<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 29, 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
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 3559 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. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
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<CAPTION>
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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 $862,800 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
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
FORM SB-2 CAPTION IN PROSPECTUS
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<C> <S> <C>
1. Front of Registration Statement and Outside Front
Cover Page of Prospectus............................. Facing Page of Registration Statement;
Cross Reference Sheet; Outside Front Cover
Page of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus........................................... Inside Front and Outside Back Cover Pages
of Prospectus
3. Summary Information and Risk Factors................. Prospectus Summary; The Company; Risk
Factors
4. Use of Proceeds...................................... Use of Proceeds
5. Determination of Offering Price...................... Risk Factors; Underwriting
6. Dilution............................................. Risk Factors; Dilution
7. Selling Security Holders.............................
8. Plan of Distribution................................. Outside Front and Outside Back Cover Pages
of Prospectus; Underwriting
9. Legal Proceedings.................................... Business
10. Directors, Executive Officers, Promoters and Control
Persons.............................................. Management
11. Security Ownership of Certain Beneficial Owners and
Management........................................... Principal Stockholders
12. Description of Securities............................ Description of Securities
13. Interest of Named Experts and Counsel................ Experts
14. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities....................... Management; Underwriting; Undertakings
.
15. Organization Within last Five Years.................. Certain Transactions
16. Description of Business.............................. Prospectus Summary; Business
17. Management's Discussion and Analysis or Plan of
Operation............................................ Management's Discussion and Analysis of
Financial Condition and Results of
Operations
18. Description of Property.............................. Business
19. Certain Relationships and Related Transactions....... Certain Transactions
20. Market for Common Equity and Related Stockholder
Matters.............................................. Outside Front Cover Page of and
Prospectus; Risk Factors; Dividend Policy;
Description of Securities; Shares Eligible
for Future Sale
21. Executive Compensation............................... Management
22. Financial Statements................................. Financial Statements
23. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure.................. Not Applicable
</TABLE>
<PAGE> 3
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 SEPTEMBER 29, 1998
IMPLANT SCIENCES CORPORATION
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 Unit will be
between $7.00 and $8.50. 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 140% 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 American
Stock Exchange averages at least 160% 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 Schneider Securities, Inc., the representative of the several underwriters
(the "Representative") 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 intends to file an application to have Common Stock and the Warrants
listed on the American Stock Exchange under the symbols ISX and ISXW,
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 8 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>
<CAPTION>
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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 Unit............................ $ -- $ -- $ --
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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 30 days of the date of
this Prospectus, to purchase up to 150,000 additional Units 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 the offices of Schneider Securities,
Inc., 2 Charles Street, Providence, Rhode Island 02904 on or about -- , 1998.
SCHNEIDER SECURITIES, INC.
The date of this Prospectus is -- , 1998.
<PAGE> 4
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, orthopedic implants,
vascular grafts and vascular introducers.
<PAGE> 5
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.
The Company uses the following marks: MICROFUSION, PROFILE CODE, and NITRO-
CHROME. 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.
2
<PAGE> 6
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."
Certain terms are defined in a Glossary beginning on page 51.
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 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 four issued United
States patents and twenty-one 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.
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.
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
3
<PAGE> 7
catheters, guidewires and stents used in interventional cardiology and other
catheter-based procedures that are guided by x-ray observation.
PRODUCTS
Prostate Seeds. The Company has developed, and applied for two 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.
Research to date 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 seven
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). Restenosis occurs
following 30% - 40% of balloon angioplasty procedures. However, the incidence of
restenosis has been shown to be 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 processed approximately 50,000 metal components used in knee and hip
total joint replacements, representing approximately 5% of all joint
replacements worldwide.
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 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
4
<PAGE> 8
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") 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 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, 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. Over 80% of prostate cancer is found in men over the age of
50. In 1997, 130,000 radical prostectomies and 45,000 external beam radiation
treatments were performed. The principle problem with these procedures is that
they frequently have significant side effects, including impotence and
incontinence. In 55% 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. In 1996 and 1997, 8,000 and 20,000 brachytherapy
procedures, respectively, were performed and it is estimated that approximately
40,000 brachytherapy procedures will be performed in 1998.
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. It is estimated that
currently more than 50% of balloon angioplasty procedures use one or more
stents. The worldwide market for stents is estimated to be approximately $1.3
billion in 1998. Numerous clinical trials have shown that delivery of an
appropriate dose of therapeutic radiation can reduce the incidence of restenosis
by two-thirds 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.
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. The total joint replacement market was estimated to be
1,000,000 units worldwide in 1997, with the United States accounting for about
60% of the market. Over the last three years, the Company has treated
approximately 50,000 of these units each year using its ion implantation
process.
5
<PAGE> 9
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 140% 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 American Stock Exchange averages in
excess of 160% 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,
expansion of facilities and acquisition
of additional equipment, marketing,
sales, and working capital and general
corporate purposes. See "Use of
Proceeds."
Proposed American Stock Exchange
Symbols
Common Stock..................... ISX
Warrants......................... ISXW
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 2,912,026 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) 1,412,026 shares reserved for issuance under
the Company's Stock Option Plan, the Company's Stock Purchase Plan and upon
exercise of outstanding warrants. See "Underwriting," "Certain Transactions"
and "Management -- Benefit Plans."
6
<PAGE> 10
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>
YEAR ENDED JUNE 30,
------------------------
1997 1998
---------- ----------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Product and contract research revenues...................... $2,678,918 $2,904,429
Equipment revenues(1)....................................... 350,754 --
---------- ----------
Total revenues.............................................. 3,029,672 2,904,429
Total costs and expenses.................................... 2,628,899 3,014,599
---------- ----------
Operating income (loss)..................................... 400,773 (110,170)
Other income (expenses), net................................ (21,043) 13,285
---------- ----------
Income (loss) before provision (benefit) for income taxes... 379,730 (96,885)
Provision (benefit) for income taxes........................ 161,400 (38,900)
Net income (loss)........................................... $ 218,330 $ (57,985)
========== ==========
Net income (loss) per share
Basic..................................................... $ .06 $ (.01)
Diluted................................................... .05 (.01)
Weighted average number of common and common
equivalent shares outstanding
Basic..................................................... 3,418,107 4,110,596
Diluted................................................... 4,066,874 4,110,596
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1998
-------------------------
AS
ACTUAL ADJUSTED(2)
---------- -----------
<S> <C> <C>
BALANCE SHEET DATA
Cash........................................................ $ 311,189 $6,191,189
Current assets.............................................. 871,289 6,751,289
Working capital............................................. 141,143 6,129,371
Total assets................................................ 2,166,483 8,046,483
Current portion of long term debt, including capital
lease..................................................... 55,352 55,352
Long term debt, including capital lease, net of current
portion................................................... 246,581 246,581
Stockholders' equity........................................ 1,177,456 7,057,456
</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."
7
<PAGE> 11
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."
ACCEPTANCE BY MEDICAL COMMUNITY; 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
and operating features of the Company's products and technologies as compared to
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."
8
<PAGE> 12
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."
DEPENDENCE ON PATENTS AND PROPRIETARY TECHNOLOGY
Although the Company has four United States patents issued and twenty-one
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
9
<PAGE> 13
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.
MANAGEMENT OF 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.
DEPENDENCE ON MAJOR CUSTOMERS
Approximately 48% of the Company's sales in fiscal 1998 were made to
Stryker Osteonics Corporation and Biomet Inc. 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.
10
<PAGE> 14
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 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
11
<PAGE> 15
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 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 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
12
<PAGE> 16
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 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.
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<PAGE> 17
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, 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, Anthony J.
Armini and its Vice President and Chief Scientist, 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. 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."
POTENTIAL ACQUISITIONS
The Company may in the future utilize a portion of the net proceeds of the
Offering to pursue acquisitions of complementary businesses as part of its
corporate strategy. While as of the date of this Prospectus, the Company has no
commitments or agreements with respect to any acquisition, the Company plans
regularly to evaluate acquisition opportunities that fit within its business
plan. Acquisitions involve numerous risks, including potential difficulties in
the assimilation of acquired operations, diversion of management's attention
away from normal operating activities, negative financial impact based on the
amortization of any acquired intangible assets, potential loss of key employees
of the acquired operation and potential financial risk resulting from
pre-acquisition liabilities that may exceed any indemnities which may be
provided by the seller.
The Company may require additional capital for acquisitions. Funds for
these purposes may be obtained from a number of sources, including bank
financing and additional sales of equity securities through either public or
private financing. There can be no assurance that any additional financing can
be obtained or, if obtained, that it would be on commercially acceptable terms.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
REPRESENTATIVE'S INFLUENCE OVER POTENTIAL FUTURE CAPITAL FINANCING
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 of its
securities (with the exception of the shares of Common Stock issued
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<PAGE> 18
upon exercise of the Warrants, currently outstanding options and options granted
under the Company's Stock Option Plan) without the Representative's prior
written consent. The Representative has informed the Company that these
agreements are for the purpose of encouraging the Company not to issue
additional securities on terms that would be dilutive to investors who
participate in this Offering, although there can be no assurance that additional
sales of securities will not occur that may have dilutive effects. The
Representative has further advised the Company that in determining whether
consent will be granted the Representative will consider, on a case-by-case
basis, in addition to the potential dilution to existing shareholders, a number
of factors, including the Company's current need for additional financing, the
purposes for which the financing is sought and the cost and availability of
alternative sources of non-equity financing. See "Underwriting."
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. 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. 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. Of the Restricted Shares, 4,205,845 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 1,960,000 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 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 1,960,000 shares 13 months after
this offering. Shares of Common Stock issued upon exercise of options after the
effective date of
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<PAGE> 19
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 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."
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 $6.45 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 $1.30 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 American Stock Exchange (or any other market on
which the stock is then traded) averages in excess of 160% 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."
16
<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."
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.
17
<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 $5,880,000 ($6,891,375 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>
Research and development activities and regulatory
matters.................................................. $1,500,000 25.5%
- Expenditures to increase research personnel,
development expenses, and regulatory matters
Facilities and equipment................................... $2,500,000 42.5%
- Expenditures in connection with expansion of the
Company's facilities and the related acquisition of
additional equipment to prepare for and to increase
production capacity
Marketing and sales........................................ $1,000,000 17.0%
- Expenditures for introducing new products, market
research studies, marketing collateral materials,
trade show participation, public relations,
advertising expenses and marketing personnel
Working capital and general corporate purposes............. $ 880,000 15.0%
</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.
18
<PAGE> 22
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
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>
JUNE 30, 1998
-------------------------
ACTUAL AS ADJUSTED
---------- -----------
<S> <C> <C>
Current portion of long-term debt, including capital
lease..................................................... $ 55,352 $ 55,352
Long-term debt, including capital lease, net of current
portion................................................... 246,581 246,581
Stockholders' equity:
Preferred Stock, par value $0.10 per share; no shares
authorized, issued or outstanding, actual; 5,000,000
shares authorized, no shares issued and outstanding, as
adjusted............................................... -- --
Common Stock, par value $.10 per share; 6,500,000 shares
authorized and 622,613 shares issued and outstanding,
actual; 20,000,000 shares authorized and 5,358,291
shares issued and outstanding, as adjusted(1).......... 62,261 535,829
Additional paid-in capital.................................. 1,380,555 6,786,987
Retained earnings (accumulated deficit)..................... (265,360) (265,360)
---------- ----------
Total stockholders' equity................................ 1,177,456 7,057,456
---------- ----------
Total capitalization.............................. $1,479,389 $7,359,389
========== ==========
</TABLE>
- ---------------
(1) Does not give effect to an aggregate of up to 2,912,026 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 1,135,946 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 Purchase Plan and the 111,580 shares of Common Stock reserved
for issuance upon exercise of outstanding warrants. See "Underwriting" and
"Management -- Benefit Plans."
19
<PAGE> 23
DILUTION
The net tangible book value of the Company's Common Stock as of June 30,
1998 was approximately $696,207, or $0.16 per share. Net tangible book value per
share represents the amount of the Company's total tangible assets less total
liabilities, divided by the 4,358,291 shares of Common Stock outstanding as of
June 30, 1998 (after accounting for 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 June 30, 1998 would have been $6,939,718 or $1.30 per share.
This represents an immediate increase in net tangible book value of $1.14
per share to existing shareholders, and an immediate dilution in net tangible
book value of $6.45 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 June 30, 1998........ $0.16
Increase per share attributable to new investors.......... 1.14
Pro forma net tangible book value per share after the
Offering(2)...................................................... 1.30
-----
Net tangible book value dilution per share to new investors(3)..... $6.45
=====
</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 2,912,026 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 1,135,946 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 June 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.............. 4,358,291 81.3% $1,310,862 14.5% $0.30
New Investors...................... 1,000,000 18.7% $7,750,000 85.5% $7.75
--------- ----- ---------- -----
Total(1)................. 5,358,291 100.0% $9,060,862 100.0%
========= ===== ========== =====
</TABLE>
- ---------------
(1) The foregoing table does not give effect to the items described in footnotes
(1) and (2) to the previous dilution table.
20
<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. 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>
YEARS ENDED JUNE 30,
------------------------
1997 1998
---------- ----------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Product and contract research revenues...................... $2,678,918 $2,904,429
Equipment revenues(1)....................................... 350,754 --
---------- ----------
Total revenues.............................................. 3,029,672 2,904,429
Cost of product and contract research revenues.............. 1,308,520 1,620,941
Cost of equipment revenues.................................. 347,414 --
Research and development.................................... 346,604 390,157
Selling, general and administrative......................... 626,361 1,003,501
---------- ----------
Total costs and expenses.................................... 2,628,899 3,014,599
---------- ----------
Operating income (loss), net................................ 400,773 (110,170)
Other income (expense)...................................... (21,043) 13,285
---------- ----------
Income (loss) before provision (benefit) for income taxes... 379,730 (96,885)
Provision (Benefit) for income taxes........................ 161,400 (38,900)
---------- ----------
Net income (loss)........................................... $ 218,330 $ (57,985)
========== ==========
Net income (loss) per share.................................
Basic..................................................... $ .06 $ (.01)
Diluted................................................... $ .05 $ (.01)
Weighted average number of common and common
equivalent shares outstanding.............................
Basic..................................................... 3,418,107 4,110,596
Diluted................................................... 4,066,874 4,110,596
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1998
----------------------------
ACTUAL AS ADJUSTED(2)
---------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash........................................................ $ 311,189 $6,191,189
Current assets.............................................. 871,289 6,751,289
Working capital............................................. 141,143 6,129,371
Total assets................................................ 2,166,483 8,046,483
Current portion of long term debt, including capital
lease..................................................... 55,352 55,352
Long term debt, including capital lease, net of current..... 246,581 246,581
Stockholders' equity........................................ 1,177,456 7,057,456
</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."
21
<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.
22
<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>
YEARS ENDED JUNE 30,
---------------------
1997 1998
------- -------
<S> <C> <C>
Revenues:
Product and contract research revenues:
Medical................................................ 73.7% 77.0%
Semiconductor.......................................... 14.8 23.0
Equipment................................................. 11.5 --
----- -----
Total revenues.................................... 100.0 100.0
Costs and expenses:
Cost of product and contract research revenues............ 43.2 55.8
Cost of equipment revenues................................ 11.5 --
Research and development.................................. 11.4 13.4
Selling, general and administrative....................... 20.7 34.6
----- -----
Total costs and expenses.......................... 86.8 103.8
----- -----
Operating income (loss)..................................... 13.2 (3.8)
Other income (expense), net................................. (0.7) 0.5
----- -----
Income before (benefit) provision for income taxes.......... 12.5 (3.3)
(Benefit) provision for taxes............................... 5.3 (1.3)
----- -----
Net income (loss)........................................... 7.2% (2.0)%
===== =====
</TABLE>
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.
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 0% 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.
23
<PAGE> 27
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 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 June 30, 1998 the Company had
$311,000 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 June 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 $75,000
and $200,000, respectively, were outstanding on these facilities at June 30,
1998. The Company has $550,000 available for future borrowing under its
equipment purchase facility.
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.
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
24
<PAGE> 28
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.
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.
25
<PAGE> 29
BUSINESS
Certain terms are defined in a glossary beginning on page 51.
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 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 four issued United
States patents and twenty-one 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, palladium-103, and ytterbium-169, 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, palladium-103, or ytterbium-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. In 1997, 20,000 of these procedures were performed, and it is
estimated that 40,000 of these procedures will be performed in 1998.
[HERE APPEARS A DRAWING OF A PROSTATE GLAND WITH IMPLANTED RADIOACTIVE SEEDS.]
Prostate Seeds. The Company has developed, and applied for two 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. Research to date 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
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reduction in the negative side effects, impotence and incontinence, frequently
associated with surgery and external beam radiation treatment. Sexual potency
after implantation of radioactive seeds has been reported to be 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 $38 to $48 each, for a cost of $3,800 to $4,800 per procedure.
Initially the Company plans to introduce an iodine-125 prostate seed. Later, the
Company has plans to introduce palladium-103 seeds and 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 both iodine-125 and
palladium-103 products and cyclotrons or linear accelerators for the
palladium-103 manufacturing process. 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) and of palladium-103 (17
days), the competition must assemble and ship seeds on a very tight schedule so
they can be implanted at the appropriate strength.
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 believes this
radioactive seed will be available for commercial sale in the second half of
1999. The Company has not decided when it will make filings for its other
proposed prostate seeds. See "Risk Factors -- Government Regulation."
Markets. 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. Over 80% of prostate cancer is found in men
over the age of 50. The National Cancer Institute estimates that approximately
19 out of every 100 men born today will be diagnosed with prostate cancer during
their lifetimes. These numbers approximate the incidence and mortality for
breast cancer in women.
In 1997, 130,000 radical prostectomies and 45,000 external beam radiation
treatments were performed. The principle problem with these procedures is that
they frequently have significant side effects including impotence or
incontinence. In 55% 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. In 1996 and 1997, 8,000 and 20,000 brachytherapy
procedures, respectively, were performed and it is estimated that approximately
40,000 brachytherapy procedures will be performed in 1998.
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. Approximately 1,000,000 balloon angioplasty procedures are
performed world-wide annually. Of these approximately 30% to 40% result in
restenosis after balloon angioplasty. Research 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
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procedures. Among 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 seven
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.
A wide number of both external and internal methods have been researched 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 U.S. 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.
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. It is estimated that
currently
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<PAGE> 33
more than 50% of balloon angioplasty procedures use one or more stents. The
worldwide market for stents is estimated to be approximately $1.3 billion in
1998. Numerous clinical trials have shown that delivery of an appropriate dose
of therapeutic radioactivity can reduce the incidence of restenosis by
two-thirds 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. Monolithic ceramic hip heads are currently employed in
approximately 10% 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. In addition, the Company's coated CoCr hip heads can be sold
by the Company's customers for approximately $300 each, approximately three
times less than monolithic ceramic hips.
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. The hip and
knee total joint replacement market is estimated to be 1,000,000 units worldwide
in 1997, with the United States accounting for approximately 60% of the market.
The Company treats approximately 50,000 of these each year using its ion
implantation process. The average life of these replacements is estimated to be
between five and ten years before revision surgery is required. Research has
shown that the Company's ceramic coatings can decrease wear debris generation by
two-thirds, which reduces osteolysis and thereby reduces 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.
SALES AND MARKETING
The Company's marketing and sales methods vary according to the
characteristics of each of its main business areas. 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 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 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
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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").
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.
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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 four issued United States patents, two allowed United States
patent applications 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 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
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
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'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
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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 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 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 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 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.
34
<PAGE> 38
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 June 30, 1998, the Company employed 33 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.
35
<PAGE> 39
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company and their ages as of
June 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.............. 40 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 nine 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 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.
36
<PAGE> 40
SHUNKICHI SHIMIZU joined the Company's Board of Directors in March, 1998.
He is the Director of North American Operations of Takata Corporation, a
manufacturer of seat belts and air bags. He also is the Executive Vice President
of TK Holdings, Inc. of Ohio. Prior to joining Takata Corporation, Mr. Shimizu
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 Takata Corporation. 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. 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.
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.
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
Department of Orthopedic Surgery
Indiana University School of Medicine
Indianapolis, Indiana
Stuart Goodman, M.D., Ph.D. Professor and Chairman
Department of Orthopedic Surgery
UCSF/Stanford Medical Center
Palo Alto, California
Robert Poss, M.D. Orthopedic Surgeon
Department of Orthopedic Surgery
Brigham and Women's Hospital
Boston, Massachusetts
</TABLE>
37
<PAGE> 41
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.
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 15, 1998. See "-- Employment Agreements."
(3) Dr. Bunker entered into an Employment Agreement with the Company on
September 15, 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>
38
<PAGE> 42
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 15, 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.
39
<PAGE> 43
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. A total of 1,960,000 shares of
Common Stock were reserved for issuance under the 1992 Option Plan. 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.
40
<PAGE> 44
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of September 11, 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 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 Anthony J. 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 September 11, 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 September 11, 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 Takata Corporation.
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 30,
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.
41
<PAGE> 45
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 an acting
chief financial officer to 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
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.
42
<PAGE> 46
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 Stock Transfer & Trust Co. (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 140% 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 American Stock Exchange averages in excess of 160% per
43
<PAGE> 47
share 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 date four years and one month 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."
44
<PAGE> 48
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 150% 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
45
<PAGE> 49
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.
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 Stock Transfer and Trust Co, New York, New York.
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 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
46
<PAGE> 50
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 4,205,845 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 as follows:
(i) approximately 166,446 Restricted Shares will be eligible for sale beginning
- --, 1999, and (ii) approximately 4,205,845 Restricted Shares will be eligible
for sale 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 Option
Plan.
47
<PAGE> 51
UNDERWRITING
The Underwriters named below have agreed, subject to the terms and
conditions of the Underwriting Agreement between the Company and Schneider
Securities, Inc., as Representative, 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>
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. After commencement of the
Offering, the public price and the concession may be changed.
The Company has granted to the Underwriters an over-allotment option
exercisable during the 30-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 Representative 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
$25,000 has already been paid.
At the closing of this Offering, the Company will issue to the
Representative, for nominal consideration the Representative's Warrants to
purchase 100,000 shares of Common Stock and 100,000 Warrants. See "Description
of Securities -- Representative's Warrants."
For the period during which the Representative's 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 Representative's
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 Representative's Warrants. Such facts may adversely affect the terms
on which the Company can obtain additional financing. To the extent that the
Representative realizes any gain from the resale of the Representative's
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 Representative, pursuant to which the Representative 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
Representative's 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
Representative's 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 Representative, 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.
48
<PAGE> 52
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 Representative that for a period of 24
months from the closing date of this Offering, the Representative 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.
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 Representative. 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.
49
<PAGE> 53
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.
50
<PAGE> 54
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.
Palladium-103 A radioisotope emitting x-rays with a 17 day
half-life.
Phosphorus-32 A radioisotope emitting only beta rays with a 14 day
half-life.
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<PAGE> 55
Physical Vapor Deposition Depositing a coating by condensing it from the vapor
onto a substrate.
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.
52
<PAGE> 56
IMPLANT SCIENCES CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors.............................. F-2
AUDITED FINANCIAL STATEMENTS
Balance Sheets as of June 30, 1997 and 1998................. F-3
Statements of Operations for the years ended June 30, 1997
and 1998.................................................. F-4
Statements of Changes in Stockholders' Equity for the years
ended June 30, 1997 and 1998.............................. F-5
Statements of Cash Flows for the years ended June 30, 1997
and 1998.................................................. F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 57
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> 58
IMPLANT SCIENCES CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1997 1998
---------- ----------
<S> <C> <C>
ASSETS
Current Assets:
Cash...................................................... $ 683,076 $ 311,189
Short-term investment..................................... 197,729 --
Accounts receivable, less allowances of $2,000 at June 30,
1997 and 1998.......................................... 389,409 388,235
Inventories............................................... 24,785 31,338
Deferred income taxes..................................... 13,000 18,000
Prepaid income taxes...................................... -- 118,781
Prepaid expenses.......................................... 10,351 3,746
---------- ----------
1,318,350 871,289
Property and Equipment, at cost:
Machinery and equipment................................... 770,113 1,314,850
Leasehold improvements.................................... 60,141 62,553
Computer software......................................... 36,335 36,335
Furniture and fixtures.................................... 38,096 49,833
Motor vehicles............................................ 14,822 14,822
Leased property under capital lease....................... -- 28,360
---------- ----------
919,507 1,506,753
Less accumulated depreciation............................. (602,842) (692,808)
---------- ----------
316,665 813,945
Other Assets:
Patent costs, net of accumulated amortization of $10,627
and $15,699, at June 30, 1997 and 1998, respectively... 91,871 117,738
Other noncurrent assets................................... 18,402 363,511
Deferred income taxes..................................... 176,000 --
---------- ----------
286,273 481,249
---------- ----------
Total Assets...................................... $1,921,288 $2,166,483
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Revolving line of credit.................................. $ 210,000 $ --
Accounts payable.......................................... 95,173 107,359
Accrued expenses.......................................... 694,572 567,435
Current portion of long-term debt......................... 66,667 50,278
Obligations under capital lease........................... -- 5,074
---------- ----------
1,066,412 730,146
Long Term Liabilities:
Long term debt, net of current portion.................... 38,889 224,491
Obligations under capital lease........................... -- 22,090
Deferred income taxes..................................... -- 12,300
---------- ----------
38,889 258,881
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........................................... 51,761 62,261
Additional paid-in capital................................ 971,601 1,380,555
Retained earnings (accumulated deficit)................... (207,375) (265,360)
---------- ----------
Total Stockholders' Equity........................ 815,987 1,177,456
---------- ----------
Total Liabilities and Stockholders' Equity........ $1,921,288 $2,166,483
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 59
IMPLANT SCIENCES CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------
1997 1998
---------- ----------
<S> <C> <C>
Revenues:
Product and contract research revenues:
Medical................................................ $2,231,918 $2,237,417
Semiconductor.......................................... 447,000 667,012
Equipment................................................. 350,754 --
---------- ----------
Total Revenues.................................... 3,029,672 2,904,429
Costs and Expenses:
Cost of product and contract research revenues............ 1,308,520 1,620,941
Cost of equipment revenues................................ 347,414 --
Research and development.................................. 346,604 390,157
Selling, general and administrative....................... 626,361 1,003,501
---------- ----------
Total Costs and Expenses.......................... 2,628,899 3,014,599
---------- ----------
Operating Income (Loss)..................................... 400,773 (110,170)
Other Income (Expense):
Interest income........................................... 20,717 18,872
Interest expense.......................................... (41,760) (11,563)
Other..................................................... -- 5,976
---------- ----------
Income (loss) before provision (benefit) for income taxes... 379,730 (96,885)
Provision (benefit) for income taxes........................ 161,400 (38,900)
---------- ----------
Net income (loss)......................................... $ 218,330 $ (57,985)
========== ==========
Net income (loss) per share--basic........................ $ .06 $ (0.01)
========== ==========
Net income (loss) per share--diluted...................... $ .05 $ (0.01)
========== ==========
Weighted average number of common shares outstanding used
for basic earnings per share........................... 3,418,107 4,110,596
========== ==========
Weighted average number of common and common equivalent
shares outstanding used for diluted earnings per
share.................................................. 4,066,874 4,110,596
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 60
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
======= ======= ========== ========= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 61
IMPLANT SCIENCES CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------
1997 1998
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)........................................... $218,330 $(57,985)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization............................. 65,052 101,075
Deferred income taxes provision (benefit)................. 91,000 (3,200)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable............. 216,330 1,174
(Increase) decrease in inventories..................... (24,785) (6,553)
(Increase) decrease in prepaid income taxes............ -- (118,781)
(Increase) decrease in prepaid expenses................ (7,512) 6,605
(Increase) decrease in other noncurrent assets......... (15,853) (351,146)
Increase (decrease) in accounts payable................ 32,002 12,186
Increase (decrease) in accrued expenses................ (125,963) 333,436
-------- --------
Net cash provided by (used in) operating activities......... 448,601 (83,189)
CASH FLOWS USED IN INVESTING ACTIVITIES
Redemption (purchase) of short-term investments............. (197,729) 197,729
Purchase of property and equipment.......................... (51,708) (558,886)
Capitalized patent costs.................................... (27,076) (30,939)
-------- --------
Net cash used in investing activities....................... (276,513) (392,096)
CASH FLOWS USED IN FINANCING ACTIVITIES
Proceeds from common stock issued........................... 148,230 145,381
Proceeds from long-term debt................................ -- 200,000
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)
Repayments of notes payable--related parties................ (207,000) --
-------- --------
Net cash provided by (used in) financing activities......... (44,365) 103,398
-------- --------
Net increase (decrease) in cash............................. 127,723 (371,887)
Cash at beginning of year................................... 555,353 683,076
-------- --------
Cash at end of year......................................... $683,076 $311,189
======== ========
Supplemental Disclosures:
Interest paid............................................. $ 42,948 $ 10,835
======== ========
Income taxes paid......................................... $ 83,815 $ 98,393
======== ========
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> 62
IMPLANT SCIENCES CORPORATION
NOTES TO FINANCIAL STATEMENTS
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.
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.
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.
F-7
<PAGE> 63
IMPLANT SCIENCES CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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........................................... -- 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.
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.
F-8
<PAGE> 64
IMPLANT SCIENCES CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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. This Statement supersedes Statement No. 14, Financial Reporting for
Segments of a Business Enterprise, but retains the requirements to report
information about major customers. Statements 130 and 131 are effective for the
Company in fiscal 1999. The Company does not believe that the adoption of these
Statements will have a material effect on the Company's financial statements.
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).
The shares used for basic earnings per common share and diluted earnings
per common share are reconciled as follows:
<TABLE>
<CAPTION>
JUNE 30,
----------------------
1997 1998
--------- ---------
<S> <C> <C>
Average shares outstanding for basic earnings per share..... 3,418,107 4,110,596
Dilutive effect of stock options............................ 648,767 --
--------- ---------
Average shares outstanding for diluted earnings per share... 4,066,874 4,110,596
========= =========
</TABLE>
F-9
<PAGE> 65
IMPLANT SCIENCES CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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.
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>
F-10
<PAGE> 66
IMPLANT SCIENCES CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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.
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.
Between 1984 and 1994, two officers 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.
F-11
<PAGE> 67
IMPLANT SCIENCES CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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>
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.
F-12
<PAGE> 68
IMPLANT SCIENCES CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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.
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>
F-13
<PAGE> 69
IMPLANT SCIENCES CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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.
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 $3,200 in 1997 and 1998,
respectively.
F-14
<PAGE> 70
IMPLANT SCIENCES CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
13. SUBSEQUENT EVENTS
In connection with a planned initial public offering of the Company's
Common Stock, the Company amended and restated its articles of incorporation in
September 1998. The amendment, among other things, included the following:
- The Company's Board of Directors increased the authorized Common Stock
to 20,000,000 shares.
- The Company's Board of Directors authorized 5,000,000 shares of
Preferred Stock ($.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> 71
INSIDE BACK COVER
On this page appear photographs of an ion implanter, the production
facilities and orthopedic hips being ion implanted.
<PAGE> 72
- ------------------------------------------------------
- ------------------------------------------------------
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.......................... 8
Use of Proceeds....................... 18
Dividend Policy....................... 18
Capitalization........................ 19
Dilution.............................. 20
Selected Financial Data............... 21
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 22
Business.............................. 26
Management............................ 36
Principal Stockholders................ 41
Certain Transactions.................. 42
Legal Proceedings..................... 42
Description of Securities............. 43
Shares Eligible for Future Sale....... 46
Underwriting.......................... 48
Legal Matters......................... 49
Experts............................... 49
Additional Information................ 50
Glossary.............................. 51
Index to Financial Statements......... F-1
</TABLE>
------------------------
UNTIL --, 1998 (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 CORPORATION
--------------------
PROSPECTUS
--------------------
SCHNEIDER SECURITIES, INC.
--, 1998
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 73
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> 74
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
American Stock Exchange Listing Fee......................... 30,000
Blue Sky Qualification Fees and Expenses.................... -0-
Accounting Fees and Expenses................................ 272,140
Legal Fees and Expenses..................................... 250,000
Transfer Agent Fees......................................... 6,000
Printing and Engraving Expenses............................. 100,000
Road Show................................................... 30,000
Miscellaneous Expenses...................................... 162,498
--------
Total............................................. $862,500
========
</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 --, 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
1.2 Underwriting Agreement (preliminary copy)
1.3 Selected Dealer Agreement
1.4 Representative's Warrant Agreement
1.5 Consulting Agreement with the Representative
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 31, 1991
10.1 Employment Agreement with Anthony J. Armini, dated September
9, 1998
</TABLE>
II-2
<PAGE> 75
<TABLE>
<C> <S>
10.2 Employment Agreement with Stephen N. Bunker, dated September 9, 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> 76
<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
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 (contained on the signature page of this Registration Statement)
27.1 Financial Data Schedule
</TABLE>
- ---------------
* To be filed by amendment.
** Filed under application for confidential treatment.
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.
(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-4
<PAGE> 77
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
September 29, 1998.
IMPLANT SCIENCES CORPORATION
By: /s/ ANTHONY J. ARMINI
------------------------------------
Anthony J. Armini
President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each individual whose signature appears
below hereby constitutes and appoints Anthony J. Armini, Darlene M.
Deptula-Hicks, Alan D. Lucas and David A. Broadwin, and each of them, his true
and lawful attorneys-in-fact and agents with full power of substitution, for him
and in his name, place and stead, in any and all capacities, to sign any and all
pre- or post-effective amendments to this Registration Statement, any subsequent
Registration Statement for the same offering which may be filed under Rule
462(b) under the Securities Act (a "Rule 462(b) Registration Statement") and any
and all pre- or post-effective amendments thereto, and to file the same, with
all exhibits thereto, and all documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing which they, or any of them, may deem necessary or advisable
to be done in connection with this Registration Statement or any Rule 462(b)
Registration Statement, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or any substitute or substitutes
for any or all of them, may lawfully do or cause to be done by virtue hereof.
IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT WAS SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND
ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ ANTHONY J. ARMINI President, Chief Executive September 29, 1998
- --------------------------------------------------- Officer and Chairman of the
Anthony J. Armini Board of Directors
(Principal Executive
Officer)
/s/ DARLENE M. DEPTULA-HICKS Vice President and Chief September 29, 1998
- --------------------------------------------------- Financial Officer
Darlene M. Deptula-Hicks (Principal Financial and
Accounting Officer)
/s/ STEPHEN N. BUNKER Vice President and Chief September 29, 1998
- --------------------------------------------------- Scientist, Director
Stephen N. Bunker
/s/ ROBERT E. HOISINGTON Director September 29, 1998
- ---------------------------------------------------
Robert E. Hoisington
/s/ SHUNKICHI SHIMIZU Director September 29, 1998
- ---------------------------------------------------
Shunkichi Shimizu
</TABLE>
II-5
<PAGE> 78
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
<C> <S> <C>
1.1 Agreement Among Underwriters................................
1.2 Underwriting Agreement (preliminary copy)...................
1.3 Selected Dealer Agreement...................................
1.4 Representative's Warrant Agreement..........................
1.5 Consulting Agreement with the Representative................
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 31, 1991......
10.1 Employment Agreement with Anthony J. Armini, dated September
9, 1998.....................................................
10.2 Employment Agreement with Stephen N. Bunker, dated September
9, 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> 79
<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...................................
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 (contained on the signature page of this
Registration Statement).....................................
27.1 Financial Data Schedule.....................................
</TABLE>
- ---------------
* To be filed by amendment.
** Filed under application for confidential treatment.
<PAGE> 1
Exhibit 1.1
IMPLANT SCIENCES CORPORATION
1,000,000 SHARES
OF COMMON STOCK
AND
1,000,000 REDEEMABLE WARRANTS
AGREEMENT AMONG UNDERWRITERS
, 1998
Schneider Securities, Inc.
1120 Lincoln Street
Denver, Colorado 80203
GENTLEMEN:
We wish to confirm as follows the agreement among you, the undersigned and
the other members of the Underwriting Group named in Schedule I to the
Underwriting Agreement, as it is to be executed (all such parties being herein
called the "Underwriters"), with respect to the purchase by the Underwriters
severally from Implant Sciences Corporation ("Company") of shares of Common
Stock and Redeemable Warrant ("Securities") set forth in Schedule I to the
Underwriting Agreement. The number of Securities to be purchased by each
Underwriter from the Company shall be determined in accordance with Section 2 of
the Underwriting Agreement. It is understood that changes may be made in those
who are to be Underwriters and in the respective numbers of Securities to be
purchased by them, but that the Underwriting Agreement will not be changed
without our consent, except as provided herein, and in the Underwriting
Agreement. The obligations of the Underwriters to purchase the number of
Securities set opposite their respective names in Schedule I to the Underwriting
Agreement, are herein called their "underwriting obligations." The number of
Securities set opposite our name in said Schedule I, are herein called "our
Securities." For purposes of this Agreement the following definitions shall be
applicable:
(a) "Manager's Concession" shall be the compensation to you for acting as
Manager as provided in Paragraph 1 of not less than percent (%) of the
underwriting discount. The Manager's Concession shall include the right to a
portion of the warrants to be issued pursuant to the Underwriting Agreement and,
the right to the nonaccountable expenses to be paid pursuant to the Underwriting
Agreement.
(b) "Underwriting Group Concession" shall mean compensation to members of
the Underwriting Group for assuming the underwriting risk and shall be not less
than percent (%) of the underwriting discount.
(c) "Dealer's Concession" shall mean compensation to Dealers, who are
members of the Selling Group and shall, as to Dealers who have executed an
agreement with you, be not less than percent (%) of the underwriting
discount.
(d) "Dealer's Reallowance Concession" shall mean the compensation allowed
Dealers by Underwriters other than you and shall be one-half (1/2) of the
Dealer's Concession.
(e) It is contemplated that the underwriting discount will be ten percent
(10%) of the offering price. You, in your absolute discretion, shall determine,
within the foregoing limitations, the precise allocation of the underwriting
discount and shall notify us of same at least twenty-four (24) hours prior to
the execution of the Underwriting Agreement.
1. Authority and Compensation of Representative. We hereby authorize you, as our
Representative and on our behalf, (a) to enter into an agreement with the
Company substantially in the form attached hereto as Exhibit A ("Underwriting
Agreement"), but with such changes therein as in your judgment are not
materially adverse to the
<PAGE> 2
Underwriters, (b) to exercise all the authority and discretion vested in the
Underwriters and in you by the provisions of the Underwriting Agreement, and (c)
to take all such action as you, in your discretion, may deem necessary or
advisable in order to carry out the provisions of the Underwriting Agreement and
this Agreement and the sale and distribution of the Securities, provided,
however, that the time within which the Registration Statement is required to
become effective pursuant to the Underwriting Agreement will not be extended
more than forty-eight (48) hours without the approval of a majority in interest
of the Underwriters (including you). We authorize you, in executing the
Underwriting Agreement on our behalf, to set forth in Schedule I of the
Underwriting Agreement as our commitment to purchase the number of Securities
(which shall not be substantially in excess of the number of Securities included
in your invitation to participate unless we have agreed otherwise) included in a
wire, telex, or similar means of communication transmitted by you to us at least
twenty-four (24) hours prior to the commencement of the offering as our
finalized underwriting participation.
As our share of the compensation for your services hereunder, we will pay you,
and we authorize you to charge to our account, a sum equal to the Manager's
Concession.
2. Public Offering. A public offering of the Securities is to be made, as
herein provided, as soon after the Registration Statement relating thereto shall
become effective as in your judgment is advisable. The Securities shall be
initially offered to the public at the public offering price of $ per share
and $ per Redeemable Warrant. You will advise us by telegraph or telephone
when the Securities shall be released for offering. We authorize you as
Representative of the Underwriters, after the initial public offering, to vary
the public offering price, in your sole discretion, by reason of changes in
general market conditions or otherwise. The public offering price of the
Securities at any time in effect is herein called the "Offering Price."
We hereby agree to deliver all preliminary and final Prospectuses as
required for compliance with the provisions of Rule 15c2-8 under the Securities
Exchange Act of 1934 and Section 5(b) of the Securities Act of 1933. You have
heretofore delivered to us such preliminary Prospectuses as have been requested
by us, receipt of which is hereby acknowledged, and will deliver such final
Prospectuses as will be requested by us.
3. Offering to Dealers and Group Sales. We authorize you to reserve for
offering and sale, and on our behalf to sell, to institutions or other retail
purchasers (such sales being herein called "Group Sales") and to dealers
selected by you (such dealers being herein called the "Dealers") all or any part
of our Securities as you may determine. Such sales of Securities, if any, shall
be made (i) in the case of Group Sales, at the Offering Price, and (ii) in the
case of sales to Dealers, at the Offering Price less the Dealer's Concession.
Any Group Sales shall be as nearly as practicable in proportion to the
underwriting obligations of the respective Underwriters. Any sales to Dealers
made for our account shall be as nearly as practicable in the ratio that the
Securities reserved for our account for offering to Dealers bears to the
aggregate of all Securities of all Underwriters, including you, so reserved. On
any Group Sales or sales to Dealers made by you on our behalf, we shall be
entitled to receive only the Underwriter's Concession.
You agree to notify us not less than twenty-four (24) hours prior to the
commencement of the public offering as to the number of Securities, if any,
which we may retain for direct sale. Prior to the termination of this Agreement,
you may reserve for offering and sale, as herein before provided, any Securities
remaining unsold theretofore retained by us and we may, with your consent,
retain any Securities remaining unsold theretofore reserved by you. Sales to
Dealers shall be made under a Selected Dealers Agreement, attached hereto as
Exhibit B and by this reference incorporated herein. We authorize you to
determine the form and manner of any communications with Dealers, and to make
such changes in the Selected Dealers Agreement, as you may deem appropriate. In
the event that there shall be any such agreements with Dealers, you are
authorized to act as managers thereunder, and we agree, in such event, to be
governed by the terms and conditions of such agreements. Each Underwriter agrees
that it will not offer any of the Securities for sale at a price below the
Offering Price or allow any concession therefrom, except as herein otherwise
provided. We, as to our Securities, may enter into agreements with Dealers, but
any Dealer's Reallowance Concession shall not exceed half of the Dealer's
Concession.
2
<PAGE> 3
It is understood that any person to whom an offer may be made, as herein before
provided, shall be a member of the National Association of Securities Dealers,
Inc. ("NASD") or dealers or institutions with their principal place of business
located outside of the United States, its territories or possessions, and who
are not eligible for membership under Section 1 of the Bylaws of the NASD who
agree to make no sales within the United States, its territories or possessions,
or to persons who are nationals thereof, or residents therein, and, in making
sales, to comply with the NASD's Rules of Fair Practice.
We authorize you to determine the form and manner of any public
advertisement of the Securities.
Nothing in this Agreement contained shall be deemed to restrict our right,
subject to the provisions of this Section 3, to offer our Securities prior to
the effective date of the Registration Statement, provided, however, that any
such offer shall be made in compliance with any applicable requirements of the
Securities Act of 1933 and the Securities Exchange Act of 1934 and the rules and
regulations of the Securities and Exchange Commission thereunder and of any
applicable state securities laws.
4. Repurchases in the Open Market. Any Securities sold by us (otherwise than
through you) which, prior to the termination of this Agreement, or such earlier
date as you may determine, shall be contracted for or purchased in the open
market by you on behalf of any Underwriter or Underwriters, shall be repurchased
by us on demand at a price equal to the cost of such purchase plus commissions
and taxes, if any, on redelivery. Any Securities delivered on such repurchase
need not be the identical Securities originally sold by us. In lieu of delivery
of such Securities to us, you may (i) sell such Securities in any manner for our
account and charge us with the amount of any loss or expense, or credit us with
the amount of any profit, less any expense, resulting from such sale, or (ii)
charge our account with an amount not in excess of the concession to Dealers
on such Securities.
5. Delivery and Payment. We agree to deliver to you, at or before 9:00 A.M.,
New York, New York Time, on the Closing Date referred to in the Underwriting
Agreement, at your office, a certified or bank cashier's check payable to your
order for the offering price of the Securities less Dealer's Concession of the
Securities which we retained for direct sale by us, the proceeds of which check
shall be delivered to you, in the manner provided in the Underwriting Agreement,
to or for the account of the Company against delivery of certificates for such
Securities to you for our account. You are authorized to accept such delivery
and to give receipts therefor. You may advance funds for Securities which have
been sold or reserved for sale to retail purchasers or Dealers for our account.
If we fail (whether or not such failure shall constitute a default hereunder) to
deliver to you, or you fail to receive, our check and/or payment for sales made
by you for our account for the Securities which we have agreed to purchase, you,
individually and not as Representative of the Underwriters, are authorized (but
shall not be obligated) to make payment, in the manner provided in the
Underwriting Agreement, to or for the account of the Company for such Securities
for our account, but any such payment by you shall not relieve us of any of our
obligations under the Underwriting Agreement or under this Agreement and we
agree to repay you on demand the amount so advanced for our account.
We also agree on demand to take up and pay for or to deliver to you
funds sufficient to pay for at cost any Securities of the Company purchased by
you for our account pursuant to the provisions of Section 9 hereof, and to
deliver to you on demand any Securities sold by you for our account, pursuant to
any provision of this Agreement.
We authorize you to deliver our Securities, and any other Securities
purchased by you for our account pursuant to the provisions of Section 9 hereof,
against sales made by you for our account pursuant to any provision of this
Agreement.
Upon receipt by you of payment for the Securities sold by us and/or through
you for our account, you will remit to us promptly an amount equal to the
Underwriter's Concession on such Securities. You agree to cause to be delivered
to us, as soon as practicable after the Closing Date referred to in the
Underwriting Agreement, such part of our Securities purchased on such Closing
Date as shall not have been sold or reserved for sale by your for our account.
In case any Securities reserved for sale in Group Sales or to Dealers shall
not be purchased and paid for in due course as contemplated hereby, we agree to
accept delivery when tendered by you of any Securities so reserved for our
account and not so purchased and pay you the offering price less the Dealer's
and Underwriter's Concessions.
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<PAGE> 4
6. Authority to Borrow. We authorize you to advance your funds for our
account (charging current interest rates) and to arrange loans for our account
for the purpose of carrying out this Agreement, and in connection therewith to
execute and deliver any notes or other instruments, and to hold, or pledge as
security therefor, all or any part of our Securities of the Company purchased
hereunder for our account. Any lending bank is hereby authorized to accept your
instructions as Representative in all matters relating to such loans. Any part
of our Securities held by you, may be delivered to us for carrying purposes, and
if so delivered, will be redelivered to you upon demand.
7. Allocation of Expense and Liability. We authorize you to charge our
account with, and we agree to pay (a) all transfer taxes on sales made by you
for our account, except as herein otherwise provided, and (b) our proportionate
share (based on our underwriting obligations) of all expenses in excess of those
reimbursed by the Company incurred by you in connection with the purchase,
carrying and distribution, or proposed purchase and distribution, of the
Securities and all other expenses arising under the terms of the Underwriting
Agreement or this Agreement. Your determination of all such expenses and your
allocation thereof shall be final and conclusive. Funds for our account at any
time in your hands as our Representative may be held in your general funds
without accountability for interest. As soon as practicable after the
termination of this Agreement, the net credit or debit balance in our account,
after proper charge and credit for all interim payments and receipts, shall be
paid to or paid by us, provided, however, that you, in your discretion, may
reserve from distribution an amount to cover possible additional expenses
chargeable to the several Underwriters.
8. Liability for Future Claims. Neither any statement by you, as
Representative of the Underwriters, of any credit or debit balance in our
account nor any reservation from distribution to cover possible additional
expenses relating to the Securities shall constitute any representation by you
as to the existence or nonexistence of possible unforeseen expenses or
liabilities of or charges against the several Underwriters. Notwithstanding the
distribution of any net credit balance to us or the termination of this
Agreement, or both, we shall be and remain liable for, and will pay on demand,
(a) our proportionate share (based on our underwriting obligations) of all
expenses and liabilities which may be incurred by, or for the accounts of the
Underwriters, including any liability which may be incurred by the Underwriters
or any of them, and (b) any transfer taxes paid after such settlement on account
of any sale or transfer for our account.
9. Stabilization. We authorize you, until the termination of this Agreement,
(a) to make purchases and sales of the Securities, in the open market or
otherwise, for long or short account, and on such terms, and at such prices as
you in your discretion may deem desirable, (b) in arranging for sales of
Securities, to overallot, and (c) either before or after the termination of this
Agreement, to cover any short position incurred pursuant to this Section 9;
subject, however, to the applicable rules and regulations of the Securities and
Exchange Commission under the Securities Exchange Act of 1934. All such
purchases, sales and overallotments shall be made for the accounts of the
several Underwriters as nearly as practicable in proportion to their respective
underwriting obligations; provided, however, that our net position resulting
from such purchases and sales and overallotments shall not at any time exceed,
either for long or short account, fifteen percent (15%) of the number of
Securities agreed to be purchased by us.
If you engage in any stabilizing transactions as representative of the
underwriters, you shall promptly notify us of that fact and in like manner you
agree to promptly notify and file with us any stabilizing transaction in
accordance with the requirements of Rule 17a-2(d) under the Securities Exchange
Act of 1934.
We agree to advise you from time to time, upon request, until the settlement of
accounts hereunder, of the number of Securities at the time retained by us
unsold, and we will upon request sell to you, for the accounts of one or more of
the several Underwriters, such number of our unsold Securities as you may
designate, at the Offering Price less such amount, not in excess of the
concession to Dealers, as you may determine.
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<PAGE> 5
10. Open Market Transactions. We agree that, except with your consent and
except as herein provided upon advice from you, we will not make purchases or
sales on the open market or otherwise, or attempt to induce others to make
purchases or sales, either before or after the purchase of the Securities, and
prior to the completion (as defined in Regulation M of the Securities Exchange
Act of 1934) of our participation in the distribution, we will otherwise comply
with Regulation M. Nothing in this Section 10 contained shall prohibit us from
acting as broker or agent in the execution of unsolicited orders of customers
for the purchase or sale of any securities of the Company.
11. Blue Sky. Prior to the initial offering by the Underwriters, you will
inform us as to the states under the respective securities or Blue Sky laws of
which it is believed that the Securities have been qualified or are exempt for
sale, but you do not assume any responsibility or obligation as to the accuracy
of such information or as to the right of any Underwriter or Dealer to sell the
Securities in any jurisdiction. We will not sell any Securities in any other
state or jurisdiction and we will not sell Securities in any state or
jurisdiction unless we are qualified or licensed to sell securities in such
state or jurisdiction. We authorize you, if you deem it unadvisable in arranging
sales of Securities for our account hereunder, to sell any of our Securities to
any particular Dealer, or other buyer, because of the securities or Blue Sky
laws of any jurisdiction, to sell our Securities to one or more other
Underwriters at the Offering Price less, in the case of a sale to any Dealer,
such amount, not in excess of the concession to Dealers thereon, as you may
determine. The transfer tax on any such sales among Underwriters shall be
treated as an expense and charged to the respective accounts of the several
Underwriters, in proportion to their respective underwriting obligations.
12. Default by Underwriters. Default by one or more Underwriters, in respect
to their obligations under the Underwriting Agreement shall not release us from
any of our obligations. In case of such default by one or more Underwriters, you
are authorized to increase, pro rata, with the other nondefaulting Underwriters,
the number of defaulted Securities which we shall be obligated to purchase from
the Company, provided, however, that the aggregate amount of all such increases
for all Underwriters shall not exceed ten percent (10%) of such Securities, and,
if the aggregate number of the Securities not taken up by such defaulting
Underwriters exceeds such ten percent (10%), you are further authorized, but
shall not be obligated, to arrange for the purchase by other persons, who may
include yourselves, of all or a portion of the Securities not taken up by such
Underwriters. In the event any such increases or arrangements are made, the
respective numbers of Securities to be purchased by the nondefaulting
Underwriters and by any such other person or persons shall be taken as the basis
for the underwriting obligations under this Agreement, but this shall not in any
way affect the liability of any defaulting Underwriters to the other
Underwriters for damages resulting from such default.
In the event of default by one or more Underwriters in respect of their
obligations under this Agreement to take up and pay for any Securities purchased
by your for their respective accounts, pursuant to Section 9 hereof, or to
deliver any such Securities sold or overallotted by you for their respective
accounts pursuant to any provisions of this Agreement, and to the extent that
arrangements shall not have been made by you for other persons to assume the
obligations of such defaulting Underwriter or Underwriters, each nondefaulting
Underwriter shall assume its proportionate share of the aforesaid obligations of
each such defaulting Underwriter without relieving any such Underwriter of its
liability therefor.
13. Termination of Agreement. Unless earlier terminated by you, the
provisions of Sections 2, 3, 4, 6, 9 and 10 of this Agreement shall, except as
otherwise provided therein, terminate thirty (30) full business days after the
effective date of the Registration Statement herein referred to, but may be
extended by you for an additional period or periods not exceeding thirty (30)
full business days in the aggregate. You may, however, terminate this Agreement,
or any provisions hereof, at any time by written or telegraphic notice to us.
14. General Position of the Representative. In taking action under this
Agreement, you shall act only as agent of the several Underwriters. Your
authority as Representative of the several Underwriters shall include the taking
of
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<PAGE> 6
such action as you may deem advisable in respect of all matters pertaining to
any and all offers and sales of the Securities, including the right to make any
modifications which you consider necessary or desirable in the arrangements with
Dealers or others. You shall be under no liability for or in respect of the
value of the Securities or the validity or the form thereof, the Registration
Statement, the Prospectus, the Underwriting Agreement, or other instruments
executed by the Company or others of any agreement on its or their part; nor
shall you, as such Representative or otherwise, be liable under any of the
provisions hereof, or for any matters connected herewith, except for want of
good faith, and except for any liability arising under the Securities Act of
1933; and no obligation not expressly assumed by you as such Representative
herein shall be implied from this Agreement. In representing the Underwriters
hereunder, you shall act as the representative of each of them respectively.
Nothing herein contained shall constitute the several Underwriters partners with
you or with each other, or render any Underwriter liable for the commitments of
any other Underwriter, except as otherwise provided in Section 12 hereof. The
commitments and liabilities of each of the several Underwriters are several in
accordance with their respective underwriting obligations and are not joint.
15. Acknowledgment of Registration Statement, etc. We hereby confirm that we
have examined the Registration Statement (including all amendments thereto)
relating to the Securities as heretofore filed with the Securities and Exchange
Commission, that we are familiar with the amendment(s) to the Registration
Statement and the final form of Prospectus proposed to be filed, that we are
willing to accept the responsibilities of an underwriter thereunder, and that we
are willing to proceed as therein contemplated. We further confirm that the
statements made under the heading "Underwriting" in such proposed final form of
Prospectus are correct and we authorize you so to advise the Company on our
behalf. We understand that the aforementioned documents are subject to further
change and that we will be supplied with copies of any amendment or amendments
to the Registration Statement and of any amended Prospectus promptly, if and
when received by you, but the making of such changes and amendments shall not
release us or affect our obligations hereunder or under the Underwriting
Agreement.
16. Indemnification. Each Underwriter, including you, agrees to indemnify
and hold harmless each other Underwriter and each person who controls any other
Underwriter within the meaning of Section 15 of the Securities Act of 1933, as
amended, to the extent of their several commitments under the Underwriting
Agreement and upon the terms that such Underwriter agrees to indemnify and hold
harmless the Company as set forth in Section 7 of the Underwriting Agreement.
The Agreement contained in this Section 16 shall survive any termination of this
Agreement Among Underwriters.
17. Capital Requirements. We confirm that our ratio of aggregate
indebtedness to net capital is such that we may, in accordance with and pursuant
to Rule 15c-1, promulgated by the Securities and Exchange Commission under the
Securities Exchange Act of 1934, agree to purchase the number of Securities we
may be obligated to purchase under any provision of the Underwriting Agreement
or this Agreement.
18. Miscellaneous. We have transmitted herewith a completed Underwriters'
Questionnaire on the form thereof supplied by you. Any notice hereunder from you
to us or from us to you shall be deemed to have been duly give if sent by
registered mail, telegram, teletype, telex, telecopier, graphic scan, or other
written form of telecommunication to us at our address as set forth in the
Underwriting Agreement, or to you at the address set forth on the first page of
this Agreement.
You hereby confirm that you are registered as a broker-dealer with the
United States Securities and Exchange Commission and that you are a member of
the NASD and we confirm that we are either a member of the NASD or a foreign
broker-dealer not eligible for membership under Section I of the Bylaws of the
NASD, who agrees to make no sales within the United States, its territories or
possessions, or to persons who are nationals thereof or residents therein, and,
in making sales, to comply with the requirements of the NASD's Interpretation
with Respect to Free Riding and Withholding, and with Sections 2730, 2740, and
2420 to the extent applicable to foreign nonmember brokers or dealers, and
Section 2750 of the NASD's Rules of Fair Practice.
We will comply with all applicable federal laws, the laws of the states or
other jurisdictions concerned and the Rules and Regulations of the NASD,
including, but not limited to, Section 2740 of the Rules of Fair Practice.
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<PAGE> 7
This instrument may be signed by the Underwriters in various counterparts
which together shall constitute one and the same agreement among all the
Underwriters and shall become effective as between us at such time as you shall
have confirmed same by returning an executed copy to us, and thereafter, as to
us and the other Underwriters, upon execution by them of counterparts which are
confirmed by you. In no event, however, shall we have any liability under this
Agreement if the Underwriting Agreement is not executed.
Please confirm that the foregoing correctly states the understanding between
us by signing and returning to us a counterpart hereof.
Very truly yours,
Attorney-in-Fact
for the several Underwriters
named in Schedule I
to the Underwriting Agreement
Confirmed as of the date first above written.
Schneider Securities,Inc.
As Representative
By
President
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<PAGE> 1
IMPLANT SCIENCES CORPORATION
1,000,000 SHARES
OF COMMON STOCK
AND
1,000,000 REDEEMABLE WARRANTS
UNDERWRITING AGREEMENT
, 1998
Schneider Securities, Inc.
1120 Lincoln Street
Denver, Colorado 80203
Dear Sirs:
Implant Sciences Corporation . a Massachusetts corporation (the "Company"),
proposes to issue and sell to the several Underwriters named in Schedule I
hereto (the "Underwriters"), one million shares of common stock of the Company
and one million redeemable warrants (the "Securities"). The Company hereby
confirms the agreement made by it with respect to the purchase of the Securities
by the Underwriter(s), which Securities are more fully described in the
Registration Statement referred to below Schneider Securities,Inc. is referred
to herein as the "Underwriter" or the "Representative."
You have advised the Company that the Underwriters desire to act on a firm
commitment basis to publicly offer and sell the Securities for the Company and
that you are authorized to execute this Agreement. The Company confirms the
agreement made by it with respect to the relationship with the Underwriters as
follows:
1. Filing of Registration Statement with S.E.C. and Definitions. A
Registration Statement and Prospectus on Form SB-2 (File No.333- ) with
respect to the Securities has been carefully and accurately prepared by the
Company in conformity with the requirements of the Securities Act of 1933, as
amended (the "Act"), and the published rules and regulations (the "Rules and
Regulations") thereunder or under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") and has been filed with the Securities and Exchange
Commission (the "Commission") and such other states that the Underwriter deems
necessary in its discretion to so file to permit a public offering and trading
thereunder. Such registration statement, including the prospectus, Part II, and
all financial schedules and exhibits thereto, as amended at the time when it
shall become effective, is herein referred to as the "Registration Statement,"
and any prospectus included as part of the Registration Statement on file with
the Commission that discloses all the information that was omitted from the
prospectus on the effective date pursuant to Rule 430 A of the Rules and
Regulations with any changes contained in any prospectus filed with the
Commission by the Company with the Underwriters consent after the effective date
of the Registration Statement, is herein referred to as the "Final Prospectus."
The prospectus included as part of the Registration Statement of the Company and
in any amendments thereto prior to the effective date of the Registration
Statement is referred to herein as a "Preliminary Prospectus."
2. Discount, Delivery, and Sale of the Securities
(a) Subject to the terms and conditions of this Agreement, and on the basis
of the representations, warranties, and agreements herein contained, the Company
agrees to sell to, and the Underwriters agree to buy from the Company at a
purchase price of $ per share and $ .09 per Redeemable Warrant before any
underwriter expense allowances, an aggregate of 1,000,000 shares of Common
Stock, and 1,000,000 Redeemable Warrants on a firm commitment basis the "Initial
Securities".
<PAGE> 2
It is understood that the Underwriters propose to offer the Securities to be
purchased hereunder to the public upon the terms and conditions set forth in the
Registration Statement, after the Registration Statement becomes effective.
(b) Delivery of the Securities against payment of the purchase price
therefor by certified or official bank check or checks or wire transfer in
next-day funds, payable to the order of the Company shall take place at the
offices of the clearing broker for the Underwriter at New York City, within
three (3) business day after the Securities are first traded (or such other
place as may be designated by agreement between you and the Company) at 11:00
A.M., New York time or such time and date as you and the Company may agree upon
in writing, such time and date of payment and delivery for the Securities being
herein called the "Initial Closing Date."
The Company will make the certificates for the shares of Common Stock and
Redeemable Warrants to be purchased by the Underwriters hereunder available to
the Underwriter for inspection and packaging at least two (2) full business days
prior to the Initial Closing Date. The certificates shall be in such names and
denominations as the Underwriter may request to the Company in writing at least
two (2) full business days prior to any Closing Date.
(c) In addition, subject to the terms and conditions of this Agreement and
on the basis of the representations, warranties and agreements herein contained,
the Company grants an option to the Underwriters to purchase up to an additional
150,000 shares of Common Stock and/or up to 150,000 additional Warrants as the
case may be ("Option Securities") at the same terms as the Underwriters shall
pay for the Initial Securities being sold by the Company pursuant to the
provisions of Section 2(a) hereof. This option may be exercised from time to
time, for the purpose of covering overallotments, within thirty (30) days after
(i) the effective date of the Registration Statement if the Company has elected
not to rely on Rule 430A under the Rules and Regulations or (ii) the date of
this Agreement if the Company has elected to rely upon Rule 430A under the Rules
and Regulations, upon written notice by the Underwriter setting forth the number
of Option Securities as to which the Underwriter is exercising the option and
the time and date at which such certificates are to be delivered. Such time and
date shall be determined by the Underwriter but shall not be earlier than four
(4) nor later than ten (10) full business days after the date of the exercise of
said option. Nothing herein shall obligate the Underwriter to make any
overallotment.
(d) Definitive certificates in negotiable form for the Securities to be
purchased by the Underwriter(s) hereunder will be delivered at the closing by
the Company to the Underwriters against payment of the purchase price by the
Underwriters by certified or bank cashier's checks or wire transfer in next day
funds payable to the order of the Company.
(e) The information set forth under "Underwriting" in any preliminary
prospectus and Prospectus relating to the Securities and the information set
forth in the last paragraph on the front cover page, under the last paragraph on
page 2 concerning stabilization and over-allotment by the Underwriters, and
(insofar as such information relates to the Underwriters) constitutes the only
information furnished by the Underwriter to the Company for inclusion therein,
and you represent and warrant to the Company that the statements made therein
are correct.
(f) On the Initial Closing Date, the Company shall issue and sell to the
Representative, warrants (the "Representative's Warrants") at a purchase price
of $.001 per Representative's Warrant, which shall entitle the holders thereof
to purchase an aggregate of 100,000 shares of Common Stock and 100,000
Redeemable Warrants. The shares of common stock and redeemable warrants issuable
upon the exercise of the Representative's Warrants are hereafter referred to as
the "Representative's Securities" or "Representative's Warrants." The shares of
common stock issuable upon exercise of the redeemable warrants are hereinafter
referred to collectively as the "Warrant Shares". The Representative's Warrants
shall be exercisable for a period of four (4) years commencing one (1) year from
the effective date of the Registration Statement at a price equaling one hundred
fifty percent (150%) of the initial public offering price of the Securities. The
form of Representative's Warrant Certificate shall be substantially in the form
filed as an Exhibit to the Registration Statement. Payment for the
Representative's Warrants shall be made on the Initial Closing Date.
3. Representations and Warranties of the Company.
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<PAGE> 3
(a) The Company represents and warrants to you as follows:
(i) The Company has prepared and filed with the Commission a registration
statement, and an amendment or amendments thereto, on Form SB-2 (No.333- ),
including any related preliminary prospectus ("Preliminary Prospectus"), for the
registration of the Securities, the Representative's Warrant and the Warrant
Shares (sometimes referred to herein collectively as the "Registered
Securities"), under the Act, which registration statement and amendment or
amendments have been prepared by the Company in conformity with the requirements
of the Act, and the Rules and Regulations. The Company will promptly file a
further amendment to said registration statement in the form heretofore
delivered to the Underwriter and will not file any other amendment thereto to
which the Underwriter shall have objected verbally or in writing after having
been furnished with a copy thereof. Except as the context may otherwise require,
such registration statement, as amended, on file with the Commission at the time
the registration statement becomes effective (including the prospectus,
financial statements, any schedules, exhibits and all other documents filed as a
part thereof or that may be incorporated therein (including, but not limited to
those documents or information incorporated by reference therein) and all
information deemed to be a part thereof as of such time pursuant to paragraph
(b) of Rule 430(A) of the Rules and Regulations), is hereinafter called the
"Registration Statement," and the form of prospectus in the form first filed
with the Commission pursuant to Rule 424(b) of the Rules and Regulations, is
hereinafter called the "Prospectus."
(ii) Neither the Commission nor any state regulatory authority has issued
any order preventing or suspending the use of any Prospectus or the Registration
Statement and no proceeding for an order suspending the effectiveness of the
Registration Statement or any of the Company's securities has been instituted or
is pending or threatened. Each such Prospectus and/or any supplement thereto has
conformed in all material respects with the requirements of the Act and the
Rules and Regulations and on its date did not include any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
therein not misleading, in light of the circumstances under which they were
made; and when the Prospectus and any supplements thereto becomes legally
effective and for twenty-five (25) days subsequent thereto (i) the Prospectus
and/or any supplement thereto will contain all statements which are required to
be stated therein by the Act and Rules and Regulations, and (ii) the Prospectus
and/or any supplement thereto will not include any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, in light of the
circumstances under which they were made; provided, however, that no
representations, warranties or agreements are made hereunder as to information
contained in or omitted from the Prospectus in reliance upon, and in conformity
with, the written information furnished to the Company by you as set forth in
Section 2(e) above.
(iii)The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the state of its incorporation,
with full power and authority (corporate and other) to own its properties and
conduct its businesses as described in the Prospectus and is duly qualified to
do business as a foreign corporation in good standing in all other jurisdictions
in which the nature of its business or the character or location of its
properties requires such qualification, except where the failure to so qualify
would not have a material adverse effect on the business, properties or
operations of the Company as a whole.
(iv) The Company has full legal right, power and authority to authorize,
issue, deliver and sell the Securities, the Option Securities and the
Representative's Securities and to enter into this Agreement, the
Representative's Warrant dated as of the initial closing date to be executed and
delivered by the Company to the Representative (the "Representative's Warrant
Agreement"), and the Financial Advisory and Investment Banking Agreement dated
as of the Initial Closing Date between the Company and the Representative (the
"Consulting Agreement"), and to consummate the transactions provided for in such
agreements, and each of such agreements has been duly and properly authorized,
and on the Initial Closing Date will be duly and properly executed and delivered
by the Company. This Agreement constitutes and on the Initial Closing Date each
of the Representative's Warrant Agreement and the Consulting Agreement will then
constitute valid and binding agreements of the Company, except as the validity
and binding nature of indemnification provisions may be limited by federal or
state securities laws).
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<PAGE> 4
(v) Except as disclosed in the Prospectus, the Company is not in
violation of its respective certificate or articles of incorporation or bylaws
or in default in the performance or observance of any material obligation,
agreement, covenant or condition contained in any material bond, debenture, note
or other evidence of indebtedness or in any material contract, indenture,
mortgage, loan agreement, lease, joint venture, partnership or other agreement
or instrument to which the Company is a party or by which it may be bound or is
not in material violation of any law, order, rule, regulation, writ, injunction
or decree of any governmental instrumentality or court, domestic or foreign; and
the execution and delivery of this Agreement, the Representative's Warrant
Agreement and the Consulting Agreement, and the consummation of the transactions
contemplated therein and in the Prospectus and compliance with the terms of each
such agreement will not conflict with, or result in a material breach of any of
the terms, conditions or provisions of, or constitute a material default under,
or result in the imposition of any material lien, charge or encumbrance upon any
of the property or assets of the Company pursuant to, any material bond,
debenture, note or other evidence of indebtedness or any material contract,
indenture, mortgage, loan agreement, lease, joint venture, partnership or other
agreement or instrument to which the Company is a party nor will such action
result in the material violation by the Company of any of the provisions of its
respective certificate or articles of incorporation or bylaws or any law, order,
rule, regulation, writ, injunction, decree of any government, governmental
instrumentality or court, domestic or foreign, except where such violation will
not have a material adverse effect on the financial condition of the Company.
(vi) The authorized, issued and outstanding capital stock of the Company
is as set forth in the Prospectus and the Company will have the adjusted
capitalization set forth therein on the Initial Closing Date provided that the
Company may issue additional shares to the extent disclosed in the Final
Prospectus; all of the shares of issued and outstanding capital stock of the
Company set forth therein have been duly authorized, validly issued and are
fully paid and nonassessable; the holders thereof do not have any rights of
rescission with respect therefor and are not subject to personal liability for
any obligations of the Company by reason of being stockholders under the laws of
the State in which the Company is incorporated; none of such outstanding capital
stock is subject to or was issued in violation of any preemptive or similar
rights of any stockholder of the Company; and such capital stock (including the
Securities, the Option Securities and the Representative's Securities) conforms
in all material respects to all statements relating thereto contained in the
Prospectus.
(vii) The Company is not a party to or bound by any instrument, agreement
or other arrangement providing for it to issue any capital stock, rights,
warrants, options or other securities, except for this Agreement or as described
in the Prospectus. The Securities, the Option Securities and the
Representative's Securities are not and will not be subject to any preemptive or
other similar rights of any stockholder, have been duly authorized and, when
issued, paid for and delivered in accordance with the terms hereof, will be
validly issued, fully paid and non-assessable and will conform in all material
respects to the respective descriptions thereof contained in the Prospectus;
except for payment of the applicable purchase price payable upon exercise of the
options or warrants, as the case may be the holders thereof will not be subject
to any liability solely as such holders; all corporate action required to be
taken for the authorization, issue and sale of the Securities, the Option
Securities and the Representative's Securities has been duly and validly taken;
and the certificates representing the Securities, the Option Securities and the
Representative's Securities will conform with all legal requirements therefor.
Upon the issuance and delivery pursuant to the terms hereof of the Securities,
the Option Securities and the Representative's Securities to be sold by the
Company hereunder, the Underwriter will acquire good and marketable title to
such Securities, Option Securities and Representative's Securities free and
clear of any lien, charge, claim, encumbrance, pledge, security interest, defect
or other restriction of any kind whatsoever other than restrictions as may be
imposed under the securities laws.
(viii) The Company has good and marketable title to all properties and
assets described in the Prospectus as owned by it, free and clear of all liens,
charges, encumbrances or restrictions, except such as are described or referred
to in the Prospectus or which are not materially significant or important in
relation to its business or which have been incurred in the ordinary course of
business or for taxes not yet due and payable; except as described in the
Prospectus all of the leases and subleases under which the Company holds
properties or assets as lessee or sublessee as described in the Prospectus are
in full force and effect, and the Company is not in material default in respect
of any of the terms or provisions of any of such leases or subleases, and no
claim has been asserted to the Company by anyone adverse to the Company's rights
as lessor, sublessor, lessee or sublessee under any of the leases or subleases
mentioned above or affecting or questioning the Company's right to the continued
possession of the leased or subleased premises or
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assets under any such lease or sublease; and the Company owns or leases all such
properties as are necessary to its operations as now conducted and as
contemplated to be conducted, except as otherwise stated in the Prospectus.
(ix) The financial statements, together with related notes, set forth
in the Prospectus fairly present the financial position and results of
operations of the Company at the respective dates and for the respective periods
to which they apply. Said statements and related notes have been prepared in
accordance with generally accepted accounting principles applied on a basis
which is consistent in all material respects during the periods involved but any
stub period has not been audited by an independent accounting firm. There has
been no material adverse change or material development involving a prospective
change in the condition, financial or otherwise, or in the prospects, value,
operation, properties, business or results of operations of the Company whether
or not arising in the ordinary course of business, since the date of the
financial statements included in the Registration Statement and the Prospectus.
(x) Subsequent to the respective dates as of which information is
given in the Prospectus as it may be amended or supplemented, and except as
described in the Prospectus, the Company has not, directly or indirectly,
incurred any liabilities or obligations, direct or contingent, not in the
ordinary course of business or entered into any transactions not in the ordinary
course of business, which are material to the business of the Company as a whole
and there has not been any change in the capital stock of, or any incurrence of
long term debts by, the Company or any issuance of options, warrants or rights
to purchase the capital stock of the Company (other than pursuant to the
Company's Stock Incentive Plan) or declaration or payment of any dividend on the
capital stock of the Company or any material adverse change in the condition
(financial or other), net worth or results of operations of the Company as a
whole and the Company has not become a party to, any material litigation whether
or not in the ordinary course of business.
(xi) To the knowledge of the Company, there is no pending or
threatened, action, suit or proceeding to which the Company is a party before or
by any court or governmental agency or body, which might result in any material
adverse change in the condition (financial or other), business or prospects of
the Company as a whole or might materially and adversely affect the properties
or assets of the Company as a whole nor are there any actions, suits or
proceedings against the Company related to environmental matters or related to
discrimination on the basis of age, sex, religion or race which might be
expected to materially and adversely affect the conduct of the business,
property, operations, financial condition or earnings of the Company as a whole;
and no labor disturbance by the employees of the Company individually exists or
is, to the knowledge of the Company, imminent which might be expected to
materially and adversely affect the conduct of the business, property,
operations, financial condition or earnings of the Company as a whole.
(xii) Except as may be disclosed in the Prospectus, the Company has
properly prepared and filed all necessary federal, state, local and foreign
income and franchise tax returns, has paid all taxes shown as due thereon, has
established adequate reserves for such taxes which are not yet due and payable,
and does not have any tax deficiency or claims outstanding, proposed or assessed
against it.
(xiii) Except as may be disclosed in the Prospectus, the Company has
sufficient licenses, permits, right to use trade or service marks and other
governmental authorizations currently required for the conduct of its business
as now being conducted and as contemplated to be conducted and the Company is in
all material respects complying therewith. Except as set forth in the
Prospectus, the expiration of any such licenses, permits, or other governmental
authorizations would not materially affect the Company's operations. To its
knowledge, none of the activities or businesses of the Company are in material
violation of, or cause the Company to materially violate any law, rule,
regulations, or order of the United States, any state, county or locality, or of
any agency or body of the United States or of any state, county or locality the
violation of which would have a material adverse effect on the business
properties or financial condition of the Company taken as a whole.
(xiv) The Company has not at any time (i) made any contributions to any
candidate for political office in violation of law, or failed to disclose fully
any such contribution, or (ii) made any payment to any state, federal or foreign
governmental officer or official, or other person charged with similar public or
quasipublic duties, other than payments required or allowed by applicable law.
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(xv) Except as set forth in the Prospectus the Company knows of no
outstanding claims for services either in the nature of a finder's fee,
brokerage fee or otherwise with respect to this financing for which the Company
or the Underwriters may be responsible, or which may affect the Underwriter's
compensation as determined by the National Association of Securities Dealers,
Inc. ("NASD") except as otherwise disclosed in the Prospectus or known by the
Underwriters.
(xvi) The Company has its property adequately insured against loss or
damage by fire and maintains such other insurance as is customarily maintained
by companies in the same or similar business.
(xvii) The Representative's Warrants herein described are duly and
validly authorized and upon delivery to the Representative in accordance
herewith will be duly issued and legal, valid and binding obligations of the
Company, except as the enforceability thereof may be limited by bankruptcy or
other similar laws affecting the rights of creditors generally or by equitable
principles, and except as the enforcement of indemnification provisions may be
limited by federal or state securities laws.
The Representative's Securities issuable upon exercise of any
of the Representative's Warrants have been duly authorized, and when issued upon
payment of the exercise price therefor, will be validly issued, fully paid and
nonassessable.
(xviii) Except as set forth in the Prospectus, no default exists in the
due performance and observance of any term, covenant or condition of any
material license, contract, indenture, mortgage, installment sale agreement,
lease, deed of trust, voting trust agreement, stockholders agreement, note, loan
or credit agreement, purchase order, or any other agreement or instrument
evidencing an obligation for borrowed money, or any other material agreement or
instrument to which the Company is a party or by which the Company may be bound
or to which the property or assets (tangible or intangible) of the Company is
subject or affected.
(xix) The Company has generally enjoyed a satisfactory
employer-employee relationship with its employees and, is in substantial
compliance in all material respects with all federal, state, local, and foreign
laws and regulations respecting employment and employment practices, terms and
conditions of employment and wages and hours. To the best of the Company's
knowledge, there are no pending investigations involving the Company, by the
U.S. Department of Labor, or any other governmental agency responsible for the
enforcement of such federal, state, local, or foreign laws and regulations.
There is no unfair labor practice charge or complaint against the Company
pending before the National Labor Relations Board or any strike, picketing,
boycott, dispute, slowdown or stoppage pending or threatened against or to its
knowledge involving the Company, or any predecessor entity, and none has ever
occurred. There is no representation question pending respecting the employees
of the Company, and no collective bargaining agreement or modification thereof
is currently being negotiated by the Company. There is, no grievance or
arbitration proceeding pending or to its knowledge threatened under any expired
or existing collective bargaining agreements of the Company. No labor dispute
with the employees of the Company is pending, or, to its knowledge is imminent;
and the Company is not aware of any pending or imminent labor disturbance by the
employees of any of its principal suppliers, manufacturers or contractors which
may result in any material adverse change in the condition, financial or
otherwise, or in the earnings, business affairs, position, prospects, value,
operation, properties, business or results of operations of the Company.
(xx) Except as may be set forth in the Registration Statement, the
Company does not maintain, sponsor or contribute to any program or arrangement
that is an "employee pension benefit plan," an "employee welfare benefit plan,"
or a "multiemployer plan" as such terms are defined in Sections 3(2), 3(l) and
3(37), respectively, of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") ("ERISA Plans"). The Company does not maintain or contribute,
now or at any time previously, to a defined benefit plan, as defined in Section
3(35) of ERISA. No ERISA Plan (or any trust created thereunder) has engaged in a
"prohibited transaction" within the meaning of Section 406 of ERISA or Section
4975 of the Internal Revenue Code (the "Code"), which could subject the Company
to any tax penalty on prohibited transactions and which has not adequately been
corrected. Each ERISA Plan is in compliance with all material reporting,
disclosure and other requirements of the Code and ERISA as they relate to any
such ERISA Plan. Determination letters have been received from the Internal
Revenue Service with
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respect to each ERISA Plan which is intended to comply with Code Section 401
(a), stating that such ERISA Plan and the attendant trust are qualified
thereunder. The Company has never completely or partially withdrawn from a
"multiemployer plan."
(xxi) None of the Company, or any of its employees, directors,
stockholders, or affiliates (within the meaning of the Rules and Regulations)
has taken or will take, directly or indirectly, any action designed to or which
has constituted or which might be expected to cause or result in, under the
Exchange Act, or otherwise, stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of the Securities,
Option Securities, Representative's Securities or otherwise.
(xxii) None of the patents, patent applications, trademarks, service
marks, trade names, copyrights, and licenses and rights to the foregoing
presently owned or held by the Company, are in dispute or, to the knowledge of
the Company's management are in any conflict with the right of any other person
or entity. The Company (i) except as disclosed in the Prospectus owns or has the
right to use, all patents, trademarks, service marks, trade names and
copyrights, technology and licenses and rights with respect to the foregoing,
used in the conduct of its business as now conducted or proposed to be conducted
without infringing upon or otherwise acting adversely to the right or claimed
right of any person, corporation or other entity under or with respect to any of
the foregoing, and except as set forth in the Prospectus or otherwise disclosed
to the Underwriter in writing, to the best knowledge of the Company's management
is not obligated or under any liability whatsoever to make any material payments
by way of royalties, fees or otherwise to any owner or licensee of, or other
claimant to, any patent, trademark, service mark, trade name, copyright,
know-how, technology or other intangible asset, with respect to the use thereof
or in connection with the conduct of its business or otherwise.
(xxiii) Except as disclosed in the Prospectus the Company owns and has
adequate right to use to the best knowledge of the Company's management all
trade secrets, know-how (including all other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures), inventions,
designs, processes, works of authorship, computer programs and technical data
and information (collectively herein "intellectual property") required for or
incident to the development, manufacture, operation and sale of all products and
services sold or proposed to be sold by the Company. The Company is not aware of
any such development of similar or identical trade secrets or technical
information by others. In the event the Company has valid and binding
confidentiality agreements with all of its officers, covering its intellectual
property (subject to the equitable powers of any court), such agreements have
remaining terms of at least two years from the effective date of the
Registration Statement except where the failure to have such agreements would
not materially and adversely effect the Company's business taken as a whole. The
Company has good and marketable title to, or valid and enforceable leasehold
estates in, all items of real and personal property stated in the Prospectus, to
be owned or leased by it free and clear of all liens, charges, claims,
encumbrances, pledges, security interests, defects, or other restrictions or
equities of any kind whatsoever, other than those referred to in the Prospectus
and liens for taxes not yet due and payable.
(xxiv) Ernst & Young, LLP., whose reports are filed with the
Commission as a part of the Registration Statement, are independent certified
public accountants as required by the Act and the Rules and Regulations.
(xxv) The Company has agreed to execute and has also caused to be duly
executed agreements pursuant to which each of the Company's officers and
directors and employee shareholders and any person or entity deemed to be an
affiliate of the Company pursuant to the Rules and Regulations has agreed not
to, directly or indirectly, sell, assign, transfer, or otherwise dispose of any
shares of Common Stock or securities convertible into, exercisable or
exchangeable for or evidencing any right to purchase or subscribe for any shares
of Common Stock (either pursuant to Rule 144 of the Rules and Regulations or
otherwise) for a period of not less than thirteen) (13) months following such
effective date; provided however, that the foregoing shall not prevent (I)
the Company from selling shares of Common Stock in accordance with its Stock
Incentive Plan, and (ii) the Restricted Shareholders from making gifts of shares
of Common Stock to persons or organizations agreeing to be bound by the
foregoing restrictions. The Company shall use its best efforts to obtain from
its shareholders holding in excess of 1,000 outstanding shares, written
commitments restricting each such person from selling any of their shares of
common stock for thirteen (13) months from the effective date of the
Registration Statement. The Company will cause the Transfer Agent, as defined
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<PAGE> 8
below, to mark an appropriate legend on the face of stock certificates
representing all of such securities and to place "stop transfer" orders on the
Company's stock ledgers.
(xxvi) The Registered Securities have been approved for listing on
NASDAQ or an Exchange.
(xxvii) Except as set forth in the Prospectus or disclosed in writing
to the Underwriter (which writing specifically refers to this Section), no
officer or director of the Company, holder of 5% or more of securities of the
Company or any "affiliate" or "associate" (as these terms are defined in Rule
405 promulgated under the Rules and Regulations) of any of the foregoing persons
or entities has or has had, either directly or indirectly, (i) an interest in
any person or entity which (A) furnishes or sells services or products which are
furnished or sold or are proposed to be furnished or sold by the Company, or (B)
purchases from or sells or furnishes to the Company any goods or services, or
(ii) a beneficiary interest in any contract or agreement (other than a
subscription agreement ) to which the Company is a party or by which it is or
may be bound or affected. Except as set forth in the Prospectus under "Certain
Transactions" or disclosed in writing to the Underwriter (which writing
specifically refers to this Section) there are no existing agreements,
arrangements, understandings or transactions, or proposed agreements,
arrangements, understandings or transactions, between or among the Company, and
any officer, director, principal stockholder of the Company, or any partner,
affiliate or associate of any of the foregoing persons or entities.
(xxviii) Any certificate signed by any officer of the Company, and delivered
to the Underwriter or to the Underwriter's counsel (as defined herein) shall be
deemed a representation and warranty by the Company to the Underwriter as to the
matters covered thereby.
(xxix) Each of the minute books of the Company has been made available to
the Underwriter and contains a complete summary of all meetings and actions of
the directors and stockholders of the Company, since the time of its
incorporation and reflect all transactions referred to in such minutes
accurately in all respects.
(xxx) As of the Initial Closing Date, the Company will enter into the
Consulting Agreement substantially in the form filed as an Exhibit to the
Registration Statement with respect to the rendering of consulting services by
the Representative to the Company.
(xxxi) Except and only to the extent described in the Prospectus or
disclosed in writing to the Underwriter (which writing specifically refers to
this Section), no holders of any securities of the Company or of any options,
warrants or other convertible or exchangeable securities of the Company have the
right to include any securities issued by the Company in the Registration
Statement or any registration statement to be filed by the Company or to require
the Company to file a registration statement under the Act and no person or
entity holds any anti-dilution rights with respect to any securities of the
Company. Except as disclosed in the Prospectus, all rights so described or
disclosed have been waived or have not been triggered with respect to the
transactions contemplated by this Agreement, the Consulting Agreement and the
Representative's Warrant Agreement (including the warrants issuable thereunder).
(xxxii) The Company has not entered into any employment agreements with its
executive officers, except as disclosed in the Prospectus.
(xxxiii) No consent, approval, authorization or order of, and no filing
with, any court, regulatory body, government agency or other body, domestic or
foreign, is required for the issuance of the Registered Securities pursuant to
the Prospectus and the Registration Statement, the issuance of the Underwriter's
Warrants, the performance of this Agreement, the Representative's Warrant
Agreement and the Consulting Agreement, and the transactions contemplated hereby
and thereby, including without limitation, any waiver of any preemptive, first
refusal or other rights that any entity or person may have for the issue and/or
sale of any of the Securities, the Option Securities and the Underwriter's
Securities, except such as have been or may be obtained under the Act, otherwise
or may be required under state securities or blue sky laws in connection with
the Underwriter's purchase and distribution of the Securities, the Option
Securities, the Representative's Securities and the Underwriter's Warrants to be
sold by the Company hereunder or may be required by the Rules of the National
Association of Securities Dealer, Inc. ("NASD").
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(xxxiv) All executed agreements, contracts or other documents or copies of
executed agreements, contracts or other documents filed as exhibits to the
Registration Statement to which the Company is a party or by which it may be
bound or to which its assets, properties or businesses may be subject have been
duly and validly authorized, executed and delivered by the Company and
constitute the legal, valid and binding agreements of the Company, enforceable
against the Company, in accordance with their respective terms. The descriptions
in the Registration Statement of agreements, contracts and other documents are
accurate and fairly present the information required to be shown with respect
thereto by Form SB-2, and there are no contracts or other documents which are
required by the Act to be described in the Registration Statement or filed as
exhibits to the Registration Statement which are not described or filed as
required, and the exhibits which have been filed are complete and correct copies
of the documents of which they purport to be copies.
(xxxv) Within the past five (5) years, none of the Company's independent
public accountants has brought to the attention of the Company's management any
"material weakness" as defined in the Statement of Auditing Standard No. 60 in
any of the Company's internal controls.
4. Covenants of the Company. The Company covenants and agrees with you that:
(a) It will cooperate in all respects in making the Prospectus effective and
will not at any time, whether before or after the effective date, file any
amendment to or supplement to the Prospectus of which you shall not previously
have been advised and furnished with a copy or to which you or your counsel
shall have reasonably objected or which is not in material compliance with the
Act and the Rules and Regulations or applicable state law.
As soon as the Company is advised thereof, the Company will advise you, and
confirm the advice in writing, of the receipt of any comments of the Commission
or any state securities department, when the Registration Statement becomes
effective if the provisions of Rule 430A promulgated under the Act will be
relied upon, when the Prospectus has been filed in accordance with said Rule
430A, of the effectiveness of any posteffective amendment to the Registration
Statement or Prospectus, or the filing of any supplement to the Prospectus or
any amended Prospectus, of any request made by the Commission or any state
securities department for amendment of the Prospectus or for supplementing of
the Prospectus or for additional information with respect thereto, of the
issuance of any stop order suspending the effectiveness of the Prospectus or any
order preventing or suspending the use of any Prospectus or any order suspending
trading in the Common Stock of the Company, or of the suspension of the
qualification of the Securities, the Option Securities or the Representatives
Securities for offering in any jurisdiction, or of the institution of any
proceedings for any such purposes, and will use its best efforts to prevent the
issuance of any such order and, if issued, to obtain as soon as possible the
lifting or dismissal thereof.
The Company has caused to be delivered to you copies of such Prospectus, and the
Company has consented and hereby consents to the use of such copies for the
purposes permitted by law. The Company authorizes you and the dealers to use the
Prospectus and such copies of the Prospectus in connection with the sale of the
Securities, the Option Securities and the Representative's Securities for such
period as in the opinion of your counsel and our counsel the use thereof is
required to comply with the applicable provisions of the Act and the Rules and
Regulations. The Company will prepare and file with the states, promptly upon
your request, any such amendments or supplements to the Prospectus, and take any
other action, as, in the opinion of your counsel, may be necessary or advisable
in connection with the initial sale of the Securities, the Option Securities and
the Underwriter's Securities and will use its best efforts to cause the same to
become effective as promptly as possible.
The Company shall file the Prospectus (in form and substance satisfactory to
the Underwriter) or transmit the Prospectus by a means reasonably calculated to
result in filing with the Commission pursuant to rule 424(b)(1) or
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pursuant to Rule 424(b)(3) not later than the Commission's close of business on
the earlier of (i) the second business day following the execution and delivery
of this Agreement, and (ii) the fifth business day after the effective date of
the Registration Statement.
In case of the happening, at any time within such period as a Prospectus is
required under the Act to be delivered in connection with the initial sale of
the Securities, the Option Securities and the Representative's Securities of any
event of which the Company has knowledge and which materially affects the
Company, or the securities thereof, and which should be set forth in an
amendment of or a supplement to the Prospectus in order to make the statements
therein not then misleading, in light of the circumstances existing at the time
the Prospectus is required under the Act to be delivered, or in case it shall be
necessary to amend or supplement the Prospectus to comply with the Act, the
Rules and Regulations or any other law, the Company will forthwith prepare and
furnish to you copies of such amended Prospectus or of such supplement to be
attached to the Prospectus, in such quantities as you may reasonably request, in
order that the Prospectus, as so amended or supplemented, will not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not misleading
in light of the circumstances under which they are made. The preparation and
furnishing of any such amendment or supplement to the Prospectus or supplement
to be attached to the Prospectus shall be without expense to you.
The Company will to the best of its ability comply with the Act, the
Exchange Act and applicable state securities laws so as to permit the initial
offer and sales of the Securities, the Option Securities and the Representatives
Securities under the Act, the Rules and Regulations, and applicable state
securities laws.
(b) It will cooperate to qualify the Securities and the Option Securities
and the Representative's Securities for initial sale under the securities laws
of such jurisdictions as you may designate and will make such applications and
furnish such information as may be required for that purpose, provided the
Company shall not be required to qualify as a foreign corporation or a dealer in
securities. The Company will, from time to time, prepare and file such
statements and reports as are or may be required to continue such qualification
in effect for so long as the Underwriter may reasonably request.
(c) So long as any of the Securities, the Option Securities or the
Representative's Securities remain outstanding in the hands of the public, the
Company, at its expense, will annually furnish to its shareholders a report of
its operations to include financial statements audited by independent public
accountants, and will furnish to the Underwriter as soon as practicable after
the end of each fiscal year, a balance sheet of the Company as at the end of
such fiscal year, together with statements of operations, shareholders' equity,
and changes in cash flow of the Company for such fiscal year, all in reasonable
detail and accompanied by a copy of the certificate or report thereon of
independent public accountants.
(d) It will deliver to you at or before the Initial Closing Date three
signed copies of the Registration Statement including all financial statements
and exhibits filed therewith, whether or not incorporated by reference. The
Company will deliver to you, from time to time until the effective date of the
Prospectus, as many copies of the Prospectus as you may reasonably request. The
Company will deliver to you on the effective date of the Prospectus and
thereafter for so long as a Prospectus is required to be delivered under the Act
and the Rules and Regulations as many copies of the Prospectus, in final form,
or as thereafter amended or supplemented, as you may from time to time
reasonably request.
(e) The Company will apply the net proceeds from the sale of the Securities
and the Option Securities substantially in the manner set forth under "Use of
Proceeds" in the Prospectus. No portion of the proceeds shall be used, directly
or indirectly, to acquire any securities issued by the Company, without the
prior written consent of the Underwriter.
(f) As soon as it is practicable, but in any event not later than the first
(lst) day of the fifteenth (15th) full calendar month following the effective
date of the Registration Statement, the Company will make available to its
security holders and the Underwriter an earnings statement (which need not be
audited) covering a period of at least
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twelve (12) consecutive months beginning after the effective date of the
Registration Statement, which shall satisfy the requirements of Section 11(a) of
the Act and Rule 158(a) of the Rules and Regulations.
(g) Non-Accountable Expense Allowance and other Costs and Expenses.
The Company shall pay to the Underwriter at each closing date, and to be
deducted from the purchase price for the Securities and the Option
Securities, an amount equal to three percent (3%) of the gross proceeds
received by the Company from the sale of the Securities and the Option
Securities at such closing date less in the case of the Initial Closing
Date, the sum of $50,000 previously paid by the Company. If the sale of the
Securities by the Underwriter is not consummated for any reason not
attributable to the Underwriter, or if (i) the Company withdraws the
Registration Statement from the Commission or does not proceed with the
public offering, or (ii) the representations in Section 3 hereof are not
correct or the covenants cannot be complied with, or (iii) there has been a
materially adverse change in the condition, prospects or obligations of the
Company or a materially adverse change in stock market conditions from
current conditions, all as determined by the Underwriter, then the Company
shall reimburse the Underwriter for its out of pocket expenses including
without limitation its legal fees and disbursements all on an accountable
basis but not to exceed $100,000 (less the $50,000 previously paid by the
Company), and if any excess remains from the advance previously paid, such
excess will be returned to the Company.
Costs and Expenses. Subject to the provisions above the Company will pay
all costs and expenses incident to the performance of this Agreement by the
Company including, but not limited to, the fees and expenses of counsel to
the Company and of the Company's accountants; the costs and expenses
incident to the preparation, printing, filing and distribution under the
Act of the Registration Statement and Prospectus (including the fee of the
Commission, any securities exchange and the NASD in connection with the
filing required by the NASD relating to the offering of the Securities
contemplated hereby); all expenses, including fees of counsel, which shall
be due and payable on the Closing Date in connection with the qualification
of the Securities under the state securities or blue sky laws; the cost of
furnishing to you copies of the Prospectus, this Agreement, the cost of
printing the certificates representing the Securities and of preparing and
photocopying the Underwriting Agreement and related Underwriting documents,
the cost of three underwriter's bound volumes, any advertising costs and
expenses, including but not limited to the Company's expenses on "road
show" information meetings and presentations, prospectus memorabilia, issue
and transfer taxes, if any. The Company will also pay all costs and
expenses incident to the furnishing of any amended Prospectus of or any
supplement to be attached to the Prospectus.
(h) reserved
(i) During a date five years after the date hereof, the Company will file
Form 8-K where required and, as soon as practicable deliver to the Underwriter:
(1) as soon as they are available, copies of all reports (financial or
other) mailed to shareholders;
(2) as soon as they are available, copies of all reports and financial
statements furnished to or filed with the Commission, the NASD or any securities
exchange;
(3) however, every press release and every material news item or
article of interest to the financial community in respect of the Company or its
affairs which was prepared and released by or on behalf of the Company to be
delivered only to the underwriter not the shareholder unless the Company deems
otherwise; and
(4) any additional information of a public nature concerning the
Company (and any future subsidiaries) or its businesses which the Underwriter
may reasonably request.
During such five-year period, if the Company has active subsidiaries, the
foregoing financial statements will be on a consolidated basis to the extent
that the accounts of the Company and its subsidiaries are consolidated, and will
be accompanied by similar financial statements for any significant subsidiary
which is not so consolidated.
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(j) The Company will maintain a Transfer Agent and, if necessary under the
jurisdiction of incorporation of the Company, a Registrar (which may be the same
entity as the Transfer Agent) for its Common Stock.
(k) The Company will furnish to the Underwriter or on the Underwriter's
order, without charge, at such place as the Underwriter may designate, copies of
each Preliminary Prospectus, the Final Prospectus the Registration Statement and
any pre-effective or post-effective amendments thereto (two of which copies will
be signed and will include all financial statements and exhibits), the
Prospectus, and all amendments and supplements thereto, including any prospectus
prepared after the effective date of the Registration Statement, in each case as
soon as available and in such quantities as the Underwriter may request.
(1) Neither the Company nor any of its officers, directors, stockholders or
any of its affiliates will take, directly or indirectly, any action designed to,
or which might in the future reasonably be expected to cause or result in
stabilization or manipulation of the price of any of the Company's securities.
(m) The Company shall timely file all such reports, forms or other documents
as may be required (including, but not limited to, a Form SR as may be required
pursuant to Rule 463 under the Act) from time to time, under the Act, the
Exchange Act, and the Rules and Regulations, and all such reports, forms and
documents filed will comply as to form and substance with the applicable
requirements under the Act, the Exchange Act, and the Rules and Regulations.
(n) The Company shall cause the Securities to be listed on the NASDAQ Small
Cap Market or on an exchange for a period of five (5) years from the date
hereof, and use its best efforts to maintain the listing of the Securities to
the extent they are outstanding.
(o) As soon as practicable, (i) before the effective date of the
Registration Statement, file a Form 8-A with the Commission providing for the
registration under the Exchange Act of the Securities and (ii) but in no event
more than 30 days from the effective date of the Registration Statement, take
all necessary and appropriate actions to be included in Standard and Poor's
Corporation Descriptions and/or Moody's OTC Manual and to continue such
inclusion for a period of not less than five years if the securities are not
listed on an exchange. The Company also agrees to take such steps as may be
necessary to comply with the requirements of any state to be in compliance with
the provisions of Section 18 of the Securities Act of 1933, as amended by the
National Securities Markets Improvement Act of 1996.
(p) Until the completion of the distribution of the Securities, the Company
shall not without the prior written consent of the Underwriter and its counsel
which consent shall not be unreasonably withheld or delayed, issue, directly or
indirectly, any press release or other communication or hold any press
conference with respect to the Company or its activities or the offering
contemplated hereby, other than trade releases issued in the ordinary course of
the Company's business consistent with past practices with respect to the
Company's operations.
(q) Until the earlier of (i) five (5) years from the date hereof or (ii) the
sale to the public of the Warrant Shares, the Company will not take any action
or actions which may prevent or disqualify the Company's use of Form SB-2 (or
other appropriate form) for the registration under the Act of the Warrant Shares
and the Representative's Securities.
(r) Commencing one year from the effective date of the Registration
Statement, the Company agrees to pay the Underwriter a 5% solicitation fee for
the exercise of the publicly-held redeemable warrants such solicitation being
subject to applicable SEC and NASD Rules.
(s) The Company agrees to retain the Underwriter's for a period of 24
months at $3000 per month, to continue the development of interest and
sponsorship in the common shares with the first twelve months paid in advance at
the closing.
(t) The Company agrees that the Underwriter may designate one person at its
discretion to attend board meetings as an observer without compensation except
for associated travel expenses to be reimbursed by the Company.
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<PAGE> 13
5. Conditions of the Underwriter's Obligations. The obligation of the
Underwriters to offer and sell the Securities and the Option Securities is
subject to the accuracy in all material respects (as of the date hereof, and as
of the Closing Dates) of and compliance in all material respects with the
representations and warranties of the Company to the performance by it of its
agreement and obligations hereunder and to the following additional conditions:
(a) The Registration Statement shall have become effective as and when
cleared by the Commission, and you shall have received notice thereof, on or
prior to any closing date no stop order suspending the effectiveness of the
Prospectus shall have been issued and no proceedings for that or similar purpose
shall have been instituted or shall be pending, or, to your knowledge or to the
knowledge of the Company, shall be contemplated by the Commission; any request
on the part of the Commission for additional information shall have been
complied with to the reasonable satisfaction of counsel to the Underwriter; and
qualification, under the securities laws of such states as you may designate, of
the issue and sale of the Securities upon the terms and conditions herein set
forth or contemplated and containing no provision unacceptable to you shall have
been secured, and no stop order shall be in effect denying or suspending
effectiveness of such qualification nor shall any stop order proceedings with
respect thereto be instituted or pending or threatened under such law.
(b) On any closing date and, with respect to the letter referred to in
subparagraph (iii), as of the date hereof, you shall have received:
(i) the opinion, together with such number of signed or photostatic copies
of such opinion as you may reasonably request, addressed to you by Foley, Hoag &
Eliot LLP counsel for the Company, in form and substance reasonably satisfactory
to the Underwriter and William M. Prifti, Esq., counsel to the Underwriter,
dated each such closing date, to the effect that:
(A) The Company has been duly incorporated and is a validly existing
corporation in good standing under the laws of the jurisdiction in which it is
incorporated and has all necessary corporate power and authority to carry on its
business as described in the Prospectus.
(B) The Company is qualified to do business in each jurisdiction in which
conducting its business requires such qualification, except where the failure to
be so qualified would not have a material adverse effect on the Company's
business or assets.
(C) The Company has the full corporate power and authority to enter into
this Agreement, the Representative's Warrant Agreement and the Consulting
Agreement and to consummate the transactions provided for therein and each such
Agreement has been duly and validly authorized, executed and delivered by the
Company. Each of this Agreement, the Consulting Agreement and the
Representative's Warrant Agreement, assuming due authorization, execution and
delivery by each other party thereto, constitutes a legal, valid and binding
agreement of the Company and provided that no opinion need be given as to the
enforceability of any indemnification or contribution provisions, and none of
the Company's execution or delivery of this Agreement, the Consulting Agreement
or the Representative's Warrant Agreement, its performance hereunder or
thereunder, its consummation of the transactions contemplated herein or therein,
or the conduct of its business as described in the Registration Statement, the
Prospectus, and any amendments or supplements thereto, conflicts with or will
conflict with or results or will result in any material breach or violation of
any of the terms or provisions of, or constitutes or will constitute a material
default under, or result in the creation or imposition of any material lien,
charge, claim, encumbrance, pledge, security interest, defect or other
restriction of any kind whatsoever upon, any property or assets (tangible or
intangible) of the Company pursuant to the terms of (A) the articles of
incorporation or by-laws of the Company, (B) to the knowledge of such counsel,
any material license, contract, indenture, mortgage, deed of trust, voting trust
agreement, stockholders' agreement, note, loan or credit agreement or any other
agreement or instrument to which the Company is a party or by which it is or may
be bound, or (C) to the knowledge of such counsel, any statute, judgment,
decree, order, rule or regulation applicable to the Company, whether domestic or
foreign.
(D) The Company had authorized and outstanding capital stock as set forth in
the Prospectus under the heading "Capitalization" as of the date set forth
therein, and all of such issued and outstanding shares of capital stock have
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<PAGE> 14
been duly and validly authorized and issued, and to the knowledge of such
counsel are fully paid and nonassessable, and to the knowledge of such counsel
no stockholder of the Company is entitled to any preemptive rights to subscribe
for, or purchase shares of the capital stock and to the knowledge of such
counsel none of such securities were issued in violation of the preemptive
rights of any holders of any securities of the Company.
(E) To the knowledge of such counsel, the Company is not a party to or bound
by any instrument, agreement or other arrangement providing for it to issue any
capital stock, rights, warrants, options or other securities, except for this
Agreement, the Representative's Warrant Agreement, and except as described in
the Prospectus. The Common Stock, the Warrants and the Representative's Warrants
each conforms in all material respects to the respective descriptions thereof
contained in the Prospectus. The outstanding shares of Common Stock, the
Redeemable Warrant and the Warrant Stock and the Representative's Warrant Stock,
upon issuance and delivery and payment therefore in the manner described herein,
the Warrant Agreement and the Representative Agreement, as the case may be, will
be, duly authorized, validly issued, fully paid and nonassessable. There are no
preemptive or other rights to subscribe for or to purchase, or any restriction
upon the voting or transfer of, any shares of Common Stock pursuant to the
Company's articles of incorporation, by-laws, other governing documents or any
agreement or other instrument known to such counsel to which the Company is a
party or by which it is bound.
(F) The certificates representing the Securities comprising the Common Stock
and Redeemable Warrants will conform with all legal requirements therefor and
each of the Warrant Stock and the Representative's Warrant has been duly
authorized and reserved for issuance and when issued and delivered in accordance
with the respective terms of the Warrant Agreement and Representative's Warrant
Agreement, respectively, will duly and validly issued, fully paid and
nonassessable.
(G) To the knowledge of such counsel, there are no claims, suits or other
legal proceedings pending or threatened against the Company in any court or
before or by any governmental body which might materially affect the business of
the Company or the financial condition of the Company as a whole, except as set
forth in or contemplated by the Prospectus.
(H) Based on oral and/or written advice from the staff of the Commission,
the Registration Statement has become effective and, to the knowledge of such
counsel, no stop order suspending the effectiveness of the Prospectus is in
effect and no proceedings for that purpose are pending before, or threatened by,
federal or by a state securities administrator.
(I) To the knowledge of such counsel, there are no legal or governmental
proceedings, actions, arbitrations, investigations, inquiries or the like
pending or threatened against the Company of a character required to be
disclosed in the Prospectus which have not been so disclosed, questions the
validity of the capital stock of the Company or this Agreement or the
Representative's Warrant Agreement or might adversely affect the condition,
financial or otherwise, or the prospects of the Company or which could adversely
affect the Company's ability to perform any of its obligations under this
Agreement, or the Representative's Warrant Agreement.
(J) To such counsel's knowledge, there are no material agreements, contracts
or other documents known to such counsel required by the Act to be described in
the Registration Statement and the Prospectus and filed as exhibits to the
Registration Statement other than those described in the Registration Statement
and the Prospectus and filed as exhibits thereto, and to such counsel's
knowledge (A) the exhibits which have been filed are correct copies of the
documents of which they purport to be copies; (B) the descriptions in the
Registration Statement and the Prospectus and any supplement or amendment
thereto of contracts and other documents to which the Company is a party or by
which it is bound, including any document to which the Company is a party or by
which it is bound incorporated by reference into the Prospectus and any
supplement or amendment thereto, are accurate in all material respects and
fairly represent the information required to be shown by Form SB-2.
(K) No consent, approval, order or authorization from any regulatory board,
agency or instrumentality having jurisdiction over the Company, or its
properties (other than registration under the Act or qualification under state
or
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<PAGE> 15
foreign securities law or approval by the NASD) is required for the valid
authorization, issuance, sale and delivery of the Securities, the Option
Securities or the Representative's Warrant.
(L) The statements in the Prospectus under "Risk Factors-Control by Existing
Stockholders," "Management-Limitation of Liability" "Description of the
Securities," and "Shares Eligible For Future Sale" have been reviewed by such
counsel, and insofar as they refer to statements of law, descriptions of
statutes, licenses, rules or regulations or legal conclusions, are correct in
all material respects.
In addition, such counsel shall state that such counsel has participated in
conferences with officials and other representatives of the Company, the
Representatives, Underwriters' Counsel and the independent certified public
accountants of the Company, at which such conferences the contents of the
Registration Statement and Prospectus and related matters were discussed, and
although they have not certified the accuracy or completeness of the statements
contained in the Registration Statement or the Prospectus, nothing has come to
the attention of such counsel which leads them to believe that, at the time the
Registration Statement became effective and at all times subsequent thereto up
to and on the Closing Date and on any later date on which Option Shares are to
be purchased, the Registration Statement and any amendment or supplement, when
such documents became effective or were filed with the Commission (other than
the financial statements including the notes thereto and supporting schedules
and other financial and statistical information derived therefrom, as to which
such counsel need express no comment) contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, or at the Closing
Date or any later date on which the Option Shares are to be purchased, as the
case may be, the Prospectus and any amendment or supplement thereto (other than
the financial statements including the notes thereto and other financial and
statistical information derived therefrom, as to which such counsel need express
no comment) contained any untrue statement of a material fact or omitted to
state a material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading.
Such opinion shall also cover such other matters incident to the
transactions contemplated hereby and the offering Prospectus as you or counsel
to the Underwriter shall reasonably request. In rendering such opinion, to the
extent deemed reasonable by them, such counsel may rely upon certificates of any
officer of the Company or public officials as to matters of fact of which the
maker of such certificate has knowledge.
(ii) a certificate, signed by the Chief Executive Officer and the Principal
Financial or Accounting Officer of the Company dated the Closing Date, to the
effect that with regard to the Company, each of the conditions set forth in
Section 5(d) have been satisfied.
(iii) a letter, addressed to the Underwriter and in form and substance
satisfactory to the Underwriter in all respects (including the nature of the
changes or decreases, if any, referred to in clause (D) below), from Ernst &
Young LLP, dated, respectively, as of the effective date of the Registration
Statement and as of the Closing Date, as the case may be:
(A) Confirming that they are independent public accountants with respect to
the Company and its consolidated subsidiaries, if any, within the meaning of the
Act and the applicable published Rules and Regulations.
(B) Stating that, in their opinion, the financial statements, related notes
and schedules of the Company and its consolidated subsidiaries, if any, included
in the Registration Statement examined by them comply as to form in all material
respects with the applicable accounting requirements of the Act and the
published Rules and Regulations thereunder.
(C) Stating that, with respect to the period from June 30, 1998 to a
specified date (the specified date") not earlier than five (5) business days
prior to the date of such letter, they have read the minutes of meetings of the
stockholders and board of directors (and various committees thereof) of the
Company and its consolidated subsidiaries, if any, for the period from June 30,
1998 through the specified date, and made inquiries of officers of the Company
and its consolidated subsidiaries, if any, responsible for financial and
accounting matters and, especially as to whether there
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<PAGE> 16
was any decrease in sales, income before extraordinary items or net income as
compared with the corresponding period in the preceding year; or any change in
the capital stock of the Company or any change in the long term debt or any
increase in the short-term bank borrowings or any decrease in net current assets
or net assets of the Company or of any of its consolidated subsidiaries, if any,
and further stating that while such procedures and inquiries do not constitute
an examination made in accordance with generally accepted auditing standards,
nothing came to their attention which caused them to believe that during the
period from June 30, 1998, through the specified date there were any decreases
as compared with the corresponding period in the preceding year in sales, income
before extraordinary items or net income; or any change in the capital stock of
the Company or consolidated subsidiary, if any, or any change in the long term
debt or any increase in the short-term bank borrowings (other than any increase
in short-term bank borrowings in the ordinary course of business) of the Company
or any consolidated subsidiary, if any, or any decrease in the net current
assets or net assets of the Company or any consolidated subsidiary, if any; and
(D) Stating that they have carried out certain specified procedures
(specifically set forth in such letter or letters) as specified by the
Underwriter (after consultations with Ernst & Young, LLP relating to such
procedures), not constituting an audit, with respect to certain tables,
statistics and other financial data in the Prospectus specified by the
Underwriter and such financial data not included in the Prospectus but from
which information in the Prospectus is derived, and which have been obtained
from the general accounting records of the Company or consolidated subsidiaries,
if any, or from such accounting records by analysis or computation, and having
compared such financial data with the accounting records of the Company or the
consolidated subsidiaries, if any, stating that they have found such financial
data to agree with the accounting records of the Company.
(c) All corporate proceedings and other legal matters relating to this
Agreement, the Prospectus and other related matters shall be satisfactory to or
approved by counsel to the Underwriter and you shall have received from Foley,
Hoag & Eliot, LLP a signed opinion dated as of each closing date, with respect
to the incorporation of the Company, the validity of the Securities, the form of
the Prospectus, (other than the financial statements together with related notes
and other financial and statistical data contained in the Prospectus or omitted
therefrom, as to which such counsel need express no opinion), the execution of
this Agreement and other related matters as you may reasonably require.
