facsimile corporate seal and the facsimile
signatures of its duly authorized officers to be hereunto affixed.
Dated:
/s/ Darlene M. Deptula-Hicks /s/ Anthony J. Armini
VICE PRESIDENT AND [SEAL] PRESIDENT AND
CHIEF FINANCIAL OFFICER CHIEF EXECUTIVE OFFICER
- ----------------------------------------------------------
COUNTERSIGNED AND REGISTERED:
AMERICAN SECURITIES TRANSFER & TRUST, INC.
P.O. Box 1596
Denver, Colorado 80201
By _____________________________________________________
Transfer Agent and Registrar Authorized Signature
</TABLE>
<PAGE> 2
<TABLE>
<S> <C>
IMPLANT SCIENCES CORPORATION
The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they
were written out in full according to applicable laws or regulations:
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- __________Custodian____________
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act__________________________
in common (State)
Additional abbreviations may also be used though not in the above list.
For value received, _______________________________________________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
______________________________________
__________________________________________________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE)
__________________________________________________________________________________________________________________________
__________________________________________________________________________________________________________________________
__________________________________________________________________________________________________________________ Shares
of the common stock represented by the within Certificate, and do hereby irrevocably constitute and appoint
________________________________________________________________________________________________________________ Attorney
to transfer the said stock on the books of the within-named Corporation with full power of substitution in the premises.
Dated ______________________________________
________________________________________________________________________________
NOTICE: THE SIGNATURE TO 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.
SIGNATURE(S) GUARANTEED: ________________________________________________________________________________
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO
S.E.C. RULE 17Ad-15.
</TABLE>
<PAGE> 1
Exhibit 4.2
SPECIMEN WARRANT CERTIFICATE
VOID AFTER
REDEEMABLE COMMON STOCK PURCHASE WARRANT CERTIFICATE
TO PURCHASE SHARES OF COMMON STOCK
IMPLANT SCIENCES CORPORATION
NUMBER WARRANTS
THIS CERTIFIES THAT, FOR VALUE RECEIVED CUSIP 45320R116
or registered assigns (the "Registered Holder") is the owner of the number of
Redeemable Common Stock Purchase Warrants (the "Warrants") specified above. One
(1) Warrant initially entitles the Registered Holder to purchase, subject to the
terms and conditions set forth in this Certificate and the Warrant Agreement (as
hereinafter defined) including, without limitation, the right of the Company (as
hereinafter defined) to redeem this Warrant, one (1) fully paid and
nonassessable share of Common Stock, $.10 par value per share, of Implant
Sciences Corporation, a Massachusetts corporation (the "Company"), at any time
between ___________ , (the "Initial Warrant Exercise Date"), and the Expiration
Date (as hereinafter defined) unless this Warrant is sooner redeemed upon the
presentation and surrender of this Warrant Certificate with the Subscription
Form on the reverse hereof duly executed, at the corporate office of American
Securities Transfer & Trust Inc., P.O. Box 1596, Denver, Colorado 80201, as
Warrant Agents, or their successors (collectively, the "Warrant Agents"),
accompanied by payment of $____ subject to adjustment (the "Purchase Price"), in
lawful money of the United States of America in cash or by official bank or
certified check made payable to the Warrant Agent for the account of the
Company.
This Warrant Certificate and each Warrant represented hereby are issued pursuant
to and are subject in all respects to the terms and conditions set forth in the
Warrant Agreement (the "Warrant Agreement"), dated ________ , 1998, by and
between the Company and the Warrant Agent. The Warrant Agreement is hereby
incorporated by reference in and made a part of this instrument and is hereby
referred to for a description of the rights, limitations of rights, obligations,
duties and immunities of the Warrant
<PAGE> 2
Agent, the Company and the holders (the words holders or holder meaning the
registered holders or registered holder) of the Warrants.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price and the number of shares of Common Stock subject
to purchase upon the exercise of each Warrant represented hereby are subject to
modification or adjustment.
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional shares of Common Stock will be issued. In
the case of the exercise of less than all the Warrants represented hereby, the
Company shall cancel this Warrant Certificate upon the surrender hereof and
shall execute and deliver a new Warrant Certificate or Warrant Certificates of
like tenor, which the Warrant Agent shall countersign, for the balance of such
Warrants.
The term "Expiration Date" shall mean 5:00 p.m. (New York time) on
___________ or such earlier date as the Warrants shall be redeemed. The
Expiration Date may, but need not be, extended from time to time, in the sole
and absolute discretion of the Company. If such date shall in the State of New
York be a holiday or a day on which the banks are authorized to close, then the
Expiration Date shall mean 5:00 p.m. (New York time) on the next following day
which in the State of New York is not a holiday or a on day on which banks are
authorized to close.
The Company shall not be obligated to deliver any securities pursuant to
the exercise of this Warrant unless a registration statement under the
Securities Act of 1933, as amended (the "Act"), with respect to such securities
is effective or an exemption thereunder is available. The Company has covenanted
and agreed that it will file a registration statement under the federal
securities laws, use its best efforts to cause the same to become effective, use
its best efforts to keep such registration statement current, if required under
the Act, while any of the Warrants are outstanding, and deliver a prospectus
which complies with Section 10(a)(3) of the Act to the Registered Holder
exercising this Warrant. This Warrant shall not be exercisable by a Registered
Holder in any state where such exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by the
Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to represent
such number of Warrants as shall be designated by such Registered Holder at the
time of such surrender. Upon due presentment and payment of any tax or other
charge imposed in connection therewith or incident thereto, for registration of
transfer of this Warrant Certificate at such office, a new Warrant Certificate
or Warrant Certificates representing an equal aggregate number of Warrants will
be issued to the transferee in exchange therefor, subject to the limitations
provided in the Warrant Agreement.
<PAGE> 3
Prior to the exercise of any Warrant represented hereby, the Registered
Holder shall not be entitled to any rights of a stockholder of the Company,
including, without limitation, the right to vote or to receive dividends or
other distributions, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided in the Warrant Agreement.
Subject to the provisions of the Warrant Agreement, commencing _________ ,
this Warrant may be redeemed by the Company, in whole or in part, at a
redemption price of $.20 per Warrant provided that the closing bid price of the
Common Stock averages at least 140% of the initial public offering price of the
Common Stock for fifteen (15) consecutive trading days. On and after 5:00 p.m.
on the date immediately prior to the date fixed for redemption, the Registered
Holder shall have no rights with respect to the Warrants except to receive the
$.20 per Warrant upon surrender of this Warrant Certificate.
Under certain circumstances, the Underwriters shall be entitled to receive
an aggregate of five percent (5%) of the Purchase Price of the Warrants
represented hereby.
Prior to due presentment for registration or transfer hereof, the Company
and the Warrant Agent may deem and treat the Registered Holder as the absolute
owner hereof and of each Warrant represented hereby (notwithstanding any
notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the contrary, except as provided in the
Warrant Agreement.
This Warrant Certificate shall be governed by and construed in accordance
with the laws of the State of New York without giving effect to its conflict of
law principles.
This Warrant Certificate is not valid unless countersigned by the Warrant
Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed, manually or in facsimile by two of its officers thereunto duly
authorized and a facsimile of its corporate seal to be imprinted hereon.
Dated:
IMPLANT SCIENCES CORPORATION
<PAGE> 4
SECRETARY CHAIRMAN OF THE BOARD
COUNTERSIGNED:
AMERICAN SECURITIES TRANSFER & TRUST, INC.
(DENVER, CO)
AS WARRANT AGENT
BY:
AUTHORIZED OFFICER
SUBSCRIPTION FORM
To Be Executed by the Registered Holder
in Order to Exercise Warrants
The undersigned Registered Holder irrevocably elects to exercise
_________________ Warrants represented by this Warrant Certificate, and to
purchase the shares of Common Stock issuable upon the exercise of such Warrants,
and requests that Certificates for such shares shall be issued in the name of:
________________________________________________________________________________
(PLEASE TYPE OR PRINT NAME AND ADDRESS)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(SOCIAL SECURITY OR TAX IDENTIFICATION NUMBER)
and be delivered to __________________________________________________________
(PLEASE PRINT OR TYPE NAME AND ADDRESS)
_________________________________________________________________ and, if such
number of Warrants shall not be all the Warrants evidenced by this Warrant
Certificate, that a new Warrant Certificate for the balance of such Warrants be
registered in the name of, and delivered to, the Registered Holder at the
address stated below.
Dated: __________________________ __________________________________
(SIGNATURE)
__________________________________
___________________________________
(ADDRESS)
___________________________________
(TAXPAYER IDENTIFICATION NUMBER)
___________________________________
(SIGNATURE GUARANTEED)
<PAGE> 5
ASSIGNMENT
To Be Executed by the Registered Holder
in Order to Transfer Warrants
For Value Received, _____________________ hereby sell, assign and transfer unto:
________________________________________________________________________________
(PLEASE TYPE OR PRINT NAME AND ADDRESS)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(SOCIAL SECURITY OR TAX IDENTIFICATION NUMBER)
________________________________________________________________ of the Warrants
represented by this Warrant Certificate, and hereby irrevocably constitute and
appoint
__________________________________________________________ Attorney, to transfer
this Warrant Certificate on the books of the Company, with full power of
substitution in the premises.
Dated: ______________________ __________________________________
(SIGNATURE)
__________________________________
(SIGNATURE)
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT
TO S.E.C. RULE 17Ad-15.
<PAGE> 1
EXHIBIT 9
ARMINI VOTING TRUST AGREEMENT
THIS VOTING TRUST AGREEMENT is made this 1st day of November, 1991 by
and between PATRICIA ANN ARMINI of Bedford, Middlesex County, Massachusetts and
ANTHONY JOHN ARMINI of Manchester, Essex County, Massachusetts pursuant to a
Marital Agreement between the parties and as a result of the transfer of fifty
(50%) percent of ANTHONY JOHN ARMINI's shares in IMPLANT SCIENCES CORPORATION
(hereinafter "Corporation"), a corporation organized and existing under the Laws
of the Commonwealth of Massachusetts with its principal place of business in
Danvers, Essex County, Massachusetts, to PATRICIA ANN ARMINI; witnesseth that:
Whereas the parties desire for the benefit of the corporation and for
their own benefit to create a Trust in the stock of the corporation to ensure
continuity and harmony of management and efficiency of operation of the
corporation; and
Whereas Anthony John Armini has agreed to accept legal title as Trustee
for the purpose stated and voting control of the shares of stock transferred to
Patricia Ann Armini;
IT IS NOW THEREFORE AGREED, in consideration of the mutual promises set
forth below, as follows:
1. Patricia Ann Armini shall immediately transfer and assign to the
Trustee legal title and ownership of the shares of stock she now owns in the
corporation and, to effect such transfer, shall endorse the certificates for
such shares, and execute and deliver such stock shares, and place these and any
such other assurances as the Trustee may reasonably require for this purpose in
the Trustee's hands and the Trustee shall henceforth stand and act in all
respects as the owner of said stock in all dealings with the corporation and
with outside parties.
2. Patricia Ann Armini shall continue to hold beneficial ownership of
the stock transferred into the Trust, and may freely assign such beneficial
interest without affecting thereby the rights or powers of the Trustee
hereunder, such transferees taking in all respects subject to the terms of this
instrument. The Trustee shall maintain transfer records similar to stock
transfer records of a corporation to reflect all transfers or changes in
beneficial interest in stock held herein, and shall issue over the signature of
a Trustee designated for the purpose a certificate of beneficial interest to
each such stockholder party or successor holder, reflecting the number of shares
as to which beneficial interest is represented by the certificate and owned by
the holder thereof in each case, and referring to this instrument as fixing the
extent and governing terms of the beneficial interest in such shares under the
Trust. The Trustee's beneficial interest ownership and transfer records,
together with a photocopy of a signed counterpart of this instrument or a copy
thereof attested by the signatures of the Trustee, shall be maintained in such
form and place as to be reasonably available for examination by beneficial
interest holders or their representatives designated for the purpose in writing.
3. There shall be endorsed on each stock certificate held by the Trust
the following, signed by Anthony John Armini as Trustee:
"The sale of these shares is subject to terms and conditions
contained in a Voting Trust Agreement dated November 1st, 1991."
1
<PAGE> 2
There shall be endorsed on each stock certificate held by the Trustee,
personally, the following, signed by Anthony John Armini, personally.
"The sale of these shares is subject to terms and conditions
contained in Section 4 of a Voting Trust Agreement dated
November 1st, 1991."
4. During the term of this Trust, the Trustee shall exercise all powers
of stockholders of the corporation, including inspection of corporate records,
demanding and receiving dividends, exercising subscription rights, including
preemptive rights, and all other rights and powers whatever accruing to
stockholders of the corporation and exercisable during said term, except that if
the Trustee decides to sell or encumber any shares, the shares sold or
encumbered shall consist of an equal number owned by the Trustee, individually,
and the shares held by the Trust, in order to retain the 50% ratio of ownership
of shares held by the Trust and the Trustee individually in the Corporation.
5. The Trustee shall exercise all options as to receipts of dividends
on cash, in stock or in kind, and shall account for dividends in cash or in
kind, deducting their expenses incurred by him in the administration of this
Trust, including the amounts of any claims or liabilities not chargeable to him
personally by reason of wilful misconduct in the administration of the Trust,
and paying the balance over to the holder of beneficial interest in the shares
held in the Trust, in proportion to their holdings and identified from the Trust
records of beneficial interest holdings and transfers maintained under paragraph
2 hereof.
6. The Trustee hereunder may serve as an officer or as a director of
the corporation, or of any concern which shall succeed to the whole or a
substantial part of the assets or business of said corporation.
7. The Trustee shall serve without compensation and is chargeable as a
fiduciary with acting in all respects for what he determines to be in
furtherance of the purposes of this Trust; but the Trustee shall not be liable
to any person for acts done in good faith, including acts done by proxies
certified in good faith by such Trustee, and liability of the Trustee shall
attach only for individual, wilful misconduct in each case. The Trustee shall
use his best judgment in voting upon the stock held by him, but shall not be
liable for the consequences of any vote cast or consent given by him, in good
faith, and in the absence of gross negligence.
8. If a dispute shall arise over the administration of this Voting
Trust which cannot be resolved within a reasonable time, such dispute shall be
settled by Arbitration in accordance with the Rules of the American Arbitration
Association. The Hearings shall be held in Boston and there shall be three (3)
Arbitrators, one chosen by each party and the third chosen by the two so
appointed. The decision of the three Arbitrators shall be final.
9. This Voting Trust shall continue in effect until such time as
neither of Patricia Ann Armini and Anthony John Armini shall own more than
twenty-five (25%) percent of the beneficial interest in the stock of the
corporation, until the death of one of them, or until Anthony John Armini shall
cease to serve as Trustee for any reason whatsoever, whichever shall first
occur. At the termination of this Voting Trust, the Trustee shall transfer to
the beneficial owner or to his or her estate or to any successor in interest of
each beneficial owner, all shares held by him as Trustee on behalf of said
beneficial owner or successor in like manner as the said shares were transferred
to the Trustee under Paragraph 1 hereof.
10. This Agreement affects stock in a corporation organized and
operating under the Laws of the Commonwealth of Massachusetts and has been
executed in Massachusetts and is to
2
<PAGE> 3
be interpreted and applied in accordance with the Laws of the Commonwealth of
Massachusetts. The validity and effectiveness of the Trust, and of the various
provisions of this Agreement shall not be affected by the invalidity or
unenforceability of any particular term or provision of this Agreement, each
term or provision of which shall be deemed to be entirely separable for this
purpose.
IN WITNESS WHEREOF, the parties hereto set their hands and seals this
1st day of November, 1991.
/s/ Patricia Ann Armini /s/ Anthony J. Armini
- ----------------------- ---------------------
Patricia Ann Armini Anthony John Armini
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EXHIBIT A
CAPITAL STOCK TRUST CERTIFICATE
IMPLANT SCIENCES CORPORATION
No. -15- 155,187 SHARES
This Certifies that Patricia Ann Armini has deposited 155,187 shares of
the common stock of the above-named Implant Sciences Corporation with the herein
named Trustee.
This Certificate is issued pursuant to the terms of an Agreement
(hereinafter "Voting Trust Agreement") in writing dated the 1st day of November,
1991, by and between Patricia Ann Armini and Anthony John Armini, Shareholders
of said Corporation, a copy of which Voting Trust Agreement is on file with the
records of the Corporation at its office. This Certificate is not valid unless
signed by the Trustee or his duly authorized agent. The holder of this
Certificate takes the same subject to all the terms and conditions of the
aforesaid Voting Trust Agreement and becomes a party to said Agreement and is
entitled to the benefits thereof; it being expressly stipulated, however that no
voting right passes to the holder or holders hereof by or under the Certificate
or by or under any other agreement, express or implied.
IN WITNESS WHEREOF, the Trustee has caused this Certificate to be
signed this 1st day of November, 1991.
/s/ Anthony J. Armini
---------------------
Trustee
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For value received, Anthony J. Armini hereby transfers to Patricia Ann
Armini the beneficial ownership of 155,187 shares of Common Stock of Implant
Sciences Corporation represented by this Voting Trust Certificate and does
hereby irrevocably authorize the transferee to procure the transfer to the
transferee or his/her nominee of beneficial ownership of those shares on the
records of the Trustee holding legal title to those shares.
Dated: 1 November, 1991
/s/ Anthony J. Armini
---------------------
Signature
In The Presence of:
/s/ illegible signature
-----------------------
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EXHIBIT 10.1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") made as of September 26,
1998, between Implant Sciences Corporation, a Massachusetts corporation (the
"Company"), and Anthony J. Armini, an individual residing at 5 Skytop Drive,
Manchester, MA 01944 (the "Employee"),
WITNESSETH THAT:
WHEREAS, the Company desires to employ Employee as one of its senior
executive officers for the period and upon and subject to the terms herein
provided; and
WHEREAS, the Company desires to be assured that Employee will not
compete with the Company for the period and within the geographical areas
hereinafter specified; and
WHEREAS, Employee is willing to agree to be employed by the Company for
the period and upon and subject to the terms herein provided;
NOW, THEREFORE, in consideration of the premises, the parties hereto
covenant and agree as follows:
Section 1. Term of Employment; Compensation. The Company agrees to
employ Employee from the date hereof until September __, 2003, as President and
Chief Executive Officer, with the responsibilities normally associated with such
position. The Company will pay Employee for his services during the term of the
Employee's employment hereunder at an annual rate of One Hundred Twenty Five
Thousand Dollars ($125,000), payable in arrears, in equal installments, in
accordance with standard Company practice, but in any event not less often than
monthly, subject only to such payroll and withholding deductions as are required
by law. This salary will be subject to annual review and increase (but not
decrease) by the Board of Directors of the Company or the Compensation Committee
thereof.
