<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
---------------------------------------
Washington, D.C. 20549
-----------------------
Form 10 - QSB
--------------
Quarterly Report Under Section 13 or 15 (d)
-------------------------------------------
of the Securities Exchange Act of 1934
--------------------------------------
For the Quarterly Period Ended September 30, 1995
-------------------------------------------------
Commission File No. 0-12968
---------------------------
INMEDICA DEVELOPMENT CORPORATION
--------------------------------
(Exact name of small business issuer as specified in its charter)
-----------------------------------------------------------------
Utah 87-0397815
- ------------------------------- -------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation of organization) Number)
495 E. 4500 South, Suite 230, Salt Lake City Utah 84107
--------------------------------------------------------
(Address of principal executive offices)
Registrant's telephone number including area code (801) 261-5657
-----------------------------------------------------------------
Check whether the issuer (1) filed all reports required to be filed by section
13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months (or for
such shorter period 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 the registrant's only class of common stock,
par value $.001 per share, as of November 1, 1995 was 7,478,903 shares.
- --------------------------------------------------------------------------------
<PAGE>
PART I - FINANCIAL INFORMATION Page 1 of 2
- ------------------------------
Item 1. Financial Statements
INMEDICA DEVELOPMENT CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 1995
ASSETS
<TABLE>
<CAPTION>
September 30,
1995
-------------
(Unaudited)
<S> <C>
CURRENT ASSETS:
Cash $149,695
Prepaid expenses 4,983
--------
Total current assets 154,678
</TABLE>
IDLE EQUIPMENT AND FURNITURE,
at cost, less accumulated
depreciation of $242,038 10,097
OTHER ASSETS 2,197
------------
Total assets $ 166,972
============
See notes to condensed consolidated financial statements.
2
<PAGE>
Page 2 of 2
INMEDICA DEVELOPMENT CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 1995
LIABILITIES AND STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
September 30,
1995
-------------
(Unaudited)
<S> <C>
CURRENT LIABILITIES:
Convertible debentures $ 771,248
Accrued interest 29,579
Accrued payroll 792
Accounts payable 11,840
-----------
Total current liabilities 813,459
-----------
LONG TERM LIABILITIES:
Note Payable 150,000
-----------
STOCKHOLDERS' DEFICIT:
Common stock, $.001 par value;
authorized 20,000,000 shares,
issued and outstanding
7,478,903 at
September 30, 1995 7,479
Additional paid-in
capital 6,020,702
Series A Preferred stock,
$4.50 par value; authorized
10,000,000 shares, issued
and outstanding 16,251 at
September 30, 1995 73,130
Accumulated deficit (6,897,798)
-----------
Total stockholders'
deficit ( 796,487)
-----------
Total liabilities and
stockholders' deficit $ 166,972
===========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
INMEDICA DEVELOPMENT CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Three For the Nine
Months Ended Months Ended
September 30, September 30.
------------------------------ ----------------------
1995 1994 1995 1994
-------------- -------------- ---------- ----------
<S> <C> <C> <C> <C>
(Unaudited) (Unaudited)
OPERATING REVENUE:
Royalties $179,840 $ 99,375 $ 321,054 $ 348,625
-0- -0- -0- -0-
---------- ---------- ---------- ---------
Total operating revenue 179,840 99,375 321,054 348,625
---------- ---------- ---------- ---------
OPERATING EXPENSES:
General and administrative 64,761 33,238 164,642 125,792
Research and development -0- -0- -0- -0-
---------- ---------- ---------- ---------
Total operating expenses 64,761 33,238 164,642 125,792
---------- ---------- ---------- ---------
INCOME FROM OPERATIONS 115,079 66,137 156,412 222,833
---------- ---------- ---------- ---------
OTHER INCOME (EXPENSES):
Miscellaneous income -0- -0- 16 1,510
Gain from sale of assets 5,728 -0- 5,728 -0-
Interest expense (38,311) (45,658) (119,521) (141,433)
---------- ---------- ---------- ---------
Total other income (expense) (32,583) (45,658) (113,777) (139,923)
---------- ---------- ---------- ---------
INCOME BEFORE
EXTRAORDINARY GAIN 82,496 20,479 42,635 82,910
EXTRAORDINARY GAIN FROM
DEBT EXTINGUISHMENT 19,217 -0- 188,770 -0-
---------- ---------- ---------- ---------
NET INCOME $ 101,713 $ 20,479 $ 231,405 $ 82,910
========== ========== ========== ==========
NET INCOME PER COMMON SHARE:
Income before
extraordinary gain $ .011 $ .003 $ .006 $ .011
Extraordinary gain .002 .000 .025 .000
========== ========== ========== ==========
$ .013 $ .003 $ .031 $ .011
========== ========== ========== ==========
Weighted average number
of common share outstanding 7,478,903 7,474,403 7,475,919 7,474,403
========== ========== ========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
Page 1 of 2
INMEDICA DEVELOPMENT CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
<TABLE>
<CAPTION>
For the For the
Nine Months Nine Months
Ended Ended
September 30, 1995 September 30, 1994
------------------ ------------------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 231,405 $ 82,910
Adjustments to reconcile net
income to net cash provided by
(used in) operating activities-
Depreciation 24,517 21,075
Extraordinary gain from debt
extinguishment (188,770) -0-
Gain from sale of assets (5,728) -0-
Change in assets and liabilities-
Decrease in
accounts receivable 301,375 -0-
Decrease in inventory -0- 1,200
Decrease in prepaid
expenses 20,024 22,642
Decrease in accounts
payable (6,961) (478)
Decrease in accrued
payroll (29,151) (23,939)
Decrease in consulting
fees payable (4,260) -0-
Decrease in interest
payable (115,455) (172,519)
Decrease in royalties payable -0- (5,698)
--------- ---------
Net cash provided by (used
in) operating activities 226,996 (74,807)
---------- ---------
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
Page 2 of 2
INMEDICA DEVELOPMENT CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the For the
Nine Months Nine Months
Ended Ended
September 30, 1995 September 30, 1994
------------------ ------------------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets 6,200 -0-
Purchase of fixed assets (3,466) -0-
--------- --------
Net cash provided by
investing activities 2,734 -0-
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on
convertible debentures (233,453) (2,936)
Proceeds from bank loan 150,000 -0-
Proceeds from issuance of
common stock 338 27,905
--------- --------
Net cash provided by
(used in) financing
activities (83,115) 24,969
--------- --------
NET INCREASE (DECREASE) IN CASH $ 146,615 $(49,838)
CASH AT BEGINNING OF PERIOD 3,080 81,669
--------- --------
CASH AT END OF PERIOD $ 149,695 $ 31,831
========= ========
</TABLE>
See notes to condensed consolidated financial statements
6
<PAGE>
INMEDICA DEVELOPMENT CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note A--BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Item 310b of
Regulation SB. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. These consolidated statements include the accounts of
InMedica Development Corporation and its wholly owned subsidiary, MicroCor, Inc.
("MicroCor"). All material intercompany accounts and transactions have been
eliminated.
In the opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for fair presentation have been included.
Operating results for the three and nine-month periods ended September 30, 1995
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1995. For further information, refer to the consolidated
financial statements included in the Company's Form 10-KSB for the year ended
December 31, 1994.
NOTE B--AUTHORIZATION OF CLASS AND SERIES OF PREFERRED STOCK
Effective June 16, 1995, the shareholders of InMedica Development Corporation
(the "Company") adopted Articles of Amendment to its Articles of Incorporation
authorizing the issuance of up to 10,000,000 shares of Preferred Stock and
authorizing the board of directors to fix and determine the relative rights and
preferences of the shares including dividend rights, price of issuance,
liquidation rights, any redemption rights, conversion rights, and any voting
rights. Effective September 25, 1995, the Board of Directors authorized the
issuance of up to 1,000,000 shares of Preferred Stock, to be designated "Series
A", $4.50 par value (the "Series A Preferred Stock") at a price of $4.50 per
share. The holders of the Series A Preferred Stock are entitled to cumulative
cash dividends at the annual rate of eight percent (8%) per annum ($.36 per
share per annum) or $.09 per share per quarter, payable on or before the
following dates: January 31, April 30, July 31, and October 31 of each year.
Dividends on the Preferred Stock are required to be fully paid or set aside
before any other dividend on any class or series of stock of the Company is
paid. If any dividends on the Series A Preferred Stock are not paid or set
apart when due, the deficiency is cumulative and is required to be fully paid
and set apart before any other dividend is paid. In the event of any
liquidation, dissolution or winding up of the affairs of the Corporation,
whether voluntary or otherwise, after payment or provision for payment of the
debts and other liabilities of the
7
<PAGE>
Corporation (excluding accumulated dividends payable on any class or series of
stock), the holders of the Series A Preferred Stock are entitled to receive, out
of the remaining net assets of the Corporation, the amount of $4.50 in cash for
each share of Series A Preferred Stock, plus an amount equal to all dividends
accrued and unpaid on each such share up to the date fixed for distribution,
before any distribution is made to the holders of any class of the common stock
of the Corporation. The Company had outstanding 16,251 shares of its Series A
Preferred Stock as of September 30, 1995, held by two stockholders. Subsequent
to the quarter end, the Company issued a total of 51,871 shares to eight
additional shareholders (See Note C).
NOTE C--DEFAULT ON PAYMENT OF CONVERTIBLE DEBENTURES; SETTLEMENT OF
CERTAIN DEBENTURE DEBT
The Company sold $300,000 of Series A convertible debentures in 1990 and
$800,000 of Series C convertible debentures in 1991. Upon maturity, the Company
was required to redeem 100 percent of the original purchase amount of the
debentures plus any unpaid accrued interest. These unsecured debentures bore an
interest rate of ten percent through September 30, 1992. On March 3, 1993, the
Board of Directors authorized an increase in the interest rate on the debentures
to 15 percent effective October 1, 1992. The Series A debentures matured on
December 31, 1993 and the Series C debentures matured on June 30, 1994. At
September 30, 1995, the Company was in default in payment of an aggregate
principal amount owing on the Series A and Series C debentures of $771,248. See
Part II, Item 5 for a description of a subsequent exchange offer pursuant to
which the debentures of ten debenture holders have been retired.
On December 11, 1992, Eric Welling, Clinton B. Newman and J. Lynn Smith, then
debenture holders of the Company, filed a complaint in the Third Judicial
District Court in Salt Lake County, in the State of Utah, demanding unpaid
principal and interest of $120,740 on the Series A debentures and $177,260 on
the Series C debentures. On March 3, 1993 the Board of Directors of the Company
passed a resolution that provides for 1) at least 50 percent of all future
Critikon royalties to be paid to all debenture holders proportionate to the
amount of debentures purchased, 2) an increase in the interest rate on the
debentures to 15 percent (effective October 1, 1992), 3) improved communications
with debenture holders and 4) completion of an independent technical review of
the Company's non-invasive hematocrit technology by July 1, 1993. The Board has
completed all but the fourth item. Effective September 25, 1995, the Company
settled litigation with Clinton B. Newman and J. Lynn Smith by issuing them
5,243 and 11,008 shares of its Series A Preferred Stock, respectively, and
paying them $23,595 and $49,534, respectively in exchange for settlement of
their lawsuit on the debentures and full satisfaction of their debentures.
Newman and Smith have delivered Stipulations of Dismissal with respect to the
suit to the Company. As additional consideration
8
<PAGE>
for their participation in the settlement agreement, the Company agreed to issue
to Newman and Smith, without additional consideration, additional shares of
common stock of the Company equal to the number of conversion shares they
received upon exercise of their conversion rights under the Series A Preferred
Shares during the period October 1, 1996 through October 1, 1997. The right to
receive such additional shares expires if the parties do not exercise their
conversion rights during the period in question. Effective September 27, 1995,
the Company paid Eric Welling $80,040 to settle outstanding debenture
obligations of $99,069 owing to him and the lawsuit he had brought to collect
amounts owing to him. Dr. Welling has also delivered a Stipulation of Dismissal
of the litigation he had brought against the Company.
NOTE D--BANK LOAN; ASSIGNMENTS FOR SECURITY
Effective August 31, 1995, the Board of Directors approved borrowing funds from
a commercial bank. During September, 1995, the bank approved a loan of $500,000
to the Company bearing interest at prime plus 1 1/4%. The initial interest rate
is 10% per annum. Principal and interest payments are due quarterly, with
$12,500 principal plus accrued interest, payable at the end of each quarter.
The entire remaining unpaid balance of principal and interest is due and payable
on August 1, 1998. Larry E. Clark, President and Director of the Company, is a
co-obligor on the loan. The Company expects debt service (including principal
and interest payments) during the first year to be approximately $95,000.
Payment of the bank loan is secured by an assignment of the Johnson & Johnson
Medical, Inc. Agreement, which would be available to the bank as security in the
event of a Company default on the bank loan. The Company considers the loan to
be well secured with over $1,000,000 of additional collateral supplied by the
Company's president, Larry E. Clark. In consideration of the collateral
provided by Mr. Clark, the Board of Directors has granted Mr. Clark, effective
October 16, 1995, non-qualified options to purchase 500,000 shares of the
Company's common stock at a price of $.30 per share, exercisable for 10 years.
The Company has also granted Mr. Clark a security interest in the Johnson &
Johnson Medical Agreement to secure him for any liability or loss he may suffer
as a result of placing his collateral and credit at risk.
NOTE E--J & J MEDICAL CONTRACT
The Company reached an agreement dated June 15, 1995, with Johnson & Johnson
Medical, Inc., a New Jersey corporation, ("JJMI"). The Agreement replaces the
Company's agreement dated July 18, 1989 with Critikon, Inc. which had obligated
Critikon to pay a royalty to the Company based on certain technology MicroCor
had licensed to Critikon. The new Agreement commits JJMI to pay a royalty to
the Company for each specified PLUS Vital Signs Monitor (the "Dinamap PLUS
Monitor") sold by JJMI to unaffiliated third parties. In consideration of the
royalty, the Company has granted JJMI
9
<PAGE>
nonexclusive worldwide license to the technology. Under the terms of the new
Agreement, the Company expects to receive an increased per unit royalty rate
when compared to the prior agreement. The new royalty rate was effective as of
January 2, 1995.
Under the new Agreement, JJMI is obligated to retain records for at least three
years after the end of each royalty period. MircoCor has the right to audit the
records upon reasonable notice. Sales are reported and royalties are paid
quarterly to InMedica three months after the end of the quarterly period in
question. In the event the technology licensed by MicroCor should be found to
infringe the valid patent rights of others, pursuant to an opinion of counsel,
then JJMI is authorized to settle with such third parties and deduct the amount
of the settlement from royalties due MicroCor, not to exceed one half of the
royalties owing to MircoCor. In the event JJMI took a license or made a lump
sum settlement to settle any dispute, the amount of abatement of the royalty
payable to MicroCor would be subject to good faith negotiation.
The new Agreement is to continue so long as JJMI continues to sell Dinamap PLUS
Monitors, but may be terminated upon the dissolution, winding up, bankruptcy or
material breach of contract of either party.
NOTE F--SUBSEQUENT EVENTS
For a description of certain subsequent events affecting or possibly affecting
the financial statements of the Company, see Part II, Item 5, sub-parts 1-4.
10
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital
- ---------------------
For the nine months ended September 30, 1995, operating revenues were generated
solely from royalty income received from J & J Medical, Inc. No operating
revenues were recognized during the first quarter of 1995 due to the revenue
recognition policy of the Company and the timing of the receipt of revenues.
Consequently, revenues historically included in the first quarter, were included
in the last quarter of 1994. Royalty revenues being received by the Company are
insufficient to sustain research and development operations. InMedica is unable
to estimate whether royalty income would be adequate to retire principal and
accrued interest, over time, on remaining debenture and bank debt. InMedica
intends to continue to look for other funding sources.
InMedica has not achieved profitable operations for any year since its
organization (except for 1994 and 1995, year to date, due to 1994 expense
reductions and the suspension of further research and development efforts) and
has a shareholders' deficit of $796,487 as of September 30, 1995. In order for
InMedica to continue its research and development activities, it must secure
additional financing, for which it has no commitments. It is impossible to
estimate the amount of the J & J Medical royalties which may be received in the
future due to uncertainties regarding the future sales of the product being sold
by J & J Medical upon which InMedica's royalty is based.
Results of Operations
- ---------------------
See "Liquidity and Capital" for an explanation as to the absence of royalty
revenues during the first quarter of 1995, which absence resulted in an overall
decline of $27,571 in the Company's revenues for the nine months ended September
30, 1995 when compared to revenues for the nine months ended September 30, 1994.
However, a significant increase in royalties for the second and third quarters
of 1995, when compared to royalties received during the second and third
quarters of 1994, largely offset the absence of first quarter revenues in 1995.