(d) At each closing date, (i) the representations and warranties of the
Company contained in this Agreement shall be true and correct in all material
respects with the same effect as if made on and as of such closing date; (ii)
the Prospectus and any amendments or supplements thereto shall contain all
statements which are required to be stated therein in accordance with the Act
and the Rules and Regulations and in all material respects conform to the
requirements thereof, and neither the Prospectus nor any amendment or supplement
thereto shall contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary, in light of the
circumstances under which they were made, in order to make the statements
therein not misleading; (iii) there shall have been since the respective dates
as of which information is given no material adverse change in the business,
properties or condition (financial or otherwise), results of operations, capital
stock, longterm debt or general affairs of the Company from that set forth in
the Prospectus, except changes which the Prospectus indicates might occur after
the effective date of the Prospectus, and the Company shall not have incurred
any material liabilities or material obligations, direct or contingent, or
entered into any material transaction, contract or agreement not in the ordinary
course of business other than as referred to in the Prospectus and which would
be required to be set forth in the Prospectus; and (iv) except as set forth in
the Prospectus, no action, suit or proceeding at law or in equity shall be
pending or threatened against the Company which would be required to be set
forth in the Prospectus, and no proceedings shall be pending or threatened
against the Company or any subsidiary before or by any commission, board or
administrative agency in the United States or elsewhere, wherein an unfavorable
decision, ruling or finding would materially and adversely affect the business,
property, condition (financial or otherwise), results of operations or general
affairs of the Company.
(e) On the Initial Closing Date, the Company shall have executed and
delivered to the Underwriter, (i) the Representatives' Warrant Agreement
substantially in the form filed as an Exhibit to the Registration Statement in
final form and substance satisfactory to the Underwriter, and (ii) the
Representative's Warrants in such denominations and to such designees as shall
have been provided to the Company.
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(f) On or before the Initial Closing Date, the Securities shall have been
duly approved for listing on an exchange or on NASDAQ.
(g) On or before the Initial Closing Date, there shall have been delivered
to the Underwriter all of the Lock-up Agreements required to be delivered
pursuant to Section 3(a)(xxv) and 4(h), in form and substance satisfactory to
the Underwriter and Underwriter's counsel.
If any condition to the Underwriter's obligations hereunder to be
fulfilled prior to or at the Closing Date or the relevant Option Closing Date,
as the case may be, is not so fulfilled, the Underwriter may terminate this
Agreement or, if the Underwriter so elects, it may waive any such conditions
which have not been fulfilled or extend the time for their fulfillment.
6. Conditions of the Company's Obligations. The obligation of the Company to
sell and deliver the Securities is subject to the following:
(a) The provisions regarding the effective date, as described in Section
10.
(b) At the Initial Closing Date, no stop order suspending the
effectiveness of the Prospectus shall have been issued under the Act or any
proceedings therefor initiated or threatened by the Commission or by any state
securities department.
(c) Tender of payment by the Underwriter in accord with Section 2 hereof.
7. Indemnification.
(a) The Company agrees to indemnify and hold harmless each Underwriter
and its employees and each person, if any, who controls you within the meaning
of the Act, against any losses, claims, damages or liabilities, joint or several
(which shall, for any purposes of this Agreement, include, but not be limited
to, all costs of defense and investigation and all attorneys' fees), to which
each Underwriter or such controlling person may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission made in the Prospectus, or such amendment or supplement to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, which is in reliance upon and in conformity
with written information furnished by the Company to you specifically for use in
the preparation thereof, and provided further that the indemnity agreement
contained in this subsection (a) shall not inure to the benefit of you with
respect to any person asserting any such loss, claim, damage or liability who
has purchased the Securities which are the subject thereof if you or any
participants failed to send or give a copy of the Prospectus to such person at
or prior to the written confirmation of the sale of such Securities to such
person and except that, with respect to any untrue statement or omission or any
alleged untrue statement or omission, made in any Pre-Effective Prospectus, the
indemnity agreement contained in this subsection (a) shall not inure to the
benefit of any Underwriter ( or to any person controlling any such underwriter)
from whom the person asserting any such loss, claim, damage or liability
purchased the securities concerned to the extent that such untrue statement or
omission, or alleged untrue statement or omission, has been corrected in a later
Pre-Effective Prospectus or in the Final Prospectus unless the Underwriter
circulated a later Pre-Effective Prospectus or the Final Prospectus to such
person.
(b) Each Underwriter will indemnify and hold harmless the Company, each of
its directors, each of its officers, each person, if any, who controls the
Company within the meaning of the Act against any losses, claims, damages or
liabilities, joint or several (which shall, for all purposes of this Agreement,
include, but not be limited to, all costs of defense and investigation and all
attorneys' fees) to which the Company or any such director, officer or
controlling person may become subject under the Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in the Prospectus, or any amendment or supplement
thereto, or arise out of or are based upon the omission or the alleged omission
to state therein a material fact required to be stated therein or necessary to
make
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<PAGE> 18
the statements therein not misleading, in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or omission
was made in the Prospectus, or such amendment or supplement, in reliance upon
and in conformity with written information furnished to the Company by you
specifically for use in the preparation thereof and from and against any and all
losses caused by an untrue statement or alleged untrue statement of a material
fact contained in the Prospectus (if used within the Applicable Period and as
amended or supplemented if the Company shall have furnished any amendments or
supplements thereto), or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, if the person asserting such losses purchased
Securities from such Underwriter and a copy of the Final Prospectus ( as then
amended or supplemented if the Company shall have furnished any amendments or
supplements thereto) was not sent or given by or on behalf of such Underwriter
to such person, if required by law so to have been delivered, at or prior to the
written confirmation of the sale of the Securities to such person, and if the
Prospectus (as so amended or supplemented ) would have cured the defect giving
rise to such loss, claim, damage or liability. This indemnity will be in
addition to any liability which any Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section, notify the indemnifying party of the commencement thereof, but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party otherwise than under this
Section. In case any such action is brought against any indemnified party, and
it notifies the indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate in, and, to the extent that it may wish,
jointly with any other indemnifying party, similarly notified, to assume the
defense thereof, subject to the provisions herein stated, with counsel
satisfactory to such indemnified party, and after notice from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party will not be liable to such indemnified party
under this Section for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation. The indemnified party shall have the right to employ
separate counsel in any such action and to participate in the defense thereof,
but the fees and expenses of such counsel shall not be at the expense of the
indemnifying party if the indemnifying party has assumed the defense of the
action with counsel reasonably satisfactory to the indemnified party; provided
that, if the indemnified party is you or a person who controls you, the fees and
expenses of such counsel shall be at the expense of the indemnifying party if
(i) the employment of such counsel has been specifically authorized in writing
by the indemnifying party or (ii) the named parties to any such action
(including any impleaded parties) include both you or such controlling person
and the indemnifying party and you or such controlling person shall have been
advised by such counsel that there is a conflict of interest which would prevent
counsel for the indemnifying party from representing the indemnifying party and
you or such controlling person (in which case the indemnifying party shall not
have the right to assume the defense of such action on behalf of you or such
controlling person, it being understood, however, that the indemnifying party
shall not, in connection with any one such action or separate but substantially
similar or related actions in the same jurisdiction or which are consolidated
into the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the reasonable fees and expenses of more than one
separate firm of attorneys for you and all such controlling persons, which firm
shall be designated in writing by you). No settlement of any action against an
indemnified party shall be made without the consent of the indemnified party,
which shall not be unreasonably withheld in light of all factors of importance
to such indemnified party.
8. Contribution. In order to provide for just and equitable contribution
under the Act in any case in which (i) the indemnifying party makes a claim for
indemnification pursuant to Section 7 hereof but it is judicially determined (by
the entry of a final judgment or decree by a court of competent jurisdiction and
the expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case notwithstanding the fact
that the express provisions of Section 7 provide for indemnification in such
case, or (ii) contribution under the Act may be required on the part of the
Underwriters, then the Company and the Underwriters in the aggregate shall
contribute to the aggregate losses, claims, damages, or liabilities to which
they may be subject (which shall, for all purposes of this Agreement, include,
but not be limited to, all costs of defense and investigation and all attorneys'
fees) in either such case (after contribution from others) in such proportions
that the Underwriters are responsible in the aggregate for that portion of such
losses, claims, damages or liabilities determined by multiplying the total
amount of such losses, claims, damages or liabilities times the difference
between the public offering price and the
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<PAGE> 19
commission to the Underwriter and dividing the product thereof by the public
offering price, and the Company, if applicable, shall be responsible for that
portion of such losses, claims, damages or liabilities times the commission to
the Underwriters and dividing the product thereof by the public offering price;
provided, however, that the Underwriters shall not be required to so contribute
any amount in excess of the underwriting discount applicable to the Securities
purchased by the Underwriters hereunder if such allocation is not permitted by
applicable law, then the relative fault of the Company and the Underwriters in
connection with the statements or omissions which resulted in such damages and
other relevant equitable considerations shall also be considered. No person
guilty of a fraudulent misrepresentation (within the meaning of Section 12(2) of
the Act) shall be entitled to contribution from any person who is not guilty of
such fraudulent misrepresentation. The foregoing contribution agreement shall in
no way affect the contribution liabilities of any person having liability under
Section 12 of the Act other than the Company and the Underwriter. As used in
this paragraph, the term "Underwriters" includes any person who controls the
Underwriters within the meaning of Section 15 of the Act. If the full amount of
the contribution specified in this paragraph is not permitted by law, then any
Underwriter and each person who controls any Underwriter shall be entitled to
contribution from the Company, to the full extent permitted by law.
9. Effective Date. This Agreement shall become effective at 10:00 a.m. New
York time on the next full business day following the effective date of the
Registration Statement, or at such other time after the effective date of the
Prospectus as you in your discretion shall first commence the public offering of
any of the Securities covered thereby, provided, however, that at all times the
provisions of Sections 7, 8, 9 and 11 shall be effective.
10. Termination.
(a) This Agreement, may be terminated at any time prior to the Closing
Date by you if in your judgment it is impracticable to offer for sale or to
enforce contracts made by you for the sale of the Securities agreed to be sold
hereunder by reason of (i) the Company as a whole having sustained a material
loss, whether or not insured, by reason of fire, earthquake, flood, accident or
other calamity, or from any labor dispute or court or government action, order
or decree, (ii) trading in securities of the Company having been suspended by a
state securities administrator or by the Commission, (iii) material governmental
restrictions having been imposed on trading in securities generally (not in
force and effect on the date hereof) or trading on the New York Stock Exchange,
American Stock Exchange, or in the over-the-counter market shall have been
suspended, (iv) a banking moratorium having been declared by federal or New York
State authorities, (v) an outbreak or escalation of hostilities or other
national or international calamity having occurred, (vi) the passage by the
Congress of the United States or by any state legislative body, of any act or
measure, or the adoption of any orders, rules or regulations by any governmental
body or any authoritative accounting institute or board, or any governmental
executive, which is believed likely by you to have a material impact on the
business, financial condition or financial statements of the Company; or (vii)
any material adverse change having occurred, since the respective dates as of
which information is given in the Prospectus, in the condition, financial or
otherwise, of the Company as a whole, whether or not arising in the ordinary
course of business, (viii) Anthony J. Armini ceases to be employed by the
Company in his present capacity; (ix) the Securities are not listed on any
exchange or on NASDAQ.
(b) If you elect to prevent this Agreement from becoming effective
or to terminate this Agreement as provided in this Section 10 or in Section 9,
the Company shall be promptly notified by you, by telephone or telegram,
confirmed by letter.
11. Representations, Warrants and Agreements to Survive Delivery. The
respective indemnities, agreements, representations, warranties and other
statements of the Company (or its officers) and the Underwriter set forth in or
made pursuant to this Agreement will remain in full force and effect, regardless
of any investigation made by or on behalf of the Underwriter, the Company, or
any of their officers or directors and will survive delivery of and payment for
the Securities.
12. Notices. All communications hereunder will be in writing and, except as
otherwise expressly provided herein, if sent to you, will be mailed, delivered
or telephoned and confirmed to you at, Schneider Securities, Inc., 1120
19
<PAGE> 20
Lincoln Street, Denver, Colorado 80203 Attn: Investment Banking
Department; and to the Company to A.J. Armini, President, Implant Sciences
Corporation, 107 Audubon Road, #5, Wakefield, MA 01880.
13. Parties in Interest. This Agreement is made solely for the benefit of
the Underwriter(s), and the Company, and their respective controlling persons,
directors and officers, and their respective successors, assigns, executors and
administrators. No other person shall acquire or have any right under or by
virtue of this Agreement.
14. Headings. The Section headings in this Agreement have been inserted as a
matter of convenience of reference and are not a part of this Agreement.
15. Applicable Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Colorado, without giving effect to
conflict of law principles.
16. Counterparts. This Agreement may be executed in any number of
counterparts, each of which together shall constitute one and the same
instrument.
If the foregoing correctly sets forth the understanding between the Company
and you, as Representative of the several underwriters, please so indicate in
the space provided below for such purpose, whereupon this letter and your
acceptance shall constitute a binding agreement between us.
Very truly yours,
Implant Sciences Corporation
By:
-----------------------------
(Authorized Officer)
A.J. Armini, President
Accepted as of the date first above written:
Schneider Securities,Inc..
As Representative of the several Underwriters
By:
-------------------------
Vice President
20
<PAGE> 21
EXHIBIT A
SCHEDULE I
UNDERWRITERS
Shares of
Underwriter Common Stock and
Redeemable Warrants
Schneider Securities, Inc.
---------
TOTAL 1,000,000
21
<PAGE> 1
EXHIBIT B
A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION BUT HAS NOT YET BECOME EFFECTIVE. NO
OFFER TO BUY THE SECURITIES CAN BE ACCEPTED AND NO PART OF THE PURCHASE PRICE
CAN BE RECEIVED UNTIL THE REGISTRATION STATEMENT HAS BECOME EFFECTIVE, AND ANY
SUCH OFFER MAY BE WITHDRAWN OR REVOKED, WITHOUT OBLIGATION OR COMMITMENT OF ANY
KIND, AT ANY TIME PRIOR TO NOTICE OF ITS ACCEPTANCE GIVEN AFTER THE EFFECTIVE
DATE. YOUR EXECUTION HEREOF WELL INVOLVE NO OBLIGATION OR COMMITMENT OF ANY KIND
UNTIL THE REGISTRATION STATEMENT HAS BECOME EFFECTIVE.
Implant Sciences Corporation
SELECTED DEALERS AGREEMENT
, 1998
Dear Sirs:
1. Schneider Securities, Inc. named as the Underwriter ("Underwriter") in
the enclosed preliminary Prospectus, proposes to offer on a firm commitment
basis, subject to the terms and conditions and execution of the Underwriting
Agreement, 1,000,000 Shares of Common Stock at $ per share and 1,000,000
Redeemable Warrants at $0.10 per Warrant ("Securities") of the above Company.
The Securities are more particularly described in the enclosed preliminary
Prospectus, additional copies of which will be supplied in reasonable quantities
upon request. Copies of the definitive Prospectus will be supplied after the
effective date of the Registration Statement.
2. The Underwriter is soliciting offers to buy, upon the terms and
conditions hereof, a part of the Securities from Selected Dealers, including you
who are to act as principal and who are (i) registered with the Securities and
Exchange Commission ("Commission") as broker-dealers under the Securities
Exchange Act of 1934, as amended ("1934 Act"), and members in good standing with
the National Association of Securities Dealers, Inc. ("NASD"), or (ii) dealers
or institutions with their principal place of business located outside the
United States, its territories and possessions who are not eligible for
membership in the NASD and who agree to make no sales within the United States,
its territories or possessions or to persons who are nationals thereof or
residents therein and, in making sales, to comply with the NASD's Interpretation
with Respect to FreeRiding and Withholding and with Sections 2730, 2740 and
2420, to the extent applicable to foreign nonmember brokers or dealers, and
Section 2750 of the NASD's Rules of Fair Practice. The Securities are to be
offered at a public price of $ per share of Common Stock and $0.10 per
Redeemable Warrant. Selected Dealers will be allowed a concession of not less
than $ per share and $.005 per Redeemable Warrant, except as provided below.
You will be notified of the precise amount of such concession prior to the
effective date of the Registration Statement. You may reallow not in excess of
$ per share and $.0025 per Redeemable Warrant to dealers who meet the
requirements set forth in this Section 2. This offer is solicited subject to the
issuance and delivery of the Securities and their acceptance by the Underwriter,
to the approval of legal matters by counsel and to the terms and conditions as
herein set forth.
3. Your offer to purchase may be revoked in whole or in part without
obligation or commitment of any kind by you and any time prior to acceptance and
no offer may be accepted by us and no sale can be made until after the
registration statement covering the Securities has become effective with the
Commission. Subject to the foregoing, upon execution by you of the Offer to
Purchase below and the return of same to us, you shall be deemed to have offered
to purchase the number of Securities set forth in your offer on the basis set
forth in paragraph 2 above. Any
<PAGE> 2
oral notice by us of acceptance of your offer shall be immediately followed by
written or telegraphic confirmation preceded or accompanied by a copy of the
Prospectus. If a contractual commitment arises hereunder, all the terms of this
Selected Dealers Agreement shall be applicable. We may also make available to
you an allotment to purchase Securities, but such allotment shall be subject to
modification or termination upon notice from us any time prior to an exchange of
confirmations reflecting completed transactions. All references hereafter in
this Agreement to the purchase and sale of Securities assume and are applicable
only if contractual commitments to purchase are completed in accordance with the
foregoing.
4. You agree that in reoffering said Securities, if your offer is accepted
after the effective date, you will make a bona fide public distribution of same.
You will advise us upon request of Securities purchased by you remaining unsold
and we shall have the right to repurchase such Securities upon demand at the
public offering price without paying the concession with respect to any
Securities so repurchased. Any of the Securities purchased by you pursuant to
this Agreement are to be subject to the terms hereof. Securities shall not be
offered or sold by you below the public offering price before the termination of
this Agreement.
5. Payment for Securities which you purchase hereunder shall be made by you
on or before five (5) business days after the date of each confirmation by
certified or bank cashier's check payable to the Underwriter. Certificates for
the Securities shall be delivered as soon as practicable after delivery
instructions are received by the Underwriter.
6. A registration statement covering the offering has been filed with the
Securities and Exchange Commission in respect to the Securities. You will be
promptly advised when the registration statement becomes effective. Each
Selected Dealer in selling Securities pursuant hereto agrees (which agreement
shall also be for the benefit of the Company) that it will comply with the
applicable requirements of the Securities Act of 1933 and of the Securities
Exchange Act of 1934 and any applicable rules and regulations issued under said
Acts. No person is authorized by the Company or by the Underwriter to give any
information or to make any representations other than those contained in the
Prospectus in connection with the sale of the Securities. Nothing contained
herein shall render the Selected Dealers a member of the Underwriting Group or
partners with the Underwriter or with one another.
7. You will be informed by us as to the states in which we have been advised
by counsel the Securities have been qualified for sale or are exempt under the
respective securities or blue sky laws of such states, but we have not assumed
and will not assume any obligation or responsibility as to the right of any
Selected Dealer to sell Securities in any state. You agree not to sell
Securities in any other state or jurisdiction and to not sell Securities in any
state or jurisdiction unless you are qualified or licensed to sell securities in
such state or jurisdiction.
8. The Underwriter shall have full authority to take such action as it may
deem advisable in respect of all matters pertaining to the offering or arising
thereunder. The Underwriter shall not be under any liability to you, except such
as may be incurred under the Securities Act of 1933 and the rules and
regulations thereunder, except for lack of good faith and except for obligations
assumed by us in this Agreement, and no obligation on our part shall be implied
or inferred herefrom.
9. Selected Dealers will be governed by the conditions herein set forth
until this Agreement is terminated. This Agreement will terminate when the
offering is completed. Nothing herein contained shall be deemed a commitment on
our part to sell you any Securities; such contractual commitment can only be
made in accordance with the provisions of paragraph 3 hereof.
10. You represent that you are a member in good standing of the NASD and
registered as a broker-dealer with the Commission, or that you are a foreign
broker-dealer not eligible for membership under Section 1 of the Bylaws of the
NASD who agrees to make no sales within the United States, its territories or
possessions or to persons who are nationals thereof or residents therein and, in
making sales, to comply with the NASD's interpretation with Respect to
FreeRiding and Withholding and with Sections 2730, 2740 and 2420 to the extent
applicable to foreign nonmember brokers and dealers, and Section 2750 of the
NASD's Rules of Fair Practice. Your attention is called to and you agree to
comply with the following: (a) Article III, Section 1 of the Rules of Fair
Practice of the NASD and the interpretations of said Section promulgated by the
Board of Governors of the NASD including Section 2740 and the
2
<PAGE> 3
interpretation with respect to "Free-Riding and Withholding;" (b) Section 10(b)
of the 1934 Act, Rule 10b-10 and Regulation M of the general rules and
regulations promulgated under the 1934 Act; and (c) Rule 15c2-8 of the general
rules and regulations promulgated under the 1934 Act requiring the distribution
of a preliminary Prospectus to all persons reasonably expected to be purchasers
of the Securities from you at least 48 hours prior to the time you expect to
mail confirmations. You, as a member of the NASD, by signing this Agreement,
acknowledge that you are familiar with the cited laws and rules and agree that
you will not directly and/or indirectly violate any provisions of applicable law
in connection with your participation in the distribution of the Securities.
11. In addition to compliance with the provisions of paragraph 10 hereof,
you will not, until advised by us in writing or by wire that the entire offering
has been distributed and closed, bid for or purchase Securities in the open
market or otherwise make a market in the Securities or otherwise attempt to
induce others to purchase the Securities in the open market. Nothing contained
in this paragraph 11 shall, however, preclude you from acting as agent in the
execution of unsolicited orders of customers in transactions effectuated for
them through a market maker.
12. You understand that the Underwriter may in connection with the offering
engage in stabilizing transactions. If the Underwriter contracts for or
purchases in the open market in connection with such stabilization any
Securities sold to you hereunder and not effectively placed by you, the
Underwriter may charge you the Selected Dealer's concession originally allowed
you on the Securities so purchased and you agree to pay such amount to us on
demand.
13. By submitting an Offer to Purchase you confirm that you may, in
accordance with Rule 15c-1 adopted under the 1934 Act, agree to purchase the
number of Securities you may become obligated to purchase under the provisions
of this Agreement.
14. All communications from you should be directed to us at Schneider
Securities, Inc., 2 Charles Street, Providence, R.I. Attn: Pasquale Ruggieri,
Vice President (1 800-709-4040) and fax (401-274-8942). All communications from
us to you shall be directed to the address to which this letter is mailed.
Very truly yours,
Schneider Securities, Inc..
By
-----------------------------------
(Authorized Officer)
3
<PAGE> 4
OFFER TO PURCHASE
The undersigned does hereby offer to purchase (subject to the right to
revoke as set forth in paragraph 3) ____________________* Securities in
accordance with the terms and conditions set forth above. We hereby acknowledge
receipt of the Prospectus referred to in the first paragraph thereof relating to
such Securities. We further state that in purchasing such Securities we have
relied upon such Prospectus and upon no other statement whatsoever, written or
oral.
_________________________________
By ______________________________
(Authorized Officer)
*If a number appears here which does not correspond with what you wish to offer
to purchase, you may change the number by crossing out the number, inserting a
different number and initializing the change.
4
<PAGE> 1
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") OR ANY STATE
SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF ANY EFFECTIVE REGISTRATION STATEMENT AS TO SUCH
SECURITIES FILED UNDER THE ACT, OR AN EXEMPTION FROM REGISTRATION, AND
COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS. THE ISSUER MAY REQUIRE AN
OPINION OF COUNSEL SATISFACTORY TO THE ISSUER HEREOF THAT SUCH REGISTRATION IS
NOT REQUIRED AND THAT SUCH LAWS ARE COMPLIED WITH.
VOID AFTER 3:30 P.M., EASTERN TIME, ON 2003
REPRESENTATIVE'S
WARRANT TO PURCHASE
COMMON STOCK AND REDEEMABLE WARRANTS
IMPLANT SCIENCES CORPORATION
This is to Certify That, FOR VALUE RECEIVED, Schneider Securities, Inc.
(the "Holder") is entitled to purchase, subject to the provisions of this
Warrant, from Implant Sciences Corporation, ("Company"), a Massachusetts
corporation, at any time on or after 1999, and not later than 3:30 p.m.,
Eastern Time, on , 2003, 100,000 shares of Common Stock and 100,000
Redeemable Warrants of the Company ("Securities") exercisable at a purchase
price for the Securities which is 150% of the public offering price, in the case
of the 100,000 shares of Common Stock at $ per share and in the case of the
100,000 Redeemable Warrants at $ per Redeemable Warrant. The number of
Securities to be received upon the exercise of this Warrant and the price to be
paid for the Securities may be adjusted from time to time as hereinafter set
forth. The purchase price of a Security in effect at any time and as adjusted
from time to time is hereinafter sometimes referred to as the "Exercise Price."
This Warrant is or may be one of a series of Warrants identical in form issued
by the Company to purchase an aggregate of 100,000 Shares of Common Stock and
100,000 Redeemable Warrants. The Securities, as adjusted from time to time,
underlying the Warrants are hereinafter sometimes referred to as "Warrant
Securities". The Securities issuable upon the exercise hereof are in all
respects identical to the securities being purchased by the Underwriter for
resale to the public pursuant to the terms and conditions of the Underwriting
Agreement entered into on this date between the Company and Holder, except that
the Exercise Price per share of Common Stock to be acquired upon the exercise of
the Redeemable Warrants issuable to Holder pursuant hereto shall be $ per
share.
(a) Exercise of Warrant. Subject to the provisions of Section (g) hereof,
this Warrant may be exercised in whole or in part at anytime or from time to
time on or after , 1999, but not later than 3:30 p.m., Eastern Time on
, 2003, or if , 2003 is a day on which banking institutions are
authorized by law to close, then on the next succeeding day which shall not be
such a day, by presentation and surrender hereof to the Company or at the office
of its stock transfer agent, if any, with the Purchase Form annexed hereto duly
executed and accompanied by payment of the Exercise Price for the number of
shares of Common Stock or Redeemable Warrants, as the case may be as specified
in such Form, together with all federal and state taxes applicable upon such
exercise. The Company agrees to provide notice to the Holder that any tender
offer is being made for the Securities no later than the first business day
after the day the Company becomes aware that any tender offer is being made for
the Securities. If this Warrant should be exercised in part only, the Company
shall, upon surrender of this Warrant for cancellation, execute and deliver a
new Warrant evidencing the right of the Holder to purchase the balance of the
shares purchasable hereunder along with any additional Redeemable Warrants not
exercised. Upon receipt by the Company of this Warrant at the office of the
<PAGE> 2
Company or at the office of the Company's stock transfer agent, in proper form
for exercise and accompanied by the total Exercise Price, the Holder shall be
deemed to be the holder of record of the Securities issuable upon such exercise,
notwithstanding that the stock transfer books of the Company shall then be
closed or that certificates representing such Securities shall not then be
actually delivered to the Holder.
(b) Reservation of Securities. The Company hereby agrees that at all times
there shall be reserved for issuance and/or delivery upon exercise of this
Warrant such number of shares of Securities as shall be required for issuance or
delivery upon exercise of this Warrant. The Company covenants and agrees that,
upon exercise of the Warrants and payment of the Exercise Price therefor, all
Securities and other securities issuable upon such exercise shall be duly and
validly issued, fully paid, non-assessable and not subject to the preemptive
rights of any stockholder. As long as the Warrants shall be outstanding, the
Company shall use its best efforts to cause all Securities issuable upon the
exercise of the Warrants to be listed (subject to official notice of issuance)
on all securities exchanges on which the Common Stock issued to the public in
connection herewith may then be listed and/or quoted on NASDAQ.
(c) Fractional Shares. No fractional shares or scrip representing fractional
shares shall be issued upon the exercise of this Warrant. With respect to any
fraction of a share called for upon any exercise hereof, the Company shall pay
to the Holder an amount in cash equal to such fraction multiplied by the current
market value of such fractional share, determined as follows:
(1) If the Securities are listed on a national securities exchange or
admitted to unlisted trading privileges on such exchange, the current value
shall be the last reported sale price of the Common Stock on such exchange on
the last business day prior to the date of exercise of this Warrant or if no
such sale is made on such day, the average of the closing bid and asked prices
for such day on such exchange; or
(2) If the Securities are not so listed or admitted to unlisted trading
privileges, the current value shall be the mean of the last reported bid and
asked prices reported by the National Association of Securities Dealers
Automated Quotation System (or, if not so quoted on NASDAQ or quoted by the
National Quotation Bureau, Inc.) on the last business day prior to the date of
the exercise of this Warrant; or
(3) If the Securities are not so listed or admitted to unlisted trading
privileges and bid and asked prices are not so reported, the current value shall
be an amount, not less than book value, determined in such reasonable manner as
may be prescribed by the Board of Directors of the Company, such determination
to be final and binding on the Holder.
(d) Exchange, Assignment or Loss of Warrant. This Warrant is exchangeable,
without expense, at the option of the Holder, upon presentation and surrender
hereof to the Company or at the office of its stock transfer agent, if any, for
other Warrants of different denominations entitling the Holder thereof to
purchase (under the same terms and conditions as provided by this Warrant) in
the aggregate the same number of Securities purchasable hereunder. This Warrant
may not be sold, transferred, assigned, or hypothecated until after one year
from the effective date of the registration statement except that it may be (i)
assigned in whole or in part to the officers of the "Underwriter(s)", and
(ii)transferred to any successor to the business of the "Underwriter(s)." Any
such assignment shall be made by surrender of this Warrant to the Company, or at
the office of its stock transfer agent, if any, with the Assignment Form annexed
hereto duly executed and with funds sufficient to pay any transfer tax;
whereupon the Company shall, without charge, execute and deliver a new Warrant
in the name of the assignee named in-such instrument of assignment, and this
Warrant shall promptly be canceled. This Warrant may be divided or combined with
other Warrants which carry the same rights upon presentation hereof at the
office of the Company or at the office of its stock transfer agent, if any,
together with a written notice specifying the names and denominations in which
new Warrants are to be issued and signed by the Holder hereof. The term
"Warrant" as used herein includes any Warrants issued in substitution for or
replacement of this Warrant, or into which this Warrant may be divided or
exchanged. Upon receipt by the Company of evidence satisfactory to it of the
loss, theft, destruction or mutilation of this Warrant, and (in the case of
loss, theft or destruction) of reasonably satisfactory indemnification, and upon
surrender and cancellation of this Warrant, if mutilated, the Company will
execute and deliver a new Warrant of like tenor and date.
2
<PAGE> 3
Any such new Warrant executed and delivered shall constitute an additional
contractual obligation on the part of the Company, whether or not the Warrant so
lost, stolen, destroyed, or mutilated shall be at any time enforceable by
anyone.
(e) Rights of the Holder. The Holder shall not, by virtue hereof, be
entitled to any rights of a stockholder in the Company, either at law or equity,
and the rights of the Holder are limited to those expressed in the Warrant and
are not enforceable against the Company except to the extent set forth herein.
(f) Notices to Warrant Holders. So long as this Warrant shall be outstanding
and unexercised (i) if the Company shall pay any dividend exclusive of a cash
dividend, or make any distribution upon the Common Stock, or (ii) if the Company
shall offer to the holders of Common Stock for subscription or purchase by them
any shares of stock of any class or any other rights, or (iii) if any capital
reorganization of the Company, reclassification of the capital stock of the
Company, consolidation or merger of the Company with or into another
corporation, sale, lease or transfer of all or substantially all of the property
and assets of the Company to another corporation, or voluntary or involuntary
dissolution, liquidation or winding up of the Company shall be effected, then,
in any such case, the Company shall cause to be delivered to the Holder, at
least ten (10) days prior to the date specified in (x) or (y) below, as the case
may be, a notice containing a brief description of the proposed action and
stating the date on which (x) a record is to be taken for the purpose of such
dividend, distribution or rights, or (y) such reclassification, reorganization,
consolidation, merger, conveyance, lease, dissolution, liquidation or winding up
is to take place and the date, if any, is to be fixed, as of which the holders
of Common Stock of record shall be entitled to exchange their shares of Common
Stock for equivalent securities or other property deliverable upon such
reclassification, reorganization, consolidation, merger, conveyance,
dissolution, liquidation or winding up.
(g) Adjustment of Exercise Price and Number of Shares of Common Stock
Deliverable.
(A)(i) Except as hereinafter provided, in the event the Company shall, at
any time or from time to time after the date hereof, issue any shares of Common
Stock as a stock dividend to the holders of Common Stock, or subdivide or
combine the outstanding shares of Common Stock into a greater or lesser number
of shares (any such issuance, subdivision or combination being herein call a
"Change of Shares"), then, and thereafter upon each further Change of Shares,
the Exercise Price of the Common Stock issuable upon the exercise of the Warrant
and the Redeemable Warrant in effect immediately prior to such Change of Shares
shall be changed to a price (including any applicable fraction of a cent to the
nearest cent) determined by dividing (i) the sum of (a) the total number of
shares of Common Stock outstanding immediately prior to such Change of Shares,
multiplied by the Exercise Price in effect immediately prior to such Change of
Shares, and (b) the consideration, if any, received by the Company upon such
issuance, subdivision or combination by (ii) the total number of shares of
Common Stock outstanding immediately after such Change of Shares; provided,
however, that in no event shall the Exercise Price be adjusted pursuant to this
computation to an amount in excess of the Exercise Price in effect immediately
prior to such computation, except in the case of a combination of outstanding
shares of Common Stock.
For the purposes of any adjustment to be made in accordance with this
Section (g) the following provisions shall be applicable:
(I) Shares of Common Stock issuable by way of dividend or other distribution
on any capital stock of the Company shall be deemed to have been issued
immediately after the opening of business on the day following the record date
for the determination of shareholders entitled to receive such dividend or other
distribution and shall be deemed to have been issued without consideration.
(II) The number of shares of Common Stock at any one time outstanding shall
not be deemed to include the number of shares issuable (subject to readjustment
upon the actual issuance thereof) upon the exercise of options, rights or
warrants and upon the conversion or exchange of convertible or exchangeable
securities.
(ii) Upon each adjustment of the Exercise Price pursuant to this Section
(g), the number of shares of Common Stock and Redeemable Warrants purchasable
upon the exercise of each Warrant shall be the number derived by multiplying the
number of shares of Common Stock and Redeemable Warrants purchasable immediately
prior to
3
<PAGE> 4
such adjustment by the Exercise Price in effect prior to such adjustment and
dividing the product so obtained by the applicable adjusted Exercise Price.
(B) In case of any reclassification or change of outstanding Securities
issuable upon exercise of the Warrants (other than a change in par value, or
from par value to no par value, or from no par value to par value or as a result
of a subdivision or combination), or in case of any consolidation or merger of
the Company with or into another corporation other than a merger with a
"Subsidiary" (which shall mean any corporation or corporations, as the case may
be, of which capital stock having ordinary power to elect a majority of the
Board of Directors of such corporation (regardless of whether or not at the time
capital stock of any other class or classes of such corporation shall have or
may have voting power by reason of the happening of any contingency) is at the
time directly or indirectly owned by the Company or by one or more Subsidiaries)
or by the Company and one or more Subsidiaries in which merger the Company is
the continuing corporation and which does not result in any reclassification or
change of the then outstanding shares of Common Stock or other capital stock
issuable upon exercise of the Warrants (other than a change in par value, or
from par value to no par value, or from no par value to par value or as a result
of subdivision or combination) or in case of any sale or conveyance to another
corporation of the property of the Company as an entirety or substantially as an
entirety, then, as a condition of such reclassification, change, consolidation,
merger, sale or conveyance, the Company, or such successor or purchasing
corporation, as the case may be, shall make lawful and adequate provision
whereby the Holder of each Warrant then outstanding shall have the right
thereafter to receive on exercise of such Warrant the kind and amount of
securities and property receivable upon such reclassification, change,
consolidation, merger, sale or conveyance by a holder of the number of
securities issuable upon exercise of such Warrant immediately prior to such
reclassification, change, consolidation, merger, sale or conveyance and shall
forthwith file at the principal office of the Company a statement signed on its
behalf by its President or a Vice President and by its Treasurer or an Assistant
Treasurer or its Secretary or an Assistant Secretary evidencing such provision.
Such provisions shall include provision for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in Section
(g)(A). The above provisions of this Section (g)(B) shall similarly apply to
successive reclassifications and changes of shares of Common Stock and to
successive consolidations, mergers, sales or conveyances.
(C) Irrespective of any adjustments or changes in the Exercise Price or the
number of Securities purchasable upon exercise of the Warrants, the Warrant
Certificates theretofore and thereafter issued shall, unless the Company shall
exercise its option to issue new Warrant Certificates pursuant hereto, continue
to express the Exercise Price per share and the number of shares purchasable
thereunder as the Exercise Price per share and the number of shares purchasable
thereunder as expressed in the Warrant Certificates when the same were
originally issued.
(D) After each adjustment of the Exercise Price pursuant to this Section
(g), the Company will promptly prepare a certificate signed on its behalf by the
President or Vice President, and by the Treasurer or an Assistant Treasurer or
the Secretary or an Assistant Secretary, of the Company setting forth: (i) the
Exercise Price as so adjusted, (ii) the number of Securities purchasable upon
exercise of each Warrant, after such adjustment, and (iii) a brief statement of
the facts accounting for such adjustment. The Company will promptly file such
certificate in the Company's minute books and cause a brief summary thereof to
be sent by ordinary first class mail to each Holder at his last address as it
shall appear on the registry books of the Company. No failure to mail such
notice nor any defect therein or in the mailing thereof shall affect the
validity thereof except as to the holder to whom the Company failed to mail such
notice, or except as to the holder whose notice was defective. The affidavit of
an officer or the Secretary or an Assistant Secretary of the Company that such
notice has been mailed shall, in the absence of fraud, be prima facie evidence
of the facts stated therein.
(E) No adjustment of the Exercise Price shall be made as a result of or in
connection with the issuance or sale of Securities if the amount of said
adjustment shall be less than $.10, provided, however, that in such case, any
adjustment that would otherwise be required then to be made shall be carried
forward and shall be made at the time of and together with the next subsequent
adjustment that shall amount, together with any adjustment so carried forward,
to at least $.10. In addition, Holders shall not be entitled to cash dividends
paid by the Company prior to the exercise of any Warrant or Warrants held by
them.
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<PAGE> 5
(F) In the event that the Company shall at any time prior to the exercise of
all Warrants declare a dividend consisting solely of shares of Common Stock or
otherwise distribute to its stockholders any assets, property, rights, or
evidences of indebtedness, the Holders of the unexercised Warrants shall
thereafter be entitled, in addition to the Securities or other securities and
property receivable upon the exercise thereof, to receive, upon the exercise of
such Warrants, the same property, assets, rights, or evidences of indebtedness,
that they would have been entitled to receive at the time of such dividend or
distribution as if the Warrants had been exercised immediately prior to such
dividend or distribution. At the time of any such dividend or distribution, the
Company shall make appropriate reserves to ensure the timely performance of the
provisions of this Section (g).
(h) Piggyback Registration. If, at any time commencing one year from the
effective date of the registration statement and expiring four (4) years
thereafter, the Company proposes to register any of its securities under the
Securities Act of 1933, as amended (the "Act") (other than in connection with a
merger or pursuant to Form S-8, S-4 or other comparable registration statement)
it will give written notice by registered mail, at least thirty (30) days prior
to the filing of each such registration statement, to the Holders and to all
other Holders of the Warrants and/or the Warrant Securities of its intention to
do so. If the Holder or other Holders of the Warrants and/or Warrant Securities
notify the Company within twenty (20) days after receipt of any such notice of
its or their desire to include any such securities in such proposed registration
statement, the Company shall afford each of the Underwriter and such Holders of
the Warrants and/or Warrant Securities the opportunity to have any such Warrant
Securities registered under such registration statement. In the event any
underwriter underwriting the sale of securities registered by such registration
statement shall limit the number of securities includable in such registration
by shareholders of the Company, the number of such securities shall be allocated
pro rata among the holders of Warrants and the holders of other securities
entitled to piggyback registration rights.
Notwithstanding the provisions of this Section, the Company shall have the
right at any time after it shall have given written notice pursuant to this
Section (irrespective of whether a written request for inclusion of any such
securities shall have been made) to elect not to file any such proposed
registration statement, or to withdraw the same after the filing but prior to
the effective date thereof.
(i) Demand Registration.
(1) At any time commencing one year from the effective date of the
registration statement and expiring four (4) years thereafter, the Holders of
the Warrants and/or Warrant Securities representing a "Majority" (as hereinafter
defined) of such securities (assuming the exercise of all of the Warrants) shall
have the right (which right is in addition to the registration rights under
Section (i) hereof), exercisable by written notice to the Company, to have the
Company prepare and file with the Securities and Exchange Commission (the
"Commission"), on one occasion, a registration statement and such other
documents, including a prospectus, as may be necessary in the opinion of both
counsel for the Company and counsel for the Underwriter and Holders, in order to
comply with the provisions of the Act, so as to permit a public offering and
sale of their respective Warrant Securities for nine (9) consecutive months by
such Holders and any other holders of the Warrants and/or Warrant Securities who
notify the Company within ten (10) days after receiving notice from the Company
of such request.
(2) The Company covenants and agrees to give written notice of any
registration request under this Section (i) by any Holder or Holders to all
other registered Holders of the Warrants and the Warrant Securities within ten
(10) days from the date of the receipt of any such registration request.
(3) In addition to the registration rights under this Section (i) at any
time commencing one year after the effective date of the registration statement
and expiring four (4) years thereafter, the Holders of Representative's Warrants
and/or Warrant Securities shall have the right, exercisable by written request
to the Company, to have the Company prepare and file, on one occasion, with the
Commission a registration statement so as to permit a public offering and sale
for nine (9) consecutive months by such Holders of its Warrant Securities;
provided, however, that
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<PAGE> 6
the provisions of Section (i)(2) hereof shall not apply to any such registration
request and registration and all costs incident thereto shall be at the expense
of the Holder or Holders making such request.
(j) Covenants of the Company With Respect to Registration. In connection with
any registration under Section (h) or (i) hereof, the Company covenants and
agrees as follows:
(i) The Company shall use its best efforts to file a registration statement
within sixty (60) days of receipt of any demand therefor, shall use its best
efforts to have any registration statement declared effective at the earliest
possible time, and shall furnish each Holder desiring to sell Warrant Securities
such number of prospectuses as shall reasonably be requested.
(ii) The Company shall pay all costs (excluding fees and expenses of
Holder(s)' counsel and any underwriting or selling commissions), fees and
expenses in connection with all registration statements filed pursuant to
Sections (h), (i) and (j) hereof including, without limitation, the Company's
legal and accounting fees, printing expenses, blue sky fees and expenses. If the
Company shall fail to comply with the provisions of Section (j)(i), the Company
shall, in addition to any other equitable or other relief available to the
Holder(s), extend the Exercise Period by such number of days as shall equal the
delay caused by the Company's failure.
(iii) The Company will take all necessary action which may be required in
qualifying or registering the Warrant Securities included in a registration
statement for offering and sale under the securities or blue sky laws of such
states as are reasonably requested by the Holder(s), provided that the Company
shall not be obligated to execute or file any general consent to service of
process or to qualify as a foreign corporation to do business under the laws of
any such jurisdiction.
(iv) The Company shall indemnify the Holder(s) of the Warrant Securities to
be sold pursuant to any registration statement and each person, if any, who
controls such Holders within the meaning of Section 15 of the Act or Section
20(a) of the Securities Exchange Act of 1934, as amended ("Exchange Act"), from
and against all loss, claim, damage, expense or liability (including all
expenses reasonably incurred in investigating, preparing or defending against
any claim whatsoever) to which any of them may become subject under the Act, the
Exchange Act or otherwise, arising from such registration statement but only to
the same extent and with the same effect as the provisions pursuant to which the
Company has agreed to indemnify the Underwriter contained in Section 7 of the
Underwriting Agreement relating to the offering.
(v) The Holder(s) of the Warrant Securities to be sold pursuant to a
registration statement, and their successors and assigns, shall severally, and
not jointly, indemnify the Company, its officers and directors and each person,
if any, who controls the Company within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act, against all loss, claim, damage or expense or
liability (including all expenses reasonably incurred in investigating,
preparing or defending against any claim whatsoever) to which they may become
subject under the Act, the Exchange Act or otherwise, arising from information
furnished by or on behalf of such Holders, or their successors or assigns, for
specific inclusion in such registration statement to the same extent with the
same effect as the provisions contained in Section 7 of the Underwriting
Agreement pursuant to which the Underwriter has agreed to indemnify the Company.
(vi) The Holder(s) may exercise their Warrants prior to the initial
filing of any registration statement or the effectiveness thereof.
(vii)The Company shall not permit the inclusion of any securities other than
the Warrant Securities to be included in any registration statement filed
pursuant to Section (i) hereof, or permit any other registration statement to be
or remain effective during the effectiveness of a registration statement filed
pursuant to Section (i) hereof, other than a secondary offering of equity
securities of the Company, without the prior written consent of the Holders of
the Warrants and Warrant Securities representing a Majority of such securities
(assuming an exercise of all the Warrants underlying the Warrants).
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<PAGE> 7
(viii) The Company shall furnish to each Holder participating in the
offering and to each underwriter, if any, a signed counterpart, addressed to
such Holder or underwriter, of (x) an opinion of counsel to the Company, dated
the effective date of such registration statement (and, if such registration
includes an underwritten public offering, an opinion dated the date of the
closing under the underwriting agreement), and (y) a "cold comfort" letter dated
the effective date of such registration statement (and, if such registration
includes an underwritten public offering, a letter dated the date of the closing
under the underwriting agreement) signed by the independent public accountants
who have issued a report on the Company's financial statements included in such
registration statement, in each case covering substantially the same matters
with respect to such registration statement (and the prospectus included
therein) and, in the case of such accountants' letter, with respect to events
subsequent to the date of such financial statements, as are customarily covered
in opinions of issuer's counsel and in accountants' letters delivered to
underwriters in underwritten public offerings of securities.
(ix) The Company shall as soon as practicable after the effective date of
the registration statement, and in any event within 15 months thereafter, make
"generally available to its security holders" (within the meaning of Rule 158
under the Act) an earnings statement (which need not be audited) complying with
Section 11(a) of the Act and covering a period of at least 12 consecutive months
beginning after the effective date of the registration statement.
(x) The Company shall deliver promptly to each Holder participating in the
offering requesting the correspondence and memoranda described below and to the
managing underwriters, copies of all correspondence between the Commission and
the Company, its counsel or auditors and all memoranda relating to discussions
with the Commission or its staff with respect to the registration statement and
permit each Holder and underwriter to do such investigation, upon reasonable
advance notice, with respect to information contained in or omitted from the
registration statement as it deems reasonably necessary to comply with
applicable securities laws or rules of the National Association of Securities
Dealers, Inc. ("NASD") or an Exchange. Such investigation shall include access
to books, records and properties and opportunities to discuss the business of
the Company with its officers and independent auditors, all to such reasonable
extent and at such reasonable times and as often as any such Holder or
underwriter shall reasonably request.
(xi) The Company shall enter into an underwriting agreement with the
managing underwriters, which may be the Underwriter. Such agreement shall be
satisfactory in form and substance to the Company, and such managing
underwriters, and shall contain such representations, warranties and covenants
by the Company and such other terms as are customarily contained in agreements
of that type used by the managing underwriter; provided however, that no Holder
shall be required to make any representations, warranties or covenants or grant
any indemnity to which it shall object in any such underwriting agreement. The
Holders shall be parties to any underwriting agreement relating to an
underwritten sale of their Warrant Securities and may, at their option, require
that any or all the representations, warranties and covenants of the Company to
or for the benefit of such underwriters shall also be made to and for the
benefit of such Holders. Such Holders shall not be required to make any
representations or warranties to or agreements with the Company or the
underwriters except as they may relate to such Holders and their intended
methods of distribution.
(xii)For purposes of this Agreement, the term " Majority" in reference to
the Holders of Warrants or Warrant Securities, shall mean in excess of fifty
(50%) of the then outstanding Warrants and Warrant Securities that (i) are not
held by the Company, an affiliate, officer, creditor, employee or agent thereof
or any of their respective affiliates, members of their family, persons acting
as nominees or in conjunction therewith or (ii) have not been resold to the
public pursuant to a registration statement filed with the Commission under the
Act.
(k) Conditions of Company's Obligations. The Company's obligation under Section
j hereof shall be conditioned as to each such public offering, upon a timely
receipt by the Company in writing of:
(A) Information as to the terms of such public offering furnished by or on
behalf of the Holders making a public distribution of their Warrant Securities;
and
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<PAGE> 8
(B) Such other information as the Company may reasonably require from such
Holder, or any underwriter for any of them, for inclusion in such registration
statement or offering statement or post-effective amendment.
(C) An agreement by the Holder to sell his Warrants and Warrant Securities
on the basis provided in the Underwriting Agreement.
(1) Continuing Effect of Agreement. The Company's agreements with respect
to the Warrant Securities in this Warrant will continue in effect regardless of
the exercise or surrender of this Warrant.
(m) Notices. Any notices or certificates by the Company to the Holder and by
the Holder to the Company shall be deemed delivered if in writing and delivered
personally or sent by certified mail, to the Holder, addressed to him or sent
to, Schneider Securities, Inc. 1120 Lincoln Street, Denver, CO 80203, or, if the
Holder has designated, by notice in writing to the Company, any other address,
to such other address, and, if to the Company, addressed to Anthony J. Armini,
President, Implant Sciences Corporation, 107 Audubon Road #5, Wakefield, MA
01880. The Company may change its address by written notice to Schneider
Securities, Inc.
(n) Limited Transferability. This Warrant Certificate and the Warrant may
not be sold, transferred, assigned or hypothecated for a one-year period after
the effective date of the Registration Statement except to underwriters of the
Offering referred to in the Underwriting Agreement or to individuals who are
either partners or officers of such an underwriter or by will or by operation of
law. The Warrant may be divided or combined, upon request to the Company by the
Warrant holder, into a certificate or certificates evidencing the same aggregate
number of Warrants. The Warrant may not be offered, sold, transferred, pledged
or hypothecated in the absence of any effective registration statement as to
such Warrant filed under the Act, or an exemption from the requirement of such
registration, and compliance with the applicable federal and state securities
laws. The Company may require an opinion of counsel satisfactory to the Company
that such registration is not required and that such laws are complied with. The
Company may treat the registered holder of this Warrant as he or it appears on
the Company's book at any time as the Holder for all purposes. The Company shall
permit the Holder or his duly authorized attorney, upon written request during
ordinary business hours, to inspect and copy or make extracts from its books
showing the registered holders of Warrants.
(o) Transfer to Comply With the Securities Act of 1933. The Company may
cause the following legend, or one similar thereto, to be set forth on the
Warrants and on each certificate representing Warrant Securities, or any other
security issued or issuable upon exercise of this Warrant not theretofore
distributed to the public or sold to underwriters for distribution to the public
pursuant to Sections (h) or (i) hereof; unless counsel satisfactory to the
Company is of the opinion as to any such certificate that such legend, or one
similar thereto, is unnecessary:
The warrants represented by this certificate are restricted securities and
may not be offered for sale, sold OR otherwise transferred unless an opinion of
counsel satisfactory to the Company is obtained stating that such offer, sale
or transfer is in compliance wrath state and federal securities law.
(p) Applicable Law. This Warrant shall be governed by, and construed in
accordance with, the laws of the State of Massachusetts, without giving effect
to conflict of law principles.
(q) Assignability. This Warrant may not be amended except in a writing
signed by each Holder and the Company.
(r) Survival of Indemnification Provisions. The indemnification provisions
of this Warrant shall survive until , 2006.
8
<PAGE> 9
Implant Sciences Corporation
By
------------------------------
A.J. Armini, President
Date:
-------------------------
Attest:
- ------------------------------
, Secretary
9
<PAGE> 10
PURCHASE FORM
Dated______________________________ 19______
The undersigned hereby irrevocably elects to exercise the Warrant to the extent
of purchasing ________ shares of Common Stock and __________ Redeemable Warrants
and hereby makes payment of $ __________________ in payment of the actual
exercise price thereof.
INSTRUCTIONS FOR REGISTRATION OF SECURITIES
Name___________________________________________________________
(please typewrite or print in block letters)
Address________________________________________________________
Signature______________________________________________________
10
<PAGE> 11
ASSIGNMENT FORM
FOR VALUE RECEIVED,____________________________________________________________
hereby sells, assigns and transfers unto
Name___________________________________________________________________________
(please typewrite or print in block letters)
Address________________________________________________________________________
the right to purchase shares of Common Stock and Redeemable Warrants as
represented by this Warrant to the extent of shares of Common Stock and
Redeemable Warrants as to which such right is exercisable and does hereby
irrevocably constitute and appoint, _____________________________ attorney, to
transfer the same on the books of the Company with full power of substitution in
the premises.
Signature______________________________________________________________________
Dated: __________________ 19 ____
11
<PAGE> 1
IMPLANT SCIENCES CORPORATION
CONSULTING AGREEMENT
,1998
Dear Mr.Armini:
This will confirm the arrangements, terms and conditions, whereby
Schneider Securities, Inc. (hereinafter referred to as "Consultant") has been
retained by you to serve as financial consultant and advisor to Implant Sciences
Corporation (hereinafter referred to as the "Company"), on a nonexclusive basis
for a period of 24 months commencing on the closing date of the public offering
(the "Closing"). The undersigned hereby agree to the following terms and
conditions:
1. Consulting Services. Consultant will render financial consulting and
advice pertaining to the Company's business affairs as you may from time to time
request.
2. Financing. Consultant will assist and represent you in obtaining
both short and long-term financing whether from banks or the sale of the
Company's debt or equity.
3. Wall Street Liaison. Consultant will when appropriate arrange
meetings with individuals and financial institutions in the investment community
such as security analysts, portfolio managers, and market makers and
representatives of the Company.
4. Compensation. The Company agrees to pay the Consultant in the
aggregate, the sum of seventy-two thousand ($72,000) Dollars at the rate of
Three Thousand ($3,000) Dollars per month with the first twelve months payment
payable at the closing of the Offering.
5. Relationship. Nothing herein shall constitute Consultant as employee
or agent of the Company except to such extent as might hereafter be agreed upon
for a particular purpose. Except as expressly agreed, Consultants shall not have
the authority to obligate or commit the Company in any manner whatsoever.
6. Assignment and Termination. This Agreement shall not be assignable
by any party except to successors to all or substantially all of the business of
either the Consultant or the Company nor may this Agreement be terminated by
either party for any reason whatsoever without the prior written consent of the
other party, which consent may not be arbitrarily withheld by the party whose
consent is required.
Very truly yours
Schneider Securities, Inc.
By:
Title:
Agreed and Accepted By:
Implant Sciences Corporation
By:
A.J. Armini, President
<PAGE> 1
EXHIBIT 3.1
FEDERAL IDENTIFICATION
NO. 04-2837126
THE COMMONWEALTH OF MASSACHUSETTS
WILLIAM FRANCIS GALVIN
Secretary of the Commonwealth
One Ashburton Place, Boston, Massachusetts 02108-1512
RESTATED ARTICLES OF ORGANIZATION
(GENERAL LAWS, CHAPTER 156B, SECTION 74)
We, Anthony J. Armini, President, and Stephen N. Bunker, Clerk, of Implant
Sciences Corporation, located at 107 Audubon Road, #5, Wakefield, MA 01880, do
hereby certify that the following Restatement of the Articles of Organization
was duly adopted by unanimous written consent on September 9, 1998 by a vote of
the directors/or: 624,613 shares of Common Stock of 624,613 shares outstanding,
being at least a majority of each type, class or series outstanding and entitled
to vote thereon:
ARTICLE I
The name of the corporation is:
Implant Sciences Corporation
ARTICLE II
The purpose of the corporation is to engage in the following
business activities:
See Continuation Sheet II.A.
ARTICLE III
State the total number of shares and par value, if any, of each class of stock
which the corporation is authorized to issue:
<PAGE> 2
<TABLE>
<CAPTION>
WITHOUT PAR VALUE WITH PAR VALUE
- ---------------------------------------------------------------------------------------------------------------
TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common: Common: 20,000,000 $ .10
Preferred Preferred: 5,000,000 $.10
</TABLE>
ARTICLE IV
If more than one class of stock is authorized, state a distinguishing
designation for each class. Prior to the issuance of any shares of a class, if
shares of another class are outstanding, the corporation must provide a
description of the preferences, voting powers, qualifications, and special or
relative rights or privileges of that class and of each other class of which
shares are outstanding and of each series then established within any class.
See Continuation Sheets IV(A-C)
ARTICLE V
The restrictions, if any, imposed by the Articles of Organization upon the
transfer of shares of stock of any class are:
N/A
ARTICLE VI
Other lawful provisions, if any, for the conduct and regulation of the business
and affairs of the corporation, for its voluntary dissolution, or for limiting,
defining, or regulating the powers of the corporation, or of its directors or
stockholders, or of any class of stockholders:
See Continuation Sheets VI (A-E)
ARTICLE VII
The effective date of the restated Articles of Organization of the corporation
shall be the date approved and filed by the Secretary of the Commonwealth. If a
later effective date is desired, specify such date which shall not be more than
thirty days after the date of filing.
2
<PAGE> 3
ARTICLE VIII
The information contained in Article VIII is not a permanent part of the
Articles of Organization.
a. The street address (post office boxes are not acceptable) of the principal
office of the corporation in Massachusetts is:
107 Audubon Road, #5, Wakefield, MA 01880
b. The name, residential address and post office address of each director and
officer of the corporation is as follows:
NAME RESIDENTIAL ADDRESS POST OFFICE ADDRESS
President:
Treasurer:
See attached Continuation Sheet VIII.A.
Clerk:
Directors:
c. The fiscal year (i.e., tax year) of the corporation shall end on the
last day of the month of: June.
d. The name and business address of the resident agent, if any, of the
corporation is:
**We further certify that the foregoing Restated Articles of Organization affect
no amendments to the Articles of Organization of the corporation as heretofore
amended, except amendments to the following articles. Briefly describe
amendments below:
See attached Continuation Sheet VIII.B.
SIGNED UNDER THE PENALTIES OF PERJURY, this 16th day of September, 1998.
_________________________________________________________________ , President
_________________________________________________________________ , Clerk
3
<PAGE> 4
THE COMMONWEALTH OF MASSACHUSETTS
RESTATED ARTICLES OF ORGANIZATION
(GENERAL LAWS, CHAPTER 156B, SECTION 74)
I hereby approve the within Restated Articles of Organization and, the filing
fee in the amount of $____________ having been paid, said articles are deemed to
have been filed with me this ________ day of __________________, 19____.
Effective Date:_____________________________________________
WILLIAM FRANCIS GALVIN
Secretary of the Commonwealth
TO BE FILLED IN BY CORPORATION
PHOTOCOPY OF DOCUMENT TO BE SENT TO:
Kathleen F. Donovan, Legal Assistant
Foley, Hoag & Eliot LLP
One Post Office Square
Boston, MA 02109
Telephone: (617) 832-1771
4
<PAGE> 5
IMPLANT SCIENCES CORPORATION
AMENDED AND RESTATED ARTICLES OF ORGANIZATION
Continuation Sheet II.A.
II.A. PURPOSES
To engage on its own behalf and for others in the business of developing,
manufacturing, marketing and selling services and products that enhance the
surface properties and performance of metal, ceramic, and plastic biomedical,
semiconductor, and other devices; and to buy, sell and distribute goods, wares
and merchandise of every kind and description.
To acquire, hold, dispose of, buy, sell, underwrite, handle on commission
and otherwise deal in, and to guaranty, any stocks, shares, bonds, notes and
obligations of and interests in corporations, joint-stock companies, trusts,
associations, partnerships, limited liability companies, firms or persons and
all forms of public and municipal securities of this or any other country, or
any right or interest therein, and while owner thereof, to exercise all rights,
powers and privileges of ownership in the same manner and to the same extent
that an individual might.
To acquire, hold, use, construct, maintain and dispose of buildings,
plants, factories, mills, machinery, works, patent rights and privileges,
inventions, formulae, trademarks and names, secret processes and all other real
and personal property, tangible or intangible, of whatever kind and wherever
situated, or any right or interest therein, for the purposes of the foregoing
businesses, and as a going business or otherwise, all or any part of the assets
of any corporation, joint-stock company, trust, association, partnership,
limited liability company, firm or person, and in such cases to assume all or
any part of its or his liabilities.
To engage in, transact and carry on any or all of the above businesses or
any other business or activity necessary or convenient for or incidental to any
or all of the foregoing or which can advantageously be conducted in connection
therewith, and to engage in, transact and carry on any business or activity
which a business corporation organized under the provisions of Chapter 156B of
the General Laws of Massachusetts, as amended from time to time, or any
successor statute, may lawfully engage in, transact or conduct.
5
<PAGE> 6
IMPLANT SCIENCES CORPORATION
AMENDED AND RESTATED ARTICLES OF ORGANIZATION
Continuation Sheet IV.A.
IV.A. DESIGNATION AND CLASSIFICATION OF STOCK
The aggregate number of shares of capital stock which the Corporation has
authority to issue is 25,000,000 consisting of:
(i) 20,000,000 shares of Common Stock, $.10 par value per share (the
"Common Stock"); and
(ii) 5,000,000 shares of Preferred Stock, $.10 par value per share (the
"Preferred Stock").
6
<PAGE> 7
IMPLANT SCIENCES CORPORATION
AMENDED AND RESTATED ARTICLES OF ORGANIZATION
Continuation Sheet IV.B.
IV.B. DESCRIPTION OF THE COMMON STOCK
The description of the Common Stock is as follows:
Each holder of Common Stock shall at every meeting of
stockholders be entitled to one vote in person or by proxy for each share of
Common Stock held by him. The holders of the Common Stock shall be entitled to
such dividends as may from time to time be declared by the Board of Directors
out of any funds legally available for the declaration of dividends, subject to
any provisions of these Articles of Organization, as amended from time to time,
and subject to the relative rights and preferences of any shares of Preferred
Stock authorized and issued hereunder. Subject to the relative rights and
preferences of any shares of Preferred Stock authorized and issued hereunder,
upon the dissolution or liquidation of the Corporation, whether voluntary or
involuntary, the holders of shares of Common Stock shall be entitled to receive
pro rata all assets of the Corporation available for distribution to its
stockholders.
7
<PAGE> 8
IMPLANT SCIENCES CORPORATION
AMENDED AND RESTATED ARTICLES OF ORGANIZATION
Continuation Sheet IV.C.
IV.C. DESCRIPTION OF THE PREFERRED STOCK
The description of the Preferred Stock is as follows:
1. Certificate of Designation. The Board of Directors is authorized,
subject to limitations prescribed by law and the provisions of this Article IV,
to provide for the issuance of shares of Preferred Stock with or without series,
and, by filing a certificate pursuant to the applicable law of The Commonwealth
of Massachusetts (the "Certificate of Designation"), to establish from time to
time the number of shares to be included in each such series and to fix the
designation, preferences, voting powers, qualifications and special or relative
rights or privileges of the shares of each such series. In the event that at any
time the Board of Directors shall have established and designated one or more
series of Preferred Stock consisting of a number of shares less than the total
number of authorized shares of Preferred Stock, the remaining authorized shares
of Preferred Stock shall be deemed to be shares of an undesignated series of
Preferred Stock until designated by the Board of Directors as being a part of a
series previously established or a new series then being established by the
Board of Directors. Notwithstanding the fixing of the number of shares
constituting a particular series, the Board of Directors may at any time
thereafter authorize the issuance of additional shares of the same series except
as set forth in the Certificate of Designation.
2. Authority of Board. The authority of the Board of Directors with respect
to each series of Preferred Stock shall include, but not be limited to,
determination of the following:
(a) the number of shares constituting that series, which
number may be increased or decreased (but not below the number of shares of such
series then outstanding) from time to time by the Board of Directors, and the
distinctive designation of that series;
(b) whether any dividend shall be paid on shares of that
series, and, if so, the dividend rate on the shares of that series; whether
dividends shall be cumulative and, if so, from which date or dates, and the
relative rights of priority, if any, of payment of dividends on shares of that
series;
(c) whether shares of that series shall have voting rights in
addition to the voting rights provided by law and, if so, the terms of such
voting rights;
(d) whether shares of that series shall be convertible into
shares of Common Stock or another security and, if so, the terms and conditions
of such conversion, including provisions for adjustment of the conversion rate
in such events as the Board of Directors shall determine;
(e) whether shares of that series shall be redeemable and, if
so, the terms and conditions of such redemption, including the date or dates
upon or after which they shall be redeemable and the amount per share payable in
case of redemption, which amount may vary under
8
<PAGE> 9
IMPLANT SCIENCES CORPORATION
AMENDED AND RESTATED ARTICLES OF ORGANIZATION
different conditions and at different redemption dates; and whether that series
shall have a sinking fund for the redemption or purchase of shares of that
series and, if so, the terms and amount of such sinking fund;
(f) whether, in the event of purchase or redemption of the
shares of that series, any shares of that series shall be restored to the status
of authorized but unissued shares or shall have such other status as shall be
set forth in the Certificate of Designation;
(g) the rights of the shares of that series in the event of
the sale, conveyance, exchange or transfer of all or substantially all of the
property and assets of the Corporation, or the merger or consolidation of the
Corporation into or with any other corporation or entity, or the merger of any
other corporation or entity into it, or the voluntary or involuntary
liquidation, dissolution or winding up of the Corporation, and the relative
rights of priority, if any, of shares of that series to payment in any such
event;
(h) whether shares of that series shall carry any preemptive
right in or preemptive right to subscribe to any additional shares of Preferred
Stock or any shares of any other class of stock which may at any time be
authorized or issued, or any bonds, debentures or other securities convertible
into shares of stock of any class of the Corporation, or options or warrants
carrying rights to purchase such shares or securities; and
(i) any other designations, preferences, voting powers,
qualifications, and special or relative rights or privileges of the shares of
that series.
9
<PAGE> 10
IMPLANT SCIENCES CORPORATION
AMENDED AND RESTATED ARTICLES OF ORGANIZATION
Continuation Sheet VI.A.
VI.A. CERTAIN TRANSACTIONS APPROVED BY THE BOARD OF DIRECTORS
Except as otherwise provided in these Articles of Organization, the
Corporation may authorize, by a vote of a majority of the shares of each class
of stock outstanding and entitled to vote thereon, (a) the sale, lease or
exchange of all or substantially all of its property and assets, including its
goodwill, upon such terms and conditions as it deems expedient, and (b) the
merger or consolidation of the Corporation into any other corporation or entity,
provided that such sale, lease, exchange, merger or consolidation shall have
been approved by a majority of the members of the Board of Directors.
10
<PAGE> 11
IMPLANT SCIENCES CORPORATION
AMENDED AND RESTATED ARTICLES OF ORGANIZATION
Continuation Sheet VI.B.
VI.B. LIMITATION OF LIABILITY OF DIRECTORS
No director of the Corporation shall be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director notwithstanding any provision of law imposing such liability;
provided, however, that this Article shall not eliminate or limit any 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 and 62 of the Massachusetts General Laws, Chapter 156B, as amended
or any successor statute (the "Massachusetts Business Corporation Law"), or (iv)
with respect to any transaction from which the director derived an improper
personal benefit.
No amendment or repeal of this Article shall adversely affect the rights
and protection afforded to a director of the Corporation under this Article for
acts or omissions occurring prior to such amendment or repeal.
If the Massachusetts Business Corporation Law is subsequently amended to
further eliminate or limit the personal liability of directors or to authorize
corporate action to further eliminate or limit such liability, then the
liability of the directors of the Corporation shall, without any further action
of the Board of Directors or the stockholders of the Corporation, be eliminated
or limited to the fullest extent permitted by the Massachusetts Business
Corporation Law.
11
<PAGE> 12
IMPLANT SCIENCES CORPORATION
AMENDED AND RESTATED ARTICLES OF ORGANIZATION
Continuation Sheet VI.C.
VI.C. INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHERS
1. Right to Indemnification. Each person who was or is made a party or is
threatened to be made a party to or is otherwise involved in any action, suit or
proceeding, whether civil, criminal, administrative, investigative or otherwise
(hereinafter a "Proceeding"), by reason of the fact that he or she is or was (a)
a director of the Corporation, (b) an officer of the Corporation elected or
appointed by the stockholders or the Board of Directors, or (c) serving, at the
request of the Corporation as evidenced by a vote of the Board of Directors
prior to the occurrence of the event to which the indemnification relates, as a
director, officer, employee or agent of another person, including service with
respect to an employee benefit plan (a person described in (a), (b) or (c) may
hereinafter be referred to as an "Indemnitee"), whether the basis of such
Proceeding is alleged action in an official capacity as such a Director or
officer of the Corporation or as such other director, officer, employee or agent
or in any other capacity while serving as such a Director or officer of the
Corporation or as such other director, officer, employee or agent, shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the Massachusetts Business Corporation Law (but in the case of an
amendment to the Massachusetts Business Corporation Law, only to the extent that
such amendment permits the Corporation to provide broader indemnification rights
than permitted prior thereto), against all expense, liability and loss
(including, but not limited to, attorneys' fees, judgments, fines, ERISA excise
taxes or penalties and amounts paid in settlement) reasonably incurred or
suffered by such Indemnitee in connection therewith and such indemnification
shall continue as to an Indemnitee who has ceased to be such a director,
officer, employee or agent and shall inure to the benefit of the Indemnitee's
heirs, executors and administrators; provided, however, that, except as provided
in Section 3 of this Article VI.C. with respect to Proceedings to enforce rights
to indemnification, the Corporation shall indemnify any such Indemnitee in
connection with a Proceeding (or part thereof) initiated by such Indemnitee only
if such Proceeding (or part thereof) was authorized or ratified by the Board of
Directors of the Corporation. The right to indemnification conferred in this
Article VI.C. shall be a contract right and shall include the right to be paid
by the Corporation for expenses incurred in defending any Proceeding in advance
of its final disposition (hereinafter an "Advancement of Expenses"); provided,
however, that, if the Massachusetts Business Corporation Law so requires, an
Advancement of Expenses incurred by an Indemnitee shall be made only upon
delivery to the Corporation of an undertaking (hereinafter an "Undertaking"), by
such Indemnitee, to repay all amounts so advanced if it shall ultimately be
determined by final judicial decision from which there is no further right to
appeal (hereinafter a "Final Adjudication") that such Indemnitee is not entitled
to be indemnified for such expenses under this Article VI.C. or otherwise. The
Corporation may accept any Undertaking without reference to the financial
ability of the Indemnitee to make repayment.
2. Indemnification of Employees and Agents of the Corporation. The
Corporation may, to the extent authorized from time to time by the Board of
Directors, grant rights to indemnification, and to an Advancement of Expenses,
to any employee or agent of the Corporation to the fullest extent of the
provisions of this Article VI.C.
12
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IMPLANT SCIENCES CORPORATION
AMENDED AND RESTATED ARTICLES OF ORGANIZATION
3. Right of Indemnitee to Bring Suit. If a claim under this Article VI.C.
is not paid in full by the Corporation within sixty (60) days after a written
claim has been received by the Corporation, except in the case of a claim for an
Advancement of Expenses, in which case the applicable period shall be twenty
(20) days, the Indemnitee may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim. If the Indemnitee is
successful in whole or in part in any such suit, or in a suit brought by the
Corporation to recover an Advancement of Expenses pursuant to the terms of an
Undertaking, the Indemnitee shall also be entitled to be paid the expense of
prosecuting or defending such suit. In any suit brought by the Indemnitee to
enforce a right to indemnification hereunder (but not in a suit brought by the
Indemnitee to enforce a right to an Advancement of Expenses) it shall be a
defense that the Indemnitee has not met the applicable standard of conduct set
forth in the Massachusetts Business Corporation Law. In addition, in any suit by
the Corporation to recover an Advancement of Expenses pursuant to the terms of
an Undertaking, the Corporation shall be entitled to recover such expenses upon
a Final Adjudication that the Indemnitee has not met the applicable standard of
conduct set forth in the Massachusetts Business Corporation Law. Neither the
failure of the Corporation (including its Board of Directors, independent legal
counsel, or Stockholders) to have made a determination prior to the commencement
of such suit that indemnification of the Indemnitee is proper in the
circumstances because the Indemnitee has met the applicable standard of conduct
set forth in the Massachusetts Business Corporation Law, nor an actual
determination by the Corporation (including its Board of Directors, independent
legal counsel or stockholders) that the Indemnitee has not met such applicable
standard of conduct, shall create a presumption that the Indemnitee has not met
the applicable standard of conduct or, in the case of such a suit brought by the
Indemnitee, be a defense to such suit. In any suit brought by the Indemnitee to
enforce a right to indemnification or to an Advancement of Expenses hereunder,
or by the Corporation to recover an Advancement of Expenses pursuant to the
terms of an Undertaking, the burden of proving that the Indemnitee is not
entitled to be indemnified, or to such Advancement of Expenses, under this
Article VI.C. or otherwise shall be on the Corporation.
4. Non-Exclusivity of Rights. The rights to indemnification and to
Advancement of Expenses conferred in this Article VI.C. shall not be exclusive
of any other right which any person may have or hereafter acquire under these
Articles of Organization, the By-Laws or any statute, agreement, vote of
stockholders or of disinterested Directors or otherwise.
5. Insurance; Offset. The Corporation may maintain insurance, at its
expense, to protect itself and any Director, officer, employee or agent of the
Corporation or any director, officer, employee or agent of another Person
against any expense, liability or loss, whether or not the Corporation would
have the power to indemnify such person against such expense, liability or loss
under the Massachusetts Business Corporation Law. The Corporation's obligation
to provide indemnification under this Article VI.C. shall be offset to the
extent of any other source of indemnification or any otherwise applicable
insurance coverage under a policy maintained by the Corporation or any other
person.
6. Amendments. Without the consent of a person entitled to the
indemnification and other rights provided in this Article VI.C. (unless
otherwise required by the Massachusetts Business
13
<PAGE> 14
IMPLANT SCIENCES CORPORATION
AMENDED AND RESTATED ARTICLES OF ORGANIZATION
Corporation Law), no amendment modifying or terminating such rights shall
adversely affect such person's rights under this Article VI.C. with respect to
the period prior to such amendment.
7. Savings Clause. If this Article VI.C. or any portion hereof shall be
found invalid on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each Indemnitee as to any expenses,
liabilities and losses with respect to any Proceeding to the fullest extent
permitted by any applicable portion of this Article VI.C. that shall not have
been found invalid and to the fullest extent permitted by applicable law.
14
<PAGE> 15
IMPLANT SCIENCES CORPORATION
AMENDED AND RESTATED ARTICLES OF ORGANIZATION
Continuation Sheet VI.D.
VI.D. MAKING AND AMENDING BY-LAWS; PLACES OF MEETINGS OF STOCKHOLDERS;
PARTNERSHIP IN ANY BUSINESS ENTERPRISE
1. The Board of Directors shall have power to make, alter, amend and repeal
the ByLaws of the Corporation in whole or in part, except with respect to any
provision thereof which by law, these Articles of Organization or such By-Laws
requires action by the stockholders, who shall also have power to make, alter,
amend and repeal the By-Laws of the Corporation. Any By-Laws made by the Board
of Directors under the powers conferred hereby may be altered, amended, or
repealed by the Board of Directors or the stockholders.
2. Meetings of the stockholders may be held anywhere in the United States.
3. The Corporation may be a partner in any business enterprise it would
have power to conduct by itself.
15
<PAGE> 16
IMPLANT SCIENCES CORPORATION
AMENDED AND RESTATED ARTICLES OF ORGANIZATION
Continuation Sheet VI.E.
VI.E. TRANSACTIONS WITH AFFILIATED PERSONS
The Corporation may enter into contracts or transact business with one or
more of its directors, officers or stockholders or with any corporation,
organization or other concern in which one or more of its directors, officers or
stockholders are directors, officers, stockholders or are otherwise interested
and may enter into other contracts or transactions in which one or more of its
directors, officers or stockholders are in any way interested. In the absence of
fraud, no such contract or transaction shall be invalidated or in any way
affected by the fact that such one or more of the directors, officers or
stockholders of the Corporation have or may have any interest which is or might
be adverse to the interest of the Corporation even though the vote or action of
directors, officers or stockholders having such adverse interest may have been
necessary to obligate the Corporation upon such contract or transaction.
At any meeting of the Board of Directors (or of any duly authorized
committee thereof) at which any such contract or transaction shall be authorized
or ratified, any director having such adverse interest may vote or act thereat
with like force and effect as if he had no such interest, provided in such case
that the nature of such interest (though not necessarily the extent or details
thereof) shall be disclosed or shall have been known to the directors. A general
notice that a director or officer is interested in any corporation, organization
or other concern of any kind referred to above shall be a sufficient disclosure
as to the interest of such director or officer with respect to all contracts and
transactions with such corporation, organization or other concern. No director
shall be disqualified from holding office as a director or an officer of the
Corporation by reason of any such adverse interest, unless the Board of
Directors shall determine that such adverse interest is detrimental to the
Corporation. In the absence of fraud, no director, officer or stockholder having
such adverse interest shall be liable on account of such adverse interest to the
Corporation or to any stockholder or creditor thereof or to any other person for
any loss incurred by it under or by reason of such contract or transaction, nor
shall any such director, officer or stockholder be accountable on such ground
for any gains or profits realized thereon.
16
<PAGE> 17
IMPLANT SCIENCES CORPORATION
AMENDED AND RESTATED ARTICLES OF ORGANIZATION
Continuation Sheet VIII.A.
VIII.A. OFFICERS AND DIRECTORS
Name Residential Address Post Office Address
President: Anthony J. Armini 5 Skytop Drive Same
Manchester, MA
Vice President: Darlene
Deptula-Hicks 2 Sarah's Way Same
Newton, NH
Treasurer: Anthony J. Armini Same as above Same
Clerk: Stephen N. Bunker 95 Audubon Road Same
Wakefield, MA
Directors:
Anthony J. Armini Same as above Same
Stephen N. Bunker Same as above Same
Robert Hoisington 1000 South Woodward
Unit No. 150
Birmingham, MI Same
Shunkichi Shimizu TK Holdings, Inc. Same
PNC Center
201 E. 5th Street
Suite 1440
Cincinnati, OH 45202
17
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IMPLANT SCIENCES CORPORATION
AMENDED AND RESTATED ARTICLES OF ORGANIZATION
Continuation Sheet VIII.B.
VIII.B. BRIEF DESCRIPTION OF AMENDMENTS
Article II. Article II has been amended to add to the purposes of the
Corporation, to remove the reference to Chapter 156 of the
General Laws of Massachusetts, and to make certain other
changes.
Article III. Article III has been amended to increase the number of
authorized shares of Common Stock, $.10 par value, from
6,500,000 shares to 20,000,000 shares, $.10 par value, and to
authorize 5,000,000 shares of an undesignated class of
Preferred Stock, $.10 par value.
Article IV. Article IV has been amended to add descriptions of the Common
Stock and the Preferred Stock.
Article VI. Article VI has been amended to add references to certain
transactions approved by the Board of Directors; limitation of
liability of directors; indemnification of directors, officers
and others; the making and amending of By-Laws; the places of
meetings of stockholders; and transactions with affiliated
persons; and to modify certain language.
Article VII. Article VIII has been amended to reflect the current officers
and directors.
18
<PAGE> 1
Exhibit 3.2
AMENDED AND RESTATED BY-LAWS
of
IMPLANT SCIENCES CORPORATION
ARTICLE I
Articles of Organization
The name and purposes of the Corporation shall be as set forth in the
Articles of Organization. These By-Laws, the powers of the Corporation and its
Directors and Stockholders, and all matters concerning the conduct and
regulation of the business of the Corporation, shall be subject to such
provisions in regard thereto, if any, as are set forth in the Articles of
Organization. All references in these By-Laws to the Articles of Organization
shall be construed to mean the Articles of Organization of the Corporation as
from time to time amended or restated.
ARTICLE II
Fiscal Year
Except as from time to time otherwise determined by the Directors, the
fiscal year of the Corporation shall end on the last day of December in each
year.
ARTICLE III
Meetings of Stockholders
Section 3.1. Annual Meetings.
The annual meeting of Stockholders shall be held on the first Friday in
June of each year (or if that be a legal holiday in the place where the meeting
is to be held, on the next succeeding full business day) at 10:00 a.m. unless a
different hour is fixed by the Board of Directors or the President. The purposes
for which the annual meeting is to be held, in addition to those prescribed by
law, by the Articles of Organization or by these By-Laws, may be specified by
the Board of Directors or the President. If no annual meeting has been held on
the date fixed above, or by adjournment therefrom, a special meeting in lieu
thereof may be held and any action taken at such special meeting shall have the
same force and effect as if taken at the annual meeting.
Notwithstanding any other provision in these By-Laws, the Board of
Directors may change the date, time and place of any annual or special meeting
of the Stockholders (other than a special meeting called upon the written
application of Stockholders (a "Meeting Requested by Stockholders")) prior to
the time for such meeting, including, without limitation, by postponing or
deferring the date of any such annual or special meeting (other than a Meeting
Requested by Stockholders) previously called or by canceling any special meeting
previously called (other than a Meeting Requested by Stockholders).
1
<PAGE> 2
Section 3.2. Special Meetings.
(a) Subject to the rights of the holders of any class or series of
preferred stock of the Corporation, special meetings of the Stockholders
entitled to vote may be called by the Board of Directors, the Chairman of the
Board of Directors or the President.
(b) Special meetings of the Stockholders entitled to vote shall be
called by the Clerk, or in case of the death, absence, incapacity or refusal of
the Clerk, by any other officer, upon written application of one or more
Stockholders who are entitled to vote and who hold at least ten percent (10%) in
interest of the capital stock entitled to vote at the meeting.
Section 3.3. Place of Meetings.
All meetings of the Stockholders shall be held at the principal office
of the Corporation in Massachusetts, unless a different place within
Massachusetts or, to the extent permitted by the Articles of Organization,
elsewhere within the United States is designated by the President or by the
Board of Directors. Any adjourned session of any meeting of the Stockholders
shall be held at such place within Massachusetts or, if permitted by the
Articles of Organization, elsewhere within the United States as is designated in
the vote of adjournment.
Section 3.4. Notice of Meetings.
A written notice of the place, date and hour of all meetings of
Stockholders stating the purposes of the meeting shall be given at least ten
(10) days before the meeting to each Stockholder entitled to vote thereat and to
each Stockholder who is otherwise entitled by law, by the Articles of
Organization or by these By-Laws to such notice, by leaving such notice with him
or at his residence or usual place of business, or by mailing it, postage
prepaid, and addressed to such Stockholder at his address as it appears in the
records of the Corporation. Such notice shall be given by the Clerk, or in case
of the death, absence, incapacity, or refusal of the Clerk, by any other officer
or by a person designated either by the Clerk, by the person or persons calling
the meeting or by the Board of Directors. If notice is given by mail, such
notice shall be deemed given when dispatched. If notice is not given by mail and
is given by leaving such notice at the Stockholder's residence or usual place of
business, it shall be deemed given when so left. Whenever notice of a meeting is
required to be given to a Stockholder under any provision of law, of the
Articles of Organization or of these By-laws, a written waiver thereof, executed
before or after the meeting by such Stockholder or his attorney thereunto
authorized, and filed with the records of the meeting, shall be deemed
equivalent to such notice. Every Stockholder who is present at a meeting
(whether in person or by proxy) shall be deemed to have waived notice thereof. A
waiver of notice of any meeting need not specify the purposes of such meeting.
Section 3.5. Notice of Stockholder Business at a Meeting of the
Stockholders.
2
<PAGE> 3
The following provisions of this Section 3.5 shall apply to the conduct
of business at any meeting of the Stockholders. (As used in this Section 3.5,
the term annual meeting shall include a special meeting in lieu of an annual
meeting.)
(a) At any meeting of the Stockholders, only such business shall be
conducted as shall have been brought before the meeting (i) pursuant to the
Corporation's notice of meeting, (ii) by or at the direction of the Board of
Directors or (iii) by any Stockholder of the Corporation who is a Stockholder of
record at the time of giving of the notice provided for in paragraph (b) of this
Section 3.5, who is entitled to vote at such meeting and who complies with the
notice procedures set forth in paragraph (b) of this Section 3.5.
(b) For business to be properly brought before any meeting of the
Stockholders by a Stockholder pursuant to clause (iii) of paragraph (a) of this
Section 3.5, the Stockholder must have given timely notice thereof in writing to
the Clerk of the Corporation. To be timely, a Stockholder's notice must be
delivered to or mailed to and received at the principal executive offices of the
Corporation (i) in the case of an annual meeting, not less than sixty (60) days
nor more than ninety (90) days prior to the date specified in Section 3.1 above
for such annual meeting, regardless of any postponements, deferrals or
adjournments of that meeting to a later date; provided, however, that if a
special meeting in lieu of an annual meeting of Stockholders is to be held on a
date prior to the date specified in Section 3.1 above, and if less than seventy
(70) days' notice or prior public disclosure of the date of such special meeting
in lieu of an annual meeting is given or made, notice by the Stockholder to be
timely must be so delivered or received not later than the close of business on
the tenth (10th) day following the earlier of the day on which notice of the
date of such special meeting in lieu of an annual meeting was mailed or the day
on which public disclosure was made of the date of such special meeting in lieu
of an annual meeting; and (ii) in the case of a special meeting (other than a
special meeting in lieu of an annual meeting), not later than the tenth (10th)
day following the earlier of the day on which notice of the date of the
scheduled meeting was mailed or the day on which public disclosure was made of
the date of the scheduled meeting. A Stockholder's notice to the Clerk shall set
forth as to each matter the Stockholder proposes to bring before the meeting (w)
a brief description of the business desired to be brought before the meeting and
the reasons for conducting such business at the meeting, (x) the name and
address, as they appear on the Corporation's books, of the Stockholder proposing
such business, the name and address of the beneficial owner, if any, on whose
behalf the proposal is made, and the name and address of any other Stockholders
or beneficial owners known by such Stockholder to be supporting such proposal,
(y) the class and number of shares of the capital stock of the Corporation which
are owned beneficially and of record by such Stockholder of record, by the
beneficial owner, if any, on whose behalf the proposal is made and by any other
Stockholders or beneficial owners known by such Stockholder to be supporting
such proposal, and (z) any material interest of such Stockholder of record
and/or of the beneficial owner, if any, on whose behalf the proposal is made, in
such proposed business and any material interest of any other Stockholders or
beneficial owners known by such Stockholder to be supporting such proposal in
such proposed business, to the extent known by such Stockholder.
3
<PAGE> 4
(c) Notwithstanding anything in these By-Laws to the contrary, no
business shall be conducted at a meeting except in accordance with the
procedures set forth in this Section 3.5. The person presiding at the meeting
shall, if the facts warrant, determine that business was not properly brought
before the meeting and in accordance with the procedures prescribed by these
By-Laws, and if he should so determine, he shall so declare at the meeting and
any such business not properly brought before the meeting shall not be
transacted. Notwithstanding the foregoing provisions of this Section 3.5, a
Stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth in this Section 3.5.
(d) This Section 3.5 shall not prevent the consideration and approval
or disapproval at the meeting of reports of officers, Directors and committees
of the Board of Directors, but, in connection with such reports, no new business
shall be acted upon at such meeting unless properly brought before the meeting
as provided in these By-Laws.
Section 3.6. Quorum.
At any meeting of the Stockholders, a quorum shall consist of a
majority in interest of all stock issued, outstanding and entitled to vote at
the meeting; except that if two or more classes or series of stock are
outstanding and entitled to vote on any matter as separate classes or series,
then in the case of each such class or series a quorum for that matter shall
consist of a majority in interest of all stock of that class or series issued,
outstanding and entitled to vote, except when a larger quorum is required by
law, by the Articles of Organization or by these By-Laws. Any meeting of the
Stockholders may be adjourned from time to time to any other time and to any
other place by a majority of the votes properly cast upon the question, whether
or not a quorum is present, and the meeting may be held as adjourned without
further notice. Any business which could have been transacted at any meeting of
the Stockholders as originally called may be transacted at any adjournment
thereof.
Section 3.7. Action by Vote.
When a quorum is present at any meeting, a plurality of the votes
properly cast for election to any office shall elect to such office, and a
majority of the votes properly cast (or if there are two or more classes or
series of stock entitled to vote as separate classes or series, then in the case
of each such class or series, a majority of the stock of that class or series
present or represented and entitled to vote and voting) upon any question other
than an election to an office shall decide the question, except when a larger
vote is required by law, by the Articles of Organization or by these By-Laws. No
ballot shall be required for any election unless requested by a Stockholder
present or represented at the meeting and entitled to vote in the election.
4
<PAGE> 5
Section 3.8. Voting.
Stockholders entitled to vote shall have one vote for each share of
stock entitled to vote held by them of record according to the records of the
Corporation and a proportionate vote for a fractional share, unless otherwise
provided or required by law, by the Articles of Organization or by these
By-Laws. The vote for each share of stock held in the name of two or more
persons shall be cast in accordance with the decision of any one of them unless
at or prior to the time the vote is cast the Corporation receives a specific
written notice to the contrary from any one of them (which notice to the
contrary need not be in writing if given in person at the meeting at which the
vote is to be cast), in which case the vote for each share of stock held in the
name of such persons shall be cast in accordance with the decision of a majority
of such persons. The Corporation shall not, directly or indirectly, vote any
share of its own stock. Nothing in these By-Laws shall be construed to limit the
right of the Corporation to vote any shares of stock held directly or indirectly
by it in a fiduciary capacity.
Section 3.9. Action by Written Consent of Stockholders.
Any action required or permitted to be taken at any meeting of the
Stockholders may be taken without a meeting if all Stockholders entitled to vote
on the matter consent to the action in writing and the written consents are
filed with the records of the meetings of Stockholders. Such consents shall be
treated for all purposes as a vote at a meeting.
Section 3.10. Proxies.
Any Stockholder entitled to vote may vote either in person or by a
written proxy dated not more than six (6) months before the meeting named
therein, which proxy shall be filed with the Clerk or other person responsible
to record the proceedings of the meeting before being voted. Unless otherwise
specifically limited by their terms, such proxies shall entitle the holders
thereof to vote at any adjournment of such meeting but shall not be valid after
the final adjournment of such meeting. Proxies need not be sealed or attested.
Notwithstanding the foregoing, a proxy coupled with an interest sufficient in
law to support an irrevocable power, including, without limitation, an interest
in the stock or in the Corporation generally, may be made irrevocable if it so
provides, need not specify the meeting to which it relates, and shall be valid
and enforceable until the interest terminates, or for such shorter period as may
be specified in the proxy. A proxy with respect to stock held in the name of two
or more persons shall be valid if executed by any one of them unless at or prior
to exercise of the proxy the Corporation receives a specific written notice to
the contrary from any one of them. A proxy purporting to be executed by or on
behalf of a Stockholder shall be deemed valid unless challenged at or prior to
its exercise and the burden of proving invalidity shall rest on the challenger.
Section 3.11. Conduct of Business.
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The Chairman of the Board of Directors or his designee, or, if there is
no Chairman of the Board or such designee, then the President or his designee,
or, if the office of President shall be vacant, then a person appointed by the
Board of Directors, shall preside at any meeting of Stockholders as the chairman
of the meeting. In addition to his powers pursuant to Section 3.5(c), the person
presiding at any meeting of Stockholders shall determine the order of business
and the procedures at the meeting, including such regulation of the manner of
voting and the conduct of discussion as seem to him in order.
ARTICLE IV
Directors
Section 4.1. Powers.
The business of the Corporation shall be managed by a Board of
Directors who shall have and may exercise all the powers of the Corporation
except as otherwise reserved to the Stockholders by law, by the Articles of
Organization or by these By-Laws. In the event of a vacancy in the Board of
Directors, the remaining Directors, except as otherwise provided by law, may
exercise the powers of the full Board until the vacancy is filled. Without
limiting the generality of the foregoing, the Board of Directors shall have the
power, unless otherwise provided by law, to purchase and to lease, pledge,
mortgage and sell all property of the Corporation (including to issue or sell
the stock of the Corporation) and to make such contracts and agreements as they
deem advantageous, to fix the price to be paid for or in connection with any
property or rights purchased, sold, or otherwise dealt with by the Corporation,
to borrow money, issue bonds, notes and other obligations of the Corporation,
and to secure payment thereof by mortgage or pledge of all or any part of the
property of the Corporation. The Board of Directors may determine the
compensation to be paid to Directors for their service as Directors. The Board
of Directors, or such officer or committee as the Board of Directors may
designate, may determine the compensation and duties, in addition to those
prescribed by these By-Laws, of all officers, agents and employees of the
Corporation.
Section 4.2. Enumeration, Election and Term of Office.
The Board of Directors shall consist of not less than three Directors,
except that whenever there shall be only two Stockholders, the number of
Directors shall be not less than two, and whenever there shall be only one
Stockholder, the number of Directors shall be not less than one. Except as
otherwise provided by law or by the Articles of Organization, the number of
Directors shall be as determined from time to time by the Stockholders and may
be enlarged or reduced at any time by vote of a majority of the Directors then
in office, but no reduction in the number of Directors constituting the Board of
Directors shall shorten the term of any incumbent Director. Except as otherwise
provided by law or by the Articles of Organization, the Directors shall be
chosen at the annual meeting of the Stockholders, or special meeting in lieu
thereof, by such Stockholders as have the right to vote thereon, and each shall
hold office until the next annual election of Directors and until his successor
is chosen and qualified or until he sooner dies, resigns, is removed, or becomes
disqualified. No Director need be a Stockholder.
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Section 4.3. Nomination of Directors.
The following provisions of this Section 4.3 shall apply to the
nomination of persons for election to the Board of Directors.
(a) Nominations of persons for election to the Board of Directors of
the Corporation may be made (i) by or at the direction of the Board of Directors
or (ii) by any Stockholder of the Corporation who is a Stockholder of record at
the time of giving of notice provided for in paragraph (b) of this Section 4.3,
who is entitled to vote for the election of Directors at the meeting and who
complies with the notice procedures set forth in paragraph (b) of this Section
4.3.
(b) Nominations by Stockholders shall be made pursuant to timely notice
in writing to the Clerk of the Corporation. To be timely, a Stockholder's notice
shall be delivered to or mailed to and received at the principal executive
offices of the Corporation, not less than sixty (60) days nor more than ninety
(90) days prior to the date specified in Section 3.1 above for the annual
meeting, regardless of any postponements, deferrals or adjournments of that
meeting to a later date; provided, however, that if a special meeting in lieu of
an annual meeting of Stockholders is to be held on a date prior to the date
specified in Section 3.1 above, and if less than seventy (70) days' notice or
prior public disclosure of the date of such special meeting in lieu of an annual
meeting is given or made, notice by the Stockholder to be timely must be so
delivered or received not later than the close of business on the tenth (10th)
day following the earlier of the day on which notice of the date of such special
meeting in lieu of an annual meeting was mailed or the day on which public
disclosure was made of the date of such special meeting in lieu of an annual
meeting. A Stockholder's notice to the Clerk shall set forth (x) as to each
person whom the Stockholder proposes to nominate for election or reelection as a
Director all information relating to such person that is required to be
disclosed in solicitations of proxies for the election of directors, or is
otherwise required, pursuant to Regulation 14A under the Exchange Act or
pursuant to any other then existing statute, rule or regulation applicable
thereto (including such person's written consent to being named in the proxy
statement as a nominee and to serving as a Director if elected); (y) as to the
Stockholder giving the notice (1) the name and address, as they appear on the
Corporation's books, of such Stockholder and (2) the class and number of shares
of the capital stock of the Corporation which are beneficially owned by such
Stockholder and also which are owned of record by such Stockholder; and (z) as
to the beneficial owner, if any, on whose behalf the nomination is made, (1) the
name and address of such person and (2) the class and number of shares of the
capital stock of the Corporation which are beneficially owned by such person.
The Corporation may require any proposed nominee to furnish such other
information as may reasonably be required by the Corporation to determine the
eligibility of such proposed nominee as a Director. At the request of the Board
of Directors, any person nominated by the Board of Directors for election as a
Director shall furnish to the Clerk of the Corporation that information required
to be set forth in a Stockholder's notice of nomination which pertains to the
nominee.
(c) No person shall be eligible to serve as a Director of the
Corporation unless nominated in accordance with the procedures set forth in this
Section 4.3. The person presiding at the meeting
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shall, if the facts warrant, determine that a nomination was not made in
accordance with the procedures prescribed by these By-Laws, and if he should so
determine, he shall so declare to the meeting and the defective nomination shall
be disregarded. Notwithstanding the foregoing provisions of this Section 4.3, a
Stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth in this Section 4.3.
Section 4.4. Regular Meetings.
Regular meetings of the Board of Directors may be held at such times
and places within or without The Commonwealth of Massachusetts as the Board of
Directors may fix from time to time and, when so fixed, no notice thereof need
by given, provided that any Director who is absent when such times and places
are fixed shall be given notice of the fixing of such times and places. The
first meeting of the Board of Directors following the annual meeting of the
Stockholders, or special meeting in lieu thereof, may be held without notice
immediately after and at the same place as the annual meeting of the
Stockholders or the special meeting in lieu thereof, as the case may be. If in
any year a meeting of the Board of Directors is not held at such time and place,
any action to be taken may be taken at any later meeting of the Board of
Directors with the same force and effect as if held or transacted at such
meeting.
Section 4.5. Special Meetings.
Special meetings of the Directors may be held at any time and at any
place designated in the call of the meeting and may be called by the President,
the Treasurer or one or more Directors. Reasonable notice thereof shall be given
to each Director by the Clerk or an Assistant Clerk, or by the officer or one of
the Directors calling the meeting.
Section 4.6. Notice.
It shall be reasonable and sufficient notice to a Director to send
notice by mail at least forty-eight (48) hours or by telegram, facsimile
transmission or electronic mail at least twenty-four (24) hours before the
meeting addressed to him at his usual or last known business or residence
address or to give notice to him in person or by telephone at least twenty-four
(24) hours before the meeting. Notice of a meeting need not be given to any
Director if a written waiver of notice, executed by him before or after the
meeting, is filed with the records of the meeting, or to any Director who
attends the meeting without protesting prior thereto or at its commencement the
lack of notice to him. Neither notice of a meeting nor a waiver of a notice need
specify the purposes of the meeting.
Section 4.7. Quorum; Action at a Meeting.
At any meeting of the Directors, a quorum for any election or for the
consideration of any question shall consist of a majority of the Directors then
in office. Whether or not a quorum is
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present, any meeting may be adjourned from time to time by a majority of the
votes properly cast upon the question, and the meeting may be held as adjourned
without further notice. When a quorum is present at any meeting, the votes of a
majority of the Directors present shall be requisite and sufficient for election
to any office and shall decide any question brought before such meeting, except
in any case where a larger vote is required by law, by the Articles of
Organization or by these By-Laws.
Section 4.8. Action by Consent.
Any action required or permitted to be taken at any meeting of the
Directors may be taken without a meeting if all the Directors consent to the
action in writing and the written consents are filed with the records of the
meetings of the Directors. Such consent shall be treated for all purposes as a
vote of the Directors at a meeting.
Section 4.9. Committees.
The Board of Directors, by vote of a majority of the Directors then in
office, may elect from its number an Executive Committee, an Audit Committee, a
Compensation Committee or other committees, composed of such number of its
members as it may from time to time determine (but in any event not less than
two), and may delegate thereto some or all of its powers except those which by
law, by the Articles of Organization, or by these By-Laws may not be delegated.
Except as the Board of Directors may otherwise determine, any such committee may
make rules for the conduct of its business, but unless otherwise provided by the
Board of Directors or in such rules, its business shall be conducted so far as
possible in the same manner as is provided by these By-Laws for the Board of
Directors. All members of such committees shall hold such offices at the
pleasure of the Board of Directors. The Board of Directors may abolish any such
committee at any time. Any committee to which the Board of Directors delegates
any of its powers or duties shall keep records of its meetings and shall upon
request report its action to the Board of Directors.
Section 4.10. Telephone Conference Meetings.
Any member of the Board of Directors or any committee thereof may
participate in a meeting of such Board of Directors or committee thereof by
means of a conference telephone (or similar communications equipment) by means
of which all persons participating in the meeting can hear each other at the
same time, and participation by such means shall constitute presence in person
at a meeting.
ARTICLE V
Officers and Agents
Section 5.1. Enumeration; Qualification.
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The officers of the Corporation shall be a Chief Executive Officer, a
President, a Treasurer, a Clerk and such other officers, if any, as the
incorporators at their initial meeting, or the Directors from time to time, may
in their discretion elect or appoint. The Corporation may also have such agents,
if any, as the incorporators at their initial meeting, or the Directors from
time to time, may in their discretion appoint. None of the officers of the
Corporation need be a resident of Massachusetts if the Corporation has a
resident agent appointed for the purpose of service of process. Any two or more
offices may be held by the same person. Any officer may be required by the
Directors to give bond for the faithful performance of his duties to the
Corporation in such amount and with such sureties as the Directors may
determine. The premiums for such bonds may be paid by the Corporation.
Section 5.2. Powers.
Subject to law, to the Articles of Organization and to the other
provisions of these By-Laws, each officer shall have, in addition to the duties
and powers herein set forth, such duties and powers as are commonly incident to
his office and such duties and powers as the Directors may from time to time
designate.
Section 5.3. Election.
The President, the Treasurer and the Clerk shall be elected annually by
the Directors at their first meeting following the annual meeting of the
Stockholders or special meeting in lieu thereof. Other officers, if any, may be
elected or appointed by the Board of Directors at such meeting or at any other
time.
Section 5.4. Tenure.
Except as otherwise provided by law, by the Articles of Organization or
by these By-Laws, the President, the Treasurer and the Clerk shall hold office
until the first meeting of the Directors following the next annual meeting of
the Stockholders or special meeting in lieu thereof and until their respective
successors are chosen and qualified, and each other officer shall hold office
until the first meeting of the Directors following the next annual meeting of
the Stockholders and until their respective successors are chosen and qualified,
unless a different period shall have been specified by the terms of his election
or appointment, or in each case until he sooner dies, resigns, is removed, or
becomes disqualified. Each agent shall retain his authority at the pleasure of
the Directors.
Section 5.5. Chairman and Vice Chairman of the Board.
The Board of Directors shall annually elect a Chairman and may annually
elect a Vice Chairman of the Board. Unless the Board of Directors otherwise
provides, the Chairman of the Board shall be the Chief Executive Officer of the
Corporation and shall preside, when present, at all meetings of the
Stockholders, of the Board of Directors and of any committee of the Board of
Directors to which he shall have been elected.
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Section 5.6. Chief Executive Officer.
The Chief Executive Officer shall, subject to the direction of the
Board of Directors, have general supervision and control of the Corporation's
business.
Section 5.7. President and Vice President.
The President shall have such powers and shall perform such duties as
the Board of Directors may from time to time designate and shall serve as the
Chief Executive Officer of the Corporation if there is no Chairman of the Board.
Unless otherwise provided by the Board of Directors, he shall preside, when
present, at all meetings of the Stockholders and of the Board of Directors if a
Chairman and Vice Chairman of the Board have not been elected or if the Chairman
and Vice Chairman of the Board do not attend such meetings and have not
designated any person to preside at such meetings.
Any Vice President shall have such powers and shall perform such duties
as the Board of Directors or the Chief Executive Officer may from time to time
designate.
Section 5.8. Treasurer and Assistant Treasurer.
The Treasurer shall, subject to the direction of the Board of
Directors, have general charge of the financial affairs of the Corporation and
shall cause to be kept accurate books of account. He shall have custody of all
funds, securities and valuable documents of the Corporation, except as the Board
of Directors may otherwise provide.
Any Assistant Treasurer shall have such powers and perform such duties
as the Board of Directors or the Chief Executive Officer may from time to time
designate.
Section 5.9. Clerk and Assistant Clerks.
The Clerk shall keep a record of the meetings of Stockholders. In the
event there is no Secretary or he is absent, the Clerk or an Assistant Clerk
shall keep a record of the meetings of the Board of Directors. In the absence of
the Clerk from any meeting of Stockholders, an Assistant Clerk if one be elected
or appointed, otherwise a temporary Clerk designated by the person presiding at
the meeting, shall perform the duties of the Clerk.
Section 5.10. Secretary.
The Secretary, if one be elected or appointed, shall keep a record of
the meetings of the Board of Directors. In the absence of the Secretary, the
Clerk and any Assistant Clerk, a temporary Secretary shall be designated by the
person presiding at such meeting to perform the duties of the Secretary.
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ARTICLE VI
Resignations, Removals and Vacancies
Section 6.1. Resignations.
Any Director or officer may resign at any time by delivering his
resignation in writing to the President or the Clerk or to a meeting of the
Directors. Such resignation shall take effect at such time as is specified
therein, or if no such time is so specified then upon delivery thereof.
Section 6.2. Removals.
(a) Except as otherwise provided by law, any Director may be removed
from office (i) with or without cause at any meeting of the Stockholders called
for the purpose by the vote of a majority of the shares issued, outstanding and
entitled to vote in the election of Directors or (ii) for cause at any meeting
of the Board of Directors by vote of a majority of the Directors then in office.
A Director may be removed for cause only after a reasonable notice and
opportunity to be heard before the body proposing to remove him.
(b) The Directors may remove any officer from office with or without
assignment of cause by vote of a majority of the Directors then in office. If
cause is assigned for removal of any officer, such officer may be removed only
after a reasonable notice and opportunity to be heard before the body proposing
to remove him. The Directors may terminate or modify the authority of any agent
or employee.
(c) Except as the Directors may otherwise determine, no Director or
officer who resigns or is removed shall have any right to any compensation as
such Director or officer for any period following his resignation or removal, or
any right to damages on account of such removal whether his compensation be by
the month or by the year or otherwise; provided, however, that the foregoing
provision shall not prevent such Director or officer from obtaining damages from
breach of any contract of employment legally binding upon the Corporation.
Section 6.3. Vacancies.
Subject to law and to the Articles of Organization, any vacancy in the
Board of Directors, including a vacancy resulting from an enlargement of the
Board, may be filled by vote of a majority of the Directors then in office or,
in the absence of such election by the Directors, by the Stockholders at a
meeting called for the purpose; provided, however, that any vacancy resulting
from action by the Stockholders may be filled by the Stockholders at the same
meeting at which such action was taken by them.
If the office of any officer becomes vacant, the Directors may elect or
appoint a successor by vote of a majority of the Directors present at the
meeting at which such election or appointment is made.
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Each such successor shall hold office for the unexpired term of his
predecessor and until his successor shall be elected or appointed and qualified,
or until he sooner dies, resigns, is removed or becomes disqualified.
ARTICLE VII
Stock
Section 7.1. Issue of Authorized and Unissued Capital Stock.
Any unissued capital stock from time to time authorized under the
Articles of Organization may be issued by vote of the Directors. No such stock
shall be issued unless the cash, so far as due, or the property, services or
expenses for which it was authorized to be issued, has been actually received or
incurred by, or conveyed or rendered to, the Corporation, or is in its
possession as surplus.
Section 7.2. Certificates of Stock.
Each Stockholder shall be entitled to a certificate in a form selected
by the Board of Directors stating the number and the class and the designation
of the series, if any, of the shares held by him, except that the Board of
Directors may provide by resolution that some or all of any or all classes and
series of shares of the capital stock of the Corporation shall be uncertificated
shares, to the extent permitted by law. Such certificate shall be signed by the
Chairman, the President or a Vice President and by the Treasurer or an Assistant
Treasurer. Such signatures may be facsimiles if the certificate is signed by a
transfer agent, or by a registrar, other than a Director, officer or employee of
the Corporation. In case any officer who has signed or whose facsimile signature
has been placed on such certificate shall have ceased to be such officer before
such certificate is issued, it may be issued by the Corporation with the same
effect as if he were such officer at the time of its issue.
Every certificate for shares of stock subject to any restriction on
transfer pursuant to the Articles of Organization, these By-Laws, or any
agreement to which the Corporation is a party shall have the restriction noted
conspicuously on the certificate and shall also set forth on the face or back
either the full text of the restriction or a statement of the existence of such
restriction and a statement that the Corporation will furnish a copy thereof to
the holder of such certificate upon written request and without charge. Every
certificate issued when the Corporation is authorized to issue more than one
class or series of stock shall set forth on its face or back either the full
text of the preferences, voting powers, qualifications and special and relative
rights of the shares of each class and series, if any, authorized to be issued
as set forth in the Articles of Organization or a statement of the existence of
such preferences, powers, qualifications and rights and a statement that the
Corporation will furnish a copy thereof to the holder of such certificate upon
written request and without charge.
Section 7.3. Transfers.
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Subject to the restrictions, if any, imposed by the Articles of
Organization, these By-Laws or any agreement to which the Corporation is a
party, shares of stock shall be transferred on the books of the Corporation only
by the surrender to the Corporation or its transfer agent of the certificate
representing such shares properly endorsed or accompanied by a written
assignment of such shares or by a written power of attorney to sell, assign or
transfer such shares, properly executed, with necessary transfer stamps affixed,
and with such proof that the endorsement, assignment or power of attorney is
genuine and effective as the Corporation or its transfer agent may reasonably
require. Except as may be otherwise required by law, the Corporation shall be
entitled to treat the record holder of stock as shown on its books as the owner
of such stock for all purposes, including the payment of dividends and the right
to vote with respect thereto, regardless of any transfer, pledge or other
disposition of such stock, until the shares have been transferred on the books
of the Corporation in accordance with the requirements of these By-Laws. It
shall be the duty of each Stockholder to notify the Corporation of his post
office address.
Section 7.4. Lost, Mutilated or Destroyed Certificates.
Except as otherwise provided by law (including Section 8-405 of Chapter
106 of the Massachusetts General Laws and any successor statute), the Directors
may determine the conditions upon which a new certificate of stock may be issued
in place of any certificate alleged to have been lost, mutilated, or destroyed.
They may, in their discretion, require the owner of a lost, mutilated or
destroyed certificate, or his legal representative, to give a bond, sufficient
in their opinion, with or without surety, to indemnify the Corporation against
any loss or claim which may arise by reason of the issue of a certificate in
place of such lost, mutilated, or destroyed stock certificate.
Section 7.5. Transfer Agent and Registrar.
The Board of Directors may appoint a transfer agent or a registrar or
both for its capital stock of any class or series thereof and require all
certificates for such stock to bear the signature or facsimile thereof of any
such transfer agent or registrar.
Section 7.6. Setting Record Date and Closing Transfer Records.
The Board of Directors may fix in advance a time not more than sixty
(60) days before: (i) the date of any meeting of the Stockholders; or (ii) the
date for the payment of any dividend or the making of any distribution to
Stockholders; or (iii) the last day on which the consent or dissent of
Stockholders may be effectively expressed for any purpose, as the record date
for determining the Stockholders having the right to notice and to vote at such
meeting or any adjournment thereof, or the right to receive such dividend or
distribution, or the right to give such consent or dissent. If a record date is
set, only Stockholders of record on the record date shall have such right,
notwithstanding any transfer of stock on the books of the Corporation after the
record date. Without fixing such record date, the Board of Directors may close
the transfer records of the Corporation for all or any part of such sixty (60)
day period.
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If no record date is fixed and the transfer books are not closed, then
the record date for determining Stockholders having the right to notice of or to
vote at a meeting of Stockholders shall be at the close of business on the day
next preceding the day on which notice is given, and the record date for
determining Stockholders for any other purpose shall be at the close of business
on the day on which the Board of Directors acts with respect thereto.
ARTICLE XIII
Miscellaneous Provisions
Section 8.1. Execution of Papers.
All deeds, leases, transfers, contracts, bonds, notes, releases,
checks, drafts and other obligations authorized to be executed on behalf of the
Corporation shall be signed by the Chief Executive Officer, President or the
Treasurer except as the Directors may generally or in particular cases otherwise
determine.
Section 8.2. Voting of Securities.