Section 2. Office and Duties. Employee shall have the usual duties of
President and Chief Executive Officer and shall have responsibility, subject to
the Board of Directors of the Company, for participating in the management and
direction of the Company's business and operations and shall perform such
specific other tasks, consistent with the Employee's position as President and
Chief Executive Officer, as may from time to time be assigned to the Employee by
the Board of Directors. Employee shall devote substantially all of his business
time, labor, skill, undivided attention and best ability to the performance of
his duties hereunder in a manner which will faithfully and diligently further
the business and interests of the Company. During the term of his employment,
Employee shall not directly or indirectly pursue any other business activity,
without the Company's prior written consent. Employee agrees that he will travel
to whatever extent is reasonably necessary in the conduct of the Company's
business.
Section 3. Expenses. Employee shall be entitled to reimbursement for
expenses incurred by him in connection with the performance of his duties
hereunder upon receipt of vouchers
<PAGE> 2
therefor in accordance with such procedures as the Company has heretofore or may
hereafter establish.
Section 4. Vacation During Employment. Employee shall be entitled to
such reasonable vacations as may be allowed by the Company in accordance with
general practices to be established, but in any event not less than four (4)
weeks during each twelve (12) month period.
Section 5. Additional Benefits. Nothing herein contained shall preclude
Employee, to the extent he is otherwise eligible, from participation in all
group insurance programs or other fringe benefit plans which the Company may
hereafter in its sole and absolute discretion make available generally to its
employees, but the Company shall not be required to establish or maintain any
such program or plan.
Section 6. Termination of Employment. Notwithstanding any other
provision of this Agreement, Employee's employment may be terminated:
(a) By the Company in the event of his failure, refusal or
inability satisfactorily to perform the services required of him hereby, or to
carry out any proper direction by the Company with respect to the services to be
rendered by him hereunder or the manner of rendering such services, his wilful
misconduct in the performance of his duties hereunder, or his conviction of a
crime involving moral turpitude.
(b) By the Company upon thirty (30) days' notice to Employee
if he should be prevented by illness, accident or other disability (mental or
physical) from discharging his duties hereunder for one or more periods totaling
three (3) months during any consecutive twelve (12) month period.
(c) By either the Company or Employee for any material breach
by the other of the terms hereof, but only if such breach continues for ten (10)
days (or such longer period as is reasonably required to cure such breach with
diligent and good faith effort) after written notice to the other specifying the
breach relied on for such termination.
(d) In the event of Employee's death during the term of his
employment, the Company's obligation to pay further compensation hereunder shall
cease forthwith, except that Employee's legal representative shall be entitled
to receive his fixed compensation for the period up to last month after the
month in which such death shall have occurred.
(e) By the Company without cause upon not less than thirty
(30) days' written notice in which event the Company shall pay to Employee an
amount equal to twelve (12) months salary specified based on the annual in the
second sentence of Section 1.
Section 7. Disclosure and Assignment of Intellectual Property. Employee
shall promptly disclose to the Company and any successor or assign of the
Company, and grant to the Company, and its successors and assigns (without any
separate remuneration or compensation other than that
2
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received by him from time to time in the course of his employment) his entire
right, title and interest throughout the world in and to all research,
information, inventions, designs, procedures, developments, discoveries,
improvements, patents and applications therefor, trademarks and applications
therefor, copyrights and applications therefor, trade secrets, drawings, plans,
systems, methods, specifications, and all other manufacturing, engineering,
technical, research and development data and know-how (herein sometimes
"Intellectual Property") made, conceived, developed and/or acquired by him
solely or jointly with others during the period of his employment with the
Company or within one year thereafter, which relate to the manufacture,
production or processing of any products developed or sold by the Company during
the term of this Agreement or which are within the scope of or usable in
connection with the Company's business as it may, from time to time, hereafter
be conducted or proposed to be conducted. (It is understood and agreed that
Employee has heretofore disclosed to the Company, and assigned to it, all
Intellectual Property now known to him over which he has any control.) Employee
agrees to execute all appropriate patent applications securing all United States
and foreign patents on all Intellectual Property, and to do, execute and deliver
any and all acts and instruments that may be necessary or proper to vest all
Intellectual Property in the Company or its nominee or designee and to enable
the Company, or its nominee or designee, to obtain all such patents; and
Employee agrees to render to the Company, or its nominee or designee, all such
assistance as it may require in the prosecution of all such patent applications
and applications for the re-issue of such patents, and in the prosecution or
defense of all interferences which may be declared involving any of said patent
applications or patents, but the expense of all such assignments and patent
applications, or all other proceedings referred to herein above, shall be borne
by the Company. Employee shall be entitled to fair and reasonable compensation
for any such assistance requested by the Company or its nominee or designee and
furnished by him after the termination of his employment.
Section 8. Confidentiality. Employee shall not, either during the
period of his employment with the Company or thereafter, reveal or disclose to
any person outside the Company or use for his own benefit, without the Company's
specific written authorization, whether by private communication or by public
address or publication or otherwise, any information not already lawfully
available to the public concerning any Intellectual Property, or any marketing
technique or cost method, or any customer, mailing or supplier list, whether or
not supplied by the Company, and whether or not made, developed and/or conceived
by Employee or by others in the employ of the Company. All originals and copies
of any of the foregoing, relating to the business of the Company, however and
whenever produced, shall be the sole property of the Company, not to be removed
from the premises or custody of the Company without in each instance first
obtaining written consent or authorization of the Company. Upon the termination
of Employee's employment in any manner or for any reason, Employee shall
promptly surrender to the Company all copies of any of the foregoing, together
with any other documents, materials, data, information and equipment belonging
to or relating to the Company's business and in his possession, custody or
control, and Employee shall not thereafter retain or deliver to any other
person, any of the foregoing or any summary or memorandum thereof.
Section 9. Restriction. The Company has invested and may in the future
be required to invest substantial sums of money, directly or indirectly, to
continue and expand the business
3
<PAGE> 4
heretofore conducted by it and in connection therewith, and as Employee
recognizes that the Company would be substantially injured by Employee
disclosing to others, or by Employee using for his own benefit, any Intellectual
Property or any of the other types of information referred to in Section 8 or
other confidential or secret information he has obtained or shall obtain as an
employee of the Company, or which he may now possess and which he has made
available to the Company, Employee agrees that during the period of his
employment hereunder and for a period ending two (2) years after the term of
this Agreement:
(a) Neither he nor any member of his family will be
interested, directly or indirectly, as an investor in any other business or
enterprise in the United States similar to that of the Company or in competition
with the Company (except as an investor in securities listed on a national
securities exchange or actively traded over the counter so long as such
investments are in amounts not significant as compared to his total investments
or to the aggregate of the outstanding securities of the issuer of the same
class or issue); and
(b) He will not, directly or indirectly, for his own account
or as employee, officer, director, partner, joint venturer or otherwise, engage
within the United States or elsewhere, in any phase of the business of providing
surface modification services to the medical device and semiconductor
industries.
Employee and the Company are of the belief that the period of time and
the area herein specified are reasonable, in view of the nature of the business
in which the Company is engaged and proposes to engage, the state of its product
development and Employee's knowledge of this business. However, if such period
or such area should be adjudged unreasonable in any judicial proceeding, then
the period of time shall be reduced by such number of months or such area shall
be reduced by elimination of such portion of such area, or both, as are deemed
unreasonable, so that this covenant may be enforced in such area and during such
period of time as is adjudged to be reasonable.
Section 10. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed to have been given when delivered or
three (3) days after mailing if mailed by first-class, registered or certified
mail, postage prepaid, addressed (a) if to Employee, at 5 Skytop Drive,
Manchester, MA 01944, and/or to such other person(s) or address(es) as Employee
shall have furnished to the Company in writing; and (b) if to the Company,
Implant Sciences Corporation, 107 Audubon Road #5, Wakefield, MA 01880, or to
such other person(s) or address(es) as the Company shall have furnished to
Employee in writing.
Section 11. Assignability. In the event that the Company shall be
merged with, or consolidated into, any other corporation, or in the event that
it shall sell and transfer substantially all of its assets to another
corporation, the terms of this Agreement shall inure to the benefit of, and be
assumed by, the corporation resulting from such merger or consolidation, or to
which the Company's assets shall be sold and transferred.
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<PAGE> 5
Section 12. Entire Agreement. This Agreement contains the entire
agreement between the Company and Employee with respect to the subject matter
thereof and there have been no oral or other agreement of any kind whatsoever as
a condition precedent or ) inducement to the signing of this Agreement or
otherwise concerning this Agreement or the subject matter hereof., or a
settlement agreement between parties otherwise authorized by the producing
party.
Section 13. Expenses. Each party shall pay its own expenses incident to
the performance or enforcement of this Agreement, including all fees and
expenses of its counsel for all activities of such counsel undertaken pursuant
to this Agreement, except as otherwise herein specifically provided.
Section 14. Equitable Relief. Employee recognizes and agrees that the
Company's remedy at law for any breach of the provisions of Sections 7, 8 or 9
hereof would be inadequate, and he agrees that for breach of such provisions,
the Company shall, in addition to such other remedies as may be available to it
at law or in equity or as provided in this Agreement, be entitled to injunctive
relief and to enforce its rights by an action for specific performance to the
extent permitted by law. Should Employee engage in any activities prohibited by
this Agreement, he agrees to pay over to the Company all compensation,
remunerations or moneys or property of any sort received in connection with such
activities; such payment shall not impair any rights or remedies of the Company
or obligations or liabilities of Employee which such parties may have under this
Agreement or applicable law.
Section 15. Waivers and Further Agreements. Any waiver of any terms or
conditions of this Agreement shall not operate as a waiver of any other breach
of such terms or conditions or any other term or condition, nor shall any
failure to enforce any provision hereof operate as a waiver of such provision or
of any other provision hereof; provided, however, that no such written waiver,
unless it, by its own terms, explicitly provides to the contrary, shall be
construed to effect a continuing waiver of the provision being waived and no
such waiver in any instance shall constitute a waiver in any other instance or
for any other purpose or impair the right of the party against whom such waiver
is claimed in all other instances or for all other purposes to require full
compliance with such provision. Each of the parties hereto agrees to execute all
such further instruments and documents and to take all such further action as
the other party may reasonably require in order to effectuate the terms and
purposes of this Agreement.
Section 16. Amendments. This Agreement may not be amended, nor shall
any waiver, change, modification, consent or discharge be effected except by an
instrument in writing executed by or on behalf of the party against whom
enforcement of any waiver, change, modification, consent or discharge is sought.
Section 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, and in pleading or
proving any provision of this Agreement, it shall not be necessary to produce
more than one of such counterparts.
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Section 18. Section Headings. The headings contained in this Agreement
are for reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
Section 19. General Provisions.
(a) Employee further agrees that his obligations under
Sections 7, 8 and 9 of this Agreement shall be binding upon him irrespective of
the duration of his employment by the Company, the reasons for any cessation of
his employment by the Company, or the amount of his compensation and shall
survive the termination of this Agreement (whether such termination is by the
Company, by Employee, upon expiration of this Agreement or otherwise).
(b) Employee represents and warrants to the Company that he is
not now under any obligations to any person, firm or corporation, and has no
other interest which is inconsistent or in conflict with this Agreement, or
which would prevent, limit or impair, in any way, the performance by him of any
of the covenants or his duties in his said employment.
Section 20. Gender. Whenever used herein, the singular number shall
include the plural, the plural shall include the singular, and the use of any
gender shall include all genders.
Section 21. Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the law (other than the law governing
conflict of law questions) of the Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the parties have executed or caused to be executed
this Agreement as of the date first above written.
IMPLANT SCIENCES CORPORATION
By: /s/ DARLENE DEPTULA-HICKS /s/ ANTHONY J. ARMINI
--------------------------- -----------------------
Employee
Name:
---------------------------
Title: CHIEF FINANCIAL OFFICER
--------------------------
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EXHIBIT 10.2
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") made as of September 26,
1998, between Implant Sciences Corporation, a Massachusetts corporation (the
"Company"), and Stephen N. Bunker, an individual residing at 95 Audubon Road,
Apt. 1114, Wakefield, MA 01880 (the "Employee"),
WITNESSETH THAT:
WHEREAS, the Company desires to employ Employee as one of its senior
executive officers for the period and upon and subject to the terms herein
provided; and
WHEREAS, the Company desires to be assured that Employee will not
compete with the Company for the period and within the geographical areas
hereinafter specified; and
WHEREAS, Employee is willing to agree to be employed by the Company for
the period and upon and subject to the terms herein provided;
NOW, THEREFORE, in consideration of the premises, the parties hereto
covenant and agree as follows:
Section 1. Term of Employment; Compensation. The Company agrees to
employ Employee from the date hereof until September __, 2003, as Vice President
and Chief Scientist, with the responsibilities normally associated with such
position. The Company will pay Employee for his services during the term of the
Employee's employment hereunder at an annual rate of One Hundred Thousand
Dollars ($100,000), payable in arrears, in equal installments, in accordance
with standard Company practice, but in any event not less often than monthly,
subject only to such payroll and withholding deductions as are required by law.
This salary will be subject to annual review and increase (but not decrease) by
the Board of Directors of the Company or the Compensation Committee thereof.
Section 2. Office and Duties. Employee shall have the usual duties of
Vice President and Chief Scientist and shall have responsibility, subject to the
Board of Directors of the Company, for participating in the management and
direction of the Company's business and operations and shall perform such
specific other tasks, consistent with the Employee's position as Vice President
and Chief Scientist, as may from time to time be assigned to the Employee by the
Board of Directors. Employee shall devote substantially all of his business
time, labor, skill, undivided attention and best ability to the performance of
his duties hereunder in a manner which will faithfully and diligently further
the business and interests of the Company. During the term of his employment,
Employee shall not directly or indirectly pursue any other business activity,
without the Company's prior written consent. Employee agrees that he will travel
to whatever extent is reasonably necessary in the conduct of the Company's
business.
Section 3. Expenses. Employee shall be entitled to reimbursement for
expenses incurred by him in connection with the performance of his duties
hereunder upon receipt of vouchers
<PAGE> 2
therefor in accordance with such procedures as the Company has heretofore or may
hereafter establish.
Section 4. Vacation During Employment. Employee shall be entitled to
such reasonable vacations as may be allowed by the Company in accordance with
general practices to be established, but in any event not less than four (4)
weeks during each twelve (12) month period.
Section 5. Additional Benefits. Nothing herein contained shall preclude
Employee, to the extent he is otherwise eligible, from participation in all
group insurance programs or other fringe benefit plans which the Company may
hereafter in its sole and absolute discretion make available generally to its
employees, but the Company shall not be required to establish or maintain any
such program or plan.
Section 6. Termination of Employment. Notwithstanding any other
provision of this Agreement, Employee's employment may be terminated:
(a) By the Company in the event of his failure, refusal or
inability satisfactorily to perform the services required of him hereby, or to
carry out any proper direction by the Company with respect to the services to be
rendered by him hereunder or the manner of rendering such services, his wilful
misconduct in the performance of his duties hereunder, or his conviction of a
crime involving moral turpitude.
(b) By the Company upon thirty (30) days' notice to Employee
if he should be prevented by illness, accident or other disability (mental or
physical) from discharging his duties hereunder for one or more periods totaling
three (3) months during any consecutive twelve (12) month period.
(c) By either the Company or Employee for any material breach
by the other of the terms hereof, but only if such breach continues for ten (10)
days (or such longer period as is reasonably required to cure such breach with
diligent and good faith effort) after written notice to the other specifying the
breach relied on for such termination.
(d) In the event of Employee's death during the term of his
employment, the Company's obligation to pay further compensation hereunder shall
cease forthwith, except that Employee's legal representative shall be entitled
to receive his fixed compensation for the period up to last month after the
month in which such death shall have occurred.
(e) By the Company without cause upon not less than thirty
(30) days' written notice in which event the Company shall pay to Employee an
amount equal to twelve (12) months salary specified based on the annual in the
second sentence of Section 1.
Section 7. Disclosure and Assignment of Intellectual Property. Employee
shall promptly disclose to the Company and any successor or assign of the
Company, and grant to the Company, and its successors and assigns (without any
separate remuneration or compensation other than that
2
<PAGE> 3
received by him from time to time in the course of his employment) his entire
right, title and interest throughout the world in and to all research,
information, inventions, designs, procedures, developments, discoveries,
improvements, patents and applications therefor, trademarks and applications
therefor, copyrights and applications therefor, trade secrets, drawings, plans,
systems, methods, specifications, and all other manufacturing, engineering,
technical, research and development data and know-how (herein sometimes
"Intellectual Property") made, conceived, developed and/or acquired by him
solely or jointly with others during the period of his employment with the
Company or within one year thereafter, which relate to the manufacture,
production or processing of any products developed or sold by the Company during
the term of this Agreement or which are within the scope of or usable in
connection with the Company's business as it may, from time to time, hereafter
be conducted or proposed to be conducted. (It is understood and agreed that
Employee has heretofore disclosed to the Company, and assigned to it, all
Intellectual Property now known to him over which he has any control.) Employee
agrees to execute all appropriate patent applications securing all United States
and foreign patents on all Intellectual Property, and to do, execute and deliver
any and all acts and instruments that may be necessary or proper to vest all
Intellectual Property in the Company or its nominee or designee and to enable
the Company, or its nominee or designee, to obtain all such patents; and
Employee agrees to render to the Company, or its nominee or designee, all such
assistance as it may require in the prosecution of all such patent applications
and applications for the re-issue of such patents, and in the prosecution or
defense of all interferences which may be declared involving any of said patent
applications or patents, but the expense of all such assignments and patent
applications, or all other proceedings referred to herein above, shall be borne
by the Company. Employee shall be entitled to fair and reasonable compensation
for any such assistance requested by the Company or its nominee or designee and
furnished by him after the termination of his employment.