Significant operating revenues were derived only from royalty income during the
nine months ended September 30, 1995. Income from operations of $42,635 and the
net income of $231,405 for the nine month period ended September 30, 1995
resulted, notwithstanding the decline in revenues for the period, because the
Company had extraordinary gain from debt extinguishment during the second
quarter of $169,533 as a result of the settlement of payroll and consulting fees
for substantially less than face value and extraordinary gain of $19,237 during
the third quarter
11
<PAGE>
from settlement of a debenture at a discount. General and administrative
expenses increased by $38,850 over the period ended September 30, 1994 due to
costs associated with the restructuring of the Company's debt and renegotiation
of the contract with J & J Medical. Net income during the third quarter of 1995
increased by $81,234 when compared to the third quarter of 1994 due to an
$80,465 increase in royalty revenues and the $19,217 extraordinary gain, which
more than offset the $31,523 increase in general and administrative expense
during the same period.
12
<PAGE>
PART II - OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings:
None
Item 2. Changes in Securities:
The Company presently has outstanding Convertible Debentures with a face amount
owing as of November 10, 1995 of approximately $321,688. The Debentures were
originally convertible to common stock at the rate of $1.00 of accrued interest
and principal owing per one share of common stock. The conversion rate of the
Debentures, however, was adjusted to a lower rate of one share of common stock
per $.75 owed under the debentures based on the issuance of the Series A
Preferred Stock which carries a first year conversion rate of $.75 per share
(six common shares per Preferred Share). Any Debenture Debt not converted to
Preferred Stock pursuant to the offering to debenture holders, would
consequently continue to be convertible to common stock at the rate of one share
per $.75 owing.
Item 3. Defaults Upon Senior Securities:
See Note C to the Financial Statements for a description of events of default
under the Company's Series A and Series C Convertible Debentures.
Item 4. Submission of Matters to a Vote of Security Holders:
None
Item 5. Other Information:
(1) New Directors; Director Stock Options. Effective August 31, 1995, the
Board of Directors appointed Richard Bruggeman as a Director of the Company to
fill a vacancy created when Hank Perry resigned effective the same date.
13
<PAGE>
Mr. Bruggeman, age 39, is also the Secretary/Treasurer and Chief Financial
Officer of the Company. Since 1993, he has been employed as Controller of
Kitchen Specialties, Inc., a Salt Lake City firm distributing kitchen appliances
in the United States and Canada. From 1986 until 1993 he was employed by the
Company's subsidiary, MicroCor, Inc. as financial manager. During the period
1983-1985, he was a sole practitioner in accounting and from 1981-1983 he was
employed by the Salt Lake City public accounting firm of Robison Hill & Co. He
graduated from the University of Utah in 1981 with a B.S. degree in accounting.
Effective November 7, 1995, the Board of Directors appointed Dr. David L.
Dingman, age 59, as a Director of the Company. Dr. Dingman is a Professor of
Surgery, Emeritus, at the University of Utah Medical Center. He was Associate
Professor and Professor of Surgery from 1989-1993. He was an Attending Staff
Surgeon at the Veterans Administration Medical Center, Salt Lake City, Utah from
1984-1989. He also served as Chairman of the Department of Surgery at Holy
Cross Hospital in Salt Lake City, Utah from 1986-1989 and as Chairman of the
Department of Plastic Surgery at Holy Cross Hospital from 1982-1985. From 1972-
1989 he was a Clinical Associate Professor of Surgery at the University of Utah
Medical Center. He graduated in pre-med from Dartmouth College in 1957 and
received his M.D. degree from the University of Michigan in 1961.
The Board of Directors has granted non-qualified stock options to Directors
Clark, Merendino and
14
<PAGE>
Bruggeman to purchase 100,000 shares each of common stock of the Company for
$.30 per share exercisable for a period of 10 years. The options are
immediately exercisable and become non-forfeitable after each director has
completed one year of service and thereafter are not cancelled if the Director
leaves the service of the Company. The Board of Directors expects to grant a
similar option to Director Dingman. See also Note D to the financial statements
for a description of an additional 500,000 options granted to Director Larry E.
Clark.
(2) Settlement of Certain Debenture Debt. During October, 1995, the Company
offered to settle with its remaining debenture holders by issuing them shares of
its Series A Preferred Stock for a portion of principal outstanding and to pay
the balance of principal and interest in cash. Ten of the remaining debenture
holders have accepted the offer and received aggregate payments of $233,424 cash
and received 51,871 shares of Series A Preferred Stock to discharge total
debenture principal debt of $449,560. Four additional debenture holders have
orally agreed to accept the offer or are considering the offer.
(3) Purchase of Non-Invasive Hematocrit Technology. The Company made a
purchase of certain non-invasive hematocrit technology for $200,000 on November
6, 1995. For the past 5 years, the Company has conducted research on a method
for measuring hematocrit non-invasively (without drawing blood) and has applied
for patents covering this technology. Hematocrit is the percentage of blood
volume made up by red blood
15
<PAGE>
cells and is a common laboratory test currently performed invasively by drawing
a blood sample from the patient. More than a year ago, Dr. Paul J. Diehl, a
principal shareholder of the Company, hired an electrical engineer, Paul W.
Ruben, to conduct additional research and development on the Company's non-
invasive hematocrit technology. After evaluating Ruben's engineering work, and
after review and negotiations, the Company determined that the research had
resulted in significant progress and agreed to purchase the technology. In
exchange, Dr. Diehl and Mr. Ruben agreed to transfer a portable prototype and
their research information relating to measuring hematocrit non-invasively to
the Company. They agreed not to compete with InMedica and agreed not to
disclose the information for a period of five years from the date of the
agreement. Further, Mr. Ruben agreed to consult with InMedica on an ongoing
hourly basis in continued research and development of the project, at the
Company's direction. The Company paid Dr. Diehl and Mr. Ruben $98,000 total at
the closing and signed a promissory note for an additional $102,000, total,
payable in four equal quarterly installments beginning January 15, 1996. Dr.
Allan Kaminsky, former President and a consultant to InMedica, and Mr. Ruben are
continuing to work on the development of the working prototype and on additional
medical applications of this technology. The Company intends to conduct
clinical trials of the prototype as soon as feasible. The Company has
previously announced its willingness to consider strategic alliances and
16
<PAGE>
partnerships for the production and marketing of any product or products which
may result from this technology.
(4) Regulation S Offering. During October, 1995, the Company prepared a
Regulation S offering to be used in seeking foreign investors for approximately
900,000 shares of its Series A Preferred Stock. If successful, the Company
seeks to raise a minimum of $1,000,000 and a maximum of approximately
$4,026,393. If successful, the monies raised would be used to fund research and
development, retire debt and to seek opportunities for acquisitions or mergers.
There are, however, no present plans, commitments or agreements to engage in any
acquisition, merger, consolidation or other reorganization. To date, there are
no offers to purchase shares offered in the Regulation S offering.
17
<PAGE>
Item 6. Exhibits and reports on Form 8-K:
Exhibits:
(3) a- Articles of Amendment filed June 16, 1995;
b-Articles of Amendment filed September 25, 1995
(relating to authorization of the class and series
of preferred stock)
(10) a- Settlement Agreement with Eric Welling
b- Settlement Agreement with Clint Newman
c- Settlement Agreement with J. Lynn Smith
d- Commercial Security Agreement between Larry E.
Clark and InMedica Development Corporation
e- Agreement between InMedica Development Corp.
Paul J. Diehl and Paul W. Ruben dated 11/6/95
(27) Financial Data Schedule
Reports on Form 8-K: None
18
<PAGE>
SIGNATURES
----------
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
INMEDICA DEVELOPMENT CORPORATION
By Larry E. Clark, Chairman
Date: Sept. 10, 1995 By Richard Bruggeman, Treasurer
19
<PAGE>
EXHIBITS
Exhibits filed with the Form 10-QSB of InMedica Development Corporation, SEC
File No. 0-12968:
<TABLE>
<CAPTION>
Exhibit No. SB Item No. Description
- ---------------------------- ----------- ---------------------------------
<S> <C> <C>
1 (3) Articles of Amendment filed
June 16, 1995
2 (3) Articles of Amendment filed
September 25, 1995
3 (10) Settlement Agreement between
Eric Welling and InMedica
Development Corporation dated
September 27, 1995
4 (10) Settlement Agreement between
Clint Newman and InMedica
Development Corporation dated
September 25, 1995 and Addendum
5 (10) Settlement Agreement between
J. Lynn Smith and InMedica
Development Corporation dated
September 25, 1995 and Addendum
6 (10) Commercial Security Agreement
Larry E. Clark and InMedica
Development Corporation
7 (10) Purchase and Settlement Agreement
between InMedica Development
Corporation, Paul J. Diehl, and
Paul W. Ruben dated November 6,
1995
8 (27) Financial Data Schedule
</TABLE>
<PAGE>
EXHIBIT 1
ARTICLES OF AMENDMENT
to the
ARTICLES OF INCORPORATION
of
INMEDICA DEVELOPMENT CORPORATION
Pursuant to the provisions of the Utah Business Corporation Act, the
undersigned corporation adopts the following Articles of Amendment to its
Articles of Incorporation:
FIRST: The name of the corporation is InMedica Development Corporation.
SECOND: Article IV of the Articles of Incorporation is amended in its
entirety so as to read as follows:
Article IV. SHARES. This Corporation is authorized to issue two classes
-------------------
of shares, to be designated respectively common shares and preferred shares.
Fully paid shares of the Corporation shall not be subject to any further call or
assessment. The common and preferred shares are described as follows:
(a) The total number of common shares which this Corporation shall have
authority to issue is 20,000,000, par value of $0.001 per share. Common shares
have all rights not granted to the preferred shares.
(b) The total number of preferred shares which this corporation shall have
authority to issue is 10,000,000. The Board of Directors shall have
authority by resolution and without shareholder approval to designate any
series of preferred shares by a distinguishing letter, number or title so
as to distinguish the shares thereof from the shares of all other series or
classes and to fix and determine the relative rights and preferences of the
shares of each series so established, including but not limited to: (i)
the rate and nature of any dividend rights, (ii) the price at which, and
the terms and conditions on which, the shares may be issued and the par
value thereof, if any, (iii) the amount payable upon the shares in the
event of involuntary liquidation or dissolution, (iv) the amount payable
upon the shares in the event of voluntary liquidation or dissolution, (v)
any sinking fund provision for redemption or purchase of
<PAGE>
the shares, (vi) the terms and conditions on which the shares may be
converted to shares of another series and class, if the shares of any
series are issued with the privilege of conversion, (vii) any voting rights
pertaining to the shares, (viii) whether such shares shall be redeemable
and if so the terms and conditions of such redemption. Each resolution
adopted by the Board of Directors pursuant to the powers expressly
delegated in this paragraph 4(b) shall be filed with the Division of
Corporations of the State of Utah pursuant to Sections 16-10a-602 and 1006,
Utah Code Annotated.
THIRD: This amendment was adopted by the shareholders at a meeting held
June 16, 1995.
FOURTH: The number of shares of the Corporation outstanding at the time of
such adoption was 7,474,403 shares of common stock, $.001 par value. The number
of such shares indisputably present at the meeting and entitled to vote on the
amendment was 4,343,740. The number of shares voted for such amendment was
4,242,920; and the number of shares voted against such amendment was 92,320.
The number of shares voting in favor of the amendment was sufficient to approve
adoption of the amendment.
Dated this 16th day of June, 1995.
INMEDICA DEVELOPMENT CORPORATION
By /s/ Larry E. Clark
-----------------------------
Its President
2
<PAGE>
STATE OF UTAH )
: ss
COUNTY OF SALT LAKE )
The undersigned Notary Public does hereby certify that on this 16 day of
June, 1995, personally appeared before me Larry E. Clark who being by me
first duly sworn, declared that he is the President of InMedica Development
Corporation, that he signed the foregoing document as President of the
Corporation, and that the statements therein contained are true.
/s/ Scott R. Jenkins
-------------------------------
NOTARY PUBLIC
Residing at: SLC, UT
-----------------
My Commission Expires:8/7/96
[SEAL]
3
<PAGE>
EXHIBIT 2
ARTICLES OF AMENDMENT
OF
THE ARTICLES OF INCORPORATION
OF
INMEDICA DEVELOPMENT CORPORATION
Pursuant to the Revised Business Corporation Act of Utah, the undersigned
Corporation adopts the following Articles of Amendment to its Articles of
Incorporation:
FIRST: The name of the Corporation is InMedica Development Corporation.
SECOND: The following amendment has been adopted by the Board of Directors
pursuant to Utah Code Annotated 16-10a-602(1):
ATTACHED AMENDMENT INCORPORATED HEREIN BY REFERENCE (5 pages)
THIRD: The amendment was adopted by the Board of Directors on August 31,
1995.
FOURTH: The amendment was duly adopted by the Board of Directors without
shareholder approval and shareholder action was not required.
DATED the 25 day of September , 1995.
--- -----------
INMEDICA DEVELOPMENT CORPORATION
/s/ Larry E. Clark
-------------------------------
By Larry E. Clark, President
4
<PAGE>
AMENDMENT
Pursuant to Article IV (b) of the Articles of Incorporation of InMedica
Development Corporation, the Board of Directors has unanimously adopted the
following amendment to the Articles of Incorporation as new Article IV(c):
One Million shares (1,000,000 shares) of Preferred Stock referred to in Article
IV(b) are hereby designated as Series A Cumulative Redeemable Convertible
Preferred Stock, $4.50 par value per share, (hereinafter called the "Series A
Preferred Stock"), issuable for $4.50 per share upon the following terms and
conditions:
A) Cash Dividends on Series A Preferred Stock. (a) The holders of the Series A
------------------------------------------
Preferred Stock shall be entitled to receive, out of the funds of the
Corporation legally available therefor, cumulative cash dividends at the annual
rate of eight percent (8%) of par value ($.36 per share per annum), payable in
four equal quarterly installments of $.09 per share per quarter, on or before
the following dates: January 31, April 30, July 31, and October 31. If the
dividend on the Series A Preferred Stock for any dividend period shall not have
been paid or set apart in full for the Series A Preferred Stock, the aggregate
deficiency shall be cumulative and shall be fully paid or set apart for payment
before any dividends shall be paid upon or set apart for payment for any class
of common stock presently or hereafter issued and outstanding, or any classes or
series of Preferred Stock hereafter issued, of the Corporation. Accumulations
of dividends on the Series A Preferred Stock shall not bear interest.
(b)Cash dividends on the Series A Preferred Stock shall commence to accrue and
shall be cumulative from the date of issuance of the Series A Preferred Stock,
and thereafter from each subsequent anniversary date of the issuance thereof.
(c) No dividends shall be paid upon, or set apart for payment on any shares of
the common stock of the Corporation or on stock of any other class ranking
junior to the Series A Preferred Stock nor shall any distribution be made
thereon, nor shall any shares
5
<PAGE>
thereof be redeemed, retired or otherwise acquired by the Corporation for a
valuable consideration unless and until the Board of Directors of the
Corporation shall have duly and lawfully declared and paid in full (or set
aside a sum sufficient for the payment thereof), all accumulated dividends
required to be paid to the holders of the Series A Preferred Stock of the
Corporation for the then current dividend period and all past dividend
periods.
B) No Preemptive Rights. No holder of the Series A Preferred Stock shall
--------------------
be entitled, as of right, to purchase or subscribe for any part of the unissued
stock of the Corporation or of any stock of the Corporation to be issued by
reason of any increase of the authorized capital stock of the Corporation,
except as provided in paragraph G hereof.
C) Redemption of Series A Preferred Stock. (a) The Series A Preferred
--------------------------------------
Stock shall be redeemable in whole or in part, at the option of the Corporation
(by resolution of its Board of Directors), at any time and from time to time, at
$4.50 per share plus all dividends accrued and unpaid on such Series A Preferred
Stock up to the date fixed for redemption, such option to be exercised by giving
the notice hereinafter provided. The Preferred stockholders shall have no
rights to require redemption of the Series A Preferred Stock by the Corporation.
(b) Notice of the exercise of an election by the Corporation, to redeem any
shares of the Series A Preferred Stock, shall be given by the Corporation
by mailing a copy of such notice, postage prepaid, not less than 90 or more
than 120 days prior to the date designated therein as the date for such
redemption, to the holders of record of the Series A Preferred Stock,
addressed to them at their respective addresses appearing on the books of
the Corporation.
(c) In the event that the Corporation redeems less than the entire amount of
Series A Preferred Stock outstanding at any one time, the shares to be
redeemed shall be selected by lot in a manner to be determined by the Board
of Directors of the Corporation.