Except as the Directors may generally or in particular cases otherwise
specify, the Chief Executive Officer, President or the Treasurer may on behalf
of the Corporation vote or take any other action with respect to shares of stock
or beneficial interest of any other corporation, or of any association, trust or
firm, of which any securities are held by this Corporation, and may appoint any
person or persons to act as proxy or attorney-in-fact for the Corporation, with
or without power of substitution, at any meeting thereof.
Section 8.3. Corporate Seal.
The seal of the Corporation shall be a circular die with the name of
the Corporation, the word "Massachusetts" and the year of its incorporation cut
or engraved thereon, or shall be in such other form as the Board of Directors
may from time to time determine.
Section 8.4. Corporate Records.
The original, or attested copies, of the Articles of Organization,
By-Laws and records of all meetings of the incorporators and Stockholders, and
the stock and transfer records, which shall contain the names of all
Stockholders and the record address and the amount of stock held by each, shall
be kept in Massachusetts at the principal office of the Corporation, or at an
office of its transfer agent or of its Clerk or of its Resident Agent. Such
copies and records need not all be kept in the same office. They shall be
available at all reasonable times to the inspection of any Stockholder for any
proper purpose but not to secure a list of Stockholders or other information for
the purpose of selling such list or information or copies thereof or of using
the same for a purpose other than in the interest of the applicant, as a
Stockholder, relative to the affairs of the Corporation.
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Section 8.5. Evidence of Authority.
A certificate by the Clerk, the Secretary, or any Assistant or
temporary Clerk or Secretary as to any matter relative to the Articles of
Organization, By-Laws, records of the proceedings of the incorporators,
Stockholders, Board of Directors, or any committee of the Board of Directors, or
stock and transfer records or as to any action taken by any person or persons as
an officer or agent of the Corporation, shall as to all persons who rely thereon
in good faith be conclusive evidence of the matters so certified.
Section 8.6. Right to Repurchase.
Except as otherwise provided by law, by the Articles of Organization or
by these By-Laws (including any amendments thereto), the Corporation, through
its Board of Directors, shall have the right and power to repurchase any of its
outstanding shares at such price and upon such terms as may be agreed upon
between the Corporation and the selling Stockholder(s), or the predecessor(s) in
interest thereof.
Section 8.7. Dividends.
Except as otherwise provided by law or by the Articles of Organization,
the Board of Directors may declare and pay dividends upon the shares of capital
stock of the Corporation, which dividends may be paid either in cash, securities
of the Corporation or other property.
Section 8.8. Ratification.
Any action taken on behalf of the Corporation by the Directors or any
officer or representative of the Corporation which requires authorization by the
Stockholders or the Directors of the Corporation shall be deemed to have been
authorized if subsequently ratified by the Stockholders entitled to vote or by
the Directors, as the case may be, at a meeting held in accordance with these
By-Laws.
Section 8.9. Reliance Upon Books, Records and Reports.
Each Director or officer of the Corporation shall be entitled to rely
on information, opinions, reports or records, including financial statements,
books of account and other financial records, in each case presented by or
prepared by or under the supervision of (i) one or more officers or employees of
the Corporation whom the Director or officer reasonably believes to be reliable
and competent in the matters presented, (ii) counsel, public accountants or
other persons as to matters which the Director or officer reasonably believes to
be within such person's professional or expert competence, or (iii) in the case
of a Director, a duly constituted committee of the Board of Directors upon which
he does not serve, as to matters within its delegated authority, which committee
the Director reasonably believes to merit confidence, but he shall not be
considered to be acting in good faith if he has knowledge concerning the matter
in question that would cause such reliance to be
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unwarranted. The fact that a Director or officer so performed his duties shall
be a complete defense to any claim asserted against him by reason of his being
or having been a Director or officer of the Corporation, except as expressly
provided by statute.
Section 8.10. Control Share Acquisition.
Until such time as this section shall be repealed or these By-Laws
shall be amended to provide otherwise, including, without limitation, during any
time that the Corporation shall be an "issuing public corporation" as defined in
Chapter 110D of the Massachusetts General Laws, the provisions of Chapter 110D
of the Massachusetts General Laws shall not apply to "control share
acquisitions" of the Corporation within the meaning of such Chapter 110D.
ARTICLE IX
Amendments
Except as otherwise provided in the Articles of Organization, these
By-Laws may be amended or repealed in whole or in part by the affirmative vote
of the holders of a majority of the shares of each class of the capital stock at
the time outstanding and entitled to vote at any annual or special meeting of
Stockholders, provided that notice of the substance of the proposed amendment is
stated in the notice of such meeting. If authorized by the Articles of
Organization, the Directors may make, amend or repeal the By-Laws, in whole or
in part, except with respect to any provision hereof which by law, by the
Articles of Organization or by the By-Laws requires action by the Stockholders.
Not later than the time of giving notice of the meeting of Stockholders next
following the making, amending or repealing by the Directors of any By-Law,
notice thereof stating the substance of such change shall be given to all
Stockholders entitled to vote on amending the By-Laws. Any By-Law adopted,
amended or repealed by the Directors may be repealed, amended or reinstated by
the Stockholders entitled to vote on amending the By-Laws.
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Exhibit 4.2
SPECIMEN WARRANT CERTIFICATE
VOID AFTER
REDEEMABLE COMMON STOCK PURCHASE WARRANT CERTIFICATE
TO PURCHASE ONE SHARE OF COMMON STOCK
IMPLANT SCIENCES CORPORATION
NUMBER WARRANTS
THIS CERTIFIES THAT, FOR VALUE RECEIVED CUSIP ___________
or registered assigns (the "Registered Holder") is the owner of the number of
Redeemable 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 ___________ ,
1998 (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
Stock Transfer & Trust Company, 40 Wall Street, New York, New York 10005 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 by 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 interests 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
___________ . 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) the next
following day which in the State of New York is not a holiday or a 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, 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 _________ ,
1998, this Warrant may be redeemed by the Company, in whole or in part, at $.20
per Warrant on thirty (30) days' prior written notice provided that the market
price of the Common Stock equals or exceeds $_____ for fifteen (15) consecutive
trading days ending within ten (10) days prior to the notice of redemption. 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, Schneider Securities, Inc. 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 of 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 STOCK TRANSFER & TRUST COMPANY,
(NEW YORK, NY)
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 execute
_________________ 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)
___________________________________
(SIGNATURE)
___________________________________
<PAGE> 5
(ADDRESS)
___________________________________
___________________________________
(TAX IDENTIFICATION NUMBER)
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 TO THE ASSIGNMENT OF THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAMES WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE
<PAGE> 6
GUARANTEED BY A COMMERCIAL BANK OR TRUST COMPANY OR A MEMBER FIRM OF THE
AMERICAN STOCK EXCHANGE, NEW YORK STOCK EXCHANGE, PACIFIC COAST STOCK EXCHANGE
OR MIDWEST STOCK EXCHANGE.
<PAGE> 1
EXHIBIT 9
ARMINI VOTING TRUST AGREEMENT
THIS VOTING TRUST AGREEMENT is made this 31st 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."
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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
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<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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<PAGE> 4
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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<PAGE> 5
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
-----------------------
5
<PAGE> 1
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") made as of September __,
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
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<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
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<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.
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/ ANTHONY J. ARMINI
--------------------------- -----------------------
Employee
Name:
---------------------------
Title: CHIEF FINANCIAL OFFICER
--------------------------
6
<PAGE> 1
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") made as of September __,
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
<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 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 10.3
June 15, 1998
Darlene Deptula-Hicks
2 Sarah's Way
Newton, NH 03858
Dear Darlene:
We are pleased to offer you the position at Implant Sciences of Vice
President, Chief Financial Officer at an annual salary of $100,000 including
family medical insurance. In addition, we offer you a $10,000 bonus when the IPO
closes. After that, your bonus program will be tied to profitability (formula to
be worked out later) up to 25% of your base salary.
We also include an option to purchase 20,000 post-split (post IPO
shares) at the IPO price.
The following will highlight some benefits offered to all employees of
Implant Sciences Corporation ("ISC"):
We offer medical insurance with Tufts Health Plan. Tufts is an HMO
where your primary care physician is responsible for coordinating all your
health care needs and any referrals to specialists. There is a $10.00 per visit
office co-payment, with generic prescriptions costing $6.00 and brand name
$16.00. Routine annual eye exams are also covered at $10.00 per visit as long as
you used a participating optometrist. There is a Pediatric Dental Benefit which
covers all children under 12. An office co-payment does not apply to this, as
long as you choose from the list of participating dentists. Please refer to the
Tufts literature enclosed.
At this time, the cost to you for your medical insurance is $35.00 per
week. There is a 30-day waiting period for coverage.
You will receive ten paid holidays, five sick days and three weeks paid
vacation, except for your first year which will be two weeks paid vacation. An
explanation of the eligibility requirements will be reviewed with you.
In addition to this, the company sponsors a dental/eye wear program
where you will be reimbursed at 80% for all dental procedures and eye wear for
you and your covered dependents, up to $300 per year. Upon submitting proof of
payment you will be reimbursed for these expenses.
1
<PAGE> 2
After six months of employment, you will be automatically enrolled for
short and long term disability insurance, at no cost to you. You also have the
opportunity to purchase term life insurance. The value of the policy would be
equal to two times your annual salary with a $50,000 maximum. The premium varies
by age and will be calculated for you if you request it.
You will be eligible to participate in our 401k retirement plan after
12 months of employment. We have two open enrollment times per year -- January
and July.
I have included a sheet which summarizes most of these items for you.
Additionally, a condition of your employment at Implant Sciences
Corporation requires you to execute a Confidentiality Agreement, a copy of which
is attached. You will need to sign this on your first day of work so that it may
be properly witnessed.
This offer will remain open until Monday, June 22, 1998. I look forward
to hearing from you with your decision. Please feel free to call me with any
questions you may have.
Sincerely,
IMPLANT SCIENCES CORPORATION
By: /S/ A. J. Armini
----------------------
A. J. Armini, President
2
<PAGE> 1
Exhibit 10.4
[Implant Sciences Corporation letterhead]
March 20th, 1998
Alan D. Lucas
223 Beacon Street, Unit 1
Boston, MA 02116
Dear Alan,
We are pleased to extend the following offer to you:
1. Position: V.P. Marketing and Director of Biomedical Sales
2. Commencing: March 23rd, 1998
3. Responsibilities: As directed time to time by myself. In general, your
responsibilities will be understood to include,
without limitation, all actions and steps required to
identify, organize, plan and execute the company's
biomedical business development strategy; analyze its
existing and proposed markets; examine and monitor
its competitive environment; initiate and aid the
company in securing corporate OEM/VAR alliances, and
identify product and market expansion opportunities.
Your responsibilities will also include budgeting,
organizing, and monitoring the company's marketing
support services and requirements.
4. Base Salary: $90,000 per annum plus participation in the Company's
family medical insurance and dental/eyeglass plan and
other benefits made available by the Company to its
employees generally and as described in the
accompanying letter.
5. Bonus: For the periods,
(i) March 1998-June 1998, you will be
entitled to a cash bonus of $10,000 payable
July 15th 1998 subject only to your
continued employment at Implant Sciences
Corporation (ISC).
(ii) July 1998-June 1999, a performance
based cash bonus of up to a maximum of 50%
of your annual base salary of which:
(a) 25% of your base salary is payable if
total biomedical sales for the Company's
fiscal year ended June 30, 1999 (net of
returns and
1
<PAGE> 2
discounts) excluding sales derived from
sales or services related to orthopedic
total joint replacement (TJR) implants,
increases by 50% from similarly defined
sales for FY 1998. This portion of your
bonus will be payable by July 15th 1999.
(b) 25% of your base salary is payable if
you introduce a Significant Customer and you
significantly contribute to the closing of
an exclusive transaction or agreement
between ISC and the Significant Customer. A
Significant Customer is defined as any
corporation listed in Appendix A attached
hereto or as subsequently mutually agreed to
in writing by you and myself. A Significant
Transaction is defined as any transaction
that grosses ISC at least $250,000 in the 12
months immediately following the closing of
an agreement with a Significant Customer.
This portion of your bonus if awarded will
be payable by July 15th 1999 but may be paid
earlier once at least $100,000 in sales to
the Significant Customer have been booked by
ISC.
(c) Any amount recommended by Akhund and
agreed to by the company's President.
6. Stock Option: Incentive stock options to purchase 20,000 shares of
the Company's common stock at the IPO price vesting
over 3 years commencing 12 months from your
commencement date. All unvested options will expire
upon termination of your employment.
7. Paid Vacation: Standard vacation policy of up to 2 weeks during your
1st year of employment with 1 extra day per year
after 5 years of employment. Vacation times should be
selected at times convenient to the Company's
business.
8. Confidentiality: As a condition of and in consideration of your
employment with us you agree to abide by the terms of
the accompanying Employee Agreement on Ideas,
Inventions, and Confidential Information.
9. Competitive
Activities: As a condition of and in consideration of your
employment with us you agree that during your
employment, and for a term of twelve (12) months
following the termination of your employment with ISC
you agree that you will not, directly or indirectly,
work for, provide consulting services on your own
behalf for, own an interest in (excluding a passive
investment in a public company where you own less
than 5% of the stock of such company), operate, join,
control, or participate in, or be connected as an
officer, employee, consultant, agent, independent
contractor, partner, shareholder, or principal of any
corporation, partnership, proprietorship, firm,
association, or person marketing products, goods,
equipment, and/or services which directly
2
<PAGE> 3
or indirectly competes with the Corporation's
services or products or the Corporation's business,
without the prior written consent of Corporation.
This provision shall without exclusion or limitation
to the foregoing apply to Spire Corporation, North
American Scientific Corporation, Theragenics
Corporation, Imagyn Corporation and International
Isotopes Corporation.
Alan, we look forward to having you join the team and to helping us
take the company to the next level. This offer will remain open until the close
of business on Monday, March 23rd, 1998. Please acknowledge your acceptance of
this offer by signing and returning a copy of this letter to me.
Yours sincerely,
/ s/ Erik Akhund
----------------
Erik Akhund
E.V.P. and CFO
EA/dm
cc: T. Armini
/s/Alan D. Lucas 3/23/98
- ------------------------
Agreed and accepted
Alan D. Lucas
223 Beacon Street
Boston, MA 02116
3
<PAGE> 1
EXHIBIT 10.5
[IMPLANT SCIENCES CORPORATION LETTERHEAD]
September ___, 1998
Alan D. Lucas
223 Beacon Street, Unit 1
Boston, MA 02116
Dear Alan,
The purpose of this letter is to clarify the terms of the letter from
Implant Sciences Corporation ("ISC") to you, dated March 20, 1998, in which you
were offered employment by ISC (the "Offer Letter"). In that letter, ISC offered
you a 20,000-share stock option as part of your compensation package. It was
ISC's understanding at that time that the number of options set forth in the
Offer Letter was adjusted to give effect to a 7-for-1 stock split of the Common
Stock of ISC, which stock split was approved by the Board of Directors of the
Company in September, 1998.
Please acknowledge that this was your understanding as well by signing
and returning this letter to me.
Sincerely,
/s/ Anthony J. Armini
---------------------
Anthony J. Armini
Acknowledged and accepted,
/s/ Alan D. Lucas
- --------------------------------
Alan D. Lucas
<PAGE> 1
Exhibit 10.6
[FORM OF]
IMPLANT SCIENCES CORPORATION
EMPLOYEE AGREEMENT ON IDEAS, INVENTIONS, AND
CONFIDENTIAL INFORMATION
In consideration of my employment by IMPLANT SCIENCES
CORPORATION, ("Implant"), I agree as follows:
1. Both during and for 2 years after my employment by Implant, I
will not disclose to anyone outside of Implant, except as
authorized by Implant, or use in any way other than in
Implant's interest, any information** or material** relating
to the actual or prospective business of Implant or of any
affiliated company of Implant (including information or
material received by Implant or by any such affiliated company
from others) which is of a secret or confidential nature. Nor
will I remove any such material from the premises of Implant
or of Implant's affiliated companies, except for use in
Implant's interest.
2. I will not submit any writing for publication or deliver any
speech that contains any information relating to the actual or
prospective business of Implant or of any affiliated company
of Implant, unless I receive advance written clearance from
Implant permitting me to do so.
3. I hereby assign to Implant all of my right, title and interest
in and to any inventions or ideas, patentable or not, that I
may make or conceive, alone or with others, during the period
of time in which I am employed by Implant, and that relate in
any way to the actual or prospective business of Implant or of
any affiliated company of Implant.
4. I will disclose routinely to Implant all inventions and ideas
covered by paragraph 3 (and will maintain for Implant's
benefit such engineering and other notebooks in this
connection as Implant may prescribe), and I will, upon
request, both during and after my employment by Implant,
execute specific assignments and take any action necessary to
enable Implant to secure patents.
5. I acknowledge that I am subject to immediate dismissal by
Implant for any breach of this Agreement and that such a
breach will not relieve me from my
- --------
**This Agreement covers all information concerning technical,
administrative, management, financial and marketing activities (such as design
and procurement specifications, procedures manufacturing processes, marketing
plans and strategies, customer names and cost and financial data) and physical
embodiments of such information (such as drawing, specification sheets,
recording media for machine information processing systems, documentation,
contracts, reports, customer lists, manuals, quotations, correspondence and
samples).
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<PAGE> 2
continuing obligations under this agreement or from the
imposition by a court of any remedies such as money damages or
an injunction, for such a breach.
6. This is my entire agreement with Implant with respect to its
subject matter as of its date, superseding any prior
negotiations and agreements. This Agreement may not be changed
in any respect except by a written agreement signed by both
myself and an executive officer of Implant.
7. I represent, to the best of my knowledge, that I have no
agreements with or obligations to others in conflict with the
foregoing.
8. Executed under seal.
Witness: Signed:
---------------------
- ------------------------- ---------------------------
(Type or print full name)
Date:
- -------------------------
(Type or print full name)
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<PAGE> 1
Exhibit 10.7
[FORM OF]
IMPLANT SCIENCES CORPORATION
EMPLOYEE AGREEMENT ON IDEAS, INVENTIONS
AND CONFIDENTIAL INFORMATION
In consideration of my employment by IMPLANT SCIENCES CORPORATION
("Implant"), I agree as follows:
1. Both during and after my employment by Implant, I will not disclose
to anyone outside of Implant, except as authorized by Implant, or use in any way
other than in Implant's interest, any information*** or material*** relating to
the actual or prospective business of Implant or of any affiliated company of
Implant (including information or material received by Implant or by any such
affiliated company from others) which is of a secret or confidential nature. Nor
will I remove any such material from the premises of Implant or of Implant's
affiliated companies, except for use in Implant's interest.
2. I will not submit any writing for publication or deliver any speech
that contains any information relating to the actual or prospective business of
Implant or of any affiliated company of Implant, unless I receive advance
written clearance from Implant permitting me to do so.
3. I hereby assign to Implant all my right, title and interest in and
to any inventions or ideas, patentable or not, that I may make or conceive,
alone or with others, during the period of time in which I am employed by
Implant, and that relate in any way to the actual or prospective business of
Implant or of any affiliated company of Implant.
4. I will disclose routinely to Implant all inventions and ideas
covered by paragraph 3 (and will maintain for Implant's benefit such engineering
and other notebooks in this connection as Implant may prescribe), and I will,
upon request, both during and after my employment by Implant, execute specific
assignments and take any action necessary to enable Implant to secure patents.
5. I acknowledge that I am subject to immediate dismissal by Implant
for any breach of this Agreement and that such a breach will not relieve me from
my continuing obligations under this Agreement or from the imposition by a court
of any remedies such as money damages or an injunction, for such a breach.
- --------
*** This Agreement covers all information concerning technical,
administrative, management, financial and marketing activities (such as design
and procurement specifications, procedures, manufacturing processes, marketing
plans and strategies, customer names and cost and financial data) and physical
embodiments of such information (such as drawing, specification sheets,
recording media for machine information processing systems, documentation,
contracts, reports, customer lists, manuals, quotations, correspondence and
samples).
1
<PAGE> 2
6. This is my entire agreement with Implant with respect to its subject
matter as of its date, superseding any prior negotiations and agreements. This
Agreement may not be changed in any respect except by a written agreement signed
by both myself and an executive officer of Implant.
7. This Agreement shall be binding upon my heirs, executors,
administrators and other legal representatives and shall inure to the benefit of
Implant, its successors and assigns.
8. I represent, to the best of my knowledge, that I have no agreements
with or obligations to others in conflict with the foregoing.
Executed under seal.
Witness: Signed:
----------------------
- -------------------------
(Type or print full name)
- -------------------------- Date:
(Type of print full name) -------------------------
2
<PAGE> 1
Exhibit 10.8
[FORM OF]
IMPLANT SCIENCES CORPORATION
EMPLOYEE AGREEMENT ON IDEAS, INVENTIONS, AND
CONFIDENTIAL INFORMATION
In consideration of my employment by IMPLANT SCIENCES CORPORATION
(ISC), I agree as follows:
1. Both during and after my employment by ISC, I will not
disclose to anyone outside of ISC, except as authorized by
ISC, or use in any way other than in ISC's interest, any
information**** or material*** relating to the actual or
prospective business of ISC or of any such affiliated company
of ISC (including information or material received by ISC or
by any such affiliated company from others) which is of a
secret or confidential nature. Nor will I remove any such
material from the premises of ISC or of ISC's affiliated
companies, except for use in ISC's interest.
2. I will not submit any writing for publication or deliver any
speech that contains any information relating to the actual or
prospective business of ISC or of any affiliated company of
ISC, unless I receive advance written clearance from ISC
permitting me to do so.
3. I hereby assign to ISC all of my right, title and interest in
and to any inventions or ideas, patentable or not, that I may
make or conceive, alone or with others, during the period of
time in which I am employed by ISC, and that relate in any way
to the actual or prospective business of ISC or of any
affiliated company of ISC.
4. I will disclose routinely to ISC all inventions and ideas
covered by paragraph 3 (an will maintain for ISC's benefit
such engineering and other notebooks in this connection as ISC
may prescribe), and I will, upon request, both during and
after my employment by ISC, execute specific assignments and
take any action necessary to enable ISC to secure patents.
5. I acknowledge that I am subject to immediate dismissal by ISC
for any breach of this Agreement and that such a breach will
not relieve me from my continuing obligations under this
Agreement or from the imposition by a court of any remedies
such as money damages or an injunction, for such a breach.
6. This is my entire agreement with ISC with respect to its
subject matter as of its date, superseding any prior
negotiations and agreements. This Agreement may not be changed
in any respect except by a written agreement signed by both
myself and an executive officer of ISC.
- --------
****This agreement covers all information concerning technical,
administrative, management, financial and marketing activities (such as design
and procurement specifications, procedures, manufacturing processes, marketing
plans and strategies, customer names and cost and financial data) and physical
embodiments of such information (such as drawing, specification sheets,
recording media for machine information processing systems, documentation,
contracts, reports, customer lists, manuals, quotations, correspondence and
samples).
1
<PAGE> 2
7. I represent, to the best of my knowledge, that I have no
agreements with or obligations to others in conflict with the
foregoing.
Executed under seal.
Witness: Signed:
---------------------- ------------------------
Print name: Print name:
--------------------- ----------------------
Date:
2
<PAGE> 1
Exhibit 10.9
LOAN AGREEMENT
May 1, 1996
Implant Sciences Corporation
107 Audubon Road
Wakefield, Massachusetts 01880-1246
Re: Loan Agreement with USTrust
Gentlemen:
USTrust, a Massachusetts trust company with its principal office at 30
Court Street, Boston, Massachusetts (hereinafter, the "Bank") hereby agrees to
establish the following credit facilities (hereinafter, collectively, the
"Loans") as described below in favor of Implant Sciences Corporation (the
"Borrower") subject to the following terms and conditions.
I. REVOLVING CREDIT
1. The Bank shall establish a discretionary line of credit (the "Revolving
Credit") in favor of the Borrower in the amount of the Borrower's
Availability (as defined below) subject to the following terms and
conditions:
a. All loans and advances made by the Bank to the Borrower
pursuant to the Revolving Credit shall be payable upon DEMAND
and shall be evidenced by the Borrower's Commercial Promissory
Note (the "Revolving Credit Note") executed this day and
delivered to the Bank substantially in the form of Exhibit A
annexed hereto. In the event that the Revolving Credit Note is
lost, destroyed or mutilated at any time prior to the
termination of the within Agreement, the Borrower shall
execute and deliver to the Bank a new promissory note
substantially in the form of the Revolving Credit Note,
whereupon the original Revolving Credit Note which was lost,
destroyed or mutilated shall become null and void and of no
further force and effect and the Bank shall indemnify the
Borrower for any damages or claims arising out of such
original lost, destroyed or mutilated Revolving Credit Note.
The original Revolving Credit Note shall not be necessary to
establish the indebtedness of the Borrower to the Bank on
account of such loans, advances and repayments. All payments
made by the Borrower under the Revolving Credit may be
reborrowed from time to time by the Borrower pursuant to the
terms hereof.
b. As used herein, the term "Availability" refers to the lesser
of
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i. Seventy percent (70%) or such revised percentage as
the Bank may set from time to time in the Bank's
discretion of the face amount of the Borrower's
Acceptable Accounts as determined by the Bank. As
used herein, "Acceptable Accounts" shall mean those
domestic accounts of the Borrower as to which (x) the
Bank has a security interest, (y) the Borrower has
furnished to the Bank information as provided in
Section III, paragraph 3(d)(iv), below, and (z) are
less than sixty (60) days old from the invoice date
and otherwise are acceptable to the Bank for lending;
or
ii. One Hundred Thousand Dollars ($100,000.00) or such
other amounts the Bank may set from time to time in
the Bank's discretion.
c. At the time of each loan made to the Borrower pursuant to the
Revolving Credit, the Borrower shall immediately become
indebted to the Bank in the amount of that loan. Each such
loan may be credited by the Bank to any deposit account of the
Borrower with the Bank, or may be paid to the Borrower, or may
be applied to any obligation of the Borrower to the Bank as
the Bank may in each instance elect.
d. During each year in which the Revolving Credit is available to
the Borrower, the Borrower shall repay the full outstanding
balance of the Revolving Credit and remain out of debt under
the Revolving Credit for a minimum of thirty (30) consecutive
days.
e. All loans and advances made to the Borrower under the
Revolving Credit shall bear interest until repaid as provided
in the Revolving Credit Note.
II. EQUIPMENT/TERM LOAN
2. Subject to and in accordance with the terms of the within Agreement,
the Borrower may borrow, for the purposes of (i) the refinance of
existing term debt and (ii) the purchase of equipment deemed acceptable
to the Bank, up to Three Hundred Thousand Dollars ($300,000.00) (the
"Equipment/Term Loan"). So long as no event has occurred which is an
Event of Default (as defined in the Equipment/Term Note (as defined
below)) or would become an Event of Default with the giving of notice
and/or the passage of time and such occurrence were not cured within
any applicable grace period, the Borrower may request advances for
equipment purchases during the period commencing on the date hereof
through October 31, 1996 (the "Equipment Availability Period"). Such
requests shall be accompanied by a copy of the purchase order, quote,
or invoice relating to the subject equipment. The Equipment/Term Loan
shall be repaid as provided in the Borrower's Commercial Promissory
Note (the "Equipment/Term Note") in the form of Exhibit B annexed
hereto. Without limiting the foregoing, the Borrower shall pay interest
only on a monthly basis on the Equipment/Term Loan during the Equipment
Availability Period at the interest rate set forth in the
Equipment/Term Note. The Borrower shall at the end of the Equipment
Availability Period amortize the outstanding balance under the
Equipment/Term Loan as of November 1, 1996 based on a fifty-four (54)
month amortization schedule plus
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<PAGE> 3
interest as provided in the Equipment/Term Note. Amounts repaid under
the Equipment/Term Loan may not be reborrowed. The Bank shall not be
obligated to advance any funds under the Equipment/Term Loan after the
expiration of the Equipment Availability Period.
III. GENERAL TERMS AS TO THE LOANS
3. As a partial inducement to the Bank to make the Loans, the Borrower
shall execute, seal and deliver to the Bank the following documents:
a. A Security Agreement (hereinafter, the "Security Agreement")
granting to the Bank a security interest in and to all assets
of the Borrower, all as more fully set forth in said Security
Agreement, substantially in the form and substance of Exhibit
C annexed hereto, pursuant to which security interest the Bank
shall have a first lien in and to all assets of the Borrower;
b. A Guaranty in form and substance satisfactory to the Bank
executed by Anthony J. Armini (the "Guarantor") of the
Liabilities (as defined in said Guaranty) of the Borrower.
c. A Subordination Agreement in form and substance satisfactory
to the Bank executed by the Guarantor and Stephen N. Bunker as
creditors of the Borrower providing that all Junior Debt is
subordinate to the Liabilities (each as defined in said
Subordination Agreement).
d. The Borrower shall provide the Bank with or cause the Bank to
be provided with such financial information requested by the
Bank from time to time, including, without limitation, the
following:
i. Annually, within 120 days from the end of each fiscal
year end of the Borrower, audited annual financial
statements of the Borrower in form and substance
satisfactory to the Bank by the Borrower's certified
public accountants (which accountants shall be
acceptable to the Bank);
ii. Annually, within 30 days from the end of each
calendar year, signed and sworn to personal financial
statements of the Guarantor in form and substance
satisfactory to the Bank;
iii. Quarterly, within 30 days from the end of each fiscal
quarter of the Borrower, management internally
prepared financial statements of the Borrower which
shall include at a minimum a balance sheet and profit
and loss statement for the subject quarter; and
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<PAGE> 4
iv. monthly, within 15 days from the end of each calendar
month, an accounts receivable aging and borrowing
base certificate in form and substance satisfactory
to the Bank.
4. The Borrower shall also comply with the following affirmative
covenants:
a. The ratio of EBIT to Debt Service shall not at any time be
less than 1.5 to 1.0. EBIT shall mean the Borrower's earnings
before interest and taxes plus depreciation as determined in
accordance with generally accepted accounting principles; and
Debt Service shall mean all principal and interest payments on
account of all outstanding and anticipated indebtedness owed
or to be owed by the Borrower to the Bank or to other third
parties.
b. The Borrower shall maintain a minimum Tangible Capital Base of
not less than $600,000.00 as of June 30, 1996, which minimum
Tangible Capital Base shall increase by $50,00.00 at each
fiscal year and thereafter. As used herein, Tangible Capital
Base shall mean the Borrower's net worth less intangible
assets plus subordinated debt.
c. The ratio of Senior Liabilities to Tangible Capital Base shall
not at any time be more than 1.25 to 1.0. As used herein,
Senior Liabilities shall mean the Borrower's (i) total
liabilities less (ii) subordinated debt.
d. In order to enable the Bank to monitor the financial condition
of the Borrower, the Borrower shall maintain all of the
Borrower's operating accounts with the Bank.
5. The Borrower shall also comply with the following negative covenants:
a. Borrower shall not convey, sell, assign, mortgage, pledge or
transfer in any manner whatsoever the Borrower's legal or
beneficial interest in any of the Borrower's assets, other
than in the ordinary course of the Borrower's business.
b. There shall be no material adverse change in (i) the financial
condition of the Borrower or the Guarantor or (ii) the
representations made by the Borrower or the Guarantor to the
Bank.
c. There shall be no material change in (i) the business of the
Borrower or (ii) the identity and authority of any person
having management authority with respect to the Borrower.
d. The Borrower does not and shall not hereafter have any
indebtedness for borrowed money with the exception of the
Loans and the Junior Debt (as defined in the Subordination
Agreement).
6. All notices, demand and other communications made in respect to this
Agreement shall be deemed made when given to the following addresses,
each of which may be changed upon
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<PAGE> 5
seven (7) days written notice to the others given by certified mail,
return receipt requested as follows:
If to Bank: USTrust
30 Court Street
Boston, Massachusetts 02108
Attention: Mr. Frank L. Davis III
Vice President
with a copy
to: Riemer & Braunstein
3 Center Plaza
Boston, Massachusetts 02108
Attention: Joan Parsons Thornton, Esq.
If to the
Borrower: Implant Sciences Corporation
107 Audubon Road
Wakefield, Massachusetts 01880-1246
Attention: Mr. Anthony J. Armini
President
7. The Borrower shall pay all expenses of the Bank in connection with the
preparation, execution and delivery of this Agreement and of the other
documents and agreements between the Borrower and the Bank, including,
without limitation, reasonable attorneys' fees and disbursements of
counsel and all fees and expenses of counsel which the Bank may
hereafter incur in revising, protecting or enforcing any of its rights
against the Borrower, any security held by the Ban or against any
guarantor, and all costs of collection. The borrower specifically
authorizes the Bank to charge any account which the Borrower maintains
with the Bank to cover the foregoing.
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<PAGE> 6
Please indicate your agreement with the terms and conditions contained
in this letter by signing in the space provided below whereupon this letter
agreement shall take effect as a sealed instrument.
Very truly yours,
USTRUST
By: /s/ Frank L. Davis, III Vice President
--------------------------------------
Frank L. Davis, III
Vice President
Agreed and assented to under seal this 1st day of May, 1996.
IMPLANT SCIENCES CORPORATION
By: /s/ Anthony J. Armini
-----------------------
Anthony J. Armini
President
6
<PAGE> 1
Exhibit 10.10
COMMERCIAL PROMISSORY NOTE
/ / UNITED STATES TRUST COMPANY /X/ USTrust
40 Court Street 30 Court Street
Boston, MA 02108 Boston, MA 02108
$100,000 Boston, Massachusetts May 1, 1996
FOR VALUE RECEIVED, the undersigned (hereinafter, the "Borrower")
promise(s) to pay to the order of the banking institution named above next to
the box marked above with an "X" or the like (hereinafter, with any subsequent
holder, the "Bank") at an office of the Bank, the principal sum of One Hundred
Thousand ($100,000.00) Dollars, or such lesser amount as may be outstanding
under this Note with interest thereon, in accordance with the provisions which
are marked with an "X" or the like, below, or on demand if none are so marked.
INTEREST RATE (Check One)
Interest shall be determined in all instances based upon a 360 day year
and actual day months. Interest on the unpaid principal balance of the Note
shall accrue as follows:
/X/ FLOATING RATE. At the floating rate equal to 1.0 % per annum
above the Base Lending Rate (hereinafter defined), however in no
event shall said rate of interest be less than, if filled in,
_________% per annum at any time. The term "Base Lending Rate"
means the rate of interest established from time to time by the
Bank as its base lending rate and may or may not be the lowest
rate of interest charged by the Bank to any of its customers.
Changes in the Base Lending Rate shall take effect on the date
announced by the Bank unless otherwise specified in the
announcement.
/ / FIXED RATE. At the rate of _____________ percent per annum.
/ / DISCOUNT. Interest to maturity has been deducted from the
proceeds of the Note. Interest at the rate of _____________
percent per annum shall be paid on any amount not paid when due
hereunder until that amount and any such interest are so paid.
/ / OTHER.
INTEREST PAYMENTS (Check One)
Interest, at the rate set forth above, shall be paid by the Borrower to
the Bank as follows, or monthly in arrears if none are so marked:
/X/ PERIODICALLY. Monthly, but if filled in then ________________,
in arrears, with the first payment due on June 1, 1996 and
each subsequent payment due on
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<PAGE> 2
the like day of each consecutive calendar month, but if filled
in then calendar _______, thereafter.
/ / AT MATURITY. At the maturity of the Note.
/ / INTEREST INCLUDED IN REPAYMENTS. Interest is included in the
payment(s) to be made pursuant to the Repayment Provisions set
forth below.
/ / OTHER.
REPAYMENT PROVISIONS (Check One)
In addition to any Interest Payments to be made as indicated above, the
Borrower shall pay the Bank the principal sum set forth above as follows, or on
demand if none are so marked:
/ / TIME. _______________ days, but if filled in then __________
year(s), after the date hereof.
/ / INSTALLMENTS. In _________________ consecutive monthly, but if
filled in then ____________________, installments, of which each
but the last shall be and the last of which shall be equal to
the then unpaid principal balance of the Note plus all accrued
and unpaid interest thereon. The first such monthly, but if
filled in then _________________, installment shall be due on
_________________ , and each subsequent installment shall be
due on the like day of each consecutive month, but if filled in
then _______________ thereafter.
/X/ ON DEMAND. On Demand.
/ / PAYMENTS TO BE MADE UNTIL DEMAND. On demand with payments of
$______________ each to be made monthly, but if filled in then
_________________, unless and until such demand is made.
The first such payment shall be due on _________________, 19__,
and each subsequent installment shall be due on the like day of
each consecutive month, but if filled in then ____________
thereafter.
/ / OTHER.
CERTAIN DEFINITIONS
(a) Borrower. As used herein, "Borrower" means the persons and/or
entities named herein as borrower, and/or otherwise signing the
Note as maker, and each of them, jointly and severally if more
than one.
(b) Guarantor. As used herein, "Guarantor" means the endorser(s)
and/or guarantor(s) of the Note, and/or any guarantor(s) of any
obligations now existing and/or hereafter arising of the
Borrower to the Bank, any Affiliate (hereinafter defined) and/or
any Participant (hereinafter defined), and each of them, if at
all.
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<PAGE> 3
(c) Borrower and any Guarantor. As used herein, "Borrower and any
Guarantor" means all persons and/or entities which constitute
the Borrower, and if any, the Guarantor, and each of them.
(d) Affiliate. As used herein, "Affiliate" means any parent company
of the Bank, and all subsidiaries and/or affiliates of the Bank
and/or said parent company, now existing and/or hereafter
arising, and each of them.
(e) Participant. As used herein, "Participant" means any bank or
other lender acting as a participant under any loan arrangement
with the Borrower and any Guarantor, now existing and/or
hereafter arising, in which the Bank or any Affiliate is a
participant, including without limitation the Note if
applicable.
(f) Loan Documents. As used herein, "Loan Documents" means
documents, if any, which secure, evidence and/or relate to the
loan evidenced by the Note, including without limitation any
mortgages, security agreements, financing statements, loan
applications, pledges, collateral assignments, commitment
letters, loan agreements, and set-off rights contained in any
other instrument whatsoever, all the foregoing now existing
and/or hereafter arising, including, without limitation, the
Loan Agreement of even date executed by the Borrower and the
Bank (the "Loan Agreement").
(g) Note. As used herein, "Note" means this promissory note.
The Borrower and any Guarantor hereby certify, represent and covenant
to the Bank that the proceeds and basis of the loan evidenced by the Note are
for business and commercial purposes only, and that the proceeds of the Note
have not been and/or will not be used for personal (non-business), family,
household or agricultural purposes, and this has been relied on by the Bank.
The Borrower and any Guarantor shall pay to the Bank an administrative
late fee of the greater of twenty-five ($25.00) dollars or five (5%) percent of
any periodic payment under the Note not received by the Bank within fifteen (15)
days after the periodic payment is due. Neither the inclusion of this provision
nor the Borrower's or any Guarantor's payment of such an administrative late fee
shall excuse the Borrower and any Guarantor from timely making those payments
otherwise required to be made under the Note, or waive or limit any rights which
the Bank has under the Note. The obligation of the Borrower and any Guarantor to
pay such administrative late fees is in addition to all other payment
obligations of the Borrower and any Guarantor under the Note.
Upon any default under the Note, interest shall accrue thereafter on
the entire unpaid principal balance until the Note is paid in full at a rate per
annum ("Default Rate") equal to the aggregate of two percent (2%), plus the rate
provided in the Note. The Default Rate is separate and in addition to the
administrative late fee set forth herein for any principal and/or interest
installment under the Note not received by the Bank within fifteen (15) days
after the installment is due.
Any payments received by the Bank on account of the Note prior to
demand or acceleration shall be applied first to any costs, expenses, or charges
then owed the Bank by the Borrower; second, to accrued and unpaid interest; and
third, to the unpaid principal balance hereof. Any payments so
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<PAGE> 4
received after demand or acceleration shall be applied in such manner as the
Bank may determine in the Bank's sole discretion.
If the Note is not payable on demand, then on that date on which by the
terms hereof, the then entire principal balance of the Note is due, at all times
thereafter, the aggregate of the then unpaid principal balance of the Note, and
all accrued and unpaid interest not so paid shall be payable on demand. If the
Note is payable on demand, then the inclusion of the following default provision
shall not alter, affect, or otherwise limit the Bank's right to make demand at
any time. The Bank, at its option, may declare the entire unpaid principal
balance of the Note and accrued unpaid interest thereon to be immediately due
and payable without demand, notice or protest (which are hereby waived) upon the
occurrence of any one or more of the following events (herein, "Events of
Default"): (a) The failure by the Borrower to pay upon demand (or when due, if
not payable on demand) any of the Borrower's liabilities, obligations, and
indebtedness to the Bank, any Affiliate and/or any Participant under the Note
and/or the Loan Documents; (b) The failure by the Borrower to promptly,
punctually, and faithfully perform, discharge, or comply with any of the
Borrower's liabilities, obligations, indebtedness, or covenants to the Bank, any
Affiliate and/or any Participant under the Note and/or the Loan documents; (c)
The occurrence of any event of default under any agreement between the Bank and
the Borrower, or instrument or paper given the Bank by the Borrower, whether
such agreement, instrument, or paper now exists or hereafter arises
(notwithstanding that the Bank may not have exercised its rights upon default
under any such other agreement, instrument, or paper), including, without
limitation, the occurrence of an Event of Default (as defined therein) under the
Commercial Promissory Note of even date in the original principal amount of
$300,000.00 made payable by the Borrower in favor of the Bank (the liabilities,
obligations, indebtedness, and covenants described in (a), (b) and (c) are
referred to herein as the "Liabilities"); (d) Any representation or warranty
heretofore, now, or hereafter made by the Borrower and any Guarantor to the
Bank, in any document, instrument, agreement, or paper was not true or accurate
when given; (e) The occurrence of any event such that any indebtedness of the
Borrower and any Guarantor to any creditor other than the Bank could be
accelerated, notwithstanding that such acceleration has not taken place; (f) Any
act by, against, or relating to the Borrower and any Guarantor, or the property
or assets of the Borrower and any Guarantor, which act constitutes the
application for, consent to, or sufferance of the appointment of a receiver,
trustee, or other person, pursuant to a court action or otherwise, over all, or
any part of the property of the Borrower and any Guarantor; the granting of any
trust mortgage or execution of an assignment for the benefit of creditors of the
Borrower and any Guarantor, or the occurrence of any other voluntary or
involuntary liquidation or extension of debt agreement for the Borrower and any
Guarantor; the failure by the Borrower and any Guarantor to generally pay the
debts of the Borrower and any Guarantor as they mature; adjudication of
bankruptcy or insolvency relative to the Borrower and any Guarantor: the entry
of an order for relief or similar order with respect to the Borrower and any
Guarantor in any proceeding pursuant to Title 11 of the United States Code, as
amended (commonly referred to as the Bankruptcy Code) or any other federal
bankruptcy law; the filing of any complaint, application, or petition by or
against (however, if against, only if not dismissed within 30 days of the
filing) the Borrower and any Guarantor initiating any matter in which the
Borrower and any Guarantor is or may be granted any relief from the debts of the
Borrower and any Guarantor pursuant to the Bankruptcy Code or any other
insolvency statute or procedure: the calling or sufferance of a meeting of
creditors of the Borrower and any Guarantor; the meeting by the Borrower and any
Guarantor with a formal or informal creditor's committee; the offering by, or
entering into by, the Borrower and any
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<PAGE> 5
Guarantor of any composition, extension or any other arrangement seeking relief
or extension for the debts of the Borrower and any guarantor, or the initiation
of any other judicial or non-judicial proceeding or agreement by, against
(however, if against, only if not dismissed within 30 days of the filing), or
including the borrower and any Guarantor which seeks or intends to accomplish a
reorganization or arrangement with creditors; (g) The imposition of any lien
upon any material portion of the assets of the Borrower and any Guarantor or the
entry of any judgment against the Borrower and any Guarantor, which lien is not
discharged or judgment is not satisfied or appealed from (with execution or
similar process stayed) within fifteen (15) days of its imposition or entry; (h)
The occurrence of any materially adverse event or circumstance with respect to
the Borrower and any Guarantor such that the Bank deems itself insecure; (i) The
entry of any court order which enjoins, restrains or in any way prevents the
Borrower from conducting all or any part of Borrower's business affairs in the
ordinary course; (j) The service of any process upon the Bank seeking to attach
by mesne or trustee process any funds of the Borrower on deposit with the Bank
or with an Affiliate of the Bank; (k) The occurrence of any loss, theft, damage
or destruction to or of any material portion of the assets of the Borrower and
any guarantor, or the sale (other than sales in the ordinary course of business)
or encumbrance to or of any of the assets of the Borrower and any guarantor; (l)
The death, termination of existence, dissolution, winding up, or liquidation of
the Borrower and any Guarantor; (m) The merger or consolidation of the Borrower
and any guarantor with or into any other corporation or other entity; (n) The
occurrence of any of the foregoing Events of Default with respect to any
guarantor, endorser, or surety to the Bank of the Liabilities, or the occurrence
of any of the foregoing Events of Default with respect to any parent (if the
Borrower is a corporation), subsidiary, or affiliate of the Borrower, as if such
guarantor, endorser, surety, parent, subsidiary, or affiliate were the Borrower
described therein; and/or (o) The termination of any guaranty by any guarantor
of the Liabilities.
The Borrower and any Guarantor respectively waive presentment, demand,
notice, and protest, and also waive any delay on the part of the holder hereof.
Each assents to any extension or other indulgence (including, without
limitation, the release or substitution of collateral) permitted the Borrower
and any Guarantor by the Bank with respect to the Note and/or any collateral
given to secure the Note or any extension or other indulgence, as described
above, with respect to any other liability or any collateral given to secure any
other liability of the borrower and any Guarantor to the Bank. All monies due
under the Note and/or Loan Documents shall be without setoff or counterclaim on
the part of the Borrower and any Guarantor.
Any and all now existing and/or hereafter arising deposits, or other
sums at any time credited by, or due to, the Borrower and/or any Guarantor from
the Bank, any Affiliate and/or any Participant, including without limitation,
being a participant under the Note, if at all, and any now existing and/or
hereafter arising monies, securities, instrument, certificates, repurchase
agreements, and/or other property of the Borrower and any Guarantor in the
possession of the Bank, any Affiliate and/or any Participant, regardless of the
reason the Bank of such Affiliate or Participant had received same (all the
foregoing collectively called "Deposits") shall at all times constitute security
for the Liabilities including the Note, and/or for any endorsement of the Note
and/or guaranty by any Guarantor (said endorsement of the Note and/or guaranty
by any Guarantor hereinafter called "Guaranty Obligations"), and may be held,
applied and/or set off by the Bank, any Affiliate and/or any Participant against
the Liabilities and/or Guaranty obligations at any time when due, whether or not
other collateral is held by or otherwise available to the Bank, any Affiliate
and/or any Participant,
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<PAGE> 6
whether such collateral be security in full or in part. Without limitation, and
in addition to the foregoing, in the event the Bank, any Affiliate or any
Participant at any time or times hereafter is served with trustee process of any
kind which attach or order any payment from any goods, effects and/or credits of
the Borrower and any guarantor in the hands or possession of the Bank, any
Affiliate or any Participant, then the Bank, any Affiliate and/or any
Participant without notice or demand to the Borrower and any Guarantor may deem
the dollar amount set forth in the trustee process as becoming immediately due
and payable under the Note, any endorsement and/or guaranty by any Guarantor,
and/or any other loan arrangement with the Borrower, and set off said amount
against any Deposits being held by the Bank, any Affiliate and/or any
Participant, and any such payment made by said setoff shall be applied as the
Bank, any Affiliate or any Participant shall in its sole discretion determine,
and when applied to any outstanding principal, may be applied in inverse order
of maturity. The Borrower and any Guarantor hereby grant to the Bank, any
Affiliate and/or any Participant a security interest in the Deposits to secure
all obligations of the Borrower and any Guarantor, or any one or more persons or
entities comprising the Borrower and any Guarantor, to the Bank, any Affiliate
and/or any Participant under the liabilities and/or the Guaranty Obligations.
The Borrower and any Guarantor hereby authorize the Bank, any Affiliate and/or
any Participant to charge the Deposits which the Borrower and any Guarantor may
at any time maintain with the Bank, and Affiliate and/or any Participant for any
payment due on account of the Liabilities and/or the Guaranty Obligations. The
Borrower and any Guarantor agree that the rights to set off against Deposits and
to charge Deposits granted herein by the borrower and any Guarantor to the Bank,
any Affiliate or any Participant (a) are irrespective of the source or
contributor(s) of funds or other property which comprise the deposits, whether
or not the Deposits, Liabilities and/or Guaranty Obligations are (i) individual
and/or joint of the Borrower and any Guarantor, or any one or more persons or
entities comprising the Borrower and any Guarantor and/or (ii) in the name of or
by the Borrower and any Guarantor, or any one or more persons or entities
comprising the Borrower and any Guarantor, with another or others; and (b) are
at the option of the Bank, any Affiliate or any Participant, and in no event is
the Bank, any Affiliate or any Participant under a duty to exercise setoff
against Deposits or to charge Deposits.
The Borrower and any Guarantor agree that the Bank and any Affiliate
shall have the right at any time, and from time to time, with or without notice
to the Borrower and any Guarantor to enter into any participation agreement(s)
with other(s) which grants participation interests to the Bank and other(s) (a)
in the Note and any loan evidenced by the Note and the Loan Documents, (b) in
any other loan or loans, including promissory notes and all loan documents
applicable thereto, now existing and/or hereafter arising, by the Borrower
and/or any Guarantor with the Bank and/or any Affiliate, and/or (c) in any other
loan or loans, including promissory notes and all loan documents applicable
thereto, now existing and/or hereafter arising, by the Borrower and/or any
Guarantor with any other bank(s) or other lender(s). In addition, the Borrower
and any Guarantor agree that the Bank, any Affiliate and/or any Participant
and/or any other holder of the Note shall have the right to sell or otherwise
transfer the Note and/or any Loan Documents at any time.
In the event at any time the Borrower and any Guarantor has a claim,
cause of action, setoff, defense, counterclaim or third party claim
(collectively "Borrower Claim") against the Bank and/or any Affiliate, the
Borrower and any Guarantor agree to commence a lawsuit and/or other proceeding
on the Borrower Claim against the Bank only in Boston, Massachusetts or such
other place where the Bank has its principal place of business, and only within
a period of one year from the time the
6
<PAGE> 7
Borrower Claim first arises, or such other minimum period permitted by law in
the event the court finds the one-year period insufficient.
The Borrower agrees not to seek or accept contribution, reimbursement,
indemnity, subrogation or enforcement of any rights from anyone also obligated
under the Note, as maker, guarantor, endorser or otherwise, if at all; and any
Guarantor agrees not to seek or accept contribution, reimbursement, indemnity,
subrogation or enforcement of any rights from the Borrower, and any other
guarantor or endorser hereof, or anyone otherwise obligated under the Note; all
the foregoing in this paragraph until all obligations under the Note are paid in
full and no claim whatsoever exists and/or may exist against the Bank, any
Affiliate, and/or Participant for repayment, a preference payment in bankruptcy,
or otherwise in connection with the Borrower and any Guarantor.
The Borrower and any Guarantor agree to indemnify, defend and hold
harmless the Bank, any Affiliate, and/or any officer, director and/or employee
of the Bank and/or any Affiliate of and from any claim or claims now existing,
hereafter arising and/or hereafter brought and/or threatened by the Borrower and
any Guarantor or by any other person or entity, in connection therewith, on
account of or relating to any relationship and/or dealings with the Borrower and
any Guarantor, including without limitation any person or entity contesting the
validity or priority of any mortgage(s) and/or other collateral granted to the
Bank.
The Borrower and any Guarantor agree to promptly pay to the Bank and
any Affiliate for all legal services hereafter rendered to the Bank and/or any
Affiliate including all time, legal fees and expenses, in connection with the
review, drafting, preparation for enforcement, negotiation, enforcement,
amendment, extension, substitution and/or modification of the Note, any
endorsement and/or guaranty thereof, any endorsement and/or guaranty of the
obligations of the Borrower to the Bank, any Loan Documents, any other
instruments securing or otherwise relating to the Note, any other matters
relating to the collection of the loan proceeds and/or realization on any
collateral given to the Bank, any bankruptcy and/or foreclosure proceedings,
procedures and expenses which relate to the Borrower and any Guarantor and/or
any mortgage(s) and/or other collateral given by the Borrower and any Guarantor,
and all rights and remedies of the Bank, whether now existing and/or hereafter
arising against the Borrower and any Guarantor and/or any collateral given by
the Borrower and any Guarantor to the Bank, whether or not court proceedings are
brought. The responsibility set forth anywhere in the Note of Borrower and any
Guarantor to pay for the attorneys time, legal fees and expenses of the Bank
and/or any Affiliate shall include both outside counsel engaged by the Bank, and
any in-house counsel employed by the Bank and/or any Affiliate at the same rate
as comparable outside counsel.
IN ANY CASE, CONTROVERSY OR MATTER WHICH ARISES OUT OF, OR IS IN
RESPECT OF, THE NOTE AND/OR LOAN EVIDENCED THEREBY, ANY LOAN DOCUMENTS, ANY
COLLATERAL SECURING THE NOTE, ANY OTHER INSTRUMENT IN CONNECTION WITH THE NOTE,
AND/OR ANY OTHER BUSINESS RELATIONSHIP OR TRANSACTION BETWEEN THE BANK AND/OR
ANY AFFILIATE WITH THE BORROWER AND ANY GUARANTOR, WHETHER NOW EXISTING OR
HEREAFTER ARISING, THE BORROWER AND ANY GUARANTOR KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY: (A) WAIVE ANY RIGHT TO AND AGREE NOT TO BRING,
7
<PAGE> 8
COMMENCE, OR OTHERWISE TAKE ANY ACTION TO TRANSFER, ANY PROCEEDING INCLUDING
WITHOUT LIMITATION COURT ACTION, ARBITRATION, MEDIATION, ADMINISTRATIVE
PROCEEDING OR OTHERWISE AGAINST THE BANK AND/OR ANY AFFILIATE, OTHER THAN IN THE
COMMONWEALTH OF MASSACHUSETTS; (B) WAIVE ANY NOW EXISTING AND/OR HEREAFTER
ARISING RIGHT TO A TRIAL BY JURY; AND (C) WAIVE ANY NOW EXISTING AND/OR
HEREAFTER ARISING RIGHT TO ANY CONSEQUENTIAL PUNITIVE, SPECIAL, EXEMPLARY AND/OR
INCIDENTAL DAMAGES.
The Borrower and any Guarantor shall maintain full and accurate books
and records showing in detail the income and expenses, and assets and
liabilities, of the borrower and any guarantor and any mortgaged premises which
may secure the Note and/or any endorsement and/or guaranty by any Guarantor;
and, upon request from the Bank, shall permit the Bank and/or its
representatives to examine and make copies of the books and records of the
Borrower and any Guarantor and any mortgaged premises which may secure the Note
and/or any endorsement and/or guaranty by any Guarantor. The Borrower and any
Guarantor shall deliver to the Bank annual financial statements including
without limitation a statement of assets, liabilities and net worth and shall
deliver to the Bank all other financial information required under the Loan
Agreement.
At all times when the security for the Note and/or any endorsement
and/or guaranty by any Guarantor includes real estate, the Borrower and any
Guarantor agree that the Bank and any Affiliate and representatives shall have
the right at any time hereafter to enter the mortgaged premises (a) for purposes
of inspecting and testing for hazardous material and oils to determine whether
or not the premises violate any provisions of M.G.L. ch. 21E and regulations
relating thereto, and/or (b) for purposes of appraising the mortgaged premises.
Any default under the Note shall be a default by the Borrower and any
Guarantor under any other promissory note and/or other instrument by the
Borrower and any Guarantor to the Bank, any Affiliate and/or any Participant,
now existing or hereafter arising. Any default by the Borrower under any other
promissory note and/or other instrument by the Borrower and any Guarantor to the
Bank, any Affiliate and/or any Participant now existing or hereafter arising,
shall be a default under the Note and Loan Documents. All mortgages and/or other
collateral from the Borrower to the Bank and/or any Affiliate, if any, now
existing or hereafter arising, shall also secure the obligations of the Borrower
under the Note. All mortgages and/or other collateral, if any, which secure the
Note shall also secure all promissory notes and other obligations of the
Borrower to the Bank, now existing or hereafter arising, whereof individual
and/or joint of the Borrower, or any one or more persons or entities comprising
the Borrower.
AT THE DUE DATE OF THE NOTE (AT MATURITY, UPON EARLIER ACCELERATION, OR
IN THE EVENT THE NOTE IS A DEMAND NOTE), THE BANK MAY DEMAND PAYMENT OF THE
NOTE, MAY REWRITE THE NOTE BY AGREEMENT AT A GREATER OR LESSER RATE OF INTEREST,
OR MAY, BY AGREEMENT, ALLOW PAYMENTS TO BE MADE ON SAID NOTE AT THE SAME, OR A
LESSER OR A GREATER RATE OF INTEREST, IF AT ALL, THE NOTE IS A CONTRACT FOR A
SHORT-TERM LOAN. THE LOAN IS PAYABLE IN FULL AT MATURITY, UPON EARLIER
ACCELERATION, OR IN THE EVENT THE NOTE IS A DEMAND NOTE. THE BORROWER MUST REPAY
THE ENTIRE PRINCIPAL BALANCE OF THE LOAN AND UNPAID INTEREST WHEN DUE. THE
8
<PAGE> 9
BANK IS UNDER NO OBLIGATION TO REFINANCE THE LOAN AT THAT TIME. THE BORROWER
WILL, THEREFORE, BE REQUIRED TO MAKE PAYMENT OUT OF OTHER ASSETS THE BORROWER
MAY OWN, OR WILL HAVE TO FIND ANOTHER BANK OR LENDER WILLING TO LEND THE
BORROWER THE MONEY AT PREVAILING MARKET RATES, WHICH MAY BE CONSIDERABLY HIGHER
THAN THE INTEREST RATE ON THE LOAN.
Within ten (10) days after requested by the Bank by notice to the
Borrower, Borrower and any Guarantor agree to execute and deliver to the Bank a
written statement addressed to the Bank, any Affiliate, any Participant and/or
proposed Participant, and signed by the Borrower and any Guarantor under the
penalties of perjury, and duly notarized, acknowledging the principal and
interest balances then due under the Note, and further acknowledging that the
Note is in full force and effect and unmodified, that the Borrower and any
Guarantor have no defenses, offsets or counterclaims to the payment and/or
performance of the obligations of the Borrower and any Guarantor under the Note,
and have no claims or causes of action of any kind whatsoever then existing
against the Bank, any Affiliate and/or Participant, and a statement that the
Bank is not in default under the Note or any loan or other agreement relating to
the Note or any obligations evidenced thereby, all the foregoing in this
sentence except as may otherwise exist in which event he Borrower shall specify
what otherwise exists, and a statement regarding such other matters which the
Bank may require.
In the event that prior to the recording of any mortgage, financing
statement or other collateral instrument, if any, given herewith by the Borrower
and any Guarantor to the Bank, there shall exist or otherwise be made known to
the Bank or any Affiliate, any voluntary or involuntary creation or occurrence,
of any encumbrance, mortgage, lien, attachment, or other security interest on or
in any real or personal property given herewith by the Borrower and any
Guarantor as collateral to the Bank, or any portion thereof (except as otherwise
specifically permitted, if at all, in any of the Loan Documents), or the
transfer of such real or personal property or any portion thereof or any legal
or beneficial interest therein, or the Borrower and any Guarantor become the
subject of a bankruptcy petition, assignment for the benefit of creditors, or
any arrangement with creditors, or any restraining order or injunction exists
against the Borrower and any Guarantor, at the option of the Bank all
obligations of the Bank to make the loan and/or advance monies pursuant to any
loan agreement, of which the Note evidences the loan in whole or in part, shall
be void, and the Note shall become immediately due and payable without notice or
demand to the extent of all monies due thereunder which have previously been
paid by the Bank.
The Borrower and any Guarantor acknowledge that the Bank has notified
and does hereby notify the Borrower and any Guarantor as follows:
(a). THE RESPONSIBILITY OF THE ATTORNEY FOR THE BANK IS TO PROTECT
THE INTEREST OF THE BANK;
(b). THE BORROWER AND ANY GUARANTOR MAY, AT BORROWER'S OR
GUARANTOR'S OWN EXPENSE, ENGAGE AN ATTORNEY OF THEIR OWN
SELECTION TO REPRESENT THE BORROWER'S OR GUARANTOR'S OWN
INTERESTS IN THE TRANSACTION.
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<PAGE> 10
No delay or omission by the Bank in exercising or enforcing any of the
Bank's powers, rights, privileges, remedies, or discretions hereunder shall
operate as a waiver thereof on that occasion nor on any other occasion. No
waiver of any default hereunder shall operate as a waiver of any other default
hereunder, nor as a continuing waiver. The Note shall be binding upon the
Borrower and each endorser and guarantor hereof and upon their respective heirs,
successors, assigns, and representatives, and shall inure to the benefit of the
Bank and its successors, endorsees, and assigns. The Borrower and any Guarantor
each authorizes the Bank to complete the Note if delivered incomplete in any
respect by the Borrower and any Guarantor. The Note is delivered to the Bank at
one of its offices in Massachusetts, shall be governed by the laws of the
Commonwealth of Massachusetts, and shall take effect as a sealed instrument. The
Borrower and any Guarantor of the Note each submits to the jurisdiction of the
courts of the Commonwealth of Massachusetts for all purposes with respect to the
Note, any collateral given to secure their respective liabilities, obligations
and indebtedness to the Bank, and their respective relationships with the Bank.
The Borrower and any Guarantor agree that all assets in which the Borrower and
any Guarantor have previously granted or hereafter grant to the Bank or any
Affiliate a security, mortgage or collateral interest shall secure the
Liabilities and Guaranty Obligations. The Note includes all future amendments,
decreases, extensions, increases, modifications, renegotiations, renewals,
replacements, revisions, rewritings and/or substitutions thereof, in whole or in
part ("Modifications/Substitutions"). The Borrower and any Guarantor agree that
any mortgages and/or other collateral, if any, which may secure the Note, secure
all Modifications/Substitutions of the Note, if any, now existing and/or
hereafter arising, and include all future Modifications/Substitutions of such
mortgages and/or other collateral, if any, now existing and/or hereafter
arising. To the maximum extent permitted by law, except for payments made on
account of the Note which reduce the monies due under the Note, all other
provisions of the Note, shall survive (a) the payment of all principal and
interest obligations of the borrower and any Guarantor under the Note, (b) any
termination, release or discharge of the principal and interest obligations of
the Borrower and any Guarantor to the Bank and/or any Affiliate, and (c) the
discharge or satisfaction of any mortgage, security agreement and/or other
collateral, if any, which may at any time secure the Note. Any prepayment of the
Note shall be applied to principal in inverse order of maturity. Time of all
payments and provisions hereof is of strict essence. In the event more than one
person or entity comprises the Borrower, all provisions herein of the Borrower
are joint and several obligations. The Borrower and any Guarantor acknowledge
and agree and say under the penalties of perjury that (a) each is executing the
Note as the free act and deed of each, (b) each is not acting under any duress
or undue influence, and (c) the Bank and/or any Affiliate have made no
agreements, warranties, representations or promises in connection with the Note
and/or any loan agreements or other agreements relating to the Note, except as
set forth herein or in a written instrument executed and delivered by the Bank.
The provisions of the Note are hereby declared to be severable, and the
invalidity of any provision or application thereof shall not effect any other
provision or any other application thereof. Interest on principal under the Note
shall accrue only on the amount of principal from time to time actually
outstanding under the Note. The Bank records, including without limitation,
computer printout of the Bank showing an account of the Borrower, shall be
admissible as evidence in any action or proceeding in connection with the Note,
and shall constitute prima facie evidence of the items contained therein. The
Note may not be modified orally, but may only be modified by written instrument
signed by the holder hereof.
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<PAGE> 11
In the event the Borrower and any Guarantor is a trust or corporation,
each person signing below in behalf of said entity personally and individually
certifies to the Bank that the person(s) executing the Note (a) is a trustee of
any applicable trust, or an officer of any applicable corporation, and (b) has
been duly authorized, empowered and directed to execute and deliver the Note
and, if any, all other instruments securing or otherwise relating to the Note,
and any other agreements or instruments determined by such person in such
person's sole discretion to be appropriate or incidental to the loan evidenced
by the Note, all in such form and with such modifications, substitutions,
renewals, replacements, revisions, amendments and/or additions as such person
from time to time deems proper, in the name of an in behalf of said entity (i)
in the case of a trust, by a written instrument signed by all beneficiaries and
delivered to the trustee, and/or (ii) in the case of a corporation, unanimously
by all the stockholders and directors of the corporation, at a meeting duly held
or by written consent in lieu of meeting, duly filed with the records of the
minutes of the corporation.
The Borrower has read all of the terms and conditions of the Note and
acknowledges receipt of an exact copy of it.
WITNESS Signed in my Presence MAKERS(S) ("Borrower")
IMPLANT SCIENCES CORPORATION
<TABLE>
<S> <C>
/s/ Stephen N. Bunker /s/ Anthony J. Armini
--------------------- ------------------------------------
Print Name: Stephen N. Bunker Witness Print Name: Anthony J. Armini Title, if applicable: President
----------------- ----------------- ----------
Address:
-------------------------------------------------------
-------------------------------------------------------
</TABLE>
For good and valuable consideration, the receipt and sufficiency of which are
acknowledged, each of the undersigned endorses the Note, guarantees to the Bank
the payment and performance of the borrower's obligations under the Note,
acknowledges reading the Note in its entirety, agrees to be jointly and
severally (if more than one) liable and bound to the Bank and any Affiliate
under all provisions of the Note, agrees to be jointly and severally liable with
the Borrower for all obligations under the Note, and agrees that all obligations
hereunder and such endorsement and guaranty shall take effect under seal.
/s/ Stephen N. Bunkder /s/ Anthony J. Armini
- ---------------------------- -----------------------------------
Witness
Print Name: Stephen N. Bunker Print Name: Anthony J. Armini, individually
------------------ --------------------------------
Address:
----------------------------------
11
<PAGE> 1
Exhibit 10.11
COMMERCIAL PROMISSORY NOTE
/ / UNITED STATES TRUST COMPANY /X/USTrust
40 Court Street 30 Court Street
Boston, MA 02108 Boston, MA 02108
$300,000 Boston, Massachusetts May 1, 1996
FOR VALUE RECEIVED, the undersigned (hereinafter, the "Borrower")
promise(s) to pay to the order of the banking institution named above next to
the box marked above with an "X" or the like (hereinafter, with any subsequent
holder, the "Bank") at an office of the Bank, the principal sum of Three Hundred
Thousand ($300,000) Dollars or such lesser amount as may be outstanding, with
interest thereon, in accordance with the provisions which are marked with an "X"
or the like, below, or on demand if none are so marked.
INTEREST RATE (Check One)
Interest shall be determined in all instances based upon a 360 day year
and actual day months. Interest on the unpaid principal balance of the Note
shall accrue as follows:
/X/ FLOATING RATE. At the floating rate equal to 1.75 % per annum
above the Base Lending Rate (hereinafter defined), however in
no event shall said rate of interest be less than, if filled
in, _________% per annum at any time. The term "Base Lending
Rate" means the rate of interest established from time to time
by the Bank as its base lending rate and may or may not be the
lowest rate of interest charged by the Bank to any of its
customers. Changes in the Base Lending Rate shall take effect
on the date announced by the Bank unless otherwise specified
in the announcement.
/ / FIXED RATE. At the rate of _____________ percent per annum.
/ / DISCOUNT. Interest to maturity has been deducted from the
proceeds of the Note. Interest at the rate of _____________
percent per annum shall be paid on any amount not paid when
due hereunder until that amount and any such interest are so
paid.
/ / OTHER.
INTEREST PAYMENTS (Check One)
Interest, at the rate set forth above, shall be paid by the Borrower to
the Bank as follows, or monthly in arrears if none are so marked:
/X/ PERIODICALLY. Monthly, but if filled in then ______________,
in arrears, with the first payment due on June 1, 1996
and each subsequent payment due on
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<PAGE> 2
the like day of each consecutive calendar month, but if filled
in then calendar _______, thereafter.
/ / AT MATURITY. At the maturity of the Note.
/ / INTEREST INCLUDED IN REPAYMENTS. Interest is included in the
payment(s) to be made pursuant to the Repayment Provisions set
forth below.
/ / OTHER.
REPAYMENT PROVISIONS (Check One)
In addition to any Interest Payments to be made as indicated above, the
Borrower shall pay the Bank the principal sum set forth above as follows, or on
demand if none are so marked:
/ / TIME. __________ days, but if filled in then __________ year(s),
after the date hereof.
/X/ INSTALLMENTS. In 54 consecutive monthly, but if filled in then
____________________, installments, of which each but the last
shall be in an amount necessary to amortize the outstanding
principal balance of the Note as of October 31, 1996 on a 54
month straight line amortization schedule and the last of which
shall be equal to the then unpaid principal balance of the Note
plus all accrued and unpaid interest thereon. The first such
monthly, but if filled in then _________________, installment
shall be due on November 1, 1996, and each subsequent
installment shall be due on the like day of each consecutive
month, but if filled in then ____________ thereafter.
/ / ON DEMAND. On Demand.
/ / PAYMENTS TO BE MADE UNTIL DEMAND. On demand with payments of
$______________ each to be made monthly, but if filled in then
________________, unless and until such demand is made. The
first such payment shall be due on _______________, 19__, and
each subsequent installment shall be due on the like day of each
consecutive month, but if filled in then ___________ thereafter.
/ / OTHER.
CERTAIN DEFINITIONS
(a) Borrower. As used herein, "Borrower" means the persons and/or
entities named herein as borrower, and/or otherwise signing the
Note as maker, and each of them, jointly and severally if more
than one.
(b) Guarantor. As used herein, "Guarantor" means the endorser(s)
and/or guarantor(s) of the Note, and/or any guarantor(s) of any
obligations now existing and/or hereafter
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<PAGE> 3
arising of the Borrower to the Bank, any Affiliate (hereinafter
defined) and/or any Participant (hereinafter defined), and each
of them, if at all.
(c) Borrower and any Guarantor. As used herein, "Borrower and any
Guarantor" means all persons and/or entities which constitute
the Borrower, and if any, the Guarantor, and each of them.
(d) Affiliate. As used herein, "Affiliate" means any parent company
of the Bank, and all subsidiaries and/or affiliates of the Bank
and/or said parent company, now existing and/or hereafter
arising, and each of them.
(e) Participant. As used herein, "Participant" means any bank or
other lender acting as a participant under any loan arrangement
with the Borrower and any Guarantor, now existing and/or
hereafter arising, in which the Bank or any Affiliate is a
participant, including without limitation the Note if
applicable.
(f) Loan Documents. As used herein, "Loan Documents" means
documents, if any, which secure, evidence and/or relate to the
loan evidenced by the Note, including without limitation any
mortgages, security agreements, financing statements, loan
applications, pledges, collateral assignments, commitment
letters, loan agreements, and set-off rights contained in any
other instrument whatsoever, all the foregoing now existing
and/or hereafter arising, including, without limitation, the
Loan Agreement of even date executed by the borrower and the
Bank (the "Loan Agreement").
(g) Note. As used herein, "Note" means this promissory note.
The Borrower and any Guarantor hereby certify, represent and covenant
to the Bank that the proceeds and basis of the loan evidenced by the Note are
for business and commercial purposes only, and that the proceeds of the Note
have not been and/or will not be used for personal (non-business), family,
household or agricultural purposes, and this has been relied on by the Bank.
The Borrower and any Guarantor shall pay to the Bank an administrative
late fee of the greater of twenty-five ($25.00) dollars or five (5%) percent of
any periodic payment under the Note not received by the Bank within fifteen (15)
days after the periodic payment is due. Neither the inclusion of this provision
nor the Borrower's or any Guarantor's payment of such an administrative late fee
shall excuse the Borrower and any Guarantor from timely making those payments
otherwise required to be made under the Note, or waive or limit any rights which
the Bank has under the Note. The obligation of the Borrower and any Guarantor to
pay such administrative late fees is in addition to all other payment
obligations of the Borrower and any Guarantor under the Note.
Upon any default under the Note, interest shall accrue thereafter on
the entire unpaid principal balance until the Note is paid in full at a rate per
annum ("Default Rate") equal to the aggregate of two percent (2%), plus the rate
provided in the Note. The Default Rate is separate and in addition to the
administrative late fee set forth herein for any principal and/or interest
installment under the Note not received by the Bank within fifteen (15) days
after the installment is due.
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<PAGE> 4
Any payments received by the Bank on account of the Note prior to
demand or acceleration shall be applied first to any costs, expenses, or charges
then owed the Bank by the Borrower; second, to accrued and unpaid interest; and
third, to the unpaid principal balance hereof. Any payments so received after
demand or acceleration shall be applied in such manner as the Bank may determine
in the Bank's sole discretion.
If the Note is not payable on demand, then on that date on which by the
terms hereof, the then entire principal balance of the Note is due, at all times
thereafter, the aggregate of the then unpaid principal balance of the Note, and
all accrued and unpaid interest not so paid shall be payable on demand. If the
Note is payable on demand, then the inclusion of the following default provision
shall not alter, affect, or otherwise limit the Bank's right to make demand at
any time. The Bank, at its option, may declare the entire unpaid principal
balance of the Note and accrued unpaid interest thereon to be immediately due
and payable without demand, notice or protest (which are hereby waived) upon the
occurrence of any one or more of the following events (herein, "Events of
Default"): (a) The failure by the Borrower to pay upon demand (or when due, if
not payable on demand) any of the Borrower's liabilities, obligations, and
indebtedness to the Bank, any Affiliate and/or any Participant under the Note
and/or the Loan Documents; (b) The failure by the Borrower to promptly,
punctually, and faithfully perform, discharge, or comply with any of the
Borrower's liabilities, obligations, indebtedness, or covenants to the Bank, any
Affiliate and/or any Participant under the Note and/or the Loan documents; (c)
The occurrence of any event of default under any agreement between the Bank and
the Borrower, or instrument or paper given the Bank by the Borrower, whether
such agreement, instrument, or paper now exists or hereafter arises
(notwithstanding that the Bank may not have exercised its rights upon default
under any such other agreement, instrument, or paper), including, without
limitation, the occurrence of an Event of Default (as defined therein) under the
Commercial Promissory Note of even date in the original principal amount of
$100,000.00 made payable by the Borrower in favor of the Bank (the liabilities,
obligations, indebtedness, and covenants described in (a), (b) and (c) are
referred to herein as the "Liabilities"); (d) Any representation or warranty
heretofore, now, or hereafter made by the Borrower and any Guarantor to the
Bank, in any document, instrument, agreement, or paper was not true or accurate
when given; (e) The occurrence of any event such that any indebtedness of the
Borrower and any Guarantor to any creditor other than the Bank could be
accelerated, notwithstanding that such acceleration has not taken place; (f) Any
act by, against, or relating to the Borrower and any Guarantor, or the property
or assets of the Borrower and any Guarantor, which act constitutes the
application for, consent to, or sufferance of the appointment of a receiver,
trustee, or other person, pursuant to a court action or otherwise, over all, or
any part of the property of the Borrower and any Guarantor; the granting of any
trust mortgage or execution of an assignment for the benefit of creditors of the
Borrower and any Guarantor, or the occurrence of any other voluntary or
involuntary liquidation or extension of debt agreement for the Borrower and any
Guarantor; the failure by the Borrower and any Guarantor to generally pay the
debts of the Borrower and any Guarantor as they mature; adjudication of
bankruptcy or insolvency relative to the Borrower and any Guarantor: the entry
of an order for relief or similar order with respect to the Borrower and any
Guarantor in any proceeding pursuant to Title 11 of the United States Code, as
amended (commonly referred to as the Bankruptcy Code) or any other federal
bankruptcy law; the filing of any complaint, application, or petition by or
against (however, if against, only if not dismissed within 30 days of the
filing) the Borrower and any Guarantor initiating any matter in which the
Borrower and any Guarantor is or may be granted any relief from the debts of the
Borrower and any Guarantor pursuant to the
4
<PAGE> 5
Bankruptcy Code or any other insolvency statute or procedure: the calling or
sufferance of a meeting of creditors of the Borrower and any Guarantor; the
meeting by the Borrower and any Guarantor with a formal or informal creditor's
committee; the offering by, or entering into by, the Borrower and any Guarantor
of any composition, extension or any other arrangement seeking relief or
extension for the debts of the Borrower and any guarantor, or the initiation of
any other judicial or non-judicial proceeding or agreement by, against (however,
if against, only if not dismissed within 30 days of the filing), or including
the borrower and any Guarantor which seeks or intends to accomplish a
reorganization or arrangement with creditors; (g) The imposition of any lien
upon any material portion of the assets of the Borrower and any Guarantor or the
entry of any judgment against the Borrower and any Guarantor, which lien is not
discharged or judgment is not satisfied or appealed from (with execution or
similar process stayed) within fifteen (15) days of its imposition or entry; (h)
The occurrence of any materially adverse event or circumstance with respect to
the Borrower and any Guarantor such that the Bank deems itself insecure; (i) The
entry of any court order which enjoins, restrains or in any way prevents the
Borrower from conducting all or any part of Borrower's business affairs in the
ordinary course; (j) The service of any process upon the Bank seeking to attach
by mesne or trustee process any funds of the Borrower on deposit with the Bank
or with an Affiliate of the Bank; (k) The occurrence of any loss, theft, damage
or destruction to or of any material portion of the assets of the Borrower and
any guarantor, or the sale (other than sales in the ordinary course of business)
or encumbrance to or of any of the assets of the Borrower and any guarantor; (l)
The death, termination of existence, dissolution, winding up, or liquidation of
the Borrower and any Guarantor; (m) The merger or consolidation of the Borrower
and any guarantor with or into any other corporation or other entity; (n) The
occurrence of any of the foregoing Events of Default with respect to any
guarantor, endorser, or surety to the Bank of the Liabilities, or the occurrence
of any of the foregoing Events of Default with respect to any parent (if the
Borrower is a corporation), subsidiary, or affiliate of the Borrower, as if such
guarantor, endorser, surety, parent, subsidiary, or affiliate were the Borrower
described therein; and/or (o) The termination of any guaranty by any guarantor
of the Liabilities.
The Borrower and any Guarantor respectively waive presentment, demand,
notice, and protest, and also waive any delay on the part of the holder hereof.
Each assents to any extension or other indulgence (including, without
limitation, the release or substitution of collateral) permitted the Borrower
and any Guarantor by the Bank with respect to the Note and/or any collateral
given to secure the Note or any extension or other indulgence, as described
above, with respect to any other liability or any collateral given to secure any
other liability of the borrower and any Guarantor to the Bank. All monies due
under the Note and/or Loan Documents shall be without setoff or counterclaim on
the part of the Borrower and any Guarantor.
Any and all now existing and/or hereafter arising deposits, or other
sums at any time credited by, or due to, the Borrower and/or any Guarantor from
the Bank, any Affiliate and/or any Participant, including without limitation,
being a participant under the Note, if at all, and any now existing and/or
hereafter arising monies, securities, instrument, certificates, repurchase
agreements, and/or other property of the Borrower and any Guarantor in the
possession of the Bank, any Affiliate and/or any Participant, regardless of the
reason the Bank of such Affiliate or Participant had received same (all the
foregoing collectively called "Deposits") shall at all times constitute security
for the Liabilities including the Note, and/or for any endorsement of the Note
and/or guaranty by any Guarantor (said endorsement of the Note and/or guaranty
by any Guarantor hereinafter called "Guaranty
5
<PAGE> 6
Obligations"), and may be held, applied and/or set off by the Bank, any
Affiliate and/or any Participant against the Liabilities and/or Guaranty
obligations at any time when due, whether or not other collateral is held by or
otherwise available to the Bank, any Affiliate and/or any Participant, whether
such collateral be security in full or in part. Without limitation, and in
addition to the foregoing, in the event the Bank, any Affiliate or any
Participant at any time or times hereafter is served with trustee process of any
kind which attach or order any payment from any goods, effects and/or credits of
the Borrower and any guarantor in the hands or possession of the Bank, any
Affiliate or any Participant, then the Bank, any Affiliate and/or any
Participant without notice or demand to the Borrower and any Guarantor may deem
the dollar amount set forth in the trustee process as becoming immediately due
and payable under the Note, any endorsement and/or guaranty by any Guarantor,
and/or any other loan arrangement with the Borrower, and set off said amount
against any Deposits being held by the Bank, any Affiliate and/or any
Participant, and any such payment made by said setoff shall be applied as the
Bank, any Affiliate or any Participant shall in its sole discretion determine,
and when applied to any outstanding principal, may be applied in inverse order
of maturity. The Borrower and any Guarantor hereby grant to the Bank, any
Affiliate and/or any Participant a security interest in the Deposits to secure
all obligations of the Borrower and any Guarantor, or any one or more persons or
entities comprising the Borrower and any Guarantor, to the Bank, any Affiliate
and/or any Participant under the liabilities and/or the Guaranty Obligations.
The Borrower and any Guarantor hereby authorize the Bank, any Affiliate and/or
any Participant to charge the Deposits which the Borrower and any Guarantor may
at any time maintain with the Bank, and Affiliate and/or any Participant for any
payment due on account of the Liabilities and/or the Guaranty Obligations. The
Borrower and any Guarantor agree that the rights to set off against Deposits and
to charge Deposits granted herein by the borrower and any Guarantor to the Bank,
any Affiliate or any Participant (a) are irrespective of the source or
contributor(s) of funds or other property which comprise the deposits, whether
or not the Deposits, Liabilities and/or Guaranty Obligations are (i) individual
and/or joint of the Borrower and any Guarantor, or any one or more persons or
entities comprising the Borrower and any Guarantor and/or (ii) in the name of or
by the Borrower and any Guarantor, or any one or more persons or entities
comprising the Borrower and any Guarantor, with another or others; and (b) are
at the option of the Bank, any Affiliate or any Participant, and in no event is
the Bank, any Affiliate or any Participant under a duty to exercise setoff
against Deposits or to charge Deposits.
The Borrower and any Guarantor agree that the Bank and any Affiliate
shall have the right at any time, and from time to time, with or without notice
to the Borrower and any Guarantor to enter into any participation agreement(s)
with other(s) which grants participation interests to the Bank and other(s) (a)
in the Note and any loan evidenced by the Note and the Loan Documents, (b) in
any other loan or loans, including promissory notes and all loan documents
applicable thereto, now existing and/or hereafter arising, by the Borrower
and/or any Guarantor with the Bank and/or any Affiliate, and/or (c) in any other
loan or loans, including promissory notes and all loan documents applicable
thereto, now existing and/or hereafter arising, by the Borrower and/or any
Guarantor with any other bank(s) or other lender(s). In addition, the Borrower
and any Guarantor agree that the Bank, any Affiliate and/or any Participant
and/or any other holder of the Note shall have the right to sell or otherwise
transfer the Note and/or any Loan Documents at any time.
In the event at any time the Borrower and any Guarantor has a claim,
cause of action, setoff, defense, counterclaim or third party claim
(collectively "Borrower Claim") against the Bank and/or
6
<PAGE> 7
any Affiliate, the Borrower and any Guarantor agree to commence a lawsuit and/or
other proceeding on the Borrower Claim against the Bank only in Boston,
Massachusetts or such other place where the Bank has its principal place of
business, and only within a period of one year from the time the Borrower Claim
first arises, or such other minimum period permitted by law in the event the
court finds the one-year period insufficient.
The Borrower agrees not to seek or accept contribution, reimbursement,
indemnity, subrogation or enforcement of any rights from anyone also obligated
under the Note, as maker, guarantor, endorser or otherwise, if at all; and any
Guarantor agrees not to seek or accept contribution, reimbursement, indemnity,
subrogation or enforcement of any rights from the Borrower, and any other
guarantor or endorser hereof, or anyone otherwise obligated under the Note; all
the foregoing in this paragraph until all obligations under the Note are paid in
full and no claim whatsoever exists and/or may exist against the Bank, any
Affiliate, and/or Participant for repayment, a preference payment in bankruptcy,
or otherwise in connection with the Borrower and any Guarantor.
The Borrower and any Guarantor agree to indemnify, defend and hold
harmless the Bank, any Affiliate, and/or any officer, director and/or employee
of the Bank and/or any Affiliate of and from any claim or claims now existing,
hereafter arising and/or hereafter brought and/or threatened by the Borrower and
any Guarantor or by any other person or entity, in connection therewith, on
account of or relating to any relationship and/or dealings with the Borrower and
any Guarantor, including without limitation any person or entity contesting the
validity or priority of any mortgage(s) and/or other collateral granted to the
Bank.
The Borrower and any Guarantor agree to promptly pay to the Bank and
any Affiliate for all legal services hereafter rendered to the Bank and/or any
Affiliate including all time, legal fees and expenses, in connection with the
review, drafting, preparation for enforcement, negotiation, enforcement,
amendment, extension, substitution and/or modification of the Note, any
endorsement and/or guaranty thereof, any endorsement and/or guaranty of the
obligations of the Borrower to the Bank, any Loan Documents, any other
instruments securing or otherwise relating to the Note, any other matters
relating to the collection of the loan proceeds and/or realization on any
collateral given to the Bank, any bankruptcy and/or foreclosure proceedings,
procedures and expenses which relate to the Borrower and any Guarantor and/or
any mortgage(s) and/or other collateral given by the Borrower and any Guarantor,
and all rights and remedies of the Bank, whether now existing and/or hereafter
arising against the Borrower and any Guarantor and/or any collateral given by
the Borrower and any Guarantor to the Bank, whether or not court proceedings are
brought. The responsibility set forth anywhere in the Note of Borrower and any
Guarantor to pay for the attorneys time, legal fees and expenses of the Bank
and/or any Affiliate shall include both outside counsel engaged by the Bank, and
any in-house counsel employed by the Bank and/or any Affiliate at the same rate
as comparable outside counsel.
IN ANY CASE, CONTROVERSY OR MATTER WHICH ARISES OUT OF, OR IS IN
RESPECT OF, THE NOTE AND/OR LOAN EVIDENCED THEREBY, ANY LOAN DOCUMENTS, ANY
COLLATERAL SECURING THE NOTE, ANY OTHER INSTRUMENT IN CONNECTION WITH THE NOTE,
AND/OR ANY OTHER BUSINESS RELATIONSHIP OR TRANSACTION BETWEEN THE BANK AND/OR
ANY AFFILIATE WITH THE BORROWER
7
<PAGE> 8
AND ANY GUARANTOR, WHETHER NOW EXISTING OR HEREAFTER ARISING, THE BORROWER AND
ANY GUARANTOR KNOWINGLY, VOLUNTARILY AND INTENTIONALLY: (A) WAIVE ANY RIGHT TO
AND AGREE NOT TO BRING, COMMENCE, OR OTHERWISE TAKE ANY ACTION TO TRANSFER, ANY
PROCEEDING INCLUDING WITHOUT LIMITATION COURT ACTION, ARBITRATION, MEDIATION,
ADMINISTRATIVE PROCEEDING OR OTHERWISE AGAINST THE BANK AND/OR ANY AFFILIATE,
OTHER THAN IN THE COMMONWEALTH OF MASSACHUSETTS; (B) WAIVE ANY NOW EXISTING
AND/OR HEREAFTER ARISING RIGHT TO A TRIAL BY JURY; AND (C) WAIVE ANY NOW
EXISTING AND/OR HEREAFTER ARISING RIGHT TO ANY CONSEQUENTIAL PUNITIVE, SPECIAL,
EXEMPLARY AND/OR INCIDENTAL DAMAGES.
The Borrower and any Guarantor shall maintain full and accurate books
and records showing in detail the income and expenses, and assets and
liabilities, of the borrower and any guarantor and any mortgaged premises which
may secure the Note and/or any endorsement and/or guaranty by any Guarantor;
and, upon request from the Bank, shall permit the Bank and/or its
representatives to examine and make copies of the books and records of the
Borrower and any Guarantor and any mortgaged premises which may secure the Note
and/or any endorsement and/or guaranty by any Guarantor. The Borrower and any
Guarantor shall deliver to the Bank annual financial statements including
without limitation a statement of assets, liabilities and net worth and shall
deliver to the Bank all other financial information required under the Loan
Agreement.
At all times when the security for the Note and/or any endorsement
and/or guaranty by any Guarantor includes real estate, the Borrower and any
Guarantor agree that the Bank and any Affiliate and representatives shall have
the right at any time hereafter to enter the mortgaged premises (a) for purposes
of inspecting and testing for hazardous material and oils to determine whether
or not the premises violate any provisions of M.G.L. ch. 21E and regulations
relating thereto, and/or (b) for purposes of appraising the mortgaged premises.
Any default under the Note shall be a default by the Borrower and any
Guarantor under any other promissory note and/or other instrument by the
Borrower and any Guarantor to the Bank, any Affiliate and/or any Participant,
now existing or hereafter arising. Any default by the Borrower under any other
promissory note and/or other instrument by the Borrower and any Guarantor to the
Bank, any Affiliate and/or any Participant now existing or hereafter arising,
shall be a default under the Note and Loan Documents. All mortgages and/or other
collateral from the Borrower to the Bank and/or any Affiliate, if any, now
existing or hereafter arising, shall also secure the obligations of the Borrower
under the Note. All mortgages and/or other collateral, if any, which secure the
Note shall also secure all promissory notes and other obligations of the
Borrower to the Bank, now existing or hereafter arising, whereof individual
and/or joint of the Borrower, or any one or more persons or entities comprising
the Borrower.
AT THE DUE DATE OF THE NOTE (AT MATURITY, UPON EARLIER ACCELERATION, OR
IN THE EVENT THE NOTE IS A DEMAND NOTE), THE BANK MAY DEMAND PAYMENT OF THE
NOTE, MAY REWRITE THE NOTE BY AGREEMENT AT A GREATER OR LESSER RATE OF INTEREST,
OR MAY, BY AGREEMENT, ALLOW PAYMENTS TO BE MADE ON SAID NOTE AT THE SAME, OR A
LESSER OR A GREATER RATE OF INTEREST, IF AT ALL, THE NOTE IS A CONTRACT FOR A
SHORT-TERM LOAN.
8
<PAGE> 9
THE LOAN IS PAYABLE IN FULL AT MATURITY, UPON EARLIER ACCELERATION, OR IN THE
EVENT THE NOTE IS A DEMAND NOTE. THE BORROWER MUST REPAY THE ENTIRE PRINCIPAL
BALANCE OF THE LOAN AND UNPAID INTEREST WHEN DUE. THE BANK IS UNDER NO
OBLIGATION TO REFINANCE THE LOAN AT THAT TIME. THE BORROWER WILL, THEREFORE, BE
REQUIRED TO MAKE PAYMENT OUT OF OTHER ASSETS THE BORROWER MAY OWN, OR WILL HAVE
TO FIND ANOTHER BANK OR LENDER WILLING TO LEND THE BORROWER THE MONEY AT
PREVAILING MARKET RATES, WHICH MAY BE CONSIDERABLY HIGHER THAN THE INTEREST RATE
ON THE LOAN.
Within ten (10) days after requested by the Bank by notice to the
Borrower, Borrower and any Guarantor agree to execute and deliver to the Bank a
written statement addressed to the Bank, any Affiliate, any Participant and/or
proposed Participant, and signed by the Borrower and any Guarantor under the
penalties of perjury, and duly notarized, acknowledging the principal and
interest balances then due under the Note, and further acknowledging that the
Note is in full force and effect and unmodified, that the Borrower and any
Guarantor have no defenses, offsets or counterclaims to the payment and/or
performance of the obligations of the Borrower and any Guarantor under the Note,
and have no claims or causes of action of any kind whatsoever then existing
against the Bank, any Affiliate and/or Participant, and a statement that the
Bank is not in default under the Note or any loan or other agreement relating to
the Note or any obligations evidenced thereby, all the foregoing in this
sentence except as may otherwise exist in which event he Borrower shall specify
what otherwise exists, and a statement regarding such other matters which the
Bank may require.
In the event that prior to the recording of any mortgage, financing
statement or other collateral instrument, if any, given herewith by the Borrower
and any Guarantor to the Bank, there shall exist or otherwise be made known to
the Bank or any Affiliate, any voluntary or involuntary creation or occurrence,
of any encumbrance, mortgage, lien, attachment, or other security interest on or
in any real or personal property given herewith by the Borrower and any
Guarantor as collateral to the Bank, or any portion thereof (except as otherwise
specifically permitted, if at all, in any of the Loan Documents), or the
transfer of such real or personal property or any portion thereof or any legal
or beneficial interest therein, or the Borrower and any Guarantor become the
subject of a bankruptcy petition, assignment for the benefit of creditors, or
any arrangement with creditors, or any restraining order or injunction exists
against the Borrower and any Guarantor, at the option of the Bank all
obligations of the Bank to make the loan and/or advance monies pursuant to any
loan agreement, of which the Note evidences the loan in whole or in part, shall
be void, and the Note shall become immediately due and payable without notice or
demand to the extent of all monies due thereunder which have previously been
paid by the Bank.
The Borrower and any Guarantor acknowledge that the Bank has notified
and does hereby notify the Borrower and any Guarantor as follows:
(a). THE RESPONSIBILITY OF THE ATTORNEY FOR THE BANK IS TO PROTECT
THE INTEREST OF THE BANK;
(b). THE BORROWER AND ANY GUARANTOR MAY, AT BORROWER'S OR
GUARANTOR'S OWN EXPENSE, ENGAGE AN ATTORNEY OF THEIR OWN
9
<PAGE> 10
SELECTION TO REPRESENT THE BORROWER'S OR GUARANTOR'S OWN
INTERESTS IN THE TRANSACTION.
No delay or omission by the Bank in exercising or enforcing any of the
Bank's powers, rights, privileges, remedies, or discretions hereunder shall
operate as a waiver thereof on that occasion nor on any other occasion. No
waiver of any default hereunder shall operate as a waiver of any other default
hereunder, nor as a continuing waiver. The Note shall be binding upon the
Borrower and each endorser and guarantor hereof and upon their respective heirs,
successors, assigns, and representatives, and shall inure to the benefit of the
Bank and its successors, endorsees, and assigns. The Borrower and any Guarantor
each authorizes the Bank to complete the Note if delivered incomplete in any
respect by the Borrower and any Guarantor. The Note is delivered to the Bank at
one of its offices in Massachusetts, shall be governed by the laws of the
Commonwealth of Massachusetts, and shall take effect as a sealed instrument. The
Borrower and any Guarantor of the Note each submits to the jurisdiction of the
courts of the Commonwealth of Massachusetts for all purposes with respect to the
Note, any collateral given to secure their respective liabilities, obligations
and indebtedness to the Bank, and their respective relationships with the Bank.
The Borrower and any Guarantor agree that all assets in which the Borrower and
any Guarantor have previously granted or hereafter grant to the Bank or any
Affiliate a security, mortgage or collateral interest shall secure the
Liabilities and Guaranty Obligations. The Note includes all future amendments,
decreases, extensions, increases, modifications, renegotiations, renewals,
replacements, revisions, rewritings and/or substitutions thereof, in whole or in
part ("Modifications/Substitutions"). The Borrower and any Guarantor agree that
any mortgages and/or other collateral, if any, which may secure the Note, secure
all Modifications/Substitutions of the Note, if any, now existing and/or
hereafter arising, and include all future Modifications/Substitutions of such
mortgages and/or other collateral, if any, now existing and/or hereafter
arising. To the maximum extent permitted by law, except for payments made on
account of the Note which reduce the monies due under the Note, all other
provisions of the Note, shall survive (a) the payment of all principal and
interest obligations of the borrower and any Guarantor under the Note, (b) any
termination, release or discharge of the principal and interest obligations of
the Borrower and any Guarantor to the Bank and/or any Affiliate, and (c) the
discharge or satisfaction of any mortgage, security agreement and/or other
collateral, if any, which may at any time secure the Note. Any prepayment of the
Note shall be applied to principal in inverse order of maturity. Time of all
payments and provisions hereof is of strict essence. In the event more than one
person or entity comprises the Borrower, all provisions herein of the Borrower
are joint and several obligations. The Borrower and any Guarantor acknowledge
and agree and say under the penalties of perjury that (a) each is executing the
Note as the free act and deed of each, (b) each is not acting under any duress
or undue influence, and (c) the Bank and/or any Affiliate have made no
agreements, warranties, representations or promises in connection with the Note
and/or any loan agreements or other agreements relating to the Note, except as
set forth herein or in a written instrument executed and delivered by the Bank.
The provisions of the Note are hereby declared to be severable, and the
invalidity of any provision or application thereof shall not effect any other
provision or any other application thereof. Interest on principal under the Note
shall accrue only on the amount of principal from time to time actually
outstanding under the Note. The Bank records, including without limitation,
computer printout of the Bank showing an account of the Borrower, shall be
admissible as evidence in any action or proceeding in connection with the Note,
and shall constitute prima facie evidence of the items
10
<PAGE> 11
contained therein. The Note may not be modified orally, but may only be modified
by written instrument signed by the holder hereof.
In the event the Borrower and any Guarantor is a trust or corporation,
each person signing below in behalf of said entity personally and individually
certifies to the Bank that the person(s) executing the Note (a) is a trustee of
any applicable trust, or an officer of any applicable corporation, and (b) has
been duly authorized, empowered and directed to execute and deliver the Note
and, if any, all other instruments securing or otherwise relating to the Note,
and any other agreements or instruments determined by such person in such
person's sole discretion to be appropriate or incidental to the loan evidenced
by the Note, all in such form and with such modifications, substitutions,
renewals, replacements, revisions, amendments and/or additions as such person
from time to time deems proper, in the name of an in behalf of said entity (i)
in the case of a trust, by a written instrument signed by all beneficiaries and
delivered to the trustee, and/or (ii) in the case of a corporation, unanimously
by all the stockholders and directors of the corporation, at a meeting duly held
or by written consent in lieu of meeting, duly filed with the records of the
minutes of the corporation.
The Borrower has read all of the terms and conditions of the Note and
acknowledges receipt of an exact copy of it.
<TABLE>
<CAPTION>
WITNESS Signed in my Presence MAKERS(S) ("Borrower")
IMPLANT SCIENCES CORPORATION
<S> <C>
/s/ Diane J. Ryan /s/ Anthony J. Armini
----------------------------------- ---------------------
Print Name: Diane J. Ryan Witness
--------------- Print Name: Anthony J. Armini Title, if applicable: President
---------------- ----------
Address: Implant Science Corporation
---------------------------
107 Audubon Road, #5, Wakefield, MA 01880
- ---------------------------------- -----------------------------------------
Witness
Print Name: Print Name: Title, if applicable:
------------------------ ----------------------- ----------
Address:
---------------------------------------------------------
</TABLE>
For good and valuable consideration, the receipt and sufficiency of which are
acknowledged, each of the undersigned endorses the Note, guarantees to the Bank
the payment and performance of the borrower's obligations under the Note,
acknowledges reading the Note in its entirety, agrees to be
11
<PAGE> 12
jointly and severally (if more than one) liable and bound to the Bank and any
Affiliate under all provisions of the Note, agrees to be jointly and severally
liable with the Borrower for all obligations under the Note, and agrees that all
obligations hereunder and such endorsement and guaranty shall take effect under
seal.
WITNESS Signed in my Presence
/s/ Diane J. Ryan /s/ Anthony J. Armini
- -------------------------------- ----------------------------------------
Witness
Print Name: Diane J. Ryan Print Name: Anthony J. Armini, individually
-------------------- --------------------------------
Address:
----------------------------------
- ------------------------------- -------------------------------------------
Witness
<TABLE>
<S> <C>
Print Name: Print Name: Title, if applicable:
----------------------- --------- ---
Address:
-----------------------------------
</TABLE>
12
<PAGE> 1
Exhibit 10.12
US TRUST GUARANTY
For good and valuable consideration, the receipt and adequacy of which
are acknowledged, the undersigned (jointly and severally if more than one)
unconditionally guaranties, in accordance with the terms hereof and without any
prior written notice, the payment and performance of all of the Liabilities
(hereinafter defined) of Implant Sciences Corporation, a Massachusetts
Corporation with its principal office at 107 Audobon Road, Wakefield,
Massachusetts ("Borrower") to USTrust, having a principal place of business at
30 Congress Street, Boston, Massachusetts (hereinafter, with any subsequent
holder hereof, the "Bank"). All references herein to "Borrower" include the
Borrower acting alone and/or with another or others.
"Liabilities" includes, without limitation, any and all liabilities,
debts, and obligations of the Borrower to the Bank and any and all liabilities,
debts and obligations of every endorser, guarantor, and surety of the Borrower
to the Bank, each of the foregoing in this sentence of every kind, nature, and
description, now existing or hereafter arising, whether in whole or in part with
recourse, without recourse or otherwise. "Liabilities" also includes, without
limitation, each obligation to repay all loans, advances, indebtedness, notes,
obligations, overdrafts, and amounts now or hereafter at any time owed by the
Borrower to the Bank (including all future advances or the like whether or not
given pursuant to a commitment by the Bank), whether or not any of such are
liquidated, unliquidated, primary, secondary, secured, unsecured, direct,
indirect, absolute, contingent, or of any other type, nature, description, or by
reason of any cause of action which the Bank may hold against the Borrower.
"Liabilities" also includes, without limitation, all notes and other obligations
of the Borrower now or hereafter assigned to or held by the Bank, each of every
kind, nature and description. "Liabilities" also includes, without limitation,
all interest and other amounts which may be charged to the Borrower and/or which
may be due from the Borrower to the Bank from time to time; all fees and charges
in connection with any account maintained by the Borrower with the Bank or any
service rendered by the Bank; and all costs and expenses incurred or paid by the
Bank in respect of any agreement between the Borrower and the Bank or instrument
furnished by the Borrower to the Bank (including, without limitation, Costs of
Collection (hereinafter defined), attorneys' fees and expenses, and all court
and litigation costs and expenses). "Liabilities" also includes, without
limitation, any and all obligations of the Borrower to act or to refrain from
acting in accordance with the terms, provisions and covenants of any agreement
between the Borrower and the Bank or instrument furnished by the Borrower to the
Bank. As used herein, the term "indirect" includes, without limitation, all
obligations and liabilities which the Bank may incur or become liable for or, on
account of, or as a result of any transactions between the Bank and the Borrower
including, without limitation, any which may arise out of any letter of credit
or acceptance, or similar instrument issued or obligation incurred by the Bank
for the account of the Borrower; any of which may arise out of any action
brought or threatened against the Bank by the Borrower, any guarantor or
endorser of any or all of the Liabilities of the Borrower, or other person or
entity in connection with any or all of the Liabilities; and any obligation of
the Borrower which may arise as endorser or guarantor of a third party, or as
obligor to any third party which obligation has been endorsed, participated, or
assigned to the Bank. The term "indirect" also refers to any direct or
contingent liability of the Borrower to make payment towards any obligation held
by the Bank (including, without limitation, on account of any industrial revenue
bond) to the extent so held by the Bank.
1
<PAGE> 2
"Costs of Collection" includes, without limitation, all attorneys' fees
and expenses incurred by the Bank's attorneys, and all costs incurred by the
Bank in the administration of the Liabilities, this Guaranty, and all other
instruments and agreements executed in connection with or relating to the
limitation, all the Bank's attorneys' fees and expenses and all other
out-of-pocket expenses of the Liabilities, including without limitation, costs
and expenses associated with travel on behalf of the Bank, "Costs of Collection"
also includes, without limitation, all the Bank's attorneys' fees and expenses
and all other out-of-pocket expenses of the Bank including, without limitation,
associated with travel by or on behalf of the Bank, all of which costs and
expenses are directly or indirectly related to or in respect of the Bank's
efforts to preserve, protect, collect or enforce the Liabilities and/or the
Bank's Rights and Remedies (hereinafter defined) or any of the Bank's rights and
remedies against or in respect of the Borrower, any other guarantor, endorser or
other person and/or entity liable in respect of any or all of the Liabilities or
any collateral granted to the Bank by the Borrower, the undersigned, such other
guarantor, or such other person and/or entity (whether or not such is instituted
in connection with such efforts). The Costs of Collection shall be added to the
Liabilities of the Borrower to the Bank, as if such had been lent, advanced, and
credited by the Bank to, or for the benefit of, the Borrower.
For said good and valuable consideration, the undersigned also agreed
to indemnify, defend and hold the Bank harmless of and from any claim brought or
threatened against the Bank by the Borrower, the undersigned, any other
guarantor or endorser of any or all of the Liabilities or any other person
and/or entity (as well as from attorneys' fees and expenses in connection
therewith) on account of the Bank's relationship with the Borrower, the
undersigned, or any other guarantor or endorser of the Liabilities (each of
which may be defended, compromised, settled, or pursued by the Bank with counsel
of the Bank's selection, but at the expense of the undersigned). The undersigned
agrees to pay on demand interest on all amounts due to the Bank under this
Guaranty, or arising under any documents, instruments, or agreements relative to
any collateral securing this Guaranty, from the time the Bank first demands
payment of this Guaranty at a rate equal to the highest rate chargeable to the
Borrower after the earlier of (i) demand or (ii) the occurrence of any event of
default hereunder.
Any and all deposits or other sums at any time credited by or due to
the undersigned from the Bank or any of its banking or lending affiliates, or
any bank acting as a participant under any loan arrangement between the Bank and
the Borrower, and any cash, securities, instruments or other property of the
undersigned in the possession of the Bank, or any of its banking or lending
affiliates, or any bank acting as a participant under any loan arrangement
between the Bank and the Borrower, whether for safekeeping or otherwise, or in
transit to or from the Bank or any of its banking or lending affiliates or any
such participant, or in the possession of any third party acting on the Bank's
behalf (regardless of the reason the Bank had received same or whether the Bank
has conditionally released the same) shall at all times constitute security for
all of the Liabilities and for all obligations of the undersigned to the Bank
and may be applied or set off against such Liabilities and/or against the
obligations of the undersigned to the Bank including without limitation, those
arising hereunder, at any time, whether or not such are then due and whether or
not other collateral is then available to the Bank.
The obligations of the undersigned hereunder shall not be affected by
any fraudulent, illegal, or improper act by the Borrower, nor by any release,
discharge, or invalidation, by operation of law
2
<PAGE> 3
or otherwise, of any or all of the Liabilities, or by the legal incapacity of
the Borrower, the undersigned, or any other person and/or entity liable or
obligated to the Bank for or on the Liabilities. Interest and Costs of
Collection shall continue to accrue and shall continue to be deemed Liabilities
guaranteed hereby notwithstanding any stay to the enforcement thereof against
the Borrower or disallowance of any claim therefor against the Borrower. The
within instrument incorporates all discussions and negotiations between the
undersigned and the Bank concerning the guaranty and indemnification provided by
the undersigned herein. No such discussions or negotiations shall limit, modify,
or otherwise affect the provisions hereof. This agreement and the rights and
obligations hereunder may not be modified, amended or waived, whether in whole
or in part, orally or otherwise, except by written instrument signed by the
Bank. The undersigned waives presentment, demand, notice and protest with
respect to the Liabilities or this Guaranty, and further waives any delay on the
part of the Bank, and further waives any right to require the Bank to pursue or
to proceed against the Borrower or any collateral which the Bank might have been
granted to secure the Liabilities or to secure the obligations of the
undersigned hereunder, and further waives notice of acceptance of this Guaranty.
The undersigned agrees not to exercise any rights of subrogation, reimbursement,
indemnity, contribution, or the like (including any right to proceed upon any
collateral granted by the Borrower to the undersigned) against the Borrower or
any person and/or entity liable or obligated for or on the Liabilities unless
and until all of the Liabilities have been satisfied in full. The undersigned
agrees to pay to the Bank on demand any or all of the Bank's attorneys fees and
expenses, and all other costs incurred by the Bank, including, without
limitation, costs and expenses associated with travel by or on behalf of the
Bank, (a) in the administration, collection and/or enforcement of the
Liabilities, this Guaranty and/or all other instruments, documents, and
agreements executed in connection with or relating to the Liabilities and/or
this Guaranty; and/or (b) directly or indirectly related to or in respect of the
Bank's efforts to collect and/or to enforce any of the obligations of the
undersigned hereunder and/or to enforce any of the Bank's Rights and Remedies,
and/or the Bank's powers against or in respect to the undersigned, whether or
not suit is instituted by or against the Bank.
The obligations of the undersigned hereunder are primary, with no
recourse necessary by the Bank against the Borrower or any collateral given to
secure the Liabilities or against any other person and/or entity liable for or
on the Liabilities prior to proceeding against the undersigned hereunder. The
undersigned assents to any indulgence or waiver which the Bank may grant or give
the Borrower and/or any other person and/or entity liable or obligated to the
Bank for or on the Liabilities. The undersigned authorizes the Bank to alter,
amend, cancel, waive, or modify any term or condition of any or all of the
Liabilities and of any or all of the obligations of any other person and or
entity liable or obligated to the Bank for or on any or all of the Liabilities,
without notice to, or consent from, the undersigned. No compromise, settlement,
or release by the Bank of any or all of the Liabilities or any or all of the
obligations of any such other person and/or entity (whether or not jointly
liable with the undersigned) and no release of any collateral securing any of
all of the Liabilities or securing any or all of the obligations of any such
other person and/or entity shall affect the obligations of the undersigned
hereunder. No action by the Bank which has been assented to herein shall affect
the obligations of the undersigned to the Bank hereunder.
The rights, remedies, powers, privileges and discretions of the Bank
under this Guaranty and/or the Liabilities ("Bank's Rights and Remedies' shall
be cumulative and not exclusive of any rights or remedies which it would
otherwise have. No delay or omission by the Bank in exercising
3
<PAGE> 4
or enforcing any of the Bank's Rights and Remedies shall operate as, or
constitute a waiver thereof on that occasion nor on any other occasion. No
waiver by the Bank of any of the Bank's Rights and Remedies or of any default of
remedies under any other agreement with or by the undersigned, or of any default
under any agreement with or by the Borrower, or any other person and/or entity
liable or obligated for or on the Liabilities, shall operate as waiver of (a)
any other of the Bank's Rights and Remedies, (b) any default or remedy hereunder
or thereunder, or (c) any other provision hereunder or thereunder. No exercise
of any of the Bank's Rights and Remedies and no other agreement or transaction
of whatever nature entered into between the Bank and the undersigned, the Bank
and the Borrower, and/or the Bank and any such other person and/or entity oat
any time shall preclude any other exercise of the Bank's Rights and Remedies. No
waiver by the Bank of any of the Bank's Rights and Remedies on any one occasion
shall be deemed a waiver on any subsequent occasion, nor shall it be deemed a
continuing waiver. All of the Bank's Rights and Remedies and all of the Banks
rights, remedies, powers, privileges and discretions under any other agreement
or transaction with the undersigned, the Borrower, or any such other person
and/or entity shall be cumulative and not alternative or exclusive, and may be
exercised by the Bank at such time or times and in such order of preference as
the Bank in its sole discretion may determine.
This instrument and all documents which have been or may be hereafter
furnished by the undersigned and/or the Borrower to the Bank may be reproduced
by the Bank by any photographic, photostatic, microfilm, microcard, miniature
photographic, xerographic, or similar of other process, and the Bank may destroy
the original from which this instrument and/or such documents were so
reproduced. Any such reproduction shall be admissible in evidence as the
original itself in any judicial or administrative proceeding (whether or not the
original is in existence and whether or not such reproduction was made in the
regular course of business). It is the intention and agreement of the
undersigned that the provisions of this instrument be liberally construed to the
end that the Bank may be put in as good a position as if the Borrower had
promptly, punctually and faithfully performed all Liabilities and the
undersigned had promptly, punctually and faithfully performed hereunder. The
books and records of the Bank showing the Borrower's account(s) and/or the
undersigned's account(s), and/or showing any indebtedness of the Borrower and/or
the undersigned to the Bank, shall be admissible in any action or proceeding in
connection herewith and/or any other matters which include the Bank and the
undersigned, including any and all rights and obligations relating hereto or
thereto, or arising hereunder or thereunder, and shall constitute conclusive and
non-rebuttable evidence and proof of the items contained therein and shall be
binding upon the undersigned, unless shown to be to the contrary by clear and
convincing written evidence. This instrument shall inure to the benefit of the
Bank, its successors and assigns, shall be binding upon the undersigned, and the
heirs, successors, representatives, and assigns of the undersigned, and shall
apply without limitation to all Liabilities of the Borrower and any successor to
the Borrower, including any successor by operation of law.