Section 8. Confidentiality. Employee shall not, either during the
period of his employment with the Company or thereafter, reveal or disclose to
any person outside the Company or use for his own benefit, without the Company's
specific written authorization, whether by private communication or by public
address or publication or otherwise, any information not already lawfully
available to the public concerning any Intellectual Property, or any marketing
technique or cost method, or any customer, mailing or supplier list, whether or
not supplied by the Company, and whether or not made, developed and/or conceived
by Employee or by others in the employ of the Company. All originals and copies
of any of the foregoing, relating to the business of the Company, however and
whenever produced, shall be the sole property of the Company, not to be removed
from the premises or custody of the Company without in each instance first
obtaining written consent or authorization of the Company. Upon the termination
of Employee's employment in any manner or for any reason, Employee shall
promptly surrender to the Company all copies of any of the foregoing, together
with any other documents, materials, data, information and equipment belonging
to or relating to the Company's business and in his possession, custody or
control, and Employee shall not thereafter retain or deliver to any other
person, any of the foregoing or any summary or memorandum thereof.
Section 9. Restriction. The Company has invested and may in the future
be required to invest substantial sums of money, directly or indirectly, to
continue and expand the business
3
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heretofore conducted by it and in connection therewith, and as Employee
recognizes that the Company would be substantially injured by Employee
disclosing to others, or by Employee using for his own benefit, any Intellectual
Property or any of the other types of information referred to in Section 8 or
other confidential or secret information he has obtained or shall obtain as an
employee of the Company, or which he may now possess and which he has made
available to the Company, Employee agrees that during the period of his
employment hereunder and for a period ending two (2) years after the term of
this Agreement:
(a) Neither he nor any member of his family will be
interested, directly or indirectly, as an investor in any other business or
enterprise in the United States similar to that of the Company or in competition
with the Company (except as an investor in securities listed on a national
securities exchange or actively traded over the counter so long as such
investments are in amounts not significant as compared to his total investments
or to the aggregate of the outstanding securities of the issuer of the same
class or issue); and
(b) He will not, directly or indirectly, for his own account
or as employee, officer, director, partner, joint venturer or otherwise, engage
within the United States or elsewhere, in any phase of the business of providing
surface modification services to the medical device and semiconductor
industries.
Employee and the Company are of the belief that the period of time and
the area herein specified are reasonable, in view of the nature of the business
in which the Company is engaged and proposes to engage, the state of its product
development and Employee's knowledge of this business. However, if such period
or such area should be adjudged unreasonable in any judicial proceeding, then
the period of time shall be reduced by such number of months or such area shall
be reduced by elimination of such portion of such area, or both, as are deemed
unreasonable, so that this covenant may be enforced in such area and during such
period of time as is adjudged to be reasonable.
Section 10. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed to have been given when delivered or
three (3) days after mailing if mailed by first-class, registered or certified
mail, postage prepaid, addressed (a) if to Employee, at 95 Audubon Road, Apt.
1114, Wakefield, MA 01880, and/or to such other person(s) or address(es) as
Employee shall have furnished to the Company in writing; and (b) if to the
Company, Implant Sciences Corporation, 107 Audubon Road #5, Wakefield, MA 01880,
or to such other person(s) or address(es) as the Company shall have furnished to
Employee in writing.
Section 11. Assignability. In the event that the Company shall be
merged with, or consolidated into, any other corporation, or in the event that
it shall sell and transfer substantially all of its assets to another
corporation, the terms of this Agreement shall inure to the benefit of, and be
assumed by, the corporation resulting from such merger or consolidation, or to
which the Company's assets shall be sold and transferred.
4
<PAGE> 5
Section 12. Entire Agreement. This Agreement contains the entire
agreement between the Company and Employee with respect to the subject matter
thereof and there have been no oral or other agreement of any kind whatsoever as
a condition precedent or ) inducement to the signing of this Agreement or
otherwise concerning this Agreement or the subject matter hereof., or a
settlement agreement between parties otherwise authorized by the producing
party.
Section 13. Expenses. Each party shall pay its own expenses incident to
the performance or enforcement of this Agreement, including all fees and
expenses of its counsel for all activities of such counsel undertaken pursuant
to this Agreement, except as otherwise herein specifically provided.
Section 14. Equitable Relief. Employee recognizes and agrees that the
Company's remedy at law for any breach of the provisions of Sections 7, 8 or 9
hereof would be inadequate, and he agrees that for breach of such provisions,
the Company shall, in addition to such other remedies as may be available to it
at law or in equity or as provided in this Agreement, be entitled to injunctive
relief and to enforce its rights by an action for specific performance to the
extent permitted by law. Should Employee engage in any activities prohibited by
this Agreement, he agrees to pay over to the Company all compensation,
remunerations or moneys or property of any sort received in connection with such
activities; such payment shall not impair any rights or remedies of the Company
or obligations or liabilities of Employee which such parties may have under this
Agreement or applicable law.
Section 15. Waivers and Further Agreements. Any waiver of any terms or
conditions of this Agreement shall not operate as a waiver of any other breach
of such terms or conditions or any other term or condition, nor shall any
failure to enforce any provision hereof operate as a waiver of such provision or
of any other provision hereof; provided, however, that no such written waiver,
unless it, by its own terms, explicitly provides to the contrary, shall be
construed to effect a continuing waiver of the provision being waived and no
such waiver in any instance shall constitute a waiver in any other instance or
for any other purpose or impair the right of the party against whom such waiver
is claimed in all other instances or for all other purposes to require full
compliance with such provision. Each of the parties hereto agrees to execute all
such further instruments and documents and to take all such further action as
the other party may reasonably require in order to effectuate the terms and
purposes of this Agreement.
Section 16. Amendments. This Agreement may not be amended, nor shall
any waiver, change, modification, consent or discharge be effected except by an
instrument in writing executed by or on behalf of the party against whom
enforcement of any waiver, change, modification, consent or discharge is sought.
Section 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, and in pleading or
proving any provision of this Agreement, it shall not be necessary to produce
more than one of such counterparts.
5
<PAGE> 6
Section 18. Section Headings. The headings contained in this Agreement
are for reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
Section 19. General Provisions.
(a) Employee further agrees that his obligations under
Sections 7, 8 and 9 of this Agreement shall be binding upon him irrespective of
the duration of his employment by the Company, the reasons for any cessation of
his employment by the Company, or the amount of his compensation and shall
survive the termination of this Agreement (whether such termination is by the
Company, by Employee, upon expiration of this Agreement or otherwise).
(b) Employee represents and warrants to the Company that he is
not now under any obligations to any person, firm or corporation, and has no
other interest which is inconsistent or in conflict with this Agreement, or
which would prevent, limit or impair, in any way, the performance by him of any
of the covenants or his duties in his said employment.
Section 20. Gender. Whenever used herein, the singular number shall
include the plural, the plural shall include the singular, and the use of any
gender shall include all genders.
Section 21. Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the law (other than the law governing
conflict of law questions) of the Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the parties have executed or caused to be executed
this Agreement as of the date first above written.
IMPLANT SCIENCES CORPORATION
By: /s/ DARLENE DEPTULA-HICKS /s/ STEPHEN N. BUNKER
__________________________ _______________________
Employee
Name:_________________________
Title: CHIEF FINANCIAL OFFICER
_______________________
6
<PAGE> 1
Exhibit 10.33
INCENTIVE STOCK OPTION
GRANTED BY
IMPLANT SCIENCES CORPORATION
(hereinafter called the "Company")
TO
[NAME OF HOLDER]
(hereinafter called the "Holder")
UNDER THE
1998 INCENTIVE AND NONQUALIFIED STOCK OPTION PLAN
For valuable consideration, the receipt of which is hereby
acknowledged, the Company hereby grants to the Holder the following option:
FIRST: Subject to the terms and conditions hereinafter set forth, the
Holder is hereby given the right and option to purchase from the Company shares
of the Common Stock, $.10 par value per share, of the Company ("Common Stock").
Schedule A hereto, the provisions of which are incorporated by reference herein,
sets forth (a) the maximum number of shares that the Holder may purchase upon
exercise of this Option, (b) the exercise price per share of Common Stock
purchasable hereunder, (c) the expiration date of this Option, (d) the vesting
rate and (e) certain other terms and conditions applicable to this Option.
This Option is and shall be subject in every respect to the provisions
of the Implant Sciences Corporation 1998 Incentive and Nonqualified Stock Option
Plan, as the same may be amended from time to time (the "Plan"). A copy of the
Plan is being delivered herewith, and the Plan is hereby incorporated herein by
reference and made a part hereof. In the event of any conflict or inconsistency
between the terms of this Option and those of the Plan, the terms of the Plan
shall govern. The term "Committee" is used herein with the meaning ascribed to
it in the Plan.
This Option shall be exercised in whole or in part by the Holder's
delivery to the Company of written notice (the "Notice of Exercise") setting
forth the number of shares with respect to which this Option is to be exercised,
together with (a) cash in an amount, or a check, bank draft or postal or express
money order payable in an amount, equal to the aggregate exercise price for the
shares being purchased, (b) with the consent of the Committee, shares of Common
Stock having a fair market value equal to such aggregate exercise price; (c)
with the consent of the Committee, a personal recourse note issued by the Holder
to the Company in a principal amount equal to such aggregate exercise price and
with such other terms, including interest rate and maturity, as the Committee
may determine in its discretion, provided that the interest rate borne by such
note shall not be less than the lowest applicable federal rate, as defined in
Section 1274(d) of the Internal Revenue Code of 1986, as amended; (d) with the
consent of the Committee, such other consideration that is acceptable to the
Committee and that has a fair market value, as determined by the Committee,
equal to such aggregate exercise price, including any broker-directed cashless
exercise/resale procedure adopted by the Committee; or (e) with the consent of
the Committee,
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<PAGE> 2
any combination of the foregoing. The "fair market value"of the Common Stock
shall equal (i) the closing price per share on the date of grant of the Option
as reported by a nationally recognized stock exchange, (ii) if the Common Stock
is not listed on such an exchange, as reported by the National Market System or
another automated quotation system of the National Association of Securities
Dealers, Inc., or (iii) if the Common Stock is not quoted on any such system,
the fair market value as determined by the Committee.
SECOND: The Company, in its discretion, may file a registration
statement on Form S-8 under the Securities Act of 1933, as amended, to register
shares of Common Stock reserved for issuance under the Plan. At any time at
which such a registration statement is not in effect, it shall be a condition
precedent to any exercise of this Option that the Holder shall deliver to the
Company a customary "investment letter" satisfactory to the Company and its
counsel in which, among other things, the Holder shall (a) state that he or she
is acquiring shares of Common Stock subject to the Option for his or her own
account for investment and not with a view to the resale or distribution thereof
and (b) acknowledge that those shares are not freely transferable except in
compliance with federal and state securities laws.
THIRD: As promptly as practicable after receipt by the Company of the
Notice of Exercise and related investment letter and payment of exercise price
pursuant to Paragraphs First and Second hereof, the Company shall deliver to the
Holder (or if any other individual or individuals are exercising this Option, to
such individual or individuals) a certificate registered in the name of the
Holder (or the names of the other individual or individuals exercising this
Option) and representing the number of shares with respect to which this Option
is then being exercised; provided, however, that if any law or regulation or
order of the Securities and Exchange Commission or any other body having
jurisdiction in the premises shall require the Company or the Holder (or the
individual or individuals exercising this Option) to take any action in
connection with the shares then being purchased, the date for the delivery of
the certificate for such shares shall be extended for the period necessary to
take and complete such action. The Company may imprint upon said certificate the
legends contemplated by Sections 9.3 and 9.4 of the Plan or such other legends
as counsel for the Company may consider appropriate. Delivery by the Company of
the certificates for such shares shall be deemed effected for all purposes when
the Company or a stock transfer agent of the Company shall have deposited such
certificates in the United States mail, addressed to the Holder, at the address
specified in the Notice. The Company will pay all fees or expenses necessarily
incurred by the Company in connection with the issuance and delivery of shares
pursuant to the exercise of this Option.
The Company will, at all times while any portion of this Option is
outstanding, reserve and keep available, out of shares of its authorized and
unissued Common Stock or shares of Common Stock held in treasury, a sufficient
number of shares of its Common Stock to satisfy the requirements of this Option.
FOURTH: If the Company shall effect any subdivision or consolidation of
shares of its stock or other capital readjustment, the payment of a stock
dividend, or other increase or reduction of the number of shares outstanding, in
any such case without receiving compensation therefor in money, services or
property, then the number, class and per share price of shares of stock subject
to this Option shall be appropriately adjusted in such a manner as to entitle
the Holder to receive upon exercise of this Option, for the same aggregate cash
consideration, the same total number and class of shares as he or she would have
received as a result of the event requiring the adjustment had he or she
exercised this Option in full immediately prior to such event.
If the Company shall be a party to a reorganization or merger with one
or more other corporations (whether or not the Company is the surviving or
resulting corporation), shall consolidate with or into one
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<PAGE> 3
or more other corporations, shall be liquidated, or shall sell or otherwise
dispose of substantially all of its assets to another corporation (each a
"Transaction"), then:
(a) subject to the provisions of clauses (b) and (c) below,
after the effective date of the Transaction, the Holder of this Option
shall be entitled, upon exercise hereof and at no additional cost, to
receive shares of Common Stock or, if applicable, shares of such other
stock or other securities, cash or property as the holders of shares of
Common Stock received pursuant to the terms of the Transaction;
(b) the Committee may accelerate the time for exercise of this
Option to a date prior to the effective date of the Transaction, as
specified by the Committee; or
(c) this Option may be canceled by the Committee as of the
effective date of the Transaction, provided that (i) notice of such
cancellation shall have been given to the Holder and (ii) the Holder
shall have the right to exercise this Option to the extent the same is
then exercisable or, if the Committee shall have accelerated the time
for exercise of this Option, in full during the thirty-day period
preceding the effective date of the Transaction.
Except as hereinbefore expressly provided, the issue by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, for cash or property, or for labor or services, either upon direct
sale or upon the exercise of rights or warrants to subscribe therefor, or upon
conversion of shares or obligations of the Company convertible into such shares
or other securities, shall not affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of Common Stock then
subject to this Option.
FIFTH: Neither the Holder nor any other person shall, by virtue of the
granting of this Option, be deemed for any purpose to be the owner of any shares
of Common Stock subject to this Option or to be entitled to the rights or
privileges of a holder of such shares unless and until this Option has been
exercised pursuant to the terms hereof with respect to such shares and the
Company has issued and delivered the shares to the Holder.
SIXTH: This Option is not transferable by the Holder or by operation of
law, otherwise than by will or under the laws of descent and distribution.
This Option is exercisable, during the Holder's lifetime, only by the
Holder, and by the Holder only while he or she is an employee of the Company,
except that in the event the employment of the Holder is terminated by the
Company other than for Cause, the Holder shall have the right to exercise this
Option within sixty days after the latest date on which the Holder so ceases to
be an employee of the Company (but not later than the expiration date of this
Option) with respect to the shares which were purchasable by the Holder by
exercise of this Option on such date. As used in this Option, "Cause" shall mean
a determination by the Company (including the Board) that the Holder's
employment with the Company should be terminated as a result of (i) a material
breach by the Holder of any agreement to which the Holder and the Company are
both parties, (ii) any act (other than retirement) by the Holder that may have a
material and adverse effect on the business of the Company, or on the ability to
perform services for the Company, including the proven or admitted commission of
any crime (other than an ordinary traffic violation), or (iii) any material
misconduct or material neglect of duties by the Holder in connection with the
business or affairs of the Company.
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<PAGE> 4
In the event that the Holder shall be retired in good standing from the
employ of the Company for reasons of age under the then established rules of the
Company, this Option shall terminate on the earlier of such date of expiration
or 90 days after the date of such retirement. In the event of such retirement,
the Holder shall have the right prior to the termination of this Option to
exercise this Option to the extent to which the Holder was entitled to exercise
this Option immediately prior to such retirement.
In the event of the death of the Holder prior to termination of the
Holder's employment with the Company and prior to the date of expiration of this
Option, the Holder's executors, administrators or any individual or individuals
to whom this Option is transferred by will or under the laws of descent and
distribution, as the case may be, shall have the right to exercise this Option
with respect to the number of shares purchasable by the Holder at the date of
death at any time within 180 days after the date of such death (but not after
the expiration date of this Option). In the event of the permanent and total
disability of the Holder prior to termination of the Holder's employment with
the Company and prior to the date of expiration of this Option, the Holder shall
have the right to exercise this Option at any time within 180 days after the
date of such disability (but not after the expiration date of this Option) with
respect to the number of shares which were purchasable by the Holder at the date
of such disability.
SEVENTH: The Holder agrees that, during the 180-day period commencing
with the closing date of the Company's initial public offering of shares of
Common Stock pursuant to a registration statement filed under the Securities Act
of 1933, as amended, or any successor act, the Holder will not, without the
prior written consent of the representative or representatives of the
underwriters of such offering, directly or indirectly, sell, offer to sell,
contract to sell, grant any option for the sale of, assign, transfer, pledge,
hypothecate or otherwise dispose of or encumber any shares of Common Stock
acquired upon exercise of this Option, other than such shares, if any, as shall
be covered by such registration statement or as shall be consented to by the
Company and such representative or representatives. The Holder further agrees
that, in order to facilitate any such public offering, (a) the agreements in
this Paragraph Seventh shall be for the benefit of such underwriters as well as
the Company and (b) upon request of such representative or representatives, the
Holder will execute a separate written instrument to the effect set forth in the
preceding sentence, with such changes therein as such representative or
representatives may request, provided that such changes are not materially
adverse to the interest of the Holder.
EIGHTH: The Holder agrees to notify the Company in writing immediately
after making a Disqualifying Disposition of any shares of Common Stock received
pursuant to the exercise of this Option. A "Disqualifying Disposition" shall
have the meaning specified in Section 421(b) of the Internal Revenue Code of
1986, as amended, or any successor provision; as of the date of grant of this
Option a Disqualifying Disposition is any disposition (including any sale) of
such shares before the later of (a) the second anniversary of the date of grant
of this Option and (b) the first anniversary of the date on which the Holder
acquired such shares by exercising this Option, provided that such holding
period requirements terminate upon the death of the Holder. The Holder also
agrees to provide the Company with any information that the Company shall
request concerning any such Disqualifying Disposition. The Holder acknowledges
that he or she will forfeit the favorable income tax treatment otherwise
available with respect to the exercise of this Option if he or she makes a
Disqualifying Disposition of shares received upon exercise of this Option.
If the Company in its discretion determines that it is
obligated to withhold tax with respect to a Disqualifying Disposition of shares
of Common Stock received on exercise of this Option, the Holder agrees that the
Company may withhold from the Holder's wages the appropriate amount of federal,
state or local withholding taxes attributable to such Disqualifying Disposition.