(d) Upon such redemption date, or upon such earlier date as the Board of
Directors shall designate for payment of the redemption price, the holders
of shares of Series A Preferred Stock to be redeemed and to whom or by whom
6
<PAGE>
notice has been duly given shall cease to be stockholders with respect to
such shares and shall have no interest in or claim against the Corporation
by virtue thereof and shall have no other rights with respect to such
shares except the right to receive the monies payable upon such redemption
from the Corporation or otherwise, without interest thereon, upon surrender
(and endorsement, if required by the Corporation) of the certificates, and
the shares represented thereby shall no longer be deemed to be outstanding.
Upon redemption of Series A Preferred Stock in the manner set out herein,
or upon purchase of the Series A Preferred Stock by the Corporation, Series
A Preferred Stock so acquired by the Corporation shall be cancelled and
shall not be reissued as part of this Series A; provided, however, such
shares may thereafter be reissued as part of a subsequent series, subject
to all of the other applicable provisions of the Articles of Incorporation
and of the Revised Utah Business Corporations Act (the "Act").
D) Voting Rights. (a) Except as by statute expressly required, the
-------------
Series A Preferred Stock shall have no right or power to vote on any question or
in any proceeding or to be represented at or to receive notice of any meeting of
the stockholders.
E) Preference on Liquidation, etc. In the event of any liquidation,
-------------------------------
dissolution or winding up of the affairs of the Corporation, whether voluntary
or otherwise, after payment or provision for payment of the debts and other
liabilities of the Corporation (excluding accumulated dividends payable on any
class or series of stock), the holders of the Series A Preferred Stock shall be
entitled to receive, out of the remaining net assets of the Corporation, the
amount of $4.50 in cash for each share of Series A Preferred Stock, plus an
amount equal to all dividends accrued and unpaid on each such share up to the
date fixed for distribution, before any distribution shall be made to the
holders of any class of the common stock of the Corporation. In the event,
after payment or provision for payment of the debts and other liabilities of the
Corporation, the remaining net assets of the Corporation are not sufficient to
pay the holders of the Series A Preferred Stock, the full amount of their
respective preferences, then the remaining net assets of the Corporation shall
be divided among and paid to the holders of the Series A Preferred Stock.
F) Limitations on Corporation; Shareholder
---------------------------------------
7
<PAGE>
Consent. So long as any shares of Series A Preferred Stock are outstanding, the
- -------
Corporation shall not, without the affirmative vote or the written consent as
provided by law or the Bylaws of the Corporation, of the holders of at least
two/thirds of the outstanding shares of Series A Preferred Stock, voting as a
class, change the preferences, rights or limitations with respect to the Series
A Preferred Stock, in any material respect prejudicial to the holders thereof,
or increase the authorized number of shares of Series A Preferred Stock, but
nothing herein contained shall require such a class vote or consent (a) in
connection with any increase in the total number of authorized shares of Common
Stock, or (b) in connection with authorization, designation, increase or
issuance of any class or series or stock ranking junior to the Series A
Preferred Stock, or (c) in connection with the creation of such additional
series of Preferred Stock, $4.50 par value, having such powers and relative,
participating, optional and other special rights as shall be stated in the
resolution or resolutions providing for the issue of such series of Preferred
Stock, $4.50 par value, as may be adopted by the Board of Directors prior to the
issuance of shares thereof, in accordance with the Act, or (d) in connection
with the issuance of any presently authorized but unissued shares of Preferred
Stock, $4.50 par value; provided, however, that no such vote or written consent
of the holders of the Series A Preferred Stock shall be required if, at or prior
to the time when any such change is to take effect, provision is made for the
redemption (in accordance with the provisions of and not earlier than at the
date permitted by paragraph C hereof) of all shares of Series A Preferred Stock
at the time outstanding, and provided further, that the provisions of this
paragraph F shall not in any way limit the right and power of the Corporation to
issue any bonds, notes, mortgages, debentures, and other obligations, and to
incur indebtedness to banks and to other lenders.
G) Conversion Rights. Upon ten days (10 days) prior written notice to the
-----------------
Corporation at its principal executive offices, any holder of the Series A
Preferred Shares may convert all or part of the holders' shares to common stock
of the Corporation at the following rates during the specified periods: $.75
per common share on or before October 1, 1996 (6 common shares per share of
Series A Preferred); $1.50 per common share on or before October 1, 1997 (3
common shares per share of Series A Preferred); $3.00 per common share after
October 1, 1997
8
<PAGE>
(1.5 common shares per share of Series A Preferred). For instance, the holder
of 100,000 Series A Preferred Shares exercising conversion rights as to all such
shares on or before October 1, 1996 would receive 600,000 restricted common
shares of the Corporation; the same shareholder exercising all conversion rights
after October 1, 1996, but before October 2, 1997 would receive 300,000
restricted shares; thereafter the same shareholder would receive 150,000
restricted shares upon exercise of all conversion rights. Payment for any
fractional shares would be made in cash at $4.50 per share. Resale of shares
issued upon conversion would be subject to the provisions of Rule 144 of the
Securities and Exchange Commission. Any conversion by a single shareholder to
common stock which results in ownership by the shareholder of 20% or more of the
common stock of the Corporation, after taking into account the issuance of the
shares, shall be as non-voting common stock until such conversion and issuance
shall have been approved by the shareholders and shall be subject to the
provisions of the Utah Control Shares Acquistion Act (Utah Code Annotated 61-6-
11).
9
<PAGE>
EXHIBIT 3
SETTLEMENT AGREEMENT AND MUTUAL RELEASE
AN AGREEMENT made the 27 day of September , 1995 by and between Eric
--- ------------
Welling, an individual, residing at 7651 Timberline Drive, Salt Lake City, Utah
84047, (hereinafter "Welling") and InMedica Development Corporation, a Utah
corporation, with its principal place of business at 495 East 4500 South, Suite
230, Salt Lake City, Utah, (hereinafter, "InMedica" or the "Company").
RECITALS
Whereas Welling holds a Series A and a Series C Convertible Debenture, each in
the original face amount of $50,000, which he purchased from InMedica; and
Whereas the Series A and Series C Debentures matured and were due and payable
on December 31, 1993 and June 30, 1994 respectively and the Company had
insufficient assets to retire the Debentures when due and the same are now due
and payable; and
Whereas the total principal amount owing to Welling on the Series A and C
Debentures is $50,000 and $45,537, respectively, plus accrued interest
respectively of $1,878.57 and $1,653.27 as of September 25, 1995; and
Whereas Welling has commenced litigation against the Company in the Third
Judicial District Court of Salt Lake County, State of Utah, Civil No. 920906818,
claiming default in payment of principal and interest on the Debentures, which
is a presently pending matter (the "Lawsuit"); and
Whereas the Company and Welling now desire to fully compromise and settle the
Lawsuit and to reach a settlement agreement regarding the Debentures and to
grant a mutual release to one another; and
Whereas Welling is knowledgeable regarding the business, and affairs of the
Company, has had opportunity to ask and receive answers to questions regarding
the Company, and has reviewed or had opportunity to review disclosure documents
regarding the Company and now considers himself to be fully informed and in
possession of every material fact he deems necessary in order to enter into this
settlement agreement and mutual general release;
NOW THEREFORE, in consideration of the mutual agreements contained herein and
the payment to be made by InMedica, the parties agree as follows:
10
<PAGE>
1. Settlement of Debenture Indebtedness. InMedica agrees to pay Welling
------------------------------------
$79,255 (80% of current outstanding principal and accrued interest balance) at
the time of signing of this Settlement Agreement and Welling agrees to accept
the $79,255 payment as full and complete satisfaction of all sums owing to him
under both the Series A and the Series C Debentures held by him, including, but
not limited to, full and complete settlement of all principal and accrued
interest owing to him. Welling further agrees that the Series A and C
Debentures held by him are cancelled effective as of the signature of this
Agreement and agrees to return the Debenture forms to the Company. Further,
Welling agrees to cause to be signed and deliver to InMedica for filing with the
Court a Stipulation of Dismissal in the form attached hereto as Exhibit A,
permitting the Lawsuit he has brought to be dismissed with prejudice, as to all
of his claims pending therein.
2. Mutual General Release. In consideration of the foregoing payment and
----------------------
satisfaction of the Series A and Series C Debentures, each party hereto
unconditionally releases the other from any and all claims, liabilities,
damages, responsibilities and obligations of every kind and nature, whatsoever,
which either of them had, have, may have or which may hereafter be discovered
against the other arising out of their relationship to the date of this
Agreement, including, but not limited to, any and all claims which Welling has
asserted based on his ownership of the Series A and the Series C Debentures.
This Mutual General Release on the part of Welling extends to the officers,
directors, employees, subsidiaries, accountants, attorneys and agents of the
Company.
3. Disclosure Documents. Attached hereto are the following documents
--------------------
constituting the publicly available disclosure and additional material
information regarding the Company:
Form 10-KSB for the Year Ended 12/31/94 ..........Exhibit B
Form 10-QSB for the Quarter Ended 6/30/95.........Exhibit C
Proxy Statement mailed May 25, 1995...............Exhibit D
Form 8-K Dated June 30, 1995, including Agreement
with Johnson and Johnson Medical, Inc.............Exhibit E
Articles of Incorporation of InMedica Development
Corporation, including Series "A"
Preferred Stock Amendment.........................Exhibit F
Bylaws of InMedica Development Corporation........Exhibit G
Form of Series A Debenture........................Exhibit H
11
<PAGE>
Form of Series C Debenture........................Exhibit I
Additional Material Information...................Exhibit J
4. General. (a) This agreement contains the entire agreement between the
-------
parties on the subject matter hereof and may only be changed or modified by
written agreement between the parties.
(b) This agreement may be executed in one or more counterparts each of
which shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement.
IN WITNESS WHEREOF the parties have executed this agreement as of the date
first above written.
InMedica Development Corporation
/s/Larry E. Clark
------------------------------------
Larry E. Clark, President
/s/ Eric C. Welling
-------------------------------------
Eric Welling
12
<PAGE>
EXHIBIT 4
SETTLEMENT AND EXCHANGE AGREEMENT
THIS SETTLEMENT AND EXCHANGE AGREEMENT ("Agreement") is made and entered into
effective September 25, 1995 by and between InMedica Development Corporation, a
-------------
Utah corporation ("InMedica" or the "Company") and Clinton B. Newman, an
individual whose address is 9493 So. High Meadow Dr., South Jordan, Utah 84095
(the "Holder"), with regard to the following factual recitals, each of which is
incorporated herein by this reference.
RECITALS
A. Holder is currently the owner, beneficially and of record, of a Series C
Convertible Debenture of the Company (the "Debenture"), in the face amount of
$50,000, originally accruing interest on the outstanding principal amount at the
rate of ten percent (10%) per annum from date of purchase. The Series C
Debenture was due and payable on or before June 30, 1994.
B. When the Company was unable to make payment of certain interest payments,
Holder and others filed suit during 1992 in the Third District Court of Salt
Lake County, Civil No. 920906818, (the "Litigation") seeking payment of all
principal and interest owing under the Debentures, which action is presently
pending.
C. Thereafter, the Board of Directors of the Company agreed, among other
things, to pay Holder 15% interest (the default rate provided for in the
Debentures) on the unpaid principal owing from October 1, 1992. The total
amount of principal and accrued but unpaid interest owing to Holder as of
September 25, 1995 is:
Principal Interest
--------- --------
Series C $45,537 $ 1,653.27
D. Effective August 31, 1995, the Board of Directors of the Company has
authorized the issuance of a Series A Convertible Preferred Stock, par value
$4.50 per share, paying dividends of 8% per annum on a quarterly basis and has
offered to settle the forgoing Litigation and retire Holder's Debenture by
paying Holder 50% of the amount owing in cash and issuing to Holder shares of
the Series A Preferred Stock, at $4.50 per share for the balance owing.
E. Holder and the Company have now reached and agreement to settle the
foregoing Litigation on the terms and conditions described in Recital D and by
this Agreement desire to memorialize the terms and conditions of their
Settlement Agreement.
13
<PAGE>
NOW, THEREFORE, in consideration of the mutual promises hereinafter
contained and the money payment and stock issuance to be made to Holder, Holder
and the Company hereby agree as follows:
1. Cancellation and Surrender of Debenture. Holder hereby cancels and
---------------------------------------
forever discharges the Debenture held by him and agrees to surrender the
Debenture documents to the Company and further agrees to dismiss Holder's
Litigation against the Company by execution of the Stipulation of Dismissal
attached hereto as Exhibit A in exchange for the consideration described in
paragraph 2, below.
2. Payment and Issuance of Shares. Upon signature of this agreement, the
------------------------------
Company agrees to pay Holder $23,595 and to issue to Holder approximately 5,243
shares of the Company's Series A Preferred Stock, par value $4.50 per share.
See Exhibit F for a description of the Preferred Stock and Exhibit L for a
description of certain risk factors relating to an investment in the Preferred
Stock. Issuance of the Series A Preferred Stock is subject to delivery of an
Investor Questionnaire (See Exhibit G) by Holder to the Company and to review of
disclosure documents attached hereto as Exhibits by Holder prior to execution of
this Agreement. The Company may decline to participate in the Settlement
Agreement if, in the Company's judgment, the Investor Questionnaire does not
establish the suitability of an investment in the Preferred Stock by the Holder.
3. The Holder hereby represents and warrants to the Company as follows:
(a) Holder is at least 21 years of age.
(b) Holder has completely and accurately completed the Preferred
Stockholder Questionnaire attached hereto as Exhibit G the responses of which
are incorporated herein by reference and made a part of the representations and
warranties of this paragraph. The undersigned undertakes to immediately notify
the Company of any material changes occurring thereto prior to consummation of
this exchange transaction.
(c) The Holder understands that the Shares are being issued and that the
availability of the exemption or exemptions from registration and qualification
under the Securities Act of 1933 and the state laws depends in part upon the
accuracy of certain of the representations, declarations and warranties
contained herein, and those which are made in the Questionnaire executed by the
undersigned with the intent that the same may be relied upon by the Company in
determining the undersigned's suitability as an investor in the Company. The
Holder further acknowledges that this
14
<PAGE>
transaction has not been and will not be reviewed by the Securities and Exchange
Commission nor by the securities administrator of any state.
(d) The Holder is a resident and domiciliary, not a temporary or transient
resident of the State of Utah and has no present intention of becoming a
resident or domiciliary of any other state or territory of the United States of
America or any other jurisdiction.
(e) The Holder is acquiring the Shares to be issued for investment and not
with a view to the public resale or distribution thereof. The undersigned has
no contract, undertaking, agreement or arrangement with any person to sell,
transfer or pledge to such person or anyone else the Shares or any portion
thereof or interest therein, and the undersigned has no present plans to enter
into such contract, undertaking, agreement or arrangement. The undersigned is
not acquiring the Shares directly or indirectly for the account of another
person.
(f) The Holder acknowledges and consents that the certificate evidencing the
Shares, and any and all replacements thereof, shall bear and be subject to
legends in substantially the following form affecting the transferability of the
Shares and that the Company will place appropriate stop transfer orders with its
transfer agent:
"The shares of common stock evidenced by this certificate have not been
registered under the Securities Act of 1933, as amended, and have been issued in
reliance upon one or more exemptions from the requirements for such registration
including an exemption for non-public offerings. Accordingly, the sale,
transfer, pledge, hypothecation or other disposition of the shares evidenced
hereby or any portion thereof or interest therein may not be accomplished in the
absence of an effective registration statement under that act, or an opinion of
counsel satisfactory in form and substance to the Company to the effect that
such a registration is not required."
(g) The Holder further understands and agrees that if he desires to make any
transfer of the Shares the Company is in a position to impede such transfer
through prior stop orders placed with its transfer agent or otherwise and that
the Company will promptly remove such impediments placed by it only when:
(i) The Company has received a satisfactory opinion of counsel to the effect
that the proposed transfer does not
15
<PAGE>
require registration or qualification pursuant to the Securities Act of
1933 or any applicable state laws of the United States of America, by
reason of an exemption provided thereunder and a representation and
agreement of the proposed transferee in form and substance satisfactory to
the Company, and the Company shall have advised the undersigned that such
opinion, representation and agreement are satisfactory to the Company; or
(ii) The Company has received a satisfactory opinion of counsel to the effect
that the proposed transfer complies with the provisions of Rule 144
(including a two year holding period from the date of acquisition of the
Preferred Shares by Holder) and the Company shall have advised the
undersigned that such counsel and such opinion are satisfactory to the
Company; or
(iii) A Registration statement covering the proposed transfer has been filed
with the Securities and Exchange Commission and has been declared effective.
The Holder agrees that, in any event, the undersigned will not attempt to
dispose of the Shares or any portion or interest therein, unless and until the
Company has determined to its satisfaction that the proposed disposition does
not violate the registration or qualification requirements of the Federal Act or
applicable state laws.