In any case, controversy or matter which arises out of, or is in
respect of, this instrument, any endorsement or other guaranty heretofore,
herewith and/or hereafter by the undersigned (whether alone and/or with another
or others) of any promissory note payable to the Bank or order, the maker of
which is the Borrower (whether with or without any other co-maker or co-makers),
and/or any matter relating to the Liabilities, the undersigned voluntarily and
intentionally waives any right to and agrees not to bring, commence, or
otherwise take any action to transfer any proceeding, including without
limitation court action, arbitration, mediation, administrative proceeding or
4
<PAGE> 5
otherwise against the Bank other than in the city described above in which the
Bank has its principal place of business, however it is understood and agreed
that nothing contained herein shall restrict the Bank. The undersigned
certifies, warrants and agrees that (a) the undersigned is bound by the
provisions contained herein, (b) the undersigned is of legal contractual age and
sound mind, and (c) the Bank has made no agreements, warranties,
representations, or promises in connection with this instrument or any matters
arising hereunder, except as set forth in a written instrument executed and
delivered by the Bank, if at all. The provisions of this instrument are hereby
declared to be severable, and the invalidity, illegality, or unenforceability of
any provision or application thereof shall not effect any other provision or any
other application thereof. This instrument and the rights and obligations
hereunder may not be modified, amended or waived, whether in whole or in part,
orally or otherwise, except by a written instrument executed by the Bank.
The undersigned (a) agrees that this instrument shall be governed and
construed under the laws of the Commonwealth of Massachusetts, except that as to
all instances of conflict of laws or choice of law (if any), Massachusetts
substantive and procedural law shall also govern without regard to principles of
conflicts of law, and not the law of any other forum; (b) agrees that this
instrument is deemed executed and delivered to the Bank in the Commonwealth of
Massachusetts, to whose jurisdiction the undersigned submits as the sole forum
in which the undersigned may ever bring any claim or lawsuit against the Bank
under, relating to, or in connection with, this instrument, as well as for all
purposes in connection with any other now existing and/or hereafter arising
relationship between the undersigned and the Bank, and any and all rights and
obligations relating hereto or thereto, or arising hereunder or thereunder; (c)
agrees that all warranties, representations, provisions and agreements contained
herein are joint and several of each of the undersigned, if more than one; and
(d) agrees that the obligations of the undersigned hereunder shall not be
affected by (i) any fraudulent, illegal or improper act by the Borrower and/or
any of the undersigned, (ii) any release, discharge or invalidation, by
operation of law or otherwise, of the Liabilities, unless the Liabilities are
paid and performed in full, and/or (iii) the legal incapacity of the Borrower
and/or any of the undersigned. This instrument may be signed in counterparts, if
the undersigned is more than one, however shall constitute one agreement. THE
UNDERSIGNED WAIVES ANY NOW EXISTING AND/OR HEREAFTER ARISING RIGHT TO A TRIAL BY
JURY IN ANY CASE OR CONTROVERSY AGAINST THE BANK REGARDING, ARISING FROM, OR IN
CONNECTION WITH, THIS AGREEMENT, ANY ENDORSEMENT OR OTHER GUARANTY HERETOFORE,
HEREWITH AND/OR HEREAFTER BY THE UNDERSIGNED (WHETHER ALONE AND/OR WITH ANOTHER
OR OTHERS) OF ANY PROMISSORY NOTE PAYABLE TO THE BANK OR ORDER. THE MAKER OF
WHICH IS THE BORROWER (WHETHER WITH OR WITHOUT ANY OTHER CO-MAKER OR CO-MAKERS).
THE LIABILITIES, AND/OR ANY AND ALL RIGHTS AND OBLIGATIONS RELATING HERETO OR
THERETO, OR ARISING HEREUNDER OR THEREUNDER.
Except as set forth in the next sentence, the obligations of the
undersigned hereunder shall remain in full force and effect as to all
Liabilities, without regard to any reduction of the Liabilities other than by
payment and performance in full by the Borrower or by the undersigned pursuant
to this Guaranty, until the earlier of (a) ten (10) days following the actual
receipt by the Bank at its main office (presently 30 Court Street, Boston,
Massachusetts 02108) of written notice signed by the undersigned of the
termination thereof, or (b) the delivery of written notice of termination dated
and signed by a duly authorized officer of the Bank, which notice of termination
includes specific
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<PAGE> 6
reference to this Guaranty. No termination hereof shall affect the guaranty by
the undersigned of any of the Liabilities in existence or outstanding ten (10)
days following the date of such actual receipt by the Bank or delivery to the
Bank (including, without limitation, those which are contingent or not then due
and those which arise out of any check, draft, item, or paper which was made,
executed or drawn prior to the expiration of such ten (10) days, even if
received by the Bank thereafter) nor any obligation of the undersigned
hereunder, including, without limitation, any which by its terms includes any of
the Liabilities of a contingent nature (including, without limitation, the
indemnification provided for herein).
The undersigned certifies that the undersigned has read this Guaranty
prior to its execution. This instrument is signed as a sealed instrument this
1st day of May, 1996 .
Signed in my presence
/s/ Diane J. Ryan /s/ Anthony J. Armini
- ----------------------------------- -----------------------------------------
- ----------------------------------- ------------------------------------------
Signature Signature: Anthony J. Armini, Individually
- ----------------------------------- ------------------------------------------
Print Name Print Name
------------------------------------------
Address
------------------------------------------
(Name of entity, if applicable)
- ----------------------------------- ------------------------------------------
Signature Signature
- ----------------------------------- ------------------------------------------
Name Print Name Title, if applicable
6
<PAGE> 1
Exhibit 10.13
SECURITY AGREEMENT
Inventory, Accounts, Equipment and Other Property
<TABLE>
<S> <C>
/ / United States Trust Company /X/ USTrust
30/40 Court Street, Boston, MA 02108 141 Portland Street, Cambridge, MA 02139
May 1, 1996
</TABLE>
Implant Sciences Corporation, 107 Audubon Road, Wakefield, Massachusetts
01880-1246, a corporation under the laws of Massachusetts (hereinafter, the
"Borrower"), and the Bank checked above (hereinafter, the "Bank") make this
agreement in consideration of the mutual covenants contained herein and benefits
to be derived herefrom.
ARTICLE I. GRANT OF SECURITY INTEREST
1.1 To secure the Borrower's prompt, punctual, and faithful performance
of all and each of the Borrower's Liabilities (as the term is defined herein) to
the Bank, Borrower hereby grants to the Bank a continuing security interest in
and to, and assigns to the Bank, the following, and each item thereof, whether
now owned or now due, or in which the borrower has an interest or hereafter, at
any time in the future, acquired, arising, or to become due, or in which the
Borrower obtains an interest, and all products,proceeds, substitutions, and
accession of or to any of the following (all of which, together with anyother
property in which the Bank may in the future be granted a security interest
pursuant hereto, is referred to hereinafter as the "Collateral"):
(a) All Accounts and Accounts Receivable;
(b) All Inventory;
(c) All Contract Rights;
(d) All General Intangibles;
(e) All Equipment;
(f) All Farm Products;
(g) All Goods;
(h) All Chattel Paper;
(i) All Fixtures;
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<PAGE> 2
(j) All books, records, and information relating to the
Collateral and/or to the operation of the Borrower's business, and all rights of
access to such books, records, and information and all property in which such
books, records, and information are stored, recorded, and maintained;
(k) All Instruments, Documents of Title, Documents, policies
and certificates of insurance, Securities, deposits, deposit accounts, money,
cash, or other property;
(l) All federal, state, and local tax refunds and/or
abatements to which the Borrower is, or becomes entitled, no matter how or when
arising, including, but not limited to any carryback tax refunds;
(m) All insurance proceeds, refunds, and premium rebates,
including, without limitation, proceeds of fire and credit insurance, whether
any of such proceeds, refunds, and premium rebates, arise out of any of the
foregoing (a through l), or otherwise;
(n) All liens, guarantees, rights, remedies, and privileges
pertaining to any of the foregoing (a through m) including the right of stoppage
in transit.
1.2 The within grant of a security interest is in addition to, and
supplemental of, any security interest previously granted by the Borrower to the
Bank and shall continue in full force and effect applicable to all Liabilities
and to any future advances made by the Bank to or on behalf of the Borrower
until this Agreement is specifically terminated in writing by a duly authorized
officer of the Bank.
1.3 "Proceeds" include, without limitation, "Proceeds" as defined
in the Uniform Commercial Code as adopted in Massachusetts (hereinafter, the
"UCC") and also, insurance proceeds and each type of property described in
Sections 1.1(a) through and including 1-1(n).
1.4 Any exceptions to the security interest granted the Bank
herein are described in SCHEDULE A, annexed hereto.
ARTICLE 2. CERTAIN DEFINITIONS
As herein used, the following terms have the following meanings.
2.1 "Liability" and "Liabilities" include, without limitation, any
and all liabilities, debts, and obligations of the Borrower to the Bank and any
and all liabilities, debts, and obligations of every endorser, guarantor, and
surety of the Borrower to the Bank, each of every kind, nature and description
now existing or hereafter arising, whether under this Agreement or otherwise.
"Liabilities" also includes, without limitation, each obligation to repay all
loans, advances, indebtedness, notes, obligations, overdrafts, and amounts now
or hereafter at any time owing by the Borrower to the Bank (including all future
advances or the like, whether or not given pursuant to a commitment by the
Bank), whether or not any of such are liquidated, unliquidated, primary,
secondary, secured, unsecured, direct, indirect, absolute, contingent, or of any
other type, nature, or description, or by reason of any cause of action which
the Bank may hold as against the Borrower. "Liabilities" also includes, without
limitation, all notes and other obligations of the Borrower now
2
<PAGE> 3
or hereafter assigned to or held by the Bank, each of every kind, nature and
description. "Liabilities" also includes, without limitation, all interest and
other amounts which may be charged to the Borrower and/or which may be due from
the Borrower to the Bank from time to time: all fees and charges in connection
with any account maintained by the Borrower with the Bank or any service
rendered by the Bank; and all costs and expenses incurred or paid by the Bank in
respect of this and any other agreement between the Borrower and the Bank or
instrument or document furnished by the Borrower to the Bank (including, without
limitation Costs of Collection, attorneys' reasonable fees, and all court and
litigation cost and expenses). "Liabilities" also includes, without limitation,
any and all obligations of the Borrower to act to refrain from acting in
accordance with the terms, provisions, and covenants of this Agreement and of
any other agreement between the Borrower and the Bank or instrument or document
furnished by the Borrower to the Bank. As used herein, the term "indirect"
includes, without limitation, all obligations and liabilities which the Bank may
incur or become liable for, on account of, or as a result of any transactions
between the Bank and the Borrower including, without limitation, any which may
arise out of any Letter of Credit or acceptance, or similar instrument issued or
obligation incurred by the Bank for the Account of the Borrower, any which may
arise out of any action brought or threatened against the Bank by the Borrower,
any guarantor or endorser of the Liabilities of the Borrower, or by any other
person in connection with the Liabilities, and any obligation of the Borrower
which may arise as endorser or guarantor of any * party, or as obligor to any
third party which obligation has been endorsed, participated or assigned to the
Bank. The term "indirect" also refers to any direct or contingent liabilities of
the Borrower to make payment towards any obligation held by the Bank, including,
without limitation, on account of any industrial revenue bond) to the extent so
held by the Bank. The Bank's books and records shall be prima facie evidence of
the Borrower's indebtedness to the Bank.
2.2 "Costs of Collection" includes, without limitation, all
attorneys' reasonable fees and out-of-pocket expenses incurred by the Bank's
attorneys, and all costs incurred by the Bank in the administration of the
Liabilities, this Agreement, and all other instruments and agreements executed
in connection with or relating to the Liabilities including, without limitation,
costs and expenses associated with travel on behalf of the Bank. Costs of
Collection also includes, without limitation, all attorneys' reasonable fees,
out-of-pocket expenses incurred by the Bank's attorneys and all costs and
expenses incurred by the Bank, including, without limitation, costs and expenses
associated with travel on behalf of the Bank, which costs and expenses are
directly or indirectly related to or in respect of the Bank's efforts to
preserve, protect, collect, or enforce the Collateral, the Liabilities and/or
the Bank's Rights and Remedies or any of the Bank's Rights and Remedies against
or in respect of any guarantor or other person liable in respect of the
Liabilities (whether or not suit is instituted in connection with such efforts).
The Costs of Collection shall be to the Liabilities of the Borrower to the Bank,
as if such had been lent, advanced, and credited by the Bank to, or for the
benefit of, the Borrower.
2.3 "Accounts" and "Accounts Receivable" include, without
limitation, "Accounts" as defined in the UCC and also all accounts, accounts
receivable, notes, drafts, acceptances, and other forms of obligation and
receivables and rights to payment for credit extended and for goods sold or
leased, or services rendered, whether or not yet earned by performance, all
Inventory which gave rise thereto, and all rights associated with such
Inventory, including the right of stoppage in transit, all reclaimed, returned,
rejected, or repossessed Inventory, (if any) the sale of which gave rise to any
Account.
3
<PAGE> 4
2.4 "Inventory" includes, without limitation, "inventory" as
defined in the UCC and also all goods, wares, merchandise, raw materials, work
in process, finished goods, and all packaging, advertising, shipping materials,
and documents related to any of the foregoing and all labels , and other
devices, names, or marks affixed or to be affixed thereto for identifying or
selling the same, and other personal property of every description held for sale
or lease or furnished or to be furnished under a contract or contracts of sale
or service by the Borrower, or used or consumed or to be used or consumed in the
Borrower's business, and all goods of and said description which are in transit,
and all returned, repossessed and rejected goods of said description, and all
such goods of said description which are detained from or rejected for entry
into the United States, and all documents (whether or not negotiable) which
represent any of the foregoing.
2.5 "Contract Rights" includes, without limitation, "contract
rights" as now or formerly outlined in the UCC and also any right to payment
under a contract not yet earned by performance and not evidenced by an
instrument or Chattel Paper.
2.6 "General Intangibles" includes, without limitation, "general
intangibles" as defined in the UCC, and also all rights to payment for credit
extended, deposits, amounts due to the Borrower, credit memoranda in favor of
the Borrower, warranty claims, all means and vehicles of investment or hedging,
including, without limitation, options, warrants, and futures contracts,
records, customer lists, goodwill, causes of action, judgements, payments under
any settlement or other agreement, literary rights, rights to performance,
royalties, licence fees, franchise fees, rights of admission, licenses,
franchises, permits, certificates of convenience and necessity, and similar
rights granted by any governmental authority, copyrights, trade marks, trade
names, service marks, patents, patent applications, patents pending, and other
intellectual property, developmental ideas and concepts, proprietary processes,
blueprints, drawings, designs, diagrams, plans, reports, charts, catalogues,
manuals, technical data, computer programs, computer records, computer software,
rights of access to computer record service bureaus, service bureau computer
contracts, and computer data, proposals, costs estimates, and other
reproductions on paper, or otherwise, of any and all concepts or ideas, and any
matter related to, or connected with, the design, development, manufacture,
sale, marketing, leasing, or use of any or all property produced, sold, or
leased, by the Borrower or credit extended or services performed, by the
Borrower, whether intended for an individual customer or the general business of
the Borrower, or used or useful in connection with research by the Borrower.
2.7 The term "Related Entity" refers to any corporation, trust,
partnership, joint venture, or other enterprise which is a parent,
brother-sister, subsidiary, or affiliate of the Borrower or could have such
enterprise tax returns or financial statements consolidated with the Borrower's,
or could be a member of the same controlled group of corporations (within the
meaning of Section 1563 of the Internal Revenue Code of 1954) of which the
Borrower is a member.
2.8 "Equipment" includes, without limitation, "equipment" as
described in the UCC, and also all motor vehicles, rolling stock, machinery,
office equipment, plant equipment, tools, store fixtures, furniture, and other
goods, property, and assets which are used and or were purchased for use in the
operation or furtherance of the Borrower's business.
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2.9 "Farm Products", "Goods", "Chattel Paper", "Instruments",
"Documents of Title", "Documents", "Securities", "Fixtures" and "Account
Debtors" each has the same meaning respectively given that term in the UCC.
2.10 "Receivables collateral" refer to that portion of the
collateral which consists of the Borrower's Accounts, Accounts Receivable,
Contract Rights, General Intangibles, Chattel Paper, Instruments, documents of
Title, Documents, Securities, letters of credit, and bankers acceptances, and
any rights to payment now held or in which the Borrower has an interest or
hereafter acquired, or in which the Borrower obtains an interest.
ARTICLE 3. REPRESENTATIONS, WARRANTIES AND COVENANTS
3.1 The Borrower shall pay when due (or on demand if so payable)
and promptly, punctually, and faithfully shall perform each Liability.
3.2 (a) This section applies if the Borrower has advised the Bank that
the Borrower is a corporation. The Borrower presently is and shall hereafter
remain in good standing as a corporation in that State indicated in the Preamble
of this Agreement and is and shall hereafter remain duly qualified and in good
standing in every other State in which, by reason of the nature or location of
the Borrower's assets or operation of the Borrower's business, such
qualification may be necessary. The execution and delivery of this Agreement and
of any other instruments or documents executed in connection herewith constitute
representations by the individual signing this Agreement and said instruments,
or documents and by the Borrower that such execution and delivery have received
all corporation authorization as may be necessary to permit such execution and
delivery to, and that they do bind the Borrower.
(b) Each Related Entity listed on EXHIBIT B, annexed hereto.
The Borrower shall provide the Bank with prior written notice of any entity's
becoming or ceasing to be a Related Entity.
3.3 This section applies if the Borrower has advised the Bank that
the Borrower is a partnership. The names and addresses of all partners of the
Borrower are set forth on EXHIBIT B, annexed hereto. The execution and delivery
of this Agreement and of any other instruments executed in connection herewith
constitute representations by the individual signing this Agreement and said
instruments and by the Borrower that such execution and delivery are made with
the authorization of the general partners of the Borrower, and, to the extent
required, the limited partners of the Borrower, and that they do bind the
Borrower and any successor to the Borrower. The Borrower shall provide the Bank
with prior written notice of the admission or withdrawal of any partner to or
from the Borrower.
3.4(a) EXHIBIT C annexed hereto, constitutes a listing of:
(i) all trade names and trade styles under which the
Borrower presently conducts its business
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(ii) all legal names and legal statuses such as a
corporation or partnership under which the Borrower
ever conducted its business.
(iii) all entities and/or persons with whom the Borrower
ever consolidated or merged, or from whom the
Borrower ever acquired in a single transaction or in
a series of related transactions substantially all of
such entity's or person's assets.
(b) Except upon not less than twenty-one (21) days prior
written notice given the Bank, the Borrower will not undertake or commit to
undertake any action such that the results that action, if undertaken prior to
the date of this Agreement, would have been reflected on EXHIBIT C.
3.5 The Borrower is, and hereafter remain, the owner of the
Collateral free and clear of all liens, encumbrances, attachments, security
interests, purchase money, security interest, mortgages, and charges with the
exception of (a) the security interest created herein, and the security interest
and other encumbrances (if any) listed on EXHIBIT D, annexed hereto, the
Borrower does not presently, and shall not hereafter have possession of any
property on consignment. The Borrower shall timely pay all of the Borrower's
indebtedness, mortgages, liens, other encumbrances which are secured by the
security interest which is superior to that granted the Bank herein.
3.6 The Collateral, and the books, records, and papers of Borrower
pertaining thereto, are kept and maintained solely at, and have never been kept
or maintained at any location other than, the principal executive offices of
Borrower stated above, and at those locations which are listed on EXHIBIT F,
annexed hereto which EXHIBIT includes all service bureaus with which any such
records are maintained. Except to accomplish sales of Inventory in ordinary
course of business and to utilize such of the Collateral as is removed from such
locations in the ordinary course of business (such as motor vehicles). The
Collateral will not be removed from said principal executive offices or those
locations listed on EXHIBIT E at which Collateral is presently located.
3.7 There is not presently pending or threatened by or against the
Borrower nor shall there be pending or threatened in the future any suit,
action, proceeding, or investigation which if determined adversely to the
Borrower, would have a material adverse effect upon the Borrower's financial
condition or ability to conduct its business as such business is presently
conducted.
3.8 (a) The Borrower shall accord the Bank and the Bank's
representatives with access from time to time as the Bank and such
representatives may require to all properties owned by or over which the
Borrower has control. The Bank, and the Bank's representatives, shall have the
right, and the Borrower will permit the Bank and such representatives from time
to time as the Bank and such representatives may request to examine, inspect,
copy, and make extracts from any and all of the Collateral, and any and all of
the Borrower's books, records, electronically stored data, papers, and files.
The Borrower shall make available to the Bank any copying facilities which the
Borrower has.
(b) The Borrower hereby authorizes the Bank and the Bank's
representatives to inspect, copy, duplicate, review, cause to be reduced to hard
copy, run off, draw off, and otherwise to use any and all computer or
electronically stored information or data which relates to the
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Borrower, which information or data is in the possession of the Borrower or any
services bureau, contractor, or other person, and directs any such services
bureau, contractor, or other person fully to cooperate with the Bank and the
Bank's representatives with respect thereto.
(c) The Borrower authorizes the Bank to verify the Collateral
or any portion thereof, including verification with Account Debtors, and/or with
the Borrower's computer billing companies, collection agencies, and accountants
and to sign the name of the Borrower on any notice to the borrower's Account
Debtors or on any notice relative to the verification of the Collateral.
3.9 The Borrower shall provide the Bank with such information concerning
the borrower, the Collateral, the operation of the Borrower's business, and the
Borrower's financial condition as the Bank may request from time to time as more
particularly provided in the Loan Agreement of even date between the Borrower
and the Bank. All financial information so provided the Bank by the Borrower
shall be prepared in accordance with generally accepted accounting principles
applied consistently in the preparation thereof and with prior periods and shall
fairly reflect the matters described therein.
3.10 Borrower shall have and maintain at all times insurance covering
such risks, in such amounts, containing such terms, in such forms, for such
periods, and written by such companies as may be satisfactory to the Bank. All
such insurance shall provide for a minimum of twenty (20) days written notice of
cancellation to the Bank and all such insurance which covers the Collateral
shall include such endorsement in favor of the Bank as the Bank may specify.
Such endorsement shall provide that the insurance to the extent of the Bank's
interest therein shall not be impaired or invalidated, in whole or in part, by
reason of any act or neglect of the borrower or by the failure of the Borrower
to comply with any warranty or condition of the policy. In the event of the
failure by the Borrower to provide and maintain insurance as herein provided,
the Bank may, at its option, provide such insurance. The borrower shall furnish
to the Bank certificates or other evidence satisfactory to the Bank concerning
compliance by the Borrower with the foregoing insurance provisions. The Borrower
shall advise the Bank of each claim made by the Borrower under any policy of
insurance which covers the Collateral and will permit the Bank, at the Bank's
option in each instance, to the exclusion of the borrower, to conduct the
adjustment of each such claim. Originals of all such policies shall be delivered
to and held by the Bank. The Borrower hereby appoints the Bank as the Borrower's
attorney to obtain, adjust, settle, and cancel any insurance described in this
section and to endorse in favor of the Bank any and all drafts and other
instruments with respect to such insurance. The within appointment, being
coupled with an interest, is irrevocable until this Agreement is terminated by a
written instrument executed by a duly authorized officer of the Bank. The Bank
shall not be liable on account of any exercise pursuant to said power except for
any exercise in actual wilful misconduct and bad faith. The Bank may apply any
proceeds of such insurance against the Liabilities whether or not such have
matured, in such order of application as the Bank may determine.
3.11 The Borrower promptly shall pay, as they become due and payable,
all taxes and unemployment contributions and other charges of any kind or nature
levied, assessed or claimed against the Borrower or the Collateral by any person
or entity whose claim could result in the lien upon the assets of the Borrower
or by any governmental authority, including without limitation, liens arising in
connection with hazardous material, as referenced in Section 3.13, below;
properly shall
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exercise any trust responsibilities imposed upon the Borrower by reason of
withholding from employees pay and timely shall make all contributions and other
payments as may be required pursuant to any employee benefit plan now or
hereafter established by the Borrower. At its option, the Bank may, but shall
not be obligated to pay any taxes, unemployment contributions, and any and all
other charges levied upon the Borrower or the Collateral by any person or entity
or governmental authority, and make any contributions or other payments on
account of the Borrower's employee benefit plan as the Bank, in the Bank's
discretion, may deem necessary or desirable, to protect, maintain, preserve,
collect, or realize upon any or all of the Collateral or the value thereof or
any right or remedy pertaining thereto.
3.12 The Borrower is in compliance, and shall hereafter comply with and
use its assets in compliance with, all statutes, regulations, ordinances,
directives, and orders of any federal, state, municipal, and other governmental
authority which has or claims jurisdiction over the Borrower, any of the
Borrower's assets, or any person in any capacity under which the Borrower would
be responsible for the conduct of such person.
3.13 (a) The Borrower has never occupied or operated a site or vessel
on which any hazardous materials or oil was stored or transported without
compliance with all statutes, regulations, ordinances, directives, and orders of
every federal, state, municipal and other governmental authority which has or
claims jurisdiction relative thereto, (site, vessel, and hazardous materials
respectively being defined in Mass. Gen Laws Ch. 21E), disposed of, transported,
or arranged for the transport of any hazardous material or oil without
compliance with all such statutes, regulations, ordinances, directives, and
orders, been legally responsible for any release of threat of release of any
hazardous material or oil, received notification of any potential or known
release or threat of release of any hazardous material or oil from any site or
vessel occupied or operated by the Borrower and/or of the incurrence of any
expense or loss in connection with the assessment containment, or removal of any
release or threat of release of any hazardous material or oil from any such site
or vessel.
(b) The Borrower shall not dispose of any hazardous material
or oil on any site or vessel occupied or operated by the Borrower; not store on
any site or vessel occupied or operated by the Borrower, or transport or arrange
for the transport of any hazardous material or oil except if such storage or
transport is in the ordinary course of the Borrower's business and is in
compliance with all such statues, regulations, ordinances, directives and
orders, take all such action, including, without limitation, the conducting of
engineering tests to confirm that no hazardous material or oil is or ever was
disposed of on any site or vessel occupied or operated by the Borrower, provide
the Bank with written notice, upon the intended storage or transport of any
hazardous material or oil by the Borrower, upon the Borrower's obtaining
knowledge or notice of any potential or known release or threat of release of
any hazardous material or oil at or from any site or vessel occupied or operated
by the Borrower, and/or upon the Borrower's obtaining knowledge of any
incurrence of any expense or loss by the governmental authority in connection
with the assessment, containment, or removal of any hazardous material or oil
for which expense or loss the Borrower may be liable.
3.14 The Borrower shall not sell, offer to sell, lease, or otherwise
transfer or dispose of the Collateral or any part thereof or any interest
therein, provided, however, the Borrower may use the
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Receivables Collateral and sell or lease the Inventory in the ordinary conduct
of the Borrower's business, subject to all provisions hereof.
3.15 The Borrower shall not:
(a) pay any dividend, other than a common stock dividend of
the Borrower's own capital stock.
(b) own, redeem, retire, purchase or acquire any of the
Borrower's capita stock.
(c) invest in or purchase any stock or securities or rights to
purchase such stock or securities of any corporation or other entity.
(d) merge or consolidate or be merged or consolidated with or
into any other corporation or other entity.
3.16 The Borrower shall execute and deliver to the Bank such
instruments and shall do all such things from time to time hereafter as the Bank
may request to carry into effect the provisions and intent of this Agreement, to
protect and perfect the Bank's security interest in any to the Collateral, and
to comply with all applicable statutes and laws, and to facilitate the
collection and/or enforcement of Receivables Collateral. Contemporaneous with
the execution of this Security Agreement, the Borrower shall execute all such
instruments as may be required by the Bank with respect to the perfection of the
security interests granted herein, including without limitation, financing
statements in such form and to be filed in accordance with the provisions of the
Uniform Commercial Code in such State or States as the Bank may determine, and
applications for notations of the Bank as lien holder, mortgagee, or the like,
on such certificates or similar instruments as may have been issued with respect
to the Borrower's ownership of one or more items of the Collateral. A carbon,
photographic, or other reproduction of this Agreement or of any financing
statement or other instrument executed pursuant to his Section shall be
sufficient for filing to perfect the security interest granted herein.
3.17 The Borrower shall
(a) keep the Collateral in good order and repair.
(b) not waste or destroy or suffer the waste or
destruction of the Collateral of any part thereof, and
(c) not use any of the Collateral in violation of any
policy insurance thereon.
3.18 The Borrower shall not indirectly do or cause to be done any
act which, if done directly by the Borrower, would breach any covenant contained
herein or in any other agreement between Borrower and the Bank.
3.19 The within representations, covenants, and warranties are in
addition to any others, previously, presently, or hereafter made by the Borrower
to or with the Bank in any other instrument.
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ARTICLE 4. COLLECTION OF ACCOUNTS, ACCOUNTS RECEIVABLE, CONTRACT RIGHTS AND
OTHER COLLATERAL
4.1 At any time and whether or not an Event of Default has occurred
hereunder.
(a) The Bank may notify any of the Borrower's account or
contract debtors, either in the name of the Bank or the Borrower, to make
payment directly to the Bank or such other address as may be specified by the
Bank, and may advise any person of the Bank's security interest in and to the
Collateral, and may collect directly from the obligors thereon, all amounts due
on account of the Collateral; and
(b) At the Bank's request, the Borrower will provide written
notification to any or all of the Borrower's account or contract debtors
concerning the Bank's security interest in the Collateral and will request that
such account or contract debtors forward payment thereof directly to the Bank.
4.2 Upon and after notification to the Borrower from the Bank
(whether or not an Event of Default has occurred hereunder and whether or not
any notification has been given the Borrower's account debtors pursuant to
Section 4-1, above), the Borrower
(a) shall hold any proceeds and collection of any of the
Collateral in trust for Bank, and shall not commingle such proceeds or
collections with any other funds of the Borrower; and
(b) shall deliver each of the following duly endorsed, assigned
or otherwise made payable to the Bank: (i) all such proceeds to the Bank
immediately upon the receipt thereof by the Borrower in the identical form
received, and (ii) all security or collateral for, guarantees of, letters of
credit, trade and bankers' acceptances, and similar letters and instruments in
respect of any of the Collateral.
4.3 The Borrower hereby irrevocably constitutes and appoints the
Bank as the borrower's true and lawful attorney, (whether or not an Event of
Default has occurred hereunder and whether or not any notification has been
given the Borrower's account debtors pursuant to Section 4-1 above), with full
power of substitution, to convert the collateral into cash at the sole risk,
cost and expense of the Borrower, but for the sole benefit of the Bank. The
rights and powers granted the Bank by the within appointment include but are not
limited to the right and power to:
(a) prosecute, defend, compromise, or release any action
relating to the Collateral.
(b) sign change of address forms to change the address to which
the Borrower's mail is to be sent as the Bank shall designate; receive and open
the Borrower's mail; remove any Collateral therefrom and turnover such mail
(other than such collateral), either to the Borrower, or to any trustee in
bankruptcy, receiver, assignee for the benefit of creditors of the Borrower, or
other legal representative of the borrower whom the Bank determines to be the
appropriate person to whom to so turn over such mail;
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(c) endorse the name of the Borrower in favor of the Bank upon
any and all checks, drafts, notes, acceptances, or other items or instruments;
signed and endorse the name of the Borrower on, and receive as secured party,
any of the collateral, any invoices, schedules of Collateral, freight or express
receipts, or bills of lading, storage receipts, warehouse receipts, or other
documents of title of a same or different nature relating to the Collateral.
(d) sign the name of the Borrower on any notice to the
Borrower's Account Debtors or verification of the Receivables Collateral; sign
the Borrower's name on any proof of the claim in bankruptcy against Account
Debtors, notices of lien, claims of mechanics liens, or assignments or releases
of mechanic lien security the Accounts;
(e) take all such action as may be necessary to obtain the
payment of any letter of credit of which the Borrower is a beneficiary;
(f) repair, manufacture, assemble, complete, package, deliver,
alter or supply goods, if any, necessary to fulfill in whole or in part the
purchase order of any customer of the Borrower;
(g) use, license, or transfer any or all General Intangibles of
the Borrower.
(h) sign and file or record any financing or other statement in
order to perfect or protect the Bank's security interest in the Collateral.
4.4 In connection with all powers of attorney included in this
Agreement, the borrower hereby grants unto the Bank full power to do any all
things necessary or appropriate, in connection with the exercise of such powers
as fully and effectually as the Borrower might or could do, and hereby ratifying
all that said attorney shall do or cause to be done by virtue of this Agreement.
4.5 The Bank shall not be obligated to do any of the acts or
exercise any of the powers authorized herein, but if the Bank elects to do any
such act or to exercise any of such powers shall not be accountable for more
than it actually receives as a result of such execution of power, and shall not
be responsible to the Borrower except for the Bank's actual wilful misconduct
and bad faith.
4.6 All of the powers of attorney set forth in this Agreement shall
not be affected by any disability or incapacity suffered by the Borrower and
shall survive same. All powers conferred upon the Bank by this Agreement, being
coupled with an interest, shall be irrevocable until this Agreement is
terminated by a written instrument executed by a duly authorized officer of the
Bank.
ARTICLE 5. DEFAULT
Upon the occurrence of any one or more of the following events therein,
("Events of Default"), any and all Liabilities of the Borrower to the Bank shall
become immediately due and payable, at the option of the Bank and without notice
or demand. The occurrence of any such Event of Default shall also constitute,
without notice or demand, a default under all other agreements between the Bank
and the Borrower and instruments, documents, and papers given the Bank by the
Borrower, whether such agreements, instruments, or papers now exist or hereafter
arise.
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5.1 The failure by the Borrower to pay upon demand (or when due, if
not payable on demand) any of the Liabilities.
5.2 The failure of the Borrower to promptly, punctually, and
faithfully perform, discharge, or comply with any of the Liabilities.
5.3 The determination by the Bank that any representation or
warranty heretofore, now, or hereafter made by the Borrower to the Bank, in any
document, instrument, agreement or paper was not true or accurate when given.
5.4 The occurrence of any event such that any indebtedness of the
Borrower from any lender other than the Bank could be accelerated,
notwithstanding that such acceleration has not taken place.
5.5 The occurrence of any Event of default under any agreement
between the Bank and the Borrower or instrument or paper given the Bank by the
Borrower, whether such agreement, instrument or paper now exists or hereafter
arises (notwithstanding that the Bank may not have exercised its rights upon
default under any such other agreement, instrument or paper).
5.6 Any act by, against, or relating to the Borrower, or its
property or assets, which act constitutes the application for, consent to, or
sufferance of the appointment of a receiver, trustee or other person, pursuant
to court action or otherwise, over all, or any part of the Borrower's property;
the granting of any trust mortgage or execution of an assignment for the benefit
of the creditors of the Borrower or the occurrence of any other voluntary or
involuntary liquidation or extension of debt agreement for the Borrower; the
failure by the Borrower to generally pay the debts of the Borrower as they
mature; adjudication of bankruptcy or insolvency relative to the Borrower; the
entry of an order for relief or similar order with respect to the Borrower in
any proceeding pursuant to the Bankruptcy Reform Act of 1978 (commonly referred
to as the Bankruptcy Code) or any other federal bankruptcy law; the filing of
any complaint, application or petition by or against the Borrower initiating any
matter in which the Borrower is or may be granted any relief from the debts of
the Borrower pursuant to the Bankruptcy Code or other insolvency statute or
procedure; the calling or sufferance of a meeting of creditors of the Borrower;
the meeting by the Borrower with a formal or informal creditors' committee; the
offering by or entering into by the Borrower of any composition, extension, or
any other arrangement seeking relief or extension for the debts of the Borrower,
or the initiation of any other judicial or non-judicial proceeding or agreement
by, against, or including the Borrower which seeks or intends to accomplish a
reorganization or arrangement with creditors.
5.7 The imposition of any lien upon any assets of the Borrower or
the entry of any judgment against the Borrower, which lien is not discharged or
judgment is not satisfied or appealed from (with execution or similar process
stayed) within fifteen (15) days of its imposition or entry.
5.8 The occurrence of any event or circumstance with respect to the
Borrower such that the Bank deems itself insecure.
5.9 The entry of any court order which enjoins, restrains, or in any
way prevents the Borrower from conducting all or any part of its business
affairs in the ordinary course.
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5.10 The service of any process upon the Bank seeking to attach by
mesne or trustee process any funds of the Borrower on deposit with the Bank.
5.11 Any change in the identity, authority, or responsibilities of
any person having management or policy authority with respect to the Borrower
and/or any direct or indirect change in the ownership of the capital stock of
the Borrower from that existing at the execution of this Agreement.
5.12 The occurrence of any loss, theft, damage, destruction, sale
(other than sales in the ordinary course of business) or encumbrance to or of
any of the assets of the Borrower.
5.13 Any act by or against, or relating to the Borrower or its assets
pursuant to which any creditor of the Borrower seeks to reclaim or repossess or
reclaims or repossesses, all or any portion of the Borrower's assets.
5.14 The death, termination of existence, dissolution, winding up, or
liquidation of the Borrower.
5.15 The occurrence of any of the foregoing Events of Default with
respect to any guarantor, endorser, or surety to the Bank of the Liabilities, or
the occurrence of any of the foregoing Events of Default with respect to any
parent (if the Borrower is a corporation), subsidiary, or affiliate of the
Borrower, as if such guarantor, endorser, surety, parent, subsidiary, or
affiliate were the "Borrower" described therein.
5.16 The termination of any guaranty by any guarantor of the
Liabilities.
ARTICLE 6. RIGHTS AND REMEDIES UPON DEFAULT
In addition to all of the rights, remedies, powers, privileges, and
discretions which the Bank is provided prior to the occurrence of an Event of
Default, the Bank shall have the following Rights and Remedies upon the
occurrence of any event of Default.
6.1 Upon the occurrence of any Event of Default, as described above,
and at any time thereafter, the Bank shall have all of the Rights and Remedies
of a secured party upon default under the UCC, in addition to which the Bank
shall have all of the following Rights and Remedies:
(a) To collect the Receivables Collateral with or without the
taking of possession of any of the Collateral; and/or
(b) To take possession of all or any portion of the Collateral;
and/or
(c) To sell, lease, or otherwise dispose of any or all of the
Collateral, in its then condition or following such preparation or processing as
the Bank deems advisable and with or without the taking of possession of any of
the Collateral;
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(d) To apply the Receivables Collateral or the proceeds of the
Collateral towards (but not necessarily in complete satisfaction of) the
Liabilities.
6.2 Any sale or other disposition of the Collateral may be at public
or private sale upon such terms and in such manner as the Bank deems advisable,
having due regard to compliance with any statute or regulation which might
affect, limit, or apply to the Bank's disposition of the collateral. The Bank
may conduct any such sale or other disposition of the Collateral upon the
Borrower's premises. Unless the Collateral is perishable or threatens to decline
speedily in value, or is of a type customarily sold on a recognized market (in
which event the Bank shall provide the Borrower with such notice as may be
practicable under the circumstances), the Bank shall give the Borrower at least
the greater of the minimum notice required by law or seven (7) days prior
written notice of the date, time, and place of any proposed public sale, and of
the date after which any private sale or other disposition of the Collateral may
be made. The Bank may purchase the Collateral, or any portion of it at any sale
held under this Article.
6.3 In connection with the Bank's exercise of the Bank's rights
under this Article, the Bank may enter upon, occupy, and use any premises owned
or occupied by the Borrower, and may exclude the Borrower from such premises or
portion thereof as may have been so entered upon, occupied, or used by the Bank.
The Bank shall not be required to remove any of the Collateral from any such
premises upon the Bank's taking possession thereof, and may render any
Collateral unusable to the Borrower. In no event shall the Bank be liable to the
Borrower for use of occupancy by the Bank of any premises pursuant to this
Article, nor for any charge (such as wages for the Borrower's employees and
utilities) incurred in connection with the Bank's exercise of the Bank's Rights
and Remedies.
6.4 The Borrower hereby grants to the Bank a nonexclusive
irrevocable license to use, apply, and affix any trademark, tradename, logo, or
the like in which the Borrower now or hereafter has rights, such license being
with respect to the Bank's exercise of the rights hereunder including, without
limitation, in connection with any completion of the manufacture of Inventory or
sale or other disposition of Inventory.
6.5 Upon the occurrence of any Event of Default, the Bank may
require the Borrower to assemble the Collateral and make it available to the
Bank at the Borrower's sole risk and expense at a place or places which are
reasonably convenient to both the Bank and Borrower.
6.6 The rights, remedies, powers, privileges, and discretions of the
Bank hereunder therein, (the "Bank's Rights and Remedies") shall be cumulative
and non exclusive of any rights or remedies which it would otherwise have. No
delay or omission by the Bank in exercising or enforcing any of the Bank's
Rights and Remedies shall operate as, or constitute, a waiver thereof. No waiver
by the Bank of any Event of Default or of any default under any other agreement
shall operate as a waiver of any other default hereunder or under any other
agreement. No single or partial exercise of any of the Bank's Rights or
Remedies, and no other agreement or transaction, of whatever nature entered into
between the Bank and the Borrower at any time, either express or implied, shall
preclude any other or further exercise of the Bank's Rights and Remedies. No
waiver by the Bank of any of the Bank's Rights and Remedies on any one occasion
shall be deemed a waiver on any subsequent occasion, nor shall it be deemed a
continuing waiver. All of the Bank's
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Rights and Remedies and all of the Bank's rights, remedies, powers, privileges,
and discretions under any other agreement or transaction are cumulative, and not
alternative or exclusive, and may be exercised by the Bank at such time or times
and in such order of preference as the Bank in its sole discretion may
determine.
ARTICLE 7. GENERAL
7.1 Any and all deposits or other sums at any time credited by or
due to the Borrower from the Bank or any of its banking or lending affiliates or
any bank acting as a participant under or any loan arrangement between the Bank
and the Borrower, and any cash, securities, instruments, or other property of
the Borrower in the possession of the Bank, or any of its banking or lending
affiliates, and any bank acting as a participant under any loan arrangement
between the Bank and the Borrower, whether for safekeeping, or otherwise, or in
transit to or from the Bank or any of its banking or lending affiliates or any
such participant, or in the possession of any third party acting on the Bank's
behalf (regardless of the reason the Bank had received the same or whether the
Bank has conditionally released the same) shall at all times, constitute
security for any and all Liabilities, and may be applied or set off against such
Liabilities at any time whether or not the Liabilities are then due or whether
or not other collateral is available to the Bank.
7.2 (a) The Borrower WAIVES notice of non-payment, demand,
presentment, protest, and all forms of demand and notice, both with respect to
the Liabilities and the Collateral.
(b) The Borrower, if entitled to it, WAIVES the right to notice
and/or hearing prior to the exercise of the Bank's rights upon default.
7.3 The Bank shall have no duty as to the collection or protection
of the Collateral beyond the safe custody of such of the Collateral as may come
into possession of the Bank and shall have no duty as to the preservation of
rights against prior parties or any other rights pertaining thereto. The Bank's
Rights and Remedies may be exercised without resort or regard to any other
source of satisfaction of the Liabilities.
7.4 All notices and other correspondence to the Borrower by the Bank
in connection with this Agreement shall be deemed effective upon mailing to the
Borrower's address found at beginning of this Agreement, which address may be
changed on seven (7) days written notice given the Bank by the Borrower. All
notices and other correspondence to the Bank by the Borrower in connection with
this Agreement shall be to the Bank's principal office, or as the Bank may
otherwise specify from time to time, and shall be sent by certified mail, return
receipt requested.
7.5 This Agreement shall be binding upon the Borrower and the
Borrower's heirs, executors, administrators, representatives, successors, and
assigns and shall enure to the benefit of the Bank and the Bank's successors and
assigns. In the event that the Bank assigns or transfers its rights under this
Agreement, the assignee shall thereupon succeed to and become vested with all
rights, powers, privileges, and duties of the Bank hereunder and the Bank shall
thereupon be discharged and relieved from its duties and obligations hereunder.
15
<PAGE> 16
7.6 Any determination that any provision of this Agreement of any
application thereof is invalid, illegal, or unenforceable in any respect in any
instance shall not affect the validity, legality and enforceability of such
provision in any other instance, or the validity, legality, or enforceability of
any other provision of this Agreement.
7.7 This Agreement and all other instruments executed in connection
herewith incorporates all discussions and negotiations between the Borrower and
the Bank, either express or implied, concerning the matters included herein and
in such other instruments, any custom or usage to the contrary notwithstanding.
No such discussions or negotiations shall limit, modify, or otherwise affect the
provisions hereof. No modification, amendment, or waiver of any provision of
this Agreement or of any provision of any other agreement between the Borrower
and the Bank is effective unless executed in writing by the party to be charged
with such modification, amendment and waiver, and if such party be the Bank,
then by a duly authorized officer thereof.
7.8 The proceeds of any collection, sale, or disposition of the
Collateral, or of any other payments received hereunder, shall be applied toward
the Liabilities in such order and manner as the Bank determines in its sole
discretion, any statute, custom, or usage to the contrary notwithstanding. The
Borrower shall remain liable to the Bank for any deficiency remaining following
such application.
7.9 The Borrower shall pay on demand all Costs of Collection and all
expenses of the Bank in connection with the preparation, execution, and delivery
of this Agreement and of any other documents and agreements between the Borrower
and the Bank, whether now existing or hereafter arising, and all other expenses
which may be incurred by the Bank in preparing or amending this Agreement and
all other agreements, instruments, and documents related thereto, or otherwise
with respect to the Liabilities. The Borrower authorizes the Bank to pay all
such expenses and, without notice, to charge the same to any account of the
Borrower with the Bank.
7.10 All amounts which the Bank may advance under any of Sections 2.2,
3.8, 3.10, 3.11, and 7.9, above, or otherwise under this Agreement, shall be a
Liability, shall be repayable to the Bank with interest at the highest rate
charged the Borrower by the Bank, on demand, and may be charged by the Bank to
any account which the Borrower maintains with the Bank.
7.11 This Agreement and all other instruments, documents, and papers
which relate thereto which have been or may be hereinafter furnished the Bank
may be reproduced by the Bank by any photographic, photostatic, microfilm,
micro-card, miniature photographic, aerographic, or similar process, and the
Bank may destroy the original from which any document was so reproduced. Any
such reproduction shall be admissible in evidence as the original itself in any
judicial or administrative proceeding (whether or not the original is in
existence and whether or not such reproduction was made in the regular course of
business).
7.12 This Agreement and all rights and obligations hereunder, including
matters of construction, validity and performance, shall be governed by the laws
of the Commonwealth of Massachusetts. The Borrower submits itself to the
jurisdiction of the Courts of said Commonwealth for all purposes with respect to
this Agreement and the Borrower's relationship with the Bank.
16
<PAGE> 17
7.13 The Borrower shall indemnify, defend, and hold the Bank harmless
of and from any claim brought or threatened against the Bank by the Borrower,
any guarantor or endorser of the Liabilities, or any other person (as well as
from attorneys' fees and expenses in connection therewith) on account of the
Bank's relationship with the Borrower or any other guarantor or endorser of the
Liabilities (each of which may be defended, compromised, settled, or pursued by
the Bank with counsel of the Bank's selection, but at the expense of the
Borrower). The within indemnification shall survive payment of the Liabilities
and/or any termination, release, or discharge executed by the Bank in favor of
the Borrower.
7.14 This Agreement shall remain in full force and effect until
specifically terminated in writing by a duly authorized officer of the Bank.
Such termination by the Bank may be conditioned upon such further
indemnifications provided to the Bank by or on behalf of the Borrower as the
Bank may request. No termination pursuant to Section 7.14 shall affect the
indemnification provided in Section 7.13, above.
7.15 The failure by the Borrower to perform all and singular the
Borrower's obligations hereunder including, without limitation, those included
in Sections 3.14, 3.16, 4.1, 4.2, 4.3 and 6.5, above, will result in irreparable
harm to the Bank for which the Bank will have no adequate remedy at law.
Consequently, such obligations are specifically enforceable by the Bank.
7.16 It is intended that
(a) this Agreement take effect as a sealed instrument;
(b) the security interests created by this Agreement attach to all
of the Bank's assets now owned or hereafter acquired which are capable of being
subject to a security interest;
(c) the security interests created by this Agreement secure all
Liabilities of the Borrower to the Bank, whether now existing or hereafter
arising; and
(d) all costs and expenses incurred by the Bank in connection with
the Bank's relationship(s) with the Borrower shall be borne by the Borrower; and
(e) the Bank's consent to any action of the Borrower which is
prohibited unless such consent is given may be given or related by the Bank in
its sole discretion.
7.17 The Borrower acknowledges having received a copy of the within
Agreement.
ATTEST: IMPLANT SCIENCES CORPORATION
-----------------------------------
(Borrower)
/s/ Stephen N. Bunker By: /s/ Anthony J. Armini
- ------------------------------ -------------------------
Anthony J. Armini, President and Treasurer
Print Name: Stephen N. Bunker / / United States Trust Company /X/ USTrust
-----------------
17
<PAGE> 18
By: /s/ Frank L. Davis, III
---------------------------------------
Frank L. Davis, III Its Vice President
18
<PAGE> 19
SCHEDULES
The following Schedules to the within Security Agreement are respectively
described in the section indicated. Those Schedules in which no information has
been inserted shall be deemed to read "No-Exclusions" with respect to EXHIBIT A,
"Not Applicable" with respect to EXHIBIT B, and "None" with respect to EXHIBITS,
C, D, and E.
EXHIBIT A
Exceptions to Security Interest Granted (Section 1.4)
EXHIBIT B
Subsidiaries, Affiliates, and Parent Corporations (Section 3.2)
Names and Addresses of Partners (Section 3.3)
EXHIBIT C
Trade Names; legal status; etc. (Section 3.4)
EXHIBIT D
Other Encumbrances and Liens (Section 3.5)
EXHIBIT E
Locations (Section 3.6)
19
<PAGE> 20
SCHEDULE A
Equipment leased from, various companies
SCHEDULE B
None
SCHEDULE C
Borrower's legal name was changed in 1984 from Procion
Corporation to Surface Alloys Corporation and in 1987 from Surface Alloys
Corporation to Implant Sciences Corporation.
SCHEDULE D
Security Interest in equipment leased from various companies
SCHEDULE E
None
20
<PAGE> 1
Exhibit 10.14
LESSOR'S SUBORDINATION AND CONSENT
This Lessor's Subordination and Consent (this "Consent") is
made as of May 1, 1996, by TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
(successor in interest to Richard J. Kelly, Trustee of Commercial Realty of
Burlington) (collectively "Lessor"), and IMPLANT SCIENCES CORPORATION
("Lessee"), to USTRUST, 30 Court Street, Boston, Massachusetts 02108 ("Lender"),
with reference to the following Recitals:
RECITALS:
A. Lessee has previously entered into that certain Lease dated October
2, 1991, as amended by Modification of Lease dated January 26, 1993; and by
Second Modification to Lease and Expansion Agreement dated September 29, 1995;
and by Lease dated September 29, 1995, by and between Lessor and Lessee
(collectively, the "LEASE"), relating to the premises commonly known as and
located at 107 Audubon Road, Building One, Wakefield, Massachusetts and more
particularly described in the Lease (the "LEASED PREMISES").
B. Concurrently herewith, Lessee is entering into a Loan Agreement with
Lender (the "LOAN AGREEMENT"), pursuant to which Lender will make a loan to be
secured, in part, by all equipment, inventory, trade fixtures, and all other
tangible and intangible personal property now or hereafter owned by Lessee and
located at the Leased Premises (the "COLLATERAL"), which Collateral is more
particularly described in Exhibit A attached hereto.
C. Lessee has requested that Lessor subordinate its rights in and to
the Collateral to the liens of Lender and Lessor is willing to subordinate its
rights to the Collateral upon the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing Recitals, Lessor
hereby agrees to subordinate its rights in and to the Collateral to the liens of
Lender on the Collateral as follows:
1. Nothing contained in this Consent shall be deemed or construed
as affecting any of Lessee's obligations under the Lease including, without
limitation, Lessee's obligations regarding surrender of the Leased Premises in
good condition and repair at the expiration of the term, Lessee's obligations to
remove the Collateral and to repair any damage occasioned thereby.
2. In the event Lessee defaults in its monetary obligations under
the Lease, Lender is not obligated to, but may cure such monetary default within
the time provided for Lessee's cure under the Lease.
3. Either Lessee or Lender will remove the Collateral from the
Leased Premises before the expiration of the lease term or within thirty (30)
days after the earlier termination thereof in the event of a default. If the
Collateral is not removed within thirty (30) days after written notice, then
Lessee and Lender waive any rights either may have had to the Collateral,
provided, however, if Lender is restrained from exercising its rights, such
thirty (30) day period shall be tolled until Lender obtains relief from such
restraint.
1
<PAGE> 2
4. Neither Lessee nor Lender shall be allowed to conduct any
public or liquidation sale on the Leased Premises or adjacent areas without
Lessor's prior written consent, which consent shall not be unreasonably withheld
or delayed, but in no event shall such sale disrupt or interfere with the rights
of adjacent property owners or Lessor's actions in securing or protecting the
Leased Premises from damage or vandalism, or in remarketing or releasing the
Leased Premises. Lender and Lessee hereby agree to indemnify, defend and hold
Lessor harmless from any and all cost, claim, damage, expense, liability or loss
suffered by Lessor and arising from any such sale (including reasonable
attorneys' fees).
5. Should Lessee default under the Loan Agreement and should
Lender desire to exercise its rights to any security interest in the Collateral,
Lender will so advise Lessor and will use reasonable care in affecting the
prompt removal of the collateral property from the Leased Premises and Lender
will be responsible to repair any and all damage occasioned by such removal.
Lender and Lessee hereby agree to indemnify, defend and hold Lessor harmless
from any and all cost, claim, damage, expense (including reasonable attorneys'
fees), liability or loss suffered by Lessor and arising from any and all damage
occasioned by such removal or interference with other tenants at the property of
which the leased Premises are a part, if any, or adjacent properties.
IN WITNESS WHEREOF, Lessor has caused its duly authorized
representatives to execute this Consent as of the date first written.
LESSOR: TIAA
-------------------------------------
a
-------------------------------------
By: /s/ Illegible Signature
------------------------------------
Its: Director
-----------------------------
AGREED AND ACCEPTED AS OF MAY 1 , 1996 BY:
- -------------------------------------------------------
LESSEE: Implant Sciences Corp.
----------------------------------
a
----------------------------------
By: /s/ A. J. Armini
--------------------------------
Its: President
-----------------------
LENDER: USTrust
-----------------------------------
a
-----------------------------------
By: /s/ Illegible Signature
--------------------------------
Its: Vice President
--------------------------
2
<PAGE> 3
EXHIBIT A
Description of the Collateral
All accounts; accounts receivable; inventory; contract rights; general
intangibles; machinery and equipment; goods; chattel paper; fixtures; books,
records and information relating to the Collateral and/or the Debtor;
instruments; documents of title, documents; securities; trade secrets; computer
programs; customer lists; papers relating to the Collateral and/or the Debtor's
business; tax refunds; liens; guaranties, rights, and remedies pertaining to any
of the foregoing; all whether now owned or in which the Debtor has an interest
or hereafter acquires, or in which the Debtor obtains an interest, and the
products, proceeds, and accessions of the foregoing. Proceeds includes, without
limitation, insurance proceeds and each type of property described above.
3
<PAGE> 1
Exhibit 10.15
FIRST AMENDMENT TO LOAN AGREEMENT
This First Amendment is made as of this 24th day of July, 1997 to the
May 1, 1996 Loan Agreement (the "Agreement") by and between Implant Sciences
Corporation (the "Borrower"), a Massachusetts corporation (the "Borrower"), with
its principal office at 107 Audubon Road, Wakefield, Massachusetts 01880-1246
and USTrust, a Massachusetts trust company with its principal office at 30 Court
Street, Boston, Massachusetts 02108 (the "Bank") in consideration of the mutual
covenants contained herein and benefits to be derived herefrom. As used herein,
all defined terms have the meanings attributed thereto in the Agreement, unless
otherwise noted.
1. The Agreement is hereby amended as follows:
a. Article I, Section 1.b.ii. of the Agreement is hereby deleted
and replaced in its entirety with the following:
"ii. Three Hundred Thousand Dollars ($300,000.00) or
such other amounts as the Bank may set from time to time in the
Bank's discretion."
b. Article II, Section 2 the Agreement is hereby deleted and
replaced in its entirety with the following:
"II. 1997 TERM LOAN
2. Simultaneously with the execution of the First
Amendment to the Agreement and in reliance upon the
representations, warranties, and covenants made in the Agreement
or in any other agreement, instrument or paper, the Bank shall
lend the Borrower the sum of One Hundred Five Thousand Five
Hundred Fifty-Five Thousand Dollars ($105,555.00) (the "1997
Term Loan") in exchange for, and repayable with interest, as
provided in the Borrower's Commercial Promissory Note (the "1997
Term Note") substantially in the form of Exhibit B annexed
hereto."
c. Article III, Section 3.b. of the Agreement is hereby deleted
in its entirety.
d. Article III, Section 3.c. of the Agreement is hereby amended
by deleting the reference to "Guarantor" and replacing same with a
reference to Anthony J. Armini.
e. Article III, Section 3.d.ii. of the Agreement is hereby
deleted in its entirety.
f. Article III, Sections 4.a. and 4.b. of the Agreement are
hereby deleted and replaced in their entirety with the following:
"a. The ratio of EBIT to Debt Service shall not at any
time be less than 3.0 to 1.0. EBIT shall mean the
Borrower's earnings before interest and taxes plus
depreciation as determined in accordance with generally
accepted accounting principles; and Debt Service shall
mean all principal and interest
1
<PAGE> 2
payments on account of all outstanding and anticipated
indebtedness owed or to be owed by the Borrower to the
Bank or to other third parties.
b. The Borrower shall maintain a minimum Tangible
Capital Base of not less than Five Hundred Thousand
Dollars ($500,000.00) as of June 30, 1996, which minimum
Tangible Capital Base shall increase by One Hundred
Thousand Dollars ($100,000.00) at each fiscal year end
thereafter. As used herein, Tangible Capital Base shall
mean the Borrower's net worth less intangible assets
plus subordinated debt."
2. All references to the "Guarantor" in the Agreement are hereby deleted.
3. The Agreement is hereby amended by deleting Exhibit A and Exhibit B and
substituting the annexed Exhibit A and Exhibit B in lieu thereof.
4. Except as specifically amended herein, all terms and conditions of the
Agreement shall remain in full force and effect as originally
constituted.
5. Each of the representations of the Borrower contained in the Agreement
remain accurate and correct as of the date hereof and are hereby
restated and reaffirmed.
6. The Borrower represents, warrants, and agrees that the Borrower has no
defenses, counterclaims or offsets against the Bank in connection with
the Agreement, the Revolving Credit Note, the 1997 Term Note or any
other documents executed in connection therewith, and to the extent
that the Borrower may claim that any such offsets, defenses, or
counterclaims exist, the Borrower hereby WAIVES and RELEASE the Bank
from the same.
2
<PAGE> 3
7. This First Amendment shall take effect as a sealed instrument under the
laws of the Commonwealth of Massachusetts as of the date first written
above.
ATTEST: IMPLANT SCIENCES CORPORATION
/s/ Stephen N. Bunker By: /s/ Anthony J. Armini
--------------------- -------------------------
Anthony J. Armini, President
ATTEST: USTRUST
/s/ Cori DeLue By: /s/ Frank L. Davis III
- --------------------------- -----------------------
Frank L. Davis, III
Vice President
COMMONWEALTH OF MASSACHUSETTS
Middlesex , ss. August 5 , 1997
- ---------- -------------
Then personally appeared the above-named Anthony J. Armini and
acknowledged the foregoing to be his free act and deed, before me,
/s/ Diane J. Ryan
-------------------------------
Notary Public
My commission expires: 9/29/2000
3
<PAGE> 1
Exhibit 10.16
COMMERCIAL PROMISSORY NOTE
/ / UNITED STATES TRUST COMPANY /X/USTrust
40 Court Street 30 Court Street
Boston, MA 02108 Boston, MA 02108
$300,000.00 Boston, Massachusetts July 24, 1997
FOR VALUE RECEIVED, the undersigned (hereinafter, the "Borrower")
promise(s) to pay to the order of the banking institution named above next to
the box marked above with an "X" or the like (hereinafter, with any subsequent
holder, the "Bank") at an office of the Bank, the principal sum of Three Hundred
Thousand ($300,000) Dollars or such lesser amount as may be outstanding under
this note, with interest thereon, in accordance with the provisions which are
marked with an "X" or the like, below, or on demand if none are so marked.
INTEREST RATE (Check One)
Interest shall be determined in all instances based upon a 360 day year
and actual day months. Interest on the unpaid principal balance of the Note
shall accrue as follows:
/X/ FLOATING RATE. At the floating rate equal to 1.0 % per annum
above the Base Lending Rate (hereinafter defined), however in no
event shall said rate of interest be less than, if filled in,
_________% per annum at any time. The term "Base Lending Rate"
means the rate of interest established from time to time by the
Bank as its base lending rate and may or may not be the lowest
rate of interest charged by the Bank to any of its customers.
Changes in the Base Lending Rate shall take effect on the date
announced by the Bank unless otherwise specified in the
announcement.
/ / FIXED RATE. At the rate of _____________ percent per annum.
/ / DISCOUNT. Interest to maturity has been deducted from the
proceeds of the Note. Interest at the rate of _____________
percent per annum shall be paid on any amount not paid when due
hereunder until that amount and any such interest are so paid.
/ / OTHER.
INTEREST PAYMENTS (Check One)
Interest, at the rate set forth above, shall be paid by the Borrower to
the Bank as follows, or monthly in arrears if none are so marked:
/X/ PERIODICALLY. Monthly, but if filled in then __________________,
in arrears, with the first payment due on August 1, 1997 and
each subsequent payment due on the like day of each consecutive
calendar month, but if filled in then calendar _______,
thereafter.
1
<PAGE> 2
/ / AT MATURITY. At the maturity of the Note.
/ / INTEREST INCLUDED IN REPAYMENTS. Interest is included in the
payment(s) to be made pursuant to the Repayment Provisions set
forth below.
/ / OTHER.
REPAYMENT PROVISIONS (Check One)
In addition to any Interest Payments to be made as indicated above, the
Borrower shall pay the Bank the principal sum set forth above as follows, or on
demand if none are so marked:
/ / TIME. _______________ days, but if filled in then __________
year(s), after the date hereof.
/ / INSTALLMENTS. In Consecutive monthly, but if filled in then
____________________, installments, of which each but the last
shall be $ and the last of which shall be equal to the then
unpaid principal balance of the Note plus all accrued and unpaid
interest thereon. The first such monthly, but if filled in then
_________________, installment shall be due on , 19 , and each
subsequent installment shall be due on the like day of each
consecutive month, but if filled in then ____________
thereafter.
/X/ ON DEMAND. On Demand.
/ / PAYMENTS TO BE MADE UNTIL DEMAND. On demand with payments of
$______________ each to be made monthly, but if filled in then
_________________, unless and until such demand is made. The
first such payment shall be due on __________________, and each
subsequent installment shall be due on the like day of each
consecutive month, but if filled in then ____________
thereafter.
/ / OTHER.
CERTAIN DEFINITIONS
(a) Borrower. As used herein, "Borrower" means the persons and/or
entities named herein as borrower, and/or otherwise signing the
Note as maker, and each of them, jointly and severally if more
than one.
(b) Guarantor. As used herein, "Guarantor" means the endorser(s)
and/or guarantor(s) of the Note, and/or any guarantor(s) of any
obligations now existing and/or hereafter arising of the
Borrower to the Bank, any Affiliate (hereinafter defined) and/or
any Participant (hereinafter defined), and each of them, if at
all.
2
<PAGE> 3
(c) Borrower and any Guarantor. As used herein, "Borrower and any
Guarantor" means all persons and/or entities which constitute
the Borrower, and if any, the Guarantor, and each of them.
(d) Affiliate. As used herein, "Affiliate" means any parent company
of the Bank, and all subsidiaries and/or affiliates of the Bank
and/or said parent company, now existing and/or hereafter
arising, and each of them.
(e) Participant. As used herein, "Participant" means any bank or
other lender acting as a participant under any loan arrangement
with the Borrower and any Guarantor, now existing and/or
hereafter arising, in which the Bank or any Affiliate is a
participant, including without limitation the Note if
applicable.
(f) Loan Documents. As used herein, "Loan Documents" means
documents, if any, which secure, evidence and/or relate to the
loan evidenced by the Note, including without limitation any
mortgages, security agreements, financing statements, loan
applications, pledges, collateral assignments, commitment
letters, loan agreements, and set-off rights contained in any
other instrument whatsoever, all the foregoing now existing
and/or hereafter arising, including, without limitation, the
Loan Agreement dated May 1, 1996 executed by the borrower and
the Bank as amended by a First Amendment to Loan Agreement of
even date (as amended and in effect from time to time the "Loan
Agreement").
(g) Note. As used herein, "Note" means this promissory note.
The Borrower and any Guarantor hereby certify, represent and covenant
to the Bank that the proceeds and basis of the loan evidenced by the Note are
for business and commercial purposes only, and that the proceeds of the Note
have not been and/or will not be used for personal (non-business), family,
household or agricultural purposes, and this has been relied on by the Bank.
The Borrower and any Guarantor shall pay to the Bank an administrative
late fee of the greater of twenty-five ($25.00) dollars or five (5%) percent of
any periodic payment under the Note not received by the Bank within fifteen (15)
days after the periodic payment is due. Neither the inclusion of this provision
nor the Borrower's or any Guarantor's payment of such an administrative late fee
shall excuse the Borrower and any Guarantor from timely making those payments
otherwise required to be made under the Note, or waive or limit any rights which
the Bank has under the Note. The obligation of the Borrower and any Guarantor to
pay such administrative late fees is in addition to all other payment
obligations of the Borrower and any Guarantor under the Note.
Upon any default under the Note, interest shall accrue thereafter on
the entire unpaid principal balance until the Note is paid in full at a rate per
annum ("Default Rate") equal to the aggregate of two percent (2%), plus the rate
provided in the Note. The Default Rate is separate and in addition to the
administrative late fee set forth herein for any principal and/or interest
installment under the Note not received by the Bank within fifteen (15) days
after the installment is due.
3
<PAGE> 4
Any payments received by the Bank on account of the Note prior to
demand or acceleration shall be applied first to any costs, expenses, or charges
then owed the Bank by the Borrower; second, to accrued and unpaid interest; and
third, to the unpaid principal balance hereof. Any payments so received after
demand or acceleration shall be applied in such manner as the Bank may determine
in the Bank's sole discretion.
If the Note is not payable on demand, then on that date on which by the
terms hereof, the then entire principal balance of the Note is due, at all times
thereafter, the aggregate of the then unpaid principal balance of the Note, and
all accrued and unpaid interest not so paid shall be payable on demand. If the
Note is payable on demand, then the inclusion of the following default provision
shall not alter, affect, or otherwise limit the Bank's right to make demand at
any time. The Bank, at its option, may declare the entire unpaid principal
balance of the Note and accrued unpaid interest thereon to be immediately due
and payable without demand, notice or protest (which are hereby waived) upon the
occurrence of any one or more of the following events (herein, "Events of
Default"): (a) The failure by the Borrower to pay upon demand (or when due, if
not payable on demand) any of the Borrower's liabilities, obligations, and
indebtedness to the Bank, any Affiliate and/or any Participant under the Note
and/or the Loan Documents; (b) The failure by the Borrower to promptly,
punctually, and faithfully perform, discharge, or comply with any of the
Borrower's liabilities, obligations, indebtedness, or covenants to the Bank, any
Affiliate and/or any Participant under the Note and/or the Loan documents; (c)
The occurrence of any event of default under any agreement between the Bank and
the Borrower, or instrument or paper given the Bank by the Borrower, whether
such agreement, instrument, or paper now exists or hereafter arises
(notwithstanding that the Bank may not have exercised its rights upon default
under any such other agreement, instrument, or paper), including, without
limitation, the occurrence of an Event of Default (as defined therein) under the
Commercial Promissory Note of even date in the original principal amount of
$105,555.00 made payable by the Borrower in favor of the Bank (the liabilities,
obligations, indebtedness, and covenants described in (a), (b) and (c) are
referred to herein as the "Liabilities"); (d) Any representation or warranty
heretofore, now, or hereafter made by the Borrower and any Guarantor to the
Bank, in any document, instrument, agreement, or paper was not true or accurate
when given; (e) The occurrence of any event such that any indebtedness of the
Borrower and any Guarantor to any creditor other than the Bank could be
accelerated, notwithstanding that such acceleration has not taken place; (f) Any
act by, against, or relating to the Borrower and any Guarantor, or the property
or assets of the Borrower and any Guarantor, which act constitutes the
application for, consent to, or sufferance of the appointment of a receiver,
trustee, or other person, pursuant to a court action or otherwise, over all, or
any part of the property of the Borrower and any Guarantor; the granting of any
trust mortgage or execution of an assignment for the benefit of creditors of the
Borrower and any Guarantor, or the occurance of any other voluntary or
involuntary liquidation or extension of debt agreement for the Borrower and any
Guarantor; the failure by the Borrower and any Guarantor to generally pay the
debts of the Borrower and any Guarantor as they mature; adjudication of
bankruptcy or insolvency relative to the Borrower and any Guarantor: the entry
of an order for relief or similar order with respect to the Borrower and any
Guarantor in any proceeding pursuant to Title 11 of the United States Code, as
amended (commonly referred to as the Bankruptcy Code) or any other federal
bankruptcy law; the filing of any complaint, application, or petition by or
against (however, if against, only if not dismissed within 30 days of the
filing) the Borrower and any Guarantor initiating any matter in which the
Borrower and any Guarantor is or may be granted any relief from the debts of the
Borrower and any Guarantor pursuant to the
4
<PAGE> 5
Bankruptcy Code or any other insolvency statute or procedure: the calling or
sufferance of a meeting of creditors of the Borrower and any Guarantor; the
meeting by the Borrower and any Guarantor with a formal or informal creditor's
committee; the offering by, or entering into by, the Borrower and any Guarantor
of any composition, extension or any other arrangement seeking relief or
extension for the debts of the Borrower and any guarantor, or the initiation of
any other judicial or non-judicial proceeding or agreement by, against (however,
if against, only if not dismissed within 30 days of the filing), or including
the borrower and any Guarantor which seeks or intends to accomplish a
reorganization or arrangement with creditors; (g) The imposition of any lien
upon any material portion of the assets of the Borrower and any Guarantor or the
entry of any judgment against the Borrower and any Guarantor, which lien is not
discharged or judgment is not satisfied or appealed from (with execution or
similar process stayed) within fifteen (15) days of its imposition or entry; (h)
The occurrence of any materially adverse event or circumstance with respect to
the Borrower and any Guarantor such that the Bank deems itself insecure; (i) The
entry of any court order which enjoins, restrains or in any way prevents the
Borrower from conducting all or any part of Borrower's business affairs in the
ordinary course; (j) The service of any process upon the Bank seeking to attach
by mesne or trustee process any funds of the Borrower on deposit with the Bank
or with an Affiliate of the Bank; (k) The occurrence of any loss, theft, damage
or destruction to or of any material portion of the assets of the Borrower and
any guarantor, or the sale (other than sales in the ordinary course of business)
or encumbrance to or of any of the assets of the Borrower and any guarantor; (l)
The death, termination of existence, dissolution, winding up, or liquidation of
the Borrower and any Guarantor; (m) The merger or consolidation of the Borrower
and any guarantor with or into any other corporation or other entity; (n) The
occurrence of any of the foregoing Events of Default with respect to any
guarantor, endorser, or surety to the Bank of the Liabilities, or the occurrence
of any of the foregoing Events of Default with respect to any parent (if the
Borrower is a corporation), subsidiary, or affiliate of the Borrower, as if such
guarantor, endorser, surety, parent, subsidiary, or affiliate were the Borrower
described therein; and/or (o) The termination of any guaranty by any guarantor
of the Liabilities.
The Borrower and any Guarantor respectively waive presentment, demand,
notice, and protest, and also waive any delay on the part of the holder hereof.
Each assents to any extension or other indulgence (including, without
limitation, the release or substitution of collateral) permitted the Borrower
and any Guarantor by the Bank with respect to the Note and/or any collateral
given to secure the Note or any extension or other indulgence, as described
above, with respect to any other liability or any collateral given to secure any
other liability of the borrower and any Guarantor to the Bank. All monies due
under the Note and/or Loan Documents shall be without setoff or counterclaim on
the part of the Borrower and any Guarantor.
Any and all now existing and/or hereafter arising deposits, or other
sums at any time credited by, or due to, the Borrower and/or any Guarantor from
the Bank, any Affiliate and/or any Participant, including without limitation,
being a participant under the Note, if at all, and any now existing and/or
hereafter arising monies, securities, instrument, certificates, repurchase
agreements, and/or other property of the Borrower and any Guarantor in the
possession of the Bank, any Affiliate an/or any Participant, regardless of the
reason the Bank of such Affiliate or Participant had received same (all the
foregoing collectively called "Deposits") shall at all times constitute security
for the Liabilities including the Note, and/or for any endorsement of the Note
and/or guaranty by any Guarantor (said endorsement of the Note and/or guaranty
by any Guarantor hereinafter called "Guaranty
5
<PAGE> 6
Obligations"), and may be held, applied and/or set off by the Bank, any
Affiliate and/or any Participant against the Liabilities and/or Guaranty
obligations at any time when due, whether or not other collateral is held by or
otherwise available to the Bank, any Affiliate and/or any Participant, whether
such collateral be security in full or in part. Without limitation, and in
addition to the foregoing, in the event the Bank, any Affiliate or any
Participant at any time or times hereafter is served with trustee process of any
kind which attach or order any payment from any goods, effects and/or credits of
the Borrower and any guarantor in the hands or possession of the Bank, any
Affiliate or any Participant, then the Bank, any Affiliate and/or any
Participant without notice or demand to the Borrower and any Guarantor may deem
the dollar amount set forth in the trustee process as becoming immediately due
and payable under the Note, any endorsement and/or guaranty by any Guarantor,
and/or any other loan arrangement with the Borrower, and set off said amount
against any Deposits being held by the Bank, any Affiliate and/or any
Participant, and any such payment made by said setoff shall be applied as the
Bank, any Affiliate or any Participant shall in its sole discretion determine,
and when applied to any outstanding principal, may be applied in inverse order
of maturity. The Borrower and any Guarantor hereby grant to the Bank, any
Affiliate and/or any Participant a security interest in the Deposits to secure
all obligations of the Borrower and any Guarantor, or any one or more persons or
entities comprising the Borrower and any Guarantor, to the Bank, any Affiliate
and/or any Participant under the liabilities and/or the Guaranty Obligations.
The Borrower and any Guarantor hereby authorize the Bank, any Affiliate and/or
any Participant to charge the Deposits which the Borrower and any Guarantor may
at any time maintain with the Bank, and Affiliate and/or any Participant for any
payment due on account of the Liabilities and/or the Guaranty Obligations. The
Borrower and any Guarantor agree that the rights to set off against Deposits and
to charge Deposits granted herein by the borrower and any Guarantor to the Bank,
any Affiliate or any Participant (a) are irrespective of the source or
contributor(s) of funds or other property which comprise the deposits, whether
or not the Deposits, Liabilities and/or Guaranty Obligations are (i) individual
and/or joint of the Borrower and any Guarantor, or any one or more persons or
entities comprising the Borrower and any Guarantor and/or (ii) in the name of or
by the Borrower and any Guarantor, or any one or more persons or entities
comprising the Borrower and any Guarantor, with another or others; and (b) are
at the option of the Bank, any Affiliate or any Participant, and in no event is
the Bank, any Affiliate or any Participant under a duty to exercise setoff
against Deposits or to charge Deposits.
The Borrower and any Guarantor agree that the Bank and any Affiliate
shall have the right at any time, and from time to time, with or without notice
to the Borrower and any Guarantor to enter into any participation agreement(s)
with other(s) which grants participation interests to the Bank and other(s) (a)
in the Note and any loan evidenced by the Note and the Loan Documents, (b) in
any other loan or loans, including promissory notes and all loan documents
applicable thereto, now existing and/or hereafter arising, by the Borrower
and/or any Guarantor with the Bank and/or any Affiliate, and/or (c) in any other
loan or loans, including promissory notes and all loan documents applicable
thereto, now existing and/or hereafter arising, by the Borrower and/or any
Guarantor with any other bank(s) or other lender(s). In addition, the Borrower
and any Guarantor agree that the Bank, any Affiliate and/or any Participant
and/or any other holder of the Note shall have the right to sell or otherwise
transfer the Note and/or any Loan Documents at any time.
In the event at any time the Borrower and any Guarantor has a claim,
cause of action, setoff, defense, counterclaim or third party claim
(collectively "Borrower Claim") against the Bank and/or
6
<PAGE> 7
any Affiliate, the Borrower and any Guarantor agree to commence a lawsuit and/or
other proceeding on the Borrower Claim against the Bank only in Boston,
Massachusetts or such other place where the Bank has its principal place of
business, and only within a period of one year from the time the Borrower Claim
first arises, or such other minimum period permitted by law in the event the
court finds the one-year period insufficient.
The Borrower agrees not to seek or accept contribution, reimbursement,
indemnity, subrogation or enforcement of any rights from anyone also obligated
under the Note, as maker, guarantor, endorser or otherwise, if at all; and any
Guarantor agrees not to seek or accept contribution, reimbursement, indemnity,
subrogation or enforcement of any rights from the Borrower, and any other
guarantor or endorser hereof, or anyone otherwise obligated under the Note; all
the foregoing in this paragraph until all obligations under the Note are paid in
full and no claim whatsoever exists and/or may exist against the Bank, any
Affiliate, and/or Participant for repayment, a preference payment in bankruptcy,
or otherwise in connection with the Borrower and any Guarantor.
The Borrower and any Guarantor agree to indemnify, defend and hold
harmless the Bank, any Affiliate, and/or any officer, director and/or employee
of the Bank and/or any Affiliate of and from any claim or claims now existing,
hereafter arising and/or hereafter brought and/or threatened by the Borrower and
any Guarantor or by any other person or entity, in connection therewith, on
account of or relating to any relationship and/or dealings with the Borrower and
any Guarantor, including without limitation any person or entity contesting the
validity or priority of any mortgage(s) and/or other collateral granted to the
Bank.
The Borrower and any Guarantor agree to promptly pay to the Bank and
any Affiliate for all legal services hereafter rendered to the Bank and/or any
Affiliate including all time, legal fees and expenses, in connection with the
review, drafting, preparation for enforcement, negotiation, enforcement,
amendment, extension, substitution and/or modification of the Note, any
endorsement and/or guaranty thereof, any endorsement and/or guaranty of the
obligations of the Borrower to the Bank, any Loan Documents, any other
instruments securing or otherwise relating to the Note, any other matters
relating to the collection of the loan proceeds and/or realization on any
collateral given to the Bank, any bankruptcy and/or foreclosure proceedings,
procedures and expenses which relate to the Borrower and any Guarantor and/or
any mortgage(s) and/or other collateral given by the Borrower and any Guarantor,
and all rights and remedies of the Bank, whether now existing and/or hereafter
arising against the Borrower and any Guarantor and/or any collateral given by
the Borrower and any Guarantor to the Bank, whether or not court proceedings are
brought. The responsibility set forth anywhere in the Note of Borrower and any
Guarantor to pay for the attorneys time, legal fees and expenses of the Bank
and/or any Affiliate shall include both outside counsel engaged by the Bank, and
any in-house counsel employed by the Bank and/or any Affiliate at the same rate
as comparable outside counsel.
IN ANY CASE, CONTROVERSY OR MATTER WHICH ARISES OUT OF, OR IS IN
RESPECT OF, THE NOTE AND/OR LOAN EVIDENCED THEREBY, ANY LOAN DOCUMENTS, ANY
COLLATERAL SECURING THE NOTE, ANY OTHER INSTRUMENT IN CONNECTION WITH THE NOTE,
AND/OR ANY OTHER BUSINESS RELATIONSHIP OR TRANSACTION BETWEEN THE BANK AND/OR
ANY AFFILIATE WITH THE BORROWER
7
<PAGE> 8
AND ANY GUARANTOR, WHETHER NOW EXISTING OR HEREAFTER ARISING, THE BORROWER AND
ANY GUARANTOR KNOWINGLY, VOLUNTARILY AND INTENTIONALLY: (A) WAIVE ANY RIGHT TO
AND AGREE NOT TO BRING, COMMENCE, OR OTHERWISE TAKE ANY ACTION TO TRANSFER, ANY
PROCEEDING INCLUDING WITHOUT LIMITATION COURT ACTION, ARBITRATION, MEDIATION,
ADMINISTRATIVE PROCEEDING OR OTHERWISE AGAINST THE BANK AND/OR ANY AFFILIATE,
OTHER THAN IN THE COMMONWEALTH OF MASSACHUSETTS; (B) WAIVE ANY NOW EXISTING
AND/OR HEREAFTER ARISING RIGHT TO A TRIAL BY JURY; AND (C) WAIVE ANY NOW
EXISTING AND/OR HEREAFTER ARISING RIGHT TO ANY CONSEQUENTIAL PUNITIVE, SPECIAL,
EXEMPLARY AND/OR INCIDENTAL DAMAGES.
The Borrower and any Guarantor shall maintain full and accurate books
and records showing in detail the income and expenses, and assets and
liabilities, of the borrower and any guarantor and any mortgaged premises which
may secure the Note and/or any endorsement and/or guaranty by any Guarantor;
and, upon request from the Bank, shall permit the Bank and/or its
representatives to examine and make copies of the books and records of the
Borrower and any Guarantor and any mortgaged premises which may secure the Note
and/or any endorsement and/or guaranty by any Guarantor. The Borrower and any
Guarantor shall deliver to the Bank annual financial statements including
without limitation a statement of assets, liabilities and net worth and shall
deliver to the Bank all other financial information required under the Loan
Agreement.
At all times when the security for the Note and/or any endorsement
and/or guaranty by any Guarantor includes real estate, the Borrower and any
Guarantor agree that the Bank and any Affiliate and representatives shall have
the right at any time hereafter to enter the mortgaged premises (a) for purposes
of inspecting and testing for hazardous material and oils to determine whether
or not the premises violate any provisions of M.G.L. ch. 21E and regulations
relating thereto, and/or (b) for purposes of appraising the mortgaged premises.
Any default under the Note shall be a default by the Borrower and any
Guarantor under any other promissory note and/or other instrument by the
Borrower and any Guarantor to the Bank, any Affiliate and/or any Participant,
now existing or hereafter arising. Any default by the Borrower under any other
promissory note and/or other instrument by the Borrower and any Guarantor to the
Bank, any Affiliate and/or any Participant now existing or hereafter arising,
shall be a default under the Note and Loan Documents. All mortgages and/or other
collateral from the Borrower to the Bank and/or any Affiliate, if any, now
existing or hereafter arising, shall also secure the obligations of the Borrower
under the Note. All mortgages and/or other collateral, if any, which secure the
Note shall also secure all promissory notes and other obligations of the
Borrower to the Bank, now existing or hereafter arising, whereof individual
and/or joint of the Borrower, or any one or more persons or entities comprising
the Borrower.
AT THE DUE DATE OF THE NOTE (AT MATURITY, UPON EARLIER ACCELERATION, OR
IN THE EVENT THE NOTE IS A DEMAND NOTE), THE BANK MAY DEMAND PAYMENT OF THE
NOTE, MAY REWRITE THE NOTE BY AGREEMENT AT A GREATER OR LESSER RATE OF INTEREST,
OR MAY, BY AGREEMENT, ALLOW PAYMENTS TO BE MADE ON SAID NOTE AT THE SAME, OR A
LESSER OR A GREATER RATE OF INTEREST, IF AT ALL, THE NOTE IS A CONTRACT FOR A
SHORT-TERM LOAN.
8
<PAGE> 9
THE LOAN IS PAYABLE IN FULL AT MATURITY, UPON EARLIER ACCELERATION, OR IN THE
EVENT THE NOTE IS A DEMAND NOTE. THE BORROWER MUST REPAY THE ENTIRE PRINCIPAL
BALANCE OF THE LOAN AND UNPAID INTEREST WHEN DUE. THE BANK IS UNDER NO
OBLIGATION TO REFINANCE THE LOAN AT THAT TIME. THE BORROWER WILL, THEREFORE, BE
REQUIRED TO MAKE PAYMENT OUT OF OTHER ASSETS THE BORROWER MAY OWN, OR WILL HAVE
TO FIND ANOTHER BANK OR LENDER WILLING TO LEND THE BORROWER THE MONEY AT
PREVAILING MARKET RATES, WHICH MAY BE CONSIDERABLY HIGHER THAN THE INTEREST RATE
ON THE LOAN.
Within ten (10) days after requested by the Bank by notice to the
Borrower, Borrower and any Guarantor agree to execute and deliver to the Bank a
written statement addressed to the Bank, any Affiliate, any Participant and/or
proposed Participant, and signed by the Borrower and any Guarantor under the
penalties of perjury, and duly notarized, acknowledging the principal and
interest balances then due under the Note, and further acknowledging that the
Note is in full force and effect and unmodified, that the Borrower and any
Guarantor have no defenses, offsets or counterclaims to the payment and/or
performance of the obligations of the Borrower and any Guarantor under the Note,
and have no claims or causes of action of any kind whatsoever then existing
against the Bank, any Affiliate and/or Participant, and a statement that the
Bank is not in default under the Note or any loan or other agreement relating to
the Note or any obligations evidenced thereby, all the foregoing in this
sentence except as may otherwise exist in which event he Borrower shall specify
what otherwise exists, and a statement regarding such other matters which the
Bank may require.
In the event that prior to the recording of any mortgage, financing
statement or other collateral instrument, if any, given herewith by the Borrower
and any Guarantor to the Bank, there shall exist or otherwise be made known to
the Bank or any Affiliate, any voluntary or involuntary creation or occurrence,
of any encumbrance, mortgage, lien, attachment, or other security interest on or
in any real or personal property given herewith by the Borrower and any
Guarantor as collateral to the Bank, or any portion thereof (except as otherwise
specifically permitted, if at all, in any of the Loan Documents), or the
transfer of such real or personal property or any portion thereof or any legal
or beneficial interest therein, or the Borrower and any Guarantor become the
subject of a bankruptcy petition, assignment for the benefit of creditors, or
any arrangement with creditors, or any restraining order or injunction exists
against the Borrower and any Guarantor, at the option of the Bank all
obligations of the Bank to make the loan and/or advance monies pursuant to any
loan agreement, of which the Note evidences the loan in whole or in part, shall
be void, and the Note shall become immediately due and payable without notice or
demand to the extent of all monies due thereunder which have previously been
paid by the Bank.
The Borrower and any Guarantor acknowledge that the Bank has notified
and does hereby notify the Borrower and any Guarantor as follows:
(a). THE RESPONSIBILITY OF THE ATTORNEY FOR THE BANK IS TO PROTECT
THE INTEREST OF THE BANK;
(b). THE BORROWER AND ANY GUARANTOR MAY, AT BORROWER'S OR
GUARANTOR'S OWN EXPENSE, ENGAGE AN ATTORNEY OF THEIR OWN
9
<PAGE> 10
SELECTION TO REPRESENT THE BORROWER'S OR GUARANTOR'S OWN
INTERESTS IN THE TRANSACTION.
No delay or omission by the Bank in exercising or enforcing any of the
Bank's powers, rights, privileges, remedies, or discretions hereunder shall
operate as a waiver thereof on that occasion nor on any other occasion. No
waiver of any default hereunder shall operate as a waiver of any other default
hereunder, nor as a continuing waiver. The Note shall be binding upon the
Borrower and each endorser and guarantor hereof and upon their respective heirs,
successors, assigns, and representatives, and shall inure to the benefit of the
Bank and its successors, endorsees, and assigns. The Borrower and any Guarantor
each authorizes the Bank to complete the Note if delivered incomplete in any
respect by the Borrower and any Guarantor. The Note is delivered to the Bank at
one of its offices in Massachusetts, shall be governed by the laws of the
Commonwealth of Massachusetts, and shall take effect as a sealed instrument. The
Borrower and any Guarantor of the Note each submits to the jurisdiction of the
courts of the Commonwealth of Massachusetts for all purposes with respect to the
Note, any collateral given to secure their respective liabilities, obligations
and indebtedness to the Bank, and their respective relationships with the Bank.
The Borrower and any Guarantor agree that all assets in which the Borrower and
any Guarantor have previously granted or hereafter grant to the Bank or any
Affiliate a security, mortgage or collateral interest shall secure the
Liabilities and Guaranty Obligations. The Note includes all future amendments,
decreases, extensions, increases, modifications, renegotiations, renewals,
replacements, revisions, rewritings and/or substitutions thereof, in whole or in
part ("Modifications/Substitutions"). The Borrower and any Guarantor agree that
any mortgages and/or other collateral, if any, which may secure the Note, secure
all Modifications/Substitutions of the Note, if any, now existing and/or
hereafter arising, and include all future Modifications/Substitutions of such
mortgages and/or other collateral, if any, now existing and/or hereafter
arising. To the maximum extent permitted by law, except for payments made on
account of the Note which reduce the monies due under the Note, all other
provisions of the Note, shall survive (a) the payment of all principal and
interest obligations of the borrower and any Guarantor under the Note, (b) any
termination, release or discharge of the principal and interest obligations of
the Borrower and any Guarantor to the Bank and/or any Affiliate, and (c) the
discharge or satisfaction of any mortgage, security agreement and/or other
collateral, if any, which may at any time secure the Note. Any prepayment of the
Note shall be applied to principal in inverse order of maturity. Time of all
payments and provisions hereof is of strict essence. In the event more than one
person or entity comprises the Borrower, all provisions herein of the Borrower
are joint and several obligations. The Borrower and any Guarantor acknowledge
and agree and say under the penalties of perjury that (a) each is executing the
Note as the free act and deed of each, (b) each is not acting under any duress
or undue influence, and (c) the Bank and/or any Affiliate have made no
agreements, warranties, representations or promises in connection with the Note
and/or any loan agreements or other agreements relating to the Note, except as
set forth herein or in a written instrument executed and delivered by the Bank.
The provisions of the Note are hereby declared to be severable, and the
invalidity of any provision or application thereof shall not effect any other
provision or any other application thereof. Interest on principal under the Note
shall accrue only on the amount of principal from time to time actually
outstanding under the Note. The Bank records, including without limitation,
computer printout of the Bank showing an account of the Borrower, shall be
admissible as evidence in any action or proceeding in connection with the Note,
and shall constitute prima facie evidence of the items
10
<PAGE> 11
contained therein. The Note may not be modified orally, but may only be modified
by written instrument signed by the holder hereof.
In the event the Borrower and any Guarantor is a trust or corporation,
each person signing below in behalf of said entity personally and individually
certifies to the Bank that the person(s) executing the Note (a) is a trustee of
any applicable trust, or an officer of any applicable corporation, and (b) has
been duly authorized, empowered and directed to execute and deliver the Note
and, if any, all other instruments securing or otherwise relating to the Note,
and any other agreements or instruments determined by such person in such
person's sole discretion to be appropriate or incidental to the loan evidenced
by the Note, all in such form and with such modifications, substitutions,
renewals, replacements, revisions, amendments and/or additions as such person
from time to time deems proper, in the name of an in behalf of said entity (i)
in the case of a trust, by a written instrument signed by all beneficiaries and
delivered to the trustee, and/or (ii) in the case of a corporation, unanimously
by all the stockholders and directors of the corporation, at a meeting duly held
or by written consent in lieu of meeting, duly filed with the records of the
minutes of the corporation.
The Borrower has read all of the terms and conditions of the Note and
acknowledges receipt of an exact copy of it.
<TABLE>
<CAPTION>
WITNESS Signed in my Presence MAKERS(S) ("Borrower")
IMPLANT SCIENCES CORPORATION
<S> <C>
/s/ Diane J. Ryan /s/ Anthony J. Armini
--------------------------------- -----------------------------------------
Print Name: Diane J. Ryan Witness Print Name: Anthony J. Armini Title, if applicable: President
------------- ----------------- ---------
Address: Implant Science Corporation
----------------------------------
107 Audubon Road, #5, Wakefield, MA 01880
- ---------------------------------- ------------------------------------------
Witness
Print Name: Print Name: Title, if applicable:
----------------------- ---------------- ------------
Address:
--------------------------------
</TABLE>
For good and valuable consideration, the receipt and sufficiency of which are
acknowledged, each of the undersigned endorses the Note, guarantees to the Bank
the payment and performance of the borrower's obligations under the Note,
acknowledges reading the Note in its entirety, agrees to be
11
<PAGE> 12
jointly and severally (if more than one) liable and bound to the Bank and any
Affiliate under all provisions of the Note, agrees to be jointly and severally
liable with the Borrower for all obligations under the Note, and agrees that all
obligations hereunder and such endorsement and guaranty shall take effect under
seal.
<TABLE>
<S> <C>
WITNESS Signed in my Presence
- ------------------------------------- ----------------------------------
Witness
Print Name: Print Name: Title, if applicable:
-------------------------- ----------------- --------------
Address:
---------------------------
- ------------------------------------- ----------------------------------
Witness
Print Name: Print Name: Title, if applicable:
-------------------------- ------------------- ---------------
Address:
------------------------------------
</TABLE>
12
<PAGE> 1
Exhibit 10.17
COMMERCIAL PROMISSORY NOTE
/ / UNITED STATES TRUST COMPANY /X/USTrust
40 Court Street 30 Court Street
Boston, MA 02108 Boston, MA 02108
$ 94,444,40 Boston, Massachusetts August 12, 1997
FOR VALUE RECEIVED, the undersigned (hereinafter, the "Borrower")
promise(s) to pay to the order of the banking institution named above next to
the box marked above with an "X" or the like (hereinafter, with any subsequent
holder, the "Bank") at an office of the Bank, the principal sum of Ninety Four
Thousand Four Hundred Forty Four Dollars and 40/100 Dollars, with interest
thereon, in accordance with the provisions which are marked with an "X" or the
like, below, or on demand if none are so marked.
INTEREST RATE (Check One)
Interest shall be determined in all instances based upon a 360 day year
and actual day months. Interest on the unpaid principal balance of the Note
shall accrue as follows:
/X/ FLOATING RATE. At the floating rate equal to 1.0 % per annum
above the Base Lending Rate (hereinafter defined), however in no
event shall said rate of interest be less than, if filled in,
_________% per annum at any time. The term "Base Lending Rate"
means the rate of interest established from time to time by the
Bank as its base lending rate and may or may not be the lowest
rate of interest charged by the Bank to any of its customers.
Changes in the Base Lending Rate shall take effect on the date
announced by the Bank unless otherwise specified in the
announcement.
/ / FIXED RATE. At the rate of _____________ percent per annum.
/ / DISCOUNT. Interest to maturity has been deducted from the
proceeds of the Note. Interest at the rate of _____________
percent per annum shall be paid on any amount not paid when due
hereunder until that amount and any such interest are so paid.
/ / OTHER.
INTEREST PAYMENTS (Check One)
Interest, at the rate set forth above, shall be paid by the Borrower to
the Bank as follows, or monthly in arrears if none are so marked:
/X/ PERIODICALLY. Monthly, but if filled in then ________________,
in arrears, with the first payment due on September 30, 1997 and
each subsequent payment due
1
<PAGE> 2
on the like day of each consecutive calendar month, but if
filled in then calendar _______, thereafter.
/ / AT MATURITY. At the maturity of the Note.
/ / INTEREST INCLUDED IN REPAYMENTS. Interest is included in the
payment(s) to be made pursuant to the Repayment Provisions set
forth below.
/ / OTHER.
REPAYMENT PROVISIONS (Check One)
In addition to any Interest Payments to be made as indicated above, the
Borrower shall pay the Bank the principal sum set forth above as follows, or on
demand if none are so marked:
/ / TIME. _______________ days, but if filled in then __________
year(s), after the date hereof.
/X/ INSTALLMENTS. In 48 Consecutive monthly, but if filled in then
____________________, installments, of which each but the last
shall be $ 1,967.59 and the last of which shall be equal to the
then unpaid principal balance of the Note plus all accrued and
unpaid interest thereon. The first such monthly, but if filled
in then _________________, installment shall be due on September
30 , 1997, and each subsequent installment shall be due on the
like day of each consecutive month, but if filled in then
____________ thereafter.
/ / ON DEMAND. On Demand.
/ / PAYMENTS TO BE MADE UNTIL DEMAND. On demand with payments of
$______________ each to be made monthly, but if filled in then
_________________, unless and until such demand is made. The
first such payment shall be due on , and each subsequent
installment shall be due on the like day of each consecutive
month, but if filled in then ____________ thereafter.
/ / OTHER.
CERTAIN DEFINITIONS
(a) Borrower. As used herein, "Borrower" means the persons and/or
entities named herein as borrower, and/or otherwise signing the
Note as maker, and each of them, jointly and severally if more
than one.
(b) Guarantor. As used herein, "Guarantor" means the endorser(s)
and/or guarantor(s) of the Note, and/or any guarantor(s) of any
obligations now existing and/or hereafter arising of the
Borrower to the Bank, any Affiliate (hereinafter defined) and/or
any Participant (hereinafter defined), and each of them, if at
all.
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<PAGE> 3
(c) Borrower and any Guarantor. As used herein, "Borrower and any
Guarantor" means all persons and/or entities which constitute
the Borrower, and if any, the Guarantor, and each of them.
(d) Affiliate. As used herein, "Affiliate" means any parent company
of the Bank, and all subsidiaries and/or affiliates of the Bank
and/or said parent company, now existing and/or hereafter
arising, and each of them.
(e) Participant. As used herein, "Participant" means any bank or
other lender acting as a participant under any loan arrangement
with the Borrower and any Guarantor, now existing and/or
hereafter arising, in which the Bank or any Affiliate is a
participant, including without limitation the Note if
applicable.
(f) Loan Documents. As used herein, "Loan Documents" means
documents, if any, which secure, evidence and/or relate to the
loan evidenced by the Note, including without limitation any
mortgages, security agreements, financing statements, loan
applications, pledges, collateral assignments, commitment
letters, loan agreements, and set-off rights contained in any
other instrument whatsoever, all the foregoing now existing
and/or hereafter arising, including, without limitation, the
Loan Agreement dated May 1, 1996 executed by the borrower and
the Bank as amended by a First Amendment to Loan Agreement of
even date (as amended and in effect from time to time the "Loan
Agreement").
(g) Note. As used herein, "Note" means this promissory note.
The Borrower and any Guarantor hereby certify, represent and covenant
to the Bank that the proceeds and basis of the loan evidenced by the Note are
for business and commercial purposes only, and that the proceeds of the Note
have not been and/or will not be used for personal (non-business), family,
household or agricultural purposes, and this has been relied on by the Bank.
The Borrower and any Guarantor shall pay to the Bank an administrative
late fee of the greater of twenty-five ($25.00) dollars or five (5%) percent of
any periodic payment under the Note not received by the Bank within fifteen (15)
days after the periodic payment is due. Neither the inclusion of this provision
nor the Borrower's or any Guarantor's payment of such an administrative late fee
shall excuse the Borrower and any Guarantor from timely making those payments
otherwise required to be made under the Note, or waive or limit any rights which
the Bank has under the Note. The obligation of the Borrower and any Guarantor to
pay such administrative late fees is in addition to all other payment
obligations of the Borrower and any Guarantor under the Note.
Upon any default under the Note, interest shall accrue thereafter on
the entire unpaid principal balance until the Note is paid in full at a rate per
annum ("Default Rate") equal to the aggregate of two percent (2%), plus the rate
provided in the Note. The Default Rate is separate and in addition to the
administrative late fee set forth herein for any principal and/or interest
installment under the Note not received by the Bank within fifteen (15) days
after the installment is due.
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<PAGE> 4
Any payments received by the Bank on account of the Note prior to
demand or acceleration shall be applied first to any costs, expenses, or charges
then owed the Bank by the Borrower; second, to accrued and unpaid interest; and
third, to the unpaid principal balance hereof. Any payments so received after
demand or acceleration shall be applied in such manner as the Bank may determine
in the Bank's sole discretion.
If the Note is not payable on demand, then on that date on which by the
terms hereof, the then entire principal balance of the Note is due, at all times
thereafter, the aggregate of the then unpaid principal balance of the Note, and
all accrued and unpaid interest not so paid shall be payable on demand. If the
Note is payable on demand, then the inclusion of the following default provision
shall not alter, affect, or otherwise limit the Bank's right to make demand at
any time. The Bank, at its option, may declare the entire unpaid principal
balance of the Note and accrued unpaid interest thereon to be immediately due
and payable without demand, notice or protest (which are hereby waived) upon the
occurrence of any one or more of the following events (herein, "Events of
Default"): (a) The failure by the Borrower to pay upon demand (or when due, if
not payable on demand) any of the Borrower's liabilities, obligations, and
indebtedness to the Bank, any Affiliate and/or any Participant under the Note
and/or the Loan Documents; (b) The failure by the Borrower to promptly,
punctually, and faithfully perform, discharge, or comply with any of the
Borrower's liabilities, obligations, indebtedness, or covenants to the Bank, any
Affiliate and/or any Participant under the Note and/or the Loan documents; (c)
The occurrence of any event of default under any agreement between the Bank and
the Borrower, or instrument or paper given the Bank by the Borrower, whether
such agreement, instrument, or paper now exists or hereafter arises
(notwithstanding that the Bank may not have exercised its rights upon default
under any such other agreement, instrument, or paper), including, without
limitation, the occurrence of an Event of Default (as defined therein) under the
Commercial Promissory Note of even date in the original principal amount of
$300,000.00 made payable by the Borrower in favor of the Bank (the liabilities,
obligations, indebtedness, and covenants described in (a), (b) and (c) are
referred to herein as the "Liabilities"); (d) Any representation or warranty
heretofore, now, or hereafter made by the Borrower and any Guarantor to the
Bank, in any document, instrument, agreement, or paper was not true or accurate
when given; (e) The occurrence of any event such that any indebtedness of the
Borrower and any Guarantor to any creditor other than the Bank could be
accelerated, notwithstanding that such acceleration has not taken place; (f) Any
act by, against, or relating to the Borrower and any Guarantor, or the property
or assets of the Borrower and any Guarantor, which act constitutes the
application for, consent to, or sufferance of the appointment of a receiver,
trustee, or other person, pursuant to a court action or otherwise, over all, or
any part of the property of the Borrower and any Guarantor; the granting of any
trust mortgage or execution of an assignment for the benefit of creditors of the
Borrower and any Guarantor, or the occurrence of any other voluntary or
involuntary liquidation or extension of debt agreement for the Borrower and any
Guarantor; the failure by the Borrower and any Guarantor to generally pay the
debts of the Borrower and any Guarantor as they mature; adjudication of
bankruptcy or insolvency relative to the Borrower and any Guarantor: the entry
of an order for relief or similar order with respect to the Borrower and any
Guarantor in any proceeding pursuant to Title 11 of the United States Code, as
amended (commonly referred to as the Bankruptcy Code) or any other federal
bankruptcy law; the filing of any complaint, application, or petition by or
against (however, if against, only if not dismissed within 30 days of the
filing) the Borrower and any Guarantor initiating any matter in which the
Borrower and any Guarantor is or may be granted any relief from the debts of the
Borrower and any Guarantor pursuant to the
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<PAGE> 5
Bankruptcy Code or any other insolvency statute or procedure: the calling or
sufferance of a meeting of creditors of the Borrower and any Guarantor; the
meeting by the Borrower and any Guarantor with a formal or informal creditor's
committee; the offering by, or entering into by, the Borrower and any Guarantor
of any composition, extension or any other arrangement seeking relief or
extension for the debts of the Borrower and any guarantor, or the initiation of
any other judicial or non-judicial proceeding or agreement by, against (however,
if against, only if not dismissed within 30 days of the filing), or including
the borrower and any Guarantor which seeks or intends to accomplish a
reorganization or arrangement with creditors; (g) The imposition of any lien
upon any material portion of the assets of the Borrower and any Guarantor or the
entry of any judgment against the Borrower and any Guarantor, which lien is not
discharged or judgment is not satisfied or appealed from (with execution or
similar process stayed) within fifteen (15) days of its imposition or entry; (h)
The occurrence of any materially adverse event or circumstance with respect to
the Borrower and any Guarantor such that the Bank deems itself insecure; (i) The
entry of any court order which enjoins, restrains or in any way prevents the
Borrower from conducting all or any part of Borrower's business affairs in the
ordinary course; (j) The service of any process upon the Bank seeking to attach
by mesne or trustee process any funds of the Borrower on deposit with the Bank
or with an Affiliate of the Bank; (k) The occurrence of any loss, theft, damage
or destruction to or of any material portion of the assets of the Borrower and
any guarantor, or the sale (other than sales in the ordinary course of business)
or encumbrance to or of any of the assets of the Borrower and any guarantor; (l)
The death, termination of existence, dissolution, winding up, or liquidation of
the Borrower and any Guarantor; (m) The merger or consolidation of the Borrower
and any guarantor with or into any other corporation or other entity; (n) The
occurrence of any of the foregoing Events of Default with respect to any
guarantor, endorser, or surety to the Bank of the Liabilities, or the occurrence
of any of the foregoing Events of Default with respect to any parent (if the
Borrower is a corporation), subsidiary, or affiliate of the Borrower, as if such
guarantor, endorser, surety, parent, subsidiary, or affiliate were the Borrower
described therein; and/or (o) The termination of any guaranty by any guarantor
of the Liabilities.
The Borrower and any Guarantor respectively waive presentment, demand,
notice, and protest, and also waive any delay on the part of the holder hereof.
Each assents to any extension or other indulgence (including, without
limitation, the release or substitution of collateral) permitted the Borrower
and any Guarantor by the Bank with respect to the Note and/or any collateral
given to secure the Note or any extension or other indulgence, as described
above, with respect to any other liability or any collateral given to secure any
other liability of the borrower and any Guarantor to the Bank. All monies due
under the Note and/or Loan Documents shall be without setoff or counterclaim on
the part of the Borrower and any Guarantor.
Any and all now existing and/or hereafter arising deposits, or other
sums at any time credited by, or due to, the Borrower and/or any Guarantor from
the Bank, any Affiliate and/or any Participant, including without limitation,
being a participant under the Note, if at all, and any now existing and/or
hereafter arising monies, securities, instrument, certificates, repurchase
agreements, and/or other property of the Borrower and any Guarantor in the
possession of the Bank, any Affiliate an/or any Participant, regardless of the
reason the Bank of such Affiliate or Participant had received same (all the
foregoing collectively called "Deposits") shall at all times constitute security
for the Liabilities including the Note, and/or for any endorsement of the Note
and/or guaranty by any Guarantor (said endorsement of the Note and/or guaranty
by any Guarantor hereinafter called "Guaranty
5
<PAGE> 6
Obligations"), and may be held, applied and/or set off by the Bank, any
Affiliate and/or any Participant against the Liabilities and/or Guaranty
obligations at any time when due, whether or not other collateral is held by or
otherwise available to the Bank, any Affiliate and/or any Participant, whether
such collateral be security in full or in part. Without limitation, and in
addition to the foregoing, in the event the Bank, any Affiliate or any
Participant at any time or times hereafter is served with trustee process of any
kind which attach or order any payment from any goods, effects and/or credits of
the Borrower and any guarantor in the hands or possession of the Bank, any
Affiliate or any Participant, then the Bank, any Affiliate and/or any
Participant without notice or demand to the Borrower and any Guarantor may deem
the dollar amount set forth in the trustee process as becoming immediately due
and payable under the Note, any endorsement and/or guaranty by any Guarantor,
and/or any other loan arrangement with the Borrower, and set off said amount
against any Deposits being held by the Bank, any Affiliate and/or any
Participant, and any such payment made by said setoff shall be applied as the
Bank, any Affiliate or any Participant shall in its sole discretion determine,
and when applied to any outstanding principal, may be applied in inverse order
of maturity. The Borrower and any Guarantor hereby grant to the Bank, any
Affiliate and/or any Participant a security interest in the Deposits to secure
all obligations of the Borrower and any Guarantor, or any one or more persons or
entities comprising the Borrower and any Guarantor, to the Bank, any Affiliate
and/or any Participant under the liabilities and/or the Guaranty Obligations.
The Borrower and any Guarantor hereby authorize the Bank, any Affiliate and/or
any Participant to charge the Deposits which the Borrower and any Guarantor may
at any time maintain with the Bank, and Affiliate and/or any Participant for any
payment due on account of the Liabilities and/or the Guaranty Obligations. The
Borrower and any Guarantor agree that the rights to set off against Deposits and
to charge Deposits granted herein by the borrower and any Guarantor to the Bank,
any Affiliate or any Participant (a) are irrespective of the source or
contributor(s) of funds or other property which comprise the deposits, whether
or not the Deposits, Liabilities and/or Guaranty Obligations are (i) individual
and/or joint of the Borrower and any Guarantor, or any one or more persons or
entities comprising the Borrower and any Guarantor and/or (ii) in the name of or
by the Borrower and any Guarantor, or any one or more persons or entities
comprising the Borrower and any Guarantor, with another or others; and (b) are
at the option of the Bank, any Affiliate or any Participant, and in no event is
the Bank, any Affiliate or any Participant under a duty to exercise setoff
against Deposits or to charge Deposits.
The Borrower and any Guarantor agree that the Bank and any Affiliate
shall have the right at any time, and from time to time, with or without notice
to the Borrower and any Guarantor to enter into any participation agreement(s)
with other(s) which grants participation interests to the Bank and other(s) (a)
in the Note and any loan evidenced by the Note and the Loan Documents, (b) in
any other loan or loans, including promissory notes and all loan documents
applicable thereto, now existing and/or hereafter arising, by the Borrower
and/or any Guarantor with the Bank and/or any Affiliate, and/or (c) in any other
loan or loans, including promissory notes and all loan documents applicable
thereto, now existing and/or hereafter arising, by the Borrower and/or any
Guarantor with any other bank(s) or other lender(s). In addition, the Borrower
and any Guarantor agree that the Bank, any Affiliate and/or any Participant
and/or any other holder of the Note shall have the right to sell or otherwise
transfer the Note and/or any Loan Documents at any time.
In the event at any time the Borrower and any Guarantor has a claim,
cause of action, setoff, defense, counterclaim or third party claim
(collectively "Borrower Claim") against the Bank and/or
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<PAGE> 7
any Affiliate, the Borrower and any Guarantor agree to commence a lawsuit and/or
other proceeding on the Borrower Claim against the Bank only in Boston,
Massachusetts or such other place where the Bank has its principal place of
business, and only within a period of one year from the time the Borrower Claim
first arises, or such other minimum period permitted by law in the event the
court finds the one-year period insufficient.
The Borrower agrees not to seek or accept contribution, reimbursement,
indemnity, subrogation or enforcement of any rights from anyone also obligated
under the Note, as maker, guarantor, endorser or otherwise, if at all; and any
Guarantor agrees not to seek or accept contribution, reimbursement, indemnity,
subrogation or enforcement of any rights from the Borrower, and any other
guarantor or endorser hereof, or anyone otherwise obligated under the Note; all
the foregoing in this paragraph until all obligations under the Note are paid in
full and no claim whatsoever exists and/or may exist against the Bank, any
Affiliate, and/or Participant for repayment, a preference payment in bankruptcy,
or otherwise in connection with the Borrower and any Guarantor.