If any portion of this Option is treated as a Nonqualified Option (as defined in
the Plan), the Holder hereby agrees that the Company may
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<PAGE> 5
withhold from the Holder's wages the appropriate amount of federal, state and
local withholding taxes attributable to the Holder's exercise of such
Nonqualified Option. At the Holder's election, the amount required to be
withheld may be satisfied, in whole or in part, by (a) authorizing the Company
to withhold from shares of Common Stock to be issued pursuant to the exercise of
this Option a number of shares with an aggregate fair market value that would
satisfy the withholding amount due with respect to such exercise, or (b)
transferring to the Company shares of Common Stock owned by the Holder with an
aggregate fair market value that would satisfy the withholding amount due. The
Holder further agrees that, if the Company does not withhold an amount from the
Holder's wages sufficient to satisfy the Company's withholding obligation, the
Holder will reimburse the Company on demand, in cash, for the amount
underwithheld.
NINTH: No officer, employee, or member of the Board of the Company, nor
the Company, shall be liable for any action or determination made in good faith
in respect of this option.
TENTH: Subject to paragraph (g) of this Section Tenth, the Holder, upon
receipt from time to time of shares hereunder, shall be subject to the Company's
repurchase thereof, as follows:
(a) In the event the Holder (which term hereinafter includes
his legal representative(s)), upon exercise of this option, from time
to time receives shares of stock of the Company ("Option Shares"), such
Option Shares shall be subject to repurchase by the Company as
hereinafter provided. The Option Shares shall include all stock of the
Company issued in respect of stock purchased pursuant to this option,
including those issued after an Event of Sale and including those
issued by reason of stock split or consolidation, dividend, stock
change, recapitalization, reclassification or the like.
(b) "Event of Sale" means the date upon which all rights to
purchase shares hereunder have either been fully exercised or have
lapsed following the occurrence of any one of the following:
(i) Holder's death.
(ii) The Holder ceasing to be employed by the Company
for any reason, whether cessation is occasioned by
action of the Holder or the Company.
(c) Upon the occurrence of an Event of Sale, the Company shall
have the right and option, but not the obligation, to purchase all or
any portion of the Option Shares on the following terms and conditions:
Within one (1) year of an Event of Sale, the Company may notify the
Holder, designating the number of shares and fixing a "Closing" at the
Company's then principal office within the next 30 business days. At
the Closing, the Company shall pay in cash the "Purchase Price" as
hereinafter defined, to the Holder against delivery of the Option
Shares. The Holder shall be deemed to represent at the Closing that he
has full right and power to effect the Closing, and that the Option
Shares are owned by Holder of record and beneficially, free and clear
of all encumbrances and rights of others.
(d) The Purchase Price per share shall be equal to the
greatest of the following, all as determined conclusively in writing by
the Company's independent accountant:
(i) The per share capitalized earnings value, which
shall be computed as follows: the sum of the annual
net profits from operations after taxes, less the
annual net
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<PAGE> 6
losses, if any, of the Company for the two full
fiscal years ending immediately preceding the
Closing date, shall be divided by two, and the
resultant value shall be deemed the average annual
net profit. The average annual net profits as
determined above shall be multiplied by twelve, and
the result shall be the capitalized earnings value.
The capitalized earnings value as determined above
shall be divided by the total number of outstanding
shares of the Company on the date next preceding
the Closing, and the result shall be deemed the per
share capitalized earnings value.
(ii) The per share book value of the Common Stock of the
Company, net of all liabilities accrued using
principles of principles theretofore applicable to
the Company consistently applied, as at the end of
the fiscal quarter next preceding the fiscal
quarter in which the closing takes place.
(iii)The average per share selling price of all shares
of Common Stock of the Company issued to anyone
other then a Holder of the Company or a parent or
subsidiary during the six months preceding the date
of Closing.
(iv) The price actually paid by the Holder for the
Option Shares.
(e) All certificates representing Option Shares shall be
endorsed prominently as follows:
"The sale, transfer, pledge, hypothecation or other
disposition of the shares evidenced hereby are
subject to repurchase under an Agreement dated
_________________, 19__, by and between Implant
Sciences Corporation and
____________________________. The Company will
furnish a copy of said Agreement to the holder of
this certificate upon written request and without
charge."
(f) During the term hereof, the Option Shares shall not be
sold, transferred, pledged, hypothecated, encumbered or otherwise
disposed of, of record or beneficially, except as herein provided or
upon the prior written consent of the Company (which consent may be
withheld for any reason without necessity of showing reasonable cause).
Any transfer except pursuant hereto is null and void.
(g) The provisions of this Section Tenth shall be null and
void as to any Event of Sale occurring after the date when the
Company's shares of Common Stock are first offered to the public under
the Securities Act of 1933 or under Regulation A of the Securities and
Exchange Commission, or any successor to either of the same, or
otherwise become freely tradable in the hands of the public.
ELEVENTH: In consideration of the within option grant, and of the
training and access to the Company's proprietary information to be received, the
Holder further agrees that:
(a) During the Holder's employment by the Company and for a
period of two years thereafter, the Holder will not compete with the
Company in any manner hereafter described. The word "compete" shall
mean, without limitation, the direct or indirect conduct by the Holder
of any business, corporation, shop, profession, service or the like, as
stockholder, officer, partner, director, employee or consultant.
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<PAGE> 7
(b) Prohibited competition shall include employment by any
company competing with Implant Sciences Corporation. While not limiting
the generality of this clause, Spire Corporation of Bedford,
Massachusetts and IBIS Technology, Inc. of Danvers, Massachusetts are
specifically named as competition of the Company. This non-compete
agreement is limited only to the geographic area of the United States
and only to participation by the Holder in the provision of goods or
services involving ion implantation or thin film coating of medical
devices, medical implants or semiconductors.
(c) The Holder acknowledges that the Company has developed its
goodwill, based upon its scientific position, over a period of many
years through the expenditure of substantial sums and efforts. The
Holder further acknowledges that his familiarity therewith has been or
will be developed, wholly or in large measure, as part of his training
and employment at the Company. In the light of the foregoing, the
Holder acknowledges that the above restrictions are reasonable, that
damages for violation of same would be both inadequate and difficult to
determine, and that therefore upon any breach by the Holder the Company
would be entitled, in addition to all other remedies, to the recovery
of legal fees and to equitable (including injunctive) relief.
(d) The within obligations shall apply regardless of how
termination of employment may occur, including without limitation
termination without cause at the instance of either party.
TWELFTH: Any notice to be given to the Company hereunder shall be
deemed sufficient if addressed to the Company and delivered at the office of the
Chief Operating Officer of the Company, or such other address as the Company may
hereafter designate, or when deposited in the mail, postage prepaid, addressed
to the attention of the Chief Operating Officer of the Company at such office or
other address.
Any notice to be given to the Holder hereunder shall be deemed
sufficient if addressed to and delivered in person to the Holder at his address
furnished to the Company or when deposited in the mail, postage prepaid,
addressed to the Holder at such address.
THIRTEENTH: This Option is subject to all laws, regulations and orders
of any governmental authority which may be applicable thereto and,
notwithstanding any of the provisions hereof, the Holder agrees that he will not
exercise the Option granted hereby nor will the Company be obligated to issue
any shares of stock hereunder if the exercise thereof or the issuance of such
shares, as the case may be, would constitute a violation by the Holder or the
Company of any such law, regulation or order or any provision thereof.
IN WITNESS WHEREOF, the Company has caused this instrument to be
executed in its name and on its behalf as of the effective date.
IMPLANT SCIENCES CORPORATION
By: _______________________________
Title:
ATTEST:
__________________________________
Secretary
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<PAGE> 8
SCHEDULE A
IMPLANT SCIENCES CORPORATION
INCENTIVE STOCK OPTION
Date of Grant:
Name of Holder:
Address:
Social Security Number:
Maximum number of shares for which this Option is exercisable:
Exercise (purchase) price per share:
Expiration date of this Option:
Vesting rate:
Other terms and conditions:
The undersigned Holder acknowledges receipt of the Option of which this Schedule
A is a part and agrees to be bound by all obligations of the Holder as set forth
in such Option or in the Plan.
___________________________
Holder's Signature
<PAGE> 1
Exhibit 10.34
NONQUALIFIED STOCK OPTION
GRANTED BY
IMPLANT SCIENCES CORPORATION
(hereinafter called the "Company")
TO
[NAME OF HOLDER]
(hereinafter called the "Holder")
UNDER THE
1998 INCENTIVE AND NONQUALIFIED STOCK OPTION PLAN
For valuable consideration, the receipt of which is hereby
acknowledged, the Company hereby grants to the Holder the following option:
FIRST: Subject to the terms and conditions hereinafter set forth, the
Holder is hereby given the right and option to purchase from the Company shares
of the Common Stock, $.10 par value per share, of the Company ("Common Stock").
Schedule A hereto, the provisions of which are incorporated by reference herein,
sets forth (a) the maximum number of shares that the Holder may purchase upon
exercise of this Option, (b) the exercise price per share of Common Stock
purchasable hereunder, (c) the expiration date of this Option, (d) the vesting
rate and (e) certain other terms and conditions applicable to this Option.
This Option is and shall be subject in every respect to the provisions
of the Implant Sciences Corporation 1998 Incentive and Nonqualified Stock Option
Plan, as the same may be amended from time to time (the "Plan"). A copy of the
Plan is being delivered herewith, and the Plan is hereby incorporated herein by
reference and made a part hereof. In the event of any conflict or inconsistency
between the terms of this Option and those of the Plan, the terms of the Plan
shall govern. The term "Committee" is used herein with the meaning ascribed to
it in the Plan.
This Option shall be exercised in whole or in part by the Holder's
delivery to the Company of written notice (the "Notice of Exercise") setting
forth the number of shares with respect to which this Option is to be exercised,
together with (a) cash in an amount, or a check, bank draft or postal or express
money order payable in an amount, equal to the aggregate exercise price for the
shares being purchased, (b) with the consent of the Committee, shares of Common
Stock having a fair market value equal to such aggregate exercise price; (c)
with the consent of the Committee, a personal recourse note issued by the Holder
to the Company in a principal amount equal to such aggregate exercise price and
with such other terms, including interest rate and maturity, as the Committee
may determine in its discretion, provided that the interest rate borne by such
note shall not be less than the lowest applicable federal rate, as defined in
Section 1274(d) of the Internal Revenue Code of 1986, as amended; (d) with the
consent of the Committee, such other consideration that is acceptable to the
Committee and that has a fair market value, as determined by the Committee,
equal to such aggregate exercise price, including any broker-directed
<PAGE> 2
cashless exercise/resale procedure adopted by the Committee; or (e) with the
consent of the Committee, any combination of the foregoing. The "fair market
value" of the Common Stock shall equal (i) the closing price per share on the
date of grant of the Option as reported by a nationally recognized stock
exchange, (ii) if the Common Stock is not listed on such an exchange, as
reported by the National Market System or another automated quotation system of
the National Association of Securities Dealers, Inc., or (iii) if the Common
Stock is not quoted on any such system, the fair market value as determined by
the Committee.
SECOND: The Company, in its discretion, may file a registration
statement on Form S-8 under the Securities Act of 1933, as amended, to register
shares of Common Stock reserved for issuance under the Plan. At any time at
which such a registration statement is not in effect, it shall be a condition
precedent to any exercise of this Option that the Holder shall deliver to the
Company a customary "investment letter" satisfactory to the Company and its
counsel in which, among other things, the Holder shall (a) state that he or she
is acquiring shares of Common Stock subject to the Option for his or her own
account for investment and not with a view to the resale or distribution thereof
and (b) acknowledge that those shares are not freely transferable except in
compliance with federal and state securities laws.
THIRD: As promptly as practicable after receipt by the Company of the
Notice of Exercise and related investment letter and payment of exercise price
pursuant to Paragraphs First and Second hereof, the Company shall deliver to the
Holder (or if any other individual or individuals are exercising this Option, to
such individual or individuals) a certificate registered in the name of the
Holder (or the names of the other individual or individuals exercising this
Option) and representing the number of shares with respect to which this Option
is then being exercised; provided, however, that if any law or regulation or
order of the Securities and Exchange Commission or any other body having
jurisdiction in the premises shall require the Company or the Holder (or the
individual or individuals exercising this Option) to take any action in
connection with the shares then being purchased, the date for the delivery of
the certificate for such shares shall be extended for the period necessary to
take and complete such action. The Company may imprint upon said certificate the
legends contemplated by Sections 9.3 and 9.4 of the Plan or such other legends
as counsel for the Company may consider appropriate. Delivery by the Company of
the certificates for such shares shall be deemed effected for all purposes when
the Company or a stock transfer agent of the Company shall have deposited such
certificates in the United States mail, addressed to the Holder, at the address
specified in the Notice. The Company will pay all fees or expenses necessarily
incurred by the Company in connection with the issuance and delivery of shares
pursuant to the exercise of this Option.
The Company will, at all times while any portion of this Option is
outstanding, reserve and keep available, out of shares of its authorized and
unissued Common Stock or shares of Common Stock held in treasury, a sufficient
number of shares of its Common Stock to satisfy the requirements of this Option.
FOURTH: If the Company shall effect any subdivision or consolidation of
shares of its stock or other capital readjustment, the payment of a stock
dividend, or other increase or reduction of the number of shares outstanding, in
any such case without receiving compensation therefor in money, services or
property, then the number, class and per share price of shares of stock subject
to this Option shall be appropriately adjusted in such a manner as to entitle
the Holder to receive upon exercise of this Option, for the same aggregate cash
consideration, the same total number and class of shares as he or she would have
received as a result of the event requiring the adjustment had he or she
exercised this Option in full immediately prior to such event.
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<PAGE> 3
If the Company shall be a party to a reorganization or merger with one
or more other corporations (whether or not the Company is the surviving or
resulting corporation), shall consolidate with or into one or more other
corporations, shall be liquidated, or shall sell or otherwise dispose of
substantially all of its assets to another corporation (each a "Transaction"),
then:
(a) subject to the provisions of clauses (b) and (c) below,
after the effective date of the Transaction, the Holder of this Option
shall be entitled, upon exercise hereof and at no additional cost, to
receive shares of Common Stock or, if applicable, shares of such other
stock or other securities, cash or property as the holders of shares of
Common Stock received pursuant to the terms of the Transaction;
(b) the Committee may accelerate the time for exercise of this
Option to a date prior to the effective date of the Transaction, as
specified by the Committee; or
(c) this Option may be canceled by the Committee as of the
effective date of the Transaction, provided that (i) notice of such
cancellation shall have been given to the Holder and (ii) the Holder
shall have the right to exercise this Option to the extent the same is
then exercisable or, if the Committee shall have accelerated the time
for exercise of this Option, in full during the thirty-day period
preceding the effective date of the Transaction.
Except as hereinbefore expressly provided, the issue by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, for cash or property, or for labor or services, either upon direct
sale or upon the exercise of rights or warrants to subscribe therefor, or upon
conversion of shares or obligations of the Company convertible into such shares
or other securities, shall not affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of Common Stock then
subject to this Option.
FIFTH: Neither the Holder nor any other person shall, by virtue of the
granting of this Option, be deemed for any purpose to be the owner of any shares
of Common Stock subject to this Option or to be entitled to the rights or
privileges of a holder of such shares unless and until this Option has been
exercised pursuant to the terms hereof with respect to such shares and the
Company has issued and delivered the shares to the Holder.
SIXTH: This Option is not transferable by the Holder or by operation of
law, otherwise than by will or under the laws of descent and distribution.
This Option is exercisable, during the Holder's lifetime, only by the
Holder, and by the Holder only while he or she is an employee or director of, or
otherwise providing services to, the Company, except that in the event the
employment or services of the Holder are terminated by the Company other than
for Cause, the Holder shall have the right to exercise this Option within sixty
days after the date of such termination of employment or services to the Company
(but not later than the expiration date of this Option) with respect to the
shares which were purchasable by the Holder by exercise of this Option on such
date. As used in this Option, "Cause" shall mean a determination by the Company
(including the Board) that the Holder's employment or other relationship with
the Company should be terminated as a result of (i) a material breach by the
Holder of any agreement to which the Holder and the Company are both parties,
(ii) any act (other than retirement) by the Holder that may have a material and
adverse effect on the business of the Company, or on the ability to perform
services for the Company, or on the ability
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<PAGE> 4
to perform services for the Company, including the proven or admitted commission
of any crime (other than an ordinary traffic violation), or (iii) any material
misconduct or material neglect of duties by the Holder in connection with the
business or affairs of the Company.
In the event that the Holder shall be retired in good standing from the
employ of the Company for reasons of age under the then established rules of the
Company, this Option shall terminate on the earlier of such date of expiration
or 90 days after the date of such retirement. In the event of such retirement,
the Holder shall have the right prior to the termination of this Option to
exercise this Option to the extent to which the Holder was entitled to exercise
this Option immediately prior to such retirement.
In the event of the death of the Holder prior to termination of the
Holder's services to the Company and prior to the date of expiration of this
Option, the Holder's executors, administrators or any individual or individuals
to whom this Option is transferred by will or under the laws of descent and
distribution, as the case may be, shall have the right to exercise this Option
with respect to the number of shares purchasable by the Holder at the date of
death at any time within 180 days after the date of such death (but not after
the expiration date of this Option). In the event of the permanent and total
disability of the Holder prior to termination of the Holder's services to the
Company and prior to the date of expiration of this Option, the Holder shall
have the right to exercise this Option at any time within 180 days after the
date of such disability (but not after the expiration date of this Option) with
respect to the number of shares which were purchasable by the Holder at the date
of such disability.
SEVENTH: The Holder agrees that, during the 180-day period commencing
with the closing date of the Company's initial public offering of shares of
Common Stock pursuant to a registration statement filed under the Securities Act
of 1933, as amended, or any successor act, the Holder will not, without the
prior written consent of the representative or representatives of the
underwriters of such offering, directly or indirectly, sell, offer to sell,
contract to sell, grant any option for the sale of, assign, transfer, pledge,
hypothecate or otherwise dispose of or encumber any shares of Common Stock
acquired upon exercise of this Option, other than such shares, if any, as shall
be covered by such registration statement or as shall be consented to by the
Company and such representative or representatives. The Holder further agrees
that, in order to facilitate any such public offering, (a) the agreements in
this Paragraph Seventh shall be for the benefit of such underwriters as well as
the Company and (b) upon request of such representative or representatives, the
Holder will execute a separate written instrument to the effect set forth in the
preceding sentence, with such changes therein as such representative or
representatives may request, provided that such changes are not materially
adverse to the interest of the Holder.