(h) The Holder understands that the Company has no obligation or intention to
register or qualify the Shares in order to permit sales thereof in accordance
with the registration or qualification provisions of the Securities Act of 1933
or the applicable state laws of the United States of America.
(i) The Holder agrees to indemnify the Company and its officers, directors,
agents and attorneys and to hold the Company and such persons harmless from any
liability, costs or expenses (including reasonable attorneys' fees) arising as a
result of the sale or distribution of the Shares or any portion thereof or
interest therein by him in violation of the Securities Act of 1933 or any
applicable state laws.
(j) The Holder agrees to indemnify the Company and its officers and directors,
agents and attorneys and to hold the Company and such persons harmless from and
against any and all loss, damage, liabilities, costs or expenses (including
reasonable attorneys' fees) to which they may be put or which they may have
incurred by reason of or in connection with any misrepresentation made by the
Holder, for any breach of any of the Holder's
16
<PAGE>
warranties or failure to fulfill any of the Holder's covenants or agreements
under this Agreement.
(k) The Holder acknowledges that he and/or his professional advisor have had
the opportunity to ask questions of, and receive answers from the Company, and
has/have had access to all information concerning the terms and conditions of
this offering and the financial and operating condition of the Company and to
obtain additional information to verify the accuracy of such information.
Further, the Holder has reviewed the disclosure materials included herewith,
including the financial statements contained therein and is familiar with their
contents and further acknowledges that the undersigned has had the opportunity
and access to obtain further information from the Company regarding such
financial, business and management information. The following disclosure
materials are attached hereto as Exhibits:
Stipulation of Dismissal..........................Exhibit A
Form 10-KSB for the Year Ended 12/31/94 ..........Exhibit B
Form 10-QSB for the Quarter Ended 6/30/95.........Exhibit C
Proxy Statement mailed May 25, 1995...............Exhibit D
Form 8-K Dated June 30, 1995, including Agreement
with Johnson and Johnson Medical, Inc.............Exhibit E
Description of Preferred Stock....................Exhibit F
Preferred Stockholder Questionnaire...............Exhibit G
Articles of Incorporation of InMedica Development
Corporation, including Series "A"
Preferred Stock Amendment.........................Exhibit H
Bylaws of InMedica Development Corporation........Exhibit I
Form of Series A Debenture........................N/A
Form of Series C Debenture........................Exhibit K
Additional Material Information; Statutory
Limitations on Payment of Dividends; Developments
as to Non-Invasive Hematocrit Project; and Risk
Factors..........................................Exhibit L
(l) The Holder understands that the Company's Chief Executive Officer
purchased from Allan L. Kaminsky, then CEO of the Company,
17
<PAGE>
1,000,000 shares of the Company's common stock for $100,000 ($.10 per share)
during April, 1995 and that the Company offered to its Debenture Holders in
August, 1995 the opportunity to convert their outstanding Debenture Debt for
$.50 per share and the offer to convert was not accepted by a significant
majority of the Debenture Holders and as a result, the Company did not accept
the offer of the persons willing to convert. Further, the Holder understands
that if he accepts the Preferred Shares for $4.50 per share, the same would be
convertible to common stock at the rate of six shares per preferred share during
the first 12 months or at a price of $.75 per share of common stock. The market
bid price for the Company's common stock as of September 12, 1995 was $.25 per
share.
(m) The Holder acknowledges that the Company makes no representations or
assurances as to the federal or state income tax implications of this
investment. The Company has offered no opinion or advice in this respect and
the Holder acknowledges that the Company and its management have urged the
Holder to consult with his professional advisors with respect to any such tax
implications.
(n) The Holder acknowledges that no representations or assurances have been
given to the Holder by the Company or anyone acting in its behalf as to the
continued operations of the Company or the financial or other success thereof
and the Holder recognizes that the Shares represent a speculative investment and
involve risk factors including, but not limited to, risks inherent in preferred
stock ownership, common stock ownership, the business of medical technology
companies and the necessity of additional substantial fund raising, as are more
fully described in Exhibit L as well as the risk of loss of the undersigned's
entire investment in the Company.
(o) Holder has the financial ability to bear the economic risk of this
investment, has adequate means of providing for current needs and personal
contingencies, and has no need for liquidity in this investment in the Company.
(p) Holder has reviewed the merits of the investment with his own legal, tax
and accounting advisors and with an investment advisor to the extent deemed
advisable.
(q) Holder's overall commitment to investments which are not readily
marketable is not disproportionate to Holder's net worth and this investment in
the Company will not cause such overall commitment to become excessive.
(r) Either (1) Holder has such knowledge and experience in financial and
business matters to be capable of evaluating the
18
<PAGE>
merits and risks of the prospective investment and is able to bear the economic
risk of the investment, or (2) together with a purchaser representative(s), if
any, have such knowledge and experience in financial and business matters that
they are capable of evaluating the merits and risks of the prospective
investment and subscriber is able to bear the economic risk of the investment.
(s) Holder has received and read a copy of the exhibits hereto, including the
Articles of Incorporation (including the Series A Preferred Stock Amendment) and
Bylaws of the Company.
(t) Holder understands that (i) the Company has incurred operating losses in
every year since its organization in 1983 (except, 1994, when it had a net
profit of $301,239) and has limited assets. The Company's only income is
limited to that supplied by the Johnson and Johnson Medical, Inc. Agreement (ii)
the Company has never paid dividends on its common stock and does not intend to
do so in the foreseeable future and is able to pay dividends on the Preferred
Stock only to the extent of funds legally available therefore and as monies are
received and available from the Johnson and Johnson Medical, Inc. Agreement, and
that the Johnson & Johnson Medical Agreement has been pledged as security for a
loan being made to the Company.
(u) The Shares herein subscribed for are being acquired in good faith
solely for Holder's personal account, for investment purposes only, and are not
being purchased with a view to, or for, resale, distribution, subdivision or
fractionalization thereof. Further, the undersigned will hold the Shares as an
investment.
(v) No federal or state agency has made any finding or determination of the
fairness for investment or any recommendation or endorsement of the Shares.
(w) All of the representations and warranties of the undersigned contained
herein and all information furnished by the undersigned to the Company are true,
correct and complete in all respects.
(x) Holder has not assigned or transferred the Debenture or any interest
therein and the surrender thereof by Holder under this Agreement, to the
knowledge of Holder, will not result in any breach of any of the terms,
conditions or provisions of, or constitute a default under, or result in the
creation of any lien, charge or encumbrance on, the Debenture or the Shares
pursuant to any agreement, contract or other instrument to which the Holder or
the Debenture is or may be bound.
(y) Holder acknowledges that the price, par value, and
19
<PAGE>
dividend rate of the Preferred Shares has been arbitrarily determined by the
Company and bears no relationship to book value, present or future tangible or
intangible assets of the Company or earnings of the Company or any usual
investment criteria.
The foregoing representations, warranties, agreements, undertakings and
acknowledgements are made by the undersigned with the intent that they be relied
upon by the Company in determining suitability as a purchaser of Shares, and the
undersigned hereby agrees that such representations, warranties, agreements,
undertakings and acknowledgements shall survive any purchase of the Shares. In
addition, the undersigned undertakes to notify the Company immediately of any
change in any representations, warranty or other information relating to the
undersigned set forth herein.
4. Loss of Priority. Holder acknowledges that under the terms of the
----------------
Series C Convertible Debentures, he has no obligation to enter into this
Settlement Agreement and that if he does not sign this Settlement Agreement,
then the entire debenture indebtedness, including accrued interest, remains as
an obligation of the Company, payable to the extent of its assets and having a
position senior to that of shareholders (including Preferred Shareholders) in
any liquidation of the Company.
5. Further Assurances. Each party shall, at any time and from time to
------------------
time, at the other's request, execute, acknowledge and deliver any instrument
that may be necessary or proper to carry out the provisions of this Agreement.
6. Time of the Essence. Time shall be of the essence in satisfying the
-------------------
terms and conditions of this Agreement.
7. Attorneys' Fees. In the event a dispute arises with respect to this
---------------
Agreement, and such dispute is not resolved prior to final judicial
determination, the party prevailing in such judicial proceeding shall be
entitled to recover all expenses, including, without limitation, reasonable
attorneys' fees and expenses.
8. Complete Agreement of the Parties. This Agreement supersedes any
---------------------------------
and all other agreements, either oral or in writing, between the parties with
respect to the subject matter hereof and contains all of the covenants and
agreements between the parties with respect to such subject matter in any manner
whatsoever. Each party to this Agreement acknowledges that no representations,
inducements, promises or agreements, oral or otherwise, have been made by any
party, or anyone herein, and that no other agreement, statement or promise not
contained in this Agreement shall be valid or binding. This Agreement may be
changed or amended only by an
20
<PAGE>
amendment in writing signed by all of the parties or their respective successors
in interest.
9. Assignment. This Agreement and the rights and obligations of Holder
----------
hereunder are personal to Holder and may not be transferred or assigned without
the prior written consent of the Company.
10. Binding. Subject to the provisions of Section 9 hereof, this
-------
Agreement shall be binding upon and inure to the benefit of the successors in
interest, assigns and personal representatives of the respective parties.
11. Number and Gender. Whenever the singular number is used in this
-----------------
Agreement and when required by the context, the same shall include the plural,
and the masculine gender shall include the feminine and neuter genders and the
word "person" shall include corporation, firm, partnership or other form of
association.
12. Failure to Object Not a Waiver. The failure of either party to this
------------------------------
Agreement to object to, or to take affirmative action with respect to, any
conduct of the other which is in violation of the terms of this Agreement, shall
not be construed as a waiver of the violation or breach or of any future
violation, breach or wrongful conduct.
13. Unenforceable Terms. Any provision hereof prohibited by law or
-------------------
unenforceable under any applicable law of any jurisdiction shall as to such
jurisdiction be ineffective without affecting any other provision of this
Agreement. To the full extent, however, that the provisions of such applicable
law may be waived, they are hereby waived to the end that this Agreement be
deemed to be a valid and binding enforceable agreement in accordance with its
terms.
14. Miscellaneous Provisions. The various headings and numbers herein
------------------------
and the groupings of provisions of this Agreement into separate articles and
paragraphs are for the purpose of convenience only and shall not be considered a
part hereof. The language in all parts of this Agreement shall in all cases be
construed in accordance to its fair meaning as if prepared by all parties to the
Agreement and not strictly for or against any of the parties.
21
<PAGE>
EXECUTED AS OF THE DATE FIRST ABOVE WRITTEN
/s/ Clinton B. Newman INMEDICA DEVELOPMENT CORPORATION
- -------------------------------
(Holder Signature)
Clinton B. Newman
- -------------------------------
(Print Name) Larry E. Clark
-------------------------------
By Larry E. Clark, President
22
<PAGE>
ADDENDUM TO SETTLEMENT AND EXCHANGE AGREEMENT
THIS ADDENDUM TO THE SETTLEMENT AND EXCHANGE AGREEMENT ("Agreement") is made
and entered into effective September 25, 1995 by and between InMedica
Development Corporation, a Utah corporation ("InMedica" or the "Company") and
Clinton B. Newman, an individual whose address is 9493 S. High Meadow Dr., South
Jordan, Utah 84095 (the "Holder" or "Newman"), with regard to the following
factual recitals, each of which is incorporated herein by this reference.
RECITALS:
WHEREAS the parties are executing concurrently with this Addendum, a
Settlement and Exchange Agreement regarding the settlement of certain debenture
indebtedness between the parties, pursuant to which the Company is issuing to
Holder certain shares of Series A Preferred Stock; and
WHEREAS the Series A Preferred Stock is, by its terms, convertible to common
stock of the Company as follows: $.75 per common share on or before October 1,
1996 (6 common shares per share of Series A Preferred); $1.50 per common share
on or before October 1, 1997 (3 common shares per share of Series A Preferred);
$3.00 per common share after October 1, 1997 (1.5 common shares per share of
Series A Preferred); and
WHEREAS Newman desires additional consideration for the settlement of the
lawsuit he has brought against the Company, and the Company is willing to grant
additional consideration to Newman, contingent upon Newman exercising certain
future conversion rights, in order to resolve and settle the lawsuit;
NOW THEREFORE, for good and valuable consideration the receipt and sufficiency
of which is hereby acknowledged, the parties agree as follows:
1. Additional shares upon conversion during second year. As additional
----------------------------------------------------
consideration for Newman entering into the Settlement and Exchange Agreement and
dismissing his claims in the lawsuit pending against the Company, the Company
agrees that should Newman elect to exercise his conversion rights on the
Preferred Stock during the period October 1, 1996 through October 1, 1997 at the
rate of $1.50 per common share (three common shares per share of Series A
Preferred), that the Company agrees to issue Newman one additional common share
for each common share acquired by him pursuant to such conversion rights during
the time period October 1, 1996 through October 1, 1997 (the "Additional
Shares"). Such
23
<PAGE>
Additional Shares shall be restricted securities and shall be subject to a two
year holding period and subject to a restrictive legend impeding transfer
without an opinion of counsel acceptable to the Company or an effective
registration of the Shares. Newman understands and agrees that the Company has
relied upon the representations in Newman's Investor Questionnaire and in the
Settlement Agreement in agreeing to issue the Additional Shares to Newman as
provied herein.
2. No effect on conversion rate. This agreement shall not affect the
----------------------------
conversion rate used in converting the Series A Preferred Stock to common stock,
but is solely intended to provide the payment of the Additional Shares to Newman
as additional consideration for his having entered into the Settlement
Agreement, which consideration would be receivable by him only in the event he
exercised his conversion rights during the period October 1, 1996 through
October 1, 1997. Should Newman not exercise his conversion rights during the
referenced time period, all rights to receive the Additional Shares would
terminate and be forever waived.
EXECUTED AS OF THE DATE FIRST ABOVE WRITTEN
/s/ Clinton B. Newman INMEDICA DEVELOPMENT CORPORATION
- -------------------------------
(Holder Signature)
Clinton B. Newman
- -------------------------------
(Print Name) Larry E. Clark
-------------------------------
By Larry E. Clark, President
24
<PAGE>
EXHIBIT 5
SETTLEMENT AND EXCHANGE AGREEMENT
THIS SETTLEMENT AND EXCHANGE AGREEMENT ("Agreement") is made and entered into
effective September 25, 1995 by and between InMedica Development Corporation, a
------------
Utah corporation ("InMedica" or the "Company") and J. Lynn Smith, an individual
whose address is 5770 South 250 East, Suite 115, Salt Lake City, Utah 84107 (the
"Holder"), with regard to the following factual recitals, each of which is
incorporated herein by this reference.
RECITALS
A. Holder is currently the owner, beneficially and of record, of a Series A
and a Series C Convertible Debenture of the Company (the "Debenture(s)"), in the
face amount of $50,000 each ($100,000 total), originally accruing interest on
the outstanding principal amount at the rate of ten percent (10%) per annum from
date of purchase. The Series A Debenture was due and payable on or before
December 31, 1993 and the Series C Debenture was due and payable on or before
June 30, 1994.
B. When the Company was unable to make payment of certain interest payments,
Holder and others filed suit during 1992 in the Third District Court of Salt
Lake County, Civil No. 920906818, (the "Litigation") seeking payment of all
principal and interest owing under the Debentures, which action is presently
pending.
C. Thereafter, the Board of Directors of the Company agreed, among other
things, to pay Holder 15% interest (the default rate provided for in the
Debentures) on the unpaid principal owing from October 1, 1992. The total
amount of principal and accrued but unpaid interest owing to Holder as of
September 25, 1995 is:
Principal Interest
--------- --------
Series A $50,000 $ 1,878.57
Series C $45,537 $ 1,653.27
D. Effective August 31, 1995, the Board of Directors of the Company has
authorized the issuance of a Series A Convertible Preferred Stock, par value
$4.50 per share, paying dividends of 8% per annum on a quarterly basis and has
offered to settle the forgoing Litigation and retire Holder's Debenture by
paying Holder 50% of the amount owing in cash and issuing to Holder shares of
the Series A Preferred Stock, at $4.50 per share for the balance owing.
25
<PAGE>
E. Holder and the Company have now reached and agreement to settle the
foregoing Litigation on the terms and conditions described in Recital D and by
this Agreement desire to memorialize the terms and conditions of their
Settlement Agreement.
NOW, THEREFORE, in consideration of the mutual promises hereinafter
contained and the money payment and stock issuance to be made to Holder, Holder
and the Company hereby agree as follows:
1. Cancellation and Surrender of Debentures. Holder hereby cancels and
----------------------------------------
forever discharges the Debentures held by him and agrees to surrender the
Debenture documents to the Company and further agrees to dismiss Holder's
Litigation against the Company by execution of the Stipulation of Dismissal
attached hereto as Exhibit A in exchange for the consideration described in
paragraph 2, below.
