<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to ___________.
COMMISSION FILE NUMBER: 0-8632
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MEDICAL DYNAMICS, INC.
----------------------------------------------------
Exact name of Registrant as specified in its charter
COLORADO 84-0631765
-------- ------------------
State or other jurisdiction of I.R.S. Employer
incorporation or organization Identification No.
99 INVERNESS DRIVE EAST, ENGLEWOOD, CO 80112
-------------------------------------- --------
Address of principal executive offices Zip Code
Registrant's telephone number, including area code: 303-790-2990
------------
Former name, former address and former fiscal year, if changed since last
report: NA
Indicate by check mark whether the Registrant (1) has filed an annual, quarterly
and other reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter periods
that the Registrant was required to file such reports) and (2) has been subject
to such filing requirements for the past 90 days.
YES X NO
--- ---
The number of shares outstanding of each of the issuer's classes of common
stock, as of June 30, 1995 is 6,869,511 shares, $.001 par value.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
MEDICAL DYNAMICS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
ASSETS June September
30, 1995 30, 1994
---------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 573,400 $1,151,600
Short term investments 520,000 1,010,500
Trade receivables, less
allowance for doubtful
accounts of $55,000 and $55,000 379,100 457,800
Note receivable - Micro Medical 90,000 --
Inventories, net of allowance
for obsolescence of $155,000
and $100,000 (Note 3) 1,091,700 984,300
Prepaid expenses 23,100 34,300
---------- -----------
Total Current Assets $2,677,300 $3,638,500
---------- -----------
EQUIPMENT
Loaner equipment $ 701,700 $ 704,800
Machinery and equipment 333,100 325,300
Furniture and fixtures 268,900 266,000
Leasehold improvements 54,500 54,500
---------- -----------
$1,358,200 $1,350,600
Less accumulated deprecia-
tion and amortization (1,183,500) (1,063,300)
---------- -----------
$ 174,700 $ 287,300
---------- -----------
OTHER ASSETS
Patents, patents pending and
trademarks, net of accumulated
amortization of $583,600
and $559,700 $ 187,800 $ 299,000
Other 151,900 142,700
---------- -----------
$ 339,700 $ 441,700
---------- -----------
$3,191,700 $4,367,500
---------- -----------
---------- -----------
</TABLE>
See Notes to Consolidated Financial Statements.
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<PAGE>
MEDICAL DYNAMICS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
June September
30, 1995 30, 1994
----------- -----------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 167,200 $ 161,900
Accrued expenses 39,000 60,200
Product warranty costs 25,000 50,000
Accrued royalties 60,000 90,000
----------- -----------
Total Current Liabilities $ 291,200 $ 362,100
----------- -----------
STOCKHOLDERS' EQUITY
Preferred stock, $.001
par value; authorized
5,000,000 shares; none
issued and outstanding $ -- $ --
Common stock, $.001 par
value; authorized
15,000,000 shares;
issued 6,885,411
and 6,885,411 shares 6,900 6,900
Additional paid-in capital 16,575,500 16,575,500
Accumulated deficit (13,602,600) (12,497,700)
----------- -----------
$ 2,979,800 $ 4,084,700
----------- -----------
Treasury stock at cost
15,900 shares (79,300) (79,300)
----------- -----------
$ 2,900,500 $ 4,005,400
----------- -----------
$ 3,191,700 $ 4,367,500
----------- -----------
----------- -----------
</TABLE>
See Notes to Consolidated Financial Statements.
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<PAGE>
MEDICAL DYNAMICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Quarter ended Nine months
June 30, ended June 30,
----------------------- ----------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 331,500 $ 352,600 $ 920,600 $ 1,068,600
Cost of goods sold 309,900 297,200 824,000 820,000
---------- ----------- ----------- -----------
Gross profit $ 21,600 $ 55,400 $ 96,600 $ 248,600
---------- ----------- ----------- -----------
Other operating
revenue $ 18,700 $ 26,900 $ 67,800 $ 87,600
---------- ----------- ----------- -----------
Operating expenses:
Selling, general
and adminis-
trative $ 413,200 $ 393,000 $ 1,240,400 $ 1,306,300
Research and
development 39,000 54,300 109,800 96,400
---------- ----------- ----------- -----------
$ 452,200 $ 447,300 $ 1,350,200 $ 1,402,700
---------- ----------- ----------- -----------
Operating (loss) $ (411,900) $ (365,000) $(1,185,800) $(1,066,500)
---------- ----------- ----------- -----------
Financial income
(expense):
Interest income 13,800 18,000 81,000 37,700
Interest expense -- (1,400) -- (27,000)
---------- ----------- ----------- -----------
$ 13,800 $ 16,600 $ 81,000 $ 10,700
---------- ----------- ----------- -----------
(Loss) before
income taxes $ (398,100) $ (348,400) $(1,104,800) $(1,055,800)
Income tax expense
(Note 2) -- -- -- --
---------- ----------- ----------- -----------
Net (loss) $ (398,100) $ (348,400) $(1,104,800) $(1,055,800)
---------- ----------- ----------- -----------
---------- ----------- ----------- -----------
Fully diluted loss
per share (Note 1)
Net (loss) per share $ (.06) $ (.05) $ (.16) $ (.16)
---------- ----------- ----------- -----------
---------- ----------- ----------- -----------
</TABLE>
See Notes to Consolidated Financial Statements.
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<PAGE>
MEDICAL DYNAMICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months ended June 30,
------------------------------
1995 1994
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $(1,104,800) $(1,055,800)
Adjustments to reconcile net
(loss) to net cash (used in)
operating activities:
Depreciation and
amortization 205,800 244,800
Gain on sale of loaner
equipment (29,500) (36,400)
Change in assets and liabilities:
Decrease in accounts receivable 62,700 188,300
Decrease in trade
notes receivable 16,000 --
(Increase) Decrease in
inventories (162,400) 119,400
Increase in reserve for
inventory obsolescence 55,000 --
Decrease in other assets 25,900 2,600
(Decrease) in accounts
payable, accrued expenses
and product warranty costs (91,800) (384,500)
----------- -----------
Net cash (used in)
operating activities $(1,023,100) $ (921,600)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of
loaner equipment $ 21,600 $ 64,900
Note advances to
Micro-Medical Devices (90,000) --
Changes in other assets 33,500 (32,100)
Sale of investments 490,500 --
Purchase of equipment (10,700) (5,100)
----------- -----------
Net cash provided by
investing activities $ 444,900 $ 27,700
----------- -----------
</TABLE>
See Notes to Consolidated Financial Statements.
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<PAGE>
MEDICAL DYNAMICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended June 30,
--------------------------------
1995 1994
------ ------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of common
stock arising from exercise
of options $ -- $ 68,700
Proceeds from stock offerings -- 2,602,800
Note payment to officer -- (257,200)
Net cash provided by
financing activities $ -- $ 2,414,300
----------- -----------
(Decrease) Increase in cash
and cash equivalents $ (578,200) $ 1,520,400
Cash and cash equivalents:
Beginning 1,151,600 674,900
----------- -----------
Ending $ 573,400 $ 2,195,300
----------- -----------
----------- -----------
</TABLE>
<TABLE>
<CAPTION>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
<S> <C> <C>
Cash paid during the period
for interest $ -- $ 7,900
----------- -----------
----------- -----------
</TABLE>
<TABLE>
<CAPTION>
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
<S> <C> <C>
Note payable to officer reduced by
unearned prepaid interest $ -- $ 82,800
----------- -----------
----------- -----------
Loaner equipment transferred
from inventory $ -- $ 17,900
----------- -----------
----------- -----------
</TABLE>
See Notes to Consolidated Financial Statements.
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<PAGE>
MEDICAL DYNAMICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. MANAGEMENT ADJUSTMENTS
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested that these financial
statements be read in conjunction with the Registrant's September 30, 1994 Form
10-KSB. The results of operations for the periods ended June 30, 1995 and June
30, 1994 are not necessarily indicative of operating results for the full years.
The Consolidated Financial Statements and other information
furnished herein reflect all adjustments which are, in the opinion of management
of the Registrant, necessary for a fair presentation of the results of the
interim periods covered by this report. Adjustments to the financial statements
were of a normal recurring nature.
For the nine months ended June 30, 1995 and 1994, both primary
and fully-diluted earnings per share are calculated based upon 6,869,511 and
6,429,597, respectively, average common shares outstanding. Shares issuable
under common stock options were excluded from the computation of earnings per
share because the effect was deemed to be anti-dilutive. At June 30, 1995 and
1994, the Registrant had 1,134,050 and 952,968, respectively, common stock
options outstanding.
NOTE 2. INCOME TAXES
Under the provisions of the Internal Revenue Code, the Registrant
has available net operating loss and business tax credit carryforwards of
approximately $13,000,000 and $188,000, respectively, which expire in varying
amounts from 1995 through 2009.
The net operating loss and business tax credit carryforwards
described above give rise to a deferred tax asset of approximately $5,000,000.
This asset is recorded net of a valuation allowance of the same amount,
therefore no amounts are reflected in the accompanying balance sheet.
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<PAGE>
MEDICAL DYNAMICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTE 3. INVENTORIES
Inventories consist of the following at June 30, 1995 and
September 30, 1994:
<TABLE>
<CAPTION>
March 31, September 30,
1995 1994
---- ----
<S> <C> <C>
Raw materials, purchased and
replacement parts $ 556,300 $ 537,700
Finished goods 612,900 525,700
Work in process 77,500 23,900
Allowance for obsolescence (155,000) (100,000)
---------- ----------
$1,091,700 $ 984,300
---------- ----------
---------- ----------
</TABLE>
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<PAGE>
MEDICAL DYNAMICS, INC. AND SUBSIDIARY
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
FINANCIAL CONDITION. (June 30, 1995 as compared to September 30,
1994) During the nine months ended June 30, 1995, the Registrant's net working
capital decreased approximately $890,300, due primarily to the use of cash in
operations and the resulting operating loss. Cash has been used primarily to
fund the general operations of the Registrant including research and
development, and to promote the sales and marketing of products.
Principal changes in the components of net working capital for
the nine months ended June 30, 1995 consist of a decrease in accounts receivable
by $81,100, a net increase in notes receivable of approximately $74,000 (trade
collections of $16,000 and Micro-Medical advances of $90,000), an increase in
inventory levels by $162,400 (excluding allowance adjustments), net purchases
and sales of short term investments with maturities of 60 days or less of
$490,500, a reduction in prepaid expenses of $11,200, and a reduction in current
liabilities by $70,900.