The Borrower and any Guarantor agree to indemnify, defend and hold
harmless the Bank, any Affiliate, and/or any officer, director and/or employee
of the Bank and/or any Affiliate of and from any claim or claims now existing,
hereafter arising and/or hereafter brought and/or threatened by the Borrower and
any Guarantor or by any other person or entity, in connection therewith, on
account of or relating to any relationship and/or dealings with the Borrower and
any Guarantor, including without limitation any person or entity contesting the
validity or priority of any mortgage(s) and/or other collateral granted to the
Bank.
The Borrower and any Guarantor agree to promptly pay to the Bank and
any Affiliate for all legal services hereafter rendered to the Bank and/or any
Affiliate including all time, legal fees and expenses, in connection with the
review, drafting, preparation for enforcement, negotiation, enforcement,
amendment, extension, substitution and/or modification of the Note, any
endorsement and/or guaranty thereof, any endorsement and/or guaranty of the
obligations of the Borrower to the Bank, any Loan Documents, any other
instruments securing or otherwise relating to the Note, any other matters
relating to the collection of the loan proceeds and/or realization on any
collateral given to the Bank, any bankruptcy and/or foreclosure proceedings,
procedures and expenses which relate to the Borrower and any Guarantor and/or
any mortgage(s) and/or other collateral given by the Borrower and any Guarantor,
and all rights and remedies of the Bank, whether now existing and/or hereafter
arising against the Borrower and any Guarantor and/or any collateral given by
the Borrower and any Guarantor to the Bank, whether or not court proceedings are
brought. The responsibility set forth anywhere in the Note of Borrower and any
Guarantor to pay for the attorneys time, legal fees and expenses of the Bank
and/or any Affiliate shall include both outside counsel engaged by the Bank, and
any in-house counsel employed by the Bank and/or any Affiliate at the same rate
as comparable outside counsel.
IN ANY CASE, CONTROVERSY OR MATTER WHICH ARISES OUT OF, OR IS IN
RESPECT OF, THE NOTE AND/OR LOAN EVIDENCED THEREBY, ANY LOAN DOCUMENTS, ANY
COLLATERAL SECURING THE NOTE, ANY OTHER INSTRUMENT IN CONNECTION WITH THE NOTE,
AND/OR ANY OTHER BUSINESS RELATIONSHIP OR TRANSACTION BETWEEN THE BANK AND/OR
ANY AFFILIATE WITH THE BORROWER
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<PAGE> 8
AND ANY GUARANTOR, WHETHER NOW EXISTING OR HEREAFTER ARISING, THE BORROWER AND
ANY GUARANTOR KNOWINGLY, VOLUNTARILY AND INTENTIONALLY: (A) WAIVE ANY RIGHT TO
AND AGREE NOT TO BRING, COMMENCE, OR OTHERWISE TAKE ANY ACTION TO TRANSFER, ANY
PROCEEDING INCLUDING WITHOUT LIMITATION COURT ACTION, ARBITRATION, MEDIATION,
ADMINISTRATIVE PROCEEDING OR OTHERWISE AGAINST THE BANK AND/OR ANY AFFILIATE,
OTHER THAN IN THE COMMONWEALTH OF MASSACHUSETTS; (B) WAIVE ANY NOW EXISTING
AND/OR HEREAFTER ARISING RIGHT TO A TRIAL BY JURY; AND (C) WAIVE ANY NOW
EXISTING AND/OR HEREAFTER ARISING RIGHT TO ANY CONSEQUENTIAL PUNITIVE, SPECIAL,
EXEMPLARY AND/OR INCIDENTAL DAMAGES.
The Borrower and any Guarantor shall maintain full and accurate books
and records showing in detail the income and expenses, and assets and
liabilities, of the borrower and any guarantor and any mortgaged premises which
may secure the Note and/or any endorsement and/or guaranty by any Guarantor;
and, upon request from the Bank, shall permit the Bank and/or its
representatives to examine and make copies of the books and records of the
Borrower and any Guarantor and any mortgaged premises which may secure the Note
and/or any endorsement and/or guaranty by any Guarantor. The Borrower and any
Guarantor shall deliver to the Bank annual financial statements including
without limitation a statement of assets, liabilities and net worth and shall
deliver to the Bank all other financial information required under the Loan
Agreement.
At all times when the security for the Note and/or any endorsement
and/or guaranty by any Guarantor includes real estate, the Borrower and any
Guarantor agree that the Bank and any Affiliate and representatives shall have
the right at any time hereafter to enter the mortgaged premises (a) for purposes
of inspecting and testing for hazardous material and oils to determine whether
or not the premises violate any provisions of M.G.L. ch. 21E and regulations
relating thereto, and/or (b) for purposes of appraising the mortgaged premises.
Any default under the Note shall be a default by the Borrower and any
Guarantor under any other promissory note and/or other instrument by the
Borrower and any Guarantor to the Bank, any Affiliate and/or any Participant,
now existing or hereafter arising. Any default by the Borrower under any other
promissory note and/or other instrument by the Borrower and any Guarantor to the
Bank, any Affiliate and/or any Participant now existing or hereafter arising,
shall be a default under the Note and Loan Documents. All mortgages and/or other
collateral from the Borrower to the Bank and/or any Affiliate, if any, now
existing or hereafter arising, shall also secure the obligations of the Borrower
under the Note. All mortgages and/or other collateral, if any, which secure the
Note shall also secure all promissory notes and other obligations of the
Borrower to the Bank, now existing or hereafter arising, whereof individual
and/or joint of the Borrower, or any one or more persons or entities comprising
the Borrower.
AT THE DUE DATE OF THE NOTE (AT MATURITY, UPON EARLIER ACCELERATION, OR
IN THE EVENT THE NOTE IS A DEMAND NOTE), THE BANK MAY DEMAND PAYMENT OF THE
NOTE, MAY REWRITE THE NOTE BY AGREEMENT AT A GREATER OR LESSER RATE OF INTEREST,
OR MAY, BY AGREEMENT, ALLOW PAYMENTS TO BE MADE ON SAID NOTE AT THE SAME, OR A
LESSER OR A GREATER RATE OF INTEREST, IF AT ALL, THE NOTE IS A CONTRACT FOR A
SHORT-TERM LOAN.
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<PAGE> 9
THE LOAN IS PAYABLE IN FULL AT MATURITY, UPON EARLIER ACCELERATION, OR IN THE
EVENT THE NOTE IS A DEMAND NOTE. THE BORROWER MUST REPAY THE ENTIRE PRINCIPAL
BALANCE OF THE LOAN AND UNPAID INTEREST WHEN DUE. THE BANK IS UNDER NO
OBLIGATION TO REFINANCE THE LOAN AT THAT TIME. THE BORROWER WILL, THEREFORE, BE
REQUIRED TO MAKE PAYMENT OUT OF OTHER ASSETS THE BORROWER MAY OWN, OR WILL HAVE
TO FIND ANOTHER BANK OR LENDER WILLING TO LEND THE BORROWER THE MONEY AT
PREVAILING MARKET RATES, WHICH MAY BE CONSIDERABLY HIGHER THAN THE INTEREST RATE
ON THE LOAN.
Within ten (10) days after requested by the Bank by notice to the
Borrower, Borrower and any Guarantor agree to execute and deliver to the Bank a
written statement addressed to the Bank, any Affiliate, any Participant and/or
proposed Participant, and signed by the Borrower and any Guarantor under the
penalties of perjury, and duly notarized, acknowledging the principal and
interest balances then due under the Note, and further acknowledging that the
Note is in full force and effect and unmodified, that the Borrower and any
Guarantor have no defenses, offsets or counterclaims to the payment and/or
performance of the obligations of the Borrower and any Guarantor under the Note,
and have no claims or causes of action of any kind whatsoever then existing
against the Bank, any Affiliate and/or Participant, and a statement that the
Bank is not in default under the Note or any loan or other agreement relating to
the Note or any obligations evidenced thereby, all the foregoing in this
sentence except as may otherwise exist in which event he Borrower shall specify
what otherwise exists, and a statement regarding such other matters which the
Bank may require.
In the event that prior to the recording of any mortgage, financing
statement or other collateral instrument, if any, given herewith by the Borrower
and any Guarantor to the Bank, there shall exist or otherwise be made known to
the Bank or any Affiliate, any voluntary or involuntary creation or occurrence,
of any encumbrance, mortgage, lien, attachment, or other security interest on or
in any real or personal property given herewith by the Borrower and any
Guarantor as collateral to the Bank, or any portion thereof (except as otherwise
specifically permitted, if at all, in any of the Loan Documents), or the
transfer of such real or personal property or any portion thereof or any legal
or beneficial interest therein, or the Borrower and any Guarantor become the
subject of a bankruptcy petition, assignment for the benefit of creditors, or
any arrangement with creditors, or any restraining order or injunction exists
against the Borrower and any Guarantor, at the option of the Bank all
obligations of the Bank to make the loan and/or advance monies pursuant to any
loan agreement, of which the Note evidences the loan in whole or in part, shall
be void, and the Note shall become immediately due and payable without notice or
demand to the extent of all monies due thereunder which have previously been
paid by the Bank.
The Borrower and any Guarantor acknowledge that the Bank has notified
and does hereby notify the Borrower and any Guarantor as follows:
(a). THE RESPONSIBILITY OF THE ATTORNEY FOR THE BANK IS TO PROTECT
THE INTEREST OF THE BANK;
(b). THE BORROWER AND ANY GUARANTOR MAY, AT BORROWER'S OR
GUARANTOR'S OWN EXPENSE, ENGAGE AN ATTORNEY OF THEIR OWN
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<PAGE> 10
SELECTION TO REPRESENT THE BORROWER'S OR GUARANTOR'S OWN
INTERESTS IN THE TRANSACTION.
No delay or omission by the Bank in exercising or enforcing any of the
Bank's powers, rights, privileges, remedies, or discretions hereunder shall
operate as a waiver thereof on that occasion nor on any other occasion. No
waiver of any default hereunder shall operate as a waiver of any other default
hereunder, nor as a continuing waiver. The Note shall be binding upon the
Borrower and each endorser and guarantor hereof and upon their respective heirs,
successors, assigns, and representatives, and shall inure to the benefit of the
Bank and its successors, endorsees, and assigns. The Borrower and any Guarantor
each authorizes the Bank to complete the Note if delivered incomplete in any
respect by the Borrower and any Guarantor. The Note is delivered to the Bank at
one of its offices in Massachusetts, shall be governed by the laws of the
Commonwealth of Massachusetts, and shall take effect as a sealed instrument. The
Borrower and any Guarantor of the Note each submits to the jurisdiction of the
courts of the Commonwealth of Massachusetts for all purposes with respect to the
Note, any collateral given to secure their respective liabilities, obligations
and indebtedness to the Bank, and their respective relationships with the Bank.
The Borrower and any Guarantor agree that all assets in which the Borrower and
any Guarantor have previously granted or hereafter grant to the Bank or any
Affiliate a security, mortgage or collateral interest shall secure the
Liabilities and Guaranty Obligations. The Note includes all future amendments,
decreases, extensions, increases, modifications, renegotiations, renewals,
replacements, revisions, rewritings and/or substitutions thereof, in whole or in
part ("Modifications/Substitutions"). The Borrower and any Guarantor agree that
any mortgages and/or other collateral, if any, which may secure the Note, secure
all Modifications/Substitutions of the Note, if any, now existing and/or
hereafter arising, and include all future Modifications/Substitutions of such
mortgages and/or other collateral, if any, now existing and/or hereafter
arising. To the maximum extent permitted by law, except for payments made on
account of the Note which reduce the monies due under the Note, all other
provisions of the Note, shall survive (a) the payment of all principal and
interest obligations of the borrower and any Guarantor under the Note, (b) any
termination, release or discharge of the principal and interest obligations of
the Borrower and any Guarantor to the Bank and/or any Affiliate, and (c) the
discharge or satisfaction of any mortgage, security agreement and/or other
collateral, if any, which may at any time secure the Note. Any prepayment of the
Note shall be applied to principal in inverse order of maturity. Time of all
payments and provisions hereof is of strict essence. In the event more than one
person or entity comprises the Borrower, all provisions herein of the Borrower
are joint and several obligations. The Borrower and any Guarantor acknowledge
and agree and say under the penalties of perjury that (a) each is executing the
Note as the free act and deed of each, (b) each is not acting under any duress
or undue influence, and (c) the Bank and/or any Affiliate have made no
agreements, warranties, representations or promises in connection with the Note
and/or any loan agreements or other agreements relating to the Note, except as
set forth herein or in a written instrument executed and delivered by the Bank.
The provisions of the Note are hereby declared to be severable, and the
invalidity of any provision or application thereof shall not effect any other
provision or any other application thereof. Interest on principal under the Note
shall accrue only on the amount of principal from time to time actually
outstanding under the Note. The Bank records, including without limitation,
computer printout of the Bank showing an account of the Borrower, shall be
admissible as evidence in any action or proceeding in connection with the Note,
and shall constitute prima facie evidence of the items
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<PAGE> 11
contained therein. The Note may not be modified orally, but may only be modified
by written instrument signed by the holder hereof.
In the event the Borrower and any Guarantor is a trust or corporation,
each person signing below in behalf of said entity personally and individually
certifies to the Bank that the person(s) executing the Note (a) is a trustee of
any applicable trust, or an officer of any applicable corporation, and (b) has
been duly authorized, empowered and directed to execute and deliver the Note
and, if any, all other instruments securing or otherwise relating to the Note,
and any other agreements or instruments determined by such person in such
person's sole discretion to be appropriate or incidental to the loan evidenced
by the Note, all in such form and with such modifications, substitutions,
renewals, replacements, revisions, amendments and/or additions as such person
from time to time deems proper, in the name of an in behalf of said entity (i)
in the case of a trust, by a written instrument signed by all beneficiaries and
delivered to the trustee, and/or (ii) in the case of a corporation, unanimously
by all the stockholders and directors of the corporation, at a meeting duly held
or by written consent in lieu of meeting, duly filed with the records of the
minutes of the corporation.
The Borrower has read all of the terms and conditions of the Note and
acknowledges receipt of an exact copy of it.
<TABLE>
<CAPTION>
WITNESS Signed in my Presence MAKERS(S) ("Borrower")
IMPLANT SCIENCES CORPORATION
<S> <C>
/s/ Diane J. Ryan /s/ Anthony J. Armini
- ----------------------------------- ----------------------------------------
Print Name: Dian J. Ryan Witness
Print Name: Anthony J. Armini Title, if applicable: President
----------------- ----------
Address: Implant Science Corporation
-------------------------------
107 Audubon Road, #5, Wakefield, MA 01880
- ----------------------------------- ----------------------------------------
Witness
Print Name: Print Name: Title, if applicable:
------------------------- ---------------------- -------------
Address:
----------------------------------
</TABLE>
For good and valuable consideration, the receipt and sufficiency of which are
acknowledged, each of the undersigned endorses the Note, guarantees to the Bank
the payment and performance of the borrower's obligations under the Note,
acknowledges reading the Note in its entirety, agrees to be
11
<PAGE> 12
jointly and severally (if more than one) liable and bound to the Bank and any
Affiliate under all provisions of the Note, agrees to be jointly and severally
liable with the Borrower for all obligations under the Note, and agrees that all
obligations hereunder and such endorsement and guaranty shall take effect under
seal.
<TABLE>
<S> <C>
WITNESS Signed in my Presence
- --------------------------------------- ----------------------------------
Witness
Print Name: Print Name: Title, if applicable:
---------------------------- ------------------ -----------------
Address:
------------------------------------
- -------------------------------------- -----------------------------------
Witness
Print Name: Print Name: Title, if applicable:
-------------------------- ----------------- ----------------
Address:
-------------------------------------
</TABLE>
12
<PAGE> 1
Exhibit 10.18
SECOND AMENDMENT TO LOAN AGREEMENT
This Second Amendment to Loan Agreement is made as of this 16th day of
January, 1998 to the May 1, 1996 Loan Agreement by and between Implant Sciences
Corporation (the "Borrower"), a Massachusetts corporation with its principal
office at 107 Audubon Road, Wakefield, Massachusetts 01880-1246 and USTrust, a
Massachusetts trust company with its principal office at 30 Court Street,
Boston, Massachusetts 02108 (the "Bank") which Loan Agreement was amended by a
First Amendment to Loan Agreement dated as of July 24, 1997 (as amended, the
"Agreement"), in consideration of the mutual covenants contained herein and
benefits to be derived herefrom. As used herein, all defined terms have the
meanings attributed thereto in the Agreement unless otherwise noted.
1. The Agreement is hereby amended as follows:
a. Article II, Section 2 of the Agreement is hereby deleted
and replaced in its entirety with the following:
"II. 1997 TERM LOAN
2. In accordance with the terms and conditions of the
Agreement and all other agreements, instruments or papers
executed or delivered in connection therewith, the Borrower
shall pay to the Bank, the sum of Ninety Four Thousand Four
Hundred Forty Four Dollars and 40/100 ($94,444.40) (the "1997
Term Loan"), with interest, all as more particularly provided in
the Borrower's Commercial Promissory Note (the "1997 Term Note")
dated August 12, 1997 and substantially in the form of Exhibit B
annexed hereto."
b. Article II of the Agreement is hereby supplemented by
adding the following at the end of Section 2:
"II.A. 1998 EQUIPMENT LOAN
2.a. Subject to and in accordance with the terms of the
Agreement, the Borrower may borrow, for the purpose of the
purchase of equipment deemed acceptable to the Bank, up to Seven
Hundred Fifty Thousand Dollars ($750,000-00) (the "1998
Equipment Loan"). So long as no event has occurred which is an
Event of Default (as defined in the 1998 Equipment Note (as
defined below)) or would become an Event of Default with the
giving of notice and/or the passage of time and such occurrence
were not cured within any applicable grace period, the Borrower
may request advances for equipment purchases during the period
commencing on the date hereof through October 16, 1998 (the
"1998 Equipment Availability Period"). Such requests shall be
accompanied by a copy of the purchase order, quote, invoice or
other documentation satisfactory to the Bank relating to the
subject equipment. The 1998 Equipment Loan shall be repaid as
provided in the Borrower's
1
<PAGE> 2
Commercial Promissory Note (the "1998 Equipment Note") in the
form of Exhibit B-1 annexed hereto. Without limiting the
foregoing, the Borrower shall pay interest only on a monthly
basis on the 1998 Equipment Loan during the 1998 Equipment
Availability Period at the interest rate set forth in the 1998
Equipment Note. The Borrower shall at the end of the 1998
Equipment Availability Period amortize the then outstanding
balance under the 1998 Equipment Loan based on a sixty (60)
month amortization schedule plus interest as provided in the
1998 Equipment Note. Amounts repaid under the 1998 Equipment
Loan may not be reborrowed. The Bank, shall not be obligated to
advance any funds under the 1998 Equipment Loan after the
expiration of the 1998 Equipment Availability Period."
c. Article III, Sections 4.a. and 4.b. of the Agreement are
hereby deleted and replaced in their entirety with the
following:
"a. The ratio of EBIT to Debt Service shall not at any
time be less than 2.0 to 1.0. EBIT shall mean the Borrower's
earnings before interest and taxes plus depreciation as
determined in accordance with generally accepted accounting
principles; and Debt Service shall mean all principal and
interest payments on account of all outstanding and anticipated
indebtedness owed or to be owed by the Borrower to the Bank, or
to other third parties.
b. The Borrower shall maintain a minimum Tangible Capital
Base of not less than Seven Hundred Thousand Dollars
($700,000.00) as of June 30, 1997, which minimum Tangible
Capital Base shall increase by One Hundred Thousand Dollars
($100,000.00) at each fiscal year end thereafter. As used
herein, Tangible Capital Base shall mean the Borrower's net
worth less intangible assets plus subordinated debt."
2. The Agreement is hereby amended by deleting Exhibit B and
substituting the annexed Exhibit B in lieu thereof.
3. The Agreement is hereby amended by adding the annexed Exhibit
B-1 at the end of Exhibit B to the Agreement.
4. Except as specifically amended herein, all terms and
conditions of the Agreement shall remain in full force and effect as originally
constituted.
5. Each of the representations of the Borrower contained in the
Agreement remain accurate and correct as of the date hereof, and are hereby
restated and reaffirmed.
6. The Borrower represents, warrants and agrees that the Borrower
has no defenses, counterclaims, or offsets against the Bank in connection with
the Agreement, the Revolving Credit Note, the 1997 Term Note, the 1998 Equipment
Note or any other documents executed in connection therewith, and to the extent
that the Borrower may claim that any such offsets,
2
<PAGE> 3
defenses, or counterclaims exist, the Borrower hereby WAIVES and RELEASES the
Bank from the same.
7. This Second Amendment to Loan Agreement shall take effect as a
sealed instrument under the laws of the Commonwealth of Massachusetts as of the
date first written above.
ATTEST: IMPLANT SCIENCES CORPORATION
/s/ Illegible Signature By: /s/ Anthony J. Armini
----------------------- -------------------------
Anthony J. Armini, President
ATTEST: USTRUST
/s/ Illegible Signnature By: /s/ Frank L. Davis, III
------------------------ ---------------------------
Frank L. Davis, III, Vice President
COMMONWEALTH OF MASSACHUSETTS
Middlesex , ss 1/14/98 , 1998
--------------- ----------
Then personally appeared the above-named Anthony J. Armini and
acknowledged the foregoing to be his free act and deed, before me,
/s/ Diane J. Ryan
--------------------------------
Notary Public
My commission expires: 9/29/2000
3
<PAGE> 1
Exhibit 10.19
COMMERCIAL PROMISSORY NOTE
/ / UNITED STATES TRUST COMPANY /X/USTrust
40 Court Street 30 Court Street
Boston, MA 02108 Boston, MA 02108
$ 750,000.00 Boston, Massachusetts January 16, 1998
FOR VALUE RECEIVED, the undersigned (hereinafter, the "Borrower")
promise(s) to pay to the order of the banking institution named above next to
the box marked above with an "X" or the like (hereinafter, with any subsequent
holder, the "Bank") at an office of the Bank, the principal sum of Seven Hundred
Fifty Thousand Dollars and 00/100 ($750,000.00) Dollars or such lesser amount as
may be outstanding under this Note, with interest thereon, in accordance with
the provisions which are marked with an "X" or the like, below, or on demand if
none are so marked.
INTEREST RATE (Check One)
Interest shall be determined in all instances based upon a 360 day year
and actual day months. Interest on the unpaid principal balance of the Note
shall accrue as follows:
/X/ FLOATING RATE. At the floating rate equal to 1.0 % per annum
above the Base Lending Rate (hereinafter defined), however in no
event shall said rate of interest be less than, if filled in,
_________% per annum at any time. The term "Base Lending Rate"
means the rate of interest established from time to time by the
Bank as its base lending rate and may or may not be the lowest
rate of interest charged by the Bank to any of its customers.
Changes in the Base Lending Rate shall take effect on the date
announced by the Bank unless otherwise specified in the
announcement.
/ / FIXED RATE. At the rate of _____________ percent per annum.
/ / DISCOUNT. Interest to maturity has been deducted from the
proceeds of the Note. Interest at the rate of _____________
percent per annum shall be paid on any amount not paid when due
hereunder until that amount and any such interest are so paid.
/ / OTHER.
INTEREST PAYMENTS (Check One)
Interest, at the rate set forth above, shall be paid by the Borrower to
the Bank as follows, or monthly in arrears if none are so marked:
1
<PAGE> 2
/X/ PERIODICALLY. Monthly, but if filled in then __________________,
in arrears, with the first payment due on February 16, 1998 and
each subsequent payment due on the like day of each consecutive
calendar month, but if filled in then calendar _______,
thereafter.
/ / AT MATURITY. At the maturity of the Note.
/ / INTEREST INCLUDED IN REPAYMENTS. Interest is included in the
payment(s) to be made pursuant to the Repayment Provisions set
forth below.
/ / OTHER.
REPAYMENT PROVISIONS (Check One)
In addition to any Interest Payments to be made as indicated above, the
Borrower shall pay the Bank the principal sum set forth above as follows, or on
demand if none are so marked:
/ / TIME. _______________ days, but if filled in then __________
year(s), after the date hereof.
/X/ INSTALLMENTS. In 60 consecutive monthly, but if filled in then
____________________, installments, of which each but the last
shall be in an amount necessary to amortize the outstanding
principal balance of the Note as of October 16, 1998 on a 60
month straight line amortization schedule, and the last of which
shall be equal to the then unpaid principal balance of the Note
plus all accrued and unpaid interest thereon. The first such
monthly, but if filled in then _________________, installment
shall be due on November 16 , 1998, and each subsequent
installment shall be due on the like day of each consecutive
month, but if filled in then ____________ thereafter.
/ / ON DEMAND. On Demand.
/ / PAYMENTS TO BE MADE UNTIL DEMAND. On demand with payments of
$______________ each to be made monthly, but if filled in then
_________________, unless and until such demand is made. The
first such payment shall be due on , 19 , and each subsequent
installment shall be due on the like day of each consecutive
month, but if filled in then ____________ thereafter.
/ / OTHER.
CERTAIN DEFINITIONS
(a) Borrower. As used herein, "Borrower" means the persons and/or
entities named herein as borrower, and/or otherwise signing the
Note as maker, and each of them, jointly and severally if more
than one.
2
<PAGE> 3
(b) Guarantor. As used herein, "Guarantor" means the endorser(s)
and/or guarantor(s) of the Note, and/or any guarantor(s) of any
obligations now existing and/or hereafter arising of the
Borrower to the Bank, any Affiliate (hereinafter defined) and/or
any Participant (hereinafter defined), and each of them, if at
all.
(c) Borrower and any Guarantor. As used herein, "Borrower and any
Guarantor" means all persons and/or entities which constitute
the Borrower, and if any, the Guarantor, and each of them.
(d) Affiliate. As used herein, "Affiliate" means any parent company
of the Bank, and all subsidiaries and/or affiliates of the Bank
and/or said parent company, now existing and/or hereafter
arising, and each of them.
(e) Participant. As used herein, "Participant" means any bank or
other lender acting as a participant under any loan arrangement
with the Borrower and any Guarantor, now existing and/or
hereafter arising, in which the Bank or any Affiliate is a
participant, including without limitation the Note if
applicable.
(f) Loan Documents. As used herein, "Loan Documents" means
documents, if any, which secure, evidence and/or relate to the
loan evidenced by the Note, including without limitation any
mortgages, security agreements, financing statements, loan
applications, pledges, collateral assignments, commitment
letters, loan agreements, and set-off rights contained in any
other instrument whatsoever, all the foregoing now existing
and/or hereafter arising, including, without limitation, the
Loan Agreement dated May 1, 1996 executed between the Borrower
and the Bank (as amended from time to time the "Loan
Agreement").
(g) Note. As used herein, "Note" means this promissory note.
The Borrower and any Guarantor hereby certify, represent and covenant
to the Bank that the proceeds and basis of the loan evidenced by the Note are
for business and commercial purposes only, and that the proceeds of the Note
have not been and/or will not be used for personal (non-business), family,
household or agricultural purposes, and this has been relied on by the Bank.
The Borrower and any Guarantor shall pay to the Bank an administrative
late fee of the greater of twenty-five ($25.00) dollars or five (5%) percent of
any periodic payment under the Note not received by the Bank within fifteen (15)
days after the periodic payment is due. Neither the inclusion of this provision
nor the Borrower's or any Guarantor's payment of such an administrative late fee
shall excuse the Borrower and any Guarantor from timely making those payments
otherwise required to be made under the Note, or waive or limit any rights which
the Bank has under the Note. The obligation of the Borrower and any Guarantor to
pay such administrative late fees is in addition to all other payment
obligations of the Borrower and any Guarantor under the Note.
3
<PAGE> 4
Upon any default under the Note, interest shall accrue thereafter on
the entire unpaid principal balance until the Note is paid in full at a rate per
annum ("Default Rate") equal to the aggregate of two percent (2%), plus the rate
provided in the Note. The Default Rate is separate and in addition to the
administrative late fee set forth herein for any principal and/or interest
installment under the Note not received by the Bank within fifteen (15) days
after the installment is due.
Any payments received by the Bank on account of the Note prior to
demand or acceleration shall be applied first to any costs, expenses, or charges
then owed the Bank by the Borrower; second, to accrued and unpaid interest; and
third, to the unpaid principal balance hereof. Any payments so received after
demand or acceleration shall be applied in such manner as the Bank may determine
in the Bank's sole discretion.
If the Note is not payable on demand, then on that date on which by the
terms hereof, the then entire principal balance of the Note is due, at all times
thereafter, the aggregate of the then unpaid principal balance of the Note, and
all accrued and unpaid interest not so paid shall be payable on demand. If the
Note is payable on demand, then the inclusion of the following default provision
shall not alter, affect, or otherwise limit the Bank's right to make demand at
any time. The Bank, at its option, may declare the entire unpaid principal
balance of the Note and accrued unpaid interest thereon to be immediately due
and payable without demand, notice or protest (which are hereby waived) upon the
occurrence of any one or more of the following events (herein, "Events of
Default"): (a) The failure by the Borrower to pay upon demand (or when due, if
not payable on demand) any of the Borrower's liabilities, obligations, and
indebtedness to the Bank, any Affiliate and/or any Participant under the Note
and/or the Loan Documents; (b) The failure by the Borrower to promptly,
punctually, and faithfully perform, discharge, or comply with any of the
Borrower's liabilities, obligations, indebtedness, or covenants to the Bank, any
Affiliate and/or any Participant under the Note and/or the Loan documents; (c)
The occurrence of any event of default under any agreement between the Bank and
the Borrower, or instrument or paper given the Bank by the Borrower, whether
such agreement, instrument, or paper now exists or hereafter arises
(notwith-standing that the Bank may not have exercised its rights upon default
under any such other agreement, instrument, or paper), including, without
limitation, the occurrence of an Event of Default (as defined therein) under the
Commercial Promissory Note dated July 24, 1997 in the original principal amount
of $300,000.00 or under the Commercial Promissory Note dated August 12, 1997 in
the original principal amount of $94,944.00, each made payable by the Borrower
in favor of the Bank of even date in the original principal amount of
$300,000.00 made payable by the Borrower in favor of the Bank (the liabilities,
obligations, indebtedness, and covenants described in (a), (b) and (c) are
referred to herein as the "Liabilities"); (d) Any representation or warranty
heretofore, now, or hereafter made by the Borrower and any Guarantor to the
Bank, in any document, instrument, agreement, or paper was not true or accurate
when given; (e) The occurrence of any event such that any indebtedness of the
Borrower and any Guarantor to any creditor other than the Bank could be
accelerated, notwithstanding that such acceleration has not taken place; (f) Any
act by, against, or relating to the Borrower and any Guarantor, or the property
or assets of the Borrower and any Guarantor, which act constitutes the
application for, consent to, or sufferance of the appointment of a receiver,
trustee, or other person, pursuant to a court action or otherwise, over all, or
any part of the property of the Borrower and any Guarantor; the granting of any
trust mortgage or execution
4
<PAGE> 5
of an assignment for the benefit of creditors of the Borrower and any Guarantor,
or the occurrence of any other voluntary or involuntary liquidation or extension
of debt agreement for the Borrower and any Guarantor; the failure by the
Borrower and any Guarantor to generally pay the debts of the Borrower and any
Guarantor as they mature; adjudication of bankruptcy or insolvency relative to
the Borrower and any Guarantor: the entry of an order for relief or similar
order with respect to the Borrower and any Guarantor in any proceeding pursuant
to Title 11 of the United States Code, as amended (commonly referred to as the
Bankruptcy Code) or any other federal bankruptcy law; the filing of any
complaint, application, or petition by or against (however, if against, only if
not dismissed within 30 days of the filing) the Borrower and any Guarantor
initiating any matter in which the Borrower and any Guarantor is or may be
granted any relief from the debts of the Borrower and any Guarantor pursuant to
the Bankruptcy Code or any other insolvency statute or procedure: the calling or
sufferance of a meeting of creditors of the Borrower and any Guarantor; the
meeting by the Borrower and any Guarantor with a formal or informal creditor's
committee; the offering by, or entering into by, the Borrower and any Guarantor
of any composition, extension or any other arrangement seeking relief or
extension for the debts of the Borrower and any guarantor, or the initiation of
any other judicial or non-judicial proceeding or agreement by, against (however,
if against, only if not dismissed within 30 days of the filing), or including
the borrower and any Guarantor which seeks or intends to accomplish a
reorganization or arrangement with creditors; (g) The imposition of any lien
upon any material portion of the assets of the Borrower and any Guarantor or the
entry of any judgment against the Borrower and any Guarantor, which lien is not
discharged or judgment is not satisfied or appealed from (with execution or
similar process stayed) within fifteen (15) days of its imposition or entry; (h)
The occurrence of any materially adverse event or circumstance with respect to
the Borrower and any Guarantor such that the Bank deems itself insecure; (i) The
entry of any court order which enjoins, restrains or in any way prevents the
Borrower from conducting all or any part of Borrower's business affairs in the
ordinary course; (j) The service of any process upon the Bank seeking to attach
by mesne or trustee process any funds of the Borrower on deposit with the Bank
or with an Affiliate of the Bank; (k) The occurrence of any loss, theft, damage
or destruction to or of any material portion of the assets of the Borrower and
any guarantor, or the sale (other than sales in the ordinary course of business)
or encumbrance to or of any of the assets of the Borrower and any guarantor; (l)
The death, termination of existence, dissolution, winding up, or liquidation of
the Borrower and any Guarantor; (m) The merger or consolidation of the Borrower
and any guarantor with or into any other corporation or other entity; (n) The
occurrence of any of the foregoing Events of Default with respect to any
guarantor, endorser, or surety to the Bank of the Liabilities, or the occurrence
of any of the foregoing Events of Default with respect to any parent (if the
Borrower is a corporation), subsidiary, or affiliate of the Borrower, as if such
guarantor, endorser, surety, parent, subsidiary, or affiliate were the Borrower
described therein; and/or (o) The termination of any guaranty by any guarantor
of the Liabilities.
The Borrower and any Guarantor respectively waive presentment, demand,
notice, and protest, and also waive any delay on the part of the holder hereof.
Each assents to any extension or other indulgence (including, without
limitation, the release or substitution of collateral) permitted the Borrower
and any Guarantor by the Bank with respect to the Note and/or any collateral
given to secure the Note or any extension or other indulgence, as described
above, with respect to any other liability or any collateral given to secure any
other liability of the borrower
5
<PAGE> 6
and any Guarantor to the Bank. All monies due under the Note and/or Loan
Documents shall be without setoff or counterclaim on the part of the Borrower
and any Guarantor.
Any and all now existing and/or hereafter arising deposits, or other
sums at any time credited by, or due to, the Borrower and/or any Guarantor from
the Bank, any Affiliate and/or any Participant, including without limitation,
being a participant under the Note, if at all, and any now existing and/or
hereafter arising monies, securities, instrument, certificates, repurchase
agreements, and/or other property of the Borrower and any Guarantor in the
possession of the Bank, any Affiliate an/or any Participant, regardless of the
reason the Bank of such Affiliate or Participant had received same (all the
foregoing collectively called "Deposits") shall at all times constitute security
for the Liabilities including the Note, and/or for any endorsement of the Note
and/or guaranty by any Guarantor (said endorsement of the Note and/or guaranty
by any Guarantor hereinafter called "Guaranty Obligations"), and may be held,
applied and/or set off by the Bank, any Affiliate and/or any Participant against
the Liabilities and/or Guaranty obligations at any time when due, whether or not
other collateral is held by or otherwise available to the Bank, any Affiliate
and/or any Participant, whether such collateral be security in full or in part.
Without limitation, and in addition to the foregoing, in the event the Bank, any
Affiliate or any Participant at any time or times hereafter is served with
trustee process of any kind which attach or order any payment from any goods,
effects and/or credits of the Borrower and any guarantor in the hands or
possession of the Bank, any Affiliate or any Participant, then the Bank, any
Affiliate and/or any Participant without notice or demand to the Borrower and
any Guarantor may deem the dollar amount set forth in the trustee process as
becoming immediately due and payable under the Note, any endorsement and/or
guaranty by any Guarantor, and/or any other loan arrangement with the Borrower,
and set off said amount against any Deposits being held by the Bank, any
Affiliate and/or any Participant, and any such payment made by said setoff shall
be applied as the Bank, any Affiliate or any Participant shall in its sole
discretion determine, and when applied to any outstanding principal, may be
applied in inverse order of maturity. The Borrower and any Guarantor hereby
grant to the Bank, any Affiliate and/or any Participant a security interest in
the Deposits to secure all obligations of the Borrower and any Guarantor, or any
one or more persons or entities comprising the Borrower and any Guarantor, to
the Bank, any Affiliate and/or any Participant under the liabilities and/or the
Guaranty Obligations. The Borrower and any Guarantor hereby authorize the Bank,
any Affiliate and/or any Participant to charge the Deposits which the Borrower
and any Guarantor may at any time maintain with the Bank, and Affiliate and/or
any Participant for any payment due on account of the Liabilities and/or the
Guaranty Obligations. The Borrower and any Guarantor agree that the rights to
set off against Deposits and to charge Deposits granted herein by the borrower
and any Guarantor to the Bank, any Affiliate or any Participant (a) are
irrespective of the source or contributor(s) of funds or other property which
comprise the deposits, whether or not the Deposits, Liabilities and/or Guaranty
Obligations are (i) individual and/or joint of the Borrower and any Guarantor,
or any one or more persons or entities comprising the Borrower and any Guarantor
and/or (ii) in the name of or by the Borrower and any Guarantor, or any one or
more persons or entities comprising the Borrower and any Guarantor, with another
or others; and (b) are at the option of the Bank, any Affiliate or any
Participant, and in no event is the Bank, any Affiliate or any Participant under
a duty to exercise setoff against Deposits or to charge Deposits.
6
<PAGE> 7
The Borrower and any Guarantor agree that the Bank and any Affiliate
shall have the right at any time, and from time to time, with or without notice
to the Borrower and any Guarantor to enter into any participation agreement(s)
with other(s) which grants participation interests to the Bank and other(s) (a)
in the Note and any loan evidenced by the Note and the Loan Documents, (b) in
any other loan or loans, including promissory notes and all loan documents
applicable thereto, now existing and/or hereafter arising, by the Borrower
and/or any Guarantor with the Bank and/or any Affiliate, and/or (c) in any other
loan or loans, including promissory notes and all loan documents applicable
thereto, now existing and/or hereafter arising, by the Borrower and/or any
Guarantor with any other bank(s) or other lender(s). In addition, the Borrower
and any Guarantor agree that the Bank, any Affiliate and/or any Participant
and/or any other holder of the Note shall have the right to sell or otherwise
transfer the Note and/or any Loan Documents at any time.
In the event at any time the Borrower and any Guarantor has a claim,
cause of action, setoff, defense, counterclaim or third party claim
(collectively "Borrower Claim") against the Bank and/or any Affiliate, the
Borrower and any Guarantor agree to commence a lawsuit and/or other proceeding
on the Borrower Claim against the Bank only in Boston, Massachusetts or such
other place where the Bank has its principal place of business, and only within
a period of one year from the time the Borrower Claim first arises, or such
other minimum period permitted by law in the event the court finds the one-year
period insufficient.
The Borrower agrees not to seek or accept contribution, reimbursement,
indemnity, subrogation or enforcement of any rights from anyone also obligated
under the Note, as maker, guarantor, endorser or otherwise, if at all; and any
Guarantor agrees not to seek or accept contribution, reimbursement, indemnity,
subrogation or enforcement of any rights from the Borrower, and any other
guarantor or endorser hereof, or anyone otherwise obligated under the Note; all
the foregoing in this paragraph until all obligations under the Note are paid in
full and no claim whatsoever exists and/or may exist against the Bank, any
Affiliate, and/or Participant for repayment, a preference payment in bankruptcy,
or otherwise in connection with the Borrower and any Guarantor.
The Borrower and any Guarantor agree to indemnify, defend and hold
harmless the Bank, any Affiliate, and/or any officer, director and/or employee
of the Bank and/or any Affiliate of and from any claim or claims now existing,
hereafter arising and/or hereafter brought and/or threatened by the Borrower and
any Guarantor or by any other person or entity, in connection therewith, on
account of or relating to any relationship and/or dealings with the Borrower and
any Guarantor, including without limitation any person or entity contesting the
validity or priority of any mortgage(s) and/or other collateral granted to the
Bank.
The Borrower and any Guarantor agree to promptly pay to the Bank and
any Affiliate for all legal services hereafter rendered to the Bank and/or any
Affiliate including all time, legal fees and expenses, in connection with the
review, drafting, preparation for enforcement, negotiation, enforcement,
amendment, extension, substitution and/or modification of the Note, any
endorsement and/or guaranty thereof, any endorsement and/or guaranty of the
obligations of the Borrower to the Bank, any Loan Documents, any other
instruments securing or otherwise relating to the Note, any other matters
relating to the collection of the loan proceeds and/or realization on
7
<PAGE> 8
any collateral given to the Bank, any bankruptcy and/or foreclosure proceedings,
procedures and expenses which relate to the Borrower and any Guarantor and/or
any mortgage(s) and/or other collateral given by the Borrower and any Guarantor,
and all rights and remedies of the Bank, whether now existing and/or hereafter
arising against the Borrower and any Guarantor and/or any collateral given by
the Borrower and any Guarantor to the Bank, whether or not court proceedings are
brought. The responsibility set forth anywhere in the Note of Borrower and any
Guarantor to pay for the attorneys time, legal fees and expenses of the Bank
and/or any Affiliate shall include both outside counsel engaged by the Bank, and
any in-house counsel employed by the Bank and/or any Affiliate at the same rate
as comparable outside counsel.
IN ANY CASE, CONTROVERSY OR MATTER WHICH ARISES OUT OF, OR IS IN
RESPECT OF, THE NOTE AND/OR LOAN EVIDENCED THEREBY, ANY LOAN DOCUMENTS, ANY
COLLATERAL SECURING THE NOTE, ANY OTHER INSTRUMENT IN CONNECTION WITH THE NOTE,
AND/OR ANY OTHER BUSINESS RELATIONSHIP OR TRANSACTION BETWEEN THE BANK AND/OR
ANY AFFILIATE WITH THE BORROWER AND ANY GUARANTOR, WHETHER NOW EXISTING OR
HEREAFTER ARISING, THE BORROWER AND ANY GUARANTOR KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY: (A) WAIVE ANY RIGHT TO AND AGREE NOT TO BRING, COMMENCE, OR
OTHERWISE TAKE ANY ACTION TO TRANSFER, ANY PROCEEDING INCLUDING WITHOUT
LIMITATION COURT ACTION, ARBITRATION, MEDIATION, ADMINISTRATIVE PROCEEDING OR
OTHERWISE AGAINST THE BANK AND/OR ANY AFFILIATE, OTHER THAN IN THE COMMONWEALTH
OF MASSACHUSETTS; (B) WAIVE ANY NOW EXISTING AND/OR HEREAFTER ARISING RIGHT TO A
TRIAL BY JURY; AND (C) WAIVE ANY NOW EXISTING AND/OR HEREAFTER ARISING RIGHT TO
ANY CONSEQUENTIAL PUNITIVE, SPECIAL, EXEMPLARY AND/OR INCIDENTAL DAMAGES.
The Borrower and any Guarantor shall maintain full and accurate books
and records showing in detail the income and expenses, and assets and
liabilities, of the borrower and any guarantor and any mortgaged premises which
may secure the Note and/or any endorsement and/or guaranty by any Guarantor;
and, upon request from the Bank, shall permit the Bank and/or its
representatives to examine and make copies of the books and records of the
Borrower and any Guarantor and any mortgaged premises which may secure the Note
and/or any endorsement and/or guaranty by any Guarantor. The Borrower and any
Guarantor shall deliver to the Bank annual financial statements including
without limitation a statement of assets, liabilities and net worth and shall
deliver to the Bank all other financial information required under the Loan
Agreement.
At all times when the security for the Note and/or any endorsement
and/or guaranty by any Guarantor includes real estate, the Borrower and any
Guarantor agree that the Bank and any Affiliate and representatives shall have
the right at any time hereafter to enter the mortgaged premises (a) for purposes
of inspecting and testing for hazardous material and oils to determine whether
or not the premises violate any provisions of M.G.L. ch. 21E and regulations
relating thereto, and/or (b) for purposes of appraising the mortgaged premises.
8
<PAGE> 9
Any default under the Note shall be a default by the Borrower and any
Guarantor under any other promissory note and/or other instrument by the
Borrower and any Guarantor to the Bank, any Affiliate and/or any Participant,
now existing or hereafter arising. Any default by the Borrower under any other
promissory note and/or other instrument by the Borrower and any Guarantor to the
Bank, any Affiliate and/or any Participant now existing or hereafter arising,
shall be a default under the Note and Loan Documents. All mortgages and/or other
collateral from the Borrower to the Bank and/or any Affiliate, if any, now
existing or hereafter arising, shall also secure the obligations of the Borrower
under the Note. All mortgages and/or other collateral, if any, which secure the
Note shall also secure all promissory notes and other obligations of the
Borrower to the Bank, now existing or hereafter arising, whereof individual
and/or joint of the Borrower, or any one or more persons or entities comprising
the Borrower.
AT THE DUE DATE OF THE NOTE (AT MATURITY, UPON EARLIER ACCELERATION, OR
IN THE EVENT THE NOTE IS A DEMAND NOTE), THE BANK MAY DEMAND PAYMENT OF THE
NOTE, MAY REWRITE THE NOTE BY AGREEMENT AT A GREATER OR LESSER RATE OF INTEREST,
OR MAY, BY AGREEMENT, ALLOW PAYMENTS TO BE MADE ON SAID NOTE AT THE SAME, OR A
LESSER OR A GREATER RATE OF INTEREST, IF AT ALL, THE NOTE IS A CONTRACT FOR A
SHORT-TERM LOAN. THE LOAN IS PAYABLE IN FULL AT MATURITY, UPON EARLIER
ACCELERATION, OR IN THE EVENT THE NOTE IS A DEMAND NOTE. THE BORROWER MUST REPAY
THE ENTIRE PRINCIPAL BALANCE OF THE LOAN AND UNPAID INTEREST WHEN DUE. THE BANK
IS UNDER NO OBLIGATION TO REFINANCE THE LOAN AT THAT TIME. THE BORROWER WILL,
THEREFORE, BE REQUIRED TO MAKE PAYMENT OUT OF OTHER ASSETS THE BORROWER MAY OWN,
OR WILL HAVE TO FIND ANOTHER BANK OR LENDER WILLING TO LEND THE BORROWER THE
MONEY AT PREVAILING MARKET RATES, WHICH MAY BE CONSIDERABLY HIGHER THAN THE
INTEREST RATE ON THE LOAN.
Within ten (10) days after requested by the Bank by notice to the
Borrower, Borrower and any Guarantor agree to execute and deliver to the Bank a
written statement addressed to the Bank, any Affiliate, any Participant and/or
proposed Participant, and signed by the Borrower and any Guarantor under the
penalties of perjury, and duly notarized, acknowledging the principal and
interest balances then due under the Note, and further acknowledging that the
Note is in full force and effect and unmodified, that the Borrower and any
Guarantor have no defenses, offsets or counterclaims to the payment and/or
performance of the obligations of the Borrower and any Guarantor under the Note,
and have no claims or causes of action of any kind whatsoever then existing
against the Bank, any Affiliate and/or Participant, and a statement that the
Bank is not in default under the Note or any loan or other agreement relating to
the Note or any obligations evidenced thereby, all the foregoing in this
sentence except as may otherwise exist in which event he Borrower shall specify
what otherwise exists, and a statement regarding such other matters which the
Bank may require.
In the event that prior to the recording of any mortgage, financing
statement or other collateral instrument, if any, given herewith by the Borrower
and any Guarantor to the Bank, there shall exist or otherwise be made known to
the Bank or any Affiliate, any voluntary or involuntary creation or occurrence,
of any encumbrance, mortgage, lien, attachment, or other
9
<PAGE> 10
security interest on or in any real or personal property given herewith by the
Borrower and any Guarantor as collateral to the Bank, or any portion thereof
(except as otherwise specifically permitted, if at all, in any of the Loan
Documents), or the transfer of such real or personal property or any portion
thereof or any legal or beneficial interest therein, or the Borrower and any
Guarantor become the subject of a bankruptcy petition, assignment for the
benefit of creditors, or any arrangement with creditors, or any restraining
order or injunction exists against the Borrower and any Guarantor, at the option
of the Bank all obligations of the Bank to make the loan and/or advance monies
pursuant to any loan agreement, of which the Note evidences the loan in whole or
in part, shall be void, and the Note shall become immediately due and payable
without notice or demand to the extent of all monies due thereunder which have
previously been paid by the Bank.
The Borrower and any Guarantor acknowledge that the Bank has notified
and does hereby notify the Borrower and any Guarantor as follows:
(a). THE RESPONSIBILITY OF THE ATTORNEY FOR THE BANK IS TO
PROTECT THE INTEREST OF THE BANK;
(b). THE BORROWER AND ANY GUARANTOR MAY, AT BORROWER'S OR
GUARANTOR'S OWN EXPENSE, ENGAGE AN ATTORNEY OF THEIR OWN
SELECTION TO REPRESENT THE BORROWER'S OR GUARANTOR'S OWN
INTERESTS IN THE TRANSACTION.
No delay or omission by the Bank in exercising or enforcing any of the
Bank's powers, rights, privileges, remedies, or discretions hereunder shall
operate as a waiver thereof on that occasion nor on any other occasion. No
waiver of any default hereunder shall operate as a waiver of any other default
hereunder, nor as a continuing waiver. The Note shall be binding upon the
Borrower and each endorser and guarantor hereof and upon their respective heirs,
successors, assigns, and representatives, and shall inure to the benefit of the
Bank and its successors, endorsees, and assigns. The Borrower and any Guarantor
each authorizes the Bank to complete the Note if delivered incomplete in any
respect by the Borrower and any Guarantor. The Note is delivered to the Bank at
one of its offices in Massachusetts, shall be governed by the laws of the
Commonwealth of Massachusetts, and shall take effect as a sealed instrument. The
Borrower and any Guarantor of the Note each submits to the jurisdiction of the
courts of the Commonwealth of Massachusetts for all purposes with respect to the
Note, any collateral given to secure their respective liabilities, obligations
and indebtedness to the Bank, and their respective relationships with the Bank.
The Borrower and any Guarantor agree that all assets in which the Borrower and
any Guarantor have previously granted or hereafter grant to the Bank or any
Affiliate a security, mortgage or collateral interest shall secure the
Liabilities and Guaranty Obligations. The Note includes all future amendments,
decreases, extensions, increases, modifications, renegotiations, renewals,
replacements, revisions, rewritings and/or substitutions thereof, in whole or in
part ("Modifications/Substitutions"). The Borrower and any Guarantor agree that
any mortgages and/or other collateral, if any, which may secure the Note, secure
all Modifications/Substitutions of the Note, if any, now existing and/or
hereafter arising, and include all future Modifications/Substitutions of such
mortgages and/or other collateral, if any, now existing and/or hereafter
arising. To the maximum extent permitted by law, except for payments made on
account of the Note which reduce the monies due under the Note, all other
provisions of
10
<PAGE> 11
the Note, shall survive (a) the payment of all principal and interest
obligations of the borrower and any Guarantor under the Note, (b) any
termination, release or discharge of the principal and interest obligations of
the Borrower and any Guarantor to the Bank and/or any Affiliate, and (c) the
discharge or satisfaction of any mortgage, security agreement and/or other
collateral, if any, which may at any time secure the Note. Any prepayment of the
Note shall be applied to principal in inverse order of maturity. Time of all
payments and provisions hereof is of strict essence. In the event more than one
person or entity comprises the Borrower, all provisions herein of the Borrower
are joint and several obligations. The Borrower and any Guarantor acknowledge
and agree and say under the penalties of perjury that (a) each is executing the
Note as the free act and deed of each, (b) each is not acting under any duress
or undue influence, and (c) the Bank and/or any Affiliate have made no
agreements, warranties, representations or promises in connection with the Note
and/or any loan agreements or other agreements relating to the Note, except as
set forth herein or in a written instrument executed and delivered by the Bank.
The provisions of the Note are hereby declared to be severable, and the
invalidity of any provision or application thereof shall not effect any other
provision or any other application thereof. Interest on principal under the Note
shall accrue only on the amount of principal from time to time actually
outstanding under the Note. The Bank records, including without limitation,
computer printout of the Bank showing an account of the Borrower, shall be
admissible as evidence in any action or proceeding in connection with the Note,
and shall constitute prima facie evidence of the items contained therein. The
Note may not be modified orally, but may only be modified by written instrument
signed by the holder hereof.
In the event the Borrower and any Guarantor is a trust or corporation,
each person signing below in behalf of said entity personally and individually
certifies to the Bank that the person(s) executing the Note (a) is a trustee of
any applicable trust, or an officer of any applicable corporation, and (b) has
been duly authorized, empowered and directed to execute and deliver the Note
and, if any, all other instruments securing or otherwise relating to the Note,
and any other agreements or instruments determined by such person in such
person's sole discretion to be appropriate or incidental to the loan evidenced
by the Note, all in such form and with such modifications, substitutions,
renewals, replacements, revisions, amendments and/or additions as such person
from time to time deems proper, in the name of an in behalf of said entity (i)
in the case of a trust, by a written instrument signed by all beneficiaries and
delivered to the trustee, and/or (ii) in the case of a corporation, unanimously
by all the stockholders and directors of the corporation, at a meeting duly held
or by written consent in lieu of meeting, duly filed with the records of the
minutes of the corporation.
The Borrower has read all of the terms and conditions of the Note and
acknowledges receipt of an exact copy of it.
<TABLE>
<CAPTION>
WITNESS Signed in my Presence MAKERS(S) ("Borrower")
IMPLANT SCIENCES CORPORATION
<S> <C>
/s/ Diane J. Ryan
- ---------------------------------- ----------------------------------
Print Name: Diane J. Ryan Witness
Print Name: Anthony J. Armini Title, if applicable: President
---------------- ----------
Address:
-----------------------------------------------
</TABLE>
11
<PAGE> 12
<TABLE>
<S> <C>
- ----------------------------------- -------------------------------------
Witness
Print Name: Print Name: Title, if applicable:
------------------------ ----------------- --------------
Address:
--------------------------------------------------------
</TABLE>
For good and valuable consideration, the receipt and sufficiency of which are
acknowledged, each of the undersigned endorses the Note, guarantees to the Bank
the payment and performance of the borrower's obligations under the Note,
acknowledges reading the Note in its entirety, agrees to be
12
<PAGE> 13
jointly and severally (if more than one) liable and bound to the Bank and any
Affiliate under all provisions of the Note, agrees to be jointly and severally
liable with the Borrower for all obligations under the Note, and agrees that all
obligations hereunder and such endorsement and guaranty shall take effect under
seal.
<TABLE>
<S> <C>
WITNESS Signed in my Presence
- ----------------------------------- ----------------------------------
Witness
Print Name: Print Name: Title, if applicable:
------------------------ ------------------ -------------
Address:
------------------------------------------
- ----------------------------------- ----------------------------------
Witness
Print Name: Print Name: Title, if applicable:
------------------------ ------------------ -------------
Address:
------------------------------------------
</TABLE>
13
<PAGE> 1
EXHIBIT 10.20
6% UNSECURED NON-NEGOTIABLE PROMISSORY NOTE
$137,500 Boston, Massachusetts
September 26, 1998
On December 9, 2003 (the "Maturity Date"), for value received, Anthony
J. Armini, (the "Maker"), promises to pay to Implant Sciences Corporation (the
"Payee"), at 107 Audubon Road, #5, Wakefield, MA 01880, the principal sum of One
Hundred Thirty Seven Thousand Five Hundred United States Dollars ($137,500) or
the then outstanding principal amount hereof, together with interest on any and
all principal amounts remaining unpaid hereunder from time to time outstanding
from December 9, 1997 (the "Original Loan Date") until payment in full, such
interest to be payable at such rates and such times as are hereinafter
specified.
1. INTEREST AND PRINCIPAL
1.01 Interest. The Maker shall pay interest on the outstanding
principal amount of this Note from the Original Loan Date until such principal
amount is paid in full at the rate of six percent (6%) per annum.
1.02 Principal. The entire outstanding principal together with interest
accrued thereon on amount of this Note shall be paid on December 9, 2003.
1.03 Prepayment. This Note may be prepaid, without premium or penalty,
in whole or in part, at any time or from time to time, at the option of the
Maker, by paying to the Payee an amount equal to the amount to be prepaid
together with interest accrued thereon through the date of prepayment.
1.04 Delivery of Payment. All payments made hereunder shall be made by
check mailed first class, postage paid to the Payee at the address set forth
above or to such other address as the Payee may from time to time designate in
writing to the Maker. Such payments shall be accompanied by a notice setting
forth in reasonable detail (a) the amount of interest and principal being paid
and (b) the remaining principal amount. If any payments are required to be made
on a day which is not a Business Day (as hereinafter defined) the date on which
such payment is required to be made shall be extended to, and such payment shall
be required to be made on, the next Business Day. "Business Day" shall mean a
day other than Saturday, Sunday and any day which shall be in the City of
Boston, Massachusetts, a legal holiday or a day on which banking institutions
are authorized by law to close.
2. DEFAULTS AND REMEDIES.
2.01 Events of Default. An "Event of Default" shall occur if:
(a) the Maker defaults in the payment of interest on this
Note when the same becomes due and payable and such Default continues
for a period of 30 days;
1
<PAGE> 2
(b) the Maker defaults in the payment of principal on this
Note when the same becomes due and payable, at maturity or otherwise;
(c) the Maker fails to comply with any of the other
agreements contained in this Note, and the Default continues for a
period of 30 days; and
(d) the Maker pursuant to or within the meaning of any
Bankruptcy Law (as defined below):
(i) commences a voluntary case;
(ii) consents to the entry of an order against it
for relief in an involuntary case; or
(iii) makes a general assignment for the benefit
of its creditors; or
(e) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that:
(i) is for relief against the Maker in an
involuntary case; or
(ii) appoints a Custodian (as hereinafter
defined) for all or substantially all of the
assets of the Maker.
The term "Bankruptcy Law" means Title 11, U.S. Code or any similar
federal or state law. The term "Custodian" means any receiver, trustee,
assignee, liquidator, or similar official under any Bankruptcy Law.
A default under clause (c) above shall not constitute an Event of
Default until Payee notifies the Maker of the Default and the Maker does not
cure the Default within 60 days of such notice. The notice must specify the
Event of Default, demand that it be remedied, and state that it is a notice of
Event of Default.
2.02 Acceleration. If an Event of Default occurs and is continuing, the
holder of this Note may, by notice to the Maker, declare the principal of and
accrued interest on this Note to be immediately due and payable.
2.03 Other Remedies. If an Event of Default occurs and is continuing,
the holder of this Note may pursue any available remedy to collect the payment
of interest, principal or premium, if any, on this Note or to enforce any
provision of this Note. A delay or omission by the holder of this Note in
exercising any right or remedy accruing upon an Event of Default shall not
impair the right or remedy or constitute a waiver or acquiesce in the Event of
Default. All remedies are cumulative to the extent permitted by law.
2
<PAGE> 3
3. TERMINATION OF LOAN AGREEMENT BETWEEN MAKER AND PAYEE, DATED DECEMBER
9, 1997.
This Note terminates and supercedes in its entirety the loan agreement
between the Maker and the Payee, dated December 9, 1997.
4. USURY.
It is the intention of the parties hereto to conform strictly to
applicable usury laws now or hereafter in effect. In the event that any of the
terms or provisions of this Note are in conflict with applicable usury law this
SECTION 4 shall govern as to such terms or provisions, and this Note shall in
all other respects remain in full force and effect. If any transaction
contemplated hereby would be usurious, it is agreed that the aggregate of all
consideration which constitutes interest under applicable law that is contracted
for, charged or received under this Note shall under no circumstances exceed the
maximum interest allowed by applicable law. Accordingly, if interest in excess
of the legal maximum is contracted for, charged or received: (i) this Note shall
be automatically reformed so that the effective rate of interest shall be
reduced to the maximum rate of interest permitted by applicable law, for the
purpose of determining said rate and to the extent permitted by applicable law,
all interest contracted for, charged or received shall be amortized, prorated
and spread throughout the full term of this Note so that the effective rate of
interest is uniform throughout the life of this Note, and (ii) any excess of
interest over the maximum amount allowed under applicable law shall be applied
as a credit against the then unpaid principal amount hereof.
5. MISCELLANEOUS
The undersigned hereby waives presentment, demand for payment, notice
of dishonor, and any and all other notices or demands in connection with the
delivery, acceptance, performance, default or enforcement of this Note, and
hereby consents to any extensions of time, renewals, releases of any party to
this Note, waivers or modifications that may be granted or consented to by the
Payee in respect to the time of payment or any other provision of this Note.
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS
(EXCLUSIVE OF THE LAWS GOVERNING CONFLICTS OF LAWS) OF THE COMMONWEALTH OF
MASSACHUSETTS.
By: /s/ ANTHONY J. ARMINI
----------------------------------
Name:
As to Section 3 only: IMPLANT SCIENCES CORPORATION
By: /s/ DARLENE DEPTULA-HICKS
----------------------------------
Name:
Title:
3
<PAGE> 1
Exhibit 10.21
SHAREHOLDERS' AGREEMENT
between
NAR HOLDING CORPORATION
and
ANTHONY J. ARMINI
July 15, 1987
1
<PAGE> 2
SHAREHOLDERS' AGREEMENT
This AGREEMENT is made and entered into this 15th day of July, 1987, by
and between NAR HOLDING CORPORATION ("NAR Holding"), a Delaware corporation
having its principal executive office at 555 Madison Avenue, 27th Floor, New
York, New York, and ANTHONY J. ARMINI ("Armini"), an individual residing at 12
Harvard Drive, Bedford, Massachusetts, with reference to the following facts:
WHEREAS, NAR Holding and Surface Alloys Corporation ("Surface Alloys"),
a Massachusetts corporation, have entered into that certain Subscription
Agreement (the "Subscription Agreement"), dated July 8, 1987, for the issuance
and sale by Surface Alloys, and the purchase by NAR Holding, of 50,000 shares of
the voting common stock of Surface Alloys upon the terms and conditions set
forth therein;
WHEREAS, Armini is the owner, beneficially and of record, of 200,000
shares of the issued and outstanding voting common stock of Surface Alloys; and
WHEREAS, NAR Holding and Armini desire to enter into a shareholders'
agreement to provide for the election of the directors of Surface Alloys and
certain other matters.
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises, covenants, representations and warranties set forth herein, the
parties hereto agree as follows:
1. Ownership of Shares. Following the consummation of the transactions
contemplated by the Subscription Agreement, Armini and NAR Holding severally
represent and warrant that they are or will be the owners, beneficially and of
record, of the number of shares of the issued and outstanding voting common
stock of Surface Alloys set forth opposite their names below, and that such
shares are or will be respectively owned by them free and clear of all liens,
encumbrances, security agreements, voting trust agreements, shareholders'
agreements, options, claims, contracts, restrictions or understandings, and that
they have or will have full power to vote all of their respective shares in the
manner provided herein.
Name Number of Shares
---- ----------------
Armini 200,000
NAR Holding 50,000
2. Board of Directors. The parties hereby agree that so long as the
Board of Directors (the "Board") of Surface Alloys shall consist of five (5)
members or less and NAR Holding or any of its affiliates (as defined in Section
4) shall own any shares, NAR Holding and such affiliates (collectively, the "NAR
Group") shall be entitled to name, and to have elected, a minimum of one
director to such Board as their representative. The parties further agree that,
during the term of this Agreement, the authorized number of directors shall not
exceed five (5) members, and that they will not vote, or permit their respective
shares to be voted, in favor of any amendment of the Bylaws or any other
corporate action that would increase the authorized number of directors, except
as may be necessary in accordance with this section. In the event that the
percentage of outstanding shares held in the aggregate by the NAR Group should
for any reason exceed twenty percent (20%), it shall be entitled to name and to
have elected one additional director for each additional twenty (20%) percent of
the outstanding shares of Surface Alloys owned by the NAR Group. Any such
increase in the NAR Group's representation on the Board shall be effective as of
the next annual or special meeting of the shareholders for the election of a
director or directors.
2
<PAGE> 3
3. Voting of Shares. During the term of this Agreement, Armini shall
vote all of the shares then owned by him for the nomination and election as a
director of Surface Alloys the person or persons designated by the NAR Group in
accordance herewith for election to the Board. In the event that any director
designated by the NAR Group should cease to be a director for any reason prior
to the expiration of his term, Armini shall vote all of his shares for the
nomination and election of another person designated by the NAR Group to fill
such vacancy.
4. Restrictions on Transfer. The parties hereby agree that none of the
shares respectively held by them may be sold, transferred, gifted or otherwise
conveyed to any other person or entity without the prior written consent, which
shall not be unreasonably withheld, of the non-transferring party, provided,
however, that: (i) Armini may sell, transfer or convey any or all of his shares
to any member of his immediate family, and (ii) NAR Holding may sell, transfer
or convey any or all of its shares to any "affiliate," which for purposes of
this Agreement shall mean any person or entity directly or indirectly
controlling, controlled by, or under common control with NAR Holding.
Notwithstanding the foregoing, no sale, transfer or conveyance of any shares by
either party shall be permitted hereunder, unless the nontransferring party
shall have received a written instrument, in form and substance reasonably
satisfactory to it, duly executed and delivered by the proposed transferee and
which shall obligate such transferee to perform and observe all of the terms and
conditions of this Agreement.
5. Additional Covenants. Armini hereby covenants and agrees that he
will not vote, nor permit his shares to be voted, in favor of any amendment of
the Articles of Incorporation or Bylaws of Surface Alloys or in favor of any
other corporate action: (i) that would adversely affect during the term of this
Agreement the NAR Group's right of representation on the Board of Surface
Alloys, as contemplated hereunder, or (ii) that would adversely affect the
Pre-Emptive Right granted pursuant to the Subscription Agreement by Surface
Alloys to NAR Holding (including its affiliates to the extent permitted
thereunder) during the term of such Pre-Emptive Right.
6. Legend. The following legend shall be noted conspicuously on all
certificates representing the shares subject to this Agreement:
The shares of common stock represented by this certificate are subject
to restrictions on voting and transfer, as provided in the
Shareholders' Agreement, dated July 15, 1987, by and between NAR
Holding Corporation, a Delaware corporation, and Anthony J. Armini, an
individual, a copy of which is on file with the Clerk of Surface Alloys
Corporation.
7. Stock Dividends. The terms and conditions of this Agreement shall
apply to any shares of capital stock or other securities distributed by Surface
Alloys as a dividend in respect of the shares of common stock held by the
parties hereto and their respective transferees.
8. Term and Termination. The term of this Agreement shall commence on
the date hereof and shall continue until terminated by the earliest to occur of
any one of the following events: (i) the mutual consent of the parties evidenced
by a written instrument signed by them, (ii) a public offering of shares of the
voting common stock of Surface Alloys, or (iii) the NAR Group shall in the
aggregate cease to own at least ten percent (10%) of the outstanding voting
common stock of Surface Alloys.
9. Further Actions. The parties agree, at his or its own expense, to
take such other actions and to execute and deliver such other instruments and
documents, upon the request of the other party, as may be reasonably necessary
to effectuate the purposes of this Agreement.
3
<PAGE> 4
10. Equitable Relief. The parties agree that any breach of the
provisions of this Agreement could not be adequately compensated by money
damages, and that the nonbreaching party shall be entitled, in addition to any
other right or remedy available to him or it at law or in equity, to specific
performance of this Agreement and to any other injunctive or equitable relief as
may be determined by any court of competent jurisdiction.
11. Corporate Records. A copy of this Agreement shall be filed with the
Secretary of Surface Alloys, and shall be inserted in the minute book of the
corporation.
12. No Third Party Beneficiaries. Nothing express or implied herein is
intended to confer, or shall be construed as conferring, upon any person other
than the parties hereto and their permitted transferees any rights, remedies,
obligations or liabilities under or by reason of this Agreement.
13. Notices. All notices and other communications required to be given
under this Agreement shall be in writing, and shall be deemed to have been duly
given on the date of service if served personally, on the date of transmission
if sent by telex, facsimile or other form of electronic communication, or on the
date of mailing if mailed by certified or registered mail, postage prepaid and
properly addressed. All notices and other communications shall be addressed to
the parties as follows:
NAR Holding Corporation
c/o Takata Corporation
18-1 Toranomon 1-chome
Minato-ku, Tokyo 105, Japan
Attention: Mr. Shoji Uenishi
With a copy to:
Graham & James
725 South Figueroa St., Suite 3400
Los Angeles, California 90017, U.S.A.
Attention: Denis E. Oyakawa, Esq.
Anthony J. Armini
12 Harvard Drive
Bedford, Massachusetts 01730, U.S.A.
With a copy to:
O'Connor, Broude & Snyder
950 Winter Street, Suite 2300
Waltham, Massachusetts 02154, U.S.A.
Attention: Paul D. Broude, Esq.
14. Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors, transferees,
heirs, and personal representatives.
15. Effect of Headings. The subject headings of the sections of this
Agreement are included for purposes of convenience only, and shall not affect
the construction or interpretation of any of its provisions.
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16. Entire Agreement. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter of this Agreement, and
supersedes all prior and contemporaneous agreements, representations and
understandings of the parties, whether written or oral.
17. Modification; Waiver. No modification or amendment of this
Agreement shall be binding unless executed in writing by both parties. No waiver
of any provision of this Agreement shall be deemed, or shall constitute, a
waiver of any other provision, whether or not similar, nor shall any waiver in
one instance constitute a continuing waiver or be deemed a waiver in any other
insurance. No waiver shall be binding unless executed in writing by the party to
be charged with the waiver.
18. Severability. If any provision of this Agreement shall be held to
be invalid, illegal or unenforceable, the remaining provisions shall not be
affected thereby and shall continue in full force and effect.
19. Counterparts. This Agreement may be executed in any number of
counterparts, each of which so executed shall be deemed to be an original, but
all such counterparts shall together be one and the same instrument.
20. Arbitration. Any dispute or controversy arising out of or relating
to this Agreement shall be decided by arbitration in the City of New York, State
of New York by the American Arbitration Association (the "Association") in
accordance with the Commercial Arbitration Rules of the Association. The parties
hereby agree that any award by the Association shall be final and binding, and
may be enforced by any court of competent jurisdiction.
21. Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement on the date first above written.
NAR HOLDING CORPORATION,
a Delaware corporation
By:/s/ Shoji Uenishi
-----------------------------
Shoji Uenishi, Director
ANTHONY J. ARMINI,
an individual
/s/ Anthony J. Armini
---------------------
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Exhibit 10.22
LEASE
Building 1
107 Audubon Road
Wakefield, MA
LANDLORD: Teachers Insurance and Annuity
Association of America
TENANT: Impact Sciences Corporation
DATED: As of September 29, 1995
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TABLE OF CONTENTS
ARTICLE CAPTION PAGE
I. BASIC LEASE PROVISIONS
1.1 Introduction
1.2 Basic Data
1.3 Additional Definitions
II. PREMISES AND APPURTENANT RIGHTS
2.1 Lease of Premises
2.2 Appurtenant Rights and Reservations
III. BASIC RENT
3.1 Payment
IV. COMMENCEMENT AND CONDITION
4.1 Commencement Date
4.2 Condition of the Premises
V. USE OF PREMISES
5.1 Permitted Use
5.2 Installation and Alterations by Tenant
VI. ASSIGNMENT AND SUBLETTING
6.1 Prohibition
VII. RESPONSIBILITY FOR REPAIRS AND CONDITIONS
OF PREMISES; SERVICES TO BE FURNISHED BY LANDLORD
7.1 Landlord Repairs
7.2 Tenant's Agreement
7.3 Floor Load - Heavy Machinery
7.4 Building Services
7.5 Electricity
VIII. REAL ESTATE TAXES
8.1 Payments on Account of Real Estate Taxes
8.2 Abatement
8.3 Alternate Taxes
IX. OPERATING EXPENSES
9.1 Definitions
9.2 Tenant's Payments
X. INDEMNITY AND PUBLIC LIABILITY INSURANCE
10.1 Tenants Indemnity
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10.2 Public Liability Insurance
10.3 Tenant's Risk
10.4 Injury Caused by Third Parties
XI. LANDLORD'S ACCESS TO PREMISES
11.1 Landlord's Rights
XII. FIRE, EMINENT DOMAIN, ETC.
12.1 Abatement of Rent
12.2 Landlord's Right of Termination
12.3 Restoration
12.4 Award
XIII. DEFAULT
13.1 Tenant's Default
13.2 Landlord's Default
XIV. MISCELLANEOUS PROVISIONS
14.1 Extra Hazardous Use
14.2 Waiver
14.3 Covenant of Quiet Enjoyment
14.4 Landlord's Liability
14.5 Notice to Mortgagee or Ground Lessor
14.6 Assignment of Rents and Transfer of Title
14.7 Rules and Regulations
14.8 Additional Charges
14.9 Invalidity of Particular Provisions
14.10 Provisions Binding, Etc.
14.11 Recording
14.12 Notices
14.13 When Lease Becomes Binding
14.14 Paragraph Headings
14.15 Rights of Mortgagee or
Ground Lessor
14.16 Status Report
14.17 Security Deposit
14.18 Remedying Defaults
14.19 Holding Over
14.20 Waiver of Subrogation
14.21 Surrender of Premises
14.22 Substituted Space
14.23 Brokerage
14.24 Special Taxation Provisions
14.25 Hazardous Materials
14.26 Governing Law
14.27 Right of First Offer
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14.28 Option to Extend
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L E A S E
Preamble
THIS INSTRUMENT IS A LEASE, dated as of September 29 , 1995 in which the
Landlord and the Tenant are the parties hereinafter named, and which relates to
space in Building 1 (the "Building") which is one of those three certain
buildings known as Buildings 1, 2 and 3 (collectively called the "Buildings")
known as and numbered 107 Audubon Road, Wakefield, Massachusetts. The parties to
this instrument hereby agree with each other as follows:
ARTICLE I
BASIC LEASE PROVISIONS
1.1 INTRODUCTION. The following terms and provisions set forth basic data and,
where appropriate, constitute definitions of the terms hereinafter listed:
1.2 BASIC DATA.
LANDLORD: Teachers Insurance and Annuity
Association of America
LANDLORD'S ORIGINAL ADDRESS:
c/o Leggat McCall Properties Management, L.P.
401 Edgewater Place
Suite 210
Wakefield, Massachusetts 01880
TENANT: Implant Sciences Corporation
TENANT'S ORIGINAL ADDRESS:
Building 1
107 Audubon Road
Wakefield, MA 01880
GUARANTOR: N/A
BASIC RENT: $108,829.50 per annum ($6.50 per rentable square foot per
annum) payable in equal monthly installments of $9,069.13
PREMISES RENTABLE AREA: Approximately 16,743 square feet.
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PERMITTED USES: Office and light manufacturing, but specifically
excluding any use which would cause any portion of the Premises to be
deemed a "place of public accommodation" as defined in the Americans
with Disabilities Act of 1990, as amended.
BUILDING ESCALATION FACTOR: 20.93%, as computed in accordance with the
Building Escalation Factor Computation.
PROPERTY ESCALATION FACTOR: 10.49% as computed in accordance with the
Property Escalation Factor Computation.
INITIAL TERM: Three (3) years commencing on the Commencement Date and
expiring at the close of the day immediately preceding the 3rd
anniversary of the Commencement Date, except that if the Commencement
Date shall be other than the first day of a calendar month, the
expiration of the Initial Term shall be at the close of the day on the
last day of the calendar month on which such anniversary date shall
fall.
SECURITY DEPOSIT: N/A.
1.3 ADDITIONAL DEFINITIONS.
MANAGER: Leggat McCall Properties Management, L.P.
BUILDING RENTABLE AREA: 80,000 rentable square feet.
PROPERTY RENTABLE AREA: 159,654 rentable square feet.
BUSINESS DAYS: All days except Saturday, Sunday, New Year' s Day,
Washington's Birthday, Patriots Day, Memorial Day, Independence Day,
Labor Day, Columbus Day, Veterans' Day, Thanksgiving Day, Christmas Day
(and the following day when any such day occurs on Sunday).
COMMENCEMENT DATE: As defined in Section 4.1.
DEFAULT OF TENANT: As defined in Section 13.1.
ESCALATION CHARGES: The amounts prescribed in Sections 8.1 and 9.2.
BUILDING ESCALATION FACTOR COMPUTATION: Premises Rentable Area divided
by 100% of the Building Rentable Area.
PROPERTY ESCALATION FACTOR COMPUTATION: Premises Rentable Area divided
by 100% of the Property Rentable Area.
FORCE MAJEURE: Collectively and individually, strike or other labor
trouble, fire or other casualty; governmental preemption of priorities
or other controls in connection with a
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national or other public emergency or shortages of, or inability to
obtain, fuel, supplies or labor resulting therefrom, or any other cause,
whether similar or dissimilar, beyond Landlord's reasonable control.
INITIAL PUBLIC LIABILITY INSURANCE: $1,000,000 per person; $3,000,000
per occurrence (combined single limit) for property damage, bodily
injury or death.
OPERATING EXPENSES: As set forth in Section 9. 1.
OPERATING YEAR: As defined in Section 9.1.
PREMISES: A portion of the Building as shown on Exhibit A annexed
hereto.
PROPERTY: The Buildings (Buildings 1, 2 and 3) situated at 107 Audubon
Road, Wakefield, MA and the land parcel on which they are located
(including roadways, parking lots and adjacent sidewalks).
TAX YEAR: As defined in Section 8.1.
TAXES: As determined in accordance with Section 8.1.
TENANTS REMOVABLE PROPERTY: As defined in Section 5.2.
TERMS OF THIS LEASE: The Initial Term and any extension thereof in
accordance with the provisions hereof.
UTILITY EXPENSES: As defined in Section 9.1.
EXHIBITS: The following Exhibits are annexed to this Lease and
incorporated herein by this reference:
Exhibit A - Plan showing Premises
Exhibit B - Intentionally omitted
Exhibit C - Rules and Regulations
Exhibit D - Plan Showing First Offer space
Exhibit E - Operating Expenses
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ARTICLE II
PREMISES AND APPURTENANT RIGHTS,
2.1 LEASE OF PREMISES. Landlord hereby demises and leases to Tenant for the
Term of this Lease and upon the terms and conditions hereinafter set
forth, and Tenant hereby accepts from Landlord, the Premises.
2.2 APPURTENANT RIGHTS AND RESERVATIONS. (a) Tenant shall have, as
appurtenant to the Premises, the non-exclusive right to use, and permit
its invitees to use in connection with others, public or common
lobbies, hallways, and common walkways necessary for access to the
Building, and if the portion of the Premises on any floor includes less
than the entire floor, the common toilets, corridors and elevator lobby
of such floor; but Tenant shall have no other appurtenant rights and
all such rights shall always be subject to reasonable rules and
regulations from time to time established by Landlord pursuant to
Section 14.7 and to the right of Landlord to designate and change from
time to time areas and facilities so to be used.
Notwithstanding the foregoing to the contrary, during the Term of this
Lease, Tenant shall have, as appurtenant to the Premises, the exclusive
right to use two (2) parking spaces in the parking lot (the "Tenant's
Spaces") which Tenant spaces are to be in a location mutually agreeable
to Landlord and Tenant. Tenant hereby acknowledges that Tenant shall,
at its sole cost and expense identify such Tenant's Spaces with signage
or other marking first approved in writing by Landlord. Landlord shall
have no obligation to police or enforce Tenant's exclusive right to use
Tenant's spaces.
(b) Excepted and excluded from the Premises are the ceiling, floor,
perimeter walls and exterior windows, except the inner surfaces
thereof, but the entry doors (and related glass and finish work) to the
Premises are a part thereof; and Tenant agrees that Landlord shall have
the right to place in the Premises (but in such manner as to reduce to
a minimum interference with Tenant's use of the Premises) interior
storm windows, subcontrol devices (by way of illustration, an electric
sub panel, etc.), utility lines, pipes, equipment and the like, in,
over and upon the Premises. Tenant shall install and maintain, as
Landlord may require, proper access panels in any hung ceilings or
walls as may be installed by Tenant in the Premises to afford access to
any facilities above the ceiling or within or behind the walls.
ARTICLE III
BASIC RENT
3.1 PAYMENT. (a) Tenant agrees to pay to Landlord, or as directed by
Landlord, commencing on the Commencement Date without offset,
abatement, deduction or
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demand, the Basic Rent plus Landlord's estimated amounts for Escalation
Charges. Such Basic Rent plus Landlord's estimated amounts for
Escalation Charges shall be payable in equal monthly installments, in
advance, on the first day of each and every calendar month during the
Term of this Lease, at Landlord's Original Address, or at such other
place as Landlord shall from time to time designate by notice to
Tenant, in lawful money of the United States. In the event that any
installment of Basic Rent is not paid within ten (10) days after the
due date thereof, Tenant shall pay, in addition to any Escalation
Charges or other additional charges due under this Lease, an
administrative fee equal to 5% of the overdue payment.
(b) Basic Rent and Escalation Charges for any partial month shall be
pro-rated on a daily basis, and if the first day on which Tenant must
pay Basic Rent and Escalation Charges shall be other than the first day
of a calendar month, the first payment which Tenant shall make to
Landlord shall be equal to a proportionate part of the monthly
installment of Basic Rent for the partial month from the first day on
which Tenant must pay Basic Rent and Escalation Charges to the last day
of the month in which such day occurs, plus the installment of Basic
Rent and Escalation Charges for the succeeding calendar month.
ARTICLE IV
COMMENCEMENT AND CONDITION
4.1 COMMENCEMENT DATE. The Commencement Date shall be December 1, 1996.
4.2 CONDITION OF THE PREMISES. Tenant acknowledges that Tenant is presently
in possession of the entire Premises pursuant to a separate Lease with
Landlord. Tenant hereby acknowledges and agrees to accept the Premises
on the Commencement Date in its then "as is" condition without
representation or warranty of Landlord of any kind, either express or
implied.
ARTICLE V
USE OF PREMISES
5.1 PERMITTED USE.
(a) Tenant agrees that the Premises shall be used and occupied by
Tenant only for Permitted uses.
(b) Tenant agrees to conform to the following provisions during the
Term of this Lease:
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(i) Tenant shall cause all freight to be delivered to or
removed from the Building and the Premises in accordance with
reasonable rules and regulations established by Landlord therefor;
(ii) Tenant will not place on the exterior of the Premises
(including both interior and exterior surfaces of doors and interior
surfaces of windows) or on any part of the Building outside the
Premises, any signs, symbol, advertisements or the like visible to
public view outside of the Premises. Landlord will not unreasonably
withhold consent for signs or lettering on the entry doors to the
Premises provided such signs conform to building standards adopted by
Landlord and Tenant has submitted a sketch of the sign to be placed on
such entry doors.
(iii) Tenant shall not perform any act or carry on any
practice which may injure the Premises, or any other part of the
Building, or cause offensive odors or loud noise or constitute a
nuisance or menace to any other tenant or tenants or other persons in
the Building or the Property;
(iv) Tenant shall, at its sole cost and expense: (x) in its
use of the Premises, the Building or the Property, comply with the
requirements of all applicable governmental laws, rules and regulations
including, without limitation, the Americans with Disabilities Act of
1990, as amended (the "ADA") and (y) pay for and perform any work
necessary to bring the Premises, the Building or the Property into
compliance with the ADA which work is required due to the Tenant's use
of the Premises, the Building or the Property for any purpose; and
(v) Tenant shall continuously throughout the Term of this
Lease occupy the Premises for the Permitted Uses and for no other
purposes.
5.2 INSTALLATION AND ALTERATIONS BY TENANT. (a) Tenant shall make no
alterations, additions (including, for the purposes hereof,
wall-to-wall carpeting), or improvements in or to the Premises without
Landlord's prior written consent. Any such alterations, additions or
improvements shall (i) be in accordance with complete plans and
specifications prepared by Tenant and approved in advance by Landlord;
(ii) be performed in a good and workmanlike manner and in compliance
with all applicable laws; (iii) be performed and completed in the
manner required in Section 5.2(d) hereof; (iv) be made at Tenant's sole
expense and at such times as Landlord may from time to time designate;
and (v) become a part of the Premises and the property of Landlord. It
is agreed and understood that Landlord shall have the right to review
and approve all changes to any plans which Landlord shall have approved
pursuant to this Section 5.2(a). It is also agreed and understood that
Landlord shall not be deemed to be unreasonable in denying its consent
to alterations, additions and improvements to the Premises which affect
"Base Building Systems" (as said term is hereafter defined).
As used herein, the term "Base Building Systems" shall mean (i) any
mechanical, electrical or plumbing system or component of the Building
(including the Premises) (ii)
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the exterior of the Building (iii) the Building HVAC distribution
system (iii) any fire safety prevention/suppression system and (iv) any
structural element or component of the Building.
(b) All articles of personal property and all business fixtures,
machinery and equipment and furniture owned or installed by Tenant
solely at its expense in the Premises ("Tenant's Removable Property")
shall remain the property of Tenant and may be removed by Tenant at any
time prior to the expiration of this Lease, provided that Tenant, at
its expense, shall repair any damage to the Building caused by such
removal.
(c) Notice is hereby given that Landlord shall not be liable for any
labor or materials furnished or to be furnished to Tenant upon credit,
and that no mechanics or other lien for any such labor or materials
shall attach to or affect the reversion or other estate or interest of
Landlord in and to the Premises or the Property. Whenever and as often
as any mechanic's lien shall have been filed against the Premises or
the Property based upon any act or interest of Tenant or of anyone
claiming through Tenant, Tenant shall forthwith take such actions by
bonding, deposit or payment as will remove or satisfy the lien.
(d) All of the Tenant's alterations, additions and installation of
furnishings shall be coordinated with any work being performed by
Landlord and in such manner as to maintain harmonious labor relations
and not damage the Building or the Property or interfere with Building
construction or operation and, except for installation of furnishings,
shall be performed by Landlord's general contractor or, at Landlord's
election, by contractors or workmen first approved by Landlord.
Installation and moving of furnishings, equipment and the like shall be
performed only with labor compatible with that being employed by
Landlord for work in or to the Building and not to employ or permit the
use of any labor or otherwise take any action which might result in a
labor dispute involving personnel providing services in the Building or
the Property. Except for work by Landlord's general contractor, Tenant
before its work is started shall: secure all licenses and permits
necessary therefor and deliver copies thereof to Landlord; deliver to
Landlord a statement of the names of all its contractors and
subcontractors and the estimated cost of all labor and material to be
furnished by them; and cause each contractor to carry workmen's
compensation insurance in statutory amounts covering all the
contractor's and subcontractor's employees and comprehensive public
liability insurance and property damage insurance with such limits as
Landlord may reasonably require but in no event less than a combined
single limit of Two million and No/100ths ($2,000,000.00) Dollars (all
such insurance to be written in companies approved by Landlord and
insuring Landlord, Manager and Tenant as well as the contractors) , and
to deliver to Landlord certificates of all such insurance. Tenant
agrees to pay promptly when due the entire cost of any work done on the
Premises by Tenant, its agents, employees, or independent contractors,
and not to cause or permit any liens for labor or materials performed
or furnished in connection therewith to attach to the Premises or the
Property and immediately to discharge any such liens which may so
attach and, at the request of Landlord to deliver to Landlord security
satisfactory to Landlord against liens arising out of the furnishing of
such labor and material. Upon completion of any work
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done on the Premises by Tenant, its agents, employees, or independent
contractors, Tenant shall promptly deliver to Landlord (i) original
lien releases and waivers executed by each contractor, subcontractor,
supplier, materialmen, architect, engineer or other party which
furnished labor, materials or other services in connection with such
work and pursuant to which all liens, claims and other rights of such
party with respect to labor, material or services furnished in
connection with such work are unconditionally released and waived and
(ii) copies of any certificate(s) of occupancy relating to the Premises
issued by the Town of Wakefield. Tenant shall pay within fourteen (14)
days after being billed therefor by Landlord, as an additional charge
hereunder, one hundred percent (100%) of any increase in real estate
taxes on the Property not otherwise billed to Tenant which shall, at
any time after commencement of the Term, result from any alteration,
addition or improvement to the Premises made by or on behalf of Tenant
(including Tenant's original installation and Tenant's subsequent
alterations, additions, substitutions and improvements), whether done
prior to or after the commencement of the Term of this Lease.
(e) In connection with the performance of any alterations,
improvements, changes or additions to the Premises as contemplated by
Article IV or Section 5.2 of this Lease, in the event that any such
improvement, alteration, change or addition to the Premises to be
performed by Tenant (the "Work") affects so-called "Base Building
Systems" and to the extent that such Work is not performed by Landlord
or a general contractor employed directly by Landlord, Tenant hereby
agrees to use the services of a construction management firm designated
by Landlord to oversee, coordinate and review all aspects of any such
Work. The cost and expense of the services of such construction manager
shall be borne by Tenant but only to the extent that such costs and
expenses are comparable to and competitive with the costs and expenses
charged by other firms engaged in construction management and oversight
services in the general geographic location of the Building for
services of a similar scope and type.
(f) To the maximum extent this agreement may be made effective
according to law, Tenant hereby agrees to indemnity and save Landlord
harmless from and against any and all loss, cost, penalties,
liabilities, damages and claims (including, without limitation,
reasonable attorney's fees) arising from any act, omission or
negligence of Tenant or Tenant's general contractor or its
subcontractors or their contractors, licensees, agents, servants or
employees arising from the performance of Tenant's Work caused to any
person or to the property of any person, the Building, or the Property.
This indemnity shall, to the maximum extent this agreement may be made
effective according to law, also extend to all loss, cost, penalties,
liability, damage, and claims of whatever nature asserted against the
Landlord arising out of the use or occupancy or passage or travel in,
over or upon, the Building or the Property by Tenant or by any person
claiming by, through or under Tenant including, without limitation,
Tenant's general contractor, its subcontractors and their respective
agents, employees, contractors and customers or arising out of any
delivery to or service supplied to the Premises or on account of or
based on anything whatsoever done in the Property by any of them
including, without limitation, any loss, cost, damages or claims
sustained or incurred by Landlord as the
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direct result of any tenant of the Building (including any retail
tenant) claiming a breach of the covenant of quite enjoyment or an
interference with ongoing business operations as the result of Tenant's
Work. The indemnity contained in this sub-paragraph (f) shall include
indemnity against all cost, expenses and liabilities incurred in or in
connection with any such claim or proceeding brought thereon and the
defense thereof with counsel approved by the Landlord. The indemnity
contained in this sub-paragraph (f) shall survive any expiration or
earlier termination of this Lease.
(g) In addition to and without limitation of any other right or remedy
provided to Landlord pursuant to this Lease, at law or in equity, and
in the event that (i) Tenant's general contractor shall fail or refuse
to continue to perform Tenant's Work for any reason or (ii) Tenant's
general contractor shall abandon the project and cease performing
Tenant's Work for more than ten (10) Business Days or (iii) all or any
portion of Tenant's Work is not performed strictly in accordance with
Tenant's plans and specifications (first approved by Landlord) as said
plans and specifications may be amended by change orders first approved
by Landlord and Manager, then, in any such case, Landlord shall have
the right, but not the obligation, to complete Tenant's Work (at
Landlord's option with or without Tenant's general contractor) in
accordance with Tenant's plans and specifications (first approved by
Landlord) at the sole cost and expense of Tenant. In the event that
Landlord shall exercise such right, Tenant agrees to pay Landlord
forthwith upon demand all such sums incurred by Landlord in so
completing Tenant's Work together with interest thereon at a rate equal
to three (3%) percent over the prime rate in effect from time to time
at the Bank of Boston (but in no event, more than the maximum rate
permitted under Massachusetts law) as an additional charge hereunder.
ARTICLE VI
ASSIGNMENT AND SUBLETTING
6.1 PROHIBITION. (a) Tenant covenants and agrees that whether voluntarily,
involuntarily, by operation of law or otherwise, neither this Lease nor
the term and estate hereby granted, nor any interest herein or therein,
will be assigned, mortgaged, pledged, encumbered or otherwise
transferred and that neither the Premises nor any part thereof will be
encumbered in any manner by reason of any act or omission on the part
of Tenant, or used or occupied, by anyone other than Tenant, or for any
use or purpose other than a Permitted Use, or be sublet (which term,
without limitation, shall include granting of concessions, licenses and
the like) in whole or in part, or be offered or advertised for
assignment or subletting.
(b) The provisions of paragraph (a) of this Section shall apply to a
transfer (by one or more transfers) of a majority of the stock or
partnership interests, or other evidences of ownership of Tenant as if
such transfer were an assignment of this Lease; but such provisions
shall not apply to transactions with an entity into or with which
Tenant is
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merged or consolidated or to which substantially all of Tenant's assets
are transferred or to any entity which controls or is controlled by
Tenant or is under common control with Tenant, provided that in any of
such events (i) the successor to Tenant has a net worth computed in
accordance with generally accepted accounting principles at least equal
to the net worth of Tenant immediately prior to such merger,
consolidation or transfer, (ii) proof satisfactory to Landlord of such
net worth shall have been delivered to Landlord at least 10 days prior
to the effective date of any such transaction, and (iii) the assignee
agrees directly with Landlord, by written instrument in form
satisfactory to Landlord, to be bound by all the obligations of Tenant
hereunder including, without limitation, the covenant against further
assignment or subletting.
(c) If this Lease be assigned, or if the Premises or any part thereof
be sublet or occupied by anyone other than Tenant, Landlord may, at any
time and from time to time, collect rent and other charges from the
assignee, subtenant or occupant, and apply the net amount collected to
the rent and other charges herein reserved, but no such assignment,
subletting, occupancy, collection or modification of any provisions of
this Lease shall be deemed a waiver of this covenant, or the acceptance
of the assignee, subtenant or occupant as a tenant or a release of the
original named Tenant from the further performance by the original
named Tenant hereunder. No assignment or subletting hereunder shall
relieve Tenant from its obligations hereunder and Tenant shall remain
fully and primarily liable therefor. No assignment or subletting, or
occupancy shall affect Permitted Uses. Upon demand, Tenant shall
reimburse Landlord for all costs and expenses including, without
limitation, reasonable attorneys fees sustained or incurred by Landlord
in connection with any request for Landlord's consent to or any attempt
by Tenant to assign or sublet under this Lease.
ARTICLE VII
RESPONSIBILITY FOR REPAIRS AND CONDITIONS OF PREMISES;
SERVICES TO BE FURNISHED BY LANDLORD
7.1 LANDLORD REPAIRS. (a) Except as otherwise provided in this Lease,
Landlord agrees to keep in good order, condition and repair the roof,
public areas, exterior walls (including exterior glass) and structure
of the Building (including plumbing, mechanical and electrical systems
installed by Landlord but excluding any systems installed specifically
for Tenant's benefit or used exclusively by Tenant) and the HVAC system
serving the Premises, all insofar as they affect the Premises, except
that Landlord shall in no event be responsible to Tenant for the
condition of glass in the Premises or for the doors (or related glass
and finish work) leading to the Premises, or for any condition in the
Premises or the Building caused by any act or neglect of Tenant, its
agents, employees, invitees or contractors. Landlord shall cause the
paved portions of the Property to be kept reasonably free and clear of
snow, ice and refuse and shall cause the landscaped areas of the
Property to be maintained in a reasonably attractive appearance.
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Landlord shall not be responsible to make any improvements or repairs
to the Building other than as expressly in this Section 7.1 provided,
unless expressly provided otherwise in this Lease. All costs and
expenses incurred by Landlord in performing its obligations under this
Section 7.1 shall be included in Operating Expenses (as said term is
hereafter defined).
(b) Landlord shall never be liable for any failure to make repairs
which Landlord has undertaken to make under the provisions of this
Section 7.1 or elsewhere in this Lease, unless Tenant has given notice
to Landlord of the need to make such repairs, and Landlord has failed
to commence to make such repairs within a reasonable time after receipt
of such notice, or fails to proceed with reasonable diligence to
complete such repairs.
(c) Any services which Landlord is required to furnish pursuant to the
provisions of this Lease may, at Landlord's option be furnished from
time to time, in whole or in part, by employees of Landlord or by the
Manager of the Property or by one or more third persons.
7.2 TENANT'S AGREEMENT, (a) Tenant will keep neat and clean and maintain in
good order, condition and repair the Premises and every part thereof,
excepting only those repairs for which Landlord is responsible under
the terms of this Lease, reasonable wear and tear of the Premises, and
damage by fire or other casualty and as a consequence of the exercise
of the power of eminent domain; and shall surrender the Premises, at
the end of the Term, in such condition. Without limitation, Tenant
shall continually during the Term of this Lease maintain the Premises
in accordance with all laws, codes and ordinances from time to time in
effect and all directions, rules and regulations of the proper officers
of governmental agencies having jurisdiction, and of the Boston Board
of Fire Underwriters, and shall, at Tenant's own expense, obtain all
permits, licenses and the like required by applicable law.
Notwithstanding the foregoing or the provisions of Article XII, Tenant
shall be responsible for the cost of repairs which may be necessary by
reason of damage to the Building caused by any act or neglect of Tenant
or its agents, employees, contractors or invitees (including any damage
by fire or any other casualty arising therefrom). Tenant shall be
responsible for the payment of all charges for gas or other utilities
used or consumed in the Premises.
(b) If repairs are required to be made by Tenant pursuant to the terms
hereof, Landlord may demand that Tenant make the same forthwith, and if
Tenant refuses or neglects to commence such repairs and complete the
same with reasonable dispatch after such demand, Landlord may (but
shall not be required to do so) make or cause such repairs to be made
(the provisions of Section 14.18 being applicable to the costs thereof)
and shall not be responsible to Tenant for any loss or damage that may
accrue to Tenant's stock or business by reason thereof. Notwithstanding
the foregoing, Landlord may elect to take action hereunder immediately
and without notice to Tenant if Landlord reasonably believes an
emergency to exist.
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7.3 FLOOR LOAD - HEAVY MACHINERY, (a) Tenant shall not place a load upon
any floor in the Premises exceeding the floor load per square foot of
area which such floor was designed to carry or which is allowed by law.
Landlord reserves the right to prescribe the weight and position of all
business machines and mechanical equipment, including safes, which
shall be placed so as to distribute the weight. Business machines and
mechanical equipment shall be placed and maintained by Tenant at
Tenant's expense in settings sufficient, in Landlord's judgment, to
absorb and prevent vibration, noise and annoyance. Tenant shall not
move any safe, heavy machinery, heavy equipment, freight, bulky matter
or fixtures into or out of the Building without Landlord's prior
consent, which consent may include a requirement to provide insurance,
naming Landlord as an insured, in such amounts as Landlord may deem
reasonable.
(b) If such safe, machinery, equipment, freight, bulky matter or
fixtures requires special handling, Tenant agrees to employ only
persons holding a Master Rigger's License to do such work, and that all
work in connection therewith shall comply with applicable laws and
regulations. Any such moving shall be at the sole risk and hazard of
Tenant, and Tenant will exonerate, indemnity and save Landlord harmless
against and from any liability, loss, injury, claim or suit resulting
directly or indirectly from such moving.
7.4 BUILDING SERVICES, (a) Landlord shall also provide:
(i) Cold water (at temperatures supplied by the Town of
Wakefield) for drinking, lavatory and toilet purposes. If Tenant uses
water for any purpose other than for ordinary lavatory and drinking
purposes, Landlord may assess a reasonable charge for the additional
water so used, or install a water meter and thereby measure Tenant's
water consumption for all purposes. In the latter event, Tenant shall
pay the cost of the meter and the cost of installation thereof and
shall keep such meter and installation equipment in good working order
and repair. Tenant agrees to pay for water consumed, as shown on such
meter, together with the sewer charge based on such meter charges, as
and when bills are rendered, and in default in making such payment
Landlord may pay such charges and collect the same from Tenant as an
additional charge.
(ii) Access to the Premises twenty-four hours per day, subject
to reasonable security restrictions and restrictions based on emergency
conditions and all other applicable provisions of this Lease.
(b) Landlord reserves the right to curtail, suspend, interrupt and/or
stop the supply of water, sewage, electrical current, cleaning, and
other services, and to curtail, suspend, interrupt and/or stop use of
entrances and/or lobbies serving access to the Building, without
thereby incurring any liability to Tenant, when necessary by reason of
accident or emergency, or for repairs, alterations, replacements or
improvements in the judgment of Landlord desirable or necessary, or
when prevented from supplying such services or use by strikes,
lockouts, difficulty in obtaining materials, accidents or any other
cause beyond Landlord's control, or by laws, orders or inability, by
exercise of reasonable diligence, to obtain electricity, water, gas,
steam, coal, oil or other suitable fuel or power. No
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diminution or abatement of rent or other compensation, nor any direct,
indirect or consequential damages shall or will be claimed by Tenant as
a result of, nor shall this Lease or any of the obligations of Tenant
be affected or reduced by reason of, any such interruption,
curtailment, suspension or stoppage in the furnishing of the foregoing
services or use, irrespective of the cause thereof. Failure or omission
on the part of Landlord to furnish any of the foregoing services or use
shall not be construed as an eviction of Tenant, actual or
constructive, nor entitle Tenant to an abatement of rent, nor to render
the Landlord liable in damages, nor release Tenant from prompt
fulfillment of any of its covenants under this Lease.
7.5 ELECTRICITY, (a) Landlord shall permit Landlord's existing wires,
pipes, risers, conduits and other electrical equipment of Landlord to
be used for the purpose of providing electrical service to the
Premises. Tenant covenants and agrees that its electrical usage and
consumption will not disproportionately "siphon off" electrical service
necessary for other tenants of the Building and that its total
connected load will not exceed the maximum load from time to time
permitted by applicable governmental regulations nor the design
criteria of the existing Building electrical capacity. Landlord shall
not in any way be liable or responsible to Tenant for any loss or
damage or expense which Tenant may sustain or incur if, during the Term
of this Lease, either the quantity or character of electric current is
changed or electric current is no longer available or suitable for
Tenant's requirements due to a factor or cause beyond Landlord's
control. Tenant shall purchase and install all lamps, tubes, starters
and ballasts. Tenant shall pay all charges for electricity, HVAC, gas
and other utilities used or consumed in the Premises. Tenant shall bear
the cost of repair and maintenance of any electric or gas meter used or
to be installed in (or serving) the Premises.
(b) From time to time during the Term of this Lease and with reasonable
notice to Tenant, Landlord shall have the right to have an electrical
consultant selected by Landlord make a survey of Tenant's electric
usage, the result of which shall be conclusive and binding upon
Landlord and Tenant. In the event that such survey shows that Tenant
has exceeded the requirements set forth in paragraph (a), in addition
to any other rights Landlord may have hereunder, Tenant shall, upon
demand, reimburse Landlord for the costs of such survey.
ARTICLE VIII
REAL ESTATE TAXES
8.1 PAYMENTS ON ACCOUNT OF REAL ESTATE TAXES, (a) For the purposes of this
Article, the term "Tax Year" shall mean the twelve-month period
commencing on the July 1 immediately preceding the Commencement Date
and each twelve-month period thereafter commencing during the Term of
this Lease; and the term "Taxes" shall mean
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all real estate taxes, special assessments and betterment assessments
assessed with respect to the Property for any Tax Year.
(b) Tenant shall pay to Landlord, as an Escalation Charge, an amount
equal to (i) Taxes for each Tax Year (or partial Tax year) falling
within the Term of this Lease, multiplied by (ii) the Property
Escalation Factor, such amount to be apportioned for any fraction of a
Tax Year in which the Commencement Date falls or the Term of this Lease
ends.
(c) Estimated payments by Tenant on account of Taxes shall be made
monthly and at the time and in the fashion herein provided for the
payment of Basic Rent. The monthly amount so to be paid to Landlord
shall be sufficient to provide Landlord by the time real estate tax
payments are due a sum equal to Tenant's required payments, as
estimated by Landlord from time to time, on account of Taxes for the
then current Tax Year. Promptly after receipt by Landlord of bills for
such Taxes, Landlord shall advise Tenant of the amount thereof and the
computation of Tenant's payment on account thereof. If estimated
payments theretofore made by Tenant for the Tax Year covered by such
bills exceed the required payments on account thereof for such Year,
Landlord shall credit the amount of overpayment against subsequent
obligations of Tenant on account of Taxes (or refund such overpayment
if the Term of this Lease has ended and Tenant has no further
obligation to Landlord); but if the required payments on account
thereof for such Year are greater than estimated payments theretofore
made on account thereof for such Year, Tenant shall make payment to
Landlord within 30 days after being so advised by Landlord. Landlord
shall have the same rights and remedies for the nonpayment by Tenant of
any payments due on account of Taxes as Landlord has hereunder for the
failure of Tenant to pay Basic Rent.
8.2 ABATEMENT. If Landlord shall receive any tax refund or reimbursement of
Taxes or sum in lieu thereof with respect to any Tax Year which is not
due to vacancies in the Building, then out of any balance remaining
thereof after deducting Landlord's expenses reasonably incurred in
obtaining such refund, Landlord shall, provided there does not then
exist a Default of Tenant, credit an amount equal to such refund or
reimbursement or sum in lieu thereof (exclusive of any interest)
multiplied by the Property Escalation Factor against the obligations of
Tenant next falling due under this Article VIII; provided, that in no
event shall Tenant be entitled to receive a credit equal to more than
the payments made by Tenant on account of such Tax Year pursuant to
paragraph (b) of Section 8.1.
8.3 ALTERNATE TAXES (a) If some method or type of taxation shall replace
the current method of assessment of real estate taxes in whole or in
part, or the type thereof, or if additional types of taxes are imposed
upon the Property or Landlord relating to the Property, Tenant agrees
that Tenant shall pay a proportionate share of the same as an
additional charge computed in a fashion consistent with the method of
computation herein provided, to the end that Tenant's share thereof
shall be, to the maximum extent practicable, comparable to that which
Tenant would bear under the foregoing provisions.
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(b) If a tax (other than Federal or State net income tax) is assessed
on account of the rents or other charges payable by Tenant to Landlord
under this Lease, Tenant agrees to pay the same as an additional charge
within ten (10) days after billing therefor, unless applicable law
prohibits the payment of such tax by Tenant.
ARTICLE IX
OPERATING EXPENSES
9.1 DEFINITIONS. For the purposes of this Article, the following terms
shall have the following respective meanings:
(i) Operating Year: Each calendar year in which any part of
the Term of this Lease shall fall.
(ii) Operating Expenses: The aggregate costs or expenses
reasonably incurred by Landlord with respect to the operation,
administration, insuring, cleaning, repair, maintenance and management
of the Property, all as set forth in Exhibit E annexed hereto, provided
that, if during any portion of the Operating Year for which Operating
Expenses are being computed, less than all of Building Rentable Area or
the Property Rentable Area was occupied by tenants or if Landlord is
not supplying all tenants with the services being supplied hereunder,
actual Operating Expenses incurred shall be reasonably extrapolated by
Landlord on an item by item basis to the estimated Operating Expenses
that would have been incurred if the Building or the Property were
fully occupied for such Year and such services were being supplied to
all tenants, and such extrapolated amount shall, for the purposes
hereof, be deemed to be the Operating Expenses for such Year. Operating
Expenses shall include Utility Expenses.
(iii) Utility Expenses: The aggregate costs or expenses
reasonably incurred by Landlord with respect to supplying electricity
(other than electricity supplied to those portions of the Building
leased to tenants) , oil, steam, gas, water and sewer and other
utilities supplied to the Property and not paid for directly by
tenants, provided that, if during any portion of the operating Year for
which Utility Expenses are being computed, less than all Building
Rentable Area or the Property Rentable Area was occupied by tenants or
if Landlord is not supplying all tenants with the utilities being
supplied hereunder, actual utility expenses incurred shall be
reasonably extrapolated by Landlord on an item-by-item basis to the
estimated Utility Expenses that would have been incurred if the
Building or the Property were fully occupied for such Year and such
utilities were being supplied to all tenants, and such extrapolated
amount shall, for the purposes hereof, be deemed to be the Utility
Expenses for such Year.
(iv) Operating Expenses Allocable to the Building: Those
operating Expenses that Landlord determines are allocable solely to the
Building rather than to other portions of the Property.
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(v) Operating Expenses Allocable to the Property: Those
Operating Expenses that Landlord determines are allocable to the
Property generally, rather than solely to the Building.
9.2 TENANT'S PAYMENTS, (a) Tenant shall pay to Landlord, as an Escalation
Charge, an amount equal to (i) Operating Expenses Allocable to the
Building for each operating Year (or partial Operating Year) falling
within the Term of this Lease multiplied by (ii) the Building
Escalation Factor, such amount to be apportioned for any partial
Operating Year in which the Commencement Date falls or the Term of this
Lease ends.
(b) Tenant shall pay to Landlord, as an Escalation Charge, an amount
equal to (i) Operating Expenses Allocable to the Property for each
operating Year (or partial Operating Year) falling within the Term of
this Lease multiplied by (ii) the Property Escalation Factor, such
amount to be apportioned for any partial operating Year in which the
Commencement Date falls or the Term of this Lease ends.
(c) Estimated payments by Tenant on account of operating Expenses
Allocable to the Building and Operating Expenses Allocable to the
Property shall be made monthly and at the time and in the fashion
herein provided for the payment of Basic Rent. The monthly amount so to
be paid to Landlord shall be sufficient to provide Landlord by the end
of each Operating Year a sum equal to Tenant's required payments, as
estimated by Landlord from time to time during each Operating Year, on
account of operating Expenses Allocable to the Building and Operating
Expenses Allocable to the Property for such Operating Year. After the
end of each Operating Year, Landlord shall submit to Tenant a
reasonably detailed accounting of Operating Expenses Allocable to the
Building and Operating Expenses Allocable to the Property for such
Year, and Landlord shall certify to the accuracy thereof. If estimated
payments theretofore made for such Year by Tenant exceed Tenant's
required payment on account thereof for such Year, according to such
statement, Landlord shall credit the amount of overpayment against
subsequent obligations of Tenant with respect to Operating Expenses (or
refund such overpayment if the term of this Lease has ended and Tenant
has no further obligation to Landlord), but, if the required payments
on account thereof for such Year are greater than the estimated
payments (if any) theretofore made on account thereof for such Year,
Tenant shall make payment to Landlord within thirty (30) days after
being so advised by Landlord. Landlord shall have the same rights and
remedies for the nonpayment by Tenant of any payments due on account of
Operating Expenses as Landlord has hereunder for the failure of Tenant
to pay Basic Rent.
ARTICLE X
INDEMNITY AND PUBLIC LIABILITY INSURANCE
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10.1 TENANT'S INDEMNITY, To the maximum extent this agreement may be made
effective according to law, Tenant agrees to defend, indemnify and save
harmless Landlord and its officers, directors, shareholders, employees,
contractors, servants, invitees, representatives and agents from and
against all claims, loss, liability, costs and damages of whatever
nature arising from any default by Tenant under this Lease and the
following: (i) from any accident, injury, death or damage whatsoever to
any person, or to the property of any person, occurring in or about the
Premises; (ii) from any accident, injury, death or damage occurring
outside of the Premises but on the Property, where such accident,
damage or injury results or is claimed to have resulted from an act or
omission on the part of Tenant or Tenant's agents, employees, invitees,
contractors or any other person acting under Tenant; or (iii) in
connection with the conduct or management of the Premises or of any
business therein, or any thing or work whatsoever done, or any
condition created (other than by Landlord) in or about the Premises;
and, in any case, occurring after the date of this Lease, until the end
of the Term of this Lease, and thereafter so long as Tenant is in
occupancy of the Premises. This indemnity and hold harmless agreement
shall include indemnity against all costs, expenses and liabilities
incurred in, or in connection with, any such claim or proceeding
brought thereon, and the defense thereof, including, without
limitation, reasonable attorneys, fees and costs at both the trial and
appellate levels. The provisions of this Section 10.1 shall survive the
expiration or any earlier termination of this Lease.