2. Payment and Issuance of Shares. Upon signature of this agreement, the
------------------------------
Company agrees to pay Holder $49,534 and to issue to Holder approximately 11,008
shares of the Company's Series A Preferred Stock, par value $4.50 per share.
See Exhibit F for a description of the Preferred Stock and Exhibit L for a
description of certain risk factors relating to an investment in the Preferred
Stock. Issuance of the Series A Preferred Stock is subject to delivery of an
Investor Questionnaire (See Exhibit G) by Holder to the Company and to review of
disclosure documents attached hereto as Exhibits by Holder prior to execution of
this Agreement. The Company may decline to participate in the Settlement
Agreement if, in the Company's judgment, the Investor Questionnaire does not
establish the suitability of an investment in the Preferred Stock by the Holder.
3. The Holder hereby represents and warrants to the Company as follows:
(a) Holder is at least 21 years of age.
(b) Holder has completely and accurately completed the Preferred
Stockholder Questionnaire attached hereto as Exhibit G the responses of which
are incorporated herein by reference and made a part of the representations and
warranties of this paragraph. The undersigned undertakes to immediately notify
the Company of any material changes occurring thereto prior to consummation of
this exchange transaction.
(c) The Holder understands that the Shares are being issued and that the
availability of the exemption or exemptions from registration and qualification
under the Securities Act of 1933 and the state laws depends in part upon the
accuracy of certain of the
26
<PAGE>
representations, declarations and warranties contained herein, and those which
are made in the Questionnaire executed by the undersigned with the intent that
the same may be relied upon by the Company in determining the undersigned's
suitability as an investor in the Company. The Holder further acknowledges
that this transaction has not been and will not be reviewed by the Securities
and Exchange Commission nor by the securities administrator of any state.
(d) The Holder is a resident and domiciliary, not a temporary or transient
resident of the State of Utah and has no present intention of becoming a
resident or domiciliary of any other state or territory of the United States of
America or any other jurisdiction.
(e) The Holder is acquiring the Shares to be issued for investment and not
with a view to the public resale or distribution thereof. The undersigned has
no contract, undertaking, agreement or arrangement with any person to sell,
transfer or pledge to such person or anyone else the Shares or any portion
thereof or interest therein, and the undersigned has no present plans to enter
into such contract, undertaking, agreement or arrangement. The undersigned is
not acquiring the Shares directly or indirectly for the account of another
person.
(f) The Holder acknowledges and consents that the certificate evidencing the
Shares, and any and all replacements thereof, shall bear and be subject to
legends in substantially the following form affecting the transferability of the
Shares and that the Company will place appropriate stop transfer orders with its
transfer agent:
"The shares of common stock evidenced by this certificate have not been
registered under the Securities Act of 1933, as amended, and have been issued in
reliance upon one or more exemptions from the requirements for such registration
including an exemption for non-public offerings. Accordingly, the sale,
transfer, pledge, hypothecation or other disposition of the shares evidenced
hereby or any portion thereof or interest therein may not be accomplished in the
absence of an effective registration statement under that act, or an opinion of
counsel satisfactory in form and substance to the Company to the effect that
such a registration is not required."
(g) The Holder further understands and agrees that if he desires to make any
transfer of the Shares the Company is in a position to impede such transfer
through prior stop orders placed
27
<PAGE>
with its transfer agent or otherwise and that the Company will promptly remove
such impediments placed by it only when:
(i) The Company has received a satisfactory opinion of counsel to the effect
that the proposed transfer does not require registration or qualification
pursuant to the Securities Act of 1933 or any applicable state laws of the
United States of America, by reason of an exemption provided thereunder and
a representation and agreement of the proposed transferee in form and
substance satisfactory to the Company, and the Company shall have advised
the undersigned that such opinion, representation and agreement are
satisfactory to the Company; or
(ii) The Company has received a satisfactory opinion of counsel to the effect
that the proposed transfer complies with the provisions of Rule 144
(including a two year holding period from the date of acquisition of the
Preferred Shares by Holder) and the Company shall have advised the
undersigned that such counsel and such opinion are satisfactory to the
Company; or
(iii) A Registration statement covering the proposed transfer has been filed
with the Securities and Exchange Commission and has been declared effective.
The Holder agrees that, in any event, the undersigned will not attempt to
dispose of the Shares or any portion or interest therein, unless and until the
Company has determined to its satisfaction that the proposed disposition does
not violate the registration or qualification requirements of the Federal Act or
applicable state laws.
(h) The Holder understands that the Company has no obligation or intention to
register or qualify the Shares in order to permit sales thereof in accordance
with the registration or qualification provisions of the Securities Act of 1933
or the applicable state laws of the United States of America.
(i) The Holder agrees to indemnify the Company and its officers, directors,
agents and attorneys and to hold the Company and such persons harmless from any
liability, costs or expenses (including reasonable attorneys' fees) arising as a
result of the sale or distribution of the Shares or any portion thereof or
interest therein by him in violation of the Securities Act of 1933 or any
applicable state laws.
(j) The Holder agrees to indemnify the Company and its officers and directors,
agents and attorneys and to hold the
28
<PAGE>
Company and such persons harmless from and against any and all loss, damage,
liabilities, costs or expenses (including reasonable attorneys' fees) to which
they may be put or which they may have incurred by reason of or in connection
with any misrepresentation made by the Holder, for any breach of any of the
Holder's warranties or failure to fulfill any of the Holder's covenants or
agreements under this Agreement.
(k) The Holder acknowledges that he and/or his professional advisor have had
the opportunity to ask questions of, and receive answers from the Company, and
has/have had access to all information concerning the terms and conditions of
this offering and the financial and operating condition of the Company and to
obtain additional information to verify the accuracy of such information.
Further, the Holder has reviewed the disclosure materials included herewith,
including the financial statements contained therein and is familiar with their
contents and further acknowledges that the undersigned has had the opportunity
and access to obtain further information from the Company regarding such
financial, business and management information. The following disclosure
materials are attached hereto as Exhibits:
Stipulation of Dismissal..........................Exhibit A
Form 10-KSB for the Year Ended 12/31/94 ..........Exhibit B
Form 10-QSB for the Quarter Ended 6/30/95.........Exhibit C
Proxy Statement mailed May 25, 1995...............Exhibit D
Form 8-K Dated June 30, 1995, including Agreement
with Johnson and Johnson Medical, Inc.............Exhibit E
Description of Preferred Stock....................Exhibit F
Preferred Stockholder Questionnaire...............Exhibit G
Articles of Incorporation of InMedica Development
Corporation, including Series "A"
Preferred Stock Amendment.........................Exhibit H
Bylaws of InMedica Development Corporation........Exhibit I
Form of Series A Debenture........................Exhibit J
Form of Series C Debenture........................Exhibit K
Additional Material Information; Statutory
Limitations on Payment of Dividends; Developments
29
<PAGE>
as to Non-Invasive Hematocrit Project; and Risk
Factors..........................................Exhibit L
(l) The Holder understands that the Company's Chief Executive Officer
purchased from Allan L. Kaminsky, then CEO of the Company, 1,000,000 shares of
the Company's common stock for $100,000 ($.10 per share) during April, 1995 and
that the Company offered to its Debenture Holders in August, 1995 the
opportunity to convert their outstanding Debenture Debt for $.50 per share and
the offer to convert was not accepted by a significant majority of the Debenture
Holders and as a result, the Company did not accept the offer of the persons
willing to convert. Further, the Holder understands that if he accepts the
Preferred Shares for $4.50 per share, the same would be convertible to common
stock at the rate of six shares per preferred share during the first 12 months
or at a price of $.75 per share of common stock. The market bid price for the
Company's common stock as of September 12, 1995 was $.25 per share.
(m) The Holder acknowledges that the Company makes no representations or
assurances as to the federal or state income tax implications of this
investment. The Company has offered no opinion or advice in this respect and
the Holder acknowledges that the Company and its management have urged the
Holder to consult with his professional advisors with respect to any such tax
implications.
(n) The Holder acknowledges that no representations or assurances have been
given to the Holder by the Company or anyone acting in its behalf as to the
continued operations of the Company or the financial or other success thereof
and the Holder recognizes that the Shares represent a speculative investment and
involve risk factors including, but not limited to, risks inherent in preferred
stock ownership, common stock ownership, the business of medical technology
companies and the necessity of additional substantial fund raising, as are more
fully described in Exhibit L as well as the risk of loss of the undersigned's
entire investment in the Company.
(o) Holder has the financial ability to bear the economic risk of this
investment, has adequate means of providing for current needs and personal
contingencies, and has no need for liquidity in this investment in the Company.
(p) Holder has reviewed the merits of the investment with his own legal, tax
and accounting advisors and with an investment advisor to the extent deemed
advisable.
(q) Holder's overall commitment to investments which are not readily
marketable is not disproportionate to Holder's net worth
30
<PAGE>
and this investment in the Company will not cause such overall commitment to
become excessive.
(r) Either (1) Holder has such knowledge and experience in financial and
business matters to be capable of evaluating the merits and risks of the
prospective investment and is able to bear the economic risk of the investment,
or (2) together with a purchaser representative(s), if any, have such knowledge
and experience in financial and business matters that they are capable of
evaluating the merits and risks of the prospective investment and subscriber is
able to bear the economic risk of the investment.
(s) Holder has received and read a copy of the exhibits hereto, including the
Articles of Incorporation (including the Series A Preferred Stock Amendment) and
Bylaws of the Company.
(t) Holder understands that (i) the Company has incurred operating losses in
every year since its organization in 1983 (except, 1994, when it had a net
profit of $301,239) and has limited assets. The Company's only income is
limited to that supplied by the Johnson and Johnson Medical, Inc. Agreement (ii)
the Company has never paid dividends on its common stock and does not intend to
do so in the foreseeable future and is able to pay dividends on the Preferred
Stock only to the extent of funds legally available therefore and as monies are
received and available from the Johnson and Johnson Medical, Inc. Agreement, and
that the Johnson & Johnson Medical Agreement has been pledged as security for a
loan being made to the Company.
(u) The Shares herein subscribed for are being acquired in good faith
solely for Holder's personal account, for investment purposes only, and are not
being purchased with a view to, or for, resale, distribution, subdivision or
fractionalization thereof. Further, the undersigned will hold the Shares as an
investment.
(v) No federal or state agency has made any finding or determination of the
fairness for investment or any recommendation or endorsement of the Shares.
(w) All of the representations and warranties of the undersigned contained
herein and all information furnished by the undersigned to the Company are true,
correct and complete in all respects.
(x) Holder has not assigned or transferred the Debenture or any interest
therein and the surrender thereof by Holder under this Agreement, to the
knowledge of Holder, will not result in any breach of any of the terms,
conditions or provisions of, or constitute a default under, or result in the
creation of any lien,
31
<PAGE>
charge or encumbrance on, the Debenture or the Shares pursuant to any agreement,
contract or other instrument to which the Holder or the Debenture is or may be
bound.
(y) Holder acknowledges that the price, par value and dividend rate of the
Preferred Shares has been arbitrarily determined by the Company and bears no
relationship to book value, present or future tangible or intangible assets of
the Company or earnings of the Company or any usual investment criteria.
The foregoing representations, warranties, agreements, undertakings and
acknowledgements are made by the undersigned with the intent that they be relied
upon by the Company in determining suitability as a purchaser of Shares, and the
undersigned hereby agrees that such representations, warranties, agreements,
undertakings and acknowledgements shall survive any purchase of the Shares. In
addition, the undersigned undertakes to notify the Company immediately of any
change in any representations, warranty or other information relating to the
undersigned set forth herein.
4. Loss of Priority. Holder acknowledges that under the terms of both the
----------------
Series A and Series C Convertible Debentures, he has no obligation to enter into
this Settlement Agreement and that if he does not sign this Settlement
Agreement, then the entire debenture indebtedness, including accrued interest,
remains as an obligation of the Company, payable to the extent of its assets and
having a position senior to that of shareholders (including Preferred
Shareholders) in any liquidation of the Company.
5. Further Assurances. Each party shall, at any time and from time to
------------------
time, at the other's request, execute, acknowledge and deliver any instrument
that may be necessary or proper to carry out the provisions of this Agreement.
6. Time of the Essence. Time shall be of the essence in satisfying the
-------------------
terms and conditions of this Agreement.
7. Attorneys' Fees. In the event a dispute arises with respect to this
---------------
Agreement, and such dispute is not resolved prior to final judicial
determination, the party prevailing in such judicial proceeding shall be
entitled to recover all expenses, including, without limitation, reasonable
attorneys' fees and expenses.
8. Complete Agreement of the Parties. This Agreement supersedes any
---------------------------------
and all other agreements, either oral or in writing, between the parties with
respect to the subject matter hereof and contains all of the covenants and
agreements between the parties with respect to such subject matter in any manner
whatsoever. Each
32
<PAGE>
party to this Agreement acknowledges that no representations, inducements,
promises or agreements, oral or otherwise, have been made by any party, or
anyone herein, and that no other agreement, statement or promise not contained
in this Agreement shall be valid or binding. This Agreement may be changed or
amended only by an amendment in writing signed by all of the parties or their
respective successors in interest.
9. Assignment. This Agreement and the rights and obligations of Holder
----------
hereunder are personal to Holder and may not be transferred or assigned without
the prior written consent of the Company.
10. Binding. Subject to the provisions of Section 9 hereof, this
-------
Agreement shall be binding upon and inure to the benefit of the successors in
interest, assigns and personal representatives of the respective parties.
11. Number and Gender. Whenever the singular number is used in this
-----------------
Agreement and when required by the context, the same shall include the plural,
and the masculine gender shall include the feminine and neuter genders and the
word "person" shall include corporation, firm, partnership or other form of
association.
12. Failure to Object Not a Waiver. The failure of either party to this
------------------------------
Agreement to object to, or to take affirmative action with respect to, any
conduct of the other which is in violation of the terms of this Agreement, shall
not be construed as a waiver of the violation or breach or of any future
violation, breach or wrongful conduct.
13. Unenforceable Terms. Any provision hereof prohibited by law or
-------------------
unenforceable under any applicable law of any jurisdiction shall as to such
jurisdiction be ineffective without affecting any other provision of this
Agreement. To the full extent, however, that the provisions of such applicable
law may be waived, they are hereby waived to the end that this Agreement be
deemed to be a valid and binding enforceable agreement in accordance with its
terms.
14. Miscellaneous Provisions. The various headings and numbers herein
------------------------
and the groupings of provisions of this Agreement into separate articles and
paragraphs are for the purpose of convenience only and shall not be considered a
part hereof. The language in all parts of this Agreement shall in all cases be
construed in accordance to its fair meaning as if prepared by all parties to the
Agreement and not strictly for or against any of the parties.
33
<PAGE>
EXECUTED AS OF THE DATE FIRST ABOVE WRITTEN
/s/ J. Lynn Smith INMEDICA DEVELOPMENT CORPORATION
- -------------------------------
(Holder Signature)
J. Lynn Smith
- -------------------------------
(Print Name) /s/ Larry E. Clark
---------------------------------
By Larry E. Clark, President
34
<PAGE>
ADDENDUM TO SETTLEMENT AND EXCHANGE AGREEMENT
THIS ADDENDUM TO THE SETTLEMENT AND EXCHANGE AGREEMENT ("Agreement") is made
and entered into effective September 25 , 1995 by and between InMedica
--------------
Development Corporation, a Utah corporation ("InMedica" or the "Company") and J.
Lynn Smith, an individual whose address is 5770 South 250 East, Suite 115, Salt
Lake City, Utah 84107 (the "Holder" or "Smith"), with regard to the following
factual recitals, each of which is incorporated herein by this reference.
RECITALS:
WHEREAS the parties are executing concurrently with this Addendum, a
Settlement and Exchange Agreement regarding the settlement of certain debenture
indebtedness between the parties, pursuant to which the Company is issuing to
Holder certain shares of Series A Preferred Stock; and
WHEREAS the Series A Preferred Stock is, by its terms, convertible to common
stock of the Company as follows: $.75 per common share on or before October 1,
1996 (6 common shares per share of Series A Preferred); $1.50 per common share
on or before October 1, 1997 (3 common shares per share of Series A Preferred);
$3.00 per common share after October 1, 1997 (1.5 common shares per share of
Series A Preferred); and
WHEREAS Smith desires additional consideration for the settlement of the
lawsuit he has brought against the Company, and the Company is willing to grant
additional consideration to Smith, contingent upon Smith exercising certain
future conversion rights, in order to resolve and settle the lawsuit;
NOW THEREFORE, for good and valuable consideration the receipt and sufficiency
of which is hereby acknowledged, the parties agree as follows:
1. Additional shares upon conversion during second year. As additional
----------------------------------------------------
consideration for Smith entering into the Settlement and Exchange Agreement and
dismissing his claims in the lawsuit pending against the Company, the Company
agrees that should Smith elect to exercise his conversion rights on the
Preferred Stock during the period October 1, 1996 through October 1, 1997 at the
rate of $1.50 per common share (three common shares per share of Series A
Preferred), that the Company agrees to issue Smith one additional common share
for each common share acquired by him pursuant to such conversion rights during
the time period October
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1, 1996 through October 1, 1997 (the "Additional Shares") . Such Additional
Shares shall be restricted securities and shall be subject to a two year holding
period and subject to a restrictive legend impeding transfer without an opinion
of counsel acceptable to the Company or an effective registration of the Shares.