During the nine months ended June 30, 1995, the Registrant
experienced a negative cash flow from operations of approximately $1,023,100 as
compared to a negative cash flow from operations of approximately $921,600
during the comparable period of the prior fiscal year. The aggregate increase
in cash used for operations during FY 1995 versus FY 1994 was a result of the
following factors: Cash of $162,400 was used in FY 1995 to increase inventory
levels in anticipation of expected future sales, where during FY 1994 the
Company reduced inventory by the amount of $119,400. Accounts payable, accrued
expenses and product warranty costs were reduced during FY 1995 and FY 1994
requiring cash outlays of $91,800 and $384,500 respectively. Trade accounts and
notes receivable cash collections totalled $78,700 during FY 1995 versus cash
collections of $188,300 during FY 1994.
To curtail operating losses, negative cash flow from operations
and liquidity erosion further, management is continually reviewing all expense
accounts and will reduce or eliminate all non-essential expenditures.
Purchasing procedures have also been implemented to minimize product cost and
avoid excess inventory levels. A distribution agreement signed with Micro
Medical Devices, Inc. will allow the Company more flexibility in matching
inventory requirements and purchases with currently anticipated sales, thereby
reducing inventory carrying costs. This agreement is described more fully in
part II, item 5. Management of the Registrant is also continuing to seek OEM
customers for all product lines.
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<PAGE>
MEDICAL DYNAMICS, INC. AND SUBSIDIARY
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS. (CONTINUED)
The Company entered into a revised license agreement with Dr.
Adair in an effort to reduce patent maintenance costs and other associated
costs. The Company entered into the distribution agreement with Micro Medical
Devices, Inc. in order to reduce the capital investment required for new
products. These agreements are discussed more fully in part II, item 5.
Without significant sales increases, the Registrant anticipates
negative cash flow from operations for fiscal 1995 and beyond. The Registrant's
future viability depends on its ability to generate cash to fund it's
operations. In the short term, this was accomplished through equity placements
during fiscal 1994, and in previous fiscal years through loans from the
company's chairman. However, the Registrant's ability to fund its operations
will be dependant upon achieving profitability and in generating a positive cash
flow from operations. Unless the Registrant is able to increase sales revenues
and maintain profitability during the remainder of fiscal 1995, the Registrant
may be facing significant working capital shortages beginning in fiscal year
1996. There can be no assurance that the Company will be able to achieve this
goal.
The Registrant believes that its existing capital resources are
sufficient for the current fiscal year, and the Registrant has planned no
significant capital expenditures. The Registrant is not seeking additional debt
or equity capital at this time. If, however, the Registrant does obtain
additional capital (of which there can be no assurance), the Registrant will be
able to allocate more resources to sales and marketing efforts (including
negotiations with prospective OEM relationships), and research and development.
RESULTS OF OPERATIONS. As an aid to understanding the
Registrant's operating results, the following table indicates the percentage
relationships of principal revenue and expense items to total net sales included
in the Consolidated Statements of Operations for the nine months ended June 30,
1995 and 1994 and the percentage changes in those items for the same years.
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<PAGE>
MEDICAL DYNAMICS, INC. AND SUBSIDIARY
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS. (CONTINUED)
<TABLE>
<CAPTION>
As a percent of
total revenue
for the nine
month period Percentage
Ended June 30, change from
----------------- the prior years
1995 1994 Revenue/Expense Items comparable period
------- ------- --------------------- -----------------
<C> <C> <S> <C>
100.0% 100.0% Net sales (13.8%)
89.5% 76.7% Cost of goods +.5%
10.5% 23.3% Gross profit (61.1%)
7.4% 8.2% Other operating revenue (22.6%)
134.7% 122.2% Selling, general and admin (5.0%)
11.9% 9.0% Research and development +13.9%
(128.8%) (99.8%) Operating (loss) (11.2%)
8.8% (1.0%) Other income/(expense) +656.1%
(120.0%) (98.8%) Net (loss) +4.6%
</TABLE>
REVENUE. Total Sales for the nine months ended June 30, 1995 and 1994 were
$920,600 and $1,068,600, respectively, for a decrease of approximately $148,000
or 13.8%. Domestic, non-OEM sales accounted for 53% and 46% of sales, foreign
sales accounted for 36% and 33% of total sales, and OEM sales accounted for 11%
and 21% of the total sales for the comparable periods ended June 30, 1995 and
1994, respectively.
Total domestic, non-OEM sales for the nine months ended June 30, 1995 and
1994 were $489,200 and $488,800, respectively, remaining flat with a slight
increase of $400. The Registrant believes that the capital equipment market
will rebound somewhat during the remainder of fiscal 1995 due to both the
deferral of the Health Plan and hospitals needing to replace outdated endoscopy
equipment, but is currently taking steps to introduce products such as the
Universal Sterile Endoscopy System-TM- and Coupler/Drape-TM- in the final
quarter of the fiscal 1995 which will address the combined issues of cost and
sterility that plague the capital tight hospital market, but no assurances of
the success of that strategy can be given.
Foreign sales for the nine months ended June 30, 1995 and 1994 were
$335,200 and $352,700, respectively, for a decrease of $17,500 or 5%. This
decrease is due primarily to one time shipments of demonstrator equipment during
fiscal 1994. Foreign sales continue to increase as an overall percentage of
total sales due to the continuation and expansion of relationships with master
distributors in Latin America, Japan, and Europe. The Registrant expects
continued expansion of the foreign distribution network as evidenced by the
addition of distributors in countries such as Hong
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<PAGE>
MEDICAL DYNAMICS, INC. AND SUBSIDIARY
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS. (CONTINUED)
Kong / China, South Korea, and Saudi Arabia. It is expected that an eventual
increase in revenues will be provided from these distributors as they become
established, although no assurances can be given as to the success of those
efforts.
Total OEM sales for the nine months ended June 30, 1995 and 1994 were
$96,200 and $227,100, respectively, for a decrease of $130,900 or 58%. This
reduction is primarily attributable to the Registrants shipments to Endosurgical
Development Corporation (EDC) decreasing for the comparable nine month periods.
The Registrant is attempting to replace the OEM base lost during fiscal 1992 by
expanding existing business with current OEM customers such as EDC, and
cultivating new relationships that are in the beginning stages of sales such as
J&J Professional, Inc. (Codman), and Origin Medsystems, Inc., a subsidiary of
the Eli Lilly Company. The Registrant expects to expand revenues from all of
these OEM customers as well as attempt to add others in the areas of general
laparoscopy, arthroscopy, cardiovascular surgery, dental endoscopy, as well as
add a national distributor for the Registrants Lap-Wrap product although no
assurances can be given as to the success of those efforts.
COST OF GOODS SOLD. Cost of goods sold for the nine months ended June 30,
1995 and 1994 were $824,000 and $820,000, respectively, for a slight increase of
approximately $4,000 or .5%. Cost of goods sold as a percent of sales were
89.5% and 76.7%, respectively, for the same periods. The increase as a percent
of sales is mainly due to lower production volumes and charging excess overhead
(excess manufacturing capacity) to cost of goods sold. Varying sales mixes and
sales discounts allowed OEM and foreign distributors are additional factors
contributing to the cost of sales percentage increase. Under utilized overhead
variances will continue to adversely affect cost of goods sold as a percentage
of net sales until such time that the Registrant increases its sales and
production volume or takes additional steps to reduce its fixed costs currently
included in overhead.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (SG&A). SG&A for the nine
months ended June 30, 1995 and 1994 were $1,240,400 and $1,306,300,
respectively, for a decrease of approximately $65,900 or 5.0%. The decrease is
primarily due to cost cutting measures instituted by Management and precipitated
by lower sales and production values. The nine months ended June 1995 also
includes a non-cash expense charge of approximately $78,600 related to the
writeoff of certain patents and deferred patent costs management
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<PAGE>
MEDICAL DYNAMICS, INC. AND SUBSIDIARY
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS. (CONTINUED)
has deemed either non-productive or which fall under the scope of technology
which reverts to Dr. Edwin Adair per the terms of the amended and restated
license agreement (see part II, item 5 below). The registrant continues to
reduce or eliminate expenses in all areas when practical.
Research and development costs for the nine months ended June 30, 1995 and
1994 were $109,800 and $96,400, respectively, for an increase of approximately
$13,400 or 13.9%. A significant portion of this increase is related to
development of the camera portion of the USES system along with development work
on a new digital, soakable head camera labeled the 5980, as well as additional
research and development on the Optical Catheter System-TM- and Lap-Wrap-TM-
products. The Registrant will continue to fund research and development as it
deems appropriate to maintain or gain a competitive advantage.
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<PAGE>
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION.
LICENSE AGREEMENT WITH DR. ADAIR.
Medical Dynamics, Inc. ("MEDY") entered into a license agreement in June
1987, by which its Chairman licensed the use of technology he had developed to
MEDY. This agreement has been modified from time-to-time by adding new
technology developed by Dr. Adair and changing certain of the provisions.
Originally, the agreement licensed technology relating to certain malleable
endoscopes, flexible optical catheters, the Adair-Veress-TM- needle and
complementing viewing systems for use in connection with detection, diagnosis
and treatment of disease or injury in humans and animals. MEDY used this
technology to develop the Model 5990 Optical Catheter System-TM-.
The technology added to the license agreement over the years has increased
MEDY's patent maintenance costs and management recently performed a review of
the viability of certain of the technology based upon MEDY's current business
and marketing plans. Management has determined that MEDY would not likely
develop certain of the technology into saleable products because of the
anticipated costs involved and the recent difficulties MEDY has had in obtaining
approval of new devices from the federal Food and Drug Administration ("FDA").
As a result, management recommended, and the Board approved, the return of
twelve items of technology to Dr. Adair. Medical had approximately $70,000
invested in this technology, and the maintenance costs for this technology which
was not likely to be commercialized by MEDY in the near future were in excess of
$20,000 per year. To conserve cash flow and to allow management to concentrate
on MEDY's other products, the Board of Directors approved the return of this
technology to Dr. Adair.
At the same time, the Board approved an amended and restated license
agreement with Dr. Adair which consolidated the original license agreement and
the four amendments thereto, and added an expanded right of first refusal. The
principal amendments are:
The definition of "Technology" included within the license agreement
was modified to more accurately describe the technology developed by
Dr. Adair which is of continuing interest to MEDY: the Optical
Catheter-TM- technology (including the fluorescence detection system);
the Adair-Veress needle-TM-, the technology associated with the
Electronic Video Laparoscope-TM-, and Lap-Wrap-TM-. The restated
license agreement continues to specifically exclude from its terms
technology relating to flexible or steerable endoscopic devices (other
than the Optical Catheter). In the restated license agreement, MEDY
continues to agree to sub-license technology to the Chairman relating
to the use of laser
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<PAGE>
light through flexible or steerable endoscopes on a non-exclusive basis.