10.2 PUBLIC LIABILITY INSURANCE. Tenant agrees to maintain in full force
from the date upon which Tenant first enters the Premises for any
reason, throughout the Term of this Lease, and thereafter so long as
Tenant is in occupancy of any part of the Premises, a policy of general
liability and property damage insurance (including broad form
contractual liability, independent contractor's hazard and completed
operations coverage) under which Landlord, manager (and such other
persons as are in privity of estate with Landlord as may be set out in
notice from time to time) and Tenant are named as insureds, and under
which the insurer agrees to defend, indemnify and hold Landlord,
Manager, and those in privity of estate with Landlord, harmless from
and against all cost, expense and/or liability arising out of or based
upon any and all claims, accidents, injuries and damages set forth in
Section 10.1. Each such policy shall be non-cancellable and non-
amendable with respect to Landlord, Manager and Landlord's said
designees without thirty (30) days, prior notice to Landlord and shall
be in at least the amounts of the Initial Public Liability Insurance
specified in Section 1.3 or such greater amounts as Landlord shall from
time to time request, and a duplicate original or certificate thereof
shall be delivered to Landlord.
10.3 TENANT'S RISK. To the maximum extent this agreement may be made
effective according to law, Tenant agrees to use and occupy the
Premises and to use such other portions of the Property as Tenant is
herein given the right to use at Tenant's own risk; and Landlord shall
have no responsibility or liability for any loss of or damage to
Tenant's Removable Property or for any inconvenience, annoyance,
interruption or injury to business arising from Landlord's making any
repairs or changes which Landlord is permitted by this Lease or
required by law to make in or to any portion of the Premises or
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other sections of the Property, or in or to the fixtures, equipment or
appurtenances thereof. Tenant shall carry "all-risk" property insurance
on a "replacement cost basis" (including so-called improvements and
betterments) , and provide a waiver of subrogation as required in
Section 14.20. The provisions of this Section 10.3 shall be applicable
from and after the execution of this Lease and until the end of the
Term of this Lease, and during such further period as Tenant may use or
be in occupancy of any part of the Premises or of the Building.
10.4 INJURY CAUSED BY THIRD PARTIES, To the maximum extent this agreement
may be made effective according to law, Tenant agrees that Landlord
shall not be responsible or liable to Tenant, or to those claiming by,
through or under Tenant, for any loss or damage that may be occasioned
by or through the acts or omissions of persons occupying adjoining
premises or any part of the premises adjacent to or connecting with the
Premises or any part of the Property or otherwise. The provisions of
this Section 10.4 shall survive the expiration or any earlier
termination of this Lease.
ARTICLE XI
LANDLORD'S ACCESS TO PREMISES
11.1 LANDLORD'S RIGHTS. Landlord shall have the right to enter the Premises
at all reasonable hours for the purpose of inspecting or making repairs
to the same, and Landlord shall also have the right to make access
available at all reasonable hours to prospective or existing
mortgagees, purchasers or tenants of any part of the Property.
ARTICLE XII
FIRE, EMINENT DOMAIN, ETC.
12.1 ABATEMENT OF RENT, If the Premises shall be damaged by fire or
casualty, Basic Rent and Escalation Charges payable by Tenant shall
abate proportionately for the period in which, by reason of such
damage, there is substantial interference with Tenant's use of the
Premises, having regard to the extent to which Tenant may be required
to discontinue Tenant's use of all or a portion of the Premises, but
such abatement or reduction shall end if and when Landlord shall have
substantially restored the Premises (excluding any alterations,
additions or improvements made by Tenant pursuant to Section 5.2) to
the condition in which they were prior to such damage. If the Premises
shall be affected by any exercise of the power of eminent domain, Basic
Rent and Escalation Charges payable by Tenant shall be justly and
equitably abated and reduced according to the nature and extent of the
loss of use thereof suffered by Tenant. In no event shall Landlord have
any liability for damages to Tenant for inconvenience, annoyance, or
interruption of business arising from such fire, casualty or eminent
domain.
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12.2 LANDLORD'S RIGHT OF TERMINATION. if the Premises or the Building are
substantially damaged by fire or casualty (the term "substantially
damaged" meaning damage of such a character that the same cannot, in
ordinary course, reasonably be expected to be repaired within sixty
(60) days from the time the repair work would commence), or if any part
of the Building is taken by any exercise of the right of eminent
domain, then Landlord shall have the right to terminate this Lease
(even if Landlord's entire interest in the Premises may have been
divested) by giving notice of Landlord's election so to do within 90
days after the occurrence of such casualty or the effective date of
such taking, whereupon this Lease shall terminate thirty (30) days
after the date of such notice with the same force and effect as if such
date were the date originally established as the expiration date
hereof.
12.3 RESTORATION. If this Lease shall not be terminated pursuant to Section
12.2, Landlord shall thereafter use due diligence to restore the
Premises (excluding any alterations, additions or improvements made by
Tenant) to proper condition for Tenant's use and occupation, provided
that Landlord's obligation shall be limited to the amount of insurance
proceeds available therefor. If, for any reason, such restoration shall
not be substantially completed within six months after the expiration
of the 90-day period referred to in Section 12.2 (which six-month
period may be extended for such periods of time as Landlord is
prevented from proceeding with or completing such restoration for any
cause beyond Landlord's reasonable control, but in no event for more
than an additional three months), Tenant shall have the right to
terminate this Lease by giving notice to Landlord thereof within thirty
(30) days after the expiration of such period (as so extended). Upon
the giving of such notice, this Lease shall cease and come to an end
without further liability or obligation on the part of either party
unless, within such 30-day period, Landlord substantially completes
such restoration. Such right of termination shall be Tenant's sole and
exclusive remedy at law or in equity for Landlord's failure so to
complete such restoration.
12.4 AWARD. Landlord shall have and hereby reserves and excepts, and Tenant
hereby grants and assigns to Landlord, all rights to recover for
damages to the Property and the leasehold interest hereby created, and
to compensation accrued or hereafter to accrue by reason of such
taking, damage or destruction, and by way of confirming the foregoing,
Tenant hereby grants and assigns, and covenants with Landlord to grant
and assign to Landlord, all rights to such damages or compensation.
Nothing contained herein shall be construed to prevent Tenant from, at
its sole cost and expense, prosecuting a separate condemnation
proceeding with respect to a claim for the value of any of Tenant's
Removable Property installed in the Premises by Tenant at Tenant's
expense and for relocation expenses, provided that such action shall
not affect the amount of compensation otherwise recoverable by Landlord
from the taking authority.
ARTICLE XIII
DEFAULT
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13.1 TENANT'S DEFAULT. (a) If at any time subsequent to the date of this
Lease any one or more of the following events (herein referred to as a
"Default of Tenant") shall happen:
(i) Tenant shall fail to pay the Basic Rent, Escalation
Charges or other sums payable as additional charges hereunder when due
and such failure shall continue for ten (10) Business Days after
written notice from Landlord; or
(ii) Tenant shall neglect or fail to perform or observe any
other covenant herein contained on Tenant's part to be performed or
observed, or Tenant shall desert or abandon the Premises or the
Premises shall become, or appear to have become vacant (regardless
whether the keys shall have been surrendered or the rent and all other
sums due shall have been paid), and Tenant shall fail to remedy the
same within thirty (30) days after notice to Tenant specifying such
neglect or failure, or if such failure is of such a nature that Tenant
cannot reasonably remedy the same within such thirty (30) day period,
Tenant shall fail to commence promptly to remedy the same and to
prosecute such remedy to completion with diligence and continuity; or
(iii) Tenant's leasehold interest in the Premises shall be
taken on execution or by other process of law directed against Tenant;
or
(iv) Tenant shall make an assignment for the benefit of
creditors or shall file a voluntary petition in bankruptcy or shall be
adjudicated bankrupt or insolvent, or shall file any petition or answer
seeking any reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief for itself under any present
or future Federal, State or other statute, law or regulation for the
relief of debtors, or shall seek or consent to or acquiesce in the
appointment of any trustee, receiver or liquidator of Tenant or of all
or any substantial part of its properties, or shall admit in writing
its inability to pay its debts generally as they become due; or
(v) A petition shall be filed against Tenant in bankruptcy or
under any other law seeking any reorganization, arrangement,
composition, readjustment, liquidation, dissolution, or similar relief
under any present or future Federal, State or other statute, law or
regulation and shall remain undismissed or unstayed for an aggregate of
sixty (60) days (whether or not consecutive), or if any debtor in
possession (whether or not Tenant) trustee, receiver or liquidator of
Tenant or of all or any substantial part of its properties or of the
Premises shall be appointed without the consent or acquiescence of
Tenant and such appointment shall remain unvacated or unstayed for an
aggregate of sixty (60) days (whether or not consecutive); or
(vi) If a Default of Tenant of the kind set forth in clauses
(i) or (ii) above shall occur and if either (a) Tenant shall cure such
Default within the applicable grace period or (b) Landlord shall, in
its sole discretion , permit Tenant to cure such Default after the
applicable grace period has expired, and an event which would
constitute a similar Default if not cured within the applicable grace
period shall occur more than once within the next 365 days, whether or
not such event is cured within the applicable grace period;
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then in any such case (1) if such Default of Tenant shall occur prior
to the Commencement Date, this Lease shall ipso facto, and without
further act on the part of Landlord, terminate, and (2) if such Default
of Tenant shall occur after the Commencement Date, Landlord may
terminate this Lease by notice to Tenant, and thereupon this Lease
shall come to an end as fully and completely as if such date were the
date herein originally fixed for the expiration of the Term of this
Lease, and Tenant will then quit and surrender the Premises to
Landlord, but Tenant shall remain liable as hereinafter provided.
(b) If this Lease shall be terminated as provided in this Article, or
if any execution or attachment shall be issued against Tenant or any of
Tenant's property whereupon the Premises shall be taken or occupied by
someone other than Tenant, then Landlord may, without notice, re-enter
the Premises, either by force, summary proceedings, ejectment or
otherwise, and remove and dispossess Tenant and all other persons and
any and all property from the same, as if this Lease had not been made,
and Tenant hereby waives the service of notice of intention to re-enter
or to institute legal proceedings to that end.
(c) In the event of any termination, Tenant shall pay the Basic Rent,
Escalation Charges and other sums payable hereunder up to the time of
such termination, and thereafter Tenant, until the end of what would
have been the Term of this Lease in the absence of such termination,
and whether or not the Premises shall have been relet, shall be liable
to Landlord for, and shall pay to Landlord, as liquidated current
damages, the Basic Rent, Escalation Charges and other sums which would
be payable hereunder if such termination had not occurred, less the net
proceeds, if any, of any reletting of the Premises, after deducting all
expenses in connection with such reletting, including, without
limitation, all repossession costs, brokerage commissions, legal
expenses, attorneys' fees, advertising, expenses of employees,
alteration costs and expenses of preparation for such reletting. Tenant
shall pay such current damages to Landlord monthly on the days which
the Basic Rent would have been payable hereunder if this Lease had not
been terminated.
(d) At any time after such termination, whether or not Landlord shall
have collected any such current damages, as liquidated final damages
and in lieu of all such current damages beyond the date of such demand,
at Landlord's election Tenant shall pay to Landlord and amount equal to
the excess, if any, of the Basic Rent, Escalation Charges and other
sums as hereinbefore provided which would be payable hereunder from the
date of such demand (assuming that, for the purposes of this paragraph,
annual payments by Tenant on account of Taxes, Utility Expenses and
Operating Expenses would be the same as the payments required for the
immediately preceding Operating or Tax Year) for what would be the then
unexpired Term of this Lease if the same had remained in effect, over
the then fair net rental value of the Premises for the same period.
(e) In the case of any Default by Tenant, re-entry, expiration and
dispossession by summary proceeding or otherwise, Landlord may (i)
re-let the Premises or any part or parts thereof, either in the name of
Landlord or otherwise, for a term or terms which may
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at Landlord's option be equal to or less than or exceed the period
which would otherwise have constituted the balance of the Term of this
Lease and may grant concessions or free rent to the extent that
Landlord considers advisable and necessary to re-let the same and (ii)
may make such reasonable alterations, repairs and decorations in the
Premises as Landlord in its sole judgment considers advisable and
necessary for the purpose of reletting the Premises; and the making of
such alterations, repairs and decorations shall not operate or be
construed to release Tenant from liability hereunder as aforesaid.
Landlord shall in no event be liable in any way whatsoever for failure
to re-let the Premises, or, in the event that the Premises are re-let,
for failure to collect the rent under such re-letting. Tenant hereby
expressly waives any and all rights of redemption granted by or under
any present or future laws in the event of Tenant being evicted or
dispossessed, or in the event of Landlord obtaining possession of the
Premises, by reason of the violation by Tenant of any of the covenants
and conditions of this Lease.
(f) If a Guarantor of this Lease is named in Section 1.2, the happening
of any of the events described in paragraphs (a) (iv) or (a) (v) of
this Section 13.1 with respect to the Guarantor shall constitute a
Default of Tenant hereunder.
(g) The specified remedies to which Landlord may resort hereunder are
not intended to be exclusive of any remedies or means of redress to
which Landlord may at any time be entitled to lawfully, and Landlord
may invoke. any remedy (including the remedy of specific performance)
allowed at law or in equity as if specific remedies were not herein
provided for.
(h) All costs and expenses incurred by or on behalf of Landlord
(including, without limitation, attorneys' fees and expenses) in
enforcing its rights hereunder or occasioned by any Default of Tenant
shall be paid by Tenant.
13.2 LANDLORD'S DEFAULT. Landlord shall in no event be in default of the
performance of any of Landlord's obligations hereunder unless and until
Landlord shall have unreasonably failed to perform such obligation
within a period of time reasonably required to correct any such
default, after notice by Tenant to Landlord specifying wherein Landlord
has failed to perform any such obligations.
ARTICLE XIV
MISCELLANEOUS PROVISIONS
14.1 EXTRA HAZARDOUS USE. Tenant covenants and agrees that Tenant will not
do or permit anything to be done in or upon the Premises, or bring in
anything or keep anything therein, which shall increase the rate of
property or liability insurance on the Premises or of the Building
above the standard rate applicable to premises being occupied for
Permitted Uses; and Tenant further agrees that, in the event that
Tenant shall do any of
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the foregoing, Tenant will promptly pay to Landlord, on demand, any
such increase resulting therefrom, which shall be due and payable as an
additional charge hereunder.
14.2 WAIVER. (a) Failure on the part of Landlord or Tenant to complain of
any action or non-action on the part of the other, no matter how long
the same may continue, shall never be a waiver by Tenant or Landlord,
respectively, of any of the other's rights hereunder. Further, no
waiver at any time of any of the provisions hereof by Landlord or
Tenant shall be construed as a waiver of any of the other provisions
hereof, and a waiver at any time of any of the provisions hereof shall
not be construed as a waiver at any subsequent time of the same
provisions. The consent or approval of Landlord or Tenant to or of any
action by the other requiring such consent or approval shall not be
construed to waive or render unnecessary Landlord's or Tenant's consent
or approval to or of any subsequent similar act by the other.
(b) No payment by Tenant, or acceptance by Landlord, of a lesser amount
than shall be due from Tenant to Landlord shall be treated otherwise
than as a payment on account of the earliest installment of any payment
due from Tenant under the provisions hereof. The acceptance by Landlord
of a check for a lesser amount with an endorsement or statement
thereon, or upon any letter accompanying such check, that such lesser
amount is payment in full, shall be given no effect, and Landlord may
accept such check without prejudice to any other rights or remedies
which Landlord may have against Tenant.
14.3 COVENANT OF QUIET ENJOYMENT. Tenant, subject to the terms and
provisions of this Lease, on payment of the Basic Rent and Escalation
Charges and observing, keeping and performing all of the other terms
and provisions of this Lease on Tenant's part to be observed, kept and
performed, shall lawfully, peaceably and quietly have, hold, occupy and
enjoy the Premises during the term hereof, without hindrance or
ejection by any persons lawfully claiming under Landlord to have title
to the Premises superior to Tenant; the foregoing covenant of quiet
enjoyment is in lieu of any other covenant, express or implied.
14.4 LANDLORD'S LIABILITY. (a) Tenant specifically agrees to look solely to
Landlord's then equity interest in the Property at the time owned, for
recovery of any judgment from Landlord; it being specifically agreed
that neither Landlord (original or successor) nor any of its agents,
servants, employees, officers, shareholder or directors shall ever be
personally liable for any such judgment, or for the payment of any
monetary obligation to Tenant. The provision contained in the foregoing
sentence is not intended to, and shall not, limit any right that Tenant
might otherwise have to obtain injunctive relief against Landlord or
Landlord's successors in interest, or to take any action not involving
the personal liability of Landlord (original or successor) to respond
in monetary damages from Landlord's assets other than Landlord's equity
interest in the Property.
(b) With respect to any services or utilities to be furnished by
Landlord to Tenant, Landlord shall in no event be liable for failure to
furnish the same when prevented from doing so by Force Majeure, strike,
lockout, breakdown, accident, order or regulation of or
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by any governmental authority, or failure of supply, or inability by
the exercise of reasonable diligence to obtain supplies, parts or
employees necessary to furnish such services, or because of war or
other emergency, or for any cause beyond Landlord's reasonable control,
or for any cause due to any act or neglect of Tenant or Tenant's
servants, agents, employees, licensees or any person claiming by,
through or under Tenant; nor shall any such failure give rise to any
claim in Tenant's favor that Tenant has been evicted, either
constructively or actually, partially or wholly.
(c) In no event shall Landlord ever be liable to Tenant for any loss of
business or any other indirect or consequential damages suffered by
Tenant from whatever cause.
(d) With respect to any repairs or restoration which are required or
permitted to be made by Landlord, the same may be made during normal
business hours and Landlord shall have no liability for damages to
Tenant for inconvenience, annoyance or interruption of business arising
therefrom.
14.5 NOTICE TO MORTGAGEE OR GROUND LESSOR. After receiving notice from any
person, firm or other entity that it holds a mortgage or a ground lease
which includes the Premises, no notice from Tenant to Landlord alleging
any default by Landlord shall be effective unless and until a copy of
the same is given to such holder or ground lessor (provided Tenant
shall have been furnished with the name and address of such holder or
ground lessor), and the curing of any of Landlord's defaults by such
holder or ground lessor shall be treated as performance by Landlord.
14.6 ASSIGNMENT OF RENTS AND TRANSFER OF TITLE. (a) With reference to any
assignment by Landlord of Landlord's interest in this Lease, or the
rents payable hereunder, conditional in nature or otherwise, which
assignment is made to the holder of a mortgage on property which
includes the Premises, Tenant agrees that the execution thereof by
Landlord, and the acceptance thereof by the holder of such mortgage,
shall never be treated as an assumption by such holder of any of the
obligations of Landlord hereunder unless such holder shall, by notice
sent to Tenant, specifically otherwise elect and that, except as
aforesaid, such holder shall be treated as having assumed Landlord's
obligations hereunder only upon foreclosure of such holder's mortgage
and the taking of possession of the Premises.
(b) In no event shall the acquisition of Landlord's interest in the
Property by a purchaser which, simultaneously therewith, leases
Landlord's entire interest in the Property back to the seller thereof
be treated as an assumption by operation of law or otherwise, of
Landlord's obligations hereunder, but Tenant shall look solely to such
seller-lessee, and its successors from time to time in title, for
performance of Landlord's obligations hereunder. In any such event,
this Lease shall be subject and subordinate to the lease to such
purchaser. For all purposes, such seller-lessee, and its successors in
title, shall be the Landlord hereunder unless and until Landlord's
position shall have been assumed by such purchaser-lessor.
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(c) Except as provided in paragraph (b) of this Section, in the event
of any transfer of title to the Property by Landlord, Landlord shall
thereafter be entirely freed and relieved from the performance and
observance of all covenants and obligations hereunder.
14.7 RULES and REGULATIONS. Tenant shall abide by rules and regulations set
forth in Exhibit C attached hereto and those rules and regulations from
time to time established by Landlord, it being agreed that such rules
and regulations will be established and applied by Landlord in a
non-discriminatory fashion, such that all rules and regulations shall
be generally applicable to other tenants of the Building of similar
nature to the Tenant named herein. Landlord agrees to use reasonable
efforts to insure that any such rules and regulations are uniformly
enforced, but Landlord shall not be liable to Tenant for violation of
the same by any other tenant or occupant of the Building, or persons
having business with them. In the event that there shall be any
conflict between such rules and regulations and the provisions of this
Lease, the provisions of this Lease shall control.
14.8 ADDITIONAL CHARGES. If Tenant shall fail to pay when due any sums under
this Lease designated or payable as an additional charge, Landlord
shall have the same rights and remedies as Landlord has hereunder for
failure to pay Basic Rent.
14.9 INVALIDITY OF PARTICULAR PROVISIONS. If any term or provision of this
Lease, or the application thereof to any person or circumstance shall,
to any extent, be invalid or unenforceable, the remainder of this
Lease, or the application of such term or provision to persons or
circumstances other than those as to which it is held invalid or
unenforceable, shall not be affected thereby, and each term and
provision of this Lease shall be valid and be enforced to the fullest
extent permitted by Law.
14.10 PROVISIONS BINDING, ETC. Except as herein otherwise provided, the terms
hereof shall be binding upon and shall inure to the benefit of the
successors and assigns, respectively, of Landlord and Tenant and, if
Tenant shall be an individual, upon and to his heirs, executors,
administrators, successors and assigns. Each term and each provision of
this Lease to be performed by Tenant shall be construed to be both a
covenant and a condition. The reference contained to successors and
assigns of Tenant is not intended to constitute a consent to assignment
by Tenant, but has reference only to those instances in which Landlord
may later give consent to a particular assignment as required by those
provisions of Article VI hereof.
14.11 RECORDING. Tenant agrees not to record this Lease, but each party
hereto agrees, on the request of the other, to execute a so-called
notice of lease in form recordable and complying with applicable law
and reasonably satisfactory to Landlord's attorneys. In no event shall
such document set forth the rent or other charges payable by Tenant
under this Lease; and any such document shall expressly state that it
is executed pursuant to the provisions contained in this Lease, and is
not intended to vary the terms and conditions of this Lease.
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14.12 NOTICES. Whenever, by the terms of this Lease, notices, consents or
approvals shall or may by given either to Landlord or to Tenant, such
notices, consents or approvals shall be in writing and shall be sent by
registered or certified mail, return receipt requested, postage
prepaid:
If intended for Landlord, addressed to Landlord at Landlord's Original
Address with a copy Addressed to Landlord (Teachers Insurance and
Annuity Association of America) at 730 Third Avenue, New York, New York
10017 Attention: Mr. Joseph P. Flanagan, Senior Real Estate Manager (or
to such other address as may from time to time hereafter by designated
by Landlord by like notice).
If intended for Tenant, addressed to Tenant at Tenant's Original
Address until the Commencement Date and thereafter to the Premises (or
to such other address or addresses as may from time to time hereafter
be designated by Tenant by like notice.)
All such notices shall be effective when deposited in the United States
Mail within the Continental United States, provided that the same are
received in ordinary course at the address to which the same were sent.
14.13 WHEN LEASE BECOMES BINDING. The submission of this document for
examination and negotiation does not constitute an offer to lease, or a
reservation of, or option for, the Premises, and this document shall
become effective and binding only upon the execution and delivery
hereof by both Landlord and Tenant. All negotiations, considerations,
representations and understandings between Landlord and Tenant are
incorporated herein and this Lease expressly supersedes any proposals
or other written documents relating hereto. This Lease may be modified
or altered only by written agreement between Landlord and Tenant, and
no act or omission of any employee or agent of Landlord shall alter,
change or modify any of the provisions hereof.
14.14 PARAGRAPH HEADINGS. The paragraph headings throughout this instrument
are for convenience and reference only, and the words contained therein
shall in no way be held to explain, modify, amplify or aid in the
interpretation, construction, or meaning of the provisions of this
Lease.
14.15 RIGHTS OF MORTGAGEE OR GROUND LESSOR. This Lease shall be subordinate
to any mortgage or ground lease from time to time encumbering the
Premises, whether executed and delivered prior to or subsequent to the
date of this Lease, if the holder of such mortgage or ground lease
shall so elect. If this Lease is subordinate to any mortgage or ground
lease and the holder thereof (or successor) shall succeed to the
interest of Landlord, at the election of such holder (or successor)
Tenant shall attorn to such holder and this Lease shall continue in
full force and effect between such holder (or successor) and Tenant.
Tenant agrees to execute such instruments of subordination or
attornment in confirmation of the foregoing agreement as such holder
may request, and Tenant hereby appoints such holder as Tenant's
attorney-in-fact to execute such subordination or attornment agreement
upon default of Tenant in complying with such holder's request.
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14.16 STATUS REPORT. Recognizing that both parties may find it necessary to
establish to third parties, such as accountants, banks, mortgagees,
ground lessors, or the like, the then current status of performance
hereunder, either party, on the request of the other made from time to
time, will promptly furnish to Landlord, or the holder of any mortgage
or ground lease encumbering the Premises, or to Tenant, as the case may
be, a statement of the status of any matter pertaining to this Lease,
including, without limitation, acknowledgment that (or the extent to
which) each party is in compliance with its obligations under the terms
of this Lease.
14.17 SECURITY DEPOSIT. Concurrently with the execution and delivery of this
Lease, Tenant shall deposit the Security Deposit specified in Section
1.2 hereof and that Landlord shall hold the same throughout the Term of
this Lease as security for the performance by Tenant of all obligations
on the part of Tenant hereunder. Landlord shall have the right from
time to time without prejudice to any other remedy Landlord may have on
account thereof, to apply such deposit, or any part thereof, to
Landlord's damages arising from, or to cure, any Default of Tenant. If
Landlord shall so apply any or all of such deposit, Tenant shall
immediately deposit with Landlord the amount so applied to be held as
security hereunder. There then existing no Default of Tenant, Landlord
shall return the deposit, or so much thereof as shall theretofore not
been applied in accordance with the terms of this Section 14.17, to
Tenant on the expiration or earlier termination of the Term of this
Lease and surrender of possession of the Premises by Tenant to Landlord
at such time. While Landlord holds such deposit, Landlord shall have no
obligation to pay interest on the same and shall have the right to
commingle the same with Landlord's other funds. If Landlord conveys
Landlord's interest under this Lease, the deposit, or any part thereof
not previously applied, may be turned over by Landlord to Landlord's
grantee, and, if so turned over, Tenant agrees to look solely to such
grantee for proper application of the deposit in accordance with the
terms of this Section 14.17, and the return thereof in accordance
therewith. The holder of a mortgage shall not be responsible to Tenant
for the return or application of any such deposit, whether or not it
succeeds to the position of Landlord hereunder, unless such deposit
shall have been received in hand by such holder.
14.18 REMEDYING DEFAULTS. Landlord shall have the right, but shall not be
required, to pay such sums or to do any act which requires the
expenditure of monies which may be necessary or appropriate by reason
of the failure or neglect of Tenant to perform any of the provisions of
this Lease, and in the event of the exercise of such right by Landlord,
Tenant agrees to pay to Landlord forthwith upon demand all such sums,
together with interest thereon at a rate equal to 3% over the prime
rate in effect from time to time, at the Bank of Boston (but in no
event less than 18% per annum), as an additional charge. Any payment of
Basic Rent, Escalation Charges or other sums payable hereunder not paid
within ten (10) days of the due date thereof shall, at the option of
Landlord, bear interest at a rate equal to 3% over the prime rate in
effect from time to time at the Bank of Boston (but in no event less
than 18% per annum) from the due date thereof and shall be payable
forthwith on demand by Landlord, as an additional charge.
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14.19 HOLDING OVER. Any holding over by Tenant after the expiration of the
Term of this Lease shall be treated as a daily tenancy at sufferance at
a rate equal to the then fair rental value of the Premises but in no
event less than twice the sum of (i) Basic Rent and (ii) Escalation
Charges in effect on the expiration date. Tenant shall also pay to
Landlord all damages, direct and/or indirect (including any loss of a
tenant or rental income), sustained by reason of any such holding over.
Otherwise, such holding over shall be on the terms and conditions set
forth in this Lease as far as applicable. The Landlord may, but shall
not be required to, and only on written notice to Tenant after the
expiration of the Term hereof, elect to treat such holding over as an
extension of the Term of this Lease for a period of up to one (1) year,
as designated by Landlord, such extension to be on the terms and
conditions set forth in this Section 14.19.
14.20 WAIVER OF SUBROGATION. Insofar as, and to the extent that, the
following provision shall not make it impossible to secure insurance
coverage obtainable from responsible insurance companies doing business
in the locality in which the Property is located (even though extra
premium may result therefrom) Landlord and Tenant mutually agree that
any property damage insurance carried by either shall provide for the
waiver by the insurance carrier of any right of subrogation against the
other, and they further mutually agree that, with respect to any damage
to property, the loss from which is covered by insurance then being
carried by them, respectively, the one carrying such insurance and
suffering such loss releases the other of and from any and all claims
with respect to such loss to the extent of the insurance proceeds paid
with respect thereto.
14.21 SURRENDER OF PREMISES. Upon the expiration or earlier termination of
the Term of this Lease, Tenant shall peaceably quit and surrender to
Landlord the Premises in neat and clean condition and in good order,
condition and repair, together with all alterations, additions and
improvements which may have been made or installed in, on or to the
Premises prior to or during the Term of this Lease, excepting only
ordinary wear and use and damage by fire or other casualty for which,
under other provisions of this Lease, Tenant has no responsibility of
repair and restoration. Tenant shall remove all of Tenant's Removable
Property and, to the extent specified by Landlord, all alterations and
additions made by Tenant and all partitions wholly within the Premises;
and shall repair any damage to the Premises or the Building caused by
such removal. Any Tenant's Removable Property which shall remain in the
building or on the Premises after the expiration or termination of the
Term of this Lease shall be deemed conclusively to have been abandoned,
and either may be retained by Landlord as its property or may be
disposed of in such manner as Landlord may see fit, at Tenant's sole
cost and expense.
14.22 SUBSTITUTE SPACE. If Landlord so requests, Tenant shall vacate the
Premises and relinquish its rights with respect to the same provided
that Landlord shall provide to Tenant substitute space in one of the
Buildings, such space to be reasonably comparable in size, layout,
finish and utility to the Premises, and further provided that Landlord
shall, at its sole cost and expense, move Tenant and its Removable
Property from the Premises to such new space in such manner as will
minimize, to the greatest extent practicable, undue interference with
the business or operation of Tenant. Any such substitute space
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shall, from and after such relocation, be treated as the Premises
demised under this Lease, and shall be occupied by Tenant under the
same terms, provisions and conditions as are set forth in this Lease.
14.23 BROKERAGE. Tenant warrants and represents that Tenant has dealt with no
broker in connection with the consummation of this Lease other than
Leggat McCall Properties Management, L.P. (the "Broker") and, in the
event of any brokerage claims against Landlord predicated upon prior
dealings with Tenant, Tenant agrees to defend the same and indemnify
Landlord against any such claim (except any claim by the Broker).
14.24 SPECIAL TAXATION PROVISIONS. Landlord shall have the right at any time
and from time to time, to unilaterally amend the provisions of this
Lease if Landlord is advised by its Counsel that all or any portion of
the monies paid by Tenant to Landlord hereunder are, or may be deemed
to be, unrelated business income within the meaning of the United
States Internal Revenue Code, or any regulation issued thereunder, and
Tenant agrees that it will execute all documents or instruments
necessary to effect such amendment or amendments, provided that no such
amendment shall result in Tenant having to pay in the aggregate more
money on account of its occupancy of the demised premises under the
provisions of this Lease as so amended and provided further, that no
such amendment or amendments shall result in Tenant receiving under the
provisions of this Lease less services than it is entitled to receive
nor services of a lesser quality. Anything contained in the foregoing
provisions of this Lease (including, without limitation, Article VI
hereof) to the contrary notwithstanding, neither Tenant nor any other
person having an interest in the possession, use, occupancy or
utilization of the Premises, shall enter into any lease, sublease,
license, concession or other agreement for use, occupancy, utilization
of space in the Premises which provides for rental or other payment for
such use, occupancy or utilization of space, in whole or in part, on
the net income or profits derived by any person from the Premises
leased, used, occupied or utilized (other than an amount based on a
fixed percentage or percentage of receipts for sales) and any such
recorded lease, sublease, license, concession or other agreement shall
be absolutely void and ineffective as a conveyance of any right or
interest in the possession, use, occupancy or utilization of any part
of the Premises.
14.25 HAZARDOUS MATERIALS. Tenant shall not (either with or without
negligence) cause or permit the escape, disposal, release or threat of
release or any biologically or chemically active or other Hazardous
Materials (as said term is hereafter defined) on, in, upon or under the
Property or the Premises. Tenant shall not allow the generation,
storage, use or disposal of such Hazardous Materials in any manner not
sanctioned by law or by the highest standards prevailing in the
industry for the generation, storage, use and disposal of such
Hazardous Materials, nor allow to be brought into the Property any such
Hazardous Materials except for use in the ordinary course of Tenant's
business, and then only after written notice is given to Landlord of
the identity of such Hazardous Materials. If any lender or governmental
agency shall ever require testing to ascertain whether or not there has
been any release of Hazardous Materials, then the reasonable costs
thereof shall be reimbursed by Tenant to Landlord upon demand as
additional charges but only if such
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requirement applies to the Premises or may be the result of the acts or
omissions of Tenant. In addition, Tenant shall execute affidavits,
representations and the like, from time to time, at Landlord's request
concerning Tenant's best knowledge and belief regarding the presence of
Hazardous Materials on the Premises.
The Tenant shall, at its own expense, remove, clean up, remedy and
dispose of (in compliance with all applicable laws, rules and
regulations) all Hazardous Materials generated or released by the
Tenant or its officers, directors, employees, contractors, servants,
invitees, agents or any other person acting under Tenant during the
term of this Lease (or during such term as the Tenant is in occupancy
or possession of any part of the Premises, the Building or the
Property) at or from the Premises, the Building or the Property in
compliance with all Environmental Laws (as said term is hereafter
defined) and further, shall remove, clean up, remedy and dispose of all
Hazardous Materials located at, upon, under, within or in the Premises,
the Building or the Property generated by or resulting from its
operations, activities or processes during the tern of this Lease (or
such other periods of time as the Tenant may be in occupancy or in
possession of the Premises or any portion of the Property or Building),
in compliance with all Environmental Laws. In performing its
obligations hereunder, the Tenant shall use best efforts to avoid
interference with the use and enjoyment of the Building and the
Property by other tenants and occupants thereof. The provisions hereof
shall survive expiration or termination of this Lease.
The Tenant shall indemnify, defend and save harmless the Landlord and
its officers, directors, shareholders, employees, contractors,
servants, invitees, representatives and agents from and against all
loss, costs, damages, claims, proceedings, demands, liabilities,
penalties, fines and expenses, including without limitation, reasonable
fees and costs for attorneys' fees, consultants, fees, litigation costs
and clean-up costs asserted against or incurred by the Landlord, its
officers, directors, shareholders, employees, contractors, servants,
invitees representatives or agents at any time by reason of or arising
out of (i) any release or threat of release of any Hazardous Materials
at, in, upon, under or from the Premises, the Building or the Property
where such release or threat of release is the result of or alleged to
result from the acts or omissions of the Tenant or its agents,
servants, employees, contractors or invitees, or any other person
acting under Tenant or (ii) any violation or alleged violation of any
Environmental Laws governing Hazardous Materials where such violation
or alleged violation is the result of or alleged to result from the
acts or omissions of the Tenant or its agents, servants, employees,
contractors, invitees, or any other person acting under Tenant. The
indemnities set forth in this Section shall survive expiration or
termination of this Lease.
In addition to the requirements set forth above, the Tenant shall,
within ten (10) days of receipt, provide to the Landlord copies of any
inspection or other reports, correspondence, documentation, orders,
citations, notices, directives, or suits from or by any governmental
authority or insurer regarding non-compliance with or potential or
actual violation of Environmental Laws. The Landlord hereby expressly
reserves the right to enter the Premises and all other portions of the
Building and the Property in order to perform
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inspections and testing of the air, soil and ground water for the
presence or existence of Hazardous Materials.
As used herein, the term "Hazardous Materials" shall mean and include,
without limitation, any material or substance which is (i) petroleum,
(ii) asbestos, (iii) designated as a "hazardous substance" pursuant to
Section 311 of the Federal Water Pollution Control Act, 33 U.S.C.
Sections 1251 et seq. (33 U.S.C. Sections 1321) or listed
in Sections 307 of the Federal Water Pollution Control Act (33
U.S.C. Sections 1317), (iv) defined as a "hazardous waste"
pursuant to Section 1004 of the Resource Conservation and Recovery Act,
42 U.S.C. Sections 6901 et seq. (42 U.S.C. Sections 6903),
(v) defined as a "hazardous substance" pursuant to Section 101 of the
Comprehensive Environmental Response, Compensation, and Liability Act,
42 U.S.C. Sections 9601 et seq. (42 U.S.C. Sections 9601),
as amended and regulations promulgated thereunder, or (vi) defined as
"oil" or a "hazardous waste", a "hazardous substance", a "hazardous
material" or a "toxic material" under any other law, rule or regulation
applicable to the Property, including, without limitation, Chapter 21E
of the Massachusetts General Laws, as amended and the regulations
promulgated thereunder. As used herein, the term "Environmental Laws"
shall mean, without limitation, each and every law, rule, order,
statute or regulation described above in this Section, together with
(i) any amendments thereto, or regulations promulgated thereunder and
(ii) any other laws pertaining to the protection of the environment or
governing the use, release, storage, generation or disposal of
Hazardous Materials, whether now existing or hereafter enacted or
promulgated.
14.26 GOVERNING LAW. This Lease shall be governed exclusively by the
provisions hereof and by the laws of the Commonwealth of Massachusetts,
as the same may from time to time exist.
14.27 RIGHT OF FIRST OFFER. In the event that during the Initial Term, all or
any portion of the space shown on Exhibit D as the "First Offer Space"
shall become "available for leasing" (as said term is hereafter
defined), Landlord shall by written notice to Tenant first offer (the
"Offer") to lease all of the such available First Offer Space to Tenant
upon terms and conditions designated and specified by Landlord in the
Offer. If (a) within ten (10) days after Landlord provides the Offer to
Tenant, Tenant does not unconditionally accept the Offer as to all of
such space upon the terms and conditions described in the Offer in
writing and concurrently deposit one month's advanced rent and one
month's security deposit with Landlord or (b) if Tenant accepts the
offer as aforesaid but does not for any reason execute and deliver to
Landlord a final fully executed Amendment to this Lease Agreement in
form and substance satisfactory to Landlord and Tenant within 14 days
after acceptance of the offer as aforesaid, Landlord shall be free to
rent all or any part of such space to any party upon such terms and
conditions as Landlord may, in its sole discretion elect, and Tenant's
Right of First Offer shall terminate as to all of the space described
in such Offer. As used herein, the term "available for leasing" shall
mean that such First Offer Space is to become vacant with the present
occupant thereof having no further options to extend its lease without
any renewal or extension agreement entered into between Landlord and
such existing occupant, it being agreed and
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understood that Landlord need not provide Tenant with an Offer
hereunder if Landlord and such existing occupant have or may enter into
an arrangement to extend or renew its occupancy of the First Offer
Space.
14.28 OPTION TO EXTEND. Tenant shall have the right and option, which said
option and right shall not be severed from this Lease or separately
assigned, mortgaged or transferred, to extend the Initial Term for one
(1) additional consecutive period of three (3) years (hereinafter
referred to as the "Extension Period") , provided that (a) Tenant shall
give Landlord notice of Tenant's exercise of such option at least
twelve (12) full calendar months prior to the expiration of the Initial
Term (b) no Default of Tenant shall exist at the time of giving the
applicable notice and the commencement of the Extension Period and (c)
the Original Tenant named herein is itself occupying the entire
Premises both at the time of giving the applicable notice and at the
time of commencement of such Extension Period. Except for the amount of
Basic Rent (which is to be determined as hereinafter provided), all the
terms, covenants, conditions, provisions and agreements in the Lease
contained shall be applicable to the additional period through which
the Term of this Lease shall be extended as aforesaid, except that
there shall be no further options to extend the Term nor shall Landlord
be obligated to make or pay for any improvements to the Premises nor
pay any inducement payments of any kind or nature. If Tenant shall give
notice of its exercise of such option to extend in the manner and
within the time period provided aforesaid, the Term of this Lease shall
be extended upon the giving of each such notice without the requirement
of any further attention on the part of either Landlord or Tenant
except as may be required in order to determine Basic Rent as hereafter
set forth. Landlord hereby reserves the right, exercisable by Landlord
in its sole discretion, to waive (in writing) any condition precedent
set forth in clauses (a), (b) or (c) above.
If Tenant shall fail to give timely notice of the exercise of such
option as aforesaid, Tenant shall have no right to extend the Term of
this Lease, time being of the essence of the foregoing provisions. Any
termination of this Lease Agreement shall terminate the rights hereby
granted Tenant.
The Basic Rent payable for each twelve (12) month period during the
Extension Period shall be the Fair Market Rental Value (as said term,
is hereinafter defined) as of commencement of the Extension Period but
in no event less than the Basic Rent per annum payable for and with
respect to the last 12 calendar months of the Initial Term. "Fair
Market Rental Value" shall be computed as of the beginning of the
Extension Period at the then current annual rental charges, including
provisions for subsequent increases and other adjustments, for
extensions of existing leases then currently being negotiated or
executed in comparable space and buildings located in Wakefield,
Massachusetts. In determining Fair Market Rental Value, the following
factors, among others, shall be taken into account and given effect:
size of the premises, escalation charges then payable under the Lease,
location of the premises, location of the building, allowances or lack
of allowances (if any) and lease term. In no event shall the Basic Rent
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payable with respect to any Lease Year during the Extension Period be
less than the Basic Rent payable during the last 12 calendar months of
the Initial Term.
Dispute as to Fair Market Value. Landlord shall initially designate the
Fair Market Rental Value and shall furnish data in support of such
designation. If Tenant disagrees with Landlord's designation of the
Fair Market Rental Value, Tenant shall have the right, by written
notice given to Landlord within thirty (30) days after Tenant has been
notified of Landlord's designation, to submit such Fair Market Rental
Value to arbitration as follows: Fair market Rental Value shall be
determined by agreement between Landlord and Tenant but if Landlord and
Tenant are unable to agree upon the Fair Market Rental Value at least
ten (10) months prior to the date upon which the Fair Market Rental
Value is to take effect, then the Fair Market Rental Value shall be
determined by appraisal as follows: The Landlord and Tenant shall each
appoint a Qualified Appraiser (as said term is hereinafter defined) at
least nine (9) months prior to the commencement of the period for which
Fair Market Rental Value is to be determined and shall designate the
Qualified Appraiser so appointed by notice to the other party. The two
appraisers so appointed shall meet within ten (10) days after both
appraisers are designated in an attempt to agree upon the Fair Market
Rental value for the applicable Extension Period and if, within fifteen
(15) days after both appraisers are designated, the two appraisers do
not agree upon the Fair Market Rental value, then each appraiser shall,
not later than thirty (30) days after both appraisers have been chosen,
deliver a written report to both the Landlord and Tenant setting forth
the Fair Market Rental Value as determined by each such appraiser
taking into account the factors set forth in this Section 14.28. If the
lower of the two determinations of Fair Market Rental Value as
determined by such two appraisers is equal to or greater than 95% of
the higher of the Fair Market Rental value as determined by such two
appraisers, the Fair Market Rental Value shall be deemed to be the
average of such Fair Market Rental Value as set forth in such two
determinations. If the lower determination of Fair Market Rental Value
is less than 95% of the higher determination of Fair Market Rental
Value, the two appraisers shall promptly appoint a third Qualified
Appraiser and shall designate such third Qualified Appraiser by notice
to Landlord and Tenant. The cost and expenses of each appraiser
appointed separately by Tenant and Landlord shall be borne by the party
who appointed the appraiser. The cost and expenses of the third
appraiser shall be shared equally by Tenant and Landlord. If the two
appraisers cannot agree on the identity of the third Qualified
Appraiser at least three (3) months prior to commencement of the period
for which Fair Market Rental Value is to be determined, then the third
Qualified Appraiser shall be appointed by the American Arbitration
Association ("AAA") sitting in Boson, Massachusetts and acting in
accordance with its rules and regulations. The costs and expenses of
the AAA proceeding shall be borne equally by the Landlord and Tenant.
The third appraiser shall promptly make its own independent
determination of Fair Market Rental Value for the Premises taking into
account the factors set forth in this Section 14.28 and shall promptly
notify Landlord and Tenant of his determination. If the determinations
of the Fair Market Rental Value of any two of the appraisers shall be
identical in amount, said amount shall be deemed to be the Fair Market
Rental Value for the Premises. If the determinations of all three
appraisers shall be different in amount, the average of the two nearest
in amount
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shall be deemed the Fair market Rental value. The Fair Market Rental
Value of the subject space determined in accordance with the provisions
of this Section shall be binding and conclusive on Tenant and Landlord.
As indicated above, in no event shall the Fair Market Rental Value be
less than the Basic Rent applicable to the 12 calendar month period
immediately preceding the commencement of the Extension Period. As used
herein, the term "Qualified Appraiser" shall mean any disinterested
person (a) who is employed by an appraisal firm of recognized
competence in the greater Boston area, (b) who has not less than ten
(10) years experience in appraising and valuing properties of the
general location, type and character as the Premises, and (c) who is
either a Senior Real Property Appraiser of the Society of Real Estate
Appraisers or a member of the Appraisal Institute (or any successor
organization) . Notwithstanding the foregoing, if either party shall
fail to appoint its appraiser within the period specified above (such
party referred to hereinafter as the "Failing Party"), the other party
may serve notice on the Failing Party requiring the Failing Party to
appoint its appraiser within ten (10) days of the giving of such notice
and if the Failing Party shall not respond by appointment of its
appraiser within said ten (10) day period, then the appraiser appointed
by the other party shall be the sole appraiser whose determination of
Fair Market Rental value shall be binding and conclusive upon Tenant
and Landlord. If, for any reason, Fair Market Rental Value shall not
have been determined by the time of commencement of the Extension
Period and until such rent is determined, Tenant shall pay Basic Rent
during the Extension Period in an amount (the "Interim Rent") as
specified by Landlord's appraiser and upon receipt of a final
determination of Fair Market Rental Value as hereinabove set forth, any
overpayment or underpayment of Interim Rent shall be paid promptly to
the party entitled to receive the same.
IN WITNESS WHEREOF, Landlord and Tenant have caused this Lease to be
duly executed, under seal, by persons hereunto duly authorized, in multiple
copies, each to be considered an original hereof, as of the date first set forth
above.
TENANT:
IMPLANT SCIENCES CORPORATION
Dated: By: /s/ A. J. Armini
---------------------------- -------------------------------
Its: President
-------------------------------
LANDLORD:
TEACHERS INSURANCE AND ANNUITY
ASSOCIATION OF AMERICA
Dated: September 29, 1995 By: /s/ Richard J. Usas
------------------------------ ----------------------------
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Richard J. Usas
Its: Director
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EXHIBIT A
Floor Plans
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Exhibit B
Intentionally Omitted
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EXHIBIT C
RULES AND REGULATIONS
1. The sidewalks, paved and/or landscaped areas shall not be obstructed
or encumbered by Tenant or used for any purpose other than ingress and egress to
and from the demised premises.
2. No sign, advertisement, notice or other lettering shall be
exhibited, inscribed, painted or affixed by Tenant on any part of the demised
premises or Building so as to be visible from outside the demised premises
without the prior written consent of Landlord, which will not be unreasonably
withheld or delayed. In the event of any violation of this paragraph, Landlord
may remove same without any liability, and may charge the expense incurred in
such removal to Tenant, as additional rent.
3. No awnings, curtains, blinds, shades, screens or other projections
shall be attached to or hung in, or used in connection with, any window of the
demised premises or any outside wall of the Building without the prior written
consent of Landlord, which will not be unreasonably withheld or delayed so long
as said so long as said awning or other item conforms to similar items installed
in or upon other portions of the Building. Such awnings, curtains, blinds,
shades, screens or other projections must be of a quality, type, design and
color, and attached in the manner, approved by Landlord. If any portion of the
demised premises which is not used for office purposes shall have windows, such
windows shall be equipped with curtains, blinds or shades approved by Landlord,
and said curtains, blinds or shades shall be kept closed at all times.
4. The water and wash closets and other plumbing fixtures shall not be
used for any purposes other than those for which they were designed and
constructed, and no sweepings, rubbish, rags, acids, chemicals, process water,
cooling water or like substances shall be deposited therein. Said plumbing
fixtures and the plumbing system of the Building shall be used only for
discharge of so-called sanitary waste. All damage resulting from any misuse of
said fixtures and/or plumbing system by Tenant or anyone claiming under Tenant
shall be borne by Tenant.
5. Tenant must, upon the termination of its tenancy, return to Landlord
all locks, cylinders and keys to the demised premises and any offices therein.
6. Tenant shall keep any sidewalks and planters in front of the demised
premises reasonably free and clear of litter and refuse, regardless of the
source thereof.
7. Tenant shall, at Tenant's expense, provide artificial light and
electric current for the employees of Landlord and/or Landlord's contractors
while making repairs or alterations in the demised premises.
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8. Tenant shall not make, or permit to be made, any unseemly or
disturbing odors or noises or disturb or interfere with occupants of the
Building or those having business with them, whether by use of any musical
instrument, radio, machine, or in any other way.
9. Canvassing, soliciting, and peddling in the Building are prohibited
and Tenant shall cooperate to prevent the same.
10. Tenant shall keep the demised premises free at all time of pests,
rodents and other vermin, and Tenant shall keep all trash and rubbish stored in
containers of a type approved by Landlord, such containers to be kept at
locations designated by Landlord. Tenant shall cause such containers to be
emptied whenever necessary to prevent them from overflowing or from producing
any objectionable odors.
11. Landlord reserves the right to rescind, alter, waive and/or
establish any reasonable rules and regulations of uniform application to all
tenants which, in its judgment, are necessary, desirable or proper for its best
interests and the best interests of the occupants of the Building.
12. The access roads, driveways, entrances and exits shall not be
obstructed or encumbered by Tenant or used for any purpose other than ingress
and egress.
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EXHIBIT D
Floor Plans
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EXHIBIT E
(ITEMS INCLUDED IN OPERATING EXPENSES)
A. Without limitation, Utility Expenses shall include:
Costs for electricity, fuel, oil, gas, steam, water and sewer use
charges and other utilities supplied to the Property and not paid for
directly by tenants.
B. Without limitation, Operating Expenses shall include:
1. All expenses incurred by Landlord or Landlord's agents which
shall be directly related to employment of personnel,
including amounts incurred for wages, salaries and other
compensation for services, payroll, social security,
unemployment and similar taxes, workmen's compensation
insurance, disability benefits, pensions, hospitalization,
retirement plans and group insurance, uniforms and working
clothes and the cleaning thereof, and expenses imposed on
Landlord or Landlord's agents in connection with the
operation, repair, maintenance, cleaning, management and
protection of the Property, and its mechanical systems
including, without limitation, day and night supervisors,
property manager, accountants, bookkeepers, janitors,
carpenters, engineers, mechanics, electricians and plumbers
and personnel engaged in supervision of any of the persons
mentioned above: provided that, if any such employee is also
employed on other property of Landlord, such compensation
shall be suitably allocated by Landlord among the Property and
such other properties.
2. The cost of services, materials and supplies furnished or used
in the operation, repair, maintenance, cleaning, management
and protection of the Property including, without limitation,
fees and assessments, if any, imposed upon Landlord, or
charged to the Property, by any governmental agency or
authority or other duly authorized private or public entity on
account of public safety services, transit, housing, police,
fire, sanitation or other services or purported benefits.
3. The cost of replacements for tools and other similar equipment
used in the repair, maintenance, cleaning and protection of
the Property, provided that, in the case of any such equipment
used jointly on other property of Landlord, such costs shall
be allocated by Landlord among the Property and such other
properties.
4. Premiums for insurance against damage or loss to the Building
from such hazards as shall from time to time be generally
required by institutional mortgagees in the Boston area for
similar properties, including, but not by way of limitation,
insurance covering loss of rent attributable to any such
hazards, and public liability insurance.
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5. Where the Property is managed by Landlord or an affiliate of
Landlord, a sum equal to the amounts customarily charged by
management firms in the Boston area for similar properties,
but in no event more than six percent (6%) of gross annual
income, whether or not actually paid, or where managed by
other than Landlord or an affiliate thereof, the amounts
accrued for management, together with, in either case, amounts
accrued for legal and other professional fees relating to the
Property, but excluding such fees and commissions paid in
connection with services rendered for securing or renewing
leases and for matters not related to the normal
administration and operation of the Building.
6. If, during the Term of this Lease, Landlord shall make a
capital expenditure, the total cost of which is not properly
includable in Operating Expenses for the Operating Year in
which it was made, there shall nevertheless be included in
such Operating Expenses for the operating Year in which it was
made and in Operating Expenses for each succeeding Operating
Year, an annual charge-off of such capital expenditure. The
annual charge-off shall be determined by dividing the original
capital expenditure plus an interest factor, reasonably
determined by Landlord, as being the interest rate then being
charged for long-term mortgages, by institutional lenders on
like properties within the locality in which the Building is
located, by the number of years of useful life of the capital
expenditure, and the useful life shall be determined
reasonably by Landlord in accordance with generally accepted
accounting principles and practices in effect at the time of
making such expenditure.
7. Betterment assessments provided the same are apportioned
equally over the longest period permitted by law.
8. Amounts paid to independent contractors for services,
materials and supplies furnished for the operation, repair,
maintenance, cleaning and protection of the Property.
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Exhibit 10.23
FIRST AMENDMENT TO LEASE
AND EXPANSION AGREEMENT
This First Amendment to Lease and Expansion Agreement (the "First
Amendment") is made as of this 29th day of July, 1998 by and between TIAA
Realty, Inc., (the "Landlord") a Delaware corporation and Implant Sciences
Corporation (the "Tenant").
WHEREAS, Landlord (as successor Landlord to Teachers Insurance and
Annuity Association of America) and Tenant, respectively, are the Landlord and
Tenant under a certain Lease Agreement dated as of September 29, 1995 (said
Lease Agreement is hereafter the "Lease") pursuant to which the Tenant has
leased from Landlord 16,743 rentable square feet of space (the "Original
Premises") in the building known as Building I located at 107 Audubon Road,
Wakefield, MA (the "Building");
WHEREAS, the three-year Initial Term of the Lease is scheduled to
expire on November 30,1999;
WHEREAS, subject to entering into this First Amendment, Landlord and
Tenant have agreed to (a) extend the 3-year Initial Term by an additional period
of 6 months (the "Six Month Extension") beginning on December 1, 1999 and
expiring on May 31, 2000 and (b) expand the Premises demised under the Lease
beginning on the 1st Amendment Commencement Date (as said term is hereafter
defined) by the addition of the 5,249 rentable square feet of Space marked on
Exhibit A to this First Amendment (the "1st Amendment Space") to the Premises
for the balance of the Term of this Lease all as hereinafter set forth;
WHEREAS, the parties have agreed that as of the 1st Amendment
Commencement Date the 1st Amendment Space shall be added to the Premises demised
under the Lease and thereafter the Premises demised under the Lease shall be
comprised of the 1st Amendment Space (5,249 rentable square feet) and the
Original Premises (16,743 rentable square feet) for an aggregate of 21,992
rentable square feet for the balance of the Term of this Lease;
WHEREAS, Landlord and Tenant have agreed to enter into this First
Amendment to reflect the foregoing and to otherwise modify and amend the Lease
reflecting the Six Month Extension of the Initial Term, the increase in the size
of the Premises demised under the Lease as a result of the addition of the 1st
Amendment Space to the Premises and to otherwise modify and amend the Lease, as
hereinafter set forth;
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Landlord and the Tenant hereby agree as follows:
1. Six Month Extension of Initial Term. Effective as of the date of
this First Amendment, the Three (3) Year Initial Term is hereby extended to
include the period beginning on December 1, 1999 through and including May 31,
2000 (the "Six Month Extension"), such
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extension to be upon the same terms and conditions as are set forth in the Lease
except as modified by this First Amendment. Basic Rent payable with respect to
the "Original Premises" during the Six Month Extension shall be in the annual
amount of $142,315.50 payable in equal monthly installments of $11,859.63. Basic
Rent payable for and with respect to the 1st Amendment Space during the "Six
Month Extension" shall be as set forth in Paragraph 2(a)(ii) of this First
Amendment.
2. Changes in Basic Lease Provisions. Effective as of the 1st Amendment
Commencement Date (as hereafter defined), the Lease shall be deemed amended in
the following respects:
(a) Basic Rent per annum payable under this Lease as set forth
in Section 1.2 of the Lease shall be increased and adjusted by the 1st
Expansion Rent (as said term is hereafter defined) for and with respect
to Tenant's use and occupancy of the 1st Amendment Space. As used
herein, the term "1st Expansion Rent" shall mean:
(i) $49,865.50 per annum payable in equal monthly
installments of $4,155.46 for the period beginning on the 1st
Amendment Commencement Date through and including the last day
of the twelfth full calendar month immediately following the
1st Amendment Commencement Date (pro rated on a daily basis
for any partial calendar month in which the 1st Amendment
Commencement Date shall fall); and
(ii) $52,490.00 per annum payable in equal monthly
installments of $4,374.17 for the period beginning on the day
immediately following the period described in (i) above
through the last day of the Initial Term of this Lease (as
extended by Paragraph 1 of this First Amendment to include the
Six Month Extension) on May 31, 2000;
The 1st Expansion Rent is payable for and with respect to the 1st
Amendment Space for the remainder of the Initial Term. In the event
that Tenant shall exercise the Option to Extend set forth in Paragraph
5 of this First Amendment (which amends Section 14.28 of the Lease),
the Basic Rent payable with respect to the 1st Amendment Space and the
Original Premises during the extension of the Initial Term contemplated
by Paragraph 5 of this First Amendment shall be the Fair Market Rental
Value as determined pursuant to Section 14.28 of the Lease as amended
by Paragraph 5 of this First Amendment.
The Tenant's obligation to pay the 1st Expansion Rent shall commence on
the 1st Amendment Commencement Date (pro rated on a daily basis as set
forth in Section l(a)(i) for any partial month in which the 1st
Amendment Commencement Date shall fall) and shall continue for the
balance of the Initial Term (as extended by Paragraph 1 of tills First
Amendment to include the Six Month Extension). In addition to the 1st
Expansion Rent, Tenant shall continue to pay Basic Rent allocable to
the Original Premises in the amounts and during the times specified in
Section 1.2 of the Lease as modified by Paragraph 1 of this First
Amendment;
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(b) The definition of the term "Premises Rentable Area" set
forth in Section 1.2 of the Lease shall be deemed increased and
adjusted by the 5,249 rentable square feet contained in the 1st
Amendment Space. Accordingly, from and after the 1st Amendment
Commencement Date and thereafter for the remainder of the Term of this
Lease, the "Premises" demised under the Lease as amended by this First
Amendment shall contain 21,992 rentable square feet comprised of (1)
the 1st Amendment Space (5,249 rsf) plus (ii) the Original Premises
(16,743 rsf);
(c) The definitions of the terms "Building Escalation Factor"
and "Property Escalation Factor" shall each be amended as follows:
Building Escalation Factor 27.49%
Property Escalation Factor 13.77%
Nothing contained herein shall be deemed or construed to limit or
release Tenant from its obligations with respect to Escalation Charges
allocable to the Original Premises before and after the 1st Amendment
Commencement Date.
(d) The definition of the term "Premises" shall be deemed
amended by adding the space marked on Exhibit A to this First Amendment
as the 1st Amendment Space to the Premises for all purposes under the
Lease;
(e) The provisions of Article IV of the Lease shall not apply
to the 1st Amendment Space and Landlord's sole obligation with respect
to improvements in and to the 1st Amendment Space shall be as provided
in Paragraph 3 of this First Amendment;
(f) Tenant shall be solely responsible for the cost of all
electricity used and consumed in the Premises, it being agreed and
understood that the Basic Rent, including the 1st Expansion Rent, is
net of Escalation Charges and costs of electricity used in the
Premises, which electricity charges will be separately metered and
billed to Tenant by the applicable utility. Upon completion of
Landlord's Work (as hereafter defined) there shall be an electric meter
which measures electricity used and consumed in the 1st Amendment Space
(whether through Tenant's existing meter located in the Original
Premises or via a new meter). Tenant shall arrange with the applicable
utility company to have the electric meter placed in Tenant's name and
billed separately to Tenant.
(g) The definition of the term Initial Public Liability
Insurance set forth in Section 1.3 shall be amended to be:
$1,000,000.00 (per occurrence) primary liability with $3,000,000.00
(per occurrence) in excess liability coverage for property damage,
bodily injury or death.
3. Improvements. Annexed to this First Amendment as Exhibit B is a
description of certain improvements to be made by Landlord in the 1st Amendment
Space and the Original
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Premises. Landlord and Tenant each hereby approve the matters described in
Exhibit B to this First Amendment.
Upon execution and delivery of this First Amendment by both Landlord
and Tenant, Landlord shall, at Landlord's sole cost and expense, commence to
perform the work and improvements described in Exhibit B to this First Amendment
using building standard materials and work ("Landlord's Work"), which work shall
be performed in the time and manner hereinafter set forth. To the extent
necessary for the prompt and efficient completion of Landlord's Work, Tenant
hereby grants Landlord the right of access to, upon, over and through the
Original Premises in order for Landlord to perform Landlord's Work. Such access
may be made at any time and from time to time in Landlord's discretion provided
that Landlord shall give Tenant advance oral or written notice of the days and
times Landlord shall require access to the Original Premises for the purposes
stated herein. Tenant here by acknowledges that work of the type and scope of
Landlord's Work may result in temporary shut-down of work and electrical service
and other services in the Original Premises. In exercising Landlord's right to
access the Original Premises and to perform Landlord's Work under this Paragraph
3, Landlord shall use good faith efforts to avoid unreasonable interference with
Tenant's use of the Original Premises. Landlord shall provide Tenant with
advance notice of the shut down, if any, of services or utilities in connection
with performing Landlord's Work and shall use good faith efforts to promptly
reinstate any service so curtailed or suspended.
Tenant hereby acknowledges that it has inspected the 1st Amendment
Space and the common areas of the Building and, except for the Landlord's Work,
has agreed to lease the 1st Amendment space in its current "as is, where is"
condition with all faults and without representation or warranty by Landlord of
any kind. Prior to Tenant taking occupancy of the Premises, Tenant shall provide
Landlord with a punch-list detailing (a) those aspects of Landlord's Work which
are not then completed and (b) any defects in workmanship or materials with
respect to Landlord's Work. The Landlord's Work shall be deemed approved by
Tenant when Tenant commences occupancy of the 1st Amendment Space for the
Permitted Use, except for items which are then not completed or do not conform
to specifications described in Exhibit B to this First Amendment and as to which
Tenant shall have given Landlord written notice prior to the date which is 30
days after the date Tenant shall occupy the 1st Amendment Space for the
Permitted Uses.
As used in this First Amendment, the term "1st Amendment Commencement
Date" shall mean that date upon which (a) AT/Comm Inc. shall have vacated the
1st Amendment Space and (b) Landlord's Work has been substantially completed as
set forth in a written notice from Landlord to Tenant.
As used herein, the term "Total Cost of Landlord's Work" shall mean the
aggregate cost including, without limitation, if performing all of Landlord's
Work, of all permits, governmental approvals, demolition work, labor, materials,
work and improvements necessary to complete Landlord's Work in order to prepare
the 1st Amendment Space for Tenant's use and occupancy pursuant to Exhibit B.
Architectural and engineering fees sustained or incurred by Landlord in
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connection with the planning and design of Landlord's Work shall be included in
the Total Cost of Landlord's Work.
In the event that Tenant shall request (by written notice to Landlord)
and Landlord shall approve (by written notice to Tenant) any changes to Exhibit
B and if Landlord determines that such changes will result in an increase in the
Total Cost of Landlord's Work, Tenant shall reimburse Landlord for such increase
in the Total Cost of Landlord's Work as additional rent under this Lease
("Tenant's Contribution"). Landlord shall advise Tenant (in writing) of the
amount of increase in the Total Cost of Landlord's Work resulting from any
requested change in Exhibit B at the time Landlord shall grant its consent to
the making of such changes and such additional cost (as set forth in such
written notice from Landlord) shall be deemed a portion of the Total Cost of
Landlord's Work for purposes of determining the Tenant's Contribution as set
forth above. Tenant shall pay Landlord the Tenant's Contribution as an
additional charge under the Lease within ten (10) days after written demand.
4. Brokerage. Tenant hereby warrants and represents to Landlord that
Tenant has dealt with no broker in connection with the consummation of this
First Amendment other than Leggat McCall Properties Management, L.P. and Avalon
Partners and in the event of any brokerage claims against Landlord predicated
upon prior dealings with the Tenant, Tenant agrees to defend same and to
indemnify Landlord against any such claims except for any claims by Leggat
McCall Properties Management, L.P. which shall be paid by Landlord. Tenant shall
be responsible for any and all commissions due and owing to Avalon Partners.
Landlord hereby warrants and represents that Landlord has dealt with no
broker in connection with the consummation of the matters set forth in this
First Amendment other than Leggat McCall Properties Management, L.P. and Avalon
Partners. Landlord shall indemnify, defend and hold Tenant harmless from and
against any claims for brokerage commissions predicted upon prior dealings with
Landlord, except that Tenant shall be responsible for any commissions due and
owing to Avalon Partners.
5. Option to Extend. Effective as of the date of this First Amendment,
Section 14.28 of the Lease shall be deleted from the Lease in its entirety and
the following new Section 14.28 shall be inserted in its place and stead, it
being agreed and understood that Tenant shall not have the right to exercise the
option contained in Section 14.28 of the Lease but Tenant shall (subject to the
terms and limitations hereafter set forth) have one three year option to extend
the Term of this Lease beginning on June 1, 2000 upon and subject to the
following terms and conditions:
"14.28. OPTION TO EXTEND. Tenant shall have the right and option (the
"Option"), which said option and right shall not be severed from this
Lease or separately assigned, mortgaged or transferred, to extend the
Term of this Lease for one (1) additional consecutive period of Three
(3) years beginning on June 1, 2000 and expiring on May 31, 2003
(hereinafter referred to as the "Extension Period"), provided that (a)
Tenant shall give Landlord notice of Tenant's intention to exercise
such option ("Notice of Intention") not sooner than June 1, 1999 and
not later than July 15, 1999 (b) no Default of Tenant shall exist at
the time of giving the Notice of Intention or on the Revocation Date
(as
5
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hereafter defined) or on the date of commencement of the Extension
Period, (c) the Original Tenant named herein is itself occupying the
entire Premises both at the time of giving the applicable notice and at
the time of commencement of the Extension Period and (d) Tenant shall
fail to give Landlord a Revocation Notice (as hereafter defined) on or
before August 31, 1999 (the "Revocation Date"), time being of the
essence of all of the foregoing provisions. Except for the amount of
Basic Rent (which is to be determined as hereinafter provided), all the
terms, covenants, conditions, provisions and agreements in the Lease
contained shall be applicable to the additional period through which
the term shall be extended as aforesaid, except that there shall be no
further options to extend the Term of the Lease nor shall Landlord be
obligated to make or pay for any improvements to the Premises nor pay
any inducement payments of any kind or nature. If Tenant shall give
Landlord a Notice of Intention in the manner and within the time period
provided aforesaid and shall thereafter fail to give Landlord a
Revocation Notice in the time and manner set forth herein, the Term of
the Lease shall be extended to include the Extension Period without the
requirement of any further attention on the part of either Landlord or
Tenant. Landlord hereby reserves the right, exercisable by Landlord in
its sole discretion, to waive (in writing) any condition precedent set
forth in clauses (a), (b), (c) or (d) above.
If Tenant shall fail to give Landlord a timely Notice of Intention,
Tenant shall have no right to extend the Term of the Lease, time being
of the essence of the foregoing provisions. Any termination of this
Lease shall terminate the rights hereby granted Tenant.
The Basic Rent per annum payable during the Extension Period shall be
the Fair Market Rental Value (as said term is hereinafter defined) as
of commencement of the Extension Period but in no event less than the
Basic Rent per annum plus Escalation Charges payable for and with
respect to the 12 calendar month period immediately preceding the
Extension Period. "Fair Market Rental Value" shall be computed as of
the beginning of the Extension Period at the then current annual rental
charges, including provisions for subsequent increases and other
adjustments, for the Premises as determined by Landlord in its
discretion.
Landlord shall initially designate ("Landlord's Designation") the Fair
Market Rental Value for and with respect to the Extension Period by
written notice to Tenant within Thirty (30) days after Landlord's
receipt of Tenant's Notice of Intention. If Tenant does not wish to
accept Landlord's Designation of the Fair Market Rental Value, Tenant's
sole and exclusive remedy shall be the right, by written notice
("Revocation Notice") given to Landlord on or before the date which is
the first to occur of (i) that date which is thirty (30) days after
Tenant has been notified of Landlord's Designation or (ii) the
Revocation Date, to cancel and revoke Tenant's Notice of Intention as
to the Extension Period and the exercise of the Option with respect to
the Extension Period and thereupon the Term of this Lease shall expire
and come to an end without extension as of May 31, 2000 and Tenant
shall have no further options to Extend the term.
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If Tenant shall fail to give Landlord a Revocation Notice within the
time and manner herein provided, time being of the essence, Tenant
shall be deemed to have accepted the Base Rent as set forth in
Landlord's Designation and such Basic Rent shall be deemed to be the
Basic Rent per annum payable under this Lease during the Extension
Period and this Lease shall be deemed to be extended to include the
Extension Period at the Basic Rent per annum set forth in Landlord's
Designation. It is agreed and understood that time is of the essence in
connection with each and every provision of this Section 14.28."
6. Deletion of the Right of First Offer. Effective as of the date of
the First Amendment, Section 14.27 of the Lease entitled "Right of First Offer"
shall be deleted from the Lease in its entirety and Landlord hereby grants
Tenant the following new Right of First Offer:
In the event that during the Initial Term, all of the space shown on
Exhibit C to this First Amendment as the "First Offer Space" shall at
one point in time become "available for leasing," (as said term is
hereafter defined), Landlord shall by written notice to Tenant first
offer (the "Offer") to lease all of the First Offer Space to Tenant
upon terms and conditions designated and specified by Landlord in the
Offer. If (a) within ten (10) days after Landlord provides the Offer to
Tenant, Tenant does not unconditionally accept the Offer as to all of
such space upon the terms and conditions described in the Offer in
writing and concurrently deposit one month's advanced rent and one
month's security deposit with Landlord or (b) if Tenant accepts the
Offer as aforesaid but does not for any reason execute and deliver to
Landlord a final fully executed Amendment to this Lease Agreement in
form and substance satisfactory to Landlord and Tenant within 14 days
after acceptance of the Offer as aforesaid, Landlord shall be free to
rent all or any part of such space to any party upon such terms and
conditions as Landlord may, in its sole discretion elect, and Tenant's
Right of First Offer shall terminate as to all of the space described
in such Offer. As used herein, the term "available for leasing" shall
mean that such First Offer Space is to become vacant with the present
occupant thereof having no further options to extend its lease or
without any renewal or extension agreement reached and entered into
between Landlord and such existing occupant, it being agreed and
understood that Landlord need not provide Tenant with an Offer
hereunder if Landlord and such existing occupant have or may in the
future enter into an arrangement to extend or renew its occupancy of
the First Offer Space. Landlord has advised Tenant that, for purposes
of this paragraph, the tenant known as A/T Comm, Inc. is about to enter
into a leasing arrangement with Landlord for the First Offer Space and
A/T Comm, Inc. (its successors, sublessees or assigns) shall be deemed
the "existing occupant" for purposes of this paragraph.
7. Notices. Effective as of the date of this First Amendment, the
"Landlord's Original Address" set forth in Section 1.2 of the Lease is hereby
amended to be:
TIAA Realty, Inc.
c/o Leggat McCall Properties Management, L.P.
500 Edgewater Drive
Wakefield, MA 01880
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Further, Section 14.12 is also hereby amended by deleting the second full
Paragraph of Section 14.12 from the Lease in its entirety and inserting the
following new Paragraph in its place and stead:
"If intended for Landlord, addressed to Landlord at Landlord's Original
Address as set forth in Section 1.2 with a copy to:
Mr. Nicholas E. Stolatis, Director, Asset Management
Teachers Insurance and Annuity Association of America,
as Asset Manager on behalf of TIAA Realty, Inc.
730 Third Avenue
New York, New York 10017
Attn: Mortgage and Real Estate Department
(or to such other address as may from time to time
hereafter be designated by Landlord by like notice)."
8. Security. Simultaneously with the execution and delivery of this
First Amendment by Tenant, Tenant shall deposit the amount of $4,155.46 with
Landlord, which amount shall be held by Landlord and combined with the amount of
$5,503.76 previously deposited with Landlord's predecessor in interest and such
combined amount of $9,659.22 shall be held by Landlord as a Security Deposit
pursuant to Section 14.17 of the Lease for the balance of the Term of this Lease
as if it were initially deposited with Landlord as a Security Deposit pursuant
to the provisions of the Lease.
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9. Generally. Except as modified herein, all of the terms, covenants,
provisions and conditions contained in the Lease remain in full force and effect
and are hereby ratified and affirmed.
WITNESS our hands and seals on the day and year first above written.
LANDLORD: TENANT:
TIAA Realty, Inc., a Delaware Implant Sciences Corporation
corporation, as Landlord
By: Teachers Insurance and
Annuity Association of America, By: /s/ A.J. Armini
a New York corporation ------------------------------
Its: Authorized Representative Its: President
By: /s/ Nicholas E. Stolatis
- ----------------------------
Nicholas E. Stolatis
Its: Director
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Exhibit A
Floor Plans
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Exhibit B
Landlord's Work shall be as follows:
8. Construct a demising wall between the 1st Amendment Space and AT/Comm,
Inc. in the location shown on Exhibit A of this First Amendment.
9. Construct two (2) openings from the Original Premises to the 1st
Amendment Space in locations mutually acceptable to both the Landlord
and Tenant.
10. Perform work necessary to provide for separate HVAC service to the 1st
Amendment Space to that Tenant's HVAC system shall service only the
Premises.
11. Perform work necessary to provide for separate electrical service to
the 1st Amendment Space so that Tenant's electrical service shall
service only the Premises.
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Exhibit C
Floor Plan
12
<PAGE> 1
Exhibit 10.24
Date: 21 January 1997
(4th Ed-Nov 96)
STANDARD
COOPERATIVE RESEARCH AND DEVELOPMENT AGREEMENT
BETWEEN
THE NAVAL RESEARCH LABORATORY (NRL)
AND
IMPLANT SCIENCES CORPORATION (ISC)
AGREEMENT ADMINISTRATORS
NRL:
Technology Transfer Office: Dr. R. Rein, Code 1004, (202) 767-7230
Legal Counsel: Ms. H. J. Halper, Code 3008, (202) 767-2244
Program Manager: Dr. Harry Dietrich, Code 6856, (202) 767-1381
ISC:
Preferred Contact: Mr. Anthony J. Armini, (617) 246-0700
Legal Counsel: Mr. Peter B. Ellis of Foley, Hoag and Eliot
Agreement Title: Ion Implantation Technology for GaN and
Related Alloys
Agreement Number: NCRADA-NRL-97-132
1
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1. INTRODUCTION.................................................................. 1
ARTICLE 2. SUMMARY....................................................................... 1
ARTICLE 3. BACKGROUND.................................................................... 3
4.1 "Agreement"............................................................ 3
4.2 "Computer Software".................................................... 4
4.3 "Computer Software Documentation"...................................... 4
4.4 "Cooperative Research"................................................. 4
4.5 "Data"................................................................. 4
4.6 "Government"........................................................... 4
4.7 "Government Purpose License Rights".................................... 4
4.8 "Invention"............................................................ 4
4.9 "Made"................................................................. 4
4.10 "Party(ies)"........................................................... 5
4.11 "Patent Application"................................................... 5
4.12 "Proprietary Information".............................................. 5
4.13 "Restricted Access Information"........................................ 5
4.14 "Subject Data"........................................................ 5
4.15 "Subject Invention".................................................... 6
4.16 "Unlimited Rights"..................................................... 6
ARTICLE 5. OBJECTIVES.................................................................... 6
ARTICLE 6. SCOPE AND RESPONSIBILITIES.................................................... 6
6.1 Scope.................................................................. 6
6.2 Responsibilities....................................................... 6
6.2.1 NRL Personnel, Facilities and Equipment ...................... 6
6.2.2 ISC Personnel, Facilities and Equipment....................... 7
ARTICLE 7. REPRESENTATIONS AND WARRANTIES................................................ 7
7.1 Representations and Warranties of NRL.................................. 7
7.2 Representations and Warranties of ISC.................................. 8
ARTICLE 8. FUNDING....................................................................... 9
ARTICLE 9. REPORTING AND PUBLICATIONS.................................................... 9
9.1 ISC Reports............................................................ 9
9.2 NRL Reports............................................................ 9
9.3 Agreement to Confer Prior to Publication............................... 10
9.4 Classified or Militarily Critical Technologies (MCT) Information....... 10
</TABLE>
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<TABLE>
<S> <C>
ARTICLE 10. INTELLECTUAL PROPERTY............................................................ 10
10.1 Data Rights................................................................ 10
10.1.1 Ownership, Rights, Use and Protection of Subject Data............. 10
10.1.2 Ownership, Rights, Use and Protection of Non-Subject Data......... 11
10.1.3 Determination and Marking of Proprietary and Restricted Access
Information....................................................... 12
10.2 Copyrights................................................................. 12
10.2.1 Copyright by ISC.................................................. 13
10.2.2 Copyright License to the Government............................... 13
10.2.3 Copyright Statement............................................... 13
10.3 Patent Rights.............................................................. 13
ARTICLE 11. PROPERTY......................................................................... 15
11.1 Title to Pre-Existing Facilities and Equipment............................. 15
11.2 Items Purchased by Parties................................................. 15
11.3 Title to Developed Property................................................ 15
11.4 Property Costs............................................................. 16
11.5 Disposal of Property....................................................... 16
ARTICLE 12. LIABILITIES...................................................................... 16
12.1 Government Liability....................................................... 16
12.2 Indemnification by ISC..................................................... 16
12.3 Force Majeure.............................................................. 17
ARTICLE 13. GENERAL PROVISIONS.............................................................. 17
13.1 Characteristics of the Agreement........................................... 17
13.1.1 Entire Agreement.................................................. 17
13.1.2 Severability...................................................... 17
13.1.3 Headings.......................................................... 17
13.2 Agreements between Parties................................................. 18
13.2.1 Governing Laws.................................................... 18
13.2.2 Independent Contractors/Entities.................................. 18
13.2.3 Amendments........................................................ 18
13.2.4 Assignment/Subcontracting......................................... 18
13.2.5 Termination....................................................... 19
13.2.6 Notices........................................................... 20
13.2.7 Disputes.......................................................... 21
13.2.8 Waivers........................................................... 21
13.2.9 Use of Name or Endorsements....................................... 21
13.3 Handling of Hazardous Substances........................................... 22
13.4 Officials Not to Benefit................................................... 22
13.5 U.S. Competitiveness....................................................... 22
13.6 Public Release of this Agreement Document.................................. 22
ARTICLE 14. EFFECTIVE DATE AND DURATION...................................................... 23
</TABLE>
3
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<TABLE>
<S> <C>
ARTICLE 15. SURVIVING PROVISIONS............................................................. 23
ARTICLE 16. SIGNATURES....................................................................... 24
APPENDIX A Statement of Work................................................................. 25
APPENDIX B Confirmatory Licence Agreement.................................................... 29
</TABLE>
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STANDARD
COOPERATIVE RESEARCH AND DEVELOPMENT AGREEMENT
BETWEEN
THE NAVAL RESEARCH LABORATORY (NRL)
AND
IMPLANT SCIENCES CORPORATION (ISC)
ARTICLE 1. INTRODUCTION
Under the authority of the Federal Technology Transfer Act of 1986 (Public Law
99-502, 20 October 1986, as amended) the Naval Research Laboratory (NRL) and
Implant Sciences Corporation (ISC), whose corporate headquarters are located at
107 Audubon Road Wakefield, MA 01880-1245, do hereby agree and do enter into
this COOPERATIVE RESEARCH AND DEVELOPMENT AGREEMENT, which shall be binding upon
both Parties and their assigns according to the clauses and conditions hereof
and for the term and duration set herein.
ARTICLE 2.SUMMARY
Ion implantation is a process that is integral to the fabrication of a variety
of semiconductor devices. It has had a unique role in the development of the
III-V device and IC technology. The Electronics Science and Technology Division
at NRL has been a leader in the development and application of implantation into
III-V materials for over two decades. Currently, the III-V material, GaN, and
the related alloys of AlGaN are the object of extensive research directed toward
the development of high-temperature, highpower devices and MMICs. NRL is a
leader in the design and fabrication of these devices and has a strong interest
in the development of implantation techniques for this material.
GaN and the related alloys are unique among the III-V's in that they are
"wide-bandgap" semiconductors. It is this feature that makes them attractive for
high temperature and high-power electronics, but it is also the fundamental
reason that implantation into these materials is somewhat difficult. It requires
the ability to do implants into the substrates at elevated temperature and it
requires novel encapsulation and anneal techniques for the activation of the
implanted species. NRL is not well equipped to address these unique aspects of
implantation into GaN and its related alloys.
Implant Sciences is a national leader in the implantation of the Group IV
widebandgap material SiC. The researchers at this company have developed
high-temperature implantation techniques for this material and contributed to
the understanding and technology development for the anneal of this material.
Many of the Universities and Industrial research groups in this country use the
implant services of Implant Sciences for SiC doping. Much of the work done by
Implant Sciences in their successful effort to develop a position of preeminence
in this area is applicable to the development of an implantation technology for
GaN.
The interests and complementary strengths of NRL and Implant Sciences have lead
to the initiation of this CRADA. NRL and Implant Sciences will collaborate under
the terms of this agreement to develop and implement, for device and IC
fabrication, an implantation technology for GaN and its related alloys.
5
<PAGE> 6
ARTICLE 3. BACKGROUND
The Federal Technology Transfer Act of 1986, as amended, provides for making
Federal laboratories' developments accessible to private industry, and to state
and local governments, and for the improvement of economic, environmental and
social well-being of the United States by stimulating the civil utilization of
Federally-funded technology developments. NRL has extensive expertise and
information in electronic materials development, and in keeping with the Federal
Technology Transfer Act desires to make this expertise and technology available
for use in the public sector.
ISC has the interest, resources, and technical expertise to incorporate the Navy
developed work in products intended for sale. Therefore, in consideration of the
mutual promises contained in this Agreement and for other good and valuable
consideration, the Parties agree to the foregoing objectives and recitals and
further agree as follows:
ARTICLE 4. DEFINITIONS
As used in this Agreement, the following terms shall have the following meanings
and are equally applicable to both singular and plural forms of the terms
defined:
4.1 "Agreement" means this Cooperative Research and Development
Agreement (CRADA).
4.2 "Computer Software" means a combination of associated computer
instructions and computer data definitions required to enable computer hardware
to perform computational or control functions. Computer programs and computer
data bases are included.
4.3 "Computer Software Documentation" means data including computer
listings and printouts in human-readable form which (a) documents the design or
details of computer software, (b) explains the capabilities of the software, or
(c) provides operating instructions for using the software.
4.4 "Cooperative Research" means research performed under this
Agreement pursuant to the objectives, scope and responsibilities, and statement
of work by NRL or ISC alone or working together.
4.5 "Data" means recorded information of any kind of a scientific or
technical nature, regardless of the form or method of the recording.
4.6 "Government" means the Government of the United States of America.
4.7 "Government Purpose License Rights" (GPLR) means the right to use,
duplicate, or disclose Data, in whole or in part and in any manner, for
Government purposes only, and to have or permit others to do so for Government
purposes only. Government purposes include competitive procurement, but do not
include the right to have or permit others to use Data for commercial purposes.
4.8 "Invention" means any invention or discovery which is or may be
patentable under Title 35 of the United States Code.
4.9 "Made" when used in relation to any Invention, means the conception
or first actual reduction to practice of such invention.
4.10 "Party(ies)" means the Navy participant(s) and/or the Non-Navy
participant(s).
4.11 "Patent Application" means U.S. or foreign patent application,
continuation, continuation-in-part, divisional, reissue and/or reexamination on
any Subject Invention.
6
<PAGE> 7
4.12 "Proprietary Information" means information which embodies trade
secrets developed at private expense or business commercial or financial
information that is privileged or confidential provided that such information:
(a) is not known or available from other sources without
obligations concerning its confidentiality;
(b) has not been made available by the owners to others
without obligation concerning its confidentiality;
(c) is not already available to the Government without
obligation concerning its confidentiality; and,
(d) has not been developed independently by persons who had no
access to the Proprietary Information.
4.13 "Restricted Access Information" means Subject Data generated by
NRL that would be Proprietary Information if the information had been obtained
from a non-Federal Party participating in a CRADA (15 U.S.C. Section 3710a).
Under 15 U.S.C. Section 3710a(c)(7)(3), the Parties may mutually agree to
provide appropriate protection of Restricted Access Information against
dissemination for a period of up to five (5) years after development of the
information.
4.14 "Subject Data" means all Data first produced in the performance of
the Agreement.
4.15 "Subject Invention" means any Invention Made in the performance of
work under this Agreement.
4.16 "Unlimited Rights" means the right to use, duplicate, release or
disclose Data or Computer Software in whole or in part, in any manner and for
any purpose whatsoever, and to have or permit others to do so.
ARTICLE 5. OBJECTIVES
The objective of the parties to this agreement is to develop and implement for
device and IC fabrication, an implantation technology for GaN and its related
alloys.
ARTICLE 6. SCOPE AND RESPONSIBILITIES
6.1 Scope
As agreed herein, the Parties provide personnel, facilities, equipment
and, if agreed, funds from ISC to NRL to perform the cooperative research and
development specified in the summary, objectives and statement of work. Such
efforts shall support the electronic materials development mission of NRL. The
Parties shall provide personnel knowledgeable in the development of implantation
technology for GaN and its related alloys. The Parties shall develop and
evaluate implantation technology for GaN and its related alloys as a potential
commercial application of their contributing technologies.
6.2 Responsibilities
6.2.1 NRL Personnel, Facilities and Equipment
The work performed by NRL will be performed under the program
guidance of Dr. Harry Dietrich, Code 6856, who as the NRL Program Manager (NPL
PM) has the responsibility for the scientific and technical conduct of this
project within the facilities of NRL or performed on behalf of NRL by third
parties in support of this Agreement. ISC
7
<PAGE> 8
representatives who may perform experiments at NRL will be supervised by the ISC
Program Manager (ISC PM) in accordance with Article 13.2.2.
6.2.2 ISC Personnel, Facilities and Equipment
The work performed by ISC will be performed under the program
guidance of Mr. Anthony J. Armini, who as the ISC Program Manager (ISC PM) has
the responsibility for the scientific and technical conduct of this project
within the facilities of ISC or performed on behalf of ISC by third parties in
support of this Agreement. NRL representatives who may perform experiments at
ISC will be supervised by the NR-LI PM in accordance with Article 13.2.2.
ARTICLE 7.REPRESENTATIONS AND WARRANTIES
7.1 Representations and Warranties of NRL NFL hereby represents and
warrants to ISC as follows:
7.1.1 NRL is a Federal "laboratory" of the U.S. Navy, wholly owned by
the U.S. Government, and whose substantial purpose is the performance of
research, development, or engineering by employees of said Government (15 U.S.C.
Section 3710a(d)(2)(A)).
7.1.2 The performance of the activities specified by this Agreement is
consistent with the mission of NRL.
7.1.3 The Official executing this Agreement has the requisite authority
to do so.
7.1.4 NRL makes no express or implied warranty as to the conditions of
research or any Invention or product, whether tangible or intangible, Made or
developed under this Agreement, or the merchantability, or fitness for a
particular purpose of the research or any invention or product.
7.2 Representations and Warranties of ISC ISC hereby warrants and
represents to NRL as follows:
7.2.1 ISC, as of the date hereof, is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Massachusetts.
7.2.2 ISC has the requisite power and authority to enter into this
Agreement and to perform according to the terms thereof.
7.2.3 The Board of Directors and Stockholders of ISC have taken all
actions required to be taken by law, its Certificate or Articles of
Incorporation, its bylaws or otherwise, to authorize the execution and delivery
of agreements, such as this Agreement.
7.2.4 The execution and delivery of this Agreement does not contravene
any material provision of, or constitute a material default under any material
agreement binding on ISC or any valid order of any court, or any regulatory
agency or other body having authority to which ISC is subject.
7.2.5 ISC is not presently subject to debarment or suspension by an
agency of the Government. Should ISC be debarred or suspended, ISC will so
notify NRL, who may elect to terminate the Agreement.
7.2.6 ISC is not directly or indirectly controlled by a foreign company
or government (Executive order 12591, Section 4.(a)).
7.2.7 ISC is a small business as defined in 15 U.S.C. Section 632 and
implementing regulations (13 C.F.R. Section 121.101 et seq.) of the
Administrator of the Small Business Administration. In simplest terms, this
means fewer than 500 employees (see 13 C.F.R. Section 121.601).
8
<PAGE> 9
7.2.8 ISC makes no express or implied warranty as to the conditions of
research or any Invention or product, whether tangible or intangible, Made or
developed under this Agreement, or the merchantability, or fitness for a
particular purpose of the research or any Invention or product.
ARTICLE 8. FUNDING
Each Party will fund its own efforts.
ARTICLE 9. REPORTING AND PUBLICATIONS
9.1 ISC Reports
ISC shall submit one written report to NRL each wear during the term of
this Agreement on the progress of its work and the results being obtained and
shall make available to NRL, to the extent reasonably requested, Subject Data
produced by ISC in sufficient detail to explain the progress of work under this
Agreement. ISC shall submit a final report of its results, including a listing
of all Subject Inventions, to NRL within four (4) months after completing its
performance under this Agreement.
9.2 NRL Reports
NRL shall submit one written report to ISC each year during the term of
this Agreement on the progress work and the results being obtained and shall
make available to ISC, to the extent reasonably requested, Subject Data produced
by NRL in sufficient detail to explain the progress of the work under this
Agreement. NRL shall submit a final report of its results, including a listing
of all Subject Inventions, to ISC within four (4) months after completing its
performance under this Agreement.
9.3 Agreement to Confer Prior to Publication
NRL and ISC agree to confer and consult prior to the publication of
Subject Data to assure that no Proprietary Information is released and that
patent rights are not jeopardized. Prior to submitting a manuscript for review
which contains the results of research under this Agreement, or prior to
publication if no such review is made each Party shall be offered an ample
opportunity to review such proposed publication and to file patent applications
in a timely manner, if it is so entitled under this Agreement.
9.4 Classified or Militarily Critical Technologies (MCT) Information
All publications and presentations by ISC of Subject Data must be
unclassified material and must be cleared by NRL for public release prior to
presentation or publication to ensure that no classified, MCT (in accordance
with the guidelines in the MCT List), or otherwise restricted data are included.
ARTICLE 10. INTELLECTUAL PROPERTY
10.1 Data Rights
10.1.1 Ownership, Rights, Use and Protection of Subject Data
Each Party shall have title to Subject Data generated by that Party.
Each Party upon request to the other Party, shall have the right to review and
to request delivery of all subject Data and delivery shall be made to the
requesting Party within two weeks of the request. ISC shall have Unlimited
Rights in all Subject Data generated by NRL. Each Party will hold in confidence
and treat as company Proprietary Information all Restricted Access information
for a period up to five years, as mutually agreed between the Parties. In
accordance with 15 U.S.C.
9
<PAGE> 10
Section 3710a(c)(7)(B), Restricted Access Information will be protected by NRL
from release under the Freedom of Information Act, 5 U.S.C. Section 552 as long
as the information meets the definition of Restricted Access Information.
The Government shall have Unlimited Rights in all Subject Data
generated by ISC which is not Proprietary Information of ISC. Subject Data which
is not Proprietary Information of ISC may be released by NRL where such release
is required pursuant to a request under the Freedom of Information Act (5 U.S.C.
Section 552).
The Government shall have Government Purpose License Rights in any
Subject Data furnished by ISC to NRL under this Agreement which is Proprietary
Information. ISC shall place a proprietary notice, in accordance with Article
10.1.3, on all information it delivers to NPL under this Agreement which it
asserts is proprietary. Subject Data which is Proprietary information of ISC
shall be protected by NRL from release under the Freedom of Information Act
(FOIA) for as long as the data meets the definition of Proprietary Information.
NRL shall notify ISC promptly of any such request for release of ISC Proprietary
Subject Data.
10.1.2 Ownership, Rights, Use and Protection of Non-Subject Data
Each Party shall have title to non-Subject Data generated by
that Party. ISC shall have Unlimited Rights in all non-Subject Data provided
under this Agreement by NRL.
The Government shall have Unlimited Rights in all ISC
non-Subject Data which is provided under this Agreement and which is not
Proprietary Information of ISC. Non-Subject Data which is not Proprietary
Information of ISC may be released by NRL where such release is required
pursuant to a request under the Freedom of Information Act (5 U.S.C. Section
552).
NRL shall use, reproduce and disclose any Proprietary
Information that is non-Subject Data furnished by ISC to NRL under this
Agreement only for the purpose of carrying out this Agreement, unless consent to
other use or release is obtained from ISC. ISC shall place a proprietary notice,
in accordance with Article 10.1.3, on all information it delivers to NRL under
this Agreement which it asserts is proprietary. Non-Subject Data which is
Proprietary Information of ISC shall be protected by NRL from release under the
Freedom of Information Act (FOIA) for as long as the data meets the definition
of Proprietary Information. NRL shall notify ISC promptly of any such request
for release of ISC non-Subject Data.
10.1.3 Determination and Marking of Proprietary and Restricted
Access Information ISC shall place a proper Proprietary
notice on each page of all Subject and non- Subject Data it
delivers to NRL under this Agreement which ISC asserts is Proprietary
Information. Restricted Access Information will be marked in a manner similar to
the following:
"RESTRICTED ACCESS INFORMATION - TREAT AS PROPRIETARY TO IMPLANT
SCIENCES CORPORATION."
NRL will review all such designated Proprietary and
Restricted Access Information and, in consultation with ISC, will determine
whether it qualifies as "Proprietary or Restricted Access Information" in
accordance with the criteria of Articles 4.12 and 4.13.
10.2 Copyrights
10.2.1 Copyright by ISC
ISC may copyright works of authorship prepared pursuant to this CRADA
that may be copyrighted under Title 17, U.S. Code.
10.2.2 Copyright License to the Government
10
<PAGE> 11
ISC grants a nonexclusive, nontransferable, irrevocable,
royalty-free copyright license throughout the world in the exclusive rights in
copyrighted works of authorship (17 U.S.C. Section 106) prepared pursuant to
this Agreement to the Government for Government purposes, including the right to
permit others to use this license for Government purposes.
10.2.3 Copyright Statement
ISC shall include the following statement on any mask work
or work of authorship created in the performance of this Agreement: "The U.S.
Government has a copyright license in this work pursuant to a CRADA with NRL."
10.3 Patent Rights
Employees of either Party will report a Subject Invention to their
employer within 90 days. Each Party will notify the other Party of a Subject
Invention within 90 days of the report by its employee(s). After reporting the
Invention to the other Party, the Party entitled to own the Subject Invention
shall have 90 days in which to decide whether to file an application for Patent,
and to notify the other Party of the decision. If the entitled Party declines,
or upon the expiration of the 90 days without notification, the other Party
shall have an opportunity to file and take title to the invention, subject to
the retention of a nonexclusive, nontransferable, irrevocable, paid-up license
to practice the Subject Invention or have the invention practiced throughout the
world by or on behalf of the Party whose employee(s) Made the Subject Invention.
Each Party shall be entitled shall be entitled to own the Subject Inventions of
its employees. Each Party whose employee(s) contributed to the Making of a
jointly Made Subject Invention shall have title, in the form of an undivided
interest, in the Subject Invention. The Parties shall confer on all jointly Made
Subject Inventions to determine which Party will file an application for Patent.
NRL gives ISC the option, to be exercised within 180 days after the filing of an
Application for Patent, of acquiring an exclusive license in the Government's
rights in any Subject Invention. An exclusive license will be in the field of
use of Measuring and Controlling Devices, Standard Industrial Classification
(SIC code 3629), subject to a reasonable royalty and subject to the retention of
a nonexclusive license. For any Subject Invention, each Party hereby grants to
the other Party a nonexclusive license. All exclusive license options or
nonexclusive licenses granted in Subject Inventions are subject to the
reservation of a nonexclusive, nontransferable, irrevocable, paid-up license to
practice a Subject Invention Made by employees of the granting Party or have
that Subject Invention practiced throughout the world by or on behalf of that
other Party.
In the event both Parties decline to file a Patent Application, the
Government will renounce its entitlement and leave all rights to the inventor(s)
who may retain ownership of the Invention, subject to the granting to the
Parties of a nonexclusive, nontransferable, irrevocable, paid-up license to
practice the Invention or have the Invention practiced throughout the world by
or on behalf of each Party. ISC may, at their sole discretion, renounce, its
entitlement and leave all rights to the inventor(s) who may retain ownership of
the Invention, subject to the granting to the Parties of a nonexclusive,
nontransferable, irrevocable, paid-up license to practice the Invention or have
the Invention practiced throughout the world by or on behalf of each Party.
No nonexclusive license conveyed under this Agreement shall be
assigned, licensed or otherwise disposed of except to the successor of that part
of ISC's business to which such license pertains.
Each Party shall provide the other Party with copies of any Payment
Applications it files on any Subject Invention along with the right to inspect
and make copies of all documents retained in the patent or other intellectual
property application files other than Proprietary
11
<PAGE> 12
Information. For each nonexclusive license granted under this Agreement, each
Party shall provide to the other Party the Confirmatory License Agreement in
Appendix B.
ARTICLE 11.PROPERTY
11.1 Title to Pre-Existing Facilities and Equipment
Each Party Shall retain title to all its preexisting property,
facilities, equipment or other resources provided under the Agreement.
11.2 Items Purchased by Parties
Each Party shall retain title to all property, facilities, equipment or
other resources which they purchased. Property purchased by the Government with
ISC's funds shall be Government Property.
11.3 Title to Developed Property
All equipment developed under this Agreement shall be the property of
the developing Party. Jointly developed equipment having components provided by
both Parties shall be the property of the Government. Jointly developed
equipment having all components provided by ISC shall be the property of ISC.
11.4 Property Costs
During the period of this Agreement, ISC shall be responsible for all
costs on maintenance, removal, storage, repair, and shipping of the NRL owned
Eaton 6200 Ion Implanter provided to ISC by NRL to carry out the research
described in the SOW (Appendix A). Upon completion of this Agreement, the Eaton
6200 Ion Implanter will be returned to NRL, at NRL's expense, or transferred to
an existing government/ISC contract should it be in the best interest of the
government.
11.5 Disposal of Property
Disposal of property will be in accordance with applicable disposal
laws and regulations.
ARTICLE 12.LIABILITIES
12.1 Government Liability
The Government's responsibility for injury or loss of property or
personal injury or death caused by the negligent or wrongful act or omission of
any employee of the Government while acting within the scope of his office or
employment will be in conformance with the Federal Tort Claims Act (28 U.S.C.
Section 2671 et seq.). Except as provided by the Federal Tort Claims Act, the
Government shall not be liable to ISC for any claims whatsoever, including loss
of revenue, profits, or other indirect or consequential damages.
12.2 Indemnification by ISC
ISC holds the Government harmless and agrees to indemnify the
Government for all liabilities, claims, demands, damages, expenses, and losses
of any kind arising out of the performance by ISC or other entity acting on
behalf of or under the authorization of ISC under this Agreement. The word
"other" does not include the NRL or "employee of the Government while acting
within the scope of his office or employment" as used in Article 12.1.
12.3 Force Majeure
No Party shall be liable for the consequences of any unforeseeable
force majeure event that (1) is beyond their reasonable control, (2) is not
caused by the fault or negligence of such Party, (3) causes such Party to be
unable to perform its obligations under this Agreement and (4) cannot be
overcome by the exercise of due diligence. In the event of the occurrence of a
force
12
<PAGE> 13
majeure event, the Party unable to perform shall promptly .notify the other
Party. It shall further pursue its best efforts to resume performance as quickly
as possible and shall suspend performance only for such period of time as is
necessary as a result of the force majeure event.
ARTICLE 13. GENERAL PROVISIONS
13.1 Characteristics of the Agreement
13.1.1 Entire Agreement
This Agreement constitutes the entire agreement between the
Parties concerning the subject matter hereof and supersedes any prior
understanding or written or oral agreement relative to said matter.
13.1.2 Severability
The illegality or invalidity of any provisions of this
Agreement shall not impair, affect or invalidate the other provisions of this
Agreement.
13.1.3 Headings
Titles and headings of the sections and subsections of this
Agreement are for convenience of reference only and do not form a part of this
Agreement and shall in no way affect the interpretation thereof.
13.2 Agreements between Parties
13.2.1 Governing Laws
The Parties agree that United States Federal Law shall
govern this Agreement for all purposes.
13.2.2 Independent Contractors/Entities
The relationship of the Parties to this Agreement is that of
independent contractors and not as agents of each other or as joint venturers or
Partners. Each Party shall maintain sole and exclusive control over its
personnel and operations.
13.2.3 Amendments
If any Party desires a modification in this Agreement, the
Parties shall, upon reasonable notice of the proposed modification by the Party
desiring change, confer in good faith to determine the desirability of such
modification. Such modification shall not be effective until a written amendment
is signed by the Agreement signatories or their successors.
13.2.4 Assignment/Subcontracting
13.2.4.1 If either Party subcontracts or grants to a third
Party any portion cf the work to be accomplished under this Agreement, then the
contracting Party shall remain fully responsible for that portion of the work,
and the subcontractor is not a Party to the Agreement.
13.2.4.2 Except as otherwise provided in this Agreement,
this Agreement or any license thereunder shall not be assigned or otherwise
transferred by any Party without the prior written consent of the other Party,
except to the successor of that part of ISC's business to which this Agreement
or such license pertains.
13.2.4.3 In the event that ISC or its successors or
assignees shall become, during the term of this Agreement, directly or
indirectly controlled by a foreign company or government (Executive Order 12591,
Section 4.(a)), then ISC shall immediately notify NRL to that effect. If ISC
becomes foreign-controlled during the term of this Agreement, NRL, after
consultation with the U.S. Trade Representative in accordance with Executive
Order 12591, may cancel any option for an exclusive or partially exclusive
license to a Subject Invention and may
13
<PAGE> 14
terminate any exclusive or partially exclusive licenses of patents in Subject
Inventions entered into which the Government has title, and which have been
licensed under this Agreement.
13.2.5 Termination
13.2.5.1 Termination by Mutual Consent
ISC and NRL may elect to terminate this Agreement
at any time by mutual consent. In such event the Parties shall specify the
disposition of all Subject Inventions and other results of work accomplished or
in progress, arising from or performed under this Agreement, and they shall
specify the disposal of all property in a manner consistent with this Agreement,
any license hereunder and the property disposal laws and regulations.
13.2.5.2 Unilateral Termination
Either Party may unilaterally terminate this entire
Agreement at any time by giving the other Party written notice, not less than
thirty (30) days prior to the desired termination date. If ISC unilaterally
terminates this Agreement, any option for an exclusive or partially exclusive
license to a Subject Invention and any exclusive or partially exclusive license
to a Subject Invention entered into by the Parties shall be simultaneously
terminated unless the Parties agree to retain such option or exclusive license.
13.2.5.3 No New Commitments
NRL shall make no new commitments after receipt of a
written termination notice from ISC and shall, to the extent practicable, cancel
all outstanding commitments by the termination date.
13.2.6 Notices
All notices pertaining to or required by this Agreement
shall be in writing and shall be signed by an authorized representative and
shall be delivered by hand or sent by certified mail, return receipt requested,
with postage prepaid, addressed as follows:
If to ISC
Mr. Anthony J. Armini
Implant Sciences Corporation
107 Audubon Road Wakefield, MA 01880-1245
ALL COVER CORRESPONDENCE SHALL REFER TO NAVY CRADA NUMBER
"NCRADA-NRL-97-132." If to NRL:
The Commanding Officer
Naval Research Laboratory, Code 1000
4555 Overlook Avenue, S.W.
Washington, DC 20375-5320
Any Party may change such address by notice given to the other Party in the
manner set forth above.
13.2.7 Disputes
13.2.7.1 Settlement
NRL and ISC agree to use all reasonable efforts to
reach a fair settlement cf any dispute. If such efforts are unsuccessful,
remaining issues in dispute will be referred to the signatories or their
successors for resolution. If a dispute continues, the remaining issues may be
submitted to the Chief of Naval Research, or his designee, for resolution.
Nothing in this Agreement is intended to prevent ISC from pursuing disputes in a
Federal Court of competent jurisdiction.
14
<PAGE> 15
13.2.7.2 Continuation of Work
Pending the resolution of any dispute or claim
pursuant to this Article, the Parties agree that performance of all obligations
under this Agreement shall be diligently pursued.
13.2.8 Waivers
None of the provisions of this Agreement shall be considered
waived by any Party unless such waiver is given in writing to the other Party.
The failure of any Party to insist upon strict performance of any of the terms
and conditions hereof, or failure or delay to exercise any rights provided
herein or by law shall not be deemed a waiver of any right of any Party hereto.
13.2.9 Use of Name or Endorsements
Except as provided for in Article 10.2.3, ISC shall not use
the name of NRL or any other Government entity on any product or service which
is directly or indirectly related to either this Agreement or any patent license
or assignment associated with this Agreement without the prior approval of NRL.
By entering into this Agreement, NRL does not directly or indirectly endorse any
product or service provided, or to be provided, by ISC, its successors,
assignees, or licensees. ISC shall not in any way imply that this Agreement is
an endorsement of any such product or service.
13.3 Handling of Hazardous Substances
Each Party shall be responsible for the handling, control, and
disposition of any and all hazardous substances or waste in its custody during
the course of this Agreement. At the conclusion of this Agreement, each Party
shall be responsible for the handling, control, and disposition of any and all
hazardous substances cr waste still in its possession. Each Party shall obtain
at its own expense all necessary permits and licenses as required by local,
State, and federal law and shall conduct such handling, control, and disposition
in a lawful and environmentally responsible manner.
13.4 Officials Not to Benefit
No member of or delegate to the United States Congress shall be
admitted to any share or part of this Agreement or to any benefit that may arise
therefrom.
13.5 U.S. Competitiveness
ISC agrees that any products, processes or services using intellectual
property arising from the performance of this Agreement shall be manufactured
substantially in the United States.
13.6 Public Release of this Agreement Document
This Agreement document is releasable to the public.
ARTICLE 14.EFFECTIVE DATE AND DURATION
14.1 This Agreement shall enter into force on the date of the last signature
of the Parties.
14.2 This Agreement shall terminate three (3) years after its effective
date.
ARTICLE 15.SURVIVING PROVISIONS
The articles covering Definitions, Funding, Reporting and Publications,
Intellectual Property, Property, Liabilities, General Provisions, and Surviving
Provisions shall survive the termination of this Agreement.
15
<PAGE> 16
ARTICLE 16.SIGNATURES
Entered into this 22nd day of January , 1997, for Implant Sciences Corporation
By: /s/ A.J. Armini
- ---------------------------------------
Title: president
- ---------------------------------------
Entered into this 28th day of January , 1997, for the Department of the Navy
By: /s/ B.W. Buckley
- ----------------------------------------------
Title: Captain, U.S. Navy, Commanding Officer
- ----------------------------------------------
16
<PAGE> 17
APPENDIX A
STATEMENT OF WORK
BETWEEN
THE NAVAL RESEARCH LABORATORY (NRL)
AND
IMPLANT SCIENCES CORPORATION (ISC)
ON
ION IMPLANTATION TECHNOLOGY FOR GaN AND RELATED ALLOYS
17
<PAGE> 18
STATEMENT OF WORK
The interests and complementary strengths of NRL and Implant Sciences have lead
to the initiation of this CRADA. NRL and Implant Sciences will collaborate under
the terms of this agreement to develop and implement for device and IC
fabrication, an implantation -technology for GaN and its related alloys.
NRL WILL BE RESPONSIBLE FOR THE FOLLOWING TASKS:
Define the implantation development required for the emerging GaN
electronic device and IC technology.
2. Collaborate with Implant Sciences in the design of experiments to do
parametric studies of the electrical activation of n- and p-type dopants
implanted into GaN as a function of implant dose, implant temperature and anneal
conditions.
3. Consult with Implant Sciences with regard to the development of anneal
techniques for implanted GaN and related alloys.
4. Perform routine and advanced electrical and optical characterization of
the implanted and annealed structures. These will include Hall measurements
which supplement the studies carried out by Implant Sciences, CV profiling,
low-temperature photoluminescence measurements and DLTS measurements for defect
characterization.
5. Design, fabricate and test advanced electronic devices and ICs that
utilize implanted GaN. These devices and ICs will be used to evaluate the
implant technology developed through the collaborative efforts of Implant
Sciences and NRL and to demonstrate its utility to the emerging GaN based
electronic device technology.
ISC WILL BE RESPONSIBLE FOR THE FOLLOWING TASKS:
1. Collaborate with NRL in the design of experiments to do parametric
studies of the electrical activation of n and p type dopants implanted into GaN
as a function of implant dose, implant temperature, and anneal conditions.
2. Develop and execute implantation techniques appropriate to GaN. These
would include high-temperature implantation techniques which suppress nitrogen
loss from the substrate, co-implantation techniques for enhanced activation of
both p-and n-type dopants and low-temperature implantation techniques. task is
not to exceed 20 hours per month. The implantation task is not to exceed 20
hours per month.
3. Develop techniques for the anneal of implanted GaN with an emphasis on
the suppression of nitrogen loss at high temperature.
4. Do routine electrical characterization, Hall measurements, to
characterize the activation of the implanted species as a function of anneal.
18
<PAGE> 19
5. Establish a routine implantation process that is made commercially
available to the GaN research and device community.
6. [Redacted text]
19
<PAGE> 20
APPENDIX B
CONFIRMATORY LICENSE
AGREEMENT
1. APPLICATION FOR (Title of invention)
2. INVENTOR(S) AND AFFILIATION
3. PATENT APPLICATION SERIAL NO.
4. PATENT APPLICATION FILING DATE
5. NAVY ACTIVITY (Name, address, point of contact)
6. NON-NAVY ACTIVITY (Name, address, point of contact)
7. CRADA AGREEMENT NO.
8. DATE OF THIS AGREEMENT
9. The invention identified about is a "Subject Invention" under Article 10.3
Patent Rights included with the CRADA identified in Box 7 between the Department
of the Navy and Non-Navy Activity identified in Box 6.
This document is confirmatory of the nonexclusive, irrevocable, paid-up license
to practice the identified Subject Invention or have that Subject Invention
practiced throughout the world by or on behalf of the receiving party, and of
all other rights acquired by the receiving party by the referenced clause.
This license it granted to
_____ the government (Select one)
_____ Non-Navy Activity identified in Box 6
under this CRADA in the identified invention, patent application and any
resulting patent.
The license is hereby granted an irrevocable power to inspect and make copies of
the above-identified patent application.