EIGHTH: If the Company in its discretion determines that it is
obligated to withhold tax with respect to shares of Common Stock received on
exercise of this Option, the Holder agrees that the Company may withhold from
the Holder's wages the appropriate amount of federal, state or local withholding
taxes attributable to the Holder's exercise of such Option. At the Holder's
election, the amount required to be withheld may be satisfied, in whole or in
part, by (a) authorizing the Company to withhold from shares of Common Stock to
be issued pursuant to the exercise of this Option a number of shares with an
aggregate fair market value that would satisfy the withholding amount due with
respect to such exercise, or (b) transferring to the Company shares of Common
Stock owned by the Holder with an aggregate fair market value that would satisfy
the withholding amount due. The Holder further agrees that, if the Company does
not withhold an amount from the Holder's wages sufficient to satisfy the
Company's withholding obligation, the Holder will reimburse the Company on
demand, in cash, for the amount underwithheld.
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<PAGE> 5
NINTH: No officer, employee, or member of the Board of the Company, nor
the Company, shall be liable for any action or determination made in good faith
in respect of this option.
TENTH: Subject to paragraph (g) of this Section Tenth, the Holder, upon
receipt from time to time of shares hereunder, shall be subject to the Company's
repurchase thereof, as follows:
(a) In the event the Holder (which term hereinafter includes
his legal representative(s)), upon exercise of this option, from time
to time receives shares of stock of the Company ("Option Shares"), such
Option Shares shall be subject to repurchase by the Company as
hereinafter provided. The Option Shares shall include all stock of the
Company issued in respect of stock purchased pursuant to this option,
including those issued after an Event of Sale and including those
issued by reason of stock split or consolidation, dividend, stock
change, recapitalization, reclassification or the like.
(b) "Event of Sale" means the date upon which all rights to
purchase shares hereunder have either been fully exercised or have
lapsed following the occurrence of any one of the following:
(i) Holder's death.
(ii) The Holder ceasing to be employed by, be a
director of, or otherwise provide services
to the Company for any reason, whether
cessation is occasioned by action of the
Holder or the Company.
(c) Upon the occurrence of an Event of Sale, the Company shall
have the right and option, but not the obligation, to purchase all or
any portion of the Option Shares on the following terms and conditions:
Within one (1) year of an Event of Sale, the Company may notify the
Holder, designating the number of shares and fixing a "Closing" at the
Company's then principal office within the next 30 business days. At
the Closing, the Company shall pay in cash the "Purchase Price" as
hereinafter defined, to the Holder against delivery of the Option
Shares. The Holder shall be deemed to represent at the Closing that he
has full right and power to effect the Closing, and that the Option
Shares are owned by Holder of record and beneficially, free and clear
of all encumbrances and rights of others.
(d) The Purchase Price per share shall be equal to the
greatest of the following, all as determined conclusively in writing by
the Company's independent accountant:
(i) The per share capitalized earnings value,
which shall be computed as follows: the sum
of the annual net profits from operations
after taxes, less the annual net losses, if
any, of the Company for the two full fiscal
years ending immediately preceding the
Closing date, shall be divided by two, and
the resultant value shall be deemed the
average annual net profit. The average
annual net profits as determined above shall
be multiplied by twelve, and the result
shall be the capitalized earnings value. The
capitalized earnings value as determined
above shall be divided by the total number
of outstanding shares of the Company on the
date next preceding the Closing, and the
result shall be deemed the per share
capitalized earnings value.
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<PAGE> 6
(ii) The per share book value of the Common Stock
of the Company, net of all liabilities
accrued using principles of principles
theretofore applicable to the Company
consistently applied, as at the end of the
fiscal quarter next preceding the fiscal
quarter in which the closing takes place.
(iii) The average per share selling price of all
shares of Common Stock of the Company issued
to anyone other then a Holder of the Company
or a parent or subsidiary during the six
months preceding the date of Closing.
(iv) The price actually paid by the Holder for
the Option Shares.
(e) All certificates representing Option Shares shall be
endorsed prominently as follows:
"The sale, transfer, pledge, hypothecation
or other disposition of the shares evidenced
hereby are subject to repurchase under an
Agreement dated _________________, 19__, by
and between Implant Sciences Corporation and
____________________________. The Company
will furnish a copy of said Agreement to the
holder of this certificate upon written
request and without charge."
(f) During the term hereof, the Option Shares shall not be
sold, transferred, pledged, hypothecated, encumbered or otherwise
disposed of, of record or beneficially, except as herein provided or
upon the prior written consent of the Company (which consent may be
withheld for any reason without necessity of showing reasonable cause).
Any transfer except pursuant hereto is null and void.
(g) The provisions of this Section Tenth shall be null and
void as to any Event of Sale occurring after the date when the
Company's shares of Common Stock are first offered to the public under
the Securities Act of 1933 or under Regulation A of the Securities and
Exchange Commission, or any successor to either of the same, or
otherwise become freely tradable in the hands of the public.
ELEVENTH: In consideration of the within option grant, and of the
access to the Company's proprietary information to be received, the Holder
further agrees that:
(a) During the Holder's employment by, or other provision of
services (including services as a director) to, the Company and for a
period of two years thereafter, the Holder will not compete with the
Company in any manner hereafter described. The word "compete" shall
mean, without limitation, the direct or indirect conduct by the Holder
of any business, corporation, shop, profession, service or the like, as
stockholder, officer, partner, director, employee or consultant.
(b) Prohibited competition shall include employment by any
company competing with Implant Sciences Corporation. While not limiting
the generality of this clause, Spire Corporation of Bedford,
Massachusetts and IBIS Technology, Inc. of Danvers, Massachusetts are
specifically named as competition of the Company. This non-compete
agreement is limited only to the geographic area of the United States
and only to participation by the Holder in the provision of
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<PAGE> 7
goods or services involving ion implantation or thin film coating of
medical devices, medical implants or semiconductors.
(c) The Holder acknowledges that the Company has developed its
goodwill, based upon its scientific position, over a period of many
years through the expenditure of substantial sums and efforts. The
Holder further acknowledges that his familiarity therewith has been or
will be developed, wholly or in large measure, as a result of his
association with the Company. In the light of the foregoing, the Holder
acknowledges that the above restrictions are reasonable, that damages
for violation of same would be both inadequate and difficult to
determine, and that therefore upon any breach by the Holder the Company
would be entitled, in addition to all other remedies, to the recovery
of legal fees and to equitable (including injunctive) relief.
(d) The within obligations shall apply regardless of how
termination of employment or other services may occur, including
without limitation termination without cause at the instance of either
party.
TWELFTH: Any notice to be given to the Company hereunder shall be
deemed sufficient if addressed to the Company and delivered at the office of the
Chief Operating Officer of the Company, or such other address as the Company may
hereafter designate, or when deposited in the mail, postage prepaid, addressed
to the attention of the Chief Operating Officer of the Company at such office or
other address.
Any notice to be given to the Holder hereunder shall be deemed
sufficient if addressed to and delivered in person to the Holder at his address
furnished to the Company or when deposited in the mail, postage prepaid,
addressed to the Holder at such address.
THIRTEENTH: This Option is subject to all laws, regulations and orders
of any governmental authority which may be applicable thereto and,
notwithstanding any of the provisions hereof, the Holder agrees that he will not
exercise the Option granted hereby nor will the Company be obligated to issue
any shares of stock hereunder if the exercise thereof or the issuance of such
shares, as the case may be, would constitute a violation by the Holder or the
Company of any such law, regulation or order or any provision thereof.
IN WITNESS WHEREOF, the Company has caused this instrument to be
executed in its name and on its behalf as of the effective date.
IMPLANT SCIENCES CORPORATION
By: __________________________
Title:
ATTEST:
_____________________________
Secretary
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<PAGE> 8
SCHEDULE A
IMPLANT SCIENCES CORPORATION
NONQUALIFIED STOCK OPTION
Date of Grant:
Name of Holder:
Address:
Social Security Number:
Maximum number of shares for which
this Option is exercisable:
Exercise (purchase) price per share:
Expiration date of this Option:
Vesting rate:
Other terms and conditions:
The undersigned Holder acknowledges receipt of the Option of which this Schedule
A is a part and agrees to be bound by all obligations of the Holder as set forth
in such Option or in the Plan.
_________________________
Holder's Signature
<PAGE> 1
Exhibit 10.35
NON-EMPLOYEE DIRECTOR
NONQUALIFIED STOCK OPTION
GRANTED BY
IMPLANT SCIENCES CORPORATION
(hereinafter called the "Company")
TO
---------------------------------------
(hereinafter called the "Holder")
UNDER THE
1998 INCENTIVE AND NONQUALIFIED STOCK OPTION PLAN
For valuable consideration, the receipt of which is hereby
acknowledged, the Company hereby grants to the Holder the following option:
FIRST: Subject to the terms and conditions hereinafter set forth, the
Holder is hereby given the right and option to purchase from the Company shares
of the Common Stock, $.10 par value per share, of the Company ("Common Stock").
Schedule A hereto, the provisions of which are incorporated by reference herein,
sets forth (a) the maximum number of shares that the Holder may purchase upon
exercise of this Option, (b) the exercise price per share of Common Stock
purchasable hereunder, (c) the expiration date of this Option, (d) the vesting
rate and (e) certain other terms and conditions applicable to this Option.
This Option is and shall be subject in every respect to the provisions
of the Implant Sciences Corporation 1998 Incentive and Nonqualified Stock Option
Plan, as the same may be amended from time to time (the "Plan"). A copy of the
Plan is being delivered herewith, and the Plan is hereby incorporated herein by
reference and made a part hereof. In the event of any conflict or inconsistency
between the terms of this Option and those of the Plan, the terms of the Plan
shall govern. The term "Committee" is used herein with the meaning ascribed to
it in the Plan.
This Option shall be exercised in whole or in part by the Holder's
delivery to the Company of written notice (the "Notice of Exercise") setting
forth the number of shares with respect to which this Option is to be exercised,
together with (a) cash in an amount, or a check, bank draft or postal or express
money order payable in an amount, equal to the aggregate exercise price for the
shares being purchased, (b) with the consent of the Committee, shares of Common
Stock having a fair market value equal to such aggregate exercise price; (c)
with the consent of the Committee, a personal recourse note issued by the Holder
to the Company in a principal amount equal to such aggregate exercise price and
with such other terms, including interest rate and maturity, as the Committee
may determine in its discretion, provided that the interest rate borne by such
note shall not be less than the lowest applicable federal rate, as defined in
Section 1274(d) of the Internal Revenue Code of 1986, as amended; (d) with the
consent of the Committee, such other consideration that is acceptable to the
Committee and that has a fair market value, as determined by the Committee,
equal to such aggregate exercise price, including any broker-directed cashless
exercise/resale procedure adopted by the Committee; or (e) with the consent of
the Committee, any combination of the foregoing. The "fair market value" of the
Common Stock shall equal (i) the closing price per share on the date of grant of
the Option as reported by a nationally recognized stock
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<PAGE> 2
exchange, (ii) if the Common Stock is not listed on such an exchange, as
reported by the National Market System or another automated quotation system of
the National Association of Securities Dealers, Inc., or (iii) if the Common
Stock is not quoted on any such system, the fair market value as determined by
the Committee.
SECOND: The Company, in its discretion, may file a registration
statement on Form S-8 under the Securities Act of 1933, as amended, to register
shares of Common Stock reserved for issuance under the Plan. At any time at
which such a registration statement is not in effect, it shall be a condition
precedent to any exercise of this Option that the Holder shall deliver to the
Company a customary "investment letter" satisfactory to the Company and its
counsel in which, among other things, the Holder shall (a) state that he or she
is acquiring shares of Common Stock subject to the Option for his or her own
account for investment and not with a view to the resale or distribution thereof
and (b) acknowledge that those shares are not freely transferable except in
compliance with federal and state securities laws.
THIRD: As promptly as practicable after receipt by the Company of the
Notice of Exercise and related investment letter and payment of exercise price
pursuant to Paragraphs First and Second hereof, the Company shall deliver to the
Holder (or if any other individual or individuals are exercising this Option, to
such individual or individuals) a certificate registered in the name of the
Holder (or the names of the other individual or individuals exercising this
Option) and representing the number of shares with respect to which this Option
is then being exercised; provided, however, that if any law or regulation or
order of the Securities and Exchange Commission or any other body having
jurisdiction in the premises shall require the Company or the Holder (or the
individual or individuals exercising this Option) to take any action in
connection with the shares then being purchased, the date for the delivery of
the certificate for such shares shall be extended for the period necessary to
take and complete such action. The Company may imprint upon said certificate the
legends contemplated by Sections 9.3 and 9.4 of the Plan or such other legends
as counsel for the Company may consider appropriate. Delivery by the Company of
the certificates for such shares shall be deemed effected for all purposes when
the Company or a stock transfer agent of the Company shall have deposited such
certificates in the United States mail, addressed to the Holder, at the address
specified in the Notice. The Company will pay all fees or expenses necessarily
incurred by the Company in connection with the issuance and delivery of shares
pursuant to the exercise of this Option.
The Company will, at all times while any portion of this Option is
outstanding, reserve and keep available, out of shares of its authorized and
unissued Common Stock or shares of Common Stock held in treasury, a sufficient
number of shares of its Common Stock to satisfy the requirements of this Option.
FOURTH: If the Company shall effect any subdivision or consolidation of
shares of its stock or other capital readjustment, the payment of a stock
dividend, or other increase or reduction of the number of shares outstanding, in
any such case without receiving compensation therefor in money, services or
property, then the number, class and per share price of shares of stock subject
to this Option shall be appropriately adjusted in such a manner as to entitle
the Holder to receive upon exercise of this Option, for the same aggregate cash
consideration, the same total number and class of shares as he or she would have
received as a result of the event requiring the adjustment had he or she
exercised this Option in full immediately prior to such event.
If the Company shall be a party to a reorganization or merger with one
or more other corporations (whether or not the Company is the surviving or
resulting corporation), shall consolidate with or into one
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<PAGE> 3
or more other corporations, shall be liquidated, or shall sell or otherwise
dispose of substantially all of its assets to another corporation (each a
"Transaction"), then:
(a) subject to the provisions of clauses (b) and (c) below,
after the effective date of the Transaction, the Holder of this Option
shall be entitled, upon exercise hereof and at no additional cost, to
receive shares of Common Stock or, if applicable, shares of such other
stock or other securities, cash or property as the holders of shares of
Common Stock received pursuant to the terms of the Transaction;
(b) the Committee may accelerate the time for exercise of this
Option to a date prior to the effective date of the Transaction, as
specified by the Committee; or
(c) this Option may be canceled by the Committee as of the
effective date of the Transaction, provided that (i) notice of such
cancellation shall have been given to the Holder and (ii) the Holder
shall have the right to exercise this Option to the extent the same is
then exercisable or, if the Committee shall have accelerated the time
for exercise of this Option, in full during the thirty-day period
preceding the effective date of the Transaction.
Except as hereinbefore expressly provided, the issue by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, for cash or property, or for labor or services, either upon direct
sale or upon the exercise of rights or warrants to subscribe therefor, or upon
conversion of shares or obligations of the Company convertible into such shares
or other securities, shall not affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of Common Stock then
subject to this Option.
FIFTH: Neither the Holder nor any other person shall, by virtue of the
granting of this Option, be deemed for any purpose to be the owner of any shares
of Common Stock subject to this Option or to be entitled to the rights or
privileges of a holder of such shares unless and until this Option has been
exercised pursuant to the terms hereof with respect to such shares and the
Company has issued and delivered the shares to the Holder.
SIXTH: This Option is not transferable by the Holder or by operation of
law, otherwise than by will or under the laws of descent and distribution.
SEVENTH: The Holder agrees that, during the 180-day period commencing
with the closing date of the Company's initial public offering of shares of
Common Stock pursuant to a registration statement filed under the Securities Act
of 1933, as amended, or any successor act, the Holder will not, without the
prior written consent of the representative or representatives of the
underwriters of such offering, directly or indirectly, sell, offer to sell,
contract to sell, grant any option for the sale of, assign, transfer, pledge,
hypothecate or otherwise dispose of or encumber any shares of Common Stock
acquired upon exercise of this Option, other than such shares, if any, as shall
be covered by such registration statement or as shall be consented to by the
Company and such representative or representatives. The Holder further agrees
that, in order to facilitate any such public offering, (a) the agreements in
this Paragraph Seventh shall be for the benefit of such underwriters as well as
the Company and (b) upon request of such representative or representatives, the
Holder will execute a separate written instrument to the effect set forth in the
preceding sentence, with such changes therein as such representative or
representatives may request, provided that such changes are not materially
adverse to the interest of the Holder.
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<PAGE> 4
EIGHTH: No officer, employee, or member of the Board of the Company,
nor the Company, shall be liable for any action or determination made in good
faith in respect of this option.
NINTH: Subject to paragraph (g) of this Section Ninth, the Holder, upon
receipt from time to time of shares hereunder, shall be subject to the Company's
repurchase thereof, as follows:
(a) In the event the Holder (which term hereinafter includes
his legal representative(s)), upon exercise of this option, from time
to time receives shares of stock of the Company ("Option Shares"), such
Option Shares shall be subject to repurchase by the Company as
hereinafter provided. The Option Shares shall include all stock of the
Company issued in respect of stock purchased pursuant to this option,
including those issued after an Event of Sale and including those
issued by reason of stock split or consolidation, dividend, stock
change, recapitalization, reclassification or the like.
(b) "Event of Sale" means the date upon which all rights to
purchase shares hereunder have either been fully exercised or have
lapsed following the occurrence of any one of the following:
(I) Holder's death.
(ii) The Holder ceasing to be employed by, be a
director of, or otherwise provide services
to the Company for any reason, whether
cessation is occasioned by action of the
Holder or the Company.
(c) Upon the occurrence of an Event of Sale, the Company shall
have the right and option, but not the obligation, to purchase all or
any portion of the Option Shares on the following terms and conditions:
Within one (1) year of an Event of Sale, the Company may notify the
Holder, designating the number of shares and fixing a "Closing" at the
Company's then principal office within the next 30 business days. At
the Closing, the Company shall pay in cash the "Purchase Price" as
hereinafter defined, to the Holder against delivery of the Option
Shares. The Holder shall be deemed to represent at the Closing that he
has full right and power to effect the Closing, and that the Option
Shares are owned by Holder of record and beneficially, free and clear
of all encumbrances and rights of others.