Under the restated license agreement, Dr. Adair is specifically
permitted to research and develop new technology and know-how at his
own expense. Such technology and know-how will not be a part of the
restated license agreement unless MEDY exercises its right of first
refusal to acquire the new technology or know-how. Dr. Adair is
obligated to offer all new technology which he may develop to MEDY's
Board of Directors under the license agreement, subject only to
reimbursement to him of costs he has in the development and patenting
of the technology. Neither Dr. nor Mrs. Adair would participate in
the Board's vote whether to accept the proffered technology. Should
MEDY accept the technology and know-how, such technology shall
automatically be included within the license agreement, including all
amendments. Furthermore, MEDY shall be responsible to pay all future
patent and development costs associated with the new technology. If
MEDY rejects the new technology, the Chairman is free to pursue third
party alliances and has no further obligation to re-offer such
technology to MEDY.
The financial provisions of the license agreement were not modified in any
material respect. The restated license agreement continues to provide for
minimum royalties payable to Dr. Adair of $120,000 per year. The license
agreement does not specify a termination date. Currently MEDY is accruing these
royalties for future payment to Dr. Adair, without interest. These accrued
royalties are collateral for a guarantee from Dr. Adair of a loan made by MEDY
to an affiliated company, Micro-Medical Devices, Inc. (See further discussion
under "Distribution Agreement," below.)
The restated license agreement continues to provide that, if within a three
year period of the issuance of any patent included in the license agreement, as
amended, MEDY fails to commercialize such technology, Dr. Adair, upon written
request, may terminate the license agreement on that specific patent.
Furthermore, Dr. Adair has the right to terminate the license agreement on
specific technologies upon acquisition by another person of 20% or more of the
outstanding stock of the Registrant unless the acquirer provides notice in
writing, within 30 days, of its intention to commercially exploit the specific
technologies.
As noted, the restated license agreement contemplates that Dr. Adair will
continue to develop new technology and know-how for his own account, subject to
the right of first refusal. During the development of any new technology, MEDY
will allow the Chairman access to facilities, equipment and inventory of the
Registrant at no cost provided the activities do not interfere with the ongoing
business of MEDY or result in unreasonable expense to MEDY. If, however, MEDY
rejects the technology, Dr. Adair will not be
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<PAGE>
entitled to use any of the equipment, facilities, or inventory of MEDY for
further development.
The termination provisions were not changed materially in the restated
license agreement. MEDY is free to terminate the license agreement, as amended,
at any time and without penalty. Dr. Adair must give MEDY 45 days prior written
notice of his intent to terminate the license upon default by MEDY of its
obligations under the license agreement. Additionally, the license will
terminate automatically immediately if (i) MEDY files a voluntary case in
bankruptcy or (ii) any order for relief against MEDY shall be entered in an
involuntary case in bankruptcy or (iii) MEDY shall fail, or admit in writing an
inability, to pay its debts as they mature.
DISTRIBUTION AGREEMENT.
MEDY also entered into a distribution agreement with Micro-Medical Devices,
Inc. ("MMD"), a corporation wholly-owned by Dr. Adair. The distribution
agreement includes all products developed by Dr. Adair related to his Universal
Sterile Endoscopy System-TM- ("USES"). MEDY had previously owned certain
rights to this technology under the License Agreement but was required to return
the technology to Dr. Adair due to MEDY's inability to commercialize the product
within the required three year period. MEDY was unable to do so because of its
lack of financial capability and its inability to obtain approval of products
from the FDA. Dr. Adair, therefore, continued the research and development
necessary to develop USES and the related products at his own expense, and
through MMD, obtain FDA approval thereof.
MMD has appointed MEDY as its exclusive worldwide distributor for the USES
products through June 30, 2000. MMD also granted MEDY a right of first refusal
to distribute any further products MMD may develop.
Pricing of the products has not yet been established, but MEDY will be free
to resell products at any price it may determine. There are no minimum
performance requirements under the distribution agreement, and MEDY need only
purchase products it has already sold to third parties.
As a condition of the distribution agreement, however, MEDY agreed to loan
MMD up to $120,000 pursuant to a promissory note signed by MMD. The note is
personally guaranteed by Dr. Adair as the sole shareholder of MMD, and he has
pledged all amounts due to him under the restated license agreement as
collateral for this guarantee. MEDY is accruing these amounts payable to Dr.
Adair without interest. MEDY is not obligated to advance any amounts to MMD
except to the extent these amounts are fully collateralized by amounts due to
Dr. Adair. The promissory note from MMD to MEDY bears interest at a rate of 1%
over the current prime rate per annum. Furthermore, the distribution agreement
provides that MEDY may credit 100% of the purchase price of any products from
MMD
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under the distribution agreement against amounts due under the promissory note.
MMD also agreed to sublease space from MEDY for administration purposes at
cost. The amount of space has not yet been defined, but the rental payment and
reimbursement to MEDY for employees MMD may utilize are intended to compensate
MEDY for all associated expenses, including rent on a per-square-foot basis.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
10.1 Amended and Restated License Agreement.
10.2 Distribution Agreement.
(b) Reports on Form 8-K: None
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 14, 1995 /s/ VAN A. HORSLEY
-------------------------------
Van A. Horsley, President,
Principal Executive Officer, and
Principal Financial Officer
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EXHIBIT 10.1
AMENDED AND RESTATED
LICENSE AGREEMENT
This license agreement dated June 3, 1987, as amended by agreement on
February 20, 1989, June 22, 1989, July 2, 1992, and October 1, 1992
(collectively referred to herein as the "License Agreement") by and between
Edwin L. Adair, M.D. (the "Licensor") and Medical Dynamics, Inc., a Colorado
corporation (the "Licensee") is hereby further amended in the following manner,
and is hereby restated effective as of June 1, 1995.
RECITALS
A. Licensor has invented, developed and filed patent applications
relating to certain electronic endoscopes, flexible optical catheters,
complementary viewing systems, and related disposable products for use in
connection with detection, diagnosis and treatment of disease or injury in
humans and animals (hereinafter referred to as the "Technology").
B. Licensor is continuing to conduct research and development with
respect to the Technology which should continue to improve and expand the
performance and applications of the Technology.
C. Licensor is the owner of certain patent applications relating to the
Technology which may be useful in the human and veterinary medical fields and is
willing to grant a conditional, revocable license with respect to the Technology
to Licensee in return for certain royalties to be paid to Licensor from revenues
from sales of products based on the Technology.
D. Licensee desires to benefit from Licensor's research and development
relating to the Technology and any improvements and/or refinements thereof and
to obtain the License from Licensor to produce and sell products based upon the
Technology and covered by the Licensor's patents and patent applications.
E. The original License Agreement related to certain technology specified
therein. Following the date thereof, additional technology was added by
amendment dated February 20, 1989 and July 2, 1992, all of which is now included
within the definition of the term "Technology" as such term is defined in the
License Agreement, with the exception of certain technology which has been or
may be returned to the Licensor by separate agreement.
F. The amendments dated June 22, 1989 and October 1, 1992 made certain
other changes to the License Agreement as set forth therein.
<PAGE>
G. The parties wish to amend the License Agreement further in accordance
with the terms hereof and to Restate the License Agreement, as amended.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, and for other good and valuable consideration, the receipt and
adequacy whereof both parties hereto acknowledge, it is agreed as follows.
ARTICLE 1
DEFINITIONS
As used in this Agreement the following terms shall have the following
respective meanings:
1.1 The term "Technology" shall mean and include all items set forth in
Schedule 1, attached hereto and by this reference incorporated herein. The term
"Technology" also includes any and all refinements, improvements and
modifications to the existing systems and related methods, processes or
components now or hereafter developed by Licensor.
1.2 The term "Licensor Patents" shall mean all United States and foreign
patent applications and patents now or hereafter owned or controlled by Licensor
describing or related to the Technology. The current Licensor patents and
patent applications are listed in Schedule 1 attached to this Agreement.
1.3 The term "Licensor Know-How" shall mean all information, data,
specifications, methods of manufacture and research, experimental, clinical or
other information relating to the Technology which is known or becomes known to
Licensor and which Licensor is free to disseminate without accounting to others.
1.4 The term "human medical field" shall mean the field of medical
applications and uses of the Technology in the areas of maintenance of health
and/or the diagnosis, alleviation or cure of disease in human beings.
1.5 The term "veterinary medical field" shall mean the field of
veterinary applications and uses of the Technology to nonhuman animals including
mammalian animals, and for the maintenance or improvement of health and/or
growth or for the diagnosis, alleviation or cure of disease.
1.6 The term "Subsidiary" shall mean any present or future company
organized under the laws of any nation, at least 80% of the voting shares of
which are directly or indirectly under control of Licensee.
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1.7 The term "Licensed Territory" shall mean all countries of the world
in which there are Licensor Patents except those countries expressly excluded by
Licensee by written notice thereof to Licensor pursuant to this Agreement.
1.8 The term "Patented Product" shall mean any product whose manufacture,
use and/or sale in a country of the Licensed Territory is covered by one or more
claims of an issued Licensor Patent, or a pending Licensor Patent Application
during the first five years after either (a) the date of filing or (b) the date
of request for examination in a country where such a request is necessary.
1.9 The term "Net Sales Price" shall mean gross proceeds resulting from
the invoice less:
(a) Usual trade and/or cash discounts actually allowed and taken;
(b) Forwarding expenses, freight, postage and duties actually paid
or allowed and taxes imposed directly on the Licensee with respect to such
sales; and
(c) Credits for goods returned and any credit given for reduction in
price.
1.10 The term "Continuing Director" shall mean a director who is serving
as a director of Licensee on the effective date of this Agreement or a director
who is appointed or nominated (and subsequently elected) by the directors who
are currently serving as directors.
ARTICLE 1.A
CONTINUED EFFECT OF LICENSE AGREEMENT
1.A.1 The License Agreement (including the original license agreement and
the four amendments thereto) is in full force and effect, and continues to be a
valid and binding agreement between the parties thereto. All payments required
to be made to the Licensor under the License Agreement through the date hereof
have been properly made except approximately $50,000 which has been accrued on
the books of the Licensee.
ARTICLE 2
GRANT OF LICENSEE
2.1 Licensor hereby grants and Licensee hereby accepts an exclusive
irrevocable license for use of the Technology in the human and veterinary
medical fields, to produce, have produced, manufacture, have manufactured for
it, to use and/or sell Patented Products to any distributor, reseller or end
user (i.e.,
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physicians, veterinarians, hospitals, clinics, universities or any other user),
either separately or in combination with other products, and to use the
Technology and Licensor Know-How in the specified fields, with the right to
sublicense its Subsidiaries.
2.2 Licensor agrees that it will not, without the written consent of
Licensee, license any other person, firm, corporation or entity to utilize the
Licensor Patents at any time during the term of this License, which shall
commence on the date of this Agreement and shall continue until the expiration
of any of the Licensor Patents.