ACTIVITY NAME OF LICENSOR
- --------------------------------------------
SIGNATURE
- --------------------------------------------
NAME (Typed or Printed)
- ---------------------------------------------
TITLE
- ---------------------------------------------
BUSINESS TELEPHONE
- ---------------------------------------------
20
<PAGE> 1
Exhibit 10.25
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
1. CONTRACT ID CODE PAGE OF PAGES
AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACT 1 1
- ----------------------------------------------------------------------------------------------------------------------------------
2. AMENDMENT/MODIFICATION NO. 3. EFFECTIVE DATE 4.REQUISITION/PURCHASE REQ. NO. 5. PROJECT NO. (if applicable)
P00001 10/01/97
- ----------------------------------------------------------------------------------------------------------------------------------
6. ISSUED BY CODE W15QKN03 7. ADMINISTERED BY (if other than Item 6) CODE W15QKN03
------------- ----------------
U.S. Army TACOM-ARDEC U.S. Army TACOM-ARDEC
AMSTA-AR-PC-A, B. 10 AMSTA-AR-PC-A, B. 10
Picatinny Arsenal, NJ 07806-5000 Picatinny Arsenal, NJ 07806-5000
- ----------------------------------------------------------------------------------------------------------------------------------
8. NAME AND ADDRESS OF CONTRACTOR
(No.,street, country, State and ZIP code) /X/ 9A. AMENDMENT OF SOLICITATION NO.
- -------------------------------------------------------------------------------
Implant Sciences Corporation ---------------------------------------
107 Audubon Road, #5 9B. DATED (SEE ITEM 11)
Wakefield, MA 01880 ----------------------------------------------------
10A. MODIFICATION OF CONTRACT/ORDER NO.
/X/ DAAE30-97-2-0100
--------------------------------------
10B. DATED (SEE ITEM 13)
09/30/97
</TABLE>
- -------------------------------------------------------------------------------
CODE OATR5 FACILITY CODE
- -------------------------------------------------------------------------------
11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS
- -------------------------------------------------------------------------------
/ / The above numbered solicitation is amended as set forth in Item 14.
The hour and date for receipt / /is extended / / is not extended.
Offers
Offers must acknowledge receipt of this amendment prior to the hour and date
specified in the solicitation or as amended, by one of the following methods:
(a) By completing Items 8 and 15, ________ copies of the amendment; (b) By
acknowledging receipt of this amendment on each copy of the offer submitted; or
(c) By reference to the solicitation and amendment numbers. FAILURE OF YOUR
ACKNOWLEDGMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF OFFERS
PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR OFFER. If
by virtue of this amendment you desire to change an offer already submitted,
such change may be made by telegram or letter, provided each telegram or letter
makes reference to the solicitation and this amendment, and is received prior to
the opening hour and date specified.
- -------------------------------------------------------------------------------
12. Accounting and Appropriation Data (If required)
- -------------------------------------------------------------------------------
13. THIS ITEM APPLIES ONLY TO MODIFICATIONS OF CONTRACTS/ORDERS, IT MODIFIES THE
CONTRACTOR/ORDER NO. AS DESCRIBED IN ITEM 14.
- -------------------------------------------------------------------------------
/X/ A. THIS CHANGE ORDER IS ISSUED PURSUANT TO: (Specify authority)
THE CHANGES SET FORTH IN ITEM 14 ARE MADE IN THE CONTRACT
ORDER NO. IN ITEM 10A.
- ------------------------------------------------------------------------------
/X/ B. THE ABOVE NUMBERED CONTRACT/ORDER IS MODIFIED TO REFLECT THE
ADMINISTRATIVE CHANGES (such as changes in paying office, appropriation
date, etc.) SET FORTH IN ITEM 14, PURSUANT TO THE AUTHORITY OF FAR
43.103(b).
- ------------------------------------------------------------------------------
C. THIS SUPPLEMENTAL AGREEMENT IS ENTERED INTO PURSUANT TO AUTHORITY OF:
- ------------------------------------------------------------------------------
D. OTHER (Specify type of modification and authority)
- ------------------------------------------------------------------------------
E. IMPORTANT: Contractor /x/ is not. / / is required to sign this
document and return copies to the issuing office.
- -------------------------------------------------------------------------------
14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section headings,
including solicitation/contract subject matter where feasible.)
The purpose of this modification is to change the Agreement Number shown on
the face of the Agreement. The number is hereby changed from:
DAAE30-98-2-0100 to DAAE30-97-2-0100.
All other terms and conditions remain unchanged.
Except as provided herein, all terms and conditions of the document
referenced in Item 9A or 10A, as heretofore changed, remains unchanged and in
full force and effect.
- ------------------------------------------------------------------------------
15A. NAME AND TITLE OF SIGNER (Type or print)
- ------------------------------------------------------------------------------
16A. NAME AND TITLE OF CONTRACTING OFFICER (Type or print)
Paul Milenkowic
- ------------------------------------------------------------------------------
1
<PAGE> 2
<TABLE>
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
15B. CONTRACTOR/OFFEROR 15c. DATE 16B. UNITED STATES OF AMERICA 16C. DATE SIGNED
SIGNED
BY /s/ illegible signature 10 Oct 97
---------------------------------------- -----------------------------------
(Signature of person authorized to sign) (Signature of Contracting Officer)
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE> 3
COOPERATIVE AGREEMENT BETWEEN
THE UNITED STATES OF AMERICA
U.S. ARMY TANK-AUTOMOTIVE AND ARMAMENTS COMMAND
ARMAMENT RESEARCH, DEVELOPMENT AND ENGINEERING CENTER
(TACOM-ARDEC)
PICATINNY ARSENAL, NJ 07806-5000
AND
IMPLANT SCIENCES CORPORATION
107 AUDUBON ROAD, #5
WAKEFIELD, MA 01880-1246
TITLE OF PROJECT: Environmentally Friendly Alternative to Chrome Plating
Agreement Number: DAAE30 98-2-0100
Authority: 10 U.S.C. 2358
Total Amount of Funding: [Redacted text]
Total Amount of Government Funding: [Redacted text]
Accounting and Appropriations Data:
97 7 0400 1301 7 RP ARDE 76100.00000 25B1 PK 0007L DTS 9 028017
This Agreement is entered into between the United States of America, hereinafter
called the "Government", represented by the U.S. Army TACOM-ARDEC, "Funding
Agency" on behalf of the Defense Advanced Research Projects Agency, "DARPA", and
Implant Sciences Corporation for the development of Environmentally Friendly
Alternatives To Chrome Plating pursuant to and under U.S. Federal Law.
For Implant Sciences Corp. For the United States of America
TACOM-ARDEC
/s/ A.J. Armini 9/30/97 /s/Paul Milenkowic 9/30/97
- ------------------------- ---------------------------------
Signature Date Signature
A.J.Armini Paul Milenkowic, Grants Officer
- ------------------------- -------------------------------
Type Name and Title Typed Name and Title
3
<PAGE> 4
TABLE OF CONTENTS
Articles Page No.
- -------- --------
PART I SCOPE OF AGREEMENT
Article 1 Scope 4
PART II ADMINISTRATIVE INFORMATION
Article 2 Definitions 4
Article 3 Administrative Requirements 5
Article 4 Administrative Responsibilities 6
Article 5 Period of Performance 6
PART III FINANCIAL MATTERS
Article 6 Obligations 7
Article 7 Payment 7
Article 8 Program Income 8
Article 9 Close-out Adjustments 8
PART IV PRIOR APPROVALS
Article 10 Modifications 8
Article 11 Revision to Financial Plans 9
PART V INTELLECTUAL PROPERTY RIGHTS
Article 12 Inventions 9
Article 13 Data Rights 10
PART VI TECHNICAL AND FINANCIAL REPORTS
Article 14 Annual and Final Technical Reports 10
Article 15 Informal Technical Reports 13
Article 16 Scientific Reports 13
Article 17 Reporting Financial Information 13
PART VII DISTRIBUTING PROJECT RESULTS
Article 18 Distributing Project Results 13
PART VII MISCELLANEOUS PERFORMANCE ISSUES
Article 19 Using Technical Information Resources 14
Article 20 Disputes 14
Article 21 Access to Information 15
Article 22 Site Visit 15
Article 23 Limitation of Liability 15
4
<PAGE> 5
PART IX SUSPENSION AND TERMINATION
- ------- --------------------------
Article 24 Suspension and Termination 16
PART X PROPERTY
- ------ --------
Article 25 Title to Nonexpendable Personal Property 17
PART XI CERTIFICATIONS
- ------- --------------
Article 26 Certifications 17
PART XII OTHER ARTICLES
- -------- --------------
Article 27 Military Recruiting on Campus 18
ATTACHMENTS
Attachment 1 Statement of Work 19
Attachment 2 Schedule of Payments and Payable Milestones 22
Attachment 3
Detailed Schedule of Payments and Payable Milestones 23
PART I - SCOPE OF THE AGREEMENT
ARTICLE 1- SCOPE
1. The Recipient shall perform a coordinated research and development program
for the development of environmentally friendly alternatives to chrome plating.
The research shall be carried out in accordance with the Statement Of Work (SOW)
incorporated in this Agreement as Attachment 1. The Recipient shall submit or
otherwise provide all documentation required by Part VI.
2. The Recipient shall be paid for each Payable Goal accomplished in accordance
with the Schedule and Detailed Schedule of Payable Milestones as set forth in
Attachments 2 and 3 and the procedures in Part III. Both of these schedules may
be revised or updated in accordance with Parts IV and VI.
3. The Government and the Recipient estimate that the Statement of Work of this
Agreement can only be accomplished with the Recipient's aggregate resource
contribution of [Redacted text] from the effective date of this Agreement
through twenty-four (24) months thereafter. The Recipient intends and, by
entering into this Agreement, undertakes to cause to be provided these funds.
Recipient contributions will be provided as detailed in the Schedule of Payable
Milestones, as set forth in Attachments 2 and 3 and Part III. If the Funding
Agency or Recipient are unable to provide the respective total contributions,
the other Party may reduce its project funding by the same percentage.
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4. The Government will have continuous involvement with the Recipient. The
Government will also obtain access to research results and certain rights in
data and patents pursuant to Part V. The Funding Agency and the Recipient are
bound to each other by a duty of good faith and reasonable research effort in
achieving the goals of the Recipient.
5. This Agreement is a cooperative agreement pursuant to 10 U.S.C. 2358. The
Parties agree that the principal purpose of this Agreement is for the Government
to support and stimulate the Recipient to provide a reasonable research effort
and not for the acquisition of property or services for the direct benefit or
use of the Government. The Federal Acquisition Regulations (FAR) and Department
of Defense Federal Acquisition Regulations (DFAR) apply only as specifically
referenced herein. This Agreement is not a procurement contract or grant
agreement for purposes of FAR Subpart 31.205-18, an such other Parties' IR&D
costs incurred in performance under this Agreement are not construed to be
sponsored by, or required in performance of this Agreement. This Agreement is
not intended to be, nor shall it be construed as, by implication or otherwise, a
partnership, a corporation or other business organization.
PART II - ADMINISTRATIVE INFORMATION
ARTICLE 2- DEFINITIONS
1. The term "Agreement" as used herein is defined as the articles in this
Cooperative Agreement number DAAE30-97-2-0100, and it attachments.
2. The term "Recipient" as used herein is defined as Implant Sciences
Corporation.
3. The term "Parties" as used herein is defined as the Recipient and the
Government, jointly.
4. The term "performance year" as used herein shall refer to each consecutive
twelve month period from the effective date of this agreement throughout the
term of the agreement.
ARTICLE 3 - ADMINISTRATIVE REQUIREMENTS
1. This Agreement will be administered in accordance with, and Recipients shall
comply with the requirements of, the following, which are incorporated herein by
reference:
* 32 CFR 34
* OMB Circular A-110 (19 Nov 93), "Grants and Agreements with
Institutions of Higher Education, Hospitals, and Other
Nonprofit Organizations", as revised
* OMB Circular A-122 (08 May 97), "Cost Principles for Nonprofit
Organizations", as revised
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* OMB Circular A-21 (26 Apr 96), "Cost Principles for
Educational Institutions"
* OMB Circular A-133 (24 Jun 97), "Audits of Institutions of
Higher Education and Other Nonprofit Institutions"
* OMB Circular A-88 (27 Nov 79), "Indirect Cost Rates, Audit and
Audit Follow-Up at Educational Institutions"
* Interim Guidance draft of DoD 3210.6-R, the DoD Grant and
Agreement Regulations (DODGARs) (4 Feb 94)
The regulations can be obtained from:
Office of Management and Budget
EOP Publications Office
Telephone: (202) 395-7332
or the following web sites:
http://www.pr.doe.gov/omb2.html (OMB Circulars)
http://web.fie.com/cws/sra/resource.htm (OMB Circulars and CFR)
2. The following shall be the order of precedence, in descending order, in the
event of a conflict:
a. The governing directives listed in paragraph 1 above;
b. The articles in this Agreement;
c. The attachments to this Agreement.
ARTICLE 4 - ADMINISTRATIVE RESPONSIBILITIES
Unless otherwise provided in this Agreement, approvals permitted or required to
be made by the Government may be made only by the Funding Agency Grants Officer.
Administrative and contractual matters under this Agreement shall be referred to
the following representatives of the Parties:
TACOM-ARDEC
Grants Officer/: Paul Milenkowic Telephone: (973) 724-5391
Administrator TACOM-ARDEC Fax: (973) 724-4195
AMSTA-AR-PC-A, Bldg. 10
Picatinny Arsenal, NJ 07806-5000
Grants Specialist: Shelley R. Czapkewicz Telephone: (973) 724-3985
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TACOM-ARDEC Fax: (973) 724-4195
AMSTA-AR-PC-A, Bldg. 10
Picatinny Arsenal, NJ 07806-5000
Recipient:
Contract Manager: Diane Ryan Telephone: (781) 246-0700
Fax: (781) 246-1167
Technical matters under this Agreement shall be referred to the following
representatives:
TACOM-ARDEC:
Program Engineer: Ken Willison Telephone: (973) 724-2879
TACOM-ARDEC Fax: (973) 724-7378
AMSTA-AR-WEA, Bldg. 315
Picatinny Arsenal, NJ 07806-5000
Recipient:
Principal Investigator: Dr. Stephen Bunker Telephone: (781) 246-0700
The Parties may change the individuals named in this Article by written
notification to the other Party. Changes shall be made to this Agreement by
formal modification by the Grants Officer pursuant to Article 12.
ARTICLE 5 - PERIOD OF PERFORMANCE
The Recipient program commences upon the date of the last signature hereon and
continues for a period of twenty-four (24) months. If all funds are expended
prior to the twenty-four (24) month duration, the Parties have no obligation to
continue performance and may elect to cease development at that point.
Provisions of this Agreement, which by their express terms or by necessary
implication, apply for periods of time other than specified herein, shall be
given effect, notwithstanding this Article.
PART ILL - FINANCIAL MATTERS
ARTICLE 6- OBLIGATION
1. The Government's obligation to make payment to the Recipient is limited to
only those funds allotted to this Agreement or by modification to the Agreement.
The Funding Agency may incrementally fund this Agreement.
2. If modification becomes necessary in performance of this Agreement, pursuant
to Part IV, the Grants Officer and Recipient shall execute a revised Schedule,
and Detailed Schedule, of Payable
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Milestones consistent with the current Program Plan and will notify the
Recipient in writing of the Funding Agency's changed level of obligation.
3. The Government's share for full performance of this award is [Redacted text].
At this time, [Redacted text] is provided for funding of this Agreement. The
remainder of the Government's share will be provided at a later date. The
Government's share for full performance will be paid in accordance with the
Schedule, and Detailed Schedule, of Payable Milestones as set forth in
Attachments 2 and 3 and the procedures in Part III. These schedules may be
revised or updated in accordance with Parts IV and VI.
4. To minimize interruption of effort due to lack of funds, the Recipient shall
notify the Grants Officer in writing whenever the amount of funds expended under
this award when added to anticipated costs in the next sixty (60) days will
exceed 75% of the amount allotted by the Government plus the Recipient's
corresponding share (if this is a cost-sharing Agreement). If, after
notification, additional funds are not allotted, the Parties agree this
Agreement will be terminated. The Recipient is not obligated to continue
performance or otherwise incur costs in excess of (i) the amount then allotted
to the Agreement by the Government, or (ii) if this is a cost-sharing agreement,
the amount allotted by the Government to the Agreement plus the Recipient's
corresponding share, until the Grants Officer notifies the Recipient in writing
that the amount allotted by the Government has been increased and specifies and
increased amount, which shall then constitute the total amount allotted by the
Government to this Agreement. When and to the extent that the Recipient incurs
before the increase that are in excess of (i) the amount previously allotted by
the Government or (ii) if this is a cost-sharing agreement, the amount
previously allotted by the Government to the Agreement plus the Recipient's
corresponding share, shall be allowable to the same extent as if incurred
afterward, unless the Grants Officer issues a termination or other notice and
directs that the increase is solely to cover termination or other specified
expenses.
ARTICLE 7- PAYMENT
1. In addition to any other financial reports provided or required, the
Recipient shall notify the Grants Administrator immediately if any contribution
from the Recipient is not made as required.
2. The Recipient shall document the accomplishments of each Payable Milestone by
submitting the Payable Milestones Report required by Part VI. The Recipient
shall submit an original and two (2) copies of all invoices to the Grants
Administrator for payment approval. After written verification of the
accomplishment of the Payable Milestone by the Funding Agency Program Engineer
and approval by the Grants Administrator, the invoices will be forwarded to the
payment office within thirty (30) calendar days of receipt of the invoices at
the Funding Agency. Payments will be made by the Funding Agency within thirty
(30) days of the Funding Agency's transmittal. Payment approval for the final
Payable Milestone will be made after reconciliation of the Funding Agency's
funding with actual Recipient contributions. Subject to change only
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through written Agreement modification, payment shall be made to the address of
the Recipient as set forth below.
3. Name and Address of Payee: Implant Sciences Corporation, Attn: Ms. Diane
Ryan, 107 Audubon Road, #5, Wakefield, MA 01880-1246.
4. Cost-reimbursable milestone payments shall be made no more frequently then
quarterly in the amounts set forth in Attachment 2, "Detailed Schedule of
Payable Milestones", provided the Funding Agency Program Manager has verified
the accomplishment of the Payable Milestones. It is recognized that the
quarterly accounting of current expenditures reported in the "Quarterly Business
Status Report" submitted in accordance with Part VI is not necessarily intended
or required to match the Payable Milestones until submission of the Final
Report. However, Payable Milestones may be revised during the course of the
program to reflect current and revised projected expenditures.
5. Limitation of Funds: In no case shall the Government's financial obligation
exceed the amount obligated under this Agreement.
6. The Funding Agency acknowledges and agrees that the applicable values of
previously developed technology or intellectual property, approved as in-kind
contributions, are acceptable and that no further justification for those value,
or application of such technology, shall be required.
ARTICLE 8- PROGRAM INCOME
No program income will be generated during the project period.
ARTICLE 9- CLOSE-OUT ADJUSTMENTS
The Government may make a downward adjustment to the Government funding amount
after completion of the effort under the Agreement, when appropriate in
accordance with OMB Circular A-110.
PART IV - PRIOR APPROVALS
ARTICLE 10 - MODIFICATIONS
1. At any time during the term of the Agreement, research progress or results
may indicate that a change in the Statement of Work and/or Payable Milestones,
would be beneficial to program objectives. Recommendations for modifications,
including justifications to support any changes to the Statement of Work and or
the Payable Milestones, will be documented in writing and submitted by the
Recipient to the Funding Agency Program Manager, with a copy to the Grants
Officer. This documentation letter will detail the technical, chronological and
financial impact of the proposed modification to the research program. The
Recipient shall approve an Agreement modification. The Government is not
obligated to pay for additional or revised Payable
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Milestones until the Payable Milestones Schedules (Attachments 2 and 3) are
formally revised by the Funding Agency Grants Administrator and made part of
this Agreement.
2. The Funding Agency Program Engineer shall be responsible for the review and
verification of any recommendations to revise or otherwise modify the Agreement
Statement of Work, Schedule of Payments or Payable Milestones, or other proposed
changes to the terms and conditions of this Agreement.
3. The Grants Officer may unilaterally make minor or administrative
modifications to this Agreement (e.g. changes in the paying office or
appropriation data, changes to Government personnel identified in the Agreement,
etc.).
ARTICLE 11 - REVISION TO FINANCIAL PLANS
1. The financial plan, or approved budget, is the financial expression of the
effort to be performed under this Agreement as approved during the award
process. This Agreement and its terms and conditions reflect the approved
financial plan. Some change to the plan require prior approval, as described
below.
2. Recipients are authorized to:
a. Incur preaward costs up to 90 days at their own risk.
b. Carry forward unobligated balances to subsequent funding periods
(with the exception of the final funding period) without prior
Government approval.
3. All other "prior approvals" required by the applicable cost principles and
OMB Circular A- 110 are waived, except actions of the following. All other
"prior approvals" are noted in Article 10 above.
a. Change the scope or objective of a project
b. Change key personnel - The Recipient shall request prior approval
from the Grants Officer if the Principal Investigator can not or will
not devote substantially the same amount of time to the project as was
proposed or if he or she will not be able to otherwise perform as
originally proposed.
c. Require additional funding
4. The Recipient will be notified of approval/nonapproval by the Grants Officer,
in writing, within thirty (30) days of receipt of the request.
PART V - INTELLECTUAL PROPERTY RIGHTS
ARTICLE 12 - INVENTIONS
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1. The clause entitled "Rights to Inventions Made by Nonprofit Organizations and
Small Business Firms" (37 CFR 401) is hereby incorporated by reference and the
clauses in paragraph 401.14 are modified as follows: replace the word
"contractor" with "Recipient"; replace the words "agency", "Federal Agency" and
"funding Federal Agency" with "government"; replace the word "contract" with
"Agreement"; delete paragraphs (g)(2), (g)(3) and the words "to be performed by
a small business firm or domestic nonprofit organization" from paragraph (g)(1).
2. The Recipient shall file Invention (Patent) Reports as of the close of the
performance year and at the end of the term for this Agreement. Annual reports
are due sixty (60) calendar days after the end of each year of performance and
final reports are due sixty (60) calendar days after the expiration of the final
performance period. The Recipient shall use DD Form 882, Report of Inventions
and Subcontracts, to file an inventions report. Negative reports are also
required. The Recipient shall submit the original and one copy to the Grants
Officer, one copy to the Grants Administration Office, if different from the
Grants Officer, and one copy to the Program Engineer.
3. Final payment can not be made nor can the Agreement be closed out until the
Recipient delivers to the Government all disclosures of subject inventions
required by this Agreement, an acceptable final report pursuant to Article 14
entitled "Annual and Final Technical Reports", and all confirmatory instruments.
ARTICLE 13 - DATA RIGHTS
1. All rights and title to data and technical data, as defined in 48 CFR 27.401,
generated under this Agreement shall vest in the Recipient.
2. The Recipient hereby grants to the U.S. Government a non-exclusive,
non-transferable, royalty-free, fully paid-up license to use, duplicate, or
disclose for governmental purposes any data, technology and inventions, whether
patented or not, made or developed under this Agreement.
3. The Recipient reserves the right to protect by copyright original works
developed under this Agreement. All such copyrights will be in the name of the
Recipient. The Recipient hereby grants the U.S. Government a non-exclusive,
non-transferable, royalty-free, fully paid-up license to reproduce, prepare
derivative works, distribute copies to the public, and perform publicly and
display publicly, for governmental purposes, any copyrighted materials developed
under this Agreement, and to authorize other to do so.
4. The Recipient is responsible for affixing appropriate markings indicating the
rights of the Government on all data and technical data deliver under the
Agreement. The Government shall be deemed to have unlimited rights in all data
and technical data delivered without markings.
PART VI - TECHNICAL AND FINANCIAL REPORTS
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ARTICLE 14 - ANNUAL AND FINAL TECHNICAL REPORTS
1. The Recipient shall submit to or otherwise provide to the Funding Agency, the
reports described in Attachment II and such other technical reports as may be
mutually agreed between the Recipient and the Funding Agency. With the approval
of the Funding Agency Program Engineer, reprints of published articles may be
distributed as technical reports. All reports shall be marked in accordance with
the article entitled "Distributing Project Results". This includes but is not
limited to the following.
* reports presented at scientific and technical meetings, conferences,
workshops or other information exchange meetings;
* publications in scientific and technical journals or proceedings of
information exchange meetings;
* news releases and news letters; and
* articles in trade publications.
2. Payable Milestone Report
The Recipient will provide the Funding Agency Program Engineer with two (2)
copies of documentation describing the extent of accomplishments of Payable
Milestones as required by Article 7 entitled Payment.
3. Quarterly Business Status Report
a. As stated in Attachment 3, Detailed Schedule of Payable Milestones,
the Recipient shall provide a quarterly report. Two (2) copies will be
submitted: one (1) copy to the Funding Agency Program Engineer and one (1) copy
to the Grants Officer. The report will have two major sections:
1) Technical Status Report: Will detail the Recipient's technical
progress to date and report on all problems and resolutions,
technical issues and major developments during the reporting
period.
2) Business Status Report: Will provide quarterly accounting of
current expenditures, including the status of the Recipient's
contributions. Any major deviations shall be explained along
with discussions of the adjustment actions proposed.
4. Annual Technical Report
a. Annual reports are required for efforts of more than one year. This
report will provide a concise and factual discussion of the significant
accomplishments and progress during the year covered by the report. Each of the
topics described below shall be addressed for the effort being performed:
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(1) A comparison of actual accomplishments with the goals and
objectives established for the period, the findings of the
investigator, or both.
(2) Reasons why established goals were not met, if appropriate.
(3) Other pertinent information including, when appropriate,
analysis and explanation of cost overruns.
b. In addition, for research awards, each of the following topics (4)
through (7) shall be addressed as appropriate to the research effort being
performed:
(4) A cumulative chronological list of written publications in
technical journals. Include those in press as well as
manuscripts in preparation and planned for later submission.
Indicate likely journals, authors and titles.
(5) A list of professional personnel associated with the research
effort. List any advanced degrees awarded, including dates,
recipient, type of degree, and those titles.
(6) Interactions (Related Activities):
(a) Papers presented at meetings, conferences, seminars, etc.
(b) Consultative and advisory functions to other laboratories
and agencies, especially the Army and other DoD
laboratories on research supported under the Agreement.
Provide factual information about the subject matter,
institutions, dates and the names of individuals involved.
(7) New discoveries, inventions, or patent disclosures and
specific applications stemming from the research effort.
5. Final Technical Report
a. A Final Technical Report is due at the completion of the Agreement.
This report will provide a comprehensive, cumulative, and substantive summary of
the progress and significant accomplishments achieved during the total period of
the effort covered by the Agreement. Each of the topics described above shall be
addressed as appropriate for the effort performed. Publications may be bound and
attached as appendices.
b. When the results of a research effort have not previously been
reported in scientific or technical publications, the Final Technical Report
must provide sufficient detailed discussions of findings and accomplishments
obtained in pursuit of the planned research objectives.
6. Submittal
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a. The Recipient shall submit annual and final technical reports in the
original and two (2) copies to the Project Engineer within ninety (90) calendar
days after completion of the period covered by the report. Provide a copy of the
transmittal letter to the Grants Officer.
7. Format
a. Cover and Title Page - Standard Form (SF) 298, Report Documentation
Page, shall be used. Item 13 of the form should contain a 100 to 200 word
abstract summarizing technical progress during the reporting period. Style
should be third person singular using past tense. Jargon, special symbols,
notations, subscripts, mathematical symbols or foreign alphabet letters are not
permitted. The pages should be prepared for acquisition and distribution by the
Defense Technical Information Center (DTIC). All pages should be of good quality
for copying purposes.
b. The report shall be prepared in accordance with American National
Standards Institute (ANSI) document Z39.18-1987, "Scientific and Technical
Reports: Organization, Preparation, and Production", which may be obtained from
American National Standards Institute Incorporated
1430 Broadway
New York, NY 10018
ARTICLE 15 - INFORMAL TECHNICAL REPORTS
This report shall be prepared only if requested by the Government Project
Engineer. It shall be submitted in letter format and is usually not longer then
three (3) pages in length. Its primary purpose is to inform the Project Engineer
about significant events, accomplishments, and anticipated problems that may
affect the conduct of the planned effort. It should summarize the progress of
the effort being performed, new discoveries, inventions or patent disclosures,
anticipated changes in commitments of key personnel and in the planned approach;
acquisition or fabrication of major or special research equipment; and the
titles of manuscripts planned for publication. Send the Project Engineer one (1)
copy signed by the Principal Investigator or Recipient's Project Manager within
fifteen (15) calendar days after the request.
ARTICLE 16 - SCIENTIFIC REPORTS
For research agreements, this report shall be used for rapidly disseminating
highly significant research results or for scientific reports that are too long
or that contain useful compilations of data, tables and computations not
normally accepted by technical journals. It is not appropriate for a student's
thesis. Before preparing a Scientific Report, obtain written permission from the
Project Engineer who will then furnish detailed instructions for formatting,
reproducing and distributing the report. Send the government Project Engineer
two (2) copies. On its cover, a scientific report shall prominently display the
following disclaimer: "The views and conclusions contained in this document are
those of the authors and should not be interpreted as necessarily representing
the official policies or endorsements, either expressed or implied, of the Army
or the U.S. Government."
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ARTICLE 17 - REPORTING FINANCIAL INFORMATION
The Recipient shall submit the Financial Status Report (SF269 or 269A) on a cash
basis within thirty (30) calendar days following the end of each quarter, and
within ninety (90) calendar days following the completion of the Agreement.
Submit the original and one (1) copy to the Grants Administration Office and one
(1) copy to the Grants Officer, if different from the Grants Administration
Office.
PART VII - DISTRIBUTING PROJECT RESULTS
ARTICLE 18 - DISTRIBUTING PROJECT RESULTS
1. Publications - The Recipient is encouraged to publish results of the project,
unless classified, in appropriate journals. One (1) copy of each article planned
for publication will be submitted to the Project Engineer simultaneously with
its submission for publication. A copy of the transmittal letter should be
provided to the Grants Officer. Two (2) copies of all publications resulting
from the project shall be forwarded to the Project Engineer as they become
available.
2. Acknowledgment of Sponsorship - The Recipient is responsible for assuring
that an acknowledgment of Government support will appear in any publication of
any material based on or developed under this project, in the following terms:
"Effort sponsored by U.S. Army Tank-Automotive and Armaments Command
Armament Research, Development and Engineering Center, TACOM-ARDEC,
Picatinny Arsenal, under cooperative agreement number DAAE30-97-2-0100.
The U.S. Government is authorized to reproduce and distribute reprints
for Governmental purposes notwithstanding any copyright notation
thereon."
3. Disclaimer - The Recipient is responsible for assuring that every publication
of material based on or developed under this project contains the following
disclaimer:
"The views and conclusions contained herein are those of the authors and
should not be interpreted as necessarily representing the official
policies or endorsements, either expressed or implied, of U.S. Army
Tank-Automotive and Armaments Command Armament Research, Development and
Engineering Center, TACOM-ARDEC, Picatinny Arsenal, or the U.S.
Government."
4. Photographs - The Recipient may photograph the progress or results of this
project, including phenomena discovered, special equipment used, or special
laboratory techniques designed. Copies of such photographs, suitable for
reproduction, should be made available to the U.S. Army TankAutomotive and
Armaments Command Armament Research, Development and Engineering Center,
TACOM-ARDEC, Picatinny Arsenal as part of the project/scientific documentation.
These photographs may be used later for other Government publications.
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5. Marking and Distribution Requirements - Mark all data delivered in accordance
with MIL-STD-1806 with the following statement: "Distribution Statement A.
Approved for public release; distribution is unlimited."
PART VIII - MISCELLANEOUS PERFORMANCE ISSUES
ARTICLE 19 - USING TECHNICAL INFORMATION RESOURCES
To the extent practical, the Recipient will use the technical information
resources of the Defense Technical Information Center (DTIC) and other
Government or private facilities to investigate recent and on-going research and
avoid needless duplication of scientific and engineering effort.
ARTICLE 20 - DISPUTES
1. Parties shall communicate with one another in good faith and in a timely and
cooperative manner when raising issues under this Article.
2. Any disagreement, claim or dispute between the Funding Agency and the
Recipient concerning questions of fact or law arising from or in connection with
this Agreement, and, whether or not involving an alleged breach of this
Agreement, may be raised only under this Article.
3. Whenever disputes, disagreements, misunderstandings or claims arise, the
Parties shall attempt to resolve the issues(s) involved by discussion and mutual
agreement as soon as is practicable. If agreement can not be reached, the Grants
Officer will issue a final decision in writing to the Recipient. The final
decision will permit the Recipient to appeal the decision within thirty (30)
days after receipt of such notifications. Appeals will be resolved by the
Associate for Contracting, Acquisition Center, TACOM-ARDEC. A decision will be
final and not subject to further administrative appeal.
ARTICLE 21 - ACCESS TO INFORMATION
The Recipient agrees to permit any person or persons designated by the
Government access during normal business hours to such books, records, accounts
and other sources of information and facilities as is reasonably necessary to
ascertain compliance with the provisions of the Agreement.
ARTICLE 22 - SITE VISIT
The Government, through authorized representatives, has the right during normal
business hours, to make site visits to review project accomplishments and to
provide such technical assistance, as required. If any site visit is made by the
Government on premises of the Recipient, the Recipient shall provide all
reasonable facilities and assistance for the safety and convenience of the
Government representatives in the performance of their duties. All site visits
and evaluations shall be performed in such a manner as will not unduly interfere
with or delay the work.
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ARTICLE 23 - LIMITATION OF LIABILITY
1. The Recipient agrees to indemnity and hold harmless and defend the
Government, its employees and agents, against liability or loss for any claim,
including the cost of litigation, made by an employee or agent of the Recipient,
or persons claiming through them, for death, injury, loss or damage to person or
property arising in connection with the Agreement, except to the extent that
such death, injury, loss or damage arises solely from the negligence or willful
misconduct of government employees.
2. The government shall not be liable to the Recipient whether directly or by
way of contribution or indemnity, for any claim made by any person or other
entity for personal injury or death, or for property damage or loss, arising in
any way from this Agreement, including, but not limited to, the later use, sale
or other disposition of research and technical developments, whether by
resulting products or otherwise, whether made or developed under this Agreement,
or whether contributed by either party, pursuant to this Agreement, except as
provided under the Federal Tort Claims Act (28 U.S.C. 2671 et seq.) or other
Federal law where sovereign immunity has been waived. The Recipient shall
indemnify the Government against all such claims or proceedings and shall hold
the Government harmless for any resulting liabilities and lawsuits provided the
Recipient is reasonably notified of such clams and proceedings.
PART IX - SUSPENSION AND TERMINATION
ARTICLE 24 - SUSPENSION AND TERMINATION
1. This Agreement may be terminated, in whole or in part, by the party listed
upon written notification to the other party:
a. The Grants Officer, as set forth in Articles 6 and 7, should
insufficient funds be available to accomplish the goals or intent of the
Agreement, or other convenience to the Government.
b. By either party based on a reasonable determination that the project
will not produce beneficial results commensurate with the expenditure of
resources.
c. The Grants Officer, with the consent of the Recipient, in which case
the parties shall agree upon the termination conditions, including the effective
date and, in the case of partial termination, the portion to be terminated.
d. The Recipient, upon sending to the Grants Officer written
notification, setting forth the reasons for such termination, the effective date
and, in the case of partial termination, the portion to be terminated. The
Recipient must provide such notice at least thirty (30) calendar days prior to
the effective date of the termination. If the Grants Officer determines, in the
case of partial termination, that the reduced or modified portion of the
Agreement will not accomplish
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the purposes for which the award was made, the Grants Officer may terminate the
award in its entirety.
2. If a Recipient materially fails to comply with the provisions of this
Agreement, the Grants Officer may take one or more of the following actions as
appropriate.
a. Temporarily withhold payments pending correction of the deficiency by
the Recipient,
b. Disallow all or part of the cost of the activity or action not in
compliance,
c. Wholly or partly suspend or terminate the current Agreement,
d. Withhold further awards for the project or program,
e. Take any other legally available remedies.
3. The Government and the Recipient will negotiate in good faith and equitable
reimbursement for work performed toward accomplishment of program goals. The
Government will allow full credit to the Recipient for the Government share of
the obligations properly incurred by the Recipient prior to termination. Costs
incurred by the Recipient during a suspension or after termination of an award
are not allowable unless the Grants Officer expressly authorizes them in either
the notices of suspension, termination or subsequently. Other Recipient costs
incurred during a suspension or after termination which are necessary and not
reasonable avoidable are allowable if:
a. The costs result from obligations which were properly incurred by
the recipient before the effective date of the suspension or termination, are
not in anticipation of it, and in the case of a termination, are noncancellable;
and
b. The costs would be allowable if the award were not suspended or the
award expired normally at the end of the funding period in which the termination
takes effect.
4. If this Agreement is terminated after the Recipient has received Government
funding, the closeout procedures in OMB Circular A-110, apply.
5. Notwithstanding the above, for security or safety reasons or in the case of a
serious breach that could lead to irreparable damage, the Grants Officer may
order immediate suspension of work, in whole or in part.
PART X - PROPERTY
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<PAGE> 20
ARTICLE 25 - TITLE TO NONEXPENDABLE PERSONAL PROPERTY
Property standards under this Agreement are dependent upon the business
structure of the Recipient. Recipients and Subrecipients who qualify as
Institutions of Higher Education or Other Non-Profit Organizations operate under
the standards in OMB Circular A-110. Those same standards apply to commercial
organizations with the following exceptions.
1. The Recipient must obtain the prior approval of the Grants Officer
before making any such purchases of real property or nonexpendable tangible
personal property with federal funds under this award.
2. Title to all real property and equipment purchased by the Recipient
with federal funds under this Agreement shall vest in the Government, unless
statute authorizes otherwise.
3. The Recipient must obtain the prior approval of the Grants Officer
before they can continue to use equipment after funding ceases for the project
under which the equipment was purchased. Use of equipment on other federally
funded projects requires a formal change of accountability for the equipment to
a currently funded, federal award.
PART XI - CERTIFICATIONS
ARTICLE 26 - CERTIFICATIONS
By signing this Agreement or accepting funds under the Agreement, the Recipient
provides the:
1. Certification at Appendix C, 32 CFR Part 25 regarding Drug-Free Workplace
Requirements. The place of performance as specified in the technical proposal
shall constitute the Recipient's designation of the site for the performance of
work done in connection with this Agreement.
2. Certification at Appendix A, 32 CFR Part 25 regarding Debarment, Suspension
and Other Responsibility Matters - Primary Covered Transactions.
3. Certification at Appendix A, 32 CFR Part 28 regarding Lobbying, if the amount
of the cooperative agreement exceeds $100,000.
4. Assurance at 32 CFR Part 56.9(b) regarding Nondiscrimination on the Basis of
Handicap in Programs and Activities Assisted or Conducted by the Department of
Defense
5. Assurance at 32 CFR Part 195.6 regarding Nondiscrimination in Federally
Assisted Programs of the Department of Defense - Effectuation of Title IV of the
Civil Rights Act of 1964.
6. If the cooperative agreement exceeds $ 1 00,000, the certification at 42
U.S.C. 1857, as amended, and 33 U.S.C. 125 1, as amended regarding the Clean Air
and Water Act of 1970 and the Federal Water Pollution Control Act, respectively.
Also, the Recipient shall be in
20
<PAGE> 21
compliance with Executive Order No. 11738 and the related regulations of the
Environmental Protection Agency as stated in 40 CFR, Part 15.
PART XII - OTHER ARTICLES
ARTICLE 27 - MILITARY RECRUITING ON CAMPUS
If the Recipient is an Institute of Higher Education, this Article is
applicable.
As a condition for receipt of funds available to the Department of Defense (DoD)
under this award, the Recipient agrees that it is not an institution that has a
policy of denying, and that it is not an institution that effectively prevents,
the Secretary of Defense from obtaining for military purposes: (1) entry to
campuses or access to students on campuses or (2) access to directory
information pertaining to students. If the Recipient is determined, using
procedures established by the Secretary of Defense to implement section 558 of
Public Law 103-337 (1994), to be such an institution during the period of
performance of this Agreement, and therefore to be in breach of this clause, the
Government will cease all payments of DoD funds under this Agreement and all
other DoD grants and cooperative agreements, and it may suspend or terminate
such grants and cooperative agreements unilaterally for material failure to
comply with the terms and conditions of award.
21
<PAGE> 22
ATTACHMENT 1
STATEMENT OF WORK
1. Description of Scope of Work (SOW)
There are six major tasks: Design, fabrication, and testing of the spotless arc
plasma gun; Coating process development; Evaluation of coatings; Design
fabrication, and testing of the demonstration process system; Demonstration
coating of partner-supplied industrial parts; and Economic analysis and Final
Project Report.
2. Technical Task Description
The intent of this project is to maintain chrome plating as an accepted
commercial technique through development of an environmentally friendly spotless
cathodic arc chromium coating system which eliminates the generation of
hexavalent chrome associated with the electroplating process.
2.1 Task I - Design, Fabrication, and Testing of the Spotless Arc Plasma Gun
This task will assemble equipment needed for prototype demonstration of the
coating process. The proposed design is to incorporate three innovations to
existing cathodic arc technology, thereby overcoming particulate generation
problems associated with existing technology and also improve electrical
efficiency by at least a two-fold factor. The innovations which are to be
incorporated into the design of the equipment include a hot sublimating cathode,
independently controlled electron emission for stabilization and shaped magnetic
field guidance.
2.2 Task 2 - Coating Process Development
This task will focus on investigating key parameters which affect coating
deposition. Key parameters to be determined include:
1. Delivered ion flux versus neutral flux as a function of gun parameters.
2. Coating growth rate.
3. Coating stress versus ion flux and bias voltage.
Computer data acquisition will be accomplished with signal channels for arc
voltage, arc current, current probe bias, gas flow, vacuum, and cathode
temperature.
Ancillary diagnostic instruments will be employed to measure current density and
to give thickness readings and instantaneous deposition rate.
22
<PAGE> 23
Chrome test coatings will be produced for a wide range of operating parameters.
The introduction of nitrogen gas will also be evaluated to demonstrate that a
hard chrome nitride coating can also be produced employing this technology.
2.3 Task 3 - Evaluation of Coatings
This task will evaluate the chromium test coatings produced during Task 2.
Characterization will consist of the following analyses:
1. Microparticle and morphology by optical microscopy and scanning electron
microscopy.
2. Coating thickness and growth rate versus location using silicon witness
plates and thin masks. Thickness measured with Tencor profilometer. Combining
thickness and weight gain determines density and thus porosity.
3. Coating composition by Auger electron spectroscopy. This identifies
contamination from background gases and wall sputtering.
4. Coating stress using flexible thin quartz membrane technique.
5. Coating adhesion using scratch test technique compared to electroplated
coating. An ISC-300 diamond scratch tester will be used.
6. Weighing of Faraday cup to determine neutral atom content when total
collected current is compared to quartz crystal data.
7. Hardness of coating using LECO microhardness tester. This is indirectly
related to porosity. Hardness should at least equal electroplate.
8. Surface friction and wear profile against an A1203 pin compared to
electroplated coating. This is intended to highlight surface differences if they
exist. An ISC-200 pin-on-disk tribometer will be used.
9. Coating RMS roughness compared to plated coating using Tencor
profilometer.
2.4 Task 4 - Design, Fabrication and Testing of the Demonstration Process System
The development of the demonstration process system will permit coating of
larger workpieces than the prototype system of Task 1 could handle. The chamber
will be 3 feet in diameter and 3 feet deep. The system will incorporate a fixed
plasma gun position with a workpiece table that will have rotational and
translation movement capabilities. The vacuum chamber will contain a cryopanel
and cryopump to remove residual water vapor from the system. Diagnostic
equipment and test coupons will be able to be placed in the chamber.
23
<PAGE> 24
2.5 Task 5 - Demonstration Coating of Partner-Supplied Industrial Parts
Corpus Christi Army Depot (CCAD) in Texas, which is a large Army rework
facility, has a special interest in helicopter parts and uses large quantities
of chrome plating yearly. CCAD will provide sample components for evaluation and
comparison to chrome electroplating. CCAD is planning on evaluating the coating
using (1) chrome hardness readings, (2) adhesion test, (3) surface finish, and
(4) ability to grind after application of the spotless arc coating. Parts that
are chrome electroplated with CCAD's standard process will be compared as
reference standards. Piston and valve stems will be emphasized.
Eaton Corporation, an industrial electroplater, will supply diesel engine
workpieces, mainly valve components, for testing. Eaton will also perform
testing and comparisons with their reference standards.
2.6 Task 6 - Economic Analysis and Final Report
ISC will produce an economic analysis of the costs and commercial feasibility
based on the measured throughput of the system. Data will be scaled, based on
commercial system geometries. The analysis will consider the costs of
installation, labor, materials, and maintenance. Also included will be
amortization of capital costs, projected future cost reductions and process
improvements, and any possible environmental costs. These data will be compared
to estimates of present day electrolytic chrome plating costs to determine the
competitiveness of the process. A mini-business plan will be produced that
describes how the developed process will be scaled up for commercialization. The
plan will consider the targeted market, make use of the cost information from
the economic analysis, and provide plans for licensing, construction, or other
means of increasing capacity to service the intended market.
The economic analysis will include the following factors:
1. Cost of installation
2. Throughput
3. Labor cost analysis
4. Environmental costs
5. Effect of scaleup
6. Continuing materials and maintenance costs
7. Projected process improvements and cost reductions
8. Comparison to conventional chrome plating
9. Amortization of equipment
The Final Report will provide a description of all work performed, test data,
analyses of these results, and the resulting conclusions, correlations and
comparisons. In addition, the economic
24
<PAGE> 25
and business analyses will be included. These will include conclusions on
commercial feasibility, projected costs, and the plan to commercialize the
coating service.
25
<PAGE> 26
ATTACHMENT 2
SCHEDULE OF PAYMENTS AND PAYABLE MILESTONES
<TABLE>
<CAPTION>
DATE MILESTONE GOV'T AMOUNT MATCH AMOUNT
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
6/98 Design, fabrication, and testing of the [Redacted table]
spotless arc plasma gun
1/99 Coating Process Development [Redacted table]
1/99 Design, fabrication, and testing of the [Redacted table]
process demonstration system
3/99 Evaluation of coatings [Redacted table]
5/99 Demonstration coating of [Redacted table]
partner-supplied industrial parts
9/99 Economic Analysis and Final Report [Redacted table]
</TABLE>
26
<PAGE> 27
ATTACHMENT 3
DETAILED SCHEDULE OF PAYMENTS AND PAYABLE MILESTONES
<TABLE>
<CAPTION>
DATE MILESTONE GOV'T AMOUNT MATCH AMOUNT
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
12/22/97 First Progress/Status Report [Redacted text] [Redacted text]
03/31/98 Second Progress/Status Report [Redacted text] [Redacted text]
6/30/98 Design, fabrication, and testing of the [Redacted text] [Redacted text]
spotless arc plasma gun
6/30/98 Third Progress/Status Report [Redacted text] [Redacted text]
9/30/98 Fourth Progress/Status Report [Redacted text] [Redacted text]
12/18/98 Fifth Progress/Status Report [Redacted text] [Redacted text]
1/30/99 Coating Process Development [Redacted text] [Redacted text]
1/30/99 Design, fabrication, and testing of the [Redacted text] [Redacted text]
process demonstration system
3/31/99 Evaluation of coatings [Redacted text] [Redacted text]
3/31/99 Sixth Progress/Status Report [Redacted text] [Redacted text]
5/31/99 Demonstration coating of [Redacted text] [Redacted text]
partner-supplied industrial parts
6/30/99 Seventh Progress/Status Report [Redacted text] [Redacted text]
9/30/99 Economic Analysis and Final Report [Redacted text] [Redacted text]
</TABLE>
27
<PAGE> 1
Exhibit 10.26
VENDOR AGREEMENT MEMORANDUM
This Vendor Agreement Memorandum (the "Agreement") is executed and delivered
as of the 2nd day of February, 1998 by and between IMPLANT SCIENCES CORPORATION,
("IMPLANT"), with offices in Wakefield, Massachusetts and OSTEONICS
("OSTEONICS"), a subsidiary of Stryker Corporation, with offices in Allendale,
New Jersey and forms a part of those certain Purchase Order No.'s 121784 (Knees)
dated February 2nd, 1998 and 126825 (Caps) dated February 2nd, 1998 issued by
Osteonics to Implant.
1. TERM: February 1st, 1998 to December 31st, 1998 (the "Term").
2. KNEES Monthly Minimum Osteonics agrees to send and Implant agrees
to process no less than [Redacted Text]
Standard Knee Batches per month.
Prices Based upon the total volume of Standard Knee
Batches received by Implant during each
month the following Price Levels will be
applied to all batches received during that
month:
<TABLE>
<CAPTION>
MONTHLY VOLUME BATCH PRICE
-------------- -----------
<S> <C> <C>
LEVEL 1-Less than [Redacted Text] batches per mo. [Redacted Text]
LEVEL [Redacted Text] to [Redacted Text] batches per mo. [Redacted Text]
LEVEL [Redacted Text] batches and higher [Redacted Text]
</TABLE>
3. CAPS: Monthly Minimum: Osteonics agrees to send and Implant
agrees to process no less than [Redacted Text]
Standard Cap Batches per month.
Prices Based upon the total volume of Standard Cap
Batches received by Implant during each month
the following Price Levels will be applied
to all batches received during that month;
<TABLE>
<CAPTION>
MONTHLY VOLUME BATCH PRICE
-------------- -----------
<S> <C> <C>
LEVEL 1-Less than [Redacted Text] batches per mo. [Redacted Text] per batch
LEVEL [Redacted Text] to [Redacted Text] batches per mo. [Redacted Text] per batch
LEVEL [Redacted Text] batches and higher [Redacted Text] per batch
</TABLE>
4. DEFINITION: All references to batches herein are to a Standard Batch which
is 100% full.
Knee batches only exist as [Redacted text]%, [Redacted text]%,
and [Redacted text]%. For purposes of monthly volume
determination, batches will be 1.0, 0.8 or 0.6 for [Redacted
text]%, [Redacted text]%, and [Redacted text]% respectively.
All Prices quoted in 2. above are based on 100% Batches.
[Redacted text]% Batches will be priced at [Redacted text]% of
the Standard Batch price; [Redacted text]% batches at
[Redacted text]% of the Standard Price.
All shipping and handling charges are to be paid by Osteonics.
5. BILL REGULAR BILLING: Osteonics will continue to be billed upon
shipment from Implant with invoices based on Level 2 pricing
for both Knees and Caps.
MONTHLY ADJUSTMENT: Should the volume of batches received and
shipped by Implant during each month exceed or fall below the
above cited Level 2 volume requirements then the final
1
<PAGE> 2
invoice for each month will include an adjusting item that (i)
credits Osteonics if shipments from Osteonics received by
Implant during said month exceed Level 2 volume requirements
for Knees and/or Caps or (ii) a charge to Osteonics if
shipments from Osteonics fall below Level 2 volume
requirements for Knees and/or Caps.
The amount of credit or charge will equal the difference
between the amount invoiced to date to Osteonics for that
month and the amount that would have been invoiced by applying
the appropriate Price Level for that month. Attached as
Exhibit A is the form of the monthly reconciliation
calculation.
6. MINIMUMS No later than January 15th, 1999 Osteonics and implant will
each Calculate the average monthly batches processed by
Implant over the Term for each of Knees and Caps (where the
average in each case equals the number of Knees or Cap batches
processed by Implant over the Term divided by 11 months) and
(i) In THE CASE OF KNEES; IF the average monthly batches
sent to Implant is:
(a) LESS than [Redacted text] batches per month
then Osteonics will pay Implant an amount equal
to the difference between the actual number
of batches sent over the Term and
[Redacted text] times $[Redacted text],
(ii) In THE CASE OF CAPS; If the average monthly batches sent
to Implant is:
(b) LESS than [Redacted text] batches per month
then Osteonics will pay Implant an amount equal
to the difference between the actual number
of batches sent over the Term and [Redacted
text] times $[Redacted text].
All payments will be settled by check or other acceptable
funds within 30 days of the end of the Term unless Implant
agrees to apply the credit to future batches by increasing the
price per batch processed upon extension or renewal of this
agreement.
7. RENEWALS: No less than sixty (60) days prior to the end of the Term,
both parties agree to negotiate in good faith on an extension
or renewal of this Agreement on terms to be negotiated.
8. CONFIDENTIALITY:
Osteonics agrees to hold in full confidence both the existence
and terms of this Agreement.
9. OTHER: Both parties understand and expect but do not guarantee that
the volume of business expressed in batches or total revenues
will increase each year as compared to the prior year.
AGREED AND ACCEPTED:
FOR: OSTEONICS: FEMORAL CELL FOR: IMPLANT SCIENCES CORPORATION
By: /s/ Stephen Powell Date: 2/5/98 By: /s/ Anthony S. Armini Date: 2/2/98
---------------------- ------- ---------------------- ------------
Name: Stephen Powell Name: Anthony Armini
Femoral Cell Leader President
FOR: OSTEONICS CAP CELL
2
<PAGE> 3
By: /s/ John Witkowski Date: 2/5/98
-------------------------- ---------
Name: John Witkowski
Cap Cell Leader
3
<PAGE> 4
EXHIBIT A
OSTEONICS CORPORATION
MONTHLY PRODUCTION
RECONCILIATION
[Redacted Text]
4
<PAGE> 5
IMPLANT SCIENCES CORPORATION
TERMS AND CONDITIONS
As used herein, the term "Buyer" refers to "Osteonics, Inc.," a division of
Stryker Corporation. The term "Seller" refers to the named seller
(Vendor/Supplier) providing goods or services pursuant to the Purchase Order
(hereinafter "Order").
SELLER'S ACCEPTANCE
The Seller's acknowledgment of this Order or commencement of work pursuant to
this Order, whichever occurs first, shall be deemed an acceptance of this Order.
Such acceptance is subject to the express terms and conditions herein. Any terms
and conditions proposed by Seller in its acceptance that are different or
additional to those herein are hereby objected to and rejected by Buyer. Any
terms or conditions proposed by Seller different or additional to those set
forth in this Order relating to the description, quantity, price or delivery
schedule for the goods or services shall void this Order. Any terms or
conditions proposed by Seller different or additional to those set forth in the
Order, other than those enumerated above, shall constitute material alteration,
and this Order will be deemed accepted by Seller without such different or
additional terms of conditions.
CHANGES
No changes shall be binding upon Buyer unless in writing and signed by Buyer's
authorized agent. Buyer reserves the right at any time to make changes in
drawings, specifications, place and time of delivery. If such changes result in
a decrease or increase in the Seller's cost or in the time for performance, any
adjustment will be agreed to by both parties in writing.
PROPRIETARY INFORMATION -- CONFIDENTIALITY
Seller shall keep in confidence, and not disclose to any other person or entity,
any drawings, specifications, data, and other information supplied by Buyer in
connection with this Order. Seller will not advertise or publish the fact that
Buyer has contracted to purchase goods or services from Seller without express
written consent from Buyer.
DELIVERY
TIME IS OF THE ESSENCE. Delays in delivery shall be reported immediately to
Buyer. Buyer is not obligated to accept early, late, partial or excess
deliveries. Buyer reserves the right, without liability, in addition to its
other rights and remedies, to terminate this Order in part or whole with respect
to goods not yet shipped or services not yet rendered by the delivery date and
to purchase substitute goods or services elsewhere and charge Seller for any
loss incurred.
<PAGE> 6
PRICE WARRANTY
This Order may not be filled at a higher price than that shown on this Order --
DO NOT SHIP. Seller must contact Buyer to obtain written authorization for any
increase in price.
If no price is stated in this Order, the goods or services will be billed at the
last price paid by the Buyer or the prevailing market price, whichever is lower.
Seller warrants that the prices for the goods or services under this Order are
the lowest available prices extended to any other customer for substantially
similar items in equal or less quantities.
SELLER'S WARRANTY
Seller expressly warrants that all goods and services furnished under this Order
shall:
a. Conform to all drawings, specifications, samples, or other
descriptions upon which this Order is based;
b. Be mercandiazable and appropriate for the purpose(s) that they
are normally used;
c. Be fit for the purpose(s) intended if Seller should reasonably
know what such purpose(s) are;
d. Be free of defects and of good material and workmanship; and
e. Be free of any third party claims.
This warranty shall survive delivery and shall not be deemed waived either by
inspection, test, acceptance, use nor payment and shall run in Buyer and its
customers. Seller agrees to replace or correct any non-conforming goods or
services promptly without cost to Buyer, when so notified by Buyer or its
customer. If Seller fails to correct or replace the non-conforming goods or
services promptly, Buyer after reasonable notice to Seller, may correct or
replace the non-conforming goods or services and charge Seller for all cost
incurred. Seller may not negate, exclude, limit or otherwise modify this
warranty.
BUYER'S PROPERTY
All raw material, tools, dies, jigs, fixtures, etc. drawings, patterns, and
specifications furnished or paid for by Buyer in connection with this Order,
shall be and remain the property of Buyer and shall be held by the Seller unless
directed otherwise. The Seller agrees to maintain and insure Buyer's property
adequately and to indemnify Buyer for any damage or loss sustained to such
property while in Seller's possession or control.
All raw material supplied to Seller by Buyer will be segregated by Seller from
all other materials. Seller is accountable to Buyer for such raw materials used
and all scrap must be returned to Buyer.
INSPECTION/TESTING
<PAGE> 7
Buyer's payment for goods or services tendered by Seller against this Order
shall not constitute acceptance thereof. Buyer shall have the right to inspect
and test all goods during and after the period of manufacture, at any place the
goods may be located. If the goods are judged to be defective or non-conforming
by Buyer, they may be returned to Seller for refund or replacement at Seller's
expense. In addition to all other rights, Buyer may have hereunder, Buyer may
charge Seller all expenses incurred in unpacking, inspection, repacking and
reshipping of such goods. In the event the defect(s) or non-conformity is not
apparent on initial inspection but results in later product deterioration, Buyer
reserves the right to require Seller to replace the goods, as well as to pay
Buyer all damages, including consequential damages, it has incurred.
Notwithstanding anything in these Terms and Conditions to the contrary. Seller
shall be obligated to test and inspect the goos to insure that quality standards
are met and that Seller's warranty to Buyer is fulfilled.
TERMINATION BY BUYER
Buyer may give written notice to Seller to terminate this Order, in
whole or in part, at any time, either for Buyer's convenience or because of the
failure of Seller to fulfill its contractual obligations. The date of mailing of
any such notice in a United States Post Office box, with the postage thereon
prepaid, shall be considered as the date of termination. At this time, Seller
will immediately cease all further work and make every reasonable effort to
secure cancellation of all existing orders or contracts for material connected
with the performance of this Order. If the termination is for Buyer's
inconvenience, an equitable (pro rata) adjustment in compensation will be made
where actual costs have been incurred, but no amount shall be allowed for
anticipated profits or unperformed services. If the termination is due to the
failure of Seller to fulfill its contractual obligations, Buyer will not be
liable to Seller for any amount, but Seller will be liable to Buyer for any and
all damages incurred due to the breach which gave rise to the termination.
INDEPENDENT CONTRACTOR
The parties expressly understand and agree that Seller is acting as an
independent contractor unrelated to Buyer. Nothing in this Order is intended to
create a relationship express or implied of employer-employee or principal-agent
between Buyer and Seller. Seller shall not incur any expenses or obligations nor
make any representations or warranties to third parties binding upon or in the
name of Buyer. Seller shall indemnify, hold harmless, and defend Buyer from any
and all claims, damages, liabilities, Liens, and expenses which may be incurred
relating to the performance of the work covered herein. Seller shall maintain
all necessary insurance coverage, including such liability and workman's
compensation insurance. Seller agrees to submit to Buyer the appropriate
certificates of insurance upon Buyer's request.
INDEMNIFICATION
Seller assumes the risk of all injuries, including death resulting therefrom, to
all persons, including Seller, its subcontractors, agents, employees, servants
or any member of the public, and damage in and destruction of property by
whomsoever owned, including loss of use thereof and any direct, indirect or
consequential damages, resulting directly or indirectly, in whole or in part
from the prosecution or omission of any work or obligations undertaken or
required by this Order unless
<PAGE> 8
caused solely by the negligent act or omission of Buyer, its employees,
servants, agents representatives, and to indemnify and save harmless Buyer and
its agents, servants, and employees, from and against any and all liability
arising therefrom, including all expenses legal or otherwise incurred by them in
the investigation, defense, and settlement of any claim or suit.
PATENTS/PATENT INDEMNIFICATIONS
Unless this Order is for goods manufactured to specifications furnished by
Buyer, Seller agrees that upon receiving notice from Buyer or its customers, to
defend promptly Buyer and its customers from any claim or infringement of any
patent by reason of the manufacture, use, or sale of goods or services furnished
under this Order. Seller further agrees to pay any and all expenses, losses,
royalties, profits, and damages, including court costs and reasonable attorney's
fees associated with such procedures, as well as to satisfy in their entirety
any settlements or judgments entered therein. Buyer may, if it so desires, be
represented by and actively participate through its own counsel in any suit, the
costs of such representation to be paid by Seller.
LIMITATION OF BUYER'S LIABILITY
Buyer's liability to Seller shall not exceed the price agreed to by the parties
for the goods or services that are the subject of this Order. Any action
relating to or arising from any alleged breach by Buyers as to the subject goods
or services must be commenced within one year after the cause of action has
accrued or be forever barred.
WAIVER/ESTOPPEL
Buyer's failure or delay to insist on Seller's performance of any term or
condition herein and/or Buyer's failure or delay to exercise any right or
privilege granted to it hereunder shall not estop nor constitute a waiver by
Buyer of its rights and privileges to exercise the same or to require Seller's
performance offered excuse Seller's performance of any and all other terms and
conditions herein.
ASSIGNMENTS/SUBCONTRACTORS
This Order in whole or in part may not be assigned or subcontracted by Seller
without prior written approval of the Buyer.
EQUAL EMPLOYMENT OPPORTUNITY
All Equal Employment Opportunity requirements established by law and regulations
are incorporated herein by specified reference and Seller agrees to abide by
these requirements, where applicable.
APPLICABLE LAW AND FORUM
<PAGE> 9
Buyer and Seller agree that this Order shall be governed by, interpreted and
enforced in accordance with the laws of the State of New Jersey. Buyer and
Seller agree that the Superior Court of the State of New Jersey shall have
exclusive jurisdiction to hear and determine any disputes pertaining directly or
indirectly to this Order or to any matter arising hereunder or related hereto
and expressly waive any and all right to institute or maintain any claim or
action in any other Court or jurisdiction.
ENTIRE AGREEMENT
This Order and any documents referred to herein constitute the entire agreement
between Buyer and Seller.
<PAGE> 1
Exhibit 10.27
PURCHASE ORDER
THE MICRO SPRING COMPANY, INC. Bill To: The Microspring Co., Inc.No.
701382
77 Accord Park Drive, Building A 77 Accord Park Drive Order
Date:
10/24/96
Norwell, Massachusetts 02061-1605 Norwell, MA. 02061 Page
Number:
1
Tel. (617) 871-7882 Fax (617) 871-2980
TO: IMPLANT SCIENCES CORPORATION Ship to:The Microspring Co., Inc.
The Purchase Order Number must appear on all invoices, B/L,
bundles, cases, packing lists and correspondence.
Buyer: Jim Day
ATTN: RICHARD SAHAGIAN 77 Accord Park Drive
- --------------------------------------------------------------------------------
Vendor: IMP01 Terms: SEE BELOW* Ship via:BEST WAY PPD: XFOB:
WAKEFIELD,
MA Taxable:
NINSP:
N
Buyer: 002 Vendor Contact: Ph. 617-246-0700 Requisitioner: R&D
Engineering Ship
Instructio
ns: SEE
ATTAC
HED
- --------------------------------------------------------------------------------
Quantity Unit Part Number Unit Price
Extension
* TERMS AND CONDITIONS AS PER THE ATTACHED
DOCUMENT IN ADDITION TO TERMS PRINTED ON THE
REVERSE OF THIS PURCHASE ORDER.
PHASE II - PILOT PRODUCTION FOR THE MICROSPRING
COMPANY (PER 9/4/96 QUOTE TO J. BARRINGTON)
LABOR
Design:
120 HR Designer 12,000.00
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Construction:
250 HR Machinist: [Redacted text]
140 HR Assembly Technician [Redacted text]
Test/Optimization:
120 HR Production Technician [Redacted text]
80 HR Engineer [Redacted text]
Pilot Production:
80 HR Production Technician [Redacted text]
Conceptual Design of Production Tool:
40 HR Designer [Redacted text]
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SUBTOTAL: [Redacted text]
EQUIPMENT
Fixed costs for materials and purchased components:
1 EA Additional Sputter Head [Redacted text]
4 EA [Redacted text] Targets [Redacted text]
2 EA Ar gas - 4-9s Purity [Redacted text]
1 LT Metal stock [Redacted text]
1 LT Welding Servi [Redacted text]
1 LT Valves/Fittings [Redacted text]
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SUBTOTAL: [Redacted text]
Phase II-Pilot Production Grand Total [Redacted text]
LESS MS Check 15535 for one-third of total-[Redacted text]
TOTAL INVOICE AMOUNT $[Redacted text]
==============
FINAL COMPLETION DATE: [Redacted text]
No changes or substitutions can be made to components or in processing without
prior notification and approval.
/s/ illegible
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signature
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10/25/96
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THE MICROSPRING
COMPANY, INC.
TERMS and CONDITIONS
Contractual Issues
General:
1. MicroSpring (MS) [Redacted text] for the intermittent Unbalanced
Magnetron Sputtering [Redacted text] or any other process developed for MS in
whole or in part with MS funds. Implant Sciences (IS) will neither produce
equipment, nor provide services to any other company or corporation for such
process or processes [Redacted text].
2. The production equipment will reside at IS for a reasonable period of
time after construction. This time period will be for purposes of
equipment process refinement and to provide "turn-key" operation once
the equipment is installed at MS. During this time period IS may
provide coating services to MS. After this time period IS will have the
equipment moved to the MS facility, reinstalled and proved fully
functional. The costs of moving and installation of the equipment at
the MS facility in Norwell, MA will be underwritten by MS. The cost of
demonstrating the equipment is fully functional will be underwritten by
IS.
3. The cost of production services for MS while the equipment is being
refined at IS will be reasonable and on a fee-for-service basis to be
agreed upon in advance between the parties.
4. IS will continue to be available to produce and service production
equipment for MS as required by MS. Should IS not be available for
whatever reason to produce and/or service the production equipment, all
technology, documentation, and equipment produced to date will revert
to MS. MS will have the right to obtain services elsewhere and/or
reproduce the production equipment.
5. MS will neither pay royalty fees to IS for this equipment, nor for
items produced by this equipment.
6. MS will pay IS a one-time transfer and training fee for the production
equipment to be reasonable and agreed upon in advance between the
parties.
7. If, in the course of development of this equipment for MS, IS, their
principals, employees or consultants make an invention, they will
promptly disclose same to MS. MS and IS will jointly sponsor and
jointly own any patents evolving from such invention, except, if
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one party wishes not to sponsor a patent application, they shall
promptly notify, disclose and assign all rights to the other party. The
party receiving such rights may sponsor the patent application at its'
own expense, and shall retain sole ownership and all rights to the
invention.
8. MS will provide all [Redacted text] equipment.
9. IS will provide all [Redacted text] coating process equipment.
10. All disputes regarding this contract will be settled by independent
arbitration.
Contractual Issues
TECHNICAL
1. The time required for the production equipment to simultaneously coat a
minimum of [Redacted text] and a maximum of [Redacted text] with
[Redacted text] of up to [Redacted text] microns thickness of [Redacted
text] onto [Redacted text] will be approximately [Redacted text]
minutes.
2. IS will endeavor to keep the temperature to which the [Redacted text]
stock is exposed as low as possible. In no case will the
[Redacted text] stock be exposed to a temperature in excess of
[Redacted text].
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EXHIBIT 10.28
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (the "Agreement") is entered into as of
November 17, 1995, by and between Implant Sciences Corporation, a Massachusetts
corporation with its principal place of business at 107 Audubon Road, #5,
Wakefield, Massachusetts 01880-1246 ("Sellers"), and Falex Corporation, an
Illinois corporation with its principal place of business at 2055 Comprehensive
Drive, Aurora, Illinois 60505 ("Buyer").
RECITALS
WHEREAS, Seller owns certain assets more particularly described in this
Agreement, including both tangible and intangible property, which property is
used by Seller in the manufacturing and sale of certain wear and friction
testing equipment (the "Line of Business"); and
WHEREAS, Seller desires to sell those assets related to the Line of
Business which are listed below, and Buyer desires to purchase said assets, for
the consideration and on the terms and conditions described herein.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and promises contained herein, the parties agree as follows:
ARTICLE I
PURCHASE AND SALE OF ASSETS
1.1 Transfer of Assets. Subject to the terms and conditions of this
Agreement, Seller hereby sells, transfers, assigns and delivers to Buyer at
Seller's place of business, and Buyer purchases from Seller, all of Seller's
right, title and interest in and to all of the following tangible and intangible
assets of Seller which are used in or are related to the Line of Business (the
"Assets");
(a) ISC-100 Data Acquisition Software;
(b) subject to inspection and acceptance by Buyer, Seller's
inventory of parts used in manufacturing Seller's wear and
friction testing equipment (the "Equipment"), as such
Equipment is listed in Schedule A hereto;
(c) the printed circuit board designs, wiring harnesses, silk
screens and other specialized tooling used in manufacturing
the Equipment, as listed in Schedule B hereto;
(d) the engineering blueprints and wiring diagrams used in
manufacturing the equipment;
(e) all sales and promotional literature and artwork relating to
the Equipment;
(f) any user or maintenance materials or instruction books;
(g) photocopies of Seller's customer and vendor files pertaining
to the Equipment;
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(h) all outstanding open orders, price quotations and/or sales
leads relating to the Equipment that have been received by
Seller prior to the date of Closing; and
(i) all goodwill incident to the Line of Business.
Seller represents that it does not own any trademarks, service marks or patents
that are specific to the Line of Business.
1.2 Software Rights. Buyer hereby grants the Seller the right to use
the software purchased herein from Seller in all potential applications, except
in the wear testing and friction testing business.
1.3 Undertaking to Repair and Service. Buyer agrees, upon request by
Seller or any of its customers, to perform postwarranty repair or service on
Equipment sold by Seller prior to the closing of this Agreement, at a reasonable
charge to be determined by Buyer to the customer in light of the time and
materials utilized. Buyer shall have sole responsibility for any repair or
service necessary on Equipment sold by it, and for the quality of any repair or
service made pursuant to the first sentence of this paragraph.
1.4 Instruments of Transfer. The transfer of the Assets to be
transferred to Buyer shall be reflected in such bills of sale, assignments, or
other instruments of transfer and assumption as may be necessary to transfer to
Buyer full title to the Assets free and clear of all liens, charges, security
interests and other encumbrances whatsoever.
1.5 Payments by Buyer. In consideration of this Agreement, Buyer shall
make the following payments to Seller:
1.5.1 Cash Payments. Buyer shall make the following payments
to Seller, on or prior to the dates indicated: (a) $150,000, on the Closing
hereof; (b) $25,000, within ninety (90) days of the date of Closing; and (c) an
additional $25,000, within one hundred and eighty (180) days of Closing. The
first such payment shall be made by cashier's or certified check.
1.5.2. Payment for Inventory. Promptly after the delivery of
the two machines referred to in paragraph 5.2 hereof, Buyer shall take delivery
of Seller's remaining unused inventory selected by Buyer, and Seller shall bill
Buyer in accordance with the amounts shown on its inventory list at Buyer's cost
for such inventory. Buyer shall be responsible for the cost of shipping such
inventory (including the cost of insurance, if desired).
1.6 Closing. Closing of this Agreement shall occur at the offices of
Seller, thirty (30) days after Buyer receives written notification from Seller
that Seller is ready to close, but in no event shall Closing be more than sixty
(60) days from the date of this Agreement.
1.7 Conditions Precedent to Closing. Prior to or promptly following the
execution of this Agreement, Buyer shall inspect the engineering blueprints and
wiring diagrams to be purchased pursuant to paragraph 1.1(d) hereof. It is the
intention of the parties that the blueprints and wiring diagrams to be sold
shall be up to date and sufficiently complete to enable persons of ordinary
skill and experience in the manufacture of tribology equipment to build those
pieces of Equipment which have heretofore been sold and delivered by Seller. As
to Equipment which has not heretofore been sold and delivered, Seller will
supply only such blueprints and wiring diagrams as actually exist. If,
notwithstanding the prior execution of this Agreement, the parties are unable to
reach agreement prior to the Closing about the identity or adequacy of the items
to be purchased pursuant to this Agreement, either party may, by written notice
delivered to the other prior to the Closing, terminate its obligations hereunder
without any liability to the other. Buyer acknowledges that, during the
pre-Closing period, it will become privy to valuable confidential information of
Seller. Buyer agrees that it will maintain the confidentiality of all
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such information during the preclosing period. In the event that Closing does
not occur, Buyer shall promptly return all copies of all documents it has
received from Seller, will certify to Seller that it has destroyed any notes or
other written memorialization of any technical, customer or supplier information
received from Seller, and further agrees (i) that it will not at any time
thereafter utilize any information obtained from Buyer and (ii) that, for a
period of one (1) year after the scheduled Closing date, it will not manufacture
any equipment which, had the Closing taken place, would be subject to royalty in
accordance with the provisions of paragraph 1.8.3.
1.8 Post-Closing Royalties on Sale of Equipment. For a period of three
(3) years from the date of Closing, Buyer shall pay Seller twenty-five percent
(25%) of its net receipts from the Line of Business transferred pursuant hereto,
up to a yearly maximum of $120,000, and for an additional, fourth year Buyer
shall pay Seller twelve and a half percent (12.5%) of such net receipts, up to a
maximum of $60,000. Without limiting the foregoing, such royalties are due on
all items listed on Schedule A hereto, whether sold separately or in conjunction
with other equipment sold by Buyer. Royalties shall be due and payable, in the
case of domestic sales, thirty (30) days after such receipt of payment. Buyer
shall provide Seller with a copy of each purchase order and invoice at or
shortly after the time each such order is received and each such sale is
invoiced. In the case of export sales, royalties shall be based upon the
domestic list price of the item sold as if the item was sold in the United
States.
1.8.1 Minimum Royalties. For a period of three (3) years from
the date of Closing, Buyer shall pay Seller a minimum royalty of $50,000 per
year, and for an additional, fourth year, Buyer shall pay Seller a minimum
royalty of $25,000. In the event that actual royalty payments made during a year
shall not have reached the minimum royalty due, the balance of the minimum
royalty shall be due and paid no later than thirty (30) days after each
anniversary date of Closing, and each year thereafter in which such situation
arises. Actual royalty payments exceeding the minimum due in a particular year
may not be credited against minimum royalty obligations of future years.
1.8.2 Royalty Certification. Within ninety (90) days of each
anniversary of the Closing, Buyer shall provide to Seller, a certification
prepared and signed by an independent firm of certified public accountants that
Buyer has fully complied with its royalty obligations during the preceding
fiscal year, and such certification shall include supporting detail.
1.8.3 Effect of Modifications to Equipment. Buyer shall be
free to modify the design of any of the Equipment upon the understanding that
any such change shall not affect Buyer's royalty obligations hereunder. In
addition, the royalty obligations of this Agreement shall apply to future sales
by Buyer of pin-on-disk equipment using a tone arm assembly in combination with
motor-driven translation of disk track radius. Seller acknowledges that Buyer
currently sells its own reciprocating and fretting equipment to its customers;
however, the royalty obligations of this Agreement shall also apply to
reciprocating and fretting equipment hereafter sold by Buyer if such equipment
utilizes the same driving and loading mechanism in combination as the Equipment
listed in Schedule A hereto. Royalties shall not be due with respect to items
which do not constitute equipment of the type hereinbefore described, but which
are sold as optional accessory items thereto, provided that such items are
listed, priced and quoted as a separate option.
1.9 Tax Allocation. Buyer and Seller shall allocate the Purchase Price
to broad categories constituting components of the Assets as provided in
Schedule C hereto. Each party will report the transactions contemplated in this
Agreement in accordance with the agreed upon allocation, except to the extent
that modifications are necessary to reflect changes in the Assets between the
date hereof and the Closing Date for all federal, state, local and other tax
purposes.
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Each party further agrees to cooperate in the preparation of Form 8594 under
Section 1060 of the Internal Revenue Code of 1986, as amended or as may
hereafter be amended (the "Code"), and the timely filing of such Form with the
Internal Revenue Service.
1.10 Shipping of Tangible Personal Property. Buyer will pay the cost of
shipping the tangible personal property (including the cost of insurance, if
desired) F.O.B. Sellers place of business. Seller shall be responsible for
getting the tangible personal property ready for shipment.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer that:
2.1 Organization, Corporate Power and Authority. Seller is a
corporation duly organized, validly existing and in good standing under the laws
of the state of Massachusetts. Seller has all requisite corporate power and
authority to own, operate and/or lease the Assets, to conduct the Line of
Business, to execute and deliver this Agreement and any related documents
contemplated hereby and to perform its obligations hereunder and thereunder.
2.2 Authorization of Agreements. The execution, delivery and
performance by Seller of this Agreement and any related documents contemplated
herein, and the consummation by it of the transactions contemplated herein and
therein, have been duly authorized by its Board of Directors. This Agreement has
been, and each of the related documents will be, at the time of execution, duly
executed and delivered by Seller and constitute, or will, when delivered,
constitute, the legal, valid and binding obligations of Seller, enforceable
against Seller in accordance with their respective terms, except as may be
limited by bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to or limiting creditors, rights generally, and by equitable
principles.
2.3 No Default or Violation. The execution, delivery and performance of
this Agreement and the related documents by Seller do not, and the consummation
of the transactions contemplated hereby and thereby will not: (a) conflict with
any provision of the Articles of Incorporation, as amended, or By-laws of
Seller, (b) or as of the date of execution, result in the breach (or an event
which, with the giving of notice or lapse of time or both, would constitute a
breach) of any term or provision of, or constitute a default under, or give rise
to a right to terminate, any material indenture mortgage, deed of trust or other
agreement or arrangement to which Seller is a party or by which any of the
Assets are bound or affected, (c) result in the creation of any lien, charge or
encumbrance on the Assets, or (d) violate any statute or law, or any judgment,
decree, order, regulations or rule of any court or governmental authority to
which Seller is subject or by which any of the Assets are bound or affected.
2.4 Governmental Approvals, Consents. No approval, authorization,
consent, qualification, order or registration, or any waiver of any of the
foregoing, or any action of, or any notice, statement or other communication is
required to be filed with or delivered to, any governmental entity,
instrumentality or regulatory authority (a "Governmental Agency") or any other
person for the execution and delivery by Seller of this Agreement or the related
documents or the consummation by it of the transactions contemplated herein or
therein.
2.5 Title to Assets. Seller has the right to sell, transfer, and assign
all of the Assets to Buyer, and has good title thereto, free and clear of all
liens, charges, security interests and other encumbrances whatsoever, except for
(i) potential warranty obligations, (ii) liens for taxes, (iii) imperfections in
title, if any, not material in amount, and which individually and in the
aggregate do not materially interfere with the conduct of the Line of Business
or the use of the Assets. All mechanical personal property and tools sold
pursuant to this Agreement are being
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transferred to Buyer "as is"; provided, however, that Seller represents that all
such mechanical personal property and tools being transferred are in good
working condition.
2.6 Litigation. There are no actions, suits, proceedings or
investigations pending or, to the knowledge of Seller, threatened against Seller
which relate to or affect the Line of Business or Seller's ability to perform
its obligations hereunder. Neither Seller nor any of its properties is subject
to any order, writ, injunction, decree or judgment of any court or Governmental
Agency.
2.7 Compliance with Law. Seller has conducted the Business and operated
and used the Assets in accordance with all federal, state and local laws and
regulations applicable to the conduct of the Line of Business, and is not in
violation of any such laws other than violations which would not have a material
adverse effect on the Assets taken as a whole, or on the Line of Business.
2.8 No Brokers or Finders. No agent, broker, finder, or investment or
commercial banker, or other person or firm engaged by or acting on behalf of
Seller in connection with the negotiation, execution or performance of this
Agreement or the related documents, is or will be entitled to any brokerage or
finder's or similar fee or other commission as a result of this Agreement or the
transactions contemplated herein.
2.9 Intellectual Property. Seller is not aware of any claim or any
situation that might give rise to a claim by any person that the Software
infringes the proprietary rights of such person.
2.10 No misrepresentation. Neither this Agreement nor any written
statement, report or other document furnished or to be furnished by Seller
pursuant to this Agreement or in connection with the transactions contemplated
hereby contains, or will contain, any untrue statement of material fact or
omits, or will omit, to state a material fact necessary to make the statements
contained herein or therein not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller that:
3.1 Organization, Corporate Power and Authority. Buyer is a corporation
duly organized, validly existing and in good standing under the laws of the
state of Illinois and has all requisite corporate power and authority to execute
and deliver this Agreement and any related documents to which it is a party and
to perform its obligations hereunder and thereunder.
3.2 Authorization of Agreement. The execution, delivery and performance
by Buyer of this Agreement and the related documents contemplated herein, and
the consummation by it of the transactions contemplated herein and therein, have
been duly authorized by all necessary corporate action by Buyer. This Agreement
has been, and any related documents will, at the time of execution, be duly
executed and delivered by Buyer and constitute, or will, when so delivered,
constitute, the legal, valid and binding obligations of Buyer, enforceable
against Buyer in accordance with their respective terms, except as may be
limited by bankruptcy, insolvency, reorganization, moratorium and other similar
laws relating to or limiting creditors, rights generally and by equitable
principles.
3.3 No Default or Violation. The execution, delivery and performance by
Buyer of this Agreement and the related documents to which it is a party do not,
and the consummation of the transactions contemplated thereby will not: (a)
conflict with any provision of the Certificate of Incorporation, as amended, or
By-laws of Buyer, (b) result in the breach (or an event which, with the giving
of notice or lapse of time or both, would constitute a breach) of any term or
provision of, or constitute a default under, or give rise to a right to
terminate, any material indenture, mortgage, deed of trust of other agreement or
arrangement to which Buyer is a party,
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or (c) violate any statute or law or any judgment, decree, order, regulation or
rule of any court of governmental authority to which Buyer is subject.
3.4 Governmental Approvals; Consents. No approval, authorization,
consent, qualification, order or registration, or any waiver of any of the
foregoing, or any action of, or any notice, statement or other communication is
required to be filed with or delivered to, any Governmental Agency or any other
person for the execution and delivery by Buyer of this Agreement and the related
documents contemplated herein or the consummation by it of the transactions
contemplated herein and therein.
3.5 No Brokers or Finders. No agent, broker, finder or investment or
commercial banker, or other person or firm engaged by or acting on behalf of
Buyer in connection with the negotiation, execution or performance of this
Agreement and the related documents, is or will be entitled to any brokerage or
finder's or similar fees or other commission as a result of this Agreement or
the transactions contemplated herein.
ARTICLE IV
SELLER'S COVENANTS
4.1 Non-Competition. Seller, and its employees Anthony J. Armini and
Stephen N. Bunker, each agree and covenant, that, for a period of ten (10) years
after the execution of this Agreement, it or he will not compete with Buyer in
connection with (i) the manufacture or sale of wear testing, friction testing or
other tribology equipment, or (ii) the performance of commercial wear testing or
friction testing services. This covenant does not extend to, and shall not bar
Seller, Armini or Bunker from performing, research and/or development services
relating to wear testing or friction testing; provided, however, that Seller,
Armini and Bunker shall not knowingly transfer wear testing or friction testing
machine designs to a commercial competitor of Buyer or any customer or potential
customer of Buyer.
4.2 Customer Inquiries. At all times after the execution hereof, Seller
shall inform Buyer of all inquiries from potential customers concerning the
possible purchase of Equipment. In this connection, Seller shall provide Buyer
with the name and address of each such potential customer and the substance of
each such inquiry. Seller shall refer each potential customer who shall make any
such inquiry to Buyer.
4.3 Manufacturing Training and Support. Seller will provide to Buyer
two (2) weeks of training with respect to manufacturing and operating procedures
for the Equipment for no more than two (2) employees of Buyer at one time. Such
training shall be scheduled at a time mutually convenient to Seller and Buyer,
but shall be completed no later than six (6) months from the date of Closing.
Buyer shall bear the travel and living expenses of the employee(s) being
trained. Seller shall also provide reasonable telephone support to Buyer in
connection with manufacturing or operating issues, for a period of one (1) year
from the completion of such training.
4.4 Software and Support. Seller will provide to Buyer one (1) week of
training with respect to the Software. Such training shall be scheduled at a
time mutually convenient to Seller and Buyer, but shall take place within six
(6) months from the date of Closing. Buyer shall bear the travel and living
expenses of the employee(s) being trained. Seller shall also provide reasonable
telephone support to Buyer in connection with issues pertaining to the Software,
for a period of one (1) year from the completion of such training.
4.5 Preservation of Confidentiality. For a period of four (4) years
from the date of this Agreement, the parties agree to treat all Confidential
Information (as defined below) of Seller or the Line of Business, as
confidential, to preserve the confidentiality thereof and to not disclose any
Confidential Information, except disclosures made in the ordinary course of the
Line
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of Business to individuals and entities who need to know such confidential
information in connection with the conduct of the Business. The parties shall
use all reasonable efforts to cause their customers, vendors and representatives
to treat all Confidential Information as confidential in accordance with this
paragraph, to preserve the confidentiality thereof and to not disclose any
Confidential information. As used in this Agreement, "Confidential Information"
means any and all technical, manufacturing or marketing information, ideas,
methods, developments, inventions, improvements, business plans, trade secrets,
scientific or statistical data, diagrams, drawings, specifications or other
proprietary information relating thereto normally treated as confidential and
proprietary by Seller in the ordinary course of the Line of Business consistent
with past practice, together with all analyses, compilations, studies or other
documents, records or data prepared by Seller or Buyer or their respective
representatives, as the case may be, which contain or otherwise reflect or are
generated from such information, or which are generated in connection with the
transactions contemplated herein at any time before or after the Closing.
ARTICLE V
BUYER'S COVENANTS
5.1 Best Efforts. Buyer agrees and covenants that, for a period of four
(4) years from the date of Closing, it will use its best efforts to promote and
maximize the sales of the Equipment included in the Line of Business transferred
hereby; however, Buyer shall have sole discretion in determining the best
methods for promoting and maximizing the sales of the Equipment.
5.2 Covenants to Purchase. Buyer covenants to purchase from Seller, no
later than one (1) year from the date of Closing, two (2) ISC pin-on-disk
machines, at a price equal to 75% of Seller's current list price for such
products at the time of Closing. Such machines shall be sold F.O.B. Seller's
place of business in Wakefield, Massachusetts, and shall be delivered no more
than sixty (60) days from receipt of a written order therefor. Buyer shall issue
releases to Seller for such products as soon as it receives customer orders
therefor, but its obligation to purchase such machines within one year is
unconditional. The purchase price shall be due and payable within forty-five
(45) days from date of invoice by Seller. No royalties shall be due upon the
resale of such machines by Buyer.
5.3 Options to Purchase. Seller agrees that Buyer shall have the
option, exercisable within one (1) year from the date of Closing, to purchase
from Seller (1) an ISC-600PC reciprocating tribometer, (2) an ISC-700PC fretting
tribometer, and/or (3) an ISC-800PC contact resistance probe, at a price equal
to 75% of Seller's current list price for such products at the time of Closing.
Such machines shall be sold F.O.B. Seller's place of business in Wakefield,
Massachusetts, and shall be delivered no more than ninety (90) days from receipt
of a written order therefor. In order to fulfill such orders, Seller shall be
entitled to retain such tooling as is necessary to do so, but shall transfer
such tooling to Seller at the same time as it transfers the remaining inventory
as provided in paragraph 1.5.2 above. If Buyer exercises an option hereunder
after the tooling and remaining inventory has been transferred, it shall make
the same available to Seller for use in fulfilling the order(s). No royalties
shall be due upon the resale of such machines by Buyer.
5.4 Seller's Right to Purchase Equipment. For a period of two (2) years
after the date of Closing, Seller shall have the right to purchase Equipment
from Buyer for the sole purpose of allowing Seller to fill orders resulting from
Sellers two (2) distributor agreements in Germany and Denmark. Seller agrees to
terminate these two agreements as soon as legally possible but until said
agreements are terminated Buyer agrees to sell to Seller such equipment as
required to complete these orders at Buyer's domestic price list less 25%. Any
discounts granted to Seller
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pursuant to this paragraph will be credited towards Buyer's minimum royalty
obligation for the year in which they are given. Payment to Buyer for these
orders shall be due within sixty (60) days of the date of the invoice from Buyer
to Seller. Seller's resale of any equipment so purchased shall not be deemed to
violate the non-competition provisions of this Agreement.
ARTICLE VI
CONDITIONS OF PURCHASE
6.1 Conditions to Obligations of Buyer. The obligations of Buyer to
effect the closing are subject, at the option of Buyer, to the satisfaction (at
or before the Closing) or written waiver of each of the following conditions:
6.1.1 Representations, Warranties and Covenants of Seller. The
representations and warranties of Seller herein contained shall be true at the
Closing Date in all material respects with the same effect as though made at
such time.
6.1.2 Instruments of Conveyance and Transfer. Seller shall
have delivered to Buyer appropriate instruments of transfer, conveyance, sale
and assignment in respect of the Assets, consisting of such bills of sale,
assignments, and or other documents as may reasonably be requested by Buyer at
least fourteen (14) days prior to the Closing Date.
6.1.3 Seller's Representations as to Blueprints and Diagrams.
Seller represents that the blueprints and diagrams being transferred in this
Agreement are sufficient to enable persons of ordinary skill and experience in
the manufacture of tribology equipment to build the item or items described in
such blueprints and diagrams.
6.1.4 Buyer's Approval. Buyer's inspection and approval of all
assets being purchased pursuant to this Agreement. However, Buyers approval of
the blueprints and diagrams at Closing shall only mean that the Buyer
acknowledges receipt of said blueprints and diagrams but shall not mean that
Buyer acknowledges that those blueprints and diagrams are fit for the purpose
intended, namely, being able to build the equipment shown on the blueprint or
diagram. Buyers approval of the blueprints and diagrams can only be made after
Buyer is able to determine in practice whether or not these blueprints and
diagrams enable them to build the equipment. However, it shall be conclusively
presumed that said blueprints and diagrams are acceptable to Buyers if no
written notification to the contrary is made to Seller within two (2) years of
the Closing Date.
6.2 Conditions to Obligations of Seller. The obligations of Seller to
effect the Closing are subject, at the option of Seller, to the satisfaction (at
or before the Closing) or written waiver of each of the following conditions:
6.2.1 Representations, Warranties and Covenants of Buyer. The
representations and warranties of Buyer herein contained shall be true and
correct at the Closing Date in all material respects with the same effect as
though made at such time. Buyer shall have performed all obligations and
complied with all covenants and conditions required by this Agreement to be
performed or complied with by it at or prior to the Closing Date.
ARTICLE VII
INDEMNIFICATION
7.1 Indemnification by Seller. Seller agrees to defend, indemnify and
hold harmless Buyer and its directors, officers, employees, affiliates, agents
and assigns from and against any and all claims, demands, costs, expenses or
liabilities (including, without limitation reasonable attorney's fees) of any
kind or nature (collectively, "Losses"), directly or indirectly, as a result of,
or based upon or arising from:
7.1.1 any breach of any representation, warranty or covenant
of Seller made in this Agreement;
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<PAGE> 9
7.1.2 Seller's conduct of the Business prior to the Closing
Date;
7.1.3 all Losses resulting from the assertion of claims made
against the Assets sold hereunder or against Buyer by creditors of Seller under
any applicable bulk transfer law, including, but not limited to, the bulk
transfer provisions of the Uniform Commercial code of any state, or any similar
statute, with respect to the transactions contemplated hereby.
7.2 Indemnification by Buyer. Buyer agrees to defend, indemnify and
hold harmless Seller and its directors, officers, employees, affiliates, agents
and assigns from and against any and all Losses, directly or indirectly, as a
result of, or based upon or arising from (i) any breach of any representation,
warranty or covenant of Buyer made in this Agreement or (ii) Buyer's ownership
or operation of the Line of Business or its sale of Equipment or Software or its
use or disposition of the Assets after the Closing. This paragraph 7.2 is not
intended to create an obligation on the part of Buyer to indemnify Seller
against the consequences of Seller's own acts or omissions.
7.3 Procedure.
7.3.1 Notice of Claim. In the event that Buyer or Seller (the
"Indemnified Party") shall seek indemnification hereunder, it shall give to the
party obligated to provide indemnification to such Indemnified Party (the
"Indemnitor") written notice (a "Claim Notice") describing in reasonable detail
the facts giving rise to any claim for indemnification hereunder including the
basis of such claim in general terms (including a specific reference to the
provision of the this Agreement under which such claim arises), the date such
Claim Notice is being sent, and (if then known) the amount or the method of
computation of the amount of such claim and (if not then known) the Indemnified
Party's reasonable estimate of the anticipated maximum amount of such claim
together with the basis of such estimates; provided, that a Claim Notice in
respect of any action at law or suit in equity by-or against a third person as
to which indemnification will be sought shall be given promptly after the action
or suit is commenced. Neither the failure of the Indemnified Party to give
notice hereunder, or defects or errors in any notice given, shall relieve the
Indemnitor of any indemnity obligation pursuant to this Agreement. However, to
the extent that such failure, defect or error actually prejudices the rights of
the Indemnitor, the Indemnified Party's rights hereunder may be limited to the
extent of such actual prejudice.
7.3.2 Amount of Indemnification. After the giving of a Claim
Notice pursuant hereto, the amount of indemnification to which an Indemnified
Party shall be entitled shall be determined: (i) by the written agreement
between the Indemnified Party and the Indemnitor; (ii) by a judgment or decree
of any court of competent jurisdiction; or (iii) by any other means to which the
Indemnified Party and the Indemnitor shall agree.
7.3.3 Control of Defense. The Indemnitor shall have the right
to conduct and control, through counsel of its choosing reasonably acceptable to
the Indemnified Party, the defense, compromise or settlement of any third person
claim, action or suit against such Indemnified Party as to which indemnification
is sought by any Indemnified Party from any Indemnitor hereunder, provided that
the Indemnitor (i) has acknowledged and agreed in writing, within 14 days after
the giving of a Claim Notice or such shorter period as may be required to avoid
any prejudice to the right of the Indemnified Party, that, if the same is
adversely determined, the Indemnitor has an obligation to provide
indemnification to the Indemnified Party in respect thereof and (ii) diligently
and timely defends against such claim, action or suit or negotiates for the
settlement thereof. In any such case the Indemnified Party, at Indemnitor's
expense shall cooperate in connection therewith and shall furnish such records,
information and testimony and attend such conferences, discovery proceedings,
hearings, trials and appeals as
9
<PAGE> 10
may be reasonably requested by the Indemnitor in connection therewith. The
Indemnified Party shall have the right to employ separate counsel in any claim,
action or suit and to participate in the defense thereof, but the fees and
expenses of such counsel shall be at the expense of the Indemnified Party unless
(i) the Indemnitor has agreed in writing to pay such fees and expenses, (ii) the
Indemnitor has failed to assume the defense and employ counsel, or (iii) the
named parties to any such claim, action or suit (including any impleaded
parties) include both the Indemnitor and the Indemnified Party and the
Indemnified Party shall have been advised by its counsel that representation of
the Indemnitor and the Indemnified Party by the same counsel would be
inappropriate under applicable standards of professional conduct (whether or not
such representation by the same counsel has been proposed) due to actual or
potential differing interests between them (in which case the Indemnitor shall
not have the right to assume the defense of such claim, action or suit on behalf
of the Indemnified Party).
7.4 Term. This Article shall survive the Closing and shall remain in
effect as follows: (i) as to any indemnification obligation arising pursuant to
Section 7.1.1, for a period of four (4) years after the Closing, and (ii) as to
any indemnification obligation arising pursuant to Sections 7.1.2 or 7.1.3,
shall remain in effect indefinitely.
7.5 Limitation on Certain Claims. Buyer shall not be entitled to
recover from Seller for any breach or alleged breach by Seller of any
representation or warranty set forth in Section 6.1 for any Losses unless and
until the aggregate of all such Losses or claims recoverable by Buyer exceeds
Five Hundred Dollars ($500.00). In the event that Buyer shall be entitled to
recover from Seller because of a breach of Section 6.1, any amounts owed by
Seller to Buyer shall be deducted by Buyer from the Royalties owed by Buyer to
Seller.
ARTICLE VIII
GENERAL
8.1 Amendments; Waivers. This Agreement may be amended, modified, or
supplemented only by a written instrument executed by the parties hereto. No
waiver of any provision of this Agreement, or consent to any departure from the
terms hereof, shall be effective unless the same shall be in writing and signed
by the party waiving or consenting thereto. No failure on the part of any party
to exercise, and no delay in exercising, any right or remedy hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such right or remedy by such party preclude any other or further exercise
thereof or the exercise of any other right or remedy. The waiver by any party
hereto of a breach of any provision of this Agreement shall not operate as a
waiver of any subsequent breach. All rights and remedies hereunder are
cumulative and are in addition to and not exclusive of any other rights and
remedies provided by law.
8.2 Schedules; Exhibits. Each schedule or exhibit delivered pursuant to
the terms of this Agreement shall be in writing and shall constitute a part of
this Agreement, although schedules need not be attached to each copy of this
Agreement.
8.3 Entire Agreement; Absence of Reliance. This Agreement, together
with such schedules and exhibits, constitutes the entire agreement among the
parties pertaining to the subject matter hereof and supersedes all prior
agreements and understandings of the parties relating thereto. In entering this
Agreement, neither party has relied or is relying on any representation,
promise, warranty, or statement of fact or opinion by the other party which is
not expressly set forth in writing herein.
8.4 Best Efforts; Further Assurances. Each party will in good faith use
its best efforts to cause all conditions to its and the other party's,
obligations hereunder to be timely satisfied and to perform and fulfill all
obligations on its part to be performed and fulfilled under this
10
<PAGE> 11
Agreement, to the end that the transactions contemplated by this Agreement shall
be effected substantially in accordance with its terms. Each party shall execute
and deliver such further certificates, agreements and other documents and take
such other actions as may be necessary or appropriate to consummate or implement
the transactions contemplated hereby or to evidence such events or matters.
8.5 Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Illinois without regard
to its principles of conflicts of laws.
8.6 Expenses and Attorney's Fees. Seller and Buyer shall each pay their
own expenses incident to the negotiation, preparation and performance of this
Agreement and the transactions contemplated herein, including but not limited to
the fees, expenses and disbursements of their respective accountants and
counsel. In the event of any action for the breach of this Agreement or
misrepresentation by any party, the prevailing party shall be entitled to
reasonable attorney's fees, costs and expenses incurred in such action. In the
event of any conflict between this provision and the indemnification provisions
of this Agreement, the indemnification provisions shall control.
8.7 Publicity and Reports. Seller and Buyer shall coordinate all
publicity relating to the transactions contemplated by this Agreement and no
party shall issue any press release, publicity statement or other public notice
relating to this Agreement, or the transactions contemplated by this Agreement,
without obtaining the prior consent of the other party except to the extent that
a particular action is required by applicable law.
8.8 Parties in Interest. This Agreement shall inure to the benefit of,
and be binding upon, the parties hereto and their respective heirs, legal
representatives, successors and permitted assigns.
8.9 Notices. Any notice or other communication hereunder must be given
in writing and may be (a) delivered in person, (b) transmitted by telex,
telecopier or telecommunications mechanism, (c) sent by reputable overnight
courier, or (d) mailed by certified or registered mail, postage prepaid, return
receipt requested, as follows:
If to Buyer, addressed to:
Falex Corporation
2055 Comprehensive Drive
Aurora, IL 60505
Fax: (708) 898-7851
Attn: Leslie R. Heardt, President
With a copy to:
Charles M. Jardine, Esq.
Jardine & Jardine, Ltd.
106 W. Burlington
LaGrange, IL 60525
Fax: (708) 352-6185
If to Seller, addressed to:
Implant Sciences Corporation
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<PAGE> 12
107 Audubon Road, #5
Wakefield, MA 01880-1246
Fax: (617) 246-1167
Attn: Anthony J. Armini, President
With a copy to:
Peter B. Ellis, Esq.
Foley, Hoag & Eliot LLP
One Post Office Square
Boston, MA 02109
Fax: 617-832-7000
or to such other address or to such other person as either party shall have last
designated by such notice to the other party. Each such notice or other
communication shall be effective: (i) if given by telecommunication, when
transmitted to the applicable number so specified in (or pursuant to) this
Section 7.8 and an appropriate answer back is received, (ii) if given by
certified or registered mail, five days after such communication is deposited in
the mails with postage prepaid, addressed as aforesaid, (iii) if given by
overnight courier, twenty-four hours after deposit with the courier service, or
(iv) if given by any other means, when actually received at such address.
8.10 Severability. Any provision of this Agreement which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof or affecting the validity or
enforceability of such provision in any other jurisdiction. In the event that
any provision of this Agreement shall be determined to be unenforceable by
reason of its extension for too great a period of time or over too large a
geographic area or over too great a range of activities, it shall be interpreted
to extend only over the maximum period of time, geographic area or range of
activities as to which it may be enforceable.
8.11 Specific Performance. Seller and Buyer each acknowledge that, in
view of the uniqueness of the Business and the transactions contemplated by this
Agreement, each party would not have an adequate remedy at law for money damages
in the event that this Agreement has not been performed in accordance with its
terms, and therefore agrees that the other party shall be entitled to specific
enforcement of the terms hereof in addition to any other remedy to which it may
be entitled, at law or in equity.
8.12 Headings. The descriptive headings of the Articles, Sections and
subsections of this Agreement are for convenience only and do not constitute a
part of this Agreement.
8.13 Counterparts. This Agreement and any amendment hereto or any other
agreement (or document) delivered pursuant hereto may be executed in one or more
counterparts; and by different parties in separate counterparts. All of such
counterparts shall constitute one and the same agreement (or other document) and
shall become effective (unless otherwise provided therein) when one or more
counterparts have been signed by each party and delivered to the other party.
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<PAGE> 13
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed by its duly authorized officers as of the day and year
first written above.
BUYER:
FALEX CORPORATION
By: /s/ L. R. Heerat
-------------------------------
Name: L. R. Heerat
-------------------------------
Title: Chief Executive Officer
-------------------------------
SELLER:
IMPLANT SCIENCES CORPORATION
By: /s/ A. J. Armini
-------------------------------
Name: A. J. Armini
Title: President
/s/ Anthony J. Armini
-------------------------------
Anthony J. Armini
/s/ Stephen N. Bunker
-------------------------------
Stephen N. Bunker
Schedule A - List of Equipment
Schedule B - List of Fixtures
Schedule C - Tax Allocation
13
<PAGE> 14
Schedule A
Equipment/Software Subject to this Agreement
<TABLE>
<CAPTION>
CURRENT
MODEL SELLING PRICE
- ----- -------------
<S> <C> <C> <C>
1. ISC-100 Data Acquisition Software [Redacted text]
A vertically rolling chart recorder for a PC which
acquires and stores data from a tribometer. To include
version 3.3 (July '95) and version 4.0 (July '95)
2. ISC-200PC Pin-on-Disk Tribometer (see attached Product [Redacted text]
Brochure)
3. ISC-225PC High Speed Pin-on-Disk Tribometer RPM:
50 to 5000
(All other features consistent with ISC-200PC model)
4. ISC-250PC High Load Pin-on-Disk Tribometer
Load: 5g to 10 kg
(All other features consistent with ISC-200PC model)
5. ISC-320PC Humidity controlled Pin-on-Disk Tribometer [Redacted text]
(see attached Product Brochure)
6. ISC-430PC Body Temperature Pin-on-Disk Tribometer [Redacted text]
(see attached Product Brochure)
7. ISC-450PC High Temperature Pin-on-Disk Tribometer [Redacted text]
(see attached Product Brochure)
8. ISC-460PC Ultra High Temperature Pin-on-Disk
Tribometer
Temp: RT to 1000(degree)C (All other
features consistent with ISC-450PC model)
9. ISC-500PC High Vacuum Pin-on-Disk Tribometer [Redacted text]
(see attached Product Brochure)
10. ISC-520PC High Vacuum/Controlled Humidity Pin-on-Disk [Redacted text]
Tribometer (see attached Product Brochure)
11. ISC-550PC Vacuum/High Temperature Pin-on-Disk Tribometer [Redacted text]
(see attached Product Brochure)
</TABLE>
14
<PAGE> 15
<TABLE>
<CAPTION>
CURRENT
MODEL SELLING PRICE
- ----- -------------
<S> <C> <C> <C>
12. ISC-600PC Reciprocating Tribometer [Redacted text]
Specifications:
(a) Cycle Frequency: up to 2 Hz
(b) Stroke Length: up to 10mm
(c) Normal Load: up to 1000gm
(d) Friction Coefficient monitoring during testing
(e) Computer data acquisition and display
13. ISC-700PC Fretting Tribometer [Redacted text]
Specifications:
(a) Cycle Frequency: Typical - 8 Hz, Max - 80 Hz
(b) Stroke Length: Typical - 10-100 [mu]m, Max - 1mm
(c) Normal Load: Typical - 100 gm, Max - 1000 gm
(d) Friction Coefficient monitoring during testing
(e) Computer data acquisition and display
14. ISC-800PC Contact Resistance Probe System for ISC-600PC or [Redacted text]
ISC-700PC
Specifications:
(a) Contact resistance under variable load to 1kg
(b) Contact resistance measurement to 0.01 ohm
(c) Automated measurement
(d) Automated probe cleaning and Au standard
calibration (on ISC-700PC model)
(e) Computer data acquisition and display
</TABLE>
OTHER ACCESSORIES:
Heated fluid recirculation system for Pin-on-Disk Tribometer
15
<PAGE> 16
SCHEDULE B
[Redacted text]
16
<PAGE> 1
EXHIBIT 10.29
[IMPLANT SCIENCES CORPORATION LETTERHEAD]
July 1, 1998
PERSONAL AND CONFIDENTIAL
Mr. Erik S. Akhund
#3 First Place, Apartment 1
Brooklyn, New York 11231
Dear Mr. Akhund:
I am writing to set forth and confirm the understanding between you and
Implant Sciences Corporation (the "Company") relating to the cancellation of a
certain Financial Advisory Agreement dated October 31, 1997, entered into
between you and the Company on or about October 31, 1997 (the "Financial
Advisory Agreement"), a true and correct copy of which is attached at Exhibit
A, and canceled by written notice delivered to you on May 11, 1998, a true and
correct copy of which is attached at Exhibit B. For purposes of this letter
agreement, the date of this agreement recited above shall be referred to herein
as the "Settlement Date."
1. RESIGNATION. You hereby resign from the Company's Board of Directors
and from all other offices you hold with the Company, such resignations to be
effective as of the close of business on May 11, 1998. Such resignations shall
be effective regardless of the continued effectiveness of this letter agreement.
2. CANCELLATION BENEFITS.
(a) CASH PAYMENTS. Within five days of delivery by your counsel to
counsel for the Company of a counterpart of this letter agreement executed by
you, the Company will pay and deliver $60,000.00 to you simultaneously with the
delivery of a counterpart of this letter agreement executed by the Company.
Thereafter, the Company will pay to you an additional $49,497.34, payable in
twelve (12) equal installments on the last day of each month in the 12-month
period beginning on the day of the delivery to you of the $60,000.00 referenced
in this paragraph above. The Company may issue in connection with said payments
such tax and other reporting forms as may be required by law, statute or
regulations.
(b) WARRANTS. The Company has issued to you on and as of the
Settlement Date warrants (in form and substance as set forth in attached Exhibit
C) to purchase 14,440 shares of the Common Stock of the Company, $.01 par value
per share ("Common Stock"), at a price per share of $103.88, said warrants to
carry a three-year term from the date of issue and to be delivered to you
simultaneously with the delivery of a counterpart of this letter agreement
executed by the Company. The Company has also issued to you on and as of the
Settlement Date warrants (in form and substance as set forth in attached Exhibit
D) to purchase for cash 1,500 shares of its Common Stock at a price per share of
$9.03, said warrants also to carry a three-year
<PAGE> 2
term from the date of issue and to be delivered to you simultaneously with the
delivery of a counterpart of this letter agreement executed by the Company. All
of the aforementioned warrants will contain net exercise provisions. Should the
Company undertake an initial public offering of its Common Stock ("IPO"), the
Company will not be obliged to register any warrant issued to you pursuant to
this sub-paragraph 2(b) (each a "Warrant") or any shares of Common Stock issued
pursuant to sub-paragraph 2(c) below or issuable upon exercise of any such
Warrant (collectively, "Shares"), or any other securities of the Company now or
hereafter owned by you. You agree that, in connection with such IPO, the Shares
will be subject to, and you will execute, a lock-up agreement in such form as is
required by the managing underwriter of such offering, provided, however, that
said lock-up agreement will be no more onerous than that signed by Company
management. Additionally, to the extent available and if permissible as a matter
of law (as to which the Company makes no representation), the Company will treat
the Shares as having been issued pursuant to Rule 701 under the Securities Act
of 1933, as amended.
The Company further agrees that it will grant you piggyback registration
rights with respect to the Shares in any public offering subsequent to the
Company's IPO. Specifically, if, at any time when there is not an effective
registration statement, the Company shall determine to prepare and file with the
Securities Exchange Commission a registration statement relating to any such
subsequent public offering for its own account or the account of others under
the Securities Act of any of its equity securities, other than on Form S-4 or
Form S-8 (each as promulgated under the Securities Act) or their then
equivalents relating to equity securities to be issued solely in connection with
any acquisition of any entity or business or equity securities issuable in
connection with stock option or other employee benefit plans, the Company will
give you notice of such determination and, if within twenty (20) days after
receipt of such notice, you so request in writing, the Company shall include in
such registration statement such registrable Shares as you request to be
registered.
(c) STOCK. The Company has issued to you on and as of the Settlement
Date 2,000 shares of its Common Stock, in three certificates representing 1,700,
150 and 150 shares respectively, said certificates to be delivered to you
simultaneously with the delivery of a counterpart of this letter agreement
executed by the Company. The Company represents and warrants that, when issued
to you pursuant to the provisions of this Section 2(c) hereof and pursuant to
the exercise, in accordance with their terms, of the warrants described in
Section 2(b) hereof, the shares of Common Stock or other securities to be so
issued to you shall be duly issued free and clear of any liens or encumbrances,
fully paid and nonassessable by the Company.
(d) NO OTHER BENEFITS. You acknowledge that, except as set forth below in
subparagraphs 2(a)-(c) above, the Company has previously paid all amounts
payable to you under the Financial Advisory Agreement and all other compensation
or reimbursement arrangements, if any. From and after the date of this letter
agreement you shall have no right to compensation or benefits from the Company
beyond those specifically provided for in this letter agreement.
(e) RETURN OF COMPANY PROPERTY AND RETRIEVAL OF PERSONAL EFFECTS. You
acknowledge that you have returned to the Company as of the Settlement Date all
property of the Company, including any keys, Company documents and files, and
computer disks or files in your
2
<PAGE> 3
possession, custody or control. You further acknowledge that you have retrieved
from the Company as of the date of this letter agreement all of your personal
effects.
3. RELEASES. For good and valuable consideration, including the payments
and benefits set forth herein:
(a) YOU AGREE TO EXECUTE A FINAL AND BINDING GENERAL RELEASE AND WAIVER OF
ALL CLAIMS AGAINST THE COMPANY, ITS CONTROLLING SHARE HOLDERS, OFFICERS,
DIRECTORS, EMPLOYEES, SERVANTS, ATTORNEYS, AGENTS, REPRESENTATIVES , SUCCESSORS
AND ASSIGNS IN THE FORM ATTACHED HERETO AS EXHIBIT E, SAID RELEASE TO INCLUDE
CLAIMS ARISING OUT OF OR IN CONNECTION WITH THE FINANCIAL ADVISORY AGREEMENT -
AND OTHER CLAM ARISING OUT OF OR RELATING TO YOUR CONSULTATION AS A FINANCIAL
ADVISOR TO THE COMPANY; AND
(b) THE COMPANY AGREES TO EXECUTE A FINAL AND BINDING RELEASE AND WAIVER
OF ALL CLAIMS AGAINST YOU, YOUR HEIRS, SUCCESSORS AND ASSIGNS IN THE FORM
ATTACHED HERETO AS EXHIBIT F, SAID RELEASE TO INCLUDE CLAIMS ARISING OUT OF OR
IN CONNECTION WITH THE FINANCIAL ADVISORY AGREEMENT AND ALL OTHER CLAIMS ARISING
OUT OF OR RELATING TO YOUR CONSULTATION AS A FINANCIAL ADVISOR TO THE COMPANY.