Smith understands and agrees that the Company has relied upon the
representations in Smith's Investor Questionnaire and in the Settlement
Agreement in agreeing to issue the Additional Shares to Smith as provied herein.
2. No effect on conversion rate. This agreement shall not affect the
----------------------------
conversion rate used in converting the Series A Preferred Stock to common stock,
but is solely intended to provide the payment of the Additional Shares to Smith
as additional consideration for his having entered into the Settlement
Agreement, which consideration would be receivable by him only in the event he
exercised his conversion rights during the period October 1, 1996 through
October 1, 1997. Should Smith not exercise his conversion rights during the
referenced time period, all rights to receive the Additional Shares would
terminate and be forever waived.
EXECUTED AS OF THE DATE FIRST ABOVE WRITTEN
/s/ J. Lynn Smith INMEDICA DEVELOPMENT CORPORATION
- -------------------------------
(Holder Signature)
J. Lynn Smith
- -------------------------------
(Print Name) /s/ Larry E. Clark
---------------------------------
By Larry E. Clark, President
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EXHIBIT 6
COMMERCIAL SECURITY AGREEMENT
================================================================================
Borrower: InMedica Development Corporation Lender: Larry E. Clark
(TIN: 1036 Oak Hills Way
495 East 4500 South, Suite 230 Salt Lake City, Utah 84108
Salt Lake City, Utah 84107
Grantor: InMedica Development Corporation
(TIN: )
495 East 4500 South, Suite 230
Salt Lake City, Utah 84107
================================================================================
THIS COMMERCIAL SECURITY AGREEMENT IS ENTERED INTO BETWEEN INMEDICA
DEVELOPMENT CORPORATION (REFERRED TO BELOW AS "BORROWER"); INMEDICA DEVELOPMENT
CORPORATION (REFERRED TO BELOW AS "GRANTOR"); AND LARRY E. CLARK (REFERRED TO
BELOW AS "LENDER"). FOR VALUABLE CONSIDERATION, GRANTOR HEREBY GRANTS, CONVEYS,
ASSIGNS, AND PLEDGES TO LENDER AS COLLATERAL, A SECURITY INTEREST IN GRANTOR'S
ENTIRE INTEREST IN THE COLLATERAL, WHETHER NOW EXISTING OR HEREAFTER ACQUIRED,
TO SECURE THE INDEBTEDNESS AND AGREES THAT LENDER SHALL HAVE THE RIGHTS STATED
IN THIS AGREEMENT WITH RESPECT TO THE COLLATERAL, IN ADDITION TO ALL OTHER
RIGHTS WHICH LENDER MAY HAVE BY LAW.
DEFINITIONS. The following words shall have the following meanings when
used in this Agreement. Terms not otherwise defined in this Agreement shall
have the meanings attributed to such terms in the Uniform Commercial Code. All
references to dollar amounts shall mean amounts in lawful money of the United
States of America.
AGREEMENT. The word "Agreement" means this Commercial Security Agreement,
as this Commercial Security Agreement may be amended or modified from time to
time, together with all
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exhibits and schedules attached to this Commercial Security Agreement from time
to time.
BORROWER. The word "Borrower" means each and every person or entity
signing the Note, including without limitation InMedica Development Corporation.
COLLATERAL. The word "Collateral" means the following described property
of Grantor, whether now owned or hereafter acquired, whether now existing or
hereafter arising, and wherever located:
A CERTAIN LICENSING AGREEMENT BETWEEN INMEDICA DEVELOPMENT CORPORATION AND
JOHNSON & JOHNSON MEDICAL, INC. DATED JUNE 15, 1995
In addition, the word "Collateral" includes all the following, whether now owned
or hereafter acquired, whether now existing or hereafter arising, and wherever
located:
(a) All attachments, accessions, accessories, tools, parts, supplies,
increases, and additions to and all replacements of and substitutions of any
property described above.
(b) All products and produce of any of the property described in this
Collateral section.
(c) All accounts, contract rights, general intangibles, instruments,
rents, monies, payments, and all other rights, arising out of a sale, lease, or
other disposition of any of the property described in this Collateral section.
(d) All proceeds (including insurance proceeds) from the sale,
destruction, los, or other disposition of any of the property described in this
Collateral section.
(e) All records and data relating to any of the property described in this
Collateral section, whether in the form of a writing, photograph, microfilm,
microfiche, or electronic media, together with all of Grantor's right, title and
interest in and to all computer software required to utilize, create, maintain,
and process any such records or data on electronic media.
EVENT OF DEFAULT. The words "Event of Default" mean and include without
limitation any of the Events of Default set forth below in the section titled
"Events of Default."
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GRANTOR. The word "Grantor" means and includes without limitation each and
all of the guarantors, sureties, and accommodation parties in connection with
the indebtedness.
GUARANTOR. The word "Guarantor" means and includes without limitation each
and all of the guarantors, sureties, and accommodation parties in connection
with the indebtedness.
INDEBTEDNESS. The word "Indebtedness" means the indebtedness evidenced by
the Note, including all principal and interest, together with all other
indebtedness and costs and expenses for which Grantor or Borrower is responsible
under this Agreement or under any of the Related Documents.
LENDER. The word "Lender" means LARRY E. CLARK, his successors and
assigns.
NOTE. The word "Note" means the note of credit agreement dated September
15, 1995, in the principal amount of $500,000.00 from Borrower to First
Interstate Bank of Utah, N.A., together with all renewals of, extensions of,
modifications of refinancings of, consolidations of and substitutions for the
note or credit agreement. Lender has guaranteed the Note to said First
Interstate Bank of Utah, N.A. on behalf of Borrower.
RELATED DOCUMENTS. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds of
trust, and all other instruments, agreements and documents, whether now or
hereafter existing, executed in connection with the indebtedness.
BORROWER'S WAIVERS AND RESPONSIBILITIES. Except as otherwise required under
this Agreement or by applicable law, (a) Borrower agrees that Lender need not
tell Borrower about any action or inaction Lender takes in connection with this
Agreement; (b) Borrower assumes the responsibility for being and keeping
informed about the Collateral; and (c) Borrower waives any defenses that may
arise because of any action or inaction of Lender, including without limitation
any failure of Lender to realize upon the Collateral or any delay by Lender in
realizing upon the Collateral; and Borrower agrees to remain liable under the
Note no matter what action Lender takes or fails to take under this Agreement.
GRANTOR'S REPRESENTATIONS AND WARRANTIES. Grantor warrants that: (a) this
Agreement is executed at Borrower's request and not at the request of Lender;
(b) Grantor has the full right, power and
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authority to enter into this Agreement and to pledge the Collateral to Lender;
(c) Grantor has established adequate means of obtaining from Borrower on a
continuing basis information about Borrower's financial condition; and (d)
Lender has made no representation to Grantor about Borrower or Borrower's
creditworthiness.
GRANTOR'S WAIVERS. Grantor waives all requirements of presentment, protest,
demand and notice of dishonor or non-payment to Grantor, Borrower, or any other
party to the Indebtedness or the Collateral. Lender may do any of the following
with respect to any obligation of any Borrower, without first obtaining the
consent of Grantor; (a) grant an extension of time for any payment, (b) grant
any renewal, (c) permit any modification of payment terms or other terms, or (d)
exchange or release any Collateral or other security. No such act or failure to
act shall affect Lender's rights against Grantor or the Collateral.
If now or hereafter (a) Borrower shall be or become insolvent, and (b) the
indebtedness shall not at all times until paid be fully secured by collateral
pledged by Borrower, Grantor hereby forever waives and relinquishes in favor of
Lender and Borrower, and their respective successors, any claim or right to
payment Grantor may now have or hereafter have or acquire against Borrower, by
subrogation or otherwise, so that at no time shall Grantor be or become a
"creditor" of Borrower within the meaning of 11 U.S.C. Section 547(b), or any
successor provision of the Federal Bankruptcy laws.
RIGHT OF SETOFF. Grantor and Borrower hereby grant to Lender a right of setoff
and authorize Lender to charge or setoff all indebtedness hereunder against any
amount which Lender may owe to Borrower or Grantor.
OBLIGATIONS OF GRANTOR. Grantor warrants and covenants to Lender as follows:
ORGANIZATION. Grantor is a corporation which is duly organized, validly
existing, and in good standing under the laws of the State of Utah.
AUTHORIZATION. The execution, delivery and performance of this Agreement
by Grantor has been duly authorized by all necessary action by Grantor and do
not conflict with, result in a violation of, or constitute a default under (a)
any provision of its articles of incorporation or organization, or bylaws, or
any agreement or other instrument binding upon Grantor of (b) any law,
governmental regulation, court decree, or order applicable to Grantor.
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PERFECTION OF SECURITY INTEREST. Grantor agrees to execute such financing
statements and to take whatever other actions are requested by Lender to perfect
and continue Lender's security interest in the Collateral. Upon request of
Lender, Grantor will deliver to Lender any and all of the documents evidencing
or constituting the Collateral, and Grantor will note Lender's interest upon any
and all chattel paper if not delivered to Lender for possession by Lender.
Grantor hereby appoints Lender as its irrevocable attorney-in-fact for the
purpose of executing any documents necessary to perfect or to continue the
security interest granted in this Agreement. Lender may at any time, and
without further authorization from Grantor, file a carbon, photographic or other
reproduction of any financing statement or of this Agreement for use as a
financing statement. Grantor will reimburse Lender for all expenses for the
perfection and the continuation of the perfection of Lender's security interest
in the Collateral. Grantor promptly will notify Lender before any change in
Grantor's name including any change to the assumed business names of Grantor.
NO VIOLATION. The execution and delivery of this Agreement will not
violate any law or agreement governing Grantor or to which Grantor is a party,
and its certificate or articles of incorporation and bylaws do not prohibit any
term or condition of this Agreement.
ENFORCEABILITY OF COLLATERAL. To the extent the Collateral consists of
accounts, chattel paper, or general intangibles, the Collateral is enforceable
in accordance with its terms, is genuine, and complies with applicable laws
concerning form, content and manner of preparation and execution, and all
persons appearing to be obligated on the Collateral have authority and capacity
to contract and are in fact obligated as they appear to be on the Collateral.
LOCATION OF THE COLLATERAL. Grantor, upon request of Lender, will deliver
to Lender in form satisfactory to Lender a schedule of real properties and
Collateral locations relating to Grantor's operations, including without
limitation the following: (a) all real property owned or being purchased by
Grantor; (b) all real property being rented or leased by Grantor; (c) all
storage facilities owned, rented, leased, or being used by Grantor; and (d) all
other properties where Collateral is or may be located. Except in the ordinary
course of its business, Grantor shall not remove the Collateral from its
existing locations without the prior written consent of Lender.
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REMOVAL OF COLLATERAL. Grantor shall keep the Collateral (or to the extent
the Collateral consists of intangible property such as accounts, the records
concerning the Collateral) at Grantor's address shown above, or at such other
locations as are acceptable to Lender. Except in the ordinary course of its
business, including the sales of inventory, Grantor shall not remove the
Collateral from its existing locations without the prior written consent of
Lender. To the extend that the Collateral consists of vehicles, or other titled
property, Grantor shall not take or permit any action which would require
application for certificates of title for the vehicles outside the State of
Utah, without the prior written consent of Lender.
TRANSACTIONS INVOLVING COLLATERAL. Except for inventory sold or accounts
collected in the ordinary course of Grantor's business, Grantor shall not sell,
offer to sell, or otherwise transfer or dispose of the Collateral. While
Grantor is not in default under this Agreement, Grantor may sell inventory, but
only in the ordinary course of its business and only to buyers who qualify as a
buyer in the ordinary course of business. A sale in the ordinary course of
Grantor's business doe not include a transfer in partial or total satisfaction
of a debt or any bulk sale. Grantor shall not pledge, mortgage, encumber or
otherwise permit the Collateral to be subject to any lien, security interest,
encumbrance, or charge, other than the security interest provided for in this
Agreement, without the prior written consent of Lender. This includes security
interests even if junior in right to the security interests granted under this
Agreement. Unless waived by Lender, all proceeds from any disposition of the
Collateral (for whatever reason) shall be held in trust for Lender and shall not
be commingled with any other funds; provided however, this requirement shall not
constitute consent by Lender to any sale or other disposition. Upon receipt,
Grantor shall immediately deliver any such proceeds to Lender.
TITLE. Grantor represents and warrants to Lender that it holds good and
marketable title to the Collateral, free and clear of all liens and encumbrances
except for the lien of this Agreement and the Security Interest granted to First
Interstate Bank of Utah N.A. on September 9, 1995. No financing statement
covering any of the Collateral is on file in any public office other than those
which reflect the security interest created by this Agreement or to which Lender
has specifically consented. Grantor shall defend Lender's rights in the
Collateral against the claims and demands of all other persons.
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COLLATERAL SCHEDULES AND LOCATIONS. Insofar as the Collateral consists of
inventory, Grantor shall deliver to Lender, as often as Lender shall require,
such lists, descriptions, and designations of such Collateral as Lender may
require to identify the nature, extend and location of such Collateral. Such
information shall be submitted for Grantor and each of its subsidiaries or
related companies.
MAINTENANCE AND INSPECTION OF COLLATERAL. Grantor shall maintain all
tangible Collateral in good condition and repair. Grantor will not commit or
permit damage to or destruction of the Collateral or any part of the Collateral.
Lender and its designated representatives and agents shall have the right at all
reasonable times to examine, inspect, and audit the Collateral whenever located.
Grantor shall immediately notify Lender of all cases involving the return,
rejection, repossession, loss or damage of or to any Collateral; of any request
for credit or adjustment or of any other dispute arising with respect to the
Collateral; and generally of all happenings and events affecting the Collateral
or the value or the amount of the Collateral.
TAXES, ASSESSMENTS AND LIENS. Grantor will pay when due all taxes,
assessments and liens upon the Collateral, its use or operation, upon this
Agreement, upon any promissory note or notes evidencing the indebtedness, or
upon any of the other Related Documents. Grantor may withhold any such payment
or may elect to contest any lien if Grantor is in good faith conducting an
appropriate proceeding to contest the obligation to pay and so long as Lender's
interest in the Collateral is not jeopardized in Lender's sole opinion. If the
Collateral is subjected to a lien which is not discharged within fifteen (15)
days, Grantor shall deposit with Lender cash, a sufficient corporate surety bond
or other security satisfactory to Lender in an amount adequate to provide for
the discharge of the lien plus any interest, costs, reasonably attorneys' fees
or other charges that could accrue as a result of foreclosure or sale of the
Collateral. In any contest Grantor shall defend itself and Lender and shall
satisfy any final adverse judgment before enforcement against the Collateral.
Grantor shall name Lender as an additional obligee under any surety bond
furnished in the contest proceedings.
COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS. Grantor shall comply promptly
with all laws, ordinances, rules and regulations of all governmental
authorities, including without limitation all environmental laws, ordinances,
rules and regulations, now or hereafter in effect, applicable to the
44
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ownership, production, disposition, or use of the Collateral. Grantor may
contest in good faith any such law, ordinance or regulation and withhold
compliance during any proceeding, including appropriate appeals, so long as
Lender's interest in the Collateral, in Lender's opinion, is not jeopardized.
HAZARDOUS SUBSTANCES. Grantor represents and warrants that the Collateral
never has been, and never will be so long as this Agreement remains a lien on
the Collateral, used for the generation, manufacture, storage, transportation,
treatment, disposal, release or threatened release of any hazardous waste or
substance, as those terms are defined in the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended, 42 U.S.C. Section
9601, et seq. ("CERCLA"), the Superfund Amendments and Reauthorization Act of
1986, Pub. L. No. 99-499 ("SARA), the Hazardous Materials Transportation Act, 49
U.S.C. Section 1801, et seq. the Resource Conservation and Recovery Act, 49
U.S.C. Section 6901, et seq., or other applicable state or Federal laws, rules,
or regulations adopted pursuant to any of the foregoing. The terms "hazardous
waste" and "hazardous substance" shall also include, without limitation,
petroleum and petroleum by-products or any fraction thereof and asbestos. The
representations and warranties contained herein are based on Grantor's due
diligence in investigating the Collateral for hazardous wastes and substances.