2.3 Deleted.
2.4 This License shall terminate automatically and without any action by
Licensor, upon the happening of any of the following:
(a) A voluntary case in bankruptcy is begun by Licensee or any order
for relief against Licensee shall be entered in an involuntary case in
bankruptcy; or
(b) Licensee shall fail, or admit in writing, its inability to pay
its debts as they mature, by acceleration or otherwise; or make a settlement
with or general assignment for the benefit of creditors; or a committee of
credits shall be appointed for Licensee; or a receiver or receivers or custodian
or custodians shall be appointed for or shall take possession of all or a
substantial part of the property of Licensee.
(c) The Licensor hereby agrees not to exercise his right to
terminate the License under Article 2, Section 2.4 PROVIDED THAT: The Licensee
uses, and continues to use, its best efforts to manufacture and market its
products developed utilizing the Technology, as that term is defined in the
License Agreement, and pays Licensor a minimum annual royalty (payable quarterly
in arrears) as follows:
<TABLE>
<CAPTION>
For fiscal year ending September 30,
------------------------------------
<S> <C>
1990 $ 60,000
1991 80,000
1992 100,000
1993 and 120,000
thereafter
</TABLE>
Licensor further agrees that Licensor will give Licensee not less than 45 days'
prior written notice (specifying the default) of its intent to terminate the
License pursuant to Article 2, Section 2.4 under the License Agreement, as
amended. Licensee may, during that period, cure any default.
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<PAGE>
2.5 Licensee shall have a first right of refusal to negotiate a license
on the Patented Products for applications in any other area of use besides those
granted hereunder. Licensee or Licensor, as the case may be, shall notify the
other party when such a use of a Patented Product has been identified in a field
other than that granted hereunder. The parties shall then enter into good faith
negotiations aimed at establishing the terms of a license for such
application(s). Such negotiations shall continue until agreement of the terms
of the license has been reached or either party chooses to terminate the
negotiations. In that case, Licensor shall be free to offer the Patented
Product to third parties in an attempt to license the Patented Product in the
new field of use; provided, however, that any license granted to a third party
must be on terms more favorable to Licensor than the last offered by Licensee.
In the event Licensee receives an offer from a third party on terms equal or
less favorable to Licensor than the last offered by Licensee, then Licensee
shall be given written notice of such offer, and such notice shall constitute an
offer to licensee to enter into a license on those terms. Licensee shall then
have ten days to accept such offer. If Licensee declines such offer, Licensor
shall have the right to enter into an agreement with such third party offeror on
those terms. If Licensor fails to enter into an agreement within 90 days or if
the terms are made less favorable than those contained in the notice to
Licensee, Licensee's first right to enter into a license with Licensor shall be
reinstated.
2.6 If, within three years of the issuance of any patent for items
included within the definition of the term "Technology" by reason of Amendment
No. Four (item number 3 on Schedule 1), Licensee has not taken steps to
commercialize such Technology, Licensee will, at the written request of
Licensor, terminate the license as to any patent or other rights to such
Technology to Licensor and to terminate this License Agreement as to such
Technology. When used in this Paragraph 2.6, the term "steps to commercialize"
includes (without limitation) the development of prototypes, the marketing of
products including such Technology, sales of products including such Technology,
or making application to Governmental Authorities in the United States or
elsewhere for marketing clearance (such as "510K" or "PMA" as those terms are
understood in the United States).
2.7 (a) Licensor shall have the right to terminate this License as to
specific Technology upon the acquisition by another person (the "Acquiror"),
directly or indirectly, of 20% or more of the outstanding stock of Licensee
unless, within 30 days of the acquisition the Acquiror advises Licensor in
writing of its intention to exploit commercially, each item of Technology
included in the License Agreement at that time. If the Acquiror provides notice
of its intention to exploit only certain Technology,
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Licensor may terminate this License Agreement as to the remaining Technology.
(b) If Licensor terminates this License Agreement as to any
Technology pursuant to this Paragraph 2.7, Licensee shall promptly take such
steps as may be necessary or appropriate to reassign such Technology to Licensor
and to terminate this License Agreement as to such Technology.
ARTICLE 3
PAYMENTS BY LICENSEE
3.1 Licensee shall not be obligated to make any payments to Licensor in
respect of this License except as provided in this Article.
3.2 Licensee agrees to reimburse Licensor for any and all sums paid by
Licensor incurred after the date of this Agreement in connection with the
filing, prosecution and maintenance of Licensor Patents. Licensee shall be
entitled to a full accounting for all such amounts for which reimbursement is
sought and shall be entitled to make payments directly to the person to whom
such amounts are owing rather than reimbursing Licensor.
3.3 Licensee agrees to reimburse Licensor for any and all sums paid by
Licensor incurred after the date of this Agreement in connection with any
further research, development or similar expenses incurred in connection with
any modifications, improvements or changes to the Technology and to which this
License applies. Licensor shall be required to give a full accounting of any
such expenses for which reimbursement is sought under this Paragraph and
alternatively and preferably, Licensee shall be entitled to fund any such costs
directly rather than as reimbursement to Licensor.
3.4 Licensee shall be required to make the royalty payments to Licensor
as set forth in Article 4.
3.5 As partial consideration of Technology added to this Agreement by
reason of Amendment No. Four, the Licensee issued to Licensor an option (the
"Option") to purchase 300,000 shares of the Licensor's common stock, exercisable
for a ten year period from the date hereof at $4.00 per share. The Licensor is
entitled to exercise the Option for cash or in exchange for property, including
shares of the Licensee valued at the bid price on the day before exercise (if
quoted on NASDAQ) or on another appropriate basis. The Option is subject to
standard anti-dilution provisions in the event the Licensee issues stock for no
consideration, and the Option and underlying shares shall be considered
"restricted securities" pursuant to Rule 144 under the Securities Act of 1933
(the "1933 Act"). At the request of the Licensor, the Licensee
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<PAGE>
will use its best efforts to file a registration statement relating to the
shares underlying the Option for sale pursuant to the requirements of Section 5
of the 1933 Act and the securities laws of the state of Colorado, and to obtain
the effectiveness of such registration statement. Such registration will be at
the expense of the Licensee. If the Licensee is able to obtain effectiveness of
such registration statement, the Licensee will use its best efforts to maintain
such effectiveness for a period of 90 days. Licensee shall use its best efforts
to ensure that an exemption from registration under the 1933 Act and applicable
state securities laws is available to Licensee and Licensor at the time of
exercise of the Option. The option is not assignable by Licensor and
constitutes a "Restricted Security."
ARTICLE 4
ROYALTIES
4.1 For and in consideration of the License granted to Licensee under
Article 2 of this Agreement, Licensee or its licensed subsidiaries shall pay to
Licensor at the time and in the manner hereinafter set forth a royalty of two
percent of the Net Sales Price of Patented Products sold by Licensee and/or its
Subsidiaries for use in the human medical or veterinary medical fields.
4.2 In the case of sales of products by Licensee which contain components
in addition to the Patented Products, (herein referred to as "Combination
Products"), the "Net Sales Price" of such Combination Products for purposes of
royalty computation shall be determined by multiplying the Net Sales Price (as
defined above) for the Combination Product by a fraction, the numerator of which
shall be the actual cost to Licensee of the Patented Product over the actual
cost to Licensee of the Combination Product.
4.3 Notwithstanding the provisions of Paragraph 4.1 and 4.2 of this
Article, if a product being made, used or sold in a particular country for the
Licensed Territory at any time is no longer a Patented Product because the only
claim(s) of the Licensor Patents which cover(s) such product is (are) finally
declared invalid in that particular country, no further royalty shall thereafter
be due Licensor on the sale of such product in that particular county.
4.4 No royalties as set forth hereinabove in this Article shall be
payable on intercompany sales transactions as between or among Licensee and/or
its Subsidiaries, the final vendee sale to a third party, alone, being used for
the purposes of determining the royalty payments due hereunder. Patented
Products subject to royalty payment shall be deemed sold when invoiced or if not
invoiced when the same shall be shipped or delivered to the third party.
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4.5 In the event an unlicensed entity or entities shall sell in a country
within the Licensed Territory a generally like product in competition with
Licensee and/or its Subsidiaries whose sales of corresponding Patented Products
in that country are subject to the royalty provisions of Paragraph 4.1 of this
Article, and Licensor has no remedy for infringement or elects not to pursue its
remedy against such competitor, then the applicable royalty rate shall be
reduced to one percent on Licensee's and/or its Subsidiaries' Net Sales Price of
such products sold in such country, provided that said unlicensed competitor has
at least a 20% market share in such country for such product and provided
further that Licensee has not exercised its rights under Article 7, Paragraph
7.2 to prosecute an action against the infringer.
4.6 Royalty payments shall accrue under this Agreement when Patented
Products subject to royalty are sold by Licensee and/or its Subsidiaries to a
third party.
ARTICLE 5
REPORTS AND RECORDS
5.1 Within 45 days after the last day of each fiscal quarter, Licensee
and/or its licensed Subsidiaries shall render a written report showing its sales
and those of its Subsidiaries and a computation of royalties due based upon
sales made by it and its Subsidiaries during the previous fiscal quarter and
which are subject to royalty under Article 4 of this Agreement. Licensee shall
simultaneously pay the royalties due with respect to such sales in accordance
with Article 4 hereof.
5.2 Licensor, at the request of Licensee, agrees to grant a direct
license to Licensees' Subsidiaries; moreover, and when Licensee desires a
licensed Subsidiary to pay royalties directly to Licensor, such agreement
between Licensee and its Subsidiaries or between Licensor and Licensee's
Subsidiary shall include provisions similar to those set forth in Articles 4 and
5 herein with respect to royalties, the keeping of records, the making of
reports and payments, and the right of inspection of the Subsidiaries' records
by an independent certified accountant retained by Licensor.
5.3 Licensee hereby unconditionally guarantees payment of all royalties
and the performance of all obligations required of its Subsidiaries pursuant to
any license or sublicense granted under this Agreement, subject to the
provisions of Paragraph 5.4 through 5.6 of this Article.
5.4 Royalties on the Net Sales Price of Patented Products shall accrue
and be computed in the currency of the country in which such sales shall have
been made by Licensee or its licensed Subsidiaries, and such royalties shall be
payable by Licensee to its Subsidiary according to instructions by Licensor in
the United
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States in United States Dollars, using as the rate of exchange the prevailing
official buying price in United States Dollars paid in New York, U.S.A., for a
banker's check drawn in the currency involved on banks abroad in the country
involved, at the applicable rate of exchange at the date of remittance or on the
last day of the 45 day period mentioned in Paragraph 5.1 above, whichever is
earlier.