4. REPRESENTATION AND WARRANTY. You represent and warrant that, to the
best of your knowledge as of the date of this letter agreement, you are not
aware of any facts that would give rise to any claims by you against the
Company, its controlling shareholders, officers, directors, employees, servants,
agents, attorneys or representatives. The Company represents and warrants that,
to the best of its knowledge as of the date of this letter agreement, it is not
aware of any facts that would give rise to any claims by the Company against
you.
5. COVENANT NOT TO SUE AND INDEMNITY.
(a) You covenant not to sue or bring any other legal proceeding against
the Company, its current or former controlling shareholders, officers,
directors, employees, servants, agents, representatives, attorneys and insurers,
past and present, or its and their agents, servants, representatives, heirs,
successors and assigns (collectively the "Company Covenantees"), concerning the
subject matter of the release set forth in Exhibit E hereto. If, notwithstanding
this covenant, you or your heirs, successors or assigns brings such suit or
other legal proceeding, you agree to indemnity and hold harmless the Company
Covenantees from and against any recovery on behalf of the Akhund Covenantees
(defined below) or any other person or entity and to pay the expenses, attorneys
fees and costs actually incurred in defending such suit or legal proceeding. You
further represent and warrant that you have never commenced or filed, and
covenant and agree never to commence, file, aid, solicit or in any way prosecute
or cause to be commenced or prosecuted against the Releasees (as defined in the
release set forth in Exhibit E) the bringing of any legal proceeding or the
making of any legal claim against the Company from the beginning of the world to
the Settlement Date.
(b) The Company and its successors or assigns covenant not to sue or bring
any other legal proceeding against you or your heirs, successors and assigns
(collectively the "Akhund
3
<PAGE> 4
Covenantees") concerning the subject matter of the release set forth in Exhibit
F hereto. If, notwithstanding this covenant, the Company or its successors or
assigns brings such suit or other legal proceeding, the Company agrees to
indemnity and hold harmless the Akhund Covenantees from and against any recovery
on behalf of the Company Covenantees or any other person or entity and to pay
the expenses, attorney's fees and costs actually incurred in defending such suit
or legal proceeding. The Company further represents and warrants that it has
never commenced or filed, and covenants and agrees never to commence, file, aid,
solicit or in any way prosecute or cause to be commenced or prosecuted against
the Releasees (as defined in the release set forth in Exhibit F) the bringing of
any legal proceeding or the making of any legal claim against you from the
beginning of the world to the Settlement Date.
6. NON-DISCLOSURE, CONFIDENTIALITY, AND COOPERATION.
(a) You will continue to be bound by the requirements of numbered
paragraph 3 of the Financial Advisory Agreement that you will not disclose
confidential information about the Company, its customers, officers, directors,
attorneys, employees, servants, agents or representatives -- including without
limitation about its operations or financial condition -- that is not publicly
available without the prior written consent of the Company or except as required
by law. You acknowledge and reaffirm that you remain bound by the terms and
conditions of said provisions. Except as set forth above, said Financial
Advisory Agreement is terminated and of no further effect as of the date of this
letter agreement. You and the Company each hereby acknowledge that, from and
after the date of this letter agreement, neither you nor the Company shall have
any obligations to each other, monetarily or otherwise, arising out of, under,
or relating to said Financial Advisory Agreement, except as expressly provided
in this letter agreement.
(b) You shall not disclose the terms of this letter agreement to any
person, organization or agency, except as required by legal process and then
only after notice is given by you to the Company such that, where feasible, the
Company will have a reasonable opportunity to oppose disclosure. The foregoing
is not intended to preclude you from disclosing the terms hereof to your counsel
or your accountant or tax advisors.
(c) The Company shall not disclose the terms of this letter agreement to
any person, organization or agency, except that such disclosures may be made to
the extent necessary to further a legitimate business interest of the Company.
It shall be within the Company's sole discretion to determine what constitutes a
legitimate business interest of the Company and also to determine to whom such
disclosure may be made, provided, however, that such legitimate business
interest cannot be for the purpose of disclosing confidential information not
publicly available about you, your family, customers, attorneys, employees,
servants, agents or representatives without your prior written consent or except
as required by law.
7. SUCCESSORS, ASSIGNS. This letter agreement shall be binding upon and
inure to the benefit of the respective legal representatives, heirs, successors,
assigns and present and former employees and agents of the parties hereto to the
extent permitted by law.
8. NON-ASSIGNMENT.
4
<PAGE> 5
(a) You warrant and represent to the Company that you have not
heretofore assigned or transferred or attempted to assign or transfer to any
person any claim or matter recited in the release set forth in Exhibit E or any
part or portion thereof, and agree to indemnity and hold harmless the Releasees
(as defined in the release set forth in Exhibit E) from and against any claim,
demand, damage, debt, liability, account, reckoning, obligation, cost, expense
(including the payment of attorney's fees and costs actually incurred whether or
not litigation be commenced), lien, action, and cause of action, based on, in
connection with, or arising out of any such assignment or transfer or attempted
assignment or transfer.
(b) The Company warrants and represents to you that it has not
heretofore assigned or transferred or attempted to assign or transfer to any
person any claim or matter recited in the release set forth in Exhibit F or any
part or portion thereof, and agrees to indemnity and hold harmless the Releasees
(as defined in the release set forth in Exhibit F) from and against any claim,
demand, damage, debt, liability, account, reckoning, obligation, cost, expense
(including the payment of attorney's fees and costs actually incurred whether or
not litigation be commenced), lien, action, and cause of action, based on, in
connection with, or arising out of any such assignment or transfer or attempted
assignment or transfer.
9. ATTORNEY'S FEES. Each party shall bear his or its own attorney's fees
and expenses.
10. REPRESENTATIONS AND RECITALS.
(a) In entering into this letter agreement, neither party has relied
upon any representation or warranty of the other except as otherwise expressly
set forth in said letter agreement. Specifically, and without limiting the
generality of the foregoing, the parties acknowledge and agree and each
understands that, by entering into the letter agreement, neither is representing
to the other that an IPO will take place. You acknowledge and agree that, while
it is the Company's intention to consummate an IPO of its Common Stock and that
the Company has been in discussions with various underwriters (including Raymond
James Associates, Inc.) for this purpose, no assurance can be given that the
Company will be able to consummate a public offering or that it will be able to
do so on terms or at a valuation acceptable to the Company. You acknowledge and
agree that the Company is under no obligation to consummate a public offering at
any time and you understand that, if the Company does not consummate a public
offering or does so at a low valuation, your warrants and shares of Common Stock
may have little or no value.
(b) You represent that you have been afforded an opportunity to ask
questions of management and that your questions have been answered to your
satisfaction.
(c) You represent that you are a sophisticated investor familiar with
the risks inherent in investing in privately held companies and that you have
sought financial and legal advice in connection with entering into this letter
agreement.
(d) You represent that you are acquiring the warrants and shares of
Common Stock for investment purposes and not with a view to distribution.
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<PAGE> 6
(e) You understand that the warrants and shares of Common Stock are
being sold to you without registration under the Securities Act of 1933, as
amended, and that the Company is relying upon your representations and
warranties in entering into this letter agreement.
11. GOVERNING LAW. This letter agreement shall be interpreted and
enforced in accordance with Massachusetts law.
12. COMPLETE AGREEMENT; MODIFICATION. This letter agreement recites the
full terms of the understanding between us, and supersedes any prior oral or
written understanding or agreements. It may be modified only in a writing signed
by both parties.
13.SEVERABILITY. Each term, condition or provision of this letter
agreement shall constitute an independent clause or provision severable from the
remainder of the terms, conditions or provisions. If any portion of this letter
agreement is contrary to, prohibited by or deemed invalid under applicable law
or regulation, or otherwise deemed unenforceable for any reason whatsoever, such
provision shall be inapplicable and deemed omitted to the extent so contrary,
prohibited or invalid, but the remainder hereof shall remain fully valid and
binding and shall be given full force and effect so far as possible.
14.EXECUTION. This letter agreement may be executed in one or more
counterparts, each of which when so executed shall be deemed to be an original,
and all such counterparts together shall constitute but one and the same
instrument.
* * * * *
If you agree to the foregoing, please execute and return to the
undersigned the enclosed copy of this letter agreement and the release that is
set forth in Exhibit E hereto.
IMPLANT SCIENCES CORPORATION
By:/s/ Anthony J. Armini
---------------------------------
Title: President
---------------------------------
I HAVE BEEN ADVISED BY MY COUNSEL OF THE RIGHTS WAIVED HEREIN. I HAVE THOROUGHLY
DISCUSSED ALL ASPECTS OF THIS LETTER AGREEMENT WITH MY ATTORNEY, I HAVE
CAREFULLY READ AND FULLY UNDERSTAND IT, AND I AM VOLUNTARILY ENTERING INTO THE
LETTER AGREEMENT AND PROVIDING THE RELEASE AND WAIVER.
Date: July 1, 1998 /s/ Erik Akhund
---------------------- -----------------------
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<PAGE> 7
Exhibit C
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND NEITHER
THIS WARRANT NOR SUCH SHARES MAY BE SOLD, ENCUMBERED OR OTHERWISE TRANSFERRED
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT LENDER SUCH ACT OR AN
EXTENSION FROM SUCH REGISTRATION REQUIREMENT, AND, IF AN EXEMPTION SHALL BE
APPLICABLE, THE HOLDER SHALL HAVE DELIVERED AN OPINION OF COUNSEL ACCEPTABLE TO
THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
Void after 5:00 p.m. Eastern Standard Time, on June 30, 2001.
WARRANT TO PURCHASE COMMON STOCK
OF
IMPLANT SCIENCES CORPORATION
FOR VALUE RECEIVED, IMPLANT SCIENCES CORPORATION, a Massachusetts Corporation
(the "Company"), hereby certifies that Erik S. Akhund, or his permitted assigns,
is entitled to purchase from the Company, at any time or from time to time
commencing on July 1, 1998 and prior to 5:00 P.M., Eastern Standard Time, on
June 30, 2001, a total of 14,440 fully paid and nonassessable shares of the
common stock, par value $.01 per share, of the Company for an aggregate purchase
price of $103.88 per share. (Hereinafter, (1) said common stock, together with
any other equity securities which may be issued by the Company with respect
thereto or in substitution therefor, is referred to as the "Common Stock", (ii)
the shares of the Common Stock purchasable hereunder are referred to as the
"Warrant Shares", (111) the aggregate purchase price payable hereunder for the
Warrant Shares is referred to as the "Aggregate Warrant Price", (iv) the price
payable hereunder for each of the Warrant Shares is referred to as the "Exercise
Price", (v) this Warrant, and all warrants hereafter issued in exchange or
substitution for this Warrant are referred to as the "Warrant" and (vi) the
holder of this Warrant is referred to as the "Holder".) The Exercise Price is
subject to adjustment as hereinafter provided.
1. Exercise of Warrant.
(a) Exercise. This Warrant may be exercised, in whole at any time or in
part from time to time, commencing on July 1, 1998 and prior to 5:00 P.M.,
Eastern Standard Time on June 30, 2001, by the Holder of this Warrant by the
surrender of this Warrant with the subscription form at the end hereof duly
executed) at the address set forth in Subsection 9(a) hereof, together with
proper payment of the Aggregate Warrant Price, or the proportionate part thereof
if this Warrant is exercised in part. Payment for Warrant Shares shall be made
by certified or official bank check payable to the order of the Company. If this
Warrant is exercised in part, the Holder is entitled to receive a new Warrant
covering the number of Warrant Shares in
7
<PAGE> 8
respect of which this Warrant has not been exercised and setting forth the
proportionate part of the Aggregate Warrant Price applicable to such Warrant
Shares. Upon such surrender of this Warrant, the Company will (a) issue a
certificate or certificates in the name of the Holder for the largest number of
whole shares of the Common Stock to which the Holder shall be entitled if this
Warrant is exercised in whole and (b) deliver the proportionate part thereof if
this Warrant is exercised in part, pursuant to the provisions of the Warrant. In
lieu of any fractional share of the Common Stock which would otherwise be
issuable in respect to the exercise of the Warrant, the Company at its option
(a) may pay in cash an amount equal to the product of (i) the daily mean average
of the Closing Price of a share of Common Stock on the ten consecutive trading
days before the Conversion Date and (ii) such fraction of a share or (b) may
issue an additional share of Common Stock.
Upon exercise of the Warrant, the Company shall issue and deliver to
the Holder certificates for the Common Stock issuable upon such exercise within
ten business days after such exercise and the person exercising shall be deemed
to be the holder of record of the Common Stock issuable upon such exercise.
No warrant granted herein shall be exercisable after 5:00 p.m. Eastern
Standard Time on the third anniversary of the date of issuance.
(b) Net Issuance. Notwithstanding anything to the contrary contained in
Subsection 1(a) hereof, in the case of any exercise on or prior to June 30, 2001
the Holder may elect to exercise this Warrant in whole or in part by receiving
shares of Common Stock equal to the net issuance value (as determined below) of
this Warrant, or any part hereof, upon surrender of this Warrant at the
principal office of the Company together with notice of such election (with the
form at the end hereof duly executed), in which event the Company shall issue to
the Holder a number of shares of Common Stock computed using the following
formula:
X= Y (A-B)
-------
A
Where: X = the number of shares of Common Stock to be issued
to the Holder
Y = the number of shares of Common Stock as to which
this Warrant is to be exercised
A = the current fair market value of one share of
Common Stock calculated as of the last trading
day immediately preceding the exercise of this
warrant
B = the Exercise Price
As used herein, current fair market value of the Common Stock as of a
specified date shall mean with respect to each share of Common Stock the average
of the closing bid prices of the Common Stock on the principal securities market
on which the Common Stock may at the time be traded over a period of five
business days consisting of the day as of which the current
8
<PAGE> 9
fair market value of a share of Common Stock is being determined (or if such day
is not a business day, the business day next preceding such day) and the four
consecutive business days prior to such day. If on the date for which current
fair market value is to be determined the Common Stock is not eligible for
trading on any securities market, the current fair market value of Common Stock
shall be the highest price per share which the Company could then obtain from a
willing buyer (not a current employee or director) for shares of Common Stock
sold by the Company, from authorized but unissued shares, as determined in good
faith by the Board of Directors of the Company, which determination shall be
conclusive, unless prior to such date the Company has become subject to a
merger, acquisition or other consolidation pursuant to which the Company is not
the surviving party, in which case the current fair market value of the Common
Stock shall be deemed to be the value received by the holders of the Company's
Common Stock for each share thereof pursuant to the Company's acquisition.
2. Consolidations and Mergers. In case of any consolidation or merger
of the Company with any other corporation (other than a wholly-owned subsidiary
of the Company), or in case of any sale or transfer of all or substantially all
of the assets of the Company, or in the case of any share exchange pursuant to
which all of the outstanding shares of Common Stock are converted into other
securities or property, the Company shall make appropriate provision of cause
appropriate provision to be made so that the Holder shall have the right
thereafter to obtain upon exercise of the Warrant the kind and amount of shares
of stock and other securities and property receivable upon such consolidation,
merger, sale, transfer, or share exchange by a holder of the number of shares of
Common Stock for which the Warrant may be exercised prior to the effective date
of such consolidation, merger, sale, transfer, or share exchange. If, in
connection with any such consolidation, merger, sale, transfer, or share
exchange, each holder of shares of Common Stock is entitled to elect to receive
either securities, cash, or other assets upon completion of such transaction,
the Company shall provide or cause to be provided to the Holder the right to
elect the securities, cash, or other assets for which the Warrant may be
exercised by such Holder subject to the same conditions applicable to holders of
the Common Stock (including, without limitation, notice of the right to elect,
limitations on the period in which such election shall be made, and the effect
of failing to exercise the election). The Company shall not effect any such
transaction unless the provisions of this paragraph have been complied with. The
above provisions shall similarly apply to successive consolidations, mergers,
sales, transfers, or share exchanges.
3. Adjustments. Notwithstanding anything in this Section 3 to the
contrary, no change in the Exercise Price shall actually be made until the
cumulative effect of the adjustments called for by this Section 3 since the date
of the last change in the Exercise Price would change the Exercise Price by more
than 1%. However, once the cumulative effect would result in such a change, then
the Exercise Price shall actually be changed to reflect all adjustments called
for by this Section 3 and not previously made. Notwithstanding anything in this
Section 3, no change in the Exercise Price shall be made that would result in an
Exercise Price of less than the par value of the Common Stock to be issued upon
exercise of this Warrant.
The "Closing Price" for each day shall be the closing price regular way
on such day as reported on the New York Stock Exchange Composite Tape, or, if
the Common Stock is not listed or admitted to trading on such Exchange, on the
principal national securities exchange on
9
<PAGE> 10
which Common Stock is listed or admitted to trading, or, if not listed or
admitted to trading on any national securities exchange, the closing bid price
as reported on the Nasdaq Stock Market (or, if not so reported, the closing
price), or, if not admitted for quotation on the Nasdaq Stock Market, the
average of the high bid and low asked prices on such day as recorded by the
National Association of Securities Dealers, Inc. through the National
Association of Securities Dealers Automated Quotations System ("NASDAQ"), or if
the National Association of Securities Dealers, Inc. through NASDAQ shall not
have reported any bid and asked prices for the Common Stock on such day, the
average of the bid and asked prices for such day as furnished by any New York
Stock Exchange member firm selected from time to time by the Company for such
purposes, or, if no such bid and asked prices can be obtained from any such
firm, the fair market value of one share of Common Stock on such day as
determined in good faith by the Board of Directors. Such determination by the
Board of Directors shall be conclusive.
Subject to the provisions of the first paragraph of this Section 3, the
Exercise Price and the Warrant Shares shall be equitably adjusted from time to
time to account for stock splits, stock dividends, combinations,
recapitalizations, reclassifications and similar events.
In addition, the Exercise Price shall be adjusted under certain
circumstances as follows:
(i) In case the Company shall issue rights or warrants to all
holders of the Common Stock entitling such holders to subscribe for or purchase
Common Stock on the record date referred to below at a price per share less than
the average daily Closing Prices of the Common Stock for the 30 consecutive
business days commencing 45 business days before the record date (the "Current
Market Price"), then in each such case the Exercise Price in effect on such
record date shall be adjusted in accordance with the formula
EP(1) = EP x O + (N x P/M)
-------------
O + N
where
EP(1) = the adjusted Exercise Price.
EP = the current Exercise Price.
O = the number of shares of Common Stock outstanding on the
record date.
N = the number of additional shares of Common
Stock issuable pursuant to the exercise of
such rights or warrants.
P = the offering price per share of the additional
shares (which amount shall include amounts received
by the Corporation in respect of the issuance and the
exercise of such fights or warrants).
M = the Current Market Price per share of Common Stock on
the record date,
10
<PAGE> 11
Such adjustment shall become effective immediately after the record date for the
determination of stockholders entitled to receive such rights or warrants. If
any or all such rights or warrants are not so issued or expire or terminate
before being exercised, the Exercise Price then in effect shall be readjusted
appropriately.
(ii) In case the Company shall, by dividend or otherwise,
distribute to all holders of its Common Stock evidences of its indebtedness or
assets (including securities, but excluding any warrants or subscription rights
referred to in subparagraph (i) above and any dividend or distribution paid in
cash out of the retained earnings of the Company), then in each such case the
Exercise Price then in effect shall be adjusted in accordance with the formula
EP(1) = EP x M-F
---
M
where
EPI = the adjusted Exercise Price.
EP = the current Exercise Pace.
M = the Current Market Price per share of Common Stock
on the record date mentioned below.
F = the aggregate amount of such cash dividend and/or
the fair market value on the record date of the
assets or securities to be distributed divided by the
number of shares of Common Stock outstanding on the
record date. The Board of Directors shall determine
such fair market value, which determination shall be
conclusive.
Such adjustment shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution.
(iii) All calculations hereunder shall be made to the nearest
cent or to the nearest 1/100 of a share, as the case may be.
(iv) If at any time as a result of an adjustment made pursuant
to Section 2, the Holder of any Warrant thereafter exercised shall become
entitled to receive securities, cash, or assets other than Common Stock, the
number or amount of such securities or property so receivable upon exercise
shall be subject to adjustment from time to time in a manner and on terms as
nearly equivalent as practicable to the provisions with respect to the Common
Stock contained in subparagraphs (i) to (iii) above.
Except as otherwise provided above in this Section 3, no adjustment in
the Exercise Price shall be made in respect of any conversion for share
distributions or dividends theretofore declared and paid or payable on the
Common Stock.
Whenever the Exercise Price is adjusted, the Company will give notice
by mail to the Holder, which notice shall be made within 45 days after the
effective date of such adjustment and
11
<PAGE> 12
shall state the adjustment and the Exercise Price. Notwithstanding the foregoing
notice provisions, failure by the Company to give such notice or a defect in
such notice shall not affect the binding nature of such corporate action of the
Company.
Whenever the Company shall propose to take any of the actions specified
in Section 2 or in subparagraphs (i) or (ii) of the third paragraph of this
Section 3 which would result in any adjustment in the Exercise Price under this
Section 3, the Company shall cause a notice to be mailed at least 30 days prior
to the date on which the books of the Company will close or on which a record
will be taken for such action, to the Holder. Such notice shall specify the
action proposed to be taken by the Company and the date as of which holders of
record of the Common Stock shall participate in any such actions or be entitled
to exchange their Common Stock for securities or other property, as the case may
be. Failure by the Corporation to mail the notice or any defect in such notice
shall not affect the validity of the transaction.
Notwithstanding any other provision of this Section 3, no adjustment in
the Exercise Price need be made (a) for sales of Common Stock pursuant to a plan
for reinvestment of dividends and interest, provided that the purchase price in
any such sale is at least equal to the fair market value of the Common Stock at
the time of such purchase, or pursuant to any plan adopted by the Corporation
for the benefit of its employees, directors, or consultants, or (b) after the
Common Stock becomes convertible into cash (no interest shall accrue on the
cash).
4. Reservation of Warrant Shares. The Company agrees that, prior to the
expiration of this Warrant, the Company will at all times have authorized and
reserved, and will keep available, solely for issuance or delivery upon the
exercise of this Warrant, the number of shares of the Common Stock as from time
to time shall be receivable upon the exercise of this Warrant.
5. Fully Paid Stock: Taxes. The Company agrees that the shares of the
Common Stock represented by each and every certificate for Warrant Shares
delivered on the exercise of this Warrant shall, at the time of such delivery,
be validly issued and outstanding, fully paid and nonassessable, and not subject
to preemptive rights, and the Company will take all such actions as may be
necessary to assure that the par value or stated value, if any, per share of the
Common Stock is at all times equal to or less than the then Exercise Price. The
Company further covenants and agrees that it will pay, when due and payable, any
and all Federal and state stamp, original issue or taxes that may be payable in
respect of the issue of any Warrant Share or certificate therefor.
6. Transfer.
(a) Securities Laws. Neither this Warrant nor the Warrant Shares issuable
upon the exercise hereof have been registered under the Securities Act of 1933,
as amended (the "Securities Act"), or under any state securities laws and
unless so registered may not be transferred, sold, pledged, hypothecated or
otherwise disposed of unless an exemption from such registration is available.
In the event Holder desires to transfer this Warrant or any of the Warrant
Shares issued, the Holder must give the Company prior written notice of such
proposed transfer including the name and address of the proposed transferee.
Such transfer may be made only either (i) upon publication by the Securities and
Exchange Commission (the "Commission")
12
<PAGE> 13
of a ruling, interpretation, opinion or "no action letter" based upon facts
presented to said Commission, or (ii) upon receipt by the Company of an opinion
of counsel to the Company in either case to the effect that the proposed
transfer will not violate the provisions of the Securities Act, the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), or the rules and
regulations promulgated under either such act, or in the case of clause (ii)
above, to the effect that the Warrant or Warrant Shares to be sold or
transferred has been registered under the Securities Act and that there is in
effect a registration statement in which is included a prospectus meeting the
requirements of Subsection 10(a) of the Securities Act, which is being or will
be delivered to the purchaser or transferee at or prior to the time of delivery
of the certificates evidencing the Warrant or Warrant Stock to be sold or
transferred.
(b) Conditions to Transfer. Prior to any such proposed transfer, and as a
condition thereto, if such transfer is not made pursuant to an effective
registration statement under the Securities Act, the Holder will, if requested
by the Company, deliver to the Company (i) an investment covenant signed by the
proposed transferee, (ii) an agreement by such transferee to the impression of
the restrictive investment legend set forth herein on the certificate or
certificates representing the securities acquired by such transferee, (iii) an
agreement by such transferee that the Company may place a "stop transfer order"
with its transfer agent or registrar, and (iv) an agreement by the transferee to
indemnify the Company to the same extent as set forth in the next succeeding
paragraph.
(c) Indemnity. The Holder acknowledges that the Holder understands the
meaning and legal consequences of this Section 6, and the Holder hereby agrees
to indemnify and hold harmless the Company, its representatives and each officer
and director thereof from and against any and all loss, damage or liability
(including all attorneys' fees and costs incurred in enforcing this indemnity
provision) due to or arising out of (a) the inaccuracy of any representation or
the breach of any warranty of the Holder contained in, or any other breach of,
this warrant, (b) any transfer of the Warrant or any of the Warrant Shares in
violation of the Securities Act, the Exchange Act or the rules and regulations
promulgated under either of such acts, (c) any transfer of the Warrant or any of
the Warrant Shares not in accordance with this Warrant or (d) any untrue
statement or omission to state any material fact in connection with the
investment representations or with respect to the facts and representations
supplied by the Holder to counsel to the Company upon which its opinion as to a
proposed transfer shall have been based.
(d) Transfer. Except as restricted hereby, this Warrant and the Warrant
Shares issued may be transferred by the Holder in whole or in part at any time
or from time to time. Upon surrender of this Warrant to the Company or at the
office of its stock transfer agent, if any, with assignment documentation duly
executed and funds sufficient to pay any transfer tax, and upon compliance with
the foregoing provisions, the Company shall, without charge, execute and deliver
a new Warrant in the name of the assignee named in such instrument of
assignment, and this Warrant shall promptly be canceled. Any assignment,
transfer, pledge, hypothecation or other disposition of this Warrant attempted
contrary to the provisions of this Warrant, or any levy of execution, attachment
or other process attempted upon the Warrant, shall be null and void and without
effect.
13
<PAGE> 14
(e) Legend and Stop Transfer Orders. Unless the Warrant Shares have
been registered under the Securities Act, upon exercise of any part of the
Warrant and the issuance of any of the Warrant Shares, the Company shall
instruct its transfer agent to enter stop transfer orders with respect to such
shares, and all certificates representing Warrant Shares shall bear on the face
thereof substantially the following legend, insofar as is consistent with
Massachusetts law:
"The shares of common stock represented by this certificate
have not been registered under the Securities Act of 1933, as
amended, and may not be sold, offered for sale, assigned,
transferred or otherwise disposed of unless registered
pursuant to the provisions of that Act or an opinion of
counsel to the Company is obtained stating that such
disposition is in compliance with an available exemption from
such registration."
7. Loss, etc. of Warrant. Upon receipt of evidence satisfactory to the
Company of the loss, theft, destruction or mutilation of this Warrant, and of an
unsecured indemnity from the Holder reasonably satisfactory to the Company, if
lost, stolen or destroyed, and upon surrender and cancellation of the Warrant,
if mutilated, the Company shall execute and deliver to the Holder a new Warrant
of like date, tenor and denomination.
8. Warrant Holder Not Shareholder. Except as otherwise provided herein,
this Warrant does not confer upon the Holder any right to vote or to consent to
or receive notice as a shareholder of the Company, as such, in respect of any
matters whatsoever, or any other fights or liabilities as a shareholder, prior
to the exercise hereof.
9. Communication. No notice or other communication under this Warrant
shall be effective unless the same is in Writing and is mailed by certified
mail, return receipt requested, addressed to:
(a) the Company at 107 Audubon Road #5, Wakefield,
Massachusetts 01880-1246, or such other address as the Company has designated in
writing to the Holder, with a copy to David A. Broadwin, Foley, Hoag & Eliot,
One Post Office Square, Boston, Massachusetts 02110, or
(b) the Holder at 292 Fifth Avenue, New York, New
York 10001, or such other address as the Holder has designated in writing to the
Company.
Any notice given hereunder shall be effective upon the earlier
of (i) receipt, or (ii) a date three days from the date of posting.
10. Headings. The headings of this Warrant have been inserted as a
matter of convenience and shall not affect the construction hereof
11. Applicable Law. This Warrant shall be governed by and construed in
accordance with the law of the State of Massachusetts without giving effect to
the principles of conflicts of law thereof
14
<PAGE> 15
IN WITNESS WHEREOF, IMPLANT SCIENCES CORPORATION has caused this
Warrant to be signed by its President and Chief Executive Officer and its
corporate seal to be hereunto affixed and attested by its Secretary this 1st day
of July, 1998.
ATTEST: IMPLANT SCIENCES CORPORATION
/s/ Stephen N. Bunker BY: /s/ A. J. Armini
- --------------------- ---------------------------
Anthony J. Armini, Ph.D.
President and Chief Executive Officer
[Corporate Seal]
15
<PAGE> 16
SUBSCRIPTION
The undersigned, _______________________, pursuant to the provisions of
the foregoing Warrant, hereby agrees to subscribe for the purchase of _______
shares of the Common Stock of IMPLANT SCIENCES CORPORATION covered by said
Warrant, and makes payment therefor in full at the price per share provided by
said Warrant.
Dated:______________________ Signature:__________________________________
Address:__________________________________
__________________________________
__________________________________
ASSIGNMENT
FOR VALUE RECEIVED ___________________________ hereby sells, assigns
and transfers unto ______________________________________ the foregoing Warrant
and all rights evidenced thereby, and does irrevocably constitute and appoint
___________________ attorney, to transfer said Warrant on the books of IMPLANT
SCIENCES CORPORATION.
Dated:______________________ Signature:__________________________________
Address:__________________________________
__________________________________
__________________________________
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED ________________________ hereby sells, assigns and transfers
unto ___________________________ the right to purchase ______ shares of the
Common Stock of PLANT SCIENCES CORPORATION by the foregoing Warrant, and a
proportionate paint of said Warrant and the fights evidenced hereby, and does
irrevocably constitute and appoint _______________________ attorney, to transfer
that part of said Warrant on the books of IMPLANT SCIENCES CORPORATION.
Dated:______________________ Signature:__________________________________
Address:__________________________________
__________________________________
__________________________________
NET ISSUANCE ELECTION
The undersigned, ______________________, pursuant to the provisions of
the foregoing Warrant, hereby tenders the right to purchase ______ shares of the
Common Stock of IMPLANT
16
<PAGE> 17
SCIENCES CORPORATION, and a proportionate part of said Warrant and the rights
evidenced thereby, in exchange for a number of shares of said Common Stock to be
computed in accordance with the provisions of Section I(b) of said Warrant.
Dated:______________________ Signature:__________________________________
Address:__________________________________
__________________________________
__________________________________
17
<PAGE> 18
Exhibit D
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND NEITHER
THIS WARRANT NOR SUCH SHARES MAY BE SOLD, ENCUMBERED OR OTHERWISE TRANSFERRED
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT LENDER SUCH ACT OR AN
EXTENSION FROM SUCH REGISTRATION REQUIREMENT, AND, IF AN EXEMPTION SHALL BE
APPLICABLE, THE HOLDER SHALL HAVE DELIVERED AN OPINION OF COUNSEL ACCEPTABLE TO
THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
Void after 5:00 p.m. Eastern Standard Time, on June 30, 2001.
WARRANT TO PURCHASE COMMON STOCK
OF
IMPLANT SCIENCES CORPORATION
FOR VALUE RECEIVED, IMPLANT SCIENCES CORPORATION, a Massachusetts Corporation
(the "Company"), hereby certifies that Erik S. Akhund, or his permitted
assigns, is entitled to purchase from the Company, at any time or from time to
time commencing on July 1, 1998 and prior to 5:00 P.M., Eastern Standard Time,
on June 30, 2001, a total of 1500 fully paid and nonassessable shares of the
common stock, par value $.01 per share, of the Company for an aggregate purchase
price of $9.03 per share. (Hereinafter, (i) said common stock, together with any
other equity securities which may be issued by the Company with respect thereto
or in substitution therefor, is referred to as the "Common Stock", (ii) the
shares of the Common Stock purchasable hereunder are referred to as the "Warrant
Shares", (iii) the aggregate purchase price payable hereunder for the Warrant
Shares is referred to as the "Aggregate Warrant Price", (iv) the price payable
hereunder for each of the Warrant Shares is referred to as the "Exercise Price",
(v) this Warrant, and all warrants hereafter issued in exchange or substitution
for this Warrant are referred to as the "Warrant" and (vi) the holder of this
Warrant is referred to as the "Holder".) The Exercise Price is subject to
adjustment as hereinafter provided.
1. Exercise of Warrant.
(a) Exercise. This Warrant may be exercised, in whole at any time or
in part from time to time, commencing on July 1, 1998 and prior to 5:00 P.M.,
Eastern Standard Time on June 30, 2001, by the Holder of this Warrant by the
surrender of this Warrant (with the subscription form at the end hereof duly
executed) at the address set forth in Subsection 9(a) hereof, together with
proper payment of the Aggregate Warrant Price, or the proportionate part thereof
if this Warrant is exercised in part. Payment for Warrant Shares shall be made
by certified or official bank check payable to the order of the Company. If this
Warrant is exercised in part, the Holder is entitled to receive a new Warrant
covering the number of Warrant Shares in respect of which this Warrant has not
been exercised and setting forth the proportionate part of the Aggregate
18
<PAGE> 19
Warrant Price applicable to such Warrant Shares. Upon such surrender of this
Warrant, the Company will (a) issue a certificate or certificates in the name of
the Holder for the largest number of whole shares of the Common Stock to which
the Holder shall be entitled if this Warrant is exercised in whole and (b)
deliver the proportionate part thereof if this Warrant is exercised in part,
pursuant to the provisions of the Warrant. In lieu of any fractional share of
the Common Stock which would otherwise be issuable in respect to the exercise of
the Warrant, the Company at its option (a) may pay in cash an amount equal to
the product of (i) the daily mean average of the Closing Price of a share of
Common Stock on the ten consecutive trading days before the Conversion Date and
(ii) such fraction of a share or (b) may issue an additional share of Common
Stock.
Upon exercise of the Warrant, the Company shall issue and deliver to
the Holder certificates for the Common Stock issuable upon such exercise within
ten business days after such exercise and the person exercising shall be deemed
to be the holder of record of the Common Stock issuable upon such exercise.
No warrant granted herein shall be exercisable after 5:00 p.m. Eastern
Standard Time on the third anniversary of the date of issuance.
(b) Net Issuance. Notwithstanding anything to the contrary contained in
Subsection 1(a) hereof, in the case of any exercise on or prior to June 30, 2001
the Holder may elect to exercise this Warrant in whole or in part by receiving
shares of Common Stock equal to the net issuance value (as determined below) of
this Warrant, or any part hereof, upon surrender of this Warrant at the
principal office of the Company together with notice of such election (with the
form at the end hereof duly executed), in which event the Company shall issue
to the Holder a number of shares of Common Stock computed using the following
formula:
X= Y (A-B)
------
A
Where: X = the number of shares of Common Stock to be issued
to the Holder
Y = the number of shares of Common Stock as to which
this Warrant is to be exercised
A = the current fair market value of one share of
Common Stock calculated as of the last trading
day immediately preceding the exercise of this
warrant
B = the Exercise Price
As used herein, current fair market value of the Common Stock as of a
specified date shall mean with respect to each share of Common Stock the average
of the closing bid prices of the Common Stock on the principal securities market
on which the Common Stock may at the time be traded over a period of five
business days consisting of the day as of which the current fair market value of
a share of Common Stock is being determined (or if such day is not a business
day, the
19
<PAGE> 20
business day next preceding such day) and the four consecutive business days
prior to such day. If on the date for which current fair market value is to be
determined the Common Stock is not eligible for trading on any securities
market, the current fair market value of Common Stock shall be the highest price
per share which the Company could then obtain from a willing buyer (not a
current employee or director) for shares of Common Stock sold by the Company,
from authorized but unissued shares, as determined in good faith by the Board of
Directors of the Company, which determination shall be conclusive, unless prior
to such date the Company has become subject to a merger, acquisition or other
consolidation pursuant to which the Company is not the surviving party, in which
case the current fair market value of the Common Stock shall be deemed to be the
value received by the holders of the Company's Common Stock for each share
thereof pursuant to the Company's acquisition.
2. Consolidations and Mergers. In case of any consolidation or merger
of the Company with any other corporation (other than a wholly-owned subsidiary
of the Company), or in case of any sale or transfer of all or substantially all
of the assets of the Company, or in the case of any share exchange pursuant to
which all of the outstanding shares of Common Stock are converted into other
securities or property, the Company shall make appropriate provision of cause
appropriate provision to be made so that the Holder shall have the right
thereafter to obtain upon exercise of the Warrant the kind and amount of shares
of stock and other securities and property receivable upon such consolidation,
merger, sale, transfer, or share exchange by a holder of the number of shares of
Common Stock for which the Warrant may be exercised prior to the effective date
of such consolidation, merger, sale, transfer, or share exchange. If, in
connection with any such consolidation, merger, sale, transfer, or share
exchange, each holder of shares of Common Stock is entitled to elect to receive
either securities, cash, or other assets upon completion of such transaction,
the Company shall provide or cause to be provided to the Holder the right to
elect the securities, cash, or other assets for which the Warrant may be
exercised by such Holder subject to the same conditions applicable to holders of
the Common Stock (including, without limitation, notice of the right to elect,
limitations on the period in which such election shall be made, and the effect
of failing to exercise the election). The Company shall not effect any such
transaction unless the provisions of this paragraph have been complied with. The
above provisions shall similarly apply to successive consolidations, mergers,
sales, transfers, or share exchanges.
3. Adjustments. Notwithstanding anything in this Section 3 to the
contrary, no change in the Exercise Price shall actually be made until the
cumulative effect of the adjustments called for by this Section 3 since the date
of the last change in the Exercise Price would change the Exercise Price by more
than 1%. However, once the cumulative effect would result in such a change, then
the Exercise Price shall actually be changed to reflect all adjustments called
for by this Section 3 and not previously made. Notwithstanding anything in this
Section 3, no change in the Exercise Price shall be made that would result in an
Exercise Price of less than the par value of the Common Stock to be issued upon
exercise of this Warrant.
The "Closing Price" for each day shall be the closing price regular way
on such day as reported on the New York Stock Exchange Composite Tape, or, if
the Common Stock is not listed or admitted to trading on such Exchange, on the
principal national securities exchange on which Common Stock is listed or
admitted to trading, or, if not listed or admitted to trading on any national
securities exchange, the closing bid price as reported on the Nasdaq Stock
Market (or, if
20
<PAGE> 21
not so reported, the closing price), or, if not admitted for quotation on the
Nasdaq Stock Market, the average of the high bid and low asked prices on such
day as recorded by the National Association of Securities Dealers, Inc. through
the National Association of Securities Dealers Automated Quotations System
("NASDAQ"), or if the National Association of Securities Dealers, Inc. through
NASDAQ shall not have reported any bid and asked prices for the Common Stock on
such day, the average of the bid and asked prices for such day as furnished by
any New York Stock Exchange member firm selected from time to time by the
Company for such purposes, or, if no such bid and asked prices can be obtained
from any such firm, the fair market value of one share of Common Stock on such
day as determined in good faith by the Board of Directors. Such determination by
the Board of Directors shall be conclusive.
Subject to the provisions of the first paragraph of this Section 3, the
Exercise Price and the Warrant Shares shall be equitably adjusted from time to
time to account for stock splits, stock dividends, combinations,
recapitalizations, reclassifications and similar events.
In addition, the Exercise Price shall be adjusted under certain
circumstances as follows:
(i) In case the Company shall issue rights or warrants to all
holders of the Common Stock entitling such holders to subscribe for or purchase
Common Stock on the record date referred to below at a price per share less than
the average daily Closing Prices of the Common Stock for the 30 consecutive
business days commencing 45 business days before the record date (the "Current
Market Price"), then in each such case the Exercise Price in effect on such
record date shall be adjusted in accordance with the formula
EP(1) = EP x O + (N x P/M
-------
O + N
where
EP(1) = the adjusted Exercise Price.
EP = the current Exercise Price.
O = the number of shares of Common Stock outstanding on the
record date.
N = the number of additional shares of Common Stock
issuable pursuant to the exercise of such rights or
warrants.
P = the offering price per share of the additional
shares (which amount shall include amounts received
by the Corporation in respect of the issuance and the
exercise of such fights or warrants).
M = the Current Market Price per share of Common Stock on
the record date,
Such adjustment shall become effective immediately after the record date for the
determination of stockholders entitled to receive such rights or warrants. If
any or all such rights or warrants are not
21
<PAGE> 22
so issued or expire or terminate before being exercised, the Exercise Price then
in effect shall be readjusted approximately.
(ii) In case the Company shall, by dividend or otherwise,
distribute to all holders of its Common Stock evidences of its indebtedness or
assets (including securities, but excluding any warrants or subscription rights
referred to in subparagraph (i) above and any dividend or distribution paid in
cash out of the retained earnings of the Company), then in each such case the
Exercise Price then in effect shall be adjusted in accordance with the formula
EP(1) = EP x M-F
---
M
where
EPI = the adjusted Exercise Price.
EP = the current Exercise Pace.
M = the Current Market Price per share of Common Stock
on the record date mentioned below.
F = the aggregate amount of such cash dividend and/or
the fair market value on the record date of the
assets or securities to be distributed divided by the
number of shares of Common Stock outstanding on the
record date. The Board of Directors shall determine
such fair market value, which determination shall be
conclusive.
Such adjustment shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution.
(iii) All calculations hereunder shall be made to the nearest
cent or to the nearest 1/100 of a share, as the case may be.
(iv) If at any time as a result of an adjustment made pursuant
to Section 2, the Holder of any Warrant thereafter exercised shall become
entitled to receive securities, cash, or assets other than Common Stock, the
number or amount of such securities or property so receivable upon exercise
shall be subject to adjustment from time to time in a manner and on terms as
nearly equivalent as practicable to the provisions with respect to the Common
Stock contained in subparagraphs (i) to (iii) above.
Except as otherwise provided above in this Section 3, no adjustment in
the Exercise Price shall be made in respect of any conversion for share
distributions or dividends theretofore declared and paid or payable on the
Common Stock.
Whenever the Exercise Price is adjusted, the Company will give notice
by mail to the Holder, which notice shall be made within 45 days after the
effective date of such adjustment and shall state the adjustment and the
Exercise Price. Notwithstanding the foregoing notice provisions, failure by the
Company to give such notice or a defect in such notice shall not affect the
binding nature of such corporate action of the Company.
22
<PAGE> 23
Whenever the Company shall propose to take any of the actions specified
in Section 2 or in subparagraphs (i) or (ii) of the third paragraph of this
Section 3 which would result in any adjustment in the Exercise Price under this
Section 3, the Company shall cause a notice to be mailed at least 30 days prior
to the date on which the books of the Company will close or on which a record
will be taken for such action, to the Holder. Such notice shall specify the
action proposed to be taken by the Company and the date as of which holders of
record of the Common Stock shall participate in any such actions or be entitled
to exchange their Common Stock for securities or other property, as the case may
be. Failure by the Corporation to mail the notice or any defect in such notice
shall not affect the validity of the transaction.
Notwithstanding any other provision of this Section 3, no adjustment in
the Exercise Price need be made (a) for sales of Common Stock pursuant to a plan
for reinvestment of dividends and interest, provided that the purchase price in
any such sale is at least equal to the fair market value of the Common Stock at
the time of such purchase, or pursuant to any plan adopted by the Corporation
for the benefit of its employees, directors, or consultants, or (b) after the
Common Stock becomes convertible into cash (no interest shall accrue on the
cash).
4. Reservation of Warrant Shares. The Company agrees that, prior to the
expiration of this Warrant, the Company will at all times have authorized and
reserved, and will keep available, solely for issuance or delivery upon the
exercise of this Warrant, the number of shares of the Common Stock as from time
to time shall be receivable upon the exercise of this Warrant.
5. Fully Paid Stock: Taxes. The Company agrees that the shares of the
Common Stock represented by each and every certificate for Warrant Shares
delivered on the exercise of this Warrant shall, at the time of such delivery,
be validly issued and outstanding, fully paid and nonassessable, and not subject
to preemptive rights, and the Company will take all such actions as may be
necessary to assure that the par value or stated value, if any, per share of the
Common Stock is at all times equal to or less than the then Exercise Price. The
Company further covenants and agrees that it will pay, when due and payable, any
and all Federal and state stamp, original issue or taxes that may be payable in
respect of the issue of any Warrant Share or certificate therefor.
6. Transfer.
(a) Securities Laws. Neither this Warrant nor the Warrant Shares
issuable upon the exercise hereof have been registered under the Securities Act
of 1933, as amended (the "Securities Act"), or under any state securities laws
and unless so registered may not be transferred, sold, pledged, hypothecated or
otherwise disposed of unless an exemption from such registration is available.
In the event Holder desires to transfer this Warrant or any of the Warrant
Shares issued, the Holder must give the Company prior written notice of such
proposed transfer including the name and address of the proposed transferee.
Such transfer may be made only either (i) upon publication by the Securities and
Exchange Commission (the "Commission") of a ruling, interpretation, opinion or
"no action letter" based upon facts presented to said Commission, or (ii) upon
receipt by the Company of an opinion of counsel to the Company in either case to
the effect that the proposed transfer will not violate the provisions of the
Securities Act, the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), or the rules and regulations promulgated
23
<PAGE> 24
under either such act, or in the case of clause (ii) above, to the effect that
the Warrant or Warrant Shares to be sold or transferred has been registered
under the Securities Act and that there is in effect a registration statement in
which is included a prospectus meeting the requirements of Subsection 10(a) of
the Securities Act, which is being or will be delivered to the purchaser or
transferee at or prior to the time of delivery of the certificates evidencing
the Warrant or Warrant Stock to be sold or transferred.
(b) Conditions to Transfer. Prior to any such proposed transfer, and as
a condition thereto, if such transfer is not made pursuant to an effective
registration statement under the Securities Act, the Holder will, if requested
by the Company, deliver to the Company (i) an investment covenant signed by the
proposed transferee, (ii) an agreement by such transferee to the impression of
the restrictive investment legend set forth herein on the certificate or
certificates representing the securities acquired by such transferee, (iii) an
agreement by such transferee that the Company may place a "stop transfer order"
with its transfer agent or registrar, and (iv) an agreement by the transferee to
indemnify the Company to the same extent as set forth in the next succeeding
paragraph.
(c) Indemnity. The Holder acknowledges that the Holder understands the
meaning and legal consequences of this Section 6, and the Holder hereby agrees
to indemnify and hold harmless the Company, its representatives and each officer
and director thereof from and against any and all loss, damage or liability
(including all attorneys' fees and costs incurred in enforcing this indemnity
provision) due to or arising out of (a) the inaccuracy of any representation or
the breach of any warranty of the Holder contained in, or any other breach of,
this warrant, (b) any transfer of the Warrant or any of the Warrant Shares in
violation of the Securities Act, the Exchange Act or the rules and regulations
promulgated under either of such acts, (c) any transfer of the Warrant or any of
the Warrant Snares not in accordance with this Warrant or (d) any untrue
statement or omission to state any material fact in connection with the
investment representations or with respect to the facts and representations
supplied by the Holder to counsel to the Company upon which its opinion as to a
proposed transfer shall have been based.
(d) Transfer. Except as restricted hereby, this Warrant and the Warrant
Shares issued may be transferred by the Holder in whole or in part at any time
or from time to time. Upon surrender of this Warrant to the Company or at the
office of its stock transfer agent, if any, with assignment documentation duly
executed and funds sufficient to pay any transfer tax, and upon compliance with
the foregoing provisions, the Company shall, without charge, execute and deliver
a new Warrant in the name of the assignee named in such instrument of
assignment, and this Warrant shall promptly be canceled. Any assignment,
transfer, pledge, hypothecation or other disposition of this Warrant attempted
contrary to the provisions of this Warrant, or any levy of execution, attachment
or other process attempted upon the Warrant, shall be null and void and without
effect.
(e) Legend and Stop Transfer Orders. Unless the Warrant Shares have
been registered under the Securities Act, upon exercise of any part of the
Warrant and the issuance of any of the Warrant Shares, the Company shall
instruct its transfer agent to enter stop transfer orders with respect to such
shares, and all certificates representing Warrant Shares shall bear on the face
thereof substantially the following legend, insofar as is consistent with
Massachusetts law:
24
<PAGE> 25
"The shares of common stock represented by this certificate
have not been registered under the Securities Act of 1933, as
amended, and may not be sold, offered for sale, assigned,
transferred or otherwise disposed of unless registered
pursuant to the provisions of that Act or an opinion of
counsel to the Company is obtained stating that such
disposition is in compliance with an available exemption from
such registration."
7. Loss, etc. of Warrant. Upon receipt of evidence satisfactory to the
Company of the loss, theft, destruction or mutilation of this Warrant, and of an
unsecured indemnity from the Holder reasonably satisfactory to the Company, if
lost, stolen or destroyed, and upon surrender and cancellation of the Warrant,
if mutilated, the Company shall execute and deliver to the Holder a new Warrant
of like date, tenor and denomination.
8. Warrant Holder Not Shareholder. Except as otherwise provided herein,
this Warrant does not confer upon the Holder any right to vote or to consent to
or receive notice as a shareholder of the Company, as such, in respect of any
matters whatsoever, or any other fights or liabilities as a shareholder, prior
to the exercise hereof.
9. Communication. No notice or other communication under this Warrant
shall be effective unless the same is In Writing and is mailed by certified
mail, return receipt requested, addressed to:
(a) the Company at 107 Audubon Road #5, Wakefield,
Massachusetts 01880-1246, or such other address as the Company has designated in
writing to the Holder, with a copy to David A. Broadwin, Foley, Hoag & Eliot,
One Post Office Square, Boston, Massachusetts 02110, or
(b) the Holder at 292 Fifth Avenue, New York, New
York 10001, or such other address as the Holder has designated in writing to the
Company.
Any notice given hereunder shall be effective upon the earlier
of (i) receipt, or (ii) a date three days from the date of posting.
10. Headings. The headings of this Warrant have been inserted as a
matter of convenience and shall not affect the construction hereof.
11. Applicable Law. This Warrant shall be governed by and construed in
accordance with the law of the State of Massachusetts without giving effect to
the principles of conflicts of law thereof.
IN WITNESS WHEREOF, IMPLANT SCIENCES CORPORATION has caused this
Warrant to be signed by its President and Chief Executive Officer and its
corporate seal to be hereunto affixed and attested by its Secretary this 1st day
of July, 1998.
ATTEST: IMPLANT SCIENCES CORPORATION
25
<PAGE> 26
/s/ Stephen Bunker BY: /s/ A. J. Armini
- ------------------ ------------------------------------
Anthony J. Armini, Ph.D.
President and Chief Executive Officer
[Corporate Seal]
26
<PAGE> 27
SUBSCRIPTION
The undersigned, _______________________, pursuant to the provisions of
the foregoing Warrant, hereby agrees to subscribe for the purchase of _______
shares of the Common Stock of IMPLANT SCIENCES CORPORATION covered by said
Warrant, and makes payment therefor in full at the price per share provided by
said Warrant.
Dated:______________________ Signature:__________________________________
Address:_________________________
_________________________
_________________________
ASSIGNMENT
FOR VALUE RECEIVED ___________________________ hereby sells, assigns
and transfers unto ______________________________________ the foregoing Warrant
and all rights evidenced thereby, and does irrevocably constitute and appoint
___________________ attorney, to transfer said Warrant on the books of IMPLANT
SCIENCES CORPORATION.
Dated:______________________ Signature:__________________________________
Address:_________________________
_________________________
_________________________
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED ________________________ hereby sells, assigns and transfers
unto ___________________________ the right to purchase ______ shares of the
Common Stock of PLANT SCIENCES CORPORATION by the foregoing Warrant, and a
proportionate paint of said Warrant and the fights evidenced hereby, and does
irrevocably constitute and appoint _______________________ attorney, to transfer
that part of said Warrant on the books of IMPLANT SCIENCES CORPORATION.
Dated:______________________ Signature:__________________________________
Address:_________________________
_________________________
_________________________
NET ISSUANCE ELECTION
The undersigned, ______________________, pursuant to the provisions of
the foregoing Warrant, hereby tenders the right to purchase ______ shares of the
Common Stock of IMPLANT
27
<PAGE> 28
SCIENCES CORPORATION, and a proportionate part of said Warrant and the rights
evidenced thereby, in exchange for a number of shares of said Common Stock to be
computed in accordance with the provisions of Section I (b) of said Warrant.
Dated:______________________ Signature:__________________________________
Address:_________________________
_________________________
_________________________
28
<PAGE> 1
EXHIBIT 10.30
IMPLANT SCIENCES CORPORATION
1992 STOCK OPTION PLAN
ARTICLE I
PURPOSE OF THE PLAN
The purpose of this Plan is to encourage and enable employees,
consultants, directors and others who are in a position to make significant
contributions to the success of IMPLANT SCIENCES CORPORATION and of its
affiliated corporations upon whose judgment, initiative and efforts the
Corporation depends for the successful conduct of its business, to acquire a
closer identification of their interests with those of the Corporation by
providing them with opportunities to purchase stock in the Corporation pursuant
to options granted hereunder, thereby stimulating their efforts on behalf of the
Corporation and strengthening their desire to remain involved with the
Corporation. Any employee, consultant or advisor designated to participate in
the Plan is referred to as a "Participant."
ARTICLE II
DEFINITIONS
2.1 "Affiliated Corporation" means any stock corporation of which a
majority of the voting common or capital stock is owned directly or indirectly
by the Corporation.
2.2 "Award" means an Option granted under Article V.
2.3 "Board" means the Board of Directors of the Corporation or, if one
or more has been appointed, a Committee of the Board of Directors of the
Corporation.
2.4 "Code" means the Internal Revenue Code of 1986, as amended from
time to time.
2.5 "Committee" means a Committee of not less than two members of the
Board appointed by the Board to administer the Plan.
2.6 "Corporation" means IMPLANT SCIENCES CORPORATION a Massachusetts
corporation, or its successor.
2.7 "Employee" means any person who is a regular full-time or part-time
employee of the Corporation or an Affiliated Corporation on or after
____________________.
2.8 "Incentive Stock Option" ("ISO") means an option which qualifies as
an incentive stock option as defined in Section 422 of the Code, as amended.
2.9 "Non-Qualified Option" means any option not intended to qualify as
an Incentive Stock Option.
2.10 "Option" means an Incentive Stock Option or Non-Qualified Option
granted by the Board under Article V of this Plan in the form of a right to
purchase Stock evidenced by an instrument containing such provisions as the
Board may establish. Except as otherwise expressly provided with respect to an
Option grant, no Option granted pursuant to the Plan shall be an Incentive Stock
Option.
2.11 "Participant" means a person selected by the Committee to receive
an award under the Plan.
2.12 "Plan" means this 1992 Stock Option Plan.
2.13 "Reporting Person" means a person subject to Section 16 of the
Securities Exchange Act of 1934 or any successor provision.
2.14 "Restricted Period" means the period of time selected by the
Committee during which an award may be forfeited by the person.
2.15 "Stock" means the Common Stock, $.10 par value, of the Corporation
or any successor, including any adjustments in the event of changes in capital
structure of the type described in Article IX.
<PAGE> 2
ARTICLE III
ADMINISTRATION OF THE PLAN
3.1 Administration by Board. This Plan shall be administered by the
Board of Directors of the Corporation. The Board may, from time to time,
delegate any of its functions under this plan to one or more Committees. All
references in this Plan to the Board shall also include the Committee or
Committees, if one or more have been appointed by the Board. From time to time
the Board may increase the size of the Committee or committees and appoint
additional members thereto, remove members (with or without cause) and appoint
new members in substitution therefor, fill vacancies however caused, or remove
all members of the Committee or committees and thereafter directly administer
the Plan. No member of the Board or a committee shall be liable for any action
or determination made in good faith with respect to the Plan or any options
granted under it.
If a Committee is appointed by the Board, a majority of the members of
the Committee shall constitute a quorum, and all determinations of the Committee
under the Plan may be made without notice or meeting of the Committee by a
writing signed by a majority of Committee members. On or after registration of
the Stock under the Securities Exchange Act of 1934, the Board shall delegate
the power to select directors and officers to receive Awards under the Plan, and
the timing, pricing and amount of such Awards to a Committee, all members of
which shall be "disinterested persons" within the meaning of Rule 16b-3 under
that Act.
3.2 Powers. The Board of Directors and/or any committee appointed by
the Board shall have full and final authority to operate, manage and administer
the Plan on behalf of the Corporation. This authority includes, but is not
limited to:
(a) The power to grant Awards conditionally or unconditionally,
(b) The power to prescribe the form or forms of any instruments
evidencing Awards granted under this Plan,
(c) The power to interpret the Plan,
(d) The power to provide regulations for the operation of the
incentive features of the Plan, and otherwise to prescribe and
rescind regulations for interpretation, management and
administration of the Plan,
(e) The power to delegate responsibility for Plan operation,
management and administration on such terms, consistent with
the Plan, as the Board may establish,
(f) The power to delegate to other persons the responsibility of
performing ministerial acts in furtherance of the Plan's
purpose, and
(g) The power to engage the services of persons, companies, or
organizations in furtherance of the Plan's purpose, including
but not limited to, banks, insurance companies, brokerage
firms and consultants.
3.3 Additional Powers. In addition, as to each Option to buy Stock of
the Corporation, the Board shall have full and final authority in its
discretion: (a) to determine the number of shares of Stock subject to each
Option; (b) to determine the time or times at which options will be granted; (c)
to determine the option price of the shares of Stock subject to each option,
which price shall be not less than the minimum price specified in Article V of
this Plan; (d) to determine the time or times when each option shall become
exercisable and the duration of the exercise period (including the acceleration
of any exercise period) , which shall not exceed the maximum period specified in
Article V; (e) to determine whether each Option granted shall be an Incentive
Stock Option or a Non-qualified option; and (f) to waive compliance by a
Participant with any obligation to be performed by him under an Option, to waive
any condition or provision of an option, and to
2
<PAGE> 3
amend or cancel any Option (and if an option is canceled, to grant a new Option
on such terms as the Board may specify) , except that the Board may not take any
action with respect to an outstanding option that would adversely affect the
rights of the Participant under such option without such Participant's consent.
Nothing in the preceding sentence shall be construed as limiting the power of
the Board to make adjustments required by Article XI.
In no event may the Company grant an Employee any Incentive Stock
Option that is first exercisable during any one calendar year to the extent the
aggregate fair market value of the Stock (determined at the time the options are
granted) exceeds $100,000 (under all stock option plans of the Corporation and
any Affiliated Corporation) ; provided, however, that this paragraph shall have
no force and effect if its inclusion in the Plan is not necessary for Incentive
Stock Options issued under the Plan to qualify as such pursuant to Section
422(d)(1) of the Code.
ARTICLE IV
ELIGIBILITY
4.1 Eligible Employees. All Employees (including Directors who are
Employees) are eligible to be granted Incentive Stock Option and Non-Qualified
Option Awards under this Plan.
4.2 Consultants, Directors and other Non-Employees. Any Consultant,
Director (whether or not an Employee) and any other Non-Employee is eligible to
be granted Non-Qualified Option Awards under the Plan, provided the person has
not irrevocably elected to be ineligible to participate in the Plan.
4.3 Relevant Factors. In selecting individual Employees, Consultants,
Directors and other Non-Employees to whom Awards shall be granted, the Board
shall weigh such factors as are relevant to accomplish the purpose of the Plan
as stated in Article I. An individual who has been granted an Award may be
granted one or more additional Awards, if the Board so determines. The granting
of an Award to any individual shall neither entitle that individual to, nor
disqualify him from, participation in any other grant of Awards.
ARTICLE V
STOCK OPTION AWARDS
5.1 Number of Shares. Subject to the provisions of Article IX of this
Plan, the aggregate number of shares of Stock for which Options may be granted
under this Plan shall not exceed 100,000 shares. The shares to be delivered upon
exercise of Options under this Plan shall be made available, at the discretion
of the Board, either from authorized but unissued shares or from previously
issued and reacquired shares of Stock held by the Corporation as treasury
shares, including shares purchased in the open market.
Stock issuable upon exercise of an option granted under the Plan may be
subject to such restrictions on transfer, repurchase rights or other
restrictions as shall be determined by the Board of Directors.
5.2 Effect of Expiration, Termination or Surrender. If an Option under
this Plan shall expire or terminate unexercised as to any shares covered
thereby, or shall cease for any reason to be exercisable in whole or in part, or
if the Company shall reacquire any unvested shares issued pursuant to options
under the Plan, such shares shall thereafter be available for the granting of
other Options under this Plan.
5.3 Term of Options. The full term of each Option granted hereunder
shall be for such period as the Board shall determine. In the case of Incentive
Stock Options granted hereunder, the term shall not exceed ten (10) years from
the date of granting thereof. Each Option shall be subject to earlier
termination as provided in Sections 6.3 and 6.4. Notwithstanding the foregoing,
the term of options intended to qualify as "Incentive Stock Options" shall not
exceed five (5) years from the
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date of granting thereof if such option is granted to any employee who at the
time such option is granted owns more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation.
5.4 Option Price. The Option price shall be determined by the Board at
the time any option is granted. In the case of Incentive Stock Options, the
exercise price shall not be less than 100% of the fair market value of the
shares covered thereby at the time the Incentive Stock Option is granted (but in
no event less than par value), provided that no Incentive Stock option shall be
granted hereunder to any Employee if at the time of grant the Employee, directly
or indirectly, owns Stock possessing more than 10% of the combined voting power
of all classes of stock of the Corporation and its Affiliated Corporations
unless the Incentive Stock Option price equals not less than 110% of the fair
market value of the shares covered thereby at the time the Incentive Stock
Option is granted. In the case of Non-Qualified Stock options, the exercise
price shall not be less than par value.
5.5 Fair Market Value. If, at the time an option is granted under the
Plan, the Corporation's Stock is publicly traded, "fair market value" shall be
determined as of the last business day for which the prices or quotes discussed
in this sentence are available prior to the date such Option is granted and
shall mean (i) the average (on that date) of the high and low prices of the
Stock on the principal national securities exchange on which the Stock is
traded, if the Stock is then traded on a national securities exchange; or (ii)
the last reported sale price (on that date) of the Stock on the NASDAQ National
Market List, if the Stock is not then traded on a national securities exchange;
or (iii) the closing bid price (or average of bid prices) last quoted (on that
date) by an established quotation service for over-the-counter securities, if
the Stock is not reported on the NASDAQ National Market List. However, if the
Stock is not publicly traded at the time an Option is granted under the Plan,
"fair market value" shall be deemed to be the fair value of the Stock as
determined by the Board after taking into consideration all factors which it
deems appropriate, including, without limitation, recent sale and offer prices
of the Stock in private transactions negotiated at arm's length.
5.6 Non-Transferability of Options. No Option granted under this Plan
shall be transferable by the grantee otherwise than by will or the laws of
descent and distribution, and such Option may be exercised during the grantee's
lifetime only by the grantee.
5.7 Foreign Nationals. Awards may be granted to Participants who are
foreign nationals or employed outside the United States on such terms and
conditions different from those specified in the Plan as the Committee considers
necessary or advisable to achieve the purposes of the Plan or comply with
applicable laws.
ARTICLE VI
EXERCISE OF OPTION
6.1 Exercise. Each Option granted under this Plan shall be exercisable
on such date or dates and during such period and for such number of shares as
shall be determined pursuant to the provisions of the instrument evidencing such
Option. The Board shall have the right to accelerate the date of exercise of any
option, provided that, the Board shall not accelerate the exercise date of any
Incentive Stock Option granted if such acceleration would violate the annual
vesting limitation contained in Section 422(d)(1) of the Code.
6.2 Notice of Exercise. A person electing to exercise an option shall
give written notice to the Corporation of such election and of the number of
shares he or she has elected to purchase and shall at the time of exercise
tender the full purchase price of the shares he or she has elected to purchase.
The purchase price can be paid partly or completely in shares of the
Corporation's stock
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valued at Fair Market Value as defined in Section 5.5 hereof, or by any such
other lawful consideration as the Board may determine. Until such person has
been issued a certificate or certificates for the shares so purchased, he or she
shall possess no rights of a record holder with respect to any of such shares.
6.3 Option Unaffected by Change in Duties. No Incentive Stock Option
(and, unless otherwise determined by the Board of Directors, no Non-Qualified
option granted to a person who is, on the date of the grant, an Employee of the
Corporation or an Affiliated Corporation) shall be affected by any change of
duties or position of the optionee (including transfer to or from an Affiliated
Corporation) , so long as he or she continues to be an Employee. Employment
shall be considered as continuing uninterrupted during any bona fide leave of
absence (such as those attributable to illness, military obligations or
governmental service) provided that the period of such leave does not exceed 90
days or, if longer, any period during which such optionee's right to
reemployment is guaranteed by statute. A bona fide leave of absence with the
written approval of the Board shall not be considered an interruption of
employment under the Plan, provided that such written approval contractually
obligates the Corporation or any Affiliated Corporation to continue the
employment of the optionee after the approved period of absence.
If the optionee shall cease to be an Employee for any reason other than
death, such Option shall thereafter be exercisable only to the extent of the
purchase rights, if any, which have accrued as of the date of such cessation;
provided that (i) the Board may provide in the instrument evidencing any Option
that the Board Tnay in its absolute discretion, upon any such cessation of
employment, determine (but be under no obligation to determine) that such
accrued purchase rights shall be deemed to include additional shares covered by
such Option; and (ii) unless the Board shall otherwise provide in the instrument
evidencing any Option, upon any such cessation of employment, such remaining
rights to purchase shall in any event terminate upon the earlier of (A) the
expiration of the original term of the Option; or (B) where such cessation of
employment is on account of disability, the expiration of one year from the date
of such cessation of employment and, otherwise, the expiration of three months
from such date. For purposes of the Plan, the term "disability" shall mean
"permanent and total disability" as defined in Section 22(e)(3) of the Code.
In the case of a Participant who is not an employee, provisions
relating to the exercisability of an Option following termination of service
shall be specified in the award. If not so specified, all options held by such
Participant shall terminate on termination of service to the Corporation.
6.4 Death of Optionee. Should an optionee die while in possession of
the legal right to exercise an Option or Options under this Plan, such persons
as shall have acquired, by will or by the laws of descent and distribution, the
right to exercise any Options theretofore granted, may, unless otherwise
provided by the Board in any instrument evidencing any option, exercise such
Options at any time prior to one year from the date of death; provided, that
such Option or Options shall expire in all events no later than the last day of
the original term of such Option; provided, further, than any such exercise
shall be limited to the purchase rights which have accrued as of the date when
the optionee ceased to be an Employee, whether by death or otherwise, unless the
Board provides in the instrument evidencing such Option that, in the discretion
of the Board, additional shares covered by such Option may become subject to
purchase immediately upon the death of the optionee.
ARTICLE VII
REPORTING PERSON LIMITATIONS
To the extent required to qualify for the exemption provided by Rule
16b-3 under the Securities Exchange Act of 1934, and any successor provision, at
least six months must elapse
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from the date of acquisition of an Option by a Reporting Person to the date of
disposition of such Option (other than upon exercise) or its underlying Common
Stock.
ARTICLE VIII
TERMS AND CONDITIONS OF OPTIONS
Options shall be evidenced by instruments (which need not be identical)
in such forms as the Board may from time to time approve. Such instruments shall
conform to the terms and conditions set forth in Articles V and VI hereof and
may contain such other provisions as the Board deems advisable which are not
inconsistent with the Plan, including restrictions applicable to shares of Stock
issuable upon exercise of Options. In granting any Non-Qualified Option, the
Board may specify that such NonQualified Option shall be subject to the
restrictions set forth herein with respect to Incentive Stock Options, or to
such other termination and cancellation provisions as the Board may determine.
The Board may from time to time confer authority and responsibility on one or
more of its own members and/or one or more officers of the Corporation to
execute and deliver such instruments. The proper officers of the Corporation are
authorized and directed to take any and all action necessary or advisable from
time to time to carry out the terms of such instruments.
ARTICLE IX
BENEFIT PLANS
Awards under the Plan are discretionary and are not a part of regular
salary. Awards may not be used in determining the amount of compensation for any
purpose under the benefit plans of the Corporation, or an Affiliated
Corporation, except as the Board may from time to time expressly provide.
Neither the Plan, an Option or any instrument evidencing an option confers upon
any Participant any right to continue as an employee of, or consultant or
advisor to, the Company or an Affiliated Corporation or affect the right of the
Corporation or any Affiliated Corporation to terminate them at any time. Except
as specifically provided by the Board in any particular case, the loss of
existing or potential profits granted under this Plan shall not constitute an
element of damages in the event of termination of the relationship of a
Participant even if the termination is in violation of an obligation of the
Corporation to the Participant by contract or otherwise.
ARTICLE X
AMENDMENT, SUSPENSION OR TERMINATION
OF THE PLAN
The Board may suspend the Plan or any part thereof at any time or may
terminate the Plan in its entirety. Awards shall not be granted after Plan
termination.
The Board may also amend the Plan from time to time, except that
amendments which affect the following subjects must be approved by stockholders
of the Corporation:
(a) Except as provided in Article XI relative to capital changes,
the number of shares as to which Options may be granted
pursuant to Article V;
(b) The maximum term of Options granted;
(c) The minimum price at which options may be granted;
(d) The term of the Plan; and
(e) The requirements as to eligibility for participation in the
Plan. Awards granted prior to suspension or termination of the
Plan may not be canceled solely because of such suspension or
termination, except with the consent of the grantee of the
Award.
ARTICLE XI
CHANGES IN CAPITAL STRUCTURE
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The instruments evidencing options granted hereunder shall be subject
to adjustment in the event of changes in the outstanding Stock of the
Corporation by reason of Stock dividends, Stock splits, recapitalizations,
reorganizations, mergers, consolidations, combinations, exchanges or other
relevant changes in capitalization occurring after the date of an Award to the
same extent as would affect an actual share of Stock issued and outstanding on
the effective date of such change. Such adjustment to outstanding Options shall
be made without change in the total price applicable to the unexercised portion
of such options, and a corresponding adjustment in the applicable option price
per share shall be made. In the event of any such change, the aggregate number
and classes of shares for which Options may thereafter be granted under Section
5.1 of this Plan may be appropriately adjusted as determined by the Board so as
to reflect such change.
Notwithstanding the foregoing, any adjustments made pursuant to this
Article XI with respect to Incentive Stock Options shall be made only after the
Board, after consulting with counsel for the Corporation, determines whether
such adjustments would constitute a "modification" of such Incentive Stock
Options (as that term is defined in Section 424 of the Code) or would cause any
adverse tax consequences for the holders of such Incentive Stock Options. If the
Board determines that such adjustments made with respect to Incentive Stock
Options would constitute a modification of such Incentive Stock Options, it may
refrain from making such adjustments.
In the event of the proposed dissolution or liquidation of the
Corporation, each Option will terminate immediately prior to the consummation of
such proposed action or at such other time and subject to such other conditions
as shall be determined by the Board.
Except as expressly provided herein, no issuance by the Corporation of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares subject to Options. No adjustments
shall be made for dividends paid in cash or in property other than securities of
the Corporation.
No fractional shares shall be issued under the Plan and the optionee
shall receive from the Corporation cash in lieu of such fractional shares.
ARTICLE XII
EFFECTIVE DATE AND TERM OF THE PLAN
The Plan shall become effective on August 11, 1992. The Plan shall
continue until such time as it may be terminated by action of the Board or the
Committee; provided, however, that no Options may be granted under this Plan on
or after the tenth anniversary of the effective date hereof.
ARTICLE XIII
CONVERSION OF ISOs INTO NON-QUALIFIED
OPTIONS; TERMINATION OF ISOs
The Board, at the written request of any optionee, may in its
discretion take such actions as may be necessary to convert such optionee's
Incentive Stock Options, that have not been exercised on the date of conversion,
into Non-Qualified Options at any time prior to the expiration of such Incentive
Stock Options, regardless of whether the optionee is an employee of the
Corporation or an Affiliated Corporation at the time of such conversion. Such
actions may include, but not be limited to, extending the exercise period or
reducing the exercise price of such Options. At the time of such conversion, the
Board or the Committee (with the consent of the optionee) may impose such
conditions on the exercise of the resulting Non-Qualified Options as the Board
or the
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Committee in its discretion may determine, provided that such conditions shall
not be inconsistent with the Plan. Nothing in the Plan shall be deemed to give
any optionee the right to have such optionee's Incentive Stock Options converted
into Non-Qualified Options, and no such conversion shall occur until and unless
the Board or the Committee takes appropriate action. The Board, with the consent
of the optionee, may also terminate any portion of any Incentive Stock Option
that has not been exercised at the time of such termination.
ARTICLE XIV
APPLICATION OF FUNDS
The proceeds received by the Corporation from the sale of shares
pursuant to Options granted under the Plan shall be used for general corporate
purposes.
ARTICLE XV
GOVERNMENTAL REGULATION
The Corporation's obligation to sell and deliver shares of Stock under
this Plan is subject to the approval of any governmental authority required in
connection with the authorization, issuance or sale of such shares.
ARTICLE XVI
WITHHOLDING OF ADDITIONAL INCOME TAXES
Upon the exercise of a Non-Qualified option or the making of a
Disqualifying Disposition (as defined in Article XVI) the Corporation, in
accordance with Section 3402(a) of the Code, may require the optionee to pay
additional withholding taxes in respect of the amount that is considered
compensation includible in such person's gross income. The Board in its
discretion may condition the exercise of an option on the payment of such
additional withholding taxes.
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ARTICLE XVII
NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION
Each employee who receives an Incentive Stock Option must agree to
notify the Corporation in writing immediately after the employee makes a
Disqualifying Disposition of any Stock acquired pursuant to the exercise of an
Incentive Stock Option. A Disqualifying Disposition is any disposition
(including any sale) of such Stock before the later of (a) two years after the
date the employee was granted the Incentive Stock Option or (b) one year after
the date the employee acquired Stock by exercising the Incentive Stock Option.
If the employee has died before such stock is sold, these holding period
requirements do not apply and no Disqualifying Disposition can occur thereafter.
ARTICLE XVIII
GOVERNING LAW; CONSTRUCTION
The validity and construction of the Plan and the instruments
evidencing Options shall be governed by the laws of the Commonwealth of
Massachusetts (without regard to the conflict of law principles thereof). In
construing this Plan, the singular shall include the plural and the masculine
gender shall include the feminine and neuter, unless the context otherwise
requires.
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EXHIBIT 10.31
IMPLANT SCIENCES CORPORATION
STOCK OPTION AGREEMENT
Agreement made this _____ day of ______, _______, between Implant
Sciences Corporation, a Massachusetts corporation ("the Corporation"), and
_________ ("the Employee"). Everywhere in this contract the word "Employee"
also means any person, consultant, company, corporation, partnership or sole
proprietorship performing services for the corporation.
WITNESSETH:
WHEREAS, the Employee is now employed by the Corporation or by a Parent
or a subsidiary corporation of the Corporation, as the term "subsidiary
corporation" is defined in Section 425(f) of the Internal Revenue Code of 1954,
as amended (A "Subsidiary"); and
WHEREAS, the Board of Directors of the Corporation ("the Board") has
determined that the Employee is a key employee of the Corporation or of a
subsidiary; and
WHEREAS, the Corporation desires that the Employee remain in its employ
or in the employ of a parent or subsidiary and desires to afford the Employee
the opportunity to either acquire or increase, as the case may be, his
proprietary interest in the success of the Corporation:
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements hereinafter set forth, it is hereby agreed as follows:
1. Grant. Subject to the terms and conditions hereinafter set forth, the
Corporation hereby grants to the Employee the option to purchase from
the Corporation, during the period hereinafter specified, an aggregate
of _____ shares of the common stock par value $0.10 per share, of the
Corporation ("the Common Stock of the Corporation") , at a price $____
per share (said price being no less than 100% of the fair market value
of the common stock of the Corporation on the date hereof, as
determined by the Board).
2. Term.
(a) This option shall be exercisable only after the Employee has
had 12 months of continuous employment with the Corporation or
with any parent or subsidiary, from and after the date hereof,
and thereafter, during the continuance of the Employee's
employment, except as hereinafter provided, shall be
exercisable in installments, as follows: to the extend of 33%
of the aggregate number of shares set forth in paragraph 1
hereof, during each of the second, third, and fourth years of
the term of this option. Such installments shall be
cumulative, and during each of such second, third, and fourth
years, this option shall be exercisable at any time as to all,
or from time to time as to part, of the shares eligible for
exercises. At no time shall this option be exercised for less
than 10 shares, or for less than the total number of shares
eligible for exercise at that time if less than 10 shares.
(b) Except as otherwise provided in paragraphs 3 and 4 hereof,
this option and all of the rights hereunder shall terminate
forthwith in the event of the termination of the employment of
the Employee with the Corporation or with a parent or
subsidiary for any reason whatever, or 10 years from the date
hereof, whichever is shorter.
<PAGE> 2
3. Retirement of Disability. In the event the Employee shall retire at the
normal retirement age as prescribed from time to time by the
Corporation, or at any other date with the consent of the Corporation,
he may exercise this option at any time within three months after his
retirement, but not after five years from the date hereunder waived,
except in a writing signed by the party to be charged (a waiver in one
event not constituting a waiver in any others) . Captions herein are
for convenience, do not constitute a part hereof and are not admissible
to prove the meaning of this Agreement or the intent of the parties.
IN WITNESS WHEREOF, the parties have executed this Agreement under seal as of
the day and year first above written.
IMPLANT SCIENCES CORPORATION
BY:_________________________
ITS_________________________
EMPLOYEE/CONSULTANT
BY:_________________________
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EXHIBIT 10.32
IMPLANT SCIENCES CORPORATION
1998 INCENTIVE AND NONQUALIFIED STOCK OPTION PLAN
SECTION 1 PURPOSES OF PLAN; DEFINITIONS
1.1 General Purposes. Implant Sciences Corporation, a Massachusetts
corporation (the "Company"), desires to afford certain executives, key
employees and directors of, and certain other individuals providing services to,
the Company or its subsidiary companies an opportunity to initiate or increase
their proprietary interests in the Company, and thus to create in such persons
an increased interest in and greater concern for the long-term welfare of the
Company. The Company, by granting under this 1998 Incentive and Nonqualified
Stock Option Plan (this "Plan") stock options to acquire shares of common stock
of the Company (an "Option"), seeks to retain the services of persons now
holding key positions with the Company and to secure the services of other
persons capable of filling key positions with the Company or its subsidiary
companies.
1.2 Definitions. For purposes of this Plan, the following terms shall
have the indicated meanings:
"Board" means the Board of Directors of the Company.
"Cause" shall mean, with respect to any Option holder, 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 Option holder of any agreement to which the Option holder and the
Company are parties, (ii) any act (other than retirement) or omission to act by
the Option holder that may have a material and adverse effect on the business of
the Company or on the Option holder's ability to perform services for the
Company, including, without limitation, 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 Option holder in connection with
the business or affairs of the Company.
"Code" means the Internal Revenue Code of 1986, as amended, and any
successor code thereto, together with related rules, regulations and
interpretations; and any reference herein to a particular Section of the Code
shall include any successor provision of the Code.
"Committee" has the meaning set forth in Section 2.1 hereof.
"Common Stock" means the Common Stock, par value $.10 per share, of the
Company, subject to adjustment pursuant to Section 8 hereof.
"Greater-Than-Ten-Percent Stockholder" means any individual who, at the
time he or she is granted an Option, owns or, as a result of the attribution
rules of Section 424(d) of the Code, is deemed to own more than ten percent of
the total combined voting power of all classes of stock of the Company.
"Incentive Option" means any Option designated and qualified as an
"incentive stock option" within the meaning of Section 422 of the Code. The
Company intends that Incentive Options will qualify as "incentive stock options"
within the meaning of Section 422 of the Code, and the terms of this Plan shall
be interpreted in accordance with this intention; the Company makes no warranty,
however, as the qualification of any Option as an Incentive Option.
<PAGE> 2
"Nonqualified Option" means any Option that is not an Incentive Option.
"Non-Employee Director" means any director who is not also an employee
of the Company, its parent or any subsidiary.
"Outside Director" means any director who (i) is not an employee of the
Company or of any "affiliated group," as such term is defined in Section 1504(a)
of the Code, which includes the Company (an "Affiliate"), (ii) is not a former
employee of the Company or any Affiliate who is receiving compensation for prior
services (other than benefits under a tax-qualified retirement plan) during the
Company's or any Affiliate's taxable year, (iii) has not been an officer of the
Company or any Affiliate and (iv) does not receive remuneration from the Company
or any Affiliate, either directly or indirectly, in any capacity other than as a
director. "Outside Director" shall be determined in accordance with Section
162(m) of the Code and the Treasury regulations issued thereunder.
"Securities Act" means the Securities Act of 1933, as amended, and any
successor act thereto, together with related rules, regulations and
interpretations.
SECTION 2 ADMINISTRATION
2.1 Committee. This Plan shall be administered by a committee (the
"Committee") consisting of at least two Outside Directors. It is the intention
of the Company that the Plan shall be administered to comply with the provisions
of Rule 16b-3 under the Securities Exchange Act of 1934 (the "Exchange Act"),
but the authority and validity of any act taken or not taken by the Committee
shall not be affected if any person administering the Plan is not a Non-Employee
Director as defined in the Rule. Except as specifically reserved to the Board
under the terms of the Plan, and subject to Section 4.2 hereof, the Committee
shall have full and final authority to operate, manage and administer the Plan
on behalf of the Company. Any or all powers and functions of the Committee may
at any time and from time to time be exercised by the Board, and any reference
in this Plan to the Committee shall be deemed to refer to the Board to the
extent the Board is exercising any of the powers and functions of the Committee.
2.2 Powers of the Committee. Subject to the terms and conditions of
this Plan and except with respect to Options granted pursuant to Section 4.2,
the Committee shall have the power:
(a) to determine from time to time the individuals to whom
Options shall be granted and the terms, conditions, restrictions and
provisions (which need not be identical) of each of those Options,
including, with respect to each Option, the time at which the Option
shall be granted, the number of shares of Common Stock that shall be
subject to the Option, the exercise price for each share of Common
Stock subject to the Option (which price shall be subject to the
requirements of Section 6.3), the period during which the Option
shall be exercisable (whether in whole or in part) and the time or
times when each Option shall become exercisable;
(b) to modify or amend, in its sole discretion, conditionally
or unconditionally, any outstanding Option granted under this Plan,
including a reduction of the exercise price, an acceleration of the
vesting schedule, or an extension of the expiration date;
(c) to accelerate, in its sole discretion, an Option holder's
right to exercise his or her Option in whole or in part,
conditionally or unconditionally, at any time, including upon
consummation of the initial public offering of Common Stock;
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(d) generally, to exercise such powers and to perform such
acts as are deemed necessary or expedient to promote the best
interests of the Company with respect to this Plan;
(e) the power to delegate to other persons the responsibility
for performing ministerial acts in furtherance of the Plan's purpose;
(f) the power to engage the services of persons or
organizations in furtherance of the Plan's purpose, including but not
limited to banks, insurance companies, brokerage firms and
consultants; and
(g) to construe and interpret this Plan and Options granted
hereunder and to establish, amend, and revoke rules and regulations
for the interpretation, management and administration of this Plan.
In this connection, the Committee may supply any omission, reconcile
any inconsistency, or correct any other defect in this Plan or in any
Option agreement in the manner and to the extent it shall deem
necessary or expedient to make this Plan fully effective.
All decisions and determinations by the Committee in the exercise of the
foregoing powers shall be final and binding upon the Company and Option holders.
No member or former member of the Committee or the Board shall be liable for any
action or determination made in good faith with respect to this Plan or any
Option.
2.3 Appointment and Proceedings of Committee. The Board may from time
to time appoint members of the Committee in substitution for or in addition to
members previously appointed, and subject to Section hereof, may fill vacancies,
however caused, in the Committee. The Committee shall select one of its members
as its chairman and shall hold its meetings at such times and places as it shall
deem advisable. A majority of its members shall constitute a quorum, and all
actions of the Committee shall require the affirmative vote of a majority of its
members. Any action may be taken by a written instrument signed by all of the
members, and any action so taken shall be as fully effective as if it had been
taken by a vote of a majority of the members at a meeting duly called and held.
SECTION 3 STOCK
3.1 Stock to be Issued. The stock subject to Options granted under
this Plan may be shares of authorized and issued Common Stock, shares of Common
Stock held in treasury or both, at the discretion of the Company. The total
number of shares of Common Stock that may be issued pursuant to Options granted
under the Plan shall not exceed 280,000 in the aggregate; provided, however,
that the class and aggregate number of shares subject to Options shall be
subject to adjustment as provided in Section hereof.
3.2 Termination of Option. If any Option granted under this Plan
expires or otherwise terminates without having been exercised in whole or in
part, the shares of Common Stock previously subject to the unexercised portion
of that Option may be the subject of new Options under this Plan.
3.4 No Fractional Shares. In no event shall any Option be
exercisable for a fraction of a share of Common Stock.
SECTION 4 ELIGIBILITY
4.1 Individuals Eligible. Incentive Options may be granted only to
officers and other employees of the Company, including members of the Board who
are also employees of the Company. Nonqualified
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Options may be granted to officers or other employees of the Company, including
members of the Board, and to consultants and other individuals who render
services to the Company regardless of whether they are employees. Nonqualified
Options may be granted to Non-Employee Directors only as provided in Section
4.2 hereof.
4.2 Non-Discretionary Option Grants to Non-Employee Directors. Any
other provision of this Plan to the contrary notwithstanding, Non-Employee
Directors shall not be eligible to receive Options under the Plan except
pursuant to this Section 4.2. Each Non-Employee Director who is elected by the
stockholders of the Company to the Board initially on or subsequent to the date
on which this Plan is approved by stockholders pursuant to Section 13 shall
automatically be granted, upon such election, a Nonqualified Option to purchase
2,000 shares of Common Stock. Each Non-Employee Director who is reelected by the
stockholder of the Company to the Board on or subsequent to said date of
stockholder approval of this Plan still automatically be granted, upon each such
reelection, a Nonqualified Option to purchase 2,000 shares of Common Stock.
Options shall be granted pursuant to this Section 4.2 only to persons who are
serving as Non-Employee Directors on the Grant Date. Any share grant referred to
in this Section shall be subject to adjustment in accordance with Section 8
hereof. The purchase price per share of the Common Stock under each Option
granted pursuant to this Section 4.2 shall be equal to the fair market value of
the Common Stock, determined in accordance with Section 6.3 hereof, on the date
the Option is granted. Each such Option shall expire on the tenth anniversary of
the date of grant.
4.3 Greater-Than-Ten-Percent Stockholders. Except as may otherwise be
permitted by the Code or other applicable law or regulation, no Incentive Option
shall be granted to a Greater-Than-Ten-Percent Stockholder unless (a) the
exercise price per share under the Incentive Option is not less than 110% of the
fair market value of the Common Stock at the time at which the Incentive Option
is granted and (ii) the Incentive Option is not exercisable to any extent after
the fifth anniversary of the date on which the Incentive Option is granted.
4.4 Maximum Aggregate Fair Market Value. The aggregate fair market
value (determined at the time the Incentive Option is granted) of the Common
Stock with respect to which Incentive Options are exercisable for the first time
by any Option holder during any calendar year under this Plan and any other
plans of the Company for the issuance of incentive stock options (within the
meaning of Section 422 of the Code) shall not exceed $100,000 or such greater
amount as may from time to time be permitted with respect to incentive stock
options by the Code or any other applicable law or regulation. To the extent any
Option exceeds the foregoing limitation, it shall be deemed a Nonqualified
Option.
4.5. Limitation on Grants. In no event may any individual be granted
Options with respect to more than 10,000 shares of Common Stock in any calendar
year. The number of shares of Common Stock relating to an Option grant in a
calendar year that is subsequently forfeited, cancelled or otherwise terminated
shall continue to count toward the foregoing limitation in such calendar year.
In addition, if the exercise price of an Option is subsequently reduced, the
transaction shall be deemed a cancellation of the original Option and the grant
of a new one so that both transactions shall count toward the maximum shares
issuable in the calendar year of each respective transaction.
SECTION 5 TERMINATION OF EMPLOYMENT OR DEATH OF OPTION HOLDER
5.1 Termination of Employment. Except as otherwise expressly provided
herein, an Option shall terminate on the earliest of:
(h) the date of expiration thereof;
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(i) the date of cancellation thereof pursuant to
Section 8.3(c);
(j) sixty days after the date on which the Option holder's
employment with, or directorship or other services to, the Company
are terminated other than for Cause; provided, however, that if,
before the date of expiration of the Option, the Option 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, the
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 Option holder shall have the right prior to the
termination of such Option to exercise the Option to the extent to
which the Option holder was entitled to exercise such Option
immediately prior to such retirement; and
(k) the date on which the Option holder's employment with, or
directorship or other services to, the Company is terminated
voluntarily by the Option holder or by the Company for Cause;
provided, however, that Nonqualified Options need not, unless the Committee
determines otherwise, be subject to the provisions set forth in clauses (c) and
(d) above nor to Section 5.2 below. Whether authorized leave of absence, or
absence on military or government service, shall constitute termination of an
employment relationship between the Company and the Option holder shall be
determined by the Committee at the commencement thereof, and the Committee shall
promptly notify the Option holder of such determination. Options shall not be
affected by any Option holder's change of employment within the Company or
change in the identity of the Company to whom directorship or other services are
provided, so long as the Option holder continues to be an employee of, or to
provide such services to, the Company.
5.2 Death or Permanent Disability of Option Holder. In the event of
the death or permanent and total disability of an Option holder prior to
termination of the Option holder's services to the Company and prior to the date
of expiration of such Option, such Option shall terminate on the earliest of its
date of expiration, its date of cancellation pursuant to Section 8.3(c), and the
date that is 180 days after the date of such death or disability. After the
death of the Option holder, his or her executors, administrators or any
individual or individuals to whom the Option may be transferred by will or by
the laws of descent and distribution, shall have the right, at any time prior to
the date of such termination, to exercise the Option to the extent the Option
holder was entitled to exercise the Option immediately prior to his or her
death. "Permanent and total disability" for these purposes shall be determined
in accordance with Section 22(e)(3) of the Code and the rules, regulations and
interpretations issued thereunder.
SECTION 6 TERMS OF OPTION AGREEMENTS
Each Option shall be evidenced by an agreement (an "Option
Agreement") in writing that shall contain such terms, conditions, restrictions
and other provisions as the Committee shall from time to time deem appropriate.
Any additional provisions shall not, however, be inconsistent with any other
term or condition of this Plan and shall not cause any Incentive Option to fail
to qualify as an incentive stock option within the meaning of Section 422 of the
Code. Option agreements need not be identical, but each Option agreement shall,
by appropriate language, include the substance of the following provisions:
6.1 Expiration of Option. Subject to Section 4.2 hereof,
notwithstanding any other provision of this Plan or of the Option agreement,
such Option shall expire on the date specified in the Option agreement, which
date shall not, in the case of an Incentive Option, be later than the tenth
anniversary (the fifth anniversary in the case of a Greater-Than-Ten-Percent
Stockholder) of the date on which the Option was granted, or as specified in
Section 5 hereof.
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6.2 Exercise. Subject to Section 4.2 hereof, each Option may be
exercised so long as it is valid and outstanding, from time to time in part or
as a whole, subject to any limitations with respect to the number of shares for
which the Option may be exercised at a particular time and to such other
conditions as the Committee in its discretion may specify upon granting the
Option.
6.3 Exercise Price. Subject to Section 4.2 hereof, the exercise price
per share under each Option shall be determined by the Committee at the time the
Option is granted and shall not be less than the par value of the Common Stock
obtainable upon the exercise thereof; provided, however, that the exercise price
of any Incentive Option shall not, unless otherwise permitted by the Code, be
less than the fair market value of the Common Stock on the date the Option is
granted (110% of the fair market value in the case of a Greater-Than-Ten-Percent
Stockholder). For these purposes, the "fair market value" of the Common Stock
shall equal (a) the closing price per share on the date of grant of the Option
as reported by a nationally recognized stock exchange, (b) 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 (c) if the Common Stock is not quoted on any such system, the
fair market value as determined by the Committee.
6.4 Transferability of Options and Option Shares. No Option shall be
transferable by its holder or by operation of law, otherwise than by will or
under the laws of descent and distribution and shall not be subject to
execution, attachment or similar process. Each Option shall, during the Option
holder's lifetime, be exercisable only by the Option holder. The Committee may
in its discretion provide upon the grant of any Option that the shares of Common
Stock purchasable upon exercise of such Option shall be subject to such
restrictions on transferability as the Committee may determine. Upon any attempt
to transfer any Option under the Plan or any right or privilege conferred
hereby, contrary to the provisions of the Plan, or (if the Committee shall so
determine) upon any levy or any attachment or similar process upon the rights
and privileges conferred hereby, such Option shall thereupon terminate and
become null and void.
6.5 Rights of Option Holders. No Option holder or other person shall,
by virtue of the granting of an Option, be deemed for any purpose to be the
owner of any shares of Common Stock subject to such Option or to be entitled to
the rights or privileges of a holder of such shares unless and until the Option
shall have been exercised pursuant to the terms thereof with respect to such
shares and the Company shall have issued and delivered the shares to the Option
holder.
6.6 Repurchase Right. The Committee may in its discretion provide
upon the grant of any Option that the Company shall have an option to
repurchase, upon terms and conditions determined by the Committee, all or any
number of shares purchased upon exercise of such Option. The repurchase price
per share payable by the Company shall be such amount or be determined by such
formula as is fixed by the Committee at the time of grant of the Option for the
shares subject to repurchase. In the event the Committee grants an Option
subject to such a repurchase option, then so long as the shares purchased upon
exercise of that Option remain subject to the repurchase option, each
certificate representing those shares shall bear a legend satisfactory to
counsel for the Company referring to the Company's repurchase option.
6.7 "Lockup" Agreement. The Committee may in its discretion specify
upon granting an Option that the Option holder shall agree for a period of time
(not to exceed 180 days) from the effective date of any registration of
securities of the Company (upon request of the Company or the underwriters
managing any underwritten offering of the Company's securities), not to sell,
make any short sale of, loan, grant any option for the purchase of, or otherwise
dispose of any shares issued pursuant to the exercise of such Option, without
the prior written consent of the Company or such underwriters, as the case may
be.
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<PAGE> 7
SECTION 7 METHOD OF EXERCISE; PAYMENT OF EXERCISE PRICE
7.1 Method of Exercise. Any Option may be exercised by the Option
holder by delivering to the Company, on any business day prior to the
termination of the Option, a written notice specifying the number of shares of
Common Stock the Option holder then desires to purchase and the address to which
the certificates for such shares are to be mailed, accompanied by payment of the
exercise price for such shares.
7.2 Payment of Exercise Price. Payment for the shares of Common Stock
purchased upon exercise of an Option shall be made by:
(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 of the shares being purchased;
(b) with the consent of the Committee, shares of Common Stock
having a fair market value (as defined for purposes of Section 6.3
hereof) equal to such aggregate exercise price;
(c) with the consent of the Committee, by reducing the number
of Option shares otherwise issuable to the Option holder upon
exercise of the Option by a number of shares having a fair market
value (as defined for purposes of Section 6.3 hereof) equal to such
aggregate exercise price;
(d) with the consent of the Committee, a personal recourse
note issued by the Option 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, however, 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 Code;
(e) 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
(f) with the consent of the Committee, any combination of the
foregoing.
As promptly as practicable after receipt of notice and payment pursuant to
Section 7.1 hereof and any documents required pursuant to Sections 9.2 and 9.3
hereof, the Company shall deliver to the Option holder a certificate registered
in the name of the Option holder and representing the number of shares with
respect to which such Option has been so 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
Option holder to take any action in connection with the shares then being
purchased, the date for the delivery of the certificates for such shares shall
be extended for the period necessary to take and complete such action. Delivery
by the Company of the certificate 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 certificate in the United States mail, addressed to the
Option holder, at the address specified in the notice delivered pursuant to
Section 7.1 hereof.
SECTION 8 CHANGES IN COMPANY'S CAPITAL STRUCTURE
8.1 Rights of Company. The existence of outstanding Options shall not
affect in any way the right or power of the Company or its stockholders to enter
into, make or authorize, without limitation, (a)
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<PAGE> 8
any adjustment, recapitalization, reorganization or other change in the
Company's capital structure or its business, (b) any merger or consolidation of
the Company, (c) any issue of Common Stock or of bonds, debentures, preferred or
prior preference stock or other capital stock ahead of or affecting the Common
Stock or the rights thereof, (d) a dissolution or liquidation of the Company,
(e) any sale or transfer of all or any part of the assets or business of the
Company, or (f) any other corporate act or proceeding, whether of a similar
character or otherwise.
8.2 Recapitalization, Stock Splits and Dividends. 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 any other increase or
reduction of the number of shares of its stock outstanding, in any such case
without receiving compensation therefor in money, services or property, then
(l) the number, class and price per share of stock subject to
each outstanding Option shall be appropriately adjusted in such a
manner as to entitle an Option holder to receive upon exercise of an
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 the Option holder
exercised the Option in full immediately prior to such event, and
(m) the number and class of shares with respect to which
Options may be granted under this Plan shall be adjusted by
substituting for the total number of shares of Common Stock then
reserved for issuance under this Plan that number and class of shares
of stock that the owner of an equal number of outstanding shares of
Common Stock would own as the result of the event requiring the
adjustment.
8.3 Mergers, Sales, etc. 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:
(n) subject to the provisions of clauses (b) and (c) below,
after the effective date of the Transaction, each holder of an
outstanding Option shall be entitled, upon exercise of such Option
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;
(o) the Committee may accelerate the time for exercise of all
outstanding Options to a date prior to the effective date of the
Transaction, as specified by the Committee; or
(p) all outstanding Options 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 each Option holder and
(ii) each Option holder shall have the right to exercise such Option
to the extent that the same is then exercisable or, if the Committee
shall have accelerated the time for exercise of all outstanding
Options, in full during the thirty-day period preceding the effective
date of the Transaction.
8.4 Adjustments to Common Stock Subject to Options. 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
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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 outstanding Options.
8.5 Miscellaneous. Adjustments under this Section 8 shall be determined
by the Committee, and such determinations shall be conclusive. The Committee
shall have the discretion and power in any such event to determine and to make
effective provision for acceleration of the time or times at which any Option or
portion thereof shall become exercisable. No fractional shares of Common Stock
shall be issued under this Plan on account of any adjustment specified above.
SECTION 9. GENERAL RESTRICTIONS
9.1. Granting of Options. No Option may be granted under this Plan
after the tenth anniversary of the effective date hereof.
9.2. Investment Representations. The Company may require any individual
to whom an Option is granted, as a condition of exercising such Option, to give
written assurances in substance and form satisfactory to the Company to the
effect that such individual is acquiring the 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 to such other effects as the Company deems necessary
or advisable in order to comply with the Securities Act and applicable state
securities laws.
9.3. Compliance with Securities Laws. The Company shall not be required
to sell or issue any shares under any Option if the sale or issuance of such
shares would constitute a violation by the Option holder or the Company of any
provision of any law or regulation of any governmental authority, including the
Securities Act. In addition, the Company shall not be required to sell or issue
shares upon the exercise of any Option unless the Committee has received
evidence satisfactory to it that the holder of such Option will not transfer
such shares except pursuant to a registration statement in effect under the
Securities Act or unless an opinion of counsel satisfactory to the Company has
been received by the Company to the effect that such registration is not
required. Any determination in this connection by the Committee shall be final,
binding and conclusive. In the event the shares issuable on exercise of an
Option are not registered under the Securities Act, the Company may imprint upon
any certificate representing shares so issued the following legend or any other
legend that counsel for the Company considers necessary or advisable to comply
with the Securities Act and applicable state securities laws:
"The shares of stock represented by this certificate have not been
registered under the Securities Act of 1933 or under the securities
laws of any state and may not be sold or transferred except upon such
registration or upon receipt by the issuer of an opinion of counsel
satisfactory to the issuer, in form and substance satisfactory to the
issuer, that registration is not required for such sale or transfer."
The Company may, but shall not be obligated to, register the shares of stock
covered by any Options pursuant to the Securities Act. In the event such shares
are so registered, the Company may remove any legend on certificates
representing such shares. The Company shall not be obligated to take any
affirmative action in order to cause the exercise of an Option or the issuance
of shares pursuant thereto to comply with any law or regulation of any
governmental authority.
9.4. Other Certificate Legends. The Company may endorse such other
legends upon the certificates for shares of Common Stock issued upon exercise of
an Option and may issue such "stop transfer" instructions to the transfer agent
for the Common Stock as the Committee may, in its discretion,
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<PAGE> 10
determine to be necessary or appropriate (a) to implement the provisions of this
Plan and such Option with respect to such shares and (b) to permit the Company
to determine the occurrence of a disqualifying disposition (as defined in
Section 421(b) of the Code) of shares issued upon exercise of Incentive Options.
9.5. Employment Obligation. The granting of any Option shall not impose
upon the Company any obligation to employ or continue to employ any Option
holder. The right of the Company to terminate the employment of any officer or
other employee thereof shall not be diminished or affected by reason of the fact
that an Option has been granted to such officer or other employee.
SECTION 10. WITHHOLDING TAXES
10.1. Rights of Company. The Company may require an employee exercising
a Nonqualified Option, or disposing of shares of Common Stock acquired pursuant
to the exercise of an Incentive Option in a disqualifying disposition (as
defined in Section 421(b) of the Code), to reimburse the Company for any taxes
required by any government to be withheld or otherwise deducted and paid by such
employer corporation in respect of the issuance or disposition of such shares.
In lieu thereof, the employer corporation shall have the right to withhold the
amount of such taxes from any other sums due or to become due from such
corporation to the employee upon such terms and conditions as the Committee may
prescribe. The employer corporation may, in its discretion, hold the stock
certificate to which such employee is otherwise entitled upon the exercise of an
Option as security for the payment of any such withholding tax liability, until
cash sufficient to pay that liability has been received or accumulated.
10.2. Payment in Shares. An employee may elect to have such tax
withholding obligation satisfied, in whole or in part, by (i) authorizing the
Company to withhold from shares of Common Stock to be issued pursuant to the
exercise of a Nonqualified Option a number of shares with an aggregate fair
market value (as defined in Section 6.3 hereof determined as of the date the
withholding is effected) that would satisfy the withholding amount due with
respect to such exercise, or (ii) transferring to the Company shares of Common
Stock owned by the employee with an aggregate fair market value (as defined in
Section 6.3 hereof determined as of the date the withholding is effected) that
would satisfy the withholding amount due.
10.3. Notice of Disqualifying Disposition. Each holder of an Incentive
Option shall agree to notify the Company in writing immediately after making a
disqualifying disposition (as defined in Section 421(b) of the Code) of any
Common Stock purchased upon exercise of the Incentive Option.
SECTION 11. AMENDMENT OR TERMINATION OF PLAN
11.1. Amendment. The Board may terminate the Plan and may amend the
Plan at any time, and from time to time, subject to the limitation that, except
as provided in Section 8 hereof, no amendment shall be effective unless approved
by the stockholders of the Company in accordance with applicable law and
regulations, at an annual or special meeting held within 12 months before or
after the date of adoption of such amendment, in any instance in which such
amendment would: (i) increase the number of shares of Common Stock that may be
issued under, or as to which Options may be granted pursuant to, the Plan; or
(ii) change in substance the provisions of Section 4 hereof relating to
eligibility to participate in the Plan. Without limiting the generality of the
foregoing, the Board is expressly authorized to amend the Plan, at any time and
from time to time, to confirm it to the provisions of Rule 16b-3 (or successor
rule) under the Exchange Act, as that Rule may be amended from time to time.
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Except as provided in Section 8 hereof, the rights and obligations
under any Option granted before amendment of this Plan or any unexercised
portion of such Option shall not be adversely affected by amendment of this Plan
or such Option without the consent of the holder of such Option.
11.2. Termination. This Plan shall terminate as of the tenth
anniversary of its effective date. The Board may terminate this Plan at any
earlier time for any or no reason. No Option may be granted after the Plan has
been terminated. No Option granted while this Plan is in effect shall be altered
or impaired by termination of this Plan, except upon the consent of the holder
of such Option. The power of the Committee to construe and interpret this Plan
and the Options granted prior to the termination of this Plan shall continue
after such termination.
SECTION 12. NONEXCLUSIVITY OF PLAN
Neither the adoption of this Plan by the Board nor the submission of
this Plan to the stockholders of the Company for approval shall be construed as
creating any limitations on the power of the Board to adopt such other incentive
arrangements as it may deem desirable, including the granting of stock options
otherwise than under this Plan, and such arrangements may be either applicable
generally or only in specific cases.
The Committee's determinations under the Plan need not be uniform and
may be made by it selectively among persons who receive, or are eligible to
receive, awards under the Plan (whether or not such persons are similarly
situated). Without limiting the generality of the foregoing, the Committee shall
be entitled, among other things, to make non-uniform and selective
determinations, and to enter into non-uniform and selective Plan agreements, as
to (i) the persons to receive awards under the Plan, (ii) the terms and
provisions of awards under the Plan, (iii) the exercise by the Committee of its
discretion in respect of the exercise of options pursuant to the terms of the
Plan, and (iv) the treatment of leaves of absence pursuant to Section 5.1
hereof.
SECTION 13. EFFECTIVE DATE
This Plan shall become effective upon its adoption by the Board,
provided that the stockholders of the Company shall have approved this Plan
within twelve months prior to or following the adoption of this Plan by the
Board. Subject to the foregoing, Options may be granted under the Plan at any
time subsequent to its effective date; provided, however, that (a) no such
Option shall be exercised or exercisable unless the stockholders of the Company
shall have approved the Plan within twelve months prior to or following the
adoption of this Plan by the Board, and (b) all Options issued prior to the date
of such stockholders' approval shall contain a reference to such condition.
SECTION 14. PROVISIONS OF GENERAL APPLICATION
14.1. Severability. The invalidity or unenforceability of any provision
of this Plan shall not affect the validity or enforceability of any other
provision of this Plan, each of which shall remain in full force and effect.
14.2. Construction. The headings in this Plan are included for
convenience only and shall not in any way effect the meaning or interpretation
of this Plan. Any term defined in the singular shall include the plural, and
vice versa. The words "herein," "hereof" and "hereunder" refer to this Plan as a
whole and not to any particular part of this Plan. The word "including" as used
herein shall not be construed so as to exclude any other thing not referred to
or described.
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14.3. Further Assurances. The Company and any holder of an Option shall
from time to time execute and deliver any and all further instruments, documents
and agreements and do such other and further acts and things as may be required
or useful to carry out the intent and purpose of this Plan and such Option and
to assure to the Company and such Option holder the benefits contemplated by
this Plan; provided, however, that neither the Company nor any Option holder
shall in any event be required to take any action inconsistent with the
provisions of this Plan.
14.4. Governing Law. This Plan and each Option shall be governed by the
laws of The Commonwealth of Massachusetts.
* * * * *
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EXHIBIT 10.33
[FORM OF]
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, any
<PAGE> 2
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
2
<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.
3
<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
4
<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: 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.
TENTH: 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
5
<PAGE> 6
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
6
<PAGE> 1
EXHIBIT 10.34
[FORM OF]
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 cashless exercise/resale
procedure adopted by the Committee; or (e) with the consent of the Committee,
any combination of the
<PAGE> 2
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 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:
2
<PAGE> 3
(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 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.
3
<PAGE> 4
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.
NINTH: 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.
TENTH: 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
4
<PAGE> 5
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
5
<PAGE> 6
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
6
<PAGE> 1
EXHIBIT 10.35
[FORM OF]
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
<PAGE> 2
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 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:
2
<PAGE> 3
(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.
EIGHTH: 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.
3
<PAGE> 4
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.
NINTH: 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
4
<PAGE> 5
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
5
<PAGE> 1
Exhibit 10.36
Schneider Securities, Inc.
2 Charles Street
Providence, R.I.
Implant Sciences Corporation
Wakefield, MA
Ladies and Gentlemen:
In order to induce Schneider Securities, Inc. (the "Underwriter") and Implant
Sciences Corporation and any successor thereof (the "Company"), to enter into an
underwriting agreement with respect to the Unit offering to be issued by the
Company as described in the Company's Registration Statement on Form SB-2, the
undersigned officers and directors hereby agree that for a period of thirteen
(13) months following the closing of the offering, the undersigned will not
sell, transfer, assign, hypothecate, pledge or otherwise dispose of any
beneficial interest in (either pursuant to Rule 144 or the regulations under the
Securities Act of 1933, as amended, or otherwise) any securities issued by the
Company (the "Securities") registered in the name of the undersigned or
beneficially owned by them without the prior written consent of the Underwriter.
The Company also agrees that in connection with acquisitions, the Company will
not without the Underwriter's prior written consent, sell, or offer to sell,
either publicly or privately, any shares of common stock, other equity, debt or
convertible securities for thirteen (13) months after the closing. The Company
may issue shares of common stock or other securities upon the exercise of
currently outstanding options and warrants or options hereafter issued.
Implant Sciences Corporation
by__________________________
Dated:______________________
_______________________ ____________________________ _______________________
_______________________ ____________________________ _______________________
_______________________ ____________________________ _______________________
<PAGE> 1
EXHIBIT 21.1
LIST OF SUBSIDIARIES
NONE
<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 the Registration Statement (Form SB-2) and related
Prospectus of Implant Sciences Corporation for the registration of 1,350,000
shares of its common stock.
Ernst & Young LLP
Boston, Massachusetts
September 24, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM INCOME
STATEMENT, BALANCE SHEET AND CASH FLOW AND IS QUALIFIED IN TS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> JUN-30-1997 JUN-30-1998
<PERIOD-START> JUL-01-1996 JUL-01-1997
<PERIOD-END> JUN-30-1997 JUN-30-1998
<CASH> 683,076 311,189
<SECURITIES> 197,729 0
<RECEIVABLES> 391,409 390,235
<ALLOWANCES> 2,000 2,000
<INVENTORY> 24,785 31,338
<CURRENT-ASSETS> 1,318,350 871,289
<PP&E> 919,507 1,506,753
<DEPRECIATION> 602,842 692,808
<TOTAL-ASSETS> 1,921,288 2,166,483
<CURRENT-LIABILITIES> 1,066,412 730,146
<BONDS> 0 0
0 0
0 0
<COMMON> 51,761 62,261
<OTHER-SE> 764,226 1,115,195
<TOTAL-LIABILITY-AND-EQUITY> 1,921,288 2,166,483
<SALES> 3,029,672 2,904,429
<TOTAL-REVENUES> 3,029,672 2,904,429
<CGS> 1,655,934 1,620,941
<TOTAL-COSTS> 2,628,899 3,014,599
<OTHER-EXPENSES> 0 5,976
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 21,043 7,309
<INCOME-PRETAX> 379,730 (96,885)
<INCOME-TAX> 161,400 (38,900)
<INCOME-CONTINUING> 218,330 (57,985)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 218,330 (57,985)
<EPS-PRIMARY> .06 (0.01)
<EPS-DILUTED> .05 (0.01)
</TABLE>