(d) The Purchase Price per share shall be equal to the
greatest of the following, all as determined conclusively in writing by
the Company's independent accountant:
(i) The per share capitalized earnings value,
which shall be computed as follows: the sum
of the annual net profits from operations
after taxes, less the annual net losses, if
any, of the Company for the two full fiscal
years ending immediately preceding the
Closing date, shall be divided by two, and
the resultant value shall be deemed the
average annual net profit. The average
annual net profits as determined above shall
be multiplied by twelve, and the result
shall be the capitalized earnings value. The
capitalized earnings value as determined
above shall be divided by the total number
of outstanding shares of the Company on the
date next preceding the Closing, and the
result shall be deemed the per share
capitalized earnings value.
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<PAGE> 5
(ii) The per share book value of the Common Stock
of the Company, net of all liabilities
accrued using principles of principles
theretofore applicable to the Company
consistently applied, as at the end of the
fiscal quarter next preceding the fiscal
quarter in which the closing takes place.
(iii) The average per share selling price of all
shares of Common Stock of the Company issued
to anyone other then a Holder of the Company
or a parent or subsidiary during the six
months preceding the date of Closing.
(iv) The price actually paid by the Holder for
the Option Shares.
(e) All certificates representing Option Shares shall be
endorsed prominently as follows:
"The sale, transfer, pledge, hypothecation
or other disposition of the shares evidenced
hereby are subject to repurchase under an
Agreement dated _________________, 19__, by
and between Implant Sciences Corporation and
____________________________. The Company
will furnish a copy of said Agreement to the
holder of this certificate upon written
request and without charge."
(f) During the term hereof, the Option Shares shall not be
sold, transferred, pledged, hypothecated, encumbered or otherwise
disposed of, of record or beneficially, except as herein provided or
upon the prior written consent of the Company (which consent may be
withheld for any reason without necessity of showing reasonable cause).
Any transfer except pursuant hereto is null and void.
(g) The provisions of this Section Ninth shall be null and
void as to any Event of Sale occurring after the date when the
Company's shares of Common Stock are first offered to the public under
the Securities Act of 1933 or under Regulation A of the Securities and
Exchange Commission, or any successor to either of the same, or
otherwise become freely tradable in the hands of the public.
TENTH: In consideration of the within option grant, and of the access
to the Company's proprietary information to be received, the Holder further
agrees that:
(a) During the Holder's employment by, or other provision of
services (including services as a director) to, the Company and for a
period of two years thereafter, the Holder will not compete with the
Company in any manner hereafter described. The word "compete" shall
mean, without limitation, the direct or indirect conduct by the Holder
of any business, corporation, shop, profession, service or the like, as
stockholder, officer, partner, director, employee or consultant.
(b) Prohibited competition shall include employment by any
company competing with Implant Sciences Corporation. While not limiting
the generality of this clause, Spire Corporation of Bedford,
Massachusetts and IBIS Technology, Inc. of Danvers, Massachusetts are
specifically named as competition of the Company. This non-compete
agreement is limited only to the geographic area of the United States
and only to participation by the Holder in the provision of
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<PAGE> 6
goods or services involving ion implantation or thin film coating of
medical devices, medical implants or semiconductors.
(c) The Holder acknowledges that the Company has developed its
goodwill, based upon its scientific position, over a period of many
years through the expenditure of substantial sums and efforts. The
Holder further acknowledges that his familiarity therewith has been or
will be developed, wholly or in large measure, as a result of his
association with the Company. In the light of the foregoing, the Holder
acknowledges that the above restrictions are reasonable, that damages
for violation of same would be both inadequate and difficult to
determine, and that therefore upon any breach by the Holder the Company
would be entitled, in addition to all other remedies, to the recovery
of legal fees and to equitable (including injunctive) relief.
(d) The within obligations shall apply regardless of how
termination of employment or other services may occur, including
without limitation termination without cause at the instance of either
party.
ELEVENTH: Any notice to be given to the Company hereunder shall be
deemed sufficient if addressed to the Company and delivered at the office of the
Chief Operating Officer of the Company, or such other address as the Company may
hereafter designate, or when deposited in the mail, postage prepaid, addressed
to the attention of the Chief Operating Officer of the Company at such office or
other address.
Any notice to be given to the Holder hereunder shall be deemed
sufficient if addressed to and delivered in person to the Holder at his address
furnished to the Company or when deposited in the mail, postage prepaid,
addressed to the Holder at such address.
TWELFTH: This Option is subject to all laws, regulations and orders of
any governmental authority which may be applicable thereto and, notwithstanding
any of the provisions hereof, the Holder agrees that he will not exercise the
Option granted hereby nor will the Company be obligated to issue any shares of
stock hereunder if the exercise thereof or the issuance of such shares, as the
case may be, would constitute a violation by the Holder or the Company of any
such law, regulation or order or any provision thereof.
IN WITNESS WHEREOF, the Company has caused this instrument to be
executed in its name and on its behalf as of the effective date.
IMPLANT SCIENCES CORPORATION
By: _________________________
Title:
ATTEST:
____________________________
Secretary
-6-
<PAGE> 7
SCHEDULE A
IMPLANT SCIENCES CORPORATION
NONQUALIFIED STOCK OPTION
Date of Grant:
Name of Holder:
Address:
Social Security Number:
Maximum number of shares for which
this Option is exercisable:
Exercise (purchase) price per share:
Expiration date of this Option: 10th anniversary of date of grant
Vesting rate: fully vested as of date of grant
Other terms and conditions: none
The undersigned Holder acknowledges receipt of the Option of which this Schedule
A is a part and agrees to be bound by all obligations of the Holder as set forth
in such Option or in the Plan.
_________________________
Holder's Signature
<PAGE> 1
EXHIBIT 10.37
AMERICAN SECURITIES TRANSFER & TRUST, INC.
AGREEMENT APPOINTING TRANSFER AGENT AND REGISTRAR
-------------------------------------------------
THIS AGREEMENT is made and entered into this 19 day of October, 1998, by
and between the following:
(a) AMERICAN SECURITIES TRANSFER & TRUST, INC. ("AST"), a Colorado
corporation, whose address is 1825 Lawrence Street, Suite 444, Denver, Colorado
80202; and
(b) Implant Sciences Corp, (the "Company"), a corporation organized under
the laws of the State of Mass., whose business address is 107 Audubon Road,
Wakefield, MA 01880.
IN CONSIDERATION of the covenants and agreements set forth herein, the
parties agree as follows:
1. APPOINTMENT OF TRANSFER AGENT AND REGISTRAR. The Company hereby
appoints AST as transfer agent and registrar of all of the shares of the
Company's capital stock as described below:
<TABLE>
<CAPTION>
Shares Authorized by the
Stock Class Articles or Certificate of Shares Issued
(Par Value) Incorporation and Outstanding
----------- -------------------------- ---------------
<S> <C> <C> <C>
Common Stock $.10 20,000,000 4,372,291
Preferred Stock $.10 5,000,000 0
</TABLE>
By special resolution adopted by the Company's Board of Directors, AST may, from
time to time, be appointed as transfer agent for additional classes of the
Company's stock and may be appointed to act in the capacity of dividend
disbursing agent, warrant agent, exchange agent, redemption agent, escrow agent
or any other similar capacity as may be agreed upon by AST and the Company.
2. FEES. The Company shall pay to AST such fees for AST's services as are
set forth in the Fee Schedule (as presented in AST's proposal or attached hereto
as Exhibit A) incorporated herein, and shall reimburse AST for all extraordinary
out-of-pocket expenses incurred in the performance of its duties hereunder. Such
Fee Schedule may be amended by AST from time to time upon thirty (30) days
advance written notice from AST to the Company.
1
<PAGE> 2
3. INSTRUCTIONS. At any time AST may apply to the Company or its counsel
for instructions or information, and may consult with its own counsel, with
respect to any matter arising in connection with the agency created hereby and
AST shall not be liable for any action taken or omitted in accordance with such
instructions, information or the advice or opinion of such officer or counsel.
AST shall not be liable for acting upon any paper or document believed by it to
be genuine and to have been signed by the proper person(s) and shall not be held
to have notice of any change of authority of any person, until receipt of
written notice thereof from the Company. AST shall also not be liable for
recognizing stock certificates which it reasonably believes bear the proper
manual or facsimile signatures of the officers of the Company and the proper
counter-signature of a transfer agent or registrar, or of a co-transfer agent or
co-registrar. AST, if it so elects, may rely conclusively, for any and all
purposes, upon any advices of transfer or transfers made in the course of
transferring or registering original issuances, retirements or cancellation of
shares; upon advices of stop transfer orders placed, released or in effect
against outstanding certificates; and upon any certification or notification as
to the number of shares issued, the certificates representing such shares and
other information which AST may receive from time to time from any co-transfer
agent or co-registrar. AST shall further not be liable for relying upon all
information contained in Certification of Corporate Secretary or otherwise
supplied to AST by the Company in accordance with the terms of this Agreement.
4. TERM. This Agreement shall be effective, subject to receipt of
documents referenced in Section 17 of this Agreement, commencing on the date of
this Agreement as set forth above and shall continue in effect until terminated
in accordance with the terms hereof.
5. OTHER PROVISIONS. The additional terms and conditions on the
attachment hereto entitled "Other Conditions and Agreements" (Sections 6 through
22) are incorporated herein by this reference and made a part of this Agreement.
EXECUTED as of the date and year first written above.
AMERICAN SECURITIES TRANSFER
& TRUST, INC. _________________________________
By /s/ Illegible By /s/ Anthony Armini
---------------------------------- ------------------------------
Anthony Armini
Its Marketing Officer President/Chief Officer
---------------------------------
2
<PAGE> 3
OTHER CONDITIONS AND AGREEMENTS
-------------------------------
6. ORIGINALLY ISSUED SHARES. AST is hereby authorized to originally
issue, register and countersign certificates of the Company's stock covered by
this Agreement upon being furnished with an appropriate written request signed
by an officer of the Company, a certified copy of a resolution of the Board of
Directors or a copy of the Board of Directors minutes authorizing such original
issue and, if specifically requested by AST, an opinion of counsel concerning
the status of such stock, including shares which are reserved for specific
purposes, under the Securities Act of 1933 and other applicable Federal or State
statute (i.e., if registration is necessary, the effective date of the
registration statement or, if exempt, the specific basis therefor).
7. TRANSFER OF OUTSTANDING SHARES. AST is hereby authorized to accept for
transfer any outstanding certificates representing the Company's stock covered
by this Agreement, and to issue and countersign new certificates in place
thereof, except that AST may refuse to transfer such certificate if it in good
faith believes that the certificate, when surrendered for transfer, is not
validly or genuinely endorsed or is otherwise not valid. AST incurs no liability
and assumes no responsibility with respect to the transfer of restricted
securities when Company's counsel advised AST that such transfer may be properly
effected. AST reserves the right to refuse to transfer shares until it is
satisfied that the requested transfer is legally authorized and it shall incur
no liability for the refusal in good faith to make transfers which it, in its
judgment, believes may be improper, unauthorized or for any other reason not
permitted by law. AST may, in effecting transfers, rely upon the Securities Act
of 1933, the Securities Exchange Act of 1934, any state securities law, and
rules and regulations promulgated pursuant to such laws, the Simplification Acts
or the Uniform Commercial Code in transferring or refusing the transfer of any
securities, included but not limited to provisions relating to adverse claims.
In cases in which AST is not directed or otherwise required to maintain the
primary records of stockholders' accounts (i.e., co-transfer agent), AST shall
not be liable for any loss which may arise by reason of not having such records
where AST has exercised ordinary diligence. AST shall be under no duty to use a
greater degree of diligence by reason of not having such records.
8. TRANSFER OR CANCELLATION OF TREASURY SHARES. AST is hereby authorized
to transfer or cancel certificates of the Company's stock covered by this
Agreement in the name of or belonging to the Treasury of the Company, upon
receipt of the certificate(s) endorsed by an officer of the Company, a certified
copy of a resolution of the Board of Directors authorizing such endorsement and
such transfer or cancellation, and, in the case of a transfer only, an opinion
of counsel as described in paragraph 6 above.
9. LOST OR DESTROYED CERTIFICATES BY MAIL. In accordance with the Board
of Directors' resolution contained in the Certification of Corporate Secretary,
AST may issue or register new certificates to replace certificates represented
to have been lost, stolen or destroyed upon receiving an open penalty bond
issued by a surety company satisfactory to AST. AST is further authorized in its
discretion to issue or register a new certificate in exchange for, and upon
surrender of, an identifiable but mutilated stock certificate.
3
<PAGE> 4
10. DELIVERY OF CERTIFICATES BY MAIL. AST is hereby authorized to forward
stock certificates, warrants and other securities of the Company by mail in
accordance with the terms of a blanket bond or other satisfactory indemnity
covering nonreceipt of such mailed instruments. Said bond shall name, directly
or indirectly, the Company and AST as obligees. In the event of the nonreceipt
of such certificates mailed by AST, the Company hereby authorizes the issuance
of new certificates for a like amount in place thereof upon receipt of a
properly executed affidavit and proof of loss or non-receipt provided for under
said blanket bond and the issuance by the surety company of an assumption of the
loss under said blanket bond, all without further action or approval of the
Board of Directors or the officers of the Company.
11. UNCLAIMED OR UNDELIVERED STOCK CERTIFICATES. Where a stock
certificate, for any reason, is in the possession of AST and has not been
claimed by the registered holder or cannot be delivered to the registered holder
through usual channels, AST shall continue to hold said certificate for the
registered holder subject to applicable escheat or other laws.
12. BOOKS AND RECORDS. AST is hereby authorized to establish and maintain
such books and records as may be required for the performance of its agency
duties and responsibilities, and to establish and maintain ledgers for the
Company and to make entries therein of all certificates issued, canceled and
transferred. AST may deliver to the Company from time to time at its discretion,
for safekeeping or disposition by the Company in accordance with law, such
records, papers, stock certificates which have been cancelled in transfer or
exchanges and other documents accumulated in the execution of its duties
hereunder as AST may deem expedient, other than those which AST is itself
required to maintain pursuant to applicable laws and regulations. Upon delivery
of such records, the Company shall assume all responsibility for any failure
thereafter to produce any record, paper, cancelled stock certificate or other
document so returned, if and when required. AST will endeavor to notify the
Company of, and will follow instructions received from the Company with respect
to, any request or demand for the inspection of the Company's stock books.
However, AST reserves the right to exhibit the records to any person if it is
advised by its counsel that it may be held liable for the failure to exhibit
such records to such person.
13. STOCK CERTIFICATES AND SIGNATURES. The Company shall furnish AST with
a sufficient supply of blank stock certificates and from time to time will renew
such supply upon the request of AST. Such blank stock certificates shall be
properly signed by the officers of the Company authorized by law or by the
Company's Bylaws to sign stock certificates and, if requested, shall bear the
corporate seal or facsimile thereof.
The Company shall promptly file with AST written notice of any change in
the officers authorized to sign stock certificates, written instructions or
requests, together with specimen signature of each newly authorized officer. In
case any officer of the Company who has properly signed blank stock certificates
shall die, resign or be removed prior to the issuance of such certificates, AST
as transfer agent and/or as registrar may issue or register such stock
certificates as the stock certificates of the Company notwithstanding such
death, resignation or removal; and the
4
<PAGE> 5
Company shall file promptly with AST such approval, adoption or ratification as
ma be required by law.
14. INDEMNIFICATION. AST shall not be liable for any act or omission in
connection with this agency or the performance of its duties as transfer agent
taken in good faith, with due diligence and without gross negligence or willful
misconduct. The Company assumes full responsibility and shall indemnify AST and
save it harmless from and against any and all actions or suits, whether
groundless or otherwise, and from and against any and all losses, damages,
costs, charges, counsel fees, payments, expenses and liabilities arising out of
the agency relationship or the performance of AST's duties as transfer agent,
where AST has acted without gross negligence or willful misconduct. AST shall
not be under any obligation to prosecute or defend any action or suit in respect
to any agency relationship or its duties as transfer agent which, in its sole
judgment, may subject it to expense or liability. In any action or suit, the
Company shall, as often as requested, furnish AST with satisfactory indemnity
and security against any expense or liability growing out of such action or suit
by or against AST. In addition, the Company shall provide AST with any books,
records, memoranda or other documents required by AST to prosecute or defend any
claim or action.
15. PREVIOUS TRANSFER AGENT. The Company shall indemnify, protect and
hold AST harmless from any liability arising from any actions, or failures to
act, on the part of any previous stock transfer agent(s) used by the Company,
specifically including, but not limited to, liability arising from lack of
completeness or validity of the records maintained by any such previous transfer
agents or provided to AST by such previous stock transfer agents.
AST agrees to exercise reasonable diligence in converting the records and
information of any such previous stock transfer agent to AST's system, and in
researching the records of any such previous stock transfer agent to identify
and resolve errors and discrepancies contained therein.
16. COMPLIANCE WITH LAW. AST may, without liability to the Company,
refuse to perform any act in connection with this agency where, in good faith
reliance upon opinion of counsel, it believes that such act may subject it or
its officers or employees to civil or criminal liability under any law of any
state or of the United States and, in particular, under the Securities Act of
1933 and the Securities Exchange Act of 1934.
17. NECESSARY DOCUMENTATION. Prior to the effective date of this
Agreement, the Company shall furnish AST with the following documents:
(a) A Certification of the Secretary of the Company which
Certification shall be in the form of the Certification of Corporate Secretary
and shall have attached thereto copies of the following documents:
(i) Specimen stock certificates for each class of stock
(outstanding or to be outstanding) of the Company for which AST is being
appointed transfer agent and registrar.
5
<PAGE> 6
(ii) A copy of the Company's Articles and Certificate of
Incorporation, and all amendments thereto, certified by the Secretary of State
of the State of the Company's incorporation.
(iii) A copy of the Bylaws of the Company and all amendments
thereto certified by the Secretary of the Company.
(vi) If applicable, a shareholder list, certified by the
Secretary of the Company or the previous transfer agent which AST is succeeding,
showing the number and the date of each outstanding certificate, the name in
which issued, the number of shares represented thereby, the address and taxpayer
identification number of the stockholder, all restricted or legended
certificates, all stop transfer orders in respect to such certificate and the
reason for such order and, finally, all certificates issued as replacements for
those reported lost, stolen, or destroyed.
(b) Any additional information or documents as may be specifically
requested by AST in connection with this Agreement or the performance of its
duties including, without limitation, an opinion of counsel concerning the
status of the Company's stock under the Securities Act of 1933 and any other
applicable Federal or State statute (i.e., if registration occurred, the
effective date of such registration statement or, if exempt, the specific basis
therefor).
18. FUTURE AMENDMENTS OF CHARTER AND BYLAWS. The Company shall file with
AST certified copies of all amendments to its articles of incorporation or
bylaws made after the date of creation of the agency.