5.5 If by law, regulations, or fiscal policy of a particular country,
conversion into or transfer to United States Dollars is restricted or forbidden,
notice thereof in writing will be given to Licensor and payment of the royalty
shall be made through such lawful means or methods as Licensor may designate.
Failing the designation by Licensor of such lawful means or methods as aforesaid
within 60 days after the aforementioned notice is given to Licensor, the payment
or royalty by Licensee or its Subsidiaries shall be made by the deposit thereof
in local currency to the credit of Licensor in a recognized banking institution
designated by Licensor or, if none be designated by Licensor within the period
of 60 days as aforesaid, then in a recognized banking institution notified to
Licensor by Licensee or its Subsidiaries. When in any country the law or
regulations prohibits both the transmittal and deposit of royalties on sales in
such a country, royalty payments shall be suspended for as long as such
prohibition is in effect and so soon as such prohibition ceases to be in effect,
all royalties which Licensee or its Subsidiaries would have been under
obligation to transmit or deposit, but for the prohibition, shall forthwith be
deposited or transmitted promptly to the extent allowable, as the case may be.
5.6 Any and all taxes levied by a proper taxing authority and paid by
Licensee or its Subsidiaries on account of royalties accruing to Licensor under
this Agreement, remittable from a country in which provision is made in the law
or by regulation for withholding of taxes, may be deducted from such royalty
paid by Licensee or its Subsidiaries, provided Licensor may obtain the benefit
of such deduction by way of a tax credit and provided proof of payment is
secured and set promptly by Licensee or its Subsidiaries to Licensor as evidence
of such payment.
5.7 Licensee and its licensed Subsidiaries shall maintain full, true and
accurate books of account and other records containing all particulars which may
be required to ascertain and verify the royalties payable by it under this
Agreement. Said books, records and all supporting data shall be available at
all reasonable times and for a period of three years following the period of
reporting to the inspection of any independent certified accountant retained by
Licensor at its expense for the purpose and to whom Licensee has no reasonable
objection; provided, however, that such accountant shall report to Licensor only
as to the accuracy of the royalty statements and payments, and in no event
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shall reveal Licensee's costs of production, quantities or prices to individual
customers, or like information. In the event of disagreement between the
accountant and Licensee as to the accuracy of the royalty statements and/or
payments, additional information shall be provided by Licensee to Licensor;
however, such information shall be of such a nature and in an amount sufficient
only to effect resolution of the disagreement.
ARTICLE 6
CLINICAL TESTING AND COMMERCIALIZATION
6.1 In the event further research, development or clinical testing of the
Technology or the Patented Products (or any of them) is deemed necessary or
desirable, as determined by mutual agreement between Licensee and Licensor,
Licensee shall undertake to use its best efforts with regard to research,
development and clinical testing of the Technology or the Patented Products.
Licensee shall not be required to spend more than $25,000 per year for research
and clinical testing of the Technology or Patented Products and shall not be
required to spend any sums for such purposes after three years from the date of
this Agreement.
6.2 Licensee shall not be required to expend sums of money in research
and clinical testing of the Technology and Patented Products during any period
where clinical testing of such products is prohibited by an agency of the United
States Government.
6.3 Licensee's obligation under Paragraph 6.1 of this Article shall be
considered met if the amount of money expended by Licensee in research and
clinical testing in any year plus that which has been expended in previous years
equals the sum required to be spent by Licensee during the period through the
end of that year.
6.4 In the event Licensee shall fail to use its best efforts as defined
in Paragraph 6.1 of this Article, Licensor's sole and exclusive remedy in law
and equity for failure to comply with Paragraph 6.1 shall be the right to
terminate the License pursuant to the provisions of Article 8, Paragraph 8.4.
ARTICLE 7
VALIDITY OF LICENSOR PATENTS
7.1 Licensor agrees where economically justified and within reasonable
limits to protect the Licensor Patents from infringement by companies which sell
products covered by the Licensor Patents to the public and to prosecute such
infringers, but Licensor's opinion as to whether any such action shall be taken
by it shall be accepted by Licensee.
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7.2 Licensor and Licensee shall each give immediate notice to the other
of any infringement of the Licensor Patents by third parties as becomes known to
either of them. If Licensor has not within six months from the date on which it
is notified or otherwise becomes aware of a sale which infringes a Licensor
Patent either terminated such infringement, abated such infringement by granting
a license in a manner consistent with the provisions of this Agreement or
initiated legal action against the infringer, Licensee shall have the right to
prosecute an action against the infringer. Licensor agrees, in the event that
Licensee cannot prosecute such infringement in its own name, to sign and give to
Licensee, within 30 days after Licensee's request, all necessary documents in
order for Licensee to prosecute in the name of Licensor, such infringement.
Licensor will permit any other licensee or Licensor to join in the prosecution
of such infringement action at such other licensee's request. Licensee shall be
entitled to deduct all its expenses, including costs and legal fees incurred in
bringing and prosecuting such infringement action from royalties due Licensor
after commencement of such infringement action, provided, however, that said
deduction shall not exceed 50% of said royalties due Licensor. In the event
Licensee shall recover profits and/or damages from said infringer, Licensee
agrees to turn over to Licensor 50% of any amounts paid to it by said infringer
after deducting any of its expenses, including costs and legal fees incurred in
such litigation, which Licensee has not previously deducted from royalty
payments that were otherwise due Licensor.
7.3 In the event that, during the pendency of any action brought by
Licensor against a third party for infringement of a Patented Product which it
sold to the public, the market penetration by infringers with respect to the
sale of the infringing product(s) in the country in which the action is being
pursued exceeds 20%, then the applicable royalty shall be reduced to one percent
on Licensees's or its Subsidiaries' Net Sales of such Patented Product sold in
such country. Such reduced royalty shall remain in effect only as long as such
infringement continues to exist.
7.4 If, in exercising its rights under this Agreement, Licensee or its
Subsidiaries is or are accused of infringing a product patent owned by a third
party, Licensee shall have the right either to:
(a) Terminate this License with regard to the country or countries
in which accused infringement occurred;
(b) Request that Licensor enter into negotiations with such other
party to obtain rights for Licensee under the third party patent; or
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(c) Enter into negotiations with such third party to obtain rights
under such third party patent. If in obtaining such rights Licensee is required
to make any payment to such third party, the royalties payable to Licensor on
sales in the country in which Licensee has obtained rights from the third party
shall be reduced by the amount of said payment.
7.5 If a process patent or patents should issue on a process of
manufacture in any country which would be infringed by a process of manufacture
which Licensee or its Subsidiaries is or are using or wishes or wish to use to
make Patented Products and if it should prove, in Licensee's judgment,
impractical for Licensee or its Subsidiaries to commence or continue the sale of
such Patented Products in such country under this Agreement, or impractical to
use or to change to a noninfringing process of manufacture for such Patented
Products, except with a royalty-bearing license from such third party under such
patent or patents, then Licensee or its Subsidiaries shall be entitled to offset
against royalty due hereunder to Licensor in such country on Licensee's or its
Subsidiaries' sales of such Patented Products, the royalty paid by Licensee or
its Subsidiaries to such third party on such Patented Products sold in such
country covered by such patent, to the extent of the royalty due to Licensor on
such Patented Products sold in such country.
ARTICLE 8
TERM AND TERMINATION
8.1 The License under Licensor Patents granted under Article 2 hereof
shall in each country of the Licensed Territory continue in force for the life
of all Licensor Patents in effect in such country unless terminated at an
earlier date pursuant to another provision of this Agreement.
8.2 Licensee may terminate this Agreement at any time upon 30 days prior
written notice.
8.3 Licensee agrees to promptly notify Licensor in writing after any
determination by it that it does not intend to develop and commercialize a
product using the Technology or Patented Products for any application within the
fields of use granted under this Agreement, and this Agreement shall
automatically terminate 30 days after such notice with respect to the
application described in the notice.
8.4 In the event either party defaults or breaches any of the provisions
of this Agreement, the other party may terminate this Agreement by giving the
defaulting or breaching party 60 days written notice thereof; provided, however,
that if the defaulting or breaching party, within such 60 day period, cures said
default
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or breach, this Agreement shall continue in full force and effect the same as if
such default or breach had not occurred.
8.5 In the event of termination of this Agreement, Licensee shall not be
relieved of its duty and obligation to pay royalties and any other payments
which may have accrued up to the effective date of such termination.
8.6 Upon expiration of all of the Licensor Patents under which Licensee
has been licensed, Licensee shall have a paid-up, nonterminable license in the
Licensed Territory for all Licensor Technology and Know-How generated up to such
expiration date.
8.7 Licensor may terminate this License at any time pursuant to the
happening of any event entitling Licensor to revoke the License as described
under Article 2 of this Agreement.
8.8 In the event of termination of this License, Licensee shall have the
right to sell any products which utilize the Technology or constitute Patent
Products remaining in its inventory on the date of termination or for which it
has placed orders for manufacture up until the time of termination, provided
Licensee pays the applicable royalty with respect to the sales of such products.
ARTICLE 9
TRANSMISSION OF INFORMATION AND KNOW-HOW
9.1 Licensor agrees promptly to provide Licensee with copies of all
reports, manuscripts and publications emanating from Licensor relating to the
Technology, Licensor Patents, the Patented Products and Licensor Know-How.
9.2 Licensor further agrees to provide Licensee with copies of all patent
applications which it files relating to the Technology promptly following the
filing thereof in any country. Licensor further agrees to advise Licensee
regarding all patents which may issue to it as a result of the filing of such
patent applications and to provide copies of any and all such patents to
Licensee.
ARTICLE 10
CONSULTING
10.1 Licensee shall have the option at the time that it enters into this
Agreement of entering into a consulting arrangement with Licensor if personnel
of Licensee wish to personally consult with Licensor with respect to the
Technology. For these consulting privileges, Licensee agrees to reimburse
Licensor, in addition to the other sums payable to Licensor
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pursuant to this License Agreement, for any expenses incurred by Licensor in
providing such consulting services, including any and all expenses incurred for
travel. Arrangement for times of consultation with Licensor by Licensee shall
be made in advance by a specific request therefor and shall be at time mutually
convenient to both Licensee and Licensor.
10.2 Licensee may terminate this consulting arrangement at any time upon
30 days notice to Licensor without terminating the remainder of this Agreement.
ARTICLE 11
NONDISCLOSURE OF CONFIDENTIAL INFORMATION
11.1 All confidential scientific and technical information communicated by
Licensor to Licensee under this Agreement, including information contained in
patent applications, shall be kept confidential by Licensee, which shall take
all reasonable steps to ensure that such confidential information does not pass
negligently or otherwise into the hands of those unauthorized to receive it.