Grantor hereby (a) releases and waivers any future claims against Lender for
indemnity or contribution in the event Grantor becomes liable for cleanup or
other costs under any such laws and (b) agrees to indemnify and hold harmless
Lender against any and all claims and losses resulting from a breach of this
provision of this Agreement. This obligation to indemnify shall survive the
payment of the Indebtedness and the satisfaction of this Agreement.
MAINTENANCE OF CASUALTY INSURANCE. Grantor shall procure and maintain all
risks insurance, including without limitation fire, theft and liability coverage
together with such other insurance as Lender may require with respect to the
Collateral, in form, amounts, coverages and basis reasonably acceptable to
Lender and issued by a company or companies reasonably acceptable to Lender.
Grantor, upon request of Lender, will deliver to Lender from time to time the
policies or certificates of insurance in form satisfactory to Lender, including
stipulations that coverages will not be canceled or diminished without at least
ten (10) days' prior written notice to Lender and not including any disclaimer
of the insurer's liability for failure to give such notice. Each insurance
policy also shall include an endorsement providing
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that coverage in favor of Lender will not be impaired in any way by any act,
omission or default of Grantor or any other person. In connection with all
policies covering assets in which lender holds or is offered a security
interest, Grantor will provide Lender with such loss payable or other
endorsements as Lender may require. If Grantor at any time fails to obtain or
maintain any insurance as required under this Agreement, Lender may (but shall
not be obligated to) obtain such insurance as Lender deems appropriate,
including if it so chooses "single interest insurance," which will cover only
Lender's interest in the Collateral.
APPLICATION OF INSURANCE PROCEEDS. Grantor shall promptly notify Lender of
any loss or damage to the Collateral. Lender may make proof of loss if Grantor
fails to do so within fifteen (15) days of the casualty. All proceeds of any
insurance on the Collateral, including accrued proceeds thereon, shall be held
by Lender as part of the Collateral. If Lender consents to repair or
replacement of the damaged or destroyed Collateral, Lender shall, upon
satisfactory proof of expenditure, pay or reimburse Grantor from the proceeds
for the reasonably cost of repair or restoration. If Lender does not consent to
repair or replacement of the Collateral, Lender shall retain a sufficient amount
of the proceeds to pay all of the Indebtedness, and shall pay the balance to
Grantor. Any proceeds which have not been disbursed within six (6) months after
their receipt and which Grantor has not committed to the repair or restoration
of the Collateral shall be used to repay the Indebtedness.
INSURANCE RESERVES. Lender may require Grantor to maintain with Lender
reserves for payment of insurance premiums, which reserves shall be created by
monthly payments from Grantor of a sum estimated by Lender to be sufficient to
produce, at least fifteen (15) days before the premium due date, amounts at
least equal to the insurance premiums to be paid. If fifteen (15) days before
payment is due, the reserve funds are insufficient, Grantor shall upon demand
pay any deficiency to Lender. The reserve funds shall be held by Lender as a
general deposit and shall constitute a non-interest-bearing account which Lender
may satisfy by payment of the insurance premiums required to be paid by Grantor
as they become due. Lender does not hold the reserve funds in trust for
Grantor, and Lender is not the agent of Grantor for payment of the insurance
premiums required to be paid by Grantor. The responsibility of the payment of
premiums shall remain Grantor's sole responsibility.
INSURANCE REPORTS. Grantor, upon request of Lender,
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shall furnish to Lender reports on each existing policy of insurance showing
such information as Lender may reasonably request including the following: (a)
the name of the insurer; (b) the risks insured; (c) the amount of the policy (d)
the property insured; (e) the then current value on the basis of which insurance
has been obtained and the manner of determining that value; and (f) the
expiration date of the policy. In addition, Grantor shall upon request by
Lender (however not more often than annually) have an independent appraiser
satisfactory to Lender determine, as applicable, the cash value or replacement
cost of the Collateral.
GRANTOR'S RIGHT TO POSSESSION. Until default, Grantor may have possession of
the tangible personal property and beneficial use of all the Collateral and may
use it in any lawful manner not inconsistent with this Agreement or the Related
Documents, provided that Grantor's right to possession and beneficial use shall
not apply to any Collateral where possession of the Collateral by Lender is
required by law to perfect Lender's security interest in such Collateral. If
Lender at any time has possession of any Collateral, whether before or after an
Event of Default, Lender shall be deemed to have exercised reasonable care in
the custody and preservation of the Collateral if Lender takes such action for
that purpose as Grantor shall request or as Lender, in Lender's sole discretion,
shall deem appropriate under the circumstances, but failure to honor any request
by Grantor shall not of itself be deemed to be a failure to exercise reasonable
care. Lender shall not be required to take any steps necessary to preserve any
rights in the Collateral against prior parties, nor to protect, preserve or
maintain any security interest given to secure the Indebtedness.
EXPENDITURES BY LENDER. If not discharged or paid when due, Lender may (but
shall not be obligated to) discharge or pay any amounts required to be
discharged or paid by Grantor under this Agreement, including without limitation
all taxes, liens, security interests, encumbrances, and other claims, at any
time levied or place on the Collateral. Lender also may (but shall not be
obligated to) pay all costs for insuring, maintaining and preserving the
Collateral. All such expenditures incurred or paid by Lender for such purposes
will then bear interest at the rate charged under the Note from the date
incurred or paid by Lender to the date of repayment by Grantor. All such
expenses shall become a part of the indebtedness and, at Lender's option, will
(a) be payable on demand, (b) be added to the balance of the Note and be
apportioned among and be payable with any installment payments to become due
during either (i) the term of any applicable insurance policy or (ii) the
remaining term of the Note, or (c) be treated as a balloon payment which will be
due and payable at the Note's maturity. This Agreement also will secure payment
of these amounts. Such right
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shall be in addition to all other rights and remedies to which Lender may be
entitled upon the occurrence of an Event of Default.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this agreement:
DEFAULT ON INDEBTEDNESS. Failure of Borrower to make any payment when due
on the Indebtedness.
ENVIRONMENTAL DEFAULT. Failure of any party to comply with or perform when
due any term, obligation, covenant or condition contained in any environmental
agreement executed in connection with any Loan.
OTHER DEFAULTS. Failure of Grantor or Borrower to comply with or to
perform any other term, obligation, covenant or condition contained in this
Agreement or in any of the Related Documents or failure of Borrower to comply
with or to perform any term, obligation, covenant or condition contained in any
other agreement between Lender and Borrower.
DEATH OR INSOLVENCY. The death of Grantor or Borrower or the dissolution
or termination of Grantor or Borrower's existence as a going business, the
insolvency of Grantor or Borrower, the appointment of a receiver for any part of
Grantor or Borrower's property, any assignment for the benefit of creditors, any
type of creditor workout, or the commencement of any proceeding under any
bankruptcy or insolvency laws by or against Grantor or Borrower.
CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help, repossession
or any other method, by any creditor of Grantor or Borrower or by any
governmental agency against the Collateral or any other collateral securing the
Indebtedness.
EVENTS AFFECTION GUARANTOR. Any of the preceding events occurs with
respect to any Guarantor of any of the Indebtedness or such Guarantor dies or
becomes incompetent.
ADVERSE CHANGE. A material adverse change occurs in Borrower's financial
condition, or Lender believes the prospect of payment or performance of the
Indebtedness is impaired.
INSECURITY. Lender, in good faith, deems itself insecure.
RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs
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under this Agreement, at any time thereafter, Lender shall have all the rights
of a secured party under the Utah Uniform Commercial Code. In addition and
without limitation, Lender may exercise any one or more of the following rights
and remedies:
ACCELERATE INDEBTEDNESS. Lender may declare the entire Indebtedness,
including any prepayment penalty which Borrower would be required to pay,
immediately due and payable, without notice.
ASSEMBLE COLLATERAL. Lender may require Grantor to deliver to Lender all
or any portion of the Collateral and any and all certificates of title and other
documents relating to the Collateral. Lender may require Grantor to assemble
the Collateral and make it available to Lender at a place to be designated by
Lender. Lender also shall have full power to enter upon the property of Grantor
to take possession of and remove the Collateral. If the Collateral contains
other goods not covered by this Agreement at the time of repossession, Grantor
agrees Lender may take such other goods, provided that Lender makes reasonable
efforts to return them to Grantor after repossession.
SELL THE COLLATERAL. Lender shall have full power to sell, lease,
transfer, or otherwise deal with the Collateral or proceeds thereof in its own
name or that of Grantor. Lender may sell the Collateral at public auction or
private sale. Unless the Collateral threatens to decline speedily in value or
is of a type customarily sold on a recognized market, Lender will give Grantor
reasonable notice of the time after which any private sale or any other intended
disposition of the Collateral is to be made. The requirements of reasonably
notice shall be met if such notice is given at least ten (10) days before the
time of the sale or disposition. All expenses relating to the disposition of
the Collateral, including without limitation the expenses of retaking, holding,
insuring, preparing for sale and selling the Collateral, shall become a part of
the Indebtedness secured by this Agreement and shall be payable on demand, with
interest at the Note rate from date of expenditure until repaid.
COLLECT REVENUES, APPLY ACCOUNTS. Lender, either itself or through a
receiver, may collect the payments, rents, income, and revenues from the
Collateral. Lender may at any time in it discretion transfer any Collateral
into its own name or that of its nominee and receive the payments, rents, income
and revenues therefrom and hold the same as security for the Indebtedness or
apply it to payment of the Indebtedness in such order of preference as Lender
may
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determine. Insofar as the Collateral consists of accounts, general intangibles,
insurance policies, instruments, chattel payer, chooses in action, or similar
property, Lender may demand, collect, receipt for, settle, compromise, adjust,
sue for, foreclose, or realize on the Collateral as Lender may determine,
whether or not Indebtedness or Collateral is then due. For these purposes,
Lender may, on behalf of and in the name of Grantor, receive, open and dispose
of mail addressed to Grantor; change any address to which mail and payments are
to be sent; and endorse notes, checks, drafts, money orders, documents of title,
instruments and items pertaining to payment, shipment, or storage of any
Collateral. To facilitate collection, Lender may notify account debtors and
obligors on any Collateral to make payments directly to Lender.
OBTAIN DEFICIENCY. If Lender chooses to sell any or all of the Collateral,
Lender may obtain a judgment against Borrower for any deficiency remaining on
the Indebtedness due to Lender after application of all amounts received from
the exercise of the rights provided in this Agreement. Borrower shall be liable
for a deficiency even if the transaction described in this subsection is a sale
of accounts or chattel paper.
OTHER RIGHTS AND REMEDIES. Lender shall have all the rights and remedies
of a secured creditor under the provisions of the Uniform Commercial Code, as
may be amended from time to time. In addition. Lender shall have and may
exercise any or all other rights and remedies it may have available at law, in
equity, or otherwise.
CUMULATIVE REMEDIES. All of Lender's rights and remedies, whether
evidenced by this Agreement or the Related Documents or by any other writing,
shall be cumulative and may be exercised singularly or concurrently. Election
by Lender to pursue any remedy shall not exclude pursuit of any other remedy,
and an election to make expenditures or to take action to perform an obligation
of Grantor or Borrower under this Agreement, after Grantor or Borrower's failure
to perform, shall not affect Lender's right to declare a default and to exercise
its remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:
AMENDMENTS. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to the
matters set forth in this Agreement.
50
<PAGE>
No alteration of or amendment to this Agreement shall be effective unless given
in writing and signed by the party or parties sought to be charged or bound by
the alteration or amendment.
APPLICABLE LAW. This Agreement has been delivered to Lender and accepted
by Lender in the State of Utah. If there is a lawsuit, Grantor and Borrower
agree upon Lender's request to submit to the jurisdiction of the courts of Salt
Lake County, State of Utah. Subject to the provisions on arbitration, this
Agreement shall be governed by and construed with the laws of the State of Utah.
ARBITRATION.
BINDING ARBITRATION. Upon demand of any party ("Party/Parties"), to a
Document (as defined below), whether made before the institution of any judicial
preceding or not more than sixty (60) days after service of a complaint, third
party complaint, cross-claim or counterclaim or any answer thereto or any
amendment to any of the above, any Dispute (as defined below) shall be resolved
by binding arbitration in accordance with the terms of this Arbitration Program.
A "Dispute" shall include any action, dispute, claim or controversy of any kind,
whether founded in contract, tort, statutory or common law, equity, or
otherwise, now existing or hereafter arising between any of the Parties arising
out of, pertaining to or in connection with any agreement, document or
instrument to which this Arbitration Program is to submit to binding arbitration
following a lawful demand by another Party shall bear all costs and expenses,
including reasonable attorneys' fees, (including those incurred in any trial,
bankruptcy proceeding or on appeal) incurred by the other Party in obtaining a
stay of any pending judicial proceeding and compelling arbitration of any
Dispute. The parties agree that any agreement, document or instrument which
includes, attaches to or incorporates this Arbitration Program represents a
transaction involving commerce as that term is used in the Federal Arbitration
Act, ("FAA") Title 9 United States Code. THE PARTIES UNDERSTAND THAT BY THIS
AGREEMENT THEY HAVE DECIDED THAT THEIR DISPUTES SHALL BE RESOLVED BY BINDING
ARBITRATION RATHER THAN IN COURT, AND ONCE DECIDED BY ARBITRATION NO DISPUTE CAN
LATER BE BROUGHT, FILED OR PURSUED IN COURT.
GOVERNING RULES. Arbitrations conducted pursuant to this Arbitration
Program shall be administered by the American Arbitration Association ("AA"), or
other mutually agreeable administrator ("Administrator") in accordance with the
terms
51
<PAGE>
of this Arbitration Program and the Commercial Arbitration Rules of the AA.
Proceedings hereunder shall be governed by the provisions of the Federal
Arbitration Act (Title 9 of the United States Code). The arbitrator(s) shall
resolve all disputes in accordance with the applicable substantive law designed
in the Documents. Judgment upon any award rendered hereunder may be entered in
any court having jurisdiction; provided, however that nothing herein shall be
construed to be a waiver by any party that is a bank of the protections afforded
pursuant to 12 U.S.C. 91 or any similar applicable state law.
PRESERVATION OF REMEDIES. No provision of, nor the exercise of any rights
under, this arbitration clause shall limit the right of any Party to: (a)
foreclose against any real or personal property collateral or other security, or
obtain a personal or deficiency award; (b) exercise self-help remedies
(including repossession and setoff rights); or (c) obtain provisional or
ancillary remedies such as injunctive relief, sequestration, attachment,
replevin, garnishment, or the appointment of a receiver from a court having
jurisdiction. Such rights can be exercised at any time except to the extent
such action is contrary to a final award or decision in any arbitration
proceeding. The institution and maintenance of an action as described above
shall not constitute a waiver of the right of any Party to submit the Dispute to
arbitration, nor render inapplicable the compulsory arbitration provisions
hereof. Any claim or Dispute related to exercise of any self-help, auxiliary or
other rights under this paragraph shall be a Dispute hereunder.
ARBITRATOR POWERS AND QUALIFICATIONS: AWARDS. The Parties agree to select
a neutral "qualified" arbitrator or a panel of three "qualified" arbitrators to
resolve any Dispute hereunder. "Qualified" means a practicing attorney, with
not less than ten (10) years practice in commercial law, licensed to practice in
the state of the applicable substantive law designated in the Documents. A
Dispute in which the claims or amounts in controversy do not exceed
$1,000,000.00, shall be decided by a single arbitrator. A single arbitrator
shall have authority to render an award up to but not to exceed $1,000,000.00
including all damages of any kind whatsoever, costs, fees, attorneys' fees and
expenses. Submission to a single arbitrator shall be a waiver of all Parties'
claims to recover more than $1,000,000.00. A Dispute involving claims or
amounts in controversy exceeding $1,000,000.00 shall be decided by a majority
vote of a panel of three qualified arbitrators. An arbitration panel shall be
composed of one arbitrator who would be qualified to sit as a single
52
<PAGE>
arbitrator hereunder, one who has at least ten years experience in commercial
lending and one with at least ten years experience in the Borrower's industry.
The arbitrator(s) shall be empowered to, at the written request of any Party in
any Dispute, (a) to consolidate in a single proceeding any multiple party claims
that are substantially identical or based upon the same underlying transaction;
(b) to consolidate any claims and Disputes between other Parties which arise out
of or relate to the subject matter hereof, including all claims by or against
borrowers, guarantors, sureties and or owners of collateral; and (c) to
administer multiple arbitration claims as class action in accordance with Rule
23 of the Federal Rules of Civil Procedure. In any consolidated proceeding the
first arbitrator(s) selected in any proceeding shall conduct the consolidated
proceeding unless disqualified due to conflict of interest. The arbitrator(s)
shall be empowered to resolve any dispute regarding the terms of this
arbitration clause, including questions about the arbitrability of any Dispute,
but shall have no power to change or alter the terms of this Arbitration
Program. The prevailing Party in any Dispute shall be entitled to recover its
reasonable attorneys' fees in any arbitration, and the arbitrator(s) shall have
the power to award such fees. The award of the arbitrator(s) shall be in
writing and shall set forth the factual and legal basis for the award.