19. TERMINATION. The Company may terminate this Agreement by providing
written notice to AST which notice shall be effective as of the first calendar
month-end thirty (30) days after AST's receipt of the Company's termination
notice. At AST's election, however, the Company shall not be entitled to
terminate AST services under this Agreement until the Company has paid to AST
all amounts due it under this Agreement. AST further reserves the right to
terminate this Agreement as of such month-end by similar thirty (30) days'
notice to the Company, or on notice to the Company in the event of a
disagreement concerning the lawfulness of any transfer or other action requested
by the Company, failure to timely pay fees due AST or other cause, whether or
not similar to the foregoing. Upon termination of this Agreement by either
party, the Company shall pay AST such fees and expenses established in the then
effective Fee Schedule, and the Company shall reimburse AST for all costs and
expenses incurred in connection with termination including, without limitation,
charges for the shipment of records and other similar charges.
20. SECURITY INTEREST. AST shall have a security interest in all records
of the Company which it maintains pursuant to this agency, and all canceled and
blank certificates' of the Company, to secure payment of any fees, charges or
other amounts due AST from the Company pursuant to this Agreement.
6
<PAGE> 7
21. ATTORNEY'S FEES. If either party commences legal action against the
other for damages or breach hereof or to otherwise enforce any remedy hereunder,
the prevailing party shall be entitled to recovery from the other party any and
all of its costs and expenses, including reasonable attorney's fees, as may be
incurred.
22. GENERAL PROVISIONS. This Agreement shall be construed and governed by
the laws of the State of Colorado and shall be binding upon the parties hereto
and their successors and assigns. This Agreement embodies the entire agreement
and understanding between the parties and supersedes all prior agreements and
understandings relating to the subject matter hereof, and this Agreement (except
for any amendments made by AST pursuant to Section 2 above) may not be modified
or amended or any term or provisions hereof waived or discharged except in
writing signed by the party against whom such amendment, modification, waiver or
discharge is sought to be enforced. The headings of this Agreement are for
convenience in reference only and shall not limit or otherwise affect the
meaning hereof. In the event of any controversy arising out of this Agreement,
the parties hereto consent to the jurisdiction of the District Court of the City
and County of Denver, Colorado. This Agreement may be executed in counterparts
and facsimile signatures of any party shall be binding and enforceable.
7
<PAGE> 1
EXHIBIT 10.38
AMERICAN SECURITIES TRANSFER & TRUST, INC.
CERTIFICATION OF CORPORATE SECRETARY
------------------------------------
I, the undersigned, Secretary of Implant Sciences Corporation
------------------------------------------------
(NAME OF CORPORATION)
do hereby certify that:
1. AUTHORIZED OFFICERS AND PERSONS. The following persons, whose
signatures are set forth adjacent to their respective name, are duly qualified
officers or other persons authorized to sign for and provide instructions on
behalf of the Corporation and AST shall be entitled to rely and act upon any
written orders or directions from the following persons regarding the issuance
or delivery of certificates for the described herein. Signatures are only needed
from persons designated as authorized signers.
TITLE NAME SIGNATURE
----- ---- ---------
Chairman of
Board: Anthony J. Armini /s/ Anthony J. Armini
___________________________ ____________________________
Chief Executive
Officer: ___________________________ ____________________________
President: ___________________________ ____________________________
Vice President: Darlene M. Deptula-hicks /s/ Darlene M. Deptula-hicks
___________________________ ____________________________
Treasurer: ___________________________ ____________________________
Secretary: Stephen N. Bunker /s/ Stephen N. Bunker
___________________________ ____________________________
Other: ___________________________ ____________________________
Other: ___________________________ ____________________________
Other: ___________________________ ____________________________
2. RESTRICTED SECURITIES, PRINCIPAL SHAREHOLDERS AND AFFILIATES. Attached
hereto as Schedule 1 is a listing of the names, addresses, social numbers,
certificate numbers and shares held by all persons who own "restricted
securities" of the Corporation, as that term is defined under Rule 144 of the
Securities Act of 1933, as amended, principal shareholders owning 10% or more of
the outstanding shares of the Corporation or "affiliates" as defined under SEC
Rule 144(a)(1) or control persons of the Corporation.
-1-
<PAGE> 2
3. AUTHORIZED SHARES. The authorized and issued Stock of the Corporation
is as follows:
Shares Authorized
Class of Stock by the Articles Shares
and or Certificate Issued &
Par Value of Incorporation Outstanding
- ----------------------------------------------------------------------
Common Stock $.10 20,000,000 4,372,291
Preferred Stock $.10 5,000,000 0
4. RESERVED SHARES. Of the authorized but unissued shares of the
Corporation's stock the following number of shares are reserved for the specific
purposes shown (if none, so indicate):
Class and Number of Shares
Par Value Each Reservation Purpose
- --------- ---------------- -------
See Attached
5. OTHER TRANSFER AGENTS. The name of all other or previous Transfer
Agents and Registrars of the stock of the Corporation are:
Class of Stock Transfer Agent(s) Registrar(s)
- -------------- ----------------- ------------
None
6. CUSIP NUMBER. The Corporation's CUSIP number(s) is(are) as follows:
SEE ATTACHED
7. IDENTIFICATION NUMBERS. The following are various numbers which
identify the Corporation:
(a) The I.R.S. Employer Identification Number of the Corporation is
04-2837126.
(b) The latest 1933 Act SEC File Number is 333-64499.
(c) The 1934 Act SEC File Number is _______________________________.
8. CORPORATE COUNSEL. The name, address and telephone number of legal
counsel for the Corporation is:
FOLEY HOAG & ELIOT, LLP
ONE POST OFFICE SQUARE, BOSTON, MA 02109 ATTN: DAVID BROADWIN
TELEPHONE: 617-832-1000 FAX: 617-832-7000
9. CORPORATE CONTACTS AND ADDRESS FOR COMMUNICATIONS. The name(s) of the
designated contact(s) with the Corporation is (are):
DARLENE M. DEPTULA-HICKS
TELEPHONE: 781-246-0700 FAX: 781-246-1167 .
-2-
<PAGE> 3
The address and telephone number of the Corporation to which all notices and
communications are to be sent or made are:
IMPLANT SCIENCES CORP
107 AUDUBON ROAD, #5, WAKEFIELD, MA 01880
TELEPHONE: 781-246-0700 FAX 781-246-1167 .
10. OTHER CORPORATION INFORMATION. The following is additional
information concerning the Corporation:
(a) The Corporation's fiscal year-end is JUNE 30.
(b) The date of the Corporation's last annual meeting was SEPT. 9,
1998.
11. SPECIMEN STOCK CERTIFICATES. The specimen stock certificates of the
Corporation as attached hereto have been duly authorized by the Board of
Directors for use by the Corporation's Transfer Agent and Registrar.
12. CORPORATE DOCUMENTS. Attached hereto are true and correct copies of
the Corporation's Articles of Incorporation, all amendments to the Articles of
Incorporation and the By-Laws and that the same have not been rescinded or
modified and are in full force and effect as of the date hereof.
13. APPOINTMENT RESOLUTION. The following is a resolution duly adopted by
the Board of Directors of said Corporation on SEPT. 9, 1998 at which a quorum
was present and voted and said resolution is now in full force and effect:
RESOLVED that in accordance with the terms and provisions of that certain
Agreement Appointing Transfer Agent and dated the 9 day of SEPTEMBER, 1998
(the "Agreement"). American Securities Transfer & Trust, Inc. ("AST") is hereby
appointed Transfer Agent and Registrar for the shares referenced in said
Agreement;
FURTHER RESOLVED that the Secretary or Assistant Secretary of this Company
will file with AST a certified copy of these resolutions and will certify to AST
from time to time the names of the officers of this Company authorized by these
resolutions to act in the premises together with the specimen signatures of such
officers; and AST shall be entitled as against this Company to conclusively
presume that the persons so certified as officers continue, respectively, to act
as such and that each of the foregoing resolutions continue in force until
otherwise notified in writing by the Secretary or other officer of this Company.
14. INDEMNITY BOND FOR LOST, STOLEN, MUTILATED CERTIFICATES. The
following is a resolution duly adopted by the Board of Directors of said
Corporation on , 199 at which a quorum was present and voted, and said
resolution is now in full force and effect:
WHEREAS American Securities Transfer & Trust, Inc. (hereinafter called the
"Transfer Agent"), as transfer agent appointed by the Company in accordance with
the terms and provisions of that certain Agreement Appointing Transfer Agent and
Registrar dated the 9 day of SEPTEMBER, 1998, may be called upon from time to
time to issue replacements for stock certificates which have been reported lost,
destroyed, mutilated or stolen, and the Transfer Agent may be called upon from
time to time to transfer such stock registered in the names of decedents whose
estates are not to be administered under the jurisdiction of a court; and
-3-
<PAGE> 4
WHEREAS Transfer Agent has entered into an agreement with a Surety Company
(hereinafter referred to as "Surety Company") whereby the Surety Company has
issued a comprehensive Transfer Agent's Indemnity Bond in an open penalty amount
(hereinafter called the "Open Penalty Bond"); and
WHEREAS from time to time it may become necessary and appropriate for the
Transfer Agent to proceed with the replacement of lost, destroyed, mutilated or
stolen stock certificates outside of its arrangements with the Surety Company.
NOW THEREFORE BE IT RESOLVED that in case application shall be any of the
above described stock of this corporation which have been reported lost,
destroyed, mutilated or stolen, or in case application be made to the Transfer
Agent for the transfer of such stock registered in the name of a decedent whose
estate is not to be administered under the jurisdiction of a court, the Transfer
Agent is authorized to proceed with such replacement and/or transfer and the
Registrar for such stock is authorized to register the newly issued
certificates, all without further authority from this Board, upon the condition
that a properly executed copy of the applicable Exhibit or Exhibits called for
by the Open Penalty Bond shall have been filed with this corporation; and
FURTHER RESOLVED that the Transfer Agent is hereby authorized to issue and
the Registrar to register stock certificates to replace those which may be lost,
destroyed, mutilated or stolen upon being furnished with a proof of loss,
destruction, mutilation or theft and indemnity satisfactory to them in form
other than that provided by the Surety Company, which indemnity shall include
this corporation as an obligee; and
FURTHER RESOLVED that these resolutions shall remain in fill force and
effect until written notice of revocation thereof has been given by this
corporation to the Transfer Agent and to the Registrar.
WITNESS my hand and seal of the Corporation this 19 day of OCTOBER, 1998.
[CORPORATE SEAL] /s/ Stephen N. Bunker
-----------------------------
Secretary
-4-
<PAGE> 5
SCHEDULE 1: PRINCIPAL SHAREHOLDERS, RESTRICTED STOCK AND AFFILIATES
THIS SCHEDULE is attached to and made a part of that certain Certification
of Corporate Secretary for IMPLANT SCIENCES CORPORATION (Name of Corporation).
1. HOLDERS OF RESTRICTED SECURITIES. The following are the names,
addresses, social security numbers and shares held by all person who own
"restricted securities" of the Corporation:
Name and Social Certificate Number of
Address Security Number Numbers Shares
_____________________ _________________ _________________ _________________
_____________________
_____________________
_____________________ See Attached
_____________________ _________________ _________________ _________________
_____________________
_____________________
_____________________
_____________________ _________________ _________________ _________________
_____________________
_____________________
_____________________
_____________________ _________________ _________________ _________________
(Note: the foregoing information may be supplied by attaching to this Schedule
as an Exhibit a computer generated or typewritten list containing the same or
equivalent information.)
2. PRINCIPAL SHAREHOLDERS, AFFILIATES OR CONTROL PERSONS. The following
persons own 10% or more of the outstanding shares of the Corporation or are
"affiliates" as defined under SEC Rule 144(a)(1) or control persons of the
Corporation:
Describe
Number Affiliate
Name of Shareholder of Shares Relationship
____________________ _______________ _______________________
Anthony J. Armini 1,436,309 CEO/President
____________________ _______________ _______________________
Patricia A. Armini 1,086,309 Former Wife of CEO
____________________ _______________ _______________________
Nar Holding Corp. 905,821 investor/Director
____________________ _______________ _______________________
Stephen N. Bunker 742,406 VP, Chief Scientist
____________________ _______________ _______________________
____________________ _______________ _______________________
-5-
<PAGE> 6
(Note: The foregoing information may be supplied by attaching to this Schedule
as an Exhibit, a computer or typewritten list containing the same or equivalent
information. If allotted space is not sufficient, attach additional pages to
this Schedule.)
-6-
<PAGE> 1
EXHIBIT 10.39
RESEARCH AND DEVELOPMENT AGREEMENT
This Research and Development Agreement (the "Agreement") is entered into
effective as of May 20, 1998, by and between Implant Sciences Corporation
("ISC") with a place of business at 107 Audubon Road, #5, Wakefield,
Massachusetts 01880-1246, and Guidant Corporation and its affiliates ("Guidant")
with a place of business at 3200 Lakeside Drive, Santa Clara, California 95052.
RECITALS:
A. ISC is experienced in ion implanting items, including stainless steel;
B. Guidant develops, manufactures and sells medical devices, including
stainless steel stents;
C. ISC and Guidant desire to collaborate with each other to conduct
certain research and experiments to develop radioactive stents for the treatment
of vascular disease (i.e., disease in blood vessels in the human anatomy,
excluding stents for use in treating biliary and urological disorders) (the
"Research Field"); and
D. ISC and Guidant further intend to extend such collaboration, if
successful, into a mutually exclusive long term supply arrangement upon terms
and conditions to be negotiated.
NOW, THEREFORE, the parties agree as follows:
1. DEFINITIONS. As used herein, the following terms shall have the
following meanings unless the context clearly requires otherwise:
1.1 "CONFIDENTIAL INFORMATION" shall mean any information which
relates to the disclosing party, its business or assets or that of any of its
customers or affiliates that is considered to be proprietary and confidential;
provided, however, that in order for information to be "Confidential
Information" for purposes of this Agreement, written material must be marked by
the disclosing party as "Confidential," and oral information disclosed must be
identified as confidential at the time of disclosure, reduced to writing by the
disclosing party, marked "Confidential," and delivered to the receiving party
within 30 days of disclosure. Once information has been identified as
"Confidential" in accordance herewith, it shall not be necessary to designate
such information as "Confidential" in subsequent written or oral communications.
Nothing in this Agreement shall be deemed to require disclosure of Confidential
Information by either party to the other.
1.2 "RESEARCH PROGRAM" shall mean ISC's research and development
into the feasibility of ion implanting Guidant stents for use in the treatment
of vascular disease, as more particularly described in Task 2, 3 and 4 of Part B
on Exhibit Z to this Agreement, which is incorporated into this Agreement by
this reference.
<PAGE> 2
2. ISC RESEARCH PROGRAM OBLIGATIONS.
2.1 RESEARCH OBLIGATIONS. ISC will use commercially reasonable
efforts to complete the tasks described in Exhibit Z.
2.2 FUNDING. Except for Guidant's funding obligations described in
Section 3 and Exhibit Z, ISC will pay for all costs and expenses for its
obligations under the Research Program.
2.3 CONTACT. A. J. Armini will serve as the primary contact for ISC
to facilitate ISC's activities during the Research Program. Ty Hu will serve as
the primary contact for Guidant to facilitate Guidant's activities during the
Research Program.
2.4 TECHNICAL REVIEWS. ISC will participate with Guidant in the
review of technical results of the Research Program.
3. GUIDANT'S RESEARCH PROGRAM OBLIGATIONS. Guidant will pay for the costs
of the Research Program as follows:
<TABLE>
<S> <C> <C>
Within ten (10) business days of execution of this Agreement by both parties: $[Redacted Text]
Upon delivery of [Redacted Text] stents satisfying the specifications defined in Exhibit Y: $[Redacted Text]
Upon delivery of [Redacted Text] stents satisfying the specifications as defined in Exhibit Y: $[Redacted Text]
Upon delivery of [Redacted Text] stents satisfying the specifications as defined in Exhibit Y: $[Redacted Text]
--------------
TOTAL: $[Redacted Text]
</TABLE>
In addition, Guidant will timely provide ISC with all stents necessary for its
use in the Research Program, including [Redacted Text] required by ISC
during the initial period during which the equipment is being validated as
described in Section 4.5. Such stents may include stents with cosmetic blemishes
or other defects that will not affect the Research Program objectives. Guidant
will have further financial obligations for the costs of the Research Program
other than as set forth in this Agreement.
4. JOINT RESEARCH PROGRAM OBLIGATIONS AND RIGHTS.
4.1 COOPERATION. ISC and Guidant will cooperate and use their
respective reasonable efforts to fulfill the objectives of the Research Program
in an expeditious manner and will promptly share with the other all results
obtained. Guidant agrees to cooperate and use commercially reasonable efforts in
support of ISC's application for a National Institute of Health (NIH) grant. In
particular, Guidant agrees to provide ISC with a letter of support in a form to
be mutually agreed upon.
4.2 DISCLAIMER. Neither party represents to the other that any
intellectual property rights generated prior, during or after the Research
Program will be free of dominance
-2-
<PAGE> 3
by other patents, including those based upon inventions made by other inventors
of a party independent of the Research Program.
4.3 COSTS AND EXPENSES. Each party will bear all costs and expenses
incurred by it in complying with its obligations under this Agreement without
any reimbursement from the other party, except as set forth in Sections 2 & 3
above.
4.4 ASSESSMENT. From time to time, Guidant and ISC will meet to
jointly assess the results of the Research Program and the parties' related
activities.
4.5 TERM AND TERMINATION. This Agreement will continue in effect
until all of the requirements outlined on Exhibit Z have been completed,
including the animal studies for each of the radioactive stents; provided,
however, that ISC's obligations regarding exclusivity shall terminate in
accordance with Section 5. Notwithstanding the foregoing, Guidant may terminate
this Agreement at any time by written notice to ISC on or after the six month
anniversary of the date first written above if ISC has not delivered to Guidant
radioactive stents ready for implanting in Guidant's animal studies for each of
the three different isotopes identified in Section 3 above. If Guidant
terminates this Agreement in accordance with the preceding sentence, ISC will
pay Guidant an amount equal to all of the payments made by Guidant to the date
of such termination; provided, however, that if ISC has delivered to Guidant
radioactive stents for implanting in Guidant's animal studies for (i) [Redacted
Text] of the [Redacted Text] different isotopes identified in Section 3 above,
then ISC will not be required to refund [Redacted Text] of the amount paid by
Guidant prior to such termination [Redacted Text], and all of the $[Redacted
Text] payment paid for delivery of the stent with the applicable isotope), or
(ii) [Redacted Text] of the [Redacted Text] different isotopes identified in
Section 3 above, then ISC will not be required to refund [Redacted Text] of the
amount paid by Guidant prior to such termination [Redacted Text] payment, and
the two $[Redacted Text] payments paid for delivery of the [Redacted Text]
stents with the applicable isotopes). Guidant agrees to place orders for the
stents identified in Section 3 above and to deliver the stents within two (2)
months of the date that ISC notifies Guidant that its radiation unit is on-line,
validated and capable of irradiating the stents using all of the isotopes.