Notwithstanding the foregoing, Licensee shall be relieved of the confidentiality
obligations herein and not be prevented by this Agreement from utilizing any
information received by it from Licensor if:
(a) The information was previously known to Licensee;
(b) The information is or becomes generally available to the public
through no fault of Licensee, including as a result of publications and/or
laying open to inspection of any patent applications that Licensor may file
corresponding to such United States patent applications;
(c) The information is acquired in good faith in the future by
Licensee from a third party who is not under an obligation of confidence to
Licensor in respect to such information;
(d) The disclosure of such information is considered necessary for
the commercial exploitation of this License.
11.2 (a) The Licensor shall supervise the use and further development of
the Technology licensed to the Licensee as a result of Amendment No. Four (items
numbered 31 and 32 on Schedule 1). All devices or products using or
incorporating such Technology shall be manufactured by Licensee or by third
parties pursuant to arrangements by which each individual with access to non-
public information regarding the Technology licensed by Amendment No. Four will
execute appropriate secrecy and confidentiality agreements. These secrecy and
confidentiality provisions shall remain in effect as to Technology licensed by
Amendment No. Four until all patents
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pending or applied for relating to such Technology have been issued, to ensure
that proprietary information relating to the Technology will not become part of
the 'public domain,' thereby possibly jeopardizing one or more patent
applications.
(b) Licensor shall ensure that appropriate officers of Licensee
shall have access to all manufacturing processes, technology, know-how, and
other proprietary information necessary or appropriate for Licensee to comply
with the requirements of regulatory authorities or as may otherwise be necessary
for the business of the Licensee.
ARTICLE 12
ASSIGNMENT
Neither this Agreement nor any rights or benefits hereunder shall be
assignable or transferable by Licensee without the written consent of Licensor.
ARTICLE 13
APPLICABLE LAW
13.1 This Agreement shall be considered to have been made in the United
States, and shall be interpreted in accordance with the laws of the State of
Colorado, United States of America.
13.2 All disputes, differences or questions between the parties concerning
the construction, interpretation and effect of this Agreement or any clause
herein contained or the rights and liabilities of the parties shall be settled
by arbitration. In the case of such dispute, difference or question, the party
desiring arbitration shall send to the other party a registered letter asking
for arbitration and appointing its arbitrator. The arbitration shall be held in
Denver, Colorado, under the rules of the American Arbitration Association then
in effect. The other party shall appoint its arbitrator within 30 days of the
date of the letter requesting arbitration. The two arbitrators so appointed, or
the sole arbitrator, if either party fails to appoint an arbitrator, shall
appoint a third (or second) arbitrator within 60 days of the date of the letter
requesting arbitration.
13.3 The costs of the arbitration shall be in the discretion of the
arbitrators, provided, however, that no party shall be obligated to pay more
than its own costs and the cost of the third arbitrator. Judgment upon any
award rendered may be entered in any court having jurisdiction, or application
may be made in such court for a judicial acceptance of the award and an order of
enforcement, as the case may be, and each party shall be entitled to such
measures as are appropriate, at law or in equity, to enforce such award.
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ARTICLE 14
AGENCY
Neither party shall be deemed to be an agent, partner or joint venturer of
the other party as a result of any transaction under or related to this
Agreement, and shall not in any way pledge the other party's credit or incur any
obligation on behalf of the other party. Licensor, by virtue of the entry of
any consulting agreement with Licensee shall not be deemed an employee of
Licensee except as may specifically be set forth in the consulting agreement.
ARTICLE 15
DISCLAIMER OF LABILITY AND/OR WARRANTY
15.1 Licensor shall exercise reasonable care in verifying the accuracy of
information provided under this Agreement, but Licensor shall not be liable for
any damages arising out of or resulting from any information made available
hereunder or of the use thereof nor shall it be liable to Licensee for
consequential damages under any circumstances.
15.2 Licensor shall have no responsibility for the ability of Licensee or
its Subsidiaries to use such information, the quality or performance of any
product produced by Licensee or its Subsidiaries with the aid of such
information or with respect to claims of third parties arising from Licensee's
or its Subsidiaries' use of such information.
15.3 Licensee shall assume all responsibility for the use of the
Technology and Licensor Know-How supplied to it, or of products manufactured
pursuant to this Agreement.
ARTICLE 16
INDEMNIFICATION BY LICENSOR
Licensor shall indemnify and hold harmless Licensee from any and all
claims, damages or judgments it may suffer as a result of the infringement of
any patent held by a third party by virtue of the use by Licensee of the
Technology in any Patented Product. Such indemnification shall include
reasonable costs and attorney's fees incurred by Licensee in defending any such
action, suit or claim; provided that Licensor may appoint counsel acceptable to
Licensee to defend any such action and may, to the extent it so desires, join
and participate in the defense of any such action.
ARTICLE 17
NON-WAIVER PROVISION
The waiver of either party hereto of any right hereunder or of the failure
to perform or of a breach by the other party shall not
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be deemed a waiver of any other right hereunder or of any other breach or
failure by said other party whether of a similar nature or otherwise.
ARTICLE 18
GOVERNMENTAL APPROVAL
Any approval of this Agreement by a foreign government which is required to
enable Licensee or its Subsidiaries to enter into this Agreement or to make
payments to Licensor hereunder in United States Dollars shall be secured in
writing by Licensee or its Subsidiaries who shall supply the same or a true copy
thereof to Licensor within six months of either the date of this Agreement or
the date when Licensee or its Subsidiary makes a determination to operate under
this Agreement in any foreign country where such government approval is
required.
ARTICLE 19
MARKING
Licensee agrees to apply or have applied to all containers containing
products manufactured by it under this Agreement such patent notice as may be
required by the laws of the countries where manufactured and sold or as may
reasonably be requested by Licensor.
ARTICLE 20
OFFICIAL NOTICES
20.1 Any notices required by this Agreement shall be sent by registered
mail, postage prepaid, or by Telex or cable, or regularly scheduled courier
service, charges prepaid, and shall be forwarded to the respective addresses set
forth below unless subsequently changed by written notice to the other party:
For Licensor: With copies to:
Edwin L. Adair, M.D. __________________________
317 Paragon Way __________________________
Castle Pine Village, CO 80104 __________________________
Tel: (303)
Fax: (303)
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For Licensee: With copies to:
Medical Dynamics, Inc. Friedlob Sanderson Raskin
99 Inverness Drive East Paulson & Tourtillott, LLC
Englewood, CO 80112 1400 Glenarm Place, 3rd Floor
Attention: President Denver, CO 80202
Attn: Herrick K. Lidstone, Jr., Esq.
Tel: (303) 790-2990
Fax: (303) 790-1378 Tel: (303) 57l-1400
Fax: (303) 595-3159
ARTICLE 21
MISCELLANEOUS
21.1 This Agreement shall be governed by and construed under the laws of
the State of Colorado applicable to contracts entered and wholly performed
within the state.
21.2 This Agreement may be signed in counterparts, each of which shall be
deemed an original but which shall be deemed one agreement.
21.3 The headings of the Articles of this Agreement are for convenience
only and shall not be used to construe, interpret, expand or diminish the
substantive contents of the Articles.
21.4 This Agreement shall inure to the benefit of the parties, their
heirs, representatives, successors and permitted assigns.
21.5 Licensor intends to continue to develop technology which may be of
interest to Licensee for use in Licensee's existing products or applications, or
in products or applications that may be developed or acquired by Licensee in the
future. Licensor and Licensee hereby establish a procedure by which Licensee
shall have a first right of refusal to include such technology ("New
Technology") within the terms of the License Agreement. Licensor may commence
and continue the development of New Technology using the facilities, equipment,
and inventory of the Licensee provided such activities do not interfere with the
business of the Licensee or result in an unreasonable expense to Licensee.
(a) The term "New Technology" includes any technology related to the
medical field developed by Licensor.
(b) Licensor shall offer New Technology to Licensee before offering
such New Technology to any other person and before commencing to exploit such
New Technology commercially himself. Licensor shall offer New Technology to the
Board of Directors of
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Licensee in writing, by registered or certified mail, with a description of the
New Technology and its anticipated applications or uses, such descriptions to be
in sufficient detail to allow Licensee to evaluate the New Technology (the
"Notification"). Licensor shall make himself available to Licensee and its
Board of Directors for the purpose of answering questions about New Technology.
In the event of a change of control of Licensee as described in Article 2,
paragraph 2, and 7, above, this right shall terminate.
(c) Licensee shall accept or reject the New Technology within 60
days of Licensee's receipt of the Notification. If the Licensee fails to accept
the New Technology via registered or certified mail within said 60 day period,
Licensee shall be deemed to have rejected the New Technology.
(d) If Licensee accepts the New Technology, such New Technology
shall automatically be included within this License Agreement. Furthermore,
Licensee shall be responsible to pay all accrued and future patent and
development costs associated with the New Technology or its incorporation into
products or applications developed or to be developed by the Licensee.
(e) If the Licensee rejects the New Technology, Licensor shall have
the right and privilege to continue development of the New Technology and
possible applications therefrom free and clear of any obligation to reoffer the
New Technology to Licensee. Licensor may not use the facilities, equipment,
inventory, or other resources of Licensee for any such further development or
expense, however.
21.6 This Amended and Restated License Agreement may be signed in
counterparts, each of which shall be deemed an original, but all of which shall
be deemed one agreement when signed by both parties.
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The parties hereto have caused this Amended and Restated to be duly
executed by their duly authorized representatives as of the date first above
written.
LICENSOR:
June 14, 1995 /s/ EDWIN L. ADAIR, M.D.
-----------------------------
Edwin L. Adair, M.D.
LICENSEE:
MEDICAL DYNAMICS, INC.
June 14, 1995 /s/ VAN A. HORSLEY
-----------------------------
Van A. Horsley, President
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SCHEDULE 1
TECHNOLOGY
When used in the License Agreement to which this Schedule is attached as
Schedule 1, the term "Technology" shall mean and include the following:
1. OPTICAL CATHETER. All methods, apparatus, claims and products relating to
certain products, processes and techniques described for use in and for a
system consisting of a small diameter endoscope comprise of a sterilizable
optical catheter which carries a coherent fiber-optic bundle capable of
transmitting an image, and parallel fiber-optic bundles capable of
transmitting light, which is coupled to an apparatus consisting of an
eyepiece and/or console containing light source(s), camera(s) and viewing
screen(s), as described in that certain patent application (No. 018,630)
filed by Licensor with the U.S. Patent Office on February 25, 1987 (the
"Patent Application").
FLUORESCENCE DETECTION. A methodology of fluorescence detection allowing
for the visualization of light emitting compounds from biological tissues
and certain treatment applications thereon, using the Optical Catheter.