MISCELLANEOUS. All statutes of limitation applicable to any Dispute shall
apply to any proceeding in accordance with this arbitration clause. The Parties
agree, to the maximum extent practicable, to take any action necessary to
conclude an arbitration hereunder within 180 days of the filing of a Dispute
with the Administrator. The arbitrator(s) shall be empowered to impose
sanctions for any Party's failure to proceed within the times established
herein. Arbitrations shall be conducted in the state of the applicable
substantive law designated in the Documents. The provisions of this Arbitration
Program shall survive any termination, amendment, or expiration hereof or of the
Documents unless the Parties otherwise expressly agree in writing. Each Party
agrees to keep all Disputes and arbitration proceedings strictly confidential,
except for disclosures of information required in the ordinary course of
business of the Parties or as required by applicable law or regulation. If any
provision of this Arbitration Program is declared invalid by any court, the
remaining provisions shall not be affected thereby and shall remain fully
enforceable.
ATTORNEYS' FEES; EXPENSES. Grantor and Borrower agree to
53
<PAGE>
pay upon demand all of Lender's costs and expenses, including reasonable
attorneys' fees and Lender's legal expenses, incurred in connection with the
enforcement of this Agreement. Lender may pay someone else to help enforce this
Agreement, and Grantor and Borrower shall pay the costs and expenses of such
enforcement. Costs and expenses include Lender's reasonable attorneys' fees and
legal expenses whether or not a salaried employee of Lender and whether or not
there is a lawsuit, including reasonable attorneys' fees and legal expenses for
bankruptcy proceedings (and including efforts to modify or vacate any automatic
stay or injunction), appeals, and any anticipated post-judgment collection
services. Grantor and Borrower also shall pay all court costs and such
additional fees as may be directed by the court.
CAPTION HEADINGS. Caption headings in this Agreement are for convenience
purposes only and are not to be used to be used to interpret or define the
provisions of this Agreement.
MULTIPLE PARTIES. All obligations of Grantor and Borrower under this
Agreement shall be joint and several, and all references to Borrower shall mean
each and every Borrower, and all references to Grantor shall mean each and every
Grantor. This means that each of the Borrowers signing below is responsible for
ALL obligations in this Agreement.
NOTICES. All notices required to be given under this Agreement shall be
given in writing, may be sent by telefacsimile, and shall be effective when
actually delivered or when deposited with a nationally recognized overnight
courier or deposited in the United States mail, first class, postage prepaid,
addressed to the party to whom the notice is to be given at the address shown
above. Any party may change its address for notices under this Agreement by
giving formal written notice to the other parties, specifying that the purpose
of the notice is to change the party's address. To the extent permitted by
applicable law, if there is more than one Grantor or Borrower, notice to any
Grantor or Borrower will constitute notice to all Grantor and Borrowers. For
notice purposes, Grantor or Borrower agrees to keep Lender informed at all times
of Grantor or Borrower's current address(es).
POWER OF ATTORNEY. Grantor hereby appoints Lender as its true and lawful
attorney-in-fact, irrevocably, with full power of substitution to do the
following: (a) to demand, collect, receive, receipt for, sue and recover all
sums of money or other property which may now or hereafter become due, owing or
payable from the Collateral; (b) to settle or compromise any
54
<PAGE>
and all claims, instruments, receipts, checks, drafts or warrants issued in
payment for the Collateral; (c) to settle or compromise any and all claims
arising under the Collateral, and, in the place and stead of Grantor, to execute
and deliver its release and settlement for the claim; and (d) to file any claim
or claims or to take any action or institute or take part in any proceedings,
either in its own name or in the name of Grantor, or otherwise, which in the
discretion of Lender may seem to be necessary or advisable. This power is given
as security for the Indebtedness, and the authority hereby conferred is and
shall be irrevocable and shall remain in full force and effect until renounced
by Lender.
SEVERABILITY. If a court of competent jurisdiction finds any provision of
this Agreement to be invalid or unenforceable as to any person or circumstance,
such finding shall not render that provision invalid or unenforceable as to any
other persons or circumstances. If feasible, any such offending provision shall
be deemed to be modified to be within the limits of enforceability or validity;
however, if the offending provision cannot be so modified, it shall be stricken
and all other provisions of this Agreement in all other respects hall remain
valid and enforceable.
SUCCESSOR INTERESTS. Subject to the limitations set forth above on
transfer of the Collateral, this Agreement shall be binding upon and inure to
the benefit of the parties, their successors and assigns.
WAIVER. Lender shall not be deemed to have waived any rights under this
agreement unless such waiver is given in writing and signed by Lender. No delay
or omission on the part of the Lender in exercising any right shall operate as a
waiver of such right or any other right. A wavier by Lender of a provision of
this Agreement shall not prejudice or constitute a waiver of Lender's right
otherwise to demand strict compliance with that provision or any other provision
of this Agreement. No prior waiver by Lender, nor any course of dealing between
Lender and Grantor, shall constitute a waiver of any of Lender's rights or of
any of Grantor's obligations as to any future transactions. Whenever the
consent of Lender is required under this Agreement, the granting of such consent
by Lender in any instance shall not constitute continuing consent to subsequent
instances where such consent is required and in all cases such consent may be
granted or withheld in the sole discretion of Lender.
EACH BORROWER AND GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS
COMMERCIAL SECURITY AGREEMENT, AND EACH BORROWER
55
<PAGE>
AND GRANTOR AGREES TO ITS TERMS. THIS AGREEMENT IS DATED ____________________,
1995.
BORROWER:
InMedica Development Corporation
BY: /S/ LARRY E. CLARK
-------------------------
Larry E. Clark, President/CEO
GRANTOR:
InMedica Development Corporation
BY: /S/ LARRY E. CLARK
-------------------------
Larry E. Clark, President/CEO
56
<PAGE>
This FINANCING STATEMENT is presented to a filing officer pursuant to the
Uniform Commercial Code
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
1. Debtor(s) (Last Name First) and address(es) 2. Secured Party(ies) and address(es)
INMEDICA DEVELOPMENT CORPORATION LARRY E. CLARK
495 EAST 4500 SOUTH, SUITE 230 1036 OAK HILLS WAY
SALT LAKE CITY, UTAH 84107 SALT LAKE CITY, UTAH 84108
---------------------------- ---------------------------------
4. This Financial Statement covers the following types (or items) of property:
SEE ATTACHED EXHIBIT TO UCC FINANCING STATEMENT 6. Gross sales price
DATED OCTOBER of collateral For Filing
_________________, 1995
Officer (Date, Time,
Number, and Filing Office)
$
$
The Secured party is_________is not________a seller or or use tax paid to 5.
Assignee(s) of Secured Party
purchase money lender of the collateral. State of and Address(es)
- ------------------------------------------------------------------------------------------------------------------
This statement is filed without the debtor's signature to perfect a security interest in collateral.
(Check [ ] if so) Microfile No.
[ ] already subject to a security interest in another jurisdiction when it was brought into this state.
[ ] which is proceeds of the original collateral described above in which a security interest was perfected:
- ------------------------------------------------------------------------------------------------------------------
Check [X] if covered: [X] Proceeds of Collateral are also covered. [X] Products of collateral are also covered.
No. of additional sheets presented
1
- ------------------------------------------------------------------------------------------------------------------
3. Maturity Date (if any): Approved by Department of
Commerce Division of
Corporations and Commercial Code.
- --------------------------------------------------------------------------------
InMEDICA DEVELOPMENT CORPORATION LARRY E. CLARK
By: /s/ Larry E. Clark By: /s/ Larry E. Clark
------------------------------------ -------------------
Larry E. Clark, President Signature(s) of Secured Party(ies)
Standard Form - Form UCC-1
(5) DEBTOR COPY
</TABLE>
<PAGE>
EXHIBIT TO UCC FINANCING STATEMENT
October _____, 1995
This Exhibit is attached to and is a part of the UCC Financing Statement
executed in connection with a loan between Larry E. Clark; and InMedica
Development Corporation (SSN or TIN:).
COLLATERAL DESCRIPTION:
A certain licensing agreement between InMedica Development Corporation and
Johnson & Johnson Medical, Inc. dated June 15, 1995; whether any of the
foregoing is owned now or acquired later; all accessions, additions,
replacements, and substitutions relating to any of the foregoing; all records of
any kind relating to any of the foregoing; all proceeds relating to any of the
foregoing (including insurance, general intangibles and accounts proceeds).
This Exhibit is executed on the same date as the UCC Financing Statement by
FIRST INTERSTATE BANK OF UTAH, N.A., and the undersigned.
INMEDICA DEVELOPMENT CORPORATION LARRY E. CLARK
By: /s/ Larry E. Clark /s/ Larry E. Clark
------------------------------ ------------------------------
By:
------------------------------- ------------------------------
Larry E. Clark, President
<PAGE>
EXHIBIT 7
PURCHASE AND SETTLEMENT AGREEMENT
This purchase and settlement agreement is entered into this 6th day of
November, 1995,, by and between Paul W. Ruben and Paul J. Diehl, M.D.
(hereinafter referred to as "Sellers") and InMedica Development Corporation, a
Utah corporation (hereinafter referred to as "Buyer").
Whereas, Sellers have developed certain non-invasive hematocrit measuring
technology (hereinafter referred to as "the technology") and Buyer desires to
purchase the technology.
Wherefore, the parties agree as follows:
Sellers agree to sell the technology to Buyer in consideration of the sum of
$200,000, including a down payment of $98,000, certified funds, paid jointly to
the Sellers upon execution of this agreement by all parties hereto and a
promissory note executed by the Buyer's duly authorized representative, and
personally guaranteed by Buyer's president, Larry E. Clark, payable jointly to
the Sellers for a total sum of $102,000, with interest at the rate of 10% per
annum, payable in four installments, with the first installment of $25,500 due
on or before January 15, 1996, the second installment of $25,500 due on or
before April 15, 1996, the third installment of $25,500 due on or before July
15, 1996, and the final installment of $25,500 together with accrued interest
due on or before October 15, 1996.
Upon receipt of the down payment, Paul W. Ruben will deliver the portable
prototype to Dr. Alan Kaminski or Buyer's other duly designated representative.
During the two week period immediately following the delivery of the prototype
Paul W. Ruben will deliver all prototypes, notebooks, faxes, test date,
schematic drawings, circuit board artwork, and software source code relating to
this project to Dr. Kaminski or Buyer's other duly designated representative.
During this two week period, Paul W. Ruben will provide up to 56 hours of free
consultation to explain the theory, discuss findings, and answer any questions
to the best of his ability.
Following the two-week period described above, Paul W. Ruben will provide
Buyer up to 8 hours of consultation per week at the rate of $80.00 per hour to
prepare patent materials, answer questions and/or provide general engineering
services such as software or hardware modifications. Buyer agrees that payments
to Paul W. Ruben for the foregoing consulting services shall be paid in full no
more than 5 working days after receipt of his monthly
59
<PAGE>
invoice.
In further consideration of the payments made and obligations undertaken by
Buyer, herein, and the resolution of the dispute referred to below, Sellers each
individually covenant that neither of them, jointly or separately, will
disclose, in any fashion, to any person or entity, any of the non-invasive
hematocrit measurement technology developed by them to any person for a period
of five years from the date hereof. Further, Sellers each individually and
jointly covenant not to compete with Buyer or its subsidiaries, ventures,
assigns, successors, or contractors in any fashion, directly or indirectly, in
the business of research, development, marketing, manufacturing or sale of any
and all devices, prototypes, systems, hardware, software or other products
intended to measure hematocrit or to measure other phenomenon in living
organisms based on impedance technology or theory. This Non-Competition and
Non-Disclosure agreement shall continue in effect for a period of five years
from the date hereof and is effective worldwide. Further, Sellers, jointly and
severally, agree that they will not accept employment with, or act as
consultant, contractor, advisor, or in any other capacity for, a competitor of
Buyer, or enter into competition with Buyer, either alone or through an entity
owned or managed in whole or in part by Sellers. The term "competitor" as used
in this paragraph means any entity engaged in research, development,
manufacture, marketing or sale of any device using impedance technology or
theory.
The parties hereto have agreed that the following factual information is
relevant to a consideration of the reasonableness of the foregoing Non-
competition and Non-Disclosure Covenants: (a) InMedica has, for in excess of
five years, been engaged in the research and development of impedance theory and
a device capable of measuring hematocrit, without the necessity of a needle
stick to draw blood for the measurement; (b) during June, 1994, InMedica
personnel interviewed Ruben, at Diehl's request, to consider Ruben to be hired
as an engineer to pursue the hematocrit research further for InMedica; at the
time, Ruben signed a non-disclosure agreement with InMedica which was effective
for a period of five years; (c) when InMedica did not hire Ruben, Diehl and
Ruben made a separate arrangement and pursued work on hematocrit research,
producing a device or prototype to measure hematocrit; (d) a dispute
subsequently arose between InMedica, Ruben and Diehl as to the ownership of the
work done by Ruben and Diehl and the parties have agreed to the terms and
conditions of this Agreement in order to fully compromise and settle their
respective claims; (e) neither Diehl nor Ruben has ever previously conducted
research on impedance theory or the measure of hematocrit non-invasively; Diehl
is a medical doctor and Ruben is an electrical engineer, both having followed
professions other than research and development of
60
<PAGE>
medical technology devices (except that Diehl was President of InMedica for a
time, while InMedica was engaged in such research and development, although he
continued to work full time as an anesthesiologist); neither Ruben nor Diehl
will consequently be impaired in any way in pursuing their careers by entering
into this Non-Competition and Non-Disclosure agreement and neither has any
necessity or intent to compete with InMedica, directly or indirectly, in the
future; (f) InMedica has had patent applications pending on non-invasive
hematocrit inventions for several years, based on its research and trade
secrets; and (h) the technology to measure hematocrit non-invasively is
potentially a significant medical advance which InMedica has always intended to
market worldwide, if and when warranted, and the parties agree that the world-
wide ban on competition by Diehl and Ruben is consequently reasonable.
The parties have attempted to limit the rights of Diehl and Ruben to compete
to the extent necessary to protect InMedica from unfair competition and the
parties are in agreement that the Non-Competition and Non-Disclosure covenants
are reasonable and that the foregoing information is factual, complete and
accurate.
As further consideration for this purchase and settlement agreement Buyer,
together with its successors and assigns, hereby releases and forever discharges
any and all claims and causes of action it may have against both Paul W. Ruben
and Paul J. Diehl, M.D. arising from the development of the technology,
including, but not limited to, breach of any non-disclosure agreement and/or
breach of any fiduciary duty owed to the Buyer. Further, Buyer agrees to
indemnify and hold Paul W. Ruben and Paul J. Diehl, or either of them, harmless
from and against any and all claims and or causes of action brought against them
arising out of the development and or sale of the technology to the Buyer.
This agreement contains the entire agreement of the parties, and shall not be
modified except by an instrument in writing executed by all parties hereto.
/s/ Paul W. Ruben /s/ Paul J. Diehl
- -------------------------- ----------------------------
Paul W. Ruben, Seller Paul J. Diehl, M.D., Seller
[notarizations]
InMedica Development Corporation
By/s/ Larry E. Clark
------------------
Its President
[notarization]
61
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNAUDITED
10QSB OF SEPTEMBER 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FORM 10QSB
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1994
<PERIOD-START> JAN-1-1995 JAN-1-1994
<PERIOD-END> SEP-30-1995 SEP-30-1994
<CASH> $149,695 0
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 154,678 0
<PP&E> 252,135 0
<DEPRECIATION> 242,038 0
<TOTAL-ASSETS> 166,972 0
<CURRENT-LIABILITIES> 813,459 0
<BONDS> 0 0
<COMMON> 7,479 0
0 0
73,130 0
<OTHER-SE> (877,096)<F1> 0
<TOTAL-LIABILITY-AND-EQUITY> 166,972 0
<SALES> 0 0
<TOTAL-REVENUES> 321,054 348,625
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 164,642 125,792
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 119,521 141,433
<INCOME-PRETAX> 42,635 82,910
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 42,635 82,910
<DISCONTINUED> 0 0
<EXTRAORDINARY> 188,770 0
<CHANGES> 0 0
<NET-INCOME> 231,405 82,910
<EPS-PRIMARY> .03 .01
<EPS-DILUTED> .03 .01
<FN>
<F1>Additional paid in capital and retained earnings combined.
</FN>
</TABLE>