4.6 SPECIFICATIONS. All stents delivered to Guidant will conform to
the specifications set forth in Exhibit Y. ISC shall certify conformity to the
specifications upon shipment from ISC. Guidant may also verify conformity to the
specifications upon its receipt of the stents.
5. EXCLUSIVITY AND RIGHT OF FIRST NEGOTIATION. During the "Initial
Exclusivity Period" (as defined in the next sentence), ISC shall not (i) work
with any third party in developing a radioactive stent within the Research Field
or a process for making stents radioactive, or (ii) enter into any discussions
or agreement (including an agreement in principle) regarding any sale,
assignment, license or other disposition of ISC's intellectual property,
including, without limitation, patents, patent applications, know-how and/or
technology, relating to radioactive stents within the Research Field or
processes for making stents radioactive (the "Intellectual
-3-
<PAGE> 4
Property Rights"). The "Initial Exclusivity Period" will be the period of time
commencing on the date first written above, and ending on the date that is four
months after ISC delivers to Guidant an aggregate of [Redacted Text] irradiated
with [Redacted Text], and [Redacted Text] stents irradiated with [Redacted Text]
(which will include the [Redacted Text] described in Section 3.2 above) and
satisfying the specifications identified in Exhibit Y). Guidant will order the
remaining [Redacted Text] stents no later than two (2) months after delivery of
the initial [Redacted Text]. If Guidant does not order the remaining [Redacted
Text] of the delivery of the initial [Redacted Text] stents, then Guidant will
be deemed to have ordered such stents solely for purposes of determining the
Initial Exclusivity Period.
Within fifteen (15) days following the completion of the Initial
Exclusivity Period, Guidant will notify ISC in writing if it desires to
negotiate an agreement for exclusive license rights to the Intellectual Property
Rights in the Research Field and/or an exclusive supply agreement. If Guidant
notifies ISC that it desires to acquire exclusive license rights to the
Intellectual Property Rights and/or enter into an exclusive supply agreement,
ISC will negotiate exclusively with Guidant for a period of [Redacted Text] from
the end of the Initial Exclusivity Period for such an agreement. During the
period of negotiations with Guidant, ISC shall not enter into any agreement or
discussions with any other third party regarding the Intellectual Property
Rights and/or a supply agreement. If Guidant and ISC fail to reach an agreement
in principle regarding the Intellectual Property Rights and/or supply agreement
within the [Redacted Text] period described above, ISC shall then have the right
to enter into an agreement with a third party, provided that, during the twelve
(12) month period following the failure of the parties to reach an agreement in
principal such agreement is not on terms and conditions that are equal to or
more favorable to that third party than those last offered by Guidant. In
addition, Guidant will have the right to enter into an agreement with a third
party, provided that, during the twelve (12) month period following the failure
of the parties to reach an agreement in principal, such agreement is not on
terms and conditions that are equal to or more favorable to that third party
than those last offered by ISC, provided such agreement is for the same ion
implantation process and quality product.
6. INTELLECTUAL PROPERTY. Any patent rights, trade secrets, proprietary
inventions or other intellectual property resulting from the collaboration
contemplated by this Agreement shall belong to the party which invented or
developed the same, without any rights of the other party to any such invention
(subject to the rights in Section 5), or to the applicable parties jointly in
the event that more than one of the parties jointly invented the same. Each
party agrees that it will execute any necessary assignments or other instruments
which may be necessary to accomplish the foregoing.
7. INDEMNITY. Each party will indemnity and hold the other harmless from
any loss, damage, cost and reasonable attorneys' fees (hereinafter "loss")
incurred in connection with the defense of claims made by a third party, if such
loss is causally related to negligence, willful misconduct, or material breach
of contract by said other party; provided, however, that in the event such loss
was also causally related to negligence, willful misconduct, or material breach
of
-4-
<PAGE> 5
contract by the party seeking indemnification, no right of indemnification shall
exist, and each party shall be limited to the remedy of contribution, if and to
the extent otherwise applicable. Notwithstanding the provisions of the foregoing
sentence, Guidant will indemnify and hold ISC harmless from all claims, losses,
damages, costs, and reasonable attorneys' fees arising out of or related to any
claim made by any third party for alleged patent infringement. Each party shall
promptly give notice to the other party of any events or any claim which may
give rise to a claim for indemnification, and shall provide reasonable
cooperation to the other in connection with the response to and/or defense of
such claim.
8. ABSENCE OF EXPRESS OR IMPLIED WARRANTIES. This Agreement is one for
the provision of ion implantation services only, and not for the sale of goods.
Consequently, ISC makes no warranties with respect to the stents as to which it
provides such services, including without limitation any implied warranty of
merchantability or warranty of fitness for a particular purpose, except that
stents delivered by ISC shall at the time of shipment be in material compliance
with the specifications of Exhibit Y. Title to stents delivered by Guidant to
ISC for implantation shall remain with Guidant. Guidant's sole remedy for
failure of any implanted stents to meet the specifications of Exhibit Y shall be
the refund and/or non-payment remedies specifically provided for herein.
9. LIMITED USE OF IMPLANTED STENTS. It is understood and agreed that the
stents to be ion implanted by ISC pursuant to this Agreement are intended for
internal testing and evaluation by Guidant, including animal experimentation and
will not be used with any human subject. Guidant agrees that it will store and
handle radioactive stents implanted by ISC in material compliance with all
federal, state and/or local laws and regulations. Guidant further agrees that it
will provide adequate warnings and training with respect to the potential
hazards of such products to its employees and to any third parties to which it
delivers or entrusts such products.
10. CONFIDENTIALITY. Each party may permit the other party access to its
Confidential Information to the extent necessary for fulfillment of the purposes
of this Agreement, provided that all such Confidential Information shall be kept
confidential by the receiving party and its respective affiliates at all times,
and neither party shall, without the other's prior written consent, distribute,
disclose or divulge Confidential Information of the other party to any person,
firm or entity of any kind, or use the Confidential Information of the other for
any purpose not contemplated by this agreement whatsoever. The obligations in
the preceding sentence shall not apply to any Confidential Information which (i)
is or becomes lawfully in the public domain other than as a result of a breach
of this Agreement; (ii) is already in the receiving party's possession at the
time of disclosure thereof; (iii) is received from a third party having no
obligations of confidentiality to the disclosing party; (iv) is independently
developed by the receiving party; or (v) is required by law or regulation to be
disclosed. In the event that information is required to be disclosed pursuant to
(v), the party required to make disclosure shall notify the other to allow that
party to assert whatever exclusions or exemptions may be available to it under
such law or regulation. Upon the request of either party, the other shall return
all copies of Confidential Information of such party, except that one copy may
be retained for legal purposes.
-5-
<PAGE> 6
11. PUBLICATION. No party shall publish or otherwise publicly disclose
any results of the Research Program without the written consent of the other
party which consent shall not be unreasonably withheld. It shall not be
unreasonable for a party to require as a condition of its consent a publication
delay not in excess of ninety (90) days. In order to avoid loss of patent or
other intellectual property rights as a result of premature public disclosure of
patentable information, each party will submit prepublication materials to the
other for review and comment at least sixty (60) days prior to planned
submission for publication. Neither party will use any name or trademark of the
other and neither party shall make any public disclosure of the Agreement or the
transactions contemplated hereby except as required by law, including, but not
limited to, legal disclosure obligations in connection with planned financing
activities, provided that (i) any such disclosures are only to the extent
legally required, and in any event do not include any of the financial terms of
the agreement, and (ii) that the nondisclosing party is given an opportunity to
review and comment on any such disclosure at least thirty (30) days in advance
of such disclosure, or such shorter amount of time as may be practicable under
the circumstances. Nothing herein shall, however, release either party from its
obligation to maintain the confidentiality of the Confidential Information
provided to it by the other party as required herein.
12. MISCELLANEOUS.
12.1 ASSIGNMENT. This Agreement shall be binding upon the parties
hereto and their respective successors and assigns. This Agreement may not be
assigned by either party without the prior written consent of the other, which
consent will not be unreasonably withheld, except that either party may assign
this Agreement without the consent of the other to an affiliate or to a third
party successor to the business of such party to which this Agreement relates.
12.2 COUNTERPARTS AND HEADINGS. This Agreement may be executed in
counterparts, each of which may be an original but all of which, taken together,
shall constitute one and the same instrument. Headings included herein are for
convenience only and shall not be used to construe this Agreement.
12.3 SURVIVAL. The provisions of Sections 6-12 shall survive the
termination of this Agreement.
12.4 ENTIRETY. This Agreement constitutes the entire and only
agreement between the parties relating to the subject matter hereof and all
other prior negotiations, representations, agreements and understandings are
superseded hereby. No agreements altering or supplementing the terms hereof may
be made except by means of a written document signed by the duly authorized
representatives of the parties.
12.5 NOTICES. Any notice required or permitted by this Agreement
shall be in writing and shall be deemed given when received if delivered by hand
or four (4) days subsequent to mailing if mailed by certified or registered
mall, with postage prepaid, return receipt requested, and addressed to the party
at the address first set forth above or such other address as may be given from
time to time under the terms of this notice provision.
-6-
<PAGE> 7
12.6 WAIVER. Failure of either party to enforce a right under this
Agreement shall not act as a waiver of that right or the ability to later assert
that right relative to the particular situation involved.
12.7 VALIDITY. If any provision of this Agreement shall be found by
a court to be void, invalid or unenforceable, the same shall be reformed to
comply with applicable law or stricken if not so conformable, so as not to
effect the validity or enforceability of this Agreement.
12.8 INDEPENDENT CONTRACTORS. For the purposes of this Agreement,
the parties shall be, and shall be deemed to be, independent contractors and not
agents or employees of the other party. Neither party shall have authority to
make any statements, representations or commitments of any kind, or to take any
action which shall be binding on the other party, except as may be expressly
provided for herein or authorized in writing. The parties are not partners or
joint venturers under this Agreement, and nothing shall be construed as causing
them to be such.
12.9 GOVERNING LAW. This Agreement shall be governed by the
substantive commercial and contract law of the State of Illinois, excluding its
conflicts of laws rules.
12.10 DISPUTE RESOLUTION. In the event any dispute arises out of or
concerning this Agreement which the parties are unable to resolve reasonably
promptly through discussion, the parties agree, as an initial matter, to submit
such dispute promptly to non-binding mediation. In the event that mediation is
unsuccessful, the dispute shall be submitted to binding private arbitration
before a single arbitrator selected by agreement of the parties from a list
proposed by the American Arbitration Association, or such other neutral body as
the parties may agree on. The place of arbitration shall be Chicago, Illinois,
unless the parties and arbitrator agree on another location. The parties agree
that each shall be entitled to reasonable discovery from the other in connection
with such arbitration, subject to such limitations as may be imposed by the
arbitrator. The parties further agree any such arbitration should be conducted
as promptly and inexpensively as possible and that they will cooperate with each
other to this end. The arbitrator may, in his or her discretion, impose
sanctions for breach of the foregoing obligation.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
set forth above.
IMPLANT SCIENCES CORPORATION GUIDANT CORPORATION
By: /s/ A.J. Armini By: /s/ Beverly Huss
----------------------- ------------------------------------
Title: President Title: Vice President and GM Stent Business
----------------------- Unit, Guidant
------------------------------------
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<PAGE> 8
EXHIBIT Z
TO RESEARCH AND DEVELOPMENT AGREEMENT
BETWEEN
IMPLANT SCIENCES CORPORATION
AND
GUIDANT CORPORATION
Statement of Work
-----------------
A. DELIVERABLES
------------
TASK 1. DELIVER ACTIVATED STENTS
ISC will deliver [Redacted Text] strength radioactive stents to Guidant for
animal studies through December 1999. Stents requested by Guidant with strengths
higher than [Redacted Text] will be counted as multiple stents. For example,
each [Redacted Text] stent would be counted as [Redacted Text] stents toward the
[Redacted Text].
All orders that are placed by Guidant must be for a minimum of at least 20
stents per isotope although they may each be different radioactive strengths.
B. RESEARCH PROGRAM
----------------
ISC will use commercially reasonable efforts to complete the facility to
activate, and safely and efficiently handle large quantities of stents.
TASK 2. FACILITY DEVELOPMENT
This will include:
(a) Design and fabrication of a remote handling end station to activate
and load/unload stents safely.
(b) Develop safe handling techniques and hardware to generate ion beams of
[Redacted Text].
(c) Develop and fabricate focus and vertical scanners on the ion beam.
(d) Develop techniques and hardware to safely handle, inspect, and ship
radioactive stents to Guidant or a site designated by Guidant.
TASK 3. STENT SCANNER SYSTEM
ISC will develop an automated stent scanner that will measure linear
uniformity and circumferential uniformity of stent radioactivity. ISC will also
coordinate with NIST to obtain absolute standard activities for each
radioisotope mentioned in Task 2.
TASK 4. TECHNICAL SUPPORT FOR PRECLINICAL STUDIES
ISC will provide technical support during Guidant's preclinical studies
including material composition added to the stent, activity calculations, dose
calculations and calibrations, and software for providing correct ion
implantation parameters for shipping stents with activity-to-date certification.
-8-
<PAGE> 9
EXHIBIT Y
TO RESEARCH AND DEVELOPMENT AGREEMENT
BETWEEN
IMPLANT SCIENCES CORPORATION
AND
GUIDANT CORPORATION
STENT QUALITY
Quality assessment after ion implantation onto the stents will be performed by
ISC using certified detecting system. Guidant will randomly check and confirm
the conditions of the stent and radiation distribution/activity of the stent
using standardized procedures:
1. Stent integrity be maintained at manufacturer's standard (no damages
to stent struts).
2. The total stent radiation activity level, for each activity level,
shall be as specified by Guidant on the date of shipment from ISC
within a range of [Redacted Text]. The activity level for each
subsequent day shall be within [Redacted Text] of the activity level
as specified by the radiation activity level chart supplied by ISC.
3. Necessary measures will be taken to minimize the cross contamination
of [Redacted Text] radioactive isotopes from the implantation
system to an acceptable level. Other than these isotopes, the stents
will contain no contamination from any unwanted radioactive isotopes
from the ion source.
4. Initial test implantation should provide certified energy spectrum and
radioactive isotope list (if any other than the targeted isotope)
implanted onto the stent. Implantation for research will be decided
upon satisfactory test implantation.
5. The ion implanted stent will have no greater than [Redacted Text]
of the implanted radioisotope [Redacted Text].
6. Stent activity and its decay time equation/time course be provided to
Guidant with specified implantation/activity dates
7. Certified uniform distribution of radiation activity on the stent
measured both linearly and circumferentially along the stent using
certified "scanning" system (hardware and software).
SUGGESTED TIMELINE*
Within two months but no later than six months after signing of the contract,
all [Redacted Text] should be implanted onto Guidant stents with qualities as
stated above.
- validation test [Redacted Text]
- [Redacted Text] [Redacted Text]
- [Redacted Text] [Redacted Text]
- [Redacted Text] [Redacted Text]
* The total activity on the stent will be decided at the time of "order"
(coordination with test sites is needed for the specific time). The activity
range will be flexible and be modified in accordance to the outcome/result of
feasibility test.
-9-
<PAGE> 1
Exhibit 10.40
CONFIDENTIAL
September 28, 1998
Implant Sciences
107 Audubon Road, #5
Wakefield, MA 01880-1246
Attn: Alan Lucas
Dear Alan,
In follow up to the meeting on September 2nd, this letter modifies the Research
and Development Agreement dated May 1998 between Implant Sciences Corporation
("ISC") and Guidant Corporation ("Guidant") to reflect what has been discussed.
1. Guidant agrees to the ISC proposal to substitute [Redacted Text] for
[Redacted Text]. All mention of [Redacted Text] should be replaced with
[Redacted Text].
2. Guidant agrees to the ISC timeline extension for stent delivery as
proposed by ISC on September 2nd, 1998.
[Redacted Text] December 15th
[Redacted Text] January 31st
[Redacted Text] February 15th
The second sentence of Section 4.5 of the May 1998 agreement, Term and
Termination, shall be modified to reflect a nine month instead of six month
anniversary as follows: Notwithstanding the foregoing, Guidant may terminate
this Agreement at any time by written notice to ISC on or after the nine month
anniversary of the date first written above if ISC has not delivered to Guidant
radioactive stents ready for implanting in Guidant's animal studies for each of
the three different isotopes identified in Section 3 above.
3. Section 3 shall be modified as follows:
The isotopes and quantities listed as [Redacted Text], and [Redacted Text] shall
instead read:
Upon delivery of [Redacted Text] stents satisfying the specifications defined in
Exhibit Y: $[Redacted Text]
Upon delivery of [Redacted Text] stents satisfying the specifications defined in
Exhibit Y: $[Redacted Text]
Upon delivery of [Redacted Text] stents satisfying the specifications defined in
Exhibit Y: $[Redacted Text]
4. The "Suggested timeline" in Exhibit Y shall be modified to read as follows:
<PAGE> 2
CONFIDENTIAL
Suggested Timeline*:
All isotopes delivered to the following schedule of isotopes, quantities, and
delivery dates:
[Redacted Text]
*The total activity on the stent will be decided at the time of "order"
(coordination with test sites is needed for the specific time).
Certainly, if there are any questions, please do not hesitate to call me at
(408) 235-3833. If you agree please sign both copies and return one back to me.
Sincerely,
/s/ illegible signature
Dana Mead
VP General Manager Stent Business Unit
Guidant Corporation
Agreed:
/s/ Anthony J. Armini
By:______________________
Tony Armini
President
Implant Sciences Corporation
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated July 31, 1998 except as to Note 13 as to which the
date is September 9, 1998, in Amendment No. 1 to the Registration Statement
(Form SB-2 No. 333-64499) and related Prospectus of Implant Sciences Corporation
for the Registration of 1,350,000 shares of its common stock.
/s/ ERNST & YOUNG LLP
--------------------------------------
Ernst & Young LLP
Boston, Massachusetts
December 18, 1998
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