The optical catheter and fluorescence detection system includes, but is not
limited to, the following:
Endoscope with removable eyepiece, #018630
Optical catheter, ## 1,194,849 and 4,417,710
Laser endoscope, #4,589,404
Laser illuminator, #4,011,403
Steerable sheath for use with selected removable optical catheter,
#5,325,845
Imaging tissue or stone removal basket, #5,311,858
Method and system for embollizing blood vessels, #4,869,246
Deflectable sheath for optical catheter, #07,581,592
Deformable and removable sheath for optical catheter, #07,581,591
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2. THE ADAIR/VERESS NEEDLE. This device allows the introduction of gas,
instruments, viewing devices and catheters into body cavities, particularly
the abdominal cavity (peritoneum) including (but not limited to) the
following:
Gas insufflation needle with instrument port, #4,869,717
3. ELECTRONIC VIDEO LAPAROSCOPE. (a) All rigid video endoscopes with
sterilizable sheath (all angles of view); (b) video endoscope with
operative channels; thoracic endoscopes (rigid and deflectable); (c) 3-D
technology on all endoscopes; sterile sheaths on all rigid endoscope
products; and (d) all patents pending related to 'flipping of chip and bump
bonding' for use in all endoscopic applications; all of which, (being
described in clauses (a), (b), (c), and (d) above, including (but not
limited to) the following:
Rigid video endoscope with sterilizable sheath, #4,878,485, reissue
#33,845
Heat sterilizable electronic video laparoscope, #5,188,094
Stereoscopic endoscope, #5,381,784
Operative electronic video laparoscope, subsequently abandoned
Miniaturized electronic imaging chip, #07,954,550, subsequently
abandoned, continuation in part, #08,155,996
The following is specifically excluded from the definition of the term
"Technology" in the License Agreement:
Application of technology owned by Licensor as it relates to use in
flexible or steerable endoscopic devices, except to the extent such
technology has been or shall be incorporated in the Licensee's optical
catheter system which technology shall remain subject to this License
Agreement.
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EXHIBIT 10.2
DISTRIBUTION AGREEMENT
----------------------
THIS AGREEMENT dated as of the 1st day of January, 1995 by and between
MICRO-MEDICAL DEVICES, INC., 317 Paragon Way, Castle Pines Village, CO 80104
("Micro-Medical") and MEDICAL DYNAMICS, INC.("MEDY"), 99 Inverness Drive
East, Englewood, Colorado 80112, USA, a company duly organized and existing
under the laws of the State of Colorado.
WITNESSETH:
WHEREAS, Micro-Medical is manufacturing and selling medical products;
WHEREAS, MEDY has appropriate facilities, knowledge and ability to sell
such products;
WHEREAS, MEDY desires to purchase finished products from Micro-Medical
for distribution bearing Micro-Medical labels, trademarks, and trade names;
and
WHEREAS, Micro-Medical is willing to manufacture its products with such
labeling, trademarks, and trade names (provided they are in conformance with
applicable law and regulation) for MEDY.
NOW, THEREFORE, the parties hereto, intending to be legally bound, agree
as follows:
1. DEFINITIONS
1.1 The term "Products" as used in this Agreement shall mean the
products listed on Schedule A which may be manufactured by Micro-Medical
pursuant to this Agreement, which products will bear the labels, trademarks,
trade names, identifying marks and technological and ornamental design
modifications according to design criteria submitted by MEDY, as well as
spare parts and accessories, and also all improvements and products in
replacement thereof manufactured by or for Micro-Medical for use in the
Products.
1.2 The term "Supplier" as used in this Agreement shall mean any third
party who provides materials, goods or services to Micro-Medical.
2. RELATIONSHIP
2.1 Micro-Medical hereby agrees to exclusively manufacture for MEDY
the Products pursuant to this Agreement.
<PAGE>
2.2 (a) MEDY hereby grants authority to Micro-Medical to use MEDY's
labels, trademarks, trade names, identifying marks and other technological
and ornamental design modifications solely for the manufacture of Products.
(b) Micro-Medical hereby grants authority to MEDY and to any
sub-distributors that may be appointed by MEDY to use Micro-Medical's labels,
trademarks as listed in Schedule "B" and trade names in the sale of Products.
2.3 The relationship created between the parties by this Agreement is
solely that of seller and buyer. Purchase and sale of, or any other
transaction concerning the Products shall be carried out by MEDY in the name
and for the account of MEDY and MEDY shall not enter into any agreements with
third parties in any way binding Micro-Medical. MEDY may, in its discretion,
establish subdistributor relationships with third parties at prices and terms
as may be determined by MEDY from time-to-time.
2.4 Nothing herein contained shall constitute this Agreement to be a
joint venture, partnership, or relationship of principal and agent.
2.5 (a) No provisions of this Agreement shall constitute a grant of
any license of any kind to Micro-Medical for the use, manufacture, or sale of
any trademark, tradename, or product which is proprietary to and the property
of MEDY except as specifically set forth herein.
(b) No provisions of this Agreement shall constitute a grant of
any license of any kind to MEDY for the use, manufacture, or sale of any
trademark, tradename, or product which is proprietary to and the property of
Micro-Medical except as specifically set forth herein.
3. PURCHASE ORDERS
3.1 MEDY shall submit firm, non-cancelable purchase orders for
Products pursuant to this Agreement at least 60 days before delivery of
Products is requested. MEDY submits herewith its initial purchase order for
delivery of Products during the 90 day period beginning 60 days after the
execution of this agreement.
3.2 Products are sold F.O.B. Micro-Medical's facility.
3.3 In case of any conflict or ambiguity between this Agreement and
each separate purchase order, this Agreement shall prevail, unless it is
expressly set forth in writing and executed by the parties hereto, that a
deviation from this Agreement shall prevail over a contrary provision in this
Agreement. No unilateral term set forth in any order, invoice or other
document, shall be
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effective to negate any term contained in this Agreement, irrespective of the
delivery or acceptance of a product under such document.
4. TERM
4.1 The term of this Agreement shall be for 66 months from January 1,
1995. The parties hereto may extend or renegotiate the term by mutual
written consent.
4.2 In addition, Micro-Medical hereby grants MEDY a first right of
refusal to distribute all future products directly related to the items
described in Schedule A, and any revisions, modifications, enhancements, or
improvements thereto, or substitutions therefore. Micro-Medical shall give
MEDY not less than 60 days notice of any such product and, unless
affirmatively rejected by MEDY, such product will be included herein.
4.3 In addition, Micro-Medical hereby grants MEDY a first right of
refusal to purchase any portion of the products listed on Schedule A for
which Micro-Medical may receive a bona fide offer from a third party ("Third
Party Offer"). Upon receipt of a Third Party Offer, Micro-Medical shall
convey the terms thereof to MEDY which may (within 90 days of the date it
receives said notice from Micro-Medical) exercise its right hereunder and
purchase the products designated in the Third Party Offer at the same price
and on the same terms set forth in the Third Party Offer. If MEDY does not
exercise this right of first refusal, then this Agreement becomes
non-exclusive as to any products purchased pursuant to the Third Party Offer
provided such purchase occurs within 30 days after the expiration of MEDY's
right of first refusal contained in this section.
5. TERMINATION
5.1 MEDY may terminate this Agreement at anytime upon 90 days notice.
5.2 Upon termination, MEDY is still liable for all orders placed prior
to the termination date in accordance with the terms of this Agreement and
the submitted purchase orders and shall promptly return to Micro-Medical all
technical and clinical information in its possession regarding the Products.
5.3 In addition to any termination rights of MEDY granted elsewhere in
this Agreement, MEDY may terminate this Agreement without penalty if:
(a) Any Product infringes any claim or patent of any other
person; or
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(b) Micro-Medical fails to deliver Products 60 days after the
purchase order therefor is placed by MEDY and accepted by Micro-Medical; or
(c) A petition is filed either voluntarily or involuntarily by or
against Micro-Medical under the federal Bankruptcy Code, or a petition is
filed against Micro-Medical for the appointment of a receiver; or
(d) Any governmental approval for any Product or facility
manufacturing any Product is revoked, denied, cancelled, or withdrawn; or
(e) Micro-Medical unreasonably refuses to incorporate any
technological or ornamental design modifications to Products, which
modifications were proposed, in writing, by MEDY; or
(f) If any substantiated action or claim for damages resulting
from a defect in any of the products listed on Schedule A is made against
MEDY.
(g) If MEDY notifies Micro-Medical of a substantiated
technological problem with any of the products listed on Schedule A and
Micro-Medical is unable to remedy the problem within 45 days from the date
notice of such problem is given to Micro-Medical by MEDY.
6. PRICING
6.1 MEDY shall be free to fix its resale prices and other conditions
withits customers and sub-distributors.
6.2 Unless otherwise agreed, all sales of the Products to MEDY shall
be at the price set forth on Schedule "A", which prices will be reviewed by
the parties quarterly during the first year of this contract, and annually
thereafter. No adjustment to the price (either increase or decrease, as a
result of changes in direct costs) shall affect any open purchase order for
Products received prior to such adjustment.
7. CREDIT TERMS
7.1 Payment terms are 30 days after invoice date on all Products.
7.2 At such time as Micro-Medical receives an order from MEDY,
Micro-Medical will ship the order within 60 days FOB Micro-Medical to the
destination designated by MEDY.
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7.3 In the event that any governmental authority under
current law, or any subdivision thereof, requires the payment of
stamp taxes, registration taxes, turnover taxes, or other taxes
or duties levied on a transaction under this Agreement by reason
of the execution or the performance thereof, it shall be the
responsibility of MEDY to pay all such taxes when due. MEDY
further agrees to indemnify Micro-Medical and hold it harmless
from all liability of whatever nature which may be imposed on
Micro-Medical arising out of MEDY's
failure, for whatever reason, duly to pay such taxes.
7.4 If Micro-Medical is indebted to MEDY for any amount at
the time any payment by MEDY to Micro-Medical is due (whether
pursuant to Paragraph 15.4 or otherwise), MEDY may credit 100% of
such payment against a reduction in the amounts due MEDY from
Micro-Medical. Such credit will be taken by notice from MEDY to
Micro-Medical.
8. EXPENSES INCURRED BY MEDY
8.1 MEDY shall pay all expenses incurred by it in
performance of its duties as a seller and distributor of the
Products and Micro-Medical shall not be responsible for any such
expenses.
8.2 At its own expense, MEDY shall give appropriate
instructions to its purchasers of the Products for the use of the
Products strictly in accordance with the specifications and
manuals applicable to such Products.
9. WARRANTY
9.1 Micro-Medical warrants that the Products are fit for
all purposes described in Micro-Medical's authorized technical
data or sales promotion materials and are merchantable under
their respective descriptions in such data or promotion materials
Micro-Medical hereby disclaims all other warranties
relating to the Products, whether expressed or implied.
9.2 Claims under the above warranty shall be dispatched in
writing by MEDY to Micro-Medical as soon as a warranty claim is
received by MEDY but not later than thirty (30) days after the
expiration of the warranty period. The warranty period shall
commence at the time of delivery to MEDY.
10. CHANGES IN THE PRODUCTS
10.1 MEDY will not incorporate any technological or
ornamental design modifications without the prior written consent
of Micro-Medical, which consent will not be unreasonably
withheld.
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10.2 Micro-Medical has the right to make changes to the
Products at any time, provided the changes do not affect the form
or the function of the Product. This does not, however, apply to
the Products already subject to an accepted purchase order from
MEDY or to the labeling, trademarks, trade names, identifying
marks or other differentiating technological or ornamental design
modifications incorporated into the Products under this
Agreement.
10.3 Micro-Medical and MEDY, by reason of Section 12
hereof, have exchanged secrecy agreements for the purpose of
planning future technology and ornamental modifications to the
Products. The result of such planning will be to determine what,
if any, technological or ornamental design changes will
be incorporated into the Products to be delivered to MEDY
pursuant to this Agreement.
11. ASSIGNMENT
11.1 This Agreement shall not be assignable by either party
without the prior written consent of the other party.
11.2 MEDY may appoint sub-distributors for the Products.
12. CONFIDENTIALITY
12.1 Any technical, commercial or other information of a
confidential nature disclosed by one party (the "Disclosing
Party") to the other party (the "Receiving Party") shall be
treated as confidential and the Receiving party shall not during
the duration of this Agreement or for a three (3) year
period after termination, without the prior written consent of
the Disclosing Party, disclose or pass it to any third party
except as may be required for the proper performance of the
Receiving Party's duties hereunder, to its employees, regulatory
authorities or customers of MEDY or Micro-Medical or for the
purpose of legally enforcing its rights hereunder. Any transfer
of such information to any person including persons permitted to
receive such information as aforesaid, shall only be done
following execution of an undertaking by such person to maintain
the confidentiality of such information. The Receiving Party
shall take steps appropriate under the circumstances to protect
the status of such information as confidential.
12.2 The information which is at time of disclosure or
thereafter becomes a part of the public domain through no fault
of the Receiving Party, which has been independently developed by
the Receiving Party as shown by written record, and hereafter
lawfully disclosed to the Receiving Party by the third party
which did not acquire the information under an obligation of
confidentiality from the disclosing party will be excluded from
the confidential information.
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13. INFRINGEMENT OF INDUSTRIAL PROPERTY RIGHTS
13.1 If MEDY or Micro-Medical becomes aware that the sale or use of the
Products might infringe any industrial property right of a third party, MEDY
shall give Micro-Medical or Micro-Medical shall give MEDY, as the case may
be, prompt notice thereof. MEDY shall co-operate with Micro-Medical at the
expense of Micro-Medical in the defense of any action, suit or claim by any
third party alleging any such infringement by Micro-Medical.
13.2 Each party undertakes to inform the other party immediately of all
acts of unfair competition and of all infringements of industrial property
rights of Micro-Medical and MEDY respectively. Micro-Medical and MEDY
respectively shall, at no cost of the other party, give the other party all
reasonable assistance in the protection against such acts and infringements.
If Micro-Medical decides not to protect its rights, MEDY may do so at its own
cost and with the assistance of Micro-Medical.
14. RELIEFS
14.1 Either party shall be excused from fulfillment of any obligations
other than payment of product under this Agreement only to the extent that
and for so long as such performance is prevented or delayed by causes beyond
its control such as industrial disputes, riots, floods, war, warlike
hostilities, fires, embargo, shortage of labor or parts, power, fuel, means
of transportation or common lack of other necessities, which shall be
informed to the other party without any delay.
15. MISCELLANEOUS
15.1 WAIVER. The failure of any party to insist in any instance upon a
strict performance of the provisions and conditions of this Agreement, shall
not be construed as a waiver for the future of any of the provisions and
conditions herein contained, but the same shall continue and remain in full
force and effect.
15.2 ALTERATION, ETC. No alteration or amendment to this Agreement
shall be valid unless such alteration or amendment is reduced to writing and
signed by the parties hereto.
15.3 NOTICES. Any notice required or permitted to be given under this
Agreement by one of the parties to the other, shall be given for all purposes
by delivery in person, by telex, by registered air mail, postage prepaid,
telegram or by telefax addressed to:
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MEDY Medical Dynamics, Inc.
99 Inverness Drive. East
Englewood, CO 80112
Attn: Van A. Horsley, President
tel: (303) 790-2990
fax: (303) 799-1378
Micro-Medical Micro-Medical Devices, Inc.
317 Paragon Way
Castle Pines Village, CO 80104
Attn: Edwin L. Adair, M.D.,
President
tel: (303)
fax: (303)
Each party may change its address by written notice given to the other
party in the manner set forth above.
Unless otherwise specifically provided for herein, such notice shall
take effect upon receipt by addressee, provided that such notice shall be
deemed to have arrived upon the expiration of ten (10) days from the date of
sending in case of mail and forty-eight (48) hours from the hours of sending
in case of telegram, telex, or telefax.
-8-
<PAGE>
15.4 LOAN. Provided Micro-Medical conveys to MEDY adequate collateral,
MEDY will loan up to $120,000 to Micro-Medical pursuant to the promissory
note attached hereto.
15.5 SUBLEASE. MEDY will sublease office and other space in MEDY's
existing facilities to Micro-Medical for the term of this Distribution
Agreement. MEDY and Micro-Medical will mutually agree as to the definition
of the space to be subleased. Micro-Medical will pay MEDY proportional rent
per month at cost for the subleased space during the term of the sublease,
which rent will be subject to adjustments based on any adjustments in MEDY's
underlying lease. Micro-Medical will also reimburse MEDY for anticipated use
by Micro-Medical of MEDY's employees. Both the rental payment and the
reimbursement for employees will be paid to MEDY not later than the first day
of each month, commencing June 1, 1995. The rental payment and the
reimbursement for employees are intended to compensate MEDY for actual direct
and indirect expenses incurred by MEDY in providing space and employees to
Micro-Medical; consequently, the parties will review Micro-Medical's use of
MEDY's space not less than quarterly during the first year of this agreement
and annually thereafter, and will adjust the charges to Micro-Medical as the
parties may deem appropriate.
16. APPLICABLE LAW AND ARBITRATION
16.1 This Agreement and every agreement or sales contract resulting
herefrom, shall be governed by, and construed in accordance with the laws of
the State of Colorado as such law shall from time to time be in effect, and
such laws shall also govern in the settlement, by arbitration, court
proceedings or otherwise, any and all disputes arising between the parties as
well as the validity of the arbitration clause in Article 16.2 below.
16.2 Any controversy or claim arising out of or relating to this
contract, or the breach thereof, shall be settled by binding arbitration in
accordance with the Arbitration Rules of the American Arbitration
Association, Judicial Arbiter Group of Boulder, Colorado, or other recognized
arbitration forum in the Denver, Colorado Metropolitan area, and judgment
upon the award rendered by the arbitrator(s) may be entered in any court
having jurisdiction thereof. All arbitration proceedings will be held in
Denver, Colorado, and the laws of Colorado (except for conflict of laws
principles) shall apply to all matters arising hereunder.
-9-
<PAGE>
IN WITNESS WHEREOF, the parties have hereunto caused this Agreement to
be duly executed as of the day and year first above written
MEDICAL DYNAMICS, INC. MICRO-MEDICAL DEVICES, INC.
By: /s/ VAN A. HORSLEY By: /s/ EDWIN L. ADAIR, M.D.
-------------------------- --------------------------
Van A. Horsley, President Edwin L. Adair, M.D., President
-10-
<PAGE>
SCHEDULE A
All Products Related to the Universal Sterile Endoscopy System-TM-
including, but not limited to the following:
ITEM PATENT PRICE
---- ------ -----
Sterilizable Video 4.914,521
Camera Cover, being reissue
the following: RE.34,002
1.) Sterile To Be Determined Per Agreement
CCD Drapes
(Single Chip)
(Three Chip)
2.) USES Cameras
Sterile Surgical App. No. To Be Determined Per Agreement
Coupler and Drape 08/350,682
Windowed Self- App. No. To Be Determined Per Agreement
Centering Drape 08/318,271
for Surgical Camera
<PAGE>
SCHEDULE B
TRADEMARKS OWNED BY MICRO-MEDICAL DEVICES, INC.
"USES"-TM-
Universal/Sterile Endoscopy System-TM-
Micro-Endoscopes-TM-
Micro-Laparoscopes-TM-
Micro-Arthroscopes-TM-
Micro-Cystoscopes-TM-
Micro-Cysto-Urethroscopes-TM-
Micro-Ureteroscopes-TM-
Micro-Uretero-Pyeloscopes-TM-
Micro-FiberEndoscopes-TM-
Micro-Hysteroscopes-TM-
Micro-Salphingoscopes-TM-
Sterile-CCD-TM-
Coupler/Drape-TM-
Steri-Stick-TM-
USES Camera-TM-
SuperNova Light Source-TM-
Removable Core Endoscopes-TM-
Tethered Channels-TM-
Tethered Sheath-TM-
Adair Imaging Stone Basket-TM-
Adair Imaging Balloon Catheter-TM-
Safe Entry System-TM-
Access Expansion System-TM-
Biliary Stone Management System-TM-
Adair Imaging Cholangiogram Catheter-TM-
Adair Imaging Steerable Guide Wire-TM-
Liga-Loop-TM-
Liga-Stitch-TM-
Electro-Liga-Loop-TM-
Sterile Endoscopy Systems-TM-
Sterile Imaging Systems-TM-
Endotracheal Intubation System-TM-
Electronic Colposcope-TM-
Percutaneous Laparoscopic Gastrostomy-TM-
Laparoscopic Intraperitoneal Biopsy System-TM-
Laparoscopic Barbitage System-TM-
Laparoscopic Intraperitoneal Biopsy System with Imaging Needle-TM-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> JUN-30-1995
<CASH> 573,400
<SECURITIES> 520,000
<RECEIVABLES> 524,100
<ALLOWANCES> (55,000)
<INVENTORY> 1,091,700
<CURRENT-ASSETS> 2,677,300
<PP&E> 1,358,200
<DEPRECIATION> (1,183,500)
<TOTAL-ASSETS> 3,191,700
<CURRENT-LIABILITIES> 291,200
<BONDS> 0
<COMMON> 6,900
0
0
<OTHER-SE> 2,972,900
<TOTAL-LIABILITY-AND-EQUITY> 3,191,700
<SALES> 920,600
<TOTAL-REVENUES> 1,069,400
<CGS> 824,000
<TOTAL-COSTS> 1,350,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,104,800)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,104,800)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,104,800)
<EPS-PRIMARY> (.16)
<EPS-DILUTED> (.16)
</TABLE>
